IB DP Business Management: The seven Ps of the marketing mix – Revision Notes

These notes condense section 4.5, The seven Ps of the marketing mix, from the IB Business management guide, first assessment 2024, for SL and HL. Full explanations and worked examples are in the study guide. Test yourself with the practice questions, and see the wider unit in the Unit 4 revision notes. Course hub: IB DP Business Management. Checklist: syllabus checklist. Not sure where to start? Try the free diagnostics.

HL only items are labelled: dynamic pricing, competitive pricing, contribution pricing and price elasticity of demand. Everything else applies to SL and HL.

The seven Ps at a glance

P	Core idea	Typical judgement
Product	What is sold: features, quality, brand, stage in the life cycle	Is the product, or its extension, right for the market?
Price	What the customer pays and how it is set	Which method fits the objective and the market?
Promotion	How the business communicates	Is the mix of media worth its cost?
Place	How the product reaches the customer	Which channel balances reach, margin and control?
People	Staff and their contact with customers	Do relationships create loyalty?
Processes	How the service is delivered	Is delivery reliable and efficient?
Physical evidence	Tangible cues that signal quality	Does the setting match the promise?

The guide frames people, processes and physical evidence in the context of marketing a service. Evaluate them for a named service business.

Product

Life cycle, portfolio and the mix

• Stages (standard form): introduction, growth, maturity, decline.
• A product portfolio is the range of products a business sells. A balanced portfolio has products at different stages.
• The Boston Consulting Group (BCG) matrix is one model for judging a portfolio.
• The mix changes with the stage: awareness and often a low or high launch price early; differentiation and price competition in maturity; little spending in decline.

Life cycle, investment, profit and cash flow

Stage	Investment	Profit	Cash flow
Introduction	High	Loss likely	Negative
Growth	High	Rising	Often negative to improving
Maturity	Low	Highest	Strongly positive
Decline	Minimal	Falling	Positive, shrinking

Link: cash from mature products pays for launches elsewhere in the portfolio.

Extension strategies

Actions that delay decline: new markets, repositioning, new features or variants, new packaging, new uses, price changes. Evaluate on cost, risk to the brand, fit with the product and how long the effect lasts.

Branding

Aspect	Meaning in one line
Awareness	Customers recognize and recall the brand
Development	Image built over time by consistent quality and messaging
Loyalty	Repeat purchase despite alternatives
Value	Extra worth that supports price and sale value

Importance: differentiation, price premium, cheaper repeat sales, easier new launches. Risk: one failure harms the whole brand.

Price

Methods (appropriateness is what you judge)

Method	Key feature	Best when	Main weakness
Cost-plus (mark-up)	Unit cost plus percentage	Costs are known and stable	Ignores demand and rivals
Penetration	Low launch price	Customers are price sensitive	Margins thin; hard to raise later
Loss leader	Sold below cost to attract buyers	Wide range, customers buy extras	Shoppers cherry-pick the offer
Predatory	Price set to drive rivals out	Deep pockets, short period	Heavy losses; brand and scrutiny risk
Premium	High price signaling quality	Strong brand, unique product	Small market; needs support from other Ps
Dynamic (HL only)	Changes with demand or time	Perishable capacity, online sales	Customers may feel treated unfairly
Competitive (HL only)	Set by reference to rivals	Many similar products	Little room for profit; may start price war
Contribution (HL only)	Covers variable cost plus a contribution	Spare capacity, special orders	Ignores full cost if used all the time

Formulas

Item	Form
Cost-plus price	Unit cost + (unit cost × mark-up %)
Contribution per unit (HL only)	Selling price − variable cost per unit
Total contribution (HL only)	Contribution per unit × units
PED (HL only)	Percentage change in quantity demanded ÷ percentage change in price

The guide does not print these formulas, so these are the standard forms.

PED reminders (HL only)

• Usually negative because price and quantity move in opposite directions. State the sign.
• Size above 1: elastic. Raising price lowers revenue.
• Size below 1: inelastic. Raising price raises revenue.
• Products with close substitutes tend to be more elastic, so a price rise is riskier for them.

Method in steps: calculating PED (HL only)

1. Work out the percentage change in price: (new − old) ÷ old × 100.
2. Work out the percentage change in quantity the same way.
3. Divide quantity change by price change.
4. State the sign, then say elastic or inelastic.
5. Link to revenue or to the decision asked for.

Promotion

Type	One-line meaning	Examples
Above the line	Paid mass media, wide audience	TV, radio, press, billboards
Below the line	Targeted, business-controlled contact	Samples, discounts, loyalty cards, events
Through the line	Both together under one message	Broadcast advert plus in-store offer

Social media marketing, to evaluate:

• For: low entry cost, precise targeting, two-way contact, fast results data, shareable content.
• Against: negative comments spread, needs staff time, platform changes, audience may not match the target market.

Place

• Direct channel: producer to customer, full margin and data but the business bears cost and risk.
• Indirect channel: via retailers, wholesalers or agents, giving reach at the cost of margin and control.
• Online: wide reach at low cost, but needs delivery and returns systems.
• Match to product: image products need control; low-price products need wide availability.

People, processes, physical evidence

P	Importance	Key point to add
People	Staff behavior shapes the whole customer experience	Cultural variation in expected relationships; training and recruitment
Processes	Reliable, quick delivery builds loyalty	Changes (such as automation or online booking) bring benefits and disruption
Physical evidence	Intangible services need tangible cues	Premises, uniforms, website, branded materials must match the promised quality

Appropriate marketing mixes

Check three things: fit with the target market, fit with the stage in the life cycle and objective, and consistency across the seven Ps. Example: a premium watch needs premium price, controlled distribution and quality physical evidence, while a budget product relies on competitive pricing and wide distribution.

Must-know distinctions

• Penetration pricing (low launch price to gain share) versus predatory pricing (price set to remove rivals).
• Loss leader (one product below cost to attract buyers) versus penetration (a whole new product priced low).
• Above the line (paid mass media) versus below the line (targeted, business-controlled) versus through the line (both).
• Brand awareness (recognized) versus brand loyalty (repeatedly chosen).
• Profit versus cash flow at the growth stage.

Quick self-test

1. A bakery has a unit cost of 40 dollars and a mark-up of 25%. State the selling price.
2. Vandermere Tea raises its price by 5% and sales fall by 2%. Calculate PED and describe demand (HL only).
3. A firm sells at 14 dollars with variable cost of 9 dollars. A one-off order of 300 units arrives. Calculate the total contribution (HL only).
4. At which stage of the life cycle are profits usually highest?
5. State two extension strategies.
6. Name the four aspects of branding in the guide.
7. Distinguish above the line from below the line promotion.
8. Why is physical evidence important to a service?
9. Give one limitation of social media marketing.
10. Give one reason why a direct channel may be chosen over a retailer.

Answers

1. Mark-up = 40 × 0.25 = 10, so price is 50 dollars.
2. PED = −2 ÷ 5 = −0.4. The size is below 1, so demand is price inelastic.
3. Contribution per unit = 14 − 9 = 5. Total = 300 × 5 = 1,500 dollars.
4. Maturity.
5. Any two: new market, new variant or feature, repositioning, new packaging, new use, price change.
6. Awareness, development, loyalty and value.
7. Above the line is paid mass media to a wide audience. Below the line is targeted promotion where the business controls the contact.
8. A service is intangible, so premises, uniforms and materials act as tangible cues that signal quality before and during use.
9. For example, negative comments spread quickly, or the audience may not match the target market.
10. For example, the business keeps the full margin and customer data.

Where marks are usually lost

• Listing Ps without tying them to the named business.
• Describing a pricing method without judging whether it is appropriate.
• Mixing up penetration, loss leader and predatory pricing.
• Leaving out the sign or the elastic/inelastic label in a PED answer (HL only).
• Calculating a percentage change from the new value instead of the old value.
• Saying a growth-stage product is cash positive because profit is rising.
• Treating through the line as another word for above the line.
• Ending an evaluation with “it depends” and no deciding factor.
• Using the Ps for a service business but ignoring people, processes and physical evidence.

Frequently asked questions

What is the difference between penetration pricing and predatory pricing? Penetration pricing sets a low launch price to gain market share quickly. Predatory pricing sets a price to harm or drive out competitors and is generally viewed unfavourably.

What is the difference between above the line, below the line and through the line promotion? Above the line is paid mass media aimed at a wide audience, such as TV and billboards. Below the line is targeted promotion the business controls, such as samples, discounts and loyalty cards, and through the line combines both.

Is a product in the growth stage cash positive? Not necessarily. Profit may be rising in growth, but cash flow is often still negative or only improving, because the business pays for stock and equipment before the revenue arrives.

What does a PED above 1 mean? If the size of PED is above 1, demand is price elastic, so raising the price lowers total revenue. If it is below 1, demand is inelastic and a price rise raises revenue; PED is HL only.

Official syllabus

International Baccalaureate Organization, Diploma Programme Business management guide, first assessment 2024, section 4.5, published February 2022 and updated May 2022.