Market Segmentation

Market Segmentation is a marketing strategy which involves dividing a broad target market into subsets that have, or are perceived to have common needs, interest and priorities, and then designing and implementing strategies to target them.

Advantages

• Higher sales lead to higher profits if the segmentation is successful and products designed suits the need of the market
• Better understanding of consumer need
• Targets particular groups with particular products
• Prevents the product being targeted towards the wrong group of customers

Disadvantages

• If the group size is too small the business will not be able to exploit economies of scale
• A business constantly updates itself about the changing demand of the segments
• Fierce competition may take place once one segment becomes profitable as it will attract other businesses

Market Segmentation is explained in more detail in Rob Jones' Edexcel International GCSE Business Studies book

Market Research

Reasons for markets research

1. Descriptive Reasons emphasizing on the present situation of the market
2. Predictive Reasons emphasizing on the future situation of the market
3. Explanatory Reasons conducted to explain a practical situation
4. Exploratory Research conducted to find out new groups of customers

Types of Market Research

1. Primary/Field research
2. Secondary/Desk research

Methods of Primary Research

• Questionnaire
• Personal Interview
• Online Survey
• Focus Groups - an interview conducted in order to find information among a panel of experts
• Observation - observing customers purchasing in a superstore

Methods of Secondary Research

• Newspaper 
• Magazine
• Income Statement
• Government Statistics

Population is the entire group of respondents who are subjects of market research

Sample is a part of population who is going to participate in the actual research process

Advantages of Market Research

• Helps focus attention on objectives
• Aids forecasting, planning and strategic development
• May help reduce risk of new product development
• Communicates image, vision, etc.
• Globalization makes market information more valuable

Disadvantages of Market Research

• The information obtained is only as good as the methods used
• Can be inaccurate and unreliable
• Results may not be what the business wants to hear
• Always a problem that we may not know enough to be sure

Place

Place or Channels of Distribution is one of the more vital elements of the marketing mix where a business will choose the method of selling the product to the customers

Types of Channel of Distribution

1. Manufacturers selling goods directly to the customers using their own store or website
2. Manufacturers selling goods using wholesalers and retailers. This is the most commonly used channel of distribution for fast consumer goods
3. Imported goods may be distributed through agents. The agents are responsible to import these products and sell them to various retailers. Sometimes agents can directly sell the product using websites.

Electronic commerce is the process of buying and selling goods using the internet. Companies use different websites to promote the goods and delivers them at the doorstep after receiving the order. Payment can be made with order or delivery.

Electronic commerce has been explained in more detail here

This note may be incomplete. 

Price

Price Elasticity of Demand(PED) states the percentage change in demand due to a percentage change in price.

Pricing Strategies

1. Cost Based Pricing includes cost plus/absorption pricing and target pricing

Cost plus/Absorption pricing includes both direct and indirect cost in the cost of production with a percentage of mark up. This is often arbitrary.

Target Pricing is a level of price that will give the business a derived profit that they have targeted.

Advantage: The business will be sure to generate a profit as all costs will be covered

Disadvantage: This type of pricing ignores market conditions

2. Competition Based Pricing is where prices are set considering the actions of the competitors. It has two types:

Going Rate Pricing, where the business charges the same prices as rivals

Predatory Pricing, which is when the price of the product is reduced substantially to drive away competition from the market. Once the competition has left, the price will be raised again to cover the losses.

3.Market Based Pricing occurs when the business analyses the condition of the market(demand factor) before setting the price.

• Penetration Pricing is entering the market with lower price
• Market Skimming is entering the market with a higher price
• Loss Leader refers to reducing the price to gain market share
• Psychological Pricing
• Price Discrimination refers to charging different prices for different groups of customers 

Promotion

Promotion is a list of activities used to stimulate sales. There are two types of promotion:

1. Above the line promotion refers to paid for communication in the independent media, such as advertising on TV or in the newspaper. Though it can be targeted it can be seen by anyone outside the target audience.
2. Below the line promotion refers to promotional activities where the business has direct control, such as mailing and money off coupons. It is aimed directly at the target audience.

Impact of promotion

Promotional activities have a variety of aims:

• To inform current and/or potential customers about the existence of products
• To explain potential benefits of using the product
• To persuade customers to buy the product 
• To differentiate the product from the competition
• To develop and sustain a brand
• To reassure customers that they have made the right choice

Branding

Branding refers to a name, sign, symbol or logo which differentiates a firm from its rivals.

Advantages of brands

• Inspires customer loyalty leading to repeat sales and word of mouth marketing
• The brand owner can usually charge higher prices, especially if the firm is the market leader
• Retailers or service sellers want to stock top selling brands. With limited shelf space, it is more likely that top brands will be on the shelf rather than lesser known brands

Problems of developing a brand

• In order to develop a successful brand a business needs to spend considerable amount of time within which their performance should be consistent
• In order to develop a positive brand, a business must consider investing certain amount of cost into advertising and promotion
• Different products have different ways of promoting their brand. None of the ways can be similar and method might generate a different result

Marketing

Marketing is the management process involved in identifying, anticipating and satisfying consumer needs profitably.
The basic function of marketing is to attract and retain customers at a profit.

Approaches to marketing 

1. Product orientation refers to launching a product which is absolutely new. These are innovative goods that do not exist in the market. These goods will create a new type of demand which might change customers' taste and fashion. Usually a business will not conduct any market research for a product. They will assume that the product is so unique that it will automatically sell well.
2. Market Orientation takes place when a product is designed after conducting market research. Using market orientation, a business will include the opinion of customers and will not try something unique or different. The entire success of the product relies on consumer demands. It depends on the accuracy of the market research.

Marketing Strategies

1. Mass marketing takes place when a business designs one product for every group of customers. There is no difference when selling this product to different customers.
2. Niche Marketing takes place when the business launches different products for different groups of customers. It is more successful in fulfilling customer demand as it gives attention to personal tastes and preferences

Market research is explained in greater detail here

Boston Matrix

The Boston Matrix

The Boston Matrix is a means of analyzing the product portfolio and informing decision making about possible marketing strategies

1. Stars are products in markets experiencing high growth rate with a high/increasing market share with potential for high revenue
2. Cash Cows have high market share but low market growth. These products are matured and do not need high cost to support them. They have high cash revenues
3. Dogs are products in low growth markets with declining market share. They are associated with negative cash flow and may require large sums of money to support
4. Problem Children have low market share in high growth markets. They may produce negative cash flow. Potential for the future?

Advantages of Boston Matrix

• Useful to understand the effectiveness of the product portfolio
• Different approaches will be devised for different products in different categories
• It is useful to plan whether to include a new product in the portfolio and which product to withdraw from the portfolio

Disadvantages of Boston Matrix

• It only shows the current position of the product and does not specify how to improve the product
• The data relating to market growth and market share changes constantly so it is difficult to derive information

Product Lifecycle

Note: Saturation refers to the highest point of maturity

Extension Strategies prevent products from going into decline. Some such strategies include:

• Finding new markets for existing products
• Developing a wider product range
• Creating a product towards a specific market
• Changing the appearance
• Increasing frequency of usage
• Changing the ingredients
• Updating designs

Advantages of Product Life Cycle:

• Shows the current level of sales and helps find future sales trends
• Will help pinpoint the timing and planning of extension strategies
• Useful for monitoring the impact of promotion on sales
• It will help identify where spending is required
• It will help identify which products can no longer be sold
• It can be used to understand the percentage of cost generated by the product

Disadvantages of Product Life Cycle:

• It might not help pinpoint the exact levels of future sales
• It fails to justify why sales are changing