2.2 - Making Marketing Decisions

Question 1

What is the design mix?

Answer 1

This contains three aspects of design that all products must meet in the research and development stage. It includes: Function, Cost and Aesthetics

Question 2

What is Function from the design mix?

Answer 2

The design must fit for its purpose. Unique features can also help.

Question 3

What is Cost from the design mix?

Answer 3

A good design will lead to low manufacturing costs which means higher profits.

Question 4

What is Aesthetics from the deign mix?

Answer 4

A good product would look attractive and distinctive. Packaging can also help the product stand out and also to protect it until it reaches the customer.

Question 5

What is a product life cycle?

Answer 5

It describes the stages a product goes through from when it was first thought of until it finally is removed from the market. Not all products reach this final stage. Some continue to grow and others rise and fall.

Question 6

What is the first stage of a product’s life cycle?

Answer 6

RESEARCH AND DEVELOPMENT is the first stage of a product’s life cycle. It’s used to develop an idea and turn it into a marketable product.

Question 7

What is the second stage of a product’s life cycle?

Answer 7

INTRODUCTION is the 2nd stage. This is where the product is launched and it is put on sale for the first time. It is normally backed up with lots of advertising and sales promotion. Place is significant as there is no point in launching a product in a place where nobody would buy it.

Question 8

What is the 3rd stage of a product’s life cycle?

Answer 8

GROWTH - during this phase, the demand for the product increases until the product becomes established.

Question 9

What is the 4th stage of a product’s life cycle?

Answer 9

MATURITY - Demand reaches its peak stage. Promotion becomes less important but the business will continue to advertise it. As the popularity of the product increases, businesses will try to make the product more widely available. Towards the end of this phase, the market becomes saturated and there is no room for expansion.

Question 10

What is the final stage of a product’s life cycle?

Answer 10

DECLINE - Eventually demand starts to fall as rival products take over. The life cycle is linked to the cash flow of the business during the life of the product.

Question 11

What are extension strategies?

Answer 11

These are used when the sales of the product eventually declines and firms can choose to extend their life. If it works, the product will make profit for longer. However, this means spending more money on the product therefore taking cash away from other parts of the business. Firms have to create a balance in investing money in old products and in designing new ones.

Question 12

List 5 types of Extension strategies.

Answer 12

1. Adding more or different features
2. Using new packaging
3. Targeting new markets
4. Changing advertisements
5. Lowering price

Question 13

What is differentiation?

Answer 13

This is about making your products or services distinctive in the market.

Question 14

Why is differentiation in your products important?

Answer 14

These differences should make customers want to buy your product instead of competing products as it has different or better features.

Question 15

How can you differentiate your product?

Answer 15

Give it a USP. This could be a special feature or a service provided by the company, such as fast delivery.

You can also change the price of the product. Cheaper usually means more appealing to the mass market but it also means leases profit per unit sold. An expensive product will make it seem luxurious than competitors’ product and more appealing to the niche market.

Question 16

What is price penetration?

Answer 16

A pricing strategy where a firm charges a very low price when a product is new to get lots of people to try it. It is a good way to establish market share in a competitive market. It will make very little profit at first but once it has become established the firm increases the price. Loyal customers would continue buying the product despite the price increase.

Question 17

What is Loss Leader pricing?

Answer 17

This is when the price of a product is set below cost. The firm doesn’t makes profit on it but the idea is that customer will by other products as well. E.G. games console are often priced below cost but firms make profit on games that go with them.

Question 18

What is price skimming?

Answer 18

This where firms charge a high price to begin with - they do this if they know that the product will be in high demand. Works for established firms with loyal customers. High price increases revenue and covers cost. Appeals to a niche market and to high income people. Firm will lower the price to make it a mass-market product once it has been established.

Question 19

What is competitive pricing?

Answer 19

Firms have to charge a similar price to competitors. Happens when there is lots of choice but not much product differentiation such as petrol. Firm may make little profit and have to find other ways to attract customers.

Question 20

What is Cost-Plus pricing?

Answer 20

This is used when firms don’t compete on price. The firm adds on a certain amount to their total cost depending on how much profit they want to make whilst having a reasonable demand.

1st method: Mark-Up
Work out how much the cost is and add a percentage mark-up

2nd method: Profit Margin
Work out how much the product cost and increase it to get the profit margin you want.

Question 21

How does the product life cycle influence pricing strategies?

Answer 21

For example, when a product is in its growth and introduction phase, a firm may charge a high or low price to attract customers. Then they will bring their prices in line with their customers in the Maturity phase. When it is in its decline phase the firm may decrease the price to increase demand again.

Question 22

How does technology influence pricing strategies?

Answer 22

If expensive machinery is required, the price may be needed to be increased so that a profit is obtainable. However, machinery may help reduce cost in the long-term.

Question 23

How does competition influence pricing strategies?

Answer 23

If a firm put its prices to high, customers will just choose their competitors’ products. If they put it too low, customers will query whether the quality is as good as their competitors’.

Question 24

How does Market segments influence pricing strategies?

Answer 24

If the product is aimed at with a high income, its price will be higher than a similar product aimed at a low income segment.

Question 25

How is a business’ pricing decisions gonna change as it grows?

Answer 25

They can increase prices without the demand falling too much as they have loyal customers. As they grow, they gain economies of scale which means that they can produce their products at a lower cost, so they can afford lower prices.

Question 26

What is advertising?

Answer 26

Any message that a firm pays for which promotes their firm or product.

Question 27

List methods of advertising.

Answer 27

NEWSPAPERS - reaches market segment in a specific geographical area.

MAGAZINES - adverts in magazines to target specific market segments, more expensive but more quality than newspapers.

POSTER AND BILLBOARDS - placed near target audience for a long time, short message.

LEAFLETS OR BUSINESS CARDS - cheap to produce and distribute, target at segment easily, kept until needed but many see as junk

TV ADVERTS - seen by wide audience and includes sound and video, emphasises a firm’s image but they are very expensive.

INTERNET ADS - seen at any time by anyone, customers can visit firm’s website immediately, people may stop looking at them and may block them as there is a lot of adverts.

Question 28

Why is good branding important?

Answer 28

Products are easily recognised and liked by customers. Developing a brand image and promoting the product is expensive but they both should increase revenue through repeat purchase and first time purchase.

Question 29

What is sponsorship?

Answer 29

This where a firms pays an organisation or event to have their name displayed by the organisation or the event. It can create a high profile for your business or brand name, it’s also a good way to target a market segment that is characterised by lifestyle.

Question 30

What are product trials?

Answer 30

Firms may give free samples of products to celebrities or to general people to see their view on the product and if they like it. Positive feedback from the trials will increase sales.

Question 31

What are special offers?

Answer 31

Business may offer a discount on the product for a limited period of time.

Question 32

What are the advantages and disadvantages of sales promotion? (Special offers and product trials)

Answer 32

Encourages customers to buy the product. Boosts sales long term and short term.

Customers get used to seeing product and may be reluctant to buy them. Regular sales promotions may not suit certain market segments.

Question 33

How is technology used in promotion?

Answer 33

Targeted advertising can be used by looking at an individual’s search history. The adverts will be more interesting to the user. So its more effective. Some individuals may not like this which can put off the brand. Viral advertising is when adverts are shared on social media and are viewed many times in a short period. This is good for younger age groups. Also, individuals may decide to be part of a busienss’s mailing list so they will get e-newsletters about promotions and offers.

Question 34

Why must a business choose an appropriate method of distribution?

Answer 34

To make sure that a business’s products are available to consumers in the right place the business needs to choose the most appropriate method of distribution. This depends on things like where the consumer is likely to shop, how many consumers they want their products to reach, how quickly they want the product to get to the consumer, and how much customer service the consumer will need

Question 35

List methods of distribution.

Answer 35

Retailers (shop to consumer)

E-trailers (online shops, use e-commerce)

Question 36

Advantages of retailers.

Answer 36

Better customer service.

Question 37

Advantages of e-tailers

Answer 37

Sell to a global market so they have more potential customers. They will have lower fixed costs. They can charge less for products.