BA 370 Gaffen Exam 3
Oligopoly
A handful of firms selling differentiated products at different prices. More Price Competition and Fewer Firms
Legal Aspects and Ethics of Pricing
A host of laws ad regulations at both the federal and state levels attempt to prevent unfair pricing practices, but some are poorly enforced and others are difficult to prove. Deceptive or illegal price advertising, predatory pricing, price fixing and discrimination
Types of Vertical Marketing Systems
Administered, Contractural and Corporate. Corporate being the one that is naturally greater in an independent chain
The Lagged Effect
Advertising does not always have an immediate impact. Multiple exposures are often necessary. A delayed response to the marketing campaign
What are the different elements in an IMC program?
Advertising, sales promotion, public relations, personal selling, electronic media and direct marketing
Interest in AIDA
After awareness comes persuasion. The customer must want to further investigate the product or service
Desire in AIDA
After the firm has picked the interest of its target market, the goal of the subsequent IMC messages should move the consumer from I like it to I want it
Investment Management through Just-In-Time Systems
Also called QR. It is less merchandise on a more frequent basis. It tracks goods throughout stores, warehouses and DCs. As its name implies, just-in-time inventory management ensures goods get delivered only when they are needed
Cost-Based Pricing
Always start with the cost. All costs calculated on a per unit basis. Determines the final price to charge bu starting with the initial cost. Simplicity is the major benefit of this method however it does not consider the value the customer places on the product or service
How do marketing channel members use data warehouses to make decisions?
As shown on the horizontal axis, data can be accessed according to levels of merchandise aggregation. Along the vertical axis, data can be accessed by level of the company. Finally along the third dimension, data can be accessed by point in time- day, season or year.
Department Store
Broad variety and deep assortment
Full-Line Discount
Broad variety at low prices
Factors to establish a relationship with retailers
Choosing retailing partners, identifying types of retailers, developing a retail strategy and managing an omnichannel strategy
5 C's of Pricing
Competition, costs, company objectives, customers and channel members
Rule of Thumb Methods
Competitive Party, Percentage-Of-Sales, Available Budget
Competitor Orientation
Competitive party and Status Quo Pricing. Value is not directly a part of this pricing strategy
What challenges do retailers face when marketing their products through multiple channels
Consumers desire a seamless experience when interacting with omnichannel retailers
Pricing Strategies
Cost-based pricing, Competition-based pricing, Value-based pricing
EDLP versus High/Low Pricing
Creating value in different ways. EDLP saves search costs of finding lowest overall prices, HL provides the thrill of the chase for the lowest price
What common pricing practices are considered to be illegal or ethical?
Deceptive Reference Pricing, Loss-Leader Pricing and Bait & Switch
Channel Structure
Degree of vertical integration: refers to the supply chain where the members act as a unified system, Manufacturers' Brand, Power of Manufacturer and Retailer
Customers (5 C's)
Demand increases as price decreases
Intensive Distribution Intensity
Designed to get products into as many outlets as possible (soft drinks)
Category Specialist
Discount with narrow but deep assortment
Explain the difference between EDLP and HL Pricing
EDLP saves search costs of finding lowest overall prices and high/low provides the thrill of the chase for the lowest price
Marketing Channels Add Value
Each participant adds value, reduce number of transactions, increases value for consumers, more efficient and effective
What is the difference between elastic demand and inelastic demand?
Elastic demand is when relatively small changes in price will generate fairly large changes in quantity demanded. The market for a product is generally viewed as inelastic when lowering prices will not appreciable increase demand, customers just don't care or notice that they've lowered the price
What is EDI and how is it used?
Electronic Data Interchange, a computer-to-computer exchange of business documents from a retailer to a vendor and back
(2 of 2) Pricing Strategies
Everyday Low Price (EDLP), High/Low Pricing
Supercenter
Fastest growing retail category, are large stores that combine a supermarket with a full-line discount store
Service Retailers
Firms that primarily sell services rather than merchandise are a large and growing part of the retail industry
Sales-Oriented Company Objective
Focus on increasing sales
Price Elasticity of Demand
For pricing, elasticity is crucial. Elastic pricing is sensitive while inelastic pricing is insensitive.
Direct Channel
From manufacturer to consumer
Extreme Value Store
Full line, limited, very low prices
Exclusive Distribution Intensity
Grants exclusive geographic territories to one or very few retail customers so no other customers in the territory can sell a particular brand
Power
In a marketing channel exists when one firm has the means or ability to dictate the actions of another member at a different level of distribution
Supermarket
Includes nonfoods, differentiates different types of food
Factors Influencing Price Elasticity of Demand
Income Effect, Substitution Effect, Cross-Price Elasticity
Off-Price Store
Inconsistent assortment of brand-name merchandise at low prices
Contractural Vertical Marketing System
Independent firms at different levels of the marketing channel join together through contracts to obtain economies of scale and coordination, also to reduce conflict
Consumers' use of Reference Prices
Internal Reference Price cycling with External Reference Price
Why do some marketing channels use VMI and others don't?
It is a more advanced level of collaboration than simply using EDI and sharing information, retailers cannot use VMI blindly. Whereas, the manufacturer coordinates the supply chain for its specific products, it does not know what other actions the retailers is taking that might affect the sales of its products in the future
Why have JIT systems become so popular?
JIT leads to reduced lead time, increased product availability and lower inventory investment
Channel Member Characteristics: Large Size
Less likely to use supply chain intermediaries, can gain more control, be more efficient and save money, larger firms often find that by performing the channel functions themselves, they can gain more control
What are the components of retail strategy?
Like other markets, retailers perform important functions that increase the value of the products and services they sell to consumers. These functions are classified into the four Ps
Convenience Store
Limited Variety, good locations
Warehouse Club
Limited assortment, little service. (Costco, Sam's Club)
Speciality Store
Limited merchandise with service in small store
Break Even Analysis
Loss = Profit Total Variable Cost = Variable Cost x Q Total Cost = T Variable Cost + T Fixed Cost Total Revenue = Price x Q Break Even Point (units): Fixed Cost / Contribution per Unit
Vendor Managed Inventory (VMI)
Manufacturer is responsible for the inventory levels. It's an approach for improving supply chain efficiency in which the manufacturer is responsible for maintaining the retailer's inventory levels in each of its stores
Channel Members (5 C's)
Manufacturers, wholesalers and retailers can have different perspectives and pricing strategies
How does merchandise flow through a typical marketing channel?
Manufacturing -- Distribution Center (optional)--- Store --- Customer
Pure Competition
Many firms selling commodities for the same prices. More price competition and fewer firms
Monopolistic Competition
Many firms selling differentiated products at different prices. Less Price Competition and Many Firms
Pricing Tactics aimed at Consumers
Mark downs, quantity discounts, seasonal discounts, coupons, rebates, leasing, price bundling, leader pricing
New Product Pricing Strategies
Market Penetration and Price Skimming
Available Budget
Marketers forecast their sales and expenses, excluding communication, during the budget period. The difference between forecast sales and expenses plus desired profit is reserved for the communication budget. That is, the communication budget is the money available after operating costs and profits have been budgeted
Competition (5 C's)
Monopoly, Monopolistic Competition, Oligopoly and Pure Competition
The Communication Process
New media options fragment communications and make it more difficult and complex to reach the desired target audience. Sender - transmitter encodes the message - communications channel - receiver (consumer) decodes message
Administered Vertical Marketing System
No common ownership or contractural relationship, but the dominant channel member controls or holds the balance of power
Elements of an Integrated Marketing Communication strategy
Offline & interactive, offline & passive, online & interactive and online & passive
Monopoly
One firm controls the market. Less Price Competition and Fewer Firms.
Market Penetration
Penetration pricing helps firms build market share for their new products quickly, but consumers mist be price elastic for this strategy to work
Data-Based Pricing Strategies
Predicting the demand for each particular product or service. Usually at different rates (Flights, Concerts, etc.)
Demand Curves
Prestigious products or services have upward sloping curves. Not all demand curves are downward sloping
What are some consumer-oriented pricing tactics?
Price Lining, price bundling, leader pricing
What pricing strategies should be considered when introducing a new product?
Price Skimming and Market Penetration
What are the factors influencing price elasticity?
Price elasticity is influenced by income effect, substitution effect and cross-price elasticity
Customer Orientation
Pricing strategy based on how the firm can add value to its products and services. Match prices to customer expectations
Distribution Intensity
Product characteristics drive supply chain structures in that mass merchandise products use intensive distribution, whereas luxury goods employ exclusive distribution
Developing a Retail Strategy: Four P's
Product, price, promotion and place
Company Objectives (5 C's)
Profit-Oriented, Sales-Oriented, Competitor-Oriented and Customer-Oriented
AIDA Model
Provides a basis for understanding how marketing communications work Awareness, Interest, Desire and Action
Action in AIDA
Purchase is just one type of action. Other than purchases, it can cause behavioral, attitude and physical changes
Every Communication Method can be measured by
Reach and Frequency. Because of the lagged effect, marketers must not only expose the target audience to the message but also ensure that is has multiple opportunities to view the message. Combined this is GRP
Measuring Success using Marketing Metrics
Reach, Frequency, Gross Rating Points, Web Tracking
Types of Power
Reward, coercive, referent, expertise, information and legitimate
How to set and allocate the IMC budget
Rule of Thumb methods and Objective and Task methods
What are some B2B-oriented pricing tactics?
Seasonal discounts, cash discounts, allowances, quantity discounts, uniform delivered versus zone pricing
Business Price Tactics and Discounts
Seasonal discounts, cash discounts, vendor allowances, quantity discounts, uniform delivered versus zone pricing
Awareness in AIDA
Senders firm must gain the attention. An omnichannel approach increases the likelihood the message will be recieved
Competition Pricing
Sets prices to signal how product compares with competitors. "Premium Pricing". Firms may set their prices to reflect the way they want customers to interpret their own prices relative to others offerings
Value-Based Pricing
Setting prices that focus on the overall value of the product. Consumers perceptions.
Drug Store
Speciality for pharmaceutical and health
Why is the Objective and Task method of setting an IMC budget better than the Rule of Thumb method?
The OT method determines the budget required to undertake specific tasks to accomplish communication objectives
What are the marketing channel links associated with each information flow?
The Supply Chain links are associated with each information flow step. Flow one, customer to store. Flow two, store to buyer. Flow three, buyer to manufacturer. Flow four, store to manufacturer. Flow five, store to distribution center. Flow six, manufacturer to distribution center and buyer
Income Effect
The change in the quantity of a product demand by consumers due to a change in their income
Percentage of Sales
The communication budget is a fixed percentage of forecasted sales. This assumes the same percentage used in the past or by competitors is still appropriate for the firm
Competitive Party
The communication budget is set so that the firm's share of communication expenses equals its share of the market
Substitution Effect
The decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when prices rise
Corporate Vertical Marketing System
The parent company has complete control and can dictate the priorities and objectives of the marketing channel because it owns multiple segments of the channel, such as manufacturing plants, warehouse facilities and retail outlets
What are the advantages to traditional stores versus internet-only stores?
The relative advantages of the most traditional retail channels are browsing, touching and feeling products, personal service, cash and credit payment
What is the difference between an indirect and direct marketing channel?
There are no intermediaries between the buyer and the seller in a direct market. In indirect marketing channels, one or more intermediary works with manufacturers to provide goods and services to customers
How does one calculate the break-even point?
To determine the break even point in units, we must introduce one more variable, the contribution per unit, which is the price less the variable cost per unit. Fixed Cost / Contribution per Unit
What is the role of an IMC planner
To get the right message to the right audience. Must understand how each medium communicates and how to combine it with other media to generate the most impact
Selective Distribution Intensity
Uses a few selected customers in a territory (pharmaceuticals)
How can you use Value-Based pricing for setting prices?
Value-Based methods include approaches to setting prices that focus on the overall value of the product offering as perceived by the consumer. Two key approaches include improvement Value Method and the Cost of Ownership Method
Costs (5 C's)
Variable costs, fixed costs and total costs. No discussion of price would be complete without a discussion of cost
How do firms use GRP to evaluate the effectiveness of traditional media?
When measuring IMC success, the firm should examine when and how often consumers have been exposed to various marketing communications. GRP = Reach x Frequency
