Business Management - Marketing Notes

Introduction to Marketing

• Topic 4: Marketing

Market Orientation vs. Product Orientation

• Market Orientation:

  • Firms look to the market to identify consumer needs and wants.

  • Outward-looking approach.

  • Products are created to fulfill identified needs and wants.

  • Example: McDonald's introducing the McPlant burger based on the demand for plant-based options.

• Product Orientation:

  • Firms focus on what they can produce, hoping the market will demand it.

  • Inward-looking approach.

  • Focus on making a product they hope will be demanded.

  • Example: Bugatti Veyron, where the focus was on creating a high-performance car, even if it resulted in financial losses.

Advantages and Disadvantages of Market-Oriented Firms

• Advantages:

  • Greater flexibility to adapt to market changes.

  • Lower risk because products are tailored to consumer needs.

• Disadvantages:

  • Requires market research, which can be expensive.

  • No guarantee of success due to the dynamic external environment.

Advantages and Disadvantages of Product-Oriented Firms

• Advantages:

  • Quality assurance due to a focus on the product itself.

  • More control over operations.

• Disadvantages:

  • Needs of the market are generally ignored.

  • High-risk strategy with a high failure rate.

  • High research and development costs.

Needs and Wants

• People have different needs and wants.

• Marketing exists to address these needs and wants.

• Goal: to make customers want to buy a firm's products.

• Needs:

  • Essentials for human survival (e.g., food, shelter, water, warmth).

• Wants:

  • Human desires (things people would like to have).

  • Humans have infinite wants.

What is Marketing?

• Marketing involves:

  • Identifying the needs and wants of customers.

  • Anticipating and predicting future customer wants.

  • Considering the 4 Ps: price, product, place, and promotion.

  • Earning a profit.

• Definition by the Chartered Institute of Marketing: "Marketing is the management process involved in identifying, anticipating and satisfying consumer requirements profitably."

Market Share

• Market share: an organization's share of the total value of sales within a specific industry.

• Calculation: Market Share =$\frac{\text{Firm's Sales}}{\text{Total Sales in the Market}} \times 100$

• Importance: Firms with high market share benefit from their status, price-setting abilities, and reduced threat from competition.

• Ways to increase market share:

  • Brand promotion

  • Product development

  • Motivating and training the workforce

  • Establishing intellectual property rights

  • Using more efficient distribution channels

Market Growth

• Market growth: the rate at which the size of a market is increasing.

• Calculation: Market Growth Rate = $\frac{\text{Market Size in Current Year} - \text{Market Size in Previous Year}}{\text{Market Size in Previous Year}} \times 100$

Market Leadership (HL Only)

• Definition: The business with the largest market share in a given market.

• Examples: Facebook, YouTube, and WhatsApp are market leaders for social networks worldwide (as of 2022).

• Benefits of being a market leader:

  • Premium pricing

  • Economies of scale

  • Longer product life cycles

  • Favorable distribution terms

  • Greater publicity and brand exposure

  • Easier to attract and recruit highly qualified employees

Theory of Knowledge

• Given the diverse nature of international cultures and etiquette, can marketers ever know what is ethically right and what is ethically wrong?

Business Management Toolkit: Porter’s Generic Strategies and Market Leadership

• Find one example of a market leader for each of Porter’s generic strategies.

• Explain how the choice of generic strategy enabled each business to become a market leader in its industry.

Concepts in BM: Change and Sustainability

• Marketing is fundamental to the success of a business.

• However, marketing alone does not ensure the success and sustainability of a business.

• Marketing’s relationship with other business functions should be considered in the context of changes in the internal and external business environments.

• The relationship between marketing and other business functions:

  • Operations management: Work together to research, develop, and launch products to meet the needs and wants of customers.

  • Finance: Work together to set appropriate budgets that fulfill marketing and financial objectives.

  • Human resource management: Ensure the firm has the right quantity and quality of workers to meet the needs and wants of customers.

Marketing Planning

• Topic 4: Marketing

The Role of Marketing Planning

• A marketing plan outlines a firm’s marketing objectives and the marketing strategies used to achieve these objectives. It includes:

  • Marketing plans

  • SMART marketing objectives

  • Methods of market research

  • Strengths and weaknesses of competitors

  • The marketing mix

  • The marketing budget

  • Anticipated difficulties and potential solutions

• Marketing planning is the systematic process of devising marketing objectives and appropriate marketing strategies to achieve these goals.

• The typical marketing process involves the following steps:

  • Conduct a marketing audit

  • Set marketing objectives

  • Plan marketing strategies

  • Monitor and review performance

  • Evaluation

Advantages and Disadvantages of Marketing Planning

• Advantages:

  • Improves the chances of success

  • Provides clear objectives and constraints

  • Allows managers to have better control and understanding

• Disadvantages:

  • Time cost

  • Money cost

  • Human resource cost

  • Plans may be inflexible and outdated

Segmentation, Targeting, and Positioning

• Market Segmentation:

  • A market for a particular good or service consists of different types of customers, subdivided into market segments.

  • A market segment refers to a distinct group of customers with similar characteristics (such as age and gender) and similar needs or wants.

• Target Market:

  • If a firm wishes to sell to a particular market segment, then this is known as a target market.

Consumer Profiles

• A market segment refers to a distinct group of customers with similar characteristics (such as age and gender) and similar needs or wants.

• These similar characteristics are based on consumer profiles.

• A consumer profile is made up of the following characteristics:

  • Demographic factors

  • Geographic factors

  • Psychographic factors

Demographic Factors

• Demography: the study of the characteristics of the human population within a certain area, country, or region.

• The range of demographic variables includes:

  • Age

  • Gender

  • Race and ethnicity

  • Marital status

  • Religion

  • Language, income, and socio-economic class

Geographic Factors

• The geographic location of customers can have implications for segmentation because demographic factors can be largely influenced by geographic issues.

• Geographic factors fall into two broad categories:

  • Location

  • Climate

Psychographic Factors

• Psychographic factors are those that consider the emotions and lifestyles of customers.

• These factors include:

  • Hobbies and interests

  • Values

  • Religion

  • Status

  • Culture

Position Maps

• A position map reveals customer perceptions of a product or brand in relation to others in the market.

• They allow a business to identify any gaps in its product portfolio and refine its marketing strategies, such as:

  • Targeting market segments based on customer perceptions.

  • Repositioning a brand to overcome undesirable customer perceptions.

• Examples of perceptions for comparison:

  • Price vs. quality

  • Taste vs. nutritional value

  • Luxury vs. necessity

Position Maps Comparing Price Versus Quality

• High price, High quality: Premium products

• High price, Low quality: Cowboy products

• Low price, High quality: Bargain products

• Low price, Low quality: Economy products

Positioning Strategies

• There are three stages to positioning:

  1. Identify competitive advantages of a product.

  2. Select key competitive advantages to market.

  3. Implement desired positioning using an appropriate marketing mix.

Niche Market vs. Mass Market

Niche Markets

• Niche marketing targets a specific and well-defined market segment.

• Examples include:

  • Luxury yacht makers

  • Haute couture

  • Minority sports (e.g., disc golf)

Advantages and Disadvantages of Niche Marketing

• Advantages:

  • Better marketing focus

  • Able to charge higher prices due to less competition

  • Highly specialized in meeting needs and wants

• Disadvantages:

  • Limited customer base

  • Few opportunities to exploit economies of scale

  • Successful niche markets can attract new entrants into the industry, leading to more competition

Mass Markets

• Mass marketing targets multiple market segments to maximize sales.

Advantages and Disadvantages of Mass Marketing

• Advantages:

  • Economies of scale

  • Able to use a single marketing campaign to address the entire market

  • Large customer base

• Disadvantages:

  • High barriers to entry

  • Heavy competition

  • Lacks focus and may not satisfy individual needs and wants

Unique Selling Point (USP)

• A unique selling point (USP) is any aspect of a business, product, or brand that makes it stand out from competitors.

• The USP explains why customers buy the product over rival ones.

• Examples of unique selling points:

  • Being the only firm in an area to supply a certain product

  • First-mover advantage

  • Reputation for high quality

  • Reputation for low cost

  • A highly popular slogan

Differentiation

• Differentiation is the act of distinguishing a business or its products from rivals in the industry.

• Common methods of differentiation revolve around the marketing mix (Product, Price, Place, Promotion, People, process, Physical environment).

Advantages and Disadvantages of Differentiation

• Advantages:

  • Price advantages

  • Brand recognition and loyalty

  • Distribution advantages

• Disadvantages:

  • Costly

  • Economies of scale cannot be exploited

  • Excessive differentiation can confuse customers

Theory of Knowledge

• Is it ethical to block online advertisements?

Concepts in BM: Ethics and Sustainability

• Ethical marketing is a growing part of strategic marketing planning.

• Environmental sustainability is increasingly at the forefront of strategic marketing planning.

Sales Forecasting (HL Only)

• Topic 4: Marketing

Sales Forecasting

• Sales forecasting is a quantitative management technique used to predict a firm’s level of sales over a given time period.

• It is useful to a firm to help them identify problems and opportunities in advance.

• Various sales forecasting techniques include:

  • Extrapolation

  • Market research

  • Times series analysis

Extrapolation

• This forecasting technique identifies the trend by using past data and extending this trend to predict future sales.

Market Research

• Identifying and forecasting the buying habits of consumers can be vital to a firm’s prosperity and survival.

Times Series Analysis

• This technique attempts to predict sales levels by identifying the underlying trend from a sequence of actual sales figures.

• The three main elements to time series analysis are:

  • Seasonal variations

  • Random variations

  • Cyclical variations from economic booms and slumps

Cyclical, Random, or Seasonal Sales Variations

• Product recalls of unsafe goods: Random

• Public relations disaster: Random

• Sales of textbooks: Seasonal

• Inflation: Cyclical

• Outbreak of armed conflict: Random

• Sales of sun lotion: Seasonal

• Levels of unemployment: Cyclical

Benefits and Limitations of Sales Forecasting

Benefits

• Improved working capital and cash flow

• Improved stock control

• Improved productive efficiency

• Helps to secure external sources of finance

• Improved budgeting

Limitations

• Limited information

• Inaccuracy of predictions

• Garbage in garbage out (GIGO)

• External influences

Theory of Knowledge

• Is the ability to predict essentially the same as the ability to know? Does knowing allow us to predict?

Concepts in BM: Change and Ethics

• Sales forecasting is increasingly sophisticated with changes stemming from developments in e-commerce analytical software.

• This kind of software can analyze big data from thousands of users.

• However, there is increasing concern over ethics and trust in how firms use data collected for sales forecasting.

Market Research

• Topic 4: Marketing

Why and How Organizations Carry Out Market Research

• Market research refers to marketing activities designed to discover the opinions, beliefs, and preferences of potential and existing customers.

• The purpose of market research:

  • Gives businesses up-to-date information

  • Helps firms tailor their market mixes for their target segments

  • Assesses customer reactions to products

  • Helps firms understand activities and strategies used by their rivals

  • Helps firms understand trends for the future

Questions that Can Be Answered by Market Research

• Are customers likely to buy the product?

• What are the preferred methods of promotion?

• Where and how should the products be sold?

• How much are customers willing to pay?

• How often are they likely to purchase the product?

• Which brands do customers see as being rivals to the marketed product?

• Which market segments are interested in the product?

Primary Market Research Methods/Techniques

• Surveys

• Interviews

• Focus groups

• Observations

Primary Market Research

• Primary market research involves gathering new and first-hand data for a specific purpose.

Advantages and Disadvantages of Primary Research

• Advantages:

  • Relevant data is collected as it is tailored to the firm’s needs.

  • Up-to-date data is gathered for the most meaningful information.

  • Confidential and unique to the purpose of the business.

• Disadvantages:

  • Time-consuming to process

  • Costly, especially if outsourced to professional market research firms

  • Validity can be questionable if the research questions are poorly designed

Surveys

• A survey (or a questionnaire) is a document that contains a series of questions used to collect data for a specific purpose.

• Types of surveys include:

  • Self-completed surveys

  • Personal surveys

  • Telephone surveys

  • Online surveys

  • Postal surveys

Interviews

• Interviews involve one-to-one discussions between an interviewer and interviewee to investigate their personal circumstances and opinions.

Advantages and Disadvantages of Interviews

• Advantages:

  • Beliefs, attitudes, and feelings can be examined in detail

• Disadvantages:

  • Qualitative information might be difficult to analyze

  • Time-consuming

  • Huge scope for interviewer bias

Focus Groups

• Focus groups involve forming small discussion groups to gain insight into the opinions, attitudes, and behavior of respondents.

Advantages and Disadvantages of Focus Groups

• Advantages:

  • Detailed questions can be asked, and participants are more likely to engage in discussions.

• Disadvantages:

  • Tend to be dominated by opinions of extroverts.

  • Tendency for participants to conform to the majority view.

  • Costly as each participant has to be paid.

Observations

• This method involves watching how people behave and respond in different situations.

• It can be done in controlled conditions or as real-life situations.

• Can be carried out by:

  • Surveillance cameras

  • Photographic evidence and/or

  • In-person

Advantages and Disadvantages of Observations

• Advantages:

  • Records actual behavior rather than what people say they would do.

• Disadvantages:

  • Does not necessarily reveal why people behave or respond in the way they do.

Secondary Market Research Methods/Techniques

• Market analyses

• Academic journals

• Government publications

• Media articles

• Online content

Secondary Market Research

• Secondary market research involves the collection of second-hand data and information that already exists.

• i.e., the data and information have previously been gathered by others.

Advantages of Secondary Research

• Data is readily available and faster to collect.

• Provides meaningful insight into industry trends.

• Huge range of sources of information available.

• Findings can be based on large samples, so results are statistically valid.

Disadvantages of Secondary Research

• Data might be obsolete and irrelevant.

• Information gathered is not tailored to the specific purpose of the firm, thus needs to be further adapted to suit the needs of the business.

• Information is widely available to competitors.

Market Analyses

• A market analysis reveals the characteristics and trends for a particular product or industry.

• e.g., market size, market share, and market growth rates.

• It can help to measure how well a business is doing compared with its rivals.

• Sources of market analysis data and information can be found in sources such as:

  • Market research firms

  • Competitors

  • Trade publications

Academic Journals

• These are periodical publications from education and research institutions.

• Academic journals publish educational, peer-reviewed articles and findings written by industry experts and academics.

Government Publications

• Governments publish a broad range of data such as:

  • Population census

  • Social trends

  • Labor market developments

  • Trade statistics

  • Unemployment figures

  • Inflation rates

Media Articles

• Media articles are widely available (online or print).

• Examples include:

  • Newspapers

  • Magazines

  • Business-related journals

  • Television documentaries

  • Books

  • Websites

  • Blogs

  • Social media

Online Content

• All of the above methods of secondary market research are increasingly available online.

• They can be easily found via:

  • Search engines such as Google.

  • Encyclopedias such as Wikipedia.

  • Social networks such as Facebook and Instagram.

Qualitative vs. Quantitative Research

Qualitative Research

• This involves getting non-numerical answers and opinions from respondents.

• The main purpose of using qualitative data is to understand the behaviors, attitudes, and perceptions of customers, employees, or other respondents.

Advantages of Qualitative Research

• It is better than quantitative research for exploring behaviors and attitudes.

• There is more flexibility in the process, so useful extra information from interviews can be gathered.

• It is cost-effective in being able to gather a lot of information from a smaller number of respondents.

Disadvantages of Qualitative Research

• Small samples typically used prevent findings from being truly representative of the whole population.

• Very time-consuming to conduct and interpret.

• Interviewer must be highly experienced in facilitating useful information from respondents.

Quantitative Research

• This involves getting factual and measurable information rather than people’s opinions.

• Two quantitative techniques found in primary research are:

  • Closed questions

  • Ranking or sliding scales

Sampling Methods

• Quota

• Random

• Convenience
  \n### Sampling a Market

• Sampling is the practice of selecting a small group (or sample) of the population for a particular market for primary research purposes.

Quota Sampling

• This is where a certain number of people (known as the quota) from different market segments is selected.

Advantages and Disadvantages of Quota Sampling

• Advantages:

  • A relatively representative sample can be collected quickly.

  • Findings are more reliable than random sampling.

• Disadvantages:

  • The sample is not always representative of the population due to the number of people interviewed for each segment and how randomly they were selected.

Random Sampling

• This involves giving everyone in the population an equal chance of being selected for the sample.

Advantages and Disadvantages of Random Sampling

• Advantages:

  • Easy to select a sample

  • Minimizes bias or unrepresentative samples.

• Disadvantages:

  • It is indiscriminate (i.e., selecting people who are not part of the target group due to the randomness of selection)

Convenience Sampling

• Convenience sampling uses subjects that are easy (convenient) to reach.

Advantages and Disadvantages of Convenience Sampling

• Advantages:

  • Availability and quickness of data collection

• Disadvantages:

  • Inadvertent exclusion of a large proportion of the population, thus presenting highly skewed findings

Theory of Knowledge

• Given the complications of survey designs and sample size, can primary market research data ever be truly reliable?

Concepts in BM: Ethics

• In many countries, market research must be conducted within ethical guidelines to avoid breaches of individual privacy.

• An easy way to remember what is considered to be unethical research is the 5Ds©:

  • Damage: Researchers must protect those in their samples by ensuring the information collected is never used in such a way as to harm them.

  • Dishonesty: Researchers must be trustworthy in their attempt to obtain usable data for marketing purposes.

  • Deception: Deceptive practices and misleading methods to access and gather data about customers are an ethical problem.

  • Disclosure: Any unauthorized disclosure of customer information is unethical.

  • Detachment: It is essential that researchers must be detached from personal biases and be objective in their work.

Ethics and Data Brokers

• Data brokers are companies that specialize in collecting information about individuals from public records and private sources.

• This information is then sold to other organizations that use it to target their marketing strategies.

• They have often been criticized for conducting this market research unethically.

The Seven Ps of the Marketing Mix - Product

• Topic 4: Marketing

Product

• A product refers to any good or service that serves to satisfy the needs and wants of customers.

• A product can be:

  • Intangible (e.g., operating system software)

  • Tangible (e.g., the smartphone device)

Consumer Products

• Consumer products are purchased by private individuals for their personal use.

• Examples of consumer products are:

  • Consumer perishables

  • Specialty consumer goods

  • Fast-moving consumer goods

  • Consumer durables

Producer Products

• Producer products or industrial goods are purchased by businesses to use in the production process.

The Product Life Cycle and Product Portfolios

• The product life cycle (PLC) shows the different stages that a product is likely to go through from its initial design and launch to its decline.

• A product portfolio refers to the collection of all the products owned by a business at a point in time.
  $Product Lifecycle$

Features of The Research and Development Stage

• Companies invest a lot of money developing a new idea into a product.

• There is no sales revenue as the product is not available for sale.

• There are high research and development costs.

• Prototypes and test markets are used.

Features of The Launch Stage

• Products are introduced to the market.

• Sales increase slowly.

• Extensive promotion takes place.

• Products are not profitable at this stage (due to low sales and high expenses).

• The objective is to move to the growth stage as quickly as possible and become the market leader.

• Buyers in this stage are known as Innovators.

Features of The Growth Stage

• Rapid increase in sales due to greater consumer awareness.

• More channels of distribution (place).

• Strong profits.

• More competitors.

• Product differentiation strategies are used.

• Buyers in this stage are known as Early adopters.

Features of The Maturity Stage

• Sales increasing (but at a slower rate) and peak.

• Economies of scale are possible.

• Heavy promotion takes place to differentiate brands.

• Product lines extended (with more product versions and variations).

• Unsuccessful competitors drop from the market.

• Buyers in this stage are known as the Majority.

Features of The Decline Stage

• Sales and profits fall.

• Demand is low due to changing fashion and tastes, new replacement models, or obsolete technology.

• Promotional spending falls or stops.

• Buyers in this stage are known as Laggards.

PLC for the Automobile Industry

• R&D: Typically unknown to the market

• Launch: Self-driving cars

• Growth: Electric cars

• Maturity: Petrol cars

• Decline: Diesel cars

Investment, Profit, and Cash Flow in Each Stage of the PLC

Investment Expenditure and the PLC

• Research and development

• Basic and applied research

• Launch

• Promotion

• Capital investment

• Growth

• Promotion

• Product improvement

• Capacity expansion

• Maturity

• Extension strategies

• Divestment

Profit and the PLC

• Research and development

  • No profit

• Launch

  • Little profit, if any.

• Growth

  • Profit achieved, once R&D and launch costs recovered.

• Maturity

  • Maximum profit (depending on costs to defend market share).

• Decline

  • Profit disappears as prices are reduced and sales decrease.

  • Product termination costs.

Cash Flow and the PLC

• Research and development

  • Highly negative

• Launch

  • Negative

• Growth

  • Turns positive

• Maturity

  • Positive

• Decline

  • Positive but falling

Extension Strategies

• Companies try to extend the length of the maturity stage as sales and profits are greatest.

• Extension strategies include:

  • Price reductions

  • Redesigning

  • Repackaging

  • New markets

  • New promotional activities

Branding

• A brand refers to a name or trademark that is identifiable with a business or product. It is a key product differentiator and an intangible asset.

• A brand may also be a:

  • Sign

  • Symbol

  • Color scheme

  • Font

  • Design

Aspects of Branding

• Brand awareness

• Brand development

• Brand loyalty

• Brand value

Brand Awareness

• This measures the extent to which potential customers, or the public, recognizes a particular brand.

• Brand awareness can benefit the business by bringing:

  • Higher sales revenues

  • Competitive advantages

  • Repeat purchases

Brand Development

• This refers to the marketing process of improving and enlarging the brand name.

• Successful brand development helps to extend the product’s life cycle.

• Some brands are so famous, they are often mistaken for the product itself.

Brand Loyalty

• This occurs when customers buy the same brand time and time again. They are devoted to the brand since they have a preference over other brand names.

• The opposite is brand switching where customers turn to alternative brands.

Benefits of Brand Loyalty

• Maintains/improves market share.

• Ability to set premium pricing.

• Acts as a barrier to entry in highly competitive markets.

• Prolongs the product and brand’s life cycle.

Brand Value

• This refers to the premium that customers are willing to pay for a brand name over and above the value of the product itself.

Benefits of Having a Strong Brand Value Include

• Higher market share

• Higher barriers to entry

• Premium prices

Importance of Branding

• Branding can bring many advantages to a business, which include:

  • Acting as a legal instrument

  • Risk reduction

  • Image enhancement

  • Earning higher revenues

  • Premium price setting ability

  • Recognition and loyalty

  • Distribution benefits

Concepts in BM: Ethics and Sustainability

• In 2013, Oxfam International presented a report on ten of the world’s biggest food and beverage companies.

• This report highlighted how these firms control the world’s food supply, diet, working conditions, and the environment, often revealing unethical business practices.

• This report pressured these firms to be more ethical in their approach to sustainability.

The Marketing Mix - Price

Price

• Price refers to the amount paid by a customer to purchase a good or service.

• This is one of the more difficult business decisions to get right.

• The pricing decision depends on a ‘DRASTIC©’ number of factors:

  • Demand: The greater the demand, the higher the price can be set

  • Rivalry: The higher the degree of competition, the more price competitive firms have to be

  • Aims: For-profits and non-profits will price their products differently

  • Supply: The lower the supply of a product, the higher the price tends to be due to scarcity

  • Time: Products facing obsolescence will be priced lower. Antiques may increase in price due to scarcity

  • Image: Firms with a prestigious image can charge higher prices for their goods

  • Costs of production: The higher the costs of production, the higher the prices tend to be

Pricing Methods

Cost-Plus (Mark-Up Pricing)

• This pricing strategy involves working out the average cost per unit of a product and then adding a percentage mark-up.

Merits

• Simplistic and easy to calculate.

Drawbacks

• Does not consider the needs of customers.

Penetration Pricing

• This is when products are initially sold at a low price to try to break into the market and quickly gain market share.

• Once the firm has enough market share, it can raise its prices.

Merits

• Suitable for mass-market products sold in large volumes.

• Suitable for New firms trying to enter established markets.

Drawbacks

• If prices are set too low, it can cause customers to perceive the product as inferior and of poor quality.

Loss Leader

• Loss leader pricing involves selling a product at or below its cost value.

• This is used to:

  • Tempt customers into the store to buy the more profitable products at the same time and/or

  • Recoup the loss by selling complementary products.

Merits

• Suitable for products such as:

• Supermarket low-cost (unprofitable) ranges.

• Coffee machines with own-brand coffee pods.

Drawbacks

• Setting prices too low may damage the prestige and image of the brand.
  Incentivises customers to switch brands.

Predatory Pricing

• Predatory pricing involves temporarily reducing prices with the intention of forcing a competitor out of a market.

• This method is used when an existing firm is threatened with new competition.

• Price wars often ensue in a ‘race to the bottom’ .

• Commonly used in supermarket, airline, and smartphone sectors.

Merits

• Price wars can bring customers to a firm in the short term.

Drawbacks

• These customers may not necessarily stay with a firm in the long term as they are not brand loyal.
  In many parts of the world, this type of pricing strategy is illegal as it is regarded as an anti-competitive practice.

Premium Pricing

• Premium pricing is when the price of a good or service is set significantly higher than similar competing products.

• This is usually because the product is of higher quality or is sufficiently unique enough to justify the premium price.

Merits

• Generates higher profit margins

• Limits numbers of customers due to relatively high price

Drawbacks

• Creates higher barriers to entry for