Marketing

What this unit covers

The topics below follow the published Business & Finance course framework for Unit 2. Business & Finance publishes no per-unit weighting, so there is no percentage to chase here.

Lessons in this unit

• The Marketing Mix: The 4 Ps14 min · 3 objectivesDefine marketing and the purpose of the marketing mix · Explain each of the 4 Ps: Product, Price, Place, and Promotion · Analyze how the 4 Ps must work together consistently
• Market Research, Segmentation & Targeting13 min · 3 objectivesDistinguish primary from secondary market research · Explain market segmentation and common bases for dividing a market · Apply the segmentation, targeting, and positioning (STP) process
• Pricing Strategies14 min · 3 objectivesCompare major pricing strategies and their goals · Calculate price using cost-plus (markup) pricing · Analyze the difference between markup and margin

Formulas in Unit 2

Every term in Unit 2

All 30 terms we publish for Marketing, with definitions. Reading them through is the fastest way to find the ones you cannot define — then drill those in cram mode until you can produce them without the prompt.

Market segmentation

Dividing a market into groups with distinct needs so each can be served differently. Common bases: demographic, geographic, psychographic (values and lifestyle), and behavioral (usage and loyalty).

Target market vs target audience

The target market is who you intend to sell to; the target audience is who a particular message addresses. They differ whenever the buyer is not the user — children's toys, business software.

Positioning

The place a brand occupies in the customer's mind relative to competitors. Positioning is decided by the customer; the firm can only influence it.

Positioning map (perceptual map)

A two-axis plot of competitors on the attributes customers care about. Gaps suggest opportunity — or a segment nobody wants, which is why gaps require validation rather than assumption.

Unique selling proposition

The single claim a competitor cannot easily match. If a rival could truthfully print your USP on their own packaging, it is not one.

Product life cycle

Introduction (high cost, low sales), growth (rising sales and entrants), maturity (peak sales, price competition), decline. Marketing spending, pricing and distribution should differ at each stage.

Extension strategies

Actions to prolong maturity before decline: new features, new markets, new packaging, new uses, price repositioning. Cheaper than developing a replacement product.

Penetration pricing

Deliberately low launch price to win share fast, relying on later volume or raised prices. Risky if customers anchor on the low price or if the firm cannot cover cost while it waits.

Price skimming

High launch price aimed at customers least sensitive to price, lowered over time as the segment is exhausted. Standard for new technology, where early buyers pay for novelty.

Cost-plus pricing

Set price by adding a fixed markup to unit cost. Simple and defensible but ignores demand entirely, so it leaves money on the table when customers would pay more and prices above the market when they would not.

Value-based pricing

Set price by what the outcome is worth to the customer rather than by cost. Requires knowing the customer's alternative and what avoiding it saves them.

Price elasticity of demand

Percentage change in quantity divided by percentage change in price. Elastic (>1) means a price cut raises total revenue; inelastic (<1) means a price rise does. The single most useful number in pricing.

Loss leader

A product priced below cost to draw traffic that buys profitable items alongside it. Fails where customers can buy the leader alone and leave.

Dynamic pricing

Price varies with demand, timing or customer segment — airlines, ride-hailing, event tickets. Raises revenue but risks perceived unfairness, which is itself a cost.

Marketing mix: the 7 Ps

Product, price, place, promotion, plus people, process and physical evidence for services. The last three matter because a service is produced and consumed at the same moment, with the customer present.

Distribution channel

The path from producer to consumer. Direct gives control and margin; indirect through wholesalers and retailers gives reach and shifts inventory risk.

Disintermediation

Cutting out an intermediary by selling direct. Captures the middleman's margin but requires taking on their functions: storage, delivery, returns, customer service.

Push vs pull promotion

Push aims at the channel — trade discounts and salesforce incentives to stock the product. Pull aims at the consumer to create demand the channel must satisfy.

AIDA model

Attention, Interest, Desire, Action. A sequence for diagnosing where a campaign fails: heavy traffic with no purchases is an Action problem, not an Attention one.

Brand equity

The premium a brand name adds beyond the product's functional value — measurable as what customers will pay above an identical unbranded good.

Brand extension and its risk

Applying an established brand to a new category. Cheap credibility when the categories fit; when they do not, failure damages the parent brand as well as the new product.

Market research: primary vs secondary

Primary is collected first-hand for this question — surveys, interviews, focus groups, observation. Secondary already exists — industry reports, census data, internal sales records. Secondary first, because it is faster and cheaper.

Qualitative vs quantitative research

Qualitative explores why, in depth, on small samples that cannot be generalized. Quantitative measures how many, on samples large enough to project. Good practice runs qualitative first to find the right questions.

Sampling bias

When the sample systematically differs from the population, so results mislead no matter how large it is. Surveying your existing customers about why people do not buy is the classic case.

Customer lifetime value

Total profit expected from a customer across the relationship. Sets the ceiling on what you can rationally spend to acquire one.

Customer acquisition cost

Total sales and marketing spend divided by new customers gained. A business is only sustainable when lifetime value comfortably exceeds acquisition cost — a ratio of about 3 to 1 is a common working benchmark.

Churn rate

Share of customers lost in a period. Compounding matters: 5% monthly churn loses about 46% of a cohort in a year, which is why retention often beats acquisition as a growth lever.

Conversion rate

Share of prospects who take the desired action. Improving conversion raises revenue without raising traffic, so it is usually the cheapest growth available.

Guerrilla marketing

Unconventional, low-budget tactics relying on surprise and word of mouth. Attractive to new firms, but unmeasurable and hard to repeat at scale.

Ethics in advertising

Puffery — obvious subjective praise — is legal; specific factual claims must be substantiable. The line matters because "the best coffee in town" and "reduces cholesterol by 20%" are treated very differently by regulators.

What examiners penalize here

• On a case scenario, label each detail with its P, then explicitly evaluate whether the mix is **consistent** with the target market. Spotting a mismatch (e.g., premium product, bargain-bin placement) is a frequent higher-order question.
• When a prompt describes a target customer, name the **segmentation base** being used (demographic, geographic, psychographic, or behavioral). Then explain how that target should shape the 4 Ps — linking segmentation to the marketing mix is a common two-part question.
• For pricing math, plug directly into Selling Price = Unit Cost × (1 + Markup %). If the question then asks for **margin**, remember to divide profit by the **selling price**, not the cost — the exam often tests exactly this distinction.

Practice Business & Finance

Our practice bank is drawn from across the whole course rather than filtered to one unit, which is closer to how the exam asks anyway — it will not tell you which unit a question is testing.

Questions about this unit

All 5 units of AP Business with Personal Finance

1. Unit 1 · Entrepreneurship & Business Models
2. Unit 2 · Marketing
3. Unit 3 · Financial Management & Accounting
4. Unit 4 · Management, Leadership & Strategy
5. Unit 5 · Personal Finance