4.5 The seven Ps of the marketing mix Flashcards
Marketing mix
the key elements of a marketing strategy that ensure the successful marketing of a product
Product
any good or service that is offered to the market with the aim of satisfying consumer needs or wants
Product life cycle
the course a product passes through from its development to its decline in the market
Product stage 1: Development
- generating ideas (brainstorming)
- screening ideas (which ideas leave)
- creating a prototype (1st trial form)
- carrying out test marketing
- commercialization (full launch after success)
Product stage 2: Introduction
launch stage of the product into the market, sales are low because most consumers are not yet aware of the product’s existence. to increase awareness of the product, informative advertising can be used, as well as price skimming or penetration
Product stage 3: Growth
once the product has been well received by the market, sales volumes start to increase significantly. initially low prices can be increased, products that started with high prices can also be reduced
Product stage 4: Maturity
sales continue to rise, but slowly. product is well established, stable significant market share and positive cash flow. sales revenue its at its peak, profit is high, but little growh. promotional pricing strategy used to keep competitors at a bay
Product stage 5: Saturation
many competitors have entered the market and saturated it, sales are at their highest point and begin to fall, cash flow is still positive, some businesses forced out of the market as a result of the stiff competition, prices will have to be reduced by promotion
Product stage 6: Decline
steady drop in sales and decreased profits, cash flow begins to fall but is still positive, product lost its appeal to consumers because of new models, if sales fall too low the product is slowly withdrawn from the market, promotional activities are kept at minimum, prices reduced to sell off all stock
Extension strategies
plans by firms to stop sales from falling by lenghening the products life cycle
Extension strategies methods
- selling existing products in new markets
- finding new uses for the product
- changing the products design/appearance
- targeting different market segments
- developing new promotional strategies
Product portfolio
all products or services provided by an organization
Product portfolio analysis (Boston Consulting Group/Boston Matrix)
process of evaluating these products, growth-share matrix: stars, question marks, cash cows and dogs
Stars
high market growth, high market share
- need high levels of investment to sustain rapid growth
- eventually turn into cash cows
Cash cows
low market growth, high market share
-well-established products in a mature market and businesses will invest less to hold on to their market share
- generare reasonable cash
- strong precense
- can charge slightly higher prices
Question marks
high market growth, low market share
- concern for the large amount of money needed to increase their share in the market
- high market growth means that the product is in a competitive maret
- needs a strong marketing strategy
- need to think which of these they want to develop into stars
Dogs
low market hsare, low market growth
- operate in markets that are declining
- little income
- poor future prospects
- may need to be replaced
BCG matrix strategies
- Holding strategy
- Building strategy
- Harvesting strategy
- Divesting strategy
Holding strategy
focused on products with high market shar to ensure they maintain their position, some investment will be needed
Building strategy
turning question marks into stars, investing money from cash cows
Harvesting strategy
milking the benefits of products with a positive cash flow, these products provide the necessary finance for other products
Divesting strategy
poor performing dogs are sold off, resources are freed up from this will need to be used effectively to boost the performance of the other products
Limitations of the BCG matrix
- focuses on the current market position of the firms product, no information from the future planning
- time consuming and complex to classify products
- high market shares doesnt necessarily equate to high profits (promotion)
Brand
A name, symbol, sign or design that differentiates a firms product from those of its competitors
Branding
the process of disinguishing one firms product from another
Aspects of branding
- brand awareness (ability of consumers to recognize it)
- brand development (improve and strenghten its image)
- brand loyalty (consumers become committed, willing to make repeated buys)
- brand value (worth in reputation, income and market value)
Price
what consumers pay to acquire a product
Cost-plus pricing (mark-up pricing)
adding a mark-up (% of profit a firm wishes to gain for every product that it sells) to the average cost of producing a product
Advantages of cost plus pricing
- simple and quick method to calculate the selling price of a product
- good way to ensure that a business covers its cost and makes profit
Disadvantages of cost plus pricing
- fails to consider market needs or customer value when setting prices
- competitors prices are not considered
- could lose sales if it sets a selling price higher than competitors
Penetration pricing
setting a low initial price for a product with the aim of attracting a large number of customers quickly and gaining high market share
Advantages of penetration pricing
- low prices: consumers are encouraged to buy the products, leading to high sales volume and market share
- decreases in the costs of production
Disadvantages of penetration pricing
- gaining a high sales volume does not always mean achieving high profits
- customers may perceive the product as low quality
- only suitable for use in price sensitive markets
- increasing prices over time might risk losing customers
Promotional pricing
temporarily reducing the price of a good or service to attract customers
Price skimming
setting a high price when introducing a new product to the market
The loss leader
charging low prices for a product, below its average to attract consumers to buy other higher-priced products
Advantages of the loss leader
- businesses selling a large number of products may attract many customers and benefit from higher overall profits
- may use loss leaders as a promotional strategy to encourage consumers to switch to their brand instead of buying from others
Disadvantages of the loss leader
- firms using this strategy may be accused by competitors of undercutting them by using unfair businesses practices
Predatory pricing
when a firm deliberately sets a very low price on its good or service with the aim of driving its competitors out of the market
Advantages of predatory pricing
- gaining dominant position in the market
- minimized competition
- new entrants are deterred from entering the market, cutting competitors
Disadvantages of predatory pricing
- anti-competitive behaviour, illegal in many countries
- may work in a short term
- difficult to sustain as new competitors enter the market
Premium pricing
setting a high price for a high quality product, gives customers the impression that the firms product is superior
Advantages of premium pricing
- customers are convinced of the high quality not trying to buy it from less
- potential to maximize profit
- increases brand value
- product becomes exclusive
- high status in a society
- status symbols or symbols of luxury
- owners tend to show it off, providing free advertising
Disadvantages of premium pricing
- misses out on price conscious consumers who find price too high
- high marketing costs to create brand awareness
- cannot be applied to all products, especially to those with stiff competition
Dynamic pricing
charging different prices for their products depending on which customers are buying them or when the products sell
Advantages of dynamic pricing
- potential for high sales and profits
- prices can be increased when demand rises
- can beat competitors easily if a business has a product that is producing a good profit, giving the flexibility to focus on other business areas or different sources of revenue while still breaking even during difficult times
- helps with better stock management
Disadvantages of dynamic pricing
- can lead to customer dissatisfaction
- loss of sales if customers find a product priced lower
- not applicable to all industries, works better in certain areas
- some businesses want to prioritize customer satisfaction than aiming for high profit margins
- can lead to price flunctuarions
Competitive pricing
setting the price of its product relative to the competitors price
Advantages of competitive pricing
- can prevent a firm from losing customers and market share to its competitors
- helps keeping a stable customer base and aids business growth
- low risk strategy as the competitors are usually well known players
- can be used in combination with other pricing strategies
Disadvantages of competitive pricing
- not sustainable in the long term, competitors might change their pricing strategy
- focusing purely con competing with others misses out important aspects like covering overheads
- difficult to idfferentiate itself from other competitors
Contribution pricing
calculation of the variable cost of production for a firms product after which the products price is set
Advantages of contribution pricing
- contribution per unit measure is useful as it enables the firm to know how much profit it will earn for every unit sold beyond the point where the firm breaks even
- conduced using existing information
- useful if it is needed to determine the price to charge for a special order
Disadvantages of contribution pricing
- price set from this might not be competitive in the market
- important to check what competitors are charging before pricing it
- allocating costs appropriately across the whole range of a firms products can be difficult which may lead to inaccurate pricing
Price elasticity of demand
measurement of how the quantity demanded of a good is affected by changed in its price
- 0-1: inelastic (small change)
- =1: unit elastic (percentage change in price is matched by an equal percentage change in quantity demand)
- 1+: elastic (large change)
Price discrimination
charging different prices to different groups of consumers for the same product
Advantages of price discrimination
- time-based price discrimination can be a benefit for both consumers and firms
Disadvantages of price discrimination
- need to be certain about the type of elasticity of demand of their consumers
Promotion
ways of convincing consumers why they need a product and why they should buy it
Above-the-line promotion
paid form of communication that uses independent mass media to promote a firms products
Advertising
- informative advertising (info about features, price, etc)
- persuasive advertising (convince to buy it instead of competitor’s products)
- reassuring advertising (remind consumers they made the right purchasing decision when they chose to buy it)
Below-the-line promotion
form of communication that gives a business direct control over its promotional activities so that it is not reliant on the use of independent media
Forms of below the line promotion
- direct marketing (aiming, direct mail)
- personal selling (personal contact)
- public relations (publicity/sponsorships)
- sales promotions
– a. money off coupons
– b. point of sale displays (eg placing sweets near checkouts)
– c. free offers or free gifts for buying
– d. competitions (having a chance to win a prize for buying)
– e. buy one get one free
Through the line promotion
a form of promotion that combines both above the line and below the line promotion strategies
Examples of through line promotion
- 360 degree marketing
- digital marketing
Choosing a promotional methods
- cost
- legal framework
- target market
- stage in the product life cycle
- type of product
Social media marketing (SMM)
marketing approach that uses social networking websites to market a firms products
Benefit of social media marketing
- wide reach
- engagement
- market information
- cost saving
- brand recognition
- speed
Limitations of social media marketing
- accessibility problems
- lurkers (individuals who merely absorb information online rather than promote or share it)
- used as a supplement for other methods
Place
where the product will be sold and how it will be delivered to the market
Distribution channels
path taken by a product from the producer or manufacturer to the final consumer
Zero intermediary channel
sold directly from the producer to the consumer
One intermediary channel
intermediary (such as retailer or agent) to sell the products from the producer to the consumer
Two intermediaries channel
two intermediaries (usually wholesalers and retailers) are used by producers to sell the product to the consumer
producer > agent > wholesaler > retailer >consumer
useful selling over large geographical distances
People
human capital in terms of skills, attitudes and abilities necessary in the production of goods or the provision of services
Processes
procedures and policies pertaining to how an organizations product is provided and delivered
Physical evidence
tangible or visible touch points that are observable to the customers in a business
Benefits of 7 Ps
- brings together marketing ideas and concepts in a simple manner
- assists in strategy formulation and implementation
- allows a business to vary its marketing activities based on customer needs, resource availability and market conditions
Limitations of 7 Ps
- incorporations of 3 extra Ps may be complicated for those who were used to only 4 Ps
- misses out on addressing issues related to business productivity
- product is mentioned in singular, not considered other products the business sells
