Unit 3.3 - marketing mix Flashcards
Define product bench marking
Comparing rival products so that a firm can match or improve them
Define cost plus pricing + advantages & disadvantages
Working out how much each unit costs to produce and then adding a fixed percentage for profit.
+ easy to calculate because business decides on mark-up, can be applied to most products
- competitors can easily undercut (charge less to attract more competitors), which will result in loss of revenue, overall profit can only be achieved if enough goods are sold
Works best in markets with low competition and stable, identifiable costs, physical products. Retailers liken Walmart .
What is competitive pricing?
Selling prices lower than the competition to undercut rival products
+ increased sales because prices are similar to competitors, forced to develop USP
- if average market price is too low, business won’t make profit; needs USP or it can’t compete
Used when price has reached equilibrium, sell similar products in the same market as other competitors
What is promotional pricing?
Offering product at reduced price for limited period
+ useful for clearing unsold inventory, reduces waste; can renew interest in product
- if used too long, consumers might not believe in promotion, lower revenue per unit
Used when business need a lot of cash quickly to cover debt/expenses, increase customer loyalty
What is price skimming?
Setting high initial price to give impression of high quality, then lowering it
+ creates image of quality, provides higher upfront sales to cover costs
- easy for competitors to undercut because they can copy + sell for cheaper; only works during introduction stage of product life cycle
Used for innovative/premium products with little competition
What is price penetration?
Setting low initial price to gain sales, build customer loyalty and win market share, then increasing it
+ low price attract customers faster; builds market share
- low price may give impression of low quality, only works during introduction cycle
Done when business does not have a presence in market, in highly competitive market. E.g. cinemas for release of new film
What is destruction pricing?
Cutting price (sometimes below costs) to force a rial out of business
Starts price war, can lead to winner becoming monopolist
Only effective is demand is elastic, low consumer loyalty
Price war definition
Competition between businesses in which they try to decrease prices below those of their competitors
What is psychological pricing?
Setting prices to influence how customers perceive the value of product.
+ increase sales volume, customer loyalty, enhances perception of value
- success depends on target market, may be viewed with skepticism; needs constant demand
Examples include x.99, x for y
Used to increase revenue
What is price elastic demand?
When a small change in price causes a significant change in demand.
Demand tends to elastic if product has many substitutes, if the product is expensive, if it is want not need and when consumers do not need to buy it frequently
What is price elasticity of demand?
How much demand varies based on change in price.
Price inelastic demand - price is higher as it is viewed as essential
Price elastic demand - lower prices due to many competitors offering substitutes
Define logistics
The science of moving things, including managing stocks, transportation and distribution systems
Define distribution channel
The people and organisation involved in the physical movement and the transfer of goods and services from producers to consumers; the route which a product travels between the manufacturer and the final consumer
What is a retailer?
A business organisation specializing in the sale of products to consumers
What is a wholesaler?
An intermediary/middleman that buys and stores products in bulk from producers and sells smaller quantities to retailers
Factors affecting which distribution channel should be chosen
- Is product perishable?
- Is product technical?
- Business objectives - increase profit - direct selling; increase market share - intermediary
- Where are customers located?
3 main channels of distribution
- Selling directly from manufacturer to customer
+ lower prices due to intermediaries; direct selling creates good relationship with customer + customer loyalty
- high costs due to business funding transportation & delivery; difficult to reach all potential customers - Selling through retailer -
+ increases number of customers business can reach; retailers increase marketing budget as they also promote product
- some profit is lost to retailer; competition created as retailer sells other business’s products - Selling through wholesaler & retailer
+ goods can be sold to wide range of customers; wholesalers deal with storage & transportation costs
- less money earned as both intermediaries take a cut; business lose control over how product is presented to user
What is delivery lead time?
The time lag between placing an order for a product and its delivery
What is above-the-line promotion?
Market communications using mass advertising media.
E.g. Billboards, radio ads, national TV commercials, magazines
What is promotion?
Any activity a business uses to raise awareness and inform consumers about the benefits of its goods/services. Used to attract potential customers and convince them to buy product.
What is below the line promotion?
Marketing promotions that do not use mass media.
E.g. direct email marketing, telemarketing, PR (e.g. endorsements by famous celebrities), etc.
What are the 4 methods of promotion?
- Advertising - paid-for communication that uses different types of media to present the product to potential consumers. Can be informative (provides factual information) or persuasive (designed to influence consumer preference & increase sales).
+ can reach large number of customers, can be adapted to target different markets
- may be expensive, easily ignored - Sales promotion - when business try to attract customers using special deals such as BOGOF. Mainly used to increase sales in short-term and in the introductory stage to increase product awareness.
+ can increase sales of price elastic products, lower costs (no external agencies involved)
- not suitable for long-term, may result in lost revenue - Merchandising - process of promoting product at retail stage, e.g. setting up displays. Used to increase product sales.
+ easy to organize if business has retail space, customers can see/handle products
- difficult to organize if business doesn’t have retail space, easily ignored - Direct mail - written communication that is sent directly to customer via social media. Related to personal seeing (face-to-face communication with customer). Used when business has a lot of specific/technical info about product
+ cheap to organize, easy to personalize which can increase customer loyalty
- inefficient due to low response rate, easily ignored as junk
What is PR?
Public relations are actions to establish and maintain a good brand/product image with the general public
What is point-of-sale promotion?
Promotions targeted at the customer at places where a product is displayed/sold
