Marketing Solutions Paper 1

Features of Markets: Location, Size, Share, Competitors, Growth 💡

 (a) Define the term ‘customer (market) orientation’. [2]

A business researches a market to find out the needs and wants of consumers.

Then develops and produces goods and services to fulfil these needs and wants.

For example, a video games company finds that consumers want a skateboarding game so produce that kind of game.

Niche Versus Mass Marketing 💡

(b) Explain two limitations of niche marketing. [3]

Niche markets are smaller than mass markets so there are likely to be lower sales and little opportunity for economies of scale. For example, a gluten free bakery will not be able to produce in high quantities.

High risk as niche markets focuses on one small segment of the market. If demand falls in this market or a stronger competitor enters the niche it may result in business failure. For example, a mass-market bread maker starts producing gluten-free bread and takes sales from a gluten-free bakery.

Other Acceptable Answers:

• Accurate targeting of customers is required.

• Niche markets are usually smaller.

• Higher Risk if the product fails as there might not be another suitable market for the niche product.

Market Segmentation 💡

 (a) Define the term ‘market segmentation’. [2]

Splitting a market into smaller parts based on consumer characteristics.

Then targeting products/services at these consumers.

For example a watch manufacturer segmenting by age and targeting kids, teenagers and adults.

Other Acceptable Answers:

Differentiated marketing

Using market research

(b) Briefly explain two reasons why a business might segment its market [3]

Marketing one product to the entire market can be too broad an approach and can lead to ineffective targeting of customers. By splitting the market into different segments, a business can focus different marketing strategies on different groups of customers increasing the effectiveness of the messaging to each of these groups.

Marketing segmentation allows a business to find new groups of customers in the market that are not currently being targeted. For example, if a watch company segments a market by age it may realise that senior citizens are not being targeted effectively and can develop watches which cater to their needs, like being simple to use and easy to read.

Other Acceptable Answers:

Reduces risk – not “all eggs in one basket” but diversifying

Opportunity for smaller businesses so focus on one segment with less competition

Allow different pricing strategies for different segments

Primary and Secondary Research💡

(b) Explain two advantages to a business of using primary (field) market research data. [3]

The data obtained is tailor made for the business that is conducting the research so will be more useful than secondary research which is carried out for another purpose. For example a wedding planner can find out what are the preferences of consumers in their local area.

The data obtained is up to date. As consumer preferences change quickly with recent trends primary research allows the business to get the latest data from their target market. Secondary data is often conducted years in the past. A wedding planner can find the current preference of customers for wedding cakes and wedding music.

Other Acceptable Answers:

• a business can control how data is collected

• the data is not available to competitors

• business can target  specific groups

Sampling Methods 💡

 (a) Define the term ‘random sampling’. [2]

Sampling method whereby all members of the target group or population have an equal chance of being selected.

For example in a survey of customers putting all the customer names into a hat and picking 10 at random. 

(b) Briefly explain two benefits to a business of using quota sampling as a method of collecting data. [3]

Quota sampling is when the population is stratified and an interviewer selects a specified number of respondents from each stratum. 

As quota sampling takes a specific number of respondents from each subgroup this leads to greater accuracy of the results. For example, random sampling may result in a disproportionate number of older respondents whereas quota sampling which takes a certain number of respondents from each age group will give a more accurate representation of the whole population.

Quota sampling means fewer respondents need to be contacted, so costs are reduced and the results can be obtained more quickly. This means the business react more quickly to the information it gathers.

Other Acceptable Answers:

As quota sampling means less individuals need to be contacted it means:

•  It is quicker to collect information
• It is easier and more practical to collect
• It is cheaper to the collect data

Types of Pricing Strategies💡

(a) Define the term ‘price discrimination’. [2]

When a business charges a different price in different markets or to different consumers for the same product.

For example charging a different prices for movie tickets for students and adults.

(b) Explain two disadvantages to a business of using price discrimination. [3]

It can be more complicated for a business to organise and implement price discrimination. It means they must have a way of identifying the different groups to be charged different prices.

For example  price discrimination for students subscribing online to a news paper will mean the newspaper needs a way of verifying the students identity which can increase costs.

If different groups find out they are being charged different prices this may lead to feelings of being unfairly treated in the group that is paying more, and their business may be lost.

For example, if a web page designer charges lower prices to his clients in Indonesia than the clients in Malaysia, the customers in Malaysia may be upset and find another web designer.

Other Acceptable Answers:

• Possible reduced revenue if the business sells to one set of customers cheaper than to others.

Price Elasticity of Demand 💡

 (a) Define the term ‘price elasticity of demand’. [2]

Measures how much demand is affected by a change in price.

And measures the responsiveness of demand of a product to a change in price.

(b) Briefly explain two reasons why price elasticity of demand might be useful to a business when making pricing decisions. [3]

If a business knows the PED it can decide if it should change price.

For example, if the PED is inelastic it means the business can increase prices and it won’t lose a proportional level of demand so revenue will increase. If the price is elastic the business can reduce prices and significantly increase sales and revenue.

It means a business can select an appropriate pricing strategy for a product or service.
If PED is elastic, penetration or competitive pricing may be suitable but with inelastic PED skimming may be more suitable.

Other Acceptable Answers:

• Can use price discrimination if it knows different segments of its market have different PEDs – some groups like students have a different PED than more affluent customers.

Consistency in the Marketing Mix 💡

(b) Discuss the likely impact on the marketing mix of a bank that decides to make increasing use of the Internet to provide its services. [20]

The marketing mix is made up of four inter-related decisions − the 4Ps. These are product design and performance, price, promotion including advertising and place, where and how a product will be sold to consumers.  The 4cs is a more modern view of the marketing mix focused on the customer based on Customer solution Cost to the customer, Communication with the customer, Convenience to customer.  A successful firm will continually adjust and refine the marketing mix in line with customer needs and a dynamic business environment. A shift to online banking will require large changes to parts of the marketing mix in order to reflect the focus online rather than in brick and mortar banks. Virtually all traditional high street banks have had to rethink their marketing mix as online banking has become so popular.

They also now have to compete against new entrants to the market who are completely online like N26 and Munzo.

Product / Customer – moving  services online will alter the customer solution. This means that customers can have instant access to their bank accounts to view the balance. Banks will have to ensure that customers can easily access their online accounts and they are easy to use.

So it will mean a large investment in technology and product development to ensure the online accounts work effectively.

Place / Convenience – moving online gives customers the opportunity to manage their account wherever they are. Customers can use on a laptop,tablet or phone. Instead of having to go to a brick-and-mortar bank, they can do their banking virtually. This is much more convenient for the majority of customers as they don’t have to travel to banks physically. And means customers will be more satisfied as they can have access to bank services 24/7.

However, this may mean that they have to close their high street banks as fewer customers are using them. Traditional bank staff may lose jobs. This may make it less convenient for elderly customers or less tech-savvy customers who find it difficult to shift online after years of banking.

Potential reduction in location costs so the bank can offer lower prices to its customers. High street banking locations are highly expensive to rent and maintain. Although setting up an online system of banking will require a large start-up cost and maintaining the network will need a large increase in the IT budget, this will be hugely offset by the reduction in costs by automation.

Furthermore, staff in a previously labour intensive service are a huge cost which can be massively reduced by moving online. However, with banking now available online with competitors like Munzo and N26 it means the barriers to entry of needing physical premises have been taken away. As their new competitors don’t have to pay for high street banks they can have much lower margins and charge lower prices to customers. This means that the bank will be under pressure to reduce its price to keep customers.

There will be a significant change with the promotion of banking services– as the bank will have the opportunity to sell. For example, they could target car loans at younger customers with a high income but low savings. Investment accounts to customers with high savings. They can also use email, social media like Instagram or their own app to target different customers and try and gain new customers.

Moving communication online allows banks to use the data of customers to target their promotion much more accurately and effectively. This means that they can build customer loyalty by being responsive to customers needs. However, they must ensure data protection laws are followed and they are not invasive with customers personal information or they may damage their reputation and lose customers. 

Overall, the marketing mix will be affected mostly by place. Place because moving online will mean that for most customers most of their transactions and banking business will now be done online rather than going into a physical bank. This presents opportunities in terms of cost reduction but also a greater threat from competitors. It is also now much easier for customers to move to online banks that don’t need to have a physical presence near to their customers.

The other parts of the marketing mix won’t change as much as place.  The promotion message and brand image of the banks will stay mostly the same, and the product will be offered in a different form but it remains loans and savings accounts. Banks will have to keep their prices competitive online.

The bank needs to put huge effort to make sure that the new “place/convenience to the customer” is easy to use, but also secure so customers feel their money is safe. They also need to make sure if there is a problem they can get the problem solved quickly and they still feel like a valued customer when the customer service management at the physical bank is no longer there.

Alternative Evaluation:

Promotion/communication with the customer is critical if the bank takes advantage of the opportunities afforded by moving online.

The bank can retain its existing customers and add value through additional services if it communicates effectively and maintains a positive relationship through the transition.

It will have to radically change its promotion strategy to keep its services relevant and competitive against the new entrants to the market and existing banks.
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