Introduction to Marketing

Wharton

COURSE DESCRIPTION

Over four weeks, this course will blend perspectives of three of the major core marketing
themes taught by three professors, and will include the following sub-topics:

1. Branding

 Marketing Strategy and Brand Positioning

 Repositioning Strategies

2. Customer Centricity

 The Limits of Product-Centric Thinking

 The Opportunities and Challenges of Customer Centricity

3. Go to Market Strategies

 Online-Offline Interaction
 Finding Lead Users and Facilitating Influence and Contagion
 Pricing to Value

Information on Grading and Quizzes

There will be three quizzes and one examination. The quizzes will be given at the end of
each of the first three weeks of the course. The examination will be available at the end
of the course, following Week 4.

Quizzes: 10 multiple choice questions with 3 attempts per week (untimed). Each quiz is
worth 20% of your final grade.

Final exam: 40 multiple choice questions with 3 attempts per week (untimed). The exam
is worth 40% of your final grade.

The passing grade for this course in order to obtain a Verified Certificate is 70%.You
must achieve a score of 70% in each assessment in order to obtain a verified certificate.

Final Grades: Final grades are calculated according to the following formula:

1. Each quiz is worth 20% of your grade

2. The exam is worth 40% of your grade

Readings from our professors:

Under the "Additional Readings" tab, you'll find brief excerpts from David Bell's
book, Location Is (Still) Everything: The Surprising Influence of the Real World on
How We Search, Shop, and Sell in the Virtual One; Pete Fader's book, Customer
Centricity: Focus on the Right Customers for Strategic Advantage; and Barbara
Kahn's book, Global Brand Power: Leveraging Branding for Long-Term Growth.

Below are more detailed explanations of each topic.

Week #1:

1. Branding: Marketing Strategy and Brand Positioning

This week introduces the foundational concepts in marketing strategy and brand
positioning. Beyond marketing promotions, marketing and brand strategies in today's
business world require consideration of buyers'/sellers' markets, customer segmentation,
and brand mantras. In order to understand how best to position a brand, we need to
explore the underlying mechanisms of brand positioning so that we may understand not
only the cognitive associations with brands, but also the social, behavioral, emotional,
and cultural associations.

The session will cover:

Marketing 101: Building Strong Brands

Strategic Marketing

Segmentation and Targeting

Brand Positioning

Brand Mantra

Experiential Branding

Week #2

2. Customer Centricity: The Limits of Product-Centric Thinking

We start this portion of the course with an overview of the traditional product-centric
approach and some of the evolving concerns arising from it. We discuss the common
objectives and operational procedures that businesses follow, and the "cracks" in product
centricity that create the need for a new strategic approach. Here we bring sharp clarity
to the concept of customer centricity, and we convey what executives really need to know
about it, namely, the key factors and challenges in implementing it successfully. We
carefully examine the tactical "building blocks" underlying customer centricity, and point
out some subtle but important insights about the interplay among them.
Week #3:

3. Online-Offline Interaction & How to Find Lead Users and Facilitate Influence and
Contagion

The “go to market” strategy offers more possibilities than ever before as firms have the
potential to address consumers both offline and online, and through a variety of
platforms. This session aims to define what “going to market” involves when firms can
access customers in the virtual world, as well as in the physical world. We also briefly
explain some unique demands and challenges that the “virtual world” creates for brands
and customer centricity. A critical goal of the “go to market” market is the identification of
lead users, i.e., those who will be most enthusiastic and who will potentially influence
others. This session also introduces the idea of customer networks, neighbors and
contagion. We explain the important distinction between identifying groups of customers
who are likely to behave the same way (“birds of a feather, flocking together”) and
identifying contagion.

Week #4:

4. Branding: Effective Brand Communications Strategies and Repositioning Strategies

To build a strong brand, one has to consider the tactical elements as well: What are
reasonable strategies to creating a new brand name? What about brand slogans or
brand symbols. Are celebrities effective for brand positioning? Further, once you have
built a strong brand it is essential that the brand stays relevant and is responsive to
changing environments. What are the best ways to reposition a brand once it has lost its
way? What are appropriate ways for brands to respond to brand crises?

The session will cover:

• Brand Names (criteria to consider, other brand elements, color)

• Use of celebrities with brands

• Cause Marketing

• Repositioning a Brand

Marketing Strategy and Brand Positioning

Hello, I'm Barbara Kahn, and I'm a professor of marketing at the Wharton School. And,
I'm here to talk to you about marketing. So this, this segment is Marketing 101, the
basics, the principles of marketing. And my focus is going to be on building strong brands
because of course the essence of marketing is to have a very strong brand.
So, let's start off with the first question, a very basic question but maybe not as obvious
as you might think. Which is what is marketing?
And I'm going to argue that marketing is the studies of a market. So what's a market?

A market is an exchange between two partners, frequently a buyer and a seller, but
marketing also, applies to non-profit or things where there isn't necessarily money being
transacted. But what you need for marketing to exist or for a market to exist is to have an
exchange. And what I'm going to argue is that what marketing means is going to differ as
a function of different aspects of those exchange. So let's let's look at the basic
exchange.

You have one buyer and one seller.

And I'm going to give a very simplified view to

make a point no markets were ever quite this

simple and I'm going to look at the two extremes

just to get get a a make my point here.

1:25
and the real markets

are somewhere in the middle.

But you'll see when I start defining this, that

it's very useful to use this, this kind of simplification.

So if we think of an exchange between buyers and sellers.

On one extreme we could have what's called a seller's market.

And in the seller's market what that means is the seller has a

product, and if you want that product, you have to come to the seller.

So the seller has all the power.

The opposite of that would

be a buyer's market where there's lots of competition, a

lot of products out there, and the buyer has the power.

And what I would argue, and I think would make sense to you too if you think

about it, is marketing should not be the same

in the seller's market as in the buyer's market.

So, in the seller's market, what marketing tends

to be is what we call product focus market.

You have the product.

If the customers want it, they're going to come to you.

In that case, you should develop that product to the best of your ability.

You should innovate in that product, you should try to

reduce cost and you should really focus on the product.

Your business objective in a product-focused

market is to sell as much as

you can, and profitability from a product-focused

market is going to come from volume.

Selling as much as you can.

In the past when we've studied product focus market,

we've shown that profitability is tied to market share.

So market share becomes your business objective.

And why does market share increase profitability?

Because the bigger your market share, the more your revenues.

And the bigger your market share, and your

volume, the lower the product cost and hint profitability.

Higher revenues, lower cost, more profit.

That's really the goal

of a product focused market and when

you're product focused, where do you get growth?

Will you develop new products based on your

product experience or you go to new markets?

That's product focused marketing.

So what's customer focused marketing? Is it the opposite?

3:24
And the, and the answer's going to be no, not exactly.

In fact, it's quite a different type of marketing.

Let's think about it.

Customer focused marketing means that I need

to focus on the customer to get that

customer to buy from me rather than the competition.

Well, what's the best way to get the customer

to buy from you rather than from the competition?

The best way to do it is to look at what that

customer wants, and deliver a product that meets the needs of that customer.

So where is in product-focused market, I'm the expert, and I

create the very best product I can based on my expertise.

In a customer-based market, what I'm going to do is look at what

the customer wants, and try to create product to meet that customer's need.

That's a very different point of view.

Some people call it inside-out, this

product focus, and outside-in is customer focus.

Okay, so now we're going to look at what

the customer wants to deliver value to that customer.

4:21
But, think about it.

4:23
What does the customer want?

Well, the first question is which customer?

You can't give every customer what they want, and we know

customers are going to want all different things, so the reason why

a buyer's market or customer focused marketing is so different than

product focus, is that every customer out there, wants something different.

If we try to give everybody what they want, we'll go out of business.

That's too hard to do.

So the intuition of customer focus

marketing, is to pick and choose customers.

Deliver value to some customers.

Say yes to some customers and no to other customers.

That's the process of segmentation and they call that,

I'm going to talk about that in the next section.

But the idea here is that I go after some customers and I say no to other customers.

Well, then, how do I become profitable in that?

Understand that in a product focused marketing, what

we did is sell as much as we can.

We sold that product to anybody who wanted that product.

In the customer focused market, we're saying

no to some customers and yes to others.

So, how do we make that profitable?

And, the answer is you pick and choose the customers you want to deliver.

You deliver value to that customer, give them exactly

what they want and that they're willing to pay for,

and where the profitability comes from is

not from volume, but it's from creating value.

5:44
How can, how can value-based marketing be profitable?

Well, first thing is if I give you exactly what you

want, many times, you'd be willing to pay a premium price.

Then the profitability comes in not from reduced cost, which we

saw in the seller's market side, but from increased price premium.

If you give me exactly what I want, I'll be willing to pay a higher price for it.

So that's one way.

6:10
The other way, customer based marketing is profitable is by

giving the customer what they want time after time after time.

I don't think about just one transaction, I think about building customer loyalty.

And, delivering value to that customer over time.

That concept is called customer share.

Rather than market share, while I try to get a little

bit from everybody, the idea of customer share, or share of

wallet is that I go after a more narrow market and

try to get more from each of that, their, those customer's wallets.

And it turns out that loyalty is very, can,

if you do it right can be very profitable.

And why is loyalty more profitable? Because it's the cost

of delivering value to the customer.

When I'm doing a customer based marketing it's actually

quite expensive to give the customer exactly what they want.

Once I figure out what that customer wants and I deliver it to them

the first time, it's cheaper to deliver it to them time after time after time.

So it's more difficult and more expensive to acquire new customers, but

its cheaper to retain those customers over time, and that's where the profitability

comes from. It comes from loyalty.

The other thing, if you're thinking about building share of wallet in

the customer-focused market, is that I not only sell one product to you.

I think about other things that you might need and I try to cross sell around it.

Let me give you an example of this notion of cross selling.

If you've ever gone into a GAP or some jeans store, and, and

you go to the cash register and you buy a pair of jeans.

The, the cashier or that person behind the

counter might say: Oh these are very nice jeans.

Do you think you'll need a belt with that?

Do you think you'll need socks? That's the notion of cross selling.

So I'm selling other things to you besides that one specific product.

All of these are the idea of increasing customer share

and that's a very important part of customer focused marketing.

Give the customer exactly what they want.

They'll be willing to pay a premium price for it.

Give them what they want, and keep delivering value over time,

they will stay loyal to you, and they'll buy over time.

And that's more profitability.

And if you understand their needs, you can not only deprut, sell them one

product, but you can cross-sell other products

that may also nee, meet their needs.

So in a customer-based market, where profitability come

from is premium price, loyalty, and cross selling.

Difference between sellers market says you

focus on the product, on what the customer does well, and you push that out.

And in a customer based market, you focus on the customer, what the customer wants.

And you deliver value to the customer better than the competition.

So that's the basic difference between

product based marketing and customer focus market.

8:56
Now in today's world the market place has changed even more.

What's changed?

Well now not only do you have an exchange

between buyers and sellers, but because of globalization and because

of the Internet and technology and social media and things

like that, it's not a one to one conversation anymore.

Customers can talk to other customers.

That's good and bad.

If you're doing a really good job and meeting the, needs of the customers,

the fact that they'll buzz to their other customers and tell their, their other

friends about what a terrific service your company is doing.

Well, that's really good news.

On the other hand, if something goes wrong, and they

tell their friends something bad, well that's not such good news.

And so you have to be really careful, in every transaction with the customer now,

that you deliver not only value, but

that you deliver a top notch customer experience.

Because although

what I've been talking about in the seller's market

and in a buyer's market has focused on transactions.

In the seller's market I've talked about a single transaction.

In a buyer's market, I talked

about transactions over time or customer loyalty.

But in a connected community, if your message is being transmitted

by customers to other customers, they talk about the customer experience.

What do I mean by customer experience?

Lemme give you an example.

It starts way before the transaction, and it goes way after the transaction.

So for example, if a customer told

another customer that their experience at a restaurant.

They might say, well I was driving to that restaurant and I hit a lot

of traffic, then I got to the parking lot and I couldn't find a parking

space, finally when I got into the

restaurant, I finally got a table, the meal

was really good but then at the end of the meal when I was leaving

I tripped and fell.

10:44
That may be the way they describe the experience at the restaurant.

And if that's the way your message about

your product is going to be transmitted from

customer to customer then you as a marketer

need to focus on the entire customer experience.

So, one of the things, and we'll talk

about this later that's changed in marketing in

this world of social media and internet and

globalization, is that the marketer has to be

completely transparent, has to be authentic, and

has to focus on the entire customer experience.

11:15
One thing else to mention, we're seemingly coming out

of a recession now, but there was a global

recession, and in the last few years, probably starting

about 2008, we had some real strong economic uncertainty.

There was a lot of scandals going on. People became skeptical

of marketing.

Marketing had some bad names, the financial services industry.

People lost trust.

And so with all those changes in the

economic environment, there's been a focus again, in marketing.

And marketing now has to focus on authentic, genuine customer value.

In order to be profitable, you not only have to

deliver customer value over time and in an experiential way,

but now because of the tightness of the economy and

the uncertainty there, you really have to cut costs and figure

out a way to deliver value in a very discipline

manner and be very flexible to changes in the market place.

So let me just summarize what I've just said.

The different types of marketing orientations.

There's the product orientation where you focus on the product and you persuade

the customer to want what the firm has. There's the marketing orientation.

Where you persu, persuade the firm to offer what the customer wants.
That's a customer focus approach.

The experience orientation says that you not only think

about the transaction, and think about the transactions over time.

But you try to manage the customer's entire experience with the firm.

And when times get tough or

customers stop trusting markets, then you need to remember to

build that relationship based on authenticity, on trust, and on discipline.

12:59
And what's the difference in these different types

of marks in terms of what you offer?

In the production orientation, you're focusing

on product innovation, but also reducing costs.

So you tend to see generic products and standardization.

When you're focusing on customer value, you see differentiated products,

and we'll talk about that, when we talk about brands also.

How you position your product to meet the needs of the customers better.

In an experience orientation you look at experiential value.

And when you're going to that tight discipline

mindframe or mindset you look at genuine value.

And what's the competitive sustainable competitive advantage in

each of these markets?

In a product orientation the bigger companies win because they tend to have

larger market share and lower cost, and lower cost is a big strategic advantage.

In a marketing orientation, when you're focusing on the customers,

the, the companies that do the best are customers, are

companies that really know their customers, that can deliver quality,

and that have a lot of customer data and know

how to use that data to deliver better value.

In an experiential market, you look at transformation.

The customer becomes a co-creator of the value, and it's really

making the customer and the product one kind of overall experience.

And in a trust orientation, the sustainable

competitive advantage are the companies that you trust.

And that means you've had a long history with them.

They're transparent, and

you trust them over time.

14:31
And what are the measurements of profitability?

In production orientation as I mentioned, market share is tied to profitability.

In marketing orientation, it's share of

wallet or customer share, customer loyalty.

In experienced market, when you're looking at customers talking to other customers,

we start measuring social networks and buzz and word of mouth and referrals.

And in a trust orientation, we really focus on reduced costs.

So, in summary, for just this little section.

Let me say that there's three principles of marketing that I've discussed.

and this is the essence of what marketing is.

The first principle is, if you want to provide

something to a customer, to a buyer, and get

them to buy from you rather than the competition,

you've got to give them real, geniune customer value.

0:37
That's the principle of customer value.
The second principle is the principle of differentiation.

You have to provide customer value to that customer, what the

customer wants, but you have to do it better than the competition.

So you have to differentiate your offering.

And the third principle is the principle

of segmentation, targeting and positioning says, when you're

in a customer focused market, you cannot deliver

value to everybody and make money, it's just

too difficult to do.

So what you do is segment the market into different segments.

You target or choose a segment you want to focus on, and

you position your brand to meet the needs of that target segment.

And what are the tools that you use to deliver these three marketing principles?

They're the four P's of marketing.

The four P's of marketing are product, place, promotion, and

price.

Let's go back to that exchange, and that

exchange says, you have a buyer and a seller.

What the seller puts into the exchange, is the product.

1:37
What the buyer puts into the exchange is the price.

The way the seller communicates the benefits about

that product to the buyer is called the promotion.

Could be advertising, sales, whatever.

And the way the seller

delivers the product to the customer, is the place decision.

It can be in a physical store.

It can be online. It can be through, downloading.

Whatever the method of distribution is, that's the place decision.

So those are the four P's of marketing, product, place, promotion and price.

2:11
Typically when you talk about marketing, you talk about the business world.

But you can use these principles of marketing in non-profit marketing

as well. Think about blood donation.

The American Red Cross used marketing

principles to get increased in blood donations.

Now, let's think about, what is the product for

The American Red Cross when they want more blood?

2:33
It's not blood, is it?

Because, that's not what they're putting into the exchange.

Blood is actually the price.

It's what the customer puts into the exhcnage.

So what is the product?

What the American Red Cross did was try to figure out

ways to get people to be more willing to donate more blood.

So in one way they did, you know,

feel good about yourself, you're going to help save lives.

That worked for some people.

For some people, that wasn't enough.

They needed a little sticker that said, yes

I s, gave blood today and I saved lives.

For other people, the orange juice and the cookies were enough.

And it turned out

that some of the best blood donation successes they had were in high schools.

You can give but, blood donations I think if you're

over 16, and it turned out what, one of the products

that the American Red Cross could give to high school

kids to give blood, was to allow them to miss class.

So that was the product there.

The promotion again is the way they

communicate the benefits of giving blood to

the American Red Cross, and the place decision was how they got the product

delivered to the, and the exchange made and in this case the

American Red Cross had the blood mobile and, and went to the customer.

So that was a very innovative, distribution decision.

So, you can play around with these four P's in very interesting ways.

And, some of the new businesses that we see now

are doing some very clever things with these four P's.

But, the basic concept should be clear product,

place, promotion, and price.

[MUSIC]

Week 3

Pricing
So today we're going to talk about pricing

devalue as part of our go-to-market strategy.

So let me just give you a little bit of an overview of where we're going to go.

I'm going to start out by giving you some

pricing puzzles, and some cute things that go on pricing.

Then we'll talk about a framework for how to understand, how to set a price.

And then we'll spend a little bit of time on customer

price sensitivity and how to measure it and how to understand it.

That's going to be our road map for these next few sessions.

Let's begin with some motivations and some puzzles.

And before I say this, pricing is probably one of the key things to

really think about in marketing because often

times prices are made really really arbitrarily.

So I see that competitor one is charging 40 US dollars competitor two is

charging 20 and so I just choose 30, no really rhyme or reason to it.

Or people engage in cost plus pricing, many things that they shouldn't be doing,

and what we want to do in this session is

to think about the right way to set a price.

So let's begin.

Here's a little bit of motivation for you from a study that was done by the McKinsey

Company that looked at various things that firms could

do, over 2,000 companies, to improve their operating profits.

They could improve their fixed cost position, they

could improve their variable costs and so on.

But the thing that they did that had the most impact, if they were able

to improve their final realize price by only 1%, they

were able to increase their profit operating profit by about 11%.

So price is such a critical level, and it's one that we

often get wrong, so let's keep that in mind as we go through.

Here are some puzzles just to give a sense of

all of the interesting things that go on in pricing.

The first one is for a company called Trader Joe's.

It's a company that sells a lot of private label product.

I believe it's owned by some German brothers, operates in the

United States all over the country, there's one here in Philadelphia.

Now as Barbara told you in branding,

there are both national brands and private labels.

Most of what Trader Joe's sells are private label products.

So one of the products that I like there is they sell goza a

dumplings that I can buy and I can steam and I can eat them.

Now let's imagine that those

dumplings cost me about $3.99.

Now that's all well and good because I

like the dumplings, but somehow I start scratching

my head and I say, gee you know, is $3.99 really a good price for those dumplings?

And I face a problem.

The problem I face is I can't find

that product anywhere else, because it's a private label.

So I don't really know is it a good deal or a bad deal.

If I'm paying $2 for a can of coke, I know

that's a bad deal, and I know the store's ripping me off.

So Trader Joe's recognizes that I have

this inference problem, so what do they do?

They take a very very common product like bottled water that's available

everywhere and then price it at an extremely low price all the time.

So when I come into the store and I see

that the bottled water, a product that I can compare that's

available everywhere, I see that that's priced very low, that

gives me some confidence that the products I can't compare are

also fairly priced.

So this example is showing how sometimes as companies, we want

to signal through one kind of product, that we're a good seller.

That we offer good values.

That's an example of using a product to

signal the value for the entire product line.

3:22
A similar example, if we think about a company like Wal-Mart.

Why is it that you might find some Tide

detergent there for $4.73 or another product for $2.81,

these weird kind of a endings?

So in the US at least, most prices end in either a nine or a five,

and the idea that Walmart here is ending their prices in fours and threes and ones

and sevens, is they're trying to send you

a message that they've squeezed out every possible

cent that they can to deliver the best possible value to you as an in consumer.

So that's another example of using the product price

to send a signal.

The final one I'll share is a very interesting study done by a friend of

mine from New Zealand who teachers at the Sloan management school up there at MIT.

And my friend Duncan did an experiment where he sent

out shoe catalogs to people all over the United States.

Half the people received a catalog and a picture

of a pair of shoes and the price was $44.

The other half of the people, this is thousands of peopl,e received

an identical catalog except the price of the shoes was $49.

Now economics 101 tells us that as the price goes up

demand should go down right, but Duncan found exactly the opposite.

More shoes were sold at $49 then at $44.

And why is that?

Because when you see $44 the way you encode it psychologically is,

gee, that's kind of a weird price, I don't normally see 44.

Thats like 10% more than 40.

But when you see 49, you feel like that's a discount from 50.

And so what I'm trying to indicate through these examples is the price

is more than just a number that indicates what you have to pay.

It sends all kinds of other signals, and that's

going to be one of our themes as we go through.

So how do we set prices and what's the right framework?

There are four inputs to pricing.

First of all we need to think about the marginal

cost of the product I'm going to call that the floor.

Obviously we don't want a price below the floor or at least not for too long.

Then we need to think about the ceiling which is the customer willingness to pay.

So number one is the floor, number two

is the ceiling, the customer willingness to pay.

But you can't always charge people their absolute maximum willingness to pay.

Why is that?

Because of competition.

So competition is going to be the third factor that will drop

the possible ceiling.

If my customer is willing to pay $10 but he can get that product from

a competitor for six, then that's going to drop my price from ten down to six.

And then number four is the amount by which prices have to be raised from

marginal cost to give some money to distributors

or re-sellers to motivate them to sell it.

So those are the four key inputs to pricing

that we're going to go through by way of example.

I'm also going to show you a couple

of examples of something called economic value to the customer.

This is a very, very important concept.

And first example, well the only one I'm going to show is something that

might be useful for you, those of you who like to eat chicken wings.

There's a product called the wing dipper.

And the wing dipper is a place where you can put the

dip within what you want to, to dip your chicken, chicken wings.

I guess it turns out when people eat

chicken wings, I don't eat it a lot myself.

I guess they spray the dip

around, or they make a mess.

And so therefore the restaurants are losing a lot of money whereas if

they had these wing dippers, the wing dipper controls the amount and based on

the size of your restaurant and the amount of wings that get eaten

you can calculate as a restaurant what the economic value of this product is.

So many times in your communication you're thinking about the economic value to

the customer and trying to say that in a persuasive or informative way.

Okay, so now let's think about this pricing framework

of the cost the customer willingness to pay the amount

that collaborates sorry competitors will bring the price down

and collaborators will bring the price up through some examples.

Let's relate the five C's of marketing: customers,

company, collaborators, competitors, and context, to the pricing decision.

So first of all from a company point of view

when your setting a price you might need to think

about financial considerations what's my required internal rate of return.

You certainly need to think about consistency in the product line

so sometimes you might have a good better and best product.

So the price that I'm going to charge for the Toyota Camry is somehow

going to be related to the price that I'm charging for the Toyota Corolla.

So you need to think about spacing out the prices in a way that's consistent.

And then thirdly you need to think about your own existing image so it may be

very very difficult for Walmart who has a

low price image to sell really really expensive stuff.

Similarly it may be very very difficult for Sak's 5th Avenue to

sell things very very cheaply because

that's also inconsistent with their overall image.

So those are three things that are very important

to think about from a company point of view.

From a competitor point

of view there's a whole raft of things, but here's the three most important.

The first thing you need to think about is that

when you set your price, how will your competitor respond?

Will your competitor respond extremely aggressively and take

whatever your price is and cut below it?

Is the competitor going to do things that are rational,

does the competitor have a deep pockets and so on.

So the first thing is how aggressive is this competitor.

The second thing you need to think about is when

you do something in the market with your

price how is that competitor going to respond?

Are they going to respond by improving their advertising,

their product or their distribution, the other 3 P's,

or are they going to respond on the basis of

price that's the second thing you need to think about.

And then thirdly you need to think

about your position and the competitors position.

So if you're the market leader, in some sense you

have a responsibility to try and keep your prices high.

If you're a follower you might have a different kind of strategy.

So those are three important things with respect to competitors

that dictate what you want to do with your pricing.

When it comes to collaborators, collaborators or distributors,

they care a lot about margin, but they also

care about their return on assets, and we'll

be talking about that a little bit later on.

So are you pricing in such a way that allows the collaborator

or distributor who's selling your product to turn the product frequently enough?

And finally we come to the customer.

The customer issues are probably the most important.

So this is where I'm going to spend the most

time, and the key idea is customer price sensitivity.

In terms of economics, this is sometimes referred to as a price elasticity.

You might remember this from your high school or college education days.

In economics, price elasticity just means the following: if I

raise the price by 1% by how much does demand drop?

So if I raise the price of my product by one percent and demand drops five

percent that means that the product is highly

elastic, there's a lot of stretch to the price.

If I raise the price one percent and demand only drops 0.2 of

a percent, that means that the product is very inelastic, very very little stretch.

If I have an inelastic product, I might be able to raise price.

If I have an elastic product I might want to drop price.

So we're

going to get into how as marketers we actually

measure that beyond the economic concept of price elasticity.

10:26
A second thing we're going to talk about are psychological issues.

Now we can spend weeks on this.

We won't spend weeks on this because we don't have all of that time.

But I want to introduce you to the most important psychological phenomena.

The first thing is the ending of the price.

Whether it's an odd ending or an even ending.

I'll also talk a little bit about something

called mental accounting. How we think about price in our minds.

I'll give you a short summary of a very

famous psychological principal called Prospect Theory or psychological theory.

Actually a noble prize winning theory that

has some very very interesting implications for pricing.

And then finally another psychological principal called the endowment effect.