Microsoft PowerPoint - Unit 9_Marketing Mix Design for ProductsTechnology Education Section, Curriculum Development Institute Education Bureau, HKSARG
August 2008
Course 2 : Contemporary Perspectives on Management
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On completion of the unit, participants should be able to:
– identify the marketing mix for products; – formulate the pricing, promotion, product and
place strategies for goods; – apply marketing mix strategies to different stages
of the product life cycle; – evaluate traditional marketing strategies; and – understand e-marketing strategies.
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Skim Pricing
Place Penetration Pricing
PLC Strategies
Introduction to Marketing
Vulnerability Workability Appropriate Time Horizon
E-marketing
Introduction to Marketing
A social and managerial process where consumers obtain what they need and want through creating and exchanging products and values with others. (Armstrong and Kotler, 2005)
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1. Human needs = A state of felt deprivation
2. Human want = the form that a human need takes as shaped by culture and individual personality
3. Product = anything that can be offered to a market to satisfy a need or want
4. Market = the set of actual and potential buyers of a product
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A Cake Story (1)
Dora is crazy for cake. After she makes some special flavour cakes, she will invite her friends to share a slice at her house.
She baked a special wedding cake for her best friend which was decorated with chocolate roses and leaves. All the guests enjoyed the good taste of it very much and ……
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A Cake Story (2)
One guest, being the HR manager of a large corporation (ABC Company Limited), asked Dora if she could supply tailor made cakes to her on special occasions. Her cakes would be served in company’s different staff gathering functions.
Dora was happy to accept the first order and her cake selling business then commenced.
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A Cake Story (3)
From the above scenario, what are: 1. Needs 2. Want 3. Product, and 4. Market?
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A Cake Story (4)
1. Human needs = basic needs (hunger) 2. Human want = food 3. Product = cake (produced by Dora) 4. Market =
• ABC Company Limited (i.e. actual buyer of the cakes)
• other corporations who have similar demand for the cakes (i.e. potential buyers of the cakes)
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A Cake Story (5)
After selling cakes to ABC Company Ltd. for 10 months, Dora gained a profit of HK$100,000.
With the endorsement of the company, she plans to expand her business……
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Marketing Strategy
Three steps: 1. Select target markets 2. Set marketing objectives 3. Develop and maintain marketing mix
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Target Markets (1)
• Target marketing is the process (or strategy) during which a seller identifies market segments, selects one or more of them, and then develops products and marketing mixes for each of the chosen segments.
• Target marketing is increasingly taking the form of micromarketing in which companies tailor their marketing programs to the needs and wants of narrowly defined geographic, demographic, psychographic, or benefit segments.
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Target Markets (2)
• The ultimate form of target marketing would be customised marketing where the company adapts its product and marketing program to the needs of a specific customer or buying organisation.
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Challenging Corner 1
In the case of the cake story, what would be a viable marketing strategy in terms of: 1. target markets? 2. marketing objectives?
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Challenging Corner 1 (solution)
1. Target markets = local corporations which need cakes in their “staff gathering functions”
2. Marketing objectives = to sell cakes to 10 more corporations by the end of 2008 (i.e. 18 months from today)
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Marketing Mix
A unique blend of four sets of controllable variables known as the “four Ps”:
Product, Price, Place and Promotion
PromotionPromotion
PlacePlace
to generate responses the company wants in the target segments. Unit Outline
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Three levels: 1. Core level = core benefits that the product
provides to consumers 2. Actual level = a product’s combined quality
level, features, design, brand name, packaging and other attributes to deliver core product benefits
3. Augmented level = additional services and benefits that help consumers put the actual product to sustained use
ProductProduct
personal consumption 2. Industrial product = purchased for further
processing or used in conducting a business
ProductProduct
• Product formulation: – Product attributes
– Branding – Packaging – Labeling – Product support services
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A Cake Story (7)
Product development of cake:
• The cake is consumed by staff in corporations during gathering functions
• It is specially designed and packed as per the requirements of the HR managers
• It carries no brand
Challenging Corner 2
Which type of products is provided by Dora’s cake shop?
Describe the three levels of the product.
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Cake = consumer product
• Core level = cake (to fulfill basic needs) • Actual level = tailored made cake
(i.e. the weight, flavor and design of cakes, etc.) • Augmented level = free delivery services to the
corporations at specific time
Price (1)
• Perceived value of a good (or service) • Expressed in dollars or other goods
• Price multiplied by quantity of goods sold = revenue • Revenue minus costs for marketing activities = profit
• Price: too high → sales lost • Price: too low → revenues cannot meet R.O.I.
(i.e. return on investment)
• Pricing objectives = profit oriented, sales oriented, and status quo pricing
• Price formulation: – Establish pricing goals – Estimate demand, costs, and profits – Choose a price strategy
Skim Pricing Penetration pricing Status quo pricing
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Skimming Pricing
Skimming pricing means charging a high introductory price, often coupled with heavy promotion. As the product progresses through its life cycle, the firm may lower the price to reach successively larger markets. – Price skimming is successful when:
• demand is relatively inelastic • a product is legally protected • it represents a technological breakthrough • production is limited because of technological
difficulties, shortages, or a lack of skilled craftspeople.
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Penetration Pricing
Penetration pricing sets a relatively low price for a product as a way to reach the mass market in the early stages of the product life cycle.
– Penetration pricing is designed to capture a large market share, resulting in lower production costs.
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Status quo Pricing
Status quo pricing means maintaining existing prices or simply meeting the competition.
– Sometimes this policy can be the safest route to long-term survival if the firm is comparatively small.
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A Cake Story (8)
Price development of cake:
• Pricing objective is profit oriented as “sales volume” is not a major concern
• Dora is unable to mass produce cakes due to production capacity limitation
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Price development of cake: Pricing strategy:
• Selling price is to cover cost of raw materials plus margin of 30% = penetration pricing
• Current profit earned per month
= HK$100,000 / 10 = HK$10,000
A Cake Story (10)
Price development of cake: Demand forecast: • To serve 3 to 4 corporations per month • Profit accelerates from HK$10,000 to HK$30,000
or HK$40,000 per month
A Cake Story (11)
Price of cake: • = Money paid by the corporations to Dora • Payment mode = C.O.D. (i.e. cash on delivery) • Deposit is required (i.e. 50% on the cost of raw
materials purchased to bake the cake)
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Place
• Place is a distribution channel which consists of independent organisations to make a product (or service) available for use by consumers or business users.
PlacePlace
Place of cake: • = The venue (of the corporations) where the
cakes are consumed
• In this scenario, no other marketing intermediaries (i.e. wholesalers & retailers) are involved in the distribution
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A Cake Story (13)
• The basic Place (Channel) objective is to minimise total channel cost of meeting customer requirements by considering market, product and manufacturer factors.
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A Cake Story (13)
Place development of cake: • Door to door distribution: cake delivery to
designated venues of corporations by Dora directly
• No involvement of middlemen
• Involves all methods of communications with customers
• To inform, persuade and remind customers → influence opinions / elicit a response
• Modern trend = integrated marketing communications
PromotionPromotion
Promotion of Cake:
• Personal selling → direct talk to the HR managers of the corporations who are decision makers on buying the cakes
• Ask feedback on the product from employees
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• Promotion formulation: – Identify target market – Set promotional objectives – Develop promotion budget
Affordable method Percentage of sales method Competitive parity method
– Choose a message – Choose media – Collect feedback
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management thinks the company can afford. – often places promotion budget decisions in the
hands of managers unfamiliar with what promotion does for the product
– also ignores the effect of promotion on sales volume and/or possible value-added to the product in the mind of the consumer by the promotion effect
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Percentage-of-Sales Method – sets promotion budgets at a certain percentage of
current or projected sales or price of the product – links sales and promotion together
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Competitive-Parity Method – sets promotion budgets in line with what the
competitors spend on promotion – this “collective wisdom” philosophy suggests that
management is unwilling or unable to decide what level of spending is needed to promote the product to the consumer
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• Promotion objectives = to increase awareness and encourage trial of cakes
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A Cake Story (17)
Promotion budget of cake:
• By affordable method based on the profits (i.e. HK$10,000) earned per month.
• Suggested to set at HK$5,000 to HK$8,000 in preliminary stage
• Review budget until profit reaches HK$30,000
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A Cake Story (18)
Promotion Message of cake:
• “Just for you”: You could enjoy the best cake in the right moment with your friends
• Tailor made (customised) cakes: flavour, design, packaging, etc.
• Sold at reasonable price
• Database rental (on list of HR managers)
• Direct marketing: mail of promotion leaflet and order forms
• Cross selling: word-of-mouth
A Cake Story (20)
Feedback collection of cake:
• Face to face interview: feedback received from HR managers and staff of corporations
• Focus group study: to invite 6 to 8 customers and ask them their needs for new flavour, size, etc.
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Example: Overall promotion development of cake:
• Due to capital limitation, no large scale promotion (above and below the lines) will be considered in the preliminary stage.
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Product Life Cycle (PLC) (1)
Four stages in a product life cycle: – Introduction – Growth – Maturity – Decline
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Product Development
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PLC Strategies: Stage 1 - Introduction
Features of the Stage: • Low sales growth • Low or negative profits • Marketing objectives = create product awareness
and trial
Marketing Mix Strategies: • Product: offer a basic product • Price: Use cost-plus formula • Place: build selective distribution • Promotion: heavy to encourage product trial
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Features of the Stage: • Accelerating sales growth • Rising profits • Marketing objectives = maximise market share
Marketing Mix Strategies: • Product: offer extension, service, warranty • Price: penetration strategy • Place: build intensive distribution • Promotion: reduce price to take advantage of
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PLC Strategies: Stage 3 - Maturity
Features of the Stage: • Sales growth slowdown & reach the peak • High profits • Marketing objectives = maximise profits while
defending market share
Marketing Mix Strategies: • Product: diversify brand and models • Price: match with competitors • Place: build more intensive distribution • Promotion: increase promotion to encourage brand
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Features of the Stage: • Decline sales • Declining profits • Marketing objectives = reduce expenditures and
milk the brand
Marketing Mix Strategies: • Product: phrase out weak items • Price: cut price • Place: selective – phrase out unprofitable outlets • Promotion: reduce to minimum level
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Challenging Corner 3
Where is Dora’s cake business now and what marketing mix strategies should be used at this stage?
Dora’s cake business is at the introduction stage of the product life cycle.
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Marketing Strategies Evaluation (1)
The underlying criterion for evaluation is a balanced achievement of company goals, which may be specified in terms of profitability and cash consequences.
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Marketing Strategies Evaluation (2)
The adequacy of a strategy may be evaluated using the following criteria: 1. Suitability 2. Validity 3. Feasibility 4. Internal consistency 5. Vulnerability (satisfactory degree of risk) 6. Workability 7. Appropriate time horizon
[Subhash C Jain, 2004]
Suitability • Strategy should offer some sorts of competitive
advantage. That is, strategy should lead to a future advantage or an adaptation to forces eroding current competitive advantage.
• The following steps may be followed to judge the competitive advantage a strategy may provide: – Step 1: Review the potential threats and opportunities
to the business – Step 2: Assess each option in light of the capabilities of
the business – Step 3: Anticipate the likely competitive response to
each option – Step 4: Modify or eliminate unsuitable options
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Validity (consistent with the environment)
• Strategy should be consistent with the assumptions about the product or market environment.
• For example, at a time when more and more women are seeking jobs, a strategy assuming traditional roles for women (that is, raising children and staying home) would be inconsistent with the environment.
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• Money, competence, and physical facilities are the critical resources marketers should be aware of in finalising strategy.
• A resource may be examined in two different ways: as a constraint limiting the achievement of goals and as an opportunity to be explored as the basis for strategy.
• It is desirable for a marketer to make correct estimation of resources available without being excessively optimistic about them.
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Marketing Strategies Evaluation : Internal Consistency
Internal Consistency • Strategy should be in tune with the different policies
of the company, and the product/market arena. • For instance, if the company decided to limit the
business with a particular group of customers to 40 percent of total sales, a product/market strategy emphasizing greater than 40 percent reliance on that particular customer would be internally inconsistent.
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Vulnerability (Satisfactory degree of risk)
• The degree of risk may be determined on the basis of the perspectives of the strategy and available resources.
• A pertinent question is: will the resources be available as planned in appropriate quantities and for as long as it is necessary to implement the strategy?
• The overall proportion of resources committed to a venture becomes a factor to be reckoned with: the greater these quantities, the greater the degree of risk.
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Workability • The workability of a strategy should be realistically
evaluated with quantitative data. • Sometimes, it may be difficult to undertake such
objective analysis. In that case, other indications may be used to assess the contributions of a strategy.
• It could be the degree of consensus among key executives about the validity of the strategy.
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Workability (cont.)
• Identifying ahead of time alternate strategies for achieving goal is another indication of the workability of a strategy.
• Finally, establishing resource requirements in advance, which eliminates the need to institute crash programs of cost reduction or to seek reduction in planned programs, also substantiates the workability of the strategy.
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Marketing Strategies Evaluation : Appropriate Time Horizon
Appropriate Time Horizon • A viable strategy has a time frame for its realisation. • The time horizon of a strategy should allow
implementation without creating havoc in the company or missing market availability.
• For instance, introducing a new product to the market, enough time should be allotted for market testing, training of salesperson, and so on.
• But the time frame should not be so long that a competitor can enter the market first and skim the cream off the top.
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What are the risks and contingencies?Vulnerability
Does the strategy hang together?Internal consistency
Do we have skills, resources, and commitments?Feasibility
Is there a sustainable advantage?Suitability
Implications to consider:Evaluating Criteria
• Dora solicited 4 new corporations to place cake orders;
• 2 of them were referred by A Company Limited & 2 were from placing trial orders (by completion of the mail order forms);
• Recurring profits earned per month were HK$35,000 to HK$45,000.
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Challenging Corner 4
To evaluate the overall marketing strategies employed by Dora’s Cake Shop in terms of : – Suitability – Feasibility – Vulnerability – Appropriate time horizon
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Suitability?
• They are HK$35,000 to HK$40,000 per month.
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Feasibility?
• Yes, Dora has the skills, resources, and commitments to produce cakes to satisfy customers.
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Challenging Corner 4 (solution) (3)
Vulnerability (satisfactory degree of risk)?
• Dora’s cake shop could be quite vulnerable due to the risk includes over expansion of cake business (based on the existing capacity).
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Appropriate time horizon?
• Smooth growth so far • Right time to consider new business plan
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E-marketing (2)
• An extension to traditional marketing • Interact with customers & distributors on a one-
to-one basis to maintain value added relationships
• Often in real time mode • Measurable responses are generated by
electronic network tools & technologies
1. Situational review 2. Strengths/weaknesses/opportunities/threats
(SWOT) analysis 3. Statement of future objectives 4. Marketing mix for delivering strategy:
– Discontinuous innovations or new product lines
5. Develop an action plan 6. Financial forecasts 7. Control systems 8. Contingency plans
Unit Outline [Ian Chaston, 2001]
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E-marketing plan for cake business?
• Create a website – For customers to place order – Online payment of deposits and balance (upon
cake is delivered) – Forum for customers to give feedback – ……..
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Launch of new product - a case study:
• HT Company is founded in 1998 by a group of Thai designers with a mission:
• Introducing contemporary design in Thailand and creating inspiring home decorative accents and furniture with a practical function.
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their supervision in factories conforming to international standards.
• Their extensive lines of home accessories include bedding items (pillowcases and bed sheets), table linens (placemats and napkins) and plastic tableware (glass, plates and cups) ……
• The lines of elegant products are made from reinforced fiberglass and fabrics.
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Challenging Corner 5 (3)
Price: • Pillowcases – HK$178 per pair (*must buy in pair) • Cups – HK$128 per pair (*must buy in pair)
Place: • Two specialty stores located in Tsimshatsui large
shopping mall and Taikoo Plaza.
Promotion: • Home magazine advertisement to inform the launch of
products in Hong Kong to the target customers.
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Challenging Corner 5 (4)
If you were the marketing director of HT Company, could you decide:
– Who are the target markets? – What is the marketing objectives?
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Target markets: • Families of young couple ; middle income group; live
in apartments; enjoy leisure lifestyle; looks for simplicity, functionality and humor.
Marketing objectives: • To gain net profits of HK$1 million in 12 months
from the two selective distribution outlets
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Challenging Corner 5 (5)
Then, could you explain:
• What is the marketing mix (i.e. 4P) in this introductory stage?
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• Product: elegant contemporary home accessories (at high and international standard)
• Price: Price skimming strategy (as the selling price is set at a slightly higher level than ordinary furniture shops)
• Place: Selective distribution strategy (sold at Tsimshatsui large shopping mall and Taikoo Plaza where the “target customers” would shop around in leisure time)
• Promotion: Home magazine advertisement (to increase brand awareness and promote trial of products)
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• Evolution of selling cakes to provision of services?
• Cake is served in a shop with coffee and other drinks (and provision of magazines, newspapers, comics, etc.) ……
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Summary
Now, you have come to the end of the unit. You should be able to:
– identify the marketing mix for products; – formulate the pricing, promotion, product and place
strategies for goods; – apply marketing mix strategies to different stages of
the product life cycle; – evaluate traditional marketing strategies; and – understand e-marketing strategies.
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References
• Gary Armstrong and Philip Kotler, Marketing: an introduction, 8th edition, Prentice Hall, 2007.
• Subhash C. Jain, Marketing Planning & Strategy, 7th edition, Thomson Learning, 2004.
• Judy Strauss, Adel El-Ansary, and Raymond Frost, E-Marketing, 4th edition, Prentice Hall, 2006, chapter 10: E-marketing management for product.
• Ian Chaston, E-marketing Strategy, McGraw Hill, 2001, chapter 6: Selecting E-strategies and constructing an E-plan.
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EndEnd--ofof--unit Assessmentunit Assessment This is the end of Unit 9.
Please go to the Unit Assessment before attempting
the next unit.