Download IB1 Ch 4.5 The Four P`s

4.5 The Four P's
Product, Price, Promotion and Place
Product
Product Vocabulary

Product

The end result of the production process sold
on the market to satisfy a customer need.
Product Vocabulary

Consumer durables


Manufactured products
that can be re-used and are
expected to have a
reasonably long life.
Industrial goods

Products that are
purchased by businesses
not final consumers.
Product Life Cycle

The pattern of sales recorded by a product
from launch to withdrawal from the market.

A classic business error is failing to recognize
when a product is in decline as other
competitors create new replacement products.
Product Life Cycle

Introduction

Growth

Maturity or Saturation

Decline
Characteristics of Product Life
Cycle: Introduction

Introduction

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The product has been launched after
development and testing.
Sales are typically low and growing slowly.
Advertising costs are high.
Profits not yet realized.
Characteristics of Product Life
Cycle: Growth

Growth


Sales grow significantly if the product is well
received in the market place.
This phase does not last forever!
Characteristics of Product Life
Cycle: Maturity

Maturity or Saturation

Sales fail to grow but they do not decline.



Example: Coca-Cola
Can you think of others?
Saturation occurs when everyone has the
product that needs the product


Example: cell phones
Can you think of others?
Characteristics of Product Life
Cycle: Decline

Decline



Sales fall steadily, extension strategies were not
tried or did not work.
Product obsolescence
Newer competitors products maybe available
Benefits/Limitations of Extension
Strategy
Benefit
Limitation
Add new features
Developed and marketed quickly;
lower cost than new product
Original product is still aging and
customers may not be “buy into”
revision
Repackage
Product
Relatively cheap and quick
Will realize the product hasn't
changed and may feel misled
Discount the Price
Lower-income consumers can now
afford the product and may be
offered to different market segments
Could affect the brand image
negatively. Maybe better to develop
a new product to avoid discounting
Rebrand
Opens new markets, can be
presented as a new product.
Expensive; is it worthwhile if the
product is considered old and dated
Sell into new
markets
Market development can increase
sales if the product is not perceived
as too old or outdated
Product and promotion may need to
be redesigned to meet local laws
and cultural norms
New advertising
campaigns
Helps keep the product fresh and in
front of customers
Customers will know that the
product has remained unchanged
Create new uses
May expand use of the product to
existing customers or open new
markets
Customers may not perceive the
new use as viable and the product
may not be accepted in new
markets
Why be concerned with product
life cycle?
1. Assists with the planning of the marketing
mix decisions.



When do we raise/lower prices?
When should we advertise and how much?
When should variations to the product be
introduced?
Why be concerned with product
life cycle?
2. How is cash flow affected?




Cash flow is negative during development and costs are
high – nothing sold yet!
At the introduction phase, development costs are over
but promotional expenses are high. Factory capacity is
not fully utilized.
At maturity, cash flow is likely at its best: sales are
high, promotional costs are low, factory capacity is
fully utilized.
At decline, cash flow declines due to falling prices and
falling sales.
Why be concerned with product
life cycle?
3. How is profit and investment affected?


Investment: Capital spending is likely to be extensive
towards the end of the product life cycle as new
replacements products must be developed. This
timeline will depend upon R&D required for
replacement products.
Profit: High profits will most likely occur during
growth and maturity. Profits are likely to fall during
decline due to likely pricing pressures from
competitors. However, low advertising costs and
manufacturing equipment used to produce the product
are likely paid for allowing the product to yield some
profit.
Product Life
Cycle Phase
Price
Promotion
Place
Product
Introduction
May be high compared
to competitors
(skimming) or low
(penetration)
High levels of
informative advertising
to make consumers
aware of the product’s
arrival to market
Restricted outlets –
possibly high-class
outlets if a
skimming strategy
is adopted
Basic model
Growth
If successful, initial
penetration pricing
strategy could now
lead to rising prices
Consumers need to be
convinced to make
repeat purchases –
brand identification
will help to establish
consumer loyalty
Growing numbers
of outlets in areas
indicated by
strength of
consumer demand
Planning of product
improvements and
developments to
maintain consumer
appeal
Maturity
Competitors likely to
be entering market –
there will be a need to
keep prices at
competitive levels
Brand imaging
continues – growing
need to stress the
positive differences
with competitor’s
products
Highest
geographical range
of outlets as
possible –
developing new
types of outlets
where possible
New models,
colors, accessories,
etc… as part of
extension strategies
Decline
Lower prices to sell
off stock – or if the
product has a small
“cult” following,
prices could even rise
Advertising likely to be
very limited – may just
be used to inform of
lower prices
Eliminate
unprofitable outlets
for the product
Prepare to replace
with other products
– slowly withdraw
from certain
markets
Product Life Cycle Graph
Sales
Introduction
Growth
Maturity
Time
Decline
Product Life Cycle Graph
Introduction
Growth
Maturity
Decline
Sales
Sales
Cash
Time
Boston Matrix

A method of analyzing a product portfolio in terms
of market share and market growth.
 The size of the circle indicates market share size.
B
High
C
Market
Growth%
A
Low
High
Market Share %
D
Low
Low market growthHigh market share

Product A

CASH COW
Well established product in a mature market.
Sales are high; promotional costs low.
Cash is “milked” from this product.
B
High
C
Market
Growth%
A
Low
High
Market Share %
D
Low
High market growthHigh market share

Product B

STAR
Successful product in a growing market.
Sales are high; promotional costs high to reinforce brand.
Could become a CASH COW.
B
High
C
Market
Growth%
A
Low
High
Market Share %
D
Low
High market growthLow market share

Product C

PROBLEM CHILD
Consuming resources without much return.
If new product, it will need heavy promotion.
Positive – it is in a growing market; Negative – product may need
to be dropped
B
High
C
Market
Growth%
A
Low
High
Market Share %
D
Low
Low market growthLow market share

Product D

DOG
Consuming resources without much return.
If new product, it will need heavy promotion.
Positive – it is in a growing market; Negative – product may need
to be dropped
B
High
C
Market
Growth%
A
Low
High
Market Share %
D
Low
Analyzing the Boston Matrix
Building: Support problem child products; finance
can be obtained from the cash cows.
Holding: Continue support of stars so high sales
growth and market position can be maintained.
Milking: Take the cash generated from cash cows to
invest in other products in the portfolio.
Divesting: Identify the dogs and stop production;
carefully evaluate the impact of this decision.
Pros & Cons of the Boston Matrix
On its own, it cannot predict product success or
failure.
 It is only a planning tool and criticized for its
simplicity.
 It assumes higher rates of profit are related to
high market shares – this may not be true!

Product VS Branding
Product is a general term used to describe what
is being sold –
a computer.
Branding is the name or symbol that
distinguishes one manufacturers product from
another –
Macintosh
Compaq
Hewlett-PackardDell
Gateway
Branding can…
Influence marketing
 Create a perception in customers minds –
positive or negative
 Give products a unique identity
 If successful, charge premium prices
 Be EXPENSIVE and take years to develop
 Not be guaranteed to be successful

Branding Vocabulary
Brand
An identifying symbol, name, image or trademark that
distinguishes a product from its competitors
Brand awareness
The extent to which a brand is recognized by potential
customers and is associated with a particular product.
Branding Vocabulary
Brand development

Measures the infiltration of a product’s sales usually expressed
per thousand people
If 100 people in 1000 buy a product, it has a brand
development of 10
Brand loyalty
The faithfulness of consumers to a particular brand as shown by
their repeat purchases irrespective of the marketing pressure from
competing brands.
Brand value (or Brand equity)
The premium that a brand has because customers are willing to pay
more for it than they would for a non-branded generic product.

Branding is important because....
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Promotes instant recognition of the company and product.
Differentiates the company and its products from rivals
particularly when products when products are difficult to
differentiate like milk or gasoline.
Aids in employee motivation.
Generates referrals from customers.
Customers know what to expect from the company and its
products.
An emotional attachment can develop between the brand and
customers increasing loyalty.
Increases the value of the business above the value of its physical
assets (brand equity).
Types of Brands
Types of Brands include:

Family Branding

Product Branding

Company or corporate branding
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Own-label Branding

Manufacturer's Brands
Types of Brands - Family
Selling several related products under one
brand name – aka umbrella branding
• Examples: Mars Bar
• The original product has been joined with Mars ice
cream, Mars muffins, and Mars energy drink
• Benefits: Marketing economies of scale; makes new
product launches easier
• Limitations: Poor quality of one product under the
brand may damage them all.
Types of Brands - Product
Each individual product has its own unique
identify and brand imageaka individual branding
• Examples: Proctor & Gamble
• Head & Shoulders, Pampers
and Duracell are all separate brands
• Benefits: Each product is perceived on its own and is
unconnected with the parent company.
• Limitations: Loses the positive image of a strong
company brand.
Types of Brands - Company
The company name is applied to the products
and the becomes the brandaka corporate branding
• Examples: Disney Products
• Movies, clothing, and toys
• Benefits: Like family branding – but now applies to
ALL products produced under the company's brand
name.
• Limitations: Poor quality of one product may
damage image of the company.
Types of Brands – Own Label
Retailers create their own brand name and
identify for a range of productsaka store brands
• Examples: Walmart
• Sam's Choice, Faded Glory, Metro 7
• Benefits: Often cheaper than name-brand, each label
appeals to a different customer, little spent on
advertising.
• Limitations: Customers often perceive products to
have a lower quality image.
Types of Brands – Manufacturer's
Producers of the product establish the brand
image for the products, often under the
company name.
Examples: Levi's
Benefits: Successful branding establishes
a unique personality for the product;
often customers will pay a premium price
Limitations: The brand has to be
constantly promoted and defended.
Packaging....Why is it important?
Protection – The main purpose of packaging is to protect the
product from damage.
Attracting customers – The package must attract the consumer in
the store....lots of research is completed to determine what is
appealing to customers.
Promotion and information – The package may contain
directions, nutritional information, warnings, or special offers.
Differentiation and brand support – Helps distinguish your
product from others within a display. It may contain the color
scheme of your brand.
Evaluation: Packaging needs to be integrated into your marketing mix.
Product packaging contributes substantially to the waste disposal problem.
Price
Price
Price is the amount
paid by consumers for
a product.
What else does PRICE say?
Determines the degree of value added to “bought-in”
components.
• Bought-In Pieces purchased from other
manufacturers to create a whole
product.

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Influences the revenue and profit of a business due to
impacting demand for a product.
Reflects the marketing objectives of the business.
Establishes the psychological image and identify of a
product.
Factors in determining price
1.
2.
3.
4.
5.
Costs of production
Competitive conditions
in the market
Competitors’ prices
Marketing objectives
Price elasticity of demand
What?
(Measures the responsiveness of demand following a change in price.)
6.
Whether it is a new or existing product
Pricing Strategies
Cost-Based Pricing
• Firms determine the costs of producing and supplying a
product and then ADD money on top of this calculated
costs to determine the selling price.
• Cost-Plus Pricing
Adding a fixed mark-up for profit
to the cost of the item.
• This method is popular with retailers. They take the
cost of the item and add a mark up percentage to
determine selling price.
Cost of bought-in materials: $40
50% markup on cost = $20 Selling price= $60
Pricing Strategies
Market-Based Pricing
• Pricing set based upon the marketing objectives of the
company.
• Penetration Pricing Setting a low price
supported by strong
promotion in order to
achieve high volume
in sales.
• This occurs when firms are trying to obtain market share.
If successful, the price can increase later.
• Examples: Snack foods
Pricing Strategies
(Market-Based Continued)
• Market Skimming A high price is charged for a new
product that has little or no
competition.
• This strategy is used to maximize short-term profits until
competitors enter the market and to project an exclusive
image.
• Examples: Pharmaceuticals,
Technology products
Pricing Strategies
(Market-Based Continued)
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
• Psychological Pricing Setting prices that take advantage
of a customer's perception of value
of the product.
Common for prices to be set below the key price to make
the product appear cheaper than it is: $999 instead of
$1001; $1.99 instead of $2.01
Prices are set to coincide with market perception of the
product even if the product has a low production cost.
Setting the price too low would create a perception of a
cheap product. Setting the price too high could alienate
buyers.
• Examples: Can you give an example?
Pricing Strategies
(Market-Based Continued)
•


Loss Leader
to
Product sold at a very low price
encourage consumers to buy other
products.
Commonly done in the grocery industry.
Examples: Milk, bread, soda, or chips are sold at a
very
low price – perhaps at a loss – to entice
buyers into the store
–
Selling computer printers below cost or giving
them away for free so expensive ink
cartridges can be sold.
Pricing Strategies
(Market-Based Continued)
 Price


Discrimination
Charging different groups of consumers different prices for
the same goods or services.
Examples:
Airline tickets, bus fare, train tickets,
movie theatre tickets, restaurant
meals, grocery discounts.
Senior citizen discounts,
children’s prices vs adult prices
Pricing Strategies
(Market-Based Continued)

Promotional Pricing

Special low prices used to gain market share or sell off
excess stock – includes “buy one get one free” offers.

Widely used pricing strategy to stimulate sales for limited
periods of time usually during low product demand
periods or to promote the opening of a new store.
Pricing Strategies
(Market-Based Continued)

Predatory Pricing

Deliberately setting prices so low that competitors are
forced out of the market.

This pricing strategy is typically illegal
in most countries but difficult to prove.
Promotion
Promotion

The use of advertising, sales promotion, personal
selling, direct mail, trade fairs, sponsorship and
public relations to inform consumers and persuade
consumers to buy.
• Advertising – TV ads, print ads, billboards
• Sales promotion – sales, coupons, loyalty programs
• Direct mail – mass mailings
• Trade fairs – booths at trade fairs (Southern Home Show)
• Sponsorship – NASCAR, tennis players, golfers, TV shows paid to
display or promote a particular product
• Public relations – controlled publicity and advertising
Why do we PROMOTE?




Increase sales by increasing consumer demand
Remind consumer of exiting products and why they are special
Attract new buyers (Dominos try something new) http://www.youtube.com/watch?v=sADwVQuu6LA
Demonstrate the superior quality of product as compared to its
competitors – often occurs after a product has been updated
(I’m a Mac advertising campaign) http://www.youtube.com/watch?v=C5z0Ia5jDt4


Create or reinforce the brand image (Coke adds life) http://www.youtube.com/watch?v=t4-li4wch90
Correct misleading reports about the product or the business and
reassure consumers after a “scare” or “accident”
bp oil spill http://www.youtube.com/watch?v=_AwD_7yNzKo

Develop or adapt the public image rather than the product
(Proud Sponsor of Moms) http://www.youtube.com/watch?v=IzOdLE4n8AA

Encourage stocking by retailers
Promotion Types
Above-the-line promotion


Purchasing communication
with the consumer – AKA –
advertising
Above-the-line

Promotions that
are visual &
auditory
TV Ads, billboards,
radio, print ads
Below-the-line promotion
Short-term incentives to
encourage consumers to
purchase the product
Below-the-line

Promotions that
are tactile
Samples, coupons,
loyalty programs,
games, price deals
Above-the-line Promotion

Advertising

Communicating information about a product or business through the
media such as radio, TV, newspapers, magazines, or billboards.

Informative
Provide information to potential
customers like, price, features,
technical
specifications, or where to
purchase NCAA Athletes
action
http://www.youtube.com/watch?v=6sMo_shyuVM

Persuasive
Trying to create a distinct image or brand
identity Anti-Smoking Campaign
class
Which media to use?

Cost



Profile of the target audience

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What is the best media to reach your audience?
Type of product message to deliver


TV and radio can be expensive to purchase and produce.
Print media can be less expensive
Written forms are best for detailed information about a product
Link between the marketing mix and advertising media.
Are they consistent and sending a similar message?

The law and other barriers

Are there bans on certain types of advertising? (Tobacco, alcohol,
adult imagery or language)
Volkswagen Commercial – Bollocks (language) Banned in UK
https://www.youtube.com/watch?v=Ow0a06gsiF4
Below-the-line Promotion

Sales promotions are used to generate short-term
gains in sales.
– Sales or price deals – a temporary reduction in price
– Loyalty programs – airline miles, points earned to redeem
for other products and gifts
– Coupons
– Point-of-sale displays – aisle interrupters, dump-bins
– BOGOF – buy one, get one free offers
– Games and competitions McDonalds http://www.youtube.com/watch?v=O024RSoPeJA
– Public relations Dawn http://www.youtube.com/watch?v=1JRE8dlmUxs
– Sponsorships Coke & Special Olympics Coke & Special Olympics
http://www.youtube.com/watch?v=jKdIfp9_04s
What could be a LIMITATION of each strategy?
Promotional Mix

The promotional mix is the combination of
promotional techniques that a firm uses to
communicate the benefits of its product to
customers.
– They must send a consistent message to be
successful.
Promotional Mix

The combination of promotional techniques that are
used to communicate the benefits of the product to
the consumer

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Decide on the image of the product
Develop a profile of the target market
Decide on the messages to communicate
Set an appropriate budget
Decide how the messages should be communicated
Establish how the success of the promotional mix is to be
assessed
Execute the promotional plan
Measure its success
Promotional Mix

How would you address the promotional mix for a
product at each of the stages in the Product Life
Cycle?
– Introduction
– Growth
– Maturity
– Decline (assuming no extension strategy)
Promotional Mix – Social Media
 Technology has transformed
the ways business promote their
Benefits
Limitations
products.
Improved audience reach- per unit cost of
reaching customers has been reduced.
Lack of Skill- large businesses have dedicated teams
monitoring social media. Small firms may have inexperienced
personnel.
Targeted marketing – Social networking
sites enable “smart” marketing....reaching
your target market by monitoring site users
personal interests.
Time investment – Setting up a social media account is quick
and easy. Updating the site is an investment of time a
company may not have which could lead to unresponsiveness
to customers.
Interactivity – Businesses can use social
networking to interact with their customers.
Negative Feedback – Customers can use social media to
provide negative feedback in a public forum.
Performance metrics – Promotional
services can measure demographic
information and site traffic providing
information for promotional decisions.
Performance metrics – Social media does not lend itself to
measurability as some other forms of electronic tracking.
Speed of transmission – Feedback to
customers can be accomplished quickly,
live updates, product recalls, etc... can
make the company feel responsive and
attract more customers.
Security Issues – Not everyone is comfortable with social
media and customers may be concerned with protection of
private information. This cannot be your only form of contact
with customers.
Promotional Mix

Viral Marketing
– The use of social media sites or text messages to
increase brand awareness or sell products.
A customer pass on a positive
word mouth message about a
product they like 3 times
But a product they don't like – 11 times!
Social marketers try to “influencers”
who will pass on a positive message.
Promotional Mix

Guerrilla Marketing
– An conventional way of performing marketing
activities on a very low budget.
RISKS:
– Unconventional advertising techniques may
not appeal to conventional customers.
– Not done well, it may not get noticed at all.
– It could tarnish or damage the brand.
Graffiti and your next step could be jail.
Place
(Distribution)
PLACE

How should products pass from the
manufacturer to the final customer?

Channel of distribution: the chain of
intermediaries a product passes through from
producer to final consumer
Distribution Channel is Important



Consumers need easy access to the firm’s
product where they can see it, touch it, buy it,
return it.
Manufacturers need distribution that provides
a wide market coverage.
Retailers need to mark-up the product to cover
the costs of sales.
Developing a Channel strategy
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Should the product be sold directly to the consumer?
Should the product be sold through retailers?
How many intermediaries?
Where should the product be sold?
Should electronic distribution be used?
How much will it cost to stock products on store or
warehouse shelves?
How well the distribution channel support other
components of the marketing mix?
Factors influencing the channel

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Industrial products tend to be sold more directly to its
customers than durable goods.
Geographic area of target market – where are my customers?
The wider area, the more likely intermediaries will be needed.
Level of service expected from customers.
Technical complexity of the product.
Unit value of the product (the more expensive the more likely
to be sold as individual units and direct sales)….think
airplanes
Number of customers (the more customers the larger the need
for wide distribution and intermediaries)… think toilet paper
Direct Selling

Manufacturer to Consumer
Note: The customer is not considered part of the supply chain.
Product/Service
Manufacturer
(Or Service provider)
Consumer
Single-Intermediary Channel

Manufacturer to a Retailer to a Customer
Note: The customer is not considered part of the supply chain.
Manufacturer
Retailer
Consumer
Two-Intermediary Channel

Manufacturer to Wholesaler to Retailer to a Customer
Note: The customer is not considered part of the supply chain.
Manufacturer
Warehouse
Retailer
Consumer
Benefits & Drawbacks

Give an example of each type and discuss
benefits and drawbacks:

Direct-Selling
Single-Intermediary
Two-Intermediaries

