A market consists of all buyers and sellers of a particular good.

What is marketing?

By definition, marketing is the management process responsible for identifying,

anticipating and satisfying consumers’ requirements profitably.

The role of marketing in a business is as follows:

• Identifying customer needs through market research

• Satisfying customer needs by producing and selling goods and services

• Maintaining customer loyalty: building customer relationships through a variety

of methods that encourage customers to keep buying one firm’s products
instead of their rivals’. For example, loyalty card schemes, discounts for
continuous purchases, after-sales services, messages that inform past
customers of new products and offers etc.

• Gain information on customers: by understanding why customers buy their

products, a firm can develop and sell better products in the future

• Anticipate changes in customer needs: the business will need to keep looking
for any changes in customer spending patterns and see if they can produce
goods that customers want that are not currently available in the market.

Some objectives the marketing department in a firm may have:

• Raise awareness of their product(s)

• Increase sales revenue and profits

• Increase or maintain market share (this is the proportion of sales a company has
in the overall market sales. For example, if in a market, $1 million worth of toys
were sold in a year and company A’s total sales was $30,000 in that year,
company A’s market share for the year is ($300,000/ $1000000) *100 = 30%)

• Enter new markets at home or abroad

• Develop new products or improve existing products.

Market Changes

Why customer spending patterns may change:

• change in their tastes and preferences

• change in technology: as new technology becomes available, the old versions of

products become outdated and people want more sophisticated features on
products
 • change in income: the higher the income, the more expensive goods consumers
will buy and vice versa

• ageing population: in many countries, the proportion of older people is

increasing and so demand for products for seniors are increasing (such as anti-
ageing creams, medical assistance etc.)

The power and importance of changing customer needs:

Firms need to always know what their consumers want (and they will need to undertake
lots of research and development to do so) in order to stay ahead of competitors and
stay profitable. If they don’t produce and sell what customers want, they will buy
competitors’ products and the firm will fail to survive.

Why some markets have become more competitive:

• Globalization: products are being sold in markets all over the world, so there are
more competitors in the market

• Improvement in transportation infrastructures: better transport systems

means that it is easier and cheaper to distribute and sell products everywhere

• Internet/E-Commerce: customers can now buy products over the internet form
anywhere in the world, making the market more competitive

How business can respond to changing spending patterns and increased

competition:

A business has to ensure that it maintains its market share and remains competitive in
the market. It can ensure this by:

• maintaining good customer relationships: by ensuring that customers keep

buying from their business only, they can keep up their market share. By doing
so, they can also get information about their spending patterns and respond to
their wants and needs to increase market share

• keep improving its existing products, so that sales is maintained.

• introduce new products to keep customers coming back, and drive them away
from competitors’ products

• keep costs low to maintain profitability: low costs means the firm can afford to
charge low prices. And low prices generally means more demand and sales, and
thus market share.

Niche & Mass Marketing

Niche Marketing: identifying and exploiting a small segment of a larger market by
developing products to suit it. For example, Versace designs and Clique perfumes have
niche markets- the rich, high-status consumer group.

Advantages:

• Small firms can thrive in niche markets where large forms have not yet been
established

• If there are no or very few competitors, firms can sell products at a high
price and gain high profit margins because customers will be willing be willing to
pay more for exclusive products

• Firms can focus on the needs of just one customer group, thereby giving them
an advantage over large firms who only sell to the mass market

Limitations:

• Lack of economies of scale (can’t benefit from the lower costs that arise from a
larger operations/market)

• Risk of over-dependence on a single product or market: if the demand for the

product falls, the firm won’t have a mass product they can fall back on

• Likely to attract competition if successful

Mass Marketing: selling the same product to the whole market with no attempt to
target groups with in it. For example, the iPhone sold is the same everywhere, there are
no variations in design over location or income.

Advantages:

• Larger amount of sales when compared to a niche market

• Can benefit from economies of scale: a large volume of products are produced
and so the average costs will be low when compared to a niche market

• Risks are spread, unlike in a niche market. If the product isn’t successful in one
market, it’s fine as there are several other markets

• More chances for the business to grow since there is a large market. In niche
markets, this is difficult as the product is only targeted towards a particular
group.

Limitations:

• They will have to face more competition

 • Can’t charge a higher price than competition because they’re all selling similar
products

Market Segmentation

A market segment is an identifiable sub-group of a larger market in which consumers

have similar characteristics and preferences

Market segmentation is the process of dividing a market of potential customers into

groups, or segments, based on different characteristics. For example, PepsiCo
identified the health-conscious market segment and targeted/marketed the Diet Coke
towards them.

Markets can be segmented on the basis of socio-economic

groups (income), age, location, gender, lifestyle, use of the product (home/
work/ leisure/ business) etc.
Each segment will require different methods of promotion and distribution. For
example, products aimed towards kids would be distributed through popular retail
stores and products for businessmen would be advertised in exclusive business
magazines.

Advantages:

• Makes marketing cost-effective, as it only targets a specific segment and meets

their needs.

• The above leads to higher sales and profitability

• Increased opportunities to increase sales

Product-oriented business: such firms produce the product first and then tries to find
a market for it. Their concentration is on the product – its quality and price. Firms
producing electrical and digital goods such as refrigerators and computers are
examples of product-oriented businesses.

Market-oriented businesses: such firms will conduct market research to see what
consumers want and then produce goods and services to satisfy them. They will set a
marketing budget and undertake the different methods of researching consumer tastes
and spending patterns, as well as market conditions. Example, mobile phone markets.

Market research is the process of collecting, analysing and interpreting information

about a product.

Why is market research important/needed?

Firms need to conduct market research in order to ensure that they are producing goods
and services that will sell successfully in the market and generate profits. If they don’t,
they could lose a lot of money and fail to survive. Market research will answer a lot of
the business’s questions prior to product development such as ‘will customers be
willing to buy this product?’, ‘what is the biggest factor that influences customers’
buying preferences- price or quality?’, ‘what is the competition in the market like?’ and
so on.

Market research data can be quantitative (numerical-what percentage of teenagers in

the city have internet access) or qualitative (opinion/ judgement- why do more women
buy the company’s product than men?)

Market research methods can be categorized into two: primary and secondary market
research.

Primary Market Research (Field Research)

The collection of original data. It involves directly collecting information from existing or
potential customers. First-hand data is collected by people who want to use the data
(i.e. the firm). Examples of primary market research methods include questionnaires,
focus groups, interviews, observation, and online surveys and so on.

The process of primary research:

1. Establish the purpose of the market research

2. Decide on the most suitable market research method

3. Decide the size of the sample (customers to conduct research on) and identify
the sample

4. Carry out the research

5. Collate and analyse the data

6. Produce a report of the findings

Sample is a subset of a population that is used to represent the entire group as a whole.
When doing research, it is often impractical to survey every member of a particular
population because the number of people is simply too large. Selecting a sample is
called sampling. A random sampling occurs when people are selected at random for
research, while quota sampling is when people are selected on the basis of certain
characteristics (age, gender, location etc.) for research.

Methods of primary research

• Questionnaires: Can be done face-to-face, through telephone, post or the

internet. Online surveys can also be conducted whereby researchers will email
the sample members to go onto a particular website and fill out a questionnaire
posted there. These questions need to be unbiased, clear and easy to answer to
 ensure that reliable and accurate answers are logged in. (The first part of this
wikiHow article will give you the basic idea of how a questionnaire should be
prepared.)

Advantages:

• Detailed information can be collected

• Customer’s opinions about the product can be obtained

• Online surveys will be cheaper and easier to collate and analyse

• Can be linked to prize draws and prize draw websites to encourage

customers to fill out surveys

Disadvantages:

• If questions are not clear or are misleading, then unreliable answers will
be given

• Time-consuming and expensive to carry out research, collate and analyse

them.

• Interviews: interviewer will have ready-made questions for the interviewee.

Advantages:

• Interviewer is able to explain questions that the interviewee doesn’t

understand and can also ask follow-up questions

• Can gather detailed responses and interpret body-language, allowing

interviewer to come to accurate conclusions about the customer’s
opinions.

Disadvantages:

• The interviewer could lead and influence the interviewee to answer a

certain way. For example, by rephrasing a question such as ‘Would you
buy this product’ to ‘But, you would definitely buy this product, right?’ to
which the customer in order to appear polite would say yes when in
actuality they wouldn’t buy the product.

• Time-consuming and expensive to interview everyone in the sample

 • Focus Groups: A group of people representative of the target market (a focus
group) agree to provide information about a particular product or general
spending patterns over time. They can also test the company’s products and give
opinions on them.

Advantage:

• They can provide detailed information about the consumer’s opinions

Disadvantages:

• Time-consuming

• Expensive

• Opinions could be influenced by others in the group.

• Observation: This can take the form of recording (eg: meters fitted to TV screens
to see what channels are being watched), watching (eg: counting how many
people enter a shop), auditing (e.g.: counting of stock in shops to see which
products sold well).

Advantage:

• Inexpensive

Disadvantage:

• Only gives basic figures. Does not tell the firm why consumer buys them.

Secondary Market Research (Desk Research)

The collection of information that has already been made available by others. Second-
hand data about consumers and markets is collected from already published sources.

Internal sources of information:

• Sales department’s sales records, pricing data, customer records, sales reports

• Opinions of distributors and public relations officers

• Finance department

• Customer Services department

External sources of information:

• Government statistics: will have information about populations and age

structures in the economy.

• Newspapers: articles about economic conditions and forecast spending

patterns.

• Trade associations: if there is a trade association for a particular industry, it will

have several reports on that industry’s markets.

• Market research agencies: these agencies carry out market research on behalf
of the company and provide detailed reports.

• Internet: will have a wide range of articles about companies, government

statistics, newspapers and blogs.

Accuracy of Market Research Data

The reliability and accuracy of market research depends upon a large number of factors:

• How carefully the sample was drawn up, its size, the types of people selected
etc.

• How questions were phrased in questionnaires and surveys

• Who carried out the research: secondary research is likely to be less reliable
since it was drawn up by others for different purpose at an earlier time.

• Bias: newspaper articles are often biased and may leave out crucial information
deliberately.

• Age of information: researched data shouldn’t be too outdated. Customer

tastes, fashions, economic conditions, technology all move fast and the old data
will be of no use now.

Presentation of Data from Market Research

Different data handling methods can be used to present data from market research.
This will include:
• Tally Tables: used to record data in its original form. The tally table below shows
the number and type of vehicles passing by a shop at different times of the day:

• Charts: show the total figures for each piece of data (bar/ column charts) or the
proportion of each piece of data in terms of the total number (pie charts). For
example the above tally table data can be recorded in a bar chart as shown
below:

The pie chart above could show a company’s market share in different countries.
 • Graphs: used to show the relationship between two sets of data. For example
how average temperature varied across the year.

Marketing mix refers to the different elements involved in the marketing of a good or
service- the 4 P’s- Product, Price, Promotion and Place.

Product

Product is the good or service being produced and sold in the market. This includes
all the features of the product as well as its final packaging.

Types of products include: consumer goods, consumer services, producer goods,

producer services.

What makes a successful product?

• It satisfies existing needs and wants of the customers

• It is able to stimulate new wants from the consumers

• Its design – performance, reliability, quality etc. should all be consistent with the
product’s brand image

• It is distinctive from its competitors and stands out

• It is not too expensive to produce, and the price will be able to cover the costs

New Product Development: development of a new product by a business. The

process:

1. Generate ideas: the firm brainstorms new product concepts, using customer
suggestions, competitors’ products, employees’ ideas, sales department data
and the information provided by the research and development department
 2. Select the best ideas for further research: the firm decides which ideas to
abandon and which to research further. If the product is too costly or may not
sell well, it will be abandoned

3. Decide if the firm will be able to sell enough units for the product to be a
success: this research includes looking into forecast sales, size of market share,
cost-benefit analysis etc. for each product idea, undertaken by the marketing
department

4. Develop a prototype: by making a prototype of the new product, the operations

department can see how the product can be manufactured, any problems
arising from it and how to fix them. Computer simulations are usually used to
produce 3D prototypes on screen

5. Test launch: the developed product is sold to one section of the market to see
how well it sells, before producing more, and to identify what changes need to be
made to increase sales. Today a lot of digital products like apps and software run
beta versions, which is basically a market test

6. Full launch of the product: the product is launched to the entire market

Advantages:

• Can create a Unique Selling Point (USP) by developing a new innovative product
for the first time in the market. This USP can be used to charge a high price for
the product as well as be used in advertising.

• Charge higher prices for new products (price skimming as explained later)

• Increase potential sales, revenue and profit

• Helps spreads risks because having more products mean that even if one fails,
the other will keep generating a profit for the company

Disadvantages:

• Market research is expensive and time consuming

• Investment can be very expensive

Why is brand image important?

Brand image is an identity given to a product that differentiates it from competitors’

products.
Brand loyalty is the tendency of customers to keep buying the same brand
continuously instead of switching over to competitors’ products.

• Consumers recognize the firm’s product more easily when looking at similar
products- helps differentiate the company’s product from another.
 • Their product can be charged higher than less well-known brands – if there is an
established high brand image, then it is easier to charge high prices because
customers will buy it nonetheless.

• Easier to launch new products into the market if the brand image is already
established. Apple is one such company- their brand image is so reputed that
new products that they launch now become an immediate success.

Why is packaging important?

• It protects the product

• It provide information about the product (its ingredients, price, manufacturing

and expiry dates etc.)

• To help consumers recognize the product (the brand name and logo on the
packaging will help identify what product it is)

• It keeps the product fresh

Product Life Cycle (PLC)

The product life cycle refers to the stages a product goes through from it’s introduction
to it’s retirement in terms of sales.

At these different stages, the product will need different marketing decisions/strategies
in terms of the 4Ps.
Extension strategies: marketing techniques used to extend the maturity stage of a
product (to keep the product in the market):

• Finding new markets for the product

• Finding new uses for the product

• Redesigning the product or the packaging to improve its appeal to consumers

• Increasing advertising and other promotional activities

The effect on the PLC of a product of a successful extension strategy:

Price

Price is the amount of money producers are willing to sell or consumer are willing to buy
the product for.

Different methods of pricing:

• Market skimming: Setting a high price for a new product that is unique or very
different from other products on the market.

Advantages:

• Profit earned is very high

• Helps recover/compensate research and development costs

Disadvantage:

• It may backfire if competitors produce similar products at a lower price

• Penetration pricing: Setting a very low price to attract customers to buy a new
product

Advantages:

• Attracts customers more quickly

• Can increase market share quickly

Disadvantages:

• Low revenue due to lower prices

 • Cannot recover development costs quickly

• Competitive pricing: Setting a price similar to that of competitors’ products

which are already available in the market

Advantage:

• Business can compete on other matters such as service and quality

Disadvantage:

• Still need to find ways of competing to attract sales.

• Cost plus pricing: Setting price by adding a fixed amount to the cost of
making the product

Advantages:

• Quick and easy to work out the price

• Makes sure that the price covers all of the costs

Disadvantage:

• Price might be set higher than competitors or more than customers are
willing to pay, which reduces sales and profits

• Loss leader pricing/Promotional pricing: Setting the price of a few products at

below cost to attract customers into the shop in the hope that they will buy other
products as well

Advantages:

• Helps to sell off unwanted stock before it becomes out of date

• A good way of increasing short term sales and market share

Disadvantage:

• Revenue on each item is lower so profits may also be lower

Factors that affect what pricing method should be used:

• Is it a new or existing product?

If it’s new, then price skimming or penetration pricing will be most suitable. If it’s
an existing product, competitive pricing or promotional pricing will be
appropriate.

• Is the product unique?

If yes, then price skimming will be beneficial, otherwise competitive or
promotional pricing.

• Is there a lot of competition in the market?

If yes, competitive pricing will need to be used.

• Does the business have a well-known brand image?

If yes, price skimming will be highly successful.

• What are the costs of producing and supplying the product?

If there are high costs, costs plus pricing will be needed to cover the costs. If
costs are low, market penetration and promotional pricing will be appropriate.

• What are the marketing objectives of the business?

If the business objective is to quickly gain a market share and customer base,
then penetration pricing could be used. If the objective is to simply maintain
sales, competitive pricing will be appropriate.

Price Elasticity

The PED of a product refers to the responsiveness of the quantity demanded for it to
changes in its price.

PED (of a product) = % change in quantity demanded / % change in price

When the PED is >1, that is there is a higher % change in demand in response to a
change in price, the PED is said to be elastic.
When the PED is <1, that is there is a lower % change in demand in response to a
change in price, the PED is said to be inelastic.

Producers can calculate the PED of their product and take suitable action to make the
product more profitable.

If the product is found to have an elastic demand, the producer can lower prices to
increase profitability. The law of demand states that a fall in price increases the
demand. And since it is an elastic product (change in demand is higher than change in
price), the demand of the product will increase highly. The producers get more profit.
If the product is found to have an inelastic demand, the producer can raise prices to
increase profitability. Since quantity demanded wouldn’t fall much as it is inelastic,
the high prices will make way for higher revenue and thus higher profits.

For a detailed explanation about PED, click here

Place

Place refers to how the product is distributed from the producer to the final consumer.
There are different distribution channels that a product can be sold through.

Distribution
Channel Explanation Advantages Disadvantages

– Delivery costs
may be high if
there are
customers over
The product is sold to a wide area
the consumer straight – All storage
from the – All of the profit is costs must be
manufacturer. A good earned by the producer paid for by the
example is a factory – The producer controls producer
outlet where products all parts of the – All promotional
directly arrive at their marketing mix activities must
own shop from the – Quickest method of be carried out
Manufacturer factory and are sold to getting the product to and financed by
to Consumer customers. the consumer the producer

The manufacturer will – The retailer

sell its products to a takes some of
retailer (who will have – The cost of holding the profit away
stocks of products inventories of the from the
from other product is paid by the producer
manufacturers as retailer – The producer
well) who will then sell – The retailer will pay loses some
them to customers for advertising and control of the
Manufacturer
who visit the shop. For other promotional marketing mix
to Retailer
example, brands like activities – The producer
to Consumer
Sony, Canon and – Retailers are more must pay for
Distribution
Channel Explanation Advantages Disadvantages

Panasonic sell their conveniently located delivery of

products to various for consumers products to the
retailers. retailers
– Retailers
usually sell
competitors’
products as well

The manufacturer will

sell large volumes of
its products to a
wholesaler
(wholesalers will have
stocks from different – Another
manufacturers). middleman is
Retailer will buy small added so more
quantities of the profit is taken
product from the – Wholesalers will away from the
Manufacturer wholesaler and sell it advertise and promote producer
to to the consumers. the product to retailers – The producer
Wholesaler One good example is – Wholesalers pay for loses even more
to Retailer the distribution of transport and storage control of the
to Consumer medicinal drugs. costs marketing mix

The manufacturer will

sell their products to
an agent who has
specialized
Manufacturer – Another
information about the
to Agent middleman is
market and will know
to added so even
the best wholesalers
Wholesaler – The agent has more profit is
to sell them to. This is
to Retailer specialised knowledge taken away from
common when firms
to Consumer of the market the producer
are exporting their
 Distribution
Channel Explanation Advantages Disadvantages

products to a foreign
country. They will
need a knowledgeable
agent to take care of
the products’
distribution in another
country

What affects place decisions?

• The type of product it is: if it’s sold to producers of other goods, distribution
would either be direct (specialist machinery) or wholesaler (nuts, bolts, screws
etc.).

• The technicality of the product: as lots of technical information needs to be

passed to the customer, direct selling is usually preferred.

• How often the product is purchased: if the product is bought on a daily basis, it
should be sold through retail stores that customers can easily access.

• The price of the product: if the products is an expensive, luxury good, it would
only be sold through a few specialist, high-end outlets For example, luxury
watches and jewellery.

• The durability of the product: if it’s an easily perishable product like fruits, it will
need to be sold through a wide amount of retailers to be sold quickly.

• Location of customers: the products should be easily accessible by its

customers. If customers are located over the world, e-commerce (explained
below) will be required.

• Where competitors sell their product: in order to directly compete with

competitors, the products need to be sold where competitors are selling too.

Promotion

Promotion: marketing activities used to communicate with customers and potential

customers to inform and persuade them to buy a business’s products.

Aims of promotion:

• Inform customers about a new product

 • Persuade customers to buy the product

• Create a brand image

• Increase sales and market share

Types of promotion

• Advertising: Paid-for communication with consumers which uses printed and

visual media like television, radio, newspapers, magazines, billboards, flyers,
cinema etc. This can be informative (create product awareness) or persuasive
(persuade consumers to buy the product). The process of advertising:

• Sales Promotion: using techniques such as ‘buy one get one free’, occasional
price reductions, free after-sales services, gifts, competitions, point-of–sale
displays (a special display stand for a product in a shop), free samples etc. to
encourage sales.

• Below-the-line promotion: promotion that is not paid for communication but

uses incentives to encourage consumers to buy. Incentives include money-off
coupons or vouchers, loyalty reward schemes, competitions and games with
cash or other prizes.

• Personal selling: sales staff communicate directly with consumer to achieve a

sale and form a long-term relationship between the firm and consumer.

• Direct mail: also known as mailshots, printed materials like flyers, newsletters
and brochures which are sent directly to the addresses of customers.

• Sponsorship: payment by a business to have its name or products associated

with a particular event. For example Emirates is Spanish football club Real
Madrid’s jersey sponsor- Emirates pays the club to be its sponsor and gains a
high customer awareness and brand image in return.

What affects promotional decisions?

• Stage of product on the PLC: different stages of the PLC will require different
promotional strategies; see above.

• The nature of the product: If it’s a consumer good, a firm could use persuasive
advertising and use billboards and TV commercials. Producer goods would have
bulk-buy-discounts to encourage more sales. The kind of product it is can affect
 the type of advertising, the media of advertising and the method of sales
promotion.

• The nature of the target market: a local market would only need small amounts
of advertising while national markets will need TV and billboard advertising. If the
product is sold to a mass market, extensive advertising would be needed. But
niche market products such as water skis would only need advertising in special
sports and lifestyle magazines.

• Cost-effectiveness: the amount of money put into promotion (out of the total
marketing budget) should be not too much that it fails to bring in the sales
revenue enough to cover those costs at least. Promotional activities are highly
dependent on the budget.

Technology and the Marketing Mix

It is also worth noting that the internet/ e-commerce is now widely used to distribute
products. E-Commerce is the use of the internet and other technologies used by
businesses to market and sell goods and services to customers. Examples of e-
commerce include online shopping, internet banking, online ticket-booking, online
hotel reservations etc.

Websites like Amazon and e-Bay act as online retailers.

Online selling is favoured by producers because it is cheaper in the long-run and they
can sell products to a larger customer base/ market. However there will
be increased competition from lots of producers.
Consumers prefer online shopping because there are wider choices of detailed
products that are also cheaper and they can buy things at their own convenience 24×7.
However, there is no personal communication with the producer and online security
issues may occur.

However, e-commerce means an entire new type of marketing strategy is also

required – online promotions, new channel of distribution, new pricing strategies (since
price competition in e-commerce is very high and demand is very price elastic). It
requires a lot of money to set up – online websites, promotions, web developers and
technicians to run and maintain the system etc.

The internet is also used for promotion and advertising of products in the form of
paid social media ads and sponsors, pop-ups, email newsletters etc. It helps reach
target customers, is relatively cheap and helps the firm respond to market changes
quicker (since online ads can be easily altered/updated rather than billboards and TV
ads). But it can alienate and chase customers away if they see it too frequently and
find it annoying. There is also the risk of the adverts being publicised negatively if it has
annoying or offensive content that customers quickly criticise (since content is more
easily shareable online).

Marketing Strategy

A marketing strategy is a plan to combine the right combination of the four elements of
the marketing mix for a product to achieve its marketing objectives. Marketing
objectives could include maintaining market shares, increasing sales in a niche market,
increasing sale of an existing product by using extension strategies etc.

Factors that affect the marketing strategy:

Legal Controls on Marketing

There are various laws that can affect marketing decisions on quality, price and the
contents of advertisements.

• laws that protect consumers from being sold faulty and dangerous goods

• laws that prevent the firms from using misleading information in

advertising Example: Volkswagen falsely advertised environmentally friendly
diesel cars and were legally forced to pull all cars from the market

• laws that protect consumers from being exploited in industries where there is
little or no competition, known as monopolising.

Entering New Markets

Growing business in other countries can increase sales, revenue and profits. This is
because the business is now available to a wider group of people, which increases
potential customers. If the home markets have saturated (product is in maturity stage),
firms take their products to international markets. Trade barriers and restrictions have
also reduced significantly over the years, along with new transport infrastructures, so it
is now cheaper and easier to export products to other countries.

Problems of entering foreign markets:

• Difference in language and culture: It may be difficult to communicate with

people in other countries because of language barriers and as for culture,
different images, colors and symbols have different meanings and importance in
different places. For example, McDonald’s had to make its menu more
vegetarian in Indian markets

• Lack of market knowledge: The business won’t know much about the market it
is entering and the customers won’t be familiar with the new business brand,
and so getting established in the market will be difficult and expensive

• Economic differences: The cost and prices may be lower or higher in different
countries so businesses may not be able to sell the product at the price which
will give them a profit

• High transport costs

• Social differences: Different people will have different needs and wants from
people in other countries, and so the product may not be successful in all
countries

• Difference in legal controls to protect consumers: The business may have to

spend more money on producing the products in a way that complies with that
country’s laws.

How to overcome such problems:

• Joint venture: an agreement between two or more businesses to work

together on a project. The foreign business will work with a domestic business
in the same industry. Eg: Japan’s Suzuki Motor Corporation created a joint
venture with India’s Maruti Udyog Limited to form Maruti Suzuki, a highly
successful car manufacturing project in India.

Advantages:

• Reduces risks and cuts costs

• Each business brings different expertise to the joint venture

• The market potential for all the businesses in the joint venture is
increased
 • Market and product knowledge can be shared to the benefit of the
businesses

Disadvantages:

• Any mistakes made will reflect on all parties in the joint venture, which
may damage their reputations

• The decision-making process may be ineffective due to different business

culture or different styles of leadership

• Franchise/License: the owner of a business (the franchisor) grants a licence

to another person or business (the franchisee) to use their business idea –
often in a specific geographical area. Fast food companies such as McDonald’s
and Subway operate around the globe through lots of franchises in different
countries.

ADVANTAGES DISADVANTAGES

Rapid, low cost method of

business expansion
Profits from the franchise
Gets an income from
needs to be shared with
franchisee in the form of
the franchisee
franchise fees and
royalties Loss of control over
running of business
Franchisee will better
understand the local If one franchise fails, it
tastes and so can can affect the reputation
advertise and sell of the entire brand
appropriately
Franchisee may not be as
Can access ideas and skilled
suggestions from
Need to supply raw
franchisee
material/product and
TO Franchisee will run the provide support and
FRANCHISOR operations training
 Cost of setting up
business

No full control over

business- need to strictly
follow franchisor’s
standards and rules
Working with an
established brand means Profits have to be shared
chance of business failing with franchisor
is low
Need to pay franchisor
Franchisor will give franchise fees and
technical and managerial royalties
support
Need to advertise and
TO Franchisor will supply the promote the business in
FRANCHISEE raw materials/products the region themselves