4 Product-Quality Pricing Strategies

there are four product-quality pricing strategies:

1) market-skimming pricing sets a high price at low quality to reap maximum revenues step by step from the market segments. ex: new high tech products

2) market-penetration pricing sets a low price at high quality to attract a large number of customers and a large market share to enjoy network effect, PC operating system.

3) economy pricing is to set low price at low quality to maximize sale volume. ex: 99 cents store

4) premium pricing (prestige pricing) is to set high price at high quality. ex: cunrad cruises. Goldilocks pricing is to provide a "gold-plated" version of a product in order to make the next-lower priced option book more reasonably priced ex: comic books and sport collectible cards.

4 General Pricing Approaches

There are four general pricing approaches:
1) mark-up pricing - is to have a fixed mark-up on the cost of the product to set the price, ex: retail stores
2) value-based pricing (demand-based pricing) is setting price based on buyers' perceptions of value independent of cost, ex: louis vuitton and rolex (nobody ever questioned how much it costs to make a rolex cost, price is not in relation to cost. people base it on how many people have it, brand name)
3) value pricing: is offering the right combination of quality and good service at a fair price, ex: value meal menu
4) comepetition-based pricing: is to set price following that of the industry leader ex: breakfast cereal (ex: kellogs)

3 External Factors of Pricing

there are 3 external factors of pricing:

1) market demand: own-price demand elasticity and cross price demand elasticity (consumers point of view: if they are substitutes, you cant raise the price because the customer will go to the other brand).

2) competition: perfect competition (everyone knows everything, identical quality product, sells at market price), pure monopoly, monopolistic competition (many suppliers in industry, but you have monopoly power, set your own prices), oligopoly, and dominant firm price leadership (lowest cost firm, walmart & smaller stores competing with walmart. walmart set the market price and everyone else has to follow. walmart has the largest market share).

3) other environmental factors: economic conditions such as business cycle (growth, peak, down, trough start over), inflation (price keeps going up, dont want to change price more than inflation rate), and interest rate (durable goods, housing market, interest rate up = lower your price so people can afford it), government regulation such as antitrust policies, regulatory price hearings, patent and copyright policies (grant you the right to behave like a monopoly, make whatever price you want), and fair pricing.

4 Internal Factors of Pricing

Four Internal Factors of Pricing:
1) Marketing Objectives: The marketing department has to keep in mind the price of the product/service so the company can be profitable and survive. They also have to set the price so that it maximizes profit, without charging too much. Trying to obtain market share leadership is also another factor of pricing. Product quality leadership, limit pricing (set the price so low so nobody will enter the industry because profit is so low) and promotional pricing (pre-xmas sales, black friday) are all other key factors when it comes to figuring out the price of the product or service.
2) Marketing Mix Strategy: pricing is one of the four P's in marketing mix strategy.
Target Costing: sets an ideal price then controls cost to make it possible to make product at that price. ex: p&g's crest spinbrush electric toothbrush. An alternative will be to price according to the product quality.
3) Cost: marginal cost pricing is used in regulated industries.
4) Organizational considerations: in small companies, prices are often set by top management. In larger companies, price is set by divisional or product line managers. Salespersons usually have flexibility to negotiate within a price range.

4 Ways to Increase a Company Business

4 ways to increase a company business by increasing:

1) product mix width - number of different product lines that a company carries

2) product mix length - total number of items a company carries within its product lines

3) product line depth - number of versions offered for each product in a product line

4) product line consistency - how closely related the various product lines are in end use, production requirements, distribution channels etc.

Product Mix

product mix - consists of all the product lines and items that a seller offers for sale. avon has 5 major product lines, beauty, wellness, jewelry and accessories. each product line has sub-lines.

2 Ways to Lengthen Product Lines

There are two ways to lengthen a company's product line or offer more services:
1) Product Stretching - Lengthen a product line beyond its current range. For example, Chrysler introduced its luxury brand, Mercedes OR Toyota offers is luxury brand, Lexus.
2) Product Line Filling - add more items within the same range of a product line. For example, there are a lot of types of iPods (shuffle, nano, original, touch)

Offering a longer product line helps companies like Apple fulfill all of the markets needs when it comes to music listening. In turn, this is how Apple took over the personal audio market and still remains the leader industry leader.

3 Objectives of Product Length

there are three objectives of the choice of product line length:

1) up selling ex bmw 3,5,7 series

2) cross selling ex: hp printer and ink cartridge

3) diversifying: GAP has several clothing store chains to cover different price range. ex: gap, old navy, and banana republic

4 Major Marketing Strategic Decisions for Brand

there are 4 major marketing strategic decisions for brand:

1) brand positioning - impact customers of the brand's product attributes, desirable benefits and strong beliefs and values

2) brand name selection - is to find a brand name that suggests products benefits and qualities, e.g. beutrycrest, kleenex, craftsman, off bug spray, is easy to pronounce, recognize and remember e.g. tide, crest is distinctive, e.g. kodak, lexus is extendable, e.g. amazon.com expanded from bookselling to selling other products; is easy to translate into foreign languages without bad connotation, e.g. exxon doesnt want to be called enco which means stalled engine in Japanese, and is capable of registration and legal protection.

3) brand sponsorship is to sell a product as a manufacturer brand, e.g. PG's tide; private brand e.g. kirkland signature of costco and sams choice of walmart; licensed brand for royalty, e.g. calvin klein and gucci; and co-brand, e.g. ford Explorer, Eddie Bauer edition and kellog co-brand with ConAgra to develop Healthy Choice breakfast cereal.

4) brand developement is to add new items to the brand through line extensions (existing brand names extended to new forms, sizes, and flavor of an existing product lines, e.g. Dannon added seven yogurt flavor, a fat free yogurt, and a large, economy size yogurt), brand extensions (existing brand names extended to new product lines, e.g. disney cruise lines), multi-brands (new brand names introduced in the same product line, e.g. P&G's tide family and crest family) and new brands (new brand names in new product lines, e.g. toyota scion)

5 Stages of New Product Adaoption

five stages in a new product adoption process:

1) awareness: consumers are informed of the new product availability - ipod, movies, windows vista,

2) interest: consumers show interest by acquiring more information of the new product. - 1-800 numbers, website where u can find more information, emailing lists

3) evaluation: consumers do cost benefit analysis of trying the new product - ipod

4) trial: consumers try a small amount of the new product - free sample - once consumer overcome the fear, then they adopt

5) adoption - consumers decide to make full scale and regular purchase of the new product. - consumers buy a full package and buy it regularly.

consumers tendency to adopt a new product is poisitively related to younger age, bettter education (more informed), and higher income (buying power is higher, looking for something to stand out)

3 Stages of Marketing

there are three stages of marketing:

entrepreneurial marketing - marketing by face to face contact and by word of mouth of a startup organization

formulated marketing - is marketing by mass media by a just-proved-to-be-successful organization. refined the target market.

entrepreneurial marketing - fine tuning of mass media marketing for a well established organization.

3 Sistribution Strategies

there are 3 distribution strategies:

intensive distribution - to maximize the number of outlets for the product or service, for example Kraft and coca cola products

exclusive distribution - to limit the number of outlets for the product or services, for example Bentley/Mercedes dealership

selective distribution - to use a subset of willing outlets for its products or services, for example, kitchen aid and general electric (target marketing, upscale stores or walmart)

Multichanel Distribution System (hybrid marketing channel)

multichanel distribution system (hybrid marketing channel) is a distribution channel structure in which one organization sets up two or more marketing channels to reach one or more customer segments such as direct-mail catalogs, telemarketing, internet, wholesalers and retailers and own sales force.

Horizontal Marketing System

horizontal marketing system - distribution channel structure in which two or more organizations at one level of delivery to join together temporarily or permanently to follow a new marketing opportunity. ex: wells fargo banks in ralphs & mcdonalds in walmart stores.

Vertical Marketing System (VMS)

vertical marketing system (vms) is a distribution channel structure in which producers, wholesalers, and retailers cooperate, under proper incentives, to make a product and or service available to customer for use or consumption.

three different forms of vertical marketing system

corporate vms - ex: GM - has 3 levels - producer, seller, marketer.

contractual vms such as franchise organization (Subway, Quizno's)

administered vms due to market power - where one (dominant) member of the distribution chain uses its position to co-ordinate the other members' activities. ex: apple is able to use its market power to set prices of mp3 players.

Customer Lifetime Value

customer lifetime value - is the present value of the entire stream of purchases that the customer would make less (minus) the perceived cost of obtaining the product or service over a lifetime of patronage. ex: club cards - make a consumer a regular/returning customer. BMW 3,5,7 series.

Customer Relationship Management (CRM)

customer relationship management (CRM) - overall process of building and maintaining beneficial customer relationships by delivering superior customer value and satisfaction. relationship varies from basic relationship to full partnership (ex: banks, relator's).

Marketing Mix

marketing mix - set of controllable and tactical marketing tools (four P's: product, price, place and promotion.

Demarketing

Demarketing (downsizing) is to stop serving the less beneficial customers temporarily or permanently by reducing products, services & or organization unites to serve customers. (banks, if you have a small account, they can tell you to go somewhere else.)

3 Steps of Marketing Strategy

There are three steps of marketing strategy:

1) market segmentation - to divide a heterogeneous market into segments of more homogenous customers according to geographic regions, demographic differences (age, education, gender & race), income levels, psychographic (such as social class, lifestyle, or personality characteristics), behavioral (attitude, why purchase, when to buy, when to use), and benefits (what customers perceive to receive).

2) target marketing - to select which segments of customers to serve according to the segment size, growth potential (demographic detail), and degree of competition & product differentiation in relation to the organization objectives and resources. hence we can have undifferentiated marketing, differentiated marketing, concentrated (niche) marketing, and micro-marketing (local and individual marketing).

3) marketing positioning is arranging for a product to occupy a clear distinctive, and desireable place relative to completing products in the minds of target customers. hence the key is to indentify the organization's comparative advantage and competitive advantage against its competitors.

Customer Driving Marketing

customer driving marketing - is to understand customers needs and wants better than they do and creating products and or services that will satisfy their latent needs. This works well when customers don't know what they want or even what is possible. e.g. apples ipod or iphone.

Customer Driven Marketing

customer driven marketing - is to research customers needs and wants and provide the right product and or service mix to satisfy the customers needs. This works well if the customer knows what they want, e.g. panda express

Maslow's Heirarchy of Needs

• Maslows hierarchy of needs:
  1. basic survival needs (physiological, e.g. food, clothing and transportation)
  2. safety needs (e.g. housing, banking, security and protection)
  3. social needs (sense of belonging & love, e.g. clubs, restaurants, churches)
  4. esteem needs (self-esteem, recognition and status, e.g. lexus, diamonds, disigner jeans)
  5. self actualization needs (self developement and realization, e.g. meditation, peace corp.)

What is Marketing?

marketing: the management of the process by which organizations create value for customers and build strong customer relationships in order to capture value from customers in return. Marketing involves the delivery of price, quantity, quality, performance, style and feature of existing and/or new products and services to current and/or new customers of organizations for the purpose of achieving organizational objectives through understanding of customers needs, creating customers' value, communicating information to customers, sorting customers, delivering customers' satisfaction and extracting customers' value.