182 183
how sales and marketing works
Marketing mix
INEXPENSIVE
EXPENSIVE
SLOW
QUICK
Breakfast positioning map
The positioning of the various breakfast foods
has been determined by the speed at which
the food is prepared, measured from slowest to
fastest, and the price of each food type, from the
least expensive to the most expensive.
“Positioning is not what you do
to a product. (It) is what you do
to the mind of the prospect.”
Al Ries and Jack Trout
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A breakfast dish
aimed at those
with ample
leisure time
and money.
With a slow cook time,
pancakes occupy a
niche gap in the
market.
An expensive
breakfast food
ideal for busy
professionals
in a hurry.
Centrally
positioned,
cereal is the
most popular
breakfast food.
Older people
and children
provide strong
demand for
hot cereals.
Students make
the ideal target
market for
instant breakfast
products.
US_182-183_Product_Positioning_Steve.indd 183 21/11/2014 14:25
Product life cycle
How it works
There are typically six identifiable stages in a product
life cycle, with the product’s rate of growth measured
by time and revenue. Most businesses have more than
one product on the market at any time, and strategic
manipulation of the portfolio of products at their
different stages in the cycle is crucial to maintaining
business growth. The life of older products may be
prolonged by extension strategies, but if they are no
longer grabbing new market share, the business must
consider launching new products in order to continue
generating revenue.
Growth Saturation
Sales increase and the cost per
customer falls as profits rise.
There are more customers—and
more competitors.
Sales peak and the cost per
customer is at its lowest.
Profits are now high and
competition is intense.
Profits fall as sales fall and the
customer base contracts. The
cost per customer remains low.
Marketing spend is now kept
at a minimum.
Decline
Sales are typically low and
cost per customer is high
as the market takes time to
accept the new product.
Introduction
Business outlay is high due to
product development costs
and marketing budget.
There is no return on
investment.
Launch
sales
time
Every successful product launched on the market experiences growth
followed by decline. To maximize profitability, business managers
must recognize and manage each stage of the product’s life span.
$
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184 185
how sales and marketing work
Marketing mix
Diffusion of innovation
(consumer uptake) %
Marketers identify five distinct
customer types according to
how quickly they pick up on
a new product.
Rising stars
Products with a high
market share in a
high-growth market;
they require a big
marketing spend to
keep them growing.
Cash cows
Products with a high
market share in a
low-growth market;
they generate money
to support rising stars.
Problem children
Products with a low
market share in a
high-growth market;
they need a big
marketing spend.
Dogs
Products with low
market share and low
growth; they may stay
in portfolio to keep
customers happy.
EARLY ADOPTERS
EARLY MAJORITY
LATE MAJORITY
LAGGARDS
INNOVATORS
2.5%
13.5%
34% 34%
16%
The product is phased out
as sales stall or continue to
fall. The business introduces
a replacement product before
the old one is withdrawn.
Withdrawal
PORTFOLIO ANALYSIS
Extension strategy Revival
of a product by rebranding, or
repackaging, repricing it, or
finding new markets
Portfolio analysis Each of
a company’s products measured
by growth rate and market share
to determine marketing spend
Product life cycle management
(PLM) Tracking of product data
from inception to withdrawal
NEED TO KNOW
6
months
the length of time
a product can be
labelled as “new”
US_184-185_Product_Life_Cycle.indd 185 21/11/2014 16:25
184 185
how sales and marketing work
Marketing mix
Diffusion of innovation
(consumer uptake) %
Marketers identify five distinct
customer types according to
how quickly they pick up on
a new product.
Rising stars
Products with a high
market share in a
high-growth market;
they require a big
marketing spend to
keep them growing.
Cash cows
Products with a high
market share in a
low-growth market;
they generate money
to support rising stars.
Problem children
Products with a low
market share in a
high-growth market;
they need a big
marketing spend.
Dogs
Products with low
market share and low
growth; they may stay
in portfolio to keep
customers happy.
EARLY ADOPTERS
EARLY MAJORITY
LATE MAJORITY
LAGGARDS
INNOVATORS
2.5%
13.5%
34% 34%
16%
The product is phased out
as sales stall or continue to
fall. The business introduces
a replacement product before
the old one is withdrawn.
Withdrawal
PORTFOLIO ANALYSIS
Extension strategy Revival
of a product by rebranding, or
repackaging, repricing it, or
finding new markets
Portfolio analysis Each of
a company’s products measured
by growth rate and market share
to determine marketing spend
Product life cycle management
(PLM) Tracking of product data
from inception to withdrawal
NEED TO KNOW
6
months
the length of time
a product can be
labelled as “new”
US_184-185_Product_Life_Cycle.indd 185 21/11/2014 16:25
Pricing strategies
A number of different strategies can be
used to determine the price of a product.
Cost-plus pricing is a retail markup used
by many companies to ensure a profit is
made. For example, adding a markup of
50 percent to a product that costs $2 to
make means that every unit will sell for
$3, generating a $1 profit.
Price
How it works
To set the price of a product,
marketers adopt a pricing strategy
based not only on the actual cost
of production but also on the
perceived attractiveness of the
product to consumers. If consumers
think a product has a high value,
they will be prepared to pay more
for it, but if they believe the value
of the product is low they will
look for the cheapest price among
competing products.
A business must also take into
account the price charged by rival
organizations, particularly in
competitive markets. Setting
a price above that charged by
competitors can only work if the
product is superior to others.
Skimming
High launch price Charge more
than usual in the short term while a
product is seen as unique.
Correct timing Set a higher price
when the business has a temporary
advantage in the marketplace,
before competing products appear.
Price adjustment Reduce the
price once competitors enter the
market, or to draw more customers.
Economy
High prevalence Manufacture
a product that is very similar
to others in the same category.
Low price Undercut competitors’
pricing and gain a larger share
of the market.
Minimal marketing Keep the
marketing and branding spend
as low as possible.
Low quality
Low price
High price
Pricing matrix: price vs. quality
A product’s quality affects its price tag—
the higher the quality, the more money
consumers will pay for it—but marketers
use strategies that play on the interaction
between price and perceived quality.
5%
increase in price
is worth more
than a 5% increase
in market share
Price is a crucial variable of the marketing mix: it generates revenue,
while product, promotion, and place yield costs. Pricing may also be the
marketer’s most potent tool because even minor tweaks affect returns.
Price, value, and cost
Price refers to the amount
a product sells for; value refers
to the product’s actual worth;
cost is the amount that has been
spent to manufacture the product
NEED TO KNOW
$$$$
$
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186 187
300%
HOW SALES AND MARKETING WORKS
Marketing mix
Premium
High price Charge as much as
the market will pay for an item.
Unique value Apply premium
prices to products that have no
comparable substitute, such as
famous brand-name goods.
High production cost Charge
a premium price because a product
is customized and offers no savings
through volume manufacturing.
High quality
Other pricing strategies
Market
penetration
Low price Charge the lowest price
possible in order to lure customers
away from competitors.
Price adjustment Increase the
price to a normal level once the
product has a loyal following.
Pricing flexibility Reassess pricing;
initial high-volume sales lower cost
of production, allowing price tweaks.
COCKTAIL
350–400%
of cost
OTHER
LIQUOR
400–500%
of cost
GLASS
OF WINE
300–400%
of cost
BEER
250–300%
of cost
CARAFE
OF WINE
250–300%
of cost
DESSERT
WINE
200–250%
of cost
Psychological
pricing
Manipulate a
customer’s emotions,
appealing to their thrifty
side or desire for prestige.
Bundle pricing
Offer several products
for an overall price,
providing better value
than buying separately.
Geographic pricing
Charge different prices
for the same product
in different locations.
Non-pricing
strategies
Avoid adjusting the
price to attract sales,
promoting superiority
of product instead.
PRICING MARKUP COMPARISON
Different industries adopt
different approaches to
markups. A markup of
two to five times the cost
is typically applied to
drinks served in bars and
restaurants. The highest
markup is usually applied
to the second-cheapest
bottle of wine on the
wine list, as people tend
to avoid the cheapest item.
COST
(100%)
200%
400%
$
$$$$
$
$$$$
$
?
US_186-187_Pricing.indd 187 02/12/2014 14:57
186 187
300%
HOW SALES AND MARKETING WORKS
Marketing mix
Premium
High price Charge as much as
the market will pay for an item.
Unique value Apply premium
prices to products that have no
comparable substitute, such as
famous brand-name goods.
High production cost Charge
a premium price because a product
is customized and offers no savings
through volume manufacturing.
High quality
Other pricing strategies
Market
penetration
Low price Charge the lowest price
possible in order to lure customers
away from competitors.
Price adjustment Increase the
price to a normal level once the
product has a loyal following.
Pricing flexibility Reassess pricing;
initial high-volume sales lower cost
of production, allowing price tweaks.
COCKTAIL
350–400%
of cost
OTHER
LIQUOR
400–500%
of cost
GLASS
OF WINE
300–400%
of cost
BEER
250–300%
of cost
CARAFE
OF WINE
250–300%
of cost
DESSERT
WINE
200–250%
of cost
Psychological
pricing
Manipulate a
customer’s emotions,
appealing to their thrifty
side or desire for prestige.
Bundle pricing
Offer several products
for an overall price,
providing better value
than buying separately.
Geographic pricing
Charge different prices
for the same product
in different locations.
Non-pricing
strategies
Avoid adjusting the
price to attract sales,
promoting superiority
of product instead.
PRICING MARKUP COMPARISON
Different industries adopt
different approaches to
markups. A markup of
two to five times the cost
is typically applied to
drinks served in bars and
restaurants. The highest
markup is usually applied
to the second-cheapest
bottle of wine on the
wine list, as people tend
to avoid the cheapest item.
COST
(100%)
200%
400%
$
$$$$
$
$$$$
$
?
US_186-187_Pricing.indd 187 02/12/2014 14:57
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