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Unit 3: Decision Making to Improve Marketing Performance - Coggle Diagram
Unit 3: Decision Making to Improve Marketing Performance
Price elasticity of demand
Measures the extent to which quantity of demand changes in response to a change in price
Price elastic
- when answer is more than 1 (but can be negative). Means that the change in demand is greater than the change in price. Revenues will decrease when price increases and revenues will increase when price decreases
%change in demand/ % change in price
Price inelasticity
- answer is less than one (but can be positive). Means the change in demand is less than the change in price.
Products tend to be inelastic when- there is brand loyalty, necessary, less alternatives and bought out of habit
A price increase would mean that profits could increase. This is because the percentage increase would be outweighed by a relatively small change in demand (demand doesn't really decrease)
Unitary price elasticity- when answer is 1. Means change in demand is the same as change in price.
Price elastic - A price increase would mean a decrease in profit. This is because the percentage change would be outweighed by a larger change in demand. (Demand would decrease largely in response to the price increase)
Confidence intervals
Give a percentage probability that a range of outcomes (that are estimated for the future) are estimating what actually needs to be estimated
Confidence intervals are important for predicting future performance. This is because it allows the business to assess the reliability of their estimates on future outcomes. This is important because businesses need to know how confident they can be on their estimates and whether they should act on them or not.
However, confidence intervals can never be 100% reliable- there will always be external influences that can impact a businesses performance for the year.
Confidence intervals are just a useful tool to make the business as confident as they possibly can be.
Market Mapping
Framework used to analyse market position. It illustrates a range of positions that a product can take in a market based on two dimensions that are important to the businesses customers.
Advantage
- can identify gaps in the market. These may be gaps in the market that other competitors have not reached, so they receive a competitive advantage. This is especially well received if the business in question has good brand loyalty- for example customers will trust a business that are satisfied with their high price and high quality products. Therefore, if that business moved to high quality but low price (a popular market segment) their brand loyalty will carry high levels of revenue, exceeding competitors that are situated in that market. Resultingly, using market mapping and identifying gaps in the market, businesses can analyse competitors.
Disadvantage
- just because a gap in the market has been identified will mean that there is demand for that product. As a result, the increased costs for promotion, production and possibly new machinery or staff will turn into opportunity costs because a lack of demand will mean their revenue isn't sufficient. This means that there is no guarantee for success when using market mapping
It depends on factors
: market research is encouraged when using market mapping- managers may learn there is no demand for the product, so they don't go for the gap in the market. However, the reliability of the market research can be questioned- is it old, is it appropriate for the scope for the business?
Examples: high price v low price, low quality v high quality, necessity v luxury
Pricing methods
Dynamic Pricing
Strategy is used to set flexible prices in response to the current demands of the market
Reputation of company may decrease if there is history of some customers receiving a lower price than others, so in the future the consumer looks for alternatives or avoids buying in the first place and looks for alternatives immediately.
However, the success of dynamic pricing is very
dependent
on the type of business sector. For example, when booking a hotel abroad, prices are higher in the summer when demand is more intense. Consumers are aware that if they are booking in the summer then pricing will be high, so they will not be deterred by the high price (they know that if they were booking in the autumn they would get a better deal, but they
want
a summer holiday)
Example- Uber's surge pricing
Uber can automatically detect when there is a popular demand for taxis or Uber, for example on a Saturday night in central London. Uber will then increase prices slowly, as the demand for drivers becomes more popular as time moves forward.
Premium Pricing
Good use as an analysis point- mass customisation can charge for premium prices, high quality high price is a form of premium pricing
Penetration Pricing
Used to increase market share of a product, so the price can then be increased when the objective has been achieved.
The aim of penetration pricing is to start at a price that is initially low in entry- lower than average for that product- to attract new customers.
Analysis point- this means that customers are likely to switch to the new product, which gives the business competitive advantage. If product lives up to expectations, customers will become loyal and hopefully won't be upset when the price increases.
Advantage
- forces the business to minimise unit costs from the beginning- because they are charging for a lower price initial revenue will be lower, so costs need to be low as possible so the company breaks even and gains profit.
Advantage
- The low price can act as a barrier to entry for competitors who follow the same strategy- especially if they got their first.
Disadvantage- customers buying low price products are often looking for a bargain rather than holding any plans to become loyal to the company. If this is the case and the business does not achieve brand loyalty, it is then difficult to successfully lower their prices without scrutiny from their customers. This makes the pricing strategy unsuccessful.
As a result, penetration pricing
depends on
the reasoning behind the customers purchase.
Price Skimming
Setting a high price before other competitors enter the market (opposite of penetration)
Often used when launching a new product that is going to face little to no competition
Target market- "early adopters" those who pay a high price so they can obtain the latest products. For example people who buy the latest version of the Apple Iphone even if their current phone is functioning perfectly fine.
Disadvantage- price skimming is not a long- term strategy because competitors can introduce rival products which put pressure on the price.
Disadvantage- using price skimming may mean that the volume for demand of that product becomes reduced. This may give competitors more time to develop new products that can be introduced when new demand comes in or there are demographic changes.
Multi-channel distribution
Increasingly becoming more common
Example business: Apple. Uses online stores, retail stores and also has retail partners like PC world
This is where a business is using more than one distribution channel
Disadvantage- Can be difficult to manage. For example with many distribution channels it may be difficult to decipher what to prioritise. Different managers can be applied for different units so their maybe leadership differences that changes mission being executed.
Similarly, it may be difficult to decide what pricing method to use. With different outlets, what strategy is used in the retail store may be different to what is used in the online store.
Advantages- Allows more target markets to be reached. For example, younger consumers can benefit from having an online store, but older consumers may not understand how that works but are not deterred from the company because they can go to the original retail store.
Advantages- allows for sufficient revenues when the retail store is out of stock. This means that the business can continue to achieve profit while their store is low on storage. They may even branch really high levels of profit, as no in-store products may lead to closure for a few days resulting in reduced costs (employee's wages, paying electricity). Most importantly, multi-channel distribution companies are protected from possible damage from external influences. Example: Primark were damaged particularly by COVID-19 as they had no online store to continue sales units. This meant that they had to invest in creating an online store, falling behind competitors during the pandemic.