Business G PDF

# The Total Product Concept (G1) - 3 Layers of product interpretation: * **Core Product:** The benefit of experiencing the product (ie: iphone: Communicating purpose). * **Actual Product:** The "tangible" and "intangible" properties of the product (ie: iphone: packaging, Facial unlock funct...

# The Total Product Concept (G1) - 3 Layers of product interpretation: * **Core Product:** The benefit of experiencing the product (ie: iphone: Communicating purpose). * **Actual Product:** The "tangible" and "intangible" properties of the product (ie: iphone: packaging, Facial unlock function, colour option). * **Augmented Product:** The "complimentary" features that go with the product in putting it to use (ie: After sales services, warranty, free delivery, software update). # Product life cycle - PLC (G2-5) - The product life cycle shows how a product passes through the different stages resulting in the different sales level over time. - Relationship between amount of sales over period of time when product launches. - **Steps to draw the PLC:** * Vertical axis: Sales * Horizontal axis: Time * Draw the curve. * Separate the stages: Development (may not have), introduction, growth, maturity, decline, extension (may not have). ## Stages of the product life cycle - **Development:** * The product is being researched and designed. * A decision takes place, whether or not to launch the product. * Research and development cost is high, but there is NO revenue. - **Introduction:** * Product is new to the market, initial sales are likely to be slow. * High cost incurred (may be necessary to build new production line / plant) -> not profitable. * Prices might need to be high to cover promotion costs / low in order to break into the market. * Can be quite long, takes time for consumers to become in that product / Can also be very rapid → particularly in fashion industry. - **Growth:** * Product is established, consumers aware, sales grow rapidly. * New customers buying, there are repeat purchases. * Unit costs falls as production increase -> start to be profitable . - **Maturity:** * Growth in sales started to end. * Product becomes established with a stable market share, sales reached highest point -> Competitors entered market to take advantage of profit -> sales saturated -> some business forced out of market. * Extension strategy start to implement at this stage. - **Decline:** * Sales eventually decline due to changing customer tastes, new technology, introduction of new products. * At this stage, products may be withdrawn / sold to other businesses. * There may be still possibility to earn profit if high price charged while the expense on cost / promotion is little. ## The extension strategies - Ways to prolong the life of product before it starts to decline. - Used as costs of product development are high, extension strategies help businesses to generate more cash. - Two approaches: Adjustment vs. Promotion. ### Product Adjustment - Involve improvements, updating, repackaging the product or extending the range. * **Updating:** Usually used for technical products and consumer durables (ie: cars -> updated version). * **Add value by improvement:** (ie: computers faster, more memory, more functions). * **Extend product range:** (ie: chips -> more flavours). * **Packaging:** Give new impression to customers (ie: soft drink companies -> repackage bottles). ### Promotion - Leave the product unchanged but boost sales via investing in promotion campaigns. * **Find new uses for a product** * **Find new markets for products:** (ie: local market -> larger region / international). * **Investing in advertising campaigns** * **Encourage more frequent use of the product** # Product Portfolio (G6) - A product portfolio will be made up of product lines which are a group of products which are similar. - With a constant launch of new products, a business can make sure gaps are not created as products reach the end of their life. # Boston Matrix (G7) - Boston Matrix analyse the market standing of a firm's products and the product portfolio of a business. - It was developed by the Boston Consulting Group. - It highlights the position of the products of a business when measured by market share and market growth. ## Question marks - Products with a relatively low market share in a fast-growing market. - If a product performed weakly -> unlikely to be profitable. - Investment (cash generated from cash cows) needed for R&D, promotion for these products -> cope with expanding sales in fast-growing market. - Net cash flow -> Zero / Negative. ## Stars - A product with high market growth and a relatively high market share. - In strong position in its market, likely to be profitable, however still need investment (particularly in promotion and new production facilities) to cope with growing market and sales, as well as to protect the product from competition. - Net cash flow -> nearly zero profit high but investment spending also high. ## Cash cows - Product with a relatively high market share, however market growth is weak. - Well positioned in the market, likely to be profitable, but as market growth is weak -> little chance of increasing sales and profit in the future. - Money generated by cash cows -> fund investment for question marks, stars. ## Dogs - Products with a relatively low market share, in a market with low growth. - Have poor prospects for future sales and profits. - May generate some positive net cash flow (profit) as they need little investment. - If made no profit -> net cash flow may be zero or negative. ## Usefulness of Boston Matrix 1. **Balancing product lines** * Ensure that their product portfolio do not contain too many items within each category. * Cash flow from cash cows -> support products in a growing market. * Development of cash cows -> likely to be recovered -> promotional costs should be low relative to sales. 2. **Taking appropriate decisions** * Products in different categories in the matrix may require different approaches. * **Question marks:** Business has choices, it can build the brand, hoping it to turn into a star, harvest the product by raising price and cutting promotion so that profits are increased so that profits increased, or divest itself of the product, withdrawing it or selling it because it is not making a profit. * **Stars:** Great future potential -> are future cash cows, a business will need to build the brand of these products, so that sales are increase and competition is fought off successfully. * **Cash cows:** Where most cash generated, can use to develop other products. Business may also decide to spend just enough on promotion, development to maintain sales and market share. * **Dogs** # The Marketing Mix – The 4Ps Those elements of a firm's marketing strategy that are designed to meet the need of its customers. 4Ps -> **Product, Price, Promotion, Place (Distribution)** ## The marketing mix - **Product:** The item or service being sold must satisfy a consumer's need or desire. - **Price:** An item should be sold at the correct price for consumer expectations, neither too low nor too high. - **Promotion:** The public needs to be informed about the product and its features in order to understand how it fills their needs or desires. - **Place:** The location where the product can be purchased is important for optimizing sales. # 1. Products - It is important that the products meet customer needs. ## Concerns related to product: - **How consumers use the product:** Ie: shoe wears -> different occasions -> different design? - **The appearance of a product:** Different colour, sizes, shapes, styles when designing products -> differentiate from rivals. Implications -> useful for luxury goods, customer look for difference. - **Financial factors:** Develop products that are affordable for customers to buy. Customers want value for money as well as quality of after-sales services before they purchase. - **The product life cycle:** Business -> decide whether allow a product to decline or try to refresh in some way. - **Unique selling point (USP):** Aspect / features of product that distinguish from the rivals. USP -> gain a competitive edge. # 2. Pricing (G8-13) ## Price and consumer behavior (G8) - Pricing policy -> reflection of the market that the business is aiming. - Pricing high -> not only to earn profit, but also provide the consumer the image of the product is luxury ## Pricing strategies (G9-10) 1. **Cost plus pricing:** Adding a mark-up to full costs of a product. It is commonly used by retailers. Formula: Selling price = Total cost x (1 + Mark-up%) [Reminder: pay extra attention to the units -> per unit vs. total on fixed costs] ### Advantages - Based on a simple formula. - Optimized for market penetration. - Easy to adjust when costs change. - Makes sense from a marketing perspective and customer perception. ### Disadvantages - Ignore market conditions -> does not account for the actual willingness to pay of the customer. - Ignores competition and target market demand variations. - Does not contribute to building a powerful brand over time*** 2. **Price skimming:** Used when business launch a product into a market charging a high price for a limited time period. ### The aim: - To generate high level of revenue with a new product before competition comes in. - Charging a high price initially helps the businesses to recover high development costs. ### What product will choose: - "Technical" product (ie: phone / TV). - “Pharmaceutical” products (ie: medicine / vaccine). - A good brand. - Having unique selling point. ### Advantages - Maximise revenue (Some people are willing to pay high price, others join in when price lowered). - Recovering development costs (initial revenues can help business recover developmental faster). - Elevating products' image (People have a tendency in believing that higher yield better quality, which is related to the products' image). ### Disadvantages - Demand is price inelastic (The pricing strategy only works if customers are price inelastic - customer are not sensitive to price). 3. **Penetration pricing:** Aim: used when businesses launch a product into a market charging a low price for a limited time period. ### Aim: - To get a foothold in the market. - To first attract customers with a low price, creating a purchase tendency / loyalty, where they will carry on purchasing even when price rises. - To provide an "introductory offer" (e.g. Facial packages trial session -> offer the first one for free or at a lower price). ### Where best used: - "Sports club" (Fitness), "Telecommunication services" (CSL), "Newspaper / magazines" (National geographic). ### Advantages - Grow sales quickly (Usually the lower the "introductory offer", the faster the growth is in sales as people are more sensitive and willing to pay for lower priced products) (Fast growth in sales may allow a business to lower production costs by exploiting economies of scale). - Pressure on rivals (Competitors may need to lower their prices as well in order to compete in the market or differentiate their products; leading to financial pressure on competitors). - Better business position (business are better placed if their cost is low). ### Disadvantages - Customers are attracted by the low price however may not be prepared for the high price after the introductory offer. 4. **Competitive pricing**: An approach to examine competitors' prices and setting a price that is in line with its competitors. ### Aim: - Avoiding Price war. - Price leadership -> Being the price leader in the market and have all others to follow. - Example: Gas petrol, bank's interest rates. 5. **Loss leader strategy:** Is used when products are charged at a very low price that is even lower than the total cost of production. ### Main Purpose: - Some products will lose its value to "zero" anyway if not sold away. - Attracting more customers to go into the shop for purchasing. - Even getting $1 back is still better than getting nothing. ### How loss leader make benefit: - Business will still be profitable as other products sold at a profit can be compensate the lost. - Where its used: Supermarket, Closing-down business (ie: temporary shops). ### 【Only use in product which do not use loss leader strategy will lose its value to zero price, can't use in recycle use products】 - Ie: expired coca-cola: can't use because can reuse in other purposes. 6. **Price discrimination:** a firm offers the same product at different prices in keeping customers separate. - **Time based:** The price paid is based upon the time of day or period (ie: peak vs non-peak season). - **Market based:** Involves offering different market segments the same product at different prices. Ie: (Children vs adult vs elderly). 7. **Dynamic pricing:** Applies variable prices instead of fixed factor. - Instead of deciding on set price for a season, retailers can update their prices multiple times per day -> Capitalize on the over-changing market. - Examples: Travel industry (Air ticket, different passengers pay different fares depending on day of week or time of the day). - Examples: Hotel industry (Family size or number of members; purpose of stay). # Factors affecting the pricing strategy (G11) 1. **Differentiation and USP:** Having USP -> charge a higher price as customers are willing and prepared to pay more. 2. **Price elasticity of demand:** * Price inelastic -> Able to increase price and Qd will not fall as much -> revenue increase. * Price elastic -> decrease in price -> significantly increase Qd -> revenue also increases. 3. **Amount of competition:** * Very little competition => business can charge higher prices as there is no rivals to choose from. * Highly competitive markets -> unable to charge higher prices. 4. **Strength of the brand:** Strong brand -> able to charge a higher price, able to use the skimming strategy when introducing new products. 5. **Stage in product life cycle:** Launch stage (introduction) -> maybe use penetration -> try to establish in the market -> later increase the price, or use skimming -> if has few rivals, later decrease the price when rivals join in. 6. **Costs and the need to make a profit.** ## Price elasticity of demand – PED (G12-13) - The responsiveness of quantity demanded to the change in price. ### Only consider the absolute value PED (Ed) = % Δ Qd / % ΔΡ ### • The Point elasticity of demand % Δ Qd = (New Qd - Old Qd) / Original Qd x 100% % Δ Ρ = (New P- Old P) / Original P x 100% ### Price elastic demand (Ed >1) - Happens when the change in demand was greater than the change in market price. ### Price Inelastic demand (Ed < 1) - Happens when the change in demand was not as big as the change in price. - Ie: Petrol # Factors influencing PED - **Time:** PED tends to fall when the time period is longer -> Consumers and business are more likely to turn to substitutes in the long term. - **Example:** If price goes up by 30%, the fall in quantity demanded is likely to be only a few percent as there is little substitute to petrol. However, as time goes, consumers may consider buying fuel-efficient cars (ie. EVs) to reduce the consumption of fuel in response to the price increase. - **Competition for the same product:** Most business face highly price elastic demand for their products. These business are in very competitive markets. Their products are either identical (ie: a perfect substitute) or little differentiation from other business. **Example:** Bubble tea / Rice / Tissue paper. If these business push up the selling price above market price, they will not be able to sell their product. - **Branding:** Stronger brand -> less substitutes are acceptable to customers. If a business is successful in branding -> it reduces price elasticity of demand -> more price inelastic. - **The proportion of income spent on a product:** * The proportion of consumer's income spent on a product is small -> demand is likely to be price inelastic. * The proportion of consumer's income spent on a product is large -> demand is likely to be price elastic. - **Product types VS Product of an individual business:** Products are made and sold by many different individual business -> including primary, secondary, and tertiary sector business. The demand for petrol is price inelastic in the short run. There is no real substitutes in the short term. However, the demand for Shell Petrol and Esso Petrol is price elastic. These are very good substitutes for each other. # 3. Promotion (G14-19) - An attempt to draw attention to a product or business in order to gain new customers or to retain existing ones. - Aims of promotion (G14): 1. To increase customers' awareness of a new product 2. To reach target audience in a wide spread 3. To remind customers about an existing product -> encouraging customers to repurchase 4. To show the product is better than competitors' -> encouraging customers to switch purchase 5. To develop / improve brand image 6. To reassurance customers about products ## Above-the-line and below-the-line promotion strategy (G15) ## Above-the-line promotion - Advertising in the media ### Categories of advertising: 1. **Informative advertising:** Increase awareness of the products for customers in making rational choice (e.g. classified advertisement is informative). 2. **Persuasive advertising:** To convince customers to purchase products by stressing the good of a particular brand or product (May involve exaggeration in the ads, Appeal to audiences' emotions, TV and Cinema are persuasive). 3. **Reassuring advertising:** Targets existing consumers in comforting them to continue buying and feeling right and proud of using the brand (Financial services promote to reassurance the money they invested is safe). ## Below-the-line promotion (G15) - Any forms of promotion that does not involve advertising ### Forms of below-the-line-promotion 1. **Sales promotion:** Short term incentives to encourage people to purchase. Boost sales in attracting new customers buying, reward loyal customers. Ir: Buy one give one offer, free gifts, cupons. 2. **Public relations:** increase sales by improving image of the business through communication with stakeholders. * **Press release:** Presenting important information to the media, could be through television programme. Ie: Managing Trainee batch hiring. * **Press conference:** Meeting with the media and present information in person, Q&A is allowed. * **Sponsorship:** Linking brands with events, particularly, sports related, for the brand name shown in public, ie: Standard charted marathon. * **Donations:** To charities and local community to improve the brands image. * **# PR is often a cheap method to promote.** 3. **Merchandising:** attempt to influence consumers at the point of sales. * **Product layout:** Product layout in store is planned. * **Display material:** Pamphlets, lighting, smell, window display. * **Stock:** Enough product on shelf (Empty shelves creates bad impression). 4. **Direct mailing:** Mailing of leaflets or letters to households. 5. **Direct selling:** Personal contact through telephone or so-called “cold / hot calling" * **Adv (+):** * Can discuss the features immediately. * Questions can be asked. * **Dis (-):** * Often Irritating. <start_of_image>* **Exhibitions and trade fairs:** Setting up booth to introduce face to face. * **Adv (+):** * Can try the products. * Breaking down into foreign markets. * Product demonstration with immediate Q&A. * Media attraction. * Face to face communication with business personnel. # Factors affecting method of promotion 1. **Cost:** Advertisement on television, national newspaper -> expensive. Small businesses may need to find other cost effective methods. 2. **Market type:** Mass market -> more likely to use the television / national newspaper, or specialist magazines. 3. **Product type:** Ie: luxury goods -> not likely to use BOGOF deals or loyalty cards -> prefer tv / cinema promotion. Supermarkets -> unlikely to use personal selling. 4. **Stage in product life cycle:** PR: often use at the launch of the product. Mature -> other methods used. 5. **Competitors' promotion:** Likely to copy other successful of promotion used by rivals. 6. **Legal factors:** Laws are designed to protect consumers affect by different style of promotion. Ie: Tobacco products may not be able to advertised on tv. # Branding (G18) - Branding involves giving a product a name, sign, symbol or logo, design or any features that allows consumers to instantly recognize the product and differentiate it from those of competitors. ## Importance of branding 1. **Added value:** Strong brand with desirable image that reflected the brand - gain competitive edge. 2. **Ability to charge premium prices:** Products with strong brand -> able to charge higher price than competitors as customer loyalty built up over a long period of time -> People are less likely to switch to cheaper brands if habit is developed. ## Branding and PED (G17) - The stronger the brand -> the more willingness of customers willing to buy despite the increase in price, meaning demand more price inelastic. # Ways to build a brand 1. **Exploiting unique selling point (USP):** Unique selling point -> make the business' products to differentiate from rivals' easier. Unique selling point may be developed by incorporating special designs in products / make promises to customers. 2. **Advertising:** Reminding customers that the brand is still out there. Spreads of word about a brand, more people familiar with the brand -> greater market power. 3. **Sponsorship:** Raise brand awareness, create preference and develop brand loyalty. Build brand positioning by linking the product to attractive images at events. 4. **Use of social media:** Social media -> help to increase trust in a business / brand. ## Digital marketing techniques (G16) - **Social media:** A survey of marketing leaders in 2017 showed they devoted around 10.5 per cent of their marketing budgets to social media a figure that continues to rise (see Figure 2). Using social media, such as Facebook and Twitter, to help build a brand is important but many businesses go further. An increasing number are developing their own social networks, which are linked to the main platforms. Some analysts suggest that, while Facebook is a good platform to use to find customers and raise brand awareness, most people who 'like' a brand page on Facebook never visit it again. In comparison, some companies create their own social networks. Virgin Atlantic is one example of a business that has developed its own social platform. - **Viral marketing:** Communication using the Internet has provided the opportunity for viral marketing. This involves any strategy that encourages people to pass on messages to others about a product or a business electronically. It creates the potential for rapid growth in the exposure of a message. Like a virus, these strategies exploit the process of rapid multiplication that results from people sending messages to family, friends and colleagues, who then send them on again. Not only can people send text relating to a marketing message, but they also can send images, such as photographs and video clips. One example of a successful viral marketing campaign was produced by Volvo. It featured a video clip of Jean-Claude Van Damme doing the splits between two Volvo trucks as they were being driven along a road. The clip was used to demonstrate the stability and precision of Volvo's steering system. The video had been seen over 76 million times at the time of writing. - **Emotional branding:** Emotional branding refers to the practice of using the emotions of a consumer to build a brand. It is designed to appeal to a customer's emotion, human need, or a perceived ambition. The aim of emotional marketing is to develop a relationship between a consumer and a brand. Businesses try to develop in their customers the emotional attachment that football supporters have with their chosen clubs. The overwhelming majority of football supporters all over the world could not switch their support to another club even when theirs is performing badly - the bond is just too strong. Emotional branding is also based on the idea that people's actions are driven more by emotion than reason. One example of a business that has used emotional branding effectively is Apple. Apple has found a way to connect with its customers and create with them a powerful bond. They achieved this by connecting with younger people in particular and creating a 'cool' product image. The Apple brand has associated itself with design innovation; the release of a new Apple product is an event and people will queue for hours. They have created an emotional attachment with their customers, one which is not defined by commerce. # 4. Place (Distribution) (G20-22) - All about getting the product to the right place at the right time. - Products must be made available at convenient locations at times when customers want to buy them, business need to make decisions about the way in which the products are physically distributed. ## Distribution channels (G20) ### FOUR STAGE - Producers - Wholesalers - Retailers - Consumers ### THREE STAGE - Producers - Retailers - Consumers ### TWO STAGE - Producers - Consumers **Figure 1 Distribution channels for consumer goods** (i) Zero - level channel (Producer -> Consumer) - No intermediaries - Traditional examples: Local baker -> Customer - Nowadays example: Growth of internet ### Reasons for using 'direct selling' (Zero-level) - The growth of internet -> Rapid rise of this channel. - Manufacturer wishes to keep complete control over marketing mix. - Goods are bought infrequently but in large quantity -> bulky and expensive to transport. - Product and service using: mail order from manufacturer, airline tickets, hotel accommodation sold by suppliers, famer's markets. - Examples of (Zero-level channel): Cathay Pacific, farmer. ### Drawbacks of Zero-level distribution - All storage and inventory costs have to be paid by the producer. - No retail outlets so consumer cannot see and try before they buy. - It may not be convenient for consumers. - No after-sales service offered by shops. - Expensive to deliver each item to consumers. (ii) One – level channel (Manufacturer -> Retailer -> Consumer) - One intermediaries - Producer -> Retailer -> Customer - Enables producer to directly control the supply and marketing of their product via limited and regulated outlet. - Positive effect for producer: Restrict competition, choice for consumer. ### Reasons for using ‘One – level channel' - Big retailers have great purchasing power (Able to arrange their own system for storage and distribution to individual stores). - Usually used for consumer goods -> goods are easily transported to the whole country but can also be used by agent. - Example: Holiday sold via travel agents. ### Requirements and characteristics of ‘One – level channel' - Incur cost of holding inventories (Retailers). - Display products and have after - sales service (Retailers) - Retailer should locate in place convenient to consumer. - Producers focus on production. ### Drawbacks of 'One - level channel' - The intermediary takes a profit mark-up, making the product more expensive to consumer. - Producers lose control over the marketing mix. - The outlets is not exclusive as retailers sell competitors' products. - Producers pass on delivery costs to retailers. (iii) Two - level channel (Manufacturer → Wholesaler → Retailer → Consumer) - Wholesaler: Buy in large quantities from different producers and have the facilities to keep large range of stock -> Then break this down into small bundles for delivery to retailers who then sell to customers. ### Advantages for Wholesaler - Producer can concrete on production and does not have to worry about dealing with many retailers. - Saves on storage and warehousing costs for producer. ### Drawbacks for Wholesaler - Wholesaler markets the product and this may not always be as effective as the business would like. - The wholesaler reduces the profit margin as they take their share. - Little opportunity to communicate with users (Producer). ### Advantages of 'Two-level channel' - Reduces producers' inventory costs. - Wholesalers pay for the costs of transport to retailers. - Wholesalers buy in large quantities and sell in small quantities. ### Disadvantages of 'Two-level channel' - Another intermediary takes a profit mark-up, making the product more expensive to consumer. - Producers lose further control over the marketing mix. - Slows down the distribution chain. # Factors that considered when choosing the appropriate distribution channel (G22) 1. **The nature of the product:** * Services: sold directly to consumers as no stock is held. * Fast moving consumer goods: ie toilet papers, crisps -> cannot be sold directly by manufacturers to consumers as goods could not be sold efficiently, wholesaler / retailers are used as they break bulk. * Business producing high quality / luxury goods -> choose outlets very carefully -> unlikely to use supermarkets, etc. * Products that need explanation / demonstration ie: technological products -> need to sold by expert salespeople or specialists 2. **Cost:** Cheapest method will normally be chosen as intermediaries take share of profit 3. **The market:** * Producers selling to mass markets -> likely to use intermediaries. * Businesses targeted in small markets -> likely to target their customers directly. 4. **Control:** Producers of luxury goods would not like products sold at less prestigious places and damage their image. # Online Distribution channel (E-commerce) (G21) ## Advantages of online distribution ### To customers: - Easy to compare price and reviews. - Can search out precisely what is wanted. - No crowds or congestion. - Shop at the most convenient time. - No geographical limits ### To businesses: - Lower start-up costs. - Lower processing costs. - Reach consumers globally. - Fast payment processing - Gather data for market research ## Digital distribution Examples - Netflix example (distribute DVD to customer's home -> Online distribute). - Music industry (Produced physical records -> Digital - ie: Spotify). - E books, computer games. - Education, health care (The coronavirus pandemic forced many businesses to increase their online provision -> speed up digital distribution - External factors that forces business change). - # Markets customer don't want a physical product -> Not work, ie: clothing (Cannot try). # Impact of internet on marketing activities - Trade globally 24 hours a day, seven days a week, relatively easily. - Use very targeted marketing; for example, using Google AdWords so that your advert only shows when some key words are used. - Monitor consumer behaviour very accurately; for example, tracking how visitors to be website move around the site. - Can charge different prices depends on where and when they search (Dynamic pricing used by hotels and airlines). - Use direct distribution from the producer to the consumer without the need for wholesaler and retailers. - (Food industry still need wholesaler -> Easily rotten). # Impact of internet on market research - Data -> The internet allows business to gather and analyse data on consumers far more than was ever possible in the past. - Website of a business -> can track what you look at, for how long and what action you then take. - Monitor whether this is the first time you visited and how you reached the site. - Through direct search / online advert.