Impacts of Advertising

Market Share

Market share is key metric that helps firms evaluate demand in their market and can be influenced by PR and marketing campaigns.

Learning Objectives

Discuss how companies use market share as a key indicator and tool to increase market competitiveness

Key Takeaways

Key Points

  • Market Share metrics, a desired asset among competing firms, enable firms to judge not only total market growth or decline, but also trends in customers’ selections among competitors.
  • Losses in market share can signal serious long-term problems that require strategic adjustments. Firms with market shares below a certain level may not be viable and may need to change their advertising tactics or their products.
  • Pricing strategy is one of the tools that is significant in creating and sustaining market share. Prices must be set to attract the appropriate market segment in significant numbers.

Key Terms

  • Market Share: The percentage of a market (defined in terms of either units or revenue) accounted for by a specific entity.
  • selective demand: The demand for a specific product brand.
  • primary demand: The demand for an entire product category.

Market Share

Increasing market share is one of the most important objectives of business. Market share is a key indicator of market competitiveness—that is, how well a firm is doing against its competitors. This metric, supplemented by changes in sales revenue, helps managers evaluate both primary and selective demand in their market.

Demand

Selective demand refers to demand for a specific brand while primary demand refers to demand for a product category. It enables a company to judge not only total market growth or decline, but also trends in customers’ selections among competitors. Generally, sales growth resulting from primary demand (total market growth) is less costly and more profitable than that achieved by capturing share from competitors. Conversely, losses in market share can signal serious long-term problems that require strategic adjustments. Firms with market shares below a certain level may not be viable. Similarly, within a firm’s product line, market share trends for individual products are considered early indicators of future opportunities or problems.

Strategies to Create Market Share

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2009 Hyundai Sonata: In 2009, Hyundai released a new PR campaign where people who bought new Hyundai cars could return them if they lost their jobs within a year of buying the car.

Research has also shown that market share is a desired asset among competing firms. Management of all firms, large and small, are concerned with an adequate share of the market so that their sales volume will enable the firm to survive and prosper. Pricing strategy is one of the tools that is significant in creating and sustaining market share. Prices must be set to attract the appropriate market segment in significant numbers. Price is important to marketers because it represents the marketers’ assessment of both the value customers see in the product or service, and how much they are willing to pay for a product or service. Competitors often try to gain market share by reducing their prices. The price reduction is intended to increase demand from customers who are judged to be sensitive to changes in price. Price reduction is often seen in newer brands that have to compete with already existing brands. New brands not only require lower prices to penetrate the target market, but they typically require more investment as well. Advertising improved quality on products is another way market share can be affected. Also, making products and services easier to access can increase a firm’s market share. For example, offering products online with easy payment options can increase sales.

Consumer Influence

Consumer influence is a key topic in behavioral economics, where heuristics, framing, and market inefficiencies impact how consumers make decisions.

Learning Objectives

Define the concept of heuristics, and recognize the relevance of influences on decision-making

Key Takeaways

Key Points

  • Organizations must understand their target market, most notably how they make decisions and what influences are important to the decision-making process.
  • By understanding the consumers ‘ needs, decision-making processes, and values, an organization can better fill consumer needs and produce products and services that align with what consumers want.
  • Even if the organization perfectly fulfills the consumer need, other competitors may do so as well. As a result, understanding heuristics (models for making decisions) is critical to successful advertising.
  • Understanding how consumers view (or frame) the organization and the brand based upon external influencers is important to building a strong community that views the organization in a positive light.
  • It’s also worth noting that not all consumer decisions are rational or economically efficient. Advertisers must keep in mind that not all decisions are grounded in predictable factors.

Key Terms

  • heuristics: Simple, efficient rules that people often use to form judgments and make decisions.

Advertising

Advertising is largely a process about influencing the decision-making process of a given target market. This influencing of the consumer is a behavior-oriented pursuit, where the business would like the consumer to perform a certain behavior. This behavior will create a relationship between the business and the consumer. Influence is a big part of marketing and advertising, and consumer influences and decision-making processes are central to smart advertising.

Behavioral Economics

Behavioral economics is the study of the psychological, social, emotional, and cognitive inputs that influence a consumer. Consumer influence from the behavioral economics point of view would divide the consumer influence into three categories: heuristics, framing, and market inefficiencies. Of course, there are plenty more perspectives on what influences consumer behavior, but these three concepts are a great starting point for considering consumer influence.

Heuristics

As a field of study, heuristics are one of the more interesting and useful areas to consider when looking at decision making. Heuristics are simple, efficient rules and processes that humans use to form judgments and select between various options. For example, people often use constructs like logic, probability, and rational choice theory to determine the best among many options.

If you think about it, most decisions have an almost infinite number of opportunity costs (i.e. alternative options for the utilization of time and/or capital). As a result, almost every decision will have a high number of potential choices. For example, a health conscious consumer will use logic and rationality to purchase a soft drink that isn’t packed full of sugar. As a soft drink manufacturer with an understanding of the heuristics of this target market, creating an option that is low cost, low sugar would appeal to that particular type of of consumer.

As an organization, particularly as an advertiser, the objective is to identify what is important to a consumer in terms of how they will make a purchasing decision. Filling their decision making needs, and aligning with their process of heuristics, is a task that requires knowledge of key consumers, an understanding of what’s important to them, and the ability to be the  best option among many.

Framing

Framing is another interesting consumer influence. Framing is basically just how people and societies organize, communicate, and perceive reality. Think of it as the consumer’s frame of reference, which is influenced by mass media, friends, family, religion, education, and just about everything else in the social structure.

As an ethical advertiser at an organization, framing is the opportunity to ensure that the stereotypes, perceptions, and assumptions about the organization’s brand are accurate and aligned with what the company strives for and believes in. Red Bull does a lot of work with extreme sports, because they believe that their product and that lifestyle fit together well. They want to be framed within the context of social icons in daring exploits (at least, this is how the person writing this frames Red Bull).

Market Inefficiencies

Finally, there are also market inefficiencies in consumer influence. All this means is that not all decisions are necessarily rational or built on a predictable assumption. Sometimes people make irrational purchasing decisions, and that has to be considered when determining what might (or might not) influence consumer behavior. Other market inefficiencies include intervention from governments, unfair competition (monopolies), and a variety of other unique factors which may render a consumer decision unpredictable.

Conclusion

In order for an organization to have a positive impact on a target market, they must understand what influences the decision-making process of the individuals within that segment. By understanding heuristics, market inefficiencies, and framing, an organization can interact with consumers in an authentic, organic, and relevant way to better inform prospective consumers on the benefits they could receive for purchasing a given product or service.

This image demonstrates an important concept in framing. Understanding what influences decisions in a given segment is critical to speaking in the right formats. Newspapers have decline significantly as a source of influence, and therefore organizations pursuing target markets that don't consumer newspapers should refrain from utilizing them as a source of influence.

The Decline of Newspaper Advertising: This image demonstrates an important concept in framing. Understanding what influences decisions in a given segment is critical to speaking in the right formats. Newspapers have declined significantly as a source of influence, and therefore organizations pursuing target markets that don’t read newspapers should refrain from utilizing them as a source of influence.