Marketing M371 Exam #3

Cost- WITH middlemen

# of contacts = # of producers + # of potential customers

Cost-WITHOUT middlemen

# of contacts = # of producers X # of potential customers

Cost Plus

$ AMOUNT, item # -> letter -> A = $100

Profit

$ amount, positive return. Small businesses.

Markup

% AMOUNT, do based on price

Return on Investment

% amount, positive return. Businesses use this.

Elasticity=

(% change in demand)/(% change in price) % change=(original - new)/ original

Multichannel Distribution

2 or more channel types to reach our target market. I.E. online and in store

Cost

= (P-C)/C

Selling Price

= (P-C)/P

Selective Distributions

A few outlets, multiple stores but not many

Reference Price=

A price to the customers, here is what our competitor charge

Reference Prices: External

A price to use as a comparison (previously price at)

Anti-competitive

Actions keep target market from competitors

Conventional Channel

All organizations in channel is independent

Channel Members=

All organizations involved; also known as middle men

Fundamental purpose of the channel is

Alleviate (get rid of) discrepancies (things that don't match)

Channel Types-Consumer

Almost always have retailer.

Quantitative Discrepancies

Amount produced does not match the amount desired by the buyer. i.e. Manufacture produces more than wanted or less than wanted

Facilitating Agencies

Aren't part of the channel, but they help us. I.E. banks, transportation agencies

Substitution Effect

As prices rise, consumers will replace more expensive goods with cheaper items.

Location of Stores

CBD(downtown location), neighborhood(strip location), regional shopping centers(malls, large selection of stores, key decision= who will be the anchors of the mall, reduced rent and long term contract, set future tone of mall)

Bait and Switch

Can't advertise product and then refuse to sell it.

Increasing share of wallet

Cash in wallet, divide it up, budget, we want to expand what we do, Kroger added gas stations

Product Lines

Category killer(very large specialty store, Toys R Us), scrambled merchandizing(add new product line to mix, but it is very different than anything they do, i.e. gas stations add food products.)

Profitability

Chain structure, must be competitive, and target market must be willing to pay

Dynamic Pricing

Change price in order to control demand.

VMS- Vertical Integration

Channel member are owned at different level

VMS- Horizontal Integration

Channel member are owned at same level

VMS (Vertical Marketing Systems)

Channel members are linked/connected together

Price Discrimination

Charge customer prices without valid reasons

Atmospherics

Color, styles, furnishing, how often we want to update it. Keep it new and exciting= change above JND level.

Price

Consumer pay more=blame retailer, Consumer don't differentiate between revenue and product, if product doesn't sell=mark product down. The retailer suffers.

Effort by Customers

Convenient, shopping store(variety of products, department store), speciality store(narrow product mix, barnes and noble, dicks sporting goods)

Classification of Retailers= Form of ownership

Corporate chain=2 or more locations. Own a store, then open another one. Scotty's is corp. chain. Independent=open 1 location-something they love. Contractual= merge of corp and independent. Corp chain=25% Independent= 75% are businesses out there. Corp= 75% Independent=25% retail revenue.

Customer Interpretation and Response

Demand Curve, demand increases as price decreases.

Demographics

Disposable=income after tax, Discretionary= disposable-living expenses

Demand Curve

Do research. Beneficial when looking at elasticity. Horizontal=elastic, Vertical=Inelastic

Everyday low

Don't do sales, being low and keep low

Cyclical demand

Downtown to neighborhood to downtown. 15 to 20 year in length. Trying to battle this by combining them. I.E. circle center and outside mall.

Competition Based Pricing

Evaluation-if not done, you can't compare.

Assorting

Finding products from multiple producers, at each producers we do the sorting function

Breakeven

Fixed Cost/Price-Variable Unit Cost = Quantity

Shorter Channels

For business markets, perishable products, physically big, expensive or technical, customized

Intensive Distributions

Get product everywhere we can, I.E. convenience products

Competitive Advantage

Having good relationship is an advantage because it's harder for new companies to come in when we already have established long-term relationships, customer service(to us and to consumer) and all of this is more than just moving the product

Competition pricing

Higher ("we are better"), lower ("competing on price") or same (status quo objective and non price competition)

Behavior Metrics

How we get to the financial. Behavioral metics= how long they stay, talk to sales people, how many item they purchase.

Legal-Environmental and Regulatory Issues

Illegal price fixing=competitor agreeing to charge same price. Predatory price= the intent(is the big thing) to price product below cost, reason is to put competition out of business.

Value Based Pricing

Improvement=set price to improvement.

Income effect

Income is higher, less sensitive to price increase, lower income is more sensitive.

Pricing Objectives

Internal factor. What do we want our price to do?

Price

Is not permanent, is the easiest marketing mix element to change.

Reference Prices: Internal

Know what a product should cost

List Price vs. Final Price

List price is public price. Final price is what we actually pay.

Cost of Ownership

Look at how long customer owns it: lifetime

Sorting

Look through producer's mix to find the lines/items that match our target market

Buyers' Perception: Price conscious

Looking for lowest price

VMS- Administered System

Looks like conventional from outside, only way to know it's administered is must have info on their decision making. Nothing legally binding. "Hand shake agreement"

Company and Marketing objectives

Make sure we know what objectives are already in place. Profit is most common objective.

Distribution Channels=

Marketing Channels

Cost Efficiencies

Middleman Example, by using the middleman, it reduces the price for the producers

Indirect Channels

Most common type is called Conventional

VMS- Contractual System

Must be long-term. Legally binding. I.E. franchise

1. Return

No channel to channel

Channel Types-B2B

Not going to have retailer. Shows the structure, doesn't indicate the number of channel members.

Accumulation

One producer does not make enough for the end user. So they link multiple produces to make enough quantity

As time passes

Outlet adds services

Complementary Product

Peanut butter price goes down, jelly goes up

3. Recycle

Permanent addition to channel

2. Recall

Possible temporary change to channel

Product Place Promotion

Price has to support the other marketing mix portions. Low price with a higher quality product will confuse the customer.

Inelastic

Price insensitive, elasticity is greater than -1, Slope is vertical

Survival

Price product so we break even, cover all cost but making nothing extra. Profit goal is zero. Non for Profits

Cash Flow

Price product so you lose $$. Unit sales goes up, sell more=more cash coming in. Could use it in a small product line to pay bills now.

Price Quality

Price send message about quality

Elastic

Price sensitive, elasticity is less than -1, Slope is horizontal

Odd Prices

Prices at $9.99, used as a security measure. Before credit cards, now people need change, open cash register. Now we use it so people can talk themselves into buying something.

Sales Based

Pricing our product so we sell a certain # of units. Operations thing! They have limited capacity, if demand is too high, we raise our price so demand lowers a bit, and reverse when demand is low.

Bulk Breaking

Produce at large quantity and break into smaller quantities, and spread out the quantity

Direct Channels

Producer selling to consumer, not always clear cut, I.E. hiring neighbor to walk dog

Longer Channel

Product that has; Steady demand, not standardized, long shelf-life,

Supply Chain=

Raw material --> End User

Services provided

Self service(retail does very little service, convenient store), limited service(some but not a lot, department store), full service(take care of everything, fine dining restaurant)

Exclusive Distributions

Sell product in one outlet in geographic area

Customer

Sends messages to

VMS- Corporate

Shared ownership, maybe both owned by same parent company, "related"

The Wheel of Retailing

Show how retailing has changed over time, Looking at it from an individual store point of view.

Price Skimming=

Start high then low, Goal=recoup investment. Market to yourself, use this

Reverse Channels

Starts with the end and moves up the channel, this happens in 3 situations

Competitor bases

Status Quo= nonprice competition, price pretty much the same as competition, so we compete on something else other than price.

Assortment Discrepancies

The variety produced does not match the choice variety desired by the buyer. I.E. the type of gum you want

Consumers are less sensitive to price increase for necessities

True

Not as many businesses than there are consumers

True

Sensitivity to pricing is increasing

True, we have the internet now, pull it up on multiple sites and find the lowest price.

Retail Life Cycle

Type of retailer come and go, they change over time, and they can move to multichannel. Most retailer have an online and in store presence. In store- physical limitation Online-time limitation.

Merchandising

What you are going to carry, how long, candles, don't keep same thing all the time, but can still find matching basket. Balance having something new and then have the products the customers plan on being there

Channel Member Expectations

When manufacturer set price, they set price for next channel member, and it keeps working all the way down the channel.

Buyers' Perception: Value conscious

Willing to pay more if they feel they are getting better quality

Buyers' Perception: Prestige sensitive

Within reason, price doesn't matter