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BSBMKG501
IDENTIFY AND
EVALUATE
MARKETING
OPPORTUNITIES
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Contents
Introduction ...................................................................................................... 4
1
1.1.2
1.1.3
1.1.4
1.1.5
1.2 Research potential new markets and assess opportunities to enter, shape or
influence each market, and the likely contribution to the business ....................... 18
1.3 Explore entrepreneurial, innovative approaches and creative ideas for their
potential business application, and develop into potential marketing opportunities 22
1.3.1
2
2.2.2
2.2.3
Forecasting..................................................................................... 34
2.3 Use an assessment of external factors, costs, benefits, risks and opportunities
to determine the financial viability of each marketing opportunity ....................... 38
2.4
2.4.1
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Introduction
This unit describes the performance outcomes, skills and knowledge required to
identify, evaluate and take advantage of marketing opportunities by analysing market
data, distinguishing the characteristics of possible markets and assessing the viability
of changes to operations.
It applies to individuals working in senior marketing management roles that, together
with a marketing team, identify, investigate and evaluate marketing opportunities to
determine whether they meet organisational and marketing objectives. Based on this
evaluation, changes to current business operations can be determined to take
advantage of marketing opportunities.
Lets consider a few important facts about marketing before we continue.
Principles of marketing
Marketing is an organisational function, and a set of processes for creating,
communicating, and delivering value to customers, and for managing customer
relationships in ways that benefit the organisation and its stakeholders.
Kotler et al (2007).
Wants = the form taken by human needs as they are shaped by culture and
individual personality
Answering these questions about what we need and want can be complex. Marketing
has historically been considered a creative discipline. In reality, marketing is scientific
and follows a common scientific method:
Ask a question
Do background
research
Analyse your
data and draw a
conclusion
Communicate
your results
Construct a
hypothesis
Test your
hypothesis by
doing an
experiment
Marketing is a social science related to why humans behave the way they do, and
how we can work with or modify that behaviour to make a profit for our business.
What makes people purchase goods? To answer this question you need to undertake
the above steps.
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Customer satisfaction
This depends on a products perceived performance in delivering value relative to a
buyers expectations. In other words:
We dont expect much from a wooden train set. It costs $10, and we
may be very satisfied with it. Electric sets cost more but it also does
more. Because our expectations are higher we may not be satisfied.
If all conditions exist, both parties can exchange, and hopefully be satisfied.
Transaction is the unit of measurement used in marketing. A transaction is a trade
of units of value between two parties.
In a transaction, we must be able to say that one party gives X to another party and
gets Y in return. Not all transactions involve money. Sometimes we exchange goods
or services (barter).
Beyond just transactions, marketers today need to build and maintain relationships
between themselves and other important parties. This is what is known as
relationship marketing.
Relationship marketing is the process of creating, maintaining and enhancing strong,
value-laden relationships with customers and other stakeholders.
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How will we do
that?
Understand the
situation, our
customers and
environment we
operate in
Research and
gathering of
information
Information comes
from customers and
from industry.
Examin behaviour
from many sources
Internal impacts on the business itself. Where are we going? What are the
objectives of the business? In short we need to conduct a business review so
that we understand what the business needs to do
External impacts for the market: What is happening in the market itself? Are
their more innovations being developed that will impact on the existing buyers?
How does the industry or competition impact on the sales of your business?
What are the external forces that will impact on the business within that
market?
Your USP (unique selling proposition) unless you can do this you
cannot target your marketing properly and effectively - understand
what makes your business or product different or unique
The market needs and how they will access your product, company
and brand
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Customers
Suppliers
Distributors
Partners
Stake
holders
Share
holders
Dealers
How do they make their decisions to buy and where do they buy?
How do you find out the answers to this information? You ask, research and read.
There is a great deal of information available online and from your own business.
Gather as much information as possible to do with your customers, the potential
market and your business.
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Penetrated market
current customers
SWOT analysis is used as a first step to developing a strategy for achieving specific
objectives and is useful for generating new ideas and opportunities.
In marketing we need to consider the impact of current strengths and weaknesses of
our operation. What will help us to develop and market products that successfully
meet the needs of our customers? What will prevent us achieving our goals?
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Current opportunities and threats help us to understand the external influences that
can help us or stop us from achieving our goals. What are our competitors doing?
What changes can impact on our success? In this table there are several generic
SWOT examples that can be applied to a wide range of business applications:
SWOT analysis
Strengths
Weaknesses
Corporate governance
Competitive advantages
Unsustainable deadlines
Advertising networks
No accreditation or certification
Accreditations
Inadequate marketing
Cost advantages
Opportunities
Threats
Loss of staff
Competitor impact
Restricted supply
You can audit your strengths and weaknesses against quality, time, cost, competitor
or industry benchmarks or performance indicators.
SWOT analysis can be used in many situations such as:
Commercial viability
Product positioning
Branding
Sales forecasting
Acquisition strategies
Risk management
Organisational design
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Marketing planning requires us to know the answers to many questions regarding the
direction to be taken as a business and the attitudes of our target audience.
We need to consider the impact of attitudes to a wide range of attitudes and beliefs.
These can include but are not limited to:
How will technology help us, or not? With our products with our business in
general or with the way we operate?
There is not one size fits all in marketing consider the needs and attitudes of a range
of customers.
Strategy in marketing refers to the long term direction the organisation chooses to take
so they can meet their objectives and plans. The plan to ensure the success of the
business. Forming a strategy that works for your organisation will take into account:
How people in the organisation think, are they willing to think creatively to
make sure the objectives are met?
Actively search out new opportunities and ways of performing in the business
and the market place
Understanding what your customers want and how to deliver, which of the
opportunities to fill those needs work and which may not?
Areas that provide high yield improvement deserve the most resources
Are your plans inclusive of social media? This is an important area to market
how will you address your strategy to capture this opportunity?
Promotional strategies allow for sampling of products, if this works for your
product how will this roll out across the organisation? Who needs to be
involved?
How are you going to manage Loyalty of your customers? Is there a loyalty
program? Does it work well? How do you know?
Alliance marketing is a strategy where more than one entity joins together to
promote and sell products, services, ideas. All parties in the alliance stand to
gain as much as the other
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Whether your business decides to pursue heavy web based marketing or print media
or social media, it is important to decide on a strategy or strategies which meets the
objectives and goals already determined by the organisation. Your marketing needs to
drive business to your organisation. How will your customer reach you? Consider all
the elements of the marketing mix in your strategy.
Quality and features. Why do your customers need what you are
selling? What are the perceived benefits of your product? Product is a
good service, idea, place or person - whatever is for sale whatever we
are selling. Considered to include core - benefits the product offers
the customer, actual which is the physical product and augmented
the whole package including warranty, delivery and after sales
options for example.
Price
List price, discounts, allowances etc. what will make them part with
their money? What the customer is willing to exchange for the
product that they want. Consider price as well as all the costs, time,
social, lifestyle for example.
Place
Promotion
Product
Price
Place
Convenience
Promotion
Communication
Process
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Physical evidence
Place
Physical
evidence
People
Price
Target
market
intended
position
Promotion
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There are a range of ethical and legal boundaries in the Australian marketing
landscape:
Unfair pricing
Consumerism
Environmentalism
Globalisation
Unfair pricing
Consumers often complain of high prices as a result of the high costs of distribution,
high advertising and promotion costs and excessive profit margins of middlemen.
There is the argument (rightly or wrongly) that intermediaries in the marketing
channel, mark up their prices beyond what is fair so as to make excessively high
profit margins. As a result, the distribution costs too much and consumers are forced
to pay the price.
Marketers are also accused of pushing up prices to cover the costs of inflated or
ineffective advertising media.
Example
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Deceptive promotion
Deceptive packaging
Consumerism
The increased involvement of government agencies and consumer interest groups
pushing and monitoring regulations designed to protect consumer rights.
Environmentalism
We must become increasingly aware of the impact on the environment of marketing
decisions ranging from product design and development through to promotional
strategies. As more and more people are demanding sustainable options we need to
be ahead in all aspects of business, not just marketing.
Globalisation
The increase of globalisation explains why competition is stronger, communication is
better, we have an increased access to cheaper labour and materials, and transport is
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more efficient. In short the world is becoming smaller and we need to consider this
with our marketing approaches.
Increasing global connectivity and integration in economic, social, technological,
cultural, political and ecological spheres causes issues in marketing.
There are two schools of thought, globalisation may result in:
Often considered in this context is the concept of exploitation of third world and
emerging economies to benefit the wealthiest 10% of the worlds population in first
world economies. These third world countries provide lower costs in terms of
resources and labour but also open up broader markets of people with disposable
income to become consumers of all manner of goods and services.
Corporate social responsibility
Organisations are obligated to take responsibility for the impact of all aspects of their
operations. Customers, employees, shareholders, communities and the environment
can all be impacted positively and or negatively. This obligation is seen to extend
beyond the statutory obligation to comply with legislation and sees organisations
voluntarily taking further steps to improve the quality of life for employees and their
families as well as for the local community and society at large.
The term triple bottom line has traditionally referred to people, planet and profit.
How we look after the people in our organisation and our customers, how we impact
on our community and planet from a social and environmental perspective and our
financial responsibility of course needs to be observed in balance with the other
issues. Experts now refer to the quadruple bottom line and includes governance and
how we behave as an organisation. It does seem to be difficult to describe the actual
four, with words like cultural, social, sustainable, economic, spirituality and purpose.
Whichever headings you subscribe to this refers to an expanded spectrum of values
and criteria for measuring organisational (and societal) success: economic, ecological
social and responsible wellbeing for all.
Privacy laws
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Anti-Discrimination Act
Consider the organisations that advocate for fair information and legal cases to support
consumer rights for example, Choice, is a publication by the Australian Consumers
Association and Consumer Action is a consumer based website that takes action against
unfair practices on behalf of consumers who cant take the fight themselves.
Go to the Advertising Standards Bureau website for the Codes administered by ABS
www.advertisingstandardsbureau.com.au.
Regulation of advertising
Advertising media are regulated by a number of internal and external bodies.
Internal regulators
Australian Publishers
Bureau APB
Advertising Federation of
Aust. - AFA
Commercial Television
Industry Code of Practice
Codes of practice are important guidelines which dictate how industry should behave
towards its customers.
Example
Ensure business and consumers have access to the product and service
information they need to make informed choices
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Minimise the risk of members breaching the Trade Practices Act 1974, Privacy
Act 1988 including the National Privacy Principles (NPPs), Spam Act 2003 or
State fair trading legislation
The Free TV Australia Commercial Television Industry has a code of practice which
regulates marketing on commercial television. It ... covers matters prescribed in
Section 123 of the Broadcasting Services Act and other matters relating to program
content that are of concern to the community ... (Free TV Australia 2010).
The Australian Guidelines for Electronic Commerce (Attorney General's Department
2012), which replaced the Australian E-commerce Best Practice Model, offer guidelines
for fair trading and protection of both consumers and traders who are engaged in ecommerce or online trading.
External regulators
Aust. Competition and
Consumer Commission ACCC
Privacy legislation
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Amazon and Cars guide both operate in the e-commerce market, but their
target markets, even though they could have large numbers of common
customers are very different. An individual consumer might buy books
one day and a car another day, but for marketing purposes they are part
of two separate markets.
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If an organisation traditionally markets only within its own country, export markets
can be a source of new markets. Exporting is another tool rather than a
homogeneous market. Japan and the United Kingdom could both be export markets
for Australian canned tuna, but they are clearly not one market because of their
geographic separation and cultural differences. Exporting can be a rewarding tool for
opening up new markets.
Regardless of which tools they use, organisations can develop new markets by
targeting market segments they have not yet penetrated. Marketers subdivide the
whole market into groups or segments, whose members have something in common
that marketers can use.
The members of a group or segment will be similar to each other, with respect to
what influences their demand for the particular good or service. Rix 2011, p. 116
There are many ways to segment the market; the final choice for any organisation
will depend on products and culture. Most marketers make a fundamental division
between business markets, which buy goods and services to use in a business or to
re-sell, and consumers, who buy goods and services for their own personal use.
When organisations target demographically based segments they must ensure that
they do not breach anti-discrimination legislation.
Example
Organisations seeking to penetrate new markets must first define the market and
research its characteristics. They must then find new or existing products which
match the requirements of this market.
Example
Promote suitable products from its current range to the market and also obtain
new products if research shows that lines which are not currently stocked were
important to the market
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Organisations can start with a product and find new markets for it.
We need to understand
the situation, our
customers and
environment we operate
in
Primary- this is information gathering for your own data. You may conduct a
questionnaire or contract someone to survey your customers for you. This kind
of research may be as a result of information you found out at the stage of
conducting secondary research. This level of research allows us to focus on a
specific issue. It can be somewhat expensive and time consuming
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Example
In 2011 (the last census) Brisbane had grown by 11.5% since the 2006
census information. The next census will be held in August 2016.
Case study
In the case of the caf this may be providing a different slant on the caf experience in the
area. It may have been established that no competitors are offering the same service and
that this is considered to be valuable by our target audience.
At this stage we would conduct a SWOT analysis to determine the strengths, weaknesses,
opportunities and threats of our plan.
We should also conduct a PEST analysis.
Through your research (which may mean looking at census results for your intended location
and area, focus groups and brainstorming) you may discover that the target market cares
about the environment and about growing and eating healthy food with no preservatives.
This will inform your menu choices, organised activities and approach you offer to child care.
If you werent aware of these opportunities you may provide options for your customers that
are at odds with their values. Plastic disposable cups may aggravate your target market
instead of providing a choice to reuse all cups for coffee which may be a basic expectation
for them.
Be prepared and understand what is happening for the community, your competitors and
your target audience.
Your primary research may lead to an opportunity to work with an organic fruit and
vegetable supplier to hold a market onsite each Saturday, a chance to develop a new
business opportunity to support your business and fill a need for your clientele.
A hardware store could obtain the agency for a line of trade quality battery operated
power saws. The combination of portability, power and battery life make it ideal for
use on building sites.
Analysis of the market might show that carpenters use portable power saws more
than all the other trades combined on a building site, and therefore have most to gain
from a safer, more efficient product. The store could embark on a marketing
campaign promoting the benefits of no power leads or air lines, time saving,
increasing safety and improving profitability. Research has already identified
carpenters have the most to gain from these benefits so the initial campaign could be
directed at them. Expansion to other trades may be an offshoot from this.
A large retail business could consider advances in technology to improve their
outcomes. They would need to take into account weaker consumer demand (by
analysis of financial results). Understand the actions of the competition and why they
are doing what they are, is it working, can you incorporate changes to your
opportunities? If you have a large checkout element to your organisation consider
how improvements to access, technology and process can improve the outputs. For
example do self-service checkouts help your business? Using the marketing mix in
the appendix how do these important marketing considerations help you with your
planning and when identifying new opportunities?
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Apple's introduction of the iPad. Apple introduced the iPad into the
personal computer market with the intention of changing the market.
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Environment
What is the potential customers
current environment?
What behaviour or processes
exist?
What is the need or problem to be
filled or solved?
Segments
Are there important differences
among potential customers
(relative to the need/problem you
have identified)?
Buying process
How does your customer buy
from you? Is there only one way?
What are major barriers or
obstacles to purchase/use of a
solution to the identified need or
problem?
Potential customers
What characteristics create this
need/problem?
How many customers are there?
How does this equate to
consumption? Are there issues
affecting use and frequency of
use?
Value
How severe is the need or problem
identified? Do your customers
recognize that they have this
need? How can you measure the
value of a solution?
Consideration of these factors will assist your business in making the right decisions
for their innovative thinking and approaches. Can any of these areas be useful to work
on to fit with the overall strategic direction?
Changes in technology
If any areas increase the potential for profit, it is worth exploring further.
Case study
Our caf is getting organised, they believe they have a good idea of who the target market
is and what they want. Now it is time to challenge the ideas they already have.
Their current thoughts to date are to:
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Case study
Employ a child care expert to manage the crche and a caf manager to run the caf. They wont
need an overall manager because the other two can report to the owner easily enough
The crche is to be open from 9 3 pm. The rationale is that most people have after
school sport and other children to look after
The caf will close at 3.30 pm. The menu will be quite complex to cater for breakfast
and lunch as well as snacks
At the moment the caf has to decide if they have a solution to a problem for their customer
or a change in need and use of a product. Does the potential customer for the caf
understand that they have this need for an uninterrupted conversation and cup of coffee
with other adults? All while their children are being actively amused by a qualified carer?
The owners and managers hold a brainstorming session with the team and other select
people from the community they ask the following questions (italics) and receive the
following information:
How do your customers buy from you? Is there only one way? Parents need a place to
get good healthy options for afternoon tea and coffee to take to the sporting field,
closing at 3.30 causes a problem for those customers
What behaviour or processes exist? They dont want too much choice and love to eat
breakfast all day, with a few healthy and gluten free cakes for a treat
What does our customer want but cannot buy? Customers indicated that they wanted
to be able to take home roast dinners especially after late school based sporting
events
As you can see there are many other options than the traditional caf approach. Think
innovatively to solve the new marketing opportunities creatively.
Ask and watch. Observe research and brainstorm alternative approaches to solutions
to best suit your target audience and what is important to them. The stage of market
research are predominately these. Understand your customer by watching and
listening. Talk to them and others to determine what is important to them. Pay
attention to the overall environment, the closeness of another business may prompt
an opportunity to work with them to build both businesses. Only an aware business
person is willing to think creatively to provide solutions to the needs of their
customers.
Consider how many people are available to take up your idea? Are their enough
customers to make it viable and successful? How can you be sure of your figures?
What will make them take up your opportunity? What will stop them?
What if your opportunity is a great idea but not one people are willing to pay for? Are
their cultural issues to be overcome before this can be used fully by your audience?
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Are their barriers to the technology? Perhaps there are too many alternatives available
for your options to be attractive.
The first step is to develop a conscious mind set of looking for ideas and
opportunities because without this there will be fewer ideas and many
opportunities will pass unnoticed.
Entrepreneurs do not have a magic gift. They train their minds and practice focussing
their awareness. They are observant and prepared to take calculated risks, knowing
that some of their ideas could fail. Entrepreneurs have ideas and see new options and
opportunities to be developed into businesses. Anyone can adopt an entrepreneurial
approach to their marketing by developing their ideas and being prepared to take on
new opportunities.
Example
The more ideas, the better, each idea is explored in detail to see whether there
is potential to develop it into a new marketing opportunity
All ideas are recorded without regard to their relevance or usefulness, even
ridiculous, irrelevant ideas expressed by one member can trigger valuable ideas
in another member, outlandish ideas are welcomed, the wilder the better
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The whole list is examined. Silly, irrelevant or unworkable ideas are removed
(and set aside in case they are valid at another time) so the final list contains
only ideas which have potential to be developed
The effect of the group on the individual (like attention seeking behaviour and
shyness)
Group members should still generate ideas together rather than alone
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Mind maps
Mind Maps were popularised by author and consultant, Tony Buzan. They use a twodimensional structure, instead of a list format conventionally used to take notes.
Mind maps are more compact than conventional notes. They help you make
associations easily, and generate new ideas. If you find out more information after
drawing a mind mapyou can easily integrate it with little disruption.
More than this, mind mapping helps you break large projects or topics down into
manageable chunks, so you can plan effectively without becoming overwhelmed or
forgetting something important.
A good mind map shows the shape of the subject, the relative importance of
individual points, and the way in which facts relate to one another. This means that
they're very quick to review, as you can often refresh information in your mind just by
glancing at one. In this way, they can be effective mnemonics - remembering the
shape and structure of a mind map can give you the cues you need to remember the
information within it.
Scenario analysis
Scenarios are stories about the way the world might turn out if certain trends continue
and if certain conditions are met. A simple five step method is:
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Scenario planning is a useful way of challenging the assumptions you naturally tend to
make about the situation in which your plans will come to fruition.
By building a few scenarios, you can foresee more unknowns that may come to pass,
and be able to plan measures to counteract or mitigate their impact.
An organisation's competitors can provide ideas for marketing. The entrepreneurial
approach is not to just copy them, but to ask and answer the question, 'What are
they trying to achieve, and how can we do it better?' It is often easier to look
objectively at another organisation than at one's own, especially in very small
organisations with only a few people.
Customers, sales representatives, other personnel and suppliers can also be sources
of entrepreneurial ideas which have potential to turn into marketing opportunities.
Adopting an entrepreneurial approach to marketing is a very creative activity and it is
impossible to give a set of step-by-step instructions for creativity. Organisations and
their personnel who wish to adopt an entrepreneurial approach must first analyse
current circumstances to use as the starting point for future plans.
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What is a marketing plan? It is a written plan to describe and direct the marketing
activities of the organisation. It is a road map that helps business decide where they
are, where they want to go and how they will get there. It helps clarify how to appeal
to your audience and what they need. It can include strategies, budgets and goals.
This is similar to any other marketing campaign. An entrepreneurial approach to
marketing is really only different from other approaches because it uses a more
creative method of generating ideas and has the potential to develop ideas which are
radically different from previous marketing campaigns.
We have moved through the first two steps of this process, in the next section we will
look at the evaluation of the ideas to see how they fit within the overall organisations
direction.
Sort through
ideas. Screen the
ideas for suitability
Analyse the
business and
strategy for
marketing
Test again
Review again in a
specific time frame
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They are hopeful of employing another staff member after this time
Hold a local market onsite within 3 months to become involved in the local market scene to
work on expanding their business
How do the ideas work with these goals?
Remember these results from their brainstorming and idea generation?
Idea: Provide good healthy options for afternoon tea and coffee to take to the sporting field
Solution: Now closing at 4.30, picnic options to be included in the menu.
Idea: Limit choice on the menu, offer breakfast all day, with healthy and gluten free cakes
Solution: Menu is simplified with seasonal changes, makes less waste, simpler planning and
more consistency, works in with the option for takeaway healthy choices
Idea: After school care and activities are highly sought after.
Solution: Offer older children art and cooking classes in the crche as an alternative to the
sport only activity only being offered in the community.
Idea: Customers indicated that they wanted to be able to take home roast dinners
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Case study
especially after late school based sporting events
Solution: Consider this option in the second part of the first year of trading work on the
other ideas first.
Other businesses may look to expand their market share by becoming more visible,
more stores, and greater opportunities for online sales for example. They could
develop new products in response to consumer demand or changes in trends.
Example
Grocery stores could consider the changes in working hours and the
fact that many families have both parents working. Healthy, preprepared meals could be an important area of growth a new
opportunity. Also home delivery could be another area of growth. If
the grocery chains werent paying attention to trends and
developments they may miss the potential of this opportunity. Many of
the larger grocery chains have expanded into alcohol sales and
discount stores to broaden their exposure and to provide more
products for their customers, more opportunities!
Do your markets value ethics and environmental values in their products? Are organic
products important to your markets? How do you know if they do or dont? Pay
attention once again, ask them and listen to them when they talk. We have already
discussed the importance of ethical and fair behaviour in marketing it is just as
important to appeal to your customers and help them make fair purchasing decisions.
How easy will the idea be to implement? From starting to market entry?
Does it have strong short term potential or long term potential or both?
How well does it fit with the organisational profit, environmental, image or
social goals?
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An important evaluation techniques is to consider how these ideas will affect the
current customers of the business.
Example
You own an inner city bar located near many banks and other financial
institutions. Traditionally your customers are middle and senior level
executives who come in for lunch meetings, after work drinks and use the
bar as a place to network. You have noticed an increase of younger
executives out and about at lunch who are becoming active in the
networking scene. They are much more inclined to drink and become loud
and insist on other kinds of food on the menu. Is it cost effective to attract
the younger market at the expense your usual clientele? You will need to
evaluate this decision and opportunity for your business carefully to avoid
changing the nature of the business completely.
Remember there is more to the value of the opportunity than purely financial. Maybe
a different (new) group are more fickle and will move on to the next big thing in a
short time. What if you have alienated existing customers in pursuit of a new market
opportunity?
Outcome
A supermarket
examines entering
the home delivery
market.
A greengrocer can
buy all of their eggs
from a battery farm
at a fraction of their
current cost.
Increase in overheads
required to purchase and
maintain suitable vehicles,
plus extra staff required.
The supermarket has to
agree to stock that supplier's
eggs exclusively.
Teenagers would be
attracted to the store in
large groups to listen to
music, dance and generally
make a lot of noise, as large
groups of teenagers do.
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Analysis
Comparative
market
information
Competitor
performance
Compare performances in
different market segments,
e.g. a fashion retailer could
compare performances in the
teenage market and the 30
40 year old market.
An organisation analyses what
its competitors are doing.
Customer
requirements
Legal
requirements
Ethical
requirements
Market trends
and
developments
New and
emerging
markets
Profitability
Sales figures
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Marketing activities are monitored in terms of their return on investment (ROI) see
the next section. Assessing new market opportunities and planning campaigns in
current markets should be evaluated in terms of their expected costs and expected
revenue. The ROI is the difference between these and can be expressed in dollar
terms or as a percentage.
New opportunities must be evaluated against the same criteria as were used for the
present value analysis. The exact criteria used will depend on the organisation, its
markets and its products. They can be evaluated according to their impact and their
importance. Impact could be measured by a score where -10 is an extremely
negative impact, zero is no impact and +10 is an extremely positive impact.
Example
Criteria
Score
Weight
Comments
Sales revenue
+8
Important
Bigger market.
Profit
+9
Critical
Neutral
Important
Critical
Impact on
current markets
Customer
service
standards
Overheads
10
2.2.3 Forecasting
The process of looking to the future and determining what your business will need to
support your plans. Consider the impact of:
Resources required
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Micro detailed sales forecasts, considers market share and what will happen
to their share of the market in the future
Business needs to consider what will happen in their markets in the short term and in
the long term, how else will they be able to predict or forecast what their future
impact will be?
Firstly it is important to fully understand or be able to predict total market demand.
For example how many people will go to a caf at all, not just our caf in our case
study? Then we need to forecast how many of those people will go to our caf. How is
our caf, service and product positioned in relation to the other cafs our customers
could go to?
Next we predict the forecast sales based on the information we have and the strategy
we believe will be the most successful for our business based on our goals.
It is a far cry from using your intuition only. This is an educated process where you
use the research and information carefully to shape a view of the world you believe
exists in relation to your product.
Quantitative or qualitative
Interpreting data requires one of two approaches. Quantitative or qualitative:
Quantitative
Quantitative research is conclusive,
and takes a more logical, data-led
approach.
Due to the specific nature of
quantitative data it is particularly
useful for assessing performance of
the individual, the team and the
organisation.
Generates numerical data or
information which can be converted
into numbers.
Rates the likelihood as a probability
or frequency of the risk using
numerical weighting e.g. 1 in 200
cases will exhibit this behaviour.
Quantitative data can be verified and
manipulated statistically.
Goals
Instruments
for data
gathering
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Qualitative
Qualitative research is exploratory. It
is used when we do not know what
expect, and need to define or develop
an approach to the problem.
It focuses primarily on the issues of
interest, looking at how people feel,
what they think and why they make
certain choices.
Generates non numerical data.
Rates the likelihood using words and
alphabetical ratings e.g. Extremely
Likely = A.
Examination of non-measurable data
such as reputation, brand image, or
feelings people may have. E.g. Rate
risk in terms of low, medium or high,
or not important, important or very
important.
Describing and explaining.
Complete and detailed descriptions
Whole picture with exploratory
research.
Interviews, focus groups, observation,
In-depth interviews, Participation/observation
Tools that are useful include mind
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Types of
data
maps, brainstorming.
Information derived from qualitative
data (text) on its own may not be all
that useful for trend analysis.
Words, images objects, graphs.
Subjective. Researchers seeks to
understand human behaviour and why
we make the choices we do.
The decision which type of research to use is, of course, dependant on what you are
aiming to achieve with your research. If you want to use numerical information to
support your theory then use quantitative, if you need to explain why something is
the case then use qualitative. In order to analyse market trends, you need to ensure
the correct research is used.
Another consideration with gathering information especially qualitative which of
course is based on feelings and impressions rather than numbers and facts, is how
you ask questions to gain appropriate responses that are useful not just answers that
make you feel better about your business.
Open and closed are two types of questions you can use that are very different in
character and usage.
Open questions
Definition
Examples
Characteristics
Pointers and
why to use
them
Words
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Open questions
questions to one open question. The closed questions start the
conversation and summarize progress, whilst the open question gets the
other person thinking and continuing to give you useful information
about them.
A neat trick is to get them to ask you open questions. This then gives
you the floor to talk about what you want. The way to achieve this is to
intrigue them with an incomplete story or benefit.
Closed questions
Definition
Examples
Characteristics
Pointers and
why to use
them
Words
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Sales levels
Random events
There will always be some
unexpected event that
impacts on your business
How prepared are you to
take advantage of an
opportunity or able to
respond to a problem?
Remember to start at the beginning. What were your original goals when you began
to gather information to evaluate each of your opportunities for marketing your
business? Once you have gathered it all you need to put all the information into
perspective. Ask yourself?
What did I expect? What can I use from the information to support the new
opportunity?
How will all of this impact on existing customers and levels of service we are
able to provide?
Understanding the financial results will help you to evaluate the results. We will
discuss costs and benefits in the next section. Some of the indicators of success are
earnings per share, income growth as well as profit levels. Comparing from one
quarter to the one in the previous year provides the change which will allow you to
understand what has happened to effect the changes.
Policies and procedures that impact on the business from other stakeholders
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Codes of practice
From a marketing
perspective, internal
organisational policies and
guidelines influence
marketing behaviour
If a restaurant had a policy
of using only locally
produced, seasonally
available ingredients, it
would not offer meals
requiring ingredients out of
season locally and/ or
imported from overseas
External policies and
procedures that can impact
on the business could be
those of your reseller,
supplier, freight handler or
importer. These companies
that impact on your
business may create a
situation which is no longer
viable for that particular
opportunity
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A greengrocer could decide to switch from selling low cost fruit and
vegetables at discount prices to selling organic produce. He would lose the
market which buys on price, but would attract new consumers prepared
to pay a premium for organic food. The margins on the organic produce
may be higher than on the discount lines so the decrease in sales volume
could be beneficial in terms of gross profit, reduced overheads (such as
wages) and reduced waste.
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TWO: Growth
Organisations often reach a limit in their growth within one market and so enter new
markets to allow continued growth of the business. A real estate organisation might
reach a level in the domestic housing market and believe that it would be
uneconomical to try to expand their market share any more, they could continue
overall business growth by entering the commercial property market. The risk of
rapid growth might be a lack in infrastructure and expertise to properly manage the
listings in the new market. Growth of an organisation needs to be carefully planned
and monitored.
THREE: Market share
Increasing market share is not technically entering a new market, but the benefits
and risks are similar. An increased market share:
Example
It could also increase turnover - businesses tend to make larger one off
purchases than consumers
FOUR: Profitability
The ultimate purpose of all marketing activity is to improve profitability of an
organisation. The financial impact of any marketing proposal must be analysed in
detail and an assessment made of how long it would take for the activity to return a
profit. This and the level of profit expected must be considered against start-up costs
and the risk of the activity failing. The organisation has to make a decision that the
cost of start-up and risk of failure are outweighed by potential profits and the
likelihood that they will be achieved within an acceptable time.
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these could be required to enter the new market. In addition, all marketing
campaigns have ongoing costs such as advertising and campaign design.
Organisations must analyse costs of marketing and balance these costs against the
revenues which it expects to generate. This analysis should be repeated at set
intervals throughout the campaign. At the end of the campaign there should be a
final analysis based on actual costs and revenues. If an organisation monitors its
marketing costs it can tell which opportunities were successful and which should be
abandoned.
Return on investment (ROI) is a profitability ratio. It is used to evaluate the efficiency
of an investment. In business it usually refers to the ratio of net profit by the amount
invested in assets. In marketing (or any other aspect of the business) we use it to
demonstrate the value of the investment to the business. How much profit has been
generated by the investment?
When calculating the ROI for a marketing campaign for example consider the amount
of income generated from that campaign. Calculate the costs associated with the
process and the profit that results. Take care to include the appropriate costs into
your calculations marketing can include a range of costs:
The actual cost of sales (costs to actually produce the product or service)
The formula for ROI equals the return minus the investment. Then divide this figure
by the investment. The ROI is usually expressed as a percentage so multiple the
result by 100.
Marketers need to know the ROI from all of their campaigns. It is the best measure of
the success or failure available.
Example
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This is a simplified version. If this organisation decided they needed to run a more
extended campaign at an increased cost the ROI would be different.
Different organisations need to consider other factors. Consideration must be given to
the minimum purchase numbers in order to achieve the ideal buying price. There
may also only be a fraction of units sold at full retail price before being discounted to
clear stock. Spreadsheets will need to show sales at a range of prices.
Other factors which might need to be shown by some organisations include:
Increased staff
Staff training
Capital equipment
Environmental levies
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Measuring your returns is critical. How else do you know how this is performing and
what else needs to be done or changed to maximise the potential for success.
Benefits
Improved profitability is usually the main benefit of any marketing opportunity. If an
opportunity does not offer the prospect of improved profitability, it may not be worth
pursuing. If the opportunity threatens to significantly reduce profitability it should not
be pursued.
There are circumstances where other benefits might outweigh the lack of profit.
Recognition in the marketplace may be more important than profitability. This could
be increased recognition of the product, organisation or brand. Some experts caution
against placing too much emphasis on the brand.
Branding occurs as a side effect of consistent marketing. But sales rarely happen
as a side effect of brand advertising.
Vee, Millerand Bauer 2008, p.100.
They contend that recognition comes from effectively marketing quality products or
services in a way that attracts customers. They suggest that brand advertising is
suited only to very large organisations that have enormous advertising budgets and
can afford to wait up to 10 years for advertising to have a significant effect.
Cash flow can also benefit from a marketing opportunity. Organisations need to do
cash flow predictions whenever they are assessing a new opportunity and then to
monitor cash flows as the campaign unfolds.
Risks
The major risk of any new market opportunity is that of an illusion rather than a real
opportunity. Thorough research, careful planning and test marketing should expose
this risk, so that whenever an organisation does target a new market it know that it
is able to supply a real market with something it needs. There is also the risk that the
market is already saturated, but proper research should reveal this too.
Entry into new markets imposes a risk to resources because there is a lag between
commencing activity and getting a financial return. Organisations must assess the
risks to their finances, customer service, infrastructure and personnel to ensure they
have the resources to operate during the period when there is no return.
Cash flow is always affected by entry into a new market, and must be predicted
before a campaign starts and then monitored carefully throughout the campaign to
ensure that the organisation has the financial resources to absorb the inevitable
period of negative cash flow.
These factors are assessed to determine the viability of a marketing opportunity.
Decisions on whether or not to take the opportunity are based on the data collected
and the predictions based on them. If the opportunity is taken then these factors are
monitored closely to ensure that the predictions were accurate, and to alter the
campaign or even abandon the opportunity if necessary.
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Normally several opportunities would be compared to determine the best. Each offer
would be individually assessed to determine its viability and potential contribution to
the organisation and any which were not viable or did not offer a satisfactory
contribution would be discarded. The remaining opportunities would then be
compared. The detailed criteria on which they would be compared would depend on
the organisation, its products or services and its markets.
Assess viability on financial criteria and the impact on operations and customers of
the organisation. For example, if the extra workload for each staff member causes
deteriorating standards of customer service, we would judge the opportunity unviable
unless this could be resolved.
Criteria can include profitability, return on investment and knock out factors.
Contribution to the organisation would be assessed on any criteria important to the
organisation in terms of its policies, procedures and legal requirements. An
organisation would not add a new product to its range if it felt that the quality was so
poor that there would be an unacceptably high rate of warranty claims.
Criteria used could include:
Customer base-the potential for the new market to add valuable customers to
the customer base
Profit-calculation of the net profit expected from the new market over time
Each organisation needs to compile a comprehensive list of criteria which fits its own
circumstances at the time of the assessment. We could expect variations every time
new marketing opportunities are assessed.
Example
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products. It should analyse the options - a grid will allow them to compare
the alternatives.
Criteria
Viability
Profitability
Return on
investment
Knock out
factors
Tennis racquets
Golf shoes
Schools market
100% mark up if
sold by end of
tennis season. 30%
on stock remaining
at end of season.
121% in 3
months.
None
200% ongoing.
Some parents who are now
existing customers might use
school discount scheme. Not
significant.
Contributions
Customer base
Profit
23 new
customers per
year maximum
with each making
one purchase
every three to
five years.
$320 in first year
Sales revenue
Market share
12% increase
Brand
awareness
Staff and
infrastructure
New market
opportunities
No effect
Negligible
increase
No effect
No change
No change
None
None
Rank
On these comparisons the schools market would appear to be the most viable and
have potential to contribute most to the business with the tennis racquets next and
the golf shoes last. Other factors, not considered here, could change this. For
example, if advertising opportunities were included it is likely that the store would be
able to promote itself through tennis and golf clubs, while most schools do not allow
commercial organisations to advertise to their communities.
If the sports store did not go through this process they may make a costly mistake.
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Media differences
Different media have different advantages and disadvantages. Consider them all when
selecting which media to use as part of your promotion strategy. Remember that each of
these advantages and disadvantages are general, individual deals can be struck and it is
up to you to calculate the costs and the return on your investment.
Advantages
Disadvantages
Television
Press release
Trade show
Social
marketing
Direct
marketing
Products
Press releases
Business to Business
Trade show
Television
Social
marketing
Direct
marketing
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Business to Consumer
Business to Consumer
Business to Business
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Entry into new markets - define the markets and analyse their requirements
Abandoning current markets - nominate markets concerned and the reasons for
abandoning them
Adopt new technology - describe the technology and analyse its benefits
Adopt new product lines - identify products, their market and risks associated
Goal
Increase sales by 10 units per
month
Increase profitability by 10%
within 12 months
Install all new units within 5
working days of customer paying
their deposit
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Impact on goals
Expected sales of the new model 30 units per month.
Lower margins on this model means that 30 sales per
month would reduce profitability by about 0.5%
Installers are currently working 45 hours per week
each so we would have to employ more installers.
This would reduce our profit margin even further.
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Based on the impact the new model would have on its goals, the organisation
might decide not to try to enter the market for it. If, however, they could
source another entry level unit with a profit margin which would allow them
to achieve their goal of a 10% increase in profitability, they might decide to
enter the market and hire new installers.
Assessing viability
Organisations are continually faced with three kinds of marketing opportunities. They
are the opportunity to:
Increase market share or establish market leadership within their current markets
Enter new markets either with new products or with their current products
Some external factors apply generally to all organisations, and others apply only to
groups of similar organisations. An organisation's marketing is influenced by these
factors.
In his section on the market environment, Rix (2011, pp 46-70) subdivides the
external marketing environment into two parts, macro and micro. Marketing
organisations have little or no control over macro factors which include demography,
economic conditions, social and cultural forces, political and legal forces and
technology. Organisations have some small influence over micro factors which include
customer suppliers, marketing middlemen, specific competitors and other public
entities (e.g. the media and citizen action groups).
Some specific external factors should be assessed, because of their potential to
influence opportunities.
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Telephone systems
Cash registers
Packaging equipment
Legal
New markets can make an organisation subject to legislation which had not
previously applied to its activities. An organisation which decided to sell its products
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to the consumer market, after having sold exclusively to the business market would
find itself subject to consumer protection laws. It would need to document its
responsibilities in detail and ensure all relevant personnel understood the new
responsibilities. It could also need to redesign its invoices, warranties and general
stationery to comply with the new regulations.
New markets could be subject to new regulations or licence requirements. A furniture
shop entering the electrical goods market would be subject to regulations covering
these products, while it might need a second hand dealers licence if it changed from
selling only new goods to also selling second hand goods.
Financial
The expected financial impact of the new market opportunity is critical in the planning
process. Relevant information would include cash flow forecasts, profit estimates,
cost analyses and predictions of return on investments. Most organisations require
professional advice on these predictions.
If finances need to be raised to enter the new market, business plans, feasibility
studies and cash flow predictions will be required for financial institutions and general
planning.
Businesses could also need to change the way they manage their finances if different
financial arrangements are needed in the new market. A stationery store which had
previously only sold in the consumer market would need to develop a system of
monthly accounts if it was to enter a business market.
New markets can increase the work load for existing staff. Significant
increases of work could cause a deterioration of service to existing customers.
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The organisation must determine the needs of their staff to service the new
market while maintaining the level and quality of service to existing markets
The physical layout of a workplace can affect customer service and a new
market can require changes to the layout
A hairdresser who enters the beauty therapy market may need to
expand or rearrange the salon to accommodate the new procedures. At
the same time existing clients need to be looked after as well as usual.
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Knock off effects - the effects on other aspects of the organisation's business
Cost
Distribution costs
New markets can include new products, new geographical areas or new methods of
distribution, all of which will add to the organisations distribution costs.
If a new product is significantly larger, more perishable, fragile, valuable etc than the
organisation's current stock then distribution considerations will be different. Your
new product may require different packaging or transport, for example. There are of
course other considerations to make with any change to your product range.
Example If a jeweller decided to add grandfather clocks to its current range of small
clocks, watches and jewellery, it would need to consider storage, new
display options, any new packaging requirements and extra handling and
transport costs if it delivered to customers' homes.
Delivering goods into new geographic areas will also incur extra distribution costs,
especially if the new area is further from the distribution point than the current
markets. Entering the online market could require new methods of distribution and
other resources, such as packing material.
Equipment
Many new markets require new equipment. A hairdresser entering the beauty therapy
market will need equipment to allow the beauty therapist to work, while a grocer
entering the home delivery market could require a new vehicle.
Production
Manufacturers and fabricators of products could need new supplies of raw materials
and operators who had been trained to produce the new products. Restaurants and
food outlets have this issue too as they source new ingredients, or larger supplies of
current ingredients.
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Promotion
Promotion into new markets can include advertising in various media, product
giveaways, seminars, expos, static displays, direct mail campaigns, leaflet drops,
spruikers and competitions. Organisations must plan their promotional campaigns to
suit their own needs, culture and budget to ensure they have the resources they
need.
Research and development
Marketing opportunities need to be thoroughly researched to establish their potential.
Organisations need to know what research resources they need and whether they can
conduct their own market research or have to use market research organisations.
After a new market has been identified it needs to be developed, especially for a new
product.
Example An example of developing a new market is Apple's marketing of its iPad.
Before the product was developed there was no market specifically for it.
Apple developed its market from the existing market for personal
computers.
If the new market requires the development of a new product then alternative
specifications also need to be researched. A kitchen manufacturer entering the do it
yourself, flat pack market would have several alternative plans to consider. Each
would need to be researched and assessed for its potential contribution to the
organisation, before a final choice was made. When a basic plan had been adopted,
the product would need to be developed from a prototype to a commercial product.
This could take from a few weeks to several months.
Example A pharmaceutical organisation introducing a new cancer drug would need a
much longer time for research and development. Unlike the kitchen
manufacturer, this research often begins with no tangible starting point. It
can begin with someone's hunch or an accidental discovery which was
made while researching something else.
The kitchen manufacturers research would consist of a finite number of
predictable steps; the pharmaceutical company's research would often
proceed by trial and error in a laboratory and on a computer. Often these
steps lead nowhere and have to be abandoned. While there is an overall
goal, the actual end point of the research is often unknown until it is
reached. Sometimes it comes as a surprise to the researchers when they
do reach the end point.
Developing a drug from research findings takes much longer and involves
many more processes than developing a flat pack kitchen from a set of
plans. The pharmaceutical organisation must manufacture a prototype of
the drug and test it, usually on laboratory animals. Several prototypes
might be needed before the final specifications are determined. After
animal testing is complete, human trials must be done and once they are
completed satisfactorily the organisation must complete a series of steps to
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have the drug approved by the authorities in the countries where they wish
to market it.
Each market and product have their own unique research and development
requirements and a significant amount of research and development must be put
towards identifying resource needs of the new markets and developing these
resources.
Re-tooling
Manufacturers who develop new products need to re-tool their factories and need to
budget for this when the organisation develops the new market. This can be a simple
adjustment of current resources as in the case of a kitchen manufacturer who may
only need to re-set the guides on their machines, or it can require a major refit as
would be the case if the Australian Submarine Corporation began manufacturing
destroyers instead of submarines.
Entering a new market will alter an organisations requirement for resources and
these changes need to be estimated and budgeted for whenever a new opportunity is
being assessed. On the whole it is good practice to be conservative in your planning.
Cash flow is not the same as profit, it is important to have a good grasp of the
financial aspects of the new plans as well as the existing business and how it is
operating and continues to operate.
There is some risk in entering a new market and the opportunity can only be viable if
the benefits outweigh the risks. One serious risk to implementing any change can be
resistance by the people who are affected by it.
Perhaps the main reason that change fails in many organisations is that the majority
of employees first find out about it at the try-out phase ... When the majority of
employees have not experienced and understood the pressures for change and
grasped the need to change, and have not participated in developing the change ...
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it's hardly surprising they don't welcome it and implement it enthusiastically. (Cote
2010, p. 713)
A landscape supplier who had decided to add garden furniture to its product range
would need to explain the proposal, its benefits and its risks. This could be done in a
meeting, an email or both.
Many stakeholders do not want to know all the details of the proposal and its
viability. They simply want to be sure that the appropriate personnel have assessed it
thoroughly. The offer of a full analysis is reassurance to these people that the
evidence is available, and enables the message to be kept short and simple,
increasing the chances of its being understood. Those who want all the details also
have the option of seeing them.
A key stakeholder is anyone who plays a part in implementing the change or anyone
whose function is affected by the change, and while it is different for every
organisation in terms of size and complexity, stakeholders can include:
Board of
Directors
Finance staff
Human
resources
staff
Managers
Marketing
personnel
The owners
Production
staff
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Supervisors
Are directly responsible for the quantity and quality of work produced by their
sections and so must be fully briefed on any changes which are planned.
Staff, including recruiting and training new staff and retraining current staff
Work practices, including altering existing practices and introducing new ones
To ensure all changes, including knock off effects, are identified and
appropriate plans are made to manage them
New markets can require an organisation to develop additional capacity to some of its
current operations or to introduce new practices and procedures, depending on the
relationship of the new market to its current markets.
A wholesaler of dried and canned foods would need to increase the capacity of its
operations if it became the sole distributor for a major breakfast cereal manufacturer
but would not need to make major changes to its current practices and procedures.
The new market could promote the market for bakery products from the same
manufacturer and it could also knock out another brand of breakfast cereal. If the
same wholesaler became a distributor of fresh meat it would have to introduce new
procedures, equipment and work practices and would become subject to a new set of
regulations and laws.
The changes will be determined by the nature of the organisation, its current markets
and operations, and the new marketing opportunity. Some organisations and some
markets would require changes in other areas, while some organisations would not
need to consider some of these factors. Each organisation must determine and
document its own changes for each new market it enters.
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Successful Y/N
Product definition
Core
Actual
Augmented
Market definition
Market
Characteristics
Potential market
Available market
Qualified market
Target market
Penetrated market
Market Segmentation
Segment
Characteristics
Region (location)
Size of population
Geographic
Population density
Climate
Age
Demographic
Gender
Family size
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Family structure
Generation
Income
Occupation
Education
Ethnicity
Nationality
Religion
Social Class
Segment
Characteristics
Activities
Interests
Psychographic
Opinions
Attitudes
Values
Benefits sought
Usage rate / frequency
Brand loyalty
Behaviouristic
Product(s)
Geographic
1.
Demographic
Psychographic
Behaviouristic
Geographic
Demographic
2.
Psychographic
Behaviouristic
Demographic
Activity
Target market
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Penetrated market
Marketing activity plan
Purpose
Expected Outcome 1
Expected Outcome 2
Expected Outcome 3
Marketing activity definition
Activity
What is it?
Why did you choose it?
Implementation strategy
When will it be conducted?
Knowledge /
experience
Skills
Resources required
Resource
Source
People
Physical / Material
Budget
Skills
Role allocation
Skills required
Team member
Reason
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Deadline
Reason
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Conclusion
Now that you have completed this unit you should be able to answer.
How do you identify and marketing opportunities?
How do you evaluate them?
How can you tell if they meet organisational objectives?
And
How have you documented the changes that need to be made in order to take
advantage of the new opportunities?
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Reverse marketing: Getting your customers to seek out your business rather than
you seeking them. Focuses on the customer approaching the potential seller who may
be able to offer the desired product.
Telemarketing: A method of direct marketing where a salesperson solicits
prospective customers to buy products/services via the phone or face to face.
Database marketing: Using database of customers or potential customers to
generate personalised communications in order to promote a product or service.
Permission marketing: Delivering personal and relevant messages to people who
have given you permission to do so.
Loyalty marketing: Growing and retaining existing customers through incentives. It
includes tracking purchase history and getting to know the customers preferences.
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Product
Price
Place
Convenience
Promotion
Communication
Process
Physical evidence
Place
Physical
evidence
People
Price
Target
market
intended
position
Promotion
Product
A product is anything that can be offered to a market for attention, acquisition, use
or consumption that might satisfy a want or need. There are many types of products
- goods, services, events, ideas/causes, people, political candidates and parties,
locations and so on.
Goods: many products are physical goods e.g. cars, toasters, shoes, books, and
televisions. Goods may be used over an extended period of time (durable products
e.g. refrigerators) or may be consumed in a single usage or short period (nondurable goods e.g. grocery items).
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Product quality is the ability of a product to perform its functions. It includes the
products overall durability, reliability, precision, ease of operation and repair, and
other valued attributes.
How should a products level of quality be determined?
Marketers should match quality levels with expectations of the target market or
quality levels of competing products. Quality also relates to the consistency of
delivery of quality. Do you think consumers these days expect quality from every
brand? I.e. is quality now a necessity?
Product features are used by marketers as a competitive tool to differentiate your
product from those of a competitor. Often companies begin by offering products
without any extra features - a stripped down model and progressively create higherlevel models by adding more features.
Good design is not just about making a product look good (style), it is also about
creating products that are easy, safe, inexpensive to use and service, and simple and
economical to produce and distribute. For example, Black and Deckers cordless
power tools feature outstanding design, which contributes to their great success.
Good design can attract attention, improve product performance, cut production
costs and give a product a strong competitive advantage.
Products are further categorised by the level of attributes they contain.
Augmented
Delivery and credit
Installation
Warranty
After sales service
Actual / secondary
Brand name
Features
Styling
Quality
Packaging
Core
Core benefit or
service
Core product: The problem-solving services or core benefits that consumers are
really buying when they obtain a product. This addresses the question:
When designing products, it is critical to identify the core benefits offered by the
product to its consumers.
In the factory, we make cosmetics; in the store, we sell hope. Charles Revlon of
Revlon Cosmetics.
Actual product: A products parts, styling, features, brand name, packaging and
other attributes that combine to deliver core product benefits.
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Example: A Qantas air ticket from Brisbane to London is an actual product. So are
the Qantas name (brand name), air terminal layout and services, plane
seating configurations, crew uniform styling, booking system (a
component of packaging), features such as in-flight movies, food and
beverage service/quality are carefully combined to deliver the core benefit
or service.
Augmented product: Additional consumer services and benefits built around core
and actual products. For example, some consumers might require greater service
levels than others - Business or First Class, or vegetarian meals. Some expect extra
services before the flight, and so might join the Qantas Club. Some expect extra
augmentation through packaged tours, a Frequent Flyer points scheme. These all
become important parts of the total product.
The product life cycle
The product life cycle is the course of a products sales and profits during its lifetime.
It involves five distinct stages:
Product development
Introduction
Growth
Maturity
Decline
The exact shape and length of each stage varies from product to product, and market
to market.
Product development
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Reasons for the decline can be many e.g. technological advances, shifts in consumer
tastes, increased competition, and changes to regulations.
The life cycle can be a useful framework for describing how products and markets
work. It can help in developing good marketing strategies for different stages of the
cycle. However, managers may have trouble using it e.g. identifying what stage their
product is at, when it will move to the next stage, and what factors affect its
movement through the stages.
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Price
Price refers to the value of the exchange charged for a product or service. You pay
rent for accommodation, tuition for education, a toll on the motorway, interest for the
money you borrow from the bank, and so on.
Price is the only element in the marketing mix that generates revenue; all of the
others (product, promotion and distribution) are costs. Common mistakes made by
companies in setting prices include:
Pricing is cost-oriented
Pricing does not take the rest of the marketing mix into account
Prices are not varied enough for different product items and market segments.
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Fashion houses like Gucci and Armani hold a high-quality position in the
market. They must set their prices high enough to cover high quality
materials, resellers high margins and good service.
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When setting prices, the company must consider consumer perceptions of price and
how these perceptions affect buying decisions and demand. Pricing, like other
marketing-mix decisions, must be buyer-oriented. Effective pricing involves
understanding how much value consumers place on the benefits they receive from
the product and then setting a price that fits this perceived value. A demand curve
shows the number of units the market will buy in a given time period, at different
price levels that might be set.
In most cases, the higher the price charged for a product, the lower the demand.
However, in the case of luxury goods, sometimes higher prices lead to higher
demand amongst the target market, as they perceive a higher quality product. Most
companies try to measure their demand curves, estimating demand at different price
levels.
Marketers also need to understand price elasticity i.e. how responsive demand will be
to a change in price. If demand hardly changes with a change in price, demand is
inelastic. If demand changes greatly, we say the demand is elastic.
What determines the price elasticity of demand?
Buyers are less price-sensitive when the product they are buying is
If demand is elastic rather than inelastic, sellers will consider lowering prices.
Competitors prices and offers
Companies can use competitors prices as a starting point for its own pricing strategy.
The companys pricing strategy may also affect the nature of the competition that it
faces.
Example: A purchaser considering buying an Omega watch will evaluate Omegas
price and value against the prices/values of comparable products made by
Seiko, Tag Heuer etc. If Omega follows a high-price, high margin strategy,
it may attract competition. If it follows a low-price, low-margin strategy,
however, it may stop competitors or drive them out of the market.
Basically, Omega will use price to position its offer relative to competitors.
Other external factors
Economic conditions: inflation, booms, recessions and interest rates all affect both
the costs of producing a product and consumer perceptions of the products price and
value, and their ability to purchase.
Other parties: the company should give resellers a fair profit.
Government regulations: the Trade Practices Act prohibits unfair pricing practices
e.g. predatory pricing. Predatory pricing is where prices are set unreasonably low to
force competitors out of the market.
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Pricing approaches
Companies set prices by selecting a general pricing approach that includes one or
more of the following four sets of factors:
Cost-based pricing
Value-based pricing
Competition-based pricing
Relationship pricing.
Cost-based pricing
This is the simplest pricing approach; it involves adding a standard mark-up to the
cost of producing the product.
Disadvantages -It ignores current market demand and the competition. Mark-up
pricing only works if that price actually brings in the expected level of sales.
Advantages- Sellers can be more certain about costs than about demand.
Sellers earn a fair return on their investment but do not take advantage of buyers
when buyers demand becomes great.
Example: Suppose a radio manufacturer had these costs and expected sales:
Variable cost per unit
= $10
Fixed costs
= $300 000
= 50 000
30 000 units
Value-based pricing
This approach sets price based on buyers perceptions of value rather than on the
sellers costs. The company uses the non-price variables in the marketing mix to build
up perceived value in buyers minds. Price is then set to match the perceived value.
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Example:
Discount pricing
Segmented pricing
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Psychological pricing
Promotional pricing
Geographic pricing
Cash discounts
Quantity discounts: selling products at a lower cost per unit if the buyer
purchases a given quantity e.g. 6 bottles of wine
Functional discounts: decreasing the price for a reseller who performs certain
marketing activities for other members of the distribution chain
Segmented pricing: the company sets different prices for different customers,
product forms, places or times. Nokia will price different mobile phones at different
price points depending on their different functionality.
Psychological pricing: the company adjusts the price to communicate more
effectively a products intended position. Expensive (highly priced) suits and other
apparel are then perceived to be of a higher quality. Similar to value-based pricing.
Promotional pricing: the company decides on loss leader pricing (charging less,
when launching a product, in the hope it will lead to a greater quantity of sales and
repeat purchase), special-event pricing and psychological discounting.
Geographic pricing: the company decides how to price to distant customers,
choosing from alternatives like uniform delivered pricing, and zone pricing.
Supermarkets and petrol stations often use this pricing model.
Place
Marketing logistics networks (place) is the system of efficiently and effectively
making and getting products and services to end-users.
It consists of Marketing Channels. Members of the marketing channel move goods
from producers and suppliers to consumers. Members may include retailers,
manufacturers, warehouses, transport companies, docks and wharves.
Distribution and logistics can add up to 30-40% to a products cost. A well planned
marketing logistics program can be a very important tool in competitive marketing.
Through marketing logistics network management practices, companies attempt to
source the right inputs (raw materials, components, capital equipment), convert
them efficiently into finished products and dispatch them to their final destinations.
Companies can attract additional customers through offering better service, faster
delivery times or lower prices through logistics improvements.
Marketing logistics network decisions typically involve:
Cycle-time reductions e.g. changing the manufacturing process to make it faster
from time of order to time of receiving the product
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Members of the marketing channel move goods from producers and suppliers to
consumers.
Marketing channel members perform many key functions, including:
Information: gathering and distributing marketing research and intelligence
information about people and forces in the marketing environment, this aids
marketing planning
Promotion: developing and spreading persuasive communications about an offer
Contact- finding and communicating with prospective buyers
Matching: shaping and fitting the offer to the buyers needs, including grading,
assembling and packaging
Negotiation: reaching an agreement on price and other terms of the offer so that
ownership or possession can be transferred
Physical distribution: transporting and storing goods
Financing: acquiring and using funds to cover the costs of the channel work
Risk taking: assuming the risks of carrying out the channel work.
Channel structures
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Each layer of intermediaries that performs some work in bringing the product and its
ownership closer to the final buyer is a channel level. The number of intermediary or
channel levels used indicates the length of a channel. A direct marketing channel has
no intermediary levels. It consists of a manufacturer selling directly to consumers.
For the producer, greater numbers of levels generally means less control, greater
complexity and more costs. Channels may contain one middleman level. In consumer
markets, this is typically a retailer e.g. Kmart sells televisions, cameras, tyres,
furniture, appliances that they buy directly from manufacturers.
Channels may contain two intermediary levels- typically a wholesaler and a retailer
e.g. this is often used by small manufacturers of food, pharmaceuticals, hardware
and other products.
Other channels contain three middleman levels. For example, in the giftware
industry, a jobber buys from wholesalers and sells to smaller retailers who are not
generally served by larger wholesalers.
Are marketing channels also used in marketing services?
Yes! Producers of services and experiences also must decide how they will make their
output available to their target markets. For example, when governments sell
services like health systems, they must determine agencies and locations for reaching
widely spread populations.
Vertical Marketing Networks (VMN)
This is a distribution channel structure in which producers, wholesalers and retailers
act as a unified network. One channel member owns the others, has contracts with
them or wields so much power that they all cooperate. The VMN can be dominated by
the producers, wholesaler or retailer.
Manufacturer
Wholesaler
Consumer
Woolworths in Australia is a good example of a Vertical Marketing Network. They
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Amount of service
Relative prices
Control of outlets
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Self-service retailers
Provide few or no
services to shoppers
Shoppers perform their
own locate-compareselect process to save
money
This retail structure is
used by sellers of
convenience goods, such
as supermarkets, Kmart,
Big W, Aldi, etc.
Limited-service retailers
Full-service retailers
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Promotion
This is the most commonly recognised aspect of the marketing function. It is the
process of integrating and coordinating available communication channels to deliver a
clear, consistent and compelling message about the organisation and its products or
services. The objectives of the communication may vary: inform, persuade, remind,
or reinforce attitudes or perceptions.
In order to develop a compelling message, the sensible marketer:
Selects a message
Knowledge
The goal is to provide the target market with information about the
product or organisation
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Liking/admiring
Preference
Conviction
Convince the target market that buying the product is the right
thing to do, that it fills a need (previously identified need or not).
Purchase
Lead consumers to take the final step, often called the Call to
Action. This may include a sales promotion such as offering the
product at a reduced price, letting the consumer try before they
buy, or a limited time offer.
Obviously, the eventual goal is for the consumer to purchase the product; however,
there are other stages the come before the ultimate purchase in the decision making
process that the marketer will attempt to influence.
Selecting a message
The marketer must determine:
Headline
Colour
Illustrations
Placement
Copy
Selecting media
There are 5 common communication channels used in modern consumer marketing:
Advertising
Public Relations
Personal Selling
Sales Promotions
Direct Marketing.
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References
Real Marketing, The people the choices. Michael Solomon et al 2012: Pearson
Education
2013. She Runs The Night strategy, execution, results of Nike's groundbreaking campaign. Marketing Magazine, [Online]. Available at:
www.marketingmag.com.au/case-studies [Accessed 06 May 2013].
Amazon
Cole, K, 2012. Management: Theory and Practice. 5th ed. Frenchs Forest:
Pearson Australia.
Nielsen Australia
Oztam
Vee, J, Miller, T and Bauer, J 2008, Gravitational Marketing, John Wiley and
Sons, Hoboken, New Jersey. Wikipedia, Smirnoff History
When Art Meets Science: The Challenge of ROI Marketing (Dec 2003)
www.strategy-business.com, retrieved 09 Dec 2009
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