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Marketing Management - 4 Ps
The marketing mix document discusses the key elements of marketing strategy - the 4 Ps of marketing: product, price, place (distribution), and promotion. It explains that the marketing mix refers to the combination of these four elements that make up a company's marketing system. It then provides further details on each element, including product life cycle stages from development to decline, and strategies to extend the life cycle. Common pricing strategies and objectives are also outlined.
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Marketing Management - 4 Ps
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- 2. MARKETING MIX Theterm marketing mix was introduced by Prof N. H Borden of Harvard Business School. It is the combination of four inputs which is the core of the company’s marketing system. According to Jerome McCarthy “Marketing Mix is the pack of four sets of variables namely (1) Product Variable (2) Price Variable (3) Product Variable (3) Place Variable. The popular way of describing these elements are four p’s of marketing 2
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- 9. THE 7 PSOF SERVICE MARKETING
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- 12. PRODUCT LIFE CYCLE Product Life Cycle (PLC): Every product goes through a life cycle from development to decline Each life cycle is different Some products have longer lifecycles than others Some companies are very successful in extending lifecycles
- 13. PRODUCT LIFE-CYCLE STRATEGIES Product development Introduction Growth Maturity Decline Begins when the company develops a new-product idea Sales are zero Investment costs are high Profits are negative 9 - 13 PLC Stages
- 14. PRODUCT LIFE-CYCLE STRATEGIES Product development Introduction Growth Maturity Decline Low sales High cost per customer acquired Negative profits Innovators are targeted Little competition 9 - 14 PLC Stages
- 15. MARKETING STRATEGIES: INTRODUCTIONSTAGE Product – Offer a basic product Price – Use cost-plus basis to set Distribution – Build selective distribution Advertising – Build awareness among early adopters and dealers/resellers Sales Promotion – Heavy expenditures to create trial 9 - 15
- 16. PRODUCT LIFE-CYCLE STRATEGIES Product development Introduction Growth Maturity Decline Rapidly rising sales Average cost per customer Rising profits Early adopters are targeted Growing competition 9 - 16 PLC Stages
- 17. MARKETING STRATEGIES: GROWTHSTAGE Product – Offer product extensions, service, warranty Price – Penetration pricing Distribution – Build intensive distribution Advertising – Build awareness and interest in the mass market Sales Promotion – Reduce expenditures to take advantage of consumer demand 9 - 17
- 18. PRODUCT LIFE-CYCLE STRATEGIES Product development Introduction Growth Maturity Decline Sales peak Low cost per customer High profits Middle majority are targeted Competition begins to decline 9 - 18 PLC Stages
- 19. MARKETING STRATEGIES: MATURITYSTAGE Product – Diversify brand and models Price – Set to match or beat competition Distribution – Build more intensive distribution Advertising – Stress brand differences and benefits Sales Promotion – Increase to encourage brand switching 9 - 19
- 20. PRODUCT LIFE-CYCLE STRATEGIES Product development Introduction Growth Maturity Decline Declining sales Low cost per customer Declining profits Laggards are targeted Declining competition 9 - 20 PLC Stages
- 21. MARKETING STRATEGIES: DECLINESTAGE Product – Phase out weak items Price – Cut price Distribution – Use selective distribution: phase out unprofitable outlets Advertising – Reduce to level needed to retain hard-core loyalists Sales Promotion – Reduce to minimal level 9 - 21
- 22. PRODUCT LIFE CYCLE Extending the life cycle Diversification – have core product but introduce new flavours/styles etc. Innovate – use new technology to enhance the product Change flavour Repackage Advertise to appeal different audience Re-launch – product that have been withdrawn can make comebacks if sold right e.g skateboards, yoyos
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- 24. PRODUCT LIFE CYCLE Cash Flow and the Product Life Cycle During the development stage cash flow is going to be NEGATIVE. Money has to be paid out for equipment, wages etc but no money is coming in. During the launch stage cash flow is still NEGATIVE. More money is being paid out than is coming in (as sales are very low at the moment).
- 25. PRODUCT LIFE CYCLE Cash Flow and the Product Life Cycle During the growth stage cash flow may turn from NEGATIVE to POSITIVE. Lots of money is coming in but there are many outgoings because the firm has to continue to promote the product and may need to expand production and its workforce. During maturity/saturation and decline the cash flow will be POSITIVE. The company spends little money on promoting it. It doesn’t need to expand production but sales are still coming in. Only during the decline stage will sales be so low that cash flow might be NEGATIVE.
- 26. Sales/Cash Flow Time PLC andCash Flow PLC Negative Cash Flow Positive Cash Flow Product Life Cycle & Cash Flow
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- 28. 9 - 28 MajorStages in New-Product Development
- 29. DEFINITION New ProductDevelopment Development of original products, product improvements, product modifications, and new brands through the firm’s own R & D efforts. 9 - 29
- 30. STAGES OF THENEW PRODUCT DEVELOPMENT PROCESS Stage 1: Idea Generation Internal idea sources: R & D External idea sources: Customers, competitors, distributors, suppliers 9 - 30
- 31. STAGES OF THENEW PRODUCT DEVELOPMENT PROCESS Stage 2: Idea Screening Product development costs increase substantially in later stages so poor ideas must be dropped Ideas are evaluated against criteria; most are eliminated 9 - 31
- 32. STAGES OF THENEW PRODUCT DEVELOPMENT PROCESS Stage 3: Concept Development and Testing Concept development creates a detailed version of the idea stated in meaningful consumer terms. Concept testing asks target consumers to evaluate product concepts. 9 - 32
- 33. STAGES OF THENEW PRODUCT DEVELOPMENT PROCESS Stage 4: Marketing Strategy Development The target market, product positioning, and sales, share, and profit goals for the first few years. Product price, distribution, and marketing budget for the first year. Long-run sales and profit goals and the marketing mix strategy. 9 - 33
- 34. STAGES OF THENEW PRODUCT DEVELOPMENT PROCESS Stage 5: Business Analysis Sales, cost, and profit projections Stage 6: Product Development Prototype development and testing 9 - 34
- 35. STAGES OF THENEW PRODUCT DEVELOPMENT PROCESS Stage 7: Test Marketing Standard test markets Controlled test markets Simulated test markets Stage 8: Commercialization 9 - 35
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- 37. “COMPETITION” The onlyway to beat the competition is to stop trying to beat the competition.
- 38. BLUE OCEAN CONCEPT RedOcean Cut-Throat Business Blue Ocean Where we ultimately want to be as a company
- 39. PROFIT & GROWTHCONSEQUENCES OF CREATING BLUE OCEANS 0% 20% 40% 60% 80% 100% Business Launch Revenue impact Profit Impact
- 40. WHAT THE GRAPHSSAY 86% of launches were line extensions (incremental improvements within the red ocean of existing market space) Yet they only accounted for 62% of total revenues and 39% of profits Remaining blue ocean 14% generated 38% of total revenue and 61% of total profits
- 41. AUTO INDUSTRY BLUEOCEANS Ford: 1980 Model T was affordable GM: 1924 cars styled to appeal to the emotions, the “annual car” helped create the used car market Small, Fuel-Efficient Japanese Cars: became popular due to the 1970’s oil crisis Chrysler’s Minivan: 1984 broke the boundary between car and van
- 42. APPROACH TO STRATEGY RedOceans – Conventional Approach Focus on beating the competition Build a defendable position within the existing industry Use competition as a benchmark Choice between differentiation and low cost - Greater value for customers at a higher cost or a reasonable value at a lower cost Blue Oceans – Value Innovation Make competition irrelevant Create a leap in value for buyers and the company Create new a market space Pursue both differentiation and low cost
- 43. Red Ocean BlueOcean Compete in existing market space Create uncontested market space Beat the competition Make the competition irrelevant Exploit existing demand Create and capture new demand Make the value-cost trade off Break the value-cost trade off Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost Align the whole system of a firm’s activities in pursuit of differentiation and low cost
- 44. HOW TO USEIT IN BOS? Don’t: Offer a little more for a little less Do: Reorient strategic focus from competitors to alternatives and from customers to noncustomers of the industry.
- 45. THE FOUR ACTIONSFRAMEWORK To create a new value curve To break the trade-off between differentiation and low cost
- 46. THE FOUR ACTIONSFRAMEWORK A New Value Curve 1. Eliminate Which factors that the industry takes for granted should be eliminated? 4. Create Which factors should be created that the industry has not seen before? 3. Raise Which factors should be raised well above the industry standard? 2. Reduce Which factors should be reduced well below the industry standard? Figure 2-2
- 47. THE FOUR ACTIONSFRAMEWORK 1. Eliminate (competition) Factors your industry competes on Change in what buyers value 2. Reduce (competition) Overdesigned products Over served customers 3. Raise (customers) Eliminate compromises 4. Create (customers) New sources of value New demand
- 48. MCDONALD’S FRAMEWORK CreateNew Sources of Value: Brand customer care cost structure its patent target audience Sustainable – the key test of a core competency measures the ability of a firm to continually increase the advantage of the competency over many years. “The world has changed. Our customers have changed. We have to change too." - James R. Cantaloupe, Chairman and CEO, McDonald's, 2003
- 49. ELIMINATE-REDUCE-RAISE-CREATE GRID Figure 2-5:The Case of McDonald’s Eliminate Super Size Option Raise •Health Standards Reduce •Calories in burgers Create Salad Menu
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- 51. PRICING OBJECTIVES Meetinga return on investment or profit Building Traffic Achieving market share Increasing sales Creating an image Social objectives
- 52. PRICING POLICIES One-Price Policy– is one in which all customers are charged the same prices Flexible-Price Policy – is one in which customers pay different prices for the same type or amount of merchandise
- 53. PRICING STRATEGIES Three majorfactors used when determining a price for a product Demand Competition Cost
- 54. Cost-Plus Pricing Commonlyused by manufacturers & service businesses Expressed as a $ amount Example Job costs $200 to perform Add $100 as profit Charge $300 to the client 200 + 100 = 300 COST-ORIENTED PRICING PRODUCERS CALCULATE THE COST OF MAKING A PRODUCT, THEN ADD PREFERRED PROFIT
- 55. DEMAND ORIENTED PRICING(TARGET PRICING) WHAT ARE CONSUMERS WILLING TO SPEND ON A PRODUCT OR SERVICE? Price is set in relation to Demand & Supply of the product/service Limited Supply High Demand HIGH PRICE Plenty Supply Low Demand LOW PRICE
- 56. PRODUCT LINE PRICING Pricing a product at various price levels in order to appeal to different segments of the market Example Appliance manufacturer creates a dishwasher Sells in different versions (basic, midline, and premium) Different prices for each version to appeal to different segments of buyers Targeted at consumers for whom price is important in choosing the model of a product
- 57. PSYCHOLOGICAL PRICING Basedon the theory that certain prices have a psychological impact Retail prices expressed as "odd prices“ or a little less than a round number Examples $7.99 vs. $8.00 $19.99 vs. $20.00 $199 vs. $200
- 58. COMPETITION-ORIENTED PRICING THREE POSSIBLEACTIONS Price above competition Price below competition Price in line with competition (going- rate)
- 59. PRICING POLICIES &PRODUCT LIFE CYCLE INTRODUCING A NEW PRODUCT • Sets a HIGH price • Used when competition is low • Lower price after introductionSkimming • Sets a LOW price • Used to build market share • Price raised laterPenetration
- 60. OTHER PRICE STRATEGIES EverydayLow Pricing (EDLP) Setting prices lower than competitors. High-Low Strategy Set prices higher than EDLP stores but have many sales.
- 61. OTHER PRICE STRATEGIES PrestigePricing Setting a very high price to create an image of high quality.
- 62. PROMOTIONAL PRICING PromotionalPricing – is generally used in conjunction with sales promotions where prices are reduced for a short period of time Loss Leader Pricing – is used to increase store traffic by offering very popular items of merchandise for sale at below-cost prices Special-Event – items are reduced in price for a short period of time, based on specific happenings Rebates and Coupons Rebates – are partial refunds provided by the manufacturer Coupons – allow customers to take reductions at the time of purchase
- 63. DISCOUNTS AND ALLOWANCES Cash Discounts – are offered to buyers to encourage them to pay their bills quickly Quality Discounts – are offered to buyers for placing large orders Non-Cumulative – offered on one order Cumulative – offered on all orders over a specified period of time Trade Discounts – the way manufacturers quote prices to wholesalers and retailers Seasonal Discounts – are offered to buyers willing to buy at a time outside the customary buying season Allowances – go to directly to the buyer after a trade-in
- 64. STEPS IN DETERMININGPRICES 1. Establish Pricing Objectives 2. Determine Costs 3. Estimate Demand 4. Study Competition 5. Decide on a Pricing Strategy 6. Set Prices
- 65. DECOY EFFECT In marketing,the decoy effect (or asymmetric dominance effect) is the phenomenon whereby consumers will tend to have a specific change in preference between two options when also presented with a third option that is asymmetrically dominated. An option is asymmetrically dominated when it is inferior in all respects to one option; but, in comparison to the other option, it is inferior in some respects and superior in others.
- 66. DECOY EFFECT EXAMPLE Waitress asks, "Which do you want, apple pie or pumpkin pie?" Reply: "I'll have pumpkin pie." Waitress returns to the table: "I just found out that we also have rhubarb pie. Would you like that?" Reply: "In that case, I'll have apple pie."
- 67. EXAMPLE OF DECOYEFFECT Choose between: 50% 50% Choose between: 70% 30%0% Choose between: 30% 70%0%
- 68. EXAMPLE OF DECOYEFFECT MP3 PLAYER For example, if there is a consideration set involving MP3 players, consumers will generally see higher storage capacity (number of GB) and lower price as positive attributes; while some consumers may want a player that can store more songs, other consumers will want a player that costs less.
- 69. Consideration Set 1 AB price $400 $300 storage 30GB 20GB In this case, some consumers will prefer A for its greater storage capacity, while others will prefer B for its lower price.
- 70. Now suppose thata new player, C, is added to the market; it is more expensive than both A and B and has more storage than B but less than A: Consideration Set 2 A B C price $400 $300 $450 storage 30GB 20GB 25GB The addition of C—which consumers would presumably avoid, given that a lower price can be paid for a model with more storage—causes A, the dominating option, to be chosen more often than if only the two choices in Consideration Set 1 existed; C affects consumer preferences by acting as a basis of comparison for A and B. Because A is better than C in both respects, while B is only partially better than C, more consumers will prefer A now than did before. C is therefore a decoy whose sole purpose is to increase sales of A.
- 71. Conversely, suppose thatinstead of C, a player D is introduced that has less storage than both A and B, and that is more expensive than B but not as expensive as A: Consideration Set 3 A B D price $400 $300 $350 storage 30GB 20GB 15GB The result here is similar: consumers will not prefer D, because it is not as good as B in any respect. However, whereas C increased preference for A, D has the opposite effect, increasing preference for B.
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- 74. BREAK-EVEN ANALYSIS Process usedto determine profitability at various levels of sales. Total Fixed Cost (FC) Unit Price one unit (P) – Variable cost one unit(VC) Break-even point = Fixed Cost = Expenses that remain the same no matter how many units are sold. Variable Cost = Costs that change according to the level of production. Breakeven Point = Point at which sales equal all costs.
- 75. DETERMINE THE BREAK-EVENPOINT Selling Price = $5 Variable Cost = $3 Fixed Cost = $50,000
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- 77. CONSUMER USE CYCLE- CUC It refers to how often the product is used and needs to be replaced. E.g. Biscuits have much smaller CUC as compared to Refrigerators
- 78. HIGH & LOWINVOLVEMENT PRODUCTS
- 79. CHANNEL A path throughwhich goods and services flow in one direction (from vendor to the consumer), and the payments generated by them that flow in the opposite direction (from consumer to the vendor).
- 80. CHANNEL LENGTH Channel lengthis the total number of channel members in a channel of distribution.
- 81. DISTRIBUTION PATTERNS 1. Exclusive 2.Distribution Intensity 1. Intensive 2. Selective
- 82. EXCLUSIVE DISTRIBUTION Exclusive distributionis a distribution pattern in which a producer sells a product through just one middle man in a geographic area.
- 83. INTENSIVE DISTRIBUTION Selling aproduct through every available wholesaler and retailer in a geographic area where consumers might look for it Reaches greatest number of consumers possible Convenience products use this intensity
- 84. SELECTIVE DISTRIBUTION Selling aproduct through a limited number of wholesalers and retailers in a geographic area Use middlemen who will do the best job of promoting and selling their product May make higher profits by creating greater sales volume through a smaller number of successful outlets
- 85. HOW CHANNEL MEMBERSADD VALUE Every channel member should add value to the product as it moves through the channel Adding value to the product benefits all channel members Being able to perform one or more activities needed to get the product to the final consumer Ex: Retailers may create exciting visual displays in their stores to promote a product By performing this task, retailers can add value to the product and benefit every member in the channel.
- 86. CHANNEL FUNCTIONS Providingmarketing information: Companies rely on market research to determine their target markets’ needs and wants Ex: small business producing handmade greeting cards Promoting products: Can be expensive Retailers often take a large portion of promotion responsibilities Ex: local supermarkets/discount stores Contact Matching Negotiating with the customers: Different prices are paid by the wholesaler, retailer and consumers based on negotiation Physical distribution Financing and risk taking: Moving products through a channel costs money When channel members work together to finance activities and to assume financial risks, channels will be more effective
- 87. HORIZONTAL AND VERTICALCONFLICT Horizontal Conflict: occurs between channel members at the same level Good, old-fashioned business competition Ex: two retailers selling pet supplies compete to sell to the same target market Vertical Conflict: occurs between channel members at different levels within the same channel Producers and wholesalers or producers and retailers
- 88. CHANNEL MANAGEMENT DECISIONS Setting channel objectives Determine what the company is trying to achieve Meet the needs and wants of their target market Give their product a competitive edge Indirect distribution: middlemen Direct distribution: dealing with the final consumers directly
- 89. CHANNEL MANAGEMENT DECISIONS Determining distribution patterns Achieve ideal market exposure (make their product available without over exposing and losing money) To achieve market exposure, marketers must determine distribution intensity Intensive distribution: selling a product through every available wholesaler and retailer in a geographic area where consumers might look for it Used when trying to reach the greatest number of customers possible (ex: convenience items – gum) Selective distribution: selling a product through limited number of wholesalers and retailers in a geographic area (high-end clothing manufacturers) Exclusive distribution: selling a product through one middleman in a geographic area. Used to maintain tight control over a product. (specialty products – airplanes, large machinery)
- 90. CHANNEL MANAGEMENT DECISIONS Selecting channel members Determine the types of members the belong in the channel, as well as the channel length (total number of channel members) Usually based on the nature of the product Factors to consider: Create product value that others cannot or are not willing to provide Channel the product to its desired market Have a pricing and promotion strategy compatible with the product’s needs Offer customer service compatible with the products needs Be willing and able to work cooperatively with other members within the product’s channel
- 91. CHANNEL MANAGEMENT DECISIONSCONT’ Determining channel responsibilities Members must work together appropriately and perform the tasks they are best suited for Managing, motivating, and monitoring channel members Marketers should constantly evaluate the channel What is working? What is not working? What can be improved? Motivation can be positive or negative Sanctions may be imposed on middlemen not performing well Chargebacks – financial penalties assessed for a variety of problems Incentives may be offered for reaching performance goals
- 92. CHANNEL DESIGN DECISIONS Analyzing customer needs Setting channel objectives Identifying major alternatives Types of intermediaries Number of intermediaries Responsibilities of intermediaries
- 93. FERRARI MODULE OFMARKET COVERAGE The module being used by MNCs to ensure 100% coverage of the market.
- 94. DISTRIBUTION COST Cost orexpense incurred in moving goods from the point of production to the point of consumption. Also called distribution expense.
- 95. SELF VS 3RDPARTY DISTRIBUTION Following are the factors which need to be considered: Cost Flexibility Control
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- 97. PROMOTION Promotional activity isbroadly categorized into two types: 1. “Above the line” - ATL 2. “Below the line” - BTL
- 99. “The promotional activitiescarried out through mass media like TV; radio; newspaper; etc” Mainly used to reach costumers, advertising creates general brand awareness.
- 100. CHARACTERISTICS OF ATL 1.SWIFT 2. NON – INTERACTIVE 3. HIGH COVERAGE 4. WASTAGE
- 101. ABOVE-THE-LINE PROMOTION Advantages: ATL can reach a large audience of customers Customers more aware of ATL b/c they are more interesting/appealing Disadvantages: Promotion through mass media may not appeal to the right market segments Many advertisements are ignored (ie. People change channel during commercials, annoying pop-up ads on internet) Cannot determine effectiveness of ads b/c communication is one-way
- 102. “This involves arange of methods over which the business has more direct control and which can be targeted at specific groups of costumers” •Non media advertising •By: exhibitions, sponsorships, sales promotions or trade discounts.
- 103. CHARACTERISTICS OF BTL 1.SLOW 2. INTER-ACTIVE 3. LITTLE WASTAGE 4. LOW COVERAGE
- 104. BELOW-THE-LINE PROMOTION Advantages: BTL can over the problem of clutter It can be customized and provide a two-way communication channel Usually engages customers much better than ATL Customers can be targeted more specifically. Disadvantages: Cost per eyeballs/consumer is much higher than ATL Reach is generally not as wide as ATL
- 105. 4 KEY ELEMENTSOF PROMOTIONAL MIX 1. Advertising: “ the science of arresting the human intelligence long enough to get money from it.” form of promotion that is paid-for Tv, radio, billboards, email, in-store displays advertising can be informative or persuasive, or both. advertisement should be original and creative most businesses use advertising agencies to make their ads
- 106. 4 KEY ELEMENTSOF PROMOTIONAL MIX 2. Personal selling: relies on sales representatives directly helping and persuading potential and existing customers to make a purchase. EX: sales presentations, face-to-face meetings with clients (health insurance), telemarketing, door-to-door sales Benefit: tailored to the individual needs of the customers. can help company build positive, long relationship w/ customer Disadvantage: these sales agents can be expensive to hire
- 107. 4 KEY ELEMENTSOF PROMOTIONAL MIX 3. Public relations (PR) : aimed at establishing and protecting the desired image of an organization. concerned with getting good press coverage. PR experts will get media to report events in a positive way EX: having a presence at exhibitions, launch party, press conferences, radio/tv interviews, donating to charities PR is a long-term strategy and relied on when business faces a crisis
- 108. 4 KEY ELEMENTSOF PROMOTIONAL MIX 4. Sales promotion : short-term incentives designed to stimulate sales of a product. EX: discount coupons, prize draws, samples Advantages: can help gain short term competitive head start get rid of excess or old stock encourages customer loyalty attract new customers Disadvantage: costly
- 109. PUBLICITY Publicity isthe deliberate attempt to manage the public's perception of a subject. Publicity is the act of attracting the media attention and gaining visibility with the public. Publicity is much more credible than advertising. Publicity provides 3rd party endorsement.
- 110. PUBLICITY METHODS Events Product Placements Sponsorships Articles Celebrity Spokesperson Unusual Happenings