3.1 – Marketing, Competition and the Customer

A market consists of all buyers and sellers of a particular good.

What is marketing?

By definition, marketing is the management process responsible for identifying, anticipating and satisfying consumers’ requirements profitably.

The role of marketing in a business is as follows:

• Identifying customer needs through market research
• Satisfying customer needs by producing and selling goods and services
• Maintaining customer loyalty: building customer relationships through a variety of methods that encourage customers to keep buying one firm’s products instead of their rivals’. For example, loyalty card schemes, discounts for continuous purchases, after-sales services, messages that inform past customers of new products and offers etc.
• Gain information on customers: by understanding why customers buy their products, a firm can develop and sell better products in the future
• Anticipate changes in customer needs: the business will need to keep looking for any changes in customer spending patterns and see if they can produce goods that customers want that are not currently available in the market.

Some objectives the marketing department in a firm may have:

• Raise awareness of their product(s)
• Increase sales revenue and profits
• Increase or maintain market share (this is the proportion of sales a company has in the overall market sales. For example, if in a market, $1 million worth of toys were sold in a year and company A’s total sales was $30,000 in that year, company A’s market share for the year is ($300,000/ $1000000) *100 = 30%)
• Enter new markets at home or abroad
• Develop new products or improve existing products.

Market Changes

Why customer spending patterns may change:

• change in their tastes and preferences
• change in technology: as new technology becomes available, the old versions of products become outdated and people want more sophisticated features on products
• change in income: the higher the income, the more expensive goods consumers will buy and vice versa
• ageing population: in many countries, the proportion of older people is increasing and so demand for products for seniors are increasing (such as anti-ageing creams, medical assistance etc.)

The power and importance of changing customer needs:

Firms need to always know what their consumers want (and they will need to undertake lots of research and development to do so) in order to stay ahead of competitors and stay profitable. If they don’t produce and sell what customers want, they will buy competitors’ products and the firm will fail to survive.

Why some markets have become more competitive:

• Globalization: products are being sold in markets all over the world, so there are more competitors in the market
• Improvement in transportation infrastructures: better transport systems means that it is easier and cheaper to distribute and sell products everywhere
• Internet/E-Commerce: customers can now buy products over the internet form anywhere in the world, making the market more competitive

How business can respond to changing spending patterns and increased competition:

A business has to ensure that it maintains its market share and remains competitive in the market. It can ensure this by:

• maintaining good customer relationships: by ensuring that customers keep buying from their business only, they can keep up their market share. By doing so, they can also get information about their spending patterns and respond to their wants and needs to increase market share
• keep improving its existing products, so that sales is maintained.
• introduce new products to keep customers coming back, and drive them away from competitors’ products
• keep costs low to maintain profitability: low costs means the firm can afford to charge low prices. And low prices generally means more demand and sales, and thus market share.

Niche & Mass Marketing

Niche Marketing: identifying and exploiting a small segment of a larger market by developing products to suit it. For example, Versace designs and Clique perfumes have niche markets- the rich, high-status consumer group.

Advantages:

• Small firms can thrive in niche markets where large forms have not yet been established
• If there are no or very few competitors, firms can sell products at a high price and gain high profit margins because customers will be willing be willing to pay more for exclusive products
• Firms can focus on the needs of just one customer group, thereby giving them an advantage over large firms who only sell to the mass market

Limitations:

• Lack of economies of scale (can’t benefit from the lower costs that arise from a larger operations/market)
• Risk of over-dependence on a single product or market: if the demand for the product falls, the firm won’t have a mass product they can fall back on
• Likely to attract competition if successful

Mass Marketing: selling the same product to the whole market with no attempt to target groups with in it. For example, the iPhone sold is the same everywhere, there are no variations in design over location or income.

Advantages:

• Larger amount of sales when compared to a niche market
• Can benefit from economies of scale: a large volume of products are produced and so the average costs will be low when compared to a niche market
• Risks are spread, unlike in a niche market. If the product isn’t successful in one market, it’s fine as there are several other markets
• More chances for the business to grow since there is a large market. In niche markets, this is difficult as the product is only targeted towards a particular group.

Limitations:

• They will have to face more competition
• Can’t charge a higher price than competition because they’re all selling similar products

Market Segmentation

A market segment is an identifiable sub-group of a larger market in which consumers have similar characteristics and preferences

Market segmentation is the process of dividing a market of potential customers into groups, or segments, based on different characteristics. For example, PepsiCo identified the health-conscious market segment and targeted/marketed the Diet Coke towards them.

Markets can be segmented on the basis of socio-economic groups (income), age, location, gender, lifestyle, use of the product (home/ work/ leisure/ business) etc.
Each segment will require different methods of promotion and distribution. For example, products aimed towards kids would be distributed through popular retail stores and products for businessmen would be advertised in exclusive business magazines.

Advantages:

• Makes marketing cost-effective, as it only targets a specific segment and meets their needs.
• The above leads to higher sales and profitability
• Increased opportunities to increase sales

Notes submitted by Lintha

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