Paper 1- Theme 1.3- Marketing mix and strategy Flashcards
Define distribution
Distribution is the process of getting products to the right place for consumers at the right time
Describe the direct distribution channel
Pros and cons
manufacturer —> consumer (e.g. online Amazon store)
PROS:
- full control of supply and marketing
- max revenue as no intermediaries
CONS
- may not be available in retail stores so lose potential sales
- storage costs
- have to deal with all refunds and complaints
- limited geographically —> increased distribution costs
Describe the modern distribution channel
Pros and cons
manufacturer —> retailer —> consumer
PROS:
- use established infrastructure to access all over the country
- less cost and more control as no wholesaler
CONS
- hard to maintain relationships with retailers
- large retailers are tough with negotiations on price, credit and demanding that you pay for special offers
- brand image may be damaged in retail stores
Describe the traditional distribution channel
Pros and cons
manufacturer —> wholesaler —> retailer —> consumer
PROS:
- gain distribution to small independent shops to
- producer can focus on production, not worry about retailers
- helps small producers gain access to retail stores
CONS
- wholesaler markets product
- lose out on profit due to wholesalers benefitting from EoS and share of profit
Describe the use of an agent distribution channel
Pros and cons
manufacturer —> use of an agent —> wholesaler —> retailer —> consumer
PROS:
-makes selling in foreign country easier due to knowledge of the market (tax, regulations and language)
CONS:
- supply chain longer (more separate parties slows down distribution)
- takes commission
Define an agent
- someone who facilitates the sale between a business and a wholesaler (usually in foreign markets)
changes in distribution to reflect social trends
- mass customisation reduces need for stock holding in retailers and wholesalers
- changing from product to online service
- –> online distribution reach wider geographical market
- –> can be accessed without need for physical copy
(e. g. music going from vinyls to streaming services) - increase e-commerce, reduce need for high street retailers
- ageing population, who have higher disposable income, better suited to traditional methods
- ‘immediate gratification’ trend, increases direct distribution
define pricing strategy
approach which a business decides on the price of its products or services
- when entering a new, or in a existing market
name the different pricing strategies
skimming - enter market with a high price, before competitors enter market or if product is superior, gradually decrease to access more of market
predatory - illegal tactic used by dominant firms where they deliberately set prices very low to drive competiton out of market
penetration - relatively low price compared to competition to attract new customers
–> make them switch product, to achieve high market share
psychological - make consumers think price is more appealing than it truly is by rounding down
competitive - price the same or a little less than competing products
–> following with the demand and supply forces (price taker)
premium - higher than market average, due to added value
cost plus - adding a % on top of total costs
cost leadership - operate at a loss to maximise market share
Factors that determine the best possible pricing strategy
- cost of producing
- competition’s product and pricing
- added value
- brand positioning
- business objectives (short termist or long termist) —> revenue budgets
- strength of brand
- price elasticity of demand
- income elasticity of demand
- stage in product life cycle
- is it selling online? easy comparison checks
- economic trends
How has pricing changed to reflect social trends
•online sales - E, M, S commerce
-prices change frequently in response to change in demand, due to technology that tracks demand and levels of interest
•price comparison websites
-businesses have to be more competitive as customers can compare prices easily
pros and cons of cost plus pricing
pros
- easy to calculate and agile with changing costs
- always lead to profit
cons
- doesn’t consider demand change (external factors)
- ignores effects of their price elasticity of demand (product orientated rather than market orientated)
- changes in costs, will change price –> may be irritating for customers (question brand positioning)
pros and cons of price skimming
pros
- cover R&D costs
- create perception of high quality
- greater profit margins
cons
- may have less demand (smaller target market with necessary disposable income)
- won’t create high market share, when entering market (not be able to pay dividends
- —> need to have a long termist approach)
- early adopters may be put off if initial price decreases
pros and cons of competitive pricing
√ - differentiation can encourage market share
√ - prevent loss of market share, if constantly changing to match competition (using pricing software)
X - may struggle to compete on non price competition
X - high costs of maintaining competitive advantage
X - if focus on competing, may not be able to cover all costs
X - if high quality may tarnish brand perception
pros and cons of penetration pricing
√ - establish market share in new market –> encourage switching
√ - reduces competition as a barrier to enter new market (can increase price once established)
X - profit margins slim
X - hard to establish perception of quality
