Marketing Mix PDF

4.5 The seven Ps of the marketing mix Product A product is simply a physical good or intangible service provided by a business. Some marketers argue that product is the most important of the 7Ps in the marketing mix - after all, without a product, there is nothing to promote, distribute (place...

4.5 The seven Ps of the marketing mix Product A product is simply a physical good or intangible service provided by a business. Some marketers argue that product is the most important of the 7Ps in the marketing mix - after all, without a product, there is nothing to promote, distribute (place), or price. Consumer goods are products bought for personal consumption, rather than for business use. Examples include home appliances, furniture, food and drink, and house plants. By contrast, producer goods are products purchased by a business for its commercial use, rather than for private consumption, e.g., machinery, equipment, tools, fixtures and fittings, and office stationery. The product life cycle  The product life cycle The key stages of the product life cycle, as shown in the diagram above, are: Research and development (R&D) – investigating, designing and developing a product before it is launched on the market for sale. Launch – the product is introduced onto the market. Early adopters will buy the product, but most customers will not be aware of the new product, so advertising and promotion are vital in order to boost and sustain sales. A firm that is first on the market to launch a successful product is able to again what is known as a first mover advantage (FMA). For example, Pfizer, an American pharmaceutical giant, was able to enjoy competitive advantages, market share, and customer loyalty gained by being the first firm in an industry to successfully launch a vaccine for the coronavirus in late 2020. Growth – sales revenue increases as the product becomes known in the market and the business gains market share. Competitors are likely to enter the market at this stage. Maturity – sales revenue peak or plateau, as sales growth slows and the firms contend with their rivals. Sales become saturated, so the firm relies on product differentiation strategies and product extension strategies to prolong the life cycle of mature products. Firms might also strive to reposition their product to prolong sales. Decline – sales revenue continually decline, leading to the eventual withdrawal of the product. This is usually due to changing fashions, habits and tastes or due to technological advances and R&D which make the product obsolete (outdated).  The product life cycle-Extension strategies Extension strategies are marketing approaches used to lengthen the product life cycle. They are used as a product enters or is in the decline stage of its life cycle product because the market is saturated. Essentially, extending a mature product’s life cycle can be more financially rewarding than allowing it to enter the decline stage. Examples of interrelated extension strategies include: Reducing the price to encourage more customers to buy the product (assuming the price elasticity of demand for the product is elastic, i.e., responsive to changes in price). New promotional strategies to reinvigorate interest and purchases of the product. Product enhancements or modification in order to attract more customers, such as: special features, limited editions, repacking, repositioning strategies, or improved versions of the existing product to reinvigorate appeal. Expansion into new markets, such as exporting the product to international markets or entering new markets overseas Product differentiation strategies help to make a product stand out from its competitors in the market, such as establishing a clear unique selling point (USP). Having a USP means a business, product, or brand has a distinctive factor that makes it one-of-a-kind and stand out in a positive way from the competition. The product life cycle-Extension strategies  The product life cycle-Extension strategies Extension strategies are marketing approaches used to lengthen the product life cycle. They are used as a product enters or is in the decline stage of its life cycle product because the market is saturated. Essentially, extending a mature product’s life cycle can be more financially rewarding than allowing it to enter the decline stage. Examples of interrelated extension strategies include: Reducing the price to encourage more customers to buy the product (assuming the price elasticity of demand for the product is elastic, i.e., responsive to changes in price). New promotional strategies to reinvigorate interest and purchases of the product. Product enhancements or modification in order to attract more customers, such as: special features, limited editions, repacking, repositioning strategies, or improved versions of the existing product to reinvigorate appeal. Expansion into new markets, such as exporting the product to international markets or entering new markets overseas Product differentiation strategies help to make a product stand out from its competitors in the market, such as establishing a clear unique selling point (USP). Having a USP means a business, product, or brand has a distinctive factor that makes it one-of-a-kind and stand out in a positive way from the competition.  Aspects of branding (AO2) Branding is a marketing technique used to give a product or business a unique name or identity. Examples include: Amazon, Nestle, Lego, IKEA, Apple, McDonald’s, Nintendo, and Volkswagen. The role, or purpose, of branding includes: To create an original identity for a good, service or organization To differentiate a business and/or its products from those of rivals in the industry To build brand awareness (knowledge and recognition of a particular brand) To build brand loyalty (customer devotion to a particular brand) To create a particular or desired corporate image. A good brand name (good brand reputation) helps an organization to gain or sustain competitive advantages. Research has consistently shown that customer purchasing habits are affected by branding to a very large extent; and in many cases branding is more important to customers than prices. Aspects of branding (AO2)  Aspects of branding (AO2) Brand awareness is about the extent to which potential and existing customers know about, recognise and remember an individual brand. It is an important aspect of any product strategy because all businesses strive to gain new customers. Knowledge, awareness and familiarity of a particular brand can lead to increased sales. Brand development is part of a firm’s marketing strategy in communicating the value of a brand and what the brand stands for. It is ultimately about building sales by making more people attracted to the brand. Common steps in the development of a brand include: Conducting relevant market research Identification of the target market / market segments Creating and selecting an appropriate brand name, logo, and slogan Developing a distinctive or unique selling point (USP) for the brand Consideration of the brand in relation to the overall business strategy Creating a focused marketing mix and marketing strategy for the brand. Brand loyalty exists when customers repeatedly and habitually buy the same brand. A high degree of brand loyalty means that customers do not (like to) switch to a rival brand. It is the result of an organization’s successful brand development strategy. Ultimately, brand loyalty means that customers prefer a certain brand.  Amazon 299.3 Aspects of branding (AO2) Apple 297.5 Brand value is about the expected earning potential of a brand, i.e. its Google 281.4 forecast future sales revenue. For Microsoft 191.6 shareholders, this means how much the brand is worth. For example, Walmart 113.8 customers buy a Rolex for more than just the ability to tell the time. This can Samsung 99.7 be generated by make products more reliable and of better build quality. It ICBC 69.5 can also be created by marketing Verizon 67.4 activities which make the brand more recognizable and memorable. Tesla 66.2 TikTok/Douyin 65.7  The seven Ps of the marketing mix (2) - Price Price refers to the value of a good or service that is paid by the customer. Price will usually cover the costs of production, allowing the business to earn profit. The syllabus requires students to understand the appropriateness of the following nine pricing methods (AO3): 1. Cost-plus (mark-up) 2. Penetration 3. Loss leader 4. Predatory 5. Premium pricing 6. Dynamic pricing (HL only) 7. Competitive pricing (HL only) 8. Contribution pricing (HL only) 9. Price elasticity of demand (HL only)  Cost-plus pricing Cost-plus pricing (or mark-up pricing) adds a profit margin to the costs of production in order to determine the selling price of a good or service. This ensures that each unit sold adds contribution (see Unit 5.5) by ensuring the selling price is higher than the production costs. The difference between the price and the cost is called the mark-up (or the profit margin), which is usually expressed as a percentage figure, such as 50% above the cost per unit. For example, if a toy costs $10 per unit to make and the firm wanted to earn a 80% profit margin, then the selling price would be: $10 × 1.8 = $18. The mark-up can also be expressed in absolute terms, such as $7.50 contribution per unit above the average cost of output. This would mean the toy would be priced at: $10 + $7.50 = $17.50. Cost-plus pricing  Penetration pricing Penetration pricing is setting a low price in order to enter an industry. It allows the firm to compete against existing firms and to gain market share. Quite often, penetration pricing takes the form of a heavily advertised discounted price offer in order to attract a large number of customers in a short space of time. The low price can also allow the firm create brand awareness and brand recognition. As the firm establishes itself and gains brand recognition, the price can be raised.  Loss leader pricing Loss leader pricing consist of pricing a product below its cost of production so as to attract customers to also purchase other items (with their higher profit margins) at the same time. For example, a grocery store might reduce the price of a particular product from $2.99 to just $0.99 in order to attract customers to buy other products too.  Predatory pricing Predatory pricing is a pricing method that involves charging a low price, sometimes even below the cost, so as to damage the sales of rivals. It is also used by established market leaders to restrict new entrants, thereby limiting competition.It can be a risky strategy to use as many governments impose anti-competitive laws, so firms can be fined for using predatory pricing with the intent to restrict competition. In some cases, predatory pricing can lead to a price war, whereby existing firms repeatedly cut prices in an attempt to destroy the sales of their rivals.  Premium pricing Premium pricing involves a business permanently setting a high price for its products because of the associated image, reputation, or status associated with its high-quality products. For example, Apple and Ferrari use premium pricing (their products are generally more expensive than those from similar competitors). Example include: Premium economy air travel (more expensive than an economy class ticket but with premium add-ons such as extra leg room and baggage allowance). Tailor-made clothing - Tailors will charge premium prices for bespoke products, such as shirts, suits, wedding dresses, and shoes, due to the uniqueness of the items and to create an impression of luxury and better quality. Organic produce and drinks - An organic version of a fruit, vegetable, or coffee will have a premium price than regular versions of these products as consumer may feel that the higher price means they are getting a better product.  Dynamic pricing Dynamic pricing is a pricing method that strives to determine the optimum price at different periods of time. Prices are based on the ability and willingness of customers to pay at a specific time for a good or service. Dynamic pricing (often referred to as surge pricing or time-based pricing) is flexible and based on real-time data. Hence, this pricing method involves the use of flexible prices to reflect changing market conditions. Dynamic pricing  Competitive pricing Competitive pricing (often called competition-based pricing) is a pricing method where businesses set their prices based on what rivals are charging. Hence, competitive pricing is one of the simplest pricing methods available to businesses. It is suitable in highly competitive markets where products are homogeneous or have very similar attributes and functions.  Contribution pricing Contribution pricing is a pricing method that involves setting the price greater than the per unit variable costs of production to ensure that a positive contribution is made towards the firm's fixed costs. For example, if a firm has variable costs per unit of $5 and a selling price of $9, then each unit sold earns a contribution of $4 towards the payment of fixed costs. Knowledge of contribution can enable businesses to make more informed decisions about prices. For example, suppose a hot dog retailer has unit variable costs of $4 and fixed costs of $600 per week. This means that if the selling price is $10 per hotdog: Unit contribution = $10 – $4 = $6 Break-even = Fixed costs / Unit contribution = $600 / $6 = 100 units (hotdogs). If the selling price is $12, then the following applies: Unit contribution = $12 – $4 = $8 Break-even = Fixed costs / Unit contribution = $600 / $8 = 75 units (hotdogs). Contribution pricing Cost-plus pricing (SL and HL) Contribution pricing (HL only) Focus Focuses on a firm's total costs (the sum of fixed and Focuses on the contribution each sale makes towards variable costs) when setting the price of a product covering a firm's fixed costs in order to generate a profit Calculation Add all costs associated with producing or delivering Calculate the variable costs of producing the product, the product, then add a desired profit to determine then subtract these from the selling price to find the the price. contribution per unit. Purpose To ensure that a firm covers all its costs and makes a To ensure that each sale contributes enough to cover (use) predetermined profit. variable costs and towards covering fixed costs so as to generate a profit.  Price elasticity of demand (HL only) (AO3) Price elasticity of demand (PED) measures the extent to which the demand for a product changes due to a change in its price. For example, the demand for fresh flowers during Valentine’s Day and Mothers’ Day is less price-sensitive than during off-peak periods. Hence, florists know they are able to charge higher prices during these times of the year. Knowledge of PED is not only about being able to set higher prices to customers who can afford to pay. Statistically, restaurants and cinemas throughout the world face their quietest trading day of the week on a Tuesday, which is why many of these businesses offer discounted prices to diners and cinema-goers on Tuesdays. If a change in the price of a good or service causes a relatively small change in the quantity demanded, then the demand for the product is price inelastic.  Price elasticity of demand (HL only) (AO3) Factors that affect the value of PED Substitution - This is the key determinant of price elasticity. In general, the greater the number and availability of substitutes there are for a product, the greater its PED will be. Income - The proportion of income spent on a product also affects the value of its PED. If the price of a box of household matches were to double, it would discourage very few buyers because the actual change in price is a tiny proportion of their overall income. However, if the price of a motorcycle were to rise by 50% from $10,000 to $15,000, this would have a huge impact on quantity demanded; even though the percentage increase in the price of motorcycles is much lower than that of household matches. Therefore, the greater the proportion of income that the price represents, the higher the value of PED tends to be Time - The period of time affects the value of PED since people’s habits and traditions, which have been established over a long period of time, may be slow to change. With time, people can adjust to any permanent price changes and may seek alternatives if prices are increased. Parents with children in private education are unlikely to withdraw their offsprings from school as this could be very disruptive to their learning. Drivers of motor vehicles are unlikely to immediately get rid of their vehicles simply because of fuel price hikes. Given time however, both parents and drivers may seek alternatives. Hence, the shorter the time period in question, the less price elastic demand tends to be.  Price elasticity of demand (HL only) (AO3) Factors that affect the value of PED Durability - Perishable products may need to be replaced, even if prices have risen. However, if the price of a consumer durable is on the rise, customers may try to make their existing possessions last a little longer. Items such as furniture, mobile phones, and motor vehicles can all be upgraded at a later date. Hence, in general, the more durable a product is, the greater its PED tends to be. Fashion, Addictions, Habits, and Tastes - Where a product is habit forming (such as tobacco) or highly fashionable, the PED tends to be low, i.e., relatively price inelastic. People who are seriously devoted to a hobby (be it sports, music or otherwise) are willing to spend a huge amount of money, so are less sensitive to changes in price. Necessity - The degree of necessity or urgency also affects PED. Products that are seen as ‘essential’ (such as fuel and food) tend to be relatively price inelastic because people need these products so will continue to purchase them even if prices rise. The demand for business-class air travel is less responsive to changes in price than the demand for economy-class air travel. Demand for textbooks and stationery is less price-sensitive for students and their parents than the demand for the cinema or Uber taxi rides.  Promotion Promotion refers to the various marketing processes used to inform customers about a product and persuading them to purchase the product. It is about the communication methods used to raise customer awareness and interest in a product. For example, consider which of the following statements seems more attractive to you as a potential consumer: "Buy 1, get 1 free" or "Buy 2 and get 50% off" Manufacturers that claim their disinfectants "kill 99% of all germs" or "only 1% of germs survive" Soft drink producers that claim "low sugar" or "not entirely sugar free"? Promotion is about getting the right message to the right customers at the right time in the right place or way. The objectives of promotion in the marketing mix include: Persuasion - Creating customer interest, and encouraging demand for the product. Information - Generating brand awareness and providing customers with product information. Differentiation - Differentiating the product from rival products. Devotion - Creating brand loyalty and developing the brand name.  Above the line promotion Above the line (ATL) promotion refers to paid-for marketing communications through the use of independent mass media. Examples include the use of advertisements on television, radio, cinemas, billboards, magazines and national newspapers. Hence, control and responsibility of ATL promotion is passed to another organization (such as commercial radio stations or magazine publishers). The main advantage of using ATL promotion is the potential to reach a very large audience of potential customers. For example, the Super Bowl in the US is watched by over 100 million people, with ticket prices going up to around $7,000. However, ATL promotion is very expensive and is largely untargeted (so many adverts are irrelevant to viewers). To advertise during the Super Bowl costs millions of dollars.  Above the line promotion Above the line (ATL) promotion refers to paid-for marketing communications through the use of independent mass media. Examples include the use of advertisements on television, radio, cinemas, billboards, magazines and national newspapers. Hence, control and responsibility of ATL promotion is passed to another organization (such as commercial radio stations or magazine publishers). The main advantage of using ATL promotion is the potential to reach a very large audience of potential customers. For example, the Super Bowl in the US is watched by over 100 million people, with ticket prices going up to around $7,000. However, ATL promotion is very expensive and is largely untargeted (so many adverts are irrelevant to viewers). To advertise during the Super Bowl costs millions of dollars. Typical platforms used by businesses include: (1) television, (2) radio, (3) cinema, (4) magazines, (5) newspapers, (6) outdoor advertising, and (7) celebrity endorsements.  Below the line (BTL) promotion Below the line (BTL) promotion refers to marketing activities which the organization has direct control over. It is aimed directly at a targeted audience instead of a general audience (as is the case for ATL promotional strategies). Unlike above the line (ATL) strategies, BTL promotional strategies do not use mass media platforms such as television, newspapers, radio, and magazines. Common platforms used by businesses include: (1) direct mail, (2) public relations (PR), (3) sponsorship deals, (4) point of sale promotion, (5) email, (6) customer loyalty programmes, (7) merchandising, (8) exhibitions (trade fairs), and (9) sales promotions.  Through the line promotion Through the line promotion is an aspect of promotion that relies on the use of combining both above the line and below the line promotional strategies. For example, a movie production company might choose to supplement television advertisements with trailers of the latest blockbuster film with point of sales promotions at the cinema as well as selling merchandise related to the movie. Developments in Internet technologies have created many opportunities for marketers, such as in-app adverts on online gaming platforms. Cookies and other digital algorithms are used to provide consumers with highly personalized adverts and marketing messages to target their specific needs or wants based on their online activities. Hence, through the line (TTL) promotion uses an integrated approach to reach as many customers in as many ways as possible.  Social media marketing Digital technology has revolutionised the way in which businesses use promotional strategies, such as the growing use of social media marketing (SMM). Social media marketing is the use of online content that users can upload to a website using a suitable medium (such as a blog, podcast, video, image, slideshow, infographic, or online newsletter). Examples of such platforms include: Facebook , Twitter , Instagram, LinkedIn, and Pinterest. SMM enables users to use social media platforms to directly promote their goods and services. It is often considered as a ‘one to many’ method of online communication, with the user owning the content (even if others can respond with ‘likes’ or adding their personal comments). The aim of this is to engage customers and ultimately for them to interact with the product or brand.  Place Place (also referred to as distribution) in the marketing mix refers to the plans and processes of getting the right products (goods and services) to the right customers in the most convenient and most cost-effective way at the right time. Distribution is a vital for all businesses - there is no point in having a great product if customers are unable to purchase it. The more widely available a product is, the more likely it will sell.  People Goods are physical products, such as handbags, cars, and laptops. Services are intangible products, such as education, haircuts, and train rides. Traditionally, the marketing of physical goods (the 4Ps covered in Unit 4.5) varies from the marketing of intangible services (which have an addition 3 Ps). The marketing mix for goods involves the traditional marketing mix (product, price, promotion, and place). The marketing mix for services, developed by Bernard H. Booms and Mary J. Bitner (1981), includes three additional elements to the marketing mix: people, process, and physical evidence. People – the importance of employee-customer relationships in the marketing of a service. Processes – the importance of delivery processes in the marketing of a service. Physical evidence – the importance of tangible physical evidence in the marketing of a service.  Processes Process in the extended marketing mix is about the way in which a service is provided or delivered to customers. It refers to the operational aspects of a service, such as the management of booking and queueing systems at a cinema, theme park, sports arena or a restaurant. It also includes processes for managing customer feedback and complaints, processes for identifying customer needs and requirements, and processes for taking orders. The systems and processes set up by the organization affect the execution of the services provided for its customers. Processes include: Payment systems, e.g. credit card, smartcards, store loyalty cards, smart payment system such as Apple Pay, online bank transfers, and instalment (hire purchase) payment options Website design, navigation and functionality Value-added services, such as complimentary car parking and operational support Customer services, such as refunds/returns policy, systems for dealing with customer complaints Delivery services, such as free delivery of items purchased in-store Environmental sustainability practices, such as using opt-in receipts (where printed receipts are only given to customers if they request one - otherwise they can be emailed to customers instead) After-sales care, including insurance, product warranties and guarantees Queueing systems and waiting times.  Physical evidence Physical evidence (or the physical environment) in the extended marketing mix refers to the tangible aspects of a service, such as the physical appearance or tangible aspects of a restaurant, coffee shop, retail outlet, school or hotel. In the hotel industry, the appearance of the lobby, the variety and prices of products on the restaurant menu, staff uniforms and the linen used for the bedsheets in the guest rooms are all examples of physical evidence in the extended marketing mix for services. Physical evidence has a direct impact on customers’ perceptions of a business and the quality of the services it provides. Physical evidence in the extended marketing mix includes: Décor Atmosphere / ambience Store layout Cleanliness Presentation of staff, such as uniforms and business attire