Flashcards · 1BS0 · Topic 2.2

Making marketing decisions flashcards

23 cards on Topic 2.2, subtopics 2.2.1 to 2.2.5. Pick a subtopic or study them all.

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The design mix: Function (what the product does and how well), aesthetics (how it looks, feels, sounds, smells or tastes, including packaging) and cost (what it costs to make). Improving one part often raises cost, which affects price and profit.
Differentiation: Making a product or service different from rivals' in a way customers notice and value. It gives a reason to choose it, can support a higher price and builds loyalty, but costs money and can be copied.
The phases of the product life cycle: Introduction (low sales, low or negative profit), growth (sales rise rapidly), maturity (sales peak and flatten; profit often highest), decline (sales and profit fall: extend or withdraw).
Extension strategies: Modify the product (new flavour, redesign), find a new market, find a new use, or change packaging, price, promotion or place. Judge an extension by the extra sales it brings against its cost.
Contribution is £11 a unit and a relaunch costs £6,000. How many extra units must it sell to pay for itself?: 6,000 ÷ 11 = 545.45, so at least 546 extra units (546 × £11 = £6,006).

Penetration pricing versus price skimming: Penetration: a low launch price to gain share; suits many rivals and price-sensitive buyers; risk of low profit per unit. Skimming: a high launch price, cut later; suits a novel product with few rivals; risk of few buyers at first.
Competitive, cost-plus, psychological and promotional pricing: Competitive: close to rivals. Cost-plus: unit cost + mark-up; ignores demand and rivals. Psychological: looks lower, e.g. £7.99. Promotional: a temporary price cut; customers may wait for deals.
A unit costs £4.50 and the mark-up is 40%. What is the cost-plus price?: Mark-up = 4.50 × 0.40 = £1.80. Price = 4.50 + 1.80 = £6.30.
The four influences on pricing strategy named in the specification: Technology (easy online comparison; lower costs), competition (more close rivals, less freedom), market segments (different prices for different groups) and the product life cycle (skimming or penetration at introduction; promotional pricing in decline).
Launch at £60 and sell 400, or at £45 and sell 600? Variable cost is £30 a unit.: Revenue: £24,000 at £60; £27,000 at £45. Contribution: (60 − 30) × 400 = £12,000; (45 − 30) × 600 = £9,000. The lower price earns more revenue but less contribution.

The five promotion strategies named in the specification: Advertising, sponsorship, product trials, special offers and branding. A strategy is appropriate when it reaches the chosen segment at an affordable cost with a message it responds to.
Product trials and special offers: when they suit, and a weakness of each: Product trials suit new or unfamiliar products, but free samples cost money. Special offers suit price-sensitive customers and first purchases, but cut profit per sale and customers may wait for the next offer.
Targeted online advertising, viral advertising and e-newsletters: Targeted: paid adverts aimed at chosen groups; results can be counted. Viral: content customers choose to pass on; low cost but cannot be controlled. E-newsletters: emails to subscribers; mainly keep existing customers.
An online advert costs £360 and produces 30 sales, each bringing £9 revenue. Did it pay for itself?: Cost per sale = 360 ÷ 30 = £12. Each sale brings only £9, so not on first sales. Repeat custom could change the answer.
Exam trap: is posting on social media the same as viral advertising?: No. Viral advertising spreads because customers share it. Posting on social media is not automatically viral.

Retailer versus e-tailer: A retailer sells to the public from a shop or physical outlet. An e-tailer sells to the public online (e-commerce).
Strengths and weaknesses of selling through retailers: Strengths: customers can see, try and collect at once. Weaknesses: the retailer takes a share of the selling price, and sales are limited to the shop's customers.
Strengths and weaknesses of e-tailing: Strengths: wide reach, open at any hour, the business controls its website. Weaknesses: delivery, packaging and returns, and customers cannot handle the product.
A retailer buys a jacket for £18 and sells it for £30. What share of the selling price does it keep?: £30 − £18 = £12. 12 ÷ 30 × 100 = 40%.

Competitive advantage: Something a business does better or differently from rivals that makes customers prefer it. It must matter to the target market.
Integrated marketing mix: A mix where product, price, promotion and place support each other and give the customer one clear offer. It is hard for a rival to copy because it relies on four connected decisions.
How can a change in one element of the mix affect the others? Give two examples.: Higher quality product: higher costs and price, and promotion must show the quality. Heavy promotion creating high demand: product supply and place must be able to cope.
Give an example of a mix that sends mixed messages: A premium product sold in a discount outlet with a low-price advert. The inconsistent mix weakens the competitive advantage.