Marketing
The role of marketing
- Identify customer needs by finding out what kind of products or services customers want, the prices they are willing to pay, where and how they want to buy these goods or services and what after-sales services they might want
- Satisfy customer needs in order to achieve sales of their goods or services. Customers want the right product, in the right place and at the right price. Failure to do this, or to do it less well than competitors, will lead to the failure of the business.
- Maintain customer loyalty by building customer relationships. Keeping close links with customers and finding out if products or services are continuing to their needs will help to ensure the success of the business. If customers change their expectations of what they want from a good or service then the business should respond to meet these new needs. This will be identified by maintaining close relationships with customers. It is very important to keep existing customers and not just concentrate on attracting new ones. It is much cheaper to try to keep existing customers than trying to gain new customers.
- Gain information about customers to meet their changing needs and to establish a long-term relationship with them. This is one of the most important roles of the Marketing department today. Building a relationship with customers means that market research information can be used to understand why customers buy products and how they use them. This makes for better and therefore more effective marketing.
- Anticipate changes in customer needs by identifying new trends in customer demand or gaps in the market so that businesses can produce goods or services which are not currently available.
The marketing department
- The consumer of a product is the end user of the product or service
- The customer is the particular person who purchases the product or service
People working in the marketing department have several jobs:
- Raise customer awareness of a product or service provided by the business
- Increase sales revenue and profitability
- Increase or maintain market share
- Maintain or improve the image of products of the business
- Target a new market or market segment
- Enter new markets at home or abroad
- Develop new products or improve existing products
Types of market
A mass market is where many people in the population buy the product (e.g. toothpaste). Mass markets have:
Advantages of mass markets:
Disadvantages of mass markets:
- a large number of sales
- products designed to appeal to a large number of people, so there is little product differentiation
- advertising and promotion are intended to appeal to a large number of customers
Advantages of mass markets:
- the sales to these markets are very large
- the firm can benefit from economies of scale
- risks can be spread, as the business will often sell several different variations of products to the mass market, and if one variety of the product fails then the other products may still sell well
Disadvantages of mass markets:
- high levels of competition between firms
- high costs of advertising
- standardized products or services are produced and so may not meet the specific needs of all the potential customers, therefore leading to lost sales
A niche market is a small, usually specialized, segment of a much larger market. Some products, often specialized products, are sold to a very small number of customers who form a very small segment of a much larger market. These products are often sold by small firms because of the small number of sales. Being able to identify and supply a niche market has its advantages:
However, there are disadvantages of supplying to a niche market.
- Small firms are able to sell to niche markets as large firms may not have identified them but concentrated on the mass markets instead. This may avoid competition from the larger businesses.
- The needs of consumers can be focused on and therefore targeted by the firm in a niche market. This will give them an advantage over larger firms who aim to meet the needs of the mass market rather than the needs of these specific customers.
However, there are disadvantages of supplying to a niche market.
- Niche markets are small and therefore have a limited number of sales, which means only small businesses can operate in these markets. If the business wants to grow it will need to look outside the niche market to find sales of other products.
- Often businesses in a niche market will specialize in just one product. This means that if the product is no longer in demand the business will fail as the business has not spread its risks. Producing several products rather than just one product means that if one fails there are other products which are still in demand and the business carries on trading.
Market segments
A market segment is an identifiable sub-group of a whole market in which consumers have similar characteristics or preferences. Market segmentation is when a market is broken down into sub-groups which share similar characteristics. Each segment is investigated in great detail for advertising and products to be appropriate for the target market.
Why segment the market?
Why segment the market?
- Know the benefits each segment wants
- The amount they are able to or willing to pay
- Target specific advertising at each segment
- Know the quantities that they buy and what special offers catch their interest
- The time and place that they buy
Ways of segmenting a market
- By socio-economic group - Income groups can be defined by grouping people's jobs according to how much they are paid. Only someone with a high income could afford a Tesla, but a person on a much lower income might afford to buy a much cheaper car.
- By age - The products bought by people in different age groups will not be the same.
- By location - In different regions of a country people might buy different products.
- By gender - Some products are bought only by women or only by men.
- By use of the product - The advertising and promotion methods of a product will defer according to how different customers use the product.
- By lifestyle - For example, a single person earning the same income as a married person with three children will spend that income differently, buying different products.
Market research
Who carries out market research?
- Primary research is carried out by specialist external market research agencies - these are expensive to use.
- Secondary research is carried out by the firm itself - this makes it cheaper.
How accurate is market research?
The reliability or accuracy of the data that has been collected depends largely on:
The reliability or accuracy of the data that has been collected depends largely on:
- how carefully the sample was drawn up
- the way in which the questions in the questionnaire were phrased to ensure honest responses
- the sample selected - it is unlikely to be truly representative of the whole population but needs to be as near as possible. If a quota sample is used rather than a random sample, it is easier to gain more accurate data.
- the size of the sample - this is also important because it is not possible to ask everyone in the population which is why a sample is used. The larger the sample, the more accurate the results are likely to be, but the more expensive the research will be. If only a small sample is asked, the results are unlikely to be as accurate. Therefore the researchers need to decide how many people will give them the accuracy they want and can afford.
- well-phrased questions - trying out questionnaires on a small group of people before using them on a large sample can help to see if any of the questions could be misinterpreted. The questions can then be rephrased and the revised questionnaire carried out on the main sample
- who carried out the research - secondary research may not be as accurate at first thought because it was initially gathered out for some other purpose and you would not know how the information was actually gathered
- bias - articles in newspapers sometimes have a bias and important information is left out deliberately
- age of the information - statistical data can quickly become out of date, no longer relating to current trends on consumer's buying habits, but reflecting what they used to be spending their money on
How do you present data from market research?
- a table or tally chart - usually used to record the data in its original form, however, it is often better to convert the data into a chart or graph
- a chart - shows the total figures for each piece of data or the proportion of each piece of data in terms of the total number. For example, if a company sells its product in several countries, a chart can show at a glance which countries have the biggest percentage of sales and which ones have the lowest
- a graph - can be used used to show the relationship between two sets of data, for example, how the total cost changed over a number of years. The two variables are 'total cost' and 'time'.
Primary research
Method of Primary Research
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Advantages
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Disadvantages
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Interviews
The person asking the questions will have well prepared questions. It can be carried out with one person or a group. |
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Focus Groups
Groups of people provide information and test new products then discuss |
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Observations
Observing people: recording, watching, carrying out audits (basically stalking) |
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Experiments
Samples of new products are given out to consumers for taste. Then, they are asked to say what they think. |
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Questionnaires
Questionnaires are the most basic type of primary research. They may be conducted face to face and questions and answers need to be clear. |
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Writing a Questionnaire
Ask yourself the following questions:
When writing the questions:
When carrying out the questionnaire:
Ask yourself the following questions:
- what do I want to find out?
- who will I need to ask?
- where will I carry out my questionnaire?
When writing the questions:
- keep the questions short and clear
- keep the answers simple
- limit yourself to twelve questions as a 'rule of thumb'
- choose the target group
- avoid open-ended questions (unless you're looking for qualitative information)
- remain non-biased
When carrying out the questionnaire:
- think first about how to ask the questions and how to record the data
- practice
- who can you ask?
- where can you ask them?
- is permission needed?
- take a friend
- be patient
- keep the information confidential
Random Sampling
A population is selected at random and a method of primary research is carried out on them. The analysis of the results from the entire population is often done by a computer. With random sampling, everybody has a chance to be asked in a non-biased way. However, not everyone asked may be a consumer of the product.
A population is selected at random and a method of primary research is carried out on them. The analysis of the results from the entire population is often done by a computer. With random sampling, everybody has a chance to be asked in a non-biased way. However, not everyone asked may be a consumer of the product.
Quota Sampling
People are selected based on their characteristics out of a specific number. With quota sampling, everyone's views are from specific groups, but this type of sampling may not be convenient.
People are selected based on their characteristics out of a specific number. With quota sampling, everyone's views are from specific groups, but this type of sampling may not be convenient.
Secondary research
Internal methods
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External methods
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Marketing
The Four P's of Marketing
- Place - how to get the product to the market
- Product - design and quality; comparison to competitors
- Price - how is your product priced?
- Promotion - advertising and other promotion (e.g. vouchers)
Place
The role of place decisions in the marketing mix
The business has to get the product to the consumer after deciding on other elements of the marketing mix. The product has to be available where and when the consumer wants to buy it. The location of sale will affect the amount of sales the product has. Consumers may have to go to different shops to look for the product if it is not in a suitable location, and this will inconvenience and annoy the customer. They may go and buy a competitor’s product. Consumers must be able to buy the product easily.
The business has to get the product to the consumer after deciding on other elements of the marketing mix. The product has to be available where and when the consumer wants to buy it. The location of sale will affect the amount of sales the product has. Consumers may have to go to different shops to look for the product if it is not in a suitable location, and this will inconvenience and annoy the customer. They may go and buy a competitor’s product. Consumers must be able to buy the product easily.
Distribution channels
A distribution channel is the means by which a product is passed from the place of production to the customer or retailer. Businesses have to decide where to sell their products. They also have to decide how to get the product to the consumer if they are offering a delivery service. The distribution channel can vary - the product can be delivered directly to the consumer or it may go through intermediary channels. Distribution channels include:
A distribution channel is the means by which a product is passed from the place of production to the customer or retailer. Businesses have to decide where to sell their products. They also have to decide how to get the product to the consumer if they are offering a delivery service. The distribution channel can vary - the product can be delivered directly to the consumer or it may go through intermediary channels. Distribution channels include:
- Channel 1 Producer → Consumer
- Channel 2 Producer → Retailer → Consumer
- Channel 3 Producer → Wholesaler → Retailer → Consumer
- Channel 4 Producer → Agent → Wholesaler → Retailer → Consumer
Channel 1
This distribution channel is very simple. It involves manufacturers selling their products directly to the consumer.
Advantages of using Channel 1 include:
However, there are also disadvantages:
This distribution channel is very simple. It involves manufacturers selling their products directly to the consumer.
Advantages of using Channel 1 include:
- It is suitable for products, such as certain types of agricultural products, which are sometimes sold straight from the farm
- There is a lower price if sold directly to consumer - cuts out wholesaler/retailer
- Products can be sold by mail order catalogue or via the Internet
However, there are also disadvantages:
- This is usually impractical for most products because the consumers probably do not live near to the factory and could not go there to buy the products
- This method may not be suitable for products which cannot easily be sent by post
- It may be very expensive to send the products by post and therefore it will not be cost effective
Channel 2
This channel is where the producer sells directly to retail outlets and then they sell the product to the consumer. This is most common where the retailer is large, such as a large supermarket, or when the products are expensive, such as furniture or jewelry.
Advantages of using Channel 2 include:
However, there is a disadvantage:
This channel is where the producer sells directly to retail outlets and then they sell the product to the consumer. This is most common where the retailer is large, such as a large supermarket, or when the products are expensive, such as furniture or jewelry.
Advantages of using Channel 2 include:
- Producer sells large quantities to retailers
- Reduced distribution costs compared to Channel 1
However, there is a disadvantage:
- No direct contact with customers
Channel 3
This channel involves using a wholesaler, who performs the function of breaking bulk. Breaking bulk is where wholesalers buy products from manufacturers in large quantities and then divide up the stock into much smaller quantities for retailers to buy.
Advantages of using Channel 3 include:
However, there are also disadvantages:
This channel involves using a wholesaler, who performs the function of breaking bulk. Breaking bulk is where wholesalers buy products from manufacturers in large quantities and then divide up the stock into much smaller quantities for retailers to buy.
Advantages of using Channel 3 include:
- Wholesaler saves storage space for small retailer and reduces storage costs
- Small retailers can purchase products in small quantities from wholesaler because they have a relatively short ‘shelf life’ before they deteriorate
- May give credit to customers so they can take the goods straight away and pay at a later date
- Wholesaler may deliver to the small retailer thus saving on transport costs
- Wholesaler can give advice to small retailer about what is selling well. They can also advise the manufacturer what is selling well
However, there are also disadvantages:
- May be more expensive for the small shop to buy from a wholesaler than if they bought straight from the manufacturer
- Wholesaler may not have the full range of products to sell
- Takes longer for fresh produce to reach the shops and so it may not be good quality
- Wholesaler may be a long way from the small shops
Channel 4
When products are exported, the manufacturer sometimes uses an agent in the other country. The agent sells the products on behalf of the manufacturer. This can allow the manufacturer to have some control over the way they product is sold to consumers. The agent will either put an additional amount on the price to cover their expenses or will receive a commission on sales.
Advantages of using Channel 4 include:
However, there is a disadvantage:
When products are exported, the manufacturer sometimes uses an agent in the other country. The agent sells the products on behalf of the manufacturer. This can allow the manufacturer to have some control over the way they product is sold to consumers. The agent will either put an additional amount on the price to cover their expenses or will receive a commission on sales.
Advantages of using Channel 4 include:
- Manufacturer may not know the best way to sell the product in other markets
- Agents will be aware of local conditions and will be int he best position to select he most effective places in which to sell
However, there is a disadvantage:
- Less control over the way to the product is sold to customers
Methods of distribution
- Department stores - a large store, usually in the center of towns or cities, that sells a wide variety of products from a wide range of suppliers.
- Chain stores - two or more stores which have the same name and have the same characteristics.
- Discount stores - retail stores that offer a wide range of products, many branded products, at discount prices. Often the product ranges are of similar types of products.
- Superstores - very large out-of-town stores which sell a wide range of products.
- Supermarkets - retail grocery stores with dairy produce, fresh meat, packaged food and non-food departments.
- Direct sales - products are sold directly from the manufacturer to the consumer (Channel 1)
- Mail order - customers look through a catalog or magazine and order via the post. Orders can also often be placed by telephone or internet.
- Internet - instead of looking at a catalog, customers view the goods on the business’ website and then order on the internet or possibly by telephone or email. Businesses can sell through other specialist websites such as eBay.
Product
Role of product decisions in the marketing mix
After market segmentation, the product and packaging are chosen.
After market segmentation, the product and packaging are chosen.
- this is the most important element of the marketing mix
- products, properties etc. are researched
- product must fulfill a want and satisfy customers
- today, most companies are market-oriented
Types of product
Different types of product. Some are sold to consumers and some are sold to producers.
Different types of product. Some are sold to consumers and some are sold to producers.
- Consumer goods and services are bought by people
- Producer goods and services are bought by other businesses
The product life cycle
- All products do not last forever
- Like living organisms, products all have certain stages of their lives to go through
- The process of what happens in a product's life is called the product life cycle
A typical product life cycle
- First a product will be developed. The prototype will be tested and market research carried out before the product is launched on to the market. There will be no sales at this time.
- It is then introduced or launched on to the market. Sales will grow slowly at first because most consumers will not be aware of the product's existence. Informative advertising is used until the product becomes known. Price skimming may be used if the product is a new development and there are no competitors. No profits are made at this point as development costs have not yet been covered.
- Sales start to grow rapidly. The advertising is changed to persuasive advertising to encourage brand loyalty. Prices are reduced a little as new competitors enter the market and try to take some of your customers. Profits start to be made as the development costs are covered.
- Maturity. Sales now increase only slowly. Competition becomes intense and pricing strategies are now competitive or promotional pricing. A lot of advertising is used to maintain sales growth. Profits are at their highest.
- Sales have reached a saturation point and stabilize at their highest point. Competition is high but there are no new competitors. Competitive pricing is used. A high and stable level of advertising is used, but profits start to fall as sales are static and prices have to be reduced to be competitive.
- Sales of the product will decline as new products come along or because the product has lost its appeal. The product will usually be withdrawn from the market when sales become so low and prices have been reduced so far that it becomes unprofitable to produce the product. Advertising is reduced and then stop.
How stages of the product life cycle influence marketing decisions
Knowing the stage of the life cycle that a product is in can help a business with pricing and promotion decisions. Prices are likely to be higher in the growth stage than in the saturation or decline stage, when the business will want to try to stop sales declining. Spending on promotion will be higher at the introduction stage than in other stages as the business has to inform consumers of the product, establish a brand identity and encourage rapid increases in sales. Advertising would probably be reduced in later stages.
Knowing the stage of the life cycle that a product is in can help a business with pricing and promotion decisions. Prices are likely to be higher in the growth stage than in the saturation or decline stage, when the business will want to try to stop sales declining. Spending on promotion will be higher at the introduction stage than in other stages as the business has to inform consumers of the product, establish a brand identity and encourage rapid increases in sales. Advertising would probably be reduced in later stages.
Extending the product life cycle
When a product reaches the maturity or saturation stage of its product life cycle, a business may stop sales starting to fall by adopting extension strategies. These are ways that sales may be given a boost. Some possible ways businesses might extend the life cycle of their products are shown in this diagram:
When a product reaches the maturity or saturation stage of its product life cycle, a business may stop sales starting to fall by adopting extension strategies. These are ways that sales may be given a boost. Some possible ways businesses might extend the life cycle of their products are shown in this diagram:
What makes a good product?
- Has to satisfy customers or it will not sell
- Right quality so the price is what customers want to pay
- The cost of production should enable a price to be set that will enable a reasonable profit
- Attractive design to aimed age group
- Appropriate quality for brand image and price
- Quality should lead to a good reputation or there will be no buyers
Product development
Businesses go through a process while developing a product.
Businesses go through a process while developing a product.
- Generate ideas based on research and development, customer suggestions, competitor products and ideas from the sales department
- Select ideas for further research - some ideas are abandoned, some are researched further
- Decide if a product will sell enough - break even analysis is carried out
- Develop a prototype
- Test the market
- Full launch of product to the market
Packaging
- Should be suitable for the product
- Should provide protection for the product and prevent it from spoiling
- Should be suitable for transporting the product
- Should not be too delicate
- Used in promoting the product based on color, shape, attractiveness
- Should be eye-catching
Price
Cost-plus
This prices the product at the cost of manufacturing plus a profit markup. It is easy to apply. However, if the price is higher than that of a competitor, sales may be lost.
This prices the product at the cost of manufacturing plus a profit markup. It is easy to apply. However, if the price is higher than that of a competitor, sales may be lost.
Competitive pricing
This prices the product in line with or just below competitors and aims to capture more of the market. There will be a high level of sales and the product will not be considered overpriced or underpriced. However, you have to keep track of what your competitors are charging and this costs time and money.
This prices the product in line with or just below competitors and aims to capture more of the market. There will be a high level of sales and the product will not be considered overpriced or underpriced. However, you have to keep track of what your competitors are charging and this costs time and money.
Penetration pricing
Used to enter a new market where a lower price is offered than that of competitors in order to steal market share from others. This ensures that sales are made. However, a low price leads to a low profit.
Used to enter a new market where a lower price is offered than that of competitors in order to steal market share from others. This ensures that sales are made. However, a low price leads to a low profit.
Price skimming
When a new product or invention is introduced in a new market, a high price can be charged. This can help to establish the perception of good product quality. However, some customers may be put off because of the high price.
When a new product or invention is introduced in a new market, a high price can be charged. This can help to establish the perception of good product quality. However, some customers may be put off because of the high price.
Promotional pricing
When a product is sold at a very low price for a short period of time. This is useful for getting rid of stock and helps create interest in the business. However, the sales revenue will be lower because of the low price.
When a product is sold at a very low price for a short period of time. This is useful for getting rid of stock and helps create interest in the business. However, the sales revenue will be lower because of the low price.
Psychological pricing
Attention to the effect of the of the price on the consumer's perception of the product. High price could be seen as a high quality. Pricing just below a whole number will make the product seem cheaper. However, competitors may do the same and this may reduce its effect.
Attention to the effect of the of the price on the consumer's perception of the product. High price could be seen as a high quality. Pricing just below a whole number will make the product seem cheaper. However, competitors may do the same and this may reduce its effect.
Dynamic pricing
To take advantage of the ability to change the price when it's convenient. Sales revenue and profit will increase. However, there is a high cost for customers constantly trying to find the best price and a high cost for businesses to constantly be changing the price.
To take advantage of the ability to change the price when it's convenient. Sales revenue and profit will increase. However, there is a high cost for customers constantly trying to find the best price and a high cost for businesses to constantly be changing the price.
Elasticity of demand
As the price of a product increases, the demand decreases as people can’t afford to buy the same amount of things for a higher amount of money. Where the demand from consumers meets the supply from suppliers is the market value. There are certain products that are price elastic or price inelastic.
As the price of a product increases, the demand decreases as people can’t afford to buy the same amount of things for a higher amount of money. Where the demand from consumers meets the supply from suppliers is the market value. There are certain products that are price elastic or price inelastic.
Elastic demand
The demand for a product is elastic when the quantity demanded is very sensitive to price changes; where there are many possible substitute products. If the demand for a product is elastic, change in quantity demanded is greater than the change in price. Elasticity means that there are substitute products available. |
Inelastic demand
The demand for a product is inelastic when the quantity demanded is not very sensitive to price changes; where there are not many possible substitute products. If the demand for a product is inelastic, change in price does not significantly effect a change in demand (e.g. staple food, fuel, necessities). An inelastic demand curve is much steeper than an elastic demand curve. There are ways to make your product more inelastic:
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Promotion
The importance of branding
- Today products aren't sold directly to customers, but to other businesses or retailers
- Products are sold to customers by being branded
- There is a popular belief that branded products are of a higher quality
- Use of brands to encourage repeat purchases
- Creates brand loyalty
Sales promotion
Advertising is above-the-line promotion. Other types of sales promotion are known as below-the-line promotion. Sales promotion is designed to increase sales.
Advertising is above-the-line promotion. Other types of sales promotion are known as below-the-line promotion. Sales promotion is designed to increase sales.
- The aims of sales promotion in a business is to support advertising and encourage new or existing customers to buy the product
- It is only used for short periods of time to give sales a boost. Promotion is never used for long periods of time
Different types of sales promotion
- Price reductions - Reduced prices in shops at specific times of the year and money-off coupons to be used when a product is next purchased.
- Gifts - Small gifts placed in the packaging of a product to encourage the consumer to buy it.
- Buy One Get One Free - Where multiple purchases are encouraged.
- Competitions - The packaging of a product may include an entry form which allows the customer to enter a competition.
- Demonstrations - Point-of-sale displays where a product is being sold.
- After-sales service - Providing an after-sales service can be a way of encouraging the customer to buy as they can be reassured that if the product goes wrong, they will be able to get it repaired with no additional charge.
- Free samples - Can be handed out in the shop to encourage the customer to try the product and hopefully buy it.
The advertising process
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Different types of advertising
Advertising can be either persuasive or informative or have both elements.
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e-commerce
What is e-commerce?
e-commerce is the buying and selling of goods and services using computer systems linked to the Internet.
e-commerce is the buying and selling of goods and services using computer systems linked to the Internet.
Advantages for the business
- Websites can be used to promote the company and its products worldwide much more cheaply than other forms of marketing
- Orders can be taken over the computer and sent directly to company warehouse for dispatch
- Consumers might be encouraged to purchase more products than they intended by attractive and easy to follow websites
- Businesses can also easily make online purchases of supplies and materials from other businesses - this is called business-to-business e-commerce
Advantages for the consumer
- No need to leave the house to go shopping and this convenience is a major factor explaining the growth of e-commerce
- Comparisons between prices and products or services offered can be easily made by surfing from one website to another - or using price comparison websites
- Payment by credit or debit card is very easy
- Consumers can now easily access products and services from businesses located abroad - this would be very difficult or expensive without e-commerce
- Consumers can buy some products for prices much lower than they would be without the competition of e-commerce
Marketing strategy
Legal controls on marketing
- Weights and Measures. Retailers and producers commit an offense if they sell underweight goods or if the weighing equipment they use is inaccurate.
- Trade Descriptions. It is illegal to give the consumer a deliberately misleading impression about a product. For example, it is illegal to state that a pair of trousers is made of wool, when they are made of cotton. Advertisements must therefore be truthful.
- Sale of Goods. It is illegal to sell products which have serious flaws or problems, that is they are not of a satisfactory quality; products which are not fit for the purpose intended by the consumers, for example if the consumer asks for a drill to make holes in walls and is sold one which is only suitable for wood; products which do not perform as described on the label.
- Supply of Goods and Services Act. This act does the same for services as the Sale of Goods act does for products. A service has got to be provided with reasonable skill and care.
- It is illegal for misleading pricing claims such as ‘$40 off for this week only!’, when the product was also being sold for the same price the previous week. Most importantly, when the law makes retailers and manufacturers liable - that is, responsible - for any damage which their faulty goods might cause. Anyone injured by faulty goods can take the supplier to court and ask for compensation.
- The Distance Selling Regulations allow customers a cooling-off period of seven working days - this means they can change their mind about purchasing the good or service. For goods, this starts from the day after the goods are delivered and for services, it’s seven working days from the contract being agreed. These regulations apply to all transactions carried out over a distance as well as online transactions.
Opportunities of entering new markets abroad
- Growth potential of new markets in other countries. Countries in different parts of the world are now developing and seeing their population enjoying rising incomes.
- Home markets might be saturated and these new markets give the chance for higher sales.
- There is a wider choice of location to produce products and this encourages businesses to sell as well as produce in these countries. The business will have more information about these markets and be better placed to sell them as well.
- Trade barriers have been lowered in many parts of the world making it easier and profitable to now enter these markets.
Problems of entering new markets abroad
- Lack of knowledge - the business may not be aware of competitors or the habits of consumers in these markets. For example where do most people do their shopping?
- Cultural differences - religion or culture may mean that some products don’t sell in another market.
- Exchange rate changes - if the exchange rate is not very stable then exchange rate changes can mean the price of imported goods change and the products can become to expensive to sell in the new market
- Import restrictions - if there are tariffs or quotas on imported products then the prices of these products may be higher than domestically produced goods - reducing sales or profits or both
- Increased risk of non-payment - methods of payment may be different in these new markets and it may be more difficult to be certain that payment for imported goods will be made
- Increased transport costs - as products have to be transported over long distances then the costs of getting products to the market will increase. However, there have been benefits from using containers to transport products and the container ships are getting larger and all this has led to reductions in transport costs.
Methods to overcome the problems of entering new markets abroad
- Joint ventures allow businesses to gain important local knowledge so that culture and customs can be adapted to enable a more successful entry into the new market.
- Licensing is where the business gives permission for another firm in the new market being entered to produce the branded or ‘patented’ products under license. This means the products do not have to be physically transported to the new market which saves time, transport costs and can get round trade restrictions.
- International franchising means that foreign franchises are used to operate a business’s franchise abroad.
- Localizing existing brands - there is a phrase ‘thinking global - acting local’ which is being used by several global businesses. It means that there is still a common brand image for the business but it has adapted to local tastes and culture therefore increasing sales.