Unit 3: Marketing mix: Product and Price (Chap 12)

Question 1

What are the benefits of new product development? (Card 1)

Answer 1

• In fast-changing markets, a business won’t survive unless it meets the changing needs and expectations of customers
• Developing a new product before competitors will bring competitive advantages
• Business may be able to charge a high price and achieve high sales, producing high profits

Question 2

What are the benefits of new product development? (Card 2)

Answer 2

• New products developed for new markets increase potential sales, revenue and profit
• Developing new products to add to those already being produced by the business spreads risk
• Might help to achieve growth and bring benefits from economies of scale

Question 3

What are the limitations of new product development?

Answer 3

• Market research needs to be carried out to identify customer needs, this can be expensive
• Development of a new product often requires large capital expenditure
• No guarantee that a new product will be a success
• If the investment in a new product’s financed by borrowing and the product isn’t a success, the survival of the business will be threatened

Question 4

Why does a brand image increase a business’s sales and revenue?

Answer 4

• Consumers recognise its product more easily when looking at similar products
• Can be priced higher than less well-known brands
• Easier to launch new products on to the market because consumers already know and trust the brand
• They’ll be more likely to try it than if it was from an unknown brand (they have customer loyalty)

Question 5

What are the roles of packaging?

Answer 5

• To protect the product
• To provide information about the product
• To help consumers recognise the product

Question 6

What are two other purposes of packaging?

Answer 6

• Might have a use once the product has been used up, like a coffee jar might be a storage jar
• To keep the product fresh once the packaging has been opened, like the inside packaging of breakfast cereals

Question 7

What are the four main stages in the product life cycle?

Answer 7

• Introduction stage
• Growth stage
• Maturity stage
• Decline stage

Question 8

What is the introduction stage?

Answer 8

• Product is introduced into the market
• Sales are low
• Product may be making a loss because of the cost of heavy advertising to gain product recognition

Question 9

What is the growth stage?

Answer 9

• Product is becoming better known to consumers
• Sales are increasing
• Product starts to earn profit

Question 10

What is the maturity stage?

Answer 10

• Sales are no longer growing but aren’t falling
• Most profitable stage

Question 11

What is the decline stage?

Answer 11

• Sales are falling
• Product eventually becomes unprofitable
• Withdrawn from the market

Question 12

What are the types of extension strategies? (Card 1)

Answer 12

• Finding new markets for the product - owners/managers will look to see if there are other markets for their product
• Finding new uses for the product - research and development team might look to see if the product can be used for something other than what it was originally intended for
• E.g. a fizzy drink which is promoted as having benefits as a sports drink

Question 13

What are the types of extension strategies? (Card 2)

Answer 13

• Adapting the product or the packaging to improve its appeal to consumers - very often the product doesn’t change but the packaging is redesigned by the business
• Increased advertising and other promotional activities - the marketing function looks at other ways of promoting the product to maybe appeal to a new market or remind the existing market that the product’s still available

Question 14

How stages of the product life cycle can influence
marketing decisions: Product

Answer 14

• I - Only a basic model of the product is available
• G - Changes might be made to the product as a result of feedback from consumers in the test market
• M - Extension strategies might be used to keep the product in this, the most profitable stage of its life cycle
• D - Product and packaging aren’t altered

Question 15

How stages of the product life cycle can influence
marketing decisions: Price

Answer 15

• I - Prices might be lower than competitor prices to attract consumers, or high if the product has no competition
• G - Brand image helps to create customer loyalty and can allow a business to increase its price of products
• M - Will remain similar to that of competitor products
• However, if the original price was high due to the uniqueness of the product, then it will probably need to be decreased as competitors will have introduced similar products.
• D - Might be reduced to maintain sales or sell off the remaining inventory before the withdrawal

Question 16

How stages of the product life cycle can influence
marketing decisions: Promotion

Answer 16

• I - High promotional activity creates product awareness and informs consumers that the product is on the market
• G - Promotional activity is still high to continue persuading existing consumers to buy the product again, and to attract new consumers
• M - Aimed at reminding consumers the product is still available and how it differs from competitors’ products
• There may be an increase in promotional activities for a short period of time as an extension strategy
• D - Only promotional activity is to advertise the lower price of the product or other promotions aimed at selling the remaining inventory

Question 17

How stages of the product life cycle can influence
marketing decisions: Place

Answer 17

• I - Product will be offered for sale in specially selected outlets
• G - Product is more widely available, increasing sales
• M - Product is now available for purchase through a wide distribution network
• D - Product is only available in profitable outlets

Question 18

What are the five different types of pricing methods?

Answer 18

• Market skimming
• Penetration pricing
• Promotional pricing
• Cost-plus pricing
• Competitive pricing

Question 19

Notes on market skimming

Answer 19

• Business decides to set a high price for a new product which is unique or very different from anything on the market
• Consumers are willing to pay for more the latest technology e.g. iPhone 15
• Consumers may also want the status of owning the latest version of a product
• Very high profit which is sometimes needed to repay the high costs of research and development of the product

Question 20

Notes on penetration pricing

Answer 20

• Used for new products, like market skimming
• Price is set at a lower level from similar products already on the market
• Low price may encourage consumers to buy the product
• Once customer loyalty is built up, the price of the product usually increases to a level similar to that of its main competitors

Question 21

Notes on competitive pricing (Card 1)

Answer 21

• If a business charges a higher price than its competitors, it’s likely that consumers will not buy its product because they can get similar for cheaper
• Used for pricing both new and existing products

Question 22

Notes on competitive pricing (Card 2)

Answer 22

Competitive pricing for new products:

• If a business has a good brand image and loyal customers, then it may use competitive pricing when launching new products which are similar to those already on the market
• This is because consumers will believe the product to be of the same high quality as the firm’s other products

Question 23

Notes on competitive pricing (Card 3)

Answer 23

For existing products:

• Products that were introduced to the market using market skimming or penetration pricing methods will need a different method of pricing e.g. competitive. - This is because competitors will eventually enter the market with similar products
• The greater the competition in a market, the lower the prices will be
• They may be priced using CP

Question 24

Notes on promotional pricing

Answer 24

• Pricing the product as low as possible for a limited period of time to get consumers to purchase
• Various methods
• Loss-leader pricing is often used by retailers e.g. supermarkets
• They offer a few products well below the normal price, sometimes even at a loss
• This attracts customers into the store who will also buy products at their normal, profitable prices
• Buy-one-get-one-free pricing is used to create product awareness and develop customer and brand loyalty
• Discounting the normal price is also used to create product awareness and build up customer loyalty

Question 25

Notes on cost-plus pricing

Answer 25

• Based on the cost of making the product or buying the product for resale to the final consumer
• The two main methods are: mark-up pricing and full-cost pricing

Question 26

B and L of market skimming

Answer 26

• High price enables the firm to recover research and development costs which are often very high e.g. for Apple’s technology
• High price may help the firm to create a quality image for its products

- High profits will eventually attract cheaper competitor products
- Some customers who would like to buy the products won’t be able to because of the high price, loss of sales

Question 27

B and L of penetration pricing

Answer 27

• Attracts customers more quickly and helps the product to become established in the market
• Can quickly increase market share

- Possible loss of revenue due to lower prices
- Cannot recover any development costs quickly and if they life cycle is too short then development costs might never be recovered

Question 28

B and L of competitive pricing

Answer 28

• Prices are similar to those of competitors so the business can compete on things it might be better at e.g. customer service

- If the market has a price leader then this price would need to be followed otherwise customers and market share will be lost
- Still need to find ways of competing in order to attract sales

Question 29

B and L of cost-plus pricing

Answer 29

• Quick and easy to work out the price
• Makes sure that the price covers all of the costs

- Price might be set higher than those of competitors or than customers are willing to pay
- Reduces sales and profits

Question 30

B and L of promotional pricing

Answer 30

• Good way to sell of unwanted inventory before it becomes out of date
• Increases short-term sales and market share

- Revenue on each item is lower so profits may also be lower

Question 31

Choosing a pricing method (look on page 175 for more info)

Answer 31

1. Is it a new or existing product?
2. Is the product unique?
3. Is there a lot of competition in the market?
4. Does the business have a well-known brand image?
5. What are the costs of making and supplying the product?
6. What are the marketing objectives of the business?

Question 32

Notes on price elasticity of demand (Card 1)

Answer 32

Q: What would you do if the price of a cinema ticket increased by 10%? You might still go to the cinema, but not as often.

Q2: What would you do if the price of bottled water increased by 10%? You need water to survive so you will probably continue to buy bottled water, although you might try to reduce how much by taking greater care over how you use it.

In both these cases, the demand for the good or service will fall as a result of an increase in its price. However, the demand for cinema tickets will fall by a much greater amount than the demand for bottled water.

Question 33

Notes on price elasticity of demand (Card 2)

Answer 33

• Additionally, the opposite would also happen
• If the price of cinema tickets decreased by 10%, you would probably go to the cinema more often
• However, if the price of bottled water fell by 10% you would not buy very much more because you are probably buying enough already
• In both cases the demand will rise as a result of a decrease in price

Question 34

Notes on price elasticity of demand (Card 3)

Answer 34

• The demand for cinema tickets will change by a greater amount following a change in price than the demand for bottled water will
• This is because the demand for some goods and services is more responsive to price changes than others
• Known as the price elasticity of demand

(Customers don’t buy cinema tickets as much as water, as it’s not necessary for survival. Therefore, the demand for water will be more consistent whether or not the price is changed. The demand for cinema tickets will change more as customers don’t need them.)

Question 35

Notes on price elasticity of demand (Card 4)

Answer 35

• Products that aren’t very responsive to changes in their price have price inelastic demand
• This means that the percentage change in demand will be lower than the percentage change in price
• This is the case for the demand for bottled water since customers are regularly buying it for survival

Question 36

Notes on price elasticity of demand (Card 5)

Answer 36

• Products than are more responsive to changes in their price have price elastic demand
• This means that the percentage changes in demand is bigger than the percentage change in price
• This is the case for the demand for cinema tickets

There is a table on page 177 on price change, PED and revenue