| DEVELOPING a eV N14 aE CMa The marketing mix is on important tool used in introducing and selling products to ‘donsimers. |W is “the \set OF strategies! that ‘marketers Use ito effectively determine the needs of their target markets, and to sell products that will respond to these needs. The essential elements of the marketing mix are the 4Ps, namely, product, price, place, and promotion. With the 4Ps, marketers can effectively entice consumers to purchase certain products or brands, and ensure their loyalty to these brands. This unit includes lessons that discuss the components of the 4Ps so that students will learn how to utilize them in creating an effective marketing mix and become successful marketers. Lesson 11 defines what @ product is, its levels ond types, and how « new product can be developed leading te its eventual marketing, Lesson 12 tackles the strategies used in setting prices ‘of products. Lesson 13 looks into the role of marketing intermediaries such as wholesalers and retailers in the effective delivery of products or services to consumers. Lastly, Lesson 14 discusses the different ways to reach target customers through effective marketing communication. 104At the nd of this lesion, the students will be able to = 1. define « product, : 2, enumerate and describe the parts. 11 Product “ cle pce ee 5. discuss the product line and 6. discuss the marketing strategies LET’S DISCOVER ‘ 4Ps and 4Es The 4Ps of the marketing mix was introduced by E. Jerome McCarthy in 1960. The 4Ps refer to product, price, placement, and promotion. For decades, the 4Ps served as a tool for marketers to determine how to develop and sell their products effectively. However, with the advent of globalization and the Digital Age, the effectiveness of the 4Ps is being questioned, Studies have also shown that, to a large extent, there is a need to improve the 4Ps to fit the changing needs of the global audience. In 2009, Brian Fetherstonhaugh of Ogilvy and Mather, a well-known marketing agency, introduced the 4Es asa way of updating the 4Ps. The 4Es refer to experience, everyplace, exchange, and evangelism. Product to Experience. Before, marketers used to be highly concerned solely with a product's unique features and benefits for customers. However, this approach may not guarantee a customer's loyalty to a brand. Instead, it is much more effective to also pay attention to the overall experience or the “customer journey.” The customer journey starts from the time that a product is discovered and extends to the time that the customer purchases the product. Marketers should be aware of the external influences that drive customers to buy a product, and the consumption experience of customers. This will help marketers find out how customers will be enticed tomake another purchase in the future. Place to Everyplace. Before, products used to be placed strategically in locations where they can be easily found. Distribution channels are also chosen carefully in order for the products to reach customers at the soonest time possible. This approach may still be useful today. However, a modern consumer is most likely always on the go; hence, he or she may have less time to look for distribution outlets to purchase products. This can also mean that a customer may have less time to actually examine a product's features before buying it. Thus, itis now also important to think of 105interactive and convenient alternatives to engage customers. Products need to be made available anytime and anywhere at the customers’ convenience. Furthermore, marketers can also utilize other outlets to communicate with customers about their products and brands. These outlets can include websites and mobile applications. Price to Exchange. Traditionally, marketers used to solely consider/the price of their products when selling them. Marketers used to focus on keeping the prices of products low so that customers are enticed to buy them, To do this, they would bargain with suppliers to purchase raw materials at a lower price, thus making the final selling cost also lower. Based on the 4Es, marketers should not only focus on the price of the products, but also consider the overall value that the product can provide customers. Customers must be guaranteed that a sufficient amount of effort, detail, and quality comes with purchasing the product. Promotion to Evangelism. Product promotion should highlight certain featiirés or benefits that one can gain from using it. This may still be considered important in marketing a product. However, it may be just as essential to extend the promotion of a product to evangelism. This means that marketers can associate their prodiicts with a mission or an ideal, such as fostering relationships or practicing determination in one’s life. Practicing evangelism in marketing can provide inspiration to the customers in one way, or another, and further entice customers to purchase a certain product. Discussion Questions 1. Whatare the differences between the 4Ps and the 4Es? 2. _Inyour opinion, are the 4Ps still applicable at present? Explain your answer. LET'S LEARN Product Defined Products are tangible objects that a company sells to customers for their use or consumption. These products are expected to satisfy customers’ needs and’ wants. Customers include both consumers and business buyers. Examples of products include the goods bought in supermarkets such as fruits, vegetables, and cooking essentials; products can also include equipment such as machines, and raw materials such as textiles and metals, Like products, services are also sold by a company toa set of consumers. However, unlike products, services tend to be intangible; they are directly delivered to the customers by a company’s employees. Delivering services, however, may also involve the use of products. Examples of services are repairs and legal consultations.Finally, these services and products all contribute to the customer's overall experience with acompany. When a company delivers high quality services and products, it will most likely ensure a favorable experience for the customer: In turn, this can lead to a continued Patronage of the company by the consumer. The sales of the company’s products and services May also increase, thus strengthening its position in the market. Levels of a Product In discussing the meaning of a product, it is important to understand its levels: These levels correspond to the different components of a product. a Core Product. This level refers to the benefit that a consumer can gain from using a product. It can thus be considered the main reason for purchasing a product. For example, at its core) a laptop isa portable computer or device that can be used for office needs and communication. This will be the main benefit of using.a laptop, and, thus, will be the main motivation for'a customer to purchase one. Actual Product. This corresponds to the tangible characteristics of the product, including its features and packaging. For a laptop, customers may look into its technical specifications such as its memory capacity and its processing power. Another characteristic that is part of this level is the product's brand name. Customers tend to associate certain brands with high and low product quality. With this, marketers are expected to ensure that their products have high quality in order to protect the image of their brands. Augmented Product. This level refers to the service-based add-ons that customers are entitled to upon purchasing the product. For instance, customers who purchase laptops are entitled to a warranty provision; free operating system that comes with the product; and in some cases a replacement period for the laptop's parts: Classification of Products A product can be classified into two types: consumer goods and industrial goods. These types, of goods are primarily distinguished based on (1) who purchases them and (2) why they are purchased. Consumer goods are products and services purchased by customers for their own use, and are thus frequently purchased. Examples of consumer goods are detergent products, condiments, and food. Gonsumer goods also extend to services such as haircuts, airline flights, and memorial plans. In addition, consumer goods can be highly specialized to a particular type of company, such as jewelry and signature clothes. Industrial goods are purchased by businesses and are used in the creation of anew product which shall be eventually sold to others. Industrial goods include capital goods such as heavy equipment and raw materials which are further processed or modified in order to become a new product. Examples of raw materials are metals, minerals, fruits, and vegetables.New Product Development New product development is a process that involves. the conceptualization and. creation ‘of innovative products that will catch the attention of customers and ensure their loyalty toa particular brand. Developing new products often requires extensive research and labor on the part of a company or firm. There are seven stages in the proeess of developing new products. They are idea generation, idea screening, concept development and testing, market and business planning, product development, test marketing, and commercialization or full product launch. Idea generation. In this first stage, the company searches for and surveys new ideas to be used in developing a product. This can involve the company’s sales and executive teams to generate ideas based on market trend research. Scientists can also contribute to the generation of ideas. For instance, scientists from Procter and Gamble helped develop a formula for synthetic detergents, which eventually became one of the well-known features of Tide products. For example, the adhesive used for 3M Post-its were first discovered in 1968 by Spencer Silver: However, the actual product was only developed after Art Fry, a fellow scientist of Silver, further discovered its potential. The 3M Post-it notes were officially introduced to the market in 1980, and have become well-known ever since. Idea screening. This is the stage when the ideas generated by the company’s sales and science experts are carefully scrutinized to retain only those ideas which have the potential for a successful sales performance, and eliminate those which may fail. Concept development and screening. Once an idea for a néw product is selected, it is now further developed as a concept. It is assumed at this'stage that the product has at least'a hypothetically high chance of succeeding in the market. The concept is expanded and tested with a group of customers. Their feedback then serves'as the basis for enhancing the concept for the product. Market and business planning. After the concept for the new product is developed, the next step is to plan how it will be marketed. The target market is concretely identified and characterized and the profit objectives are planned. In addition, the other components of the 4Ps are identified - the price, placement, and promotion of the product. Finally, sales projections are made, as well as the costs and profit estimates from the product. Product development. At this stage, the concept is developed into a product prototype. This stage involves the efforts of both the marketing and research departments of companies. It may take months or years to create a product prototype and ensure that it will pass both technical and commercial standards. Test marketing. Once a product prototype is developed, its marketability is tested with a particular group of customers in a specific location. The reactions of customers towards the product are then gathered and analyzed. In turn, this will help address any problem concerning the marketability of the product before it is officially introduced to potential customers. 108Commercialization, After the product prototype has been tested, the company or firm will make its final decision on launching the product. Commercialization can be a soft launch or a full: scale launch: “ During a soft launch, the product will be tested with a limited number of customers. Unlike test marketing, however, it is not only the marketability of the product that is being tested, but also the usability and features of the product. This often involves one or two components of the 4Ps in the marketing mix. In addition, a Soft launch may involve price discounts and lower-budget promotion schemes, like the use of flyers and brochures. After the soft launch, the responses of ‘the potential customers are again recorded and analyzed. In contrast, a full-seale launch serves as the official launching of the product. It involves the ‘extensive utilization of the components of the 4Ps. The product is sold at its official price, and itis marketed heavily through various means, such as posters and advertisements on television and online: Conducting soft launches is commonly practiced among restaurants and food businesses in the Philippines. For instance, Metro Plate had its soft launch in 2013 which focused on delivering food products to customers. In this soft launch, MetroPlate saw that customers had insufficient time to contact the company for deliveries. MetroPlate then made a full-scale launch in 2014, and has since focused on improving the quality of its services and products for its customers. Product Line A’product line is a group of similar prodiicts offered by the same company under the same brand. The products in a product line may differ in their sizes, variants, or flavors. They may also differ in their specific types, but are all under a general class. An example of a product line is Johnson and Johnson's line of baby products which includes baby lotion, baby bath, and baby shampoo products, These all correspond to different types of products, but are all under one general class, which is infant care, Marketing a product line attracts more customers as they have varying preferences and needs, For instance, a certain customer may specifically prefer anti-bacterial soap, a second customer may specifically prefer an anti-acne ointment, and a third customer may prefer a whitening deodorant. If a brand wants to cater to all these types of customers, it must be able to sell all three types of soap to the market. Through this, the profitability for the product and the brand can be increased, and these can have higher chances of succeeding in the market. Marketers are expected to closely monitor the performance of each product in the product line. Unprofitable ones are eventually dropped from the line to avoid losses. This is also done to protect the image of the product's brand. There are also instances when the product line is extended. This means that additional sizes and variants of the same product are also sold, For instance, Unilever and Procter and Gamble promotes different variants and scents of their shampoo and detergent brands. 109Product Life Cycle The product life cycle is defined as the period of time that a product is introduced, sold, and eventually removed from the market. The product life cycle is composed of four stages: introduction, growth, maturity, and decline. Some marketers classify their products according to their stage in the product life cycle. Introduction. It is the stage when the product is launched in the market. Companies spend great amounts of money to develop and introduce their products to. customers. Thus, marketers are expected to find ways to launch products in the best way possible, without incurring large costs, : Growth. This is the stage when the product gains acceptance in the market, and the profits for the firm or company start to increase. This is also the point when a product may be sold under different brands, These brands attempt to make their own, distinct version of the product being sold. It thus becomes the challenge for marketers and companies to maintain high sales and ensure the loyalty of their customers. Maturity. At this stage, the product has beep in the market for a long périod and competition has also’inereased. With this, marketers face the challenge of a possible decline in the sales of the product. They then attempt to address this challenge through improving the features of the product or even cutting down its price. Decline. This is the stage when the profits and sales for the product continue to decrease. Consumers may begin to favor a new product which will eventually prevail in the market. With this, companies and firms may be left with no choice but to ultimately drop the product, in order to.avoid incurring huge costs and low profits. In order to better understand the stages of the product life cycle, we can look into the sales history of the Apple II, one of the first computers to have been successfully marketed to the general public, Introduction | The Apple II was introduced in 1977 at the West Coast Computer Faire, in San Francisco, USA. This was the first event where personal computers were shown to the general public. The Apple II was also marketed through advertisements. During that time, one of the selling points of the Apple II was its color monitor and graphics features. It was one of the first computers that had such features and was available to ordinary consumers. 110Growth | The Apple Il later experienced a surge in sales with the introduction of the VisiCalcin 1979, The VisiCalcwas the first ever computer spreadsheet program, and it was only compatible with Apple II. This convinced more customers to purchase Apple II units. By September 1980, 130,000 Apple II units have already been sold. During that time, the Apple II also faced competition from os products such'as the TRS-80 from Tandy Corporation and the Commodore PET from Commodore International. The Apple II eventually faced its toughest competition with the introduction of the IBM Personal Computer in 1981. Sales of Apple II and other Apple products started to decrease as more consumers started to take interest in the IBM Personal Computer. In order to improve the sales performance of the company, Apple introduced more advanced but less expensive versions of the : Apple Il. Decline _ As the IBM Personal Computer became the leading competitor in the market, the sales for the Apple Il continued to steadily decrease. Eventually, the production of Apple II units was discontinued, and Apple began to develop and market a new computer product known as the Macintosh. Marketing Strategies for Service Firms Services are considered a different type of purchase; they involve contact between the customer and an employee who provides the service. Thus, it can be said that services are sold differently compared to other types of products. Firms must use strategies that consider the satisfaction of both employees and customers to be able to sell their services. Selecting and training employees. Companies and firms must select employees who will help them deliver exceltent services to their customers. These employées must then be trained and oriented to meet the needs of customers. Associating effective customer service with employee motivation. Training must be done inan environment that inspires employees and satisfies their needs. This will then lead to greater productivity and motivate employees to put more effort in delivering services to customers. Delivering high quality service. When employees are satisfied, aware of the company's objectives, and knowledgeable about the needs of customers, they will most likely provide high quality services. This will ultimately lead to the satisfaction of customers. Building a strong and loyal customer base. When customers are satisfied with a service, they will most likely recommend it to other people. Eventually, the popularity of the service will increase. As long as the company and its employees maintain the high quality of their service, they can build a loyal customer base that will continually patronize their services. aa‘At the end of this lesson, the students will be oble to 1. define price, 2. discuss pricing approaches, 3. explain how the price for a 12 Prici ae ener ricing 4. identity and leas pring ‘schemes. ~ LET’S DISCOVER Ukay-Ukay A flea market is'a place where secondhand goods are Sold at cheap prices. In the Philippines, a flea market is better known as the ukay-ikdy which is derived from the Tagalog word halukay. It is where shoppers search among racks of various items, hoping for a good find — that is, a product for which you “pay less for more.” An ukay-ukay is the perfect place for thrifty buyers who are on a tight budget to shop for goods, It sells low-priced secondhand products of well-known brands or in most cases, cheap imitations of the original. Many. ukay-ukay stores dot the streets, especially near dry and wet markets or palengkes, Although, the most popular places where many ukay-ukay vendorsgather are Divisoria,Greenhills, and Cartimar. Meanwhile, ukay-ukay depots, where most vendors buy their goods, are located in Bambang in Manila, Cebu, Cagayan de Oro, and Baguio. Ukay-ukay goods are bought in bulk from retailers and traders. For instance, one bundle of clothes usually contains hundreds of clothing items. Each individual item is then priced by the seller, Buying in bulk allows sellers to seta low and affordable base price for products. In many cases, the number of competitors in the area can also influence the pricing. To stay relevant to customers’ preferences, vendors tend to set the price of their goods to equal that of their competitors. Another common practice in flea markets is the tawad or the practice of haggling for a lower price. Customers and vendors often engage in haggling and this results in a reduction of price by about 10 to 30 percent. Some vendors anticipate this practice and set their prices at.a higher ceiling. Ukay-ukay stores have become a cheaper option compared to regular retail stores which sell the original goods at a higher price. These stores have formed a unique market which caters to the needs and preferences of the ordinary masses and customers who wish to cut costs by buying cheaper items. 116Discussion Questions: 1. What kinds of goods does a flea market or an ukay-ukay sell? 2. How do ukay-ukay owners set the price for their goods? 3. What factors influence the pricing of products in-an wkay-ukay? LET’S LEARN Price Defined Price is defined as the set amount customers have to pay to purchase a product. Setting a price for a particular product entails many marketing decisions such as choosing the right pricing approach or strategy for a particular product or service. Pricing Approaches There are various pricing approaches that marketers can adopt in their product offerings. Marketers should carefully choose which is most appropriate for their products depending on the situation. In cost-based pricing, the fixed and variable costs are determined as the basis of the selling price. Fixed costs are expenses which firms cannot do away with regardless of production volume, such as water bills, electricity bills, and rent. On the other hand, variable costs are direct expenses on materials and labor that are utilized in the production. A mark-up is then added based on the target sales volume, after which, the company determines the price. This approach normally utilizes a sales forecast instead of a demand forecast. Sales forecast estimates’the + quantity of goods that can be sold within a specified period and the accompanying costs and the predicted profits. On the other hand, a demand forecast estimates the market demand of a good in the future. The break-even point, or the state when company revenues equal the expenses, can also be determined based on the fixed and variable costs. In perceived value pricing, a product's prices are set based on the customer's perceived value or the value the customer feels he or she will attain from the good, which determines his or her willingness to pay for it. Unlike in the cost-based approach, the customer's perceived value is considered over the costs relevant to the goods. This pricing approach may seem to be arbitrary; however, it can actually augment the marketing of the goods. That is, the goods, whose price is based on the customer's perceived value, may appeal to more potential buyers.In competitive pricing, prices of goods are set based on the competitors’ prices on the same goods. This pricing approach is mostly applicable in a market structure where there are several businesses engaged in selling a similar product. Normally, some companies become the market leaders in an industry and eventually set the price standard, Setting the Price for a Product Following are the factors to consider in setting the price of a product. Marketing objectives. These are goals that companies set as part of their marketing strategy in the promotion of their goods to customers to maximize profit. Some examples are “to increase company sales by 30% at the end of the year” or “to decrease the number of customers who rate the service as “poor” from 15% to 5% at the end of the quarter. Research and development costs. Some companies invest in research and development in the conceptualization of their goods. This is common for highly technical products or specialized services whose development often incurs high costs to ensure quality. These costs are considered in pricing the goods. Market structure. In considering the market structure in which the company operates, a uniform price is set for all sellers. In a monopolistically competitive market where there aremany sellers, the goods must have some form of differentiation on which the prices can be primarily set by the manufacturer. For example, different brands of shampoo with different scents and variants have different prices. In an oligopoly where there are only a few sellers, one seller may set the price and all others will follow. For example, in the telecommunications industry, PLDT is one of the leading companies which also owns other providers such as Sun, Smart, and Talk n Text. Companies may also collude or agree on setting a price for their products. One example is how the Organization of Petroleum Exporting Countries (OPEC) sets the prices of crude oil, gasoline, and other petroleum products worldwide. This organization is considered a cartel whose member countries collude to set the prices of petroleum products, Elasticity of demand. Prices are also affected by the elasticity of demand, which is defined as the relationship between consumer demand and the changes in the price of goods. There are different types of demand elasticity. There is an elastic demand if the consumers respond to a change in price. Goods that are usually subject to elastic demand are non-basic necessities such as gadgets, cars, and spa services. If consumers do not respond muth toa change in price, there is an inélastic demand, Basic necessities such as food, shelter, and education are usually subject to inelastic demand. However, there are instances when a small change in price can significantly decrease the demand for a product. This is called a perfectly elastic demand which happens when consumers find a more favorable substitute to a product so a slight change in price might compel a shift in their preference. On the other hand, goods that experienced increased prices but can still elicit the 118same demand from consumers is called a perfectly inelastic demand. Most of the goods under this category have no available substitutes. Some examples are specific drugs such as insulin for diabetes, Laws.) The laws passed by the government should also be considered in, pricing the goods. These laws serve to restrict, reinforce, ‘or simply monitor the prices set by sellers on their goods. Pricing Schemes There are instances when goods'are sold in bundles or come with additional features. In that case, cost-based or perceived-value-based approach may not suffice, Thus, various pricing schemes are adopted by some companies to address the pricing. Some of these schemes are discussed below. In product bundle pricing, individual products are puttogether to create one whole bundle or set which is then offered to customers.:The resulting bundle is usually priced lower than the sum of the prices of the individual goods. Many companies actively use this pricing scheme since itimproves the marketability of products to consumers. This scheme is commonly seen in value meals in fast-food chains, Internet and landline subscription bundles, and one whole computer setups. A variation of this pricing scheme is called the by-product pricing, which utilizes the by- product’of the main product and is priced along with or separate from the latter. The purpose is to either maximize the profit from the raw materials or to augment the price of the main product. In main or captive product pricing, the main product is chargeda lower price but additional charges go with it. For example, a telecom company may charge a fixed price for a postpaid plan. However, telephone calls to another network or text messages in excess of the monthly limit are charged separately from the fixed price. Another form of this pricing is the optional pricing where additional charges are paid to avail of added features of the good. One example of this is the cost for the installation of car accessories which is offered by the car company as an optional service for car purchases, " Product line pricing involves the separation of goods and their variations into categories by ‘creating price gaps to emphasize differences in quality. This serves to create a perception among consumers that there are different quality levels of the products. This, in turn, influences the customers’ perceived value of the products. For example, Bench has various products such as clothing, perfumes, bags, shoes, etc., which are then divided into different labels and sub-brands. ‘These variations are then priced accordingly depending on the quality and production cost. There are also other pricing schemes that can be adopted when setting prices for new products, These are market penetration pricing and market skimming. In market penetration pricing, a low initial price is set to attract customers, improve sales, and eventually eliminate competition. It is based on the law of demand which states that a lower price will result in higher demand. At present, customers are “price-sensitive” and would prefer 119a good with the lowest price as much as possible so this scheme can be effective. However, when sales increase because of a low price, companies also anticipate a lower production cost because costs are offset by the profit from the quantities produced. Market skimming, on the other hand, involves setting a high price for a product to gain as much profit as possible before the number of competitors for the same product increases. The price is then lowered over time to adapt to the growing competition. This scheme is usually adopted by companies when releasing a new type of product to the market. For example, Apple has been the pioneer in selling innovative handheld devices suchas iPod, iPhone, iPad, etc, which were initially priced among high-end gadgets. Over time, the prices are gradually lowered when competing brands released their own products. P >> SUMMARY<< * — Price is defined as the amount set on a product that customers have to pay upon purchase. = Pricing approaches include the following: cost-based approach, perceived-value approach, and competitive pricing approach. + The factors to consider in setting the price include marketing objectives, research and development costs, market structure, elasticity of demand, and government laws. « Thetypes of pricing schemesate: product bundle pricing, main or captive product pricing, product line pricing, market penetration pricing, and market skimming. ee 120