LESSON 12: MARKETING MIX

Key Learning Outcomes

 Identify how to develop a marketing mix: product, price, promotion and place.
 Identify key aspects of product including: quality, product attributes, and packaging,
branding, labeling and product life cycle.
 Discuss the elements of pricing methods and pricing strategies
 Discuss the elements of promotion to include: Advertising, Sales Promotion, Public
Relations, Personal Selling and Direct Marketing
 Discuss the elements of place to include: physical distribution and channels of distribution

Introduction:
One of the marketing purposes is to influence customers to buy/consume the product. To do so, a
business firm must design a suitable marketing mix. The marketing mix is an important
component of a marketing strategy. A typical marketing mix consists of four elements (i.e.
Product, Price, Place and Promotion). It is also called the 4Ps of marketing. In services
marketing it consists of seven elements (i.e. Product, Price, Place, Promotion, Process, People
and Physical evidence) and it is called the 7Ps.

What is Marketing Mix?

Marketing Mix is a combination of marketing methods and activities, integrated into a
marketing programme to influence customers to buy the product(s). A marketing mix is made of
four elements, namely (1) Decisions on product or services, (2) Decisions on price, (3) Decisions
on promotion and (4) Decisions on distribution of goods and services to the place of consumer.
All these are inter-related because a decision in one area affects decisions in other areas. In this
lesson you will learn about the basic aspects relating to these 4Ps of marketing (i.e. product,
price, place and promotion). The management of the four elements is the key to successful
marketing.

To create the right marketing mix, businesses have to produce the product that has high quality,
right features, suitable packaging, labeling and appropriate brand; set the right price; choose the
right place and approach to make the product available to customers and use the most suitable
promotion method.
The 4Ps of Marketing

1) PRODUCT
Product is the basic element of marketing mix. Without a product, there can be no marketing. A
product is anything offered to satisfy customer needs/wants. It is what we market (i.e. what
customers come for). Products come in several forms including goods, services, events, person,
organization, ideas or places.

What are the Important Product Aspects?

Product strategy covers the marketing decisions about product features, product design and
quality, product branding, packaging, labeling, product range, product line, product
development, product modifications, product life cycle, and product support services.
Product Features: The important features of product include shape, size, colour, weight, speed,
taste etc. The product must be aesthetically appealing in terms of shape, size, colour, style, and
image. Customers prefer or reject certain products because of their colour, shape, size etc.

Product Design: The product design is the first step in the production process. A product design
indicates its usefulness as well as its attractiveness. Product design includes form design,
functional design, package design, and product research and product development. Form design
means the shape and appearance of the product. Functional design means the working of the
product. That is, how the product works. It is very important because the product will sell only if
it works as expected. Package design –an eye-catching attractive package lures customers to try a
product, this increases sales.

Ideas for products may come from consumers, salespeople, engineers, competitors, trade
associations, advertising agencies, or any number of other sources. Once a product has been
approved, it must be designed, made, tested, revised, and retested.

Product Quality: Quality is one of those aspects that contribute to customer satisfaction. The
marketer must know what quality the customer really want and adjust the product in such
fashion.

Product Branding: is concerned with creating an identity for a product that distinguishes it
from competing products. Brand is a name, term, sign, symbol, design or combination of these
intended to identify the product.

Importance of Branding
• Branding is means of product identification.
• Branding makes shopping easier. The customer has to spend less time and energy in
buying, as brand names make product identification easier, moreover the customer has to
go to the market and buy the products for the brands he prefer without wasting time.
• Brands help buyers to judge the quality of the product.
• Brands help to reduce risk of purchasing a wrong product.
• Branding allows marketers to distinguish their products from all others
Branding Strategies
There are several tactics of choosing a brand.
• Brand extension: The Company uses existing brand to brand/launch a new product in a
different product category. E.g. Sony has used the same brand for different product
categories such as radio, TV, mobile phones etc.
• Co-branding: two different companies put their brands on the same product
• Brand licensing: a company sells its product under another brand name for an agreed
period of time
• Multi-branding: each product in the portfolio has its unique brand name

Packaging: is the process of containing the product in bottles, plastic bags, wrappers, paper
cartons, boxes etc. Useful information regarding the product, its contents, weight, size, price,
constituents, necessary instruction about the usage and storage of the product are usually
indicated on the package.

Functions/ Role of Packaging

a) Protection-The fundamental function of packaging is to protect the product from sun,
rain, insects and atmospheric contacts etc. packaging maintain the product fresh and
enhances its life.
b) Easy identification-Every producer has its own distinct packaging, different from other
with respect to design, size, color and other specification packaging helps-us in the easy
identification and immediate picking up of the product.
c) Convenience-Packaging provides convenience in the transportation, handling and
storage of the product.
d) Sales promotion-It is rightly said that packaging works as silent, salesman. It catches the
attention of customers, who pick up the product, go through its description and are
induced to purchase the product. Packaging in these circumstances promotes the sales.

Labeling: A Label is written information on the product or the package.

• Labeling gives necessary information to the customers about the products. Such
information may include expiry date, name of manufacturer, price, quantity, instructions
on how to use the product, ingredients, address etc.
 • The customers can get knowledge about the quality and features of product without
tasting the product.
• Labeling protects the customers from malpractices of the middlemen.
• Labeling helps to identify the product and brand.
• Label helps to promote the product. Attractive and fascinating graphs, figures or marks
motivate the customers to buy the product.

Product Life Cycle: is the total life span of a product in the market. It shows how sales of a
particular product change over time from launch to withdrawal.

The product life cycle has four main stages:

 Introduction stage - when the product is introduced in the market
 Growth stage - is a period of rapid revenue growth
 Maturity stage - this is the most profitable stage
 Decline stage - is the period when sales fall off and profits drop

Introductory Stage: This is a stage when the product is new in the market. At this stage there is
low sales volume because customers are not aware of the product. Promotion costs are high in
order to increase customer awareness. It is a period of low or negative profits.
Suitable Marketing Strategies at Introductory Stage
 Heavy promotion is needed to create customer awareness
 Penetration pricing if the product has many competitors in order to gain market share
rapidly

Growth Stage: This is a stage when sales increase as more customers become aware of the
product and its benefits. Profit arises due to increase in sales and competitors are attracted into
the market with very similar offerings.

Suitable Strategies at Growth Stage

 Increase the distribution coverage and new distribution channels
 shift from product awareness advertising to product preference advertising

Maturity Stage: This is the stage when the market is saturated. At this stage, there is a
slowdown in sales. This is the stage that lasts longer than all other stages. Profit is high profit for
those with high market share. Weaker competitors begin to leave the market.

Suitable Strategy at Maturity Stage

 Product differentiation and improvement
 Enter new segments
 Product repositioning
 Develop new users

Decline Stage: This is a stage when sales volume of a particular product declines. The market is
shrinking, prices and profitability diminishes. The product becomes technologically obsolete.
More innovative products are introduced.

Strategies at Decline Stage

 Lower the price to liquidate inventory of discontinued products (control the amount of
stock)
 Sell the product into other cheaper markets
 Change the product uses
  Reposition the product
2) PRICE
Pricing decisions have strategic importance in any enterprise. Price is the only element in a
marketing mix that generates revenue where the rest of the elements of the marketing mix are
cost generators; price is a source of income and profits.

What is Pricing? Pricing is a process of determining what to charge a customer for the product
or service during exchange. Something of value a customer pays in exchange for a product or
service is called price. Price is the value measured in monetary term in the part of the transaction
between two parties where the buyer has to give something up (the price) to gain something
offered by the other party or the seller.

Importance of Price in Marketing Mix

1. Suitable pricing serves as a marketing tool to attract new customers.
2. Price regulates demand- marketing manager can regulate demand through price. Price
increases or decreases the demand for the products. To increase the demand, reduce the
price and increase the price to reduce the demand.
3. Price is a competitive tool- any company whether it is selling high or medium or low
priced merchandise will have to decide as to whether its prices will be above or equal to
or below its competitors. It acts as a weapon to generate sale and repeat sale in the
competition.
4. Price is the determinant of profitability- price of a product determines the profitability of
a firm. In the firm, price is the basis for generating profits. Price reflects corporate
objectives and policies and it is an important ingredient of marketing mix.
5. Price contributes to the revenue-the other factors of marketing mix require making
expenditure whereas price adds earnings to the company. So by keeping prices at
appropriate level, company can earn more profit.
6. Price helps to communicate the quality of the product or service. Usually, high priced
products are of higher quality than less-expensive competing products.
7. Through pricing, the organization manages to support the cost of production, the cost of
distribution, and the cost of promotion.
Factors Affecting Pricing Decisions
Internal Factors
a) Pricing Objectives: - Before any pricing decisions are made, a company must establish
what it intends to achieve through pricing. The company may have different marketing
objectives such as maximization of profit, maximization of sales, bigger market share,
survival in the market, quality leadership and so on.

 Profit Maximization: Keeping in mind revenue and costs, a company may want
to maximize profits

 Revenue Maximization: With less focus on profits, a company may focus on

increasing revenues in order to increase market share and lower costs in the long
term.

 Quality Leader: A company may want to use price to signal high quality and
establish itself as the quality leader.
 Survival: Sometimes, the best a company may want to do is to cover costs and to
remain in the market.
For example, if the objective is to maximize sales or have a bigger market share, a low
price will be fixed.

b) Costs of Making and Selling the Product: - The Company has to calculate the total costs
involved in making, distributing and selling the product. The price has to be set at a level
which would cover the costs.
c) Marketing Mix Strategy: - Price decisions must be related with product design, product
quality, product quantity, distribution, and promotion decisions.

d) Organizational considerations- Management must decide who within the organization

should set prices. Companies handle pricing in a variety of ways. In small companies
prices are often set by top management rather than by the marketing / sales departments.
In large companies, pricing is typically handled by divisional or product line managers.
In industrial markets, salespeople may be allowed to negotiate with customers within
certain price ranges.
External Factors
a) The market and demand: - At times, prices are determined by the demand for the product.
Thus, before setting prices the marketer must understand the relationship between prices
and demand for its product. If the demand is high they decide to take advantage and fix a
high price. If the demand is low, they fix low prices for their product.
b) Competition in the Market: - The price charged by the competitor for similar product is
an important determinant of price. All producers have to study the prices charged by the
competitors while pricing. The business has to set price at a level which will encourage
customers away from competitors

c) Customers: - A price should be affordable to the customers. The pay ability of the
customer plays a very important role in price fixation of a product. This ability depends
upon personal and disposable income level of employment, condition of economic
progress and prosperity of people.

d) Government Regulation: - Prices of some essential products are regulated by the

government.

Methods of Setting Price

Methods of fixing the price can be broadly divided into the following categories.
1. Cost based pricing
2. Competition based pricing
3. Demand based pricing
4. Objective based pricing
Cost Based Pricing: Under this method, price of the product is fixed by adding the amount of
desired profit margin to the cost of the product. If a particular soap costs the marketer TZS 1000/
and he desires a profit of 25%, the price of the soap is fixed at TZS 1,000 + (1,000 x25/100) =
1,250/=. While calculating the price in this way, all costs (variable as well as fixed) incurred in
manufacturing the product are taken into consideration.

Competition Based Pricing: This method involves setting prices based on what competitors are
charging. You can set price at the same level, above or below the competitor.
Demand Based Pricing: This method involves setting prices based on the value a product creates
for the customer.

Objective Based Pricing: This method is applicable to introduction of new (innovative) products.
If, at the introductory stage of the products, the organization wishes to penetrate the market i.e.,
to capture large parts of the market and discourage the prospective competitors to enter into the
fray, it fixes a low price. Alternatively, the organization may decide to skim the market i.e., to
earn high profit by taking advantage of a group of customers who give more importance to their
status or distinction and are willing to pay even a higher price for it. In such a situation they fix
quite high price at the introductory stage of their product and market it to only those customers
who can afford it.

Pricing Strategies
There are a number of pricing strategies that a company can use to sell its product. The strategy
used at any time will depend on the company’s strategy and objectives. Some of these pricing
strategies are the following:
a) Market penetration vs. price skimming: If your business is planning to launch a new
product, penetration pricing and price skimming are two marketing strategies you should
consider. Each strategy has benefits and disadvantages, so research your target market
carefully beforehand to determine what approach will work best for your company.

Market Penetration Pricing involves setting low price at the beginning in order to attract
large number of buyers and large market share. After attracting good number of
customers the price would be raised. This strategy is often used for new company or
product launches with the goal attracting customers and securing large market share. For
example, Fastjet Airline launched its services in Tanzania in late November, 2012.
During the first few months of the service launch, the airline was operating very low cost
flights which helped the company to attract large number of customers.

This strategy is recommended when competition is fierce, the market is very large, and
customers are price sensitive.

Price Skimming involves setting a high price at the beginning to gain a high profit from
early adopters of a new product, then gradually lowering the price to attract thriftier
 consumers. Under price skimming the entire focus of company is on creating premium
segment of customers who are quality conscious and ready to pay any price for product
and hence little attention is given towards the cost aspect of producing the product. An
example of price skimming would be pricing of mobile, laptops and other technological
things which when newly launched are sold at higher prices and as time passes price of
these products tend to decline. This strategy works best for a product on high demand or
for businesses that have a significant competitive advantage, such as distinct product or
technology.

b) Premium pricing strategy involves setting a price higher than the market price, in the
expectations that customers will purchase it due to the perception that it must have
unusually high quality or reputation.

Premium pricing works best in the following circumstances:

 There is a perception among consumers that the product is a "luxury" product, or
has unusually high quality or product design.
 There are no substitutes for the product.
c) Psychological Pricing; involves making small changes to prices to make a customer
think the item is priced lower than it is. For example, customers will perceive a product
priced for 4.99$ cheaper than that priced for 5.00$.

d) Geographical pricing: involves setting price based on geographical location.

e) Promotional Pricing is when a firm temporarily sets price below list price, and
sometimes even below cost, to increase short-run sales. For example, discount or
allowance pricing.

3) PROMOTION
Promotion encompasses all activities which bring the product/service to the attention of the
customers and persuade them to buy that product/service. Promotion serves three main goals:
(i) Informing:- introducing the product to customers
(ii) Persuading:- Influencing customers to buy the product
(iii) Reminding: - creating memory in the mind of customers and stimulating them to
buy.
Methods of Promotion
(i) Advertising
(ii) Sales promotion
(iii) Personal selling
(iv) Public relations and publicity
(v) Direct marketing

Advertising
Advertising is the communication of information to a target market using the media such as
newspapers, magazines, posters, radio, TV and internet.

Advertising is a public form of communication and suitable for a wide audience. The message or
information which is communicated is called an advertisement. The medium through which such
information is communicated is called the medium of advertising. The company or owner of the
product that is advertised is called a sponsor or advertiser.

The objectives of advertising include:

 To create awareness of a new product or service
 To induce customer to buy the product or service
 To describe product features, advantages and benefits
 To increase brand awareness
 To increase market share and sales

In order to be effective, advertising should create attention, interest, desire and action.

Sales Promotion
This involves the use of temporary incentives, gimmicks/activities to encourage customers to
purchase. Forms of sales promotion include coupons, vouchers, loyalty cards, free samples and
competitions. These may be useful when launching a new product/service or re-launching an
existing product/service. The purposes of sales promotion include: attracting new users for the
product; rewarding loyal users and increasing purchasing frequency among occasional users.

Sales promotion can be used to complement direct advertising and encourage repeat business. It
can be aimed at the customer or the retailer.
Personal Selling
Personal selling is the face-to-face interaction between a sales person or company representative
and customers to encourage customers to buy. This occurs when a salesperson is in direct contact
with the customer and tries to persuade customers to buy a product or service. Sales
representatives must have good personal and communications skills. They must have detailed
knowledge of the product or service being sold. They provide feedback to the company on
customers’ reactions to the product/service.

Public Relations and Publicity

Public relations and publicity relate to the effort made to establish and maintain a favorable
public image and build up good relations with the public. It is unpaid program designed to help
the public to understand the company and its product.
The aim of PR is to generate positive customer relations for the business. It achieves favorable
publicity thereby creating a positive image for the product, service or firm. Methods for
communicating the message include:
 writing press releases:- informing the public about your firm, your product, or services
 participating in social/special events
 sponsorship
 speech giving
 lobbying: building relationship with people who have influence e.g. government officials
 charitable activities etc.
Sponsorship is where a company pays money so that their name/logo can be associated with an
event/sports team. The company will then be tied to any publicity of the event/sports team.

Direct marketing
Direct marketing involves sending letters, emails, or making phone calls to individual target
clients to market your product or service.

Factors to Consider in Choosing the Promotional Method(s) to Use

 Target audience  Time
 Promotion objectives • Coverage
 The available budget • Availability of media
• Nature of the product • Location of customers

4) PLACE
Once goods are manufactured, priced and promoted, they must be distributed to the consumers at
the right place, at right time. Place is concerned with various matters of distributing and storing
products. It consists of decisions related to physical distribution and channels of distribution.

Physical distribution is a set of activities related to efficient movement of the product from the
producer to the final consumers. These activities include:
 Order processing- this involves procedures for receiving, handling and filling orders
accurately
 Inventory control-this is the process of maintaining the desired quantity of the product
 Warehousing- this involves assembling, sorting, grading, storing the products and
preparing them for reshipping
 Material handling- this is a process of protecting the product from damage, loss and
theft
 Transportation- this involves mode of transport e. g. railroads, trucks, pipelines, water
vessels, airplanes

Channel of distribution is the path through which the products pass from the producer to
consumers. It consists of individual or organizations which facilitate the movement of goods
from the producer to the final consumers. The goods may be distributed directly or through a
chain of intermediaries or middlemen

Examples of intermediaries: retailers, wholesalers, agents and brokers.

Wholesaler: The wholesaler is the link in the channel of distribution that connects the
manufacturer to the retailer. The wholesaler provides a number of services to the manufacturer
including: purchasing the product in large quantities; storing the product; gathering information
on consumer preferences/trends and breaking down the bulk quantities (i.e. sells in smaller
quantities). The wholesaler also provides a number of services to the retailer including delivery
service and credit facilities. Example: Musgrave Wholesalers.

Retailer: The retailer is the link in the channel of distribution connecting the consumer to the
wholesaler or the manufacturer. They sell a range of goods directly to consumers, e. g.
newsagent, bookstore, health food shop.

Functions of Distribution Channel

 Research and information – helps to gather and communicate information about
customers, competitors and market conditions
 Promotion – helps to introduce the products and influence customers to buy.

 Negotiation –negotiate with customers on price and other terms

 Physical distribution - helps to transport and store the goods

 Financing- sometimes helps to provide financing

 Matching - grading, assembling and packaging.

 Contact – helps to communicate with prospective buyers.

Levels of Distribution Channels

Factors Determining the Choice of Distribution Channel
 Market related factors: i.e. location and coverage, number of customers/buyers, size of
order, customer buying habits etc.
 Product related factors: i.e. type of product, unit value, perishability. Examples,
products of low unit value and common use are sold through intermediaries. Expensive
products and industrial products are sold directly by the producers. Perishable goods need
short channel to avoid repeated handling.

 Middlemen related factors: i.e. availability, attitudes of middlemen towards producer’s

policies, services provided by middlemen, sales potential, costs of distribution etc.
 Company characteristics: i.e. size of the firm, financial resources, services provided by
sellers etc.
 Environmental factors: e.g. government regulations, technology in use, social factors
etc.