Marketing Plan and Markstrat Simulation PDF

12/09/2024 MARKETING PLAN AND MARKSTRAT SIMULATION CLASS 1 SHARE PRICES INDEX is the only one metrics that the professor will look at. We will BE divided in 10 groups, c...

12/09/2024 MARKETING PLAN AND MARKSTRAT SIMULATION CLASS 1 SHARE PRICES INDEX is the only one metrics that the professor will look at. We will BE divided in 10 groups, composed of 4 students. There’s will be two main industry that compete with each other. The winning team will have 30. At the end of the simulation, we have to prepare a presentation of 5 minutes that won’t be graded that will explain the marketing strategy used. (4 questions we have to respond to) 13/09/2024 CLASS 2 What is marketing? Marketing is about identifying and satisfying customer needs. Marketing is not about sales. Marketing management It represents the art and the science of selecting the right target market, as well as the acquisition, maintenance and growth of customers through the creation, distribution and communication of higher value for the customers. The marketing manager is responsible for managing (identify, generate) the demand: he needs to influence its intensity, times and composition in order to achieve all company objectives. The main objective of the marketing manager is to make the sales process easy and smooth. What’s market? Economists define it as a set of buyers and sellers who engage in transaction on a product or a class of products. Marketing managers, in contrast, use this word to indicate groups of customers sharing some common characteristics (ex. Similar value expectations) About the simulation The teams have to generate the demand (the teams are divided in two industries with different products) based on our marketing investment -> more investment, the greatest the market will be. We will be competing with others in a market industry. Core marketing concepts that we will deal during the simulation: 1. Needs, wants, demands → marketing does not create needs 2. Target markets, positioning, segmentation → customers are not the same 3. Market analysis → insight vs information 4. Marketing mix → the 4Ps and 7Ps 5. Brand and brand equity → value proposition 6. Value and satisfaction → expected vs experienced value 7. Marketing channels → distribution and communication channels 8. Competition → globalization and integration 9. Integrated marketing communication 10. Price management → dynamic pricing and psychology of price 1 The demand is the level of desire I want to buy a specific product, we need many metrics to measure all the factors that will influence our marketing strategy. (ex. willingness to buy) When we play the simulation, we don’t need all the information available on the game. Pricing strategy, placement strategy, promotion strategy, product characteristics* In the first 2 weeks we will decide the distribution channel, and the budget we will give and in which sector* Who we are? Where we want to be at the end of the simulation? Make sure what we promised it’s what we delivered. Be aware of expectations and prove. The simulation makes a projection on how the product will be on the next 3 rounds. One mistake we make, we are “out” the next 3 rounds. Do you want to risk o play safe? To be risky, think out of the box HOLISTIC MARKETING DIMENSION 1. Relationship marketing establish long term relations extended perspective to all stakeholders marketing network customer relationship management 2. Integrated marketing Integrated marketing communication Multichannel and omnichannel to create brand equity 3. Internal marketing integrated customer expectations into organizational processes hire, train and motivate capable employees demand management, resource management, business system management 4. Performance marketing (realization as an element of differentiation) Realization as an element of differentiation (strategy is nothing without executions) Measures as a prerequisite for implementation (marketing metrics) We can still divide the work, but everything needs to be integrated, work as a team CREATE AND DELIVER VALUE We have to create value for the customer, so the steps are: 1. Understand the value proposition 2. determine the value proposition different customer wants 3. develop the value proposition for the customer 4. deliver and communicate the value proposition 2 MARKETING VALUE In order to be successful in today’s hypercompetitive economic environment a company needs to carefully design a marketing strategy that creates and delivers value to its customers What’s the starting point? THE MARKETING STRATEGY How to create value? 3 levels of business planning (a slide in which it is summarized what we have to do during the simulation) In the simulation the starting budget is 7/8 million, and you can’t go bankrupt (if you go bad you have at least 6 million to invest, if you go well you have at max 24 million to invest) you can’t grow up to infinity You can’t successfully manage more than 3/4 products; the bank can give a loan up to 15 million. We cannot win the simulation without using all the budget, it’s important to define which amount to invest and in which channel, but we HAVE to use all the budget in order to success the simulation. STRATEGIC PLANNING STEP 1. DEFINE MISSION Brief description of the aims and values of a company. Who is your client? What is your main business activity? What does your client want? The mission needs to include the following key features: 1. Role and contribution (profit, service, opportunity) 2. Business definition (provided benefits, satisfied needs) 3. Distinctive competency (unique to a business organization, superior in some aspects than the competencies of other organizations, which enables the production of unique value proposition in benefit for the business) 4. Indication for the future (what will you do, what could you do, what should you do) Characteristics mission statement ➔ Focus on limited number of objectives ➔ Define strictly the corporate business principles and values ➔ Define primary customers, markets and its geographical region of operations ➔ Present a long-term plan for your business ➔ Keep is short, meaningful and easy to remember 3 STEP 2. EVALUATE THE INTERNAL AND EXTERNAL ENVIRONMENT Swot analysis: ➔ Internal environment (strengths, weaknesses) ➔ External environment (opportunities, threats) STEP 3. SPECIFY THE OBJECTIVES Specific, measurable, achievable, realistic, time-bound STEP 4. ESTABLISH BUSINESS PORTFOLIO Strategic Business Unit is characterized by: 1. One single stream of activity or different streams that are connected 2. Internally build competitive system and practices 3. Managed by responsible and experienced leaders We can use the Boston consulting group matrix Cash cow it’s a safe bet, but in order to win we need star or question mark In the simulation we don’t have brands but products! General Electric McKinsey matrix: is a strategy tool that offers a systematic approach for the multi business corporation to prioritize its investments among its business units. STEP 5. VERTICAL/ORIZONTAL INTEGRATION VERTICAL INTEGRATION: Company buys a company that performs another function within the supply chain in order to achieve improved efficiencies ➔ Advantages: efficiency, control, eliminate profit centers HORIZONTAL INTEGRATION: Company buys another company in the same business in order to increase market share ➔ Advantages: economy of scale, expand share, less competition 4 Intensive growth: Ansoff matrix (2 dimensions: existing/new markets, products) A marketing plan is a comprehensive document or blueprint that outlines a business advertising and marketing efforts for the coming year. It describes business activities involved in an accomplishing specific marketing objectivities within a set time frame A marketing plan is the main tool for managing, coordinating and controlling all marketing activities. Strategic vs tactical On a strategic level you do swot, value proposition, define target market On a tactical level you do your marketing mix STEPS IN MARKETING PLANNING 1. Perform a situation analysis Marketing audit is a systematic and periodic examination of a company’s marketing assets and activities in the context of market conditions, and use the resulting analysis to aid the firm in planning (analyze external and internal marketing audit) 1 customer correspond to 1 unit (you have to invest enough money-on-money distribution) 5  External audit: economic environment, market, competitors Internal audit: own company Market potential: It is the maximum (ideal) level that the market demand can reach in a given period of time and in a given spatial context, under the hypothesis that all cumulated marketing investments are at the highest possible level. Market potential, potential gap analysis and why it exists? 2. Set marketing objectives (specific, measurable, achievable, realistic, time-bundle ) and make hypothesis Certain key factors that affect the success of company have to be formulated as an assumption before initiating the next phase in the marketing planning process. The number of hypotheses needs to be limited to just a few; if the hypothesis have no relevance for the marketing plan, than they can be excluded 3. Develop marketing strategies ➔ Identify target market ➔ Adjust marketing mix for each target market (product, pricing, promotional, distribution strategies) Porter strategy: 6 4. Implement and control the marketing plan ➔ Measure actual performance Return on marketing investment (ROMI): revenue generated by investment in a given marketing program divided by the cost of the program at a given level of risk ➔ Forecast expected results ➔ Compare performance to established objectives ➔ Make adjustments to objectives or strategies based on this analysis BUDGET: an overall budget must be set for the starting 3 years of the strategic marketing plan and one more detailed budged for the first year, to include in the strategic plan for the first year Zero-based budgeting: a method of budgeting in which all expenses must be justified for each new period, rather than budget history. Zero-based budgeting starts from a zero-base and every function within an organization is analyzed for its needs and costs. 7 OBSTACLES RELATED TO THE INTEGRATION OF THE MARKETING PLAN 1. Insufficient support by the marketing department and the top management 2. Lack of plan for the marketing planning 3. Lack of support from the management due to absence of competence; scarceness of information and resources; inadequacy of the organizational structure and hostile behavior 4. Indications of goals and strategies in numbers 5. Too many details 6. Marketing planning is being perceived as a routine 7. Detachment between operative and strategic planning 8. Lack of integration between the marketing and corporate planning 9. Delegation of the marketing planning to external parts 19/09/2024 CLASS 3 KNOWLEDGE IS POWER Successful market planning depends upon informed decision making ➔ Developing marketing objectives ➔ Selecting target markets ➔ Positioning products ➔ Developing 4 Ps strategies MARKETING INFORMATION SYSTEM Marketing information system consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely and accurate information to marketing decisions makers. We need to translate the data in actionable insights on which we will base our decision How are this information organized in Markstrat simulation? Marketing information system= receive information from 4 main sources: 1. Internal Company data (free information) -> order to payment cycle 8 2. Marketing intelligence: Internal records supply results data, the marketing intelligence supplies happenings data (available in exchange of a payment). Sources: books, newspaper, talking to customer and trade publication It gives us information about the future, how big the customer segment will be in the next round, and which will be the customer preferences. ACTIONS: - Train and motivate the sales force to spot and report new developments - Motivate intermediaries to pass along intelligence - Hire external experts to collect intelligence - Set up customer advisory panel - Take advantage of government-related data resources - Purchase information from outside research firms - Collecting marketing intelligence on the web 3. Market research: The systematic design, collection, analysis and reporting of data and findings relevant to a specific marketing situation facing the company There are 3 dimensions - Qualitative (explorative)= interviews, focus groups, Our objective is to obtain a network association, stimulates social interaction, major flexibility. The consensus map provides useful information about consumers. Constructs have an essential role in communication because by activating them it is then possible for consumers to recover the other connected concepts. A list of salient aspects for the consumer. This list can be used in multiple occasions (communication, positioning, new product development). - Quantitative (descriptive): Quantitative research is the systematic empirical investigation of observable phenomena visa statistical, mathematical or computational techniques. Quantitative data is any data that is in numerical form such as statistics, percentages. We use surveys to quantify our research 9 Ask on a scale on 1 to 7 how much is… then create a positioning map for obtaining ideal values (values identified in the simulation with the analysis) We use them to: o Measure the gap between them (they move over the time) o Spot opportunity (customer segment that at the moment is not targeted by the other companies) Customer perceived value: difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives Targeting, acquiring and retaining right customers is at core of many successful service firms. Objective is to build relationships and to develop loyal customers who will contribute to the growing volume of firm’s business in future. Customer loyalty extends beyond purchasing behavior and includes preferences, liking and future intentions. Customer loyalty is important because getting one new customer costs five times as much as retaining an existing one. Customer Relationship Management Benefits: 1. Allows firm to perform one-to-one marketing 2. A process by which firms enact their customer orientation 3. Capture information at each customer touchpoint 4. Customer prioritization 5. Customers are financial assets One-to-one marketing steps: ➔ Identify customers and get to know them in as much detail as possible ➔ Differentiate among these customers in terms of both their needs and their value to the company ➔ Interact with customers and find ways to improve cost efficiency and the effectiveness of the interaction 10  ➔ Customize some aspect of goods or services offered to each customer Customer Lifetime Value: for revealing the company’s strengths and weaknesses relative to those of various competitors Calculating customer value is an exact science that is subject to a variety of assumptions: o Profit impact of a customer may vary dramatically depending on the stage of service product lifecycle o Cannot assume loyal customers are always more profitable than those who make one-time transactions o Profits do not necessarily increase with time for all types of customers - Neuromarketing (causal): “Neuromarketing” loosely refers to the measurement of physiological and neural signals to gain insight into customers’ motivations, preferences, and decisions. Its most common methods are brain scanning, which measures neural activity, and physiological tracking, which measures eye movement and other proxies for that activity. 4. Acquired databases: Big data describes the exponential growth of structured and unstructured data o Internet data can be hard to analyze using traditional approaches o Internet of things (IoT) describes how everyday objectives are connected to the internet → objects able to communicate information throughout an interconnected system Big data provide competitive advantages: o Identify new opportunities through analytics that yield greater ROI on marketing efforts o Turning insights gained into products and services that are better aligned with the desires of customers o Delivering communication on products and services to the marketplace more efficiently and effectively Primary data for data mining Sources 11  Terabytes rules Data mining process by which analysts sift through big data to identify unique patterns of behavior. It uses sophisticated statistical and mathematical techniques such as cluster analysis, predictive modeling, neural networking to extract from mass of data useful information about individuals, trends and segments. 1. Customer acquisition: target noncustomers with demographic characteristics similar to those of store “members” 2. Customer retention and loyalty: identifying big-spending customers and target them with special offers 3. Market basket analysis: develops focused promotional strategies based on records of which customer have bought certain products 4. Customer abandonment: Firing a customer when they make unreasonable demands, slow to pay, don’t listen to you, want everything for nothing, don’t respond to you Marketing analytics is a group of technologies and processes that enables marketers to collect, measure, analyze and assess the effectiveness of marketing efforts. MARKETING CHANNELS 12  20/09/2024 CLASS 4 SEGMENTATION, TARGETING AND POSITIONING Target market strategy consists of three separate steps. Marketers first divide the market into segments based on customer characteristics, then select one or more segments and finally develop products to meet the needs of those specific segments o Segmentation is the process of dividing the total market into fairly homogeneous groups, based on one or more meaningful, shared characteristics. Each customer segment has different needs/preferences and can be targeted with tailor-made marketing mix strategies. Main benefits: 1. Optimize the results/resources ratio 2. Enhance company’s ability to quickly adapt to changes in customer preferences 3. Allows for direct comparisons with competitors which in turn helps in identifying opportunities to create competitive advantage 4. Stimulates proactive behavior like forces companies to accurately define consumer needs Which criteria to use? 13 Demographics: Age: consumer desires and preferences might change with time Gender: men and women have different attitudes and behaviors due to different genetic characteristics and due to differences in the way they socialize with other people Family and life cycle: recent growth in snack food consumption could be attributed largely to the growth in single-person household Income and social class: based on the individual salary, the person could purchase different type of products Generational marketing: boomers, x generation, y generation and z generation has different approaches to purchasing system Ethnicity: multicultural marketing is an approach based on the idea that different ethnic and cultural segments have needs and desires that are sufficiently different to justify targeted marketing activities Geographic: Urban typology Climatic conditions Territorials’ areas Psychographic: Psychological traits Lifestyle Personal values Behavioral: User and occasions (different type of coca cola based on the occasion, like can, glass bottle) Status of the user (different “subscription” based on your role) Online: relies on the way visitors interact with the website 14 o Targeting is composed by evaluate marketing segments, develop segments profile and choose a targeting strategy. How evaluate segments? Are they distinctive, measurable, relevant actionable and accessible? The choice of the segment/s is made based on: 1. Size and profitability 2. Current and future development rate 3. Competitive pressure current and future 4. Returns and synergies of image 5. Returns and synergies of knowledge 6. Contingent competitive strategies Full market coverage: with full market coverage, the company aims to serve all consumer groups with all the products they need. Only very large companies such as Coca-Cola can adopt a complete coverage strategy for the entire market. Specialization on multiple segments: with selective specialization the company selects multiple segments, each of which is objectively interesting and appropriate. The synergies between the segments may be limited or even zero, but each of them promises to be profitable. This multi-segment strategy has the advantage of diversifying risks for the comp any. A macrosegment is composed of a series of segments that share some exploitable characteristics of similarity. Single-segment concentration: with the single-segment concentration, the company only targets a particular segment. A niche is a small and well-defined group of customers who seek a specific combination of benefits in a product or service. Typically, marketers identify niches by dividing a segment into multiple sub-segments or micro-segments Marketing one-to-one: the ultimate level of segmentation leads to “personalized marketing”, also called customized marketing or one to one. Today, customers are increasingly taking an individual initiative in determining what and how to buy. They connect to the internet, search for information and comments on the offers of products and services, dialogue with suppliers, users and product critics and in many cases design the product they want. o Positioning is a representation, which emerges from market research, of how we are perceived by customers (current or potential) compared to competitors, The positioning statement, expresses how we would like to be perceived, identifying the value proposition we make to our customers. The value proposition can be based on functional benefits, psychological, symbolic benefits or economic benefits. Good positioning: for who? With respect to whom? What value? How to summarize the value? 15  26/09/2024 CLASS 5 MARKETING COMMUNICATION Learning objectives: Understand the communication process and the traditional promotional mix Describe the steps and the traditional promotional mix Explain what advertising is, discuss the major types of advertising and describe the process of developing an advertising campaign Marketing communications are the means by which firms attempt to inform, persuade and remind consumers, directly or indirectly, about the products and brands they sell. ➔ Establish a dialogue and build relationship Main roles: 1. It informs consumers about new goods and services 2. It persuades consumers to choose one brand over others 3. It reminds consumers to continue using certain brands 4. It builds relationships with customers You will be using different communication channel, to achieve different target The way the customer interprets your message is important, there’s a discrepancy between what they get and what you want they get. There is a gap in what you promise and what they understand, because of the noise it’s important to immediately identify the metrics that allows you to fill the gap. Which are the most used marketing communication tools? Advertising, sales promotions, PR and public, direct marketing, interactive marketing, word- of-mouth, personal selling The firsts 3 round are focused on traditional marketing The importance of digital marketing, social media, interactive marketing 16 3 models of Marketing Communications 1. One to many model → enables you to reach many customer (advertising, sales promotion, public relations) 2. One to one model → interact with a single customer on an individual level (database marketing, direct marketing, personal selling) 3. The many to many model → (buzz building, social media) MULTICHANNEL PROMOTIONS STRATEGY At the beginning of the simulations is “one to many” model From the third round we can use the other channel A marketing communication strategy where marketers combine traditional marketing communication activities (advertising, sales promotion, public relations and direct marketing) with social media and other online buzz-building activities. Where do we start? Promotion plan 1. Identify target audience a. Prospects (not usually know in advance) employ a traditional communications mix, comprising of elements such as media advertising and online advertising. You have to build trust because they don’t know you b. Current user (existing target audience) you already know each other so build a long-term relationship (lower price, premium product). Reach by cross- or up- selling efforts by frontline employees and point of sales promotions. c. Employees (secondary audience) well-designed communications campaign through public media targeted at customers can also be motivating for employees 17 2. Establish communication objectives Cognitive stage → awareness Affective → preferences Behavior stage → purchase Create brand product awareness, brand attitude desire and customer response 3. Determine and allocate marketing communication budget Affordable, percentage-of-sales, competitive parity, objective and task methods. (We will use zero budgeting round by round) 4. Design the promotion mix It depends on the previous choices Advertising Sales promotion Public relations and publicity Events and experience Direct and interactive marketing Word of mouth music Personal selling It could be: - Personal communication channels Face-to-face, phone, e-mail, personal selling - Nonpersonal (mass) communication channels Advertising and sales promotions 5. Evaluate the effectiveness of marketing program Neuromarketing (not in simulation) 18 TYPES OF ADVERTISING Product adv (we will use this one during the simulation) Retail and local adv Institutional adv ➔ Corporate, advocacy, public service Developing an effectiveness advertising 1. Identify target audience → potential buyers, current users, deciders, influencers 2. Determine message objectives → create brand/product awareness, brand image or brand associations, brand attitude, customer response and remind customers about brand/product Factors affecting budget decisions: ➔ Stage in product life cycle ➔ Market share and consumer base ➔ Competition and clutter ➔ Advertising frequency ➔ Product substitutability 3. Design communication Creative brief → message strategy → advertising appeals → executional framework 4. Pretest the ad effectiveness Goes on in early stages of campaign development. Information comes from quantitative (surveys and neuromarketing studies) and qualitative sources (interviews and focus group). Allocate budget to improve quality 5. Decide on media mix & schedule Deciding on reach (important when you launch a new product to create awareness and also when you enter a new market), frequency and impact (important when you have a lot of competition, or your targeting segment is very educated) When launching a new product, the advertiser must choose among different timing patterns. Media selection is the effect of exposure on audience awareness depends on the exposures reach, frequency and impact. 19  6. Post testing It means conducting research on consumers responses to advertising messages they have seen or heard (unaided recall, aided recall, attitudinal measures). SOCIAL MEDIA MARKETING If you want to reach younger people you have to use it Consumer sale promotions Always use non-monetary promotions → ‘guarantee’ long-term relationship with customer PERSONAL SELLING Two approaches: ➔ Transactional selling – focused on making an immediate sale with little concern for developing a long-term relationship with the customer ➔ Relationship selling – is the process by which a salesperson secures, develops and maintains long-term relationships with profitable customers 20 PUBLIC RELATIONS Variety of programs to promote or protect a company’s image or individual products (Sponsorships and special events) a. Proactive – promote company’s image PR tools can help a service organization build its reputation and credibility, form strong relationships with its employees, customers and community b. Crisis management – protect company’s reputation in time of crisis What to do? Admit the mistake, move fast and release more information, appoint new chief executive with spotless background Reason why sponsorship and special events: 1. To identify with particular target market or lifestyle 2. To increase salience of company or product name 3. To create or reinforce perceptions of key brand image associations 4. To enhance corporate image 5. To create experiences and evoke feelings 6. To express commitment on social issues 7. To entertain key clients or reward key employee 8. To permit promotional opportunities MIDTERM EXAM 10 multiple choice questions (2 points each) 10 T/F questions (1 point each) 45 min 27/09/2024 CLASS 6 DISTRIBUTION STRATEGY 1. Create efficiencies: reduce the number of transactions necessary for goods to flow from many different manufacturers to large number of customers Breaking bulk – purchase large quantities but sell only one or a few at a time to many different customers Create assortment – provide variety of products in one location 21  2. Transportation and storage 3. Facilitating functions – offering credit to buyers 4. Risk–taking functions – risk of not selling an item, because no customer wants it 5. Communication and transaction functions – may supply the sales force, advertising and other types of marketing communication Wholesaling intermediaries a. Independent intermediaries Merchant wholesalers Merchandise agents and brokers b. Manufacturer-owned intermediaries TYPES OF CHANNELS OF DISTRIBUTION TYPICAL CONSUMER CHANNELS 1. Direct channel: advantages Control over pricing, service and delivery Lower prices for the final consumer – eliminate profit centers Collect valuable data and information on customer needs and buying behavior 2. Reasons for choosing indirect channels Brand loyalty – customers are familiar with and/or loyal to certain retailers Intermediaries create utility and transaction efficiencies Physical distribution functions – storage and transportation Buy large volumes – obtain inventory at a lower price and then pass the savings on to shoppers DUAL/MULTIPLE DISTRIBUTION Dual multiple distribution systems – producers, dealers, wholesalers, retailers and customers participate in. more than one type of channel 22 STEPS IN DISTRIBUTION PLANNING 1. Develop distribution objectives a. If the product is bulky – primary objective may be to minimize shipping costs b. If the product is fragile – primary objective may be to develop a channel that minimize handling c. If the product is new – provide maximum product exposure and make product available close to where customers live and work 2. Evaluate internal and external environmental influences a. Use direct and short channels for: Expensive and complex products Products that require high levels of technical know-how and service Perishable products because getting the product to the final user quickly is a priority b. Use longer channels for: inexpensive, standardized consumer goods, that need to be distributed broadly and that require little technical expertise 3. Choose a distribution strategy (number of channel levels, conventional/vertical/horizontal marketing system, intensive/exclusive/selective distribution) a. Conventional marketing system – members work independently of one another. The relationships are limited to simply buying and selling from one another b. Vertical marketing system – there is a formal cooperation among channel members at two or more different levels Administered – channel members remain independent but voluntarily work together because of the power of a single channel member Corporate – where one member of the distribution channel owns all the others, and they effectively combine all the elements of the distribution channel under the leadership of a single business Contractual – all parties maintain their independence and operate as individual companies, but they work together to help achieve greater efficiency. A franchise is an example of a contractual system c. Horizontal marketing system – two or more companies at the same level unrelated to each other come together to gain economies of scale 4. Develop distribution tactics (select channel partners, manage the channel, develop logistics strategies). What to consider: a. Will the channel member contribute substantially to our profitability? b. Does the channel member have the ability to provide the services customers want? c. What impact will a potential intermediary have on a channel control? d. Competitor’s channel partners 23 THE FIVE FUNTIONS OF LOGISTICS TYPES OF RETAILERS 1. Based on merchandise assortment a. Merchandise breadth – number of different product lines available b. Merchandise depth – variety if choices available within each specific product line 2. Based on level of service a. Self-service retailers – no assistance, but low prices and no standing in a queue b. Full-service retailers – full assistance + supporting services, such as gift wrapping c. Limited-service retailers – limited assistance, lower prices d. No-services retailers – vending machines for inexpensive goods, food and beverages PRICING STRATEGY Price is the one element of the marketing mix that produces revenue: All other elements produce costs Price is the easiest element from the marketing program to adjust Price communicates to the market the company’s intended value positioning of its product or brand ELEMENTS OF PRICE PLANNING 24  1. Set pricing objectives a. Sales or market share – develop bundle pricing offers in order to increase market share b. Profit – set prices to allow for an 8 percent profit margin on all goods sold c. Image enhancement – alter pricing policies to reflect the increased emphasis on the product’s quality image d. Competitive effect – alter pricing strategy during first quarter of the year to increase sales during competitor’s introduction of a new product e. Customer satisfaction – alter price levels to match customer expectations Factors in price setting: costs, demand, revenue and pricing environment 2. Estimated demand Demand curves- illustrates the effect of price on the quantity demanded of a product a. Normal products – price goes up, the demand goes down b. Prestige products – increase in price may result in an increase in the quantity consumer’s demand How to estimate demand curves? Surveys – self-reported measures Statistical analysis – big data analysis on past purchase Price experiments- in. store vs. in lab settings Shifts in demand- other factors can cause an upward shift on the demand curve (marketing communication, product modification). To price a product or service effectively, the revenue manager needs to find out how sensitive demand is to price and what net revenues will be generated at different price points for each target segments. Other factors that can affect price elasticity and sales include: Availability of substitute goods and services – if a product has a close substitute, its demand will be elastic 25  Changes in prices of other products (cross-elasticity) ➔ Substitutes (price up, other demand up) ➔ Complements (price up, other demand down ) 3. Determine costs Types of costs: a. Fixed costs – rent, heat, wages b. Variable costs – depend on the level of production c. Semi-variable costs – hire a part-time employee to work on busy weekend Break even analysis 4. Examine the pricing environment a. The economy – in times of recession companies must cut prices and adopt product-enhancement strategies b. The competition – analyzing competitors’ costs, prices and offers (anticipate competitors reactions and make assumptions) c. Government regulation – government regulations to prevent price going up during the coronavirus crisis d. Consumer trends – sharing economy, the lipstick effect, healthy eating, panic buying e. The international environment – (Russia and Ukraine example) 5. Choose a pricing strategy a. PS based on cost – price will at least cover the production and marketing costs ➔ Cost-plus pricing – marketer totals all the costs for the product and then adds an amount b. PS based on demand – bases the selling price on an estimate of volume that it can sell in different markets at different prices ➔ Congestion pricing – drivers must pay a high fee for the privilege of driving their cars during peak times or in the city’s commercial and historical heart ➔ Target costing – firms first use marketing research to identify the quality and functionality needed to satisfy attractive market segments and what price they are willing to pay before they design the product ➔ Yield management pricing (dynamic pricing) – different prices for different customers at different times, based on demand conditions Revenue management is most effective when applied to service business characterized by high fix cost, fixed capacity, perishable inventory, variable and uncertain demand, price sensitivity c. PS based on competition – a few firms may agree on prices in order to avoid competition. Usually observed in oligopolistic industries d. PS based on customer needs Value pricing or everyday low pricing (EDLP) High/low pricing or promo pricing – retailers have prices that are higher than EDLP chains, but they run frequent promotions that heavily discount products 26  e. New product pricing ➔ Skimming pricing strategy – the price for a new offering is set very high initially and is typically reduced over time Appropriate strategy if: Demand is likely to be price inelastic There are different price-market segments, of which one will pay a higher price for it It can be protected by patent or copyright Production capacity is constrained The firm wants to quickly recoup its investment or found other projects There is a realistic perceived value in it ➔ Penetration pricing strategy – an offering is introduced and maintained at a very low price. Opposite of skimming Penetration appropriate if: Demand is likely to be price elastic in the target market segments at which the product is aimed Competitors are expected to quickly enter the market There are no distinct price-market segments There is a possibility of large savings in production and marketing costs if a large sales volume can be reached The firm’s major objective is to obtain a large market share ➔ Trial pricing strategy – low price for a limited time to generate a high level of customer interest. Unlike penetration pricing, the company increases the trial price after the introductory period 6. Develop pricing strategy 27