4.5 The four P's (product, price, promotion, place) Flashcards
The product life cycle
Research and development
Introduction
Growth
Maturity
Decline
Product: extension strategies
-Finding a new target market
-Product update
Pricing strategies for new products only
price skimming and penetration pricing
Skimming
Launching a product with an initial high price to give an image of exclusivity and prestige. It promotes a high-quality image. Revenue is maximised from the ‘Innovator’ market segment. Many customers may be put off by high prices.
Penetration pricing
Launching a product with an initial low price to encourage consumers to try it and hopefully develop brand loyalty. Market share and customer loyalty may be quickly established. Low profit margins are likely during the initial low price. Customers may not accept the price rise.
Pricing strategies that can be applied to all new and existing products
Cost-plus (mark-up)
Price leadership
Price following (competitive pricing)
Psychological pricing
Predatory pricing
Price discrimination
Loss leader
Cost-plus (mark-up)
Calculating the total cost of a product, then adding a percentage for the profit margin. It is simple, and easy to ensure all costs are covered. It is inward facing, and takes no account of the market.
Price leadership
Adopting a price that is slightly above rivals to give an image of prestige. It gives an image of high quality. Higher profit margins can be enjoyed. It is only suitable for market leaders. Price-sensitive customers will be lost.
Price follower (competitive pricing)
Setting a price that is similar to that of rivals. It is market-oriented and should ensure potential customers are not lost because of a high price. It takes no account of cost, and profit margins may therefore be low.
Psychological
Setting a price in a way that seems attractive to consumers. It is simple to implement. It is easy to copy. Therefore, any advantage may quickly be eroded by rivals who follow the same strategy.
Predatory
Temporarily setting an extremely low price to undercut rivals, forcing them to leave the market. Once competition is eliminated, higher prices and higher market share can lead to increased profits. It is illegal in many countries.
Price discrimination
Charging different groups of consumers different prices for the same good or service. Profits are maximised from each consumer segment. It is not possible in all markets. Some customers may feel cheated.
Loss leader
Stores significantly reduce the price of a single item below cost price to attract customers, expecting customers to buy other products while they are shopping. It can lead to a large boost in sales revenue. It is only possible for multi-product retailers.
Promotion: Above-the-line
Above-the-line promotion is the use of paid-for media such as TV, radio and the internet. Examples: Television, Online, Newspapers, Magazines, Radio, Outdoor.
Promotion: Below-the-line
This refers to any promotion that is not carried out in the mass media. Generally, below-the-line promotion has fewer costs, so may be more attractive to smaller businesses. The main areas of below-the-line promotion are:
Direct marketing
Sales promotion
Loyalty cards
After-sales service
Public relations
Merchandising
Direct mailing
Packaging
Exhibitions and trade fairs
