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