DEVELOPING THE

MARKETING MIX
Chapter 4
MARKETING MIX
 The marketing mix is a business tool used in
marketing by marketers. The marketing mix,
originally coined by Neil Borden, can be used
when determining a product or brand's offer,
and is often associated with the four Ps.
4 PS (ELEMENTS) OF
MARKETING (ACCDG. TO E. JEROME
MCCARTHY)

 Product
 Price
 Promotion
 Place
PRODUCT
 A product can be either a tangible
good or an intangible service that
fulfills a need or want of
consumers. It’s imperative that
you have a clear grasp of exactly
what your product is and what
makes it unique before you can
successfully market it.
COMPONENTS OF THE PHYSICAL
PRODUCTS

Packaging – serves to contain and
protect, and, sometimes, identify and
promote the product.

Labeling – is a display of information
about a product on its container,
packaging, or on the product itself. Labels
are product’s “silent salesman.”
PACKAGING
Purposes of Packaging:
1. It protects the product en route
to the consumer.
2. It makes product storage and
display more practical and
effective.
3. It preserves the product for
further customer use.
WHEN DECIDING ON PRODUCT PACKAGING,
THE FOLLOWING MUST BE CONSIDERED:
 How much quantity of the product
should be contained in the package?
 What physical attributes should the
packaging have to facilitate customer
use?
 What legal requirements must the
package comply with?
 What is the most appropriate shape of
the package?
FACTORS THAT MUST BE CONSIDERED IN
DECIDING ON THE LABELING OF A PRODUCT:
 Establish the image or personality of the
product based on the tastes and preferences
of the target market.
 Determine the most important features of the
product to the target market.
 Determine whether 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.
NEW PRODUCT DEVELOPMENT
 one of the most effective ways that
companies can get ahead of
competition
 Although product development
and innovation may be a slow and
expensive process, the rewards it
promises are worth the costs.
WHY DO COMPANIES
INTRODUCE NEW PRODUCTS?

To defend its market share
 To position ahead of
competition in a market
segment
 To establish a foothold in a
future market in the market
 To take advantage of strengths
in product distribution
 THE NEW PRODUCT
DEVELOPMENT PROCESS
STEP 1: IDEA GENERATION
 the stage where any or all of several idea
generation techniques are used to generate
as many new product ideas as possible
 techniques:
 Need/problem identification
 Attribute listing
 Forced relationships
 Morphological analysis
 Brainstorming
STEP 2: IDEA SCREENING
 the stage where the ideas generated in the
initial step are screened using predetermined
criteria to reduce them to a manageable few
STEP 3: CONCEPT
DEVELOPMENT AND TESTING
 the stage where new product ideas are
converted to customer-centered product
concepts and tested by a representative
sample of consumers for acceptability,
believability, and potential intent
STEP 4: BUSINESS ANALYSIS
 pencil-pushing stage where, based on
concept development and testing results,
probable sales of the new product are
calculated together with its costs and
potential profitability
STEP 5: PRODUCT
DEVELOPMENT
 the stage where the product concept is
converted into a tangible working prototype
STEP 6: MARKET TESTING
 the stage where the new market is marketed
in a limited geographical area to determine
whether fine tuning of attributes,
positioning, pricing, advertising, and
promotions program are necessary
STEP 7: PRODUCT
COMMERCIALIZATION
 the stage where a new product is launched
STEP 8: REVIEW OF MARKET
PERFORMANCE
 evaluate the effectiveness of your marketing
strategy, and revise or extend as needed.
PRICE
 Once a concrete understanding of the
product offering is established we can
start making some pricing decisions.
Price determinations will impact profit
margins, supply, demand and marketing
strategy. Similar (in concept) products
and brands may need to be positioned
differently based on varying price
points, while price elasticity
considerations may influence our next
two Ps.
PRODUCT COST ESTIMATION
 Before determining the price of a
product or service, the total cost of
production must be computed. This is
because it would make no business
sense if the price is less than the cost of
production.
 With physical products, two types of
cost are calculated:
a) Unit variable cost
b) Unit share of operating and other
expenses, or what is sometimes referred
to as fixed cost
UNIT VARIABLE COST
 refers to how much it would
cost to manufacture one unit
of the product
 includes the cost of direct
materials, direct labor, and
direct overhead
EXAMPLE OF DIRECT MATERIALS
COST:
 Direct materials used in the manufacture of a
shirt may include fabric, thread, and buttons. If
2 meters of fabric, 5 meters of thread, 6 buttons,
and 1 cardboard box for product packaging are
used, its material cost would be:

Material Cost Cost per Shirt

Fabric PhP100.00 per meter PhP200.00

Thread PhP4.00 per meter PhP20.00

Buttons PhP5.00 per piece PhP30.00

Cardboard box PhP10.00 per piece PhP10.00

TOTAL PhP260.00
EXAMPLE OF DIRECT LABOR COST:
 Direct labor 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 PhP30.00
Sewing PhP25.00
Collar attachment PhP5.00
Button attachment PhP5.00
Total PhP65.00
EXAMPLE OF DIRECT OVERHEAD:
 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 shirt produced within the
same month.
 If the total factory manufacturing overhead for a
particular month is PhP20,000, and the total
number of shirts produced within the same
month is 4,000 pieces, the direct overhead cost
per unit would be PhP5.00 (PhP20,000 / 4,000).
PRODUCT COST
Product cost of a shirt = 260 + 65 + 5
= PhP330.00
UNIT SHARE OF FIXED COST
 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 in the same
period. This means that if in a particular month,
the shirt factory incurred total fixed cost of
PhP400,000 and was able to produce 4,000 units
of shirt for the same month, each shirt would have
to absorb PhP100 of fixed costs (PhP400,000 /
4,000).
TOTAL UNIT COST OF EACH
SHIRT:

Cost Component Amount

Direct materials PhP260.00
Direct labor PhP65.00
Direct overhead PhP5.00
Unit fixed cost PhP100.00
Total PhP430.00
PRICING STRATEGIES:
 Mark-up Pricing
 Target return pricing
 Odd pricing or psychological pricing
 Loss leader pricing
 Price lining
 Prestige pricing
 Marginal pricing
 Predatory pricing
 Going rate pricing
 Promotional pricing
MARK-UP PRICING
o Isa pricing strategy that allows
the seller a fixed mark-up
everytime the product is sold
o Mark-up = Expenses + Profits

M = E + P
M = (430) + (430 x .20)
= 430 + 86
= PhP516.00
TARGET RETURN PRICING
  is a pricing method that allows a product
manufacturer to recover a certain portion
of his/her investment per year
 The formula for obtaining a product’s
target return price is:
TRP = UC +
where, TRP = target return price
UC = unit cost
DR = desired return
IC = invested capital
US = unit sales
EXAMPLE:
  Given: UC = PhP16.00
DR = 25%
IC = PhP1,000,000
US = 50,000 units

Solution: TRP = UC +
= 16 +
= PhP21.00
ODD PRICING OR
PSYCHOLOGICAL PRICING
 Is a pricing method premised on the
theory that consumers will perceive
products with odd price endings as
lower in price than they actually are
 Consumers may find products priced at
PhP99.95 closer to PhP99.00 than to
PhP100.00. There are about an equal
number of researches that say this is
true, and those that say that it is
inconclusive.
LOSS LEADER PRICING
 A pricing strategy frequently used by
supermarkets
 Is based on the practice of housewives using
only a few selected essential products, e.g.,
sugar, coffee, eggs, laundry detergents, and
some canned good products, as their sole basis
for price comparison
 Supermarket retailers will deliberately price
these “loss leaders” or comparison items low
to make their products appear more
affordable than others. The mark up lost on
these loss leader items are recovered from
other items where mark-ups are higher.
PRICE LINING
 A pricing strategy designed to simplify a
consumer’s buying decision
 Involves reducing the number of price
points on merchandise to as little as
possible, in extreme cases to only one
price point
 Example: Japan Home Center prices all
the merchandise in their store at
PhP66.00 or PhP88.00.
PRESTIGE PRICING
 A pricing strategy that disregards the unit
cost of a product or service; instead, it
capitalizes on the high value perception or
positive brand reputation of a product or
service. It charges a price much higher
than its unit cost.
 This is a pricing strategy implemented by
some fragrance and skin care products.
Using prestige pricing, it would be unusual
for a fragrance brand to have a unit cost of
PhP1,300 and a selling price of PhP3,500.
MARGINAL PRICING
 where a business organization
prices its products at a range
below its unit cost but higher that
its unit variable cost
 Used in order to offer the lowest
price in a sealed bidding or other
highly competitive situations
 Main objective: to outmaneuver
competition, expand customer
base, and increase market share
PREDATORY PRICING
 A pricing strategy where the firm prices
its products lower than unit variable cost,
initially resulting in short-term losses
 Objective: to price a new or persistent
competitor out of the market
 After its purpose is achieved, the
product’s original selling price is restored
and short-term losses recovered.
 It is illegal in most countries including the
Philippines (under RA 8479).
GOING RATE PRICING
 A pricing strategy where the firm prices
its products at the same level as or very
close to its competitors’ prices
 It effectively maintains the product’s
price competitiveness in its market.
 The danger of going rate pricing is that
it may result in price wars, with each
company trying to outprice another, to
the detriment of all industry
participants.
PROMOTIONAL PRICING
 A pricing strategy involving a temporary
reduction in the selling price of a
product/service in order to induce trial or
to encourage repeat purchase
WHEN NEW PRODUCTS ARE
INTRODUCED INTO THE MARKET,
THE FOLLOWING PRICING
STRATEGIES CAN BE USED:

1. Price Skimming
2. Penetration pricing
PRICE SKIMMING
 where the product’s selling price is way
above its unit cost
 It allows the company to recover the
research and development costs and
expenses
 Usually accompanied by intensive
expensive advertising and promotional
campaign
 Usually effective with electronic products
 Weakness: it makes the market very
attractive for would-be competitors
because of the appeal of large price mark-
ups
PENETRATION PRICING
 Where the new product is priced only
marginally above its unit cost
 Objective: to capture a large part of the
market at an early stage by making the
product affordable to the greatest number of
people
 Advantage: it can discourage would-be
competitors from entering the market
because of low price markup
 Disadvantage: it can prolong the recovery
period for research and development,
advertising, and promotion costs
 PRICING STRATEGY SELECTION
PRICING OBJECTIVE PRICING STRATEGY
Maximum Revenue Penetration pricing
Marginal pricing
Going rate pricing
Promotional pricing

Maximum Market Share Penetration pricing

Marginal pricing
Going rate pricing
Promotional pricing

Maximum Profit Price skimming

Prestige pricing

Survival Marginal pricing

PLACE
 Often you will hear marketers saying that
marketing is about putting the right product,
at the right price, at the right place, at the
right time. It’s critical then, to evaluate what
the ideal locations are to convert potential
clients into actual clients.
 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 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
 Since consumers are geographically
dispersed, most companies rarely sell their
products directly to the consumer. They
utilize marketing intermediaries.
 Marketing intermediaries – also called
distribution channels, bring the products of
most companies to the customer.
 Examples of marketing intermediaries:
wholesalers, retailers (convenience stores,
sari-sari stores)
KEY FUNCTIONS OF MARKETING
INTERMEDIARIES:
1. Provide access and convenience for the product’s
consumers
2. Provide manufacturers with vital marketing
research information on consumer profiles and
product movement
3. Take care of storage and transport of products to
the customer
4. Assume the operational costs of the distribution
5. Help in the development and implementation of
communication programs to enhance product sales
6. 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.
SUPPLY CHAIN
 is the network of all the individuals,
organizations, resources, activities, and
technology involved in the creation and sale
of a product

Manufacture
Supplier Customer
r
PRODUCT DISTRIBUTION TYPES
1. Exclusive Distribution – distribution is
limited to a selected number of dealers,
usually one or a few
2. Intensive Distribution – involves making a
product available in as many retail outlets
as possible; used mostly by fast-moving
consumer goods and convenience goods
3. Selective Distribution – positioned
between exclusive and intensive
distribution; involves the use of more than
one but not as many dealers as in intensive
distribution
WHOLESALING VS. RETAILING
 Wholesaling is the sale of goods to others to be resold.
It is an important product distribution function.
Without wholesalers, product manufacturers would
have to deliver goods directly to retailers.
 Manufacturers allow wholesalers a mark-up for the
goods distributed.
 Key Functions of Wholesalers:
 Information collection and dissemination
 Bulk-breaking
 Assortment-building
 Product storage and transportation
 Financing
 Risk-taking
 Retailing is the sale of goods/services to the
final customer for his personal consumption.
 Typical examples of retailers are drug stores,
sari-sari stores, restaurants, movie houses,
convenience stores, and supermarkets.
 Key Functions of Retailers:
 Information collection and dissemination
 Product assortment selection
 Product storage
 Financing
 Product promotion
 Risk-taking
PROMOTION
 is a general term which includes the
following: advertising, promotions, personal
selling, publicity, and public relations
 Marketing Communications Model
1. Advertiser encodes his message by incorporating signs,
images, language, words, colors, sounds, personalities,
and characters that best captures the message that he
intends to communicate to the customer.
2. The advertising message is sent to the intended
customer through a selected medium (e.g. television
or newspaper). The advertiser expects that the
customer (a) sees/hears the advertising message, (b)
decodes/understands and interprets the message
accurately as intended; ( c) remembers/recalls the
message; and (4) is affected by the message and acts
upon by making a purchase.
3. Barriers in message transmission may cause the
customer not to receive or not to understand the
intent of the message. (e.g. In television
advertisements, the video signal and sound reception
are poor, or there is a background noise while the
advertisement is being aired).
ADVERTISING
 is defined as any paid and public presentation
of products, services, or ideas, by an
identified sponsor through a medium
 Objectives of advertising:
 To build awareness
 To inform
 To persuade
 To remind
BRAND AWARENESS
 is the extent to which consumers are familiar with
the distinctive qualities or image of a particular
brand of goods and services
 Advantages of brand awareness:
1. Learning advantages – which heavily influence the
formation and strength of associations that comprise
the brand’s image
2. Consideration advantages – which increase the
likelihood that the brand will be included in the
consumer’s “consideration set,” or the set of brands
that receive serious consideration for purchase
3. Choice advantages – which can affect choices among
brands included in the consideration set, despite the
fact that there may ne no other associations to those
brands
ADVERTISING CAMPAIGNS
 Before launching advertising campaigns,
companies go through the following steps:
1. Identify the target market
2. Establishing advertising objectives
3. Determining advertising message
 Functional
 Symbolic
 Experimental
4. Selecting media (television, radio, print, or
web)
5. Managing and coordinating the marketing
communication process
BEFORE LAUNCHING ADVERTISING CAMPAIGNS,
COMPANIES GO THROUGH THE FOLLOWING
STEPS:
1. Identifying the target market
2. Establishing advertising objectives
3. Determining advertising message
a) Functional – provide a product brand as the solution to a
current consumption problem experienced by customers
b) Symbolic – associate brand ownership with an aspirational
group; addresses other abstract need states that involve
aspects not addressed by functional product benefits
c) Experimental – attempts to promote brands using high
sensory value
4. Selecting media
5. Managing and coordinating the marketing
communication process
TYPES OF MEDIA AND TECHNIQUES
USED IN ADVERTISING
A. TRADITIONAL MEDIA AND TECHNIQUES
1. Radio
2. Print
3. Newspaper
4. Magazine
5. Television
B. ALTERNATIVE MEDIA AND TECHNIQUES
1. Cinema
2. Billboards
3. Websites
4. Social Networking Sites
5. Directory advertising
6. Product placement
7. E-mail advertising
8. Transit advertising
9. Online ads
10. Direct response advertising
11. Point-of-Purchase, Signs, Posters, and Leaflets
TRADITIONAL MEDIA AND
TEHCNIQUES:
 Radio – a viable advertising vehicle in the
Philippines since 1922; is the most accessible
media
Advantages Disadvantages

Relatively inexpensive Audio only

Target marketing possible Frequency required for

effectiveness

Passive medium
 Print – Many advertisers still favor newspapers as
their vehicle of choice because of their national
circulation, population penetration, and pass-on
readership
1. Newspaper
Advantages Disadvantages
credible spillage
pass-on readership obsolesence
target marketing possible poor image quality

2. Magazine
Advantages Disadvantages
Good image quality Long lead time
Target marketing possible Difficult to time
advertising
Pass-on readership
Not subject
 Television – has a very strong influence in
Philippine society since its introduction in the
1950s

Advantages Disadvantages

Audio, visual, and movement Expensive

Target marketing possible Frequency necessary for

effectiveness
ALTERNATIVE MEDIA AND
TECHNIQUES
 Cinema
Advantages Disadvantages
Audio, video, movement Not cost efficient
Larger than life Limited to reminder advertising

Captive audience Short attention span

Relatively inexpensive
 Billboard
Advantages Disadvantages
Relatively inexpensive Short messages only
Larger than life Reminder advertising only
Exposed to many potential May be damaged by elements
customers
Legal restrictions
 Websites
Advantages Disadvantages
Low cost Must be upgraded regularly
High level of detail Clutter
Customized
interactive

 Social Networking Sites

Advantages Disadvantages

Low cost May be ignored

High level of detail

Well-segmented audience
 Directory Advertising

Advantages Disadvantages

Pinpointed advertising Accompanies declining

technology

timely

 Product Placement
Advantages Disadvantages

Unique exposure Little stand-alone value

Well-segmented audience Sometimes used abusively

 E-mail Advertising
Advantages Disadvantages

No cost Clutter

Highly targeted Messages sometimes classified

as “spam”

 Transit Advertising
Advantages Disadvantages

Mobile Short messages only

Relatively inexpensive Reminder advertising only

Consistently daily audience May be damaged by the

elements
 Online Ads
Advantages Disadvantages

Well-segmented audience Easy to ignore

Low cost

 Direct Response Advertising

Advantages Disadvantages

High information content Clutter

measurable Poor image

 Point-of-Purchase, Signs, Posters, and
Leaflets

Advantages Disadvantages

last ditch purchase reminder short messages only

close proximity to physical reminder advertising only

product
PROMOTIONS
 are activities or a series of activities that are
intended to boost the sales of a product or
service, usually short-term. These are
actions a company can take to stimulate
customers to buy immediately than later.
 Two types of promotions:
 Tradepromotions
 Consumer promotions
TRADE PROMOTIONS
 are intended for marketing intermediaries
such as retailers
 purpose: to encourage the intermediaries to
increase purchases, to stock a particular
product, to accelerate purchases or
payments for purchases, or to extend
preference towards a particular brand, to
“push” products to the retailer or trade
outlet
 examples: 10 + 1; free store signages
CONSUMER PROMOTIONS
 are intended for consumers
 Purpose: to induce product trial, to
encourage brand switching, or to reward
consumer patronage, to “pull” consumers to
brand retailers or trade outlets to see, try,
and/or purchase the product
 Examples: distribution of product samples,
consumer contests, coupons, and raffles
PERSONAL SELLING
 occurs when an individual salesperson sells a
product, service, or solution to a client
 It 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 institutional in nature.
 Examples: equipment, recurring supplies,
motor vehicles, homes, financial services,
and unsought goods such as life insurance
and memorial plans
PUBLIC RELATIONS
 is creating and maintaining goodwill of an
organization’s various publics (customers,
employees, investors, suppliers, etc.)
through publicity and other non-paid forms
of communication
 It looks after the public’s perception of a
company or its brand’s reputation, with the
end of influencing opinion and behavior.
 Example: toy giving program for indigent
children of Jollibee
PUBLICITY
 is a communication written and produced by
public relations professionals intended to
create a favorable public image for a client
 Many regard publicity as a more effective
promotional tool compared to advertising.
 Products/Services: How can you
develop your products or services?
 Prices/Fees: How can we change
our pricing model?
 Place/Access: What new distribution
options are there for customers to
experience our product, e.g. online,
in-store, mobile etc.
 Promotion: How can we add to or
substitute the combination within
paid, owned and earned media
channels?
 The 4Ps were designed at a time where
businesses sold products, rather than
services and the role of customer
service in helping brand development
wasn't so well known. Over time, Booms
and Pitner added three extended
‘service mix P’s': Participants, Physical
evidence and Processes, and later
Participants was renamed People.
Today, it's recommended that the full
7Ps of the marketing mix are considered
when reviewing competitive strategies.