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The Product
Successful products start with a good design that meets the needs and wants of customers. When designing a product, a business will usually consider three factors:
function – what the product should do and how well it does it, eg a washing machine should wash clothes
cost – how cost-effective the product will be to manufacture, eg the product should be made and sold profitably
aesthetics – how the product appeals to consumers, eg how the product looks, feels or smells
The design mix
These design factors - function, cost and aesthetics - are mixed together in different ways in order to appeal to different target markets. The design mix can be illustrated using a triangle to represent the three factors.
For example, a car manufacturer may produce various models, with each model prioritising different factors:
A high-end sports car might focus more on the aesthetics, eg how it looks and what it is like to drive. The car may be costly to manufacture, but some customers will be willing to pay a high price for this kind of car.
A car designed for families may prioritise function, eg safety features, size, and making the car environmentally friendly.
A small car might prioritise cost, eg being competitively priced and economical to run.
Product Life Cycle
Introduction - The product is launched, so sales may be low because only a small number of customers are aware that the product exists.
Growth - As more customers become aware of the product, sales increase rapidly, especially if customers like it.
Maturity - Sales reach their peak during this phase, as the product becomes established. It may become a regular purchase for customers who like it.
Decline - Sales fall during this phase as the product loses popularity and customers look for alternatives. It is withdrawn when it becomes unprofitable.
Extension Strategies
Developing new products is expensive and takes time, so businesses will usually try to extend the life cycle of a product and prevent it from going into decline. To do this, they need to find ways of keeping people interested in the product for longer, thereby increasing the number of sales.
There are a number of ways that a business can extend the life cycle of a product:
Product differentiation – This means making a product stand out from its market competitors, usually by highlighting the differences between it and the other products. Ensuring that a product has a unique selling point (USP) is a good way to differentiate it from other products.
Reducing the price of the product - By the time a product has reached maturity, it may face competition from other products. When this happens, the business may no longer be able to charge a high price for the product. If the price is reduced, existing customers are likely to continue buying it, while other customers may switch from competing products.
Rebranding the product – Tired-looking branding and packaging can put customers off. Refreshing the brand and packaging design can appeal to new customers and convince previous customers to try a product again.
Repositioning the product - This extension strategy involves exploring new markets for a product. It is possible to revive a product by testing new uses for it or adding value so that it appeals to a different audience. For example, a business could try introducing a different sized version of the product.
Increasing marketing activity - Running new advertising campaigns and sales promotions can attract new customers, remind previous customers that the product still exists and encourage existing customers to buy more of the product.
Pricing Strategies
The price of a product is how much a customer is asked to pay for it. When setting a price, a business needs to consider:
The cost of making the product - Price represents the revenue the business receives from selling each unit of its product. If the unit cost of the product is known, setting a price that is greater than the unit cost will ensure that the product is profitable, as long as consumers are willing to pay that price.
The quality of the product - Consumers expect to pay more for a high-quality product, as they understand that high-quality products usually cost more to make. Charging a higher price often gives the impression that a product is of a higher quality, even when it may not be.
The brand image of the product - Maintaining a brand image requires a high level of marketing activity and a consistent level of quality. These cost money, so a branded product often has a higher price than a non-branded product.
The demand and supply of a product - If there is high demand for a product, consumers are likely to be willing to pay more for it. Therefore, businesses can charge a higher price for popular products, unless there are other businesses supplying similar products. If this is the case, they will need to consider their competitors’ prices.
When deciding what price to charge, businesses must choose between two methods of pricing, known as pricing strategies:
Pricing low in order to achieve a high volume of sales but at a low profit margin - This strategy is often used for generic products with little or no unique selling point (USP). For example, the manufacturers of common, everyday cars use this method to price their products.
Pricing high while accepting there will be a low volume of sales but at a high profit margin - This strategy is often used for luxury products or products with a good USP. For example, the manufacturers of luxury cars use this method to price their products as they have strong enough brands to set high prices.
Factors that influence pricing strategies
There are four factors that may lead a business to adopt a particular approach to its prices: changes in technology, number of competitors, market segments and where a product is in its life cycle.
Changes in technology
New technology has led to innovations such as the ‘freemium’ pricing model. This is where access to a basic version of a product is provided free of charge, with additional features being made available as add-ons that need to be paid for. This model is particularly common among software and mobile apps.
Advances in technology have also affected the frequency with which businesses review their prices. Consumers now have immediate access to pricing information. They can also check online prices with a smartphone while they are in a physical store, and they can use price comparison websites. This means that businesses have to be much more flexible in setting prices, and they may need to change them more often. However, these technological advances also benefit businesses, as they can use technology to monitor levels of customer demand and identify when they might be able to increase prices.
Number of competitors
In competitive markets, businesses often compete on price, particularly when they sell similar or identical products. A good example is supermarkets, where smaller discount chains have successfully taken market share from the established supermarkets by offering lower prices on everyday items.
Market segments
When setting prices, businesses also have to take into account the kinds of consumers their products are aimed at. In a niche market, a business will usually be able to charge a higher price while expecting a lower sales volume, as the number of competing products is likely to be small. In contrast, businesses selling to a mass market are likely to set prices at a lower level as they will expect a high volume of sales. For example, a high-end watch will be much more expensive than an everyday watch, but it is likely that far fewer of the high-end watch will be sold. Both watches will tell the time, but they will appeal to very different market segments.
Where a product is in its life cycle
A business that introduces a new, unique product may initially choose to price the product high while accepting that there will be a low volume of sales but a high profit margin. This is likely to be effective while there is little competition. However, by the time the product has reached maturity, it is likely to be facing competition from other similar products. If this is the case, then the business may no longer be able to charge a high price for the product. If the business reduces the price, existing customers are likely to continue buying the product and other customers may switch from competing products. For example, 4K Ultra HD TVs were expensive when they were first introduced, but as more manufacturers began to produce them their price began to fall.
For generic products, businesses often use a low starting price to encourage customers to try the product during its introduction stage. This means pricing a product low with the aim of selling it at a high volume but at a low profit margin. During the growth stage, prices may be kept low initially, but will eventually rise when the product becomes more established. During a product’s maturity phase, a business might choose to keep the product’s price down in order to maintain a similar level of sales to those achieved during its growth period. During the decline stage of the product life cycle, businesses are more likely to use offers and switch to a high-volume, low-price strategy to try to maintain sales.
Promotion Strategies
Businesses use promotion to:
inform consumers of a new product or service
persuade consumers to buy a product or service
remind consumers about the benefits of a product or service
To do this, a business will use a range of promotional methods.
Promotional Methods - Advertising
An advert is a paid-for message designed to influence consumer purchases. Adverts do this using emotive language, which is designed to make people feel a certain emotion, including excitement, sadness or fear. For example, ‘buy it now before it’s too late’ creates a fear of missing out.
Types of media for advertising include:
television
radio
print, eg newspapers and leaflets
social media
websites
billboards and posters, eg on buses and trains
Sponsorships
Sponsorships provide financial support to an event, person or organisation, either through free products or services, or through a financial payment. In return, the business, product or service is prominently displayed. Sponsorship is commonly used at sporting events, conferences, exhibitions and charity events.
Product trials
Product trials are designed to encourage consumers to try a product either for free or at a reduced cost. A product trial may involve offering:
free samples, eg food products
free trials, eg movie streaming services
trial offers, eg money back on a purchase
Special offers
Special offers are a type of sales promotion. They offer incentives to persuade consumers to make a purchase. Examples include:
discounts
competitions
buy-one-get-one-free offers
free gifts
money-off vouchers
loyalty cards
Branding
A brand image can be used as promotion, so businesses often want to establish a positive brand image. When a new product is launched under an established brand name, consumers may be more likely to purchase it because of their knowledge of the existing brand.
Technology in Promotion
Traditional methods of promotion can be expensive, need to be planned in advance and may not always reach the intended audience. New digital forms of advertising allow businesses to communicate quickly, efficiently and directly with consumers.
Viral marketing on social media
Viral marketing involves producing marketing materials that can be shared, usually on social media. It requires content, such as a video, that appeals to users to encourage them to share it. This can be used to support a campaign, as well as to market a product or service.
Targeted online advertising
Website owners can track the online activity of consumers who visit their site by using cookies. They can use cookies to build a profile of consumers’ interests. They can then serve adverts for products suited to the individual consumer.
Apps
Mobile applications, or apps, enable businesses to personalise promotional materials and offers for specific consumers. They can also enhance customer convenience, for example, grocery shopping apps, and increase customers’ interaction.
Businesses can advertise within an app, and apps also enable innovative interaction with customers. For example, apps enable customers to see products and services and may also allow customers to book appointments, find special offers or track their orders. Many apps use a ‘push’ notification system to interact with customers regularly, giving updates about products and services.
E-newsletters
Electronic newsletters can be distributed via email to consumers who have signed up to receive them. They are a good way for a business to keep in touch with consumers who have previously purchased, or shown an interest in, products that the business sells.
Place
Place is concerned with how goods and services reach customers. This includes how customers access products, and how products are transported from producers to customers. The different ways of moving goods from producers to customers are called channels of distribution.
Direct channels of distribution
A direct channel of distribution only involves the producer and the customer. The producer sells products directly to customers in a physical shop, using a website or through the post. For example, a farmer might sell produce directly to customers through a physical shop.
The advantage for a producer of selling directly is that they can control the distribution of their products and the prices that are charged. However, the disadvantage is that it can become increasingly difficult to sell directly to a large number of customers.
Indirect channels of distribution
An indirect channel of distribution introduces an intermediary into the distribution process. These intermediaries:
make it easier for producers to distribute their products
make it more convenient for consumers to buy those products
For example, retailers and e-tailers are both types of intermediary. They buy products in bulk from producers and then sell them in smaller quantities to consumers.
Retailers
A retailer is a business that sells goods to the public, often in a physical shop. It is common to use a retailer within a distribution channel. The producer distributes its product to a retailer, which then offers the product for sale. Customers then visit the retailer’s shop to purchase the product.
Some retailers sell a wide range of products. Others concentrate on selling a particular type of product, such as electrical products or shoes and clothing. An advantage of selling in physical shops is that customers are able to see and feel the quality of the products that they are interested in, eg customers can try on shoes to check fit and comfort. Retailers that sell a particular type of product may also be able to offer specialist advice. A disadvantage of retailers is that they require premises, which are often located on high streets, and these are expensive to run.
Types of retailer include:
small independent traders
supermarkets
department stores
E-Tailers
An e-tailer is a retailer that sells products and services to customers using an online store. E-tailers do not need to own or rent physical shops, although some choose to do so. A producer distributes a product to an e-tailer, which then offers it for sale to its customers on its website. Customers visit the e-tailer’s website in order to purchase the product, and the product is delivered to the customer.
Examples of e-tailers include Alibaba and Amazon. They have a number of advantages and disadvantages compared to retailers.
Advantages of e-tailers:
they can offer a wide range of products as they are not limited by the size of a shop
they may allow small producers to sell through their website for a fee
their prices are often lower, as they do not have to pay for a physical shop
customers can shop whenever and wherever they want, as e-tailers are open 24 hours a day, 7 days a week
Disadvantages of e-tailers:
customers need to have internet access
customers cannot pay by cash
goods need to be delivered, so customers must be willing to wait
items cannot be seen in person before purchasing them
E-Commerce
E-commerce refers to the buying and selling of goods and services online. It includes any transactions between businesses carried out online.
E-commerce therefore covers a wider range of online transactions compared to e-tail since e-tailers only sell to the public.
The marketing mix is usually used to gain a competitive advantage over other businesses. A competitive advantage can be gained through:
offering products at lower prices than competitors
ensuring that the product has added value to distinguish it from those of the business’ competitors
Not every product can have the lowest price. Therefore, it is important for businesses to use the marketing mix to highlight other ways that they have added value to their products and make their products stand out from those of their competitors. This might include:
product – highlighting how the product is better than competing products, especially if it has a unique selling point (USP)
price – deciding whether to charge the lowest possible price or highlight the quality of a product by charging a price that reflects the quality
place – choosing whether the product will be widely available or sold in a smaller number of outlets
promotion – ensuring that the promotion activity is consistent, and fits in with any brand image the business wants to maintain
Certain elements of the marketing mix may be more important than others, and this will vary according to the product, market and competitors. For example, a manufacturer of premium mobile phones may focus more on the features of the phone and the advertising and brand promotion around it. In contrast, a manufacturer of a budget mobile phone is likely to put more emphasis on the price.
By creating a coherent and integrated marketing mix, a business can influence the competitive advantage that it has over other businesses.
For example, a business that produces a new model of sports trainers might build the marketing mix outlined below:
Price - As they are a new product, with unique features, the trainers are priced slightly higher than the competition, although promotions offering a discount are available to some customers.
Place - Since they have been designed specifically for runners, the trainers are sold largely through specialist sports shops and websites that are popular with runners.
Product - The trainers are a new, high-quality product manufactured using the latest technology. They are made using a new, lightweight fabric, and are hardwearing yet comfortable.
Promotion - The trainers are promoted heavily on social media, targeting those who are interested in running. Discount offers are available to members of running clubs, and customer comments about the trainers’ comfort are used in adverts.
This marketing mix would provide a number of competitive advantages, including:
The product has a unique selling point (USP) because the fabric that the trainers are made from is new and lightweight.
This USP enables the business to charge a slightly higher price. Even though the market is competitive, customers will pay for innovation.
The place reassures customers that these trainers are designed for those serious about their running. By selling only through specialist shops and websites, the business is letting customers know that these trainers are not just a fashion accessory.
Further confirmation that these trainers are designed for runners is provided by the methods of promotion, which use media platforms that are likely to be seen by runners.
This marketing mix would allow the business to have a good chance of success in a competitive market with other well-known brands.
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