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4.5

The seven Ps of the marketing mix

Unit 4 · Marketing · SL and HL

The marketing mix is the set of decisions a business makes to sell a product to its target market. For goods the traditional four Ps (product, price, promotion, place) apply; services add three more (people, processes, physical evidence). This is the largest marketing topic: the product life cycle and extension strategies, branding, nine pricing methods (four at HL), promotion including social media, distribution, and how to build an appropriate mix.

🎯What you need to be able to do

  • Explain the relationship between the product life cycle, the product portfolio and the marketing mix; evaluate extension strategies; explain the link between the life cycle, investment, profit and cash flow.
  • Explain branding (awareness, development, loyalty, value) and its importance.
  • Evaluate cost-plus, penetration, loss leader, predatory and premium pricing; HL dynamic, competitive and contribution pricing and price elasticity of demand.
  • Evaluate above-the-line, below-the-line and through-the-line promotion, and social media marketing.
  • Evaluate distribution channels; the importance of people, processes and physical evidence for services; and appropriate marketing mixes.

📚The business management

Product: the product life cycle

The product life cycle over time through development, introduction, growth, maturity and decline. Sales are near zero at development, rise through introduction and growth, peak in maturity and fall in decline. Cash flow is negative in development and at launch, then rises to its highest in maturity.
The five stages, with sales and cash flow.
  • Development: research, design and testing; no sales; heavy spending, negative cash flow.
  • Introduction: launch; low sales, high promotion costs; usually losses; limited distribution.
  • Growth: sales rise quickly; profits begin; competitors enter; expand distribution.
  • Maturity: sales peak and level off; strong cash flow and profit; intense competition; focus on differentiation.
  • Decline: sales fall as tastes change or new products appear; decide whether to extend, milk (cut spending, keep collecting cash) or withdraw.

Life cycle, investment, profit and cash flow: investment is highest before and at launch, when cash flow is negative; profit and cash flow peak in maturity; that surplus funds the development of new products. A firm needs products at different stages: its product portfolio should balance products that use cash (new) with those that generate it (mature); the BCG matrix analyses this.

Extension strategies lengthen the maturity stage and delay decline: new versions or flavours, new packaging, new target markets (new segments or countries), new uses, price reductions, fresh promotion, bundling.

Sales over time rise, peak and start to fall. Without an extension strategy they fall to zero; with an extension strategy introduced in late maturity, a second hump keeps sales higher for longer.
An extension strategy adds a second lease of life.

Extension strategies cost money and may only delay the inevitable; sometimes resources are better spent on new products.

Product: branding

A brand is a name, symbol, design or image that identifies a product and distinguishes it from competitors.

  • Brand awareness: how far consumers recognize and recall the brand.
  • Brand development: building and extending the brand: new products under the same name, new markets, stronger identity.
  • Brand loyalty: customers repeatedly choose the brand, even when alternatives are cheaper.
  • Brand value: the extra value the brand adds: the premium customers will pay because of the name (brand equity).

Importance: allows premium pricing, creates loyalty and repeat sales, makes new products easier to launch, reduces price sensitivity, and becomes a valuable intangible asset. Risks: expensive to build, easily damaged by scandals or poor quality.

Price

  • Cost-plus (mark-up) pricing: unit cost plus a percentage mark-up. Simple and covers costs; ignores demand and competitors.
  • Penetration pricing: a low price to enter a market and win share quickly, raised later. Builds market share; low early profits; customers may resist later rises.
  • Loss leader: selling one product below cost to attract customers who buy other, profitable products (supermarket staples; printers sold cheaply with expensive ink).
  • Predatory pricing: pricing below cost to drive competitors out, then raising prices. Anti-competitive and illegal in many countries.
  • Premium pricing: a high price reflecting exclusivity, quality or brand image. High margins; small market; must be justified by brand and quality.
  • HL Dynamic pricing: prices change in real time with demand (airlines, hotels, ride-hailing surge pricing). Maximizes revenue; can seem unfair to customers.
  • HL Competitive pricing: set in relation to competitors’ prices (at, below or slightly above). Common in markets with similar products; ignores own costs.
  • HL Contribution pricing: any price above variable cost per unit contributes to fixed costs; used for special orders or spare capacity (toolkit).
  • HL Price elasticity of demand (PED): the responsiveness of quantity demanded to a price change: PED = %ΔQd ÷ %ΔP. If demand is price inelastic (|PED| < 1), raising price raises revenue; if elastic (|PED| > 1), lowering price raises revenue.
A handmade candle with materials 5 dollars, labour 4 dollars and overheads per unit 3 dollars gives a unit cost of 12 dollars. A 50 per cent mark-up adds 6 dollars, giving a price of 18 dollars.
Cost-plus pricing: unit cost × (1 + mark-up).

Promotion

Above the line (ATL)
paid mass-media advertising through independent media: TV, radio, newspapers, cinema, billboards, broad online display ads. Wide reach and brand awareness; expensive, hard to target and measure.
Below the line (BTL)
promotion the business controls directly and targets closely: sales promotions (discounts, buy-one-get-one), direct marketing, sponsorship, public relations, trade fairs, packaging, loyalty schemes. Targeted and measurable; smaller reach.
Through the line (TTL)
an integrated campaign combining ATL and BTL, for example a TV ad driving people to a website offer or in-store event.

Social media marketing promotes products through platforms such as Instagram, TikTok, YouTube and Facebook: organic posts, paid targeted ads, influencer marketing and user-generated content. Advantages: low cost, precise targeting by interests and location, two-way engagement, measurable results, content can go viral. Disadvantages: negative comments spread fast; needs constant content; algorithm changes; influencer fraud and authenticity concerns; saturation.

Place (distribution)

Distribution channels are the routes from producer to consumer:

  • Zero-level (direct): producer → consumer (own shop, own website, farmers’ market). Control and higher margin; limited reach.
  • One-level: producer → retailer → consumer (minimarket chains, online marketplaces).
  • Two-level: producer → wholesaler → retailer → consumer (common for FMCG in Indonesia’s many small warungs).
  • Agents and distributors for international markets.

More intermediaries give wider reach but lower margins and less control. Omnichannel retailing combines physical and online channels.

People, processes and physical evidence (services)

  • People: employees are part of the service; their knowledge, attitude and appearance shape the customer’s experience, so recruitment, training and motivation matter. Expected employee–customer relationships vary between cultures (formality, warmth, directness).
  • Processes: the systems by which the service is delivered: booking, waiting times, payment, delivery. Efficient, reliable processes (and changes such as online check-in and QR ordering) improve satisfaction.
  • Physical evidence: tangible cues that reassure customers about an intangible service: the building, decor, cleanliness, uniforms, website design, brochures, reviews and certificates.

Appropriate marketing mixes

The Ps must be consistent with each other and with the target market and positioning: a premium spa needs premium price, calm physical evidence, highly trained people and exclusive promotion; a budget hostel needs a low price, efficient online processes and social media promotion. The mix changes over the product life cycle (heavy promotion at launch, extension strategies in maturity) and between markets.

✏️Worked example

(a) A handmade candle costs $5 in materials, $4 in labour and $3 in overheads per unit. Calculate the price with a 50% mark-up. (b) HL When the price rose from $18 to $20, weekly sales fell from 400 to 380. Calculate PED and comment. (c) Recommend a marketing mix for launching the candles to tourists in Ubud.

(a) Unit cost = 5 + 4 + 3 = $12. Price = 12 × 1.5 = $18.

(b) %ΔP = 2 ÷ 18 × 100 = 11.1%; %ΔQ = −20 ÷ 400 × 100 = −5%. PED = −5 ÷ 11.1 = −0.45: price inelastic. Revenue rose from 7200 to 7600, so the higher price is worthwhile if costs stay the same.

(c) Product: natural soy wax with Balinese scents (frangipani, sandalwood) and gift packaging telling the maker’s story. Price: premium, around $20, consistent with inelastic demand among tourists. Promotion: Instagram and TikTok content, tourist-guide partnerships, in-store demonstrations (BTL). Place: own workshop shop plus boutique hotels and gift shops; an online store for repeat orders from abroad. The mix is consistent with a premium, gift-oriented positioning.

Check it. Revenue: 18 × 400 = 7200; 20 × 380 = 7600. When |PED| < 1, a price rise increases revenue, as here.
Listing the Ps without linking them. A mix is only appropriate if each element fits the target market and the others.

📝Practise

Work through these on paper, then reveal the answer.

1. [2 marks] Define the term extension strategy.
A marketing plan used in the maturity or early decline stage of the product life cycle to prolong the product’s life and sales, such as new versions, new markets or new packaging.
2. [2 marks] Distinguish between above-the-line and below-the-line promotion.
Above the line uses paid mass media (TV, radio, press, billboards) to reach a wide audience; below the line uses methods the firm controls and targets directly (sales promotions, direct marketing, sponsorship, PR).
3. [4 marks] Explain why a new streaming service might use penetration pricing.
A low introductory price (or free trial) attracts subscribers away from established rivals and builds market share and a user base quickly; once users are loyal and have playlists and habits, the price can rise. Economies of scale in content spreading also reduce costs per user. Risks: losses early on, and customers may cancel when the price rises.
4. HL [3 marks] A hotel cuts its room rate from $100 to $90 and bookings rise from 500 to 600 a month. Calculate PED and the change in revenue.
%ΔP = −10%; %ΔQ = +20%; PED = −2 (elastic). Revenue: 50 000 → 54 000, +$4000.
5. [4 marks] Explain the importance of physical evidence for a dental clinic.
Customers cannot judge the quality of dental care before treatment, so they rely on tangible cues: a clean, modern clinic, visible certificates, professional uniforms and equipment, and good online reviews reassure them about hygiene and competence, build trust and justify the price.
6. [10 marks] A long-established instant coffee brand is in the maturity stage with falling sales. Discuss the extension strategies it could use.

Options: new variants (low-sugar, iced, premium single-origin); new packaging (sachets for convenience stores, eco-refills); new segments (young adults via social media, office buyers); new markets abroad; new uses (recipes, ready-to-drink cans); promotion refresh and price promotions.

Evaluation: costs of R&D and marketing versus likely gains; cannibalization of existing sales; whether the decline is due to a lasting shift (towards fresh coffee shops) that extensions cannot reverse; brand strength to support new variants. Judgment: combine a product extension targeting the growing iced-coffee trend with digital promotion, while considering the brand’s long-term portfolio.

🔗Go deeper — other people’s work

These are external resources, not mine. If one stops working, tell me and everything above it on this page still stands.

  • Interbrand — annual rankings of the world’s most valuable brands.
  • Meta and TikTok business help centres — how targeted social media advertising works.
  • Tutor2u — revision notes on the marketing mix and pricing.