REFER NOTES PDF

The Product Life Cycle (PLC) is based upon the biological life cycle. 

CHARACTERISTICS OF PLC

Products have a limited life,

Product sales pass through distinct stages, each posing different challenges, opportunities, and

problems to the seller,

Products require different marketing, financing, manufacturing, purchasing, and human resource

strategies in each life cycle stage.

Strategies for the differing stages of the Product Life Cycle.

Introduction. The need for immediate profit is not a pressure. The product is promoted to create awareness.

If the product has no or few competitors, a skimming price strategy is employed. Limited

numbers of product are available in few channels of distribution.

Growth. Competitors are attracted into the market with very similar offerings. Products become more

profitable and companies form alliances, joint ventures and take each other over. Advertising

spend is high and focuses upon building brand. Market share tends to stabilise.

Maturity. Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a

decreasing rate and then stabilise. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and use a greater variety of media.

Decline. At this point there is a downturn in the market. For example more innovative products are

introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing

marketing spend and cost cutting.

The four main stages of a product's life cycle and the accompanying characteristics are:

Stage Characteristics

1. Market introduction stage

1. costs are very high

2. slow sales volumes to start

3. little or no competition

4. demand has to be created

5. customers have to be prompted to try the product

6. makes no money at this stage

2. Growth stage

1. costs reduced due to economies of scale

2. sales volume increases significantly

3. profitability begins to rise

4. public awareness increases

5. competition begins to increase with a few new players in

establishing market

6. increased competition leads to price decreases

3. Maturity stage 1. costs are lowered as a result of production volumes increasing

and experience curve effects

2. sales volume peaks and market saturation is reached

3. increase in competitors entering the market

4. prices tend to drop due to the proliferation of competing

products

5. brand differentiation and feature diversification is emphasized to

maintain or increase market share

6. Industrial profits go down

4. Saturation and decline stage

1. costs become counter-optimal

2. sales volume decline

3. prices, profitability diminish

4. profit becomes more a challenge of production/distribution

efficiency than increased sales

Limitations1

The PLC model offers some degree of usefulness to marketing managers, in that it is based on factual assumptions. Nevertheless, it is difficult for marketing management to gauge accurately where a product is on its PLC graph. A rise in sales per se is not necessarily evidence of growth. A fall in sales per se does not typify decline. Furthermore, some products do not (or to date, at the least, have not) experience a decline. Coca Cola and Pepsi are examples of two products that have existed for many decades, but are still popular products all over the world. Both modes of cola have been in maturity for some years.

Another factor is that differing products would possess different PLC "shapes". A fad product would hold a steep sloped growth stage, a short maturity stage, and a steep sloped decline stage. A product such as Coca Cola and Pepsi would experience growth, but also a constant level of sales over a number of decades. It can probably be said that a given product (or products collectively within an industry) may hold a unique PLC shape, and the typical PLC model can only be used as a rough guide for marketing management. This is why its called the product life cycle. The duration of PLC stages is unpredictable. It is not possible to predict when maturity or decline will begin. Strict adherence to PLC can lead a company to misleading objectives and strategy prescriptions.

OR

Problems with Product Life Cycle.

In reality very few products follow such a prescriptive cycle. The length of each stage varies enormously. The decisions of marketers can change the stage, for example from maturity to decline by price-cutting. Not all products go through each stage. Some go from introduction to decline. It is not easy to tell which stage the product is in. Remember that PLC is like all other tools. Use it to inform your gut feeling.

product mixA range of associated products that yields larger sales revenue when marketed together than if they were marketed individually or in isolation from others. Product mix is a combination of products manufactured or traded by the same business house to reinforce their presence in the market, increase market share and increase the turnover for more profitability. Normally the product mix is within the synergy of other products for a medium size organization. However large groups of Industries may have diversified products within core competency. Larsen & Toubro Ltd, Godrej, Reliance in India are some of the examples.

  New product development

new product development (NPD) is the term used to describe the complete process of bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible (that is, something physical you can touch) or intangible (like a service, experience, or belief). There are two parallel paths involved in the NPD process: one involves the idea generation, product design and detail engineering; the other involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product life cycle management used to maintain or grow their market share.

The process

Stage 1: Idea generation

New product ideas have to come from somewhere. But where do organisations get their ideas for NPD? Some sources include:

• Within the company i.e. employees

• Competitors.

• Customers

• Distributors, Supplies and others.

Stage 2: Idea Screening

This process involves shifting through the ideas generated above and selecting ones which are feasible and workable to develop. Pursing non feasible ideas can clearly be costly for the company.

Stage 3: Concept Development and Testing

The organisation may have come across what they believe to be a feasible idea, however, the idea needs to be taken to the target audience. What do they think about the idea? Will it be practical and feasible? Will it offer the benefit that the organisation hopes it will? or have they overlooked certain issues? Note the idea and concept is taken to the target audience not a working prototype at this stage.

Stage 4: Marketing Strategy and Development

How will the product/service idea be launched within the market? A proposed marketing strategy will be written laying out the marketing mix strategy of the product, the segmentation, targeting and positioning strategy sales and profits that are expected.

Stage 5: Business Analysis

The company has a great idea, the marketing strategy seems feasible, but will the product be financially worth while in the long run? The business analysis stage looks more deeply into the cashflow the product could generate, what the cost will be, how much market shares the product may achieve and the expected life of the product.

Stage 6: Product Development

Finally it is at this stage that a prototype is finally produced. The prototype will clearly run through all the desired tests, and be presented to the target audience to see if changes need to be made.

Stage 7: Test Marketing

Test marketing means testing the product within a specific area. The product will be launched within a particular region so the marketing mix strategy can be monitored and if needed, be modified before national launch.

Stage 8: Commercialization

If the test marketing stage has been successful then the product will go for national launch. There are certain factors that need to be taken into consideration before a product is launched nationally. These are timing, how the product will be launched, where the product will be launched, will there be a national roll out or will it be region by region?

OR

There are several stages in the new product development process (1) Idea Generation: Ideas for new products can be obtained from customers (employing

user innovation), the company's R&D department, competitors, focus groups, employees, salespeople, corporate spies, trade shows, or through a policy of Open Innovation.

(2) Idea Screening: The object is to eliminate unsound concepts prior to devoting resources to them. The screeners must ask at least three questions: Will the customer in the target market benefit from the product?, Is it technically feasible to manufacture the product?, Will the product be profitable when manufactured and delivered to the customer at the target price?

(3) Concept Development and Testing: Develop the marketing and engineering details and test the concept by asking a sample of prospective customers what they think of the idea

(4) Business Analysis: Estimate likely selling price based upon competition and customer feedback, estimate sales volume based upon size of market and estimate profitability and breakeven point.

(5) Beta Testing and Market Testing: Produce a physical prototype or mock-up. Test the product (and its packaging) in typical usage situations. Conduct focus group customer interviews or introduce at trade show. Make adjustments where necessary. Produce an initial run of the product and sell it in a test market area to determine customer acceptance

(6) Technical Implementation: Involves managerial planning and focusing on feedback. Make necessary adjustments to ensure product is ready for launch.

(7) Commercialization: Launch the product. Produce and place advertisements and other promotions. Fill the distribution pipeline with product. Critical path analysis is most useful at this stage

Pricing

Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product. Pricing is also a key variable in microeconomic price allocation theory. Pricing is a fundamental aspect of financial modeling and is one of the four Ps of the marketing mix. The other three aspects are product, promotion, andplace. Price is the only revenue generating element amongst the four Ps, the rest being cost centers.

Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may prevent pricing errors. The needs of the consumer can be converted into demand only if the consumer has the willingness and capacity to buy the product. Thus pricing is very important in marketing.

Pricing Strategies

There are many ways to price a product

Premium Pricing.

Use a high price where there is a uniqueness about the product or service. This approach is used where a a substantial competitive advantage exists. Such high prices are charge for luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde flights.

Penetration Pricing.

The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom and Sky TV.

Economy Pricing.

This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.

Price Skimming.

Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.

Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. They form the bases for the exercise. However there are other important approaches to pricing.Psychological Pricing.

This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents not one dollar.

Product Line Pricing.

Where there is a range of product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.

Optional Product Pricing.

Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other.

Captive Product Pricing

Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.

Product Bundle Pricing.

Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach.

Promotional Pricing.

Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).

Geographical Pricing.

Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.

Value Pricing.

This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds.

Pricing strategies

Competition-based pricing

Setting the price based upon prices of the similar competitor products.

Competitive pricing is based on three types of competitive product:

Products have lasting distinctiveness from competitor's product. Here we can assume

The product has low price elasticity.

The product has low cross elasticity.

The demand of the product will rise.

Products have perishable distinctiveness from competitor's product, assuming the product features are medium distinctiveness.

Products have little distinctiveness from competitor's product. assuming that:

The product has high price elasticity.

The product has some cross elasticity.

No expectation that demand of the product will rise.

Cost-plus pricing

Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.

This appears in 2 forms, Full cost pricing which takes into consideration both variable and fixed costs and adds a % markup. The other is Direct cost pricing which is variable costs plus a % markup, the latter is only used in periods of high competition as this method usually leads to a loss in the long run.

Creaming or skimming

Selling a product at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’ the market. Usually employed to reimburse the cost of investment of the original research into the product: commonly used in electronic markets when a new range, such as DVD players, are firstly dispatched into the market at a high price. This strategy is often used to target "early adopters" of a product or service. These early adopters are relatively less price-sensitive because either their need for the product is more than others or they understand the value of the product better than others. In market skimming goods are sold at higher prices so that fewer sales are needed to break even.

This strategy is employed only for a limited duration to recover most of investment made to build the product. To gain further market share, a seller must use other pricing tactics such as economy or penetration. This method can come with some setbacks as it could leave the product at a high price to competitors

Limit price

A limit price is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon entering as long as the incumbent firm did not decrease output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. The quantity produced by the incumbent firm to act as a deterrent to entry is usually larger than would be optimal for a monopolist, but might still produce higher economic profits than would be earned under perfect competition.

The problem with limit pricing as strategic behavior is that once the entrant has entered the market, the quantity used as a threat to deter entry is no longer the incumbent firm's best response. This means that for limit pricing to be an effective deterrent to entry, the threat must in some way be made credible. A way to achieve this is for the incumbent firm to constrain itself to produce a certain quantity whether entry occurs or not. An example of this would be if the firm signed a union contract to employ a certain (high) level of labor for a long period of time.

Loss leader

A loss leader or leader is a product sold at a low price (at cost or below cost) to stimulate other profitable sales.

Market-oriented pricing

Setting a price based upon analysis and research compiled from the targeted market. This means that marketers will set prices depending on the results from the research. For instance if the competitors are pricing their products at a lower price, then its up to them to either price their goods at an above price or below, depending on what the company wants to achieve

Penetration pricing

Setting the price low in order to attract customers and gain market share. The price will be raised later once this market share is gained.[2]

Price discrimination

same product in different segments to the market. For example, this can be for different ages or for different opening times, such as cinema tickets.

Premium pricing

Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction.

Predatory pricing

Aggressive pricing intended to drive out competitors from a market. It is illegal in some places.

Contribution margin-based pricing

Contribution margin-based pricing maximizes the profit derived from an individual product, based on the difference between the product's price and variable costs (the product's contribution margin per unit), and on one’s assumptions regarding the relationship between the product’s price and the number of units that can be sold at that price. The product's contribution to total firm profit (i.e., to operating income) is maximized when a price is chosen that maximizes the following: (contribution margin per unit) X (number of units sold)..

Psychological pricing

Pricing designed to have a positive psychological impact. For example, selling a product at $3.95 or $3.99, rather than $4.00.

Dynamic pricing

A flexible pricing mechanism made possible by advances in information technology, and employed mostly by Internet based companies. By responding to market fluctuations or large amounts of data gathered from customers - ranging from where they live to what they buy to how much they have spent on past purchases - dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a customer’s willingness to pay. The airline industry is often cited as a dynamic pricing success story. In fact, it employs the technique so artfully that most of the passengers on any given airplane have paid different ticket prices for the same flight.

Price leadership

An observation made of oligopic business behavior in which one company, usually the dominant competitor among several, leads the way in determining prices, the others soon following.

Target pricing

Pricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production. The target pricing method is used most often by public utilities, like electric and gas companies, and companies whose capital investment is high, like automobile manufacturers.

Target pricing is not useful for companies whose capital investment is low because, according to this formula, the selling price will be understated. Also the target pricing method is not keyed to the demand for the product, and if the entire volume is not sold, a company might sustain an overall budgetary loss on the product.

Absorption pricing

Method of pricing in which all costs are recovered. The price of the product includes the variable cost of each item plus a proportionate amount of the fixed costs. A form of cost plus pricing

High-low pricing

Method of pricing for an organization where the goods or services offered by the organization are regularly priced higher than competitors, but through promotions, advertisements, and or coupons, lower prices are offered on key items. The lower promotional prices are targeted to bring customers to the organization where the customer is offered the promotional product as well as the regular higher priced products.[3]

Premium Decoy pricing

Method of pricing where an organization artificially sets one product price high, in order to boost sales of a lower priced product.

Marginal-cost pricing

In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labor. Businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price is $2.00, the firm selling the item might wish to lower the price to $1.10 if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.

Value Based pricing

Pricing a product based on the perceived value and not on any other factor. Pricing based on the demand for a specific product would have a likely change in the market place.

Pay what you want pricing

Pay what you want is a pricing system where buyers pay any desired amount for a given commodity, sometimes including zero. In some cases, a minimum (floor) price may be set, and/or a suggested price may be indicated as guidance for the buyer. The buyer can also select an amount higher than the standard price for the commodity.

Giving buyers the freedom to pay what you want may seem to not make much sense for a seller, but in some situations it can be very successful. While most uses of pay what you want have

been at the margins of the economy, or for special promotions, there are emerging efforts to expand its utility to broader and more regular use.

Freemium pricing

Freemium is a business model that works by offering a product or service free of charge (typically digital offerings such as software, content, games, web services or other) while charging a premium for advanced features, functionality, or related products and services. The word "freemium" is a portmanteau combining the two aspects of the business model: "free" and "premium". It has become a highly popular model, with notable success.

Marketing - Pricing approaches and strategies

There are three main approaches a business takes to setting price:

Cost-based pricing: price is determined by adding a profit element on top of the cost of making the product.  Customer-based pricing: where prices are determined by what a firm believes customers will be prepared to payCompetitor-based pricing: where competitor prices are the main influence on the price setLet’s take a brief look at each of these approaches;

Cost based pricing

This involves setting a price by adding a fixed amount or percentage to the cost of making or buying the product.  In some ways this is quite an old-fashioned and somewhat discredited pricing strategy, although it is still widely used. 

After all, customers are not too bothered what it cost to make the product – they are interested in what valuethe product provides them.   

Cost-plus (or “mark-up”) pricing is widely used in retailing, where the retailer wants to know with some certainty what the gross profit margin of each sale will be. An advantage of this approach is that the business will know that its costs are being covered.  The main disadvantage is that cost-plus pricing may lead to products that are priced un-competitively.

Here is an example of cost-plus pricing, where a business wishes to ensure that it makes an additional £50 of profit on top of the unit cost of production.

Unit cost £100

Mark-up 50%

Selling price £150

How high should the mark-up percentage be? That largely depends on the normal competitive practice in a market and also whether the resulting price is acceptable to customers.

In the UK a standard retail mark-up is 2.4 times the cost the retailer pays to its supplier (normally a wholesaler).  So, if the wholesale cost of a product is £10 per unit, the retailer will look to sell it for 2.4x

£10 = £24.  This is equal to a total mark-up of £14 (i.e. the selling price of £24 less the bought cost of £10).

The main advantage of cost-based pricing is that selling prices are relatively easy to calculate.  If the mark-up percentage is applied consistently across product ranges, then the business can also predict more reliably what the overall profit margin will be.

Customer-based pricing

Penetration pricingYou often see the tagline “special introductory offer” – the classic sign of penetration pricing. The aim ofpenetration pricing is usually to increase market share of a product, providing the opportunity to increase price once this objective has been achieved.

Penetration pricing is the pricing technique of setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers. The strategy aims to encourage customers to switch to the new product because of the lower price.

Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume.  In the short term, penetration pricing is likely to result in lower profits than would be the case if price were set higher.  However, there are some significant benefits to long-term profitability of having a higher market share, so the pricing strategy can often be justified.

Penetration pricing is often used to support the launch of a new product, and works best when a product enters a market with relatively little product differentiation and where demand is price elastic – so a lower price than rival products is a competitive weapon.  

Price skimmingSkimming involves setting a high price before other competitors come into the market.  This is often used for the launch of a new product which faces little or no competition – usually due to some technological features.  Such products are often bought by “early adopters” who are prepared to pay a higher price to have the latest or best product in the market. 

Good examples of price skimming include innovative electronic products, such as the Apple iPad and Sony PlayStation 3. There are some other problems and challenges with this approach:

Price skimming as a strategy cannot last for long, as competitors soon launch rival products which put pressure on the price (e.g. the launch of rival products to the iPhone or iPod).

Distribution (place) can also be a challenge for an innovative new product. It may be necessary to give retailers higher margins to convince them to stock the product, reducing the improved margins that can be delivered by price skimming.A final problem is that by price skimming, a firm may slow down the volume growth of demand for the product.  This can give competitors more time to develop alternative products ready for the time when market demand (measured in volume) is strongest.

Loss leadersThe use of loss leaders is a method of sales promotion.  A loss leader is a product priced below cost-price in order to attract consumers into a shop or online store. The purpose of making a product a loss leader is to encourage customers to make further purchases of profitable goods while they are in the shop.  But does this strategy work?

Pricing is a key competitive weapon and a very flexible part of the marketing mix.

If a business undercuts its competitors on price, new customers may be attracted and existing customers may become more loyal. So, using a loss leader can help drive customer loyalty.

One risk of using a loss leader is that customers may take the opportunity to “bulk-buy”.  If the price discount is sufficiently deep, then it makes sense for customers to buy as much as they can (assuming the product is not perishable).

Using a loss leader is essentially a short-term pricing tactic for any one product.  Customers will soon get used to the tactic, so it makes sense to change the loss leader or its merchandising every so often.

Predatory pricing (note: this is illegal)With predatory pricing, prices are deliberately set very low by a dominant competitor in the market in order torestrict or prevent competition.  The price set might even be free, or lead to losses by the predator.  Whatever the approach, predatory pricing is illegal under competition law. 

Psychological pricingSometimes prices are set at what seem to be unusual price points.  For example, why are DVD’s priced at £12.99 or £14.99? The answer is the perceived price barriers that customers may have.  They will buy something for £9.99, but think that £10 is a little too much.  So a price that is one pence lower can make the difference between closing the sale, or not!

The aim of psychological pricing is to make the customer believe the product is cheaper than it really is.  Pricing in this way is intended to attract customers who are looking for “value”.

Competitor-based pricing

If there is strong competition in a market, customers are faced with a wide choice of who to buy from. They may buy from the cheapest provider or perhaps from the one which offers the best customer service.  But customers will certainly be mindful of what is a reasonable or normal price in the market. 

Most firms in a competitive market do not have sufficient power to be able to set prices above their competitors. They tend to use “going-rate” pricing – i.e. setting a price that is in line with the prices charged by direct competitors.  In effect such businesses are “price-takers” – they must accept the going market price as determined by the forces of demand and supply.

An advantage of using competitive pricing is that selling prices should be line with rivals, so price should not be a competitive disadvantage.

The main problem is that the business needs some other way to attract customers.  It has to use non-price methods to compete – e.g. providing distinct customer service or better availability.

PromotionAnother one of the 4P's is 'promotion'. This includes all of the tools available to the marketer for

'marketing communication'. As with Neil H.Borden's marketing mix, marketing communications has its

own 'promotions mix.' Think of it like a cake mix, the basic ingredients are always the same. However

if you vary the amounts of one of the ingredients, the final outcome is different. It is the same with

promotions. You can 'integrate' different aspects of the promotions mix to deliver a unique campaign.

The elements of the promotions mix are:

Personal Selling.

Sales Promotion.

Public Relations.

Direct Mail.

Trade Fairs and Exhibitions.

Advertising.

Sponsorship.

The elements of the promotions mix are integrated to form a coherent campaign. As with all forms of

communication. The message from the marketer follows the 'communications process' as illustrated

above. For example, a radio advert is made for a car manufacturer. The car manufacturer (sender)

pays for a specific advert with contains a message specific to a target audience (encoding). It is

transmitted during a set of commercials from a radio station (Message / media).

The message is decoded by a car radio (decoding) and the target consumer interprets the message

(receiver). He or she might visit a dealership or seek further information from a web site (Response).

The consumer might buy a car or express an interest or dislike (feedback). This information will inform

future elements of an integrated promotional campaign. Perhaps a direct mail campaign would push

the consumer to the point of purchase. Noise represent the thousand of marketing communications

that a consumer is exposed to everyday, all competing for attention.

The Promotions Mix.Let us look at the individual components of the promotions mix in more detail. Remember all of the

elements are 'integrated' to form a specific communications campaign.

1. Personal Selling.

Personal Selling is an effective way to manage personal customer relationships. The sales person acts

on behalf of the organization. They tend to be well trained in the approaches and techniques of

personal selling. However sales people are very expensive and should only be used where there is a

genuine return on investment. For example salesmen are often used to sell cars or home

improvements where the margin is high.

2. Sales Promotion.Sales promotion tend to be thought of as being all promotions apart from advertising, personal selling,

and public relations. For example the BOGOF promotion, or Buy One Get One Free. Others include

couponing, money-off promotions, competitions, free accessories (such as free blades with a new

razor), introductory offers (such as buy digital TV and get free installation), and so on. Each sales

promotion should be carefully costed and compared with the next best alternative.

3. Public Relations (PR).Public Relations is defined as 'the deliberate, planned and sustained effort to establish and maintain

mutual understanding between an organization and its publics' (Institute of Public Relations). It is

relatively cheap, but certainly not cheap. Successful strategies tend to be long-term and plan for all

eventualities. All airlines exploit PR; just watch what happens when there is a disaster. The pre-

planned PR machine clicks in very quickly with a very effective rehearsed plan.

4. Direct Mail.Direct mail is very highly focussed upon targeting consumers based upon a database. As with all

marketing, the potential consumer is 'defined' based upon a series of attributes and similarities.

Creative agencies work with marketers to design a highly focussed communication in the form of a

mailing. The mail is sent out to the potential consumers and responses are carefully monitored. For

example, if you are marketing medical text books, you would use a database of doctors' surgeries as

the basis of your mail shot.

5. Trade Fairs and Exhibitions.Such approaches are very good for making new contacts and renewing old ones. Companies will

seldom sell much at such events. The purpose is to increase awareness and to encourage trial. They

offer the opportunity for companies to meet with both the trade and the consumer. Expo has recently

finish in Germany with the next one planned for Japan in 2005, despite a recent decline in interest in

such events.

6. Advertising.Advertising is a 'paid for' communication. It is used to develop attitudes, create awareness, and

transmit information in order to gain a response from the target market. There are many advertising

'media' such as newspapers (local, national, free, trade), magazines and journals, television (local,

national, terrestrial, satellite) cinema, outdoor advertising (such as posters, bus sides).

7. Sponsorship.

Sponsorship is where an organization pays to be associated with a particular event, cause or image.

Companies will sponsor sports events such as the Olympics or Formula One. The attributes of the

event are then associated with the sponsoring organization.

The elements of the promotional mix are then integrated to form a unique, but coherent campaign.

It is not enough for a business to have good products sold at attractive prices. To generate sales and profits, the benefits of products have to be communicated to customers. In marketing, this is commonly known as "promotion"

A business' total marketing communications programme is called the "promotional mix" and consists of a blend of advertising, personal selling, sales promotion and public relations tools. In this revision note, we describe the four key elements of the promotional mix in more detail.

It is helpful to define the four main elements of the promotional mix before considering their strengths and limitations.

(1) Advertising

Any paid form of non-personal communication of ideas or products in the "prime media": i.e. television, newspapers, magazines, billboard posters, radio, cinema etc. Advertising is intended to persuade and to inform. The two basic aspects of advertising are the message (what you want your communication to say) and the medium (how you get your message across)

(2) Personal Selling

Oral communication with potential buyers of a product with the intention of making a sale. The personal selling may focus initially on developing a relationship with the potential buyer, but will always ultimately end with an attempt to "close the sale".

(3) Sales Promotion

Providing incentives to customers or to the distribution channel to stimulate demand for a product.

(4) Publicity

The communication of a product, brand or business by placing information about it in the media without paying for the time or media space directly. otherwise known as "public relations" or PR.

Advantages and Disadvantages of Each Element of the Promotional Mix

Mix Element Advantages DisadvantagesAdvertising Good for building awareness Impersonal - cannot answer all a

customer's questions

Effective at reaching a wide audience

Repetition of main brand and product positioning helps build customer trust

Not good at getting customers to make a final purchasing decision

Personal Selling

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 important 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 (e.g. magazine, newspaper)

Cheap way of reaching many customers - if the publicity is achieved through the right media

Risk of losing control - cannot always control what other people write or say about your product