Business Management Unit 4 Chapter 4.5 PDF

4.5 The Seven P’s of the Marketing Mix Mtro. Ian M. Guillen Ortega  This subtopic will investigate the main elements of the marketing mix. These include the seven Ps: The main elements...

4.5 The Seven P’s of the Marketing Mix Mtro. Ian M. Guillen Ortega  This subtopic will investigate the main elements of the marketing mix. These include the seven Ps: The main elements product, price, promotion, place, processes, people and physical evidence. Product  A product is the result of a production process where resources are used to create a good or service to satisfy a need or a want. Product Goods are tangible, meaning they have physical characteristics and can be measured, while services are intangible, meaning they cannot be touched or described by physical characteristics. Product life cycle is a model that helps businesses make decisions about a product’s marketing mix. The model shows a product’s typical trend in sales over time. As products move through the stages, a business may want to change the marketing mix to achieve different objectives. The product life cycle is split into five stages: Research and development (R&D) The research and development stage covers all activities that take place before a product is released to the market. There are no sales of the product during this time. The length of this stage will vary depending on the industry and the product. A new pharmaceutical drug would usually need years of testing before it could be sold to customers. On the other hand, fast fashion brands such as H&M or Zara have a short research and development stage so that they can keep up with current fashion trends.  R&D Some promotion may be possible during the research and development stage. It is normal for cinemas, for example, to promote films months before they are released. This can help to build a ‘buzz’ about the film.  The introduction stage of the product life cycle is when the product is released to the market. Consumers can buy the product if they wish. Initial sales are likely to be low, but they will be Introducti growing. on The business must make consumers aware that the product exists. Promotion should focus on the unique selling point (USP) of the product. The business needs to carefully consider the pricing strategies and the distribution channel.  The growth stage refers to a period during which the increases in product sales are accelerating. The percentage change in sales is increasing. If a business wants to continue the growth in this phase, it will need to find new target markets. Growth This will lead to an adaptation of the marketing mix. Pricing strategies may need to be changed. Distribution channels may need to be expanded, perhaps to mass-market retailers. Finally, promotional messages will be adapted, with the aim of raising awareness in the new target markets.  The maturity stage is a time of high and steady sales revenue. Sales will still be growing, but perhaps at a slower and slower rate. The market may be crowded, or saturated, with competition. Maturity Marketing objectives during the maturity phase will focus on building customer loyalty. During maturity, marketing budgets may be cut as businesses are no longer attempting to increase sales from new customers. The combination of high sales revenues and falling promotional costs lead to high profits.  The decline stage of the product life cycle is a period of falling sales and/or loss of market share. The product may have lost its unique selling point in a highly competitive market. Technology may be outdated. Customers’ needs may have changed in such a way that the product no longer satisfies them. Decline Products may still be profitable during decline. Prices may be reduced to target price-conscious consumers. This message can be reinforced by shifting distribution channels to discount retailers. When products begin to make a loss, where revenues are lower than costs of production, they are finally withdrawn from the market. Extension strategies Extension strategies are methods that businesses use to lengthen the maturity stage of the product life cycle. Using extension strategies can be a cost-effective way of extending the sales of a product. It is far easier and less costly to renew an established brand than to launch a new one. Existing brands are likely to have a loyal customer base and established distribution channels. If the right modifications can be made to a product, sales decline can be stopped, and profitability can continue. Product: Branding A brand is a name, symbol or design that is used to identify a product or company. A strong brand can give a product a character with which consumers can identify. The following four concepts are important aspects of branding: Brand awareness Describes the degree to which consumers recognize a product by its name and special characteristics. A strong brand will be instantly recognizable by consumers. Brand development The process of creating and making a new strong brand. A strong brand will allow a company to launch secondary products with relative ease. ​Brand loyalty When customers continue to buy a particular brand, even when alternative products or companies exist. When there is brand loyalty, customers require very little persuasion to try or to purchase alternative new products. Brand value The value of the intellectual property associated with the brand, can also mean the additional value that consumers assign to the product because of its strong brand. Perfect Example  Don’t judge a book by its cover.’ The packaging of a product may not always reflect the quality of the contents accurately. Product However, both businesses and consumers pay a lot of attention to packaging. packagin The packaging is often all that a consumer sees of g a product before buying it. Most customers will make a buying decision based largely on the packaging if they do not know the product. The visual impact of packaging can help a product stand out from its competitors  Protect the product. Many products have a long and bumpy ride from the factory to the customer. Products may change hands repeatedly. They may also be transported in multiple ways and subjected to different Product temperature conditions. Packaging needs to be robust enough to protect the product from packagin damage until it reaches, and is used by, the customer. Communicate information. Packaging g usually includes a lot of information that is needed by the customer. The business and product name will certainly be included on the packaging, informing the customer what the product is and who produced it. In addition, the packaging will include information on the ingredients or materials, the price and any health and safety information.  Promote the product and communicate its unique selling point. Packaging is a way for the business to communicate with customers about the unique selling point(s) of the product. Through text and Product typography, colour, materials and shape, the business can let customers know about the packagin qualities of the product contained in the Make the product easy to use. Packaging packaging. g can make a product easier to use through its shape and materials. Sometimes the packaging is part of the product itself, contributing to its purpose. An example of this is a pizza box that converts into plates. Product packaging – Which is the best for you? Price  Setting the right price for a product is difficult. If the price is set too high, customers Price: may not be willing to pay it. The business will lose sales. Pricing If the price is set too low, the methods revenues may not be high enough to cover costs of production. A business needs to carry out good market research to find the right price for its products.  a method of pricing a product or service whereby all total direct costs and some allocation of indirect costs are added together, along with some mark-up – either a fixed or percentage amount – to determine the sales price to the customers. For example, suppose a builder estimates that it will cost 50 USD to build an extension on a client’s home. Cost-plus Using cost-plus pricing, the builder may decide to add 20% to cover their profit. Therefore, the price they (markup) charge to the customer will be 60 USD. The advantage of this pricing method is that it is very pricing straightforward. It is also likely, if the customer accepts the price, that the profit will be achieved. However, the strategy is considered very inward facing. It takes no account of competition or the customer’s ability to pay, meaning that potential customers may be put off by prices that are too high  A pricing method that businesses use to attract customers to a new product or service. When introducing a new product or service, the business often sets a low price initially to encourage consumers to try out the new product. Penetrati Penetration pricing is a short-term strategy. on Once loyalty has been established, prices will be pricing increased so that normal profit margins can be achieved. One of the main advantages of penetration pricing is that the business may secure a large market share early on. A disadvantage is that there may be low profit margins. If prices are increased later, consumers may be unhappy.  Strategy is to price a product lower than its production cost, in order to attract customers who can then be sold other, more expensive products. For instance, a popular or commonly bought ‘seasonal feast’ item could be sold at a loss by a grocery store, in the knowledge that the customers will also buy other items, Loss which can be sold at a higher price. leader This strategy can usually be implemented only by large businesses that can afford to set a price on a product that results in a loss for that product. pricing The most important advantage of loss leader pricing is that businesses can increase their sales revenue. However this method only works when businesses are selling a large variety of products.  Describes a situation where a company sells a product or service at such a low price that other businesses cannot compete and – as a result – are forced to exit the market. Once rivals have left the market, the remaining company can enjoy a monopoly position and can raise prices accordingly. Predator ILLEGAL IN MANY COUNTRIES *DUMPING* y pricing The main advantage for the business using predatory pricing is that it is able to take up a dominant position in the market. However, this pricing method is impossible to maintain over a longer period and, as mentioned, is considered illegal in many places.  Pricing strategy that involves keeping the price of one of the products or services high in order to create a positive perception among customers. Because the prices are high, customers may believe that these products or services have a higher value than competing products. Premium The advantage of this strategy is that the business may be able to earn higher profits, as pricing long as the costs of the higher quality products are kept under control. The disadvantage of this strategy is that some consumers will not be willing to pay the higher prices. Some sales will be lost.  Also called price discrimination, means to sell the same product to different customers at different prices. Dynamic pricing can be used under the following circumstances: Dynamic price based on a group of customers. predict, using an algorithm or statistics, where or in which demographic segment Dynamic customers are willing and able to pay more. Dynamic price based on time. pricing changing the price of goods and services for one or more days per month. Or it might involve changing the price throughout a single day. One advantage of dynamic pricing is its flexibility, which allows the business to achieve higher profit and sales. However, customers who pay the higher prices may feel as though the business is taking advantage of them.  Involves a business setting the price at the same level as its competitors. This pricing method is based on the idea that competitors have studied the price of the products and services, so any company selling a similar Competiti product charges the same price. ve pricing Charging the same price, especially for new businesses in the market, can indicate to customers that the quality of the product offered is similar to the quality of products sold at the same price by other businesses. However, one of the limitations of this method is that businesses using competitive methods might have another cost structure and, as a result, the pricing method can reduce the profit. Contribution pricing The direct cost (variable) of production for each product is calculated and the price is then set at a higher level. The difference between the direct costs (variable) per unit and the price is called the contribution Each product sold will contribute a proportion to the payment of the company’s overall fixed costs. For instance, suppose a business is selling its product at 10 USD and direct costs are 3 USD per unit. The contribution is 7 USD for each unit. This means that for every single unit that is sold, 7 USD contributes to pay the fixed costs of production. If the total fixed costs of a business are 700 USD, the company would need to sell 100 units to cover the fixed costs. This pricing method allows the business to set a price for each product, based on the level of contribution, bringing more flexibility when it is compared with the cost-plus pricing method, where the markup is the same for all the products. On the other hand, it could be difficult to classify costs as direct or indirect. Pricing Methods Price elasticity of demand A tool that helps to analyze how the quantity demanded is modified by changes in the price is the price elasticity of demand (PED). The PED can be calculated as it follows: Promotion  Promotion is the use of advertising, sponsorships, sales promotions and personal selling to inform and persuade customers to buy a product. Promotion requires effective Promotion communication with actual and potential customers from the business about the product. Effective promotion will increase product and brand awareness, as well as image.  Above the line promotion Above the line promotion (ATL) refers to the various forms of promotion, such as television and radio advertising, print advertising in newspapers and magazines, and so on, that are aimed at mass or large audiences. Above the line promotion is generally not targeted.  Television offers advertisers the chance to make visually stimulating commercials that reach national audiences. Businesses have used specialization to better aim advertising at their specific target market on television. Televisio n The cost of buying advertising space depends on the channel, the time slot and the expected audience. advertisi ng Overall, however, television is by far the most expensive form of above the line promotion and is less effective than it once was. There are now more effective and less expensive channels for reaching target markets, via digital advertising and social media. Businesses globally are now directing more of their promotion spending to digital channels.  Although the readership of newspapers has been in long-term decline, newspapers are still an attractive medium for some businesses. One reason for this is market segmentation. Newspap er Newspaper readers tend to segment by socio- economic group, which helps advertisers target the advertisi desired group easily. ng In addition, many newspapers are moving their papers online. They know that consumers increasingly access news on their laptops or mobile phones.  Magazines offer highly segmented, defined target audiences. People buy magazines that match their personal interests, which allows for psychographic segmentation. Magazine As a result, magazines can be an efficient medium for advertisers. advertisi Another advantage of magazines is that they are relatively durable. ng People may keep magazines for several weeks, or they may pass them on to their friends. Advertisements in magazines may be viewed multiple times by different people. his increases their potential reach. Glossy colour images also improve impact.  Radio can be useful for local promotions for sole traders and other small businesses. However, because of its audio rather Radio than visual format, the impact of radio advertising tends to be low. advertisi Radio also typically reaches people while ng they are doing other things, such as housework or driving. This means they may be distracted while listening, which reduces the effectiveness of radio advertising.  Shopping centres, advertising hoardings (billboards) and bus sides are common types of Outdoor outdoor advertising. advertisi ng Local businesses can advertise on a single billboard; larger companies may fund national billboard campaigns. ATL– Which mix media could you use? Television? Television? Radio? Radio? Newspapers? Newspapers? Magazines? Magazines? Outdoor? Outdoor?  Below the line promotion Below the line promotion (BTL) refers to any promotion that is not carried out in the mass media. Generally, below the line promotion has fewer costs, so may be more attractive to smaller businesses.  Direct marketing involves targeted marketing messages sent to a customer’s email address, phone or home. This type of promotion has become more sophisticated in recent years. Direct User tracking on websites generates large amounts of data about potential customers, who can then be targeted with promotions while browsing the internet. marketin You may have experienced this type of promotion, for example if an g advertisement for a product you are interested in, or have viewed in the past, mysteriously appears on a website that you visit. You may also receive emails for products based on your browsing history. Technology allows all this to be done at a very low cost. The drawback, however, is that many customers find this kind of promotion intrusive and may reject the offer. Sales promotion A sales promotion covers all the special offers you might see in a store. Examples include: buy one, get one free 20% off half price offers free samples competitions point-of-sale displays The most likely place you will find this type of promotion is in supermarkets. A sales promotion can be a very effective way of attracting price-sensitive consumers and boosting short-term sales. Supermarkets know this, and as a result may charge producers for the goods to be displayed in prime locations, so their promotions can be seen.  Loyalty cards offer customers rewards for continuing to shop at the same business. They are a key source of revenue for many businesses. Loyalty Loyal customers are less price sensitive and may cards return to a business for many years. Airlines, for example, encourage loyalty by allowing customers to earn ‘air miles’, which can be turned into free flights or upgrades. Many retailers run points schemes. As customers shop, they earn points that in turn can be used to pay for future purchases.  A customer relationship does not end with the purchase of a product. Businesses can increase customer satisfaction by offering services such as free home delivery, installations, warranties, advice and repairs. After- These services achieve two aims. sales Firstly, if customers value them, they will be willing to pay service more for the product. The selling price can be increased. Secondly, the business can help fix any problem that arises. This should support the business’s reputation with customers.  Businesses will want to improve their image by managing their public relations. This may include supporting charitable causes and maintaining good links with the local community. For example, local businesses may support a school’s work Public experience program or allow the school to conduct visits for its classes. relations In addition, the company needs to protect its reputation when handling a crisis. In such situations, it will aim to maintain a proactive and transparent approach. Frequent communication with interested parties is crucial during these times because negative coverage in the media can be detrimental to both sales and share prices.  Merchandising refers to the branded items that businesses produce to create more brand awareness. Common items include: pens headed paper Merchandisi hats ng t-shirts key rings If you attend a university fair, for example, you will receive information about the university and why you should apply there. You may also be given some of the items above to make sure the university sticks in your mind.  Exhibitions and trade fairs are excellent places to see many business products all in one place. Exhibitio These may be businesses that are not otherwise found close to each other, which makes it considerably easier for the ns and consumer to investigate products. trade For example, it is common for caravan and holiday trailer businesses to attend trade fairs fairs. This way, customers can inspect these expensive items at their leisure, and compare the products they like with ease. BTL– Which mix media could you use? Direct Marketing? Direct Marketing? Sales promotion? Sales promotion? Loyalty Cards? Loyalty Cards? After-sales service? After-sales service? Public Relations Public Relations Merchandising Merchandising Exhibitions & Trade Exhibitions & Trade  Through the line promotion Through the line promotion (TTL) refers to the combination of BTL and ATL activities; in other words, it combines mass advertising and direct marketing activities. By using both channels, a company can gain exposure for a brand or product as well as achieving sales  Digital marketing is an example of TTL advertising as a digital media campaign and is usually aimed at both building a brand and generating conversions. Also, due to developments in technology, it is becoming easier to customize advertisements Digital according to user profiles in order to make them more relevant and attractive to potential customers. marketin In the same way, it is easier to reach an audience g interested in a product or service through users, since the actual technology allows businesses to reach similar users without the need for them to have had contact with the business, brand or product. Without a doubt, digital marketing has been the trend for at least a decade. As well as providing a broad reach, it gives businesses greater and better control because it is measurable and can be stopped and reactivated with a single click. 360-degree marketing 360-degree marketing is an approach to advertising that allows the business to reach the target market in a holistic way. These days, many marketing campaigns entail 360-degree marketing ​as they combine elements of ATL and BTL to transmit, complement or reinforce the brand image and to generate sales.  Through the line promotion has all the benefits of ATL and BTL promotion. In addition: It allows businesses to reach as broad or defined an Through audience as they want. the line It allows businesses to customize the message according to the profile of their target market. promotio n It makes it possible to increase brand exposure and, at the same time, generate sales. TTL promotion offers businesses a complete approach to customers. And as technology changes, new possibilities for ways in which businesses can interact with customers arise.  Social Media There are many social media platforms, including Instagram, Facebook and TikTok, that are used by people all over the world. Businesses can use these platforms to communicate with potential customers. It is important for businesses to understand how these platforms work, what content to create for the platforms, and which platforms are the best for reaching their target market.  Businesses can pay to advertise on social media platforms that are used by their target market. Social media platforms use the data provided by the users of the platform to show personalized advertisements. Paid The users may appreciate having advertisements advertisem targeted at their interests. ents A business advertising in this way benefits because its advertisements are more likely to be seen by its target market. Some consumers, however, are uncomfortable seeing advertisements related to their activity on social media.  Businesses can share content generated by other users of social media, for example when a user mentions the business or its product. Content A business can, for example, ‘retweet’ a comment posted voluntarily by a user. generate d by Consumers may see this as more trustworthy than the business creating users content about a product itself. But it can also be difficult for a business to make use of unpredictable content created by social media users.  The most direct way of communication with the consumer is a conversation. One-to- Businesses can use social media to deliver customer service through private one messaging. message Consumers may appreciate this personalized service. s However, if the business is not able to respond and engage with consumers quickly, some loyal customers could be lost.  Influencers are people who can persuade a lot of other people. Influencers on social media Influence platforms are able to attract many rs users and can affect the users’ opinions about products. Followers of influencers trust their judgement and many businesses hire influencers to increase the sales of their products. Advantag Differentiation at low cost es of using More knowledge about customers social media Improvement of customer service for promotio Easy way to measure the performance n of businesses  Create your own business case Our role game …  Roles Sales: Your objective is to reach Marketing: Product: your sales goals by having Your objective is to have Your objective is to start the product as soon as you enough Brand Awareness to selling the product with the can in the market, and with achieve your yearly goals. highest quality and the that, you will achieve your On the other hand, you most innovative features. yearly goals. Some would like to have an But to do that you will need Customers are constantly unlimited budget to time and resources such as telling you that your promote the product and budget, people and R&D product is old and they reach all kinds of audiences. have better options with Finance: Customer Service: competitors. Your objective is to help the Sales The complaints about your current team accelerate the timings to have products are high all the time, you the product within the market to know that a new product is needed increase cash flow that will help you but you don’t agree with the product to achieve your targets. On the team, the feedback that you are other hand, you are the one that receiving is that some of the could limit Marketing advertising, features are ok but you will fight to with the last product we launched add two features to the product that they spent a lot and they never are very expensive, but disruptive demonstrated an increase in sales. for the market. Place  Place is related to how products are delivered from the producer to the customers, and it involves various distribution channels. Choosing the correct distribution channel is part of the decisions of the marketing mix. Place Essentially, producers have two options: to sell directly to the consumer or to use an intermediary. An intermediary is a person or a wholesaler business that acts as a ‘go- a retailer between’ in transactions. an agent There are three types of intermediary that a business might use to help with the distribution process: Wholesalers Wholesalers specialize in purchasing large quantities of stock from producers, storing the stock, and then selling it on to retailers and – sometimes – consumers. Wholesalers provide an important link between producers and smaller retailers. They act as a central delivery and collection point, so they can significantly reduce distribution costs. However, it is important to know that wholesalers charge a fee for their service to producers. Retailers Retailers purchase goods from wholesalers and producers, then sell them to the final consumer. Retailers come in all shapes and sizes, such as: convenience stores supermarkets online retailers department stores vending machines high street shops and chain stores Consumers often choose a specific retailer because the location or range of products makes it convenient for them to shop there. Producers often select retailers to distribute their goods based on how easy it is for their target market to visit and make a purchase. Agents An agent is a person who acts on behalf of another person or group. An agent may be used to aid any of the distribution channels explained above. Agents promote and sell products on behalf of producers. The key difference between an agent and a retailer is that the agent does not own the product it is selling. Instead, the agent promotes the product and charges a commission, which is a percentage of money on every sale it arranges. Distribution channels Place - examples A Wholesaler? Main source of revenue A Retailer? through: An Agent? a Wholesaler? A Retailer? An Agent? People  People are an additional element of the marketing mix related to service businesses or to the service part of other businesses, such as after-sales service. Successful customer-oriented businesses are able to build long-term relationships with their clients. People People are at the heart of these relationships. All contact between the employees of a business and customers can support or damage a brand. A business’s recruitment and selection process can help to ensure good customer relationships are maintained. The importance of cultural differences in customer service Customer service, and relationships between staff and customers, depend heavily on the cultures involved. The way one person interprets behavior in others is determined by their values, assumptions and cultural traditions. This is not just limited to language differences but includes differences in manners and how readily customers voice concerns or disapproval. There are stark differences in the way that people express emotions. For instance, some cultures are more direct in their communications while others are more tentative or polite. This can make communications challenging for customer service providers. Staff will need proper training to deal with angry customers, for example.  There are other cultural differences relating to customer The service expectations and relationships between people. These include: importan ce of the importance of small talk cultural the need for special treatment for longer established customers differenc the need for direct communication es in the importance of hierarchy and respect for positions of authority customer punctuality and timeliness service the importance of rules and systems  It is important to recognize that, in order to provide The good customer service, customers should be treated as unique. importan ce of This means that it is important for businesses to recognise that each customer is special and has their own personality, preferences and culture. cultural differenc However, this is not always easy for a business to achieve and, as a consequence, a more global es in perspective is often taken in regard to customer services. customer A key aspect of good customer service is to select good staff and make sure that they receive service induction training that prepares them for negotiating complex interactions with customers. Processes  Process is an element of the services marketing mix. It describes all the activities needed in the interaction between the customer and the business. Every customer interaction with the business should be considered carefully. This is because problems with processes can ruin the customer experience with an excellent product. Processes include: Process placing and paying for orders delivery systems customer feedback after-sales service Placing and paying for orders When consumers pay for a product, they want security and speed. All reputable businesses offer their customers payment security. This involves, for example, customer authentication, digital signatures and biometric data storage.  Delivery systems Efficient delivery systems can be developed into a USP. A recent trend in grocery delivery is Q-commerce, which stands for quick commerce. Q-commerce businesses offer on-demand delivery, often focused on groceries. Delivery times are very short – usually around 30 minutes or less – which is very convenient for consumers who might not be able to plan around delivery times. Customer feedback Customer feedback is information that customers provide to a business about their products. Customer feedback allows businesses to maintain and improve their service levels. Businesses can create processes to gather feedback.  After-sales service After-sales service refers to the maintenance, help and information a business provides to the customer after they have purchased a product. After-sales service is important for both goods and services.  Processes – examples Placing and paying for Placing and paying for Placing and paying for others? others? others? Delivery Systems? Delivery Systems? Delivery Systems? Customer Feedback? Customer Feedback? Customer Feedback? After-sales service? After-sales service? After-sales service? Physical evidence  Physical evidence is the final element of the marketing mix, related to services. Physical evidence refers to all the elements that the customer sees, smells, hears and touches when interacting with a business. Evidence These sensory experiences can change customers’ perceptions of the service. For example, imagine going to a cinema where the staff look scruffy, the theatre floor is covered with litter and the toilets are not clean. Even though these things have nothing to do with the quality of the film you are watching, they are likely to affect your experience.  On the other hand, positive physical evidence can be a unique selling point. Hotels will attempt to provide comfortable, clean rooms and common spaces in their services. Restaurants also pay a lot of attention to physical Evidence evidence, as well as to the quality of their food. s Businesses that provide medical services will design their spaces to convey the impression of professionalism and cleanliness. Your school has also spent time and money on creating a positive learning environment for you. The physical spaces of these businesses are just as important as the other qualities of their services. An example Appropriate marketing mixes Businesses should adapt the marketing mix to meet the needs of the target market and the marketing objectives. Adjusting The marketing mix of a particular product will depend on some of the following factors: the whether or not the business is providing a good or marketin service g mix to the type of business organisation and the resources available for creating and implementing a specific achieve marketing mix the characteristics of the market in which the marketin business operates and the possibilities for it to grow and increase market share g the characteristics of the target market objective s the legal and cultural aspects of the country in which the business is located The relationship between product life cycle and marketing mix The relationship between product life cycle and marketing mix The relationship between product life cycle and marketing mix The relationship between product life cycle and the product portfolio Products classified as question marks (or problem children) in the BCG matrix could be in the introduction stage of the product life cycle. Products classified as stars in the BCG matrix could be in the growth stage of the product life cycle. Products classified as cash cows in the BCG matrix could be in the maturity stage of the product life cycle. Products classified as dogs in the BCG matrix could be in the decline stage of the product life cycle. The relationship between product life cycle, investment, profit and cash flow