Marketing strategy | IGCSE Class 10 Business Studies Notes

What is a marketing strategy, and why must it suit the situation?

A marketing strategy is the overall plan a business uses to identify, attract and keep customers for its products or services, built around decisions on product, price, place and promotion.

There is no single "correct" strategy: the right choice depends on the business's size, its available finance, the type of product on offer, the needs of the target market and the level of competition it faces from rival firms.

A strategy that works for a small local bakery launching a new cake range will not suit a multinational launching a new smartphone, because the two businesses have very different budgets, customers and competitors to consider when planning their marketing mix.

To justify a marketing strategy means to give reasoned arguments, supported by the facts of the situation, for why one approach is better than the alternatives available to the business.

A good justification weighs the costs of a proposed strategy against its likely benefits and explains why the chosen elements of the marketing mix fit the target customers and the business's own objectives, rather than simply describing what each element is.

This is why exam-style tasks on marketing strategy are usually built around a scenario: a business, its product, its customers and some figures or facts about the market it sells into. A strong answer uses those specific details, not general marketing theory alone, and explains how the recommended mix fits the stated situation rather than any situation in general.

How does the marketing mix influence consumer decisions?

The marketing mix is the combination of decisions a business makes about its product, price, place and promotion to satisfy the needs of its target customers and achieve its objectives. These four elements are often called the "four Ps".

Each one can be varied to influence whether, and how much, a consumer decides to buy. Several of the figures used to judge a strategy can be set out as simple formulas.

Revenue = Price × Quantity shows how a price change affects total sales income, since revenue rises or falls with both the price charged and the number of units sold at that price.

Profit = Revenue − Costs shows that a lower price is only worthwhile if the extra quantity sold still covers the firm's costs and leaves an acceptable margin.

Market share = Firm sales ÷ Total sales expresses a firm's sales as a proportion of all sales in its market, and is often the target a pricing or promotion decision is meant to raise.

Royalty = Rate × Sales value shows how a licensing fee is calculated as a percentage of the value of goods sold under licence, which is used later when assessing licensing as a method of foreign market entry.

Product

A product is anything of value, a good or a service, offered for sale. Consumers buy a product for the benefit it gives them, not just for its physical features; a toothpaste, for instance, is bought for whitening teeth or strengthening gums rather than simply for being a tube of paste.

Decisions on features, quality, design, packaging and branding (giving a product a distinct name, symbol or design to separate it from competitors) all affect whether a consumer prefers one product over another. Branding of this kind is widely used by consumer goods firms: toiletries such as a soap or a toothpaste are commonly sold under a distinct brand name rather than only a generic description such as "soap", precisely so that a buyer can tell one firm's product apart from a rival's similar offering on the shelf.

Price

Price is the amount of money a buyer pays, or a seller receives, for a product or service. For most products, a higher price lowers the quantity that consumers are willing to buy, and a lower price raises it.

Consumers compare the price of a product with the value or satisfaction it gives them, so a price that seems too high relative to the benefit on offer will push buyers towards a competitor.

Place

Place covers how and where a product is made available to the target customer, including the choice of retail outlets and the physical movement of goods from producer to consumer.

If a product is not available where and when a consumer wants it, the sale may be lost to a rival product that is available, even if the consumer originally preferred the first brand.

Promotion

Promotion covers the activities that communicate a product's availability, features and benefits to target customers and persuade them to buy it.

The main promotion tools are advertising (a paid, impersonal form of communication using media such as television or newspapers), personal selling (direct, face-to-face communication between a salesperson and a customer), sales promotion (short-term incentives such as discounts or free samples) and publicity.

Different tools suit different products: consumer goods firms often rely more on advertising, while sellers of industrial or technical products often rely more on personal selling because of the detailed explanation a sale may need.

Definition: marketing mix. The combination of product, price, place and promotion decisions a business makes to meet the needs of its target market and achieve its objectives.

Worked example 1. A firm is launching a new subscription app. Running costs are $2 per subscriber per month.

Market research shows that at a price of $5 a month, 10,000 people would subscribe, and at a price of $10 a month, only 4,000 people would subscribe. Which price should the firm choose to maximise its monthly revenue?

Answer: Revenue at $5 a month = $5 × 10,000 = $50,000. Revenue at $10 a month = $10 × 4,000 = $40,000.

The $5 price gives $50,000 in revenue against $40,000 at the higher price, so the firm should set the lower price of $5 a month, which also fits a penetration pricing strategy aimed at building a large user base quickly. Profit gives a different answer: after the $2 running cost, profit is ($5 − $2) × 10,000 = $30,000 at $5 against ($10 − $2) × 4,000 = $32,000 at $10, so a firm whose objective is profit rather than revenue or users would choose $10. The right price depends on the objective.

How can a business recommend and justify a marketing strategy for a given situation?

Justifying a marketing strategy means weighing the elements of the marketing mix against the facts given about the business and its market, and explaining why one combination is the most suitable.

A strong justification usually: identifies the target customer and what they value; checks whether the proposed price matches what those customers are willing and able to pay; checks whether the chosen outlets or distribution reach those customers; and checks whether the proposed promotion tools fit the product type and the promotion budget available.

A weak answer simply lists the four Ps without applying them to the scenario's figures or facts.

For example, a firm selling a technical industrial component to a small number of specialist factories would be poorly advised to spend heavily on mass-market television advertising, because its target market is narrow and the sale usually needs detailed, face-to-face explanation.

Personal selling would be the more justified promotion choice here, while a firm selling a low-value, frequently bought item such as a snack food to millions of households is better justified in using advertising, because it needs mass reach at a low cost per customer reached.

Worked example 2. A manufacturer sells a specialist hydraulic valve used only by about 40 factories worldwide. A general consumer snack brand is sold through thousands of supermarkets to millions of households. Which promotion tool, personal selling or mass advertising, should each business choose?

Answer: The valve manufacturer has very few customers, each needing technical explanation and negotiation, so it should choose personal selling, which allows a tailored, face-to-face presentation.

The snack brand has millions of customers and a low price per unit, so it should choose advertising, which reaches a large audience at a low cost per customer reached.

Recommending a complete strategy for one scenario

Worked example 3. A small business has designed a reusable water bottle that keeps drinks cold all day and comes in school colours. Its target customers are students aged 14 to 18 in one city, its promotion budget for the launch is $3,000, and two large rivals already sell similar bottles in supermarkets for $15. Recommend and justify a marketing strategy for the launch.

Answer: Product: the business should stress the features its rivals lack, keeping drinks cold and the school colours, because a new brand needs a clear reason for students to choose it over two established names.

Price: about $14, close to the rivals' $15, because students have limited money and a much higher price would send them to the rivals, while a far lower price might not cover a small producer's costs.

Place: school shops, sports clubs and its own online store rather than supermarkets, because that is where 14 to 18 year olds already buy, and a small business would struggle to win supermarket shelf space from two large rivals.

Promotion: social media posts and free samples at school sports events, which reach the target age group cheaply within the $3,000 budget; television advertising would cost far more than the budget allows and reach mostly people outside the target market.

Each element fits the facts given (a young target market, a small budget and two strong rivals), and together they form one consistent strategy rather than four separate choices, which is what justifying a strategy means.

What legal controls affect marketing, and why do they matter?

Legal controls on marketing are rules set by government that restrict what businesses can claim about their products and require products to meet minimum safety standards. They exist to protect consumers from being misled or harmed, and they limit how far a business can push its marketing strategy.

One key control concerns misleading promotion: advertising or labelling that makes a false claim about a product's quality, performance or contents.

A business must not make false claims about the quality of a product; if it does, it can be prosecuted for making a false claim.

This affects marketing strategy directly, because any promotional message, whether on a label, in an advertisement or in a sales pitch, must be capable of being supported by fact.

A second key control concerns faulty goods and dangerous goods. Laws in most countries require that products sold to consumers are reasonably safe for their intended use and reasonably free of defects, and that any unavoidable risks are clearly warned about, for example on the label of a hazardous or poisonous material.

A business that markets a product it knows to be faulty or unsafe, or that fails to warn of a known danger, can face legal action, fines, forced product recalls and lasting damage to its reputation.

These controls therefore shape marketing strategy in practice: a business must check that every promotional claim is accurate, that packaging and labelling carry any legally required warnings, and that product quality is checked before launch, because the cost of breaking these laws, in fines, recalls and lost trust, is usually far higher than the short-term gain from an exaggerated claim or a corner cut on safety.

Definition: misleading promotion. Advertising, labelling or selling activity that makes a false or exaggerated claim about a product's quality, performance or contents.

Worked example 4. A clothing retailer labels a jacket as "100% waterproof" to help it compete on price with rival jackets, but tests show the fabric lets water through after 20 minutes in rain. A regulator investigates after customer complaints. Should the retailer continue using this label?

Answer: The label makes a false claim about the product's performance, which breaches legal controls on misleading promotion and could lead to prosecution, fines and a damaging loss of customer trust once the truth is known.

The retailer should not continue using the "100% waterproof" label; it should relabel the jacket accurately, for example as "water-resistant", and compete on genuine features such as price or design instead.

What growth potential do new foreign markets offer?

Entering a new foreign market means selling a business's products or services in a country it has not traded in before.

Businesses look abroad mainly because of growth potential: a foreign market may have a rising population, rising average incomes, or lower levels of competition for the type of product on offer, all of which can allow faster sales growth than staying in an already crowded home market.

A country with fast-growing average incomes and little existing competition in a particular product category can represent a much larger opportunity for sales growth than squeezing a little more market share out of a saturated home market where several rivals already sell a similar product.

Growth in a foreign market also allows a business to spread its fixed costs, such as the cost of product development or large factories, over a bigger total volume of sales, which can lower the cost per unit produced and so support a more competitive price.

Diversifying sales across several countries can also reduce a business's reliance on the economic conditions of any single country, giving it more stable overall sales if demand weakens in one market, for example because of a local recession or new competition there.

A business assessing growth potential therefore looks closely at the rate of income growth, the size of the population, and the number and strength of existing competitors already serving that foreign market, before deciding whether entry is likely to be worthwhile.

What problems arise when entering foreign markets?

Alongside the growth opportunity, entering a foreign market brings specific problems that a purely domestic marketing strategy does not usually have to face.

Cultural differences are differences in language, customs, tastes, religion and social behaviour between the home country and the target foreign market.

A product, a brand name, a promotional message or even a packaging colour that works well at home can be misunderstood, found offensive, or simply fail to appeal to consumers abroad if it has not been adapted to local culture and tastes.

Lack of knowledge of the foreign market is a second major problem: a business entering a new country typically has far less information than an established local firm about that market's customers, competitors, distribution channels and legal requirements.

This lack of knowledge increases the risk of getting the marketing mix wrong, for example setting the wrong price, choosing unsuitable distribution outlets, or breaching local legal controls on advertising or product safety without even realising it has done so.

Other practical problems can include unfamiliar legal and regulatory systems, movements in the exchange rate affecting the price charged in the foreign currency, and the extra cost and complexity of transporting and distributing goods over long distances to an unfamiliar market with its own transport infrastructure.

Taken together, these problems mean a business entering a foreign market for the first time carries a higher risk of making a costly marketing mistake than a local competitor that already understands the culture, the customers and the rules of that market.

Joint ventures and licensing: ways of overcoming these problems

Two common methods allow a business to enter a foreign market while reducing the risks created by cultural differences and a lack of local knowledge.

A joint venture is an arrangement in which a business and a local partner firm set up and jointly own a new operation in the foreign market, sharing the investment, the risk and the profits.

The local partner already understands the culture, the customers, the legal rules and the distribution channels of that market, which reduces the chance of the entering business making an avoidable mistake.

Licensing is an arrangement in which a business allows a foreign firm to use its brand name, product design, patent or production process in return for a fee or royalty, without the original business having to set up its own operation in that country.

Advantages of joint ventures and licensing

A joint venture gives the entering business access to a partner's existing local knowledge of culture, customers and regulations, reducing the risk of the mistakes that come from entering a market cold.

It also spreads the financial investment and risk between two firms rather than one. Licensing is an even lower-risk method: the licensing firm earns a royalty with little of its own capital tied up in the foreign country, and the local licensee, who already understands the market, takes on the day-to-day marketing and production decisions.

Limitations of joint ventures and licensing

A joint venture means sharing control of decisions and sharing the profits with the partner firm, and disagreements between the two partners over strategy can slow decisions or damage the venture.

Licensing earns the original business only a royalty rather than the full profit the market could generate, and it risks losing control over product quality or brand image if the licensee does not maintain the same standards.

In both cases, the business also risks a local partner or licensee learning enough about its methods, designs or production process to become a future competitor once the agreement ends.

Worked example 5. A furniture manufacturer wants to enter a foreign market where average incomes are rising quickly and demand for furniture is forecast to grow strongly.

The firm has little knowledge of local tastes or regulations and has $200,000 available to invest, well short of the $800,000 needed to build its own factory there.

Should the firm enter through a joint venture or set up its own operation alone?

Answer: The firm lacks both the capital for a solo operation, since $200,000 is far short of the $800,000 needed, and the local market knowledge to manage cultural differences and regulations safely on its own.

A joint venture with a local partner would supply both the missing capital and the local knowledge, sharing the risk of entering an unfamiliar market, so the firm should choose a joint venture rather than entering alone.

Worked example 6. A clothing brand licenses its design and brand name to a foreign manufacturer, which agrees to pay a royalty of 5% on every $40 jacket sold under the brand. In its first year the foreign manufacturer sells 20,000 jackets. The clothing brand estimates it would have needed $500,000 of its own capital to build and run a factory in that country instead.

Answer: Royalty earned = 5% × $40 × 20,000 jackets = $2 × 20,000 = $40,000 for the year, received without the clothing brand tying up any of the $500,000 a factory would have needed.

This royalty is much smaller than the profit a wholly owned factory might eventually generate, but it is earned at low risk and with no capital invested by the clothing brand, so the brand should continue licensing while it lacks the capital and local knowledge to run the factory itself.

Going beyond the syllabus

Businesses sometimes combine these methods as a market grows: a firm may start by licensing a local partner to test a foreign market cheaply, then later convert the arrangement into a joint venture, or even set up a wholly owned subsidiary, once it has built up its own local knowledge and confidence in the market's growth potential.

A business moving through these stages typically takes on more capital investment and more risk at each step, in exchange for a greater share of control over decisions and a greater share of the eventual profit, rather than only a royalty or a shared return.

The choice between staying with a lower-risk method such as licensing and moving towards full ownership usually depends on how well the earlier, lower-risk stage has performed, how much capital the business has since built up, and how much it has learned about the local culture, customers and regulations it would need to manage on its own.

Glossary

• Marketing strategy — the overall plan a business uses to attract and keep customers through its decisions on product, price, place and promotion.
• Marketing mix — the combination of product, price, place and promotion decisions used to meet the needs of a target market.
• Product — a good or service, including its features, quality, design, packaging and branding, offered for sale.
• Price — the amount of money a buyer pays, or a seller receives, in exchange for a product or service.
• Place — the outlets used and the physical distribution methods that make a product available to customers.
• Promotion — the activities, including advertising, personal selling and sales promotion, that inform and persuade customers to buy.
• Advertising — a paid, impersonal form of communication used to promote a product or service through media such as television.
• Personal selling — direct, face-to-face communication between a salesperson and a customer aimed at making a sale.
• Sales promotion — short-term incentives, such as discounts or free samples, used to encourage immediate purchase.
• Legal controls — government rules restricting what businesses may claim about products and setting minimum safety standards.
• Misleading promotion — advertising or labelling that makes a false claim about a product's quality, performance or contents.
• Faulty goods — products that do not meet the quality or safety standard a consumer is entitled to expect.
• Growth potential — the scope for a business's sales to expand, often greater in a fast-growing foreign market than a saturated home market.
• Cultural differences — differences in language, customs and tastes between a home country and a foreign market that can affect how a product is received.
• Joint venture — an arrangement in which two firms set up and jointly own a new operation, sharing investment, risk and profit.
• Licensing — an arrangement allowing a foreign firm to use a business's brand, design or process in return for a fee or royalty.

Common errors and misconceptions

• Misconception: marketing strategy means only advertising. Correct: it covers decisions on product, price and place as well as promotion.
• Misconception: the same marketing strategy will suit any business. Correct: the right strategy depends on the given situation, the product, the customers and the competition.
• Misconception: a lower price is always the right choice to influence consumers. Correct: price must also cover costs and match what the target customer is willing to pay for the perceived value.
• Misconception: legal controls only apply to advertisements. Correct: they also apply to product safety and quality, covering faulty and dangerous goods.
• Misconception: entering a foreign market is only risky and has no benefit. Correct: it also offers growth potential from rising incomes or lower competition in that market.
• Misconception: licensing gives the licensing firm the same profit as running the operation itself. Correct: licensing earns only a royalty fee, not a full share of the profit generated.
• Misconception: a joint venture removes all risk of entering a foreign market. Correct: it reduces some risks through shared knowledge and capital, but control and profit must still be shared, and disagreements can arise.

Exam-style questions with model answers

Q1. A bakery is launching a new gluten-free bread line, priced at $4 a loaf, sold through its existing shop and a new online delivery service. State two elements of the marketing mix the bakery should consider for this launch. [2 marks]

1. Product decisions matter because the gluten-free bread must be suitably packaged and labelled to reassure customers with allergies about its ingredients and safety.
2. Place decisions matter too, since offering both the existing shop and a new online delivery service widens access for customers who cannot visit in person.

Q2. A skincare brand advertises a cream as "clinically proven to remove all wrinkles overnight", based on a single user's testimonial. State two reasons this advertisement could breach legal controls on marketing. [2 marks]

1. The word "all" makes an absolute claim that a single testimonial cannot support, since one user's experience does not prove the cream works for everyone.
2. The phrase "clinically proven" is false, because a single user's testimonial is not a clinical trial, so the claim cannot be supported by evidence and risks prosecution and fines.

Q3. A furniture retailer with no previous export experience is about to supply its first large order to a hotel chain in a foreign market. Explain two reasons why the retailer might use personal selling rather than mass advertising for this order. [4 marks]

1. Personal selling allows the retailer to give a detailed, face-to-face presentation explaining the furniture's features, which suits a single large hotel-chain buyer making a complex purchase decision.
2. Direct contact lets the retailer answer the hotel chain's specific questions about delivery, customisation and after-sales service immediately, which a general advertisement cannot do.
3. With no previous export experience, the retailer can use the conversation to learn about local tastes and regulations directly from the buyer, reducing the risk of mistakes.
4. Mass advertising would reach mostly people who are not potential buyers of large hotel furniture orders, wasting most of the promotional spending.

Q4. A toy company wants to license its popular cartoon character's image to a foreign clothing manufacturer. Explain two benefits and two limitations of this licensing arrangement for the toy company. [4 marks]

1. Licensing lets the toy company earn a royalty from clothing sales in the foreign market without having to invest its own capital in setting up production there.
2. The foreign manufacturer already understands local tastes, regulations and distribution channels, reducing the risk of the character's image failing to appeal to local customers.
3. A limitation is that the toy company earns only a royalty rather than the full profit the clothing sales could generate if it ran the operation itself.
4. Another limitation is that the toy company loses some control over how the character's image is used, risking damage to its brand if quality is poor.

Q5. A sportswear company's home market has income growth of 1% a year and six established competitors, while a foreign market it is considering has income growth of 7% a year and only two established competitors. Explain two reasons why the foreign market offers greater growth potential, and one problem the company might face entering it. [5 marks]

1. Average incomes are growing seven times faster in the foreign market, at 7% a year against 1% at home, giving consumers there more money to spend on sportswear.
2. The foreign market has only two established competitors compared with six at home, leaving more room to win customers without matching rivals on price.
3. Faster income growth combined with weaker competition gives the company a much better chance of building market share quickly in the foreign market than at home.
4. However, the company has no previous experience in this market, so cultural differences in sportswear tastes could mean its existing designs do not appeal to local customers.
5. This lack of local knowledge also increases the risk of choosing the wrong price, outlets or promotion for the new market.

Q6. A cosmetics company has $150,000 available but would need $600,000 to build its own factory in a foreign market that otherwise offers strong growth potential. Evaluate whether the company should enter through a joint venture with a local cosmetics retailer. [6 marks]

1. The company has only $150,000 against the $600,000 needed to build its own factory, so a joint venture would supply the missing capital through a local partner.
2. A local cosmetics retailer already understands local tastes, ingredients regulations and distribution channels, which the company currently lacks entirely.
3. Sharing investment and risk with a partner reduces the company's own exposure if the unfamiliar market performs less well than expected.
4. The company could still benefit from the market's strong growth potential while avoiding the full cost of entering alone.
5. Against this, the company would have to share control of decisions and share the profits with its partner, and disagreements over strategy could arise.
6. Overall, given the shortfall in capital and lack of local knowledge, a joint venture is justified because the capital and knowledge gained outweigh the loss of full control.

Q7. A specialist aircraft parts manufacturer sells to only 15 airlines worldwide at $50,000 a part, while a confectionery brand sells a $2 chocolate bar through thousands of shops to millions of households. Evaluate which promotion method, personal selling or mass advertising, each business should use. [6 marks]

1. The aircraft parts manufacturer has only 15 customers worldwide, each likely needing detailed technical explanation before buying a $50,000 part.
2. Personal selling allows a tailored, face-to-face presentation and direct feedback, which suits this small, technical market far better than a general advertisement.
3. Mass advertising would reach mostly people who are not potential buyers of aircraft parts, wasting almost all of the promotional spending.
4. The confectionery brand, in contrast, has millions of potential customers buying a low-priced $2 item through thousands of shops.
5. Advertising can reach this very large audience at a low cost per customer reached, which personal selling could never achieve for such large numbers.
6. The aircraft parts manufacturer should therefore choose personal selling, while the confectionery brand should choose mass advertising, matching the method to the number of customers and the value of the product.

Key takeaways

• The marketing mix of product, price, place and promotion must be combined to suit the target customer and the given situation.
• Justifying a marketing strategy means applying the four Ps to the facts of a scenario, not just listing them.
• Price changes usually move demand in the opposite direction: a lower price generally raises the quantity consumers are willing to buy.
• Personal selling suits technical products with few customers; advertising suits products with many customers at a low price.
• Legal controls on marketing stop misleading promotion and require goods to be free of faults and dangers.
• A false claim about a product's quality can lead to prosecution of the business making the claim.
• New foreign markets can offer growth potential from rising incomes or lower competition, but bring cultural differences and lack of local knowledge as problems.
• Joint ventures and licensing both reduce the risk of entering a foreign market, but each also has limitations on control and profit.

Test yourself

What are the four elements of the marketing mix?

Product, price, place and promotion, the combination of decisions a business makes to meet the needs of its target market.

Why might a business choose personal selling over advertising for a technical industrial product?

Personal selling allows detailed, face-to-face explanation and direct feedback suited to a small number of customers making a complex buying decision.

What is misleading promotion?

Advertising, labelling or selling activity that makes a false or exaggerated claim about a product's quality, performance or contents.

Give one reason why legal controls cover faulty and dangerous goods as well as advertising.

They protect consumers from products that are unsafe or defective, not only from false claims made about products.

What is meant by the growth potential of a foreign market?

The scope for a business's sales to expand there, often because of rising population, rising incomes or less competition than at home.

Name two problems a business can face when entering a foreign market for the first time.

Cultural differences between the home and foreign market, and a lack of knowledge of local customers, competitors and regulations.

What is a joint venture?

An arrangement in which a business and a local partner set up and jointly own a new operation, sharing investment, risk and profit.

What is licensing, and what does the licensing firm give up compared with running the operation itself?

Allowing a foreign firm to use a brand, design or process for a fee; the licensing firm gives up full control and full profit, earning only a royalty.