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ib business management hl notes
IB BUSINESS MANAGEMENT HL

Unit 4.5a - The Four P(s) of Marketing

UPDATED ON - 20 APR 2020
ib business management hl notes
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Learning points:

Product

A product is any good or service that satisfies the needs or wants of consumers.          

  • Functional – Useful
    • Emotional – Appeals to emotion (instills pride, happiness, etc.).
  • Must have value added (either functional value or emotional value).
  • Either tangible (physical products) or intangible (services).

Types of products

Consumer products – products sold directly to consumers.                     

  • Fast-moving consumer goods (FMCG)                                                           
    • Sells by large quantities
    • Soap, shampoo, pencils, etc.
    • Usually cheap                         
  • Consumer perishables
    • Seasonal products.
    • Products with limited shelf-life.
    • Can be sold at a higher price compared to FMCG since they are a premium.
  • Consumer durables
    • Long-lasting and relatively expensive products.
    • Since they are long-lasting, not as many are sold, so they are more expensive.
  • Specialty goods
    • Most expensive.
    • Unique products.
  • Can also be classified by purchase consideration
    • Low Involvement Product (LIP)
      • Opposite of HIP
    • High Involvement Product (HIP)
      • The consumer will take a while to decide when purchasing
  • Producer Products
    •  Goods purchased by businesses for the production process (raw materials & inputs)

Product life cycle

  • Pertains to the different stages of a product’s lifespan.
  • Measured in terms of sales level and growth phases over a period of time.
  • Used to identify necessary changes in marketing strategies
    • Each stage will usually need a different marketing mix.
  • Product life cycle stages
    • Research and development
      • Design, development, and testing.
      • Requires a large investment in resources and time.
      • Creation of prototype with feedback from the target market.
      •  Alpha and Beta releases for testing.
    • Launch/introduction
      • The product will be priced HIGH to cover.
      • Costs of heavy marketing.
      • Cost of research and development.
      • Product is not very profitable at this moment.
    • Growth
      • Rapid volume increase due to better awareness and expansion of distribution channels
      • Starts to be profitable due to economies of scale in production and marketing
      • Competition begins becoming attracted to the market
    • Maturity/saturation
      • Sales may begin to peak/stabilize (no significant changes)
      • Achieve the highest market share, while competition continues to pour into the market
      • Companies will employ price reductions, product differentiation, and extension strategies very aggressively to protect their market share
    • Decline
      • Sales and profits decline due to shifts in demand, new technology, or new models
      • Price levels fall (to get rid of inventory) prior to withdrawal
      • Phasing out the product

    Extension strategies

    • Price reductions
    • Redesigns (e.g. special features, limited edition, etc.)
    • Repacking (e.g. new colours, materials)
    • New markets/market development
    • Promotions (advertising and special tie-ups)
  • Aside from demographics/psychographics, speed of adoption is also affected by
    • Relative advantage
    • Compatibility
    • Testability
    • Observable feature
    • Convenience

    Product life cycle and the marketing mix

  • Launch
    •  Price: may be high or low compared to competitors
    • Promotion: high levels of informative advertising to make the consumers aware of the product’s arrival on the market
    • Place: restricted outlets – possibly high-class outlets if a skimming strategy is adopted
    • Product: basic model
  • Growth
    • Price: if successful, an initial penetration pricing strategy could now lead to rising prices
    • Promotion: consumers need to be convinced to make repeat purchases- brand identification will help to establish consumer loyalty
    • Place: growing numbers of outlets in areas indicated by the strength of consumer demand
    • Product: planning of product improvements and developments to maintain consumer appeal
  • Maturity/saturation
    • Price: competitors likely to be entering the market – there will be a need to keep prices at competitive levels
    • Promotion: brand Imaging continues growing – need to stress the positive differences with competitor’s products
    • Place: The highest geographical range of outlets as possible – developing new types of outlets where possible
    • Product: new models, colors, accessories, etc. as part of extension strategy
  • Decline
    • Price: lower prices to sell off stock-or if the product has a small ‘cult’ following, prices could even rise
    • Promotion: advertising likely to be very limited – may just be used to inform of lower price
    • Place: eliminate unprofitable outlets for the product
    • Product: prepare to replace with other products – slowly withdraw

Boston Consulting Group (BCG) matrix

 

IB Business Management HL BCG Matrix

Planning tool used to classify a portfolio of products based on market share and market growth.

  • Problem child/question mark
    • High growth market but low market share
    • More resources must be used (cash absorbing) to gain higher market share
    • The alternative is to divest and use resources to help other products
    • To do nothing will make this a dog
    • It can become a star or dog
  • Star
    • High growth market with a high market share
    • Generate a lot of cash and profit but require marketing support
    • If the position is maintained, it may turn into a cash cow
    • If not, may become a problem child 
  • Cash cow
    • Low growth market but high market share
    • Products that command a high share of the market despite maturity
    • Well-established
    • Generate good cash flow and strong profits
    • No further investments required although extension strategies may be used to delay the decline
    • May be used to paying dividends, debts, support problem child products, stars or new product development
  • Dog
    • Low growth market with a low market share
    • Product in a mature market
    • Does not generate much revenue
    • Ties up cash (capital), may be withdrawn or repositioned to the niche market where more premium price can be demanded

Strategic analysis

  • Used to support your products:
    • Building – support problem child
    • Holding – try to maintain the position
    • Milking – using cash cows
    • Divesting – getting rid of dogs
  • It can only be undertaken if the business has a balanced portfolio of products.
  • All 4 quadrants must be filled
  • Dogs or problem children outnumbering stars and cash cows may lead to a cash shortage preventing the firm to take appropriate action

Branding

  • Name identifiable to a product or a mixture of tangible and intangible attributes symbolized in a trademark in order to differentiate the product from competitors
    • Role and benefits
    • Legal instrument
    • Differentiation
    • Risk reducer
    • Image enhancer
    • Sales generator
    • Growth platform
    • Timeless

An effective brand name can be a stimulus for a positive association with the product; should be memorable, recognizable, and portray the desired image

Aspects of branding

  • Brand awareness
    • An important aspect of being able to successfully promote a product
    • Essential in markets with products that have very few tangible factors that differentiate products from one another
  • Brand development
    • Long term marketing strategy meant to build and strengthen the image
    • A strong brand can extend the maturity or cash cow position of a product (sustain and increase sales)
  • Brand preference
    • Customers favoring a brand over rivals
    • Quantifies the effect of marketing activities
  • Brand loyalty
    • When customers buy products of the same brand repeatedly
    • Benefits:
      • Higher market share
      • Premium pricing by keeping loyal customers
      • Demand is more price inelastic
        • Customers are not sensitive to price changes
      • Brand extension and growth strategies
    • Raises barriers to entry
      • New players find it hard to gain a market 
  • Brand value
    • The value-added premium that customers are willing to pay for a product of a well-known brand as opposed to a generic equivalent
    • Mass promotion campaigns are essential to help create a brand value
    • Is important if a business would like to expand its product line
      • Can help assure sales if current products within the brand have experienced relatively good success/popularity with customers

Packaging

  • Serves as protection for the product before reaching the end consumer
  • Makes it easier, more efficient, and safer to transport
  • Attraction, promotion, and differentiation
    • Makes it eye-catching, amongst dozens of other similar products on a shelf
      • Design theme, color scheme
  • Carries information about the product
    • How to use the product
    • Materials/ingredients used
    • Highlights important features
  • It helps to promote the brand and its images.
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