Marketing

Topic 5

Identifying and Understanding Customers

Marketing..

• The marketing function of the business is involved in managing the exchange process with the customers.
• Marketing activities aim to identify, anticipate and satisfy customer needs and wants in a profitable way.

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Needs:

A need is something that needs to be fulfilled, needs are what we must have to exist.

Wants:

This is what we would like to satisfy our needs.

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Consumers & Customers

• The person or organization buying the product is the customer.
• The person using it is the consumer.
• These maybe the same person, but on occasions they maybe different.
• This means a business must think about the needs and wants of the customer and the consumer.
• For example when you go to upgrade your phone you may find that your needs and wants are slightly different from your parents.

Customers

• Businesses that are attentive to customer needs will be rewarded with customers that are loyal and continue to spend their money on the business’s products and services.
• Every product or service a business has to sell must be aimed at potential customers; a business needs to consider what the needs of the customers are before it decides to invest in developing, producing and selling a product or service.

The Market

Managers will consider factors such as:

• The size of the market:
• How big is the market in terms of sales?(Sales Volume)
• How big is it in terms of value of sales?(Sales Value)
• The growth of the market.
• For example if the sales in the market last year were 200,000 units and this year are 220,000 units the market growth is 10%.
• Market segments as well as the market as a whole.
• E.g. whilst overall cereals might be growing we may find that sales of cold cereals are falling and hot cereals are rising.

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The benefits to understanding customers

• Increasing sales
• By understanding customers well and by providing more benefits, the sales of a business should rise.
• E.g. The Amazon kindle has enabled us to access and store many differen books on one device – this is much easier. It was a benefit many were willing to pay for, which has led to high sales.

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The benefits to understanding customers

• Selecting the correct marketing mix
• The marketing mix is a combination of factors that influence a customers decision to purchase a product.
• You may go to your favourite clothes shop for a range of reasons:
• You like the clothes there
• Price
• Layout and feel if the store
• Easy to get to
• Like the staff
• There is a sale on etc
• These are all aspects of the marketing mix
• The more a business understands its customers the more the business knows how to appeal to them..

The benefits to understanding customers

• Avoiding costly mistakes
• If a business gets it wrong and produces the wrong products it may:
• Have to withdraw the product because sales are too low
• Have to amend the product in some way
• Have to lower the price which may reduce the profits
• Have damaged the brand name which may affect the company in the future.

What is segmentation?

• Segmentation occurs when a market is divided into different groups of needs and wants.
• For example, within the car market there may be some buyers who are looking for a family car, some who want a sports car, some who want a small car etc

The benefits of segmentation

• Develop its products to fit their needs more closely
• Target their customers more precisely
• Segmentation should allow business to target the right people with the right products and get them to the right forms of promotion.
• Set the price appropriately
• If there is a high demand in a product they maybe able to charge a premium.
• By dividing up the market, segmentation allows more effective marketing activities and this should lead to higher sales.

How markets are segmented

• Gender
• E.g. clothes retailers may have some products specifically targeting women or men
• Age
• E.g. a toy company may offer some toys for younger children(Duplo) and some for older children (Lego)
• Geographical location
• McDonalds changes its menu in different countries around the world.
• Income
• A bank may offer higher income earners saving products and loans to lower earning customers
• Lifestyle
• You might find that most people who buy your product play sport or go out regularly. You might discover they tend to like the same types of leisure activities

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Segmentation continued

• Effective segmentation allows a business to decide which segments it wants to target.
• It can the focus its marketing activities more effectively on its customers.
• This should then make marketing more cost efficient and more focused and more successful.

Targeting

• Once a business has identified relevant segments in it’s market it will need to decide which ones to focus on. This is called targeting.
• A business will target segments where it thinks:
• It can make a high enough return
• It can compete effectively
• It covers the opportunity cost – that there are no better alternatives.

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Market Research

What is Market Research?

• Market research is the process of gathering, analyzing and processing data relevant to marketing decisions.
• It will help gather information about:
• Demand – the size and growth of the market and the different market segments that exist within the overall market
• The influences on demand – why do customers do or do not buy products, what their motivations are, when they think about buying etc
• Competition – number and size of competitors and their share of the total market sales.
• Target Market – A business is unlikely to want to target everyone in a market; it will want to foucs on particular groups.

The importance of market research

Market research will help managers to:

• Identify opportunities in the market
• E.g. Is their a new demand for a new flavour drink?
• Weigh up different possible actions
• E.g. Is it best to promote the product launch online or in print?
• Assess the effectiveness of actions that have been taken
• E.g. How successful was the price promotion that the business ran last week?

Effective market research will..

• Provide a better understanding of the issue and enable better marketing decisions
• Enable resources to be used more effectively and not wasted.

Types of market research

• Primary market research (field research) – Gathering information for the first time.
• E.g. Using questionnaires to conduct a survey
• Organising small groups to discuss issues in depth (focus group)
• Watching customers behaviour in stores to see how they shop.
• Secondary market research (desk research) – Using data that already exists.
• Newspapers; can be useful but a firm must consider how reliable it is
• Website research; careful consideration over the reliability of the source.
• Government sources; such as on the economy and population trends.
• Market research reports produced by market research companies; these maybe in-depth but cost several hundred pounds to buy.
• Quantitative - Research based on facts and figures.
• Qualitative - Research based on attitudes, thoughts & opinions

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Secondary Market Research

Advantages

• Gathered quickly and cheaply
• The government also regularly produces information on issues such as economy and social trends
• It can provide information on large topics of the population

Disadvantages

• Existing data may not be exactly what businesses want.
• Existing data maybe out of date.

Methods of primary research

• Observing – E.g. watching how people walk around a supermarket to see what attracts their attention.
• Experimenting – E.g. try out new forms of advertising and measuring the response.
• Surveying – E.g. interviewing people who might buy your products to understand their motives.

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Primary research can be tailored to meet the business’s needs and is up to date. However it can be expensive and if not done correctly can give misleading results

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Primary research

Advantages

• Up-to-date ➔ gathered first-hand ➔ collected by the researcher (yourself)
• Specific to a business’ own needs / accurate
• Provides answers to exact questions that a firm may be interested in

Disadvantages

• Can be very expensive to collect
• Can be very time consuming to collect so that by the time it has been collected and analysed the market may have changed
• Can have problems of bias

The Marketing Mix

What is the marketing mix?

• The marketing mix refers to all the activities influencing whether or not a customer buys a product.
• The elements of the mix can be used using the 4Ps: Price, Place, Product, Promotion

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The need for a successful marketing mix

• A business must offer the right product at the right price in the right place and communicate it in the right way.
• If done correctly the business will satisfy customers.
• If the marketing mix is wrong the business will struggle to make sales.

Choosing the best marketing mix

The choice of marketing mix will depend on factors such as:

• The product: is it distinctive? USP? How long will it expect to last? Something unique and long lasting might justify a higher price.
• Competitors’ products: What do they offer and how does it compare?
• The target customers: Who are you trying to sell to? How much do they earn? Why are they likely to buy your product? What do they do with their time? Some hotels aim to be luxury with spas and gyms. Others such as travel lodges aim to be more basic and are clean and relatively cheap. These hotels are serving different types of customers and so the marketing mix is adjusted accordingly.
• Business approach: Are you trying to match your competitors? If so, develop a similar but cheaper product. Or are you trying to be different and unique? If so, you maybe able to justify being more expensive.

The importance of the marketing mix

Elements of the marketing mix should complement each other and combine to ensure the customer is satisfied and willing to pay for the product.

If the marketing mix is wrong the customer may not buy the product, an unhappy customer may also tell others.

The marketing mix maybe wrong because:

• The product does not fully meet customer needs and wants
• The price is too high
• Distribution is not effective
• Promotion is poor.

Product

The product�Customers will look for….

• The function of the product: This includes its design, its performance, its features and its reliability.
• The service provided: How easy was it to order? Are sales staff well informed? Is there a guarantee with the product?
• Whether the performance matches what was promised: Is the holiday the same as it was described? Does the item you bought on Ebay and Amazon fit the description?
• The price: Does the product represent better value for money than the competition?

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The product�Businesses will consider…

• Design: What does it offer in terms of features? What needs and wants does it fulfill?
• Price: What will customers be willing to pay for the product?
• Expected Sales: What is the likely demand for the product?
• Cost of development and of production: Given the expected sales and price will this product make a return that justifies the risk in producing and launching it?

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Product Life cycle

Product Life Cycle

Shows how the sales of a product may change over time.

1. Development – Initial stage, the idea for the product is developed and tested to see if it will work. During tis development stage, businesses spend money but have no money coming in. Cash flow is negative and losses are made.
2. Introduction/launch – It can involve a lot of expenditure on promotion and publicity. At this stage, a business needs to convince distributors to stock the new product rather than existing brands.
3. Growth – this is experienced when the product starts to sell faster. People are beginning to buy more of it and it is becoming successful.
4. Maturity – Sales begins to slow. During this stage, a business should consider introducing different versions of the product to keep sales up.
5. Saturation – sales do not increase and they are flat. The product is established but there is not further growth.
6. Decline – occurs when sales start to fall. Should sales be boosted again with marketing or should the product be taken off the market.

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Extension Strategy

• New feature ➔ attract new customers ➔ expensive to design

• Develop new but similar product ➔ but production costs and promotion costs may be high

• Change brand name / packaging

• New flavour

• Produce different quality

• Market in different places e.g. the internet,

• New promotions

• Adopt new pricing strategies

Price

Pricing strategy

Promotion

Promotional Activities

• Different ways in which a firm tries to communicate with its customers.
• They may try to communicate in order to:
• Inform customers about the business
• Try to persuade a customer
• Remind customers of the advantages of a product.

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What is promotion used for?

• Inform customers or remind them about some aspects of the product.
• Create or increase sales.
• Create or change the image of the product.
• Show the benefits of the product.

Advertising

Selecting promotional activities

• When selecting which promotional activities to undertake, business need to think about:
• The coverage – How many people will see it?
• The quality – How effective is it likely to be?
• The cost
• The different media options – Print, film or sound

The impact of technology on promotion

• Technology has allowed marketing managers to:
• target customers much more effectively,
• track their behaviours
• measure effectiveness of a campaign.
• Technology is also available for stores to track when people are in store and where he or she moves round the shop; relevant offers and discounts can be shown on a persons phone.
• Using blogs, Vlogs and social media to generate followers and build a brand image.
• Pop-up adverts targeted at relevant customers.
• Digital adverts. These are now replacing print posters on billboards. They can be changed much more easily and can have movement in them.

Place

Thinking about a place…

• This can vary depending on the business:
• For expensive products e.g. sports cars, art etc the place where they are sold is important because of the image and the customer experience.
• The design of Apple, Zara and Lush shops all add to the brand image.
• The place can contribute to the overall operations of the business and add to it’s distinctiveness.
• The growth of the internet use the physical place is becoming less important in some markets

The distribution channel

This describes how the ownership of a product passes from the producer to the final customer

1. Producer or manufacturers – A producer supplies goods or services For example Cadbury produces chocolate and Direct line provides insurance
2. Wholesalers – Buys the product from producers in bulk and supply in small quantities to retailers (this is known as ‘breaking bulk’).
3. Retailers – Shops that sell goods and services to the final customers and consumers. Supermarkets such as Asda, chain stores such as Waterstones and franchises such as McDonalds are all examples of retailers.

Connecting the distribution channel

These are all examples of direct marketing.

• Mail-order businesses

Produce catalogues and customers order from these.

• Telesales

This is where businesses sell their product over the phone.

• Online selling through E-commerce and M-Commerce

Many shops now sell a range of producers’ products online e.g. Amazon, ASOS etc The rapid growth of smart phones means that more online selling is via mobile phones.

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Levels of distribution

Wholesalers and retailers are intermediaries in the distribution channel. They are organisations that provide a service and help to get the products from producer to customer.

• Zero Level: The maker of the product sells directly to the final buyer.
• One Level: This occurs when there is only one intermediary. E.g. a business may sell to a retailer who then sells to the customer.
• Two level: This occurs when there are two intermediary. E.g. A producer sells to a wholesaler who sells to retailer, who sells to the customer.

Multi-channel distribution

Occurs when a business uses more than one type of distribution channel:

• Distribute directly via e-commerce or m-commerce
• Distribute directly via catalogues sent in mail to customers.
• Distribute via retail outlets
• Have different ways for customers to access the business’s products to increase convenience a and help generate more sales.

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The importance of getting distribution right

• Sales – They might get something else if it is not available.
• Image – If the product is sold in the wrong place then it may damage the brand and affect its sales over time. E.G. companies such as Chanel will not allow their products to be sole in some stores like Superdrug.
• Costs – How the product is distributed will affect the final price. The more intermediaries there are, the higher the final price.

The internet and distribution

• Using company websites, customers may be able to order anywhere in the world.
• This makes direct distribution much more possible than it was in the past.
• There are advantages to the customer of using a retailer, such as advice received and a range of brands on offer.
• A disadvantage of using a retailer is that they are likely to be more expensive.
• Many stores have physical stores and online operation as well.
• This gives customers different ways of accessing products
• The aim of this approach is to make buying and receiving the products as convenient as possible for the customer.

STUDY TIP: The ‘place’ is often forgotten about when talking about the marketing mix and students often focus on promotion. But place can be crucial.

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