2.2 - Making Marketing Decisions Flashcards
What is the design mix?
This contains three aspects of design that all products must meet in the research and development stage. It includes: Function, Cost and Aesthetics
What is Function from the design mix?
The design must fit for its purpose. Unique features can also help.
What is Cost from the design mix?
A good design will lead to low manufacturing costs which means higher profits.
What is Aesthetics from the deign mix?
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.
What is a product life cycle?
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.
What is the first stage of a product’s life cycle?
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.
What is the second stage of a product’s life cycle?
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.
What is the 3rd stage of a product’s life cycle?
GROWTH - during this phase, the demand for the product increases until the product becomes established.
What is the 4th stage of a product’s life cycle?
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.
What is the final stage of a product’s life cycle?
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.
What are extension strategies?
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.
List 5 types of Extension strategies.
- Adding more or different features
- Using new packaging
- Targeting new markets
- Changing advertisements
- Lowering price
What is differentiation?
This is about making your products or services distinctive in the market.
Why is differentiation in your products important?
These differences should make customers want to buy your product instead of competing products as it has different or better features.
How can you differentiate your product?
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.
What is price penetration?
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.
What is Loss Leader pricing?
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.
What is price skimming?
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.
What is competitive pricing?
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.
What is Cost-Plus pricing?
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.
How does the product life cycle influence pricing strategies?
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.
How does technology influence pricing strategies?
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.
How does competition influence pricing strategies?
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’.
How does Market segments influence pricing strategies?
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.
