Business Studies

Section: 3

• The Role of Marketing

• The role of marketing
• Business activity involves more than just coming up with an idea for a product or service, making it
and then selling it.
• First, the managers of a business need to understand what customers want.
• This may include identifying or even predicting what they require.
• Then the business has to produce exactly what customers want. Finally, managers need to make
sure that they have satisfied customer requirements.
• So, from this you can see that marketing is an essential part of a business’s activities
• Identifying and satisfying customer needs
• You have already learnt the difference between consumers’ needs and wants.
• The basic needs of individuals are goods and services that are necessary for survival - water, food,
clothing and shelter.
• However, in addition to these essential needs, individuals will also have things they would like, but
which are not necessary for their survival.
• These are known as ‘wants’. The main role of marketing is to convert the wants of an individual into
a need.
• A billboard advertisement Businesses often use promotional activities, especially advertising, to
persuade consumers that something they want is a need.
• In doing so, business sales, revenue and profits will rise.
• You will learn, in a later chapter, how businesses identify the needs of consumers through the use of
market research methods.
• Once the needs of consumers have been identified, a business must then decide if it is able to satisfy
those needs by producing goods or services which it can sell to the consumer at a profit.
• This is the main purpose of business activity. Businesses will also use market research to check that
the goods and services produced and sold do satisfy consumer needs.
• Maintaining customer loyalty
• Without customers there is no business.
• Therefore, one of the most important roles of marketing is to create a group of customers who the
business can sell its products to.
• This is known as a customer base. The business must then build customer relationships to maintain
the loyalty of its customers to the business and its products.
• Building customer relationship
 • Once a customer base has been established, the marketing function must then aim to keep these
customers - this is known as customer loyalty.
• This requires collecting as much information as possible about each individual customer, for
example their income, lifestyle and buying habits.
• This information is then used to better identify and satisfy customers’ needs and carefully target

• Market Changes
individual customers with information about the firm’s products.

• Market
• Market means all customers and consumers who are interested in buying a product and have the
financial resources to do so.
• A market is a place where buyers and sellers come together to buy and sell goods and services.
• However, market’ can also be used to describe all consumers who are interested in buying a product
and have the financial resources to do so.
• These consumers can be described as the potential market’ for a product. When a business decides to
produce products for a particular group of consumers, then these consumers are known as the ‘target
market’.
• Target market implies the groups of consumers that the product is specifically aimed at
• The term market’ can also describe the type of customer who the goods or services are sold to.
• These customers may be the final consumer or other businesses. The markets for these customers
are known as:
• Consumer market – product sold to the final consumer, for example food items, television and cars.
• Industrial markets- products sold to other businesses for use in the production process, for example
machinery and equipment.
• Why consumer spending patterns change
• The business environment is one that is constantly changing. This means that the market for goods
and services will also change over time. The amount of money customers/consumers spend on
buying goods and services is affected by a number of factors:
• The price of the product
• For most products the higher its price, the lower the quantity sold and the lower the price, the greater
the quantity sold.
• This relationship between the price of a product and the demand or sales of the product is show below
•
• The price of competitors’ products
• most businesses are in very competitive markets.
• If the products of businesses are very similar then consumers are most likely to buy the product that
has the lowest price.
• Changes in consumer income
• consumers can only buy products if they have the money to do so.
• If consumer income falls, for example if an employee loses their job, then they will have less money
to spend.
• When consumers have less money to spend, they will buy what they need for living, for example
water, food, shelter. They will spend less money on goods which might be considered a luxury, for
example takeaway meals, mobile (cell) phones or holidays.
• Changes in population size and structure
• if a country’s population grows in size then this increases the size of the market.
• This could increase business sales. The structure of the population might also change overtime.
• For example, in some countries there are fewer children being born, but people are living longer.
• We say that a country with more elderly people and fewer children has an ‘ageing’ population.
• The sale of products for children will fall, but the sale of products for older people will rise.
• Changes in tastes and fashion
 • It is easy to see the effects on sales of changes in clothing fashion.
• However, other products also become more, or less, popular with changes in consumer tastes and
fashion.
• For example, in some countries consumers are more aware and concerned about healthy eating.
• This has increased the demand in these countries for healthier food and drink.
• Producers have responded by reducing the sugar or salt content of their products, for example Diet
Pepsi.
• Spending on advertising and other promotional activities
• Almost all businesses spend money promoting their goods or services.
• Some national and multinational businesses spend huge amounts of money on a single advertising
campaign.
• Most advertising and promotional activities of businesses are aimed at persuading consumers to buy
their products instead of competitor products.
• Businesses also spend money on advertising to create a brand image.
• Consumers will often pay more for a product simply because of the brand name, even though there
are similar much cheaper products on the market.
• A good example of how branding affects demand is the trainer (running shoe) market.
• Many consumers, especially the young, prefer to buy shoes manufactured by Nike and other well-
known brands rather than the cheaper alternatives that do not have a strong brand image.
• Changing customer needs
• From the earlier definition of marketing we can see that one of the purposes of marketing activity is
to satisfy customer needs at a profit.
• If a business is to survive in the long run, it has to respond to any change in customer needs.
• It is easy to see how and why a business that produces and sells fashion items, such as clothing, must
constantly identify and satisfy the changing needs of its customers.
• However, as you learnt earlier, changes in tastes and fashion are not the only influences on consumer
spending.
• Why some markets become more competitive
• Almost all markets have some level of competition within them. However, some markets have seen
a much greater increase in the level of competition than others.
• Increased competitive market means “a greater number of businesses producing products aimed at the
same market segment .A number of similar companies , as this shows an understanding of a competitive
market
• There are several reasons for this are:
• Government intervention in markets:
• In many countries the government is an important influence on business activity Governments can
affect competition in markets through:
• Legal controls that prevent individual firms from dominating the market; for example many countries
such as India have laws against anti-competitive behaviour.
• Selling off public sector organisations to the private sector. This is known as privatisation, for example
the privatisation in 2012 of Glen Valley and Dikabeya farms, Tanzania
• Deregulation - the removal of government controls from an industry, for example the deregulation of
postal services in New Zealand.
• Providing financial and other assistance to new and small to medium-sized businesses; for example,
the Small Enterprise Development Agency (SEDA) in South Africa helped the owner of Inembe
Food prove that their baby food porridge was full of multivitamins and minerals and safe for babies to
eat. This helped the owner of Inembe Food to secure the financial support needed to set up production
facilities. The product is now widely available in supermarkets across South Africa.
• Growth of free trade between countries
• Regional free trade agreements remove or reduce barriers to trade between countries.
• Development of e-commerce and social media networks
• Many businesses have developed their own websites and use these to sell their goods to customers
in other regions of their own country and to customers in other parts of the world.
• The development of e-commerce has increased the size of a business’s market but it has also greatly
increased the level of competition in that market.
• Social media network sites such as Facebook are also being used by businesses to promote their
products.
• Consumers have much more information about the suppliers of products and, while this has
increased consumer choice, it has also increased competition within the marketplace.
• How business respond to changing spending patterns and increased competition
• If businesses do not respond to changing consumer spending patterns and more competitive
markets, they are unlikely to survive.
• There are a number of actions a business can take to respond to changes in consumer spending
patterns and increased levels of competition.
• These include:
• Product development:
• Market research will identify how the needs and wants of consumers are changing.
• This information can be used to develop new products to satisfy the changing needs and wants of
consumers.
• Developing new products will help a business to remain competitive.
• Improve efficiency
• the efficient use of resources will help a business to reduce average costs.
• If average costs are reduced then a business will be able to reduce the prices of its products.
• You have already learnt that a decrease in price will increase sales.
• In very competitive markets, price can be an important factor for consumers when choosing whether
or not to buy a product and, if they do decide to buy, who they buy the product from.
• Increased promotion:
• increasing advertising to persuade consumers to buy your product and not that of competitors is
another way a business might respond to changing levels of competition and consumer spending
patterns.
• Other promotional techniques such as buy-one-get-one-free and money-off coupons
may also be used to persuade consumers to purchase a firm’s product instead of a competitor’s
product
• Look for new markets
• sometimes consumer spending patterns change so much, or the level of competition in a market
• becomes so great, that the better option is for a business to look for new markets for its products.
• Markets where there is less competition and where consumers are more likely to buy the product.
• benefits for consumers of increased competition.
• lower prices
• so goods more affordable – so able to buy item/more items/save some money for other things
• better quality
• as businesses will compete to produce goods to attract customers,
• better value for money
• as could see more features for same amount of money as
• business try to gain consumers/sales
• wider choice of goods produced so more likely to find something to meet individual needs
• better customer service/extra services
• as businesses try to treat customers nicely to ensure they don’t switch to rival companies
• market share
• Percentage of the total market sales held by one brand or business
• business sales/total market sales × 100
• A business with largest percentage of total sales revenue/share of the market (in terms of sales, revenue,
output) or biggest share of market would be known as ‘market leader’
• Methods used to increase market share can include
• improved quality of products
• widened product range
• bought out rivals/takeover/merge
• promotion/advertising
• pricing e.g. Short-term price promotion to encourage more customers to buy more products as they
are cheaper
• improved customer service
• more sales outlets.
• Increase in market share might lead to profit in some situations but wont lead to any profit at times
depending the type of business and market.
• situations leading to profit can be as follows:
• Larger market share due to increased sales volumes may lead to purchasing economies of scale
when buying raw components materials, reducing unit cost increasing margins
• Stronger brand recognition which could improve competitiveness as customers are more likely to
trust and buy from the business
• More power to charge higher prices - if new design or feature added to product to
• gain additional revenue , which leads to an increase in profits (if costs rise at lower rate) but the market
share might not increase
• increased market share at times won’t lead to any profit, why?
• Lower prices could increase sales but might lead to lower revenue as people only buy cheaper
products available
• If larger share of a smaller market sales volume might have fallen as people now have the products the
business sells
• Reasons why business might want to enter a new market
• Spread risk
• Economies of scale
• Increase sales OR market share OR target market
• Home market saturated
• Greater recognition OR brand awareness
• Access to cheaper labour OR resources
• Fewer trade restrictions
• problems that a business might have when trying to enter a new market
• lack of knowledge of the market so produce a product that is not wanted
• issues of entering a foreign market e.g. language barriers/exchange rates
• competitors’ reaction could lead to price war
• government laws might restrict what they can sell
• customer loyalty might not switch to a new company’s products
• cost of developing new products leading to high price needing to be charged / cash flow issues
• lack of suppliers so unable to find enough materials
• identification of suitable places to sell from different products might sold in different places
• customer loyalty
• A customer who returns and buys multiple times. Customer keeps buying the same brand no matter what
the price is customer loyalty
• methods that business could use to maintain customer loyalty
• Communicate with customers e.g. newsletters, social media
• so that they remember your business when they next need new product or after sales services for your
product.
• Offer good quality service
• so that customers want to return rather than go to one of its many rivals
• Extra services e.g. delivery/credit facilities/after sales/training
• Offer rewards [discounts] to existing customers/loyalty card
• so, consumers have an incentive to return
• Train staff
• so, they are able to offer a good quality service
• Ask for feedback e.g. surveys
• to provide the repairs/service that customers require
• Resolve complaints quickly
• so that customers don’t go to rivals
•
• Niche Marketing
Marketing and Mass
• What is niche marketing?
• Niche market is a specialised sub-part of a larger market with specific characteristics
• Developing products for a small segment of the market.
• A niche market is a very small part of the whole market.
• For example, a business that specialises in supplying hand-tailored suits is part of the much larger
market for men’s clothing.
• Niche marketing identifies the needs of this small part of the whole market and then develops
products to satisfy those needs.
• Businesses in a niche market often sell high-priced and high-status goods, for example Rolex
watches and Rolls-Royce motor cars.
• However, some businesses may target niche markets where the product is not particularly high status
or high priced, for example wedding cakes.
• What is mass marketing?
• Selling the same product to the whole market.
• Mass marketing is the opposite to niche marketing.
• This is where a business sells the same product to the whole market, for example flour.
• This type of marketing is less popular than it used to be. Most businesses now see the benefits of
dividing the market and providing a slightly different product to each segment.
• This recognises that consumers do not all want the same product; for example, toothpaste is
produced for sensitive teeth, for children’s teeth and in different flavours.
• Dividing the market so that products better meet the needs of different types of consumers can help
to increase sales, revenue and profits.
• Benefits and limitations of niche marketing and mass marketing
• Benefits of niche marketing
• Small firms are able to survive and earn profit even in markets that are dominated by larger firms..
• There is less competition in these markets. Firms do not waste scarce resources responding to
competitor actions
• Consumers will usually pay more for a high-status, exclusive product. This offers firms the
opportunity to charge high prices and earn high profit margins.
• Limitations of niche marketing
 • The opportunity to earn high profits might attract competitors and this will reduce prices and future
profits.
• The small size of the market means that economies of scale are unlikely to be achieved. This means
that unit costs are higher than they would be if the product was sold to a mass market.
• Small changes in consumer spending patterns could have a very significant impact on firms operating
in niche markets.
• Benefits of mass marketing
• Mass marketing requires large-scale production. Larger firms often benefit from economies of scale,
which reduces unit costs
• A much larger market has the potential for high sales and profits
• Changes in consumer spending patterns might have less effect on firms selling to a mass market. This
reduces the risk to firms who operate in mass markets.
• Limitations of mass marketing
• There is much more competition in the market, which lowers prices and profit margins
• Not all markets are large enough to support a mass marketing approach
• Consumers today are often looking for something slightly different from that offered by same product
mass marketing.
• This has led to greater division of the whole market and reduced the scope for mass marketing.
• Benefits and limitations of business depending on one customer
• Benefits
• bulk order
• lower administration costs
• able to negotiate better terms
• able to adapt quicker to changes in customer requirements
• stable customer which is not likely to go bankrupt can be profitable for the business
• develop better supplier/customer relations
• which can help build up loyalty/reliability to enable them to make requests such as when payments
made
• certainty of sales
• so, less time and money spent trying to attract new customers as
• less wasted resources
• as parts/products likely to meet customer requirements
• reduction in costs of marketing
• as already have firm orders for majority of parts so don’t need to spend as much attracting new orders
• reduced transport costs
• as over half of stock going to the same customer, rather than lots of places
• limitations
• dictated to by large supplier
• if order is lost then major difficulties for business

• Market Segmentation
• large customer may be slow to pay leading to cash-flow problems

• What is market segmentation

• Market segmentation implies break up of a market into subgroups which have common characteristics
• Dividing the whole market into segments by consumer characteristics and then targeting different products
to each segment.
• Nowadays one group of consumers often wants something different from other groups of consumers.
• There are several reasons for this including differences in culture, religious beliefs and consumer tastes.
• The whole market can, therefore, be divided into different parts according to the different wants of each
group of consumers.
• Each part of the whole market is known as a market segment.
• Dividing the whole market into different segments is called market segmentation.
• How market can be segmented
• Geographic segmentation
• Geographic segmentation recognises that consumers in one location may have different needs from
consumers in another location. The locations may be:
• different regions within the same country
• different regions of the world
• different countries in the world.
• The geographical differences may be due to cultural reasons, religious beliefs or
even different climates.
• Demographic segmentation
• Demographic segmentation is a method of dividing the whole market according to the characteristics
of the population.
• The diagram below illustrates the main factors that maybe used to segment a market using population
characteristics.
•
KEY TERM

• These factors are often combined when segmenting a market;

• for example the Australian Tourist Commission divides the travel market into specific segments,
including:
• independent adventurers aged 25-34 (primary market)
• young independent travellers (YITs) aged 18-24 (secondary market)
• independent adventurers aged 45-65.
• Psychographic segmentation
• Psychographic segmentation is a method of dividing the whole market according to the lifestyles,
personalities and attitudes of consumers
• Benefits of segmentations to business
• All these methods divide the whole market into smaller groups. Whichever method is used to separate
consumers into different segments or groups, segmentation has many benefits given below:
• Goods and services can be designed to meet the specific needs of consumers in each segment.
• This is likely to increase sales.
• Small firms which may not be able to compete in the whole market are able to operate in one or two
segments - perhaps a niche market.
• Segmentation of the whole market sometimes identifies a segment of consumers who have very
specialised needs that are not currently being satisfied.
• This presents an opportunity for niche marketing.
• Marketing strategies can be better targeted at each segment.
• This reduces the waste of scarce resources.
• For example advertising can be directed at the target market and not wasted on trying to sell the
product to the whole market.
• It may be possible to charge higher prices for very similar products in one segment than in another.
• This is known as price discrimination. For example, air travel will often have three types of passenger:
first class, business class and economy class. They all travel on the same aeroplane, but pay very
different prices.
• This enables the airline to earn higher profits from those passengers prepared to buy first or business
class tickets.
• Choosing a method of segmentation
• There is no one correct method of market segmentation.
• Very often the method chosen will depend on the type of product or service that a business wants to offer
to the market For example, a holiday company might use demographic segmentation to divide the market
for its products according to the family size of consumers.
• Consumers with young children will probably be looking for a completely different holiday from a single
24-year-old, or a retired married couple.
• Benefits and limitation of Switching to a different market segment for the business
• Benefits
• Wider market so possibility of additional sales
• Limitations
• Different customers may have different needs so have to adapt their services
• Need to advertise to potential customers who might read different newspapers which will increase
costs
• Cost of market research as it is a market orientated company they will want to know more about these
customers

• The Role of Market Research

• Reaction of existing competitors which could lead to a price war

and methods used

• 1. Business plan
• It is a document containing the business aims/objectives and important details about the operations,
finance and owners of a business OR states aims/objectives and shows how business aims to achieve them
• Main sections of a business plan
• Executive summary
• Business aims OR targets OR vision statement OR objectives
• Marketing OR any element of mix, e.g. pricing, product, place or promotion
• Market research OR Competition OR market analysis•
• Financial, e.g. cash flow forecast OR budgets
• Human resources OR number of employees OR skills needed
• Production details
• Organisational OR management details, e.g. structure, type of business, name and location of business
• Benefits of having a business plan
• Support loan applications as bank/lenders will want to know that loan can be repaid by the business
• Clear aims/guidance for business so they know what they have to do to get there
• help decision making so business will not waste time and money targeting the wrong people
• helps understand the possible risks as they might not have run a business before
• provides an estimate of costs for the business so the business will know how much they need
• Act as a checklist / track progress -provides a checklist as they set up so that they don’t forget any
important task
• the role of market research and methods used
• Market research provides businesses with important information about the markets in which they operate,
or are planning to operate in. It involves collecting and recording data about customers, competitors and
the market for a product, and then analysing the results. Market research gives a business information
about:
• Its customers
• Its competitors
• Its market
• The information obtained from market research help a business to:
• Find out what consumers like and dislike about its products
• Identify consumer taste and preferences
• decide on the best promotion, packaging and distribution methods for its products
 • identify the main competitors and what is special about their products - this is known as the product’s
unique selling point
• know the size of the market
• explain the reason for the sales of its current products
• predict how the demand for its products may change in the future.
• Advantages of market research
• better understand customer needs
• able to predict future customer requirements
• increased awareness of customers like and dislikes
• awareness of the type of customer who buys certain products
• construction of consumer profile
• size of market/market segmentation
• Market-oriented businesses
• In today’s business world most firms are market-orientated.
• This means that the decision about what to produce is based on consumer demand for products as
identified by market research.
• This is a very different approach from product orientated businesses. With this approach it is the business
which decides what to produce and after doing so it tries to find customers who want to buy the product.
• There are two main benefits of a market-orientated approach are
• The risk of new products failing is reduced because they have been produced following market
research which identified the needs of consumers.
• Products that meet the needs of consumers are likely to last longer in the market than goods which
have been produced using a product-orientated approach.
• This leads to higher sales and profits.
• Use of market research information
• Identify consumer needs.
• This reduces the risk when developing and launching new products because the products have been
designed and produced based on the market research information provided by potential consumers of
the product.
• Discover the current and future market size for the product.
• Provide information about the business’s existing products and markets.
• Identify the strengths and weaknesses of competitor products.
• This information can be used to make sure that any new product development builds on the strengths
of competitors’ products while improving on the weaknesses.
• The aim is to produce a better product than competitors and lead to a successful launch of the product
into the market.
• Decide on how to price and promote the product and how best to distribute the product to customers.
• Predict how changes and trends in consumer tastes and fashion may affect the future demand for
products
• Primary research
• Primary research: the collection of first-hand data for the specific needs of the firm.
• first-hand, for example interviewing people in the street about their views on local shopping facilities.
• This is data collected by an organisation for the first time and for its own specific needs.
• Secondary research
• The collection of data from second hand sources.
• Secondary research uses data that already exists.
• for example, data that a business holds in its records about existing customers. However, most secondary
data has usually been collected by another organisation and for a different purpose.
• Internet
 • data and information about almost any topic are available on the internet and can easily be found
using search engines such as Google.
• Many businesses have their own websites which may also be a useful source of information.
• However, care must be taken to make sure that the data obtained is valid and not out of date.
• Government publications
• most governments publish data and information related to their own country, for example population
statistics and the support available for businesses .
• Increasingly this information is available from official government websites such as the Kenyan
government’s website www.e-government.go.ke.
• Newspaper and magazines:
• These report information about the local, national and international economies.
• Most newspapers have a business section and many magazines are specific to a particular industry, for
example the Oil and Gas Journal
• Libraries
• large towns and cities in many countries have public libraries giving free access to printed materials
and often internet access.
• Market research agencies
• These are companies whose business is the collection and analysis of market data which they sell to
other businesses, for example RNB Research which has Pan-Asia coverage including China, India
and the UAE.
• Business records
• businesses collect information about their customers, which they might keep on a computer database.
• These records might include information such as the customer’s name, address, what they purchased
and when they last made a purchase from the business.
• Past financial records might also be a useful source of secondary information, for example for
comparing profit trends over the past few years of trading.
• Benefits
• Primary research
• Data is up to date
• Data is collected for a specific purpose which is directly relevant to the business
• It is not available to other businesses.
• This may provide a competitive advantage.
• Secondary research
• It is fairly cheap to obtain
• It is easier and quicker to obtain that primary research data
• Limitations
• Primary research
• It is costly to collect.
• It is time-consuming
• There is a risk of the data being inaccurate or containing bias, for example if the interviewer asks
a question that leads the interviewee to give an answer which they might not have intended. Also, if
the sample chosen to be surveyed does not represent the whole population then the results will not
reflect everyone’s opinion.
• Secondary research
• It may have been collected some time ago, so is not up to date.
• It has not been collected for the specific purpose required by the business so may not be as reliable or
as useful as primary data.
• Methods of primary research .
• Quantitative research
• Quantitative research produces numerical data which can be presented in tables, graphs or charts. It
 can be further analysed using statistical techniques.
• Qualitative research
• Qualitative research aims to find out consumers’ opinions about products and the factors that influence
their buying decisions.
• Businesses can collect market research information in several different ways.
• All of the methods shown below can be used to collect both quantitative and qualitative data, except for
focus groups which are used to collect qualitative data only
• Focus group
• This method of research is most often used by manufacturers of consumer products, for example hair
shampoo, to collect qualitative data.
• A group of consumers is invited to discuss topics such as new products, packaging, brand names and
advertisements.
• The discussions are often recorded or filmed. Focus groups are a very good way for a business to find
out from ‘typical’ consumers what they think about a product and its marketing.
• For example, a hair shampoo manufacturer can find out what consumers think of the colour, smell,
name and packaging of a new shampoo.
• The results of the focus group might then be used to change one or more of these features to try to
improve its successful entry into the market.
• The main limitations of this method are that it can be time-consuming to arrange and there is no
numerical data collected, which makes statistical analysis impossible.
• Observation
• The behaviour of consumers is secretly observed and recorded by market researchers.
• This method of primary research is often used by large supermarkets who observe the behaviour of
customers as they select their products from the many options available on the shelves.
• The main advantage of observation in primary research is that what consumers do is often more
accurate than what they say they do when answering questions asked by interviewers or on a
questionnaire.
• Some businesses also use observation to check the quality of service they are providing to customers.
• For example, a hotel might use a mystery guest’ to visit and stay at the hotel and report back to
management about their experience.
• The main problem with this method of research is that it is often more expensive than other methods
because of the need to have trained observers to analyse customer behaviour and there is no
opportunity to ask consumers why they behaved as they did.
• Test market
• A limited quantity of the product is produced and sold in a carefully selected area of the market.
• The test market is chosen to represent the total market. Feedback from consumers is used to make
changes to the product or other elements of the marketing mix, such as pricing, promotion and place
where the product is sold, before launching the product to the main market.
• The main advantage of test marketing is that the cost of any problems is limited to a smaller output-
the quantity produced for the test market. Identifying and solving problems in the test market
increases the chance of a more successful introduction of the product into the main market.
• The main limitations of test marketing are that it takes longer to get the product to its main market and
the cost of producing products for the test market makes this method of primary research more
expensive than other methods.
• Consumer surveys
• Surveys can collect both qualitative and quantitative data, often with the aid of a questionnaire. There are
several methods used to survey consumers or potential consumers including:
• Interviews
• A trained interviewer asks questions to an interviewee and records their answers.
• The interview might take place in the street, in the businesses premises, for example a supermarket, or
in the interviewee’s own home. Some interviews may be conducted by telephone.
• The main advantages of interviews are that the interviewer can explain any questions that the
 interviewee does not understand and they can often tell if the interviewee is replying honestly -if not
then their responses can be ignored and this reduces the risk of collecting inaccurate data.
• Postal surveys
• Questionnaires are posted to people’s homes and they are asked to complete and return them.
• This is a good way of getting the views of a population spread over a wide geographical area and is
much cheaper than the interview method.
• However, postal surveys are often seen as ‘junk mail’ and thrown away.
• This produces a very low response rate. The results of postal surveys might also contain bias because
only those people with a real interest in the subject of the survey bother to reply.
• Online surveys
• Many businesses now use the internet and their own websites to carry out surveys.
• The main advantage of online surveys is that they cover a very wide geographical area - anyone with
internet access can take part.
• Also, the results typed into an online questionnaire and can be instantly collected and analysed.
• The main limitations of online surveys are similar to those for postal surveys. They are often seen as
‘electronic junk mail’ and the risk is that only those with a real interest in the subject take part and the
results cannot be relied upon as representing the views of the whole population.
• The need of sampling
• When carrying out primary research it is often too expensive and too timeconsuming to get the views of
every consumer in the market.
• This problem can be overcome by selecting a sample from the total market.
• There are different methods of sampling, such as random sampling, stratified sampling and quota
sampling.
• The method chosen must produce a sample which is representative of the whole population.
• If the sample chosen is not representative of the population then this may produce results which are biased
and misleading.
• Accuracy of market research data
• We have seen how important it is for businesses to collect, record and analyse market research data to help
in the decision-making process.
• However, it is important for users of market research data to recognise that the data may sometimes be
inaccurate.
• This can be due to one or more of the following reasons:
• The sample chosen may be too small or not representative of the population.
• The business may have chosen the wrong type of method to collect the data.
• People who are interviewed as part of the market research process may not answer questions
truthfully.
• When a survey involves an interview, the interviewer may ask questions in a way that encourages the
interviewee to give an answer that does not reflect their true view.
• The language used by the interviewer, or used in a questionnaire, may be unclear or difficult to
understand.
• The data may be recorded incorrectly, or numerical analysis may be carried out incorrectly.
• Secondary data may be out of date. Secondary data may have been collected for a different purpose to
the one it is now being used for.
• Benefits and limitation to business of asking customers to complete questionnaires.
• Benefits
• Large amounts of information can be collected in a short period of time
• Many people can be asked the same questions helps increase the sample size
• Respondent has time to consider question so more likely to complete
• Relatively easy to analyse (as standard responses) about poor customer service so quickly able to do
 something to solve it
• Limitations
• Questions may be poorly worded OR difficult to phrase questions properly OR people interpret
questions in a different way so business makes the wrong decisions
• People may not tell the truth OR say what they think sounds good
• Simple questionnaires cannot tell the meaning behind a response
• Customers may not return / fill in the questionnaires
• May have to pay someone with the right skills to design the questionnaire properly
•
•

• Presentation
•
and
research use of market
results
• Qualitative research
• Qualitative research, such as that obtained from a focus panel or test market, is usually presented in the
form of written reports.
• Managers use these when making decisions about what to do next, for example whether the product
design should be changed, or whether they need to change the colour of the packaging.
• Quantative research
• Quantitative research consists of data, usually lots of numbers.
• On their own the numbers have little meaning.
• So the data has to be presented in a way that users will understand and be able to use.
• This includes tables, charts, graphs and pictograms.
• Tables
• Data is often presented in a table, such as the one shown in Figure 11.3. The advantages of tables are:
• A large amount of data can be grouped and presented more clearly.
• It is easy to extract numerical data.
• The main disadvantages are: They lack visual impact.
• Too much data in the table can make it difficult for users to understand
• These disadvantages can be overcome by presenting numerical data in charts and graphs.
• Bar charts
• The data is shown as bars or columns.
• The bars can be drawn vertically or horizontally. The height of each bar shows the size of each answer.
• The height or length of bars can be easily compared.
• The advantages of bar charts are:
• You can easily see the importance of each piece of data.
• You can read numerical values from the axis.
• However, there are also disadvantages, such as:
• When the data values of the parts are very similar, it is difficult to compare the different parts and the
chart loses visual impact.
• Pie charts
• Pie charts are drawn as circles. Each part of the data is shown as a ‘slice’ of the pie. Each ‘slice’ shows the
relative importance of each part of the data
• The advantages of pie charts include:
• They show how important each part of the data is compared to the other parts.
• They are easier to understand for people who dislike numerical values, as there are no numbers.
• The disadvantages of pie charts include:
 • If there are too many ‘slices’ then it is difficult to see the relative importance of different parts of the
data
• Pictograms
• This method uses pictures or symbols to represent data. Every picture or symbol has a numerical value
• The advantages of pictograms include:
• Data is represented by pictures and not numbers and this helps people who are less numerate.
• But there are disadvantages, such as:
• It is difficult to show exact quantities using pictures.
• Line graphs
• This type of graph shows the relationship between two variables. They are useful to show trends - how
data has changed over time.
• Advantages of line graphs are:
• They clearly show trends.
• Values can be read off from both axes.
• Data can be added for future time periods.
• However, there are also disadvantages, such as:
• They can be difficult to draw and accuracy depends on choosing appropriate scales for both axes.
• Analysing market research
• Using the above presentation methods makes it easier to analyse, and draw simple conclusions from,
market research data.
• For example, bar charts, pie charts and pictograms make it easier to see the relative importance of different
parts of the data.
•
• Product
Line graphs are useful when comparing the trend of data over time.

• Product
• the goods and services produced to satisfy a customer need or want.
• When a new product is launched on to the market, consumers may see it advertised and buy it once.
• The business may also sell the product at a low price to encourage consumers to buy. But if the product is
not right’, because it does not meet the needs and expectations of customers, they will not buy it again.
• Successful products are bought over and over again by customers.
• This helps to build the brand and develop both customer loyalty and brand loyalty
• Cost and benefits of developing new products
• Most businesses operate in very competitive and/or fast-changing markets.
• The survival and continued success of these businesses depends on developing new products to meet the
changing needs and expectations of customers.
• They may need to:
• develop new products
• change an existing product to meet the changing tastes of customers change an existing product to
enter a new market.
• New product development can be very expensive.
• Even if a product is developed following market research, this does not guarantee success.
• The costs and benefits of developing new products are shown below:
• Costs of new product development
• Market research needs to be carried out to identify customer needs.
• This can be very expensive.
• The development of a new product often requires large capital expenditure
 • There is no guarantee that a new product will be a success. Some products never make it to market.
• If the investment in a new product is financed by borrowing and the product is not a success, then this
could threaten the survival of the business.
• Benefits of new product development
• In fast-changing markets, such as those involved with hi-tech products, a business will not survive
unless it meets the changing needs and expectations of customers.
• Developing a new product before competitors will bring competitive advantages.
• The business may be able to charge a high price and achieve high sales producing high profits.
• New products developed for new markets increase potential sales, revenue and profit
• Developing new products to add to those already being produced by the business spreads risk.
• The development of new products might help to achieve growth and bring benefits from economies
of scale.
• Brand image
• A brand is the name given by a business to its product or range of products.
• It allows a business to distinguish its products from those of its competitors.
• Creating a brand image increases a business’s sales and revenue because:
• Consumers recognise its product more easily when looking at similar products.
• Its product can be priced higher than less well-known brands.
• It is easier to launch new products on to the market because consumers already know and trust the
brand and so are more likely to try it than if it was from an unknown brand -they have customer
loyalty.
• The role of packaging
• Most products bought by consumers are packaged.
• The design and materials used in the packaging of products can be important in promoting the product.
• Poorly designed or poor quality packaging may influence consumers so they think the product inside is
not very good.
• Well-designed, imaginative packaging, using good quality materials sends the message to consumers that
‘This is a goodquality product’
• Packaging is an additional cost which increases the final price of the product.
• Businesses must not spend too much money on packaging as this may increase the price above the level
consumers are willing to pay.
• In recent years consumers have become more aware of environmental issues.
• This has led to many businesses using recycled materials in their packaging, or the packaging itself can be
recycled.
• you should have identified the following roles of packaging:
• to protect the product
• to provide information about the product
• to help consumers recognise the product.
• You may have identified other purposes of the packaging which are also important in helping to promote
and sell the product such as:
• The packaging might have a use once the product has been used up, for example a coffee jar might be
a storage jar.
• To keep the product fresh once the packaging has been opened, for example the inside packaging of
breakfast cereals.
• The product life cycle
• All products have a life cycle. The life cycle represents the sales of the product over time. The product life
cycle is divided into four main stages, as shown below:
•
• Introduction stage
 • The product is introduced into the market. Sales are low.
• The product might be making a loss in this stage because of the cost of heavy advertising to gain
product recognition.
• Growth stage
• The product is becoming better known to consumers.
• Sales are increasing.
• The product usually starts to earn profit during this stage.
• Maturity stage
• sales are no longer growing but are not falling.
• This is the most profitable stage in a product’s life cycle
• Decline stage
• Sales are falling.
• The product eventually becomes unprofitable and is withdrawn from the market.
• The length of each stage of a products life cycle varies from product to product.
• The overall life cycle of different products also varies.
• For example, when Apple introduces a new iPhone, it spends very little time in the introduction and
growth stages compared to less hi-tech products.
•
• Fashion clothing has a much shorter life cycle than a motor car.
• Fashion clothing is introduced into the market and quickly grows and reaches maturity.
• It might only be in the market for a few weeks or months before it goes into decline as it is replaced with
the ‘latest’ fashion.
•
• Motor cars will have a longer life cycle and will take longer to reach maturity.
• They will eventually be replaced by a ‘newer’ model, but this could be two to five years after their
introduction to the market
• Extension strategies
• The maturity stage is the most profitable stage of a product’s life cycle.
• A business will want to keep the product in this stage for as long as possible.
• It tries to do this by using extension strategies.
• Extension strategies include:
• Finding new markets for the product:
• Owners/managers will look to see if there are other markets for their product, perhaps entering foreign
markets.
• Finding new uses of the product
• the research and development team might look to see if the product can be used for something other
than what it was originally intended for, for example a fizzy drink which is promoted as having
benefits as a sports drink.
• Adapting the product or the packaging to improve its appeal to consumers:
• very often the product does not change but the packaging is redesigned by the business to give it a
‘fresh’ and more up-to-date appeal.
• Increased advertising and promotional activities:
• The marketing function looks at other ways of promoting the product to perhaps appeal to a new
market, or to remind the existing market that the product is still available.
• How the product life cycle influences marketing decisions
• Each stage of the product life cycle may require a different marketing mix.
• For example, advertising and other promotional activity is likely to be a lot higher when a product is being
introduced into the market than when it is entering the decline stage.
•
• producing wide range of products would lead to
• Broaden target market/ increased sales could help spread risk
• Cost of additional inventory which will increase variable costs
• Space as need to store / display the new clothing
• Reaction of competitors could reduce revenue
• Lack of experience so workers may need training, increasing its costs
• Packaging
• reasons why packaging is important for the products
• List ingredients
• must state what it contains to avoid legal action
• Promotion
• to attract customers to buy from the new business
• e.g. attractive wrappings could encourage people to buy the food to taste
• Inform customers about the products uses
• so, people know what is in its products
• e.g. could include nutritional information on labels or how to cook the food
• Protection
• keep item fresh so the products are not damaged otherwise products might be wasted
• Boost brand image / impression of high quality
• which can help increase sales / revenue
• Style or colour of packaging could help boost brand image
• Easier to store / transport
• Packaging performs a number of functions to include:
• protects in transit
• inducement at point of sale
• eye catching and general attractiveness
• contains information and as such is a form of advertising
• facilitates ease of movement for the consumer
• creates brand awareness
• cost
• legal/safety information
• factors that business needs to consider in designing the packaging for its products.
• Packaging needs to be:
• attractive
• functional/protective
• in keeping with the image of the product/brand name
• at an acceptable cost
• complying with legal requirements
• branding
• advantages to a business of branding.
• able to differentiate product from rivals
• way to encourage brand loyalty so maintain level of sales
• means to attract potential customers
• means of achieving a competitive advantage
• able to charge higher prices as products can be seen to be of higher quality
• instant recognition/well known/identity/brand image
• way to add value to a product
 •
• Price
easier to launch new products as customers are aware of and/or trust name

• Price
• The amount paid by the customer to the supplier when buying a goods or services.
• Price is a very important part of the marketing mix because it is often the most important influence on
customer demand for a product.
• The market for most goods and services is very competitive.
• Consumers often base their buying decision, in part, on the price of the product.
• If there is very little difference between product quality and function then the consume is likely to buy the
lower-priced product.
• Even if consumers think a product is better than a similar product, they may not be able to afford the
higher price for the better product.
• Some consumers will only buy a product if the price charged is very high!
• This is because being able to afford such products gives the consumer a certain status, for example very
expensive items of jewellery, one-off designer clothing and top-of-the-range sports cars.
• The price of a product might also be affected by the availability of supply; for example, if a product
becomes scarce, perhaps due to a poor harvest, then this will Price cause the price to rise.
• Pricing Methods
• Market skimming
• A business may decide to set a high price for a new product which is unique or very different from
anything on the market.
• This is known as market skimming. For example, when Google introduced its Google glasses, it was
able to charge a very high price because it is a unique product and consumers are willing to pay more
for the very latest technology.
• Consumers may also want the status of owning the latest version of a Product and are prepared to pay
a high price for this.
• The development of new medicines also attracts skimming pricing.
• The companies who develop these new medicines are given legal protection from any other company
copying their product for a certain period of time.
• During this time they are able to charge a very high price for the product they will have spent many
millions of dollars researching and developing.
• The profit earned when using market skimming is very high. Businesses sometimes need a large
profit to get back the high costs of research and development of the product.
• Penetration pricing
• Penetration pricing is also used for new products.
• The price is set at a lower level from similar products already on the market.
• The low price may encourage consumers to try the product. Once the business has built up some
customer loyalty for the product it usually increases the price to a level similar to that of its main
competitors.
• Competitive pricing
• In many markets the level of competition is very high and firms selling in these markets will often
charge similar prices to each other.
• This is because the products are often very similar with no strong brand advantage for any producers.
• If a business charges a higher price than its competitors it is likely that consumers will not buy its
product because they can get similar for cheaper.
• Competitive pricing is used for pricing both new and existing products:
• If a business has a good brand image and loyal customers, then it may use competitive pricing when
launching new products which are similar to those already on the market.
• This is because consumers will believe the product to be of the same high quality as the firm’s other
products.
 • Products that were introduced to the market using market skimming or penetration pricing methods
will need a different method of pricing because eventually competitors will enter the market with
similar products.
• The greater the competition in a market, the lower prices will be. They may be priced using
competitive pricing.
• Promotional pricing
• There are several methods of promotional pricing.
• They are used for different reasons but all involve pricing the product as low as possible for a limited
period to get consumers to buy.
• Loss-leader pricing is most often used by retailers, such as supermarkets.
• They offer a few products well below the normal price, sometimes even at a loss.
• These prices attract customers into the store who will also buy other products at their normal,
profitable prices.
• Buy-one-get-one-free pricing is used to create product awareness and develop customer and brand
loyalty.
• Discounting the normal price is also used to create product awareness and build up customer loyalty.
• Sometimes it is used by businesses wanting to sell off surplus inventory.
• Cost-plus pricing
• Cost-plus pricing is based on the cost of making the product or buying the product for resale to the
final consumer.
• There are two main methods of cost-plus pricing:
• Mark-up pricing
• Full-cost pricing
• Both methods are very similar.
• The price is set by adding a fixed amount- usually a percentage -to the cost of making or buying the
product.
• Features
• Market skimming
• A high price is set to maximise short-run profits.
• When competitors enter the market with a similar product then this will cause a price to fall..
• Penetration pricing
• The price is set lower than similar products already on the market to encourage high volume of sales
and build customer loyalty.
• Once customer loyalty has been gained for the product, the price will be increased to a level similar to
that of competitors.
• Competitive pricing
• The price is set at a level similar to that charged by competitors.
• Cost-plus pricing
• Price is set by adding the required profit percentage on to the cost of making the product.
• Promotional pricing
• The normal price is discounted, sometimes below cost- known as loss-leader pricing.
• Or consumers are offered more of the product for less than the full price - buyone-get-one-free, or
25% extra ‘free’.
• Uses
• Market skimming
• New products that are unique or very different from other products on the market.
• Penetration pricing
• Used for new products that are competing with similar products already established in the market.
• Competitive pricing
• New products where the business already has a good brand image and loyal customers.
 • Existing products that have previously been priced using market skimming or penetration (see above).
• Cost-plus pricing
• Retailers often use this method when deciding on the final price of the product to the consumer.
• Promotional pricing
• Loss-leader pricing is used by retailers to attract customers into the store.
• They buy not only the lossleader but also other goods at their normal price.
• Other promotional pricing is used to create brand awareness and customer loyalty, or to sell off
surplus inventory.
• Benefits
• Market skimming
• The high price enables the firm to recover research and development costs which are often very high
for products such as pharmaceutical products and hi-tech goods.
• The high price may help the firm to create a quality image for its products.
• Penetration pricing
• Attracts customers more quickly and helps the product to become established in the market.
• Can increase market share quickly.
• Competitive pricing
• Prices are similar to those of competitors so the business can compete on things it might be better at
such as quality of product, or customer service.
• Cost-plus pricing
• Quick and easy to work out the price.
• Makes sure that the price covers all of the costs.
• Promotional pricing
• Good way to sell off unwanted inventory before it becomes out of date.
• A good way of increasing short-term sales and market shares.
• Limitations
• Market skimming
• The high profits will eventually attract cheaper competitor products.
• Some customers who would like to buy the product are not able to do so because of the high price.
This means a loss of sales.
• Penetration pricing
• Possible loss of revenue due to lower prices.
• Cannot recover any development costs quickly and if the life cycle is too short then development costs
might never be recovered.
• Competitive pricing
• If the market has a price leader then this price would need to be followed otherwise customers and
market share will be lost.
• Still need to find ways of competing in order to attract sales.
• Cost-plus pricing
• Price might be set higher than those of competitors or than customers are willing to pay.
• This reduces sales and profits.
• Choosing a pricing method
• Is it a new or an existing product?
• When a product is new to the market it might be priced lower than a product in the growth or maturity
stage.
• This is so it can gain sales and develop customer loyalty to the product.
• When a product enters the decline stage its price might be lowered to sell off the last remaining
inventory.
• Is the product unique?
 • A skimming strategy - charging a very high price - might be used for a product that has no close
substitutes.
• For example, the latest model of iPhone or iPad is often launched on to the market at a very high
price.
• Once similar products enter the market, the competition will cause prices to fall.
• Is there a lot of competition in the market?
• Very competitive markets will result in most firms charging very similar prices for their products as
consumers will buy the least expensive if there is little to choose between them.
• Does the business have a well-known brand image?
• Companies such as Sony and Cadbury are able to charge a higher price for their products even though
competitors have similar products on the market.
• This is because consumers trust the brand and consider the products to be of a better quality than
cheaper alternatives.
• What are the cost of making and supplying the product?
• Clearly, the price has to be greater than the cost of making and marketing the product so that the
business can earn profit.
• What are the marketing objectives of the business?
• If the business wants to increase market share by volume of sales then it might charge a lower price
than competitors.
• However, if the objective is to maximise profit, then it might have a different pricing strategy.
• factors a business should consider when deciding the price of a product
• Cost of production
• examples of costs e.g. cost of materials/labour/transport (allow only once)/breakeven/profit mark up
• Level of demand
• or factors such as recession/income/what people are willing or able to afford/price elasticity of
demand
• Actions of competitors
• level of competition/price charged by competitor/where or when the product is sold/whether there are
any substitutes/whether it is a niche or mass market/size of market
• Business objectives
• profit margin/add value
• Type of product
• quality of product/what is being sold/brand image
• Availability of economies of scale
• Government or legal controls e.g. tax
• Stage in product life cycle
• Price elasticity of demand
• What would you do if the price of a cinema ticket increased by 10%?
• You might still go to the cinema but not as often. Suppose the only safe drinking water in your country has
to be bought in bottles.
• What would you do if the price of bottled water increased by 10%? You need water to survive so you will
probably continue to buy bottled water, although you might try to reduce how much by taking greater care
over how you use it.
• In both of these cases the demand for the good or service will fall as a result of an increase in its price.
• However, the demand for cinema tickets will almost certainly fall by a greater amount than the demand
for bottled water.
• The opposite would also be true.
• If the price of cinema tickets decreased by 10% you would probably go to the cinema more often.
• However, if the price of bottled water fell by 10% you would not buy very much more because you are
 probably buying enough already.
• In both cases the demand will rise as a result of a decrease in price.
• The relationship between price and demand can be shown on a demand graph like the one below:
•

• As we have seen in the above examples of cinema tickets and bottled water, how much demand decreases
or increases following an increase or decrease in price will not be the same for every product.
• The demand for cinema tickets will change by a greater amount following a change in price than the
demand for bottled water will.
• This is because the demand for some goods and services is more responsive to price changes than others.
• This is known as the price elasticity of demand. Products that are not very responsive to changes in their
price inelastic demand.
• This means that the percentage change in demand will be lower than the percentage change in price.
• This is the case for the demand for bottled water.
• Products that are more responsive to changes in their price have price elastic demand.
• This means that the percentage change in demand is bigger than the percentage change in price.
• This is the case for the demand for cinema tickets.
• Price elasticity of demand and pricing decisions
• If managers know the value of the price elasticity of demand for their products, then they can calculate the
effect on sales of any proposed increase or decrease in price.
• We know that any increase in price will decrease sales and any decrease in price will increase sales.
• However, what is more important is how a change in price will affect revenue.
• The below table shows effect on revenue of changes in the price for products with price elastic demand
inelastic demand.
•
• The relationship between changes in price, price elasticity of demand and revenue
• From the above table we can see that if the marketing objective is to increase revenue then this could be
achieved in one of two ways:
• Increasing the price if the product has price inelastic demand.

• Place- distribution channels

• Decreasing the price if the product has price elastic demand.

• Place- distribution channel

• Channels of distribution means how a product gets from the producer to the final consumer
• This element of the marketing mix involves a business in deciding:
• How to get the goods from the producer to the final consumer -known as the channel of distribution
• The place where the consumer will be able to buy the good or service, for example a shop or laundry.
• Every business must decide the best way of getting its product to final consumer. Business can use any of
the channel of distribution shown below
•
• In the four channels of distribution shown above the agent, wholesaler and retailer are known as
middlemen.
• The first channel of distribution is where the producer sells the product directly to the consumer.
• This is known as direct selling. In the second channel of distribution the producer sells the product to
retailers.
• The retailers then sell the goods in their shops to the final consumer.
• The third channel of distribution uses two middlemen - wholesalers and retailers.
• The producer sells large quantities of the product to the wholesaler.
• The wholesaler then sells the product in smaller quantities to retailers, who then sell the product to the final
consumer.
• The final channel of distribution uses an agent.
• This is most commonly used when a business enters a foreign market for the first time.
• The agent has specialist knowledge about the country and its markets and can help the producer to place
its product with wholesalers and retailers.
• This saves the producer a lot of time and expense, but it does mean that another middleman enters the
channel of distribution and this could reduce the amount of profit earned by the producer.
• Each of the channels of distribution has advantages and disadvantages for the producer and the consumer.
• Choosing a method of distribution
• There are a number of factors that will influence the best method for the distribution of a business’s goods
such as:
• Cost
• The cost of transporting goods to the customer needs to be considered.
• Does a business buy its own delivery vehicles and employ its own drivers to deliver the goods, or
does it employ another firm to do this for it?
• Some methods of distribution are cheaper than others, but it is important that the goods arrive on time
and in perfect condition.
• Cheaper alternatives might delay delivery or damage goods in transit.
• Nature of the product
• some goods will need special delivery conditions; for example, frozen foods and fresh fruit and
vegetables will need special transport vehicles to maintain the correct temperature. Fragile items, such
as televisions, need to be handled as few times as possible to reduce the risk of damage.
• Perishable goods, such as milk, need to get to the final consumer as quickly as possible so a long
channel of distribution might not be appropriate.
• The market
• Markets that cover a wide geographical area are best served through wholesalers who can buy the
product in bulk from the producer and then break this down into smaller units for retailers.
• Advantages of channel of distribution
• Producer to Consumer
• All of the profit is earned by the producer.
• The producer controls all parts of the marketing mix. It is the quickest method of getting the product to
the consumer.
• This might be important for goods that need to be consumed as soon after production as possible, for
example fresh fruit and vegetables.
• The producer has direct contact with the consumer and this could provide useful market research
opportunities.
• Producer to Retailer to Consumer
• Consumers can see and try the product before they buy.
• The cost of holding inventories of the product is paid, in part, by the retailer.
• The retailer will pay for advertising and other promotional activities. Retailers are usually more
conveniently located for consumers.
• Producer to Wholesaler to Retailer to Consumer
• The wholesaler buys in bulk from the producer and then breaks this down into smaller quantities for
retailers.
• Wholesalers will advertise and promote the product to retailers.
• The transport cost to the retailer is paid for by the wholesaler.
• Wholesalers will pay for the storage costs of the products purchased from the producer.
• Distribution of goods through wholesalers helps the producer to sell its goods to a larger market.
• Producer to Agent to Wholesaler to Retailer to Consumer
 • The agent has specialist knowledge of the market - especially a foreign market.
• They find wholesalers and retailers who are prepared to buy the product from the producer.
• Disadvantages of channel of distribution
• Producer to Consumer
• Consumers are not always able to see or try the product before they buy, for example if purchased
online.
• Delivery costs may be high if there are many customers over a wide area.
• All storage costs must be paid for by the producer.
• All promotional activities must be carried out and financed by the producer
• Producer to Retailer to Consumer
• The retailer takes some of the profit away from the producer.
• Producers lose some control of the marketing mix.
• The producer must pay delivery costs to the retailers.
• Retailers usually sell competitors’ products as well.
• Producer to Wholesaler to Retailer to Consumer
• Another middleman -the wholesaler - takes part of the profit from the producer.
• The producer loses even more control over the marketing mix.
• Producer to Agent to Wholesaler to Retailer to Consumer

• Promotion
• Another middleman is added to the channel of distribution which reduces the profit to the producer.

• Promotion
• Promotion is marketing activities used to communicate with customers and potential customers to
inform and persuade them to buy a business’s products.
• As a consumer, you are likely to know of many ways businesses promote their products.
• Promotion tells consumers about a product and tries to persuade them to buy it.
• The aims of promotion
• The main aim of promotion is to increase sales. Promotion does this by:
• Attracting the attention of consumers by making them aware of the product, or reminding consumers
that the product is still on the market
• Persuading consumers to buy the product
• Explaining how a product is better than competitors’ products
• Creating and developing brand image encouraging wholesalers and retailers to stock the product
• Reassuring consumers, following a problem with the product.
• How promotion influences sales
• Advertising
• Advertising involves communicating with the customer through media such as newspapers,
magazines, radio, television and the internet.
• The advertising media used often depends on the available budget.
• Television advertising is much more expensive than newspaper advertising and is usually only
afforded by larger businesses such as a national supermarket chain.
• Newspaper advertising can be in local or national newspapers.
• Benefits and limitations to business of using newspapers for advertising
• Benefits
• Low cost will make it more affordable for the
• Would widen businesses target audience as many people read newspapers
• National newspapers are able to reach people across the country
• Limitations
• Not everyone reads newspapers so businesses target audience might not be aware of the business
• Repeat adverts can be expensive. Using up the marketing budget
• Age profile / which people read newspapers as looking to target different market segments so costs
 more to advertise in a range of papers
• Easy to miss and has limited visual impact, if lots of other adverts / mainly in black and white so
cannot stand out
• A hairdresser and a taxi company are unlikely to advertise in national newspapers as their market is
usually local.
• However, a business that sells its products throughout a country is more likely to use national
newspapers, for example a car manufacturer.
• This type of promotion is sometimes called above-the-line promotion.
• Most advertising is aimed at the final consumer.
• However, some advertising tries to persuade wholesalers and retailers to stock the product.
• There are two main forms of promotional advertising:
• 1. Informative advertising
• provides information to potential consumers about the product.
• This can include information about the price of the product, what the product can be used for and the
place the consumer can buy it.
• This form of advertising is often used when a new product is being launched on to the market or into a
new market.
• 2. Persuasive advertising
• This is the most common form of advertising.
• The business uses this form of advertising to try to convince consumers that they need the product and
that its product is better than competitors’ products.
• Sales promotion
• This type of promotion is sometimes called below-the-line promotion. There are a number of different
activities that are forms of sales promotion. These include:
• Money-off coupons or vouchers
• Point of sale displays in shops
• Loyalty reward schemes
• Competitions and games
• With cash or other prizes.
• The main advantage of sales promotion is that it is usually very specific to the business or its products.
• The consumer must buy the product to use the vouchers or money-off coupons.
• Loyalty reward points are given when consumers spend money in a particular business.
• Supermarkets, coffee shops and airlines often have loyalty reward schemes.
• Personal selling
• Personal selling is most often used when selling expensive items that have a high profit per unit, for
example cars.
• The salesperson has direct contact with the potential customer when they visit the showroom or other
business premises of the seller.
• Sometimes the seller will visit the potential buyer in their own home, for example when selling home
improvements.
• This enables the seller to build a relationship with the customer that can last after the completion of the
sale and result in further sales in the future.
• This can be an expensive form of promotion because more staff are needed to provide the level of
personal service customers require.
• Also, to provide incentives to sales staff, the business will often pay bonuses, or a commission on any
sales made.
• This reduces the profit to the business per item sold.
• Direct mail
• Direct mail involves posting leaflets or other printed materials directly to the business offices or homes
of potential customers.
• These potential customers have usually been identified through market research.
• This is a very good way of communicating with a large market over a wide geographical area.
• However, it is so widely used that there is a danger of it being considered ‘junk mail’ and thrown away
 before being read.
• Sponsorship /public relation
• Sponsorship is where a business will pay to have its name linked to an event, or perhaps to an
individual or group of individuals who are in the public eye.
• sponsorship can be beneficial in many ways like:
• Can target the intended market attracting more customers
• The business will be linked to the event sponsored
• It can help increase businesses brand image / reputation
• it helps products viewed positively by potential customers
• however, actions of the sponsored person or group could damage business reputation reducing sales
• The marketing budget and promotion decisions
• All marketing decisions require some level of spending.
• Money is needed for activities such as market research, changing a product or its packaging, or advertising
a product to consumers.
• The funds for these activities come from the business’s marketing budget, an amount of money available
for promotional activities.
• The size of the marketing budget affects promotion decisions.
• Television advertising, for example, is very expensive and can only be afforded by businesses with a large
marketing budget.
• Smaller businesses may only have a marketing budget that allows them to advertise on local radio or in
the local newspaper.
• However, spending very large sums of money on promotion does not always guarantee success.
• A business needs to know that its marketing budget is spent cost-effectively.
• The main way of checking on the effectiveness of the use of the marketing budget is to see if it has

• Technology Mix
and the Marketing
achieved the marketing objectives.

• Technology and the marketing mix

• The development of technology has affected many areas of business activity.
• In particular the internet and social media networks have changed the ways many businesses market and
sell their products.
• E-commerce
• Many businesses, from sole traders through to multinational companies, have websites.
• One of the main benefits of this is to help them to sell their products over the internet.
• For this to work, customers must be prepared to use the internet to buy goods and services.
• The good news for businesses is that more and more consumers are using the internet to make purchases
of items such as their weekly family shopping, books, clothing, furniture and much more.
• Opportunities and threats of e-commerce
• The most common opportunities of e-commerce for both businesses and consumers are shown below:
• Opportunities of e-commerce for businesses
• Increased market
• The business is able to sell its goods and services to consumers throughout the world.
• Reduced cost
• The staffing and other costs of shops are saved
• Better information
• The website can provide potential consumers with all the information they need about the goods and
 services available.
• Increased potential sales
• Threats of e-commerce for businesses
• Increased competition
• Competitors can now be from any part of the world, not just the local market.
• Unfamiliarity
• Consumers are less likely to buy products from new businesses they don’t know.
• Higher distribution costs
• Cost of breakages in post
• Cost of maintaining website
• Lack of personal service
• Opportunities of e-commerce for consumers
• Convenience
• Consumers can order their products from the comfort of their own homes at any time of day.
• Wider choice
• Consumers are now able to buy goods which they would not have had access to if they were only able
to use their local shops.
• Lower prices
• Competition is worldwide and this reduces prices.
• Better information
• Consumers are able to read about the goods and services available from the websites of the different
businesses and also read reviews from consumers who have bought products from businesses.
• Threats of e-commerce for consumers
• Fraud
• A website might take a consumer’s money and not deliver the goods.
• Hacking
• A consumer’s personal details or bank account details might be ‘stolen’.
• No personal service
• There is no face-to-face contact between the consumer and the seller.
• Returning items
• It can be inconvenient and expensive to return goods which do not meet the consumer’s needs, e.g.
clothing that does not fit.
• Using the internet and social media networks for promotion
• Apart from e-commerce, business websites have other uses.
• They can be used to promote a business and its products.
• In addition to its own website, a business may pay to place banner adverts, or pop-ups’, on the websites of
other businesses.
• This can advertise the business especially if the pop-up’ or banner is placed on a related product’s website;
for example, a mortgage provider may pay to have a banner advert on the website of a builder of houses
for private ownership. Recently, businesses have seen the benefit of using social media networks such as
Facebook, Twitter and YouTube to promote their business.
• This is known as social media marketing.
• This gives businesses access to a huge number of potential customers from around the world.
• Factors to consider before deciding whether to introduce new technology into
business.
• Cost of technology which business may or may not be able to afford
• Cost of training time taken for training/are workers able or willing to learn how to use it increasing
business expenses
• Potential efficiency gains to lower average cost so able to lower the prices of its products
• How many workers may lose jobs/number or redundancies
• Level of demand
• Opportunity cost
• Availability of power/electricity to run the machinery
• Sufficient space available for installing such machineries or else rent will increase
• Customer ability to operate the technology as if cannot use could result in fewer sales/less revenue
• Advantages to the management of the business of introducing new technology in
the business.
• improve quality so able to charge higher prices for products
• increase output so able to meet more orders
• improves productivity which can help reduce average costs
• way to reduce labour costs so lower total costs for business
• machines do not need breaks so more parts can be made/less errors
• faster production as machines can make more in less time
• machines are able to handle more complex work
• role in designing prototypes/development of new products
• improves stock control for ordering parts
• improved communication (internal or external)
• Benefits of new technology to the workers
• need for re-training which could create opportunities for promotion
• impact on motivation (either positive or negative)
• fear of change as production process likely to change how they do things
• fear of redundancy/job losses as machines replace jobs could decrease motivation
• less skills needed so could mean lower wages leading to lower living standards
• opportunities to learn new skills because they make new types of chocolate
• chances for promotion as new job roles created
• safer conditions in the manufacturing process so less risk of injury
• company survives because they remain competitive so workers keep their jobs
• Does technological change always benefit business
• Technology creates opportunities e.g. cost savings/new methods/new products/new markets.
• It has also created problems e.g. Training/cost/breakdowns
• Problems for business of introducing new technology
• Cost of equipment can be very high
• Need for retraining which would increase costs
• Impact on motivation e.g. Demotivate workers/boring [k] as skilled so many want to leave increase
efficiency
• Space can be costlier to rent if business has a small factory ,there might not be enough room
• Cost of maintenance
• Redundancy costs of skilled workers
• Could reduce wastage/less mistakes
• Workers might be worried about future job security so may not
 • Choosing a Marketing
Strategy
• Marketing strategy
• A plan to achieve the marketing objectives using a given level of resources.
• A business produces a marketing strategy only after careful market research. The marketing strategy also
contains details of the marketing budget.
• The marketing mix and consumer decisions
• If a marketing strategy is to achieve a business’s marketing objectives, then marketing decisions about
product, price, promotion and place must be linked.
• This does not mean that each part of the marketing mix is of equal importance.
• How important each part of the marketing mix is in influencing consumers varies depending on the
situation.
• Deciding marketing strategy
• A business’s marketing strategy is a plan to achieve its marketing objectives using a given level of
resources.
• Once a business has set its objectives then it will need to take decisions about product, price, promotion
and place to achieve them.
• These decisions will depend to some extent on the marketing budget available and the stage the product is

• Legalmarketing
controls related to
at in its life cycle.

• Legal controls related to marketing

• All areas of business are affected by legal controls.
• These controls are the laws and regulations of the country in which a business operates.
• Legal controls vary from country to country, but most countries have laws that protect consumers from
unfair or dangerous business activity.
• The common legal controls on businesses which affect the marketing function are ones that:
• Protect consumers from faulty and dangerous goods
• Prevent businesses from using advertising to mislead consumers
• Protect consumers from being exploited in industries where there is little or no competition.
• Impact of legal controls on marketing strategy
• The first impact on businesses of any legal controls to protect consumers is that they will increase their
costs.
• Products may need to be changed to meet minimum quality standards, or prevent any health and safety
issues.
• A large company that dominates a market may face legal controls, such as antitrust or competition laws, if
it is considered to be exploiting consumers by charging high prices or providing poor-quality goods or
services.
• Advertisements may have to be withdrawn and redesigned if they are found to contain misleading or
inaccurate information.
• The business may have to advertise its product again.
• It may also be required to issue statements of apology in the newspapers and in the worst case might be
fined for deliberately misleading consumers.
• All of these actions increase a business’s costs.
• ways in which legal controls might affect business.
• Influence how the business advertises
• Ensure fit for purpose as business can be sued / forced to pay compensation if use faulty Or dangerous
materials
• Increase costs / time
• Employment controls e.g. Minimum wages
•
• entering
Opportunities and problems
marketsof
Location / planning controls as might not be able to produce things in some places

new foreign
• Opportunities and problems of entering new foreign markets
• E-commerce has enabled many businesses, of all sizes, to enter new foreign markets.
• However, this expansion does not have to be through e-commerce and there are many examples of
businesses which now export their goods and services to other countries using traditional distribution
channels.
• Growth potential of new markets in other countries
• One of the reasons for businesses expanding into new markets in other countries is that the market in their
own country has reached maturity, or might even be in decline.
• Other countries can offer huge marketing opportunities for increased sales, revenue and profits.
•
•
• The increase in international marketing has been made possible because of developments in technology,
for example the internet, better transport and communication links and agreements between different
countries, which have reduced some of the barriers to trade between foreign countries.
• Problems of entering foreign markets
• Although entering new foreign markets offers huge marketing opportunities, there may also be problems
for businesses entering foreign markets. The main problems a business may face when making the
decision to sell its products in foreign markets are given below:
• Differences in language and culture
• It is easy to understand the difference in language between countries, but much more difficult to know
the differences between cultures.
• However, both language and cultural differences can cause problems for a business wanting to sell its
goods and services in another country.
• Some words do not translate from one language to another, or may have a completely different
meaning in another language.
• Businesses must also consider cultural differences; for example, colours, numbers and symbols have
different meanings and importance in different places.
• In some countries, for religious or other reasons, it would not be appropriate to use certain images in
advertisements.
• Economic differences
• The average income of consumers differs widely between countries.
• The cost of selling goods and services in foreign markets is often higher because of transport and other
exporting costs.
• This might mean that the price charged to overseas consumers is higher than those in the domestic
market.
• Consumers must have the income to be able to afford the prices charged.
• This problem is most noticeable when a business in a developed economy wants to sell its goods and
services into a developing economy.
• Social differences
• In some countries social factors such as the age structure of the population, the importance of family
and the role of women all have an impact on business activity
• For example, countries where the population has a high proportion of young people, such as
 Indonesia, will have different needs and wants from countries where the population has a higher
proportion of older people, such as the UK.
• Differences in legal controls to protect consumers
• As mentioned above, countries have their own laws and regulations to protect consumers from unfair
or dangerous business activity.
• These might be very different from the legal controls in the business’s own country.
• Before a business decides to enter foreign markets it must make sure that its products and the way it
conducts business satisfy the laws of the countries it is looking to expand into.
• This may mean changing its product, packaging or advertisements, all of which increase costs.
• Lack of market knowledge
• Entering new markets for the first time presents two problems for most businesses:
• 1. The business does not know the market.
• 2. The market - consumers -does not know the business.
• Some of the missing’ knowledge relates to the factors discussed above.
• However, knowledge about market size, competitors, brand image and customer loyalty to existing
products, consumer tastes and preferences, sources of media for promotion and channels of
distribution is essential knowledge about the country and its markets.
• These problems need to be fully understood if a business is to succeed when entering a new market in
another country.
• A good example of how a business which is very successful in its home market might fail to succeed
in entering foreign markets is the UK leading supermarket retailer Tesco.
• Methods to overcome problems of entering foreign markets
• Many of the problems that a business may face when entering new markets in another country can be
overcome by detailed market research.
• However, this can be costly.
• Other options for expanding into international markets include
• international franchising
• International franchising is similar to franchising in the same country and the benefits of this form of
business organisation. This method of entry into new markets in other countries is often used by
Subway.
• Licensing
• A business in one country permits a firm in a foreign country to produce its branded product under
licence’; for example, the New Zealand company Donovan Group manufactures a range of products
for the construction industry under licence.
• The main benefit of this method of international marketing is that the goods are produced in a country
by a firm that understands the local market.
• All of the problems of entering foreign markets are removed, except perhaps the lack of consumer
knowledge about the product.
• However, the limitation of licensing is the risk of poor quality or other problems that could damage
the reputation of the business whose product it is.
• Joint venture
• Sometimes it is beneficial to two or more businesses to work closely together on a particular business
opportunity.
• The main reasons for this close working relationship, known as a joint venture, are:
• It reduces risk 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, especially if each business
operates in different geographical regions/countries.
• Market and product knowledge can be shared to the benefit of the businesses in the joint venture.
• However, joint ventures have limitations, such as:
• Any mistakes made will reflect on all parties to the joint venture.
• This may damage the reputation of all firms in the joint venture, even if they were not the cause of the
mistake.
• The decision-making process may be ineffective due to different business culture or different styles of
leadership within each of the joint venture partners.
•