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Archive for January, 2008

The Marketing Mix

Friday, January 4th, 2008

The marketing mix is a combination of several factors which affect a customers buying decisions.

Price

Price can affect sales of a product hugely. It is an essential part of the marketing mix. There are several factors that can affect the price of a product.

  • Production Costs. A firm will want to set their price higher than their production costs in order to make a profit on each product sold.
  • Competition. The company will have to monitor their competitions prices, as setting them too high or low could cause them to loose sales and market share.
  • Corporate objectives. The objectives of the company play a part in the price of a product. If their objective is to make profit, a higher price may be set. If their objective involves gaining market share, lower prices may be set.
  • Demand level. If a product is in a niche market where there is little demand for it, a high price may cause very few or even no sales at all. A good balance must be found.
  • Stage in the product life cycle. The company must consider what stage in the product life cycle their product falls in. If the product is in decline, a lower price may help sales.
  • Other marketing mix factors. Things such as promotion must be taken into account. If a company brands itself as “affordable” or having “low costs”, the prices of their products must reflect this.

Place of Distribution

The second part of the marketing mix is the distribution channel(s) of a product. It is how the product gets from the producer to the consumer. It can sometimes be direct, or sometimes have a retailer to sell it.

  • Wholesalers buy products in bulk and sell them on to retailers who are often independent. A good example would be a cash and carry, where small grocery shop owners buy their goods in bulk and sell them on indivivually to shoppers for a higher price.
  • Retailers are often large chain shops. They buy products from both wholesalers and producers and sell straight to consumers. Supermarkets and other high street shops make good examples.

The distribution channel is the route a product goes on from being produced to being bought by a customer.

  • A Zero level channel is when the producer delivers their product or service straight to the consumer. Dentists, plumbers and other trades are good examples of this.
  • A One level channel is when there is an intermediary between the producer and the consumer. This is often the retailer. Supermarkets and electrical retailers are examples of this.
  • A Two level channel is where there are two intermediaries after the producer. Products sold to a wholesaler, on to a retailer, then finally to the customer highlight this. A cash and carry is a good example.

The distribution strategy for a company’s product can depend on several factors.

One consideration is the type of product being sold. Convenience goods like food need to be distributed in as many places as possible as consumers are not willing to travel far. More expensive items and luxury goods like electrical items and entertainment goods are not distributed to as many places as customers are willing to travel further for them.

Another consideration to make is the channel of distribution. If a product is going from a producer to a retailer they are likely to want it delivered to them rather than picking it up them selves.

There are several effects to the distribution strategy decided by a firm.

  • Distribution cost. It may be cheaper to sell to intermediaries rather than sell directly to the consumer.
  • Product coverage. A small producer is unlikely to have the resources to reach everyone in their target market - so selling to a retailer can let them do the hard work.
  • Product control. If a company sells to one or more intermediary, the producer has less control on the products final price, image or how it is displayed.

Promotion

Promotion involves communicating with existing or potential customers about the product for sale. Promotion can be informative – to let them know about new products or changes to existing products. Promotion can also be persuasive – to persuade customers of the benefits/reasons of buying a firms product over their competitors.

There are many methods of promoting a product. Each company will use different methods depending which market they are in, what their product is, and who and where they are targeting it.

  • Advertisement. This involves promoting your product at your audience through a number of mediums. It can be done above the line - TV adverts, radio adverts and other media). Advertising can also be done below the line – such as free samples and special offers.
  • Promotional offers. This form of advertising involves reducing prices or offering products for free when others are purchased. 10% off, buy one get one free and competitions are all great was to create exposure for a product and boost sales.
  • Personal selling. This involves meeting the consumer in personal and reeling off a sales pitch in order to generate sales. A sales team meeting retail managers, salesmen going door-to-door or selling on the high street are good examples.
  • Public Relations. This involves using the company’s community ties to help bring in sales. Events, press releases and dealing with customer complaints highlight some things a company can do.
  • Direct Mail. This form of promotion is quite cheap but can often be ineffective. Often known as “junk mail”, emails and posted letters sent to a specifically targeted database of customers can help raise awareness and help sell a product.

Deciding which promotion method should be used if a question many companies face. It can affect many things such as budgeting, costs, revenue and even the future of their product.

  • Stage in product life cycle. When a new product is launched, awareness of it must be raised. An informative promotion campaign is likely to be used, which is then switched to persuasive as the product is more established and has competition.
  • Product type. If a product is likely to be sold to retailers, a sales team will visit their managers to try and sell them the product. If a product is being sold to a consumer, adverts and promotional offers are a good option. The promotion methods will vary depending on the type of the product.
  • Budget. If a small has little capital to invest on promotion, low cost methods will be used. Local advertisements on the radio and newspaper may be an option. Free samples and promotional offers are also a good choice as they help raise awareness and help with word of mouth advertisement.

Product

This is another crucial part of the marketing mix. A company’s reputation is at stake with every product they release. Time and money invested into a product can be wasted if the product is not good enough and marketing fails to be effective.

  • A product must satisfy the needs of customers and make them think the product has sufficient quality for the price they paid.
  • The product must be efficiently produced, taking into account how much it cost to be produced and the wastage levels from production.
  • A product must have a unique selling point (USP), a unique concept to it that customers cannot get elsewhere.

The Marketing Mix Must be Integrated

All aspects of the marketing mix must function together as a whole in order to create a useful marketing campaign and get a product the sales it needs. The marketing mix must suit the company and the products it sells. Luxury items like mp3 players must have a good promotional campaign, be a quality product, be distributed in all the needed places and also have a competitive price that shows its value.

Other Factors in the Marketing Mix

  • People. The staff that a company has must be happy and treat customers well, helping them. This is a small factor that can help the firm improve their reputation and keep customers returning.
  • Environment. When shopping customers like to be comfortable. A friendly atmosphere with the right sound, lighting, decoration and other factors helps keep the customer happy and more likely to buy a product.
  • Shopping process. This other small factor can help with sales. If a product is easy to order, buy, collect or be delivered a customer will be satisfied and may return for more goods.

Pricing Strategies, Methods and Tactics

Wednesday, January 2nd, 2008

Pricing strategies

These are necessary for new products.

  • Price Penetration involves entering your product into the market at a low price in order to gain high sales and gain some of the market share. The company doing so much have good financial stability in order to take little profit or even a loss on the product.
  • Competitive Pricing involves entering a new product into the market with prices set similar to that of the nearest competitors.
  • Price skimming involves releasing a new product into the market at a high price in order to make large amounts of revenue whilst the product is still new and capitalise on the little competition. Prices are usually lowered later on the keep demand high.

Pricing strategies are often used on products that are currently on sale in the market.

  • Price leadership occurs when the firm has a large market share, and they are the dominant force. The firm will alter their prices and their competitors will follow, allowing them to remain ahead and not loose sales due to lower prices elsewhere.
  • Price taking. This is the opposite of price leadership. It involves smaller firms setting their prices based on the levels set by the dominant market force. A good example is small electrical retailers setting their prices similar to the large electrical retailers active in many high streets around the country.
  • Predator pricing is an aggressive form of prices. It is done to wipe out, or severely weaken competition. It involves setting incredibly low prices to boost sales massively and cause competitors to suffer serious lack in sales, perhaps causing them to go bankrupt or downsize. A firm must have good financial backing in order to make a loss on the products sold cheaply. Firms can benefit however from the sale of their other products, gain in brand awareness and gains in market share.

Pricing Methods

Companies have many methods at which their prices are set. They vary from the product and market in question.

  • Cost plus pricing. This method adds a percentage of the unit cost to set a sale price. The percentage is often derived from the profit margin wanted from a company. For example, if a company wanted profits to be 20% higher than variable costs, a product that cost £10 to create could have a sale price of £12. This pricing method ignores customer wants and needs and other factors like the prices set by competitors.
  • Contribution pricing. This is done so any profit made on each product helps towards paying the company’s fixed costs, like rent, salaries etc.
  • Price Discrimination. This is when the same product is sold at different prices. A good example may be more expensive drinks at the weekend, cheaper train tickets outside of rush hours.

Pricing Tactics

Companies often have several tactics used when setting prices, after methods and strategies have been established.

  • Loss leaders. This is a tactic employed by larger firms with a vast range of products on sale. It involves selling products for a loss or for very little profit in order to gain sales on other products. A good example would be a supermarket chain selling groceries for little profit in order to boost sales of electrical goods and other non-food items.
  • Psychological pricing. This is common in almost every shop. Goods being sold for £4.99 rather than £5, as it creates a cheaper image in the customer’s mind. Other tactics like “was £20, now £15” are also often used, even though the price may have never changed – the customer just does not realise this and thinks they are getting a product cheaper.

The Product Life Cycle

Tuesday, January 1st, 2008

What is the Product Life Cycle?

The product life cycle is quite simple. It has to be considered when a company is deciding on its marketing strategy. It is basically the many changes a product or service goes through starting with the initial idea and ending with the product being taken off sale and getting replaced.

Stage 1

The first stage of the product life cycle is research and development. It involves the idea being created, researched and tested. This stage can take anywhere from a few months to several years depending on the complexity of the product. Research and development is an expensive stage of the product life cycle. The company is not making any revenue from the product, which may be costing a lot to develop. It is also a crucial stage of the product life cycle as getting it wrong can affect the future sales performance and even affect the companies stability or reputation.

Stage 2

The second stage is known as introduction. This is the launch of the new product. It can again be an expensive time, as the product is not yet selling well, so the costs of the launch are not covered by the sales. Some products never make it to this stage as get abandoned after the prototype is made and tested.

Stage 3

The third stage in a products life is growth. This is when the product becomes more well known and starts selling well. The company may break even as costs become stable and sales boost revenue.

Stage 4

The fourth stage is maturity or saturation and can last for years. Sales are likely to be stable here and often in decline. Competitors may be taking some business away or the product may have fallen in popularity. The product has often been on sale for a long time at this point.

Stage 5

The final stage in the life cycle of a product is decline. The product is falling in sales. Prices may need to be lowered in order to keep the product selling.

Preventing Decline

Several things can be done to prevent the decline of a product.

  • Increasing product usage. If a firm can market reasons why consumers must use a product more often, it can help increase sales. Drinking extra milk, cleaning your teeth more, doing extra exercise are some examples.
  • Price reduction. This is very common. Lowering the price can result in extra sales and exposure.
  • Product adaptation. Companies often change a product slightly. New colours, extra flavours etc. Releasing a chocolate bar with mint or other different varieties are common.
  • Changing the products image. This is often done to please another audience, or perhaps upgrading a product to keep up with current trends.
  • Promotional offers. Buy one get one free, half price and coupons. These can all be done to draw attention to a declining product and boost sales. Everyone loves a special offer!