3.3 – Marketing Mix

Marketing mix refers to the different elements involved in the marketing of a good or service- the 4 P’s- Product, Price, Promotion and Place.

Product

Product is the good or service being produced and sold in the market. This includes all the features of the product as well as its final packaging.

Types of products include: consumer goods, consumer services, producer goods, producer services.

What makes a successful product?

• It satisfies existing needs and wants of the customers
• It is able to stimulate new wants from the consumers
• Its design – performance, reliability, quality etc. should all be consistent with the product’s brand image
• It is distinctive from its competitors and stands out
• It is not too expensive to produce, and the price will be able to cover the costs

New Product Development: development of a new product by a business. The process:

1. Generate ideas: the firm brainstorms new product concepts, using customer suggestions, competitors’ products, employees’ ideas, sales department data and the information provided by the research and development department
2. Select the best ideas for further research: the firm decides which ideas to abandon and which to research further. If the product is too costly or may not sell well, it will be abandoned
3. Decide if the firm will be able to sell enough units for the product to be a success: this research includes looking into forecast sales, size of market share, cost-benefit analysis etc. for each product idea, undertaken by the marketing department
4. Develop a prototype: by making a prototype of the new product, the operations department can see how the product can be manufactured, any problems arising from it and how to fix them. Computer simulations are usually used to produce 3D prototypes on screen
5. Test launch: the developed product is sold to one section of the market to see how well it sells, before producing more, and to identify what changes need to be made to increase sales. Today a lot of digital products like apps and software run beta versions, which is basically a market test
6. Full launch of the product: the product is launched to the entire market

Advantages:

• Can create a Unique Selling Point (USP) by developing a new innovative product for the first time in the market. This USP can be used to charge a high price for the product as well as be used in advertising.
• Charge higher prices for new products (price skimming as explained later)
• Increase potential sales, revenue and profit
• Helps spreads risks because having more products mean that even if one fails, the other will keep generating a profit for the company

Disadvantages:

• Market research is expensive and time consuming
• Investment can be very expensive

Why is brand image important?

Brand image is an identity given to a product that differentiates it from competitors’ products.
Brand loyalty is the tendency of customers to keep buying the same brand continuously instead of switching over to competitors’ products.

• Consumers recognize the firm’s product more easily when looking at similar products- helps differentiate the company’s product from another.
• Their product can be charged higher than less well-known brands – if there is an established high brand image, then it is easier to charge high prices because customers will buy it nonetheless.
• Easier to launch new products into the market if the brand image is already established. Apple is one such company- their brand image is so reputed that new products that they launch now become an immediate success.

Why is packaging important?

• It protects the product
• It provide information about the product (its ingredients, price, manufacturing and expiry dates etc.)
• To help consumers recognize the product (the brand name and logo on the packaging will help identify what product it is)
• It keeps the product fresh

Product Life Cycle (PLC)

The product life cycle refers to the stages a product goes through from it’s introduction to it’s retirement in terms of sales.

At these different stages, the product will need different marketing decisions/strategies in terms of the 4Ps.

Extension strategies: marketing techniques used to extend the maturity stage of a product (to keep the product in the market):

• Finding new markets for the product
• Finding new uses for the product
• Redesigning the product or the packaging to improve its appeal to consumers
• Increasing advertising and other promotional activities

The effect on the PLC of a product of a successful extension strategy:

Price

Price is the amount of money producers are willing to sell or consumer are willing to buy the product for.

Different methods of pricing:

• Market skimming: Setting a high price for a new product that is unique or very different from other products on the market.

Advantages:

• • Profit earned is very high
  • Helps recover/compensate research and development costs

Disadvantage:

• • It may backfire if competitors produce similar products at a lower price

• Penetration pricing: Setting a very low price to attract customers to buy a new product

Advantages:

• • Attracts customers more quickly
  • Can increase market share quickly

Disadvantages:

• • Low revenue due to lower prices
  • Cannot recover development costs quickly

• Competitive pricing: Setting a price similar to that of competitors’ products which are already available in the market

Advantage:

• • Business can compete on other matters such as service and quality

Disadvantage:

• • Still need to find ways of competing to attract sales.

• Cost plus pricing: Setting price by adding a fixed amount to the cost of making the product

Advantages:

• • Quick and easy to work out the price
  • Makes sure that the price covers all of the costs

Disadvantage:

• • Price might be set higher than competitors or more than customers are willing to pay, which reduces sales and profits

• Loss leader pricing/Promotional pricing: Setting the price of a few products at below cost to attract customers into the shop in the hope that they will buy other products as well

Advantages:

• • Helps to sell off unwanted stock before it becomes out of date
  • A good way of increasing short term sales and market share

Disadvantage:

• • Revenue on each item is lower so profits may also be lower

Factors that affect what pricing method should be used:

• Is it a new or existing product?
  If it’s new, then price skimming or penetration pricing will be most suitable. If it’s an existing product, competitive pricing or promotional pricing will be appropriate.
• Is the product unique?
  If yes, then price skimming will be beneficial, otherwise competitive or promotional pricing.
• Is there a lot of competition in the market?
  If yes, competitive pricing will need to be used.
• Does the business have a well-known brand image?
  If yes, price skimming will be highly successful.
• What are the costs of producing and supplying the product?
  If there are high costs, costs plus pricing will be needed to cover the costs. If costs are low, market penetration and promotional pricing will be appropriate.
• What are the marketing objectives of the business?
  If the business objective is to quickly gain a market share and customer base, then penetration pricing could be used. If the objective is to simply maintain sales, competitive pricing will be appropriate.

Price Elasticity

The PED of a product refers to the responsiveness of the quantity demanded for it to changes in its price.

PED (of a product) =   % change in quantity demanded / % change in price

When the PED is >1, that is there is a higher % change in demand in response to a change in price, the PED is said to be elastic.
When the PED is <1, that is there is a lower % change in demand in response to a change in price, the PED is said to be inelastic.

Producers can calculate the PED of their product and take suitable action to make the product more profitable.

If the product is found to have an elastic demand, the producer can lower prices to increase profitability. The law of demand states that a fall in price increases the demand. And since it is an elastic product (change in demand is higher than change in price), the demand of the product will increase highly. The producers get more profit.
If the product is found to have an inelastic demand, the producer can raise prices to increase profitability. Since quantity demanded wouldn’t fall much as it is inelastic, the high prices will make way for higher revenue and thus higher profits.

For a detailed explanation about PED, click here

  

Place

Place refers to how the product is distributed from the producer to the final consumer. There are different distribution channels that a product can be sold through.

Distribution Channel	Explanation	Advantages	Disadvantages
Manufacturer to Consumer	The product is sold to the consumer straight from the manufacturer. A good example is a factory outlet where products directly arrive at their own shop from the factory and are sold to customers.	– All of the profit is earned by the producer – The producer controls all parts of the marketing mix – Quickest method of getting the product to the consumer	– Delivery costs may be high if there are customers over a wide area – All storage costs must be paid for by the producer – All promotional activities must be carried out and financed by the producer
Manufacturer to Retailer to Consumer	The manufacturer will sell its products to a retailer (who will have stocks of products from other manufacturers as well) who will then sell them to customers who visit the shop. For example, brands like Sony, Canon and Panasonic sell their products to various retailers.	– The cost of holding inventories of the product is paid by the retailer – The retailer will pay for advertising and other promotional activities – Retailers are more conveniently located for consumers	– The retailer takes some of the profit away from the producer – The producer loses some control of the marketing mix – The producer must pay for delivery of products to the retailers – Retailers usually sell competitors’ products as well
Manufacturer to Wholesaler to Retailer to Consumer	The manufacturer will sell large volumes of its products to a wholesaler (wholesalers will have stocks from different manufacturers). Retailer will buy small quantities of the product from the wholesaler and sell it to the consumers. One good example is the distribution of medicinal drugs.	– Wholesalers will advertise and promote the product to retailers – Wholesalers pay for transport and storage costs	– Another middleman is added so more profit is taken away from the producer – The producer loses even more control of the marketing mix
Manufacturer to Agent to Wholesaler to Retailer to Consumer	The manufacturer will sell their products to an agent who has specialized information about the market and will know the best wholesalers to sell them to. This is common when firms are exporting their products to a foreign country. They will need a knowledgeable agent to take care of the products’ distribution in another country	– The agent has specialised knowledge of the market	– Another middleman is added so even more profit is taken away from the producer

What affects place decisions?

• The type of product it is: if it’s sold to producers of other goods, distribution would either be direct (specialist machinery) or wholesaler (nuts, bolts, screws etc.).
• The technicality of the product: as lots of technical information needs to be passed to the customer, direct selling is usually preferred.
• How often the product is purchased: if the product is bought on a daily basis, it should be sold through retail stores that customers can easily access.
• The price of the product: if the products is an expensive, luxury good, it would only be sold through a few specialist, high-end outlets For example, luxury watches and jewellery.
• The durability of the product: if it’s an easily perishable product like fruits, it will need to be sold through a wide amount of retailers to be sold quickly.
• Location of customers: the products should be easily accessible by its customers. If customers are located over the world, e-commerce (explained below) will be required.
• Where competitors sell their product: in order to directly compete with competitors, the products need to be sold where competitors are selling too.

Promotion

Promotion: marketing activities used to communicate with customers and potential customers to inform and persuade them to buy a business’s products.

Aims of promotion:

• Inform customers about a new product
• Persuade customers to buy the product
• Create a brand image
• Increase sales and market share

Types of promotion

• Advertising: Paid-for communication with consumers which uses printed and visual media like television, radio, newspapers, magazines, billboards, flyers, cinema etc. This can be informative (create product awareness) or persuasive (persuade consumers to buy the product). The process of advertising:
  
• Sales Promotion: using techniques such as ‘buy one get one free’, occasional price reductions, free after-sales services, gifts, competitions, point-of–sale displays (a special display stand for a product in a shop), free samples etc. to encourage sales.
• Below-the-line promotion: promotion that is not paid for communication but uses incentives to encourage consumers to buy. Incentives include money-off coupons or vouchers, loyalty reward schemes, competitions and games with cash or other prizes.
• Personal selling: sales staff communicate directly with consumer to achieve a sale and form a long-term relationship between the firm and consumer.
• Direct mail: also known as mailshots, printed materials like flyers, newsletters and brochures which are sent directly to the addresses of customers.
• Sponsorship: payment by a business to have its name or products associated with a particular event. For example Emirates is Spanish football club Real Madrid’s jersey sponsor- Emirates pays the club to be its sponsor and gains a high customer awareness and brand image in return.

What affects promotional decisions?

• Stage of product on the PLC: different stages of the PLC will require different promotional strategies; see above.
• The nature of the product: If it’s a consumer good, a firm could use persuasive advertising and use billboards and TV commercials. Producer goods would have bulk-buy-discounts to encourage more sales. The kind of product it is can affect the type of advertising, the media of advertising and the method of sales promotion.
• The nature of the target market: a local market would only need small amounts of advertising while national markets will need TV and billboard advertising. If the product is sold to a mass market, extensive advertising would be needed. But niche market products such as water skis would only need advertising in special sports and lifestyle magazines.
• Cost-effectiveness: the amount of money put into promotion (out of the total marketing budget) should be not too much that it fails to bring in the sales revenue enough to cover those costs at least. Promotional activities are highly dependent on the budget.

Technology and the Marketing Mix

It is also worth noting that the internet/ e-commerce is now widely used to distribute products. E-Commerce is the use of the internet and other technologies used by businesses to market and sell goods and services to customers. Examples of e-commerce include online shopping, internet banking, online ticket-booking, online hotel reservations etc.

Websites like Amazon and e-Bay act as online retailers.
Online selling is favoured by producers because it is cheaper in the long-run and they can sell products to a larger customer base/ market. However there will be increased competition from lots of producers.
Consumers prefer online shopping because there are wider choices of detailed products that are also cheaper and they can buy things at their own convenience 24×7. However, there is no personal communication with the producer and online security issues may occur.

However, e-commerce means an entire new type of marketing strategy is also required – online promotions, new channel of distribution, new pricing strategies (since price competition in e-commerce is very high and demand is very price elastic). It requires a lot of money to set up – online websites, promotions, web developers and technicians to run and maintain the system etc.

The internet is also used for promotion and advertising of products in the form of paid social media ads and sponsors, pop-ups, email newsletters etc. It helps reach target customers, is relatively cheap and helps the firm respond to market changes quicker (since online ads can be easily altered/updated rather than billboards and TV ads). But it can alienate and chase customers away if they see it too frequently and find it annoying. There is also the risk of the adverts being publicised negatively if it has annoying or offensive content that customers quickly criticise (since content is more easily shareable online).

Notes submitted by Lintha

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