3.5 The seven Ps of the marketing mix

Product

TOOL: Product life cycle

• Outlines the different stages a product goes through
• Introduction: high investment, negative profitability and cash flow
• Growth: High investment, profitability increases but is likely still negative, cash flow is negative or close to breakeven point
• Maturity: Investment decreases, profitability is high, cashflow is positive
• Decline: Profitability, cashflow, and investment depend on the choice of whether the business will conduct an extension strategy

Limitation

• Not all products follow this "life cycle"
• Only looks at sales revenue of a single product; disregards businesses who have multiple products and the synergies between them

Extension strategy

• Avoids the decline of sales by further investing in a product
• Techniques used by a business to extend the life of a product beyond its natural life cycle
• Common examples: reduce price, promotional strategies, and enhance product (e.g., release a new iPhone every year)

Aspects of branding

• Branding is a marketing technique used to give a product or a business a unique name or identity
• It helps set a business apart from its competitors
• 4 types:
• Brand awareness
• Brand development
• Brand loyalty
• Brand value

Brand awareness

• How much people know and identify the brand by its branding and products

Brand development

• The result of the efforts to improve a company's branding
• Process of making people more attracted to the brand; an example of a consequence is increased sales
• Can be expensive

Brand loyalty

• When customers repeatedly and habitually buy from the same brand
• Helps prevent customers from switching to rival brands
• Main goal: retaining customers

Brand value

• Is an intangible worth attached to a brand perceived by the eyes of the market

Pricing

• Cost-plus (mark-up) pricing
• Adds a profit margin to the costs of production to determine the selling price of a good or service
• Simple to understand and use
• Ensures each sale makes a positive contribution
• Ignores prices set by competitors
• Does not consider consumers when setting price
• Penetration pricing
• Setting a low price to penetrate the market and gain market share
• Allows firms to compete against market leaders
• Easy entry to market
• Easy gain of brand recognition
• Increases market share
• Price advantage against competitors
• Not sustainable in the long run
• Consumers may view the product as bad quality due to cheap price
• Loss leader pricing
• Pricing a product below its cost of production to attract customers to purchase other items
• Helps attract customers
• Can increase sales of products
• Can be used to clear stock
• Helps penetrate the market
• If customers do not purchase other products the business makes a loss
• Expensive to offer in the long term
• Predatory pricing
• Set prices so low to drive competitors out of the market
• Business gains dominant position in the market
• Decreases competition
• Increases sales
• Attracts new customers
• Anti-competitive
• Consumers may view the product as bad quality due to cheap price
• Not sustainable in the long term
• Premium pricing
• Setting high prices on products so consumers associate it with high quality, luxury, and status
• Increases brand value
• Emphasizes exclusivity
• Improves sales
• Increases profit margins
• Increases trust in brand
• Can limit the pool of customers due to steep price
• High-quality products require expensive raw materials
• Customers can be angry if products do not match their high expectations

Dynamic pricing (HL)

• Changing prices to match demand patterns of the market
• Prices are based on the willingness of customers to purchase the product or service at a specific time
• Maximize sales revenue
• Optimal use of resources
• Respond quickly to market trends
• Customers who are charged higher prices can feel that they are being "ripped off"
• Requires research to do so; expensive

Competitive pricing (HL)

• Company uses the prices the competitors are charging as a benchmark when charging their own
• Simple strategy
• Low risk
• Flexible
• Customers will likely see the pricing as fair
• Difficulty to stand out in a competitive market
• Collecting data on competitors pricing can be expensive
• If competitors pricing is too low the business may suffer losses when trying to match their prices

Contribution pricing (HL)

• Strategy that involves setting the price greater than the per unit variable cost of production of the products to ensure that a positive contribution is made towards fixed costs
• Straightforward
• Enables businesses to know how much profit the business will earn on each sale
• Requires company to have a good idea of their variable costs and have breakeven done so they can connect their contribution to profitability
• Ignores fixed cost when pricing product
• Assumes selling price is constant ignoring possible discounts

Price elasticity of demand (HL)

• Involves calculating if increasing the price of a product is better for revenue or if decreasing the price is better for revenue
• It measures how demand changes as pricing changes
• Companies use elasticity of demand to determine their pricing strategies
• e.g., an inelastic company can choose to change premium pricing as their customers are flexible with pricing

Promotion

• Generates customer awareness, interest, and desire for products
• Can be classified into 3 types:
• Above the line
• Below the line
• Through the line

Above the line

• Advertising activities aimed at reaching a wide audience through mass media channels to create awareness about a product, service, or brand
• Examples: TV advertising, billboards, etc.

Below the line

• Marketing coordination over which a business has direct control and which does not make use of mass media
• Aimed directly at a target audience
• Examples: emails to customers, one-to-one sales, and interviews

Through the line

• Is a combination of above and below the line promotion strategies
• Examples: running a TV advertisement commercial followed by social media advertising and targeted emails

Social media promotion

• Use of online content to target promotional content at users of online communities
• Often uses platforms like Facebook and Instagram
• Both above and below the line promotion
• Wide reaching
• Cost-effective
• Content is easily shared among the audience
• Allows for the use of analytics
• Enables businesses to target specific market segments
• Requires consistency and effort to be successful
• Negative complaints (comments) can be viewed by other users
• Hard to stand out from the thousands of brands which also use social media promotion

Place

• Distribution channels: the chain of intermediaries through which goods/services move from the manufacturer to the end customer
• There are 3 common types of distribution channels:
• Four stage
• Three stage
• Two stage

Four stage

• Uses wholesaling and retailing
• Producer -> wholesaler -> retailer -> consumer
• Storage costs are absorbed by wholesaler
• Producer has more time to care for production
• Wholesaler and retailer increase price of product for consumers
• Reduces profit for producer
• Below the line promotion is not under control of the producer

Three stage

• Uses retailing
• Producer -> retailer -> consumer
• Customer service and promotional activities are carried out by retailer
• Helps attract large customer base
• Producer has more time to care for production
• Retailers often have high costs resulting in higher prices
• Below the line promotion is not under control of the producer

Two stage

• Producer-> customer (B2C)
• Low cost
• Fast way to get products to the customer
• Producer has full control of promotional strategies used
• Business keeps 100% of sales revenue
• Storage and distribution costs are the responsibility of the producer
• Customer service issues can disrupt production
• Promotional activities are the responsibility of the producer

People

• They are the people who interact with customers and deliver the service
• Customer service is crucial for customer satisfaction
• They have customer interactions and help by selling services and providing feedback on products being sold (e.g., identifying trends)

Processes

• The way in which a service is provided or delivered to customers
• e.g., queue systems in amusement parks, refund policies, and managing customer feedback
• Essential for customer satisfaction

Physical evidence

• The tangible and visible signs of a product or service that a customer sees and interacts with during their buying experience
• Examples: sounds in shop, packaging, and display signs
• Helps shape customer's perspectives and build trust and comfort