2.2 - Making Marketing Decisions Flashcards
What is differentiation?
Making your products or services distinctive in the market
USP
Through function, costs, aesthetics
What is a product life cycle?
length of time from a product first being introduced to consumers until it is removed from the market
How could the product life cycle be extended?
More features
New packaging
New markets
Changing advertisements
Lowering prices
What internal factors could affect pricing decisions?
If expensive machinery is used
What method of production is being used
What external factors could affect pricing decisions?
Competition
Market segments
Cost of raw materials
What is price penetration?
Firms charge at low price until a customer base is built, then prices increase
What is loss leader pricing?
Price of product is set below cost, but will make profit from accompanying products
What is price skimming?
Firms charge high, due to high demand
Makes brand seem more luxury
What is competitive pricing?
Firms charge similar prices to competitors
What are examples of promotional methods?
Good branding
Newspapers, magazines, posters, billboards
TV/internet Ads
Sponsorships
Special offers
Product trials
What is diffrentiation?
Making your products or services distinctive in the market
These differences should make consumers want to buy your products instead of competing ones
What will happen if there’s no differentiation?
Customers will think your products or services is identical to others
How can you differentiate products?
Give it a USP
This could be a special service of feature provided by the company
Giving a product a USP is one way of differentiating. What’s another way?
Changing price
Cheaper usually means more eppealing to a mass market
But can also mean less profit per unit sold
Really expensive product can make it seem more luxurious than competitors
What are the 3 main features of the design mix?
Function
Cost
Appearance
Why is function vital in the design mix?
Deisgn must be fit for its purpose
Unique features can also help
Why is cost vital in the design mix?
A good design will lead to low manufacturing costs
Higher profits
Why is appearance vital in the design mix?
A good product should look attractive and distinctive
Packaging helps a product to stand out and protect it until it reaches the customer
What is the first stage of a product life cycle?
Research and development
What is the second stage of a product life cycle?
Introduction
What is the third stage of a product life cycle?
Growth
What is the fourth stage of a product life cycle?
Maturity
What is the fifth stage of a product life cycle?
Decline
What is the development and research segment of a product life cycle?
Used to develop an idea and turn it into a marketable product
Firm spends money on research and promotion
Sales of products are low
Loss?
What is the introduction segment of a product life cycle?
Product is launched and put on sale
Backed with lots of advertising and promotions
What is the growth segment of a product life cycle?
Demand increases until product is established
What is the maturity segment of a product life cycle?
Demand reaches its peak
Promotion becomes less important
Towards the end of this phase, the market becomes saturated and there’s no more room to expand
Business will hope to pay initial investments and make a profit
What is the decline segment of a product life cycle?
Demand starts to fall as rival products take over
Firm spending less money, starts making a loss UNLESS it completely stops manufacturing the product
What can firms do if their product is going into decline?
They can take action to extend their life
If the extension workds, the product will make product for longer
What are the disadvantages of extending a product life cycle?
Takes cash away from other parts of the business
Firms would have to make a balance between investing money on old products and designing new ones
What are the ways a firm can extend the product life cycle of a product?
Adding more/different features
Using new packaging
Targeting new markets
Changing advertisments
Lowering price
What internal factors affect pricing decisions for a business?
Technology
Method of production
Product life cycle
What external factors affect pricing decisions for a business?
Competition
Market segments
Cost of raw materials
How does technology influence pricing decisions for a business?
If expensive machinery is needed to make the product, firms may increase the price that it needs to be sold at in order to make a profit
How can long term machinery be beneficial for a business?
May reduce costs since processing is more efficient and fewer employees needed
What are internal factors of a business?
Controlled by the business
What are external factors of a business?
Not controlled by the business
How does method of production influence pricing decisions for a business?
Flow production might require more expensive machinery but will also be more likely to benefit from economies of sale compared to job production - products may be cheaper
How does product life cycle influence pricing decisions for a business?
Introduction section - may be very low or very high to encourage consumers to buy
Maturity phase - firm may need to bring price in line with competitors
Decline phase - reduce price in order to increase demand for product again
How does competition influence pricing decisions for a business?
If a firm puts its prices too high, customers will choose competitors product
If firm puts price too low, consumers will question if the quality is as good as the competitors
How does market segments influence pricing decisions for a business?
If the product is aimed at consumers with a high income, the price will be higher than a similar product targetted at consumers with a low income
How does cost of raw materials influence pricing decisions for a business?
Affect the cost of each unit
High quality —> high unit costs
High prices would be needed to make a profit from high unit costs products
What are the 5 pricing strategiess a business can use?
Price penetration
Loss leader pricing
Price skimming
Competitive pricing
Cost-plus pricing
What is price penetration method of pricing?
Firm charges a very low price when its new to get lots of people to try it
Product will make very little profit, but once established, the firm increases the price
What is loss leader pricing method of pricing?
When the price of a product is set below vost
Firm doesn’t make a profit
Customers will buy other products as well which it does make a profit on
(Example: game consoles are usually priced below costs but firms will make a profit on the games that go with them)
What is price skimming method of pricing?
Firms charge a high price to begin with - they do this when they know for certain that there will be a high demand for the product
Works for established firms with loyal customers
More desirable for high income consumers
Aid with brand image and status
Once product is established, firm lowers the price to help it become a mass-market product
What is competitive pricing method of pricing?
Firm has to charge similar pricing to other firms
Happens when there is a lot of choice and not much differentiation
Firm may make little profit and have to find ways other than price to attract customers
What is cost plus pricing method of pricing?
The firm uses this if they’re not in price competition with other firms
Firm works out total cost of making the product and then adds a certain amount depending on how much profit they want to make, while still having reasonable demand
What are the 2 ways of cost plus pricing and explain them?
Using a mark-up: work out how much the product costs and then add a percentage mark-up
If product costs 2£ to make, and you want a 25% markup, you’d sell it for £2 + 25% = £2.50
Using a profit margin: work out how much the product sosts and increase it to get the profit margin you want.
What is the firms brand image?
The impression that customers have of the firm or products sold by the firm
A firm may have a reputation for high quality, luxury products
May also be a recognisable logo that customers associate with the firm
Why is a strong brand image important?
Makes the firm easily recognised and liked by customers
A strong brand image is usually built up over a number of years
What are the disadvantages of developing a brand image?
Promoting products and developing a brand image for products is expensive
The business sshould have planned this
What is advertising?
Any message that a firm pays for which promotes the firm or its products.
What are methods of advertising?
Newspapers
Magazines
Posters and billboards
Leaflets
Television
Internet
What is a sponsorship?
Firms give money to organisations and events
Their name is then displayed by the organisation or at the event
What are the 2 types of sale promotions?
Special offers - business may offer a discount on the product, or 2 for the price of 1
Product trials - cafe’s may offer free samples of new food or drink to get customers interested and to persuade them to buy from the firm in the future
What are pros of sales promotion?
Encourage new customers to try a product
Boost sales in short but also long term if customers like the product and continue to buy it once promotion has ended
What are cons of sales promotion?
Customers get used to seeing products on promotion and may be reluctant to buy them at other times
Using regular sales promotion may not be suitable for certain market segments
How can firms use technology for promotion?
Firms can create social media accounts to advertise their products and improve brand image
An individuals search history and location could be used to create target advertising and work out what the individual is actually interested in
Individuals might decide to be part of a firms mailing list. They will receive e-newsletters from the business about promotions and offers
