The Marketing Department, 4Ps, Understanding Customers, and Pricing Unit 4 The Marketing Department, 4Ps, Understanding Customers, and Pricing

The marketing department Marketing Director Trade marketing (sales) Trade support Customer support Brand marketing Customer insight New product development

The 4Ps Product Price Place Promotion (unpopular these days because it is product-centric)

Understanding customers through insight What is happening in the environment? What opportunities has this created? How can we beat the competition? Problem of first mover advantage

Targeting market segments

How would you define POPCO’s target segments? In groups of 4, define 3 different market segments for POPCO customers in Korea. Specifically identify all of the characteristics of these customers, not just one aspect. Why do you think your segmentation will help us target product design, messages, communications, and support?

Anticipating purchasing behavior Decision influences Situational: immediate Psychology: individual Social: community Situational influences: physical surroundings, social surroundings, time of day, purchase reason, and buyer’s mood and condition. Psychological influences : perceptions, motives, learning, attitudes, personality, and lifestyle. Social influences: family influences, role in their social circle, peer groups, social class, and the culture and subcultures to which the buyer belongs.

Pricing Different types of base pricing: Cost-based Demand-based Competition-based

Key to cost-based pricing: markup Markup: amount seller adds to costs per unit to meet profitability requirements Markup % = (Unit price – Unit cost) / Unit cost …compare this to Margin %: (Unit price – Unit cost)/ Unit price

Example Markup

Cost-based pricing guidance: breakeven Breakeven quantity is the quantity of units required to sell at a given price, to cover the total costs of production and attributable expenses. Breakeven is where Total costs (TC) = Total revenues (TR)

Test your knowledge! Pricing during 1st Xmas season: $12 per unit New pattern costs, retooling for new plastic mold: $5,000 Packaging design + NPD launch promotion: $280,000 Materials cost per 10,000: $22,000

Calculating breakeven Total Revenues (TR) = Total Costs (TC) TR = Q * P where Q is breakeven quantity and P is unit price TC = TVC + TFC where TVC is total variable costs and TFC is total fixed costs

Gross profit per unit! Answer… TR =TC, or TR – TC = 0 (Q*$12) – [(Q*22,000/10,000) + (285,000)] = 0 Q($12-$2.2) = $285,000 Q = 29,082 CHECK: 29,082*12 = (29,082*2.2) + 285,000 Gross profit per unit!

Calculating quantities based on margin In a similar way, you can calculate the quantity needed to meet certain margin targets given a certain unit price Margin % = (TR – TC) / TR

What quantity to make 40% margin contribution? Pricing during 1st Xmas season: $12 per unit New pattern costs, retooling for new plastic mold: $5,000 Packaging design + NPD launch promotion: $280,000 Materials cost per 10,000: $22,000

Answer… (TR – TC) / TR = 0.40 [Q*12 – [(Q*22,000/10,000)+(285,000)] = 4.8Q 9.8Q = 4.8Q +285,000 Q = 57,000 (40% margin contribution requires almost doubling quantity beyond breakeven) CHECK: (12*57,0000) – [(57,000*2.2)+285,000)] / 12*57,000 = 0.40

Pricing strategies Pricing strategies help companies address changes in the marketplace to increase: Revenues Market share Profitability Return on a particular investment

Pricing strategies