CHAPTER 3- Marketing Mix PDF

CHAPTER 3- MARKETING MIX Product Product refers to anything that can be offered to a market for attention, use, or consumption that might satisfy a want or need. It includes any tangible item, services, ideas, concepts, or a person. Product classification...

CHAPTER 3- MARKETING MIX Product Product refers to anything that can be offered to a market for attention, use, or consumption that might satisfy a want or need. It includes any tangible item, services, ideas, concepts, or a person. Product classification 1) Tangible and intangible A product can classified as tangible and intangible. Tangible product is a physical product, such as mobile handset, cars and the TV set. Intangible product is a product that cannot be touched or felt such software, ideas, and services. 2) Consumer goods and industrial goods product Industrial goods are consumed as raw materials or inputs by businesses to produce other products, for example, wheat to produce flour. Consumer products are consumed by final consumers for their own interests (individuals and households), and not for commercial purposes like in the industrial goods product case. Consumer goods generally can be classified into four types, namely consumer goods, commercial goods, specialty goods, and goods Unsought. This classification is based on buying habits of consumers, as evidenced by the following three aspects (effort) of consumers to reach a purchase decision, the attributes that consumers use in a purchase, and the frequency of purchase. i) Convenience Goods Convenience products are goods that have generally high frequency of purchase (often purchased), take the time soon, and require only minimal effort (very small) in comparison and purchase. Examples include cigarettes, soap, toothpaste, batteries, candy, letters and news. Convenience products themselves can be further grouped into three categories, namely, staples, impulse goods and goods emergencies. ii) Shopping Goods Shopping of goods are goods that in the process of selection and purchase by consumers the find different alternatives that are available. Comparison criteria include price, quality, and model of each item. Examples are household equipment, clothing and furniture. iii) Specialty Goods Specialist shops are goods which have characteristics and / or identification of a single brand in which a group of consumers are willing to make a special effort to buy it. General types of specialized products branded luxury products and a specific model, such as Lamborghini cars, the clothes designed by famous designers iv) iv)Unsought Goods Unsouqht goods are goods that are not known to consumers or are already known, but are not generally thought of buying it. Product Life Cycle With the change in marketing environment, intense competition, customer’s preferences and tastes, product life also changes. Product also passes through four product phases: 1. Introduction 2. Growth 3. Maturity 4. Decline Introduction: in this stage product is relatively undifferentiated; sales are low; price generally high; distribution is selective; increasing brand awareness is the aim of promotion; almost no profit and competitor on site. The strategy is to establish market. Growth: in this stage there may be increase in sales growth; profit begins to rise; there is differentiation in form of new product features; distribution becomes intense; there is improvement in quality of product; price can be maintained or reduced; competitors begin enter into the product production as to seize the opportunities. The strategy is market penetration. Maturity: in this stage, there is product differentiation and modification; competition is intense; price reduction is likely; likely there are new distribution channels; there is emphasis on building brand loyalty; profit goes down ; market saturation is reached; the strategy is differentiation , diversification and to maintain market share and extend the product life. Decline: in this stage, the approach is to reduce cost and to harvest it; profits diminish; the option may include to discontinue the product or to find new use for it. New product development New product development is a strategy for a firm growth by offering modified or new product to a market segment. The process of new product development has various steps: 1. Idea generation looking for all possible ideas that may help to develop a new product. The development of a product starts with the concept, then coming up with ideas from different avenues. SWOT analysis is one of the best ways to start with. This involves analyzing company’s strength, weakness, opportunities and threats to tell its position and find a direction that is in line with the business strategy. Other methods that focus on the customer’s needs and wants can be used. They include  Under-taking market research  Listening to suggestions from your target audience – including feedback on your current products’ strengths and weaknesses.  Encouraging suggestions from employees and partners  Looking at your competitor’s successes and failures 2. Idea screening is the step of eliminating unsound ideas prior to devoting resources to them. This is a crucial step to ensure that unsuitable ideas are rejected as soon as possible. A group or a committee need to consider the idea objectively. Specific screening such as market potential, ROI and affordability are set at this stage. The need to be analysed carefully to avoid product failure. 3. Concept development and testing- the step of developing the marketing and engineering details. At this stage a small group of true customer base that convert the idea is used. The idea need to be tested by the customers to see their reaction. The idea should be a concept with enough in depth information that the customer can visualize. Do the customers understand the concept? Do they want or need it? This stage gives you a chance to develop the concept further, considering customer feedback. 4. Business analysis - is the step estimating likely selling price, sales volume, break-even point and profitability. Once the concept has been tested and finalized, a business case needs to be put together to assess whether the new product/service will be profitable. This should include a detailed marketing strategy, highlighting the target market, product positioning and the marketing mix that will be used. The analysis needs to include whether there is a demand for the product, a full appraisal of the costs, competition and identification of a break-even point. 5. Product development - If the new product is approved, it will be passed to the technical and marketing development stage. A prototype or a limited production model will be created, to investigate exact design & specifications and any manufacturing methods, and also give something tangible for consumer testing, for feedback on specifics like look, feel and packaging for example. 6. Test Marketing is the step of producing a physical prototype , making adjustment where necessary and determining customer acceptance. Test marketing is the process of introducing the prototype product following the proposed marketing plan as whole rather than individual elements.This process is required to validate the whole concept and is used for further refinement of all elements, from product to marketing message. 7. Commercialization is the step of launching the product for market - When the concept has been developed and tested, final decisions need to be made to move the product to its launch into the market. Pricing and marketing plans need to be finalised and the sales teams and distribution briefed, so that the product and company is ready for the final stage. 8. Launch - Most new products are introduced with introductory pricing, in which final prices are nailed down after consumers have ‘gotten in’. In this final stage, you’ll gauge overall value relevant to cost of goods sold, making sure internal costs aren’t overshadowing new product profits. You continuously differentiate consumer needs as your products age, forecast profits and improve delivery process whether physical, or digital, products are being perpetuated. Pricing Price is the sum of the values that consumers exchange for the benefits of having or using the product or services. Types of cost Types of costs are; Fixed costs the type of costs which occur at the establishment of the organization and relatively not replenished routinely. The fixed costs are not affected with the production or sales level. Variable costs that type of costs which occur with each extra unit produce or sale. Variable costs are directly related with the level of production. Total costs are the sum of the fixed and variable costs. Factors affecting pricing decision These are the factors that affect pricing decision: Internal factors of the firm such as marketing objectives; marketing mix strategy; cost ; organizational consideration ; External factors such as the market ; demand; competition, and environment. Pricing Objectives Profit Maximization: Setting prices to maximize profit margins. This could involve pricing products at a level where marginal revenue equals marginal cost. Sales Maximization: Focusing on increasing sales volume rather than profit margins. This might involve setting lower prices to capture a larger market share. Market Share Growth: Setting competitive prices to gain a larger portion of the market relative to competitors. Survival: Setting prices to cover costs and ensure the business remains viable in the short term, particularly in competitive or turbulent markets. Product Quality Leadership: Pricing products higher to reflect superior quality and positioning the brand as a premium option in the market. Price Skimming: Setting initially high prices to capitalize on early adopters willing to pay a premium, then gradually lowering prices to attract more price-sensitive customers. Penetration Pricing: Setting low prices to quickly gain market share, often used when entering a new market or launching a new product. Pricing Policies Cost-Based Pricing: Setting prices based on the cost of production, including materials, labor, and overheads, with a markup to ensure profitability. Competition-Based Pricing: Setting prices based on competitors' prices, aiming to match, beat, or differentiate based on perceived value. Value-Based Pricing: Setting prices based on the perceived value of the product or service to the customer, regardless of production costs or competitor prices. Dynamic Pricing: Adjusting prices in real-time based on changes in demand, competitor pricing, or other market factors. Psychological Pricing: Setting prices that end in 9 or 99 to create the perception of a lower price and increase Pricing Methods Pricing methods are strategies used by businesses to determine the prices of their products or services. Here are some common pricing methods:  1. Cost-Plus Pricing: This method involves adding a markup to the cost of production to determine the selling price. The markup is typically a percentage of the cost. 2. Competitive Pricing: With this approach, businesses set their prices based on what their competitors are charging for similar products or services. The aim is to stay competitive within the market. 3. Value-Based Pricing: In value-based pricing, the price is set based on the perceived value of the product or service to the customer. This method focuses on the benefits received rather than the costs incurred. 4. Penetration Pricing: This strategy involves setting a low initial price for a new product or service to quickly gain market share. The price may be increased later once the product has established itself. 5. Price Skimming: Price skimming involves setting a high initial price for a new product and then gradually lowering the price over time. This strategy is often used to target early adopters and recoup development costs. 6. Psychological Pricing: Psychological pricing takes advantage of the way consumers perceive prices. For example, pricing a product at $9.99 instead of $10 can make it seem more affordable. 7. Dynamic Pricing: With dynamic pricing, prices are adjusted in real-time based on factors such as demand, time of day, or customer demographics. This method is commonly used in industries like hospitality and e-commerce. 8. Bundle Pricing: Bundle pricing involves offering several products or services together for a lower price than if they were purchased separately. This can encourage customers to buy more and increase overall sales. 9. Promotional Pricing: Promotional pricing involves temporarily reducing prices to stimulate sales. This can include discounts, coupons, or special offers. Distribution Place , which is also known as the distribution channels, is a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user. The distribution channels can be  Direct channel ( from producer to a consumer)   Indirect channel ( from producer through intermediaries to a consumer) Through distribution producer’s (manufacture’s) product can pass to a wholesaler, then to a retailer before finally reaching a consumer. Or it may go first to a retailer finally to reach a consumer. In these cases, there are intermediaries between the producer and the finally consumer. Intermediaries and their functions But the producer can sell directly to the final consumer. In this case, there is no an intermediary. The intermediaries may be short or long. It is long, for instance, when the product passes through an agent, a wholesaler, retailer, and short when it only passes through a retailer to reach a consumer. Intermediaries, such as retailers and wholesalers, tend to add efficiency because they can do specialized tasks better than the consumer or the manufacturer. Intermediaries add efficiency by 1. Breaking bulk – the final consumer buys only the small quantity; quantities are 56 gradually broken down to reach a consumer 2. Intermediaries move goods efficiently 3. Consolidation and distribution – the final consumer can access a product easily as in the supermarket 4. Carrying inventory less costly to the holding of inventory 5. Financing – wholesaler and retailer may negotiate for lower prices Determining on need and the nature of distribution channel involves making decisions on location of the consumer, cost of distribution, type of product and the strategy of distribution. Promotion Promotion refers to communicating with the public in an attempt to influence them toward buying a product. Promotion is also coordination of individual methods of promotions such as advertising, personal selling and sales promotion. Promotion Mix Promotion mix consists of these elements: 1. Advertising 2. Personal selling 3. Sales promotion 4. Public relations A. Advertising Is any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor. Advertisement is important for standardized products; products aimed at large markets; products that have easily communicated features; products low in price; and products sold through independent channel members and/or are new products. Use of advertising is for promoting products or organizations; stimulating primary and selective demand; offsetting competitor advertising; making salespersons more effective; increasing use of product; reminding and reinforcing customers; and, reducing sales fluctuations. Advantages of Advertising i) It can be used to build up long-term image for a product (such as Coca-Cola, Omo, Tusker, Blue-Band ads, e.t.c.) ii) It triggers off quick sales. iii) It can be used to influence, persuade, and remind customers about the existence of the brands. iv) Wider coverage of the market. Disadvantages of Advertising i) Advertising is impersonal and cannot be as directly persuasive as the company sales force. ii) Advertising can only in most instances involve a one-way communication with the audience, and the audience may not feel that it has to pay attention or respond, i.e. no immediate response. iii) It can be very costly, i.e. T.V. advertising. iv) It is very expressive. That is, it allows the company to dramatize its products through the artful use of visuals, print, sound, and colour..  B. Personal selling Personal selling refers to personal presentation by the firm’s sales force for the purpose of making sales and building customer relationship Personal selling is a persuasive communication between a representative of a firm and one or more potential buyer for a sale. It is a face to face communication with an aim to sell a product. Advantages i) The consumers usually feel greater need to listen and respond, even if the response is a polite “no thank you.” ii) Encourages flexibility in operations. iii) Products are tailor-made for the right customer group. iv) The sale person can read the reactions of the customer through face-to-face presentation or demonstration. v) Encourages efficiency in dealing with the target market. vi) Enhances relationship selling, increased profitability and increased customer loyalty. vii) Freedom to adjust a message to satisfy customers informational needs, dynamic; viii) Enabling marketers to focus on most promising leads; ix) It gives more information; two way flow of information, interactivity; x) Discover the strengths and weaknesses of new products and pass this information on to the marketing department. xi) Its minus is high cost. Disadvantages i) It involves high costs of employing, training, remunerating and even development of the sales force. ii) It is limited by company’s inability to get the right sales force to carry out the job (Due to this many retailers have abandoned the use of sales force and shifted to the self-service stores). C. Sales promotion Sales promotion refers to the set of marketing activities or tactics designed to stimulate the demand for a product or service temporarily. These promotions are typically aimed at enticing potential customers to make a purchase or to buy more of a particular product or service. Sales promotions can take various forms, including: The sales management process 1. Sales plan formulation – setting the objectives; organizing sales force 2. Sales plan implementation – sales force recruitment, selection, training, motivation and compensation 3. Evaluation and control of the sales force, including quantitative and behavioral assessment Sales plan formulation 1. Setting objectives – this is specifying what to achieve 2. Organizing the sales force – taking into consideration various organizing structure : geographical structure, customer structure, product structure, Steps in personal selling process Prospecting and qualifying: this identify potential customers and screening them 1. Pre-approach: learning about a customer before making a call 2. Approach: knowing how to meet the buyer 3. Presentation: showing the product benefits 4. Handling objections: overcoming buyer objections 5. Closing: ask the buyer for an order 6. Follow-up: ensuring customer satisfaction and repeat business Types of sales force structure 1. Territorial : in this case the sales force can have exclusive territory to sell the product line of the firm 2. Product : the sales force is structured along the product lines 3. Customer : the sales force is structured along the customers’ type 4. Complex : it can combine territory, product and customer. Sales promotion is defined as the short-term incentives, to encourage the purchase or sale of a product or service.  D. Public Relations Its building good relations with the firm’s various publics and corporate clients by publicity and interacting in favorable moods and media, as well as handling unfavorable rumors, stories and events. To achieve its objectives, public relations make use of methods that include the press conference, press release, event sponsorships, publicity event, letter to editor, media tours, articles Steps to develop public relations strategy, to 1. Define objectives for publicity and media plan 2. Define the specific, measurable, actionable, realistic and time-bound objectives 3. Determine the target audience 4. Develop a schedule for public relations campaign 5. Develop plan of “attack” 6. Put to measure to track the results of the campaign Direct marketing can also be understood as part of promotion mix. Direct marketing is communications with targeted individual consumer to obtain an immediate response and development of long-term relationship. Direct marketing involves direct communications with targeted individual consumers to achieve an immediate response and develop long lasting customer relationships. Direct marketing can be done through E-mail, Direct mail, Telephone, Catalogues, and Fax. That is, forms of Direct marketing includes face to face marketing; telemarketing; direct mail marketing; Catalog marketing; direct response television marketing and kiosk marketing. Developing effective communication To facilitate the objectives of the promotion, effective communication needs to be developed. To develop effective communication, Identify the target audience Define objective Design a message Determine message contents Determine message structure Choose Media Decide on personal communication channel Decide on non-personal communication channel Select the message source. Promotion Mix Strategies There are push strategy and pull strategy  Push strategy is a promotion strategy in which the seller pushes the product through distribution channels to final consumer.  Pull strategy is in which the seller directly hit the final consumer to induce them to buy the product. Consumer will demand the product from channel members, if the pull strategy effect successfully. Factors affecting the Promotional Mix The markets must decide what combinations of advertising, personal selling and other promotional tools will make the most effective promotional program form the country. The following factors should be taken into consideration when deciding the promotional mix: 1 Funds available Capital resources – a company with more funds will make more effective use of advertising than an enterprise without ample funds. 2 Nature of the market i.Geographical scope – Small or local markets can be reached through personal selling whereas for a larger market, the marketers will put more emphasis on advertising. ii.Type of customers – Whether the company aims at industrial users, consumers or middlemen. What is the target market? iii.Concentration of the markets – The fewer the buyers the more effective is personal selling. More and widely dispersed buyers will be reached more effectively using advertising. 3 The Nature of the Product Consumer products vs industrial products require different advertising strategies. Convenience goods that are widely distributed would be advertised through mass media since they do not need any special explanations. For the custom-made products, one would use personal selling to reach out to the consumers. Industrial goods also use a lot of personal selling.