4.5 The seven Ps of the marketing mix Flashcards
PRODUCT - The relationship between the product life cycle, product portfolio, and the marketing mix
Define the term ‘product’ and ‘Product Life Cycle’.
Give a brief overview of each of the stages of the product life cycle with indications to the levels of:
-What happens in it
- Sales levels
- Advertising and Promotion
- Cash Flow
- Profit
- Investment Costs
-Distribution Channels
- Pricing
- Any other activities a business might do in this stage
Product: physical (goods) and intangible (services) items sold by a business or purchased by a customer.
Product Life Cycle: Marketing theory shows the different stages that most products go through from their research and development (R&D) stage to their final removal from the market. Sales revenue on the y-axis and the timeline is along the x-axis.
- Research and Development (question mark):
-Market research is conducted to discover what products would appeal to potential customers.
- Cash flow negative. No advertising.
-no sales during this phase of the product life cycle, but expenditure will be high.
-Investment costs will be very high, profit will be negative, and cash flow will be negative. - Launch (question mark) The product is introduced:
-promotional mix is used to raise awareness of the product e.g. advertising and promotion.
-Cash flow potential is still negative but improving.
-limited distribution channels as the product is targeted at early adopters.
- Unlikely to be profitable
-Marketing expenditure will be high in order to raise the profile of the product and to generate sales growth.
-Investment costs will be high, profit will be negative, and cash flow will be negative but more favourable. - Growth: (rising star)
-sales revenue increases as the product becomes known in the market and the business gains market share.
-Competitors are likely to enter the market at this stage.
-Investment costs will be high, profit will materialize, and cash flow will be positive.
- Reduced advertising and promotion.
-The larger customer base warrants a larger number of distribution channels. - Maturity: (cash cow)
-sales revenue peaks, profit will peak, and cash flow remain positive.
- Marketing is extensive,
-Investment costs will be low.
-Profit will be high and generally stable.
- Extension strategies may be required in order to lengthen the product’s life cycle
-price competition as the product competes in a mature market
-Reliance on brand loyalty and brand value as vital aspects of product differentiation - Decline: (dogs)
-sales revenue decline, leading to the eventual withdrawal of the product.
-Prices need to be lowered in order to sell such products
-Profits drop at this stage, and financial losses might be incurred.
-Businesses need to decide whether (and for how long) to continue marketing the product or to withdraw it from the market.
- Cash flow likely to be negative
- Investment for the product, including promotional expenditure, is discontinued.
Extension Strategies
Define the term ‘Extension Strategies’
Describe what a business does before deciding whether to implement an extension strategy within the maturity strategy of their product’s life cycle.
State three examples of Extension Strategies
Extension Strategies: Marketing approaches used to prolong or lengthen a product’s life cycle.
Businesses weigh up the financial costs and benefits of spending money on extension strategies before making a decision. They will only implement the plans if the expected benefits outweigh the forecast costs.
Examples:
1. Reducing the price to encourage more customers to buy the product (assuming price elasticity of demand).
2. New promotional strategies to reinvigorate interest and purchases of the product.
3. Product enhancements or modifications in order to attract more customers, such as special features, limited editions, and repacking.
4. Expansion into new markets (exporting potentially).
Define the following aspects of branding and give each of them an example:
-Awareness
-Development
-Loyalty
-Value
Branding: the practice of using an exclusive name (brand), symbol, or design that identifies a specific product or business. E.g Amazon. There are four different types:
- Brand Awareness: The degree of customer knowledge and recognition of a particular brand to gain more customers.
E.g. the use of acronyms or abbreviations that stand for the name of a business.
- Brand Development: Part of a firm’s marketing strategy is communicating the value of a brand and what the brand stands for. Can provide a competitive advantage but can be highly expensive (e.g. celebrity endorsements) without a guarantee of success.
E.g. Conducting relevant market research and the identification of the target market.
- Brand loyalty: The degree of customer devotion to a particular brand. Exists when customers repeatedly and habitually buy the same brand. About retaining customers so that they make repeat repurchases.
E.g. Loyalty programmes create incentives for customers to make repeat purchases in order to gain benefits, such as price discounts. (retail industry).
- Brand Value : the expected earning potential of a brand, i.e. its forecast future sales revenue. For shareholders, this means how much the brand is worth. It is an intangible fixed asset which can be enhanced by brand awareness, brand development, and brand loyalty
e.g make the product products more reliable and of better build quality.
The importance of branding
Give three reasons why branding is vital to all businesses.
- Branding creates a unique and original identity for a business and its goods and services. Such product differentiation enables customers to recognise and distinguish the brand from competing products.
- Branding helps to foster customer loyalty. Repeat customers are important for the continued revenue streams and longevity of a business.
- Brands can help to build trust in an organization and its products.
- The purchase, ownership and consumption of certain brands can add an emotional value for customers, giving them a sense of wellbeing (the ‘feel good factor’).
- Businesses can charge premium prices for products with a good brand. Being able to charge higher prices helps to improve the organization’s profit margins.
PRICE
Define the term Price:
Define and state two ADVANTAGES and DISADVANTAGES to determine the appropriateness of the following pricing methods:
- Cost-plus (mark-up) pricing
- Penetration Pricing
- Loss Leader
-Predatory pricing
- Premium pricing
HIGHER LEVEL:
-Dynamic Pricing
-Competitive Pricing
-Contribution Pricing
-Price elasticity of demand
Price: the value of a good or service that is paid by the customer.
- Cost-plus (mark-up) pricing: adds a profit margin to the costs of production in order to determine the selling price of a good or service. This makes sure that each unit sold contributes towards the profits of the firm, by ensuring the selling price is higher than the production costs. Considers ALL costs.
For example, if a toy costs $10 per unit to make and the firm wants to earn an 80% profit margin, then the selling price would be: $10 × 1.8 = $18.
ADVANTAGES:
1. Simple to understand and calculate.
2. Suitable for almost all goods and services
3. Make sure the selling price is above the average total cost of production, thus ensuring each sale earns a positive contribution.
DISADVANTAGES
1. Does not directly consider the needs of customers when the price is set
2. Ignores prices being charged by competitors, including those that charge a much lower price
3. Doesn’t consider demand
- PENETRATION PRICING
Define the term “Penetration Pricing” and state two of its ADVANTAGES and DISADVANTAGES.
Penetration Pricing: setting low prices so as to gain entry in a new market. The firm will then raise the price once the product or brand has established itself (gained brand recognition) in the industry. It allows the firm to compete against existing firms and to gain market share
ADVANTAGES:
1. Lower prices can give the business a price advantage over its competitors, thus leading to high sales and gaining market share
2. Allows a business to enter a market and/or to launch a new product into an existing market
DISADVANTAGES:
1. Not a sustainable (long-term) pricing strategy as low prices can lead to losses or very low profit margins
2. Low prices can backfire as customers associate the organization and its products as being of ‘cheap’ or low quality (inferior). This will make it difficult for the business to raise prices at a later date.
- LOSS LEADER PRICING:
Define the term “Loss Leader” and state two of its ADVANTAGES and DISADVANTAGES.
Loss Leader Pricing: Pricing a product below its cost of production so as to attract customers to also buy other items (with a higher profit margin). An example is hand-held shavers being sold relatively cheaply, but selling the razor blades at a price with significantly higher profit margins.
ADVANTAGES:
1. May be used by businesses as a quick and effective way to clear out older stock or merchandise.
2. Brand switching strategy, i.e., the low price attracts customers away from rival brands
DISADVANTAGES:
1. Customers may get used to and expect the business to continue offering loss leader products. This can be expensive for the business to sustain.
2. There is no guarantee that customers will buy other products with positive profit margins.
- PREDATORY PRICING:
Define the term “Predatory Pricing” and state two of its ADVANTAGES and DISADVANTAGES.
Predatory Pricing: charging a low price, sometimes even below the cost, so as to damage the sales of rivals. It is also used by established market leaders to restrict new entrants, thereby limiting competition.
ADVANTAGES:
1. Low prices tempt customers to buy more of the product and for non-customers to switch to buying the product (ditching the rival product in the process)
2.Low prices can be a barrier to entry, preventing potential rivals from competing in the industry
DISADVANTAGES:
1. Predatory pricing is anti-competitive, so is illegal in many countries and violates competition laws
2. Lower prices can cause some customers to question or doubt the quality of the product.
3. Not sustainable.
HIGHER LEVEL!!!!
6. DYNAMIC PRICING
Define the term “Dynamic Pricing” and state two of its ADVANTAGES and DISADVANTAGES.
Dynamic Pricing (otherwise known as surge pricing or time-based pricing) : charging customers different prices based on changing demand at different times. Strives to determine the optimum price at different times based on real-time data and is therefore flexible. e.g major airlines and hotels
ADVANTAGES:
1. enables customers to avoid queues (caused by excess demand) and surpluses (caused by excess supply)
2. increase sales revenue by capturing the willingness of customers to pay more during peak periods.
DISADVANTAGES:
1. Consumers who are charged higher prices may feel disgruntled (ripped off or cheated).
2. Surge pricing is often associated with being unethical as it is perceived to exploit customers.
- PREMIUM PRICING
Define the term “Premium Pricing” and state two of its ADVANTAGES and DISADVANTAGES.
Premium Pricing: charging significantly higher prices than similar or competing products in the market. This is usually due to the prestige or quality associated with the product or brand.
ADVANTAGES:
1. Acts a barrier to new entrants, and wipes out competition
2. impress and make customers feel good about themselves. A large part of the satisfaction comes from knowing the premium price paid for the product
DISADVANTAGES:
1. Limits market opportunity of appealing to a mass market. (growth)
2. Reduces price competitiveness - especially with close alternatives.
HIGHER LEVEL!!!!
7. COMPETITIVE PRICING
Define the term “Competitive Pricing” and state two of its ADVANTAGES and DISADVANTAGES.
Competitive Pricing: setting the price of its products at the same or similar level charged by competitors in the market.
ADVANTAGES:
1. low-risk pricing strategy as the possibility of making a mistake with pricing decisions is minimized.
2. one of the simplest pricing methods, especially for new and small businesses.
DISADVANTAGES:
1. difficult to stand out if prices are similar to those of rivals; will have to compete on non-price factors, such as improved advertising etc which is rather expensive.
2. collecting and comparing price data from competitors can be time-consuming and expensive, especially for smaller businesses.
HIGHER LEVEL!!!!
8. CONTRIBUTION PRICING
Define the term “Contribution Pricing” and state two of its ADVANTAGES and DISADVANTAGES.
Contribution Pricing: setting the price greater than the per unit variable costs of production to ensure that a positive contribution is made towards the payment of the firm’s fixed costs.
ADVANTAGES:
1. Straightforward to calculate so long as knows the needed information.
2. Useful pricing method when deciding on the price to charge customers for a special or additional order.
DISADVANTAGES:
1. Assumes that the selling price of a product is constant, but in reality, customers are often given a price discount for larger orders
2. Not competitive - don’t consider the prices of the closets competitors.
HIGHER LEVEL!!!!
9. PRICE ELASTICITY OF DEMAND
Define the term “Price Elasticity of Demand” as well as the corresponding terms:
- Price Inelasticity
- Price Elasticity
State the ‘factors that affect the value of PED’
Price Elasticity of Demand: the extent to which the demand for a product changes due to a change in its price.
Price inelasticity: If a change in the price of a good or service causes a relatively small change in the demand e.g needs.
Price Elastic: if there is a relatively large change in demand due to a change in a good or service’s price.
Factors that affect the value of PED:
1. Substitution
2. Income
3. Time
4. Durability
5. Fashion, Addictions, Habits, and Tastes
6. Necessity - needs are inelastic whereas wants are elastic.
Define and give the relevant examples for each of the following aspects of promotion:
- Above-the-line promotion
- Below-the-line promotion
- Through the line promotion
Promotion: The various marketing processes used to inform customers about a product and persuading them to purchase the product.
Above line Promotion: Form of promotion that refers to any form of paid-for promotional technique through independent consumer media to a general audience.
Examples include the use of advertisements on:
1. Television - large audience, huge expense
2. Radio - large audience (national scale), lack of visual stimulus
3. Cinemas - target specific audiences (based on the movie shown) , deliberately late to avoid adds
4. Magazines - direct access to specific customer target groups, costly (celebrity endorsements)
5. National newspapers. - large audience, compete for the attention of readers
6. Outdoor Advertising - a constant reminder to passer-by, prone to damage from vandalism
7. Celebrity Endorsements - build brand value, extremely expensive.
Below-the-line promotion: Form of promotion that refers to all forms of advertising or promotion that do not use external media agents/which the organization has direct control over. It is aimed directly at a targeted audience instead of a general audience.
Examples include:
1. Direct Mail
2. Public relations
3. Sponsorship Deals
4. Point of sales Promotion
5. Email
6. Customer loyalty programme
7. Merchandising
8. Exhibitions (trade fairs)
9. Sales Promotions
Through the line promotion: promotional strategies that involve both above the line (ATL) and below the line (BTL) promotional methods. It enables customers to engage with the product and/or brand in different ways. Commonly used forms of TTL promotion include 360 degree and digitial marketing.
Social media marketing as a promotional strategy
Define the term “Social Media Marketing” (SMM)
Describe what it enables the user of SMM to gain (the purpose) and provide a typical example of the use of SMM.
Social Media Platform: The use of online content that users can upload and share to a website using a suitable medium platform, e.g., Facebook, Google. Instagram, Twitter, and YouTube.
Enables users to use social media platforms to directly promote their goods and services. The changing technologies have therefore provided people and businesses with a potentially wide-reaching yet cost-effective method of promotion. an example of this is celebrities using their platforms to promote their own products as well as those that they endorse and the brands that they represent.
