Marketing Exam Chapter 2 Study Guide

Chapter 7 - Business Marketing Business Products - Are used to manufacture other products - Become part of another product - Aid the normal operations of an organization - Are required for resale without change in form - Types of business products - Major equipment - Accessory equipment - Raw materials - Component parts - Processed materials - Supplies - Business services KEY IS INTENDED USE - The key in classification as a business product is intended use. Video on B2B vs. B2C (google video) - Things that have changed (past two years) - B2B buyers are getting younger - Huge shift in 18-34 age bracket → in two years went from 20 to 46% - B2B decisions are made by a committee → seen more than ever before - 81% Non C-suite employees influence purchase decision - Search behavior is much more intense than ever - Things that haven’t changed in B2B using “search” - Still the #1 source that B2B buyers are using in the research process (90%) - 12 searches in the process of a buy - Finding → considering only 1 or 2 brands during search - 75% are only going to visit your site once when researching/considering your product - One shot at getting into consideration set → provide right info on your site and create a great user experience - Three Key things B2B marketers should do as a result of the changes - Revise search strategy → reflect much longer, more savvy nature of the way B2B buyer uses search (both generic and brand) - Invest in brand awareness to make sure they are one of the two brands people are considering in research process Make sure they have a great user experience on their landing page on their website and great content Demand - derived, inelastic, joint, fluctuating 1) Derived demand: the demand for business products a) organizations buy products to be used in producing customer products b) business marketers must carefully monitor trends and patterns in final consumer markets as well as customers’ forecasts. i) EX: airplane travel up → boeing airplanes going to get more consumers 2) Inelastic demand: an increase or decrease in price of product will not significantly affect demand for product a) Purchases being made are apart of the overall operation 3) Joint demand: the demand for 2(or more) items used together in a final product a) Ex: Demand for cars higher → demand for navigation in cars higher b) Ex: Demand for cars higher → computer chip demand higher (sales go up for chips) 4) Fluctuating demand: The demand for business products tends to be more unstable than the demand for consumer products. a) Multiplier effect: A small increase or decrease in consumer demand can produce a much larger change in demand for the facilities and manufacturing equipment needed to make the consumer product. Roles in Buying Center - Buying Center: All the people in an organization who become involved in the purchasing decision - Number of people involved varies with each purchase decision - Buying centers do not appear on formal organizational charts - Initiator: the person who first suggests making a purchase - Influencers/evaluators: people who influence the buying decision - help define specifications and provide information for evaluating options - Technical personnel → especially important - Gatekeepers: group members who regulate the flow of information, often the purchasing agent - Stop the flow of regulation - Says “our group is not going to deal with this now” - Decider: person who has the informal or formal power to choose/approve the selection of the supplier or brand - Often difficult to determine who makes the final decision - Purchaser: person who negotiates the purchase - Could be anyone from the president to the purchasing agent - - Depends on importance of decision Users: members of the organization who will use the product - Often initiate the buying process - Help define product specifications Types of buys - business firms, especially manufacturers, must decide whether to make something or buy it from an outside supplier - New buy: situation requiring the purchase of a product for the first time - No long term relationship has been established - Buyers are more generally open to new vendors - Specifications may be somewhat fluid - Quite a bit of time and people involved in purchasing decision - Modified rebuy: a situation where the purchaser wants some change in the original good or service - Less critical and less time consuming than a new buy - Purchaser wants some change in the original good/service - Ex: new color, additional services in a janitorial contract - Two parties are familiar with each other and credibility has been established → allows concentration on specifics of modification - Modified rebuys are open to outside bidders in some cases - Purchaser uses this strategy to ensure that the new terms are competitive - Straight rebuy: situation where the purchaser reorders the same good/service without looking for new information or investigating other suppliers - Situation suppliers prefer - Purchaser is not looking for new info or other suppliers - Routine because terms of purchase have been agreed to in earlier negotiations - Purchasing contracts → makes buyer’s decision making routine and promises sales person a sure sale - Advantage to buyer → quick, confident decision - Advantage to seller → reduced or eliminated competition Chapter 8 - segmenting, targeting, positioning Definition of a Market - Market: people or organizations with needs or wants and the ability and willingness to buy Must need or desire a particular product Must have the ability to purchase the product Must be willing to use their buying power to purchase the product Must have the authority to buy the product Bases for segmentation; purpose of segmentation - - Marketers use segmentation bases, or variables, which are characteristics of individuals, groups, or organizations, to divide a total market into segments Benefits sought and usage rates #1 → then look at demographics What we buy and need - benefits sought & usage rates - Benefit Segmentation: grouping customers into market segments according to the benefits they seek from the product - Most types of market segmentation → based on the assumption that benefits sought and needs are related - Different because → groups potential customers on basis of needs/wants rather than other characteristics like age and gender - Customer profiles can be developed by examining demographic info associated with people seeking certain benefits - This info can be used to match marketing strategies with selected markets - Usage Rate Segmentation: divides a market by the amount of product bought or consumed - Allows marketers to focus efforts on heavy users or to develop multiple marketing mixes aimed at different segments - Heavy users often account for a sizable portion of all sales products → some marketers focus on the heavy user segment - Developing customers into heavy users is the goal behind many frequency/loyalty programs - Ex: starbucks rewards system - Categories vary but are likely to include a combination of either - Former users, potential users, first time users, light/irregular users, medium users, and heavy users - 80/20 principle: 20% of all customers generate 80% of the demand - This general idea often holds true Who we are - geography, demographics, psychographics, FLC (family life cycle) - Geographic Segmentation: segmenting markets by region of a country or the world, market size, market density, or climate - Consumer good companies take a geographic approach to marketing - Demographic segmentation: segmenting markets by age, gender, income, ethnic background, and family life cycle - Demographic information is widely available and often related to consumers buying and consuming behavior - Psychographic Segmentation: segmenting markets on the basis of personality, motives, lifestyles, and geodemographics - Personality → reflects a person’s traits, attitudes, and habits - Clothing → ultimate personality descriptor - People buy clothes that they feel represent their personalities and give others an idea of who they are - Motives - - - Marketers of baby products and life insurance appeal to consumers emotional motives → care for their loved ones - Carmakers like Subaru → use appeals to economy, reliability/dependability (customers with rational motives) - Carmakers like Mercedes-Benz & Jaguar → appeal to customers with status related motives Lifestyles → segmentation divides people into groups according to - The way they spend their time - Beliefs - Socioeconomic characteristics → income and education Geodemographic Segmentation → segmenting potential customers into neighborhood lifestyle categories - Combines geographic, demographic, and lifestyle segmentations - Helps marketers develop marketing programs tailored to prospective buyers who live in small geographic regions (neighborhoods) or who have very specific lifestyle and demographic characteristics CRM and Segmentation (utilizing sales data to segment customer base and profile segments) CRM: a company wide business strategy designed to optimize profitability, revenue, and customer satisfaction by focusing on highly defined and precise customer groups - - Companies that successfully implement CRM tend to customize the goods and services offered to their customers based on data generated through interactions between carefully defined groups of customers and the company CRM can also allow marketers to target customers with extremely relevant offerings Usage rewards-Silver, Bronze, Gold Geographic Brands (Think Sephora) B2B- Relative order size, Features Proactive personalization Customer Lifetime Value - Starbucks example - CLV: The amount of profit your company can expect to generate from a customer, for  umber of years). the time the person or company remains a customer (e.g., x n - CLV is the present value of all future streams of profit that an individual customer generates over the life of his or her business with the firm - Formula (Gross profit per purchase) x (frequency of purchase per year) x (duration of the relationship) = total gross margin generated per customer in their lifetime LESS the costs to serve = revenue - cost Undifferentiated, Concentrated, and Multi-segment segmentation strategies, advantages & limitations - Undifferentiated targeting: a marketing approach that views the market as one big market with no individual segments → uses a single marketing mix - Only one product being produced - First firm in an industry sometimes uses this strategy - Marketers of commodity products (flour and sugar) are likely to use this strategy - Small stores in small towns w/no competition may offer one marketing mix and be successful - Advantages potential for saving on production and marketing costs - (should) be able to achieve economies of mass production - Disadvantages - Unimaginative product offerings with little appeal to anyone - Company more susceptible to competition - Concentrated Targeting: a strategy used to select one segment of a market (niche) for targeting market efforts - Ex: coke buying honest tea - Advantages: - Can concentrate on understanding needs, motives, and satisfactions - Can concentrate on developing and maintaining a highly specialized marketing mix - Concentration of resources - Meets needs of narrowly defined market - Allows some small firms to better compete with larger firms - Strong positioning - Disadvantages - Can be disastrous for a firm that is not successful in it’s narrowly defined target segment - Segments too small or changing (environmentally) - Large companies may more effectively market to niche segment - Multisegment Targeting: a strategy that chooses 2+ well defined market segments and develops a distinct marketing mix for each - Firms should compare the benefits and costs of multisegment targeting to undifferentiated and concentrated first - Advantages: - Greater sales volume, higher profits, larger market share, economies of scale in manufacturing and marketing - Disadvantages: - Potential cannibalization → sales of a new product cutting into sales of a firm’s existing products - Greater product design, promotion, production, inventory, marketing research, and management costs  Positioning, Repositioning - Positioning: Identifying market segments based on consumer needs and perceptions, and places products and services hold in consumers minds relative to other competitive offerings and substitutes - Effective positioning requires: - Assessing the positions occupied by competing products - Determining the important dimensions underlying these positions - Choosing a market position where marketing efforts will make the greatest impact - Utilizing product differentiation - Common error made by marketers → marketing product based off what they think (should be based on what consumers think) - Used in Multisegment strategies → “how is my product different and where does it sit in people’s minds” Repositioning: changing consumers’ perceptions of a brand in relation to competing brands - second way of adjusting product items, lines, and mixes - Reasons to reposition established brands: (know these examples for test) - Changing demographics - Ford → what are we going to do with Lincoln? Held on to it and repositioned the product to make it more appealing (more SUVS) - Declining sales - Dominoes → delivery, didn’t get to house in less than 30 min call and get pizza for free, wanted to be known for other things so stopped focusing so much on delivery and took pizza out of name - Changes in the social environment - Old Spice → repositioned as a more contemporary product, appeal to women (who is buying the product) Cannibalization with line extension impact - Cannibalization: sales of a new product cut into sales of a firm’s existing products → deteriorate your own profits - Market opportunity analysis utilizing share and category size. Understand how to apply cannibalization as well. Will need to calculate. (Ready to drink coffee market) - For test → will be given data set and test results (need to decide what decision is best) - Apply market share and test data Spaghetti Sauce Video - Ted Talk “Choice Happiness and Spaghetti Sauce” Malcolm Gladwell Chapter 9 - Research Information Reduces Risk - It can be inaccurate, untimely, and expensive to gather Is the data something you need to know or is it just fun/nice to know? Decision Support Systems, Benchmarking Research, Task-Oriented Research - Decision Support Systems & databases for ongoing activity and interaction, tied to sales data a  nd environmental factors Benchmarking/Trend research: repeated at intervals - Awareness, service perception, share data, attitude needs, category data Task Oriented Research → addressing specific decisions - New products, geographic expansion, advertising effectiveness, price Secondary vs. Primary data - Secondary Data: data previously collected for any purpose other than the one at hand - Internal data (inside the firm) - Financial statements, research reports, files, customer letters, sales call reports, and customer lists - External data (outside the firm) - US census reports, trade association studies and magazines, business periodicals, and internet-based reports - Advantages: - Saves time and money if on target - Aids in determining direction for primary data collection - Pinpoints the kind of people to approach - Snapshot of business/customer - Serves as a basis of comparison for other data - Good source for industry/category information - Internet has made it readily accessible and searchable - Disadvantages: - Biggest disadvantage → Not proprietary = other competitors can see the data - May not be on target with the research problem - Quality and accuracy of data may pose a problem - - Don’t know how data was collected (margin of error) - May not give adequate detailed information Primary Data: Information collected for the first time and used for solving the particular problem at hand - Observational Data (watching people) - Mechanical and electronic approaches - Personal approached - Questionnaire Data (asking people) → Most prevalent = surveys and ask people stuff (face to face or electronically) - Idea generation through in depth interviews and focus groups - Idea evaluation by mail, online, telephone, and personal surveys - Advantages: - Biggest advantage → answers a specific research question - Data is current - Source of data is known - Proprietary → secrecy can be maintained - Disadvantages: - Data can be very expensive - Disadvantages are usually offset by the advantages of primary data Survey, Observational Research & Experiments - Survey: most popular technique for gathering primary data → a researcher interacts with people to obtain facts, opinions, and attitudes - In-home personal interviews: Provide high-quality information, but are expensive because of travel time and mileage costs for the interviewer. Not a popular survey tool in the U.S. and Europe. - Mall Intercept interviews: Conducted in shopping malls or in a marketing research office in the mall. Surveys must be brief. It is hard to get a representative sample of the population. However, probing is possible. - Telephone interviews: Cost less and provide one of the best samples of any traditional survey procedure. Many facilities for telephone interviews utilize computer-assisted interviewing, where information is directly input into a computer application. The federal “Do Not Call” law does not apply to survey research. - Mail Surveys: Benefits are the low cost, elimination of interviews, centralized control, and anonymity for respondents. However, mail questionnaires usually produce low response rates. Consequently, the resulting sample may not represent the surveyed population. However, mail panels, consisting of a sample of households recruited to participate for a given period, yield response rates of 70 percent. - Executive interviews:  Involves interviewing businesspeople at their offices regarding industrial products or services. This type of interviewing is expensive, due to the process of finding, qualifying, and interviewing respondents. - Focus groups: A type of personal interviewing, characterized by seven to ten people gathered in a meeting place. The interaction provides group dynamics, with an interplay of responses yielding richer information than individual interviews. - Utilize small groups (qualitative data) - Observational Research: a research method that relies on four types of observation: people watching people or an activity, and machines watching people or an activity - Digital interaction is done through observational research - How many people walked in? How many people actually bought? - Two common forms of people watching people research are: - One way mirror observations - Mystery shoppers - Behavioral Targeting (BT) began by placing cookies on users’ browsers to track which Websites they visited and ultimately match the user with ads they would most likely investigate. Now, BT combines a consumer’s online activity with psychographic and demographic profiles. - Ex: Set up mock store and see how many people shop for a product - Experiments: a method for gathering primary data in which the researcher alters one or more variables while observing the effects of those alterations on another variable - Done primarily with things you are trying to do to take over the market - Possible Experiment Variables: - Product - Price - Package design - Shelf space - Advertising theme - Advertising expenditures Sampling - Selecting sampling procedures → first step after researchers decide how they will collect their data Sample: subset from a larger population - Sample should be your target market Crest Example/Poll Types of questions on surveys - Open ended Close ended - Choosing yes, no, true, or false Scaled - Response - Rate 1-7 (good for overtime and trying to find satisfaction/happiness level) - Can benchmark different experiences/outlets against other options Chapter 10 - Managing Products & Brands Product Item: specific version of a product that can be designated as a distinct offering among an organization’s products - One stock keeping unit → ex: apple’s iPhone 10 Product Line: a group of closely related product items - All of the certain product → ex: all iphones Product Mix: all products that an organization sells - Ex: ipad, mac, iphone, etc. Line Extensions: adding additional products to an existing product line in order to compete more broadly in the industry - Closely related to existing products in the line Meet different customer needs Many “new products” are line extensions Compete more broadly in category Need to be careful not to “overextend” - leads to inefficiency - When a company adds too many products or demand changes for the types of products being introduced Product Modifications: changing one or more of a product’s characteristics - Quality modification Functional modification Style modification Planned obsolescence: modifying products so those that have already been sold become obsolete before they actually need replacement - Cell phones become obsolete bc technology changes so quickly Benefits of branding - - VALUE OF BRANDING FOR CONSUMERS - Helps speed consumer purchases by identifying specific preferred products - Provides a form of self-expression and status - Evaluates product quality to reduce the risk of purchase - Confidence, Assurance VALUE OF BRANDING FOR MARKETERS - Identifies and differentiates a firm’s products from competing products - Helps in the introduction of new products - Facilitates the promotion of all same-brand products - Fosters the development of brand loyalty Brand Name, Mark, Equity, Family Branding - Brand Name: that part of a brand that can be spoken, including letters, words, and numbers Brand Mark: the elements of a brand that cannot be spoken - Ex: Mercedes-Benz and Nike symbol Brand Equity: the value of a company or brand name - Family Branding: marketing several different products under the same brand name (line extension) - Provides economies of scale in advertising - Ex: Coke’s different products Private Label vs. Manufacturing Brands - - Private Label (private brand/store brand): a brand name owned by a wholesaler or retailer - Retailer contracts manufacturing - Builds differential advantage and channel power for retailer/distributor - Provides superior margins - Result of disintermediation - EXAMPLES: - Great Value → walmart private label - Archer Farms → target private label Manufacturer Brands: the brand name of a manufacturer - Manufacturer invests in distribution and promotion - Manufacturer stimulates consumer demand - EXAMPLES - Coach → manufacturer - Levis → manufacturer (national) Labeling: purpose and content - Persuasive labeling: focuses on promotional theme or logo Consumer information is secondary Informational labeling - Designed to help consumers make proper product selections - lower their cognitive dissonance after the purchase - Legal requirements (FDA) Types of Products (convenience, shopping, specialty, unsought) - Know what you should be focused on at different stages for these products Chapter 11 New Product Development Process - test will ask what process a business is in 1. New-Product Strategy: plan that links the new product development process with the objectives of the marketing department, the business unit, and the corporation a. Sharpens the focus and provides general guidelines for generating, screening, and evaluating new product ideas b. Specifies the roles the new products must play in the organization's overall plan c. Describes the characteristics of products the organization wants to offer and the market it wants to serve 2. Idea Generation 3. Idea Screening: first filter in the production development process a. Eliminates ideas that are inconsistent with the organization’s new product strategy, or are obviously inappropriate for some other reason b. Concept test: test to evaluate new product idea, usually before any prototype has been created i. Researchers get consumer reactions to descriptions and visual representations of a proposed product ii. Should screen with target iii. Often successful for line extension 4. Business analysis a. Considerations in this stage → demand, cost, sales/cannibalization, profitability b. In an established market, the accuracy of revenue projections can be made using industry estimates of total market size. c. Forecasting market share for a new entry is a bigger challenge. d. Analyzing overall economic trends and their impact on estimated sales → especially important in product categories that are sensitive to fluctuations in the business cycle 5. Development 6. Test Marketing: limited introduction of a product and the marketing program to determine the reactions of potential customers in a market situation a. allows management to evaluate alternative strategies and to assess how well the various aspects of the marketing mix fit together. b. Cities chosen for test sites should reflect market conditions in the new product’s projected market area. Since no place is “ideal”, researchers should find locations where the demographics and purchasing habits mirror the overall market. c. 7. Commercialization: the decision to market a product a. Sets several tasks in motion i. Ordering production materials and equipment ii. Starting production iii. Building inventories iv. Shipping the product to field distribution points v. Training the sales force vi. Announcing the new product to the trade vii. Advertising to potential customers 8. New Product - Most companies follow formal new-product development process, consisting of the 7 steps shown above - The funnel-shaped graphic highlights the fact that each stage acts as a screen to filter out unworkable ideas as the new-product development process evolves Test Market Types and Trends - - - Standard Test Market: offering a new product through normal distribution channels with introductory marketing in a limited area - Costly especially for B2B products - Full market test Controlled Test Market: offering a new product through a set of retailers who have been paid to set aside shelf space for the product in a desirable area of the store - Smaller test, get it in front of people in an environment where they would buy it Simulated Test Market: an experiment in which a sample of consumers has an opportunity to select products - show ads in a room/sales circle then tell them to go in and shop, not only your products but around competitor products as well Iterative Product Development - Getting feedback constantly as they are creating a product Involvement with consumer (focus group) on an active and frequent basis - → make changes Product Life Cycle: concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death) For the test understand what happens with marketing efforts during these stages - is a widely familiar concept in marketing and is considered a useful marketing management tool - Product life cycle applies to the category NOT the product 1. Introductory stage: the full scale launch of a new product into the marketplace a. High failure rate, little competition, frequent product modification, and limited distribution b. Marketing costs are normally high → high dealer margins are needed to obtain adequate distribution and incentives are needed to get customers to try the new procust c. Advertising expenses are high → need to educate consumers about the new product’s benefits d. Production costs are high → product and manufacturing flaws are identified and corrected and efforts are made to develop mass production economies e. Sales normally increase slowly f. Profits are normally negative → research and development costs, factory tooling and high introduction costs g. Length of introductory phase is largely determined by product characteristics h. Promotion strategy → focuses on developing product awareness and informing consumers about the product category’s potential benefits i. Communication challenge → stimulate primary demand (demand for the product in general ii. Intensive personal selling → required to gain acceptance from wholesalers and retailers iii. Promotion of convenience products → requires heavy consumer sampling and couponing iv. Promotion of shopping and specialty products → demand educational advertising and personal selling to final consumer 2. Growth Stage a. Sales typically grow at an increasing rate, many competitors enter the market, large companies may start to acquire small pioneering firms, profits are healthy b. Switch from primary demand promotion to → aggressive brand advertising and communication of differences between brands c. Distribution becomes a major key to success 3. Maturity Stage: sales increase at a decreasing rate a. Longest stage of the PLC b. New users cannot be added indefinitely and eventually the market approaches saturation c. Product lines are lengthened to appeal to additional market segments d. Product design changes tend to become stylistic rather than functional e. Promotion to dealers often intensifies to retain loyalty f. Heavy consumer promotion by the manufacturer is required to maintain market share g. Ex: major household appliances 4. Decline Stage: long run drop in sales a. Rate of decline is governed by how rapidly consumer tastes change or substitute products are adopted b. Marketing strategy → eliminate all nonessential marketing expenses and llet sales decline as more and more customers discontinue purchasing c. Eventually the product is withdrawn from the market d. Ex: many convenience product and fad items lose their market overnight - Class Examples - Self driven cars → introductory - Bottled water → growth stage - Mobile phones → mature stage - Garmin Navigation systems → decline Relationships between the Diffusion Process and the Product Life Cycle - - This graphic shows the relationship between the adopter categories and the PLC. - Note: the various categories of adopters buy products in different stages of the product life cycle. Almost all sales in the maturity and decline stages represent repeat purchases Factors that impact the rate of diffusion - complexity, compatibility, relative advantage, observability and “trialability” - Complexity: degree of difficulty involved in understanding and using new products - More complex → slower is its diffusion - Compatibility: degree to which the new product is consistent with existing values and product knowledge, past experiences, and current needs - Incompatible products → diffuse more slowly than compatible - Relative Advantage: degree to which a product is perceived as superior to existing substitutes - Observability: degree to which the benefits or other results of using the new product can be observed/communicated to target customers - Ex: fashion items/automobiles → more observable than personal care items - “Trialability”: degree to which a product can be tried on a limited basis - Ex: New toothpaste is easier to try compared to a new personal computer Chapter 12 How Services Differ from Goods 1) Intangibility: a) services cannot be touched, seen, tasted, heard, or felt in the same way as goods b) Tangible cues are often used to communicate a service’s quality and nature c) Facilities are a critical tangible part of a service experience 2) Inseparability: a) Services are often sold, produced, and consumed at the same time b) Consumers are involved in the production of the services that they buy c) The quality of services depends on the quality of employees 3) Heterogeneity: a) Services are less standardized and uniform than goods b) Becauses services tend to be labor-intensive, consistency and quality control can be hard to achieve i) Standardization and training help increase consistency and reliability 4) Perishability: a) Services cannot be stored, warehoused, or inventoried b) One of the most important challenges in many service industries is finding ways to synchronize supply and demand Why is the service sector Growing? - Economic growth → allows us to buy more Changes in society/lifestyle → more women working, not as many kids in a household Changes in technology → spending a lot on technology (services and goods) Nature of Collaborative Consumption - Video Dimensions of Service Quality - application component on test (what type of service quality) Chapter 19 - Pricing Factors in determining price: - Consumer Demand - Value Perception - - How much are they willing to pay for it? Costs - Need to price above cost structure Competition - What are the diff substitutes and how are they priced want something unique and diff so you can attach premium price to it Elasticity and Price Sensitivity (factors that impact elasticity) - Test → examples as to why or why it isn’t price elastic - Elasticity of demand: consumers’ responsiveness or sensitivity to changes in price - Elastic Demand: consumer demand is sensitive to price changes - Inelastic Demand: an increase/decrease in price will not significantly affect demand for the product - Factors that impact elasticity: - Necessity? - Price relative to purchasing power - If price is so low that it is an inconsequential part of a person’s budget, demand will be inelastic - Product durability Repairing durable products rather than replacing them prolongs their useful life. Thus, people are sensitive to the price increase, and the demand is elastic. - Availability of substitutes - - - - When many substitutes are available, it is easy to switch products, making demand elastic. The same is true in reverse, if no substitutes are available. A product’s other uses - The greater the number of uses for a product, the more elastic demand tends to be. If a product has only one use, the quantity purchased probably will not vary as price varies. Rate of inflation - When inflation is high, demand becomes more elastic—rising price levels make consumers more price sensitive Force of habit Pricing Objectives and Strategies - - - Profit Oriented - Profit maximization - Satisfactory profits - Target return on investment (ROI) - Ex: Epi pens → asking too much in price bc high in demand/need - Ex: Jolly Time → more premium price bc it is one of the most popular popcorn brands Sales Oriented: - Market share - Ex: Heinz → invest a lot in discounting to maintain share (convenience good price is important) - Sales maximization - Ex: Selling kernel baseball tickets → goal is getting a certain amount of people in the seat - Not necessarily as concerned about profit Status Quo: - Maintain existing prices - Meet competitions prices - Ex: Coke vs. Pepsi Yield Management Systems/Dynamic Pricing - Amazon Video - Amazon Video (dynamic pricing) - Successful due to low cost in the retail world 95% of beauty products, 90% hair care products & 81% personal care are priced cheaper Keeps priced low by: - Amazon can sell its own inventory and millions of third parties can sell theirs on the same platform - Amazon prices its own inventory by using a price matching strategy that skans the lowest prices of a product across the web - Multiple merchants can sell the same products → they have to compete to win the buy box on a listing (amazon chooses bast off past selling factors Ex: sales volume user reviews, price) - Third party fees and get to choose what gets shown/sold on their platform New Product Strategies: Skimming & Penetration, Choco - Broco video - Are demand oriented approaches to pricing - - - Price Skimming: pricing policy where a firm charges a high introductory price, often coupled with heavy promotion - Derived from the term “skimming the cream of the crop” - Not limited to products (ex: lawyers and athletes) - Companies often use price skimming for new products when the product is perceived by the target market as having unique advantages - Often companies use skimming then lower prices overtime - Works best when there is a strong demand for a product/service (ex: Apple) - New products → older version prices are lowered - Effectively use price skimming when a product is: - Well protected legally - Represents technological breakthrough - Has in some other way blocked entry of competitors Penetration Pricing: pricing policy where a firm charges a relatively low price for a product when it is first rolled out as a way to reach the mass market - lower profit per unit, and a higher volume of sales is required to reach the break-even point - tends to discourage competition and is effective in a price-sensitive market Choco-Brocco Video - Pricing strategy → sets the initial product and provides a plan for price changes over time - First think about how much it costs to make - Want to recoup financial investment of $10,000 that was needed to fund the development of this product - Strategy to help → Price skimming - Usually used when a product has a strong unique advantage that can’t be easily copied - Best strategy to use when trying to recover large investments of development and marketing - Penetration pricing → believes the more people that buy a product the more positive word of mouth will occur (which will produce more sales and profits) - Lower price → attract more consumers to try a product and also lead to a larger market share - Best if the consumers are price sensitive - Company must be able to provide the volume demanded (large for lower priced products) - If it is used by a prestigious brand, it can cause loss in brand equity - Ex: luxury cars (can cause a consumer to feel her social status has been minimized)