BUSINESS STUDIES

SHORT NOTES FOR O LEVEL BUSINESS STUDIES

SECTION 3:
MARKETING

PART - 1
 SECTION 3: MARKETING
3.1 Marketing, competition and the customer
A market is any set of arrangement that allows buyers and sellers to exchange
goods and services. Marketing is a management process involved in identifying,
anticipating and satisfying consumer requirements profitably.
3.1.1 The role of marketing:
 Identifying and satisfying customer needs: The main role of marketing is to
convert the wants of an individual into a need. Businesses use market research
to identify consumer needs. 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 they can sell to the consumers at a profit.
 Maintaining customer loyalty: 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 customer base.
(Customer base: the group of customers a business sells its products to.)
 Building customer relationships: 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 individual customers with information about the
firm’s products.
3.1.2 Market changes:
A market is a place where buyers and sellers come together to buy and sell
goods and services. However, the term market can also be used to describe all
customers who are interested in buying a product and have the financial
resources to do so.
Target market: individuals or organisations identified by a business as the
consumers of their products
Customer: an individual or business that buys goods and services from a
business.
Consumer: the final user of a product.
Consumer markets: markets for goods and services bought by the final
consumer.
Industrial markets: markets for goods and services bought by other businesses
to use in their production process.
Business environment: the combination of internal and external factors that
influence the operations of a business.
Why customer/consumer spending patterns may 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 of the products if prices are high less
quantity will be sold due to low demand. Similarly low prices will enable high
quantity of sales due to increase in demand.
Price ↑ --- Quantity Sold ↓
Price ↓ --- Quantity Sold ↑
The price of competitors’ product: Most businesses are in competitive markets.
If the products of businesses are very similar then the consumers are most likely
to buy the product which have low price

Change in Income: When income decreases (if a worker lose job) then they will
have less money to spend. When consumers have less money they buy only
necessities of life for example; food, water, shelter etc. they will spend less
money on luxury goods for example; take away meal, mobile, holidays etc.

Change in Population: If the country’s population size increases the size of the
market increases. This could increase business sales. In some countries fewer
children are born but people are living longer. (Country with fewer children and
more elderly people has an ageing population) This will decrease the sales for
products for children but the sale of products for older people will rise.

Change in taste and fashion: Changes in taste or fashion will affect the sales of
the product. When fashion changes sales of old fashioned products decline and
sales of product in line with trend/fashion will increase. When people are more
concerned towards health they buy less oily and sugar products. Producers have
responded by reducing sugar, salt and oil content from their products. Example:
Diet Pepsi.

Spending on advertising and other promotional activities: Almost all

businesses spend money on promoting their products. Some MNC’s spend huge
on advertising. Most advertising and promotional activities are aimed at
persuading customers to buy their products instead of competitor’s product.
Most businesses spend money on advertising to create a brand image.
Consumers will often pay more for branded products. Example: Nike shoe.
The power and importance of changing customer needs
The needs of customer changes due to various reasons and one of the
important purposes of marketing activity is to satisfy customers need at a profit.
In long run businesses have to respond to changing customers need.
Example: Fashion Changes every few years. In fashion industry businesses have
to upgrade/change their product according to change in fashion to satisfy
customers and to remain in the market.

Why some markets have become more competitive

There will be some level of competition in all markets. But some markets are
highly competitive because of following reasons

Government Intervention in the market:

Government can affect competition in the market through.
 Legal controls such as law against anti-competitive behavior
 Privatisation
 Deregulation
 Subsidies
Growth of free trade between countries
Free trade agreements remove or reduce trade barriers to trade thereby
increasing competition
Development of e-commerce and social networks
Businesses are able to sell their products in any part of their own country and
other countries with the development of social networking sites and websites. It
helped in increasing size of the business and also increased competition in the
market.
How business can 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 number of actions business can take to respond to changes in

consumer spending pattern and increased level of competition. These include.

 Product development: Market research will identify how the needs and
wants of consumers are changing. Using this information business can
develop new product to satisfy the changing needs and wants of
consumers. Development of new product will help business remain
competitive in the market.
  Improve efficiency: Efficient use of resources will help business reduce
average costs which enables them to reduce price of products. In
competitive markets lower price will ensure greater demand from
customers.
 Increased promotions: Increased promotional activities like advertisement
to persuade consumers to buy your product and not that of competitors
product is another way business might respond to challenge of increased
competition and changes in consumer spending pattern.
 Look for new markets: Sometimes consumer spending pattern changes so
much or the level of competition becomes so great that better option is for
a business to look for new markets for their products. Market with less
competition and consumers taste matching that of product business
produce.

Using Resources Develop New

Efficiently Product

Business respond to change in

consumer spending pattern
and increased competition

Increase
Find New Markets
Promotions

3.1.3 Concepts of niche marketing and mass marketing:

Niche market is a very small part of the whole market. Example: Rolex watches.
Niche marketing identifies the needs of small parts of the whole market and
develops products to satisfy those needs.

Usually the niche market products are priced higher and are of high status
goods. However some markets may target niche markets where the product is
not particularly high status or high priced. For example: Wedding Cake.

Mass Marketing is 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 benefit of dividing the market and providing a slightly different product
to each segment. For example: Tooth paste is produced for sensitive teeth, for
children’s teeth and in different flavours.
Benefits and limitations of each approach to marketing

Benefits of niche marketing Limitations of niche marketing

Small firms are able to survive and earn The opportunity to earn high profits might
profits even in markets that are attract competitors and this will reduce
dominated by larger firms prices and future profits
There is less competition in these The small size of the market means that
markets. Firms do not waste scarce economies of scale are unlikely to be
resources responding to competitor’s achieved. This means that unit costs are
actions. higher than they would be if the product
was sold to a mass market.
Consumers will usually pay more for a Small changes in consumer spending
high status, exclusive product. This offers patterns could have a very significant
firms the opportunity to charge high impact on firms operating in niche
prices and earn high profit margins markets.

Benefits of mass marketing Limitations of mass marketing

Mass marketing requires large scale Much more competition in the market
production. Larger firms often benefit which lowers prices and profit margins.
from economies of scale which reduces
unit costs.
A much larger market has the potential Not all markets are large enough to
for high sales and profits. support a mass marketing approach.
Changes in consumer spending patterns Consumers today are often looking for
might have less effect on firms selling to a something slightly different from that
mass market. This reduces the risk to offered by same product mass marketing.
firms who operate in mass markets. This has led to greater division of the
whole market and reduced the scope for
mass marketing.

3.1.4 How and why market segmentation is undertaken:

Market Segment is a part of whole market in which consumers have specific

characteristics.

Breaking down a market into sub-groups with similar characteristics is known as

Market Segmentation. A business can then target these groups and develop
products and services for each of them.
How markets can be segmented, e.g. according to age, socio-economic
grouping, location, gender.
The main methods of market segmentation are
Geographic segmentation: It is dividing consumers in the market by geographic
area. It recognises that consumers in one location may have different needs from
consumers in another location.
 Segmentation by region: In different region of a country, people, might buy different
products. For example, if there are dry and wet parts of the country then waterproof
clothing would be sold in the rainy part of the country but not in the dry part.

Demographic Segmentation: It is dividing consumers in the market by factors such

as age, gender, income, ethnic background and social class.
 Segmentation by age: The products bought by people in different age groups will
not be the same. Young people buy different products to adults. The products bought
for babies will vary from those bought by old people.
 Segmentation by gender: Manufacturers may target either males or females. Some
car producers, for example, have targeted women in their promotional campaigns for
smaller hatchbacks and manufactures of perfumes and related products.
 Segmentation by income: Income groups can be defined by grouping people’s job
according to how much they are paid. For example, managers are usually paid more
than office staff. Office staffs are usually paid more than production workers. This
often means that products are priced differently to target different income groups.

Potential benefits of segmentation to business

All the given methods of segmenation divide the whole market into smaller
groups. Whichever method is used to separate consumers into different
segments or groups, segmentation has many benefits.
o Goods and services can be designed to meet the specific needs of
consumers in each segment. This is likely to increase sales
o Small firms which may not be able to compete in whole market are able to
operate in one or two segments – perhaps niche market.
o 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 market.
o Marketing strategies can be better targeted at each segment reducing the
waste of scarce resources.
o It may be possible to charge higher prices for very similar product in one
segment than in another. For example: Air travel will often have three types
of passenger: first class; business class and economy class. They all travel in
same aero plane but pays different prices.
Recommend and justify an appropriate method of segmentation in given
circumstances
There is no one correct method to 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 may use
demographic segmentation to divide the market according to family size of
consumers. Consumers with young children will probably their target
customers.

3.2 Market research

Market research is the process of collecting, recording and analyzing data
about the customers, competitors and market of a product.
3.2.1 The role of market research and methods used:
Market research provides businesses with important information about the
markets. It gives information about
 Its customers:
 Its competitors
 Its market
The information obtained by market research helps business to
 Find out what consumer likes and dislikes about the products
 Identify consumer’s tastes and preferences
 Decide on the best promotion, packaging and distribution method for its
products
 Identify the main competitors and unique selling point of their competitor’s
product.
 Know the size of market
 Explain the reason for the sale of its current product
 Predict how the demand for its product may change in the future
Market-oriented businesses (uses of market research information to a
business)
In today’s business world most firms are market oriented. Market oriented
businesses are opposite to product oriented businesses
In Market oriented businesses decisions about what to produce is based on
consumers demand for product as identified by market research. Where as in
product oriented businesses business first decide what to produce and later
finds customers who want to buy it.
Market oriented approach has two main advantages
 Risk of new product failing is reduced as it is produced after market
research (identifying consumer’s need)
 Products will last longer as it meets consumer’s needs.
Primary research and secondary research (benefits and limitations of each)

Primary research is the collection of first hand data for the specific needs of
the firm. Example: Interviewing people
Secondary research is the collection of data from second hand source
Example: Using the data prepared by other organisation, internet, government
publications, newspaper and magazines, libraries, market research agencies
and business records.
Benefits and limitations of primary and secondary research
Benefits of primary research Limitations of primary
research
Data is up to date It is costly to collect
Data is collected for a specific purpose which
It is time-consuming
is directly relevant to the business
There is a risk of the data being
inaccurate or containing bias, for
example during interview people
It is not available to other business. This may
may answer which they might not
provide a competitive advantage
intend to. Also samples data
collected may not represent whole
population’s opinion.

Benefits of secondary research Limitations of secondary

research
It may have been collected some
It is fairly cheap to obtain
time ago, so it is not up to date
It has not been collected for the
It is easier and quicker to obtain than specific purpose required by the
primary research data business. Hence it may not be as
reliable or as useful as primary data
Methods of primary research, e.g. postal questionnaire, online survey,
interviews, focus groups; the need for sampling
There are two types of primary research

 Quantitative research: the collection of numerical data which can be

presented in tables, graphs or chart
 Qualitative research: the collection of information about consumer
buying behavior and their opinion about the product.
Business can collect market information in several ways.

 Focus Group: It is a form of qualitative research consisting of interviews

in which a group of people are asked about their perceptions, opinions,
beliefs, and attitudes towards a product, service, concept,
advertisement, idea, or packaging.

Benefits of Focus Group Limitations of Focus Group

They are useful to obtain detailed
It can be time consuming and
information about personal and
there is no numerical data is
group feelings, perceptions and
collected which makes statistical
opinions and this method also saves
analysis difficult
time and money

 Observation: The behavior of consumers is secretly observed and

recorded by the market researchers. Often used by large supermarkets.

Benefits of observation method Limitations of observation

method
What consumer do is often more This method is more expensive as
accurate than what they say in it needs trained observers to
interviews. analyse consumer behavior
Some businesses can check the There is no opportunity to ask
quality of service they are providing consumers why they behaved as
to consumers. they did

 Test Market: A limited quantity of product is produced and sold in a

carefully selected area of the market. Feedback from consumers is used
to make changes to product or other elements of marketing mix before
launching the product to the main market

Benefits of test market method Limitations of test market

method
Cost of any problems/errors is It takes longer time period for
limited due to smaller output product to reach main market
Identifying and solving problems in
Cost of producing product for test
the test market increases the
market makes this method most
chance of a launching successful
expensive
product
 Consumer Survey: Surveys can collect both qualitative and quantitative
data, often with the aid of questionnaire. There are some methods of
surveys as given below.

o Interviews: A trained interviewer takes interviews and records the

answers. It can be done at streets, business premises or at
interviewee’s own home.

Benefits of Interview method Limitations of Interview

method
Trained interviewers can This method is more expensive
identify if interviewee is than other methods as it needs
replying honestly trained interviewers
Interviewers can explain any Untrained interviewer may
question that the interviewee create a risk of collecting bias
don’t understand data.

o Postal Surveys: Questionnaires are posted to people’s home and

they are asked to complete and return them.
Benefits of Postal Survey Limitations of Postal Survey
method method
Postal surveys are often seen
Data can be collected from as junk mail and thrown away
population spread over a wide and produce low response
geographical area and is much rate. Data can be bias as
cheaper method. people may not provide
correct information.

o Online Surveys: Surveys taken by businesses on internet and their

own websites.
Benefits of Online Survey Limitations of Online Survey
method method
It covers wide area Often seen as junk mails
Anyone with internet access can Only people with real interest
participate takes part therefore result
Results can be instantly may not be of whole
collected and analysed population
 Methods of primary
research

Focus
Observation Test Market Consumer Surveys
Group

Interviews

Postal Questionaire

Online Survey

Factors influencing the accuracy of market research data

The data collected may be inaccurate due to reasons like

 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
 The language used in questionnaire or by interviewer may not be clear to
understand
 The data may be recorded incorrectly, or numerical analysis carried out
incoorectly
 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.
3.2.2 Presentation and use of market research results:
After market research the results need to be prepared and analysed.

Qualitative research is usually presented in the form of reports.

Quantitative research consists of data, lots of numbers. To understand better

tables, charts, graphs and pictograms are used.

 Tables: Data is often presented in table.

Advantages
o Large data can be grouped and presented more clearly
o It is easy to extract numerical data
Disadvantages
o They lack visual impact
o Too much data in the table can make it difficult to understand

 Bar charts: the data is shown in bars or columns.

Advantages
o Easy to see importance of each piece of data
o Easy to read numerical values from the axis
Disadvantages
o When data values are similar it makes difficult to interpret and
compare information. Chart loses its visual impact.

 Pie charts: Pie charts are drawn in circles. Each part of the data is shown as a
slice of the pie
Advantages
o Highlighting importance of each part of data to compare with
other part
o Easy to understand for those who dislike numerical values
Disadvantages
o Too many slices makes difficult to interpret and compare
information. Chart loses its visual impact.

 Pictograms: Picture or a symbol is used to represent data. Every picture or

symbol has numerical value
Advantages
o Helpful for less numerate people as data is not in numbers form
Disadvantages
o Difficult to highlight exact quantity through pictures or symbols
  Line graphs: It shows relationship between two variables. Useful to show
trends and change of data overtime
Advantages
o Clearly shows trends
o Values can be read from both axes
o Data can be added for future time period
Disadvantages
o Difficult to draw and accuracy depends on choosing appropriate
scale for both axes.

Analyse market research data shown in the form of graphs, charts and
diagrams: draw simple conclusions from such data
Using different presentation methods makes it easier to analyse and draw a
simple conclusion from market research data.

For example: Bar chart, pie charts and pictograms makes it easier to see the
relative importance of different parts of data. Line graphs are useful to
compare trends over time.