Question

Question 1

CD manufactures sells a number of products. All of its products have a life cycle of less than one

year. CD uses a four - stage life cycle model (Introduction, Growth, Maturity and Decline). CD has

recently developed an innovative product. It was decided that it would be appropriate to adopt a

market skimming pricing policy for the launch of the product. However, CD expects that other

companies will try to join the market very soon. This product is currently in the Introduction stage

of its life cycle and is generating significant unit profits. There are concerns that these current unit

profits will not continue during the other stages of the product’s life cycle. Required:

Explain, with reasons, the changes, if any, to the unit selling price AND the unit production cost

that could occur when the product moves from the previous stage into each of the following stages

of its life cycle:

(i) Growth

(ii) Maturity

Question 2

You have been invited to speak to the Association of Ghanaian Industries on Market Segmentation

and its importance.

a. Explain five (5) importance of market segmentation.

b. Choose two markets (one from a consumer and one from an organizational market) and show

how these may be segmented.

Question 3

Discuss the assembly of a company’s product mix, giving reasons for mix optimization and ways in

which this might be achieved.

Question 4

Direct marketing has been one of the fastest-growing areas of distribution over the past 30 years.

Describe what is meant by direct marketing and account for its success.

Question 5

What limitations are inherent in the economist’s view of pricing and how might price be determined

in a practical marketing situation?

Answer 1

1)

Price skimming happens when a company introduces a product at a high price initially. This price is then lowered over a period of time as the product gains buyers. Price skimming is thus, a strategy usually used to recover the sunk costs of the investment as early as possible. When an innovative products is launched as by CD at a high price, they usually set the highest price that a segment of their targeted market will buy. This segment consists of buyers who are willing to pay a high price for the product. Once this segment is covered, the price will be lowered for other segments that are reluctant to pay more. At this point the company is making profits and their competitors may enter the market and take away the profits. However, to avoid this, it is essential that the company lowers the price at the right time. This lower price will help gain more market share and also stop any competitors from entering. The people will not pay high price for the same product launched by a different company unless it is an upgraded version. Thus, it is important to reduce prices at the right time even if it results in minor increase in costs. The prices will fall and the production costs will increase by a small margin, if this strategy of price skimming is followes.

When the product moves to growth, it will be moving from an initial high price to a lower price but the market size for the product too will increase substantially. The company may face some fall in profits. At the stage of maturity, the product has will have tapped all segments of buyers. The economies of scale may kick in to reduce the costs and increase profits for the company.

2)

Importance of market segmentation are as follows

A) Market segmentation provides an MVP to the business. It is like a focal point of the company. For example, Nike manufactures many products from garments to deodorants. However, they are best known for shoes.

B) Market segmentation helps to improve your marketing to the specific target buyers. The company needs to market the product in the correct way to a particular type of a buyer. For example, older people may prefer a cereal bar because it claims to provide certain nutrients. While younger crowd may be more interested in the 'eat on the go' benefit.

C) Profitable innovation/development is one benefit of market segmentation. For example: A company selling furniture may need to develop products differently for people with different needs. A small apartment needs compact, furniture while a big house would require chunky statement furniture. It helps the company know the different products they need to manufacture.

D) when the needs of different customers are thus tailored, the sales will increase bringing in huge profits to the company.

E) It improves efficiency and opportunity. It differentiates the various habits and nature of customers, helping the company to reach out to them.

A type of a customer market is cars.

A company may want to manufacture small compact cars, for urban areas with less parking space. This is also applicable to single people or students who usually drive alone and for a small distance. A family with kids will need big cars with legspace.

A type of organizational market is the rubber industry.

This industry provides rubber to companies manufacturing tyres for automobiles. It also provides rubber to produce balls and gloves. Thus, this market can be segmented on the types and quality of rubber used in a wide variety of products.