Pricing


Whether or not it is so recognized, pricing is one of the most crucial decision functions of a marketing manager. Pricing is an art, a game played for high stakes; for marketing strategists, it is the moment of truth. All of marketing comes to focus in the pricing decision. To a large extent, pricing decisions determine the types of customers and competitors an organization will attract. Likewise, a single pricing error can effectively nullify all other marketing-mix activities. Despite its importance, price rarely serves as the focus of marketing strategy, in part because it is the easiest marketing-mix activity for the competition to imitate.

It can be easily demonstrated that price is a direct determinant of profit (or loss). This fact is apparent from the fundamental relationship.

Profit = total revenue – total cost

Revenue is a direct result of unit price times quantity sold, and costs are indirectly influenced by quantity sold, which in turn is partially dependent on unit price. Hence, price simultaneously influences both revenues and costs.

Despite its importance, pricing remains on of the least understood marketing-mix activities.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

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Cost Leadership


Business success built on cost leadership requires the business to be able to provide its product or service at a cost below what its competitors can achieve. And it must be a sustainable cost advantage. Through the skills and resources a business must be able to accomplish one or more activities in its value chain activities—procuring materials, processing them into products, marketing the products, and distributing the products or support activities—in a more cost-effective manner than that of its competitors or it must be able to reconfigure its value chain so as to achieve a cost advantage.

Strategists examining their business’ value chain for low-cost leadership advantages evaluate the sustainability of those advantages by benchmarking their business against key competitors and by considering the impact of any cost advantage on the forces in their business’ competitive environment. Low-cost activities that are sustainable and that provide one or more of these advantages relative to key industry forces should become the basis for the business’ competitive strategy.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

Purchasing: Risk Reduction Strategies


Individuals are motivated by a strong desire to reduce the level of risk in purchase decisions. The perceived risk concept includes two components: 1) uncertainty about the outcome of a decision, and 2) the magnitude of consequences associated with making the wrong choice. Research highlights the importance of perceived risk and the purchase type in shaping the structure of the decision-making unit. Individual decision-making is likely to occur in organizational buying for straight rebuys and for modified rebuy situations when the perceived risk is low. In these situations, the purchasing agent may initiate action. Modified rebuys of higher risk and new tasks seem to spawn a group structure.

In confronting “risky” purchase decisions, how do organizational buyers behave? As the risk associated with an organizational purchase decision increases:

  • The buying center will become larger and will comprise members with high levels of organizational status and authority.
  • The information search will be active and a wide variety of information sources will be considered to guide and support an important purchase decision. As the decision process unfolds, personal information sources (for example, discussions with managers at other organizations that have made similar purchasees) become more important.
  • Buying center participants will be motivated to invest greater effort and to deliberate more carefully throughout the purchase process.
  • Sellers who have a proven track record with the firm will be favored. The choice of a familiar supplier helps reduce the perceived risk associated with a purchase.

Rather than price, product quality and after-sale service are typically most important to organizational buyers when they confront “risky” decisions. When introducing new products, entering new markets, or approaching new customers, the marketing strategist should evaluate the impact of alternative strategies on perceived risk.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight