MKTG 465: Exam 1

Comparing value propositions

(Value A - Price A) > (Value B - Price B)

Studies on customer defection has shown:

-It is sufficient to merely satisfy a customer as long as the customer has rated the company a four or higher (on a 5 pt scale) and there is a strong company/customer relationship -Investment required to change customers from satisfied to completely satisfied will not provide an attractive financial return and therefore is probably not a wise use of resources -Complete customer satisfaction is the key to securing customer loyalty and generating superior, long term financial performance

Success profile of customer centric organizations

-customer centric, not product or technology centric -they out-compete other firms in terms of deep customer insights -they integrate branding with customer centricity -they reward their employees for customer focused innovation, creating: *entrepreneurial, open organizations *environments where employee participation is encouraged, with special emphasis on "delighting" customers

market driving and market driven companies:

-redefine value for customers in their respective markets -build powerful, cohesive business systems that could deliver more value than competitors -raise customers expectations beyond the competitions reach

Key ways to improve price realization:

-service companies use dynamic pricing implemented through yield management systems -factors affecting how a company might customize prices

Factors that affect how a company might customize prices:

-tastes -nature of use -intensity of use -competition

Perceived Value (PV)

Benefit-Cost A buyer's willingness to pay is governed by the value he or she perceives in the new product... not fully aware of the features/benefits that the product claims to offer, or he might be aware, but he might be skeptical of those claims and their relevance for him. generally, PV is less than TEV

Brand management vs. customer management

Brand management still commands much more attention from management than does customer management in most large companies, and, as previously discussed, that focus has become increasingly incompatible with growth.

*PRICE*:Price sensitivity is high if:

1. easy comparability 2. high in a relative sense 3. reference price exists 4. not needed as a quality cue

*PRODUCT*: Price sensitivity is high if:

1. low differentiation of alternatives 2. easy comparability 3. will perform as expected 4. not mission-critical

Nike has a variable cost of $25 for its women's running shoes and sells the shoes to the broker for $50, who sells them to the retailer for $75, who sells them to the consumer for $99.99. What is the percentage margin to the retailer? Please round to the nearest percent.. a. 25%. b. 50%. c. 33%. d. 17%

A. The retailer buys the pair of Nike running shoes from the broker for $75 and sells the pair at $99.99, which equates to a 25% margin ($24.99 unit margin/$99.99 price to consumer).

Customer-perceived value (CPV) can be represented by the following equation: Value = benefit - cost, where different benefits add up to total customer benefits, and different costs add up to total customer cost. The total customer benefit includes the following: a. product, place, personal, and image benefits. b. product, services, sales, and image benefits. c. services, personal, image, and promotion benefits. d. product, services, personal, and image benefits. e. services, place, product, and promotion benefits.

D. The definition of customer benefits includes product, services, personal, and image benefits.

T/F: Competitor-focused organizations have high ratings in customer service.

False Competitor-focused organizations with high ratings in customer service tend to become less vigilant because their benchmarks suggest that they are best.

T/F: An aspect of product performance that is mission-critical, such as safety for jogger's baby stroller, increases price sensitivity.

False When an aspect of product performance is mission-critical, such as for a jogger's baby stroller, price sensitivity is suppressed because of the importance of the factor. When performance is not mission-critical and a product's failure is more bothersome than significant, sensitivity to price should be higher.

BEV

Fixed costs/(Revenue per unit - variable cost per unit) = fixed cost/unit margin

True or False: pricing doesn't exist in a vacuum. There is usually competition.

True

the relationship between price and demand is captured graphically by:

a demand curve, which plots the cumulative aggregate demand for a firm's product across all consumers at a wide range of price points slope of d curve: change in price/change in quantity demanded

Business-to-consumer (B2C)

a financial transaction, such as a sale, that takes place between a company and consumers who are the end users of a product

business to business (b2b)

a financial transaction, such as a sale, that takes place between business, such as between a manufacturer and wholesaler, or between a wholesaler and retailer

experience good

a product or service in which product characteristics, such as quality or price, are difficult to observe in advance, but can be ascertained upon consumption.

search good

a product or service with features and characteristics easily evaluated before purchase. Search goods are more subject to substitution and price competition than experience goods.

dynamic pricing

an approach to pricing in which the posted price varies according to the current level of market demand

Customer Price sensitivity

assessing a customer's willingness to pay more sensitive: more elastic: will not pay depending on price more insensitive: more inelastic: will pay no matter what

Net Promoter Score (NPS)

categorizes customer into one of three groups: promoters, passives, and detractors. It allows employees throughout a company to see right away whether a customer experience was a success or failure and why. "How likely are you to recommend us to a friend or colleague?" On a zero to ten scale...

Selective relationship management

companies can examine their customer bases in greater detail, perform profitability analyses, and engage in this to target fewer, but more lucrative, customers.

Quantitative market research

customer surveys price experimentation analysis of historic pricing and sales data

price elasticity of demand

how responsive, or elastic, a consumers' demand for a product is to a change of price % change in quantity demanded / % change in price

cost-oriented pricing

takes the form of cost-plus pricing, an approach in which an organization applies a predetermined markup to its cost to make or obtain the product

all benefit (customer value approach)

lists all the benefits they believe their offering will deliver to the customer (target audience) requires least amount of knowledge about customers and competitors (least amount of work to construct)

benefit assertion (customer value approach)

making assumptions about features that may actually provide no benefit to target customers

resonance focus model

marketers do best when using this... it involves demonstrating a deep understanding of customer's needs, differentiating or highlighting offerings on the few elements that matter most to target customers.

Marketing

the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large."

Unit margin

the difference between the per unit revenue by a firm and the variable cost of production *sometimes simply called "margin" *also sometimes called unit contribution

unit margin

the difference between the per-unit revenue received by a firm and the per-unit variable cost of production

price experimentation

the purposeful setting of price at varying levels across time, across geographic regions, and/or across channels to assess consumer response to the various prices.

Customer orientation

the set of beliefs that put the customer's interest first, ahead of those of all other stakeholders such as owners, managers, and employees

The value of a firm's customer base is:

the sum of the lifetime values of its current and future customers

total costs

fixed costs + (unit variable costs * quantity produced)

Breakeven analysis

fixed costs/(selling price-VC)

profit

total revenue - total costs

value presumption (customer value approach)

presumes what will be valuable to the customer

total revenue

price per unit * quantity sold

Under elastic demand conditions:

price sensitivity is high and quantity demanded should be responsive to small changes in price

value-based pricing

setting the price at a level that seems to the customer to be a good price compared to the prices of other options

Managerial Judgement

use 12 general qualitative indicators: product price buyer

True economic value (TEV)

value that a fully informed buyer would or should ascribe to the product... if the customer as multiple options to choose form, any assessment of TEV has to be relative of the next-best alternative. Cost of the next best alternative + Value of the performance differential = price of next-best alternative + expected system crash savings for each - added operating costs

demand landscape

"displays in rich schematic detail the ecosystem that illustrates how consumers go about living their lives" reveals how products, services, or brands intersect in time and space with consumer's occasions to: live play work defined by the matrix of goals, activities, and priorities that constitute the leading features of the landscape

Tools to help organizations align prices with value customers place on product:

-control availability of prices -set the price based on buyer characteristics -set the price based on transaction characteristics -manage the product-line offering

How does a company build a customer-centric culture? (4C's)

-coordination: establishing structural mechanisms and processes that allow employees to improve their focus on the customer -cooperation: encouraging people in all parts of the company to work together in the interest of the customer -capability: ensuring there are enough people in the organization that have the skills to deliver customer-focused -connection: developing relationships with external partners to make increasing the value of solutions more cost effective

Value pricing approach:

1. True economic value (TEV) 2. Perceived Value (PV) 3. Cost of goods sold (COGS)

Effective pricing requires:

1. an understanding of how consumers respond to changes in price 2. an appreciation for how various price/quantity combinations affect the economics of the firm

Marketing strategy and planning is comprised of:

1. customer centricity (value) 2. marketplace (channel and market) 3. Growth (innovation, disruption, and global marketing)

3 commonly used market research procedures for assessing price sensitivity:

1. customer surveys 2. price experimentation (how customers actually do behave relative to price) 3. analysis of historic pricing and sales data

*BUYER*: Price sensitivity is high if:

1. sophisticated, deliberative 2. bearing costs 3. able to switch easily 4. not motivated by prestige

effective pricing requires two details:

1. understanding of how consumers respond to changes in price 2. The appreciation for how various price/quantity combinations affect the economics of the firm

Value pricing hinges on two key elements:

1. value orientation: focus on the economic value created by an organization's products for the given customer **setting** 2. the set of processes to capture a portion of that value for the firm **getting**

Marginal math

An analysis of the profitability of a price change based on the relative size of the unit margin... Would the firm be better off lowering price to spur demand or increasing price to increase unit margin?

Iso-profit curves

An analytic tool that is conceptually related to breakeven analysis that can be used to consider the advisability of one price point versus another

yield management system

An approach to pricing in which the posted price is based on the expected demand for a given product by various customers. Typically applied to a perishable product, such as an airline seat or a hotel room, prices are adjusted by customer type, by the timing of the purchase, and/or by the date and time the product will be used.

Business as value creation

The purpose of business is ultimately to create value, to create some sort of good or service that people need.

Price customization

Where price varies across customers

Cost of Goods Sold (COGS)

the fully loaded variable cost of producing the product being sold... only if the product sells at a price above its COGS will it begin to contribute to profitability

Customer Relationship Management (CRM)

the process of collecting and using the detailed information about individual customers at all of these touch points. can provide an organization with aggregate and individual information about its consumers that guides the development of product offerings, services, programs, and messages, that also enables personalized customer service.