4.

1 Introduction to Marketing
DP BM Year 2
Introduction to marketing

• What is a market?
• What is marketing?
4.1 Introduction to Marketing

• Marketing is often described as a management process of identifying,

anticipating and satisfying customer requirements in a pro table way. It is also
about managing customer relationships, which bene ts numerous key
stakeholder groups such as customers themselves, employees, managers,
suppliers and the government.

• There are many aspects to marketing, and this section of the syllabus
discusses the role that marketing plays as a key function in any business
organization, irrespective of their legal status or organizational objectives.

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Learning Outcomes
4.1 Introduction to Marketing

• Market orientation versus product orientation (AO2)

• Market share (AO2, AO4)
• Market growth (AO2, AO4)
• The importance of market share and market leadership (AO3) (HL only)
Market orientation vs Product
orientation
Introduction to marketing
• Marketing is the art of determining the goods and services required to meet the
needs and wants of customers in a sustainable way. As most businesses aim to
earn a pro t, most marketing activities are concerned with anticipating, identifying
and satisfying the needs and wants of the market, in a pro table manner.

• Needs are the things people need in order to survive. They are necessities
rather than human desires, including:

• Food, Water, Shelter, Clothing, Warmth, and Sleep

• Wants are human desires, i.e. things people would like to have, or have more
of. Human nature means that unlimited wants exist, i.e. people will also want
more things (or new things, or will need to replace things). This creates huge
marketing opportunities for businesses.
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 • The marketing function of an organization
strives to provide the market with:

• the right products that appeal to

customers

• at the right prices in order to attract

customers

• e ective promotion to entice

customers, and

• convenient and
e cient distribution for ease of
purchase (place).
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Market size
• The size of a market can be de ned as the total number of individual customers or the total value of sales
revenue in a certain market. Alternatively, it can also refer to the number of potential buyers in the market.
The size of a market can be measured in a number of ways, but usually refers to the number of people in a
certain market who are potential customers of a product or service. For example, the market for
smartphones is signi cantly larger than the market for lawnmowers. Businesses are interested in knowing
the market size of a good or service before launching a new product in the market.

• The most common methods of measuring the size of a market are:

• The potential number of customers in a market for a particular good or service.
• Sales volume, i.e., the quantity products sold to customers.
• Sales value (or sales revenue), i.e., the amount spent by customers on the product sold by rms in the
market.

• The number of competitors (rivals) in the market. This can give an indication of the degree of intensity of
competition. The greater the barriers of entry into the market, the fewer the number of rivals will exist in
the market.
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Market orientation

• Market orientation and product orientation are two alternative approaches to an

organization’s marketing strategies.

• Market orientation is an approach to marketing that focuses on meeting the speci c

demands (desires and needs) of customers and potential customers.

• Hence, businesses focus on making products that they can sell, rather than selling products
that they can make, i.e. they prioritize the needs of their customers above everything else.
Such information can be gathered from market research, rather than from research and
development (R&D), which is used to formulate decision-making. For example, the
businesses design, develop and improve their products based on customer feedback.

• Market oriented rms use promotional strategies, such as television advertising, to inform,
remind and persuade customers to purchase the products.
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 Advantages of market orientation

• As Je Bezos, the world's richest man and the founder of Amazon, said “If you’re competitor-focused,
you have to wait until there is a competitor doing something. Being customer-focused allows you to be
more pioneering.” The advantages of market orientation as an approach to marketing include the following
points:

• New product launches are more likely to be successful as they are based on market research, so are
more likely to be accepted by the target market.

• It helps to reduce the nancial risks involved in product development by focusing on the changing
needs and wants of customers and potential customers.

• Being able to predict or anticipate market changes and trends will help businesses to be in a stronger
position to handle the threats of new entrants in the market and to respond to changes in the needs
and wants of people.

• Market research ndings enable businesses to access the latest market information, so rms can
respond quicker to changes in the market and/or enable rms to anticipate market changes.
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 Disadvantages of market orientation

• The disadvantages of market orientation as an approach to marketing include the

following points:

• Gathering meaningful and representative market research information and data can
be very expensive for the organization, so have an negative impact on it nances.

• Market research data, especially secondary sources, is often easily accessible to

rival rms, so any competitive advantage and attractive pro t margin can quickly
disappear.

• There are limitations to how the market research could have been carried out, such
as researcher bias, unrepresentative results from using an inappropriate sample
size, and/or using outdated information.
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Product orientation

• “A lot of times, people don’t know what they want until you show it to them.”
- Steve Jobs (1955 - 2011), Co-founder of Apple

• “If I'd asked customers what they wanted, they would have told me, 'A faster horse!'"
- Henry Ford (1863 - 1947), Founder of Ford Motor Company and the world's rst
mass produced car

• Product orientation is an approach to marketing that focuses on making products a

business knows how to make well, rather than primarily concentrating on the needs
and desires of potential customers. Such businesses prioritize research and
development (R&D) over market research. Product orientation tends to be used by
highly innovative and tech-savvy manufacturers. Examples include Apple, Boeing,
Gillette, Google, and Tesla.

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Case study: Apple
• In 2008, a year after Apple launched its iconic iPhone, Steve
Jobs said:

• “Apple is a $30 billion company, yet we've got less than 30

major products. I don't know if that's ever been done before.
Certainly the great consumer electronics companies of the
past had thousands of products. We tend to focus much more.
People think focus means saying yes to the thing you've got to
focus on. But that's not what it means at all. It means saying
no to the hundred other good ideas that there are.”

• In early 2022, Apple became the world's rst company to be

valued in excess of $3 trillion. To put this into context, only 4
countries in the world had a higher gross domestic product
(GDP) of more than $3 trillion at the time - the USA, China,
Japan, and Germany.
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Advantages of product orientation

• By being innovative, product orientation can give rms a competitive

advantage or unique selling proposition (USP). For example, Toyota gained a
USP for its Prius, which went on to become the world’s best-selling hybrid car.

• This can also help a business to gain a positive corporate image for being
innovative, thereby helping to strengthen customer loyalty. For example, Apple
enjoys a very high retention rate for each new product launch of its iPhones.

• By focusing on R&D, rather than market research, it is harder for competitors

to copy the products created by the rm. In particular, patenting the
technology can also give the rm a competitive advantage.
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Disadvantages of product orientation

• It requires highly skilled and costly sta (such as product designers) to come
up with new and innovative ideas.

• It can be very risky to ignore the (changing) demands of the market, especially
if competitors are market orientated. For example, Kodak collapsed mainly
because it failed to embrace digital technologies and the potential of the
digital cameras market.

• Despite the need to invest a lot of money in research and development (R&D),
there is no guarantee that customers will like to want to buy the nal product.
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Market or product orientation
• Whether an organization chooses to be product or market orientated largely depends on the nature
of the product.

• For instance, market orientation is suitable for mass-market products, such as breakfast cereal or
sports shoes.

• By contrast, product orientation is more suitable for innovative and high-end quality products (such
as designer clothing and top-of-the-line electronic equipment) or unique products (such as a
Hollywood movie).

• Organizational and national cultures are an important factor in determining the orientation of a
business.

• A business with a culture that appreciates creativity, innovation, and R&D is more likely to be
product oriented.

• A business with a culture that values customer service is expected to take a market oriented
approach.
Market share
Market share

• Market share refers to the sales revenue that an organization accounts for
within a given market or industry. It is measured by expressing the rm’s sales
revenue as a percentage of the whole industry’s sales revenue. Market share
is expressed as a percentage gure to show the rm’s sales as a proportion of
the total sales in the market, which is more meaningful than just showing the
absolute value of the rm's sales revenue.

• The formula used to calculate market share is:

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Market size

• Knowledge of the market size is therefore necessary in order to calculate

market share.

• Market size can be de ned as the total number of individual customers or

the total value of sales revenue in a certain market. Alternatively, it can also
refer to the number of potential buyers in the market. The size of a market can
be measured in a number of ways, but usually refers to the number of people
in a certain market who are potential customers of a product or service. For
example, the market for smartphones is signi cantly larger than the market for
lawnmowers or horse saddles. Businesses are interested in knowing the
market size of a good or service before launching a new product in the
market.
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Market size

• The most common methods of measuring the size of a market are:

• The potential number of customers in a market for a particular good or
service

• Sales volume, i.e. the quantity products sold to customers.

• Sales value (or sales revenue), i.e. the amount spent by customers on the
product sold by rms in the market.

• The number of competitors (rivals) in the market. This can give an indication
of the degree of intensity of competition. The greater the barriers of entry
into the market, the fewer the number of rivals will exist in the market.
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Market share

• Market share is usually measured by the value of sales revenue, but can also
be expressed as a percentage of the sales volume (units sold). It also allows
a business to compare its size with that of its closest rivals.

• A common organizational objective of many businesses is to increase their

market share, as this is an indication that their marketing strategies have been
successful and they have gained a competitive edge over their rivals. The rm
with the largest market share in the industry is known as the market leader.

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Maket share
Examples of businesses with large market share:

• Automobiles - Toyota, Volkswagen, and General Motors.

• Fast food - McDonald’s, Burger King, Subway and KFC.
• Food packaging - Tetra Pak is the world's largest food packaging company, with operations in more than 160 countries, using its infamous
patented tetrahedron shaped plastic-coated paper cartons

• Games consoles - Microsoft's Xbox, Sony's PlayStation, and Nintendo's Wii.

• Online payment platforms - PayPal has around 90 per cent market share in the USA, despite competition from rival providers such as Apple
Pay.

• Search engines - Google, Baidu, Microsoft Bing, and Yahoo!

• Smartphones - Samsung, Huawei, Apple, and Oppo.
• Soft drinks - Coca-Cola is the world’s largest carbonated soft drinks producer, with more than 1.8 billion servings
per day sold in over 200 countries.

• Sports apparel - Nike, Adidas, and Puma.

• Zips - YKK, a Japanese company founded in 1934, is the world’s largest manufacturer of zip fasteners, with production facilities in more than 70
countries.
Market growth
Market growth

• Market growth refers to an increase in the size of a market, usually measured by the rise in
total sales revenue of the market or industry. Market growth is a common business
objective. Growth is generally bene cial for a business (such as the IBO) as it gains from an
increase in sales revenue and pro ts. However, an increase in the demand for a particular
good or service also attracts new suppliers (such as publishers of IB textbooks and digital
resources) due to the potential to earn a share of the higher sales revenue and pro ts.
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Market growth

• An example of an industry with positive market growth is smartphones, as shown in

the table below (sales expressed in trillions of USD).

• Although the smartphone market is dominated by Samsung and Apple, the positive
market growth has attracted many more manufacturers to the industry, such as
Xiaomi, Oppo, Vivo, Huawei, LG, ZTE, and Lenovo. By contrast, some markets have
seen a decline in the size of the market (negative market growth), such as the
markets for CDs and digital cameras.
Market growth

• The most common way to calculate market growth, is to work out the
percentage change in the market size in two di erent time periods (see
worked example). The formula for calculating market growth is:

• If the market growth rate is positive, it means the market size is growing. An
example is the global market for electric cars. However, if the market growth
rate is negative, it means the market size has shrunk. An example if the
market for sugary carbonated drinks.
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 Market growth

• A key problem with calculating market size and therefore market growth is how to
de ne a particular market. For example, what exactly is the meant by the "public
transport market"? Does this include all forms of transportation taken by the
general public, including private taxis and share rides? Does it include the market
in the local area or a wider or even national market? It is not always easy to clearly
de ne the market that a business operates in, especially for large multinational
companies that have operations in multiple countries across the world.

• Tip: Remember that market size is expressed as an absolute gure or number

(such as sales revenues or the number of customers). However, market growth is
expressed as a percentage gure rather than an absolute amount (such as market
share or the percentage change in the size of the customer base).
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BM Toolkit

• To what extent does SWOT analysis support managers with decisions about
market growth strategies?

• Discuss the importance of market size and market growth in the context of
the Boston Consulting Group matrix.
Importance of market share &
market leadership (HL)
 Market share and market leadership

• Market share is a measure of the size of a business in comparison to others

in the same industry by calculating its proportion of the total value of sales
revenue in the industry.

• The rm with the largest market share in the industry is known as the market
leader.

• Market share is the single most important measure used by marketers to

judge the e ectiveness of their marketing campaigns and marketing
strategies. Hence, a greater market share is highly desirable.
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Market share and market leadership

• Market leadership brings signi cant bene ts to a business, such as:

• The status as market leader can be bene cial to the rm’s future strategy as
it is able to shape the industry whilst competitors merely follow the trends
set.

• The positive corporate reputation and its status as market leader can help
the business to attract more investors, as well as higher quality employees.

• Having the largest market share suggests the market leader enjoys brand
loyalty, so customers are prepared to pay higher prices.
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 Market share and market leadership

• By being the largest rm in the industry, the market leader gains

from economies of scale, so its unit costs of production are lower. Essentially,
this generates higher pro t margins for the market leader.

• For rms that rely on other businesses to sell their products, such as Coca-
Cola or Heinz, retailers and other distributors are more likely to hold the
products of market leaders as part of their inventory (in order to improve their
own sales and pro ts).

• Collectively, these competitive advantages create a barrier to entry for any

rms considering entering the industry. They also weaken the competitiveness
of existing rivals in the market due to the strategic superiority of the market
leader.
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Other examples of market leaders in their respective industries include:

• Adidas and Nike (sports apparel) • Google (search engine / advertising)

• Amazon (e-commerce)
• Boeing and Airbus (aircraft
manufacturing)
• Coca-Cola and Pepsi (carbonated
soft drinks)
• McDonald's, Burger King, Subway,
and KFC (fast food chains)
• Microsoft (computer software)
• Samsung, Apple, Huawei, and
Xiaomi (smartphones)

• FedEx, DHL, UPS, and TNT (courier • Starbucks, Costa Co ee, and Tim
services) Hortons (co ee chain)
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• Of course, market leadership does not guarantee future success, but it does
create an incentive for businesses to make appropriate strategic decisions in
order to remain competitive. In addition, negative changes in the external
business environment can harm the operations of all rms in the industry, but
it is the largest organizations that stand any chance of surviving such
adversities.

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