Segmenting & Targeting Customers
(Topic 7)
Topic 7:
Segmenting & Targeting
•
Core issue: what types of customers are there in the market, which
type will we concentrate on, and how can we do so distinctively?
•
Objectives
• Describe the steps involved in target marketing
• Explain market segmentation
• Discuss alternative ways of segmenting markets
• Discuss how to select target market segments
2
Case Study
Procter & Gamble
• Sells multiple brands
within the same
product category for a
variety of products
• Brands feature a
different mix of
benefits and appeal to
different segments
• Has also identified
different niches
within certain
segments
• Product
modifications are
useful: Tide offers
seven different
product formulations
to serve different
niches’ needs
3
Ford’s Model T Followed
a Mass Market Approach
4
Segmentation
vs Mass Marketing
• Market Segmentation: the act of dividing a market
into distinct groups of customers who might require
separate products and/or marketing mixes.
• Mass Marketing refers to a marketing approach
whereby the same marketing mix is used for all
segments.
5
Marketing Debate
Marketing Debate
Is mass marketing dead?
Take a position:
Affirmative = Mass marketing is dead.
Negative = Mass marketing is still a viable
way to build a profitable brand.
6
Pros and Cons of
Mass Marketing
• Pros (Affirmatives)
• Cons (Negatives)
7
Steps in STP marketing
Market
Segmentation
1. Identify
segmentation
variables and
segment the
market
2. Develop
profiles of
resulting
segments
Market
Targeting
3. Evaluate
attractiveness
of each
segment
4. Select the
target
segment(s)
Market
Positioning
5. Identify
possible
positioning
concepts for
each target
segment
6. Select,
develop, and
communicate
the chosen
positioning
concept
8
The purpose of
market segmentation
Different Buyers have different Needs
To identify groups of customers who
have like needs (which are distinct
from the needs of other groups) to
ascertain whether they will require
different products and different
marketing mixes.
9
Basic Market Preference Patterns for
Ice Cream Buyers
10
Exercise on cars eg. Mercedes, BMW, Toyota, SUVs, MPVs, Sports,
•Market Segmentation:
Definition
• Dividing a market into distinct
groups with distinct needs,
characteristics, or behavior who
might require separate products or
marketing mixes.
11
MARKET SEGMENT
• A market segment is a particular
group or sub-group of consumers
within a market who have similar
characteristics
• A market segment is a subgroup of
people or organizations sharing one
or more characteristics that cause
them to have similar product needs
• A portion of the entire market that
your company is targeting
12
Week 5: Chapter 10
Market Segments
MARKET SEGMENTATION
• Process of dividing the market
according to similarities among
various subgroups within the market
• Segment based on common
characteristics
•
Age, Sex, Income, Region, etc
• Segment based on common needs
and desires
•
•
Low calorie food/drinks
Mobile location information
13
Week 5: Chapter 10
Market Segments
MARKET SEGMENTATION
•
• Marketing does not ‘create’ segments
• Marketing just identifies the segments
• Decide which segments to target with
marketing mix (4P’s)
14
Week 5: Chapter 10
Market Segments
MARKET SEGMENTATION
LEVELS
• Mass Marketing – large, general
population segment
•
•
Seller uses mass production, mass
distribution, mass promotion
Creates largest potential market
15
Week 5: Chapter 10
Market Segments
MARKET SEGMENTATION
LEVELS
• Levels of Market Segmentation
• Mass Marketing
• Micro-Marketing
•
•
•
•
Segment
Niches
Local area
Individuals
16
Week 5: Chapter 10
Market Segments
MICRO MARKETING
• Micro-Marketing
• Segment Marketing
•
Group of customers with similar needs and
wants
• Car buyers looking for fuel-efficient car
•
•
•
College students
Low income familes
Environmentally friendly people
• Car buyers looking for luxury car
•
•
Older men
Young professional
17
Week 5: Chapter 10
Market Segments
MICRO MARKETING
• Micro-Marketing
• Niche Marketing
•
Narrowly defined group seeking distinctive mix
of benefits
• Estee Lauder (8 of 10 best selling skin care
products)
• Estee Lauder has several different brands to
fill niche
•
•
•
•
Estee Lauder: special needs of old women
Clinique: special needs of middle-age women
MAC: special needs of young women 18
Week 5: Chapter 10
Market Segments
MICRO MARKETING
• Micro-Marketing
• Local Area Marketing
•
Adjust the 4P’s based on region and people in that region
• Supermarkets in US
•
•
Large selection of Mexican food products in central CA
Large selection of Asian, Indian food products in northern CA
• Portland, Oregon USA - Real Estate Agents
•
•
•
High % of people who ride bicycles to work
Green, evironmentally-friendly city
Agents take clients on bicycles to show buyers the location and bikefriendliness of area
19
Week 5: Chapter 10
Market Segments
MICRO MARKETING
• Micro-Marketing
• Individual / One-to-One Marketing - Ultimate Goal
•
•
Personalization – know each customer
Customization – make different product for each customer
• Acumins
•
•
•
producer of vitamins and supplements personalized to the
individual health needs of its customers
custom blend-and-pack all vitamins and nutrients into single
pills
enables people to take fewer, more targeted vitamins by
consolidating the daily intake of supplements into fewer
20
capsules
Week 5: Chapter 10
Market Segments
Segmenting Consumer
Markets
• Geographical segmentation
• Demographic segmentation
• Most popular segmentation
• Psychographic segmentation
• Lifestyle, social class, and personalitybased segmentation
• Behavioral segmentation
21
Geographic Segmentation
Variables
• World region
or country
• U.S. region
• State
• City
• Neighborhood
• City or
metro size
• Density
• Climate
Geographic
climate for clothing lines
22
Demographic Segmentation Variables
•
•
•
•
•
Age
Gender
Family size
Family life cycle
Income
•
•
•
•
•
•
Occupation
Education
Religion
Race
Generation
Nationality
Demographics
Age group for mobile phones (e.g. Gucci /Gucci
Kidswear) (Giorgio, Emporio , AX)
23
Psychographic Segmentation
Variables
•
•
•
•
Lifestyle
Personality
Values
Social Class & status
Psychographics
• personality for political choices and brands eg Nike
24
Behavioral Segmentation
Variables
•
•
•
•
Occasions
Benefits
User Status
Attitude Toward the
Product
• User Rates
• Loyalty Status
• Readiness Stage
Behavioural
occasions for drinking eg beer @ football events, Champage @
the races
25
Segmenting Business Markets
• Demographic segmentation
• Industry, company size, location
• Operating variables
• Technology, usage status, customer capabilities
• Purchasing approaches
• Situational factors
• Urgency, specific application, size of order
• Personal characteristics
• Buyer-seller similarity, attitudes toward risk, loyalty
26
Segmenting International Markets
• Geographic segmentation
• Location or region
• Economic factors
• Population income or level of economic
development
• Political and legal factors
• Type / stability of government, monetary
regulations, amount of bureaucracy, etc.
• Cultural factors
• Language, religion, values, attitudes,
customs, behavioral patterns
27
SEGMENTING CONSUMERS
• Demographic for iPod Nano
23-30 years
Income RMB 200,000
Single
Female
University Graduate
Owns PC, mobile phone
Has high-speed internet
Member of fitness club
Active in outdoor sports
28
Week 5: Chapter 10
Market Segments
SEGMENTING CONSUMERS
• China – world’s biggest market!
29
Week 5: Chapter 10
Market Segments
BB&T Bank’s B-to-B advertising
targeting small business owners
30
Break
31
The VALS™ Segments
VALS™ places U.S. adult consumers into one of eight segments based
on their responses to the VALS questionnaire. The main dimensions
of the segmentation framework are primary motivation
(the horizontal dimension) and resources (the vertical dimension).
The basic tenet of VALS is that people express their personalities through their
behaviors. VALS specifically defines consumer segments on the basis of those
personality traits that affect behavior in the marketplace.
Rather than looking at what people do and segregating people with like activities,
VALS uses psychology to segment people according to their distinct personality
traits.
The personality traits are the motivation—the cause. Buying behavior becomes the
effect—the observable, external behavior prompted by an internal driver.
32
Descriptions of the VALS
types:
•Innovators
•Thinkers
•Achievers
•Experiencers
•Believers
•Strivers
•Makers
•Survivors
33
Primary Motivation
Consumers buy products and services and seek
experiences that fulfill their
characteristic preferences and give shape, substance, and
satisfaction to their lives.
An individual's primary motivation determines what in
particular about the
self or the world is the meaningful core that governs his or
her activities.
Consumers are inspired by one of three primary
motivations: ideals, achievement,
and self-expression.
Consumers who are primarily motivated by ideals are
guided by knowledge and principles.
Consumers who are primarily motivated by achievement
look for products and services that demonstrate success
to their peers.
Consumers who are primarily motivated by self-expression
desire social or physical activity, variety, and risk.
Resources
A person's tendency to consume
goods and services
extends beyond age, income, and
education.
Energy, self-confidence,
intellectualism, novelty seeking,
innovativeness, impulsiveness,
leadership, and vanity play a
critical role.
These personality traits in
conjunction with key demographics
determine an individual's
resources.
Different levels of resources
enhance or constrain a person's
expression of his or her primary
motivation.
34
•
Survey Sample
1. I am often interested in theories.
Mostly disagree Somewhat disagree Somewhat
agree Mostly agree
Sex: Male Female
2. I like outrageous people and things.
Mostly disagree Somewhat disagree Somewhat
agree Mostly agree
37. Age: 18-24 25-29 30-34 35-44 45-54 55-64 65
or over
3. I like a lot of variety in my life.
Mostly disagree Somewhat disagree Somewhat
agree Mostly agree
38. What is the highest level of formal education you
have completed?
Grade 8 or less Grades 9-11 High School 1-3 years of
college
College (4 years) Attended or completed graduate
school
4. I love to make things I can use everyday.
Mostly disagree Somewhat disagree Somewhat
agree Mostly agree
39. What was your total household income before
taxes for the past calendar year (January through
December)? (Please include income from all sources,
including salaries, pensions, interest, dividends,
bonuses, capital gains, profits, other.)
less than $10,000 $10,000 - $14,999 $15,000 - $19,999
$20,000 - $24,999 $25,000 - $29,999 $30,000 $39,999
5. I follow the latest trends and fashions.
Mostly disagree Somewhat disagree Somewhat
agree Mostly agree
11. I would rather make something than buy it.
Mostly disagree Somewhat disagree Somewhat
agree Mostly agree
12. I dress more fashionably than most people.
Mostly disagree Somewhat disagree Somewhat
agree Mostly agree
13. The federal government should encourage prayers in
public schools.
Mostly disagree Somewhat disagree Somewhat
agree Mostly agree
14. I have more ability than most people.
Mostly disagree Somewhat disagree Somewhat
agree Mostly agree
35
Effective segmentation
To be useful an identified segment must be:
• measurable - size, purchasing power and characteristics can be
measured
• substantial – profitable
• accessible - through promotion or word of mouth
• differentiable - so they have different marketing mixes
• actionable - can be done
Should targeting of markets also be ethical?
36
Target Marketing
• Target Market
• Consists of a set of buyers who share
common needs or characteristics that
the company decides to serve
37
Target Marketing
• Evaluating Market Segments
• Segment size and growth
• Segment structural attractiveness
•
•
•
•
Level of competition
Substitute products
Power of buyers
Powerful suppliers
• Company objectives and resources
38
Target Marketing
• Selecting Target Market Segments
•
•
•
•
Undifferentiated (mass) marketing
Differentiated (segmented) marketing
Concentrated (niche) marketing
Micromarketing (local or individual)
39
Choosing a Target
Marketing Strategy
• Considerations include:
•
•
•
•
•
Company resources
The degree of product variability
Product’s life-cycle stage
Market variability
Competitors’ marketing strategies
40
Target Marketing
• Socially Responsible Targeting
• Some segments, especially children,
are at special risk
• Many potential abuses on the Internet,
including fraud Internet shoppers
• Controversy occurs when the methods
used are questionable
41
Targeting marketing sectors
• Mass marketing: one product for all buyers (coke)
• Segmentation: group in market with similar wants, purchasing
power, buying attitudes and/or benefits (e.g. colgate
toothpaste)
• Niche: small segment (e.g. Patek Philippe watches)
• Local: regional (local ads/community paper)
• One-to-one or mass customization: customers are treated as
individuals (tailored suits)
42
Selecting target markets
(1) Undifferentiated (mass) Marketing
One Marketing Mix
All Markets
(2) Differentiated Marketing
Different marketing mixes for different market segments
Marketing Mix A
Marketing Mix B
Segment A
Segment B
(3) Concentrated Marketing
A concentrated marketing mix that may target or serve one single segment
One Marketing Mix
Segment A
Segment B
Segment C
Selecting target markets
43
Patterns of target
market selection
Product specialization
in several segments
e.g. microscopes
Single-segment
concentration
M1 M2 M3
M1 M2 M3
P1
Selective
specialization
- no synergy
P2
M1 M2 M3
P3
P1
P1
P2
P3
P2
Patterns of target
P3
market selection
Vertical = Product
Horizontal = Market segments
44
Patterns of target
market selection
Market specialization
with several products
e.g. hospital supplies
M1 M2 M3
Full market
coverage
M1 M2 M3
P1
P1
P2
P2
P3
P3
45
Positioning
• Positioning:
• The place the product occupies in consumers’
minds relative to competing products.
• Typically defined by consumers on the basis of
important attributes.
• Involves implanting the brand’s unique benefits
and differentiation in the customer’s mind.
• Positioning maps that plot perceptions of
brands are commonly used.
46
Choosing a Positioning
Strategy
Topics
• Identifying possible
competitive advantages
• Choosing the right competitive
advantage
• Choosing a positioning
strategy
• Differentiation can be based on
• Products
• Services
• Channels
• People
• Image
47
Market Segmentation
Topics
• Identifying possible
competitive advantages
• Choosing the right
competitive advantage
• Choosing a positioning
strategy
• How many differences to
promote?
• Unique selling proposition
• Several benefits
• Which differences to promote?
Criteria include:
• Important
• Distinctive
• Superior
• Communicable
• Preemptive
• Affordable
• Profitable
48
Market Segmentation
Topics
• Identifying possible
competitive advantages
• Choosing the right competitive
advantage
• Choosing a positioning
strategy
• Value propositions represent
the full positioning of the brand
• Possible value propositions:
• More for More
• More for the Same
• More for Less
• The Same for Less
• Less for Much Less
49
Developing a
Positioning Statement
• Positioning statements summarize
the company or brand positioning
• EXAMPLE: To (target segment and
need) our (brand) is (concept) that
(point-of-difference)
Relentless Pursuit Of Perfection
50
Communicating the
Positioning
• Companies must be certain to
DELIVER their value propositions.
• Positions must be monitored and
adapted over time.
51
TECHNOLOGY ADOPTION
CURVE
•Traditional Product Life Curve
•Same product
•Growth of market
•Product is retired / improved
•Can be 2-20 years
Product Cost
52
Week 5: Chapter 10
Market Segments
TECHNOLOGY ADOPTION CURVE
•Model that classifies adopters of innovations into various categories
53
Week 5: Chapter 10
Market Segments
TECHNOLOGY ADOPTION CURVE
™ Innovators
ƒ Brave people, willing to trial new products
ƒ Want satisfaction of having the most modern technology
ƒ Innovators are very important communication channel
3%
Innovators
Time
54
Week 5: Chapter 10
Market Segments
TECHNOLOGY ADOPTION CURVE
™ Early Adopters
Early
Adopters
13%
ƒ Younger, more educated
ƒ Respected opinion leaders within social networks
ƒ Experiment with new ways to use technology
Time
55
Week 5: Chapter 10
Market Segments
TECHNOLOGY ADOPTION CURVE
™ Early Majority
ƒ Practical people
ƒ Technology helps solve problems
ƒ Accept change more quickly than average
people
Early
Majority
34%
Time
56
Week 5: Chapter 10
Market Segments
TECHNOLOGY ADOPTION CURVE
™ Late Majority
ƒ Skeptical people
ƒ Will use new ideas or products only when the majority does
Late
Majority
34%
Time
57
Week 5: Chapter 10
Market Segments
TECHNOLOGY ADOPTION CURVE
™ Laggards
ƒ Stick to the "old ways“
ƒ Critical about new ideas
ƒ Must accept if old technology is not available
Laggards
16%
Time
58
Week 5: Chapter 10
Market Segments
TECHNOLOGY ADOPTION
CURVE
• Look more at needs and behavior of
consumer
™ Unless you get ‘majority’ to use your
technology, your product will fail!
Product
Cost
59
Week 5: Chapter 10
Market Segments
TECHNOLOGY ADOPTION CURVE
™ Businesses adoption curve for Internet in USA
Travel
Industry
News &
Publishing
Traditional
Retailers
Banking
Real Estate
Time
60
Week 5: Chapter 10
Market Segments
TECHNOLOGY ADOPTION CURVE
Digital Camera
News
Media
Advertising
Agencies,
Companies
w/ websites
Young Adults /
Amateur
Photographers
Families
Professional
Photographers /
Artists
Time
61
Week 5: Chapter 10
Market Segments
TECHNOLOGY ADOPTION CURVE
iPod / iTunes
62
Week 5: Chapter 10
Market Segments
Topic 10 – Pricing Decisions
Topic 8:
Price decisions
• Core issue: how can we set an
appropriate price for our product?
• Agenda:
•
•
•
•
The 3 Cs of pricing
Pricing objectives
Pricing strategies (methods)
Pricing tactics
64
The three Cs of
pricing
Price is the only ‘P’ that generates income!
• The critical considerations are:
• Customer demand (ideal top price)
• Competition (affects whether the top is possible)
• Cost (lowest, profitable price in short term)
+ corporate/marketing/pricing objectives
65
But what else affects how
prices are set?
• What would you pay for this
product? Why?
• What does the seller consider when
setting the price they will charge
customers for it?
66
Determining Price
• So:
• cost affects profit but not should not be used alone to
set price
• price is determined by (1) customers’ value and by
(2) competition
• price is set to achieve objectives
• we may need to consider impact on other products
• price is a clear measure of the health of the 4Ps mix67
How do businesses avoid
increasing prices?
•
•
•
•
Decrease the size/quantity of product instead
Include less expensive materials/inputs in the product
Reduce the number of features
Charge customers for add-on services previously ‘for
free’
• Reduce packaging expense
• Create ‘home-brand’ or ‘no name’ versions of a product
68
Source: Kotler & Keller (2006): p.458
Pricing Objectives
• Financial: ROI, profits, sales volume,
cost recovery - short/long term
• Competitive: market share, image,
price leader, discourage entry
• Customer orientated: image
(prestige, fair) build loyalty
69
PRICING OBJECTIVE
• Determine Pricing Objective
• Survival
•
•
If over-capacity, intense competition
Short-term objective, must re-adjust to
survive long-term
• Maximize Profit
•
•
Maximize current performance
Must anticipate long-term reaction by
competitors, customers
70
Week 7: Chapters 14 & 16
Products, Branding, Pricing
PRICE SENSITIVITY
• Demand - Price Sensitivity
• Products purchased more often are
sensitive
• Products with high prices are more
sensitive
71
Week 7: Chapters 14 & 16
Products, Branding, Pricing
Pricing Strategy
Two general approaches:
1. Cost-based pricing
•
•
•
•
mark-up pricing
marginal pricing
break-even analysis
target ROI
72
Case Study
Priceline.com
• “Buyer-driven
commerce” concept
offers lower prices to
consumers and the
ability to sell excess
inventory to sellers
• 13.5 million user
customer base
• Tremendous growth
• Most deals relate to
travel or time
sensitive / perishable
services
• Not all ventures have
been profitable
• Some customers find
it difficult to commit
to purchase prior to
learning details
73
Definition
• Price
• The amount of money charged for a
product or service, or the sum of the
values that consumers exchange for the
benefits of having or using the product or
service.
74
What is Price?
Price Has Many Names
•
•
•
•
•
Rent
Fee
Rate
Commission
Assessment
•
•
•
•
•
Tuition
Fare
Toll
Premium
Retainer
• Bribe
• Salary
• Wage
• Interest
• Tax
75
Goal 1: Identify and define internal factors affecting pricing decisions
What is Price?
• Dynamic Pricing on the Web allows SELLERS to:
• Monitor customer behavior and tailor offers.
• Change prices on the fly to adjust for changes in
demand or costs.
• Aid consumers with price comparisons.
• Negotiate prices in online auctions and exchanges.
76
What is Price?
• Price and the Marketing Mix:
• Only element to produce revenues
• Most flexible element
• Can be changed quickly
• Common Pricing Mistakes
• Reducing prices too quickly to get sales
• Pricing based on costs, not customer value
77
Break
78
Factors to Consider When
Setting Price
Internal Factors
•
•
•
•
Marketing objectives
Marketing mix strategies
Costs
Organizational
considerations
• Market positioning
influences pricing strategy
• Other pricing objectives:
• Survival
• Current profit
maximization
• Market share leadership
• Product quality
leadership
79
Factors to Consider When
Setting Price
Internal Factors
•
•
•
•
Marketing objectives
Marketing mix strategies
Costs
Organizational
considerations
• Pricing must be carefully
coordinated with the other
marketing mix elements
• Target costing is often used
to support product
positioning strategies
based on price
• Nonprice positioning can
also be used
80
Factors to Consider When
Setting Price
Internal Factors
•
•
•
•
Marketing objectives
Marketing mix strategies
Costs
Organizational
considerations
• Types of costs:
• Variable
• Fixed
• Total costs
• How costs vary at different
production levels will
influence price setting
• Experience (learning) curve
affects price
81
Factors to Consider When
Setting Price
Internal Factors
•
•
•
•
Marketing objectives
Marketing mix strategies
Costs
Organizational
considerations
•
Who sets the price?
• Small companies: CEO or
top management
• Large companies:
Divisional or product line
managers
•
Price negotiation is common in
industrial settings where pricing
departments may be created
82
Factors to Consider When
Setting Price
External Factors
• Nature of market and
demand
• Competitors’ costs, prices,
and offers
• Other environmental
elements
•
Types of markets
•
•
•
•
•
•
Pure competition
Monopolistic competition
Oligopolistic competition
Pure monopoly
Consumer perceptions of price
and value
Price-demand relationship
• Demand curve
• Price elasticity of demand
83
Factors to Consider When
Setting Price
•
External Factors
• Nature of market and
demand
• Competitors’ costs, prices,
and offers
• Other environmental
elements
•
Consider competitors’ costs, prices,
and possible reactions
Pricing strategy influences the
nature of competition
• Low-price low-margin
strategies inhibit competition
• High-price high-margin
strategies attract competition
•
Benchmarking costs against the
competition is recommended
84
Factors to Consider When
Setting Price
External Factors
• Nature of market and
demand
• Competitors’ costs, prices,
and offers
• Other environmental
elements
• Economic conditions
• Affect production costs
• Affect buyer perceptions
of price and value
• Reseller reactions to prices
must be considered
• Government may restrict or
limit pricing options
• Social considerations may
be taken into account
85
Pricing concepts
• Demand curve (assumes other things held constant and so is
rarely available in the real world for a firm)
» Price sensitivity - not so if
distinctive/differentiated, few substitutes,
differences hard to compare, price is small, small
part of total expenditure cost or of income
• Price elasticity of demand is similar to price sensitivity but is
more precise - it is is % change in units demanded for a 1 %
change in price
• Inelastic or elastic? elasticities of a loaf of ordinary bread and
a bottle of wine?
• Note inverse price elasticity like perfume
86
PRICE SENSITIVITY
• Demand - Price Sensitivity
• Products purchased more often are
sensitive
• Products with high prices are more
sensitive
87
Week 7: Chapters 14 & 16
Products, Branding, Pricing
General Pricing Approaches
• Cost-Based Pricing: Cost-Plus
Pricing
• Adding a standard markup to cost
• Ignores demand and competition
• Popular pricing technique because:
•
•
•
It simplifies the pricing process
Price competition may be minimized
It is perceived as more fair to both
buyers and sellers
88
General Pricing Approaches
Cost-Based Pricing Example
- Variable costs: $20
- Fixed costs: $ 500,000
- Expected sales: 100,000 units - Desired Sales Markup: 20%
Variable Cost + Fixed Costs/Unit Sales = Unit Cost
$20 + $500,000/100,000 = $25 per unit
Unit Cost/(1 – Desired Return on Sales) = Markup Price
$25 / (1 - .20) = $31.25
89
General Pricing Approaches
• Cost-Based Pricing: Break-Even Analysis and
Target Profit Pricing
• Break-even charts show total cost and total
revenues at different levels of unit volume.
• The intersection of the total revenue and total
cost curves is the break-even point.
• Companies wishing to make a profit must
exceed the break-even unit volume.
90
Other Pricing Tactics
To achieve specific short term
objectives
e.g.:
ƒ move high stocks
ƒ attract more customers
ƒ create product awareness
ƒ encourage trial
91
PRICING OBJECTIVE
• Determine Pricing Objective
• Maximize Market Share (Market Penetration)
•
•
Believe more sales will lower costs, increase long-term profit
Assumes price sensitive market
• Market Skimming
•
•
•
New technology allows high pricing to capture known demand
Maximize price consumer willing to pay
SONY HDTV: 1990 price $43,000 / 2001 price $2,000
• Product-Quality Leader
•
•
Maytag washing machine never need repair
New product quality leadership built around features
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Week 7: Chapters 14 & 16
Products, Branding, Pricing
PRICING METHODS
• Markup Pricing (Cost Plus)
• Add standard % markup to product
cost
• Does not need minimum volume to set
price
• ROI Pricing
• Price is determined by ROI % target
• Assumes minimum volume to reach
ROI targets
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Week 7: Chapters 14 & 16
Products, Branding, Pricing
General Pricing Approaches
• Value-Based Pricing:
• Uses buyers’ perceptions of value rather
than seller’s costs to set price.
• Measuring perceived value can be difficult.
• Consumer attitudes toward price and quality
have shifted during the last decade.
• Value pricing at the retail level
• (EDLP) vs. high-low pricing
94
PRICING METHODS
• Perceived-Value Pricing
• Pay premium for BRAND
•
•
Reliability, durability, warranty, service
Catepillar tractors, Maytag washing
machines
• Value Pricing
• Relatively low-price for good quality
•
•
IKEA
Wal-Mart
• ‘Everyday Low Pricing’
•
Little or no promotions
95
Week 7: Chapters 14 & 16
Products, Branding, Pricing
PRICING METHODS
• Going-Rate Pricing
• Price based upon competitors
• Smaller firms follow market leader
• Reflects collective wisdom of
market players
• Auction Pricing
• Several varieties
• Online auctions can include
millions bidders
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Week 7: Chapters 14 & 16
Products, Branding, Pricing