3.16 The Marketing mix - product and price

Question 1

Marketing mix

Answer 1

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

Question 2

4Cs

Answer 2

+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

Question 3

CRM

Answer 3

Using marketing activities to establish successful customer relationships so that existing customer loyalty can be maintained

Question 4

Product

Answer 4

The end result of the production process sold on the market to satisfy a customer need

Question 5

Consumer durable

Answer 5

Manufactured product that can be reused and is expected to have a reasonably long life - car, washing machine

Question 6

Brand

Answer 6

An identifying symbol, name, image or trademark that distinguishes a product from its competitors

Question 7

Product positioning

Answer 7

The consumer perception of a product or service as compared to its competitors

Question 8

Product life cycle

Answer 8

The pattern of sales recorded by a product from launch to withdrawal from the market
Introduction
Growth
Maturity or saturation

Question 9

Extension strategies

Answer 9

Marketing plans to extend the maturity stage of the product before a brand new one is needed

Question 10

Uses of product life cycle

Answer 10

+ 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

Question 11

Price elasticity of demand

Answer 11

Measures the responsiveness of demand following a change in price

Question 12

Value of PED

Answer 12

• 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

Question 13

Factors that determine price elasticity

Answer 13

1. How necessary a product is. If it’s necessary -> inelastic. e.g: Salt and oil
2. Similar competing products or brands.
3. Level of consumer loyalty
4. Price of the product as a proportion of consumers’ incomes

Question 14

Applications of price elasticity of demand

Answer 14

1. Making more accurate sales forecasts –> easy for breakeven forecasts, cashflow…?
2. Assisting in pricing decisions

Question 15

Limitations of PED

Answer 15

1. Assumes that nothing else has changed but demand may change due to other factors other than price
2. PED gets outdated quickly –> need to be recalculated
3. Not always possible to calculate PED

Question 16

Formula for PED

Answer 16

% change in quantity demanded / % change in price

Question 17

How managers determine the appropriate price?

Answer 17

1. Costs of production
2. Competitive condition in the market - more competition -> price similar unless USP is introduced. monopoly -> set whatever the price
3. Business and marketing objectives (Niche and mass)
4. PED
5. New or existing product

Question 18

New product pricing strategies

Answer 18

• competitive
• penetration
• skimming
• price discrimination
• cost-based pricing

Question 19

Penetration pricing

Answer 19

Setting a relatively low price often supported by strong promotion in order to achieve a high volume of sales

Question 20

Market skimming

Answer 20

Setting a high price for a new product when a firm has a unique or highly differentiated product with low PED

Question 21

Competitive pricing

Answer 21

Setting the price of a product or service based on what the competition is charging.

• similar products
• many substitutes
• established long time

Question 22

Price discrimination

Answer 22

A pricing strategy that charges customers different prices for the same product or service.

Question 23

Cost-based pricing

Answer 23

Firms assessing their costs of producing each unit, then add an amount on top of the calculated cost

Question 24

Pricing decisions evaluation

Answer 24

• 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

Question 25

How cash flow depend on the product life cycle

Answer 25

• 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

Question 26

Portfolio analysis

Answer 26

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