Topic 2.2 - Making Marketing Decisions Flashcards
What is product design?
It is the process of creating new products or services for firms to sell.
What happens if a firm is good at product design?
They will be good at researching new products, good at developing them and good at coming up with new and innovative ideas that customers will buy.
What is market-driven approach?
Market-driven approach is one that listens and responds to the needs and wants of customers.
What happens if a firm uses market-driven approach?
They don’t design a product that a couple of people in the company think is a good idea. They will do lots of market research into what customers want. A market-driven approach is much more effective in developing successful new products.
What is product differentiation?
It is making your products different to competitors products.
What is a products USP?
It is the part of the product or service that is different to anything else in the market.
Why is product differentiation important?
It is important because if products are too similar then there can be intense price competition between businesses. The more products there are, the more likely it is that a firm can charge a higher price than competitors.
What three aspects are a product produced with?
Function, cost and aesthetics.
What is the cost of the design mix?
The product design and its features affects how much the product will cost to make, and so price is an important consideration when designing a product.
What is the aesthetics for the design mix?
The way a product looks (product image) can make a product stand out from competition, but it also has important impact on the overall brand image of the business. Brand image is important because it is essentially the reputation of the firm. This is not important for selling the product but also for selling the firms other products and services.
What is the function for the design mix?
Function is the way that a product works.
What is the product life cycle?
The series of stages that a product goes through over its lifetime. As not all products last forever, they start somewhere and most products are services experience a fall in sales after a certain period of time.
What is the R&D stage of the product life cycle?
Research and development is the stage before a product has actually been made. Businesses will invest in researching a certain area of the market and if they discover a business opportunity, they may then take the time and resources to develop a product or service that fits a gap in the market.
What is the introduction stage of the product life cycle?
Introduction is the stage where a business introduces or launches the new product or service to the market. Marketing and advertising are important in this stage of the product life cycle because a business needs to find a way to let consumers know what the product is and that the product exists.
What is the growth stage of the product life cycle?
Successful products often undergo a period of growth as more and more customers discover and buy the product. In the early days, just after introduction, the rate of growth tends to increase.
What is the maturity stage of the product life cycle?
At this stage, the number of new customers buying the product has slowed down and the market for the product can be considered mature. But sales of the product are still rising, just less quickly than before.
What is the saturation stage of the product life cycle?
At this stage, the sales of the product have reached its peak and no longer increase but remain steady. Essentially all consumers who want the product or service have bought or acquired it.
What is the decline stage of the product life cycle?
Changes in fashion, consumer tastes/preferences, technological advances and new competition offering similar products can all mean that the demand for a product begins to fall.
What are extension strategies?
When the business tries to prevent or delay a product from reaching the stage where sales start to decline.
What are the extension strategies used by businesses?
Adding more/different features keep people interested
Updating packaging or rebranding can help to keep a product fresh in consumers minds. This is a common way to try and keep consumers interest in a product.
Businesses can target new markets in an attempt to keep demand and sales high. Businesses can enter the same market in a different country or target a different age range in the same country.
Heavily advertising the product can help the keep the demand for a product high. New advertising campaigns can also help to change the product image slightly and attract different customers.
What are the internal factors that influence a firms pricing decisions?
Costs and product life cycle.
What are the external factors that influence a firms pricing decisions?
Nature of a product and the degree of competition.
How do costs influence pricing decisions?
Costs influence firms pricing decisions because firms usually aim to make a profit. A firms price and costs determines how much profit the firm will make. Businesses cannot afford to set a price lower than their costs forever.
How does the product life cycle influence pricing decisions?
Where a product is in the product life cycle determines whether the firm will charge a high or low price for the product. When a new product is launched, firms may charge higher prices to take advantage of exclusivity.
How does the nature of a product influence pricing decisions?
It affects pricing in two ways:
Whether a good is a luxury good will affect how much a business charges,
How hard it is to differentiate from competitors affects how much a business can charge, if it is similar (homogenous) then businesses usually price at a similar level to competitors.
How does the degree of competition influence pricing decisions?
It affects the pricing decisions of firms because the more competition a firm faces, the more options customers have. When customers have lots of options for similar products, businesses must compete to attract customers using a lower price.
What is price skimming?
A pricing method where a business sets a relatively high initial price and then gradually lowers it over time. It is often used before a business faces competition in the market. Once competition arrives, there will be downward pressure on the price to fall.
How does price skimming maximise revenue?
Consumers who buy early on are willing to pay a higher price but the business can still attract other customers who can pay a lower price later on in the products lifecycle.
How does price skimming cover fixed costs?
It can help recover the costs of R&D.
How does price skimming slow unit sales growth?
It slows down the growth of a product and gives competitors more time to launch a competing product or service. A company does not maximise the number of sales at the start so competitors can get more of a chance to enter the market.
What is price penetration?
Where a business tries to affect market share by offering a low initial price.
How does price penetration increase market share?
When these goods or services enter the market, a business can attract customers from established competitors.
How does price penetrations give lower short-term profits?
In the short-term, price penetration can lead to lower average profits than would be earned with a higher price. However, market share may be more important for the long-term profitability of a business.
