4.5 - The 7 Ps + BCG Matrix Flashcards
Marketing Mix
The key decisions that a firm takes in order to persuade consumers to buy their good or service
What are the 7 Ps?
- Product
- Price
- Promotion
- Place
- People
- Processes
- Physical Evidence
Product (Definition)
- Goods and services that businesses sell
Products can be:
- Tangible (goods) vs intangible (services)
Goods = pencils; services = haircut, education - Consumer goods (bought by consumers) vs producer goods (bought by businesses)
Product Life Cycle
- The stages that a product goes through
- In terms of sales revenue
Stages of a Product Life Cycle
- Introduction/Launch
- Growth
- Maturity
- Decline
Possible Additional Step
0. Research and Development
Introduction/Launch (PLC)
- When the good/service first hit the market
- When the business sells the product for the first time
- High costs - lots of promotion needed
- No Economies of scale in production
- Low sales - cash flow problems
Growth (PLC)
- Increasing revenue as shops willing to stock the product
- Customers are starting to buy the product more and more
- Profits can start to be made
- Still spend money on promotion
Maturity (PLC)
- High, but flat, sales and market share
- More Economies of Scale so profits are made
- No longer grow or grow slower
- Most consumers already own the product
- Saturation - competition enters the market
Decline (PLC)
- Sales and profits fall
- Business can try to extend the maturity stage
What is a brand?
- Logo, Name, Image that differentiates one producer from another
- Creates a perception in the minds 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 profits
Brand Loyalty
Faithfulness of customers to a brand as shown by repeat purchases
Brand value/equity
When customers are willing to pay a premium for a brand above a non-branded product
- E.g. non-branded trainers = $30
- Branded trainers = $90
- Brand value = $60
Advantages of Branding
- Instant recognition and product differentiation (USP)
- Brand loyalty and brand value
- Emotional attachment
- Employee motivation
- Easier to enter international markets
Disadvantages of Branding
- Bad news may affect the whole brand even if the products are the same
- If one of the products goes bad, it can affect other products
- Marketing cost 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 PLC and prevent a decline in sales
Pros of using extension strategies
- Should be guaranteed increased revenue in the future - e.g. new Star Wars movies
- No need to create a whole new product - lower costs
- Relatively simple - change packaging, new name, etc…
Cons of using extension strategies
- Costs involved - e.g. designing new product design
- Consumers may see through the strategy - may be seen as brand without new ideas
- Taking money away from developing new product
List all 9 Pricing Methods
- Cost-plus pricing
- Penetration pricing
- Loss leader
- Prederatory pricing
- Premium pricing
- Dynamic pricing
- Competitive pricing
- Contribution pricing
- Price elasticity of demand
Cost plus pricing
Adding a fixed mark-up profit to the unit cost of the product
Penetration pricing
When entering a new market, setting a relatively low price for the product in order to gain market share
Loss Leader
Product sold at a very low price, often below cost price, with the intention of making profits on other products
Predatory pricing
Setting prices lower than the competition with the intention of driving them out of the market
Premium pricing
Setting a high price in order to show that the product is high quality or luxury
Dynamic pricing
- When a business changes prices according to time and the level of demand
- Prices go up and down depending to time of the year or week
Competitive Pricing
Setting the price at a similar level to other products in the market
Contribution pricing
- Ensuring that the price charged > variable cost of production
- Contribution per unit = Price - Variable cost
Price Elasticity of Demand
PED shows how sales will change with a change in price
Elastic PED (PED > 1)
- A change in price will lead to a proportionally larger change in sales
Inelastic PED (PED < 1)
- A change in price will lead to a proportionally smaller change in sales
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 buying it
Above the line
Promotion directly paid for by the company to communicate with consumers through mass media. These promotion activities are targeted to everyone.
- TV/Radio adverts
- Newspapers/Magazine adverts
- Billboards
- Online ads
Below the line
Promotion activities that are generally targeted towards a specific market share or group of people. These are not directly paid for by the business, and no money is paid to advertising agencies.
- Price promotion - e.g. buy 2 get 1 free, prizes
- Loyalty cards
- Free samples
- Direct selling - e.g. door to door
Through the line
A promotional strategy that combines above the line and below the line strategies.
E.g. a TV ad alongside a customer loyalty program
E.g. Online ads alongside in store sales promotions
Social Media Marketing
The use of social media platforms to connect with the target audience.
E.g. Instagram, TikTok, LinkedIn
Pros of TV/online ad
- Can reach a wide and diverse audience
- Audio/visual stimulus
- Can tell a story
Pros of loyalty card
- Relatively cheaper
- Targeted at specific customers
- Can track behavior and target personalized ads
Pros of Social Media Marketing
- Reach large audiences, especially younger generations
- Can target your audience
- Can measure success - E.g. Click through rate (CTR)
Cons of Social Media Marketing
- Cost involved in hiring people to manage the online presence
- No control over the online reaction
- Security issue
Place
The process of how a product gets from the manufacturer to the final consumers
Distribution Channel
Chain or intermediaries a product passes through from the producer to final customer
- Direct selling
- Selling through retailers
- Selling through wholesalers
Direct selling
Manufacturers selling to consumers without any intermediaries.
E.g. Amazon, plane tickets
E.g. Door to door, telephone, mail order, farmers markets
Pros of Direct Selling
- Higher profit margins - no intermediaries to pay
- Direct contact with the customers
- More control - over pricing, promotion, etc…
Cons of Direct Selling
- Less exposure for the product to consumers
- Have to handle storage and distribution
- Not specialized in selling
Single Intermediary Channel (One-level)
(Selling through retailers)
Selling to consumers via one intermediary (retailer, agent or distributor)
E.g. supermarket, bookstore, real estate agent
Pros of Single Intermediary Channel
- Reach a wider range of customers
- Consumers can see and feel the product
- Retailer takes care of storage and distribution
Cons of Single Intermediary Channel
- Retailers will take some of the profit
- Lose control of Marketing Mix - e.g. price, promotion
- Product likely to be displayed next to competitors
Two Intermediary Channel (Two-level distribution channel)
- Manufacturer selling to consumers via two intermediaries
- Usually a wholesaler and a retailer
- Wholesalers buy in bulk from manufacturers and then sell smaller amounts to retailers
Pros of Two Intermediary Channel
- Wholesaler takes care of storage and distribution
- Wider geographical reach
Cons of Two Intermediary Channel
- Another intermediary to take profit
- Even less control over the marketing mix
Factors to consider in determining method distribution channel
Cost
- Is the product margin high enough to allow intermediaries?
Control over the brand
- Does the business need to control price, promotion methods, etc…
Where are the customers
- If there are a large nimber of consumers spread out over the country, a wholesaler may be appropriate
Mass market vs niche market
- If the product is mass market, then direct selling is not likely be possible
People
How employees (staff and managers) interact with consumers
E.g.
- Customer interactions
- After-sales service
- Use of social media
- If the product is a service
Cultural Variations:
- Packing bag in supermarkets
- Do staff approach customers
Processes
The way in which the good or service is actually delivered to the consumers
Examples:
Payment methods
- E.g. cashless, debit card
Waiting times
- E.g. McDonalds, Pizza delivery
Website
Online delivery
Physical Evidence
- Tangible aspects of the business when a consumer buys the good or service
- The senses - see, smell, hear, feel, taste
E.g.
- The smell of fresh bread in a bakery/supermarket
- Music they play
- Cleanliness of a hotel room
- IB school - classroom, projectors, sports fields, the smell of burgers on game day
What is BCG Matrix?
- A tool that helps businesses analyze and make their product portfolio
- Analyze product portfolio in terms of
- Market share (high/low)
- Market growth (high/low)
Question Marks (Problem Child)
- High market growth
- Low market share - E.g. Lamborghini Lanzador
- Product Life Cycle = Introduction
- High promotion costs to establish brand and not all will succeed
- Negative cash flow
Star (BCG Matrix)
- High market growth
- High market share - E.g. Teslas
- Product Life Cycle = Growth
- High promotion costs as the market is growing
- If you don’t promote other business will overtake you
- Maybe positive cash flow/profit
Cash Cow
- Low market growth
- High market share - E.g. BMW 3 Series
- Product Life Cycle = Maturity
- Some, but less, promotion costs
- Maintaining brand
- Positive cash profit
Dog (BCG Matrix)
- Low market growth
- Low market share
- Product Life Cycle = Decline
- Probably needs to be replaced
The relationship between PLC, investment, profit, and cashflow
