Marketing & Sales Flashcards
Price differentiation
- charges different customer segments altered prices for the same offering (different segments with different WTP)
- segments must be separated
- fencing: controlling access to segments (e.g. Student ID), urgency (flight booking for business and private travellers), versioning, different languages
Segments
- individual price maximised: each customer willing to pay their individual amx. price
- self-organizing: customer decide which segment they belong to (quality based or quantity based)
- customer criteria-based: customer naturally belongs to special segment due to individual characteristics (sex, age…)
Bundling
join offerings together to sell them as a single unit
+ decreasing price elasticity: combine high and low elasticity
+ single prices can be concealed
+ price increase can be concealed
Penetration
Product introduction in new markets where initially prices are low to attract customers and gain market share in short time
- high price sensitivity, WTP = low
- strong competition: low prices as entry barriers
- scale economies can be created
Skimming
Product introduction in new market where prices are high: after high price segment is satisfied, reduce prices and address next segment
- high prices don’t attract competitors
- sales volume inelastic
- decreasing marginal costs due to experience when prices drop
- high perceived customer value
Low pricing
Products: focus on basic function, limited portfolio
Price: stable and low, simple pricing, no discounts
Customer: WTP = low, highly price sensitive, low loyalty
Distribution: few channels, low-cost locations
Communication: price is key, low-cost channels (social media)
Premium pricing
Product: excellent quality, brand and innovation important, portfolio with added value (services)
Price: stable and high, occasional special offers, simple pricing
Customer: WTP = high, high loyalty, less price sensitive
Distribution: selected channels (exclusive stores)
Communication: quality and value, channels represent value
Medium pricing
Product: medium quality, medium price, good functionality, differentiated
Price: stable, special offers important to create demand, complex pricing (bundling)
Customer: WTP = medium, low loyalty, high price sensitivity
Distribution: many different channels
Communication: high efforts, quality over price
Cost oriented pricing
Costs are basis (fixed and variable)
- mark up
- mark down
- traget ROI
Competition oriented pricing
Competition as price leaders/followers
- going rate pricing
- auction-type pricing
- predatory pricing
Market oriented pricing
Perceived value determines price
- TCO Total cost of ownership
- Yield and Revenue Management
Price elasticity
In % = change in until/change in price
E>1: elastic demand, units change more than price
E<1: inelastic demand, units change less than price
E=0: some products bought at any price
Low elasticity is preferred: flexible prices, easier demand forecasting
Price and Volume effect
Price effect: loss of revenue due to price decrease
Volume effect: increase in units sold due to price decrease
Volume >Price –> higher total revenue (elastic demand)
Price > Volume –> lower total revenue (inelastic demand)
Optimal price
Profit and contribution margin achieve maximum considering change in demand (due to volume effect)
Optimal price = (max. price + VC)/2
Price & Demand
- each price leads to different level of demand and supply
- intensity of demand reaction after price change can vary
- Price and units sold impact profit
- delay reaction between change demand and change in supply (hog cycle)
Gossen’s law of diminishing marginal utility
WTP decreases with each unit consumed (the more units consumed, the less is the marginal utility for an additional unit)
Price Management Process
- Understand environment, market, competiton
- determine company and pricing objectives
- estimate demand, supply and price
- decide on pricing method
- select pricing strategy
- fix the final price
Customer perceived value
True value: customer has all information (= cost of next best alternative + performance differential)
Perceived value: customer doesn’t have all information
WTP: max. price a customer is willing to pay for an offering (different customers have different willingness to pay)
Discounts
Channel, Strategic, Promotional, Tactic, Cash, Rebates
What is a price
Compensation given in return for certain amount of goods/sevices
Measured in monetary units
represent value
Product differentiation
Form & Features Quality Design & Style Services Packaging Labelling Warranty & Guarantee
Value layers
Core/generic offer
Expected offer
Augmented offer
Potential offer
Classification of market offerings
Materiality: tangible, intangible
Durability: durable, non-durable, perishable
Substitute or complement
B2B (industrial products) or B2C (convenience products)
Market offering
anything offered on a market, delivers desired value and satisfies needs, intangible and tangible elements, consists of set of attributes
Marketing
Process by which company created value for customers and build strong relationships to capture value from customers in return
Strategic Fit
3 pillars
Market needs and conditions
Organizational Resources
Marketing strategy
Marketing Principles
- Focus on the customer
- Only compete in market where you can establish a competitive advantage
- Customers don’t buy products, they buy benefits
- Marketing is too important to leave it to a marketing department
- Markets are heterogeneous
- Markets and customers constantly change
Value delivery sequence
Choose value
Deliver Value
Communicate value
Marketing approaches
Product push: develop product with competencies & resources and push it to market (high risk of failure)
Customer lead: develop product they need (blind focus, easily copied by competitors)
Resource-based: considers internal capabilities and customer need –> product fits both
Kano-Model
Expected needs - must requirements, dissatisfies (cause dissatisfaction if not existent)
Normal needs - should requirements, satisfiers (satisfied/dissatisfied depending on existence/absence)
Exiting needs - can, delight’s (no dissatisfaction, but increased purchase likelihood if existent)
Who is the customer
Initiator, Influencer, Decider, Purchased, User/Consumer
Understanding customers
Who is involved in buying Where do they buy When do they buy Why do they buy What are choice criteria How do they use
Factors influencing buying behaviour
Cultural: values, perceptions, preferences, nationalities, religions, racial groups, social class
Social: reference groups, family
Psychological: Maslow’s hierarchy of needs
Negatively originated purchase motives
Problem removal
Problem avoidance
Incomplete satisfaction
Normal depletion
Positively originated purchasing motives
Sensory gratification
Intellectual stimulation or mastery
Social approval
Brand related buyer groups
Brand loyal favourable brand switchers other brand switchers other brand loyals new category users
Competitor analysis
Direct vs indirect
Threat of entrants or substitutes –> Industry competition –> strategic groups
Components of competitor analysis
Competitors current and future objectives + current strategy + resource profile = predict competitors future strategy
Market segmentation
dividing market into smaller segments with distinct characteristics, needs and wants that require distinct market offerings
- demographic
- psychographic
- behavioral
Market attractively criteria
Customer criteria: number of customers, demand consistency, bargaining power
Competition criteria: kind and amount of competiton
Economic criteria: exit and entry barriers, investments…
Environmental: regualtions, social acceptance
Positioning
psychological impression left by company, product or service in the minds of its market partners (how market partners perceive own performance compared to competitors)
Competitive advantage
Contribution to create value for customers
Uniqueness to the firm
Inimitability for competitors
Creating competitive advantage
Differentiation in terms of: product, distribution, promotion, price, brand
Cross price elasticity
= change in units/change in price of competition
E>1 –> substitutes: price decreases, units decrease
E<1 –> complements: price decreases, units increase
E0= –> independent
Product lifecycle
Market offerings have limited that that follows a certain pattern –> different challenges and strategies for each phase
Introduction, Growth, Maturity, Decline
Example:
Pricing strategy: penetration/skimmin –> reduce to gain market share –> match or beat competition –> reduce price further
Marketing emphasis: create product awareness –> establish high market share –> generate profit –> minimise marketing expenses
Types of customer
Innovators
Early adopters
Middle/late majority
Laggards
Exit scenarios
- Differentiation of products and stead innovation
- Reverse positioning: stripping down products to core functions and look for new ways to differentiate
- Breakaway positioning: move to another product category by changing customer perception (e.g.: swat watch - more than one watch)
innovation
= any good, service or idea someone perceived as new
Invention: creation of new idea/concept
Innovation: turning a new concept into commercial success or widespread use
Incremental innovation
Gradual, continuous improvements on existing products
- no change of core functions
- no new markets
- attract new customers with higher value or lower prices or both
Sustaining Innovation
Significant improve that aims to sustain position in existing market (e.g. Römerquelle added flavours to mineral water)
- improve performance (not functions) of existing product
- increasingly high profits in long run
- attract higher paying customers or offer value at lower prices
Disruptive innovation
new products or services that disrupt existing market (e.g.: touchscreen on phone)
- new solution making offerings more affordable
- initial lower performance improves over time
- small segment in the beginning - success needs time
Radical innovation
Technological breakthrough transforming industries, creating new markets
- significant resistance in the beginning
- e.g.: internet, electricity, airplanes
Requirements for success
Openness to new ideas and failures, unique and superior market offering, speed (so competitors can’t catch up)…
Failing…
Market: too small and immature No demand Time: too early or late Technical failures No innovative, open-minded cultures Financials: low ROI, no profit
Innovation process
- Generating ideas
- Screening ideas
- Business analysis
- Development of product
- Testing product
- Commercializing product
