Marketing Mix

Using the Marketing Mix

Product

When a business first starts it is likely only to have one or two products. As it grows it will usually develop more products. The marketing manage will check how the products are doing. This can be done using product portfolio analysis. A portfolio is a collection of products.

The Boston Matrix is used to analyse a product portfolio. It looks at products in terms of their market share and the growth of that market. There are 4 categories

Dogs

Dogs have a low share of a low growth market. They are not doing very well in a market that is not growing very fast. The business should either get rid of them because they are not selling enough or try to improve them to make them attractive.

Cash Cows

Cash cows are products that are doing very well. They have a high share of the market, however, the market is not growing very fast. They are well known and shops want to stock them. Customers know them and want to buy them in large quantities, e.g. Heinz tomato sauce. Products will sell without high levels of promotion. Sales all high and profits are good. A business will use money gained from cash cows to develop products for the future.

Question Marks or Problem Children

These have a small share of the market in a fast growing market e.g. a new brand in the computer game market. They could turn out to be successful. However, at the moment the business cannot be sure whether the product will succeed. Businesses will spend money promoting them.

Stars

These have a big share of a fast growing market, e.g. Apple iPad. Stars are doing well in an attractive market. Businesses need to continue improving and promoting Stars so that they are Cash Cows of the future.

A Balanced Portfolio

Businesses want a balanced portfolio. They will want a mix of the different types of products. Cash Cows can be used to develop new Question Marks and Stars. If a business has too many Question Mark products then it is taking a risk as it is likely that some may not succeed.

Product Life Cycle

The product life cycle shows how the sales of a product may change over time as can be seen in the diagram below

Development

The idea for the product is developed and tested to see if it will work. His may involve building a prototype (a trial version). During the developmental stage businesses spend money but have no money coming in because there are no sales.

Introduction

This is when the product is launched and sales begin. A lot of money will be spent on promotion.

Growth

 This is when the product starts to sell faster. It is becoming successful and a business will need to find more outlets to sell it.

Maturity

Sales begin to slow down. Competition might launch something the same. Customers might want something new. Businesses develop different versions of the product to maintain sales.

Decline

Sales start to fall. Businesses need to decide whether to boost sales by spending more on marketing or to take the product of the market.

Some products might have a short life cycle and others have a longer cycle. Some have been around for years e.g. Kellogg’s cornflakes.

The marketing mix will change at different stages of the product life cycle. During the launch stage promotion may focus on making people aware that the product exists. Over time promotion will differentiate the product from competition.

Extension Strategies

Extension strategies attempt to maintain sales of a product and prevent it from entering the decline stage of the product life cycle.

Examples of extension strategies:

·         Cutting the price to make the product better value for money.

·         Spending more on advertising to make the product more popular.

·         Try to get people to buy more of the product.

·         Try to find new customers.

Pricing Methods

Cost Plus Pricing: Add a % profit to the actual cost. Advantage: Ensures a profit is made. Disadvantage: May not be able to sell the product if the price is too high and people are not willing to pay such a high price

Penetration Pricing: Start with a low price to attract customers. Advantages: Encourages people to try product creating brand awareness. Disadvantage: Cannot last long otherwise a loss will be made

Skimming: Start with a high price for a unique product. Advantage: Lots of profit can be made whilst no competition. Disadvantage: Only lasts whilst there is no competition

Promotional Pricing: Special price for a limited time, e.g. BOGOF. Advantage: Useful to create brand awareness and get rid of excess stock. Disadvantage: May make the product look lower quality

Competition Based Pricing: Charge a similar price to competitors. Advantage: Price will be competitive. Disadvantage: Price may not be profitable.

Psychological Pricing: Price based on customer expectations. For example, selling products at £3.99 instead of £4.                                                                                                                                  Loss Leader: A business sells a product at a loss so that the customer will buy more of something else where the business makes a profit.                                                                            Price Discrimination: Charging different prices for the same product. For example, train tickets sold to OAP’s, students and families.

Factors affecting choice of pricing strategy:

·  Demand – what people are willing and able to pay for a product. If demand is high then a business can increase the price.

·  Cost – The price must cover the costs. These include fixed costs and variable costs.

·  Competition – If there are similar firms in the market then prices need to be competitive. A business might be able to differentiate on another factor other than price.

·  Product life cycle – the prices charged will be different at the different stages of the product life cycle. When demand is rising fast in the growth stage, prices will be high.

·  Rest of the mix – the price needs to fit with the other elements of the mix.

Promotion

Promotional activities are the different ways in which a firm tries to communicate with its customers to inform, persuade and remind.

Types of Promotional Activity

·         Types of Advertising; TV, Radio, Magazines, Leaflets

·         Types of Sales Promotions; BOGOF, Free Samples, Discounts, Loyalty Cards, Celebrity Endorsement

·         Public relations: using the media for press coverage.

·         Personal selling: selling direct to the customer

Factors influencing choice of promotional activity:

·         Costs – some forms of promotional activity are more expensive than others. The amount of money a business has to spend on promotion will affect the choice of promotion.

·         Target audience – Businesses need to consider who their target audience is and the best way to reach them. They might be global, national or local so the choice needs to fit.

·         Method of communication – if a business wants to communicate with words, sound and pictures then a TV advert is best. If only words and pictures are needed, a poster can work.

When selecting which promotional activities are best businesses need to think about:

·         The coverage of a promotion

·         The quality of the promotion

·         The cost

·         The different media options

Place

By place we mean the way the product is distributed. The distribution channel describes how the ownership of the product passes from the producer to the final customer.

The main intermediaries involved are:

·         Producers

·         Wholesalers – they buy products from producers in bulk and supply in smaller quantities to the retailers (breaking bulk). Some sell through cash and carry stores.

·         Retailers – the shops that sell goods and services to the final customer.

Direct Marketing

This occurs when there is a direct link from the producer to the customer with no intermediaries:

·         Mail order businesses – they produce catalogues and customers order from these. The business does not have any physical outlets.

·         Telesales – businesses sell their products over the telephone.

·         Online selling – businesses might not have a physical shop but sell their products online via a website.

Levels of Distribution:

Zero Level – there is no intermediary between the producer and customer. The producer sells directly to the customer.

One level – when there is one intermediary.

Two level – when there are two intermediaries, for example, a producer sells to a wholesaler who sells to a retailer.

Advantages

Disadvantages

A producer can access many more customers by selling to retailers which then distribute to their own stores or by selling to wholesalers. Intermediaries help to distribute the products widely.

Intermediaries will want a profit so the price is increased at each stage making the final product more expensive.

By selling the products in retailer’s stores, the customers can make comparisons

The producer loses control. The intermediary can promote the product as it feels.

Selecting the right channel of distribution

·         Costs – what are the costs of distributing via other intermediaries compared to selling directly?

·         Lack of control – does this matter? For some products, how the shop looks and how the products are sold are important, for example, designer fashion labels. The producers of such products might want to sell them through their own stores.

·         Product - convenience goods need to be distributed far and wide so that customers have easy access to them.

Some business use a variety of distribution channels in order to increase sales and reduce risks of one going wrong. The wrong distribution channels can affect sales, the image of the business and can increase costs. Therefore, it is important to get it right.