Topic 2.2 Making marketing decisions

Question 1

What are the three factors in the design mix?

Answer 1

*function – what the product should do and how well it does it, eg a washing machine should wash clothes.
A product’s function is the most important aspect of its design because it determines how well the product will meet the needs of its intended users

*cost – how cost-effective the product will be to manufacture, eg the product should be made and sold profitably.
A well-designed product should balance cost and value, ensuring that customers perceive the product as valuable enough to justify its cost while still maintaining profitability for the manufacturer

*Aesthetics- refer to the product’s visual and sensory appeal, including its form, shape, colour, and texture.
Aesthetics play an important role in attracting customers, creating brand loyalty, and generating word of mouth recommendations

Question 2

What are the stages of the product life cycle?

Answer 2

*Introduction - when first launched, high costs

*Growth - if the launch is successful sales increase sharply and the product may make a first time profit

*Maturity - sales growth slows down, but repeat customers continue to buy and customers become loyal.The market becomes saturated as rivals bring out competing products.

*Decline - eventually product is outdated and there is a big fall in sales, leading to withdrawal

Question 3

Define product life cycle

Answer 3

The product life cycle is a business model that represents the sales of a product through different stages of its life

Question 4

What do businesses try to do in each stage of the product life cycle?

Answer 4

*Introduction -What promotional methods will encourage customers to trial a product

*Growth -How can the business meet demand and maintain customer service

*Maturity - How can the business encourage repeat purchase and build customer loyalty

• Decline -How can we innovate products to compete with competitors?Should we use extension strategies?

Question 5

How long a product lasts will depend upon:

Answer 5

*how dynamic the market is – eg, technological products (such as tablets and laptops) have short life cycles as they quickly become out of date as new technology
*how strong the brand image
behind the product is – eg, a new sports shoe from a well-known brand is likely to have a longer life cycle than a new sports shoe from an unknown brand

Question 6

What are examples of extension strategies?

Answer 6

• Marketing campaigns-may increase marketing activity
• Modifying product
• Changing packaging
• New markets
• Extra features
  -Reducing the price

Question 7

What is product differentiation

Answer 7

Making a product stand out from its
market competitors

Question 8

How can products be differentiated?

Answer 8

• Unique/catchy name
• Quality
• Design,function
• Packaging
• Customer service
• Value for money

Question 9

Why is product differentiation important?

Answer 9

-to position their products and target different market segments
-to gain an advantage over rivals when faced with competition e.g may be able to create a unique selling point
-allows consumers to see that their needs are being met more effectively

Question 10

Why is price important in the marketing mix?

Answer 10

-The price of a product gives customers an indication of quality

-In competitive markets, changes in price can have a significant influence on demand

-Branded products generally have a higher price that non-branded products because they are more expensive to produce and promote

Question 11

What is premium pricing?

Answer 11

Pricing luxury/desirable/rare products higher than others, a goods price is set at a higher price than competitors to give a perception of high quality.

Question 12

What is price skimming?

Answer 12

Pricing high to begin with to make the product desirable then lowered over time

Question 13

What influences the pricing strategy chosen?

Answer 13

*technology-new technology can lower the costs of production and allows a business to set a more competitive price

*competition-a business has to consider its competitors and the position of its brand in the market e.g in highly competitive markets, businesses may set their prices lower

*Branding-products with a strong brand can demand a higher price due to the perceived value and desirability

*Costs-a business may set itself a profit margin target(e.g 150%) that it adds to the cost of the product or service in order to set its price

*Product life cycle-the products stage in the products life cycle will influence pricing decisions e.g businesses often use a low starting price to encourage customers to try the product during its introduction stage.

*Market segments-different prices may be applied to customers with different characteristics

Question 14

Why do businesses use promotions?

Answer 14

Promotion is an important element of the marketing mix as it plays a crucial role in generating customer awareness, interest and desire for a product/service.It helps to build brand awareness and loyalty which can lead to repeat purchases and referrals so boosts sales

Question 15

What are some examples of different methods of promotion?

Answer 15

• Advertising (TV, radio, websites, leaflets, posters)
• Sponsorship (events and good causes)
• Product trials (samples and freebies)
• Special offers (discounts, vouchers)
• Public relations (association with a logo)

Question 16

What are the advantages and disadvantages of advertising?

Answer 16

ADVANTAGES
- Can have big impact if done right
-It can reach large audiences and increase brand awareness

DISADVANTAGES
- Expensive
-The effectiveness of advertising can be difficult to measure
- Not specific to person

Question 17

What are the advantages and disadvantages of sponsorship?

Answer 17

ADVANTAGES
- Provides a business with Exposure
- Positive association of business with a good causes
- Can support specific business objectives, such as entering new markets or reaching new customers

DISADVANTAGES
- Communicates very little about the product and its features, benefits and services
- May be ignored
-May be subject to negative publicity if the sponsored entity experiences a scandal

Question 18

What are the advantages and disadvantages of product trials?

Answer 18

ADVANTAGES
- Can encourage new customers
-The customer reaction may generate information on how the product or marketing mix can be improved

DISADVANTAGES
- Expensive and takes time
- Not a guaranteed success

Question 19

What are the advantages and disadvantages of special offers?

Answer 19

ADVANTAGES
- Boost sales short-term
- Clear stock
- Can encourage impulse purchases so new customers

DISADVANTAGES
- Not sustainable long-term
- Customers may get used to discounts
-May reduce the sales of full-priced products

Question 20

What are the advantages and disadvantages of public relations?

Answer 20

ADVANTAGES
- Can encourage customers to connect to brand
- Impression of quality - USP

• Takes long time to establish good brand image
• Can be damaged quickly by bad publicity

Question 21

What is an extension strategy?

Answer 21

Involves slightly changing the product so that it has a fresh appeal to the target market or appeals to a new mark segment

Question 22

What’s competitor pricing?

Answer 22

When business make pricing decisions based on comparing the average market price and what other businesses charge

Question 23

Why might a business use a low price?

Answer 23

A low price might be used by non-branded products or to encourage product trials when a product is first launched

Question 24

Explain one reason why a business might lower its sales? (3 marks)

Answer 24

A business might lower its prices in order to sell off unwanted stock.If its prices fall, this would mean that their products would be more desirable and customers may be willing to purchase more, leading to a higher sales volume

Question 25

How will a business try to improve its profit?

Answer 25

A business might increase the price of its products or services.If this strategy succeeds,custoemrs might perceive the business products to be of sufficiently high value in relation to competitors products. However, if this does not work, a business might find that its sales volume falls.

Question 26

Types of pricing strategies

Answer 26

High profit margin, lower volume pricing strategies (pricing high) e.g. Marks & Spencer Food, often targets the premium end of the market

Lower profit margin, higher volume strategy (pricing low)e.g. Tesco, often used to keep costs low, for generic products with little or no USP

Question 27

How does a business benefit from a strong brand image?

Answer 27

-customers may instantly recognise
the brand and what it represents
-customers may associate positive characteristics with the brand
- a well-known brand may become a first choice for customers, increasing brand loyalty
-customers may trust a strong brand
-a strong brand may allow a business to charge a premium for their products and services.

Question 28

Branding

Answer 28

A brand is more than a logo or a slogan.
Although customers will remember a business’s logo and slogan, a brand also represents the characteristics and personality of a business.
For example, customers may associate a brand with characteristics such as ‘sophistication’,
‘fun’, ‘value for money’ or ‘premium quality’.
A strong brand can be created by investing in successful promotion.

Question 29

What are the four uses of technology in promotion?

Answer 29

APPS-businesses’ apps for consumers and the opportunity to advertise through third part apps

TARGETED ADVERTISING-website adverts that use cookies and are targeted at particular consumers or market segments.They can then serve adverts for products suited to the individual consumer.

EMAIL-communications such as e-newsletters that can be tailored to the needs and interest of customers.Once the business has a list they can use it to to repeatedly to promote products and to build a deeper connection with potential customers

SOCIAL MEDIA-cheap form of communication that’s provides opportunities for viral advertising e.g through influences or on platforms like tiktok

Question 30

Explain one reason why a business may choose to launch its own smartphone app?
( 3 marks)

Answer 30

A business may choose to launch its own app because this allows its customers to engage with the business easily.
This means that it is easier for a business to communicate with its customers by sharing details of new products and offers.
As a result, customers are more likely to buy its products.

Question 31

What does a high margin pricing strategy often result in?

Answer 31

• low volumes because a smaller proportion of customers are willing and able to pay such a high price so there is no point in producing a lot of the product
• a second reason is they producing a lot of the product may reduce a customer’s impression that the product is exclusive

Question 32

What are the advantages of a high margin pricing strategy?

Answer 32

• higher profit for a premium product
• products are perceived as higher value

Question 33

What are the disadvantages of a high margin pricing strategy?

Answer 33

• sell less products
• smaller margin or customers have the money/want to buy an expensive product

Question 34

What are the advantages of high volume pricing strategy?

Answer 34

• standardised products are more likely to be desired by customers
• when buying materials, it may be cheaper to buy in bulk
• production costs are reduced

Question 35

What are the disadvantages of a high volume margin pricing strategy?

Answer 35

• products sold generate less profit margin
• more competition
• the business has to make loads of products to make a profit

Question 36

what are two factors that all businesses consider when setting a price?

Answer 36

-The volume of the product - how many of the product they can make and sell
-The product’s profit margin - the difference between the price of the product and the cost of producing the product

Businesses usually choose to adopt either a high-volume pricing, strategy or a high-margin pricing strategy