1.3 Marketing mix and strategy Flashcards
What is marketing?
The process of finding out, meeting and exceeding customers’ needs
What are the components of the marketing mix?
Product
Promotion
Price
Place
How do new products help a business?
New products help to generate more revenue and ensure that businesses remain competitive
What is the product design?
The process of creating a new product. It involves the generation and development ideas through a process that leads to new products.
What is a design brief?
It contains features about a product that the designers can use
When designing a new product, what may a business take into account?
- Shape and appearance
- Whether it fits intended need
- How easily and cost-effective it can be produced
- The image it gives when displayed
What are the features of the design mix?
Function
Aesthetics
Cost
What does function refer to?
A product must be fit for purpose, which means that it must be capable of doing the job that is it sold to do
What is an example of function?
A waterproof jacket must not let in rain. It must also be reliable and work every time the customer uses it.
What other features come under function?
- Products should be convenient and easy for customer use
- Easy to carry out maintenance
- Safe usage
What are the consequences of bad functionality?
Products not fit for purpose are likely to be returned, which will add to business costs. Also, people will get frustrated if they cannot use the product efficiently.
What are positives of good functionality?
If a business can design a product with superior functionality, it may be used as a USP
What does aesthetics refer to?
Products should provide a sensory stimulation in addition to performing a function
What is an example of aesthetics?
- Size
- Appearance
- Shape
- Smell/taste
- Presentation of service
What are the positives of good aesthetics?
A product that appeals to the senses may appeal to more consumers and sell better
What does cost refer to?
A well-designed product should be economically viable. This means a business should be able to produce and sell the product at a profit.
What is an example of cost?
Designers must select materials and processes that minimise costs
What are consequences of bad cost?
If costs are high, products may be dropped altogether. So, there needs to be a compromise between design and cost.
What do social trends in the design mix relate to?
The changes in lifestyle that people have made as a result of being more aware of the impact they have on the environment
How are products designed to fit social trends?
They may attempt to reduce waste and facilitate the re-use and recycling of products and packaging
What are benefits of adapting product designs to social trends?
- If businesses reduce waste they will use few resources, resulting in lower costs
- Products are likely to be more popular and sell in larger quantities
- Use design features as a USP
What is promotion?
This involves businesses drawing attention to their products, service or company
Why do businesses use promotion?
- To obtain or retain customers
- Tell consumers about a new product
- Reach a wide target audience
- Show that rival products are not as good
What is above the line promotion?
It involves advertising in the media
What are the categories of advertising?
- Informative advertising
- Persuasive advertising
- Reassuring advertising
What is informative advertising?
Adverts are designed to increase consumer awareness of products. They give clear info about product’s features.
What is persuasive advertising?
Adverts are designed to convince a customer to buy a particular brand. They often appeal to emotions and use celebrities
What is reassuring advertising?
Adverts are aimed at existing customers to be comforting and suggest to consumers they were ‘right’ to buy a product
What are types of media that s business could use for advertising?
TV
Newspapers
Cinema
Radio
Posters
Internet
What are advantages and disadvantages of TV?
+ Huge audiences
+ Sound & movement
- Very expensive
- Message may be short-lived
What are advantages and disadvantages of newspapers?
+ National & local cover
+ Reader can refer back
- No movement or sound
- Ads can get lost
What are advantages and disadvantages of cinema?
+Big impact with big screen
+ Specific age groups target
- Limited audience
- Message only seen once
What are advantages and disadvantages of radio?
+ Sound can be used
+ Cheap production
- Not visual
- Can be ignored
What are advantages and disadvantages of posters?
+ Repeatedly seen
+ Large posters can have big impact
- Posters easily damaged
- Limited space for info
What are advantages and disadvantages of internet?
+ Updated regularly
+ Can target audiences (cookies)
- Some ads are irritating
- Possible tech issues
What is below the line promotion?
Refers to any form of promotion that does not involve advertising and can take many forms
What forms can below the line promotion take?
Sales promotions
Public relations
Merchandising & packaging
Direct mailing
Direct selling
Exhibitions & trade fairs
What is sales promotions?
Incentives used to encourage people to buy products. They are used to boost sales in the hope that if new customers are attracted they will continue to buy.
What are examples of sales promotions?
- Free gifts
- Coupons
- Loyalty cards
- Money off deals
What is public relations?
The main purpose of PR is to increase sales by improving the image of the business
What are examples of public relations?
- Press releases
- Press conferences
- Sponsorship
- Donations
What is the main advantage of public relations?
It is often a cheap method of promotion. Some businesses have been known to deliberately seek bad publicity which raises profile quickly and at no cost.
What is merchandising and packaging?
Some businesses may arrange the point of sale so that it is interesting and likely to encourage sales
What are examples of merchandising?
- Product layout
- Display material
- Stock
What is direct mailing?
Businesses mail out leaflets or letters to households. They may contain info about new products.
What are examples of direct mailing?
- Personal letters
- Email and text messages (spam)
What is direct selling?
This might involve a sales rep calling at households or businesses hoping to sell products. One advantage is features of product can be discussed. However, people are irritated by this approach.
What is exhibitions and trade fairs?
Some businesses attend these to promote their products. Businesses set up a stand and promote their products face to face.
What are examples of exhibitions and trade fairs?
- Products can be tested out on consumers
- Some are overseas and can be used to break into foreign markets
- Often attract media
What affects the choice of promotion?
- Cost
- Market type
- Product type
- Stage in production life cycle
- Competitors’ promotions
- Legal factors
How does cost affect choice of promotion?
Not all businesses can afford to advertise on TV and in national newspapers so they have to find cost-effective ways
How does market type affect choice of promotion?
Local businesses often rely on adverts in local newspapers. However, businesses in mass markets will use TV and national newspapers.
How does product type affect choice of promotion?
Certain products are better suited to certain methods. For example, car manufacturers would prefer TV over coupons.
How does stage in production life cycle affect choice of promotion?
It is common for promotional methods to change as a product gets older. For example, PR is often used at launch but this will change.
How does competitors’ promotions affect choice of promotion?
It is common for businesses to copy successful methods of promotion used by rivals, they will bring out their own versions
How does legal factors affect choice of promotion?
In many countries legislation designed to protect consumers can affect the method and style of promotion. For example, tobacco
What does branding involve?
Giving a product a name, sign, logo, design or any features that allows consumers to instantly recognise the product and differentiate it from those of competitors
What are the types of brands?
• Manufacturer brands
• Own-label brands
• Generic brands
What are manufacturer brands?
Brands created by the producers of goods and services. The goods bear the producer’s name.
What are examples of manufacturer brands?
Kellogg’s Corn Flakes
Gillette razors
Dell computers
What are the manufacturers involved in?
The production, distribution, promotion and pricing decisions of these products
What are own-label brands?
Products which are manufactured for wholesalers or retailers by other businesses. But the wholesalers and retailers sell the products under their own name.
What are examples of own-label brands?
Tesco baked beans
F&F clothes at Tesco
What do these brands allow a retailer to do?
To buy from the cheapest manufacturer, reducing its cost. It will hope to promote its own products effectively to shoppers.
What are generic brands?
Products that only contain the name of the actual product category rather than the company or product name
What are examples of generic brands?
Aluminium foil
Carrots
Aspirin
What is common for these products to be?
Usually sold at lower prices than branded products. They tend to account for a small percentage of all sales.
What are the benefits of strong branding?
Added value: a desirable image that reflects brand adds competitive edge
Charge premium prices: customer loyalty built over a period of time
Reduced PED: firms would prefer their brands to have a lower PED so price increases are more viable
How can businesses build a brand?
• Exploiting a USP
• Advertising
• Sponsorship
• Using social media
How can a business exploit a USP to build a brand?
If a product has a USP it is much easier to differentiate the brand. Some companies develop USPs by incorporating special features or promising customers.
How can a business advertise to build a brand?
Advertising may be used to introduce a brand or remind consumers of a brand. It spreads the word about a brand and the more familiar it is, the greater the market power.
How can a business use sponsorship to build a brand?
It helps to raise brand awareness, create positive PR and build brand positioning by linking the product to attractive images at events
How can a business use social media to build a brand?
Social media can be used in lots of ways such as placing adverts in strategic places or focus more easily on particular customer groups. It also helps build trust between brand and customer.
How have social trends changed branding and promotion?
• Viral marketing
• Social media
• Emotional branding
What is viral marketing?
It involves any strategy that encourages people to pass on messages to others about a product electronically. It creates the potential for exponential growth in exposure of a message.
What is emotional branding?
The practice of using the emotions of a consumer to build a brand. The aim is to develop a love affair between a consumer and brand.
What are the 6 pricing strategies?
Cost plus pricing
Price skimming
Penetration pricing
Predatory pricing
Competitive pricing
Psychological pricing
What is cost plus pricing?
It involves adding a mark-up to unit costs. The mark-up is usually a percentage of the unit cost. This method is common with retailers.
What are advantages & drawbacks of cost plus pricing?
+ Ensures that all costs are covered
- Ignores market conditions
- May be difficult to identify precisely all the costs associated with the production of a particular product
What is price skimming?
Launch a product into a market charging a high price for a limited time period. The aim is to generate high levels of revenue with a new product before competitors arrive. Common with technical and pharmaceutical products.
What are advantages & drawbacks of price skimming?
+ Initially helps companies recover high development costs
+ Elevates images of product
- Only used if demand is price inelastic
- Attracts competitors
What is penetration pricing?
Setting a low introductory price and then increase the price over time. It is used in highly competitive markets. The low price helps to build customer loyalty and gain a foothold in the market.
What are advantages & drawbacks of penetration pricing?
+ Quickly gain market share & number of customers
- Consumers not willing to pay a higher price
- Introductory price should be short term to prevent customers being used to lower price
What is predatory pricing?
Charging very low prices for a period of time in order to eliminate competitors. Once competitor free, they can charge higher prices.
What are advantages & drawbacks of predatory pricing?
+ Drives out competition
+ Greater market share
- Selling products below production costs with the aim of eliminating competition is illegal in the UK and EU
What is competitive pricing?
Charging same price or undercutting price of competitors. Price leaders are usually the dominant form in the market and they set the price that others follow.
What are advantages & drawbacks of competitive pricing?
+ Take market share from rivals
+ Price war can be avoided if charge same price
- Reduces profit margins per unit
- Undercutting could start price wars
What is psychological pricing?
Setting prices below rounded figure, for example 99p over £1. So consumers are tricked into thinking this is cheaper.
What are advantages & drawbacks of psychological pricing?
+ Makes some consumers feel like they’ve found a bargain
- Does not work on everyone
What factors determine the most appropriate pricing strategy?
• USP
• PED
• Competition
• Brand strength
• Product lifestyle
• Costs & profits
How does USP determine the pricing strategy?
A business can generally charge a higher price if its product has a USP. This is because many consumers are prepared to pay more for products with some individuality.
How does PED determine the pricing strategy?
If a product is price inelastic, higher prices are a good choice. If a product is price elastic, then a reduced price may be beneficial.
How does amount of competition determine the pricing strategy?
If a product has little competition, it means a higher price can be charged. If a product has a lot of competition, it means being aware of rival prices and adjusting.
How does strength of brand determine the pricing strategy?
Stronger the brand, the higher the price that can be charged. They also can undercut the market to prevent entry
How does stage in the product life cycle determine the pricing strategy?
At launch, prices could be low to get a foothold and market share. Prices can be increased over time as sales grow, and then reduced at maturity to remain competitive.
How does costs & profits determine the pricing strategy?
Long term, prices should cover cost of production and generate a product. Under-pricing a product could help target a larger consumer group, at the expense of maximum potential revenue.
How do social trends affect changes in pricing strategy?
• Dynamic pricing: price depends on time it’s bought
• Auction sites: sense of urgency and FOMO
• Personalised pricing: uses data to set a unique price
• Subscription pricing: requires monthly fee for a range of services
• Comparison sites are commonly used
What is distribution?
Distribution refers to the location where consumers can buy products from. Being in the right place at the right time helps a product be more successful.
What are distribution channels?
This refers to the route taken to get a product from the producer to consumer. Some producers use intermediaries - these provide links, eg retailers.
What are the four common distribution channels?
• Direct selling
• Retailing
• Wholesaling
• Agent & brokers
Draw the diagram for the four distribution channels
What is direct selling?
Producers sell products directly to consumers, without involvement from intermediaries. This most often occurs for services. Other methods include internet sales, direct mailing or telephone selling.
What are advantages & drawbacks of direct selling?
+ No intermediaries means higher profit
+ Open 24/7 and have a worldwide customer base
- Customers unable to see product until after purchase
- Some methods are a nuisance
What is retailing?
Retailer is a business that buys large quantities of goods from manufacturers and wholesalers and sells them in small quantities (break-bulk). They sell in convenient locations and may add value.
What are advantages & drawbacks of retailing?
+ Consumers try on products and receive help
+ Use displays to attract
- Premises needed so adds to costs
- Geographic customer base
What is wholesaling?
Wholesalers distribute goods as they usually buy from manufacturers and sell to retailers. They may break-bulk, repack goods and redistribute quantities.
What are advantages of direct selling?
+ Wholesalers stock goods from many manufacturers so retailers have more of a selection
What is agents & brokers?
They link buyers and sellers and are used in a variety of markets. A common example is a travel agency as they sell holidays for companies. Manufacturers also use agents when exporting goods as it has knowledge of market.
What factors affect the appropriate distribution channel?
• Cost
• Market
• Control
• Type of product
How does cost affect the appropriate distribution channel?
The cheapest channel is usually best as intermediaries often take a share of the profit. Large supermarkets can buy direct from manufacturers whereas smaller stores are likely to use wholesalers.
How does market affect the appropriate distribution channel?
Mass market products are likely to use intermediate whereas niche market products are likely to deal directly. Selling overseas will likely require agents.
How does control affect the appropriate distribution channel?
Some producers may need tight control over distribution to avoid ‘downmarket’ outlets. Additionally, some products may need expert installation so may prefer to deal with customers directly.
How does type of product affect the appropriate distribution channel?
Services should use direct selling as they hold no stock. Fast-selling goods are effectively sold by retailers and wholesalers as they can break bulk. High quality, exclusive products should use outlets carefully to maintain image.
How have social trends of changing from a product to service affected distribution?
For most Western countries, the service sector has grown significantly at the expense of primary and secondary sectors. Meaning businesses should choose carefully the correct distribution channel that best suits their service.
Some businesses have adapted from selling a product to selling a service as a result of social trends: downloaded music > CDs
How have social trends of online distribution (B2C) affected distribution?
This is the selling of goods by businesses directly to consumers. Most e-tailing involves ordering goods online and taking delivery at home. However, there is ‘click & collect’ services now too.
How have social trends of online distribution (B2B) affected distribution?
This involves businesses selling to other businesses online. They can also use specialist software to purchase resources. This helps to find the cheapest supplier and carries out all paperwork.
What are the benefits to consumers of online distribution?
+ It is cheaper as online retailers often have lower costs
+ Consumers can shop 24/7
+ Huge amount of choice
What are the benefits to businesses of online distribution?
+ E-trailers may not have to meet the costs of operating stores
+ Lower start-up costs
+ B2C can offer goods to a much wider market
What are the drawbacks to consumers of online distribution?
- Unable to physically inspect goods before purchase
- Risk of poor after sales service
- Exclusion of customers without internet access
What are the drawbacks to businesses of online distribution?
- Increasing competition since selling online is a cheap method of distribution
- Heavy reliance on delivery services and lack of control of quality
- Technical issues online
What does the product lifecycle show?
The different stages that a product passes through over time and the sales that can be expected at each stage
What are the 6 stages of the product lifecycle?
Development
Introduction
Growth
Maturity
Decline
Draw the product life cycle graph
What happens during the development stage of the product life cycle?
The product is being researched and designed, a prototype might be created too
What are costs like in the development stage?
It is likely that the business will spend to develop the product and so costs will be high
How many sales can you expect in the development stage?
As there will be no sales, the business will initially be spending but receiving no revenue
What happens during the introduction stage of the product life cycle?
The product will be launched and a few outlets may stock the products
What are costs like in the introduction stage?
Costs are quite high as the firm will have to meet promotion and distribution costs. Prices might be set high to cover these or low to break into the market.
How many sales can you expect in the introduction stage?
As the product is new to the market, sales initially are slow. Or, a product can be an instant hit resulting in very rapid sales growth.
What happens during the growth stage of the product life cycle?
Once product is established, sales may begin to grow rapidly, new customers buy the product and there are repeat purchases.
What are costs like in the growth stage?
Unit costs may fall as production increases. The product then becomes profitable.
How many sales can you expect in the growth stage?
If it is a new product and there is a rapid growth in sales, competitors may launch their own versions. This can lead to a slowdown of the rise in sales.
What happens during the maturity stage of the product life cycle?
The product has become established with a stable market share
What are costs like in the maturity stage?
Many businesses may use extension strategies to extend the life of their products which will endure costs
How many sales can you expect in the maturity stage?
Sales will have peaked and competitors will have entered the market to take advantage of profits
What happens during the decline stage of the product life cycle?
The product will lose its appeal to customers. At some stage will be withdrawn or sold to another business.
How many sales can you expect in the decline stage?
Sales will eventually decline. This is usually due to changing consumer tastes, new technology or introduction of new products.
What are extension strategies?
Ways to prolong the life of a product before it starts to decline
Why do business use extension strategies?
The costs of product development are high and they help a product to generate more cash
What are the two general approaches to extension strategies?
Product adjustments
Promotion
What does product adjustments mean?
This might involve making improvements, updating the product, repackaging the product or extending the range
What does promotion mean?
Some leave the product unchanged but give a boost by investing in promotion campaigns, eg find a new use for a product or find new markets
What effect does an extension strategy have on a product life cycle?
As the market becomes saturated and sales begin to fall, the decline is delayed. They mostly used in the maturity phase, before the decline takes place.
What is a product portfolio?
It is made up of product lines - a group of products which are similar. An effective business will know when to introduce a new product as another declines.
What is the Boston Matrix?
A useful technique for allowing firms to analyse their product portfolios
What two criteria are products categorised into?
Market growth: how fast the market for product growing
Market share: how strong the product within its market
Draw the Boston Matrix
How profitable is a star?
A star is already likely to be profitable as it has a relatively high market share. But investment spending is high to cope with a growing market and sales.
What is the net cash flow like in stars?
May be nearly zero because although profits will be high, investment spending will also be high
What phase of the product life cycle is a star in?
Growth
How profitable is a cash cow?
It is likely to be profitable as it is well positioned in the market. But the market has weak growth so little chance of increasing sales ad profits in the future.
What is the net cash flow like in cash cows?
A strong positive net cash flow as money coming into the business from profits will not be taken out via investment
What phase of the product life cycle is a cash cow in?
Maturity
How profitable is a question mark?
If a product is performing weakly it is unlikely to be profitable. But as it is in a fast-growing market, there is potential to turn into a star.
What is the net cash flow like in question marks?
Zero or negative as weak relative market share means that it will not be profitable
What phase of the product life cycle is a question mark in?
Introduction
How profitable is a dog?
Poor prospects for future sales and profits
What is the net cash flow like in dogs?
May generate some positive net cash flow because they will need little investment but may earn some profit
What phase of the product life cycle is a dog in?
Decline
What might a business choose to do with a star?
They are future cash cows. A business will need to build the brand of these products so that sales increase and competition is fought off.
What might a business choose to do with a cash cow?
Cash cows might be milked for cash, which can then be used to develop other products. Or the business may decided to spend just enough on promotion and development to maintain sales and market share - holding.
What might a business choose to do with a question mark?
It can build the brand, hoping to turn it into a star, harvest the product by raising price and cutting promotion so that profits are increased. Or divest itself of the product, withdrawing it or selling it.
What might a business choose to do with a dog?
Dogs may be divested if they are not making a profit or in some cases harvested
What is a marketing strategy?
A set of plans that aim to achieve a specific marketing objective, using all aspects of the marketing mix
What strategies would a mass market use (PPPP)?
Product - differentiate by developing USP
Price - price leadership or competitive pricing due to price wars
Promotion - heavy investment in above the line, TV
Place - multiple distribution channels, supermarket, wholesalers and internet sales
What strategies would a niche market use (PPPP)?
Product - designed carefully to meet specific needs
Price - less competition means higher prices charged (price skimming)
Promotion - more specific and targeted to minimise expenditure for smaller businesses
Place - more likely to use internet or exclusive distributors and retailers
What strategies might business to business (B2B) companies use?
Outbound marketing strategies
Inbound marketing strategies
Hybrid strategies
What do outbound strategies involve?
Directing marketing material at potential customers whether they are expecting it or not. Eg, sending direct mail, email, sponsorship etc.
What are drawbacks of outbound strategies?
- People ignore adverts
- Many object to cold calling and other intrusive methods
- Persistence could damage reputation
- Outbound leads costs more to acquire than inbound
What do inbound strategies involve?
Attracting potential customers to websites when they are looking for suppliers or solutions to problems. Eg social media, search engine optimisation, videos etc.
What are drawbacks of inbound strategies?
- Requires effort and resources to build up enough useful content on websites
- Recruitment of experience can be difficult
- Tricky to keep strategy up to date with rapid trends
What do hybrid strategies involve?
A combination of both outbound and inbound. It is reckoned that inbounds take at least 6 months to generate results, so outbounds can be used short term. This reduces costs and creates sustainable growth in market share.
How can businesses develop customer loyalty?
Communication: keep customers informed via promo
Customer service: professionalism, consistency and integrity
Customer incentives: rewards
Personalisation: addressing by name, sending birthday cards etc.
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