Concept The various components of the marketing mix must be mixed into a value proposition as per customers requirements Price has to be carefully meshed with the companies product, distribution and communication strategies Innovative firms can enter the market by providing better value to the customer

Customer Value Benefits Sacrifices Core Benefits Add on Benefits Acquisition ProcessingUsage Cost

Customers cost in use components Acquisition Cost Possession Cost Usage Costs Price Interest Installation Paperwork Storage Training Transportation Quality User Labour Expediting Taxes n Ins Product Longevity

Customers cost in use components Acquisition Cost Possession Cost Usage Costs Cost of Mistakes Shrinkage Replacement in order and obsolescence costs Prepurchase General internal Disposal product evaluation handling costs costs costs

Attributes of a total product offering Attribute High Level Low level Quality Impurities less than Impurities less one part per million ten parts per million Delivery within one week within two weeks System Supply total system Supply chemical only Innovation High level of Little R&D R&D support support Retraining Retrain on request Train on initial purchase Service Locally available Through home office

Factors that influence pricing strategy Customer Demand – product usage, potential customer benefit, cost of owning and using products, product value from customer perspective Product value is related to buyers sensitivity to price. Price of product in relation to total cost of end product is important factor.

Cost Determinants Business marketers often base prices on their own costs Selling price is reached by calculating unit costs and adding a percentage profit This overlooks customer perception of value, competition and interaction of volume and profit Progressive firms use target costing for competitive advantage

Target Costing Companies identify and target the most attractive market segments Determination is done of the level of quality and product types attributes that are required to succeed in each segment given a predetermined target price and volume level Based on target selling price and target profit margin the company calculates allowable costs

Target Costing This exercise exerts pressure on the companies product development team and the companies suppliers The target price of a new product is broken into target costs for each component or function Automobile companies use target costing to reduce prices

Cost classification Direct traceable or attributable costs – costs fixed or variable for a particular product, customer or sales territory Indirect traceable costs – these are costs which can be traced to a particular product, customer or sales territory General costs – these could be administrative costs of a sales team

Evaluating a competitive threat Center reactive price cuts only on those customers likely to be attracted to competitors offer Center reactive price cuts on a particular geographic region, distribution channel, or product line where the competitor has most to lose from a price reduction Capitalize on any competitive advantage to increase the value of the offer as an alternative to matching price

Evaluating a competitive threat If competitors continue to cut prices to say recover some fixed costs than the strategy would be: Allow competitors some leeway in more price – sensitive, lower margin customer segments Create barriers ( e.g developing unique solutions for valued customers) that make it difficult for competitors to reach less price sensitive, more profitable consumer segments