5.4 The Elements Of The Marketing Mix : Price, Product, Promotion And Place Flashcards
What are examples of pricing methods?
• Price skimming
• Price penetration
• Competitive pricing
• Loss leader
• Cost-plus pricing
What is Price Skimming?
Starting with a high price and then reduce it over time
What is price penetration?
Start with a low price and increase it over time
What is competitive pricing?
Set a similar price to your competitors
What is loss leader?
Selling one product at a loss so a customer has to buy additional products that will generate a profit
What is cost-plus pricing?
Working out the cost of making a product and then adding on a percentage
What internal influences on pricing?
- Costs
- Business reputation
- Product life cycle
What are external influences on pricing?
- Nature of the market
- Degree of competition
What is the relation between price and demand?
An increase in price will lead to a decrease in demand. However a strong USP or brand image can mean that demand isnt strongly affected by changes to the price
Why do businesses develop new products?
- Increase in sales
- Improve market share
- Achieve increased profits
- If the business is in a market where customer needs change quickly
What factors are considered when launching new products?
- Product design
- Business image
- Target market
What is a USP (Unique Selling Point)?
An aspect of a product which makes it different from rival products that do not have it
How do businesses do product differentiation to put their products to be easily identifiable from competitors?
- Creating a USP
- Developing a strong brand image
What are the benefits of product differentiation?
- It provides a basis for promoting a product as the differences can be
highlighted - It allows businesses to charge higher prices while maintaining fairly steady sales figures over time
- Successful differentiation can increase sales and profits for a business
What is the product life cycle?
Shows how the sales of a product may change over time as it goes through a number of stages from research and development to decline and eventual withdrawal from the market
What are the stages of a product life cycle?
- Research and development
- Introduction
- Growth
- Maturity
- Decline
What is Research and Development?
A business carries out research and development to create new products that it hopes will sell well, although many do not succeed and won’t even progress past this stage.Unsuccessful products can be costly and do not earn any revenue for the business
What is Introduction?
The product appears on the market. High spending on promotion at this point will ensure that retailers and customers know about the product and the benefits it offers. This is a period of risk as many new products do not survive this stage, but if successful, sales will rise steadily
What is Growth?
Sales rise rapidly and the business should receive rising revenues and high profits at this stage if it uses price skimming. Problems may arise if products cannot be supplied in sufficient quantities, or if the business cannot find enough outlets to sell the product
What is Maturity?
The product’s sales reach a maximum. There is likely to be intense competition as rivals may have launched new competing products too. Competitors’ products may be superior in some ways, so the business may have to develop and promote improved versions of its product to maintain sales
What is Decline?
Sales may fall rapidly or decline steadily over time. It may be possible to delay the decline stage by redesigning the product or spending more on promotion - these are known as extension strategies. However, at some point the business will probably decide to cease production and withdraw the product from the market
What is an extension strategy?
A way of delaying the onset of the decline stage on a product life cycle.Successful extension strategies can increase the revenue and profits recieved from a product
What are examples of extension strategies?
- Updating packaging
- Adding more or different features
- Changing target market
- Advertising
- Price Reduction
What is a product portfolio?
The collection of products that a business produces
What is the Boston Matrix?
A way of analysing a product’s share and growth in its particular market
What are the four categories of the Boston Matrix?
- Cash Cows
- Stars
- Question Marks
- Dogs
What is a Cash Cow?
Products that are cash cows hold a high share of a market which is not growing and has probably reached its maximum size. Sprite is a cash cow for the Coca-Cola Company, for example. Such products are well known and do not need high levels of spending on advertising. High sales and low promotional costs result in higher profits for the business.This money can be used to develop other products
What is Stars?
These products have a high share of a market which is growing quickly. Dasani, a brand of bottled water produced by Coca-Cola, is an example of a star. These star products have the potential to become future cash cows, if a business continues to promote and develop them
What is Question Marks?
These products have a small share of a market that is growing quickly, and might be worth investing in. Question marks could become successful in the future
What is Dogs?
A dog has a low share of a market that is growing slowly. Many of these products have no possibility of generating high sales and profits. The best decision may be to cease production of the product. However, some dogs can be revived by careful management
What is Promotion?
Describes the ways in which a business communicates with its customers
What are methods of promotion?
- Advertising (Newspapers,Magazines,Television,Internet,Billboards)
- Public Relations
- Sales Promotion (Point of sales displays,2 for 1 offers, Free Gifts,Samples,Coupons,Competitions)
- Sponsorship
- Social Media
What is Public Relations (PR)?
Describes actions used by businesses to arrange free media coverage of their activities or products
What are the benefits of advertising?
- Can reach a large number of potential
customers - Can be targeted at particular groups of
customers
What are the drawbacks of advertising?
- Can be expensive, especially if using media
such as television - Consumers face a lot of advertising and it can be difficult to create an effective advert
What are the benefits of Public Relations (PR)?
- Can be a cost-effective means of promotion as often there are no fees to be paid
- Can reach a large number of potential
customers
What are the drawbacks of Public Relations (PR)?
- Is risky as the PR event may not receive
coverage in the media - The business has little or no control over the
coverage it will receive
What are the benefits of Sales Promotions?
- Can be very effective at boosting sales
- May help to increase a business’s profile and
sales of its other products
What are the drawbacks of sales promotions?
- Can be costly - for example, free gifts may
have to be purchased - May reduce revenue from sales if price reductions have little effect on sales
What are the benefits of Sponsorship?
- Can quickly raise the profile of a business
with its target audience - Can be targeted to reach the business’s actual and potential customers
What are the drawbacks of Sponsorship?
- May be costly, especially if a number of
businesses are interested in sponsoring an event - May not help improve the image of the business, for example sponsoring an unsuccessful sports team
What are the benefits of social media?
- Can be a relatively cheap form of promotion
- Can be targeted precisely at target groups or enable new groups of customers to be reached
What are the drawbacks of Social Media?
- Some smaller businesses may not have employees with the skills needed to use social media
- If businesses do not respond promptly to
customers queries or issues, they may suffer bad publicity
What are factors influencing the selection of the promotional mix?
- Finance available
- Competitor actions
- The nature of the product or service
- The nature of the market
- Target market
What are the Reasons for promotion?
- To inform/remind customers about the product
- Create or increase sales
- Create or change the image of a produvt
- Persuade customers to buy the product
What is a distribution channel?
Describes how the ownership of a product passes from the producer to the final customer
What is a retailer?
Shops that sell products direct to customers
What is a wholesaler?
These break bulk, which means they buy products in large quantities from a producer and sell to retailers
What are the different levels of distribution?
- Direct or zero-level channel (Producer -> Customer)
- One level channel (Producer -> Retailer -> Customer)
- Traditional or two-level channel (Producer -> Wholesaler -> Retailer -> Customer)
What is e-commerce?
E-commerce occurs when goods and
services are sold over the internet
What is m-commerce?
M-commerce refers to sales made over the internet using a wireless device such as a smartphone
What are the benefits of using e-commerce and m-commerce?
- The business is able to sell to a much larger market than may be the case otherwise. For example, even small businesses can sell their products in international markets
- E- and m-commerce allow businesses to sell all day, every day. Sales are not restricted to retailers’ opening hours
- It can help to reduce the business’s costs as wholesaling and retailing costs are avoided. Prices could be reduced, increasing sales
What are the drawbacks of using e-commerce and m-commerce?
- Competitors may use e- and m-commerce as well, making it easier for customers to compare prices. Prices may be lower as a result
- Businesses may have to pay to distribute products to many different destinations. This can be difficult and costly to arrange
- Many products may be returned as customers will not have been able to examine them in person before purchase and may be disappointed
- The website must be secure with good levels of protection for customers’ data. This can be expensive
What are the four elements of marketing mix?
- Price
- Product
- Promotion
- Place
Businesses must ensure these all integrate well
