Firm's market research
If a survey is carried out by a large company, such as Audi, they will use a much larger sample of thousands of people. This will make their results more reliable and more likely to show the truth. They will also use more sophisticated statistical methods in the way they choose their sample and represent results. As I have said, I used convenience sampling which can be unreliable. Audi would be more likely to use quota sampling which is only asking people with certain characteristics. This means they can select their target audience for interviewing. They may also choose cluster sampling which is surveying people from a small geographical area. If this is chosen it should be done from the area(s) of greatest sales. The drawbacks are it may not represent the whole population so may be biased.
They would also be likely to carry out a wider range of types of research, both primary and secondary. Primary research can be gathered either through surveys face-to-face, by post, on telephone, etc or experimenting by selling the new product in small test market. Using a test market is unpractical for a product as expensive to produce as a car as the cost would be too high to build a prototype and then redesign after it was unsuccessful would be very expensive.
The secondary research I have done was actually produced by Audi so theirs was obviously different. They would have used:
* Back data - past sales figures, production records, etc. These show the firm its previous successes and failures so allowing them to see what the consumer liked, what their strengths are and what they need to improve.
* Government - government data such as census results, social trends, etc. These can allow the firm to see information about the consumer so they can find out how to appeal to them. For example, in an economic recession people will have less money to spend so it would be advisable to lower the price of goods to maintain sales.
* Independent forecasting groups - this means that another company does the research which is specialised in research. An example is the Henley Centre which is an international strategic marketing consultancy, focusing on identifying and unlocking customer value from consumer insight.
Although firms have to spend a lot of money on market research, it is a worthwhile activity and it gives the firm an idea of what the consumer wants. The costs of not carrying out market research are often greater as products are more likely to be unpopular and so make a loss. It reduces the risk of failure.
ANALYSIS OF CURRENT MARKETING STRATEGIES
All firms in the world have a marketing strategy for their products as it is one of the most important factors in determining whether a product is successful or not.
Nike - a successful marketing strategy
In my opinion Nike have one of the most successful marketing strategies in the world. They have a symbol/logo which is a tick. This is very well known that they often do not include the name Nike on products or advertising as people will know what it is. They also have slogan, "Just do it", which is also well known. They compete in a mass market with much competition from firms including Addidas and Reebok. They have a good range of products covering all areas of Ansoff's Matrix - market penetration, new product development, market development and diversification.
For a marketing strategy to be successful it must match the right products with the right market, build on the firms strengths, defend against weaknesses, exploit opportunities, protect against threats and achieve the firm's marketing objectives. In my opinion they do all of this very well.
The products they produce are high quality, fashionable and affordable making them appeal to the intended market, younger people mainly teenagers. Their advertising campaigns and other promotions also appeal to this market, which often include celebrities such as Ronaldo, Ronaldinho and Figo who are all known for their high sporting ability so help maintain the company's image and creates product differentiation. They also design and manufacture the football kits of these players' countries (Brazil and Portugal) and others which is another form of promotion.
They often hold sporting events such as the football tournament held inside the Millennium Dome after its closure which promotes the company and is taking advantage of an opportunity. They protect against threats such as changes in the market and increased competition by offering such a wide range of products including sports clothes, casual clothes, trainers, caps, balls, sports events and more. From all of this I am sure they achieve their marketing and corporate objectives which are likely to be increase market share, high levels of long term profit and diversification into new markets. These targets will have exact values in percentage or dollars.
BMW - a rival company's marketing strategy
One of Audi's and therefore the A6's biggest rivals is BMW; they offer similar style, quality and price cars. Both aim for product differentiation through a highly reputable brand name, BMW slightly more so allowing them to set the price of their cars high.
BMW are currently a successful company so must have a good marketing strategy. Last year the BMW group sold 117,804 cars an increase on the 106,972 sold the year before; an increase of over 10%. This is more than the 70,107 sold by Audi. BMW spend a lot of money on research and development for their cars to improve the quality and safety of the final product. They are currently undergoing the "H2ague Project" which is attempting to design a car fuelled by hydrogen, but at the moment this is simply improving the company's image as one which tries to be environmentally friendly.
They advertise a lot on television with adverts trying to show the quality of their cars. They also advertise in other ways including on billboards and on the radio. They have a slogan "Sheer driving pleasure" which fits in with the image they try to create. They appear to have a successful marketing strategy so aspects of this can be used for the Audi A6.
External influences - the factors outside a business over which it has no control. These are often called the PESTE which stands for political/legislative, economic, social, technological and environmental.
There is also another major influence not mentioned in the PESTE - market conditions:
* Structure - degree of competition, conduct
* Market size - value, volume
* Rate of growth - expanding, stable, shrinking, saturated
* Capacity - degree of utilisation, shortage/excess
* Rate of change - customer/consumer demands, supply of materials
* Rates of return - profit margins, rate of capital employed
* Power of buyers
* Power of suppliers
All of these factors affect businesses, but in different ways, and to different extents. Also, not all directly affect marketing such as health and safety legislations in the production plants, but they do have an effect. In this example more will have to be spent in factories to ensure they are up to standard which means less can be spent on marketing including promotional budget, the price the product must be sold for and the quality the product can be made to.
One of the most influential to marketing the Audi A6 is the economic environment. The A6 is an expensive car so if the economy is in recession and people are earning less they will not be able to afford such cars and will have to find a cheaper alternative. Being sensitive to changes in income, means that the A6 is an income elastic product. The formula for income elasticity is:
Income elasticity = % change in demand
% change in income
The A6 is highly income elastic, very sensitive to change in income, and is a normal product, meaning if income increases, demand increases. The opposite are inferior goods for which demand increases if income falls. This occurs for products that are a cheaper alternative to another. For example, if income falls, Audi may lose sales to Volts Wagon.
Changes in economic condition and so income occur in a cycle which is shown in the Business Cycle.
Recessions in the economy may happen as a result of high inflation, high interest rates, high unemployment and high taxation. Audi UK would also be positively influenced by a strong pound as they can import goods for relatively less and so spend more on other things such as marketing. However, this may also discourage foreign investment.
Income is closely linked to the business cycle; during slumps wages fall and during booms they increase. As the A6 is an income elastic product they must pay close attention to the business cycle. If there is a boom they can afford to charge higher prices for their cars as demand will be higher, but if there is a slump people will not be able to afford the high prices.
The actual changes in real GNP which have occurred over the past six years are shown below.
This shows there has been consistent growth since 1997. This suggests to that the price of the A6 can be set high as people will be better off. This allows Audi to produce a higher quality car by using higher quality parts and production processes as they can afford to spend more. It also allows a greater marketing budget if predicted revenue is greater.
The above image shows the current FTSE 100 index from the London stock exchange. As you can see, there has recently been a recession so the exchange is currently in a slump, although looking at the scale on the time axis, I cannot tell if this is only very short term. This suggests that Audi should lower prices to gain sales as it is a time of slump. However, there has been a slump for a considerable length of time now so a recovery may occur. This would suggest to Audi that they should charge a high price in the near future and as the A6 is not released until June, it seems a good idea to stay with the initial idea of charging a high price.
Currently unemployment is at a record low, only 4.7%, as can be seen in the graphs below.
This again gives the impression that the current economic climate is good and so a higher price can be set for the A6 and more spent on production and promotion. As the A6 is income elastic this is very important. This graph proves that the trend shown in the previous one is only very short term.
Another important one is market conditions. For example if the market became more competitive they would have to undertake more promotion and lower prices to gain a competitive advantage. This would affect profits, probably in a negative way. The growth rate would be important as an expanding market would mean the company has a bright future, but in a shrinking market they would have to try and diversify. All of these factors would have to be considered when producing and marketing the car (or any new product).
MARKETING PLANNING AND AUDITING
It is important for a business to plan for the future effectively if it is to be successful and likewise it is important to have a clear marketing plan for products to sell well. It is done by every firm, including Audi, from when the company is first set up but is not always as formally done. This can be done systematically using the marketing model.
Marketing model - this sets marketing objectives, audits the firm's present position and develops and implements plans to achieve objectives. It works as follows:
Set corporate objectives e.g. profit, growth
Gather information using market research
Assess existing situation (known as market analysis) produce SWOT analysis (strengths, weaknesses, opportunities, threats)
Set marketing objectives e.g. market share, revenue
Select marketing strategy using Ansoff's Matrix
Implement marketing plan using marketing tactics i.e. marketing mix and budgets
Review using market research
The first thing done by the marketing department is to carry out market research. This has already been explained in the market research section (page 8).
They then have to assess the current situation by performing a market analysis which is usually done by performing a SWOT analysis. SWOT stands for strengths, weaknesses, opportunities and threats. The firm must evaluate all these areas and consider them when creating a marketing strategy and tactics.
Here is a current SWOT analysis for Audi:
* Reputation of company very good.
* Spending power - to produce quality cars and large marketing budget.
* Success of previous models of car including the old A6 which had a good reputation.
* Quality of cars - can charge higher price and builds company reputation.
* Have to charge a high price for A6 to cover costs (but potential customers will realise this).
* None of main competitors have released a similar price car recently so chance to gain market share.
* In high growth market.
* Good current economic climate (discussed in external influence section, page 16).
* Competitor may release a new car shortly after so attracting many customers away from Audi.
* Reputation of competitors such as Mercedes and BMW will cancel out the advantage this would give Audi.
* A6 is an income elastic product so falls in income will result in large loss of revenue.
After a SWOT analysis has been produced, the firm can take one of two paths:
. Matching - this involves building on the firm's strengths and taking advantages of opportunities.
2. Conversion - this involves creating strategies that turn the company's weaknesses into strengths and threats into opportunities.
As well as producing a SWOT analysis a firm will have to examine market conditions before producing a marketing strategy. The main things which examined are:
* Market size - the total size of the market the firm is working in. it is measured in terms of volume or value (volume x price). The car market is currently a large one.
* Market share - the percentage of sales one brand has compared to the total market. In 2003 Audi had 2.7% market share in the UK which seems small, but it must be taken into account how many car companies there are and Audi's market share in Germany, the home country of Audi, is three times this.
* Market growth - the rate at which the size of the market is increasing. From 2002 to 2003, Audi UK had increased sales of 6.9%, but only increased market share of 0.6% so the market must be expanding and at quite a fast rate.
* Segmentation - appealing to different sections of the market in different ways by changing the marketing mix. For example, changing features of the product so it appeals to different people - more luxuries for those better off, different size engines, etc.
The next stage is to set the marketing objectives considering the corporate objectives. This provides targets for the department. I have not been able to find out the marketing objectives of Audi, but they are likely to be increase market share and revenue (both with quantitative values). My marketing objectives for Audi would be these things and also to enhance the brand reputation which I believe is a vital part of Audi's success; it provides them with a unique selling point and so is important to differentiate the product from those of competitors.
After this, a marketing strategy is selected taking into account the marketing objectives, findings of the SWOT analysis and market conditions. This will then be implemented through marketing tactics - the marketing mix. So to achieve the marketing objectives all aspect of the marketing mix must be right - the car must be sold at the right price, in the right places, promoted well appealing to the target audience and designed and produced well.
My SWOT analysis of the A6 shows that one of Audi's main strengths is the company's reputation. This should be built on through producing a high quality car and using premium pricing. They also have a very large spending power as they are a large multinational company who have been very profitable in the past. This means that they can spend a lot on promotion of the A6 to give it a competitive advantage. This would give them an advantage, but all of their main competitors can boast equal or greater spending power making it a necessity to spend highly on promotion and making the product as good as is possible by adding additional luxury features. Audi also have strength in the success of their previous cars, including the old A6. This enhances the company image and makes it easier to launch a new product, like the A6, as people know it will be good quality. A high price will have to charged for the A6, but this is likely to be less important as to the target audience this is not the most important factor. A high must be charged to cover production, transport and promotional costs.
The final part of the process is reviewing the marketing plan after it has been implemented. This is something to be done at a later date after the product has been on sale for a suitable length of time. It can be done through further market research into customers' opinions of the car and how well it has sold. To properly evaluate the marketing plan, there must have been clear targets with time restrictions. This shows the importance of having set good objectives. The information from this is then used to set new corporate objectives and the company's position must also be reassessed.
The value of having a good marketing plan, created through the method shown above, is:
* Ensures continual evaluation of objectives and strategies
* Ensures efficient use of resources
* Establishes criteria for success; this helps motivate and makes it easier to monitor progress
* Improves decision making
* Involves people in discussion so helps improve their commitment
* Involves analysis so makes organisation better prepared for change
* Coordinates activities
* Avoids wasteful or conflicting activities
* Involves rational decision making based on quantifiable data.
The marketing plan will affect other functions within the business. One example is the marketing plan determines what is produced, how it is produced and when it is produced which affects the production department. It determines the number and skills of employees required which affects human resource management. Also, it determines the design of the product, the cost to make the product (through choice of material, production methods, etc) and the price of the product which affect the finance department.
DEVELOPING A MARKETING STRATEGY
There are many different marketing strategies that may be adopted by the company and often many are used at the same time for different products. For example the marketing strategy of the new A6 will e different for that of the A3 which is a cheaper car and is already well established in its market. The marketing strategy greatly depends on what type of product it is for. This can be assessed using the Ansoff's Matrix.
Ansoff's Matrix - this it can be used to analyse marketing strategies as shown in the marketing model, page 21.
Existing Market penetration New product development
New Market development Diversification
As you can see there are four areas to the Ansoff's Matrix:
. Market penetration - attempt to gain a greater market share of an existing market. Involves changing marketing mix.
2. New product development - developing a new product for an existing market.
3. Market development - launching an existing product into a new market.
4. Diversification - entering a new market (one which that firm is not yet in) with a new product. This is can be very risky.
The Audi A6 falls into the category of new product development as it is a new product that has been developed, but is in a market where Audi already compete. The new product development process begins with idea generation both internally from research and development and externally from investors, competitors or consumers. They then analyse the ideas to assess their feasibility and develop them through prototypes. These are then tested for safety and quality. In the case of cars there are vigorous safety checks as the car must meet certain requirements. There is then test marketing in selected outlets before the launch nationally.
Another influence on the marketing strategy employed is the type of market the product is competing in. There are two main types of market:
. Niche market - a small market in which major producers are not concerned.
2. Mass market - market with a large volume or value of sales.
The main advantages of a niche market are it fits with limited resources, avoids competition with major firms, returns are relatively high and fits with a unique selling point (USP). The advantages of mass marketing are higher returns, can exploit a brand name, economies of scale and less vulnerable to changes in market.
The car market is clearly a mass market as the value of sales is high. However, there is a wide range of quality and price available and Audi is in the upper range so this market is a highly differentiated mass market. The main competitors to the A6 in this market are BMW and Mercedes, who also produce high value cars.
As Audi are competing in a mass market, it is vital for them to undergo extensive promotion. This will attempt to give the A6 a competitive advantage over its rivals as consumers become aware of the advantages the A6 offers. They should promote using the brand name as it is currently has a good reputation and so will help improve sales. If the brand name is enhanced through the A6, it will help Audi in the future.
There are also a number of business models and diagrams that can be used to help determine the marketing strategy chosen by the company. Two such models are the Product life cycle model and the Boston Matrix.
Product life cycle model
This is represented by a line graph as shown below.
1. Development 2. Introduction 3. Growth 4. Maturity 5. Decline
The shape and length of the line will vary from one product to the next as different products have different life spans. For example, Cornflakes have a long life cycle, but Yo-yos had a short life cycle. The stages shown on the product life cycle are:
. Development - product is developed and tested. In the case of a car such as the A6 this may take years to ensure the car meets safety requirements and is made the best it possibly can.
2. Introduction - sales start slow. Some distributors may be reluctant to take on an unproven product. (This will not affect the A6 as Audi have their own showrooms.) Heavy promotion is necessary, the product is high risk and the firm cannot take advantage of economies of scale. This stage will be short for the A6 as customers can order it before long release and it is a proven product (the old A6) so people will not be put off buying it.
3. Growth - sales begin to grow rapidly. Cost per unit falling due to economies of scale. Profits usually made.
4. Maturity - sales growth is slower. Promotion often tries to differentiate to gain new customers. Brand loyalty is important here.
5. Decline - sales decline. Profits fall and subsidiaries appear. The product is often withdrawn from the production line. Decline in sales of the old A6 may have been the reason for Audi releasing a new one.
The main point of the product life cycle model is to highlight the typical stages of a products life so allowing the company to prepare for the future and adjust its marketing strategy. The A6 is currently in the introductory phase. At this stage the marketing objective is likely to be to attract new customers and promotion is informative.
There stage of the model can be very costly for a company. There must be heavy spending on promotion to make consumers aware of the product. A range of form should be used, including heavy advertising. The pricing method also needs to be carefully considered. In this type of market, a differentiated mass market which is growing quickly, they can set a high price as this is unlikely to deter consumers. However, if the price is set too high, it will price the A6 out of the market meaning it will not be competitive and so will fail.
Many people believe that the decline in sales of a product is inevitable. The reasons for this are changing social climate, changing tastes, developments in technology and new product innovation. Arguable though, much decline in sales is due to poor marketing which does not react to changes in the market. The lifecycle of the product will be shorter if there is rapid technological change, a high degree of innovation, customers' tastes change rapidly and the product is badly marketed.
In my opinion the life of the A6 will be of a decent length with adequate marketing - probably a number of years. This is because new cars in its class are not designed very often and so it does not have a large number of competitors. However, I also believe that its decline is inevitable as there is constant change in the car market in both taste and technology.
As with any model, the product life cycle model has problems. Firstly, it only represents one product and does not consider the firm as a whole so may mislead the firm into their future prospects; if they see they have a product in decline they may think the future will not be prosperous, but if they study all products and find they also have some in the development or launch stage the outlook will be very different. It also can only be used to look back so the firm cannot tell when a product will go into decline until it happens. Finally, it leads firms to believe decline is inevitable so they let it happen through lack of investment in marketing. If extra marketing through promotion for example where undertaken the product life cycle could be greatly extended. Rather than the traditional life cycle, a product with greater investment late on will look as follows:
The Boston Matrix is a method of product portfolio analysis. This is used to examine the existing position of the organisations products in their markets to enable better decision making on aspects including marketing strategy. The value of it is that it examines all the firm's products together, provides an overview and helps with marketing planning.
The Boston Matrix shows what percentage of the market each product has and the rate at which the market is growing.
The car market is a fast growing one and the A6 is a new product, so would currently be considered a question mark. However, it is likely that it would soon become a star if it sells well. The Boston Matrix shows us that the A6 will need investment (much will already have been spent on design and production) in promotion and other areas.
In general, after a firm have evaluated a product in the Boston Matrix they can do one of four things:
. Hold - attempt to maintain the existing market position (with strong cash cows).
2. Build - invest to develop position in market (with question marks). Involves sacrifice of short term profit.
3. Harvest - aims for short term profit to get the most out of the product (possible with cash cows).
4. Divest - get rid of the product (with dogs).
It is likely that and advisable for Audi to build for the A6. This will help increase market share and result in long term profit and targets being met. This will involve major short term investment so reduce short term profit. One way to develop market position would be through heavy promotion. Making the consumer aware of the product and persuading them to buy it. They must also set a price which is competitive and right for the product's market, the company's image and considers external influences.
It is important for a firm to have a balanced portfolio i.e. an appropriate mix of question marks, stars, cash cows and dogs. This allows the company to "milk" cash cows to provide money to invest in question marks and support stars such as the new A6. If a company has too many dogs it has a high risk of failure as it has no products for the future. The old A6 was a dog so the company decided to divest and focus on new products. This is important to keep the future prospects of Audi good. If a company has too many cash cows it is likely to be profitable in the short term, but it is not building for the future. If a company has too many question marks it is high risk and they will drain finances. Audi also has stars such as the A4 which has been its best selling model over the past few years. This means Audi have a well balanced portfolio so are in good condition now and should be in the future. The A4 is a slightly cheaper model than the A6 so this shows that price is important to the consumer.
This model relies on two things which do not always hold true:
. If a product's market share increases it has been successful:
This will not be true if the market itself is shrinking. For example, if the firm increases its market share by 5%, but the size of the market has fallen by 10% the firm has actually sold less.
2. A rapidly expanding market is the best place to be:
For a small company with only small spending power this will not be the case as they will receive too much competition and so be forced out of the market. They would prefer to be in smaller, niche markets.
Overall, these two models have limited use in helping develop a marketing strategy. They are both oversimplified and so do not properly reflect the real world. They are good for showing a general pattern and may be good for giving some guidance to a firm, but should not be used too strictly. The market changes regularly and so does competition, so a company should be ready for this and not for example rely on the recommended style of promotion from the product life cycle model (informative in introduction, persuasive in growth, differentiating in maturity and reminding in decline). For example, if income fell then, as Audi's products are income elastic, demand would fall greatly. This would change the expected pattern of either model. However, current economic conditions are good and unemployment is at a record low (4.7%) so it does not appear this will be a problem in the near future. There is therefore likely to be the opposite effect; there will be higher demand as people are better off so look for higher quality goods. As a result Audi should make the appeal of their promotion slightly more widespread as they are trying to appeal to new customers. The price of the A6 can also be set higher to gain the maximum possible profit as people are willing to pay more.
There are also other things that must be considered when setting a marketing strategy. Two of these are market segmentation and cost leadership vs. differentiation.
This is identifying groups of similar needs and wants and then the firm develops an appropriate marketing strategy for each segment. The aim is to meet the customers' needs more precisely, but the problem is it can cost more to develop different versions of a product or service. It is part of the market analysis stage of the marketing process.
Method of market segmentation
Magazines for different age groups, adult snacks, car insurance, club 18-30 holidays.
Target audience is mainly middle aged people as they are likely to be able to afford the A6
Certain cars targeted at women, toys aimed at boys or girls.
It is mainly males who Audi appeal to which is common for cars in this class. However, they must also appeal to women as they do also buy Audi cars.
Audi will target mainly the upper groups (A, B and C1) and in the A6's case mainly B as it is in the middle of Audi's price range of cars.
Board games sell better in colder climates, outdoor games are more popular in warm regions.
Certain areas which are wealthier should be targeted as it is mainly middle class the A6 will be sold to such as Surry.
An individual's stage in the life cycle
The housing market consists of first time buyers, people trading up and retirement buyers.
Audi buyers are likely not to be first time buyers as they are expensive cars. They must therefore appeal to a more knowledgeable audience.
Family packs of food, design and houses.
Audi do not sell family cars so must not target their promotion at families.
Frequent wash shampoo.
The usage rate of any car is low, many years, and it for Audi it is likely to be even longer as they make high quality cars. This fact should be communicated in promotion.
Convenient, microwavable food for young, single people.
It will be mostly wealthy,
Toothpaste for different benefits, including taste, fresh breath and white teeth.
The benefits of Audi are the company reputation and high quality. Therefore, they must target people looking for this rather than low price.
Psychographic (motives for buying)
Reasons why people buy chocolate.
Brand name is a psychological reason for buying an Audi and so people who this is important to, wealthy people, should be targeted.
* Socio-Economic groupings:
A upper middle class high managerial profession e.g. lawyer
B middle class middle managerial/administrative/professional e.g. manager
C1 lower middle class supervisors, clerks, juniors managers e.g. shop assistant
C2 skilled working class skilled manual worker e.g. mechanic
D working class semi skilled/unskilled manual e.g. cleaner
E subsistence level unemployed or state pensioner
Segments are attractive to a firm if they are:
* Accessible - the firm can provide the goods and services which are required
* Profitable - the rates of return justify the investment and risk
* Sustainable - will justify long term involvement
The advantages of using the segmentation method in the marketing strategy are the firm can identify requirements of different groups more precisely, meet the needs of groups more effectively than competition and it avoids wasteful marketing activities not targeted at that group. The disadvantage is it may reduce possibilities of economics of scale if the firm produces for many different markets. However, it can be seen that Audi only target one market segment - wealthy people who are looking for a high quality car with a good reputation. These people are likely to be middle aged, without large families and probably male. This has allowed the target audience of the A6 to be identified and so promotion can more effectively appeal to them.
Audi uses market segmentation in the current marketing activities. They target mainly the upper class groups (i.e. A, B and C1). They do this by creating an impression of quality and therefore charge high prices. Also, their promotions, which include television adverts, posters and magazine adverts, target these people by again trying to emphasise quality over price and so still aim to provide value. They use location as they have most of their dealerships in the firm's home country, Germany, as this is where they get most sales. Their dealerships in the UK are in desirable locations with high class residents such as Surry and areas of London.
Cost leadership vs. cost leadership
Cost leadership - firm attempts to produce similar products to the competition, but at a lower cost so they can sell for a lower price e.g. Tesco
Differentiation - firm attempts to provide more benefits than the competition so it can justify selling its products at a higher price e.g. Ferrari (a differentiated niche market). Within mass markets, this is used to gain market share.
Problems will occur if these strategies are not adopted properly. For example, if a firm charge a higher price, but do not provide extra benefits or a firm charge less for their goods, but they are lower quality. In both these situations the customer does not get good value for money. As I have said, the A6 should aim for premium pricing, so it is vital that extra benefits are provided to make this successful. The car has already been designed with leather seats, CD player air conditioning as standard in an attempt to do this. There should also be numerous optional features for people who want even more from their car.
Overall, the factors that affect the choice of marketing strategy are:
* Resources - financial, marketing, human resources, etc. Audi are a large multinational company with extensive resources at their disposal.
* Findings of SWOT analysis - firm's strengths, weaknesses, opportunities and threats in the market.
* Market conditions - type of market, level of competition, level of growth, emerging segments, etc. Audi compete in a differentiated mass market.
* External factors - PESTE (political/legislative, economic, social, technological and environmental influences).
* Marketing objective - what are they? My marketing objectives for the A6 were long term profit, gain in market share and enhance the Audi brand name.
The marketing strategy adopted by Audi is new product development through the A6 (this is a new product placed in an existing market). In the past their marketing strategies have aimed at differentiating their cars from those of competitors in mass market. This ties in with the marketing objective of trying to gain market share and will hopefully result in profit as well. This is the same strategy I will use for developing tactics for the A6 through the marketing mix.
MARKETING MIX FOR THE AUDI A6
The factors that influence the price of a product are:
* Costs - the firm will want to cover costs to make a profit. The costs for making and testing a car such as the A6 are very high; therefore the price is likely to be high.
* Price elasticity of demand - how sensitive the product is to change in price. If it is sensitive then lowering the price will result in an increase in turnover. It is probable that products of a highly reputable company, such as Audi, will be price inelastic as the market they appeal to price is not the most important factor. This means price should be quite high.
* Competition - are there any similar products currently available? There are no new direct competitors to the new A6, but there are existing competitors. This means they should try and set the price similar to or lower than those.
* Stage of product life cycle - it is likely a product in the growth phase will have a higher price than one in the decline phase. The A6 is a new product so the price can be high as it has cutting edge design features.
* Government - government adds tax to products making them more expensive which must be considered. VAT is charged on cars.
* Other external factors - PESTE (political, economic, social, technological and environmental factors). These have already been discussed in the External Influences section, page 16.
* Rest of marketing mix - the price must compliment other elements of the mix.
The pricing method chosen will also be affected by the price elasticity of demand of the product. This measures the responsiveness of demand for a product to change in price. (Both measured as percentage of total.) It is calculated using the formula:
Price elasticity = % change in demand
% change in price
If percentage change in demand is greater that percentage change in price then the product is price elastic. Raising the price will result in a loss of revenue. If the percentage change in demand is less than the percentage change in price then the product is price inelastic. Raising the price will result in a gain of revenue.
The A6 will be price inelastic because it is a highly differentiated product. This means that people will be willing to pay more for the benefits it provides - reputable brand name, added luxury feature, good performance, etc. Also, they are regularly purchased as company cars so if someone else (i.e. the company) is paying for it price will not be so important. Selling price inelastic is generally considered a good thing by a firm as it allows them to increase the price and gain revenue. If a product is price elastic lowering the price should result in an increase in revenue, but this is a risk as it relies on demand increasing. If this does not happen as a result of external factors, the firm could lose a lot of money. As a result of being price inelastic, Audi have increased prices by 1% on average from the old A6 which should result in increased revenue. Also, this price increase is only small so people will not feel like they are being overcharged, so it is psychologically the right price.
Audi will charge a high price which seems a good idea. High price is usually associated with:
* Heavy branding - Audi is a reputable brand.
* Few competitors - no new cars in the A6's class.
* Unique selling point - brand reputation, no new competitors, quality design features such as the latest in-car technology and new engines.
* High unit cost - building prototypes, testing and production are all expensive.
* Limited distribution - only sold in Audi showrooms and on website.
There are various possible pricing methods for a new product:
* Price skimming - price is initially set high to gain maximum short term profit then lowered. This is unlikely and company history shows car prices stay constant.
* Penetration pricing - low price set to gain market share then it is raised. This will not be used as cars are very expensive to produce so it would be too costly.
* Competitor based pricing - in competitive market prices are set the same as competitors. This will be considered to ensure the A6 is rejected by customers in favour of competitors, but will not be a huge influence as the market is not the most competitive.
* Demand based pricing - firm estimates what people are willing to pay. This will be used form past sales figures of the old A6.
* Cost plus pricing - the firm adds an amount to the unit cost. This is simple and popular. This may be used as it will ensure the cars are never being sold at a loss and is simple to put into practise.
* Predatory pricing - price is set low to undercut and remove competitors then price is risen. This will not be used as a car is too expensive to get into a price war. All firms will lose out.
* Price discrimination - charging different prices to different market segments. This is used more on services (e.g. senior citizens' discounts, peak/off-peak train fairs) so will not be used by Audi.
* Psychological pricing - focuses on the consumers perception of price; if it is too high people will feel they are not getting value for money, if it is too low people will think the product is very poor quality or faulty. This must be considered.
Typical use of pricing schemes:
From my analysis of my questionnaire, the external influences and Audi's strengths, premium pricing appears the best pricing strategy for the A6. Audi have a good company reputation so this provides differentiation which is huge advantage in a mass market. The questionnaire shows that most people believe Audi cars in general are good value so keeping high prices is the sensible option. Having analysed external influences, the most important appears to be the economic climate which is closely linked to wages. Audi cars are income elastic so as there are currently good economic conditions, there will be high demand and consumers will be willing to pay higher prices. Audi already have a highly reputable brand which means people will be more willing to pay a high price for a new product as they know what to expect from it.
The price for the A6 given by Audi is £24,175 to £42,775 which seems sensible and I believe is the best price for the product after having considered all the influences. This is the price that is likely to gain Audi the greatest market share and make the most profit. It is psychologically right as it has been proven people will pay this in the past, it is similar to competition such as BMW and it has not used unsuitable pricing methods such as predatory pricing. Also, the A6 is price inelastic so a higher price (these prices are up 1% from the old A6) will result in an increase in revenue and hopefully profit.
Audi's main competitor is BMW, so the A6's main competitor is the 5 series which is priced from £26,100 to £42,350. The A6's starting price is below this by £2,000 so they may appeal to people looking for a slightly cheaper car. This is a good idea for Audi as they are appealing to a slightly larger audience and if the A6 does not offer more features than the 5 series, it has a lower price so will still be better value for money.
The product must have quality. The level of quality depends on:
* Performance - speed, economy, acceleration, etc.
* Features - air conditioning, CD player, cruise control, etc.
* Ease of servicing (how easy it is to fix) - service by professional mechanics at company garage.
* Reliability - very reliable as Audi are high quality cars.
* Aesthetics - choice of colours, choice upholstery, alloy wheels, etc.
* Brand name - Audi, highly reputable.
A product can be examined for these things and others on three levels:
. Core - benefits of the product.
2. Tangible - the features of the product (e.g. appearance, performance).
3. Augmented - other services or benefits that are obtained (e.g. servicing, guarantee).
The A6 should aim for product differentiation. This means Audi should try to distinguish the car from its competitors in the eyes of the consumer. This will be an attempt to get customers from the competition. It will be done by adding features to the car which add value. Something which adds value will increase the price of the product by more than it costs to produce. Examples of this are alloy wheels, CD player, sixth gear. If a feature costs more to produce than it adds to the value of the product it should be removed.
Audi have added features to the A6 to improve its performance enjoyment to drive. It uses a new engine design which is renounced for its responsiveness and high speed cruising ability. There are numerous safety features on the A6 including anti-lock brakes, traction control system and automatic tyre pressure monitoring. These features appeal to people's emotion of fear so gives the car another selling point.
Compared to BWM, a main competitor, many of the features are similar, but use different names. This shows both company's are aiming for differentiation. These features add value, particularly as they are unique, so are good for the product. In my opinion the A6 should have limited features as standard as it allows a lower basic price for the car and people can choose to pay for only what they want. However, there should be some standard features as it improves Audi's image of producing high quality cars.
The A6 is an example of a speciality good; it is unique and so consumers are willing to make a special effort to buy it. This is often linked to exclusive distribution. The other types of good are convenience items (consumer searches for nearest shop, extensive distribution) and shopping goods (consumer shops around and takes time to buy, looking for the best value).
There are a number of thing a company will do to try and keep its unique selling point of brand name and ensure no-one else uses the company's ideas:
* Copyright (c) - creator's or legal owner's rights to a creative work. This occurs automatically and so does not need registering.
* Trademark (tm) - a symbol used by the producer, Audi, to identify their product. It is legally protected under the 1938 Trade Marks Act (amended 1984). Trademarks must be registered at the Patent Office.
* Patent - a licence lasting for 15 years that prevents copying of an idea. It aims to protect the inventor and so encourages research and people/companies to develop their own products.
* Logos - visual representation of a product or organisation. Audi use four rings.
Here are some pictures of the A6:
The channel of distribution describes how the title of ownership passes from manufacturer to consumer. A firm is likely to set distribution targets such as number of areas and outlets the product is sold in and number or value of sales in each region. The first two will be the same for the A6 as they are for every other Audi car. Audi are a well established company in all of their markets so expansion into new markets or number of outlets in existing areas will not be required. The number or value of sales will be determined by supply (must be equal to demand), other aspects of the marketing mix and external factors (e.g. income).
There are various levels of distribution:
Audi, like most other car manufacturers, use zero level distribution; they produce the cars in factories, display models are put in showrooms for consumers to look at and test drive, and they are then sold to the consumer. Although there is a middle stage here, the ownership of the cars does not change and the cars people actually buy are shipped directly from the factory on order.
In recent years major retailers, including large supermarkets, have become more important. They have reduced the need for wholesalers as they buy directly from producers. However for minor retailers such as local green grocers or butchers, wholesalers are useful. They buy large quantities from producers and sell to retailers. They help reduce the number of transactions.
Without wholesaler - 9 transactions. With wholesaler - 6 transactions.
As I have said Audi do not use wholesalers to help distribute their cars. This is because they sell their cars in their own showrooms so no distribution to retailers is needed. This helps reduce costs and have selective distribution.
The firm must choose a distribution channel. The options are:
When choosing the firm must consider:
* Costs - high cost of a product fits in with exclusive distribution which Audi chooses (only distribute through own showrooms).
* Alternatives - for example in Audi showrooms only or car supermarkets or internet. The new A6 will be sold on the internet as well as Audi showrooms from the Audi website which was not previously possible.
* Type of product - an industrial product is likely to be sold through shorter distribution channels as they have fewer customers.
Audi will choose exclusive distribution in their showrooms and from their website. This fits in with speciality and high value goods, like the A6.
Promotion involves communication about a product or service so customers and consumers know about it. The aim of promotion is the make consumers aware (new product), to remind consumers (existing product) and to persuade consumers (new and existing products).
The promotion may have a rational appeal (appeals to consumers' self interest), emotional appeal (e.g. guilt, fear, love) or moral appeal (what the consumer thinks is right). The last method is used mainly by charity companies trying to get people to give donations. Audi's promotion should have a logical appeal as the car is a product with many good features that will appeal to people. Also, they do not really have an emotion to appeal to. If they did this, it would not match the company's image, particularly as they are a German company who are associated with efficiency and logic.
The amount a company will spend on promotion will depend on the marketing budget set by the finance department, the promotional objectives, stage in the product life cycle and spending of competitors. Audi will have a large marketing budget as they are a big multinational company so can afford to spend a lot on promotion. Also, the A6 is at the launch stage of the product life cycle so more should be spent on promotion to make consumers aware of the product and to promote its good points.
There are two types of promotion:
Above the line: ADVERTISING
Below the line: all other forms of promotion
apart from advertising
Above the line promotion activities are direct advertising through independent media. Below the line promotion activities are all other promotional activities other than advertising including special offers, direct mail, store displays and personal selling.
It is important for a firm to use the right promotional mix for its products. For consumer goods, such as the A6, advertising to the final consumer is common as personal selling is important to get the product distributed to the retailer, but not to the consumer. However, industrial goods are generally sold to fewer, professional buyers so advertising is less important. They have a small target audience so most advertising will not be cost effective. Personal selling is more important as customers will buy large quantities of a single product, such as steal, so they must be convinced they are making the right choice. The materials Audi buy to produce their cars are all industrial goods.
Personal selling is also an important part of promotion of expensive consumer goods, such as cars, for which people shop around. It is important to have friendly and persuasive salesmen in the dealerships to convince customers to buy the A6. It is important to have ample staff so all potential customers can be assisted.
Audi will advertise the A6 heavily. This advertising should seek to:
Increase Awareness - make the consumer know the product exists.
Create Interest - make customers want to know more.
Develop desire - make customers want the product.
Lead to Action (purchase) - make customers buy it.
This is the AIDA model. When deciding the appropriate medium to advertise on the firm must consider cost (can they afford it), target audience (will they see/hear it) and appropriateness (if it reflects the image of the company or will reach enough people).
It is important for a firm to properly assess their advertising to see if it is effective. This is done through the DAGMAR model:
It is important to define what the firm is trying to achieve through their advertising so they can then measure how successful it has been.
The firm must chose the form of media they use to advertise. This will depend on:
* Coverage - the number of potential customers the medium will reach.
* Frequency - how often the consumer will see the message
* Cost - can the firm afford it?
Some of the possible forms of media that can be used are:
Suitability for Audi
* Large audience
* Message can be repeated very frequently
* Uses both images and sound - likely to be more memorable.
* Expensive to film advert
* Expensive to buy air time for advert
* Can afford large costs
* Want very large audience
* Very suitable
* Fairly large audience
* Uses sound and music - can be catchy
* Listeners may not take notice
* Decent size audience
* Fairly suitable
* Fairly cheap
* Large, national audience
* Can contain more information in small type
* People may not bother to read it
* Often black and white only
* Advert may be lost in a whole page of adverts
* Can appeal to right socio-economic group
* Large audience
* Can contain more information in small type
* Smaller audience
* Greater cost per reader
* Message can only be repeated weekly
* Small audience
* Not suitable
Relevant magazine (in this case car/motoring)
* Can contain more information in small type
* Target audience will see the advert
* Readers will be more interested in topic so more likely to read the advert
* Competitors products being advertised alongside
* Message only repeated weekly, bi-monthly or monthly
* Target audience see advert
* Images and sound can be used
* Great impact on audience as they are there to watch something
* Market segments can be targeted (e.g. age, gender)
* Must be repeated very regularly to have great effect (maximum 100 people will see it each time)
* Expensive to make, but can use same advertisement as for television
* Limited audience
* Not target audience
* Reasonable suitability
* Can show image of product
* People will look while waiting at traffic lights or a roundabout
* Many people will drive past
* To an extent appealing to target audience - car owners
* People likely to forget message
* Cannot include much detail
* Will get damaged from weathering or erosion
* Image of A6 shown
* Drivers see A6
* Quite suitable
* Cheap to produce
* Can contain a lot of information
* Must pay someone to distribute them
* People likely to just drop them
* One off advertising (better for events)
* May make company seem tacky
* Does not reflect company image
* Limited audience
* Very unsuitable
* Can have link to website
* Image can flash to attract people's attention
* Easy to measure effectiveness (how many people click on it)
* Limited audience - not everyone has access to the internet or will visit the website the advertising is on
* Pop-up adverts annoy people so this may reflect badly on the company
* Limited audience
* Can link to site where A6 sold
* Fairly suitable
Audi promote and sell their products under the company brand name. This helps to create brand loyalty which may earn higher profit, help keep customers, launch new products new easily and extend the brand. The Audi group also produce cars under other names, Lamborghini and Volkswagen, but these clearly use their own brand name. This is because these two brands have completely different images, Lamborghini of quality and style and Volkswagen of value. These have different target audiences so this strategy is an attempt to keep both.
There are controls on advertising that all firms must obey. These are:
. Advertising Standards Authority - this is a voluntary body which seeks to ensure adverts are "legal, decent, honest truthful and do not cause widespread offence".
2. Independent Television Commission - control advertising on television and radio.
3. Laws - one is the Trades Description Act whereby the goods advertised must be as described.
These must all be obeyed otherwise the advert will not make it into the media or the company may face law suits against them.
Audi must use both above and below the line promotion to promote the A6. In my opinion the most suitable ways to the A6 are on television, in magazines, in national newspapers and on billboards. I have chosen television as it has a very large potential audience and uses both images and sound so will be more memorable. Audi are a very large company so can afford the high costs associated with it. The most suitable time would be the evening as this is when most people are watching. The main benefit of magazines is the advert will be seen by the target audience. It is also cheaper so can be done more often. More information can be put in adverts as people can spend longer reading them. Newspapers have the same advantages. They still appeal to the target audience as different newspapers appeal to different socio-economic groups. Broadsheets such as the Times and the Financial Times would be most suitable. Billboards are cheap and show the aesthetics of the car. They will be eye catching to people, particularly if they use bright colours. They are not the best way to communicate information about the A6, but will make potential customers aware of it and will get the car in their minds.
As you would expect from a company with a large marketing budget and they also promote through product brochures and on their website. The A6 may also get promoted at special car shows such as the Geneva Motor show where it was unveiled to the public. They also ensure they appeal to the target audience and must assess the effectiveness of their promotion.
SUMMARY OF MARKETING STRATEGY
The following table shows the choices I have made for the marketing mix for the new Audi A6:
Decisions for the marketing mix
Reason for decision
Should be customer orientated.
The product should appeal to the wants and needs of the consumer so they do not chose competitors product over the A6.
Primary market research will be done in the form of a questionnaire.
This is feasible method of market research for me, an individual, to carry out and I can make it relevant for the task. This can then be analysed to help devise the marketing mix.
The price of the A6 should be set high (the company chose £24,175 to £42,775).
This is because it is price inelastic, is a high quality product and has a reputable brand. It has been derived using a combination of competitor based pricing (similar price to BMW and Mercedes similar cars), demand based pricing (what they have found people were willing to pay for the old A6) and psychological pricing (this price is neither too much nor too little). Premium pricing is used due to the reputable brand name, particularly in the current good economic climate (higher income, A6 is income elastic).
The product should aim for differentiation through the brand name Audi and features, including new engines and the latest in-car technology, which add value.
Audi have always aimed for product differentiation rather than cost management so this should be continued. It can be done through a reputable brand name and a high quality product with many additional features. Differentiation is likely to lead to increased market share and so increased turnover and profit.
Distribution of the product should be limited to exclusive Audi dealerships and website.
Exclusive distribution is associated with high quality, high priced speciality goods such as the A6. This maintains this image. The website will provide an extra market for sales and targets for this should be set.
Audi should use zero level distribution.
Zero level distribution cuts out the middle man so reduces costs and helps exclusive distribution.
The A6 should be advertised frequently and in a wide range of places, mostly television, billboards, magazines and radio.
The firm has great financial resources at their disposal so can afford a large advertising budget (found from last years spending in annual report). Advertising in this way will ensure people, particularly the target audience, here about and know the benefits of the product.
Other forms of promotion, including personal selling, are to be done less.
The A6 is a consumer good so advertising to the final consumer is most important. Personal selling is not as important as this is used to sell products to retailers. However, Audi do need to use personal selling in their showrooms to persuade perspective customers.
All elements of the marketing strategy and marketing mix compliment each other so they work together effectively to achieve the marketing objectives.
Audi product brochures entitled A6 with subsections: The new A6 saloon, A6 details, A6: Saloon and Avant and A6 and S6 quattro Saloon and Avant price list.
Audi website - www.audi.com
Audi annual report 2003
Business studies websites including www.bized.co.uk
Lines, Marcouse, Martin, A-Z Business Studies handbook third edition, 1994
Carysforth, Rawlinson, Neild, Intermediate Business, 1995
Nike website - www.nike.com
BMW website - www.bmw.com
Luke Hartley Unit 3 - Marketing