Make or Buy Decisions

1. Purchasing Decision
Hasin Md. Muhtasim Taqi, Assistant Professor
Department of Mechanical and Production Engineering,
Ahsanullah University of Science and Technology

2. Key Topics
⚫The Purchasing Decision
⚫Price-Setting Strategy (Economic)
⚫Price-Making Strategy (Psychological)
⚫Discounts
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3. The Purchasing Decision
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Everything starts with a plan!
The buyer’s journey has the following stages:
Awareness. “I am aware that I have a need.”
Evaluation. “I am aware that I have a need
which I have to satisfy, and in order to do so, I
must gather information.”
Decision. “I am aware of a need and I have
gathered enough information that I am ready to
make a decision on how I will fill this need.”

4. The Purchasing Decision
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5. The Purchasing Decision
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Three Perspectives!!!!!
The Buyer’s Perspective
The Marketing Perspective
The Sales Perspective

6. The Purchasing Decision
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The Buyer’s Perspective
We all have needs. Some are obvious, like running out
of toothpaste, which compels you to purchase
another tube. Some are not so obvious. Say your
friend Bruce has a new sports car. You like to drive
fast, and you feel you would look good in a sports
car, so you are compelled to start searching the Web
for something a little sexier than Bruce’s. These two
examples are consumer needs, but remember that
consumers work for companies, and must execute
purchase decisions on behalf of their department or
enterprise with a process that is more complicated
and involves more stakeholders, but is still a buyer’s
journey.

7. The Purchasing Decision
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The Marketing Perspective
The definition of marketing is to create
demand in the marketplace.
Advertising, price, product, and promotion
are the tools used to create demand, and
while creation of demand or uncovering an
unmet need is commendable, it’s not
enough, because of competition. Your
product or service must go beyond filling a
basic need through differentiated products
and services. All things can’t be equal —
otherwise, the customer will simply choose
the lowest-cost option.

8. The Purchasing Decision
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The Sales Perspective
In a strict sense, salespeople don’t design, manufacture,
or market products, but to the consumer, they
represent the product. From a sales perspective, the
product has to be good enough that the salesperson
has faith in its promise to fulfill a need and its long-
term performance. Salespeople or e-commerce
systems are the bridge between the manufacturer and
the consumer. Faith, integrity, and brand-promise are
as important today as they were when Sears started
selling products from a catalog. Salespeople have to
understand the buyer’s journey in order to move the
buyer from one stage to the next or bring the sale to
a close with the product or service that meets or
exceeds the buyer’s expectations.

9. Price-Setting Strategy (Economic)
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Economy pricing is a pricing strategy where
products have lower prices due to low
production costs.
Economy pricing allows businesses to price
products according to their production value
because they don’t acquire the extra costs of
advertising or marketing.
But making a profit with economy pricing is a
volume game — meaning the only way to a
profit is to consistently entice a large number of
customers.

10. Price-Making Strategy (Psychological)
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Psychological pricing is the business practices of
setting prices lower than a whole number. The
idea behind psychological pricing is that
customers will read the slightly lowered price
and treat it lower than the price actually is. An
example of psychological pricing is an item that
is priced $3.99 but conveyed by the consumer
as 3 dollars and not 4 dollars, treating $3.99 as
a lower price than $4.00.

11. 4 Psychological pricing strategies
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1. Artificial Time Constraints

12. 4 Psychological pricing strategies
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2. Charm Pricing

13. 4 Psychological pricing strategies
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3. Innumeracy
Which do you think is a better deal? “Buy one get one
free” or “50% off a two items?” According to a study
done by researchers at the University of Minnesota,
most people would prefer the first option, even though
the two options are identical (buying two items at 50%
off is the same as paying full price for one and getting
the second free)
This phenomenon is known as innumeracy, where
consumers are unable to recognize or understand
fundamental math principles as they apply to everyday
life
“

14. 4 Psychological pricing strategies
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4. Price Appearance

15. Discounts
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1. Quantity Discount Strategy
2. Location-Based Discount Strategy
3. "Selling at a Loss" Discount Strategy
4. Loyalty Discount Strategy
5. New Customer Discount Strategy

16. Discount Pricing Pros and Cons
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❖Pro: It can generate quick interest.
❖Con: It can warp brand perception.
❑Pro: It can help facilitate repeat purchases.
❑Con: It can lead to unsustainable expectations
from customers.
⮚ Pro: It can help you unload excess inventory.
⮚ Con: It can get away from you if you're not
careful.

17. Thank you
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