Marketing 3250 Exam 2

Price

the overall value consumers are willing to exchange or sacrifice to acquire a product, monetary and nonmonetary costs (a value judgement)

The importance of pricing

only aspect of marketing mix that directly generates revenue, it’s one of the most important factors that influence purchasing decisions, and it's hard to manage, need to balance revenue with expenses (core, actual, and augmented product)

Determinants of price

costs (VC, FC), competition, stage in product lifecycle, promotion strategy, perceived quality, distribution strategy, target market demand

Demand curves

typically, as price decreases, demand increases; but prestige products have upward sloping curves

Price elasticity

sensitivity of customers to price changes in terms of the quantities they will buy (elastic = sensitive, inelastic = insensitive), consumers are more sensitive to price increases than decreases

Rocket and Feather Price Change Effect

prices will more likely increase quickly as a response to market stock, but then decrease slowly in recovery

Consumer value based pricing

assess customer needs and set a target to match customer perceived value, consider price BEFORE setting a marketing program and product

Good-value pricing

offer right combo of quality/service for a fair price (Hi-lo, EDLP)

EDLP (everyday low pricing)

stressing continuity of prices (at non sale to discount prices) , reduce consumer search costs

high-low pricing

use temporary price reductions to encourage sales, creates thrill and excitement

Value-added pricing

offer value added features to differentiate

Cost based pricing

product driven, set price based on costs and convince people of value, cost plus pricing, break even pricing

Competition based pricing

set prices based on competitors’ strategies, costs, prices, and offerings; set prices according to relative value, intended to capture market share

Target costing

start with ideal selling price and costs should support it Market Skimming Pricing

Market Penetration Pricing

low initial price to win large market share early, market must be price sensitive and production cost must decrease as sales volume increases

Hook and Bait Penetration pricing

version of captive product pricing

Product line pricing

setting prices across an entire product line, account for cost differences and different perception

Optional-product pricing

pricing optional or accessory products sold with the main product (which are base, which are options)

Captive product pricing

pricing products that must be used with the main product, low price on main and high markups on supplemental products (can lead to resentment)

Captive services

two party pricing, into fixed fee and variable usage rate

Freemium

a basic service is provided, money is charged for additional features or expand the functionality

By-product pricing

price low-value by-products to get rid of them or make money on them

Product bundle pricing

pricing bundles of products sold together, often lower combined price, offer choice, encourage sales of slow moving items, trial, incentive

Loss Leader pricing

goods/services sold below cost to encourage sales elsewhere (take the loss for one item, covered by sale of another item)

Discount and allowance pricing

reducing prices to reward customer responses (volume purchases, paying early, promoting the product), cash discount

Allowances

trade in allowance - reducing price upon trade in; promotional allowances - reductions that reward dealers for advertising programs and sales support programs

Segmented Pricing

Adjusting prices to allow for differences in customers, products, or locations (3rd degree price discrimination), reflect actual differences in customer perceived value - product form pricing, location based, time based Psychological pricing

Reference prices

customer mental image of price, can make higher prices look more affordable, etc - internal reference prices and retailer price image

Odd/even pricing

odd pricing just under a round number is seen as more of a deal, even pricing is used to distinguish luxury items

Price-quality relationship

price is a signal of quality

Promotional pricing

Temporarily reducing prices to spur short-run sales (risk of unprofitability when regulars stock up on low prices) - Discounts, special event pricing, flash sales, limited time offers, cash rebates, low interest financing, longer warranties, etc

Geographical pricing

Adjusting prices to account for the geographic location of customers

FOB-origin pricing

shipping + base cost

Uniform delivered pricing

same delivered value

Zone pricing

each zone has a different price

Basing-point pricing

select a city and charge all customers’ freight from that city

Freight absorption pricing

absorb shipping, increase business

Dynamic and personalized pricing (real-time)

Adjusting continually to meet the characteristics and needs to individual customers and situations (can risk price wars and damage customer trust)

International pricing

adjusting prices for international markets (price escalation may result)

Responding to price changes

If action is necessary, reduce price, raise perceived value, increase quality and price, or launch a low-price fighter brand

Price fixing

sellers set prices in collusion with competitors (this is illegal)

Horizontal price fixing

competitors work together to control prices

Vertical price fixing

marketing channel members work together to control prices

Predatory pricing

sell below cost to punish or drive out competitors (this is also illegal)

Robinson-Patman Act

preventing actions that diminish competition, ex

Prohibit retail/resale price maintenance

you can only suggest a retail price

Deceptive pricing

state misleading prices/savings to lure customers in, includes scanner fraud and price confusion, inflated and fictitious reference prices

Bait and switch

lure them in with low price and pressure them to a higher priced option

Marketing/distribution channel

a set of interdependent organizations involved in the process of making a product or service available to the final consumer

Supply chain

includes upstream and downstream partners, the connected chain of all the business entities, internal or external, that perform or support the logistics function

Logistics

strategically managing the efficient flow and storage of raw materials, in-process inventory, and finished goods from point of origin to point of consumption

Horizontal Marketing Conflict

at the same level

Vertical Marketing Conflict

different level, same channel

Corporate VMS

integrates successive stages under single ownership, coordination through regular organizational channels. Control and flexibility

Contractual VMS

independent firms at different levels joined under contract, coordination through contracts (includes franchises)

Manufacturer-sponsored retailer franchise

network of independent franchised dealers

Manufacturer-sponsored wholesaler franchise

licenses (ex

Service-firm sponsored retailer franchise

ex; Sonic, Hertz, Holiday Inn

Administered VMS

Leadership through size and power of one or a few dominant channel members Horizontal Marketing Systems

Multichannel Distribution Systems

a single firm sets up multiple channels to reach multiple segments, expand sales and market coverage, personalization (harder to control, more conflict)

Disintermediation

a producer cuts out intermediaries to go directly to buyers or new types of intermediaries replace traditional ones (ex

Direct to consumer channels

allows for maximum control over presentation to end user and positioning efforts; high cost, needs resources

Indirect channels

involves at least one intermediary between a seller and buyer; expand reach, channel expertise, give up control

Dual distribution

use direct and indirect channels

Reverse Channels

returning goods to their producers

Manufacturer’s Representative

works for manufacturer as an external selling force. Does not typically take ownership of goods

Wholesaler/distributor

purchases goods and sells to retailers, common in food products

Agent or broker

an intermediary with legal authority to act on behalf of the manufacturer, typically does not take ownership of goods

Retailer

sells to end consumer

Intensive distribution

stock in as many outlets as possible; convenience brands

Exclusive distribution

limit intermediaries; specialty products

Selective distribution

in the middle; shopping products

Exclusive distribution

seller allows only certain outlets to carry products

Exclusive dealing

prevent dealers from handling competitor products

Exclusive territorial agreements

sell only in a given area
Full-line forcing

Marketing logistics

plan, implement, and control the physical flow of g/s and information to meet customer requirements

Supplier network (materials to manufacturer)

inbound

Distribution Channel (manufacturer to consumer)

outbound

Integrated logistics management

cross-functional teamwork, close working relationships among departments and partnerships (3PL to outsource)   Retailing

Retailers

businesses whose sales come primarily from retailing, connecting brands with consumers

Shopper marketing

focus marketing on turning shoppers into buyers

Omni-channel buyers and marketing

integrate in-store, online, and mobile shopping across channels

Specialty store

narrow product line, deep assortment (apparel stores, furniture stores, etc)

Department store

several product lines (variety), typically clothing, home furnishings, household goods. Department is operated separately buy specialist buyers or merchandisers

Supermarket

large, low cost, low margin, high volume, self-service operation - serve needs for grocery and household

Convenience store

relatively small, residential areas, 24/7, limited line of high turnover convenience products, slightly higher prices

Superstore

very large, meet total needs for routinely purchased food and nonfood items. Supercenters and category killers

Discount store

standard merchandise, lower prices, lower margins, higher volumes

Off-price retailer

merchandise bought at less than regular wholesale price at less than retail. Factory outlets, independent off-price retailers, warehouse and wholesale clubs

Corporate chains (service retailers)

multiple owned and controlled outlets, buy in large quantities and gain promotional economies

Voluntary chain (service retailers)

independent retailers group by common merchandising

Retailer cooperative (service retailers)

jointly owned, central wholesale operation, joint promotion

Direct Mail Marketing

offer, announcement, reminder, etc; personalized, flexible, easy measurement of results

Catalog marketing

online more, create emotional connections, drive in store purchase

Telemarketing

outbound, sell to consumers and businesses; inbound, receive orders

Self service

customer locate, compare, select

Limited service

sales assistance provides info

Full service

assistance in every stage, specialty stores, high operating cost

Product Assortment, services mix, and atmosphere/layout

tools to differentiate

Experiential retailing

suits target, enhance brand, motivate buying