The elements of the marketing mix (the 4Ps) — practice questions

Product: Trend-led designs with a strong logo. The brand could release a new colourway every two months and a limited-edition collaboration model (e.g., 5,000 pairs) twice a year to create hype and perceived scarcity.

Price: A mid-range price point of $90, positioning it above budget brands (approx. $40) but below premium competitors (approx. $160). To cater to limited incomes, offer a 15% student discount (reducing the price to $76.50) and partner with a 'buy now, pay later' service like Afterpay.

Promotion: A budget of $250,000 is allocated primarily to digital channels. Focus on influencer marketing on TikTok and Instagram, sponsoring micro-influencers in the target demographic. Run competitions and user-generated content campaigns with hashtags to boost engagement.

Place: An online direct-to-consumer (D2C) store to control brand experience and capture higher margins. This is supplemented by selective distribution through key youth-focused footwear chains like JD Sports or Foot Locker, avoiding discount outlets to maintain brand prestige.

Coherence: The mix is coherent. The aspirational, limited-edition product justifies the mid-range price. The price is made accessible through discounts and payment plans, aligning with the target market's income. Promotion occurs on platforms they use daily, and the selective place strategy reinforces the brand's image, preventing it from being seen as a common, low-value item.

To recommend a price, we must first calculate the total cost per unit and then apply the desired profit margin. The final price must also be considered in the context of the other 3Ps (Product, Place, Promotion).

Step 1: Calculate the total cost per unit

First, find the total monthly cost.

• Total Variable Cost = Variable Cost per unit × Number of units
• Total Variable Cost = $1.20 × 6,000 = $7,200

Next, add fixed costs.

• Total Cost = Total Variable Cost + Fixed Costs
• Total Cost = $7,200 + $6,000 = $13,200

Now, find the cost per unit (break-even price per latte).

• Cost per Unit = Total Cost / Number of units
• Cost per Unit = $13,200 / 6,000 = $2.20

Step 2: Calculate the target price using cost-plus pricing

The business wants a 40% profit margin. This means the cost ($2.20) represents 60% (100% - 40%) of the final selling price.

• Formula: Price = Cost per Unit / (1 - Desired Profit Margin as a decimal)
• Price = $2.20 / (1 - 0.40)
• Price = $2.20 / 0.60
• Price = $3.666...

It is common to round this to a more consumer-friendly price point. A price of $3.70 or $3.75 would be appropriate.

Step 3: Justify the price in the context of the marketing mix

• Recommendation: Set the price at $3.75.
• Coherence with Product: This price supports a 'Product' positioning of high-quality, ethically sourced coffee that is superior to cheaper alternatives. It signals quality without being prohibitively expensive.
• Coherence with Place: The price needs to be high enough to help cover the costs of a prime university 'Place' (location), which is included in the $6,000 fixed costs.
• Coherence with Promotion: A standard price of $3.75 allows for promotional tactics. For example, a 20% launch discount would bring the price to $3.00 ($3.75 × 0.80), a very attractive offer for students that still covers the $2.20 unit cost.
• Competitive Positioning: At $3.75, BeanCounter Brews is competitively priced against nearby cafes (e.g., one at $3.80, another at $4.50), positioning it as a high-quality but good-value option for its target market.