marketing management module-(4/5)
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Module 4:Product Strategies, Servicequality and Pricing
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Module-4 Content
Chapter 12: Setting Product Strategy
Chapter 20: Introducing New MarketOfferings
Chapter 13: Designing and ManagingServices
Chapter 14: Developing PricingStrategies and programs
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Setting Product Strategy12
Marketing Management
A South Asian Perspective, 13th
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Chapter Questions
What are the characteristics of productsand how do marketers classifyproducts?
How can companies differentiateproducts?
How can a company build and manage
its product mix and product lines?
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What is a Product?
A product is anything that can beoffered to a market to satisfy a want or
need, including physical goods,
services, experiences, events, persons,places, properties, organizations,
information, and ideas.
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Figure 12.1 Components of theMarket Offering
Attractivenessof the market
offering
Value-based prices
Productfeaturesand quality
Servicesmix andquality
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Figure 12.2 Five Product Levels
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Product Classification Schemes
Durability
Use
Tangibility
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Durability and Tangibility
Nondurable
goods
Services
Durable
goods
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Consumer Goods Classification
Convenience
Unsought
Shopping
Specialty
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Industrial Goods Classification
Materials and parts
Supplies/
business servicesCapital items
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Product Differentiation
Product form
Features
Customization
Performance Conformance
Durability
Reliability Repairability
Style
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Design Differentiation
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Service Differentiation
Ordering ease
Delivery
Installation
Customer training
Customer consulting
Maintenance and repair
Returns
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Ginger Hotelshas carved a
profitable
niche throughits innovative
service
configuration
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Developing products for rural markets
Products should be designed keeping in mindthe rural conditions
Packaging is one of the key drivers of
success in rural areasIssue of transfer and storage: Ruggedpacking
The issue of affordability: small-unit packs Brand elements should be decided keeping in
mind rural consumers
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The Product Hierarchy
Need family
Product family
Product class
Product line
Product type
Item
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Product Systems and Mixes
Product system
Product mix
Product assortment
Depth
Length
Width
Consistency
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Product Line Analysis
Convenience
items
Core product Staples
Specialties
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Figure 12.3 Product ItemContributions to a Product Lines
Total Sales and Profits
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Figure 12.4 Product Map
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Line Stretching
Down-Market Stretch
Up-Market Stretch
Two-Way Stretch
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Line Filling
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Pruning
Pruning weakbrands canstrengthen the
remaining brands inthe line
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Product-Mix Pricing
Product-line pricing
Optional-feature pricing
Captive-product pricing Two-part pricing
By-product pricing
Product-bundling pricing
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Two-Part
Pricing
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Co-branding
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Ingredient Branding
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What is the Fifth P?
Packaging, sometimes called thefifth P, is all the activities ofdesigning and producing the
container for a product.
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Factors Contributing to theEmphasis on Packaging
Self-service
Consumer affluence
Company/brand image
Innovation opportunity
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Innovations in Packaging
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Packaging Objectives
Identify the brand
Convey descriptive and persuasiveinformation
Facilitate product transportation andprotection
Assist at-home storage
Aid product consumption
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Functions of Labels
Identifies
Grades
Describes
Promotes
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IntroducingNew Market Offerings
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Chapter Questions
What challenges does a company facein developing new products andservices?
What organizational structures andprocesses do managers use to managenew-product development?
What are the main stages in developingnew products and services?
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Chapter Questions (cont.)
What is the best way to manage thenew-product development process?
What factors affect the rate of diffusion
and consumer adoption of newlylaunched products and services?
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Johnson & Johnson EmphasizesNew Product Development
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Categories of New Products
New-to-the-world
Cost reductions
New product lines
Additions
Improvements
Repositionings
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Moser Baer has moved frommaking optical storage media to
selling home entertainment
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The Worlds
Most Innovative Companies
Apple
Google
Toyota
General Electric
Microsoft
Procter & Gamble
3M Walt Disney
IBM
Sony
Wal-Mart
Honda
Starbucks
Target
BMW Samsung
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Seven Notions of Innovation
See the future through the eyes of yourcustomer
Intellectual property and brand power are keyassets
Use digital technology to create tools forcustomers
Build a championship team
Innovation is a state of mind
Speed is critical, so push your organization
Partner up if youre not the best
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Factors That LimitNew Product Development
Shortage of ideas
Fragmented markets
Social and governmental constraints Cost of development
Capital shortages
Faster required development time Shorter product life cycles
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What is a Venture Team?
A venture team is a cross-functionalgroup charged with developing a
specific product or business;
intrapreneurs are relieved of otherduties and provided a
budget and time frame.
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Criteria for Staffing Venture Teams
Desired team leadership style
Desired level of leaderexpertise
Team member skills andexpertise
Level of interest in concept
Potential for personal reward
Diversity of team members
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Figure 20.2 The New ProductDevelopment Decision Process
Mahindra and Mahindra followed a
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Mahindra and Mahindra followed athorough product development
process for Scorpio
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Ways to Find Great New Ideas
Run informal sessions with customers
Allow time off for technical people toputter on pet projects
Make customer brainstorming a part ofplant tours
Survey your customers
Undertake fly on the wall research tocustomers
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More Ways to Find Great Ideas
Use iterative rounds with customers
Set up a keyword search to scan tradepublications
Treat trade shows as intelligencemissions
Have employees visit supplier labs
Set up an idea vault
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Drawing Ideas from Customers
Observe customers using product
Ask customers about problems withproducts
Ask customers about their dreamproducts
Use a customer advisory board or abrand community of enthusiasts todiscuss product
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Idea Generation: Creativity Techniques
Attribute listing
Forced relationships
Morphological
analysis
Reverse assumptionanalysis
New contexts Mind mapping
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Lateral Mapping
Gas stations + food
Cafeteria + Internet Cereal + snacking
Candy + toy
Audio + portable
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Variations on Failure
Absolute product failure
Partial product failure
Relative product failure
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Concepts in Concept Development
Product idea
Product concept
Category concept
Brand concept
Concept testing
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Concept Testing
Communicability and believability
Need level
Gap level
Perceived value
Purchase intention
User targets, purchase occasions,purchasing frequency
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Figure 20.6 Utility Functions Based onConjoint Analysis
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Marketing Strategy
Target markets size, structure, andbehavior
Planned price, distribution, and
promotion for year one
Long-run sales and profit goals andmarketing-mix strategy over time
Fi 20 7 P d t Lif C l S l
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Figure 20.7 Product Life Cycle Salesfor Three Product Types
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Consumer Goods Market Testing
Sales-Wave Research Simulated Test Marketing
Controlled Test Marketing
Test Markets
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Test Market Decisions
How many test cities?
Which cities?
Length of test?
What information to collect?
What action to take?
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Timing of Market Entry
First entry Parallel entry
Late entry
Criteria for
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Criteria forChoosing Rollout Markets
Market potential
Companys local reputation
Cost of filling pipeline Cost of communication media
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What is Adoption?
Adoptionis an individuals decision to becomea regular user of a product.
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Stages in the Adoption Process
Awareness
Interest
Evaluation
Trial
Adoption
Figure 20 8 Adopter
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Figure 20.8 AdopterCategorization
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Characteristics of an Innovation
Relative advantage
Compatibility
Complexity Divisibility
Communicability
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Designing andManaging Services
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Chapter Questions
How do we define and classify servicesand how do they differ from goods?
How do we market services?
How can we improve service quality?
How do service marketers createstrong brands?
How can goods marketers improvecustomer support services?
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What is a Service?
A service is any act of performancethat one party can offer another that is
essentially intangible and does not
result in the ownership of anything; itsproduction may or may not be tied to a
physical product.
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Service Sectors
GovernmentPrivate
nonprofit
Manufacturing
Business Retail
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Categories of Service Mix
Pure tangible good
Good w/ accompanying services
Hybrid
Service w/ accompanying goods
Pure service
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Service Distinctions
Equipment-based or people-based
Service processes
Clients presence required or not
Personal needs or business needs
Objectives and ownership
Figure 13 2 Continuum of Evaluation
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Figure 13.2 Continuum of Evaluationfor Different Types of Products
Distinctive Characteristics
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Distinctive Characteristicsof Services
Intangibility
Inseparability
Variability
Perishability
Physical Evidence and Presentation
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Physical Evidence and Presentation
Place
People
Equipment
Communicationmaterial
Symbols
Price
Palace on Wheels provides the
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pultimate royal experience due tocareful design and execution of
various service elements
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How to Increase Quality Control
Invest in good hiring and
training procedures
Monitor customer satisfaction
Standardize the
service-performance process
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Matching Demand and Supply
Demand side
Differential pricing
Nonpeak demand
Complementaryservices
Reservationsystems
Supply side
Part-timeemployees
Peak-time efficiency Increased consumer
participation
Shared services
Facilities for futureexpansion
Figure 13 3 A Blueprint for
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Figure 13.3 A Blueprint forOvernight Hotel Stay
I i S i Q li
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Improving Service Quality
Listening
Reliability
Basic service
Service design Recovery
Surprisingcustomers
Fair play
Teamwork Employee research
Servant leadership
Figure 13.4 Root Causes
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Figure 13.4 Root Causesof Customer Failure
S l i C F il
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Solutions to Customer Failures
Redesign processes and redefine customerroles to simplify service encounters
Incorporate the right technology to aid
employees and customers Create high-performance customers by
enhancing their role clarity, motivation, andability
Encourage customer citizenship wherecustomers help customers
Figure 13.5 Three Types of Marketing
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Figure 13.5 Three Types of Marketingin Service Industries
Table 13.1 Factors Leading to
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Table 13.1 Factors Leading toCustomer Switching Behavior
Pricing
Inconvenience
Core Service Failure
Service Encounter Failures
Response to Service Failure
Competition Ethical Problems
Involuntary Switching
Figure 13 6 Service-Quality Model
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Figure 13.6 Service Quality Model
Gaps That Cause Unsuccessful
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Gaps That Cause UnsuccessfulService Delivery
Gap between consumer expectation andmanagement perception
Gap between management perception andservice-quality specifications
Gap between service-quality specificationsand service delivery
Gap between service delivery and externalcommunications
Gap between perceived service andexpected service
D t i t f S i Q lit
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Determinants of Service Quality
Reliability
Responsiveness
Assurance
Empathy
Tangibles
B t P ti
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Best Practices Strategic Concept
Top-ManagementCommitment
High Standards
Self-Service
Technologies Monitoring Systems
Satisfying CustomerComplaints
SatisfyingEmployees
Figure 13.7 Importance-Performance
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g pAnalysis
Table 13.3 Customer Importance and
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ab e 3 3 Custo e po ta ce a dPerformance Ratings
for an Auto Dealership
Developing Brand Strategies
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p g gfor Services
Choosing
Brand Elements
Establishing Image
Dimensions
Devising Branding
Strategy
Customer Worries
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Customer Worries
Failurefrequency
Downtime
Out-of-pocket costs
Table 13.4 Top Customer
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pService Providers
USAA
Four SeasonsHotels
Cadillac Nordstrom
Wegman FoodMarkets
Edward Jones
Lexus
UPS
Enterprise Rent-A-
Car Starbucks
Ritz-Carlton
Amica Insurance Southwest Airlines
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Developing PricingStrategies and Programs
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Chapter Questions
How do consumers process and evaluateprices?
How should a company set prices initially forproducts or services?
How should a company adapt prices to meetvarying circumstances and opportunities?
When should a company initiate a price
change? How should a company respond to a
competitors price challenge?
Gillette Commands a
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Price Premium
Synonyms for Price
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Synonyms for Price
Rent
Tuition
Fee
Fare
Rate
Toll
Premium Honorarium
Special assessment
Bribe
Dues
Salary Commission
Wage
Tax
Common Pricing Mistakes
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Common Pricing Mistakes
Determine costs and take traditional industrymargins
Failure to revise price to capitalize on market
changes Setting price independently of the rest of the
marketing mix
Failure to vary price by product item, market
segment, distribution channels, andpurchase occasion
Consumer Psychology
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Consumer Psychologyand Pricing
Reference Prices
Price-quality inferences
Price endings
Price cues
Table 14.1 Possible Consumer
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Reference Prices
Fair price
Typical price
Last price paid
Upper-bound price
Lower-bound price
Competitor prices
Expected futureprice
Usual discountedprice
Table 14.2 Consumer Perceptions vs.
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Reality for Cars
Overvalued Brands
Land Rover
Kia
Volkswagen Volvo
Mercedes
Undervalued Brands
Mercury
Infiniti
Buick Lincoln
Chrysler
Tiffanys
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Price-Quality Relationship
Price Cues
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Price Cues
Left to right pricing ($299 vs. $300)
Odd number discount perceptions
Even number value perceptions
Ending prices with 0 or 5
Sale written next to price
When to Use Price Cues
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When to Use Price Cues
Customerspurchase iteminfrequently
Customers are new Product designs
vary over time
Prices varyseasonally
Quality or sizes varyacross stores
Steps in Setting Price
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Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
Step 1: Selecting the Pricing Objective
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Step 1: Selecting the Pricing Objective
Survival
Maximum currentprofit
Maximum marketshare
Maximum marketskimming
Product-qualityleadership
Step 2: Determining Demand
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Step 2: Determining Demand
Price Sensitivity
Estimating
Demand Curves
Price Elasticityof Demand
Figure 14 2 Inelastic
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Figure 14.2 Inelasticand Elastic Demand
Table 14.3 Factors Leading to Less
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Price Sensitivity
The product is more distinctive Buyers are less aware of substitutes
Buyers cannot easily compare the quality of substitutes
The expenditure is a smaller part of buyers total income
The expenditure is small compared to the total cost ofthe end product
Part of the cost is paid by another party
The product is used with previously purchased assets
The product is assumed to have high quality andprestige
Buyers cannot store the product
Step 3: Estimating Costs
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Step 3: Estimating Costs
Types of Costs
Target Costing
Accumulated
Production
Activity-Based
Cost Accounting
Cost Terms and Production
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Cost e s a d oduct o
Fixed costs Variable costs
Total costs
Average cost Cost at differentlevels ofproduction
Figure 14.4 Cost per Unit as aF i f A l d P d i
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Function of Accumulated Production
Tata motors developed Nanoits
ll i h i
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small car with a target price
Step 5: Selecting a Pricing Method
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Step 5: Selecting a Pricing Method
Markup pricing Target-return pricing
Perceived-value
pricing Value pricing
Going-rate pricing
Auction-type pricing
Figure 14.6 Break-Even Chart
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Figure 14.6 Break Even Chart
Auction-Type Pricing
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Auction Type Pricing
English auctions
Dutch auctions
Sealed-bid auctions
Step 6: Selecting the Final Price
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p g
Impact of other marketing activities Company pricing policies
Gain-and-risk sharing pricing
Impact of price on other parties
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Price-Adaptation Strategies
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ce daptat o St ateg es
Countertrade Barter
Compensation deal
Buybackarrangement
Offset
Discounts/ Allowances Cash discount
Quantity discount
Functional discount Seasonal discount
Allowance
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Special festivalpricing by
Coca-Cola on the
occasion ofRamzan inPakistan.
Differentiated Pricing
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Customer-segmentpricing
Product-form pricing
Image pricing Channel pricing
Location pricing
Time pricing
Yield pricing
Pricing for rural marketsA l ti h l d l i
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A large proportion have a low and seasonal income
Several approaches adopted by retailers andcompanies to address this
Rural retailers often extend credit
Retailers also break the bulk and sell in loose form,
in small quantities Companies use a similar strategy by introducing
low-unit packing or LUP
Companies also develop low-priced products with a
target price for rural markets Companies might offer refill packs or recyclable and
reusable packs
Increasing Prices
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Delayed quotationpricing
Escalator clauses
Unbundling
Reduction of discounts
Brand Leader Responses toCompetitive Price Cuts
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Competitive Price Cuts
Maintain price
Maintain price and add value
Reduce price Increase price and improve quality
Launch a low-price fighter line
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