A-Level Business Unit 3.3 (Year 1/AS AQA Slides)

Learning Outcomes

- Making marketing decisions: segmentation, targeting and positioning

- What you need to know:

  • the process and value of segmentation, targeting and positioning
  • influences on choosing a target market and positioning
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The Process of Segmentation

- Segmentation methods include:

  • Demographic Segmentation
  • Income Segmentation
  • Geographical Segmentation
  • Behavioural
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Demographic Segmentation

- Age

- Gender

- Occupation

- Socio-economic group - households are characterised by the major earner's job which therefore links to their interests, lifestye and income levels

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Income and Geographical Segmentation

- Income:

  • Certain goods/services are aimed at individuals with certain levels of disposable income. For example, Rolex, Porshe, Aldi, Lidl

- Geographical:

  • Firms can look at where particular consumer types live, what the income levels are like, whether it is rural or inner city
  • ACORN (A Classiification of Residential Neighbourhoods) is a system that segments markets according to a wide variety of types of household and the characteristics of the families that live in them. It can be done by post code and better informs businesses on where to set up and where to target certain marketing activities to be most cost effective
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Behavioural Segmentation

- Consumers can be divided into groups based on the way they respond to, use or know of a product. These may include:

  • Lifestyle - hobbies, tastes and interests all influence buying behaviour
  • Level of brand loyalty
  • Benefits sought by consumers - what are the looking for from the product? why and when do they purchase it?
  • Purchase occasion - when do people buy the product? greeting cards firsms need to create more reasons to buy cards beyond established holidays and Kellogg's increased the number of occasions cinsumers are encouraged to use their product with their 'eating twice a day' diet
  • Frequency of usage - are they 'early adopters' who are willing to buy the product on release, for example, Apple's loyal customers or those who queue at midnight when new games or consoles are released. Are cusumers heavy, medium or light users? Used, for example, by cigarette companies or mobile phone operators
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Benefits of Market Segmentation

- Helps to better understand the company's target market including its characteristics, needs and wants

- Allows a firm to better design their marketing mix to increase sales and market share

- Helps them to build a strong brand identify and establish loyalty

- Helps a firm to plan new suitable products to meet their chosen market segments

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Difficulties with Market Segmentation

- Firms can find it difficult to identify the most important segments for a product 

- Constant research is needed to keep up to date with consumer tastes and anticipate consumer taste changes

- Products may become too specific to one market segment not catering to tastes of others, thereby reducing sales

- Companies may ignore potentially lucrative segments

- Firms may find it difficult to reach their chosen market segment, for examples, younger audiences not reading as much physical print and streaming television and films online means avoiding traditional advertising channels

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Marketing Target

- Marketing targeting: deciding the market segments the company will aim to sell their products/services to; known as their target market

  • concentrated marketing - a product is aimed at a very well defined and specfic market segment. It allows firms to focus and avoids the need for mass production
  • differentation marketing - targeting several different market segments with different products
  • undifferentiated marketing - targeting the whole mass market with one product

- Product proliferation: when a firm sell a range of products aimed at different markets. For examples, Volkswagen motor company owns a range of different brands including Audi,  Bentley, Bugattis, Lamborghini, Porshe, Seat, Skoda and Volkswagen

- Market positioning: where a firm's products/services are in a market in relation to its rivals. A firm will do this based on factors such as price, value, qua;ity, product use, features, etc

- It will aim to create a unique selling point (USP): something that differentiates it from its rivals to provide it with a sustainable competitive advantage

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Influences on Choosing a Target Market and Positio

- Companies have two main options when deciding on a market position and who to aim at and that is whether to aim at a specific small market segment (iche marketing) or across all market segments (mass marketing)

- Niche marketing: when firms target a product or service at a small segment of a larger market

  • it allows firms to tailor their product/services to a particular type of customer and their tastes
  • with smaller soncumer groups in a niche market, firms are able to build a better, more direct relationships and get to know their wants and needs more specifically. For example, Hornby model railways, Porsche cars
  • however, it does not limit the potential sales and market size
  • if larger rivals spot a successful niche, they may decide to enter the market making comptition more intense
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Niche Marketing - Advantages

- Lower levels of competition may result in high market share and possible monompoly power

- Possible to build up intense customer loyalty. For example, Games Workshop

- Firms are able to set up and operate on a smaller scale helping to keep costs lower and decrease risk

- Niche market businesses can more easily differentiate themselves to create sustainable competitive advantage by tailoring their products/services to meet their consumers' specific tastes. This will help to create an unique selling point (USP)

- Higher prices can be charged with this USP and higher added value

- It is easier to design your marketing mix and target customers when you know the exact characteristics, needs and wants of your target market

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Niche Marketing - Disadvantages

- Unfortunately, lower profits may be made as firms operate on smaller scales and cannot reduce their unit costs through economies of scale

- New rivals entering the market will have a considerable impact particularly as the barriers to entry are relatively small

- Larger rivals may enter the market if it becomes very profitable

- Changing consumer tastes will have a considerable impact

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Mass Marketing

- Mass marketing: a strategy of selling goods with mass appeal and promoting them to all types of customer. For example, Esso, BP, Shell, Heinz beans, Hovis, etc

  • firms aim their products/services at all or most of the market to maximise their sales and profit potenital
  • the ultimate aim is to create a generic brand that is renowned for a particular product. for example, Cellotape, Post It, Hoover
  • hoever, this approach provides the firm with less potential for targeting specific consumer groups and adapting their products to their tastes
  • this general approach prevents firms from focusing and tailoring their products enough to have truly high demand or intense sutomer loyalty
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Mass Marketing - Advantages

- Large-scale production and economies of scale may be possible. Unit costs can be kept lower helping to push prices down

- Higher sale, revenue and profit is possible

- High barriers to entry may mean decreased competition for already established firms. These may include the high costs of set up, existing rivals brand loyalty, low prices or actions by rivals

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Mass Marketing - Disadvantages

- High costs as larger-scale operation and manufacture is needed to meet mass market demand

- Products must appeal to a wide range of cinsumers so firms are unable to easily add value by tailoring products to consumer specific tastes. This results in lower prices having to be charged

- Consumer tastes change more quickly in mass markets and are harder to keep up to date with

- More competition often from large interational rivals who compete using lower prices

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Summary

- Firms must have a definite target market in mind when designing their marketing mix

- This clear focus will ensure that the 7P's, including the product, promotion and packaging all meet their market segments needs, increasing the chances of sales

- Few brands are available to be all things to all people

- If brands attempt to cater for all consumer types, they may end up appealing to nobody

- However, businesses must be careful as they may end up aiming their marketing efforts at the wrong market segment

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