2.2 Making marketing decicions Flashcards
product - Function
The function of a product refers to its intended purpose and the specific tasks it is designed to perform
A product’s function is the most important aspect of its design because it determines how well the product will meet the needs of its intended users
product - Aesthetics
Aesthetics refer to the product’s visual and sensory appeal, including its form, shape, colour, and texture
Aesthetics play an important role in attracting customers, creating brand loyalty, and generating word of mouth recommendations
product - Cost
The cost of production must be considered when designing a product, as it directly affects the price point at which it can be sold
A well-designed product should balance cost and value, ensuring that customers perceive the product as valuable enough to justify its cost while still maintaining profitability for the manufacturer
The design mix
These design factors - function, cost and aesthetics - are mixed together in different ways in order to appeal to different
target markets. The design mix can be illustrated using a triangle to represent the three factors.
For example, a car manufacturer may produce various models, with each model prioritising different factors:
- A high-end sports car might focus more on the aesthetics, eg how it looks and what it is like to drive. The car may be costly to manufacture, but some customers will be willing to pay a high price for this kind of car.
- A car designed for families may prioritise function, eg safety features, size, and making the car environmentally friendly.
- A small car might prioritise cost, eg being competitively priced and economical to run.
The Product Life Cycle
The product life cycle describes the different stages a product goes through from its conception to its eventual decline in sales
There are typically five stages in the product life cycle: development, introduction, growth, maturity, and decline
The life cycle, and how long it takes a product to go through its life cycle, can vary enormously from one product to another. Some products will exist for years before entering a decline, while other less successful products may go through their life cycle very quickly. How long a product lasts will depend upon:
- how dynamic the market is – eg, technological products (such as tablets and laptops) have short life cycles as they quickly become out of date as new technology emerges
- how strong the brand image behind the product is – eg, a new sports shoe from a well-known brand is likely to have a longer life cycle than a new sports shoe from an unknown brand
The Product Life Cycle - Development
Explanation
* The focus is on designing and developing the product.
* The business usually incurs high costs for research and development, market research, and product testing.
Implication
* Cash flow is usually negative during this stage, as the company is investing heavily in the product without generating any revenue
* The marketing strategy during this stage is focused on creating awareness and generating interest in the product
The Product Life Cycle - Introduction
Explanation
* The stage begins when the product is launched
* Characterised by slow sales growth as the product is still new and unknown to most consumers
Implication
* Cash flow is usually negative as the business usually incurs high costs for promotion, advertising and distribution
* Marketing efforts are focused on creating awareness and generating interest in the product
The Product Life Cycle - Growth
Explanation
* The product enters this stage when sales begin to increase rapidly
* The business focus shifts to building market share and increasing production to meet the growing demand
Implication
* Cash flow usually turns positive during this stage as sales revenue increases and costs are spread out over a larger volume of production
* The marketing strategy is to differentiate the product from its competitors and build brand loyalty
The Product Life Cycle - Maturity
Explanation
* Characterised by slowing sales growth as the product reaches its peak in terms of market penetration
Implication
* Cash flow is usually positive during this stage as sales revenue continues to come in and costs are reduced through economies of scale and efficient production processes
* The marketing strategy aims to maintain market share and increase profitability by cutting costs and finding new markets
The Product Life Cycle - Decline
Explanation
* Starts when sales begin to decline as the product becomes obsolete or is replaced by newer products
* The business focus shifts to managing the product’s decline and reducing costs
Implication
* Cash flow usually turns negative as sales revenue declines and costs associated with the product’s decline increase
* The marketing strategy may involve discontinuing the product, reducing its price to clear inventory, or finding new uses for the product
Extension strategies
Developing new products is expensive and takes time, so businesses will usually try to extend the life cycle of a product and prevent it from going into decline. To do this, they need to find ways of keeping people interested in the product for longer, thereby increasing the number of sales.
Ways of extending the life cycle of a product
Product differentiation
Reducing the price of the product
Rebranding the product
Repositioning the product
Increasing marketing activity
Ways of extending the life cycle of a product - Product differentiation
This means making a product stand out from its market competitors, usually by highlighting the differences between it and the other products. Ensuring that a product has a unique selling point (USP) is a good way to differentiate it from other products.
Ways of extending the life cycle of a product - Reducing the price of the product
By the time a product has reached maturity, it may face competition from other products. When this happens, the business may no longer be able to charge a high price for the product. If the price is reduced, existing customers are likely to continue buying it, while other customers may switch from competing products.
Ways of extending the life cycle of a product - Rebranding the product
Tired-looking branding and packaging can put customers off. Refreshing the brand and packaging design can appeal to new customers and convince previous customers to try a product again.
Ways of extending the life cycle of a product - Repositioning the product
This extension strategy involves exploring new markets for a product. It is possible to revive a product by testing new uses for it or adding value so that it appeals to a different audience. For example, a business could try introducing a different sized version of the product.
Ways of extending the life cycle of a product - Increasing marketing activity
Running new advertising campaigns and sales promotions can attract new customers, remind previous customers that the product still exists and encourage existing customers to buy more of the product.
pricing strategies
Pricing low in order to achieve a high volume of sales but at a low profit margin. This strategy is often used for generic products with little or no unique selling point (USP). For example, the manufacturers of common, everyday cars use this method to price their products.
Pricing high while accepting there will be a low volume of sales but at a high profit margin - This strategy is often used for luxury products or products with a good USP. For example, the manufacturers of luxury cars use this method to price their products as they have strong enough brands to set high prices.
Factors to Consider when Choosing a Pricing Strategy
The quality of the product
The demand and supply of a product
Changes in technology
Number of competitors
The brand image of the product
Where a product is in its life cycle
The cost of making the product
Market segments
Factors to Consider when Choosing a Pricing Strategy - The quality of the product
Consumers expect to pay more for a high-quality product, as they understand that high-quality products usually cost more to make. Charging a higher price often gives the impression that a product is of a higher quality, even when it may not be.
Factors to Consider when Choosing a Pricing Strategy - The demand and supply of a product
If there is high demand for a product, consumers are likely to be willing to pay more for it. Therefore, businesses can charge a higher price for popular products, unless there are other businesses supplying similar products. If this is the case, they will need to consider their competitors’ prices.
Factors to Consider when Choosing a Pricing Strategy - Changes in technology
New technology has led to innovations such as the ‘freemium’ pricing model. This is where access to a basic version of a product is provided free of charge, with additional features being made available as add-ons that need to be paid for. This model is particularly common among software and mobile apps.
Advances in technology have also affected the frequency with which businesses review their prices. Consumers now have immediate access to pricing information. They can also check online prices with a smartphone while they are in a physical store, and they can use price comparison websites. This means that businesses have to be much more flexible in setting prices, and they may need to change them more often. However, these technological advances also benefit businesses, as they can use technology to monitor levels of customer demand and identify when they might be able to increase prices.
Factors to Consider when Choosing a Pricing Strategy - Number of competitors
In competitive markets, businesses often compete on price, particularly when they sell similar or identical products. A good example is supermarkets, where smaller discount chains have successfully taken market share from the established supermarkets by offering lower prices on everyday items.
Factors to Consider when Choosing a Pricing Strategy - The brand image of the product
Maintaining a brand image requires a high level of marketing activity and a consistent level of quality. These cost money, so a branded product often has a higher price than a non-branded product.
Factors to Consider when Choosing a Pricing Strategy - Where a product is in its life cycle
A business that introduces a new, unique product may initially choose to price the product high while accepting that there will be a low volume of sales but a high
profit margin. This is likely to be effective while there is little competition. However, by the time the product has reached maturity, it is likely to be facing competition from other similar products. If this is the case, then the business may no longer be able to charge a high price for the product. If the business reduces the price, existing customers are likely to continue buying the product and other customers may switch from competing products. For example, 4K Ultra HD TVs were expensive when they were first introduced, but as more manufacturers began to produce them their price began to fall.
For generic products, businesses often use a low starting price to encourage customers to try the product during its introduction stage. This means pricing a product low with the aim of selling it at a high volume but at a low profit margin. During the growth stage, prices may be kept low initially, but will eventually rise when the product becomes more established. During a product’s maturity phase, a business might choose to keep the product’s price down in order to maintain a similar level of sales to those achieved during its growth period. During the decline stage of the product life cycle, businesses are more likely to use offers and switch to a high-volume, low-price strategy to try to maintain sales.
