2.2 Making Marketing Decisions Flashcards
What are the different elements of the marketing mix?
Price
Place
Promotion
Product
What is the marketing mix used for?
To make decisions about the business
What happens for a business with the right combination of the marketing mix?
- Can have a competitive advantage
- by attracting and selling to more customers
What affects the different parts of the marketing mix?
- each other
- method of distribution of a product affects pricing and promotion
- how they are sold (online)
- Quality and price of a product affects how it is promoted
What is product differentiation?
Making a product stand out from its market competitors
How can a product be differentiated?
- By changing elements of the marketing mix
- give it a USP
- promotion
- change the price, more appealing to market
- product design
What are the 3 parts of the design mix?
Function
Cost
Aesthetics
What is the Function in the Design Mix of a product?
- the design of a product must be fit for its purpose
- Unique features may help
What is the Cost in the Design Mix of a product?
- How much the design costs to produce
- a good design has low manufacturing costs-> higher profits
What is the Aesthetics in the Design Mix of a product?
- appearance of the product
- A good product should look attractive or distinctive
- Packaging may help a product stand out
What is a Product Life Cycle?
A theoretical model which describes the stages a product goes through over its life
What are the different stages of a Product Life Cycle?
- Research and Development
- Introduction
- Growth
- Maturity
- Decline
What is the Research and Development stage of a product life cycle?
- first stage of a product life cycle
- used to develop an idea and turn it into a marketable product
- ie find cost effective materials and methods to produce the product
What is the Introduction stage of a product life cycle?
- The product is launched and put on sale
- Usually lots of advertising and sales promotion
- emphasis on place: want people to know where to buy the product
What usually happens during the Introduction stage of the product life cycle?
- high costs: money spent on research and development
- Low levels of sales
- Usually negative cash flow
- Small scale distribution
- High promotional spending
- High price (price skimming) or Low price (price penetration) depending on market of the product
What is price skimming?
setting a new product at a high price at initial introduction into the market
What is price penetration?
setting a newer product at a lower price so more people can afford it at initial introduction.
What is the Growth stage of a product life cycle?
- Demand increases, until the product becomes established
- expanding market
- fast growing sales
- cash flow may become positive
- Market grows, profit rises-> attracts entry of new competitors
- Wider distribution
- Advertising continues to build brand awareness
What is the Maturity stage of a product life cycle?
- Demand reaches a peak
- Promotion becomes less important, so less advertising than when launching
- Increase distribution
- slower sales for growth as rivals enter the market
- high profit for those with high market share
- cash flow is strongly positive
- weaker competitors begin to leave the market
- Prices and profits fall
- Persuasive advertising to remind customers of products
- Attract new users, target new segments, develop new uses
What is the Decline stage of a product life cycle?
- Demand begins to fall as rival products increase in demand
-Falling sales - market saturation and /or competition
- Decline in profits + weaker cash flows
- more competitors leave the market
- Products could be withdrawn from production
- Remaining products may be sold at a reduced price
- no longer actively promote the product
Why do products enter the stage of decline?
- Technological advances
- Changes in consumer tastes and behaviour
- Increased competition
- Failure to innovate and develop the product
What are extension strategies?
Methods used to extend the life of a product at the highest level to increase sales and profit
What are types of extension strategies?
Adding value- add more or different features, increase demand by making product more useful or appealing
Advertising- make more people aware of the product, promote in an appealing way, or to a new market
Price reduction- makes the product more attractive to the customer, use special offers or competitions
Explore new or different markets- new age group or country, target promotional material at them to extend life of product
New packaging- become more eye catching, more appealing than competitors products. New image may attract new customers
Why is Price important?
Pricing decisions directly affect revenue
- must be consistent with the other parts of the marketing mix to ensure customers perception of the good/service is still good
- making a wrong decision can have a serious effect on sales and cash flow
What are Internal factors that influence pricing decisions?
- Technology
- Method of production
- Product life cycle
How does technology influence pricing decisions?
- if expensive machinery is needed, price may increase in order to make a profit
- however that long term could reduce costs, as it could be more efficient and fewer employees may be needed
How does Method of Production influence pricing decisions?
- flow production may require expensive machinery
- but more likely to benefit from economies of scale compared to job production, so products may be cheaper
How does Product Life Cycle influence pricing decisions?
- Introduction and growth: price skimming or price penetration to encourage sales
- Maturity: follow competitor pricing
- Decline: firm reduce price -> increase demand for product
What are External factors that influence pricing decisions?
- Competition
- Market segments
- Cost of raw materials
How does Competition influence pricing decisions?
- If the product is sold in competitive markets, the firm needs to look at competitor pricing for similar products
- too high: prefer to choose competitors
- too low: query the quality of the product compared to competitors
How do Market segments influence pricing decisions?
- nature of the targeted market segment affects price
- High income segment: higher prices
- Low income segment: lower prices
How does the Cost of raw materials influence pricing decisions?
- affects cost per unit
- High quality raw materials-> high unit costs-> high prices
How may a Business increase prices if it grows?
- develop loyal customers and good reputation
- can increase prices without impact to demand
How may a business decrease prices if it grows?
- benefit from economies of scale
- average cost of making each product falls
- business can afford lower prices
What are pricing strategies a business could choose?
- Price penetration
- Loss leader pricing
- Price skimming
- Competitive pricing
- Cost plus pricing using:
Mark up or Profit margin
What is good about Price penetration?
- establishes market share for a product in competitive market
- makes little profit, but after the product is established, price can increase AND customers should stay loyal
-ie free month trial on a subscription service
What is Loss Leader Pricing?
Price of a product is set below the cost
- firm doesn’t make a profit from the product, but the cheap price incentivises customers to buy other products
- ie games consoles, make profit on games
What is good about Price Skimming?
- works for established firms with loyal customers willing to pay
- increase revenue, covers research and development costs
- high price makes product desirable to high income market or niche markets (ie professionals)-> improves firms image and status
- can eventually lower price to become a mass market product
What is Competitive Pricing?
Firm charges a similar price to lots of other firms
- happens when there is lack of choice and product differentiation
- ie petrol
- make little profit, has to use other parts of the marketing/design mix to attract customers
What is Cost-Plus pricing?
- Work out the total price of a product and add a profit using a Mark up or Profit margin
- keeps demand
- use when there is lack of price competitions
What is a Mark Up?
- adding a percentage to however much the product costs
What is a Profit Margin?
Increasing the price of a product to accommodate the desired profit margin
What is the difference between Profit Margin and Mark Up?
Mark up is a % of the cost
Profit Margin is a % of the selling price
What is Promotion used for?
An aim of promotion is to ensure that customers are aware of the existence and positioning of products. Promotion is used to persuade customers that the product is better than competing products and to remind customers about why they may want to buy it
What are the 3 elements of promotion?
Awareness
Persuasion
Reminder
How do brands spread awareness?
- Advertising: social media, TV, billboards, newspapers
- PR: cannot control message, unpaid
Press release, events - Creating knowledge of the product to customers
How do brands persuade customers to buy their products?
- Advertising: features product’s benefits
- Sponsorship: paying for the name of a company or event or programme associated with our product
- Influencers, social media campaigns
- Sales promotion: buy one get one free, coupons, intro price offers, sampling, competitions
Trying to convince the customers to buy the product when competitors begin to enter the market, trying to not lose customers - Product trials: free samples (ie food)
How do businesses remind customers of their products?
- Customer loyalty work: (form of sales promotion) clubcard, points card
- Customer communication programmes: emails, SMS texts, app reminders
- Reminding customers of the product and why they should buy it
Why is Brand image important to promotion?
- impression and reputation that customers perceive of the business
- strong brand is usually built over a number of years-> important all their products, prices, methods of promotions, and places they sell contribute correctly to the brand image
How do businesses promote products through advertising?
Newspapers
Magazines
Posters and billboards
Leaflets, flyers, business cards
TV ads
Internet ads
What are the features of promoting through newspapers?
- local, can reach target market in specific geographical area
- National, reach larger audience
- Printed often, promote temporary offers
- Poor print quality, number of people reading newspapers is declining
What are the features of promoting through Magazines?
- aimed at particular market segment (age group, hobbies)
- more expensive than newspaper ads
- better quality print
- people hold onto magazines for longer
What are the features of promoting through Posters and Billboards?
- can be placed near target audience
- stay in place for along time
- seen daily by lots of people
- messages cannot be long, people don’t look at them for that long
What are the features of promoting through Leaflets, flyers, business cards?
- cheap to produce and distribute
- targeted at certain areas (target segment on location)
- people can keep it until they need the information
- People can also throw them away quickly
What are the features of promoting through TV ads?
- seen by wide audience, includes sounds and moving images
- can deliver long messages
- help emphasise brand image
- expensive
What are the features of promoting through Internet ads?
- seen at any time by large, targeted audiences
- can include sounds and moving images
- customers can visit firm’s website immediately after viewing the ad
- so many ads online-> people may stop looking properly + block them
How can businesses use sponsorship as promotion?
Sport- large brand places their name on uniforms in an international competition. Small brand uses local football team
TV- soap operas or weather reports can be sponsored
What are the features of promoting through sponsorship?
- creates high profile for the business or brand name
- easily target market segment that is characterised by lifestyle (ie hobbies)
- company image can suffer if the sponsored thing gets bad publicity
What are the benefits of sales promotion?
- encourages new customers to try a product, boosting short term sales AND future sales if customers like the product and continue to buy after promotion
What are disadvantages of sales promotion?
- customers get used to seeing products on promotion, reluctant to buy at other times
- Regular sales promotion may be unsuitable for certain market segments (ie luxury items)
How can firms use New Technology for promotion?
- Social Media
- Internet search history
- Viral advertising
- Mailing lists
How can Social Media be used for promotion?
- firms create social media accounts which advertise products + improve brand image
- make separate accounts for different parts of the business, can target specific market segments
How can Internet search history be used for promotion?
- used to create targeted advertising
-web page adverts can be specified to what an individual has searched for, so more relevant to their interests, so more effective - some individuals dislike this, and can be put off a brand
How can Viral advertising be used for promotion?
- When adverts are shared on social media and viewed lots over a short period of time
- good for targeting segments of markets that use social media frequently (ie younger age groups)
How can Mailing lists be used for promotion?
- e-newsletters to entice people to the business with promotions and offers
What is a distribution channel?
A distribution channel moves a product through the stages from production to the final consumer
What does the most appropriate method of distribution depend on for a business?
- where the consumer is likely to shop
- how many consumers they want to reach
- how quickly they want the product to get to the consumer
- how much customer service the consumer needs
What are different methods of distribution?
Retailers
Wholesalers
Distributors/Sales agents
Direct (e-commerce)
What are the advantages of a High street retailer?
- likely to have employees on hand to help customers
- better customer service than e-tailers
What are the advantages of an E-tailer?
- Can sell to a global market, more potential customers than in stores
- Lower fixed costs than retailers (no rent, electricity etc)
- Can charge less for products
