Marketing 350 Exam 4

When making pricing decisions, marketers should address a vital question. How will our customers interpret our prices and respond to them?

- Interpretation refers to what the price means or what it communicates to customers - Customer response refers to whether the price will move customers closer to purchase of the product and the degree to which the price enhances their satisfaction with the purchase experience and with the product after purchase

evaluation of competitors' prices

- a firm does not want to sell its product at a price that is significantly above competitors' prices because the products may not sell as well, or at a price that is significantly below because customers may believe the product is of low quality - in some instances, an organization's prices are designed to be slightly above competitors' prices to lend an exclusive image and to signal product quality to consumers

setting appropriate prices can be a difficult balance for firms

- a high price may reduce demand for the product - a low price will hurt profit margins and may instill in customers a perception that the product is of low quality

survival

- achieving this objective generally involves temporarily setting prices low, at times below costs, in order to attract more sales - because price is a flexible ingredient in the marketing mix, survival strategy can be useful in keeping a company afloat by increasing sales volume

marketing-mix variables

- all marketing-mix variables are highly interrelated - pricing decisions can influence evaluations and activities associated with product, distribution, and promotion variables

wholesalers' services to retailers

- assist with the distribution component - help retailers select inventory - reduce a retailer's burden of looking for and coordinating supply sources - have a wide range of products

product quality

- attaining a high level of product quality is generally more expensive for the firm, as the costs of materials, research, and development may be greater - the products and brands that customers perceive to be of high quality are more likely to survive in a competitive marketplace because they trust these products more, even if the prices are higher

wholesalers may engage in many supply-chain management activities

- bear the primary responsibility for the physical distribution of products from manufacturers to retailers - may establish information systems that help producers and retailers manage the supply chain from producer to customer - use information technology and the internet to share information among intermediaries, employees, customers, and suppliers, and facilitating agencies - make their databases and marketing information systems available to their supply-chain partners to facilitate order processing, shipping, and product development and to share information about changing market conditions and customer desires

if marketers can determine a product's price elasticity of demand, setting a price is much easier

- by analyzing total revenues as prices change, marketers can determine whether a product is price elastic 1. if demand is elastic, a change in price causes an opposite change in total revenue 2. if demand is inelastic, total revenue changes in the same direction as the change in price Price Elasticity of Demand = % Change in Quantity Demanded/% Change in Price - the less elastic the demand, the more beneficial it is for the seller to raise the price - products without available substitutes and for which consumers have strong needs usually have inelastic demand

the price/quality association

- by pricing high, they can emphasize the quality of a product and try to increase the prestige associated with its ownership - by lowering a price, marketers can emphasize a bargain and attract customers who go out of their way to save a small amount of money - because price has a psychological influence on customers, marketers can use it symbolically

price skimming can provide several benefits

- can generate much-needed initial cash flows to help offset development costs - protects the marketer from problems that arise when the price is set too low to cover costs - can help keep demand consistent with the firm's production capabilities

when marketers employ product-line pricing, they have several strategies from which to choose, including:

- captive pricing - premium pricing - bait pricing - price lining

factors that can influence demand:

- changes in buyers' needs - variations in the effectiveness of other marking-mix variables - the presence of substitutes - dynamic environment 1. changes in demand for some products is predictable, but with other products, demand may be less predictable 2. some organizations anticipate demand fluctuations and develop new products and prices to meet customers' changing needs

differential pricing

- charging different prices to different buyers for the same quality and quantity of product - the market must consist of multiple segments with different price sensitivities - can occur in several ways, including: negotiated pricing; secondary-marking pricing; periodic discounting; random discounting - an important issue in pricing decisions is whether to use a single price or different prices for the same product - a single price has several benefits: simplicity; reduces the risk of a marketer developing an adversarial relationship with customers - the use of a single price does create some challenges 1. if the single price is too high, some potential customers may be be unable to afford the product 2. if the single price is too low, the organization loses revenue from those customers who would have paid more had the price been higher

strategic issues in marketing channels

- competitive priorities in marketing channels - channel integration - channel leadership, coordination, and conflict

value combines a product's price with quality attributes, which customers used to differentiate among competing brands

- consumers may perceive relatively expensive products to have great value if the products have desirable features or characteristics - consumers are generally willing to pay a higher price for products that offer convenience and save time

the three major dimensions on which prices can be based are:

- cost - demand - competition

firms must weigh many different factors when setting prices, including:

- costs - competition - consumer buying behavior and price sensitivity - manufacturing capacity - product life cycles

location

- critical to business success - the least flexible variable of the marketing mix - an important strategic decision that dictates the limited geographic trading area from which a store draws its customers

pricing strategies should help in setting a final price, if they are to do so, marketers must:

- establish pricing objectives - have considerable knowledge about target market customers - determine demand, price elasticity, costs, and competitive factors - in absence of government price controls, pricing remains a flexible and convenient way to adjust the marketing mix

when categorizing retailers by the breadth of products they offer, two general categories of retail stores include:

- general-merchandise retailers - specialty retailers

Federal Trade Commission established guidelines for comparison discounting

- if the higher price against which the comparison is made is the price formerly charged for the product, the seller must have made the previous price available to customers for a reasonable time period - if sellers present the higher price as the one charged by other retailers in the same trade area, they must be able to demonstrate that this claim is true - when they present the higher price as the manufacturer's suggested retail price, the higher the price must be close to the price at which a reasonable proportion of the product was sold

penetration pricing advantages

- if the low price stimulates sales, the firm may be able to order longer production runs, increasing economies of scale and resulting in decreased production costs per unit - if penetration pricing allows the marketer to gain a large market share quickly, competitors may be discouraged from entering the market - because the lower per-unit penetration price results in lower per-unit profit, the market may not appear to be especially lucrative to potential new entrants

Customers' interpretation of and response to a price are to some degree determined by their assessment of value, or what they receive compared with what they give up to make the purchase

- in evaluating what they receive, customers consider product attributes, benefits, advantages, disadvantages, the probability of using the product, and possibly the status associated with the product - in assessing the cost of the product, customers will likely consider its price, the amount of time and effort required to obtain it, and perhaps the resources required to maintain it after purchase

levels of market coverage

- intensive - selective - exclusive

penetration pricing disadvantages

- it places a firm in a less-flexible pricing position - it is more difficult to raise prices significantly than it is to lower them

channel cooperation:

- leaders to greater trust among channel members - improves the overall functioning of the channel - leads to more satisfying relationships among channel members

foundations of the supply chain

- makes sure products are produced and distributed in the right quantities, to the right locations, and at the right times - includes activities such as manufacturing, research, sales, advertising, and shipping - involves all entities that facilitate product distribution and benefit from cooperative efforts

markup can be stated as a percentage of cost of making the product or as a percentage of selling price

- markup as percentage of cost= markup/cost - markup as percentage of selling price = markup/selling price

channel conflict occurs when:

- members disagree about the best methods for distributing products profitably and efficently - intermediaries overemphasize competing products or diversity into product lines traditionally handled by other intermediaries - self-interest creates misunderstanding about role expectations of channel members - communication is poor between channel members

there are three general types of wholesaling establishments

- merchant wholesalers - agents and brokers - manufacturers' sales and branches and offices

physical distribution activities may be performed by a producer, wholesaler, or retailer, or they may be outsourced

- outsourcing: the contracting of physical distribution tasks to third parties - third-party logistics (3PL): firms have special expertise in core physical distribution activities such as warehousing, transportation, inventory management, and information technology and can often perform these activities more efficiently

retailers consider various factors when evaluating potential locations, including:

- position of the firm's target market within the trading area - kinds of products being sold - availability of public transportation - customer characteristics - placement of a competitors' stores

promotional pricing

- price as an ingredient in the marketing mix often is coordinated with promotion - examples include: price leaders, special-event pricing, comparison discounting

demand-based pricing

- pricing based on the level of demand for the product 1. customers pay a higher price when demand for the product is strong and a lower price when demand is weak 2. marketers must be able to estimate the quantity of a product consumers will demand at different times and how demand will be affected by changes in the price - the marketer then chooses the price that generates the highest total revenue - appropriate for industries in which companies have a fixed amount of available resources that are perishable - the effectiveness of demand-based pricing depends on the marketer's ability to estimate demand accurately - compared with cost-based pricing, demand-based pricing places a firm in a better position to reach high profit levels, as long as demand is strong at times and buyers value the product at levels sufficiently above the product's cost

return on investment

- pricing to attain a specified rate of return on the company's investment is a profit-related pricing objective - a ROI pricing objective generally requires some trial and error, as it is unusual for all data and inputs required to determine the necessary ROI to be available when first setting prices

retailers add value by customers by:

- providing an assortment of products and services - breaking bulk - holding inventory (time and place utility) - providing supplementary services

variables that affect the intensity of market coverage:

- replacement rate - product adjustment (services) - duration of consumption - time required to find the product

wholesalers' services to producers

- serve as an extension of the producer's sales force - provide financial assistance - often pay for transporting goods - often reduce the producer's warehousing expenses and inventory investment by holding goods in inventory

new product pricing

- setting the base price for a new product is a necessary part of formulating a marketing strategy - marketers can easily adjust the base price in industries that are not subject to government price controls, and its establishment is one of the most fundamental decisions in the marketing mix - when a marketer sets base prices, he/she considers how quickly competitors are expected to enter the market, whether they will mount a strong campaign on entry, and what effect their entry will have on the development of primary demand - two strategies used in new-product pricing are: price skimming and penetration pricing

cooperation enables retailers, wholesalers, suppliers, and logistics providers to:

- speed up inventory replenishment - improve customer service - cut the costs of bringing products to the consumer

various channel stages may be combined, either horizontally or vertically, under the management of a channel captain

- such integration may: 1. stabilize supply 2. reduce costs 3. increase channel member coordination

profit

- the objective of profit maximization is rarely operational because its achievement is difficult to measure; therefore, profit objectives tend to be set at levels that the owners and top-level decision makers view as satisfactory and attainable - specific profit objectives may be stated in terms of either actual dollar amounts or a percentage of sales revenues

although there is no single method for resolving conflict, partnerships can be reestablished if two conditions are met:

- the role of each channel member must be clearly defined and followed - members of channel partnerships must agree on means of coordinating channels, which requires strong, but not polarizing, leadership

pricing decisions can be complex due to the number of factors to consider

- there is considerable uncertainty about the reactions to price among buyers, channel members, and competitors - price is an important consideration in marketing planning, market analysis, and sales forecasting - price is a major issue when assessing a brand's position relative to competing brands - most factors that affect pricing decisions can be grouped into one of eight categories

price skimming strategies can be dangerous

- they make the product appear more lucrative than it actually is to potential competitors - a firm risks misjudging demand and facing insufficient sales at the higher price

marketing channels create four types of utility:

- time utility: having products available when consumer wants them - place utility: making products available in locations where customers wish to purchase them

understanding the relationship between demand, cost, and profit, is imperative

- to stay in business, a company must set prices that not only cover its costs but also meet customers' expectations - customers are becoming less tolerant of price increases, forcing manufacturers to find new ways to control costs - two approaches to understanding demand, cost, and profit relationships are: marginal analysis and break even analysis

physical distribution managers must be sensitive to the issue of cost trade-offs

- trade-offs are strategic decisions to combine resources for greatest cost-effectiveness - the goal is not always to find the lower cost, but rather to find the right balance of costs

three types of specialty retailers

- traditional specialty retailers - category killers - off-price retailers

marketers determine the appropriate pricing basis by analyzing the:

- type of product - market structure of the industry - brand's market share position relative to competing brands - customer characteristics

the importance of price varies depending on the:

- type of product - type of target market - purchase situation

the structure that characterizes the industry to which a firm belongs affects the flexibility of price setting

- when an organization operates as a monopoly and is unregulated, it can set whatever prices the market will bear; if the monopoly is regulated, the regulatory body lets it set prices that generate a reasonable but not excessive return - companies in oligopolies can raise their prices in the hope that competitors will do the same; when an organization cuts its prices to gain a competitive edge, other companies are likely to follow suit - firms in a monopolistic competitive structure are likely to practice non-price competition - under conditions of perfect competition, all firms sell their products at the going market price, and buyers will not pay more than that

before setting prices for a product line, marketers evaluate the relationship among the products in the line

- when products in a line are complementary, sales increases in one item raise demand for other items - when products in a line function as substitutes for one another, buyers of one product in the line are unlikely to purchase one of the other products in the same line

a long channel may be the most efficient distribution channel for some consumer goods

- when several channel intermediaries perform specialized functions, costs are likely to be lower than when one channel member tries to perform them all - efficiencies arise when firms that specialize in certain elements of producing a product or moving it through the channel are more effective at performing specialized tasks than the manufacturer; this results in added value to customers and reduced costs throughout the distribution channel

wholesalers are classified according to several criteria

- whether a wholesaler is independently owned or owned by a producer - whether it takes title to products it handles - the range of services provided - the breadth and depth of its product lines

stages for establishing prices

1. developing of pricing objectives 2. assessment of target market's evaluation of price 3. evaluation of competitors' prices 4. selection of a basis for pricing 5. selection of a pricing strategy 6. determination of a specific price - these stages are guidelines that provide a logical sequence for establishing prices, not rigid steps that must be followed in a particular order

in the context of price, buyers can be characterized according to their degree of:

1. price consciousness- striving to pay low prices 2. value consciousness- concerned about price and quality of a product 3. prestige sensitivity- drawn to products that signify prominence and status

external reference price

a comparison price provided by others

allowance

a concession in price to achieve a desired goal

pricing strategy

a course of action designed to achieve pricing objectives, which are set to help marketers solve the practical problems of setting prices

supply chain management should begin with...

a focus on the customer, who is the ultimate consumer and whose satisfaction should be the goal of all the efforts of channel members

demand curve (D1)

a graph of the quantity of products expected to be sold at various prices if other factors remain constant - as prices fall, quantity demand usually rises - demand depends on other factors in the marketing mix, including product quality, promotion, and distribution - an improvement in any of these factors may cause a shift to demand curve D2

marketing channel (channel of distribution or distribution channel)

a group of individuals and organizations that direct the flow of products from producers to customers within the supply chain

costs

a marketer should be careful to analyze all costs so they can be included in the total cost associated with a product

price elasticity of demand

a measure of the sensitivity of demand to changes in price - formally defined as the percentage change in quantity demanded relative to a given percentage change in price - the percentage change in quantity demanded caused by a percentage change in price is much greater for products with elastic demand than for inelastic demand

internal reference price

a price developed in the buyer's mind through experience with the product

cash discount

a price reduction given to buyers for prompt payment or cash payment

seasonal discount

a price reduction given to buyers for purchasing goods or services out of season

promotional allowance

a price reduction granted to dealers for participating in advertising and sales support programs intended to increase sales of a particular item

market share

a product's sales in relation to total industry sales - maintaining or increasing market share need not depend on growth in industry sales - an organization can increase its market share even if sales for the total industry are flat or decreasing - a firm's sales volume can increase while its market share decreases if the overall market grows

trade (functional) discount

a reduction off the list price a producer gives to an intermediary for performing certain functions

specialty retailers

a retail establishment that emphasizes narrow and deep assortment of items - despite the name, they do not sell specialty items but instead offer substantial assortments in a few product lines

general-merchandise retailers

a retail establishment that offers a variety of product lines that are stocked in considerable depth

to attract customers,...

a retail store must project an image that appeals to its target market

brick and mortar

a retailer selling in physical stores

online

a retailer selling on the internet

brick and click

a retailer selling using both physical stores and the internet

although physical distribution managers try to minimize the costs associated with order processing, inventory management, materials handling, warehousing, and transportation, decreasing the costs in one area often raises in another

a total-cost approach to physical distribution that takes into account all these different functions enables managers to view physical distribution as a system and shifts the emphasis from lowering the costs of individual activities to minimizing overall costs

category killer

a very large specialty store that concentrates on a major product category and competes on the basis of low prices and product availability - expand rapidly and fain sizable market shares, taking business away from smaller, high-cost retail outlets

cost-based pricing

adding a dollar amount or percentage to the cost of the product - does not necessarily take into account the economic aspects of supply and demand, nor must it relate to just one pricing strategy or pricing objective

cost-plus pricing

adding a specified dollar amount or percentage to the seller's cost - is appropriate when production costs are difficult to predict

markup pricing

adding to the cost of the product a predetermined percentage of that cost - although the percentage markup in a retail store varies from one category to another, the same percentage is often used to determine the prices on items within a single product category, and the percentage markup may be largely standardized across an industry at the retail level - reflect expectations about operating costs, risks, and stock turnovers - wholesalers and manufacturers often suggest standard retail markups that are considered profitable - to the extent that retailers use similar markups for the same product category, price competition is reduced - using rigid markups is convenient and is the major reason retailers favor this method

special-even pricing

advertised sales or price cutting linked to a holiday, a season, or other event - used to increase sales volume - can be an effective strategy to combat sales lags

supply chain

all the organizations and activities involved with the flow and transformation of products from raw materials through to the end consumer

retailing

all transactions in which the buyers intends to consumer the product through personal, family, or household use

information technology enhances the transparency of the supply chain,...

allowing all marketing channel members to track the movement of goods throughout the supply chain and improve their customer service

predatory pricing

also called undercutting, involves the intent to set a product's price so low that rival firms cannot compete and therefore withdraw from the marketplace - a global problem affecting business pricing strategies is the growing market for counterfeit goods

price fixing

an agreement among competing firms to raise, lower, or maintain prices for mutual benefit

wholesaler

an individual or organization that sells products that are bought for resale, for making other products, or for general business operations

just-in-time (JIT)

an inventory-management approach in which supplies arrive just when needed for production or resale - usually there is no safety stock - requires a high level or coordination between producers and suppliers - eliminates waste - reduces inventory costs

retailer

an organization that purchases products for the purpose of reselling them to ultimate consumers - vital to the US economy

marketing information

analyze sales data and other information in databases and information systems; perform or commission marketing research

companies that offer the right goods, in the right place, at the right time, in the right quantity.....

and with the right support services are able to sell more than competitors that do not

each channel member holds certain expectations of other channel members

any one organization's failure to meet expectations can disrupt the entire supply chain

channel decisions

are critical because they determine a product's market presence and accessibility

a marketing channel should be viewed...

as a unified supply chain

supply chains can be a source of competitive advantage and a strong market orientation...

because supply chain decisions cut across all functional areas of business

a coordinated supply chain...

can also be more environmentally friendly

channel partnerships...

can facilitate effective supply chain management when partners agree on objectives, policies, and procedures for physical distribution efforts associated with the supplier's products - such partnerships eliminate redundancies and assign tasks for maximum system-wide efficiency

marketing channel decisions

can have a strong influence on the other elements of the marketing mix

marketing intermediaries

can reduce the costs of exchanges by performing certain services or functions efficiently

building the most effective and efficient supply chain...

can sustain a business and help it to use resources effectively and be more efficient

price skimming

charging the highest possible price that buyers who most desire the product will pay - some consumers are willing to pay a high price for an innovative product, either because of its novelty or because of the prestige or status that ownership confers - provides the most flexible introductory base price

facilitating exchanges

choose product assortments that match the needs of customers; cooperate with channel members to develop partnerships

horizontal channel integration

combining organizations at the same level of operation under one management - permits efficiencies and economies of scale in purchasing, marketing research, advertising, and specialized personnel - is not always the most effective method for improving distribution - problems that come with increased size often follow, resulting in: 1. decreased flexibility 2. difficulties coordinating among members 3. the need for additional marketing research and large- scale planning

vertical channel integration

combining two or more stages of the marketing channel under one management - may occur when one member of a marketing channel purchases the operations of another member or simply performs the functions of another member, eliminating the need for that intermediary - can be more effective against competition because of increased bargaining power and the ease of sharing information and responsibilities

channel members should direct efforts toward...

common objectives, and their tasks should be defined precisely so that roles can be structured for maximum effectiveness in working toward achieving objectives

retailers must make desired products available,...

create stimulating shopping environments, and develop marketing strategies that increase store patronage - strategically use store location, technology, retail positioning, store image, and category management

marketing channels serve many functions, including:

creating utility and facilitating exchange efficiencies - although some of these functions may be performed by a single channel member, most functions are accomplished through both independent and joint efforts of channel members

quantity discounts

deductions from the list price for purchasing in large quantities - can either be cumulative or noncumulative

inventory management

developing and maintaining adequate assortments of products to meet customers' needs - stock-outs: shortage of products - maintaining too many products in inventory increases risks of product obsolescence, pilferage, and damage

channel management

directing the flow of products

......can affect channel selection

economic conditions, technology, and government regulations

non-price competition

emphasizing factors other than price to distinguish a product from competing brands - a major advantage of non-price competition is that a firm can build customer loyalty toward its brand - is effective only under certain conditions: 1. a company must be able to distinguish its brand through unique product features, higher product quality, effective promotion, distinctive packaging, and/or excellent customer service 2. buyers must not only be able to perceive these distinguishing characteristics but also deem them as important 3. the company must extensively promote the brand's distinguishing characteristics to establish its superiority and set it apart from competitors in the minds of buyers

price competition

emphasizing price as an issue and matching or beating competitors' prices - to compete effectively on a price basis, a firm should be the low-cost seller of the product - a seller competing on price may change prices frequently, or at least be willing and able to do so

multichannel retailing

employing multiple distribution channels that complement their brick-and-mortar stores with websites, catalogs, and apps where consumers can research products, read other buyers' reviews, and make actual purchases - many retailers see significant growth potential in international markets

price discrimination

employing price differentials that injure competition by giving one or more buyers a competitive advantage

odd-even pricing

ending the price with certain numbers to influence buyers' perceptions of the price or product - the strategy of setting prices using odd numbers that are slightly below whole-dollar amounts - sellers who use odd pricing believe that odd numbers increase sales because consumers register the dollar amount, not the cents - even prices are often used to give a product an exclusive or upscale image - an even price is believed to influence a customer to view the product as being a high-quality, premium brand

price

establish pricing policies and terms of sales

marketing management

establish strategic and tactical plans for developing customer relationships and organizational productivity

negotiated pricing

establishing a final price through bargaining between the seller and the customer - occurs in a number of industries and at all levels of distribution

product line pricing

establishing and adjusting prices of multiple products within a product line - when marketers use product-line pricing, their goal is to maximize profits for an entire product line rather than to focus on the profitability of an individual product item

pricing for business markets

establishing prices for business buyers that purchase products for resale, use those products in their own operations, or product other products sometimes differs from setting prices for consumers - differences in the size of purchases, geographic factors, and transportation considerations require sellers to adjust prices

customer relationship management (CRM) systems

exploit the information in supply chain partners' information systems and make it available for easy reference; can help all channel members make better marketing strategy decisions that develop and sustain desirable customer relationships

because of variations in product use, product complexity, consumption levels, and need for services,...

firms develop different marketing strategies for business customers and consumers

a distribution system involves

firms that are "upstream" in the supply chain (producers and suppliers) and "downstream" (wholesalers and retailers) working together to serve customers and generate competitive advantage

status quo

focus on several dimensions: 1. maintaining a certain market share 2. meeting competitors' prices 3. achieving price stability 4. maintaining a favorable public image - can reduce a firm's risks by helping to stabilize demand for its products - risks minimizes pricing as a competitive tool, which could lead to a climate of non-price competition

supply chains driven by firm-established goals....

focus on the "competitive priorities" of speed, quality, cost, or flexibility as the performance objective

megacarriers

freight transportation firms that provide several modes of shipment

merchant wholesalers fall into two broad categories

full service and limited service

pricing objectives

goals that describe what a firm wants to achieve through pricing - developing pricing objectives is an important task because they form the basis for decisions for other stages of the pricing process - pricing objectives must be stated explicitly and in measurable terms, and should include a time frame for accomplishing them - marketers must ensure that pricing objectives are consistence with the firm's marketing and overall objectives because pricing objectives influence decisions in many functional areas - a marketer can use both short-and long-term pricing objectives and can employ one or multiple pricing objectives

the internet and technological advancements

have revolutionized logistics, allowing many manufacturers to carry out actions and services entirely online, bypassing shipping, and warehousing considerations, and transforming physical distribution by facilitating just-in-time delivery, precise inventory visibility, and instant shipment-tracking capabilities

retail positioning

identifying an unserved or underserved market segment and serving it through a strategy that distinguished the retailer from others in the minds of consumers in that segment - the large variety of shopping centers and the expansion of product offerings by traditional stores, along with the increased use of retail technology, have all contributed to intense retailing - many discount and specialty store chains have positioned themselves to appeal to time-and cash-strapped consumers with convenient locations and layouts as well as low prices

interior atmospheric elements

include aesthetic considerations, such as: lighting, wall and floor coverings, dressing facilities, and store fixtures - color can attract shoppers to a retail display - sound is an important sensory component of atmosphere - retailers may be employ scents to attract customers - online retailers are not exempt from concern over atmospherics: the layout of a site and the content of digital ads that appear on that site can affect consumer mood and shopping behavior

exterior atmospheric elements

include: the appearance of the storefront, display windows, store entrances, degree of traffic congestion - are particularly important to new customers, who tend to base their judgement of an unfamiliar store on its outside appearance

logistics, involving physical distribution, relates to planning, implementing, and controlling the efficient flow and storage of products

includes: - order processing - inventory management - materials handling - warehousing - transportation

merchant wholesalers

independently owned businesses that take title to goods, assume ownership risks, and buy and resell products to other wholesalers, business customers, or retailers - go by various names: wholesaler, jobber, distributor, assembler, exporter, and importer

procurement (supply management)

involves the processes to obtain resources to create value through sourcing, purchasing, and recycling, including materials and information

price war

involves two or more companies engaging in intense price competition, often in an effort to boost market share - chronic price wars often benefit consumers in the form of lower prices in the short run, but the constant price cutting is seldom sustainable, so they can substantially weaken organizations by slashing profit margins for everyone - a major drawback of price competition is that competitors have the flexibility to adjust prices

the major role of marketing channels

is to make products available at the right time at the right place in the right quantities and providing customer satisfaction should be the driving force behind marketing channel decisions

in a highly competitive market,..

it is important for a company to maintain low costs so it can offer lower prices than its competitors if necessary to maintain a competitive advantage

once a firm commits to a distribution channel, it is difficult to change

it is the least flexible component of the marketing mix

when an organization believes that an intermediary is not promoting its products adequately or does not offer the correct mix of services,...

it may reconsider its channel choices

smaller firms may be in a better position to serve...

local or regional needs and may have to consider including other channel members that have the resources to provide services, such as shipping products long distances and extending credit, to customers that the firm cannot supply

less-expensive standardized products with long shelf lives can go through...

longer channels with many intermediaries

logistics

manage transportation, warehousing, materials handling, inventory control, and communication

operations management

managing activities from produciton to final delivery through system-wide coordination

logistics management

managing the efficient and effective flow of materials, products, and information from the point of origin to consumption

a pricing strategy will yield a certain price or range of prices

marketers may need to refine this price in order to make it consistent with circumstances and with pricing practices in a particular market or industry

organizational and marketing objectives

marketers should set prices that are consistent with the organization's goals and mission

full service wholesalers

merchant wholesalers that perform the widest range of wholesaling functions - handle either consumer or business products and provide various marketing services to their customers - often earn higher gross margins than other wholesalers, but their operating expenses are also higher because they perform a wider range of functions - customers rely on them for: product availability, suitable product assortments, breaking large quantities into smaller ones, financial assistance and technical service and advice

limited service wholesalers

merchant wholesalers that provide some services and specialize in a few functions - take title to merchandise but often do not deliver merchandise, grant credit, provide marketing information, store inventory, or plan ahead for customers' future needs - because they offer restricted services, limited-service wholesalers charge lower rates and have smaller profit margins than full-service wholesalers

marketing intermediaries

middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangements or through the purchase and resale of products - play key roles in customer relationship management through distribution activities and by maintaining databases and information systems to help all members of the marketing channel maintain effective customer relationships

consumers generally buy limited quantities...

of a product, purchases from retailers, and often do not mind limited customer service

noncumulative discounts

one-time price reductions based on the number of units purchased, the dollar value of the order, or the product mix purchased

direct marketing can occur through:

online retailing, catalog marketing, direct-response marketing, telemarketing, television home shopping

freight forwarders

organizations that consolidate shipments from several firms into efficient lot sizes

bundle pricing

packaging together two or more complementary products and selling them at a single price - to be attractive to customers, the single price generally is markedly less than the sum of the prices of the individual products - is common for: banking and travel services, computers, automobiles, products that are used in tandem, such as TV, internet, and phone service - can help firms sell slow-moving inventory and increase revenues by bundling it with products with a higher turnover

multiple-unit pricing

packaging together two or more identical products and selling them at a single price - can increase sales by encouraging consumers to purchase multiple units when they might otherwise have only purchased one at a time - offers cost savings and convenience to customers - used to attract new customers to brands and to increase consumption - major users are supermarkets, discount stores, and warehouse clubs

retailers can enhance customers'...

perceptions of the value of products by making buyers' shopping experiences easier or more convenient

trade-in allowances

price reductions granted for turning in a used item when purchasing a new one

reference pricing

pricing a product at a moderate level and displaying it next to a more expensive model or brand - used in the hope that the customer will use the higher price as a reference price - because of the comparison, the customer is expected to view the moderate price more favorably than he/she would if the product were considered alone

bait pricing

pricing an item in a product line low with the intention of selling a higher-priced item in the line - is acceptable as long as a retailer has sufficient quantities of the advertised low-priced model available for sale - Bait and Switch: occurs when retailers have no intention of selling the bait product and use the low price merely to entice customers into the store to sell them higher-priced products

competition-based pricing

pricing influenced primarily by competitors' prices - a common method among producers of relatively homogeneous products, particularly when the target market considers price to be an important purchase consideration - a firm that uses competition-based pricing may choose to set their prices below competitors' or at the same level

types of pricing objectives

pricing objectives should be compatible with the firm's marketing objectives

customary pricing

pricing on the basis of tradition

everyday low prices EDLP

pricing products low on a consistent basis - are set low enough to make customers feel confident they are receiving a good deal - a company that uses EDLP benefits from: reduced promotional costs, reduced losses from frequent markdowns, more stable sales - a major issue with this approach is that customers believe that EDLPs are a marketing gimmick and not truly the good deal that they proclaim

psychological pricing

pricing that attempts to influence a customer's perception of price to make a product's price more attractive - encourage purchases based on consumers' emotional responses, rather than economically rational ones - used primarily for consumer products rather than business products

captive pricing

pricing the basic product in a product line low, while pricing related items higher

premium pricing

pricing the highest-quality or most versatile products higher than other models in the product line - other products in the line are priced to appeal to price-sensitive shoppers or to those who seek product-specific features - small kitchen appliances, beer, ice cream

procurement

processes to obtain resources to create value through sourcing, purchasing, and recycling including materials and information

price discounting

producers commonly provide intermediaries with discounts, or reductions, from list prices - although many types of discounts exist, they usually fall into one of five categories: trade, quantity, cash, seasonal, allowance

price leaders (loss leaders)

products priced near or even below cost - used often in supermarkets and restaurants to attract customers by offering them low prices on a few items, with the expectation that they will purchase other items as well - management expects that sales of regularly-priced products will more than offset the reduced revenues from the price leaders

cumulative discounts

quantity discounts aggregated over a stated time period

retails can add significant value to the supply chain...

representing a critical link between producers and ultimate consumers by providing the environment in which exchanges occur

promotion

set promotional objectives; coordinate advertising, personal selling, sales promotion, publicity, and packaging

price lining

setting a limited number of prices for selected groups or lines of merchandise - common in clothing and accessory stores - the basic assumption in price lining is that the demand for various groups or sets of products is inelastic - if the prices are attractive, customers will concentrate their purchases without responding to slight changes in price

comparison discounting

setting a price at a specific level and comparing it with a higher price - the higher price may be: the product's previous price, the price of a competing brand, the product's price at another retail outlet, a manufacturer's suggested retail price

secondary-market pricing

setting one price for the primary target market and a different price for another market - often the price charged in the secondary market is lower

prestige pricing

setting prices at an artificially high level to convey prestige or a quality image - used when buyers associate a higher price with higher quality - typical product categories that are subject to prestige pricing include: perfumes, liquor, jewelry, cars, food items

penetration pricing

setting prices below those of competing brands to penetrate a market and gain a significant market share quickly

hedonic shopping

shopping for fun

utilitarian shopping

shopping with intention or purpose, like having a weekly grocery shopping list

cash flow

some companies set prices so they can recover cash as quickly as possible - choosing this pricing objective may have the support of a marketing manager if he/she anticipates a short product life cycle

in contrast to general-merchandise retailers with their broad product mixes,...

specialty retailers emphasize narrow and deep assortments

off-price retailers

stores that buy manufacturers' seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts - offer limited lines of national-brand and designer merchandise - charge 20-50% less than department stores for comparable merchandise but offer few customer services - often feature community dressing rooms and central checkout counters - often do not take returns or allow exchanges - ensure a regular flow of merchandise by establishing long-term relationships with suppliers that can provide large quantities of goods at reduced prices

traditional specialty retailers

stores that carry a narrow product mix with deep product lines - sometimes called limited-line retailers and may be referred to as single-line retailers if they carry unusual depth in one product category - commonly sell such shopping products as apparel, jewelry, sporting goods, fabrics, computers, and pet supplies - usually offer better selections and more sales expertise than department stores

marketing channel decisions have

strategic significance because they generally entail long-term commitments among a variety of firms

periodic discounting

temporary reduction of prices on a patterned or systematic basis - from the marketer's point of view, a major problem with periodic discounting is customers can predict when the reductions will occur and may delay their purchases until they can take advantage of the lower prices - is less effective in an environment where many consumers shop online because they can easily comparison shop for a better deal

random discounting

temporary reduction of prices on an unsystematic basis - marketers use random discounting to attract new customers and to draw attention to a relatively new product - tensile pricing: involves making a broad statement about price reductions, as opposed to detailed specific price discounts

prestige products

tend to sell better at higher prices than at lower ones, partly because their expense makes buyers feel elite

marketers of complex and expensive products, perishable products, and fragile products.....

that require special handling will likely employ short channels

channel power

the ability of one channel member to influence another member's goal achievement

purchasing

the act of negotiating and executing transactions to buy and sell goods, materials, and purchasing

when the buyer, the seller, marketing intermediaries, and facilitating agencies work together,....

the cooperative relationship results in compromise and adjustments that meet customers' needs regarding delivery, scheduling, packaging, or other requirements

supply chain management (SCM)

the coordination of all the activities involved with the flow and transformation of supplies, products, and information throughout the supply chain to the ultimate consumer

distribution

the decisions and activities that make products available to consumers when and where they want to purchase them

channel captain (channel leader)

the dominant leader of a marketing channel or a supply channel - may be a producer (Nike), wholesaler, or retailer (Wal-Mart) - to attain desired objectives, the captain must process channel power

reorder point

the inventory level that signals the need to place a new order - to calculate the reorder point, the marketer must know the following: 1. order lead time: the average time lapse between placing the order and receiving it 2. usage rate: the rate at which a product's inventory is used or sold during a specific time period 3. safety stock: the amount of extra inventory a firm keeps to guard against stock-outs resulting from above-average usage rates and/or longer-than-expected lead times Reorder Point = (Order Lead Time X Usage Rate) + Safety Stock

transportation

the movement of products from where they are made to intermediaries and end users - is the most expensive physical distribution method

intensity of market coverage

the number and kinds of outlets in which a product will be sold

atmospherics

the physical elements in a store's design that appeal to consumers' emotions and encourage buying - helps to create an image and position a retailer

breakeven point

the point at which the costs of producing a product equal the revenue made from selling the product

sourcing

the process of determining what materials a firm needs, where those materials come from, and how they impact marketing integrity

cycle time

the time needed to complete a process - firms should look for ways to reduce cycle time while maintaining or reducing costs and maintaining or improving customer service

barter

the trading of products - the oldest form of exchange - barter among business, because of the relatively large values of the exchanges, usually involves trade credit

multichannel distribution/dual distribution

the use of a variety of marketing channels to ensure maximum distribution

deceptive pricing

the use of false or misleading statements or practices to persuade buyers that a product is a better deal than it really is

direct marketing

the use of the telephone, internet, and nonpersonal media to introduct products to customers, who can then purchase them via mail, telephone, or the internet - sales through direct marketing account for about 8.5% of the entire US GDP - one type of nonstore retailing

price

the value paid for a product in a marketing exchange - does not always take the form of money paid - almost anything of value can be assessed by a price - financial price is the measurement of value commonly used in exchanges - price is a key element in the marketing mix because it relates directly to the generation of total revenue Profit = Total Revenue - Total Costs Profit = (Price X Quantity sold) - Total Costs

intermediaries are specialists in facilitating exchanges

they provide valuable assistance because of their access to and control over important resources used in the proper functioning of marketing channels

technology enables companies...

to avoid expensive mistakes, reduce costs, and generate increased revenues

retailers can use different elements

to influence customer attention, mood, and shopping behavior

wholesaling

transactions in which products are bought for resale, for making other products, or for general business operations - it does not include exchanges with ultimate consumers

inter-model transportation

two or more transportation modes used in combination - containerization facilitates inter-modal transportation by consolidating shipments into sealed containers for transport by: 1. piggyback (truck and rail) 2. fishyback (truck and water) 3. birdyback (truck and air)

exclusive distribution

using a single outlet in a fairly large geographic area to distribute a product - is suitable a product that are purchased infrequently, consumed over a long period of time, and that require a high level of customer service or information - is used for expensive, high-quality products with high profit margins - is not appropriate for convenience products and many shopping products - is often used as an incentive to sellers when only a limited market is available for products

intensive distribution

using all available outlets to distribute a product; to satisfy consumers seeking to buy these products, they must be available at a store nearby and be obtained with minimal search time - is appropriate for products that: 1. have a high replacement rate 2. require almost no service 3. are bought based on price cues

selective distribution

using only some available outlets in an area to distribute a product - is appropriate for shopping products - is desirable when a special effort, such as customer service from a channel member, is important to customers - is often used to motivate retailers to provide adequate service

larger firms are in better position to deal with...

vendors or other channel members; are likely to have more distribution centers, which reduce delivery times to customers; and can use an extensive product mix as a competitive tool

channel cooperation reduces...

wasted resources, such as time, energy, or materials

a marketer needs to know competitors' prices so it can adjust its own prices accordingly

when adjusting prices, a marketer must assess how competitors will respond

...are often as important to customers as costs

when making distribution decisions, speed of delivery, flexibility, and quality of service

channel member expectations

when making price decisions, a producer must consider what members of the distribution channel expect, such as discounts for large orders, prompt payment, and support activities such as sales training and sales promotion

demand for recreational vehicles is relatively elastic

when price goes up from P1 to P2, quantity demanded goes down a great deal, from Q1 to Q2

demand for electricity is relatively inelastic

when price increases from P1 to P2, quantity demanded goes down only a little, from Q1 to Q2

retailers can facilitate comparison shopping,...

which allows customers to evaluate different options

critics accuse wholesalers of being inefficient and adding to costs

while eliminating wholesalers may lower prices for customers, it would not eliminate the need for the services the wholesalers provide

business customers often prefer to deal directly...

with producers and also frequently buy in larger quantities