Unless a business is a restaurant it would not show its market segmentation strategies as a cake but a diagram. Suggest that a school’s cafeteria is planning to introduce a new meal to its food collection. Before the cafeteria will start selling its product, it will divide the market available into segments to choose which group will bring the most sales. A diagram that represents the various market segments could look like this:
So the school’s cafeteria targeted Students to sixteen to sell its new product to, because they were the biggest segment in the market and are likely to bring higher profits. Knowing that children do not care a lot about their weight but taste of food, the cooks added chocolate to the product that was mainly sold on break time when students are available to buy it. The students liked the new product and I was a great success.
In this case we have seen how a school’s cafeteria would divide its market to sell a new product successfully by focusing on the characteristics of this market segment. Other organisations segment the market in a different way. A car manufacturing business will segment the market according to age and income of the market available. The concrete market segmentation depends mainly on the product that ought to be introduced to the market. E.g. when selling a new computer game you could segment the market with groups that have no computer, for those who play 0 – 3 hours, 3 – 10 hours and for those that play more than 10 hours in a week.
If an organisation targets a very tiny part of a segment, where an organisation or product is particularly strong, this specialization often results in high quality by the specialist organisation and elimination of competition because of the high standard. This is called a niche market. High quality and elimination of competitors is not always the case though. It can cause exactly the opposite of this.
A good example would be Reckless Records in Southgate that served a niche market. Initially it looked successful, but because it was serving a niche market it relied only on a very small group of customers and as many of them stopped buying products from Reckless Records, it had not enough income to survive and ceased trading. It had not many customers left, because it was serving a niche market. Here we have an example of elimination of the own business due to a niche market, so when a business wants to serve a niche market this decision must be well-thought.
Our present market segmentation looks like this:
Our organisation will not be serving a niche market, since we do not have much expertise in a particularly small part of one of these segments. We will focus on teenager needs, since they are the major segment of our market, but we will also provide other groups with products. We will advertise mostly to teenagers and DJs, but also a small bit to other groups to increase the number of repeat customers.
It is very important to understand the process of market segmentation as it is essential for introducing new products and in particular for a new business like ours to make a profit. If you do not segment your market, you are likely not to maximise your profit and may be offering your products to the wrong groups or individuals. E.g. advertising a car to a group with no driving license and less income of money.
Our market segment will definitely change in the future as inventions and steadily improving technology change our market. From my point of view the best way to eliminate competition, increasing the market share, and expanding in sales is by starting to serve a niche market as our business will be offering a very high quality. We can start to serve a niche market when we have enough expertise in satisfying the needs of a tiny part of a market segment of Rock n’ Records.
The Meaning of Market Research to our Business
I talked about the importance of market segmentation and how this can lead a new product to success, but I did not mention where to get the information from to know how big each segment of the market will be. To find out I will have to carry out market research. It is the process of gathering, analyzing and interpreting data that is significant for classifying the business' market, customers and competitors. It has the purpose to improve marketing decisions.
I will collect data mainly about:
- Who wants to buy our music products
- How sensitive are potential customers to prices
- What kind of advertising seems efficient
- If people would like additional delivery services at slightly higher costs
There are two opportunities to do this, either by primary or secondary research.
Primary research: You can call it also field research. It is the original research on a subject. Researching is done actively. The research may include some form of questionnaire.
Advantages:
- Up to date
- Direct contact
- Can be specialised to meet the demands of an organisation
Drawbacks:
- Time-consuming
- Expensive
- May be giving wrong conclusions due to biased answers of interviewees
Secondary research: This is also called desk research, because it is possible to carry it out while sitting at a desk. You use information that has already been conducted for your marketing research by another source. E.g. Finding Census information via the internet.
Advantages:
- Cheap
- Fast
- Already analysed
Drawbacks:
- The format may be difficult to read
- Information may be out of date
- The data may not be accurate or complete
- When you introduce a completely new product it is not likely that there is any secondary research on it or you will not necessarily find what you exactly need.
One of the most important sources of secondary data is the Census. This is a National Census of Population hold by the government every 10 years. It contains detailed information about the UK’s population, so it will be helpful for us to know which groups have which charasteristics. The next census will be in 2011. This will provide us with marketing decisions and it is surely a good source of information as it is against the law not to fill out the census return.
The National Census of Population is published on the government site www.statistics.gov.uk
Field Research - Questionnaire
I will carry out primary research in the form of a questionnaire with which I will survey 50 people. My questionnaire is on the next two pages. I chose my questions carefully to suit the situation of my record shop. I included questions on the music taste of people. Questions 1, 2 and 5 are the most important ones as they will show which products are likely to be frequently bought by customers. Question 4 is very important in the question of which medium to use when carrying out above the line promotion. Question 3 will show me which payments customers prefer the most. If there are many ticks on the box internet I will create a webpage for our record shop where people can order music online. I will use a large part of the back of my questionnaire for promotion. This will introduce interviewees to the business and probably increases the number of initial customers. I asked people in the city at about 4 o’clock am. In school I interviewed people at about 2 o’clock am to guarantee that I find enough interviewees. I included £50 prize money, which should be an incentive for people to answer the questionnaire honestly.
Please answer the following questions honestly as we will not register your name or address. We only want to improve our service. We will evaluate your results and if we think that you answered everything honestly you are able to win
Tick the box if appropriate! There are only 10 questions!
- What type of music medium do you prefer?
Records CDs Digital (E.g.MP3) DVDs Other:……..
- What kind of music do you listen to ( You can tick more than one box )?
Rock Hip-Hop Soul R n’ B Reggae Jazz
Pop Classical Country Other:………………………..
- How do you usually order your music products?
Via internet Buying with cash Buying with card
Other:………………………………………………………………….
- Where have you seen\heard a kind of promotion for music products since last month?
Television Internet Radio Billboard Newspaper
Magazine Other:………………………………………………….
- How much money have you spent on the following products from last month on?
(Write a number from 1-4 into the boxes; 1=£0-£20, 2=£20-£75, 3=£75-£150, 4=£150+)
CDs Downloads via internet T-shirts with singers on them Records
- Are you satisfied with your income? (This can also mean that you have enough income but still want more and so you are not satisfied with it!)
Yes No I don’t know
- Is there anything you wish a music shop should specially have?
……………………………………………………………………………..
……………………………………………………………………………..
-
How often did you visit a muscic shop or shops that also sell music articles like hmv?
0 to 5 6 to 15 16 to 25 25+
- What do you think is the most important factor for a product or service?
Quality Price Quality for a reasonable price
- Where do you live? (You don’t need to write your address. Just write something like Winchmore hill, Southgate or Palmers Green. When you live far away than write something like South of London. However, if you want an opportunity of winning our price-money you will have to write your full address so that we can send it to you. After somebody has received the money no specific address will be kept.)
………………………………………………………………………………………................................................................................................................................................
The new music shop
Rock ‘n Records!
We have every track you want
And more! Visit us!
We are here
3 High Street (A1004)
Southgate
N14 London
Since teenagers are the majority of our present market I asked 35 teenagers from 14 to 18 years in my school. I asked 5 teachers as well and even interviewed 10 pensioners in Southgate. To ensure that they are pensioners I asked them beforehand. Based on the answers these people gave, I will draw up some graphs and analyse them. This will help me with marketing decision on the business. As long as there was not a reasonable number selecting other in a question I will not include what persons wrote. At first I will investigate what kind of music people prefer. The following bar chart represents the answers given to question 2:
Before I will evaluate the answers, I draw up all important graphs that help me analyse them. My next graph will show what kind of music medium people use (question 1).
This graph will show how people usually order music products:
In the next bar chart you can see the medium for above the line promotion people can remember. This is able to show which one is most effective:
In the next chart you will be able to see the results of question 5. It will show how much money an average interviewee spent on the following. Since my question had ranges I showed the range possible per person:
I will not draw up a graph for question 9, because the answers were unambiguous. 44 people voted for ‘quality for reasonable price’. Only 4 persons wanted the best possible quality, while to 2 persons the price was most important.
The graph on the next page will show the number of times people have visited a music shop like ours in a period of a month as written in question 8.
There are more people going to music shops than I have expected. The estimated mean number of people going to music shops within a month reaches 26 times which is quite a lot to me.
There is loads of information resulting from the questionnaire. I will relate many of the decision later in this assignment to the graphs that were very useful for analysing the data from the field research I made.
Now I will make the decisions which I can make at this point. First I will choose the best possible medium for above the line promotion, which we could use. Since the graph on the kind of promotion medium remembered by people showed that television and the use of a billboard were most effective, I will use one of them. I plan to use a poster or notice board, because it is quite cheap compared to advertisement by television. This will mean that we will have to pay for rental charges of the notice board. I will outline the various costs of promotion our business is going to face later in the promotional costing plan.
The results of question 8 showed that there is an average of about 26 times the usual person goes to a music shop, which means that the use of promotion will be very important, as people are willing to visit us or a competitor and will decide whether they go to our business or to a competing one. This could also mean that I have to buy more stock to meet the demands of our customers. But I will decide about this after three months so that I will see if I really need additional stock. Additional stock would mean that initially more money has to be sent on stock and so the business will lose ‘liquidity’, but if the demand of customers is high, this additional stock will lead to additional profit, which make the business more liquid than it was beforehand and healthier.
Question seven was not really helpful, although it looked promising, it was not useful. Many people left it blank. Some guys wrote ‘a buff girl’. Other people wrote something like ‘a good and friendly service’, which we have already. But there was no idea that would really help changing something in our record shop.
It was a good decision to sell mainly Hip-Hop music which is proved by the first graph. This does not necessarily show that our business will be more successful though. I am not in control of the external environment as I have mentioned earlier in this report. There are many other factors that have to be taken into account before making predictions.
When you look at the chart that shows what kind of music medium people prefer it clearly shows a trend towards ‘digital’. Based on this information I am planning to introduce a new product to our range. I observed its success at Argos Ltd in Wood Green, a big retailer for many types of products. It is called an itune card. It is used to buy music via internet without cash. Customers only have to pay for the card at our business. It is mainly used as gift cards. The graph also showed that very few people buy records, so it was a good decision to reduce the amount of records our business is selling to 5%. We will start to sell ipods as well. I have seen many guys at my school that are using ipods. They are likely to increase our revenue. I will generally try to buy a great number of products like mp3-players and sell them in large quantity in a basked. I will specially try to sell T-shirts with famous singers on them as a graph based on the spending of people showed that they particularly bought these products rather than CDs for example. This will mean that we will have to pay for a wider product range, but customers tend to like this, and so this is likely to result more customers and increased profits.
The third graph I made showed that many people order music via internet and not only simply buy it in a store. This was a good reason for introducing itune cards to our business, but it also shows that we ought to create a webpage for our business and sent demanded products by post or deliver them ourselves.
Since the graph related to question 1 showed that a lot of people also prefer DVDs as music articles I have decided to sell more DVDs in order to cope with this trend that just resulted from my research.
Overall the use of a questionnaire was very helpful as it showed a lot of trends which supported and led to a lot of market oriented decisions regarding to our record shop.
There is something I have considered before making decisions. I would never base an important decision on an opinion which can be biased and so may give wrong conclusions. Opinions are qualitative. However, facts are true and are mostly illustrated in form of quantities. So they lead to right resolutions. They can be shown in form of a graph.
A recommendation that I would make at this point is the use of market research at a regular basis in order to keep this business market oriented and focus on changes of the customer’s wants and needs. Because people tend to change their tastes quite often, we have to consider the effect of changes on our business. We have to adapt with these changes of our business’ market i.e. market orientation.
Field Research – Competitors Scan
The first national music retailer I am going to investigate will be HMV. It is a big national retailer for films, albums and other music articles.
The business is the leading specialist retailer and has a wide product range as shown above. There are businesses in various parts in the UK, where HMV has about 200 stores running. It is possibly performing so successful, because of the broad product range, the big market share, and the large amount of promotion. The private limited company carries out a great amount of promotion on television, which appears to be successful.
I found the nearest business to our record shop with the search engine ‘www.yell.com’. I also found a photo of the store on the internet. It is on the next page.
This is their logo:
To look for important features of the company, I found an article on the website ‘www.forbes.com’. It is on the next page.
Market Scan
HMV Drops On Half-Year Loss
, 01.11.07, 1:12 PM ET
Music, the food of love, used to be the bread and butter of HMV Group. Now whether it's folk, hip hop or mariachi, nothing seems to be helping the British music and book chain from floundering.
Profits, for one thing, are now non-existent. HMV shares dropped 3.8% or 5.5 pence (11 cents) to 141.25 pence in Thursday afternoon trading in London after the company reported a loss of £26.1 million ($51 million) for the half year to October 28, 2006, compared to a profit of £100,000 ($194,000) in the corresponding period in 2005.
Chief Executive Simon Fox blamed a "difficult" market. "The actions the Group has taken to improve its competitive position are yielding benefits, but these are not sufficient to offset the profound changes taking place in our markets," he said in a statement along with the trading update.
"We recognize we face very tough and rapidly changing markets and have to work hard to offset this," he said.
Fox took the reins of HMV last September. It seemed like the company had brought him on board because of his experience with online sales as chief operating office of e-retailer Kesa. HMV, which runs around 360 HMV record stores, 200 Waterstone's bookshops, and 130 Ottakar's bookstores (it bought the chain last year), has since sought to push sales of DVDs, music and books through its Web site.
Numis Securities has now said they may eventually reduce their forecasts for the company because of the ongoing shift from CDs and DVDs to digital downloads.
Pricing pressure from big supermarket chains like Tesco and Asda, who are able to sell DVDs and CDs have also served to dent HMV's margins. Christmas was perhaps where that was most noticeable. The season of giving failed to give HMV respite - the company reported a 1.3% drop in sales in the 12 weeks ending Dec. 16.
HMV used to have several outlets in the East coast of the United States, however it gave up on the U.S. market in 2004. Today it's presence is strongest in the U.K., though it does have stores in Japan and Canada.
Last March private equity house Permira Advisers looked like it might buy HMV, but its 210 pence per share cash offer after the retailer refused to enter into substantive .
From this article I will have to filter relevant information that will help my record shop to be more successful. HMV has encountered problems since profits are disappearing. It reported a loss of £26.1 million.This could be a result of the dropping music market of the UK, which was also claimed by chief Executive Simon Fox. The argument centered the market being very tough and rapidly changing. The company also offered more internet services. Our business should do the same as question 3 from the questionnaire also showed that 38% of all interviewees ordered music via the internet. A website where we could sell downloads would be a good market oriented decision resulting from this competitors scan and the questionnaire. The article also says that there is a big shift from CDs and DVDs towards digital, which is also a good reason for the website we will create.
The next national competitor I will analyze is a large public limited company called Woolworths.
This is the logo of Woolworths:
Here I used ‘www.yell.com’ again to find the location of the nearest store
This is a picture of the store shown on the map from the previous page:
Woolworths is a large limited company that is selling a lot of products throughout Europe. It also sells a lot of music articles. The founder was Frank Winfield Woolworth.
It is obvious that Woolworths is successful, because of the use of price penetration. So a lot of people will rather buy their goods in Woolworths than its competitors. Our business should do the same and charge very low prices initially in order to break into its market. But we should wait until it has introduced itself to the market, to guarantee that the products are bought by enough people. This will hopefully create a business reputation as good as Woolworths’.
The next two businesses will be local competitors. I want to pick the two nearest competitors from the map of page 6, where I showed the location of our business and its competitors. I will identify these two competitors on the next page
This is the map of the direct environment of Rock n’ Records.
I will select the competitors I will talk about with arrows below:
This is K-Records, a small-sized record shop.
It focuses on needs of professional music DJs.
This is the logo of the business:
K – Records seems to be very successful, because of the use of two things, promotion in form of direct mail sent to DJs and price penetration. After the business began to establish itself and obtained a good business reputation, because of offering very cheap products, it increased its prices in order to increase profits. Although K – Records increased its prices, many DJs were still buying from this business, because of its reputation as cheapest record provider. And the use of sales promotion made its products look cheap although they were not different in price than its competitors. K – Records is still a leading local record shop, because of the use of special pricing strategies and direct mail.
Our business can learn a lot from these pricing and promotional strategies. Because we have no business reputation now, we should take measures to create a good reputation. Initially the use of price penetration would be very helpful. But somehow we have to tell our market that our prices are very low. To ensure that enough people will know this, we ought to direct mail teenagers as they are our targeted market segment. After we created a good business reputation, we can charge more for our products, since we have a larger market share. The use of sales promotion can make products look cheap so that customers still think that our business is a cheap provider of their needs.
The next local competitor I am going to investigate is Fat Sausage Ltd.
This is the logo of the business:
It is a small private limited company that focuses on the needs of teenagers just like our business. It is mainly selling records although it targets teenagers. Because of that this business is not really successful. It hardly has any pricing strategies and promotes its business and products to teenagers, which are not interested in records. This leads to the business encountering considerable losses and I am sure that sooner or later they will have to cease trading. The only positive feature of the business in these circumstances is that the business is a private limited company, so that the owners will not be bankrupt and do not have to pay the debts of the business, when it fails.
Our business should never do the same mistake. We can learn that every decision a business makes should be mainly focused on its market. The best step before starting the business would be the use of market research; this prevents the business being a failure like Fat Sausage Ltd. Directly starting the business without any knowledge of its market is simply unnecessary risk-taking and may mean that the business’ products are not effectively selling itself
Every business described in this competitors scan also uses psychological pricing. This seems effective, as the price is just below a ‘critical point’, which is seen as much cheaper in customers’ minds. This helped every business in this competitors scan to increase profits slightly. E.g. pricing an album for £19.99, which is just under £20 but sounds much cheaper and can be advertised as below £20.
Secondary Research on the Music Retail Industry
In this part I am going to investigate my market – the Music retail industry. I will carry out secondary research on its market size, possible sales trends and other features. Since my business is only selling records as 5% of the business’ articles I am not going to investigate the record retail industry. This industry is not significant to our business. For this purpose I have found an article on the website ‘www.bbc.co.uk’ that was giving sufficient information on that topic. The article is on the next three pages.
This article gave loads of information that all helped me to evaluate the condition of this market. Unfortunately, things are not looking good, as customers are showing a steady decline towards music articles. It shows that the market size is reducing its sales after a reduction of already 5% to another 7%, while the number of downloads dramatically increased. Experts suggest a link between these two incidents and that music pirates are causing an incredible amount of damage to the music retail industry.
The primary research that I carried out already suggested that DVDs are more commonly sold and this article also shows that the sales of music DVDs has increased by 58%, which is amazing. Our record shop will definitely focus on selling music DVDs as an important part of our product range.
Although the trends show that the world’s music market is steadily decreasing, the UK market seems not to have such a bad trend. Before the market suffered a small 3% drop, sales were growing for 5 years.
It is also not right to say that there is definitely a link between the decrease of the music market and the increase of music downloads. The reason of the dropping music sales is not necessarily music piracy. It would be better if our business accepts this trend and tries to offer services that satisfy these new needs of customers by creating a website that offers direct downloads with payment being made by bank.
Technology consultant Bill Thompson also said, “If the record companies had given us a properly-priced, good quality music download service instead of just trying to hold on to the CD market we would all be happier now,"
This is what Rock n’ Records has to do better now.
The Marketing Mix - Four P’s
Imagine a cook that has four ingredients to make the best possible meal. He must weigh up every single piece and look what happens when he mixes that amount with another ingredient. He tries to improve the meal to make it more successful. My job as marketing director is not very different. My four ingredients are
- Product
- Place (distribution)
- Production
- Place
I have control over these parameters. I can vary the price and the concrete product as well as the kind of promotion and the distribution. The result is my targeted market, the mix of these ingredients. This is what we call the marketing mix. My goal is always to make the business more successful and to help achieving its marketing objectives. The diagram below illustrates the mix of these variables in form of the target market:
These are the four P’s of marketing. They are the main variables controlled by the marketing director. But there are still more. Because of simplicity many people prefer this view of the marketing mix. The other P’s could be people, packaging and process. From my point of view packaging can be grouped under promotion, since it is a medium of below the line promotion. The original concept of the marketing mix comes from Neil H. Borden. From his point of view the marketing mix consists of product, planning, pricing, branding, distribution, channels, personal selling, advertising, promotions, packaging, display, servicing, physical handling, and fact finding and analysis. Later E. Jerome McCarthy grouped these ingredients into the 4 P’s of marketing that are well-known today. In the following pages I will deal with these four P’s and state how I will vary these variables to make the business more successful and stimulate the market at various stages of product life cycles.
Our Products
A product is the good or service that a business is offering for a price. We sell a broad range of products. In the following paragraphs I will describe the most important ones.
The music player is a portable system that allows people to listen to or even watch music/music videos on the way. We will sell them, because I have seen many teenagers using them and the result of question 1 showed that more and more people want to have their music in form of digital data. As a result music player should be more frequently used, which is also confirmed by experiences I made.
A special kind of music player that has a relatively big market share in terms of its international competition in music players is the ipod. It is highly promoted and seems to be very successful. Almost
every important retailer
for electronic articles has
got the ipod in its product
range. Its style, packaging
and branding mainly
contribute to its
large market share
as they are
unique and often
remembered from
promotion on
television and other media.
These are old-style data carriers that must be read by record players which are sold very rarely nowadays. Since our record shop is called Rock n’ Records and since it is a record shop, many customers are expecting records inside the store. There are also DJs and old age pensioners who are likely to buy them regularly. Because they make up a large segment of our market, we are going to sell records as well. We will sell records as only 5% of our products, since question 5 of the questionnaire was showing that very few people bought records. Based on these findings we will sell more CDs as more money was spent on them. Should there be an increasing trend that suggests that records are more commonly sold though, our business will sell more records, since we have to stay market orientated to ensure our product range a success.
A CD is a data carrier that usually has a capacity of about 700 MB. Songs can be saved on this data carrier which makes it significant for the music industry. The CD’s place in the music market is more and more being taken over by the music DVD. This is not only shown by the questionnaire, but also by the secondary research I carried out, which stated that the DVD is going up in sales by 58%, while the sales of CDs is going down by 6%. So we will sell more CDs than records and more DVDs than CDs according to the market size of each product.
These are data carriers with about 4.7 GB of space and the ability to be used for music videos, which need more space and would not easily fit on CDs. This may be a reason why its market size is dramatically growing. We will sell a lot of DVDs, as question 1 from the questionnaire showed that a lot of people prefer DVDs rather than CDs and according to the secondary research I made DVD sales are growing dramatically.
Music downloads are copies of a music file from our website to the customers’ computer, over the Internet for a particular price. They are very important to our business, since question one of the questionnaire I made clearly showed that about 50% of the interviewees preferred music in form of digital data and the secondary data obtained by me linked the drop in the sales of music articles to the increase in music downloading. According to question three of the questionnaire, also 38% of the interviewees order their music via internet. Our business has to be market oriented and in order to cope with these changes of the market’s needs, creating a webpage with possible downloads by customers would be appropriate. The competitors scan also showed that HMV is using this strategy in order to increase sales.
These are very important to our business, as they are proved to be successful by Argos Ltd. Our business copied this successful idea and our research already showed the positive trend towards the digital music format and downloads. So our business should be selling them as a result of market orientation. This will hopefully be satisfying the new needs of the market of Rock n’ Records.
- Clothes with famous artists on them
These are various clothes to wear that have the image of a famous artist on them. Question five of the questionnaire showed the product being spent a lot of money on by many interviewees. I also noticed that black people appeared to spend more on this product than other people, but I did not want to ask for the skin colour of the interviewees, as this may cause offence. Nevertheless, I will try to target black people when promoting the clothes Rock n’ Records is selling.
These are the products that are most important to our business. There are still more products like key pendants in form of famous artists. But these have rather the purpose to attract new customers by a wide range of products rather then to make a wide profit margin.
It is very important to ensure that the products Rock ‘n Records offers are successful. In order for them to be successful we will carry out market research and relate every single product to at least one trend or significant piece of information that would justify the inclusion of this product to our product range. The research will also be useful to estimate the market size of a product in order to purchase the right amount of stock or to know when a new product would be very successful. I based the products that I will sell on secondary and primary research I made. All these measures taken by us shall make sure that every product that we sell contributes to the survival and growth of Rock n’ Records. This will mean that our business has to be market oriented by using market research.
There are some unique selling points our business has to offer when being compared to other businesses. These are mainly occurring, because of the small-scale nature of Rock n’ Records.
One USP would be that the business offers a personal service, because the small number of customers allows us to have an overview of individual customers, and repeat customers may create a relationship with a member of staff.
One of the most important USPs that we offer is an informal credit that will attract customers, who cannot afford a product at the time of the deal. However, to make sure that the debtor can pay, a credit check must be carried out.
Another USP is that Rock n’ Records has longer opening hours than usual businesses. This will be very important, as teenagers, which are our targeted market segment, often ‘hang around’ at nights. Teenagers are likely to randomly visit stores like ours and when we are still open in the late evening, we may gain new customers.
The Product Life Cycle
Every product has a natural product life cycle, which starts with its launch on the market and ends in a period of decline, where it does not make any profit. The product life cycle is often depicted in form of a graph that shows the product going through the various stages in its life span to its death like shown below:
1 2 3 4 5
The product’s life cycle begins with the introductory stage (1). Here the product is first launched on the market. Then the product will enter a period of rapid growth (2), because the product establishes its position in the market. This is followed by the product becoming a mature product (3). It means that the product is well-established and sales are no longer growing so rapidly. This is often the case because of other businesses copying the product. They have not paid for research and development of this product and therefore can charge a lower price. When the product enters the next stage, the market is saturated (4) and the variation of this product is different from business to business, so that the product has to compete with so many similar products that there is no opportunity for sales growth. Finally the product rapidly loses sales and it enters the period of decline (5). It reaches the end of the product life cycle, which results in the death of the product.
I will draw up a product life cycle for one of our products. It is an album of a famous singer. The chart is on the next page.
This is a product life cycle of an album of a famous singer. When it is introduced to the market, there will be less time until the sales grow due to the enormous promotion in form of some tracks being in the top 50 of the UK charts and customers watching these songs on television, and listening to them on the radio. The artist has also a well-known name, which helps the product to sell itself. We will have competitor based prices to ensure a high sales growth. Promotion from our business for this product will be minimal at the introductory stage (1). We will only advertise the low price in terms of competition. At the stage of rapid growth (2) our business will not change the price unless a near competitor does so. We advertise the product as much as we did before. When the product enters the stage where it becomes a mature product (3), we will skim the price a little to stimulate the market that is becoming less interested in this product. We will also promote the product itself a little to ensure that sales will be still growing. When the market is saturated (4), I will be skimming the price again to guarantee that competitors will not be selling a higher number of products than we do and take control of the product’s market. The amount of promotion will be increased to hinder sales decreasing too rapidly. The product will finally enter the period of decline (5). I will offer a special edition of the product to the market to help it selling itself, so I can extend its life cycle. I will include a changed package with an autographing of the artist. I will also include a special offer where an ipod will be £20 cheaper when bought together with this album, and I will also promote this offer. I skim the price more and more until the product’s profit margin is too low. Then I sell the remaining units until they are out of stock without buying new ones. This results in the death of the product.
The Importance of the right Price
A price is the payment at which the business’ willingness to supply a good or service is accepted by the consumer who has the demand of this product or service.
Achieving a good price brings a significant amount of benefits like high revenue and a bigger market share. Finding the right price is much harder than it seems and can take time. In the following paragraph I will explain why.
You can illustrate the meaning of a price in the following diagram:
If you price an album like in P1 for £10, you will notice that there are about 69 customers buying this product per month. This is relative high. However, if you increase the price like in P2 to £16.49, you will notice that the number of customers decreases to 37. Finding the right price to maximise revenue and market share can take time therefore. You want your business to have a lot of customers as this brings a higher market share, but the product’s profit should also be kept high enough to ensure survival and retained profits.
A price must also be flexible. There are many pricing strategies to hinder the revenue decreasing when one of these variables changes. E.g. the product enters the period of decline in its life cycle and therefore sales are dramatically decreasing. So the business decides to skim its price which increases sales slightly.
The right price depends mainly on the business’ market share and the product’s stage in its life cycle. When the business is a price maker or even a monopoly and its product just entered the period of rapid growth, it can afford to have very high prices. If it is a relative small business in terms of its competition and its product has already entered the period of decline, high prices would bring no profits. Our record shop is relative small, so we are a price taker. We will base our prices on our competitors. We will try to be slightly cheaper than near competitors. Many businesses use this principle. I have noticed that a fast food restaurant called Dixi Chicken having a much smaller market share than Kentucky Fried Chicken has cheaper prices. Another method that is very frequently used is price skimming. Here the price of a concrete product is set cheaper when entering new stages in its life cycle. When evaluating the diagram above, you will see that a lower price will increase the customer’s willingness to demand the product. So when the number of sales decreases, you can decrease the price to increase the number of sales. I used this method earlier in this report when I priced the album in its life cycle to help selling itself.
A good external example is the Playstation Portable from Sony. At the end of 2005 when the product was first introduced to the market, its price reached about £200. Now, 2 years later, its price is quoted at only £140.
Another strategy of pricing is the use of price penetration. Here the product will be priced deliberately low to break into a market by obtaining a large market share. Prices may be increased later to earn higher profits. A good example is a brand called Betta Buy recently introduced to Morrisons. The product was very successful, as I saw it being bought by many customers. The spaghetti sold under this name cost initially 14 pence and was the cheapest product in this category. After buying this product customers had the feeling that they made a good deal. Now the same product is sold for 21 pence to obtain a higher profit. But its market share is still big, because customers still have the feeling that they make a good deal when buying products with this name.
We will use competitor based prices as mentioned earlier. The result of question 9 in the questionnaire for the survey I made showed that it is very important for people to have a good quality for reasonable prices. That means when the product in a competing business is the same like ours, the difference of the price will matter and say where customers will buy their products.
Another pricing strategy that we will definitely use is psychological pricing. This is used by almost every business and was also a pricing strategy of all competitors in the competitors scan. Psychological pricing makes the item look cheaper by pricing it just below a round figure (e.g. £9.95 rather than £10 or £999 rather than £1000).
The use of price penetration that I described earlier is very likely to be used by our business later. When I investigated K – Records in the competitors scan, I noticed that the use of price penetration helped this business to a good business reputation and success.
But before this, K – Records had to promote itself via direct mail. Our business will do the same. We will use price penetration after Rock n’ Records has been successfully introduced to the market. Woolworths used this principle successfully as well.
There is also a price plateau, which is the usual price range for a product. When a price is too low under the price plateau of particular products, the sales are likely to decrease, because people will think that the quality of the product is very low or that the product is fake. Our record shop must be aware of this. For example, suggest that our business wants to sell valuable key pendants consisting of gold, which have a price plateau of about £300. If you decrease the price too low to about £100, fewer people are going to buy the product as they get suspicious and might think that the gold is not completely pure. The following chart illustrates this:
Promoting our Business
Promotion is a business’ attempt to draw attention to a business or product in order to gain new customers or retain old ones.
To a business its promotional activities state how it:
- Informs customers which products are available from the business
- Persuades customers to buy the product
- Promotes and informs the benefits of the product that is being sold
There are two kinds of promotion - above the line and below the line. Above the line promotion is most frequently used since it reaches a wider audience.
The main objective of promotion is to gain new customers or retain old ones. However, every successful promotion campaign should target many of the following objectives:
- Increase or establish awareness of a product.
- Reaching a target audience which might be geographically dispersed.
- Remind consumers about a product. This can lead to existing consumers re-purchasing a product or attracting new consumers.
- Develop or improve the reputation of a business. A lot of corporate advertising is done to fulfill this objective.
- Make a product look better in terms of its competition. This can make consumers to switch purchases from another product.
- Reassure consumers after the product has been purchased. This may encourage consumers to buy more at a later date.
- Support an existing product.
Above the Line Promotion
I have mentioned that there are two different kinds of promotion and that above the line promotion is most frequently used. In this section I will deal with our opportunities of using it and what kind of medium we will finally use.
Above the line promotion is the kind of promotion over which a business has no control. It is carried out through independent media like television, radio or newspapers. This involves the use of advertising agencies or other businesses.
Advertising is often placed into many categories. There are two particular types of advertising that are used either to persuade or inform customers why the product should be bought. INFORMATIVE ADVERTISING uses unbiased arguments mainly chosen to increase the awareness of customers of a product. This often involves a brief description of the business from where the product is sold. Informative advertising for a new mobile phone could consist of a list of the mobile’s features together with the statement that some are new to the mobile industry and this phone is thus setting a new standard. However, nowadays completely unbiased advertising is very seldom. Almost every time when businesses advertise, they include some kind of PERSUASIVE ADVERTISING, which could simply mean a statement on the piece where the mobile was advertised saying that it suits the customer and that s\he will be lucky after s\he bought the product. So persuasive advertising tries to persuade the customer into buying the product. There is often a statement included that makes the product look good in terms in its competition. E.g.: Would you really prefer another phone when this one offers you more?
Many other methods like generic advertising are not relevant for our business, although I might plan to use classified advertising later on.
Now I would like to list the final types of above the line promotion which are actually available to our record shop:
- Posters and Billboards
- Internet
Both of these opportunities sound cheap, but from my point of view the use of billboards is much more convenient, as the results of question 4 from the questionnaire showed that it was very effective. Billboards include not only these that are placed next to streets for people in cars to see them, but also those which are set up in large pedestrian precincts, so that people manage to read the whole message. This is much more effective as the message will not only be a glance when seen by a driver rather than a pedestrian. The use of internet was considered by me, but a bad result in the questionnaire and the advertising pop-ups often being ignored lead me to use billboards more frequently.
In the following diagram I am going to produce an above the line table showing the opportunities of above the line promotion together with their features and their suitability to our business:
There are many businesses which are very keen to build up a strong brand image in order for their brand to be directly associated with their product. This is called branding. It could mean that a good reputation of the business’ brand can increase the sales of a particular product.
Our business can use the same principle to increase its sales. We can put a particular brand on the cover of every product so that customers will recognize it and associate its features with other products that we have offered. If they found the quality of one of our products being excellent, then they are likely to think that the same is true for the other products marked by our brands. Thus the products of our business carrying the same brand name are being recognized and therefore promoted.
Below the Line Promotion
I have already talked about the opportunities that our business has in order to use above the line promotion. Below the line promotion is the other kind of promotion over which a business has some degree of control. There are normally no other businesses involved in promoting the business or its goods and services. Our business also has quite a few opportunities available to use this kind of promotion.
The opportunities available to our business are:
- Merchandising (e.g. sales promotion)
- Direct mailing
- Public relations
- Sponsorship
Direct mailing involves sending advertising mails to targeted customers. This has the advantage that the receivers can be a targeted market. The disadvantages however would be that such letters can be annoying or treated as junk mails if sent to often or to everyone.
Public relations are the attempt to communicate with groups that form the business’ public in order to get a good business reputation.
Merchandising is any influence by the business at the point of sale that may lead to increased sales of the business’ product. This can be in form of sales promotion (e.g. buy one get one free) or even the adjustment of light in various areas of the business for particular products.
A sponsorship means supporting an organisation or person. In exchange this person or organisation carries an image, logo or statement promoting the sponsor. When we sponsor a large business, which is already supported by a lot of important businesses, using a little amount of money, we will be allowed to place a small logo. If this logo is placed near logos of large competitors like hmv, our business may benefit of the popularity of these businesses.
The diagram below will represent the features of various media for below the line promotion:
Our Promotional Costing plan
Now that I have finished stating the various opportunities that our business has to promote itself and its products, I would like to draw up a promotional costing plan showing our promotional activities for the next four months:
This plan shows our promotional actions for the next four months. The costs will be high at the beginning, as our record shop has to be introduced to its market. We will start to mail people, place a billboard, make an advertisement in the magazine etc. the costs for the billboard and newspaper will stay the same as we will sustain the advertisement on these media and have to pay for rental charges.
The costs for packaging, sales promotion is unpredictable as we will change these promotional activities according to the product life cycles of various products. The overall cost will be £1332. The benefits of promotion will hopefully outweigh its cost at the end. I plan to break even after one year which means that we will make a loss at the beginning. We will make some debts as we cannot afford our promotional activities at the beginning. But if the business should be successful, we will be able to repay this debt.
Restrictions on our Promotional Activities
There are three areas that have a significant impact on our promotional activities. I will explain these rules in the following paragraphs in more detail:
- The Trade Description act:
This act forbids the false description of products, as customers can return the product if the description used in any promotion is not accurate. This will mean for Rock n’ Records that every kind of promotion used to advertise the business must be accurate and appropriate to ensure that promoted products are not given back.
If promotion is offending certain customers or is so repetitious that customers are getting annoyed by the image of the promoted product, sales are likely to decrease. This can be for example us promoting a new album of an artist with the statement, “Sporty Usher’s new album, not for fat people. This is likely to offend obese customers who are likely to choose to buy from a competitor rather than from us, because of the offence. It also causes the reputation of the business to worsen.
- The Advertising Standards Authority (ASA)
This is a very important self-regulatory association that prevents the use of offensive and false advertising, which could lead customers to false views or insult them. If promotion has one of the attributes that are offending or false, every promotional activity can immediately be stopped as a decision of this association. To avoid this, our business should never use false or offending advertising.
The final Ingredient of the Marketing Mix:
The Place
The place is the location from where the business’ goods and services are to be sold.
It refers to the many opportunities a customer has for purchasing a business’ good or service. The act of purchasing the business’ product can be made by:
- Attending the location of the business
- Using the internet as a medium
- Through a mail order
Our place is here.
There are a lot of positive location factors that made me place locate the record shop in this area:
- The record shop is in a central area with a lot of population, which consists of potential customers to the business and can be promoted by simply putting a notice board on the window of our business.
- The business is located near an underground station, which will produce a circulation of pedestrians being potential customers as well.
- The nearby park also attracts potential customers, which are likely to see the notice board and visit the record shop.
- The place has a well-developed infrastructure, which will help to transport materials to the place of the business via roads.
- The area is rich, so people will have enough money to purchase our products.
However, there are also some disadvantages of this place:
- The money charged for supplying water, power and other necessities as well as the rent of the building will be high.
- High crime rate
- Not enough parking places
A very important decision that is closely linked up with choosing the right place is the choice of the distribution channel. The marketing director has to decide how the products are to reach the market. There are various methods of distribution that are known as ‘channels of marketing’. There are a lot of channels the final good or service can take illustrated by the following diagram which I have found on the website ‘www.bizhelp24.com’:
It shows a lot of possible channels by which the product can reach the consumer. Rock n’ Records will only use the channels 1, 2, 4 and 10, as they are most convenient and efficient because of the relatively low cost compared to the possible market segments that the product is able to reach. The conventional way of a retailer is selling the good or service directly to the consumer from the business’ location and this is most efficient, because there will be no additional costs for the business. However this system relies on promotion and the possible chance that the people, to whom the business promotes, will be visiting the record shop accidentally is relatively little, when considering the higher rate of bought articles by mailing small catalogues to targeted people from which they are able to buy the products they want directly with a small extra cost. This may also create repeat customers, because they are likely to get used to the simplicity of this system.
Internet sales are also very efficient as shown in the result of question 3 from the questionnaire. 38% of the interviewees appeared to order their music usually through the internet. Its simplicity and low price make it very suitable for Rock n’ Records and may give the business more customers. Finally, the use of agents for a short time can increase sales, as they are likely to look for additional customers. Agents are expensive though and most of them will keep a percentage of every deal that was made through them. Agents can also be used to promote the business and are very handy. They should only be used for a short time though as they are very expensive.
Our business will not use another retailer or wholesaler, since we are already a retailer and using another one will lead to additional costs which are not appropriate for our business in its initial stages although they might bring additional customers. So we will only use channels 1, 2, 4 and 10 for the business’ products.
The whole distribution channel that every of our products will be going through is illustrated by the diagram below:
Unfortunately, we have to buy our products from wholesalers as we cannot buy products in bulk what would be demanded by the producer. Wholesalers buy products in bulk from producers and then sell it in lower quantities to retailer outlets like ours with additional costs. We will not be able to change this, since we are not a large business and do not have the money and storage room for large quantities of products.
Conclusion of overall Findings
In this report I made a lot of important marketing decisions. In this final part I would like to summaries my conclusions.
The first important decision I made was choosing the right location for our record shop. I chose 3 High Street as this street is well-populated and offers a lot of advantages that outweigh its disadvantages.
My second important decision was to choose teenagers as our targeted market segment. I made this decision, because teenagers are the largest segment of our market and my sister is a youngster herself, so she would be able to meet teenager’s wants better than other market segments.
Another significant decision was to sell mainly hip-hop music. I made this decision because the results of question two of the questionnaire showing that this type of music was preferred by most of the interviewees and teenagers generally prefer Hip-Hop music. One marketing decision being significant to Rock ‘n Records was choosing the media for promotion that we will use. I based my decisions on the situation of our business in terms of its market. Because we are a small business, we will not be able to promote through product placement or advertising on television. We have to use cheaper media like billboards to promote our business and its products quickly and effectively.
Another important decision I made was choosing democratic type management as our management structure. I chose this type as every partner participates in important decision making, which is highly motivating. However, the disadvantage can be that this management structure can undermine the authority of somebody that has more expertise in a particular area rather than somebody else. For this reason I created the special marking scheme. It shall eliminate this disadvantage of democratic type management.
Now I will identify 4 factors that will affect the performance of our business.
The first one would be that I have underestimated the impact of illegal downloading on our business. Many people do it without even knowing that their deed is illegal. This makes them accessible to a broad range of music that they do not have to buy legally from music shops like ours. Music articles become more and more products, which are bought occasional as presents or because of a very low price. There is no real reason for many teenagers to buy all of their songs legally, and few prosecutions have been made. On top of that, broadband providers lower their prices steadily, which results in more people having a broadband. So they have unlimited access to millions of songs without even paying for internet charges. The secondary research I carried out showed that experts also suggest that increasing music downloads mainly contribute to the market size of music articles decreasing.
Another factor is the market research I carried out being biased. I did not have the time and money to interview more than 50 people, so the results are highly depending on the interviewees. These people are hopefully well-chosen to represent the market of Rock n’ Records, which is not guaranteed. This is an important factor, as I based a lot of significant decisions on the questionnaire I made.
The third factor affecting the performance of our business would be the order of the UK charts. Because Rock n’ Records bases the artists of whom its products are based on, on their occurrence in these UK charts, the sales of our business depends on how the business’ direct market likes these artists. An artist that is liked by many fans in Ireland, Scotland, Wales and North-England may be disliked by a high percentage of our business’ market here in Southgate.
The last factor that I can identify will be the rate of pedestrians walking past our business. This rate will determine the number of persons seeing the sign, which advertises the business, and the number of people visiting our record shop. The higher this rate is, the more people are likely to visit our record shop, which will probably result in higher sales and more repeat customers.
In the following diagram I will produce a SWOT analysis outlining the present strengths, weaknesses, opportunities, and threats of Rock n’ Records:
In the table below I am going to evaluate the decisions I made:
In the following table I will state future improvements that are available to us when we have more time and money:
End of Report
Appendix
I used the following sources to get information for my business coursework from:
- School book
- Teacher
- Questionnaire
I will also include two examples of filled out questionnaires on the following four pages.