2.2 Making Marketing Decisions

Question 1

2.2.1

Answer 1

Product

Question 2

Design Mix

Answer 2

• A product can be a good or service.
• To achieve a successful product design, a business will concentrate on three elements that make up the design mix: function, appearance (aesthetics) and cost.

Question 3

Function

Answer 3

• Function is about the capabilities of the product; can it perform its intended purposes? For example, will a waterproof jacket keep a customer dry?
• Focusing on functionality can make products unique, e.g. the ‘AddWash’ feature on some washing machines allows customers to add items to the washing machine while the cycle is in operation.
• For medical equipment, functionality takes priority over design as the equipment must perform a specific purposes.

Question 4

Appearance (aethetics)

Answer 4

• Aesthetics is about the look, taste or feel of a product. If the product is stylish, elegant and attractive, the chances are that it will appeal to customers and sell well.

Question 5

Cost

Answer 5

• Businesses should produce a product as cost effectively as possible - this can lead to a competitive advantage being gained.
• High production costs lead to higher selling prices and may prevent customers buying products.
• The importance of cost is connected to the nature of the product - if a business has a focus on high quality, it will incur higher production costs.

Question 6

Product Life Cycle

Answer 6

• The product life cycle maps the stages a product passes through over time and the sales that can be expected from that stage.
• It can be shown in graph form and consists of the introduction phase, growth phase, maturity phase, and decline phase.
• A business can map their full product range on a product life cycle graph and determine which products need more focus.

Question 7

Introduction Phase

Answer 7

The introduction phrase comprises product launch.
- Initial research, design and development will mean costs are high.
- Sales will be low as customers are unaware that the product is for sale.
- Businesses spend money on promotion.
- As costs are high and sales are low, it is likely that no profit is made at this stage.

Question 8

Growth Phase

Answer 8

The growth phase sees sales grow as awareness and popularity are increased.
- Sales grow with demand and the business may start to make a profit.

Question 9

Maturity Phase

Answer 9

The maturity phase sees sales peak.
- Growth of sales may slow down due to other businesses joining the market.
- Profit may be high but start to reduce.

Question 10

Decline Phase

Answer 10

The decline phase may see products become out-dated as tastes and technology change.
- Sales and profits fall and a business may have to consider if they want to continue selling the product.

Question 11

Extension Strategies

Answer 11

A business will try and prevent a product going into the decline phase by using extension strategies. This can be achieved by making changes to the product (e.g. lower price) or by appealing to a new segment of the market.

Question 12

Product Differentiation

Answer 12

Depending on the nature of the product, a business will choose to either focus on function, aesthetics or cost to meet their customer needs and to achieve product differentiation. Product differentiation can be created using the following:
- brand image
- unique selling point/s
- offering a better location, features, function, design appearance
- cheaper selling price
- quality
- customer service
- product range

Question 13

2.2.2

Answer 13

Price

Question 14

Price

Answer 14

• Price is the amount that customers pay for a product.
• Price is an important decision for businesses as it is directly linked to revenue.
• A business needs to carefully consider their pricing strategy, and this is based on a number of factors.

Question 15

Pricing Strategies

Answer 15

• Businesses may set a low price when a product first enters the market, to encourage people to buy it, and raise the price later.
• A business will decide on a price to reflect the brand and quality of their product.
• A business may consider their profit margins when deciding on a pricing strategy.
• A high price may be set for a new product that is innovative or has special features, often from a well-known brand. Some customers will be attracted to the desire to be part of a premium market; the higher price increases profit.
• Price can be set in line with competitors so customers have to make decisions on which products to buy based on other factors, such as quality or appearance.

Question 16

Profit Margins

Answer 16

• Profit margin is the difference between the sale price and the cost of production - a low profit margin means a business has to sell a large volume of products to make a profit, as the selling price is close to the cost of making the product.
• A business that operates at high profit margins generally sells fewer products than one operating at low profit margins.
• Businesses that operate at high profit margins sell products for a price that is much higher than the cost of production so they do not need to rely on a large volume of sales to make a profit.

Question 17

Influences on Pricing Strategies

Answer 17

This includes technology, competition, market segments and the product life cycle.

Question 18

Technology

Answer 18

• Freemium is a pricing strategy used mainly for digital products, such as software, media or gaming, that are offered for free. Money (premium) then has to be paid if a user wants additional features, functionality or virtual goods, e.g. Candy Crush.
• Customers can easily compare prices on comparison websites and businesses need to ensure that their prices are in line with competitors.
• Technology has led to better machinery or tools, which means that businesses can make their goods quicker or provide a quicker service, which in turn saves costs and increases profit for the business, e.g. a taxi company uses satellite navigation that provides traffic updates and fast route options.

Question 19

Competition

Answer 19

• Operating in a competitive environment can drive a business to reduce their pricing to remain competitive in the market.
• If a business sells a product with little differentiation, e.g. water, they will have to keep prices similar to their competitors.

Question 20

Market Segments

Answer 20

• A business must consider the ability of their target customers to pay for their products.
• If the target market is price-sensitive then demand will fall if the business charges a price that is too high.

Question 21

Product Life Cycle

Answer 21

• Introduction and growth: price helps to determine the value of a product, push sales or recover development and promotion costs.
• Maturity: price can be used to maintain profit margins or in a competitive market a business may set their price to be in line with competitors to maintain their market share.
• Decline: price helps to encourage sales when customers are not prepared to pay a high amount.

Question 22

2.2.3

Answer 22

Promotion

Question 23

Promotion

Answer 23

A promotion strategy is when a business carefully identifies how to get the right message at the right time in the right way to its market segment.
- The preferences of the market segment are fundamental to the promotion strategy.
- A business will use one or a mix of the following promotion strategies:
○ advertising
○ sponsorship
○ product trials
○ special offers
○ branding

Question 24

Promotion Strategies for Different Market Segments

Answer 24

This includes advertising, sponsorships, product trials, special offers and branding.

Question 25

Advertising

Answer 25

• A business can advertise on TV, radio, magazines and newspapers, billboards, websites, emails, through apps and many other channels.
• Advertising can target a large number of people at the same time.
• TV advertising may be more effective for the older generation.
• Younger viewers often watch TV on demand, which limits advertising, requiring businesses to advertise to this group differently. For example, more interactive adverts on social media.

Question 26

Sponsorship

Answer 26

Sponsorship involves a business financially supporting or giving goods or services to an event or programme in return for advertising their brand.
- A business must use relevant events or programmes to reach their market segment and develop their brand.

Question 27

Product Trials

Answer 27

• Product trials are used to get customers to try a product for the first time, usually before a business decides to launch it fully to the market.
• A large established restaurant chain may offer a new dish on their menu in restaurants located in a particular area as a way of testing a product.

Question 28

Special Offers

Answer 28

• Can take the form of a discount on the sales price, e.g. a complementary deal.
• A business targeted at a specific segment of the market (niche market), for example, vegan snacks, might offer a free product if a friend is recommended.
• A business that sells products with a mass appeal (mass market), e.g. fruit juices, might offer ‘buy one get one free’.

Question 29

Branding

Answer 29

A business can differentiate itself from other similar products using an image or identity that creates a unique brand.
- Customers can grow loyal to a branded business and trust it.
- A branded business charges higher prices as customers are willing to pay more.

Question 30

The Use of Technology in Promotion

Answer 30

• Targeted advertising online allows businesses to direct promotion to their customers through email apps, pop-ups and banner adverts.
• Online advertising can be targeted because browsing habits are collected through Internet cookies and used by businesses to tailor their advertising to Internet users, e.g. if a user regularly looks at sports-related items, the user will see more adverts for trainers, game tickets etc., even when they are on a website that has nothing to do with sport.
• The success of an online advertising campaign can be measured using the click-through rate.
• Viral advertising relies on consumers passing on a promotion or advert via email or social media, which means it must grab the consumer’s attention.
• E-newsletters are newsletters that are sent to customers via email and they can be interactive and captivating. Web-links allows customers to respond easily.

Question 31

2.2.4

Answer 31

Place

Question 32

What is place?

Answer 32

• Place refers to the location where customers can purchase goods and services.
• To have a successful marketing mix, a business needs to ensure their products are available in the right place at the right time for customers to purchase.
• The route that a product takes, from where it is manufactured, to where it is sold, is called the distribution channel.
• Most goods and services in the UK are distributed through retailers or e-tailers.

Question 33

Retailers

Answer 33

• Retailers are the ‘middle men’ - they buy large quantities of products from a manufacturer or a wholesaler and make the products available locally to customers.
• Retailers have a physical location for customers to visit and purchase products.
• Retailers make purchasing products convenient for their customers - they add value to the products, e.g. free parking, product warranty, customer service.
• Adding value means the retailer can charge a higher price for the product and this is how they make a profit.
• As the retailer buys a large quantity of products, the price per unit will be cheaper; this reduces the profit margins for the manufacturer but allows the retailer to add their own mark-up.
• Retailers can take the form of: independent retailers (small shops), supermarkets, department stores, market traders, or multiples (a chain of stores).

Question 34

E-tailers

Answer 34

• E-tailers are businesses that sell goods and services through the Internet.
• Some e-tailers are online-only e-tailers, such as Amazon.
• Other businesses use both e-tailing and retailing to sell their products, e.g. Argos.
• E-commerce involves electronic transactions via the Internet or electronic payment systems, e.g. contactless payments, bank cards, PayPal.
• E-tailers use e-commerce to create an online marketplace for customers. E-tailers have a global reach and allow customers the ability to shop at any time, wherever they are.
• As transactions take place over the Internet, businesses can track customers’ buying habits to collect valuable market research.
• Small independent retailers or start-up businesses can benefit from using large e-tailers to distribute their products.
• E-tailers must ensure they have: user-friendly websites to attract customers, regularly updated content - to meet changing needs - and distribution needs to be efficient so customers can receive their orders quickly.
• It is expensive to set up e-tailing websites and customers may be reluctant to purchase over the Internet, due to fraud.

Question 35

2.2.5

Answer 35

Using the Marketing Mix to make Business Decisions

Question 36

Each Element of the Marketing Mix can Influence the Other Elements

Answer 36

This includes product, price, promotion and place.

Question 37

Product

Answer 37

• Price - customers may demand a low-priced product so a business will need to product their product cheaply, which will result in a lower quality product.
• Promotion - part of the promotion strategy may include changing the packaging of a product to make it more appealing to customers.
• Place - technology has led to customers changing where and when they demand their products. This has led to a change in the format of products, e.g. books are now available as e-books.

Question 38

Price

Answer 38

• Product - strong brands and premium quality products will have higher prices.
• Promotion - special offers and discounts can reduce their price charged for a product.
• Place - an Internet-based business can charge a lower price because it doesn’t have to pay costs associated with having premises.

Question 39

Promotion

Answer 39

• Product - the life cycle of the product may influence the promotion used for it. Often when a product is new it will require lots of promotion, in contrast to the maturity stage when promotion takes place less often.
• Price - a high-price, high-quality product will be promoted differently to a cheaper product. Buy-one, get-one-free can be used for cheaper products. Yet a high quality brand may focus on public relations.
• Place - e-tailers and high street retailers operate in a competitive environment and so offer a variety of promotions to attract customers, e.g. free delivery.

Question 40

Place

Answer 40

• Product - the nature of the product will affect where it can be sold, e.g. a hairdresser is limited to where they can offer their services.
• Price - high-priced items, such as an exclusive brand of jewellery, will be only available at exclusive stores.
• Promotion - heavy promotion will mean a product needs to be available at more locations and for an extended time, e.g. Black Friday generally means longer opening hours and a larger number of products in stock.

Question 41

Marketing Mix and Competitive Advantage

Answer 41

• Competitive advantage is an advantage held by a business that allows it to perform better than its competitors.
• Innovative goods or services exceed customer needs and allow a business to gain a competitive advantage, e.g. Uber, which allows users to request cars to their exact location using an app.
• New technology or buying cheaper raw materials reduces the cost of production and allows a business to sell its products more cheaply, creating a competitive advantage.
• Effective promotion can create a competitive advantage.
• Dispatching orders quickly, offering excellent after-sales care, being available in locations and times convenient to customers can provide great customer satisfaction, repeat purchases and possible competitive advantage.

Question 42

Integrated Marketing Mix Influences Competitive Advantage

Answer 42

• Developing the correct balance between the elements of the marketing mix is important to build a successful marketing strategy and develop a competitive advantage.
• The correct blend of product, price, promotion and place depends on: the business’s objectives, the market, the size of a business, the competition, the nature of the product.