Mkting Mix Flashcards
What are the benefits of place?
- Consumers need access to see and try products before they buy
- Manufacturers need an outlet to reach out to the market
- To consider costs and mark-up when determining number of intermediaries
- All businesses need to establish a distribution strategy in an efficient and Low-cost manner, that it is convenient for the consumer to buy
What is direct selling?
- Manufacturer bypasses all middlemen and sells directly to end consumers
- commonly used in biz market
- more bizs using direct selling due to the internet and e-commerce
What are the benefits of direct selling?
- no intermediaries, so no mark-up or profit margin taken by other businesses
- producer has complete control over the marketing mix
- quicker than other channels
- may lead to fresher food products
- direct contact with consumers offers useful market research -> gather direct feedback from consumer
What are the limitations of direct selling?
- all storage and stock costs have to be paid by the producer
- no retail outlets limit the chances for consumers to see and try before they buy
- may not be convenient for consumer
- no advertising or promotion paid for by intermediaries and no after-sales service offered by shops
- can be expensive to deliver each item sold to consumers
What is one-intermediary channel?
- a manufacturer sells to a retailer when then sells to customers
- retailers have an extensive distribution network
- can buy in large quantities and can arrange their own storage and delivery systems to individual outlets
- used typically for businesses selling bulky products, perishable products and fashion items
What are the benefits of one-intermediary channel?
- retailer holds stock and pays for cost of this
- retailer has product displays and offers after-sales service
- retailers often in locations that are convenient to consumers
- producers can focus on production, not on selling the products to consumers
What are the limitations of one-intermediary channel?
- intermediary takes a profit mark-up and this could make the product more expensive to final consumers
- producers lose some control over marketing mix
- retailers may sell products from competitors too, so there is no exclusive outlet
- producer has delivery costs to retailer
What is two-intermediary channel?
- a manufacturer sells to wholesaler, which in turn sells to a retailer which finally sells to the end consumer
- typically used by businesses producing consumer goods
- used in a large country where the distance between manufacturer and retailer is great
What are the benefits of two-intermediary channel?
- wholesaler holds gds and buys in bulk from producer
- reduces stock-holding costs of producer
- wholesaler pays for transport costs to retailers
- wholesaler ‘breaks bulk’ by buying in large quantities and sell to retailers in small quantities
- may be the best way to enter foreign markets where producer has no direct contact with retailers
What are the limitations of two-intermediary channel?
- another intermediate takes a profit mark-up which may make final selling price more expensive to consumers
- producer loses further control over marketing mix
- slows down the distribution chain
What are the factors affecting choice of distribution channel?
Product, costs involved, nature of markets and locations and competiton
What is the importance of price?
Determines the degree of value-addedness, impact on demand and establish psychological image and identity of a product
How does price determine the degree of value-added ness?
- price set must cover the costs of raw materials/components, and costs of production
- reflects the value created
- helps maximise profits and business to take a commanding position if used correctly
How does price influence impact on demand?
- influence revenue and profit made by business
- a business can increase the revenue by either selling more products or to sell at a higher price. A business would have to reduce price to sell more vice versa
- as such, biz needs to make a strategic trade off between volume and price in order to maximise profits
How does price establish a psychological image and identity of a product?
-if a biz decides to set a high price for a product, consumers will generally associate the product to be of high quality. This is known as price-quality perception
What are the factors affecting pricing decisions?
- Costs of production -> Price must cover the costs of producing the product and bringing it to the market which includes variable costs such as costs of raw materials and fixed costs such as rental
- Biz objectives -> price set must be aligned with the other components of the marketing mix, based on the biz and marketing objectives of the biz -> if objective is to become market leader through mass marketing, competitive pricing would be set
- Competition -> biz with highest mkt share would be the price setter; non-mkt leaders will follow prices set by mkt leaders unless they establish USP
- Demand -> the greater the dd, the higher the biz could price the pdt; biz could also reduce price to increase demand
- External environment -> economic conditions of a country; internet allowing customers to compare prices; laws are passed to limit uncompetitive practices
What is penetration pricing?
-setting a relatively initial low price to penetrate into a market, attract a large number of customers quickly, achieve a high volume of sales and win a large market share
-supported by a strong promotion campaign
-slowly increase price if large market share is gained
Conditions:
-mkt must be price sensitive
-production and distribution costs must fall as sales volume increases (EOS)
-Low price must keep out competition
What is price skimming?
-setting a high price for a new product which is unique or highly differentiated
Conditions:
-quality and image must support its higher prince and enough customers want to buy the product at that price
-costs of producing smaller volume cannot be so high until advantage of charging more is cancelled out
-competitors should not be able to enter market easily
What is cost-based pricing?
- biz will assess the costs of producing or supplying each unit of product, and then add an amount on top of the calculated cost
- mark-up
- commonly used by retailers
- easy to apply, but difficult to determine
What is break-even pricing?
- setting a price at which a biz will earn zero profits
- use Low prices as a tool to gain market share and drive competitors out of the market
- raise prices after competitors are driven out
What are the advantages of break-even pricing?
- a form of entry barrier to deter new competitors from entering the market
- drive financially weak competitors out of market, thereby reducing competition
- achieve mkt dominance; increase production vol and reduce avg cop
What are the disadvantages of break-even pricing?
- creates a perception that quality of product is no longer as good
- competitors may reduce prices further, leading to a price war
Not useful for a smaller, resource poor biz that cannot survive for long with zero margins; useful for bizs with sufficient resources to lower prices and fight off attempts by competitors to undercut them
What is perceived value pricing?
- base price on customers’ perceived value, which comprises of image, support and warranty, reputation, trustworthiness, etc
- used in markets where customers are less price sensitive and more willing to pay
What is psychological pricing?
- price set sends signal about the product
- set price just below key price levels to make price appear lower
