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Marketing Mix
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Marketing Issues and Concepts
The Marketing Mix
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Product
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NPD (new product development) is crucial to survival and success for some
businesses
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In other markets it is possible to sell the same product for many years without
much or any change. For example our favorite company – coca cola !
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Product development is usually based on trying to satisfy customer demands or
needs based on research which can be expensive and not always successful
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We must realise that the development of a new product is much the
responsibility of the marketing department as it is the dsigners.
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Marketing Issues and Concepts
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Products and brands
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Mobile phone network is an example of a PRODUCT As opposed to Vodafone which
is a BRAND.
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What’s the difference ?
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The product is the general term to describe what is actually being sold
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Brand is the distinguishing name or symbol that Is used to differentiate the
manufactures
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Branding has a massive influence and can create powerful images and
perceptions.
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Marketing Issues and Concepts
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Product positioning
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We use market mapping to help us analysye how the new brand will relate to other
brands in the market. This is called positioning
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First must identify the key features or attributes of a product
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The example I have drawn uses price and health image to map the market for soft
drinks.
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Marketing Issues and Concepts
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Once you know the key features of your product and identified your niche you
promote these key features as much as you can.
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Once you have analysed you can see if you need to re-position your product.
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Marketing Issues and Concepts
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New Product Development and Research and Development
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No firm can afford to stand still and not develop new products
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You need to adapt, update or create new products or even work on ‘me-to ‘
products. These are: similar products to competitors.
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Effective R&D is essential to be able to do this and stay in the game or ahead of
the game !
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Don’t think that this doesn’t apply to service providers as well !
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Marketing Issues and Concepts
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R&D of New product opportunities
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These opportunities are usually identified by market research and mapping.
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Product orientated firms may only deal in ‘scientific’ research and will develop their
new product based on them findings
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There maybe some instances where the company will try to lead consumer tastes
rather than react to them
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Marketing Issues and Concepts
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Product testing
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Ensures that the product achieves its technical targets in terms of efficient costs of
production, performance and reliability
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Value analysis is important here which looks at the product in terms of
performance, looks and economy of manufacture (eg 164)
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Where would a new product be in value analysis ?
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Middle to top
If there were cheaper components available that didn’t effect performance but
didn’t look as good then it would be ?
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Middle to right
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Marketing Issues and Concepts
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If it is in point B do you think sales are affected ?
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Do you think that looks are important ?
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Only consumer testing can provide these answers, and this is known as ‘market
testing’
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Marketing Issues and Concepts
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Governments try to provide a suitable environment for R&D.
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They provide legal security. They do this how ?
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By allowing inventors and designers to ‘patent’ or ‘register’ a design.
This is useful because ?
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If it proves popular the original designer is sure of receiving the financial gains, and
doesn’t have to worry about people ripping off his idea – well not completely !
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Government will also offer financial assistance to help with R&D.
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In what areas is this likely ?
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Areas of interest to the public/economy etc…
Such as possibly pharmaceutical research
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Marketing Issues and Concepts
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Price
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The fixing of price is vital to the marketing mix
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It has massive impact on the demand for the product
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Price is an indicator of the marketing objectives.
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Get pricing wrong then you put the hard work conducted through market
research in jepordy
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Marketing Issues and Concepts
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Demand
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What is demand ?
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Demand for a product is the quantity that consumers are prepared to purchase at
the existing price at a given time.
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If you are to be successful you have to be aware at what affects demand.
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The general rule for demand is that as price falls the more they are likely to
purchase.
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If the price rises what happens to consumer spending power ?
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It decreases
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Marketing Issues and Concepts
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So price is important in determining the demand for a product but its not the only
factor.
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What else can determine demand ?
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Change in your income level
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Increased population or an increase in the age range of target market
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A change in the price of a substitute good
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A change in price of a complimentary good
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A good and effective advertising campaign
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Price elasticity of demand
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Look at the two demand curves I have drawn, the one labeled DD has a steeper
gradient than D1D1
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What impact does the slope of the curves have on demand for those two products
when price is changed ?
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Demand has fallen for both products but at different rates even though the price
increase is the same.
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This could be useful info for marketing manager/director as the revenue for A has
risen but B has fallen
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The relationship between price changes and the size of resulting change in demand
is known as price elasticity of demand and measures the responsiveness of demand
following a change in price.
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Marketing Issues and Concepts
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you can show it on demand curves or as a formula:
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The value of PED is usually negative – why ?
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% change in quantity demanded / % change in price
Because a fall in price results in a increase in demand
Apply this formula to the example given.
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Marketing Issues and Concepts
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What determines price elasticity of demand ?
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How necessary a product is – the more its deemed necessary by the consumers the
less they will react to changes in price. This makes it inelastic.
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Number of similar competitors – the more substitutes there are the more likely
consumers will be to switch if there is a rise in price. Example fruit retailers.
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Degree of consumer loyalty – if through branding you have created strong customer
loyalty then they are likely to stick with you through reasonable price increases.
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The price of the product – a cheap product which doesn’t use up much of your
income, is unlikely to have a high elastic demand as you don’t care about a 10% or
15% increase.
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Marketing Issues and Concepts
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Main uses of PED
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Why do we use PED ?
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To make a more accurate sales forecast
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If you are considering a price increase to cover production cost rise then being
aware of PED should allow forecasted demand to be calculated (181)
Assisting in pricing decisions
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If bus company thinking about changing its pricing structure then being aware of
PED of routes is useful – why ?
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Could raise prices on routes that are inelastic (low PED) and lower them on
routes which are elastic (high PED) – also known as price discrimination.
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Marketing Issues and Concepts
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Many products are affected by many different things when deciding on price.
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We have talked about demand and elasticity but what else is there to effect
pricing decisions ?
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Cost of production
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Market conditions
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Competitor prices
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Business and marketing objectives
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Are you a new or existing product
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Marketing Issues and Concepts
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Pricing methods
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Cost based pricing
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The basics of this is that a firm will figure out how much it costs to make per unit
and add on top of that a % for profit. There are a number of different methods to
cost based pricing:
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Mark up pricing – used by retailers who have the price they paid the wholesaler
and add a % onto that. Size of the mark up depends on the demand for the
product, number of suppliers and the age and stage of the product life.
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Target pricing – where a company decides upon a price that will give a required
rate of return at a certain level of output/sales. For example if a company has
costs of $400,000 when making 10,000 units and requires a return of 20% then
it will set its price by working out its total cost and expected return and divide
by the output. (183)
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Marketing Issues and Concepts
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Full Cost Pricing (Absorption Costing)
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Where a company try’s to calculate a unit cost for the product then adds an
agreed profit margin.
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not easy to do especially if your company makes several different items
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Difficult to allocate fixed costs.
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Differs to mark-up pricing in the fact that it finds a method to allocate the fixed
costs as best as possible
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Example fixed costs of making DVD’s is $10,000, the variable cost is $5,000 and
they make 5,000 (184)
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Marketing Issues and concepts
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Contribution Cost Pricing (Marginal-Cost)
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Does not try to allocate fixed costs to specific products
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Firms calculate the variable cost and then adds an amount to contribute to fixed
costs.
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If enough units are sold then costs are covered and anything over what is needed is
profit.
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Eg –firm has $2 per unit direct costs, fixed costs of $40,000 and they set a
contribution of $1 per unit towards fixed costs so one unit sells for $3. how many
units to be sold to cover fixed costs ?
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40,000
How many units to be sold to make $20,000 profit ?
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60,000
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Marketing Issues and concepts
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It a good thing if a firm produces products that all make a contribution to fixed
costs.
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A general rule is that any product that makes a positive contribution should
continue to be produced as long as there is spare capacity to do so
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Many firms have excess capacity and use contribution costing to attract business
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An example being trains – mad busy at certain times of day and really quiet at
others
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Marketing Issues and concepts
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Competition based pricing
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Firms will base their prices around competitors
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Price leadership can exist in markets
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Some markets have bigger firms than others but all similar prices to avoid a pricing
war
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Undercutting is done to force competitors out of the market
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Market pricing or can be known as consumer based pricing and prices are set based
on a study of conditions and trends within the market.
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Perceived value pricing – this is when a value is put on a product which is inelastic
depending on how valuable the consumer sees it
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Price discrimination - this takes place when firms know they can charge more in
certain areas than in others. Supermarkets do this to an extent
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New Product Pricing Strategies? …
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Marketing Issues and concepts
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