Marketing mix
Contents: 9 sections
Product
The marketing mix is the four Ps: product, price, place and promotion. They are only useful together. A premium product sold cheaply in a discount store confuses customers about what it is worth, and the best advertising in the market cannot rescue a product people do not want.
Brand image is what customers believe about a business before they have tried anything. A strong brand image lets a business charge more than an identical unbranded product, makes customers loyal enough to forgive one bad experience, and makes a new product easier to launch because the name is already trusted. It is slow to build and can be lost quickly by one recall or one scandal.
Packaging does four jobs: it protects the product in transport and storage, makes it easy to carry, use and store, carries legally required information such as ingredients and safety warnings, and promotes the product on a shelf where nobody is reading an advertisement. Packaging is where brand image becomes physical, which is why a business changing its image usually changes the packaging first.
| Developing new products: advantages | Developing new products: disadvantages |
|---|---|
| Replaces products in decline and keeps total revenue up | Research, design and testing cost money long before any sales |
| Attracts new customers and new segments | Most new products fail, so the spending may return nothing |
| Gives promotion something to talk about | Diverts management time from products that already sell |
| A first mover can charge a high price before rivals copy | Cash flow suffers during development |
The product life cycle
| Stage | Sales | Typical marketing | Profit |
|---|---|---|---|
| Introduction | Low, rising slowly | Heavy advertising to build awareness, few outlets, penetration or skimming price | Negative; development costs are being repaid |
| Growth | Rising fast | More outlets, promotion switches from awareness to persuasion | Turns positive and rises |
| Maturity | High but flat, the longest stage | Price competition, sales promotions, extension strategies | Highest, but under pressure from rivals |
| Decline | Falling | Spending cut, price cut to clear inventory, product withdrawn | Falling towards a loss |
To interpret a life cycle diagram, read sales up the vertical axis and time along the horizontal one, then use the shape of the curve, not the height. Rising steeply is growth, flat at the top is maturity, falling is decline. A product high on the chart but flattening is at the profitable end of maturity and needs an extension strategy now, not once sales have started to fall.
Extension strategies
An extension strategy lengthens the maturity stage instead of letting a product decline.
| Strategy | Advantages | Disadvantages |
|---|---|---|
| Sell in new markets, including other countries | Reaches customers who have never bought it, so the product needs no change | Transport, legal and cultural costs, and the product may not suit the new market |
| Find new uses for the product | Very cheap, since only the message changes | Only works where a genuine second use exists, and customers may not believe it |
| Adapt the product or packaging | A new version or new flavour makes existing customers buy again | Costs design and production changes, and can annoy loyal customers who liked it as it was |
| Increase advertising or sales promotion | Fast, and it lifts sales within weeks | Costly and short-lived; sales usually fall back once the offer ends, and discounting weakens the brand |
A recommendation is only justified if it fits the business in front of you. A discount pushes sales this quarter and suits a business needing cash quickly, but it does nothing about a product customers have grown tired of. Adapting the product costs more and takes longer, and is the better answer when the reason for decline is that a rival's version is genuinely better. Say which reason applies here, and the recommendation stops being a guess.
Price
| Pricing method | How it works | Advantages | Disadvantages |
|---|---|---|---|
| Cost-plus | Work out the cost per unit, add a fixed percentage mark-up | Simple, and every sale covers its costs | Ignores what rivals charge and what customers will pay |
| Competitive | Set the price at or just below the rivals' price | Keeps the business in the market, avoids a price war | Profit margins are squeezed, and it means never leading the market |
| Penetration | Launch at a low price to win customers, then raise it | Builds market share fast and gets people to try a new brand | Low revenue at first, and raising the price later can lose the customers it won |
| Skimming | Launch high while the product is new and rivals have nothing like it | High revenue early, and repays development costs quickly | Only works with a genuinely new product, and the high price attracts competitors |
| Dynamic | The price changes with demand, time of day or customer data, usually set automatically | Charges more when demand is high, so revenue rises without new customers | Customers who see a higher price than someone else feel cheated, and it needs systems and data to run |
Dynamic pricing is the one to learn properly, because it is the newest and the most misread. Ride hailing apps raise fares when it rains, airlines raise seat prices as the flight fills, and online retailers change prices during the day in response to demand and to rivals. It is not the same as a special offer: the price moves in both directions, continuously, and by a rule rather than by a manager's decision. If you are revising from an older 0450 textbook or an old past paper you will meet price elasticity of demand in the pricing chapter, but the 0264 syllabus lists five pricing methods and says nothing about elasticity, so it is not part of this course.
Cost-plus in numbers. A unit costs $8 to make and the business adds a 50% mark-up.
price = 8 + (0.5 x 8) = $12
Choosing a method depends on the stage the product is at and how many rivals there are. Skimming needs something nobody else sells. Penetration needs a business that can survive thin margins while it builds share. Cost-plus suits a business selling many different items where working out a separate price for each is not practical.
Place
Place is how the product reaches the customer, which is the distribution channel.
| Channel | How it works | Advantages | Disadvantages |
|---|---|---|---|
| Direct to customers | The producer sells straight to the consumer, in its own shop or online | Keeps the whole selling price, controls how the product is presented, and the business owns the customer relationship | The producer pays for delivery, storage and customer service, and reaches fewer people |
| Through retailers | The producer sells to shops, which sell to consumers | Reaches many customers, and the retailer handles displays and payment | The retailer takes a share of the price and can push a rival's product instead |
| Through wholesalers | The producer sells in bulk to a wholesaler, which breaks bulk for small retailers | Fewer, larger orders, and storage costs move to the wholesaler | Another share of the price is lost, and the producer is two steps away from the customer |
| Through agents | An agent sells on the producer's behalf for a commission, common when entering another country | Local knowledge and contacts, and no cost until a sale is made | Commission on every sale, and the agent may represent competing producers too |
Short channels suit expensive, technical or perishable products where control and speed matter. Long channels suit cheap, everyday goods that need to be in thousands of small shops.
Promotion
Promotion exists to inform customers a product exists, to persuade them to buy it rather than a rival's, and to remind them so that a familiar product stays in mind. A new product needs informing; a mature one needs reminding.
| Sales promotion method | Best used for |
|---|---|
| Vouchers and discount codes | Getting first-time buyers to try the product |
| Reward or loyalty schemes | Keeping existing customers from switching |
| Competitions | Attention and customer data, at a low cost per entrant |
| Special offers and discounts | Shifting inventory quickly, especially in decline |
| Advertising method | Best used for |
|---|---|
| Social media | Reaching a young audience cheaply, with results that can be measured |
| Direct or targeted emails | Existing customers, at almost no cost per message |
| Leaflets | A small business selling to one local area |
| Billboards | Building brand awareness among large numbers of passers-by |
Sales promotion and advertising answer different questions, and 0264 asks for a recommendation on each. A recommendation is judged on the match: a local bakery with a small budget gets more from leaflets and a loyalty card than from billboards, because its customers all live within walking distance and it needs them back every week.
Ecommerce
Ecommerce is buying and selling through the internet: online shopping, mobile phone and internet banking, and online ticketing.
| For the business | For the customer | |
|---|---|---|
| Advantages | Sells nationally or worldwide without shops, lower rent and staff costs, open at all hours, and customer data can be collected and used | Wider choice, easy price comparison, shopping at any time, delivery to the door |
| Disadvantages | Website and delivery costs, more returns, exposure to every online rival, and payment fraud | The product cannot be examined before buying, delivery takes time and costs money, and payment details have to be trusted to the seller |
Marketing strategy
The four Ps do not matter equally in every business. A luxury watch depends on price and place, because a low price or a discount shelf destroys the image the product is sold on. A soft drink in a crowded market depends on promotion and place, since the product is barely different from its rivals and the buying decision is made at the shelf.
To recommend a mix, start from the market and the money. Who is the customer, what do rivals already do, and what can this business afford? Then set the four elements so they support each other and say why the rejected options were rejected. A mix recommended without that reasoning reads as a list of good ideas rather than a decision.
Entering new markets in other countries
| Advantages | Disadvantages |
|---|---|
| Increases sales where the home market is saturated | Cultural differences: names, colours and advertising that work at home can offend or confuse |
| Spreads risk, so a downturn in one country does not sink the business | Lack of knowledge of local customers, rivals and distribution |
| Higher output brings economies of scale and lower unit costs | Different legal requirements on labelling, safety and advertising |
| Extends the life of a product already in decline at home | Transport costs, exchange rate movements and the cost of setting up |
Whether it is worth it turns on how much the business knows about the new country and how much finance it has to survive the first loss-making year.
Common mistakes
- Treating the four Ps as four separate decisions instead of one mix that must fit together.
- Saying packaging is "for looks", and missing protection, information and transport.
- Reading a life cycle diagram by height rather than by the slope of the curve.
- Naming an extension strategy without weighing it. 0264 asks for advantages, disadvantages and a justified choice.
- Confusing penetration with skimming. Penetration starts low, skimming starts high.
- Describing dynamic pricing as a discount or a special offer. The price moves both ways, by a rule.
- Saying cost-plus guarantees a profit. It only covers costs if the units are actually sold.
- Calling a wholesaler a retailer, or saying a longer channel earns the producer more.
- Writing that ecommerce has no costs. Websites, delivery and returns all cost money.
- Recommending a mix without saying what the business can afford or who the customer is.
- Listing advantages of selling abroad without one disadvantage weighed against them, which leaves no evaluation to mark.
What the syllabus asks for on this topicSyllabus points
Syllabus points
- The importance of brand image and the role of packaging.
- The advantages and disadvantages of developing new products.
- The main stages of the product life cycle: introduction, growth, maturity and decline, and interpreting a product life cycle diagram.
- Extension strategies, their advantages and disadvantages, and recommending one for a given situation.
- Pricing methods: cost-plus, competitive, penetration, skimming and dynamic, their advantages and disadvantages, and recommending one for a given situation.
- The advantages and disadvantages of distribution channels: direct to customers, retailers, wholesalers and agents, and recommending one.
- Reasons for promotion, methods of sales promotion and methods of advertising, and recommending one of each for a given situation.
- Examples of ecommerce and its advantages and disadvantages for businesses and for customers.
- The importance of the different elements of the marketing mix, and recommending an appropriate mix.
- The advantages and disadvantages of entering new markets in other countries as a method of growth.
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