Professional Development Programme on Enriching Knowledge of the
Business, Accounting and Financial Studies (BAFS) Curriculum
Course 2 : Contemporary Perspectives on Management
Unit 9 : Marketing Mix Design for Products
Technology Education Section, Curriculum Development Institute
Education Bureau, HKSARG
August 2008
Learning Objectives
On completion of the unit, participants should
be able to:
– identify the marketing mix for products;
– formulate the pricing, promotion, product and
place strategies for goods;
– apply marketing mix strategies to different stages
of the product life cycle;
– evaluate traditional marketing strategies; and
– understand e-marketing strategies.
2
1
Unit Outline
Introduction to Marketing
Marketing Strategy
Target Market
Marketing Mix
Product
Three Levels of Product
Two Types of Product
Price
Place
Promotion
Product Life Cycle
PLC Strategies
Marketing Strategies Evaluation
Suitability
Validity
Feasibility
Internal Consistency
Vulnerability
Workability
Appropriate Time Horizon
Skim Pricing
Penetration Pricing
Status quo Pricing
Affordable Method
Percentage-of-Sales Method
Competitive-Parity Method
Stage 1: Introduction
Stage 2: Growth
Stage 3: Maturity
Stage 4: Decline
E-marketing
E-marketing strategies
3
Product to Services
Introduction to Marketing
A social and managerial process where
consumers obtain what they need and want
through creating and exchanging products and
values with others. (Armstrong and Kotler, 2005)
4
Unit Outline
More about marketing
1. Human needs = A state of felt deprivation
2. Human want = the form that a human need takes
as shaped by culture and individual personality
3. Product = anything that can be offered to a market
to satisfy a need or want
4. Market = the set of actual and potential buyers of a
product
5
Unit Outline
A Cake Story
(1)
Dora is crazy for cake. After she makes some
special flavour cakes, she will invite her friends
to share a slice at her house.
She baked a special wedding cake for her best
friend which was decorated with chocolate roses
and leaves. All the guests enjoyed the good
taste of it very much and ……
6
Unit Outline
A Cake Story
(2)
One guest, being the HR manager of a large
corporation (ABC Company Limited), asked Dora
if she could supply tailor made cakes to her on
special occasions. Her cakes would be served in
company’s different staff gathering functions.
Dora was happy to accept the first order and her
cake selling business then commenced.
7
Unit Outline
A Cake Story
(3)
From the above scenario, what are:
1. Needs
2. Want
3. Product, and
4. Market?
8
Unit Outline
A Cake Story
1.
2.
3.
4.
(4)
Human needs = basic needs (hunger)
Human want = food
Product = cake (produced by Dora)
Market =
• ABC Company Limited (i.e. actual buyer of the
cakes)
• other corporations who have similar demand
for the cakes (i.e. potential buyers of the cakes)
9
Unit Outline
A Cake Story
(5)
After selling cakes to ABC Company Ltd. for 10
months, Dora gained a profit of HK$100,000.
With the endorsement of the company, she plans
to expand her business……
10
Unit Outline
Marketing Strategy
Three steps:
1. Select target markets
2. Set marketing objectives
3. Develop and maintain marketing mix
11
Unit Outline
Target Markets
(1)
• Target marketing is the process (or strategy)
during which a seller identifies market segments,
selects one or more of them, and then develops
products and marketing mixes for each of the
chosen segments.
• Target marketing is increasingly taking the form of
micromarketing in which companies tailor their
marketing programs to the needs and wants of
narrowly defined geographic, demographic,
psychographic, or benefit segments.
12
Unit Outline
Target Markets
(2)
• The ultimate form of target marketing would be
customised marketing where the company adapts
its product and marketing program to the needs of
a specific customer or buying organisation.
13
Unit Outline
Challenging Corner 1
In the case of the cake story, what would be a
viable marketing strategy in terms of:
1. target markets?
2. marketing objectives?
14
Unit Outline
Challenging Corner 1
(solution)
1. Target markets = local corporations which
need cakes in their “staff gathering functions”
2. Marketing objectives = to sell cakes to 10
more corporations by the end of 2008
(i.e. 18 months from today)
15
Unit Outline
Marketing Mix
A unique blend of four sets of controllable
variables known as the “four Ps”:
Product, Price, Place and Promotion
Price
Product
Customer
Needs
Promotion
Place
to generate responses the company wants in
the target segments.
16
Unit Outline
Product
(1)
Three levels:
1. Core level = core benefits that the product
provides to consumers
2. Actual level = a product’s combined quality
level, features, design, brand name, packaging
and other attributes to deliver core product
benefits
3. Augmented level = additional services and
benefits that help consumers put the actual
product to sustained use
Product
17
Unit Outline
Product
(2)
Two types:
1. Consumer product = bought by consumers for
personal consumption
2. Industrial product = purchased for further
processing or used in conducting a business
Product
18
Unit Outline
A Cake Story
(6)
• Product objectives = a tool to meet customer
needs
• Product formulation:
– Product attributes
¾Product quality, features and design
–
–
–
–
19
Branding
Packaging
Labeling
Product support services
Unit Outline
A Cake Story
(7)
Product development of cake:
• The cake is consumed by staff in corporations
during gathering functions
• It is specially designed and packed as per the
requirements of the HR managers
• It carries no brand
20
Unit Outline
Challenging Corner 2
Which type of products is provided by Dora’s
cake shop?
Describe the three levels of the product.
21
Unit Outline
Challenging Corner 2
(solution)
Cake = consumer product
• Core level = cake (to fulfill basic needs)
• Actual level = tailored made cake
(i.e. the weight, flavor and design of cakes, etc.)
• Augmented level = free delivery services to the
corporations at specific time
22
Unit Outline
Price
(1)
• Perceived value of a good (or service)
• Expressed in dollars or other goods
• Price multiplied by quantity of goods sold = revenue
• Revenue minus costs for marketing activities = profit
• Price: too high → sales lost
• Price: too low → revenues cannot meet R.O.I.
(i.e. return on investment)
Price
23
Unit Outline
Price
(2)
•
Pricing objectives = profit oriented, sales
oriented, and status quo pricing
•
Price formulation:
– Establish pricing goals
– Estimate demand, costs, and profits
– Choose a price strategy
c Skim Pricing
d Penetration pricing
e Status quo pricing
24
Unit Outline
Skimming Pricing
c Skimming pricing means charging a high
introductory price, often coupled with heavy
promotion. As the product progresses through
its life cycle, the firm may lower the price to
reach successively larger markets.
–
Price skimming is successful when:
•
•
•
•
25
demand is relatively inelastic
a product is legally protected
it represents a technological breakthrough
production is limited because of technological
difficulties, shortages, or a lack of skilled
craftspeople.
Unit Outline
Penetration Pricing
d Penetration pricing sets a relatively low price for
a product as a way to reach the mass market in
the early stages of the product life cycle.
–
26
Unit Outline
Penetration pricing is designed to capture a large
market share, resulting in lower production costs.
Status quo Pricing
e Status quo pricing means maintaining existing
prices or simply meeting the competition.
–
27
Sometimes this policy can be the safest route to
long-term survival if the firm is comparatively
small.
Unit Outline
A Cake Story
(8)
Price development of cake:
• Pricing objective is profit oriented as “sales
volume” is not a major concern
• Dora is unable to mass produce cakes due to
production capacity limitation
28
Unit Outline
A Cake Story
(9)
Price development of cake:
Pricing strategy:
• Selling price is to cover cost of raw materials plus
margin of 30% = penetration pricing
• Current profit earned per month
= HK$100,000 / 10 = HK$10,000
29
Unit Outline
A Cake Story
(10)
Price development of cake:
Demand forecast:
• To serve 3 to 4 corporations per month
• Profit accelerates from HK$10,000 to HK$30,000
or HK$40,000 per month
30
Unit Outline
A Cake Story
(11)
Price of cake:
• = Money paid by the corporations to Dora
• Payment mode = C.O.D. (i.e. cash on delivery)
• Deposit is required (i.e. 50% on the cost of raw
materials purchased to bake the cake)
31
Unit Outline
Place
• Place is a distribution channel which consists of
independent organisations to make a product (or
service) available for use by consumers or
business users.
Place
32
Unit Outline
A Cake Story
(12)
Place of cake:
• = The venue (of the corporations) where the
cakes are consumed
• In
this
scenario,
no
other
marketing
intermediaries (i.e. wholesalers & retailers) are
involved in the distribution
33
Unit Outline
A Cake Story
(13)
• The basic Place (Channel) objective is to minimise
total channel cost of meeting customer
requirements by considering market, product and
manufacturer factors.
34
Unit Outline
A Cake Story
(13)
Place development of cake:
• Door to door distribution: cake delivery to
designated venues of corporations by Dora
directly
• No involvement of middlemen
35
Unit Outline
Promotion
• Involves all methods of communications with
customers
• To inform, persuade and remind customers →
influence opinions / elicit a response
• Modern
trend
communications
=
integrated
marketing
Promotion
36
Unit Outline
A Cake Story
(14)
Promotion of Cake:
• Personal selling → direct talk to the HR managers
of the corporations who are decision makers on
buying the cakes
• Ask feedback on the product from employees
37
Unit Outline
A Cake Story
•
•
Promotion objectives = modify and reinforce
buyer behaviours
Promotion formulation:
– Identify target market
– Set promotional objectives
– Develop promotion budget
c Affordable method
d Percentage of sales method
e Competitive parity method
– Choose a message
– Choose media
– Collect feedback
38
(15)
Unit Outline
Promotion budget :
Affordable Method
c Affordable Method
– set a promotion budget based upon what
management thinks the company can afford.
– often places promotion budget decisions in the
hands of managers unfamiliar with what
promotion does for the product
– also ignores the effect of promotion on sales
volume and/or possible value-added to the
product in the mind of the consumer by the
promotion effect
39
Unit Outline
Promotion budget :
Percentage-of-Sales Method
d Percentage-of-Sales Method
– sets promotion budgets at a certain percentage of
current or projected sales or price of the product
– links sales and promotion together
40
Unit Outline
Promotion budget :
Competitive-Parity Method
e Competitive-Parity Method
– sets promotion budgets in line with what the
competitors spend on promotion
– this “collective wisdom” philosophy suggests that
management is unwilling or unable to decide what
level of spending is needed to promote the
product to the consumer
41
Unit Outline
A Cake Story
(16)
Promotion development of cake:
• Target market = HR managers of corporations
• Promotion objectives = to increase awareness
and encourage trial of cakes
42
Unit Outline
A Cake Story
(17)
Promotion budget of cake:
• By affordable method based on the profits (i.e.
HK$10,000) earned per month.
• Suggested to set at HK$5,000 to HK$8,000 in
preliminary stage
• Review budget until profit reaches HK$30,000
43
Unit Outline
A Cake Story
(18)
Promotion Message of cake:
• “Just for you”: You could enjoy the best cake in
the right moment with your friends
• Tailor made (customised) cakes: flavour, design,
packaging, etc.
• Sold at reasonable price
44
Unit Outline
A Cake Story
(19)
Promotion media of cake:
• Personal selling to contact HR managers by calls
• Database rental (on list of HR managers)
• Direct marketing: mail of promotion leaflet and
order forms
• Cross selling: word-of-mouth
45
Unit Outline
A Cake Story
(20)
Feedback collection of cake:
• Face to face interview: feedback received from
HR managers and staff of corporations
• Focus group study: to invite 6 to 8 customers and
ask them their needs for new flavour, size, etc.
46
Unit Outline
A Cake Story
(21)
Example:
Overall promotion development of cake:
• Due to capital limitation, no large scale promotion
(above and below the lines) will be considered in
the preliminary stage.
47
Unit Outline
Product Life Cycle (PLC)
Four stages in a product life cycle:
–
–
–
–
48
Introduction
Growth
Maturity
Decline
Unit Outline
(1)
Product Life Cycle (PLC)
Sales and
Profits ($)
(2)
Sales
Profits
Product
Development
Introduction
Growth
Maturity
Decline
Time
Losses/
Investments ($)
Sales and Profits Over the Product’s Lifetime
49
Unit Outline
PLC Strategies:
Stage 1 - Introduction
Features of the Stage:
• Low sales growth
• Low or negative profits
• Marketing objectives = create product awareness
and trial
Marketing Mix Strategies:
• Product: offer a basic product
• Price: Use cost-plus formula
• Place: build selective distribution
• Promotion: heavy to encourage product trial
50
Unit Outline
PLC Strategies:
Stage 2 - Growth
Features of the Stage:
• Accelerating sales growth
• Rising profits
• Marketing objectives = maximise market share
Marketing Mix Strategies:
• Product: offer extension, service, warranty
• Price: penetration strategy
• Place: build intensive distribution
• Promotion: reduce price to take advantage of
demand
51
Unit Outline
PLC Strategies:
Stage 3 - Maturity
Features of the Stage:
• Sales growth slowdown & reach the peak
• High profits
• Marketing objectives = maximise profits while
defending market share
Marketing Mix Strategies:
• Product: diversify brand and models
• Price: match with competitors
• Place: build more intensive distribution
• Promotion: increase promotion to encourage brand
switching
Unit
Outline
52
PLC Strategies:
Stage 4 - Decline
Features of the Stage:
• Decline sales
• Declining profits
• Marketing objectives = reduce expenditures and
milk the brand
Marketing Mix Strategies:
• Product: phrase out weak items
• Price: cut price
• Place: selective – phrase out unprofitable outlets
• Promotion: reduce to minimum level
53
Unit Outline
Challenging Corner 3
Where is Dora’s cake business now and what
marketing mix strategies should be used at this
stage?
Dora’s cake business is at the introduction stage
of the product life cycle.
54
Unit Outline
Marketing Strategies Evaluation
(1)
The underlying criterion for evaluation is a
balanced achievement of company goals, which
may be specified in terms of profitability and
cash consequences.
55
Unit Outline
Marketing Strategies Evaluation
(2)
The adequacy of a strategy may be evaluated
using the following criteria:
1.
2.
3.
4.
5.
6.
7.
Suitability
Validity
Feasibility
Internal consistency
Vulnerability (satisfactory degree of risk)
Workability
Appropriate time horizon
[Subhash C Jain, 2004]
56
Unit Outline
Marketing Strategies Evaluation :
Suitability
Suitability
• Strategy should offer some sorts of competitive
advantage. That is, strategy should lead to a future
advantage or an adaptation to forces eroding current
competitive advantage.
• The following steps may be followed to judge the
competitive advantage a strategy may provide:
– Step 1: Review the potential threats and opportunities
to the business
– Step 2: Assess each option in light of the capabilities of
the business
– Step 3: Anticipate the likely competitive response to
each option
– Step 4: Modify or eliminate unsuitable options
57
Unit Outline
Marketing Strategies Evaluation :
Validity
Validity (consistent with the environment)
• Strategy should be consistent with the assumptions
about the product or market environment.
• For example, at a time when more and more women
are seeking jobs, a strategy assuming traditional roles
for women (that is, raising children and staying home)
would be inconsistent with the environment.
58
Unit Outline
Marketing Strategies Evaluation :
Feasibility
Feasibility (Appropriateness in light of available resources)
• Money, competence, and physical facilities are the
critical resources marketers should be aware of in
finalising strategy.
• A resource may be examined in two different ways:
as a constraint limiting the achievement of goals and
as an opportunity to be explored as the basis for
strategy.
• It is desirable for a marketer to make correct
estimation of resources available without being
excessively optimistic about them.
59
Unit Outline
Marketing Strategies Evaluation :
Internal Consistency
Internal Consistency
• Strategy should be in tune with the different policies
of the company, and the product/market arena.
• For instance, if the company decided to limit the
business with a particular group of customers to 40
percent of total sales, a product/market strategy
emphasizing greater than 40 percent reliance on
that particular customer would be internally
inconsistent.
60
Unit Outline
Marketing Strategies Evaluation :
Vulnerability
Vulnerability (Satisfactory degree of risk)
• The degree of risk may be determined on the basis
of the perspectives of the strategy and available
resources.
• A pertinent question is: will the resources be
available as planned in appropriate quantities and for
as long as it is necessary to implement the strategy?
• The overall proportion of resources committed to a
venture becomes a factor to be reckoned with: the
greater these quantities, the greater the degree of
risk.
61
Unit Outline
Marketing Strategies Evaluation :
Workability
(1)
Workability
• The workability of a strategy should be realistically
evaluated with quantitative data.
• Sometimes, it may be difficult to undertake such
objective analysis. In that case, other indications
may be used to assess the contributions of a strategy.
• It could be the degree of consensus among key
executives about the validity of the strategy.
62
Unit Outline
Marketing Strategies Evaluation :
Workability
(2)
Workability
(cont.)
• Identifying ahead of time alternate strategies for
achieving goal is another indication of the workability
of a strategy.
• Finally, establishing resource requirements in
advance, which eliminates the need to institute crash
programs of cost reduction or to seek reduction in
planned programs, also substantiates the workability
of the strategy.
63
Unit Outline
Marketing Strategies Evaluation :
Appropriate Time Horizon
Appropriate Time Horizon
• A viable strategy has a time frame for its realisation.
• The time horizon of a strategy should allow
implementation without creating havoc in the
company or missing market availability.
• For instance, introducing a new product to the
market, enough time should be allotted for market
testing, training of salesperson, and so on.
• But the time frame should not be so long that a
competitor can enter the market first and skim the
cream off the top.
64
Unit Outline
Marketing Strategies Evaluation
65
(3)
Evaluating
Criteria
Implications to consider:
Suitability
Is there a sustainable advantage?
Validity
Are the assumptions realistic?
Feasibility
Do we have skills, resources, and commitments?
Internal
consistency
Does the strategy hang together?
Vulnerability
What are the risks and contingencies?
Workability
Can we retain our flexibility?
Time
Is the time horizon appropriate?
Unit Outline
A Cake Story
(22)
Six months after,
• Dora solicited 4 new corporations to place cake
orders;
• 2 of them were referred by A Company Limited &
2 were from placing trial orders (by completion of
the mail order forms);
• Recurring profits earned
HK$35,000 to HK$45,000.
66
Unit Outline
per
month
were
Challenging Corner 4
To evaluate the overall marketing strategies
employed by Dora’s Cake Shop in terms of :
–
–
–
–
67
Suitability
Feasibility
Vulnerability
Appropriate time horizon
Unit Outline
Challenging Corner 4
(solution) (1)
Suitability?
• Yes, there is a sustainable advantage on gaining
profits.
• They are HK$35,000 to HK$40,000 per month.
68
Unit Outline
Challenging Corner 4
(solution) (2)
Feasibility?
• Yes, Dora has the skills, resources, and
commitments to produce cakes to satisfy
customers.
69
Unit Outline
Challenging Corner 4
(solution) (3)
Vulnerability (satisfactory degree of risk)?
• Dora’s cake shop could be quite vulnerable due
to the risk includes over expansion of cake
business (based on the existing capacity).
70
Unit Outline
Challenging Corner 4
(solution) (4)
Appropriate time horizon?
• Smooth growth so far
• Right time to consider new business plan
71
Unit Outline
E-marketing
• Next Move?
• Introduction of e-marketing……
72
Unit Outline
(1)
E-marketing
(2)
• An extension to traditional marketing
• Interact with customers & distributors on a oneto-one basis to maintain value added
relationships
• Often in real time mode
• Measurable responses are generated by
electronic network tools & technologies
73
Unit Outline
E-marketing strategies
for products
1. Situational review
2. Strengths/weaknesses/opportunities/threats
(SWOT) analysis
3. Statement of future objectives
4. Marketing mix for delivering strategy:
– Discontinuous innovations or new product lines
5.
6.
7.
8.
Develop an action plan
Financial forecasts
Control systems
Contingency plans
[Ian Chaston, 2001]
74
Unit Outline
E-marketing strategies
for Dora’s cake shop
E-marketing plan for cake business?
• Create a website
– For customers to place order
– Online payment of deposits and balance (upon
cake is delivered)
– Forum for customers to give feedback
– ……..
75
Unit Outline
Challenging Corner 5
(1)
Launch of new product - a case study:
• HT Company is founded in 1998 by a group of
Thai designers with a mission:
• Introducing contemporary design in Thailand and
creating inspiring home decorative accents and
furniture with a practical function.
76
Unit Outline
Challenging Corner 5
(2)
Product:
• All their creations are manufactured in Thailand under
their supervision in factories conforming to
international standards.
• Their extensive lines of home accessories include
bedding items (pillowcases and bed sheets), table
linens (placemats and napkins) and plastic tableware
(glass, plates and cups) ……
• The lines of elegant products are made from
reinforced fiberglass and fabrics.
77
Unit Outline
Challenging Corner 5
(3)
Price:
• Pillowcases – HK$178 per pair (*must buy in pair)
• Cups – HK$128 per pair (*must buy in pair)
Place:
• Two specialty stores located in Tsimshatsui large
shopping mall and Taikoo Plaza.
Promotion:
• Home magazine advertisement to inform the launch of
products in Hong Kong to the target customers.
78
Unit Outline
Challenging Corner 5
(4)
If you were the marketing director of HT
Company, could you decide:
– Who are the target markets?
– What is the marketing objectives?
79
Unit Outline
Challenging Corner 5
(solution) (1)
Target markets:
• Families of young couple ; middle income group; live
in apartments; enjoy leisure lifestyle; looks for
simplicity, functionality and humor.
Marketing objectives:
• To gain net profits of HK$1 million in 12 months
from the two selective distribution outlets
80
Unit Outline
Challenging Corner 5
(5)
Then, could you explain:
• What is the marketing mix (i.e. 4P) in this
introductory stage?
81
Unit Outline
Challenging Corner 5
(solution) (2)
• Product: elegant contemporary home accessories (at
high and international standard)
• Price: Price skimming strategy (as the selling price is
set at a slightly higher level than ordinary furniture
shops)
• Place: Selective distribution strategy (sold at
Tsimshatsui large shopping mall and Taikoo Plaza
where the “target customers” would shop around in
leisure time)
• Promotion: Home magazine advertisement (to
increase brand awareness and promote trial of
products)
82
Unit Outline
Product to Services
• What’s next?
• Evolution of selling cakes to provision of services?
• Cake is served in a shop with coffee and other
drinks (and provision of magazines, newspapers,
comics, etc.) ……
83
Unit Outline
Summary
Now, you have come to the end of the unit. You
should be able to:
– identify the marketing mix for products;
– formulate the pricing, promotion, product and place
strategies for goods;
– apply marketing mix strategies to different stages of
the product life cycle;
– evaluate traditional marketing strategies; and
– understand e-marketing strategies.
84
References
•
Gary Armstrong and Philip Kotler, Marketing: an introduction, 8th edition, Prentice Hall,
2007.
•
Subhash C. Jain, Marketing Planning & Strategy, 7th edition, Thomson Learning, 2004.
•
Judy Strauss, Adel El-Ansary, and Raymond Frost, E-Marketing, 4th edition, Prentice Hall,
2006, chapter 10: E-marketing management for product.
•
Ian Chaston, E-marketing Strategy, McGraw Hill, 2001, chapter 6: Selecting E-strategies
and constructing an E-plan.
85
Further Readings
86
•
洗曰明, 游漢明 (1998), 市場營銷啓示錄, 商務印書館
•
洗曰明 (2003), 新世紀營銷 二十一世紀營銷新思維, 匯智出版
•
張多中 (1999), 市場定位方略, 廣東經濟出版社
•
閔建蜀 (1982), 市場管理, 商務印書館
End of the Unit
End-of-unit Assessment
87
This is the end of Unit 9.
Please go to the Unit
Assessment before attempting
the next unit.