Advertising
This is a method of promotion that a business has to pay for. It is carried out through a variety of mediums, such as television, newspapers, magazines, cinema or radio. Advertising is either informative (making the market aware of the product / service) or persuasive (trying to entice customers to buy the product / service).
Advertising elasticity
This measures the effect on the demand for a product, following a change in advertising expenditure. It is calculated by the formula :
If a large fall in advertising expenditure lead to just a small fall in quantity demanded, then the product would be advertising inelastic.
Advertising Standards Authority (ASA)
This is an organisation which monitors advertisements in print (i.e. magazines, newspapers, posters) in the UK and ensures that they are "fair, true, decent and legal".
Advertising strategy
This is the way that the business attempts to achieve its advertising objectives. The advertising strategy will usually state the necessary finance that must be available and the relevant media to be used.
Branding
This means creating a name and identity for a product which differentiates it from those of competitors.
Brand leader
This is the product (brand) which has the largest market share in a particular industry. It is often in the 'Maturity' stage of the product lifecycle and due to its brand loyalty, it can have a high retail price.
Brand loyalty
This is where customers are happy with their purchase of a particular product, and will return to purchase it again in the future.
Consumer durables
These are products which are purchased by households, and are likely to last for a considerable period of time (e.g. televisions, cars, ovens, video-recorders, etc).
Contribution per unit
This is selling price minus variable costs per unit. The remaining money contributes towards covering fixed costs.
Cost-plus pricing
This means arriving at the selling price for a product by adding a profit mark-up to the total costs per unit.
Direct mail
This refers to promotional material that is sent directly to certain homes and addresses, which are selected from a list of known customers (e.g. 'Britannia Music Club').
Direct marketing
This refers to promotional activities that involve the business making direct contact with potential customers (e.g. direct mail and door-to-door selling).
Distribution
This refers to the process of getting the products from the factory to the customers.
Distribution channels
These are the stages involved in getting the product from the factory to the customers (e.g. wholesalers and retail outlets).
Income elasticity
This measures the effect on the demand for a product, following a change in the income of customers. It is calculated by the formula :
If a large fall in income leads to a small fall in quantity demanded, then the product would be income inelastic.
Loss leader
This term refers to a product which has its retail price set at a level which is less than its costs of production. This strategy is often used by multi-product businesses, which hope that customers will buy their loss leader product, as well as a range of their other products which carry a significant profit margin.
Marketing
The business function which involves getting the right product to the right place, at the right price, using appropriate methods of promotion, and doing it profitably. It is often pre-empted by carrying out extensive market research, in order to discover the customers' needs and wants.
Marketing mix
This term refers to the four main marketing strategies through which a business will attempt to achieve its marketing objectives. These are often known as the '4 Ps' (product, price, promotion and place).
Market penetration
This is a pricing strategy for a new product, designed to undercut existing competitors and discourage potential new rivals from entering the market. The piece of the product is set at a low level in order to build up a large market share and a high degree of brand loyalty.
Packaging
This refers to the colour, shape and presentation of the product and its protective wrappings. This is an important element in the promotional mix that a business chooses, because packaging can create a Unique Selling Point (U.S.P) for a product.
Predatory pricing
This is a pricing strategy which involves a business setting a price for a product at such a low level that their competitors are either forced to leave the market or, more seriously, are forced out of business.
Price discrimination
This is a pricing strategy which involves a business charging different prices to different people for the same product or service. This strategy aims to maximise the sales revenue of the business, by charging a higher price to those groups of customers who have a low elasticity of demand, and charging a lower price to those groups who have a high elasticity of demand. For example, the train companies charge a high price early in the morning to commuters, and a lower price several hours later for other members of the public, for the same distance and journey from London to Birmingham.
Price elastic
This refers to a situation where a given percentage change in the price of a product results in a larger percentage change in the level of demand for it (e.g. luxury products such as cars, holidays, dishwashers, etc). These products are considered to be price sensitive, since even a small rise in price can result in a large fall in demand.
Price elasticity
This measures the effect on the demand for a product, following a change in its price. It is calculated by the formula :
If a large fall in the price of the product leads to a small fall in quantity demanded, then the product would be price inelastic. An answer of more than one indicates that the demand for the product is price elastic. An answer of between zero and one indicates that the demand for the product is price elastic.
Price inelastic
This refers to a situation where a given percentage change in the price of a product results in a smaller percentage change in the level of demand for it (e.g. necessity and habit-forming products, such as milk, newspapers, alcohol and tobacco).
Price leader
This is the term used to describe a product or brand which is a dominant force in the marketplace and it can set its price at any level it chooses. The price that is set by competitors will therefore be dictated by the price leader.
Price taker
This is the opposite to a price leader. It refers to the products of a business which are not market-leaders, and therefore they have to set their price based upon the level set by the dominant product in the market place.
Price war
This refers to a situation where two or more businesses lower their prices in an attempt to win sales and market share from each-other. Price wars are most likely to start in very competitive markets, where the growth potential is very high and consumer sales are very lucrative (e.g. the supermarket industry - Tesco and Asda). Consumers are the only group who really benefit from a price war in the short-term, since they pay lower prices. However, if the price war results in one or more of the competitors becoming unprofitable and being put out of business, then the consumer may be faced with less choice and higher prices than before the price war started.
Pricing methods
This refers to the different ways that a business can decide on the price(s) to charge for its product(s). The main pricing methods are :
- Mark-up pricing (adding a fixed percentage of profit to the direct production costs or total variable costs).
- Cost-plus pricing (adding a percentage of profit to the full cost per unit).
- Competitive pricing (setting prices based upon the existing businesses in the marketplace).
- Skimming (setting the price at a high level, to reflect the innovative nature of the product or to cover the high costs of production).
- Penetration (setting a low price level, to undercut the existing competitors and build up a large market share).
- Psychological pricing (this means setting the price for a product at a level based on the expectations of the consumer. For example, £9.99 instead of the £10 threshold, or £99 instead of the £100 threshold).
Product development
This is a strategy of bringing new products to the marketplace. It can either involve making slight improvements to existing products, or by developing and launching totally new products. The objectives of product development include to increase sales revenue, to increase market share, or to defend a brand leader by making it even better than the competitors' products.
Product differentiation
This is the perceived difference(s) that consumers believe exist between one product and its competitors. A product with a high degree of differentiation can be sold at a high price, therefore yielding a high profit-margin.
Sales promotion
This is a promotional strategy designed to boost the sales of a product in the short-term (using such tactics as a price discount, free products, competitions, discount coupons, etc).
Skimming
This is a pricing strategy for a new product, designed to create an up-market, expensive image by setting the price at a very high level. It is a strategy often used for new, innovative or high-tech. products, or those which have high production costs which need recouping quickly.
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