The point at which revenue is equal to costs.

Transcription

1 Glossary Avoidable fixed costs Fixed costs that a company does not have to incur but may experience. Benefit Segmentation A type of market segmentation in which customers are grouped based on the benefits they seek in a product. These benefits may include price, a specific feature or use, or a particular service. Break-even The point at which revenue is equal to costs. Break-even analysis The calculation to determine how much product a company must sell in order to make a profit. It is an effective analysis to measure the impact of different marketing decisions. Brand equity The increased profit obtained by the brand in comparison to the profit from the underlying product (or service) with no brand (or the probability the customer selects the product with no brand). Cannibalization The effect of a new product's sales on an existing product in the same category or on an existing product line within a firm. 1

2 Chasm A problematic phase in the product diffusion process, in which the early majority fails to adopt a product. The chasm is depicted as a break in the product diffusion model, between the early adopter phase and the early majority phase. At the chasm, sales drop off or stop. Commodity The degree to which the results of using the innovation can be observed or described to others. Communicability The degree to which the results of using the innovation can be observed or described to others. Complexity The degree to which a new product is difficult to understand or use. Continuous innovation Gradational, ongoing upgrades or enhancements of existing services or products. Continuous innovation generally does not require end users to change behavior. Contribution Contribution per unit is the selling price minus the variable costs. Please refer to LSM523 for a more detailed explanation of contribution and related terms. Cost-based pricing Pricing that takes the cost of producing a product or service and adds an amount needed to make a profit. 2

3 Customer The individual, group, or company that purchases the product or service. Consumer The individual, group, or company that uses the product or service. This may or may not be the same as the customer. Demand elasticity The percentage change in quantity demanded in response to a percent change in price. Differentiation value The value customers place on those factors that make a product different from competitive products. Both positive and negative differentiation values are used in calculating Economic Value to the Customer (EVC) Benefits contributing to a positive differentiation value might include: extra durability, more uptime, lower costs to operate, install, or maintain. Factors contributing to a lower differentiation value include: higher operating or replacement cost, reduced level of service, or risk or uncertainty associated with adopting the product. Discontinuous innovation A new product that requires customers to change their behavior or use the product in a radically new way. Dynamically continuous innovation A new product that differs from an existing product in the type of technology it employs, but is used by consumers in the same way as the existing product. Also called an architectural innovation. EDLP (Every Day Low Pricing) 3

4 A pricing strategy, also called value pricing, that provides customers with the lowest available price all the time, without having to wait for markdowns, sales or special promotions. Early adopters The customers who enter the market after the innovators. They are part of the early market. Early majority The customers who enter the market after the early adopters. They are also called pragmatists. Economic value to the customer (EVC) The maximum theoretical amount that a customer would be willing to pay for a product assuming the customer has full knowledge about the product and about competitive products in a given market. Elasticity of demand (also called, price elasticity of demand) The sensitivity of a market's demand for a product to a change in its price. In a market with a high elasticity of demand, a change in price will be met with a large change in the quantity demanded. In a market with relatively inelastic demand, changes in price do not result in significant changes in the quantity sold. Fixed costs Costs that do not vary with the amount of production or the amount of product or service sold. Focus group A small group of consumers who provide feedback on a product or marketing campaign. Frame of reference 4

5 The basis by which customers measure a brand- - usually its category, or the segment in which it competes. Incremental break-even analysis Analysis used to determine the amount a company needs to sell, monthly or annually, to cover their cost of doing business. Innovators The first customers to adopt a product. They are sometimes called technology enthusiasts. Laggards The last customers to enter the market for a particular product. They are also called skeptics. Later majority The customers who enter the market after the early adopters. They are also called conservatives. Lifetime value of the customer Margin The worth of a customer to the organization in terms of the future cash flows the firm will receive from that customer. In this course, margin refers to the difference between a product's selling price and the total unit costs (fixed plus variable). Marginal costs 5

6 The increase or decrease in the total cost of a production- run, from making one additional unit of an item. Market orientation Emphasis on not only satisfying the needs and wants of buyers in a profitable way, but also satisfying the needs and wants of buyers better than the competition. In a true market orientation the company produces what the customers want rather than convincing them to purchase what the company produces. Market strategy Using resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage Marketing Marketing involves a mutually beneficial exchange of goods and services. Marketing mentality Understanding customers, quite often better than they do themselves. Markup pricing Setting prices by starting with variable costs to deliver a product or service, and adding a markup to arrive at a final price that provides a desired profit margin. Also called cost- based pricing or cost- plus pricing. Microsegmentation Dividing a market into the smallest possible segments- - even down to the individual consumer. While in general, very small segments are quite expensive for marketers to identify and reach, there are some markets for which technology has made it more affordable to offer specific packages of value tailored to individual customers. Perceived value pricing 6

7 Setting a price based on customers perceptions of the value of the product. Perceptual map (sometimes called positioning map) A graphical representation of customer perceptions of a set of products or brands within a market. Points of differentiation (Points of difference) Attributes or benefits that consumers strongly associate with a brand, positively evaluate, and believe that they could not find to the same extent with a competitive brand. Points of parity Position Associations that are often shared by competing brands. Consumers view these associations as being necessary if the product is to be considered a legitimate offering within a given category. The market niche for a brand, product or service. The impression the marketer creates in the customers mind about the product. Positioning Creating an impression in the minds of customers about a brand's value proposition relative to the value proposition of competitors. A product generally is positioned differently for each market segment being targeted. Premium pricing A pricing strategy in which a product is priced at the highest level that the market will bear, generally higher than competing products. Some companies use premium pricing 7

8 to convey an image of superior product quality or status and to capture high margin in the process. Price penetration A pricing strategy in which the product is given a low price to maximize sales and capture market share. Price skimming A pricing strategy in which a new product is introduced at a high price to earn a high margin from customers who are less price sensitive. The firm later gradually lowers the price to attract other customers. Reference price A price that a consumer has in mind and uses as a basis for comparison when considering a purchase. When a product's offered price is lower than a customer's reference price, the customer is inclined to see this a savings. When the offered price exceeds the reference price, the customer sees this as a loss. Relative advantage Risk Sampling Segment The degree to which potential consumers perceive a new product as superior to existing products/substitutes. Exposure to the chance of loss, injury, or other negative consequences. In marketing research, the practice of selecting a smaller group to represent the larger consumer population. 8

9 A subset of a market. A true market segment meets all of the following criteria: It is distinct from other segments (different segments have different needs); it is homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus; and it can be reached by a market intervention. Segmentation (also called, market segmentation) Dividing a market into submarkets- - or segments of customers- - who are distinct from other groups of customers, but whose members seek similar benefits as the other customers within their group. Sensitivity analysis Changing parameters in an analysis to determine the effects of such changes. An investigation of the robustness of a study that includes some form mathematical analysis. Strategic marketing/marketing strategy Survey Target A marketing strategy combines product development, promotion, distribution, pricing, relationship management and other elements; it also identifies the firm's marketing goals, and explains how they will be achieved, ideally within a stated timeframe. Marketing strategy determines the choice of target market segments, positioning, marketing mix, and allocation of resources. A written or spoken questionnaire designed to gather information about preferences, opinions, and experiences A set of customers who share common needs and characteristics (market segment) that the company decides to serve. Targeting 9

10 Selecting a market segment to serve. A company should target the segment or segments for whom it can profitably and sustainably offer a value proposition that exceeds the value propositions of competitors. Trialability The degree to which a new product can be tried on a limited basis. Unavoidable fixed costs Costs that a company incurs no matter what decision they make; the money must still be sent. Value-based pricing Basing the price of the product or service on what the firm believes customers are willing to pay, based on the benefits the product or service offers. Value proposition The statement created to convince potential consumers that one product or service will add more value or better solve a problem than other similar, competitive offerings. Variable costs Costs that vary with the amount a company produces or the amount the company sells. 10