The Marketing Mix - Part1

8/8/2019 The Marketing Mix - Part1

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The Marketing Mix

Price & Place

The Marketing Mix

Price Product Place

Promotion People Process

PhysicalEvidence

Price & Place


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Pricing Strategies

Penetration Pricing

Penetration Pricing Price set to penetrate the market

Low price to secure high volumes

Typical in mass market products chocolate bars,food stuffs, household goods, etc.

Suitable for products with long anticipated life cycles

May be useful if launching into a new market


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Market Skimming

Market Skimming

High price, Low volumes

Skim the profit from the market

Suitable for products that haveshort life cycles or which willface competition at some pointin the future (e.g. after a patentruns out)

Examples include: Playstation,jewellery, digital technology,new DVDs, etc.

Many are predicting a firesale inlaptops as supply exceedsdemand.

Value Pricing


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Value Pricing

Price set in accordancewith customer

perceptions about the

value of the

product/service

Examples include status

products/exclusive

productsCompanies may be able to set pricesaccording to perceived value.

Loss Leader

Loss Leader Goods/services deliberately sold below cost to

encourage sales elsewhere

Typical in supermarkets, e.g. at Christmas, sellingbottles of soft-drinks 1 in the hope that people willbe attracted to the store and buy other things

Purchases of other items more than covers loss onitem sold

e.g. Free mobile phone when taking on contractpackage


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Psychological Pricing

Psychological Pricing

Used to play on consumer perceptions

Classic example - 9.99 instead of 10.99!

Links with value pricing high value goodspriced according to what consumers THINKshould be the price

Going Rate (Price Leadership)


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Going Rate (Price Leadership)

In case of price leader, rivals have difficulty in competing onprice too high and they lose market share, too low and theprice leader would match price and force smaller rival out ofmarket

May follow pricing leads of rivals especially where those rivalshave a clear dominance of market share

Where competition is limited, going rate pricing may beapplicable banks, petrol, supermarkets, electrical goods find very similar prices in all outlets

Tender Pricing

Tender Pricing Many contracts awarded on a tender basis

Firm (or firms) submit their price for carrying out thework

Purchaser then chooses which represents best value

Mostly done in secret


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Price Discrimination

Price Discrimination

Charging a different pricefor the same good/servicein different markets

Requires each market tobe impenetrable

Requires different price

elasticity of demand ineach marketPrices for rail travel differ for the samejourney at different times of the day

Destroyer Pricing/Predatory Pricing


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Destroyer/Predatory Pricing

Deliberate price cutting or offer of free

gifts/products to force rivals (normally smaller

and weaker) out of business or prevent new

entrants

Anti-competitive and illegal if it can be proved

Absorption/Full Cost Pricing

Absorption/Full Cost Pricing Full Cost Pricing attempting to set price to

cover both fixed and variable costs

Absorption Cost Pricing Price set to absorb

some of the fixed costs of production


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Marginal Cost Pricing

Marginal Cost Pricing

Marginal cost the cost of producing ONE extra or ONE feweritem of production

MC pricing allows flexibility

Particularly relevant in transport where fixed costs may berelatively high

Allows variable pricing structure e.g. on a flight from Londonto New York providing the cost of the extra passenger is

covered, the price could be varied a good deal to attract

customers and fill the aircraft

Marginal Cost Pricing Example:

Aircraft flying from Bristol to Edinburgh Total Cost (includingnormal profit) = 15,000 of which 13,000 is fixed cost*

Number of seats = 160, average price = 93.75

MC of each passenger = 2000/160 = 12.50

If flight not full, better to offer passengers chance of flying at12.50 and fill the seat than not fill it at all!

*All figures are estimates only


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Contribution Pricing

Contribution Pricing

Contribution = Selling Price Variable (direct costs)

Prices set to ensure coverage of variable costs and acontribution to the fixed costs

Similar in principle to marginal cost pricing

Break-even analysis might be useful in suchcircumstances

Target Pricing


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Target Pricing

Setting price to target a specified profit level Estimates of the cost and potential revenue at

different prices, and thus the break-even have

to be made, to determine the mark-up

Mark-up = Profit/Cost x 100

Cost-Plus Pricing

Cost-Plus Pricing Calculation of the average cost (AC) plus a

mark up

AC = Total Cost/Output


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Influence of Elasticity


Any pricing decision must be mindful of the impact

of price elasticity

The degree of price elasticity impacts on the level ofsales and hence revenue

Elasticity focuses on proportionate (percentage)

changes

PED = % Change in Quantity demanded/% Changein Price

Influence of Elasticity Price Inelastic:

% change in Q < % change in P

e.g. a 5% increase in price would be met by a fall insales of something less than 5%

Revenue would rise

A 7% reduction in price would lead to a rise in salesof something less than 7%

Revenue would fall


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Price Elastic: % change in quantity demanded > % change in

price

e.g. A 4% rise in price would lead to sales fallingby something more than 4%

Revenue would fall

A 9% fall in price would lead to a rise in sales ofsomething more than 9%

Revenue would rise

Place

Place A Definition

Place (distribution) involvesthose management tasks

concerned with making theproduct available and

accessible to buyers andpotential buyers


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Factors in Place

Place DistributionDirect

distribution

Indirectdistribution

Multipledistribution

Distributionresearch

Factors in Place

How can products &services reach our

customers?Will retailers want tostock our products?

How do we transportthe goods from the

factory or warehouse?How do we export

overseas?

Persuading retail outlets to stock

products is never a simple matter

Why might a retailer not want tostock your new range of mens

shirts?


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Why not?

Limited shelf space Reduce shelf spaceof stock that is alreadyselling

Some stock mayhave to be discountedto make room (= lost

sales)

Customers may getupset about the removal

of established brands

No one will buy yoursshirts

????

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Distribution

Distribution is the physical movement of products or services from

producer to end-user

Ownership is transferred through intermediaries*

Ends when an individual buys a product for use (not resale)

* Definition of intermediaries

Firms which buy goods from one part of a chain of supply and sell toanother in the process of transferring goods from the producer to theend customer

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Distribution Strategies

DirectDistribution

IndirectDistribution

MultipleDistribution


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DirectDistribution

Products & Services delivered straightto the end-user

Includes direct sales and in some casesmail order, internet and tele-sales

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IndirectDistribution

At least one intermediary

There are three different models

Consumer Goods

Business to Business Goods

Services

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Multiple

Distribution

Used to avoid dependence on a singlechannelor To reach two or more target marketsthat cannot be served by a single channel

Use widely by multi-national businesses

Specifically those that have a broadportfolio of products and services

Also to reach different segments of themarket


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Distribution Research/MetricsCompanies measure the effectiveness of the distribution

process. Researching the process helps understand which

distribution methods are working well or not

Examples

Average ordervalue

Sales revenueper customers

Profit PerCustomers

Number ofnew accounts

Sales calls perhour

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Channel SelectionFactors favouring DirectSelling/Direct marketing

Factors favouring Intermediaries

Need for expert sales people to

demonstrate products, with strong

product knowledge etc.

Supplier has insufficient resources to finance alarge sales force, yet selling is required

Intermediaries willing to sell the

product may be too costly/not able

to maximise sales potential

Supplier's range of products narrow &/orsmall volumes/orders are involved so betterfor an intermediary to complement the range

The supplier wants tight control Supplier has insufficient resources in terms of

Know-how in selling/promotional support

Technical support

After sales service

The product is well suited to mailorder/Internet, telephone sellingetc.

Large numbers of customers spread over a

wide geographical area that need major

deliveries/ personal visits

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Considerations for Choosing the Right Channel

Product

Large or small

Perishable ornon-perishable

Market

How big is it?

High-volumesuited towholesalers

Niche markets(direct or ahandful ofselectedretailers)

Economies ofscale

Producers wantto sell in bulk

Large retailers& wholesalersare bulkbreakers

Retailer holdstock thatcoversimmediatedemand for aproduct

The Marketing Mix - Part1

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