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

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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