Principles of Marketing : Chapter 11 : Pricing Strategies

This is the second part of chapter 10 since I have skipped the later parts of chapter 10 because all other concepts were related to economics. In this chapter, we will be discussing different kinds of pricing strategies excluding which we studied in chapter 10.

The first strategy which we going to study is Price Skimming Strategy. The concept of skimming is basically when we skim milk, fat, and milk separated from each other. The same analogy is applied over here. When is the product is introduced in the market it is priced higher and with the passage of time the  Price decreases or the company tries to obsolete/finish that product so that new product can come with the higher price. The obsoleting of technology is known as Planned Obsolescence. For example, Samsung S9 is recently launched in the market at a price of 81,500 at daraz.pk. With the time goes on they will decrease their prices so that Samsung s10 can be launched at the higher price.

Planned obsolescence

Another concept is Market penetration pricing strategy. Here you will have to set a low price in the market so that the product can easily penetrate in the market. The best example is of Q-mobile. They give reasonable mobiles at low cost and their main target market is Rural areas of Pakistan.

Product mix pricing strategies consists of Product line pricing (different prices in the same product line), Optional Product pricing (In Samsung s8, if you want to buy a Virtual Reality goggles you need to pay extra, it is an option for the customer or extend the warranty of your product, you need to pay higher). Captive product pricing is the strategy where you set the price of the product which is compulsory to be used with the actual product for e.g. in coffee machine (expresso) you need to have the expresso coffee shots with you so that you can make coffee from it). By-Product pricing strategy where the price is set for the by-product for e.g. In the extraction of the petroleum, you get petrol, diesel, kerosene oil. In this case, High Octane petrol will be priced higher and other are by-products which are priced at a lower cost to be available for the customers at different prices. Bundle pricing, a strategy where you bundle the product and price them accordingly, like in Lux '3' soaps are wrapped in one and are priced less.

Next part is about Price Adjustment Strategies. They consist of 1). Discount and allowance pricing (for example in airline industry if you buy tickets early you can get good price (low cost) or sometimes you can get early bird discount ( the early you get the low price you have). 2) Segment price (a strategy where you segment the audience and charge them differently for the same product or service for e.g. in bus travelling you can get student discount or senior citizen discount. 3). The most common is Psychological pricing strategy (for example a product which is of $ 20, I write $19.99, so in the human psyche, the product lies in the category of 19, not 20. This is one strategy, another one is the higher the product is charged people think it has good quality.) 4) Reference pricing, a price which is already in the mind of the customer, they can get a reference from the competitors as well. That he is selling at this price why are you selling at a higher price? Promotional Pricing, a strategy where we can see different promotions or discounts or sales or "buy one get one free" in big banners. Dynamic Pricing, a strategy where you continuously changing prices according to the market demand. It happens in Online medium because it is easy to change over there. For example, Daraz.pk changes prices 4 times a month of a certain product by seeing their competitor homeshopping.pk. Lastly, International pricing, where a company needs to set the price according to the economic and legal system when they are expanding their operation in a new country. Like Khaadi London charges different amount of prices in Uk than in Pakistan for the same product. Here company needs to focus on buying power of the customers as well.

Principles of Marketing : Chapter 10 . Pricing and capturing value.

Moving towards the only ‘P’ in the marketing mix that is PRICE. Charging a certain amount of money for the consumption or usage of a particular product or a service. Since Price is the only thing which a person sees at first glance
.
"Consideration of setting price" is critically important for the companies to select the right pricing strategy. The price floor is the concept, where the company is getting no profit from it. That means the company is selling the product at the cost price. On the other side consumer perception of value means every consumer think that company is charging way more money than the product price should be. This process is known as the price ceiling. Now between price flooring and price ceiling, there are some factors which control these pricing strategies. Since looking at the competitor’s price, market demand and need of a market. You can set a middle price between flooring and ceiling. These are the factors which control the price in the marketplace.

Value-based pricing or value optimized pricing is a concept where the company sets a price on the basis of a value which they are providing it to the customers for e.g. A cost of making a painting is 10000 Pkr but the painter charges 20000 Pkr for it. That means the excess of 10000 Pkr is the value that he is providing to the customer.  This is mostly targeted towards the niche target market.
On the other hand, Cost-Based pricing is a strategy where you calculate the cost of a product and add profit in it. For e.g. making a laptop cost 50000 rupees, the retailer sells it for 55000, that’s mean he is making the profit of 5000 rupees from it. This is targeted towards differentiated or undifferentiated TM.

Good Value pricing strategy is the first strategy which is consumer-centric in nature. That means giving and charging the right price and quality to the customer. In Pakistani market, Huawei is doing GVP. As they are charging less price for excellent cell phones and with augmented services and quality.

Everyday low pricing is a strategy where you actually charge low price than normal products. Like muffins from Hyperstar will be everyday low priced because they know after a whole day they need to throw it away so they charge less so that they can be bought by the consumers. Walmart does EDLP.

Hi-Low pricing strategy where you initially charge a high price for a product and once the product is not popular anymore they shrink their prices to the minimum level.
Value-added price is a strategy where you give additional value with a particular product. Like Nestle Every day, you get a free mug with it. The free mug is the additional value. It can also be coupons or discount vouchers that the competitor is not giving it to you.

Lastly, we will be focusing on cost-based pricing. There are two types of CBP.
1) Fixed cost, a cost which remains constant irrespective the demand changes or production changes like rent or interest rate.
2)Variable cost means it varies with the level of production. For example, the amount of petrol I need in my car is dependent on the kilometer I drive. So it varies with the kilometer I drove, but the cost of per liter will remain same.

Principles of Marketing : Chapter 9 : New Product Development strategies and PLC.

New Product Development (NPD) chapter starts with the definition of acquisition which means when a company acquires some other company. For example, Microsoft acquired Nokia, but the question is what is the parameter of acquisition. The only parameter is one 51% of the shares are acquired by a company plus their assets.
New product development is a process of developing or manufacturing a new product which is introduced first time in the market or improving an existing product or put some sort of modification in it. Jumping from Samsung Galaxy s8 to s9 is also a new product development since it’s a modified product than prior.

Before continuing further, one should know about innovation. 1st type of innovation is known as Radical innovation where the whole market structure is changed by introducing a phenomenal product. The best example is the introduction of I-Phone and Tesla cars. The second type of innovation is Incremental Innovation where you innovate step by step by improving or modifying a particular product line.

The elongated NPD process comprises 8 steps from Idea generation till the final Commercialization of a product.
The first step is Idea generation where you generate different types of idea on the bases of filling a market gap. This can be done through brainstorming techniques in different departments of an organization. Two types of idea generation are internal (within the organization) or external (looking at the competitor and fulfilling customers’ needs and wants).
The second process Is known as Idea screening where you use a technique of funneling effect. You have multiple ideas and you screen them on the basis of how close they are close to the reality and how easily they can be implemented.
Concept testing is basically how the end product is going to look, in short, how customers will perceive the product we have made. So what you have screened down is now in a stage of feasibility test.
Marketing strategy is where we develop our strategy, in short, we are going to focus on STP. What segment we will target, what is our potential target market and how we are going to position our product in customer’s mind. Secondly, the major focus will be on what will be our value proposition and why the customer should buy our product.
Business analysis is basically we do trend projection and forecast our sales. We have a budget in our hand and we develop a timeline of how much money we should spend in each month till the product is placed in the market.
Now we are converting an intangible idea into a tangible product. This concept is known as product development where we develop few of the prototypes and see which one looks the best. This development stage is executed by Research and Development department (R&D).
Then we move towards Test marketing stage where we test our product response in the actual ground setting. It consists of three strategies 1) Standard test (a strategy where the product is placed in different cities and stores to see the sales) 2) Controlled test marketing (where few of the stores are selected to place your product and after when the customer purchase your newly developed product they interview the customer about the product and their experience). Simulated or laboratory test marketing (a strategy where you choose the desired sample of customers and then you test them in a controlled environment, for instances your company own employees can be the sample). Each test marketing has their own flaws and positive side.
Lastly Commercialization a process where you planned out the marketing mix, where to launch and at what time we should launch.

The strategies of NPD are as follows: 1) Consumer-centric NPD (where the main focus is to develop a product by the needs of the customers). 2) Sequential NPD (one department completes one process and then forward it the other department). Team base (more productive, where different teams of different department work together as a more innovative culture).

Lastly, we are going to discuss PLC (product lifecycle) Where we study the lifecycle of a new product. Since you can the diagram the red line is the profits and the green line is the sales. Initially, whenever the product is introduced for the first time it will always go in loss because you haven’t recovered your initial investment or cost. So red line is below the mark. After that when red line touches the black line that’s where the company touches the break even. At maturity you can see a substantial difference between profits and sales since profit and sales cannot meet each other because you have to eliminate your daily expense out from the sales you have done, that’s why there is a gap between both of them.

Principles of Marketing , Chapter 8: Products, Brands and Services

This chapter talks about the classification of Products, Brands, and Services. A product is something which is tangible in nature and can be seen and touched. Since nature is tangibility, then we can get its attention and then we can use for acquisition or for usage. Today companies are developing PSP (problem-solving products) which can create an ultimate experience for the user. Now the value is converted into an "experience". The experience which is discussed before is in the part of “augmented product” in levels of product and services where you give something more than the product, an ultimate experience for the users. The products are classified into two bases: Consumer products and Industrial products.

Consumer products consist of 1) Convenience products (products which are easily and readily available at your convenience like coca cola at your nearest retail store). 2) Shopping products (products which are bought on the bases of quality, price and design for e.g. cars, furniture or home appliances. 3) Specialty products which are highly targeted meaning "Niche" target market. They are expensive products for e.g. designer clothes, expensive cell phones. 4) Unsought products (kind of products which customers are not even sure that they need it or not e.g. life insurance or funeral services).

Industrial products another type of consumer products consists of 1) Capital items (which helps the productions or operations e.g. office is compulsory to create a strong image and yet it can also help to take the order and expand the business). 2) Materials and parts (parts which are sold to make further products like cement, wheat, bricks). 3) supplies and services (include supplying the products, maintenance of machinery and running the industry)

Individual product and services consist of a diagram which starts at Product Attributes and ends at product support services 1) Product attribute means the quality, features, and specialty of a product. To maintain the quality, we run some quality test like quality level (ISO certification) and TQM (Total quality management) and how to eliminate those processes which don't create value (lean six sigma) or re-using the waste. Difference between style and a design is that style talks about the outer appearance of a product and design talks about the specifications and more detailed version of the style.

Style, design, label, and packaging

A brand is something which differentiates a product/service from the competitors one. It can be a sign, symbol, design, color, packaging, jingle, and tagline. The best example to make it more memorable is just seeing a product right in front of you and see how can you identify it. Equity is a sum of assets and liability. Brand equity is defined by two authors Kevin Lane Keller and David Aaker.
Keller talks about consumer-based brand equity and Aaker talks about firm’s equity. Keller definition is written in the book but Aaker definition of brand equity is the sum of assets and liabilities associated with a company’s brand. Packaging consist of designing and wrapping a particular product and labeling is to convey a descriptive meaning to the consumer about a product. Lastly, we talk about the creation of value in the process of augmentation.

The product line is set of products which have the same characteristic and are in same SBU. Their SKU’s are different but are sold to the same customer and have the same IMC. Product line length is the number of products in one product line. Like coca cola have 24 different types of flavors. So 24 is the product line length. The product mix is the portfolio of a company. It consists of all the SBU’s of a company.
Branding strategy talks about the brand positioning (product attribute and clearly define your USP so that customer can easily position your product in their mind. Positioning can also be done through the process of value creation. Brand naming criteria is to select a brand name which tells about the quality of your company (daraz.pk) easy to pronounce not like Italian or French brands. Make sure when you expand your brand make sure brand name should not carry a bad meaning in other countries language. It should be protectable and licensed.  Brand sponsorship consists of 1) Manufacturer brand (who is producing the product, like coca cola, national brands) 2) Private brands (Retailers create their own brands like Morrison muffins or Hyperstar French bread, it is branded under their own brand. 3) Licensed brand ( like McDonald's toys are licensed by them and cannot be used by their competitors). 4) co-branding, where two companies merge themselves for a limited amount of time to work on a specific project like Sony and Ericson. Learning part over here is the price war and competitive war between manufacturer brands and private brands. Because retailer wants to sell his product more than the manufacturer brand just because of more profit margin. Lastly is brand development where we already discussed about the category extension(brand extension), product line extension, multi-brands like P&G have different types of diapers in one product line and lastly New Brand (first time introduced in the market and is launched in the different category).

Last part is about Services, services can be categorized into 4 parts 1) Intangibility: where you can touch a service, 2) Inseparability: where you cannot separate a service from its provider, in the hotel, you cannot take out the bed from the hotel if you want to sleep. 3) Variability: In the service industry, the human part is involved, that is why there is no consistency in it. It is variable depending upon the service provider’s mood. And lastly Perishability, you cannot store a service like we can store a product.

Chapter 7 : Principles of Marketing : creation of the marketing strategy. (STP)

Marketing strategy is an important part of marketing. Marketing strategy talks about who is your target market for your product or service will be and under what criteria you have selected them. Since it is very understandable that your product cannot be for the whole population. You need to define some parameters for the audience whom product will be for. This concept is known as market segmentation, dividing the population into small chunks so that it becomes easy for the company to identify the potential customer. So normally we divide market on the basis of 4 criteria.

1) Geographic segmentation: dividing the market into small nations, states even countries. The most important part in geographic segmentation is a market expansion because companies need to focus on culture and buying pattern for the people as well. Since "Agha Noor" and "Khaadi" (apparel Pakistani brands) expanded their outlets to London and UAE, they need to focus on the culture and the way people dressed.
2) Demographic segmentation: dividing the marketing into the factors of age, social income, gender, religion. Since Mcdonalds actually targets the younger class so it is doing demographic segmentation.
3)Psychographic segmentation: dividing the population on the basis of lifestyle, personality. Since "EverLast" a sports brand targets those enthusiast sports people who do gym in their life. Since they have a specific amount of time in a day where they do gym. So once they go to the gym they wear everlast gears, it means that specific amount of time is embedded in their life by Everlast. Lastly
4)Behavior segmentation: divide the population on the basis of usage and knowledge of a product. It can be a repetitive behavior of a purchase, Like Starbucks loyalty is that everyday people when they leave for their office they consumer Starbucks on their way to their office.
The criteria for choosing segmentations are,
1) Measurable (the target population should be measurable, like demographics, their age, and income)
2) Substantial (Ample amount of profit should be there, like delivering ketchup to the individual is not profitable than delivering to restaurants.
3) Accessible ( Your product should be in a place where your target audience can easily reach (Malls) no restriction should be there.
4) Differentiable (differentiate your target market on the basis of their buying pattern, like buying pattern of a married couple is different from unmarried ).
5) Actionable (how to execute your strategy for e.g which platform of IMC will you be using.

Moving towards the next strategy that is Target Market. Find your target market with the above-mentioned segments.
1) Undifferentiated TM (Here the product is not differentiated on the basis of the target audience, this product is for everyone. For example, NESTLE water, the CEO of a company is consuming same water as a normal employee.
2) Differentiate TM (Here the target audience is differentiated on the basis of taste, color, price etc.  e.g. Diet coke, a specific amount of people consumer it who have diabetes or obesity.
3) Niche TM (here the product is for selective people, like Apple iPhone, only a few of people can afford or use it.
4) Micro-Marketing( here we talk about tailoring a specific product for e.g. having your car customized or your office suit specially tailored. It contains two types local and individual marketing.

Another important aspect of Target market is the socially responsible target market. We have witnessed that advertisement of alcohol and cigarettes are banned all over the world just to protect society. So the major concern is to protect the vulnerable segments like children.
Lastly, we are going to focus on Positioning.  It is the most important and difficult part in the creation of a company's strategy. The difference between positioning and placement is that positioning occurs when a customer won't prefer any other product than your product because the brand is strongly positioned in its mind. Placement is a physical location where the product placed for the purchase. When I say what fast food do you like some students say Mcdonalds in a jiffy second that means Mcdonalds hold a strong position in their mind. Through this company holds a competitive advantage.

#market segmentation#Geographic segmentation#Demographic segmentation#Psychographic segmentation#Behavior segmentation#Target Market#socially responsible target market.#Positioning.

Principles of Marketing : Chapter 6 (business buying behavior)

In the previous chapter we discussed the buying behavior of the customers, in this chapter, we will elaborately discuss the buying behavior in business markets. So business buying behavior is basically the purchase behavior of a company that buys goods or services for further processing or the goods/products are sold to other business, lease out to other suppliers. Like in consumer buying behavior (CBB), black box in the business market is known as buying centers.  Like in consumer buying behavior (CBB), the environment is same for the business market as well, but through buying centers and the process of buying is different for every organization through which buying behavior is also different. What makes (CBB) with business buying behavior (BBB) is the change in market structure and demand. Since the transaction is solely (B2B) business to business so there are few buyers and few sellers. The Second one is Geographic concentration, a product is manufactured through different parts and these parts are imported from different parts of the world, the case of iPhone. Price remains "In-elastic" (for example when the price of petrol (gasoline) increases, the demand somehow remain constant or the impact on demand is very less). And lastly, the buyer is solely dependent on the seller or the supplier.

The types of buying situations in BBB are of three types 1) Straight Re-Buy: when in the consignment, there is no modification, like supplying stationery to Bahria University, the order will remain constant. 2). Modify re-buy: when a customer changes their purchase behavior on the basis of price, quantity, or suppliers, 3) New task: when your buying behavior is developed on the basis of something new or new product development.

Buying centers as discussed above are those specific entities who are involved in the buying process. The intensity of the power in buying behavior depends on the position that entity holds. It consists of 5 types. 1). Users are basically the customer who consume a particular product. 2) Influencers are technical people who define specifications and provide information. 3) Buyers are basically the procurement department which has the power of selecting the suppliers and consignments. 4) Deciders are the top management who put a final decision of selection it can be the finance department. 5) Gatekeepers basically control and circulate the information it can be the office secretary

Moving forward with the Business buying behavior process. This process is more complexed and elongated than the consumer buying behavior process. The main reason behind it is the involvement of more cost and technicalities. The first part is Problem recognition (it can be through internal, within organization or external (outside organization). The company will see if there is any problem or any shortage of any supplies. The second part is General need description where we quote the quantity of the goods needed to eliminate the problem. Product specification describes the technicalities of the products which are required. For example, if the company wants to buy several computers, general need description tells us, we need 20 computer and product specification tell you we need quad core intel process i7. Value analysis describes the process of reducing cost and find the best alternative to reduce the price. Since Tender is opened and a lot of suppliers bid on it, supplier selection criteria involve critically select suppliers on the basis of cost reduction and value creation. Through a rigorous process, few of the suppliers are selected from a vast pool and then they were asked to submit the proposal of intent (proposal solicitation). After carefully examining the proposal one supplier is selected, which fits best for the job. After that, the company places few orders to the supplier (order routine specification) and after the consignment is delivered the company gives the performance evaluation review of it.

Lastly, the world is changing day by day because the technology is changing day by day. There comes the invention of E-Procurement. It is basically to facilitate both the buyer and seller. It helps to optimize the above-mentioned process in an easy way. You can approach or select buyer from any part of the world, easy to communicate and easy to put an order on the website.


#buyingbehaviorinbusinessmarkets#buying centers#Geographic concentration#In-elastic#Straight Re-Buy#Modify re-buy#New task#E-Procurement#Business buying behavior process.

Principles of Marketing . Chapter 5 : Consumer buying behavior and Markets

This chapter illustrates the buying behavior of consumers who buy or consume good for their personal use. The Question rise over here is what is the basic difference between customers and consumers. Since customers are those entities which buy good for themselves or for someone else. They might be the end consumer or not. But consumers are those people which buy good for themselves and they are the end consumers. The model of consumer behavior consists of three parts. The first one is the “environment” it can be a micro or a macro environment in it. Second is the black box and the third one is buyers response. The most important part of this model is the black box. Since the concept was taken from an airplane which has a black box and it records every piece of information. Every consumer has this system installed in their brain. That is why the advertisement or IMC promotions are same for everyone but not everyone buys that product because every person is different from another.

The buying behavior is different because there are some factors which influence or change the consumer behavior. The first factor is the Cultural part which talks about the learned believe, wants, perceptions of an individual. Furthermore, it elaborates the concept of sub-culture where it talks about people within a specific culture. Like in Pakistan we have Pathans, Punjabis, Urdu speaking, since sub-culture is different from one and another and for sure their buying behavior is also different. The second factor is the social class which talks about different groups. Since we have this generic definition that people standard of living is social class. But In marketing, we put a bit of a microscope in it. Basically, we talk about membership group ( where a person belongs to a specific group, family, culture) and aspirational group ( where a person wants to be, where he gets inspiration from, his role model or a celebrity. Like Imran Khan (PTI) majority of the youth in Pakistan gets inspired by him and follow his footsteps for getting Insaaf (justice). Opinion leaders are one which has advanced knowledge about something and has huge following regarding it. For example in mobile industry, GSM arena is an opinion leader’s website where people get reviews about mobile phones. The third one is the personal factor, where three factors affect them: personal income, savings, and interest rate. Since the most important one is interest rate as it is given by the government through which taxes are implemented and it affects your saving and your personal income.

Maslow hierarchy is a basic concept where we discuss five stages of needs. First one is Physiological need ( your basic need, house, clothes, and food) safely need ( where you need protection for yourself and for your family) Social need ( As human is a social animal and he need people to talk and survive), Esteem needs (Where you want people to know your name, your speciality and recognize you as a distinct factor in a society) lastly self-actualization ( where you forget yourself and thinks about the society and do something for people, best example is Sattar Ehdi).
Perception is basically a process where people decode a piece of information through the lens of their eye, for example, people screen information which is not beneficial for themselves (selective attention). People won't listen to bad things about what they already bought, for example telling a friend regarding how hideous or expensive iPhone-X is, he/she will never believe your information and probably gives you a shut up call (selective distortion) and lastly selective retention (where customer recalls good points about the brand).

Learning is a concept where you learn a behavior through repetitive experience. It is made up 5 components 1). Drives (identification of a need), 2) Stimulus (the motivation to fulfil that need), Cues (the process of getting the product to fulfil the need, it can be sale, discounts), 4) Response (the process of purchasing that product), 5) Reward (reinforcement, appreciation).

The Buying decision making process is a process starts from need recognition, it can be internal motivation(need satisfaction) or it can external (trigged through advertisement or IMC tools). 2) Information search, you search for information from family or friend or through experiential marketing. 3) Evaluating the alternatives, where you choose a brand on the basis of perceived benefits and values. 4) Buying decision, where you acquire that product and lastly 5) Post-purchase behavior where the utmost value and loyalty is created. It is not the responsibility of the company to give it but yet they give you for the future revenues.

Last part is TALC (technological adoption life-cycle) since the adoption of a new technology is not that common and only few of the customer adopt the new technology (Innovators), and with the passage of time technology become common for everyone can use it.

#customersconsumers#black box#Cultural part#sub-culture#Opinion leaders#Maslow hierarchy#Perception#Learning#Buying decision making process #TALC (technological adoption life-cycle)