Pricing

Price is all around us. You pay rent for your apartment, tuition for your education, and a fee to your dentist or physician. The airline, railways, taxi & bus agencies charge you a fare; the local utilities call their price a rate; and the local bank charges you interest for the money you borrow. In our day-to-day life, for every exchange of product and services we pay viz value of product is called price..

PRICE

1. It is unique element in Marketing Mix or rather perhaps first “P” of marketing mix. 
2. Price is the value express in money and cost of transferring the ownership.
3. Price means total product offering; like brand name, product benefits & features, after-sales-service, Distribution Channels, sales promotions, discount, personal selling etc.

Price brings in the revenues

• Price = Cost + Profit.
• Rs 250 = 200+ 50.
• This is the only element in the marketing mix that brings in the revenues and all the rest are costs.
• Price communicates the value positioning of the product.
• Price at some extent determined quality of product.
• Price what a consumer is willing to pay for a product.

Pricing policy

• Selecting the pricing objective. 
• Determining demand. 
• Estimating costs. 
• Analyzing competitors – costs, prices, offers. 
• Selecting a pricing method. 
• Selecting the final price.

The pricing objective

• Survival. 
• Sales volume 
• Maximum current profit 
• Maximum market share – penetration pricing 
• Maximum market skimming 
• Product quality leadership 
• Rate of Return On Investment

Determining Demand
In competitive market the market forces of demand (purchasing) and supply (selling) will determined the price of products. The most important element of the market would be the substitute, which plays very significant variable in pricing of the product. Hence demand would be;

• Price sensitivity 
• Price elasticity of demand

What influences price sensitivity?

• Shared cost 
• Sunk investment 
• Price – quality 
• Inventory effect 
• Productivity
• Unique value effect 
• Substitute awareness 
• Difficult comparison 
• End benefit 
• Total expenditure

What is price elasticity?

• This determines the changes in demand with unit change in price 
• If there is little or no change in deenmand, it is said to be price inelastic. 
• If there is significant change in demand, then it is said to be price elastic.

Demand is likely to be less elastic when;

• There are few or no substitutes 
• Buyers readily do not notice the higher price 
• Buyers are slow to change their buying habits 
• Buyers think that the higher prices are justified 
• No aggressive competitor in the market.

Estimating costs

• Fixed costs 
• Variable costs 
• Learning curve 
• Activity based costing 
• Target costing

Pricing methods

• Markup pricing 
• Target return pricing 
• Perceived value pricing 
• Value pricing 
• Going rate pricing 
• Sealed bid pricing

Psychological pricing

• It is used to lessen the impact of the actual pricing in the consumers mind. 
• It is used as a surrogate to indicate the product quality or esteem.

New methods of Pricing

• Group Pricing. 
• Gain and Risk sharing pricing.

Geographical Pricing

• Different pricing at different locations. 
• Could be in terms of barter, counter trade and foreign currency.

Discounts and Allowances

• Early payment 
• Off – season 
• Bulk purchase 
• Retail discount 
• Cash discount 
• Trade in allowance

Promotional Pricing

• Loss leader pricing 
• Special event pricing 
• Cash rebate 
• Low interest financing 
• Longer payment terms 
• Warranties and service contracts 
• Psychological discounting

Discriminatory Pricing

• Customer segment 
• Product form 
• Image pricing 
• Location pricing 
• Time pricing

Product Mix Pricing

• Product line pricing 
• Optional feature pricing 
• Captive product pricing 
• Two part pricing 
• Byproduct pricing 
• Product bundling pricing

Initiating Price cuts

• Excess plant capacity 
• Competition 
• Aggressive pricing 

Initiating price increases;

• When demand exceeds supply 
• When costs go up 
• Govt. policies 
• Reduce/remove discounts and rebates

Indirect price increases when;

• Shrinking pack size for same price 
• Substituting less expensive raw materials 
• Reducing product features 
• Removing product services 
• Using less expensive packaging material 
• Reducing the no. of packs and sizes offered 
• Creating new economy brands

Responding to competitor price changes

• Maintain price 
• Maintain price and add value 
• Reduce price 
• Increase price and quality 
• Launch a low price fighter

Consumer Behavior

Why study consumer behavior?

Until now, we have focused on consumer needs;

• Identifying needs through market research 
• Satisfying needs through product design 
• Make more profit by understanding what people want

Consumer behavior is about the psychological processes that underlie consumer choices.

• Identifying the simplifying choice rules consumers use 
• Discovering how "framing" of a decision affects preferences 
• Make more profit by understanding how they think

BUYER BEHAVIOUR
Focus on the consumer buyer behaviour

• Consumer Behaviour is very important and ticklish attitude of consumer & in todays marketing scenario, it is main tool in the process of buying decision. 
• Consumer buyer behaviour - the buying behaviour of final consumers = individuals and households who buy goods and services for personal consumption –Kotler-Amstrong- 
• Consumer = most important of the marketing environment, the marketer must know : WHAT, WHEN, HOW, WHY the customer buyes 

Do people choose what is best for them?



BUYER-AN ENIGMA








Consumer Buyer Models: Economic Model

In this model consumer will be looking for benefits & opportunities. Like;

a) lower the price bought more qty (price effect)

b) higher purchasing power, bought higher qty (income effect)

c) lower the price of the substitute product, lower the qty that will be brought(substitute effect)

d) higher the promotion expenses the higher the sales (communication effect)

Physiological Model of Maslow’s Five Level Hierarchy/Needs



Stimulation-Response Model/Pavlovian Learning Model (SRM)



Howard-Sheth Buyer Behavior Model



Should consumers be followed or led?
“Our plan is to lead the public with new products rather than ask them what kind of products they want. The public does not know what is possible, but we do. So instead of doing a lot of market research, we …try to create a market for a product by educating [the public about what the product can do for them]. ” (Akio Morita, CEO of Sony)

Market Position

COMPETITOR ANANLYSIS

Competitor analysis

• Competition is necessary evil in the market, which indicate health of the industry & reflect on the product. 
• Competition gives new products, better price & lot more to consumer.
• A systematic attempt to identify competitor’s strategy will be core focus in competition analysis.
• The best example of competition is ATM cards, CRM, Easy money, big retail formats etc.

Types of growth

Intensive growth:

• Market penetration.
• Market development.
• Product development. 

Diversified growth

• Integrative growth - backward, forward, horizontal.
• No growth - harvesting, entrenchment, withdrawal.

Porter’s Five Forces Model

1. Bargaining power of suppliers.
2. Bargaining power of customers.
3. Threat of new entrants.
4. Threat of substitute products or services.
5. Rivalry among current competitors.

The Five Forces of Competition Model




Concerns of an Organization’s competitive analysis

• Who are our competitors?
• How can our competitors be grouped meaningfully?
• What are our competitors’ strengths and weaknesses?
• What are our competitors’ objectives and strategies?
• How are our competitors likely to react to changes in the marketing environment? 

Competitor identification

Who are our competitors?

• Similar specific-same product, technology and target market
• Similar general-same product area, but different segments. 

e.g. Nirma powder Vs Wheel powder

• Different specific-same need satisfied by different means.

e.g. Water Vs Cold drinks

• Different general-competing for discretionary spend.

e.g. holiday vs. new car

How can our competitors be grouped meaningfully?

Different characteristics for identifying Strategic groupings



 What are competitive strengths and weaknesses 

• Requires use of various information sources.
• Consider in terms of critical success factors:

e.g. manufacturing, technical and financial strength, relationships with supplier and customer, its market and segment, product range, its volume, cash and profits etc.

• Information can be used to plan and launch attack.

What are our competitors’ objectives and strategies? 

Objectives – related to cash generation, market share, technological leadership, quality recognition , market expansion, penetration into new market, product modification, advertisement strategy and sales promotion strategy etc. Find clues in product portfolio to have better edge over on the competitors.

Strategy - related to its positioning, marketing mix etc.

How are our competitors likely to react to changes in the marketing environment?

• Learn by experience.
• Market survey/research.
• Customers feed back-segmentation.

Not easy to predict its reaction due to: its cost structures, relative market positions, product life cycle, industrial position etc.

Useful information about competitors


Generic strategies



Sources of Competitions

• Product – branding, innovation, quality, specification, design, image, patents;
• Price – price positions, price-value combinations
• Place – intensive, exclusive distributions
• Promotion – creativity, spending
• Service – strong trust with customer

Attacking and defending

• Aggressive strategies - frontal, flank, encirclement, bypass, and guerrilla attacks. 
• Defence strategies - fixed position, mobile, flanking, contraction, counter offensive.

Attack strategies

Defence strategies

Marketing Research

Marketing Research

• The success of any business venture lies in the existence of markets.
• Unless the entrepreneur identifies the existing needs or potential needs of the market he cannot translate these needs into products/services that would be acceptable by the market.
• In the past, the intuitive ability of the entrepreneur was a good enough method for understanding the needs of the consumer.
• Marketing research is the process of collecting information on any facts relevant to market.
• Marketing research is the systematic collection of information, its analysis and interpretation to strategize some relevant business decision.
• Marketing research is the systematic gathering, recording and analysing of data about marketing problems to facilitated decision-making.
• The marketing research is a tool of marketing information system which has become an important function of management.

Definitions

• American Marketing Association (AMA) – Defines marketing research as the systematic gathering, recording and analyzing of data about problems relating to the marketing of goods and services.
• Philip Kotler – Marketing research is the systematic problem analysis, model building and fact finding for the purpose of improved decision making and control in the marketing of goods and services.
• Richard D. Crisp – Defines Market Research as the systematic objectives and exhaustible search for the study of facts relevant to any problem in the field of marketing.
• Clark and Clark – Defines Marketing Research is the careful and objective study of product design, markets and such transfer activities as physical distribution, warehousing, advertising and sales management.
• Marketing management needs essential information regarding products, prices, market conditions of demand and supply, consumer needs and desires, selling methods, physical flow of goods, competitive decisions, external marketing environment and other factors of marketing management.
• Marketing research has proved an essential tool to meet all the needs of marketing management.
• Marketing research therefore, is the scientific and controlled process of gathering and analysis of marketing information to meet the needs of marketing management. 

Salient features of Market Research

1. Market Research consists of fact findings based on data 
2. Systematic collection of data
3. Market Research is objective
4. Market Research converts data into information
5. Market Research is a continuous process
6. Market Research draws heavily from different disciplines – multi-disciplinary subject
7. Market Research is only a tool to the Decision-making

1. MR consists of fact finding based on data

• These data relate to any area of marketing function
• From a study of the market place to a study of buyer behaviour.
• They cover an expanse of products, prices, distribution & promotion.
• The collection data analyzing data interpretation - for the use of the decision-makers.

2. Systematic collection of data

• The data are collected by a systematic procedure
• Firstly, identification of a problem – for example sales declining - poor advertising, prices, competition.
• Formulation of objectives
• Sample selection – collection of data
• Analyzing interpretation presentation in the form of report

3. Marketing Research is objective

• We do not pre-suppose things
• We just put forth a hypothesis collect data and either accept the hypothesis or reject it
• The research is never carried out to support a pre-determined result.

4. Market Research converts data into information

• Data as such are not meaningful
• But on processing by systematic record, analysis and interpretation.
• They become useful information for the decision-maker.

5. Market Research is a continuous process

• Since marketing activities is a continuous one where there are changes in product mix, promotion mix, distribution channels & prices.
• Marketing Research also is carried out on a continuous basis.
• But in the light of changed environment the data also changes and so continuous monitoring is called for.

6. Market Research draws heavily from different disciplines

• Market Research draws heavily from Economics, Psychology, Sociology, Statistics, Operation Research, Computer Science and such other subjects.
• Market Research is a multi-dimensional cross – disciplinary subject.

7. MR is only a tool to the Decision-maker

• Market Research does not replace decision-making process
• Market Research only serves as an input to the decision-making process.
• Market Research is at best a tool that guides the decision-makers.

Objectives of Marketing Research

1. Help in the selection of right course of action.
2. Identify various opportunities or problems.
3. Evaluate the need of the customers.
4. Analyze the probable market for the product
5. Briefly study the competitors and the substitute products.
6. Identify the best sources of distributing the products.
7. Estimate future sales and expected share of the market.
8. Analyse the effectiveness of advertisement
9. Assess the sales representative efficiency.

Marketing Research Process

• The marketing research process involves identification of problems, research design, collection of data, sample design, analysis of data and interpretation of data for reporting the conclusions to solve specific problems.
• All research problems require their own special emphases and approaches.
• Since every marketing research problem is unique in some ways, the research process is typically tailored.
• However, there are some basic steps to be followed in each marketing research process.
• Each research process must be carefully planned, effectively coordinated and integrated.
• There are seven research steps involved in almost all types of market research
• Identification of research problems research design selection of data sample design analysis and interpretation report writing (preparation) Recommendation
• If all the steps are taken in a systematic manner the research conducted becomes quite effective.

Steps in Marketing Research

The marketing research process is carried out according to a designated series of steps which are required – chronological order

Step I Formulation of Problem

Step II Research Design

Step III Data collection

Step IV Sample Design

Step V Analysis and Interpretation

Step VI Report Writing

Step VII Recommendation

1. Identification of Problem

• In the first step in MR process is to define the problem chosen for investigation.
• This step is a very significant one and a problem well defined is half solved.
• On the other hand, if the problem is defined vaguely, a wrong problem is defined – research results may be completely useless for the management.
• When the problem is carefully and precisely defined, the research can provide a pertinent solution.
• The problem formation should be neither too broad nor too narrow.

2. Research Design

• Once the problem is defined, the next step, that is the research design, becomes easier.
• A research project conducted scientifically has a specific framework of research from the problems identification to preparation of the research report.
• It is a Master Plan or blue print according to which the research is to be conducted.
• Research can be conducted without a research design but it may not solve the problems.
• The research design specifies the methods for data collection and data analysis.
• The basic objective of research cannot be attained without proper research design – it leads to loss of money, energy and time.
• The success of good marketing research project is depends on good/sound research design.
• A good research design has the characteristics – problem formulation, specific methods of data collection and analysis, time required for research project, estimate of expenses to be incurred.
• The research design specifies the methods for data collection and data analysis
• The researcher specifically pin points that to carry out research properly

3. Selection of Sources of Data

• There are two types of data – primary and secondary data – fresh data and existed data
• Primary data - are original data from which the researcher directly collects data that have not been previously collected.
• Collection of data directly - on brand awareness, brand preferences, brand loyalty and other aspects of consumer behaviour.
• Primary data are directly collected by the researcher from their original sources.
• Secondary data means data which have be already been collected and analysed by some one else.
• Secondary data may either be published data or unpublished data.

4. Sample Design

• Sampling may be defined as the selection of some part of an aggregate or totality on the basis of judgment of aggregate.
• In other words, it is the process of obtaining information about an entire population by examining only a part of it.
• In most of the research work and surveys, the usual approach happens to be make generalizations or to draw inferences based on samples about the parameters of population.
• The researcher quite often selects only a few items from the universe for his study purposes.
• All this is done on the assumption that the sample data will enable him to estimate the population parameters.
• Sample should be truly representative of population characteristics without any bias.
• For example, we test the warmth of our coffee by taking a slip.
• In marketing research too, we try to draw conclusions on the basis of a sample for the whole group known as universe.

A. Simple Random Sampling

• Simple random sampling is a sampling technique in which each element of the population get equal chance of being selected.
• For example – sampling frame of 300 population each element theoretically has 1/300th chance of being selected.
• In a population of 300, each element has 1/300th chance of being selected.
• In a population of 1000, each element has 1/1000th chance of being selected.

B. Systematic sampling - chance

• In this case the sample numbers are chosen in a systematic manner from the entire population.
• Each member has a known chance of being selected but not necessarily equal one.
• We want to select a sample of 250 from a population of 2500 employee one out of every 10 since ratio of sample size to population size as show below

N 2500
n 250

C. Stratified Random Sampling

• A stratified random sampling is used when the researcher is particularly interested in certain specific categories within the total population.
• The population is divided into strata on the basis of measurable characteristics of its member – age, income and education.
• Stratified sampling is usually used when a large variation exists within a population and the researcher has some prior knowledge about natural subgroups. D. Cluster Sampling
• In cluster sampling, the population is first divided into clusters (sub-groups) that are convenient and economical for sampling.
• Next, clusters (sub-groups) are selected at random or systematic method.
• Finally, some of the times in the selected cluster are taken at random or by systematic method to make up the sample.

A cluster sample is useful in two situations –

1. When there is incomplete data on the composition of the population.
2. When it is desirable to save time and costs by limiting the study specific geographical areas.

Non Probability sampling

• In non-probability sampling, the chance of any particular unit in the population being selected is unknown.
• Since randomness is not involved in the selection process, an estimate of the sampling error cannot be made.

There are three types of non-probability sampling –
1.Judgment Sampling
2.Convenience Sampling and
3.Quota Sampling

A. Judgment Sampling

• Judgment sampling method in which the sample items are selected by using a researcher’s personal judgment.
• It is usually in expensive to implement and takes little time to administers.

B. Convenience Sampling

• Sometimes when researchers want to obtain information, there is little time or money available to perform an elaborate study.
• In these cases, researchers may do convenience sampling selection.
• In this method, the same units are chosen primarily on the basis of the convenience to the investigator.

C. Quota Sampling
In quota sampling method is similar to stratified sampling where the population is divided on the basis of characteristics of population – age, income, race, gender and so on.

5. Analysis and Interpretation

• The raw and crude data is collected from the field may not be useful.
• It should be analysed but before analysis it should be edited, coded and tabulated.
• The types of statistical tests to be employed for the analysis and interpretation are edited, coded and tabulated.
• The types of statistical tests to be employed for analysis and interpretations and dependent upon the methods of data collection. 
• The data analysis can be conducted by using simple statistical tools – percentages, averages and measures of dispersion.
• Alternatively, the collected data may be analysed by using diagrams, graphs, charts, pictures etc.
• Data may be cross-tabulated to produce useful relationships among the variables involved.
• Various statistical tests – t, F, Z, X2 etc.
• The most complicated and sophisticate analysis uses – multiple-regression analysis, multiple correlation analysis, discriminate analysis, factor analysis, cluster analysis etc
• The conclusion, summary and recommendations of research are based on the statistical analysis. 6. Report Writing
• After the collected data is analysed and interpreted, the job of marketing researcher is to present research results in the form of systematically typed printed report.
• A specifically designed format must be used for research report preparation and result presentation. 7. Recommendation Follow up
• Research follow up is essential for the validity of marketing research
• The validity appropriateness, acceptability and control are the essential factors of recommendation follow up. 
• Control requires some check on various aspects such as time, cost, quality of work and so on.
• The marketing researcher should audit its performance validity, meaning the correctness of various aspects of the research process.
• Errors should be prevented to the greatest possible extent.
• The findings should be derived as per the objective.
• The findings should be acceptable to the executives

MARKETING INFORMATION SYSTEM

A marketing information system ( MkiS ) consists of people, equipment and procedures to gather, SWOT analyse, evaluate and distribute needed, timely and accurate information to marketing decision makers .

Why do we need market information?

• To take better decisions.
• To measure demand forecast more accurately.
• To be ahead in the market.
• To avoid customer defection.
• To have better market share.—
• To craft better marketing mix and product mix.

The Marketing Intelligence System

A Marketing Intelligence System is a set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment.

Areas of market research