Price
No matter how good the product is, it is unlikely to succeed unless the price is right. This does not just mean being cheaper than competitors. Most people associate a higher price with quality, so you would expect to pay more for a Rolls Royce than for a Lada. On the other hand, is one cola worth more than another, and if so, how much?
As a rule, a producer of luxury or medical products will use skim pricing or premium pricing initially, in order to maximize its profits. This is useful, as it helps them to recover expensive research and development costs quickly.
For fmcg's (fast moving consumable goods) like colas, penetration pricing is usually used. The firm will want a large share of the market, so will settle for a small profit on each item. In the long term, they hope that the turnover, and therefore their profits, will be high.
The simplest method of all is cost-plus pricing, where a firm adds a profit mark-up to the unit cost.
Promotion
The main aims of promotion are to persuade, inform and make people more aware of a brand, as well as improving sales figures. Advertising is the most widely used form of promotion, and can be through the media of TV, radio, journals, cinema or outdoors (billboards, posters). The specific sections of society (market segments) being targeted will affect the types of media chosen, as will the cost. If you were a toy manufacturer, you might want an advertising spot during children's TV. If you ran a local restaurant, you might choose a local paper or radio.
A small or local business would not usually advertise on TV, because it is very expensive. Sales promotion is designed to encourage new and repeat sales. Loyalty cards, free gifts, competitions and voucher schemes are the most popular.
Companies use sponsorship and public relations to improve their image, notably through financing sports, the arts and public information services.
Place
Distribution channels are the key to this area. A firm has to find the most cost-effective way to get the product to the consumer. Direct marketing through catalogues, via a TV shopping channel and through the Internet have become popular, because the consumer can shop from home.
For the firm, they can cut out the middleman in the process, and can therefore make more profit. Going through wholesalers and high-street retailers, however, is the most popular form of distribution, as that is still where most people shop.
The marketing process
A firm will gather information about the marketplace (e.g. whether house prices are rising or falling), and then research consumers' needs. From this, it will identify who its market is, and then put together a marketing plan based on the findings. The marketing mix will be central to this, and finding the right balance in each of the 4Ps is very important. The firm can then review and adapt their plan when they need to. You should remember the following points:
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Although marketing is consumer-orientated, the main aim is still to be profitable.
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A good marketing manager will try to differentiate their product (i.e. make their product stand out against similar competitive brands).
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Whatever pricing decision is made, the most important factor is to break even.
- Making it as easy as possible for the customer to buy the product will help sales to increase
A typical exam question, based on a case study
Question 1
Kendal Footwear is a small manufacturing company situated near the Lake District in Cumbria. They are launching a new quality-walking boot to add to their product range. As their marketing manager, what two promotional activities might you use? Explain your reasons.
The Answer
Teresa wrote: I would advertise in the local newspaper, and on the radio. It would be cheap, and most of the consumers would be local. I would also use sales promotion.
Examiner's Note
Teresa has the right idea, but the question asks for two examples, and requires two reasons. She has given two examples but only given one set of reasons and this will lose her marks. She also needs to give far more explanation, e.g. why she would use a sales promotion.
The Answer
Gary wrote: I would advertise in the local newspaper, as it is cheaper than other forms of advertising, and most of the market would live locally. I would also use a discount voucher scheme as sales promotion to increase the sales of our boot and other products.
Examiner's Note
Gary has answered the question quite well, and given good reasons. He would get a much better grade, however, if he gave more detail, and used business terms (see Gillian's answer).
The Answer
Gillian wrote: I would advertise in the local newspaper, as it is cheaper than other forms of advertising, and would reach my intended target market, most of which would probably be local. I would also use a discount voucher scheme as a form of sales promotion. It would give a 10% discount to our customers on any future purchases of our products. This should lead to increased sales of the rest of our product range, as well as making our boot more attractive to consumers in terms of value for money.
Examiner's Note
Gillian's answer would probably get an A grade. She has answered the question thoroughly, given good detailed explanations, and shown that she can use business terms, like target market, product range and value for money.
Examiner's Note
Exam questions are usually based on case studies. The examiner will want to see that you understand the principles of marketing, and can apply them to a real-life situation
Glossary terms
Break even
Where no profit or loss is made
Demand
The number of goods being bought
Mark-up
Profit added to costs
Target market
The groups that you want to sell to
Product range
The range of goods that a firm produces
Skim pricing/premium pricing
A high price is set to maximise profit
Penetration pricing
A low price is set to improve its market share
