4.5 The 4 P's

ABOVE THE LINE (ATL) PROMOTION

any form of paid-for promotion through the mass media (such as television and radio) to reach a wide audience.

SPECIALITY CHANNEL OF DISTRIBUTION

any indirect way to distribute products that does not involve retailers, i.e. distribution without the use of intermediaries such as e-commerce, vending machines and mail order.

CONSUMER SERVICES

non-tangible products that are sold to the general public and include hotel accommodation, insurance services and train journeys

LOSS LEADER PRICING

involves selling a product below its average cost to encourage consumers to buy other highly-priced products. Large supermarkets use loss leader pricing by selling products such as milk at a loss to encourage customers to also buy the other higher-priced products such as biscuits. If this is successful, the profit earned on the higher-priced products compensates for the losses made on the loss leader product.

Question, What are the uses of the product life cycle?

ANSWER; 1. Helps a business to make marketing mix decisions. 2. Helps a business to forecast net cash flow

Question What are the disadvantages of a short product life cycle?

Answer; 1. Cash inflows occur for only a brief period 2. New product innovation is constantly necessary 3. If sales do not increase rapidly break even may not be reached4.The business may be left with outdated stock

Question, Why might a product have a short product life cycle?

Answer; 1.Actions of competitors 2.Fashion/changing tastes 3. Availability of the product

BRAND IMAGE

Brand image is the unique identity that distinguishes a product from similar products offered by competitors

LOGOS

a form of product differentiation that use a visual symbol to represent a business, its brands or its products, e.g. Nike's Swoosh.

INTERMEDIARIES

agents or other businesses that act as a middle person in the chain of distribution.

WHOLESALER

an intermediary in the channel of distribution that buys in bulk from producer and 'breaks bulk' by selling to retailers in small quantities.

RETAILER

an intermediary in the channel of distribution that sells products to the consumers in outlets (i.e. 'shops').

SLOGANS

catchphrases designed to represent the essence of a business or its products using a memorable set of words.

BELOW THE LINE (BTL) PROMOTION

does not use paid-for mass media sources, e.g. free samples (toiletries, food, drinks, etc), discount vouchers (to encourage customers to buy the product) and added-value promotions (e.g. special introductory deals).

WORD OF MOUTH

is the spreading of marketing messages about a firm and the quality of its products or its customer service. perhaps the most cost-effective form of promotion.

COORDINATED MARKETING MIX

key marketing decisions complement each other and work together to give customers a consistent message about the product

PRICE

refers to the amount that customers pay for a particular product.

PROMOTION

refers to the methods used to inform, persuade and/or remind people about a firm's products or brands. The main aim of this is to obtain new customers or to retain existing ones. it is a component of the marketing mix.

BRAND VALUE

refers to the premium that customers are willing to pay for a brand over and above the value of the product itself, i.e. customers are willing to pay more for a reputable brand.

ADVERTISING

a form of ATL promotion that can be categorized as follows; 1. Informative ____________ gives consumers information about a product. 2. Persuasive _____________ tries to persuade the consumer that they need a product and should buy it. 3. Reassuring ___________ tries to reminds existing customers that they made the right purchasing decision when they chose to buy the firm's product and that they should continue purchasing the product.

PACKAGING

a form of non-price competition that focuses on the ways in which a product is presented to the consumer. Psychologists argue that consumer's moods are affected by aspects of this, such as colour and texture.

BRAND DEVELOPMENT

a long-term product strategy that involves strengthening the name and image of a brand to increase its appeal and sales.

BOSTON MATRIX

a marketing tool for analysing the product portfolio of a business. It shows whether products have high or low market share, and operate in high or low market growth industries.

PRODUCT

a physical good or an intangible service, such as a computer or a haircut. Businesses sell products to satisfy the needs and wants (desires) of their customers.

PRICE DISCRIMINATION

a pricing strategy that involves charging different prices to different groups of customers for the same product, e.g. adult and child airline tickets. occurs in markets where sub-groups of consumers exist and it is possible to charge different consumer groups different prices for the same product. For example, airline operators charge many different prices (e.g. business class, economy class) for the same journey. Other examples of this include selling train and bus tickets are sold at lower prices to children or the elderly and setting different prices for products in different export markets. Firms can use this if there are different groups of consumers with different elasticities of demand. However, the firm must avoid resale between the groups and it must not cost too much to keep the groups of consumers separate.

PRICE SKIMMING

a pricing strategy that involves setting a high price for a new product. it is used for technologically advanced and innovative products. As there are unlikely to be any substitutes for such products, the firm can charge a high price to maximise profits. This strategy is usually used for a limited period until competitors launch similar products. For example, firm that produce and sell phones and computers, such as Apple, often use price skimming when introducing their products in the market, before lowering their prices over time.

PENETRATION PRICING

a pricing strategy that involves setting a relatively low price for a new product often in order to achieve a high volume of sales. Firms use this when 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.

PREDATORY PRICING

a pricing strategy that involves temporarily reducing price in an attempt to force competitors out of the market, as they cannot compete profitably. Businesses that use this successfully can dominate the market and charge higher prices. it is commonly used in highly competitive markets where the products are in the maturity or saturation stages in the product life cycle (e.g. the market for mobile phones). Although it can mean lower prices for customers in the short term, it is illegal in many parts of the world (such as the USA and EU) since it is considered anti-competitive behaviour.

COST-PLUS PRICING

a pricing strategy where a product is priced based on the average cost of making the product plus a fixed percentage for profit.

PSYCHOLOGICAL PRICING

a pricing strategy where attention is paid to the effect of price on consumers' perception of a product. it has two aspects; 1) Rounding down numbers such as $9.90 to make the price appear much lower than it is. As a result, customers feel that they are getting a bargain better price for the product. 2) The use of market research to avoid setting prices that consumers consider to be inappropriate for the style and quality of the product. For example, consider a perfume that has a low unit cost of production. Although, the low unit cost would allow the manufacturer to set a very low price for the perfume, a low price would not create the high quality image that the manufacturer is trying to communicate. As a result, the low price may discourage consumers from buying the perfume. Similarly, if price exceeds consumer perceptions of the quality and image of the product, sales will be damaged.

VIRAL MARKETING

a promotional strategy that combines online technologies with word of mouth (WOM) techniques. usually done through the internet via emails and social networks.

AGENTS

an intermediary who helps to sell a firm's products, such as real estate agents selling residential and commercial property for their customers.

DIRECT MARKETING

any promotional activity that involves making direct contact with customers, e.g. personal selling and direct mail.

• PRICE LEADERSHIP

exists where one business sets a price for its products and other firms in the market set the same or similar prices. usually exists when a business is the dominant firm in the market - i.e. the business has the highest market share. Customers perceive there to be few substitutes for such products so the dominant firm can set its own prices. If the market leader sets a relatively high price, firms in the market will enjoy high profit margins. However, if the market leader aggressively lowers prices specifically because it knows the smaller businesses in the market cannot maintain a lower price, this is called predatory pricing

BRANDING

giving a product a unique name and identity. Branding differentiates a product from similar products offered by competitors.

EXTENSION STRATEGIES

marketing activities to extend the maturity stage of the product life cycle. include adding new features to a product, rebranding, creating new uses for a product, and selling in a new market or market segment.

PRODUCT DIFFERENTIATION

means distinguishing a business a product from competitors' products. The distinction can be real, such as a technical difference in a product, or perceived, such as a strong brand identity developed through advertising.

BRAND LOYALTY

means that consumers keep buying the same brand instead of choosing a competitor's brand.

BRAND AWARENESS

measures the extent to which potential customers or the general public recognise a particular brand. Brand awareness is usually expressed as a percentage of the sample surveyed.

CASH COWS

products that have low market growth and high market share. Due to high sales, they generate large amount of cash for a business, are well-established products in a mature market and, as a result, businesses do not need to invest significantly in these products to retain their market share. A firm should adopt a "hold" strategy that involves investing enough resources to keep them in their current position in the Boston matrix.

DOGS

products that have low market share and low market growth. operate in markets that are not growing or in declining markets, and this means they generate little revenue for the business. As a result, the firm is likely to divest in these products. Divestment involves phasing out or selling off. Divestment frees up resources that can be used to turn problem children into stars.

STARS

products with high market growth and high market share. Stars are successful products in the market and generate high amounts of income for the business. However, they need high levels of investment to sustain their rapid growth and status in the market, especially in a fast-growing market where competing firms can easily gain market share by attracting new customers. A firm can use a 'harvest' strategy to turn stars into cash cows. For example, a firm could use a large amount of advertising to enable a star to enter the maturity stage of the product life cycle.

PROBLEM CHILDREN

products with high market growth and low market share. a concern to businesses because of the large amount of working capital needed to increase their share of the market. Moreover, high market growth could mean that the products are operating in a fiercely competitive market and need an expensive marketing strategy to succeed. This means that businesses should be very selective about which problem children they should develop into stars and which they should be eliminated. A "build market share" strategy is used to develop problem children into stars by investing necessary resources to gain market share. they are unlikely to turn into stars may face divestment.

Public relations (PR)

promoting a business and its products through publicity and sponsorships. Publicity is the process of promoting a business and its products by getting positive media attention without directly paying for the attention. Sponsorship is a promotional technique that involves financially supporting an event or business venture in return for publicity.

SOCIAL NETWORKING

refers to any platform used mainly by individuals to build social relationships between people, often because they are friends or share things in common. include Google+, Instagram and Facebook.

PLACE

refers to channels of distribution selected for a product. For example, Coca-Cola distributes its drinks to customers via wholesalers, retailers and vending machines. NOTE, Do not confuse 'place' or 'distribution' decisions with transportation methods. Place is about how and where the product is to be sold to a customer - transportation is about how the product is to be physically delivered.

PROMOTIONAL MIX

refers to the combination of individual ATL and BTL methods of promotion used by a business, such as advertising, direct marketing, packaging and sales promotion.

ADVERTISING CLUTTER

refers to the huge volume of advertisements that the public is bombarded with.

SOCIAL MEDIA

refers to the marketing practice of gaining internet traffic through social media websites such as Facebook, Twitter, YouTube and Google.

PRODUCT PORTFOLIO

refers to the range of products or strategic business units owned and developed by an organization at any one point in time.

PROMOTION

refers to the strategies used to attract customers to buy a firm's products. Branding, for example, helps to differentiate a product from its competitors.

MARKETING MIX

the key decisions that must be taken in the effective marketing of a product. The marketing mix is made up of seven interrelated decisions − the 7Ps. 4Ps - product, price, promotion and place - relate to marketing goods and services. The other 3Ps - people, process and physical evidence - largely relate to marketing services.

CONSUMER GOODS

the physical and tangible goods bought for personal consumption, such as consumer durables (e.g. furniture, computers and cars) and non-durable consumer goods (e.g. food and flowers) that can only be used once.

BRAND NAME

the unique name that distinguishes a product from similar products offered by competitors.

TELEMARKETING

the use of telephone systems (audio and text messaging) to sell products directly to potential customers.

CHANNELS OF DISTRIBUTION

the ways that a product gets from the manufacturer to the consumer. Examples include, Zero-intermediary channel (i.e. direct selling to consumer) Single-intermediary channel Two-intermediaries channel

SALES PROMOTIONS

short-term incentives provided by a business with the aim of increasing or boosting its sales. Examples of sales promotion include; Discounts Point-of-sale displays (i.e. displays at the place where the product is sold that make consumers notice the product) Free gifts can be offered to customers (e.g. a free charger when buying a cellphone)

PRODUCT LIFE CYCLE

shows the pattern (stages) of the sales of a product over time. Different products undergo each of the five stages (research, launch, growth, maturity, saturation and decline) at varying speeds.

Question suppose the total cost of producing 10,000 packets of biscuits is $20,000. The business wants to get a 50% mark-up on each packet of biscuits. What is the Cost-Plus Selling Price?

Step 1, calculate average cost = (20,000/10,000) = $2 Step 2, calculate the mark-up profit = (50 per cent of US$2) = $1 Step 3, Add the average cost to the mark-up to obtain the selling price = $2 + $1 =$3