Exam #3 Marketing
Yield Management Pricing
the charging of different prices to maximize revenue for a set amount of capacity at any given time.
Marginal Cost
the cost of producing one additional unit of output MC = (Change in TC/ 1 unit increase is quantity)
Value pricing
the practice of simultaneously increasing product and service benefits while maintaining or decreasing price.
Quantity Discounts
to encourage customers to buy larger quantities
Product Lifecycle- Introduction
to inform
Product Lifecycle- Growth
to persuade
Product Lifecycle- Decline
to phase out
Product Lifecycle- Maturity
to remind
Profit
total revenue - total cost = (Unit price x Quantity sold) - (Total variable cost fixed costs)
Fixed costs
unaffected by production volume
Cumulative quantity discount
uses the amount purchased over a specified time period and usually involves several transactions. This type of discount particularly encourages resellers to maintain their current supplier because the cost to switch must include the loss of the discount
Unit variable cost
variable cost expressed on a per unit basis for a product UVC= VC/Q
Total Variable Cost
variable cost per unit x quantity
Variable costs
very with production volume
Indirect channel
"There are no intermediaries between the buyer and seller in a direct marketing channel. - one or more intermediaries work with manufacturers to provide goods and services to customers.
Break Even Analysis: Example 1
#16/#17 slides
Inelastic Demand
% change in QD < % change in P or E < 1. Total revenue increases when price increases, but decreases when price decreases
Competitive (or persuasive)
* persuasive messages seek to persuade the receiver to take some action. - Promotes a specific brand's features and benefits - Purpose: persuade the target market - Comparative advertising: shows one brand's strengths relative to those of competitors (T-MOBILE)
High Low pricing
- A high/low pricing strategy relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases. Ex: Macy's. JC Penny - Sellers using an high/low pricing strategy often communicate their strategy through the creative use of a reference price
Competitor Orientation
- Competitive parity - Status quo pricing - Value is not part of this pricing strategy When firms take a competitor orientation, they strategize according to the premise that they should measure themselves primarily against their competition.
Cost Based Methods
- Cost-base pricing methods start with cost - All costs calculated on a per unit basis - Assumes costs don't vary for different levels of production Ex: Markup Pricing (next slide)
Everyday Low Pricing vs.. High/Low Pricing
- Create value in different ways - EDLP saves search costs of finding lowest overall prices - High/low provides the thrill of the chase for the lowest price
Advertising TV
- Is valuable because it communicates with sight, sound, and motion. - High reach: high number of different people or households exposed to an advertisement. - Wasted coverage due to wide reach: having people outside the market for the product see the advertisement.
Advertising
- Most visible element of IMC - Extremely effective at creating awareness and generating interest - Paid, non-personal
Corporate vertical marketing system
- Reduce distribution costs - Gain greater control - Increase their capital investment and fixed costs
Reminder
- Reinforce previous knowledge of a product (Geico Caveman) - Good for well-recognized products (mature phase) - Reinforcement advertising: assure current users they made the right choice
Personal Selling
- Some products require the help of a salesperson - More expensive than other forms of promotion - Salespeople can add significant value, which makes the expense worth it - Highly complex and risky products like a new house increase the need for an emphasis on personal selling.
Pioneering (or informational)
- What a product is, what it can do, where it can be found (Geico) - Purpose: inform the target market ( VOLVO AI)
Price Lining
- a firm that sells a line of products price them at a number of different specific pricing points. - Marketers establish a price floor and price ceiling and set prices in between - Allows for easy comparison
Allowances
-Lowers the final cost in return for specific behavior -Advertising allowance -Slotting allowance
Demand curves
-Not all are downward sloping -Prestigious products or services have upward sloping curves
Three Forms of Product Advertisement (advertising objectives)
-Pioneering (or informational) - Competitive (or persuasive) - Reminder
Elastic Demand
.% change in QD > % change in P or E > 1 Total revenue increases when price decreases, but decreases when price increases. - a small percentage decrease in price produces a larger percentage increase in quantity demanded
4th C: Competition- Oligopoly
A handful of firms control the market
Marketing Channel Definition
A marketing channel consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users. Make possible the flow of products and services from a producer, through intermediaries, to a buyer.
The AIDA Model
Awareness, Interest, Desire, Action
Pricing Strategies
Cost based Competitor based Value based
SALES PROMOTIONCONSUMER-ORIENTED SALES PROMOTION: Rebates
Encourage customers to purchase; stop sales decline Effective at simulating demand Easily copied; steal sales from future; reduce perceived product value
Loss Leader Pricing
Enticing consumers into the store with popular aggressively priced items and hoping they will pick up other items while shopping
Pricing Strategies
Everyday low pricing (EDLP) High-low pricing
Buy One, Get One: BOGO
Ex: can save 60 percent off a second item if you purchase one at the full price
Break Even Price (quantity)
Fixed cost/ (unit price - unit variable cost) = FC/ P - UVC
Does price signal quality?
For some products, price influences consumers' perception of overall quality and ultimately its value to them. "The higher the price, the higher the quality."
Example 2: Margin
If the cost/wholesale price for an item is $500 and a retailer wants a 30% margin: $500 / (100%-30%) = $714.29 COST / (100%-Margin) = SELLING PRICE
Example 1: Markup
If the cost/wholesale price for an item is $500 and a retailer wants a 30% markup: $500 * (100% + 30%) = $650.00COST * (100%+Markup) = SELLING PRICE
SALES PROMOTIONCONSUMER-ORIENTED SALES PROMOTION: Deals
Increase trial; retaliate against competitors actions Reduce consumer risk Consumers delay purchases; reduce perceived product values
The Appeal
Informational appeal Emotional appeal
Demand Factors (Determinants of Demand)
Key factors that influence demand for a product and include: consumer tastes, price and availability of similar products, consumer income.
4th C: Competition- Pure Competition
Many firms selling commodities for the same prices
4th C: Competition- Monopolistic Competition
Many firms selling differentiated products at different prices
Margin
Margin is the percentage of the final selling price/retail price (including margin)
AIDA Model Explanation
Marketing communications move consumers stepwise through a series of mental stages, for which there are several models. The most common is the AIDA model, which suggests that Awareness leads to Interest, which leads to Desire, which leads to Action.
Forward Integration
Occurs when a producer owns an intermediary at the next level down in the channel.
Backward Integration
Occurs when a retailer owns a manufacturing operation.
4th C: Competition- Monopoly
One firm controls the market
Total Revenue
Price x Quantity
Predatory Pricing
Prices set low with the intent to drive competitor out of business - Illegal - Difficult to prove
SALES PROMOTIONCONSUMER-ORIENTED SALES PROMOTION: Coupons
Stimulate demand Encourage retailer support Consumers delay purchases
Total Cost
Sum of variable and fixed costs TC= FC+VC
Prestige Pricing
The idea behind it is that if a person is concerned with the cost, it means the person is not rich enough to own an item. So you price high to signal exclusivity and prestige.
Managing the Marketing Channel and Supply Chain through Vertical Marketing Systems
The more independent the members of the supply chain, the more likely they are to have conflict goals and thus to experience supply chain conflict.
Shift of a demand curve
The shift in the demand curve shows that the quantity demanded increases without reducing the price. Economists emphasize three other key factors that influence demand for a product: consumer tastes, price and availability of substitutes, and consumer income.
Logistics
Those activities that focus on getting the right amount of the right products to the right place at the right time at the lowest possible cost are referred to as logistic. A marketing channel relies on logistics to make products available to consumers and industrial users.
Value Pricing
To increase value, marketers should decrease price and increase benefits
Value
Value is the ratio of the perceived benefits to price. Value = (Perceived benefits/price)
Everyday low pricing
When a retail store rarely sells deeply discounted or sale products, it is known as "everyday low pricing. Ex: Walmart, Amazon, P&G, Trade Joe's
Movement Along a Demand Curve
With a movement along a demand curve, as the price is lowered, the quantity demanded increases assuming that other demand factors such as consumer tastes, price and availability of substitutes, and consumer income remain unchanged.
Calculate a firm's total profit using the following information: the unit price (P) for a product is $40; the quantity sold (Q) is 2,000; the fixed cost (FC) is $50,000; and the variable cost (VC) is $20,000. a. $10,000 b. $50,000 c. $110,000 d. $150,000 e. cannot be determined with the information provided
a profit equation = Total revenue − Total cost or [(Unit price × Quantity sold) − (Fixed cost + Variable cost)]. Profit = (TR − TC) = [(P × Q) − (FC + VC)] = [($40 × 2,000) − ($50,000 + $20,000)] = $10,000.
Trade-in Allowances
a price reduction given when a used product is accepted as part of the payment on a new product
The 5 C'S of Pricing
competition, costs, company objectives, customers, channel members
price influences
consumers' perception of overall quality and ultimately its value to them. - "The higher the price, the higher the quality"
Pull the product through the channel
e.g. offer consumer incentives: e.g., Objectives: Trial; Repeats; trade-up; product awareness.
Form utility
enhances a product to make it more appealing to buyers
Possession utility
entails efforts by intermediaries to help buyers take possession of a product or service
Total Cost
fixed cost + total variable cost
Break-even point (units)
fixed costs / contribution margin per unit
promotional allowances
given to retailers who undertakes certain advertising or selling activities to promote a product
Place utility
having a product available where consumers want it
Time Utility
having a product or service when consumers want it
Reference value
involves comparing the costs and benefits of substitute items
Break Even
is achieved when profit = 0, which is equivalent to Total revenue (TR) = Total cost (TC)
Noncumulative quantity discount
is based only on the amount purchased in a single order. It therefore provides the buyer with an incentive to purchase more merchandise immediately.
Price Elasticity of Demand
is the percentage change in quantity demanded (QD) relative to a percentage change in price (P) and can be expressed as follows: E= (%change in Qd)/(%change in P)
Push the product through the channel
offer retailer incentives: e.g., Objectives: Gain retailer support to carry, promote, and reduce price of item.
Strategic channel alliance
one firm's marketing channel is used to sell another firm's products - Popular in global marketing - Ex., General Mills and Nestle