3.16 The Marketing mix - product and price Flashcards
Marketing mix
The four key decisions that must be taken in the effective marketing of a product
Product design and performance
Price
Promotion including advertising
Place - where and how a product will be sold
4Cs
+Customer solution - meeting customer’s needs and wants
+Cost to customer - the cotal cost of the product including extended guarantees, delivery and financing costs
+Communication with customer - up-to-date and easily accessible two-way communication links w/ customers to promote product and gain customer market research information
+ Convenience to customer- accessible pre-sales info, demonstrations and convenient locations to buy the product
CRM
Using marketing activities to establish successful customer relationships so that existing customer loyalty can be maintained
Product
The end result of the production process sold on the market to satisfy a customer need
Consumer durable
Manufactured product that can be reused and is expected to have a reasonably long life - car, washing machine
Brand
An identifying symbol, name, image or trademark that distinguishes a product from its competitors
Product positioning
The consumer perception of a product or service as compared to its competitors
Product life cycle
The pattern of sales recorded by a product from launch to withdrawal from the market
Introduction
Growth
Maturity or saturation
Extension strategies
Marketing plans to extend the maturity stage of the product before a brand new one is needed
Uses of product life cycle
+ Assisting with planning market-mix decisions e.g: new product launches, price or promotion changes
+ Identifying how cash flow might depend on the cycle
+ Recognising the need for a balanced product portfolio
Price elasticity of demand
Measures the responsiveness of demand following a change in price
Value of PED
- Zero - perfectly inelastic demand - the amount is demanded no matter the price changes
- B/w 0 and 1 - Inelastic demand - % change in demand LESS than $ change in price –> firm can raise price while not losing as much demand
- Unitary - Unit elasticity - Change in demand is equal and opposite to the change in price –> Total sales revenue is constant
- > 1 - Elastic demand - % change in demand GREATER than % change in price –> Firm should lower the selling price to pickup more demand
Factors that determine price elasticity
- How necessary a product is. If it’s necessary -> inelastic. e.g: Salt and oil
- Similar competing products or brands.
- Level of consumer loyalty
- Price of the product as a proportion of consumers’ incomes
Applications of price elasticity of demand
- Making more accurate sales forecasts –> easy for breakeven forecasts, cashflow…?
- Assisting in pricing decisions
Limitations of PED
- Assumes that nothing else has changed but demand may change due to other factors other than price
- PED gets outdated quickly –> need to be recalculated
- Not always possible to calculate PED
Formula for PED
% change in quantity demanded / % change in price
How managers determine the appropriate price?
- Costs of production
- Competitive condition in the market - more competition -> price similar unless USP is introduced. monopoly -> set whatever the price
- Business and marketing objectives (Niche and mass)
- PED
- New or existing product
New product pricing strategies
- competitive
- penetration
- skimming
- price discrimination
- cost-based pricing
Penetration pricing
Setting a relatively low price often supported by strong promotion in order to achieve a high volume of sales
Market skimming
Setting a high price for a new product when a firm has a unique or highly differentiated product with low PED
Competitive pricing
Setting the price of a product or service based on what the competition is charging.
- similar products
- many substitutes
- established long time
Price discrimination
A pricing strategy that charges customers different prices for the same product or service.
Cost-based pricing
Firms assessing their costs of producing each unit, then add an amount on top of the calculated cost
Pricing decisions evaluation
- Incorrect to assume that one firm will use the same pricing method for all of its products.
- Price levels have huge influence on purchasing behavior –> important for market research to find correct method
- 4Ps should be well integrated so that consumers are pleased with the price they pay for and the overall position of the product
- Consumers have more choice and incomes –> should focus on quality too, if low price = easily damage brand name -> no goose
How cash flow depend on the product life cycle
- Negative during the R&D process bc costs are high and nothing is sold
- Introduction = dev costs stopped but heavy promotional expenses are likely to be incurred. Also unused factory capacity
- Maturity phase = most positive cash flows
- Reduced at decline stage when price reductions and falling sales are combined
Portfolio analysis
a method of categorizing a firm’s products according to their relative competitive position and business growth rate in order to lay the foundations for sound strategic planning
