Essential Principles of Marketing
Marketing information One of the prime functions of marketing personnel is to collect and analyse the information needed in order to identify the needs and wants of potential and present customers. This will also involve observation of the activities of the competitors. It is also their function to use historical data to establish the past and current performance of the whole of their product range and to develop forecasts of potential future sales of current, modified or new products. This information is then analysed in order to assist other functional departments, design, production, personnel, and financial, in their task of managing the firm’s efforts. The purpose of the marketing department is to act as a centrepiece of the business, enabling it to ‘sell products which do not come back, to people who do’. The techniques which are used are: market research, sales forecasting, target marketing, benchmarking of competitors on product and price, the product life cycle concept, the ‘Boston Box’ concept. The purpose of these techniques is to collect and analyse three sets of information.
| INFORMATION ON PAST PERFORMANCE | - sales - market share - product life cycle - profit analysis |
| CURRENT MARKET POSITION | - benchmarking competitors - product portfolio - market segments - customer satisfaction |
| FUTURE TRENDS | - sales forecasts - new competitors - environmental and legal factors - new technologies |
Table 1 Types of marketing information required
The analysis of the information generated will lead to strategic decisions at the highest level in the company as to the appropriate marketing strategy and the appropriate marketing mix needed in order to carry out that strategy.
Market research This is a process by which information is collected and analysed on the basis of which marketing opportunities and problems may be identified. Table 2 summarises the various types of market research, which may be undertaken and indicates their uses.
| SALES RESEARCH | - estimate market size - identify market segments - identify market trends - obtain information on present and past customers - information on competitors |
| PRODUCT RESEARCH | - generate new product ideas - product concept testing - product testing - test marketing - packaging research |
| PRICING RESEARCH | - identify demand for the product - place price in relation to competition |
| COMMUNICATION RESEARCH | - effectiveness of advertising - media selection research - copy testing - sales territory planning |
| DISTRIBUTION RESEARCH | - warehouse location research - retail outlet location research - retailer type research |
Table 2 Types of market research
These activities may be undertaken in-house, or by an outside advertising agency. In the latter case, product knowledge and confidentiality may be critical factors. It would not be sensible to use an agency, which is also used by a rival company.
Market research methods All these activities require that a scientific research method be used. Three broad approaches might be used:
- sampling and survey techniques
- field experiments (such as product testing)
- observation (it may range from sending buyers out to look at competitors’ products in the retail environment to industrial espionage)
The results of such work must be presented in an appropriate format, summarising the statistics generated.
Sales forecasting It is more than just predicting sales, but it is also part of the financial planning process – identifying cash flows and potential profits. The aim is to avoid having ‘slack’, surplus capacity. There are two ways in which forecasting may be conducted:
- make a forecast for the industry and try to work out what share of that market the company may reasonably seek to win
- forecast sales on the basis of historical sales data
Forecasting may be short (for tactical reasons), medium (for business budgeting purposes to predict input costs, plant and manning requirements – 1 year ahead), and long term (for the purpose of strategic planning - 5 to 10 years ahead).
Target marketing (Market segmentation) This involves attempting to relate the characteristics of products to the requirements of potential customers. Firms seek to target specific groups of customers, with particular requirements, which the firm can meet. This could also be called ‘niche’ marketing, especially when applied to a new entrant to the market. The process of choosing a target market involves identifying
- market ‘segments’ – distinct groups of buyers
- market targets – selecting one segment to be evaluated and targeted
- product ‘positioning’ – in a particular ‘niche’ in that market segment.
Target markets may be identified in a number of ways by categorizing customers by age, sex, income, family size, educational background, or occupation. Customers can also be classified by their loyalty and heaviness of use, etc.
Benchmarking of competition Before using the above analysis to ‘position’ the product it is vital to discover in some detail what key competitors are doing, both in marketing strategy, product development and price. This may be undertaken by desk research and by observational studies.
The ‘Boston Box’ The purpose of this model is to rate products according to sales growth and market share. It is most appropriate for a company, which has been established for some time and has a wide product portfolio. It will enable senior management to use marketing information in order to optimise the product mix and to set objectives for each product in the portfolio. The model is set out diagrammatically in Fig.1.
Fig. 3 The Boston Box Model Market share
High Low
‘STARS’ -
-
| ‘PROBLEM CHILDREN’ - require spending which is disproportionate to growth potential - candidates for divestment | ||
‘CASH COWS’ - major sources of profit -
- use surplus profit to finance ‘stars’ | ‘DOGS’ - unprofitable - abandon quickly - reallocate resources elsewhere |
Comprehension
2.4.1 Answer the questions using the active vocabulary and Unit 1 Glossary.
1. What is the prime function of marketing?
2. What does collecting marketing information involve?
3. Why are historical data important in analysing marketing information?
4. How can the analysis of marketing information assist other functional departments?
5. What is the purpose of the marketing department?
6. How do you understand the quotation ‘to sell products which do not come back, to people who do’?
7. What are the marketing techniques?
8. How can the marketing information be classified?
9. What is market research?
10. What are the types of market research?
11. What are the uses of pricing research?
12. What are the uses of distribution research?
13. Can research activities be undertaken by an outside advertising agency?
14. In which case would it not be sensible to use an advertising agency?
15. What market research techniques do you know?
16. What is the difference between sampling, survey, field experiments and observation?
17. What are the two ways in which forecasting may be conducted?
18. What three types of forecasting can be identified?
19. What does target marketing involve?
20. What does the process of choosing a target market involve?
21. What do you know about “product positioning’ and ‘niching’?
22. What do marketing specialists mean by ‘benchmarking’?
23. What is the purpose of Boston Box model? Why is it important in portfolio management?