What is Marketing?

Chapter 9
 Chapter Overview
• Identify the role of marketing and its relationship with other business
activities.
• Examine the factors influencing supply and demand.
• Look at the features of different markets.
• Identify the difference between producer and consumer markets.
• What is the difference between a niche market and mass markets
• What are the different methods of segmenting a market.
 The role of marketing and its
relationship with other business
activities
9.1
 The Role of Marketing
• What is marketing?
1. Understanding needs of the consumer
2. Developing the right products
3. Setting the right price
4. Promoting and distributing in the right way

• Marketing ensures that what is being provided is actually wanted and

needed
 The Role of Marketing
• Marketing is the process of identifying, anticipating and satisfying the
needs of customers in a mutually beneficial exchange
 The Importance of Marketing
• Effective marketing occurs when:
o A firm fully understands the requirements of its customers
o Is able to meet those needs successfully

• Why is marketing always changing?

o Customers needs change
o The business environment can change (changes in tech, new laws, etc.)
o Competitors enter the market
o A firm’s strengths change and develop
 Effective Marketing Results
• Effective marketing should have some affect on potential customers
as well as established customers

• How to measure effective marketing:

o Customers are likely to come back and buy more
o Customers are likely to tell their friends and post on social media
o Customers are willing to try new products
o Customers may become brand loyal
 Hugh Davidson Case Study
• Explain what is meant by ‘offensive marketing’.
o It involves everyone; It aims to provide better value for customers than rivals; It aims to be efficient and
use funds wisely and achieve higher profits than rivals

• Discuss the possible benefits of an offensive marketing approach.

o Relatively high profits; Funds used wisely and not wasted; A focus on providing benefits people will
actually pay more for and then enable the business to be competitive
 Defining Marketing
• A formal definition includes the following:
o It is an exchange process—two way
o It is mutually beneficial—both sides should gain
o It aims to identify and anticipate customer needs
o It aims to delight customers—just satisfying customers is not enough

• The purpose of marketing is to match the abilities and strengths of the

business to the needs of the market
 Marketing and Other Functions
• Marketing is a dynamic process

• To be effective it must work with other functions of the business to

influence:
o What is produced (design, features, quality, etc.)
o How many are produced (must estimate likely sales)
o The range of products offered
o The price at which the products are sold

• The marketing department will communicate with the operations,

finance and human resource department regularly
 Marketing Objectives and
Corporate Objectives
• Marketing objectives are the targets set
o Sales targets—volume or value
o Market share
o Brand awareness

• A marketing objective is a marketing target for the business setting out

what it wants to achieve and when

• A marketing strategy is a marketing plan to achieve the marketing

objective
Marketing Objectives
 What Do You Think?
• Which of the following are good marketing objectives?
1. To increase the number of enquires from our marketing communications activities by 15% by the end
of the year.
2. To increase market share in a given market.
3. To increase sales by 20% within 18 months.
4. Increase average customer online orders.
5. Achieve 10% online revenue contribution within two years.
6. Acquire 1,000,000 new customers in the next month.
7. Acquire 10,000 new online customers this financial year at an average cost per acquisition (CPA) of
£30 with an average profitability of £5.
8. Increase the average order value of online sales to $500 per customer.
9. Increase active customers purchasing at least once a quarter to 100,000 in a market.
10. Achieve 52% of market share for a start-up in the soft drink market.
 A Sweet Breakfast Memory That
Connects With the Wrong Market
• Read “Cow Wow” Case Study

• Which option would you choose? Why?

 BAT in Russia Case Study
• Explain why BAT may be targeting the Russian market.
o It is a big market for tobacco; It is growing; It has less strict regulations controlling the marketing of
tobacco products

• Discuss the possible reasons why BAT has several different brands in
Russia.
o To target different segments; To appeal to different users; To reflect different blends and strengths
of tobacco
 Marketing Presentation
You are opening a restaurant that only sells breakfast cereal.

You offer many different varieties of cereal and milk and are open from
6am to 9pm.

What would be your marketing objectives?

What would be a good marketing strategy to achieve your objectives?

Supply and demand
9.2
 Supply and Demand
• A market is made of buyers and sellers
o The buyers demand the product and the sellers supply it

• If:
1. Markets are allowed to work without government intervention and
2. They are competitive with many different sellers,
The quantity and price will be determined by supply and demand
 Supply
• A supply curve shows how much producers are willing and able to supply at
each and every price with all other factors constant

• The supply curve is usually upward sloping because as price increases

producers are more willing to make more of the product so they can make
more money

The supply of a product will depend on:

• the number of firms producing – with more firms supply may increase
• the time period – over time more firms can move into this market, increasing
supply
• technology – technological developments will increase the quantity supplied
• costs – if a business can reduce its costs, for example by using cheaper
supplies or being more efficient in its operations, this means it can produce
more at each price and supply can increase
 Supply
Examples of Supply:
• Corn crops are very plentiful over the course of the year and there is
more corn than people would normally buy.
o To get rid of the excess supply, farmers need to lower the price of corn and thus the price is driven
down for everyone.

• There is a drought and very few strawberries are available. More

people want the strawberries than there are berries available.
o The price of strawberries increases dramatically.

• A huge wave of new, unskilled workers come to a city and all of the
workers are willing to take jobs at low wages.
o Because there are more workers than there are available jobs, the excess supply of workers drives
wages downward.
 Demand
• The demand curve shows how much customers are willing and able to buy
at each and every price with all other factors unchanged

• The demand curve is usually downward sloping because as price falls

customers can afford to buy more with the same income

The demand for a product will depend on factors such as:

• the income of buyers—affects how much they can afford
• the price of rivals’ products—if cheaper, demand is likely reduced for your
product
• the price of complementary products
• marketing activities—effective marketing should help increase demand
 Demand
Examples of Demand:
• A popular artist dies and, thus, he obviously will be producing no more
art.
o Demand for his art increases substantially as people want to purchase the few pieces that exist.

• A cultural fad item that was all-the-rage for a period of time falls out of
favor and is no longer "cool."
o Demand for the item falls dramatically as it is no longer the must-have item of the season.

• A new restaurant opens up in town and gets great reviews. There are
only 12 tables in the restaurant but everyone wants to get a
reservation.
o Demand for the reservations goes up.
 Supply and Demand
• Now it’s your turn
o In groups of two, give:
1. One example for supply
2. One example for demand
Influences on Demand
 Supply and Demand
If the price is at P1: quantity supplied is
greater than quantity demanded.

The price is too high for consumers and

leads to excess supply.

In a free market with no intervention the

price will fall.

As the quantity demanded increases, the

quantity supplied falls until P0 is
reached.

P0Q0 is the equilibrium meaning supply

and demand are equal and there is no
incentive to change.
 Supply and Demand
If the price is P2: at such a low price, the
quantity demanded is greater than
quantity supplied.

This will lead to a shortage and prices

will increase in a free market until it
reaches P0Q0.
 Supply and Demand
Market conditions are constantly
changing.

With more income in an economy,

there will be more demand of most
products, so the demand curve will
move to D2.

The equilibrium is now P3Q3.

More demand leads to higher

prices and output.
 Supply and Demand
If there is less supply, the
supply curve will move to S2.

The equilibrium would now be

at P4Q4.

Less supply leads to higher

prices and lower output.
 How it works
How the Law of Supply and Demand Works:
• A company sets the price of its product at $10.00

• No one wants the product, so the price is lowered to $9.00

• Demand for the product increases at the new lower price point and
the company begins to make money and a profit
 How it works
How the Law of Supply and Demand Works:
• The company could lower the price to $5.00 to increase demand
even more,

• but the increase in the number of people buying the product would
not make up money lost when the price point was lowered from $9.00
to $5.00
 How it works
How the Law of Supply and Demand Works:
• The company leaves the price set at $9.00 because that is the point at
which supply and demand are in equilibrium

• Raising the price would reduce demand and make the company less
profitable

• Lowering the price would not increase demand by enough to make

up the money lost
 Case Study: Luxury Watches
Explain two factors that might influence demand for luxury watches.
Income levels; levels of wealth; consumer confidence

Discuss how an increase in demand might affect retailers and producers

of luxury watches.
It may lead to more output but equally the company may want to
keep supply limited to maintain premium image. This may lead to higher
prices and/or waiting lists.
 Case Study: Bordeaux
Explain two factors that would influence the supply of wine from
Bordeaux.
The number of producers; the weather; crop diseases

Discuss the factors influencing the demand from China for French wine.
Demand will be affected by number of consumers, income levels, any
trade restrictions that exist, the prestige of French wine, the price and
availability of other drinks and social trends regarding alcohol.
 Math Moment
1. Draw a diagram of supply and demand for wine for a given year if
demand is increasing. Remember that in a given year there will only
be a fixed quantity harvested whatever the weather.
 Math Moment
1. Draw a diagram showing what would happen if there was a good
year and supply increased.
Features of Markets
9.3
 Features of Markets
Size
• The size of the market can be measured in volume of sales or value of
sales (i.e. 20,000 products sold or $1,000 sold)

The number of competitors

• Some markets have thousands of competitors. Some have very few

Growth
• Some markets do not change in size very much; others grow fast;
some shrink
 Features of Markets
• The market size is the total number of items sold (volume) or the total
value of sales.

• The market share of a business measures its sales as a percentage of

the total market sales.
 Math Moment
1. A business sells $20,000 in a market worth $800,000. What is its market
share?
2.5%

2. A business has a market share of 8% in a market worth $400,000. What

are its sales?
$32,000

3. A market was worth $300,000 and increases in size to $360,000. What is

the market growth rate?
20%

4. If a market was worth $500,000 but grows by 2%, what is it worth now?
$510,000
 Consumer and Producer Markets
• Consumer markets
o Exist for products which are bought and consumed by the final user

• Producer markets
o The product is bought by another business
o Examples: machinery used to produce other goods; raw materials; etc.
o Care more about efficiency and how it will benefit their business
 National, Regional and International Markets
• Some products such as oil are sold worldwide on the international
market

• National markets only produce goods that are sold mainly or

exclusively in the domestic country

• Regional/local markets are only provided in certain areas such as

local taxis and hairdressers.
 Customer Orientation vs Product
Orientation
• Consumer-orientated business
o Based on customers needs
o Must continually monitor its environment to see what competitors are offering, what changes are
occurring and what customers want

• Product-orientated business
o Focuses more on what it can produce and hopes that this will fit with consumer requirements
o This is a risky approach
 Case Study: Amazon
1. Explain what you think is meant by a customer-centric business.
It means a business that is very customer centered. It takes decisions based on what
customers want, need and are able to pay for.

2. Visit the Amazon website (www.amazon.com). Discuss the ways in

which Amazon might be the world’s most customer-centric business.
Product development; pricing; range of services provided for customers.
Jeff Bezos: A Short Documentary about Amazon’s
Business, Technology and Future
• Amazon “puts the customer at the center of everything they do.”

• While others aren’t willing to take certain risks, it’s the trust in customer
opinion that provides the confidence needed to follow through with a
new idea.

• The customer-centric strategy can further be broken down into the

fundamental idea of trust between the customer and company.

• The ability to suspend growth goals in order to protect the fragile state
of trust customers form with his company and the service it provides is
what sends Amazon ahead of competitors.
Jeff Bezos: A Short Documentary about Amazon’s
Business, Technology and Future
• When others would normally raise prices to reach benchmarks, he
keeps them low in order to ensure slight erosion in customer trust
doesn’t snowball into a long-term retention problem.

• Much of Amazon’s profit goes directly back into development projects

aimed to take Amazon even closer to its customers.

• Fulfillment Centers geared around ultra-quick online-to-doorstep

delivery and pickup services are one such investment Bezos considers
an important link between online and offline convenience.
Problems with Measuring Market Share/Growth
• Difficult to define the market in which the business operates
• i.e. what is the market for a local bus company? How large is the area? Is
it bus transport in the whole country? Is it all forms of transport?

• Measuring market share is not easy

o Difficult to find accurate figures as competitors might not want to share information
o It will then take time and estimates and will likely be a year out of date

• Measuring market growth is also difficult

o This is due to problems gathering data from all outlets and producers.
o More likely to be accurate looking backwards.

• Market growth measures the percentage increase in growth in market sales

over a given period
Implications of Changes in Market Share and Growth
• A change in market share means that the sales of a business account
for a greater proportion of the total sales in the market in the given
period.
o If the market remains unchanged/grows than increasing market share means higher sales
o If market declines, the market share could increase even if sales fall

• When considering market share, keep in mind the total market size.
o Even a small % of the global confectionary market is a lot of sales
Case Study: The Chinese Economy
1. Explain two ways in which car firms may compete against each other.
Lower prices; better payment terms; longer credit; extras such as free servicing; part
exchange deals; developing the car (i.e. better design)

2. Discuss the possible reasons why demand for cars in China has slowed
down.
Slower income growth; uncertainty and lack of confidence in the economy
Niche Versus Mass Marketing
9.5
 Niche Versus Mass Marketing
• Niche marketing occurs when a firm targets a specific (usually small)
segment of the market.
o Ferrari targets the luxury sports car market
o Rolex targets the luxury watch market

• By focusing on smaller markets a firm can understand the requirements

of the group and ensure it meets the group’s precise needs

• This allows for a tailor-made marketing approach and avoids wasting

time and money
 Niche Marketing (Pros)
• It focuses on just one segment of the market

• The resources required may be relatively small

• This makes it cheaper and easier to start the business

• Doesn’t threaten larger firms

• Larger firms will not cut prices or try to influence stores to get them to
stop distributing the product
 Niche Marketing (Cons)
• Total number of customers is likely to be low

• Could have significant effect on demand if anyone changes their

mind

• If product is successful it will get the attention of larger firms

• Small firms may not have the resources to compete with larger firms
 Mass Marketing
• Mass marketing targets the majority of the market

• Usually involves high levels of production compared to niche

production

• May be unrealistic for start-ups (i.e. levels of promotion; costs)

• Possible for a niche market to become mainstream and become a

mass market
o Toothpaste, laptops, even mobile phones started out as niche markets
Segmentation Methods
9.6
 Segmentation Methods
• A market segment is a group of similar needs and wants
o Within the market for newspapers there are some readers who are most interested in sports, others
who want financial information

• Within the chocolate market, the demand can be segmented into the
following:
o Snacking – you buy the chocolate and eat it then and there
o Sharing – you buy the chocolate and take it home to share with others
o Gifting – you buy the chocolate to give to others
 Segmentation Methods
• There are various ways a market can be segmented, including:
o Geographic
o Demographic
o Psychographic
o Behavioral
 Geographic Segmentation
• Focuses on factors such as:
o Location – nations, states, regions, countries, cities, neighborhoods, postal codes;
o Climate

• Cars sold in cities may be relatively small; cars in the countryside may
be more rugged (location)

• Cars sold in Africa withstanding high levels of heat; cars in Scandinavia

withstanding cold (climate)
 Demographic Segmentation
• Focuses on factors such as:
o Age; gender; occupation; education level; marital status; stage in the family life-cycle

• When you are single, you may look for a city center, one bedroom
apartment

• When you are married with children, you may want a three bedroom
house near a good school and out of the city

• The types of toys three-year-olds play with differ from those of a

thirteen-year-old
 Psychographic Segmentation
• Focuses on:
o Personality; lifestyle; values; social class; attitudes

• Do you like belonging to a group? Are you ambitious? Do you want

material things? Do you care about environmental impact?

• Your job and earnings are likely to influence lifestyle (where you
eat, shop, interests, vacation, etc.)

• These factors all influence the way a product is promoted

 Behavioral Segmentation
• Focuses on whether you are a regular or heavy consumer, brand
loyalty, and what makes you buy the product

• Do you buy chewing gum to help you stop smoking? For fresh
breath? To protect your teeth? Because it helps keep you calm?

• Promotional campaigns are developed to focus on specific

motivations

• Also includes when you buy and use the product (i.e. do you tend
to buy flowers to celebrate, or apologize?)
 Segmentation Methods
• For a market segment to appeal to a business, it must be:
o Measurable – to ensure it exists to measure likely size and earnings
o Accessible – to ensure you have the resources to offer what is required
o Profitable – to ensure you are meeting customer needs and your own needs
Benefits and Limitations of Market
Segmentation
• Effective segmenting of a market allows managers to identify which
segments it wants to target

• This allows for better development of marketing activities to better

meet customer needs

• If done properly allows businesses to provide the right product and the
right place, time, and price

• Sometimes this proves too difficult or costly so businesses may have to

trade off the appeal of segmenting and offer limited products on a
larger scale
 Case Study: Bic for Her
1. Explain why Bic might want to launch a pen aimed specifically at
women.
May feel the pen will appeal more and therefor sell better; may differentiate from rivals

2. Discuss the possible disadvantages of targeting many different

segments in a market.
May make production more complex; may increase costs
 Classification of Products
• Consumer products are bought by the final user
o Convenience items such as newspapers and milk
o Shopping items such as clothes or electrical goods which are more expensive than convenience
items
o Specialist products such as Rolex watches and Ferraris (these are products customers have probably
thought about for a long period of time)

• Industrial products are bought buy a business to use in their production

process to produce consumer goods
o Installations – big items of expenditure such as production lines or new office space
o Materials – all materials used in the production process
o Supplies – basic items such as paper and light bulbs