Price skimming

A product pricing strategy by which a firm charges the highest initial price that customers will pay. As the demand of the first customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment.

The skimming strategy gets its name from skimming successive layers of "cream," or customer segments, as prices are lowered over time. It allows the firm to recover its sunk costs quickly before competition steps in and lowers the market price.

Price skimming is sometimes referred to as riding down the demand curve. The objective of a price skimming strategy is to capture the consumer surplus.

It is effective only when the firm is facing an inelastic demand curve. Skimming encourages the entry of competitors. When other firms see the high margins available in the industry, they will quickly enter.

Price skimming occurs in mostly technological markets as firms set a high price during the first stage of the product life cycle. The top segments of the market which are willing to pay the highest price are skimmed of first. When the product enters maturity the price is lowered.

Enlightened Marketing

The philosophy of enlightened marketing holds that a company’s marketing should support the best long-run performance of the marketing system. Enlightened marketing consists of five principles: consumer oriented marketing, innovative marketing, value marketing, sense-of-mission marketing, and societal marketing.

Consumer oriented marketing means that the company should view and organize its marketing activities from the consumer’s point of view.

Innovative marketing requires that the company continuously seek real product and marketing improvements.

According to the principle of value marketing, the company should put most of its resources into value building marketing investments.

Sense-of-mission marketing means that the company should define its mission in broad social terms rather than narrow product terms.

Following the principle of societal marketing, an enlightened company makes marketing decisions by considering consumers wants and long-run interests, the company’s requirements and society’s long-run interests.

Business Markets

The business market consists of all the organisations that buy goods and services to use in the production of other products and services that are sold or supplied to others. It also includes retailing and wholesaling firms that acquire goods for the purpose of reselling or renting them to others at a profit.

The business market is vast. In many ways, business markets are like consumer markets, but business markets usually have fewer, large buyers who are more geographically concentrated. Business demand is derived, largely inelastic and more fluctuating. The business buying decision process itself consists of eight stages: problem recognition, general need description, product specification, supplier search, proposal solicitation, supplier selection, order routine specification and performance review. More buyers are involved in the business buying decision and business buyers are better trained and more professional than are consumer buyers. In general, business purchasing decisions are more complex, and the buying process is more formal than consumer buying.

The Consumer Market

The consumer market buys goods and services for personal consumption. Consumers vary tremendously in age, income, education, tastes, and other factors. Consumer behaviour is influenced by the buyer’s characteristics and by the buyer’s decision process. Buyer’s characteristics include four major factors: cultural, social, personal and psychological.

Culture is the most basic determinant of a person’s wants and behaviour. It includes the basic values, perceptions, preferences and behaviour that a person learns from family.

Social factors also influence a buyer’s behaviour. A person’s reference groups such as family, friends, social organisations, professional associations strongly affect product and brand choices.

The buyer’s age, life-cycle stage, occupation, economic circumstances, lifestyle, personality, and other personal characteristics influence the buying decisions. Young consumers have different needs and wants from older consumers; consumers with higher incomes buy differently from those who have less to spend.

Consumer buying behaviour is also influenced by psychological factors- motivation, perception, learning, and attitudes.

A person’s buying behaviour is the result of the complex interplay of all these cultural, social, personal and psychological factors. Although many of these factors cannot be controlled by marketers, they are useful in identifying and understanding the consumers that marketers are trying to influence.

Marketing Research

Marketing research is the function that links the consumer, customer, and public to the marketer through information. Information used to identify and define marketing opportunities and problems; to generate, refine and evaluate marketing actions; to monitor marketing performance; and to improve understanding of the marketing process. Marketing researchers specify the information needed to address marketing issues, design the method for collecting information, manage and implement the data collection process, analyse the results, and communicate the findings and their implications.

Marketing researchers engage in a wide variety of activities, ranging from analyses of market potential and market shares to studies of customer satisfaction and purchase intentions. A company can conduct marketing research in its own research department or have some or all of it done outside.

The marketing research process consists of these four steps;

i.                    Defining the problem and research objectives;

ii.                  Developing the research plan;

iii.                Implementing the research plan; and

iv.                 Interpreting and reporting the findings.

The objective of the research may be exploratory, descriptive or casual. The second step consists of developing the research plan for collecting data from primary and secondary sources. Primary data collection calls for choosing a research approach (observation, survey, experiment); choosing a contact method (mail, telephone, personal); designing a sampling plan (whom to survey, how many to survey and how to choose them); and developing research instruments (questionnaire). The third step consists of implementing the marketing research plan by collecting, processing, and analysing the information. The fourth step consists of interpreting and reporting the findings.

Marketing Intelligence

Marketing intelligence is everyday information about developments in the marketing environment that helps managers prepare and adjust marketing plans. The marketing intelligence system determines what intelligence is needed, collects it by searching the environment, and delivers it to marketing managers who need it.

Marketing intelligence can be gathered from many sources. Much intelligence can be collected from the company’s own personnel – executives, engineers, purchasing agents, and the sales force. The company must also get suppliers, resellers, and customers to pass along important intelligence. Information on competitors can be obtained from what they say about themselves in annual reports, speeches and press releases, advertisements and also from business publications and trade shows.

Companies can set up office and circulate marketing intelligence. The staff scans major publications, summarizes important news, and sends news bulletins to marketing managers. It develops a file of intelligence information and helps managers evaluate new information. These services greatly improve the quality of information available to marketing managers.

Market Segmentation

Market segmentation is a strategy that involves dividing a larger market into subsets of consumers who have common needs and applications for the goods and services offered in the market. It is a sub-set of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function. These subgroups of consumers can be identified by a number of different demographics, depending on the purposes behind identifying the groups. Marketing campaigns are often designed and implemented based on this type of customer segmentation.

A true market segment meets all of the following criteria: it is distinct from other segments (different segments have different needs), it is homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus, and it can be reached by a market intervention. The term is also used when consumers with identical product and/or service needs are divided up into groups so they can be charged different amounts. These can broadly be viewed as 'positive' and 'negative' applications of the same idea, splitting up the market into smaller groups.

One of the main reasons for engaging in market segmentation is to help the company understand the needs of the customer base. Often the task of segregating consumers by specific criteria will help the company identify other applications for their products that may or may not have been self-evident before. Uncovering these other ideas for use of goods and services may help the company target a larger audience in that same demographic classification and thus increase market share among a specific sub market base.

Market segmentation strategies can be developed over a wide range of characteristics found among consumers. One group within the market may be identified by gender, while another group may be composed of consumers within a given age group. Location is another common component in market segmentation, as is income level and education level. Generally, there will be at least a few established customers who fall into more than one category, but marketing strategists normally allow for this phenomenon.

While there may be theoretically 'ideal' market segments, in reality every organization engaged in a market will develop different ways of imagining market segments, and create Product differentiation strategies to exploit these segments. The market segmentation and corresponding product differentiation strategy can give a firm a temporary commercial advantage.

Along with playing a role in the development of new marketing approaches to attract a certain demographic within the market base, market segmentation can also help a company understand ways to enhance customer loyalty with existing customers. As part of the process of identifying specific groups within the larger client base, the company will often ask questions that lead to practical suggestions on how to make the products more desirable to customers. This activity may lead to changes in packaging or other similar changes that do not impact the core product. However, making a few simple changes in the appearance of the product sends a clear message to consumers that the company does listen to customers. This demonstration of good will can go a long way to strengthen the ties between consumer and vendor.