Business Studies
The marketing mix
This Revision Bite will help you understand how a company can meet their consumers' needs effectively.
The 4Ps are the ideas to consider when marketing a product. They form the basis of the marketing mix. Getting this mix right is critical in order to successfully market a product. The 4Ps are:
If market research is carried out effectively, a company can plan a promotion for the right product, at the right price, and to get it to their chosen market, in the right place.
Now look at the 4Ps in more detail.
A product can be either a good or a service [Goods or services: Goods are usually products that you can see whilst services are those things which are done for the consumer like retailing, hairdressing and cleaning. ] that is sold either to a commercial customer [Commercial customer: A business which is itself a consumer. ] or an end consumer [End consumer: The final consumer of a good or a service. ]. A customer buys a product, and a consumer uses it. Sometimes these are one and the same, as an industrial firm can also be a customer and a consumer. For example, British Airways might buy aeroplanes from British Aerospace, so it is a customer. It won't sell on the planes to another buyer, as BA needs the planes to provide its service, so it is also a consumer. Sometimes a wide product range [Product range: The range of goods that a firm produces. ] covers both (Mercedes produce lorries for haulage companies, and cars for domestic use).
More commonly, there will be a number of sellers forming a chain of distribution [Chain of distribution: The route a product takes from the primary sector through the secondary sector to the tertiary sector and the consumer. ]. For example, a gold mine may sell gold to a jewellery manufacturer, who in turn will sell on rings to wholesalers and retailers, before we get to buy them in the high street. Each is a customer, but only the final user is the end consumer. A marketing manager will identify who his/her target market [target market: the end-user or consumer group to whom the manufacturer aims to sell ] is, what they want, and sell it to them at each stage in the chain.
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 [Skim pricing or premium pricing: A high price is set to maximise profit. ] initially, in order to maximize its profits. This is useful, as it helps them to recover expensive research and development costs quickly.
For fast moving consumable goods (fmcg's) like colas, penetration pricing [Penetration pricing: A low price is set to improve its market share. ] 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 [Cost-plus pricing: A method of pricing where each product's unit price has a mark-up added, say 5% of the purchase price or the manufacturing cost and this then becomes the selling price. ], where a firm adds a profit mark-up [Mark-up: The profit added to the cost by resellers. ] to the unit cost.
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 [Repeat sales/business: Customers returning to buy from the same business. ]. 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.
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 [Direct marketing: Where sellers contact potential buyers directly without having middlemen buying their goods and then selling them on to consumers. ] 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 most important thing about marketing is to identify what the consumers' needs are, and then try to meet them. This is called consumer-orientation. To find out what these needs are, a firm's marketing department or a specialist research organisation carry out extensive market research.
A firm will gather information about the marketplace (eg 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:
Kendal Footwear is a small manufacturing company situated near the Lake District in Cumbria. They are launching a new, good quality walking boot to add to their product range. As their marketing manager, what two promotional activities might you use? Explain your reasons.
When you have finished take a look at the sample answers on the next page.
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, eg why she would use a sales promotion.
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.
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).
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.
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 [target market: the end-user or consumer group to whom the manufacturer aims to sell ], 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.
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.
Now try a Test Bite