4.5 The 7 P's Flashcards
product
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)
Product life cycle stages of a product - introduction
high costs - lots of promotion needed
no economies of scale in production
low sales - cash flow problems
Product life cycle stages of a product - growth
increasing revenue as shops willing to stock the product
profits can start to be made
Product life cycle stages of a product - maturity
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
Product life cycle stages of a product - decline
sales and profits fall
Product life cycle stages of a product - R&D
design and testing
high costs - prototype and test marketing help success
what is a brand
logo, name, image that differentiates one producer from another
creates a perception in the mind of consumers
brand awareness
extent to which a product is recognized and remembered by customers
brand development
the process of building a brand identity in order to maximize sales and profit
brand loyalty
faithfulness of customers to a brand as shown by repeat purchases
brand value/equity
when customers are willing to pay premium for a brand above a non-branded product
advantages of branding
instant recognition and product differentiation (USP)
brand loyalty and brand value
emotional attachement
employee motivation
easier to enter international markets
disadvantages of branding
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
extension strategies
marketing strategies that lengthen the maturity stage of the product life cycle and prevent a decline in sales
examples of extension strategies
new version of the product
adding features
redesign
reduce price on older models
new packaging
entering a new market
more frequent use
pros of extension strategies
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
cons of extension strategies
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
Cost-plus pricing
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
Pros of Cost plus pricing
guaranteed profit - charging price higher than unit cost
Cons of cost plus pricing
- 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
Penetration pricing
- 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
Cons of penetration pricing
- 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
Loss Leader
Product sold at a very low price below cost price, with the intention of making profits on other products
Predatory
- 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
premium
- 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
Dynamic (HL)
- When a business changes prices according to time and the level of demand
- surge pricing
Competitive (HL)
- 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
Contribution (HL)
- 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
PED
- Revenue P x Q
- PED shows how sales will change with a change in price
- As price increases, sales (quantity demanded) will go down
Elastic PED
- 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
Inelastic PED
- 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
Promotion
- Communicating with current and potential customers about their product in order to raise sales
Objectives of promotion
- to inform - tell customers about the product
- to persuade - get them to buy it
- to remind customers - get them to continue to buy it
Above the line promotion
Promotion directly paid for by the company to communicate with consumers through mass media
- TV/Radio adverts
- Newspapers/Magazines adverts
- Billboards
- Online Ads
Below the line promotion
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
Pros of TV/online ad
- Can reach a wide and diverse audience
- audio/visual stimulus
- can tell a story
Pros of loyalty
- relatively cheaper
- Targeted at specific customers
- Can track behavior and target personalized ads
Through the line promotion
- a promotional strategy which combines above the line and below the line strategies
- e.g. a TV ads alongside a customer loyalty program
Social media marketing as a promotional strategy
- the use of social media platforms to connect with the target audience
pros of using social media marketing
- reach large audiences, especially younger generation
- can target your audience
- can measure success - through click through rate
- do this quickly
cons of social media marketing
- cost involved in hiring people to manage the line presence
- no control over the online reaction
- security issue
Place
- 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
Distribution channel + examples
- chain of intermediaries a product passes through from producer to final customer
Producer —-> Consumer
Producer —> Retailer —> Consumer
Producer —> Wholesaler —> retailer —> consumer
Direct selling
- selling directly to consumer without any intermediaries
Pros of direct selling
- Higher profit margins - no intermediaries to pay
- direct contact with the customer
- more control - over pricing, promotion etc
Cons of direct selling
- less exposure for the product to consumers
- have to hand storage and distribution
- not specialised in selling
Slight intermediary channel
Selling to consumers via on intermediary (retailers, agent or distributor)
Pros of using one intermediary
- reach a wider range of customers
- Consumer can see and feel the product
- Retailer takes care of storage and distribution
Cons of using one intermediary
- 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
Two intermediary channel
Manufacturer selling to consumers via two intermediaries
* Wholesales buy in bulk from manufacturers and then sell smaller amounts to retailers
Pros of using two intermediaries
- Wholesaler takes care of storage and distribution
- Wider geographical reach
Cons of using two intermediaries
- Another intermediary to take profit
- Even less control over marketing mix
Importance of different types of distribution channels
- 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
Factors to consider in determining method of distribution channel
- 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
People
how employees (staff and managers) interact with consumers
e.g. customer interactions
after sales service
use of social media
Processes
the way in which the good or service is actually delivered to the consumer
e.g. payment methods
waiting times
website
online delivery