Marketing is a method of identifying a customer need, developing a product to meet that need, putting a price on it, advertising the product, and distributing it to consumers. It’s not just advertising, but the actual development of the product as well as the aftermarket care.
Product — A product is a tangible or intangible item that satisfies the customer’s wants or needs. It can be goods, services, or both!
- Goods — A good is a tangible product, such as food, electronics or clothes. There are many types which we’ll talk about below.
- Services — A service is an intangible product, such as a haircut, consulting advice, or research. You can’t save services for later like you can by storing goods.
Commodities — Commodities are goods that are fungible, meaning one brand can easily replace another. For example, flour is a commodity. The brand of flour is usually irrelevant, because all brands of flour serve the same purpose for baking. A TV is not a commodity, because different TV’s serve dif-ferent purposes (Plasma, LCD, Direct Tube, DLP) and one brand of TV may not be easily replaced by another brand.
Convenience Goods — Convenience goods are consumer goods that are regularly or routinely bought by consumers with little or no effort. They are usually not expensive, and consumers use low—involvement decision making when purchasing convenience goods. Toilet paper is a convenience good. We don’t spend a lot of time purchasing it, but we do it regularly.
Shopping Goods — Shopping goods are items or products that consumers don’t directly buy on a regular basis. Consumers spend more time in making their decision on purchasing such item. They spend time comparing more than one item with regards to brand, price, features and other qualities. New clothes or a new rug for the living room are both examples of shopping goods.
Specialty Products/Goods — Specialty product types are products that are purchased infrequently and are usually very expensive. These products are extensively researched by consumers before purchase. They include: cars, homes, wedding rings, or computers.
Unsought Goods — Unsought goods are items or products that a person doesn’t normally think of purchasing, yet purchases it due to danger or having the fear of danger. Examples of these are insurance, cemetery lots and fire extinguishers. You may not need them right now, but you purchase it against the need later.
Marketing Concept — A marketing concept is the way a company interacts with its target market. They do this by concentrating on the needs of those customers and trying to meet those needs with products and advertising. If they do it well, the customers will desire the products to fill their needs and the company will profit.
Homogeneous Market — A homogeneous market is a market where consumers have the same wants and needs, at least when evaluated from the perspective of a possible product. An example of a relatively homogenous market would be a city which has a large majority of a certain ethnicity, or a univer-sity town.
Heterogeneous Market — A heterogeneous market consists of people who have diverse product needs. These markets are often divided into different target groups in a process called market segmentation.
Target Market — A target market is the group of customers that a business prepares a marketing mix for. It’s important to understand everything you can about this group of customers, i.e. what they want, what they’re willing to pay, what they like in advertising, etc. A marketing mix is then put together for that audience.
Latent Market — A latent market is a potential market for a product or service that is not yet developed. For example, a latent market in 1990 was internet shopping. At the time, internet shopping was not widespread, but it was a widely available market that had been largely untapped.
Mature Market — A mature market is one that is fully developed and has many products in place. Currently, the desktop computer market is a mature market, with many competitors offering products (IBM, Lenovo, Dell, HP, Apple, Acer, Asus, etc.).
Diffusion — Diffusion refers to the slow process by which a market accepts a certain new product. The rate of diffusion is basically how fast new consumers come to accept an idea. For example, the diffusion of ‘iPods’ was quite fast, in that consumers accepted the technology very quickly, and decided to purchase it. The diffusion of Windows 8 on the other hand was very slow, as most people hated it.
Price Elasticity — Product elasticity refers to the amount that price changes affect demand. If a product’s price goes up, but demand stays the same (i.e. gasoline), then the good is inelastic. If demand does change when the price changes (i.e. cars), then the good is considered elastic.
Below you’ll find the formulas for Markup and Breakeven Points. Make sure you’re comfortable with doing them!
Markup — The markup is the amount of money the manufacturer/merchant charges in addition to the cost of manufacturing/buying the product. For example, if it costs Crate & Barrel $20 to buy a vase from the manufacturer, and they sell it for $45, the markup is 125%.
The formula is Markup = 100 x (Price – cost)/cost. That may seem complicated, but it’s really not. Using our earlier example it would be:
100 x (45-20)/20
100 x 25/20
100 x 1.25 = 125%
You’ll probably get some questions on the CLEP asking you to figure out the markup, so you may want to practice this a few times.
Breakeven Point — The breakeven point is the point when your sales have covered all the costs of manufacturing/selling a product. The goal is to reach and then surpass that breakeven point, at which point the business is actually making a profit. The actual formula to figure out the breakeven point is:
Fixed Cost / (Price – Variable Cost) = Number of units to breakeven point
Let’s use these Quick Prep Sheets as an example. Our fixed price is going to be $1500, roughly the cost it takes us to create the practice tests and prep sheet for each exam. The variable cost is going to include our affiliate fees, PayPal fees, hosting, and other costs of doing business which comes to about $2.00. Finally, our price is $8.99 per Quick Prep Sheet.
So putting it all together, we have $1500 / ($8.99 – $2) or $1500/$7.99 which comes to 188. That means we’ll need to sell 188 prep sheets in order to hit our breakeven point and start turning a profit.