Marketing strategy II: Product, Distribution and Price

Learning Objectives Describe 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 mix The combination of product, promotion, price and place (distribution) strategies of a company.

P Product P Promotion P Price P Place 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 goods Goods purchased by ultimate consumers.

Convenience goods Goods that are purchased frequently by consumers with little shopping effort.

Shopping goods Goods 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 cycle IntroductionGrowthMaturityDecline 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

IntroductionGrowthMaturityDecline Characteristics SalesLowFast growthSlow growthDecline ProfitsNegligiblePeak levelsDecliningLow or zero Cash flowNegativeModerateHighLow CustomersInnovativeMass market Laggards CompetitorsFewGrowingMany rivalsDeclining no. Responses Strategic focusExpand marketMarket penetrationDefend shareProductivity Mkt. expendituresHighHigh (declining %)FallingLow Mkt. emphasisProduct awarenessBrand preferenceBrand loyaltySelective DistributionPatchyIntensive Selective PriceHighLowerLowestRising ProductBasicImprovedDifferentiatedRationalized

Profit in different stages of the product life cycle Maturity stage Decline stage Growth stage Introduction stage Profit $

Product line A group of closely related products or services.

Product mix An 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 distribution The 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 wholesalers To manufacturers: Expand the markets to scattered locations Provide market information Store the goods temporarily Assume the credit risk Speed up the flow of goods To retailers: Assemble goods from different producers Break bulk goods into smaller units Provide a buffer of seasonal stock Provide credit and delivery facilities

Services of retailers To wholesalers: Reduce the number of sales transactions Store the goods Assume credit risk Collect consumers ’ feedback To consumers: Assemble goods from numerous producers Sell goods at convenient locations Break bulk goods into smaller quantities

ProducerConsumerProducerRetailerConsumer RetailerWholesalerProducer Distribution channels for consumers goods

Trends in retailing and the reasons TrendsReasons Non-store retailingHigh rental costs Advancements in communication Vending machinesExpensive labour costs High rental costs Warehouse clubsIntensified competition on prices Expensive operating costs

“Your price is another’s cost”

Pricing objectives 1. Maximizing profits 2. Increasing competitive power 3. Increasing market share 4. Driving out competitors 5. Enhancing image 6. Serving the society

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

Market pricing approach Setting 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 pricing Setting 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 pricing Setting the lowest possible price right from the beginning in order to maximize sales as soon as possible.

SkimmingPenetration - demand is likely to be price- inelastic Õ - 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 product Õ - used at introductory stage - demand is likely to be price-elastic Õ - there are no distinct and separate price-market segments Õ - competitors are likely to enter the market quickly Õ - 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 Competition 1. Good quality 2. After-sale services 3. Convenient location 4. Promotion