3.1 - Marketing Objectives
The definition and role of markets in business
A market is any arrangement where buyers and sellers come together to exchange goods or services, which can happen in physical locations or online.
Markets play a vital role in helping businesses identify opportunities and set goals. By analysing their market, firms can establish suitable targets for their marketing efforts and measure how well they are performing against them. This analysis supports decisions on product development, pricing, and promotion to meet customer demands effectively.
The functions of marketing
Marketing involves recognising what customers need and desire, then ensuring the business provides suitable products or services to generate profits. It focuses on predicting future customer preferences to stay competitive.
Key activities in marketing
- Market research - Gathering data on customer behaviour and preferences.
- Analysis - Interpreting research to understand market trends.
- Planning - Developing strategies based on insights.
- Marketing mix - Making choices about product features, pricing, distribution, and promotion to sell effectively.
In larger organisations, a dedicated marketing department handles these tasks, but marketing influences every part of the business. Once customers are acquired, marketing helps build loyalty to encourage repeat purchases and long-term relationships.
Different ways to classify markets
Markets vary based on several characteristics, and understanding these helps businesses tailor their strategies.
Classifications of markets
- By geography - Local markets serve a small area, national markets cover an entire country, and international markets span multiple countries.
- By nature of the product - Examples include agricultural markets for food produce or technological markets for gadgets and software.
- By seasonality - Some markets operate year-round, while others are seasonal, such as those for holiday decorations.
- By development level - New markets are emerging, growing markets are expanding, and saturated markets have high competition with little room for growth.
- By product destination - Trade markets involve sales to other businesses, while consumer markets target individual buyers.
Markets can also be divided into business-to-business (B2B), where firms sell to other companies, and business-to-consumer (B2C), where sales are directly to individual consumers.
Firms must study their specific market before launching products to ensure they align with customer expectations and market conditions.
Quantitative marketing objectives and related calculations
Marketing objectives are specific targets set by the marketing team to guide activities. They should follow the SMART framework: specific, measurable, achievable, relevant, and time-bound. Quantitative objectives include numerical targets, often centred on sales performance.
Common quantitative marketing objectives
- Sales volume - The total number of units sold in a given period, such as aiming for 500,000 toys sold annually.
- Sales value - The total revenue from sales, for example, targeting $50 million in yearly income.
- Sales growth - The increase in sales over time, which could be a specific amount (e.g., $150,000 additional revenue) or a percentage (e.g., 20% rise in units sold).
Formula for sales growth
Where:
- Sales this year = Total sales in the current period ($ or units)
- Sales last year = Total sales in the previous period ($ or units)
Market share and its calculation
Market share is the portion of total market sales captured by a firm or brand, expressed as a percentage. Increasing it often involves drawing customers from rivals or expanding into growing markets.
Where:
- Sales of the firm = Firm's total sales ($ or units)
- Total market size = Overall sales in the market ($ or units)
Market size and market growth
Market size refers to the total sales volume or revenue in a market over a period. Market growth measures how much the market has expanded or contracted.
Where:
- New market size = Current total market sales ($ or units)
- Old market size = Previous total market sales ($ or units)
A negative result indicates a shrinking market. In expanding markets, multiple firms can increase sales easily, but in declining markets, competition intensifies, and businesses might need to diversify or leave. Firms monitor sales growth against market growth; for instance, 4% sales growth in a 12% growing market means losing market share. Combining these metrics helps evaluate overall performance.
Worked example - Calculating market share and sales growth
A clothing firm had sales of $4.0 million last year and $4.8 million this year. The total market size this year is $20 million. Calculate the firm's market share this year and its sales growth from last year.
Step 1: Identify the values
- Sales last year = $4.0 million
- Sales this year = $4.8 million
- Total market size this year = $20 million
Step 2: Calculate sales growth
Step 3: Calculate market share
Qualitative marketing objectives
Qualitative marketing objectives focus on non-numerical goals, making them harder to measure precisely but still important for long-term success.
Examples of qualitative marketing objectives
- Improving product quality - Enhancing features or reliability to better meet customer expectations.
- Ensuring product survival - Maintaining a product's presence in the market, especially when new competitors emerge.
- Building or maintaining brand loyalty - Encouraging repeat purchases from existing customers through strategies like social media engagement, which fosters direct interaction and strengthens relationships.
These objectives support customer retention, which is often more cost-effective than attracting new buyers.