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

This guide covers section 1.3.3, Marketing mix and strategy, of Unit 1 (Marketing and people) in the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Business specification, Issue 1, September 2017. It follows the five headings the specification lists: marketing objectives and strategy, product/service design, promotion and branding, pricing strategies, and distribution. Where the specification gives no formula or list, the guide says it is giving the standard form.

For the wider unit, see the Unit 1 study guide, the Unit 1 revision notes and the meeting customer needs and the market guide. For this topic, use the revision notes and the practice set. The course hub is at /boards/edexcel/a-level/business/, the printable checklist at /checklists/edexcel/a-level/business/, and you can test yourself first with the free diagnostics.

What the section covers

Heading	Content points
1 Marketing objectives and strategy	Increase market share, increase revenue, build a brand; product life cycle and extension strategies; Boston Matrix and the product portfolio; marketing mix; strategies for mass, niche, B2B and B2C markets; consumer behaviour and customer loyalty
2 Product/service design	Design mix: function, aesthetics, cost/economic manufacture; social trends: resource depletion, ethical sourcing
3 Promotion and branding	Types of promotion; types of branding; benefits of strong branding; ways to build a brand; social trends: viral marketing, social media, emotional branding
4 Pricing strategies	Cost plus, skimming, penetration, predatory, competitive, psychological; factors in choosing; online sales and price comparison sites
5 Distribution	Four, three and two stage channels; changes in distribution methods

Unit 1 is a 2-hour written paper of 80 marks. Sections A and B each carry 30 marks of short and extended responses tied to sources, and Section C is a single 20-mark essay.

1 Marketing objectives and strategy

Marketing objectives

A marketing objective is a goal set for marketing activity, designed to help the business reach its wider aims. The specification lists three.

1. Increase market share. Market share is the part of the whole market that one firm wins. Standard form: market share (%) = firm’s sales ÷ total market sales × 100.
2. Increase revenue. Revenue is price × quantity sold, so it can rise through more sales, a higher price or both.
3. Build a brand. A brand is an identity customers recognise and associate with qualities. It is longer term.

Worked example. Rowanbright Candles sold 18,000 candles in a market of 150,000 candles. Market share = 18,000 ÷ 150,000 × 100 = 12%. The market is forecast to reach 160,000 candles and the target is 15%. Sales needed = 0.15 × 160,000 = 24,000. That is 6,000 more, a rise of 6,000 ÷ 18,000 × 100 = 33.3%. Share rises only if sales grow faster than the market.

The marketing mix

The marketing mix is the combination of marketing decisions a business makes to meet its objectives. The specification’s headings (product, promotion, price, distribution) correspond to the standard four Ps: product, promotion, price and place. The elements must fit together: a luxury price with discount-shop distribution sends mixed signals.

Product life cycle and extension strategies

The product life cycle shows a product’s sales over time. The standard stages are development, introduction, growth, maturity and decline. Sales are zero and costs are incurred in development, grow slowly at introduction, rise fastest in growth, flatten at maturity and fall in decline.

Extension strategies prolong the life of a product before decline. Typical forms are new packaging, new markets, new uses, new promotion, price changes and new variants. They work only if they address why growth has stopped.

Worked example. Maplethorpe Tea has had flat sales of a classic blend for three years. It launches a decaffeinated version (a variant), a gift tin (packaging) and exports to a new region (new market). Each is an extension strategy.

The Boston Matrix and the product portfolio

The product portfolio is all the products a business sells. The Boston Matrix classifies each product by market growth and relative market share. Standard form: relative market share = the product’s share ÷ the share of the largest rival. A value above 1 means the product is the market leader.

	High relative share	Low relative share
High market growth	Star	Question mark
Low market growth	Cash cow	Dog

The cut-off between high and low growth varies, so a question normally gives you one.

• Stars lead a growing market and usually need investment to hold share.
• Cash cows lead a mature market and produce more cash than they need.
• Question marks are in a growing market with a weak position. They need investment or abandonment.
• Dogs have low share in a low-growth market. Options are to harvest, reposition or drop them.

Worked example. Pebblecombe Footwear, with a cut-off of 10% growth and 1.0 relative share:

Product	Share	Largest rival	Relative share	Growth	Category
Trail boot	24%	12%	2.0	3%	Cash cow
Waterproof jacket	18%	15%	1.2	12%	Star
Child’s sandal	8%	20%	0.4	14%	Question mark
Wool socks	4%	16%	0.25	1%	Dog

Pebblecombe can use trail boot cash to fund the jacket and the sandal. The matrix ignores links between products, such as a dog that protects sales of other items.

Strategies for different types of market

• Mass markets have many customers for a standardised product. Strategy: low unit costs through scale, wide distribution, broad advertising and competitive prices.
• Niche markets are a small segment with specific needs. Strategy: specialist products, higher prices, targeted promotion and close customer contact. Niches can earn more per unit but are small.
• Business to business (B2B) sells to other organisations. Buyers are few, orders are large, decisions involve several people, and personal selling, trade shows, technical detail and relationships matter.
• Business to consumer (B2C) sells to individuals. Buyers are many, purchases are smaller and emotion, brand and convenience matter more, so mass media, social media and retail presence are common.

Consumer behaviour and customer loyalty

Consumer behaviour is how customers decide what to buy and whether to buy again. Businesses develop loyalty through consistent quality, good after-sales service, loyalty schemes, personalised offers using customer data, a trusted brand and easy purchase. Keeping a customer is usually cheaper than finding a new one, and loyalty supports premium pricing.

2 Product and service design

The design mix has three elements: function (does the product do its job reliably), aesthetics (appearance, feel, sound, packaging) and cost/economic manufacture (can it be made at a cost that allows a profit at an acceptable price). Better materials improve function and aesthetics but raise cost, so the balance depends on the target market.

Changes reflecting social trends

• Resource depletion. Concern over using up finite resources leads to designing for waste minimisation (less material and packaging), re-use (refillable or repairable products) and recycling (materials that can be recovered). Cost may rise at first through redesign and fall later through less material.
• Ethical sourcing. Buying materials from suppliers with fair pay and safe conditions. It can raise input costs but can strengthen the brand.

3 Promotion and branding

Types of promotion

The specification does not list the types, so these are the standard forms.

Type	Meaning	Example
Advertising	Paid message through media	Video advert
Sales promotion	Short-term incentives	Discount, buy one get one free, free sample
Personal selling	Direct sales contact	Sales visit to a B2B customer
Public relations	Unpaid or managed coverage	Press release
Sponsorship	Paying to link with an event or team	Kit sponsor
Direct and digital marketing	Messages sent straight to customers	Email, social media

Types of branding

Again the specification does not list them, so these are the standard forms.

• Corporate (family) branding: one name across many products, so a new product borrows trust. A failure can damage them all.
• Individual branding: each product has its own name, which protects the others from a failure but costs more to build.
• Own-label branding: a retailer sells products under its own name.

Benefits of strong branding

1. Added value. Customers pay for the image beyond the physical product. Standard form: added value = the price charged less what was paid for materials and services bought in.
2. Ability to charge premium prices. Loyal customers accept higher prices than for similar unbranded goods.
3. Reduced price elasticity of demand. Standard form: PED = (% change in quantity demanded) ÷ (% change in price).

Worked example. A branded kettle rises from £40 to £42 (+5%). Sales fall from 2,000 to 1,960 (−2%). PED = −2 ÷ 5 = −0.4, which is inelastic. Revenue rises from £80,000 to £82,320. A near-identical unbranded kettle, with the same price rise, loses 8% of sales: PED = −8 ÷ 5 = −1.6, elastic, and revenue falls to £77,280. The brand protects revenue from a price rise.

Ways to build a brand

• Unique selling points (USPs)/differentiation: a feature rivals lack, such as a patented design or distinctive service.
• Advertising: builds awareness and a consistent image.
• Sponsorship: associates the brand with a team or event the target market values.
• Social media: low-cost, two-way contact with customers, and a way to build a community.

Changes reflecting social trends

• Viral marketing: content customers share with each other, spreading the message at little cost, though the business cannot control how it is received.
• Social media: promotion through platforms, with targeted adverts and quick feedback, and the risk of public complaints.
• Emotional branding: appealing to feelings such as belonging or family rather than to product features.

4 Pricing strategies

Strategy	What it is	Suits
Cost plus (mark-up on unit cost)	Unit cost plus a percentage	Stable costs, little differentiation
Price skimming	High launch price, lowered later	New product with strong USPs
Penetration	Low launch price to gain share	Elastic demand, scale economies
Predatory	Price below cost to push a rival out	Firm that can survive losses
Competitive	Price close to rivals’	Many similar rivals
Psychological	Price points such as £9.99	Consumer goods with visible shelf prices

Worked example (cost plus). Rowanbright’s unit cost is £4.80 and it adds a 60% mark-up. Price = 4.80 × 1.6 = £7.68, profit £2.88 a candle, or £2,880 on 1,000. Cost plus ignores what customers will pay and what rivals charge.

Factors in choosing a strategy

Choose by looking at: the number of USPs/amount of differentiation, price elasticity of demand, the level of competition, strength of brand, stage in the product life cycle, and costs and the need to make a profit. Skimming fits strong USPs, inelastic demand, a strong brand and the introduction stage. Penetration fits elastic demand and many rivals.

Changes reflecting social trends

• Online sales let firms change prices instantly and sell direct, with lower overheads in some cases.
• Price comparison sites make prices transparent. Demand becomes more elastic for similar goods, so differentiation and brand matter more.

5 Distribution

A distribution channel is the chain of businesses a product passes through between the maker and the final buyer.

• Four stage: producer → wholesaler → retailer → consumer.
• Three stage: producer → retailer → consumer.
• Two stage: producer → consumer (direct).

Worked example. Calderfoot Bikes sells a frame at £120 to a wholesaler. The wholesaler adds 25% (£150) and the retailer adds 40%, so the consumer pays £210. Selling direct to a retailer at £140, the retailer adds 40% for £196. Selling online at £175 with £18 of delivery and handling leaves £157 for Calderfoot. Shorter channels give the producer more per unit but add storage, delivery and service tasks.

Changes in distribution methods. Online selling and direct delivery have cut out middlemen, and firms often use several channels at once, which adds cost and risks upsetting retailers.

Common errors

• Describing the matrix categories without classifying the products using the data.
• Calling any price cut penetration. It is a low launch price to build share.
• Forgetting that mark-up is a percentage of cost, not of the selling price.
• Treating predatory pricing as normal competition. It is below cost and aimed at a rival.

Frequently asked questions

What are the three marketing objectives in the Edexcel IAL Business specification? The YBS11 specification lists increasing market share, increasing revenue and building a brand.

What are the benefits of strong branding? Strong branding adds value, lets a business charge premium prices and reduces the price elasticity of demand, so a price rise loses fewer sales.

What is the difference between corporate and individual branding? Corporate (family) branding uses one name across many products, so a new product borrows trust but a failure can damage them all. Individual branding gives each product its own name, protecting the others but costing more to build.

How have price comparison sites affected pricing? Price comparison sites make prices transparent, so demand becomes more elastic for similar goods and differentiation and brand strength matter more.

Official syllabus

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