4.5 The 7 P's

Question 1

product

Answer 1

goods and services that the business sells
products can be tangible (goods) or intangible (services)
Consumer goods (bought by consumers) or producer goods (bought by businesses)

Question 2

Product life cycle stages of a product - introduction

Answer 2

high costs - lots of promotion needed
no economies of scale in production
low sales - cash flow problems

Question 3

Product life cycle stages of a product - growth

Answer 3

increasing revenue as shops willing to stock the product
profits can start to be made

Question 4

Product life cycle stages of a product - maturity

Answer 4

high, but flat, sales and market share
more economies of scale so profits made
most consumers already own the product
saturation - competition enters the market

Question 5

Product life cycle stages of a product - decline

Answer 5

sales and profits fall

Question 6

Product life cycle stages of a product - R&D

Answer 6

design and testing
high costs - prototype and test marketing help success

Question 7

what is a brand

Answer 7

logo, name, image that differentiates one producer from another
creates a perception in the mind of consumers

Question 8

brand awareness

Answer 8

extent to which a product is recognized and remembered by customers

Question 9

brand development

Answer 9

the process of building a brand identity in order to maximize sales and profit

Question 10

brand loyalty

Answer 10

faithfulness of customers to a brand as shown by repeat purchases

Question 11

brand value/equity

Answer 11

when customers are willing to pay premium for a brand above a non-branded product

Question 12

advantages of branding

Answer 12

instant recognition and product differentiation (USP)
brand loyalty and brand value
emotional attachement
employee motivation
easier to enter international markets

Question 13

disadvantages of branding

Answer 13

bad news may affect the whole brand even if the product are the same
marketing costs to build and maintain the brand
cultural and language differences - increase in costs for market development

Question 14

extension strategies

Answer 14

marketing strategies that lengthen the maturity stage of the product life cycle and prevent a decline in sales

Question 15

examples of extension strategies

Answer 15

new version of the product
adding features
redesign
reduce price on older models
new packaging
entering a new market
more frequent use

Question 16

pros of extension strategies

Answer 16

should be guaranteed increased revenue in the future
no need to create a whole new product - lower costs
relatively simple - change packaging new name etc

Question 17

cons of extension strategies

Answer 17

costs involved - designing new product design
consumers may see through strategy - may be seen as a brand without new ideas
taking money away from developing new products

Question 18

Cost-plus pricing

Answer 18

adding a fixed mark-up for profit to the unit cost of a product
add a fixed amount or %
calculate cost of producing one unit

Question 19

Pros of Cost plus pricing

Answer 19

guaranteed profit - charging price higher than unit cost

Question 20

Cons of cost plus pricing

Answer 20

• price changes with cost - doesn’t control their price but its instead controlled by the cost, suppliers control the price - they lose control
• ignores the market - consumers are less willing to pay the high prices but the price is determined by the cost

Question 21

Penetration pricing

Answer 21

• when entering a new market, setting a relatively low price for the product in order to gain market share
• suitable when the product is price elastic - sensitive to changes in price - the low price will attract proportionally more demand
• can then increase pricing when gain market share

Question 22

Cons of penetration pricing

Answer 22

• low profit margins at the beginning - can be different for new company as they have cash flow problems
• price rises are unpopular -some consumers may go elsewhere

Question 23

Loss Leader

Answer 23

Product sold at a very low price below cost price, with the intention of making profits on other products

Question 24

Predatory

Answer 24

• setting prices lower than the competition with the intention of driving them out of the market
• usually by a firm with resources or a lower cost of production - could have lots of money and afford a loss in the short term and then raise the price higher than previously to make more money
• then can raise the price when competition has left increasing monopoly power
• illegal in many countries but difficult to prove

Question 25

premium

Answer 25

• setting a high price in order to show that the product is high quality or luxury
• consumers can buy the product to show their success wealth etc.
• high profit margins
• fewer customers and requires an exclusive image

Question 26

Dynamic (HL)

Answer 26

• When a business changes prices according to time and the level of demand
• surge pricing

Question 27

Competitive (HL)

Answer 27

• Setting the price at a similar level to other products in the market
• or can undercut the competition
• Easy to set the price
• Suitable in markets where consumers can easily compare prices

Question 28

Contribution (HL)

Answer 28

• Ensuring that the price charged is higher than the variable cost of production
• Contribution per unit = Price - Variable Cost
• Then this “profit” (CPU) can be used to pay towards the fixed costs

Question 29

PED

Answer 29

• Revenue P x Q
• PED shows how sales will change with a change in price
• As price increases, sales (quantity demanded) will go down

Question 30

Elastic PED

Answer 30

• PED>1
  *A change in price will lead to a proportionately larger change in sales
• So a decrease in price will lead to higher revenue

Question 31

Inelastic PED

Answer 31

• PED<1
• A change in price will lead to a proportionately smaller change in sales
• So an increase in price will lead to higher revenue

Question 32

Promotion

Answer 32

• Communicating with current and potential customers about their product in order to raise sales

Question 33

Objectives of promotion

Answer 33

• to inform - tell customers about the product
• to persuade - get them to buy it
• to remind customers - get them to continue to buy it

Question 34

Above the line promotion

Answer 34

Promotion directly paid for by the company to communicate with consumers through mass media
- TV/Radio adverts
- Newspapers/Magazines adverts
- Billboards
- Online Ads

Question 35

Below the line promotion

Answer 35

Promotion activities that are generally targeted towards a specific market share of group of people.
These are not directly paid for by the business, and no money is paid to advertising agencies
- Price promotion
- Loyalty cards
- Free samples
- Direct Selling
- Sponsoring events/teams

Question 36

Pros of TV/online ad

Answer 36

• Can reach a wide and diverse audience
• audio/visual stimulus
• can tell a story

Question 37

Pros of loyalty

Answer 37

• relatively cheaper
• Targeted at specific customers
• Can track behavior and target personalized ads

Question 38

Through the line promotion

Answer 38

• a promotional strategy which combines above the line and below the line strategies
• e.g. a TV ads alongside a customer loyalty program

Question 39

Social media marketing as a promotional strategy

Answer 39

• the use of social media platforms to connect with the target audience

Question 40

pros of using social media marketing

Answer 40

• reach large audiences, especially younger generation
• can target your audience
• can measure success - through click through rate
• do this quickly

Question 41

cons of social media marketing

Answer 41

• cost involved in hiring people to manage the line presence
• no control over the online reaction
• security issue

Question 42

Place

Answer 42

• the process of how a product gets from the manufacturer to the final consumers
• not literally a ‘place’ - it’s the distribution channel not a physical place
• e.g. should a business sell only online or via a retailer

Question 43

Distribution channel + examples

Answer 43

• chain of intermediaries a product passes through from producer to final customer
  Producer —-> Consumer
  Producer —> Retailer —> Consumer
  Producer —> Wholesaler —> retailer —> consumer

Question 44

Direct selling

Answer 44

• selling directly to consumer without any intermediaries

Question 45

Pros of direct selling

Answer 45

• Higher profit margins - no intermediaries to pay
• direct contact with the customer
• more control - over pricing, promotion etc

Question 46

Cons of direct selling

Answer 46

• less exposure for the product to consumers
• have to hand storage and distribution
• not specialised in selling

Question 47

Slight intermediary channel

Answer 47

Selling to consumers via on intermediary (retailers, agent or distributor)

Question 48

Pros of using one intermediary

Answer 48

• reach a wider range of customers
• Consumer can see and feel the product
• Retailer takes care of storage and distribution

Question 49

Cons of using one intermediary

Answer 49

• Retailer will take some of the profit
• Lose control of the marketing mix - e.g. price, promotion
• Product will likely be displayed next to competitors

Question 50

Two intermediary channel

Answer 50

Manufacturer selling to consumers via two intermediaries
* Wholesales buy in bulk from manufacturers and then sell smaller amounts to retailers

Question 51

Pros of using two intermediaries

Answer 51

• Wholesaler takes care of storage and distribution
• Wider geographical reach

Question 52

Cons of using two intermediaries

Answer 52

• Another intermediary to take profit
• Even less control over marketing mix

Question 53

Importance of different types of distribution channels

Answer 53

• the more intermediaries the lower the profit margins - direct selling has highest profit margins
• retailers has product displays and allows communication with the customer
• retailers reduce the control the manufacturer has on marketing decisions
• Retailers and wholesalers will stock the product, reducing stock holding costs for manufacturers
• the manufacturer may control the whole distribution channel

Question 54

Factors to consider in determining method of distribution channel

Answer 54

• cost
  is the profit margin high enough to allow intermediaries
• Control over the brand
  does the business need to control the price promotion methods etc
• Where are the customers
  if there are a large number of customers spread out over the country, a wholesales may be appropriate
• mass market vs niche market
  if the product is mass market, then direct selling is not likely to be possible

Question 55

People

Answer 55

how employees (staff and managers) interact with consumers
e.g. customer interactions
after sales service
use of social media

Question 56

Processes

Answer 56

the way in which the good or service is actually delivered to the consumer
e.g. payment methods
waiting times
website
online delivery