MARK 3001 Test 2 Flashcards
Marketing Research
collecting,recording, analyzing, and interpreting of data to aid in decision making related to selling goods and services
Marketing Research Process
- Define the research objectives and needs
- Design the Research
- Collect the data
- Analyze data and develop insights
- Develop and implement action plan
- Define the research objectives and needs - (Marketing Research Process)
To determine whether or not to conduct research, 2 questions must be answered:
What information is needed to answer specific research questions?
How should that information be obtained?
- Design the Research - (Marketing Research Process)
Identify the type of data needed and determine type of research necessary to collect it
Objectives of the project drive the type of data needed
- Collect the Data - (Marketing Research Process)
Primary Data: collected firsthand to address specific research needs
Methods: Focus Groups, Interviews, Surveys
Secondary Data: pre-existing data from internal (sales reports, user data) and external sources (census, trade associations reports
- Used first to identify gaps before primary research
Free or low cost
Pro: readily accessible
Con: may not be specific or timely enough to meet the firm;s research objectives
Type of Secondary Data Types
Syndicated Scanner Data: Collected from checkout scanners, sold by firms like IRi & Nielsen. Includes retailer, product, purchase, and household info
Syndicated Panel Data: Long-term consumer panels tracking purchases, consumption diaries, and survey responses
Types of Primary Data Collection
Quantitative Research: Structured responses, statistically tested (e.g., surveys, experiments)
Provides info needed to confirm insight and hypotheses
Qualitative Research: Open-ended, informal insights (e.g., focus groups, interviews,
Key Research Method
Observation: tracks customer behavior in-store or online
Personal or video camera recording
Survey Research: Most common quantitative method; requires clear, unbiased questions.
- Set of questions designed to gather info from an large sample size
Experimental Research: Tests variables for causal effects (e.g., ad/social media performance)
- Quantitative research
-Used to test ad message or social media posts
In-Depth Interviews: One-on-one for deep consumer insights (costly & time-intensive)
Focus Groups: Small group (8-12) discussions on product perceptions and marketing stimuli
- Analyze data and develop insights - (Marketing Research Process)
Data should be both thorough and methodical
Raw numbers on their own have limited value
- Develop and implement action plan - (Marketing Research Process)
Typical marketing research report start w/ 2 page executive summary highlighting the objectives, methodology, and key insights
Body of the report would go through the methodology, analysis, results, and insights in greater detail
Managerial implications, conclusions and any limitations or caveats would be summarized in closing
Volume
data exist in large quantites
Variety
data can exists in mant difference media formats
Velocity
data can be accesssed in milliseconfs to seconds
Veracity
data need to be accurate and reliable
Value
data need to be useful in relation to the cost
Product Complexity
Actual Products → tangible aspects of the product
- Brand Name
- Quality
- Features
- Packagining
Associated Services → supporting services that come with the product to enhance its useability and customer experience
- Financing
- Warranty
- Support
Types of Consumer Products:
Marketers classify these based on the way they are purchases and used:
Speciality, Shopping, Covenience, Unsought
Speciality- type of consumer products
For customers express a strong, often subjective, preference
- Products that consumers will expend considerable effort seeking out the “right” one
- Unique characteristics or brand identifiers
Ex: Luxury goods, specific brand of coffee
Shopping- type of consumer products
For consumers will spend time “shopping around”
- Compare alternatives on objective measures such as price
- Prefer to evaluate difference in quality and style in person when possible
Ex: perfume, washing machine
Convenience- type of consumer products
Consumers not willing to expend significant effort to
- Items purchased frequently, no need to evaluate alternatives
- Items used immediately
- Menial perceived risk associated with purchase
Ex: Dasani, Chick-fil-a, Extra gum
Unsought- type of consumer products
Consumers do not normally think of buying or do not know exist
- Don’t address a current unmet need
- Unusual or novelty items
Ex: breakthrough innovations, life insurance
Product Mix Decisions
Product mix typically consists of multiple product lines, which are groups of associated items
Product Mix Breadth
refers the number of product lines offered by the firm
- Number of different product lines within a product mix
- May be costly or inefficient to maintain multiple product lines
EX: Haagen-Dazs: Ice Cream, Sorbet, Bars, Cones, Mini Bars
Product line Depth
refers to the number of products within the product line
- Number of different offering within a product line
If offering address similar needs, cannibalization may occur
Why increase breadth?
new product lines can capture growth from new or evolving categories
Ex: developing a new line of non-dairy products to attract health-conscious consumers
Why decrease breadth?
poor sales, increased competition, shifting internal properties or manufacturing efficiencies are all reasons to discontinue a product line
Facing increased competition from talenti and others, Haagen-Daxs stopped producing gelato
Why increase depth?
adding new items can help maintain share while addressing changing consumer preferences
Can be way to preempt competitors
Why decrease depth
firms periodically review performance and delta products that are poor performing or an inefficient use of resources; sometimes referees to as a SKU rationalization
EX: Removing a flavor with low sales and unique ingredients
Why is Branding Important?
increases awareness of goods and services
Brands serve as symbols of quality and act as points of differentiation
What makes a brand?
Brand Name
URLs & Domain
Logos & Symbols
Charcters
Slogans
Jingles or Sounds
Brand Name
Name of the brand can either:
- Describe or allude to the product offering
ex: Chick fil a. Extended Stay America - Leverage a word or term that has nothing to do with the product
ex: Apple, regal - Be an invented term
ex: Zillow, xero
URLs and Domains
Owning web properties and social media handles associated with your brand is critical
Consumers need to easily find info about a brand or product online
Ex: peloton.com is owned by an oil and ga software firm
Logos and Symbols
Visual branding elements helps quickly and memorably identify a brand to consumers
Logos → typically a mix of words and iconography
Symbols → icons or logos without words
Charcters
Brand symbols that seek to exemplify or personify characteristics or attributes about the brand
ex: Human(Progressive), animal, animation (Mr.Clean)
Slogans
Short, memorable phrases that are used to describe elements of the brand offering or persuade consumers to consider the brand
ex: Dunkin → American runs on dunkin
Jingles or Sounds
Memorable and distinctive audio clips comprised of music, message, or both
Why are brands valuable to firms?
Brand Equity (value derived from the brand itself) can:
- Facilitate purchase through awareness and association
- Establish loyalty from consumers
- Protect from price competition through perceived value
- Serve an asset to the firm
- Impact the market value of the firm
Brand equity: Awareness
“Company lives or dies based on brand awareness”
More consumers are aware of a brand, higher the likelihood of purchase
Awareness is critical for convenience products that are bought without much evaluation (snacks, gum)
Important for infrequently purchased items or those the consumers has never purchased before
Brand equity: Associations
Brand association reflect the mental and emotional links that consumers make between a brand and its key attributes
Often the results of a firm’s advertising and promotional efforts
Consumers develop links between brands and their own identify
Some brands are congruent with our identify while others are just “not for us”
ex: Abercrombie & Fitch has undergone a massive repositioning effort to distance itself from past brand association
Brand Equity: Loyalty
Brand loyalty occurs when a consumer buys the same brand’s product or service repeatedly
Brand-loyal customers are an important source of value
- Loyal consumers are less sensitive to price
- Marketing costs to loyal customers are much lower
- Base of loyal consumer can insulate forms from competitive pressure
Brand Equity: Value
Perceived value of a brand is the relationship between a product’s benefits and cost
Value is typically evaluated relative to a comparable set of competitors
Brand equity: Market Value
Value of a brand contributes to a firm’s worth in terms of assets
Packaging has more tangible benefits than other brand elements:
- Attracts consumer’s attention
- Provides info on consumer needs
- Enables products to stand out from competitors
- Allows for same products to appeal to different markets through different sizes and formats
Primary Packaging
- One consumer uses
- consumers seek conveniences with storage, use, and consumption
ex: toothpaste tube, can of soda
What is the importance of Product Packaging?
synonymous with brand identity
Ex: Tiffany; blue packaging
Secondary Packaging
exterior that contains primary package and provides UPC label (used by retail scanners)
Provides info not available on primary package
Product Labeling
Label info is determined by regulations and labeling rules vary from country to country
To use “natural” or “organic” or “made in the USA” → products must meet specific tests or thresholds
Statement of Identity
labels are required by the FDA to plainly state using common terms, what is in the product
Branding Strategies
strategies to create and manage their brands as assets:
Private Label
Brand Families
Line Extensions
Co-Branding & Licensing
Repositioning
Private Label - brand strategy
National Brands are owned and managed by manufactuers
- Owning production and marketing → manufacturers can maintain control over product quality and brand image
-Majority of consumer brands in US are national manuters brands ex: Kraft, Coca Cola
Private Label or retail or store brands are products developed by and sold by retailers
- Retailer manufacturer their own products, but in most cases private label products are produced by the same manufacturer who products national brand products
Ex: Target ; Good and Gather
Brand Families- brand strategy
Brand Family:
Firms can use their corporate name across all product lines, marketing them as a brand family (e.g., Heinz Family of Products)
A strong corporate brand reputation helps individual products benefit from awareness and quality perceptions
Individual Brand Name:
firms can give each product line individual brand names to establish unique identities
Example: P&G owns multiple brands across various categories, some appearing as competitors.
This strategy helps firms capture greater market share
Line Extensions- brand strategy
Line extension → new product under the same brand name within the same product line (same category)
Ex: Pro-Health and 3DWhite are Crest line extensions
Brand extension → Introducing a new product under an existing brand name but in a different product category (e.g., mouthwash, whitening strips, whitening pastes)
Benefits: Leverages existing brand awareness
Key Rules for Success:
- Evaluate the fit between the core brand’s product class and the extension.
- Ensure consumer perception aligns
limit extensions to categories with similar attributes.
- Avoid brand dilution by not overextending the brand name.
- Consumer acceptance depends on a logical relationship between the core brand and the new product.
Co-Branding & Licensing
Co-branding refers to marketing 2 or more brands together
-Potentially beneficial to the participating brands by attracting the consumer of 1 brand to the others
- Can enhance perceptions of quality through links between brands
Brand licensing refers to contractual agreement between firms allowing to leverage rights and marks for mutual benefit
- Common for toys, apparel, accessories, and entertainment products such as video games
- Help brand visibility and attract consumers from each property to one another
- Disney licenses the use of its marks and characters across multiple consumer good categories to appeal to fans
Repositioning- brand strategy
Brand repositioning, or rebranding → strategy in which markets change a brand’s focus
- Can be done to target new marketers, realign to changing market preferences or boost vitality of brands seen as “dated”, irrelevant, or culturally insensitive
- Repositioning a high-cost, high-risk strategy not entered lightly
Ex: Aunt Jemina → Pearl Milling Company
Ex: Weight Watchers rebranding efforts → name change that shorten the form’s official name to WW
Spectrum of Innovation
Incremental Innovation: represents small improvements to exisitng offerings
Breakthrough innovation: significant impact in either altering or creating a market
Innovation
the process by which firms transform ideas into new products and service offering, and can be used to address the following challenges
Why innovate?
Changing Consumer Needs
Market Saturaton
Diversification of Risk
Trend Cycle
Changing Consumer Needs- (why innovate)
Consumer needs, preferences, and habits change over time
Ex: bluetooth
Consumers grow bored of existing offerings
Ex: introduce new item
Market Saturation- why innovate
Market saturation → occurs when a products or service has reached its max potential within in a marketplace
- Everyone is gonna buy one has already bought one
- At saturation: firm can only grow through new product intro
Diversification of Risk- why innovate
Broad portfolio of products can help insulate a company from performance risk
“Don’t have all your eggs in 1 basket”
Relevant for product categories that satisfy “wants” more than “needs”
Trend Cycle- why innovate
Firms seek to capitalize on trends for incremental sales
Certain categories of consumer goods (apparel and entertainment) are more reliant on trend cycles
To succeed: trend needs to align w the brand image and firm’s core competencies
Product Development Process
- Idea Generation
- Concept Testing
- Product Development
- Market Testing
- Product Launch
- Evaluation of Results
- Idea Generation (Product Development Process)
Depending on resources and structure of company; they leverage different sources for idea generation
Internal R&D
R&D Consortia
Licensing
Brainstorms
Outsourcing
Competitior Products
Custmoer Input
- Internal R&D- Idea Generation
Large firms maintain their own internal research and development (R&D) department to generate new products that will lead the market
These internal units are associated with high development costs → source of breakthrough products
Food-beverage focused firms → employ food scientist and chiefs to develop new recipes and modify them to produce at a large scale
- R&D Consortia - Idea Generation
R&D consortia brings together manufacturer, researchers, state, and local governments to facilitate idea generation regarding specific topics
Lower individual costs and risks while benefits spread to all firms
Government agencies will facilitate the creation of innovation ecosystems in high-priority areas deemed to be in the national interest
- Licensing- Idea Generation
Firms may purchase licenses to use tech or ideas from other research intensive firms
Small biotech firms frequently license their inventions to larger pharmaceutical firms
University research center → common source of licenses
- Brainstorm- Idea Generation
Brainstorming → semi-structured, group approach for rapid idea generation, often to solve a problem
Meant to be expensive and open, no idea should be immediately accepted or dismissed
Best brainstorms → structured and moderated
Diverge → Create choices
Converge → make choices
- Outsourcing - Idea Generation
Firms can hire outside consultants to help generate ideas and develop new products and services
Design firms help clients generate new products and services ideas across a wide variety of industries
Firms (IDEO) specialize in design thinking and creative ways to generate ideas
- Competitor Products- Idea Generation
Uncommon for firms to be “fast followers”, copying the innovations of a competitive firm
Reverse engineering involves taking apart a product, analyzing it, recreating it with your own resources
Products with patents or other proprietary protections cannot be copied, so reverse engineered products must be substantively different from the original
- Customer Input- Idea Generation
Listening to customer input is essential for ideas generation and throughout product development
Another successful input approach is to analyze lead users, users of the product who modify existing products to their own specific needs
If lead users customize a firm’s products, other customers might wish to do so as well
- Concept Testing (product development process)
Concept → brief written description of the product (had images or models
Product concepts are presented to potential buyers or users to gauge their reactions
- Product Development- product development process
Product development is a cross-functional effort that balances considerations across supply chain engineering, manufacturing, marketing, and finance. Innovation commercialization teams bring together representatives from each necessary department
At this stage, engineering teams develop a product prototype based on consumer feedback from concept testing
Product designers ensure that consumer needs and wants align with available materials, manufacturing capabilities, and technology
Prototype allows consumers to physcially interact with product concept before production (use of 3-d printing)
Alpha Testing → user jouney or expected funtionality is tested
Beta Testing → tst of how product performs in real world application
Alpha Testing
firm determines whether the product will perform according to its design and whether it satisfies the need for which it was intended
Internal Team
Can take months
Structured
Beta Testing
potential consumers examines the product prototype in a real-use setting to determine its functionally and performance and identity potential issues specific to its use
End Users
limited to few weeks
Unstructured
- Market Testing (product development process)
In premarket testing, consumers are exposed to the product and surveyed on its various attributes. Based on results, the firm decides if and how to move forward with the product launch.
Nielsen’s BASES Test - market testing
- Value rating – How well the product satisfies a need at a fixed price
- Purchase intent – Probability of a first purchase
- Purchase frequency – Expected frequency of purchase
- Purchase volume – Expected number of items per purchase
Approximately 50% of new product concepts undergo premarket testing using Nielsen’s BASES test
Pre-market testing vs. test market launch
Pre-market testing → conducted before a product is introduced to nay real market
Controlled testing before market entry
Test Market Launch → intro the product in a real-world, limited market to analyze consumer behavior and sales performance
Limited real- market release
- Product Launch (product development process)
Marketing testing results with positive results → firm is ready to introduce the product to market
MOST CRITICAL
Requires tremendous financial resources and coordination of marketing mix
Confirms its target market(s), positioning, and budget
- Evaluations of Results- product development process
Firm measures success using sales data:
-Satisfaction of technical requirements
- Degree of customer acceptance
- Satisfaction of firms financial requirements
In other words:
Is it working as expected?
Do consumers like it?
Is it profitable?
Diffusion of Innovation
process by which the use of an innovation spreads throughout a market group over time and across different categories of adopters
- bell-shaped curve, where few people buy the product initially, adoption increases over time, and eventually, the product becomes widely accepted.
Consumers are divided into five groups based on how quickly they adopt an innovation:
Innovators – First to adopt
Early adopters – Adopt soon after innovators
Early majority – Adopt before the average person
Late majority – Adopt after the average person
Laggards – Last to adopt
Innovators
First to adopt a new product
2.5% of Consumers
Willing to take risk, young in age, high social standing,
Risk tolerance for products that may ultimately fail is high due to financial resources
Early Adopters
Second fastest to adopt a product
13.5% of Consumers
Opinion leaders and trend setters
Younger in age, high social standing, and more financial resources than late adopters
Early Majority
Time of adoption is significantly longer than innovators and early adopters
34% of Consumers
Average social status and close contact with early adopters
Not considered opinion leaders
Late Majority
Adopt innovation after average member of society
34% of Consumers
High degree of skepticism regarding new products and fewer financial resources
Social contact with member of early majority
Very little opinion leadership
Laggards
Last to adopt an innovation
16% of Consumers
Averse to change and older in age
Value tradition and lower levels of social status and limited financial resources
Contact with family and friends, little to no opinion leadership
Factors Impacting Diffusion
Relative Advantage
Compatibility
Observability
Complexibility & Trialability
Relative Advantage
Relative advantage → degree to which the new product or service innovation is superior to existing market offerings
Greater perceived advantage, faster diffusion will take place
Compatibility
How compatible a product’s feature are with the needs and culture of consumers impact the speed of diffusion
Products integrate naturally in our day-to-day lives
Ex: Chick-fil-a mobile thur ordering
Observability
If benefits of innovative product are easy to observe through effective communication, diffusion will move more quickly
Infomercials or tutorials are common promotional techniques used to explain the benefits of new products
Complexibility & Trialability
Relative or perceived complexity will impact consumer’s willingness to try a new product
Showrooms, floor models, and sampling opportunities are all tactics used to reduce the perceived risk associated with complex innovations
Product Life Cycle
defines the stages that products move through as they enter, get established in, and ultimately leave the marketplace
Predictable stages of the life cycle can be used as a starting point for strategic planning
Introduction: Product Life Cycle
Characterized by:
Initial losses to the firm due to its high start-up costs
Low levels of sales revenue as the product begins to take off
Few competitors with whom to battle for market share
Growth- Product Life Cycle
Marked by:
Increasing number of product adopters
Rapid growth in sales
Increased in the number of competitors and number of available product versions
Considered “tipping point” → point of transition between intro and rapid growth
Products with gain market acceptance ot exit the market
Majority of new product failure occur at this point
Maturity
marked by the adoption of the product by the late majority, intense competition for market share, and falling prices due to market saturation
Intense competition leads to lower prices and higher marketing costs, which erode profit margins compared to earlier stages.
Highly saturated
ex: smartphone market
Decline- product life cycle
Firms must either position themselves to go after a niche segment of loyal consumers, adopt a strategy of specialization, or completely exit the market
The few laggards who have not yet tried the product or service may enter the market at this stage, although trial is uncertain
What is a Service?
any intangible offering that involves a deed, performances, or effort that cannot be physically possessed
What is Customer Service?
Customer service specially refers to human or automated activities firms perform to satisfy customer needs
Pure Service
Custmoers derive value primarily from intangible benefits
ex: medical care, hotels, dry cleaning
Pure Good
Customers derive value primarily from tangible products
ex: Restratuents, specilaity apparel, groceries
Service Attributes
Differentiate service from goods:
Intangible
Inseparable
Heterogeneous
Perishable
Intangible- service attribute
Most fundamental difference → service are intangible
Services cannot be touched, tasted, or seen like a pure product can
Instead consumers must use cues to judge the quality of a service
Inseparable- service attribute
Services are produced and consumed at the same time; that is, service and consumption are inseparable
After the service has been performed, it can’t be
returned
Ex: if you don’t like the results of your annual physical, you can’t demand that your health care provider give you (or your insurance company) the payment back
Firms can lower this perceived risk by offering guarantees or warranties
Heterogeneous- service attribute
Heterogeneity → refers to the inherent variability in service quality due to human involvement in service delivery
The more humans are involved in service delivery, the more likely there is to be variability in service quality
Inferior service cannot be recalled, and by the time a firm recognizes a problem, the customer experience is already impacted.
Solutions to reduce heterogeneity:
- Use of technology – Standardizes service processes
- Increased training – Ensures consistency in service quality
- Automated processing – Reduces human error and variability
Perishable- service attribute
Perishability means that services cannot be stored or stockpiled for future use. Once the opportunity to provide the service is lost, it cannot be recovered
Perishability presents both challenges and opportunities in balancing demand and supply. Perfect matching is rare, leading to fluctuations in availability and utilization
ex: Ski areas, airlines, cruise ships, movie theaters, and restaurants must find ways to deal with this fluctuation of demand relative to perishability
7Ps of Service Strategy
Produce
Price
Promotion
Place
Presentation → how they are presented has a significant impact on consumer’s judgements of the service quality
Personal → Some services are more reliant on person-to-person interactions than others
Process → actions require to get the good or service to the customer
Service Gap Model
Knowledge Gap
Standards Gao
Delviery Gap
Communication Gap
Service Gap
What the custmoer expects → What custmors recieves
Knowledge Gap
What Customer expects → What management thinks the customoer expects
Ex: what management thinks the customers expect? Dishes cleared right away ; What the customers expect? Dishes cleared if everyone is finished
To close knowledge gaps, firm should:
- Conduct research into consumer expectations (zone of tolerance, marketing research)
- Closely track service quality using established metrics
Zone of Tolerance
to the area between customers’ expectations regarding their desired service and their min level of acceptable service
Using a hotel stay as an ex:
You might a king bed but will accept 2 queen beds
You might not, however, accept a smoking room
Standard Gap
What management thinks the custmoer expects → Delivery policies and standards set by management
- Management needs to set standards for quality and develop systems to ensure those standards are met
- Training, rewards, and incentives must be in place to support service quality commitment
Delivery Gap
Delivery policies and standards set by management → What the custmoer actaully recieves
Management policies are not supported with proper staffing and training levels, delivery gaps are likely to occur
Ways to reduce delivery gaps:
Empower service providers
Provided support and incentives for employees
Use tech and automation
EX:
Deliveries policies and standards set by management? Quick check-in processes ; What the customers actually receive? Long lines for guest check-in
Communicaton Gap
What the custmoer actually receives → Firm communication regarding service quality
If a firm promises more than it can deliver, customer’s expectations won’t be met
Can be reduce:
Managing customers expectations
Promising only what you can deliver
Communicating clear expectations and next steps
Service Recovery
When failures occur, firm address the issues using the following best practices:
- Involve the customer in the service recovery → Listen to customer and help them play an active role in the service recovery
- Find a fair solution
Distributive fairness: refers to a customer’s perception of the benefits he or she received compared with the costs or loss
Procedural fairness: refers to the perceived fitness of the process used to resolve them
-Resolve problems quickly → Hostile customer
Distributive fairness
Procedural fairness
Distributive fairness: refers to a customer’s perception of the benefits he or she received compared with the costs or loss
Procedural fairness: refers to the perceived fitness of the process used to resolve them
Factors Driving Pricing Strategy
Overall sacrifice a consumer is willing to make to acquire a specific product or service (both monetary and nonmonetary)
Pricing strategies are built around 5 factors:
Company Objectives
Custmoers
Costs
Competition
Channel Members
Company Objectives- factors diriving pricing strategy
Company’s products and services should be priced to appropriately support the firm or business unit’s overall strategy
Profit Orientated → set prices to provide a certain percent profit margin to reach a particular firm goal
Sales-oriented → set prices low to generate new sales and take sales away from competitor, even if profits suffer
Competitor-orientation → set prices low to discourage more competitors from entering the market
Customer orientated → set prices high and target a segment of consumers who highly value a particular benefit
Profit Orientated
set prices to provide a certain percent profit margin to reach a particular firm goal
Implemented through:
Target profit pricing → employed when firms have a specific profit target as their overriding objective
- Calculation performed to determine # of sales
Profit maximizing → firms create models using available data to predict sales and calculate price point at which profits will max
Target return pricing → used by firms more concerned with their rate of returns than their target profits
Issue → does not take customer’s perceived value of product in consideration
Sales-Orientated
set prices low to generate new sales and take sales away from competitor, even if profits suffer
Determine pricing more focused on increasing sales and share
Premium pricing → firms intentionally set prices above competitors, may be pursued to attract sales from high-income consumers who use price as a cue for quality
Competitor Orientation
set prices low to discourage more competitors from entering the market
Common in smaller firms that lack knowledge or experience in settling prices
Measure themselves against competitors
Competitive parity → firm set prices similar to competitors
Status quo pricing → form will change prices to meet competitor’s prices
Customer Orientated
set prices high and target a segment of consumers who highly value a particular benefit
Try to match prices to customer expectations
Customers- factors driving pricing strategy
Firms can predict how customers will respond to changes in pricing based on demand curve
Price elasticity of demand → measure changes in price affect quantity of product demanded
Demand is elastic → move w changes in price → price sensitive
Demand is inelastic → doesn’t move w changes in price → price insensitive
Difference in price elasticity of demand can be influenced by:
Income effect → income increases, less sensitive to pride changes
Shift their demand from low price to higher priced alternatives
Substitution effect → consumer’s ability to substitute another brand or product for the focal brand
Greater substitutability of a product, more elastic demand for product will be
Coca Cola to Sam’s Cola
Cross-price elasticity → percent change in the demand for Product A compared w the percent change in demand for product B
Product A price increase, demand for product B decrease → complementary
Complementary → product that adds value to another good or service when they are consumed together
Demand is positively correlated
Substitute → product that serves the same purpose as another good/service for consumers
Demand is inversely related
Costs- factors driving pricing strategy
Firms need to understand their cost structure:
Variable Cost → costs vary based on the volume of goods or services being produced
Common variable costs → labor and material
Total variable costs = variable cost per unit x Quantity
Fixed Costs → costs remain at a consistent level regardless of the volume of goods or services being produced
Common fixed costs → rent, utilities, equipment
Total costs= fixed costs + total variable costs
Break-even analysis → relationship between cost, price, revenue, and profit relative to volume of sales and production
Break-even point → point which the number of units sold generates just enough revenue to equal the total costs
Breaks even= profit= 0
Competition- factors driving pricing strategy
Monopoly → 1 firm controls the market
Monopolistic Competition → many firms sell differntiated products at different prices
Oligopolistc Competition → few firms control the market
Predatory pricing → occurs when 1 competitor sets prices very low w the intent of running other competitors out of business
Ex: Cosos, Target, Walmart
Pure Competition → mant firm sell commodities for the same price
Channel Members- factors driving pricing strategy
Manufacturers, wholesalers, and retailers and they have different objectives when it comes to pricing
Manufacturers care about margins and perception of quality
Everyday Low pricing (EDLP) - pricing strategy
emphasize consistency and continuity of their pricing structures
By reducing time and effort consumer will spend seeking out deals, EDLP firm is adding value
High/Low Pricing
relies on sales promotions in which prices are temporarily lowered to encourage purchases
Attracts both consumers with a high willingness to pay and consumers who love seeking out deals
high/low pricing tactics are reliant on a consumer’s use of a reference price in determining the deal
New Product Pricing- pricing stratgy
Setting prices for new products can be difficult, esp for breakthrough or pioneering products that don’t have comparable competitors
Most new product pricing strategies follow either:
Penetration pricing → firms set the initial price of the new product or service low for the introductory period
Helps firms build market share for their new, but consumers must be prices elastics for this strategy to work
Price skimming → firms assume that innovators and early adopters are willing to pay a premium price to be among the first to have the new product
