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. Product development may involve changing an existing product, or creating a new product that satisfies a newly discovered customer want or market niche.

Question 2

What is product development also referred to as?

Answer 2

research and development

Question 3

What is product development closely related to?

Answer 3

market research?

Question 4

Why is product development closely related to market research?

Answer 4

as it aims to satisfy customer needs. Just like market research it is hugely costly.

For new technology companies like Tesla, product development costs are huge, 1.3 billion in 2019. Tesla has been successful in developing new electric cars. However, there is no guarantee that after spending on product development that the product will make it to the market.

after product launch there is no guarantee that consumers will buy a newly developed product; hundreds of millions of dollars of product development costs can never be repaid.

Question 5

Why do companies keep producing new products?

Answer 5

in fast moving or high technology sectors it’s absolutely essential to keep developing new products.

If Apple decided after producing their first Iphone, not develop the product further they would have lost all of their market share and been overtaken by competitors a long time ago.

However, by staying ahead of competitors, by developing new features like the dual lense camera Apple can charge higher prices and make higher margins. This competitive advantage also means higher sales.

Furthermore, if businesses develop products for new markets this means higher sales and profits. Developing new products means spreading risk. Apple originally focused on selling desktop computers, but has continually moved into new markets so if sales in one market fall, they can generate revenue from their other products.

Finally, product development leads to business growth which means business can benefit from further economies of scale

Question 6

Why is brand image important?

Answer 6

Brands are easily recognisable by consumers, and if trusted with a valued brand image, customers will choose their favourite brand over many competitors, leading to higher sales.

Customers are also willing to pay higher prices for trusted brands, so higher profits. (apple chart insert)

Finally, brands increase the success of new products. If consumers are loyal to a brand they can be more easily persuaded to buy new products.

Question 7

Explain the role of packaging.

Answer 7

it keeps the product clean, safe, fresh and in perfect condition.

packaging also plays an important role in brand image and promotion. Well designed, stylish packaging made with quality materials reinforces brand image and “unboxing” has become part of the customer experience.

packaging is a way of differentiating the product from the competition and promoting to the consumer.

Question 8

What is the product life cycle?

Answer 8

Product Life Cycle follows the pattern of sales of a product over time, from product launch until it is finally withdrawn from the market.

There are four stages in the product life cycle, with different marketing activities associated with every stage. You need to know the stages of the life cycle, extension strategies and know how each stage of the product life cycle affects the marketing mix.

Product life cycle is plotted on a chart with the time on the x axis and sales on the y axis.

Question 9

Explain the introduction stage.

Answer 9

The introduction stage is when the product is launched. Sales are low and promotional spending will be high to inform consumers about the product. Therefore, the product is usually making a loss during this period.

Question 10

Explain the growth stage.

Answer 10

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

Question 11

Explain the maturity stage

Answer 11

Maturity is when sales are at their highest and the product is most profitable. The increase in sales slows before sales gradually start to decrease.

Question 12

Explain the decline stage

Answer 12

Decline is when sales begin to fall before the product is removed from the market when it becomes unprofitable.

Question 13

Is the product cycle the same for all products?

Answer 13

The length of the product life cycle will vary massively from product to product.

Clothes have a very short product life cycle, and this has been accelerated by the rise of “fast fashion” where consumers may only wear an item of clothing a few times and shop very often. Therefore, the maturity stage where sales peak is reached quickly, but may only last a few weeks before sales decline and as the latest fashions appear.

Aircraft have a very long product life cycle as the product development costs are so high and the life of aircraft can be very long. The Boeing 747 was launched in 1970 and is still being produced today.

Developing new products is a high cost for the business, so businesses aim to lengthen the maturity stage, so they can keep products profitable for as long as possible and delay decline and withdrawal.

Question 14

What are extension strategies?

Answer 14

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

Question 15

List some extension strategies.

Answer 15

Increased advertising and promotion, to try and find new consumers or remind current users about the product.
Improved or Updated Packaging, can give an existing product a new, fresh appeal and increase sales.
Find new markets for the product in other countries.
Find new uses for the product, ropes designed for tying up ships are often now used in cross fit.

Question 16

How do the stages of the product life cycle influence market decisions?

Answer 16

Each stage of the product life cycle will require a different balance between the different parts of the marketing mix.

Promotional spending will be very high during the product launch and supports increased sales through growth. Promotional spending will be decreased during maturity and decline, except for short periods when an extension strategy may be employed.

In price competitive markets businesses may launch with a low penetration price, and move to competitive pricing in the growth and maturity stages before price discounting in the decline stage.

With a unique product, a high price or skimming strategy may be employed during launch. The price can be reduced if competitors introduce similar products in the growth and maturity stages, before further discounting prices in the decline stage.

For place, businesses might focus distribution on specific areas where sales will be higher during introduction and decline phases, but aim to distribute the product widely during growth and maturity.

Products may have additional features added to extend the life of the product during the extension phase. For example a car may be fitted with parking sensors or leather seats.

Question 17

What can prices be affected by?

Answer 17

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

Question 18

What is cost plus?

Answer 18

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

Question 19

What are the benefits and limitations of cost plus?

Answer 19

Question 20

Define competitor’s pricing.

Answer 20

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

Question 21

What are the benefits and limitations of competitor’s pricing?

Answer 21

Question 22

Define penetration pricing.

Answer 22

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

Question 23

What are the benefits and limitations of penetration pricing?

Answer 23

Question 24

Define market skimming.

Answer 24

Market skimming does the opposite of penetration pricing by charging very high prices at product launch.

Question 25

What are the benefits and limitations of market skimming?

Answer 25

Question 26

Define promotional pricing.

Answer 26

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 27

What are the benefits and limitations of promotional pricing?

Answer 27

Question 28

Explain price elasticity of demand.

Answer 28

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 29

Explain how you would recommend and justify a pricing strategy.

Answer 29

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 30

Give an example of a producer to consumer distribution channel.

Answer 30

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

Question 31

What are the benefits of producer to consumer?

Answer 31

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 32

What are the limitations of producer to consumer?

Answer 32

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 33

What does a retailer enable consumers to do?

Answer 33

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

Question 34

What are the benefits of a retailer?

Answer 34

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 35

What are the limitations of a retailer?

Answer 35

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 36

What is a wholesaler?

Answer 36

A wholesaler connects producers with smaller retailers.

Question 37

What are the benefits of wholesalers?

Answer 37

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 38

What are the limitations of wholesalers?

Answer 38

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 39

How would you recommend a method of distribution?

Answer 39

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 40

What is promotion?

Answer 40

communication with the customer

Question 41

What are the aims of promotion?

Answer 41

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 42

What does advertising do?

Answer 42

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 43

What is advertising used for?

Answer 43

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 44

What is sales promotion?

Answer 44

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 45

What is personal selling?

Answer 45

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 46

What is the disadvantage of personal selling?

Answer 46

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

Question 47

What is sponsorship?

Answer 47

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 48

What is cost effectiveness in promotion?

Answer 48

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 49

What are the opportunities of e-commerce for businesses?

Answer 49

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 50

What are the threats of e-commerce for businesses?

Answer 50

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 51

What are the opportunities of e-commerce for consumers?

Answer 51

ffers 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 52

What are the threats of e-commerce for consumers?

Answer 52

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 53

How is the internet and social media used by businesses?

Answer 53

Through Instagram, Facebook and YouTube, businesses can precisely select their target market on age, gender and direct specific messages to different groups.

Businesses can easily update their customers on new products, sales promotions and further develop brand image.

Businesses can use influencers to make a direct connection with their followers about a product.

Kylie Jenner charges $1.2 million per post which reaches her 172 million followers worldwide.

Question 54

What are the limits of social media marketing?

Answer 54

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