Marketing Basics

Q4 - Marketing

Core Concept

• Marketing involves selling refrigerators to Eskimos.

Definition

• Marketing entails lucratively leveraging products and services created by a company within the market.

Market Situations

• In a buyer's market, supply exceeds demand.
• In a seller's market, demand outweighs supply.
• Marketing is crucial for directing a company based on market conditions.
• Marketing is necessary in a buyer's market.

Objectives

• Marketing objectives are sub-goals aimed at achieving a company's overarching goal of profit maximization.

Quantitative vs. Qualitative Goals

• Quantitative goals, like a 5% increase in sales, are easily operationalized and controlled.
• Qualitative goals, such as enhancing brand awareness, are challenging to operationalize and control.

Common Goals

• Penetrate market potential.
• Lower expenses.
• Boost brand awareness.
• Cultivate trust in the company.

Market Research Methods

• Unsystematic: Gathering information casually, for example, through customer visits or surveys
• Systematic: Employing scientific observation and analysis of markets

Types of Market Research

• Primary research involves first-hand data collection.
• Secondary research uses existing data.

Market Analysis vs. Market Observation

• Market analysis examines the market at a specific point in time.
• Market observation studies market trends over time.

Data Collection Methods

• Surveys can be conducted in person, via mail, phone, or computer
• Observation can occur in real-time or through audiovisual recordings.
• Experiments/tests include product, market, price, packaging, and advertising.
• Panels track consumer behavior, and retail trends over predetermined periods.
• Panel surveys involve surveying a consistent group of individuals, households, or businesses on the same topics repeatedly.

Markets and Market Sizes

• A market consists of current and potential customers for specific goods/services, along with existing and prospective suppliers.
• Markets must be clearly distinguished from one another, considering material, regional, and temporal boundaries.

Market Structures

• Monopoly: One seller
• Oligopoly: Few sellers
• Polypoly: Many sellers

Key Metrics

• Market volume: Total revenue or units sold across the entire market
• Market share: Portion of the total market volume captured by a particular company
• Market potential Indicates the maximum possible sales (in units or value) for a particular market.
• Market exploitation rate: Ratio of demand presently being addressed in market in relation to the entire potential market size.
• The degree to which market potential is exhausted.

Marketing Mix (4Ps)

• Marketing strategies utilize various tools including product, pricing, communications, and distribution policies.

Product Policy

• Aims to enhance a company's market position by modifying product features or altering the production program.
• Consists of product innovation, variation, differentiation, diversification, and elimination.

Product Innovation

• Launching new Products.
• Example: Software company develops a multimedia-based language program.

Product Variation

• Modifying Existing Products.
• Example: An auto battery producer minimizes environmentally hazardous elements.

Product Differentiation

• Offering Product Variations.
• Example: A helmet manufacturer sells products under various names and prices.

Product Diversification

• Introducing new products to the existing roster
• Example: A baking ingredient company begins manufacturing mineral drinks.

Product Elimination

• Removing Products from market.
• Example: A clock maker stops producing wind-up kitchen clocks.

Product Program Analysis

• Involves analyzing a product's lifecycle.
• Performing a portfolio analysis.
• Calculating contribution margins.

Product Lifecycle Stages

• Development: No sales, high costs.
• Introduction: Low sales, negative profits, high advertising.
• Growth: Rapid sales increase, rising profits, increasing competition.
• Maturity: Slowing sales growth, high profits, intense competition.
• Saturation: Stagnant or declining sales, high profits, focus on market share.
• Decline: Falling sales and profits, reduced advertising.
• The growth phase begins when the company successfully overcomes market obstacles after product launch, resulting in sharply increased sales.
• The saturation phase involves improved competing products attracting customers, that make the company counteract this by improving its products, so that sales stagnate.
• The 'degeneration phase' involves superior, new competitive products emerging, that make the customers straying now to a large extent, and the companies having to increase sales one last time through short-term special deals.

Portfolio Analysis (Four-Field Matrix)

• It is an instrument of corporate management.
• The goal is to achieve a balanced set of manufacturing schedules with respect to profitability, age, market position, competition and risk.
• Uses the four phases.

Phase 1: Question Marks

• Products with uncertain success, low market share, high investment, and high growth potential.
• Action: Observe and promote.

Phase 2: Stars

• High market share.
• High growth.
• High investment with increasing profits.
• Action: Promote.

Phase 3: Cash Cows

• High profits.
• High market share.
• Low growth with reduced investment.
• Action: Maintain position and "milk" profits.

Phase 4: Poor Dogs

• Declining market share.
• Negative growth.
• No investment and tendency towards losses.
• Action: Product elimination or innovation.

Relative Market Share Equation

• Relative Market Share = (Company's Market Share) / (Market Share of Largest Competitor).

Strengths of Portfolio Analysis

• Clear and intuitive.
• Easy to implement and apply.
• Encourages future oriented thinking.
• Provides insight into opportunities and risks.

Weaknesses of Portfolio Analysis

• Market share measurement is problematic.
• Market growth projections are difficult.

Product and Program Policy

• Product Innovation: Creating entirely products previously unoffered by any firm.
• Product Variation: Modifying existing product quality, appearance, or materials.
• Product Differentiation: Offering a product in different versions.
• Product Diversification: Introducing new products already made by other companies .
  • Horizontal Diversification: Operating on the same business level.
  • Vertical Diversification: Operating at preceding or succeeding levels.
  • Lateral Diversification: Operating outside business level.
• Product Elimination: Removing products from production program.

Fixed Costs

• Occur regardless of production output: taxes, rent (salaries), insurance.

Variable Costs

• Costs that depends on production output: materials, wages.

Contribution Margin Analysis

• Assesses product profitability.
• Determines if production should continue.
• Calculates unit and total contribution margins.

Product Elimination Evaluation

• Products dropped if variable costs exceed revenue.

Pricing Policy

• Using pricing to sway consumer behavior and achieve organizational objectives.
• For example, lowering prices to increase sales, and expand market presence.
• Market share rose from 20% to 28% as a result.
• Sales increased from $1 million to $1.26 million.
• Profit increased EUR400,000.

Perfect Competition

• No individual pricing policy is viable in a perfectly competitive market.

Conditions

• Numerous suppliers and buyers (polypoly market structure).
• Homogeneous goods. No distinction is permitted.
• Market transparency is essential for knowledgeable consumers.

Factors that Facilitate Pricing Policies

• Products must have perceived or actual variations.
• Rapport with customer base.
• Location convenience for customer.
• Delivery options.

Cost-Plus Pricing

• Calculated Price = Cost + Profit Mark-up.

Short-Term Price Floor

• Equals the variable costs per unit.

Net Price vs. Gross Price Systems

• Net prices have no discounts.
• Gross prices allow various discounts.

Price Reductions

• Rebates given under various reasons when the customer purchases a product or when payment is completed.
• Bonuses that are paid when certain annual purchase volumes are exceeded and is a lump sum payment for the year.
• Early payment discounts given for quick payments on invoices.

Sales Terms

• Influence end price to the consumer.
• Consist of delivery, payment and warranty terms.

Pricing Strategies

• Price differentiation involves selling similar products at different prices.
• Can be spatial, personal, temporal, or factual.

Customer Service

• Involves optional services provided from Seller or manufacturer.
• Commercial customer support: Advice, Info, tours, Seminars
• Technical Service: Parts, repair and maintenance, help, maintenance.