Principles of Marketing CLEP

Marketing concept

The marketing management philosophy that holds that achieving organizational goals depends on determining the needs and wants of target markets and delivering desired satisfactions more effectively and efficiently than competitors.

Six Primary Marketing functions

Environmental Analysis

Consumer Analysis

Product Planning

Price Planning

Promotion Planning

Physical Distribution (Place) Planning

Marketing mix

The 4 P's of Marketing: Product, Price, Place, Promotion

Market segmentation

process of dividing a market into categories of customer types, or "segments"

Market segments

small groups of buyers within a larger market with similar needs and interests.

Target market

a specific consumer group a business wants to reach

Product positioning

a process by which marketers create an image of their products, brand or organization in the consumer's mind relative to the sum of the attributes of competitors

Marketing plan

a road map for the marketing activities of an organization for a specified future time period

Product differentiation

real or imagined differences between competing products in the same industry

situation analysis

Second step in a marketing plan; uses a SWOT analysis that assesses both the internal environment with regard to its Strengths and Weaknesses and the external environment in terms of its Opportunities and Threats.

marketing environment

composed of two factors,those the organization CAN control and the ones it cannot.

macroenvironmental factors

uncontrollable forces of marketing environment.

demographics, economic conditions, competition, social and cultural factors, political and legal factors (goverment) technological factors.

microenvironmental

impact specific company

suppliers, marketing intermediaries, target market

product market or opportunity matrix

specifies four fundamental alternative marketing strategies.

present markets and present products = MARKETING PENETRATIONS

future markets and present products = MARKET DEVELOPMENT

new products and present markets = PRODUCT DEVELOPMENT

new products and new markets = DIVERSIFICATIOn

SWOT MATRIX

used to asses potential value and fit of new opportunities.

Boston consulting grou matrix

classfies each product within a firms product portfolio with relative market share and industry growth rates

high market share high growth rate

STAR (generate large profits but require large resources)

high market share but low growth rate

PROBLEM CHILD (does not proivde great profits but requires high investment)

low market share high growth rate

CASH COW (requires little investment and gives high profits)

low market share low growth rate

DOG (little profitability and little opportunity for growth)

differential advantage

unique qualities of a product that enocourage consumers to purchase and be loyal. reasons to prefer one product over another.

marketing myopia

short sighted marketing strategy, focus on products they want to sell not on customers, can lose sight of customer preference as the needs and wants change over time

sustained competitive advantage

enduring differential advantage held over competitors by offering buyers superior alue either through lower prices or other elements of marketing mix. LOCATION is often regarded as the most sustainable competitve advantage since it cannot be copied.

Wheeler Lea Amendment

Bans unfair or deceptive acts in commerce

Unfair Trade Act

Puts a lower limit on prices, : laws that prohibit wholesalers and retailers from selling below cost

o Intended to protect small local firms from giants like wal-mart which operate very efficiently on razor-thing profit margins

Magnuson Moss

Requires producers to provide clearly written warranties

Federal Trade Comission

deals with unfair methods of competition

Lanham Act

Prohibits a company from misrepresnting another company´s products

Magnuson act of 1975

Ensures warranties are clear and definite

Us Common Law

Producers must warrant their products as merchantable

Federal fair packaging and labeling act of 1966

goods must be clearly mareted and understandable

Clayton act

focus to increase competition, deals with policies businesses have that intend to lessen competition, Corrected the problems of the Sherman Antitrust Act; outlawed certain practices that restricted competition; unions on strike could no longer be considered violating the antitrust acts

Antimerger act

seeks to reduce lessening of competition, Amends the Clayton Act. Broadens the power of the federal government to prevent intercorporate acquisitions that would substantially reduce competition.

Sherman act 1890

prevents businesses from restraining trade and interstate commerce. pricing plicies that are predatory or contribute to monopolization and conspiracies contraty to competitive pricing are illegal

robinson patman act 1936

prohibits price discrimination, cannot offer a different price to competing buyers (resellers) without being able to justify it. also prohibits providing a higher level of service to large customers. amended sherman anti trust

total revenue

price x quantity

elastic demand

when the value of the price elasticity of demand formula is less than -1.

if demand is elastic, an increas in price witll produce a decrease in demand and total revelue. a decrease in price will increase demand and revenue.

in other words, increasing price will affect negatively.

inelastic demand

when the value of the price elasticity of demand formula is greater than -1

an increase in price will produce a decrease in demand and an increase in revenue. a decrease will encrease demand and decrease total revenue. price decrease will decrease total revenue.

in other words, increasing price will have a negative impact but a positive one.

perfectly inelastic

when price does not have an impact in demand but when price increases total revenue increases

unitary elastic

when the price of elasticity of demand formula is -1

change in demand is proportional to the change in price. total revenue does not change in response to pricing. if price goes up quantity goes down in same amount, if price goes down quantity goes up in same amount.

price elasticity of demand fomula

(Q1 MINUS Q2)/(Q1 PLUS Q2)

OVER

(P1 MINUS P2)/(P1 PLUS P2)

WHERE Q1 IS INITIAL QUANTITY DEMANDED AND Q2 IS NEW QUANTITY DEMANDED AND P1 IS INITIAL PRICE AND P2 IS NEW PRICE

perfectly elastic

quantity demanded does not change, total revenue does not change

elastic demand

A situation in which consumer demand is sensitive to changes in price.

inelastic demand

situation in which a product's price change has little impact on the quantity demanded by consumers

price elasticity of demand formula

(Percent Change in Quantity Demanded) / (Percent Change in Price)

markup percentage (on selling price)

selling price - product cost

over

selling price

(profit over price)

selling price

markup amount plus product cost

(to find markup amount,

product cost x markup percent)

markdown percentage (off selling price)

original selling price - reduced price

over

original selling price

price skimming

A strategy of selling a new product or service at a high price that innovators and early adopters are willing to pay in order to obtain it; after the high-price market segment becomes saturated and sales begin to slow down, the firm generally lowers the price to capture (or skim) the next most price sensitive segment.

penetration pricing

pricing strategy in which the seller charges a low price on a new product to discourage competition and gain market share

cost based pricing

setting the price for a product or service based on the cost of producing it and/ or providing it

demand based pricing

pricing that is determined by how much customers are willing to pay for a product or services. examples are prestige prcing, odd even prcing, price lining, and leader prcing. also referred to as psychological pricing.

competition based pricing

pricing influenced primarily by competitors' prices

one price policy

means offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities

flexible pricing

allows customers to negotiate price within a price range, different customers pay different price

geographic pricing

price reflects different costs related to transportation and other costs associated to hysical distance between buyers and sellers

unit pricing

proovides consumers with information on price per unit to simplify comparisons

alternative pricing objectives

a firms pricing startegy may reflect short term goals other than profit maximization, such as building market share, brand awareness, change customer perception, move inventory, etc.

price quality correlation

people believe price is a reflection of quality, especially important when buyers have little confidence in their ability to judge product quality and they subspect substantial difference between brands. important in the absence of specific information.

prestige pricing

establishes high prices relative to copmeting brands to suggest higher product quality and provide a measure of prestige or status relative to copmeting brands

odd even pricing

ending the price with certain numbers to influence buyers' perceptions of the price or product, Psychological pricing technique based on the principle that prices ending in odd numbers ($5.99) communicate a bargain and prices ending in even numbers ($6.00) communicate quality.

customary prices

traditional prices that customers expect to pay for certain goods and services

price lining

Establishing price points between products in a product line to communicate differences in quality and/or service to consumers.

leader pricing

a price tactic in which a product is sold near or even below cost in the hope that shoppers will buy other items once they are in the store

loss leaders

selected items sold at a loss to attract customers to buy costlier goods

markups

percentages or dollar amounts added to the cost of sales to arrvie at a products selling price.

discounts

reductions from list prices given by sellers to buyers.

trade discounts

reductions from list price given to intermediaries in exchange for performance or specified tasks

quantity discounts

arise from economies of scale and improved efficieny of selling in large quantity.

cash discounts

given to encourage promtp payment. 2/10 net 30 is common policy giving two percent discount if paid within 10 days net 30 indicates that balance is due in that amount of days.

seasonal discounts

encourages off season purchases

allowances

price reductions intended to achieve specific goals, trade in allowances make financing a purchase easier for buyer, promotional allowances are used to secure reseller participation in advertising and sales programs

break even analysis

break even point is the price at which total revenue equals total costs. when sales exceed the break even level for a given price, each successive unit genearates profit

break even point in units

total fixed costs

over

price - variable cost per unit

total costs

fixed costs plus (variable cost per unit x quantity sold)