Unit 3: Marketing

Chapter 21 : Marketing Analysis

Elasticity

Market analysis examines the conditions of a market. This includes the size of a

market and the factors that influence demand. A key aspect of market

analysis is to consider how sensitive demand is to changes in different factors.

Every business is interested in what affects demand for its products and

services. What is it that makes its sales go up, or down? Will sales alter if the

strength of the relationship between, for example, price and sales? If the price

is cut by 10 per cent, will sales go up by 5 per cent, or will they go up by 50 per

cent? Similarly, if average consumer income levels rise by 5 per cent, what

The relationship between changes in demand and changes in factors, such as

price and income, is measured by the elasticity of demand. Effective

marketing involves an understanding of what influences demand and how

sensitive demand is to different factors. This requires an understanding of the

concept of elasticity. If the change in quantity demanded is greater than the

change in the variable, with all other factors unchanged, this is known as

elastic. If the change in quantity demanded is less than the change in the

variable, with all other factors unchanged, this is known as inelastic.

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We now consider some of the key variables that can affect demand namely,

price, income and promotional expenditure and consider the elasticity of

demand in relation to these.

Elasticity of Demand

Elasticity is the degree of responsiveness of demand to changes in demand

conditions (price, income).

Price elasticity of demand

There are several types of elasticity, but one of the most important to

businesses is the price elasticity of demand. This measures the sensitivity of

demand to a change in price, with all other factors unchanged. A business

can change its price but, before it does so, it will want to know the possible

impact on the demand for its products.

Why does the price elasticity of demand matter?

By calculating the price elasticity of demand, a business can identify how

changes in price may affect the quantity of its sales and, therefore, revenue.

This is important for its marketing planning. If, for example, a business is

planning a price cut, it will want to estimate how much sales are likely to

increase. This allows the business to ensure it has sufficient inventory or

capacity to meet demand. It may also have implications in terms of

employing people. For example, the firm may need to hire extra people or get

staff to work overtime to meet orders. The business will also want to calculate

whether the price cut is worthwhile financially. Will the price cut lead to higher

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profits or not? An understanding of price elasticity should, therefore, lead to

better pricing decisions.

Calculating the price elasticity of demand

The price elasticity of demand measures the percentage change in quantity

demanded following a price change, when all other factors remain the same.

price elasticity of demand = percentage change in quantity demanded

/percentage change in price

Demand is said to be price elastic if the value of the price elasticity of demand

(that is, the size of the number, ignoring whether it is a positive or negative

number) is greater than 1 that is, a given percentage change in price brings

about a greater change in quantity demanded. For example, if demand rises

by 20 per cent when the price is cut by 10 per cent, the price elasticity of

demand will equal.

+20/-

The value of 2 shows that for every 1 per cent change in price, the quantity

demanded changes by 2 per cent that is, by twice as much. The negative

sign simply shows that the price and quantity demanded move in different

directions. If price goes down, quantity demanded rises, and if price rises,

quantity demanded falls. (Demand is price elastic. The quantity demanded

changes more than the price)

Demand is said to be price inelastic if the value of the price elasticity (that is,

the size of the number, ignoring whether it is positive or negative) is less than 1

if a change in price leads to smaller change in quantity demanded. For

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example, a price cut of 10 per cent, leading to an increase in demand of only 5

per cent, will have a price elasticity of demand of

+5/-

The negative sign shows that as price goes down, quantity demanded rises

that is, they move in opposite directions. The 0.5 (which is less than 1) shows

that every 1 per cent change in price leads to a 0.5 per cent change in quantity

demanded. This means that demand is not very sensitive to price changes

that is, demand is price inelastic. (Demand is price inelastic. The quantity

demanded changes less than the price.)

What determines the value of the price elasticity of

demand?

The price elasticity of demand will be affected by a number of factors, such as:

The availability of similar products

If a consumer can switch easily from one product to another, its demand is

likely to be quite sensitive to price changes (that is, demand will be price

elastic). When buying an energysaving light bulb, for example, most customers

do not care what brand they buy faced with two types, they are likely to buy

the cheaper one. Demand would therefore be price elastic. Many businesses

attempt to differentiate their products so that consumers do not switch to

price inelastic). CocaCola, for example, has worked hard to distinguish its

products from other cola drinks. Coca-Cola hopes that relatively few

consumers will switch brands, even if its price is higher. Successful branding

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should, therefore, reduce the price elasticity of demand and make demand

price inelastic.

Time

In the short term, customers are often loyal to their existing provider (for

example, their credit card company, their bank or their insurance company).

rm as conditions

might change again and so any advantage a competitor has may be

temporary. However, over time, if customers feel they are getting a bad deal,

this will act as an incentive to switch. They also have more time to explore their

options. This means demand will become more price sensitive (that is, more

price elastic) over time.

The type of product

When buying convenience products, such as milk, purchasers tend to go to

the nearest shop. Consumers do not spend much money on each item and

are not too concerned about price. Demand for this type of product is likely to

be price inelastic. In comparison, shopping for goods such as clothes is likely

to be much more sensitive to price (that is, more price elastic). This is because

customers spend time comparing their options.

The proportion of income spent on the product

If you spend only a small proportion of your income on a product, you may not

be very sensitive to price changes, because they will have a limited impact on

your spending. However, if you spend a high proportion of your income on

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something (such as housing) then a given percentage change will have a

more noticeable effect and demand is likely to be more price sensitive.

Demand for the brand versus demand for the product

Demand for petrol is likely to be very price inelastic most consumers would

find it difficult or inconvenient to do without their cars. However, demand for

in general, as it is fairly easy to switch to another petrol company. Demand for

a particular brand is therefore likely to be more price elastic than demand for

the whole product category.

Price elasticity of demand, total revenue and profits

A price cut and price elastic demand

If demand for a product is price elastic, a business can increase its revenue by

lowering the price. Although it earns less for each item, its overall revenue

increases because it is selling so many more products.

Imagine that a firm sells 10000 units at $5; its total revenue is 5 × 10000 =

$50000. If the price is cut to $4 and sales jump to 15000, the new total revenue

will be $4 × 15000 = $60000. A 20 per cent price cut increases sales by 50 per

cent and revenue increases.

A price cut and price inelastic demand

If demand for a product is price inelastic, the revenue will fall when the price is

cut. This is because the increase in sales is not big enough to compensate for

the fact that each item is selling for less.

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Imagine that a firm sells 10000 units at $5; its total revenue is 5 × 10000 =

$50000. If the price is cut to $4 and sales increase to 11000, the new total

revenue will be $4 × 11000 = $44000. A 20 per cent price cut increases sales by

only 10 per cent and revenue falls.

Income Elasticity of Demand (YED)

The amount that demand changes in relation to changes in income, all other

factors unchanged, can be measured by the income elasticity of demand. It

measures the responsiveness of demand to change in levels of income.

 If income increases, the demand for necessities will probably not change
but the demand for luxuries is likely to increase.
 If income produces a fall in demand, YED is negative because people

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Summary of income elasticity of demand

Managers will monitor income elasticity because it will influence what they

produce, sell and where they target. For example, if an economy is booming,

retailers may decide to hold more luxury products. If an economy is declining,

managers might decide to focus on producing inferior products, or if their

products are luxury, they might target other markets where incomes are

growing fast.

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Promotional Elasticity of Demand

Show the sensitivity of demand due to a change in promotional expenditure or

the responsiveness of quantity demanded due to a change in promotional

budget.

The promotional elasticity of demand shows the sensitivity of demand in

relation to changes in promotional expenditure, all other factors unchanged:

Promotional elasticity of demand = percentage change in quantity

demanded / percentage change in promotional expenditure

A positive result would show a positive correlation between promotional

expenditure and the quantity demanded. The bigger the figure, the stronger

the relationship. For example, a result of +0.1 means a 1 per cent increase in

promotional spending increases sales by 0.1 per cent; a value of +3 means a 1

per cent increase in promotional spending increases quantity demanded by 3

per cent.

Managers will be interested in the promotional elasticity of demand

because it will influence their spending in this area. If, for example, the

promotional elasticity of demand for a product is +4, this means demand

is very sensitive to changes in promotional spending and managers may

want to allocate more resources to promotion. If, on the other hand, the

promotional elasticity of demand is +0.001, this means that demand is not

very sensitive to changes in spending. In this case, managers may focus on

other areas, such as developing the design of the product, rather than

investing in promotional spending.

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Of course, within the overall heading of promotion there are different ways of

promoting a product (such as advertising) compared to sales promotions

(such as competitions). Managers may want to measure the sensitivity of

demand to different forms of promotion in order to identify which forms are

the most effective.

Limitations of the concept of the elasticity of

demand

It is important to remember that the value of price elasticity of demand at any

moment is an estimate you will never know exactly how sensitive demand is

to any given variable until you actually change that variable and see what

happens. Therefore, a specific value of elasticity of demand needs to be

treated with some caution. This is especially true because markets keep

changing and this will affect the value of any elasticity of demand. New

products, changes in consumer tastes, developments in distribution and

This can make it difficult to know exactly what caused a change in sales

following the change in one variable. Was it the change in the variable? Or

was it government policies or consumer confidence? For example, while it may

appear that a price cut of 1 per cent increased sales by 2 per cent, suggesting

reality the sales may have gone up for completely

different reasons.

Having said this, with experience, by asking experts or by analysing the results

from a test-market, managers are likely to have some idea of approximately

how sensitive demand is to a variable and may feel confident to base

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decisions on this. Even if they do not know the exact value, an understanding

of whether demand is elastic or inelastic is useful when it comes to making

decisions.

New Product development

Refers to the creation of products with new or different characteristics that

offer new or additional benefits to the customers. Product development may

involve modification of an existing product or its presentation, or formulation of

an entirely new product. It is important for businesses to consider developing

new products all the times as existing products reach the decline phase of

their life cycle, as new technologies appear, as market gaps are identified, as

a way of expanding into different markets and as a way to maintain their

competitive advantage over rivals

Reasons for Product Development

1. it stimulates sales enabling existing markets to be developed

2. to enter new markets or market segments
3. to counter competition more effectively
4. to increase market share and profitability
5. to spread risks
6. to maintain market positions as innovator

Stages in the Product development process

Developing a new product is a process. It require planning, it does not just

happen. Developing a new product starts with an idea and moves on through

stages in the planning process as described below.

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Generating ideas: it involves assessing current range, threats and

opportunities in relation to objectives. Business may be doing this as part of

review and market research. Ideas for new product can come from a variety

evelopment (R&D),

groups, employees, sales people and brainstorming in groups.

Idea Screening: it involves eliminating those ideas that seem to be

unprofitable. It can be very expensive to develop and market new products

that have very few chances of success. Those doing the screening process

should ask themselves questions such as: How will the customers in our target

markets benefits from this product?, is it technically feasible to manufacture

this product?, will the product be profitable enough at the price we are likely to

be able to charge the customers for it?

Developing new product

The people involved should consider things like the features that should be

included, method of production which is cost-effective and possibly how

consumers are likely to react. The firm will the then produce prototypes and

should carry out initial market research.

Product Testing: this is concerned with the technical performance of the

product and

testing include testing the product in typical use conditions e.g a car will be

tested in hot and cold industries to test performance under different

conditions, using focus groups to gather opinions about the product and

adapting the product as required after testing considering focus group

feedback.

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Test Marketing: refers to the launch of the product on a small market to test

r a full-scale

launch to the entire market.

These benefits include:

 Getting and recording actual consumer behaviour

 Feedback from customers can be used to improve the product before
the full-scale launch
 Risks associated with a product failing after a full-scale launch are
reduced.
 Any weakness in the product are identified and addresses in the final
version of the product

Limitations of test marketing

 It can be very expensive


with an exact copy of the product before the full-scale launch of the
product

Full-Scale Launch:

It corresponds to the introduction stage of the product life cycle. Consumer

reaction monitored through product life cycle and marketing mix altered in

response. It is also referred to as commercialisation.

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Research and Development (R&D)

Refers to the scientific research and technical development of new products

and processes. It is a function within a business set up to investigate new

ideas/ products/ services and then to develop the best of these into

marketable products / services.

Benefits of R&D programmes

 Generate new product possibilities

 Increase in profitability
 Reduces risk of failure
 Business will gain competitive advantage in rapidly changing
environment
 Quality goods are produced
 Good name for the business

Factors influencing the level of R&D expenditure in a

business

 The nature of the business. i.e rapidly changing industries requires

substantial amounts
 The R&D spending plans of competitors
 Business expectations
 The risk profile and culture of the business: attitude of the management
to risk and whether shareholders are prepared to invest for the future.
 Government policy: tax exemptions for business that invest in R&D
programmes can promote research and development.

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Reasons why new products fail

Product failure is attributed either to failure in the marketing process or to an

unanticipated change in the external environment.

 inadequate market research

 misleading market research findings
 defects in the product
 activities of competitors
 insufficient or inappropriate marketing efforts
 distribution problems
 unexpectedly high costs
 inadequate sales force

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Sales Forecasting

Is defined as the predicting of future sales levels and sales trends. Marketing

data is a valuable tool for a business.

Importance of sales forecasting

 The production department would know how many units to produce and
how many materials to order
 The marketing department would be aware of how many products to
distribute
 The human resource department will know how many employees to add
 Finance department could plan cash flows with much greater accuracy

Methods of forecasting sales

a).Trend Analysis/ Time series Analysis

Trend refers to an average change (increase/decrease) for each time period.

It shows the overall pattern of movement in the data. Trend analysis takes

data over a period of time and assumes that whatever patterns or trends had

occurred in the past will continue into the future. For instance, if sales have

been increasing by 5% per year, trend analysis assumes the future see sales

continue to rise by 5% per year. To forecast sales in the near future,

extrapolation is used.

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The dotted line shows projected sales for the next year (2009).

b) Moving Average Forecasting

Refers to a method of forecasting into the future that takes account of regular

variations. E.g seasonal changes in sales. It involves averaging sales figure

over a set time period and doing this successively, moving the average

through time. Moving average method enables the data to be smoothened

out to give a trend line that removes the effect of regular changes

Calculating moving average for a four quarter moving average

It is used to forecast sales where they are varying in regular quarterly way

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Data Year 1st quarter 2nd quarter 3rd quarter 4th quarter

Sales ($) Sales ($) Sales ($) Sales ($)

2005 100 130 140 120

2006 130 160 190 150

2007 140 190 240 180

2008 170 240 280 190

Calculation:

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Evaluation

 Give forecasts which takes account of seasonal variation hence the

estimates are more accurate
 It identifies the average seasonal variation for each time period and this
can assist in planning for each quarter in future
 More realistic than projecting forward a trend line without considering
seasonal variation

Limitations

 Future growth in sales may not follow past trend due to changes in the
future external environment

reflected in the trend analysis
 It is more complicated to use.

Sales forecasts and business decisions

Sales forecasts will influence:

The expected profit figures for the business

This will be important to investors and if the business is putting together a

business plan to raise funds. Managers will usually present to investors or

would-be investors their profit expectations for the coming years, and these

will be based on their sales forecasts. This is why forecasts and the

assumptions on which they are based are looked at very closely. The sales

forecast will also affect the cash-flow forecast. Finance managers will

consider the level and timing of sales, look at the likely credit period and

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consider the timing of the cash outflows to provide these products. The cash-

flow forecast will be produced as a result of these considerations.

Operations planning

The expected level of sales will influence the production schedule and,

therefore, all aspects of operations, such as the ordering of supplies, inventory

levels and distribution scheduling. The sales forecast must be produced in

conjunction with the operations team. If the expected level of sales is higher

reduce the sales it makes, expand its capacity or subcontract.

Human-resource decisions

The level of sales for different products potentially in different markets and

parts of the world will affect HR requirements. High levels of demand for one

particular product may require staff to be retrained or moved from one part of

the business to another to meet this level of sales. If the forecasts are

disappointing, the HR team may need to stop recruiting or even make

redundancies. The impact of the Coronavirus (COVID-19) pandemic in 2020

meant that many businesses had to review their sales forecasts downwards

and, as a result, make staff redundant.

Marketing decisions

If the sales forecasts are disappointing, it may be that the marketing team

need to review their activities to see if there is anything they can do to improve

them. The business will continue to review the actual sales figures against the

forecast and take action where needed.

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The benefits of sales forecasting

can make it extremely difficult to estimate future sales. It depends, in part, how

much good-quality data you have gathered and the rate of change in the

environment. However, the fact that there are difficulties in forecasting does

not necessarily make this a useless management tool. The simple process of

forecasting makes managers think ahead and plan for different scenarios.

This may help to ensure they are much better prepared for change than if

they did not forecast at all.

Also, even though a forecast may not be exactly accurate, it may give an

indication of the direction in which sales are moving and some sense of the

not matter much whether sales are 2000002 units or 2000020 units, but it

makes a big difference whether they are 2 million or 4 million in terms of

staffing, finance and production levels that is, provided the forecast is

approximately right, it can still be very useful, even if it is not exactly correct.

It is also important to remember that sales forecasts can be updated. A firm

does not have to make a forecast and leave it there. As conditions change

and new information feeds in, the managers can update the forecast and

adjust accordingly.

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Chapter 22 : Marketing Strategy

Planning the marketing strategy

It is the systematic approach to developing marketing objectives and setting

out specific activities that will implement the marketing strategy designed to

achieve the objectives. It will result in a marketing plan setting out these

activities. Marketing plan sets out the marketing objectives, strategy, budget

and the activities necessary to achieve the objectives. Marketing plan provides

a detailed, fully researched written report on marketing objectives and the

marketing strategy to be used to achieve them

Important questions when making a marketing

plan

 Where are we now? Carry out an Audit. An audit is an investigation to

determine exactly what position in the marketplace a business is. Market
audit can be achieved through PEST and SWOT analysis
 Where do we want to go? It involves setting marketing objectives
 How are we going to get there? It involves deciding on the appropriate
marketing mix
 How do we make sure we get there? Monitoring using performance
standards and benchmarks

Elements of a Marketing Plan

Purpose and Mission: it must provide important information about the

business to potential investors. The plan must highlight on the purpose of the

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marketing plan and mission of the business. The marketing plan should

provide background information about the business.

Situational Analysis: It must clearly indicate the position where the

business is currently at. Carry out things like PEST or SWOT analysis. The plan

will look at current product analysis. The plan will also look at competitor

analysis to identify the main competitors. Target market analysis is also done

to identify the important features of consumers in the market

Marketing objectives: the plan must clearly spell out where the business
is aiming to get to. Marketing objectives should be SMART. An example of

expanding customer demand for fuel-efficient cars and to obtain 5% of small-

Marketing Mix: it must describe how the business is planning to get there.
Marketing plan can now focus on the 4 Ps.(product, place, price and

promotion)

Budget: a budget must be prepared to ensure the success of these

marketing objectives. Most businesses are affected by the problem of limited

resources. The budget will look at how much is required to put the marketing

strategy and tactics into effect. The budget must also consider the expected

sales performance of the plan, to allow a comparison between marketing

expenditure and expected sales

Executive Summary: refers to a short summary of the plan and the time
scale over which it will be introduced. The plan will also look at how the

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business is going to ensure they get there. Monitoring using performance

standards and benchmarks should be highlighted.

Benefits of a marketing Plan

 Ensure that the marketing activities are aimed at achieving corporate

objectives
 Encourage a rational integrated approach to marketing
 Improve efficiency of the business in relation to using its resources by
providing a frame work for marketing activities
 Better prepare the business for change as there is ongoing monitoring
and evaluation
 It is an essential part of the overall business plan. It is used to convince
potential investors that their business proposal is both sound and
potentially profitable

Limitations of marketing plan


the production of a professional marketing plan
 It is time consuming
 Since the market is ever changing, it means the marketing plan can
become out of date before it is published

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Approaches to marketing strategy

Deciding on a marketing strategy

Marketing strategies can vary significantly. For example:

˃ Lobbs is an exclusive shoemaker producing expensive made-to-

measure shoes this is a niche, differentiation strategy. Clarks competes
much more in the mass market.
˃ Primark aims at the mass market via low prices. Karen Millen aims more
for the expensive fashion market.
˃ The Ford Ka was aimed at the younger driver (perhaps their first car). The
Aston Martin DB7 is aimed at the highly successful executive.
When deciding on a marketing strategy, there are many issues to consider as

well as the marketing objectives. These include being consistent with:

˃ the values of the business For example, the business may be committed
to sustainability and this might affect what is offered. The business may
have outlined a clear ethical policy which might prevent certain
promotional strategies, such as targeting children to get them to pester
their parents to buy them a present.
˃ the resources of the business There is no point developing a marketing
strategy based around highvolume sales if the business does not have
the capacity for this. Similarly, there is no merit in a strategy focused on
a premium positioning if the business cannot provide the level of
customer service to support this.
˃ the product itself For example, clothes retailing works well online and a
more digital distribution might be a logical strategy. By comparison,

digitally.

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 ˃ market conditions The nature of the market and the markets in which the
business competes will determine what is feasible and what are
achievable targets. For example, the sales targets for Coca-Cola will be
set in billions of dollars, whereas a market stall in your village may be
happy with sales in the hundreds of dollars. Market conditions will
determine where the business should compete and which segments it
should target. For example, should the firm compete in a niche market
or try to compete head-on with the major players in a mass market?
Should it compete in particular regions, in the country as a whole or
globally?

and avoid entering market segments or offering products where its

weaknesses will be exposed.

When assessing a marketing strategy, managers should make sure they are

clear about:

˃ the characteristics of the target market

˃ the positioning of the business relative to competitors
˃ the nature of the strategy (is it aiming to justify a premium price or is it
offering a low price?)
˃ the marketing objectives (how will success be judged?)
˃ the risk involved in any strategy relative to the likely returns
˃ whether it fits with the business strengths. Could Primark suddenly move
into the premium market, for example? What about Gucci chewing gum?
7-

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A co-ordinated marketing strategy

The marketing strategy must be linked to planning with the other functions. It

must be co-ordinated with all the other areas of the business.

For example:

˃ The expected level of sales must fit with what can be delivered
operationally.
˃ The positioning in the market must fit with what can be delivered in terms
of the product quality and level of service.
˃ The staff will need the required skills and training to deliver what is
promised.
˃ The budget must be in line with financial plans to achieve the desired
overall profit targets. The marketing activities must be affordable. For
example, a business with limited funds may not be able to afford a major
promotional campaign.
A successful marketing mix is one that achieves specific objectives. These

objectives must be clearly set out and relate to achieving the overall

objectives of the organisation. Product, price , place and promotion must all

be integrated together to give the same message to consumers and support

and reinforce each other.

A high quality, high specification product is likely to be sold to a small target

market at a high price where technical expertise and personal selling is

available to the consumer. Promotions of such a product are likely to be in

appropriate media publications and will focus on the performance and

characteristic of the product, or the level of service available to a buyer.

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A low-quality and low-price product aimed at a mass market is likely to be

promoted in mass media with a focus on the price and be available in a wide

range of outlets. Contrast the marketing of a luxury cruise liner with that of

discount clothing. If one of the mix elements does not match and support the

others, the consumers are less likely to be interested

A co-ordinated marketing mix must take account of the position of the

product in its life cycle, the economic environment, market conditions and the

actions of competitors.

Why change a marketing strategy?

It may be necessary for a firm to change its marketing strategy for a number

of reasons, such as:

˃ It may have changed its marketing objectives Rather than wanting more
sales from a given product range, managers may now seek to diversify
(for example, to spread risk) or there may be more pressure from
investors to boost profits.
˃ Market conditions may have changed The slowing down of the rate of
growth in the PC market has led firms like Microsoft to look for new
markets to enter, such as cloud computing. Government regulations to
reduce smoking is forcing tobacco companies to look for new markets
and, particularly, new products. The decline of the traditional film camera
market led the UK-based camera shop Jessops to reconsider what it

make its offerings seem healthier.

˃ -on attack from other firms may force an
organisation to move into a new segment, or to focus on particular areas
of its business where it has a competitive advantage. In the UK, the threat

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 of supermarkets such as Walmart attacking its core business led to
Boots, which sold mainly health-care and beauty products, moving
more into segments such as photography, optical and dental care.
˃
product range, it may find that its strengths create new opportunities
and this brings about a change in strategy.
˃ Poor performance If your strategy is working well, you are likely to keep
on with it. If your strategy is failing, you need to rethink. A change in
marketing strategy may be prompted by the possibility of exploiting an
opportunity and/or protecting a business against threats or poor
performance.

IT and AI, and marketing activities

Developments in information technology (IT) are enabling marketing teams to

gather and analyse data in much bigger quantities and at much faster

speeds. Companies such as Amazon can track in real time, not just what

people are buying but what they are looking at, how they are moving around

the website and when they are coming back to look again. This can give

businesses a much deeper understanding of who their customers are, what

influences their purchases and what drives behaviour. Businesses can identify

trends, build algorithms to anticipate behaviours and adjust their strategies

accordingly. Information technology can also link marketing to the

other functions more effectively, providing better co-ordinated decisions.

Artificial intelligence (AI) is also helping marketing by enabling marketing

decisions to be taken automatically. AI can interpret data and identify patterns

that allow it to drive dynamic pricing, adjusting the price according to criteria

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such as time of day, location of the search and the previous behaviour of the

customer.

Examples of the use of AI in marketing include:

˃ making recommendations to customers on other products they might

like, based on previous buying and search patterns.
˃ generating content on social media to match the interests of the
potential customer
˃ generating website content according to who is looking at it (for
example, is this the first visit to the site or a return visit?)
˃ using chatbots on a website to provide computergenerated responses
to customer enquiries
˃ generating customer-specific content in online advertising so that the
advert you see depends on who you are.

Globalisation: It refers to the growing trend towards worldwide

markets in products, capital and labour, unrestricted by barriers. Globalisation

is now being accelerated by the rapid growth of Multinational Companies and

the expansion of free international trade with fewer tariffs and quotas on

imports Tariff is a tax charged on imported goods. It is also known as a

customs duty. Quota refer to a physical limit on the quantities of imports from

other countries. In other words, Globalisation means moving towards a

borderless world.

Characteristics of Globalisation:

 A rapid expansion of international trade in products and services

 A large increase in finance moving between countries, both money and

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 foreign direct investments and inward direct investments by
multinational companies
 Increased international travel and instant global communications
 Increasing similarity between cultures and societies
 Free movement of workers.
 Signing of trade agreements. Globalisation involves the signing of the
World Trade Organisation and its free trade agreements. It also involves
the growth of regional free trade areas that allow no trade barriers
between member states, such as the Northern American Free Trade
Area(NAFTA) and the European Union (EU).
 Increase in the Global brands for example, Apple, Toyota, Coca Cola are
found in most countries
Effects of increasing Economic collaboration/ or forming trading

Blocs

 member countries will maximise the gains from trade

 removal of the barriers to trade leads to variety of goods
 member state are able to sell their products and services more easily in
other markets
 countries can easily achieve a faster economic growth and a rising
income. Standards of living will improve when GDP is increasing
 competition between local and foreign firms leads to quality goods

Trading Bloc: refers to an agreement between states, regions or

countries, to increase trade between the participating regions by removing

barriers to trade. It is a grouping of countries with formal agreements on trade.

They make it easier for member countries to access the market and very

difficult or expensive for non-members to sells their goods on the market.

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Examples of trading blocs:

ASEAN:- Association of South East Asian Nations

APEC:- Asia Pacific Economic Co-operation

NAFTA:- North American Free Trade Agreement

EU:-European Union

BRICS Countries

economic power that are not yet fully developed but are developing at a

faster rate. Their income (GDP) is growing rapidly. They account for over 40% of

the world population, 25% of the world income and production, and have large

trade surpluses and foreign reserves. As their economies continue to grow and

attract greater trade, their markets will become increasingly important for the

world economy and as key market opportunities for foreign businesses

Benefits of Globalisation to the businesses

 Greater opportunity for selling goods in other countries

 Increased competition gives firms the incentives to become more
internationally competitive
 There is a wider choice of locations
 Greater freedom to arrange mergers and takeovers with firms from
other nations as restrictions on foreign acquisition are reduced

markets
Thus adopting a standardised product across the globe as if the entire

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 world were a single market. It involves selling the same goods in the
same way.

Limitations of Globalisation to the businesses

 Businesses from other countries have freer access to the domestic

market, so the will be increased competition
 Inefficient domestic firms will shutdown
 Businesses are now at risk of foreign takeovers e.g Land Rover and
Jaguar by Tata.
 Anti-globalisation pressure groups may comment negatively about a
multinational company. E.g Coca Cola is under pressure to limit
production in some Indian state due to shortage of water.
 Decrease in profitability for domestic firms when more imports flood
local markets

International Marketing

Refers to the selling of products in markets other than the original domestic

markets. The rapid development of major developing countries is leading to

huge marketing opportunities for businesses that are prepared to sell their

products and services in these international markets. The decision to expand

into an international market is a key one for any business. It is potentially very

costly, firstly in terms of the market research needed, then to set up the

distribution systems and marketing plans. This kind of expansion must match

the objectives of the business and there must be resources of money and the

right people available.

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Why sell products in other countries : These are also the factors influencing the

decision to enter an international market

 To maximise profits
 When the home market is saturated
 To reduce risk of failure
 Poor trading conditions in the home market
 Legal differences creating opportunities abroad. Fewer restrictions
abroad can create opportunities for local firms to export goods to those
countries
 To escape competition in the home market
 To meet management goals of growth

Identifying, Selecting and Entering an

International market

Identifying an International Market

Market research should be done. SWOT analysis is carried out to get a clear

picture of the market

SWOT ANALYSIS Strengths Weaknesses (controllable)

 Strong ethical position  Inefficiency due to large size

 Excellent research facilities market and the lack of control
 Expansion in new markets  High advertising budget
 Brand loyalty  Inexperienced workers

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Opportunities Threats (uncontrollable)

 Increasing incomes and  Risk of economic downturn

population  Emergence of competitors
 Growth of the market  Increase in inflation and interest
 Buying other companies rates
 Foreign government support  Restrictive laws from
governments

Challenges faced when trying to enter foreign

markets

Political Differences: (Labor vs. Conservative Governments)

Changes in the governments can cause instability in the country. Wars can

increase the risk of doing business in foreign lands. Acts of terrorism or threats

all add to the problems of marketing abroad.

Economic Differences:

In some economies the GDP will be falling making it difficult for firms to survive.

Inflation rates may also be rising and business operations will be crippled.

Social Differences:

The structure of the population may differ greatly between the mother country

and the host country. The role of women and the importance of marriages in

societies vary substantially and other social factors may have an impact on

the types of products to be sold in those markets

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Legal Differences:

Products allowed in one country may be illegal in other countries. For example,

guns can be sold in USA, but are illegal in other countries. It is also illegal to

advertise directly to children below the age of 12 on Swedish TV. Product safety

and product labelling controls are much stricter in the EU than in some African

states.

Cultural Differences: cultural differences are not written down as laws are, yet

often related to religious beliefs and moral values. Failure to recognise cultural

must also take note of the language differences. Some words have

unfortunate meanings when translated into another language. Colours can

have different significance too e.g black is associated with mourning in the Far

East.

Selecting an international market

Factors influencing the Selection of an International Market

a) Product Factors: the business must consider its product in relation to

possible markets
b) Organisational Factors: the business must consider its objectives, risk
and resources.
c) Market Factors: market factors are key in selecting the final choice and
these include:
o Size of the market
o Potential growth prospects of the market
o Nature of competition

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 o Existing and possible distribution channels
o Costs of setting up distribution channels
o Political and cultural factors affecting the market
o Economic factors e.g currency used and its stability, tariffs,
government incentives etc

Entering an International Market

Once the business has selected a market to sell to, it must decide how it will

do it. The choice will be determined by the strategy of the business. This in turn

is determined by the objectives and resources of the business.

Methods of entering an international market:

Direct Foreign investments: the business may set-up subsidiaries in foreign

countries. Direct investments refers to constriction of production facilities or

offices in other countries. Toyota opened subsidiaries in South Africa. The

subsidiaries will have centralised control from the Head Office in the Home or

parent country. The firm will be able to produce and distribute in the host

country. Thus the product must the have a marketing plan designed to

achieve objectives.

Benefits

 The business will be able to avoid trade barriers

 The business may be able to get government support especially if they
have invested in critical areas or if they are socially responsible.
 There is no agent or joint venture partner to consult with or take joint
decisions with. Thus all profits after tax belong to the organisation
 Lower costs e.g the decrease in transport and labour costs.

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Limitations

 Set-up costs are very high

 The firm is required to have country specific understanding of the way
businesses operates which may increase costs
 It is more time consuming than taking over an existing firm
 Foreign operations may be subject to changes in government policy.
Foreign firms may be asked to comply with certain government policies
like nationalisation, indenisation etc

Foreign Investments is suitable for large businesses where there are tax

advantages, government aid, trade barriers and a long-term commitment.

Exporting: refers to the marketing and selling of goods and services to

other countries. Production is done in the domestic economy and goods are

sold in other countries. The business will need to find an importer and a

transport provider and deal with the government. An agent may be used to

arrange the practical details of selling. Agents often organises sales through

existing channels in return for a commission or agency fee. Exporting can be

done directly or indirectly. Direct exporting occurs when the business sell

goods directly to foreign customers. Indirectly through intermediaries in

international trade like agents or trading companies.

Benefits exporting Directly

 The company has complete control over the distribution of goods

 Agents may be having other deals with other companies and as a result
may not be fully committed
 Saves on costs since no commission is given to the intermediaries.

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  Customer feedback is obtained directly by the business.

Benefits of exporting indirectly

 The agents have full knowledge about the local market hence make
more sales per given period
 Transport and administrative procedures become the responsibility of
the agent
 Less costly as fewer staff is involved in selling goods abroad.

Problems of exporting directly

 The business lacks important knowledge about the local market

 More hustles of arranging transport and storage facilities
 The business must employ sales personnel to deals with foreign buyers

Problems of exporting indirectly

 Commission should be paid to the agents

 The agents may be having products from other firms to sell as well and
they may not be fully committed.
 Lack of personal touch with the foreign customers.

Franchising: a franchise business (franchisor) charges a fee to other

businesses (franchisee). In return for this money the franchisee obtains the

right to use trademarks, logos, recipes, promotional material and the use of

the brand. This means that the franchising business has few start-up costs

apart from marketing. Examples include. McDonalds, Wimpy, Connaught Plaza

restaurants etc

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Benefits of opening a franchised business

 Few start-up costs

 Fewer chances of new business failing as an established brand product
are being used
 Advice and training offered by the franchisor
 Supplies obtained from established and quality-checked suppliers
 Franchisors agrees not to open another branch in the area

Problems of opening a franchised business

 Share of profits or revenue has to be paid to franchisor each year

 Initial franchise fee can be expensive
 Local promotions may still have to be paid by the franchisee
 The franchisee is forced to get raw materials from certain suppliers only

control over their own business.

Joint Ventures: refers to an alliance where two or more businesses

agrees to contribute products, services and or capital to a common

commercial enterprise. It is a business agreement in which organisations

agree to develop a new corporate identity separate from their own, for a

specific period of time.

Benefits of a joint venture

 risk is shared between the business and venture partners

 sharing of skills, knowledge and resources
 trade barriers are not relevant

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Problems of a joint venture

 there may be conflicts between the venture partners

 there is loss of control
 one business may not have the incentive to be efficient

Licensing: it involves a contractual agreement to distribute the product

or services in return for a fee.

Benefits of licensing

 this means there is a low initial costs

 much of the risk is borne by the licensee
 trade barriers are avoided
 licensee may have full knowledge of the local market

Problems of licensing

 the business lose control of the marketing process

 the business must pay a fee to the licensee
 the contract can be terminated at any time.

Acquiring existing foreign business: the business can

merge or take over a foreign company. Many Chinese companies are entering

global markets through this route. Lenovo obtained the IBM PC business in

2004. Using this method, the business directly acquires brand names,

distribution networks, experienced employees and customer relationships

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Benefit of acquiring foreign firms

 risk of failure is reduced

 customer relationships are maintained
 a faster way to penetrate foreign markets
 skilled and experienced staff can be retained

Problems of acquiring foreign firms

 lot of paper work is involved when merging two firms

 more capital is required when buying a business which is already
performing well.

Strategies in global marketing

Pan Global Marketing: involves marketing products and services to global

markets in many different markets using a single strategy. It refers to the

selling of the same goods in the same way in different countries. The business

must build a consistent brand image, use the same logos, colours and advert

styles that give customers the same message which ever country they are in.

Examples of Pan Global businesses include Coca Cola, Nike, Toyota and Nestle.

Benefits of Pan Global Marketing

 saves on costs since the same product can be produced for all markets
 a common identity for the product can be established.
Problems of Pan Global Marketing

 legal restrictions can vary across nations. It is illegal to use promotions

involving gambling in certain countries

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  brand names do not always translate effectively into other languages.
They might even cause offence or unplanned embarrassment for the
company
 setting of the same price in different countries may not lead to profit
maximisation
 firms must develop different products to suit cultural or religious
variations.

Global localisation: occurs where the products are marketed in a

way which allows for local differences. Sales are maximised when the

marketing strategies take account of local cultural differences. Many

businesses are now using segmentation in their global markets to target

particular countries or groups of customers in order to achieve their

objectives.

Benefits of Global Localisation

 profit and sales maximisation

 local needs, tastes and cultures are reflected in the marketing mix of the
business
 products are made in such a way that they meet certain minimum
quality standards in each country

Problems of Global localisation

 there will be additional costs of adapting the products to suit cultural

variations
 the business can no longer benefit from the economies of scale

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Factors to consider when entering overseas

markets

When considering entering an overseas market, marketing managers think

about:

˃ the likely costs to establish the product in the market and continue
promoting
˃ the likely risk (given that they may not be familiar with factors such as
the culture, the legal system or competitive environment, the risk could
be relatively high)
˃ the likely competition
˃ the understanding of the market
˃ the time frame
˃
˃ how to enter » the likely returns (these could be huge in some markets
but must be balanced against the risk).

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