BA 590BA 590

Module 2

Customer Needs

Key TermsKey Terms

• Model of Buyer Behavior

• PSSP Pyramid

• Problem Solving

• Purchase Situation

• Organizational Buyer Needs

Key TermsKey Terms

• Pricing• Pricing Objectives• Discount Pricing• Allowances• Geographic Pricing• Value Pricing• Types of Cost• Demand Curve• Break-Even Analysis

A Model of Buyer Behavior

5-5

Purchase ReasonTimeSurroundings

PurchaseSituation

MotivationPerceptionLearningAttitudePersonality/Lifestyle

PsychologicalVariables

FamilySocial ClassReference GroupsCulture

SocialInfluence

Problem-Solving Process

Person Does or Does Not Purchase (Response)

Marketing Mixes All Other Stimuli

PersonMakingDecision

Exhibit 5-2

The Adoption Process

Awareness

Interest

Evaluation

Trial

Decision

Confirmation5-15

5-7

Drive

Cues

Response

Reinforcement

The Learning Process

Exhibit 5-5

5-16

Relating the Processes

Problem-solving steps

1. Becoming aware of or interested in the problem

2. Gathering information about possible solutions

3. Evaluating alterative solutions

4. Deciding on the appropriate solution

5. Evaluating the decision

Adoption process steps

Awareness and interest

Interest and evaluation

Evaluation, maybe trial

Decision

Confirmation

Learning steps

Drive

Cues

Response

Reinforcement

5-6

The PSSP Hierarchy of Needs

Physiological Needs

Safety Needs

Social Needs

PersonalNeeds

Exhibit 5-4

Exhibit 5-11

5-14

Levels of Problem Solving

Extensive Problem Solving

Limited Problem Solving

Routinized Response Behavior

Involvement Continuum

Low Involvement High Involvement

Low involvementFrequently purchasedInexpensiveLittle riskLittle information needed

High involvementInfrequently purchased

ExpensiveHigh risk

Much information desired

Purchase SituationPurchase Situation

• Activity-Interest-Opinion

• Situation Influences

• Social Class

Lifestyle Dimensions

OpinionsOpinions

InterestsInterests

ActivitiesActivities??????????????????????????????????????????????????????????????????????

5-8

Purchase Situation Influences

SurroundingsSurroundings

TimeTime

Purchase ReasonPurchase Reason??????????????????????????????????????????????????????????????????????

5-12

Exhibit 5-8

5-10

Social Class Dimensions

1.5%

32%

12.5%

38%

15%

Lower-middle class

Upper-middle class

Upper-class

Lower-lower class

Upper-lower (“working”) class

5-16

Relating the Processes

Problem-solving steps

1. Becoming aware of or interested in the problem

2. Gathering information about possible solutions

3. Evaluating alterative solutions

4. Deciding on the appropriate solution

5. Evaluating the decision

Adoption process steps

Awareness and interest

Interest and evaluation

Evaluation, maybe trial

Decision

Confirmation

Learning steps

Drive

Cues

Response

Reinforcement

Organization Buyer NeedsOrganization Buyer Needs

• Buying Centers

• Buyer Seller Relationships

Buying Centers

BuyingCenter

InfluencersUsers

Gatekeepers Deciders

Buyers

6-4

Exhibit 6-2

Information sharing

Linkages

Cooperation

Legal bonds

Adaptations

RelationshipRelationshipSupplierSupplier CustomerCustomerSalesperson

QualityR&D

AccountingMarketing

Production

Purchasing manager

Quality

Finance

R&D

ProductionAccounting

Engineering

6-8

Exhibit 6-5

Buyer-Seller Relationships

PricingPricing

• Strategy Planning Elements

• Objectives

• Flexibility• Skim• Penetration Pricing

• Discounts

• Allowances

PricingPricing

• Geographic Pricing

• Value Pricing

• Mark-ups

• Types of Cost

• Breakeven Analysis

Strategy Planning for Price

Exhibit 16-1

Pricingobjectives

TargetMarket

PricePromotionPlaceProduct

Geographicterm —

who paystransportation

and how

Discounts andallowances—to whom and

when

Price levelsover product

life cycle

Priceflexibility

16-3

Pricing Objectives

Exhibit 16-416-4

Dollar or UnitSales Growth

Growth in Market Share

TargetReturn

MaximizeProfits

MeetingCompetition

NonpriceCompetition

PricingObjectives

SalesOriented

ProfitOriented

Status QuoOriented

Price Flexibility Policies

• One-price policy• The same price to all customers who purchase products

under essentially the same conditions and quantities• Exchange rate changes may make this difficult in international

markets

• Flexible pricing (e.g., in channels, business markets, expensive consumer shopping products)• Issues:

• Use is increasing because of impact of information technology, customer databases, scanners, etc.

• Selling costs may be higher if prices are negotiated• “Signals” to competitors• Customer dissatisfaction may be a problem• “Gray channels” and cross-shipping

16-5

Exhibit 16-5A16-6

Price Level Policies

“Skim the cream” pricing involves selling at a high

price to those who are willing to pay before aiming at

more price-sensitive consumers.

Price

Quantity

Initialskimmingprice

Secondprice

Finalprice

Skimming Pricing

Sell at highprice beforereducing tonext price leveland repeat

Price

Quantity

Penetration Pricing

Wholemarket price

Penetration pricing involves selling the

whole market at one low price.

Exhibit 16-5B16-7

Price Level Policies

Trade

Quantity Seasonal

DiscountPricing

Sale Cash

16-8

Discount Pricing

Allowances

Common Kindsof

Allowances

AdvertisingAllowance

Push MoneyAllowance

Trade-InAllowance

StockingAllowance

16-9

Geographic Pricing Policies

Common Geographic

PricingPolicies

F.O.B.

UniformDelivered

FreightAbsorption

Zone

16-10

16-11

Value Pricing

Fits with StrategyPlanning

Fits with StrategyPlanning

Target Market andCompetition

Target Market andCompetition

Focus on CustomerRequirements

Focus on CustomerRequirements????????

????????????????????????????????

$$

Exhibit 17-1

Markup chainin channels

17-3

Key Factors That Influence Price Setting

Pricing objectives

Discounts andallowances

Legal environment

Price flexibility

Geographicpricing terms

Demand

Cost

Price of otherproducts in the line

Competition

Pricesettin

g

QuestionsQuestions

• Relate the Concept of Stock Turnover to Mass-Merchandising. Use an Example to Explain This

24.00

30.00

50.00

Producer Wholesaler Retailer

Cost = 24.00 = 80%

Markup = 6.00 = 20%

Cost = 21.60 = 90%

Markup = 2.40 = 10% Cost = 30.00 = 60%

Markup = 20.00 = 40%

Exhibit 17-217-4

Markups

Six Types of Costs

Total Cost

AverageFixed Cost

Total VariableCost

AverageVariable Cost

Total FixedCost

Average Cost

17-5

Exhibit 17-6

Total revenue = Price x Quantity $30,000 = $3.00 x 10,000 $40,000 = $2.00 x 20,000 $57,000 = $1.90 x 30,000 $66,000 = $1.65 x 40,000 $75,000 = $1.50 x 50,000 $72,000 = $1.20 x 60,000

17-6

Quantity (000)

Pri

ce

per

un

it

10 20 30 40 50 60 70

$3.00

2.001.90

1.651.50

1.20

Prices Along the Demand Curve

Exhibit 17-7

Estimated quantity to be sold

Average fixed cost per unit

Quantity demanded at selling price

Cost-oriented selling price per unit

Average total cost per unit

Variable cost per

unit

Profit per unit

?

17-7

Summary of Relationships Summary of Relationships Affecting PriceAffecting Price

Exhibit 17-817-8

Break-even Analysis

To

tal R

eve

nu

e a

nd

Co

st

Units of Production

Break-Even Point

Profit Area

Total Fixed Costs

Total Variable Costs

Total Cost Curve

Total Revenue Curve

Loss Area

More0

Higher

Evaluating a Customer’s Price SensitivityEvaluating a Customer’s Price Sensitivity

• Are there substitute ways of meeting a need?

• Is it easy to compare prices?

• Who pays the bill?

• How great is the total expenditure?

• How significant is the end benefit?

• Is there already a sunk investment related to the purchase?

17-10

Demand-Oriented Pricing

17-11

Odd-Even

Prestige Value-in-Use

Reference

Price Lining Leader

Bait

Psychological

Types ofDemand-Oriented

Pricing

Demand Backward

Demand Oriented PricingDemand Oriented Pricing

• Value in Use - Priced on What Consumers Will Save By Using the Product

• Reference Price - Price Expected• Leader Pricing - Bargain Price• Bait Pricing - Low Price and

Then Switch

Demand Oriented PricingDemand Oriented Pricing

• Psychological Pricing - Ranges Have the Same Appeal (Stair Function)

• Odd-Even - “99 Cents”• Price Lining - A Few Price Levels,

Then Marking All At Those Prices• Demand Backward - Work

Backward From Price Consumer is Willing to Pay

Demand Oriented PricingDemand Oriented Pricing

• Prestige Pricing - High Price = High Quality

QuestionsQuestions

• Distinguish Between Leader and Bait Pricing

• What Do They Have In Common?

• How Can Their Use Affect the Marketing Mix?

Full-Line Pricing

Product-BundlingPricing?

Product-BundlingPricing?

ComplementaryPricing?

ComplementaryPricing?

Market- or FirmOriented?

Market- or FirmOriented???????????

????????????????????????????????????????

17-12