Business 4.5 (product price and promotion

Question 1

What is a product

Answer 1

is simply a physical good or intangible service provided by a business.

• Consumer goods: Purchased by private individuals for personal use.
• Producer goods: Purchased for commercial use, part of the production process to help the running of a business.

Question 2

What is product life cycle

Answer 2

Product life cycle (PLC) shows the different stages that products typically go through from their R&D stage to their final removal from the market.

Question 3

Key stages of product life cycle

Answer 3

1. Research and development (R&D): Investigating, designing and developing a product prior to launching for sale.
2. Launch: Product is introduced to the market. A firm that is first on the market to launch a successful product is able to again what is known as afirst mover advantage(FMA).
3. Growth: Sales increase, share increase. Competitors enter.
4. Maturity: Sales saturated, firm must rely on extension and differentiation strategies to prolong life cycle.
5. Decline: Sales decline, product eventually withdraws.

Question 4

What is product portfolio

Answer 4

refers to the collection of all the products owned by a business at a point in time, managing it enables a firm to have better control over its sales revenues, costs, profits and operational risks

Question 5

What are extention strategies

Answer 5

marketing approaches used to lengthen the product life cycle and delaying a decline in its sales revenue. This is usually implemented at the decline stage of a product’s life cycle because the market is saturated.

Question 6

Types of extension strategies

Answer 6

• Price reductions: Increase demand, get rid of excess stocks before they become obsolete.
• Advertising: Attract new customers, remind old customers and encourage purchase.
• Redesigning: Introducing special features or limited editions, as there is additional value.
• Repacking: Updating appearance of product. Presentation plays important role into additional value of product.
• Reposition the product, enter new markets: Essentially, market development.
• Brand extension: Using existing and successful brand name to launch modified or new product.
• Product differentiation: Stand out from rivals, withstand competitors.
• Change brand name: Only relevant if current brand or product suffers negative publicity and falling sales.

Question 7

The relationship between the product life cycle, investment, profit and cash flow for R&D

Answer 7

Investment level: Very high (research and development costs)

Profit: None

Cash Flow: Highly negative

Usually lots of cost in order to complete pre-testing prototypes with consumer and prior advertising will help minimise costs if the product ends up unsuccessful. Plus the business can make changes at this stage to ensure it is higher quality or must be discontinued. However, testing can be expensive and competitor might find out prior launch.

Why costs and price matters: Commercial products must be priced competitively yet high enough to recover the R&D costs of both the successfully launched product and all those products that failed.

Question 8

The relationship between the product life cycle, investment, profit and cash flow for launch

Answer 8

Investment level: Very high (marketing)

Profit: Little, if any

Cash Flow: Negative

Low sales at this stage as products are still emerging into the market. However, costs can get very high when launching the product such as costs of publicity, promotion and distribution. Thus, low profitability and likely issues with cash flow faced by business at this stage.

What can be done to mitigate situation: Get product into the next stage ASAP. Though, the convenience and speed of which this happens depends on the type product; easy for blockbuster Hollywood movies but not for new novels by first-time authors.

Question 9

The relationship between the product life cycle, investment, profit and cash flow for Growth

Answer 9

Investment level: High (persuasive promotions)

Profit: Yes, rising

Cash Flow: Positive

Increasing sales, profits may materialise, wider distribution of products, higher brand awareness now. May experience EoS and low unit costs. Business want to maintain in this position for as long as possible. Although, this stage will attract competitors, thus, it is crucial for business to consider strategies to remain competitive.

Question 10

The relationship between the product life cycle, investment, profit and cash flow for Maturity

Answer 10

Investment level: Low (mainly reminder promotions)

Profit: High, but little or no growth

Cash Flow: Highly positive

Revenues increase but much slower. Cash flow and profits are positive as there is a big purchasing population. Again, there is EoS but competitors may enter and cause saturation. Which, then, causes decline in sales. At this stage, businesses will try their best to retain customers through loyalty and promotional strategies.

Question 11

The relationship between the product life cycle, investment, profit and cash flow for Decline

Answer 11

Investment level: Little, if any (extension strategies)

Profit: Yes, but falling

Cash Flow: Positive, but falling

sales and profit decreases and cash flow becomes less favourable. Lower customer demands due to changing trends and updated models from rivals.

Question 12

What is brand awareness

Answer 12

is the extent to which people recognise a particular brand and plays major role in consumer’s buying decisions. Higher brand awareness, higher sales revenue. Gives competitive edge and result in greater market share. Encourage brand loyalty because they trust the brand. Very important during the launch stager of PLC.

→ Good brand name can stimulate positive associations.

→ Recognisable are Apple and Samsung which people associate with technology.

Question 13

What is brand development

Answer 13

the ongoing and long-term marketing process of improving and enlarging brand name in order to boost sales revenue and market share. It takes longer time to develop desired brand image. Though, the cost of implementing this can be quite high.

Question 14

What is brand loyalty

Answer 14

is when customers buy the same brand of a product repeatedly over time because they have preference over business’ rivals.

Question 15

Why is brand loyalty important

Answer 15

• Maintain or improve market share.
• Enable businesses to charge premium prices for its product to improve their profit margin.
• Act as barrier for competitive markets.

Question 16

What is brand value

Answer 16

the premium that customers are willing to pay for a brand name over and above the value of the product itself. This is all contributed by brand awareness, development and loyalty.

→ Logo, trademark, slogan, etc.

Question 17

Why is brand value important

Answer 17

Important because

• Higher market share.
• Premium prices
• Higher barrier to entryw

Question 18

The importance of branding

Answer 18

• Legal instrument: Differentiate product from other similar ones, protect from imitations.
• Risk reducer: Create sense of value for money and encourage brand loyalty, prolong product life cycle.
• Image enhancer: Can charge premium prices, feel good factor associated with brand, allow higher profit margins.
• Revenue earner: Preference of one brand over the other.
• Consider on an international scale but can be a complicated over when operating overseas.

Question 19

what is market myopia

Answer 19

Marketing myopia exists when a business becomes complacent about its product strategy, thereby failing to keep up with market changes.

Question 20

what is product cannibalisation

Answer 20

Product cannibalisation occurs when brands from the same business directly compete with each other.

Question 21

What are the different types of pricing strategies

Answer 21

Cost-plus (mark-up) pricing
Penetration pricing
Loss leader
Predatory pricing
Premium pricing
Dynamic pricing
Competitive pricing
Contribution pricing
Price elasticity of demand

Question 22

Pros and Con of Cost-plus (mark-up) pricing

Answer 22

1. Cost-plus (mark-up) pricing is a pricing strategy that adds a percentage or pre-determined amount of contribution to the cost per unit of output to determine the selling price.

The specific percentage added is known as the mark-up.

Pro: Simplicity and ease of calculation.

Con: Relies mostly on intuitive decision making rather than any actual market research of customer needs.

Question 23

Pros and Con of Penetration pricing

Answer 23

1. Penetration pricing is a pricing strategy that involves setting a low price in order to quickly enter an industry and gain market share by attracting a large amount of customers in a short time period.Works for industry that sell in large volumes to sustain low profit margins.→ Fast-moving consumer goods in supermarkets.

Pro:Mass market products sold in large volumes.​

New firms trying to enter established markets.

Con: If prices are set too low, it can cause customers to perceive the product as inferior and of poor quality.

Question 24

Pros and Con of Loss leader

Answer 24

1. Loss leader is selling a good or service below its cost value to attract customers.

The idea behind it is that the business relies on attracting a lot of customers to then purchase other items together as well, this can be deliberate or not.

→ Sony sell hardware at a loss that can be recouped once players purchase follow up games and accessories.

merit:
Suitable for products such as:​

Supermarket low-cost (unprofitable) ranges. ​

Coffee machines with own-brand coffee pods.​

Incentivises customers to switch brands.​

con: Setting prices too low may damage the prestige and image of the brand

Question 25

Pros and Con of Predatory pricing

Answer 25

Predatory pricing is a pricing strategy that involves temporarily reducing price to, hopefully, force competitors out of the industry as its impossible to be profitable with the competition. Root cause are price wars, performing intense price cuts and selling below cost value.

Pro:Price wars can bring customers to a firm in the short-term.​

con:
These customers may not necessarily stay with a firm in the long-term as they are not brand loyal.​

In many parts of the world, this type of pricing strategy is illegal (e.g. the EU and USA) as it is regarded as an anti-competitive practice.​

Question 26

Pros and Con of Premium pricing

Answer 26

2. Premium pricing is a product hat is set at a higher price than its competing products because it is justified by its higher quality. Customer may be enticed to purchase such items as it may signify wealth, status or prestige.

Pro: Generating higher profit margins, create barriers for competitor entry, establish loyal customer base.

Con:
Limits numbers of customers due to relatively high price​

May lose status if they appeal to the mass market​

Requires strong brand loyalty which is expensive to establish and maintain.​

→ Popcorns and hotdogs are sold at the same premium price at theatres.

Can be expensive to maintain.

May lost their appeal once they target the mass instead.

Must solidly convince the customer that their purchase is worthy of premium price.

Question 27

Pros and Con of Dynamic pricing

Answer 27

1. Dynamic pricing is the practice of setting varying price of product to reflect changing market demands. It is flexible and adaptive to peak and off-peak periods so that business can adapt to ever-changing market conditions.→ Airline operators charge passengers more during peak periods but less if customers book their tickets in advance.

Pro: Business has control over their pricing method with real time data, can maximise profits.

Con: Customers may feel exploited when they are unsure why they are suddenly charged for a higher price. May lead to price wars and unsustainable in the long run. Even worse, it may lead to bankruptcies.

Question 28

Pros and Con of Competitive pricing

Answer 28

1. Competitive pricing is the practice of a business setting the price of its products at the same or similar level to its rivals.
   1. Pricing above the competition: Suitable for building a superior product image so that you can charge more and have higher profit margins.
   2. Pricing same as competition: Focus of competitive advantage is not price but on special features or services of the business
   3. Pricing below the competition: Trying to survive in the competitive market.

Pro: Simple, requires minimal effort, simply only have to look out for rivals’ price range.

Con: Must find other ways to differentiate in front of customers to attract sales.

Question 29

Pros and Con of Contribution pricing

Answer 29

1. Contribution pricing is a price set based on the direct costs of producing a product to ensure that the selling price generate decent amount of contribution towards covering the fixed costs.

Pro: Ensures price can cover both direct costs and payment of indirect costs so that the business does not experience loss.

Con: Allocating indirect costs between varying products can be subjective which may be unfair. Business also needs to regularly check that the contribution price they remains competitive.

Question 30

Pros and Con Price elasticity of demand

Answer 30

Price elasticity of demand tells how responsive customers are to a product when there has been a change in price that inform businesses to implement appropriate pricing strategies. If change of responsiveness to price is relatively the same, then the demand is price inelastic. Could be caused by lack of substitutes available or high degree of brand loyalty.

PED = percentage change in quantity demanded ÷ percentage change in price

Pro: Provide valuable information of how likely sales increase or decrease if prices are adjusted. Help firm decided their pricing policy.

Inelastic: if it’s between 0 and 1. It means that change in price doesn’t affect demand much.
Unit elastic: 1. It means percentage of price change equals to percentage of demand change.
Elastic: more than 1. It means that small change in price affects demand greatly.

Question 31

What is promotion

Answer 31

Promotion refers to methods of communicating marketing messages to existing and potential customers. The intention is to inform, persuade, remind customers of a business’ products as well as develop brand awareness and attract customers’ attention.

Question 32

What is above the line promotion

Answer 32

This is any form of paid-for promotional method through independent mass media sources.

Question 33

What is below the line promotion

Answer 33

This is the use of non-mass media promotional activities, allowing the business to have direct control.

Question 34

What is through the line promotion

Answer 34

This is the use of strategies that involve both ATL and BTL methods in an integrated marketing approaching.

Question 35

What are the different types of above the line promotion

Answer 35

Television advertising​
Radio advertising​
Cinema advertising​
Newspaper advertising​
Magazines
Outdoor advertising​

Question 36

Advantage and disadvantage of Television advertising​

Answer 36

Benefits​

Can be targeted to specific audiences (e.g. children during after school television programs).​

Drawbacks​

Huge costs of production and advertising for a short, typically 30 second, time slot.​

Question 37

Advantage and disadvantage of Radio advertising​

Answer 37

Benefits​

Can reach a large audience while being significantly cheaper than television advertising.​

Drawbacks​

It can only communicate audio messages which is less engaging than the audio plus visual messages in television advertising.​

Question 38

Advantage and disadvantage of Cinema advertising​

Answer 38

Benefits​

Can be targeted to specific audiences (such as families before the showing of a children’s movie).​

Drawbacks​

Limited audience size compared with radio or television advertising.​

Question 39

Advantage and disadvantage of Newspaper advertising​

Answer 39

Benefits​

Can be targeted to specific audiences with greater precision (such as banking services being advertised in personal finance section).​

Advertisements can be referred to later unlike radio advertising.​

Drawbacks​

High cost, particularly for small businesses.​

Short shelf-life as most people will not read yesterday’s news.​

Question 40

Advantage and disadvantage of Magazines

Answer 40

Benefits​

Can be targeted to specific market segments though the use of specialist magazines (such as Vogue, GQ and PC Gamer).​

Longer shelf-life than newspapers.​

Drawbacks​

Readers get bombarded with overwhelming ‘advertising clutter’ (e.g. American Vogue’s September 2019 issue was 596 pages, 356 pages of which were advertisements.​

Long lead-time between placing an advertisement and publication.​

Question 41

Advantage and disadvantage of Outdoor advertising​

Answer 41

Benefits​

High level of exposure, especially if used in many high traffic locations.​

Advertisements are dynamic thanks to rotating billboards and digital billboards.​

Drawbacks​

Only suitable for mass market products as it is difficult to monitor the effectiveness of outdoor advertising.​

Can be high level of competition leading to ‘advertising clutter’.​

Prone to damage caused by bad weather, vandalism and graffiti.​

Question 42

Different types of below the line promotion

Answer 42

Direct marketing​
Personal selling​
Point of sales promotion​
Publicity and public relations​
trade shows
Guerilla

Question 43

Explain Direct marketing​

Answer 43

This refers to promotional activities that aim to sell a product straight to a customer rather than rhrough an intermediary.​

This includes:​

Telemarketing​

Email advertising​

Direct mail by post​

Question 44

Explain Personal selling​

Answer 44

This refers to promotional activities that rely on sales representatives directly helping and persuading customers to buy.​

Examples include:​

Sale presentations​

In-person meetings with clients​

Door-to-door salespeople​

Question 45

Explain Point of sales promotion​

Answer 45

POS promotion refers to the promotion of a product at a location where the customers pay for the product.​

This is often used in supermarkets and convenience stores to encourage impulse purchases as they queue waiting for service.

Question 46

Explain Publicity and public relations​

Answer 46

Publicity:
This is the process of promoting a business and its products by getting media coverage without directly paying for it.​

Celebrities are often given free products from businesses in the hope they will be photographed using them publicly.

PR:
This refers to marketing activities aimed at establishing and protecting the desired image of an organization.​

The goal of PR is to get the media to report events in a positive way from the point of view of the business. ​

Examples of PR events:​

Product launch parties​

Press conferences​

Radio, podcasts and interviews on news and talk shows​

Book signings​

Making prominent donations

Question 47

Explain Packaging

Answer 47

Packaging can be a powerful component of the marketing mix.​

Carrier bags are a particularly useful form of promotion (sometimes known as ‘bagvertising’) as customers reuse these bags.

Question 48

Explain trade shows

Answer 48

Trade shows/fairs enable exhibitors to conduct live demonstrations to showcase and promote their products.​

It is a very popular method of showcasing the latest models of products or illustrating the provision of services.

Question 49

Explain sponsorship

Answer 49

This involves a business providing financial funds and resources to support an event or another organization in return for publicity and prime advertising space.

Question 50

Explain word of mouth

Answer 50

Word-of-mouth (WOM) promotion refers to the spread of information from one person to another through oral communication.​

With the development of e-commerce, this has evolved to include written reviews of goods and services.​

Research has found that positive WOM can be a very effective form of (free) promotion for the business. However, it can also be very harmful if WOM is negative.

Question 51

Explain guerilla marketing

Answer 51

Guerrilla marketing is an advertisement strategy in which a company uses surprise and/or unconventional interactions in order to promote a product or service. It is a type of publicity

Question 52

What is social media marketing

Answer 52

SMM refers to the practice of gaining internet traffic through social media such as Facebook, Twitter, YouTube and Instagram.​

This strategy focuses on creating content that attracts attention and encourages people to further share the content.​

Question 53

What is social networking

Answer 53

Social networking refers to any platform used by individuals to build social relationships. ​

Unlike social media marketing, this focuses on the human interaction aspect of social media.​

Non-social media platforms can also be used for social networking such as blogs with corporate bloggers engaging with readers in comments under a blog post.

Question 54

Advantasge and disadvatnage of SSM

Answer 54

SMM is a relatively inexpensive way for businesses to gain promotional exposure and the contents can be easily shared. Hence, many new and small businesses with limited funds for marketing rely on social media marketing to attract customers.

However, literally all large firms also have accounts on platforms such as LinkedIn, Twitter, Instagram, and Facebook for SMM purposes.