Before we can learn anything about how companies sell their products, it’s probably worth understanding what we mean when we’re talking about marketing.
Marketing is the management process involved in identifying, anticipating and satisfying customer requirements while still managing to make a profit. It must be remembered that marketing is not simply about advertising and selling. Any definitions that imply this are incorrect!
Marketing affects all aspects of a business and can be regarded as a philosophy about how to satisfy customers’ needs and wants. It is an ongoing process and businesses must be prepared to respond to any changes that take place that impact upon the market in which they operate. In order for a product to be commercially viable a firm must ensure marketing will ultimately lead to higher profits.
A plan that sets out how marketing objectives are to be met is known as a marketing strategy. This involves constructing a plan that details how the marketing objectives can be achieved. This strategy should be based around the marketing mix and the four Ps of marketing (product, price, promotion and place).
Place is all about where businesses sell their products and what methods are used to distribute the goods to the customer. Place is ‘the marketplace’, where buyers and sellers meet and exchange payment in return for goods and services. The marketplace does not have to be ‘physical’, such as a shop, it could be online, over the phone or through mail order.
Marketing is often brand driven with the objective being to establish a product with a separate identity in consumers’ minds, making the product desirable, wanted and even needed. Brands are important for customers because they represent attributes, values, benefits and personality. Brands can offer long-term profitability to businesses, offering a degree of predictability to sales and revenues.
If you operate in a smaller part of a larger market in which customers have more specific needs and wants this is called a niche market. With niche marketing a business will target a single sector within the market, ignoring the rest of the marketplace.
Niche marketing is based on designing goods or services specifically tailored for the needs of a relatively small target market. Therefore, there must be a full understanding of the desires and needs of the niche.
If the market you operate in is larger than a local market but smaller than the global market this is known as a national market. A national markets need more consistency than local markets. A national marketing strategy needs to be developed, allowing the brand to become known and understood.
Over the last few years a popular marketing strategy has become viral marketing, meaning when an online post becomes extremely popular. Viral marketing is any marketing technique that causes websites or users to pass on a marketing message to other sites or users, creating a potentially huge growth in the impact of the message at a very low cost.
Social media makes it possible for a campaign to go viral very fast; it can make a brand famous overnight. However, the internet and social media technologies themselves do not make a brand viral, they just enable people to share content with other people faster.
Often companies will use their marketing strategies to highlight the unique selling point (USP) of their products.
By unique selling point, we mean that the product or service has a feature or features that can be used to separate it from the competition. This could be the result of a technological advantage.
A good example of this is the Dyson range of vacuum cleaners. Dyson is now the market leader, with vacuums selling at around £250. Before Dyson, with its bagless system and bright colours, the market leader was priced at £90.
The P in USP can also stand for proposition – but they mean exactly the same thing!
Unsurprisingly there are many different ways that companies choose to sell their products, or they may have a range of products known as a product portfolio.
Personal selling involves face-to-face promotion and is part of below-the-line promotion. Personal selling is used for a range of products. Examples include perfume sold in a department store and cars sold in a showroom.
You can also sell products or services through e-commerce or e-tailing, these can be beneficial because they have low initial costs. This is the sale of goods and services through the internet.
Electronic retailing, or e-tailing, can include business-to-business and business-to-consumer sales. E-tailing revenue can come from the sale of products and services, through subscriptions to website content, or through advertising.
E-commerce and e-tailing offer various benefits to businesses. The opportunity to operate with lower overheads is definitely a major advantage.
However, launching a website requires a great deal of time and money. A website address (URL) must be promoted and it also necessary to design a user-friendly site. Mobile compatibility (m-commerce) is also very important in the current marketplace.
Manufactures also often partake in direct selling. Direct selling, whether through junk mail, magazines and increasingly through the internet, has allowed manufacturers to charge much lower prices. Books bought over the internet can be 40% cheaper than high street prices. More singles are now sold as downloads from online music retailers such as iTunes rather than as CDs through record shops – let’s be honest when did you last buy a CD? And buying one for your Dad doesn’t count!
There are also many instances where consumers can buy the same product in a variety of different ways, this is called multi-channel distribution. The motive for using multi-channel distribution systems is generally to reach the same customers in different buying situations or to reach multiple market segments.
Textbook publishers frequently follow this model, offering direct sales to consumers through corporate websites or Amazon stores and selling through university bookstore retail channels.
Some retailers also use trade fairs, however they have some disadvantages such as there are likely to be lots of competitors at the same event. A trade fair (trade show or trade exhibition) is an exhibition organised so that companies in a specific industry can showcase and demonstrate their latest products and services, meet with industry partners and customers, study activities of rivals, and examine recent market trends and opportunities.
Some businesses bring in a third party to help sales, known as an agent. The agent will often receive a commission. A commission is usually a percentage of the sales revenue. For example, an estate agent may receive a commission of 1% of the total value that a house is sold for. Alternatively, a commission may be lump sum payment that is unrelated to the amount a product or service is sold for.
So now we know how retailers can sell their products, let’s take a closer look at promotion to help boost these sales.
Promotion can reflect the ethos of an entire business. Due to this almost all stakeholders will be interested in a firm’s promotion.
Promotion that attempts to show a product in the best way is known as persuasive promotion. Some promotional methods are best suited to persuasive promotion. Others focus more on informative promotion, such as radio advertising.
There is also the use of below-the-line promotion which involves posting our promotional material, this is also known as direct mail. Direct mail encompasses a wide variety of marketing materials, including brochures, catalogues, postcards, newsletters and sales letters. Although contacts can be carefully chosen, many people (and businesses) tend to ignore direct mail as junk mail.
Finally, producers often try and keep sales high by using an extension strategy. This can include the repositioning of a product. Successful extension strategies can transform the position of a product in the marketplace. Lucozade was once a drink for children who were unwell — now it is marketed as a sports drink.
Admittedly that was a lot of information and it was kind of dry – but the good news is, it was one of the bigger topics you’ve got to cover!
Now we know about how products fit into the marketing mix, let’s take a closer look at what companies can do to their prices. And there’s a lot more to consider than just making something cheaper or more expensive.
Let’s first start with cost-plus pricing. This pricing strategy involves adding a mark-up to the cost of a product. In other words, a percentage is added to the average cost of producing the good. This is known as adding a mark-up. Therefore, if the production costs of the good are £1, and the business adds 40%, then the business will sell the good at £1.40.
In cost-plus pricing, the price is often determined by finding the average cost of a product line and then applying a percentage mark-up. If calculating this in the exam, be sure to add the mark-up to the original cost of a product; forgetting to do so is a common mistake.
Within a market there are also companies which are price takers or price makers. Price takers are companies which must accept the market price for its products, its own transactions being unable to affect the market price. Accepting the market price (being a price taker) is the only option under perfect competition.
On the other hand a price maker is a firm that operates within monopolistic competition, produces goods that are differentiated in some way from its competitors products and thereafter determines prices. This means businesses in this situation have the opportunity to use pricing strategies and are therefore price makers. Not all pricing strategies are available to all businesses, but there are still choices to be made.
Now let’s have a brief run through of some other terms used in determining pricing strategy – and it’s the final section hooray!
Some companies adopt a strategy called loss leading. Loss leading involves the selling of products at a loss, with the expectation that this will generate further sales of some form elsewhere in the business. The additional sales that occur will hopefully recoup the initial loss and subsequently make a profit for the business.
The classic example of loss leading is supermarkets selling goods like bread at a loss in order to attract customers into their stores.
Price penetration or market penetration involves pricing a product at a low level so that retailers and consumers are encouraged to purchase the product in large quantities. Sometimes this is a good pricing strategy for goods that are new to the market and can help establish brand loyalty. When the price of the product does rise from the initially low level, customers will continue to purchase it.
Alternatively, companies can opt for price skimming. Price skimming is a pricing strategy in which a marketer sets a relatively high initial price for a product or service at first, then lowers the price over time. For example the first Philips DVD player was priced at £1,499. They are now available for less than £20.
Next we have contribution pricing. Contribution pricing gives flexibility because orders can be accepted on a different contribution basis for different products. Contribution pricing involves setting a price that covers the variable cost and thereafter makes a contribution to fixed costs.
Competitive pricing is when a firm will set the price of a product or service based on what the competition is charging. Competitive pricing is used more often by businesses selling similar products, since services can vary from business to business while the attributes of a product remain similar.
Finally, a pricing strategy that is very common and many people see when they’re purchasing goods is psychological pricing. This involves pricing a good ending in 99p to give the impression of a product being cheaper.
Psychological pricing is not just about including 99p in a price. In this strategy, prices are set at the level that matches what consumers may expect to pay. Consumers perceive that they are receiving value from the price paid. Customers associate price with quality.
However, the 99p strategy is not commonly used on luxury products. High-end retailers often choose to set prices with rounded figures rather than using 99p. For example, Tiffany & Co. jewellery is not priced this way, nor are cars!