Theme 1 - Marketing Mix and strategy Flashcards
1
Q
What is the importance of aesthetic/function in the design mix?
(Line of analysis)
A
- 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
2
Q
What is the drawback to focusing on design mix/aesthetic
(Line of analysis)
A
- 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
3
Q
How can a business change the design mix to reflect social trends?
(Line of analysis)
A
- 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
4
Q
What is the drawback of changing the design mix to reflex social trends?
(Line of analysis)
A
- 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
5
Q
Drawback of prioritising economic manufacture
A
- 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
6
Q
Benefit of branding and promotion - Above the line advertising
A
- 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
7
Q
Drawback of branding and promotion - Above the line advertising
A
- 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
8
Q
Building a branding through language - NOT product
A
- 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
9
Q
Building a brand through advertising -
A
- 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
10
Q
Ways to build a brand – Sponsorship
A
- 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
11
Q
Changes in Brading and promotion to reflect social trends
A
- 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
12
Q
Emotional branding
A
- 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
13
Q
Price Skimming Benefit
A
- 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
14
Q
Price Skimming Drawback
A
- 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
15
Q
Penetration Pricing Drawback
A
- 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
16
Q
Penetration Pricing Benefit
A
- 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
17
Q
Cost Plus Pricing Benefit
A
- 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
18
Q
Cost Plus Pricing Drawback
A
- 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
19
Q
Predatory pricing Benefit
A
- 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….
20
Q
Predatory pricing Drawback
A
- 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
21
Q
Psychological Pricing Benefit
A
- 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
22
Q
Psychological Pricing Drawback
A
- 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.
23
Q
Competitive Pricing Benefit
A
- 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
24
Q
Competitive Pricing Drawback
A
- 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
25
Q
Multiple intermediaries benefit,
(Line Of Analysis)
A
- 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
26
Q
Multiple intermediaries drawback,
(Line Of Analysis)
A
- 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
27
Q
Direct distribution benefit (traditional)
A
- 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
28
Q
Importance of design mix – economic manufacture
A
- 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
29
Q
Marketing strategies for b2c businesses - benefit
A
- 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
30
Q
Marketing strategies for b2c businesses - benefit
A
- 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
31
Q
Marketing strategies for b2b businesses – drawback
A
- 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
32
Q
Marketing strategies for b2b businesses - benefit
A
- 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
33
Q
Benefit of a business having a balance product portfolio ( product life cycle, Boston matrix)
A
- 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
34
Q
Drawback of a business having a balance product portfolio ( product life cycle, Boston matrix)
A
- 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
35
Q
Cash cow benefit
A
- 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)
36
Q
Dog products as a source of finance
A
- 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
37
Q
Dogs drawback
A
- 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
38
Q
Dogs benefit
A
- 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
39
Q
Stars benefit
A
- 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
40
Q
Question marks drawback
A
- 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
41
Q
Development/Introduction stage (product life cycle)
A
- 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
42
Q
Growth stage (product life cycle)
A
- 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
43
Q
Maturity stage (product life cycle)
A
- Product in maturity
stage will see sales
at highest across
PLC - As sales volume is
highest, business will
achieve economies of
scale
44
Q
Maturity stage (product life cycle)
A
- 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
45
Q
Decline stage drawback (product life cycle)
A
- 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
46
Q
Extension strategy benefit (product life cycle)
A
- 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
