2. Agree or disagree with the statements. Give your arguments.

1. Different economic external and internal factors influence the price.

2. Pricing is made according to one element of marketing mix.

3. The right price is the one which brings profit.

4. It is the consumers who evaluate the quality of products.

5. The better the product the higher the price.

1. Read text 8. Text 8. Marketing Environment

The marketing mix consists of elements that a firm controls and uses to reach its target market. In addition, the firm has control over such organizational resources as finances and information. These resources, too, may be used to accomplish marketing goals. However, the firm’s marketing activities are also affected by a number of ex­ternal — and generally uncontrollable — forces. The forces that make up the external marketing environment are: (1)economic forces — the effects of economic condi­tions on customers’ ability and willingness to buy. (2) legal forces — the laws enacted either to protect consumers or to preserve a competitive atmosphere in the marketplace. (3) societal forces — consumers’ social and cultural values, the consumer movement, and environmental con­cerns. (4) competitive forces — the actions of competitors, which are in the process of implementing their own mar­keting plans. (5) political forces — government regulations and poli­cies that affect marketing. (6) technological forces — in particular, technological changes that can cause a product (or an industry) to be­come obsolete almost overnight.

These forces influence decisions about marketing-mix ingredients.

Changes in the environment can have a major impact on existing marketing strategies. In addition, changes in en­vironmental forces may lead to abrupt shifts in the needs of people in the target market.

Marketing environment

Economic forces Legal forces

Technological Society forces

f orces forses

P olitical Competitive forces

forces

2. Using the scheme speak on marketing mix and marketing environment. Glossary

Adoption. The process whereby a newly-launched product is bought by households, industrial consumers and commercial organizations.

Ansoff matrix. Framework for classifying the strategies adopted by a firm in relation to the two key areas of products and markets.

Augmented product. Products which offer superior features such as good after-sales service, in comparison to the basic core product.

Balanced product portfolio. Portfolio consisting of a range of products all of which are at different stages in their life cycles, thus avoiding the danger of having 'all your eggs in one basket.

Biogenic needs. Needs which are inborn, e.g. the need for food and water.

Blind tests. Marketing research technique which compares consumer reaction to competing products. The labels are hidden so that consumers are not influenced by their perception of the products.

Boston matrix. Matrix which enables firms to classify their products on the basis of two key variables: relative market share and market growth.

Bottom-down forecasting. Projected sales figures prepared by the sales force.

Brand. A name, symbol, image and identity that imbues a product or service with an individual personality which then serves to differentiate it from rival brands.

Break-even point. The lowest point at which a firm can operate without losing money, where the sales revenue received exactly covers the total costs incurred.

Breaking bulk. Wholesalers act as 'middlemen', buying products from manu­facturers in the large quantities they find economical to sell and then dividing them into the much smaller quantities that are practical for retailers to buy.

Buyers' market. Occurs when supply exceeds demand. Buyers have the power to dictate their own terms.

Cannibalization. Occurs when newly-launched products steal sales away from the leading brand.

Cash cows. Products that generate large amounts of cash. They hold a high relative market share within a mature market.

Cluster sample. Sample drawn from a small number of accessible areas or clusters, which researchers consider to be representative of the market being investigated.

Competitive advertising. Encourages consumers to buy a particular product or brand in preference to the others on offer.

Complementary products. Products which are consumed together, e.g. com­puters and software. A change in the price of one product affects demand for the other product.

Concept testing. Detailed drawings or scale models are produced in order to test consumer reaction to a potential new product.

Consumer panels. A form of continuous research which involves groups of consumers recording their purchase or viewing habits in a diary.

Continuous innovation. Modifications of existing products which are easily accepted by consumers because they do not require any changes in behavior.

Contribution costing. When times are hard a firm may accept an order which does not cover all its costs providing that the job covers any variable costs like wages and raw materials and makes a contribution towards fixed costs.

Convenience samples. Samples made up of people selected at the convenience of the researcher, e.g. from a shopping arcade.

Copycat products. Rival firms introduce their own versions soon after the launch of a new product.

Cost-plus pricing. Firms add a percentage mark-up onto their variable costs in order to cover overhead costs and provide a profit margin.

Creative execution. The process whereby the advertising agency creates the scripts that are to be used in an advertising campaign.

Creative strategy. The process whereby the advertising agency identifies the key message that is to be communicated by the advertising.

Cross-elasticity of demand Degree to which the amount demanded of one product varies according to changes in the price of another product.

Customers. People who make the purchase decisions but are not necessarily the eventual consumers.

Decision making unit (DMU). Groups of people who make purchasing deci­sions, e.g. the family in the case of consumer markets, and formal com­mittees in the case of organizational markets.

Demographics. The influence of factors such as age, sex and socio-economic group on consumer behaviour.

Derived demand. Demand which is influenced by the demand for other products.

Desk research .The process of collecting existing data from internal and exter­nal sources. Desk research provides background information and is therefore a useful starting point in any investigation.

Differentiation. Products which are often virtually identical are promoted on the basis of a particular advantage or strength. This distinguishes them from rival products and enables them to be aimed at a specific market segment.

Diffusion. The process whereby a newly-launched product comes to be accepted by whole sections of society over a period of time.

Direct competition. Firms experience competition from others providing the same or similar products and services.

Direct mail. A form of promotion which involves sales literature being sent through the post to the people on a mailing list. Often known as 'junk mail'.

Discontinuous innovations Innovative products which are very different to existing products and are less easily accepted because they require a com­plete change of behavior.

Discretionary income. Amount of personal income remaining after paying for necessities such as mortgage, food, clothes, fares, etc.

Disequilibrium. Prices set far above or below the level that would otherwise exist if free market forces were allowed to operate.

Distribution channels. Series of firms and organizations through which goods and services pass on their way from the producer to the end user. The number of levels can vary greatly

Dogs. Ailing products which have little future and are a drain on a company's resources. They will gradually be phased out or sold off.

Early adopters. Consumers who are willing to try a new product before it has gained widespread acceptance.

Early majority. Consumers who will only try a new product once it has become socially acceptable.

Effective demand. Level of demand which reflects the ability of consumers to pay for the items they want to purchase.

Elastic demand. Demand for goods like furniture and services like air travel is very responsive to changes in price.

End consumers. People who consume the products but do not actually make the purchases, e.g. children.

Equilibrium price. Achieved when the quantity demanded by consumers is equal to the quantity supplied by producers.

Expected product. Products with features which have, over a period of time, come to be expected as standard.

Experience curve. A graph demonstrating that costs tend to decrease as firms gain more experience in producing that product.

Experimental research. Marketing research method which aims to discover the influence of one factor on another, e.g. the impact of a change in price.

Exponential smoothing. Statistical technique used in sales forecasting which provides an indication of future trends because it gives more weight to recent changes in the pattern of sales.

Extension strategies. Strategies used to prolong and rejuvenate a product whose sales are declining.

Family life cycle. The stages which people pass through during the course of their lives, e.g. newly-married couples, solitary survivors, etc.

Fast-moving consumer goods (FMCGs). Goods which are sold in huge quan­tities and are aimed at a mass-market audience. They include most of the products found on supermarket shelves.

Field research. Process of collecting data first-hand from consumers, often by conducting surveys in the field. Essential for obtaining information that is specific to a company's requirements.

Fixed costs. Costs which do not immediately change with variations in the level of output, e.g. land, buildings and machinery. These costs have to be borne even if the firm is operating at less than full production capacity.

Forecasting techniques. Techniques which aim to predict the level of sales that is likely to be achieved in a particular market, under a given set of conditions.

Fragmentation. Occurs when crowded markets become subdivided ever more finely. Eventually, it becomes uneconomic for firms to cater for such small segments.

Gatekeepers. People who control the flow of information from outside to members of the DMU and also to prospective suppliers.

Generic products. Basic unbranded products which are often simply packaged and cheaper than their branded counterparts.

Gross national product (GNP.) The total market value of all the goods and services produced within the economy, together with the country's overseas earnings for any given year.

Group discussions. Small groups of 6-8 people of similar backgrounds and interests brought together to discuss a particular product.

High-involvement decisions. Buying decisions involving a detailed and systematic evaluation of available products and suppliers. Typical of expensive, infrequently purchased items, e.g. cars, houses.

Income elasticity. The degree to which the quantity demanded of a product varies according to changes in the income of consumers.

Indirect competition. Firms experience competition from those in other industries who offer alternative items that may be bought in place of their goods.

Inelastic demand. Demand for essential goods like milk and bread and essen­tial services like gas and electricity is not very responsive to changes in price.

Informative advertising. Used to tell consumers that the product is available and to publicize its benefits. Commonly adopted with newly-launched products.

Intermediaries. The organizations such as agents, wholesalers and retailers through which goods and services pass along the channel of distribution from manufacturer to end-user. Often known as 'middlemen'.

Judgment samples. Samples selected on the basis of the researcher's knowledge and judgment.

Just-in-time (JIT). Method of stock control which involves raw materials and components being delivered only when required, thus reducing the amount of warehousing space needed and the amount of capital tied up in stock.

Laggards. Individuals and organizations who resist a newly-launched product and may never accept it.

Late majority. Individuals and organizations who will adopt a newly-launched product only after overwhelming evidence from others encourages them to overcome their reservations.

Latent needs. Needs which are unconscious until exploited by an innovative new product.

Lead time. Period of time needed to develop and launch a product onto the market.

Line extension. 'New' product which is merely a modification of the parent product. Often used to extend the life cycle of a flagging product.

Low-involvement decisions. Buying decisions involving little conscious thought. Typical of inexpensive, frequently purchased items, e.g. newspapers, soft drinks.

Marginal analysis. Analysis of the effect on a firm's costs and revenue of pro­ducing each additional unit.

Mark up. Method of pricing which involves firms adding a given percentage onto their costs in order to provide a profit.

Market positioning. The platform occupied by a product or service in the market relative to those of competitors.

Market research. The investigation of specific markets.

Market segmentation. The process of dividing up the overall market in order to identify groups of buyers who share similar needs and have certain characteristics in common.

Marketing effort. Includes all marketing activities, i.e. assessing customer needs, identifying target groups and conducting market research, together with the development of the product and its pricing, promotion and distribution.

Marketing mix. Marketers co-ordinate the four key elements of product, price, promotion and place, i.e. the four Ps, in order to bring about the desired consumer response.

Marketing orientation. Firms concentrate on producing what the market wants.

Marketing plan. Involves assessing the existing situation, setting goals and deciding on the strategies needed to implement those objectives.

Marketing research. Involves the investigation of every aspect of the marketing process covering consumers' attitudes as well as their reac­tions to the product itself and the way it is priced, promoted and distributed.

Mass market products. Products designed to appeal to the majority of the population.

Material culture. All the tangible things people like to buy, use and do.

Media. Communication channels which can be used to convey advertising messages, e.g. television, radio, newspapers, cinema.

Monopolistic competition. Occurs when there are a large number of sellers producing similar but differentiated products.

Moving averages. A statistical technique used in sales forecasting which pro­vides an indication of underlying trends because it averages out seasonal variations in the pattern of sales.

Need competition. Firms experience competition from other needs that con­sumers may wish to fulfill.

Niche marketing. Firms concentrate on selling to a small specialized market segment or niche.

Observational research. Trained observers or hidden cameras are used to watch consumer behavior.

Oligopoly. Occurs when there are a limited number of sellers who dominate the market and control prices.

Opportunity cost. The loss of potential revenue which may be regarded as a cost even though it has not been directly incurred by the firm.

Organizational markets. Includes manufacturing and service industries as well as wholesalers and retailers, government organizations and non-profit-making organizations.

Overheads. Costs associated with the general administration of the firm which cannot be directly attributed to any particular product.

Pareto rule. An observed phenomenon that 20 per cent of a firm's customers account for 80 per cent of its sales.

Parity products. Products which are virtually identical to each other apart from variations in the way they are packaged, priced and promoted.

Penetration pricing. Firms set low prices for newly-launched products in order to capture mass markets quickly.

Perceived risk. Degree of risk associated with an important purchase linked to the fear of making the wrong decision.

Perfect monopoly. A single supplier dominates the market and is therefore able to control prices.

Physical distribution management. The co-ordination of the entire logistics process from the supply of raw materials to the distribution of finished products.

Predatory pricing. Firms set very low prices, even to the point of making a loss for a limited period, in order to undercut their competitors and drive them out of business.

Premium price differential. The extra amount charged for the augmented pro­duct in comparison to the basic core product.

Price-cutting war. When a firm cuts its prices and competitors retaliate by lowering their prices even more, creating a relentless downward spiral of prices.

Price discrimination. The same product or service is sold to different groups of consumers at different prices.

Primary data. Data collected first-hand from consumers by survey, observa­tion and experiment.

Production orientation. Firms concentrate on producing what they want to make.

Product life cycle. The stages which a product passes through in its life from introduction through growth and maturity to decline.

Projective techniques. Form of marketing research which involves respon­dents being asked to project their image or opinion of a product onto another object or situation.

Prospects. Potential customers as regarded by the sales force.

Psychogenic needs. Needs which are acquired or learned through the process of socialization, e.g. the need for status.

Pull strategy. Advertising and sales promotions are used to stimulate demand which then pulls the product through the distribution channel.

Push strategy. Demand is created by the intermediaries who then promote the product to customers.

Qualitative research. Research involving detailed interviews or discussions with small groups of people. It is designed to clarify the problem that needs to be investigated and is therefore exploratory in nature.

Quantitative research. Research based on a statistically valid sample of a target market. It is designed to provide the data that managers need in order to make commercial decisions and is therefore confirmatory in nature.

Question marks. Newly-launched products whose future is uncertain because they are a drain on the company's resources.

Questionnaires. Common tool for collecting data in market research studies.

Quotas. Limits set by governments which restrict the amount of specified imported goods that are allowed into the country.

Quota samples. Samples composed of a given number of people with a certain characteristic in terms of age, sex, socio-economic group, etc.

Recall tests. Tests which require respondents to describe, from memory, whatever they can remember about an advertisement.

Recycled product life cycle. Products are given a new lease of life when an increase in sales lifts a flagging sales curve. This can be done by creating a new advertising campaign, introducing a new line extension, opening up new markets, etc.

Reference groups. Groups which people look at for guidance on how to behave, e.g. family, friends, school, employer, etc.

Relative market share. The market share held by a firm relative to its largest competitor.

Reminder advertising. Designed to keep the product in the forefront of con­sumers' minds.

Re-positioning. Occurs when a product occupies a new platform within the market and is therefore targeted at a new segment of buyers.

Return on investment (ROI). Firms aim to achieve a specified level of income as return on investment.

Roll out. The national launch of a product in stages as it proceeds from region to region across the country.

Sales promotions. Promotional tactics which are designed to achieve a short-term increase in sales, e.g. money-off coupons, etc.

Sellers' market. Occurs when demand exceeds supply. Suppliers therefore have the power to dictate their own terms.

Simple random sample. The process whereby each individual has an equal and known chance of being selected to form part of a sample.

Skimming. Firms set high prices initially for newly-launched products.

Social class groups. Groups of people who differ from each other in terms of income, level of education and lifestyle.

Socialization. The process whereby cultural traditions are transmitted from generation to generation as children learn the physical, intellectual and social skills which they need to function as members of society.

Stars. Products found in growth markets. They hold a high market share relative to competitors.

Stratified random sample. The process of dividing the total population into strata or groups on the basis of factors such as age or income. The sam­ple selected must mirror the total population in some important respect.

Substitute products. Products which are alternatives for each other, e.g. tea and coffee. A fall in the price of one product leads to a decrease in demand for the other.

SWOT analysis. Framework for taking stock of the existing situation. Firms analyse their internal strengths and weaknesses, as well as the external opportunities and threats presented by the wider environment.

Systematic random sample. The process whereby researchers select every tenth name from a list, having started with a randomly chosen number.

Target markets. Firms concentrate their marketing effort on the market segments which have been identified as containing the most potential buyers for their products or services.

Test markets. Firms often use a small town or small ITV region for testing a new product before committing themselves to the expense of a national launch.

Top down forecasting. Sales forecasts prepared by a variety of experts and a firm's own senior management.

Tracking studies. Studies which monitor the impact of an advertisement at intervals during the campaign.

Umbrella pricing. Firms set high prices creating a price umbrella under which competitors charging lower prices can flourish.

Unique selling proposition (USP.) A product or service occupies a unique position in the marketplace by virtue of its better design, performance, reliability and so on. This advantage enables it to stand out from the competition.

Universe. The total population which is potentially capable of being surveyed during a marketing research study.

Value engineering. The process of weeding out new products which are impractical or uneconomic to produce by looking into the availability of raw materials and components and probable manufacturing costs.

Variable costs. Costs which vary according to the level of output, e.g. labour, raw materials and fuel.

Vertical marketing systems. Members at different levels in a channel of distribution work together under the ownership or influence of a power­ful manufacturer or retailer.

Wholesalers. Act as intermediaries buying products from manufacturers in bulk and then selling them on to retailers in smaller quantities.