Business Unit 2: Marketing

How do you broaden your product portfolio?

• Go into new markets
• Design new products in growing markets
• Redevelop current products

Why do you want to have a large product portfolio?

• Different products have different roles:
  • Cash cows: provide ongoing income to develop new products
  • Question marks: provide future success
    • A combination is needed to make sure the business is successful in the present and future.
• Spreading risks across different markets means that gains in one market can offset losses in another
• Lower risk encourages investment from banks

What are the different stages of the product lifecycle?

What may the business do at each stage?

• Development: no sales but the business must spend money designing and testing the product
• Introduction: sales begin to come in and the business needs to promote the product to convince distributors to stock the product which can be difficult when competing with existing brands
• Growth: sales begin increase so the business can reduce expenditure on promotion and increase distribution to handle the increase in demand.
• Maturity: sales rate begins to slow and the business should consider extension strategies (see later). This may be caused by a competitor launching a product or customers wanting something new.
• Decline: sales start to fall, the business must decide to take the product off the market or introduce extension strategies.

What are some possible extension strategies?

• Reduce the price to appeal to a new market or re-attract previous customers
• Increase promotion to make it more popular
• Increase distribution, maybe abroad, to appeal to a new market
• Re-design the product to make it newer and appeal to customers
• Encourage people to use more of it e.g. body creams say 'apply generously'
• Encourage people to use it more often e.g. persuade people to buy turkey outside of Christmas.

Describe different pricing strategies

• Price skimming: a product is introduced with a high price when there's high demand for a product with a USP. It's used with price in-elastic demand. It helps the business cover costs of developing the product. The price is then lowered to appeal to new customers.
• Penetration pricing: a product is launched with a low price to get a large market share quickly and become and market leader. This is effective when demand is price elastic. This benefits the business because higher output can cause economies of scale, reducing business costs. The price is then increased as the product has a higher profile.
• Loss leader: where a product is sold at a loss to encourage customers to buy more of another product e.g. printer sold cheaply and ink cartridges are made more expensive
• Cost-plus pricing: the price covers the cost of making the product, not necessarily considering demand or competition.
• Competitive pricing: business matches the price of competitors. It's used when there are a few big competitors and customers can compare prices easily e.g. supermarkets. If products are similar then price will influence where the customer purchases the product.

What are the factors influencing pricing?

• Costs: need to cover costs to make a profit
• Demand: must relate to what customers are willing to pay
• Competition: similar products need to be in line with competitors' prices unless you have a USP
• Business objectives: does the business want to quickly obtain sales to become well known or justify a high price with a high quality product?
• Life cycle: in growth the business can charge more but it may have to lower prices in the decline stage.
• Marketing mix: must complement image of the product, distribution and promotion to create the right image. e.g. is it high-end fashion or mass-market biscuits?

What are the two main types of promotion?

• Above the line
  • This includes conventional forms of promotion through the mass media e.g. TV, radio, internet and newspaper advertising. These are often more memorable and therefore more effective long term.
  • They can be very expensive
  • They have a wider target audience
  • Adverts are repeated so are more memorable and re-inforce the brand image.
  • Businesses risk alienating customers
  • They're inflexible may not meet specific customer needs
• Below the line
  • Methods of non-media promotion e.g. sponsorship, PR & discounts.
  • They're often cost efficient
  • It's a short term incentive and isn't particularly effective long term.
  • It doesn't cover a wide target audience
  • It can create better relationships with customers, giving more opportunity to close the sale.
  • They're more flexible and can be adapted to meet customer needs.

What are the factors affecting promotion?

• Cost: it depends on the finance the business has access to
• Target audience: it depends on what appeals to the market
• Size of audience: global, national, local - it depends on the scale whether
• Different media options: which complements the product most effectively? radio/print/t.v?

Who are at each of the stages in distribution channels?

• Producers: manufacture the product
• Wholesalers: buy from producers in large quantities and break bulk, selling to retailers in smaller quantities, so the producers don't have to negotiate as many deals
• Retailers: shops that sell the product directly to the final customer

What are methods of direct marketing?

• Mail-order: customers order from catalogues
• Telesales: business sells products over the phone
• Online: customers order products off a website

What are the advantages and disadvantages of having intermediaries?

• They can increase distribution, accessing many more customers
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• Customers have the convenience of buying different products together
• It increases the profile of the business if they're sold from shops
• It means you don't have expensive returns policies or deter customers through postage charges.
• It allows the customer to see the product or try it on.

• You lose control so the retailer can promote the product as they like, affecting the brand image
• Intermediaries take a share of the profit, reducing the business's profit or increasing the price of the product
• Unlike online sales, the customer can't access the products 24hr/day in the comfort of their own home.