2.2 - Making marketing decisions

Question 1

What is the design mix?

Answer 1

The three variables that contribute to 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 at a price that makes a profit?)

Question 2

Why is the design mix so important?

Answer 2

• Enables differentiation so you can stand out from competitors
• Can provide a USP
• Ensures that the product element meets the needs of the customers

Question 3

Why is product differentiation important? How can a product be differentiated?

Answer 3

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 4

Define the term ‘product life cycle’.

Answer 4

A business model that represents the sales of a product through different stages of its life.

Question 5

What is the first stage of the product life cycle? Describe the types of costs, profit, sales and cash flow in the stage.

Answer 5

Introduction

Costs: Will involve high costs prior in research and development

Profits: 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

Cash flow: Little-to-no cash flow

Question 6

What is the second stage of the product life cycle? Describe the types of costs, profit, sales and cash flow in the stage.

Answer 6

Growth

Costs: Heavy on promotion to establish the brand inn the market

Sales: Enjoying rapid growth in sales

Profit: The customers are aware of the product and demand is high and profits are gowing steadily

Cash flow: High cash flow

Question 7

What is the third stage of the product life cycle? Describe the types of costs, profit, sales and cash flow in the stage.

Answer 7

Maturity

Costs: The product will face intense competition now all the producers have joined the market so promotion is still important, R & D costs are now most likely recovered

Sales: high

Profits: starting to fall.

Cash flow: strong. positive

Question 8

What is the fourth and final stage of the product life cycle? Describe the types of costs, profit, sales and cash flow in the stage.

Answer 8

Decline

Costs: May be limited in production, so costs should start to fall.

Sales: Falling

Profits: Falling

Cashflow: Low

Question 9

What are extension strategies and why are they used?

Answer 9

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

• New advertising campaigns
• New packaging
• Explore new markets
• Price reductions
• Product variations such as new flavours, styles

Question 10

Explai the importance of price in the marketing mix.

Answer 10

• Gives customers an indication of the quality of the product
• In competifive markets it can influence the level of demand for your product

Question 11

Why might a business use penetration pricing on product launch? (Penetration pricing is an initial low price)

Answer 11

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

Question 12

What is the benefit of using a cost plus pricing strategy?

Answer 12

Since cost-plus pricing is worked out by calculating the total cost to produce the product or service and then profit is added on top this means that every product that is sold will contribute to the gross and net profit margin.

Question 13

What is the difference between a volume and a margin strategy?

Answer 13

• A volume strategy will focus on selling a high quantity of items as each item has a smal profit margin, but because of the volume sold the business can still achieve high profits. Businesses using this strategy must have a strong emphasis on keeping costs low.
• A margin strategy involves setting a price that achieves a high profit margin per item so a lower quantity needs to be sold to achieve high profit levels. Businesses using this strategy tend to use a premium pricing strategy and target the higher income level of the market.

Question 14

Explain six key influences on a businesses choice of pricing strategy.

Answer 14

1. Technology- new technology can lower the costs of production and so can enable a business to charge more competitive prices.

2. Competition-A busines in a highly competitive market may need to focus on competitive pricing rather than a margin strategy in order to gain market share

3. Costs- The business will need to ensure the price it charges covers its costs.

4. Product life cycle- the stage the product is at will also influence the pricing strategy, for example if a firm is using penetration pricing then they may set an initial low price and raise the price later in the growth stage or in the maturity phase if sales are declining they may drop the price as part of an extension strategy.

5. Market segment- different prices may be applied to different segements of the market, eg premium/margin versus volume strategies.

6. Branding- products with a strong brand can demand a higher price because of the perceived value and desirability of the product.

Question 15

What is the difference between niche and mass market?

Answer 15

Niche - Unique differentiated products which are sold to a very specific section of the market and 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 16

Identify 5 types of promotion a business can use.

Answer 16

1. Adverstising, including targeted and viral
2. Sponsorship
3. Product trials
4. Special offers
5. Public relations (PR)

Question 17

Identify the purpose of advertising, and the benefits and drawbacks of the method.

Answer 17

Purpose: to encourage customers to purchase the product and remind them of the features, or to encourage them to switch.

Benefits: Potentially big impact depending upon the medium used, eg TV, magazines, social media posts, radio, newspapers

Drawbacks: Can be expensive and also it is difficult to measure the impact each advertisement specifically has on sales.

Question 18

What is targeted advertising? What are the benefits and drawbacks of this type of advertising?

Answer 18

Targeted advertising is a way of placing ads based on demographics, on the consumers’ previous buying history or on behavior. Many types of targeted advertising are used online, but advertisers use in other media as well. Examples of targeted advertising include having consumers choose which ads to view and placing ads on social networking sites and even billboards that vary depending on who is viewing them.

Benefits: Cheaper than traditional methods and because it is targeted you can adjust your ads depending upon who is viewing and as such is cost efficient.

Drawbacks: Because the promotion is so targeted it needs to be creative and tailored and so takes time to create and then needs to be updated as the segment need new and enticing ads to stay loyal to the product.

Question 19

What is viral marketing? What are the benefits and drawbacks of this type of advertising method?

Answer 19

Viral Marketing is that which is able to generate interest and the potential sale of a brand or product through messages that spread like a virus, in other words, quickly, and from person to person. The idea is for it to be the users themselves that choose to share the content.

Benefits:

• Low cost. Since the users do a significant part of the work for the business, which drastically cuts down the costs of promotion as it becomes unnecessary to buy advertising or space on the media.
• Potential of great reach. A viral video on the Internet has the ability to reach a huge international audience.
• It is not invasive. In viral marketing, the decision to participate and share always comes from the user, and so it never comes across as invasive. Like this, the perception of the brand and the interaction are significantly better, compared to more classical forms of advertising.
• It helps build up the brand.

Drawbacks:

• Negative responses can also be viral which can damage the brand as the business has no control over the messages or where it is shared
• To keep up to date and relevant businnesses must alway update thier ads so that users still interact

Question 20

Identify the purpose of sponsorship, and the benefits and drawbacks of the method.

Answer 20

• When a business agrees to financially contribute toward an event or sporting team for edxample in exchange for promotional opportunities in order to enhance their brand image.

Benefits: Can provide high levels of brand exposure and associate it with a potentiallyl good cause, strengthening brand image

Drawbacks: Communication about the specifics of the product is generally very ,limited and is often expensive

Question 21

Identify the purpose of a product trial, and the benefits and drawbacks of the method.

Answer 21

This includes free samples, testers and product miniatures being given away for the first time.

Benefits: Can help convert customers from another brand to the business as they can try the product first

Drawbacks: It can be expensive to give away free products

Question 22

Identify the purpose of special offers, and the benefits and drawbacks of the method.

Answer 22

This includes BOGOF (Buy one get on free), free prize drawers and discount sales.

Benefits: Can help boost short term sales and clear stock levels for new product lines.

Drawbacks: Not sustainable in the long term as selling at a discount will negatively impact proft margins.

Question 23

Identify the purpose of public relations and the benefits and drawbacks of the method.

Answer 23

Public Relations involves cultivating a positive reputation with the public through various unpaid or earned communications, including traditional media, social media, and in-person engagements. It also involves defending a businesess reputation during a crisis that threatens their image.

Benefits: Can enocurage customers to connect and become loyal.

Drawbacks: It can take a long time to develop but can be damaged quickly in the face of a scandal.

Question 24

What are the advantages of developing a strong brand?

Answer 24

• It is instantly recognisable
• Customers may associate positive characteristics with the brand
• It can beccome a customers first choice and develop loyalty and enocurage repeat purchase
• A strong brand can charge a premium price

Question 25

How can technology be used in promotion?

Answer 25

-Social media, a cheaper form of communication that provide opportunities for viral advertising

-Email, communication such as e-newsletters which can be tailored to specific segments

-Apps, businesses’ apps for consumers and oportunity to advertisise through third party apps

-Targeted advertising, website adverts that use cookies can also be targeted at specific segments

Question 26

What are retailers?

Answer 26

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 27

What is the difference between e-tailers and ‘clicks and mortar’ stores?

Answer 27

E-tailers are online e-commerce stores (e.g Amazon) whereas ‘clicks and mortar’ stores have both online and physical presence (e.g. Argos, Sainsburys).

Question 28

What are the advantages and disadvantages of retailers?

Answer 28

+ 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

+ Can use point of sale promotion, eg displays

• 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 because of the costs associated with rent of physical stores

Question 29

What are the advantages and disadvantages of e-tailers?

Answer 29

+ 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 - 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 30

Why does a busines need to ensure its marketing mix is integrated?

Answer 30

The 4 elements of the marketing mix each have an impact on each other, so each elment needs to connect to the other. If one changes it will influence the others. For example:

• A product targeted at a premium price segment must be promoted in the right way, eg lifestyle magazines that suit its target audience to ensure the promotions reach the intended audience.
• If a business is using a high volume low margin pricing stratgey then the budget for promotion may be small, so they will have to source low cost methods of promotion.