Sunday, April 28, 2013

Competitors

What Defines a Competitor?
A: A substitute is one that embodies
1) Similar performance characteristics: Not Toyota and Mercedes
2) Similar ocassion of use: Not OJ vs Beer?
3) Sold in the same geographic region: Cement can't be easily moved
B: A good substitute is measured by its cross price elasticity of demand

There are 1) Direct Competitors -where the performance of one firm affects the other and 2) Indirect Competitors - Where one causes a chance in performance due to a third firm

Steps for Identifying Competitor
1) Find out where customers are coming from
2) Where do your customers shop? - Be wary of technology and virtual competitors

The Market Structure
1) Monopoly
2) Monopolistic Competition
3)Oligopoly
4) Perfect Competition

For Profits to be driven to 0,
-There are many sellers
-Customers perceive the product as homogenous
-Excess Capacity

An important determinant of demand is customer switching, and switching is less likely when
-customers are not well informed
-customers face high transportation cost
-preferences are idiosyncratic


Thursday, April 11, 2013

Pricing Model (marketing)

Since the beginning of time, pricing was done face-to-face negotiations with the seller increasing price until the buyer says no. Then the seller would decrease their price. 

The Final Pricing Decision is somewhere between the Price Ceiling and the Price Floor.
This is really where economics also plays into Business.. where pricing decisions are a factor of demand and competitive factors such as competition, market penetration, and risk, and the capacity of the industry. 

Willingness to Pay: Self-explanatory. 

There are psychological factors to play into pricing such as Framing: the perception of price differences, references prices, and accounting. 

Cost-Based Pricing: Pricing with a MarkUp

Value-Based Pricing: Companies sell Value, not Price. Marketers should convince consumers that price is justified by value provided. 

Type of Price Segmentation: 
-Customer Segment: Different customers pay different prices for the same good
-Product Segment: Different versions priced differently for different products
-Location Pricing: Customers pay different prices in different geographic locations
-Time-based Pricing: Customers Pay prices based on Time of Year.