Transcript Marketing Issues and Concepts

Marketing Issues and Concepts
Marketing Issues and Concepts
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How did Sega go from being one of the most fashionable console makers in
the 1990’s to an ‘also ran’ by 2001 ? And what led to its withdrawing their
‘Dreamcast’ from the market ?
Marketing Issues and Concepts
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How did Sega go from being one of the most fashionable console makers in
the 1990’s to an ‘also ran’ by 2001 ? And what led to its withdrawing their
‘Dreamcast’ from the market ?
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The following points should have been noted:
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Sales were below forecasted levels
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They reduced the price – even being prepared to make a short-term loss
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Only launched in 1999
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Multi-million pound advertising campaign
Marketing Issues and Concepts
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In terms of marketing it seems that SEGA made all the right moves but it
failed – WHY ?
Marketing Issues and Concepts
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In terms of marketing it seems that SEGA made all the right moves but it
failed – WHY ?
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The market for games consoles is changing and developing all the time. This rate is
not unusual in today’s world but SEGA being who they are, should they have
known about this ?
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The internet is taking custom away from traditional games consoles, should they
have noticed this and made more products available online ?
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Quality is vital in a image concerned society, so having a product that has had its
price lowered may not be worth having and is now considered an inferior good
Marketing Issues and Concepts
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What’s the main message to take out of this example ?
Marketing Issues and Concepts
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What’s the main message to take out of this example ?
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That no matter who you are and what you have done in the past if there is not a
enough consumer demand or want for your product then you will fail !
How could they have avoided this ?
Marketing Issues and Concepts
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What’s the main message to take out of this example ?
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That no matter who you are and what you have done in the past if there is not a
enough consumer demand or want for your product then you will fail !
How could they have avoided this ?
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By conducting RELEVANT market research
Marketing Issues and Concepts
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The definition of market research is:
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Marketing is the PROCESS of researching into and identifying consumer needs and
employing appropriate price, product, place and promotion strategies in order to
satisfy these needs profitably
Marketing Issues and Concepts
Market Orientation and product Orientation
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Important to distinguish between the two.
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A company will describe themselves as ‘market orientated or ‘market led’
this means ?
Marketing Issues and Concepts
Market Orientation and product Orientation
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Important to distinguish between the two.
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A company will describe themselves as ‘market orientated or ‘market led’
this means ?
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The business will focus on consumer needs and wants and try to satisfy them.
This requires market research and analysis to help show present and future
demand.
Marketing Issues and Concepts
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The consumer should always come first
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Business should always try and satisfy their demand rather than trying to
sell them a product they don’t really want.
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Benefits of this approach are:
Marketing Issues and Concepts
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The consumer should always come first
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Business should always try and satisfy their demand rather than trying to sell
them a product they don’t really want.
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Benefits of this approach are:
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The chance of newly developed products failing are reduced, but not eliminated if
proper market research has been done. With the high costs of developing new
products this is a big argument for being market orientated.
Consumer needs are being met with appropriate products meaning longer survival and
better profits for these companies as opposed to product led companies.
Market research should never actually end and feedback allows for the product to be
developed and improved before its too late.
Marketing Issues and Concepts
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The days of being product orientated are fading fast but they still do exist !
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Where does this still exist ?
Marketing Issues and Concepts
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The days of being product orientated are fading fast but they still do exist !
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Where does this still exist ?
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Electronic and pharmaceutical companies.
 Mobile phones being a good example and their applications.
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Product orientated firms spend their time efficiently producing high quality
products cause they feel if the product is of a high quality then it creates its own
demand and consumers are not too bothered with fashion or fad type goods.
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These types of companies still exist especially in areas such as safety for example
crash helmets.
Marketing Issues and Concepts
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Something to consider:
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If businesses are market orientated and respond to every consumer whim they
may overstretch and becomes expensive !
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Another way of doing things is called asset-led marketing. What do we think this is
?
Marketing Issues and Concepts
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Something to consider:
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If businesses are market orientated and respond to every consumer whim they
may overstretch and becomes expensive !
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Another way of doing things is called asset-led marketing. What do we think this is
?
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Still market research based
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But firms will consider their own strengths in terms of skills and resources
available to them and will make products that take advantage of these.
For example:
Marketing Issues and Concepts
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Something to consider:
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If businesses are market orientated and respond to every consumer whim they may
overstretch and becomes expensive !
Another way of doing things is called asset-led marketing. What do we think this is ?
Still market research based
 But firms will consider their own strengths in terms of skills and resources
available to them and will make products that take advantage of these.
For example:
 BMW – they don’t branch off into any other markets like other car
manufacturers do
 Levi – don’t go into any other markets and stay around denim and casual
clothes.
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Marketing Issues and Concepts
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Important to remember that not all market orientated businesses succeed.
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Just because you are sensitive to consumer wants doesn’t guarantee success
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Survival in today’s market requires much more and a more on the whole
marketing process other than just good research
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Finding out what consumers want and providing it at a profit to yourself
involves:
Marketing Issues and Concepts
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Important to remember that not all market orientated businesses succeed.
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Just because you are sensitive to consumer wants doesn’t guarantee success
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Survival in today’s market requires much more and a more on the whole marketing process other than just good research
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Finding out what consumers want and providing it at a profit to yourself involves:
• Establishing market objectives
• Carrying out effective research
• Analysing the markets that you are in
• Developing your product
• Testing your product
• Correct pricing
• Establishing promotional techniques
• Effective distribution
• Always assessing sales against targets and adjusting the variables
Marketing Issues and Concepts
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Marketing objectives
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Must fit inline with the overall aims and mission of the business – relates to what
we have talked about previously.
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Be determined by senior management – the main marketing objectives will
determine what market and products the business deals in.
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They must be realistic, motivating, measurable, achievable and easy to
communicate
If we don’t have the marketing objectives inline with the business objectives
it can lead to disharmony within the business.
Marketing Issues and Concepts
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An example of the importance of the marketing objectives being inline with
business objectives and in synch with other departments is:
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If the marketing team decide to really push an existing product forcibly then:
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Production department has to be told and prepared for increased demand.
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HR may need to recruit more staff
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Finance department may need to increase short term capital to be able to
finance the move.
What are the main examples of marketing objectives:
Marketing Issues and Concepts
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An example of the importance of the marketing objectives being inline with
business objectives and in synch with other departments is:
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If the marketing team decide to really push an existing product forcibly then:
 Production department has to be told and prepared for increased demand.
 HR may need to recruit more staff
 Finance department may need to increase short term capital to be able to finance
the move.
What are the main examples of marketing objectives:
 Achieve certain market share
 Reach certain level of sales (units or revenue)
 Penetrate the market - increase sales in existing market
 Market development – selling existing products or introducing newer ones
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Why are marketing objectives important ?
Marketing Issues and Concepts
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Why are marketing objectives important ?
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Give direction to marketing department
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Progress can be assessed against targets
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Can be broken down into limited short –term targets and can be divided between
the different products and geographical regions of a company
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They have an impact on other areas of business
Marketing Issues and Concepts
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Market Segmentation
Marketing Issues and Concepts
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Market Segmentation
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Identifying different groups (Sub – group) of a market and marketing different
products
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Consumers will have similar characteristics
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Very popular strategy
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Customer focused
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To be effective the firm must analysse whole market carefully to identify the
groups within the group !
Example of successful market segmentation by companies ?
Marketing Issues and Concepts
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Market Segmentation
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Identifying different groups (Sub – group) of a market and marketing different products
Consumers will have similar characteristics
Very popular strategy
Customer focused
To be effective the firm must analysse whole market carefully to identify the groups
within the group !
Example of successful market segmentation by companies ?
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Coca cola (vanilla coke, coke with lemon etc…)
Hewit and packard/Mac produce laptops and towered computers
Car firms who produce different versions of certain models like a coupe or a saloon
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Mass marketing
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Selling same products to whole market
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No attempt to target groups
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Example:
Marketing Issues and Concepts
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Mass marketing
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Selling same products to whole market
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No attempt to target groups
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Example: McDonalds/coca cola
Niche marketing
Marketing Issues and Concepts
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Mass marketing
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Selling same products to whole market
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No attempt to target groups
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Example: McDonalds/coca cola
Niche marketing
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Identifying and exploiting a segment of a larger market
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Segment can be small section of whole market or one that has not been identified
yet
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Examples:
Marketing Issues and Concepts
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Mass marketing
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Selling same products to whole market
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No attempt to target groups
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Example: McDonalds/coca cola
Niche marketing
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Identifying and exploiting a segment of a larger market
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Segment can be small section of whole market or one that has not been identified
yet
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Examples: Versace designs – sell only expensive high quality
Marketing Issues and Concepts
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Market share, size and growth
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Market share is the proportion which its sales represent of total market size
Marketing Issues and Concepts
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Market share, size and growth
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Market share is the proportion which its sales represent of total market size
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Sales for business / total market sales X 100these can be measured in either units
or value
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Market share is good way of measuring business success against competitor
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Benefits of high market share and being brand leader are:
Marketing Issues and Concepts
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Market share, size and growth
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Market share is the proportion which its sales represent of total market size
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Sales for business / total market sales X 100these can be measured in either units
or value
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Market share is good way of measuring business success against competitor
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Benefits of high market share and being brand leader are:
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Clearly your sales are higher than anybody else
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Retailers WANT to stock you
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Shops are keen to stock you so you can offer them a smaller %
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Good to use in advertising
Marketing Issues and Concepts
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Market growth means the rate at which total sales in the market is rising each year
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Different markets grow at different rates
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Growth depends on factors such as:
Marketing Issues and Concepts
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Market growth means the rate at which total sales in the market is rising each year
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Different markets grow at different rates
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Growth depends on factors such as:
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Current economic climate
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Changes in consumer income and tastes
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Technological influences/developments
Rate of growth depends on whether market is saturated or not:
Marketing Issues and Concepts
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Market growth means the rate at which total sales in the market is rising each year
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Different markets grow at different rates
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Growth depends on factors such as:
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Current economic climate
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Changes in consumer income and tastes
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Technological influences/developments
Rate of growth depends on whether market is saturated or not:
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Example in the western world the sale of washing machines is not rising, their
just being replaced, but laptops are rising because all potential consumers have
yet to purchase.
Marketing Issues and Concepts
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Market growth is the % increase in size of WHOLE market
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Important to specify term market for example sale of cameras maybe going down
in general but certain types of a camera maybe on the rise.
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Can be measured in revenue generated. Example:
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Sales rose from 24 million pairs of jeans sold on average $36 to 26 million on
average cost $32. measure the growth 2 ways here. What are they ?
Marketing Issues and Concepts
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Market growth is the % increase in size of WHOLE market
Important to specify term market for example sale of cameras maybe going down
in general but certain types of a camera maybe on the rise.
Can be measured in revenue generated. Example:
 Sales rose from 24 million pairs of jeans sold on average $36 to 26 million on
average cost $32. measure the growth 2 ways here. What are they ?
 Volume – rise from 24 to 26 million = 7.69%
 Value – revenue rises from $768m to $936m a 21.87% rise
These two methods that are used can make it difficult to compare against
competitors as they may use different method to you.
Being able to identify the market with the biggest growth potential is HUGE !
Marketing Issues and Concepts
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Adding value
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Basic really - it’s the……..
Marketing Issues and Concepts
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Adding value
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Basic really - it’s the difference between the selling price and the cost of
everything brought in to make it.
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This is not the same as profit !
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Why ?
Marketing Issues and Concepts
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Adding value
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Basic really - it’s the difference between the selling price and the cost of
everything brought in to make it.
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This is not the same as profit !
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Why ?
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Because there are other overheads such as wages etc…..
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If business can increase added value then the space to make more profit is
obvious.
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But how can a business convince the consumer to pay much more for the
commodity than it costs to make it ?
Marketing Issues and Concepts
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Make the consumer feel special by creating an environment that makes
them feel appreciated. This has a psychological effect on them and have
them prepared to pay higher prices.
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This approach is used by businesses such as ?
Marketing Issues and Concepts
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Make the consumer feel special by creating an environment that makes
them feel appreciated. This has a psychological effect on them and have
them prepared to pay higher prices.
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This approach is used by businesses such as ?
 Hairdressers, cosmetic retailer, perfume retailers and high brand car showrooms
etc….
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Use high quality packaging to differentiate your product from competitors
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Promote it as a ‘must have brand’ which will make consumers pay a
premium price for it even though the materials or ingredients are not much
different to others – example being……
Marketing Issues and Concepts
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Make the consumer feel special by creating an environment that makes them feel
appreciated. This has a psychological effect on them and have them prepared to pay
higher prices.
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This approach is used by businesses such as ?
 Hairdressers, cosmetic retailer, perfume retailers and high brand car showrooms etc….
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Use high quality packaging to differentiate your product from competitors
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Promote it as a ‘must have brand’ which will make consumers pay a premium price for it
even though the materials or ingredients are not much different to others – example
being – LEVIS
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Create a USP that sets you apart from the others. This can be expensive strategy but very
rewarding. Its successful if heavy promotion is given to product – example Microsoft and
Hagen Dazs
Marketing Issues and Concepts
Market research and sales forecasting
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Market research is a broad and far reaching process
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Not just used to find out if consumers will buy your product or not its concerned
with:
Marketing Issues and Concepts
Market research and sales forecasting
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Market research is a broad and far reaching process
Not just used to find out if consumers will buy your product or not its concerned with:
 Reaction to different price levels
 Reaction to alternative promotion methods
 Reaction to packaging
 What there preferred means of distribution are
Results of research have major impact on all business decisions
Market research is in its self a growth industry with more and more companied out
sourcing to specialist companies.
Why are companies prepared to pay high premium for market research ?
Marketing Issues and Concepts
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To reduce risk with a new product launch
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To help predict future changes
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To help explain patterns in sales of existing products and market trends
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To assess the most favored designs/methods/styles and promotions that consumers
prefer
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Can also be used to to discover
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Market size
Strengths and weaknesses of a product
Effectiveness of promotions
Competitors positions in the markets
Marketing Issues and Concepts
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IMPORTANT that you know about primary and secondary research and the
different methods used.
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Primary:
Marketing Issues and Concepts
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IMPORTANT that you know about primary and secondary research and the
different methods used.
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Primary:
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Qualitative research such as:
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Observations
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Test marketing
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Consumer surveys
All these are mainly carried out by psychologists who will look into the deeper
meaning of results !
Marketing Issues and Concepts
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Who to ask ?
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Sample size
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The larger the sample the more confident you can be of a true result. This is
especially true in an example of a food brand trying to survey consumer
reaction to a new product.
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Major stumbling block to the size of the sample is ?
Marketing Issues and Concepts
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Who to ask ?
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Sample size
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The larger the sample the more confident you can be of a true result. This is
especially true in an example of a food brand trying to survey consumer
reaction to a new product.
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Major stumbling block to the size of the sample is ?
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The cost and time taken to do it.
What are the main sampling methods ?
Marketing Issues and Concepts
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Who to ask ?
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Sample size
 The larger the sample the more confident you can be of a true result. This is especially true in an example of a
food brand trying to survey consumer reaction to a new product.
 Major stumbling block to the size of the sample is ?
 The cost and time taken to do it.
What are the main sampling methods ?
 Random sampling – benefits here are a wide range of consumers being approached within the target market.
 Stratified sampling - dividing the population into sub-groups and sampling from those sub-groups that are
going to be interested in the product. A new ladies magazine is to be launched but its aimed at 12-17 yr olds.
No point asking a sample of female magazine readers but sampling 13-17 yr old readers
 Quota sampling -interviewees are selected according to the different proportions – example 65% of men wear
jeans in the whole denim market but more accurate if we can split that up into age groups possibly
 Cluster sampling – when a sampling frame not available and the product is likely to appeal to specified groups
then cluster sampling will take place.
Marketing Issues and Concepts
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What and how to ask the right questions are very important
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Do you ask the questions or do you leave it to the person to fill in on their
own ?
Marketing Issues and Concepts
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What and how to ask the right questions are very important
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Do you ask the questions or do you leave it to the person to fill in on their
own ?
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Depends really on the type of product you are testing for
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How accurate are your answers going to be ?
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ALL valid questions !
Marketing Issues and Concepts
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What happens to the data ?
Marketing Issues and Concepts
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What happens to the data ?
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Raw data is translated into information in a number of different ways such as bar
charts, tables, formal reports, pie charts, histograms etc…
Marketing Issues and Concepts
The Marketing Mix
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Product
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NPD (new product development) is crucial to survival and success for some
businesses
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In other markets it is possible to sell the same product for many years without
much or any change. For example our favorite company – coca cola !
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Product development is usually based on trying to satisfy customer demands or
needs based on research which can be expensive and not always successful
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We must realise that the development of a new product is much the
responsibility of the marketing department as it is the dsigners.
Marketing Issues and Concepts
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Products and brands
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Mobile phone network is an example of a ………………. As opposed to Vodafone
which is ………………..
Marketing Issues and Concepts
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Products and brands
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Mobile phone network is an example of a PRODUCT As opposed to Vodafone
which is a BRAND.
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What’s the difference ?
Marketing Issues and Concepts
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Products and brands
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Mobile phone network is an example of a PRODUCT As opposed to Vodafone
which is a BRAND.
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What’s the difference ?
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The product is the general term to describe what is actually being sold
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Brand is the distinguishing name or symbol that Is used to differentiate the
manufactures
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Branding has a massive influence and can create powerful images and
perceptions.
Marketing Issues and Concepts
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Product positioning
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We use market mapping to help us analysye how the new brand will relate to
other brands in the market. This is called positioning
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First must identify the key features or attributes of a product
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The example I have drawn uses price and health image to map the market for soft
drinks.
Marketing Issues and Concepts
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Once you know the key features of your product and identified your niche you
promote these key features as much as you can.
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Once you have analysed you can see if you need to re-position your product.
Marketing Issues and Concepts
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New Product Development and Research and Development
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No firm can afford to stand still and not develop new products
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You need to adapt, update or create new products or even work on ‘me-to ‘
products. These are:
Marketing Issues and Concepts
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New Product Development and Research and Development
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No firm can afford to stand still and not develop new products
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You need to adapt, update or create new products or even work on ‘me-to ‘
products. These are: similar products to competitors.
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Effective R&D is essential to be able to do this and stay in the game or ahead
of the game !
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Don’t think that this doesn’t apply to service providers as well !
Marketing Issues and Concepts
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R&D of New product opportunities
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These opportunities are usually identified by market research and mapping.
Product orientated firms may only deal in ‘scientific’ research and will develop their
new product based on them findings
There maybe some instances where the company will try to lead consumer tastes
rather than react to them
Product testing
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Ensures that the product achieves its technical targets in terms of efficient costs of
production, performance and reliability
Value analysis is important here which looks at the product in terms of performance,
looks and economy of manufacture (eg 164)
Where would a new product be in value analysis ?
Marketing Issues and Concepts
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R&D of New product opportunities
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These opportunities are usually identified by market research and mapping.
Product orientated firms may only deal in ‘scientific’ research and will develop their new product based on them
findings
There maybe some instances where the company will try to lead consumer tastes rather than react to them
Product testing
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Ensures that the product achieves its technical targets in terms of efficient costs of production, performance and
reliability
Value analysis is important here which looks at the product in terms of performance, looks and economy of
manufacture (eg 164)
Where would a new product be in value analysis ?
 Middle to top
If there were cheaper components available that didn’t effect performance but didn’t look as good then it would
be ?
Marketing Issues and Concepts
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R&D of New product opportunities
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These opportunities are usually identified by market research and mapping.
Product orientated firms may only deal in ‘scientific’ research and will develop their new product based on them
findings
There maybe some instances where the company will try to lead consumer tastes rather than react to them
Product testing
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Ensures that the product achieves its technical targets in terms of efficient costs of production, performance and
reliability
Value analysis is important here which looks at the product in terms of performance, looks and economy of
manufacture (eg 164)
Where would a new product be in value analysis ?
 Middle to top
If there were cheaper components available that didn’t effect performance but didn’t look as good then it would
be ?
 Middle to right
Marketing Issues and Concepts
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If it is in point B do you think sales are affected ?
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Do you think that looks are important ?
Marketing Issues and Concepts
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If it is in point B do you think sales are affected ?
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Do you think that looks are important ?
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Only consumer testing can provide these answers, and this is known as
‘market testing’
Marketing Issues and Concepts
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Governments try to provide a suitable environment for R&D.
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They provide legal security. They do this how ?
Marketing Issues and Concepts
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Governments try to provide a suitable environment for R&D.
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They provide legal security. They do this how ?
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By allowing inventors and designers to ‘patent’ or ‘register’ a design.
This is useful because ?
Marketing Issues and Concepts
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Governments try to provide a suitable environment for R&D.
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They provide legal security. They do this how ?
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By allowing inventors and designers to ‘patent’ or ‘register’ a design.
This is useful because ?
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If it proves popular the original designer is sure of receiving the financial gains,
and doesn’t have to worry about people ripping off his idea – well not completely
!
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Government will also offer financial assistance to help with R&D.
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In what areas is this likely ?
Marketing Issues and Concepts
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Governments try to provide a suitable environment for R&D.
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They provide legal security. They do this how ?
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By allowing inventors and designers to ‘patent’ or ‘register’ a design.
This is useful because ?
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If it proves popular the original designer is sure of receiving the financial gains, and doesn’t have to
worry about people ripping off his idea – well not completely !
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Government will also offer financial assistance to help with R&D.
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In what areas is this likely ?
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Areas of interest to the public/economy etc…
Such as possibly pharmaceutical research
Marketing Issues and Concepts
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Price
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The fixing of price is vital to the marketing mix
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It has massive impact on the demand for the product
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Price is an indicator of the marketing objectives.
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Get pricing wrong then you put the hard work conducted through market
research in jepordy
Marketing Issues and Concepts
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Demand

What is demand ?
Marketing Issues and Concepts
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Demand
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What is demand ?

Demand for a product is the quantity that consumers are prepared to purchase
at the existing price at a given time.
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If you are to be successful you have to be aware at what affects demand.
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The general rule for demand is that as price falls the more they are likely to
purchase.
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If the price rises what happens to consumer spending power ?
Marketing Issues and Concepts

Demand

What is demand ?

Demand for a product is the quantity that consumers are prepared to purchase
at the existing price at a given time.

If you are to be successful you have to be aware at what affects demand.

The general rule for demand is that as price falls the more they are likely to
purchase.

If the price rises what happens to consumer spending power ?

It decreases
Marketing Issues and Concepts

So price is important in determining the demand for a product but its not the only
factor.

What else can determine demand ?
Marketing Issues and Concepts

So price is important in determining the demand for a product but its not the only
factor.

What else can determine demand ?
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Change in your income level
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Increased population or an increase in the age range of target market
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A change in the price of a substitute good
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A change in price of a complimentary good
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A good and effective advertising campaign
Marketing Issues and Concepts

Price elasticity of demand

Look at the two demand curves I have drawn, the one labeled DD has a steeper
gradient than D1D1

What impact does the slope of the curves have on demand for those two products
when price is changed ?
Marketing Issues and Concepts

Price elasticity of demand
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


Look at the two demand curves I have drawn, the one labeled DD has a steeper
gradient than D1D1
What impact does the slope of the curves have on demand for those two products
when price is changed ?
 Demand has fallen for both products but at different rates even though the
price increase is the same.
This could be useful info for marketing manager/director as the revenue for A has
risen but B has fallen
The relationship between price changes and the size of resulting change in
demand is known as price elasticity of demand and measures the responsiveness
of demand following a change in price.
Marketing Issues and Concepts

you can show it on demand curves or as a formula:
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% change in quantity demanded / % change in price
The value of PED is usually negative – why ?
Marketing Issues and Concepts
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you can show it on demand curves or as a formula:


The value of PED is usually negative – why ?


% change in quantity demanded / % change in price
Because a fall in price results in a increase in demand
Apply this formula to the example given.
Marketing Issues and Concepts

What determines price elasticity of demand ?
Marketing Issues and Concepts

What determines price elasticity of demand ?

How necessary a product is – the more its deemed necessary by the consumers
the less they will react to changes in price. This makes it inelastic.

Number of similar competitors – the more substitutes there are the more likely
consumers will be to switch if there is a rise in price. Example fruit retailers.

Degree of consumer loyalty – if through branding you have created strong
customer loyalty then they are likely to stick with you through reasonable price
increases.
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The price of the product – a cheap product which doesn’t use up much of your
income, is unlikely to have a high elastic demand as you don’t care about a 10% or
15% increase.
Marketing Issues and Concepts
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Main uses of PED
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Why do we use PED ?
Marketing Issues and Concepts
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Main uses of PED

Why do we use PED ?
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To make a more accurate sales forecast


If you are considering a price increase to cover production cost rise then
being aware of PED should allow forecasted demand to be calculated (181)
Assisting in pricing decisions

If bus company thinking about changing its pricing structure then being aware
of PED of routes is useful – why ?
Marketing Issues and Concepts

Main uses of PED

Why do we use PED ?

To make a more accurate sales forecast


If you are considering a price increase to cover production cost rise then
being aware of PED should allow forecasted demand to be calculated (181)
Assisting in pricing decisions

If bus company thinking about changing its pricing structure then being aware
of PED of routes is useful – why ?

Could raise prices on routes that are inelastic (low PED) and lower them on
routes which are elastic (high PED) – also known as price discrimination.
Marketing Issues and Concepts

Many products are affected by many different things when deciding on price.

We have talked about demand and elasticity but what else is there to effect
pricing decisions ?
Marketing Issues and Concepts

Many products are affected by many different things when deciding on price.

We have talked about demand and elasticity but what else is there to effect
pricing decisions ?

Cost of production
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Market conditions
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Competitor prices
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Business and marketing objectives
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Are you a new or existing product
Marketing Issues and Concepts

Pricing methods
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Cost based pricing
 The basics of this is that a firm will figure out how much it costs to make per unit and
add on top of that a % for profit. There are a number of different methods to cost
based pricing:
 Mark up pricing – used by retailers who have the price they paid the wholesaler
and add a % onto that. Size of the mark up depends on the demand for the
product, number of suppliers and the age and stage of the product life.
 Target pricing – where a company decides upon a price that will give a required
rate of return at a certain level of output/sales. For example if a company has
costs of $400,000 when making 10,000 units and requires a return of 20% then it
will set its price by working out its total cost and expected return and divide by
the output. (183)
Marketing Issues and Concepts

Full costing
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Where a company try’s to calculate a unit cost for the product then adds an
agreed profit margin.
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not easy to do especially if your company makes several different items
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Difficult to allocate fixed costs.
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Differs to mark-up pricing in the fact that it finds a method to allocate the fixed
costs as best as possible
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Example fixed costs of making DVD’s is $10,000, the variable cost is $5,000 and
they make 5,000 (184)
Marketing Issues and concepts

Contribution costing
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Does not try to allocate fixed costs to specific products
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Firms calculate the variable cost and then adds an amount to contribute to fixed
costs.
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If enough units are sold then costs are covered and anything over what is needed
is profit.

Eg –firm has $2 per unit direct costs, fixed costs of $40,000 and they set a
contribution of $1 per unit towards fixed costs so one unit sells for $3. how many
units to be sold to cover fixed costs ?
Marketing Issues and concepts

Contribution costing




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Does not try to allocate fixed costs to specific products
Firms calculate the variable cost and then adds an amount to contribute to fixed
costs.
If enough units are sold then costs are covered and anything over what is needed
is profit.
Eg –firm has $2 per unit direct costs, fixed costs of $40,000 and they set a
contribution of $1 per unit towards fixed costs so one unit sells for $3. how many
units to be sold to cover fixed costs ?
 40,000
How many units to be sold to make $20,000 profit ?
Marketing Issues and concepts

Contribution costing





Does not try to allocate fixed costs to specific products
Firms calculate the variable cost and then adds an amount to contribute to fixed costs.
If enough units are sold then costs are covered and anything over what is needed is
profit.
Eg –firm has $2 per unit direct costs, fixed costs of $40,000 and they set a contribution
of $1 per unit towards fixed costs so one unit sells for $3. how many units to be sold to
cover fixed costs ?
 40,000
How many units to be sold to make $20,000 profit ?
 60,000
Marketing Issues and concepts

It a good thing if a firm produces products that all make a contribution to fixed
costs.

A general rule is that any product that makes a positive contribution should
continue to be produced as long as there is spare capacity to do so

Many firms have excess capacity and use contribution costing to attract business

An example being trains – mad busy at certain times of day and really quiet at
others
Marketing Issues and concepts

Competition based pricing
Marketing Issues and concepts

Competition based pricing
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Firms will base their prices around competitors
Price leadership can exist in markets
Some markets have bigger firms than others but all similar prices to avoid a pricing war
Undercutting is done to force competitors out of the market
Market pricing or can be known as consumer based pricing and prices are set based on
a study of conditions and trends within the market.
Perceived value pricing – this is when a value is put on a product which is inelastic
depending on how valuable the consumer sees it
Price discrimination - this takes place when firms know they can charge more in certain
areas than in others. Supermarkets do this to an extent
Marketing Issues and concepts
Marketing Issues and concepts