3.3.4 Making marketing decisions: using the marketing mix

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Elements of the marketing mix (7Ps)

Price
Product
Place
Promotion
Physical evidence
People
Process

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How is the marketing mix used

Can be used by new business to develop ideas about how + where to market a product/service. If marketing activity to be effective, each ingredient needds to be considered + co-ordinated.

For each market situation, managers trying to set ideal combination of ingredients based on balance between cost + effectiveness. 

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Influences on the marketing mix

Focus will vary according to market the firm is operating in. Careful market research should reveal attitudes + tastes of target market. 

Important issue is whether goods are:
 - regular purchases
 - impulse purchases eg focuses on place + promotion
 - emergency purchases

Whether product sold online or face to face. If former, physical evidence + price. Latter, people + product.

Whether product/service targeted at consumers or other businesses

Which stage of life cycle it's at

Market research: to understand how mix may need to be tweaked over time. Medium-sized + large firms need primary research to keep senior managers in touch with customers. Small firms should constantly listen to what customers say

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Effects of changes in elements of mix

Traditional view of marketing mix as being 4Ps had advantage that all elements came largely under control of marketing dept. 

With 7Ps, becomes much harder. Marketing manager doesn't train shop floor staff + doesn't  get involved in motivation. In modern world, changes in marketing mix may be out of control of marketing dept. Therefore, success requires full co-operation from operations + HR depts.

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Marketing mix for goods and services

With many goods, the mix revolves around the product. All based on image + 'attitude' of product.

For services, may be possible to have purer, broader marketing mix. Focused on the customer + what will satisfy they needs of the customer. 

Important to keep in mind that marketing mix will be different for every product, brand or service. Goods + services behave differently, but so do luxury goods vs inferior goods - the same with gifts vs self-purchased items.

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Marketing mix for B2C

Key to successful marketing mix - every element co-ordinated towards delivering marketing strategy that fits w/ marketing objectives. Easy to think through w/ B2C. Consumer expects reality that conforms to image - value for money. Image itself may be at heart of proposition, therefore keeping image distinctive may be critical focus of marketing mix. 

W/ consumer goods, 3 types to be considered:
 - Convenience goods: bought out of habit/ impulse. Inexpensive, widely available, purchased frequently eg Coca Cola
 - Shopping goods - more careful selection process by buyer - higher unit price, bought less frequently eg clothes
 - Speciality goods - one-off purchases, require serious purchasing effort. High price, buyer is likely to shop around a great deal eg a luxury car

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Marketing mix for B2B

Selling to other businesses, have no direct connection with the public. Price mot important element in marketing mix, as other companies usually buy in bulk - economies of scale 

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What is the product life cycle?

Shows the sales of a product over time. 5 stages:
 - Development (R&D)
 - Introduction
 - Growth
 - Maturity
 - Decline

Not all products have the same length life cycle. Some products eg an iPhone 5s will be in maturity for much less time than Coca Cola, which has been in the extension stage for decades.

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Value of the product life cycle

Helps managers plan marketing activities. Need to adjust marketing mix at different stages of product life cycle:
 - Intro phase, promotion may focus on making customers aware of new product. Maturity phase may focus on highlighting diff b/ween product + competitors that have arrived since intro

Managers know length + phases not easily predicted. Means mix will need to be altered at diff times.

Need to distinguish between life cycle of product category + life cycle of brand. Eg confectionary market mature, but Maltesers in growth stage despite being 80 years old.

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Extension strategies

Aim to prevent decline in product sales. Methods include:
 - targeting new segment of market
 - developing new uses for product
 - increasig the usage of product

Eg, Kellogg's logo regularly updated, new pack sizes introduced, various competitions + offers used on regular basis to keep sales high.

Developing product can involve high costs + high failure rates, means if a product successful, managers will try to prolong sales as long as it's profitable.

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New product development (NPD)

Includes people + processes involved in turning new ideas into products ready for launch. Likely to involve R&D, market research, product engineering + design, + expertise in packaging, advertising, pricing + branding. Represents all activities categorised as 'development' in PLC. 

Even giants eg Cadbury have poor success w/ new product launches. Fewer than 1 in 5 new products become commerical success. Most important reason difficult to create successful new product is customer would rather buy trusted product than new one.

Key influences on successful NPD:
 - clear understanding of consumers w/in certain market segmant - focus on future needs/wants
 - creativity to be able to see how an everyday problem/issue can be solved innovatively
 - enough resources to be able to develop an idea effectively + market it persuasively.

When new product succeeds, consequences can be transformational. Value of NPD huge. Successful new product can create own new life cycle - gives entire business morale + profit boost.

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Product portfolio: Boston matrix

Cash cow: high share of slow-growing market eg Heinz baked beans - generates high profits as sales relatively high, promotional cost per unit quite low.

Problem child: low share of a fast-growing market - may provide high profits in future, but success of product uncertain. Usually need relatively high level of investement to promote them + keep them going.

Rising star: high share of a growing market - attractive product, doing well in successful market. May need protecting from competition. eg Heinz organic soups. Money from cash cow can help fund this.

Dogs: low share of stable/declining market - hold little appeal for firm unless they can be revived. Product/brand killed off once sales slip below b/e point.

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Purpose of product portfolio analysis

Aims to examine existing firm's products - managers need to plan what to do next. Typically 4 strategies:
 - Building - investment in promotion + distribution to boost sales (problem child)
 - Holding - marketing spending to maintain sales (rising star)
 - Milking - taking whatever profits you can w/o much more new investemnt (cash cow)
 - Divesting - selling off product (dog/problem child)

Strategy chosen depends on firm's product portfolio.

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How important are pricing decisions?

Importance of price to customer depends on several factors:
 - customer sensitivity to price: consumers have idea of correct price for product. Balance price w/ other considerations: quality of product, how much they want the product, income
 - level of competitive activity: fiercer the competition, more important price becomes
 - availability of product: if readily available, consumers more price-conscious. Know they can go elsewhere to find same product possibly cheaper. Scarcity removes barriers to price

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Price determines business revenue

Price directly related to revenue through formula: revenue = price x units sold

If price not right, business could:
 - lose customers - price too high, sales may fall, revenue lost. Depends on price elasticity of product. If goods unsold, costs of production won't be recovered
 - lose revenue - price too low, sales may be high, bit not high enough to compensate for low revenue per unit.

Pricing involves balance between being competitive + profitable.

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How do businesses decide on price?

Incorrect pricing when product launches could cause it to fail. At other stages of PLC, may be used to revive interest in brand. Demand for products more sensitive to price changes than others.

2 basic pricing decisions: pricing new product + managing prices throughout product life. Both require good understanding of market + costs, inc purchasing, manufacturing, distribution, administration + marketing.

Lowest price a firm can consider charging set by costs. Businesses must charge more for product than variable cost (except temporary promotional tactic aka loss leader). Ensures every product sold contributes towards fixed costs of business. Market determines highest price that can be charged. Will need to take into account objectives.

Several ways to obtain market info:
 - market research
 - competitive research
 - analysis of sales patterns
 - sales staff can report on customer reactions to prices

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Pricing strategies

Company's plan for setting its prives over medium-long term. 

Skimming: Used when product innovative. New product - no competition. Price set at high level (product price inelastic). Customers interested - willing to pay higher prices. Business recovers some of development costs, making sure enthusiasts who really want product pay high price they expect to pay. If sales slow down, price can be lowered to attract originally unwilling customers - sales increase. Also lowered if competitors enter market.

Penetration: used when launching product into market where similar products already exist. Price set lower to gain market share. Once product established, price can be increased. Hoped high levels of inital sales will recover development costs -> lower average costs as business gains bulk buying benefits (economies of scale)

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Promotion LT sales - Value of branding

Process of creating distinctive identity in minds of consumers. Can take time + marketing efort, but once brand established, becomes own means of promotion. If brand name recognised, more likely customer will buy it for 1st time. If experience good, likely to continue to choose brand. 

Once established, branding has many advs:
 - enables business to reduce amount of time spent on promotion
 - customers more likely to make repeat purchases
 - easier to persuade retailers to put products in their stores
 - other products can be promoted using same brand name

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Promotion LT sales - persuasive advertising

Designed to create distinctive image.

Eg BMW, spent decades persuading it produces not car, but 'Driving Machine'.

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Promotion LT sales - Public relations

Attempt to affect consumers' image of product w/o spending on media advertising. 

Inc making contacts w/ journalists to try to get favourable mentions/articles about product + activities eg sponsorship of sport/the arts.

Eg 2014, Waitrose sponsored England cricket team. Upmarket image of cricket good match for posh image of Waitrose stores.

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Promo activity fit w/ marketing strategy

Type of promo used + level of activity vary from company to company + product to product. Also in terms of marketing strategy being followed. Different forms of promo serve different purposes. Depends on what business trying to achieve.

Correct promo mix will be achieved if business has clear marketing objs. Easier to develop promo campaign when objs + strategy decided.

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Choosing appropriate distributors

When new business wants to launch 1st product, need to consider distribution channel - how product passes from producer to consumer. Direct, or via wholesaler then retailer.

Manufacturers must decide on right outlets for product. Control often not in hands of producer, but of the retailer. To retailer, every foot of shop floor space has a cost (rental value), + opp cost (cost of missing out on profits that could be generated selling other goods).

Eg if new idea for brand-new ice cream, how would you get disitribution for it? Corner shop freezers usually owned by Walls + Mars, so frown upon independent products being stocked in 'their' space.

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MCD - traditional physical channel

Small producers find it hard to achieve distribution in big chains eg Sainsbury's, so sell to wholesalers who sell to small, independent shops.

Profit mark-up applied by 'middleman' adds to final retail price, but small producer can't afford to deliver individually to lots of small shops.

Larger producers cut out middleman (wholesaler), sell directly to retail chains, from Boots to Tesco. More cost effective, but exposes seller to tough negotiation from retail chains on rpices + credit terms.

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MCD - Direct online

Using this channel, producer sells directly to consumer. Manufacturers can do this through mail order or through website. Ensures producer keeps 100% selling price. 

Benefit - producer's higher profts can finance more spending on advertising, on website development or on new product development

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MCD - Online retailed

Small firms often lack ability/finance to build successful e-commerce sales platform. 

Can make sense to piggyback on established platform eg eBay.

Eg TaoBao in Chine. Has more than 2 million businesses using site to sell to hundreds of millions of online shoppers. One part of Alibaba business (sales of $420 billion in 2014).

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Importance of integrated marketing mix

Understanding shown of mix can make part of difference between success + failure. Key to make product central element of mix, simply ensure other mix factors fit in. Eg to psychologically confirm quality of product, price should be quite high. 

Reason mix must be integrated - cosnumers committing cash in exhange for uncertain return. Looking at all clues surrounding product/service + weighing them up together.

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Influences on integrated marketing mix

Marketing influences:
 - position in product life cycle - extent to which meets existing/new customer needs/wants. Only when market research gives green light does it make sense to test price, packaging etc.
 - Boston matrix - when wide product portfolio, has to prioritise. Rising stars + occassionally problem child selected.
 - type of product - most important distinction is between goods + services. Goods mainly based on 4Ps, services usually 7Ps to ensure high-quality employees w/ highly efficient systems making use of physical environment.
 - marketing objectives - may be significant realignment of marketing mix to achieve new objectives
 - target market - posh brand - all 7Ps pointing in same direction towards aspiration + quality. 
 - competition - may need to rearrange marketing mix to compete
 - marketing positioning - consumers want smth targeted tightly at them. Clever companies clear about where market position is - focus every aspect of marketing mix at positioning. Leads to co-ordinated, integrated mix

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Digital marketing, e-commerce + MM

Place irrelevent for online retailers.

Marketing strategy for online businesses:
 - saturation approach - used by moneysupermarket.com to make sure everyone thinks of customer first. Disadv - huge cost of TV advertising
 - Google search optimisation - design website so comes as one of first on list when people are Googling for something relating to your good/service. Takes time + small amount of money, but cheaper than multi-million £ advertising campaign
 - build website people will talk about - eg BMW + Ocado. Fun website can provide strong support to brand image + get brand written about in media - free promotion

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