MC7 1

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Marketing Mix and Relationship Marketing
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The Marketing Mix
The means by which product, price, promotion and
place variables can be assembled to meet channel
needs.
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Fusion of AttributesA product is offered as a
solution to customer problems

• Tangible attributes
• Intangible attributes
• Often more important
• Agile competitive environment
• Channel members constantly modify and improve
  product offerings to meet changing customer needs.

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The Pricing Ingredient

• Price the ultimate measure or assignment of
  value.
• Valuation simultaneous appraisal by sellers
  buyers of economic and psychological worth of
  market offerings.
• Premium pricing
• Building relationships
• Preserving relationships
• Reducing risk factors
• Obtaining perceived quality
• Possessing limited information

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Pricing Methods

• Algorithmic
• Market-oriented
• Relationship

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Algorithmic Pricing
cost of goods margin price

• Cost-plus pricing
• Break-even analysis
• Modified break-even pricing

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Market-Oriented Pricing

• Market-entry pricing
• Penetration pricing
• Skimming-the-cream pricing

Fresh Cream
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Relationship-Oriented Pricing
Buy more Pay less

• Volume pricing
• Negative option contracts
• Functional allowance
• Promotional allowance
• Price legitimacy
• Price guarantees
• Price posting
• Cost of service pricing

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Pricing Methods - Algorithmic
Orientation
Inside-out
Cost-Plus Break-even Modified break-even
Types
Positives
Simplicity
Negatives
Ignores effects of legal/regulatory conditions,
influences of competition and changing markets
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Pricing Methods Market Oriented
Orientation
Outside-in
Types

• Competitive
• Market-Entry
• Penetration
• Skimming

Positives

• Sensitivity to customer needs
• Good entry strategy in elastic market
• Generates quick cash flow good in inelastic
  markets

Negatives
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Pricing Methods - Relationship
Orientation
Both
Types

• Volume pricing
• Functional allowances
• Promotional allowances

Positives

• Cooperative collaborative
• Goal-oriented price sharing
• Consideration for fostering channel communication

Negatives
Cooperation a must Requires ongoing
consistent communication between channel members
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Cost-Based Pricing Strategies
The cost of the product plus a desired margin.
In markets where product differentiation is
minimal, cost-based pricing is often a reasonable
alternative to market-based pricing.

• Floor Pricing
• Cost-Plus Pricing
• Low-Cost Leader Pricing
• Competitive Bid Pricing
• Harvest Pricing

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1. Floor Pricing

• Floor Pricing
• Cost-Plus Pricing
• 3. Low-Cost Leader Pricing
• 4. Competitive Bid Pricing
• 5. Harvest Pricing

Internal, cost-based price based on desired level
of profitability

• Used in early stage of product life cycle
• Used when customers are less price sensitive
• May be based on desired margin or ROI

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2. Cost-Plus Pricing

• Floor Pricing
• Cost-Plus Pricing
• 3. Low-Cost Leader Pricing
• 4. Competitive Bid Pricing
• 5. Harvest Pricing

Price determined by using a standard markup on
cost

• Used in early stages of product life cycle
• Standard markups vary by industry

Business Manufacturers Wholesalers Wholesale Ret
ailers Buyers Sector Price Index Markup Price Mar
kup Index Furniture 100 38.9 138.90 63.6 227 Gas
oline 100 19.8 119.80 22.8 147 Groceries 100 23.
5 123.50 28.5 159 Sporting Gds 100 34.8 134.80
57.8 213 Liquor 100 21.6 121.60 37.1 167 Averag
e 100 27.7 127.70 38.8 177
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3. Low-Cost Leader Pricing

• Floor Pricing
• Cost-Plus Pricing
• 3. Low-Cost Leader Pricing
• 4. Competitive Bid Pricing
• 5. Harvest Pricing

Pricing more aggressively in an attempt to build
market share and volume based on a cost
advantage. Business seeks to always offer the
lowest price and no competitor can beat it For
example Wal-Mart

• Occurs in late stages of product life cycle
• Little product differentiation
• Prices very competitive

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4. Competitive Bid Pricing

• Floor Pricing
• Cost-Plus Pricing
• 3. Low-Cost Leader Pricing
• 4. Competitive Bid Pricing
• 5. Harvest Pricing

Suppliers selected based on lowest bid price
Bidders must meet pre-qualifications and
delivery dates
In use in markets where there is little or no
product differentiation
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5. Harvest Pricing

• Floor Pricing
• Cost-Plus Pricing
• 3. Low-Cost Leader Pricing
• 4. Competitive Bid Pricing
• 5. Harvest Pricing

Businesses raise prices in anticipation of a
reduction in volume Based on cost and need for
higher margins

• Used in decline stage of product life cycle when
  margins are low and volumes flat or declining
• Prices continue to increase until business exits
  market

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Market-Based Pricing Strategies
An analysis of customer needs and the benefits a
product creates relative to competitor products.
Price is set relative to competition to create a
superior value.

• Skim Pricing
• Value-in-Use Pricing
• 4. Market-Based Value Pricing
• 5. Segment Pricing
• 6.Strategic Account Pricing
• 7. Psychological Pricing
• 8. Penetration Pricing

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Skim Pricing
1. Skim Pricing2. Value-in-Use Pricing3.
Market-Based Value Pricing4. Segment Pricing5.
Strategic Account Pricing 6. Psychological
Pricing 7. Penetration Pricing
Skim Price - Charging a high, premium price
combined with superior customer value.

• Works best
• in a quality-sensitive market (product benefits
  that customers want at any cost)
• with few competitors and little chance of
  competitors entering
• for a business with a sustainable differential
  advantage
• several customer segments with different levels
  of price sensitivity

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2. Value-in-Use Pricing(Economic Value Pricing)
1. Skim Pricing2. Value-in-Use Pricing3.
Market-Based Value Pricing4. Segment Pricing5.
Strategic Account Pricing 6. Psychological
Pricing 7. Penetration Pricing

• Pricing to create savings for a customer based on
  a lower total life cost when compared to a
  competitors cost
• Customer may save money on acquisition costs,
  usage costs, and maintenance costs

• Works best
• Works in growth stage of product life cycle
• Does not require lowering of prices
• Price may be higher than competition as long as
  total cost to consumer is lower

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3. Market-Based Value Pricing (Perceived Value
Pricing)
1. Skim Pricing2. Value-in-Use Pricing3.
Market-Based Value Pricing4. Segment Pricing5.
Strategic Account Pricing 6. Psychological
Pricing 7. Penetration Pricing

• Perceived Value Pricing Pricing to create a
  greater customer value based on customer
  perceptions of product, service, company
  benefits, and the perceived cost of acquiring
  those benefits.

Requires good understanding of customer needs and
competitor positions
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4. Segment Pricing
1. Skim Pricing2. Value-in-Use Pricing3.
Market-Based Value Pricing4. Segment Pricing5.
Strategic Account Pricing 6. Psychological
Pricing 7. Penetration Pricing

• Pricing strategy is matched to needs of segment
• price-sensitive wants lowest price even with no
  added benefits
• quality-sensitive will pay premium for benefits

Customers choose the segment offering that fits
their usage patterns and price sensitive levels
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Cellular Phone Market-Based Segment Pricing
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5. Strategic Account Pricing
1. Skim Pricing2. Value-in-Use Pricing3.
Market-Based Value Pricing4. Segment Pricing5.
Strategic Account Pricing 6. Psychological
Pricing 7. Penetration Pricing

• Customers that are large and very important to a
  businesss sales and profits
• Pricing customized to the unique needs of the
  account

• Works best
• Longer range pricing perspective
• Prices may adjust over several years
• Goal is to maintain strong relationship

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6. Psychological Pricing
1. Skim Pricing2. Value-in-Use Pricing3.
Market-Based Value Pricing4. Segment Pricing5.
Strategic Account Pricing 6. Psychological
Pricing 7. Penetration Pricing

• Odd-Even Pricing

Marketers assume there is a psychological
response to odd prices that differs from the
responses to even prices. For example 1.99
vs. 2.00
Price Lining
Similar items in a product line sell at different
prices, called price points For example
refrigerator prices of 600, 800, 1,000
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7. Penetration Pricing
1. Skim Pricing2. Value-in-Use Pricing3.
Market-Based Value Pricing4. Segment Pricing5.
Strategic Account Pricing 6. Psychological
Pricing 7. Penetration Pricing
A New Product is Introduced at a Very Low
Price i.e. Intels Pentium chip

• Volume drives down cost
• Volume leader gains cost advantages and continues
  to lower costs
• Lower costs inhibit new market entrants and
  encourage exit
• Used in growth stage
• Used when product is not well differentiated
• Used for price-sensitive customers in markets
  with many competitors

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The Promotions Ingredient

• Promotional Mix
• Personal selling
• Nonpersonal selling
• Traditional versus Relational Communication
• Promotional Objectives
• Push versus Pull Strategies

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Promotional Objectives

• Stimulating sales
• Differentiating offerings
• Sharing information
• Accentuating a market offerings value
• Stabilizing seasonal demand

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Push/Pull Strategies
Pull Strategy Producer Tries to Build Desire for
Products Among Consumers Who Ask Retailers to
Stock These Items
Push Strategy Company Tries to Move Products
Through the Channel by Convincing Intermediaries
to Offer Them.

• New Product introductions
• Resurrect dinosaurs

• Allowances
• Advance notice
• Training support

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Consumer Promotions

Attracting Consumers With Price Breaks
Attention-Getting Consumer Promotions

Coupons
Contests
Price Deals
Sweepstakes
Refunds
Premiums
Rebates
Sampling
Special Packs
Point-of-Purchase Promotion
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Trade Promotions
Targeted to Channel Partners and to the Firms
Own Employees.

Industry Boosting and Boasting
Discounts and Deals
Merchandising Allowance
Trade Shows
Promotional Allowance
Promotional Products
Case Discount or Allowance
Incentive Programs
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The Place Ingredient
Place All those distribution, logistics, and
behavioral functions that regulate the flow of
market offerings between exchange partners.
Goal Minimize the cost while maximizing customer
satisfaction and market coverage.