market research - introduction

To undertake marketing effectively, businesses need information. Information about customer wants, market demand, competitors, distribution channels etc.

Marketers often complain that they lack enough marketing information or the right kind, or have too much of the wrong kind. The solution is an effective marketing information system.

The information needed by marketing managers comes from three main sources:

(1) Internal company information

E.g. sales, orders, customer profiles, stocks, customer service reports etc)

(2) Marketing intelligence

This can be information gathered from many sources, including suppliers, customers, distributors. Marketing intelligence is a catch-all term to include all the everyday information about developments in the market that helps a business prepare and adjust its marketing plans. It is possible to buy intelligence information from outside suppliers (e.g. Mintel, Dun & Bradstreet, Mori) who set up data gathering systems to support commercial intelligence products that can be profitably sold to all players in a market.

(3) Market research

Management cannot always wait for information to arrive in bits and pieces from internal sources. Also, sources of market intelligence cannot always be relied upon to provide relevant or up-to-date information (particularly for smaller or niche market segments). In such circumstances, businesses often need to undertake specific studies to support their marketing strategy - this is market research.

http://tutor2u.net/business/marketing/research_introduction.asp

market research - qualitative research

In terms of data capture and analysis there are two main types of market research:

• Qualitative Research
• Quantitative Research

Qualitative Research

Qualitative Research is about investigating the features of a market through in-depth research that explores the background and context for decision making.

There are two main qualitative methods - depth interviews and focus groups. However qualitative research can also include techniques such as usability testing, brainstorming sessions and "vox pop" surveys.

Depth Interviewing

Depth interviews are the main form of qualitative research in most business markets. Here an interviewer spends time in a one-on-one interview finding out about the customer's particular circumstances and their individual opinions.

The majority of business depth interviews take place in person, which has the added benefit that the researcher visits the respondent's place of work and gains a sense of the culture of the business. However, for multi-national studies, telephone depth interviews, or even on-line depth interviews may be more appropriate.

Feedback is through a presentation that draws together findings across a number of depth interviews. In some circumstances, such as segmentation studies, identifying differences between respondents may be as important as the views that customers share.

The main alternative to depth interviews - focus group discussions - are typically too difficult or expensive to arrange with busy executives. However, on-line techniques increasing get over this problem.

Group Discussions

Focus groups are the mainstay of consumer research. Here several customers are brought together to take part in a discussion led by a researcher (or "moderator"). These groups are a good way of exploring a topic in some depth or to encourage creative ideas from participants.

Group discussions are rare in business markets, unless the customers are small businesses. In technology markets where the end user may be a consumer, or part of a team evaluating technology, group discussions can be an effective way of understanding what customers are looking for, particularly at more creative stages of research.

http://tutor2u.net/business/marketing/research_qualitative.asp

market research - sampling

Introduction

Market research involves the collection of data to obtain insight and knowledge into the needs and wants of customers and the structure and dynamics of a market. In nearly all cases, it would be very costly and time-consuming to collect data from the entire population of a market. Accordingly, in market research, extensive use is made of sampling from which, through careful design and analysis, Marketers can draw information about the market.

Sample Design

Sample design covers the method of selection, the sample structure and plans for analysing and interpreting the results. Sample designs can vary from simple to complex and depend on the type of information required and the way the sample is selected.

Sample design affects the size of the sample and the way in which analysis is carried out. In simple terms the more precision the market researcher requires, the more complex will be the design and the larger the sample size.

The sample design may make use of the characteristics of the overall market population, but it does not have to be proportionally representative. It may be necessary to draw a larger sample than would be expected from some parts of the population; for example, to select more from a minority grouping to ensure that sufficient data is obtained for analysis on such groups.

Many sample designs are built around the concept of random selection. This permits justifiable inference from the sample to the population, at quantified levels of precision. Random selection also helps guard against sample bias in a way that selecting by judgement or convenience cannot.

Defining the Population

The first step in good sample design is to ensure that the specification of the target population is as clear and complete as possible to ensure that all elements within the population are represented. The target population is sampled using a sampling frame. Often the units in the population can be identified by existing information; for example, pay-rolls, company lists, government registers etc. A sampling frame could also be geographical; for example postcodes have become a well-used means of selecting a sample.

Sample Size

For any sample design deciding upon the appropriate sample size will depend on several key factors

(1) No estimate taken from a sample is expected to be exact: Any assumptions about the overall population based on the results of a sample will have an attached margin of error.

(2) To lower the margin of error usually requires a larger sample size. The amount of variability in the population (i.e. the range of values or opinions) will also affect accuracy and therefore the size of sample.

(3) The confidence level is the likelihood that the results obtained from the sample lie within a required precision. The higher the confidence level, that is the more certain you wish to be that the results are not atypical. Statisticians often use a 95 per cent confidence level to provide strong conclusions.

(4) Population size does not normally affect sample size. In fact the larger the population size the lower the proportion of that population that needs to be sampled to be representative. It is only when the proposed sample size is more than 5 per cent of the population that the population size becomes part of the formulae to calculate the sample size.

Types of Sampling

There are many different types of sampling technique. We have summarised the most popular below:

Sampling Method	Definition	Uses	Limitations
Cluster Sampling)	Units in the population can often be found in certain geographic groups or "clusters" (e.g. primary school children in Derbyshire. A random sample of clusters is taken, then all units within the cluster are examined	Quick & easy; does not require complete population information; good for face-to-face surveys	Expensive if the clusters are large; greater risk of sampling error
Convenience Sampling	Uses those who are willing to volunteer	Readily available; large amount of information can be gathered quickly	Cannot extrapolate from sample to infer about the population; prone to volunteer bias
Judgement Sampling	A deliberate choice of a sample - the opposite of random	Good for providing illustrative examples or case studies	Very prone to bias; samples often small; cannot extrapolate from sample
Quota Sampling	Aim is to obtain a sample that is "representative" of the overall population; the population is divided ("stratified") by the most important variables (e.g. income,. age, location) and a required quota sample is drawn from each stratum	Quick & easy way of obtaining a sample	Not random, so still some risk of bias; need to understand the population to be able to identify the basis of stratification
Simply Random Sampling	Ensures that every member of the population has an equal chance of selection	Simply to design and interpret; can calculate estimate of the population and the sampling error	Need a complete and accurate population listing; may not be practical if the sample requires lots of small visits all over the country
Systematic Sampling	After randomly selecting a starting point from the population, between 1 and "n", every nth unit is selected, where n equals the population size divided by the sample size	Easier to extract the sample than via simple random; ensures sample is spread across the population	Can be costly and time-consuming if the sample is not conveniently located

http://tutor2u.net/business/marketing/research_sampling.asp

market research - uses

A wide variety of information used to support marketing decisions can be obtained from market research. A selection of such uses are summarised below:

Information about the market

• Analysis of the market potential for existing products (e.g. market size, growth, changing sales trends)
• Forecasting future demand for existing products
• Assessing the potential for new products
• Study of market trends
• Analysis of competitor behaviour and performance
• Analysis of market shares

Information about Products

• Likely customer acceptance (or rejection) of new products
• Comparison of existing products in the market (e.g. price, features, costs, distribution)
• Forecasting new uses for existing products
• Technologies that may threaten existing products
• New product development

Information about Pricing in the Market

• Estimates and testing of price elasticity
• Analysis of revenues, margins and profits
• Customer perceptions of “just or fair” pricing
• Competitor pricing strategies

Information about Promotion in the Market

• Effectiveness of advertising
• Effectiveness of sales force (personal selling)
• Extent and effectiveness of sales promotional activities
• Competitor promotional strategies

Information about Distribution in the Market

• Use and effectiveness of distribution channels
• Opportunities to sell direct
• Cost of transporting and warehousing products
• Level and quality of after-sales service

http://tutor2u.net/business/marketing/research_uses.asp

market research - conducting market research

Depending on the situation facing a business, particularly the resources allocated to marketing research, there are four main ways of carrying out market research:

(1) Do it yourself - personally

This is often the case in smaller businesses. Here, marketing staff do the research themselves. Sample sizes tend to be small - which may be appropriate if there are a relatively small number of customers.

(2) Do it yourself - using a marketing research department

By employing a marketing research manager, a business may benefit from specialist research skills.

(3) Do it yourself - using a fieldwork agency

Often the design of a piece of market research can be completed using internal resources - particularly if the business employs a marketing specialist with knowledge of research techniques. However, the scope of the research (for example, interviewing a large sample of consumers in various locations) may be beyond the resources of a business. In this case, the fieldwork can be carried out by a marketing research agency.

(4) Use the full services of a marketing research agency

Where resources permit a business can invest in the full range of skills offered by marketing research agencies. A complete service would include:

• Preparation of the market research proposal (survey design, costs, timetable, method of feedback)
• Conduct exploratory research
• Design the research questionnaire
• Select the sample
• Choose the survey method (e.g. telephone, postal, face-to-face)#
• Conduct the interviewing
• Analyse and interpret the results
• Prepare a report
• Make a presentation

There are thousands of market research agencies in the UK alone who provide such services.

http://tutor2u.net/business/marketing/research_conducting.asp

market research - quantitative research

In terms of data capture and analysis there are two main types of market research:

• Qualitative Research
• Quantitative Research

Quantitative Research

Quantitative research is about measuring a market and quantifying that measurement with data. Most often the data required relates to market size, market share, penetration, installed base and market growth rates.

However, quantitative research can also be used to measure customer attitudes, satisfaction, commitment and a range of other useful market data that can tracked over time.

Quantitative research can also be used to measure customer awareness and attitudes to different manufacturers and to understand overall customer behaviour in a market by taking a statistical sample of customers to understand the market as a whole. Such techniques are extremely powerful when combined with techniques such segmentation analysis and mean that key audiences can be targeted and monitored over time to ensure the optimal use of the marketing budget.

At the heart of all quantitative research is the statistical sample. Great care has to be taken in selecting the sample and also in the design of the sample questionnaire and the quality of the analysis of data collected.

Market research involves the collection of data to obtain insight and knowledge into the needs and wants of customers and the structure and dynamics of a market. In nearly all cases, it would be very costly and time-consuming to collect data from the entire population of a market. Accordingly, in market research, extensive use is made of sampling from which, through careful design and analysis, Marketers can draw information about the market.

http://tutor2u.net/business/marketing/research_quantitative.asp

market research - types of market research

The main distinction between the different types of market research is between "ad-hoc" and "continuous" research:

Ad-hoc Market Research

Ad-hoc research studies focus on specific marketing problems. They collect data at one point in time from one sample of respondents. Good examples of ad-hoc studies include:

• Product usage survey

• New product concept tests (where consumers are asked to trial new brands, product prototypes etc)

• Advertising development (how does the sample of consumers respond to a specific advertising campaign? Most TV adverts are researched in this way)

• Corporate image surveys (often quite enlightening)

• Customer satisfaction surveys (these can often turn into continuous research)

Continuous Research

Continuous studies interview the same sample of people, repeatedly. The major types of continuous research are:

Consumer panels

Consumer panels are formed by recruiting large numbers of households who provide information on their buying over time. Research agency AC Nielsen has one of the largest consumer panels in the world, continuously interviewing 125,000 households in 18 countries. The main competitor for AC Nielsen is TNS which runs panels in 20 countries.

Retail Audits

By gaining the cooperation of retail outlets, sales of brands can be measured (using bar coded sales data) to track changes in brand loyalty, market share and effectiveness of different retail formats.

Television Viewer ship / Radio Listening Panels

These panels aim to measure Viewer ship or listening minute by minute. This data is critical information for broadcasters to determine their programme strategy (what kinds of programmes to produce and when to broadcast them) as well as for advertisers (who is watching, listening, and when?). In the UK, the main source of such data is produced by the Broadcasters' Audience Research Board ("BARB").

http://tutor2u.net/business/marketing/research_types.asp

sales forecasting

Introduction

Sales forecasting is a difficult area of management. Most managers believe they are good at forecasting. However, forecasts made usually turn out to be wrong! Marketers argue about whether sales forecasting is a science or an art. The short answer is that it is a bit of both.

Reasons for undertaking sales forecasts

Businesses are forced to look well ahead in order to plan their investments, launch new products, decide when to close or withdraw products and so on. The sales forecasting process is a critical one for most businesses. Key decisions that are derived from a sales forecast include:

- Employment levels required
- Promotional mix
- Investment in production capacity

Types of forecasting

There are two major types of forecasting, which can be broadly described as macro and micro:

Macro forecasting is concerned with forecasting markets in total. This is about determining the existing level of Market Demand and considering what will happen to market demand in the future.

Micro forecasting is concerned with detailed unit sales forecasts. This is about determining a product’s market share in a particular industry and considering what will happen to that market share in the future.

The selection of which type of forecasting to use depends on several factors:

(1) The degree of accuracy required – if the decisions that are to be made on the basis of the sales forecast have high risks attached to them, then it stands to reason that the forecast should be prepared as accurately as possible. However, this involves more cost

(2) The availability of data and information - in some markets there is a wealth of available sales information (e.g. clothing retail, food retailing, holidays); in others it is hard to find reliable, up-to-date information

(3) The time horizon that the sales forecast is intended to cover. For example, are we forecasting next weeks’ sales, or are we trying to forecast what will happen to the overall size of the market in the next five years?

(4) The position of the products in its life cycle. For example, for products at the “introductory” stage of the product life cycle, less sales data and information may be available than for products at the “maturity” stage when time series can be a useful forecasting method.

Creating the Sales Forecast for a Product

The first stage in creating the sales forecast is to estimate Market Demand.

Definition:
Market Demand for a product is the total volume that would be bought by a defined customer group, in a defined geographical area, in a defined time period, in a given marketing environment. This is sometimes referred to as the Market Demand Curve.

For example, consider the UK Overseas Mass Market Package Holiday Industry. What is Market Demand?

Using the definition above, market demand can be defined as:

Defined Customer Group: Customers Who Buy an Air-Inclusive Package Holiday
Defined Geographical Area: Customers in the UK
Defined Time Period: A calendar year
Defined Marketing Environment: Strong consumer spending in the UK but overseas holidays affected by concerns over international terrorism

Recent data for the UK Overseas Mass Market Package Holiday market suggests that market demand can be calculated as follows:

Number of Customers in the UK: 17.5 million per calendar year
Average Selling Price per Holiday: £450
Estimate of market demand: £7.9 billion (customers x average price)

Stage two in the forecast is to estimate Company Demand

Company demand is the company’s share of market demand.

This can be expressed as a formula:

Company Demand = Market Demand v Company’s Market Share

For example, taking our package holiday market example; the company demand for First Choice Holidays in this market can be calculated as follows:

First Choice Holidays Demand = £7.9 billion x 15% Market Share = £1.2 billion

A company’s share of market demand depends on how its products, services, prices, brands and so on are perceived relative to the competitors. All other things being equal, the company’s market share will depend on the size and effectiveness of its marketing spending relative to competitors.

Step Three is then to develop the Sales Forecast

The Sales Forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment.

Note that the Sales Forecast is not necessarily the same as a “sales target” or a “sales budget”.

A sales target (or goal) is set for the sales force as a way of defining and encouraging sales effort. Sales targets are often set some way higher than estimated sales to “stretch” the efforts of the sales force.

A sales budget is a more conservative estimate of the expected volume of sales. It is primarily used for making current purchasing, production and cash-flow decisions. Sales budgets need to take into account the risks involved in sales forecasting. They are, therefore, generally set lower than the sales forecast.

Obtaining information on existing market demand

As a starting point for estimating market demand, a company needs to know the actual industry sales taking place in the market. This involves identifying its competitors and estimating their sales.

An industry trade association will often collect and publish (sometime only to members) total industry sales, although rarely listing individual company sales separately. By using this information, each company can evaluate its performance against the whole market.

This is an important piece of analysis. Say, for example, that Company A has sales that are rising at 10% per year. However, it finds out that overall industry sales are rising by 15% per year. This must mean that Company A is losing market share – its relative standing in the industry.

Another way to estimate sales is to buy reports from a marketing research firm such as AC Neilsen, Mintel etc. These are usually good sources of information for consumer markets – where retail sales can be tracked in great detail at the point of sale. Such sources are less useful in industrial markets which usually rely on distributors.

Estimating Future Demand

So far we have identified how a company can determine the current position:

Current Company Demand = Current Market Demand x Current Market Share

How can future market demand and company demand be forecast?

Very few products or services lend themselves to easy forecasting . These tend to involve a product whose absolute level or trend of sales is fairly constant and where competition is either non-existent (e.g. monopolies such as public utilities) or stable (pure oligopolies). In most markets, total demand and company demand are not stable – which makes good sales forecasting a critical success factor.

A common method of preparing a sales forecast has three stages:

(1) Prepare a macroeconomic forecast – what will happen to overall economic activity in the relevant economies in which a product is to be sold.
(2) Prepare an industry sales forecast – what will happen to overall sales in an industry based on the issues that influence the macroeconomic forecast;
(3) Prepare a company sales forecast – based on what management expect to happen to the company’s market share

Sales forecasts can be based on three types of information:

(1) What customers say about their intentions to continue buying products in the industry
(2) What customers are actually doing in the market
(3) What customers have done in the past in the market

There are many market research businesses that undertake surveys of customer intentions – and sell this information to businesses that need the data for sales forecasting purposes. The value of a customer intention survey increases when there are a relatively small number of customers, the cost of reaching them is small, and they have clear intentions. An alternative way of measuring customer intentions is to sample the opinions of the sales force or to consult industry experts

Time Series Analysis

Many businesses prepare their sales forecast on the basis of past sales.

Time series analysis involves breaking past sales down into four components:

(1) The trend: are sales growing, “flat-lining” or in decline?
(2) Seasonal or cyclical factors. Sales are affected by swings in general economic activity (e.g. increases in the disposable income of consumers may lead to increase in sales for products in a particular industry). Seasonal and cyclical factors occur in a regular pattern;
(3) Erratic events; these include strikes, fashion fads, war scares and other disturbances to the market which need to be isolated from past sales data in order to be able to identify the more normal pattern of sales
(4) Responses: the results of particular measures that have been taken to increase sales (e.g. a major new advertising campaign)

Using time series analysis to prepare an effective sales forecast requires management to:

Smooth out the erratic factors (e.g. by using a moving average)
Adjust for seasonal variation
Identify and estimate the effect of specific marketing responses

http://tutor2u.net/business/marketing/sales_forecasting.asp

pricing - link between price and business objectives

The pricing objectives of businesses are generally related to satisfying one of five common strategic objectives:

Objective 1: To Maximise Profits

Although the ‘maximisation of profits’ can have negative connotations for ‘the public’, in economic theory, one function of ‘profit’ is to attract new entrants to the market and the additional suppliers keep prices at a reasonable level. By seeking to differentiate their product from those of other suppliers, new entrants also expand the choice to consumers, and may vary prices as niche markets develop

Objective 2: To Meet a Specific Target Return on Investment (or on net sales)

Assuming a standard volume operation (i.e. production and sales) target pricing is concerned with determining the necessary mark-up (on cost) per unit sold, to achieve the overall target profit goal. Target return pricing is effective as an overall performance measure of the entire product line, but for individual items within the line, certain strategic pricing considerations may require the raising or lowering of the standard price.

Objective 3: To Achieve a Target Sales Level

Many businesses measure their success in terms of overall revenues. This is often a proxy for market share. Pricing strategies with this objective in mind usually focus on setting price that maximises the volumes sold.

Objective 4: To Maintain or Enhance Market Share

As an organisational goal, the achievement of a desired share of the market is generally linked to increased profitability. An offensive market share strategy involves attaining increased market share, by lowering prices in the short term. This can lead to increased sales, which in the longer term can lead to lower costs (through benefits of scale and experience) and ultimately to higher prices due to increased volume/market share.

Objective 5: To Meet or Prevent Competition

Prices are set at a level that reflects the average industry price, with small adjustments made for unique features of the company’s specific product(s). Firms that adopt this objective must work ‘backwards’ from price and tailor costs to enable the desired margin to be delivered.

http://tutor2u.net/business/marketing/pricing_link_objectives.asp

pricing - influences on pricing policy

The factors that businesses must consider in determining pricing policy can be summarised in four categories:

(1) Costs

In order to make a profit, a business should ensure that its products are priced above their total average cost. In the short-term, it may be acceptable to price below total cost if this price exceeds the marginal cost of production – so that the sale still produces a positive contribution to fixed costs.

(2) Competitors

If the business is a monopolist, then it can set any price. At the other extreme, if a firm operates under conditions of perfect competition, it has no choice and must accept the market price. The reality is usually somewhere in between. In such cases the chosen price needs to be very carefully considered relative to those of close competitors.

(3) Customers

Consideration of customer expectations about price must be addressed. Ideally, a business should attempt to quantify its demand curve to estimate what volume of sales will be achieved at given prices

(4) Business Objectives

Possible pricing objectives include:

• To maximise profits

• To achieve a target return on investment

• To achieve a target sales figure

• To achieve a target market share

• To match the competition, rather than lead the market

http://tutor2u.net/business/marketing/pricing_influences.asp

pricing strategies - expansionistic pricing

Expansionistic pricing is a more exaggerated form of penetration pricing and involves setting very low prices aimed at establishing mass markets, possibly at the expense of other suppliers.

Under this strategy, the product enjoys a high price elasticity of demand so that the adoption of a low price leads to significant increases in sales volumes.

Expansionistic pricing strategies may be used by companies attempting to enter new or international markets for their products. Lower-cost version of a product may be offered at a very low price to gain recognition and acceptance by consumers. Once acceptance has been achieved more expensive versions or models of the offering can be made available at higher prices.

The extreme case of expansionistic pricing, where offerings are made available to the (overseas) market at a price that is actually less than the cost of production is known as dumping. This practice is closely scrutinised by governments since it can force domestic producers out of business and many countries have enacted anti-dumping legislation.

Markets that might benefit from expansionistic pricing strategies include those of magazine and newspaper publishers. Where low prices (annual subscription rates) attract a large number of subscribers, publishers can benefit from the higher rates that they are able to charge advertisers for their advertising ‘space’. Book and CD ‘clubs’ also use expansionistic to attract new members.

http://tutor2u.net/business/marketing/pricing_strategy_expansionistic.asp

pricing strategies - penetration pricing

Penetration pricing involves the setting of lower, rather than higher prices in order to achieve a large, if not dominant market share.

This strategy is most often used businesses wishing to enter a new market or build on a relatively small market share.

This will only be possible where demand for the product is believed to be highly elastic, i.e. demand is price-sensitive and either new buyers will be attracted, or existing buyers will buy more of the product as a result of a low price.

A successful penetration pricing strategy may lead to large sales volumes/market shares and therefore lower costs per unit. The effects of economies of both scale and experience lead to lower production costs, which justify the use of penetration pricing strategies to gain market share. Penetration strategies are often used by businesses that need to use up spare resources (e.g. factory capacity).

A penetration pricing strategy may also promote complimentary and captive products. The main product may be priced with a low mark-up to attract sales (it may even be a loss-leader). Customers are then sold accessories (which often only fit the manufacturer’s main product) which are sold at higher mark-ups.

Before implementing a penetration pricing strategy, a supplier must be certain that it has the production and distribution capabilities to meet the anticipated increase in demand.

The most obvious potential disadvantage of implementing a penetration pricing strategy is the likelihood of competing suppliers following suit by reducing their prices also, thus nullifying any advantage of the reduced price (if prices are sufficiently differentiated the impact of this disadvantage may be diminished).

A second potential disadvantage is the impact of the reduced price on the image of the offering, particularly where buyers associate price with quality.

http://tutor2u.net/business/marketing/pricing_strategy_penetration.asp

pricing - variable or marginal cost pricing

With variable (or marginal cost) pricing, a price is set in relation to the variable costs of production (i.e. ignoring fixed costs and overheads).

The objective is to achieve a desired “contribution” towards fixed costs and profit.

Contribution per unit can be defined as: SELLING PRICE less VARIABLE COSTS

Total contribution can be calculated as follows:

Contribution per unit v Sales Volume

The resulting profit in a business is, therefore:

Total Contribution less Total Fixed Costs

The break even level of sales can be calculated using this information as follows:

Break even volume = Total Fixed Costs / Contribution per Unit

Consider a business with the following costs and volumes for a single product:

Fixed costs:
Factory production costs	£750,000
Research and development	£250,000
Fixed selling costs	£550,000
Administration and other overheads	£325,000
Total fixed costs	£1,625,000
Variable costs
Variable cost per unit	£8.00
Mark-Up
Mark-up % required	35%
Budgeted sale volumes (units)	500,000

Prices are set using variable costing by determining a target contribution per unit. This reflects:

• Variable costs per unit

• Total fixed costs

• The desired level of target profit (i.e. contribution less fixed costs)

The variable/marginal costing method can be illustrated using the same data used further above:

• Assume that the selling price per unit is £12
• Variable costs per unit are £8
• The contribution per unit is, therefore, £4 (£12 less £8)

What is the break even volume for the business?

• Total fixed costs are £1,625,000
• To achieve break-even, therefore, the business needs to sell at least 406,250 units (each of which produces a contribution of £4)

Looked at another way, what would be the required sales volume to generate a profit of £250,000?

• Total contribution required = total fixed costs + required profit
• Total contribution = £1,625,000 + £250,000 = £1,875,000
• Contribution per unit = £4
• Sales volume required therefore = 468,750 (£1,875,000 / £4)

The advantages of using a variable/marginal costing method for pricing include the following:

• Good for short-term decision-making;
• Avoids having to make an arbitrary allocation of fixed costs and overheads;
• Focuses the business on what is required to achieve break-even

However, there are some potential disadvantages of using this method:

• There is a risk that the price set will not recover total fixed costs in the long term. Ultimately businesses must price their products that reflects the total costs of the business;
• It may be difficult to raise prices if the contribution per unit is set too low

http://tutor2u.net/business/marketing/pricing_variablecost.asp

marketing planning - introduction

Introduction

A plan is a way of achieving something. Your revision plan is a way of helping to achieve success in business studies exams. The Christmas present shopping list is a simpler example of a plan – a way of ensuring that no-one gets missed on 25 December.

In business, it is no different. If a business wants to achieve something, it is more likely to do so with a well-constructed and realistic plan.

What does planning involve? Planning involves:

• Setting objectives, quantifying targets for achievement, and communicating these targets to people responsible for achieving them
• Selecting strategies, tactics, programmes etc for achieving the objectives.

The whole topic of planning brings with it some important terminology that it is worth spending time getting to know well. You will come across these terms many times in your study of marketing (and business studies in general):

Strategy

Strategy is the method chosen to achieve goals and objectives

Example: Our strategy is to grow sales and profits of our existing products and to broaden our business by introducing new products to our existing markets

Tactics

Tactics are the resources that are used in the agreed strategy

Example: We will use our widespread distribution via UK supermarkets to increase sales and existing products and introduce new products

Goals

Goals concern what you are trying to achieve. Goals provide the “intention” that influence the chosen actions

Example: Our goal is to achieve market leadership in our existing markets

Objectives

Objectives are goals that can be quantified

Examples:
- We aim to achieve a market share of 20% in our existing markets
- We aim to penetrate new markets by achieving a market share of at least 5% within 3 years
- We aim to achieve sales of growth of 15% per annum with our existing products

Aims

Aims are goals that cannot be measured in a reliable way. However, they remain important as a means of providing direction and focus.

Examples: We aim to delight our customers

http://tutor2u.net/business/marketing/planning_introduction.asp

marketing planning - mission

Mission

A strategic marketing plan starts with a clearly defined business mission.

Mintzberg defines a mission as follows:

“A mission describes the organisation’s basic function in society, in terms of the products and services it produces for its customers”.

A clear business mission should have each of the following elements:

Taking each element of the above diagram in turn, what should a good mission contain?

(1) A Purpose

Why does the business exist? Is it to create wealth for shareholders? Does it exist to satisfy the needs of all stakeholders (including employees, and society at large?)

(2) A Strategy and Strategic Scope

A mission statement provides the commercial logic for the business and so defines two things:

- The products or services it offers (and therefore its competitive position)
- The competences through which it tries to succeed and its method of competing

A business’ strategic scope defines the boundaries of its operations. These are set by management.

For example, these boundaries may be set in terms of geography, market, business method, product etc. The decisions management make about strategic scope define the nature of the business.

(3) Policies and Standards of Behaviour

A mission needs to be translated into everyday actions. For example, if the business mission includes delivering “outstanding customer service”, then policies and standards should be created and monitored that test delivery.

These might include monitoring the speed with which telephone calls are answered in the sales call centre, the number of complaints received from customers, or the extent of positive customer feedback via questionnaires.

(4) Values and Culture

The values of a business are the basic, often un-stated, beliefs of the people who work in the business. These would include:

• Business principles (e.g. social policy, commitments to customers)
• Loyalty and commitment (e.g. are employees inspired to sacrifice their personal goals for the good of the business as a whole? And does the business demonstrate a high level of commitment and loyalty to its staff?)
• Guidance on expected behaviour – a strong sense of mission helps create a work environment where there is a common purpose

What role does the mission statement play in marketing planning?

In practice, a strong mission statement can help in three main ways:
• It provides an outline of how the marketing plan should seek to fulfil the mission
• It provides a means of evaluating and screening the marketing plan; are marketing decisions consistent with the mission?
• It provides an incentive to implement the marketing plan

http://tutor2u.net/business/marketing/planning_mission_introduction.asp

marketing planning - setting marketing objectives

Introduction

Objectives set out what the business is trying to achieve.

Objectives can be set at two levels:

(1) Corporate level

These are objectives that concern the business or organisation as a whole

Examples of “corporate objectives might include:
• We aim for a return on investment of at least 15%
• We aim to achieve an operating profit of over £10 million on sales of at least £100 million
• We aim to increase earnings per share by at least 10% every year for the foreseeable future

(2) Functional level

e.g. specific objectives for marketing activities

Examples of functional marketing objectives” might include:
• We aim to build customer database of at least 250,000 households within the next 12 months
• We aim to achieve a market share of 10%
• We aim to achieve 75% customer awareness of our brand in our target markets

Both corporate and functional objectives need to conform to the commonly used SMART criteria.

The SMART criteria (an important concept which you should try to remember and apply in exams) are summarised below:

Specific - the objective should state exactly what is to be achieved.

Measurable - an objective should be capable of measurement – so that it is possible to determine whether (or how far) it has been achieved

Achievable - the objective should be realistic given the circumstances in which it is set and the resources available to the business.

Relevant - objectives should be relevant to the people responsible for achieving them

Time Bound - objectives should be set with a time-frame in mind. These deadlines also need to be realistic.

http://tutor2u.net/business/marketing/planning_setting_objectives.asp

marketing planning - values and vision

Introduction to Values and Vision

Values form the foundation of a business’ management style. Values provide the justification of behaviour and, therefore, exert significant influence on marketing decisions.

Consider the following examples of a well-known business – BT Group - defining its values:

BT's activities are underpinned by a set of values that all BT people are asked to respect:
- We put customers first
- We are professional
- We respect each other
- We work as one team
- We are committed to continuous improvement.
These are supported by our vision of a communications-rich world - a world in which everyone can benefit from the power of communication skills and technology.
A society in which individuals, organisations and communities have unlimited access to one another and to a world of knowledge, via a multiplicity of communications technologies including voice, data, mobile, internet - regardless of nationality, culture, class or education.
Our job is to facilitate effective communication, irrespective of geography, distance, time or complexity.
Source: BT Group plc web site

Why are values important in marketing?

Many Japanese businesses have used the value system to provide the motivation to make them global market leaders. They have created an obsession about winning that is communicated at all levels of the business that has enabled them to take market share from competitors that appeared to be unassailable.

For example, at the start of the 1970’s Komatsu was less than one third the size of the market leader – Caterpillar – and relied on just one line of smaller bulldozers for most of its revenues. By the late 1980’s it had passed Caterpillar as the world leader in earth-moving equipment. It had also adopted an aggressive diversification strategy that led it into markets such as industrial robots and semiconductors.

If “values” shape the behaviour of a business, what is meant by “vision” and how does it relate to marketing planning?

To succeed in the long term, businesses need a vision of how they will change and improve in the future. The vision of the business gives it energy. It helps motivate employees. It helps set the direction of corporate and marketing strategy.

What are the components of an effective business vision? Davidson identifies six requirements for success:

- Provides future direction
- Expresses a consumer benefit
- Is realistic
- Is motivating
- Must be fully communicated
- Consistently followed and measured

http://tutor2u.net/business/marketing/planning_values_vision.asp

marketing planning - mission - examples

Introduction

A mission statement is a formal description of the mission of a business.

The mission statement might be published in several places (e.g. at the front of an annual report and accounts, on promotional material, in the board room and on the factory floor).

There is (thankfully) no standard format for a mission statement. However, an effective mission statement should contain the following characteristics:

• Brief – it should be easy to understand and remember
• Flexible – it should be able to accommodate change
• Distinctive – it should make the business stand out

Examples of Mission Statements

Psion plc

Our mission is to grow rapidly and profitably through innovation in mobile internet.
In pursuing this mission, we will deliver value:
- to shareholders through superior returns
- to customers through solutions and devices that enhance their quality of life and
personal effectiveness
- to staff through a stimulating environment that encourages innovation

Sainsbury’s plc

Our mission is to be the consumer’s first choice for food, delivering products of outstanding quality and great service at a competitive cost through working ‘faster, simpler and together’.

Churchill China

To be a leading provider to the tabletop market and deliver value through excellence in design, quality and customer service

Holidaybreak plc

Holidaybreak is the UK’s leading operator of specialist holiday businesses. Group companies retain a distinctive identity whilst sharing expertise and exploiting opportunities in areas of common interest.
Our aim is to achieve continuing profitable growth by developing our existing businesses and market leading brands in the UK and European holiday markets and through acquisitions within the travel sector.

Easyinternetcafe

To be the world's leading Internet café chain that is the cheapest way to get online

http://tutor2u.net/business/marketing/planning_mission_examples.asp

marketing planning - strategic marketing process

Macdonald (1995) suggests that several stages have to be completed in order to arrive at a strategic marketing plan. These are summarised in the diagram below:

The extent to which each part of the above process needs to be carried out depends on the size and complexity of the business.

In an un diversified business, where senior management have a strong knowledge and detailed understanding of the overall business, it may not be necessary to formalise the marketing planning process.

By contrast, in a highly diversified business, top level management will not have knowledge and expertise that matches subordinate management. In this situation, it makes sense to put formal marketing planning procedures in place throughout the organisation.

http://tutor2u.net/business/marketing/planning_process.asp

marketing planning - the link with strategic planning

Introduction

Businesses that succeed do so by creating and keeping customers. They do this by providing better value for the customer than the competition.

Marketing management constantly have to assess which customers they are trying to reach and how they can design products and services that provide better value (“competitive advantage”).

The main problem with this process is that the “environment” in which businesses operate is constantly changing. So a business must adapt to reflect changes in the environment and make decisions about how to change the marketing mix in order to succeed. This process of adapting and decision-making is known as marketing planning.

Where does marketing planning fit in with the overall strategic planning of a business?

Strategic planning (which you will cover in your studies of “strategy” is concerned about the overall direction of the business. It is concerned with marketing, of course. But it also involves decision-making about production and operations, finance, human resource management and other business issues.

The objective of a strategic plan is to set the direction of a business and create its shape so that the products and services it provides meet the overall business objectives.

Marketing has a key role to play in strategic planning, because it is the job of marketing management to understand and manage the links between the business and the “environment”.

Sometimes this is quite a straightforward task. For example, in many small businesses there is only one geographical market and a limited number of products (perhaps only one product!).

However, consider the challenge faced by marketing management in a multinational business, with hundreds of business units located around the globe, producing a wide range of products. How can such management keep control of marketing decision-making in such a complex situation? This calls for well-organised marketing planning.

What are the key issues that should be addressed in marketing planning?

The following questions lie at the heart of any marketing (or indeed strategic) planning process:

• Where are we now?
• How did we get there?
• Where are we heading?
• Where would we like to be?
• How do we get there?
• Are we on course?

Why is marketing planning essential?

Businesses operate in hostile and increasingly complex environment. The ability of a business to achieve profitable sales is impacted by dozens of environmental factors, many of which are inter-connected. It makes sense to try to bring some order to this chaos by understanding the commercial environment and bringing some strategic sense to the process of marketing products and services.

A marketing plan is useful to many people in a business. It can help to:

• Identify sources of competitive advantage
• Gain commitment to a strategy
• Get resources needed to invest in and build the business
• Inform stakeholders in the business
• Set objectives and strategies
• Measure performance

http://tutor2u.net/business/marketing/planning_strategic_link.asp