Theme 1 - Marketing Mix and strategy

Question 1

What is the importance of aesthetic/function in the design mix?
(Line of analysis)

Answer 1

• If a business improves aesthetics/function of products design mix
• Through R+D into improved functionality or market research to identify consumer trends
• it is more likely to become differentiated compared to competitors
• Gain a competitive advantage according to porter
• Making them price inelastic
• Can increase selling price without significant fall in demand
• Increase sales revenue and gross profit margins

Question 2

What is the drawback to focusing on design mix/aesthetic
(Line of analysis)

Answer 2

• To improve aesthetic or function it will require significant investment into R+D or market research
• Increasing cash outflows
• If cash outflows exceed cash inflows
• Resulting in a negative net cashflow
• Placing a strain on a businesses cash reserves

-Business has difficulty making payments to supplier s

• May have to sell non-current assets
• Distribution in business operations

Question 3

How can a business change the design mix to reflect social trends?
(Line of analysis)

Answer 3

• Changing design mix to reflect social trends (choose social trend and element of design mix relevant to business)
• Product is now aligned with social trends
• Meets customer needs
• Consumers become more loyal to the business
• Price inelastic
• Can increase selling price without significant fall in demand
• Increase sales revenue and gross profit margin

Question 4

What is the drawback of changing the design mix to reflex social trends?
(Line of analysis)

Answer 4

• To identify relevant social trends
• Requires significant investment into market research
• To ensure data is valid, must be collected from a large sample size
• Business needs to recruit to collect and analyse data
• Increasing cash outflows
• Placing strain on cash reserves
• Less cash to pay for day to day operations

Question 5

Drawback of prioritising economic manufacture

Answer 5

• If a business designs a product with economic manufacture as priority
• E.g - Through using less robust raw materials – adapt this to business in extract
• It may mean that the product they design becomes less robust
• Damage the businesses reputation (now associated with being less robust)
• Consumers may switch to alternatives
• Decrease demand
• Decrease in sales and gross profit
• Less profit to Decrease demand retain and reinvest

Question 6

Benefit of branding and promotion - Above the line advertising

Answer 6

• Above the line promotion such as TV advertising
• Is most effective for large businesses (use the case study to see if the business is large)
• As it is accessible to, and appeals to, a wider audience
• Meaning that it is likely to generate a higher volume of sales
• Across multiple market segments such as multiple geographical regions
• Fixed costs of the promotion can be spread over more units
• Lower unit fixed costs
• Higher operating profit

Question 7

Drawback of branding and promotion - Above the line advertising

Answer 7

• Above the line promotion such as TV advertising
• Requires a significant amount of cash as the TV companies require payment upfront
• Reduced net cashflow leading to lower cash reserves
• Reduction in current assets

Question 8

Building a branding through language - NOT product

Answer 8

• Effective use of
  language
• For example, using language which implies that the product is superior (or different in some form) to competitors
• (find examples in the case or think of relevant ones for the business)
• Make the product price inelastic
• The business can set a higher price
• Without a significant fall in demand

-Increased revenue leading to increased gross profit

Question 9

Building a brand through advertising -

Answer 9

• Effective Increased sales
  communication
  With customers
• Give examples from the case, look for any suggestion of symbols, slogans or icons
• Improved brand awareness
• Increased sales
• Link to a suitable EOS

Question 10

Ways to build a brand – Sponsorship

Answer 10

• Building an association with an event or organisation which portrays a shared image
• Find an example of what the event or organisation represents
• Explain how this can give a positive brand image e.g., Red Bull sponsors extreme sporting events to give the impression that their drinks improve speed and performance
• Explain how this can give a positive brand image e.g., Red Bull sponsors extreme sporting events to give the impression that their drinks improve speed and performance
• Link to price elasticity

Question 11

Changes in Brading and promotion to reflect social trends

Answer 11

• Grow in the use of online use
• Increased audience online each year
• Communicate to them through social media influencers who are currently popular
• Brand associated with the popular influencer
• Increased sales –link to EOS

Question 12

Emotional branding

Answer 12

• Appeal to someone’s Differentiated emotions
• Appeal to someone’s Differentiated emotions
• Appeal to someone’s Differentiated emotions
• Differentiated
• Link to price inelasticity line of analysis

Question 13

Price Skimming Benefit

Answer 13

• Temporary high price for a price inelastic good at the start of the products life
• That will be paid by the early adopters
• Very high sales revenue per item sold
• Increased gross profit
• Operating profit
• Increased retained profit that can be used for investment in R&D (if a manufacturing business or software)
• Superior products (say how)
• Further increases in sales and profit

– could link to
EOS

Question 14

Price Skimming Drawback

Answer 14

• High price
• Lower demand (particularly in a price elastic market look at the case study to make judgement here)
• Lower volumes sold
• Fixed cost of the R&D associated with the advanced product will be spread over less units
• Higher unit fixed costs for the R&D
• Making it less
  affordable
• Potentially leading
  to less advanced
  R&D process e.g.
  less testing of
  prototypes
• Less advanced
  good and lower
  demand

Question 15

Penetration Pricing Drawback

Answer 15

• Price might be
  lower than the cost
  of sales (if a
  product)
• Potential loss on
  each product sold
• Gross loss
• Operating loss causing the business to pay for expenses with cash reserves
• Reducing cash in current assets
• Reducing ability to pay
  current liabilities
• May have to sell
  non-current
  assets
• Disruption to
  business
  operations

Question 16

Penetration Pricing Benefit

Answer 16

• Low price at the
  start of the
  product’s life
• Significant increase
  in demand
  (especially if in a
  price elastic market)
• As (if price elastic)
  the percentage
  change in demand
  will be greater than
  the change in price
• This will lead to
  increased volumes sold
• Increased brand awareness
• Repeat purchases
  (potentially even when
  price later increases)
• Increased sales
  revenue
• Increased gross
  profit in the long
  term

Question 17

Cost Plus Pricing Benefit

Answer 17

• Mark-up added to
  the cost of
  production for each
  product
• Prices are flexible
  when costs change
• So price will increase
  if costs of product
  increase in order to
  maintain profit
  margins
• This will lead to the business ensuring they don’t make a loss on their products sold
• Unlikely to
  experience an operating loss
• Cash reserves are not
  strained to cover the
  loss
• Able to maintain
  sufficient working
  capital
• Able to keep up
  with day-to-day
  bills such as
  payments to
  suppliers

Question 18

Cost Plus Pricing Drawback

Answer 18

• However cost-plus
  pricing does not
  consider external
  factors
• Eg. In a very price
  elastic market a
  competitor could
  reduce their mark-up
• In order to offer a
  lower selling price
  than the business
• This would lead to a significant number of customers switching to the competitors offering the cheaper prices
• Leading to a fall in sales
• As cost-plus pricing
  would not respond to
  this
• Fall in revenue
• Fall in operating
  profit

Question 19

Predatory pricing Benefit

Answer 19

• Price is reduced in
  order to attract
  customers from
  competitors
• Who are then unable
  to compete,
• Leading to failure
  and them closing
  down.
• This reduces the level of competition in the market, possibly creating a monopoly
• Therefore customers have less choice
• Making the market
  more price inelastic
• Increase prices
  without a
  significant
  increase in
  demand
• Increase in
  revenue
• Increase gross
  and operating
  profit
• Increase
  retained profit
  to be reinvested
  in….

Question 20

Predatory pricing Drawback

Answer 20

• However, predatory
  pricing involves
  setting extremely
  low prices
• Which could be
  lower than the costs
  of production
• This would lead to
  very low gross profit
  margins or potential
  losses
• This would strain cash reserves in order to cover day-to-day running costs
• Leading to lower current assets and a poor current ratio
• Meaning that the
  business would have
  poor liquidity
• Therefore they may
  not be able to pay
  their current liabilities
  when they are due
• And may be
  forced to sell
  non-current
  assets in order
  to raise cash

Question 21

Psychological Pricing Benefit

Answer 21

• Using psychological
  pricing, e.g - £99,
  £1999
• It may convince
  consumers that
  products are more
  affordable
  (particularly impulse
  buys)
• Leading to an
  increase in sales
  volume for the
  business
• Meaning their fixed costs can be spread over more units
• Lower unit fixed cost
• Increasing operating
  profit margin
• More profit can
  be retained and
  reinvested
• Improving
  competitiveness

Question 22

Psychological Pricing Drawback

Answer 22

• However, using
  psychological
  pricing may not be
  effective.
• As it does not
  consider factors that
  can affect the PED of
  certain products
• Therefore, choosing
  a psychological price
  may lead to the
  business setting a
  price that’s too high
• If the product does not have a high level of differentiation
• Which may result in a significant decrease in demand
• And educing sales
  revenue and their
  operating profit
• Meaning they
  could retain less
  profit
• And invest less.

Question 23

Competitive Pricing Benefit

Answer 23

• Competitive pricing may be effective as it ensures the business is not outpriced by another
• This is particularly important in a very competitive price-elastic market
• Where there is a significant amount of choice
• Increasing buyer power
• Therefore, prices need to remain competitive to avoid customers switching
• This ensures the
  business can have high
  sales volumes
• Increased orders from suppliers leading to bulk buy discount
• Lower unit
  variable costs
  and higher gross
  profit margin

Question 24

Competitive Pricing Drawback

Answer 24

• Businesses charge similar prices to their competitors
• Therefore, prices do not give a competitive advantage
• Forcing the business to become differentiated in another way
• For example, through a unique product
• This will increase cots through R&D
• Increased costs combined with a low competitive price
• Potential
  operating loss

Question 25

Multiple intermediaries benefit,
(Line Of Analysis)

Answer 25

• A business may choose to distribute through multiple intermediates e.g. Online and in stores
• This improves accessibility of the product as it is more widely available
• Increased brand awareness, marketing costs go down
• Therefore, more customers may purchase the product
• Leading to an increase in sales volume for the business for the business
• Increase volume of (Raw materials) bought from the supplier
• Leading to discount for bulk buying
• Lower variable costs
• Increased gross profit margin

Question 26

Multiple intermediaries drawback,
(Line Of Analysis)

Answer 26

• However,
  intermediaries may
  have high levels of
  buyer power
• This means that they
  will be able to dictate
  terms to the business
• Eg. Lower prices
  and longer periods
  of trade credit
• Therefore reducing cash inflows
• Lower net cash flow
• Reduced cash reserves
• May suffer from poor
  liquidity (low acid test
  ratio)
• Unable to keep up
  with day-to-day
  bills e.g. Payments
  to suppliers
• May have to sell non-current
  assets to pay bills
• Business is unable to
  operate

Question 27

Direct distribution benefit (traditional)

Answer 27

• A business may choose a more traditional distribution channel and sell their products directly.
• This gives the business more control over the customer experience.
• Improved customer service.
• Makes business more differentiated.
• Business become more price inelastic.
• Increase selling price and not experience significant fall in demand.
• Higher revenue

Question 28

Importance of design mix – economic manufacture

Answer 28

• If a business designs
  a product with
  economic
  manufacture as
  priority
• E.g - Through using
  less robust raw
  materials – adapt
  this to business in
  extract
• Reduce their cost of
  sales
• Can pursue cost
  leadership according to
  Porter
• Gain competitive
  advantage
• Can reduce selling price
• Significant increase
  in demand if
  product is price
  elastic
• Increasing sales

Question 29

Marketing strategies for b2c businesses - benefit

Answer 29

• B2C marketing strategy
  targets a wider pool of
  potential consumers
• However, as pool of
  consumers is larger,
  likely to be a greater
  number of substitute
  businesses targeting
  these consumers
• Meaning market
  will be more price
  elastic
• Pressure for business to
  reduce prices in order to
  increase demand
• Lower sales revenue
• Lower gross
  profit

Question 30

Marketing strategies for b2c businesses - benefit

Answer 30

• B2C marketing strategy
  targets a wider pool of
  potential consumers
• As there are more
  consumers than
  businesses
• If marketing
  strategy successful,
  increased likelihood
  of high sales volume
• Able to achieve economies
  of scale
• Choose appropriate
  economies of scale
• Low unit cost

Question 31

Marketing strategies for b2b businesses – drawback

Answer 31

• B2B marketing strategy
  targets a smaller pool
  of potential customers
• As there are less
  businesses than
  individual consumers
• Meaning that
  business may have a
  lower output
• Lower capacity utilisation
• Fixed costs spread over
  less units
• Increased unit
  cost

Question 32

Marketing strategies for b2b businesses - benefit

Answer 32

• Having a b2b
  marketing strategy
  means a business is
  likely to use below the
  line promotional
  methods to build
  lasting relationships
• So that they can
  receive repeat orders
  of their products
• Business can
  produce reliable
  cash flow forecasts
  as more certain of
  regular cash inflows
• Improve reliability of
  business plan
• More attractive to banks
• Secure loan
  with lower rates
  of interest
• Increased
  current assets
• Good liquidity

Question 33

Benefit of a business having a balance product portfolio ( product life cycle, Boston matrix)

Answer 33

• If a business has
  products in all
  stages of the
  PLC/each section of
  the Boston Matrix
• They will have a
  balanced product
  portfolio
• This means they
  have spread risk
  across multiple
  products
• And are less vulnerable
  to changes in consumer
  incomes/trends
• Meaning they are likely
  to have a consistent
  cash inflows from sales
• And can
  maintain a high
  level of cash
  reserves
• So their current
  ratio will be high
• And they can keep
  up with payments
  to suppliers
• Less likely to have
  to sell non-current
  assets
• No disruption to
  day to day
  operations

Question 34

Drawback of a business having a balance product portfolio ( product life cycle, Boston matrix)

Answer 34

• However, creating and
  maintaining a
  balanced product
  portfolio will require
  significant investment
  in all marketing
  activities
• Such as r&d, market
  research, promotion
• Meaning a business
  will require
  significant cash
  reserves
• And may need to seek
  additional sources of
  finance
• Link to drawback of
  source finance relevant
  to business in question

Question 35

Cash cow benefit

Answer 35

• Cash cow products
  have a high market
  share and a high
  market growth
• Therefore, sales
  volume is highest
  and business will
  achieve economies of
  scale
• Link to appropriate
  type of economies
  of scale
• Unit cost will fall
• Choose appropriate
  profit margin that will
  increase
• Business can either retain
  and reinvest more profit or
  lower selling price (choose
  appropriate)

Question 36

Dog products as a source of finance

Answer 36

• Dog products may
  be lower
  profitability/
  making a loss
• Due to low sales
  causing low output
• Low capacity
  utilisation
• Fixed costs spread over
  less units
• High unit fixed costs
• Potentially
  leading to a loss
• Therefore, the
  product needs
  withdrawn from the
  market
• Sell non- current assets
  associated with the
  production
• Increasing cash to be
  invested in facilities and
  wages (of scientists and
  engineers) for R&D

Question 37

Dogs drawback

Answer 37

• Dog products will
  have a low market
  share and low
  market growth
• Less cash inflows
  from sales
• Reduced cash
  reserves
• Low current assets
• Low current ratio
• Business may not be able
  to meet current liabilities

Question 38

Dogs benefit

Answer 38

• Dog products will
  have a low market
  share and low
  market growth
• However, they may
  be established
  products that require
  very little investment
  in promotion or R&D
• Meaning the unit
  cost is very low
• And business can still
  maintain a profit
  margin
• Meaning they can retain
  this profit
• This retained profit can
  be used to invest into
  question mark products
• That have the
  potential to be a
  future star or
  cash cow
• Ensuring product
  portfolio remains
  balanced and risk
  is spread

Question 39

Stars benefit

Answer 39

• Star products have
  low market share
  but high market
  growth
• Therefore, sales will
  be increasing
• so, the business will be
  able to make better use
  of their production
  capacity
• Improve capacity
  utilisation means that
  their fixed costs of
  production will be
  spread over more units
• Lower unit fixed cost
• Potential to set a lower
  selling price (if product
  is price elastic)
• Demand increases
  significantly
• Further increase
  sales revenue

Question 40

Question marks drawback

Answer 40

• A question mark
  product has low
  sales but potential
  for high market
  growth
• It will need
  significant cash
  investment in market
  research and R&D
  (development stage)
• And promotion to
  raise awareness of
  new product
  (introduction stage)
• This will significantly reduce
  cash reserves as there will
  be no cash inflow from sales
  during development stage
  and low inflows during intro
  stage.
• Meaning business will
  have reduced current
  assets and potentially
  low current ratio
• Meaning they may have less
  cash available to meet
  current liabilities, such as
  suppliers
• Risk sale of asset
  to raise cash

Question 41

Development/Introduction stage (product life cycle)

Answer 41

• When product is at
  introduction and
  development stage
• There will be
  significant cash
  investment in market
  research and r&d
  (development stage)
• And promotion to
  raise awareness of
  new product
  (introduction stage)
• This will significantly reduce
  cash reserves as there will
  be no cash inflow from sales
  during development stage
  and low inflows during intro
  stage
• Meaning business will
  have reduced current
  assets and potentially
  low current ratio
• Meaning they may have less
  cash available to meet
  current liabilities, such as
  suppliers
• Risk sale of asset
  to raise cash
• Potential disruption
  to day-to-day
  operations

Question 42

Growth stage (product life cycle)

Answer 42

• When product is in
  the growth stage
• Sales will start to
  increase
• Therefore, the business
  will be able to make
  better use of their
  production capacity
• Improve capacity
  utilisation means that
  their fixed costs of
  production will be
  spread over more units
• Lower unit fixed cost
• Business may be able
  to reduce the selling
  price (if price elastic)
• Business may be able
  to reduce the selling
  price (if price elastic)
• Further increase
  sales revenue

Question 43

Maturity stage (product life cycle)

Answer 43

• Product in maturity
  stage will see sales
  at highest across
  PLC
• As sales volume is
  highest, business will
  achieve economies of
  scale

Question 44

Maturity stage (product life cycle)

Answer 44

• Product in maturity
  stage will see sales
  at highest across
  PLC
• As sales volume is
  highest, business will
  achieve economies of
  scale
• Link to appropriate
  type of economies
  of scale
• Unit cost will fall
• Low current ratio
• Business may not be able
  to meet current liabilities
• May be forced to sell
  non-current asset and
  disrupt day to day
  operations

Question 45

Decline stage drawback (product life cycle)

Answer 45

• However, as sales
  begin to decline
• Due to changing
  trends
• Business may be able
  to sell obsolete assets,
  such as machinery
  used in production of
  product
• To generate cash that
  could be used to invest
  into r&d or market
  research of new
  products
• That are in development
  stage
• To ensure that they
  have a balanced
  product portfolio
• So they have
  spread risk
• And are less
  vulnerable to
  changes in
  trends

Question 46

Extension strategy benefit (product life cycle)

Answer 46

• When a product
  reaches the decline
  stage of the
  product life cycle
• Businesses can introduce
  extension strategies, such
  as adapting the product
  or advertising to a new
  market segment
• This extends the
  maturity stage
• So sales volume
  remains high
• And economies of scale
  can continue to be
  achieved
• Link to appropriate
  type of economy of
  scale
• unit cost
  remains low
• Link to
  appropriate
  profit margin