Marketing Mix: Price and Place

Click on the blank space and choose the most appropriate word from the list: 1) Prices of goods and services are heavily influenced by the market forces of supply and demand. Demand is determined by customers, what they are willing and able to buy at a particular price –If demand increases it will push prices higher –Falling demand forces firms to lower their prices, if they don’t do this then sales will fall. Supply is determined by businesses, what they are willing to offer for sale at a particular price –If supply increases it will push prices lower –If there is a lack of supply in the market it will push prices higher.2) Businesses have to set prices that generate a profit, one way of doing this to ensure that all costs are covered is cost plusor cost-based pricing, this involves adding a mark-up to total costs3) One of the major drawbacks to this pricing strategy is that it ignores market conditions. What would happen if all of your competitors were charging less for their products?4) Price skimming or creaming is when a business launches a new product and, for a limited period of time, they charge a high price –The main objective is to get high levels of revenue before new competitors enter the market –Drug companies use this method until their patent runs out, as then competitors can sell similar drugs and so prices will then fall –Charging a high initial price lets these types of companies recover their high research and development costs.5) Penetration pricing takes place when businesses introduce a new product into an existing market and charge a low price for a limited period of time. The aim of this strategy is to get the product established in the market. Businesses that use this strategy hope that customers are attracted by the low price and then carry on buying it when the price rises.6) Psychological pricing sets the price slightly lower than a round figure, for example charging £99.99 instead of £100.00 –Consumers are ‘tricked’ into thinking that £99.99 is significantly cheaper than £100.00.7) Loss leaders are when a business sells some products at a price lower than it cost them to buy or produce. The objective of this strategy is to attract customers into a store, where they will buy the cheap product, and that once they are in the store it is hoped that customers will then buy other products that will generate a profit overall for the business. This strategy is commonly used by supermarkets.8) Discounts and sales are pricing strategies that are used by businesses to boost sales in the short-term. Goods are sold below the normal price, for example 70% of Christmas products in January.9) Some businesses take a close look at what their competitors are charging when setting their prices, this approach is called competition-based pricing. It is likely to be used by businesses operating in very competitive markets. One approach is to charge the same price as your competitors, the advantage to doing this is that you will avoid a price warand it is considered to be a safe pricing strategy. Another approach is for the market leader to set the price and all others to follow. This is called price leadership. Sometimes a business might lower its price to force competitors out of business, this is called destroyer or predatory pricing.10) Goods that have price elastic demand will see a significant change in demand for the product if the price is changed, for example, if a business lowered the price by 10%, demand would rise by a greater proportion, say 20%. Goods which have price elastic demand tend to be non-essentials and products with lots of substitutes (alternative products that the customer could buy instead). Businesses which sell goods with price elastic demand can increase total revenue by lowering the price, however if they raise the price demand and revenue will fall because customers can easily switch to other brands.11) Goods that have price inelasticdemand will see little impact on the amount demanded if the price is changed, for example if a business lowered the price by 10%, demand would increase by a smaller amount, for example 3%. Goods which have price inelastic demand tend to be essential goods or goods with very few substitutes. If a business sells goods with price inelastic demand, revenue can be increased if prices are increased however a price cut will result in lower revenue because demand will not increase significantly after a price cut. Supply and Demand Match each cause and effect If demand increases Prices will rise If demand falls Prices will fall If supply increases Prices will fall If there is a lack of supply Prices will rise Supply and demand explained Watch this short video clip to get a quick overview of the concept of supply and demand. An alternative view on how to price your product or service. Watch this short video and consider the issues he discusses. Start-up airline will fly business class to New York for £1,500 -03 French airline is planning to launch a budget business class flight between London and New York as it steps up plans to shake up the corporate travel market in the same way no-frills airlines have transformed the wider travel industry.La Compagnie, which has flown between Paris and New York since July, will operate its first Luton to Newark flight on April 24.Flights booked before the end of June will cost £649, or £1007 for two people travelling together, before rising to a starting price of £1,549. The company says its prices are a discount of at least 50pc compared to business class flights with the major legacy carriers.Quoting prices from British Airways, Virgin Atlantic, United Airlines and American Airlines, which usually begin at the £2,500 mark, Frantz Yvelin, the airline’s co-founder and CEO, said, “I don’t call that competition -- they are not fighting each other.” He added: “That’s the price of a car. It’s insane. Come on, wake up.”The service will offer six return flights a week, each staffed by three flight attendants, with 74 flat beds laid out in 19 rows of four seats. In-flight entertainment will be available via wireless 12-inch Samsung Galaxy Pro tablets and the catering will be provided by French chef Christophe Langrée. Passengers will be allowed to check in two bags weighing 32kg each.The outbound flight will depart Luton at 5.45pm, arriving in Newark at 9pm local time, while the return flight will depart at 10.30pm and land at 10.30am. While the scheduled flight times may not seem the most convenient for business travellers - who would have to check in at Luton in the middle of the afternoon, pay for an extra night’s stay in New York and, on the return route, arrive back in London long after the business day has kicked off -- Mr Yvelin said this was “the time slot of choice” to avoid traffic on the roads.He also said that it was “an active decision” to fly from Luton, joking that “if it’s good enough for Roman Abramovich”, the billionaire investor whose private jet has been spotted at the north-of-London airport, it’s good enough for La Compagnie’s business class passengers.Mr Yvelin said Stansted was “way too low cost for us” and City Airport was too small for La Compagnie’s airplanes, while Heathrow was dismissed because it is the home of the legacy carriers.He added that the Luton tie-up -- which comes just as the airport launches its £100m transformation plan that will increase capacity to 18m passengers a year, improve transport links to the city and open a new executive lounge -- could pave the way for La Compagnie to offer connecting flights with EasyJet.The French start-up is not the first to try to disrupt the luxury travel industry; Mr Yvelin was himself behind L’Avion, the budget business class flight between Paris and New York that sold to British Airways for £54m in 2008.Eos, SilverJet and MaxJet are three airlines that tried and failed in this space in recent years, but Mr Yvelin is convinced his business model will withstand the headwinds because its cost base is kept lower by operating out of the suburbs and maintaining a low staff count.A British start-up called Odyssey Airlines is also planning to launch a discount premium service, in 2020, which will cross the Atlantic from London City Airport.Mr Yvelin outlined the mistakes he felt had led to other similar ventures failing. Eos, an American airline that operated from 2005 to 2008, had the “wrong business model” because it tried to offer “a first class service for a business class price” for which there was “not enough demand”, putting just 48 seats on a large 787 jet that usually seats 242 to 335 people, while MaxJet Airways, which operated from 2003 to 2007, flew planes that were “too heavy”, requiring lots of fuel and fees associated with take-off and landing.Of the Luton-based SilverJet, which was grounded in 2008, Mr Yvelin said, “Opening [a new route to] Dubai was the most the stupid choice I have ever seen in the airline industry.” He added that the economic crisis that has gripped Europe since these airlines first launched would help La Compagnie take off, as demand for business travel remains high but customers have become more financially aware.“We do not pretend to provide the best business service in the world,” Mr Yvelin said. “We are offering a dramatically cheaper service so we have to be cost conscious.” But he believes that his company, which has raised €34m (£25.8m) from 41 European investors, can do for corporate travel what EasyJet and other no-frills carriers did for the wider travel market.La Compagnie’s Paris to New York flight has carried more than 10,000 passengers since its launch in July. While Mr Yvelin was reticent to disclose the company’s financials, he said the company is profitable at a load of around 75pc, which it often achieves, although its average load per flight is currently nearer 60pc.The company currently has two 757-200 airplanes -- one leased from Icelandair and one bought from Thompson -- that are decked out in “celeste blue and anthracite grey”, and is currently in discussions to add two more to its fleet, which Mr Yvelin aims to complete by the end of 2021.And while he would like to add more routes and flights eventually, he said the company has “no intention of competing globally.”“We are a niche player in a niche market.” Mr Yvelin said. “You can’t compare Aston Martin to Volkswagen.” Answer the following questions:Question 1: Who are La Compagnie’s target market? (Identify and explain for 2 marks)Question 2: What pricing strategy have they chosen? (Identify and explain for 2 marks)Question 3: Discuss whether you think La Compagnie will be successful or not. (Analyse and evaluate their business for 6 marks) Types of retailers What type of retailer is shown in each image? Click on each pulsing blue dot and write one of the following words: Supermarket, Kiosk, Independent, Hypermarket, Market, Online, Chain, Department Store Hypermarket Chain Kiosk Independent Online Department Store Market Supermarket Direct Selling Match each example of direct selling with its correct explanation: Telephone selling Producers contact customers directly and try to sell via the device Mail order catalogues Are distributed to customers who may buy the products listed - sometimes on credit Door-to-door selling Sales people go to peoples' homes inviting them to buy products Direct response adverts Adverts are placed in newspapers, magazine or on television inviting people to buy products The internet Products are sold online from manufacturers websites Direct mail Producers send promotions to customers, either via the post or to the customer's inbox Shopping parties Representatives organise parties and invite people to enjoy themselves and buy products such as jewellery, cosmetics and lingerie Producers would like to eliminate the middleman, whom they see as charging too much. But while you can eliminate the middleman, you cannot eliminate the functions he performs. You and the customer would have to perform the same functions and probably wouldn’t do them as well.When a customer is considering buying a product he tries to assess its value by looking at various factors which surround it. Factors like its delivery, availability etc which are directly influenced by channel members (wholesalers, retailers, agents). Similarly, a marketer too while choosing his distribution members must assess what value is this member adding to the product. He must compare the benefits received to the amount paid for using the services of this intermediary.Advantages of including intermediaries in the distribution channelCost SavingThe members of the distribution channel (wholesalers, retailers or agents) are specialised in what they do and perform at much lower costs than companies trying to run the entire distribution channel all by itself.Time SavingAlong with costs, time of delivery is also reduced due to efficiency and experience of the channel members. For example if a grocery store were to receive direct delivery of goods from every manufacturer the result would have been a chaos. Everyday hundreds of trucks would line up outside the store to deliver products. The store may not have enough space for storing all their products and this would add to the chaos. If a grocery wholesaler is included in the distribution chain then the problem is almost solved. This wholesaler will have a warehouse where he can store bulk shipments. The grocery store now receives deliveries from the wholesaler in amounts required and at a suitable time and often in a single truck. In this way cost as well as time is saved.Customer ConvenienceIncluding members in the distribution chain provides customer with a lot of convenience in their shopping. If every manufacturer owned its own grocery store then customers would have to visit multiple grocery stores to complete their shopping list. This would be extremely time-consuming as well as taxing for the customer. Thus channel distribution provides accumulating and assorting services, which means they purchase from many suppliers the various goods that a customer may demand. Secondly, channel distribution is time saving as the customers can find all that they need in one retail store and the retailerCustomers can buy in small quantitiesRetailers buy in bulk quantities from the manufacturer or wholesaler. This is more cost effective than buying in small quantities. However they resell in smaller quantities to their customers. This phenomenon of breaking bulk quantities and selling them in smaller quantities is known as bulk breaking. The customers therefore have the benefit of buying in smaller quantities and they also get a share of the profit the retailer makes when he buys in bulk from the supplier.Resellers help in boosting salesResellers often use persuasive techniques to persuade customers into buying a product thereby increasing sales for that product. They often make use of various promotional offers and special product displays to entice customers into buying certain products.Customers receive financial supportResellers offer financial programs to their customers which makes payment easier for the customer. Customers can buy on credit; buy using a payment plan etc.Resellers provide valuable informationManufacturers who include resellers for selling their products rely on them to provide information which will help in improving the product or in increasing its sale. High-level channel members often provide sales data. On all other occasions the manufacturer can always rely on the reseller to provide him with customer feedback.Disadvantages of including intermediaries in the distribution channelRevenue lossThe manufacturer sells his product to the intermediaries at costs lower than the price at which these middlemen sell to the final customers. Therefore the manufacturer goes for a loss in revenue. The intermediaries would never offer their services to the manufacturer unless they made a profit out of selling his products. They are either made a direct payment by the manufacturer, for instance shipping costs or as in the case of retailers by selling the product at costs higher than the price at which the product was bought from the manufacturer (also known as mark-up). The manufacturer could have sold at this final price and made a greater profit if he had been managing the distribution all by himself.Loss of Communication ControlAlong with loss over the revenue the manufacturer also loses control over what message is being conveyed to the final customers. The reseller may engage in personal selling in order to increase the product sale and communicate about the product to his customers. He might exaggerate about the benefits of the product this may lead to miscommunication problems with end users. The marketer may provide training to the salespersons of retail outlets but on the whole he has no control on the final message conveyed.Loss of Product ImportanceThe importance given to a manufacturer’s product by the members of the distribution channel is not under the manufacturer’s control. In various cases like transportation delays the product loses its importance in the channel and the sales suffer. Similarly a competitor’s product may enjoy greater importance as the channel members might be getting a higher promotional incentive.Conclusion:Your company must not only develop and operate efficient marketing channels but be prepared to add new ones and drop failing ones. Distribution channels are dynamic. They can create a competitive advantage when used right, but become a competitive liability when used poorly.