Download 6.The Marketing Mix

Module F293: Further Marketing (Optional) – The Marketing Mix
For example:
Product: Value Analysis

Machines in a factory need to be more capable of doing the job than
aesthetically pleasing;
The design of a new product or modification of an existing product is often
decided upon through the use of value analysis. Value analysis is…

In developed economies - the emphasis for clothes may need to be on
aesthetics rather than function;
a process which seeks to cut the costs of producing a product without reducing
the ‘value’ of the product from the customer’s perspective, and / or increasing
the value of a particular product (in the eyes of the customer) without
increasing the production costs.

Cars are more often than not purchased according to their ability to satisfy
both criteria equally.
Definition and Introduction
This process is sometimes referred to as value engineering at the design
stage.
What it Involves
Value analysis essentially involves assessing new or existing products against
three key criteria, namely:

Function – this concerns what the product is supposed to be able to do, eg
the function of a kettle is to boil water.

Aesthetics – this concerns how the product looks, eg in terms of size,
shape, colour.

Cost / economy of manufacture – this concerns the cost of producing the
product, ie the direct costs.
Products are subsequently designed to:
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maximise customer value; and
minimise the costs of production.
Products are usually assessed by a mixed team of specialists in order to view
it from all the required angles. The value analysis team usually, includes:
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designers;
finance staff; and
sales and marketing staff.
Value analysis requires this team of experts to:
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brainstorm all the essential functions that the product must be able to
perform in order to satisfy customer requirements.
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consider the importance of aesthetics in selling the product.
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brainstorm as many ways of achieving these essential function(s) without
affecting aspects relating to aesthetics considered important in selling the
product.
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Cost the alternatives.
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Investigate the cheapest alternatives.
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Select the best option.
The process usually requires:
The relative value placed by customers with regard to each of the above areas
will depend upon:
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market research to assess the opinions and perceptions of customers;
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the production of prototypes to enable any products or product
modifications made as a result of value analysis, to be properly assessed.
the nature of the product; and
customers’ individual needs and expectations.
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
The Product Life Cycle
The Stages Involved
Development
Introduction
The different stages through which a product passes and the levels of sales
experienced at each stage.
Every human has a life cycle which is to some extent predictable, ie
conception, birth, childhood, adolescence, adulthood, old age. Products also
have a life cycle, most of which consist of six stages, which can be compared
to the human example above, as follows:
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development (conception & pregnancy).
launch / introduction (birth).
growth (childhood & adolescence).
maturity and saturation (adulthood).
decline (old age).
This is the research and development stage where product ideas are
investigated, designed, tested and selected for the market place. It involves
the following:
a)
product research – including research into materials, methods of
manufacture or delivery and the design of prototypes;
b)
customer research to identify product requirements and potential
reaction to the final product, possibly through test marketing.
During this phase, the marketing plan is prepared and high costs are usually
incurred. There are no sales, cash or profit.
The stages of development are shown in relation to sales over time.
Sales
Extension strategies
The more novel the product the longer the development stage.
A large number of products never go beyond this stage. Management is often
reluctant to take the risk of launching a new product unless they are almost
one hundred per cent certain it will be a success.
This stage is where the product is launched into the market place. Price will
be set high or low, depending on the uniqueness of the product and the
business’s objectives. If the product is unique then it may be high, otherwise it
will be low in an attempt to build market share, before competitors enter.
Decline
Saturation
Maturity
Introduction
Development
Growth
Introduction
Time
NB No two products have identical life cycles. The length of each phase
varies depending upon the nature of the product, the marketing policies
adopted and changes in the business environment, eg consumer tastes and
income, competitor activities and new technology.
Promotion is informative to create awareness and educate customers
regarding the benefits. The more novel and complex the product the more
promotion is required.
Throughout this stage sales volumes are low and promotional expenditure is
high. Thus, the product is unlikely to be profitable.
Many products do not get past this stage.
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
Growth
Decline
During the growth phase more and more customers become aware of the
product and sales and profits rise rapidly. The rise in profits provides an
incentive for new firms to enter the market.
When a product is in decline sales and profits rapidly fall mainly as a result of
changing customer needs, new technologies and competitor activities. If
marketing effort is withdrawn, however, this stage may be lucrative as this
may significantly reduce costs and allow a firm to milk its product for profit
while sales slowly fall. NB If the product is thought to be damaging to the
company’s image or reputation it will be withdrawn.
Competitors costs may be less as the key research and development has
already been undertaken by the initial firm. Consequently, new firms may be
able to undercut prices and take market share. On the other hand, the
‘originator’ may have built up significant brand loyalty and have secured key
distributors, making it difficult for competitors to persuade distributors to sell
their product and secure a place in the market.
Extension Strategies
Methods used by businesses to extend the life of a product.
During this stage changes are often required to marketing strategy in order to
supply a wider market and make it difficult for competitors to secure a foothold:
Extension strategies are usually implemented during the maturity or early
decline stages of the life cycle. They may include the following:
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If advertising has led to high consumer awareness, it may be easier to
persuade retailers and wholesalers to stock the product.
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Price may rise or fall. It may remain high or increase in order to recover
development costs and maximise profits before competitors enter; it may
remain low or be lowered, in order to discourage competition.
Change the design, image, appearance or packaging slightly to
encourage existing customers to continue to buy the product over
competitors - toothpaste manufacturers are constantly introducing ‘new,
improved’ formulas.
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Promotion is usually persuasive and includes the use of special offers in
order to build brand loyalty.
Increase the frequency of the product’s use. Eg by emphasising the
health benefits of using a product through promotion - Mars adverts state
‘a Mars a day will help you work, rest and play’.
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Attract new users / target new markets for existing products - Mars
began using athletes in adverts to attract athletes and ‘sporty’ segments.
Maturity
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During this stage sales continue to rise but the rate of growth slows down and
begins to level off as competition intensifies. Promotion becomes defensive
and there is increased investment in order to try and maintain market share,
with emphasis on branding and packaging. It is during this stage that
extension strategies are planned.
Develop alternative / new uses. For example, nylon was originally used
for military purposes in the manufacture of rope and parachutes. It was
later developed as a fabric for women’s stockings and clothes, and has
more recently has been incorporated in tyre manufacture.
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Introduce additional models / wider range of products. Eg diesel
engine versions for cars, Crunchie’s ‘white wine’ flavour bar.
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Extend the product into other formats. Eg washing powders became
washing liquids; Mars bars were extended into ice creams.
Maturity and Saturation
Saturation
During ‘saturation’ there are too many firms competing for customers. The
trend continues from the mature stage but sales level off rather than rise at a
slower rate. Most people likely to buy the product have purchased it (if the
product is one that is purchased once), or are purchasing at a rate that is
unlikely to increase.
NB Spending on advertising and sales promotions eg special offers alone
should not really be regarded as extension strategies. These can be just as
effective in boosting sales at any stage of a product’s life.
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
Relationship with Cash Flow and Capacity Utilisation
Cash Flow and the Product Life Cycle
Key Definitions
Cash
Flow
Cash flow:
+ ive
The sum of all cash inflows (ie money coming into the firm eg from cash or
credit purchases, sale of shares or assets), minus the sum of all cash outflows
(ie money going out of the firm eg for cash or credit purchases). If the sum of
all inflows is greater than all outflows, the cash flow is said to be positive.
Dvt
Int
Gro
Mat
Sat
Dec
Time
- ive
Capacity utilisation:
The extent to which the maximum capacity of a firm is being used, calculated
by dividing actual by maximum output.
The higher the utilisation the lower the fixed costs and the greater the net cash
flow per unit. NB Fixed costs are costs that have to be paid regardless of the
number of items provided eg rent, promotion.
Relevance to Product Life Cycle
Refer to the diagram adjacent.
Use and Limitations
A firm can use knowledge of the product life cycle to analyse its present
position and identify what action needs to be taken to fulfil marketing
objectives. It can help a firm make decisions regarding promotion and price,
when extension strategies should be used and when and how to remove a
product from the market place.
Development – during this stage there are no cash inflows from sales, only
cash outflows, resulting in negative cash flow.
Knowledge of what is currently happening, however, does not guarantee
success – a marketing manager still needs to select the right strategies and be
able to implement them successfully. Furthermore, there are a number of
other factors which limit the use of such a tool in decision making, as follows:
Introduction – there are some cash inflows from sales but negative net cash
flow is likely as capacity utilisation is low and promotional spending is high.
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Prediction – no two life cycles are exactly the same making it difficult to
forecast accurately.
Growth – positive cash flows are likely as sales and capacity utilisation is
increasing and promotional costs are spread over more units.
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Determinism – it is difficult to discover exactly where a product lies –
variations in sales occur from year to year and it is vital not to misinterpret
fluctuations to mean the product is in decline.
Maturity and saturation – there are positive cash flows which steadily
increase, as sales continue to rise and fixed costs are spread over more units.
Decline – the lower volume sales (resulting in low capacity utilisation) leads to
falling net cash flows.
Even though a product may prove successful in the long term inadequate cash
flow in the short-term can force a business to close. Consequently, it is vital
that throughout a product’s life, a firm carefully plans and monitors its finances.
Success depends upon the firm making good use of information on:
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Sales performance;
Customers attitudes and opinions;
Competitors activities;
The life cycle of a similar product;
Economic factors that may affect sales in the future.
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
Product: Product Portfolio & Boston Matrix
Product Portfolio
The BOSTON
MATRIX
High
Introduction - Relevant Terms
Product line – a group of products with similar characteristics, similar uses or
sold to the same type of customer (eg different models of cars, brands of
detergent sold by the same firm).
Most firms sell more than one product or product line at one time. Each will
have its own life cycle, different in duration, each starting at a different time.
Not all of them will be of equal importance. This collection of products is
known as the product portfolio.
Ideally, firms should aim to arrange their product portfolio to ensure products
pass through different stages of the life cycle at the same time and thus
balance growth, cash flow and risk. This is so to prevent the situation where
all profit earners enter the decline stage at the same time, putting the entire
business at risk.
Boston Matrix
Low
STAR
PROBLEM
CHILD
CASH
COW
DOG
Low
Product portfolio – the total range of products or brands produced by a single
firm (another term for product mix).
Explanation
Market Share
Market
Growth
Product mix – the combination of all a firm’s product lines.
Portfolio analysis – the examination of all a firm’s products or brands to
identify their strengths and potential.
High
Explanation
Problem child (wildcat or question mark). These consist of products with a
relatively low market share in a rapidly growing market. Considerable
investment is usually required if a business wants to gain high market share.
New products usually begin here but these could also be products that once
held a dominant position. The hope is that they will become stars or cash
cows. The Majority, however, move on to be dogs.
Star. These are products with a large share of a high growth market. They
generate lots of cash but as the market is growing rapidly they often require
lots of cash in order to maintain their dominant position.
Cash cow. These are products with considerable market share in a low
growth market. They require little investment and are excellent cash
generators. They resemble products at the mature stage of the product life
cycle. Part of the profit they generate is often used to finance new products.
Introduction
Dogs. Dogs are products with a small share of a low growth market. They
resemble products in decline. Such products should be dropped unless they
are an essential part of a product range.
A useful technique for allowing firms to analyse their product mix / product
portfolio is the Boston Matrix which is a visual means of showing the possible
route a new product might take in terms of market growth and market share.
Products are placed into four categories and usually move from problem
children to stars which mature into cash cows and provide a source of finance
for selected problem children and, hopefully, a new generation of stars.
Businesses obviously do not want lots of dogs and need to avoid lots of stars
due to the high investment costs which drain resources. These need to be
balanced with cash cows where development costs are likely to have been
recovered and the cost of advertising and promotion is relatively low in
comparison to sales.
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
Product Differentiation
Purpose / Aims
The aim of product differentiation is to either:
Key Definitions and Introduction
a) increase market share by offering a better product / service than
competitors at the same price; or
Product Differentiation
Making the product or service look distinctively different to those of
competitors in the eyes of the customer.
Unique Selling Point
b) increase profits by charging a higher price.
NB Within the public sector, it might be to:
Key characteristics of a product or service that differentiate it from similar
products or services in the market place.
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achieve Centre of Excellence status in order to attract higher funding.
In mass markets, where there are numerous similar products and services
competing for market share, businesses attempt to make their product /
service stand out from others through developing USP’s. A USP, however,
may actually relate to the price of a product. Product differentiation, on the
other hand, does not directly concern the price of a product / service. It can,
however, enable a business to charge a higher price, as customers are willing
to pay more for something they see as offering greater added value.
Requirements
Sources
Many businesses may use intermediaries, ie wholesalers, retailers or agents
to get their products to the end user. In such cases, is the customer the
retailer or member of the general public, or both? These two groups will have
different needs and values. Consequently, the business will need to decide
which group to base the differentiated strategy upon.
There are two main sources of product differentiation:
a) actual (physical) product advantages such as:
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improvements in design leading to better performance and / or
appearance,
additional features eg CD player or rear windscreen wipers in cars,
better quality materials possibly increasing life of the product or taste
as in the case of food,
better packaging,
after sales services eg guarantees, warrantees.
b) Perceived (psychological) product advantages, ie the belief that one
product is better than another when there are no significant phyisical /
tangible differences. This is achieved through branding and advertising.
For example, many advertisements, in particular TV, attempt to create an
image about the company or product that the customer wishes to be
associated with.
Successful product differentiation requires:
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Thorough awareness and appreciation of who the customer or
consumer is and what they value.
In–depth knowledge on competitor products / services.
Developing unique products that stand out from competitors requires customer
and competitor research, identifying exactly who the customer is (in terms of
soci-economic groups, geographical area, etc) and, in particular, what they
value requires customer research including qualitative research, which can be
time consuming and costly to obtain. It is also likely to require considerable
investment in research and development, new technologies and / or staff
training to ensure / enable products to perform better, be more reliable or
longer-lasting for example, than those of the competition.
Finally, successful product differentiation also requires the development of a
culture where innovation is encouraged not stifled, and a flexible
organisational structure which enables management and staff, to make timely
responses to changes in competitor activities and customer needs.
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
Pricing: An Introduction
Pricing: Pricing Strategies, Methods & Tactics
The Relevance of Price
New Product Pricing
 An exchange rate.
 Producers measure costs against price.
 Consumers weigh up price against satisfaction.
Market Skimming
Setting a relatively high price before competitors enter the market.
Providing the value of customer satisfaction exceeds the value of the
producer’s costs, a price can exist at which sales take place.
Skimming is appropriate for innovative products and is a common strategy
used in the fashion, toy, computer software and pharmaceutical industries.
Factors Influencing Price

Business Objectives. Sales or profit maximisation? A high price risks
low sales. A low price suffers reduced profits unless greater demand leads
to economies of scale.
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Costs. Total Cost = direct (variable) and indirect (fixed) costs. To survive
in the long-term total costs must be covered. In the short term there is
greater flexibility.
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Competition / Availability of substitutes. Price provides a direct
comparison.
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The aim is to gain as much profit as possible while the product is unique, ie
before competitors enter the market place with a similar product.
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Strengths
Establishes
an up-market
image
Maximises
profits.
Weaknesses
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May make it easier for competition to launch a similar
product at a lower price.
Failing to maximise sales early, may not be able to hold
on to viable market share when competition arrives.
Market Penetration
Consumer perceptions / expectations and elasticity of demand. If too
low consumers might perceive it to be poor quality, if too high they may not
be able to afford to pay and / or perceive it to be poor value for money.
Willingness to pay a price depends on the degree of need for the product
and the ability to pay. For example, if you run out of petrol on motorway,
you would be willing to pay more per gallon than on the garage forecourt.
The Marketing Mix. The nature of the product and the way it is promoted
and distributed. Promotion can add value. With regards to distribution
middlemen need a return. If price is too low they will not stock it.
Position in the product life-cycle. A high price may be appropriate at
the start as consumers want to be at the forefront of owning a new product
and are prepared to pay premium price. During maturity or decline price
may need to be reduced in order to maintain market share.
Setting a relatively low price but usually with strong promotion in order to
generate high volume demand and thus high market share, perhaps with the
effect of discouraging competition.
The aim is to encourage people to try the product / service and secure brand
loyalty. The hope is either to increase price once brand loyalty has been
established, or that costs will fall due to economies of scale.
Market penetration is mainly used by firms operating in mass markets, eg
biscuits, confectionery, washing powder and crisps, due to its high costs

Strengths
Useful to build
brand loyalty.
Mrs S Haywood Business & Economics
Weaknesses
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Loses opportunity to charge high prices to those willing
to pay them for being first in the market.
Low price image may be hard to shift and associated
with low quality.
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Module F293: Further Marketing (Optional) – The Marketing Mix
Important Factors to Consider when Pricing New products
It is easier to reduce price later than increase price. Consequently, it is best to
err on the high side. Once a product has been established in the market
place, flexibility can be introduced with the use of special offers and discounts.
This is an effective way of increasing market share without creating conflict
with the product and how it is perceived by customers.
Marginal / Contribution Pricing
Setting the price to cover all direct costs plus a percentage mark-up as a
contribution towards indirect costs and profits.
With marginal or contribution cost pricing only the variable / direct cost is
calculated. The price is set to cover variable costs and make a contribution to
fixed costs and profit.
Cost-based Pricing
Setting a price on the basis of production costs.
Sensible for a firm with little / no direct competition.
Absorption / Full-cost Pricing
Setting the price by calculating the average cost of producing a good and
adding a ‘mark-up’ for profit. (Mark-up – the percentage of the cost that is
added on to the costs to find the selling price).
Marginal or contribution pricing is most appropriate when output is changing,
because if output changes, fixed costs per unit changes, but variable costs
stay the same.
In the short-run as long as a business can pay its variable costs it can survive.
In the long-run it will need to cover total costs. If enough units are sold then
total contribution should cover fixed costs. This depends upon how many
products the business is likely to sell.
Example:
Example:
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A business produces 12,000 goods.
The total cost of producing the goods is £21,000.
The average cost would be £1.75.
A mark-up of 20% would mean the good would cost £2.10.
Attempts to allocate all costs, both indirect and direct costs to individual units.
Involves setting a projected output, calculating total cost per unit. Indirect
costs are allocated on a logical basis eg rent on factory floor space occupied.
An agreed profit margin is then added.
Weaknesses / Limitations
Strengths
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Ensures sales revenue
will cover all costs
(essential in the longterm).
Any cost increases
passed on to customer,
profit margins
protected.
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Assumes all units will be sold.
FC per unit can only be estimated accurately
if demand can be predicted.
Ignores price customers may be prepared to
pay.
Can only be used where there is no effective
competition. Few companies can, therefore,
use it in practice.
A business produces 18,000 units.
Variable costs are £63,000.
Fixed costs are £190,000.
Calculate the lowest price it can charge to survive in:
i) the short-term; ii) the long term.
I)
£63,000 / 18,000 = £3.50 in order to cover variable costs.
II) £153,000 / 18,000 = £8.50 assuming costs and output or sales
volume remain the same.
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Strengths
Simpler and quicker than
absorption/full cost (overheads
do not have to be apportioned).
Provides flexibility.
Variable costs covered.
Mrs S Haywood Business & Economics
Weaknesses / Limitations
Need to be careful to ensure
fixed costs are covered.
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Module F293: Further Marketing (Optional) – The Marketing Mix
Competition-based Pricing
Customer-based Pricing
Price Leadership
Customer Value Pricing
Setting a price which others follow.
Where the highest price customers are prepared to pay is charged.
Price leadership is only possible if the ‘price leader’s product is perceived to be
the best by the target market, ie there is little effective competition.
Where firms offer the same or similar product at different prices, according to
customer, place or time.
Going Rate / Price Taker
Examples:
Setting a price similar to competitors.
Going rate pricing is common to mass / highly competitive markets where
there is low product differentiation.
In such markets any increase in price is likely to result in customers moving to
an alternative business.
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Strengths
Sensitive to the market.
Little alternative for
homogenous products.
Price Discrimination
Weaknesses
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May not cover costs.
Undesirable to be at the mercy of
competitors.
Transport – age (cheaper for OAPs, students), time (cheaper off peak);
Theatres – position of seats; Phone calls – time of call (cheaper in evening);
Holidays – cheaper ‘out of season’.
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Strengths
Good way to maximise
revenue and profit.

Weaknesses
Those paying full price may resent
being discriminated against.
Target-based Pricing
Setting or adjusting prices in order to achieve specific targets, eg relating to
sales volume or value or profit.
Predatory / Destroyer
Target based pricing can take a number of forms.
Setting a price at such a low level with a view to forcing other businesses out
of the market.
Destroyer pricing is common to competitive markets dominated by a few large
firms. (oligopoly). The aim is to take market share. It is against ‘anticompetitive’ legislation, but hard to prove.
The following table outlines potential strengths and weaknesses associated
with a market penetration pricing strategy.
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Strengths
Prevent new entrants gaining market share.
May strengthen position in the longer term.
Weaknesses

Short term profit
sacrificed.
Firstly, such tactics are commonly used by sales representatives who are set
specific targets to achieve relating to sales volume or value, and whose
actually earnings are often based on such targets being achieved. For
example, a stationery sales representative may have a target of securing 20
new customers per month. In order to secure the final two customers required
to achieve their monthly target, they may offer lower prices on certain items
than those offered to customers at the beginning of the month, as an incentive
for the new customers to join. To ensure profit margins aren’t marginalised
too severely, the sales representatives are likely to be set a base price for
products, below which they must not go. Such a policy may important in
maximising sales and market share. It does, however, need to be used with
caution. For instance, in the above example, existing customers may learn of
such deals and demand similar low prices.
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Module F293: Further Marketing (Optional) – The Marketing Mix
Secondly, knowledge of price elasticity of demand for a business’s product /
service, can help a business choose a price that is likely to help it to reach a
particular sales target. (Price elasticity is covered in the subsequent section).
Discounting
Thirdly, a business can use knowledge of price elasticity and breakeven
analysis to choose a price that will help it achieve a specific profit target.
(break-even analysis is covered in 2872 & 2873 Accounting & Finance).
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Pricing Tactics
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Psychological Pricing
Pricing in Practice
This is where prices are set just below the whole number eg £2.99 or £2.95;
to make the good or service appear cheaper.
Ignoring the market can be dangerous – it can lead to loss of sales to
competitors, or loss of potential profits from charging too little. Ignoring costs,
on the other hand, could lead to bankruptcy. Consequently, in practice most
firms use an element of cost and market (ie competition and customer-based
pricing.
Loss Leaders
Discounts given for:
early payment.
quantity bought.
seasonal offers (often used by clothes retailers to clear out old stock and
make way for the new).
trade business.
This is where price is used as a method of sales promotion.
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Customers are encouraged through the doors by pricing product(s) at a
level where it will make a loss. The hope is that customers will spend
money on other more profitable items (while in the shop) and that this will
more than off-set any losses made on the loss leader product.
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The ‘loss leader’ is carefully placed in the store so that customers have to
pass many other products on sale before they reach the product. Such
tactics rely on impulse buying.
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Tactics commonly used by supermarkets.
Special Offer Pricing
Examples:
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Buy-one get one free.
Three for Two.
50p coupon off next purchase.
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
Pricing: Elasticity

Price of competition / substitute goods. Customers are likely to be
sensitive to changes in price where close substitutes exist and it is
relatively easy for them to purchase an alternative product.
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Branding, advertising & promotion. Businesses can do much to
stimulate demand for their products and / or services through branding,
advertising and promotion. Branding and advertising is particularly used
to convince potential customers that one particular product is best and
there are no close substitutes.

Price of complimentary goods. These are goods which involve the use
of other products eg razors and razor blades, petrol and cars. A change in
the price of one directly affects the demand for the other. Eg an increase
in the price of petrol may lead to an increase in the demand for small cars
and a decrease in the demand for large cars.

Changes in tastes / fashion. People develop preferences for certain
types of food eg some people like brussel sprouts, others simply do not.
Fashions change. A reduction in price is unlikely to lead to an increase in
demand for a product that has gone ‘out of fashion’.

Weather. Sales of salad, cold drinks, sun tan cream, barbecues, etc
generally increase in the summer, whereas sales of soup, coffee, gloves
and scarves, etc generally increase in the winter. Consequently,
consumers are likely to be more sensitive to changes in price at times of
peak seasonal demand.

Changes in income. As incomes increase, a business may be less
sensitive to an increase in price.

Economic factors. These affect the ability as opposed to willingness to
purchase. For example levels of taxes or subsidies – affect prices; credit
facilities and rates of interest – affect income.
Definition and Introduction
Definition
Price elasticity is a measure of the responsiveness of demand to
changes in price.
NB Demand: The willingness and ability (not just desire) of a consumer to pay
a sum of money for a good or service at a particular point in time.
In general, as price increases, quantity demanded decreases; as price
decreases, quantity demanded increases:
Price
NB Some demand curves slope upwards. For example, if the price of an item
of designer clothes increases, demand may actually increase as the item is
perceived to be more exclusive. Price is often associated with quality.
Key Factors Influencing Price Elasticity
Application / Use
The slope and gradient of the ‘demand curve’ largely depends upon:

The nature of the product. If the product is perceived to be a necessity
eg bread and water, or is habit forming eg drugs, alcohol, tobacco, then
demand is unlikely to be affected by a change in price.
A firm can use knowledge of price elasticity of demand to forecast the effect
on sales of any planned price changes. This information can be used to
help a firm decide whether a price change is wise and help operations to
plan future output levels.
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
Calculation
Price elasticity can be calculated by using the following formula:
PED
=
% change in quantity demanded
% change in price
Example: A business reduces the price of a product from £80 to £70.
As a result demand increases from 110,000 to 132,000 units.
=
12.5%.
In percentage terms demand has increased by:
22,000 / 110,000 X 100 / 1
PED, therefore =
20% / 12.5%
If elasticity is exactly 1, the product is said to be unitary.
Difficulties and Limitations
In percentage terms the price has decreased by:
£10 / £80 X 100 / 1
With inelastic products where demand is not sensitive to price, price changes
hardly have any effect on demand. A firm is more likely to increase price in
order to increase revenue, as an increase in price leads to a smaller decrease
in the quantity demanded. Firms with price inelastic products will, therefore,
be tempted to push the prices up in an attempt to increase revenues and / or
profits.
=
20%.
=
1.6
There are two main difficulties / limitations encountered in applying elasticity of
demand theory in practice, as follows:
a) Difficulty in measurement – it can be difficult and expensive to obtain the
information required to determine the elasticity of products.
b) The assumption that all things remain equal – demand may be affected
by a number of variables at the same time.
Interpretation and Implications for Decision Making
The figure of 1.6 in the above example indicates that for every 1% change in
price, demand is likely to change by 1.6%.
A price elastic product is said to have an elasticity of greater than 1,
meaning that the percentage change in demand is greater than the percentage
change in price. This occurs where a product has close substitutes and where
a large percentage of income is spent on the goods. In such cases demand /
customers are said to be price-sensitive.
With price elastic products a firm may lower price in an attempt to increase
market share. It may also be able to increase profits as a result of gains made
in economies of scale arising from selling more units.
Where elasticity is less than 1, the product is price inelastic and demand /
customers are said to be price-insensitive. This occurs when there are few
close substitutes (probably due to heavy branding), or only a small percentage
of income is spent on the good eg bread, they are addictive, or they are paid
for by someone else eg company cars.
Mrs S Haywood Business & Economics
55
Module F293: Further Marketing (Optional) – The Marketing Mix
Promotion: An Introduction
Methods
Above the Line
Definition
Communication techniques aimed at informing, influencing and persuading
customers to buy or use a particular product (or not to in the case of certain
public sector objectives eg to reduce smoking).
Promotion does not just concern advertising – this is one method of many.
Advertising through independent media, ie media over which the firm has little
direct control and where there is no direct contact with the customer,
eg television, newspapers and radio.
Below the Line
Promotional activity that does not involve independent media, but the use of
methods over which the firm has some degree of control
eg direct mail, ‘door to door’ sales.
Objectives
There are many objectives of promotion:
1. To raise or maintain customer awareness – informing potential
customers that something is now available, or reminding previous
customers that a product still exists.
Below the line methods of promotion are commonly used for short-term
tactical reasons, rather than long-term image building.
There are several methods, some of which can be directly linked together, as
follows:
2. To generate interest and / or encourage customer contact – providing
sufficient information to make customers want to find out more about the
product.
3. To make sales – encouraging potential customers to make their first
purchase by emphasising the benefits and / or superior qualities in relation
to similar products on the market place.
4. To gain repeat business and / or recommendations (if one-off
purchase) – providing reassurance to build up confidence after the product
has been purchased.
Exhibitions &
Trade Fairs
Public Relations
Personal Selling
Direct Mail
Below the
line
Promotion
Sponsorship
5. To encourage customer loyalty – providing regular incentives to
encourage the customer to keep returning.
Branding
6. To improve the image of a business rather than a product (corporate
advertising).
NB Linked with any of the above, a secondary objective may be to
differentiate a business, its goods and / or services from its competitors.
Merchandising
Mrs S Haywood Business & Economics
Sales
Promotion
Packaging
56
Module F293: Further Marketing (Optional) – The Marketing Mix
Promotion: Advertising
Types of Advertising Media
Newspaper
Introduction

Informative versus persuasive
Advertising can be categorised according to the extent to which it is:


Informative or Persuasive
Objectives 1 to 5 in the ‘Introduction to Promotion’ section above can be rated
on a spectrum according to whether the advert is likely to be informative or
persuasive, with 1 likely to be the most informative, 5 the most persuasive and
3, a balance of the two.






Factors Influencing Choice of Advertising Media
A wide range of media is available to advertise a firm’s products. Choice of
media may be based upon the following factors:

The product – if complex then print media may be more appropriate in
providing the detail required.

Selectivity – the extent to which the media audience demonstrates the
characteristics of the firm’s target market.

Reach – the number of people likely to be reached (ideally within the firm’s
target market).

Permanence – eg magazines can be referred to again and again, whereas
cinema adverts may only be seen once.

Relative Cost.
Advantages
Widely read.
Can specifically target socioeconomic; geographic.
Frequent publication.
Short lead time.
Relatively cheap.
Reader can refer back.




Disadvantages
Short life.
Low impact – limited colour, no
movement or sound.
May get lost amongst many other
adverts.
Reproduction / layout of regional
paper may be poor.
Magazine



Types: Consumer; Specialist eg Teenager, Sport, Health; Trade.
Unit of sale: pages, partial pages, column inches.
Factors affecting rates: circulation; publishing cost; audience; volume &
frequency of purchase; size; position; colours;

Degree of impact – the extent to which the message is likely to be taken
in. Eg Moving pictures may have greater impact than print.

Types: Local, National, Morning, Evening. Sunday, Sunday supplement,
Weekly, Special.
Unit of sale: column inches, number of words, number of lines.
Factors affecting rates: volume & frequency of purchase; no. of colours
required; preferred / guaranteed position; circulation.



Advantages
Can specifically target:
demographic; geographic (if
regional); psychographic.
Good reproduction.
Long life, read at leisure.
Effective if linked to feature(s).




Disadvantages
Can be expensive.
Long lead time – between
placing & printing of advert.
Moderate impact – no
movement or sound.
Slow impact due to long life.
Radio
The following section details the different types of media available to a
business to advertise its products, including types available within each
category, common units of sale, factors affecting rates and relative advantages
and disadvantages, where applicable.



Types: AM, FM.
Unit of sale: programme type; spots: 5,10,20,30,60 seconds.
Factors affecting rates: time of day; audience size; length of spot or
programme; volume & frequency of purchase.
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
Advantages
 Highly mobile.
 Relatively low cost
broadcast medium.
 Can specifically target:
geographic & socio-eco.
Disadvantages
 Limited national advertising available.
 Limited impact – no visual just sound.
 Short life – no copy held.
 Listener’s attention limited – often
doing other activities while listening.
Television



Types: ITV, Channel 4, Channel 5, Satellite, Cable.
Unit of sale: Programme type; spots: 15,20,30,60 etc seconds.
Factors affecting rates: time of day; length of spot; audience size;
volume & frequency of purchase.




Advantages
Large audience – high
coverage.
Low cost per exposure.
High impact – audio &
visual; can demonstrate
product.
Can specifically target:
socio-economic &
geographic.




Disadvantages
Initial cost - relatively expensive.
Limited prime time space.
Short-lived.
May not be watched – many viewers
consider adverts to be annoying break
in programme; plus no. of potential
customers watching any one
programme falling due to arrival of
digital TV and choice now available.
Cinema



Types: multiplex (up-to-date films); traditional, specialist.
Unit of sale: Film type; spots: 15,20,30,60 etc seconds.
Factors affecting rates: time of day; length of spot; audience size;
volume & frequency of purchase.



Advantages
High impact – colour, sound,
movement.
Captive audience.
Can specifically target: age;
geographic (can be highly
localised).




Disadvantages
Limited audience.
Restricted audience – mainly
young.
Short-lived message.
May only be seen once.
Poster



Types: Roadside ie Billboard; Inside public transport (Buses,
Underground); Outside Public Transport (Buses, Taxis).
Unit of sale: Roadside - monthly in multiples; Public Transport - full, half &
quarter showings sold monthly; space also rented per unit (for outside).
Factors affecting rates: Roadside - length of time & frequency of
purchase; land rental; traffic intensity; production cost; Inside Public
Transport - no. of passengers; multiple month discounts; production cost;
position; Outside Public Transport - no. of adverts, size, position.
Advantages










Disadvantages
Billboard
Repeatedly seen.
 Message must be short & simple.
24 hours a day.
 Cannot target socio-economic.
Can target: geographic.
 Rarely attracts reader’s full attention.
May encourage impulse
 Short-lived due to weather & graffiti.
buying if located close to
 May be considered a traffic hazard.
shops.
 Difficult to measure effectiveness.
Inside Public Transport
Low cost.
 Cannot target socio-economic.
Can target geographic.
 Quick results unlikely.
Captive audience.
 Difficult to measure effectiveness.
Outside Public Transport
.Low cost.
 Cannot target socio-economic.
Can target geographic.
 Quick results unlikely.
Reaches wide, diverse
 Rarely gains reader’s full attention.
audience (out).
 Difficult to measure effectiveness.
Internet Advertising
Company web-site: one-off design cost for own web-site (£500+) plus
maintenance fee, web hosting,



Advantages
Relatively cheap and easy to set up.
Easily updated.
Number of ‘hits’ can be monitored –
useful measure of effectiveness.
Mrs S Haywood Business & Economics


Disadvantages
Limited audience.
Possible technical
problems of connecting,
viewing and maintaining.
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Module F293: Further Marketing (Optional) – The Marketing Mix
Banner Ads: On-line adverts on relevant web sites; generally priced on a 'pay
per click' basis at approximately 2-5p per click ie number of visitors clicking
on banner x 2-5p. (The more well known the website host the higher the rate).


Advantages
exposure to larger audience.
Costs based on results.
Disadvantages
Statistics show not very effective.
May not produce 'quality' leads.


Link exchange: Mutual exchange of links between web sites of similar or
complimentary interests; generally free but the favour must be returned as a
matter of courtesy.



Advantages
Free and simple to set up.
Greater exposure.
Increases ranking with some search
engines.


Disadvantages
May not produce many or
'quality' leads.
Visitors may leave web
site via an exchange link.
Search Engine / Directory Listing: Websites that offer vast searchable
databases of web site addresses. Most offer a free listing plus a superior 'paid
inclusion' listing (£20 - £200) or pay per click basis similar to banner adverts.



Advantages
Mainly free.
Vastly increases web presence.
Majority of traffic comes from search
engines.


Disadvantages
Can be costly.
Needs monitoring.
Advertising Elasticity
Definition and Introduction
Advertising elasticity is a measure of the responsiveness of demand
to an advertising campaign or changes in advertising.
It requires careful measurement of sales before, during and after an
advertising campaign. It is used to judge the effectiveness of campaigns and
ultimately, justify any expenditure on advertising.
Calculation
Advertising elasticity can be calculated by using the following formula:
AED
=
% change in quantity demanded
% change in advertising spend
Example: A firm increases expenditure on advertising from £7,000 to
£10,000. As a result sales rise from 200,000 to 270,000.
In percentage terms advertising expenditure has increased by:
£3,000 / £10,000 X 100 / 1
=
30%.
=
35%.
=
1.2
In percentage terms demand has increased by:
70,000 / 200,000 X 100 / 1
AED, therefore =
35% / 30%
Interpretation and Limitations
Ezine Sponsorship: On-line magazines delivered to subscribers via email;
sponsorship can be bought entitling companies to a few lines of advertising
text; article submission promoting web address.


Advantages
Targeted / receptive audience.
Greater exposure.

Disadvantages
Relying on Ezine producers
for targeted audience.
In the above example, the expenditure would appear to be justified. On raw
figures alone £2,000 extra advertising led to an impressive extra £70,000.
In planning future campaigns, the figures suggest that for every 1% change in
advertising expenditure, demand is likely to increase by 1.2%. The business
should, however, investigate whether any other factors could have resulted in
such a large increase in sales. For example: lower taxes or interest rates
offered during the period of the campaign.
Mrs S Haywood Business & Economics
59
Module F293: Further Marketing (Optional) – The Marketing Mix
Packaging and Merchandising are an important part of Sales Promotion.
Though these methods of Promotion are not specifically mentioned in the
OCR specifications, they are briefly considered below.
Promotion: Sales Promotion
Definition
Short-term incentives to increase sales, provided to representatives of a firm’s
sales force, distributors ie retailers and wholesalers,
or existing and potential customers.
Packaging
Examples
Packaging serves many purposes, as follows:
Sales-force
 Cash
bonuses /
vouchers /
and / or prizes
eg holidays
for achieving
target sales or
above.
 Free samples.
Distributors
 Discounts (for
bulk).
 Credit.
 Merchandising and
display
material.










Consumers
Immediate:
Free offers / gifts / samples.
Bonus packs eg 50% extra.
Multibuys eg buy 1 get 1 free.
Delayed:
Money off coupons, vouchers.
Mailing refunds.
Loyalty / reward cards.
Competitions eg for holidays.
Charity donations – donation per
product purchased.
Immediate: provide an immediate return to the customer. Delayed: do not
provide an immediate return to the customer. NB Competitions can be either.
The outer wrapper or container which is often an indication of
the quality of the product itself.

Protection – during transportation and storage.

Preservation – of food in particular.

Promotion – needs to be eye catching have a distinctive design, plus
adequate space to persuade people to buy the product and:

Display legal information – re: usage, storage and the prevention of
potential health hazards.

Convenience – with regards to handling, storage and display.
NB Nowadays consumers are interested in the extent to which the packaging
is environmentally friendly.
Merchandising
Attempts to influence customers at point of sale ie anywhere a customer
buys a product or uses a service eg till at checkout, foyer of bank.
Objectives
Merchandising concerns the following:
Sales promotion can be expensive but can be used very effectively to:




Consumer
Encourage sales.
Increase frequency of
purchase / usage.
Increase off peak /
season sales.
Encourage sales of
slow moving lines.







Trade / Industrial
Obtain shelf space.
Develop goodwill.
Encourage retailers to promote product fully.
Encourage the sales force to push the product.
Help the salesforce to do their job.
Increase the distribution network.
Encourage sales of slow moving lines.

Display stands – should attract attention, highlight ‘special’ aspects of a
product, encourage customers to buy.

Store layout – concerns aisles and shelves in a retail outlet eg
supermarkets may place popular items at the back so customers are
forced to view others first and may buy on impulse; or related products
next to each other so consumers buy both.

Storage space – space needs to be made available for special offers.

Ambience – eg appropriate lighting to encourage browsing or suggest
cleanliness; enticing smells to attract customers.
Mrs S Haywood Business & Economics
60
Module F293: Further Marketing (Optional) – The Marketing Mix
Promotion: Personal Selling
The Skills and Qualities Required
Successful selling requires the following:
Definition
Oral presentations to, and discussions with,
potential customers of a product or service.
Selling Activities
Personal selling involves the use of sales staff / representatives who carry out
key activities such as:

Obtaining and making deliveries.

Staffing exhibitions, giving talks and presentations including
demonstrations of the product.

Giving free trials / samples.

Offering advice and guidance.

Interpersonal skills – the ability to communicate well and empathise with
the customer.

Knowledge, faith and confidence in the product.

Energy, determination, high self-motivation.

Pleasant appearance.
Exhibitions and Trade Fairs
Personal selling often involves attending trade fairs and exhibitions:
Where suppliers display products directly to potential customers, ie which
may concern members of the general public and / or industry.
The Stages Involved
Examples: the Ideal Homes Exhibition, Motor Show.
To actually encourage a potential customer to buy a product or service, a
sales person will usually be involved in six key stages:
Exhibitions and Trade Fairs provide a chance to:

Prospecting – searching for / identifying potential customers eg through
responses from adverts, word of mouth, cold calling.

Pre-approach – gathering information via observations, customers, other
sales staff in order to make decisions regarding the approach to use with
potential customers.

Approach – gaining potential customers’ attention and interest.

Presentation – trying to create the desire to buy.

Close – seeking action / intention to buy eg allowing the potential
customer to hold the product to encourage them to become attached to it,
and / or moving a potential customer (prospect) towards a payment point.

Follow-up – checking whether the customer is satisfied, encouraging
repeat business.

Show how a product works which is important for complex products.

Test consumers reaction to a product before it is released onto the
market.

Answer specific customer queries.

Attract free press coverage.
Benefits and Drawbacks
Personal selling can be a time consuming and expensive method but may be
essential to educate consumers about complex products and encourage
retailers to stock products.
Mrs S Haywood Business & Economics
61
Module F293: Further Marketing (Optional) – The Marketing Mix
Promotion: Branding
Purpose and Benefits
Branding can provide the following benefits:
Definitions and Introduction

Differentiation – branding can help make a product stand out from others
which is especially important where there is high competition.

Recognition – familiarity with brand names may provide a sense of
security and reduce the perceived risk some customers experience when
buying a new product and thus make a customer more willing to buy it.

Repeat purchase  Brand loyalty – customers who like one product
within a particular brand may be more willing to buy another product with
the same brand name.

Brand promotion – branding enables marketing campaigns to be spread
across a range of products providing marketing economies of scale.

Pricing flexibility – branding can convey an image of quality and / or
value for money, allowing higher prices to be charged.
Types

Intangible fixed asset – branding can increase the value of a business.

Individual – where each product is given its own name which is not the
same as the producer or provider’s. Eg Van den Bergh produce many
margarines including Flora, Delight, Stork, Krona, Summer County, Echo.
NB Branding will only be successful if the product lives up to customers
expectations and the image built through advertising; There can be adverse
affects – bad press with one product can negatively affect the image and thus
sales of other products with the same brand name.

Line – where a group of similar products are given the same name which
is not the same as the producer or provider’s. Eg Tetley tea bags include
square, round and pyramid tea bags which are all made by Lyons.
Qualities of a Good Brand
Branding
A strategy used by businesses to differentiate its product(s) from others in the
market place and influence customer purchasing patterns.
Brand
Any distinctive name, term, symbol, image, design or packaging given to a
product (or group of products) which enable it to be easily recognised and
differentiates it from other products.
Branding often requires considerable investment in advertising in order to build
an appropriate image that will attract and appeal to the target market. It
largely depends on packaging ie the outer wrapper or container which is often
an indication of the quality of the product itself.

Family – where the full range of a firm’s products are given the same
name but this is not the name of the firm itself. Eg almost all Marks &
Spencer’s products are branded ‘St Michael’s’.
In general a good brand name should:

Company Name – where all products are given the company name eg
Heinz baked beans, soups, baby food, ketchup, pizzas.

Own Brand / Own Label – where products are branded with the retailer’s
name, not the manufacturers Eg Sainsbury’s, Boots.








Sub-brands – individual product brands within a giant retailer’s range eg
Sainsbury’s Novon detergent, Tesco Value.
Really successful brand names become generic eg the term biro has become
synonymous with ballpoint pen, as has the term hoover with vacuum cleaners.
Suggest the benefits / positive characteristics.
Suggest product use or special feature – eg Instant Whip.
Be easy to pronounce, spell, remember, recognise.
Be distinctive – stand out from others.
Be versatile enough to apply to new products.
Be capable of legal protection – able to be trademarked.
Not break the law eg use another firm’s brand name.
Mrs S Haywood Business & Economics
62
Module F293: Further Marketing (Optional) – The Marketing Mix
Promotion: Other Below the Line Methods
Direct Mail
Promotional material sent or delivered direct to customers through
the post, by hand or in newspapers.
Public Relations
Effectively managing relationships with different publics of significance to the
firm, mainly through the use of news media
such as press, television and radio.
Mail shot – promotional literature is sent to an addressee.
Mail drop – unaddressed promotional literature.
Types
Significant publics may include consumers, shareholders, employees,
pressure groups, government.
Letters, Newsletters, Catalogues, Brochures, Booklets, Price Lists, (may
include free samples, coupons).
Aim / Objectives
Factors Affecting Rates
The overall aim is to increase / maximise sales by improving the image of
a firm and its products.
Cost of obtaining / maintaining mailing lists; printing costs; postage.
Specific objectives may, however, include:
Advantages and Disadvantages:

Obtaining media coverage of a key event such as the exhibition and / or
launch of a new product.

Generating word of mouth interest about a firm and its products.







PR Activities

Securing press / news releases with the expectation that they will be
given editorial comment free of charge. This may involve sales
representatives giving speeches and group press conferences or the
publicity department within an organisation providing written information for
the media.
Advantages
Highly targeted.
Little wasted circulation.
Personal.
Few distractions.
Scope for originality.
Hidden from competitors.
Effectiveness easily measured.



Disadvantages
Can be expensive – up-to-date
mailing lists required.
Limited impact – no movement
or sound.
Considered junk mail by many
and may be viewed as invasion
of privacy.
Individual advantages and disadvantages:

By post – fairly reliable and accessible but can be expensive.

By hand – total control but expensive.

Giving donations to charities.


Providing sponsorship ie funding for people or events, relating to sports
or the arts, for example. This allows the business to get their name or
brand name associated with particular activities and can secure wide
media coverage if the event is considered newsworthy.
In newspapers – comparatively cheap but there is danger of overload and
less control.

Via email – economic (local rate phone call), fast and efficient but easily
dismissed.
Obtaining product endorsements ie where a public figure / celebrity
endorses a firm’s products.
NB Direct mail can be classed as above and below the line – it is a method
over which the firm has some direct control but this may be limited depending
on the delivery method.

Mrs S Haywood Business & Economics
63
Module F293: Further Marketing (Optional) – The Marketing Mix
Promotion: Final Considerations
Planning the Promotional Mix
Factors Influencing the Promotional Mix
Whatever methods are used, these should be carefully planned:
The methods of promotion chosen may depend upon:



The nature of the product – if use / benefits relatively obvious / simple
to understand then personal selling would be an unnecessary waste of
resources. For complex, technical products, however, it may be
essential to fully explain and / or demonstrate how a product works and
answer specific enquiries.
The nature of the market, number and location of its customers –
personal selling is widely used in trade and industrial markets where
fewer people are involved. Advertising, however, plays a much greater
role in consumer markets (particularly mass markets), where a large
and more diverse number of customers are involved.
The business objectives – if sales maximisation is the objective, then
sales promotions eg special offers may be more appropriate. If
changing corporate image eg to one of social responsibility is the
objective, then advertising is more appropriate.

Product life-cycle – advertising and sales promotion is more widely
used during the launch and growth stages when it is essential to
generate awareness and encourage customers buy a product.

Relative costs and availability of finance – A national TV advertising
campaign may be far too expensive for a small firm.
Know Objectives
This is essential to be able to judge whether or not you have been
successful.
Identify the Target Market
Which group of customers are to be targeted?
What are their needs? What do they value?
Select the Appropriate Method / Media
Which is the most effective for reaching your target market?
Transmit the Right Message
What are the benefits?
eg a kettle boils water this is not the benefit – the benefit is
hot drinks in short space of time;
Remember AIDA:
grab Attention, create Interest, stimulate Desire, provoke Action.
Monitor the results / Review for next time
Have the objectives been achieved?
Monitor calls / enquiry levels, monitor sales levels,
survey existing / repeat customers.
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Factors affecting costs and revenues are considered in the following sections.
Distribution: Location
Resources
Regional Location
Resources concern the following:
Introduction

Cost and Availability of land / premises in terms of size/area, contour,
suitability for further expansion and likelihood of obtaining planning
permission for any required changes. The cost of land will vary
considerably across regions. Land and property is far more expensive in
Southern as opposed to Northern regions, and rent becomes cheaper the
less dense the area in terms of population. The price of land / property
affects a business’s fixed costs. This factor is likely to be relatively more
important than other factors for businesses requiring large areas of land or
property, eg wholesalers.

Cost and Availability of capital to purchase the land / premises and fund
any relocation decisions. A business may have insufficient internal
finance to fund a move and may be forced to borrow in order to raise the
capital required. If so, this will increase the fixed costs involved in the
location decision. Grants, however, may be available in certain regions to
help reduce the fixed costs (discussed later in this section).

Cost and Availability of labour in terms of numbers and level of skill.
This is often influenced by the availability of social amenities such as
housing and medical facilities. As with land and property, the price of
labour will vary across regions. This factor, however, affects both fixed (in
terms of management salaries) and variable costs. A business may also
take into account the strike record of employees within a particular area,
level of absenteeism and labour turnover, and attitude towards work eg
flexible working practices. All these have implications for productivity and
costs. This factor becomes more important for labour intensive industries,
particularly those requiring a highly skilled workforce.

Access / Proximity to Raw Materials/Supplies. Certain companies still
locate close to their principal suppliers eg Marmite has a factory close to
the brewers in Burton-upon-Trent, who produce all the yeast extract the
company uses. This can help to keep transportation (and, therefore,
variable) costs down. This is particularly important for ‘bulk-reducing’
industries, eg iron and steel, where it is cheaper to transport the finished
goods to market rather than transport the raw materials to the
manufacturing plant. This factor is of major importance for most primary
industries where firms must locate where the resources can be found.
Decisions concerning where to locate are complex. They involve the
evaluation of a wide range of financial and non-financial factors. It must be
borne in mind, however, that not every factor will be relevant to all businesses
and some factors will be more important to some than others. The relevance
and importance of each factor will depend on a number of things, including the
nature of the business, its size, aims and objectives. For example:

The most important factor for a supermarket is proximity to customers.

Conversely, a footloose business, such as a business that operates solely
through the Internet or from a “call centre” has much greater freedom to
locate where it wants to, (which usually means the cheapest area).

If market share is the objective, access to customers will be more
important than, say, cheaper premises.
Factors Affecting Costs and Revenues
General
Choice of location affects the costs of producing or providing a product or
service, and possibly the revenues a business receives from selling them.
Companies will generally locate at a site that enables them to keep their costs
to a minimum and / or to maximise revenues.
The costs associated with a particular location can be divided into two:

Fixed costs, eg rent, rates, salaries of managers and financing costs (ie
interest payable on loans used to fund a move/relocation).

Variable costs, eg materials, transport and direct labour costs.
With regard to revenues, by being based at one particular location, the
business might be restricting its access to a particular market. For example, a
shop situated on a busy high street is likely to experience higher sales as a
result of greater passing trade than one situated in a side street. Hence
revenue might rise with a move.
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Government Intervention
Location of Competitors
If the government wishes to boost an area of low economic activity, it will
provide incentives, such as grants and tax breaks. The Telford Enterprise
Zone was developed during the 1980s and attracted many large companies
that have stayed and flourished. With low economic activity comes low wages
(due to the surplus of labour) as well as a willingness to work hard and to
achieve high productivity. Such government aid will help to reduce costs, but
aid has also come in the form of advisory boards and consultants who provide
a sounding board for new ideas.
This factor affects revenues. Locating near competitors may force businesses
to keep prices down if there is very little difference between its
product/service. However, locating next to competitors may actually help to
maximise revenues, as customers are drawn to areas where there is plenty of
choice in one central location, eg City Shopping Centres.
Infrastructure
Traditional theory on location considered access to electricity,
telecommunications systems, and a good road network, as essential. These
are important in keeping down both fixed costs (in terms of initial utility
installation costs) and particularly the variable costs (relating to
transport/distribution). But, as the level of infrastructure in the western world
has improved, this issue has become less significant than being close to
suppliers or being close to customers. Having said that, there has been a
major growth in the number of exporting businesses locating to Kent, because
of the Channel Tunnel. There has also been a growth in the number of major
retailers that have sited their regional distribution depots close to motorways.
Access to the Market
Being close to customers means transport costs and lead-times can be
reduced and flexibility of delivery schedules increased. It is essential for some
businesses in order to maximise revenues, eg supermarkets (where
convenience is an important factor for customers). It is also important for
manufacturers in order to gain an edge over the competition in securing key
business contracts. For example, since Nissan built a plant in the North-East,
numerous suppliers have located nearby (ie within 5 minutes drive of the
factory). This means that they can respond to changes in production
schedules very easily and be reliable at the same time. Since Nissan insist on
JIT, proximal location means it is easier for the business to achieve JIT
delivery targets than if it were located six hours away. Other examples relating
to proximity to customers include:


Time share businesses operating solely in holiday destinations.
Construction companies having deliberately located in hot climates, to
capitalise on the growth in demand for hotels and apartments.
Image
This factor mainly concerns revenues. Certain locations are renowned for
being a source of quality products. Locating in such areas may enable a
business to charge higher prices. For example, Scotland for whisky, London
for financial services.
The State of the Local Economy
The state of the local economy is an important factor with regard to both costs
and revenues. If for example, the local economy is in a recession, labour may
be cheap but revenues may be affected due to the high level of
unemployment.
Qualitative Factors
In addition to the “hard” economic factors, there are other “soft” factors:
Tradition. Staying in the same place, despite economic attractions elsewhere
is an example of industrial inertia. This is often largely due to high investment
in fixed assets ie buildings and machinery but also the perceived
inconvenience of moving.
Labour Relations. A business that values its workforce may refuse to move
despite cheaper costs and better access to the market at an alternative site, if
it means it will lose its current workforce (even if quality labour is available at
the alternative site).
Owners’ Preference. Despite all the theory involved, there might be a very
simple reason, which is not business-based, such as the managing director’s
husband or wife wishing to play at a particular famous tennis club and this
being one of the prime reasons why a business locates in a particular area.
Quality of Life. Linked to the above, a firm may locate in an area where there
is beautiful scenery, excellent leisure and medical facilities, no congestion, low
pollution, low crime rate, etc for the benefit of the owners and employees.
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International Location
Economic Factors
Avoiding Exchange Rate Fluctuations
Introduction
All of the issues mentioned above relate to businesses that consider locating
abroad. Some of these need to be re-emphasised when dealing with
international location decisions. In addition to these, there are one or two
other important reasons. These are based around the need for a multinational
strategy which exploits all the benefits of locating in another country.
One of the frustrating issues relating to global trade is the need to “deal” with
the fluctuation of exchange rates. One way around this is to locate in the
country where exchange rate fluctuations are minimal, hence avoiding the risk
of losing profit margins due to exchange rate volatility.
Interest Rates, Inflation Rates and Employment Levels
Political Factors
The above will also vary enormously between countries, affecting both costs
and revenues involved in location decisions.
Political Stability and Climate
Many areas of the world are renowned for being unstable, (eg parts of the
Middle East and Northern Ireland), and / or anti-foreign investment (eg China
pre 1990s). Taxes and financial Incentives vary enormously between
countries.
With regard to these factors, during the 1990s, there was an enormous
amount of inward investment in China. This was due to the political climate
becoming more welcoming to the wealth that market economies create. The
attraction of cheap labour, government incentives, political co-operation and a
market of well over 1 billion people encouraged many businesses to make
large capital investments in China.
Avoiding Protectionism
The AQA specifications, specifically mention protectionism. This refers to
action by a government that seeks to allow new, local businesses to grow,
normally by preventing foreign businesses from flourishing. This might take
the form of financial help with grants or subsidies. There might also be limits
on the amount that can be imported (known as quotas).
To avoid protectionism, a firm might set up a satellite plant in the foreign
country, thereby allowing them to produce a higher volume of units. Several
Japanese companies did this in the European Union, when limits on Japanese
imports were levied.
Utility Costs
The quality of the water supply, power supply, infrastructure and
telecommunications becomes a more relevant factor to consider with
developing economies / countries.
Achieving High Economies of Scale
Economies of scale are factors that lead to a reduction in unit cost as a
business increases its output / size and scale of operations (internal
economies) or an entire industry develops (external economies).
Expansion (whether abroad or at home) generally enables a business to
exploit internal economies of scale, particularly purchasing, financial and risk
bearing economies (the latter because it reduces the business’s dependence
on any one market).
A business, however, may seek to achieve economies of scale simply by
relocating to similar sized premises abroad (as opposed to actually expand its
existing operations). For example, it may deliberately locate to a country
where the industry in which it operates is more developed / established and
thus benefit from external economies of scale, as follows:
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
Reduced labour costs – local colleges and government training schemes
generally tend to set up to support growing industries. This means that the
business does not have to bear the training costs.

Cheaper ancillary services – as an industry expands it attracts smaller
firms which try to service its needs, resulting in the establishment of a wide
range of support services, eg banking, insurance, waste disposal,
maintenance, cleaning. The more firms that set up the more competitive
the price, thus resulting in lower costs.

Reduced Research and Development costs – the bigger the industry in
the foreign country, the greater the opportunity for firms to combine
resources to fund R & D, reducing the costs of a firm trying to do this on its
own.
Social and Cultural Factors
Effective communication is essential to a successful business. Consequently
a business may prefer to locate to countries that speak the same language as
well as share similar ideologies to help minimise the possible barriers to
communication that may arise within and between businesses.
Image
Foreign countries / cities are also renowned for their reputation for certain
products. For example, Paris for perfume, Milan for fashion. The reputation of
these locations may provide substantial marketing benefits to a business.
Distance from Parent Company
The further away a firm is from its parent company, the more difficult the coordination and control because of barriers to communication. A business may
have to install a more advanced communication system which adds to costs.
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Distribution: Physical Distribution
Modes of Transport
Definition and introduction
The physical movement of a product from producer to consumer
There are essentially four modes of transport that can be used to move goods
from the producer to the customer or consumer, namely road, rail, sea and air.
The following tables outline the advantages and disadvantages generally
associated with each mode of transport.
Moving products from one place to the next, incurs costs relating to the
following:



physical facilities - warehouses, stock and storage facilities.
Transport.
communication.
Road


What mode of transport or combination of methods should be
used? This will depend on several factors, most notably, the type of
good, the need for speed, and distance over which the goods will need
to be moved.

What are the best possible routes? With regard to this, the business
will need to consider factors such as time of travel and the weather.

Should we use our own fleet or hire outside carriers? Use of own
fleet may keep distribution costs to a minimum. However, depending
on the size of the operation, it may require significant capital
investment. Alternatively, a business could consider leasing as a
method of finance.

Disadvantages
Subject to traffic delays and break
downs (especially in bad weather).
Slower than rail over long distances.
Only relatively small loads.
Rail

Besides having to make decisions about what channels of distribution to use
(discussed in the subsequent section) a business will need to consider
transportation requirements. This concerns questions relating to the following:



Physical facilities and communication are to a large extent covered in other
areas of the specifications, consequently, transportation will be focused upon
here.
Transportation Considerations
Advantages
Door to door
delivery.

Advantages
Cheap and quick over long
distances.
Can transport large and
heavy loads.


Disadvantages
May not be able to reach far
away places.
No door to door service.
Sea


Advantages
Fully loaded lorries can be
transported.
Generally cheaper than air.


Disadvantages
Slow.
Other forms of transport
still required.
Air



Advantages
Extremely rapid.
Can be more cost effective
over long distances.
Greater security for
expensive items.
How can safe delivery of the goods be ensured? This has particular
implications for packaging.
Mrs S Haywood Business & Economics



Disadvantages
Not appropriate for bulky
goods.
Subject to delays (especially
in adverse weather).
Still need to be linked to
other forms of transport.
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Potential Advantages
Distribution: Distribution Channels
General Definition and Introduction

Can be a highly cost-effective method for producers to reach a large and
dispersed market – without a wholesaler the communication and transport
costs involved in receiving orders and supplying each retail outlet or end
customer could be far too expensive. Furthermore, from the retailers point
of view the wholesaler can help reduce their communication and transport
costs as they offer a choice of products from a variety of manufacturers,
thus reducing the need for the retailer to visit, inspect and / or place orders
with individual manufacturers.

Allows the producer to concentrate on the production of the product rather
than the marketing of the product.

Provides storage facilities – reducing the need for the producer and / or
retailer to carry large stocks.
The different ways the goods and services produced by business
organisations are made available to the end customer / user.
Potential Disadvantages
Goods and services are either sold to the general public ie household
consumers and / or other business organisations ie industrial consumers.
Some producers of these goods and / or services sell direct to the customer /
end user, others use intermediaries eg retailers (R), wholesalers (W) or
agents (A) to get their product to the end customer / user.

The wholesaler may not put as much effort into promoting the product –
may put the most effort into the most profitable lines.

The price the end customer pays increases as wholesaler add own their
own profit margin.
NB Many retailers, particularly the major supermarket chains, have set up their
own distribution centres to carry out the wholesaling function. Eliminating the
‘middle man’ has led to lower costs which can be passed on to customers in
the form of cheaper prices.
Retailers
Wholesalers
Definition and Introduction
Definition and Introduction
Business organisations who buy large quantities of goods from producers or
agents acting on behalf of producers, for resale in smaller quantities to
retailers or other business users.
This is known as ‘breaking bulk’. Wholesalers will store goods until required
by the retailers and will regularly deliver goods to the retailer. They may even
pack and brand goods for the producers and / or large retailers. They add on
a profit margin before selling the good on.
Business organisations who buy from wholesalers or direct from the
manufacturers for sale to the general public in shops or other retail outlets.
Retailers are usually situated near where people live. They often advertise the
goods they sell and provide feedback to the wholesalers and producers on
customer demand / customer reaction to products. For the general public,
they provide advice and after sales service, and may also provide credit
facilities. Retailers also add on a profit margin before selling the product on.
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Types of Retail Outlet
Agents
There are a wide range of retail outlets. The most common are outlined below:
Independent shops – small single shops (ie not a chain of shops) usually managed by their
owner eg local corner shop, green grocers, butcher.
Multiple specialist chain shops – shops with several branches in several towns across the
country or a particular region that tend to specialise in a particular range of goods eg Curry’s,
Dorothy Perkins, Oddbins.
Multiple variety stores – shops with several outlets across the country or one particular region
which stock a wider range of goods eg Marks & Spencers, Woolworths.
Department stores – very large shops with several floors and five or more different product lines.
Each floor usually has several different departments which specialise in one particular type of
good eg soft furnishings, electrical goods, clothing, health and beauty products, glassware.
Supermarkets – also multiple retailers but which tend to have a much larger floor area (a
minimum of 400 square metres) and sell mainly food stuffs eg Sainsbury’s, Waitrose, Safeways).
Superstores and hypermarkets – very large stores with over 2,500 square metres of selling
space or more. These tend to be situated on the outskirts of towns and their stock is usually
divided equally between food and other goods that they choose to specialise in eg electrical.
An independent person or business contracted to negotiate sales and handle
the distribution of a product on behalf of the seller.
The agent usually adds a mark-up or earns a commission on each sale made.
They are widely used in importing and exporting.
Potential Advantages


Can be a highly cost-effective method for producers and / or wholesalers
to reach a large and dispersed market – without a retailer the
communication and transport costs involved in receiving orders and
supplying the end customer, particularly with regards to consumer
markets, could be far too expensive.

Allows the producer to concentrate on production rather than the marketing
of the product.

Provides storage facilities - reducing the need for the producer to carry
large stocks.
Reduced distribution costs.
May work harder than salaried salesforce as the more they sell, the more
money they make.
Potential Disadvantages

Potential Advantages

Definition and Introduction
An agent of several products may not give sufficient attention to one
particular product if others are more profitable.
Summary of the Use of Intermediaries
It is argued that intermediaries:


Add to costs.
Create barriers between manufacturer and consumer by restricting
consumer feedback and reducing power manufacturers have over ultimate
price of the product.
On the other hand:
Potential Disadvantages

May require considerable marketing effort as competition for shelf space in
major retail outlets is likely to be high.

Major retailers have considerable power, likely to push margins down and
pay on credit which can negatively effect cash flow.

The price the end customer pays increases as retailer adds own margin.



The use of intermediaries reduces marketing effort and risk, allowing the
producer to concentrate on production.
Intermediaries may be specialists, have contacts and know-how;
Manufacturers may lack finance and resources required (eg author of
book may lack time, know-how, contacts and money required to publish,
promote and distribute the book).
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E-commerce
Direct Marketing
Definition and Introduction
Where businesses approach customers directly rather than
through the use of intermediaries.
Direct marketing includes:
Personal Selling & Direct Mail (refer to information sheet on promotion);
Telemarketing; Direct Response Marketing; E-commerce.
The following table summarises the main advantages and disadvantages
associated with direct marketing. The remainder of this section then briefly
describes specific direct marketing methods.
Potential Advantages:
Can be selective – target specific segments.
Greater control.
Easy to monitor.
Can be relatively cheap.
May generate greater returns as no profit
margin added for intermediary.
Many businesses are abandoning more traditional methods of advertising
mainly due to high costs and increasing pressure on prices. A website with ecommerce facilities could cost considerably less than a monthly or seasonal
advert in a newspaper or magazine, or even a full colour printed catalogue.
Potential disadvantages:
General Advantages and Disadvantages





E-commerce is short for 'Electronic Commerce', which basically means
replacing a physical transaction with an electronic one via the Internet. The
key ingredient is the ability to take orders and receive payment through an
electronic storefront.
Potential Disadvantages:
Database needs to be
regularly updated.
 People may resent junk
mail or invasion of
privacy from
telemarketing.

Telemarketing
The use of the telephone to contact potential customers directly.




Initial design cost, maintenance fee.
Lack of trust / confidence in use by some customers.
Requires merchant account / agreement with on-line secure payment
service provide to accept credit cards on line – percentage of selling price
goes to them.
No personal interaction.
Potential advantages:
From a business point of view:






24/7 on line store - no opening hours (or rather 'closing hours').
Global reach - sell products world-wide instead of nationally.
Cheaper processing - electronic orders cheaper than paper.
Less man hours - automated so no lengthy phone discussions.
Better cash flow - 'real time' transaction, no waiting for cheques.
Lower stock costs - unlimited space to display stocks 'virtually' rather than
physically.
More competitive - lower prices may be possible due to lower overheads,
even taking into account distribution.
This involves ringing potential customers at their home or workplace to try to
sell the product. Lower success rate than face to face, but less expensive.

Direct Response Marketing
From a customer point of view:
Any approach that asks the target audience to take direct action.
For example, adverts in newspapers, magazines and on TV may provide
coupons or phone numbers for the target audience to call and purchase the
product. There are now TV channels dedicated entirely for this purpose.




Convenience - e-shoppers able to shop in the middle of the night.
Variety - can compare and contrast far more easily on the net.
No sales pressure - no pushy salesmen.
Cost savings - products generally cheaper on-line.
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Factors Influencing Choice of Channel and Physical Distribution
This sub-section considers factors that affect choice over channels as well as
physical distribution, ie modes of transport.
Legal restrictions:

There may be certain legal restrictions affecting choice over distribution
channel. For example: certain drugs can only be sold by pharmacists
through prescription. Alcohol requires a licence.
Nature of the product:






Size of producer:
Bulky products need more direct channels as handling costs are likely to
be higher.
Fragile products need more direct channels to limit handling and chance of
breakages.
Perishable products need short channels.
Tailor made products need more direct channels to ensure consumers
needs are met.
Technically complex need a direct link to allow explanations, questions
and answers to specific queries.
NB services are usually sold direct (excluding package holidays).
Size and spread of the market:

The larger the producer:


the more resources they are likely to have available to set up their own
networks, and
the more they are likely to be able to take advantages of economies of
scale through purchasing their own fleet of vehicles.
Ability and experience of management:

Intermediaries are often used when management lack the ability and / or
experience in marketing their products / services. Hence, they are more
likely to be used when a business is just starting out.
If the market is large and dispersed, a long channel may be required, with
many intermediaries, and various modes of transport.
Needs of the customer / consumer:


This concerns urgency and value for money - if next day delivery is
needed for the lowest possible price, then the quickest and most costeffective method is required.
If customers buy large amounts infrequently then a short, direct channel
may be possible.
Competitors:

This concerns what they are offering and whether this can be matched in
terms of delivery times and quantity.
Reputation of intermediaries and carriers:


How efficient are they?
Can they meet the standards expected?
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Growth in light goods vehicles due to the increase in home shopping.
Distribution: Patterns / Trends
Growth in heavy goods vehicles due to globalisation and goods having to
be transported over longer distances.
Introduction
This section briefly outlines recent trends / patterns that have emerged relating
to various aspects of distribution.
Summary of Recent Patterns / Trends
Establishment of enclosed shopping centres / malls such as the Trafford
Centre (Manchester) and Metro Centre (Gateshead). These contain a variety
of different shops, cafes and restaurants under one roof, providing a great deal
of choice and convenience to the customer.
Growth in out of town retail parks. These usually contain hypermarkets,
supermarkets and restaurants, and some even contain cinemas. For the
retailer they provide cheaper rent and greater floor space, than premises
available in town centres. In many areas they have led to the closure of town
centre retail outlets, particularly where town centre parking is a problem.
Decline in independent retail outlets. Many independent outlets have been
unable to compete with chain stores, particularly supermarket chains, which
are able to benefit from economies of scale and offer lower prices.
Rapid growth in direct marketing, home shopping, particularly online
shopping. A growing number of people are buying products via mail order,
the internet, or digital television, due to busier lifestyles. Books, CDs, clothes,
holidays and even foodstuffs are particularly popular. This has reduced the
number of shopping trips made to retail outlets (and wholesalers) and thus, the
need for such intermediaries.
Globalisation. More and more products are being sourced from around the
world to provide for a more demanding customer who requires greater choice
and value for money. Globalisation allows a business to take advantages of
cheaper input costs eg raw materials, labour. However, it leads to greater
transportation costs, including external, environmental costs eg pollution.
Increase in road and decline in rail freight transport. This has been due to
several factors, including: improvements in the motorway networks, reduction
in restrictions on road haulage, as well as structural decline of coal, iron and
steel industries, which were rail freight’s main customers.
Growth in air and sea traffic as a direct result of globalisation.
Growth in just-in time production – minimising the warehousing and
storage facilities involved in moving goods between suppliers, intermediaries
and the end customer.
Changing role of warehouses/distribution centres. Many now not only
provide storage facilities but repackaging and labelling for local markets.
Increased road congestion, restrictions on driver hours and driver
shortages. Increased road freight is creating congestion problems, so much
so that it has been suggested that by 2015 nearly every part of the railway
network will suffer intense congestion at most times of the day. This
obviously, means increased journey times and thus, increased costs. This
fact combined with regulations limiting driver hours as well as driver
shortages, may lead to more locally based production and distribution and
thus, a reverse in some of the key trends outlined above. Such problems
may, in the short-term, be offset through the use of the following:

assigning drivers to familiar routes to ensure if delays are encountered
they can independently identify alternative routes.

briefing drivers with up-to-date traffic news to enable them to action timely
re-routing to avoid encountering delays.

using mobile phones or CB radio to enable advice to be sought from
drivers regarding re-routes if required, or extra updates to be given from
Head Office regarding traffic delays that necessitate re-routing.

investing in vehicle scheduling and routing systems eg satellite tracking
systems with navigation facilities. These enable Head Offices to identify
the location of any vehicle at any time of the day, and instantly update
drivers on the best routes to take to avoid delays. This is obviously far
more expensive than the options listed above (incurring capital, training
and installation costs).

off-peak / overnight movement of goods.

higher capacity vehicles.

using alternative modes of transport eg rail.
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Module F293: Further Marketing (Optional) – The Marketing Mix
The Marketing Mix – Final Considerations
Blending the ‘4 P’s’
In addition, when determining the right blend, consideration obviously needs to
be given to the financial and human resources currently available to the
business / likely to become available in the near future. This is essential to
ensure that a mix is not designed which stretches the business’s resources to
the limit, and risks the business’s very survival.
Introduction
Effective marketing requires a clear understanding and appreciation of
customer needs, wants, preferences and perceptions, as well as awareness of
any limitations, eg relating to spending power and accessing the product /
service. Once such information has been obtained a marketing manager will
then be able to ‘blend’ the 4 key elements of the marketing mix, ie product,
price, promotion and place / distribution, together, in such a way, that it will
fulfil customer requirements and, ultimately, achieve a business’s marketing
and overall objectives.
Getting the Right Blend / Balance
Consideration of Each Aspect as a Separate Strategy
Some organisations may choose to focus on one particular aspect of the
Marketing Mix. For example:

Some of the major supermarket chains – particularly Asda and Tesco who
focused on price for a long time. Tesco has, however, re-positioned itself
in the marketplace, placing emphasis on product quality through the use
of various promotional campaigns.

With detergents and beers and lagers, the focus is on promotion, with
particular emphasis being on television advertising.
Getting the right blend / balance essentially requires the following:



Market research. This is crucial in helping a business to identify the right
balance. Test marketing can be particularly effective in determining
whether a particular marketing mix is likely to achieve the desired results.
Creativity. The degree of creativity required will vary according to the
nature of the product and market(s) a business serves. The more
competitive the market place, the more creative a business may need to
be in blending the mix, in order to stand out from the competition. With
regard to this, an organisational culture which encourages rather than
stifles innovation is essential.
Adaptability / flexibility. Getting the right mix is an ongoing process.
Customer needs, preferences, perceptions and constraints are affected by
numerous factors, many of which are outside a business’s control.
Consequently, ongoing research and feedback from customers is
obviously important here, but this needs to be supported by a flexible
organisational structure which allows the business to make timely
responses to any changes.
Even though some organisations place emphasis on one particular aspect of
the mix, all aspects will still be addressed as all remain important to the
customer. Customers need a product / service that:




meets their needs (product).
they can afford / provides value for money (price).
they are fully aware of and informed about (promotion).
they can access conveniently (place / distribution).
A business will make strategic decisions about each aspect of the mix but the
mix needs to be blended effectively to achieve the desired result in terms of
sales, market share, profit, etc. If a business fails to address one particular
aspect, they are unlikely to be successful in the long-term.
The previous section emphasised the important of feedback in getting the right
‘mix’. Such feedback may actually lead to a business making strategic
decisions about one particular aspect of the mix. For example, it may show
the product, price and place to be appropriate to customer requirements, but
that not enough people are aware of the product. In such a scenario, the
emphasis needs to be placed on revising the promotional strategy / mix to
increase awareness of the product within the chosen target market.
Mrs S Haywood Business & Economics
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Module F293: Further Marketing (Optional) – The Marketing Mix
The Impact of One Aspect on Another

Product and Place / Distribution. Bulky products need more
direct distribution channels as handling costs are likely to be higher.
Fragile products need more direct channels to limit handling and
chance of breakages. Perishable products need short channels.
Tailor made products need more direct channels to ensure
consumers needs are met. Technically complex products need
direct channels. NB services are usually sold direct (excluding
package holidays).

Promotion and Price. The costs of promoting a product and the
way a product is promoted will also affect the selling price. With
regard to the latter, for example, promotion can add value, allowing
a higher price to be charged.

Promotion and Place / Distribution. Middlemen need a return. If
the price is too low they will not stock it.
Introduction
It is important to recognise that each element within the marketing mix are
interrelated and that in the majority of situations, changes in one element will
affect another. The following text provides some examples which highlight this
inter-relationship. (NB The majority of these examples have already been
outlined in the sub-sections detailing factors Influencing the individual
elements of the mix). These examples, suggests that the product is possibly
the most dominant element of the mix – any changes to the product, usually
have a knock-on affect on all other elements of the mix.
Examples

Product and Price. The direct cost involved in producing or
providing a product or service will be taken into account when
setting the price. To survive in the long-term total costs must be
covered. In the short term there is greater flexibility.

Product life-cycle and price. A high price may be appropriate at
the start as consumers want to be at the forefront of owning a new
product and are prepared to pay a premium price. During maturity
or decline the price may need to be reduced in order to maintain
market share.

Product and Promotion. If the use / benefits of a particular
product or service are relatively obvious / simple to understand, then
personal selling would be an unnecessary waste of resources. For
complex, technical products, however, it may be essential to fully
explain and / or demonstrate how a product works, as well as
answer specific enquiries.

Product life-cycle and Promotion.
Advertising and sales
promotion are more widely used during the launch and growth
stages of a product, when it is essential to generate awareness and
encourage customers to buy.
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