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Download 6. Marketing Mix Instructions
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MARKETING MIX The key marketing activities are: product, price, promotion and place. These are the ”4 Ps of Marketing” Learning Objectives • Students must… • Know that marketing mix refers to the key marketing activities undertaken by a business: the product, its price, the advertising effort (promotion) and the distribution (placement) of the product • Students should… • Apply their knowledge of each of the 4Ps to a given product • Explain how each concept (product, price, promotion and placement) contributes to the combined marketing effort (marketing mix) for a product or service. • Students could… • Evaluate the marketing mix for a product and make recommendations based on their analysis of the relative contributions of each of the 4Ps. The Marketing Mix – the 4 Ps of Marketing • Product – the management of the product(s) offered by the business, including the intangible aspects of the product (reputation, convenience, etc). • Price – the management of price, i.e. pricing objectives, pricing tactics, and the approaches to making pricing decisions • Place – the management of distribution channels, location of the business, and the in-store presentation of the product to the consumer • Promotion – the management of the methods businesses use to attract customers, e.g. advertising, direct marketing, sales promotion, viral marketing, etc. Watch the Marketing Mix (video) – the 4Ps of Marketing Marketing Mix Milan’s Business Jillian’s Business David’s Business Mark’s Business Ben’s Business Product Haircutting Service Boarding, Training and Grooming Dogs Custom Skateboards Lemonade Sales to Support Charity Designer Water Drinks for Fundraising Price Discount Price skimming Competitive Pricing (Mark-up?) Price Skimming (Competitive Pricing?) Place Mobile, at customer’s home At home, farm has special facilities Parent’s Garage Next to a Car Wash Customer Event Promotion Word-ofmouth, client referrals Brochures, Word-ofmouth, referrals Internet Site, referrals Personal Sales, Product Display Advertising, Word-ofmouth, Sales Task: Watch the video and complete the table. What is the Marketing Mix for the business in your Marketing Plan Assessment? The First P is: Product • “Product” includes the management of the product from start to finish (See: the Product Life Cycle) • Topics to consider include… • Tangible versus intangible aspects of the product • Brand name and trademarks • Type of product (consumer and business products) • Product profile, product mix, product portfolio (lines, width, depth) • Total product attributes • Strategic Planning (Product Life Cycle Concept) – four stages • • • • Introduction – follows product research and development Growth – sales rise Maturity stage – popular and profitable Decline stage – sales and profitability decline • Life Cycle and Marketing Mix – strategies for 4Ps appropriate to each stage of the Product Life Cycle The Second P is: Price • “Price” involves setting a price for a product (fees, rents, charges, fares, rates, etc) • Topics to consider … • Different objectives • Profit objectives set a specific level of return or profit margin • Sales objectives set a specific level of sales or market share • Status quo objectives aim to maintain a level of profit or market share • Different tactics consider… • What the consumer will pay – consumer orientation – considers total product • What the product costs – production orientation – considers fixed and variable costs • Various approaches to pricing • Mark-up pricing • Break-even pricing • Price skimming • Penetration pricing • Competitive pricing • Price reductions Various Approaches to Pricing • Various approaches to pricing • Mark-up pricing – add a percentage of profit to per unit cost • Break-even pricing – setting a price that will return to the business the initial costs, quickly, i.e. recovering initial costs is the priority • Price skimming – setting the price high at first because there are consumers ready and willing to pay more, e.g. new computer chip • Penetration pricing – setting the price low to gain a greater share of a market (underprice the competition) • Competitive pricing – setting the price to compete with existing competitors in the market; equal the competition’s price • Price reductions – discounting techniques to effectively lower price without actually reducing the price (discounts for large volume purchases, reward for loyalty, club membership, buying in bulk, etc) Some Depth to Explain How Prices are Calculated • Calculating prices • Cost pricing – add up costs then add in a desired amount of profit • Mark-up pricing – add up costs then add a percentage of cost • Demand pricing – find out how much the consumer will pay • Competitive pricing – setting the price to compete with existing competitors in the market • Regulated prices – the price is set by government or an authority • Recommended prices – some manufactures and wholesalers set prices for dealerships or retailers; manufacturers suggested prices help achieve the manufacturer’s overall business objectives. Examples are car manufacturers and Walmart. The Third P is: Place or Placement • “Place” is the where the product is sold • Topics to consider … • Distribution channels and the physical distribution of the product • Direct – manufacturer to consumer • Indirect – manufacturer to wholesaler and retailer to consumer • Links or nodes in the distribution chain • Distributors – they receive large volumes of product from the manufacturer and transfer products to regional wholesaler channels • Wholesalers – they collect large volume of products from different distributors, and serve a regional system of retail outlets by repackaging goods for retail stores • Retailers – maintain connection with consumers in local market • Non-traditional links include backwards integration of channels (Walmart Inc. owns the distribution channel), and Internet sales The Fourth P is: Promotion • “Promotion” is how the customer learns of the product and aims to introduce a new product, create an interest in the product, and reinvigorate falling interest in a product • AIDA model guides promotion (attention, interest, desire and action) • Promotion methods include… • Advertising – product and corporate advertising • Advertising campaigns (seven steps) • Direct marketing (mail, leaflets, telemarketing) • Sales promotion (free samples, contests, games, special prizes, coupons, point of sale displays) • Sponsorship of big event Products have a typical Life Cycle • Products begin by being researched, designed and introduced to the market. • Products enter a growth stage when they are successful and their sales begin to rise. Profits are reinvested in the business to produce more products to fill distribution channels. • Product sales peak and stabilize as product becomes mature. Competition causes product differentiation and lowering of prices. Various pricing strategies are appropriate. • Product sales decline as product loses popularity. Firms either consolidate their efforts in smaller niche markets or withdraw the product. See Product Life Cycle Diagram Sales and Profit The Four-stage Product Life Cycle Stage 1 Stage 2 Stage 3 Stage 4 Introduction Growth Maturity Further Growth New product Sales rise Profitable Sales or Sales Decline Time Loss 0 Profit/Loss Marketing Mix differs at each LC Stage – must be managed Marketing Mix Product Introduction Minimal differentiation of product Basic level of product quality Price Relatively high to recover costs – price skimming Alternatively, relatively low to gain market share – price penetration Promotion Develop primary demand – consumers learn of the product Place or distribution Sparsely distributed because the product is new to the market Marketing Mix differs at each LC Stage – must be managed Marketing Mix Product Growth Increased differentiation of product Improved level of product quality Price Softening- gaining market share with lower prices Promotion Develop selective demand – focusing on target groups Place or distribution Wider coverage (product gains access to retail outlets and increases coverage) Marketing Mix differs at each LC Stage – must be managed Marketing Mix Product Maturity Active differentiation (new features developed) Highest product quality (continuous improvement) Price Promotion Place or distribution High level of price competition Heavy spending with focus on product differences and intangible aspects Complete coverage Marketing Mix differs at each LC Stage – must be managed Marketing Mix Product Decline or Further Growth Few or no product differences, Increasingly unwanted or shift to smaller niche markets Decline in product quality Price Promotion Place or distribution Rising prices if scarce, or falling prices if surplus Minimal effort to advertise Falling coverage as retailers abandon product Example – The Introduction Story • In general, products have a stage of life where they are first developed and then offered for sale • Business undertakes market research to learn consumer needs • The basic product is developed (few features offered) • Ex: “A Blackberry” was at first only one product • Pricing is determined mostly by the need to recover initial development and production costs; a “hot” new product may sometimes be priced high to skim off profits • See: pricing section (cost recovery pricing) • Promotion focus is on making consumers aware of the product • e.g. choosing a brand name, identifying markets, building consumer awareness of the product, piggybacking on existing products • Placement is practically non-existent, distribution channels need to be filled by production, retailers are not interested • “No one is asking for the product! ” Example – The Growth Stage Story • The consumer has learned of the product and likes it. • From word-of-mouth by early adopters (first users) • From advertising the product • Product is relatively undifferentiated (few features offered) • Ex: Ford Model T Sedan!! Only one colour offered. • Pricing is determined mostly by the depth of demand, some need to recover initial development and production costs • See: next section (cost recovery pricing) • Promotion focus is on educating the consumer to the brand name and initial features • e.g. introducing the brand name, getting magazines to review the product’s features, • Placement is sparse, distribution channels as yet unfilled by production, retailers reluctant to carry the product • “Sorry! The product has not arrived at our warehouse yet! ” Example – The Maturity Stage Story • The product is established, there are competitors in the market, and the consumer must learn of the differences • Advertising promotes the products distinguishing features • Product is differentiated (many features offered) • Ex: Mobile phones compete on functionality, reliability and prices • Pricing is competitive (compete by offering more features) • See: next section (competitive pricing, value pricing) • Promotion focus is on product features (differentiation) and intangible aspects (quality, reputation) • e.g. making the consumer aware of changes and improvements (New and Improved!) • Placement is good, distribution channels are filled with products, retailers carry and display the product • Aisle promotion, product displays are well developed and on-going Example – The Decline Stage Story • The product is no longer popular, there is little interest in the differences, small niche markets may provide demand • Advertising expenditures fall, shift focus to niche markets • Product is much less differentiated • Ex: A few high-end LP records are sold in a niche market • Prices may rise if niche market demand develops, or fall as retailers offer discounts to clear unwanted product • See: next section (price reductions) • Promotion is minimal unless a niche market appears • e.g. falling profitability, no value in educating the consumer • Placement is shrinking, distribution channels receive fewer orders from retailers • Specialty retailers may provide for niche markets, otherwise - gone Write the section 2.4 Market Mix • Review each aspect of the 4Ps with respect to your product. • You are doing this to be certain your activities support the marketing objectives. It is important that your activities are “coherent”, i.e. that they are appropriate and accomplish the marketing goals. • Reviewing the 4Ps is an excellent way to understand how the business brings its product to market and to evaluate the success of the marketing plan.