3.3 Marketing Mix

Question 1

What is product development?

Answer 1

Product development is the creation of products with new or different characteristics that offer new or additional benefits to the customer.

Question 2

Why do companies keep producing new products?

Answer 2

By developing new products the business will have a unique selling point and charge higher prices, also they will be able to expand into new or existing markets

Question 3

3 reasons why brand image is important..

Answer 3

Brands are easily recognisable by consumers, if trusted, customers will choose their favourite brand over competitors, therefore higher sales.

Customers are also willing to pay higher prices for trusted brands, so higher profits.

Consumers loyal to the brand can be more easily persuaded to buy new products.

Question 4

Explain the roles of packaging.

Answer 4

it keeps the product safe and stylish packaging with good material reinforces brand image and differentiates product from competitors.

Question 5

What is the product life cycle?

Answer 5

A cycle that every product goes through. (development, Introduction, Growth, Maturity, Saturation, Decline)

Question 6

Explain the introduction stage.

Answer 6

Sales are low at first as consumers are not aware of the product, lots of capital is spent on advertising the product. No profits are made yet as sales are low and the revenue does not cover the development costs.

Question 7

Explain the growth stage.

Answer 7

Growth is when sales are increasing rapidly. The product will pass the break even point and start to earn profit.

Question 8

Explain the maturity stage

Answer 8

Competition becomes intense, and sales only increase slowly. Prices are reduced to4 A gain competitive advantage. A lot of advertising is used to maintain sales and profits are at there highest at this stage

Question 9

Explain the decline stage

Answer 9

Sales decrease as competition is extremely high and the product may have gone out of fashion. The product is usually withdrawn from the market at this stage

Question 10

What are extension strategies?

Answer 10

Extension strategies prolong the life of a product, and a number of different methods can be used.

Question 11

list 5 extension strategies.

Answer 11

-Sell to new markets E.g. other countries,

-modify the packaging e.g., colour/labels

• use a new advertising campaign
• introduce a new improved version of the old product e.g. new flavours, new specification
• sell through additional retail outlets

Question 12

What can prices be affected by?

Answer 12

supply and demand. If there is low supply and high demand this will push prices up

Question 13

What is cost plus?

Answer 13

Cost-plus is the cost of producing the product plus an extra percentage for profit

Question 14

What are the benefits of cost plus?

Answer 14

Each products earns a profit for the business, easy method to apply

Question 15

Define competitive pricing.

Answer 15

Competitor pricing does the reverse, and means prices are set close to competitors.

Question 16

What are the benefits of competitive pricing?

Answer 16

Product isn’t overpriced compared to competitors so sales are likely to be higher

Question 17

Define penetration pricing.

Answer 17

Penetration pricing offers new products at a lower price in order to gain market share and develop a customer base.

Question 18

What are the benefits of penetration pricing?

Answer 18

Useful for new products to encourage customers to buy, leads to increase in sales &
market share

Question 19

Define price skimming.

Answer 19

Market skimming charges very high prices at product launch.

Question 20

What are the benefits of price skimming?

Answer 20

Makes the product be perceived as high quality, costs can be recouped from the profit made

Question 21

Define promotional pricing.

Answer 21

Promotional pricing is when a seller reduces the price of a product or service to attract customers. They can also use offers like “BOGOF” buy one get one free, or offer 50% extra free.

Question 22

What are the benefits of promotional pricing?

Answer 22

Useful for getting rid of stock that won’t sell, can renew interest in product if sales art falling (extend product life cycle)

Question 23

Explain price elasticity of demand.

Answer 23

If price rises for a product, we would expect less consumers to buy and demand to decrease, likewise, if a product decreases in price demand will rise. Price elasticity takes this one step further and looks at how big an impact on demand, a change in price will have.

Some products have price inelastic demand. No matter how much the price goes up it won’t have a big impact on demand. Petrol is a good example, if the price rises, it won’t lead to a big decrease in demand as consumers still need to fuel their cars to get around. Cigarettes are highly addictive, so if prices rise smokers will continue to buy cigarettes.

Other products have price elastic demand. A small change in price leads to a big change in demand. For example a small change in price for beef may lead to a big change in demand as consumers switch to chicken or pork.

Question 24

Explain how you would recommend and justify a pricing strategy.

Answer 24

Asking questions like this can help find the correct strategy

Is the product new? A launch strategy like price penetration may be suitable. If the product is unique, skimming may be suitable.

How competitive is the market? Does the business need to match competitors’ prices?

Does the product have a strong brand image? Customers pay more for trusted and proven brands like Apple.

What product costs have to be paid? Business must charge a price to cover costs and make a profit over the life cycle of the product.

What are the firm’s objectives? Penetration or promotional pricing is suitable for increasing market share, however, market skimming may be more suitable for maximising profits.

Finally, what is the price elasticity of demand?

Question 25

Give an example of a producer to consumer distribution channel.

Answer 25

farmers markets, or companies with a website who sell directly to their customers.

Question 26

What are the benefits of producer to consumer?

Answer 26

producer keeps all of the final selling price, and has complete control over the customer experience of the product, without retailers or wholesalers getting involved. Because of the direct contact with customers, producers can get valuable feedback from customers, and it ensures the products are fresh

Question 27

What are the limitations of producer to consumer?

Answer 27

producers have responsibility for all storage, promotion and delivery to all customers. This could be incredibly complex without the assistance of a wholesaler and retailers, and highly costly

Question 28

What does a retailer enable consumers to do?

Answer 28

try the product before purchasing, for example with clothes to check the fit or if the style suits.

Question 29

What are the benefits of a retailer?

Answer 29

It allows consumers the chance to try on or physically see the products, and increases convenience for customers. Some of the costs of storing inventory and promotion is passed on to the retailer.

Question 30

What are the limitations of a retailer?

Answer 30

the producer must pay the delivery costs to the retailer, and the producer will lose complete control of the marketing mix. The retailer will take some of the potential profit and the producer’s goods will have to compete against other brands.

Question 31

What is a wholesaler?

Answer 31

A wholesaler connects producers with smaller retailers.

Question 32

What are the benefits of wholesalers?

Answer 32

the producer can sell its goods to a larger market. Furthermore, the wholesaler will collect from the producer so it means low delivery costs.

Question 33

What are the limitations of wholesalers?

Answer 33

the wholesaler will demand a competitive price and will take another chunk of the profit from the producer. The producer is now two intermediaries away from the final consumer, so even more control is lost over the marketing mix.

Finally, an agent may get involved, often if a producer is selling in foreign markets. The agent will organise a suitable wholesaler or retailers in return for a slice of the profit.

Question 34

How would you recommend a method of distribution?

Answer 34

uitable channels vary with the product. There are three questions to consider to guide your choice.

What kind of product is it? Fresh food will require a short distribution channel, and may require chilled storage. Services like music streaming may be easily sold from a producers website.

Cost? Can a business afford the capital investment to store and deliver their own products, which will mean keeping more of the profits. Or do they involve retailers and wholesalers in the distribution channel?

Nature of the Market? In a geographically dispersed market producers may work with wholesalers and retailers to reach all potential customers.

Control? Nike and Adidas have recently stopped all sales through small independent retailers, as they feel the sales experience at smaller stores is damaging to their brand image, and they want to maximise sales and profits in their own stores.

Question 35

What is promotion?

Answer 35

communication with the customer

Question 36

What are the aims of promotion?

Answer 36

1. Inform consumers or wholesalers or retailers about new products or existing products
2. Explain how their products are better than competitors
3. Persuade consumers to buy
4. Develop and reinforce brand image, and
5. Responding to criticism, as a result of faulty products or accusations of unethical behaviour.

Question 37

What does advertising do?

Answer 37

Advertising informs or promotes the product to the target audience through different media such as TV, radio, online, social media and magazines to encourage them to buy.

Question 38

What is advertising used for?

Answer 38

Advertising is used to inform consumers about the price, product features and where they can buy. Persuasive advertising entices consumers to buy the product.

Question 39

What is sales promotion?

Answer 39

Sales Promotion is using different short-term tactics to increase sales, like competitions, offers like buy one get one free, or money off coupons. Sales promotion can also include point of sales displays in stores and loyalty schemes like a coffee card, for example, buy ten coffees and get one free.

Question 40

What is personal selling?

Answer 40

Personal Selling is suitable for high value products that may need expert guidance from the sales person, like a car or a house. After building a strong relationship with the sales person the consumer feels confidence to buy.

Question 41

What is the disadvantage of personal selling?

Answer 41

The disadvantage is the high cost of the sales person who normally receives a percentage of the selling price (called commission).

Question 42

What is sponsorship?

Answer 42

Sponsorship is when a business pays to have it’s name linked to an event or sporting team. It can be highly beneficial if the company’s target market has a strong link with the sport or event.

Question 43

What is cost effectiveness in promotion?

Answer 43

Cost effectiveness in promotion is achieving the business marketing objectives successfully with the lowest cost.

Businesses must consider all possible options for promotion, and estimate how much each will cost to achieve their objectives.

Question 44

What are the opportunities of e-commerce for businesses?

Answer 44

for businesses e-commerce means they can reach a potentially huge market as they can sell products and services worldwide.

Costs are reduced.

Information, by using complex algorithms and software, businesses can see what visitors were searching for on their website and offer suggestions of related products.

Question 45

What are the threats of e-commerce for businesses?

Answer 45

massive increase in target market there is also a giant increase in competition

it takes time to build customer relationships and a positive reputation, and customers may not be willing to risk online transactions with firms they are unfamiliar with

Question 46

What are the opportunities of e-commerce for consumers?

Answer 46

offers the convenience of shopping from home rather than travelling to retailers.

There is a greater choice as they aren’t restricted to shops in their local area and prices are often lower online due to increased competition.

Consumers can also access much more information about products and do not rely on a knowledgeable sales person who may be too busy to answer their questions in store.

Question 47

What are the threats of e-commerce for consumers?

Answer 47

some consumers prefer the personal touch, and free communication of talking to an employee in person.

Many consumers enjoy the experience of shopping, being able to look at the actual products rather than a photo, and try on clothes.

Although many online retailers offer free returns this is inconvenient for customers as they have to pack up and arrange collection of the unwanted products.

There is also the risk of online fraud, where payment is taken but no products are delivered.

Consumers may be concerned about their personal information or bank account details being stolen in online transactions.

Question 48

What are the limits of social media marketing?

Answer 48

However, managing social media marketing requires time and expertise. Businesses face increased competitio n to capture social media users attention and get noticed.

Question 49

Marketing Mix?

Answer 49

The marketing mix is a term which is used to describe all the activities which go into marketing a product or service. These activities are known as the four Ps.

Question 50

Cost plus pricing drawbacks

Answer 50

Business could lose sales if selling price is too high

Question 51

Promotional pricing drawbacks

Answer 51

Revenue per unit will be lower, may lead to price war with competitors

Question 52

competitive pricing drawbacks

Answer 52

If cost of production is higher than competitor then a loss could be made, a higher quality product may need to be sold at a higher price to give it a high quality image

Question 53

penetration pricing drawbacks

Answer 53

Profit per unit may be low, may not be appropriate for branded product with reputation for quality, if business tries to raise prices in the future it could lead to customer dissatisfaction

Question 54

price skimming drawbacks

Answer 54

High price may discourage some customers from buying, if successful it may inspire 4 to other businesses to enter the market (more competition > less sales)