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3.3 – Marketing Mix

Home Notes Business Studies – 0450 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.

PLC

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 Explanation Advantages Disadvantages

Channel

Manufacturer The product is – All of the profit is – Delivery costs

to Consumer sold to the earned by the may be high if
consumer producer there are
straight from – The producer customers over
the controls all parts of a wide area
manufacturer. the marketing mix – All storage
A good – Quickest method of costs must be
example is a getting the product to paid for by the
factory outlet the consumer producer
where products – All
directly arrive promotional
at their own activities must
shop from the be carried out
factory and are and financed
sold to by the
customers. producer

Manufacturer The – The cost of holding – The retailer

to Retailer manufacturer inventories of the takes some of
to Consumer will sell its product is paid by the the profit away
products to a retailer from the
retailer (who – The retailer will pay producer
will have stocks for advertising and – The producer
of products other promotional loses some
from other activities control of the
manufacturers – Retailers are more marketing mix
as well) who conveniently located – The producer
will then sell for consumers must pay for
them to delivery of
customers who products to the
visit the shop. retailers
For example, – Retailers
brands like usually sell
Sony, Canon competitors’
and Panasonic products as
sell their well
products to
various
retailers.

Manufacturer The – Wholesalers will – Another

to manufacturer advertise and middleman is
Wholesaler will sell large promote the product added so more
to Retailer volumes of its to retailers profit is taken
to Consumer products to a – Wholesalers pay for away from the
wholesaler transport and storage producer
(wholesalers costs – The producer
will have stocks loses even
from different more control of
manufacturers). the marketing
Retailer will buy mix
small
quantities of
the product
from the
wholesaler and
sell it to the
consumers.
One good
example is the
distribution of
medicinal
drugs.

Manufacturer The – The agent has – Another

to Agent manufacturer specialised knowledge middleman is
to will sell their of the market added so even
Wholesaler products to an more profit is
to Retailer agent who has taken away
to Consumer specialized from the
information producer
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

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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2 thoughts on “3.3 –
Marketing Mix”
Yashal says:
November 13, 2020 at 7:15 am

I love this website and it helps me a lot but I wish you guys could allow
us to download these notes like save my exams does.

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Lintha says:
November 14, 2020 at 2:10 pm

We’re working on purchasable PDF versions of the notes and

mindmaps. Stay tuned!

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