Module 3 Consumer & Buyer Behaviour: Understanding Consumer Behaviour

Measurability, Accessibility, Substantiality, Practicability

To describe the potential customers in each market segment, the common features they share, and how they differ between segments.

Potential sales of each segment, potential revenue, and the ability to satisfy the expectations of each segment.

To understand how their offerings are seen by the target segments.

Sales potential, competitive situation, cost structure, and SWOT analysis.

Selecting particular market segments.

The market potential in each segment to determine sales volumes and if profitability is sustainable.

The text does not specify the 4 segmentation variables used to describe segment profiles.

To understand the limitations and trade-offs involved in targeting specific market segments.

When selecting target markets, the organization is no longer referring to individual buyers or the mass market, but rather to specific market segments.

Penetration pricing involves setting a low launch price below market price to gain maximum sales volume, rapid market share, and turnover of a new product.

Price skimming involves charging the highest price that customers who most desire the product are willing to pay. Over time, the price is gradually lowered to attract more buyers while maintaining the highest price that these consumers are willing to pay.

Differential pricing refers to charging different buyers different prices for the same product. An example could be offering student discounts or senior citizen discounts on the same product.

Special-event pricing links discounted prices across an organization’s entire product range with special or seasonal events to increase total sales volumes. This strategy must be combined with promotional pricing.

Price must be monitored after implementation as external factors can evolve over time. Pricing is the most flexible and dynamic element of the marketing mix, affected by factors like competition and customer demand.

The purpose is to ensure that consumers are not subject to deception or discrimination, and that the total price is clear before purchasing.

Demand-based pricing is when prices are set according to the level of aggregate or individual consumer demand in the market. Demand exists when consumers are willing and able to buy a product that fulfills an unsatisfied want or need.

An organization's costs place a price floor, or minimum price, on what they can charge. The customer's perceived value of the product places a price ceiling, or maximum price, that customers are willing to pay.

Pricing must be set so that the product remains competitive compared to alternatives or substitutes in the marketplace. If priced too high, customers may choose a competitor's product instead.

Price elasticity measures how sensitive demand is to changes in price. Organizations need to consider elasticity when pricing to meet objectives like revenue maximization or market penetration.

Price elasticity of demand (PEoD) refers to how the quantity demanded of a product changes in response to a change in its price. PEoD varies across different products and industries:- Demand is said to be price elastic or price sensitive if PEoD is greater than 1, meaning a change in price leads to a larger change in quantity demanded.- Demand is said to be price inelastic or price insensitive if PEoD is less than 1, meaning a change in price leads to a smaller change in quantity demanded.- The PEoD can differ greatly between products - for example, demand for luxury/prestige goods is often price inelastic, while demand for basic necessities is typically price elastic.- The PEoD also varies by industry - industries with many substitutes tend to have more price elastic demand compared to industries with few substitutes.

Demand-based pricing strategies, such as surge pricing, can raise ethical concerns:- High profits generated through demand-based pricing may be seen as unethical if the cost to produce the product is significantly below the inflated price.- Surge pricing during times of high demand (e.g. natural disasters, holidays) can be viewed as taking advantage of consumers who have limited options, leading to accusations of price gouging.- Demand-based pricing can disproportionately impact low-income consumers who may not be able to afford the higher prices during peak demand periods.- There are concerns that demand-based pricing reduces transparency and fairness in the marketplace, favoring companies over consumers.

Cost-based pricing is a pricing strategy where the selling organization adds a percentage or dollar amount to the cost of producing a product to determine the final selling price. This differs from demand-based pricing in the following ways:- Cost-based pricing focuses on the internal costs of the organization, while demand-based pricing focuses on the external market demand for the product.- Cost-based pricing is used when it is difficult or impossible to determine the exact costs of producing a product until it has been made, such as for custom or made-to-order items.- Cost-based pricing, such as markup pricing used by wholesalers and retailers, is more transparent than demand-based pricing, which can be less predictable for consumers.- Cost-based pricing does not necessarily account for the price sensitivity of consumers or competitive market factors, unlike demand-based pricing.

Competitive pricing refers to setting prices in relation to competitor pricing in the market. This relates to break-even analysis in the following ways:- If a product is priced near the cost of production, it is known as a price leader, as the company is setting the baseline price in the market.- If a product is priced below cost, it is known as a loss leader, used to drive traffic and sales of other products.- Break-even analysis determines the volume of units that must be sold for total revenue to equal total costs. This is an important consideration when setting competitive prices, especially for loss leaders.- Governments may introduce price floors to prevent prices from falling below a certain level, which impacts the break-even point and competitive pricing strategies.

Pricing transparency refers to the degree to which pricing information is clear and accessible to consumers. There are differences in pricing transparency between demand-based pricing and cost-based pricing:- Demand-based pricing, such as surge pricing, can be less transparent as prices can fluctuate rapidly based on real-time market conditions, making it harder for consumers to predict final costs.- Cost-based pricing, such as markup pricing used by retailers, is generally more transparent as the final price is a straightforward markup on the known production costs.- Lack of pricing transparency in demand-based strategies can lead to accusations of price gouging and taking advantage of consumers, especially during times of high demand.- Cost-based pricing provides consumers with a clearer understanding of how the final price is determined, promoting a sense of fairness in the marketplace.

Individual buyers or groups can be identified, Sellers understand the need of buyers, Sellers seek to have their offer to meet the needs of target buyers

Buyers have common needs, wants, demands. Single product offerings are created, communicated, delivered to meet needs of most in market. Example: salt

Buyers have unique needs, wants, demands. Appeals to each customer by providing customized offering to meet individual needs. Examples: haircut, accountant, advisory

Own resources, Market demand, Competition

An organization identifies a range of market segments which cover the majority of the total market. For each segment, a unique marketing mix is tailored to appeal to different groups of buyers.