Marketing IV

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Unit IV: Products, Services,

and Price

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Begin

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Table of Contents

Unit Lesson

References

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Glossary

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Unit IV: Products, Services, and Price

Pure goods are tangible, whereas a pure service is intangible (Tuten, 2020). Intangible means that the product has no physical existence but can be produced or consumed at will (Tuten, 2020). It is important to see the overlap as these definitions have changed due to digital disruption. This has become apparent with new business models that allow consumers to partake in a product without taking ownership. This becomes a mixture of both product and service. In the ever-evolving world of digital technology, check out this new subscription model being offered by Porsche at their Subscription Membership webpage. It is important to identify the proper product or service class because it suggests how a typical product should be distributed and promoted. So, if marketing managers do not know as much as they would like about potential customers’ needs and attitudes, at least knowing how they review the company's product can give them a head start on developing a marketing mix.

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It is reassuring to see that product classes do summarize some of what marketing managers would like to know about target markets and what marketing mixes are relevant. After all, knowing what others have done in similar situations can serve as a guide to get started. From that base, managers may see a better way to meet needs that are not typical and may provide a competitive advantage (Vorhies & Morgan, 2005). The typical marketing mix for a given product class is not necessarily right for all situations. Products can be classified according to consumer or business use, durability, and involvement (Tuten, 2020). To the contrary, some marketing mixes are profitable because they depart from the typical to satisfy some target markets better. A marketing manager may have to develop a mix that is not typical because of various market realities, including special characteristics of the product or target market, the competitive environment, and each firm's capabilities and limitations. In fact, it is often true differentiation of the firm's product and/or other elements of the marketing mix that the marketing manager can offer target customers unique value.

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Unit IV: Products, Services, and Price

Pricing Strategy

Price is the amount of money that is charged for something of value. Price is also one of the four major variables a marketing manager controls in addition to product, place, and promotion. Most consumer and commercial transactions in today's economy involve this exchange. As such, price is an extremely important marketing tool, which carries with it an immediate impact. Management decisions to change prices translate prices into revenue and profit (Burns & Bush, 2012).

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Price, being one of marketing’s four Ps, has a direct impact on revenues and potential profits. Customers often judge the value of a product simply by reviewing its price. If the price and perceived value received are in concert with the customer's expectations, then the feeling of satisfaction can be felt.

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Price

Value

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Value

Revenue

Potential profits

Satisfaction

Click the terms on the left to learn more information.

This is the amount of money that is charged for something of value.

This would be considered how useful, important, or how much worth something can derive.

This is income or sales generated from regular business operations. This includes the sales of goods and/or

services.

This represents the potential ability of a firm to generate revenues, subtracting expenses, and finally leaving net

income left over. This is indicative of future capacity as it relates to generating money.

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This is a feeling of gratification when completing a task or something of interest. Gratification can also occur when

receiving an item of interest.

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Unit IV: Products, Services, and Price

This makes setting prices and creating product pricing policies very important to marketing managers as they attempt to meet company objectives. Pricing policies determine how dynamic or static prices should be once they are set. In certain cases, in order to meet pricing objectives, marketing managers must set a range of flexible prices for a product in order to meet varied target market demands. For instance, in some cases, costs for services, such as transportation and shipping, may be included in the price depending on how the product is packaged for sale. In others, discounts may be applied under certain pricing policy criteria as a part of the planning to meet company objectives.

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As a part of their product pricing policies, marketing managers employ as many pricing strategies as they deem necessary in order to meet target market demands. These pricing strategies may fall under the following pricing categories: premium pricing; penetration pricing; economy pricing; psychological pricing; promotional pricing; and the new, technology-driven dynamic pricing (Nagle, 1993). By being in tune with ever-changing target market demands and other competitors’ pricing responses to them, marketing managers can effectively use price in varying ways to support associated marketing mixes. Depending on the company’s marketing strategy, not all pricing strategies are geared to maximize profit. Sometimes, a firm may develop a pricing strategy to maximize sales in order to make room for new or seasonal inventory. If it needs to increase its market share or introduce a new product, its pricing policy may be more aggressive in order to be more competitive. Finally, if barriers to competition are high and there are few competitors vying for their target market, a company may enlist a status-quo pricing strategy.

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Unit IV: Products, Services, and Price

One of the consequences of e-commerce is that business-to-business (B2B) and business-to- consumer (B2C) customers can easily shop around from the convenience of their homes, cubicles, or offices to bid on products and read blogs about products from industry experts. That is what buyers generally do before they get on the phone or personally meet with sellers. With the increased implementation of the iInternet used as a price comparison search engine, it has never been easier for buyers to compare product prices.

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This has had a limiting effect on B2B and B2C sellers in their ability to increase prices. Commodities and closely similar products are most affected by these pricing constraints. This has created the growth of online auctions and exchanges. If a buyer of chemicals is looking for a supplier on ChemNet (a global chemical B2B trading network), does that buyer want to pay more for one brand of a chemical that has the same molecular formula as every other brand? They may not. However, if that buyer believes the company can get better service from one company over another, they might pay more. When the seller is able to find a new way to create value, the decision becomes less about price, and the seller can compete more effectively (Miller, 2007). Sometimes, companies want customers to purchase directly from their groups of approved sellers. Oftentimes, this helps companies and their sellers protect their prices while also preventing costly competitive price wars. Corporate sites provide only product information but not prices. Therefore, their products cannot be bought directly from the company website.

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Unit IV: Products, Services, and Price

E-commerce, or commerce conducted electronically (i.e., via the internet), has made location less important for B2B sellers, and it has opened up opportunities for them to sell their products around the world. However, e-commerce has also led to more competition and made it difficult for sellers to raise their prices. B2B e- commerce was slower to take hold than B2C e-commerce. Companies have since developed sophisticated e-commerce systems, including sell-side and buy-side websites, exchanges, and B2B auctions.

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A marketing manager should make intentional decisions in each of the areas of pricing policy. Overlooking any of them can be serious because, ultimately, they all combine to impact customer value and whether or not the firm has a competitive advantage.

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Unit IV: Products, Services, and Price

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Customer value is based on the benefits that a customer sees in a firm's marketing mix and all of the costs. This value is relative to competitors’ ways of meeting a need. Ideally, a target customer will be impressed that the specific strategy decisions that a marketing manager makes with respect to product, place, and promotion offer a benefit. Perhaps, if the decisions are not on target, a customer will view them as a cost. For example, a consumer might view a producer's decision to use exclusive distribution as a negative if a product is harder to find or if its exclusive image is a turnoff to the buyer’s friends. Even so, from the customer's view, price is usually the main contributor to the cost part of the value equation. By being in-tune with ever-changing target market demands and other competitors’ pricing responses to them, marketing managers can effectively use price in varying ways to support associated marketing mixes. What pricing policies should be used depends on the pricing objectives. Marketing managers determine what objectives a firm might set to guide its pricing strategy policies.

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References

Burns, A. C., & Bush, R. F. (2012). Basic marketing research (3rd ed.). Prentice Hall. Malhotra, N. K. (2019). Marketing research: An applied orientation (7th ed.). Pearson. Miller, I. (n.d.). B2B branding Why branding matters in B2B marketing. Marketo.

http://blog.marketo.com/blog/2007/03/b2b_branding_wh.html Nagle, T. T. (1993). Managing price competition. Marketing Management, 2(1), 36. Tuten, T. L. (2020). Principles of marketing for a digital age. SAGE. https://bookshelf.vitalsource.com/#/books/9781526485359

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Vorhies, D. W., & Morgan, N. A. (2005). Benchmarking digital capabilities for sustainable competitive advantage. Journal of

Marketing, 69(1), 80.

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Unit Glossary

Price The amount of money that is charged for something of value.

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(Tuten, 2020)

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