2.

2Making Marketing Decisions

2.2.1 Product
 A product can be a good or service.
 To achieve a successful product design, a business will concentrate on three
elements that make up the design mix: function, appearance (aesthetics) and
cost.

Function
 Function is about the capabilities of the product; can it perform its intended
purpose? For example, will a waterproof jacket keep a customer dry?
 Focusing on functionality can make products unique, e.g. the 'AddWash' feature
on some washing machines allows customers to add items to the washing
machine while the cycle is in operation.
 For medical equipment, functionality takes priority over design as the equipment
must perform a specific purpose.

Aesthetics (Appearance)
Aesthetics is about the look, taste or feel of a product. If the product is stylish,
elegant and attractive, the chances are that it will appeal to customers and sell well.

Cost
 Businesses should produce a product as cost effectively as possible - this can
lead to a competitive advantage being gained.
 High production costs lead to higher selling prices and may prevent customers
buying products.
 The importance of cost is connected to the nature of the product - if a business
has a focus on high quality, it will incur higher production costs.

Product Life Cycle

 The product life cycle maps the stages a product passes through over time and
the sales that can be expected from that stage.
 It can be shown in graph form and consists of the introduction phase, growth
phase, maturity phase, and decline phase.
 A business can map their full product range on a product life cycle graph and
determine which products need more focus.

 The introduction phase comprises product launch.

 Initial research, design and development will mean costs are high.
 Sales will be low as customers are unaware that the product is for sale.
 Businesses spend money on promotion.
 As costs are high and sales are low, it is likely that no profit is made at this
stage.

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 The growth phase sees sales grow as awareness and popularity are increased.
 Sales grow with demand and the business may start to make a profit.
 The maturity phase sees sales peak.
 Growth of sales may slow down due to other businesses joining the market.
 Profit may be high but start to reduce.
 The decline phase may see products become out-dated as tastes and technology
change.
 Sales and profits fall and a business may have to consider if they want to
continue selling the product.

A business will try and prevent a product going into the decline phase by using
extension strategies. This can be achieved by making changes to the product (e.g.
lower price) or by appealing to a new segment of the market.

Product Differentiation
 Depending on the nature of the product, a business will choose to either focus
on function, aesthetics or cost to meet their customer needs and to achieve
product differentiation.
 Product differentiation can be created using the following:
 brand image
 unique selling point/s
 offering a better location, features, function
 design appearance
 cheaper selling price
 quality
 customer service
 product range.

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Typical Questions:
What are the three elements of the design mix? [3]

What’s meant by appearance (aesthetics)? [1]

Explain what’s happening with sales, growth and profit during the maturity stage
of a product life cycle [3].

How do businesses extend the life cycle of their products? [3]

Name three ways a business can achieve product differentiation [3].

2.2.2 Price
 Price is the amount that customers pay for a product.
 Price is an important decision for businesses as it is directly linked to revenue
 A business needs to carefully consider their pricing strategy, and this is based on
a number of factors.

Pricing Strategies
 Price Penetration: Businesses may set a low price when a product first enters
the market, to encourage people to buy it, and raise the price later.
 Value-based pricing: A business will decide on a price to reflect the brand and
quality of their product.
 Cost-plus pricing: calculate your costs and add a mark-up. A business may
consider their profit margins when deciding on a pricing strategy.
 Price Skimming: A high price may be set for a new product that is innovative or
has special features, often from a well-known brand.
 Some customers will be attracted to the desire to be part of a premium
market; the higher price increases profit.
 Competitive pricing: Price can be set in line with competitors so customers have
to make decisions on which products to buy based on other factors, such as
quality or appearance.

Profit Margins
 Profit margin is the difference between the sale price and the cost of production
- a low profit margin means a business has to sell a large volume of products to
make a profit, as the selling price is close to the cost of making the product.
Note: a formal way to define profit margin is: profit/revenue.
 A business that operates at high profit margins generally sells fewer products
than one operating at low profit margins.
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 Businesses that operate at high profit margins sell products for a price that is
much higher than the cost of production so they do not need to rely on a large
volume of sales to make a profit.

Influences on Pricing Strategies

Technology
 Freemium is a pricing strategy used mainly for digital products, such as software,
media or gaming, that are offered for free. Money (premium) then has to be paid
if a user wants additional features, functionality or virtual goods, e.g. Candy
Crush.
 Customers can easily compare prices on comparison websites and businesses
need to ensure that their prices are in line with competitors.
 Technology has led to better machinery or tools, which means that businesses
can make their goods quicker or provide a quicker service, which in turn saves
costs and increases profit for the business, e.g. a taxi company uses satellite
navigation that provides traffic updates and fast route options.

Competition
 Operating in a competitive environment can drive a business to reduce their
pricing to remain competitive in the market.
 If a business sells a product with little differentiation, e.g. water, they will have to
keep prices similar to their competitors.

Market Segments
 A business must consider the ability of their target customers to pay for their
products.
 If the target market is price-sensitive, then demand will fall if the business
charges a price that is too high.

Product Life Cycle

 Introduction and growth: price helps to determine the value of a product, push
sales or recover development and promotion costs.
 Maturity: price can be used to maintain profit margins or in a competitive
market a business may set their price to be in line with competitors to maintain
their market share.
 Decline: price helps to encourage sales when customers are not prepared to pay
a high amount

Typical Questions:
Explain one pricing strategy a business may use to price its products [3]

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How does technology influence pricing strategies? [6]
Explain one way technology has influenced pricing decisions for businesses [3]

Why might a product be priced differently during the introduction stage compared
to the decline stage of its life cycle? [2]

Why does a business need to consider their target market when making pricing
strategy? [2]

2.2.3. Promotion
A promotion strategy is when a business carefully identifies how to get the right
message at the right time in the right way to its market segment.
 The preferences of the market segment are fundamental to the promotion
strategy.
 A business will use one or a mix of the following promotion strategies:
 advertising
 sponsorship
 product trials
 special offers
 branding.

Promotion Strategies for Different Market Segments

Advertising
• A business can advertise on TV, radio, magazines and newspapers, billboards,
websites, emails, through apps and many other channels.
• Advertising can target a large number of people at the same time.
 TV advertising may be more effective for the older generation.
 Younger viewers often watch TV on demand, which limits advertising, requiring
businesses to advertise to this group differently. For example, more interactive
adverts on social media.

Sponsorship
Sponsorship involves a business financially supporting or giving goods or services to
an event or programme in return for advertising their brand.
 A business must use relevant events or programmes to reach their market
segment and develop their brand.

Product Trials
 Product trials are used to get customers to try a product for the first time,
usually before a business decides to launch it fully to the market.
 A large established restaurant chain may offer a new dish on their menu in
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 restaurants located in a particular area as a way of testing a product.

Special Offers
 Can take the form of a discount on the sales price, e.g. a complementary deal.
 A business targeted at a specific segment of the market (niche market), for
example, vegan snacks, might offer a free product if a friend is recommended.
 A business that sells products with a mass appeal (mass market),e.g. fruit juices,
might offer 'buy one get one free'.

Branding
A business can differentiate itself from other similar products using an image or
identity that creates a unique brand.
 Customers can grow loyal to a branded business and trust it.
 A branded business charges higher prices as customers are willing to pay more.

The Use of Technology in Promotion

 Targeted advertising online allows businesses to direct promotion to their
customers through email offers, pop-ups and banner adverts.
 Online advertising can be targeted because browsing habits are collected
through Internet cookies and used by businesses to tailor their advertising to
Internet users, e.g. if a user regularly looks at sports-related items, the user will
see more adverts for trainers, game tickets etc., even when they are on a
website that has nothing to do with sport.
 The success of an online advertising campaign can be measured using the
click-through rate.
 Viral advertising relies on consumers passing on a promotion or advert via email
or social media, which means it must grab the consumer's attention.
 E-newsletters are newsletters that are sent to customers via email and they can
be interactive and captivating. Web-links allow customers to respond easily.

Typical Questions:
Define promotion strategy [1]

State how a business may adapt their advertising to target younger generations [2].

State two ways a business can use technology to promote its goods and services [2]

How can a business use a special offer to target a mass market product? [2]

Name one way a business can use technology to promote their business [1].

Name one benefit of using e-newsletters [1]

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2.2.4 Place
What is Place?
 Place refers to the location where customers can purchase goods and services.
 To have a successful marketing mix, a business needs to ensure their products
are available in the right place at the right time for customers to purchase.
 The route that a product takes, from where it is manufactured, to where it is sold,
is called the distribution channel.
 Most goods and services in the UK are distributed through retailers or e-tailers.

Retailers
 Retailers are the 'middle men' - they buy large quantities of products from a
manufacturer or a wholesaler and make the products available locally to
customers.
 Retailers have a physical location for customers to visit and purchase products.
 Retailers make purchasing products convenient for their customers - they add
value to the products, e.g. free parking, product warranty, customer service.
 Adding value means the retailer can charge a higher price for the product and
this is how they make a profit.
 As a retailer buys a large quantity of products, the price per unit will be cheaper;
this reduces the profit margins for the manufacturer but allows the retailer to
add their own mark-up.
 Retailers can take the form of: independent retailers (small shops), supermarkets,
department stores, market traders, or multiples (a chain of stores).

E-tailers
 E-tailers are businesses that sell goods and services through the Internet.
 Some e-tailers are online-only e-tailers, such as Amazon.
 Other businesses use both e-tailing and retailing to sell their products, e.g.
Argos.
 E-commerce involves electronic transactions via the Internet or electronic
payment systems, e.g. contactless payments, bank cards, PayPal.
 E-tailers use e-commerce to create an online marketplace for customers.
E-tailers have a global reach and allow customers the ability to shop at any time,
wherever they are.
 As transactions take place over the Internet, businesses can track customers'
buying habits to collect valuable market research.
 Small independent retailers or startup businesses can benefit from using large
e-tailers to distribute their products.
 E-tailers must ensure they have: user-friendly websites to attract customers,
regularly updated content - to meet changing customer needs - and distribution
needs to be efficient, so customers can receive their orders quickly.
 It is expensive to set up e-tailing websites and customers may be reluctant to
purchase over the Internet, due to fraud.

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Typical Questions:
Why is 'place' important in the marketing mix? [2]

What is the difference between a retailer and an e-tailer?

How do retailers make a profit? [2]

How do e-tailers make purchasing goods and services more convenient for
customers? [3]

Why is it important for an e-tailer to have efficient distribution methods? [1]

Give one disadvantage of being an e-tailer [1]

2.2.5 Using the Marketing Mix to Make Business Decisions

Each Element of the Marketing Mix can Influence the Other Elements

Product
 Price - customers may demand a low-priced product so a business will need to
produce their product cheaply, which will result in a lower quality product.
 Promotion - part of the promotion strategy may include changing the packaging
of a product to make it more appealing to customers.
 Place - technology has led to customers changing where and when they demand
their products. This has led to a change in the format of products, e.g. books are
now available as e-books.
Price
 Product - strong brands and premium quality products will have higher prices.
 Promotion - special offers and discounts can reduce the price charged for a
product.
 Place - an Internet-based business can charge a lower price because it doesn't
have to pay costs associated with having premises.
Promotion
 Product - the life cycle of the product may influence the promotion used for it.
Often when a product is new it will require lots of promotion, in contrast to the
maturity stage when promotion takes place less often.
 Price - a high-priced, high-quality product will be promoted differently to a
cheaper product. Buy-one, get-one-free can be used for cheaper products. Yet a
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 high quality brand may focus on public relations.
 Place - e-tailers and high street retailers operate in a competitive environment
and so offer a variety of promotions to attract customers, e.g. free delivery.
Place
 Product - the nature of the product will affect where it can be sold, e.g. a
hairdresser is limited to where they can offer their services.
 Price - high-priced items, such as an exclusive brand of jewellery, will be only
available at exclusive stores.
 Promotion - heavy promotion will mean a product needs to be available at more
locations and for an extended time, e.g. Black Friday generally means longer
opening hours and a larger number of products in stock.

Marketing Mix and Competitive Advantage

 Competitive advantage is an advantage held by a business that allows it to
perform better than its competitors.
 Innovative goods or services exceed customer needs and allow a business to gain
a competitive advantage, e.g. Uber, which allows users to request cars to their
exact location using an app.
 New technology or buying cheaper raw materials reduces the cost of production
and allows a business to sell its products more cheaply, creating a competitive
advantage.
 Effective promotion can create a competitive advantage.
 Dispatching orders quickly, offering excellent after-sales care, being available in
locations and times convenient to customers can provide great customer
satisfaction, repeat purchases and possible competitive advantage.

Integrated Marketing Mix Influences Competitive Advantage

 Developing the correct balance between the elements of the marketing mix is
important to build a successful marketing strategy and develop a competitive
advantage.
 The correct blend of product, price, promotion and place depends on: the
business's objectives, the market, the size of a business, the competition, the
nature of the product.

Typical Questions:
There is one right marketing mix that works for all businesses at all times. True or
false? Explain your answer [2].

How does the price of a product influence promotion?

Use an example in your answer. [3]

How can a business gain a competitive advantage though the product element of
the marketing mix? [1]

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How does the product element of the marketing mix influence the element of price?
[4]

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