4.5 The Four Ps Flashcards
(33 cards)
What is a Product?
A product is any good or service that serves to satisfy the needs or wants of customers.
Distinguish between consumer durable products, consumer perishable products and fast-moving consumer goods.
- consumer durable = last for a very long time, take up income, purchased irregularly
- consumer perishable = don’t last very long, purchases not as frequent as FMCGs, may carry high profit margins
- fast-moving = everyday convenience products sold in retail outlets , purchased quite frequently
What are the stages in the product life cycle?
- Research & Development
- Launch/Introduction
- Growth
- Maturity
- Decline
* death/ withdrawal
Explain how the life cycle of a product has varying effects on a firm’s level of investment, profits and cash flow.
Depending on what stage the product is in the PLC, the firm’s level of investment, profits and cash flow will definitely vary.
- Research & Development
level of investment: very high b/c developing product
profits: none b/c not yet launched
cash flow: highly negative b/c a lot of cash going in and not even launched yet - Launch/Introduction
level of investment: very high b/c marketing
profits: little, if any b/c if any b/c not a lot of people aware esp. if new product and no brand awareness
cash flow: negative b/c still newly launched, not yet enough profit to make up for R&D costs - Growth
level of investment: high b/c goes into persuading ppl to buy
profits: yes, rising b/c people more aware, more customers (maybe because of branding?)
cash flow: positive (finally making enough money to keep up with costs) - Maturity
level of investment: less (money mainly put into reminding people about product)
profits: high, but little or no growth (already established in market, at peak, more people already have product)
cash flow: positive b/c making money - Decline
level of investment: little, if any (maybe put into extension strategies or discontinuing marketing/promotion)
profits: yes, but falling (not as many people buying, market decline, substitutes present in market)
cash flow: positive but falling (b/c profits are falling)
Use examples to explain the meaning of extension strategies.
These are mainly used for products that reach saturation in their life cycle in order to try and prolong their sales revenue. Examples include:
- Price reductions: to increase demand for a product or to get rid of excess stocks before they become obsolete.
- Redesigning: involves introducing special features or ‘limited editions’ to a current product (adds value and makes it more enticing to customers)
- Repackaging: to help revive demand (appearance van have large effect on demand, e.g. Rose Gold Iphone???)
- New Market: to extend life cycle of current product (e.g. new retail outlets, different regions or overseas)
- Brand extension: refers to the use of an existing and successful brand name to launch new/modified version of product = longer PLC
Distinguish between the four quadrants in the Boston Matrix
- Cash Cows = high market share, low market growth (highly profitable, at maturity stage)
- Stars (Rising Stars) = high market share, high market growth (profitable, potential to turn into cash cows, growth stage)
- Question Mark (Problem Children) = low market share, high market growth (very costly, wild card, not sure if should be withdrawn, launch/growth stage)
- Dogs = low market share, low/stagnant market growth
(do not generate much cash/profit, soon to be withdrawn/at decline stage)
Why is it important for businesses to have a balanced product portfolio?
It is important because each quadrant is connected in that they start in one stage but can develop into another. But for example, if all of the rising stars turn into cash cows, then there wouldn’t be anymore rising stars. So come the time when the cash cows turn into dogs, they won’t have any replacements. Therefore, it is ideal to have balanced product portfolio (some stars, a few question marks, several cash cows) to ensure that the business stays stable.
What is branding and why is it important for a business?
Branding is a form of differentiating a firm’s products from those of it’s competitors. It is important b/c it is a…
- legal instrument (trade marks)
- risk reducer (better survival of new products /c of brand name)
- image enhancer (successful brands can charge premium prices)
- revenue earner (can charge proportionally higher w/out losing customers = high sales revenues, encourages brand loyalty, demand for firm’s product less sensitive to changes in prices)
What is the difference between ‘brand loyalty’ and ‘brand development’?
Brand loyalty is a lot more external in that it occurs when customers buy the same brand of product time and time again and are devoted to the brand since they have preference over brand names. On the other hand, brand development is more internal in that it is a long-term product strategy use by a firm that involves strengthening the name and image of a brand to boost its appeal and sales.
Explain how brand value depends on brand awareness, brand development and brand loyalty.
If you raise awareness of your brand (what it is, what you stand for) and develop and build that image into something even greater, you will eventually earn the loyalty of your customers. This will ultimately lead to better brand value wherein your customers believe that how much they are paying for your product is worth it. (Customers usually believe that a well-known brand has better value for money that brands that aren’t as famous or reputable)
Define the term Branding.
Branding is a form of differentiating a firm’s products from those of its competitors.
Explain the importance of branding to a business of your choice.
Branding is a legal instrument. Brand names create a legal identity for a product by giving it a unique and recognisable name and image to differentiate it from other products.
Branding is a risk reducer. Brands can give new products a better chance of survival. They can create a sense of value for money and encourage brand awareness.
Branding is an image enhancer. Successful brands allow a business to charge a premium price because customers are often willing to pay a substantially higher price for a ‘good’ brand.
Branding is a revenue earner. Branding can encourage brand loyalty.
What are the advantages of successful branding?
Price advantages
Brand recognition and loyalty
Distribution advantages
Define the following terms: Brand awareness Brand development Brand loyalty Brand value
Brand awareness
Refers to the extent to which potential customers recognise a particular brand and is usually expressed as a percentage of the sample surveyed.
Brand development
Refers to the marketing process of improving and enlarging the brand name in order to boost sales revenue and market share.
Brand loyalty
Brand Loyalty occurs when customers buy the same brand of a product time and time again.
Brand value
Refers to the premium that customers are willing to pay for a brand name over and above the value of the product itself.
What is the importance of Brand awareness to a business?
Brand awareness plays a major part in the buying decision of consumers.
Brand awareness gives the firm a competitive edge over its rivals, resulting in greater market share.
It can also encourage repeat purchases if customers like and trust the brand.
What is the role of Brand awareness to a business?
Brand awareness helps a brand to stand out from the others in the market.
Why is brand loyalty important to a business?
Brand loyalty helps businesses to maintain or improve their market share.
Brand loyalty allows businesses with brand loyalty to charge premium prices for their products, which improves their profit margins.
Brand loyalty acts as a barrier to entry in highly competitive markets such as the fashion and clothing industry.
Brand loyalty helps prolong the product and brands life cycles.
Define brand switching.
Is when consumers turn to alternative brands mainly because the original brand has lost some of its former appeal.
What are the advantages and disadvantages of businesses that try to boost their brand value?
Higher market share
Premium prices - Having brand value allows a business to charge higher prices for its products because customers feel that they are paying for the added value that the brand carries, such as the reputation of the brand.
Higher barriers to entry - Brand value makes it more difficult for new firms to enter the market because customers are loyal to the existing brand.
Define the term packaging
Packaging refers to the ways in which a product is presented to the consumer.
Explain the importance of packaging to a business of your choice
Packaging has a profound impact on customer perceptions of a product or brand. Customers perceive quality packaging with a quality product.
It acts as a form of product differentiation.
Packaging protects a product against damage during transportation and distribution of the product.
Labelling can be used to provide information.
Packaging makes the distribution of products easier.
Packaging can be used to encourage impulse buying.
Packaging is used to promote the brand or the business.
Define the term price.
Price refers to the amount paid by a customer to purchase a good or service.
Explain the importance of price to a business of your choice. Give 3 reasons.
Price affects the corporate image of a business.
Price has a direct impact on the level of sales revenues.
Price reflects the quality of products.
Explain the following price strategies, giving advantages and disadvantages Cost plus(Mark up) Pricing Penetration pricing Price skimming Psychological pricing Loss Leader pricing Price discrimination Price leadership Predatory Pricing
Cost plus(Mark up) Pricing
Cost-plus (mark-up) pricing involves adding a percentage or predetermined amount of profit to the cost per unit of output to determine the selling price.
Advantage:
It is simple and easy to calculate.
Disadvantage:
It often relies too much on intuitive decision-making rather than on the needs of customers.
Penetration pricing
Penetration pricing sets a relatively low price (or a ‘special introductory price’) to help establish a new product in the industry, in order to gain brand recognition and market share.
Advantage:
This strategy is suitable for mass market products sold in large enough quantities to sustain low profit margins, e.g. fast moving consumer goods.
Disadvantage:
Setting prices too low can cause customers to perceive the product as inferior and of poor quality.
Price skimming
Price skimming is when a high price is initially set to recoup the costs of research and development. Advantage:
A high initial price can also create a unique and prestigious image for the product.
Disadvantages:
Due to the large potential profits that can be made, other firms will eventually be attracted to enter the industry.
Psychological pricing
Psychological pricing involves rounding down numbers such as $9.99 or $14 995 to make prices seem lower (than $10.00 or $15 000). Hence, customers psychologically feel that they are getting a bargain (better price) for the product.
Advantages:
This method is widely used and can work for almost any product, from groceries sold in a supermarket to expensive motor vehicles or residential properties.
It also works well when selling the same product in larger quantities.
Disadvantages:
Psychological pricing does not work well for some businesses, such as taxi firms, as rounded or whole numbers are more suitable for the customer and the service provider.
Loss Leader pricing
Loss leader pricing involves selling a product below its cost value.
Advantages:
It can attract many customers.
Loss leader pricing can also be used to encourage brand switching, which in the long term can make up for losses incurred whilst the product was priced at a loss.
Price discrimination
Price discrimination occurs when the same product, usually a service, is sold at different prices to different customers.
Conditions that must be met for price discrimination to be successful.
The business must have some degree of market power to set prices.
Customers must have different degrees of willingness to pay.
Markets must be kept separate to prevent resale.
Price leadership
The dominant firm or market leader sets its own prices and the competitors follow the leader by setting their prices based on the price of the market or price leader.
Advantages:
If the market leader sets a relatively high price, firms in the industry will enjoy higher profit margins.
Disadvantages:
If the dominant firms sets a low price, this can create problems for other firms that are unable to match the price as they do not have the same economies of scale as the market leader.
Predatory Pricing
Predatory pricing involves temporarily reducing price in an attempt to force rivals out of the industry as they cannot compete profitably.
Advantages:
If the strategy is successful, the firm will benefit from being in a more dominant position, and can therefore raise its prices to recoup any losses incurred.
Disadvantages:
It is illegal in many parts of the world (such as the USA and EU) since it is regarded as an anti-competitive trade practice.
