F11MKT300_B2B - B2B Marketing Key concepts Consumer Surplus...

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B2B Marketing Key concepts Consumer Surplus, Willingness to Pay & Demand Curve Features of Business Markets & Business Buying Decisions Strategic Analysis of B2B Negotiations
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Customer Choice Question… q Which product will the customer choose? q Product A Value(A)=$200, Price(A)=$190 q Product B Value(B)=$183, Price(B)=$161 q Product C Value(C)=$178, Price(C)=$158
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Answer q She will choose the product which yields the highest consumer surplus . q Consumer surplus (CS)= Value - Price q Product A Value(A)=$200, Price(A)=$190, CS(A)=$10
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Consumer Surplus & Willingness to Pay q Previously, we assumed that the customer will purchase a product if Price=Value , so that the Willingness-To-Pay (the maximum price a customer is willing to pay) equals Value. q Let’s relax this assumption now. q Assume now that a customer will purchase only if the Consumer Surplus is at least $X, where $X is a positive number. This is a more realistic assumption. q The amount $X is called the Reservation Utility , which is the minimum utility or payoff the customer must enjoy if she were to purchase the product. q Clarification: Our previous assumption is that $X=0 q Willingness-to-Pay (WTP) is not equal to Value if X>0
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All customers have the same $X Try to draw the demand curve Customer Value ($) $X WTP 1 11 2 9 2 11 2 9 3 10 2 8 4 10 2 8 5 10 2 8 6 7 2 5 7 7 2 5 8 6 2 4
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Demand curve Custome r Value ($) $X WTP 1 11 2 9 2 11 2 9 3 10 2 8 4 10 2 8 5 10 2 8 6 7 2 5 7 7 2 5 8 6 2 4 Price (P) Quantity (Q) 9 8 5 4 8 0 2 5 7
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Customers have different $X Try to draw the demand curve Customer Value ($) $X WTP 1 11 1 10 2 11 3 8 3 10 3 7 4 10 2 8 5 10 4 6 6 7 2 5 7 7 1 6 8 6 2 4
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Demand curve Price (P) Quantity (Q) 10 8 5 4 8 0 1 6 7 Custome r Value ($) $X WTP 1 11 1 10 2 11 3 8 3 10 3 7 4 10 2 8 5 10 4 6 6 7 2 5 7 7 1 6 8 6 2 4 7 3 4 6 Price Qty 10 1 8 3 7 4 6 6 5 7 4 8
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