Marketing Management Lecture WEEK 4 FALL 2010 CB

Marketing Management Lecture WEEK 4 FALL 2010 CB - Consumer...

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ARJUN CHAKRAVARTI FALL 2010 Consumer Behavior - The Economic Versus Psychological View
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Why do we care about consumer behavior? WANT TO KNOW (1) WILLINESS TO PURCHASE AND PAY At what prices? At what quantities? Why? (2) SEGMENTS What kinds of groupings are informative? How many segments are there? How many people are in each segment? (3) WHAT IS THE TOTAL MARKET? Now you can make a demand curve and do micro econ
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What will people buy? We have to have a way to know how much a consumer fundamentally values an item. (Willingness to Pay) EVC: START WITH BASIC ECONOMICS Company has $100,000 in waste costs with old filter New filter technology saves $50,000 in waste costs What is the willingness to pay for the filter? Max price ? What doe the price that gets charged in the market depend on?
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Economic Value to the Consumer Analysis : Homework Another Example: MP3 player 1. Economic value to the consumer for this product? Look at all of the attributes that the product has. Figure out the value of every attribute associated with the product.
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Economic Value to the Consumer Analysis Which attributes matter to a rational consumer? WTP? Using market research and statistics you can determine: Computer sync $ 10 Storage capacity $ 30 Portability (size, weight) $ 10 Visible display $ 5 Scratch-resistant casing $ 5 Volume and Sound quality $ 10 Operability (shuffle, playlists, etc) $ 5 Long Battery life $ 20 AC adapter $ 5 2 year extended warranty $ 0 Attributes Value We won’t get into detail about how these values are calculated here. Total WTP: $100
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Bargaining and Market Dynamics TEV FIRM COST TO PRODUCE REFERENCE PRICE Existing market players’ price DIFFERENTIATION VALUE Net benefit of your product RECOGNIZED VALUE UNRECOGNIZED VALUE BARGAINING ZONE PERSUASION WTP MAX WTP Irrationality/ False claims
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Bargaining and Market Dynamics Total Economic Value FIRM COST TO PRODUCE But what is the actual Maximum willingness to pay? Depends on market power: comes later in the class REFERENCE PRICE Existing market players’ price DIFFERENTIATION VALUE Net benefit of your product
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Beyond EVC: Recognized vs. Unrecognized Value REFERENCE ATTRIBUTES FOR SONY - Whatever attributes the competitor has - Commoditized (Min value needed to compete in market) DIFFERENTIATING ATTRIBUTES (e.g., Sound, Battery Life, etc.) - Attributes not provided by other competitors - Attributes you provide at a higher quality level PROBLEM: Do people RECOGNIZE your sources of differentiation?
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Economic Value to the Consumer Analysis Which attributes matter to a rational consumer? Profit, Welfare, or Utility maximization. We won’t get into detail about how these values are calculated here. Total WTP: $100
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EVC: Where Prices Come From WHAT IS THE REFERENCE VALUE? DIFFERENTIATION VALUE? TOTAL VALUE = REFERENCE VALUE + DIFFERENTIATION VALUE ATTRIBUTE VALUE SONY AIWA DIFF?
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This note was uploaded on 11/07/2011 for the course ECON 101 taught by Professor Johnson during the Spring '11 term at Sciences Po.

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Marketing Management Lecture WEEK 4 FALL 2010 CB - Consumer...

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