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Marketing Environment - PEST Analysis

Introduction
An organisation’s success is influenced by factors operating in it’s internal and external
environment; an organisation can increase it’s success by adopting strategies which
manipulate these factors to it’s advantage. A successful organisation will not only understand
existing factors but also forecast change, so that it can take advantage of change within the
environments in which it operates.
PEST & Micro environmental Factors

The following type of forces influence an organisation’s operating environment:

• Pest Factors – These are external forces which the organisation does not have direct control
over these factors. PEST is an acronym and each letter represents a type of factor (Political,
Economical Social and Technological).
• Micro environmental factors – These are internal factors, which the organisation can
control.
PEST & PESTLE analysis A PEST analysis is used to identify the external forces affecting
an organisation .This is a simple analysis of an organisation’s Political, Economical, Social
and Technological environment. A PEST analysis incorporating legal and environmental
factors is called a PESTLE analysis.
Political The first element of a PEST analysis is a study of political factors. Political factors
influence organisations in many ways. Political factors can create advantages and
opportunities for organisations. Conversely they can place obligations and duties on
organisations. Political factors include the following types of instrument:
- Legislation such as the minimum wage or anti discrimination laws.
- Voluntary codes and practices
- Market regulations
- Trade agreements, tariffs or restrictions
- Tax levies and tax breaks
- Type of government regime eg communist, democratic, dictatorship
Non conformance with legislative obligations can lead to sanctions such as fines, adverse
publicity and imprisonment. Ineffective voluntary codes and practices will often lead to
governments introducing legislation to regulate the activities covered by the codes and
practices.
Economical
The second element of a PEST analysis involves a study of economic factors.
All businesses are affected by national and global economic factors. National and global
interest rate and fiscal policy will be set around economic conditions. The climate of the
economy dictates how consumers, suppliers and other organisational stakeholders such as
suppliers and creditors behave within society.
An economy undergoing recession will have high unemployment, low spending power and
low stakeholder confidence. Conversely a “booming” or growing economy will have low
unemployment, high spending power and high stakeholder confidence.
A successful organisation will respond to economic conditions and stakeholder behaviour.
Furthermore organisations will need to review the impact economic conditions are having on
their competitors and respond accordingly.
In this global business world organisations are affected by economies throughout the world
and not just the countries in which they are based or operate from. For example: a global
credit crunch originating in the USA contributed towards the credit crunch in the UK in
2007/08.
Cheaper labour in developing countries affects the competitiveness of products from
developed countries. An increase in interest rates in the USA will affect the share price of UK
stocks or adverse weather conditions in India may affect the price of tea bought in an English
café.
A truly global player has to be aware of economic conditions across all borders and needs to
ensure that it employs strategies that protect and promote its business through economic
conditions throughout the world.
Social

The third aspect of PEST focuses its attention on forces within society such as family,
friends, colleagues, neighbours and the media. Social forces affect our attitudes, interest s and
opinions. These forces shape who we are as people, the way we behave and ultimately what
we purchase. For example within the UK peoples attitudes are changing towards their diet
and health. As a result the UK is seeing an increase in the number of people joining fitness
clubs and a massive growth for the demand of organic food. Products such as Wii Fit attempt
to deal with society’s concern, about children’s lack of exercise.
Population changes also have a direct impact on organisations. Changes in the structure of a
population will affect the supply and demand of goods and services within an economy.
Falling birth rates will result in decreased demand and greater competition as the number of
consumers fall. Conversely an increase in the global population and world food shortage
predictions are currently leading to calls for greater investment in food production. Due to
food shortages African countries such as Uganda are now reconsidering their rejection of
genetically modified foods.
In summary organisations must be able to offer products and services that aim to complement
and benefit people’s lifestyle and behaviour. If organisations do not respond to changes in
society they will lose market share and demand for their product or service.
Technological

Unsurprisingly the fourth element of PEST is technology, as you are probably aware
technological advances have greatly changed the manner in which businesses operate.
Organisations use technology in many ways, they have
1. Technology infrastructure such as the internet and other information exchange systems
including telephone
2. Technology systems incorporating a multitude of software which help them manage their
business.
3. Technology hardware such as mobile phones, Blackberrys, laptops, desktops, Bluetooth
devices, photocopiers and fax machines which transmit and record information.
Technology has created a society which expects instant results. This technological revolution
has increased the rate at which information is exchanged between stakeholders. A faster
exchange of information can benefit businesses as they are able to react quickly to changes
within their operating environment.
However an ability to react quickly also creates extra pressure as businesses are expected to
deliver on their promises within ever decreasing timescales..
For example the Internet is having a profound impact on the marketing mix strategy of
organisations. Consumers can now shop 24 hours a day from their homes, work, Internet
café’s and via 3G phones and 3G cards. Some employees have instant access to e-mails
through Blackberrys but this can be a double edged sword, as studies have shown that this
access can cause work to encroach on their personal time outside work.
The pace of technological change is so fast that the average life of a computer chip is
approximately 6 months. Technology is utilised by all age groups, children are exposed to
technology from birth and a new generation of technology savvy pensioners known as “silver
surfers” have emerged. Technology will continue to evolve and impact on consumer habits
and expectations, organisations that ignore this fact face extinction.
PESTLE

A PEST analysis is sometimes expanded to incorporate legal and environmental factors; this
is known as a pestle analysis. There are many statutes books containing company law as
almost every aspect of an organisation’s operation is controlled through legislation from
treatment of employees through to health and safety. Legal factors are important as
organisations have to work within legislative frameworks. Legislation can hinder business by
placing onerous obligations on organisations. On the other hand legislation can create market
conditions that benefit business
The personal computer market is very competitive and is influenced by many internal and
external factors. Some of the uncontrollabe factors that influence the personal computer
market include, political , economical, social and technological factors that can have an
impact on the organisations strategy. We just have to look at Microsoft and the ant-
competitive lawsuit which was brought against the company in the USA which has had an
impact on how the company sells and develops its operating system.

List and discuss below the PEST factors that could influence LM Ltd marketing strategy.

Political.
1 Legislation that may impact the business
2 Government taxation policy corporate and individual.

Economical 1 Current interest rates

2 Levels of employment and unemployment impacting consumer spend
3 State of the economy with reference to thebusiness cycle. Is the economy booming or fast
approaching a recession?
Social
1 Levels of education - knowledge of consumers about computer products.
2 Use of computers - Are computer being sold for personal or business use? or both?
Technological
1 Rates of technological change. - How fast is technology changing?
2 Rates of technological obsolescence. - How long is it before new computers become old?
As listed above LM Ltd will need to take into account the above factors as they may well
impact the marketing strategy of the company. Legistation may influence product design,
whether the economy is in a boom or recession may influence demand. What computers are
being used for may influence the package on offer, and the rate of how fast technology
changes again may influence pricing decisions.

Micro Environmental Factors

These are internal factors close to the company that have a direct impact on the organisations
strategy. These factors include:
Customers
Organisations survive on the basis of meeting the needs, wants and providing benefits for
their customers. Failure to do so will result in a failed business strategy.
Employees
Employing the correct staff and keeping these staff motivated is an essential part of the
strategic planning process of an organisation. Training and development plays an essential
role particular in service sector marketing in-order to gain a competitive edge. This is
clearly apparent in the airline industry.
Suppliers
Increase in raw material prices will have a knock on affect on the marketing mix strategy of
an organisation. Prices may be forced up as a result. Closer supplier relationships is one way
of ensuring competitive and quality products for an organisation.
Shareholders
As organisation require greater inward investment for growth they face increasing pressure to
move from private ownership to public. However this movement unleashes the forces of
shareholder pressure on the strategy of organisations. Satisfying shareholder needs may result
in a change in tactics employed by an organisation. Many internet companies who share
prices rocketed in 1999 and early 2000 have seen the share price tumble as they face
pressures from shareholders to turn in a profit. In a market which has very quickly become
overcrowded many havel failed.
Media
Positive or adverse media attention on an organisations product or service can in some cases
make or break an organisation.. Consumer programmes with a wider and more direct
audience can also have a very powerful and positive impact, hforcing organisations to change
their tactics.
Competitors
The name of the game in marketing is differentiation. What benefit can the organisation offer
which is better then their competitors. Can they sustain this differentiation over a period of
time from their competitors?. Competitor anlaysis and monitoring is crucial if an organisation
is to maintain its position within the market.

The marketing concept

The concept of marketing has changed and evolved over time. Whilst in today’s business
world, the customer is at the forefront, not all businesses in the past followed this concept.
Their thinking, orientation or ideology put other factors rather then the customer first. Let us
examine these below.
Production Oriented: The focus of the business is not the needs of the custobmer, but of
reducing costs by mass production. By reaching economies of scale the business will
maximize profits by reducing costs.
Product Orientation: The company believes that they have a superior product, based on
quality and features, and because of this they feel their customers will like it also.
Sales Orientation: The focus here is to make the product, and then try to sell it to the target
market. However, the problem could be that consumers do not like what is being sold to
them.
Market Orientation: Puts the customer at the heart of the business. The organization tries to
understand the needs of the customers by using appropriate research methods, Appropriate
processes are developed to make sure information from customers is fed back into the heart
of the organisation. In essence all activities in the organisation are based around the customer.
The customer is truly king!
In today’s competitive world putting the customer at the heart of the operation is strategically
important. Whilst some organizations in certain industries may follow anything other then the
market orientation concept, those that follow the market orientation concept have a greater
chance of being successful.
Competitor Strategies
Any organisation that wishes to succeed and survive in their market, needs to analyse their
competitors strategies. Competitor analysis is a vital part of the marketing planning process.
Competitor analysis enables an organisation to:
• Collect information on competitors that will directly influence the firms’
strategy.
• Help the firm anticipate what the actions of their competitors will be, to their
entry within the marketing.
• To exploit the competitor’s weaknesses so the firm can gain an overall
competitive advantage.

If you were to enter a market, some of the information you would need to
know about your competitors islisted below.
• Who are your competitors?
• What is the size and dominance within the market.
• Which customer base are they aimed at?
• What is their positioning within the market?
• What are their objectives?
• What are their strengths and weaknesses?
Data from an array of sources can be collected on your competitors. Examples
of data sources include:
• Competitors websites.
• Annual reports.
• Observation.
• News articles on TV or press.
• Talking to customers or sales staff.
 • Covert operations including pretending to be a customer at your competitors
store, or phoning their telephone sales line.
A complete understanding of competitors will help the organisation in
preparing their overall marketing plan. As suggested, Porters Five Forces
model is one model that helps the company identify competitors and potential
competitor within their market and should be used in conjunction with a
general competitor analysis.
A competitor can easily slow down your companies progress, competitor
analysis should allow you to anticipate and react effectively to their move
The Credit Crunch what is it?
When banks and building societies and other lenders decided to tighten their lending criteria
for loans and mortgages, this became known as the Credit Crunch, as many people and small
businesses could no longer obtain credit
Why did lending suddenly reduce/stop?
Banks and building societies lend money with the aim of making profit from the interest
charged to the applicants taking out the loan. In theory a large number of loans should result
in a large profit i.e. more loans equal more interest back from customers. However during the
latter part of 2007 it started to become apparent that many individuals could not afford to pay
back their mortgages. Investigations revealed that financial institutions had engaged in
“risky” lending through
• Increasing lending multiples so that individuals were lent five to ten times their annual
income
• Lending to individuals with poor credit history including missed loan repayments, defaults
and county court judgments
• Lending to individuals on very low or no income other than state benefits
• Not verifying the information provided by the loan applicant e.g. checking income through
wage slips and or P60
• Providing individuals with mortgages which were greater than the value of their property or
the borrower didn’t need to contribute towards the purchase price i.e. the mortgage covered
the full value or purchase price of the property
A lot of high street lenders were borrowing money from other financial institutions via the
money markets and then lending (the money that they had borrowed) to individuals and
businesses. These lenders made a profit by lending money at a high interest rate than the one
they had paid to borrow the money.
After the news regarding risky lending practices broke, financial institutions became
apprehensive about lending to each other. This apprehension reduced the amount of money
available to high street lenders and it led to an increase in the interest rates that high street
lenders had to pay for borrowing money. The lack of credit available to high street lenders
reduced the number of mortgages and loans offered by high street lenders to individuals and
businesses. High street lenders also tightened their lending criteria through:
• Reducing lending multiples
• Only accepting individuals with excellent credit records
• Limiting lending to individuals with proven employment/self employment income
• Requesting the loan applicant to provide documentation proving the information provided
on their application
• Only granting mortgages to applicants able to fund at least 10% of the purchase price
themselves.
• Increasing the interest rate charged for mortgages above 90% of the purchase price.

Recession- What is it?

The credit crunch has contributed towards economies around the world falling into recession
as businesses have found it difficult to secure short term lending for every day operations.
Recession is where manufacturing output falls in two consecutive quarters; a decrease in
demand within the economy is the cause behind this fall. Businesses and customers are not
buying because of either a shortage of credit (as discussed above) or an increase in costs or
both.
In order to continue trading and to deal with sudden drops in demand, businesses have
reduced the number of people they employ and/or reduced working hours. Some businesses
such as the car manufacturer Honda have suspended car production. On the 30th of January
2009 Honda suspended production of cars from its car plant in Swindon for 16 weeks. Honda
employees at the Swindon plant were told to stay away from work during the 16 weeks. The
workers were on full pay for the first two weeks and around 60% for the remaining 14 weeks.
Honda said that they will resume a reduced level of car production on the 1st of June 2009.
Repossessions, toxic debt, inflation and deflation

Reduced income has left some individuals and businesses unable to pay back their mortgages
and loans. The inability to meet loan repayments has been exacerbated by an increase in other
costs such as utility and food bills. These rising prices are known as inflation.
2008 was dominated by news headlines reporting a large increase in the number of properties
repossessed due to house owners and creditors not being able to make repayments on their
loans. Financial institutions have also written off loans that they feel will never be repaid by
the individuals and organisations that borrowed it. This is known as toxic debt and includes
loans that were made decades ago.
We have briefly discussed inflation above however recession can also lead to the reverse of
this deflation. Deflation is where prices drop as opposed remaining constant or increasing.
Deflation can also adversely affect businesses and the economy as it can lead to reduced
demand because buyers are expecting future price decreases. It can also lead to reduced
profits because businesses are charging less for their goods or services.
Ethical Marketing
Ethical marketing is about whether a firms marketing decision is morally right or wrong. The
morality of the marketing decision can encompass any part of marketing from advertising to
the pricing of their product or service, to the sourcing of their raw materials.
In today’s corporate world ethical marketing is playing a larger role in marketing strategy. An
increasing number of consumers are buying products/services because they feel that the
products, services or organisations responsible for those are ethical. In response to this
consumer demand organisations have increased their focus on ethical marketing. The UK Co-
operative bank is good example of an organisation that tries to follow a ethical principal,
based on what the customers feel strong about.
When companies are reviewing marketing strategies they need to consider whether the
marketing decisions that they are making are ethical and reflect consumer and market
expectations.
An individual’s view of ethics and morality is influenced by a variety of things including
their culture, background, experience, upbringing/family, peers, community, religion and
country.
After a company has decided to implement ethical marketing they will need to make the
following decisions:
1. Define what is ethical.
2. Which branch of ethics will they subscribe to.
3. How will the ethical approach to marketing be implemented.
4. In which areas of the firm’s operations should ethical marketing be implemented e.g.
employees, suppliers, consumers/clients, production techniques, distribution or the whole
value chain.
The question of ethical is whether the firms decisions is right or wrong. A number of
questions a firm must ask itself include:
Should the firm employ children to their products? Do the firm’s suppliers use child labour?
Does the firm know? Today, child labour is a very big issue, does your firm want to associate
itself with this?
Does the firm exaggerate the benefits of its products on its packaging? Are claims overstated?
Many firms do make bold claims. The company needs to make sure these claims are fully
supported.
Does the firm conduct in high pressurized selling techniques or focus on customer groups that
are vulnerable e.g. pensioners? With markets very competitive obtaining customer loyalty is
becoming very difficult. High pressurized selling techniques could result in the firms loosing
reputation within its market.
Does the firm squeeze even more margins out of their supplier to the extent that it impacts on
the suppliers’ profit margin and may well have an impact on the quality of the products sold
to you? Many supermarkets have been accused of such a practice. The introduction of the fair
trade policy does much to deal with this.

Ethical marketing is based around making the right moral decisions. Balancing ethics and
remaining competitive can be difficult. You can argue that as consumer attitudes shift having
an ethical strategy will make a firm more competitive.
Environmental marketing does stem from ethical marketing, however environmental
marketing is slowly becoming so big it does deserve to be looked at separately
Marketing Research
Research is the only tool an organisation has to keep in contact with its external operating
environment. Inorder to be proactive and change with the environment simple questions need
to be asked:
• How are customer needs changing? Can you meet these changing needs?
What do your customers think about existing products or services?
• How are competitors operating within the environment? Are their strategies
exceeding or influencing yours? What should you do?
• How are macro and micro environmental factors influencing your
organisation? Again how will you react?
As witnessed with the UK retail clothing group C&A , failure to react to the changing needs
of its customers within its environment resulted in C&A closing all their UK retail stores UK
clothing store. Marks and Spencers in the past also faced an uncertain future. Research told
them that customers felt that the stores and clothes were outdated. M&S rushed out new lines
and experimented with new concept stores to retain existing and attract potential new
customers, this has worked and sales are now back on track.
Market Research and Marketing Research a difference.
A common mistake by many students, lecturers and textbooks is that there is no
understanding of the clear distinction between market research and marketing research.
Market Research: Involves researching specific industry’s or markets. Researching the
computer industry to discover the number of competitors and their market share will be an
example of market research.
Marketing Research: Marketing Research goes further. Marketing Research analyses a given
marketing opportunity or problem, defines the research and data collection methods required
to deal with the problem or take advantage of the opportunity, through to the implementation
of the project. In essence marketing research aims to discover the root cause for a specific
problem within an organisation ( eg declining sales) and put forward solutions to that
problem.
Data Types
There are two types of data to be collected:
Qualitative Data: Focuses on people’s opinions and attitudes towards a product or service.
Quantitative Data: Focuses on collecting data for numerical analysis
The Chartered Institute of Marketing define marketing as 'The management process
responsible for identifying , anticipating and satisfying customer requirements profitably'

What is Marketing?
The Chartered Institute of Marketing define marketing as 'The management process
responsible for identifying , anticipating and satisfying customer requirements profitably'
If we look at this definition in more detail Marketing is a management responsibility and
should not be solely left to junior members of staff. Marketing requires co-ordination,
planning, implementation of campaigns and a competent manager(s) with the appropriate
skills to ensure success.
Marketing objectives, goals and targets have to be monitored and met, competitor strategies
analysed, anticipated and exceeded. Through effective use of market and marketing research
an organisation should be able to identify the needs and wants of the customer and try to
delivers benefits that will enhance or add to the customers lifestyle, while at the same time
ensuring that the satisfaction of these needs results in a healthy turnover for the organisation.
Philip Kotler defines marketing as 'satisfying needs and wants through an exchange
process'
Within this exchange transaction customers will only exchange what they value (money) if
they feel that their needs are being fully satisfied, clearly the greater the benefit provided the
higher transactional value an organisation can charge.
www.thetimes100.co.uk

Principles of Marketing by Frances Brassington

Sampling methods
Before an organisation conducts primary research it has to be clear which respondents it
wishes to interview. A company cannot possibly interview the whole population to get their
opinions and views. This simply would be to costly and unfeasible. A sample of the
population is taken to help them conduct this research. To select this sample there are again
different methods of choosing your respondents, a mathematical approach called 'probability
sampling' and a non- mathematical approach, simply called 'non-probability sampling'. Lets
look at these in a little more detail.
Probability Sampling Methods – A mathematical chance of selecting the respondent.
Simple Random Samples
With this method of sampling the potential people you want to interview are listed e.g. a
group of 100 are listed and a group of 20 may be selected from this list at random. The
selection may be done by computer.
Systematic samples
Out of the 100 people we talked about above, systematic sampling suggests that if we select
the 5th person from the above list, then we would select every 5th, 10th, 15th, 20th etc. The
pattern is the every consecutive 5th. If the 6th person was selected then it would be every
consecutive 6th.
Multi-Stage Samples
With this sampling process the respondents are chosen through a process of defined stages.
For example residents within Islington (London) may have been chosen for a survey through
the following process:
Throughout the UK the south east may have been selected at random, ( stage 1), within the
UK London is selected again at random (stage 2), Islington is selected as the borough (stage
3), then polling districts from Islington (stage 4) and then individuals from the electoral
register (stage 5).
As demonstrated five stages were gone through before the final selection of respondents were
selected from the electoral register.
Non Probability Samples
Convenience Sampling
Where the researcher questions anyone who is available. This method is quick and cheap.
However we do not know how representative the sample is and how reliable the result.
Quota Sampling
Using this method the sample audience is made up of potential purchasers of your product.
For example if you feel that your typical customers will be male between 18-23, female
between 26-30, then some of the respondents you interview should be made up of this group,
i.e. a quota is given.
Dimensional Sampling
An extension to quota sampling. The researcher takes into account several characteristics e.g.
gender, age income, residence education and ensures there is at least one person in the study
that represents that population. E.g. out of 10 people you may want to make sure that 2
people are within a certain gender, two a certain age group who have an income rate between
£25000 and £30000, this will again ensure the accuracy of the sample frame again.
To summaries there are two types of sampling frames - probability and non-probability, and
within this six types of sampling methods as discussed above.
New Product Development
Why develop new products for your business?
Every business needs to innovate to stay ahead of the competition. No business can continue
to offer the same unchanged product, if they did so, profit would not be maximized and sales
would start to fall.
Here we will look at some of the reasons why a company may introduce new products into its
portfolio.
• Consumer needs may change, forcing the company to adapt with these changing
needs. If we look at food sectors around the world, consumers are becoming more
health conscious, forcing companies to introduce low sugar and fat versions of their
existing brands. Coca Cola Zero is a classic example.
• The product maybe at the end of its life cycle, so the company may introduce new and
improved updated versions. Microsoft has done this by moving from the Xbox to the
Xbox 360.
• The product might be at the maturity stage of its life cycle and might just need to be
re-modified to stimulate an increase in sales. Sony PlayStation have done this with the
original PlayStation by offering a smaller version called PSOne, and a slim version of
the PlayStation 2.
• There maybe environmental changes which the company may want to capitalise on.
Music companies are now selling more music via downloads then through traditional
shops, originally being forced to change the way they deliver their product by
Napster.
• Competitors may force change. New products maybe introduced because of
competitors
• New Product Development (NPD)
•
Improving and updating product lines is crucial for the success for any organisation.
Failure for an organisation to change could result in a decline in sales and with
competitors racing ahead. The process of NPD is crucial within an organisation.
Products go through the stages of their lifecycle and will eventually have to be
replaced There are eight stages of new product development. These stages will be
discussed briefly below:
• Stage 1: Idea generation
• New product ideas have to come from somewhere. But where do organisations get
their ideas for NPD? Some sources include:
• • Within the company i.e. employees
• Competitors.
• Customers
• Distributors, Supplies and others.
• Stage 2: Idea Screening
• This process involves shifting through the ideas generated above and selecting ones
which are feasible and workable to develop. Pursing non feasible ideas can clearly be
costly for the company.
• Stage 3: Concept Development and Testing
• The organisation may have come across what they believe to be a feasible idea,
however, the idea needs to be taken to the target audience. What do they think about
the idea? Will it be practical and feasible? Will it offer the benefit that the
organisation hopes it will? or have they overlooked certain issues? Note the idea and
concept is taken to the target audience not a working prototype at this stage.
• Stage 4: Marketing Strategy and Development
• How will the product/service idea be launched within the market? A proposed
marketing strategy will be written laying out the marketing mix strategy of the
product, the segmentation, targeting and positioning strategy sales and profits that are
expected.
•
Stage 5: Business Analysis
• The company has a great idea, the marketing strategy seems feasible, but will the
product be financially worth while in the long run? The business analysis stage looks
more deeply into the cashflow the product could generate, what the cost will be, how
much market shares the product may achieve and the expected life of the product.
• Stage 6: Product Development
• Finally it is at this stage that a prototype is finally produced. The prototype will
clearly run through all the desired tests, and be presented to the target audience to see
if changes need to be made.
• Stage 7: Test Marketing
• Test marketing means testing the product within a specific area. The product will be
launched within a particular region so the marketing mix strategy can be monitored
and if needed, be modified before national launch.
• Stage 8: Commercialization
• If the test marketing stage has been successful then the product will go for national
launch. There are certain factors that need to be taken into consideration before a
product is launched nationally. These are timing, how the product will be launched,
where the product will be launched, will there be a national roll out or will it be region
by region?
• Task.
• LM Ltd is considering diversifying its activities and moving into the PDA (Personal
Digital Assistant) market. Right now it is just an idea, but one which they are
seriously considering. A project team has been established to oversee a possible
launch of a PDA under the LM brand.
• Task: Work through the eight stages of new product development to see how a PDA
could be launched within the market.
• Answers
• Stage One: Idea Generation
• The company could first of all look at competitor products to try to get some ideas
about exactly what today's PDA's offer. They could also set up consumer focus
groups to discover why PDA's are purchased , what functions are most commonly
used, what they dislike about them, and how they would improve them. Retail focus
groups could also be established to discover what PDA's have a quicker turnaround
time then others and why. The collection of ideas at this stage should help LM ltd
discover what types (s) of PDA's they could bring onto the market.
 • Stage Two: Idea Screening
• The project team will have to shift through all the ideas they have generated from
their focus groups and competitor research and select a feasible development for their
PDA. Their PDA must have some form of unique selling proposition
• Stage 3: Concept development and testing
• LM Ltd after finalising the idea for their PDA, will have to take that idea and present
it to their consumer market and retail outlets that would eventually sell them. What do
they think about this new PDA. Does it plug a current hole in the market? Is there a
perceived benefit? Any feasible ideas and suggestions will have to be taken on board
and evaluated.
• Stage 4: Marketing strategy and development
• The PDA has passed the concept test, now the team has to put together a marketing
strategy. This marketing strategy will include a marketting mix strategy for the PDA,
the positioning strategy it will take within the market., the segmentation tactic it will
adopt and so on.
• Stage 5: Business Analysis
• A detailed breakdown of costs of producing the product, markets share forecasts, sales
and profitability are thrashed out to make sure that developing this product will be
financially worth while for the company.
•
• Stage 6: Product development
• A prototype of the PDA will be developed by research and development and tested
amongst the target market. Is the PDA successful in offering the benefit to the end
user. Is it superior to competitors? If there are problems with the prototype then the
PDA will have to be modified.
• Stage 7: Test Marketing
• The PDA will be test marketed with a selected region, possibly a city. How are
consumer reacting to it? How are retailers reacting to it? What are the thoughts of
consumer electrical magazines? Will the feed back LM LTD collect from this stage
mean that they may have to make changes to one or some of the elements of the
marketing mix?
• Stage 8: Commercialization
• Finally LM Ltd has reached commercialisation stage. Timing is crucial. LM Ltd could
launch during christmas time or launch the product just within city areas first before
they go full market entry.

Product strategies
When an organisation introduces a product into a market they must ask themselves a number
of questions.
1. Who is the product aimed at?
2. What benefit will they expect?
3. How do they plan to position the product within the market?
4. What differential advantage will the product offer over their competitors?
We must remember that Marketing is fundamentally about providing the correct bundle of
benefits to the end user, hence the saying ‘Marketing is not about providing products or
services it is essentially about providing changing benefits to the changing needs and
demands of the customer’ (P.Tailor 7/00)
Philip Kotler in Principles of Marketing devised a very interesting concept of benefit building
with a product
For a more detailed analysis please refer to Principles of Marketing by P.Kotler.

Kotler suggested that a product should be viewed in three levels.

Level 1: Core Product. What is the core benefit your product offers?. Customers who
purchase a camera are buying more then just a camera they are purchasing memories.
Level 2 Actual Product: All cameras capture memories. The aim is to ensure that your
potential customers purchase your one. The strategy at this level involves organisations
branding, adding features and benefits to ensure that their product offers a differential
advantage from their competitors.
Level 3: Augmented product: What additional non-tangible benefits can you offer?
Competition at this level is based around after sales service, warranties, delivery and so on.
John Lewis a retail departmental store offers free five year guarantee on purchases of their
Television sets, this gives their `customers the additional benefit of peace of mind over the
five years should their purchase develop a fault.
Product Decisions
When placing a product within a market many factors and decisions have to be taken into
consideration. These include:
Product design – Will the design be the selling point for the organisation as we have seen
with the iMAC, the new VW Beetle or the Dyson vacuum cleaner.
Product quality: Quality has to consistent with other elements of the marketing mix. A
premium based pricing strategy has to reflect the quality a product offers.
Product features: What features will you add that may increase the benefit offered to your
target market? Will the organisation use a discriminatory pricing policy for offering these
additional benefits?
Branding: One of the most important decisions a marketing manager can make is about
branding. The value of brands in today’s environment is phenomenal. Brands have the power
of instant sales, they convey a message of confidence, quality and reliability to their target
market.
Brands have to be managed well, as some brands can be cash cows for organisations. In many
organisations they are represented by brand managers, who have hugh resources to ensure
their success within the market.
A brand is a tool which is used by an organisation to differentiate itself from competitors.
Ask yourself what is the value of a pair of Nike trainers without the brand or the logo? How
does your perception change?
Increasingly brand managers are becoming annoyed by ‘copycat’ strategies being employed
by supermarket food retail stores particular within the UK . Coca-Cola threatened legal action
against UK retailer Sainsbury after introducing their Classic Cola, which displayed similar
designs and fonts on their cans.
Internet branding is now becoming an essential part of the branding strategy game. Generic
names like Bank.com and Business.com have been sold for £m’s. ( Recently within the UK
banking industry we have seen the introduction of Internet banks such as cahoot.com and
marbles.com the task by brand managers is to make sure that consumers understand that
these brands are banks!
Branding
What is a Brand?
In Principles of Marketing, by Philip Kotler and Gary Armstrong a brand is defined as ‘a
name, term, sign symbol or a combination of these, that identifies the maker or seller of the
product’
P.Tailor of www.learnmarketing.net defines a brand as a ‘ Marketing tool that allows
consumers to recognize the maker of a product’.
Why brand?
A brand name helps an organisation differentiate itself from its competitors. In todays
competitive world no product can go without a brand. Customers often build up a relationship
with a brand that they trust and will often go back to time and time again. For example, some
people may only purchase a Sony TV although there are acceptable alternatives on the
market, because of a past positive history with this brand.
Brand Equity
How much is a brand worth? Brand equity refers to the value of the brand. Brand equity does
not develop instantaneously. A brand needs to be carefully nurtured and marketed so
consumers feel real value and trust towards that brand. Nike, Adidas, Harrods, have high
brand equity. These brand command high awareness and consumer loyalty. But how much
are these brands worth? It is difficult to put a value on these brands. But how much is a pair
of Nike trainers worth without the logo on it?
Branding strategies
When a company manages its brands it has a number of strategies it can use to further
increase its brand value. These are:
Line extension: This is where an organisation adds to its current product line by introducing,
versions with new features, an example could be a Crisp manufacturer extending its line by
adding more exotic flavours.
Brand extension: If your current brand name is successful, you may use the brand name to
extend into new or existing areas. For example Virgin extending its brand from records, to
airlines, to mobiles.
Multi Branding: The company decides to further introduce more brands into an already
existing category. Kellogg’s for example have a number of brands in the cereal market and
the cereal bar market. Multi-branding can allow an organisation to maximise profits, but a
company needs to be weary over their own brands competing with each other over market
share.
New Brands: An organisation may decide to launch a new brand into a market. A new brand
may be used to compete with existing rivals and may be marketed as something ‘new and
fresh’
Brand Names
How do you name a product? Simply put it, there is no easy option. Depending on how
established an organisation is, there are a number of ways to brand a product.
Individual name: A product could be branded with an individual name. A firm may decide it
wants a brand, which has no association with any of its other brands. Volkswagen in the UK,
for example own the brand SEAT and Skoda
Family brand: Where a product is part of a family, e.g. Kellogg’s, with Corn flakes, Rice
Krispies, and Frosties. The brand is stretched to other products because customers trust it, and
the firm is trying to maximize the equity it holds in the brand.
Combined brand name: A popular strategy involves the organisation combing the already
established family name with a new individual brand name. The idea is to use the reputation
of the established family or company name to launch a new associated product. For example
Nestle may use their name to launch a new cereal or cereal bar.
Promotion Strategies - Click here if you want Edward to read this bit.

Promotion quiz
A successful product or service means nothing unless the benefit of such a service can be
communicated clearly to the target market. An organisations promotional strategy can consist
of:
Advertising: Is any non personal paid form of communication using any form of mass
media.
Public relations: Involves developing positive relationships with the organisation media
public. The art of good public relations is not only to obtain favorable publicity within the
media, but it is also involves being able to handle successfully negative attention.
Sales promotion: Commonly used to obtain an increase in sales short term. Could involve
using money off coupons or special offers.
Personal selling: Selling a product service one to one.
Direct Mail: Is the sending of publicity material to a named person within an organisation.
There has been a massive growth in direct mail campaigns over the last 5 years. Spending on
direct mail now amounts to £18 bn a year representing 11.8% of advertising expenditure
( Source: Royal Mail 2000). Organisations can pay thousands of pounds for databases,
which contain names and addresses of potential customers.
Direct mail allows an organisation to use their resources more effectively by allowing them to
send publicity material to a named person within their target segment. By personalising
advertising, response rates increase thus increasing the chance of improving sales. Listed
below are links to organisation who's business involves
Packaging Strategies
An important part of the product decision making process surrounds the packaging of the
product. An effective packaging strategy can contribute to the firm’s competitive advantage.
Some points to consider when developing a packaging strategy include
1. Make sure the packaging is unique.
The packaging must stand out from the crowd and be different from your competitors.
2. Make sure it performs the function required.
Part of the firms packaging strategy maybe to make the packaging a functional part of the
product. Some drink cartons follow this strategy, Muller yogurts corner have a their
packaging divided into two sections where consumers can mix yogurt and fruit as and when
they choose. The packaging therefore encourages the consumer to interact with the product.
If it is a food product, the packaging must also preserve the product for a period of time. The
packaging must also be safe and tested to make sure consumers can safely use it. Many users
give up using the product if the packaging of it makes it difficult for the consumer to access
and use the product.
3. Make sure packaging promotes your product and brand.
Packaging must be designed so it promotes the benefits of the product and promotes the
product brand. The brand name must be clearly visible, and the benefits of the product clear
for the consumer to see.
4, Make sure packaging is identifiable and reinforces the brand.
When the product sits on the shelf of the retailer the packaging must stand out and be
identifiable by the consumer. The packaging of the product must reinforce not just the
product brand but also the corporate brand. Will it follow a common colour scheme? Will
fonts be similar to other products with the range? In essence does the packing have to follow
the family brand strategy? This is really important as consumer who walk down an aisle of a
shop recognise a product through its packaging strategy and will often pick up a product
without double checking their purchase.

Although not a separate part of the marketing mix having a good packaging strategy is an
essential part of the marketing strategy of a firm. A good strategy will comprise of the
packaging being unique, functional, promotes the brand, reinforces the brand and is easily
identifiable by the consumer.
Pricing Strategies
Pricing is one of the most important elements of the marketing mix, as it is the only mix,
which generates a turnover for the organisation. The remaining 3p’s are the variable cost for
the organisation. It costs to produce and design a product, it costs to distribute a product and
costs to promote it. Price must support these elements of the mix. Pricing is difficult and must
reflect supply and demand relationship. Pricing a product too high or too low could mean a
loss of sales for the organisation. Pricing should take into account the following factors:
Fixed and variable costs.
Competition
Company objectives
Proposed positioning strategies.
Target group and willingness to pay.
Types of Pricing Strategies
An organisation can adopt a number of pricing strategies. The pricing strategies are based
much on what objectives the company has set itself to achieve.
Penetration pricing: Where the organisation sets a low price to increase sales and market
share.
Skimming pricing: The organisation sets an initial high price and then slowly lowers the
price to make the product available to a wider market. The objective is to skim profits of the
market layer by layer.
Competition pricing: Setting a price in comparison with competitors.
Product Line Pricing: Pricing different products within the same product range at different
price points. An example would be a video manufacturer offering different video recorders
with different features at different prices. The greater the features and the benefit obtained the
greater the consumer will pay. This form of price discrimination assists the company in
maximising turnover and profits.
Bundle Pricing: The organisation bundles a group of products at a reduced price.
Psychological pricing: The seller here will consider the psychology of price and the
positioning of price within the market place. The seller will therefore charge 99p instead £1
or $199 instead of $200
Premium pricing: The price set is high to reflect the exclusiveness of the product. An
example of products using this strategy would be Harrods, first class airline services, Porsche
etc.
Optional pricing: The organisation sells optional extras along with the product to maximise
its turnover. This strategy is used commonly within the car industry
http://www.learnmarketing.net

Marketing Mix: Place

Place strategies
This refers to how an organisation will distribute the product or service they are offering to
the end user. The organisation must distribute the product to the user at the right place at the
right time. Efficient and effective distribution is important if the organisation is to meet its
overall marketing objectives. If an organisation underestimatea demand and customers cannot
purchase products because of it, profitability will be affected.
What channel of distribution will they use?
Two types of channel of distribution methods are available. Indirect distribution involves
distributing your product by the use of an intermediary for example a manufacturer selling to
a wholesaler and then on to the retailer.. Direct distribution involves distributing direct from a
manufacturer to the consumer For example Dell Computers providing directly to its target
custmers. The advantage of direct distribution is that it gives a manufacturer complete control
over their product.

Above indirect distribution (left) and direct distribution (right). 1

Distribution Strategies
Depending on the type of product being distributed there are three common distribution
strategies available:
1. Intensive distribution: Used commonly to distribute low priced or impulse purchase
products eg chocolates, soft drinks.
2. Exclusive distribution: Involves limiting distribution to a single outlet. The product is
usually highly priced, and requires the intermediary to place much detail in its sell. An
example of would be the sale of vehicles through exclusive dealers.
3. Selective Distribution: A small number of retail outlets are chosen to distribute the
product. Selective distribution is common with products such as computers, televisions
household appliances, where consumers are willing to shop around and where manufacturers
want a large geographical spread.
If a manufacturer decides to adopt an exclusive or selective strategy they should select a
intermediary which has experience of handling similar products, credible and is known by the
target audience.
Right, finally distribution, how will consumers be able to purchase our products?
1. Should LM Ltd adopt a direct distribution or an indirect distribution strategy? What would
you recommend?
2. How could LM Ltd motivate its retailers should it choose an indirect distribution strategy?
3. How important is e-distribution for the strategy of LM Ltd?
Answer
1. The company should look at what the trend also is within the industry. Direct distribution
to keep control of the distribution strategy and to keep control of costs.
2. If an indirect method is chosen commission can be given to motivate the retailers to sell the
products.
3. E-commerce is vital in this industry. Consumers should be able to build and order there
computers online, obtain online after care service and software support via the use of
downloads
For a more detailed analysis please refer to Principles of Marketing by P.Kotler.

Kotler suggested that a product should be viewed in three levels.

Level 1: Core Product. What is the core benefit your product offers?. Customers who
purchase a camera are buying more then just a camera they are purchasing memories.
Level 2 Actual Product: All cameras capture memories. The aim is to ensure that your
potential customers purchase your one. The strategy at this level involves organisations
branding, adding features and benefits to ensure that their product offers a differential
advantage from their competitors.
Level 3: Augmented product: What additional non-tangible benefits can you offer?
Competition at this level is based around after sales service, warranties, delivery and so on.
John Lewis a retail departmental store offers free five year guarantee on purchases of their
Television sets, this gives their `customers the additional benefit of ‘piece of mind’ over the
five years should their purchase develop a fault.
Perceptual Mapping/Positioning Map
In helping you develop a market positioning strategy for your product or service, perceptual
maps or positioning maps as they are sometimes referred to, are often used to help the
organisation identify a positioning strategy.
When plotting a peceptual map two dimensions are commonly used. Below is a very basic
perceptual map. If we plot the UK chocolate market we can identify those brands which are
high price and high quality. Belgium chocolates are plotted as high quality and high price,
and twix is plotted one low quality low price brand. Once completed the perceptual map
could help identify where an organisation could launch a new brand pherhaps at the medium
price and quality range. In our basic map, you can see there is not much competition within
that particular area.
We must remember that perceptual maps are plotted on the basis of someones perception and
what maybe a quality product to one person, may not be percieved as quality to another.
Characteristics of a Service
What exactly are the characteristics of a service? How are services different from a product?
In fact many organisations do have service elements to the product they sell, for example
McDonald’s sell physical products i.e. burgers but consumers are also concerned about the
quality and speed of service, are staff cheerful and welcoming and do they serve with a smile
on their face?
There are five characteristics to a service which will be discussed below.
1. Lack of ownership.
You cannot own and store a service like you can a product. Services are used or hired for a
period of time. For example when buying a ticket to the USA the service lasts maybe 9 hours
each way , but consumers want and expect excellent service for that time. Because you can
measure the duration of the service consumers become more demanding of it.
2. Intangibility
You cannot hold or touch a service unlike a product. In saying that although services are
intangible the experience consumers obtain from the service has an impact on how they will
perceive it. What do consumers perceive from customer service? the location, and the inner
presentation of where they are purchasing the service?.
3. Inseparability
Services cannot be separated from the service providers. A product when produced can be
taken away from the producer. However a service is produced at or near the point of
purchase. Take visiting a restaurant, you order your meal, the waiting and delivery of the
meal, the service provided by the waiter/ress is all apart of the service production process and
is inseparable, the staff in a restaurant are as apart of the process as well as the quality of food
provided.
4. Perishibility
Services last a specific time and cannot be stored like a product for later use. If travelling by
train, coach or air the service will only last the duration of the journey. The service is
developed and used almost simultaneously. Again because of this time constraint consumers
demand more.
5. Heterogeneity
It is very difficult to make each service experience identical. If travelling by plane the service
quality may differ from the first time you travelled by that airline to the second, because the
airhostess is more or less experienced.
A concert performed by a group on two nights may differ in slight ways because it is very
difficult to standardise every dance move. Generally systems and procedures are put into
place to make sure the service provided is consistent all the time, training in service
organisations is essential for this, however in saying this there will always be subtle
differences.
Service Marketing Mix/Extended Marketing Mix

Having discussed the characteristics of a service, let us now look at the marketing mix of a
service.
The service marketing mix comprises off the 7’p’s. These include:
• Product
• Price
• Place
• Promotion

• People
• Process
• Physical evidence.

People
An essential ingredient to any service provision is the use of appropriate staff and people.
Recruiting the right staff and training them appropriately in the delivery of their service is
essential if the organisation wants to obtain a form of competitive advantage. Consumers
make judgments and deliver perceptions of the service based on the employees they interact
with. Staff should have the appropriate interpersonal skills, aptititude, and service knowledge
to provide the service that consumers are paying for. Many British organisations aim to apply
for the Investors In People accreditation, which tells consumers that staff are taken care off
by the company and they are trained to certain standards.
Process
Refers to the systems used to assist the organisation in delivering the service. Imagine you
walk into Burger King and you order a Whopper Meal and you get it delivered within 2
minutes. What was the process that allowed you to obtain an efficient service delivery?
Banks that send out Credit Cards automatically when their customers old one has expired
again require an efficient process to identify expiry dates and renewal. An efficient service
that replaces old credit cards will foster consumer loyalty and confidence in the company.
Physical Evidence
Where is the service being delivered? Physical Evidence is the element of the service mix
which allows the consumer again to make judgments on the organisation. If you walk into a
restaurant your expectations are of a clean, friendly environment. On an aircraft if you travel
first class you expect enough room to be able to lay down!
Physical evidence is an essential ingredient of the service mix, consumers will make
perceptions based on their sight of the service provision which will have an impact on the
organisations perceptual plan of the service.

Sound Marketing
A. Introduction
Sound is an important part of marketing, whether it is in the form of music, songs, the spoken
word or noises. Sound is used in marketing to achieve various objectives including:
1. Brand reinforcer – This is where sound is used to build a new brand or add to a new
brand. Sound will be part of the same tool box as corporate logos, trademarks and strap lines.
2. Behaviour influencer – This is where sound is used to influence the audience’s or
consumer’s behaviour.
3. Information distributor – This is where the organisation uses sound to provide their
audience with information for example through a radio advert or through a telephone “voice
over” for telephone callers placed on hold or waiting to talk to the organisation.
Sound marketing enables organisations, to target a sense in addition to visual or sight. This
can be highly effective as
1. Firstly each person uses their senses (smell, sight, hearing, touch, taste) in different
proportions
2. Secondly as visual marketing is everywhere (ubiquitous), sound marketing grants
organisations the opportunity to differentiate their marketing from others via a medium other
than visual and
3. Lastly sound especially music can lead people to recall events that took place on an
occasion when they heard the music or sound.
B Sound Marketing Objectives
Brand Reinforcer

This type of marketing wants to ensure that the listener associates a particular sound with an
organisation so that it can be used to reinforce the brand. We know that sound can be part of
an organisation’s brand as most people will be able to tell you about a sound associated with
a brand. For example
1. Mars – a mars a day helps you work, rest and play
2. McDonald’s – I’m lovin it
3. Audi – Vorsprung Durch Technik
4. Marks and Spencers – This is not just ____________ This is M & S _________
5. Intel – unique music to represent an intel product
1. Mars
The mars strap line is memorable because of the music that accompanied it and because it is
similar to a nursery rhyme. However would it be as easy to remember without the music?
2. McDonalds
Music is an integral part of Mcdonalds’ - “I’m lovin it” strap line. The music brings the
words to life and helps to conjure happy thoughts. The music accompanying the strap line is
as contemporary as the strap line. If you ask a group of people to mention an organisation
whose brand identity includes music, McDonalds is likely to be in the top three.
3. Audi
The Audi strap line demonstrates that a memorable spoken strap line doesn’t have to be in the
same language understood by the audience. On the TV advert the strap line is written as well
as spoken. Even though I have seen the TV advert on many occasions I can repeat the strap
line but I can’t spell it fully.
4. Marks and Spencers
The Mark and Spencers strap line is effective because of the voice and tone of the person
saying it. As the person delivering the strap line can’t be seen the strap line focuses the
audience on the food being advertised and Mark and Spencer’s. The music accompanying the
strap line encourages the listener to create the “perfect” night in which includes food such as
Marks and Spencers.
5. Intel
Intel created a unique sound for their brand and then persuaded clients advertising items
containing an Intel, product to include the Intel logo and sound in the advert. As the Intel
sound doesn’t include words it can be incorporated into adverts without taking attention away
from the product being advertised.
The advantage of sound marketing over visual is that it can be used in various
communications including radio, internet and telephone. Each of the strap lines and
accompanying brand music mentioned above can be transferred from TV to radio, internet
and telephone
Behaviour Influencer

Organisations will use sound to influence the listener’s behaviour. For example
- Clothes shopping selling night club evening wear will play music dance music
- Patriotic music will played during political election rallies
- Restaurants will play the music that they feel will create the atmosphere that they would like
to create. The music chosen will depend on the type of food served, the price of the food and
the type of customer that they would like to attract.
- Waiting music for people to listen to when they are waiting for their telephone call to be
answered. This music will be chosen to entertain the caller whilst they are waiting and to
reduce agitation caused by the length of the wait.
Instead of creating a unique sound, some organisations will use popular music and songs to
market their brand. Popular music will be used in the organisation’s TV and radio adverts.
There are many examples including
1. DFS sofa adverts
Katie Melua, closest thing to crazy 2004 and
Mariah Carey’s all I want for Christmas which has become an annual choice
2. Tampax 1990
Dr Alban, It’s my life used as background music
3. Cadbury’s ( Airport runway race) 2008
Queen , Don’t stop me now
4. Cancer Research UK 2002
Eva Cassidy’s cover to field’s of gold
5. Carlsberg (Holiday) 2000
Spiller’s groovejet
6. Fairy Non Bio 2002
David Essex hold me close.
Each song is chosen carefully to relay the message behind the brand’s advert. If the branding
is successful consumers will associate the music with the brand when they hear it being
played outside the organisation’s promotions. If the branding is very successful the
song/music’s association with the brand, will continue years and even decades after the
organisation has stopped using the music and/or song.
Information Distributor
Organisations will use pre recorded messages on their telephone lines to distribute
information about their product. Pre recorded messages may have the brand’s music or
sound. An example of this is T mobile who use the same music (for telephone callers to listen
to) as they do for TV and radio adverts. This helps to reinforce the brand by focusing the
callers mind on the TV and radio adverts.
Some organisations use automated telephone calls to market their product. This is where an
organisation will use IT systems to ring households and play a recorded message about their
product or service to the answerer (person answering the phone). At the end of the recorded
message the answerer is given the option to discuss the organisation’s products and services
with a representative from the organisation.
C Sound Marketing through Organisation’s Websites

In addition to placing video clips of TV adverts, organisations have begun, to add sound to
their websites. This means that people visiting such websites will be greeted by sounds in the
form of music and voices.
Organisations will choose voices and sounds to reflect and reinforce their brand and to
achieve one or more of the three objectives discussed above.
1. Brand Reinforcer
2. Behaviour Influencer
3. Information Distributor
D Summary

- Sound marketing offers an alternative to visual marketing.

- Sound marketing can take many forms including noise, music, songs and spoken words.
- Sound marketing can be used to achieve similar objectives and additional objectives to
those achieved by visual marketing.
- Sound marketing can be used in various mediums including TV, telephone, radio and
websites.
Marketing Budgets
Firms need to calculate and set budgets for their marketing programme. There are a number
of ways in which firms can calculate how much to allocate to their marketing and advertising
spend. These methods will be discussed briefly below.
The objective and task method
The company calculates how much they would need to reach their objectives for a particular
campaign. For example if we were to launch a new games console how much money would
be needed to raise sufficient awareness of this new brand and features to the target audience.
A budget is then set with this objective in mind.
Competitive parity method
The firms looks at how much competitors are spending on marketing and advertising and
decide to match that spend or spend more.
Percentage of sales approach
The firm decides to spend a percentage of total sales on their marketing campaign. For
example the company will decide to put aside 15% of total sales to their marketing and
promotional campaign.
Affordable approach
The marketing budget is based on how much money the firm has left over after it deducts all
its costs. I.e. what it can afford.
Ansoffs Matrix

A common tool used within marketing was developed by Igor Ansoff in 1957. His model
gives organisation five strategic business options.

1. Market Penetration: This involves increasing sales of an existing product and penetrating
the market further by either promoting the product heavily or reducing prices to increase
sales.

2. Product Development: The organisation develops new products to aim within their
existing market, in the hope that they will gain more custom and market share. For Example
Sony launching the Playstation 2 to replace their existing model..

3. Market Development: The organisation here adopts a strategy of selling existing products
to new markets. This can be done either by a better understanding of segmentation, i.e who
else can possibly purchase the product or selling the product to new markets overseas.

4. Diversification: Moving away from what you are selling (your core activities) to providing
something new eg Moving over from selling foods to selling cars.
5. Consolidation: Where the organisation adopts a strategy of withdrawing from particular
markets, scaling back on operations and concentrating on its existing products in existing
markets.

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