Chapter 18: The marketing mix product and price

State the formula for price elasticity of demand.

PED = % change in quantity demanded / % change in price

Explain the links between the 4Ps and the 4Cs.

Product = Customer solution Price = Cost to customer Promotion = Communication with customer Place = Convenience to customer

dynamic pricing

offering goods at a price that changes according to the level of demand and the customer's ability to pay

Mark-up pricing

Adding a fixed mark-up for profit to the unit price of a product

Marketing Mix

The four basic marketing strategies, called the four Ps: product, place, price, and promotion.

Product portfolio analysis

analyzing the range of existing products of a business to help allocate resources effectively between them

Explain two reasons why price elasticity results cannot always be relied upon for future pricing decisions.

even when calculated when nothing but price changes, will become outdated quickly and may need to be often recalculated because over time consumer tastes change and new competitors may bring in new products It is not always easy, or indeed possible, to calculate PED. The data needed for working it out might come from past sales results following previous price changes. These data could be quite old and market conditions might have changed. In the case of new products, market research will have to be relied upon to estimate PED - by trying to identify the quantities that a sample of potential customers would purchase at different prices. This will be subject to the same kind of inaccuracy as other forms of market research

define full-cost pricing

setting a price by calculating an unit cost for the product (allocated fixed and variable costs) and then adding a fixed profit margin

target pricing

setting a price that will give a required rate of return at a certain level of output/sales

penetration pricing

setting a relatively low price often supported by strong promotion in order to achieve a high volume of sales

competition-based pricing

setting prices based on competitors' strategies, prices, costs, and market offerings

Contribution-cost pricing

setting prices based on the variable costs of making a product in order to make a contribution towards fixed costs and profit

Product Life Cycle

the pattern of sales recorded by a product from launch to withdrawal from the market and is one of the main forms of product portfolio analysis

Extension strategies

these are marketing plans to extend the maturity stage of the product before a brand new one is needed

CRM (Customer Relationship Management)

using marketing activities to establish successful customer relationships so that existing customer loyalty can be maintained

What do you understand by customer relationship marketing?

using marketing activities to establish successful customer relationships so that existing customer loyalty can be maintained.

List four decisions that will be part of the marketing mix for a new product.

■ Consumers require the right product. This might be an existing product, an adaptation of an existing product or a newly developed one. ■ The right price is important too. If set too low, then consumers might lose confidence in the product's quality; if too high, then many will be unable or unwilling to afford it. ■ Promotion must be effective - telling consumers about the product's availability and convincing them, if possible, that your brand is the one to choose. ■ Place refers to how the product is distributed to the consumer. If it is not available at the right time in the right place, then even the best product in the world will not be bought in the quantities expected.

Why should pricing decisions not be taken in isolation from other marketing-mix decisions?

Because there are many other determinants of the pricing decisions such as: Costs of production: If the business is to make a profit on the sale of a product, then, at least in the long term, the price must cover all of the costs of producing it and of bringing it to the market. These costs include the variable costs and the fixed costs. Variable costs vary with the number of units produced, such as material costs. Fixed costs can be very substantial, such as rents and advertising and promotion costs. These do not vary directly with the number of units produced and sold. Competitive conditions in the market: If the firm is a monopolist, it is likely to have more freedom in price setting than if it is one of many firms making the same type of product. A firm with a high market share may be referred to as a dominant firm and it is likely to be a price- setter - setting prices for other smaller firms in the market to follow. The more competition there is, the more likely it is that prices will be fixed similar to those fixed by other rival businesses. Competitors' prices: Related to the previous point, it may be difficult to set a price very different from that of the market leader, unless true product differentiation (see above) can be established. Business and marketing objectives: If the aim is to become market leader through mass marketing (see Chapter 16), then this will require a different price level to that set by a business aiming at select niche marketing. If the marketing objective is to establish a premium branded product, then this will not be achieved with rock- bottom prices. The key point is that the price must reflect the other components of the marketing mix that must all be based upon the marketing objectives of the business. Price elasticity of demand: The significance of this has already been discussed above. Whether it is a new or an existing product: If new, a decision will have to be made as to whether a 'skimming' or a 'penetration' strategy is to be adopted.

How could variations in the price of a product be used to extend its life cycle?

By lowering the prices of products a business can sell more products by allowing new customers to buy the products, this will help to extend the life cycle of a product.

product positioning

Consumers' perceptions of a product's attributes, uses, quality, and advantages and disadvantages relative to competing brands

What do you understand by 'psychological pricing'?

It is a pricing strategy that utilizes specific techniques to form a psychological of subconscious impact on consumers.

Would consumers benefit from a policy of destroyer pricing? Explain your answer.

Obviously because customers will be getting high quality and reliable products at a very low price. It will increase the living standards of many people and there will be even better products in the market as businesses will involve in fierce competition and keep innovating new products which will ultimately benefit the customers

product

The end result of the production process sold on the market to satisfy customer needs

brand

a name, term, sign, symbol, or design, or a combination of these, that identifies the products or services of one seller or group of sellers and differentiates them from those of competitors

consumer durables

manufactured products that can be reused and are expected to have a reasonably long life, such as cars

price elasticity of demand

measures how responsive quantity demanded is to a price change; the percentage change in quantity demanded divided by the percentage change in price

market skimming

setting a high price for a new product when a firm has a unique or highly differentiated product with low price elasticity of demand

Full-cost pricing

setting a price by calculating a unit cost for the product (allocated fixed and variable costs) and then adding a fixed profit margin

Explain what is meant by the 4Cs.

■ Customer solution - what the firm needs to provide to meet the customer's needs and wants. ■ Cost to customer - the total cost of the product including extended guarantees, delivery charges and financing costs. ■ Communication with customer - providing up-to-date and easily accessible two-way communication links with customers to both promote the product and gain back important consumer market research information. ■ Convenience to customer - providing easily accessible pre-sales information and demonstrations and convenient locations for buying the product.

State two reasons why the pricing decision is such an important one.

■ determine the degree of value added by the business to bought-in components ■ influence the revenue and profit made by a business due to the impact on demand ■ reflect on the marketing objectives of the business and help establish the psychological image and identity of a product. Get the pricing decision wrong and much hard work in market research and product development can be put at risk. For all these reasons, pricing decisions are some of the most significant issues that marketing managers are faced with.