Slide 1:MC7 - 1 Marketing Mix and Relationship Marketing


The Marketing Mix :MC7 - 2 The Marketing Mix The means by which product, price, promotion and place variables can be assembled to meet channel needs.


Fusion of AttributesA product is offered as a solution to customer problems :MC7 - 3 Fusion of AttributesA product is offered as a solution to customer problems Tangible attributes Intangible attributes Often more important “Agile competitive environment” Channel members constantly modify and improve product offerings to meet changing customer needs.


The Pricing Ingredient :MC7 - 4 The Pricing Ingredient Price: the ultimate measure or assignment of value. Valuation: simultaneous appraisal by sellers & buyers of economic and psychological worth of market offerings. Premium pricing: Building relationships Preserving relationships Reducing risk factors Obtaining perceived quality Possessing limited information


Pricing Methods :MC7 - 5 Pricing Methods Algorithmic Market-oriented Relationship


Algorithmic Pricing :MC7 - 6 Algorithmic Pricing Cost-plus pricing Break-even analysis Modified break-even pricing cost of goods + margin = price


Market-Oriented Pricing :MC7 - 7 Market-Oriented Pricing Market-entry pricing Penetration pricing Skimming-the-cream pricing Fresh Cream


Relationship-Oriented Pricing :MC7 - 8 Relationship-Oriented Pricing Volume pricing Negative option contracts Functional allowance Promotional allowance Price legitimacy Price guarantees Price posting Cost of service pricing Buy more Pay less


Slide 9:MC7 - 9 Pricing Methods - Algorithmic Orientation Types Positives Negatives Inside-out Ÿ Cost-Plus Ÿ Break-even Ÿ Modified break-even Simplicity Ignores effects of legal/regulatory conditions, influences of competition and changing markets


Slide 10:MC7 - 10 Pricing Methods – Market Oriented Orientation Types Positives Negatives Outside-in Competitive Market-Entry Penetration Skimming Sensitivity to customer needs Good entry strategy in elastic market Generates quick cash flow; good in inelastic markets


Slide 11:MC7 - 11 Pricing Methods - Relationship Orientation Types Positives Negatives Both Volume pricing Functional allowances Promotional allowances Cooperative & collaborative Goal-oriented price sharing Consideration for fostering channel communication Ÿ Cooperation a must Ÿ Requires ongoing & consistent communication between channel members


Cost-Based Pricing Strategies :MC7 - 12 Cost-Based Pricing Strategies Floor Pricing Cost-Plus Pricing Low-Cost Leader Pricing Competitive Bid Pricing Harvest Pricing The cost of the product plus a desired margin. In markets where product differentiation is minimal, cost-based pricing is often a reasonable alternative to market-based pricing.


1. Floor Pricing :MC7 - 13 1. Floor Pricing Floor Pricing Cost-Plus Pricing 3. Low-Cost Leader Pricing 4. Competitive Bid Pricing 5. Harvest Pricing Internal, cost-based price based on desired level of profitability Used in early stage of product life cycle Used when customers are less price sensitive May be based on desired margin or ROI


2. Cost-Plus Pricing :MC7 - 14 2. Cost-Plus Pricing Price determined by using a standard markup on cost Used in early stages of product life cycle Standard markups vary by industry Business Manufacturer’s Wholesaler’s Wholesale Retailer’s Buyers Sector Price Index Markup Price Markup Index Furniture 100 38.9% 138.90 63.6% 227 Gasoline 100 19.8% 119.80 22.8% 147 Groceries 100 23.5% 123.50 28.5% 159 Sporting Gds 100 34.8% 134.80 57.8% 213 Liquor 100 21.6% 121.60 37.1% 167 Average 100 27.7% 127.70 38.8% 177 Floor Pricing Cost-Plus Pricing 3. Low-Cost Leader Pricing 4. Competitive Bid Pricing 5. Harvest Pricing


3. Low-Cost Leader Pricing :MC7 - 15 3. Low-Cost Leader Pricing Pricing more aggressively in an attempt to build market share and volume based on a cost advantage. Business seeks to always offer the lowest price and no competitor can beat it For example: Wal-Mart Occurs in late stages of product life cycle Little product differentiation Prices very competitive Floor Pricing Cost-Plus Pricing 3. Low-Cost Leader Pricing 4. Competitive Bid Pricing 5. Harvest Pricing


4. Competitive Bid Pricing :MC7 - 16 4. Competitive Bid Pricing Suppliers selected based on lowest bid price Bidders must meet pre-qualifications and delivery dates In use in markets where there is little or no product differentiation Floor Pricing Cost-Plus Pricing 3. Low-Cost Leader Pricing 4. Competitive Bid Pricing 5. Harvest Pricing


5. Harvest Pricing :MC7 - 17 5. Harvest Pricing Businesses raise prices in anticipation of a reduction in volume Based on cost and need for higher margins Used in decline stage of product life cycle when margins are low and volumes flat or declining Prices continue to increase until business exits market Floor Pricing Cost-Plus Pricing 3. Low-Cost Leader Pricing 4. Competitive Bid Pricing 5. Harvest Pricing


Market-Based Pricing Strategies :MC7 - 18 Market-Based Pricing Strategies Skim Pricing Value-in-Use Pricing 4. Market-Based Value Pricing 5. Segment Pricing 6.Strategic Account Pricing 7. Psychological Pricing 8. Penetration Pricing An analysis of customer needs and the benefits a product creates relative to competitor products. Price is set relative to competition to create a superior value.


Skim Pricing :MC7 - 19 Works best: in a quality-sensitive market (product benefits that customers want at any cost) with few competitors and little chance of competitors entering for a business with a sustainable differential advantage several customer segments with different levels of price sensitivity Skim Pricing Skim Price - Charging a high, premium price combined with superior customer value. 1. Skim Pricing2. Value-in-Use Pricing3. Market-Based Value Pricing4. Segment Pricing5. Strategic Account Pricing 6. Psychological Pricing 7. Penetration Pricing


2. Value-in-Use Pricing(Economic Value Pricing) :MC7 - 20 2. Value-in-Use Pricing(Economic Value Pricing) 1. Skim Pricing2. Value-in-Use Pricing3. Market-Based Value Pricing4. Segment Pricing5. Strategic Account Pricing 6. Psychological Pricing 7. Penetration Pricing Works best: Works in growth stage of product life cycle Does not require lowering of prices Price may be higher than competition as long as total cost to consumer is lower Pricing to create savings for a customer based on a lower total life cost when compared to a competitors cost Customer may save money on acquisition costs, usage costs, and maintenance costs


3. Market-Based Value Pricing (Perceived Value Pricing) :MC7 - 21 3. Market-Based Value Pricing (Perceived Value Pricing) Requires good understanding of customer needs and competitor positions Perceived Value Pricing – Pricing to create a greater customer value based on customer perceptions of product, service, company benefits, and the perceived cost of acquiring those benefits. 1. Skim Pricing2. Value-in-Use Pricing3. Market-Based Value Pricing4. Segment Pricing5. Strategic Account Pricing 6. Psychological Pricing 7. Penetration Pricing


4. Segment Pricing :MC7 - 22 4. Segment Pricing Customers choose the segment offering that fits their usage patterns and price sensitive levels Pricing strategy is matched to needs of segment price-sensitive wants lowest price even with no added benefits quality-sensitive will pay premium for benefits 1. Skim Pricing2. Value-in-Use Pricing3. Market-Based Value Pricing4. Segment Pricing5. Strategic Account Pricing 6. Psychological Pricing 7. Penetration Pricing


Cellular Phone Market-Based Segment Pricing :MC7 - 23 Cellular Phone Market-Based Segment Pricing


5. Strategic Account Pricing :MC7 - 24 5. Strategic Account Pricing Works best: Longer range pricing perspective Prices may adjust over several years Goal is to maintain strong relationship Customers that are large and very important to a business’s sales and profits Pricing customized to the unique needs of the account 1. Skim Pricing2. Value-in-Use Pricing3. Market-Based Value Pricing4. Segment Pricing5. Strategic Account Pricing 6. Psychological Pricing 7. Penetration Pricing


6. Psychological Pricing :MC7 - 25 6. Psychological Pricing Odd-Even Pricing Marketers assume there is a psychological response to odd prices that differs from the responses to even prices. For example: $1.99 vs. $2.00 Price Lining Similar items in a product line sell at different prices, called price points For example: refrigerator prices of $600, $800, $1,000 1. Skim Pricing2. Value-in-Use Pricing3. Market-Based Value Pricing4. Segment Pricing5. Strategic Account Pricing 6. Psychological Pricing 7. Penetration Pricing


7. Penetration Pricing :MC7 - 26 7. Penetration Pricing Volume drives down cost Volume leader gains cost advantages and continues to lower costs Lower costs inhibit new market entrants and encourage exit Used in growth stage Used when product is not well differentiated Used for price-sensitive customers in markets with many competitors A New Product is Introduced at a Very Low Price i.e. Intel’s Pentium chip 1. Skim Pricing2. Value-in-Use Pricing3. Market-Based Value Pricing4. Segment Pricing5. Strategic Account Pricing 6. Psychological Pricing 7. Penetration Pricing


The Promotions Ingredient :MC7 - 27 The Promotions Ingredient Promotional Mix Personal selling Nonpersonal selling Traditional versus Relational Communication Promotional Objectives Push versus Pull Strategies


Promotional Objectives :MC7 - 28 Promotional Objectives Stimulating sales Differentiating offerings Sharing information Accentuating a market offering’s value Stabilizing seasonal demand


Push/Pull Strategies :MC7 - 29 Push/Pull Strategies New Product introductions Resurrect dinosaurs Allowances Advance notice Training & support Pull Strategy Producer Tries to Build Desire for Products Among Consumers Who Ask Retailers to Stock These Items Push Strategy Company Tries to Move Products Through the Channel by Convincing Intermediaries to Offer Them.


Consumer Promotions :MC7 - 30 Attracting Consumers With Price Breaks Attention-Getting Consumer Promotions Coupons Price Deals Refunds Rebates Special Packs Contests Sweepstakes Premiums Sampling Point-of-Purchase Promotion Consumer Promotions


Trade Promotions :MC7 - 31 Targeted to Channel Partners and to the Firm’s Own Employees. Discounts and Deals Industry Boosting and Boasting Merchandising Allowance Case Discount or Allowance Trade Shows Promotional Products Incentive Programs Trade Promotions Promotional Allowance


The Place Ingredient :MC7 - 32 The Place Ingredient Place All those distribution, logistics, and behavioral functions that regulate the flow of market offerings between exchange partners. Goal Minimize the cost while maximizing customer satisfaction and market coverage.