Marketing Exam 4

Price

total sacrifice that one party pays to receive something (time + effort + money)

Price signals…

quality

which marketing mix generates revenue

price

5 Cs of Pricing

1. Company Objectives

2. Customers 

3. Cost

4. Competition

5. Channel members

Profit-Oriented Pricing

Does not take into consideration how the consumers will value a product

Ex: Apple

Sales-Oriented Pricing

Focused on increasing sales, concerned with market share/leadership

may pursue premium pricing

Competitor-oriented pricing

prices similar to competitors, smaller firms

Customer-oriented pricing

Match prices to consumer expectations

Ex: Diamonds are more expensive at Tiffany than Costco

Demand Curve

shows relationship between price and quantity demanded

Price Elasticity of Demand

how much a price change will affect quantity demanded

how sensitive consumers are to a change in price

Price Elasticity of Demand Equation

(% change quantity demanded) / (% change in price)

Percent Change equation

[(new - old) / old] x 100

Elastic

price is sensitive; consumers will react strongly to a change in price by purchasing much less/more of the product

Inelastic

price is insensitive; consumers will buy the same quantity of the good regardless of price changes (Ex: gas, necessities)

Factors effecting elasticity

1. income effect

2. substitution effect

3. cross-price elasticity

Income effect

Consumer income may also affect the quantity demanded of a product

Substitution effect

Consumers opt for cheaper alternatives when they can’t afford a certain good (red meat and chicken)

Cross-price elasticity

The demand of one product affects the price of another (peanut butter and jelly)

Total variable cost

variable cost x quantity

Breakeven Point (units)

(Fixed Costs / Contribution per unit)

*do not round down

Monopoly

one company controlling the entire market for the good

Ex: utility company

Oligopaly

a few more firms, a bit more price competition, but slowly shrinking

Ex: airline companies

Pure Competition

the market sets the price, not the firms

Ex: agriculture, commodities

Monopolistic

lots of different firms with lots of different prices, lots of options

Ex: beverages

Cost-based pricing

All costs are calculated on a per unit basis

Assumes costs don’t vary for different level of production

Competition-based pricing

Set prices to signal information of how their product compares to competitors

Premium Pricing (Ex: Apple products)

Value-based pricing

setting prices that focus on the overall value of the product offering as perceived by the customer

Pricing Strategies

long-term efforts that companies undertake in order to deliver the price to the consumer

Pricing Tactics

short-term efforts that support a company’s long-term pricing strategy

Everyday Low Pricing

companies that don’t to a lot of sales or discounts because they have low pricing every day

good for customers that don’t want to hunt for the lowest price

High/Low Pricing

Companies that price mid-high tier, but have occasional sales

provides the thrill of the chase for the lowest price

Ex: Macy’s

Internal Reference price

the price customers are looking to find a desired product

External reference price

a products direct price

Types of Pricing Strategies

• Everyday Low Pricing

• High/Low Pricing

New Products

• Penetration Pricing

• Price Skimming

Penetration pricing

low initial price with elastic demand

attempts to reach mass market

price sensitive market

Price Skimming

high initial price for quick ROI

encourages competitors to enter the market

price insensitive market

Types of Pricing tactics

markdowns

quantity discounts

seasonal discount

coupons

price bundling

Deceptive or Illegal Price Advertising

Deceptive reference prices; bait and switch (says one price, but shows another)

Predatory Pricing

Prices set low with the intent to drive competitors out of business

Illegal in the U.S. but hard to prove

Price Discrimination

Is not always illegal in B2B settings

Gives consumers different price based on the purchase quantity

Price Fixing

• Horizontal Price Fixing: two companies come together to set the price. Difficult to prove without evidence

• Vertical Price Fixing: Proctor&Gamble and Walmart worked to set a price together

Gray Market Pricing

• Uses irregular but not necessarily illegal methods

• Gray market for luxury goods

Supply Chain Management: 

makes it possible for us to go to one store to pick up a variety of items 

Wholesalers

firms that buy products from manufacturers and resell them to retailers

Designing Marketing Channels:

• Manufacturers at the top

• Consumers at the bottom

Direct Channel

When the manufacturer creates a product and then directly sells it to the consumer (Ex: Best Buy and Dell computers)

Indirect Channel

one or more intermediaries between manufacturer and retailer

Vertical Channel Conflict

issues between manufacturers and retailers, typically about price 

Horizontal Channel Conflict:

issues between retailers usually about price

Independent Marketing Channel

they operate as individual entities with strict controls and rules 

Vertical Marketing Channel

they are separate entities, however they’re very intertwined in their supply chain system (Walmart and Procter&Gamble)

Electronic Data Interchange (EDI) Systems

Makes it easier for retailers to have what customers want when they want it 

Communication systems between retailers and consumers 

Vendor Managed Inventory

• manufacturer is responsible for inventory levels 

• Reduces costs for both parties.

• Ex: P&G manages Crest inventory at Walmart.

Universal Product Code (UPC)

13-digit barcode encoding manufacturer, item description, packaging, and promotions

Radio Frequency Identification

tiny chip that automatically transmits product info to a scanner without physical contact

POS Terminal

Point-of-sale terminal that records purchases and transmits data to corporate inventory management

ASN (Advanced Shipping Notice)

Electronic document sent by supplier before shipment arrives, detailing exactly what to expect

Mobile Task Management

Wireless network + mobile divide that receives demand notifications and enables fast responses

Distribution Center Process

1. Managing inbound transportation

2. Receiving and Checking using UPC or RFID

3. Storing and cross-docking

4. Getting merchandise floor-ready

5. Ticketing and marking

6. Preparing to ship to the store

Planners

employees responsible for the financial planning and analysis of merchandise and its allocation to stores

Retailing

the set of business activities that add value to products and services sold to consumers for their personal or family use

Top 1 U.S. Retailer

Walmart

Top 2 U.S. Retailer

Amazon.com

Top 3 U.S. Retailer

Costco

Top 4 U.S Retailer

Kroger

Top 5 U.S. Retailer

Home Depot

Establishing a Relationship with Retailers

1. Choosing Retail Partners

2. Identifying Types of Sellers 

3. Developing a Retail Strategy

4. Managing an omnichannel strategy

Channel Structure

• Degree of vertical integration 

• Strength of manufacturers’ brand (who has power)

• Relative power of manufacturer and retailer 

Customer Expectations

Making sure goods end up where customers expect them

Choosing Retail Partners

• Channel Structure

• Customer expectations

• Channel member characteristics

• Distribution intensity

Intensive distribution

puts products in as many places as possible

Exclusive distribution

grants exclusive geographic territories

Selective

relies on a few selected retail customers in a territory

Types of Food Retailers

Supermarkets

Supercenters

Warehouse Clubs

Convenience Stores

Online Grocery Retailers

General Merchandise Retailers

Department stores

Full-line discount

Specialty

Drugstores

Category Specialist

Extreme Value

Off-Price

service retailers

Sell services rather than merchandise

restaurants, nightclubs

7 Ps of Retail Strategy

1. Product

2. Price

3. Place

4. Promotion

5. Presentation

6. Personnel

7. Processes

Atmospherics - Presentation

controllable factors within a store intended to influence customers’ likelihood to purchase 

Personnel

• Well trained staff can increase sales by

  • Helping and educating customers about products

  • Encouraging multiple purchases

Processes

• Actions taken to get a good or service to a customer 

• Can influence perceived value

  • Ex: long wait times, sustainable practices

share of wallet

percentage of customers total spending in a certain category that is used towards one brand

By adding internet channels…

traditional store-based retailers have an improved ability to serve customers and build competitive advantages

• broader selection

• personalization

• expanded market presence

• brand image

Negative of internet channels

fraudulent and constant returns