Kotler summary pooja_goel

Follower: Pooja Goel
IMT Ghaziabad

❑ A/c to The American Marketing Association: Marketing is the activity, set of
institutions, and processes for creating, communicating, delivering, and exchanging
offerings that have value for customers, clients, partners, and society at large
❑ Marketing management as the art and science of choosing target markets and
getting, keeping, and growing customers through creating, delivering, and
communicating superior customer value
❑ Aim of marketing is to:
• to make selling superfluous
• to know and understand the customer so well that the product fits him and sells
itself
❑ Marketers market 10 main types of entities: goods, services, events, experiences,
persons, places, properties, organizations, information, and ideas
Nonexistent demand—Consumers may be unaware of or uninterested in the product
Latent demand—Consumers may share a strong need that cannot be satisfied by an
existing Product
Unwholesome demand—Consumers may be attracted to products that have undesirable
social consequences
❑ Needs are the basic human requirements such as for air, food, water, clothing, and
shelter. Humans also have strong needs for recreation, education, and
entertainment
❑ Needs become Wants when they are directed to specific objects that might satisfy
the need. consumer needs food but may want a Pizza and an iced tea.
❑ Demands are wants for specific products backed by an ability to pay. Many people
want a Mercedes; only a few are able to buy one.
❑ Process of STP:
• Dividing the market into segments based on geographic, demographic,
psychographic, and behavioral differences
• Decides which segment present the greatest opportunities - target markets
• Develop a market offering that it positions in the minds of the target buyers
❑ The buyer chooses the offerings he perceives to deliver the most value
• Value = sum of the tangible and intangible benefits and costs
• Value, a central marketing concept, is primarily a combination of quality,
service, and price (qsp), called the customer value triad.
• Value perceptions increase with quality and service but decrease with price.
❑ To reach a target market, the marketer uses three kinds of marketing channels:
Communication channels deliver and receive messages from target buyers and
include newspapers, magazines, radio, television, mail, telephone, billboards etc.
Distribution channels to display, sell, or deliver the physical product or service(s) to
the buyer or user. These channels may be direct via the Internet, mail, or mobile
Service channels that include warehouses, transportation companies, banks, and
insurance companies
❑ Coca-Cola is fundamentally changing the way it does marketing by adding
strong digital component. The new model is based on moving consumers from
impressions to expressions to conversations to transactions
Production Concept: It holds that consumers prefer products that are widely
available and inexpensive, have high production efficiency, low costs, and mass
distribution, use the production concept when they want to expand the market. Ex:
Lenovo Group & Haier take advantage of the China’s huge and inexpensive labor
pool to dominate the market
Product concept proposes that consumers favor products offering the most quality,
performance, or innovative features, believing a better product will by itself lead
people to beat a path to their door
Selling concept holds that consumers and businesses, if left alone, won’t buy
enough of the organization’s products. Ex: goods buyers don’t normally think of
buying such as insurance
Chapter 1 Defining Marketing for the New Realities

Marketing concept: to find not the right customers for your products, but
the right products for your customers. Dell provides product platforms to
customizes the features
Holistic Marketing Concept: based on the development, design, and
implementation of marketing programs, processes, and activities that
recognize their breadth and interdependencies. It recognizes that
everything matters in marketing. Four components of holistic marketing are
relationship marketing, integrated marketing, internal marketing, and
socially responsible marketing.
❑ McCarthy the four Ps of marketing: product, price, place, and
promotion
Chapter 1 Defining Marketing for the New Realities
❑ Modern Marketing talks about:
• People reflects, in part, internal marketing and the fact that employees are critical to
marketing
• Processes reflects all the creativity, discipline, and structure brought to marketing
• Programs reflects all the firm’s consumer-directed activities. It encompasses the old four
Ps as well as a range of other marketing activities
• performance as in holistic marketing, to capture the range of possible outcome measures
that have financial and nonfinancial implications
❑ Tasks necessary for successful marketing Management:
Developing marketing strategies and plans capturing marketing insights, connecting with
customers, building strong brands, shaping the market offerings, delivering and
communicating value, and creating long-term growth

❑ Value delivery process by marketing:
• Choosing the value: segment the market, select target and develop positioning
• Provide the value: identify specific product features, price, and distribution
• Communicate value: advertising, sales force, internet etc.
❑ Value chain is a tool for identifying ways to create more customer value. 5 primary
activities(inbound logistics, operations, outbound logistics, marketing, services and 4
secondary (procurement, tech development, HRM, firm infra) activities
❑ Core competency has 3 characteristics: It is
I. Source of competitive advantage and significant customer benefits
II. Has application in wide variety of markets
III. Difficult for competitors to copy and replicate
❑ Companies Organizational levels:
➢ Corporate: To design a corporate strategic plan to guide whole enterprise
➢ Division: A plan to allocate funds to each BU within division
➢ Business Unit: To carry that BU into a profitable future
➢ Product: Develop a marketing plan to achieve its objectives
❑ Tactical marketing plan specifies the marketing tactics 4Ps
❑ Strategic marketing plan lays out target market and firm’s value proposition, based on
analysis of best market opportunity
Corporate level planning activities:
1. Define the corporate mission: Mission statement provides shared sense of purpose,
direction and opportunity
2. Establish strategic business unit: an SBU should be
• Can be planned separately from rest of the company
• Has its own set of competitors
• Has separate responsibility and managers assigned
3. Allocate resources to each BU:
✓ GE McKinsey matrix classifies each SBU by extent of its competitive advantage and the
attractiveness of the industry
✓ BCG Growth share matrix uses relative market share and annual rate of market growth
as criteria for decision in classifying SBUs as dogs, cash cows, question mark and stars
✓ Take a decision for each SBU either to grow, harvest (draw cash from), or Hold
4. Assess growth opportunities: Planning new businesses, downsizing, and
terminating older businesses. If there is a gap between future desired sales and
projected sales, develop or acquire new businesses to fill it:
Intensive Growth: to identify opportunities for growth within current businesses:
“product-market expansion grid:
Gain more market share with its current products in their current markets, using a
Market-penetration Strategy.
Find or develop new markets for its current products market-development Strategy
Develop new products of potential interest to its current markets: Product-
development Strategy
To develop new products for new markets in a diversification strategy
Integrative Growth: to identify opportunities to build or acquire businesses related
to current businesses :
Acquire one or more of its suppliers, to gain more control or generate more profit
through Backward Integration
Acquire some wholesalers or retailers, especially if they are highly profitable, in
Forward Integration
Acquire one or more competitors, in Horizontal Integration
Diversification: to identify opportunities to add attractive unrelated businesses:
when good opportunities exist outside the present businesses—the industry is
highly attractive and the company has the right mix of business strengths to
succeed:
Chapter 2 Developing Marketing Strategy and Plans
• Concentric Strategy: seek new
products that have technological or
marketing synergies with existing
product lines, though appealing to a
different group of customers
• Horizontal Strategy: to search for
unrelated new products that appeal to
current customers
• Conglomerate Strategy : seek new
businesses that have no relationship
to its current technology, products, or
markets
MOSP

Market opportunity analysis (MOA):
The best marketing opportunities appear
in cell (#1). The opportunities in cell (#4)
are too minor to consider
The opportunities in cell (#2) and (#3)
are worth monitoring in the event that
any improve in attractiveness and
potential.
Chapter 2 Developing Marketing Strategy and Plans
Business Unit Strategic planning:
1. The Business Mission: Each business unit needs to define its specific mission
within the broader company mission
2. SWOT Analysis: It’s a way of monitoring the external and internal environment.
External Environment (Opportunity And Threat) Analysis: A business unit must
monitor key macroenvironment forces and significant microenvironment factors that
affect its ability to earn profits
❑ Internal Environment (Strengths And Weaknesses) Analysis: It’s one thing to
find attractive opportunities, and another to be able to take advantage of them
A marketing opportunity is an area of buyer need and interest that a company has a
high probability of profitably satisfying. 3 main sources of market opportunities:
• The first is to offer something that is in short supply
• The second is to supply an existing product or service in a new or superior way
• Third to launch a totally new product or service
An environmental threat is a challenge posed by an unfavorable trend or
development that, in the absence of defensive marketing action
3. Goal Formulation: Goals are objectives that are specific wrt magnitude and time.
4. Strategic Formulation: strategy is a game plan to achieve goals, Every business strategy
consisting of a marketing strategy, a compatible technology strategy and sourcing
strategy.
Michael Porter has proposed three generic strategies:
Overall cost leadership: Firms work to achieve the lowest production and distribution
costs so they can underprice competitors and win market share. The problem is that other
firms will usually compete with still-lower costs and hurt the firm
Differentiation: The business concentrates on achieving superior performance in an
important customer benefit area valued by a large part of the market. The firm seeking
quality leadership
Focus: The business focuses on one or more narrow market segments, gets to know them
intimately, and pursues either cost leadership or differentiation within the target
segment.
Strategic Alliances:
Product/service alliances: One company licenses another to produce its product, or two
companies jointly market their complementary products or a new product. Credit card
Promotional alliances: One company agrees to carry a promotion for another company’s
product or service. McDonald’s teamed up with Disney
Logistics alliances: One company offers logistical services for another company’s product.
Pricing collaborations: One or more companies join in a special pricing collaboration.
Hotel and rental car companies often offer mutual price discounts.
5. Program Formulation and Implementation: According to McKinsey & Company,
strategy is only one of seven elements—all of which start with the letter s—in successful
business
The first three: strategy, structure, and systems are considered the “hardware”
The next four: style, skills, staff, and shared values—are the “software” of success
The first “soft” element, style, means company employees share a common way of
thinking and behaving. The second, skills, means employees have the skills needed to
carry out the company’s strategy. Staffing means the company has hired able people,
trained them well, and assigned them to the right jobs. The fourth element, shared
values, means employees share the same guiding values.
6. Feedback and Control
MOSP

❑ Customer-perceived value (CPV) is the difference between
the prospective customer’s evaluation of all the benefits and
all the costs of an offering and the perceived alternatives.
❑ Total customer benefit is the perceived monetary value of
the bundle of economic, functional, and psychological
benefits customers expect from a given market offering
because of the product, service, people, and image.
❑ Total customer cost is the perceived bundle of costs
customers expect to incur in evaluating, obtaining, using, and
disposing of the given market offering, including monetary,
time, energy, and psychological costs.
❑ Customer-perceived value is thus based on the difference
between benefits the customer gets and costs he or she
assumes for different choices. The marketer can increase the
value of the customer offering by raising economic,
functional, or emotional benefits and/or reducing one or
more costs.
❑ Conduct a customer value analysis
▪ Identify the major attributes and benefits customers value
▪ Assess the quantitative importance of the different attributes
and benefits
▪ Assess the company’s and competitors’ performances on the
different customer values against their rated importance
▪ Examine how customers in a specific segment rate the
company’s performance against competitors
▪ Monitor customer values over time
Permission marketing, the practice of marketing to consumers
only after gaining their expressed permission, is based on the
premise that marketers can no longer use “interruption
marketing” via mass media campaigns.
❑ Oliver defines loyalty as “a deeply held commitment to rebuy or repatronize a
preferred product or service in the future despite situational influences and
marketing efforts having the potential to cause switching behavior
❑ The value delivery system includes all the experiences the customer will have on
the way to obtaining and using the offering
Customer satisfaction is a person’s feelings of pleasure or disappointment that result
from comparing a product’s perceived performance (or outcome) to expectations.
• If the performance falls short of expectations, the customer is dissatisfied. If it
matches expectations, the customer is satisfied. If it exceeds expectations, the
customer is highly satisfied or delighted.
• If marketer raise expectations too high, the buyer is likely to be disappointed. If it
sets expectations too low, it won’t attract enough buyers
• Periodic surveys can track customer satisfaction directly and ask additional
questions to measure repurchase intention and the respondent’s likelihood or
willingness to recommend the company and brand to others.
Customer profitability analysis (CPA) is best conducted with the tools of an
accounting technique called activity-based costing (ABC). ABC accounting tries to
identify the real costs associated with serving each customer—the costs of products
and services based on the resources they consume. The company estimates all
revenue coming from the customer, less all costs. ABC also allocates indirect costs like
clerical costs, office expenses, supplies, and so on, to the activities that use them,
rather than in some proportion to direct costs
Customer relationship management (CRM) is the process of carefully managing
detailed information about individual customers and all customer “touch points” to
maximize loyalty.
❑ A customer touch point is any occasion on which a customer encounters the
brand and product
❑ four-step framework for one-to-one marketing that can be adapted to CRM
• Identify your prospects and customers
• Differentiate customers in terms of (1) their needs and (2) their value to company
• Interact with individual customers to know their needs and to build relationships
• Customize products, services, and messages to each customer
Chapter 3 Creating Long-Term Loyality Relationships

Chain-ratio method
Ways to get Market Intelligence and insights:
• Train and motivate the sales force to spot and report new developments.
• Motivate distributors, retailers, and other intermediaries to pass along
important intelligence.
• Hire external experts to collect intelligence.
• Network internally and externally.
• Set up a customer advisory panel.
• Take advantage of government-related data resources.
• Purchase information from outside research firms and vendors.
A fad is “unpredictable, short-lived, and without social, economic, and political
significance.”A company can cash in on a fad such as Crocs clogs, Elmo TMX dolls,
and Pokémon gifts etc
A Trend is more predictable and durable than a fad; trends reveal the shape of
the future and can provide strategic direction. Ex. trend toward health and
nutrition
PESTEL Analysis
❑ The potential market is the set of consumers with a sufficient level of interest
in a market offer
❑ The available market is the set of consumers who have interest, income, and
access to a particular offer
❑ The target market is the part of the qualified available market the company
decides to pursue
❑ The penetrated market is the set of consumers who are buying the
company’s product
❑ Market demand for a product is the total volume that would be bought by a
defined customer group in a defined geographical area in a defined time
period in a defined marketing environment under a defined marketing
program.
❑ A sales quota is the sales goal set for a product line, company division, or
sales representative
❑ A sales budget is a conservative estimate of the expected volume of sales,
primarily for making current purchasing, production, and cash flow decisions
Estimating Current Demand To estimate current demand, companies attempt to
determine total market potential, area market potential, industry sales, and market share
Chapter 4 Collecting Information and Forecasting Demand
Market-Buildup Method
Identify all the potential buyers in each market and estimating their potential purchases. It
produces accurate results if we have a list of all potential buyers and a good estimate of
what each will buy. Unfortunately, this information is not always easy to gather.
Multiple-Factor Index Method
consumer companies also need to estimate area market potentials, but since their
customers are too numerous to list they commonly use a straightforward index. to develop
a multiple-factor index and assign each factor a specific weight
Estimating Future Demand To estimate future demand, companies survey buyers’
intentions , solicit their sales force’s input, gather expert opinions, analyze past sales, or
engage in market testing
• Survey of buyers’ intentions
• Composite of sales force opinions
• Expert opinion
Past-sales analysis: Timeseries analysis breaks past time series into four components
(trend, cycle, seasonal, and erratic) and projects them into the future.
Exponential smoothing projects the next period’s sales by combining an average of past
sales and the most recent sales, giving more weight to the latter.
Statistical demand analysis measures the impact of a set of causal factors (such as income,
marketing expenditures, and price) on the sales level.
Econometric analysis builds sets of equations that describe a system and statistically
derives the different parameters that make up the equations statistically
• Market-test method

Secondary data are data that were collected for another purpose and already exist somewhere.
Primary data are data freshly gathered for a specific purpose or for a specific research project
Observational research researchers can gather fresh data by observing the relevant actors and
settings unobtrusively as they shop or consume products
Ethnographic research is a observational research approach that uses concepts and tools from
anthropology and other social science disciplines to provide deep cultural understanding of how
people live and work
Focus group discussions
Survey research
BEHAVIORAL RESEARCH customers leave traces of their purchasing behavior in store scanning data,
catalog purchases, and customer databases.
Experimental research: designed to capture cause-and-effect relationships by eliminating
competing
Explanations of the observed findings
Research instruments:
Questionnaire: closed-end questions specify all the possible answers and provide answers that are
easier to interpret and tabulate. Open-end questions allow respondents to answer in their own
words and often reveal more about how people think.
Qualitative measures:
• Word associations
• Projective techniques
• Visualization
• Brand personification
• Laddering
❑ Decide how to contact the subjects: by mail, by telephone, in person, or online: embed a
questionnaire on its Web site and offer an incentive to answer it, or it can place a banner on a
frequently visited site such as YouTube, inviting people to answer some questions and possibly
win a prize
❑ marketing decision support system (MDSS) as a coordinated collection of data, systems, tools,
and techniques, with supporting software and hardware, by which an organization gathers and
interprets relevant information from business and environment and turns it into a basis for
marketing action.
Chapter 5 Conducting Market Research BRM

Stimulus-Response model of
Consumer Behavior
❑ Consumer’s buying behavior is influenced by cultural, social and personal factors.
• Each culture consists of subcultures that provides identification and socialization
• Reference groups are the ones that have direct and indirect influence on their
attitude and behavior.
• Aspirational groups are those a person hopes to join, dissociative groups are
those that values or behavior one rejects
❑ Gladwell’s 3 factors : 1) Law of the few 2) Stickiness 3) Power of context
Shill/stealth marketing pays people to anonymously promote a product in public
place without disclosing their financial relationship to the sponsoring firm.
❑ Aaker’s Brand personality Traits:
• Sincerity( down to earth, hones, cheerful) – Campbell’s soup
• Excitement( daring, spirited, imaginative, up to date) – MTV
• Competence(reliable, intelligent and successful) – CNN
• Sophistication ( upper class, charming)
• Ruggedness( outdoorsy, tough) – Levi’s
❑ Two major lifestyle of consumers- Money constrained and Time constrained
❑ Core values are the belief system that underline attitudes and behaviors, goes
much deeper at a basic level guide people’s choice and desire in long term
❑ A belief is a descriptive thought that a person hold about something, An attitude
is a person’s enduring favorable or unfavorable evaluations, emotional feelings,
and action tendencies toward some object or idea
Four key psychological process – motivation, perception, learning, memory
1) Motivation
Freud’s Theory states psychological forces shaping people’s behavior are largely
unconscious. Laddering is used to trace person’s motivations from stated
instrumental ones to more terminal ones.
Maslow’s Theory
Herzberg’s Theory – Two factor theory : first dissatisfiers and second satisfiers.
The absence of dissatisfier is not enough to motivate a purchase
2) Perception – a process by which we select, organize and interpret information
input to create a meaningful picture of the world. Sensory marketing engages the
consumer’s senses and affects their perception, judgement and behavior. First SM
can be used subconsciously shape consumer perceptions of more abstract
qualities of product like Aaker’s brand traits and second to affect the perception of
specific attributes of product like color, shape
1) Selective Attention
2) Selective distortion
3) Selective Retention
4) Selective Perception
3) Learning – change in behavior arising from experiences. LT believes learning is
produced through the interplay of drives, stimuli, cues, responses and
reinforcement
4) Memory – Associative network Memory Model – views long term memory as set
of nodes (stored information) and links (vary in strength) – Mental map for a brand
Chapter 6 Analyzing Consumer Behavior CB

❑ Expectancy Value Model of attitude formation – consumer evaluates
products by combining the brand beliefs – the +ves and –ves
according to their importance.
❑ Techniques to convert a low-involvement product into high
involvement:
• Link the product to a personal situation (fruit juice with calcium)
• Link the product to an engaging issue (Toothpaste – to remove
cavities)
• Advertise to trigger strong emotion related to personal values or ego
defense
• Add an important feature ( GE lightbulbs introduced soft white lights)
❑ People can be initiator, influencers, deciders, buyers or users.
❑ A consumer’s decision to modify, postpone, or avoid a purchase
decision is heavily influenced by one or more types of perceived risk:
• Functional Risks
• Physical Risks
• Financial Risks
• Social Risks
• Psychological risks – product affects mental well being of the user
• Time Risks – opportunity cost of finding another satisfactory product
Chapter 6 Analyzing Consumer Behavior
Customer Decision
Journey
By gathering information, the consumer learns about
competing brands and their features
Major information sources to which consumers will turn fall
into four groups:
• Personal. Family, friends, neighbors, acquaintances
• Commercial. Advertising, Web sites, salespersons
• Public. Mass media, consumer-rating organizations
• Experiential. Handling, examining, using the product
Steps between Evaluation of alternatives
and Purchase decision: consumers often
take “mental shortcuts” called heuristics or
rules of thumb in the decision process.
three choice heuristics here:
✓ Conjunctive heuristic: consumer sets a
minimum acceptable cutoff level for
each attribute and chooses the first
alternative that meets the minimum
standard for all attributes
✓ Lexicographic heuristic: consumer
chooses the best brand on the basis of
its perceived most important attribute.
✓ Elimination-by-aspects heuristic:
consumer compares brands on an
attribute selected probabilistically—
where the probability of choosing an
attribute is positively related to its
importance—and eliminates brands that
do not meet minimum acceptable
cutoffs.
CB

The business market consists of all the organizations that acquire goods and services
used in the production of other products or services that are sold, rented, or supplied
to others.
Challenges faced by business-to-business firms
1. Understanding deep customer needs in new ways;
2. Identifying new opportunities for organic business growth;
3. Improving value management techniques and tools;
4. Calculating better marketing performance and accountability metrics;
5. Competing and growing in global markets, particularly China;
6. Countering the threat of product and service commoditization by bringing
innovative offerings to market faster and moving to more competitive business
models;
7. Convincing C-level executives to embrace the marketing concept and support
robust marketing programs.
Three types of buying situations are the straight rebuy, modified rebuy, and new task
the decision-making unit of a buying organization the buying center.
Initiators—Users or others in the organization who request that something be
purchased.
2. Users—Those who will use the product or service. In many cases, the users initiate
the buying proposal and help define the product requirements.
3. Influencers—People who influence the buying decision, often by helping define
specifications and providing information for evaluating alternatives.
4. Deciders—People who decide on product requirements or on suppliers.
5. Approvers—People who authorize the proposed actions of deciders or buyers.
6. Buyers—People who have formal authority to select the supplier and arrange the
purchase terms.
7. Gatekeepers—People who have the power to prevent sellers or information from
reaching members of the buying center.
The buying process consists of eight stages called
buyphases:
(1) Problem Recognition
(2) General Need Description,
(3) Product Specification,
(4) Supplier Search,
(5) Proposal Solicitation,
(6) Supplier Selection,
(7) Order routine Specification
(8) Performance Review
❑ Solution selling can also alleviate price pressure and comes in different forms:
✓ Solutions to Enhance Customer Revenues.
✓ Solutions to Decrease Customer Risks.
✓ Solutions to Reduce Customer Costs.
❑ The institutional market consists of schools, hospitals, nursing homes, prisons,
and other institutions that provide goods and services to people in their care.
Chapter 7 Analyzing Business Markets B2B Marketing

❑ Reasons why a company should go global
• Better profit opportunity then domestic
• Large customer base to achieve economies of scale
• Reduce its dependence on any one market
• To counterattack global competitor in home market
❑ 4 stages of Internationalization process:
• No regular export activates
• Export via agents
• Establishment of one or more sales subsidiary
• Establishment of production facilities abroad
❑ Major decision to go in international markets:
• Whether to go abroad – Global entry strategies are
Waterfall model – gradually enter into countries in sequence – BMW, GE,
Benetton
Sprinkle Model – enter many countries simultaneously – Microsoft launched in 42
countries
• Which markets to enter –
Neighborhood courtiers: 2 largest US export markets are Canada and Mexico
Psychic proximity: More familiar language, laws and culture – US prefer to enter
England, Australia rather than France, Germany
• How to enter the market
Indirect & Direct Export - To test the water in the new country
Licensing – Licensor issue a license to foreign company to use a manufacturing
process, trademark, patent, etc. for a fee or royalty
Contract Manufacturing – The firm hires local manufactures to produce the
product. Ex: Volkswagen
Franchising – more complete form of licensing with more brand concepts and
operating system Ex: McDonalds
Joint Venture- share the ownership and control GE capital views JV as most
powerful strategic tool
Acquisition: Acquire local brands for their brand portfolio – Walmart- Flipkart
Direct Ownership – company buys local company or build its manufacturing facility in new
country. 5 major benefits to the firm:
i. Secure cost economies through cheaper labor or raw material
ii. Strengthen its image in host country as it create jobs
iii. Deepens its relationship with Govt., customer, suppliers, retailers etc.
iv. Retains full control over its investments and policies
v. Ensure security in case of change in trade policies
The market strategy:
Chapter 8 Tapping Into Global Markets
Global Pricing Strategies:
• Set a uniform price everywhere: Online Training Courses, E-Commerce
• Set a market based price in each country: This ignores difference in actual cost from
country to country
• Set a cost based price in each country: markup of cost, but it might price it out of
markets where its costs are high
❑ Pricing Problems in International markets:
• Grey Markets – which diverts branded products from authorized distributor channels to
across international boarders to take advantage of price difference. Free Rider problem
in supply chain
• Counterfeits: Microsoft estimates that fourth-fifth of Windows OS software in China is
pirated
❑ Country of origin plays role in mental association and perceptions like Swizz watch,
Japan consumer electronics, USA tech, France perfumes
International M

Chapter 9 Identifying Market Segments and Targets
❑ Two bases for segmenting consumer markets are consumer characteristics and
consumer responses.
❑ We can target markets at four main levels: mass, multiple segments, single (or niche)
segment, and individuals
❑ A market segment consists of a group of customers who share a similar set of needs
and wants.
❑ The major segmentation variables—geographic, demographic, psychographic, and
behavioral segmentation:
Geographic segmentation divides the market into geographical units such as nations,
states, regions, counties, cities, or neighborhoods. The company can operate in one or a
few areas, or it can operate in all but pay attention to local variations
Demographic segmentation: Divide the market on variables such as age, family size,
family life cycle, gender, income, occupation, education, religion, race, generation,
nationality, and social class. demographic variables are so popular with marketers is that
they’re often associated and they’re easy to measure
Psychographic segmentation: buyers are divided into different groups on the basis of
psychological/personality traits, lifestyle, or values. People within the same demographic
group can exhibit very different psychographic profiles. Best classification systems based
on psychographic measurements is Strategic Business Insight’s (SBI) VALS™ framework
Behavioral segmentation: divides buyers into groups on the basis of their knowledge of,
attitude toward, use of, or response to a product. needs and benefits, usage-related
variables: occasions, user status, usage rate
• Decision roles: people play five roles in a buying decision: initiator, influencer,
decider, buyer, and user
Loyalty Status Marketers usually envision four groups based on brand loyalty status:
1. Hard-core loyals—Consumers who buy only one brand all the time
2. Split loyals—Consumers who are loyal to two or three brands
3. Shifting loyals—Consumers who shift loyalty from one brand to another
4. Switchers—Consumers who show no loyalty to any brand
Some traditionally more male-oriented markets, such as the automobile industry, are
beginning to recognize gender segmentation and changing the way they design and sell
cars
Michael Porter’s five forces to determine long-run attractiveness of market
segment
1. Threat of intense segment rivalry—A segment is unattractive if it already
contains numerous, strong, or aggressive competitors. It’s even more unattractive if
it’s stable or declining, if plant capacity must be added in large increments, if fixed
costs or exit barriers are high, or if competitors have high stakes in staying in the
segment. These conditions will lead to frequent price wars, advertising battles, and
new-product introductions and will make it expensive to compete. The cellular
phone market has seen fierce competition due to segment rivalry.
2. Threat of new entrants—most attractive segment is one in which entry barriers
are high and exit barriers are low. Few new firms can enter the industry, and poorly
performing firms can easily exit.
• When both barriers are high, profit potential is high, but firms face more risk
because poorer-performing firms stay in and fight it out.
• When both barriers are low, firms easily enter and leave the industry, and
returns are stable but low.
• When entry barriers are low and exit barriers are high: firms enter during good
times but find it hard to leave during bad times. The result is chronic
overcapacity and depressed earnings for all. The airline industry has low entry
barriers but high exit barriers, leaving all carriers struggling during economic
downturns.
3. Threat of substitute products—A segment is unattractive when there are actual
or potential substitutes for the product. If technology advances or competition
increases in these substitute industries, prices and profits are likely to fall.
4. Threat of buyers’ growing bargaining power—A segment is unattractive if
buyers possess strong or growing bargaining power. when buyers’ switching costs
are low, when buyers are price-sensitive because of low profits, or when they can
integrate upstream. To protect themselves, sellers might select buyers who have
the least power to negotiate or switch suppliers.
5. Threat of suppliers’ growing bargaining power—A segment is unattractive if the
company’s suppliers are able to raise prices or reduce quantity supplied. Suppliers
tend to be powerful when they are concentrated or organized, when they can
integrate downstream, when there are few substitutes, when the supplied product
is an important input, and when the costs of switching suppliers are high.

The four groups with higher resources are:
1. Innovators—Successful, sophisticated, active, “take-charge” people with high self-esteem. Purchases often reflect cultivated tastes for relatively upscale, niche-oriented
products and services.
2. Thinkers—Mature, satisfied, and reflective people motivated by ideals and who value order, knowledge, and responsibility. They seek durability, functionality, and value in
products.
3. Achievers—Successful, goal-oriented people who focus on career and family. They favor premium products that demonstrate success to their peers.
4. Experiencers—Young, enthusiastic, impulsive people who seek variety and excitement. They spend a comparatively high proportion of income on fashion, entertainment, and
socializing.
The four groups with lower resources are:
1. Believers—Conservative, conventional, and traditional people with concrete beliefs. They prefer familiar, U.S.-made products and are loyal to established brands.
2. Strivers—Trendy and fun-loving people who are resource-constrained. They favor stylish products that emulate the purchases of those with greater material wealth.
3. Makers—Practical, down-to-earth, self-sufficient people who like to work with their hands. They seek U.S.-made products with a practical or functional purpose.
4. Survivors—Elderly, passive people concerned about change and loyal to their favorite brands
Chapter 9 Identifying Market Segments and Targets

Chapter 10 Crafting the Brand Positioning
❑ Two bases for segmenting consumer markets are consumer characteristics and
consumer responses.
❑ We can target markets at four main levels: mass, multiple segments, single (or niche)
segment, and individuals
❑ A market segment consists of a group of customers who share a similar set of needs
and wants.
❑ The major segmentation variables—geographic, demographic, psychographic, and
behavioral segmentation:
Geographic segmentation divides the market into geographical units such as nations,
states, regions, counties, cities, or neighborhoods. The company can operate in one or a
few areas, or it can operate in all but pay attention to local variations
Demographic segmentation: Divide the market on variables such as age, family size,
family life cycle, gender, income, occupation, education, religion, race, generation,
nationality, and social class. demographic variables are so popular with marketers is that
they’re often associated and they’re easy to measure
Psychographic segmentation: buyers are divided into different groups on the basis of
psychological/personality traits, lifestyle, or values. People within the same demographic
group can exhibit very different psychographic profiles. Best classification systems based
on psychographic measurements is Strategic Business Insight’s (SBI) VALS™ framework
Behavioral segmentation: divides buyers into groups on the basis of their knowledge of,
attitude toward, use of, or response to a product. needs and benefits, usage-related
variables: occasions, user status, usage rate
• Decision roles: people play five roles in a buying decision: initiator, influencer,
decider, buyer, and user
Loyalty Status Marketers usually envision four groups based on brand loyalty status:
1. Hard-core loyals—Consumers who buy only one brand all the time
2. Split loyals—Consumers who are loyal to two or three brands
3. Shifting loyals—Consumers who shift loyalty from one brand to another
4. Switchers—Consumers who show no loyalty to any brand
Some traditionally more male-oriented markets, such as the automobile industry, are
beginning to recognize gender segmentation and changing the way they design and sell
cars
Michael Porter’s five forces to determine long-run attractiveness of market
segment
1. Threat of intense segment rivalry—A segment is unattractive if it already
contains numerous, strong, or aggressive competitors. It’s even more unattractive if
it’s stable or declining, if plant capacity must be added in large increments, if fixed
costs or exit barriers are high, or if competitors have high stakes in staying in the
segment. These conditions will lead to frequent price wars, advertising battles, and
new-product introductions and will make it expensive to compete. The cellular
phone market has seen fierce competition due to segment rivalry.
2. Threat of new entrants—most attractive segment is one in which entry barriers
are high and exit barriers are low. Few new firms can enter the industry, and poorly
performing firms can easily exit.
• When both barriers are high, profit potential is high, but firms face more risk
because poorer-performing firms stay in and fight it out.
• When both barriers are low, firms easily enter and leave the industry, and
returns are stable but low.
• When entry barriers are low and exit barriers are high: firms enter during good
times but find it hard to leave during bad times. The result is chronic
overcapacity and depressed earnings for all. The airline industry has low entry
barriers but high exit barriers, leaving all carriers struggling during economic
downturns.
3. Threat of substitute products—A segment is unattractive when there are actual
or potential substitutes for the product. If technology advances or competition
increases in these substitute industries, prices and profits are likely to fall.
4. Threat of buyers’ growing bargaining power—A segment is unattractive if
buyers possess strong or growing bargaining power. when buyers’ switching costs
are low, when buyers are price-sensitive because of low profits, or when they can
integrate upstream. To protect themselves, sellers might select buyers who have
the least power to negotiate or switch suppliers.
5. Threat of suppliers’ growing bargaining power—A segment is unattractive if the
company’s suppliers are able to raise prices or reduce quantity supplied. Suppliers
tend to be powerful when they are concentrated or organized, when they can
integrate downstream, when there are few substitutes, when the supplied product
is an important input, and when the costs of switching suppliers are high.

Chapter 11 Creating Brand Equity
❑ The strategic brand management process has four main steps:
• Identifying and establishing brand positioning
• Planning and implementing brand marketing
• Measuring and interpreting brand performance
• Growing and sustaining brand value deals with brand positioning.
❑ The American Marketing Association defines a brand as “a name, term, sign, symbol,
or design, or a combination of them, intended to identify the goods or services of
one seller or group of sellers and to differentiate them from those of competitors
❑ The launch of New Coke provoked a national uproar. Market researchers had
measured the taste but failed to measure the emotional attachment consumers had
to Coca-Cola
❑ Brand equity is the added value endowed on products and services. It may be
reflected in the way consumers think, feel, and act with respect to the brand, as well
as in the prices, market share, and profitability the brand commands
Brand Assets Valuator: There are four pillars of brand equity:
Energized differentiation measures the degree to which a brand is seen as different
Relevance measures the appropriateness and breadth of a brand’s appeal.
Esteem measures perceptions of quality and loyalty
Knowledge measures how aware and familiar consumers are with the brand.
Brand strength and brand stature combine to form the power grid
Brand Resonance Model : The model emphasizes the duality of brands—the rational
route to brand building is on the left side of the pyramid and the emotional route is on
the right side. Creating significant brand equity requires reaching the top of the brand
pyramid.
Brand salience is how often and how easily customers think of the brand under various
purchase or consumption situations.
Brand performance is how well the product meets customers’ functional needs.
Brand imagery describes the extrinsic properties of the product or service,
Brand judgments focus on customers’ own personal opinions and evaluations.
Brand feelings are customers’ emotional responses and reactions wrt the brand.
Brand resonance describes the relationship customers have with the brand
Brand Assets Valuator:
Brand Resonance Model
PBM

Chapter 11 Creating Brand Equity ❑ Sub-brand name. Sub-brands combine two or more of the corporate brand, family
brand, or individual product brand names. Kellogg employs a sub-brand or hybrid
branding strategy by combining the corporate brand with individual product brands
as with Kellogg’s Rice, durable-goods makers such as Honda, Sony, and Hewlett-
Packard use sub-brands for their products. The corporate or company name
legitimizes, and the individual name individualizes, the new product
❑ HOUSE OF BRANDS VERSUS A BRANDED HOUSE: The use of ndividual or separate
family brand names has been referred to as a “house of brands” strategy, whereas
the use of an umbrella corporate or company brand name has been referred to as a
“branded house” strategy
❑ Brand Value is the net present value (NPV) of the forecasted Brand Earnings,
discounted by the Brand Discount Rate. The NPV calculation comprises both the
forecast period and the period beyond, reflecting the ability of brands to continue
generating future earnings
❑ Disadvantages of brand extensions:
• line extensions may cause the brand name to be less strongly identified with any one
product
• an extension not only fail, but may harm the parent brand in the process
• cannibalizing the parent brand
• firm forgoes the chance to create a new brand with its own unique image and equity
A firm has three main choices for brand strategy:
1. It can develop new brand elements for the new product.
2. It can apply some of its existing brand elements.
3. It can use a combination of new and existing brand elements
❑ When a firm uses an established brand to introduce a new product, the
product is called a brand extension. When marketers combine a new brand
with an existing brand, the brand extension can also be called a sub-brand,
such as Hershey Kisses candy.
❑ Brand extensions fall into two general categories:
➢ In a line extension, the parent brand covers a new product within a product
category it currently serves, such as with new flavors, forms, colors,
ingredients, and package sizes.
➢ In a category extension, marketers use the parent brand to enter a different
product category, such as Swiss Army watches
Three general strategies are popular for Branding:
❑ Individual or separate family brand names. Consumer packaged-goods
companies have a long tradition of branding different products by different
names, advantage of individual or separate family brand names is that if a
product fails or appears to be of low quality, the company has not tied its
reputation to it. Companies often use different brand names for different
quality lines within the same product class
❑ Corporate umbrella or company brand name. Many firms, such as Heinz and
GE, use their corporate brand as an umbrella brand across their entire range of
products.67 Development costs are lower with umbrella names because
there’s no need to run “name” research or spend heavily on advertising to
create recognition, Corporate-image associations of innovativeness, expertise,
and trustworthiness have been shown to directly influence consumer
evaluations
PBM

Market Challenger Strategies:
6 Types of Defense Strategies
❑ 3 growth strategies by UK marketing Guru David Taylor:
Make the core of the brand as distinct as possible: Galaxy chocolate positioned
itself as “your partner in chocolate indulgence” and
Drive distribution through both existing and new channels: Costa coffee found
new distribution routes using drive through outlet, vending machines at
stations, in-school coffee shops
Offer the core product in new formats or versions: Ketchup squeezier instead
of bottles
Market Leader Strategies
Expanding total market demand: The market leader should focus on increasing
market or usage by existing:
New Customers: Market penetration, New Market Segment and Geographical
Expansion
More usage: boost the amount through packaging or product redesign, Orbit
writes “Eat, Drink, Chew” to give a message to increase its usage after every
time you eat
Additional opportunity/New ways to use: Dettol advertised for being used as
antiseptic for just wounds to bathing, cloth washing etc.
Proactive Marketing: Continuous innovation, responsive anticipation to see the
changes coming – IBM moved from hardware to service business, Creative
anticipation – perform before change happen, new offers to serve unmet needs
Defensive Marketing: Six strategies to reduce probability of attack
Chapter 12 Addressing Competition and Driving Growth Position: occupying most desirable position in consumer’s mind Tide detergent for cleaning,
crest toothpaste for cavity prevention, pampers diaper for dryness
Flank: Protect a week front or support a possible counterattack
Preemptive: introduce a stream of new products and announce them in advance to signal
competitor that they have to fight a lot to challenge. Bank of America
Counteroffensive: start a price war and run on profits from other segments/business
Mobile: Enter into new territories through market broadening & market diversification
Planned Contraction: Give up weak markets & reassign resources to stronger ones, P&G sold
Pringles to Kellogg
❑ Market challenger can:
• Attack the market leader: Xerox grabbed copy market from 3 M
• Attack firms of its own size
• Attack small local and regional firms
• Attack status Quo in that industry: Netflix changed the media consumption style
❑ Types of Attack:
Frontal: match opponents product, price, distribution
Flank: identify the gaps in the market, uncover the market needs
Encirclement attack: capture wide slice of territory, Sun microsystems launched Java for every
device
Bypass: Diversify into unrelated products & new geographies: Pepsi launched Aquafina water
bottle, Google used Technological leapfrogging to overtake Yahoo
Guerilla: small price cuts, intense promotion, occasion legal actions to harass opponent

Market Follower Strategies
Cloner: Copy everything
Imitator: Copy some things from leader and differentiate on packaging, pricing,
location, advertising
Adaptor: Take leader’s product and adapts or improve them.
Market-Nicher Strategies
Main task is to: Create Niche, expand niche, protect niche. Plays on high
margins
Product life cycle Marketing strategies:
Chapter 12 Addressing Competition and Driving Growth
Sales grow rapidly,
product is first
introduced, falls &
stabilized
Kitchen appliances,
mixer
Sales grow rapidly,
downfall, recover and
again downfall
Sales by new
pharmaceutical drugs
Succession of lifecycles
based on discovery of
new characteristics,
uses or users
Sales of nylon
Examples:
Style: clothing
Fashion:
Fad: Pokémon,
Yoyo

Product Levels: The Customer-Value Hierarchy
1. core benefit: the service or benefit the customer is
really buying. A hotel guest is buying rest and sleep
2. The marketer must turn the core benefit into a
basic product. Thus a hotel room includes a bed,
bathroom, towels, desk etc
3. The marketer prepares an expected product, a set
of attributes and conditions buyers normally expect
when they purchase this product. Hotel guests
minimally expect a clean bed, fresh towels etc.
4. The marketer prepares an augmented product that
exceeds customer expectations.
5. The Potential product, which encompasses all the
possible augmentations and transformations the
product or offering might undergo in the future
Six Levels of The Product Hierarchy:
1. Need family—The core need that underlies the existence of a product family. Ex: security
2. Product family—All the product classes that can satisfy a core need with reasonable
effectiveness. Example: savings and income.
3. Product class—A group of products within the product family recognized as having a
certain functional coherence, also known as a product category. Ex: financial instruments.
4. Product line—A group of products within a product class that are closely related because
fall within given price ranges. Example: life insurance.
5. Product type—A group of items within a product line that share one of several possible
forms of the product. Example: term life insurance.
6. Item (also called stock-keeping unit or product variant)—A distinct unit within a brand
Example: Prudential renewable term life insurance
❑ Company can change the product component of its marketing mix by lengthening its
product via line stretching (down-market, up-market, or both) or line filling, by
modernizing its products, by featuring certain products, and by pruning its products to
eliminate the least profitable.
Up-Market Stretch Companies may wish to enter the high end of the market to achieve
more growth, realize higher margins, or simply position themselves as full-line
manufacturers
Down-Market Stretch A company positioned in the middle market may want to introduce a
Lower-priced line
Product Mix Pricing
✓ Product line pricing: companies normally develop product lines rather than single
products and introduce price steps
✓ Optional-feature pricing many companies offer optional products, features, and
Services with their main product
✓ Captive-product pricing: Manufacturers of razors and cameras often price them low
and set high markups on razor blades and film
✓ Two-part pricing Service firms engage in two-part pricing, consisting of a fixed fee plus
a variable usage fee
✓ By-product pricing The production of certain goods—meats, petroleum products, and
other chemicals—often results in by-products that should be priced on their value
✓ Product-bundling pricing Sellers often bundle products and features.
Chapter 13 Setting Product Strategy
Consumer Goods classification:
convenience goods The consumer purchases frequently, immediately, and with
minimal effort. Ex: soft drinks, soaps, and newspapers
Staples are convenience goods consumers purchase on a regular basis. A buyer
might routinely purchase Heinz ketchup, Crest toothpaste, and Ritz crackers.
Impulse goods are purchased without any planning or search effort, like candy bars
Emergency goods are purchased when a need is urgent: umbrellas during a
rainstorm
Shopping goods are those the consumer characteristically compares on such bases
as suitability, quality, price, and style. Examples include furniture, clothing,
appliances
Specialty goods have unique characteristics or brand identification for which
enough buyers are willing to make a special purchasing effort. Ex: cars, stereo
components
Unsought goods are those the consumer does not know about or normally think of
buying, such as smoke detectors, life insurance

Service Quality Control:
1. Invest in good hiring and training procedures.
2. Standardize the service-performance process throughout the organization.
A service blueprint can map out the service process, the points of customer
contact, and the evidence of service from the customer’s point of view.
3. Monitor customer satisfaction. Employ suggestion and complaint systems,
customer surveys, and comparison shopping
Several strategies can produce a better match between service demand and supply.
On the demand side:
• Differential pricing will shift some demand from peak to off-peak periods. Examples
include low matinee movie prices and weekend discounts for car rentals
• Nonpeak demand can be cultivated. McDonald’s pushes breakfast service, and
hotels promote minivacation weekends.
• Complementary services can provide alternatives to waiting customers, such as
cocktail lounges in restaurants and automated teller machines in banks.
• Reservation systems are a way to manage the demand level. Airlines, hotels,
and physicians employ them extensively.
On the supply side:
• Part-time employees can serve peak demand. Colleges add part-time teachers when
enrollment goes up; stores hire extra clerks during holiday periods.
• Peak-time efficiency routines can allow employees to perform only essential tasks
during peak periods. Paramedics assist physicians during busy periods.
• Increased consumer participation frees service providers’ time. Consumers fill out their
own medical records or bag their own groceries.
• Shared services can improve offerings. Several hospitals can share medical-equipment
purchases.
• Facilities for future expansion can be a good investment. An amusement park buys
surrounding land for later development.
Customers are co-producers: The reality is that customers do not merely purchase and use
a service; they play an active role in its delivery. Their words and actions
affect the quality of their service experiences and those of others, and the productivity of
frontline employees
Service Failure: How to Tackle
1. Redesign processes and redefine customer roles to simplify service encounters.
2. Incorporate the right technology to aid employees and customers.
3. Create high-performance customers by enhancing their role clarity, motivation etc
4. Encourage “customer citizenship” so customers help customers.
Chapter 14 Designing and Managing Services
❑ A service is any act or performance one party can offer to another that is
essentially intangible and does not result in the ownership of anything.
❑ Four distinctive service characteristics greatly affect the design of marketing
programs: intangibility, inseparability, variability, and perishability.
❑ The service component can be a minor or a major part of the total offering.
5 categories of offerings:
✓ Pure tangible good
✓ Tangible good with accompanying services
✓ Hybrid
✓ Major service with accompanying minor goods and services
✓ Pure service
MOS

Determinants of service quality, in this order of importance:
1. Reliability—The ability to perform the promised service dependably and accurately.
2. Responsiveness—Willingness to help customers and provide prompt service.
3. Assurance—The knowledge and courtesy of employees and their ability to convey
trust and confidence.
4. Empathy—The provision of caring, individualized attention to customers.
5. Tangibles—The appearance of physical facilities, equipment, personnel, and
communication materials.
Incorporating Self-Service Technologies (SSTs)
Consumers value convenience in services.75 Many person-to-person service
interactions are being replaced by self-service technologies. Customers must have a
clear sense of their roles in the SST process, must see a clear benefit, and must feel they
can actually use it
Chapter 14 Designing and Managing Services
Service-Quality Model
It highlights the main requirements for delivering high service quality. It identifies
five gaps that cause unsuccessful delivery
i. Gap between consumer expectation and management perception
ii. Gap between management perception and service-quality specification
iii. Gap between service-quality specifications and service delivery
iv. Gap between service delivery and external communications
v. Gap between perceived service and expected service
MOS

❑ Ways to launch new product:
1) Make them: Samsung, GE, Diageo have different new product development
departments
2) Buy them: Nestle increased its presence in North America by acquiring different
brands
❑ Factors That Limit New Product Development:
• Shortage of ideas
• Fragmented markets
• Social and governmental constraints
• Cost of development
• Capital shortages
• shorter required development time
• Shorter product life cycles
❑ Steps in NPD:
• Idea generation
• Idea screening
• Concept development and testing
• Marketing strategy analysis
• Business Analysis
❑ Ways to Find Great New Ideas:
▪ Run informal sessions with customers
▪ Make customer brainstorming a part of plant tours & Survey your customers
▪ Treat trade shows as intelligence missions
▪ Set up an idea vault
❑ Ideas Screening
DROP –error: when company dismiss a good idea
Rating ideas with weighted index:
Overall prob of success = prob of tech support*prob of commercialization*prob
of economic success
Chapter 15 Introducing New Market Offerings ❑ Concept Development
Concepts in Concept Development
Product idea
Product concept
Category concept
Brand concept
Concept testing: Product positioning map & brand positioning map
Conjoint Analysis: To derive utility values that consumer attach to varying level of
a product’s attributes. Marriott used CA to design Courtyard hotel
Adaptive Conjoint Analysis: hybrid data collection technique that combines self
stated or explicated importance ratings of attributes with pair-wise trade-offs
tasks comparing two options
❑ Marketing Strategy development
Three part strategy plan for NPD:
1. Describe target market size, structure and behavior, the planned brand
positioning, sales, market share and profit goals in first few years
2. Outline the planned price, distribution strategy, and marketing budget for the
first year
3. Describe long run sales and profit goals and marketing mix strategy over
time.
❑ Business Analysis
Estimate Total sales
Estimate costs and profits
NPM

Chapter 15 Introducing New Market Offerings ❑ Prototype Testing
Alpha testing
Beta testing
Rank-order method
Paired-comparison method
Monadic-rating method
Market testing
❑ Consumer Goods Market Testing
Sales-Wave Research
Simulated Test Marketing
Controlled Test Marketing
Test Markets
❑ Test Market Decisions
How many test cities?
Which cities?
Length of test?
What information to collect?
What action to take?
❑ Consumer Adoption Process:
Stages in the adoption process: AIETA model
Awareness: aware but lack information
Interest: stimulated to seek information about innovation
Evaluation: consider whether to try new innovation
Trial: tries new innovation to test its value
Adoption: decides to make regular use of product
Stage Gate Process
NPM

❑ Sharing economy in which consumers share cars, clothes, apartments, tool
and extract more value from what they already own, Airbnb started with
logic of sharing economy and renting
❑ Purchase decisions are based on how consumer perceive prices and what
they consider the to be the actual price
❑ 3 keys for consume price perception
Reference Prices: when examining a product, consumer compare observed
price to an internal price he remember or external frame of reference posted.
Marketers encourage reference-price thinking by stating high price
Price-Quality Inference: Price is an indicator of quality for consumers. Higher-
priced cars are perceived to have high quality. Despite booming demand Ferrari
limits production to maintain exclusivity.
Price Endings: Price endings with odd number – perceived as cheap
Price ending with 0 and 5 are easier, “299” considered in 200 range and with
discount
Steps in Setting Pricing Policy
Selecting the Pricing Objective
❑ 5 major pricing objectives are:
▪ Survival: short run objective to deal intense competition
▪ Maximize current profits
▪ Maximum market share
▪ Maximum market skimming: Set high price at the start and drop over time.
Sony, iPhone
▪ Product quality leadership: affordable luxury, Victoria secret, BMW
Determining the Demand
❑ Price sensitivity
Total cost of ownership: The Total Cost of Ownership refers to the costs linked
with enacting any solution. These costs are a combination of:
Explicit costs (ex. dollars)
Implicit costs (ex. time and resources)
Chapter 16 Developing Pricing Strategies
Estimating Costs
Fixed costs: that do not vary with level of
production
Variable cost : varies with the no units produced
Total Cost: sum of fixed cost and variable cost at
any given production level
Average cost: cost per unit = Total cost/Production
units
Accumulated Production: The decline in average
cost with accumulated production experience is
called experience/learning curve
❑ Price elasticity of demand
• If demand hardly changes with change in
price, it is price inelastic
• If demand changes considerably with
price, it is elastic
• Buyers(consumer) may continue to buy
from current supplier(company) after a
price increase but eventually switch
supplier – Long Run price elasticity
• Buyers may drop a supplier after price
increase but may return later – Short Run
price Elasticity
Analyze competitors cost, price and offers
The firm should benchmark its price against competitors, learn about the quality
of competitors offering, & learn about competitor's costs. Add/subtract cost for an extra/less
feature compared to competitior
PV

Selecting the Pricing Method
3 C’s model for price reference : Cost, competitor, customer value
❑ Markup Pricing: Add markup to product’s cost, Ex- Lawyers and accountants
Unit cost = variable cost + fixed cost/unit sates
Markup price = unit cost/ (1 – desired return on sales
This ignores current demand, perceived value, competition
When all firm use this method, prices tend to be similar and competition is
minimized.
❑ Target Return Pricing: the price that yields its target rate of return on
investment. Ex- Public utilities which need returns
Target return price = unit cost + desired return* invested capital/ unit sales
Break even volume = fixed cost/ (price – variable cost)
❑ Perceived value pricing: includes price for warranty , customer support, softer
attributes like supplier image, brand value, esteem
▪ Companies use advertising, sales force to communicate and enhance perceived
value in buyer’s mind
▪ Deliver more unique value then competitors and explain this to perspective
buyer.
❑ Value Pricing: charge low price for high quality, best practitioner of value pricing
is IKEA
❑ Going Rate Pricing: adapt price based on large competitions- “Follow the leader”
❑ Auction Type Pricing: used in online marketplaces
English auctions( ascending bids): eBay and Amazon.com
Dutch Auction(descending bids): auctioneer announces high price and then decrease
until a bidder accepts
Sealed- bid auction: only one bid is submitted for each bidder. Used for Govt tenders
Selecting the Final Price
▪ Impact of other marketing activities
▪ Company pricing policies
▪ Gain and risk sharing pricing
▪ Impact of price on other parties
Chapter 16 Developing Pricing Strategies Price discounts and Allowances
✓ Discount
✓ Quantity discount
✓ Functional/Trade discount
✓ Seasonal discount
✓ Allowance
Promotional Pricing
✓ Loss Leader pricing
✓ Special event pricing
✓ Special customer pricing
✓ Cash rebates: within a purchase period of time
✓ Low interest financing: automakers offer no interest financing
✓ Longer payment terms
✓ Warranties and service discounts
✓ Psychological discounts: “was 399 now 299”
Differentiated Pricing
✓ Customer segment pricing
✓ Product form pricing: tablet and liquid
✓ Channel pricing: Coca cola’s different price in movies, vending machine, colleges
✓ Location pricing: PVR tickets at different location
✓ Time Pricing: restros rates during day and night
✓ Yield Pricing: airline and hospitality industries use yield management systems
Tactics to increase price
Delayed quotation pricing: Industrial construction companies do not set a final price
until product is finished
Escalator clauses: require customer to pay today’s price plus inflation increase that
takes place before delivery
Unbundling: charge separately for added product, car companies charge for GPS system
or higher end audio system
Reduction of discounts
Traps due Price Cuts:
Low quality trap: consumer assume low price means low quality
Fragile market share trap: low price buys market share but not market loyalty
Price war trap: competitors also decreases prices leads to price war
PV

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