CHAPTER 1 and delivering the desired satisfactions

better than competitors do

Marketing - The process by which companies create value for
customers and build strong customer relationships in order to Societal marketing concept - The idea that a company’s marketing
capture value from customers in return decisions should consider consumers’ wants, the company’s
requirements, consumers’ long-run interests, and society’s long-run
Needs - States of felt deprivation. interests

Wants - The form human needs take as they are Customer relationship
shaped by culture and individual personality. Management - The overall process of building and maintaining
profitable customer relationships by delivering superior customer
Demands - Human wants that are backed by buying power value and satisfaction.

Market offerings - Some combination of products, services, Customer-perceived value - The customer’s evaluation of the
information, or experiences offered to a market to satisfy a need difference between all the benefits and all the costs of a marketing
or want offer relative to those of competing offers.

Marketing myopia - The mistake of paying more attention to the Customer satisfaction The extent to which a product’s perceived
specific products a company offers than to the benefits and performance matches a buyer’s expectations.
experiences produced by these products
Customer-managed relationships - Marketing relationships in
Exchange - The act of obtaining a desired object from someone which customers, empowered by today’s new digital technologies,
by offering something in return interact with companies and with each other to shape
their relationships with brands.
Market - The set of all actual and potential buyers of a product
or service Consumer-generated marketing - Brand exchanges created by
consumers themselves—both invited and uninvited—
Marketing management - The art and science of choosing target by which consumers are playing an increasing role in shaping their
markets and building profitable relationships with them. own brand experiences and those of other consumers

Production concept - The idea that consumers will favor Partner relationship management - Working closely with partners
products that are available and highly in other company departments and outside the company to jointly
affordable and that the organization should therefore focus on bring greater value to customers.
improving production and distribution efficiency
Customer lifetime value - The value of the entire stream of purchases
Product concept - The idea that consumers will favor products that the customer would make over a lifetime of patronage.
that offer the most quality, performance, and features and that the
organization should therefore devote its energy to making Share of customer - The portion of the customer’s purchasing that a
continuous product Improvements company gets in its product categories

Selling concept - The idea that consumers will not buy enough of Customer equity - The total combined customer lifetime values of
the firm’s products unless it all of the company’s customers.
undertakes a large-scale selling and promotion effort.
Internet - A vast public web of computer network that connects
Marketing concept - A philosophy that holds that achieving users of all types all around the world to each other and to an
organizational goals depends on knowing the needs and wants of amazingly large information repository.
target markets
CHAPTER 2
Strategic business unit (SBU)
Strategic planning Is a unit of the company that has a separate mission and objectives
The process of developing and maintaining a strategic fit between that can be planned separately from other company businesses
the organization’s goals and capabilities and its changing
marketing opportunities. Growth-share matrix
A portfolio-planning method that evaluates a company’s SBUs in
Mission statement terms of its market growth rate and relative market share.
A statement of the organization’s purpose—what it wants to
accomplish in the larger environment. Product/market expansion grid
A portfolio-planning tool for identifying company growth
Market-oriented mission statement opportunities through market penetration, market development,
Defines the business in terms of satisfying basic customer needs product development, or diversification.

Business portfoli Growth and Downsizing

The collection of businesses and products Market penetration
that make up the company. Company growth by increasing sales of current products to current
market segments without changing the product.
Portfolio analysis
The process by which management evaluates the products and Market development
businesses that make up the company.
Company growth by identifying and developing new market
segments for current company products. 4P's
*Product
Product development *Price
Company growth by offering modified or new products to current *People
market segments. *Promotion

Diversification Positioning
Company growth through starting up or acquiring businesses Arranging for a product to occupy a clear, distinctive, and desirable
outside the company’s current products and markets. place relative to competing products in the minds of target
consumers.
Downsizing
Is the reduction of the business portfolio by eliminating products SWOT analysis
or business units that are not profitable or that no longer fit the An overall evaluation of the company’s strengths (S), weaknesses
company’s overall strategy (W), opportunities (O), and threats (T).

Value chain Strengths include internal capabilities, resources, and positive

The series of internal departments that carry out value-creating situational factors that may help the company serve its customers and
activities to design, produce, market, deliver, and support a firm’s achieve its objectives.
products. Weaknesses include internal limitations and negative situational
factors that may interfere with the company’s performance.
Value delivery network
The network made up of the company, its suppliers, its Opportunities are favorable factors or trends in the external
distributors, and, ultimately, its customers who partner with each environment that the company may be able to exploit to its
other to improve the performance of the entire system. advantage.

Marketing strategy Threats are unfavorable external factors or trends that may present
The marketing logic by which the company hopes to create challenges to performance
customer value and achieve profitable customer relationships.
Marketing planning
Market segmentation Involves choosing marketing strategies that will help the company
Dividing a market into distinct groups of buyers who have attain its overall strategic objectives. A detailed marketing plan is
different needs, characteristics, or behaviors, and who might needed for each business, product, or brand.
require separate products or marketing programs.
Marketing implementation
Market segment Turning marketing strategies and plans into marketing actions to
A group of consumers who respond in similar way to a given set accomplish strategic marketing objectives.
of marketing efforts.
Marketing control
Market targeting Measuring and evaluating the results of marketing strategies and
The process of evaluating each market segment’s attractiveness plans and taking corrective action to ensure that the objectives are
and selecting one or more segments to enter. achieved.

Marketing mix Return on marketing investment (or marketing ROI)

Is the set of controllable tactical marketing tools—product, price, The net return from a marketing investment divided by the costs of
place, and promotion—that the firm blends to produce the the marketing investment.
response it wants in the target market

CHAPTER 3 needed by the company to produce its goods and services. Supplier
problems can seriously affect marketing
Marketing environment
The actors and forces outside marketing that affect marketing Marketing intermediaries
management’s ability to build and maintain successful Firms that help the company to promote, sell, and distribute its goods
relationships with target customers. to final buyers.

Microenvironment Physical distribution firms

The actors close to the company that affect its ability to serve its Help the company stock and move goods from their points of origin
customers. The company, suppliers, marketing intermediaries, to their destinations
customer markets, competitors, and publics.
Public
Macroenvironment Any group that has an actual or potential interest in or impact on an
The larger societal forces that affect the microenvironment organization’s ability to achieve its objectives.
demographic, economic, natural, technological, political,
and cultural forces. Various Public
1. Financial public company abilities to fund, banking.
Suppliers form an important link in the company’s overall 2. Media public This group carries news, features, and editorial opinion.
customer value delivery network. They provide the resources It includes newspapers, magazines, television stations, and blogs and
other Internet media.
3. Citizen action public company’s marketing decisions may be The 45 million people born between 1965 and 1976 in the “birth
questioned by consumer organizations, environmental groups, dearth” following the baby boom.
minority groups, and others.
Millennials (or Generation Y)
4. Government public Management must take government developments The 83 million children of the baby
into account. Marketers must often consult the company’s lawyers on issues of boomers, born between 1977 and 2000.
product safety, truth in advertising, and other matters.
Economic environment
5. Local public includes neighborhood residents and community Economic factors that affect consume purchasing power and
organizations. spending patterns.

Natural environment
6. General public company needs to be concerned about the general
public’s attitude toward its products and activities.
Natural resources that are needed as inputs by marketers or that are
affected by marketing activities.
7. Internal Public includes workers, managers, volunteers, and the Environmental sustainability
board of directors.
Developing strategies and practices that create a world economy that
the planet can support indefinitely
Customers are the most important actors in the company’s
microenvironment. Technological environment
Forces that create new technologies, creating new product and
market
Demography opportunities.
The study of human populations in terms of size, density,
location, age, gender, race, occupation, and other statistics. Political environment
Laws, government agencies, and pressure groups that influence and
Baby boomers limit various organizations and individuals in a given society.
The 78 million people born during years following World War II
and lasting until 1964. Cultural environment Institutions and other forces that affect
society’s basic values, perceptions, preferences, and behaviors.
Generation X
CHAPTER 4
Causal research
Customer insights Marketing research to test hypotheses about cause-and-effect
Fresh understandings of customers and the marketplace derived relationships.
from marketing information that become the basis for creating
customer value and relationships. 2.Developing the Research Plan

Marketing information system (MIS) Secondary data

People and procedures for assessing information needs, Information that already exists somewhere, having been collected for
developing the needed information, and helping decision makers another purpose.
to use the information to generate and validate actionable Primary data
customer and market insights. Information collected for the specific purpose at hand.

Internal databases Commercial online databases

Electronic collections of consumer an market information Collections of information available from
obtained from data sources within the company network. online commercial sources or accessible
via the Internet.
Competitive marketing intelligence
The systematic collection and analysis of publicly available Observational research
information about consumers, competitors, and developments in Gathering primary data by observing
the marketing environment. relevant people, actions, and situations.

The Marketing Research Process Ethnographic research

A form of observational research that involves sending trained
Marketing research observers to watch and interact with consumers in their “natural
The systematic design, collection, analysis, and reporting of data environments.”
relevant to a specific marketing situation facing an organization.
Survey research
1.Defining the Problem and Research Objectives Gathering primary data by asking people questions about their
Exploratory research knowledge, attitudes, preferences, and buying behavior.
Marketing research to gather preliminary information that will
help define problems and suggest hypotheses. Experimental research
Gathering primary data by selecting matched groups of subjects,
Descriptive research giving them different treatments, controlling related factors, and
Marketing research to better describe marketing problems, checking for differences in group responses.
situations, or markets, such as the market potential for a product
or the demographics and attitudes of consumers. Contact Methods
*Mail questionnaires can be used to collect large amounts of
information at a low cost per respondent.
*Telephone interviewing is one of the best methods for gathering CHAPTER 5
information quickly, and it provides greater flexibility than mail
questionnaires. Characteristics Affecting Consumer Behavior Consumer
*Personal interviewing takes two forms: individual interviewing purchases are influenced strongly by cultural, social, personal, and
and group interviewing. psychological characteristics
1.Individual interviewing involves talking with people in
their homes or offices, on the street, or in shopping malls. Cultural Factors
2.Focus group interviewing involves inviting six to ten Cultural factors exert a broad and deep influence on consumer
people to gather for a few hours with a trained interviewer to talk behavior. Marketers need to understand the role played by the
about a product, service, or organization. The interviewer buyer’s culture, subculture, and social class
“focuses” the group discussion on important issues.
Culture
Online marketing research The set of basic values, perceptions, wants, and behaviors learned by
Collecting primary data online through internet surveys, online a member of society from family and other important institutions.
focus groups, Web-based experiments, or tracking consumers’
online behavior. Subculture
A group of people with shared value systems based on common life
Online focus groups experiences and situations. Relatively permanent and ordered
Gathering a small group of people online with a trained divisions in a society
moderator to chat about a product, service, or organization and
gain qualitative insights about consumer attitudes and behavior. Social class whose members share similar values, interests, and
behaviors.
Sample
A segment of the population selected for marketing research to
represent the population as a whole. Group
Types of Samples Two or more people who interact to accomplish individual or mutual
*Probability Sample goals.
-Simple random sample Every member of the population has a known
and equal chance of selection. Opinion leader
-Stratified random sample The population is divided into mutually A person within a reference group who, because of special skills,
exclusive groups (such as age groups), and random samples are drawn knowledge, personality, or other characteristics, exerts social
from each group. influence on others.
-Cluster (area) sample The population is divided into mutually exclusive
groups (such as blocks), and the researcher draws a sample of the groups
to interview. Online social networks
Online social communities—blogs, social networking Web sites, or
*Nonprobability Sample even virtual worlds—where people socialize or exchange
-Convenience sample The researcher selects the easiest population information and opinions.
members from which to obtain information.
-Judgment sample The researcher uses his or her judgment to select Family
population members who are good prospects for accurate information. Family members can strongly influence buyer behavior. The family
-Quota sample The researcher finds and interviews a prescribed number is the most important consumer buying organization in society, and it
of people in each of several categories. has been researched extensively. Marketers are interested in the roles
and influence of the husband, wife, and children on the purchase of
Two main research instruments: the questionnaire and mechanical
different products and services.
devices.
Questionnaire is by far the most common instrument, whether
administered in person, by phone, by e-mail, or online. Roles and Status
Mechanical Instruments devices to monitor consumer behavior. A person belongs to many groups—family, clubs, organizations,
Nielsen Media Research attaches people meters to television sets, online communities. The person’s position in each group can be
cable boxes, and satellite systems in selected homes to record who defined in terms of both role and status. A role consists of the
watches which programs. Retailers use checkout scanners to record activities people are expected to perform according to the people
shoppers’ purchases. around them. Each role carries a status reflecting the general esteem
given to it by society
3.Implementing the Research Plan
The researcher next puts the marketing research plan into action. Personal Factors
This involves collecting, processing, and analyzing the information. A buyer’s decisions also are influenced by personal characteristics
such as the buyer’s a and life-cycle stage, occupation, economic
4.Interpreting and Reporting the Findings situation, lifestyle, and personality and self-concept.
The market researcher must now interpret the findings, draw
conclusions, and report them to management.

Age and Life-Cycle Stage

People change the goods and services they buy over their lifetimes.
Customer relationship management (CRM) Occupation
Managing detailed information about individual customers and A person’s occupation affects the goods and services bought.
carefully managing customer touch points to maximize customer
loyalty. Lifestyle
A person’s pattern of living as expressed
in his or her activities, interests, and Habitual buying behavior
opinions. Consumer buying behavior in situations characterized by low-
consumer involvement and few significantly perceived brand
Personality differences.
The unique psychological characteristics
that distinguish a person or group. Variety-seeking buying behavior
Consumer buying behavior in situations
Psychological Factors characterized by low consumer
A person’s buying choices are further influenced by four major involvement but significant perceived
psychological factors: motivation, perception, learning, and brand differences.
beliefs and attitudes.
Need recognition
Motive (drive) The first stage of the buyer decision
A need that is sufficiently pressing to direct the person to seek process, in which the consumer
satisfaction of the need. recognizes a problem or need.

Perception Information search

The process by which people select, organize, and interpret The stage of the buyer decision process in which the consumer is
information to form a meaningful picture of the world. aroused to search for more information; the consumer may simply
have heightened attention or may go into an active information
Selfactualization needs search.
Self-development and realization
Esteem needs Alternative evaluation
Self-esteem, recognition, status The stage of the buyer decision process in which the consumer uses
Safety needs information to evaluate alternative brands in the choice set.
Security, protection
Physiological needs Purchase decision
Hunger, thirst The buyer’s decision about which brand to purchase.
Social needs
Sense of belonging, love Postpurchase behavior
The stage of the buyer decision process in which consumers take
Learning further action after purchase based on their satisfaction or
Changes in an individual’s behavior arising from experience. dissatisfaction with a purchase.

Attitude Cognitive dissonance

A person’s consistently favorable or unfavorable evaluations, Buyer discomfort caused by post purchase conflict.
feelings, and tendencies toward an object or idea.
New product
Belief A good, service, or idea that is perceived
A descriptive thought that a person hold about something. by some potential customers as new.

Complex buying behavior Adoption process

Consumer buying behavior in situations characterized by high The mental process through which an individual passes from first
consumer involvement in a purchase and significant perceived hearing about an innovation to final adoption.
differences among brands.

Dissonance-reducing buying Behavior Consumer buying

behavior in situations characterized by high involvement bu few
perceived differences among brands.

CHAPTER 6 Supplier development

Systematic development of networks of supplier-partners to ensure
Business buyer behavior an appropriate and dependable supply of products and materials for
The buying behavior of organizations that buy goods and services use in making products or reselling them to others.
for use in the production of other products and services that are
sold, rented, or supplied to others Straight rebuy
A business buying situation in which the buyer routinely reorders
Business buying process something without any modifications.
The decision process by which business buyers determine which
products and services their organizations need to purchase and Modified rebuy
then find, evaluate, and choose among alternative suppliers and A business buying situation in which the buyer wants to modify
Brands product specifications, prices, terms, or suppliers.

Derived demand New task

Business demand that ultimately comes from (derives from) the A business buying situation in which the buyer purchases a product
demand for consumer goods. or service for the first time.
Systems selling (or solutions selling) The stage of the business buying process in which the buying
Buying a packaged solution to a problem from a single seller, organization decide on and specifies the best technical product
thus avoiding all the separate decisions involved in a complex characteristics for a needed item
buying situation.
Supplier search
Buying center The stage of the business buying process in which the buyer tries to
All the individuals and units that play a role in the purchase find the best vendors.
decision-making process.
Proposal solicitation
Users The stage of the business buying process in which the buyer invites
Members of the buying organization who will actually use the qualified suppliers to submit proposals.
purchased product or service.
Supplier selection
Influencers The stage of the business buying process in which the buyer reviews
People in an organization’s buying center who affect the buying proposals and selects a supplier or suppliers
decision; they often help define specifications and also provide
information for evaluating alternatives. Order-routine specification
The stage of the business buying process in which the buyer writes
Buyers the final order with the chosen supplier(s), listing the technical
People in an organization’s buying center specifications, quantity needed, expected time of delivery, return
who make an actual purchase. policies, and warranties.

Deciders Performance review

People in an organization’s buying center who have formal or The stage of the business buying process in which the buyer assesses
informal power to select or approve the final suppliers. the performance of the supplier and decides to continue, modify, or
drop the arrangement.
Gatekeepers
People in an organization’s buying center who control the flow of E-procurement
information to others. Purchasing through electronic connections between buyers and
sellers—usually online.
Problem recognition
The first stage of the business buying process in which someone Institutional market
in the company recognizes a problem or need that can be Schools, hospitals, nursing homes, prisons, and other institutions that
met by acquiring a good or a service. provide goods and services to people in their care.

General need description Government market

The stage in the business buying process in which a buyer Governmental units—federal, state, an local—that purchase or rent
describes the general characteristics and quantity of a needed goods and services for carrying out the main functions of
item. government.

Product specification

CHAPTER 7 Geographic segmentation

Dividing a market into different geographical units, such as nations,
Market targeting (targeting) states, regions, counties, cities, or even neighborhoods.
The process of evaluating each market segment’s attractiveness
and selecting one or more segments to enter. Age and life-cycle segmentation
Dividing a market into different age and life-cycle groups.
Market segmentation
Dividing a market into smaller segments with distinct needs, Gender segmentation
characteristics, or behavior that might require separate Dividing a market into different segments based on gender.
marketing strategies or mixes.
Income segmentation
Differentiation Dividing a market into different income segments.
Differentiating the market offering to
create superior customer value. Psychographic segmentation
Dividing a market into different segments based on social class,
Positioning lifestyle, or personality characteristics.
Arranging for a market offering to occupy a clear, distinctive, and
desirable place relative to competing products in the minds of Behavioral segmentation
target consumers. Dividing a market into segments based on consumer knowledge,
attitudes, uses, or responses to a product.
Demographic segmentation
Dividing the market into segments based on variables such as Occasion segmentation
age, gender, family size, family life cycle, income, occupation, Dividing the market into segments according to occasions when
education, religion, race, generation, and nationality. buyers get the idea to buy, actually make their purchase, or use the
purchased item.
Benefit segmentation Micromarketing
Dividing the market into segments according to the different Tailoring products and marketing programs to the needs and wants of
benefits that consumers seek from the product. specific individuals and local customer segments; It includes local
marketing and individual marketing.
Intermarket segmentation
(cross-market segmentation) Individual marketing
Forming segments of consumers who Tailoring products and marketing programs to the needs and
have similar needs and buying behavior preferences of individual customers—also called one-to one
even though they are located in different marketing, customized marketing, and markets-of-one marketing.
countries.
Product position
Target market The way the product is defined by consumers on important attributes
A set of buyers sharing common needs —the place the product occupies in consumers’ minds relative to
or characteristics that the company competing products.
decides to serve.
Competitive advantage
Undifferentiated (mass) An advantage over competitors gained by offering greater customer
marketing value, either by having lower prices or providing more benefits that
A market-coverage strategy in which a firm decides to ignore justify higher prices.
market
segment differences and go after the whole market with one offer. Value proposition
The full positioning of a brand—the full mix of benefits on which it
Differentiated (segmented) marketing is positioned.
A market-coverage strategy in which a firm decides to target
several market segments and designs separate offers for each. Positioning statement
A statement that summarizes company of brand positioning. It takes
Concentrated (niche) marketing this form: To (target segment and need) our (brand) is (concept) that
A market-coverage strategy in which firm goes after a large share (point of difference).
of one or a few segments or niches

Local marketing
Tailoring brands and promotions to the needs and wants of local
customer segments—cities, neighborhoods, and even specific
stores.

CHAPTER 8
Industrial product
Service A product bought by individuals and organizations for further
An activity, benefit, or satisfaction offered for sale that is processing or for use in conducting a business.
essentially intangible and does not result in the ownership of
anything. Social marketing
The use of commercial marketing concepts and tools in programs
Product designed to influence individuals’ behavior to improve their well-
Anything that can be offered to a market for attention, being and that of society.
acquisition, use, or consumption that might satisfy a want or
need. Product quality
The characteristics of a product or service that bear on its ability to
Consumer product satisfy stated or implied customer needs.
A product bought by final consumers for personal consumption.
Brand
Convenience product A name, term, sign, symbol, design, or combination of these, that
A consumer product that customers usually buy frequently, identifies the products or services of one seller or group of sellers and
immediately, and with minimal comparison and buying effort. differentiates them from those of competitors.

Shopping product Packaging

A consumer product that the customer, in the process of selecting The activities of designing and producing
and purchasing, usually compares on such attributes as the container or wrapper for a product.
suitability, quality, price, and style.
Product line
Specialty product A group of products that are closely related because they function in
A consumer product with unique characteristics or brand a similar manner, are sold to the same customer groups, are marketed
identification for which a significant group of buyers is willing to through the same types of outlets, or fall within given price ranges.
make a special purchase effort.
Product mix (or product portfolio)
Unsought produc The set of all product lines and items that a particular seller offers for
A consumer product that the consumer either does not know sale.
about or knows about but does not normally consider buying.
Service intangibility Interactive marketing
Services cannot be seen, tasted, felt, heard, or smelled before they Training service employees in the fine art of interacting with
are bought. customers to satisfy their needs.

Service inseparability Brand equity

Services are produced and consumed at the same time and cannot The differential effect that knowing the brand name has on customer
be separated from their providers response to the product or its marketing.

Service variability Store brand (or private brand)

The quality of services may vary greatly depending on who A brand created and owned by a reseller of a product or service.
provides them and when, where, and how.
Co-branding
Service perishability The practice of using the established brand names of two different
Services cannot be stored for later sale or use. companies on the same product.

Service profit chain Line extension

The chain that links service firm profits with employee and Extending an existing brand name to new forms, colors, sizes,
customer satisfaction. ingredients, or flavors of an existing product category.

Internal marketing Brand extension

Orienting and motivating customer contact employees and Extending an existing brand name to new product categories.
supporting service people to work as a team to provide customer
satisfaction.

CHAPTER 9 The stage of new-product development in which the product and its
proposed marketing program are tested in realistic
New-product development market settings.
The development of original products, product improvements,
product modifications, and new brands through the firm’s own Commercialization
product development efforts. Introducing a new product into the market

Idea generation Customer-centered new-product development

The systematic search for new-product ideas. New-product development that focuses on finding new ways to solve
customer problems and create more customer satisfying experiences.
Crowd sourcing
Inviting broad communities of people— customers, employees, Team-based new-product
independent scientists and researchers, and even the public at development
large—into the new-product innovation process. An approach to developing new products in which various company
departments work closely together, overlapping the
Idea screening steps in the product development process to save time and increase
Screening new-product ideas to spot good ideas and drop poor effectiveness.
ones as soon as possible.
Product life cycle (PLC)
Product concept The course of a product’s sales and profits over its lifetime. It involves
A detailed version of the new-product idea stated in five distinct stages: product development, introduction, growth,
meaningful consumer terms. maturity, and decline.

Marketing strategy development Style

Designing an initial marketing strategy for a new product A basic and distinctive mode of expression.
based on the product concept.
Fashion
Concept testing A currently accepted or popular style in a given field.
Testing new-product concepts with a group of target
consumers to find out if the concepts have strong consumer Fad
appeal. A temporary period of unusually high sales driven by consumer
enthusiasm and immediate product or brand popularity.
Business analysis
A review of the sales, costs, and profit projections for a new Introduction stage
product to find out whether these factors satisfy the company’s The PLC stage in which a new product is first distributed and made
objectives. available for purchase.

Product development Growth stage

Developing the product concept into a physical product to The PLC stage in which a product’s sales start climbing quickly.
ensure that the product idea can be turned into a workable
market offering. Maturity stage
Test marketing The PLC stage in which a product’s sales growth slows or levels off.
Decline stage accumulated production experience.
The PLC stage in which a product’s sales decline.
Cost-plus pricing (markup pricing
CHAPTER 10 Adding a standard markup to the cost of the product.

Price Break-even pricing (target return pricing)

The amount of money charged for a product or service; the Setting price to break even on the costs of making and marketing a
sum of the values that customers exchange for the benefits of product or setting price to make a target return.
having or using the product or service.
Competition-based pricing
Customer value-based pricing Setting prices based on competitors’ strategies, prices, costs, and
Setting price based on buyers’ perceptions of value rather than market
on the offerings.
seller’s cost.
Target costing
Good-value pricing Pricing that starts with an ideal selling price and then targets costs that
Offering the right combination of quality and good service at a will ensure that the price is met.
fair price.
Different Types of markets
Value-added pricing 1. Pure competition
Attaching value-added features and services to differentiate a the market consists of many buyers and sellers trading in a uniform
company’s commodity, such as wheat, copper, or financial securities.
offers and charging higher prices.
2. Monopolistic competition
Cost-based pricing the market consists of many buyers and sellers who trade over a range
Setting prices based on the costs for producing, distributing, of prices rather than a single market price.
and selling the product plus a fair rate of return for effort and
risk. 3. Oligopolistic competition
the market consists of a few sellers who are highly sensitive to each
Variable costs others pricing and marketing strategies.
Costs that vary directly with the level of production.
4. Pure monopoly
Total costs The market consists of one seller.
The sum of the fixed and variable costs for any given level of
production. Demand curve
A curve that shows the number of units the market will buy in a given
Fixed costs (overhead) time period, at different prices that might be charged.
Costs that do not vary with production or sales level.
Price elasticity
Experience curve (learning curve) A measure of the sensitivity of demand to changes in price.
The drop in the average per-unit production cost that comes
with
CHAPTER 11 Setting a price for products that must be used along with a main
product, such as blades for a razor and games for a video game
Market-skimming pricing (price skimming) console.
Setting a high price for a new product to skim maximum
revenues layer by layer from the segments willing to pay the 4. By-product pricing
high price; the company makes fewer but Setting a price for by-products to make the main product’s price more
more profitable sales. competitive.

Market-penetration pricing 5. Product bundle pricing

Setting a low price for a new product to attract a large number Combining several products and offering the bundle at a reduced
of buyers and a large market share price.

5 product Mix Pricing Price Adjustment Strategies

1. Product line pricing 1. Discount and allowance Pricing
Setting the price steps between various products in a product Allowance
line based on cost differences between the products, customer Promotional money paid by manufacturers to retailers in return for a
evaluations of different features, and competitors’ prices. agreement to feature the manufacturer’s
products in some way.
2. Optional product pricing Discount
The pricing of optional or accessory products along with a main A straight reduction in price on purchase during a stated period of
product. time or of larger quantities.

3. Captive product pricing 2. Segmented pricing

Selling a product or service at two or more prices, where the
difference in prices is not based on differences in costs.
3. Reference prices 9. Zone pricing
Prices that buyers carry in their minds an refer to when they A geographical pricing strategy in which the company sets up two or
look at a given product. more zones. All customers within a zone pay the same total price; the
more distant the zone, the higher the price.
4. Psychological pricing
Pricing that considers the psychology of prices, not simply the 10. Basing-point pricing
economics; the price says something about the product. A geographical pricing strategy in which the seller designates some
city as a basing point and charges all customers the freight cost from
5. Promotional pricing that city to the customer.
Temporarily pricing products below the list price, and
sometimes even below cost, to increase short-run sales. 11. Freight-absorption pricing
A geographical pricing strategy in which the seller absorbs all or part
6.Geographical pricing of the freight charges to get the desired business.
Setting prices for customers located in different parts of the
country or world. 12. Dynamic pricing
Adjusting prices continually to meet the characteristics and needs of
7. FOB-origin pricing individual customers and situations.
A geographical pricing strategy in which goods are placed free
on board a carrier; the customer pays the freight from the Price Changes
factory to the destination.
Initiating Price Cut
8. Uniform-delivered pricing situations may lead a firm to consider cutting its price.
A geographical pricing strategy in which the company charges
the same price plus freight to all customers, regardless of their Initiating Price Increase
location. A successful price increase can greatly improve profits.