Marketing strategy II: Product, Distribution and Price

Marketing strategy II: Product, Distribution and

Price

Learning ObjectivesDescribe the components of marketing mix.Analyze the product life cycle.Explain the components of product strategies.Analyze different types of distribution channels.Explain various pricing strategies and approaches.List the types of non-price competition.

Marketing mixThe combination of product, promotion, price and place (distribution) strategies of a company.

PProduct PPromotion PPrice PPlace

Marketing Mix

The Four P’s

Product

Combination of physical contents

and intangible attributes of a

product.

Industrial goods

Goods purchased in large

quantities and for further

commercial processing.

Consumers goodsGoods purchased by ultimate consumers.

Convenience goods

Goods that are purchased

frequently by consumers with little

shopping effort.

Shopping goodsGoods that are bought after comparing similar products in the market for price, quality or other features.

Specialty goods

Goods that carry unique features

and consumers are willing to make

a special effort to obtain them.

Product life cycle

A series of stages through which a

successful product passes in its life

cycle.

Product life cycleIntroductio

n Growth Maturity Decline

Sales $

Time

Product Life Cycle (PLC)(1) Introduction

• Early stages of marketing, sales tend to be low but large amount of capital continue to be consumed

(2) Growth• Product “takes off”, gaining market share and

sales and profits are steadily rising

(3) Maturity• Rate of sales growth begins to slow down. This is

often signaled by prior falling off of profits

(4)Decline• Sales volume shows a market fall, product has lost

its appeal

  Introduction Growth Maturity Decline

Characteristics        

Sales Low Fast growth Slow growth Decline

Profits Negligible Peak levels Declining Low or zero

Cash flow Negative Moderate High Low

Customers Innovative Mass market Mass market Laggards

Competitors Few Growing Many rivals Declining no.

Responses        

Strategic focus Expand market Market penetration Defend share Productivity

Mkt. expenditures High High (declining %) Falling Low

Mkt. emphasis Product awareness Brand preference Brand loyalty Selective

Distribution Patchy Intensive Intensive Selective

Price High Lower Lowest Rising

Product Basic Improved Differentiated Rationalized

Profit in different stages of the product life cycle

Maturity stage Decline stage

Growth stage

Introduction stage

Profit $

Product lineA group of closely related products or services.

Product mixAn assortment of unrelated products.

Brand name

A word, phrase, sign or symbol

used to identify the product of a

company.

Family brand

A single brand name used for all

the items in a product line.

Trademark

The registered brand name,

pictorial design or symbol of a

product.

Warranty A statement of guarantee that the product meets certain standards or the customer can have it repaired, replaced or refunded.

Channels of distributionThe routes taken by the goods, or the titles of the goods, from producers to consumers.

Middlemen People or business that facilitate the transfer of title and delivery of goods form producers to the points of final sale.

Wholesalers Middlemen in channels of distribution who buy goods for resale in large quantities.

Retailers Middlemen in channels of distribution who sell goods directly to consumers.

Agents Middlemen in channels of distribution who do not take possession or title of the gods but contact other middlemen so as to make sales on behalf of their clients.

Services of wholesalersTo manufacturers:

Expand the markets to scattered locationsProvide market informationStore the goods temporarilyAssume the credit riskSpeed up the flow of goods

To retailers:Assemble goods from different producers Break bulk goods into smaller unitsProvide a buffer of seasonal stockProvide credit and delivery facilities

Services of retailersTo wholesalers:

Reduce the number of sales transactionsStore the goodsAssume credit riskCollect consumers’ feedback

To consumers:Assemble goods from numerous producersSell goods at convenient locationsBreak bulk goods into smaller quantities

Producer Consumer

Producer Retailer Consumer

ConsumerRetailerWholesalerProducer

Distribution channels for consumers goods

Trends in retailing and the reasons

Trends ReasonsNon-store retailing High rental costs

Advancements in communication

Vending machines Expensive labour costs

High rental costsWarehouse clubs Intensified

competition on pricesExpensive operating

costs

“Your price is another’s cost”

Pricing objectives1. Maximizing profits2. Increasing competitive power3. Increasing market share4. Driving out competitors5. Enhancing image 6. Serving the society

Cost pricing approachSetting the price of a product based on the total unit cost.

Market pricing approachSetting the price of a product based on the similar products offered by competitors in the market.

Factors affecting how companies set prices

Cost factor

Market size

Price sensitivity

Degree of competition

State of the economy

Skimming pricingSetting a relatively high price for a new product when it first enters the market and gradually lowering the price later in its life cycle.

Advantages and disadvantages of skimming pricing

Advantages:

High profit margin

Less risky

Disadvantages:

Hurts the growth of sales

Triggers intensified competition

Penetrative pricingSetting the lowest possible price right from the beginning in order to maximize sales as soon as possible.

Skimming Penetration

- demand is likely to be price-inelasticÕ - there are likely to be different price-market segments, thereby appealing to those buyers first who have a higher range of acceptable prices

- little is known about the costs of producing and marketing the productÕ - used at introductory stage

- demand is likely to be price-elasticÕ       

- there are no distinct and separate price-market segmentsÕ    - competitors are likely to enter the market quicklyÕ   - there is a possibility of large savings in production and marketing cost if a large sales volume can be generated (the experience effect

Non-price Competition1. Good quality2. After-sale services3. Convenient location4. Promotion