4.5 marketing mix

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excluded HL topics + specific promotion strategies' adv/disadv

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46 Terms

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marketing mix

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

  • influences if a business can sell it profitably

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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

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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

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consumer durables

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

  • opposite: single-use

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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

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product life cycle stages

  • introduction

  • growth

  • maturity/saturation

  • decline

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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

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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

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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

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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

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product life cycle affects

  • investment

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

  • profit margins

  • cash flow

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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

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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

<ul><li><p>development: negative because only cash outflow</p><ul><li><p>unused factory capacity</p></li><li><p>high R&amp;D costs</p></li><li><p>no sales</p></li></ul></li><li><p>introduction: negative because revenue from sales &lt; cost of sales + promotion</p><ul><li><p>unused factory capacity</p></li><li><p>high promotional costs</p></li><li><p>penetration pricing </p></li><li><p>low sales</p></li></ul></li><li><p>growth: increasing because sales increasing</p><ul><li><p>when it is positive depends on length of consumer credit</p></li></ul></li><li><p>maturity: most positive</p><ul><li><p>high sales</p></li><li><p>lowest promotional costs</p></li><li><p>max factory capacity</p></li></ul></li><li><p>decline: decreasing because price low and sales low </p></li></ul><p></p>
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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

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product portfolio

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

  • can be analysed using BCG matrix

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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

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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

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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

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brand

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

  • aspects

    • awareness

    • loyalty

    • development

    • equity

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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

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brand awareness

  • extent to which brand is recognised by potential customers and is correctly associated with a product. expressed as a % of the target market

  • effects

    • increased sales (familiar, more likely to buy)

    • competitive advantage (differentiated)

  • is the primary goal of promotional activity in introduction phase

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brand loyalty

  • tendency of consumers to choose a brand over others

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

  • 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

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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

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brand equity

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

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

  • 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

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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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)

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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