Business Management Business Decision Areas 1

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Business Management Business Decision Areas 1 ...


    Business Management

    Business Decision Areas I:

    Marketing and Operations

    Revised Student Notes

    and Activities


    The Scottish Qualifications Authority regularly reviews

    the arrangements for National Qualifications. Users of

    all NQ support materials, whether published by LT

    Scotland or others, are reminded that it is their

    responsibility to check that the support materials

    correspond to the requirements of the current



    Learning and Teaching Scotland gratefully acknowledge this contribution to the National

    Qualifications support programme for Business Management. The original resource of this

    title was written by Christine Murray and issued in 1999. The Revised Notes were updated by

    Mark Kinnon and the Revised Activities by Sheena Dow.

? Learning and Teaching Scotland 1999 and 2006

This resource may be reproduced in whole or in part for educational purposes by educational

    establishments in Scotland provided that no profit accrues at any stage.


     ? Learning and Teaching Scotland 2006


Section 1: Marketing

    What is a market? 4

    What is marketing? 4

    The role and importance of marketing in organisations 5

    The importance of marketing 6 The marketing function 8

    Marketing as a strategic activity 9 Product-oriented organisations 9 Customer-oriented organisations 10 The marketing of products and services 10 The marketing environment 12 The consumer 12

    Branding 16

    The marketing mix 17

    Produce/service 18

    Price 22

    Place 26

    Physical distribution decisions 27 The main channels of distribution 29 Promotional strategies 33

    Extending the product life cycle 40 Product portfolios 41

    Market segmentation 42

    Market research 45

    Primary data 47

    Secondary data 52

Section 2: Operations

    The role and importance of operations in organisations 99

    Types of operation 103

    Factors affecting quality 105 Stock control 113

    Purchase of materials 117

    Distribution and delivery 122 Scheduling 124


     ? Learning and Teaching Scotland 2006


Section 1: Marketing

What is a market?

A market can be defined as a meeting place for buyers (consumers) and

    sellers. Markets can be set up in a shop, restaurant, over the telephone/

    internet, at a car boot sale, etc.

A market consists of the individuals or organisations who are actual or

    potential buyers of a product or service. Markets may be classified as

    consumer markets or industrial markets.

    Consumer markets are made up of individuals who purchase goods or services for personal or domestic use. They make most of their purchases

    from retailers and buy a combination of consumable goods, such as food and

    durable goods such as cars, televisions, and clothes. Consumable goods are

    bought more frequently than durable goods.

    Industrial markets are made up of organisations that purchase goods or services to use in the production of other goods and services. They buy a

    combination of consumable goods, such as raw materials and longer-lasting

    durable goods, such as machinery and equipment.

    What is marketing?

    Marketing Manager Required

    Here is your chance to influence the spending habits of a discerning

    sector of the population and manage a world-famous cosmetics

    company. Reporting to Senior Management, you will develop and

    implement a marketing strategy for a range of brands. You will have

    responsibility for market research, promotion and advertising, direct

    mail activity and preparation of publicity material. Additional

    responsibility will be for new product development and branding in

    order to expand our market base.

The marketing activities contained in the above job advertisement are

    italicised in the text.


     ? Learning and Teaching Scotland 2006

    MARKETING: STUDENT NOTES The Chartered Institute of Marketing defines marketing as ‘the process

    involved in identifying, anticipating and satisfying consumer requirements


The role and importance of marketing in organisations




    1 To identify consumers’ requirements

Businesses must identify what exactly a consumer wants from a product or

    service. There is little point in providing something that does not meet

    consumers’ requirements – they simply will not buy it. Marketing

    departments aim to ensure that consumers buy products or services and that

    they continue to do so (that is, make repeat purchases).

Firms today face a lot of competition and consumers’ expectations are

    increasing and becoming more sophisticated. Requirements change

    frequently and the marketing department must make sure the product or

    service is developed or altered to meet these requirements. The role of

    marketing is, therefore, an increasingly important one in today’s business world.

Price and quality have always been important factors in whether or not a

    consumer will buy, but so too have prompt delivery, attractive packaging and

    after-sales service. Advertising and promotion play a big part in influencing

    consumers to buy.

    2 To anticipate consumers’ requirements

The role of the marketing department is to find out what consumers want

    today and will want in the future. Consumer trends must be considered in

    order to anticipate future needs. This is especially important in markets

    where trends and fashions change rapidly (e.g. clothing, toys), or where

    technological changes occur frequently (e.g. computers). It may be necessary

    to develop new products quickly to stay ahead of competitors.

    3 To satisfy consumers’ requirements

The consumer is the most important consideration for most businesses today

     businesses are often said to be ‘consumer (or customer) focused’. Without


     ? Learning and Teaching Scotland 2006


    consumers the business would fail. Good service and quality products that offer value for money are essential.

    Prompt delivery and good after-sales service are also important, as are well presented and packaged goods. It is vital that the product is available at the right price and at the right time.

    These three aims, for the majority of businesses, must be achieved profitably. There is little point in spending large amounts of money on marketing if costs are greater than revenue. However, organisations do exist where profitability is not an objective. Schools, hospitals and charities also use marketing techniques in order to become more effective in satisfying consumers’ requirements.

The importance of marketing

    The importance of marketing can be illustrated by considering the contrasting responses of the American car industry and the Swiss watch industry to changes in market conditions.

The decline of the American car industry

    For decades, motor cars manufactured by American companies were built on the principle that the American consumer preferred a long, roomy vehicle with large engine capacity. During the 1960s large heavy vehicles with names like Chevrolet and Buick, produced by American manufacturers, dominated the market. Roads were seldom graced by the sight of a foreign motor car and the American manufacturers tended to ignore trends taking place in the rest of the world where small, economical vehicles with lower engine capacities were capturing an ever-increasing share of the market.

    American manufacturers believed that small cars would never sell in the US market. Japanese car manufactures, on the other hand, disagreed and recognised a major opportunity for market growth in the US. Marketing strategies were developed, research and development programmes carried out, factories built, and a workforce was trained in order that Japan could enter the American motor vehicle market.

    During the 1970s world oil prices quadrupled, making fuel much more expensive. Increasing labour and raw material costs also combined to make large American cars expensive to buy and to run. American consumers rapidly switched their preference to smaller, economical cars, and sales of Japanese vehicles such as Datsun and Toyota rocketed because American manufacturers offered no alternative.


     ? Learning and Teaching Scotland 2006


    Even while this process was taking place, American car manufacturers decided against changing to small car production believing that the trend was only temporary and that their market share would recover when world oil prices fell. This never happened, and by the time American manufacturers finally changed to small car production, the Japanese manufacturers had a powerful grip on the market. They also faced severe competition from West Germany, Italy, France and Korea where technological advances in car production enabled competitors such as Volkswagen, Fiat and Renault to secure a market share.

    Several American car producers went out of business and thousands of manufacturing jobs were lost. This led to the United States having a large balance of payments deficit with Japan due to the high volume of imported Japanese motor vehicles. The domestic American industry failed to anticipate the changes in consumer needs and never recovered.

The Swatch story

    In contrast, the outstanding success of a Swiss watch manufacturer during the 1980s was the result of a careful and well-executed marketing plan, brought on by necessity.

    For years the Swiss were world leaders in the watch industry. In 1974 their worldwide market share was 30%. Then the Japanese actively began to produce and market quartz watches, which the Swiss viewed as a passing fashion. Quartz digital watches were, however, no fad and by 1983 the Swiss share of world markets for watches had fallen dramatically to 9%.

    The Swiss manufacturer SMH carried out extensive research in its watch markets and carefully analysed patterns of consumer behaviour. Marketing experts advised the company that a turnaround was possible if an inexpensive, good-quality quartz analog watch could be developed, since the market was saturated with digitals. Gradually, a marketing plan was devised and implemented resulting in the introduction of the Swatch in 1984, which has since revolutionised the world watch industry.

    Based on their extensive analysis of consumer behaviour and lifestyle, SMH adopted a strategy that completely changed the concept of a wrist watch. Watches were to be a fashion accessory first and a watch second. They would also be analog rather than digital. Product planning developed a distinctive quartz analog watch in a wide range of fashionable colours and designs. New models were introduced rapidly and older ones quickly dropped. Because Swatches were sold as fashion accessories, consumers were encouraged to buy more than one (to match different sets of clothes or lifestyles). The average Swatch customer in Britain today owns three different models.


     ? Learning and Teaching Scotland 2006


    In Britain, Swatch watches were distributed mainly through department stores and speciality shops. They were not sold in high-street jewellery stores, which the company believed were an inferior point of sale for the product. The marketing strategy was based on carefully controlling distribution to avoid flooding the market, which would have resulted in consumers losing their desire to own a Swatch.

    Today, Swatch watches sell for a relatively low price which appeals to a large number of consumers and encourages multiple purchases. The watches are highly distinctive. Extensive product promotion, which includes advertising on TV and in magazines, together with sponsorship of various concerts and sporting events, generates further sales.

    Successful marketing has greatly increased market share and enabled the company to introduce new product lines, such as clothing and telephones, using the Swatch name.

The marketing function

    In the case of Swatch, the strategic function of marketing was to attract and retain a loyal group of consumers through a unique combination of market research, product design, distribution, promotion and price factors.

    Since many markets for goods and services have evolved to the point where the consumer has become of prime importance, businesses have responded by attempting to ensure that their products are produced to an appropriate standard, at an acceptable price, and distributed in a convenient manner. Marketing decisions, therefore, centre on four functional activities:



     distribution or place

     promotion (including advertising).

These decision areas, when combined, are known as the marketing mix.


     ? Learning and Teaching Scotland 2006


    Marketing as a strategic activity

Marketing is concerned with every aspect of an organisation’s product or

    service, e.g. its design, price, distribution, selling and promotion, from its

    inception until it finally reaches the hands of the consumer. Even after the

    sale, marketing still has a job to do: it must ensure consumer satisfaction

    through the provision of after sales service, such as maintenance, repairs,

    instruction booklets, spare parts and quality guarantees. Marketing is far

    more than just selling the product. It is concerned with what is to be sold,

    how it is to be sold, when it is to be sold and where it is to be sold.

Amongst the most important functions of marketing is the assessment of the

    market to discover

where the consumers of the product are to be found

     how many consumers there are

     the attitudes and preferences of the consumer

     the effectiveness of distribution methods

     the strengths and weaknesses of competitors.

The current position must be looked at along with the future position

    marketing departments must anticipate what will happen in the future in order

    to allow adjustments to goods and services to be made and new goods and

    services to be produced. Profit is important to most organisations, but there

    may also be a need to improve brands in order to obtain or retain brand

    leadership or increased market share.

Today, marketing has come to be recognised as the discipline which

    coordinates and manages the total business function. In a consumer society,

    marketing decisions are often strategic decisions since they frequently

    determine the overall direction of the organisation. Other business functions

    such as production and human resource management are often influenced by

    marketing considerations.

    Product-oriented organisations

These assume that the product or service being offered is the best on the

    market and will be very easy to sell. It is felt that there is no need for

    product change or development as there is no real competition. This might be

    the case with a new invention or a highly technical unique product, or even

    when a very strong advertising campaign can convince a consumer to

    purchase the product. Henry Ford in launching his Model T car said

    ‘customers can have any color they want as long as it is black’.


     ? Learning and Teaching Scotland 2006


    In today’s competitive business world, this approach may be seen as

    complacent. Organisations operating like this may fail once competitors enter the market. An example can be shown by the demise of the British Motorcycle industry. BSA, Norton and Triumph, producing heavy, slow-revving, large capacity machines, were superseded by Kawasaki, Honda and Suzuki they had failed to look at what these foreign competitors were

    producing and how they met the needs of the consumer more successfully.

    Product orientation was predominant in the UK in the 1930s and 1940s when there was less competition, and customers’ expectations were not so sophisticated. Consumers did not have such a large disposable income and their knowledge of products was more limited. Pressure from the media was considerably less.

Customer-oriented organisations

    These constantly modify their products or services in response to changes in the market. They will make an effort to find out what customers want and what influences their purchasing decisions. These organisations realise that their profits and/or success depend on meeting the needs of the customer.

    During the 1980s and 1990s, customers became increasingly aware of what is available on the market and the amount of competition has greatly increased. This has led to the customer being seen as the main focus of an organisation’s


    Marketing ensures that the needs of the customer are considered before production takes place.

The marketing of products and services

    Marketing applies to both products and services. Consumer goods (i.e. ones bought by end consumers for their own personal use) are commonly used to give examples to illustrate marketing. It is important to remember, though, that marketing also applies to industrial goods and to services. The main principles of marketing (covered later in this text) apply in all cases, but the ways in which they are used may differ between consumer goods, industrial goods and services. This section considers industrial goods and services.

    Industrial goods are distinguished from consumer goods according to the purpose for which they are bought. They are purchased for use in a business, e.g. raw materials and machinery. In some cases, the same goods can be both industrial goods and consumer goods. Cars, for example, may be industrial 10 BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)

     ? Learning and Teaching Scotland 2006

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