4.5 The Four Ps

Question 1

What is a Product?

Answer 1

A product is any good or service that serves to satisfy the needs or wants of customers.

Question 2

Distinguish between consumer durable products, consumer perishable products and fast-moving consumer goods.

Answer 2

• consumer durable = last for a very long time, take up income, purchased irregularly
• consumer perishable = don’t last very long, purchases not as frequent as FMCGs, may carry high profit margins
• fast-moving = everyday convenience products sold in retail outlets , purchased quite frequently

Question 3

What are the stages in the product life cycle?

Answer 3

1. Research & Development
2. Launch/Introduction
3. Growth
4. Maturity
5. Decline
   * death/ withdrawal

Question 4

Explain how the life cycle of a product has varying effects on a firm’s level of investment, profits and cash flow.

Answer 4

Depending on what stage the product is in the PLC, the firm’s level of investment, profits and cash flow will definitely vary.

1. Research & Development
   level of investment: very high b/c developing product
   profits: none b/c not yet launched
   cash flow: highly negative b/c a lot of cash going in and not even launched yet
2. Launch/Introduction
   level of investment: very high b/c marketing
   profits: little, if any b/c if any b/c not a lot of people aware esp. if new product and no brand awareness
   cash flow: negative b/c still newly launched, not yet enough profit to make up for R&D costs
3. Growth
   level of investment: high b/c goes into persuading ppl to buy
   profits: yes, rising b/c people more aware, more customers (maybe because of branding?)
   cash flow: positive (finally making enough money to keep up with costs)
4. Maturity
   level of investment: less (money mainly put into reminding people about product)
   profits: high, but little or no growth (already established in market, at peak, more people already have product)
   cash flow: positive b/c making money
5. Decline
   level of investment: little, if any (maybe put into extension strategies or discontinuing marketing/promotion)
   profits: yes, but falling (not as many people buying, market decline, substitutes present in market)
   cash flow: positive but falling (b/c profits are falling)

Question 5

Use examples to explain the meaning of extension strategies.

Answer 5

These are mainly used for products that reach saturation in their life cycle in order to try and prolong their sales revenue. Examples include:

• Price reductions: to increase demand for a product or to get rid of excess stocks before they become obsolete.
• Redesigning: involves introducing special features or ‘limited editions’ to a current product (adds value and makes it more enticing to customers)
• Repackaging: to help revive demand (appearance van have large effect on demand, e.g. Rose Gold Iphone???)
• New Market: to extend life cycle of current product (e.g. new retail outlets, different regions or overseas)
• Brand extension: refers to the use of an existing and successful brand name to launch new/modified version of product = longer PLC

Question 6

Distinguish between the four quadrants in the Boston Matrix

Answer 6

• Cash Cows = high market share, low market growth (highly profitable, at maturity stage)
• Stars (Rising Stars) = high market share, high market growth (profitable, potential to turn into cash cows, growth stage)
• Question Mark (Problem Children) = low market share, high market growth (very costly, wild card, not sure if should be withdrawn, launch/growth stage)
• Dogs = low market share, low/stagnant market growth
  (do not generate much cash/profit, soon to be withdrawn/at decline stage)

Question 7

Why is it important for businesses to have a balanced product portfolio?

Answer 7

It is important because each quadrant is connected in that they start in one stage but can develop into another. But for example, if all of the rising stars turn into cash cows, then there wouldn’t be anymore rising stars. So come the time when the cash cows turn into dogs, they won’t have any replacements. Therefore, it is ideal to have balanced product portfolio (some stars, a few question marks, several cash cows) to ensure that the business stays stable.

Question 8

What is branding and why is it important for a business?

Answer 8

Branding is a form of differentiating a firm’s products from those of it’s competitors. It is important b/c it is a…

• legal instrument (trade marks)
• risk reducer (better survival of new products /c of brand name)
• image enhancer (successful brands can charge premium prices)
• revenue earner (can charge proportionally higher w/out losing customers = high sales revenues, encourages brand loyalty, demand for firm’s product less sensitive to changes in prices)

Question 9

What is the difference between ‘brand loyalty’ and ‘brand development’?

Answer 9

Brand loyalty is a lot more external in that it occurs when customers buy the same brand of product time and time again and are devoted to the brand since they have preference over brand names. On the other hand, brand development is more internal in that it is a long-term product strategy use by a firm that involves strengthening the name and image of a brand to boost its appeal and sales.

Question 10

Explain how brand value depends on brand awareness, brand development and brand loyalty.

Answer 10

If you raise awareness of your brand (what it is, what you stand for) and develop and build that image into something even greater, you will eventually earn the loyalty of your customers. This will ultimately lead to better brand value wherein your customers believe that how much they are paying for your product is worth it. (Customers usually believe that a well-known brand has better value for money that brands that aren’t as famous or reputable)

Question 11

Define the term Branding.

Answer 11

Branding is a form of differentiating a firm’s products from those of its competitors.

Question 12

Explain the importance of branding to a business of your choice.

Answer 12

Branding is a legal instrument. Brand names create a legal identity for a product by giving it a unique and recognisable name and image to differentiate it from other products.

Branding is a risk reducer. Brands can give new products a better chance of survival. They can create a sense of value for money and encourage brand awareness.

Branding is an image enhancer. Successful brands allow a business to charge a premium price because customers are often willing to pay a substantially higher price for a ‘good’ brand.

Branding is a revenue earner. Branding can encourage brand loyalty.

Question 13

What are the advantages of successful branding?

Answer 13

Price advantages
Brand recognition and loyalty
Distribution advantages

Question 14

Define the following terms:
Brand awareness
Brand development
Brand loyalty
Brand value

Answer 14

Brand awareness
Refers to the extent to which potential customers recognise a particular brand and is usually expressed as a percentage of the sample surveyed.

Brand development
Refers to the marketing process of improving and enlarging the brand name in order to boost sales revenue and market share.

Brand loyalty
Brand Loyalty occurs when customers buy the same brand of a product time and time again.

Brand value
Refers to the premium that customers are willing to pay for a brand name over and above the value of the product itself.

Question 15

What is the importance of Brand awareness to a business?

Answer 15

Brand awareness plays a major part in the buying decision of consumers.

Brand awareness gives the firm a competitive edge over its rivals, resulting in greater market share.

It can also encourage repeat purchases if customers like and trust the brand.

Question 16

What is the role of Brand awareness to a business?

Answer 16

Brand awareness helps a brand to stand out from the others in the market.

Question 17

Why is brand loyalty important to a business?

Answer 17

Brand loyalty helps businesses to maintain or improve their market share.

Brand loyalty allows businesses with brand loyalty to charge premium prices for their products, which improves their profit margins.

Brand loyalty acts as a barrier to entry in highly competitive markets such as the fashion and clothing industry.

Brand loyalty helps prolong the product and brands life cycles.

Question 18

Define brand switching.

Answer 18

Is when consumers turn to alternative brands mainly because the original brand has lost some of its former appeal.

Question 19

What are the advantages and disadvantages of businesses that try to boost their brand value?

Answer 19

Higher market share

Premium prices - Having brand value allows a business to charge higher prices for its products because customers feel that they are paying for the added value that the brand carries, such as the reputation of the brand.

Higher barriers to entry - Brand value makes it more difficult for new firms to enter the market because customers are loyal to the existing brand.

Question 20

Define the term packaging

Answer 20

Packaging refers to the ways in which a product is presented to the consumer.

Question 21

Explain the importance of packaging to a business of your choice

Answer 21

Packaging has a profound impact on customer perceptions of a product or brand. Customers perceive quality packaging with a quality product.

It acts as a form of product differentiation.

Packaging protects a product against damage during transportation and distribution of the product.

Labelling can be used to provide information.

Packaging makes the distribution of products easier.

Packaging can be used to encourage impulse buying.
Packaging is used to promote the brand or the business.

Question 22

Define the term price.

Answer 22

Price refers to the amount paid by a customer to purchase a good or service.

Question 23

Explain the importance of price to a business of your choice. Give 3 reasons.

Answer 23

Price affects the corporate image of a business.
Price has a direct impact on the level of sales revenues.
Price reflects the quality of products.

Question 24

Explain the following price strategies, giving advantages and disadvantages
Cost plus(Mark up) Pricing
Penetration pricing
Price skimming
Psychological pricing
Loss Leader pricing
Price discrimination
Price leadership
Predatory Pricing

Answer 24

Cost plus(Mark up) Pricing
Cost-plus (mark-up) pricing involves adding a percentage or predetermined amount of profit to the cost per unit of output to determine the selling price.
Advantage:
It is simple and easy to calculate.
Disadvantage:
It often relies too much on intuitive decision-making rather than on the needs of customers.

Penetration pricing
Penetration pricing sets a relatively low price (or a ‘special introductory price’) to help establish a new product in the industry, in order to gain brand recognition and market share.
Advantage:
This strategy is suitable for mass market products sold in large enough quantities to sustain low profit margins, e.g. fast moving consumer goods.
Disadvantage:
Setting prices too low can cause customers to perceive the product as inferior and of poor quality.

Price skimming
Price skimming is when a high price is initially set to recoup the costs of research and development. Advantage:
A high initial price can also create a unique and prestigious image for the product.
Disadvantages:
Due to the large potential profits that can be made, other firms will eventually be attracted to enter the industry.

Psychological pricing
Psychological pricing involves rounding down numbers such as $9.99 or $14 995 to make prices seem lower (than $10.00 or $15 000). Hence, customers psychologically feel that they are getting a bargain (better price) for the product.
Advantages:
This method is widely used and can work for almost any product, from groceries sold in a supermarket to expensive motor vehicles or residential properties.
It also works well when selling the same product in larger quantities.
Disadvantages:
Psychological pricing does not work well for some businesses, such as taxi firms, as rounded or whole numbers are more suitable for the customer and the service provider.

Loss Leader pricing
Loss leader pricing involves selling a product below its cost value.
Advantages:
It can attract many customers.
Loss leader pricing can also be used to encourage brand switching, which in the long term can make up for losses incurred whilst the product was priced at a loss.

Price discrimination
Price discrimination occurs when the same product, usually a service, is sold at different prices to different customers.

Conditions that must be met for price discrimination to be successful.
The business must have some degree of market power to set prices.
Customers must have different degrees of willingness to pay.
Markets must be kept separate to prevent resale.

Price leadership
The dominant firm or market leader sets its own prices and the competitors follow the leader by setting their prices based on the price of the market or price leader.
Advantages:
If the market leader sets a relatively high price, firms in the industry will enjoy higher profit margins.
Disadvantages:
If the dominant firms sets a low price, this can create problems for other firms that are unable to match the price as they do not have the same economies of scale as the market leader.

Predatory Pricing
Predatory pricing involves temporarily reducing price in an attempt to force rivals out of the industry as they cannot compete profitably.
Advantages:
If the strategy is successful, the firm will benefit from being in a more dominant position, and can therefore raise its prices to recoup any losses incurred.

Disadvantages:
It is illegal in many parts of the world (such as the USA and EU) since it is regarded as an anti-competitive trade practice.

Question 25

Define the term promotion.

Answer 25

Promotion refers to methods of communicating messages to the market, usually with the intention of selling a firm’s products.

Question 26

What are the three key objectives to any promotion strategy?

Answer 26

To inform
To persuade
To remind the market about the firm’s products.

Question 27

What is informative promotion?

Answer 27

Informative promotion is one that aims to tell the market about a firm’s products, especially new or updated products.

Question 28

What is persuasive promotion?

Answer 28

Persuasive promotion is one that aims to encourage customers to make a purchase, to switch from rival products and to create brand loyalty.

Question 29

What are reminder promotion techniques?

Answer 29

Reminder promotional techniques are the one used to retain customer awareness of, and interest in, an established product.

Question 30

What is Above the line (ATL) promotion?

Answer 30

Above the line (ATL) promotion is any form of paid-for promotional method through independent mass media sources (such as television, magazines and radio) to promote a business, its brands or its products.

Question 31

What are the main methods of ATL Promotions? State their advantages and disadvantages.

Answer 31

1) Television Advertising
Advertising on TV exploits the power of combining sound and moving images to convey very powerful messages to viewers.

Advantages

• TV advertisements can also be designed to meet specific needs.
• It is possible to broadcast TV advertisements to a global audience.

Disadvantages
- Costs of producing and broadcasting television advertisements are huge.

2) Radio Advertising
Radio time slots are sold to businesses,with peak listening times in the morning and evening rush hour periods

Advantages

• Radio advertising is able to reach a very large audience and yet it is cheaper than the TV advertising.
• Radio commercials do not rely on viewers having to be immobile in front of a TV screen.
• Advances in technology, such as wireless broadband, mean that radio commercials can be broadcast to almost anyone around the world

Disadvantages

• Radio advertising is that it can only communicate audio messages, i.e. there is no visual impact.
• Audiences have lower attention levels compared with TV advertisements, which exploit the dynamics of moving images.

3) Cinema Advertising
Advantages
- Audiences can be directly targeted and promotion can be tailored to the specific market segments.
- The size of cinema screens can exert more impact compared to other forms of promotion, especially with the increased popularity of 3D movies.
- Marketers have a captured audience as it is much harder for viewers to ignore or switch off the advertisements.

Disadvantages
- Its limited audience size compared with that of radio listeners and television viewers.

4) Newspaper advertising
Advantages
- Has potential to reach a wide audience yet it is cheaper than using TV advertising.
- Newspaper advertisements can be referred to at a later date meaning that important information can be included.
- Newspaper advertisements can target different markets better

Disadvantages

• High cost particularly for small businesses.
• Newspapers have a very short shelf-life

5) Magazines
Advantages
- Uses high photo quality colour images that attracts the attention of readers.
- It is possible to target the right market segment through the use of speciality magazines
- Advertisements in magazines can be referred back to at a later date.
- Magazines also have a longer shelf-life than newspapers.

Disadvantages

• It is static hence a business may be forced to place many adverts and this has a cost implication.
• Readers are bombarded with many adverts and some may choose to ignore or unintentionally miss some advertisements.
• Usually there is a long lead-time between submitting an advertisement and the actual publication in a magazine

6) Outdoor advertising
Outdoor advertising refers to the use of commercial billboards, banners and posters to promote a business, its brands or its products.

Advantages

• Outdoor advertising has a dynamic dimension as in billboards can automatically rotate and digital billboards can combine images and sound.
• Outdoor advertising has high exposure especially if the same advert is used in different locations.

Disadvantages

• Monitoring the effectiveness of outdoor adverts is difficult because targeting is difficult.
• Traditional billboards are also prone to damage caused by bad weather, vandalism and graffiti.
• There can be high levels of competition in terms of advertising clutter and has been outlawed in some countries like Brazil.

Question 32

What are the advantages of ATL promotion?

Answer 32

ATL promotion reaches a large number of customers as they tend to take more notice because they are more interesting and appealing

Question 33

What are the disadvantages of ATL promotion?

Answer 33

• ATL promotion is very expensive and might not appeal to the audience.
• Many advertisements are ignored because people switch channels during television and radio commercial breaks; readers often take no notice of advertisements in magazines; and people complain about the number of pop-up advertisements on the internet.