b

1. Chapter 6- slide 1
Chapter Six
Business Markets and Business
Buying Behavior

2. Business Markets and
Business Buying Behavior
• Business Markets
• Business Buyer Behavior
• The Business Buying Process
Topic Outline
Chapter 6- slide 2Copyright © 2010 Pearson Education, Inc.
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• The Business Buying Process
• E-Procurement: Buying on the Internet
• Institutional and Government Markets

3. Business buyer behavior refers to the buying behavior
of the organizations that buy goods and services for
use in production of other products and services that
are sold, rented, or supplied to others.
Business Markets
Chapter 6- slide 3Copyright © 2010 Pearson Education, Inc.
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are sold, rented, or supplied to others.
Business buying process is the process where
business buyers determine which products and
services are needed to purchase, and then find,
evaluate, and choose among alternative brands

4. Business Markets
Chapter 6- slide 4Copyright © 2010 Pearson Education, Inc.
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5. Business Markets
Market Structure and Demand
Fewer and larger buyers
Geographic concentration
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Geographic concentration
Derived demand
• Inelastic demand
• Fluctuating demand
Buyer and seller dependency

6. Business Markets
• More decision participants
• More professional
purchasing effort
Chapter 6- slide 6Copyright © 2010 Pearson Education, Inc.
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7. Business Markets
Supplier development is the systematic
development of networks of supplier-
partners to ensure an appropriate and
Types of Decisions and the Decision
Process
Chapter 6- slide 7Copyright © 2010 Pearson Education, Inc.
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partners to ensure an appropriate and
dependable supply of products and
materials that they will resell or use in
making their own products

8. Business Buyer Behavior
The Model of Business Buyer Behavior
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9. Business Buyer Behavior
Straight rebuy is a routine purchase decision
such as reorder without any modification
Modified rebuy is a purchase decision that
Major Types of Buying Situations
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Modified rebuy is a purchase decision that
requires some research where the buyer
wants to modify the product specification,
price, terms, or suppliers
New task is a purchase decision that requires
thorough research such as a new product

10. Business Buyer Behavior
• Systems selling involves the purchase of a
packaged solution from a single seller
• Two-step process of selling:
Major Types of Buying Situations
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– Interlocking products
– System of production, inventory control,
distribution, and other services to meet the
buyer’s need for a smooth-running operation

11. Business Buyer Behavior
Buying center is all of the individuals and units
that participate in the business decision-
making process
Participants in the Business Buying
Process
Chapter 6- slide 11Copyright © 2010 Pearson Education, Inc.
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making process
– Users
– Influencers
– Buyers
– Deciders
– Gatekeepers

12. Business Buyer Behavior
• Buying center provides a major
challenge
• Who participates in the process
Participants in the Business Buying
Process
Chapter 6- slide 12Copyright © 2010 Pearson Education, Inc.
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• Who participates in the process
– Their relative authority
– What evaluation criteria each
participant uses
– Informal participants

13. Business Buyer Behavior
Users are those that will use the product or service
Influencers help define specifications and provide
information for evaluating alternatives
Participants in the Business Buying
Process
Chapter 6- slide 13Copyright © 2010 Pearson Education, Inc.
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information for evaluating alternatives
Buyers have formal authority to select the supplier and
arrange terms of purchase
Deciders have formal or informal power to select and
approve final suppliers
Gatekeepers control the flow of information

14. Business Buyer Behavior
Major Influences on Business Buyers
Economic
Factors
Personal
Factors
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Price
Service
Emotion

15. Business Buyer Behavior
Major Influences on Business Buyers
Environmental Factors
Demand for
product
Economic
outlook
Cost of
money
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Resource
availability
Technology Culture
Politics Competition

16. Business Buyer Behavior
Objectives
Policies
Major Influences on Business Buyers
Organizational Factors
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Policies
Procedures
Structure
Systems

17. Business Buyer Behavior
Motives Perceptions Preferences
Major Influences on Business Buyers
Interpersonal Factors
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Age Income Education
Attitude
toward risk

18. Business Buyer Behavior
The Buying Process
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19. Business Buyer Behavior
Problem recognition occurs when someone in
the company recognizes a problem or need
• Internal stimuli
The Buying Process
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– Need for new product or production
equipment
• External stimuli
– Idea from a trade show or advertising

20. Business Buyer Behavior
General need description describes the
characteristics and quantity of the needed
item
Product specification describes the technical
The Buying Process
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Product specification describes the technical
criteria
Value analysis is an approach to cost
reduction where components are studied to
determine if they can be redesigned,
standardized, or made with less costly
methods of production

21. Business Buyer Behavior
Supplier search involves compiling a list of
qualified suppliers
The Buying Process
Chapter 6- slide 21Copyright © 2010 Pearson Education, Inc.
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Proposal solicitation is the process of
requesting proposals from qualified suppliers

22. Business Buyer Behavior
Supplier selection is the process when the
buying center creates a list of desired supplier
attributes and negotiates with preferred
suppliers for favorable terms and conditions
The Buying Process
Chapter 6- slide 22Copyright © 2010 Pearson Education, Inc.
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suppliers for favorable terms and conditions
Order-routine specifications is the final order
with the chosen supplier and lists all of the
specifications and terms of the purchase

23. Business Buyer Behavior
Performance review involves a critique of
supplier performance to the purchase terms
The Buying Process
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supplier performance to the purchase terms

24. Business Buyer Behavior
• Online purchasing
• Company-buying
sites
E-Procurement
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sites
• Extranets

25. Business Buyer Behavior
• Advantages
– Access to new suppliers
– Lowers costs
– Speeds order processing and delivery
– Shares information
E-Procurement
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– Shares information
– Sales
– Service and support
• Disadvantages
– Can erode relationships as buyers search for new
suppliers
– Security

26. Institutional and Government Markets
Institutional markets consist of hospitals,
nursing homes, and prisons that provide
goods and services to people in their care
Characteristics
Chapter 6- slide 26Copyright © 2010 Pearson Education, Inc.
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Characteristics
– Low budgets
– “Captive” audience

27. Institutional and Government Markets
Government markets tend to favor domestic
suppliers and require suppliers to submit
bids and normally award to the lowest
bidder
• Carefully monitored
• Affected by similar environmental factors
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• Affected by similar environmental factors
• Good credit
• Non-economic factors
• Minority suppliers
• Depressed suppliers
• Small businesses

28. Chapter Seven
Chapter 7- slide 1
Chapter Seven
Customer-Driven Marketing Strategy:
Creating Value for Target Customers

29. Customer-Driven Marketing Strategy:
Creating Value for Target Customers
• Market Segmentation
• Market Targeting
Topic Outline
Chapter 7- slide 2Copyright © 2010 Pearson Education, Inc.
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• Market Targeting
• Differentiation and Positioning

30. Market segmentation is the process that
companies use to divide large
heterogeneous markets into small markets
Market Segmentation
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heterogeneous markets into small markets
that can be reached more efficiently and
effectively with products and services that
match their unique needs

31. Market Segmentation
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32. • Segmenting consumer markets
• Segmenting business markets
• Segmenting international markets
Market Segmentation
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• Segmenting international markets
• Requirements for effective segmentation

33. Market Segmentation
Geographic
segmentation
Demographic
segmentation
Segmenting Consumer Markets
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Psychographic
segmentation
Behavioral
segmentation

34. Market Segmentation
• Geographic segmentation divides the
market into different geographical units
such as nations, regions, states, counties,
Segmenting Consumer Markets
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such as nations, regions, states, counties,
or cities

35. Market Segmentation
Demographic segmentation divides the market
into groups based on variables such as age,
gender, family size, family life cycle, income,
Segmenting Consumer Markets
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gender, family size, family life cycle, income,
occupation, education, religion, race,
generation, and nationality

36. Market Segmentation
Age and life-cycle stage segmentation is the
process of offering different products or
using different marketing approaches for
Chapter 7- slide 9Copyright © 2010 Pearson Education, Inc.
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using different marketing approaches for
different age and life-cycle groups
Gender segmentation divides the market
based on sex (male or female)

37. Market Segmentation
Income segmentation divides the market
into affluent or low-income consumers
Psychographic segmentation divides
buyers into different groups based on
Segmenting Consumer Markets
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buyers into different groups based on
social class, lifestyle, or personality
traits

38. Market Segmentation
Behavioral segmentation divides
buyers into groups based on their
knowledge, attitudes, uses, or
responses to a product
Segmenting Consumer Markets
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responses to a product
• Occasions
• Benefits sought
• User status
• Usage rate
• Loyalty status

39. Market Segmentation
Multiple segmentation is used to identify smaller,
better-defined target groups
Using Multiple Segmentation Bases
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Geodemographic segmentation is an example of
multivariable segmentation that divides groups
into consumer lifestyle patterns

40. Market Segmentation
PRIZM NE classifies every American household into
66 unique segments organized into 14 different
social groups.
• These groups segment people and locations into
Using Multiple Segmentation Bases
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• These groups segment people and locations into
marketable groups of like-minded consumers
that exhibit unique characteristics and buying
behavior based on a host of demographic factors

41. Market Segmentation
Geographic
location
Economic
factors
Segmenting International markets
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Political-
legal factors
Cultural
factors

42. Market Segmentation
Intermarket segmentation divides
consumers into groups with similar needs
and buying behaviors even though they are
Segmenting Business Markets
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and buying behaviors even though they are
located in different countries

43. Market Segmentation
• To be useful, market segments must be:
Requirements for Effective Segmentation
Measurable Accessible
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Substantial Differentiable
Actionable

44. Market Targeting
• Target market consists of a set of buyers
who share common needs or
characteristics that the company decides to
Selecting Target Market Segments
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characteristics that the company decides to
serve

45. Market Targeting
• Segment size and growth
• Segment structural attractiveness
• Company objectives and resources
Evaluating Market Segments
.
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• Company objectives and resources

46. Market Targeting
Target Marketing Strategies
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47. Market Targeting
Undifferentiated marketing targets the
whole market with one offer
Target Marketing Strategies
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– Mass marketing
– Focuses on common needs rather than what’s
different

48. Market Targeting
Differentiated marketing targets several
different market segments and designs
separate offers for each
Target Marketing Strategies
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separate offers for each
• Goal is to achieve higher sales and stronger
position
• More expensive than undifferentiated
marketing

49. Market Targeting
• Concentrated marketing targets a
small share of a large market
• Limited company resources
Target Market Strategies
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• Knowledge of the market
• More effective and efficient

50. Market Targeting
Micromarketing is the practice of tailoring
products and marketing programs to suit
the tastes of specific individuals and
Target Market Strategies
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the tastes of specific individuals and
locations
• Local marketing
• Individual marketing

51. Market Targeting
Local marketing involves tailoring brands
and promotion to the needs and wants of
local customer groups
Target Market Strategies
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local customer groups
• Cities
• Neighborhoods
• Stores

52. Market Targeting
Individual marketing involves tailoring
products and marketing programs to the needs
and preferences of individual customers
Target Market Strategies
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and preferences of individual customers
• Also known as:
– One-to-one marketing
– Mass customization
– Markets-of-one marketing

53. Market Targeting
Depends on:
• Company resources
• Product variability
Choosing a Target Market
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• Product variability
• Product life-cycle stage
• Market variability
• Competitor’s marketing strategies

54. Market Targeting
• Benefits customers with specific
needs
• Concern for vulnerable segments
Socially Responsible Target Marketing
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• Concern for vulnerable segments
• Children
– Alcohol
– Cigarettes
– Internet abuses

55. Differentiation and Positioning
Product position is the way the
product is defined by consumers on
important attributes—the place the
product occupies in consumers’ minds
relative to competing products
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relative to competing products
– Perceptions
– Impressions
– Feelings

56. Differentiation and Positioning
Positioning maps
show consumer
perceptions of
their brands
versus competing
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versus competing
products on
important buying
dimensions

57. Differentiation and Positioning
• Identifying a set of possible competitive
advantages to build a position
Choosing a Differentiation and Positioning
Strategy
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advantages to build a position
• Choosing the right competitive advantages
• Selecting an overall positioning strategy
• Developing a positioning statement

58. Differentiation and Positioning
Competitive advantage is an advantage over
competitors gained by offering consumers
greater value, either through lower prices or
Identifying Possible Value Differences and
Competitive Advantages
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greater value, either through lower prices or
by providing more benefits that justify higher
prices

59. Differentiation and Positioning
Identifying a set of possible competitive
advantages to build a position by
providing superior value from:
Choosing a Differentiation and Positioning
Strategy
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Product differentiation
Service differentiation
Channel differentiation
People differentiation
Image differentiation

60. Differentiation and Positioning
Difference to promote should be:
Choosing the Right Competitive Advantage
Important Distinctive Superior
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Communicable Preemptive Affordable
Profitable

61. Differentiation and Positioning
Value proposition
is the full mix of
Selecting an Overall Positioning Strategy
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is the full mix of
benefits upon
which a brand is
positioned

62. Communication and Delivering the
Chosen Position
Choosing the positioning is often easier
than implementing the position.
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63. Chapter 7- slide 36Copyright © 2010 Pearson Education, Inc.
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All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Copyright © 2010 Pearson Education, Inc.Copyright © 2010 Pearson Education, Inc.
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64. Chapter 8 - slide 1
Chapter Eight
Product, Services, and Brands:
Building Customer Value

65. Products, Services, and
Branding Strategy
• What Is a Product?
• Product and Services Decisions
• Branding Strategy: Building
Topic Outline
Chapter 8 - slide 2Copyright © 2010 Pearson Education, Inc.
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• Branding Strategy: Building
Strong Brands
• Services Marketing

66. What Is a Product?
A Product is anything that can be offered in a
market for attention, acquisition, use, or
consumption that might satisfy a need or
Products, Services, and Experiences
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consumption that might satisfy a need or
want
Experiences represent what buying the
product or service will do for the customer

67. What Is a Product?
Levels of Product and Services
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68. What Is a Product?
Consumer
products
Product and Service Classifications
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products
Industrial
products

69. What Is a Product?
• Consumer products are products and
services for personal consumption
• Classified by how consumers buy them
Product and Service Classifications
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• Classified by how consumers buy them
– Convenience products
– Shopping products
– Specialty products
– Unsought products

70. What Is a Product?
Convenience products are consumer
products and services that the
customer usually buys frequently,
immediately, and with a minimum
Product and Service Classifications
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immediately, and with a minimum
comparison and buying effort
• Newspapers
• Candy
• Fast food

71. What Is a Product?
Shopping products are consumer
products and services that the
customer compares carefully on
suitability, quality, price, and style
Product and Service Classifications
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suitability, quality, price, and style
• Furniture
• Cars
• Appliances

72. What Is a Product?
Specialty products are consumer products and
services with unique characteristics or brand
identification for which a significant group of
Product and Service Classifications
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identification for which a significant group of
buyers is willing to make a special purchase effort
• Medical services
• Designer clothes
• High-end electronics

73. What Is a Product?
Unsought products are consumer products that
the consumer does not know about or knows
about but does not normally think of buying
Product and Service Classifications
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about but does not normally think of buying
• Life insurance
• Funeral services
• Blood donations

74. What Is a Product?
Industrial products are products purchased for
further processing or for use in conducting a
business
• Classified by the purpose for which the product is
Product and Service Classifications
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• Classified by the purpose for which the product is
purchased
– Materials and parts
– Capital
– Raw materials

75. What Is a Product?
Capital items are industrial products that aid in the
buyer’s production or operations
Materials and parts include raw materials and
manufactured materials and parts usually sold
Product and Service Classifications
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manufactured materials and parts usually sold
directly to industrial users
Supplies and services include operating supplies,
repair and maintenance items, and business
services

76. What Is a Product?
Organization marketing consists of activities
undertaken to create, maintain, or change
attitudes and behavior of target consumers
toward an organization
Organizations, Persons, Places, and Ideas
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toward an organization

77. What Is a Product?
Person marketing consists of activities
undertaken to create, maintain, or
change attitudes and behavior of target
consumers toward particular people
Organizations, Persons, Places, and Ideas
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consumers toward particular people

78. What Is a Product?
Place marketing consists of activities undertaken to
create, maintain, or change attitudes and
behavior of target consumers toward particular
places
Organizations, Persons, Places, and
Ideas
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places
Social marketing is the use of commercial
marketing concepts and tools in programs
designed to influence individuals’ behavior to
improve their well-being and that of society

79. Product and Service Decisions
Individual Product and Service Decisions
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80. Product and Service Decisions
Product attributes are the benefits of the
product or service
• Quality
Individual Product and Service Decisions
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• Quality
• Features
• Style and design

81. Product and Service Decisions
Product quality includes level and consistency
• Quality level is the level of quality that supports
Individual Product and Service
Decisions
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• Quality level is the level of quality that supports
the product’s positioning
• Conformance quality is the product’s freedom
from defects and consistency in delivering a
targeted level of performance

82. Product and Service Decisions
Product features are a competitive tool for
differentiating a product from competitors’
products
Individual Product and Service
Decisions
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products
Product features are assessed based on the
value to the customer versus the cost to the
company

83. Product and Service Decisions
Style describes the appearance of the
product
Design contributes to a product’s
Individual Product and Service
Decisions
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Design contributes to a product’s
usefulness as well as to its looks

84. Product and Service Decisions
Brand is the name, term, sign, or design—or a
combination of these—that identifies the maker
or seller of a product or service
Individual Product and Service
Decisions
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or seller of a product or service
Brand equity is the differential effect that the brand
name has on customer response to the product
and its marketing

85. Product and Service Decisions
Packaging involves designing and
producing the container or
Individual Product and Service
Decisions
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producing the container or
wrapper for a product
Labels identify the product or
brand, describe attributes, and
provide promotion

86. Product and Service Decisions
Product support services augment actual products
Individual Product and Service
Decisions
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87. Product and Service Decisions
A product line is a group of products that are
closely related because they function in a similar
manner, are sold to the same customer groups,
Product Line Decisions
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manner, are sold to the same customer groups,
are marketed through the same types of outlets,
or fall within given price ranges

88. Product and Service Decisions
Product line length is the number of items in
the product line
Product Line Decisions
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• Line stretching
• Line filling

89. Product and Service Decisions
Product mix consists of all the
products and items that a particular
seller offers for sale
Product Mix Decisions
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• Width
• Length
• Depth
• Consistency

90. Brand represents the consumer’s perceptions and
feelings about a product and its performance. It is
the company’s promise to deliver a specific set of
features, benefits, services, and experiences
Branding Strategy: Building Strong Brands
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features, benefits, services, and experiences
consistently to the buyers

91. Branding Strategy: Building Strong
Brands
Brand strategy decisions include:
• Product attributes
Brand Positioning
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• Product benefits
• Product beliefs and values

92. Branding Strategy: Building Strong Brands
Desirable qualities
1. Suggest benefits and qualities
2. Easy to pronounce, recognize, and remember
Brand Name Selection
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2. Easy to pronounce, recognize, and remember
3. Distinctive
4. Extendable
5. Translatable for the global economy
6. Capable of registration and legal protection

93. Branding Strategy: Building Strong
Brands
• Manufacturer’s brand
• Private brand
Brand Sponsorship
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• Private brand
• Licensed brand
• Co-brand

94. Branding Strategy: Building Strong Brands
Brand Development Strategies
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95. Services Marketing
• Government
• Private not-for-profit organizations
Types of Service Industries
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• Private not-for-profit organizations
• Business services

96. Services Marketing
Nature and Characteristics of a Service
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97. Services Marketing
In addition to traditional marketing
strategies, service firms often require
additional strategies
Marketing Strategies for Service Firms
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additional strategies
• Service-profit chain
• Internal marketing
• Interactive marketing

98. Services Marketing
Service-profit chain links service
firm profits with employee and
customer satisfaction
• Internal service quality
Marketing Strategies for Service Firms
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• Internal service quality
• Satisfied and productive service
employees
• Greater service value
• Satisfied and loyal customers
• Healthy service profits and
growth

99. Services Marketing
Internal marketing means that the service firm must
orient and motivate its customer contact employees and
supporting service people to work as a team to provide
Marketing Strategies for Service Firms
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supporting service people to work as a team to provide
customer satisfaction
Internal marketing must precede external marketing

100. Services Marketing
Interactive marketing means that service quality
depends heavily on the quality of the buyer–seller
interaction during the service encounter
Marketing Strategies for Service Firms
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interaction during the service encounter
• Service differentiation
• Service quality
• Service productivity

101. Services Marketing
Managing service differentiation creates a
competitive advantage from the offer,
delivery, and image of the service
• Offer can include distinctive features
Marketing Strategies for Service Firms
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• Offer can include distinctive features
• Delivery can include more able and reliable
customer contact people, environment, or
process
• Image can include symbols and branding

102. Services Marketing
Managing service quality provides a
competitive advantage by delivering
consistently higher quality than its
competitors
Marketing Strategies for Service Firms
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competitors
Service quality always varies depending
on interactions between employees and
customers

103. Services Marketing
Managing service productivity refers to the cost
side of marketing strategies for service firms
• Employee recruiting, hiring, and training
Marketing Strategies for Service Firms
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• Employee recruiting, hiring, and training
strategies
• Service quantity and quality strategies

104. Chapter 9- slide 1
Chapter Nine
New-Product Development and
Product Life-Cycle Strategies

105. New-Product Development and
Product Life-Cycle Strategies
• New-Product Development Strategy
• New-Product Development Process
• Managing New-Product Development
Topic Outline
Chapter 9- slide 2Copyright © 2010 Pearson Education, Inc.
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• Managing New-Product Development
• Product Life-Cycle Strategies
• Additional Product and Service
Considerations

106. New-Product Development Strategy
Acquisition refers to the buying of a whole
company, a patent, or a license to produce
someone else’s product
Two ways to obtain new products
Chapter 9- slide 3Copyright © 2010 Pearson Education, Inc.
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someone else’s product
New product development refers to original
products, product improvements, product
modifications, and new brands developed from
the firm’s own research and development

107. New-Product Development
Reasons for new product failure
Overestimation of market size
Poor design
Incorrect positioning
Wrong timing
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Wrong timing
Priced too high
Ineffective promotion
Management influence
High development costs
Competition

108. New-Product Development Process
Major Stages in New-Product Development
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109. New-Product Development Process
Idea generation is the systematic search
for new-product ideas
Sources of new-product ideas
Idea Generation
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Sources of new-product ideas
• Internal
• External

110. New-Product Development Process
Internal sources refer to the company’s own formal
research and development, management and staff,
and “intrapreneurial” programs
External sources refer to sources outside the company
Idea Generation
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External sources refer to sources outside the company
such as customers, competitors, distributors,
suppliers, and outside design firms

111. New-Product Development Process
• Identify good ideas and drop poor ideas
• R-W-W Screening Framework:
– Is it real?
Idea Screening
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– Is it real?
– Can we win?
– Is it worth doing?

112. New-Product Development Process
Product idea is an idea for a possible product
that the company can see itself offering
to the market
Concept Development and Testing
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to the market
Product concept is a detailed version of the
idea stated in meaningful consumer
terms
Product image is the way consumers
perceive an actual or potential product

113. New-Product Development Process
Concept testing refers to testing new-product
concepts with groups of target consumers
Concept Development and Testing
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114. New-Product Development Process
• Marketing strategy development refers to
the initial marketing strategy for
introducing the product to the market
Marketing Strategy Development
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introducing the product to the market
• Marketing strategy statement includes:
– Description of the target market
– Value proposition
– Sales and profit goals

115. New-Product Development Process
Business analysis involves a review of the
sales, costs, and profit projections to find
Marketing Strategy Development
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sales, costs, and profit projections to find
out whether they satisfy the company’s
objectives

116. New-Product Development Process
Product development involves the creation
and testing of one or more physical versions by
the R&D or engineering departments
Marketing Strategy Development
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the R&D or engineering departments
• Requires an increase in investment

117. New-Product Development Process
Test marketing is the stage at which the
product and marketing program are
introduced into more realistic marketing
settings
Provides the marketer with experience in
Marketing Strategy Development
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Provides the marketer with experience in
testing the product and entire marketing
program before full introduction

118. New-Product Development Process
Types of Test Markets
Standard test markets
Controlled test markets
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Controlled test markets
Simulated test markets

119. New-Product Development
Process
• Advantages of simulated test markets
– Less expensive than other test methods
– Faster
Marketing Strategy Development
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– Faster
– Restricts access by competitors
• Disadvantages
– Not considered as reliable and accurate due to
the controlled setting

120. New-Product Development Process
Marketing Strategy Development
When firms test
market
• New product
with large
When firms may
not test market
• Simple line
extension
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with large
investment
• Uncertainty
about product
or marketing
program
extension
• Copy of
competitor
product
• Low costs
• Management
confidence

121. New-Product Development Process
Commercialization is the introduction
of the new product
Marketing Strategy Development
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of the new product
• When to launch
• Where to launch
• Planned market
rollout

122. Managing New-Product Development
Successful new-product development
should be:
• Customer centered
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• Team centered
• Systematic

123. Managing New-Product Development
Customer-centered new product development
focuses on finding new ways to solve customer
problems and create more customer satisfying
New-Product Development Strategies
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problems and create more customer satisfying
experiences
• Begins and ends with solving customer problems

124. Managing New-Product Development
Sequential new-product development is a
development approach where company
departments work closely together
individually to complete each stage of the
New-Product Development Strategies
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individually to complete each stage of the
process before passing it along to the next
department or stage
• Increased control in risky or complex
projects
• Slow

125. Managing New-Product Development
Team-based new-product development is
a development approach where company
New-Product Development Strategies
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a development approach where company
departments work closely together in
cross-functional teams, overlapping in the
product-development process to save
time and increase effectiveness

126. Managing New-Product Development
Systematic new-product development is an
innovative development approach that
collects, reviews, evaluates, and manages
new-product ideas
New-Product Development Strategies
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new-product ideas
• Creates an innovation-oriented culture
• Yields a large number of new-product ideas

127. Product Life-Cycle Strategies
Product Life Cycle
Chapter 9- slide 24Copyright © 2010 Pearson Education, Inc.
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128. • Product development
– Sales are zero and investment costs mount
• Introduction
– Slow sales growth and profits are nonexistent
• Growth
Product Life-Cycle Strategies
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• Growth
– Rapid market acceptance and increasing profits.
• Maturity
– Slowdown in sales growth and profits level off or
decline
• Decline
– Sales fall off and profits drop

129. Product Life-Cycle Strategies
Fads are temporary periods of
unusually high sales driven by
consumer enthusiasm and immediate
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consumer enthusiasm and immediate
product or brand popularity

130. Product Life-Cycle Strategies
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131. Product Life-Cycle Strategies
• Slow sales growth
• Little or no profit
Introduction Stage
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• Little or no profit
• High distribution and promotion expense

132. Product Life-Cycle Strategies
• Sales increase
• New competitors enter the market
• Price stability or decline to increase volume
Growth Stage
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• Price stability or decline to increase volume
• Consumer education
• Profits increase
• Promotion and manufacturing costs gain
economies of scale

133. Product Life-Cycle Strategies
• Slowdown in sales
• Many suppliers
• Substitute products
Maturity Stage
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• Substitute products
• Overcapacity leads to competition
• Increased promotion and R&D to support
sales and profits

134. Product Life-Cycle Strategies
• Market modifying
• Product
Maturity Stage Modifying Strategies
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• Product
modifying
• Marketing mix
modifying

135. Product Life-Cycle Strategies
• Maintain the product
• Harvest the product
Decline Stage
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• Harvest the product
• Drop the product

136. Product Life-Cycle Strategies
Summary of Product Life Cycle
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137. Additional Product and Service
Considerations
Public policy and regulations regarding developing
and dropping products, patents, quality, and
Product Decisions and Social
Responsibility
Chapter 9- slide 34Copyright © 2010 Pearson Education, Inc.
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and dropping products, patents, quality, and
safety

138. Additional Product and Service
Considerations
• Determining what products and
services to introduce in which
International Product and
Service Marketing—Challenges
Chapter 9- slide 35Copyright © 2010 Pearson Education, Inc.
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services to introduce in which
countries
• Standardization versus customization
• Packaging and labeling
• Customs, values, laws

139. Chapter 10- slide 1
Chapter Ten
Pricing:
Understanding and Capturing
Customer Value

140. Pricing:
Understanding and
Capturing Customer Value
• What Is a Price?
• Customer Perceptions of Value
• Company and Product Costs
Topic Outline
Chapter 10- slide 2Copyright © 2010 Pearson Education, Inc.
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• Company and Product Costs
• Other Internal and External Considerations
Affecting Price Decisions

141. Price is the amount of money charged for
a product or service. It is the sum of all
the values that consumers give up in
What Is a Price?
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the values that consumers give up in
order to gain the benefits of having or
using a product or service.

142. Price is the only element in the marketing
mix that produces revenue; all other
elements represent costs
What Is a Price?
Chapter 10- slide 4Copyright © 2010 Pearson Education, Inc.
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elements represent costs

143. Factors to Consider When
Setting Prices
Understanding how much value consumers place
on the benefits they receive from the product and
setting a price that captures that value
Customer Perceptions of Value
Chapter 10- slide 5Copyright © 2010 Pearson Education, Inc.
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setting a price that captures that value

144. Factors to Consider When
Setting Prices
Customer Perceptions of Value
Chapter 10- slide 6Copyright © 2010 Pearson Education, Inc.
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145. Factors to Consider When
Setting Prices
Value-based pricing uses the buyers’
perceptions of value, not the sellers’ cost,
as the key to pricing. Price is considered
Customer Perceptions of Value
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perceptions of value, not the sellers’ cost,
as the key to pricing. Price is considered
before the marketing program is set.
• Value-based pricing is customer driven
• Cost-based pricing is product driven

146. Factors to Consider When
Setting Prices
Customer Perceptions of Value
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147. Factors to Consider When
Setting Prices
Value-based pricing
Customer Perceptions of Value
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Good-value pricing
Value-added pricing

148. Factors to Consider When
Setting Prices
Good-value pricing offers the right
combination of quality and good service at
Customer Perceptions of Value
Chapter 10- slide 10Copyright © 2010 Pearson Education, Inc.
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combination of quality and good service at
a fair price
Existing brands are being redesigned to
offer more quality for a given price or the
same quality for a lower price

149. Factors to Consider When
Setting Prices
Everyday low pricing (EDLP) involves
charging a constant everyday low price
with few or no temporary price discounts
Customer Perceptions of Value
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with few or no temporary price discounts
High-low pricing involves charging higher
prices on an everyday basis but running
frequent promotions to lower prices
temporarily on selected items

150. Factors to Consider
When Setting Prices
• Value-added pricing attaches value-added
features and services to differentiate
Customer Perceptions of Value
Chapter 10- slide 12Copyright © 2010 Pearson Education, Inc.
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features and services to differentiate
offers, support higher prices, and build
pricing power
• Pricing power is the ability to escape price
competition and to justify higher prices and
margins without losing market share

151. Factors to Consider
When Setting Prices
Cost-based pricing involves setting prices
based on the costs for producing,
Company and Product Costs
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based on the costs for producing,
distributing, and selling the product plus a
fair rate of return for its effort and risk

152. Factors to Consider When
Setting Prices
Cost-based pricing adds a standard markup
to the cost of the product
Company and Product Costs
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to the cost of the product

153. Factors to Consider When
Setting Prices
Company and Product Costs
Types of costs
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Fixed
costs
Variable
costs
Total
costs

154. Factors to Consider
When Setting Prices
Fixed costs are the costs that do not vary
with production or sales level
Company and Product Costs
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with production or sales level
• Rent
• Heat
• Interest
• Executive salaries

155. Factors to Consider When
Setting Prices
Variable costs are the costs that vary with
the level of production
Company and Product Costs
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the level of production
• Packaging
• Raw materials

156. Factors to Consider
When Setting Prices
Total costs are the sum of the fixed and
variable costs for any given level of
Company and Product Costs
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variable costs for any given level of
production
Average cost is the cost associated with a
given level of output

157. Factors to Consider When
Setting Prices
Costs at Different Levels of Production
Chapter 10- slide 19Copyright © 2010 Pearson Education, Inc.
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158. Factors to Consider When
Setting Prices
Experience or learning curve is when average cost falls as
production increases because fixed costs are spread over
more units
Costs as a Function of Production Experience
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159. Factors to Consider When
Setting Prices
• Cost-plus pricing adds a standard markup to
the cost of the product
• Benefits
Cost-Plus Pricing
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• Benefits
– Sellers are certain about costs
– Prices are similar in industry and price competition is
minimized
– Consumers feel it is fair
• Disadvantages
– Ignores demand and competitor prices

160. Factors to Consider
When Setting Prices
Break-even pricing is the price at which total
costs are equal to total revenue and there
is no profit
Break-Even Analysis and Target Profit
Pricing
Chapter 10- slide 22Copyright © 2010 Pearson Education, Inc.
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costs are equal to total revenue and there
is no profit
Target profit pricing is the price at which the
firm will break even or make the profit it’s
seeking

161. Factors to Consider When
Setting Prices
Break-Even Analysis and Target Profit Pricing
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162. Considerations in Setting Price
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163. Factors to Consider When
Setting Prices
• Customer perceptions of value set the
upper limit for prices, and costs set
Other Internal and External Considerations
Affecting Price Decisions
Chapter 10- slide 25Copyright © 2010 Pearson Education, Inc.
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upper limit for prices, and costs set
the lower limit
• Companies must consider internal
and external factors when setting
prices

164. Factors to Consider When
Setting Prices
Target costing starts with an ideal selling
Other Internal and External Considerations
Affecting Price Decisions
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Target costing starts with an ideal selling
price based on consumer value
considerations and then targets costs that
will ensure that the price is met

165. Factors to Consider When
Setting Prices
Organizational considerations include:
• Who should set the price
Other Internal and External Considerations
Affecting Price Decisions
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• Who should set the price
• Who can influence the price

166. Factors to Consider When
Setting Prices
• Before setting prices,
Other Internal and External Considerations
Affecting Price Decisions
The Market and Demand
Chapter 10- slide 28Copyright © 2010 Pearson Education, Inc.
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• Before setting prices,
the marketer must
understand the
relationship between
price and demand for
its products

167. Factors to Consider When
Setting Prices
Pure competition
Other Internal and External Consideration Affecting
Price Decisions
Competition
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Monopolistic competition
Oligopolistic competition
Pure monopoly

168. Factors to Consider When
Setting Prices
The demand curve shows the number of units the
market will buy in a given period at different prices
• Normally, demand and price are inversely related
Other Internal and External Considerations
Affecting Price Decisions
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• Normally, demand and price are inversely related
• Higher price = lower demand
• For prestige (luxury) goods, higher price can equal higher
demand when consumers perceive higher prices as
higher quality

169. Factors to Consider When
Setting Prices
Other Internal and External Considerations
Affecting Price Decisions
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170. Factors to Consider When
Setting Prices
Price elasticity of demand illustrates the response of demand to a
change in price
Other Internal and External Considerations
Affecting Price Decisions
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Inelastic demand occurs when demand hardly changes when there is a
small change in price
Elastic demand occurs when demand changes greatly for a small change in
price
Price elasticity of demand = % change in quantity demand
% change in price

171. Factors to Consider When
Setting Prices
• Comparison of offering in
terms of customer value
Other Internal and External Considerations
Competitor's Strategies
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terms of customer value
• Strength of competitors
• Competition pricing strategies
• Customer price sensitivity

172. Factors to Consider
When Setting Prices
Economic conditions
Reseller’s response to
Other Internal and External Consideration
Affecting Price Decisions
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Reseller’s response to
price
Government
Social concerns