3. Marketing (Only 3.1.3 and 3.3.2) Flashcards
What is mass marketing and what are the main features?
Mass marketing is where there are a very large number of sales and typically an undifferentiated approach.
These products are designed for people of all ages, races, religions, locations, lifestyles, etc.
The advertising and promotion should appeal to most customers
What are some of the main features of mass marketing?
The main features of mass markets are:
- Low prices
- Similar customer needs across the market
- Undifferentiated products
- A wide range of sales outlets / wide availability
- Extensive promotion
- High sales volume
What are the advantages and disadvantages of mass marketing?
Advantages
- A large amount of sales
- Economies of scale reduction in average costs per unit (we will learn more about this in 4.2)
- Risk can be spread out between different products
- Opportunities for growth
Disadvantages
- High levels of competition
- High cost of advertising
- Standardised products - they are not tailored towards certain wants or needs
What is niche marketing?
Tailoring product to a particular type of customer (small specialised market)
What are the main features of niche marketing?
The main features of mass markets are:
- Premium prices
- Small sales volumes
- Highly differentiated products
- A high skills base – it is often difficult for large companies / competitors to easily find the skilled labour to product the product
What are the advantages and disadvantages of niche marketing?
Advantages
- Less competition from big companies.
- Can meet a customers specific needs.
- Can charge a higher price
- The added value can be very high for these products.
Disadvantages
- Limited number of sales
- Most businesses in these markets specialise in one product If that product is no longer wanted, the business may fail.
- Few economies of scale (can’t benefit from the lower costs that arise from a larger operations/market)
What is cost-plus pricing?
Cost-plus pricing estimates the amount of products that will be produced, calculates the total cost of production, and then adds a mark-up for profit.
What are the pros and cons of cost-plus pricing?
Pros:
- This method is very easy to apply.
- Easy to set price according to profit targets
Cons:
- The business can very easily lose sales if the price is higher than the competition.
- Ignores customer expectations, geographic differences etc
Which situation would you use cost-plus pricing in?
for single-product businesses, who can easily calculate costs, e.g. banh mi seller
What is the calculation for cost-plus pricing?
Total cost of production
——————————— + % of profit wanted = Total price
The amount of products
What is Competitive Pricing?
Competitive pricing is putting prices very close to competitor’s prices. It can be the same or a little lower or higher.
What are the pros and cons of competitive Pricing?
Pros:
- The consumers will make choices based on factors other than price such as:
Location
Quality
Customer service
- Price matches consumer expectations
- Sales are likely to be high as the price is competitive
cons:
- The business will need to research competitor’s prices, which costs both time and money.
No advantage gained in terms of price
Which situation would you use competitive pricing?
when products are very similar to competitors, business compete on other factors, e.g. branding.
What is Penetration Pricing?
This method is used when a brand is trying to enter an existing market.
What are the pros and cons or penetration pricing?
pros:
- The business will set their price lower than the competitors to try and take some market share. This helps the business gain sales in a competitive market.
cons:
- However, the product is sold at a low price and so the profit is usually low.
- It may be difficult to raise the price in future
- Low price may not fit with brand image
In which situation would you use penetration pricing?
launching new products in competitive markets
What is price skimming?
This is used when a business has a new and unique product.
The business will sell the product for a very high price at first and lower it over time.
What are the pros and cons of price skimming?
pros:
Using a high price can help establish a premium / high-quality image
Helps the firm gain maximum profit early in the product life cycle
cons:
- However, this method might lose the business some customers because of the high price.
- A price reduction early in the product life cycle may damage the brand image
which situations would you use price skimming?
High price for new and unique products, e.g. new smartphones, cameras etc
What is Promotional Pricing?
This method is used when the business wants to set a low price for a short time period. This helps the business get rid of stock that they are having a hard time selling.
What are the pros and cons of Promotional Pricing?
pros:
- Can increase sales in the short-term
- Can increase brand awareness
- Can stop consumers buying competing products if they ‘stock up’ on a firm’s products
cons:
- Reduces profit margins for the promotional period
- Customers may not purchase unless it is on offer/ promotion
- May harm brand image
Which situations would you use Promotional Pricing in?
low prices to sell unwanted stock / sales periods e.g. Black Friday, Christmas, New Year etc
What is demand?
Demand is the quantity of a product that consumers are willing and able to purchase at a given price in a time period.
Typically the lower the price, then there should be more customers willing to buy it!
What is price elasticity?
Price elasticity is a measure of the responsiveness of demand to a change in price. (measures the extent to which demand will change in response to a rise in prices)
