2.2: making marketing decisions

• product business


  anything a business offers to a market to satisfy a customer's need or desire, encompassing both tangible goods and intangible services
• what does the design mix of a product include?

  - function: what problem does the product/service solve?

  - aesthetics: how does the product look, feel and/or taste?

  - cost: can the product be made and provided for the right price so profit can be made?
• product lifecycle


  stages a product goes through from concept and use to eventual withdrawal from the market place

  - introduction, growth, maturity, decline (or extension)
• introduction in a product lifecycle

  - product introduced to the market and put on sale for the first time

  - slow sales growth

  - heavy investment costs into research, development and advertising

  - minimal profits
• growth in a product lifecycle

  - product has been established

  - rapid growth in sales and profit

  - increase in demand
• maturity in a product lifecycle

  - product has achieved acceptance by most potential buyers

  - sales have reached their peak, so a slowdown in sales growth

  - promotion becomes less important as the product is already well known

  - profits level off or start to decline as the market will become saturated and there will be no place for the product to expand further

  - increased marketing costs to defend against competitors
• decline in a product lifecycle

  - sales start to decline

  - other rival products begin to take over

  - profits drop

  - product becomes obsolete
• extension strategy


  an attempt by marketers to lengthen the product life cycle of a particular product - such strategies are typically used during the maturity or early decline stages of a product's life cycle
• how can a business extend product lifecycle?

  - by developing new products: time consuming and expensive

  - by finding new markets: for existing products, which will reduce the average cost and speed of break-even
• differentiation


  when a business makes their product or service different from their competition
• ways of differentiation


  - branding

  - USP

  - location

  - design

  - customer service

  - quality

  - product mix
• what are the benefits of producing a high quality product?

  - improved brand image

  - ability to increase prices, hence increasing net profit margin

  - fewer customer complaints
• price


  the amount of money a customer pays for a product or service
• skimming pricing


  setting the highest initial price that customers really desiring the product are willing to pay as it as a desirability factor - the price can be lowered later on to continue sales after the product is in the market for a while
• skimming pricing advantages


  - could generate gross profit

  - high prices allows a business to cover high unit costs while remaining profitable

  - allows a business to use good quality raw materials early on
• skimming pricing disadvantages


  - customers may switch to cheaper alternatives

  - may reduce competitive advantage for the business

  - may result in a loss of market share and reduces revenue
• penetration pricing


  setting a low initial price on a new product to appeal immediately to the mass market - the price can be increased later on once customers like the product and carry on buying it
• what kind of products have low prices?

  products that are mass produced, budget and have little added value
• what does low pricing result in?

  - higher sales volume

  - lower profit per product

  - customers potentially perceiving the product as low quality
• what kind of products have high prices?

  products that are luxurious, branded and have high added value
• what does high pricing result in?

  - lower sales volume

  - higher profit per product

  - customers potentially buying cheaper alternatives
• competitor pricing


  when a price is set based on prices charged by competitor businesses for a similar product
• promotional pricing


  temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales - customers may also be offered free extras/discounts to encourage purchases
• plus pricing


  where a business calculates the total cost of producing a product or service and then adds a markup (a percentage or fixed amount) to cover expenses and generate a profit
• what influences pricing?


  - technology: has increased the efficiency of production processes, decreasing production cost and time

  - competition: high competition will result in businesses competing on price to gain a competitive advantage and have lower prices than rivals

  - market segments: low prices charged for products in mass market segments due to high competition and demands whereas high prices charged for products in niche market segments due to products being rare and decreased demand
• mass market segment


  markets for goods produces on a large scale for a significant amount of customers
• niche market segment


  markets that sell unique, specific and differentiates products to a smaller target market
• price in the introduction of a product


  low prices to encourage customers to buy the product
• price in the growth of a product

  small price increase as customer loyalty increases
• price in the maturity of a product

  prices will peak, profits will increase and rivalling prices will be monitored
• price in the decline of a product

  heavy discounts to get final sales before product withdrawal
• promotion


  the methods a company uses to communicate information about its products or services to customers and potential customers
• advertising


  any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor
• sponsorship


  a public relations strategy in which a company spends money to support an issue, cause, or event that is consistent with corporate objectives, such as improving brand awareness or enhancing corporate image
• product trials


  designed to encourage consumers to try a product either for free or at a reduced cost
• special offers


  when deals, discounts or vouchers are put on products (sometimes for a limited time) to encourage (repeat) purchases
• branding


  a marketing function that identifies products and their source and differentiates them from all other products
• how should mass market products be promoted?

  with large budgets on national radio, TV adverts and national newspapers to maximise the amount of people the promotion reaches
• how should niche market products be advertised?


  with small budgets on local radio, local papers, flyers and social media specific to it's smaller target market
• what does the combination of promotional strategies depend on?

  - business size

  - budgets of promotion

  - target segments