The Importance of Marketing (Edexcel IGCSE Business)

An introduction to marketing

Spec point — 4.2.1 · Importance of marketing

• A market is any place where buyers and sellers can meet to conclude a transaction, e.g. amazon.co.uk or a shopping mall

• The aim of marketing is to help identify, anticipate and satisfy consumer needs and wants profitably

  • Needs are considered to be essential, e.g. shelter or food
  • Wants are desires which are non-essential, even if consumers consider them to be essential e.g Nike trainers

Why marketing is important

Spec point — 4.2.1 · Importance of marketing: • satisfying customer needs • building customer relationships • keeping customer loyalty

Why marketing is important

Identifying and understanding customer needs

• Marketing helps a business identify and understand the needs and wants of its customers

  • It involves finding out about the

    • Variety and quality of goods and services that customers want
    • Prices they are willing to pay
    • Promotional techniques that may persuade them to make repeated purchases
    • Convenience factors, including where and how they want to purchase products
    • After-sales services they anticipate

• Businesses that successfully identify and then satisfy customer needs

  • Compete more effectively than rival businesses
  • Keep up to date with changing tastes and preferences
  • Attract positive word-of-mouth recommendations and build the brand

Benefits of identifying and understanding customer needs

Keeping customer loyalty

• Customer loyalty is when existing customers buy products from the same business over and over again
• Customer loyalty leads to repeat purchases and a rise in market share.
• It is much cheaper for a business to try to keep existing customers(for example, with loyalty cards) than trying to gain new customers, as this can involve expensive advertising campaigns

Building customer relationships

• Building customer relationships involves communicating with customers to encourage them to become loyal to the business and its products

• Good relationships are maintained by

  • Developing close ties with customers and finding out if products/services are continuing to meet their needs

    • E.g. Using surveys to discover if preferences are changing

  • Using technology to gather important information about customers

• Having strong relationships with customers means a business can respond appropriately when expectations of what they want from a good or service change

Market orientation versus product orientation

Spec point — 4.2.1 · Importance of marketing: • market orientation and product orientation"

Market orientation versus product orientation

• Market orientation focuses on the needs of consumers and uses this information to design products that meet customer needs

  • Consumers are at the centre of marketing decisions

  • Products which respond to consumer needs are developed

  • The result of market orientation is that the firm will benefit from increased demand, increased profits, and a valued brand image as its products become more desirable

    • E.g. Universities often develop new courses based on the feedback they receive from students and employers

Tools of market orientation

Market orientation aims to develop products to meet consumer needs identified during the market research process

• Product orientation focuses on the characteristics of the product rather than the needs of the consumer

  • The emphasis is on creating a product first and then finding a market

  • The business has a belief that the product is superior i.e. it will sell itself

    • E.g. Gillette's razors can be classed as a product oriented business as the business focuses on the quality of its products and regular innovations aim to increase sales

  • One problem with being too product orientated is that over time a business moves further and further away from what the market is looking for, thus increasing the risk of business failure

Tools of product orientation

*A product orientation is used by inventors who research, test and produce a product well before market research has taken place  *

Niche markets and mass markets

Spec point — 4.2.1 · Importance of marketing: • niche and mass marketing.

Niche markets and mass markets

Niche markets

• In niche markets, products are aimed at a subset of the larger market e.g. gluten free bread and cakes

  • Niche marketing occurs when businesses identify and satisfy the demands of a small group of consumers within the wider market
  • Production usually happens on a small scale

• Profitable niche markets rarely remain small for long; their potential attracts competition, which increases sales volumes

  • The market for energy drinks is a good example of this - originally targeted at sports-enthusiasts, it is now one of the largest soft drinks segments in the world

Mass markets

• In mass markets, products are aimed at broad market segments e.g Kellogg's Corn Flakes is an example of a breakfast cereal aimed at the mass market

  • Market segments are groups of consumers who share similar characteristics e.g. age, lifestyle, etc.
  • Mass marketing occurs when businesses sell their products to most of the available market
  • Production usually happens on a large scale

Characteristics of niche and mass markets

Market Share & Market Growth

Spec point — 4.2.1 · Importance of marketing: • market share and analysis

Market share and market growth

Market share

• Market share is the percentage of the total market revenue that a single business or brand has

  • e.g. Tesco had a 27% share of the UK grocery market in 2022

• Market share can be calculated using the formula

$\frac{Sales of \mathrm{a} \text{business} ( \text{volume} or \text{value} ) }{Market \text{size} \text{stretchy} ( \text{volume} or \text{value} \text{stretchy} )} \times 100$

• An increase in market share can indicate that a business has made effective use of marketing strategies to increase sales and gain customers from competitors

Worked Example In 2022 the UK coffee shop/cafe market was worth £4.6bn. Sales of Starbucks Coffee were £328m in 2022.

Using the data calculate, to 2 decimal places, the market share of Starbucks Coffee in the coffee shop/café market. You are advised to show your workings.

[2]

Step 1: Divide Starbucks' sales by the market size

****$= \frac{ \pounds 328 \mathrm{m} }{\pounds 4.6 bn}

= 0.0713$[1 mark]

Step 2: Multiply the outcome by 100 and express as a percentage

$= 0.0713 \times 100

= 7.13 %$[1 mark]

Exam Hint By showing your working-out, even if you do not get the right answer you will still be able to gain some marks.

Market growth

• Market growth is the increase in the overall size, value or volume of a market over a period of time, usually expressed as a percentage

• Market growth provides an incentive for businesses looking to expand, increase sales and generate higher revenue

  • Businesses are often attracted to the potential of growing markets - and they can become increasingly competitive quite rapidly

• Market growth is calculated using the formula

$\mathrm{Market} \mathrm{growth}=\frac{\mathrm{This} \mathrm{year}'s\mathrm{market} \mathrm{sales}-\mathrm{Last} \mathrm{year}'s\mathrm{market} \mathrm{sales}}{\mathrm{Last} \mathrm{year}'s\mathrm{market} \mathrm{sales}}x100$

• If the growth rate is positive, the market is getting bigger (expanding)
• If the growth rate is negative, the market is getting smaller (contracting)

Worked Example In 2021 worldwide sales of plug-in hybrid vehicles was 1.94 million units. By 2022 sales had increased to 2.84 million units.

Calculate the rate of market growth in the plug-in hybrid vehicles market.

[2]

Step 1 - Deduct 2021's sales from 2022's sales

$=2.84\mathrm{million}-1.94\mathrm{million}\,\,=0.90\mathrm{million}$

Step 2 - Divide the outcome by 2021's sales

$\frac{0.90\mathrm{million}}{1.94\mathrm{million}}=0.4639$ [1 mark]

Step 3 - Multiply the outcome by 100 to find the percentage growth rate

$0.4639 \times 100 = 46.39 \%$ [1 mark]

Exam Hint Unless otherwise stated, always give your answer to two decimal places.