Chapter 19: Marketing mix - product and price

Question 1

Product

Answer 1

Goods/services that are the end result of the production process and are sold on the market to satisfy customer needs

Question 2

Marketing mix

Answer 2

Four key decisions on product, price, promotion and place that must be taken to enable effective marketing of a product

Question 3

Utility

Answer 3

Satisfaction a customer gets from the product because it has the characteristics the customer wanted

Question 4

Goods

Answer 4

Products which have a physical existence

Question 5

Services

Answer 5

Products which have no physical existence

Question 6

Intangible attributes

Answer 6

Subjective opinions of customers about a product which cannot be measured easily

Question 7

tangible attributes

Answer 7

Measurable features of a product which can easily be compared with other products

Question 8

New product development (NPD)

Answer 8

design, creation and marketing of new goods and services

Question 9

Reasons for NPD

Answer 9

Changing customer tastes
Increasing competition
Technological advancements
New opportunities for growth
Risk diversification
Improved brand image
Use of excess capacity

Question 10

Features of a successful product

Answer 10

Has desirable features
Offers a unique selling point

Question 11

Unique selling point (USP)

Answer 11

A special feature of a product that makes it different from a competitors’ products

Question 12

Product differentiation

Answer 12

Unique qualities of a product that make a difference between the product and competitors’ products

Question 13

Benefits of USP

Answer 13

Promotion of differentiating features of the product
Higher prices for exclusive features
Free publicity from media reports
Higher sales compared to undifferentiating products

Question 14

Product positioning

Answer 14

consumers’ view of a product or service as compared to its competitors

Question 15

Product portfolio analysis

Answer 15

Analysing the range of a business’s products to help allocate resources effectively between them

Question 16

Product life cycle

Answer 16

The pattern of sales for a product from launch to withdrawal from the market

Question 17

4 stages of a product life cycle

Answer 17

Introduction
Growth
Maturity
Decline

Question 18

Effects that introduction has on the 4 P’s

Answer 18

Price: Depends on competitors pricing
Promotion: High advertising to make consumers aware
Place: In restricted outlets
Product: Basic model with few variations

Question 19

Effects that growth has on the 4 P’s

Answer 19

Price: Prices can grow if it is successful
Promotion: Consumers need encouragement to keep buying
Place: More in outlets where demand is high
Product: Improvements maintain customer appeal

Question 20

Effects that maturity has on the 4 P’s

Answer 20

Price: Prices stay competitive as competitors enter
Promotion: Brand imaging shows differences to competitor’s product
Place: New distribution channels
Product: New models, and colours as part of extension strategies

Question 21

Effects that decline has on the 4 P’s

Answer 21

Price: Lower prices needed to sell off inventory
Promotion: Limited advertising
Place: Unprofitable outlets eliminated
Product: Slowly withdraw from certain markets

Question 22

Impacts of product life cycle on marketing decisions

Answer 22

Assisting with marketing-mix decisions: When should prices be lowered? When is advertising important?

Identifying the need for a balanced product portfolio
When one product starts to decline, other products are introduced. Cash flow should be reasonably balanced, Factory capacity should be kept constant.

Question 23

Limitations of using product life cycle for marketing decisions

Answer 23

Based on past/current events: cannot predict the future
Sales could crash quickly
Sales of some products keep growing

Question 24

Boston Matrix

Answer 24

A method of analysing the product portfolio of a business in terms of market share and market growth

Question 25

Boston Matrix analysis

Answer 25

Low market growth, high market share: Cash cow High market share, high market growth: Star High market growth, low market share: Question mark Low market growth, low market share: Dog

Question 26

Cash cow

Answer 26

Well-established product in a mature market Profitable and high positive cash flow High sales, low costs Can be minted for money (cash cow)

Question 27

Star

Answer 27

Successful product in an expanding market Business is keen to maintain market position High promotion costs to build brand identity Likely to generate high amounts of income

Question 28

Question mark

Answer 28

Consumes resources and generates little income Heavy promotion costs Future of a product is uncertain Should have potential because it is in a fast growing market sector

Question 29

Dog

Answer 29

Offers little sales and cash flow to the business May need to be replaced The business could withdraw the products

Question 30

Impact of Boston Matrix analysis on marketing decisions

Answer 30

Building: supporting question mark products Holding: Continuing support for star products Milking: Investing in products with money from cash cow Divesting: Identifying dogs and stopping production

Question 31

Limitations of Boston Matrix analysis on marketing decisions

Answer 31

1. Cannot tell a manager about what will happen with a product 2. Only a planning tool and simpliifes the complex factors that determine product success 3. Assumes that higher profit rates are linked to higher market shares

Question 32

Price

Answer 32

Amount paid by the customers for a product

Question 33

What does the price do?

Answer 33

Impacts level of added value by the bought components **Affects revenue and profit** made by the business Help **establish a psychological brand image** of a product

Question 34

How is price determined?

Answer 34

**Production costs** Competitive market conditions Competitors prices **Business** and marketing **objectives** Price elasticity of demand Is it a **new product or not**

Question 35

Pricing methods (Cost-based)

Answer 35

Mark-up pricing Cost-plus pricing Contribution-cost pricing Loss leaders

Question 36

Pricing methods (Competition-based)

Answer 36

Price discrimination Dynamic pricing

Question 37

Mark-up pricing

Answer 37

Adding a fixed mark-up for profit to the unit cost of buying a product Gross profit ___________________ X 100 Cost of production

Question 38

Cost-plus pricing

Answer 38

Setting a price by calculating a total unit cost for the product and then adding a fixed profit mark-up

Question 39

Contribution-cost pricing

Answer 39

Setting **prices based on the variable costs** of making a product, **in order to make a contribution towards fixed costs and profits** Selling price - Variable cost = contribution cost contribution cost - Fixed costs = profit

Question 40

Loss leaders

Answer 40

Setting low prices for some goods to attract customers and hoping that they buy products that have high-profit margins

Question 41

Price discrimination

Answer 41

Charging different groups of consumers different prices for the same product

Question 42

Dynamic pricing

Answer 42

Offering products at a price that changes based on demand and customers ability to pay

Question 43

Advantages of cost-plus pricing

Answer 43

Price covers all production costs Easy to calculate for single-product firms Suitable for price-making businesses due to market dominance

Question 44

Disadvantages of cost-plus pricing

Answer 44

Inaccurate for businesses with multiple products Does not account for marketing/competitive conditions Tends to be inflexible If sales fall, average costs rise which calls for higher prices

Question 45

Advantages of contribution-cost pricing

Answer 45

All variable costs are covered Suitable for businesses with multiple products Flexible prices adapt to market conditions

Question 46

Disadvantages of contribution-cost pricing

Answer 46

Fixed costs may not be covered If prices vary too much, regular customers get annoyed

Question 47

Advantages of price discrimination

Answer 47

Uses price elasticity to increase revenue

Question 48

Advantages of competitor pricing

Answer 48

Almost essential for firms with little market power Can be flexible to reflect competitive conditions

Question 49

Disadvantages of price discrimination

Answer 49

Administrative costs for different price levels Customers may switch to lower-priced markets Consumers paying high prices may look for alternatives

Question 50

Pricing methods for new products

Answer 50

Penetration: setting a low price to achieve high sales Market skimming: Setting a high price for products with low price elasticity of demand or highly differentiated

Question 51

disadvantages of competitor pricing

Answer 51

The price set may not cover all production costs Price may have to vary frequently

Question 52

Psychological pricing

Answer 52

Setting a price at a level which matches consumers' views about a product's perceived value.