Making Marketing Decisions

Question 1

The Design Mix: Function

Answer 1

-Function is how well a product does its job.

-Function also describes how easy a product is to use.

-Improving any aspect of a product’s functionality is one way in which a business can improve its competitiveness.

-This may also allow it to target specific groups of customers with different needs.

Question 2

The Design Mix: Aesthetics

Answer 2

-This may make the product appear more attractive compared to rival products. Therefore, the product may gain a unique selling point. Thus, the business may be able to charge a premium price.

-This could add value to the product (1). Therefore, the business may be able to generate a larger profit margin from the product. This may give the business more retained profit to reinvest in new products.

-This may make the product look more attractive. Therefore, customers may choose the product over those of a rival. As a result, market share may increase.

-Making the product look more attractive may be a source of differentiation. Therefore, potential rival businesses may find it harder to enter the market. As a result, the business may be able to charge a premium price.

Question 3

The Design Mix: Cost

Answer 3

-A business’ product has to be financially viable. This means producing the product for a cost that allows the business to make a profit.

-Some businesses can design a product so that cost are low. This allows them to sell at a low price but still have a high profit margin.

-However, low production costs may cause a trade off between cost and function or aesthetics such as by using cheaper materials.

Question 4

The Product Life Cycle: Development

Answer 4

-Research and development is used to develop an idea and turn it into a marketable product.

-Market research is often used in this phase to ensure the product is viable.

-One aim during product development is to find the most cost effective materials and methods to use.

Question 5

The Product Life Cycle: Introduction

Answer 5

-Introduction covers the launch of a product. Sales are low because product awareness is low and the brand’s reputation is not yet established so not very well known.

-The business will have invested money to develop the product and will not yet be making a profit on the product.

-At introduction, a business will need to do a lot of promotion to attract attention to the new product and may use special offers or a reduced price to attract customers.

Question 6

The Product Life Cycle: Growth

Answer 6

-If the product is successful during introduction, it will enter the growth phase. The product becomes more and more popular and sales are likely to increase rapidly.

-It is important that that business is able to keep up with demand during this phase.

-Customer reviews and word of mouth may replace promotion during this phase.

-The business might choose to raise the price of the product if it believes that its popularity will maintain demand, even at a higher price.

Question 7

The Product Life Cycle: Maturity

Answer 7

-Once a product reaches maturity, growth has slowed down but sales will be at their peak.

-The business is likely to receive repeat customers as there is a limit to the number of new customers that are interested in buying the product.

-A business will try to maintain sales at maturity for as long as possible and may use promotion techniques to remind its customers to purchase the product.

-As sales are high, the business is likely to experience economies of scale and should be able to maximise profitability.

Question 8

The Product Life Cycle: Decline

Answer 8

-During decline, sales start to drop off as the product loses popularity.

-Managers can now concentrate more time on products at the growth stage of the product life cycle. As a result, these products are more likely to have a longer maturity phase. Therefore, the business may gain a larger market share.

-Products in the decline phase are likely to be making a loss. Therefore, withdrawing a product should reduce the loss the business makes. Therefore, the business should have a greater level of retained profit to invest in new products.

Question 9

Extension Strategies: New Features

Answer 9

Adding new features may increase demand for a product by making it more useful or more appealing to customers.

Question 10

Extension Strategies: Reducing Price

Answer 10

The business could reduce the price. Therefore, the product now appears better value for money than rival products. Thus, sales of the product should start to rise.

Question 11

Extension Strategies: Rebranding

Answer 11

-Tired-looking branding and packaging can put customers off.

-Refreshing the brand and packaging design can appeal to new customers and convince previous customers to try a product again.

-Customers will be more likely to see it and choose it over the competition. A new image may also attract a new target market.

Question 12

Extension Strategies: Repositioning

Answer 12

-This extension strategy involves exploring new markets for a product.

-A business can then target their promotional material at the new products.

-It is possible to revive a product by testing new uses for it or adding value so that it appeals to a different audience.

Question 13

Extension Strategies: Targeting New Market Segments

Answer 13

The business could target a new market segment. As a result, the product may now become attractive to a new category of consumers. Therefore, preventing the product from going into decline.

Question 14

Importance of Differentiation

Answer 14

-Differentiation benefits a business because it increases the competitiveness of that business.

-A differentiated product gives customers something that they cannot get from a rival product.

-The particular characteristics offered by a differentiated product may add value to the product, allowing the business to charge a higher price.

Question 15

Drawbacks of Differentiation

Answer 15

-This may cause variable costs to increase. Therefore, the differentiation may not add value. Thus, profit per product sold may decrease.

Differentiation could be expensive. Therefore, cash outflows may increase. This could cause the business to suffer poor cash flow.

Question 16

Methods of Differentiation

Answer 16

-The business could add extra features to the product. This may make the product more attractive. As a result, it will catch the customer’s attention.

-The business could promote the product. This may give the product a better brand image. Therefore, it may be seen as more of a necessity compared to products made by other businesses.

Question 17

Pricing Considerations: Production Costs

Answer 17

-Price represents the revenue the business receives from selling each unit of its product.

-If the unit cost of the product is known, setting a price that is greater than the unit cost will ensure that the product is profitable.

-However, this is only as long as consumers are willing to pay that price.

Question 18

Pricing Considerations: Quality

Answer 18

-Consumers expect to pay more for a high-quality product, as they understand that high-quality products usually cost more to make.

-Charging a higher price often gives the impression that a product is of a higher quality, even when it may not be.

Question 19

Pricing Considerations: Brand Image

Answer 19

-Maintaining a brand image requires a high level of marketing activity and a consistent level of quality.

-These cost money, so a branded product often has a higher price than a non-branded product.

Question 20

Pricing Considerations: Demand and Supply

Answer 20

-If there is high demand for a product, consumers are likely to be willing to pay more for it.

-Therefore, businesses can charge a higher price for popular products, unless there are other businesses supplying similar products.

-If this is the case, they will need to consider their competitors’ prices.

Question 21

Pricing Strategies: Price Penetration

Answer 21

-This is where a firm changes a very low price when a product is new to get lots of people to try it.

-It is a good way to establish a market share for a product in a competitive market.

-The product will make very little profit at first but once it has become established the firm increases the price.

-Loyal customers should continue to buy the product despite the price increase.

Question 22

Pricing Strategies: Loss Leader Pricing

Answer 22

-This is when the price of the product is set below cost.

-The firm doesn’t make profit on it but the idea is that customers will buy other products as well (which the business does make a profit on).

Question 23

Pricing Strategies: Price Skimming

Answer 23

-This is where a firm charges a high price to begin with- they can usually do this when there will be a high demand for a product.

-It often works for established firms as they’ll have loyal customers who will be willing to pay.

-The high price also helps to increase revenue and cover any research and development costs.

-Having a high price helps to make the product more desirable to people with high incomes or to a more niche market. This can help to improve the firm’s image.

-Once the product is established, the firm lowers the price to help it become a mass market product.

Question 24

Pricing Strategies: Competitive Pricing

Answer 24

-This is where the firm has to charge a similar prices to other firms.

-It happens most when there is lots of choice and not much product differentiation.

-The firm may make very little profit and have to find other ways other than price to attract customers.

Question 25

Pricing Strategies: Cost-plus Pricing

Answer 25

-Firms may use this method if they are not in price competition with other producers.

-The firm works out the total cost of making the product and then adds on a certain amount depending on how much profit they want to make while still having demand.

Using a Mark Up- work out how much the product costs and then add a percentage mark up.

Using a Profit Margin- work out how much the product costs and increase it to get the profit margin you want.

Question 26

Internal Influences on Price: Technology

Answer 26

Advances in technology have affected the frequency with which businesses review their prices. Consumers now have immediate access to pricing information.

-This means that businesses have to be much more flexible in setting prices, and they may need to change them more often.

-However, a firm can also use technology to monitor levels of customer demand and identify when they might be able to increase prices.

-If expensive machinery is used to produce a product. then this may increase the price at which it is sold. However, machinery reduces costs in the long term.

Question 27

Internal Influences on Price: Method of Production

Answer 27

-Flow production may require expensive machinery but it will also be likely to benefit from economies of scale.

-This is unlike job production which will be more expensive in comparison

Question 28

Influence of Product Life Cycle on Niche Market Product Pricing

Answer 28

-A business that introduces a new, unique product may initially choose to price the product high while accepting that there will be a low volume of sales but a high profit margin. This is likely to be effective while there is little competition.

-However, by the time the product has reached maturity, it is likely to be facing competition from other similar products.

-If this is the case, then the business may no longer be able to charge a high price for the product.

-If the business reduces the price, existing customers are likely to continue buying the product and other customers may switch from competing products.

Question 29

Influence of Product Life Cycle on Mass Market Product Pricing

Answer 29

-For generic products, businesses often use a low starting price to encourage customers to try the product during its introduction stage.

This means pricing a product low with the aim of selling it at a high volume but at a low profit margin. During the growth, prices may be kept low initially, but will rise when the product becomes more established.

-During a product’s maturity phase, a business might choose to keep the product’s price down in order to maintain a similar level of sales to those achieved during its growth period.

-During the decline stage of the product life cycle, businesses are more likely to use offers and switch to a high-volume, low-price strategy to try to maintain sales.

Question 30

External Influences on Price: Competition

Answer 30

-If the product is sold in a competitive market, the firm needs to look at what competitors are charging for similar products.

-If a firm charges too high, customers will choose a competitor’s product.

-If a firm charges too low, customers may query whether the quality is as good as its competitors.

Question 31

External Influences on Price: Market Segments

Answer 31

When setting prices, businesses also have to take into account the kinds of consumers their products are aimed at.

-In a niche market, a business will usually be able to charge a higher price while expecting a lower sales volume, as the number of competing products is likely to be small.

-In contrast, businesses selling to a mass market are likely to set prices at a lower level as they will expect a high volume of sales.

-Price will also vary on if a business selling to a high or low income market.

Question 32

Methods of Promotion: Advertising

Answer 32

-An advert is a paid-for message designed to influence consumer purchases. Adverts do this using emotive language, which is designed to make people feel a certain emotion.

-An advert has to stand out against the competition so business’ will employ agencies to design their campaign which can make it a costly form of promotion.

-Advertising will be used to promote the brand, raise awareness of a product and persuade consumers to switch.

Question 33

Advertising: Newspapers

Answer 33

-Local ones can reach a market segment in a specific geographic area whereas national ones can reach a wider audience.

-They are printed often so can be a good way to promote temporary offers.

-However, the print quality is often poor and the number of people reading them is declining.

Question 34

Advertising: Leaflets, Flyers and Business Cards

Answer 34

-They are cheap to produce and distribute.

-They can be targeted at market segments in particular locations and people can keep them until they need the information.

-However, many people see them as ‘junk’ and throw them away.

Question 35

Advertising: Posters and Billboards

Answer 35

-They can be placed near a target audience, stay in a place for a long time and be seen daily by lots of people.

-However, people may not look at them so messages need to be short and quickly catch people’s attention which may be difficult.

Question 36

Advertising: Magazines

Answer 36

-Magazines are often aimed at a specific market segment. Businesses can use adverts in these magazines to target that market segment.

-Magazine adverts can be pricier than newspapers but but they are better quality and people tend to hang on to them for longer.

Question 37

Advertising: Television

Answer 37

-Can be seen by a wide audience and includes sounds and moving images.

-They can deliver long messages and help to emphasise the brand image.

-However, they are very expensive.

Question 38

Advertising: the Internet

Answer 38

-Internet adverts can be seen at any time, by a large audience and can include sound and moving images.

-Customers are able to visit the firm’s website immediately after viewing the advert.

However, there are so may adverts online, people may choose to ignore or block them.

Question 39

Methods of Promotion: Sponsorship

Answer 39

-Sponsorships provide financial support to an event, person or organisation, either through free products or services, or through a financial payment.

-In return, the business, product or service is prominently displayed.

-Sponsorships can create a high profile for your brand. It is also a good way to target a market segment characterised by lifestyle.

-However, if the thing you are sponsoring gets bad publicity, your company’s image may suffer too.

Question 40

Methods of Promotion: Special Offers and Product Trials

Answer 40

-Product trials are designed to encourage consumers to try a product either for free or at a reduced cost.

-Special offers are a type of sales promotion. They offer
incentives to persuade consumers to make a purchase.

Question 41

Advantages of Special Offers and Product Trials

Answer 41

-Sales promotion should encourage new customers to try a product.

-This will boost sales in the short term but could also increase sales in the long term.

-This is if customers like the product and continue to buy it once the promotion has ended.

Question 42

Disadvantages of Special Offers and Product Trials

Answer 42

-Customers get used to seeing products on promotion and may be reluctant to buy them at other times.

-Also, regular sales promotions may not be suitable for certain market segments as it may make a luxury good less of a luxury item.

Question 43

Methods of Promotion: Branding

Answer 43

-A brand image can be used as promotion, so businesses often want to establish a positive brand image.

-When a new product is launched under an established brand name, consumers may be more likely to purchase it because of their knowledge of the existing brand.

-Developing a strong brand image can help a business to generate customer loyalty, add value and differentiate its products.

Question 44

Technology and Promotion: Targeted Advertising

Answer 44

-Website owners can track the online activity of consumers who visit their site by using cookies

-They can use cookies to build a profile of consumers’ interests. They can then serve adverts for products suited to the individual consumer so the promotion will be more effective.

-Technology can also track customer location however, some dislike this and may be put off the brand.

Question 45

Technology and Promotion: Viral Marketing on Social Media

Answer 45

-Viral marketing involves producing marketing materials that can be shared. It requires content that appeals to users to encourage them to share it.

-This can be used to support a campaign, as well as to market a product or service.

-Businesses can create social media accounts to build a relationship with consumers and better inform them of updates.

-They can create separate accounts for separate areas of the business and so may be able to target different market segments.

Question 46

Technology and Promotion: Apps

Answer 46

-Apps, enable businesses to personalise promotional materials and offers for specific consumers.

-They can also enhance customer convenience, and increase customers’ interaction.

-Businesses can advertise within an app, and apps also enable innovative interaction with customers.

Question 47

Technology and Promotion: E-mails and E-newsletters

Answer 47

-Electronic newsletters can be distributed via email to consumers who have signed up to receive them.

-They are a good way for a business to keep in touch with consumers who have previously purchased, or shown an interest in, products that the business sells.

Question 48

Advantages of Retailers

Answer 48

-Likely to have employees on hand to help. This may mean customer service is better and the business can build a relationship with consumers leading to loyalty.

Question 49

Disadvantages of Retailers

Answer 49

-May charge higher prices than e tailers.

-May be less convenient than e tailers as consumers have to leave their house, wait in queues and carry purchases around.

Question 50

Advantages of E tailers

Answer 50

-They can offer a wide range of products as they are not limited by the size of a shop.

-Their prices are often lower, as they do not have to pay for a physical shop.

-Customers can shop whenever and wherever they want.

-The business can access a global marketplace so will have more potential customers.

Question 51

Disadvantages of E tailers

Answer 51

-Goods need to be delivered, so customers must be willing to wait. if an order is late, this may also damage reputation.

-Items cannot be seen in person before purchasing them.

-Hard to establish trust with consumers as there are no face to face interactions.

-website costs may be high.