2.2 Making Marketing Decisions Flashcards

How do ideas for new businesses come about?

• Gap in the market.

• New invention.

• Existing product has declining sales.

• Changing customer requirements.

The Design Mix:

• aesthetics

• function

• cost

The Design Mix: aesthetics

Aesthetics – does the product appeal to the customer in terms of how it looks and feels? This is often based on the subjective judgement of customers and is a popular way to differentiate a product from its competitors.

• High added value.

• Shorter product life cycles. - more focused on fleeting trends than functional longevity

• Demand fuelled by customer aspirations.

• Attracts imitation.

• Need for greater promotional support

The Design Mix: function

The way the product works; does it do what it needs to do? Is the product reliable?

• Demand is stable and predictable. 

• Longer product life cycles.

• Lower promotional costs.

• Reputation for being quality based on reliability.

• Economic to manufacture through low average costs based on high production

The Design Mix: cost

Cost: does the design allow the product to be made and sold profitably? How much value is added during the production process? The difference between the costs of making something and what a business can sell it for is the value added that allows a profit to be made.

• Keeping production costs low.

• Value added is lower.

• Low promotional costs.

What is the product life cycle?

• Development: the product is designed and prototyped.

• Introduction: the product launches with low sales as there aren’t many people aware of the product.

• Growth: more customers become aware of the product, sales increase at the fastest rate.

• Maturity: the product becomes established with people repeatedly buying it. sales are near their highest, but the rate of growth is slowing down because new competitors are entering the market or the market has become saturated with different versions of essentially the same product

• Decline: sales decline as popularity declines, and customers look for alternatives, the product may eventually be pulled.

How can a business extend a products life cycle?

• Product differentiation - making a product or service stand out from competitors by highlighting unique features, quality, branding, or design

• Price reduction – makes the product more attractive to customers

• New packaging – brightening up old packaging or making small changes,

• Adding value – add new features to the current product, for example video messaging on smart phones

• Explore new or different markets – for example try selling the product in other countries

• Advertising – try to gain a new audience or remind the current audience of the product

Factors that affect pricing decisions

• Objectives of the firm: high price, high quality or high sales

• Competitors: Competitor strength influences whether a business can set prices independently or whether it simply has to follow the normal market price.

• Customers: target market: age, income levels, location

• The state of the market for the product – if there is a high demand for the product but a shortage of supply, then the business can put prices up.

• Costs – a business cannot ignore the cost of production or buying a product when it comes to setting a selling price. In the long-term, a business will fail if it sells for less than cost or if its gross profit margin is too low to cover the expenses or overheads of the business.

• Product life cycle - pricing methods will change dependent on the stage the product is at in its product life cycle.

• The state of the economy – some products are more sensitive to changes in unemployment and workers’ wages than others. Manufacturers of luxury products may need to drop prices to stimulate demand, especially when the economy is not doing well.

• Legislation in the market – some businesses operate in markets where prices are regulated by government legislation, for example the rail industry.

How do large numbers of competitors affect prices?

Cheaper prices for customers

What pricing strategies can businesses use?

• Skimming pricing - initially high, then lowered over time. Examples: phones and games consoles.

• Penetration pricing - initially low, then raised over time. Examples: streaming services, broadband providers.

• Cost plus pricing - adding a percentage onto the costs. Examples: restaurants.

• Competitor pricing - pricing similar to your competition. Examples: food and drink in supermarkets.

• Promotion pricing - lower prices to encourage sales. Examples: buy one get one free.

• Freemium pricing - free product, with features that can be bought for a premium. Examples: mobile games.

Aims of Promotion

• To inform current and potential customers about existing and new products

• To explain the potential benefits of using the product

• To persuade customers to buy the product

• To compete with other businesses and show why a product is different or better than competitors

• To increase growth through more sales to existing customers or sell in new markets

• To develop and sustain a brand

• To remind customers about a product and reassure them that they have made the right choice

Methods of promotion

• Advertising

• Branding

• Sponsorships

• Trials / Special Offers

Methods of promotion: Advertising

TV, radio, cinema, billboards/posters, online and newspapers or magazines

When deciding which type of advertising to use a business needs to consider factors like:

• Reach of the media; potential customers who could see it

• nature of the product

• Cost of advert and size of advertising budget

• position in the product life cycle

Advantages:

• Wide coverage – can reach mass audiences

• Control of message being promoted

• Repetition means that the message can be communicated effectively

• Can be used to build brand loyalty

Disadvantages:

• Often expensive

• Impersonal and not very accurate in aiming at customers, so high wastage

• Easy to get lost in the amount of competing adverts

Methods of promotion: Branding

A brand is a product with unique character, for instance in design or image. It is consistent and well recognised. Branding is often used as a vital part of the promotional process.

advantages of having a strong brand are that it:

• Inspires customer loyalty, leading to repeat sales and word-of mouth recommendation.

• usually can charge higher prices

• retailers or service sellers want to stock top selling brands. With limited shelf space, it is more likely the top brands will be on the shelves in leading stores rather than less well-known brands.

Methods of promotion: sponsorships

A business will donate money to an event, team or individual, in return for which they will display the business name or logo. This will build brand awareness.

Methods of promotion: trials / special offers

Product trials - a free or reduced price product may be given as a sample with the hope that consumers will then continue to buy the product in the future.

Special offers/discount vouchers or temporary price reductions– these encourage customers to try new products or relaunched products; these offers can then be removed once customers become loyal

Encourages customers to try a product or switch brands

Some customers only buy special offers

Customers may come to expect or anticipate further promotions

How does technology affect promotion? 💬

• cheaper and far more accurate promotional strategies: targeted online advertising

• Viral marketing

• Apps

• E-newsletter

Factors influencing the choice of promotion

• Budget: all forms of promotion can be very expensive.

• Type of product: some products are produced for other businesses to buy rather than the public in general.

• Type of customer: choice of promotional strategy will be different depending who the target customers are.

• Competition: the promotional strategy of a competitor will influence a business’s own strategy. Advertising and sales promotion will often imitate the strategy of a competitor and competitors may retaliate to any promotional strategy that a business undertakes.

• Product life cycle: if the product is new or relates to a new business then the aim of promotion will be to make customers aware that it exists.

What is place?

Place, or its more common name “distribution”, is about how a business gets its products to the customers.

Distribution channels

Direct distribution:

• Direct, for example via e-commerce

Indirect distribution:

• Retailers

• E-tailers

Why would a business distribute directly? advantages & disadvantages

• Control how products are distributed - management of brand reputation, improvement of customer experience

• Control the prices that are charged

• there is no need to share profit margins

• products are not sold alongside those of competitors

• Harder to sell to a lot of customers

• significant costs for warehouses & transportation

Why would a business distribute indirectly? advantages & disadvantages

• Easier to distribute products

• More convenient for consumers

• Wider audience

• Retailers and e-tailers take a cut

How do e-tailers compare to retailers?

• Can offer a wider range of products

• Smaller producers can sell through them easier

• Prices are lower as costs are lower

• Always open

• Customers need to have internet access

• Customers cannot pay by cash

• Delivery times

• Customers can only go off of reviews and photos

What factors should be taken into account in choosing the best distribution channel?

Customised: a direct distribution approach often works best for a product that the end consumer wants produced to a distinct specification.

Nature of the product: is it technical/complex?

The market, for example is it geographically spread? Does it involve selling overseas?

The extent and nature of the competition – which distribution channels and intermediaries do competitors use?

The business size – small businesses may have to use wholesalers as they cannot store a large amount of stock.

How much control does it want over distribution? The longer the channel, the less control is available. Some manufacturers will want to control how a product is displayed, the price charged and the promotional method used.

Methods of competitive advantage

• USP

• Offering products at lower prices than competitors

• Having added value to distinguish it from others

What is the marketing mix for Nike running shoes? 💬

• The materials used give the product a USP

• This USP allows for a higher price

• The promotion will focus on running

• The places available shows it is for serious runners

How each element of the marketing mix can influence other elements: price

• Product: Some products may be high in demand, this means that a higher price can be charged to the consumer for these goods and services. An example would be the latest smartphones.

• Place: Transport costs can be high due to petrol prices, this means a higher price for goods will be charged.

• Promotion: Some brands promote their products heavily, this means that a higher price can be charged for their goods

How each element of the marketing mix can influence other elements: product

• Price: If customers want a lower price the product may have to be made from lower quality materials

• Technology is influencing customers to shop online

• Promotion: Digital promotion methods need to be used for products online