IB Business and Management Notes

Market Research · Market research involves gathering and interpreting data from customers and others in order to identify and satisfy the needs of customers. · Role: It helps to reduce the risk of failure by helping to make the right marketing decisions. Marketing decisions cannot be based on hindsight but on research. Purpose of market research Market research will provide the business with data that can be used: · To describe the current situation in the market place · To identify new market opportunities · To decide on the appropriate mix of new products · To improve the marketing mix of existing products · To segment the market · To understand the marketing strategies of competitors · To predict what is likely to happen in the future with the marketplace When · Market research is frequently carried out when a business plans to launch a new product or to enter a new market · It is also conducted to make changes to existing market strategies How · Market research data comes in two basic forms: Primary data obtained through field research and secondary data obtained through desk research. Secondary Research · This is the collection of second hand data, which has previously been collected by others for another purpose but which may still be relevant.

The main sources of secondary data can be: · Internal: Profit and loss account, balance sheet, stock records, and sales statistics, database of customers. · External: Reference books, company reports, government statistics, external publications of

banks, specialist report publishers. Advantages of desk research · · ·

It is easier and quicker to gather and analyze, as the data already exists. The process is cheaper as it costs less to collect. There is a huge range of sources making secondary data more accessible.

Disadvantages of desk research · · ·

The data collected may become outdated quickly and therefore less reliable. The data was collected for another purpose and may no longer be relevant Unlike primary data, secondary data is also available to competitors.

Primary Research · This is research to gather new data directly from the persons concerned by going out on the field. · Advantages of primary research: Primary data is up to date and more reliable whereas secondary data is often outdated. Primary data is more relevant as it is collected for a specific purpose unlike secondary data, which was collected for another purpose. The primary data is unique as the research is done first hand and no rivals have access to them. · Disadvantages of primary research: It is a difficult and time-consuming task, as the process has to be properly designed and conducted. Primary research can be more expensive than secondary research as it is a more time consuming process. · Biases can arise in selecting a wrong sample or from non-response. Primary data can be gathered in 4 main ways · Surveys through questionnaires a) Interviews – face to face, telephone b) Self-completed – handed in person, through post office, through internet · Observation · Experimentation · Psychological test (consumer panel or focus group) Personal Interviews: involves an interviewer obtaining information from one person face to face. Questions can be clarified instantly and it is quick to complete. The questionnaires may contain

many open questions to gather the views of the person. Telephone interviews: is often used as an alternative to personal interviews. A greater number of people over a wider area can be reached. However, many people may not be willing to take part. Self-completed questionnaires · These are questionnaires that are completed by a sample of respondents on their own time. They can be sent by and returned to the business personally, via the post office or Internet. · When the postal service or Internet is used a greater number of people over a wider area can be covered. · However, there can be a high rate of non-response.

Advantages of using questionnaires · · ·

If well designed, questionnaires can be easy to complete. Surveys allow a wide coverage of respondents A wide rage of questions can be set.

Disadvantages of using questionnaires · · · ·

It is time consuming Costly to design If wrongly designed, the survey will provide a wrong conclusion Respondents can be biased by consciously not giving the correct answer.

Characteristics of a good questionnaire · Directly relevant to the research objective: irrelevant questions should be avoided · Comprehensive: should include both open and closed questions · Simple to understand and easy to answer: The questions should be clear and technical language should be avoided · Free from bias: In order to collect meaningful data. Close vs. Open questions Close questions are those with a yes or no answer or a range of present answers from very satisfied (ASK OSCAR) Observation

· This involves watching how people behave or respond in different situations. Filming, photo taking, watching or other electronic devices can carry out observations. · Observations are often used in hotels, restaurants, supermarkets and theme parks. Advantages of Observation · Observation record people‘s actual behavior rather than what they say. A great number of people can be observed. Disadvantages of Observation · It does not necessarily reveal why people behave in a certain way. The use of filming or photo taking can be considered unethical. Experimentation · Experimentation is the process of introducing marketing activities to a group of people to measure their reactions. It is often used to test a product in small area before it is launched on a much larger scale or withdrawn if the response is negative. · For example, an ice cream manufacturer may give samples to customers in a shopping mall to find out which flavor they prefer. · This can save a lot of time and money to identify errors or areas, which need improvement. Unsuccessful products can be withdrawn. It also helps reduce risks and uncertainties. Qualitative vs. Quantitative · Qualitative Research - Qualitative research is used to obtain information on the motivation behind consumer‘s behavior, such as: What are the product qualities that encourage people to buy brand x rather than brand y? What additional features customers would like in a product? · It is usually carried out by the use of group discussion also knows as consumer panel or focus group or open questions in a survey. · Quantitative Research - Quantitative research is used to obtain factual information such as: What percentage of the population prefers to brand x to brand y? What percentage of the target market is likely to buy a new product? · Quantitative data concentrate on numbers and they can be statistically analyzed and represented on graphs etc. · It is usually carried out by the use of close question questionnaires. Sampling

· A sample survey is a survey of less than the population. In marketing research, it will be impossible to obtain data from everyone in the market. Therefore, a sample representing the market is used. ·

To make a sample we need a sample frame and decide on a sample size.

·

Sample frame: This is a list of all members of the target population.

Using sampling · Advantages: Sampling uses less time than survey the whole population. This leads to quicker results and analysis. · Costs is reduced as it takes less time · Disadvantages: It may not be a fair representation of the population and therefore do no reflect the opinion of the population. Random Sample · A random sample is one, which is chosen in such a way that every member of the population have an equal chance of being selected. · Random samples an be simple random sample or stratified random sample · An example of a simple random is a draw from a hat. It is a fair representation of the population may reduce bias. · It is time consuming and difficult to make a sample frame. Stratified random sample · Under this method, the population is divided into segments or strata, based on previous knowledge about how the population is divided up. Then a random sample in each strata is selected for interview. For example, if a manufacturer knows that his sales are 40% from area A, 35% from area B and 25% from area C, then the stratified sample must obtain respondents from each are in the same proportion. Non-random sample -A non-random sample is one where every member of the population does not have a chance of being selected. -The sample is based on some characteristics, rather than random, decided by the researcher. -Non-random sampling includes: quota-sampling, cluster sampling, snowballing.

Quota sampling -Quota sampling involves setting up a quota (a target number of people) and then interview is conducted with everyone met up to the quota. E.g., if we want to know the percentage of people who prefer a certain ice cream, we set a quota of 50 persons and interview the first 50 coming out of a super-market. Sometimes, we can divide the target population into segments (e.g. sex), and interview a quota in each segment (e.g. 20 males and 30 females) It is easy, quick and cheap to operate. However, the sample is not a fair representation of the population. Multi stage or cluster sampling Cluster sampling is used when the population is too dispersed and getting feedback from respondents involves too much travelling, time, or money. Therefore a few area or clusters are chosen (e.g. north and west). A sample of the population in each chosen cluster is selected and interviewed. It is quicker, easier and cheaper to use than any other method when the population is widely dispersed. By selecting just a few locations, the results may be biased because people living in the same area may share the same views. The sample is not a fair representation of the population. Snowballing Snowballing refers to surveys or interviews carried out with individuals who then suggest other names to increase the sample. Hence, there is a snowball effect. This is common in financial services, insurances and other services where the population is unknown. It is an easy, quick and cheap way to build a sample. However, it may lead to bias sample as respondent may refer to their friends with the same views. Sampling errors Sampling errors refer to the difference between the results obtained from the sample and the

actual results. They arise because the sample used is not representative of the population. The failure is due to a wrong sample, non-response from those chosen or incomplete/outdated population frame. Non-sampling errors Non-sampling errors are caused by problems in the design of the questionnaires and in the carrying the survey, e.g. wording of the questions, confusion in data collection and in conducting the survey. Conduct of market research Market research can be conducted by the firm‘s own staff. However, More and more research is contracted out to private agencies. Advantages of using market research agencies Agencies have the expertise of selecting an appropriate sample thus reducing the amount of bias in the results of the research. Some agencies have the experience and ability to conduct research in certain areas thus providing more accurate information. Disadvantages The cost of hiring an external agency can be very expensive The use of an external agency may deprive the firm‘s staff from being exposed to the needs of customers and therefore better understand them. Setting Direction Segmentation-Targeting-Positioning Market segmentation and customer profile -Market segmentation is the process of dividing an undefined market into smaller groups of consumers with similar or common needs, characteristics, or profile. -A market segment is a group of consumers within a market with common characteristics. -Consumer profiles are the characteristics of consumers such as age, gender, income, and

purchasing habits. Knowledge of consumer profiles will help to identify segments and the needs of its customers. For example, the consumer profiles of Suzuki bike may be females between 2045. Benefits in segmenting -By identifying different segments in a market, a business can better understand its customers. This will allow the firm to vary its products to better serve the needs of the customers. -It allows a business to sell a wider range of products by targeting different segments with different products and therefore increases its profits. Going into the most profitable segments can also maximize profits. -There is a better allocation of resources. The right products are promoted to the right segments. -Segmentation allows better identification of opportunities. This can provide guidelines for new product development. -Customers may feet that their needs are better targeted and develop loyalty to the business. Three main ways -Geographic characteristics, i.e. by where customers live or buy; -Demographic characteristics, i.e. by their gender, social class, age income, ethnicity or religion; -Psycho-graphic characteristics, i.e. by their lifestyles and personality; by how they act, for example some people like high quality products. Segmentation by geographic characteristics -Geographical segmentation will consider the different regions in a country in terms of ways of living, culture, purchasing power, types of houses and roads, laws, etc. -Many businesses in the global market have different products for different countries or areas. For example, Maggi soups are adapted to suit tastes by varying the ingredients from country to country. -A company may price goods differently in different countries, e.g., Coca-Cola. -Many businesses segment their market according to climate, e.g. clothes for tropical climate, cold climate, etc. Segmentation by demographic characteristics

-Demography is the study of the characteristics of population. Demographic segmentation splits up people into different groups such as: -Age group: For example, 12-18, 19-30, 30-50, and above 50. Many businesses target their products towards certain age groups. -Gender: Males and females have different spending habits. -Social class or income: Wealthy people tend to have different spending from the rest of the population. For example, a Cartier watch is likely to be marketed to a high-income group. -Race, ethnicity, or religion: different races have different cultures and affect the demand for certain products. McDonald‘s targets some of its different products according to race or religion. -Family status/size: Certain markets can be segmented according to this status, e.g. the housing market, car market, etc. Segmentation by psychographic behavior -Psychographic factors are those that consider the emotions or lifestyles of customers and hence their behavior. -Status: Some people are very conscious of social status. They feel good in owning certain assets such as luxury cars and jewelry. A market segment can be created for them. -Values: More and more people are value or ethically conscious in their purchases. Some businesses have started to cater for them, e.g. The Body Shop. -Hobbies and Interests: An understanding of the different hobbies and interest can create market opportunities for businesses, e.g. the sports industry. Targeting Once a market has been segmented, targeting becomes the next stage marketing planning. Targeting refers to the choice of the market segments the business wishes to sell and the related planning of marketing strategies. There are three board-targeting strategies: Undifferentiated marketing. Differentiated marketing.

Niche marketing. Undifferentiated/Mass market Undifferentiated marketing also knows as mass marketing or market aggression is the targeting strategy that ignored individual market segments. The business offers almost the same products to all consumers and promotes them in the same way. Examples of products that are mass marketed include Nokia, Coco cola and Microsoft. Benefits of mass marketing The products can be sold to large number of consumers. They can also be sold in many different countries, as process known as global marketing. The result is increased profits. The business can benefit from economies of scale. A business can this manufactures on a large scale and reduce the average costs per unit. This means that higher margin can be earned. There is no need to tailor different marketing mix for different segments/

Disadvantages of mass marketing Mass marketing can be quite wasteful for certain products Specific customers are not targeted but are treated as any customer. Products, which are mass marketed, can face strong competition in markets where producers are effective in targeting market segments. Mass marketing is not suitable for certain products, e.g. high valued products. Differentiated marketing Differentiated marketing also knows as multi-segment marketing or selective marketing is the targeting strategy that tailors a marketing mix for each segment in the market. Advantages – Customers in each segment are more satisfied as there are different marketing mixes for different segments. Risks re spread by catering for a boom in another segment can compensate several market segments decline in one segment. Disadvantages – Differentiated marketing is costly, as a separate marketing mix has to be devised for each segment.

Marketing economies of scale cannot be fully exploited.

Niche marketing Nice marketing also knows as concentration marketing targets a small well-defined market segment. Niche market segments usually cater for the high-end luxury or specialty goods such as Cartier watches, Ferrari cars and Armani suits. It is the opposite of mass marketing. Advantages There is a better marketing focus as a small specific market is targeted. There is less competition in nice markets. Businesses can charge higher prices and obtain higher margins.

Disadvantages Most niche markets are very small and hence limits the number of customer. Due to their small size, businesses in nice markets cannot exploit economies of scale. Position maps A position or perception map is a visual tool that shows the position of a product or brand in relation to others according to the perception of customers. The map plots customer perceptions using two variables for example price and quality. Examples:

Jack Trout 1969 Jack Trout originally drew the position map in 1969 to classify different brands based on price and quality. Uses 1. Position maps allow a business to identify any gaps in its product portfolio or in the market. For example, Mercedes introduced it‘s A class cars in 1998 after finding that there was a market for small luxury cars. 2. They can inform a business of a need to reposition their products. For example Singapore

Airlines created ―Scoot‖ a new budges airline subsidy. 3. Some businesses analyze the portfolio of its competitors before deciding on developing a new product. They also allow a business to assess not only its own portfolio but also of its rivals. As a result a business can then position its products into an appropriate segment especially if the present segment is over crowded. 4. Some businesses before deciding which product to develop, try to analyses how the new brand will relate to other brands in the market. Marketing positions · Market positioning refers to how a business would rank its products according to the views of the public. It is usually done with the help of position maps. Time series A time series is a set of observations of say monthly productions or weekly reales that are presented in a date (time) order. A moving average A moving average is a list of averages od data that moves over time. The average ca be taken for any set of periods the business wants. For example, 3 points yearly average, 4 points monthly average. A moving average is a useful tool to identify a trend. Example: The following sales figures relate to a business Week

1

2

3

4

5

6

$210

$240

$250

$270

$300

$330

(a) Calculate 3 weeks moving average sales (b) Plot the sales figures and the trend line onto a graph (c) Extrapolate and forecast the sales of Week 9 (a) Calculation of the trend using 3 points moving average Week

Trend: 3 weeks moving average

1

210 —> 210 + 240 + 250/3 = 233

2

240 —> 240 + 250 + 270/3 = 253

3

250 —>

4

270

5

300

6

330

A time series analysis analyses the data in a time series in order to make short term forecasts by the use of moving averages. There are five elects that a business tries to identify in an analysis: A trend which is a pattern which emerges from a series of figures usually over a period of time. The pattern can be increasing, decreasing, stable. A forecast that can be made by extrapolating (extending) the trend. Any seasonal variations which are regular and related variation that occurs within a year, e.g. increased in sales of toys every Christmas time or increase in sales of ice ream during summer. Any cyclical fluctuations which are repeated variations taking place every several years due to trade or economic cycles of boom or slumps. Erratic or random variations are unpredictable fluctuations. For example a sudden boost in sales of umbrella due to an unusual wet summer. Chapter 4.3.1 Product Life Cycle Product life cycle refers to the different stages of a product‘s limited life in terms of sales and profits/cash flows. Typically, there are 5 stages: development, introduction, growth, maturity and decline. The product life cycle chart shows the progress of a product in terms of sales and profits/cash flows.

Development During the development stage, the product is being researched, designed, developed and finally launched into the market. A large number of new products never progress beyond this stage. During the stage, costs will be incurred by the firm in research and development but no sales will be made. This means cash flow and profit will be negative. Introduction Stage Following its development, a product is introduced onto he market During this stage, there is low growth in sales as a new product takes time to be accepted by customers. However there will be expensive promotion in border to make the customers accept the product. This means that during this stage there will still be some loss or negative cash flows. Growth Stage In the growth stage, sales increase rapidly Cash flow and profits start to turn positive as sales revenue starts to pay off the costs

However, more money must be spent on product improvement, promotion and distribution to attract more customers. Therefore profits will not be high. Maturity In this phase, the product has reached its peak of sales and is fully established int he market. This can be a long or short period. The highest point in this rage is the saturation point. Because the product is well known, there will be less spending on promotion. Therefore, this stage will be at the most profitable for the firm. Decline In the decline stage, sales will begin to go down. This period can be fast or slow. The main causes of the decline of a product can be: Changes in taste and fashion, changes in technology, new substitutes, new inventions, etc. During this period, profits fall and some producers will try to extend the product life by modifying the product, searching new markets, etc. Because extension strategies may be expensive, some producers may leave the market. Extension strategies Extension strategies refer to any method of extending the life of a product at the maturity stages and delaying its decline. Common strategies include:Price reductions, lowering price will tend to increase demand although temporarily New market, finding new markets for the current product can extend its life. New markets include new outlets in different regions countries, new users. Design, updating a design is another way of extending the life of a product. Car manufacturers regularly update models. new versions of computer games or soft wares are regularly introduced. Range, a wider range of a product can increase sales. Examples include creaks for breakfast, bank accounts for the young, lucozade for sportsmen. Promotion, New advertising campaigns constantly extends the life of many products. Appearance, changing the packaging can excite new customers Different Life Cycles Some products have short life span (2-3 years). For example: Windows 95, 98, 2000. Others can be longer (more than 25 years). Examples include: Coca Cola, Kellogg‘s cornflakes. Extension strategies are usually used to extend the life of many products. Not all products will go through every stage of the life cycle and are withdrawn early. Those with very short life ( 210 + 240 + 250/3 = 233

2

240 —> 240 + 250 + 270/3 = 253

3

250 —>

4

270

5

300

6

330

A time series analysis analyses the data in a time series in order to make short term forecasts by the use of moving averages. There are five elects that a business tries to identify in an analysis: A trend is a pattern which emerges from a series of figures usually over a period of time. The pattern can be increasing, decreasing, stable. A forecast that can be made by extrapolating (extending) the trend. Any seasonal variations which are regular and related variation that occurs within a year, e.g. increased in sales of toys every Christmas time or increase in sales of ice cream during summer. Any cyclical fluctuations which are repeated variations taking place every several years due to trade or economic cycles of boom or slumps. Erratic or random variations are unpredictable fluctuations. For example a sudden boost in sales of umbrella due to an unusual wet summer. Chapter 4.3.1 Product Life Cycle Product life cycle refers to the different stages of a product‘s limited life in terms of sales and profits/cash flows. Typically, there are 5 stages: development, introduction, growth, maturity and decline. The product life cycle chart shows the progress of a product in terms of sales and profits/cash flows.

Development During the development stage, the product is being researched, designed, developed and finally launched into the market. A large number of new products never progress beyond this stage. During the stage, costs will be incurred by the firm in research and development but no sales will be made. This means cashflow and profit will be negative. Introduction Stage Following its development, a product is introduced onto the market During this stage, there is low growth in sales as a new product takes time to be accepted by customers. However there will be expensive promotion in border to make the customers accept the product. This means that during this stage there will still be some loss or negative cash flows. Growth Stage In the growth stage, sales increase rapidly Cash flow and profits start to turn positive as sales revenue starts to pay off the costs However, more money must be spent on product improvement, promotion and distribution to attract more customers. Therefore profits will not be high. Maturity In this phase, the product has reached its peak of sales and is fully established in the market. This can be a long or short period. The highest point in this rage is the saturation point. Because the product is well known, there will be less spending on promotion. Therefore, this stage will be at the most profitable for the firm. Decline In the decline stage, sales will begin to go down. This period can be fast or slow. The main causes of the decline of a product can be: Changes in taste and fashion, changes in technology, new substitutes, new inventions, etc. During this period, profits fall and some producers will try to extend the product life by modifying the product, searching new markets, etc. Because extension strategies may be expensive, some producers may leave the market.

Extension strategies Extension strategies refer to any method of extending the life of a product at the maturity stages and delaying its decline. Common strategies include:Price reductions, lowering price will tend to increase demand although temporarily New market, finding new markets for the current product can extend its life. New markets include new outlets in different regions countries, new users. Design, updating a design is another way of extending the life of a product. Car manufacturers regularly update models. new versions of computer games or softwares are regularly introduced. Range, a wider range of a product can increase sales. Examples include creaks for breakfast, bank accounts for the young, lucozade for sportsmen. Promotion, New advertising campaigns constantly extends the life of many products. Appearance, changing the packaging can excite new customers Different Life Cycles Some products have short life span (2-3 years). For example: Windows 95, 98, 2000. Others can be longer (more than 25 years). Examples include: Coca Cola, Kellogg‘s cornflakes. Extension strategies are usually used to extend the life of many products. Not all products will go through every stage of the life cycle and are withdrawn early. Those with very short life (