1.3 Marketing Mix and Strategy

THE MARKETING MIX - PRODUCT

• Product is the goods and services that the firms provide
• Product will be made up of core features and functions as well as additional aspects that can sway consumer behavior e.g. brand or guarantees
  • Goods are physical or tangible products e.g. a car or a television
  • Services are often non physical or intangible e.g. financial consultancy or teaching
• Businesses will normally have a range  of products in their portfolio

THE DESIGN MIX

• Design mix is the three fundamental elements of product or service design that must be taken into account during researcg and developement stage i.e. prior to launching onto the market 

DESIGN MIX:

• FUNCTION
• AETHETICS
• COST

DESIGN MIX:

Function

• The product or service has to be able to fulfil the primary purpose for which the consumer purchased it e.g. does the pen write? Is the car driveable?

• There may also be additional features and functions that add value to the basic product e.g. Is the oven self cleaning? Does the nail polish dry quickly?

Aesthetics

• The look and the feel of the product, how our senses respond to the product e.g. can a laptop be pleasing to the eye and feel quality when working on it?

Cost

• Whether or not it is possible to provide the good or service within a budget or at a cost point that will still allow the business to make a profit

DESIGN MIX

• CHANGES ARE MADE TO THE DESIGN MIX TO REFLECT SOCIAL TRENDS:

• Concern over resource depletion
  • The use of natural resources quicker than their rate of replenishment
    • Renewable Resources are ones that can be replenished e.g. trees can be used for wood to generate fuel but they can be replanted
    • Non - Renewable Resources are ones that are finite supplies and therefore will run out e.g. oil or natural gas

• Designing for waste minimisation, re-use and recycling E.G.

DESIGN MIX

• CHANGES ARE MADE TO THE DESIGN MIX TO REFLECT SOCIAL TRENDS:

• Ethical sourcing

• Buying materials from suppliers that are behaving in a morally correct manner

• Having an ethical procurement policy that believes in behaving in a morally correct manner towards suppliers

• Fair trade 

• Responsable and organic farming e.g. free range chickens and intensive farming of animals

• Sustainable sources

THE MARKETING MIX - PROMOTION

• Promotion is the activities designed to communicate with the market thereby increasing visibility and sales of a product
• Firms use different promotional strategies to make their products more widely known to other businesses and the general public e.g. branding, advertising, sponsorship

ELEMENTS OF THE PROMOTIONAL MIX

A promotional mix is an allocation of resources among 5 primary element:

1.Advertising,                                                                                                                                    2.Public Relations / Publicity,                                                                                                          3.Sales Promotion,                                                                                                                          4.Direct Marketing                                                                                                                              5.Personal Selling

PROMOTIONAL MIX

Advertising. Advertising is any paid form of media communication. This includes print ads in magazines, trade journals and newspapers, radio and TV announcements, Web-based visibility-building, and billboards. Advertising is a nonpersonal promotional activity because the seller has no direct contact with the potential customer during the communication process.

Sales Promotions. In-store demonstrations, displays, contests and price incentives (50% off, buy-one-get-one-free) are sales promotion techniques.

Public Relations. These activities promote a positive image, generate publicity and foster goodwill with the intent of increasing sales. Generating favorable media coverage, hosting special events and sponsoring charitable campaigns are examples of public relations.

Direct Marketing. A form of advertising aimed directly at target customers (usually in their homes or offices) that asks the receiver to take action, such as ordering a product, clipping a coupon, phoning a toll-free number or visiting a store. Catalogues, coupon mailers and letters are common forms of direct marketing.

Personal Selling. Face-to-face communication between buyer and seller.

PROMOTIONAL DECISIONS

• Promotional decisions are influenced by a number of factors including:
  • Market Segmentation and Positioning
  • Internal constraints e.g. the size of the promotional budget or the firm's ethical objects
  • External influences
  • Technology 
  • Competitors' actions
  • Social trends

PROMOTIONAL METHODS

• Merchandising is the way in which a firm promotes its product at Point Of Sale (POS). 

• Plenty of thought is put into the visual display of a product and the way that the product is presented within the selling location

BRANDING

• A promotional method that involves the creation of an identity for the business that distinguishes that firm and its product from other firms
• Branding can add value to a product allowing firms to charge higher prices
• Ultimately leading to brand loyalty whereby customers will continue to buy products from that firm
• Organisations spend enormous amounts of time and money branding their company and products

TYPES OF BRANDING

• Brand recognition comes in many forms including colour, logo, strap line and shape

• Branding is traditional in business associated with giving a unique recognisable characteristic to product or corporate image e.g. Toblerone's unique shape or Heinz's shade of green

• This is corporate branding - it attaches a perception and promise to the goods and services associated with that brand e.g. quality, customer service, corporate culture

OTHER TYPES OF BRAND INCLUDE:

• Personal - when a person brands themselves e.g. a sports personality or pop star 

• Geographical brand - when a region, city, county or country creates a brand that epitomises the people and the lifestyle of that country, often used in tourism

BENEFITS OF A STRONG BRAND

• Brand loyalty exists when customers keep returning to buy a recognised brand

• Branding is a promotional method that involves the creation of an identity for a business that distinguishes it and its products from competitors

THE BENEFITS OF A STRONG BRAND

• Added value
• Ability to charge premium prices
• Reduced price elasticity of demand

WAYS TO BUILD A BRAND 

• Unique selling point (USPs) / Differentiation
  • Creating a feature or characteristic within a brand that makes it stand out 
    • Logo or brand name e.g. Superdry
    • Different ingredient e.g. SuperJam is sweetened by natural grape juice not sugar
    • Product feature e.g. Ford's heated front windows

• Advertising
  • Creating awareness of and desire for a brand by communicating a clear brand massage
    • Use of humour e.g. compare the meerkat
    • Lifestyle/aspiration e.g. its not just food, it's M&S food
    • Persuasive language e.g. BA the World's favourite airline

WAYS TO BUILD A BRAND

• Sponsorship

• The Use Of Social Media

• Use of targeted newsfeeds e.g. Facebook newsfeeds based on searches on other webpages

• Viral marketing e.g. Evian rollerblading babies

SOCIAL TRENDS

• Changes have been made in branding and promotion to reflect social trends, this include:

• Viral Marketing

• Social Media

• Emotional Branding

THE MARKETING MIX - PRICE

• Price is the amount of money that the customer has to pay to recieve the good or service

• Firms use different pricing strategies to price their products, taking into account a number of factors such as market research, competitors' prices and the state of the economy

• Pricing strategies inclued:

• Cost Plus

• Price Skimming

• Penetration

• Predatory

• Competitive

• Physchological

COST PLUS 

• This is when a percentage mark up is added to the cost of producing a good or service to calculate the selling price

• Variable cost per unit + a proportion of total cost (Total Cost Per Unit) + a percentage mark-up

• The percentage mark up is how much the business wants to achieve as profit

Example

• VC per unit = £5.00

• TC per unit = £10.00

• Mark-up = 25%

• Selling price = (£5.00 + £10.00) x 1.25 = £18.75

PRICE SKIMMING

• Involves setting a high initial price for a new product in order to recoup cost 

• When a firm releases a new product it often charges a high price targeting a segment of the market known as 'early adopters'

• These are customers who must have the product as soon as it is launched and are prepared to pay high prices to get it

• Firms often base their initial promotional campaign around this idea, trying to create a 'must have' mentality amongst their target market

• Once this market has been 'skimmed off' the company will lower the price

PENETRATION PRICING

• Price penetration involves setting a low initial price for a new product in order to get a foothold in the market and gain market share

• May be a suitable pricing strategy for a product in a mass market

• A firm will release a new product at a low price with the aim of inicing people to buy

• The aim is to gain an early customer base

• Once the product has been launched and built up a customer base the firm may raise the price

• Likely to be used with a price elastic product

PREDATORY PRICING

• Predatory pricing is when prices are set low for a short period of time to force competitors out of the market

• Prices are then put back to where they previously where or even higher

• This strategy is used by dominant businesses, who can afford to make a loss in the short run, to force new entrants out of the market

COMPETITIVE PRICING

• Prices are based on the prices charged by competitors, maybe the same or slightly lower, firms will try to compete on other aspects of the marketing mix

PRICE LEADERS

- Firms that dominate a market with an existing product set the price and other firms in the market follow suit. 

- It is illegal for firms to get together to set prices in order to increase the total value of the market

PRICE TAKERS

- Smaller firms in the market who set their prices based on the market price. This may be the price set by the market leader or it might be in a very competitive market where firms sell similar products and customers find it hard to differentiate the product

PSYCHOLOGICAL PRICING

• Pyschological pricing occurs when a firm sets a price for the product in order to entice the customer into maing a purchases by making it sound cheaper than iit actually is.

• A common example of this is when a firm charges £9.99 rather than £10.00

FACTORS DETERMINING CHOICE OF PRICING STRATEGY

• Number of USPs/amount of differentiation
  • The more differentiated a product the greater the ability to charge higher prices as customers will pay more for the unique features of the product
  • A new product entering the market that is highly differentiated might use a strategy of price skimming

• Price elasticity of demand
  • If customers are sensitive to changes in price i.e. the product is price elastic then a business might keep prices similar to competitors

• Level of competition in the business enviroment
  • If the market is dominated by a few large firms businesses will follow a strategy of competitive pricing
  • Businesses may choose a strategy of predatory pricing in order to reduce the level of competition in the market

FACTORS DETERMINING CHOICE OF PRICING STRATEGY

• Strength of brand

• A strong brand adds value allowing a firm to charge premium prices

• Stage in the product life cycle

• When launched onto the market a firm may choose skimming or penetration depending upon the nature of the product and the marketing objective

• A technologically advanced product, for example, may use price skimming

• Costs and need to make a profit

• A business will need to set a price that covers costs in order to make a profit and may therefore use cost plus pricing

• The % mark up added will be determined by their profit objective

CHANGES IN PRICING TO REFLECT SOCIAL TRENDS

• Online sales have led to the frequent use of dynamic pricing

• Prices change frequently and quickly in response to changes in demand

• At times of peak demand prices will go up and vice versa

• Often used by businesses with set capacity e.g. an airline sp as the plane reaches full capacity prices will start to rise

• Dynamic pricing is made possible by technology that tracks demand and levels of interest

• Price comparison websites

• Easier for customers to compare prices thereby forcing businesses to be more competitive due to the ease with which customers can access comparative information

• Popular sites include GoCompare, Trivago and Sky Scanner

THE MARKETING MIX - PLACE

• Place defines both the physical location where a product is available as well as the distribution channel it has travelled through to get from the manufacturer to the customer

• Place can be a physical market where buyers and sellers meet face to face or a virtual location i.e. over the internet

• Increasingly firms are adopting a multi-channel approach to place

DISTRIBUTION

• Place is the term given to distribution

• It is the process of getting the firm's product to the market 

• Distribution channels are the routes to market that a product takes from producers to the final customer

• There are a number of distribution channels available to firms:

• Short Distribution Channels 

• Are when the producer sells either directly to the customer or through a retailer

• Long Distribution Channels

• Are when there are more than one intermediary (middle person) between the producer and the customer

TYPES OF DISTRIBUTION CHANNELS

• Producers can use direct selling whereby they sell directly to the final consumer

• Often, producers use retailers who sell products on to the general public

• Wholesalers buy large quantities of supplies from producers and sell them on in smaller quantities. For example, a corner shop might go to a wholesaler to buy their products

• Increasingly, firms are using e-commerce benefiting from the power of the internet to sell on their product 

• Multi-channel distribution is when a firm chooses to use a combination of methods

TYPES OF DISTRIBUTION CHANNELS

Distribution channel: the route to market that a product takes from producers to the final customer. There are a number of distribution channels available to firms:

TRADITIONAL (long) 1. Manufacturer 2. Wholesaler 3. Retailer 4. Consumer

MODERN (medium length) 1. Manufacturer 2. Retailer 3. Consumer

DIRECT (short) 1. Manufacturer 2. Consumer

Manufacturer/Producer: Organisations that take raw materials or components and process them into finished or semi processed good. e.g Housing and Car production

Wholesalers: Buy large quantities of supplies from producers and sell them on in smaller quantities. e.g. act as an intermediary between manufacturers and retailers and consumers

Retailer: An organisation that sells goods or services to the general public or end user. e.g. end of channel distribution and act as an intermediary between producers, wholesalers and the consumer

DISTRIBUTION DECISIONS

(Distribution decisions will be affected by a number of factors)

• Type of product
  • The charcteristics of the product need to be taken into account. For example Coca Cola do not ship their product to the UK from the USA. Instead they ship over the syrup and the actual product is then made in the UK using british water

• Market
  • It is important that the customers being targeted can access the product. High streets are accessible by public transport so that all customers can shop, not just those with cars

• Quantity and frequency
  • If only a few low cost items are being delivered it would not be cost effective to send them hundreds of miles. If a product is regularly being delivered then a firm might invest in a delivery system

DISTRIBUTION DECISIONS CONTINUED

• Geographical Location

• Cost

• Degree of control

SOCIAL TRENDS

Changes in distribution to reflect social trends include:

• Online Distribution

• The distribution of media content digitally as opposed to physically

• News, music, films etc. can all be accessed via the internet without a need to have a physical copy

• Changing from product to Sevice

• This has led to a business changing from being a physical, tangible product e.g. a magazine to a service e.g. a provider of downloadable material

THE MARKETING MIX - PRODUCT

• Product is the goods and services that the firm provides

• Product will be made up of core features and functions as well as additional aspects that can sway consumer behaviour e.g. brand and guarantees

• Businesses will normally have a range of products in their portfolio

PRODUCT PORTFOLIO ANALYSIS

• Product portfolio analysis looks at the range of products and brands that a firm has under its control

• A businesses product range is called its product portfolio

• This type of analysis can help a firm identify where every single one of its products is positioned in the market

PRODUCT LIFE CYCLE - (The stages that a product will go through in its lifetime)

• Product life cycle is a technique used to track the stages a product goes through during its life
• It tracks sales over time from the developement stage of a product through launch and until it is removed from the market
• Although a product life cycle relates to just one product business will want to have products at different stages
• For example, the revenue from a product that has reached maturity could be used to help develop a new product

PRODUCT LIFE CYCLE

1. Development - negative cash flow due to market research and research and development (R&D). No sales revenue before launch

2. Introduction - Production and Promotion costs can be high

3. Growth - sales revenue increases but as more units are sold production costs also increase. However, there will be economies of scale

4. Maturity - sales stabilise and the product acts as a cash cow

5. Decline - at some point the product will start to lose sales

6. Extension strategies - many products are adapted and given a new lease of life. this can be by:

• Changing the product e.g. new flavours or new features
• Increasing promotion or changing promotional methods e.g. repacking, targeting a new market, viral marketing

PRODUCT LIFE CYCLE - The stages that a product will go through in its lifetime

THE BOSTON MATRIX

• One technique used to analyse a businesses product portfolio is the Boston Matrix

• This considers each product within the portfolio in relation to its market share and the rate of market growth

• The matrix consists of 4 quadrants:

• High market share + low market growth

• High market share + high market growth

• Low market share + high market growth

• Low market share + low market growth

Each category or product is given a name

CASH COWS

• High market share in a low growth market

• These are established products

• The profits made through these products can be used to finance other products such as rising stars

• Firms will want to establish as many cash cows as possible

• With low markets growth there is likely to be less competition from new firms entering the market, therefore firms can spend less on advertising

• A product is called a cash cow because a firm can 'milk' the product to finance other areas of the business

RISING STARS

• High market share in a high growth market

• These products enjoy increasing sales revenue

• However, because the market is growing other firms are entering the market with similar products, there will be fierce competition between these firms

• There is usually heavy promotional spending and increased capital investment in order to increase capacity

• Cash flow can often be negative at first

• Rising stars are often funded from cash cows

• It is hoped that a star can go on to become a cash cow but many stars eventually become dogs

PROBLEM CHILDREN / QUESTION MARK

• Low market share in a high growth market

• With growth in the market a product can be very successful if there is enough demand

• However, some products are unsuccessful and the firm will have to decide whether to persevere with the product or discontinue it

• A problem child, or a question mark, will require a lot of attention, particularly in the form of marketing

• Nurturing the problem child to help it achieve its potential will cost the firm time and money

• If sales of the product can be increased there is the opportunity for increased profits in the future and the product can be turned into a cash cow

DOGS

• Low market share in a low growth market

• Dogs are unlikely to be kept on by a company

• With little growth in the market and little market share the company might see little scope for future profits

• This does not always mean that the company will discontinue the product, if there is a market, then some products can still be profitable

• However, when a firm looks at its range of products it is more likely to concentrate on cash cows and rising stars rather than dogs

TYPES OF MARKETS

NICHE- may give a business first mover advantage and allow them to charge a premium price

MASS- can give a business a high volume of sales but often at a low price

• Industrial markets are where businesses are selling to other businesses; business to business (B2B)

• The technical specification of the product and service provided by a sales person or account manager is likely to be more important than the brand

• Consumer markets are where businesses are selling to the public, business to consumer (B2C)

• The product and the price may be seen as of equal importance to the promotion but more important than place e.g. does it matter what channels the product went through to reach the consumer

CONSUMER BEHAVIOUR

• Business will want to understand consumer behaviour and build customer loyalty

• This can be achieved using a range of methods including:

• Customer service

• People are the employees involved in dealing with customers before, during and after a sale

• Customer service is extremely important in today's service sector in the UK

• Staff must be approprately trained, motivated and show good communication skills when dealing with customers

• People are an important aspect of all business, they are the ones interacting with the customer

CONSUMER BEHAVIOUR

• Physical Enviroment
  • The design and features of the actual place where a transaction takes place
  • This can directly influence the customers' shopping experience and therefore their level of satisfaction as well as willingness to return 

• Aspects of the physical enviroment might include:
  • Cleanliness
  • Design e.g. ease of movement around the premises or ability to find what you are looking for
  • Facilities
  • Ambience

• Loyalty Schemes
  • Reward cards e.g. collect points, collect stamps for a free product 
  • Saver schemes