4.5 marketing mix

excluded HL topics + specific promotion strategies' adv/disadv

marketing mix

• key decisions that must be taken in the effective marketing of a PRODUCT

• influences if a business can sell it profitably

coordinated marketing mix

• key marketing decisions that complement each other and work together to give customers a consistent message about the PRODUCT

• these should be interrelated and fit together in an integrated marketing plan to target clear marketing objectives

product

• end result of production process sold on the market to satisfy a consumer need or industrial need (purchased by businesses, not final consumers)

• important to sell the right product to customers based on their expectations: quality, durability, performance, appearance

consumer durables

• manufactured products that can be reused and are expected to have a reasonably long life

• opposite: single-use

product life cycle

• pattern of sales recorded by a product from launch to withdrawal from market

• helps business know when to launch a new product/update existing product

product life cycle stages

• introduction

• growth

• maturity/saturation

• decline

product life cycle introduction

• product: new model

• promotion: high → above the line, informative to make customers aware of new product

• pricing: depends → premium or penetration pricing

• place: few

• sales: low

product life cycle

• product: make improvements to maintain consumer appeal

• promotion: high → create brand identity, encourage customer loyalty and repeat purchases

• pricing: increase (especially if initially used penetration pricing)

• place: increase → due to increased consumer demand

• sales: increase significantly but growth slows down to maturity

product life cycle maturity/saturation

• product extension strategies used

• promotion:

  • brand reinforcement → stress that product is different from competitors

  • below the line → aimed at target markets

• pricing: lower → competitive pricing because competitors entering market

• place: maximum geographical range of outlets, introduce new kinds of outlets

• sales: stop growing but don’t decline significantly

  • increased competition, competitors copying growth strategies

  • technological advancements make existing less appealing

  • change in consumer tastes

  • saturation of market: people who want already have it, will only buy if existing breaks or there is newer technology

product life cycle decline

• product: withdraw from market, replace with new product

• promotion: minimal, only to inform about lowered prices

• pricing: lowered to clear stock OR if product has cult following, can increase price to create exclusivity

• place: eliminate unprofitable distribution outlets

product life cycle affects

• investment

  • decline: invest heavily in R&D of new products to replace

• profit margins

• cash flow

product life cycle affects profit margins

• growth/maturity: high sales → high gross/net profit margins

• end of maturity: using competitive pricing → low gross/net profit margins

• decline: sales fall → negative gross profit margins BUT if fixed costs already covered, might still have net profit

product life cycle effect on cash flow

• development: negative because only cash outflow

  • unused factory capacity

  • high R&D costs

  • no sales

• introduction: negative because revenue from sales < cost of sales + promotion

  • unused factory capacity

  • high promotional costs

  • penetration pricing

  • low sales

• growth: increasing because sales increasing

  • when it is positive depends on length of consumer credit

• maturity: most positive

  • high sales

  • lowest promotional costs

  • max factory capacity

• decline: decreasing because price low and sales low

market saturation

• demand for a particular product or service has reached its peak, competitors entered market

• people who want the product already have it, will only buy if existing breaks or there is newer technology

product portfolio

• made up of all product lines offered for sale by a business

• can be analysed using BCG matrix

why need range of products in portfolio + what contributes to range

• why need range?

  • reduced risk: less exposed to market changes (changes in consumer tastes/demand) → not dependent on performance of main products

  • balance → diversification

  • steady cash flow/profit performance

• what contributes to range

  • new products

  • international adaptations (international marketing)

  • mergers and takeovers

balanced product portfolio

• when one product reaches decline, should have other products in growth or introduction stage of product life cycle

• ensures balanced risk profile, smoother cash flow and profits

extension strategies

introduced in maturity/saturation stage of product life cycle → to lengthen product life cycle

• add features to original product

  • + R&D and promotion for slightly revised product is less expensive than new product

  • - consumers may not be interested in a slightly revised product

• repackage product

  • + cheap and fast

  • - consumers feel misled once realise

• discounted price

  • + can reach new market segment of consumers with low spending power

  • - impacts brand image → better to replace earlier to avoid discounting

• rebrand

  • + can reach new market segments

  • - expensive

• market development

  • + increases sales

  • - need to adapt product/promotion to local laws/culture

brand

• an identifying name/symbol that distinguishes a product from competitors’ product

• aspects

  • awareness

  • loyalty

  • development

  • equity/value

importance of branding

• instant recognition from logo

• differentiate from competitors

• employee motivation increases

• customer referrals increase through social media

• customers have expectations

• customers have emotional attachment → customer loyalty

• brand equity gives value to business beyond its tangible assets

• internationally consistent, recognisable and transferrable → can exploit marketing EOS + sales increase

  • BUT international branding might not connect with local culture/tastes

brand awareness

• extent to which consumers recognise product by name and special characteristics

• usually due to logo/trademark associated with the brand

• effects

  • increased sales (familiar, more likely to buy)

  • competitive advantage (differentiated)

• is the primary goal of promotional activity in introduction phase

brand loyalty

• tendency of consumers to choose a brand over others

  • seen by repeat purchases regardless of marketing pressure from competing brands

  • likely to promote through word of mouth

• effects

  • reduced price sensitivity

  • repeat purchases (predictable and stable sales revenue)

  • reduced marketing costs (recommend through word of mouth)

  • increases the likelihood of successful product launches (more willing to try new offerings)

• is the primary goal of promotional activity in growth phase

brand development

• long-term strategy that involves strengthening the name and image of a brand to resonate with its target audience. (eg values, mission, vision)

• features

  • visual identity (logos, designs)

  • tone and style of communication

  • values, mission, vision

• alt: measures the infiltration of a products sales, usually per thousand population

  • if 100 people out of 1000 buy, brand development = 10

brand equity/value

• estimation of how much a brand is worth. recorded on the balance sheet under non tangible assets.

• when another company purchases, brand value = purchase price – net book value of the acquired brand.

  • alt: brand value = assets – liabilities

• premium that a brand has because customers willing to pay more than they would for a non-branded product

  • if high awareness + development, will have high equity

trademark

• form of intellectual property that is a distinctive name, symbol, motto or design that distinguishes a business/its products.

• can be legally registered and cannot be copied.

• value is under balance sheet intangible assets.

price

• amount paid by consumer for product

• will affect

  • demand

  • brand image

  • revenue and profits

• depends on

  • cost of sales

  • competitors prices

  • market conditions

  • stage of product life cycle

  • marketing objectives

  • PED

• pricing strategies

  • cost plus

  • penetration

  • predatory

  • loss leader

  • premium

  • competitive

  • dynamic

  • contribution

cost plus pricing

• all direct costs + some indirect costs + fixed or % mark-up

• mark up depends on demand, number of competitors, stage of product life cycle

• advantages

  • easy to calculate for single-product business

  • price covers all costs of production

  • suitable for market leaders: they set the market price

• disadvantages

  • difficult to calculate for multi-product businesses: difficult allocate indirect (fixed) costs

  • inflexible: could possibly charge higher

  • doesn’t consider market conditions

  • if sales decrease, average fixed costs increase, cost-plus price increases

penetration pricing

• used for new products. initially set a low price to attract customers, then raise price.

• accompanied by heavy promotion because aim to increase volume of sales

• advantages

  • low cost → high demand → high sales

  • high sales volume → economies of scale → can lower price

  • can increase price later

• disadvantages

  • low profit margins + if increase price might have customer resistance

  • price war: competitors with more resources can survive longer

  • perceived as low quality

loss leader

• product that is sold at a loss and advertised to attract customers into the store → hope customers will purchase other products, which are priced to make a profit.

• OR loss leader paired with complimentary product (eg printer cheap but ink expensive)

• advantages

  • low price → high demand → high market share

  • complementary products’ profit compensates for loss from loss leader

• disadvantages

  • customers may choose cheaper complementary product from competitors → overall loss since did not buy complementary product

predatory pricing

• deliberately undercutting competitors prices to eliminate them from the market

• illegal, creates monopoly

• advantages

  • short term benefit customers → lower prices → demand increase

  • eliminates competitors

• disadvantages

  • long term creates monopoly → when increase prices customers no other option

  • illegal → heavy fines

  • perceived as low quality

premium pricing

• price is higher than needed

• create impression that it is higher quality or value

• advantages

  • customers perceive as high quality/stronger brand image → demand increase

  • price covers all costs

• disadvantages

  • needs coordinated marketing mix

  • high price → lower demand if PED high → lower sales since choose competitors

dynamic pricing

• demand is tracked in real time and prices are adjusted accordingly

  • demand high and capacity low → increase price to maximise revenue

  • demand low and capacity high → prices lowered to increase demand and maximise capacity utilisation

• adv

  • maximises revenue

  • adapt to market conditions

• disadv

  • advanced IT systems needed

  • consumers feel exploited

  • consumers alienated if find out that others bought at lower price

competitive pricing

• matching/undercutting competitors’ prices → aim to increase sales

  • price matching

  • discounts for new customers → attract away from rivals

  • refund difference

• adv

  • customer loyalty since can be assured that getting a competitive price

  • able to increase/maintain market share since remain competitive

• disadv

  • reduces profit margins

  • may have higher costs than competitors → making loss will risk long-term survival

contribution pricing

• set prices based on direct cost per unit and some allocation of total indirect costs (no markup, unlike cost-plus)

• adv

  • ensures that each product does not make a loss

  • lower price than cost-plus → more competitive

• disadv

  • need sell minimum quantity

  • unable to accurately allocate indirect costs

  • does not account for changes in quantity affecting unit cost of production (EOS/disEOS)

PED

• PED = % quantity demanded / % change in price

  • always negative

• if numerical value >1 → elastic: demand is more responsive to a change in price (eg luxury goods)

  • increasing price will decrease total revenue

  • decreasing price will increase total revenue

  • use competitive pricing:

• if 0<numerical value<1 → inelastic: demand is less responsive to a change in price (eg necessities)

  • increasing price will increase total revenue

  • decreasing price will decrease total revenue

  • use price-skimming: set as high as possible then reduce over time. used when strong brand image.

• factors

  • brand loyalty

  • availability of alternatives

  • % of consumer income that is taken up by the good

  • luxury/necessity

  • time period to adjust: longer time period, more elastic since more time to search for alternatives

promotion

• communicate with customers with aim to

  • raise brand awareness → increase sales

  • remind about existing product + promote new product

  • encourage repeat purchases + attract new customers

above-the-line promotion

• forms of communicating with potential customers that are aimed at mass market, not targeted

• aims to increase brand awareness

• types of advertising

  • informative → raise awareness of new product/communicate major changes

  • persuasive: creating distinct brand image → especially when little difference from competitors

• advantages

  • raises awareness in wide-ranging audience → useful if product has mass appeal

• disadvantages

  • high cost

  • unable target specific market

below-the-line promotion

• forms of communicating with potential customers that are aimed at specific market segment

• NOT DIRECTLY PAID FOR

• examples: sales promotion, money-off coupons, customer loyalty schemes, BOGOF, POS displays, public relations, sponsorship

• advantages (general)

  • direct communication with consumers

  • based on specific marketing objectives → can measure results against

through-the-line promotion

• integrates both above and below the line elements

• aim to convert customers into measurable and targetable sales

• example: social media

  • use online marketing to communicate and directly sell

  • use influencers with high social-networking potential to create appealing messages that are likely to be passed on to many people

• advantages

  • no-cost

  • global audience reach

  • target specific market segments

  • interactive

  • performance metrics

  • speed of transmission

• disadvantages

  • lack of skill

  • time investment

  • negative feedback is public → damage brand image

  • security issue

  • performance metrics are not immediate

  • not everyone uses social media

  • influencer may not align with brand image

place

• distribution channels: chain of intermediaries product passes through from manufacturer to consumer

• companies may have multiple, depending on type of product and needs of consumers

• players

  • manufacturers: produce goods → need widest geographical range of market BUT need maintain brand image

  • wholesalers: buys in bulk from manufacturer and holds goods, sells to retailers in smaller quantities

  • retailers: sell goods to final consumer → will sell goods but demand mark up to make profit

  • consumers: want ease of access to try before buying + ease of return

direct selling

• manufacturer → consumer

• example: online sales → reaches wide market

• advantages

  • no markup, no profit margin taken by other business

  • complete control over marketing mix

  • faster

  • direct contact with consumer → market research

• disadvantages

  • no outlets for consumers to try

  • need pay for all promotional costs + no after sales service since no intermediaries

  • need space for + pay cost of holding stock

  • delivery costs high since need deliver to consumer

  • manufacturers need focus on both producing and selling

single intermediary channel

• manufacturer → retailer → consumer

• usually for consumer goods/industrial goods to businesses

• advantages

  • retailer has space for + pays cost of holding stock

  • retailer has outlets to display products and allow consumers try

  • retailer’s location is more convenient for consumer

  • manufacturers can focus on production

• disadvantages

  • retailer makes profit through markup → more expensive for consumers

  • loss of control over marketing mix

  • no exclusive outlet: retailers sell competitors’ products too

  • manufacturer pays cost of delivery to retailer

two intermediary channel

• manufacturer → wholesaler → retailer → consumer

• advantages

  • wholesaler buys in bulk then sells to retailer (‘breaking bulk’)

  • wholesaler pays for cost of delivery to retailer

  • wholesaler has space for + pays cost of holding stock

  • best option when entering foreign market: since wholesaler has direct contact with retailers

• disadvantages

  • two intermediaries who need to make profit → price for final consumers increase

  • slowest

  • manufacturer loses more control over marketing mix

people

• employees/managers and how customers communicate with them

• influenced by

  • who/how business is represented to customers → affects brand image and customer loyalty

  • if genuine → performance increase → honest feedback from customers

  • interpersonal skills, trained with service knowledge, high efficiency → customer satisfaction increases

process

• procedures and policies put in place to provide service to customer

• how it influences customer satisfaction

  • fast, efficient, avoid delays → brand image improved

  • clearly defined and everyone knows how → consistent customer experience

  • remain competitive, embrace new technology, up to date → meets customer expectations

physical evidence

• how business and products are presented to customers

  • goods: product packaging

  • services: location, appearance, employee behaviour and appearance

• important in coordinated marketing mix → justifies premium pricing

• impacts customer experience and satisfaction

• should be customer-tested and updated