ch8marketmix09

8/2/2019 ch8marketmix09

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Chapter 8: The Marketing Mix


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Objectives

Elements of the marketing mix

How agribusinesses create value

for their customers Product adoption and product life

cycles

Agribusiness pricing strategies


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Objectives Methods of product promotion and

market communications

Channels of distribution inagribusiness


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The Value BundleThe set of tangible and intangible

benefits customers receive fromthe products and services provided


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What is Value?Value to customers:

the ratio of what they receive(benefits) to what they give up(costs)

Emphasis on perceived benefits andcosts


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Figure 8-1 The Marketing Mix

TargetMarket

Product Price

Promotion Place

CustomersCompetition

Market Conditions


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Price1. Market price determination

Perfect Competition

Monopoly

Monopolistic Competition/Oligopoly

2. Firm level price determination


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Perfect Competition


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Perfect Competition

Monopoly


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Perfect Competition

Monopoly



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Perfect Competition

Monopoly


2. Firm level price determination


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How Prices Affect Revenue1. Price is a component of the

revenue equation

Revenue = Price x Quantity Sold

2. Price level affects quantity sold

through its effect on quantitydemanded


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Do Costs Affect Pricing?1. Must know your costs before

adopting a pricing strategy

2. Must have a sense for priceelasticity of demand

3. Know the price and cost structureof competitors


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Do Costs Affect Pricing?1. Cannot establish an effective pricing

strategy without knowing your costs

Must know amounts

Must know composition (fixed and

variable)

Must know how costs change with sales

2. Costs NEVER determine price


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Three Reasons To

Know Your Costs1. Enables you to identify a

minimum price to breakeven

2. A necessary first step to

managing costs

3. Enables one to identify a

products contribution to margin


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Pricing Strategies

Cost pricing

Add a constant margin to the basic cost ofthe individual product or service

Margin covers overhead and handling

costs, and leaves a profit

Cost + % markup = selling price


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Pricing Strategies

Size of Markup?

Perhaps compare cost of goods sold to totalsales


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Pricing Strategies1. Advantages Easy to apply

2. Disadvantages The rule is too general

Can be out of line with competitors

Does not account for differences involume and overhead among products

The price sensitivity of buyers is notconsidered

Based on history not the future


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Pricing StrategiesCompetitive pricingPrices based on competitors prices

Price may be strategically above orbelow that of competitors

Advantage: Easy to apply

Disadvantage: ignores your owncost structure


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Pricing StrategiesROI or Planned Profit Pricing

Margin is calculated to achieve a target

ROI or profit level

Advantage: easy to do

Disadvantage: must assume a givensales volume


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Pricing StrategiesCTO (contribution-to-overhead) pricing

Products sold above some base salesprojection are priced slightly greaterthan additional out-of-pocket costs ofhandling

Drawback: difficult to limit CTOpricing to only extra sales


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Pricing StrategiesValue-based pricing

Prices set at a level just belowestimated perceived value of theproduct/service bundle

Reference value: price of closest

substituteDifferentiation value: perceived value of

products unique attributes


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Pricing Strategies Penetration pricing

Product offered at a low price to gainbroad market acceptance quickly

Skimming the market

Product offered at a high price tomake high profits from initial sales

As limited market becomes saturated,

price is gradually lowered


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Pricing Strategies Discount pricing

Offers customers a reduction from listprice

Volume discounts

Cash discounts: 5/10, net 30

Early order discounts


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Pricing Strategies Loss-leader pricing

One or more products in a productmix are offered at a speciallyreduced price for a limited time

Psychological pricing

Establish prices that are emotionallysatisfying

$.99 or 2 for $1.99


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Pricing Strategies Prestige pricing

High prices used to communicate aprestige image

You get what you pay for


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Figure 8-6 Upper and Lower

Limits on Pricing Decisions

Perce

ive

d

Va

lue

FirmCost

Pricing Range}


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TargetMarket

Product Price

Promotion Place


Market Conditions


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Product


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Stages of Product Diffusion1. Awareness

2. Interest3. Evaluation

4. Trial

5. Adoption


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Figure 8-4 Categories of

New Technology Adopters


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Figure 8-5 The Product Life Cycle

Dollars

Time

Introduction

Growth Maturity Decline

Sales

Profits

Development


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TargetMarket

Product Price

Promotion Place


Market Conditions


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Promotion


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Figure 8-7 The Promotion

Strategy ProcessIdentifyTarget

Audience

DetermineCommunication

Objective

Designthe

Message

SelectCommunication

Channel

ManageImplementation


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Advertising Mass communication with potential

customers

Product advertising

Institutional or generic advertising

Cooperative advertising


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Advertising Media Television and radio

Magazines

Newspapers

Direct mail

Internet

Other: billboards, shopping carts,etc.


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Sales PromotionPrograms and special offerings to

encourage positive buying

decisions

Freebies

Entertainment

Free samples, coupons, contests, etc.

Loyalty programs


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Personal SellingMost flexible and highest impact

possible, but expensive

Tailor communication to individualneeds of the customer

Can establish long-term relationshipswith priority customers


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Public RelationsInfluence target audience indirectly

Education programs

Favorable news stories

Outside activities

Lobbying


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TargetMarket

Product Price

Promotion Place


Market Conditions


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Place


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Place Decisions Physical distribution

How to physically get resources andproducts to where they need to be

Channel management

Who owns and controls the producton its journey to the customer


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Figure 8-8a Major Agribusiness

Distribution ChannelsManufacturer Manufacturer

Farmer/Consumer Farmer/Consumer

Dealer/Retailer

Manufacturer-

Direct ChannelDealer

Channel


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Figure 8-8b Major Agribusiness

Distribution ChannelsManufacturer

Farmer/Consumer

Distributor

AgentsMerchants

Distributor

Dealer/Retailer

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