Unit of Competency: Marketing Mix in Business

Lesson Title Four P’s of Marketing

QUARTER 4
Learning Competencies
The learners demonstrate an understanding of the essence of the new product
development, pricing, placing (distribution), and promoting a product or service.

WHAT WILL YOU LEARN?

At the end of the lesson, you should be able to:
1. Define a product.
2. Differentiates the product, services and experiences
3. Identify and describe the factors to consider when setting prices and new product pricing.
4. Discuss the structure of distribution channels, its functions, and
5. Define and identify relevant promotional tools, namely, advertising, sales promotion, personal
selling, public relations, and direct marketing

Four P’s of Marketing

Product
In order to appeal to the customers, organizations must align all of the four elements of the marketing mix
(4P’s: product, price, place, promotion) effectively. All four elements must focus on the target market. They should
create value by satisfying the customers’ needs and wants.
We will learn more about the four elements of marketing mix. We’ll start by discussing the first element in
the marketing mix which is the Product. After identifying need in the market, a company may have a product that is
capable of satisfying the need”.
Just to be very clear, product in the context of marketing does not refer to tangible products such as
grocery items and automobiles. The word “product” applies to anything that is being marketed, whether it is a
tangible product, an intangible good, a service, a place, or even a person.
Here are some of the examples of products:
 Amusement parks • Musical bands
 Apps on smartphones • Pet care
 Banking services • Radio stations
 Coffee shop: the coffee, the • Social media sites
food, and the place itself • Telecommunication services
 Hotel accommodations • Television programs
 Legal advice

The term “product” applies to anything that is offered to satisfy the needs and wants of consumers, whether
these are tangible goods or intangible services. Nevertheless, we do need to step back momentarily, in order to
discuss the critical differences between goods and services.
Goods refer to tangible products that consumers can actually observe with their senses. Goods are objects with
physical manifestations and attributes that can be detected by our senses.
 Services, on the other hand, refer to intangible offerings that are abstract in nature and cannot be observed
with our senses. In fact, a key characteristic of services is that the act of delivery itself is the product. Some of the
services as products are banking, investments and insurance; hotel accommodations, restaurants, bars, and
catering; news and entertainment; transport and freight; education, health care, wholesaling and retailing; and
professional consultations.
The following questions are asked:
1. What need does it satisfy?
2. What value does it offer to its customer?
3. What makes it unique?
4. What is its Unique Selling Proposition (USP)?
All of these must be answered with product’s target market in mind. Any changes in any of the product’s
features or attributes may necessitate a consequent change in one or all of the other elements of the marketing
mix (price, place and promotion).
Physical products have several added components: the packaging and labelling.
Packaging differs from labelling. Packaging serves to contain and protect, and sometimes, identify and
promote the product. A product’s packaging is different from its label. Product packaging has several purposes:
• It protects the product end route to the customer
• It makes product storage and display more practical and effective
• It preserves the product for further customer use
When deciding on product packaging, four factors must be considered:
• The quantity of the product that should be contained in the package
• Physical attributes of the packaging that facilitate customer use
• The legal requirements that packaging may comply with
• And the most appropriate shape of the package
On the other hand, labelling is a display of information about a product on its container, packaging or the
product itself. The following factors must be considered in deciding on the labelling of a product:
• Establish the image or personality of the product based on the tastes and preference of the target market
• Determine the most important feature of the product to the target market
• Determine where the product will be sold and the applicable regulatory requirements, if any
• Determine the placement of the product in relation to other products, particularly competitors
Labels are, a product’s “silent salesman” and labelling is not an easy task considering that there are many
other competitive brands and products displayed on the same shelves, all trying to attract the customer’s attention.
Legal requirements must also be considered in a product’s labelling for food and beverages. All food products
must contain the name of the manufacturer, country of origin, net content and its nutritional value table. It must
also include the product handling and preservation requirements. Some marketers include other facts on their
package label that enhance marketability and even costumer’s trust. Examples are: the Sangkap Pinoy seal,
organizational endorsement such as by the Philippine Dental Association or the Department of Health, ISO
Certification, “free from animal testing” label or if it conforms to the requirements of Muslim practices, the Halal
seal.
One of the most effective ways to get ahead of the competition is through new product development.
Introduction of new products are instances when customers are forced to buy existing products and services in the
market even if these only partially serve their needs. This is because there are only limited product options
available in the market. History is full of successful new product launches that have changed the shape of entire
industries and created entirely new ones. You may also add the rationale behind new product development and
elaborate the rationale.

LET US REMEMBER:
Product and services are created because of human needs and wants. Information about
consumers’ tastes, preferences, perceptions, and priorities has significant contribution to the design of
the product. We cannot create products without any existing need or want in the market. This enables
the company to satisfy the needs and wants of the consumers. Satisfied consumers mean satisfactory
sales and income for the company. This is the very essence of the product as an element of the
marketing mix.

Activity I A. Product package/label-making

Prepare the following materials (Pencil, oslo paper, ruler, crayon)
Direction: Using the materials above, draw your own product packaging. Choose any product available in
the market and create your own packaging and labelling.

B. Reflection
Answer the following question
 What is the importance of product packaging?
 How does packaging affects the sales of a product?
Price
The price that a marketer charges for a product or service is a vital decision that has far-reaching
consequences. From the point of view of the business, products and services are offered with the intention of
making a profit. However, the customer has a specific price in mind that he considers as “fair and profitable”.
This is related to the value or benefit that he expects to derive from the product or service. This makes pricing
tricky and challenging for marketers.
Total cost of production must be taken into account before determining the price of a product or service. This
is because it would make no business sense if the price is less than the cost of production.
There are two types of production cost. The first one is the unit variable cost which refers to all expenses
incurred in manufacturing one unit of a product. This includes the cost of direct materials, direct labor and direct
overhead. The second one is the fixed cost or the unit share of operating and other expenses.

Product Cost Estimation

With physical products, two types of costs are calculated: (1) unit variable cost and (2) unit share of
operating and other expenses, or what is sometimes referred to as fixed costs.
The unit variable cost refers to how much it would cost to manufacture one unit of the product. This includes
the cost of direct materials, direct labor and direct overhead.
Direct materials used in the manufacture of a shirt may include the fabric, thread and buttons. For
example, if two meters of fabric, five meters of thread, six buttons and one cardboard box for product
packaging are used, its material cost would be computed as follows:
Material Cost Cost per Shirt
Fabric P100.00 per meter P200.00
Thread P4.00 per meter P20.00
Buttons P5.00 per meter P30.00
Cardboard Box P10.00 per meter P10.00
Total P260.00
The total direct material cost for producing each shirt would be P260.00
Direct labor would include the wages of all workers directly responsible for making the shirt. If,
for example, workers are paid on a per-piece basis, its unit direct labor cost would be as follows:
Process Labor Cost per Piece
Fabric cutting P30.00
Sewing 25.00
Collar Attachment 5.00
Button Attachment 5.00
Total P65.00
The total direct labor per shirt would then be P65.00
If workers are paid on a daily basis, weekly, or semi-monthly rate rather than on a per-piece basis, the
computation of labor cost would be more complex as the total unit output per period of production would have to
be included.
The unit’s direct overhead is the amount that was spent in the manufacturing overhead (energy, water and
other utility costs) for every shirt produced. This can be computed by dividing the total factory manufacturing
overhead in a month by the number of units of shirts produced within the same month. If the total factory
manufacturing overhead for a particular month is P20,000 and the total number of shirts produced within the
same month is 4,000 pieces, the direct overhead cost per unit would be P5.00
The sum of the three costs (direct materials, direct labor, and direct overhead) is the product’s unit variable cost
or the cost to produce one unit of the product.
The second type of cost unit share of fixed costs. Fixed costs are expenses incurred by the organization that are
not related to the manufacture of the product. These include executive and staff salaries, office rental,
advertising, and promotions, professional; fees and other similar expenses. Total fixed costs incurred in a
specific period must be shared by all units of the product produced in the same period. This means that if in a
particular month, the shirt factory incurred total fixed costs of P400,000 and was able to produce 4,000 units of
shirt for the same month, each shirt would have to absorb P100.00 of fixed costs.
Taking the entire costing example, therefore, the total unit cost of each shirt would be:
Cost Component Amount
Direct Materials P260.00
Direct Labor 65.00
Direct Overhead 5.00
Unit Fixed Cost 100.00
Total P430.00
Therefore, if the shirt factory is able to sell each of the 4,000 shirts it produced in a particular month at its unit
cost of P430.00, the company would make no profit but will also incur no loss. This is called the break-even
point. This is the lowest possible price the company can set for its shirts (under normal circumstances)
 If the company decides to sell its shirts at only P425.00, it will incur a loss of P5.00 per shirt. If in a given
month it is able to sell 4,000 shirts at this price, it stands to lose P20,000
However, the shirt manufacturer may decide to price its shirt at P500.00. At this price, it shall make a profit of
P70.00 per shirt. If it sells its entire month’s output at this price, the company would make a profit of
P280,000
Service and experience costing are also computed, with unit variable costs represented by the cost of the
service/experience providers.

LET US REMEMBER:
Pricing depends on the business objectives set by the company. Finding the right price for a product
is not a simple matter of adding a mark-up on the cost of a product or services, as some companies do.
The company should set the prices of its products or services based on its business objectives.

Activity II A. True/False.
Direction: Draw a heart if the statement is true and write F if the statement is otherwise.
________ 1. The unit variable cost includes the cost of direct materials, direct labor and direct overhead.
________ 2. Total fixed costs incurred in a specific period must be shared by all units of the product produced in the
same period.
________ 3. Total cost of production need not to be taken into account before determining the price of a product or
service.
________ 4. The break-even point is the lowest possible price the company can set for its product, under normal
circumstances
________ 5. The price that a marketer charges for a product or service is a vital decision that has far-reaching
consequences
B. Reflection
In your opinion, should wealthier people pay more for the exact same products that less fortunate
people buy? Explain why or why not.

Place
How can a company deliver its products to its customers effectively and efficiently? This is the next vital
marketing decision. Similar to the first P (product), product distribution decisions are almost permanent, as
distribution channels do not change on a daily basis. The product type is also a major consideration in deciding the
type of distribution channel or intermediary. Mass market or a fast-moving consumer goods may require intensive
distribution, while products like expensive fragrances may necessitate only selective, if not exclusive, distribution.
The Need for Marketing Intermediaries
Because most companies today serve relatively large markets and their consumers are geographically dispersed,
they rarely sell their products directly to the consumer. Instead, they utilize marketing intermediaries, also called
distribution channels, to bring their products to the customer. Although most marketing intermediaries, i.e. wholesalers
and retailers, are independently owned, some product manufacturers may decide to own a few, if not all, of thei r retail
outlets.
Intermediaries provide access and convenience for the product’s consumers. The following are other key functions of
intermediaries:
1. Information collection and dissemination. – marketing intermediaries, particularly retailers, provide product
manufacturers with vital marketing research information on consumer profiles and product movements. These are
valuable for decision-making.
2. Product storage and movement – the warehousing facilities of manufacturers are relieved of large amounts of
merchandise. Intermediaries or channels take care of storage and transport of products to the customer.
3. Operational financing – distribution channels that take care of storage and transport assumes the costs of these
activities
4. Product promotion – intermediaries, particularly retailers, help in the development and implementation of
communications programs to enhance product sales
5. Risk-taking – most marketing intermediaries eventually pay for merchandise they carry. They assume financial risk
if the product does not sell as expected.
The use of marketing intermediaries increases the price of the product. However, the absence of intermediaries
would result in greater expense for the customer. A customer wanting to drink a bottle of soda will have to go to the
bottling plant because the soda is not available in the convenience store (a marketing intermediary). A customer has
to buy a piece of candy from the manufacturer because it cannot be purchased at the sari-sari store (another
marketing intermediaries)
Supply Chain
A supply chain is the network of all the individuals, organizations, resources, activities, and technology involved in the
creation and sale of a product. The chain starts from the delivery of materials from the supplier to the manufacturer, to
the eventual delivery of the finished product to the user. The supply chain segment involved in the delivery of the
product from the manufacturer to the consumer is known as distribution channel.
With supply chain management, partnerships and collaborative efforts are established among product material
suppliers, the labor force, warehousing, shipping and transportation companies and product intermediaries. The
objective is to optimize the supply chain that results in better product manufacturing and distribution. This also leads to
overall cost reduction and higher sales.
Product Distribution Types
There are three general ways on how a product can be distributed using marketing intermediaries:
1. Exclusive distribution – distribution is limited to a select number of dealers, usually one or a few. The
objective of exclusive distribution is to have more control over how a particular brand is priced, displayed and
promoted. Products that are distributed exclusively usually enjoy higher markups and better brand equities. The
major disadvantage of this type of product distribution is that brands are not very accessible to customers.
Customers need to travel long distances to get where the product is available. OshKosh B’Gosh, a popular and
upscale children’s apparel brand, for example, is exclusively distributed in the Philippines by Cinderella
Marketing Corporation.
2. Intensive distribution – this product distribution type, used mostly by fast-moving consumer goods and
convenience goods, involves making a product available in as many retail outlets as possible.
This type of product distribution gives consumers the highest level of utility and convenience. However, product
manufacturers have very little control on how the product is priced, displayed or promoted. When a local soft
drink was launched in the market to compete against lower-priced soft drinks, the bottler implemented an
extensive advertising campaign, promoting its low P7.00 price to customers. However, few sari-sari stores sold
the soft drink at P8.00 suggested retail price (SRP). The stores continued to sell the product at P8.00. This
reduced the company’s effort to erode the market share of competitor brands.
Some examples of products sold via intensive distribution are bottled drinking water, candy, and snack foods,
etc.
3. Selective distribution – positioned between exclusive and intensive distribution, this type of product
distribution involves the use of more than one but not as many dealers as in intensive distribution. This allows
adequate manufacturer control over retail prices, displays and promotions. However, it permits selected product
distributors some level of independence. Products commonly sold through selected distribution are brands of
canned foods, seasoning, and personal care products.
Wholesaling and Retailing
Wholesalers and retailers are two of the most crucial distribution intermediaries, most
especially in providing place utility for a product’s customers.
Wholesaling – is the sale of goods for resale. Wholesaling is an important product distribution
function. Without wholesalers, product manufacturers would have to deliver goods directly to
retailers.
Retailing – is defined as the sale of goods/services to the final customer for his personal
consumption. Typical examples of retailing establishments are drug stores, sari-sari stores,
restaurants, movie houses. Convenience stores and supermarkets.

Activity III
A. Direction: Three different kinds of stores are presented below. Identify what you believe makes
each one different from the other.
Store In Terms of Size In Terms of Items In Terms of Prices
Supermarkets
Groceries
“Sari-sari” stores
B. Direction: Answer the following questions.
1. Give an example of a locally made product that you believe will have a good chance of
competing in a regional market. Explain why?
2. What advantages can a convenience store chain, such as 7-eleven have over
traditional sari-sari stores?
3. What is your favorite grocery store destination? Explain why it is your destination of
choice. What does the place provide?
LET US REMEMBER:
The product is not necessarily produced and consumed in the same place. The place of production
or the plant site can be different from the place of distribution or selling. The service is produced and
consumed in the same place. It cannot be owned and taken away from the location.

Promotion
Promotion as used in the 4P’s is a general term which includes the following: advertising, promotions, personal
selling, publicity, and public relations.
 The Marketing Model on the above figure illustrates how marketing companies communicate product information
and other advertising messages to their customers. In the context of advertising, the advertiser is the party that
intends to send a commercial message to the consumer.
For the initial step, the adviser first encodes his/her message. He does this by incorporating signs, images,
language, words, colors, sounds, personalities, and characters that best capture the message that he intends to
communicate to the customer. Before this, the advertiser must identify his target market. Different consumer
geographic, demographic, and psychographic profiles require different messages. For example, message
intended for the elderly need to be restrained as compared to a message intended for teenagers. Messages for
the younger market can be colorful, loud, and exciting. The advertiser then decides on the medium to be used to
transmit the message. Radio, for example, is unable to present visuals, making its advertising copy (i.e.
advertising textual content and voiceover) more critical and important. Television, on the other hand, is effective
with visuals.
The advertising message is sent to the intended customer through a selected medium (e.g. television or
newspaper). The advertiser expects that the customer (1) sees/hears the advertising message, (2)
decodes/understands and interprets the message accurately as intended, (3) remembers and/or recalls the
message, and (4) is affected by the message and responds by making a purchase.
However, barriers in message transmission may prevent the customer from receiving or understanding the
intention of the message. For example, in television advertisements, the video signal and sound reception may be
poor, or there is background noise while the advertisement is being aired.
The purpose of promotions is to elicit a change in behavior. Getting people to buy your product, when previously
they did not, constitutes a change in behavior. But the behavioral objective need not be abrupt. Often, consumers
first need to be primed in order to allow them to collect positive feelings towards the product, before finally getting
them to actually purchase it.
The Hierarchy of Effect model states that consumers need to go through six stages before finally buying
a product. (Steiner 1961) These are:
1. Awareness – the realization that your product exists
2. Knowledge – comprehension about your product’s features and benefits
3. Liking – gaining positive feelings toward your product
4. Preference – deciding that your product is better than others
5. Conviction – the belief that your product is worth buying
6. Purchase – actually buying your product
Promotions are often designed to guide consumers through these stages
Advertising
Advertising is defined as any paid and public presentation of products, services or ideas by an identified
sponsor through a medium. The most common objectives of advertising are:
• To build awareness
• To inform
• To persuade
• To remind
Types of Media and Techniques Used in Advertising Traditional Media and Techniques
1. Radio 2. Print (Magazine, Newspaper) 3. Television
4. Alternative Media and Techniques (Cinema, Billboard, Websites, Social Networking Sites, Directory
Advertising, Product Placement, E-mail advertising Transit)
Promotions are activities or a series of activities, usually short-term, that are intended to boost the sales of a product or
service. These are actioning a company can take to stimulate customers to buy immediately than later.
Personal Selling
Personal selling occurs when an individual salesperson sells a product, service or solution to a client. Personal
selling is necessary in the marketing mix when products/services are highly technical, fairly complex, durable,
expensive or not actively sought out by customers, especially when its customers are companies and institutions
instead of individual customers.The success of personal selling depends on company salespeople understanding
customer needs and their ability to build long lasting client relationships. Personal selling is a very expensive method
of product promotion where product/service pricing is often negotiated.
Products and services most commonly promoted and sold through personal selling are institutional product such as
equipment, recurring supplies, motor vehicles, homes, financial services, and unsought goods such as life insurance
memorials plans.
Public Relations
Public relations is creating and maintaining goodwill of an organization’s various publics (customers, employees,
investor, suppliers etc.) through publicity and other nonpaid forms of communication. These efforts may also include
the support of the arts, charitable cause, education, sports events, and other civic engagements.
Public relation looks after the public’s perception of company or its brands reputation, with the end of influencing
opinion and behavior. A lot of companies engage in public relation efforts. A fast-food chain, for example, has a toy-
giving program for indigent children. Other companies support one or more charities such the hospicio financial
support during natural calamities, e.g. typhoon.
Publicity
Publicity is a communication written and produced by the public relations professionals intended to create a
favourable public image for a client. Publicity usually takes the form of text, audio, and video news releases about
individual or organization. They are distributed to newspapers, magazine, radio and television stations, internet sites,
and other form of media.
Many regards publicity as a more effective promotional tool compared to advertising. Publicity reaches a wider
audience, making it more cost-effective and may have higher recall from general public than advertisement. Because
publicity is often published or circulated by third party entities such as magazines and newspapers, it has a higher
level of credibility as compared to advertising.
In the early 1990s, rumors spread that the Philippine hamburger fast food chain was using earth worms, instead
of beef, for its burger patties. In response, the chain launched a publicity campaign through third parties. It convinced
the public that it does not make business sense to use earthworms are more expensive than ground beef. Soon, the
public realized that the allegation was not logical and the rumors died. Raffles. Consumer promotion ‘pull’ consumers
to brand retailers or trade outlets to see try, and/or purchase the product.

LET US REMEMBER:
Promotion refers to the mode of conveying the presence and attributes of the product to the target consumers.
The business communicates to the target consumers the pertinent information about the product including its
benefits, price, and position in the market. It creates awareness of the product in the minds of consumers and
elicits their desire to buy it.

Activity IV
A. Direction: Identify a popular TV program that airs on primetime. Describe what its target
market is likely to be and what products are therefore a fit for this program.
Program:
Possible target market/s:
Products fit for the its possible target market/s:

B. Reflection
Answer these questions:
 What is the importance of promoting the product to customers?
 How can you promote a product/service in rural areas that has limited access to mediums of
communication and media (such as internet and television)

Key to corrections