Marketing Management Final

Fixed Costs

Cost associated with the operating and marketing expenses of a company

Variable costs

per unit costs associated with the product

Breakeven Quantity

The quantity the company needs to sell at a certain price in order to cover fixed costs.

Breakeven Price

The amount a marketer needs to price a product in order to cover expenses at a certain quantity sold

Dumb Industry

One in which companies compete on price.

• goal is to have the lowest price

• customers are price sensitive

• ex. gas stations

Smart industry

companies use more complex pricing structures and use more pricing options

Price elasticity

the change in demand in a market in response to a product’s change in price.

When is a market considered elastic

If a change in price produces a substantial change in demand

price elasticity > 1 is elastic

Cost based pricing - know how to calculate

a method in which companies use the cost of a good or service as the basis for determining its final selling price.

cost + (markup % x cost) = final price

Markup

an added percentage or dollar amount added to the cost to determine its selling price.

markup equation

selling price - cost = markup

markup percentage equation

(price - cost)/cost = markup percentage

Price floor

the absolute minimum a company can sell a product and still break even

Pros and cons of cost-based pricing

• easy to calculate and understand

• fair to customers

• difficult to factor in fixed costs

• may not be the most profitable for services

Market based pricing

company looks at its competitors as the main pricing factor to determine the price of its product or service.

value based pricing

setting prices based on the perceived value what the consumer receives from the product or service.

• hard to research but most profitable

• may seem unfair to customer

dynamic pricing

a variable rate is used for each customer often based on demand.

ex. airlines and hotels

Flat rate pricing

charges one rate for unlimited use of a service during a specified timeframe

ex. gyms and Netflix

a la carte pricing

consumers can choose to add and purchase product features individually giving them a choice about the final price

Strategies for product life cycle introduction

skimming and market penetration

skimming

when a marketer introduces a product into the market at an initial high price and then incrementally lowers the price over time.

market penetration

when a company introduces a product at a low price to gain market share.

Odd even pricing (0.99)

when a marketer sets a price to a few cents or dollar under an even number. Customers perceive the item as costing less.

Reference pricing

using another price as a reference point to make a product’s price seem more appealing.

• internal vs external (knowing what a fair price is)

extremity avoidance theory

people tend to avoid extreme options, including price, and they choose the middle option.

Prestige pricing

sets high prices for products to create the perception they are elite so status seeking customers will buy them.

bundle pricing

packaging two or more goods or services to sell them for a single packaged price.

• customers get a better deal

• adds value

• when only option, view negatively.

Multiple unit pricing

offers a price break for purchasing multiple of a product.

loss leader

selling a popular item at an artificially low price to attract people to the store.

Overall sales will offset the loss in profit. ex. black friday

The 3 C’s Model

the company - what does it cost?

the customers - what is the value?

the competitors - what else if offered?

What determines the upper price range based off willingness to pay?

Value

Breakeven price equation

fixed costs / [(sales - variable costs)/sales]

profit margin

the difference between the final selling price and the products cost shown as a ration or percent of the selling price.

profit margin percentage equation

(price - cost)/ price

What is the difference between margin and markup?

Markup is the percentage by which a selling price is increased over the cost price, while margin is the percentage of profit earned on the selling price

selling price based on margin equation

cost / (1-margin) = selling price

Breakeven units equation

fixed costs/ (selling price per unit - variable cost per unit)

full cost pricing

he price of a product or service is determined by adding all associated costs, including direct and indirect costs, and a markup for profit

price elasticity of demand equation

= %change in quantity demanded / % change in price.

sales promotion

a short term external promotion designed to influence immediate purchase

public relations

the practice of managing the spread of information between an individual or an organization and the public

personal selling

the frontline interaction between a company representative and a potential buyer designed to influence a purchase decision

direct marketing

a promotional effort wherein the seller communicates with the potential customer using media such as direct mail or telemarketing with the goal of receiving a direct response from the customer.

advertising

external communication that is paid for by the seller and promotes a product to potential customers

What are the functions of advertising?

• inform

• persuade

• remind and reinforce

reach

the number of people who are exposed to an ad

impression

one exposure of a person to an ad

frequency

the average number of times the members of a defined market were exposed to an ad.

effective frequency

the minimum number of times a person needs to be exposed to an ad for the customer to take an action and respond.

advertising frequency equation

frequency = impressions / reach

What is the Success model

helps ideas and messages stand out and stick in people’s mind.

• Simple

• unexpected

• concrete

• credible

• emotional

• stories

AIDA Model

consumers first become aware of a product through the following stages until they take action and purchase. Aligns with the first few stages of the buyer behavior process.

• attention

• interest

• desire

• action

SEO

search engine optimization, the practice of increasing the quantity and quality of traffic to your website through organic search engine results

crawling

the use of crawlers to visit every page of each site to determine the content they hold

indexing

search engines create a listing or directory of the content through the crawling process

Bounces

incidents of someone visiting a single page and then exiting without visiting other pages on the site

Cost per click (CPC)

marketer has to pay for the click not the impression

click through rate (CTR)

measures the clicks relative to the impressions

conversion rate (CR)

determines the amount of purchases

customer acquisition cost (CAC)

cost to acquire a customer

effective cost per thousand (eCPM) - know how to calculate

factors profits and earnings

(total expenditure / vanity metric) x 1000

or (ad spend / impressions) x 1000

effective cost per click (eCPC)

used to calculate the effectiveness of online campaigns when the rate model is cost per click. Aims to evaluate profitability

expected customer lifetime value (eCLV)

estimated lifetime value of a customer

marketing expense to revenue ratio

what you spend vs what you make

time to pay back cac

informs clients the number of months necessary for the client to earn back the CAC spent to acquire the new customer.

used for customers who pay monthly

average lead close rate

determines the effectives of your marketing funnel

net promoter score (NPS)

loyalty metric

percent of promoters - percent of detractors

cost per engagement (CPE)

cost every time a user engages with an ad

cost per action (CPA)

any acquisition related to customers such as newsletter signups, purchases, or other activations that clearly show attribution

channel

a oath to market for goods and services

answers “how do I want to sell my product and how does the customer want to buy my product”

Direct distribution channel

one that the manufacturer or supplier owns

• faster supply chain

• added value

indirect distribution channel

any third party intermediary that is the selling brand and buying the customer

third party intermediary

another business separate from the brand whose products it carries.

• access to channel’s customers

• no infrastructure needed

ex. wholesalers

intensive distribution

distribution through every possible channel partner in a market

selective distribution

multiple channel partners in a market

exclusive distribution

through a single channel partner in a market

wholesale distributors

buy from manufacturers to sell to retailers

immediate environment

directly influences a company’s ability to market successfully ex. companies, people, groups

external environment

uncontrollable forces that affect the company and all actors in the immediate environment that establish the surrounding context in which business is conducted. ex political

what does pestle stand for (external factors)

• political

• economic

• social

• technological

• legal

• environmental

environmental scanning

the process of gathering and interpreting data in the immediate and external environments to identify possible opportunities and threats to develop strategic plans for them.

Marketing analytics

a process of measuring and analyzing marketing data to better manage marketing performance and maximize the return on investment the company makes in marketing.

metric

the data that serves as input for any analytics process.

vanity analysis process

shows how busy the marketing is but does not indicate their performance impact on revenue

real analysis process

links marketing work to revenue and other important measures.