Marketing, competition and the customer This chapter will explain Pee eat ease re ene eects aod oe ee eae ore Se Tee ee! Pee ered how to recommend and justify an appropriate method of segmentation in ei The Marketing department Most businesses, unless they are very smal, will have a Marketing department. veisenugyng | 12 age pubic limited company, the Marketing Director wil have people Cintomerwants sna,” | tesponsible for market research of new products, promotion (including promotions atishing tom protabiy, | and advertising), distribution, pricing and sales customer isa person, Bosiness or ther ‘Mtg recor ergasaton which buys ood or seins rom 8 Definitions to learn sess [=] [amen] [ream] [ata roirasic nanny | [iaoaticnne | [Ame | [rove | |The structure of apical Marketing department Large businesses wil have different sections within their marketing cepartments: > The Sales team is responsible forthe sales of the product. It will usually have separate sections for each region to which the product is distributed. Ifthe product is exported, there may also be an Export team. »» The Market Research section is responsible for finding out customers’ needs, ‘market changes and the impact of competitors’ actions. It will report on these to the Marketing Director and this information will be used to help make decisions about research and development of new products, pricing levels, sales strategies and promotion strategies. »» The Promotion section deals with organising the advertising for products. It arranges for advertisements to be produced. For example, adverts ere filmed if they are to be on television, or designed if they are to be in newspapers.study tps _ eu should Beatie to aie examples of obs which could be advertised ving o3en ofthe arent methods [Detniions Yo learn | customer toyatyie ester vat irom the seme business, Customer relationships is communicating wth [customers to encourage ther to become ijl tthe business ands product, The department also decides on the types of promotion that willbe included in campaigns. It will have a marketing budget ~ a fixed amount of meney to spend, It has to decide which types of advertising media will be the most effective to use because there will only be a certain amount to spenc; the department cannot spend what it likes! »» Distribution transports the products to the market. Activity 10.1 which section a the Marketing department ~ Sales, Markt Research Prartion or Distribution ~ 0 each ofthe folowing people work? {Anya spends most of her time in other countries showing the product to peple who buy inventory for large retail groups. Mohamed spends his time aranging for adverts a the product tobe placed in newspapers and magazines Paul spends much of fis time carrying out questionnaires Mary organises the airline flights forthe products tobe sent to their markess abroad The role of marketing Marketing isnot just about advertising and selling a good or service, as ean be seen by the different marketing activities found ina Marketing department. The central role of marketing undertakes the following >» Identify customer needs - finding out what kind of products or services cestamers want, the prices they are willing to pay. where and how they want to buy these goods or services, and what after-sales services they might want, Satisfy customer needs - so that goods and services can be sold profitably. Customers want the right product, inthe right place and at the right price. Failure to meet these needs, or daing it less well than competitors, will lead to the business facing the risk of closure. Maintain customer loyalty — by building customer relationships. Keeping close Links with customers and finding out if products or services are continuing to meet their needs will help to ensure the success of the business. IF customers ‘change their expectations of what they want from a good or service then ‘the business should respond to meet these new needs. This wil be identified by maintaining close customer relationships. It is very important te keep ‘existing customers (customer loyalty) and not just concentrate an attracting new ones. It is much cheaper fora business to ty to keep existing customers (for example, with loyalty cards) than trying to gain new customers. Build customer relationships to gain information about customers - by building a long-term relationship with them so that their changing needs can be understood. This is one of the most important roles of the Marketing department in today’ globally competitive world. Building a relationship with customers means that market research information can be used to understand wiry customers buy products and how they use them. This makes for more effective marketing. [Anticipate changes in customer needs - by Identifying new trends in customer demand or gaps in the market so that businesses can produce goods of services which are not currently available.110. MARKETING, COMPETITION AND THE CUSTOMER Definitions to learn Market shore isthe percentage of total marist fats ety en rand or sutable packaging for dierent prosuct to forthe brand image/trget Definitions to learn consumer buys goods or ‘Services for personal use otto re-sell If the Marketing department is successful in identifying customer requirements and predicting future customer needs, it should enable the business to: >> alse customer awareness of a product or service of the business >> Increase revenue and profitability >» increase or maintain market share >» maintain or improve the image of products ora business >» target a new market or market segment >» enter new markets at home or abroad >» develop new products or improve existing products. [At present, Peps Philippines, which ‘manufactures Pepsi, Seven-Up, Mountain Dev, Gatorade, Tropicana and Lipton, accounts for 20 per cent ofthe total carbonated drinks marke inthe Philippines. wants to ‘expand its operation and increase its share Df the market stil further The Marating Apartment wil Bevtal in deciding how this kane achieved, ‘Activity 10.2 Read the case sty above '2 Suggest ways Pepsi Philippines could increase ts market share. Which way do you thine wil be mast etfective? Explain your answer Da yau think Pepsi Philippines should develop new varieties of rinks to sellin this ‘market’ Explain your answer. «deny who could be the new customers of these drinks, 4 Explain hat types af advertising and promotion might be effective in attracting these Understanding market changes ‘The world of markets and marketing is constantly changing. It is very unusual if a business does not have to change its goods and services overtime to respond to ‘important market changes. Things dont stay the same forever! Some markets are changing ata rapid pace, such as mobile (cel) phones, whereas othe: markets, such as breakfast cereals, don't change very quicky Why customer/consumer spending patterns change >» Consumer tastes and fashions change - fashions may change for clothes and 0 consumers may want different styles of clothes to those they wore last year. >» Changes in technology - with new products being developed, such as iPads, {tablets and smartwatches, sales of desk computer/standalone computers have fallen in many countries. New products mean old versions/alteratives do not have high sales anymore.to changing spending patterns and increased crmptition? ae "GA » change in incomes - if an economy has high unemployment then many consumers wil buy cheaper products If the economy then grows ard unemployment fal, the sls of more expensive products wl increase, » Ageing populations - the age structure of the population in many countries is changing to a greater percertage of older people. This has changed te ype of products whieh ate ieeasng im demand uch st an-agein ace cars for rconstienayam Women iments pores wilteiedie boars The power and importance of changing customer needs cvsegarsstoerne _ If businesses fa to respond to customer needs then they are kl to fil i thercessay "The customer skin! Beeuse 25 ther needs change it's the business which ar web gst: research and know what these changes ae a respond to them, tht wil Be urassmarwatnesalow successful (see the case study on page 136 and Activity 10.3). fonbeath dela ncludog = ties and et Far rary rarer, wearable lech he frst tp to eating beter cing stress an adopt ‘ng canaumers mare Why have some markets become more competitive? »» Globalisation of markets has meant that products are increasingly sold all over ‘the world (see Chapter 28). >» Transportation improvements have meant that it is easier and cheaper to transport products from one part of the world to another. »» Internet/e-commerce has meant that consumers can search for products and buy ftom overseas markets, Even some services such as insurance can be bought from businesses based in another country. Increased consumer ‘information about products and the different intemational businesses that produce them makes a market much more competitive. How can businesses respond to changing spending patterns and increased competition? A business will have to take action to maintain its level of sales and merket share winenever there are changes to spending patterns or increasing competition. In order to remain successful, a business may need to do the followirg: >» Maintain good customer relationships - this has a key role in continuing to meet customer needs and it also provides markt research information about customers. Marketing departments which become experts on customer needs wil respond to these needs as and when they change and will maintain customer loyalty Ibis often cheaper to keep existing customers than gain new cnes »» Keep improving its existing product ~ this is especially true if its competitors, ‘improve their products. 8y making the goods or services it sells very different from those produced by competitors the business will become well known for differentiated products. Apple is @ good example of a company that reacts to ‘increased competition by making even more advanced products. »» Bring out new products to keep customers’ interest in the compary rather than its competitors ~ this wil help the business to maintain, or even increase, its market share. An example of ths is Microsoft, which keeps on improving and developing its operating systems. >» Keep costs low to maintain competitiveness ~ as this should help keep prices low.Definitions to learn Mass markets where there a very targe number of sles of product. 10 MARKETING, COMPETITION AND THE CUSTOMER “The werld is changing very fast. ig will ot beat small anymore, twill be the fast beating the slow: (Rupert Murdoch) ‘One ofthe few things that is certain in this word ie change. Ina worls where technology s advancing at such a rapid pace, change Rappens even more qUcky. Is ‘very important or companies to adapt to change as rapidly as they can ‘Take the example of Koda hich fed for bankruptcy n 2072 3 bid to survive a cash iss, caused by years fling ale of ts photograph fm for camera ae gt ‘areas had taken over the market. Kodak. a pioneer inthe phtograph in busines, has tried io restructure to become a seller of consumer produc ke carers Consumers prelerence for gal cameras ison te rise in india wth tne mar for digital camaras growing a 40 per contin volume terme according to ineustry estimates) Prices of aigtal cameras ar aling, and with adatonal features tha allow ‘video recording means camera manufacturers sch a8 Sony, Canon and Somung are enjoying ising sales Activity 10.3, ead the case study above, 2 Wy di Kodak gt into fnancial ficulties? Explain your answer. Suggest now maintaining good customer relations might have helped Kefak avoid business failure, What is meant by a market? ‘A market for a particular good or service is made up ofthe total number of customers and potential customers, as well as sellers, for that particular good or service, It can be measured by the total number of sales or by the value ofthe sales for that good or service by all supplies af that particular good or service These can be either mass markets or niche markets. Mass marketing 1a product has very high Level of sales it is almost certainly being sald in a mass market. In these markets many people inthe population wil buy the product for ‘eam, aspirin, washing powder of soap. Products are designed to apaeal tothe whole market and therefore advertising and promotions are intended te appeal to most customers. The advantages of sling toa mass market are: » total sles in these markets are very high > the business can benefit fom economies of seale (see Chapter 19) > risks canbe spread, as often the business wil sell several afferent variations ‘of products to the mass markt, and fone variety ofthe product fis then the other products may stil sell well »» opportunites for growth ofthe business due o large potential ales. However, there are disadvantages, which includ » high levels of competition between businesses selling similar produts > high costs of advertising and promotion » standardised products oF services ae produced and so may not meet the specific ‘needs of all customers or potential customers, therefore leading to lst sales,Definitions to learn alene markets a small usually species, [segment of morhorger he chon! Virtual rey ‘Inedsets and vice-enabled speakers bth started ot as niche products but tors choice avis, “milione of customers now want these products ~ ‘making them mass markot “products Stay ps = ake sure you can exiin the ference between 3 mass market anda che market using examples of oeds or services Definitions to learn Market segment isan ‘of ots marie in “when consumers nove ‘Sir choractorses oF [pratrences Morket segments Niche marketing However, some products ae sold only to a vey small numberof customers who forma small segment ofa mach larger market. This is vterted to a8 a niche market, These products ae quite often specialised and sod by smal businesses that would find i cfu to compote ina mass market. For example, there is 2 mass markt for shops sling essential food product in ary cout. Howove there i a smal group of migrant workers in tht country ten food shops sling specialized food for this oroup of people may be setup. Expensive prot, such se olc athe or designe te, ae ane at smal seta of mach age Being able to identify and supply a niche market has advantages: »» Smal businesses may be able to sl succesfully in niche markets as larger businesses may not have identifi them but concentrated onthe mass markets instead, This wl reduce competition fom the lage businesses in martts, »» The needs of consumers can be more closely focused on, and therefore targeted, by businesses ina niche market. This may leat a high eves of corsumer loyalty and good customer relations. However, there are disadvantages to operating in a niche market: >» Niche markets are usually relatively small and therefore have limited sales potential. This means it is likely that only small businesses can operete profitably in these markets. Ifthe business wants to grow it will ned to look outside the niche market ta develop products for mass markets. »» Often businesses in a niche market will specialise in just one product. This means that ifthe product is no longer in demand the business will fail as the business has not spread its risks. Producing several products rather than just “one product means that if one fails there are other products which are still in demand and the business carries on trading, Market segments ‘The market for a particular good or service is made up of the total number of customers and potential customers for that particular good or sevice. Hart segmentation recognises that potential users ofa good or service are rat all the same, and that what appeals to one set of consumers may not appeal to other. Market segmentation is when a market is broken down into sub-groups which share similar characteristics. For example, chocolates are eaten by yourg children, teenagers and adults of both sexes. Different brands of chocolates will appeal to these diferent groups of people. A Marketing department wil cvide the whale market into different groups and categories; these are called market secments. Each segment is researched in great detail. When it comes to advertising, the Marketing department knows the best places to advertise andthe most ikely| place where the particular market segment will see the advertisement. It wil also know how to design the advertisement to appeal to the target market segment. {An example might be teenagers buying clothes. They might be asked questions about which social media they use, which television programmes they watch, which mobile phone they have and general questions about what they Uke. This will enable the Marketing department to select the best times to advertise,10. MARKETING, COMPETITION AND THE CUSTOMER if television advertisements are to be used, and the type of adverts that will appeal to teenagers. They can advertise on the social media that are usually used by teenagers or design a new app for free download. ‘Segmenting a market can help @ business to: >» make marketing expenditure cost effective by producing a product which closely meets the needs of these customers and targeting its marketing efforts only on this segment >> enjoy higher sales and profits for the business, because of cost-effective “marketing >> identify a market segment which is not having ts needs fully met, and ‘therefore offers opportunities to increase sales Some of the most common ways a market can be segmented are shown in the table below. Ways of segmenting a market | Bysocio-economic group Income groups an be defined by grouping people's jobs | _stcording to how much hey ar aid. For samp, managers sre vsvaly pas more than fies aerers ies payers sr usualy paid more than production workers. Unemployed eople wl shit be the lowest came group. Thisoten ‘means that product are price ferent 0 orgs certain income groups For example. crs range see, performance sr price level. Oy 1 ul tors {etuys ate Nano. Some prtsmes ae sald tow pres ‘theres the atime brands ae very expense ad re {med at higher neame group. 7 “The products bought by seoplen diferent age groups wll rote the same ourg peopl uy dierent see elderly peopl. The tye bout fo babes wil ary rmtnareDoght feraaercisren 7 Byresionecation Indflerent reins county aeole might by ilerent produce Far cnr thro ae yan wa pt the ered ent say nced tbe changed gh fo exam, Sor name orient pecking] in err 9 appeal to thetastes of people mater eounries, ‘Some products are bought only by women ar on by men For example, a shaving razor would normaly by bought by ‘man. wheres aperture woul nrmaiy Beboug bya by gender For exampe, cars can Be used by consumers for domestic. Use orfor business ure The averting media ae prometion tethods used wl en Cars for business use maybe $iverieed ty sending brochures out to busineeceere9= ‘ars for domertic use may be advertised on tle son. These ars may be the same modes, ot they wil be marketed na dierent way Byline |For example, single person caring the same income as 2 ‘marveg person wth three cidren wil spend tht income Aiferenty,auyng diferent products Businessescan ‘i! {hair products at people who enjoy ferent esas, ‘By use ofthe product suey tps FRomambor thal consumers ean be pert of more tran fhe segment You should be abet explain how and ay businesses segments market an ure examples toilstrate th‘Marlet segments Potential benefits of segmentation to business Businesses can use market segmentation to sell more products. They do this by making different brands of a product and then aiming each brand at a different market segment. As can be seen in the example of soap in the case study below, a business could produce various brands of soap to satisfy most of the market segments. By finding out the different segments in a market, a business can sometimes ‘identify a segment whose needs are not being met meaning there isa gap in the market. It can then produce a suitable product to meet these customers’ needs and again increase sales. ‘A marketing manager would take all these factors into account when deciding Which segments might buy new products or improved products. Therefore, once the segments have been identified, this will influence how the products are packaged and advertised. It will also affect the choice of shops the preducts are sold in, in order to get maximum sales. This isan example ofhow the markt for soap may be segmented Type st tear Characteristics of market seamen | Beauty soap People whe buy beauty 099 wil be pple wna want t kat thelr skin soft They wil therfore buy soap which contains masturses. loymathers for thie abies. ay Medicated soap Sometimes sop is sald to hep ight acne. This tends to be bought . rainy by ual NNonbranded Soap This isalow- price preduct which pai soap with no ear pertame ‘dod This wl probaly be bauht by people on a incomes. “aor ip cr ‘There may be other types of soap you can think of which are aimed at diferert groups. Sales of soap wil be afectes by income group, gender and aso 9, Ee iia “AWwhih ype of soap wil each person use? Activity 10.4 ead the case sty above, 8 List the diferent brands af soap sold in your cal shops. Which sagments ofthe markel are each ofthese brands of soap aimed at10. MARKETING, COMPETITION AND THE CUSTOMER Which method of segmentation should be used? Different businesses will segment markets in different ways. A busines: that runs a number of gymnasiums i Likely to use consumers’ ifestyles as 2 way of segmenting the market. A health and beauty product business is more likely to Use gender as the most important way of segmenting its market. In contrast, a §ewellery maker will segment the market into designs affordable to corsumers with different income levels. The factors a business will consider before choosing an appropriate method of segmentation include: >» detailed analysis of the market and the ‘sie’ of each potential segirent in ‘terms of consumers and Likely sales >» company image and brand image - a ‘high-tech’ business with an excellent reputation for innovation will nt want to produce low-priced goods for low. >» cost of entering each segment, for example, with a specially designed product and advertising campaign, Activity 10.5 oyata produces a range of cars aimed atiferent market segments. teven owns 2 separate company called Lexus, whose cas ae aimed at a parcular marke segment ‘AFarity car ht ‘A Hybrid ear Aoasuv 2 Lookat the photographs ofthe Toyota range af cars and dentiy what characteristics the consumers of these models are likely to have. The characterises you Seniily might elude income [soco-ecanemic grou), age, gender, use ofthe product, teste > Explain the beneits to Toyota of producing a large range of ears aimed at sleront market segmentsMarket segments 1 Perzonal computer and mobile cll phone tchnologyhas sen mary advances ove the ‘asc ewoney years ‘The personal computer market has seen many changes over the last few years The standard desktop computer is becoming a thing ofthe past in many offices, where laptops have taken its place. Inthe home this is elso true, However, tne intoduction of the netbook and then the Apple iPad changed the market again Predictions fr the future of the personal computer market are that mabile ‘devices wil become market leaders in terms of global sale followed by tablets and netbooks. Home computers are seen as becoming a smaler and smaller share ofthe global market Discussion points (¢ How has the market for personal computers changed? ‘© Why have these changes happened? (¢ How should businessas in the personal computer market respondio these ‘change:10 MARKETING, COMPETITION AND THE CUSTOMER Exam-style questions: Short answer and data response 1 BF Limited owns several fruit fas. The fruits sold to large supermarkets abroad. O8F also grows coffee which is sold to companies that process and brand the coffee. The branded coffee is also then sod to large supermarkets abroad. The world price of coffee has recently dropped by 20%. Thre has been a growing demand for fuit from consumers in developing countries with rising incomes. In developed countries there has been a growing trend towards ‘healthy eating’ encouraged by government polices to tackle the obesity problem. Fresh fruit isan important part ofa healthy diet. 2 Define ‘consumers el b Identify two reasons why the price of coffee might be faling. (2 Outline two reasons why supermarkets are demanding mare fut. [4] Explain two ways the Directors of D&F Limited could respond to ‘increased competition from farms which are switching from growing vegetables to growing fruit. (6 € Do you think DBF Limited should stop producing coffee and grew more fruit instead? Justify your answer. (6) 2 TGH isa public limited company wiich makes sports shoes (trainers). Tt ‘makes a variety of designs for the mass market. The mass market consumers Aare young penple wha want fachianahle enarts shoas 2s well as thoea who play sport. The Directors recently decided to target a niche marke. This is a ‘market segment of customers wio have a medical problem with tir feet and need specially designed shoos. 2 Define ‘niche market. (2 'b Identify two examples of the different markets for TGH products. fl Outline two reasons why TGH sells toa niche market. 4 Explain two advantages to TGH of segmenting the market for sport shoes. [6] €¢ Do you think the Directors of TGH were rghit to target a niche market or should they just sell spots shoes to a mass market? (a Roreesn eee eT ¥ the role of marketing ~ identifying and satistying customer needs as well Go ue cucaency cee ee ee ee there is increased competition, and how businesses can respond to th change: ¥ the difference between mass marketing and niche marketing what is meant by market segmentation and why market segmentation Sete! to recommend and justify an appropriate method of market eet NOW ~ test your understanding with the revision questions in the Student etextbook and the Workbook.