The design mix and social trends

The design mix balances three elements — and the balance depends on the target market:

• Function: does it do the job reliably and safely? (dominant in B2B and utilitarian products)
• Aesthetics: how it looks, feels, sounds and smells (dominant in fashion and lifestyle brands)
• Cost: can it be made at a unit cost that supports the target price and margin?

Edexcel expects you to link the design mix to social trends:

• Resource depletion → designing for waste minimisation, re-use and recycling (repairable products, refill packs, recycled materials).
• Ethical sourcing → traceable supply chains, Fairtrade inputs, audited factory conditions.

Evaluation: designing for sustainability usually raises unit cost. It only raises profit if the target segment is willing to pay a premium, or if it lowers costs elsewhere (less material used, less waste) or protects the brand from reputational damage.

Branding, promotion and why strong brands are worth it

Types of branding: product brand (a single product), corporate brand (the whole company — the same name endorses everything) and own-label (a retailer's own brand). Types of promotion include advertising, sales promotions, PR, personal selling, direct marketing and sponsorship.

Benefits of a strong brand:

• Added value — the price customers accept exceeds the cost of inputs by more.
• Premium pricing — an identical physical product commands more money.
• Reduced price elasticity of demand — loyal customers do not switch when price rises, so revenue and margin are protected.

Ways to build a brand: USPs and differentiation, advertising, sponsorship and social media. Social trends push firms towards viral marketing and emotional branding (selling identity and values, not features).

Why branding pays

Pricing strategies and cost-plus calculations

Edexcel names six strategies:

• Cost-plus: add a percentage mark-up to unit cost. Simple, guarantees a margin, but ignores what customers will pay and what rivals charge.
• Price skimming: launch high to recoup R&D from early adopters, then lower the price. Needs a genuinely novel, differentiated product.
• Penetration: launch low to win market share fast, then raise price. Needs elastic demand and the ability to absorb low margins.
• Predatory: price below cost to drive a rival out — illegal under UK and EU competition law if the firm is dominant.
• Competitive: price in line with rivals — common where products are similar and demand is elastic.
• Psychological: £9.99 rather than £10; charm pricing and price anchoring.

Choice of strategy depends on: the number of USPs/differentiation, price elasticity of demand, the level of competition, brand strength, the stage in the product life cycle, and costs plus the need to make a profit. Social trends — online sales and price-comparison sites — have made demand far more price elastic and pushed many markets towards competitive pricing.

Your turn — cost-plus pricing

Your turn — find the mark-up

Mark-up versus margin

Match the pricing strategy

Tap a scenario on the left, then the pricing strategy it describes on the right.

Distribution channels

Place is about getting the product to the customer at the right time, in the right quantity, at an acceptable cost.

• Four-stage channel: producer → wholesaler → retailer → consumer. Wide reach and small orders handled, but each intermediary takes a margin, so the producer earns less per unit.
• Three-stage: producer → retailer → consumer. Common for supermarkets buying direct.
• Two-stage (direct): producer → consumer. Higher margin, full control of the brand experience and customer data, but the producer bears the cost of logistics, returns and customer service.

Social trends: online distribution (direct-to-consumer, marketplaces, click-and-collect) has disintermediated many channels, and firms are increasingly changing from a product to a service — subscription models, streaming, software-as-a-service, leasing rather than selling.

Evaluation: going direct raises the margin per unit but requires investment in warehousing, delivery and IT, and can trigger channel conflict with retailers that currently stock the brand.

The product life cycle and extension strategies

The product life cycle plots sales over time.

Extension strategies delay decline: product changes (new formulation, new packaging, new features, new variants) and promotion changes (rebranding, new advertising, new target segments, price repositioning).

Life cycle and pricing

The Boston Matrix and the product portfolio

The Boston Matrix plots each product by relative market share and market growth:

• Star — high share, high growth. Needs heavy investment to defend share; becomes tomorrow's cash cow.
• Cash cow — high share, low growth. Generates surplus cash that funds stars and question marks.
• Question mark (problem child) — low share, high growth. Needs cash; may become a star or a dog.
• Dog — low share, low growth. Usually harvested or divested — unless it supports the range.

The aim of portfolio analysis is balance: enough cash cows to fund enough stars and question marks, so the firm still has products in growth when today's earners decline.

Strategy by market type: mass markets → scale, wide distribution, competitive pricing. Niche markets → differentiation, premium price, targeted promotion. B2B → personal selling, relationships, long sales cycles, rational buying criteria. B2C → brand, emotion, mass promotion. Consumer loyalty is built through loyalty schemes, service, community and consistent brand experience.

Sort the Boston Matrix

Tap a statement, then tap the Boston Matrix category it describes.

Your turn — branding and elasticity

Interpreting the result

Evaluating the Boston Matrix

The big ideas to know

You have covered the whole marketing mix and marketing strategy for Theme 1.3. Press Finish to see your score.