4.

5 The 4 Ps of marketing

IB Business Management
4.5 The four Ps of marketing
By the end of this chapter, you should be able to:
Draw a product life cycle and identify its various stages.
Analyse the relationship between the product life cycle and the
marketing mix.
Examine and recommend various extension strategies that could
be used by firms.
Comment on the relationship between the product life cycle,
investment, profit and cash flow.
Evaluate an organisations products using the Boston Consulting
Group (BCG) matrix.
Explain aspects of branding.
Discuss the importance of branding.
Examine the importance of packaging.
Justify the appropriateness of using particular pricing strategies.
4.5 The four Ps of marketing
Evaluate the impact of new technology on promotional strategies.
Discuss guerrilla marketing and its effectiveness as an innovative
promotional method.
Comment on the importance of place in the marketing mix.
Examine the effectiveness of different types of distribution
channels.
You can sell any product to
consumers once, but to
establish loyalty and good
customer relationships, the
product must be right
Product
Any good (tangible item) or service (intangible offering) offered to
the market to satisfy the needs or wants of consumers.
The end result of the production process sold on the market to
satisfy a customer need.
Provides a solution to a customer problem.
The term product includes consumer and industrial goods and
services.
Consumer goods can be both consumer durables (e.g. washing
machines) and single use (e.g. chocolate bars).
Industrial goods such as mining equipment are purchased by
businesses, not final consumers.
Services have no physical existence but satisfy consumer needs in
other ways. Hairdressing, car repairs, childminding and banking
are examples.
Product
Every year there are thousands of new products launched in both
consumer and commercial markets.
If the product does not meet customer expectations, as
discovered by market research (regarding quality, durability,
performance, and appearance), then no matter how low the price
or how expensive the advertisement, it will not sell successfully in
the long term.
Most new products fail but a special few may succeed to become
a global success.
Product strategy
The product is a fundamental part of the marketing mix.
It is the part of the mix that customers will use, eat or drink.
The decision about the exact product or service to be offered is
essentially a strategic one.
Product strategy is determined in relation to corporate and
marketing objectives.
Classification of products
The product mix is the complete range of products by a business
including product lines and individual products.
A product line is a group of products within the mix that are closely
related to each other.
Strong brands are often exploited by a company, leading to a
product line. All the products in the line trade off the same brand
name and reputation.
Mass consumption Industrial products Animal nutrition
The product life cycle
Shows, based on the level of sales, the different stages that a
product is likely to go through from its initial design and launch to
its eventual decline and withdrawal from the market.
After initial development, a product will be introduced to the
market. Hopefully, its sales will grow and eventually the market
will stabilize and become mature. Then, as new products are
launched, the market becomes saturated and sales for the
original product will start to decline.
It clearly shows how sales
are likely to be generated
throughout the market life
of a product.
 The product life cycle

Sales
Development
Stage when the product is designed.
Significant time, money, and energy must be spent making sure
that a product is ready for market.
Costs will be incurred by the business in research and
development (R&D), but no sales will be made at this stage.
Cash flow will be negative.
New product design and development
There are many reasons why new products are important to
businesses, some of these reasons include:

To counter competitors
actions
To smooth out seasonal
fluctuations
To spread risk through
diversification into new
markets
To increase or maintain
market share
To replace old, unpopular or
discontinued products
New product design and development
Involves determining what can be improved about a product by
looking at how customer needs and wants have changed.
Might be relatively minor, for example by adding another product
to an existing product line.
May be a much larger task and involve designing a new product
for the organizations product mix.
Businesses will aim to ensure that any product development helps
to increase the differentiation of its products and result in a USP
wherever possible.
Should always be
market-led and driven by
changing consumer
needs.
New product design and development
Introduction
Stage when the product is launched into the market.
Costs incurred in the launch are high and it is therefore highly
likely that the product is not profitable.
Sales are low because most consumers are not yet aware of the
products existence.
Cash outflows may well be greater than cash inflows to ensure
that the launch is successful.
Introduction
Possible strategies
Major focus will be needed on the promotional part of the
marketing mix, especially in consumer markets, to get the product
onto the shelves and into consumers minds.
Different pricing strategies can be used, depending on the market
and product being sold. A product based on new technology, such
as the latest games console, is often sold at a high price to start
with, as some customers will be prepared to buy the latest
product at almost any price. Other products may need to be
offered at a low price to start with in order to attract market share
quickly.
Expensive products could be sold in restricted retail outlets
targeting high-income consumers.
Growth
Stage when sales start to take off.
The product is well received by the market and sales volume start
to increase significantly.
Cash flow will be turning positive.
Profits start to rise, especially with the possibility of
economies of scale or lowering of unit costs. For
instance, promotional costs are being spread over
many more units than in the introduction stage.
Eventually sales growth will begin to slow and
might stop altogether, which leads the
product into the next stage.
Growth
Possible strategies
After a successful launch, prices that were initially low can now be
increased to maximize profits. On the other hand, products that
started at high prices can have their prices reduces slightly
because of increased competition attracted by the profits.
Advertising becomes persuasive to convince consumers to buy
more products and establish brand loyalty.
A larger number of distribution outlets are used to push the
product to different consumers in various locations.
To maintain consumer demand,
discussions begin on issues
regarding product
improvements and
developments.
Maturity
The product is well-established in the market.
Sales and market share stabilize.
Sales grow slowly as competitors have entered the market.
Cash inflows exceed the outflows.
Profit is high.
The business can reap the profits of its earlier spending.
Because the product is now well-
known, there will be less
spending on promotion and the
business can benefit from repeat
sales by satisfied customers.
Maturity
Possible strategies
Competitive or promotional pricing strategies are preferred to
keep competitors at bay.
Promotion assumes a reminding role to maintain sales growth and
emphasize brand loyalty.
A very wide range of distribution outlets for the product has been
established.
Plans on new product developments are at an advanced stage,
with some firms introducing extension strategies to extend the life
of their products.
Saturation
Many competitors have entered the market and saturated it.
Sales are at their highest point and begin to fall. However, cash
flow is still positive.
Profits are high and mostly stable.
Some businesses are forced out of the market as a result of the
stiff competition.
Saturation
Possible strategies
Prices will have to be reduced.
Many firms use extension strategies to stabilize their market
share and also use high levels of promotional activities such as
aggressive advertising in an effort to maintain sales.
The widest range of geographical distribution outlets has been
established to get the products to consumers.
Decline
Stage when sales start to fall, perhaps due to newer and better
products coming on to the market.
The product may have lost its appeal in the eyes of consumers.
Cash flow begins to fall but is still positive.
Decline
Possible strategies
Promotional activities are reduced and kept at minimum.
Prices are lowered in most cases to sell off any existing stock.
Distribution outlets that are not profitable are closed.
If the sales become too low, the product is slowly withdrawn from
the market.
Workpoint
Be a thinker
Determine the stage on the product life cycle the
following products are.
Soda
Flat screen TV
Drone
Pashmina
Dental floss
Video camera
Nintendo 2ds
Extension strategies
Product life cycles do not have a set duration.
In fast-moving markets, such as those based on new technology,
they may only last a couple of years.
Other products may have product life cycles lasting decades.
Extension strategies are marketing plans that try to extend the life
of the product and delay or prevent its decline.
Extension strategies
Encourage increased usage
Develop new promotional strategies
Find new users (new markets)
Find new uses for the product
Rebranding
Change the product (features or package)
Extension strategies Board games industry

1930s 1948
Case study
Monopoly
Monopoly was first published in 1936. Imagine if it had remained as
the original version. Would it still be a top-selling game today? The
answer is almost certainly no, and Parker Brothers Games has
been clever in ensuring that its product has remained updated. The
company has done this in a number of ways, such as by producing
many very localized Monopoly boards for smaller towns and cities,
offering special editions based on popular films and characters and
even dispensing with cash and offering an electronic card payment
system on the latest release!
Extension strategies
Extension strategies are important to the long-term success of a
business as the market becomes saturated and sales begin to
drop.
It would be better to extend the life of a mature product before the
decline in sales starts.
It is not always easy to determine where exactly in its life cycle a
product is. Some businesses use sales forecasting to assist in
this. However, since forecasting is based on predicting trends, the
results obtained may not always be entirely accurate.
Unexpected external factors may have a strong influence on any
future sales.
Spending money on a terminally declining product is a mere waste
of resources.
Product diffusion curve
Groups customers according to how quickly they adopt a
new product.
Some will immediately go out and buy the latest product as
soon as it hits the shops, but others will wait a long time
before buying new products.
Different groups will require different marketing strategies
to entice them to make a purchase.
Product diffusion curve
Innovators: these are the first to take the risk of buying a
new product.
Early adopters: once the product has been launched and
tried by the innovators, the well-informed leaders of opinion
will buy it.
Early majority: once positive feedback has been received
from the early adopters, these more risk-averse consumers
will take the plunge and buy the product.
Late majority: these consumers are more skeptical and will
only buy a product once most others already have it.
Laggards: these are consumers who are happy to keep
using existing technology and may only switch to the new
product once their old product becomes obsolete.
Product portfolio analysis
Looks at the range of products a business offers.
Ensures that the products are performing well and generating
profit.
Also has new products in the pipeline to replace existing products
once they reach the decline phase of the product life cycle.
Boston Consulting Group (BCG)
The BCG matrix or Boston matrix is the most common marketing
tool for businesses to analyze their product portfolios.
Was developed by the Boston Consulting Group in the 1970s
Helps businesses decide where to best devote their scarce
resources of time and money.
Requires two pieces of information how much market share a
product has and how quickly the whole market is growing.
Classifies a product into one of four categories.
The BCG matrix
Cash cows
Products with high market share and low market growth.
Are to be milked.
Strong in the market because of its high market share.
The business may be able to charge a high price for them.
Reputation allows them
to get by on relatively little
marketing expenditure as
the market is not growing
(mature).
Are very profitable for
businesses to have in
their portfolio.
Stars
Have high market share and high market growth.
Are the dominant products in a market.
The must work harder to retain
the lead in market share.
Rising stars require high levels of
marketing expenditure to retain
their status.
Will be the cash cows once the
market matures.
Question marks
Have low market share and high market
growth.
Pose a problem for businesses
The potential exists for them to become
the stars of the future.
To develop question marks, the business
will need to spend very large sums on
marketing, and even then it may not
succeed due to the fiercely competitive
nature of the high growth market.
Businesses will selectively choose which
of their question marks to develop, sell or
drop.
Dogs
Have low market share and low market growth.
The chances to gain a greater share are very limited as the
market itself is not growing.
Very few businesses want dogs in their product portfolios.
Businesses tend to get rid of dogs (divest) unless the
products have secondary benefits, such as being a
necessary part of a product line that is profitable overall.
The BCG matrix
A business should aim for balance within its product
portfolio.
Whilst dogs should be avoided, stars and question
marks are required to hopefully become future cash cows.
Cash cows are needed to generate income for product
development and new product launches.
Examining the product portfolio allows a business to
consider whether it has this balance right and adjust its
strategy accordingly.
The BCG matrix
Activity
Prepare a portfolio analysis for a mobile phone manufacturer.
Pick a mobile phone manufacturer (Nokia or Siemens, for
example). List all the mobile phones that they manufacture.
You might take a look at the manufacturers website.
Think about the mobile phone
market at the moment, is it
growing or is it relatively static?
Draw a portfolio matrix and try to
place each of the phones on the
chart.
Branding
Branding is the use of an exclusive name, symbol or design
to identify a specific product or business.
Branding can have a real influence on marketing.
The most successful brands become synonymous with the
name of the product itself (e.g. coke, blackberry).
A strong brand will allow a business to differentiate itself
from its rivals.
If people perceive a strong brand to be better than a rival
product, it almost does not matter if it is actually better or
not.
Consumers will choose the branded product when given the
choice.
Businesses owning strong brands can sell their products at
higher prices than their rivals.
Branding
The logo also transmits the information and attributes
associated with the brand, such as being good quality,
fashionable, and reliable.
Branding
Building brand awareness is ensuring that customers recognize
the offerings, name, and products of a particular business. This is
particularly important in markets where there is not a massive
difference in terms of product quality between rival businesses.
Brand development is trying to increase the power of a name or
logo in order to increase the brand awareness and therefore gain
higher sales. Spending on promotional activities, such as
advertising, sales offers, and free samples can help to develop a
brand and get it into consumers minds.
The better a brand is known, the more brand loyalty there is likely
to be. It is the willingness of consumers to purchase the same
brand repeatedly and even to act as a marketing tool by telling
their friends how good a brand is.
Brand equity is the total amount that customers are prepared to
pay extra for a branded product than they would pay for a generic
non-branded product.
Importance of branding
Effective branding can lead to the following benefits:
Promotes instant recognition of the company and product
especially through the use of logos and images.
Helps differentiate the company and its products from rivals
especially when products themselves might be difficult to
differentiate, e.g. gasoline.
Aids in employee motivation they can become committed to the
brand.
Generates referrals from customers especially through the use
of social media.
Customers know what to expect from the company and products.
An emotional attachment can develop between the brand and
customers, increasing customer loyalty.
Increases the value of the business above the value of its physical
assets (brand equity).
Types of branding
Family branding: involves selling several related products
under one brand name (also known as umbrella branding).
Product branding: each individual product in a portfolio is
given its own unique identity and brand image (also known
as individual branding).
Company or corporate branding: the company name is
applied to products and this becomes the brand name.
Own-label branding: retailers create their own brand name
and identity for a range of products (also known as private
branding).
Manufacturers brands: producers establish the brand
image of a product or a family of products often under the
companys name (also known as producer brand).
Family branding
Benefits Limitations
Marketing economies of Poor quality of one product
scale when promoting the under the brand may
brand. damage them all.
Makes new product launches
easier.
Product branding
Benefits Limitations
Each product is perceived as Loses the positive image of a
its own unique and separate strong company brand.
brand unconnected in
consumers minds with the
parent company.
Corporate branding
Benefits Limitations
Similar points to family Poor quality of one product
branding but now applies may damage image of
to all products produced company.
under the companys brand
name.
Own-label branding
Benefits Limitations
Often cheaper than name- Consumers often perceive
brand products. products to have a lower-
Each own-brand label quality image.
appeals to different
consumer groups and tastes.
Often little spent on
advertising in-store
promotions used instead.
Manufacturers branding
Benefits Limitations
Successful branding by The brand has to be
manufacturers establishes a constantly promoted and
unique personality for the defended.
product which many
consumers want to
associated with and will
often pay premium prices to
purchase.
 Example
Many of todays best-known manufacturers
no longer actually produce products and
advertise them; but rather buy products and
brand them.
Companies such as Nike and Gap have
divested themselves of all production
capacity and focus solely on branding.
The intention is to sell a lifestyle and an
image. Nike defines itself as a sports
company, not a sports clothing manufacturer.
Money previously spent on production is now
poured into promotion to support and develop
the brands identity.
Source: Naomi Klein, No Logo,
Flamingo 2001

What is a brand?
Explain why promotion is important in supporting a brands identity.
Packaging
Refers to the designing and production of the physical container or
wrapper of a product.
Plays a significant role in marketing and can help in distinguishing one
product from another.
Has important functions:
Provides physical protection
Offers convenience
Provides information
Can help reduce security risks
Aids promotion
A great deal of time and money is spent by firms on researching the best
way of designing and producing a package that will attract the majority of
the consumers o their products.
Firms should also consider the impact their packages have on the
environment (reduction of plastic bags).
Together with the other elements of the marketing mix, the right
packaging is critical.
Price
Amount paid by customers for a product.
Vital component of the marketing mix as it impacts on the
consumer demand for a product.
Has a significant role in the marketing mix because it is the only
P that generates revenue for a business.
Price
The pricing level will also:
Determine the degree of value added by the business to bought-in
components
Influence the revenue and profit made by the business due to its
impact and demand
Reflect the marketing objectives of the business and identity of a
product
Price
A variety of factors influence the price of a product, for example:
The cost of production
The target customers (market segment)
Marketplace competition
The businesss overall objectives, marketing objectives and
marketing strategies
Where the product is in its life cycle
Pricing strategies
The pricing strategies adopted by businesses can be:
Cost-plus pricing
Penetration pricing
Price skimming
Psychological pricing
The loss leader
Price discrimination
Promotional pricing
Competitive pricing
Cost-plus pricing
This method is commonly used by most businesses as it is easy to
calculate and understand.
It is also known as full-cost pricing, mark-up pricing or absorption
pricing.
It simply involves working out the average cost per unit produced
(total cost divided by output) and then adding a percentage mark-up.

Total cost + % Mark-up

Number of units

The higher the percentage mark-up, the more profit per unit the
business makes.
It is important to note that this assumes that the business can sell all
of its output at that price.
Example 1
If a company makes 100 products at a total cost of $1,000, and it
may decide that it wants a profit margin of 25%. What would be
the selling price?

Total cost + % Mark-up

Number of units

Average cost = Total cost = $1,000 = $10

per unit Number of units 100

Selling price = $10 + ($10 x 25%) = $12.50

Example 2
A business produces headphones for personal music players. The
total production costs are 500,000, the business produces
100,000 units.

Average cost = Total cost = 500,000 = 5 per unit

per unit Number of units 100,000

If the business then decides its mark-up will be 150 per cent, the
selling price will be:

Selling price = 5 + (5 x 150%) = 12.50

Cost-plus pricing
Advantages
It is a simple and quick
method of calculating the
selling price of a product.
It is a good way to ensure
that a business covers its
costs and makes a profit.
Disadvantages
It fails to consider market
needs or customer value
when setting prices.
Since competitors prices are
not considered, a firm could
lose sales if it sets a selling
price that is higher than its
competitors.
Penetration pricing
Where a business sells its products at a low price to try to break
into a market and gain market share quickly.
The aim of this policy is to gain enough market share to be able to
raise prices in the future once the business has become
established.
Penetration pricing
Advantages
As the prices are low,
consumers are encouraged
to buy the products and this
leads to high sales volume
and market share for the
business.
The high sales volume can
lead to decrease in the costs
of production and increases
in stock turnover.
Disadvantages
Gaining high sales volume
does not necessarily mean
achieving high profits,
especially where the prices
are too low.
Customers may perceive the
product to be of low quality if
the price is kept too low.
Penetration pricing is only
suitable for use in markets
that are very price sensitive.
Price skimming
Most commonly seen with new and innovative products, such as
new mobile phones and games consoles.
The price is set high initially to gain those customers who will pay
almost any price to get their hands on the latest gadget.
Once the business has profited from selling to those customers, it
drops the price to tempt other customers who may have been put
off by the high price originally.
It is only able to do this because there is likely to be almost no
competition in this market due to the cutting edge nature of the
product.
Price skimming
Advantages Disadvantages
Consumers associate the The high prices may
high price with a high-value discourage some consumers
or high-quality product and from buying the product.
an enhanced brand image.
Firms are able to obtain
initial high revenues that
help in recovering their
research and development
costs.
Psychological pricing
Refers to when firms consider how pricing affects consumers
perception of the value of their products.
Considers the psychological effect of pricing on consumers.
Consumers may associate a high-priced product with high quality,
for example designer clothing.
On the other hand, firms may reduce their prices slightly to
persuade consumers who may be looking for value of money. For
example, they may charge US$9.95 instead of US$10 for a given
product a strategy common in most supermarkets that sell
frequently purchased products.
Psychological pricing
Advantages
The psychological effect of
selling at a slightly lower
price can obtain large
revenues for a firm selling in
large quantities.
Since it looks at customers
perceptions, it is a strategy
that can be suitable applied
in many market segments.
Disadvantages
Using prices such as
US$199 or US$9.99 may be
inconvenient for some
businesses that require
whole numbers in their
transactions, for example
transport businesses.
The loss leader
To charge a low price for a product, usually below its average cost.
The aim of this strategy is to attract many customers.
Large supermarkets use this strategy by selling some products at
a loss with the view that customers will also buy the other higher-
priced (profitable) products and therefore compensate for any
losses made.
The loss leader
Advantages Disadvantages
Businesses selling a large Firms using this strategy may
number of frequently be accused by competitors of
purchased products may undercutting them by using
attract many customers and unfair businesses practices.
benefit from higher overall
profits.
Businesses may use loss
leaders as a promotional
strategy to encourage
consumers to switch to their
brand instead of buying the
competitors brands.
Price discrimination
Charging different prices to different groups of consumers for the
same product.
For effective price discrimination, certain conditions have to be
satisfied.
First, the business has to have price-setting ability. This means
that a firm can vary its prices to charge higher prices in a market
that is not very competitive.
Second, the consumers should have different price sensitivities or
elasticities of demand. This is a measure of how consumers
respond in their buying patterns as a result of changes in the
price of a product.
Finally, the markets should be separated to ensure that the
product is not easily traded.
Price discrimination
Advantages
Time-based price
discrimination can be of
benefit to either consumers
or producers. During peak
times businesses such as
phone companies charge
high prices and so generate
higher revenues, while
during off-peak times
consumers benefit from the
lower prices charged.
Disadvantages
Businesses need to be certain
about the type of elasticity of
demand of their consumers.
For example, charging higher
prices in a market with elastic
demand could lead to lower
sales revenue. In addition, if
firms were still to charge a
lower price in the elastic
market, they should ensure
that the extra cost of
producing and selling more
products does not exceed the
extra revenue.
Promotional pricing
A very widely used pricing strategy.
It tends to operate for limited periods only to boost sales at times
of low demand or to support the opening of a new store.
It can be used to encourage the purchase of multiple buys and to
entice consumers to try a product for the first time.
If they then continue to purchase the product when the price has
been returned to its normal level, the profit made from these
purchases should compensate for the lower profit margin made
when promotional price was in force.
Competitive pricing
Pricing strategy that takes into consideration what competitors are
charging for their product.
It involves charging a price that is in line with or just below the
competitors prices.
It is mostly applicable to businesses selling similar products.
Charging prices lower than the competitors with the aim of driving
them out of the market is known as predatory pricing, also known
as destroyer pricing because it aims to eliminate any opposition,
and could include firms charging prices lower than their average
costs of production.
If successful, businesses can subsequently dominate the market
and charge higher prices.
This strategy is commonly used in highly competitive markets
where the products are in the maturity or saturation stages in the
product life cycle.
Competitive pricing
Advantages
Consumers benefit from the
low prices, especially in very
competitive markets.
After using destroyer pricing,
remaining dominant firms
could gain higher sales
revenue as a result of the
higher prices charged.
Disadvantages
Predatory or destroyer
pricing is a form of anti-
competitive behaviour and is
illegal in many countries
because it is used to restrict
competition.
 Understanding pricing strategy should be easy,
you are on the receiving end every time you
purchase something.
List five products that you purchase frequently
and try to identify the pricing strategy that
might be in use.

STOP & THINK

Promotion
Methods of communicating messages to the market with
the intention of selling a firms products.
Promotion is the part of marketing that most people are
familiar with.
It is not just advertising. There are many other ways that a
business can promote its products or services:
Personal selling
Sales promotion
Public relations (PR)
Direct marketing
Trade fairs and exhibitions
Sponsorship
Promotion
Promotion is about communicating with customers and potential
customers.
Through promotion a business
communicates:
Who they are (developing a corporate
image)
What they sell (informative promotion)
Why consumers should buy their
products (persuading)
The brand image of a product
(reminding and reinforcing)
Where customers can get the product
(informative)
How much the product costs
(informative)
Why promote?
Consumers are faced with so much choice that it is often
the business that shouts the loudest about its products
that gets noticed.
Promotion is essential to:
Increase demand for products
Establish a price for products
Create, enhance or maintain a brand image
Raise awareness, emotion or concern for an issue or
product
Maintain, protect or increase market share
Promotion
Promotional activity is categorized into two types: above the line
and below the line.
Above-the-line promotion is direct advertising through consumer
channels, where the control of the process is passed to third
parties, such as TV, cinema, newspapers, the Internet, and radio.
Here the business can lose
control of the promotion by
passing responsibility to
another organization.
All other forms of
promotional activity fall into
the below-the-line category
and remain in the direct
control of the business.
Above-the-line advertising
Comes in many forms and can vary greatly in expense.
A global TV advertising campaign will cost a company huge sums
of money.
An advert in a local paper may cost only a few pounds, dollars, or
euros.
Advertising tends to be of three types: informative, persuasive and
reassuring.
What type of advertising and where to do it
will depend greatly on the individual product
being sold.
It makes sense to target advertising towards
your key consumer groups, hence the
number of beer adverts at half-time of
soccer matches.
Informative advertising
Aims to make consumers aware of the key features and
characteristics of a product to enable them to decide for
themselves which product to buy.
Many government-run campaigns, for example against
smoking, are informative in nature as they aim to outline the
risks of smoking tobacco.
Persuasive advertising
Aimed to convince consumers to buy a particular product.
Is the most effective form of advertising, but can be
controversial, particularly if targeted to children.
Persuasive advertising
Reassuring advertising
The focus is on existing customers, to remind them that they
made the right purchasing decisions when they chose to buy
the firms product and they should continue purchasing it,
Below-the-line advertising
Involves use of promotional media over which the firm has
control.
Loyalty cards and regular purchase discounts
Direct marketing and direct selling
Price promotions
Point of sale displays
Public relations (PR)
Promotional mix
Combination of promotional activities.
All the forms of promotion that will be effective for a certain
business in a certain situation.
Must consider a number of factors:
Who is the product aimed at should I be targeting the whole
market or smaller segments?
How much will it cost do I have the finance available for all
the types of promotional activity I would like to use?
How effective will my promotion be am I sure that I will get a
return from my investment?
Business will adopt a number of different methods of promotion
for any given product in order to get a good balance between
effectiveness and cost.
Businesses will be continually tweaking this mix to try to attract as
many consumers as possible to their products.
Promotional mix
When deciding on a promotional mix, marketers need a set of
criteria to judge the success of a promotional campaign. The most
common criteria are attention, interest, desire, and action.
WORKPOINT
Business investigation
Select a local business that you believe is poorly
promoted.
Prepare a suitable promotional mix to improve the
effectiveness of its promotion.
The impact of new technology
In the marketing context, technology is defined as the information
or tools required to sell a firms good or service.
Technology has changed rapidly and marketers are increasingly
incorporating it in their marketing strategy.
Important technological terminologies being used today include
social networking, social media marketing (SMM), and viral
marketing.
Social media is defined as the technology that connects people. It
is any medium where content is shared or where individuals chat.
Social networks are the places where social interactions happen,
which include sharing, discovering, or advertising information.
Examples of social networks include Facebook, Twitter, LinkedIn,
and MySpace.
Social networking service
Platform to build social networks or social relations among people
who, for example, share interests, activities, backgrounds, or real-
life connections.
Consists of a representation of each user (often a profile), his or
her social links, and a variety of additional services.
Most social network services are web-based and provide means
for users to interact over the Internet.
Social media marketing
Refers to the way technology is used to build relationships, drive
repeat business, and attract new customers through individuals
sharing with other individuals.
Is the process of gaining website traffic or attention through social
media sites.
SMM programs usually center on efforts to create content that
attracts attention and encourages readers to share it with their
social networks.
A corporate message spreads from user to user and presumably
resonates because it appears to come from a trusted, third-party
source, as opposed to the brand or company itself.
Basically, SMM is promotion through word of mouth powered by
technology.
Viral marketing
Form of peer-to-peer communication where individuals are
encouraged to pass on promotional messages within their social
networks.
Advertisements appear as banners, pop-up advertisements, social
media, and YouTube videos.
Advertisements in the form of YouTube videos are often called
viral ads, especially when they gather millions of views, and are
part of what is known as a viral marketing campaign.
The main objective is to increase brand awareness through
replicating a viral-like process, like the spread of a virus in
computers.
Often, viral videos are spread through sharing by viewers, which is
more like promotion through word of mouth.
Viral marketing therefore often comes in the form of videos, but
also in games, software, images, or messages.
Benefits of new technology
Wide reach
Engagement
Market information
Cost savings
Brand recognition
Speed
Limitations of new technology
Accessibility problems
Distraction
Lurkers
Guerrilla marketing
Marketing form which involves the use of untraditional activities
that help companies weaken their rivals and stay successfully on
the market, even with limited resources.
Uses unconventional marketing strategies that have an innovative
and significant promotional effect at half the budget spent on
traditional marketing strategies for the same objective.
Are eye-catching and surprising and so highly efficient in capturing
customers attention.
Guerrilla marketing
Guerrilla marketing
Traditional marketing
The primary investment is
money.
It forms a model for big
businesses.
Success is measured by sales.
What can I take from the
customer?
Mass media (direct mail, radio,
television, newspaper) are used.
Advertising works.
How much money do you have
at the end?
Guerrilla marketing
The primary investments are
time, effort, and creativity.
It focuses on small businesses.
Success is measured by profits.
What can I give to the
customer?
Marketing weapons are
numerous and most are free.
Types of non-traditional
succeed.
How many relationships do you
have at the end?
Principles of guerrilla marketing
Activity awareness of the available opportunities that exist.
Presence look for ways to make the business known.
Energy every contact and every day is an opportunity (360).
Networks be on the lookout for new contacts.
Smart ensure not to offend customers.
Methods used in guerrilla marketing
Peer marketing bringing people with similar interests or ages
together to build up interest in the product.
Product give-aways including free demonstrations and
consultations.
SMS texting and video messages.
Roach baiting and buzz marketing where actors are used to
behave as normal customers to create interest, controversy, or
curiosity in a product or service.
Intrigue the process of generating mystery to engage customers.
Live commercials using people to do live commercials in key
places such as clubs and pubs.
Bill stickers an approach used to promote DJs and club events.
Benefits of guerrilla marketing
Low cost
Flexibility
Simplicity
Identified target market
Communication tool
Interaction opportunity
Accessibility
Negative effects of guerrilla marketing
Denting the brand image
High negative attitudes
Negative impact of social life
Ethical issues
Place
Place is not about a businesss actual physical location.
Place (or more properly distribution strategy) refers to the way in
which a product is distributed how it gets to the end consumer.
The product must get to the end consumer at the right time, in the
right quantities and in the right condition (that is, not broken or
perished).
A distribution channel includes a number of intermediaries
(stages in the distribution chain) through which a product passes
before it reaches the end consumer.
These intermediaries (sometimes called middlemen) might
include wholesalers, retailers and import and export agents.
Choice of distribution channel
Consumers may need easy access to a firms products to allow
them to see and try them before they buy, to make purchasing
easy and to allow, if necessary, for the return of goods.
Manufacturers need outlets for their products that give as wide a
market coverage as possible, but with the desired image of the
product appropriately promoted.
Retailers firms that sell goods
to the final consumer will sell
producers goods but will
demand a mark-up to cover their
costs and make a profit, so, if
price is very important, using
few or no intermediaries would
be an advantage.
Factors influencing choice
Industrial products tend to be sold more directly with fewer
intermediaries than consumer goods.
Geographical dispersion of the target market if the target
market is large but widely dispersed throughout the country, then
the use of intermediaries is more likely.
The level of service expected by consumers, e.g. after-sales
servicing of a car means that internet selling is not appropriate for
most manufacturers.
Technical complexity of the product, e.g. business computers are
sold directly as they require a great deal of technical sales staff
know-how and a supporting service team.
Unit value of the product it may be worth employing sales staff
to sell directly to customers if the unit cost is high. For example,
employing sales staff would be worthwhile for selling a luxury
yacht worth $5 million, but would not be worthwhile for jewelry
being sold for $5.
Factors influencing choice
Number of potential customers if the number of potential
customers is few, as with commercial aircraft, direct selling might
be used, but Nike or Reebok with their millions of customers for
sports shoes worldwide would use intermediate channels to
distribute their products.
Channel strategy
Must be integrated with the marketing objectives of the business.
For example, if the aim is to secure a niche market with a high-
quality image product (e.g. branded cosmetics), then selling it
through street vendors will not achieve this objective.
If, however, the marketing aim is to achieve maximum sales and
distribution coverage (e.g. sweets), then selling through a few
carefully selected and exclusive food retailers will not be
successful.
As with all components of the marketing mix, distribution channel
strategy must be clearly linked to marketing objectives and to the
other components of the mix for an effective and convincing
overall marketing strategy to be developed.
 Distribution channels
Ways in which a business ensures that customers can gain access
to its products.
Either done by directly selling to consumers or by intermediaries.

Zero / Direct

One / Modern

Two / Traditional

Producer Wholesaler

Consumer

Agent Wholesaler
Direct distribution
The producer sells goods directly to the end consumer.
No intermediaries are used (e.g. small local bakers).
The main advantage is that, by cutting out the intermediaries
(who add their own mark-ups), the product can be sold to the
consumer at a competitive price.
The producer is also able to develop a
relationship with consumers and
benefits from direct product feedback.
Producers are able to react much faster
to consumers needs and changing
market conditions.
 Example
The MP3 Revolution
The development of the online music business is
one of the most important issues facing the global
music industry. Direct selling facilitated by the
Internet presents a potential threat to traditional
music retailers. Faster broadband Internet
connections and the increasing popularity of MP3
(and other digital formats) make this
disintermediation all the more possible. Growth of
online music has so far been constrained by slow
download speeds many consumers prefer to pay
for a whole CD of tracks rather than wait (often an
hour or more) for one track to download however, as
Internet speeds increase, the threat of digital music
becomes all the more real.
Source: Financial Times 11 March 1999

Explain what is meant by direct selling.

Examine why the Internet facilities disintermediation.
Discuss how traditional music retailers might respond to the digital threat.
Retailers
Even though direct selling is becoming more popular, the majority
of consumer products are still sold via retailers.
Allow producers to achieve wide distribution and can help to
support or develop brand image (designer clothing is usually sold
in small boutiques).
Can help to promote and merchandize products for example by
point-of-sales displays or special offers.
However, products sold via retailers usually have to fight with the
competition for precious shelf-space.
Wholesalers
Act as a link between producers and consumers.
Where a retailer does not have the purchasing power to buy
directly from a manufacturer they will buy from a wholesaler.
Break down bulk into smaller quantities for resale by a retailer.
Provide ways for small producers to get their products into retail
outlets.
When a business sells many products, it may use a wholesaler to
bear the distribution costs of shipping those products to
thousands of retailers.
Can provide storage facilities and can reduce producers
stockholding costs.
Some producers want to limit direct contact with customers
(reducing the need for a large customer service department).
 Look around you.
Pick up any three products you can see and
attempt to draw a distribution chain for each of
them.
This could include anything food, clothes, I-
phones, cars, etc.

STOP & THINK

Agents
Never actually own a product.
Usually connect buyers and sellers and manage the transfer of
the good.
Usually take a commission on sales, or charge a fee for their
services.
Are often used by businesses trading overseas.
Specialize in managing complex import and export procedures,
and can provide a range of advice services.
Businesses with little
experience of foreign trading
often find that agents offer
a relatively safe way of
entering new markets.
Example
Big Buddha
While on holiday in Thailand, Jenny thought shed
spotted a business opportunity. Shed noticed
how cheap Buddha ornaments and trinkets were
in Thailand and remembered the trend for ethnic
interior design back in the UK. She decided that
importing and selling Buddha ornaments within
the UK might be the business idea shed been
waiting for. If the business grew, she could also
start importing items from other Asian countries.

Suggest, and justify, a suitable distribution strategy for Jennys products.

Suggest and explain three problems that Jenny may face when importing the goods
from Thailand.
Distribution channels
Distribution channels Key advantage
Direct selling This carries very low cost
Retail outlets Retail outlets give customers
confidence as they can bring
goods back. Using these
outlets they can also help
build brand awareness
Wholesales Using wholesalers allows
businesses to gain access to
smaller retailers
Agents Agents might be able to pass
on better knowledge of
customers needs
Key disadvantage
It can be hard to gain
customer awareness using
direct selling
These outlets are expensive
to staff and run
Wholesalers add a further
mark-up, increasing the
retail price
Agents also offer rival
products from other
suppliers
WORKPOINT
Business investigation
Choose three different industries.
Which distribution channels are likely to be most
effective for each industry? Why?
Appropriate distribution channel
Recent trends in distribution channels in recent years include:
The increased use of the internet for direct selling of goods and
services. In the service sector this can be seen with internet banking
and direct selling of insurances policies online.
Large supermarkets chains perform the function of wholesalers as
well as retailers, as they hold large stocks in their own central
warehouses. By owning another link in the distribution chain, the
business is engaging in vertical marketing.
Businesses are increasingly using a variety of different channels for
example, an ice cream manufacturer may have its own ice-cream
vans to sell directly to consumers as well as supplying retailers. Hotel
may sell room accommodation directly as well as through travel
agents and holiday campaigns.
There is an increasing integration of services where a complete
package is sold to consumers for example, air flights, car hire, hotel
accommodation all sold or distributed to consumers at the same
time.
Sources
Stimpson, P., Smith, A. (2015) Business Management for the IB
Diploma. Cambridge
Lomin, L., Muchena, M., and Pierce, R. (2014) Business
Management. Oxford
Clark, P. and Golden, P. (2009) Business and management
Course Companion
Gutteridge, L. (2009) Business and Management for the IB
Diploma
Thompson, R. and Machin, D. (2003) AS Business Studies