b kotler ch 06 10

Chapter 6- slide 1

Chapter Six

Business Markets and Business

Buying Behavior

Business Markets and Business Buying Behavior

• Business Markets

• Business Buyer Behavior

• The Business Buying Process

Topic Outline

Chapter 6- slide 2Copyright © 2010 Pearson Education, Inc.

Publishing as Prentice Hall

• The Business Buying Process

• E-Procurement: Buying on the Internet

• Institutional and Government Markets

Business buyer behavior refers to the buying behavior

of the organizations that buy goods and services for

use in production of other products and services that

are sold, rented, or supplied to others.

Business Markets



are sold, rented, or supplied to others.

Business buying process is the process where

business buyers determine which products and

services are needed to purchase, and then find,

evaluate, and choose among alternative brands

Business Markets



Business Markets

Market Structure and Demand

Fewer and larger buyers

Geographic concentration



Geographic concentration

Derived demand

• Inelastic demand

• Fluctuating demand

Buyer and seller dependency

Business Markets

• More decision participants

• More professional

purchasing effort



Business Markets

Supplier development is the systematic

development of networks of supplier-

partners to ensure an appropriate and

Types of Decisions and the Decision

Process



partners to ensure an appropriate and

dependable supply of products and

materials that they will resell or use in

making their own products

Business Buyer Behavior

The Model of Business Buyer Behavior




Straight rebuy is a routine purchase decision

such as reorder without any modification

Modified rebuy is a purchase decision that

Major Types of Buying Situations



Modified rebuy is a purchase decision that

requires some research where the buyer

wants to modify the product specification,

price, terms, or suppliers

New task is a purchase decision that requires

thorough research such as a new product


• Systems selling involves the purchase of a

packaged solution from a single seller

• Two-step process of selling:

Major Types of Buying Situations



– Interlocking products

– System of production, inventory control,

distribution, and other services to meet the

buyer’s need for a smooth-running operation


Buying center is all of the individuals and units

that participate in the business decision-

making process

Participants in the Business Buying

Process



making process

– Users

– Influencers

– Buyers

– Deciders

– Gatekeepers


• Buying center provides a major

challenge

• Who participates in the process


Process



• Who participates in the process

– Their relative authority

– What evaluation criteria each

participant uses

– Informal participants


Users are those that will use the product or service

Influencers help define specifications and provide

information for evaluating alternatives


Process



information for evaluating alternatives

Buyers have formal authority to select the supplier and

arrange terms of purchase

Deciders have formal or informal power to select and

approve final suppliers

Gatekeepers control the flow of information


Major Influences on Business Buyers

Economic Factors

Personal Factors



Price

Service

Emotion



Environmental Factors

Demand for product

Economic outlook

Cost of money



Resource availability

Technology Culture

Politics Competition


Objectives

Policies

Major Influences on Business Buyers Organizational Factors



Policies

Procedures

Structure

Systems


Motives Perceptions Preferences


Interpersonal Factors



Age Income Education

Attitude toward risk

Business Buyer BehaviorThe Buying Process




Problem recognition occurs when someone in

the company recognizes a problem or need

• Internal stimuli

The Buying Process



– Need for new product or production

equipment

• External stimuli

– Idea from a trade show or advertising


General need description describes the

characteristics and quantity of the needed

item

Product specification describes the technical

The Buying Process



Product specification describes the technical

criteria

Value analysis is an approach to cost

reduction where components are studied to

determine if they can be redesigned,

standardized, or made with less costly

methods of production


Supplier search involves compiling a list of

qualified suppliers

The Buying Process



Proposal solicitation is the process of

requesting proposals from qualified suppliers


Supplier selection is the process when the

buying center creates a list of desired supplier

attributes and negotiates with preferred

suppliers for favorable terms and conditions

The Buying Process



suppliers for favorable terms and conditions

Order-routine specifications is the final order

with the chosen supplier and lists all of the

specifications and terms of the purchase


Performance review involves a critique of

supplier performance to the purchase terms

The Buying Process



supplier performance to the purchase terms


• Online purchasing

• Company-buying

sites

E-Procurement



sites

• Extranets


• Advantages

– Access to new suppliers

– Lowers costs

– Speeds order processing and delivery

– Shares information

E-Procurement



– Shares information

– Sales

– Service and support

• Disadvantages

– Can erode relationships as buyers search for new

suppliers

– Security

Institutional and Government Markets

Institutional markets consist of hospitals,

nursing homes, and prisons that provide

goods and services to people in their care

Characteristics



Characteristics

– Low budgets

– “Captive” audience

Institutional and Government Markets

Government markets tend to favor domestic suppliers and require suppliers to submit bids and normally award to the lowest bidder

• Carefully monitored

• Affected by similar environmental factors



• Affected by similar environmental factors

• Good credit

• Non-economic factors

• Minority suppliers

• Depressed suppliers

• Small businesses

Chapter Seven

Chapter 7- slide 1

Chapter Seven

Customer-Driven Marketing Strategy:

Creating Value for Target Customers

Customer-Driven Marketing Strategy:Creating Value for Target Customers

• Market Segmentation

• Market Targeting

Topic Outline



• Market Targeting

• Differentiation and Positioning

Market segmentation is the process that

companies use to divide large

heterogeneous markets into small markets

Market Segmentation



heterogeneous markets into small markets

that can be reached more efficiently and

effectively with products and services that

match their unique needs

Market Segmentation



• Segmenting consumer markets

• Segmenting business markets

• Segmenting international markets

Market Segmentation



• Segmenting international markets

• Requirements for effective segmentation

Market Segmentation

Geographic segmentation

Demographic segmentation

Segmenting Consumer Markets



Psychographic segmentation

Behavioral segmentation

Market Segmentation

• Geographic segmentation divides the

market into different geographical units

such as nations, regions, states, counties,




such as nations, regions, states, counties,

or cities

Market Segmentation

Demographic segmentation divides the market

into groups based on variables such as age,

gender, family size, family life cycle, income,




gender, family size, family life cycle, income,

occupation, education, religion, race,

generation, and nationality

Market Segmentation

Age and life-cycle stage segmentation is the

process of offering different products or

using different marketing approaches for



using different marketing approaches for

different age and life-cycle groups

Gender segmentation divides the market

based on sex (male or female)

Market Segmentation

Income segmentation divides the market

into affluent or low-income consumers

Psychographic segmentation divides

buyers into different groups based on




buyers into different groups based on

social class, lifestyle, or personality

traits

Market Segmentation

Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses, or responses to a product




responses to a product

• Occasions

• Benefits sought

• User status

• Usage rate

• Loyalty status

Market Segmentation

Multiple segmentation is used to identify smaller,

better-defined target groups

Using Multiple Segmentation Bases



Geodemographic segmentation is an example of

multivariable segmentation that divides groups

into consumer lifestyle patterns

Market Segmentation

PRIZM NE classifies every American household into

66 unique segments organized into 14 different

social groups.

• These groups segment people and locations into

Using Multiple Segmentation Bases



• These groups segment people and locations into

marketable groups of like-minded consumers

that exhibit unique characteristics and buying

behavior based on a host of demographic factors

Market Segmentation

Geographic location

Economic factors

Segmenting International markets



Political-legal factors

Cultural factors

Market Segmentation

Intermarket segmentation divides

consumers into groups with similar needs

and buying behaviors even though they are

Segmenting Business Markets



and buying behaviors even though they are

located in different countries

Market Segmentation

• To be useful, market segments must be:

Requirements for Effective Segmentation

Measurable Accessible



Substantial Differentiable

Actionable

Market Targeting

• Target market consists of a set of buyers

who share common needs or

characteristics that the company decides to

Selecting Target Market Segments



characteristics that the company decides to

serve

Market Targeting

• Segment size and growth

• Segment structural attractiveness

• Company objectives and resources

Evaluating Market Segments

.



• Company objectives and resources

Market Targeting

Target Marketing Strategies



Market Targeting

Undifferentiated marketing targets the

whole market with one offer




– Mass marketing

– Focuses on common needs rather than what’s

different

Market Targeting

Differentiated marketing targets several

different market segments and designs

separate offers for each




separate offers for each

• Goal is to achieve higher sales and stronger

position

• More expensive than undifferentiated

marketing

Market Targeting

• Concentrated marketing targets a

small share of a large market

• Limited company resources

Target Market Strategies



• Knowledge of the market

• More effective and efficient

Market Targeting

Micromarketing is the practice of tailoring

products and marketing programs to suit

the tastes of specific individuals and




the tastes of specific individuals and

locations

• Local marketing

• Individual marketing

Market Targeting

Local marketing involves tailoring brands

and promotion to the needs and wants of

local customer groups




local customer groups

• Cities

• Neighborhoods

• Stores

Market Targeting

Individual marketing involves tailoring

products and marketing programs to the needs

and preferences of individual customers




and preferences of individual customers

• Also known as:

– One-to-one marketing

– Mass customization

– Markets-of-one marketing

Market Targeting

Depends on:

• Company resources

• Product variability

Choosing a Target Market



• Product variability

• Product life-cycle stage

• Market variability

• Competitor’s marketing strategies

Market Targeting

• Benefits customers with specific

needs

• Concern for vulnerable segments

Socially Responsible Target Marketing



• Concern for vulnerable segments

• Children

– Alcohol

– Cigarettes

– Internet abuses

Differentiation and Positioning

Product position is the way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products



relative to competing products

– Perceptions

– Impressions

– Feelings


Positioning maps

show consumer

perceptions of

their brands

versus competing



versus competing

products on

important buying

dimensions


• Identifying a set of possible competitive

advantages to build a position

Choosing a Differentiation and Positioning

Strategy



advantages to build a position

• Choosing the right competitive advantages

• Selecting an overall positioning strategy

• Developing a positioning statement


Competitive advantage is an advantage over

competitors gained by offering consumers

greater value, either through lower prices or

Identifying Possible Value Differences and

Competitive Advantages



greater value, either through lower prices or

by providing more benefits that justify higher

prices


Identifying a set of possible competitive

advantages to build a position by

providing superior value from:

Choosing a Differentiation and Positioning

Strategy



Product differentiation

Service differentiation

Channel differentiation

People differentiation

Image differentiation


Difference to promote should be:

Choosing the Right Competitive Advantage

Important Distinctive Superior



Communicable Preemptive Affordable

Profitable


Value proposition

is the full mix of

Selecting an Overall Positioning Strategy



is the full mix of

benefits upon

which a brand is

positioned

Communication and Delivering the Chosen Position

Choosing the positioning is often easier

than implementing the position.





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retrieval system, or transmitted, in any form or by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior written

permission of the publisher. Printed in the United States of America.

Copyright © 2010 Pearson Education, Inc. Copyright © 2010 Pearson Education, Inc.

Publishing as Prentice HallPublishing as Prentice Hall

Chapter 8 - slide 1

Chapter Eight

Product, Services, and Brands:

Building Customer Value

Products, Services, and Branding Strategy

• What Is a Product?

• Product and Services Decisions

• Branding Strategy: Building

Topic Outline

Chapter 8 - slide 2Copyright © 2010 Pearson Education, Inc.


• Branding Strategy: Building

Strong Brands

• Services Marketing

What Is a Product?

A Product is anything that can be offered in a

market for attention, acquisition, use, or

consumption that might satisfy a need or

Products, Services, and Experiences



consumption that might satisfy a need or

want

Experiences represent what buying the

product or service will do for the customer

What Is a Product?

Levels of Product and Services



What Is a Product?

Consumer products

Product and Service Classifications



products

Industrial products

What Is a Product?

• Consumer products are products and

services for personal consumption

• Classified by how consumers buy them




• Classified by how consumers buy them

– Convenience products

– Shopping products

– Specialty products

– Unsought products

What Is a Product?

Convenience products are consumer

products and services that the

customer usually buys frequently,

immediately, and with a minimum




immediately, and with a minimum

comparison and buying effort

• Newspapers

• Candy

• Fast food

What Is a Product?

Shopping products are consumer

products and services that the

customer compares carefully on

suitability, quality, price, and style




suitability, quality, price, and style

• Furniture

• Cars

• Appliances

What Is a Product?

Specialty products are consumer products and

services with unique characteristics or brand

identification for which a significant group of




identification for which a significant group of

buyers is willing to make a special purchase effort

• Medical services

• Designer clothes

• High-end electronics

What Is a Product?

Unsought products are consumer products that

the consumer does not know about or knows

about but does not normally think of buying




about but does not normally think of buying

• Life insurance

• Funeral services

• Blood donations

What Is a Product?

Industrial products are products purchased for

further processing or for use in conducting a

business

• Classified by the purpose for which the product is




• Classified by the purpose for which the product is

purchased

– Materials and parts

– Capital

– Raw materials

What Is a Product?

Capital items are industrial products that aid in the

buyer’s production or operations

Materials and parts include raw materials and

manufactured materials and parts usually sold




manufactured materials and parts usually sold

directly to industrial users

Supplies and services include operating supplies,

repair and maintenance items, and business

services

What Is a Product?

Organization marketing consists of activities

undertaken to create, maintain, or change

attitudes and behavior of target consumers

toward an organization

Organizations, Persons, Places, and Ideas



toward an organization

What Is a Product?

Person marketing consists of activities

undertaken to create, maintain, or

change attitudes and behavior of target

consumers toward particular people




consumers toward particular people

What Is a Product?

Place marketing consists of activities undertaken to

create, maintain, or change attitudes and

behavior of target consumers toward particular

places




places

Social marketing is the use of commercial

marketing concepts and tools in programs

designed to influence individuals’ behavior to

improve their well-being and that of society

Product and Service Decisions

Individual Product and Service Decisions




Product attributes are the benefits of the

product or service

• Quality




• Quality

• Features

• Style and design


Product quality includes level and consistency

• Quality level is the level of quality that supports




• Quality level is the level of quality that supports

the product’s positioning

• Conformance quality is the product’s freedom

from defects and consistency in delivering a

targeted level of performance


Product features are a competitive tool for

differentiating a product from competitors’

products




products

Product features are assessed based on the

value to the customer versus the cost to the

company


Style describes the appearance of the

product

Design contributes to a product’s




Design contributes to a product’s

usefulness as well as to its looks


Brand is the name, term, sign, or design—or a

combination of these—that identifies the maker

or seller of a product or service




or seller of a product or service

Brand equity is the differential effect that the brand

name has on customer response to the product

and its marketing


Packaging involves designing and

producing the container or




producing the container or

wrapper for a product

Labels identify the product or

brand, describe attributes, and

provide promotion


Product support services augment actual products





A product line is a group of products that are

closely related because they function in a similar

manner, are sold to the same customer groups,

Product Line Decisions



manner, are sold to the same customer groups,

are marketed through the same types of outlets,

or fall within given price ranges


Product line length is the number of items in

the product line

Product Line Decisions



• Line stretching

• Line filling


Product mix consists of all the

products and items that a particular

seller offers for sale

Product Mix Decisions



• Width

• Length

• Depth

• Consistency

Brand represents the consumer’s perceptions and

feelings about a product and its performance. It is

the company’s promise to deliver a specific set of

features, benefits, services, and experiences

Branding Strategy: Building Strong Brands



features, benefits, services, and experiences

consistently to the buyers


Brand strategy decisions include:

• Product attributes

Brand Positioning



• Product benefits

• Product beliefs and values


Desirable qualities

1. Suggest benefits and qualities

2. Easy to pronounce, recognize, and remember

Brand Name Selection



2. Easy to pronounce, recognize, and remember

3. Distinctive

4. Extendable

5. Translatable for the global economy

6. Capable of registration and legal protection


• Manufacturer’s brand

• Private brand

Brand Sponsorship



• Private brand

• Licensed brand

• Co-brand


Brand Development Strategies



Services Marketing

• Government

• Private not-for-profit organizations

Types of Service Industries



• Private not-for-profit organizations

• Business services

Services Marketing

Nature and Characteristics of a Service



Services Marketing

In addition to traditional marketing

strategies, service firms often require

additional strategies

Marketing Strategies for Service Firms



additional strategies

• Service-profit chain

• Internal marketing

• Interactive marketing

Services Marketing

Service-profit chain links service

firm profits with employee and

customer satisfaction

• Internal service quality




• Internal service quality

• Satisfied and productive service

employees

• Greater service value

• Satisfied and loyal customers

• Healthy service profits and

growth

Services Marketing

Internal marketing means that the service firm must

orient and motivate its customer contact employees and

supporting service people to work as a team to provide




supporting service people to work as a team to provide

customer satisfaction

Internal marketing must precede external marketing

Services Marketing

Interactive marketing means that service quality

depends heavily on the quality of the buyer–seller

interaction during the service encounter




interaction during the service encounter

• Service differentiation

• Service quality

• Service productivity

Services Marketing

Managing service differentiation creates a

competitive advantage from the offer,

delivery, and image of the service

• Offer can include distinctive features




• Offer can include distinctive features

• Delivery can include more able and reliable

customer contact people, environment, or

process

• Image can include symbols and branding

Services Marketing

Managing service quality provides a

competitive advantage by delivering

consistently higher quality than its

competitors




competitors

Service quality always varies depending

on interactions between employees and

customers

Services Marketing

Managing service productivity refers to the cost

side of marketing strategies for service firms

• Employee recruiting, hiring, and training




• Employee recruiting, hiring, and training

strategies

• Service quantity and quality strategies

Chapter 9- slide 1

Chapter Nine

New-Product Development and

Product Life-Cycle Strategies

New-Product Development and Product Life-Cycle Strategies

• New-Product Development Strategy

• New-Product Development Process

• Managing New-Product Development

Topic Outline



• Managing New-Product Development

• Product Life-Cycle Strategies

• Additional Product and Service

Considerations

New-Product Development Strategy

Acquisition refers to the buying of a whole

company, a patent, or a license to produce

someone else’s product

Two ways to obtain new products



someone else’s product

New product development refers to original

products, product improvements, product

modifications, and new brands developed from

the firm’s own research and development

New-Product Development

Reasons for new product failure

Overestimation of market size

Poor design

Incorrect positioning

Wrong timing



Wrong timing

Priced too high

Ineffective promotion

Management influence

High development costs

Competition

New-Product Development Process

Major Stages in New-Product Development




Idea generation is the systematic search

for new-product ideas

Sources of new-product ideas

Idea Generation



Sources of new-product ideas

• Internal

• External


Internal sources refer to the company’s own formal

research and development, management and staff,

and “intrapreneurial” programs

External sources refer to sources outside the company

Idea Generation



External sources refer to sources outside the company

such as customers, competitors, distributors,

suppliers, and outside design firms


• Identify good ideas and drop poor ideas

• R-W-W Screening Framework:

– Is it real?

Idea Screening



– Is it real?

– Can we win?

– Is it worth doing?


Product idea is an idea for a possible product

that the company can see itself offering

to the market

Concept Development and Testing



to the market

Product concept is a detailed version of the

idea stated in meaningful consumer

terms

Product image is the way consumers

perceive an actual or potential product


Concept testing refers to testing new-product

concepts with groups of target consumers

Concept Development and Testing




• Marketing strategy development refers to

the initial marketing strategy for

introducing the product to the market

Marketing Strategy Development



introducing the product to the market

• Marketing strategy statement includes:

– Description of the target market

– Value proposition

– Sales and profit goals


Business analysis involves a review of the

sales, costs, and profit projections to find




sales, costs, and profit projections to find

out whether they satisfy the company’s

objectives


Product development involves the creation

and testing of one or more physical versions by

the R&D or engineering departments




the R&D or engineering departments

• Requires an increase in investment


Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings

Provides the marketer with experience in




Provides the marketer with experience in testing the product and entire marketing program before full introduction


Types of Test Markets

Standard test markets

Controlled test markets



Controlled test markets

Simulated test markets


• Advantages of simulated test markets

– Less expensive than other test methods

– Faster




– Faster

– Restricts access by competitors

• Disadvantages

– Not considered as reliable and accurate due to

the controlled setting



When firms test market

• New product with large

When firms may not test market

• Simple line extension



with large investment

• Uncertainty about product or marketing program

extension

• Copy of competitor product

• Low costs

• Management confidence


Commercialization is the introduction

of the new product




of the new product

• When to launch

• Where to launch

• Planned market

rollout

Managing New-Product Development

Successful new-product development

should be:

• Customer centered



• Team centered

• Systematic


Customer-centered new product development

focuses on finding new ways to solve customer

problems and create more customer satisfying

New-Product Development Strategies



problems and create more customer satisfying

experiences

• Begins and ends with solving customer problems


Sequential new-product development is a

development approach where company

departments work closely together

individually to complete each stage of the




individually to complete each stage of the

process before passing it along to the next

department or stage

• Increased control in risky or complex

projects

• Slow


Team-based new-product development is

a development approach where company




a development approach where company

departments work closely together in

cross-functional teams, overlapping in the

product-development process to save

time and increase effectiveness


Systematic new-product development is an

innovative development approach that

collects, reviews, evaluates, and manages

new-product ideas




new-product ideas

• Creates an innovation-oriented culture

• Yields a large number of new-product ideas


Product Life Cycle



• Product development

– Sales are zero and investment costs mount

• Introduction

– Slow sales growth and profits are nonexistent

• Growth




• Growth

– Rapid market acceptance and increasing profits.

• Maturity

– Slowdown in sales growth and profits level off or

decline

• Decline

– Sales fall off and profits drop


Fads are temporary periods of

unusually high sales driven by

consumer enthusiasm and immediate



consumer enthusiasm and immediate

product or brand popularity


• Slow sales growth

• Little or no profit

Introduction Stage



• Little or no profit

• High distribution and promotion expense


• Sales increase

• New competitors enter the market

• Price stability or decline to increase volume

Growth Stage



• Price stability or decline to increase volume

• Consumer education

• Profits increase

• Promotion and manufacturing costs gain

economies of scale


• Slowdown in sales

• Many suppliers

• Substitute products

Maturity Stage



• Substitute products

• Overcapacity leads to competition

• Increased promotion and R&D to support

sales and profits


• Market modifying

• Product

Maturity Stage Modifying Strategies



• Product

modifying

• Marketing mix

modifying


• Maintain the product

• Harvest the product

Decline Stage



• Harvest the product

• Drop the product


Summary of Product Life Cycle



Additional Product and Service Considerations

Public policy and regulations regarding developing

and dropping products, patents, quality, and

Product Decisions and Social

Responsibility



and dropping products, patents, quality, and

safety

Additional Product and Service Considerations

• Determining what products and

services to introduce in which

International Product and

Service Marketing—Challenges



services to introduce in which

countries

• Standardization versus customization

• Packaging and labeling

• Customs, values, laws

Chapter 10- slide 1

Chapter Ten

Pricing:

Understanding and Capturing

Customer Value

Pricing:Understanding and

Capturing Customer Value

• What Is a Price?

• Customer Perceptions of Value

• Company and Product Costs

Topic Outline



• Company and Product Costs

• Other Internal and External Considerations

Affecting Price Decisions

Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in

What Is a Price?



the values that consumers give up in order to gain the benefits of having or using a product or service.

Price is the only element in the marketing mix that produces revenue; all other elements represent costs

What Is a Price?



elements represent costs

Factors to Consider When Setting Prices

Understanding how much value consumers place

on the benefits they receive from the product and

setting a price that captures that value

Customer Perceptions of Value



setting a price that captures that value

Factors to Consider When

Setting PricesCustomer Perceptions of Value




Value-based pricing uses the buyers’ perceptions of value, not the sellers’ cost, as the key to pricing. Price is considered




perceptions of value, not the sellers’ cost, as the key to pricing. Price is considered before the marketing program is set.

• Value-based pricing is customer driven

• Cost-based pricing is product driven


Setting PricesCustomer Perceptions of Value




Value-based pricing




Good-value pricing

Value-added pricing


Good-value pricing offers the right

combination of quality and good service at




combination of quality and good service at

a fair price

Existing brands are being redesigned to

offer more quality for a given price or the

same quality for a lower price


Everyday low pricing (EDLP) involves

charging a constant everyday low price

with few or no temporary price discounts




with few or no temporary price discounts

High-low pricing involves charging higher

prices on an everyday basis but running

frequent promotions to lower prices

temporarily on selected items


• Value-added pricing attaches value-added

features and services to differentiate




features and services to differentiate

offers, support higher prices, and build

pricing power

• Pricing power is the ability to escape price

competition and to justify higher prices and

margins without losing market share


Cost-based pricing involves setting prices

based on the costs for producing,

Company and Product Costs



based on the costs for producing,

distributing, and selling the product plus a

fair rate of return for its effort and risk


Cost-based pricing adds a standard markup

to the cost of the product




to the cost of the product



Types of costs



Fixed

costs

Variable

costs

Total

costs


Fixed costs are the costs that do not vary

with production or sales level




with production or sales level

• Rent

• Heat

• Interest

• Executive salaries


Variable costs are the costs that vary with

the level of production




the level of production

• Packaging

• Raw materials


Total costs are the sum of the fixed and

variable costs for any given level of




variable costs for any given level of

production

Average cost is the cost associated with a

given level of output


Setting Prices

Costs at Different Levels of Production




Experience or learning curve is when average cost falls as

production increases because fixed costs are spread over

more units

Costs as a Function of Production Experience




• Cost-plus pricing adds a standard markup to

the cost of the product

• Benefits

Cost-Plus Pricing



• Benefits

– Sellers are certain about costs

– Prices are similar in industry and price competition is

minimized

– Consumers feel it is fair

• Disadvantages

– Ignores demand and competitor prices


Break-even pricing is the price at which total costs are equal to total revenue and there is no profit

Break-Even Analysis and Target Profit

Pricing



costs are equal to total revenue and there is no profit

Target profit pricing is the price at which the firm will break even or make the profit it’s seeking


Setting PricesBreak-Even Analysis and Target Profit Pricing



Considerations in Setting Price




• Customer perceptions of value set the upper limit for prices, and costs set

Other Internal and External Considerations




upper limit for prices, and costs set the lower limit

• Companies must consider internal and external factors when setting prices


Target costing starts with an ideal selling





Target costing starts with an ideal selling

price based on consumer value

considerations and then targets costs that

will ensure that the price is met


Organizational considerations include:

• Who should set the price





• Who should set the price

• Who can influence the price


• Before setting prices,



The Market and Demand



• Before setting prices,

the marketer must

understand the

relationship between

price and demand for

its products


Pure competition

Other Internal and External Consideration Affecting Price Decisions

Competition



Monopolistic competition

Oligopolistic competition

Pure monopoly


The demand curve shows the number of units the market will buy in a given period at different prices

• Normally, demand and price are inversely related





• Normally, demand and price are inversely related

• Higher price = lower demand

• For prestige (luxury) goods, higher price can equal higher demand when consumers perceive higher prices as higher quality

Factors to Consider WhenSetting Prices

Price elasticity of demand illustrates the response of demand to a change in price





Inelastic demand occurs when demand hardly changes when there is a small change in price

Elastic demand occurs when demand changes greatly for a small change in price

Price elasticity of demand = % change in quantity demand

% change in price


• Comparison of offering in

terms of customer value


Competitor's Strategies



terms of customer value

• Strength of competitors

• Competition pricing strategies

• Customer price sensitivity


Economic conditions

Reseller’s response to

Other Internal and External Consideration




Reseller’s response to price

Government

Social concerns

b kotler ch 06 10

Engineering

pearson education

business buyers

buying behavior

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routine purchase decision

decision processchapter