Marketing mix Flashcards
Product
- anything that is capable of satisfying customer needs, needs to exist for other elements of marketing mix to take place
Design mix (3)
- Aesthetics
- Function
- Cost
Function
- the way the product works, does it do what it needs to do? Is the product reliable?
Aesthetics
-does the product appeal to the customers, usually subjective, the way it looks and feels, is a popular way to differentiate a product from competitors
Cost
-does the design allow the product to be produced and sold profitably, how much value is added during the production process
Invention
-coming up with something completely new
Innovation
-adapting a product
Imitation
-‘copying’ another idea
Features of product that emphasise aesthetics (5)
- High added value
- Demand fuelled by customer aspirations
- Potentially shorter product life cycle
- Attract imitation, so there is no need for design protection
- Need for greater promotional support
Features of products that emphasise function (5)
- Demand is more stable and predictable
- Longer product life cycle
- Lower promotional costs
- Reputation for quality based on reliability
- Economic to manufacture, due to low average costs based on high production
Product life cycle
- theoretical model which describes the stages a product goes over its life
4 stages of product life cycle
- Introduction
- Growth
- Maturity
- Decline or extension
Introduction (6)
- High costs such as market research
- Low sales
- Negative cash-flow
- Small scale distribution
- High promotional spending
- High price (price skimming) or low price (price penetration)
Growth (6)
- Expanding market
- Fast growing sales
- Cash-flow may become positive
- Market growth, profit rise - attracts competitors
- Wider distribution
- Advertising
Maturity (7)
- Slower sales growth
- Intense competition
- Strong positive cash-flow
- High profits for those with high market share
- Advertising to remind that product exists
- Promotion focused on product differentiation
- Weaker competitors start to leave the market
Decline (7)
- Falling sales
- Weak cash-flow
- Decreasing profit
- Competitors leave the market
- Market saturation
- Remaining products might be sold at reduced prices
- Product could be withdrawn from production
Reasons for decline (4)
- Technological advance
- Changes in consumer taste/behaviour
- Increased competition
- Failure to innovate and develop the product
Extension strategies (5)
- Advertising
- Price reduction
- Adding value
- Explore new/different markets
- New packaging
Price
- the amount of money that customer pays for the product
Price skimming
- increase price as high as possible and then gradually lower it down to market average
Price penetration
- offering a product at low price to gain consumers attention
Cost plus pricing
- fixed percentage is added on top of the cost it takes to produce one unit of product
Promotional pricing
- temporarily lowering prices to increase sales/demand for the product
Price skimming advantages (3)
- Potential for high profits, which can help to pay for market research and development costs
- Product may get a reputation for quality, encouraging brand loyalty
- Additional profits made can be invested
Price skimming disadvantages (2)
- Price skimming cannot last for long, as competition soon launch rival products which puts pressure on the price
- May slow down the growth in sales of the product, because it is expensive, and no more customers can afford or are willing to pay the high prices
Price penetration advantages (2)
- Build customer usage and loyalty
- Can help develop long-term profitability of having higher sales and higher market share
Price penetration disadvantages (2)
- In the short term, it is likely to result in lower profits than would be the case if prices set higher
- It might be difficult to raise the selling price in the future
Cost plus formula
Price = unit cost + (mark up * unit cost)
Advantages of cost plus pricing (1)
- Profit is guaranteed on each item sold
Disadvantages of cost plus pricing (1)
- If a mark-up is set too high, the price might be expensive compared to rivals and therefore uncompetitive
Competitor pricing advantages (1)
- Selling prices should be line with rivals, so prices should be competitive and therefore attract customers
Competitor pricing disadvantages (2)
- Need to have other ways to compete apart from price (adding value). Often leads to special offers or sales promotions
- Market research on the rival’s prices should be conducted which increases costs for the business and lower profits
Promotional price advantages (2)
- Sales volume increase which improves cash flow and can increase market share
- Encourage customers to trial a product, who might become loyal once the price increased
Promotional price disadvantages (2)
- Customers might only buy the product when it is on promotion
- Brand image will be tarnished by too many promotions => customers will expect offers and only return for them
Setting low prices to attract more sales (4)
- Promotional pricing is generally a short term pricing method
- Involves a reduction in price to attract customers to buy existing products
- Often used when sales have started to decline
- Might be used to sell off old stock
Promotion -
- the main aim of promotion is to ensure that customers are aware of the existence and positioning of products. Promotion is used to persuade customers that the product is better than competing products and to remind customers about why they may want to buy it.
Why to promote? (7)
- To inform current and potential customers about existing and new products
- To explain the potential benefits of using the product
- To persuade customers to buy the product
- To compete with other businesses
- To encourage growth through more sales to existing customers or selling in new markets
- To present, change or improve an image of a business/product and to develop and sustain a brand
- To remind customers about a product and reassure them that they have made the right choice
Methods of promotion (4)
- Branding
- Sales promotion
- Sponsorship
- Advertising
Sales promotion (2)
- Special offers
- Product trials
Advertising (5)
- Social media
- Online advertising
- Print media
- TV and radio
- E-newsletters
Using social media to promote advantages (5)
- Relatively cheap to set up and manage
- Encourages engagement with the customer
- Customer can sign up, follow and comment on activities and promotions
- Can target specific market segments
- Social media widely used - ideal way to reach a large target audience
Using social media to promote disadvantages (3)
- Some customers might not use social media
- Negative comments can go viral
- Too much traffic; messages can be ignored or missed
E-newsletter -
The e-newsletter is a method of promotion used by businesses to communicate with their target audience via email. Sent out periodically, it reminds consumers about the business and its products or services.
Using e-newsletter to promote advantages (6)
- More cost effective and environmentally friendly than print media
- Able to reach a wide audience at little cost
- Helps to promote the business; e-newsletters can motivate customers to make purchases
- Increase communication between the business and customer
- Ability to track the performance of e-newsletter
- If an advertisement from a different business is included within the newsletter, this can be a source of income
Using e-newsletter to promote disadvantages (2)
- Requires customers to provide their email address; some people are not willing to give their email as they fear that the email will be passed on causing an increase in spam emails
- No guarantee that it will be received; customers might not open it or might not receive due to spam filters
Place -
- place refers to where the product is sold and how a business gets its products to the customers (distribution)
Objective of distribution:
To make products available in the right place at the right time in the right quantities
Different methods of distribution (4)
- Retailers
- Wholesalers
- Distributors/sales agents
- Direct
Distribution channel -
- distribution channel moves a product through the stages from production to final consumer.
Distribution channel includes (3)
- Producer (supplies the goods and services).
- Wholesaler (buys in large quantities from producers. Sells in smaller quantities to the retailers).
- Retailers (are shops that sell the goods and services to the customer.
This may be through a physical outlet and/or online).
Intermediary -
The intermediary is the link in the distribution channel between the producer and the consumer.
What do wholesalers do? (3)
- Buy in large quantities from producers
- Break stock into smaller quantities to sell to retailers
- Wholesalers make money by buying at a lower price from the producer and adding a profit margin onto the price paid by the retailer
Advantages of wholesalers (2) - channel 1
- Reduces the producer’s transport costs (fewer journeys to the wholesaler rather than many journeys to retailers)
- Retailers can order in smaller amounts from wholesalers
Channel 2:
The most popular distribution channel for consumer goods. Retailers operate outlets that trade directly with household customers.
Retailers can sell online and/or through a physical outlet, such as a shop.
Types of retailers (6)
- Type of goods being sold (e.g. clothes, grocery, furniture)
- Type of service (e.g. self-service, counter-service)
- Size (e.g. corner shop; superstore)
- Ownership (e.g. privately-owned independent; public-quoted retail group)
- Location (e.g. rural, city-centre, out-of-town)
- Brand (e.g. nationwide retail brands; local one-shop name)
Advantages of using intermediaries (2)
- Access to larger number of customers for the producer - (products sold through wholesalers and retailers)
- Saves costs for the producer - (producer saves on the cost of distributing direct to many different customers in different geographical areas)
Disadvantages of using intermediaries (2)
- Increased price at each level - (the intermediary will want to make a profit. They will add a percentage mark up onto the price paid. The increase in price paid at each stage will make the product more expensive than if the producer sold directly to the customer)
- Producer may lose control of how and where the product is sold - (the producer may not approve of how the products are promoted or displayed, particularly if it affects the brand image)
Channel 3: direct to consumers (3)
- Mail order businesses – (customers choose from catalogues and order direct)
- Telesales – (products sold over the phone)
- E-tailers - (Online selling via e-commerce and m-commerce – increasing number of businesses sell their goods and services online. This is called e-commerce. The use of mobile devices to shop, buy and sell products is called m-commerce)
Factors affecting choice of distribution (4)
- Nature of product
- Costs of distribution
- The market
- The business
Poor distribution choice could affect (3):
- Sales – (if the good or service is not available where consumers are wanting to buy it, they may buy from competitors, reducing the amount of sales possible)
- Image – (the marketing mix needs to be integrated and fit with the image the producer wants to have)
- Price – (using a distribution channel that has a number of intermediaries will increase the final price, as all parties will want to make a profit)
