Marketing principles: practice questions with explanations

1What marketing is

Marketing is much more than advertising. The marketing concept says a company should find out what customers need and satisfy those needs better than its competitors, at a profit.

Before deciding anything, a firm studies its situation. Two tools appear in almost every exam:

• SWOT: strengths and weaknesses are internal (inside the firm, such as a strong brand or old machines). Opportunities and threats are external (such as a new market or a new competitor).
• PESTLE lists the external forces a firm cannot control: political, economic, social, technological, legal and environmental.

To learn about customers, firms do market research. Primary research collects new data for a specific question: surveys, interviews, focus groups, experiments. Secondary research uses data that already exists, such as published reports and statistics. It is cheaper and faster, but may not fit the exact question.

2Segmentation, targeting and positioning

No product suits everyone. Marketers work in three steps, often called STP.

Segmentation divides a market into groups of buyers with similar needs or characteristics:

• Demographic: age, gender, income, education, family size.
• Geographic: country, region, city or climate.
• Psychographic: lifestyle, values and personality.
• Behavioural: usage rate, loyalty and the benefits sought.

Targeting chooses which segments to serve. Undifferentiated marketing offers one product to the whole market. Differentiated marketing serves several segments with different offers. Concentrated (niche) marketing focuses on one segment only.

Positioning decides how the brand should be seen in the target customers’ minds, compared with competitors: for example the safest car, or the cheapest airline. A unique selling proposition (USP) is the one benefit that sets it apart.

3The marketing mix

Once the target and position are clear, the firm designs its offer with the marketing mix, the 4 Ps:

• Product: features, quality, design, brand, packaging, warranty and service.
• Price: the list price, discounts and the pricing strategy.
• Place: distribution, the channels and intermediaries (wholesalers, retailers, online) that bring the product to the customer.
• Promotion: advertising, sales promotion, personal selling, public relations and digital communication.

Services are intangible, cannot be stored (perishable) and are produced with the customer present. So the services mix adds three more Ps, giving the 7 Ps: people, process and physical evidence.

Two launch pricing strategies are often compared. Price skimming starts high and lowers the price over time; it suits unique, new products with buyers who will pay more. Penetration pricing starts low to win market share quickly; it suits price-sensitive buyers and products that are easy to copy.

For promotion, a push strategy targets intermediaries, for example with trade discounts. A pull strategy targets consumers, for example with heavy advertising, so that shoppers ask shops for the product.

4Planning tools: life cycle, BCG and Ansoff

The product life cycle describes sales over time in four stages:

• Introduction: low sales, high promotion costs, often losses.
• Growth: sales rise fastest and competitors enter.
• Maturity: sales level off and competition is fierce.
• Decline: sales fall; the firm cuts costs, relaunches or withdraws the product.

The BCG matrix places each product by its market share and the growth of its market:

• Star: high share in a high-growth market. Earns a lot but needs investment.
• Cash cow: high share in a low-growth market. Brings in cash that funds other products.
• Question mark: low share in a high-growth market. Invest to build share, or sell it.
• Dog: low share in a low-growth market. Often dropped.

Ansoff’s matrix names four growth strategies, from products and markets that are existing or new:

• Market penetration: existing products in existing markets.
• Market development: existing products in new markets.
• Product development: new products for existing markets.
• Diversification: new products in new markets, the riskiest option.

5Reasoning through a case

Case questions describe a firm and ask which concept applies or what it should do. Use four steps:

1. Name the tool or concept the case is about: STP, the 4 Ps, the life cycle, BCG, Ansoff.
2. Pick out the facts that matter for that tool, and ignore the rest.
3. Place the case in the tool and read off the answer.
4. Check each option: wrong options often use the right tool with the wrong category.

6Common mistakes

• Putting external factors under strengths or weaknesses in a SWOT. Strengths and weaknesses are internal only.
• Mixing up segmentation (dividing the market), targeting (choosing segments) and positioning (how the brand is seen).
• Confusing psychographic segmentation (lifestyle, values) with behavioural segmentation (usage, loyalty).
• Swapping skimming (high price first) and penetration (low price first).
• Mixing up push (aimed at intermediaries) and pull (aimed at consumers).
• In Ansoff, confusing market development (new markets) with product development (new products).

7How exam questions look

All questions are multiple choice, with four options.

• Easy: key terms and facts. Definitions such as the 4 Ps, segmentation, SWOT, positioning or primary research.
• Medium: applying the concepts. A short situation: which segmentation, targeting, pricing or distribution strategy it shows, or a simple marketing metric such as a conversion rate.
• Hard: cases and analysis. Longer cases on brand strategy, research design, pricing effects, digital metrics and well-known marketing lessons.

Find the tool first, then the facts that decide the category. Most wrong options use the right tool with the wrong category.