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Importance of Price to an Effective Marketing Mix (Worked Answer to AQA Grade Booster 2019: 16 Mark Question)

Level:
A Level
Board:
AQA

Here is a suggested response to the 16-mark "open" question on the importance of price to the marketing mix of "all businesses" featured in the 2019 AQA A-Level Grade Booster workshops.

Domino’s makes extensive use of discounted pricing offers to sell its products. To what extent is price the most important part of an effective marketing mix for all businesses? (16 marks)

Whilst price is just one part of the extended marketing mix, for nearly all businesses it is vital to get the price right in order for marketing to be effective, although there are some situations where price becomes relatively less important to marketing success.

Taking the example of Domino’s, it is clear from the case study that price is a vital part of effective marketing for the business as a whole. Demand for pizza is sensitive to changes in price and most Domino’s customers appear to be attracted by a positioning based on high perceived added value together with a low price (Bowman’s hybrid strategy). By offering high quality pizza at discounted price, Domino’s is likely to gain a competitive advantage over rivals, particularly if the price offered is consistently lower or at least the same as competitors. Whilst there will be some local markets where Domino’s may find competitors trying to undercut them on price in the short-term, by consistently promoting discounted prices on a national basis Domino’s will build customer perception that their pizza is “good value”. Of course, not all Domino’s customers will view price as the most important factor in their buying decisions. As customers become more loyal to the Domino’s brand, perhaps because of the ease of ordering (place) or the speed of delivery (process), demand may become less sensitive to price and therefore price becomes less important to effective marketing.

In many other businesses price is also a very important part of effective marketing, particularly for businesses trying to adopt a cost leadership strategy in order to be competitive. Take the supermarket sector, for example. Discounters such as Aldi and Lidl have shown in recent years how, by offering grocery items at substantially lower prices than the likes of Asda and Waitrose, they have persuaded many customers to switch from their favourite supermarket, thereby increasing their market share. Price has been a key part of Aldi & Lidl’s effective marketing mix, although other factors have also helped, such as wider availability of stores (place) and a growing reputation for quality (product). The budget hotel market is another example of where successful businesses consistently offer their product at an attractively low price and use dynamic pricing to help ensure that prices remain competitive even when other factors affecting demand change. On the other hand, there are many businesses adopting a strategy of differentiation where price is less important to an effective marketing mix. In the case of hotels, brands that focus on hotel facilities, quality of customer service and attractiveness of location may find that they can charge a relatively high price compared with local competitors and still have an effective marketing mix. This is because their target customers are less concerned by price than by other elements of the mix, although such customers will always consider “perceived value” when making their choice. In general, it seems that businesses that build a strong brand and high levels of customer loyalty (e.g. Apple and Nike) can still be successful even if charging higher prices than their competitors.

Overall, I feel that, for most businesses, price is the most important element of a successful marketing mix. I justify this because, if a business gets the price wrong, then marketing can under-perform even if other elements of the marketing mix are ok. As Bowman’s model points out, a business can be undercut by competitors by offering a similar product at a lower price, so price is a key competitive weapon in nearly all markets. Of course, price alone is unlikely to be enough for marketing to be effective. As both Domino’s and Aldi have shown, an effective discount pricing strategy is made even effective by having other elements of the extended marketing mix working consistently alongside price, such as a reputation for quality and customer service. This adds to the perceived value of their products, which creates a competitive advantage that rivals struggle to match, even if they try to offer lower prices.

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