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Marketing Management

  1. 1. 1www.studyMarketing.org Think Marketing !Think Marketing ! Produced by www.studyMarketing.orgProduced by www.studyMarketing.org
  2. 2. 2www.studyMarketing.org ContentsContents 1. Marketing Mix and Key Marketing Activities 2. Developing Market Segmentation 3. Product Planning and Development 4. Promotion Mix : Advertising, Publicity, Personal Selling and Sales Promotion 5. Distribution Planning and Pricing Strategy If you find this presentation useful, please consider telling others about our site (www.studyMarketing.org)(www.studyMarketing.org)
  3. 3. 3www.studyMarketing.org www.studyMarketing.orgwww.studyMarketing.org You can download this presentation at: Please visit www.studyMarketing.org for more presentations on strategy, marketing, branding, and innovation
  4. 4. 4www.studyMarketing.org Marketing Mix andMarketing Mix and Market SegmentationMarket Segmentation
  5. 5. 5www.studyMarketing.org Marketing CredoMarketing Credo There is only one valid definitionThere is only one valid definition of business purpose :of business purpose : to create ato create a customercustomer Peter Drucker
  6. 6. 6www.studyMarketing.org Marketing MixMarketing Mix ProductProduct PricePrice PlacePlace PromotionPromotion Target Market
  7. 7. 7www.studyMarketing.org Key Marketing ActivitiesKey Marketing Activities Consumer AnalysisConsumer Analysis Product PlanningProduct Planning Price PlanningPrice Planning DistributionDistribution PlanningPlanning PromotionPromotion PlanningPlanning
  8. 8. 8www.studyMarketing.org Key Marketing ActivitiesKey Marketing Activities Consumer AnalysisConsumer Analysis Product PlanningProduct Planning Examination and evaluation of consumer characteristics, needs, and purchase processes Development and maintenance of products, product assortments, product positions, brands, packaging, options, and deletion of old products Price PlanningPrice Planning Outlines price ranges and levels, pricing techniques purchase terms, price adjustments, and the use of price as an active or passive factor
  9. 9. 9www.studyMarketing.org Key Marketing ActivitiesKey Marketing Activities DistributionDistribution PlanningPlanning Establishment of channel relations, physical distribution, inventory management, warehousing, transportation, allocation of goods, and wholesaling PromotionPromotion PlanningPlanning Combination of advertising, publicity, personal selling, and sales promotion to drive sales revenue
  10. 10. 10www.studyMarketing.org Product/Market MatrixProduct/Market Matrix Existing ProductsExisting Products New ProductsNew Products Existing MarketsExisting Markets New MarketsNew Markets Market Penetration Market Penetration Market Development Market Development Product Development Product Development DiversificationDiversification
  11. 11. 11www.studyMarketing.org Product/Market MatrixProduct/Market Matrix Market Penetration Market Penetration Market Development Market Development • The firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share • Effective when the market is growing or not yet saturated • The firm seeks growth by targeting its existing products to new market segments • Effective when a local or regional business looks to wider its market, new market segments are emerging due to changes in consumer life-style/demographics, and innovative uses are discovered for a mature product
  12. 12. 12www.studyMarketing.org Product/Market MatrixProduct/Market Matrix Product Development Product Development DiversificationDiversification • The firms develops new products targeted to its existing market segments • Effective when the firm has a core of strong brands • The firm seeks growth by targeting its existing products to new market segments • Diversification is utilized so that the firm does not become overly depend- ent on one product line
  13. 13. 13www.studyMarketing.org Market SegmentationMarket Segmentation The division of a market into different homogeneous groups of consumers MarketMarket SegmentSegment Should be: • measurable • accessible by communication and distribution channels • different in its response to a marketing mix • durable (not changing too quickly) • substantial enough to be profitable
  14. 14. 14www.studyMarketing.org Types of Market SegmentationTypes of Market Segmentation GeographicGeographic DemographicDemographic Based on regional variables such as region, climate, population density, and population growth rate. Based on variables such as age, gender, ethnicity, education, occupation, income, and family status
  15. 15. 15www.studyMarketing.org Types of Market SegmentationTypes of Market Segmentation PsychographicPsychographic BehavioralBehavioral Based on variables such as values, attitudes, and lifestyle Based on variables such as usage rate and patterns, price sensitivity, brand loyalty, and benefits sought
  16. 16. 16www.studyMarketing.org Step in Planning A Segmentation StrategyStep in Planning A Segmentation Strategy Determining characteristics and needs of consumers for the product category of the company Analyzing consumer similarities and differences Developing consumer group profiles Selecting consumer segment (s) Positioning company’s offering in relation to competition. Establishing an appropriate marketing plan
  17. 17. 17www.studyMarketing.org Product Planning andProduct Planning and DevelopmentDevelopment
  18. 18. 18www.studyMarketing.org Products : Types of GoodsProducts : Types of Goods Types of Goods ConvenienceConvenience GoodsGoods ShoppingShopping GoodsGoods SpecialtySpecialty GoodsGoods
  19. 19. 19www.studyMarketing.org Convenience GoodsConvenience Goods ConvenienceConvenience GoodsGoods • Those purchased with a minimum of effort, because the buyer has knowledge of product characteristics prior to shopping • The consumer does not want to search for additional information (because the item has been bought before) and will accept a substitute rather than have to frequent more than one store
  20. 20. 20www.studyMarketing.org ConvenienceConvenience GoodsGoods • Staples are low-priced items that are routinely purchased on a regular basis, such as detergent, milk, and cereal • Impulse goods are items that the consumer does not plan to buy on a specific trip to a store, such as candy, a magazine, and ice cream • Emergency goods are items purchased out of urgent need, such as an umbrella during a rainstorm, a tire to replace a flat, or aspirin for a headache Convenience GoodsConvenience Goods
  21. 21. 21www.studyMarketing.org Shopping GoodsShopping Goods ShoppingShopping GoodsGoods • Those for which consumers lack sufficient information about product alternatives and their attributes, and therefore must acquire further knowledge in order to make a purchase decision
  22. 22. 22www.studyMarketing.org Shopping GoodsShopping Goods ShoppingShopping GoodsGoods • For attribute-based shopping goods, consumers get information about and then evaluate product features, warranty, performance, options, and other factors. The goods with the best combination of attributes is purchased. Sony electronics and Calvin Klein clothes are marketed as attribute-based shopping goods • For price-based shopping goods, consumers judge product attributes to be similar and look around for the least expensive item/store
  23. 23. 23www.studyMarketing.org Specialty GoodsSpecialty Goods SpecialtySpecialty GoodsGoods • Those to which consumers are brand loyal. • They are fully aware of these products and their attributes prior to making a purchase decision. • They are willing to make a significant purchase effort to acquire the brand desired and will pay a higher price than competitive products, if necessary. • For specialty goods, consumers will not make purchases if their brand is not available. Substitutes are not acceptable.
  24. 24. 24www.studyMarketing.org ServicesServices Type of Services Rented-Rented- goodsgoods ServiceService Owned-goodsOwned-goods serviceservice Non-goodsNon-goods
  25. 25. 25www.studyMarketing.org ServicesServices Rented-Rented- goodsgoods ServiceService Owned-goodsOwned-goods serviceservice Non-goodsNon-goods Involves the leasing of a good for a specified period of time. Examples include car, hotel room, apartment, and tuxedo rentals Involves an alteration or repair of a good owned by the consumer. Examples include repair services (such as automobile, watch, and plumbing), lawn care, car wash, haircut, and dry cleaning Provides personal service on the pan of the seller; it does not involve a goods. Examples include accounting, legal, and consulting services
  26. 26. 26www.studyMarketing.org Characteristics of ServicesCharacteristics of Services • The intangible nature of many services makes the consumer's choice more diffi-cult than with goods • The producer and his or her services are often inseparable • The perishability of services prevents storage and increases risks • Service quality may be variable
  27. 27. 27www.studyMarketing.org Product Life CycleProduct Life Cycle IntroductionIntroduction GrowthGrowth MaturityMaturity DeclineDecline
  28. 28. 28www.studyMarketing.org Product Life CycleProduct Life Cycle Characteristics Introduction Growth Marketing objective Attract innovators and opinion leader to new product Expand distribution and product line Industry sales Increasing Rapidly increasing Competition None or small Some Industry profits Negative Increasing Customers Innovators Affluent mass market Product mix One or two basic models Expanding line Distribution Depends on product Rising number of outlets Pricing Depends on product Greater range of prices Promotion Informative Persuasive
  29. 29. 29www.studyMarketing.org Product Life CycleProduct Life Cycle Characteristics Maturity Decline Marketing objective Maintain differential advantage as long as possible (a) cut back, (b) revive, (C) terminate Industry sales Stable Decreasing Competition Substantial Limited Industry profits Decreasing Decreasing Customers Mass market Laggards Product mix Full product line Best-sellers Distribution Greatest number of outlets Decreasing number of outlets Pricing Full line of prices Selected prices Promotion Competitive Informative
  30. 30. 30www.studyMarketing.org New Product PlanningNew Product Planning IdeaIdea GenerationGeneration ProductProduct ScreeningScreening ConceptConcept TestingTesting BusinessBusiness AnalysisAnalysis ProductProduct DevelopmentDevelopment TestTest MarketingMarketing Commercial-Commercial- izationization
  31. 31. 31www.studyMarketing.org New Product PlanningNew Product Planning IdeaIdea GenerationGeneration • A continuous, systematic search for new product opportunities • It involves delineating sources of new ideas and methods for generating them ProductProduct ScreeningScreening • After the firm identifies potential products, it must screen them • Many companies use a new-product screening checklist for preliminary evaluation
  32. 32. 32www.studyMarketing.org Screening ChecklistScreening Checklist GENERAL CHARACTERISTICS OF NEW PRODUCTSGENERAL CHARACTERISTICS OF NEW PRODUCTS Profit potential Existing competition Potential competition Size of market Level of investment Patentability Level of risk MARKETING CHARACTERISTICS OF NEW PRODUCTSMARKETING CHARACTERISTICS OF NEW PRODUCTS Fit with marketing capabilities Effect on existing products (brands) Appeal to current consumer markets Potential length of product life cycle Existence of differential advantage Impact on image Resistance to seasonal factors PRODUCTION CHARACTERISTICS OF NEW PRODUCTSPRODUCTION CHARACTERISTICS OF NEW PRODUCTS Fit with production capabilities Length of time to commercialization Ease of product manufacture Availability of labor and material resources Ability to produce at competitive prices
  33. 33. 33www.studyMarketing.org New Product PlanningNew Product Planning ConceptConcept TestingTesting BusinessBusiness AnalysisAnalysis • Concept testing presents the consumer with a proposed product and measures attitudes and intentions at this early stage of development • Concept testing is a quick and inexpensive way of measuring consumer enthusiasm • Business analysis for the remaining product concepts is much more detailed than product screening • Because the next step is expensive and time- consuming product development, critical use of business analysis is essential to eliminate marginal items
  34. 34. 34www.studyMarketing.org Business Analysis VariablesBusiness Analysis Variables Factors Considerations Demand projections Price/sales relationship; short- and long-run sales potential; speed of sales growth; rate of repurchases; channel intensity Cost projections Total and per unit costs; use of existing facilities and resources; startup vs. continuing costs; estimates of future raw materials and other costs; econo-mies of scale; channel needs; break-even point Competition Short-run and long-run market shares of company and competitors; strengths and weaknesses of competitors; potential competitors; likely competitive strategies in response to new product by firm Required investment Product planning (engineering, patent search, product development, testing); promotion; production; distribution Profitability Time to recoup initial costs; short- and long-run total and per- unit profits; control over price; return on investment (ROI)
  35. 35. 35www.studyMarketing.org New Product PlanningNew Product Planning ProductProduct DevelopmentDevelopment TestTest MarketingMarketing • Product development converts a product idea into a physical form and identifies a basic marketing strategy • It involves product construction, packaging, branding, product positioning, and attitude and usage testing. • Test marketing involves placing a product for sale in one or more selected areas and observing its actual performance under the proposed marketing plan. • The purpose is to evaluate the product and pretest marketing efforts in a real setting prior to a full-scale introduction
  36. 36. 36www.studyMarketing.org New Product PlanningNew Product Planning Commercial-Commercial- izationization • After testing is completed, the firm is ready to introduce the product to its full target market. This is commercialization and corresponds to the introductory stage of the product life cycle • Commercialization involves implementing a total marketing plan and full production
  37. 37. 37www.studyMarketing.org Promotion Mix :Promotion Mix : Advertising, Publicity, PersonalAdvertising, Publicity, Personal Selling and Sales PromotionSelling and Sales Promotion
  38. 38. 38www.studyMarketing.org Promotion MixPromotion Mix AdvertisingAdvertising PublicityPublicity PersonalPersonal SellingSelling SalesSales PromotionPromotion Target Market
  39. 39. 39www.studyMarketing.org Promotion MixPromotion Mix Factor AdvertisingAdvertising PublicityPublicity Personal SellingPersonal Selling Sales PromotionSales Promotion Audience Mass Mass Small (one-to-one) Varies Message Uniform Uniform Specific Varies Cost Low per viewer or reader None for media space and time; can be moderate costs for press releases and publicity materials High per customer Moderate per customer Sponsor Company No formal sponsor in that media are not paid Company Company Flexibility Low Low High Moderate Control over content and placement High None High High Credibility Moderate High Moderate Moderate Major goal To appeal to a mass audience at a reasonable cost, and create awareness and favorable attitudes To reach a mass audience with an independently reported message To deal with individual consumers, to resolve questions, to close sales To stimulate short-run sales, to increase impulse purchases Example Television ad for a Kodak video camera Newspaper article reporting on the unique features of a Kodak video camera Retail sales personnel explaining how a Kodak video camera works A Kodak video camera displayed at consumer photography shows
  40. 40. 40www.studyMarketing.org Four Key Steps to AdvertiseFour Key Steps to Advertise DetermineDetermine message contentmessage content and devise an adand devise an ad Specify theSpecify the location of an adlocation of an ad (media placement)(media placement) Outline a promotionOutline a promotion scheduleschedule Choose how manyChoose how many variations of avariations of a basic message tobasic message to utilizeutilize
  41. 41. 41www.studyMarketing.org Things to Consider in AdvertisingThings to Consider in Advertising WasteWaste ReachReach Waste is the portion of an audience that is not in a firm's target market. Because media appeal to mass audiences, waste is a significant factor in advertising. Reach refers to the number of viewers or readers in the audience
  42. 42. 42www.studyMarketing.org Things to Consider in AdvertisingThings to Consider in Advertising FrequencyFrequency MessageMessage permanencepermanence Frequency is how often a medium can be used. It is greatest for newspapers, radio, and television, where ads may appear daily and advertising strategy may be easily changed Message permanence refers to the number of exposures one advertisement gener-ates and how long it remains with the audience
  43. 43. 43www.studyMarketing.org Things to Consider in AdvertisingThings to Consider in Advertising PersuasivePersuasive impactimpact ClutterClutter Persuasive impact is the ability of a medium to stimulate consumers. Television often has the highest persuasive impact because it is able to combine audio, video, color, animation, and other appeals. Clutter involves the number of ads that are contained in a single program, issue, etc. of a medium. Clutter is low when a limited number of ads is presented and high when many ads are presented.
  44. 44. 44www.studyMarketing.org Publicity : Poor and Good ResponsePublicity : Poor and Good Response SituationSituation Poor ResponsePoor Response Good ResponseGood Response Fire breaks out in a company plant Requests for information by media are ignored. Company spokesperson explains the cause of the fire and company precautions to avoid it and answers questions. New product introduced Advertising is used without publicity Pre-introduction news releases, product samples, and testimonials are used. News story about product defects Requests for information by media are ignored, blanket denials are issued, hostility is exhibited toward reporter of story. Company spokesperson states that tests are being conducted on products, describes procedure for handling defects, and answers questions. Competitor introduces new product The advertising campaign is stepped up. Extensive news releases, statistics, and spokespeople are made available to media to present company's competitive features. High profits reported Profits are rationalized and positive effects on the economy are cited. Profitability is explained, data (historical and current) are provided, uses of profits are detailed: research, community development. Overall view of publicity There is an infrequent need for publicity; crisis fighting is used when bad reports are circulated. There is an ongoing need for publicity, strong planning, and contingency plans for bad reports.
  45. 45. 45www.studyMarketing.org Developing a Publicity PlanDeveloping a Publicity Plan SettingSetting objectivesobjectives OutliningOutlining types oftypes of publicitypublicity SelectingSelecting mediamedia CreatingCreating publicitypublicity messagesmessages TimingTiming publicitypublicity messagesmessages
  46. 46. 46www.studyMarketing.org Publicity TypePublicity Type Publicity Type Example News publicity Macy's describes its decision to sell its stores in the Midwest. Business feature article Toyota explains its goals and objectives for the 2020. Service feature article A trade association offers 10 tips on how to reduce home heating costs. Finance release General Electric distributes quarterly financial data about the company. Product release Intel announces its new, fast-speed microprocessor Pictorial release Apple distributes photos showing all of its personal computer products and related software Background editorial release Mc Kinsey presents a biography of its president and his rise through the company. Emergency publicity The Red Cross makes a request for aid to tornado victims.
  47. 47. 47www.studyMarketing.org Specific Personal Selling ObjectivesSpecific Personal Selling Objectives Type of Objective Illustrations Demand-Oriented Information To fully explain all good and service attributes To answer any questions To probe for any further questions Persuasion To clearly distinguish good or service attributes from those of competitors To maximize the number of sales as a per cent of presentations To convert undecided consumers into buyers To sell complementary items, e.g., film with a camera To placate dissatisfied customers Reminding To ensure delivery, installation, etc. To follow up after a good or service has been purchased To follow up when a repurchase is near To reassure previous customers when making a new purchase Image-Oriented Industry and company To maintain a good appearance by all personnel in contact with consumers To follow acceptable sales practices
  48. 48. 48www.studyMarketing.org Personal Selling ProcessPersonal Selling Process ProspectingProspecting (blind, lead)(blind, lead) ApproachApproach CustomerCustomer WantsWants SalesSales PresentationPresentation AnsweringAnswering QuestionsQuestions (questions and(questions and objections)objections) CloseClose Follow upFollow up (satisfaction,(satisfaction, referrals,referrals, repurchase)repurchase)
  49. 49. 49www.studyMarketing.org Types of Sales PromotionTypes of Sales Promotion TypeType CharacteristicsCharacteristics IllustrationIllustration Coupons Manufacturers or retailers advertise special discounts for customers who redeem coupons. P&G mails consumers a 25-cents- off coupon for Sure deodorant, which can be redeemed at any supermarket. Refund or rebate A consumer submits proof-of- purchase (usually to the manufacturer) and receives an extra discount. First Alert home fire alarms provides $5 rebates to consumers submitting proof of purchase. Samples Free merchandise or services are given consumers, generally for new items. When Sunlight dishwashing liquid was introduced, free samples were mailed to consumers. Contests or sweepstakes Consumers compete for prizes by answering questions (contests) or filling out forms for random drawings of prices (sweepstakes). Publishers Clearinghouse sponsors annual sweepstakes and awards automobiles, houses, and other prices.
  50. 50. 50www.studyMarketing.org TypeType CharacteristicsCharacteristics IllustrationIllustration Bonus or multipacks Consumers receive discounts for purchasing in quantity Some stores run I-cent sales, whereby the consumer buys one item and gets a second one for a penny. Point-of- purchase displays In-store displays remind customers and generate impulse purchases. Chewing gum sales in supermarkets are high because displays arc placed at checkout counters. Special events Manufacturers or retailers sponsor celebrity appearances, fashion shows, and other activities. Virtually every major league baseball team has an annual "Old Timers' Day," which attracts large crowds. Gifts Consumers are given gifts for making a purchase or opening a new account. Savings banks offer a range of gifts for consumers opening new accounts or expanding existing ones. Types of Sales PromotionTypes of Sales Promotion
  51. 51. 51www.studyMarketing.org Sales Promotion AdvantagesSales Promotion Advantages • It helps attract customer traffic and maintain brand or store loyalty • Quick results can be achieved • Some forms of sales promotion (calendars, t-shirts. Pens, etc) provide value to the consumer and are retained by them; and these forms can provide a reminder function • Impulse purchases can be increased through in-store displays
  52. 52. 52www.studyMarketing.org Sales Promotion DisadvantagesSales Promotion Disadvantages • The image of the firm may be lessened if it continuously runs promotions. Consumers may view discounts as representing a decline in product quality and believe the firm could not sell its offerings without them. • When coupons, rebates, or other special deals are used frequently, consumers may not make purchases if the items are sold at regular prices. Instead, they will stock up each time there is a promotion.
  53. 53. 53www.studyMarketing.org Sales Promotion DisadvantagesSales Promotion Disadvantages • Sometimes sales promotions shift the focus away from the product onto secondary factors. Consumers may be attracted by calendars, coupons, or sweepstakes instead of by product quality, functions, and durability. In the short run this generates consumer enthusiasm. In the long run this may have adverse effects on a brand's image and on sales, because a product- related differential advantage has not been developed.
  54. 54. 54www.studyMarketing.org Distribution Planning andDistribution Planning and Pricing StrategyPricing Strategy
  55. 55. 55www.studyMarketing.org Distribution PlanningDistribution Planning • Distribution planning is systematic decision making regarding the physical movement and transfer of ownership of a product from producer to consumer. • It includes transportation, storage, and customer transactions. • Distribution functions are carried out through a channel of distribution, which is comprised of all the organizations or people involved in the process. • These organizations or people are known as channel members or middlemen.
  56. 56. 56www.studyMarketing.org Intensity of Channel CoverageIntensity of Channel Coverage CharacteristicsCharacteristics ExclusiveExclusive DistributionDistribution SelectiveSelective DistributionDistribution IntensiveIntensive DistributionDistribution ObjectivesObjectives Prestige image, channel control and loyalty, price stability and high profit margins Moderate market coverage, solid image, some channel control and loyalty, good sales and profits Widespread market coverage, channel acceptance, sales volume and profits ChannelChannel membersmembers Few in number, well-established reputable stores Moderate in number, well-established, better stores Many in number, all types of outlets CustomersCustomers Few in number, trend setters, willing to travel to store, brand loyal Moderate in number, brand conscious, somewhat willing to travel to store Many in number, convenience- oriented
  57. 57. 57www.studyMarketing.org Intensity of Channel CoverageIntensity of Channel Coverage CharacteristicsCharacteristics ExclusiveExclusive DistributionDistribution SelectiveSelective DistributionDistribution IntensiveIntensive DistributionDistribution MarketingMarketing EmphasisEmphasis Personal selling, pleasant shopping conditions, good service Promotional mix, pleasant shopping conditions, good service Mass advertising, nearby location, items in stock MajorMajor DisadvantagesDisadvantages Limited sales potential May be difficult to carve out a niche Limited channel control ExamplesExamples Automobiles, designer clothes, caviar Furniture, clothing, watches Groceries, household products, magazines
  58. 58. 58www.studyMarketing.org Methods of Channel CooperationMethods of Channel Cooperation Factor Manufacturer Action Channel Member Action New-productNew-product introductionintroduction Thorough testing, adequate promotional support Good shelf location and space, enthusiasm for product, assistance in test marketing DeliveryDelivery Prompt filling of orders, adherence to scheduled dates Proper time allowed for delivery, shipments immediately checked for accuracy PromotionPromotion Sales force training, sales force incentives, development of national advertising campaign, cooperative programs Attractive in-store displays, knowledgeable salespeople, participation in cooperative programs ProductProduct qualityquality Product guarantees Proper installation and servicing of products
  59. 59. 59www.studyMarketing.org Pushing and Pulling StrategyPushing and Pulling Strategy ManufacturerManufacturer Channel members Channel members ConsumersConsumers ManufacturerManufacturer Channel members Channel members ConsumersConsumers Pushing StrategyPushing Strategy Pulling StrategyPulling Strategy
  60. 60. 60www.studyMarketing.org Price PlanningPrice Planning A PriceA PriceA PriceA Price Represents the value of aRepresents the value of a good or service for both thegood or service for both the seller and the buyerseller and the buyer Represents the value of aRepresents the value of a good or service for both thegood or service for both the seller and the buyerseller and the buyer PricePrice PlanningPlanning PricePrice PlanningPlanning Systematic decision makingSystematic decision making by an organization regardingby an organization regarding all aspects of pricingall aspects of pricing Systematic decision makingSystematic decision making by an organization regardingby an organization regarding all aspects of pricingall aspects of pricing
  61. 61. 61www.studyMarketing.org Factors Affecting Pricing DecisionsFactors Affecting Pricing Decisions ConsumersConsumers CompetitorsCompetitors ChannelChannel MembersMembers GovernmentGovernment CostCost Total EffectsTotal Effects on Priceon Price DecisionsDecisions
  62. 62. 62www.studyMarketing.org Consumers and Price DecisionsConsumers and Price Decisions ConsumersConsumers • The relationship between price and consumer purchases and perceptions is explained by two economic principles — the law of demand and price elasticity of demand • The law of demand states that consumers usually purchase more units at a low price than at a high price • The price elasticity of demand defines the sensitivity of buyers to price changes in terms of the quantities they will purchase
  63. 63. 63www.studyMarketing.org ElasticElastic DemandDemand ElasticElastic DemandDemand • Elastic demand occurs if relatively small changes in price result in large changes in quantity demanded • Numerically, price elasticity is greater than 1 • With elastic demand, total revenue goes up when prices are decreased and goes down when prices rise • Inelastic demand takes place if price changes have little impact on quantity demanded • Price elasticity is less than 1 • With inelastic demand, total revenue goes up when prices are raised and goes down when prices decline In-elasticIn-elastic DemandDemand In-elasticIn-elastic DemandDemand Consumers and Price DecisionsConsumers and Price Decisions
  64. 64. 64www.studyMarketing.org UnitaryUnitary DemandDemand UnitaryUnitary DemandDemand • Unitary demand exists if changes in price are exactly offset by changes in quantity demanded, so that total sales revenue remains constant. • Price elasticity is 1 Consumers and Price DecisionsConsumers and Price Decisions
  65. 65. 65www.studyMarketing.org Competitors and Price DecisionsCompetitors and Price Decisions CompetitorsCompetitors • Another element contributing to the degree of control a firm has over prices is the competitive environment within which it operates
  66. 66. 66www.studyMarketing.org Market- controlled price environment Market- controlled price environment • Characterized by a high level of com- petition, similar goods and services, and little control over price by individual companies • Characterized by moderate competi-tion, well-differentiated goods and services, and strong control over price by individual firms Company- controlled priced environment Company- controlled priced environment Competitors and Price DecisionsCompetitors and Price Decisions
  67. 67. 67www.studyMarketing.org Government- controlled price environment Government- controlled price environment • Characterized by prices set by the government. Examples are public utilities, buses, taxis, and state universities Competitors and Price DecisionsCompetitors and Price Decisions
  68. 68. 68www.studyMarketing.org Channel Members and Price DecisionsChannel Members and Price Decisions ChannelChannel MembersMembers • A wholesaler or retailer can gain stronger control over price by stressing its importance as a customer to the manufacturer, refusing to carry unprofitable product, stocking competitive items, and developing strong dealer brands so that consumers are loyal to the seller and not the manufacturer • Sometimes retailers engage in selling against the brand, whereby they stock merchandise, place high prices on it, and then sell other brands for lower prices. This is often done to increase the sales of their own brands
  69. 69. 69www.studyMarketing.org Channel Members and Price DecisionsChannel Members and Price Decisions ChannelChannel MembersMembers • To ensure channel member cooperation with price decisions, the manufacturer needs to consider four factors: channel member profit margins, price guarantees, special deals, and the impact of price increases
  70. 70. 70www.studyMarketing.org Government and Price DecisionsGovernment and Price Decisions GovernmentGovernment Price fixing regulationsPrice fixing regulations Prohibitions against price discrimination among channel members Prohibitions against price discrimination among channel members Unfair sales acts : predatory pricing Unfair sales acts : predatory pricing
  71. 71. 71www.studyMarketing.org Cost and Price DecisionsCost and Price Decisions CostCost Cost of raw materials and supplies Cost of raw materials and supplies Labor costLabor cost Advertising CostAdvertising Cost Distribution CostDistribution Cost PricingPricing DecisionsDecisions
  72. 72. 72www.studyMarketing.org Price StrategyPrice Strategy Cost-based PriceCost-based Price StrategyStrategy Demand-basedDemand-based Price StrategyPrice Strategy Competition-Competition- based Pricebased Price StrategyStrategy PricePrice StrategyStrategy
  73. 73. 73www.studyMarketing.org Price StrategyPrice Strategy Cost-based PriceCost-based Price StrategyStrategy Demand-basedDemand-based Price StrategyPrice Strategy With a cost-based price strategy, the marketer sets prices by computing merchandise, service, and overhead costs, and then adding the desired profit to these figures The marketer sets prices after researching con-sumer desires and ascertaining the range of prices acceptable to the target market
  74. 74. 74www.studyMarketing.org Price StrategyPrice Strategy Competition-Competition- based Pricebased Price StrategyStrategy • The marketer sets prices in accordance with competitors • Prices may be below the market, at the market, or above the mar-ket, depending on customer loyalty, services provided, image, real or perceived differences between brands or stores, and the competitive environment
  75. 75. 75www.studyMarketing.org Recommended Further ReadingsRecommended Further Readings 1. Joel Evans and Barry Berman, Marketing, Prentice Hall 2. Phillip Kotler, Marketing Management, Prentice Hall
  76. 76. 76www.studyMarketing.org End of MaterialEnd of Material
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