Chapter-12 Flashcards
Marketing mix: product and price
What is the marketing mix?
The four marketing decisions needed for the effective marketing of a product.
What is a product?
The goods and services produced to satisfy a customer need or want.
What are the Four Ps?
The right product at the right price with the right promotion in the right place.
What is a brand?
A name, image, or symbol that distinguishes a product from competitors’ products.
What are the costs of new product development?
1) Market research to identify customer needs, which can be expensive.
2) Large capital expenditure required for product development.
3) Investment in new products may be financed by borrowing, and if the product fails, it can threaten business survival.
How does brand image increase a business’s sales and revenue?
1) Consumers recognise the product more easily when looking at similar products.
2) The product can be priced higher than less well-known brands.
3) It is easier to launch new products as consumers already know and trust the brand, leading to customer loyalty.
What are the benefits of new product development?
1) In fast-changing markets, developing new products is crucial for survival.
2) Developing a new product before competitors provides competitive advantages, allowing for high pricing, sales, and profits.
3) New products for new markets increase potential sales, revenue, and profit.
4) Developing new products spreads risk by diversifying the product range.
5) New products can help achieve growth and bring benefits from economies of scale.
What is brand image?
The general impression of a product held by consumers.
What are the roles of packaging?
1) To protect the product.
2) To provide information about the product.
3) To help consumers recognise the product.
What are other important purposes of packaging?
1) The packaging might have a use once the product has been used up, such as a coffee jar being used for storage.
2) To keep the product fresh once the packaging has been opened, such as the inside packaging of breakfast cereals.
What are the four main stages of the product life cycle?
1) Introduction stage: The product is introduced into the market.
Sales are low, and the product may incur losses due to heavy advertising costs.
2) Growth stage: The product becomes better known to consumers. Sales increase, and the product starts earning a profit.
3) Maturity stage: Sales no longer grow but remain stable. This is the most profitable stage.
4) Decline stage: Sales fall, and the product becomes unprofitable, eventually being withdrawn from the market.
What are extension strategies?
Marketing activities used to extend the maturity stage of a product.
What are the extension strategies for a product?
1) Finding new markets for the product: Entering foreign markets or other potential markets.
2) Finding new uses for the product: Research and development might identify alternative uses, like promoting a fizzy drink as a sports drink.
3) Adapting the product or packaging: Redesigning packaging to give the product a fresh, updated appeal.
4) Increased advertising and promotional activities: Promoting the product to attract new markets or remind existing customers that the product is still available.
How do the four Ps change throughout the product life cycle?
1) Product:-
i) Introduction: Only a basic model is available. Changes may be made based on consumer feedback in test markets.
ii) Growth: Product and packaging are usually not altered.
iii) Maturity: Extension strategies are used to keep the product in this profitable stage.
iv) Decline: The product and packaging are not altered.
2) Price:-
i) Introduction: Prices may be low to attract consumers or high if there is no competition.
ii) Growth: Price might increase to match competitors, with brand image helping to create customer loyalty.
iii) Maturity: Price remains similar to competitors, but may decrease if the product faces competition.
iv) Decline: Price is reduced to maintain sales or clear remaining stock.
3) Promotion:-
i) Introduction: High promotional activity to create awareness and inform consumers.
ii) Growth: Promotional activity continues to persuade existing consumers and attract new ones.
iii) Maturity: Promotional activities remind consumers the product is still available and highlight its unique features. Extension strategies may increase promotional activities.
iv) Decline: Promotional activities focus on advertising the lower price or selling off remaining stock.
4) Place:-
i) Introduction: The product is sold in select outlets, possibly used as a test market.
ii) Growth: The product becomes more widely available to increase sales.
iii) Maturity: The product is available through a wide distribution network.
iv) Decline: The product is only available in profitable outlets.
What is price?
The amount paid by the customer to the supplier when buying a good or service.
What is product quality?
The product meets the needs and expectations of customers.
What is market skimming?
Setting a high price for a new, unique product to maximise profits from early adopters.
What is price penetration?
Setting a low price to attract customers and gain market share for a new product.
What is competitive pricing?
Setting a price similar to competitors’ products that are already established in the market.
When is competitive pricing used?
1) Competitive pricing is used for both new and existing products.
2) If a business has a strong brand image and loyal customers, it may use competitive pricing for new products similar to those already on the market.
3) Products initially introduced with market skimming or penetration pricing will likely switch to competitive pricing once competitors enter the market, as competition typically leads to lower prices.
What is price leadership?
Smaller firms set their prices based on the price set by the dominant firm in the industry.
What is loss leader pricing?
Setting the price of a small number of products below cost to attract customers, hoping they will purchase other profitable items.
What is cost-plus pricing?
Setting the price by adding a fixed amount to the cost of making or buying the product.
What are the advantages of market skimming?
1) High price maximizes short-term profits.
2) Helps recover high research and development costs (e.g., pharmaceuticals, high-tech goods).
3) Can create a quality image for the product.
What are the disadvantages of market skimming?
1) Prices will eventually fall when competitors enter the market.
2) Loss of sales from customers unable to afford the high price.
What are the advantages of Penetration Pricing?
1) Attracts customers quickly, builds customer loyalty.
2) Helps increase market share rapidly.
What are the disadvantages of Penetration Pricing?
1) Potential loss of revenue due to low prices.
2) Development costs might not be recovered quickly, especially if the product’s lifecycle is short.
What are the advantages of Competitive Pricing?
1) Prices are set similar to competitors, helping to compete on factors like product quality or customer service.
What are the disadvantages of Competitive Pricing?
1) May lead to loss-leader pricing, reducing profit margins.
2) Businesses must differentiate on non-price factors to stay competitive.
What are the advantages of Cost-Plus Pricing?
1) Ensures that all costs are covered, providing a straightforward pricing approach.
What are the disadvantages of Cost-Plus Pricing?
1) Price may be too high for customers or more than competitors, reducing sales and profits.
What are the advantages of Promotional Pricing?
1) Good for clearing inventory before it becomes obsolete.
2) Increases short-term sales and market share.
What are the disadvantages of Promotional Pricing?
1) Requires following the price leader in the market.
2) May set prices higher than customers are willing to pay, leading to reduced sales.
3) Revenue per item may be lower, potentially reducing overall profit margins.
What does price elasticity of demand measure?
Price elasticity of demand measures how much the demand (sales) for a product changes when there is a change in its price.
What is price inelastic demand?
Price inelastic demand occurs when the percentage change in demand (sales) is less than the percentage change in price.
What is price elastic demand?
Price elastic demand occurs when the percentage change in demand (sales) is greater than the percentage change in price.
What is revenue?
Revenue is the amount earned by a business from the sale of its products.
