Relevant cost

make or buy decision definition

Product Allure

On the other hand, if the companies create products the middle class can better afford, they risk “cheapening” their brands. That’s why, for example, Smart Cars, which are made by BMW, don’t have the BMW label on them.

If they can’t, they utilize other tactics such as discounts. The consumer’s social situation, time situation, the reason for their purchases, and their moods also affect their buying behavior. Planned obsolescence is a deliberate effort by companies to make their products obsolete, or unusable, after a period of time. The goal is to improve a company’s sales by reducing the amount of time between the repeat purchases consumers make of products.

What Factors Must a Firm Consider While Addressing the Make or Buy Decision?

When a software developer introduces a new version of product, older versions of it are usually designed to be incompatible with it. For example, not all the formatting features are the same in Microsoft Word 2003 and 2007. Sometimes documents do not translate properly when opened in the newer version. Consequently, you will be more inclined to upgrade to the new version so you can open all Word documents you receive.

Culture prescribes the way in which you should live and affects the things you purchase. To some degree, consumers in the same social class exhibit similar purchasing behavior. Most market researchers consider a person’s family to be one of the biggest determiners of buying behavior. Reference groups are groups that a consumer identifies with and wants to join.

Come to a final make-or-buy decision once both quantitative and qualitative factors have been considered; this will depend on the business in question and what it is doing in order to earn its profits. Businesses produce revenue through selling their products to customers. Businesses can acquire these products through two methods–either producing them in-house or purchasing them from manufacturers. Choosing between these two methods is called the make-or-buy decision, or the outsourcing decision.

For a time, Tiffany’s sold a cheaper line of silver jewelry to a lot of customers. However, the company later worried that its reputation was being tarnished by the line. Keep in mind that a product’s price is to some extent determined by supply and demand.

make or buy decision definition

Doing so helps them reach the people most likely to buy their products in the most cost effective way possible. Even cultures that share many of the same values as the United States can be quite different from the United States in many ways. Following the meltdown of the financial markets in 2008, countries around the world were pressed by the United States to engage in deficit spending so as to stimulate the worldwide economy.

Relevant cost

The makers of upscale brands in particular walk a fine line in terms of marketing to customers. On the one hand, they want their customer bases to be as large as possible. This is especially tempting in a recession when luxury buyers are harder to come by.

  • Culture prescribes the way in which you should live and affects the things you purchase.

Why is the make or buy decision considered strategic?

The essence of a make or buy decision is to manufacture a product if it costs less than to buy it; and vise versa, to buy the product if doing so will cost less. Examples of relevant costs in the context of a make or buy decision include direct labor, direct materials, variable overhead.

Factors that influence the make-or-buy decision include both quantitative factors such as cost and time and qualitative factors such as the suppliers’ trustworthiness and the quality of their products. Businesses should first conduct an analysis of quantitative factors before factoring in qualitative factors to complete their make-or-buy decisions. An information technology specialist with a great deal of knowledge about computer brands is an example. These people’s purchases often lie at the forefront of leading trends. For example, the IT specialist we mentioned is probably a person who has the latest and greatest tech products, and his opinion of them is likely to carry more weight with you than any sort of advertisement.

Companies often hire celebrities to endorse their products to appeal to people’s reference groups. Opinion leaders are people with expertise in certain areas. Consumers respect these people and often ask their opinions before they buy goods and services. Keep in mind, however, that different people, no matter how similar they are, make different purchasing decisions. They don’t have unlimited budgets that allow them to advertise in all types of media to all types of people, so what they try to do is figure out trends among consumers.

Luxury brands therefore try to keep the supply of their products in check so their prices remain high. Marketing products based the ethnicity of consumers is useful. However, it could become harder to do in the future because the boundaries between ethnic groups are blurring. For example, many people today view themselves as multiracial.

make or buy decision definition

The people in these groups have certain interests and exhibit certain behaviors that allow marketing professionals design specific products for them. Psychologist Abraham Maslow theorized that people have to fulfill their basic needs—like the need for food, water, and sleep—before they can begin fulfilling higher-level needs. Perception is how you interpret the world around you and make sense of it in your brain. To be sure their advertising messages get through to you, companies often resort to repetition. Shocking advertising and subliminal advertising are two other methods.

What is make buy decision explain with examples?

The make or buy decision involves whether to manufacture a product in-house or to purchase it from a third party. The outcome of this analysis should be a decision that maximizes the long-term financial outcome for a company.

Make or buy decisions in theory

But the plan was a hard sell both to German politicians and the German people in general. Most Germans don’t own credit cards, and running up a lot of debt is something people in that culture generally don’t do.

(Golfer Tiger Woods is a notable example.) Also, keep in mind that ethnic and racial subcultures are not the only subcultures marketing professionals look at. As we have indicated, subcultures can develop in response to people’s interest. You have probably heard of the hip-hop subculture, people who in engage in extreme types of sports such as helicopter skiing, or people who play the fantasy game Dungeons and Dragons.

Companies such as Visa and MasterCard and businesses that offer consumers credit to purchase items with high ticket prices have to deal with factors such as these. Situational influences are temporary conditions that affect how buyers behave. They include physical factors such as a store’s buying locations, layout, music, lighting, and even smells. Companies try to make the physical factors in which consumers shop as favorable as possible.

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