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The Marketing Mix Introducing the Topic Read the Case Study on Page 290 and answer the questions on page 291. The Marketing Mix The Four P’s The Four P’s The four P’s make up the marketing strategy for an organization, and they need to be carefully considered when making marketing decisions, because if all of your marketing collateral is not consistent it will lead to confusion in your market place around your product. I.e. if you promote your product as a luxury item and yet price it cheap? The Customer and The Four C’s This is a new approach to marketing but one that is important as it reminds the marketer and the firm that the customer is at the forefront of there marketing. Customer solution Cost to customer Communication with Customer Convenience to customer Customer Relationship Marketing CRM – Using Marketing activities to establish successful customer relationships so that existing customer loyalty can be maintained. Building relationships with your customers is crucial as it will mean repeat business and good Word of mouth, it is far more expensive to continually search for new customers. Effectively marketers will build databases on every customer. (age, income, preferences) thus targeting directly to you. The First P…. Product The product is key in the mix as this is what the business sells, it needs to meet the needs of the consumer in terms of quality, durability, performance and appearance. it doesn’t matter what you do if your product isn't quality consumers will not purchase it, once your product has a bad reputation it is hard to bring it back. Product Products have a physical existence i.e. car but it also refers to services hairdressers etc. New Product Development – is also critical to business while this is formally done by engineers, managers and scientists it is also important that the marketing team get involved as they can provide the information as to whether the consumer will actually buy the product. Product and Brand The product is important as it is what the company actually sells, but having a recognizable Brand will differentiate your products from your competitors. the consumers will often choose based on brand. Product Positioning Positioning refers to how the marketer place s there product in the market in relation to consumers. We use market mapping to work out where a niche might me in the market and what consumers currently perceive of the product in the market. Ie price, quality, materials used, image etc. Market Map In your books draw a market map for Corn Chips? (use these products Home brand, Doritos, Corn Tapas, Bluebird Corn Chips and others) Product Life Cycle The pattern of sales recorded by a product from launch to withdrawal from the market. Launching a product or updating an existing one is crucial to getting an edge over your competitors. Businesses often lose sales or market share because they don’t move with there market while the competitors do. Life Cycle Diagram Product Life Cycle Introduction – Product introduced to the market sales are traditionally low as consumers are slowly made aware of it. Growth – once the product has gained a reputation in the market the sales will start to improve this is the growth stage it doesn’t last forever. Reasons such as new competitors, technology and consumer tastes and preferences changing. Product Life Cycle Maturity or saturation – Sales start to fall they wont decline altogether but they wont increase at a rapid rate as most consumers already have the product. I.e. sport team shirts, cell phones, game consoles. Hence the companies continually update there products too ensure consumers keep buying. Product Life Cycle Decline – Sales are falling at a rapid rate, this is most likely as a result of the product becoming obsolete or new competitors have entered the market with a better version. Sometimes in this phase marketers will try an extension strategy new packaging, developing a new market or a fresh advertising campaign to prolong the products life. I.e. the slim version of the PS1,2 and 3 Uses Of the Product Life Cycle Assisting with the planning of marketing mix decisions – Marketers need to consider each stage carefully as it will assist in making the right decisions about your product, price, promotion and place. At what stage should we lower our price? When should we make alterations to our product? When is advertising likely to be the most important? Uses Of the Product Life Cycle Identifying how cash flow might depend on the PLC – Cash flow is important to any business to be able to understand the link between cash and the PLC is important. In the early stages cash flow is likely to be low as you are spending money on promoting your product and sales are slow, as the product matures your cash flow will improve as sales will be high and promotional costs down, during the decline phase cash flow will be dropping. Uses Of the Product Life Cycle Identifying the need for a balanced product portfolio – Making sure as one of your products decline others are being developed so that your cash flow remains balanced. Product Life Cycle - Evaluation This another part of the Marketing Managers tool kit, when analyzing the success of the marketing department. Of course you cant predict the future of products sales because the business environment is changing so rapidly, consumers tastes, economic and technology changes. The PLC will be used in conjunction with sales forecasts and management experience. Marketing Mix Price The Second P…..Price Pricing has a huge impact on the sales of a product, get this wrong and all your hard work on development and research can be wasted. Price Elasticity of Demand Measures the responsiveness of demand following a change in price. This concept can be illustrated either in a demand curve or by using a mathematical formula. The formula is the following % change in Quantity demanded/% change in price Elasticity For example if the price increased from $4 to $5 and Demand fell from 300 units per week to 270 units what is PED? Step 1 Calculate the % Change in Price = $1/4 = 25% Step 2 Calculate the % Change in Demand = 30/300 = 10% Step 3 Use PED formula = 10/25 = 0.4 Elasticity What does that mean? That demand changes by 0.4% for every 1% change in price. Basically consumers do not respond greatly to a change in price. So if you drop the price your revenue will drop also and not increase. Factors that determine elasticity How Necessary the product is – if the consumers see the product as a need price changes wont effect there consumption i.e. oil How Much Competition exists – the more people in the market the greater amount of choice meaning if the price increases in one brand consumers will quickly move i.e. Milk Factors that determine elasticity Customer Loyalty – if the product has a very good brand image i.e. Coke, McDonald's etc then regardless of price changes consumers will still purchase. NOTE: all businesses try to create brand loyalty through compelling marketing campaigns. Consumers Income – A cheap product that takes up small amounts of consumers incomes then price changes wont make a difference ie matches PED - Evaluation PED has three main limitations. It assumes that nothing else has changed, so if you drop your price it will increase sales. but there may be other factors that contributed to the increase in sales. The calculation becomes outdated quickly as the business environment is forever changing and consumers behavior is changing rapidly. It is hard to calculate, where do you get the data from? Is the data old? Price How do Businesses determine Price? Costs of Production – for a business to make a profit they must cover all costs, including all variable and fixed costs. Competitive Conditions in the market – can you dictate the market price because you have a monopoly, or do you need to match the market price of your competitors. Price Competitors Prices – you generally need to set your price similar to your competitors in order to compete unless your USP is superior. Objectives – if your objective is to be a premium product you will set your pricing accordingly. New or Existing product – has a market price been established or can you create a new price point. Price Methods Cost Based Pricing • • Mark Up Pricing – this method is very common when selling to retailers. You take the cost of the price and add a certain mark up to it. I.e. 45%. Often it will depend on the popularity of the product/service and or the amount of competition within the market. Target Pricing – setting a price based on meeting a certain target of sales, that will give a desired return to the owners. Cost Based Pricing Full Cost (Absorption) – Setting a price based on the full cost fixed and variable and then adding a fixed profit margin. Depending on your range of products this method can be difficult to use ie how can you allocate all fixed costs? Contribution Cost (Marginal) – Setting a price based on the variable costs of the product in order to make a contribution to the fixed costs and profit. Competition Based Pricing Businesses will base its price on that of the competition. This is to ensure that the consumer cannot make a decision based solely on price. Also companies may not want to enter a price war, petrol stations are an example of this. Also there is a danger of deliberate price undercutting, to eliminate smaller competitors. Competition based Pricing Perceived value pricing – this is common in markets where the good is considered luxurious and off good value. Such as Ferrari cars or Rolex watches, because of the perceived value customers are willing to purchase at a higher price. Price Discrimination – this is where you can charge different prices to different consumer groups. I.e. Bus company's – different groups different pricing i.e. students, elderly etc New Product Pricing Strategies Penetration Pricing – Setting a low price in order to enter the market and generate large sales quickly. Often supported by promotion. Market Skimming – Setting a high price for a new product because of the products uniqueness or differentiation from similar products. Eg Pharmaceutical firms. How to make the right decision? It can be difficult for marketers to decide on a price for the product as there are many factors to consider when pricing your product, how many competitors that are in the market, what the consumers are willing to pay, what your product stands for etc. Pricing Decisions Different types of Markets – the easier it is to join an industry the more competitive market conditions are likely to be. Perfect Competition – when all businesses are price takers, they all must charge the same price. Monopoly – Single sellers that are price makers, its difficult for others to enter the market due to barriers to entry. Competition Price wars to gain market share – normally not the best strategy as eventually smaller firms could get forced out of the market, and mean a loss of profit. Eg Milk prices in Australia. Non Price Competition – Promotions and advertisements around the benefits of the company's product or service. Competition Collusion – Not common as it is considered illegal. This is where firms collude with each other to keep the price at a certain level to ensure profits. Loss Leaders – selling a product/service at a low price sometimes below cost to ensure other products are purchased within your range. Competition Psychological pricing – pricing a product so the consumer doesn’t think its two expensive. Ie instead of $1000 we will see a price off $999.95. also refers to product value and image if consumers think a product is quality and expects to pay a high price then suppliers will set the price high regardless of costs. Evaluation Because of the complexity of pricing a product you cant just set one strategy for all as it depends on the market conditions for each product. Marketers have a responsibility to there organization to ensure they know what the consumers expect to pay for there product (market price). Evaluation Marketing is all about consistency of image and branding, so when considering how to price a product you need to ensure it fits with the overall objective of the organization. So no confusion is had in the market place over your image. Low pricing on a good that is perceived of high value would be damaging to the brand.