AS business topic 3 CAIE

the marketing mix

The role of marketing

marketing is the management task of identifying and meeting the needs of customers profitably by getting the right product at the right price too the right place at the right time

it involves a number of related management functions:

market research

product design and packaging design

pricing, advertising, and distribution

customer service

Marketing objectives

the share of the market

total sales (value, volume, or both)

average number of items purchased by loyal customers

percentage of customers who return (customer loyalty)

customer satisfaction

brand identity

marketing objectives and how they are important and effective

to be effective:

they should be linked to corporate objectives which are well-defined and realistic goals that are set for the whole company, they should also be focused on helping the business achieve those overall targets

be determined by senior management as the key marketing objectives will impact on the markets and products a business trades

be realistic, motivating, achievable, measurable, and clearly communicated to other departments

why they’re important:

they provide a sense of focused direction for the marketing department

business success can be measured against the targets set by objectives

marketing objectives can be broken down into regional and product sales targets

marketing objectives form the basis of marketing strategy which is a plan of action giving details of how a business intends to achieve its marketing objectives by creating a competitive advantage

coordination of marketing with other departments

finance

the finance department will use the sales forecast of the marketing department to help construct cash flow forecasts and operational budgets

the finance department will have to ensure that the necessary capital is available to pay for the agreed marketing budget

Human Resources

sales forecasts will be used by Human Resources to help prepare a workforce plan

Human Resources must ensure the recruitment and selection of qualified and experienced workers

operations

market research data will play a key role in new product development

the operations department will use sales forecasts to plan the capacity needed, the purchase of the machines, and the raw material inventories required for the higher output level

Demand and supply

In free markets, the equilibrium price is determined when the demand equals supply.

equilibrium price is the price level where demand equals supply

demand is the quantity of. product that consumers are willing and able to buy at a given price in a specific time period

supply is the quantity of a product that firms are prepared to supply at a given price in a specific time period

demand

1. demand varies with price. for all normal goods the quantity bought rises with a price fall and falls with a price increase, which is shown by a typical demand curve

2. apart from price changes, the level of demand for a product can change as a result of a change in any of the following factors: consumer incomes, prices of substitute goods and complementary goods, population size and structure, fashion and taste, advertising and promotion spending, these are all determinants of demand

3. all of these changes can result in a new demand curve

supply

1. supply varies with price. Businesses will be more willing to supply more of a product id the price rises and will supply less of a product as the price falls which is shown by a typical supply curve

2. apart from changes in price, the level of supply of a product can vary due to a change in any of the following factors: costs of production, government taxes imposed in suppliers, government subsidies to suppliers, weather conditions and other natural factors, and advances in technology which lower the cost of production, these are all known as determinants of supply

3. all of these changes can result in a new supply curve

determining the equilibrium price

demand and supply can be shown on the same diagram, the price level at which demand equals supply is called the equilibrium price. If the price is higher than the equilibrium price then there will be unsold inventory (excess supply) and suppliers don’t want unsold products and so will lower the price. If the price is lower than the equilibrium price then inventories will run out leaving excess demands and so suppliers could make a higher profit by raising the price to equilibrium level

markets

the term market refers to the group of customers who are interested in a product and have the resources to purchase, the understanding of the term market can be broken down into:

The potential market for a product which is the total population interested in the product

the target market is known as the market segment of the total available market that the business that the business has decided to direct its product towards

the market segment is a subgroup of a whole market in which consumers have similar characteristics

How markets differ

an industrial market is the selling of product by businesses to other businesses known as business to business or B2B

a consumer market is the selling of products by businesses to the final end user also known as business to consumer B2C

there are also local, national, and international markets

customer (or market) orientation and product orientation

important distinctions can be made between businesses which focus on customer orientation and those which focus on product orientation

customer orientation is an outward looking approach approach that bases product decisions on consumer demand, as established by market research

product orientation is an inward looking approach that focuses on making products that can be made - or have been made for a long time - and then trying to sell them

the benefits of customer orientation are that the chances of newly developed products failing in the market are reduced and products based on consumers needs will have a longer lifespan and be more profitable than those that are sold using a product let approach, market research never ends.

Market size

the market size can be measured in two ways: the quantity of sales or the value of products sold by all businesses in the market over a given time period. It is important for 3 reasons:

it allows a marketing manager ti asses whether a market is worth entering or not

it allows a business to calculate its own share of the market

the growth or decline of the market over time can be measured

market size is the total value (or quantity) of sales of all producers within a market in a given time period

Market growth

market growth is the percentage change in the total size of a market (volume to value) over a period of time

the rate of market growth depends on several factors

• a country’s rate of economic growth

• changes in consumer incomes

• development of new markets and products that reduce sales in existing markets and products

• changes in consumer tastes

• technological change

• whether the market is saturated because most consumers already own the product

implications of a change in market growth

increased market growth

• sales will increase if the businesses market share remains the same

• it may be possible to increase prices and profit per unit

• increased sales could lead to cost savings

• more businesses might be attracted to the market, increasing the level of competition

reduced market growth

• sales will increase more slowly even if the business’s market share remains the same

• competitors might reduce prices to increase sales in a slow-growing or shrinking market

• lower prices might result in lower profit per unit

• businesses might consider expanding into faster-growing markets

market share

market share is calculated using the following formula

market share = sales of the business in time period/total market sales in time period x 100

if the market share of a business is increasing then the marketing of the products has been more successful relative to more of its competitors, the product with the highest market share is called the brand leader

implications of a change in market share

increase in market share

• sales are rising faster than those of competing businesses in the same market which could lead to higher profits

• retailers will be keen to stock and promote the best selling brands

• the business producing the brand leader may be able to reduce the discount rate to retailers

• the fact that an item or brand is market leader can be used in advertising and other promotional material

decrease in market share

• sales are likely to fall unless there is rapid market growth

• retailers will be less keen to stock and promote the product

• larger discounts to retailers might have to be offered

• the product may no longer be a brand leader

market growth could be measured by volume or value

classification of products

consumer products are goods or services sold to end users, they are usually classified into: convenience products which are purchased frequently and often bought on impulse with a large target market, shopping products which usually require some planning and research from products beforehand and they are not bought frequently, and specialty products which are bought infrequently and often are expensive with strong brand loyalty

industrial products are goods or services sold to businesses, they are usually classified into: materials and components which are needed for production to take place, capital items which are equipment, machinery, and vehicles, and services and supplies which are businesses services and utilities

the key differences with selling B2B rather than B2C

• most industrial products are much more complex than many consumer products and so specialist sales employees and support services are more important

• industrial buyers often have much more market power and are better informed than the regular consumer

• industrial buyers will rarely buy on impulse

• traditional mass media advertising and sales promotion techniques are not used in most industrial markets

• mass marketing in consumer markets is a common strategy but not in industrial markets as there are normally less buyers

mass marketing and the advantages and disadvantages

mass marketing is the selling of standardised products or ranges of products in the same way to the whole market

advantages

• a mass-market strategy with high sales of a standard product can lead to lower average costs of production

• cost advantages can lead to lower prices to consumers which help to reinforce the position of the product in the market

• mass marketing can result in extensive publicity for the business and its product which leads to clear brand identity

disadvantages

• lack of differentiated products and differentiated marketing does not appeal to many consumers

• the focus on low prices does not help to establish a premium brand image for the product

• technological or other changes could lead to a fall in demand for the standardised product

niche marketing and the advantages and disadvantage

niche marketing identifies and exploits a small segment of a larger market by developing differentiated products to suit that segment

advantages

• by using niche marketing, small businesses can survive and thrive in markets that are dominated by larger firms

• an unexploited niche has no competitors

• niche market products and exclusive marketing can be used by large firms to create status and image

disadvantages

• small market niches do not allow economies of scale to be achieved

• there is limited scope for business growth if the niche market has few customers

• the business is vulnerable to market changes if it only operates in one niche market

• if selling in a niche market is profitable then it is likely to attract competitors

market segmentation and methods of it

market segmentation is the identification of different groups of customers with common needs within a market and the marketing of different products or services to those customer groups

a consumer profile helps the marketing team to gather the right information, a consumer profile is a quantified picture of a business’s consumers, showing data about their age groups, income levels, location, gender, and social class

total markets can be segmented in a number of different wats but the most common are geographic differences, demographic differences, and psychographic factors

advantages and disadvantages of market segmentation

advantages

• businesses can define their target market precisely and then design and produce goods which are specifically aimed at these groups

• it enables identification of gaps in the market and groups of consumers which aren’t currently being targeted

• differentiated marketing strategies can be focused on different target markets

• small firms that are unable to compete in the whole market are able to specialise in one or two market segments

• price discrimination between consumer groups can be used to increase revenue and profits

disadvantages

• research and development and production costs might be high as a result of needing to make and market different product variation

• promotional costs might be high as different advertisements and promotions might be needed for different segments

• production and inventory holding costs will be higher

• by focusing on one or two limited market segments it could lead to excessive specialisation

• extensive market research is needed to identify market segments and their needs

customer relationship marketing (CRM)

customer relationship marketing is using marketing activities to build and establish good customer relationship sup that the loyalty of existing customers can be maintained

developing effective long-term relationships can be achieved by:

targeted marketing

customer service and support

communicate regularly with customers

using social media

costs and benefits of CRM

benefits

• for businesses with an existing customer base, CRM has proved to be cost effective and higher sales from effective CRM nearly always exceeds its cost

• it is a sustainable strategy creating long term customers

• loyal customers often recommend the business to friends and family

• it costs less per customer than trying to attract new customers

costs

• IT systems and software are needed and employees need to be trained to respond to customer feedback

• effective CRM campaigns may require the use of an external marketing agency at a high cost

• CRM needs an existing customer base to be established before starting it

• it may be costly to respond to each customers feedback

market research

market research is the process of collecting, recording and analysing data about customers, competitors, and the market

it can be used to measure customer reactions to: new products, different price levels, alternative forms of promotion, new types of packaging, and online distribution

purpose of market research - identifying main features of the market

key features include: overall size, growth, and competitors

businesses do market research so they can:

• reduce the risks of new product launches

• identify consumer characteristics

• explain patterns in sales of existing products and market trends

• predict future demand changes

• assess the most popular designs, promotions, styles and packaging for a product

primary research and secondary research

primary research is the collection of first-hand data that is directly related to the needs of the business

secondary research is the use of existing data that was originally collected for another purpose

businesses often undertake secondary research first when entering a new market because:

• it is lower cost and obtainable more quickly than primary data

• it can be used to asses the main features of a market

usefulness of secondary research data

• it can provide information about the population, economy, market conditions, and major trends in the market

• it can help identify the key areas of market information that primary research needs to focus on

• it provides evidence that can be used as a baseline against which primary data can be compared

• large samples are often used which increases accuracy and reliability

• many of the sources of secondary data can be accessed via the internet

• if time or finance is limited then it might be the only option

• there is so much of this data, which opens up new business possibilities if analysed carefully

• there are many sources of secondary data which allows it to be double checked

limitations to the usefulness of secondary research data

• data may be out of date as not all sources update every year

• data is unlikely to have been collected for the specific needs of the business

• not all secondary data is available to all potential users

• secondary data might indicate the potential for a new market but primary data is needed to gather specific information

• big data is so vast that it is not easy to analyse and to make useful for an individual business

sources of secondary data

the main sources of secondary data are:

• government

• local government

• trade organisations

• market research agencies

• internal company records

• company reports and accounts

usefulness of primary research data

• to find out about completely new markets

• to collect data for the specific purposes of the business

• to gather qualitative data which helps to explain the quantitative data

• to focus research on market reaction to specific changes made by the business

• to gain information from a particular target group of consumers

• when up-to-date data is essential

• when data needs to be cross checked for accuracy

limitations to the usefulness of primary research data

• the selection of a sufficiently large and representative sample greatly influences the accuracy of data

• business start-ups may not be able to finance detailed primary research

• newly formed businesses have no customers yet to gain important data from

• it can be time-consuming to collect and analyse primary research Fata

sources of primary research data

• questionnaires

• interviews

• observations

• test marketing

• focus groups

sampling and the need for it

sampling is the process of selecting a group of respondents from a larger population

in nearly all market research situations, it is impossible to seek evidence from the total population because either it is so extensive that contacting everyone in it would be too expensive or time consuming, or that it is impossible to identify everyone in the target market, so a sample of the total perennial market will be chosen

a sample is a group of people taking part in a market research survey selected to be representative of the overall target market

limitations of sampling

• sample may be too small

• risk of sampling bias

• researchers may not use the most appropriate methods of sampling

the reliability of market research data

secondary data can be unreliable because of the limitations already referred to earlier

there are 3 main reasons as to why primary data may be unreliable:

sampling bias which is when the sample does not accurately represent the population

questionnaire bias which may occur when questions tend to lead respondents towards one particular answer

other forms of bias which might include things such as the respondent not answering in a very truthful way

the analysis of quantitative data

averages include the mean, median, and mode

the mean is the value which is calculated by adding all of the results and dividing by the number of results. It is used as an indicator of likely sales levels per period of time and for making comparisons between sets of data. the advantages include that it includes all of the data in a calculation and is the most well known average. The disadvantages include that it is affected by one or two extreme results and is usually not a whole number.

the mode is the value that occurs out frequently in a set of data and can be used for inventory ordering purposes. the advantages are that it is easily observed and non calculation is necessary and that the result is a whole number and easily understood. the disadvantages are that it does not consider all of the data and there may be more than one modal result s

the median is the value of the middle item when data has been ordered or ranked and is can be used in wage negotiations and advertising. the advantages include that it is less influenced by extreme results than the mean. the disadvantages include that the calculation from grouped data is complicated, an even number of results means the value is approximated and it cannot be used for further statistical analysis

measures of spread include the range which is the difference between the higher and lowest value

the analysis of qualitative data

qualitative research aims to understand why consumer behave in a certain way or how consumerism might react to the launch of a new product. the answers to qualitative research are based on opinions, attitudes, and beliefs and so it cannot be analysed using statistical techniques s

the answers to these questions should be carefully recorded and should be categorised into types of response which is called coding

interpretation of information presented in tables, charts, and graphs

tables which allow easy reference to the data and can be used to present a mass of data in a precise way

pie graphs which are used where data needs to be presented so that the proportions of different sets of data in relation to the total are clearly shown, each section of the pie shows how relatively significant the part of the data is compared to the whole. the size of each section is determined by the angle at the centre of the circle and is calculated by: angle of section = value of one section/total value of all sections x 360 degrees

line graphs are most commonly used for showing changes in a variable and allows easy reference to rends in the data and shows fluctuations clearly

bar graphs use bands of equal width but varying length or height to represent relative value and allow easy comparison over time or between different items

the elements of the marketing mix

the marketing mix is the four key decision on product, price, promotion, and place that must be taken to enable the effective marketing of a product.

product - consumers require the right product, which might be an existing product, an update to an existing product or a newly developed product

price - the right price is important as id the price is too low then the consumers may lose confidence in the products quality but if the price is set too high then many consumers will be unable or unwilling to buy it

promotion - it must be effective at telling consumers about the products availability and convincing them that the brand is the one to choose

place - it refers how the product is distributed to the consumer through distribution channels and if the good or service is not available at the right time in the right place then it will not be bough in the quantities expected

product - goods and services

goods refers to products which have a physical existence

services are products which have no physical existence, bit satisfy consumer needs in other ways

tangible and intangible attributes of products

intangible attributes are the subjective opinions of customers about a product, which cannot be measured or compared easily

tangible attributes are the measurable features of a product, which can be easily compared with other products

marketing managers should try to understand what intangible attributes and tangible attributes when making purchase decisions, because this is why some consumers will pay more for a well known brand

a brand is an identifying symbol, name, image or trademark that distinguishes a product from its competitors

the importance of product development

new product development (NPD) is crucial to the success of some businesses

NPD is the design creation and marketing of new goods and services

it is important for:

• changing consumer tastes and preferences

• increasing competition

• technological advancement

• new opportunities for growth

• risk diversification

• improved brand image

• use of excess capacity

for new products to succeed they must:

• have desirable features that consumers are ready to pay for

• be marketed effectively to consumers, who need to be informed bout it

• be sufficiently different from other products to make it stand out and offer a unique selling point (USP)

the USP is the special feature of a product that makes it different from competitors products

product differentiation and USP

product differentiation is the unique qualities of a product that lead to a difference between to product and competitors’ products

the benefits of an effective USP are:

• promotion that focuses on the differentiating feature of the product or service

• opportunities to charge higher prices due to exclusive and unique features, design or customer service

• free publicity foo media reporting on the USP of the product

• higher sales compared to undifferentiated probes

• customers being more willing to be identified with the brand because its different

product portfolio analysis

product portfolio analysis is analysing the range of existing products of a business to help allocate resources effectively between them

the two profit portfolio analysis techniques are: product life cycle and the Boston matrix analysis

Product life cycle

the product life cycle is the pattern of sales for a product from launch to withdrawal of the market

the introduction is when the product has just been launches after development and testing, sales are often quite low to begin with

the growth period is when sales start to grow, if the product is effectively promoted then this should happen but it cannot last forever

maturity or saturation is when sales fail to grow but they do not decline significantly either, the saturation of the consumer durables market is caused by consumers having already bought the particular product they want. consumer durables is a manufactured product that can be re-used and is expected to have a reasonable long life

decline is the stage when sales decline steadily and so either no extension strategy is used or it has not worked. an extension strategy is a marketing plan to extend the maturity stage of the product before a completely new one is launched

limitations of this is that it cannot be used to predict the future and is only based on past or current data

Boston matrix analysis

the Boston matrix is a method of analysing the product portfolio of a business in terms of market share and market growth, there are 4 sectors created by the matrix which can be analysed in the following way:

cash cow - low market growth, high market share; it is a well-established product in a mature market and is typically profitable with a high positive cash flow and sales are high relative to the market and promotional costs are likely to be low

star - high market growth, high market share; this is a successful product performing well in an expanding market, the promotion costs will be high as it is keen to maintain the market position

question mark - hight market growth, low market share; it consumes resources but generates little return and the future of the product may be uncertain

dog - low market growth, low market share; it offers little to the business in terms of existing sales and cash flow or future prospects because the market is not growing

impact and limitations of the Boston Matrix

the Boston matrix analysis is relevant when:

• analysing the performance and current position of existing product portfolios

• planning action to be taken with existing products

• planning the introduction of new products

by identifying the position of all products of the business a full analysis of the portfolio is possible which can help focus on which products need marketing support or which need corrective action, which could include the following marketing decisions:

building - supporting question mark products with additional advertising or further distribution outlets

holding - continuing support for star products so that they maintain their good market position

milking - taking the positive cash flow from established products and investing it in other products in the portfolio

divesting - identifying the worst-performing dogs and stopping the production and supply of this produces

limitations

• on its own, it cannot tell a manager what will happen next with any product

• it is only a planning tool

• it assumes higher rates of profit are related to high market share

impact of the product life cycle on marketing decisions

introduction

price - may be high (skimming) or low (penetration) compared to competitors’ prices

promotion - high levels of informative advertising are needed to make consumers aware of the products arrival on the market

place (distribution) - in restricted outlets, possibly high-class outlets if a skimming strategy is adopted

product - basic model with few variations

growth

price - if successful, an initial penetration pricing strategy could now lead to rising prices

promotion - consumers need encouraging to make repeat purchases and branding will help win consumer loyalty

place - in growing numbers of outlets in areas indicated by the strength of consumer demand

product - product improvements and developments to maintain consumer appeal

maturity

price - as competitors enter the market, prices for the product need to stay at competitive levels

promotion - brand imaging continues to stress the positive differences compared. to competitors products

place - highest geographical spread possible, including new distribution channels

product - new models, colours, accessories as part of extension strategies

decline

price - lower prices may be needed to sell of inventory, but if the product has a small niche following the prices could even rise

promotion - advertising is likely to be very limited and may just be used to inform of lower prices

place - unprofitable outlets for the product are eliminated

product - slowly withdraw product from certain markets and prepare to launch new products

price

price is the amount paid by the customers fora product and determining an appropriate price for a product is vital component of the marketing mix, it also has a big impact on the consumer demand for the product. the price level set for a product will also:

• impact on the level of value added by the business to bought-in components

• affect the revenue an profit made by a business due to its impact on demand

• help establish the psychological brand image of a product

how to determine the right price:

• cost of production

• competitive conditions in the market

• competitors prices

• business and marketing objectives

• price elasticity of demand

• whether it is a new or existing product

cost based pricing methods - mark up pricing

mark-up pricing is adding a fixed mark-up for profit to the unit cost of buying in a product

cost based methods of pricing - cost-plus pricing

cost-plus pricing is the setting of a price by calculating a total unit cost for the product and then adding a fixed profit mark up

advantages

• the price set covers all costs of production

• it is easy to calculate for single-product firms where there is no doubt about fixed cost allocation

• it is suitable for businesses that are price-makers due to market dominance

disadvantages

• it is inaccurate for businesses with serval products where there is doubt over the allocation of fixed costs

• it does not take market/competitive conditions into account

• it tends to be inflexible

• if sales fall, average costs often rise which could lead to the price being raised using this method

cost based methods of pricing - contribution-cost (or marginal-cost) pricing

contribution-cost pricing is the setting of prices based on the variable costs of making a product, in order to make a contribution towards fixed costs and profit

advantages

• all variable costs are covered by the price and a contribution is made to the fixed costs

• it is suitable for firms producing several products and fixed costs do not have to be allocated

• it is flexible

disadvantages

• fixed costs may not be covered

• if prices vary too much, due to the flexibility advantage, then regular customers might be annoyed

cost based pricing - loss leaders

it involves the setting of very low products for some products which is expected to attract customers who will hopefully also buy products which make a positive contribution

competition based methods of pricing

dynamic pricing is offering of products at a price that changes according to the level of demand and the customers’ ability to pay

price discrimination is the charging of different groups of consumers different prices for the same good or service

advantages of competitor prices

• it is almost essential for firms with little market power

• it can be flexible to reflect market and competitive conditions

disadvantages of competitor prices

• the price set may not cover all the costs of production

• the price may have to vary frequently due to changing Markey and competitive conditions

advantages of price discrimination

• it uses price elasticity to charge different prices to increase total revenue

disadvantages

• there are administrative costs of having different price levels

• customers may switch to lower-prices markets

• consumers paying higher prices may object and look for alternatives

pricing methods for new products

penetration pricing - the setting of a relatively low price to achieve a high volume of sales

market skimming - the setting of a high price for a new product when a firm has a unique or highly differentiated product with low price elasticity of demand

psychological pricing

psychological pricing - is the setting of a price at a level which matches consumers’ views about a products perceived value

promotion methods

promotion is the use of advertising, sales promotion, personal selling, direct mail, trade fairs, sponsorships and PR to inform consumers and persuade them to buy

advertising is a type of promotion and is paid for communication to inform and persuade customers using media, newspapers, and cinema

direct promotion is another type of promotion and is a range of promotional activities aimed directly at target customers

sales promotion is a further type of promotion and uses incentives such as special offers or special deals directed at consumers or retailers to achieve short term sales increases and repeat purchases by consumers

the promotion mix is the combination of promotional techies that a firm uses to sell a product

promotion objectives

the success of promotion campaigns can be measured against these objectives and can include:

• increasing sales by raising consumer awareness of a product

• increasing consumer recall of existing products and its distinctive qualities

• increasing purchases by existing consumer or attracting new consumers to the brand

• demonstrating the superior specification or qualities of a product compared with those of competitors

• creating or reinforcing the brand image or personality of the product

• correcting misleading reports about the product or the business to reassure the public

• improving the public image of the business through corporate advertising

• encouraging retailers to hold inventories of the product and actively promote products to the final consumer

advertising promotion

advertisements are often classified into 2 types:

informative advertisement which are adverts which give information about a product to potential purchases

persuasive advertisements which are adverts trying to create a distinct image or brand identity for the product

advertising agencies

Businesses can use advertising agencies which are specialists that advise business on the most effective way to promote products. Advertising agencies can offer a complete promotional strategy. These agencies - for substantial fees - undertake the following stages in dividing a promotional plan:

• research the market, establish consumer tastes and preferences, and identify the typical consumer profile

• advise on the most cost-effective forms of advertising media to be used

• use their own creative designs to design adverts appropriate for each medium

• film or print the adverts to be used in the campaign

• monitor public reactions to the campaign and feed this data back to the client

advertising methods - print advertising

this includes advertising in newspapers, magazines, and specialist publications

• it can be directed at particular towns or regions or consumers who read particular special interest magazines

• it provides hard copy, which can be cut out and kept by the consumer for future reference

it has its limitations

• it is expensive to gain national coverage

• evidence suggests that it is now much less effective with younger consumers than digital communications

advertising methods - broadcast advertising

this is advertising on TV and radio and in cinemas

• adverts have visual appeal and can create a brand image through the actors used

• national or even international coverage is possible

• it can linger in the memory of consumers for a long time if visually dramatic

it has limitations:

• it is expensive to buy media time

• it is expensive to design and produce adverts

• there is no permanent hard copy

advertising methods - outdoor advertising

this includes advertising on billboards and bus shelter posters

• it is low cost compared to other media

• it can be located in prime positions with many potential consumers passing by

• it can be read/seen more than once

it does have its limitations

• the best locations are the most expensive

• it can be damaged or vandalised

• many passers by will not notice this type of advertising

advertising methods - product placement advertising

products are featured in TV shows and films

• the chosen shows or films will be targeted at a particular type of consumer

• this creates a desirable image if the product ice associated with famous actors or shows

• it is not explicit advertising

the limitations are:

• the show, film, or actors may become less popular

• it is very expensive if the show or film is well known

advertising methods - guerrilla advertising

this is where products are advertised at surprising and unconventional events to make the public take notice

• it is low cost

• it can be creative, inventive, and can appeal to young consumers

• it encourages word-of-mouth communication between potential consumers

• a staged event can receive free publicity from the media

the limitations are:

• the message may be misunderstood

• it may be considered irresponsible and lead to a negative backlash

• it may be remembered for the wrong reasons

advertising methods - sponsorship

this involves payment by a business to become associated with an event, individual, or sports team, the advantages include:

• the good publicity of being associated with big sporting and other events

• global press and TV coverage of the largest events

• the success of the team or individual can lead to a greatly increased interest in the brand

the limitations are:

• it can be very expensive

• failure of an event, team, or individual can reflect badly on the brand

which advertising method to use?

the advertising method chosen depends on:

• cost

• the consumer profile of the target audience - age, income levels, interests

• the message and image to be communicated

• other aspects of the marketing mix

• legal constraints

sales promotion methods - price offers

Price offers are temporary reductions in price, commonly known as price discounting. The objective is to encourage existing customers to buy more and to attract new customers as the product now appears more competitive

limitations:

• price reductions will reduce the gross profit on each item sold

• there could be a negative impact on the brands reputation from the discounted price

sales promotion methods - money-off coupons

A money off coupon is a more versatile and better focused way of offering a price discount. Coupons can appear on the back of receipts, in newspaper adverts or on the existing pack of the product

limitations:

• these could just encourage consumers to buy what they would have bought anyway

• retailers may be surprised by the increase in demand and not hold enough inventory, leading to consumer disappointment

• the number of consumers using coupons might be low if the price reduction is small

sales promotion methods - customer loyalty schemes

the purpose of a customer loyalty scheme is to encourage repeat purchases and discourage consumers from buying from competitors. Loyalty cards five the business lots of information about a consumers’ buying preferences, which helps in customer relationship marketing.

limitations:

• the discount cuts the gross profit on each purchase

• there are administration costs

• most consumers now have many loyalty cards from different retailers so their loyalty impact is reduced

sales promotion methods - money refunds

money refunds are offered when the receipt is returned to the manufacturer

limitations

• these involve the consumer completing and posting a form which might be a disincentive

• the delay before a refund is received may act as a disincentive

sales promotion - buy one, get one free (BOGOF)

BOGOF encourages multiple purchases which reduces the demand for competitors’ products too

limitations

• there could be substantial reduction in the gross profit margin

• consumers may conclude that then normal price is too high

• consumers may think goods are being sold off because they can’t be sold at normal prices which may impact on reputation

• current sales may increase but future sales may fall as consumers are stocked up

sales promotion methods - point-of-sale displays

point-of-sale displays have the biggest impact on consumer behaviour when it is attractive, informative and well positioned in stores

limitations

• the best display points are usually offered to the market leaders

• new products may struggle for the best position in stores unless big discounts are offered to retailers

direct promotion methods - direct mail

direct mail is sent out by post

• it is low cost and well-defined areas/regions can be targeted

• it is easy to evaluate the success of a campaign by checking response rates

limitations

• many potential consumers now prefer digital communication

• the mailing may be viewed as junk mail and quickly thrown away

direct promotion methods - telemarketing

telemarketing includes all marketing activities conducted over. the telephone including selling, market researching, and promotion products

• telemarketing can be outsourced to an agency which may charge for the cost of the script to be used and then on an hourly basis, or might charge for each cold call that leads to an interested potential customer being contacted again

• this is lower cost than personal selling

• it is easy to monitor the response/rejection rate

limitations:

• many consumers object to cold calling

• it is very easy for consumer to reject a telemarketing message

direct promotion methods - personal selling

With personal selling, a salesperson is employed to sell to each individual customer

• sales success rates are often high with skilled direct-sales employees

• it is often used for expensive industrial products, which is one of the key differences between consumer marketing and business marketing

• it is effective with expensive and complex products that require specialist knowledge

limitations:

• customers may complain about being pressured into buying, especially if the sales employees are paid a high bonus for each sale made

• sales employees need to be well trained and should avoid selling to a reluctant consumer who later regrets the decision

• this is a high-cost method of promotion and selling

digital promotion

Digital marketing methods and techniques are changing rapidly

digital promotion is the promotion of products using digital technologies, mainly on the internet but also including mobile phones. It is the fastest-growing from of promotion and new opportunities are constantly being created

methods of digital promotion

• social media marketing - on social media apps

• email marketing - newsletter campaigns, purchase confirmation emails, thank you emails, and email notifications about new products

• online advertising - displaying pop-up banners or advertisements on other websites aiming at the same niche, Google AdSense is a way of doing this

• smartphone marketing - this includes all things that can be used on a smartphone such as: emails, texts, apps, an social media

• search engine optimisation (SEO) - businesses that use e-commerce locate their websites on search engines and need to use SEO to make sure their content appears among the first results of a search

• Viral marketing - it makes use of all types of digital marketing, the essence of this is to make some form of content that spreads across the web and becomes viral

  e-commerce - which is the buying and selling of goods and services by businesses and consumers through an electronica medium

benefits and limitations of digital promotion

benefits

• worldwide coverage

• relatively low cost

• easy to track and measure results

• personalisation

• social media communication builds customer loyalty

• content marketing

• website convenience increases customer loyalty

• content marketing

limitations

• time consuming

• skills and training

• global competition

• complaints and feedback

the role of packaging in promotion

packaging performs the following functions:

• protects and contains the product both during transportation and in stores

• give information

• support the brand image of the product created by the promotional campaign

• make the product attractive and help the consumer to recognise it

the role of branding in promotion

the aims of branding in promotion are:

• aiding consumer recognition

• making the product distinctive from competitors

• giving the product an identity to personality that consumers can relate to

the benefits of effective branding are:

• it increases the chance of brand recall by consumers

• it clearly differentiated the product from the others

• it allows for the established of a family of closely associated products with the same brand name

• it reduces the responsiveness of consumer demand to a price cease

• it increases consumer loyalty to brands

Place - channels of distribution

several different channels of distribution are available:

• direct selling

• single-intermediate channel

• two-intermediary channel

a channel of distribution is the chain of intermediaries a product passes through from producer to final consumer

channels of distribution - direct selling

direct selling is the direct route from manufacturer to consumer

advantages

• no mark-up or profit margin is taken by intermediaries

• the producer has complete control over the marketing mix

• it is quicker than other channels so may lead to fresher products

• direct contact with consumers offers useful market research

disadvantages

• all storage and inventory costs have to be paid by the producer

• there are no retail putts so consumers cannot see and try before they buy

• it may not be convenient for consumers

• no after-sales service is offered by shops

• it is expensive to deliver each item to consumers

channels of distribution - single-intermediary channel

a single-intermediary channel is where products go from manufacturer to retailer to consumer

advantages

• retailers incur the cost of holding inventories

• retailers display the products and offer after-sales service

• retailers should be in locations that are convenient to consumers

• producers focus on production, not on selling the products to consumers

disadvantages

• the intermediary takes a profit mark-up, making the product more expensive to consumers

• producers lose control over the marketing mix

• the outlet is not exclusive as retailers sell competitors’ products too

• producers pass on delivery costs to retailers

channels of distribution - two-intermediary channel

a two-intermediary channel is where products go from the manufacturer to the wholesaler to the retailer to consumer

advantages

• wholesalers hold the goods and buy in bulk from producers

• it reduces process; inventory costs

• wholesalers pay got the costs of transport to retailers

• wholesalers buy in large quantities and sell in small quantities

disadvantages

• another intermediary takes a profit mark-up which makes the product more expensive to consumers

• producers lose further control over the marketing mix

• it slows down the distribution chain

online marketing (e-commerce)

online marketing (e-commerce) is the selling and marketing activities that use the internet, email and mobile communications to encourage direct sales via e-commerce

benefits

• it is relatively inexpensive if the cost is compared to the number of consumers reached

• companies can reach a worldwide audience for a small proportion of traditional promotion budgets

• consumers interact with the websites and make purchases and leave important data about themselves

• the internet is convenient for consumers to use if they have access to a computer

• businesses can keep accurate records on the number of clicks or visitors, and quickly measure the success rate of different web promotions

• computer and smartphone ownership is increasing in all countries of the world

• selling products on the internet involves lower fixed costs than traditional retail stores

• dynamic pricing is easier

limitations

• some countries have low-speed internet connections and in poorer countries then computer ownership is not widespread

• consumers cannot touch, feel smell, or try on tangible goods which may limit their willingness to buy something

• product returns may increase if consumers are dissatisfied with their purchases

• the cost and unreliability of postal service in some countries may reduce the cost advantage of internet selling

• websites must be kept up-to-date and user-friendly which can be expensive

• worries about internet security

factors that influence the choice of distribution channel

• should the product be sold directly to customers or through retailers?

• how long should the channel be?

• in which locations should the product be made available?

• should the internet be the main channel?

• how much will it cost to keep the product inventory on store shelves and in warehouses?

• how much control does the business want to have on the marketing mix?

• how will the distribution channel integrate with other marketing mix components?

the choice of distribution channel is important because:

• consumers can benefit from easy access to products

• manufacturers need outlets for their products that give a wide geographical market coverage

• retailers add a mark-up to cover their costs and make a profit

digital and physical distribution

digital distribution is the delivery or distribution of digital media content such as audio, video, TV, programmes, films, software, and video games

physical distribution is the activities that combine to achieve the efficient movement of finished products from the end of the production operation to the consumer