Unit 3: Marketing mix: Product and Price (Chap 12) Flashcards
(36 cards)
1
Q
What are the benefits of new product development? (Card 1)
A
- In fast-changing markets, a business won’t survive unless it meets the changing needs and expectations of customers
- Developing a new product before competitors will bring competitive advantages
- Business may be able to charge a high price and achieve high sales, producing high profits
2
Q
What are the benefits of new product development? (Card 2)
A
- New products developed for new markets increase potential sales, revenue and profit
- Developing new products to add to those already being produced by the business spreads risk
- Might help to achieve growth and bring benefits from economies of scale
3
Q
What are the limitations of new product development?
A
- Market research needs to be carried out to identify customer needs, this can be expensive
- Development of a new product often requires large capital expenditure
- No guarantee that a new product will be a success
- If the investment in a new product’s financed by borrowing and the product isn’t a success, the survival of the business will be threatened
4
Q
Why does a brand image increase a business’s sales and revenue?
A
- Consumers recognise its product more easily when looking at similar products
- Can be priced higher than less well-known brands
- Easier to launch new products on to the market because consumers already know and trust the brand
- They’ll be more likely to try it than if it was from an unknown brand (they have customer loyalty)
5
Q
What are the roles of packaging?
A
- To protect the product
- To provide information about the product
- To help consumers recognise the product
6
Q
What are two other purposes of packaging?
A
- Might have a use once the product has been used up, like a coffee jar might be a storage jar
- To keep the product fresh once the packaging has been opened, like the inside packaging of breakfast cereals
7
Q
What are the four main stages in the product life cycle?
A
- Introduction stage
- Growth stage
- Maturity stage
- Decline stage
8
Q
What is the introduction stage?
A
- Product is introduced into the market
- Sales are low
- Product may be making a loss because of the cost of heavy advertising to gain product recognition
9
Q
What is the growth stage?
A
- Product is becoming better known to consumers
- Sales are increasing
- Product starts to earn profit
10
Q
What is the maturity stage?
A
- Sales are no longer growing but aren’t falling
- Most profitable stage
11
Q
What is the decline stage?
A
- Sales are falling
- Product eventually becomes unprofitable
- Withdrawn from the market
12
Q
What are the types of extension strategies? (Card 1)
A
- Finding new markets for the product - owners/managers will look to see if there are other markets for their product
- Finding new uses for the product - research and development team might look to see if the product can be used for something other than what it was originally intended for
- E.g. a fizzy drink which is promoted as having benefits as a sports drink
13
Q
What are the types of extension strategies? (Card 2)
A
- Adapting the product or the packaging to improve its appeal to consumers - very often the product doesn’t change but the packaging is redesigned by the business
- Increased advertising and other promotional activities - the marketing function looks at other ways of promoting the product to maybe appeal to a new market or remind the existing market that the product’s still available
14
Q
How stages of the product life cycle can influence
marketing decisions: Product
A
- I - Only a basic model of the product is available
- G - Changes might be made to the product as a result of feedback from consumers in the test market
- M - Extension strategies might be used to keep the product in this, the most profitable stage of its life cycle
- D - Product and packaging aren’t altered
15
Q
How stages of the product life cycle can influence
marketing decisions: Price
A
- I - Prices might be lower than competitor prices to attract consumers, or high if the product has no competition
- G - Brand image helps to create customer loyalty and can allow a business to increase its price of products
- M - Will remain similar to that of competitor products
- However, if the original price was high due to the uniqueness of the product, then it will probably need to be decreased as competitors will have introduced similar products.
- D - Might be reduced to maintain sales or sell off the remaining inventory before the withdrawal
16
Q
How stages of the product life cycle can influence
marketing decisions: Promotion
A
- I - High promotional activity creates product awareness and informs consumers that the product is on the market
- G - Promotional activity is still high to continue persuading existing consumers to buy the product again, and to attract new consumers
- M - Aimed at reminding consumers the product is still available and how it differs from competitors’ products
- There may be an increase in promotional activities for a short period of time as an extension strategy
- D - Only promotional activity is to advertise the lower price of the product or other promotions aimed at selling the remaining inventory
17
Q
How stages of the product life cycle can influence
marketing decisions: Place
A
- I - Product will be offered for sale in specially selected outlets
- G - Product is more widely available, increasing sales
- M - Product is now available for purchase through a wide distribution network
- D - Product is only available in profitable outlets
18
Q
What are the five different types of pricing methods?
A
- Market skimming
- Penetration pricing
- Promotional pricing
- Cost-plus pricing
- Competitive pricing
19
Q
Notes on market skimming
A
- Business decides to set a high price for a new product which is unique or very different from anything on the market
- Consumers are willing to pay for more the latest technology e.g. iPhone 15
- Consumers may also want the status of owning the latest version of a product
- Very high profit which is sometimes needed to repay the high costs of research and development of the product
20
Q
Notes on penetration pricing
A
- Used for new products, like market skimming
- Price is set at a lower level from similar products already on the market
- Low price may encourage consumers to buy the product
- Once customer loyalty is built up, the price of the product usually increases to a level similar to that of its main competitors
21
Q
Notes on competitive pricing (Card 1)
A
- If a business charges a higher price than its competitors, it’s likely that consumers will not buy its product because they can get similar for cheaper
- Used for pricing both new and existing products
22
Q
Notes on competitive pricing (Card 2)
A
Competitive pricing for new products:
- If a business has a good brand image and loyal customers, then it may use competitive pricing when launching new products which are similar to those already on the market
- This is because consumers will believe the product to be of the same high quality as the firm’s other products
23
Q
Notes on competitive pricing (Card 3)
A
For existing products:
- Products that were introduced to the market using market skimming or penetration pricing methods will need a different method of pricing e.g. competitive. - This is because competitors will eventually enter the market with similar products
- The greater the competition in a market, the lower the prices will be
- They may be priced using CP
24
Q
Notes on promotional pricing
A
- Pricing the product as low as possible for a limited period of time to get consumers to purchase
- Various methods
- Loss-leader pricing is often used by retailers e.g. supermarkets
- They offer a few products well below the normal price, sometimes even at a loss
- This attracts customers into the store who will also buy products at their normal, profitable prices
- Buy-one-get-one-free pricing is used to create product awareness and develop customer and brand loyalty
- Discounting the normal price is also used to create product awareness and build up customer loyalty
25
Notes on cost-plus pricing
- Based on the cost of making the product or buying the product for resale to the final consumer
- The two main methods are: mark-up pricing and full-cost pricing
26
B and L of market skimming
- High price enables the firm to recover research and development costs which are often very high e.g. for Apple's technology
- High price may help the firm to create a quality image for its products
**- High profits will eventually attract cheaper competitor products
- Some customers who would like to buy the products won't be able to because of the high price, loss of sales**
27
B and L of penetration pricing
- Attracts customers more quickly and helps the product to become established in the market
- Can quickly increase market share
**- Possible loss of revenue due to lower prices
- Cannot recover any development costs quickly and if they life cycle is too short then development costs might never be recovered**
28
B and L of competitive pricing
- Prices are similar to those of competitors so the business can compete on things it might be better at e.g. customer service
**- If the market has a price leader then this price would need to be followed otherwise customers and market share will be lost
- Still need to find ways of competing in order to attract sales**
29
B and L of cost-plus pricing
- Quick and easy to work out the price
- Makes sure that the price covers all of the costs
**- Price might be set higher than those of competitors or than customers are willing to pay
- Reduces sales and profits**
30
B and L of promotional pricing
- Good way to sell of unwanted inventory before it becomes out of date
- Increases short-term sales and market share
**- Revenue on each item is lower so profits may also be lower**
31
Choosing a pricing method (look on page 175 for more info)
1. Is it a new or existing product?
2. Is the product unique?
3. Is there a lot of competition in the market?
4. Does the business have a well-known brand image?
5. What are the costs of making and supplying the product?
6. What are the marketing objectives of the business?
32
Notes on price elasticity of demand (Card 1)
**Q: What would you do if the price of a cinema ticket increased by 10%?** You might still go to the cinema, but not as often.
**Q2: What would you do if the price of bottled water increased by 10%?** You need water to survive so you will probably continue to buy bottled water, although you might try to reduce how much by taking greater care over how you use it.
In both these cases, the demand for the good or service will **fall** as a result of an increase in its price. However, the demand for cinema tickets will fall by a much greater amount than the demand for bottled water.
33
Notes on price elasticity of demand (Card 2)
- Additionally, the opposite would also happen
- If the price of cinema tickets decreased by 10%, you would probably go to the cinema more often
- However, if the price of bottled water fell by 10% you would not buy very much more because you are probably buying enough already
- In both cases the demand will **rise** as a result of a decrease in price
34
Notes on price elasticity of demand (Card 3)
- The demand for cinema tickets will change by a greater amount following a change in price than the demand for bottled water will
- This is because the demand for some goods and services is more responsive to price changes than others
- Known as the **price elasticity of demand**
## Footnote
(Customers don't buy cinema tickets as much as water, as it's not necessary for survival. Therefore, the demand for water will be more consistent whether or not the price is changed. The demand for cinema tickets will change more as customers don't need them.)
35
Notes on price elasticity of demand (Card 4)
- Products that aren't very responsive to changes in their price have **price inelastic demand**
- This means that the percentage change in demand will be lower than the percentage change in price
- This is the case for the demand for bottled water since customers are regularly buying it for survival
36
Notes on price elasticity of demand (Card 5)
- Products than are more responsive to changes in their price have **price elastic demand**
- This means that the percentage changes in demand is bigger than the percentage change in price
- This is the case for the demand for cinema tickets
| There is a table on page 177 on price change, PED and revenue
