1 Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum Technology Education Section, Curriculum Development Institute Education Bureau, HKSARG August 2008 Unit 9 : Marketing Mix Design for Products Course 2 : Contemporary Perspectives on Management 2 Learning Objectives 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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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
2
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.
3
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)
Unit Outline
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
Unit Outline
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 ……
Unit Outline
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.
Unit Outline
A Cake Story (3)
From the above scenario, what are: 1. Needs 2. Want 3. Product, and
4. Market?
Unit Outline
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)
Unit Outline
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……
Unit Outline
Marketing Strategy
Three steps: 1. Select target markets 2. Set marketing objectives
3. Develop and maintain marketing mix
Unit Outline
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.
Unit Outline
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.
Unit Outline
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?
Unit Outline
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)
Unit Outline
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
17
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
Unit Outline
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.
Unit Outline
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
Unit Outline
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.
Unit Outline
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.
Unit Outline
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.
Unit Outline
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
Unit Outline
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)
Unit Outline
32
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
Unit Outline
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.
Unit Outline
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
Unit Outline
• 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
Unit Outline
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
Unit Outline
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
Unit Outline
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
Unit Outline
• Promotion objectives = to increase awareness and encourage trial
of cakes
Unit Outline
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
Unit Outline
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.
Unit Outline
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.
Unit Outline
Product Life Cycle (PLC) (1)
Four stages in a product life cycle: – Introduction – Growth –
Maturity – Decline
Unit Outline
Product Development
Unit Outline
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
Unit Outline
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
demand Unit Outline
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
switchingUnit Outline
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
Unit Outline
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.
Unit Outline
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.
Unit Outline
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
Unit Outline
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.
Unit Outline
• 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.
Unit Outline
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.
Unit Outline
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.
Unit Outline
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.
Unit Outline
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.
Unit Outline
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.
Unit Outline
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.
Unit Outline
Challenging Corner 4
To evaluate the overall marketing strategies employed by Dora’s
Cake Shop in terms of : – Suitability – Feasibility – Vulnerability
– Appropriate time horizon
Unit Outline
Suitability?
• They are HK$35,000 to HK$40,000 per month.
Unit Outline
Feasibility?
• Yes, Dora has the skills, resources, and commitments to produce
cakes to satisfy customers.
Unit Outline
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).
Unit Outline
Appropriate time horizon?
• Smooth growth so far • Right time to consider new business
plan
Unit Outline
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]
75
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 –
……..
Unit Outline
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.
Unit Outline
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.
Unit Outline
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.
Unit Outline
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?
Unit Outline
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
Unit Outline
Challenging Corner 5 (5)
Then, could you explain:
• What is the marketing mix (i.e. 4P) in this introductory
stage?
Unit Outline
• 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)
Unit Outline
• 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.) ……
Unit Outline
84
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.
85
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.
86
• (1999), ,
• (1982), ,
EndEnd--ofof--unit Assessmentunit Assessment This is the end of
Unit 9.
Please go to the Unit Assessment before attempting
the next unit.