3.3.4 (Product Life Cycle) Making marketing decisions: using the marketing mix Flashcards
Define the term product life cycle.
The stages that a product passes through during its lifetime.
Outline the 5 stages of the PLC.
Development. Introduction. Growth. Maturity. Decline.
Outline development.
Undertake various activities to prepare for launch such as:
Generation of ideas.
Analysis of ideas.
Product development.
Test marketing.
Launch.
Outline the process of introduction.
Product launch has happened. Sales slowly increase, not yet a favourable product - uncertainty. Intensive marketing and special offers can lead to increased sales volume - customer awareness grows.
Cash flow is still negative - high marketing costs and low production levels.
Outline the process of growth.
Sales start to accelerate.
Promotion is high.
Retailers more likely to provide shelf space and brand recognition helps to increase sales.
Outline the process of maturity.
Aim to make a profit and sales will tend to stabilise. However, they may increase steadily if the product is in an expanding market.
If the market stabilises and stops growing (aka saturation), then new competitors are unlikely to be attracted to the market - the company will not have to spend so much money on marketing and with low unit costs of production - it can reap high profits.
Outline the process of decline.
Sales start to decrease. In more dynamic markets e.g. computer games, product life cycles are measured in weeks. Once a product is in decline, the firm may decide to remove it from its range to prevent financial loss.
Define penetration pricing.
A strategy in which low prices are set to break into a market or to achieve a sudden increase in market share.
Define price skimming.
A strategy in which a high price is set to yield a high profit margin.
Define price leadership and price takers.
Price leadership is where a company (the price leader) sets a market price that smaller firms (price takers) tend to follow. Price takers will tend to follow, because reducing their prices could trigger a price war, which they may not be able to sustain.
Define a price war.
When rival companies undercut each other’s price cuts in order to increase sales volume by keeping existing customers and attracting new customers.
Leads to reduced profit margins.
Define predatory (or destroyer) pricing.
Firm sets very low prices in order to drive other firms out of the market.
Define a loss leader.
Setting low prices for certain products in order to encourage consumers to buy the other, fully priced products.
Define psychological pricing.
Pricing intended to give the impression of value e.g. £9.99.
Outline the influence of costs of production on pricing decisions.
To ensure pricing is suitable for both customer and business - cost-plus pricing.
Cost-plus pricing: the price set is the average cost of a product plus a sum to ensure a product E.g. clothing retailers typically add 100% to the wholesale cost of purchasing a dress.
