Section 3B - 4P's
Section 3B of the marketing plan focuses on the 4P's of your business (Amy’s Fashion Boutique).
In this section, you will be required to suggest two products you would sell in the business, and define the pricing of the product. Furthermore, you will decide the location of opening your business, as well as the suggested promotion you wish to use. Remember, the 4P's are connected to the previous theories you have used.
Price is the value assigned to the utility one receives from products or services. Usually price is the amount of money that is given up to acquire a given quantity of goods or service. Pricing has become management’s most critical decision because the major variable differentiating competitions is PRICE. In fact, price is the most sensitive marketing variable both to customers and competitors. Any price change is likely to receive more attention.
Prices are quantitative, unambiguous and uni-dimensional. However, product quality, product image, customer service, promotion and other similar factors, are qualitative, ambiguous and multi-dimensional.
What this means is that it is easier to identify trends when price changes, rather than identify changes in the quality of the product. In fact, it is easier to predict about what customers would do if prices rose by 5% than if product quality rose by 5%. Furthermore, pricing is becoming more important. Higher the price generally reflects:
• The prestige appeal of the goods
• The customer's confidence that the product is of a high quality.
As a result, the definition of price is:
Price = Intangible + Tangible value of a product/service
Critical factors in pricing
Business's will have different objectives when determining the prices for their product. Factors include:
1. Value to the customer relative to competitive offerings.
Price plays a major role in customers’ overall evaluations of marketing mix. Therefore, it is essential to identify the values that specific types of buyers expect from transactions.
2. Marketing objectives.
Do you intend to sell the cheapest product in the market?
3. Profit Objectives.
Do you want to maximise your profit?
4. Differences between market segments.
Some markets may have different segmentation, and can result in different prices from competitors.
5. Competitor reaction.
Awareness of the prices charged for competing brands can be very important for a business. A firm is in a much better position to establish prices for its products when it knows what competitors are charging for their products.
Knowing the competitors’ prices can help us to understand the marketing mix variables that the competitors emphasize and also tell us how important price will be to the customer.
6. Consumer Attitude
Customers’ attitudes and reactions toward a marketing mix determine the acceptance of a product.
7. Legal Constraints
Some products can only be produced under certain laws, and can therefore contribute to the price.
8. Assessment of the target market’s evaluation of price and its ability to purchase.
Determine whether or not your target market can afford to purchase the product.
9. Real Costs.
The cost to produce the product
There are multiple ways in determining the pricing for your product, which may be dependent on the pricing strategy of the business.
involves summing the total unit cost of providing a product or service and adding a specific amount (standard mark up) to arrive at the price.
Demand- Oriented Pricing
This approach is based on the level of demand for the product. When the demand for the product is strong, the price is high and when the demand is weak, the price is low. Both Telstra and electricity authorities use the demand-oriented pricing method. In order to use this method properly, a firm should be able to estimate the amount of a product or service.
Skim the Cream Pricing (Skimming Pricing)
This strategy involves initially setting the highest possible price for the product or service. As the firm captures the top layer of the market, it will successively drop the price to capture the next layer of the market until the point of total market saturation.
The price is set below the price of competing brands or products in order to penetrate the market. The brand name becomes accepted and well known, the level of trust increases with each market segment in the market and the firm may then incrementally increase the price.
Assumes that more of a product will be sold at $99.99 rather than at $100.00.
Prices are set at an artificially high level to provide prestige or a quality image, such as high-end jewellery that use diamonds.
In competition-oriented pricing, a company considers competitors’ prices first rather than cost and revenue. This method is often widely adopted when competing products are almost homogeneous and price is the key element of the marketing mix.
Petrol is a good example because customers find it impossible to differentiate between one brand and another and make their decision based largely on price.
The definition of product is anything that can be offered to a market for attention, acquisition, use and consumption, that might satisfy a want or need. It includes physical objects, services, persons, places, organisations and ideas. Keep in mind that depending on your chosen business and target market, will be different to other types of products.
There are multiple levels that make up a product, which include:
CORE: what the buyer really buys links to “what business we are in” (For example, purchasing a car)
TANGIBLE: actual/expected aspects quality, features, styling, name, packaging (For example, features in the car such as speakers, leather seats)
AUGMENTED: additional benefits warranty, after sales service, repairs
Section 3B - 4P's
The second half of 4P's of the marketing plan, which are place and promotion are important in applying your knowledge of your target market.
To generate sales and profits, the benefits of products have to be communicated to customers. Promotion is about companies communicating with customers about the benefits of their products and services. Remember, you must consider the target market and market segment you have chosen,
Types of promotional mixes
Once a business has established the target market, the pricing strategy as well as the quality perception of the brand, you will be able to establish a promotional mix, which should target market, and should reflect your strategies from the previous sections of the marketing plan.
-The following promotional mixes should be considered for your business (Amy’s Fashion Boutique)
Mix Element Advantages Disadvantages
Advertising -Good for building awareness
-Effective at reaching a wide audience
-Repetition helps build customer trust -Impersonal. Cannot answer all of customer questions
- Not good at getting customers to make a final purchasing decision
Direct and online marketing -Highly interactive. Lots of communication between the buyer and seller
-Excellent for communicating complex/detailed product information and features
- Relationships can be built up - important if closing the sale make take a long time -Costly. Employing a sales force has many hidden costs in addition to wages
-Not suitable if there are thousands of buyers
Sales promotion -Can stimulate quick increases in sales by targeting promotional incentives on particular products
-Good short term tactical tool -If used over the long-term, customers may get used to the effect
-Too much promotion may damage the brand image
Public Relations - Often seen as more -credible- since the message seems to be coming from a third party, such as a newspaper
- Effective way of reaching many customers, if the publicity is achieved through the right media -Risk of losing control. You cannot always control what other people write or say about your product
Promotional mix - Sales promotion
Sales promotion is an activity and/or material that acts as a direct inducement, offering added value or incentive for the product to resellers, salespersons, or consumers.
- It includes all promotional activities other than personal selling, advertising, and publicity.
Opportunities and limitations of sales promotion activities:
• Opportunity -Sales promotion can increase sales by providing an incentive to purchase.
• Limitation - Excessive price-reduction sales promotion, such as couponing, can affect a brand’s image.
Promotional mix - Direct selling and online marketing
Direct selling is the use of sales people with the knowledge of products to sell products to customers. This is represented by sales people who interact with customers within a store. Furthermore, with an increasing presence of online marketing, many businesses use social media as a mode of platform to communicate with sales people about products.
Direct selling and online marketing are the most common form of promotional activity for most businesses, as it provides an effective method for customers to inquire about products instantly.
Promotional mix – Advertising
The main objectives of Advertising Policy are to:
1. Inform the customer: Make target customers aware that the product exists, and explain exactly what it does. This is a particularly important objective for new products.
2. Persuade customers to purchase: Seeking to persuade customers to purchase though quality, price provides benefits that are superior to competitors.
3. Remind customers and give assurance: Much promotion (particularly advertising), is about reminding customers to purchase and reassuring customers that they have made the right choice and encouraging them to stay loyal to the brand.
Promotional mix - Public Relations
Public relations are a broad set of communication efforts used to create and maintain favourable relationships between an organization and its publics, both internal and external.
1. Public relations materials such as brochures, newsletters, company magazines, and annual reports that reach and influence the various publics.
2. Corporate identity material such as logos, business cards, stationery and signs are created to make a firm immediately recognizable.
3. Speeches can affect the organization’s image.
4. Event sponsorship, in which a company pays for part or all of a special event, is an effective means of increasing brand recognition with relatively minimal investment.
Place is used to determine the type of channel in which you wish to implement. As part of running a business, an owner must decide the channel in wish the business will use. This is influenced depending on the prior strategies that have been decided on.
Distribution channel must be considered. For instance, a direct channel would be more useful for businesses trying to reduce costs, as it eliminates the cost involved in operating a retail store. However, having a retail store would provide a more direct option for customers to purchase products. This could potentially increase the brand image and perceived quality of the products being sold.