Edexcel International A Level Business: Marketing mix and strategy (YBS11) – Revision Notes

These are condensed notes for section 1.3.3, Marketing mix and strategy, in Unit 1 (Marketing and people) of the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Business specification, Issue 1, September 2017. Full explanations and worked examples are in the study guide. Test yourself with the practice set, the free diagnostics and the Unit 1 revision notes. The course hub is at /boards/edexcel/a-level/business/ and the printable checklist at /checklists/edexcel/a-level/business/.

1 Marketing objectives and strategy

Marketing objectives (specification list): increase market share, increase revenue, build a brand.

Marketing mix: the combination of marketing decisions used to meet the objectives. Standard four Ps: product, promotion, price, place. The mix must be consistent and tied to the objective.

Product life cycle (standard stages): development, introduction, growth, maturity, decline.

Stage	Sales	Typical response
Development	None, costs only	Research and testing
Introduction	Low, slow rise	Awareness-building, often high or low launch price
Growth	Rising fast	Widen distribution, build brand
Maturity	Flat	Competitive pricing, extension strategies
Decline	Falling	Harvest, replace or withdraw

Extension strategies: new packaging, new market, new use, new promotion, price change, new variant. Judge them by whether they fix the cause of the stalled sales.

Boston Matrix: method in steps

1. Find market growth for each product.
2. Calculate relative market share (standard form): product’s share ÷ largest rival’s share.
3. Compare with the cut-offs given (growth line, and 1.0 for share).
4. Classify: star, cash cow, question mark or dog.
5. Make the portfolio decision: use cash cows to fund stars and question marks, and decide whether to invest in, harvest or drop the rest.

	Relative share above 1	Relative share below 1
High growth	Star	Question mark
Low growth	Cash cow	Dog

Market types

Market	Key features	Typical strategy
Mass	Many customers, standard product	Scale, low costs, wide distribution, broad media
Niche	Small specific segment	Specialist product, higher price, targeted promotion
B2B	Few buyers, large orders, several decision-makers	Personal selling, relationships, technical detail
B2C	Many individual buyers	Brand, social media, retail presence, emotion

Customer loyalty: built through quality, after-sales service, loyalty schemes, personalisation, a trusted brand and ease of purchase. Benefits: repeat sales, lower cost of winning sales, support for premium prices.

2 Product/service design

Design mix: function, aesthetics, cost/economic manufacture.

• Function: does the job reliably.
• Aesthetics: appearance, feel, packaging.
• Cost/economic manufacture: can be made at a cost that allows a profit at an acceptable price.

Social trends

Trend	Design response	Likely effect
Concern over resource depletion	Waste minimisation, re-use, recycling	Redesign cost; less material later; appeals to green buyers
Ethical sourcing	Fair-trade or audited suppliers	Higher input cost; stronger brand

3 Promotion and branding

Types of promotion (standard forms): advertising, sales promotion, personal selling, public relations, sponsorship, direct and digital marketing.

Types of branding (standard forms): corporate (family), individual, own-label.

Benefits of strong branding (specification list): added value; ability to charge premium prices; reduced price elasticity of demand.

Ways to build a brand (specification list): USPs/differentiation, advertising, sponsorship, social media.

Social trends: viral marketing, social media, emotional branding.

Term	Meaning	Main risk
Viral marketing	Customers share content themselves	No control of the message
Social media	Platform promotion and two-way contact	Public complaints
Emotional branding	Appeals to feelings, not features	Can seem insincere if the product does not match

4 Pricing

Strategy	Core idea	Best when
Cost plus	Unit cost + mark-up %	Costs stable, little differentiation
Skimming	High launch price, lowered later	Strong USPs, inelastic demand, strong brand
Penetration	Low launch price	Elastic demand, rivals many, scale economies
Predatory	Below cost to force out a rival	Firm can afford losses
Competitive	Close to rivals’ prices	Many similar rivals, maturity
Psychological	Prices such as £4.99	Visible shelf prices

Factors in choosing (specification list): number of USPs/amount of differentiation; price elasticity of demand; level of competition; strength of brand; stage in the product life cycle; costs and the need to make a profit.

Social trends: online sales (flexible, direct pricing) and price comparison sites (price transparency, so demand becomes more elastic for similar goods).

5 Distribution

Channel	Route
Four stage	Producer → wholesaler → retailer → consumer
Three stage	Producer → retailer → consumer
Two stage	Producer → consumer

Shorter channel: more income per unit and more control for the producer, but it takes on storage, delivery and service. Longer channel: wider reach with less effort, but each middleman takes a margin.

Formulas (standard forms)

Item	Formula
Market share	firm’s sales ÷ total market sales × 100
Relative market share	product’s share ÷ largest rival’s share
Cost-plus price	unit cost × (1 + mark-up %)
Price elasticity of demand	(% change in quantity demanded) ÷ (% change in price)
Added value	price charged − cost of materials and services bought in
Revenue	price × quantity

Worked reminders

Share target. A business has sales of £2.4m in a £30m market, so its share is 2.4 ÷ 30 × 100 = 8%. A target of 10% in a market forecast at £32m needs sales of 0.10 × 32 = £3.2m. That is £0.8m more, a rise of 0.8 ÷ 2.4 × 100 = 33.3%.

Relative share. A product has 6% of the market and the largest rival has 24%. Relative share = 6 ÷ 24 = 0.25. With low growth it is a dog, and the question to ask is whether it supports sales of other products before deciding to drop it.

Growth rate. Sales rise from 40,000 to 46,000 units: (46,000 − 40,000) ÷ 40,000 × 100 = 15%. In a 10% growth market that is faster than the market, so share is rising.

Elasticity and revenue. If demand is elastic, a price rise cuts quantity by a larger percentage and revenue falls. If it is inelastic, revenue rises. Branding aims to move demand towards inelastic.

Must-know distinctions

• Market share (the firm’s slice of the whole market) versus relative market share (compared with the largest rival).
• Skimming (high then lower) versus penetration (low to gain share).
• Predatory (below cost, aimed at a rival) versus competitive (in line with rivals).
• Corporate branding (one name for all) versus individual branding (name per product).
• Mark-up (percentage of cost) versus margin (percentage of price).
• Added value (price less bought-in inputs) versus profit (after all costs).

Quick self-test

1. Define the term marketing mix.
2. Veldtmann Audio sells 45,000 speakers in a market of 360,000. Calculate its market share.
3. A product has unit cost £30 and a 50% mark-up. Calculate the cost-plus price.
4. A product with unit cost £42 sells for £63. Calculate the mark-up as a percentage of cost.
5. A product has an 18% share, the largest rival has 36%, and market growth is 14% with a cut-off of 10%. Calculate relative market share and classify it.
6. A price rises 10% and quantity demanded falls 4%. Calculate price elasticity of demand and state the effect on revenue.
7. Demand has a price elasticity of −1.5. By how much does quantity fall if price rises 6%?
8. A producer sells at £50 to a wholesaler, who adds 30%, and the retailer adds 60%. Give the consumer price.
9. State the three elements of the design mix.
10. State two ways of building a brand and two social trends in pricing.

Answers

1. The combination of marketing decisions (product, promotion, price, place) a business uses to meet its marketing objectives.
2. 45,000 ÷ 360,000 × 100 = 12.5%.
3. 30 × 1.5 = £45.
4. (63 − 42) ÷ 42 × 100 = 50%.
5. 18 ÷ 36 = 0.5. Share is below 1 and growth is above the cut-off, so a question mark.
6. −4 ÷ 10 = −0.4, inelastic, so revenue rises.
7. −1.5 × 6 = −9%, so quantity falls by 9%.
8. 50 × 1.3 = £65; 65 × 1.6 = £104.
9. Function, aesthetics, cost/economic manufacture.
10. Any two of USPs/differentiation, advertising, sponsorship, social media; and online sales and price comparison sites.

Where marks are usually lost

• Giving a definition of the Boston Matrix categories without using the figures to classify the product.
• Using the wrong base for relative market share (dividing by total market, not the largest rival).
• Applying a mark-up to the selling price instead of the unit cost.
• Dropping the negative sign or the unit in elasticity answers, or not saying what the value means.
• Choosing a pricing strategy without linking it to a factor from the specification list, such as elasticity, competition or stage in the life cycle.
• Listing the four Ps for the business without saying how they meet the stated objective.
• Treating extension strategies as always successful, with no judgement about the cause of the stalled sales.
• Ignoring that a shorter distribution channel moves costs and tasks on to the producer.
• Writing about viral marketing or social media in general terms, with no link to the product and its target market.

Frequently asked questions

What are the four categories of the Boston Matrix? Stars have high relative market share in a high-growth market, cash cows have high share in a low-growth market, question marks have low share in a high-growth market, and dogs have low share in a low-growth market.

What is the difference between price skimming and penetration pricing? Price skimming sets a high launch price, lowered later, and suits a new product with strong USPs. Penetration pricing sets a low launch price to gain market share and suits elastic demand.

What is predatory pricing? Predatory pricing sets a price below cost to push a rival out of the market. It is not normal competition and suits only a firm that can survive the losses.

What are the distribution channels in Edexcel IAL Business? A four-stage channel runs producer to wholesaler to retailer to consumer, a three-stage channel cuts out the wholesaler, and a two-stage channel sells direct from producer to consumer.

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Business, Specification, Issue 1, September 2017, Pearson Education Limited, section 1.3.3.