3.1.1 The Role of Marketing
Marketing, Competition and the Customer is the introduction to marketing. It includes many of the basic concepts that will come up again and again throughout marketing, and indeed the wider course, so you may already be familiar with many of these ideas.
| ⭐⭐⭐Top Tip ⭐⭐⭐ Learn a clear definition for each marketing concept, it’s easy to get confused between all of the different terms. |
A market is where businesses sell, and consumers buy. Traditionally this has been shops or town centre markets, but markets are increasingly moving online with the growth of sales websites and e-commerce. It’s important to remember that a market doesn’t just connect business with consumers, it also refers to potential consumers, those interested in buying a product or service and who have the financial ability to do so. (In other words enough money)
A target market is when a business aims goods or services at a particular group of consumers.
The customer base is the group of customers who repeatedly buy the goods or services of a business.
Marketing is the process a business undertakes to promote the buying or selling of a product or service and includes advertising, selling, and delivering products to consumers or other businesses. Marketing to other businesses is often referred to as B2B (business to business) so could be a delivery company hired by amazon to send orders to customers, or a company which designs websites for businesses.
Identifying and satisfying customer needs
Marketing aims to identify customer needs, and satisfy those needs. It may identify customer needs through market research.
When we say “needs” they aren’t the essential “needs” that we looked at in Unit 1 like water, food and shelter. What marketing aims to do is take a want, and through marketing and promotional activity, convert it into a need.
If we use the example of Apple, through market research they find their potential customers desire for an improved camera. They design the Iphone 11 with a high performance camera and promote it so consumers feel they need to buy or upgrade, so their needs are satisfied.
Building customer relationships and maintaining customer loyalty
But marketing doesn’t stop after a consumer buys a product or service. It’s much more expensive to find new customers than keep your current customers coming back for repeat purchases, additional services or upgrades, also called customer loyalty.
So successful businesses aim to build strong relationships with customers, to keep customer loyalty and maintain and expand their customer base.
For example, online shopping businesses like Amazon and Alibaba offer free returns of products. A returned product may be an additional cost for the business in the short term, but in the long term it builds customer loyalty as the consumer will have confidence to buy in the future if they know they can easily return items.
3.1.2 Market Changes
Why customer/consumer spending patterns may change
The business environment is continually changing and so are markets. How do businesses respond to changing customer needs?
Firstly, if the price rises less consumers will buy a product. We’ll look at this in more detail in price elasticity.
Furthermore, competitors prices impact consumer spending patterns. Consumers will choose the cheaper price if products or services are very similar. When start up Low Cost airlines like Ryanair and Air Asia launched their services, it had a huge impact on consumer spending on air travel. Businesses must adapt to competitors by either matching prices or differentiating their products so consumers are willing to spend more.
Changes in the population structure of a country slowly impact spending patterns. Many Western European countries and Japan have an ageing population. There is a lower number of new births and older people are living longer so the average age is rising. This has resulted in more older and less younger consumers. Businesses may adapt by targeting the “grey dollar”, for example a holiday company offering cruises to the over 50’s.
Just as age may change within a country, consumers’ incomes may change. There is a strong link here with Unit 6.1 and the economic cycle. In a recession or economic hardship consumers will have less income so business will have to adapt by providing more price conscious budget options. If consumer incomes rise businesses can offer more non-essential luxury products.
The importance of changing customer needs
There are changes in consumer tastes over time. For example the movement to more environmentally friendly products like electric cars or “fake meat”. Businesses must develop products to meet these changing needs. Toyota has stopped producing diesel cars and are now focused on developing new models of electric cars which can meet customer needs for convenience and an affordable price.
Finally, changes in promotional spending can influence consumer behaviour. Tik Tok reportedly spent $3 million a day in the United States to establish its customer base among younger people. Nike’s worldwide marketing spend in 2019 was $3.75 billion. By establishing a strong brand image consumers are willing to spend up to $400 on a pair of running shoes.
Why some markets have become more competitive
In addition to changes in consumer spending markets are becoming more competitive. Growth of free trade and globalisation has meant many businesses have entered new national markets, increasing the level of international competition.
Governments also intervene to prevent one company dominating or monopolising the market. This may be by passing laws making it easier for new startup companies to open or stopping businesses that are too dominant. In 2019 the European Union fined Google 1.5 billion euros for using it’s position unfairly to stop competitors.
Technology means business can find new customers who may not have been able to access their products or services before. E -commerce has meant bricks and mortar stores now have to compete against online retailers like Amazon in addition to their traditional competitors. Private tutors who visit students in their area now have to compete against online tutors who can offer their services to students all over the world using video conferencing software.
How businesses can respond to changing spending patterns and increased competition
Business can respond in a number of ways to this increased competition in a number of ways.
Increasing efficiency to offer lower prices. Established airlines have had to change their business model to offer lower cost flights with no extras to compete against low cost airlines.
Product development to meet changing customer need and trends, so car makers like Ford and Toyota now spend billions to develop electric cars, due to the change in demand for environmentally friendly products.
Business can increase promotion to make a stronger brand image and strengthen customer loyalty.
Finally business can find new markets. In the many developed countries consumer tastes are more health conscious and have moved away from smoking, so tobacco companies have focused on selling their products in the developing world.
3.1.3 Niche and Mass Marketing
Benefits and limitations of mass and niche marketing
Mass marketing is promoting and selling the same product to the whole market. You can see plenty of examples when you walk around the supermarket and see hundreds of identical products, for example toothpaste.
Niche marketing is promoting and selling a product or service to a very small part of a market. For example, a niche producer of natural fluoride free toothpaste will target just a very small part of the whole market.
Increasingly niche marketing has become more popular and businesses are much less likely to have just one product for the whole market but offer different variations. With toothpaste you can see this with large manufacturers offering whitening toothpaste, or kids toothpaste.
Niche marketing allows a “way in” for smaller firms in markets dominated by large operators offering specialised products to a specific target market.
By “finding their niche” businesses can find areas of the market where there is little or no competition.
This can be highly lucrative for businesses. As niche products are more likely to be exclusive, they can market niche products as high status luxury products, and can charge higher prices earning higher profit margins.
However, this means niche companies can be vulnerable to changes in market conditions, if incomes drop, like in a recession, niche focused businesses can quickly lose their customer base.
Furthermore, the more successful a business is at exploiting its niche, the more likely it is to attract competitors both from other small businesses, or larger companies who develop products for lucrative niche markets.
Although niche products have higher margins, the production costs of niche products are higher as economies of scale can’t be achieved.
| Benefits and Limitations of Niche Marketing | |
| + Can charge higher prices for exclusive products + A newly discovered niche will have less competition | X Vulnerable to changes in market conditions X Higher unit production costs X Competitors can enter lucrative niche markets |
Mass market products can achieve these economies of scale by large scale production, reducing costs and increasing profit margins. Furthermore, mass market products by definition have high sales so there is greater potential for high profits. However, mass market products also have more competition and may have to keep prices low to be competitive, reducing potential profits.
As we saw with toothpaste, customer trends are for increased differentiation. Rather than “one size fits all” mass market products, businesses are creating a broader product range with more variation.
Finally, not all markets are big enough to support mass produced products, so mass marketing may not be suitable.
| Benefits and Limitations of Mass Marketing | |
| + Higher demand so higher sales + Lower unit costs of production possible due to economies of scale | X More competition so prices must be kept lower X Not all markets are large enough to support mass produced products |
| Past Paper Question Examples Paper 2 (a) Explain one advantage and one disadvantage to business XYZ starting to sell new products in a niche market [8] |
3.1.4 Market Segmentation
Closely related to niche marketing and mass marketing is market segmentation. Instead of targeting a small section of the market like niche marketing, market segmentation aims to split the total market into different sections and then target a different type of product at each section.
How markets can be segmented
Markets can be segmented by geography. This could be by different regions of the world, different countries or different regions within a country.
McDonald’s segments by country. In India McDonald’s burgers are made from chicken due to religious beliefs. In Japan they sell Teriyaki Burgers and in Mexico more quanti chili sauce is used. Thereby McDonalds can adapt a mass market product to local tastes.
We can also segment by focusing on individual characteristics of the target market, let’s use the market for watches as an example.
Business can segment by gender, so male and female watches.
Income, so basic watches for a low budget consumer, watches with more features but still reasonably priced for middle income consumers and high status, exclusive watches like Rolex for high income consumers.
Segmentation by age so colourful kids watches, digital watches targeted at younger people and more traditional style watches for older people.
Finally lifestyle, so runners watches measuring heart rate, divers watches measuring depth and surfers watches measuring wave count, wave speed and distance surfed.
Benefits of Market Segmentation
Market Segmentation allows firms to focus on the needs of different sets of consumers.
They can market specifically to each segment, so they don’t waste resources on consumers who aren’t interested in a particular product or service.
Splitting the market into segments may reveal a group willing to pay high prices, allowing higher profits.
Segmentation also shares some benefits with niche marketing. It allows business to target groups who may not already have their needs fulfilled.
Small firms that may not have the resources to mass market a product or service, can focus on one segment or niche.
Recommend and justify an appropriate method of segmentation in given circumstances
| Past Paper Question Example Paper 2 (b)Consider three ways Benny could segment the market. Recommend which method he should choose. Justify your answer. [12] * Age * Lifestyle * Income |
This is a question that really depends on the context. The key is to be able to justify your choice as the best most suitable method of segmenting a market to satisfy most consumer needs. Income can be the most straightforward “one size fits all” method of segmentation, that you can apply to nearly all businesses. Start with your standard product and price point, then you can add a budget “super saver” option and an exclusive, luxury option.
