2.2 - Making marketing decisions

Question 1

2.2.1 - What is the design mix?

Answer 1

The three aspects that make up the design of a product:

• Aesthetic (How does the product look, feel or taste?)
• Function (What problem the product solves?)
• Price (Can it be manufactured and sold or prices that make a profit?)

Question 2

2.2.1 - What is the first stage of the product life cycle?

Answer 2

Introduction:

• Will involve high costs in research and development
• The product may have been test marketed before launching, so profits may be negative.
• Sales will be low as customers may to yet be aware of the products
• Little-to-no cash flow

Question 3

2.2.1 - What is the second stage of the product life cycle?

Answer 3

Growth:

• Enjoying rapid growth in sales and profits
• The customers are aware of the product and demand is high
• High cash flow

Question 4

2.2.1 - What is the third stage of the product life cycle?

Answer 4

Maturity:

• Face intense competition now all the producers have joined the market.
• Sales are high but profits are starting to fall.
• Products have to be discounted to keep sales high
• Highest cash flow

Question 5

2.2.1 - What is the fourth and final stage of the product life cycle?

Answer 5

Decline:

• May be limited in production.
• Profits and sales have fallen.
• The product may be withdrawn from sale.
• Low cash flow

Question 6

2.2.1 - What are examples of extensions strategies and why may they be used?

Answer 6

Extension strategies extend the life of a product (usually through the maturity phase) to increase shelf-time and opportunity for sales.

• Advertising
• New packaging
• Explore new markets
• Price reduction
• Add new value

Question 7

2.2.1 - What are examples of differentiation and why is it important?

Answer 7

Differentiation creates a unique brand image and promotes customer loyalty as a product stands out from its competitors This can be achieved through:

• Branding
• USP
• Location
• Design
• Customer Service
• Quality
• Product mix

Question 8

2.2.2 - What is skimming pricing?

Answer 8

• A product is priced high to begin with as it has a desirability factor (novelty) that will mean customers will want it when it is new.
• The price can be lowered later on, but is high to start with to skim the profit while the product is trending.

Question 9

2.2.2 - What is penetration pricing?

Answer 9

• Setting an initial low price for a new product so that it is attractive to customers.
• The price is likely to be raised later as the product gains market share.

Question 10

2.2.2 - What is cost plus pricing?

Answer 10

• Cost-plus pricing is worked out by calculating the total cost to produce the product or service and then profit is added on top
• Most often used in the food industry where it is easy to calculate the exact cost of ingredients

Question 11

2.2.2 - How does the way that technology affects the costs of a business, effect their pricing?

Answer 11

While the inital cost of machinery is high, technological advancements means that production processes have become more efficient giving a business economies of scale.

As the average costs of production fall then this can be passed on to the consumer as lower prices.

Question 12

2.2.2 - What is the difference between niche and mass market?

Answer 12

Niche:

Unique differentiated products are more likely to be sold for higher or premium prices.

Mass:

Similar products which are sold to the mass market will have low prices to encourage sales.

Question 13

2.2.2 - How may pricing change throughout the product life cycle?

Answer 13

• Introduction: Low prices to encourage customers to try the product.
• Growth: Small discounts to encourage purchase.
• Maturity: Prices will be at their highest as the business harvests profit.
• Decline: Heavy discounts to get last sales before withdrawal.

Question 14

2.2.3 - What is advertising used for?

Answer 14

• Promote the brand
• Raise awareness of a product
• Remind customers how great the product is
• Persuade customers to switch

[Some A class advertising below]

Question 15

2.2.3 - What is sponsorship and how is it used in promotion?

Answer 15

• When a business sponsors something, they are establishing an association with another organisation or event.
• That connection must make sense to the customers and enhance the reputation of the business.

Question 16

2.2.3 - What are product trials and what strategies might be used alongside it?

Answer 16

When consumers buy a good for the first time and assess whether or not they want to buy it again.

• Public Relations
• Viral Marketing
• Free Samples
• User Testing
• Penetration Pricing

Question 17

2.2.3 - What is targeted advertising?

Answer 17

A customer is shopping online for video games, they then click on a news site and see an advert for video games.

This is targeted advertising. Businesses can choose the audience for adverts on Facebook.

Question 18

2.2.3 - What are methods of viral marketing?

Answer 18

• Advertising
• Social media
• Internet
• Word of mouth
• Interactive games
• Video clips

Question 19

2.2.3 - What are e-newsletters?

Answer 19

Advertising by sending out an e-newsletter to a customer (means via e-mail). This campaign has then gone viral. The business needs to ask their e-mail customers to share the newsletter.

Question 20

2.2.4 - What are retailers?

Answer 20

• A retailer sells goods direct to a consumer. The owner of the retail shop may have bought the goods from a wholesaler or manufacturer to sell on to the consumer
• The retailer will mark-up the price of the goods, so they will be more than they paid for them.

Question 21

2.2.4 - What are e-tailers and ‘clicks and mortar’ stores?

Answer 21

• E-tailers are online e-commerce stores (e.g Amazon)
• Clicks and mortar stores have both online and physicla presence (e.g. Argos, Sainsburys)

Question 22

2.2.4 - What are the advantages and disadvantages of retailers?

Answer 22

PROS:

• Going shopping is an enjoyable experience that customers can do with their friends or family
• Trying on clothes helps when buying
• Customers can have the product as soon as they have bought it (instant satisfaction)
• Retailers win when a customer needs to see, touch, try or test a product first

CONS:

• Retailers are only open during the day and customers may be too busy with work or family
• Customers may have to wait in a queue or carry heavy bags of shopping
• Customers may find it embarrassing to buy some personal items
• May charge higher prices than the e-tailers

Question 23

2.2.4 - What are the advantages and disadvantages of e-tailers?

Answer 23

PROS:

• Can be started with a smaller investment as no premises and less staff needed
• Can sell a much larger range than a physical shop
• Can undercut competitors prices by being cheaper (no shops, less staff)
• Lots of potential to grow rapidly and reach an global marketplace
• Lower fixed costs as no shops to pay rent on

CONS:

• Hard to establish trust with the customer as no face-to-face interaction
• Website costs can be high
• Security and fraud for online transactions are an issue
• Only as strong as your distribution / delivery if this is late then it may damage your reputation

Question 24

2.2.5 - How is price affected by the rest of the marketing mix?

Answer 24

• Products that are rarer or higher in demand will drive up price
• Places that have increased distance to travel cost more to transport the product increasing price
• Promotion may be used heavily to ensure that its acceptable to charge high prices

Question 25

2.2.5 - How is product affected by the rest of the marketing mix?

Answer 25

• Customers may demand lower prices so the quality of products may be reduced to match this
• Customers demand products to be accesible from new places e.g. digital download
• Products may have to be adapted to fit new promotion techniques

Question 26

2.2.5 - How is place affected by the rest of the marketing mix?

Answer 26

• Products that need to be tried and tested before purchase need to be sold in retail stores
• Products with higher prices will be sold in high-end areas to match its target market
• More influential promotion will increase the range of where products can be sold

Question 27

2.2.5 - How is promotion affected by the rest of the marketing mix?

Answer 27

• Older products may need more promotion to, for example, extend its life and clear all stock.
• Places such as discounter shops will expect products to constantly have promotional sales -
• Higher priced products that target a niche market will benefit more from PR reviews in magazines (niche promoting)