Marketing AS Level-top 30 revision terms(2)

Income elasticity: measures the way in which demand changes when consumers' real income change.

FORMULA:
Percentage change in demand
_____________________________ =income elasticity
Percentage change in real incomes

There are two main elements in a product's income elasticity:

1. Is the income elasticity a positive or negative figure? Most goods have positive income elasticity, meaning that people buy more of them when they are better off. The term 'normal goods' is given to these. Products with negative income elasticity include sausages and supermarket own label goods. When consumers feel better off they switch from these cheaper foods to more luxurious ones. For example, if the demand of sausages fell by 2 % in a year when real incomes rose 5 %, the income elasticity of sausages would be -2%/+5%=-0.4. Products with negative income elasticity are known as 'inferior goods'.
2. What is the degree of elasticity? As with price elasticity, a value of more than 1 indicates an elastic demand, while less than 1 means inelastic demand. Luxury items will tend to be highly income elastic: in other words quite a small drop in the living standards of consumers can lead to a substantial fall in demand for expensive sports cars, perfumes or whiskies. Necessities such as toothpaste and detergents are income elasticity.

Worked example: Market research reveals that following an increase in disposable income of 10%, the demand for aftershave rises by 22 %. What is the income elasticity of demand for aftershave?
Formula:
Income elasticity of demand
_________________________ = percentage change in demand
percentage change in income
so in this example:
22%
_____ =+2.2
10%
Marketing mix:the main variables through which a firm carries out its marketing strategy, often known as the four Ps:

• Product (including range of pack sizes and/ or flavours or colours)
• Price (long-term pricing strategy and pricing method)
• Promotion (branding, advertising, packaging and sales promotion)
• place (choosing distribution channels and seeking shop distribution).

Textbooks tend to treat each of the elements of the mix as of equal importance. Few marketing companies would agree. The most important element of the mix is the product, which needs to be designed to meet the requirements of those within the target market.If this process has been achieved successfully (probably through extensive market research) the order three elements of the mix become clear. The price must be suited to the pockets of the target market and to the image of the product. The promotion will be through the media that they watch or read, while the place should be the shops visited by those types of people.
The only one of these elements that is outside the company's control is place, for obtaining shop distribution is a very difficult task in crowded modern market- places. No retailers have spare shelving, so in order for your product to gain distribution,another product will probably have to be removed from the shelves. Needless to say, every manufacturer is fighting hard to keep its distribution as high as possible, so it is never easy to gain or to keep hold of high distribution levels.
Marketing objectives:are the goals the marketing department must achieve in order to help the company achieve its overall objectives. Marketing objectives may include:

• Halting a decline in market share
• Making a brand's image younger
• Boosting the awareness of a brand that has faded from consumers' memories.

Marketing strategy:a medium- to long-term plan for meeting objectives.The word 'strategy' suggests a carefully through-out, integrated plan. It should set out the balance of marketing activity between new and existing products - with carefully costed budgets. The strategy is likely to be fully researched and then implemented through the marketing mix - the four Ps of product, price, place and promotion. A successful marketing strategy is one that achieves the objectives without going over budget. See also marketing plann.
Market research:the process of gathering primary and secondary date on the buying habits, lifestyle,usage and attitudes of actual and potential customers.The intention is to gather evidence that can enable marketing and productin decisions to be made firms in a more scientific waythan would otherwise be possible. Most large consumer goods firms would agree with Sherlock Holmes (in scandal in Bohemia), 'It is a capital mistake to theorise before one has date.'
Market research can be subdivided as follows:

Desk research

/ \

Quantitative Qualitative

| |

Retail audits; expect opinion

market intelligence (Delphi technique)

reports

Field research

/ \

Quantitative Qualitative

| |

Usage and attitude Group discussion;

studies; depth interviews

product testing

Market research process