The Marketing Mix Also referred to as the 4Ps Human Responsibility – 4Ps Marketing Mix The balance of product, price promotion and place is the key to products being successful in the market place. The 4 Ps • • • • The right Product At the right Price Where Promotion is appropriate And it’s sold in the right Place for the type of product it is The Product • • • • Product Price Promotion Place The Product • An object or a service that is mass produced or manufactured on a large scale with a specific volume of units. A typical example of a mass produced service is the hotel industry. A less obvious but ubiquitous mass produced service is a computer operating system. Typical examples of a mass produced objects are the motor car and the disposable razor. www.wikipedia.com The Product • For a product to be successful it will need to be carefully designed, developed and tested. • Which costs money. • The product is refined and made ready to be launched to the public. • A graph of sales can then be plotted over the life of the product, this is called the PRODUCT LIFE CYCLE • X = Time and Y = volume of sales Product Life Cycle Can you label each section of a product’s lifecycle? Maturity Volume of Sales Growth Decline Obsolete Introduction TIME Development 1 2 3 4 5 6 Introduction • Once a product has been developed by the R&D dept of a firm it is ready to be launched on the market. • At this point the sales will begin to climb slowly over time, hence the graph rises slowly (slow rate of adoption) • cost of product will be high • sales volume low • no/little competition - competitive manufacturers watch for acceptance/segment growth • There may be losses • demand has to be created by a marketing strategy • customers have to be prompted to try the product Growth • The sales continue to rise as the public become aware of the product • costs reduced due to economies of scale • sales volume increases significantly, the graph rises rapidly (faster rate of adoption) • profitability • competition begins to increase with a few new players in establishing market • prices controlled to maximize market share Maturity • Mature stage • costs are very low as you are well established in market & no need for publicity. • sales volume peaks • increase in competitive offerings • prices tend to drop due to the proliferation of competing products • brand differentiation, feature diversification, as each player seeks to differentiate from competition with "how much product" is offered • very profitable Decline • • • • • Decline or Stability stage costs become counter-optimal sales volume decline or stabilize prices, profitability diminish profit becomes more a challenge of production/distribution efficiency than increased sales • consumer demand for spare parts, maintenance and or product servicing Obsolescence • • • • Product no longer manufactured and sold New product has replaced this one End of the line Obsolete Revitalisation • Before the product reaches death whilst it is in decline • The product can be revitalised Revitalisation Maturity Volume of Sales Growth Decline and revitalisation Product life extended Introduction Development TIME Frequent Revitalisation Maturity Volume of Sales Growth Decline and revitalisation Product life extended Fast rate of adoption Introduction Development TIME FAD products A Fad product has a very short life cycle and is very quickly adopted onto the market. This quick adoption rate is given by the rapid rise in the graph. Maturity is very short and decline equally rapid. Volume of Sales Maturity Decline Growth Introduction Development Death TIME FASHION products Maturity Decline Volume of Sales Growth A Fashion product has a very rapid rate of adoption onto the market. This quick adoption rate is given by the rapid rise in the graph. Maturity and decline can depend on the fashion in question. Death Introduction Development TIME Trends in FADs Volume of Sales FADs come and go very quickly, but with FADs come trends. A trend is plotted by looking at the performance of the FAD products on sale. If you consider, yoyos, utube, myspace, so there is a trend towards using PCs and away from conventional toys Yoyo Utube Myspace Death TIME Volume of Sales Slow rate of adoption A product that is adopted slowly has a low growth in sales, tending to have a longer lifecycle. Growth Maturity Decline Introduction Development TIME Volume of Sales Mobile music lifecycles Ipod MP3 player Walkman CD Walkman iPhone 1980 1985 1990 1995 2000 2005 TIME Product Churning • Some companies deliberately keep the lives of certain products short • Producing new and improved products at frequent intervals. • This stimulates purchasers to have the ‘latest’ version of the product. • Popular in the 1980s with electronics and car industry Product • In summary • A product is examined on three levels: – The core product is the benefit of the product, for example the convenience of a car – The actual product is the tangible, physical product, for example the car – The augmented product is the customer service support offered, for example warranty, guarantee and after-sales service Product • In summary • The quality of a product depends on factors such as its: – Aesthetics – Performance – Maintenance, ease of servicing – Durability – Range of features – Ease/effectiveness of use – Brand name Marketing Mix Product Price Promotion Place Price • The price of a product can be a significant determinant in the market success of a product. Pricing is a complex business, and the price will be determined by a number of factors • The objectives of the company • Elastic demand • What the market will bear • Cost of production Company Objectives • Price will depend on: • Whether the company is seeking to maintain or expand its market share • Whether it is trying to reach a certain return for a level of investment • Whether it is trying to achieve a steady rate of growth • Whether it is trying to keep up planned levels of output Elasticity of demand • Price can be determined by elastic demand • Elastic demand is determined by how much demand changes with a small change in price • If demand remains the same when there is a price change then it is said to be inelastic • If demand changes dramatically when there is a change in price it is said to be elastic. What the market will bear • Price can be affected by the type of product being sold • Radically new products are harder to determine a price for than products that are developments on existing offerings. • When this is the case market research needs to be carried out in order to determine what the highest price can be charged to ensure a targeted level of sales. designer v traditional Traditional Radically New Costs • Price will always be affected by costs • Material Costs – which are variable, raw materials etc • Production Costs – fixed, machines, tools, buildings • Distribution costs – variable, transportation • Higher volume of sales will mean lower production costs and likewise lower volume of sales will lead to higher production costs. This is known as economy of scale. Henry Ford’s production line Pinball machine production line Costs • Working out the final price can be calculated by a cost plus strategy. • This involves estimating the average cost of producing and marketing the product and adding a mark up for profit. • contribution pricing is similar, but takes account of the variation of production costs for different levels of sales Price • A company may choose to not to use any of the above to determine the price. • It could set it’s price to compete with a rival company. • It could also set its selling price by using a market research strategy to determined perceived value. • Such a strategy will usually be accompanied by a promotional strategy and emphasise quality and value of the product. Price and the Product Life Cycle • The strategy adopted to determine a product’s price will change throughout its lifecycle • Early in a product’s life the price maybe high however the price will reduce by improvements in the production process and economies of larger scale production. Price and the product life cycle Volume of Sales Maturity During the introduction phase of a product’s life a pricing strategy could be to price the product low to stimulate interest. This is known as MARKET PENETRATION. Alternatively you might price the product at a high level to reach a smaller target market and create an image of exclusiveness and quality. This is know as MARKET SKIMMING Growth Decline Product sales dying TIME 1 2 3 4 5 6 Volume of Sales Price and the product life cycle During the growth stage the aim of a company will be to keep prices steady in order to encourage new and repeat purchasers. However during this phase of a product's life the competition will be known and it is possible that either the price of the product will be reduced to make the product more competitive or new features will be added to the basic product to give it added value Maturity Decline Product sales dying TIME 1 2 3 4 5 6 Price and the product life cycle During the maturity stage the aim Volume of Sales Maturity Decline Product sales dying TIME 1 2 3 4 5 6 Price and the product life cycle Volume of Sales In the decline phase of a product life cycle decisions will have to be made about how long the decline can be sustained. The strategies may not involve price changes but the company will look for ways in which to cut the costs that they incur in producing, distributing and marketing the product TIME 1 2 3 4 5 6 Trigger and Incremental Products • Another aspect of product development is the distinction between trigger and incremental products a company will sell. • Trigger products will be marketed on their own merit but incremental products are sold on the goodwill created by the trigger product. Trigger Products • TRIGGER products are key products in a company’s product range which will prompt a potential customer to make a purchase. • Examples are computer hardware and the operating software. • Tesco’s TRIGGER products are its range of groceries. Incremental Products • INCREMENTAL products are not worth buying on their own, they are add ons to the purchase of a trigger product. • Examples are computer printer and the word processing software. • Tesco’s incremental products are its services like photography, insurance and the like. Volume of Sales Consumers Early Late majority majority Early adopters Laggards Innovators TIME Categories of purchaser • Innovators are those consumers most likely to take a risk and buy radically new innovations • Early adopters are slightly more cautious than innovators but are the targets of a company’s marketing strategy • Early Majority wait to see a product become established before taking the risk. • Late majority wait until they see the price drop, or for special offers which will enable them to purchase. • Laggards purchase at the end of a product’s life from cultural or financial reasons. They may just feel compelled to buy the product for social reasons. Price – a summary • • • • • Demand Costs (need to cover all costs incurred) Government taxes Competition Stage in the life cycle (price increases in growth and falls decline) Price – a summary • Methods of pricing include: – Penetration pricing – price set artificially low to gain market share; once achieved, the price is increased – Price skimming – if product has competitive edge, a high price can be set; this will fall with increased supply – Psychological pricing – charging £1.99 rather than £2.00 – Predatory pricing – undercutting competitors, creating price wars Marketing Mix Product Price Promotion Place Promotion • If a company’s products are to succeed people need to know about them. • Promotion is about image creation both for the company and for specific products and about creating loyalty to brands and products in various ways including the use of monetary incentives. Promotion Sales Promotion • In store promotions known as push strategies • Newspaper adverts or coupons to encourage purchasers to seek out the product, known as pull strategies Advertising • A radically new product will need to be launched on to the market in such a way that potential purchasers understand what the product does, as well as selling the idea that it is worth buying • Dyson Adverts Advertising • The Dyson vacuum cleaner did this very well. • A new concept was advertised on TV and in newspapers. • The product was made colourful in order that potential purchasers saw a design element to it. Advertising • • • • • • • Newspapers and Magazines TV Hoardings Leaflets Posters TV channels Internet (viral) Publicity • • • • • Unlike advertising Newspaper articles PR Public Relations Image Company doesn’t control what others write Personal Selling • Door to door • Cultivate contacts • Salesperson can persuade potential customer to buy • Sales force Exhibitions and Trade fairs • Trade fairs useful for influencing ‘those in the trade’ • Home Exhibition • Boat Show Promotion - summary • Promotion – Decisions have to be made on how best to promote the product and bring it to the attention of potential customers. – The intention is to win new customers or persuade them to change brand loyalty. Promotion - summary • Methods include – Short-term promotions such as Buy One Get One Free (BOGOF), competitions and coupons – Exhibitions and trade fairs – Publicity campaigns – Personal selling/sales representatives – Can be expensive and risky, careful budgeting required. – The acronym AIDA is used with promotion and advertising: draw attention, create interest, generate desire, invite action. Promotion - summary • Advertising – Advertising is used to bring a product to the attention of potential customers. – When deciding on the appropriate way to advertise a product you should consider • overall costs, • the target market or audience • and the most appropriate medium. Promotion - summary Medium Advantages Limitations Cost issues Television Very high, mass market coverage; low cost per exposure; can generate powerful emotive response; can include images; sounds and special effects Quick, fleeting exposure; target markets selected by scheduling, for example between 4opm and 6pm for children Expensive: key viewing times very expensive Radio Very good local impact; high geographic selectivity; national radio effective for consumers on the move (for example in a car) Audio only; fleeting exposure; fairly low attention, background ‘noise’ Relatively low cost for local radio. Higher rates for national commercial stations Promotion - summary Newspapers and magazines Very good local markets, national or geographic selected coverage; broad acceptability; high believability; prestige; magazines often very highquality images Very short life; generally poor image quality in newspapers; no guarantees of positioning of advert High cost in national and prestigious magazines; right hand page often more expensive than left (readability) Direct mail Very high audience selection; can be personalised with mail-merge systems Often discarded as junk mail; poor image Relatively high cost per exposure Billboards Flexibility; high repeat exposure; local targeting; positioned in high traffic areas to catch mobile consumers; some are electronic with several adverts repeating Little audience selectivity; image only; easily vandalised Generally low cost; key sites (for example outside airports) can be very expensive Promotion - summary Online High selectivity; instant; can be powerful, moving images and sound; can be as long as viewer wishes; can be interactive; direct access to supplier; increasingly popular Small by rapidly growing audience; relatively low impact; anxiety over invasion of personal space; linked to spam and spyware Low cost; purchases can be made directly for the advert Marketing Mix Product Price Promotion Place Place • Place refers to how the product is distributed to the target market • “In the right place at the right time” – Geographical Placement – Physical Placement – Direct Marketing Place • Geographical Placement – Local – Regional – National – International • Companies sometimes launch products in one location to see how they will sell Place • Physical Placement – Right place right time – JIT (just in Time) • JIT – Costs in transport not storage – Diverse destinations – Missing launch dates impact on publicity – Efficient Place • Direct marketing – Door to door – Mail order – Company owned stores (SONY) Place - summary • Place – Or placement refers to the location where a customer can purchase a product. It is sometimes known as the distribution channel. It can include any physical store or shop as well as TV shopping channels and the internet Place - summary • There are four main channels of distribution: – – – – Manufacturer-Consumer e.g. mail order, farm shops Manufacturer-Retailer-Consumer e.g. high-street stores Manufacturer-Wholesaler-Consumer e.g. furniture Manufacturer-Wholesaler-Retailer-Consumer e.g. medium-size convenience stores (large supermarkets often cut out the wholesaler) • Functions of distribution channels include: contacting prospective buyers; matching the offer to the buyer’s needs; negotiating agreement on price and terns; and storing and transporting the products. Marketing Mix SAQ Task Task • Use a product of your choice and explain how each stage of the product life cycle is catered for in the design process.