Understanding the Gaps Model and Pricing Strategies

1. Launch your PollEV session: Text: UWMBUSINESS to 37607 *Text LEAVE at the end of class* Alternate #: (747) 444-3548

2. Read p.414, Bring a copy

3. Your questions • Is there a way to access that reading without owning the textbook?

4. Your questions • What is the difference between the knowledge gap and the standards gap?

5. The Gaps Model

6. 1. The Knowledge Gap • The knowledge gap is the difference between customers’ expectations and the firm’s perception of those customer expectations. • Firm is clueless about what customers expect • What exactly do customers want from our service?

7. 2. The Standards Gap This refers to the difference between the firm’s perceptions of customer expectations and service standards it sets.

8. 2. The Standards Gap • This refers to the difference between the firm’s perceptions of customer expectations and service standards it sets. • Cleaning hours • Coffee maker in every room/ free breakfast every morning

11. Final discussion Presentation • 35 points • +10 Bonus possible!! • Start with a SOCIAL PROBLEM. Build a solution + marketing strategy (targeting? Any of the 4p’s)

13. Peter Drucker, Management guru on marketing: • “Any organization has only two functions: one concerns marketing (innovation) and the other is marketing”

15. Marketers who do well by doing good

16. Innovative Business Models:Social Enterprises

20. How can you use marketing as a force for social good?

21. Final discussion Presentation • Questions? Wish to bounce off ideas? • Chat with me about your presentation

24. 4 factors in dynamic interaction in consumer’s mind *Trade-off* *Much more than the mere financial cost* *If firms realized this, there would be less price-based competition*

25. *Perceived Value can override all other factors* *The power of branding!* In addition:

26. In this topic, we will: • Identify three methods that firms use to set their prices • Describe the difference between an every day low price strategy (EDLP) and a high/low strategy • Explain the difference between a market penetration and a price skimming pricing strategy • Identify tactics used to reduce prices to consumers; businesses • Describe pricing practices that have the potential to deceive customers

27. Considerations for Pricing strategies • We discuss three different methods that can help develop pricing strategies

28. 1. Cost-Based Methods • These methods determine the final price to charge by starting with the cost. Example: Fixed cost = $200,000 Variable costs = $100,000 Estimated number of units to be produced = 30,000 100,000 + 200,000 = $10 (true unit cost) 30,000 Desired markup = 20% $10 X 1.20 = $12 (selling price)

29. Considerations for Pricing Strategies • Cost-Based Methods • These methods do not recognize the role that consumers or competitors’ prices play in the marketplace.

30. 2. Competitor-Based Methods • Most firms know that consumers compare the prices of their products with those of competitors. • Setting the price much higher signals better quality

31. Price “signals” quality

32. “Premium Pricing” An example of competitor- based pricing

34. Competitor-Based Methods • Most firms know that consumers compare the prices of their products with those of competitors. • Setting the price much higher signalsbetter quality • Setting the price LOWERmay signal LOWER QUALITY

35. 3. Value-Based methods • Value-Based Methods • These methods set prices that focus on the overall value of the product as perceived by the consumer. • Two key approaches are used

36. Value-Based methods • Improvement Value Method: • With this method the manager must estimate the “improvement value” of a new product. Improvement value is an estimate of how much more consumers are willing to pay for a product relative to other comparable products.

37. Improvement value example

38. Value-Based methods • Cost of Ownership Method • Determines the total cost of owning the product over its useful life • If it lasts longer  consumers may pay more

39. Value-Based methods • Cost of Ownership Method: Example: Expected life = 6000 hours Cost of regular light bulb = $1 Average life = 1500 hours Energy efficient light bulb lasts four times longer than regular light bulb Manufacturer could charge $4, but will probably end up charging $3

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42. Considerations for Pricing Strategies • Value-Based Methods • As they are customer-centric, value-based pricing methods can be very effective, but they do require a great deal of consumer research • what the customer values today may not be what he or she values tomorrow  keep an eye on changing attitudes

43. Principle! Firm needs Customer needs

45. Pricing Strategies • Everyday Low Pricing (EDLP) • With an EDLP strategy, companies peg their retail prices at a level somewhere between the regular non-sale price and the deep-discount sale prices their competitors may offer

47. EDLP example

48. Pricing Strategies • Everyday Low Pricing (EDLP) • How does EDLP add value? By reducing consumers search costs

49. Pricing Strategies • High/Low Pricing • Two different price levels: high/ low • This strategy relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases. • It attracts two distinct market segments.