Cambridge IGCSE0450

Marketing mix

Business Studies 0450 Chapter Notes

What this chapter covers

Marketing mix - ProductMarketing mix - PriceMarketing mix - Place – distribution channelsMarketing mix - PromotionMarketing mix - Technology and the marketing mix

ShareWhatsApp Post

Marketing mix notes

Read online free. Download a watermarked copy with a free account.

Read the notes

The full Marketing mix notes as text: skim, search, and jump between subtopics.

~42 min read

In this chapter

1Benefits and limitations of new products
2Brand image, sales and customer loyalty
3The role of packaging
4The product life cycle and extension strategies
5The life cycle and marketing decisions
6Cost-plus pricing
7Competitive pricing
8Penetration and skimming
9Promotional pricing
10Recommending a pricing method
11Price elasticity of demand
12What a channel of distribution is
13Selling direct to consumers
14Using wholesalers
15Using retailers
16Recommending and justifying a channel
17The aims of promotion
18Advertising
19Sales promotion
20How promotion influences sales
21Cost-effectiveness and the marketing budget
22Choosing and recommending a method
23What e-commerce is
24Opportunities of e-commerce for a business
25Threats of e-commerce for a business
26Opportunities and threats of e-commerce for consumers
27Using the internet for promotion
28Social media networks for promotion

1. Benefits and limitations of new products

A business that develops new products can gain more sales, enter new markets and spread risk, because it no longer relies on one product. A new product can also give the business a unique selling point and let it charge a high price.

The limitations are higher costs from research and advertising, and the risk that the new product is not popular. Each point needs developing: say what the cost or the risk does to profit or sales.

Write about the business, not the customer. A benefit to the customer earns nothing.

Examiner insight

“Many simply repeated it would be expensive or would cost money to develop which was stated in the question.” “Weaker answers identified benefits but instead of development repeated the knowledge point.”

Worked example 14 marks

TRC manufactures fruit smoothies in country X. TRC is always developing new products. Outline two benefits to TRC of developing new products.

1
Knowledge: new products can increase sales or attract new customers [1]. [1]
2
Application: more of TRC’s smoothies are sold [1]. [1]
3
Knowledge: a new product can provide a competitive advantage or unique selling point [1]. [1]
4
Application: TRC can feature this on the packaging [1]. [1]

2. Brand image, sales and customer loyalty

Brand image is the impression of a business or its product held by others, such as customers. A good brand image makes customers choose the product again, which gives repeat purchases and customer loyalty.

A strong image also helps the business differentiate its product from competitors and charge a higher price. A poor image does the opposite and can lose sales.

Build the chain: good image, more trust, more sales or loyalty, more revenue. Do not jump straight to profit.

Examiner insight

“The best responses were then able to explain how these could allow a business to increase sales, revenue or market share respectively.” “Weaker responses struggled to develop points and jumped straight to profit, without explaining why this would increase.”

Worked example 16 marks

Ashdown Bakery has sold sourdough bread in the same town for twenty years. Local people trust its name. A supermarket nearby sells cheaper bread. Explain two ways a good brand image could help Ashdown Bakery.

1
Knowledge: a good brand image attracts customers and increases sales [1]. [1]
2
Application: shoppers choose Ashdown’s sourdough over the supermarket’s cheaper bread [1]. [1]
3
Analysis: more loaves are sold, so revenue rises [1]. [1]
4
Knowledge: a good brand image builds customer loyalty [1]. [1]
5
Application: local people have trusted the bakery’s name for twenty years [1]. [1]
6
Analysis: they make repeat purchases, so Ashdown keeps its market share [1]. [1]

3. The role of packaging

Packaging does several jobs. It protects the product, promotes the brand image, attracts customers, carries information and makes the product easier to store, transport and use.

A good package can make a product look higher quality. This adds value, so the business may charge a higher price.

Two roles must be two different roles, each applied to a different feature of the business.

Examiner insight

“Very few responses effectively explained the link between brand image and packaging to gain the analysis marks available.” “A common mistake was to repeat the same role for both answers.”

Worked example 16 marks

TRC manufactures fruit smoothies in country X. Many of the ingredients used, including mangoes and strawberries, are imported. TRC is always developing new products. The marketing manager has to decide on suitable packaging for these new products. Explain two roles of packaging for TRC.

1
Knowledge: packaging protects the product and keeps it fresh [1]. [1]
2
Application: the mango and strawberry ingredients stay fresh [1]. [1]
3
Analysis: this reduces wastage and increases repeat purchases [1]. [1]
4
Knowledge: packaging promotes brand image and helps recognition [1]. [1]
5
Application: customers recognise TRC’s smoothies [1]. [1]
6
Analysis: this leads to brand loyalty and increased sales [1]. [1]

4. The product life cycle and extension strategies

The product life cycle shows the sales of a product over time. It has four stages: introduction, growth, maturity and decline. Sales start low, rise, level off, then fall.

Saturation is not a fifth stage. It is a point in the maturity stage.

An extension strategy is used for an existing product. Examples are adding new features or finding new markets. It is not a new product, and it is not the 4Ps.

Examiner insight

“One misconception was to assume saturation is a stage when it is a point in the maturity stage.” “Weaker responses focussed on marketing strategies and the 4Ps instead of extension strategies.”

Worked example 14 marks

Kestrel Trainers has sold the same running shoe for six years, only in its own country. Sales have stopped rising. Outline two extension strategies Kestrel Trainers could use.

1
Knowledge: add new features to the product [1]. [1]
2
Application: Kestrel could give the running shoe a lighter sole [1]. [1]
3
Knowledge: sell the product in new markets [1]. [1]
4
Application: Kestrel could sell the shoe in other countries, as it now sells only in its own [1]. [1]

5. The life cycle and marketing decisions

The stage a product has reached guides promotion and pricing. At introduction, a business uses a high level of promotion to raise awareness. At maturity, it needs less promotion.

A new product may be priced low, by penetration pricing, to attract customers to try it. At growth, sales and revenue are rising. At decline, sales fall and the business may stop producing the product.

Name the stage first, then say what the business does and why. Do not list methods of promotion.

Examiner insight

“Better responses recognised that there is likely to be a high level of advertising at the introduction stage and less promotion at the maturity stage of the product life cycle.” “Some identified the stage but then discussed the impact on pricing or sales, not promotion.”

Worked example 16 marks

Tidewell Foods is launching a new range of frozen curries to supermarkets. Several rival brands already sell frozen curries. Explain two ways the introduction stage of the product life cycle could influence Tidewell Foods’ marketing decisions.

1
Knowledge: at introduction there is a high level of promotion [1]. [1]
2
Application: supermarket shoppers have not yet heard of Tidewell’s new range [1]. [1]
3
Analysis: promotion raises awareness, so shoppers try the curries and sales begin to grow [1]. [1]
4
Knowledge: at introduction a business may use penetration pricing, a low price to attract customers [1]. [1]
5
Application: Tidewell sets a price below the rival brands of frozen curry [1]. [1]
6
Analysis: shoppers switch to Tidewell’s curries, so it gains sales and market share [1]. [1]

Recap

New products bring sales, new markets and spread risk. They raise costs and may not sell.
Brand image is the impression others hold. A good one gives loyalty, repeat purchases and a higher price.
Packaging protects, promotes the brand, informs and attracts. Name two different roles.
Four stages: introduction, growth, maturity, decline. Saturation is a point in maturity.
An extension strategy is for an existing product. A new product is a different idea.
Introduction needs a high level of promotion and may use a low price. Maturity needs less promotion.
Never mix up the product life cycle with the business cycle.

6. Cost-plus pricing

Cost-plus pricing sets a price by working out the cost of one unit and adding a mark-up for profit. The “plus” is the profit.

It is easy to apply and it ensures costs are covered, so each sale earns a profit on that item. There is no incentive to reduce costs, because a higher cost simply raises the price.

It ignores rivals. If the price ends up above competitors’ prices, sales may be lost.

price = cost per unit + mark-up for profit

Examiner insight

“A common mistake was to reorder the words by stating it was price based on cost, or simply that the price is higher than cost.” “Some candidates did not recognise that the benefit was profit per item and not a total profit.”

Worked example 14 marks

Brindle Bakes is a small bakery. Each loaf costs £2.00 to make. The owner adds 50% to the cost of every loaf to set the price. Supermarkets nearby sell similar loaves for £2.50.

Outline one advantage and one disadvantage of cost-plus pricing for Brindle Bakes.

1
Knowledge: cost-plus ensures the cost of each loaf is covered. [1]
2
Application: a loaf costing £2.00 sells at £3.00, so every loaf sold earns £1.00 profit. [1]
3
Knowledge: the price may be higher than competitors’ prices. [1]
4
Application: at £3.00 against the supermarkets’ £2.50, customers may buy there instead, so Brindle Bakes loses sales. [1]

7. Competitive pricing

Competitive pricing sets the price in line with, or slightly below, competitors’ prices.

It keeps a business from losing customers on price. It does not automatically attract customers, because rivals charge about the same.

It pays no attention to the business’s own costs, so the price may not cover costs. Cost-plus pricing does cover them.

Examiner insight

“Weaker responses lost marks by stating that prices would be lower than competitors.” “A common error was to define the term, rather than explain how it would help a business.”

Worked example 16 marks

Pizza Pit is a takeaway on a street with two other pizza takeaways. Both rivals charge £9 for a large pizza, so the owner of Pizza Pit also charges £9. Pizza Pit uses fresh dough, so each pizza costs it more to make than a rival’s pizza.

Explain one advantage and one disadvantage to Pizza Pit of competitive pricing.

1
Knowledge: the business does not lose customers because of its price. [1]
2
Application: Pizza Pit charges £9, the same as the two other takeaways on its street. [1]
3
Analysis: customers have no price reason to choose a rival, so Pizza Pit keeps its sales. [1]
4
Knowledge: the price takes no account of the business’s own costs. [1]
5
Application: fresh dough makes each Pizza Pit pizza cost more to make than a rival’s. [1]
6
Analysis: at the same £9, Pizza Pit earns less profit per pizza and may not cover its costs. [1]

8. Penetration and skimming

Both methods are for a new product, and they are opposites.

Penetration pricing sets a low price to enter a new market and attract customers to try the product. Profit per item is low, and revenue is lower if sales are not high enough to make up for it.

Price skimming sets a high price because the product is unique and has no direct competitors, so profit per item is high. Too high a price may deter customers and encourage competitors to enter the market.

Examiner insight

“A noticeable number of candidates incorrectly thought that price skimming means charging a low price.” “Penetration pricing and price skimming continue to be an issue for some candidates with weaker candidates describing penetration as having high prices.”

Worked example 16 marks

Nova Labs is about to launch a smartwatch with a feature that no other watch has. There are no direct competitors. The owner is choosing between price skimming and penetration pricing.

Recommend which method Nova Labs should use. Justify your answer.

1
Knowledge: price skimming sets a high price on a new product. [1]
2
Analysis: Nova’s watch is unique, so buyers who want the feature have no rival to turn to. They will pay the high price, and profit per watch is high. [1]
3
Knowledge: penetration pricing sets a low price to attract customers. [1]
4
Analysis: with no rivals to win customers from, a low price only reduces profit per watch and may suggest low quality. [1]
5
Evaluation: skimming is the better choice, because there are no direct competitors and so no need for a low price to attract customers. [1]
6
Evaluation: the high price may encourage competitors to enter the market, so Nova Labs may need to lower it later. [1]

9. Promotional pricing

Promotional pricing is a temporary price cut, such as a discount, to boost sales for a short time.

It can clear unwanted stock or attract new customers. The lower price cuts profit per item, so it is used for a limited period.

It is a pricing method. It is not the same as promotion in the marketing mix, such as advertising or competitions.

Examiner insight

“Some candidates confused promotional pricing with promotions such as competitions.” “A common error made by candidates was to describe promotional rather than pricing methods.”

Worked example 14 marks

Greenfield Garden Centre has a large stock of winter plants left over in March. The plants will die if they are not sold soon.

Explain one benefit to Greenfield of using promotional pricing.

1
Knowledge: promotional pricing is a temporary price cut, such as a discount. [1]
2
Application: a 25% discount on the winter plants gives customers a reason to buy now. [1]
3
Analysis: the stock is sold before the plants die, so it is not wasted. [1]
4
Analysis: a lower price still brings in some revenue, where plants left unsold would bring in none. [1]

10. Recommending a pricing method

A recommendation names a method and says why it suits this business. “Set a low price” is not a method.

Look at the business in the question. Is the product new or unique? Are there rivals? Is the business trying to enter a market, clear stock or cover costs?

Then weigh the methods against each other and reach a decision. A summary of earlier points does not earn evaluation marks.

Examiner insight

“Weaker responses did not include how the pricing methods should be used but instead gave vague answers such as ‘this would be a good method to attract consumers’ without any indication of how the method would be effective.” “The best responses discussed other pricing methods and used the comparison between the methods as the basis for evaluation.”

Worked example 112 marks

Halo Bikes is a new business launching an electric scooter. Three established rivals sell similar scooters for about £400. Halo Bikes wants to gain customers quickly.

Recommend a pricing method for Halo Bikes. Justify your answer.

1
Knowledge: penetration pricing sets a low price on a new product to win customers. [1]
2
Application: Halo Bikes is new and the rivals are established, so it needs a reason for buyers to try its scooter. [1]
3
Analysis: a price below £400 gives that reason, so sales and market share can grow quickly. [1]
4
Analysis: profit per scooter is low, so revenue only grows if sales volume is high enough to make up for it. [1]
5
Knowledge: competitive pricing sets the price in line with competitors’ prices. [1]
6
Application: matching the rivals at about £400 means Halo Bikes has no price disadvantage. [1]
7
Analysis: but a matched price gives buyers no reason to switch from brands they already know. [1]
8
Knowledge: cost-plus pricing adds a mark-up to the cost of each scooter. [1]
9
Analysis: it covers costs, but the price could end up above £400 and lose sales to the rivals. [1]
10
Evaluation: penetration pricing is the best choice, because Halo Bikes wants to gain customers quickly and only a price below £400 gives buyers a reason to switch. [1]
11
Evaluation: competitive pricing gives no reason to switch and cost-plus risks a price above £400, so both are rejected. Once Halo Bikes is established it should move towards £400 to protect its profit. [2]

11. Price elasticity of demand

Price elasticity shows how far a change in price changes demand. When price changes, demand changes in the opposite direction. It is the price that changes demand, not the other way round.

When demand is price inelastic, a change in price causes a smaller percentage change in demand. This is likely when the product is a necessity or there is a lack of alternatives. A price rise then increases revenue.

When demand is price elastic, a change in price causes a bigger percentage change in demand. A price rise then lowers revenue, and a price cut can raise it.

Examiner insight

“Stronger responses understood that the lack of alternatives or the product being a necessity were likely reasons why demand is price inelastic.” “A few candidates incorrectly indicated that it was demand that caused the change in price.”

Worked example 14 marks

Tilly’s Treats raises the price of its sweets by 5%. Demand for the sweets falls by 20%.

Explain what this tells Tilly’s Treats about its pricing decision.

1
Knowledge: demand is price elastic when a change in price causes a bigger percentage change in demand. [1]
2
Application: a 5% rise in price caused a 20% fall in demand. [1]
3
Analysis: so the extra sales lost outweigh the higher price, and total revenue falls. [1]
4
Analysis: a price cut would cause a bigger percentage rise in demand, so lowering the price could raise revenue. [1]

Recap

Cost-plus: unit cost plus a mark-up for profit. Easy to apply and covers costs, but may price above rivals.
Competitive: price in line with, or slightly below, competitors.
Penetration: low price on a new product to win customers. Skimming: high price on a unique new product.
Promotional: a temporary price cut. It is not advertising.
A recommendation names the method, applies it to the business and reaches a decision.
Price inelastic: a smaller percentage change in demand than in price. Price elastic: a bigger one.
Inelastic demand means a price rise increases revenue. Elastic demand means it lowers revenue.

12. What a channel of distribution is

A channel of distribution is the route a product takes from the producer to the consumer. The business chooses who handles the product on the way.

There are three main routes. The business can sell direct to consumers, through retailers, or through wholesalers who then supply retailers. This choice is the place part of the marketing mix.

Place is about the route, not about a town or a street. Name the channel, then say what it means for this business.

Examiner insight

“Weaker candidates were confused over Place and thought it related to actual locations rather than a channel of distribution.”

Worked example 12 marks

Ardent Candles makes scented candles in a small workshop. It sells them to gift shops, which sell them to shoppers.

Define ‘channel of distribution’.

1
Knowledge: the route a product takes. [1]
2
Knowledge: from the producer to the consumer. [1]

13. Selling direct to consumers

Selling direct means the business sells to the final customer with no one in between. It may use its own shop or its own website.

The business gets direct contact with customers, so it can build a relationship and hear their views. No other business takes a share of the price, so its profit margin is higher. A website is also open 24 hours a day.

There are costs. A shop costs money to set up and run. Customers cannot try the product online. Delivering to many separate customers can raise costs.

Examiner insight

“Stronger candidates referred to the availability of ecommerce 24/7 but said that customers could not try on the helmets.” “They discussed SSE being able to establish a relationship with their customers directly through ecommerce.”

Worked example 16 marks

Fenwick Furniture makes oak chairs in a village workshop. It plans to sell only through its own website.

Explain one advantage and one disadvantage to Fenwick Furniture of selling direct to customers online.

1
Knowledge: selling direct gives contact with customers. [1]
2
Application: buyers can tell Fenwick on its website what they think of its oak chairs. [1]
3
Analysis: it can improve its designs, so customers return and sales rise. [1]
4
Knowledge: customers cannot try the product online. [1]
5
Application: buyers cannot sit on a chair to test its comfort before they order. [1]
6
Analysis: some will not buy, so Fenwick's revenue is lower than it could be. [1]

14. Using wholesalers

A wholesaler buys goods in bulk from producers and sells smaller quantities to retailers. This is called breaking bulk. A wholesaler is not an agent.

For the producer, one large order brings higher revenue. The wholesaler stores the goods, so the producer's storage costs fall. The wholesaler may also promote the goods, which can lower the producer's advertising costs.

The cost is a lower profit margin, because the wholesaler must make its own profit. The producer also has less contact with the final customer.

Examiner insight

“A common error was to assume that they sold in bulk rather than breaking into bulk.” “A mistake made in the weakest responses was to confuse wholesalers and agents.”

Worked example 14 marks

Dunmore Tea packs loose-leaf tea in a small factory. A wholesaler offers to buy 5000 boxes a month and supply tea shops.

Outline two benefits to Dunmore Tea of using the wholesaler.

1
Knowledge: a wholesaler buys in large quantities, which raises revenue. [1]
2
Application: Dunmore sells 5000 boxes of tea every month in one order. [1]
3
Knowledge: the wholesaler stores the goods, so storage costs fall. [1]
4
Application: boxes of tea leave Dunmore's small factory instead of filling it. [1]

15. Using retailers

A retailer sells goods to the final consumer. Shops and supermarkets are retailers. A producer that sells to retailers gets wider distribution, because the goods reach more places.

Retailers display and promote the product. This can raise sales and lower the producer's advertising costs. A large retailer also buys large quantities.

There are drawbacks. The retailer adds a mark-up, so the producer must sell to it for less than the shop price. Competitors' products may sit in the same shop. Always write from the producer's side. Do not explain what the retailer or the customer gains.

Examiner insight

“The best answers understood the role retailers could play through wider distribution and advertising and explained how this could lead to higher sales or lower costs.” “Some candidates had the wrong focus as they discussed the advantages to retailers or customers rather than the manufacturer.”

Worked example 16 marks

Marlow Jam makes jam in a farmhouse kitchen. It is thinking of selling through supermarkets. The supermarkets also sell their own brand of jam.

Explain one advantage and one disadvantage to Marlow Jam of using retailers.

1
Knowledge: retailers give wider distribution. [1]
2
Application: supermarkets in many towns could stock Marlow's jam. [1]
3
Analysis: more shoppers see the jam, so sales and revenue rise. [1]
4
Knowledge: retailers also sell competitors' products. [1]
5
Application: the supermarket's own brand of jam sits beside Marlow's. [1]
6
Analysis: some shoppers choose the other jam, so Marlow sells fewer jars than it hoped. [1]

16. Recommending and justifying a channel

To recommend a channel, weigh the advantages and disadvantages of each option, then make a justified decision. Choose one channel and give a reason that fits this business.

The product and the customers decide the answer. Ask what kind of product it is, where the customers are located and how often they buy.

A conclusion must add something new. Say why the other channels are less suitable. Do not write the advantage of one channel again as the disadvantage of another.

Examiner insight

“It is important not to offer mirror image arguments here by mentioning the advantage of one method as the disadvantage of the other.” “The conclusion was often a repetition of earlier statements and did not add anything new.”

Worked example 16 marks

Calder Cheese is a small dairy 30 miles from the nearest city. It makes soft cheese that must be sold within a week. It can sell through a supermarket chain or open its own shop at the dairy.

Recommend which channel Calder Cheese should use. Justify your answer.

1
Knowledge: supermarkets give wider distribution. [1]
2
Analysis: city shoppers can buy the cheese, so sales rise, but Calder's margin falls. [1]
3
Knowledge: its own shop gives direct contact and a higher margin. [1]
4
Analysis: few customers travel 30 miles to the shop, and it costs money to run. [1]
5
Evaluation: choose the supermarkets, as cheese with a week to sell needs many buyers. [1]
6
Evaluation: a lower margin on cheese sold beats a higher margin on cheese left unsold. [1]

Recap

A channel of distribution is the route a product takes from producer to consumer. Place means the channel, not a location.
Direct to consumers: contact with customers and a higher profit margin. Costs of a shop or of delivery.
Wholesaler: buys in bulk and breaks bulk for retailers. Higher revenue and lower storage costs, but a lower profit margin.
Retailer: wider distribution and promotion. A mark-up is added and competitors' products are in the same shop.
Write every advantage and disadvantage from the producer's side, and develop it.
Recommend one channel, apply it to the product and the customers, and say why the others are less suitable.

17. The aims of promotion

Promotion is the part of the marketing mix that communicates with customers. A business promotes to raise awareness of itself or a product, and to increase sales.

A business also promotes to encourage new customers and to build customer loyalty, so that buyers return. A better-known brand can also win a larger market share.

An aim is not a method. 'Leaflets' is a way of promoting. 'Raise awareness' is why.

Examiner insight

“Typical correct answers focused on raising awareness and increasing sales. A common mistake was to repeat a similar point for both answers. Others wrongly identified methods of promotion.” “Only the strongest responses were able to develop points such as promotion is used to raise awareness or attract customers.”

Worked example 12 marks

Kiran's Kitchen is a new restaurant that has just opened in a town centre. The owner plans a promotion campaign.

Identify two aims of promotion for Kiran's Kitchen.

1
Knowledge: to raise awareness of the restaurant, so local people know it has opened. [1]
2
Knowledge: to increase sales, by attracting new customers to eat there. [1]

18. Advertising

Advertising is one form of promotion. Billboards, posters, local radio, local newspapers, leaflets and social media are all ways to advertise.

Each one reaches a different audience. A local newspaper reaches local homeowners. A billboard is seen by a large number of people, but it can only contain limited information. Social media can show pictures of the product.

Good answers say why the method suits this business. 'It reaches a lot of people' could be written about any firm.

Examiner insight

“Weaker responses tended to make general statements that could apply to any business. A number of candidates made vague statements such as advertising was ‘expensive’ which could not be awarded.” “Some candidates confused advertising with promotion and suggested free samples, competitions, and food fairs.”

Worked example 14 marks

Patel Plumbing is a small firm that serves one town. It is considering an advertisement in the local newspaper.

Explain one advantage and one disadvantage to Patel Plumbing of advertising in the local newspaper.

1
Knowledge: the newspaper is read by people who live in the area. [1]
2
Application: Patel Plumbing only serves one town, so most readers are possible customers. [1]
3
Knowledge: a disadvantage is that the advertisement is only seen by people who read the newspaper. [1]
4
Application: homeowners in the town who do not read it will not learn about Patel Plumbing. [1]

19. Sales promotion

Sales promotion is a form of promotion that uses short-term offers to boost sales. Buy one get one free (BOGOF), discounts, free samples, free delivery, loyalty cards and competitions are the usual examples.

The key word is short term. A discount that never ends is just a lower price. An offer for two weeks gives customers a reason to buy now.

Sales promotion is not advertising. A poster tells customers about a product. A sales promotion gives them a reason to buy it straight away.

Examiner insight

“A common mistake was to identify methods of advertising or ways to increase sales.” “The other common error was to simply state discounts which was not rewarded unless the notion of short term was attached.”

Worked example 14 marks

Tidal Trainers is a shop that sells sports shoes. Sales have been low for two months.

Outline two methods of sales promotion that Tidal Trainers could use.

1
Knowledge: a short-term discount, such as 20% off for one week. [1]
2
Application: shoppers who have been waiting to buy trainers may buy during the week. [1]
3
Knowledge: buy one get one free (BOGOF) on running socks. [1]
4
Application: a customer buying shoes is likely to need socks, so the offer fits what Tidal Trainers sells. [1]

20. How promotion influences sales

Saying that promotion 'increases sales' earns knowledge only. The marks are for the chain of reasons between the method and the sale.

An advertisement makes customers aware of the product. Aware customers visit or order. Sales rise, so revenue rises. A free sample lets customers try the product, so some buy it.

Loyalty cards give customers a reason to return. The answer must say why a returning customer matters: repeat purchases mean steadier sales.

Examiner insight

“Only the best responses were able to explain how methods such as advertising could help increase sales. Instead of analysis, weaker candidates simply stated it would increase sales without explaining how the chosen method identified would achieve this.” “Candidates who simply stated that customers would be loyal gained no analysis marks.”

Worked example 16 marks

Bean There is a small coffee shop with a new menu of cold drinks. The owner will give out free samples outside the shop.

Explain two ways that promotion could increase sales at Bean There.

1
Knowledge: free samples let customers try the product. [1]
2
Application: passers-by can taste a cold drink from the new menu. [1]
3
Analysis: customers who like the taste may buy a full drink, so sales rise. [1]
4
Knowledge: a poster outside the shop can raise awareness. [1]
5
Application: the poster can show pictures of the new cold drinks. [1]
6
Analysis: people who did not know about the new menu may come in to buy, so revenue rises. [1]

21. Cost-effectiveness and the marketing budget

A marketing budget is a financial plan for marketing. It sets how much a business can spend on promotion.

Promotion is cost-effective when the sales it brings are worth more than the money spent. A business with a limited budget must choose methods that reach its target market without waste.

Money is wasted when the promotion reaches the wrong people or carries the wrong message. A leaflet delivered to homes the firm does not serve costs money and wins no customers.

Examiner insight

“Better responses attempted to show why this could result in the marketing not being cost effective.” “A number of responses used the numbers to prove that the marketing budget had not been well spent rather than identify the possible reasons, which did not answer the question set.”

Worked example 16 marks

Wolf & Pine sells clothes for men aged 25 to 40. It spent most of its marketing budget on adverts in a magazine for teenagers. Sales did not rise.

Explain two reasons why the marketing of Wolf & Pine might not have been cost-effective.

1
Knowledge: the advertising was not suited to the target market. [1]
2
Application: the magazine is read by teenagers, but Wolf & Pine sells to men aged 25 to 40. [1]
3
Analysis: few readers could buy the clothes, so the money produced little extra revenue. [1]
4
Knowledge: the market research may have been inaccurate. [1]
5
Application: the business may have misjudged who reads which magazine. [1]
6
Analysis: it spent its budget in the wrong place, so the cost was greater than the sales gained. [1]

22. Choosing and recommending a method

In a case study the question asks you to choose between methods. Weigh each one against the business: its size, its location, its target market and its budget.

Give an advantage and a disadvantage for each method, and say why each matters. Fliers are cheap but may not target the right people. Emailing existing customers suits loyal customers but may go into spam. Leaflets can be delivered to chosen houses.

Then decide. A recommendation names one method, gives a reason applied to the business, and says why the others were rejected.

Examiner insight

“Better answers used the context to support arguments, recognising that the business was local, new and had a limited budget for promotion.” “Those candidates who did justify why one method would be the best method to use did not discuss why the other alternatives were rejected, hence they did not move to the highest marks available.”

Worked example 112 marks

Glow Windows is a new window-cleaning business in one suburb. The owner has textdollar600 to spend on promotion. She is considering three methods: leaflets delivered to local houses, an advertisement in the local newspaper and advertising on social media.

Consider the three methods. Recommend which one Glow Windows should use. Justify your answer.

1
Knowledge: leaflets can be delivered to chosen houses. [1]
2
Application: Glow Windows can deliver them only to houses in its own suburb. [1]
3
Analysis: each leaflet reaches a homeowner who could become a customer, so little of the textdollar600 is wasted. [1]
4
Knowledge: a local newspaper is read by people who live in the area. [1]
5
Application: local homeowners who need their windows cleaned may see the advertisement. [1]
6
Analysis: only people who read the newspaper see it, so some possible customers are missed. [1]
7
Knowledge: social media can show pictures. [1]
8
Application: Glow Windows could post photographs of windows before and after cleaning. [1]
9
Analysis: it can be hard to persuade social media users to hire a window cleaner, so the spending may bring few customers. [1]
10
Evaluation: I recommend leaflets, because a new business must first make the homeowners in its own suburb aware of it. [1]
11
Evaluation: the newspaper was rejected because it reaches only its readers, while a leaflet reaches every chosen house. [1]
12
Evaluation: social media was rejected because many users live outside the suburb, so it is the least cost-effective use of a small budget. [1]

Recap

Aims of promotion: raise awareness, increase sales, attract new customers, build customer loyalty, win market share.
An aim says why a business promotes. A method says how.
Advertising includes billboards, posters, local radio, local newspapers, leaflets and social media.
Sales promotion is a short-term offer, such as BOGOF, a discount, a free sample or a loyalty card.
Promotion influences sales through a chain: aware customers visit, buy, and revenue rises.
A marketing budget is a financial plan for marketing. Promotion is cost-effective when sales outweigh the spend.
Choose a method to suit the business: its size, location, target market and budget. Say why the other methods were rejected.

23. What e-commerce is

E-commerce is the buying and selling of goods and services over the internet. A business usually does this through a website, where customers can order.

A business may sell only online, or online as well as in shops. Read the question to see which one it is. If the business already sells online, an answer that could equally apply to selling in shops earns little.

Examiner insight

“Others ignored the fact that DPC already used e-commerce or provided answers that could equally apply to selling in shops.”

Worked example 12 marks

Brightleaf Teas is a small shop in Leeds. It has opened a website where customers order tea and have it posted to them. Define ‘e-commerce’.

1
Knowledge: the buying and selling of goods and services [1]. [1]
2
Knowledge: carried out over the internet [1]. [1]

24. Opportunities of e-commerce for a business

E-commerce lets a business access a wider market, which can increase sales. A website is open 24 hours a day, so customers can order at any time. The business can also sell directly to customers, which removes the middleman and can raise its profit margin.

A website is flexible: prices and product details can be changed easily. Some businesses also need fewer employees, which lowers their wage costs.

Each point needs a second step. Say what the wider market does to sales, and what the sales do to revenue.

Examiner insight

“To gain full marks many answers would have needed to explain in greater detail why it was an opportunity or a threat for the business.”

Worked example 16 marks

Marlow Cycles is a family bike shop in Bath. It sells specialist mountain bikes and has started to sell through a website. Explain two opportunities of e-commerce for Marlow Cycles.

1
Knowledge: it can access a wider market [1]. [1]
2
Application: customers across the country can now buy its specialist mountain bikes [1]. [1]
3
Analysis: more customers buy the bikes, so sales and revenue increase [1]. [1]
4
Knowledge: the website is open 24 hours a day [1]. [1]
5
Application: a cyclist can order in the evening, when the shop in Bath is shut [1]. [1]
6
Analysis: Marlow Cycles takes orders it would have missed, so sales increase [1]. [1]

25. Threats of e-commerce for a business

E-commerce is expensive to set up and maintain, because the website must be built and kept up to date. Customers cannot see or try the product before they buy, so some are put off. There is also high competition on the internet, and some customers do not trust it, fearing scams.

Name the cost: setting up the website, maintaining it, or delivery.

Examiner insight

“Many included statements about e-commerce being expensive or cheaper without identifying which costs were being referred to.” “Weaker responses described the benefits of e-commerce not the threats.”

Worked example 16 marks

Kestrel Boots makes hiking boots and sells them in two shops. It has started to sell them through its own website. Explain two threats of e-commerce for Kestrel Boots.

1
Knowledge: customers cannot see or try the product before buying [1]. [1]
2
Application: hiking boots must fit well, so customers want to try them on [1]. [1]
3
Analysis: they are put off buying online, so sales fall [1]. [1]
4
Knowledge: the website is expensive to set up and maintain [1]. [1]
5
Application: Kestrel Boots must pay for a website as well as its two shops [1]. [1]
6
Analysis: its costs rise, so profit falls unless online sales cover them [1]. [1]

26. Opportunities and threats of e-commerce for consumers

Consumers gain wider choice of products and convenience, because they can order at any time.

Consumers face threats too. They cannot see or feel the product before buying. Some do not trust the internet and fear scams. Others have limited access to the internet and cannot use the website at all.

Examiner insight

“A common mistake was to answer the question from the viewpoint of the business rather than outline potential benefits for consumers of using e-commerce.”

Worked example 14 marks

Stonebridge Books is an online bookseller with thousands of titles on its website. Outline two benefits to consumers of buying from Stonebridge Books.

1
Knowledge: wider choice of products [1]. [1]
2
Application: thousands of book titles are listed in one place [1]. [1]
3
Knowledge: convenience, as customers can order at any time [1]. [1]
4
Application: readers can order a book without going to a bookshop [1]. [1]

27. Using the internet for promotion

A business can use the internet to promote its products. A website can show the products, give information and let customers order. Email can reach existing customers quickly and cheaply, which can increase their loyalty. Some customers find emails annoying, and an email that goes into spam is never seen.

Name the method. ‘The internet’ on its own is too vague.

A way is not an answer. Explain how the method helps the business to promote, for example by answering customer enquiries or by telling customers what is on offer.

Examiner insight

“Weaker responses identified four ways but then the candidates were unable to offer any acceptable explanation, other than to repeat the four ways in a sentence.” “Many weaker answers were descriptive of the method, such as describing what contents should be on the website rather than why the method would help to promote the hotel.”

Worked example 16 marks

Greenfield Bakery is a small bakery that has launched a new range of cakes. Explain two ways the bakery could use the internet to promote the new range.

1
Knowledge: a website can show the products [1]. [1]
2
Application: photographs of the new cakes on the bakery website [1]. [1]
3
Analysis: customers see the range and are tempted to order, so sales rise [1]. [1]
4
Knowledge: email can reach existing customers quickly and cheaply [1]. [1]
5
Application: an email to regular customers of the bakery about the new range [1]. [1]
6
Analysis: loyal customers come back to try it, which increases sales [1]. [1]

End-of-chapter exercise

Test yourself on the whole chapter. Work through these before moving on.

Define ‘brand image’.2 marks
Pavo Juices is about to launch a new apple juice. Identify two stages of the product life cycle that the juice will pass through.2 marks
Tamar Soaps sells handmade soap. Identify two roles of its packaging.2 marks
Marlow Games makes board games. Most of its sales come from one game. It plans to develop a card game. Outline one benefit and one limitation to Marlow Games of developing new products.4 marks
Zephyr Bikes has just launched its first electric bicycle. Few people know it exists. Two rivals already sell electric bicycles. Outline two ways the introduction stage of the product life cycle could influence Zephyr Bikes’ marketing decisions.4 marks
Calder Coffee is a café with a reputation for ethical coffee beans. Three other cafés trade in the same street. Explain two ways a good brand image could benefit Calder Coffee.6 marks
Orchard Chocolates sells luxury chocolates in a gift box. The chocolates break easily and are delivered to shops by lorry. Explain two roles of packaging for Orchard Chocolates.6 marks
Halden Toys sells two toys. Robo Pup went on sale this month. Sales of Brick Castle rose for five years and have been level for the last two years. Explain how the stage of the product life cycle could influence the promotion of each toy.6 marks
Sorrel Audio makes one model of wireless headphones. Yearly sales were 40 000, then 41 000, then 40 500, and then 33 000 headphones. The owner wants to add new features to the headphones. Do you think adding new features is the best extension strategy for Sorrel Audio? Justify your answer.6 marks
Fenwick Snacks makes three snack bars. The table gives yearly sales in thousands of bars. Fenwick has money for only one of two options. Option A: give Fruit Bar new packaging and new flavours. Option B: stop producing Fruit Bar and spend the money on promoting Oat Bar. Recommend which option Fenwick Snacks should choose. Justify your answer. | Product | Year 1 | Year 2 | Year 3 | Year 4 | | --- | --- | --- | --- | --- | | Oat Bar | 20 | 45 | 80 | 120 | | Nut Bar | 150 | 152 | 151 | 150 | | Fruit Bar | 90 | 70 | 48 | 30 |12 marks
Kiln & Co makes mugs. It sets its prices using cost-plus pricing. Define ‘cost-plus pricing’.2 marks
A company is launching a new games console. State the difference between penetration pricing and price skimming.2 marks
Zed’s Café sells a flat white for £3. Two rival cafés on the same street charge £3 as well. Name the pricing method Zed’s Café is using and state what it means.2 marks
Tamsin’s Toys makes a wooden train for £12. It adds 40% to the cost to set its price. A rival sells a similar train for £15. Calculate the price. Explain one disadvantage of this pricing method for Tamsin’s Toys.4 marks
Oakley Books has 500 unsold copies of a cookery book. A new edition arrives next month. Explain one reason why promotional pricing might suit Oakley Books.4 marks
Marlow Pharmacy is the only pharmacy in a village. It raises the price of its headache tablets by 10%. Demand for the tablets falls by 2%. State whether demand is price elastic or inelastic. Explain the effect on its revenue.4 marks
FreshFizz is launching a new fruit drink. Several established brands already sell in the market. FreshFizz uses real fruit, so each bottle costs more to make than a rival’s drink. Explain one advantage and one disadvantage of penetration pricing for FreshFizz.6 marks
Harrow Hardware has sold tools in the same town for 15 years. Two other tool shops trade nearby. Harrow Hardware uses competitive pricing. Is competitive pricing the best pricing method for Harrow Hardware? Justify your answer.6 marks
Lumo Cinemas raised all its ticket prices by 10% last month. The table shows the tickets sold in a month for two kinds of screening, before and after the rise. Explain what the data shows about the price elasticity of demand for each kind of screening, and what Lumo Cinemas should do about each price. | Screening | Old price | New price | Sold before | Sold after | | --- | --- | --- | --- | --- | | Matinee | £5.00 | £5.50 | 2000 | 1400 | | Premiere | £12.00 | £13.20 | 1500 | 1425 |8 marks
Tarn Outdoors is an established business launching a tent that packs into its own pole bag. No other tent does this, and rivals need about a year to copy it. Each tent costs £80 to make. Rivals sell ordinary tents for about £120. The table shows estimates for the first year. Recommend which of the three pricing methods Tarn Outdoors should use. Justify your answer. | Pricing method | Price | Estimated sales (tents) | | --- | --- | --- | | Price skimming | £200 | 3000 | | Competitive pricing | £120 | 3900 | | Penetration pricing | £90 | 6000 |12 marks
Hale Toys makes wooden toys. It sells them to a wholesaler. Define ‘wholesaler’.2 marks
Moss Mugs makes pottery mugs. Identify two channels of distribution Moss Mugs could use.2 marks
Pike Bikes makes bicycles. It sells them only on its own website. Outline two disadvantages to Pike Bikes of selling only online.4 marks
Ravel Biscuits is a manufacturer. It sells its biscuits to supermarkets across the country. Outline two advantages to Ravel Biscuits of using retailers.4 marks
Orla Oils presses olive oil on a small farm with little storage space. It sells 2000 bottles a month to a wholesaler that supplies 200 shops. Explain one advantage and one disadvantage to Orla Oils of using the wholesaler.6 marks
Wren Cakes bakes cakes in a town. The owner can sell through her own shop or through the town's supermarket. Explain one advantage to Wren Cakes of each channel.6 marks
Tarn Tents makes tents in a mountain village. Its customers live all over the country and buy a tent once every few years. Explain two factors that affect which channel of distribution Tarn Tents should use.6 marks
Brisk Bikes makes children's bicycles. It sells them to sports shops in 12 cities. The shops add a 40% mark-up. Brisk Bikes is thinking of selling only on its own website instead. Explain two advantages and two disadvantages to Brisk Bikes of selling only on its own website.8 marks
Saffa Soaps makes handmade soap. Each bar costs £1.20 to make. It sells 4000 bars a month to gift shops at £2.00 a bar, and the shops sell them at £5.00. Saffa Soaps is thinking of selling only on its own website at £5.00 a bar. It expects to sell 1200 bars a month online. Packing and posting would cost Saffa Soaps £1.50 a bar. Recommend whether Saffa Soaps should change to selling only on its website. Justify your answer.12 marks
Kestrel Kites is a new business with two employees. It makes kites in a small workshop with little storage space. Each kite costs £4 to make. It has no money for advertising. The table gives the three channels it can choose from. Recommend which channel Kestrel Kites should use. Justify your answer. | Channel | Kestrel receives per kite (£) | Expected sales per month | Other information | | --- | --- | --- | --- | | Wholesaler | 6 | 2000 kites | Collects every week and supplies 150 toy shops | | Toy shops | 8 | 600 kites | 60 orders of 10 kites, delivered by Kestrel | | Own website | 12 | 400 kites | Packing and posting costs £3 a kite |12 marks
Mara's Market has opened a new fruit stall. The owner wants to promote it. Identify two aims of promotion for Mara's Market.2 marks
Juno Cycles sells bicycles. The owner sets a marketing budget for next year. Define 'marketing budget'.2 marks
Dune Pizza is planning four promotions: a billboard, buy one get one free (BOGOF) on pizzas, an advert on local radio and free samples outside the restaurant. Identify the two that are sales promotion.2 marks
Lotus Cakes is a small bakery that sells decorated cakes in one town. Outline one advantage and one disadvantage to Lotus Cakes of advertising on social media.4 marks
Rivet Hardware sells paint and tools. A rival has opened nearby, and Rivet Hardware wants to use sales promotion. Outline two methods of sales promotion that Rivet Hardware could use.4 marks
Cobble & Cream is an ice-cream shop in one village. It paid for 5000 leaflets to be printed and posted to homes in a city 40 km away. Outline two reasons why these leaflets might not be cost-effective.4 marks
Orchid Spa has just opened a gym. The marketing manager has a small budget. Explain two ways that promotion could increase sales at the gym.6 marks
Fennel & Co sells garden tools online to customers aged over 50. It spent textdollar8000 of its marketing budget on a social media campaign aimed at people aged 18 to 25. Sales revenue rose by only textdollar1500. Explain two reasons why the campaign might not have been cost-effective.6 marks
Ember Bakes sells bread from a van at weekly markets in three towns. Nearly all its sales are to about 200 regular customers. The owner's aim is to attract new customers. She plans to spend her whole promotion budget on a loyalty card that makes every tenth loaf free. Explain two advantages and two disadvantages to Ember Bakes of using the loyalty card as its only method of promotion.8 marks
Saltmarsh Kayaks hires out kayaks on one lake from May to September. Most customers are tourists who stay in the area for one week and do not return that year. The promotion budget is textdollar2400. The owner is considering three methods. Consider the three methods. Recommend which one Saltmarsh Kayaks should use. Justify your answer. | Method | Cost | | --- | --- | | Loyalty card: every fifth hire is free | textdollar300 | | 2000 leaflets left in the three hotels and the campsite beside the lake | textdollar400 | | Advertisement on a national holiday website for one month | textdollar2400 |12 marks
Define ‘e-commerce’.2 marks
Identify two opportunities of e-commerce for a business.2 marks
Identify two benefits to consumers of buying through e-commerce.2 marks
Penrose Tea sells loose-leaf tea from one small shop. It is setting up a website to sell tea. Outline two threats of e-commerce for Penrose Tea.4 marks
Juniper Yoga is a small yoga studio that opened last month. Few people have heard of it yet. Outline one advantage and one disadvantage to Juniper Yoga of using social media networks for promotion.4 marks
Oakfield Hotel is a small country hotel. Its website has only two photographs and little information. Outline two ways the hotel could use the internet to promote itself.4 marks
Quayside Candles makes scented candles. It sells them through a website as well as in its shop. Explain two benefits to Quayside Candles of using e-commerce.6 marks
Sandbar Café is a small café in a village. Almost all of its customers live in the village. The owner plans to stop delivering leaflets and to promote the café only on social media. Do you think this is the best way for Sandbar Café to promote itself? Justify your answer.6 marks
Tidewater Kayaks hires out 20 kayaks to tourists from a hut on a beach. Customers turn up and pay in cash. On sunny mornings every kayak is hired by 10 a.m. and tourists are turned away. On wet days very few are hired. The owner plans a website where tourists book and pay for a kayak in advance. Explain one opportunity and one threat of e-commerce for Tidewater Kayaks.8 marks
Larkrise Pianos sells second-hand pianos from two shops. A piano is an expensive purchase and most customers play one before they buy. Rent on the two shops takes a large share of revenue. A new competitor sells pianos only online, at lower prices. The owner is considering two options. Option 1: close both shops and sell only through a website. Option 2: keep one shop and add a website. Justify which option Larkrise Pianos should choose.12 marks

Go deeper

Practise and revise with member-only material for this chapter.

Workbook

Exam-style practice questions with full worked solutions.

Unlock with a plan

Chapter at a Glance

A single-page summary of every key idea for fast revision.

Unlock with a plan

Free notes are just the start.

Unlock every Workbook and Chapter at a Glance, and generate your own worksheets and predicted papers.

Explore plans

Related chapters

Business activity Classification of businesses Enterprise, business growth and size Types of business organisation Business objectives and stakeholder objectives Motivating employees

Read the notes

1. Benefits and limitations of new products#

2. Brand image, sales and customer loyalty#

3. The role of packaging#

4. The product life cycle and extension strategies#

5. The life cycle and marketing decisions#

6. Cost-plus pricing#

7. Competitive pricing#

8. Penetration and skimming#

9. Promotional pricing#

10. Recommending a pricing method#

11. Price elasticity of demand#

12. What a channel of distribution is#

13. Selling direct to consumers#

14. Using wholesalers#

15. Using retailers#

16. Recommending and justifying a channel#

17. The aims of promotion#

18. Advertising#

19. Sales promotion#

20. How promotion influences sales#

21. Cost-effectiveness and the marketing budget#

22. Choosing and recommending a method#

23. What e-commerce is#

24. Opportunities of e-commerce for a business#

25. Threats of e-commerce for a business#

26. Opportunities and threats of e-commerce for consumers#

27. Using the internet for promotion#

28. Social media networks for promotion#

End-of-chapter exercise

Go deeper

Workbook

Chapter at a Glance

Free notes are just the start.

Related chapters

1. Benefits and limitations of new products

2. Brand image, sales and customer loyalty

3. The role of packaging

4. The product life cycle and extension strategies

5. The life cycle and marketing decisions

6. Cost-plus pricing

7. Competitive pricing

8. Penetration and skimming

9. Promotional pricing

10. Recommending a pricing method

11. Price elasticity of demand

12. What a channel of distribution is

13. Selling direct to consumers

14. Using wholesalers

15. Using retailers

16. Recommending and justifying a channel

17. The aims of promotion

18. Advertising

19. Sales promotion

20. How promotion influences sales

21. Cost-effectiveness and the marketing budget

22. Choosing and recommending a method

23. What e-commerce is

24. Opportunities of e-commerce for a business

25. Threats of e-commerce for a business

26. Opportunities and threats of e-commerce for consumers

27. Using the internet for promotion

28. Social media networks for promotion