marketing mix-price and product chapter 19

Question 1

marketing mix

Answer 1

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

Question 2

product

Answer 2

good or services that are the end result of the production process and are sold on the market to satisfy customer needs. might be existing product, an update to an existing product or a newly developed needs

Question 3

price

Answer 3

The right price is important too. If the price is set too low, then consumers might lose confidence in the product’s quality. If the price is set too high, then many consumers will be unable or unwilling to afford it.

Question 4

Promotion

Answer 4

must be effective, telling consumers about the product’s availability and convincing them, if possible, that the brand is the one to choose.

Question 5

place

Answer 5

refers to how the product is distributed to the consumer through distribution channels. If the good or service is not available at the right time in the right place, even the best product in the world will not be bought in the quantities expected.

Question 6

goods

Answer 6

products which have a physical existence

Question 7

services

Answer 7

products which have no physical existence, but satisfy consumer needs in other ways

Question 8

why is product a key part of the marketing mix

Answer 8

Some products fail to meet customer expectations regarding quality, durability, performance and appearance. This means that no matter how low the price or how much is spent on advertising, the product will not sell successfully in the long term.

Question 9

tangible and intangible attributes of a product

Answer 9

Consumer decisions are not always easy to weigh up or explain, which makes market research less accurate. However, marketing managers should try to understand what intangible attributes (features) customers are looking for when making their purchasing decisions, as well as the tangible attributes, Meeting customers’ intangible expectations for a product is most commonly achieved by effective branding.

Question 10

brand

Answer 10

identifying symbol, name, image or trademark that distinguishes a product from its competitors.

Question 11

intangible attributes

Answer 11

the subjective opinions of customers about a product, which cannot be measured or compared easily.

Question 12

tangible attributes

Answer 12

the measurable features of a product, which can be easily compared with other products.

Question 13

possible reasons why NPD is important

Answer 13

changing consumer tastes
Increasing competition
Technological advancement
New opportunities for growth
Risk diversification.
Improved brand image.
Use of excess capacity.

Question 14

unique selling point

Answer 14

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

Question 15

what does a product need to succed

Answer 15

have desirable features that consumers are prepared to pay for
be sufficiently different from other products to make it. stand out and offer a unique selling point.
be marketed effectively to consumers, who need to be informed about it.

Question 16

product differentiation

Answer 16

unique qualities of a product that lead to a difference between the product and competitors’ products. effective way of distancing businesses from its rivals and creating competitive advantage. effective product differentiation creates a USP

Question 17

benefits of an USP

Answer 17

promotion that focuses on the differentiating feature of the product or service
opportunities to charge higher prices due to exclusive and unique feature, design or customer service
free publicity from media reporting to the USP of the product
higher sales compare to undifferentiated products
customers being more willing to be identified with brand because it is different

Question 18

products and brands

Answer 18

The product is the general term used to describe the nature of what is being sold. The brand is the distinguishing name or symbol that is used to differentiate one manufacturer’s products from another. Branding can have real influence on marketing. It can create a powerful image or perception in the minds of consumers - either negative or positive - and it can give the products a unique identity.

Question 19

product positioning

Answer 19

consumers’ view of a product or service as compared to its competitors. The first stage of product positioning is to identify the features of this type of product that have been shown by research to be important to consumers. These key features might be price, quality of materials, perceived image, level of comfort offered and so on. They will be different for each product category.

Question 20

product portfolio analysis

Answer 20

analysing the range of existing products of a business to help allocate resources effectively between them. gives business a crucial advantage. two product portfolio techniques are: product life cycle, Boston matrix analysis

Question 21

product life cycle

Answer 21

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

Question 22

introduction stage in product life cycle

Answer 22

This is when the product has just been launched after development and testing. Sales are often quite low to begin with and may increase only quite slowly. But there are exceptions, such as a newly launched music download by a global rock star.

Question 23

growth stage in product life cycle

Answer 23

If the product is effectively promoted and well received by customers, then sales should grow. This stage cannot last forever. Eventually, sales growth will begin to slow. The slowing down of sales growth may take days, weeks or even years. This leads the product into the next stage.

Question 24

reasons for growth slowing in product life cycle

Answer 24

increasing competition
technological changes making the product less appealing
changes in consumer tastes
saturation of the market.

Question 25

maturity or saturation in product life cycle

Answer 25

At this stage, sales fail to grow, but they do not decline significantly either. This stage can last for years The saturation of the consumer durables market is caused by most consumers having already bought the particular product they want.

Question 26

decline in product life cycle

Answer 26

During this phase, sales will decline steadily. Either no extension strategy has been tried or it has not worked, or else the product is so obsolete that the only option is replacement. Newer products from competitors are the most likely cause of declining sales and profits. When the product becomes unprofitable or when its replacement is ready for the market, it will be withdrawn.

Question 27

consumer durable

Answer 27

manufactured product that can be re-used and is expected to have a reasonably long life, such as a car or washing machine.

Question 28

extension strategy

Answer 28

marketing plan to extend the maturity stage of the product before a completely new one is launched.

Question 29

extension strategies

Answer 29

These strategies aim to lengthen the life of an existing product before the market demands a completely new product.

Question 30

introduction and price

Answer 30

may be high (skimming) or low (penetration) compared to competitors’ prices.

Question 31

introduction and promotion

Answer 31

High levels of informative advertising are needed to make consumers aware of the product’s arrival on the market.

Question 32

introduction and place(distribution)

Answer 32

In restricted outlets, possibly high-class outlets if a skimming strategy is adopted.

Question 33

introduction and product

Answer 33

Basic model with few variations.

Question 34

growth and price

Answer 34

If successful, an initial penetration pricing strategy could now lead to rising prices.

Question 35

growth and promotion

Answer 35

Consumers need encouraging to make repeat purchases and branding will help win consumer loyalty.

Question 36

growth and place(distribution)

Answer 36

In growing numbers of outlets in areas indicated by the strength of consumer demand.

Question 37

growth and product

Answer 37

Product improvements and developments to maintain consumer appeal.

Question 38

maturity and price

Answer 38

As competitors enter the market, prices for the product need to stay at competitive levels.

Question 39

maturity and promotion

Answer 39

Brand imaging continues to stress the positive differences compared to competitors’ products.

Question 40

maturity and place(distribution)

Answer 40

Highest geographical spread including new distribution channels.

Question 41

maturity and product

Answer 41

New models, colours, accessories as part of extension strategies.

Question 42

decline and price

Answer 42

Lower prices may be needed to sell off inventory, but if the product has a small niche following, prices could even rise.

Question 43

decline and promotion

Answer 43

Advertising is likely to be very limited and may just be used to inform of lower prices.

Question 44

decline and place(distribution)

Answer 44

Unprofitable outlets for the product are eliminated.

Question 45

decline and product

Answer 45

Slowly withdraw product from certain markets and prepare to launch new products.

Question 46

balanced product portfolio

Answer 46

As one product declines, so other products are being developed and introduced to take its place. Cash flow should be reasonably balanced, as there are products at every stage and the positive cash flows of the successful products can be used to finance the cash deficits of others. Factory capacity should be kept at roughly constant levels as declining output of some goods is replaced by increasing demand for the recently introduced products. This is known as a balanced portfolio.

Question 47

limitations to using the product life cycle for marketing decisions

Answer 47

The product life cycle is based on past or current data and cannot be used to predict the future. Just because a product’s sales grew over the past few months, does not mean that they will continue to grow until a long period of maturity is reached. Sales could crash very quickly, giving no chance to use an extension strategy. sales of other products can, against all predictions, grow and grow. The usefulness of the product life cycle analysis is increased if it is analysed together with the Boston Matrix, sales forecasts and management experience

Question 48

Boston matrix analysis

Answer 48

method of analysing the product portfolio if a business in terms of market share and market growth. allows analysis of existing product portfolio and also what future strategies the business could take next. four sectors that are created by the matrix are low market growth and high market share, high market growth and high market share, high market growth and low market share and low market growth and low market share

Question 49

low market and high market share

Answer 49

This is a well-established product in a mature market. Typically, this type of product is profitable and creates a high positive cash flow. Sales are high relative to the market and promotional costs are likely to be low, as a result of high consumer awareness. The cash from this product can be ‘milked’ and injected into some of the other products in the portfolio. Hence, this product is often referred to as a cash cow. The business will want to maintain cash cows for as long as possible.

Question 50

High market growth, high market share

Answer 50

This is clearly a successful product as it is performing well in an expanding market. It is often referred to as a star. The business will be keen to maintain the market position of this product in what may be a fast-changing market. Therefore, promotion costs will be high to help differentiate the product and reinforce its brand image. Despite these costs, a star is likely to generate high amounts of income.

Question 51

High market growth, low market share

Answer 51

The question mark consumes resources but generates little return. If it is a newly launched product it is going to need heavy promotion costs to help become established. This finance could come from the cash cow. The future of the product may be uncertain, so quick decisions may need to be taken if sales do not improve. These could include revising the design, relaunching with a new brand image or even withdrawal from the market. It should, however, have potential as it is selling in a market sector that is growing fast.

Question 52

Low market growth, low market share

Answer 52

The dog seems to offer little to the business in terms of either existing sales and cash flow or future prospects, because the market is not growing. It may need to be replaced shortly with a new product development. The business could decide to withdraw from this market sector altogether and position itself into faster-growing sectors.

Question 53

relevance of Boston matrix analysis

Answer 53

analysing the performance and current position of existing product portfolios
planning action to be taken with existing products planning the introduction of new products.

Question 54

how to identify which products need marketing support or corrective action

Answer 54

By identifying the position of all products of the business, a full analysis of the portfolio is possible. This should help focus on which products need marketing support or which need corrective action. This action could include the following marketing decisions: Building, milking, holding and divesting. These strategies can only be undertaken if the business has a balanced portfolio of products. If there are too many dogs or question marks, then the overall shortage of cash. may not allow the firm to take appropriate action.

Question 55

building

Answer 55

supporting question mark products with additional advertising or further distribution outlets. The finance for this could be obtained from the established cash cow products.

Question 56

holding

Answer 56

continuing support for star products so that they maintain their good market position. Work may be needed to freshen the product in the eyes of the consumers so that high sales growth can be sustained.

Question 57

milking

Answer 57

taking the positive cash flow from established products and investing it in other products in the portfolio.

Question 58

divesting

Answer 58

identifying the worst-performing dogs and stopping the production and supply of these products. This strategic decision should not be taken lightly as it will involve other issues, such as the impact on the workforce and whether the spare capacity freed up by stopping production can be used profitably on another product.

Question 59

limitations of Boston matrix for marketing decisions

Answer 59

Detailed and continuous market research will help. However, decision makers must always be conscious of the potentially dramatic effects of competitors’ decisions, technological changes and the fluctuating economic environment.
The Boston Matrix is only a planning tool and it simplifies the complex set of factors that determine product success. assumes that higher rates of profit are directly related to high market shares. This is not necessarily the case when sales are being gained by reducing prices and profit margins.

Question 60

implications of price level set for a product

Answer 60

impact on the level of value added by the business to bought-in components
affect the revenue and profit made by a business due to its impact on demand.
help establish the psychological brand image of a product.

Question 61

how do managers determine the appropriate price

Answer 61

If the business is to make a profit on the sale of a product then the price must cover all of the costs of producing it and of bringing it to the market at least.
if a business is the only one that produces that type of product then they have more freedom in price setting
It may be difficult to set a price unless true product differentiation can be established.
managers have to keep in mind the business and marketing objectives.
they should consider price elasticity of demand
whether it is a new or an existing product

Question 62

mark up pricing (cost based methods of pricing)

Answer 62

adding a fixed mark-up for profit to the unit cost of buying in a product. often used by retailers. add a percentage mark up to unit cost of each item bought from wholesaler. size of the mark up depends on the strength of demand for the product, the number of competitors and the stage of the product’s life cycle.

Question 63

cost plus pricing (cost based methods of pricing)

Answer 63

setting a price by calculating a total unit cost for the product and then adding a fixed profit mark-up. often used by manufacturers. particularly the case if business produces more than one product

Question 64

contribution (marginal) cost pricing (cost based methods of pricing)

Answer 64

setting prices based on the variable costs of making a product, in order to make a contribution towards fixed costs and profit. the business calculates a variable cost per unit of the product. It then adds an extra amount, which is known as a contribution towards fixed costs and profit. If enough units are sold, the total contribution will be enough to cover the fixed costs and to return a profit. level of competition can be considered when making the pricing decision. Many businesses that have excess capacity use contribution cost pricing to attract extra business that will absorb the excess capacity.

Question 65

loss leader (cost based methods of pricing)

Answer 65

involves the setting of very low prices for some products, possibly even below variable costs (meaning a negative contribution). This low price is expected to attract consumers who will then, it is hoped, also buy other products that do make a positive contribution. The business hopes that the contribution earned by these other products will exceed the negative contribution made on the low-priced ones. Often, the purpose of loss leaders is to encourage the purchase of closely related complementary goods.

Question 66

reasons for competitive pricing

Answer 66

There is one dominant business in the market. This business often becomes the price leader. Once it sets its prices it would be very difficult for a smaller business to charge higher prices unless it sold a clearly differentiated product.
Some markets have a number of businesses of the same size selling similar products. The prices are very similar in order to avoid a price war which would reduce profit for all the businesses.

Question 67

competitive pricing

Answer 67

making pricing decisions based on the price set by competitors.

Question 68

price discrimination (competitive pricing)

Answer 68

charging different groups of consumers different prices for the same good or service. often used in markets where it is possible to charge different groups. Businesses can price discriminate profitably if there are different groups of consumers, where the business is able to avoid resale between the groups and when it does not cost too much to keep the consumer groups separate. examples-cheaper tickets for children and elderly or different prices in different export markets

Question 69

dynamic pricing (competitive pricing)

Answer 69

offering products at a price that changes according to the level of demand and the customer’s ability to pay.
The dynamic pricing method involves setting constantly changing prices when selling products to different customers, especially online through e-commerce. E-commerce has become a hot spot for dynamic pricing models, due to the way consumers can be separated by and communicated with over the internet. Consumers cannot tell what other buyers are paying. Businesses can vary price according to demand patterns or knowledge that they have about a particular consumer and their ability to the pay.

Question 70

advantages of cost plus pricing

Answer 70

The price set covers all costs of production.
This is easy to calculate for single-product firms where there is no doubt about fixed cost allocation.
It is suitable for businesses that are price makers due to market dominance.

Question 71

advantages of contribution cost

Answer 71

All variable costs are covered by the price and a contribution is made to fixed costs.
It is suitable for firms producing several products and fixed costs do not have to be allocated.
It is flexible. The price can be adapted to suit market conditions or to accept special orders.

Question 72

advantages of competitor pricing

Answer 72

This is almost essential for firms with little market power - price-takers.
It can be flexible to reflect market and competitive conditions.

Question 73

advantages of price discrimination

Answer 73

‘This uses price elasticity (the responsiveness of demand to price changes) to charge different prices to increase total revenue.

Question 74

disadvantages of cost plus pricing

Answer 74

It is inaccurate for businesses with several products where there is doubt over the allocation of fixed costs.
It does not take market/competitive conditions into account.
It tends to be inflexible
If sales fall, average costs often rise and this could lead to the price being raised using this method.

Question 75

disadvantages of contribution cost

Answer 75

Fixed costs may not be covered.
If prices vary too much, due to the flexibility advantage, then regular customers might be annoyed.

Question 76

disadvantages of competitor pricing

Answer 76

The price set may not cover all the costs of production.
The price may have to vary frequently due to changing market and competitive conditions.

Question 77

disadvantages of price discrimination

Answer 77

There are administrative costs of having different pricing levels.
Customers may switch to lower-priced markets.
Consumers paying higher prices may object and look for alternatives.

Question 78

Penetration pricing

Answer 78

setting a relatively low price to achieve a high volume of sales. Firms tend to adopt penetration pricing because they are attempting to use mass marketing and gain a large market share. If the product gains a large market share, then the price could slowly be increased during the growth stage of the product life cycle.

Question 79

market skimming

Answer 79

setting a high price for a new product when a firm has a unique or highly differentiated product with low price elasticity of demand. aims are to maximize short-run profits before competitors enter the market with a similar product. helps to create an exclusive image for the new product. If rivals do launch similar goods, it may be necessary for the price of the original product to be reduced over a period of time.

Question 80

psychological pricing

Answer 80

setting a price at a level which matches consumers’ views about a product’s perceived value. very common for manufactures and retailers to set prices just below key price levels in order to make key price levels in order to make the price appear lower than is. like $999. also refers to the use of market research to make sure that the price level meets consumer views to be inappropriate for the style and quality of the product will not meet their expectations of value. The more prestigious the brand name the higher the perceived value, and so the higher the price that can be set.

Question 81

pricing decisions

Answer 81

A business will not use the same pricing method for all of its products. This is because market conditions for the different products could vary greatly. The price level can have a powerful influence on consumer purchasing behavior. In the world of fast-moving consumer goods there is often surprisingly little to be gained from adopting a low-price strategy at all times, as consumers expect good value, not necessarily low prices. When consumers assess whether a product offers good value, price is only one factor. The complete brand image or lifestyle offered by the product is increasingly important in a world where many consumers have so much choice and their incomes are rising.