Marketing Chapter 13

Marketing Factors that can Affect a Demand Curve's Change

1. An increase of advertising. 2. More extensive distribution. 3. A rise in consumer incomes.

Three Factors to Consider when Estimating Demand

1. Consumer Tastes. 2. Price and Availability of Similar Product. 3. Consumer Income.

2. Estimating Demand

1. How much are consumers willing to pay for a product? Depends on these factors that affect the decisions: Preference for a particular product compared to others. Convenience of purchasing the product. Money (cash/credit) available to purchase the product. 2. To do this a marketer must: Understand what the demand curve for the product might look like. how the demand curve affects the firm's sales revenues. How the demand curve affects the product's price elasticity of demand.

Six Steps in Setting Price

1. Identify Pricing Objectives and Constraints. 2. Estimate Demand and Revenue. 3. Determine Cost, Volume, and Profit Relationships. 4. Select an Approximate Price Level. 5. Set List or Quoted Price. 6. Make Special Adjustments to List or Quoted Price.

How Price Elasticity Affects marketing and Public Policy Decisions

1. Price Elastic Factors. 2. Price Inelastic Factors.

The Demand Curve

A graph that related the quantity sold and price, showing the maximum number of units that will be sold at a given price. As price falls, more people decide to buy and unit sales increase.

3. Consumer Income

As real consumer income increases, allowing for inflation, demand for a product also increases.

Unit Variable Cost (UVC)

Expressed on a per unit basis, or UVC = VC / Q

Pricing Contraints

Factors that limit the range of prices a firm may set.

Price Equation

Final Price = List Price - (Incentives + Allowances) + Extra fees

1. Consumer Tastes

Include demographics, culture, and technology. Marketing research is essential to estimate demand because these environmental forces can change quickly.

Fundamentals of Estimating Revenue

Instead of demand curves, marketers speak in terms of "revenues generated", which are the monies received by the firm for selling its products.

Pricing Decisions

Involve carefully assessing consumer demand, revenues, fixed costs, and variable costs before setting a final price.

Total Revenue (TR)

Is the total money received from the sales of a product. Equals the unit price (P) times the quantity sold (Q).

Price

Is unique among all marketing and operation factors - it is the place where all other business decisions come together.

1. Identifying Pricing Objectives

Managing for Long-Run Profits: A firm gives up immediate profit by developing quality products to penetrate competitive markets over the long term. Products are priced relatively low compared to their cost to develop, but the firm expects to make greater profits later due to its high market share. Maximizing Current Profit: Is common in many firms because the targets can be set and performance is quickly measured.

3. Importance of Controlling Costs

Many firms go bankrupt because their costs get out of control, causing their total costs to exceed their total revenues over an extended period of time. Total Revenue (TR) Total Cost (TC) Fixed Cost (FC) Variable Cost (VC) Unit Variable Cost (UVC)

An Offering's Price

Must generate enough sales dollars to develop, produce, and market it while earning a profit for the company.

Price Elasticity of Demand (E) Equation

Percentage Change in Quantity Demanded / Percentage Change in Price

Pricing in the Marketing Mix

Pricing has a direct effect on a firm's profits.

Profit Equation

Profit = Total Revenue - Total Cost Price = (Unit X Quantity Sold) - (Fixed cost + Variable cost)

Pricing Objectives

Specify the role of price in an organization's marketing and strategic plans.

Total Revenue Equation

TR = P x Q Total Profit = Total Revenue - Total Cost

Price Inelastic Factors

The fewer substitutes a product has, the more price inelastic it is. Products considered to be necessities.

2. Price and Availability of a Similar Product

The laws of demand apply to a firm's competitors as well. As the price of substitutes fall or their availability increase, the demand for a product will fall.

What is price (P)?

The money or other considerations (including other products and services) exchanged for the ownership or use of a product or services.

Price Elastic Factors

The more substitutes a product has, the more price elastic it is. Items that require a large cash outlay compared with a person's disposable income. Items that are not considered necessities.

Fixed Cost (FC)

The sum of expenses of the firm that are stable and do not change with the quantity of a product that is produced.

Variable Cost (VC)

The sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold.

Total Cost (TC)

The total expense incurred by a firm in producing and marketing a product. TC = FC + VC

1. Identifying Pricing Constraints

The type of market in which it competes, which dramatically influences the range of price competition and the nature of product differentiation and extent of advertising it uses.

Price Elasticity of Demand

With a downward-slopping demand curve, marketing managers are interested in how sensitive consumer demand is and how sensitive the firm's revenues are to changes in the product's price. Measures the percentage change in quantity demanded relative to a percentage change in price.

Value

is the ratio of perceived benefits to price. = perceived benefits / price