3.3 Marketing Mix

• Consumer goods:

  goods that are bought by the consumer for their own use
• Consumer services:

  bought by consumers for their own use such as hairdressing and education
• Producer goods:

  goods that are produced for other businesses to use in their production process such as machinery and components such as an airbag in cars
• Producer services:

  services that are produced to help other businesses such as accounting and advertising
• Product Development:

  1. Generate ideas
  2. employees
  3. sales department
  4. customer's suggestions
  5. competitors' products
  6. Selected the best idea for further research
  7. decide which ideas should be discarded/pursued
  8. Decide if company is able to sell enough for product to be successful
  9. Develop a prototype
  10. many large companies uses comp sims as part of the process
  11. allows operations department to see how product is developed
  12. Launch the product in one area to test the market
  13. allows company to see how well product sells without spending a lot of money
  14. Go to full launch of the product to the whole market
• New products :

  • there are benefits when developing new products 
  • a unique selling point (USP) is the special feature of a product that differentiates it from competitors
• Brand image - 

  • selling directly to a consumer makes it easy to inform about a product’s qualities
  • the unique features of a brand is doen through ads
  • advertisers make consumers aware of the qualities of the product through the brand name
  • brand image creates:
  • brand loyalty
  • brand image is more than just an assurance of quality but also show the target audience of the product
• Packaging:

  • has two functions to perform:
  • protect the product - it needs to be suitable for transporting and allow the product to be used easily
  • promote the product - it has to appeal to the consumer
  • colour and shape are important - the packaging catches the consumer’s eye
  • the labels on the packaging are a legal requirement and carry information about the product
• Product life cycle:

  1. development = this includes the market research (there are no sales at this time)
  2. it’s then introduced on the market = sales grow slowly first as awareness grows through advertising
  3. maturity =  sales now increase slowly - profits are at their highest - competition is intense 0 high levels of advertising
  4. sales of the product decline as new products appear
  5. sales = sales reach  saturation point and stabilise at the highest level - competition is high and profits start to fall as prices fail to remain competitive
  6. sales of the product decline as new products appear
• Extension strategies for product life cycle- 

  • introduce new variations of the product 
  • sell in new markets or other countries 
  • make small changes to design or colour 
  • sell through different outlets
  • introduce a new model of the old product
  • use an advertising campaign
• Product Life cycle:

  A) maturity

  B) growth

  C) introduction

  D) decline

  
• Multiple product lifecycle:

  • businesses will usually use more than one product
  • to stop the decline of the business, they create a new product to increase sales (prolonging the life of the business)
  • a range of products at different stages of the life cycle

  
• What makes a successful product - 

  • satisfies existing needs and wants of consumers
  • not too expensive to produce
  • design should be consistent with the product’s brand image
  • has something very distinctive that makes it different 
  • first business to introduce the product (USP)

  Branding - 

  • unique name
  • higher price than unbranded products
  • unique packaging
  • higher quality than unbranded products
  • customers keep buying through brand loyalty 
  • Products - 
  • protects the product
  • easy to transport
  • eye catching
  • carries information about the product

  promotes the brands image
• Cost plus pricing - 

  • definition = the cost of manufacturing the product plus adding a percentage profit mark up
  • benefits:
  • easy to apply
  • different mark-ups can be used in different markets
  • each product earns a profit for the business
  • limitations:
  • if the price is higher than competitors, the business will lose sales
  • profit will only be made if sufficient units are sold
  • no incentive to reduce costs
• Competitive pricing -

  • definition = when the product is priced in line with or just below competitors price
  • benefits:
  • sales are likely to be high as the price is realistic
  • often used when consumers cannot tell the difference between competitors products (e.g. coke and pepsi)
  • limitations:
  • if the costs of production are higher than those of competitors, then competitive pricing will lead to loses
  • a higher quality product will need to be sold at a higher price
  • research will be needed into what prices others are charging
• Penetration pricing -

  • definition = the price is set lower than the competitors prices in order to be able to enter a new market
  • benefits:
  • used for newly launched products to create an impact
  • should ensure that sales are made
  • market share should build up quickly
  • limitations:
  • the product is sold at a low price so profits may be small
  • customers may get used to low prices and reject the product if the business raises the price
  • may not be appropriate for a branded product with a reputation for quality
• Price skimming - 

  • definition = a high price is set for a new product on the market or a new development of an old product
  • people will pay the high price because of the novelty factor
  • the high price helps the business recoup the research and development costs
  • benefits:
  • can help to establish the [product as being of high quality
  • the high price will lead to profits being made before competitors launch similar products
  • limitations:
  • the high price may discourage the customers from buying it
  • high profits may encourage more competitors to enter the market
• Promotional pricing -

  • definition = used when a business wants to set a low price to increase short-term sales
  • can also be used to sell off old stock at the end of a season
  • benefits:
  • useful for getting rid of unwanted inventory
  • can help to renew interest in a product if sales are falling
  • limitations:
  • the revenue will be lower because the price has been reduced
  • it might lead to further price competition and even lower prices
• Psychological pricing -

  • definition = price of a product can have a significant psychological impact upon consumers perceptions of the product (e.g. $1.99)
  • high income consumers may like to product high priced products as a status symbol
  • this is known as conspicuous consumption
• Dynamic pricing -

  • definition = customers may be split into two or more groups and are charged different prices for the same product
  • businesses do this because the price sensitivity of these groups are different
  • new technology allows firms to trackthe buying history of customers and charge higher prices for products when they buy online
  • consumers who appear to have a lower incomes from their buying history may be charged lower prices
• Price elasticity of demand -

  • how responsive the demand for a product is to changes in price is affected by how close substitutes there are
  • if there are many close substitutes for a product, when the price rises, even by a small amount, consumers may respond by buying the substitute products
  • means demands falls by a larger percentage
  • this product would be said to have a price-elastic demand
  • the percentage change in the quantity demanded is greater than the percentage change in price
  • it shows that consumers are very sensitive to changes in price
• Price inelasticity of demand -

  • when there are very few close substitutes for a product, consumers have less options
  • if the price of a bran perfume increase 15%, it may not lead to much of a fall in sales - perhaps just 5%
  • most consumers carry on buying the product at the higher price
  • these products are said to have price-inelastic demand
  • the percentage change in the quantity demanded is less than the percentage change in price
  • consumers aren't sensitive to change in price
  • therefore if the demand for a product is price elastic, then demand changes at a greater rate than price changes
• Distribution Channels:

  A) producer

  B) consumer

  C) producer

  D) retailer

  E) consumer

  F) producer

  G) wholesaler

  H) retailer

  I) consumer

  J) producer

  K) agent

  L) wholesaler

  M) retailer

  N) consumer

  
• Channel 1:

  • selling direct to consumers
  • this is the first distribution channel

  Advantages -

  • method is very simple
  • suitable for food products sold from a farm shop
  • suitable for many other types of products
  • cuts out the wholesaler and retailer, so can be lower priced
  • products can be sold by mail order or via the internet

  Disadvantages -

  • not practical for all products - people may also live too far away
  • not suitable if products are large and cannot be sent by post
  • can be expensive if being sent by a courier
• Channel 2:

  • product is sold directly to retail outlets who then sell it on to the consume
  • examples:
  • independent trades such as a sole trader in a small shops
  • supermarket
  • department stores

  Advantages -

  • producer can sell large quantities to the retailer
  • reduces the distribution costs of the producer

  Disadvantages -

  • no direct contact with the customers
  • price is higher as the retailer has to cover its costs and make profit
• Channel 3 - 

  • uses a wholesaler
  • they buy from the producers in very large quantities and divide up into much smaller quantities for retailers to buy

  Advantages:

  • wholesaler saves storage space for small retailer and reduces storage cost
  • wholesalers may deliver which saves transport costs
  • main advantage = simplify the distribution process and lessen the paperwork the manufacturer has to do

  Disadvantages:

  • more expensive for a small shop to buy from wholesaler rather than manufactures
  • consumer price will be higher to cover wholesaler & retailer costs
• Channel 4 - 

  Agents:

  • an independent person who deals with the sales and distribution of a product
  • usually negotiate sales on behalf of the seller
  • aren’t usually involved in ownership
  • instead, usually take a commission on sales
  • sometimes manufacturers will use an agent when selling products overseas

  Advantages:

  • agent will be aware of local conditions and will be in the best position to select the most effective places to sell

  Disadvantages:

  • the producers has less control over the way the product is sold
• Above the line marketing:

  • less focused marketing technique that reaches a larger/wider target audience
  • where cost is higher than profit
• Below the line marketing:

  • aimed specifically at targeted individuals that have been identified as potential customers
  • when it doesn’t cost much
• Advertisements:

  • Is paid for communication to potential customers to encourage them to buy a product
  • Can be informative or persuasive
  • persuasive advertising uses few words and relies on images to persuade the consumer 
  • informative advertising is is full of detail to persuade the consumer that they need it
  • Involves ‘above the line’ promotions
  • can be large scale advertising (e.g. TV)
• Sales promotion 

  • Incentives such as special offers or special deals to achieve short-term increases in sales
  • Includes ‘blow the line’ promotions often used for short periods of time
  • Advantages
  • it can promote sales during the off-season when sales are normally low
  • encourages new customers to try and existing/new product
  • persuades customers to buy more of a product
  • Entice customers to switch brands
• After sales services

  Expensive products e.g. cars/laptops provide after-sales services 
• Gifts 

  • Sometimes small gifts are placed in packets to encourage the consumer to buy it & collect e.g. kinderjoy
  • Coupons can often be cut out of the packet & collected. 
  • Collecting the coupons requires several packets of the product to be purchased. 
• Price Reductions

  Reduced prices in shops at specific times of the year/money-off coupons. Flash sales are big discounts on products for a limited time.
• BOGOD

  ‘Buy one, get one free’ - encouraging multiple purchases. 
• Competitions 

  The packaging of products includes an entry form which allows a customer to enter a competition
• Point of sale displays and demonstrations

  • In a shop the may be a special display of the product
  • An advantage to show how the product can be used or an opportunity to taste the product
• Free samples

  A free sample can be handed out in the shop to encourage the customer to try the product
• Product placement

  • Branded products are featured on television, movies or music videos
  • However, these can be expensive
• Budget - 

  • a financial plan for the marketing of a product
  • it specifies how much money is available
  • if the business cannot afford a large budget, this will limit where it can advertise
  • a business will need to compare the cost of advertising with the increase in expected sales