Chapter 3

MARKETING
Marketing – Identifying customer needs and satisfying them.

It is the action or business of promoting and selling products or services, including market research and
advertising.

Role of marketing
 Identifying and satisfying customer needs
 Maintaining customer loyalty
 Building customer relationships
 To identify the changes in fashions and technology
 To understand the changes in employment level and income of the people

Market - Market is a place where buyers and sellers come together to buy and sell goods and services.

Types of market
 Target market – individuals or organisations identified by a business as the customer or consumers
of the 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. For example, food
items, TVs and cars.
 Industrial market – markets for goods and services bought by other businesses to use in their
production process.

Why consumer spending pattern change

Business environment – the combination of internal and external factors that influence the operations of the
business.

Business environment is the factor that changes constantly which means that the market for goods and services
will also change over the time. The amount of money customers/consumers spend on buying goods and services
is affected by a number of factors. It includes:

 The price of the product

 The price of the competitors’ products
 Changes in consumer income
 Changes in population size and structure
 Changes in tastes and fashion
 Spending on advertising and other promotional activities
 Advancement in technology
 Unemployment/wages

Changing customer needs

The purpose of marketing is to satisfy customer needs at a profit. If a business wants to survive in the long run,
it has to respond to any changes in customer needs.
Reasons that why some markets become more competitive

 Governments’ intervention in markets – 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
 Selling off public sector organizations to the private sector
 Deregulation – the removal of government controls from an industry
 Providing financial assistance to new and other small and medium businesses

 Growth of free trade between countries

 Free trade – it means no barriers exist that might prevent trade between different countries

 Development of e-commerce and social media networks

How businesses respond to changing spending patterns and increased competition

There are number of actions a business can take respond to changes in consumer spending patterns and
increased levels of competition. These include:

 Product development
 Improve efficiency
 Increased promotion
 Look for new markets

Niche and mass marketing

Niche market - A Niche market is a very small part of the whole market. It means developing products for a
small segment of the market.

Where a business targets a smaller segment of a larger market, where customers have specific needs and
wants

Advantages
 Less competition
 Clear focus - target particular customers (often easier to find and reach too)
 Builds up specialist skill and knowledge = market expertise
 Can often charge a higher price
 Profit margins often higher
 Customers tend to be more loyal

Disadvantages:
 Lack of "economies of scale"
 Risk of over dependence on a single product or market
 Likely to attract competition if successful
 Vulnerable to market changes
 High competitions in the market
Mass marketing – opposite of niche marketing. A business sells the same product to the whole market.
Selling the same product to the whole market.

Advantages
 High sales and profit
 Can benefit from economies of scale
 Opportunities for growth
 There are many variations of products so risks can be spread
 Lower unit costs

Disadvantages
 Lots of competition may reduce the profitability
 High cost of advertisement
 Many similar products so it may not meet specific needs of all customers

Market segmentation– It means dividing the whole market into segments by consumer characteristics and then
targeting different products to each segment.

Market segment – a part of the whole market in which consumers have specific characteristics.

Advantages of market segmentation

 The marketer can spot and compare marketing opportunities
 The marketer can modify his product/service and marketing appeals to suit the target segment.
 Management can identify new profitable segments which deserve special attention.
 It is possible to deal with competition more effectively by using resources more effectively.

Disadvantages of market segmentation

 Segmentation increases costs.
 Larger inventory has to be maintained by both the manufacturer and the distributors.

Methods of market segmentation

 Geographic segmentation – dividing customers in the market by geographic area. It recognizes 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 in the world
 Different countries in the world

The geographical differences may be due to cultural reasons, religious beliefs or even different climates.

 Demographic segmentation – dividing consumers in the market by factors such as age, gender,
income, ethnic background and social class.

The factors used for demographic segmentation

 Age and income of the population
 Gender – male or female
 Social class
 Ethnic background
  Family size

 Psychographic segmentation–dividing consumers in the market by lifestyles, personalities and

attitudes.

Benefits of market segmentation to business

 Goods and services can be designed to meet the specific needs of consumers in each segment. It helps 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.
 Segmentation of the whole market identifies a segment of consumers who have specialized needs that
are not currently being satisfied.
 Marketing strategies can be better targeted at each segment. It reduces the waste of scarce resources.
 It is possible to charge higher prices for very similar products in one segment than in another.

Market Research - it is process of collecting, recording and analyzing data about the customers, competitors
and market for a product.

 it provides important information about the markets in which they operate.

 it involves collecting and recording data about customers, competitors and the market for a product.
 market research gives a business information about:

 its customers
 its competitors
 its market

Advantages of market research to a business

 find out what consumers like and dislike about its products.
 identify consumer tastes and preferences.
 To choose the best method of promotion, packaging and distribution methods for its products.
 To identify the main competitors and what is special about their products - it is known as unique selling
point.
 to know the size of the market
 to explain the reason for the sales of its current products
 predict how the demand for its products may change in the future

Unique selling point - the special feature of a product that sets it apart from competitors' products.

Market orientated - products are developed based on consumer demand as identified by market research.
Benefits:
 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.
Uses of market research information to a business
 identify consumer needs
 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
 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.

Advantages of market orientation

 Increased sales and income.

 Increased business volume and market share.
 Increased customer satisfaction and loyalty.
 Increased innovation by listening to the customer.
 Continuous improvement of efficiency and effectiveness.

Disadvantages of market orientation

 Disregards customer needs

 set-up costs are usually high
 Potential missed market opportunities,
 obsolescence

Product orientated - the firm decides what to produce and then tries to find buyers for the product.

Advantages
 Fewer resources
 Cheaper costs
 Unique product

Disadvantages:
 Low adaptability
 Limited innovation
 Waste of resources

METHODS OF MARKET RESEARCH

Secondary research - the collection of data from second hand or already exist sources.
 it is also known as desk research
 it uses data that already exists.
 the most secondary data has been collected by another organisation for various purposes.
 it uses second hand data which are collected by other organisations

various sources of secondary data

 Internet - it contains a wide information of various topics and can easily find using search engine as
Google. Generally, companies will add their data and other information in the internet.
  Government publications - Government publish data and information related to their own country, for
example population statistics and the support available for businesses.
 Newspapers and magazines - Most newspapers have a business section and many magazines are
specific to a particular industry.
 Libraries - Public libraries have lot of information and journals about various companies and it provides
free internet access and printed materials to public
 Market research agencies - These are companies whose business is the collection and analysis of
market data which they sell to other businesses for making policies and plans.
 Business records - Businesses collect information about their customers that might have kept on a
desktop. These records might include information such as customer's name, address, transaction details
etc.

Benefits and Limitations of secondary market research

Benefits
 it is fairly cheap to obtain
 it is easier and quicker to obtain than primary research data

Limitations
 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 reliable or as
useful as primary data.

Primary research - the collection of first hand data for specific needs of the firm. it is gathering of ORIGINAL
data by talking directly with customers/potential customers.

 it is also known as field research

 it involves collecting data first hand. for example, interviewing people in the street about their views on
local shopping facilities.
 it is the data collected by an organisation for the first time and for its own specific needs.

Methods of primary research

 Quantitative research - it is the collection of numerical data that can be analyzed using statistical
techniques. it produces numerical data which can be presented in tables, graphs or charts.

 Qualitative research - the collection of information about consumer's buying behaviour and their
opinions about products. it aims to find out customers' opinions about products and the factors that
influence their buying decisions.

Methods of collecting primary data

1. Focus Groups – a group of people who represent the target market. They test out product/service and explain
what they like or don’t like about it.
It is a group of people who assembled to participate in a discussion about a product before it is launched, or to
provide feedback about a product/service.
 Features:
 it is mostly using the manufacturer of consumer products
 a group of consumers will be invited to discuss about a new product/service.
 the group will discuss about the product's packaging, brand names and advertisements
 it is a good way to find out the details of new products before introducing
 the main limitations of this methods are time consuming and expensive.

Advantages
 Easily Measure Customer Reaction
 Time-Saving Opportunity

Disadvantages
 High expenses
 Chances for moderator bias
 Not in as depth as other market research

2. Observation - it is the process of secretly observing and recording the behavior of consumers by market
researchers.

Features:
 it often uses the large super markets
 it may be more accurate
 it is the method of observing the behavior of people while they are purchasing

Advantages
 Non-verbal behaviour
 Lack of control
 No opportunity to learn past

Disadvantages
 Lack of competence of the observer
 Possibility of distortion.

3. Test market - it means a limited quantity of the product will produce and sells in carefully selected area of
the market.
Features:
 Test market is choosing to represent the total market
 The business will distribute a feedback form to consumers
 the consumers can full up the form to show their likes and dislikes

4. Consumer surveys - Conducting surveys about the consumers' fashion, taste and preferences.

Methods of conducting consumer surveys

 Interviews - meeting people face-to-face and ask questions orally.

 A trained interviewer asks questions to an interviewee and record their answers
 interviewer can explain the questions in detail
 it is very expensive and time-consuming method
 the accuracy of interview depends on the honesty of the interviewer
Advantages
 It is flexible
 Quick and better response
 The interviewer can judge the non- verbal behaviour of the interviewee
 The interviewer can decide the time and place for the interview
Disadvantages
 It is costly and time consuming
 Unconscious mistakes
 May respond incorrectly

 Postal surveys - questionnaires are posted to people's home and they are asked to complete and return.
 it is cheaper than the interview
 people may not respond to the mail

 Online surveys - Businesses may use the internet and their own website to carryout surveys.
 it covers a wide geographical area
 people may not respond to the survey

Benefits of 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
 it may provide competitive advantages

Limitations of primary research

 it is costly and time consuming
 risk of inaccuracy

5. Sampling - it is a representative sample of the target market selected to take part in market research.
Sampling is a process used in statistical analysis in which a predetermined number of observations are taken
from a larger population.

Need for sampling

 primary research is too expensive and time consuming
 this problem can be overcome by selecting a sample from the total market
 sample is a representative of the whole population

Reasons for the inaccuracy of market research data [give notes from the text book]
 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 interviewee may not give his/her true view points
 the language used by the interviewer or used 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.

presentation and use of market research results

Once the market research has been carried out, the results need to be presented and analysed.
 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.
 Quantitative research consists of data, usually lots of numbers. The data must be presented in a way that
users understand and be able to use. it includes, tables, charts, graphs, and pictograms.

Tables - Data can be presented in a table.

Advantages of tables are:

 A large amount of data can be grouped and presented more clearly
 It is easy to extract numerical data
Disadvantages
 Lack of visual impact
 Too much data in the table can make it difficult for users to understand.

Bar charts - The data is shown as bars or columns. The bars can be drawn vertically or horizontally.

Advantages of a bar chart

 Can easily see the importance of each piece of data
 can read the numerical values from the axis

Disadvantages of bar chart

 Difficult to compare the different parts
 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.

Advantages:
 It shows how important each part of the data is compared to the other parts
 Easier to understand for people who dislike numerical values.

Disadvantages:
 too many slices so it is difficult to see the relative importance of the data

Pictograms - This method uses pictures or symbols to represent data. Every picture or symbol has a numerical
value.
Advantages:
 It is presented by pictures and not numbers
 it helps people who are less numerate

Disadvantages:
 It is difficult to show exact quantities using pictures

Line graphs - it shows the relationship between two variables. It is useful to show trends - how data has changed
over time.

Advantages:
  It clearly shows trends
 values can be read off from both axes
 data can be added for future time periods

Disadvantages
 difficult to draw
 accuracy depends on choosing appropriate scales for both axes

Marketing mix: Product and Price

The marketing mix is the four key decisions that a business must take in order to market products effectively.
these four decisions are often called the Four Ps. the first two of these decisions are what product the business is
producing and selling and the price the business is going to charge customers who want to buy the product.

Marketing mix - it is the four marketing decisions needed for the effective marketing of a product.
Marketing Mix – all of the activities that are involved when marketing a product or service
The marketing mix can be summed up as the 4 Ps:
o Product
o Price
o Place
o Promotion

Four Ps - the right product at the right price with the right promotion in the right place.

Product - the goods and services produced to satisfy a customer need or want.
 The advertisements and promotions are required when launching a new product into the market
 The business may sell the product at low price to encourage consumers to buy.
 If the product is not right and 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
 Regular buying helps to build the brand and develop both customer loyalty and brand loyalty.

Brand - a name, image or symbol that distinguishes a product from competitors’ products.

Cost and benefits of developing new products

 Businesses operate in very competitive and /or fast changing markets.

 the survival and the success of the business depends on developing new products to meet the changing
needs and expectations of the customers. it includes:

 develop new products

 change an existing product to meet the changing tastes of customers
 change an existing product to enter a new market
 Development of a new product will be very expensive
 There is no guarantee for success even if the new product is developed on the basis of market research

Costs of a new product development [give notes from the text book] page 165
  market research needs to be carried out to identify customer needs
 Conducting market research is very expensive
 the development of a new product often requires large capital expenditure
 No guarantee about the success of a new product
 if the product is not success, it could be a threaten for the survival of the business

Benefits of new product development

 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
 The development of new products might help to achieve growth and bring benefits from economies of
scale.

Brand image - it is the general impression of a product held by consumers.

 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.

advantages of brand image

 consumers recognize its product more easily when looking at similar products
 the branded products can be priced higher than less well-known brands
 it is easier to launch a new product on to the market
 can create an awareness among consumers about the product
 customers may already know and trust the brand
 it encourages the customers to buy regularly
 it increases the profits and sales revenue
 it creates brand loyalty

Packaging - materials used to wrap or protect goods.

The role of packaging

 packaging provides protection to the product
 it provides information about the product
 it helps consumers recognize the product
 Most of the products must be packaged before sending to consumers
 the design and materials used in the packaging can be important for promoting the product
 poorly designed or poor-quality packaging may discourage the consumers to buy the product
 well designed and imaginative packaging by quality materials will motivate the consumers to buy the
product.
 packaging increases the price of the product
 packaging materials must be able to recycled
 packages can be used for some products such as liquid, coffee etc.
 Packaging keeps the product as fresh

Advantages of packaging
  packaging provides protection to the product
 it provides information about the product
 it helps consumers recognize the product
 Packaging keeps the product as fresh

Disadvantages of packaging
 Packaging increases the price of the product
 packaging materials must be able to recycled
 poorly designed or poor-quality packaging may discourage the consumers to buy the product

Product Life Cycle - it is the pattern of sales of a product from introduction to its withdrawal from the
market.

 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
 the four stages are introduction, growth, maturity, decline

The four stages of PLC

 Introduction stage -
 the product is just introduced into the market.
 sales will be very low.
 the product may be making 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 will be increasing
 the product usually starts to earn profit during this stage.
 Maturity stage -
 sales are no longer growing but are not falling.
 it is the most profitable stage in a product life cycle
 Decline stage -
 sales will be falling
 the product eventually becomes unprofitable and is withdrawn from the market

Extension strategies - marketing activities to extend the maturity stage of a product.

 the maturity stage is the most profitable stage of a products life cycle
 a business will want to keep the product in this stage for long as possible by doing extension strategies.

Extension strategies include:

 finding new markets for the product
 finding new uses for the product
 adapting the product or the packaging to improve its appeal to customers
 increased advertising and other promotional activities

Product life cycle - extension

How the product life cycle influences marketing decisions

Product
Introduction – basic model of the product is available
Growth – changes might be made to the product as a result of feedback from consumers in the test market
Maturity – Extension strategies might be used to keep the product as it is
Decline – The product and packaging are not altered.

Price
Introduction – prices may be lower than competitor prices to attract customers or price may be higher if the
product has no immediate competition
Growth – Brand image helps to create customer loyalty.
Maturity – Price will remain similar to that of competitor products.
Decline – The price might be reduced to maintain sales

Promotion
Introduction – High promotional activity, such as advertising, to create product awareness and inform
consumers that the product is on the market.
Growth – Promotional activity is still high to continue to persuade existing consumers to buy the product again
and to attract new consumers.
Maturity – promotional activities are aimed at reminding consumers that the product is still available in the
market and how it differs from competitors’ products.
Decline – to advertise the lower price of the product or other promotions for selling the remaining inventory

Place
Introduction – the product will be offered for sale in specially selected outlets
Growth – the product is more widely available which helps to increase sales
Maturity – the product is now available for purchase through a wide distribution network
Decline – the product is only available in profitable outlets

Price - the amount paid by the customer to the supplier when buying a good or service.

 price is very important part of a marketing mix

 it influences the customers' demand for a product
 consumers buy the product on the basis of price
 the price of the product will depend on the availability of supply

Pricing methods

 Market skimming - setting a high price for a new product that is unique or very different from
any other product on the market.

 businesses can charge higher price for the latest technology

 a business can set a high price for a new product which is unique
 businesses may charge higher prices to get back the cost of research and development of a product

Advantages
 it enables the business to recover the cost of research and development
 hi-tech and unique goods can charge higher prices
 it helps the firm to create a quality image for its products

Disadvantages
 higher price will attract new competitors with cheap priced products
 the poor people cannot buy the product due to higher price
 it results loss of sales

 Penetration pricing - setting a low price to attract customers to buy a new product.
  it uses for new products
 setting a lower price for the product that is about to introduce
 the lower price will encourage customers to buy the product
 the price will increase once after the business has built up customer loyalty
Advantages
 attracts customers more quickly and helps the product to become established in the market
 can increase market share quickly

Disadvantages
 possible loss of revenue due to lower prices
 cannot recover any developmental costs quickly

 Competitive pricing - setting a price similar to that of competitors' products which are already
established in the market.

 suits to new products where the business already has a good brand image and loyal to customers
 Existing products which has been fixed with some other pricing methods
Advantages
 similar prices to competitors
 Can attract more customers

Disadvantages
 chances for losing market share
 Need to find many ways to attract sales

Price leadership - it means smaller firms set their price based on the price set by the dominant firm in
the industry.

 Promotional pricing - it means set a price for the product as low as possible for a limited period to
get consumers to buy.

 The normal price is discounted, at below cost is known as loss leader pricing
 if consumers are offered more of the product for less than the full price - for example, buy on get
one free, or 25% extra free.
Advantages
 Good way to sell off unwanted inventory before it becomes out of date
 A good way of increasing short-term sales and market share

Disadvantages
 Revenue on each item is lower so profits may also be lower.

Methods of promotional pricing

 Loss leader pricing - setting the price of a small number of products at below cost to attract customers
in to the outlet in the hope that they will buy other products priced to earn profit.
 it is mostly used by retailers such as supermarkets
 they offer a few products below the normal price, even at a loss.
 these prices attract customers into the store who will also buy other products at their normal
prices.

Advantages
  Easy to enter a new market
 Can promote other products
 It brings new customers

Disadvantages
 Risk of loss
 Stock piling

 Buy-one-get-one-free pricing - it uses to create product awareness and develop customer and brand
loyalty.

 Discounted pricing - it means offer the products at discounted prices.

 it uses to create product awareness and to build customer loyalty
 it uses to sell off the surplus or outdated products.

 Cost - plus pricing - setting price by adding a fixed amount to the cost of making or buying the
product.
 it is based on the cost of making the product or buying the product for resale to the final
consumer.
 usually a certain percentage of profit will add to the cost of the product.
 there are two methods of cost-plus pricing such as markup pricing and full cost pricing
 price is set by adding the required percentage on to the cost of making the product
 retailers use this method when deciding the final price of the product

Advantages
 Quick and easy to work out the price
 Makes sure that the price covers all of the costs

Disadvantages
 Price may be set higher than those of the competitors or not affordable to customers
 chances of reducing sales and profits

Mark-up pricing - Markup is the difference between a product's selling price and cost as a percentage of
the cost. For example, if a product sells for $125 and costs $100, the additional price increase is
($125 – $100) / $100) x 100 = 25%.

Full-cost pricing - a pricing strategy in which all relevant variable costs and a full share of fixed costs directly
attributable to the product are used in setting its selling price. Formula: (total production costs + selling and
administrative costs + markup) ÷ the number of units expected to sell.

Factors to be considered when choosing a pricing method

 Is it a new or an existing product?

 Is it the product is unique or not?
 Is there a lot of competition in the market?
 Does the business have a well-known brand image?
 what are the costs of making and supplying the product?
 What are the marketing objectives of the business?
Price elasticity of demand

Demand - the quantity of goods and services consumers are willing and able to buy.
price elasticity of demand - it measures by how much demand [sales] for a product changes when there is a
change in price. [Ask them to draw a diagram from the page 176]

Increases Demand Price Increases

OR

Price Decrease Decreases Demand

The relationship between price and demand

Price
Demand

Quality

price inelastic demand - the percentage change in demand [sales] is less than the percentage change in price.
[It is when the % of the loss in demand is LESS than the % of the change in price.]

price elastic demand - the percentage change in demand is greater than the percentage change in price.
It is when the % of the loss in demand is GREATER than the % of the increase in price.
For example: prices increase by 5% but then sales decrease by 10%. Therefore, there is falling revenue for the
business

Price elasticity of demand and pricing decisions

Revenue – the amount earned by a business from the sale of its products.
 Increasing the price if the product has price inelastic demand
 Decreasing the price if the product has price elastic demand

Place - It is the process of moving products from the producer to the final consumer. The goods movement
could be through a combination of intermediaries such as distributors, wholesalers and retailers.

 the ways to get goods from the producer to the final consumer - known as channels of distribution.
 place is where the consumer will be able to buy the goods or services.
 every business must decide the best way of getting its product to the final consumer
 business can use the various channel of distribution to sell the products

Channel of distribution – It is the way how a product gets from the producer to the final consumer.
1. Producer Consumer

 it sells the product directly to the consumer.

 direct selling - the products will sell directly to the final consumer without the need of any middle man.

Advantages and disadvantages from the text book

Advantages
 producer gets all the profits
 producer controls all parts of the marketing mix
 quickest method of getting product to the consumer
 producer will have direct contact with the consumer

Disadvantages
 consumers may not see or try before they buy
 high delivery costs
 producer must pay the storage cost
 producer must do all the promotional activities

2. Producer Retailer Consumer

 Retailer - shops and other outlets that sell goods and services to the final consumer.
 producer sells the product to retailer
 retailers sell goods to consumers through their shop

Advantages
 consumers can see and try the product before they buy
 the retailer has to pay the cost of holding inventories
 retailer has to pay the cost of advertising and promotional activities
 retailers are usually more conveniently located for consumers

Disadvantages
 retailer gets some of the profits from the producer
 producer lose some control of the marketing mix
 producer must pay delivery costs to the retailers
 retailers sell competitors’ products.

3. Producer Wholesaler Retailer Consumer

 It uses two middleman - wholesalers and retailers

 The producer sells large quantities to the wholesaler and the wholesaler sells it retailers to smaller
quantities.
 the retailers sell it to the final consumers as per their demand
 Wholesaler - a business that buys product in bulk from producers and then sells them to retailers.
 middleman - these are the intermediaries in the channels of distribution. for example, wholesalers and
retailers.
Advantages
 wholesaler buys in bulk and break into small pieces
 wholesalers will advertise and promote the product
 wholesaler pays the transport and storage cost
 wholesaler helps the producer to sell goods in larger market

Disadvantages
 wholesaler takes part of the profit from the producer
 producer loses control over the marketing mix

4. Producer Agent Wholesaler Retailer Consumer

 It uses an agent
 it commonly uses when a business enters a foreign market for the first time
 the agent will have a specialist knowledge about the country and its markets and can help the producer
to place its products with wholesalers and retailers.
 the agent saves the producer a lot of time and expense.

Advantages
 Agent will have a specialist knowledge of the foreign market
 Agent will find wholesalers and retailers abroad to buy the product

Disadvantage
 Agent takes commission which reduces the producer’s profit

Factors affecting for choosing the method of distribution

 Cost - cost of transporting goods to the consumer must be considered
 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 main the correct temperature.
 fragile items such as TVs need to be handled as few times as possible to reduce risk of damage.
 perishable goods such as milk, need to get to the final consumer as quickly as possible so long channel
of distribution is not 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.

Promotion - marketing activities used to communicate with customers to inform and persuade to buy
business's products.

Aims of promotion

 it tells consumers about a product and tries to persuade them to buy it.
 attracting the attention of consumers
 it makes them aware of the product
 reminding consumers about the product which is still on the market
 persuading consumers to buy the product
 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

 Methods of promotion

1. Advertising - Paid for communication with consumers which uses printed and visual media. the aim is to
inform and persuade consumers to buy a product.
 advertising involves communicating with the consumer through media such as newspapers, magazines,
radio, TV and the internet.
 the advertising media depends on the available budget.
 TV advertising is more expensive than newspaper advertising
 TV advertisement is usually afforded for larger business such as a supermarket.
 a business sells its products throughout the country mostly prefer national newspapers.

Advantages of advertising

 Introduces a new product in the market,

 expansion of the market,
 increased sales,
 fights competition
 enhances good-will
 educates the consumers

Disadvantages of advertising

 Adds to the Cost of Production and Product

 Leads to Price War
 Deceptive Advertising
 Leads to Unequal Competition
 Promotes Unnecessary Consumption: ...

Above - the- line promotions - Advertisements on TV, radio, newspapers, internet etc.

The main forms of promotional advertising

 informative advertising - information about the product communicated to consumers to create

product awareness and attract their interest.
 it provides information to consumers about the product
 it informs about the price of the product, how it can be used and where it is available.
 it uses when launching a new product into a new market.

 Persuasive advertising - communication with consumers aimed at getting them to buy a firm's
product rather than a competitor's product.
 it persuades the customers to buy a product
 it tries to convince consumers that they need the product and it is better than competitor' s
products.

Sales promotions - incentives used to encourage short-term increases in sales or repeat purchases.
Below-the- line promotions - promotions that is not paid for communication but uses incentives to encourage
customers to buy.
various sales promotions include:
 money-off coupons or vouchers
 point of sale displays in shops
 loyalty rewards schemes
 competitions and games with cash or other prizes

1. Personal selling - sales staff communicate directly with the consumer to achieve a sale and form a long-term
relationship between firm and consumer.

 it uses when selling expensive items that have high profit per unit for example cars.
 the sales person has direct contact with the potential customer when they visit the showroom
 seller may visit the consumer in their own home
 it enables the seller to build a relationship with the customer
 it is an expensive form of promotion because more staff are needed to provide services

Advantages of personal selling

 Two-Way Form of Communications

 Effective in Building Personal Relationships
 Important in International Sales
 Best Promotion to Reach Customers

Disadvantages of personal selling

 Negative attitude of sales people may affect the customer relations
 Expensive to maintain sales force
 High job turnover

2. Direct mail - printed materials which sent directly to the addresses of customers.
 it involves posting leaflets or other printed materials directly to the business offices or homes of
customers.
 the potential customers can be identified through market research
 can be communicated with a large market over a wide geographical area

Advantages of direct mail

 greater response
 tangible and personal
 can target to specific group of customers
 less cost

Disadvantages
 Time consuming
 Requires address data
 People may not see it

3. Sponsorship - payment by a business to have its name or products associated with a particular event.

Advantages of sponsorship
 raise brand awareness and create preference.
 create positive PR and raise awareness of the organisation as a whole.
 provide attractive content for a range of products and services.
 support a sales promotion campaign.

Disadvantages of sponsorship
 Potential controversies
 No guaranteed returns

Marketing budget - the amount of money made available by a business for its marketing activities during a
particular period of time.
 marketing budget affects the promotion decisions.
 TV advertisement is very expensive and can only be afforded by businesses with large marketing budget
 smaller businesses will not have enough marketing budget so they may choose radio or newspaper

Technology and the marketing mix

 E-commerce - use of the internet and other technologies by businesses to market and sell goods and
services to customers.
 Examples of e-commerce are online shopping, electronic payment, internet banking, online ticketing,
online auctions, hotel reservations.

Opportunities of e-commerce for businesses

 Increased market
 Reduced cost
 Better information

Threats of e-commerce for businesses

 increased competition
 unfamiliarity

Opportunities of e-commerce for consumers

 convenience
 wider choice
 lower price
 better information

Threats of e-commerce for consumers

 Fraud
 Hacking
 No personal service
 Returning items

Marketing Strategy - it is a plan to achieve the marketing objectives using a given level of resources.
 A business produces marketing strategy only after careful market research
  A business's marketing strategy is a plan to achieve its marketing objectives using a given level of
resources.

Legal control related to marketing -- laws that control the activity of businesses.
The common legal controls are:
 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.

The important legal controls include:

Businesses are not allowed to sell products that weigh less than they should, or if weighing equipment is
inaccurate
o ‘Trade Descriptions’ - Businesses are not allowed to give consumers misleading information on purpose
(i.e. saying that a shirt is made out of silk when it is made out of cotton)
o ‘Sale of Goods’ - Businesses are not allowed to sell products that have less-than-satisfactory quality – that
don’t fit for the purpose intended (i.e. waterproof shoes that aren’t waterproof)
o A service must be provided with at-least satisfactory skill and care
o Businesses cannot have misleading pricing claims
(i.e. 50% off today, when yesterday it was the same price)
A business is responsible for any damage/harm that a faulty (or dangerous) product might do to a consumer
o Customers have 7 days in which they can change their minds about purchasing a good or service. This
applies to any transaction made over distance (i.e. online)

Impact of legal controls on marketing strategy

 increase cost of the businesses
 products may need to change to meet the minimum quality standards
 products may need to change to prevent any health and safety issues
 misleading or inaccurate advertisements may have to be withdrawn and redesigned
 consumers may go for an appeal in court against businesses

Opportunities and problems of entering new foreign markets

 growth and development of e-commerce
 cheaper and effective distribution channels
 growth of potential market and consumers in other countries
 developments of communication and other advanced technologies
 developments and growth of transportation [sea, air, water and road]
Methods to reduce and overcome the problems of entering a new market:
Barriers to trade - usually taxes, quotas or bans that one country places on the goods of other countries to
prevent or increase the cost of them entering that country.

Problems of entering foreign trade

 Differences in language and culture
 Economic differences
 social differences
 differences in legal controls to protect consumers
 lack of market knowledge

Domestic market - the market for goods and services in the business's own country.

Methods to overcome problems entering foreign market - A business may face when entering new markets
in another country can be overcome by detailed market research. Other options for expanding into international
market include:
 international franchising
 licensing - a business in one country permits a firm in a foreign country to produce its branded product
under license.
 joint ventures - an agreement between two or more businesses to work together on a project

Advantages/Reasons for joint ventures

 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 regions/countries.
 market and product knowledge can be shared to the benefit of the business in the joint venture

Limitations of joint ventures

 any mistakes will reflect on all parties to the joint venture.

 the mistakes of a business will damage reputation of all firms in the joint venture
 the decision-making process may be ineffective due to different business culture or different styles of
leadership.