Chapter 8: The Marketing Mix

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Objectives
 Elements of the marketing mix  How agribusinesses create value for their customers  Product adoption and product life cycles  Agribusiness pricing strategies
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Objectives
 Methods of product promotion and market communications  Channels of distribution in agribusiness

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The Value Bundle
The set of tangible and intangible benefits customers receive from the products and services provided

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What is Value? Value to customers: the ratio of what they receive (benefits) to what they give up (costs) Emphasis on perceived benefits and costs 5 .

Figure 8-1 The Marketing Mix Customers – Competition Product Price Target Market Promotion Place Market Conditions 6 .

Firm level price determination 7 .Price 1. Market price determination  Perfect Competition  Monopoly  Monopolistic Competition/Oligopoly 2.

Price 1. Market price determination  Perfect Competition 8 .

Market price determination  Perfect Competition  Monopoly 9 .Price 1.

Market price determination  Perfect Competition  Monopoly  Monopolistic Competition/Oligopoly 10 .Price 1.

Price 1. Market price determination  Perfect Competition  Monopoly  Monopolistic Competition/Oligopoly 2. Firm level price determination 11 .

Price is a component of the revenue equation  Revenue = Price x Quantity Sold 2. Price level affects quantity sold through its effect on quantity demanded 12 .How Prices Affect Revenue 1.

Must know your costs before adopting a pricing strategy 2. Know the price and cost structure of competitors 13 .Do Costs Affect Pricing? 1. Must have a sense for price elasticity of demand 3.

Costs NEVER determine price 14 .Do Costs Affect Pricing? 1. Cannot establish an effective pricing strategy without knowing your costs  Must know amounts  Must know composition (fixed and variable)  Must know how costs change with sales 2.

A necessary first step to managing costs 3. Enables one to identify a product’s contribution to margin 15 .Three Reasons To Know Your Costs 1. Enables you to identify a minimum price to breakeven 2.

and leaves a profit Cost + % markup = selling price 16 .Pricing Strategies Cost pricing Add a constant margin to the basic cost of the individual product or service Margin covers overhead and handling costs.

Pricing Strategies Size of Markup? Perhaps compare cost of goods sold to total sales 17 .

Advantages  Easy to apply 2.Pricing Strategies 1. Disadvantages  The rule is too general  Can be out of line with competitors  Does not account for differences in volume and overhead among products  The price sensitivity of buyers is not considered  Based on history – not the future 18 .

Pricing Strategies Competitive pricing Prices based on competitors’ prices Price may be strategically above or below that of competitors   Advantage: Easy to apply Disadvantage: ignores your own cost structure 19 .

Pricing Strategies ROI or Planned Profit Pricing Margin is calculated to achieve a target ROI or profit level   Advantage: easy to do Disadvantage: must assume a given sales volume 20 .

Pricing Strategies CTO (contribution-to-overhead) pricing Products sold above some base sales projection are priced slightly greater than additional out-of-pocket costs of handling Drawback: difficult to limit CTO pricing to only extra sales 21 .

Pricing Strategies Value-based pricing Prices set at a level just below estimated perceived value of the product/service bundle  Reference value: price of closest substitute  Differentiation value: perceived value of product’s unique attributes 22 .

Pricing Strategies  Penetration pricing Product offered at a low price to gain broad market acceptance quickly  Skimming the market Product offered at a high price to make high profits from initial sales As limited market becomes saturated. price is gradually lowered 23 .

Pricing Strategies  Discount pricing Offers customers a reduction from list price  Volume discounts  Cash discounts: “5/10. net 30”  Early order discounts 24 .

99 or 2 for $1.99 25 .Pricing Strategies  Loss-leader pricing One or more products in a product mix are offered at a specially reduced price for a limited time  Psychological pricing Establish prices that are emotionally satisfying $.

Pricing Strategies  Prestige pricing High prices used to communicate a prestige image “You get what you pay for” 26 .

Figure 8-6 Upper and Lower Limits on Pricing Decisions Perceived Value } Firm Cost Pricing Range 27 .

Figure 8-1 The Marketing Mix Customers – Competition Product Price Target Market Promotion Place Market Conditions 28 .

Product 29 .

5. 4. 2.Stages of Product Diffusion 1. Awareness Interest Evaluation Trial Adoption 30 . 3.

Figure 8-4 Categories of New Technology Adopters 31 .

Figure 8-5 The Product Life Cycle Introduction Development Growth Maturity Decline Sales Dollars Profits Time 32 .

Figure 8-1 The Marketing Mix Customers – Competition Product Price Target Market Promotion Place Market Conditions 33 .

Promotion 34 .

Figure 8-7 The Promotion Strategy Process Identify Target Audience Determine Communication Objective Design the Message Select Communication Channel Manage Implementation 35 .

Advertising  Mass communication with potential customers Product advertising Institutional or generic advertising Cooperative advertising 36 .

37 . etc. shopping carts.Advertising Media       Television and radio Magazines Newspapers Direct mail Internet Other: billboards.

contests. Loyalty programs 38 . etc. coupons.Sales Promotion Programs and special offerings to encourage positive buying decisions “Freebies” Entertainment Free samples.

but expensive Tailor communication to individual needs of the customer Can establish long-term relationships with priority customers 39 .Personal Selling Most flexible and highest impact possible.

Public Relations Influence target audience indirectly Education programs Favorable news stories Outside activities Lobbying 40 .

Figure 8-1 The Marketing Mix Customers – Competition Product Price Target Market Promotion Place Market Conditions 41 .

Place 42 .

Place Decisions  Physical distribution How to physically get resources and products to where they need to be  Channel management Who owns and controls the product on its journey to the customer 43 .

Figure 8-8a Major Agribusiness Distribution Channels Manufacturer Manufacturer Dealer/ Retailer Farmer/ Consumer Farmer/ Consumer ManufacturerDirect Channel Dealer Channel 44 .

Figure 8-8b Major Agribusiness Distribution Channels Manufacturer Distributor Merchants Agents Dealer/ Retailer Farmer/ Consumer Distributor Channel 45 .