Pricing Segmentation

12 Key excerpts on "Pricing Segmentation"

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  Business Marketing Face to Face

  • Chris Fill, Scot McKee(Authors)
  • 2011(Publication Date)
  • Goodfellow Publishers

    (Publisher)

  (2011). Strategy: Segmentation, Positioning and Pricing 5 145 Summary Here are the key points about segmentation and pricing issues, set out against the learning objectives. 1 Examine the bases for segmenting business markets. Segmentation is a technique for dividing a mass market into identifiable subunits, in order that the individual needs of buyers and potential buyers can be more easily satisfied. Traditionally it is about the division of a mass market into distinct groups that have common characteristics, needs and display similar responses to marketing stimuli. 2 Consider the breakdown and build-up approaches to market segmentation in B2B markets. The breakdown method assumes that a market consists of businesses (and buyers) that are essentially the same, so the task is to identify groups that share particular differences . The breakdown approach is perhaps the most established and well recog-nised. The build-up method considers a market to consist of businesses that are all different, so here the task is to find similarities . The build-up method is customer-orientated as it seeks to determine common customer needs. 3 Explore some of the processes used to select target markets. The goal is to identify segments that in the medium to long term will provide suitable returns. The selection of target segments should be based on a systematic analysis of the market. This involves first considering the market characteristics and then moving through to the buyer characteristics. 4 Evaluate the practice of segmentation in business markets. Segmentation is a theoretically neat concept, but a practically challenging idea to utilise. As a result one of the major problems associated with segmentation in B2B markets is a failure by businesses to implement segmentation plans. There are three main barriers preventing or hindering the way in which organisations practice seg-mentation activities.

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  Applied Marketing

  Connecting Classrooms to Careers

  • Daniel Padgett, Andrew Loos(Authors)
  • 2019(Publication Date)
  • Wiley

    (Publisher)

  In it you will learn the basics of segmentation, targeting, and positioning, the foundation for all tactical marketing decisions in the marketing mix. 6.1 Segmentation Companies will not survive if their marketing strategy is dependent upon targeting an entire mass market. The importance of market segmentation is that it allows a business to precisely reach a consumer with specific needs and wants. As a marketing professional segmentation will be crucial to your success. Market Segmentation Definition and Purpose As you learned in the previous chapter, one of the primary purposes for conducting market research is to gain a better understanding of what customers want. Companies want to un- derstand what customers value to create more appealing exchanges. Importantly, different customers value different things, which means marketers need some way to distinguish be- tween customers who want one thing and customers who want something else. This process is called market segmentation. Market segmentation is the process of categorizing groups of customers to divide a market into manageable pieces based on customer differences. Anything that might be a useful differentiating factor could be a possible segmentation factor. For example, some customers use their mobile phones mostly to talk, while others primarily use text messaging. Still others are heavy data users, using their mobile phone for communication but also for a host of other activities that require large amounts of data. A wireless provider might distinguish between these different segments, or groups of customers who share common char- acteristics within a market, based on their primary use of the mobile phone. To meet the needs of these different groups based on how they use their mobile phone differently, the wireless pro- vider might offer different service plans based on type and level of usage.

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  Applied Marketing

  • Daniel Padgett, Andrew Loos(Authors)
  • 2023(Publication Date)
  • Wiley

    (Publisher)

  (3) Companies must differ- entiate their offerings from competitors’ offerings in ways meaningful to the specific group of customers on which the company is focused. This chapter provides an overview of how to group customers and how to select a meaningful group as a foundation to build marketing strategy. In it, you will learn the basics of segmentation, targeting, and positioning, the foun- dation for all tactical marketing decisions in the marketing mix. 6.1 Segmentation LEARNING OBJECTIVE Define market segmentation and describe the four common categories of variables for segmenting a market. Companies will not survive if their marketing strategy is dependent upon targeting an entire mass market, because markets have fragmented over time as customers become more knowl- edgeable and more demanding, and competitors offer more options over time as a market develops. The importance of market segmentation is that it allows a business to precisely reach a consumer with specific needs and wants. Successful segmentation will be crucial to your company’s success. Market Segmentation Definition and Purpose As you learned in the previous chapter, one of the primary purposes for conducting market research is to gain a better understanding of what customers want. Companies want to under- stand what customers value to create more appealing exchanges. Importantly, different cus- tomers value different things, which means marketers need some way to distinguish between customers who want one thing and customers who want something else. This process is called market segmentation. Market segmentation is the process of categorizing groups of cus- tomers to divide a market into manageable pieces based on customer differences. Anything that might be a useful differentiating factor could be a possible segmentation factor. For example, some customers use their smartphones mostly to talk, while others pri- marily use text messaging.

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  Essentials of Pricing Analytics

  Tools and Implementation with Excel

  • Erik Haugom(Author)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  Chapter 3

  Segmentation and price differentiation

  When firms face finite customer responses from price changes, they have market power. This means that they can set prices more freely compared with firms operating in markets recognized by perfect competition. The question the managers of such firms must ask is how they can use their market power to maximize profit. One important answer to this question is that they should look for ways of charging different prices for, more or less, the same product or service offered to the market. That is, firms should look for ways to price differentiate based on certain criteria . Identifying the certain criteria that can be used to price differentiate is often referred to as segmentation . Price differentiation and segmentation are at the heart of pricing analytics in general, and variable pricing specifically. This chapter is devoted to explaining the theory and practice of these concepts and why firms (always) and customers (sometimes) should both be eager to have more of it. The following topics will be covered:

  • Definitions and degrees of price differentiation.

  • The economics theory behind price differentiation.

  • Ways to segment and price differentiate in practice.

  • Challenges of segmentation and price differentiation.

  The calculations of optimal differentiated prices and the implementation of this practice in Excel will be presented in later chapters. In this chapter we limit the Excel implementation to simple examples that illustrate the impact from various approaches to price differentiation on profit.

  3.1 Price differentiation defined

  Price differentiation can be defined as:

  “The practice of charging different prices for identical or similar goods or services based on certain criteria.” 1

  A given firm can perform price differentiation if it:

  1. Can identify at least some variation in the maximum price its customers are willing to pay for the product or service of interest. This maximum price is called the reservation price.

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  Marketing As Strategy

  Understanding the CEO's Agenda for Driving Growth and Innovation

  • Nirmalya Kumar(Author)
  • 2004(Publication Date)
  • Harvard Business Review Press

    (Publisher)

     From Market Segments to Strategic Segments If you went out of business, would anyone miss you? M arketing’s basic mission is to create a difference between a company’s offering and that of its competitors on an attribute important to customers. To create differentiation, marketers use segmentation , targeting , and positioning , or STP. Market segmentation is the process of dividing the market into homogeneous groups of customers who respond similarly to a particular marketing mix of the four Ps—product, price, place, and promotion—the essential tactical tools for positioning the firm’s offer to the targeted segment. Not surprisingly, any market-ing practitioner can comfortably converse in terms of market seg-ments, target markets, and positioning. One of the biggest frustrations of CEOs is their marketers’ inability to create such perceived differentiation among offerings. The tactical orientation has led marketers to rely too heavily on the marketing mix, which has limited how deeply they can differ-entiate in strategic segments. This deeper differentiation is critical to create distinguishing benefits that are sustainable and avoid commoditization. In contrast to the relatively shallow market segment differ-entiation created through the exclusive use of the four Ps, deep differentiation is achieved by building the firm’s source of com-petitive advantage into the value network that serves a partic-ular strategic segment. 1 The value network—the cross-functional orchestration of activities necessary to effectively serve the chosen segment—includes differentiation based on the four Ps. 2 But it also goes beyond marketing, to encompass differentiation on other functions such as R&D, operations, and service. This chapter begins by describing how marketers view seg-mentation.

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  Applied Marketing

  • Daniel Padgett, Andrew Loos(Authors)
  • 2021(Publication Date)
  • Wiley

    (Publisher)

  This chapter provides an overview of how to group customers and how to select a meaningful group as a foundation to build marketing strategy. In it, you will learn the basics of segmentation, targeting, and positioning, the foundation for all tactical marketing decisions in the marketing mix. 6.1 Segmentation Companies will not survive if their marketing strategy is dependent upon targeting an entire mass market, because markets have fragmented over time as customers become more knowl- edgeable and more demanding, and competitors offer more options over time as a market develops. The importance of market segmentation is that it allows a business to precisely reach a consumer with specific needs and wants. Successful segmentation will be crucial to your company’s success. Market Segmentation Definition and Purpose As you learned in the previous chapter, one of the primary purposes for conducting market research is to gain a better understanding of what customers want. Companies want to under- stand what customers value to create more appealing exchanges. Importantly, different cus- tomers value different things, which means marketers need some way to distinguish between customers who want one thing and customers who want something else. This process is called market segmentation. Market segmentation is the process of categorizing groups of custom- ers to divide a market into manageable pieces based on customer differences. Anything that might be a useful differentiating factor could be a possible segmentation fac- tor. For example, some customers use their mobile phones mostly to talk, while others primarily use text messaging. Still others are heavy data users, using their mobile phone for communication but also for a host of other activities that require large amounts of data.

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  Strategic Marketing Management

  • Richard M.S. Wilson, Colin Gilligan(Authors)
  • 2012(Publication Date)
  • Routledge

    (Publisher)

  Bliss (1980) , for example, has suggested that, while many marketing managers acknowledge the rationale of segmentation, many are dissatisfied with it as a concept, partly because it is inapplicable or difficult to apply in many markets, but also because emphasis is too often given to the techniques of segmentation at the expense of the market itself and the competitive situation that exists. Equally, Resnik et al. (1979) have suggested that changing values, new lifestyles, and the rising costs of products and services argue the case for what they call ‘counter-segmentation’; in other words, an aggregation of various parts of the market rather than their subdivision. The majority of writers, however, acknowledge the very real strategic importance of segmentation and, in particular, the ways in which it enables the organization to use its resources more effectively and with less wastage.

  8.3 The nature and purpose of segmentation

  During the past 30 years, market segmentation has developed and been defined in a variety of ways. In essence, however, it is the process of dividing a varied and differing group of buyers or potential buyers into smaller groups, within which broadly similar patterns of buyers’ needs exist. By doing this, the marketing planner is attempting to break the market into more strategically manageable parts, which can then be targeted and satisfied far more precisely by making a series of perhaps small changes to the marketing mix. The rationale is straightforward and can be expressed most readily in terms of the fact that only rarely does a single product or marketing approach appeal to the needs and wants of all buyers. Because of this, the marketing strategist needs to categorize buyers on the basis both of their characteristics and their specific product needs, with a view then to adapting either the product or the marketing programme, or both, to satisfy these different tastes and demands.

  The potential benefits of a well-developed segmentation strategy can therefore be considerable, since an organization should be able to establish and strengthen its position in the market and, in this way, operate more effectively. Not only does it then become far more difficult for a competitor to attack, but it also allows the organization to build a greater degree of market sector knowledge and customer loyalty.

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  Introduction to Business

  • Lawrence J. Gitman, Carl McDaniel, Amit Shah, Monique Reece, Linda Koffel, Bethann Talsma, James C. Hyatt(Authors)
  • 2018(Publication Date)
  • Openstax

    (Publisher)

  Product, price, promotion, place (distribution), and people, which together make up the marketing mix. A group of eight to 12 participants led by a moderator in an in-depth discussion on one particular topic or concept. The differentiation of markets by region of the country, city or county size, market density, or climate. The strategy of pricing products below the normal markup or even below cost to attract customers to a store where they would not otherwise shop. Chapter 11 Creating Products and Pricing Strategies to Meet Customers' Needs 451 line extension loss leader market segmentation marketing marketing concept marketing database marketing mix marketing research niche competitive advantage observation research odd-even (psychological) pricing one-to-one marketing penetration pricing personality prestige pricing price skimming pricing strategy product product life cycle product manager product strategy promotion strategy psychographic segmentation reference groups relationship marketing shopping products A new flavor, size, or model using an existing brand name in an existing category. A product priced below cost as part of a leader-pricing strategy. The process of separating, identifying, and evaluating the layers of a market in order to identify a target market. The process of discovering the needs and wants of potential buyers and customers and then providing goods and services that meet or exceed their expectations. Identifying consumer needs and then producing the goods or services that will satisfy them while making a profit for the organization. Computerized file of customers’ and potential customers’ profiles and purchase patterns. The blend of product offering, pricing, promotional methods, distribution system, and strategies for utilizing people that creates an offering that brings a specific group of consumers superior value. The process of planning, collecting, and analyzing data relevant to a marketing decision.

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  Wiley Pathways Small Business Management

  • Richard M. Hodgetts, Donald F. Kuratko, Margaret Burlingame, Don Gulbrandsen(Authors)
  • 2015(Publication Date)
  • Wiley

    (Publisher)

  Discount A reduction in the list price of a product or service. Geographic pricing A pricing strategy whereby a company charges customers based on where they live. Leader pricing The marking down of a popular product in order to attract more customers. Market A group of consumers who behave in a similar way. Marketing The process of promoting and selling products or services. Market niche A focused, targetable segment of the market; for a small business, a group of potential customers. Marketing research A systematic study of the factors that affect a business’s sales for the purpose of increasing profit. Monopolistic competition A market with many firms, each producing a small share of the output demanded. Monopoly A market with only one seller or producer and no substitutes for its products or services. 304 UNDERSTANDING MARKETS AND PRICING Odd pricing A pricing strategy of setting a price just below a round number, such as 99 cents rather than $1. Oligopoly A market where a few dominant firms account for most of the industry sales. Penetration pricing A strategy of using a low price that is competi- tive and designed both to stimulate demand and to discourage competition. Price lining The process of offering merchandise in several different price ranges. Primary research The collection of information previously unavailable. Pure competition A market with many independent sellers, each offering standardized products in the same basic way; the products are virtually identical, and buyers are indifferent as to which they purchase. Relevant price range The price that is neither above what current customers will pay nor below these levels; also, the price range that is not below the level where the business owner can sell at a profit. Return on investment control The process of reviewing product lines’ rev- enues and costs and keeping only those lines that deliver a reasonable return on investment.

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  Principles of Marketing

  A Value-Based Approach

  • Ayantunji Gbadamosi, Ian Bathgate, Sonny Nwankwo(Authors)
  • 2013(Publication Date)
  • Bloomsbury Academic

    (Publisher)

  Here, other variables such as product quality and consumer perception will play a part in pricing decisions ● Going-rate pricing: With no product differentiation, producers are forced to accept the going rate, as in the case of bread or newspapers. Yet, in reality, there is always scope to offer something different about a product ● Competitive bidding: The supplier will price according to a specification drawn up by the purchaser. Usually, but not always, the supplier chooses the lowest (most competitive) price tendered Figure 7.5: The relationship between costs, revenue, profits and losses ohohe 223 7 Market- or demand-oriented pricing Rather than using cost or competition as the basis for setting price, marketers may base it on the intensity of demand as expressed by consumers or users of a given product. In this scenario, the objective is to charge higher prices for the same prod-ucts to consumers who are willing to pay more. In other words, strong demand may lead to high price, and weak demand to low price. This is called price discrimination or differential pricing . Some examples of differential prices: ● Pricing by market segments: Some marketers market their services at different prices in different geographical areas. Some services such as cinemas or hairdress-ers are available at lower prices to senior citizens or children 1. The market must be segmentable in terms of price, and different sectors must show different intensities of demand. Each of the sectors must be identifiable, distinct and separate from the others and be accessible to the firm’s marketing communications 2. There must be little or no chance of a black market developing so that those in the lower segment can resell to those in the higher segment 3. There must be little chance that competitors can and will undercut the firm’s prices in the higher-priced (and/or most profitable) market segments 4.

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  Management of Marketing

  • Paul Reynolds, Geoff Lancaster(Authors)
  • 2005(Publication Date)
  • Routledge

    (Publisher)

  Marketing management should devise a pricing strategy that is compatible with strategies attached to other elements of the marketing mix. It is not always possible to set a price and apply this rigidly to all customers in all market situations. A pricing strategy denotes how a company will price its products at particular periods of time or particular market conditions. Demand-orientated pricing sets a base price that the company must endeavour to achieve, but it assumes that price be modified in line with changes in demand. Manufacturers must realise that customers are not the same. Some will purchase greater quantities than others, or be situated in areas that are more costly to reach.

  If a target-return-on-investment price is set, this may only be appropriate during the maturity stage of the product life cycle that was explained in the last chapter. During introduction or growth, it is often necessary to employ a pricing strategy that will enable the target return to be achieved over the long term.

  A company’s ability and willingness to formulate pricing strategies is a reflection of its willingness to adapt and modify price according to the needs of customers and market conditions.

  7.6.1 Discounting

  The discount structure a company employs is a major element of pricing strategy and an indicator of the firm’s flexibility. If customers buy products in large quantities, they may reasonably expect to be charged a lower price than that charged to smaller purchasers. The seller may also offer discounts voluntarily in order to encourage large orders that facilitate economies of scale and assist effective production planning. Such quantity-related discounts can refer to individual orders or be based on an estimated off-take that is planned over a given period. In certain markets, price discounting is important. Day and Ryans (1988 ) say that if used with imagination and creativity they can provide a firm with a strong competitive advantage.

  Manufacturers can offer discounts to encourage sales of a new product or accelerate demand for a product whose stocks are high, owing to seasonal or cyclical demand variations. In the production context, it is desirable that a constant rate of output is maintained. If market conditions are not conducive to this, a price modification by means of discounting might encourage sales sufficiently to counteract variations in levels of demand.

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  Visionary Pricing

  Reflections and Advances in Honor of Dan Nimer

  • Gerald E. Smith, Arch G. Woodside(Authors)
  • 2012(Publication Date)
  • Emerald Group Publishing Limited

    (Publisher)

  Marketing Management Journal , 18 (2), 93 96. Orme, B. K. (2009). Getting started with conjoint analysis: Strategies for product design and pricing research (2nd ed.). Madison, WI: Research Publishers. Provines, C. D. (2011). Implementing value selling: 5 Key lessons from both sides of the table. The Journal of Professional Pricing , 20 (1), 12. Silver, J. A., & Thompson Jr., J. C. (1991). Understanding customer needs: A systematic approach to the ‘voice of the customer’ . Masters thesis. Sloan School of Management, Massachusetts Institute of Technology, Cambridge, MA. Smith, G. E., & Thomas, T. N. (2005). A question of value. Marketing Management , 14 (July/August), 38 43. Smith, T. J. (2012). Pricing strategy: Setting price levels, managing price discounts, & establish-ing price structures . Mason, OH: South-Western Cengage Learning. Steinmetz, L., & Brooks, W. T. (2005). How to sell at margins higher than your competitors: Winning every sale at full price, rate, or fee . Hoboken, NJ: Wiley Sons. 171 Using Case ROI t to Determine Customer and Segment Value LEGAL TOOLS THAT SUPPORT VALUE PRICING Eugene F. Zelek Jr. ABSTRACT “Price is what you pay. Value is what you get.” Warren Buffett Value pricing can be a successful means to maximize profit by pricing products and services based on their value to end users. Using this approach necessarily means that customers are segmented, with some receiving better prices than others. However, many companies mistak-enly believe that U.S. law requires that all customers receive the same price or a “fair and equitable” price, an unrealistically high standard that is a self-imposed roadblock to value-based differentiation. Not only is the law supportive of segmentation and the economic discrimination that goes with it, but, where resellers are involved, the law also permits value pricing to be facilitated and preserved through the use of non-price vertical restrictions and resale price setting.

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