Business Studies Preliminary Course

Topic 2: Key Business Functions

Section 2.4: Marketing

Section Overview:

2.4.1 The role of marketing

2.4.2 Identification of the target market

2.4.3 Overview of the marketing mix — product, price, promotion, place

1 Section 2.4 Marketing

A simple definition of MARKETING is that it is the process of satisfying consumers’ wants and needs at a profit. A more formal definition is: ‘Marketing is a total system of business activities designed to plan, price, promote and distribute want-satisfying products and services to markets in order to achieve the objectives of the business’.

2.4.1 The Role of Marketing

The key role of marketing is to identify consumer demand and communicate to customers how the products or services of the business can satisfy this demand. Marketing is the process that involves identifying consumer wants and needs, establishing how the business can satisfy those wants and needs, closing a sale, and building a relationship.

Marketing and selling should not be confused. Selling simply involves persuading consumers to buy goods and services that a business has produced. The concept of marketing goes much further. Marketing embraces identifying consumer expectations, formulating the best plans and strategies to fulfill these expectations and delivering products to satisfy those wants.

While operations will actually order the raw materials and make the products, marketing will decide what sort of goods and services a business will produce, and the range of colours, styles and sizes that will be available. Marketing will also decide how much the goods and services will cost and where they will be available.

2.4.2 Identification of the Target Market

A TARGET MARKET is that part of a market on which the business will focus its marketing activities. In trying to select its target market, a business has a choice of two general approaches:

1) To look at the market as a single unit, a mass ‘aggregate’ (combined) market. This would be the strategy of market aggregation.

2) To look at the market as being made up of smaller segments. This is a strategy of MARKET SEGMENTATION.

The total market for a product is often too wide and complex to be treated as an individual unit, and hence, the second option of market segmentation is the approach that is most commonly used. There are several easily identifiable factors that allow us to segment the market. These factors are considered below.

A) Demographic Factors Demographic factors consider characteristics of the population such as age, sex, education, religion, job and level of income.

B) Geographical Factors Geographical factors consider the needs of the consumer in a particular location. For example: a resident of far North Queensland may have a greater need for sunscreen and light weight cotton clothing than a resident of Tasmania.

C) Psychographic Factors Psychographic factors are concerned with lifestyle characteristics, including the personality types of consumers and their perceived social class. These factors are often difficult to measure accurately.

D) Behavioural Factors Behavioural factors are concerned with the motivation behind a consumer’s decision to buy a particular product. For Example: They may perceive that they are receiving value for money, or a superior quality good.

2.4.3 Overview of the Marketing Mix — Product, Price, Promotion, Place

The MARKETING MIX refers to the combination of the marketing tactics of product, price, promotion and place. These four elements are commonly referred to as the 4 P’s of

3 Section 2.4 Marketing marketing. A marketing mix must be designed to satisfy the wants of customers and achieve the marketing objectives of the business.

A) Product A product refers to a good, service or idea which is going to be exchanged in the market. A product is characterized by a set of tangible and intangible benefits or attributes which are aimed at satisfying the customer’s demands and needs.

 TANGIBLE BENEFITS are physical attributes such as size, colour, shape and model.  INTANGIBLE BENEFITS relate to non-physical attributes such as prestige of the label or brand name, and the reputation of the company.  The combination of all these benefits combine to produce what is known as a TOTAL PRODUCT CONCEPT.

The picture below (Figure 2.4.1) provides an example of both the tangible and intangible features of a sports car.

Figure 2.4.1 People buy products for the benefits they receive.

4 Section 2.4 Marketing As part of this marketing element, there are other additional factors complementing or helping to create a total product. These are branding, positioning and packaging.

i) Branding is a symbol, name, term, design, or any combination of these that identifies the product and distinguishes it from its competitors.

For Example:

Nike McDonald’s

ii) Positioning is about creating a certain perception or image of the good or service in the eyes of the consumer.

For Example: Streets Magnum Ice Creams are considered to be a superior type of ice-block. They are promoted as an indulgence and as one of lifes little luxuries. They have been priced accordingly.

iii) Packaging is an activity concerned with designing and producing a wrapper or container for the product. Packaging plays an important part in creating an image for the product in the marketplace and helps create a difference between the product and the product’s competitors.

For Example: The different beers have been packaged in such a way that many have become very easy to identify at a glance. i.e. a Crown lager as compared with a Hahn Premium.

Crown Lager Hahn Premium

B) Price The price of a product is one of the most important factors in a customer’s decision to buy a product. Consumers usually choose from a number of competing products which offer similar benefits. Price is often the difference that will push a customer to buy one product over another.

Businesses have a number of pricing strategies that they can use. They include:

i) Penetration Pricing This is where the business sets the price of the product below the price of competitors, making its product more attractive.

ii) Market Skimming Pricing This is where a new product is priced relatively high in order to achieve maximum returns before the entry of competitors. For Example: Hyper-Colour T-Shirts

iii) Meet-the-Competition Pricing As the name suggests, this is where the prices are set at around the same level as its competitors. This strategy often results in ‘head-to-head’ battles with competitors and forces them to utilize other methods to attract customers.

iv) Psychological Pricing This is where businesses price their goods at a level such as $19.95 rather than $20.00. The rationale for doing this is to create an impression in the consumers mind that the product is cheap.

The role of the marketing department is to select the pricing strategy that will best help achieve the objectives of the marketing plan. The price chosen must make the product accessible to the customers in the target market. The price should also cover the business expenses and include an appropriate profit margin.

C) Promotion

6 Section 2.4 Marketing Any business wanting to sell a good or service has to bring it to the attention of its target market and try to make sure that the consumers recognise and want it. Effective communication with the target market is essential for the success of any product and business. Promotion is designed to inform the marketplace about who you are, how good your product is and where they can buy it.

Essentially, promotion is about changing the buying behaviour of the consumer. In order to capture the hearts, minds and dollars of the consumer, businesses have a variety of promotional methods available to them. These include:

i) Personal Selling Is where the consumer is directly approached by the sales-person. The aim is to persuade the customer to buy the product. Therefore, the key element in using this method is the effectiveness of the salesperson in selling the product.

Matters such as explaining the benefits, educating the customer and responding to questions about the product are important in promoting the sale of the product. Cars are sold in this manner.

ii) Advertising Is any paid, non-personal presentation or message which is communicated to the consumer through the use of the mass media. It is probably the most effective way of communicating with the largest number of people in a variety of geographical areas. The medium used to communicate to the consumer can be one, or a combination, of the following: magazines, radio, television, newspapers, billboards, brochures, the Internet.

iii) Sales Promotion Is the practice of providing inducements or incentives to customers to purchase the organisation’s goods. Sales promotion is usually tied to an advertising campaign and is specifically aimed at encouraging the purchase of and brand loyalty to a product. Promotional activities include contests, coupons, free samples, point-of-purchase displays, and exhibitions.

iv) Publicity Is non-personal promotion that is not paid for by the business. Essentially, it is free. Good examples of publicity are mentions of products in magazines and newspapers.

As with all the other elements of the marketing mix, the promotional mix will be trying to achieve the objectives of the marketing plan in the most

7 Section 2.4 Marketing effective manner, and the marketing plan will include a combination of these promotional tools. Depending on the amount of money available for promotion, most businesses will use some mix of the four types discussed above to communicate with their customers.

D) Place Place really refers to the methods and channels that can be used to get the product to the marketplace – how it is distributed. This involves things such as transportation and storage of the product, as well as what type of stores will sell the product. DISTRIBUTION needs to be discussed in two separate ways:

i) How the product is going to be made available for the consumer to purchase.

A marketing distribution channel is a business, or group of businesses, involved in moving goods and services from the manufacturer to the point of final use. The most common distribution channel is manufacturer to retailer to consumer.

Wholesalers, agents and retailers are called intermediaries because they operate between the source of the product and the final user. Of course, many manufacturers sell directly to the final consumer; however, this usually means distribution is fairly limited.

ii) How the product is going to get to the place of sale.

The producer of the product or the business aims to physically get the product to the place of sale or the marketplace at minimum cost. Therefore, physical distribution involves:

 Transportation of the product to the marketplace  Warehousing of the product and the costs associated with this activity  Ordering the product and the procedures for physical distribution  Inventory management, which is concerned with making decisions about when to order, how much to purchase and the costs associated with this activity.

DEFINITIONS:

Advertising Promotional activities of a paid, non-personal kind which convey a message to the consumer.

Branding A symbol, name, term, design, or any combination of these that identifies the product and distinguishes it from its competitors.

Distribution The institution or activities used to transfer the product or service to the marketplace.

Intangible Benefits Non-physical attributes of the product such as prestige of the label or brand name, and the reputation of the company.

Marketing Is a total system of business activities designed to plan, price, promote and distribute want-satisfying products and services to markets in order to achieve the objectives of the business.

9 Section 2.4 Marketing Marketing Mix A combination of the marketing tactics of product, position, price, promotion and place. Market Segmentation Being able to divide a market into various ‘slices’ based on criteria such as geography, demographic traits and consumer behaviour. Packaging An activity concerned with designing and producing a wrapper or container for the product. Personal Selling Face-to-face sales activities which are addressed directly to the consumer. Positioning Creating a certain perception or image of the good or service in the eyes of the consumer. Sales Promotion The practice of providing inducements or incentives to customers to purchase the goods of a business. Tangible Benefits Physical attributes or characteristics of a product such as colour, size and shape. Target Market That part of a market in which the business will focus its marketing activities. Total Product Concept The combination of both the tangible and the intangible.

HOMEWORK ACTIVITIES:

Activity 1: Answer the following questions:

i) What is marketing? ii) What is meant by the marketing concept? iii) Why is marketing important for a successful business?

Activity 2: Identify possible target markets for the following goods:

a) A Ferrari sports car b) A Sony playstation c) VIP tickets to an outdoor Opera valued at $300 d) Budget accommodation

Activity 3: Log on to the Internet site below and answer the following questions:

(www.toyota.com.au/showroom+sales)

i) Identify the four segments that Toyota uses to segment the total motor vehicle market. ii) Select the Camry button under ‘passenger vehicles’ and list the different models that are available. iii) Describe the target market for each of the different models.

Activity 4: You have been asked to advise the owners of a pizza business on how to increase their sales. Describe how you would use the different product strategies to reach that objective.

Activity 5: List the tangible and intangible characteristics of:

a) Coca-Cola b) Adidas athletic clothing c) A Mercedes Benz d) A boat

Activity 6: Coca-Cola is one of the best recognized brand names in the world. Using your own knowledge of how Coca-Cola is promoted, explain some of the key features of its marketing mix.

Activity 7: You have to select a particular pricing strategy for each of the following products. In each, explain why you select the strategy.

a) A new wonder drug. b) A tablet that purifies water in 1 minute. c) A house paint that lasts twice as long as any competitor’s paint. d) A low-calorie chocolate mud cake.

11 Section 2.4 Marketing Activity 8: You are the marketing manager of Pepsi and have to launch a brand new flavour. Describe which promotional techniques would encourage a lot of people to try the product quickly, and explain why.

Activity 9: Vocabulary Exercise and Chapter Review

Marketing is a system of business activities designed to ______, ______, promote and distribute ______, services and ______in order to ______the ______and ______of the customers. Marketing plays a major role in any organisation’s ______. It is actually a sub- part of a business plan. In order to find out what the customer needs are, ______and ______research is undertaken. On completion of this activity, business will often ______the market in order to focus their marketing resources to ensure the needs of the buyers are going to be satisfied. Each segment has a set of strategies known as the marketing mix. This refers to ______, ______, ______and ______. These represent a set of ______.

plan, price, satisfy, wants, needs, primary, secondary, segment, goods, ideas, business plan, place, strategies, promotion, product, price