BUSINESS IG:

• Chapter 12:
• Marketing mix: product and price
• Sections:
• 3.3.1 Product
• 3.3.2 Price
 • New products are launched onto the market, customers see it
advertised and buy it once. Businesses may even sell the product at a
low price to encourage consumers to buy it. “if the product is not
right” – don’t meet consumer needs and expectations, they will not
buy it again. Successful products are bought repeatedly by customers.
Helping build brand and develop both customer loyalty and brand
loyalty.
Costs and benefits of developing new products:
3.3.1 PRODUCT: - Many businesses operate in very competitive and/or fast-changing
markets. The survival and continued success of these businesses
depend on developing new products to meet the changing needs and
expectations of customers.
They may need to:
 Develop new products
 Change an existing products to meet the changing tastes of customer
 Change an existing products to enter a new market
 COSTS AND
BENEFITS OF
NEW PRODUCT
DEVELOPMENT:
 BRAND IMAGE:

• Brand image: “ the general impression of a product held by consumers”

Creating a brand image increases a business’s sales and revenue because:
 Consumers recognizes their product more easily when looking at similar
products
 Their product can be priced higher than less well-known brands
 It is easier to launch new products onto the market because consumers already
know and trust the brand and so are more likely to try it than if it was from an
unknown brand – they have customer loyalty.
 Roles of packaging:
To protect the product
To provide information about the product
To help consumers recognize the product
THE ROLE OF
PACKAGING: Other purposes of packaging which are important in
helping promote and sell the product:
The packaging might have a use once the product
has been used up.
To keep the product fresh once the packaging has
been opened.
 THE PRODUCT LIFE CYCLE:

• Product life cycle: “ the pattern of sales of a product from

introduction to its withdrawal from the market.”
4 main Stages:
1. Introduction stage – the product is introduced into the market. Sales sales Chart Title
are low. The product might be making a loss in this stage because
Introduction Decline
of the cost of heavy advertising to gain product recognition.
2. Growth stage – the product is becoming better known to
consumers. Sales are increasing. The product usually starts to earn
profit during this stage.
3. Maturity stage – sales are no longer growing but are falling. This is
the most profitable stage in a product’s life cycle.
4. Decline stage – sales are falling. The product eventually becomes 0 0 0 time0
unprofitable and is withdrawn from the market.
 EXTENSION STRATEGIES:

• Extension strategies: “marketing activities to extend the maturity stage of a product.”

• This stage is the most profitable stage of a product’s life cycle. A business will want to keep
the product in this stage for as long as possible. They try to do this by using extension
strategies.
Extension strategies include:
 Finding new markets for the product – owners/managers will look to see if there are other
markets for their product, perhaps entering foreign markets.
 Finding new uses for the product – the research and development team might look to see if
the product can be used for something other than what it was originally intended for.
 Adapting the product or the packaging to improve its appeal to consumers – the marketing
function looks at other ways of promoting the product to perhaps appeal to new market, or
to remind the existing market that the product is still available.
HOW THE PRODUCT LIFE CYCLE INFLUENCES MARKETING
DECISIONS:
 • Price: “the amount paid by the customer to the supplier
when buying a good or service.”
 Does the price of a product help you to decide whether to
buy it?
 Price is a very important part of the marketing mix
because it is often the most important influence on
customer demand for a product.
3.3.2 PRICE:  The market for most goods and services is very
competitive. Consumers often base their buying
decisions, in part, on the price of the product. If there is
very little difference between product quality and
function, then the consumers are likely to buy the lower-
priced product.
• Product quality: “the product meets the need and
expectations of customers.”
 The price of a product might also be affected by the
availability of supply.
 PRICING METHODS:

• Businesses use several different methods for setting price of products. The most common pricing methods are shown:

Market
Skimming:

Promotional Penetration
pricing: pricing:
Pricing
methods

Competitive Cost-plus
pricing: pricing
 PRICING METHODS CONTINUED:
• Market skimming: “setting a high price for a new product that is unique or very different from any other products on the market.”
• Penetration pricing: “setting a low price to attract customers to buy a new product.”
• Competitive pricing: “setting a price similar to that of competitor’s products which are already established in the market.”
 If a business has a good brand image and loyal customers, then it may use competitive pricing when launching new products which are
like those already on the market. This is because consumers will believe the product to those the same high quality as the firms' other
products.
 Products that were introduced to the market using market skimming or penetration pricing methods will need a different method of pricing
because eventually competitors will enter the market with similar products. The greater the competition in a market the lower prices will
be. They may be priced using competitive pricing.
• Promotional pricing: “used for different reasons but all involve pricing the product as low as possible for a limited period to get
consumers to buy.”
 Loss – leader pricing; “setting the price of a small number of products at below cost to attract customers into the outlet in the hope that
they buy other products priced to earn profit.”
 Buy-one-get-one-free pricing is used to create product awareness and develop customer and brand loyalty.
 Discounting the normal price is also used to create product awareness and build up customer loyalty. Sometimes it is used by businesses
wanting to sell-off surplus stock.
• Cost-plus pricing: “setting price by adding a fixed amount to the cost of making or buying the product.”
 Mark-up pricing
 Full-cost pricing
PRICING METHODS BENEFITS AND LIMITATIONS:
 • Is it a new or existing or product ? When a product is new to the market it
might be priced lower than a product in the growth or maturity stage. This
is so it can gain sales and develop customer loyalty to the product. When a
product enters the decline stage its price might be lowered to sell off the
last remaining inventory.
• Is the product unique? A skimming strategy – changing a very high price –
might be used for a product that has no close substitutes. Once similar
products enter the market, the competition will cause prices to fall.
• Is there a lot of competition in the market? Very competitive markets will
result in most firm changing very similar prices for their products as
CHOOSING A consumers will buy the least expensive if there is little to choose between
them.
PRICING • Does the business have a well-known brand image? Companies such as
Sony and Cadbury can charge a higher price for their products even though
METHOD: competitors have similar products on the market. This is because
consumers trust the brand and consider the products to be better quality
than cheaper alternatives.
• What are the costs of making and supplying the product? Clearly, the price
must be greater than the cost of making and marketing the product so that
the business can earn profit.
• What are the marketing objectives of the business? If the business wants to
increase market share by volume of sales, then it might charge a lower
price than competitors. However, if the objective is to maximise profit,
then they might have a different pricing strategy.
 PRICE ELASTICITY OF DEMAND:
• Demand: “the quality of goods and services consumers are • As we have seen in the above mentioned of movie tickets
willing and able to buy.” and bottled water, how much demand decreases or increases
following an increase or decrease in price will not be the
• What would you do if the price of a cinema ticket increased
same for every product.
by 10%? You might still go to the movies but not as often.
• The demand for movie tickets will change by a greater
• Suppose the only safe drinking water in your country must be
amount following a change in price than the demand for
bought in bottles. What would you do if the price of bottled
bottled water will. This is because the demand for some
water increased by 10%? You need water to survive so you
goods and services is more responsive to price changes than
will probably continue to buy bottled water, although you
others. This is known as the price elasticity of demand.
might try to reduce how much by taking greater care over
how you use it. • Products that are not very responsive to changes in their
price have price inelastic demand.
• In both cases the demand for the goods or services will fall as
a result of an increase in their price. However, the demand for • This means that the percentage change in demand will be
movie tickets will almost certainly fall by a greater amount lower than the percentage change in price. This is the case
than the demand for bottled water. The opposite would also be for the demand for bottled water.
true. If the price of movie tickets decreases by10% you would
• Products that are more responsive to change in their price
probably go to the movies more often, however, if the price of
have price elastic demand. This means that the percentage
bottled water fell by 10% you would not buy very much
change in demand is bigger than the percentage change in
because you are probably buying enough already. In both
price. This is the case for the demand for movie tickets.
cases the demand will rise as a result of a decrease in price.
 PRICE ELASTICITY OF DEMAND AND
PRICING DECISIONS:
• If managers know the value of the price elasticity of demand for their products, then they can calculate the effect on sales of
any proposed increase or decrease in price.
• We know that any increase in price will decrease sales and decrease in price will increase sales. However, what is more
important is how a change in price will affect revenue.

Increase in revenue could be achieved in one of two ways:

1. Increasing the price if the product has price inelastic demand
2. Decreasing the price if the product has price elastic demand
 ACTIVITIES:

• Practice exam questions (1 a, b, c.) (2 a, b, c)

• Activity 12.6 pg. 173