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Price
The sum of all of the values that consumers give up in order to gain the benefits of having or using the product or service
Revenue
Price X Quantity
Price Elasticity
Percentage change in quantity demanded/percentage change in price
Factors to Consider When Setting Price:
Marketing strategy, objectives, mix
Competitors’ strategies and prices
Customer’s perceptions of value
What is it worth to the customer?
Product Costs
Variable Cost Pricing
Macro Environmental factors
Consumer Factors
Product Factors
Cost
(1 - Margin) x Selling Price
Fixed Costs
Costs that stay constant across all production volumes
Break even point definition
The level of sales for a firm where all costs covered
At any level above, the firm makes profit
At any level below, the firm loses money
Break Even Point =
Total Fixed Costs / Selling Price - Variable Cost
To determine the dollar sales volume needed to break even, first compute break-even in units and then use this formula:
(Selling Price)x(Break Even)
PROFIT
Q(P-VC) - (FC)
PESTEL
Political - current political issues and public policy (see text)
Economic Conditions - big impact on pricing decisions
Social Concerns - big impact on pricing in some categories
Technological - consider adoption curve and product lifecycle
Environmental - consider competitive environment, international environment, and natural environment
Legal - Pricing decisions may be regulated
Most pricing is covered under
the Sherman Act, Clayton Act and Robinson-Patman Act
Price fixing
agreeing with your competitors as to what prices to offer
Deceptive pricing
advertising or promoting one price, but that price does not cover the entire purchase
In general, the following are illegal:
Price fixing - agreeing with your competitors as to what prices to offer
Deceptive pricing - advertising or promoting one price, but that price does not cover the entire purchase
Price discrimination that is injurious to competition
Granting non-proportionate promotional pricing
Some prices have psychological
“price ceilings”
Odd/Even pricing
even prices communicate more prestige than odd prices
If a product is perishable
Price it lower so it will move before it is no longer in demand
This includes fashion-oriented and seasonal products as well as products that will physically perish
Repurchase Cycle
Put lower margins on products purchased frequently
Put higher margins on products purchased less frequently to account for the lower consumption rate
Distinctiveness
The more distinctive a product is, the higher price it can command
Skimming Pricing
Is offering a high price early in the life cycle and lowering it as the product matures
When to SKIM PRICE
Products quality and image must support its higher price
Cost of low volume cannot be so high they cancel the advantage of charging more
Competitors should not be able to enter the market easily
Penetration Pricing
Is offering a low price early in the life cycle and increasing the price as consumers get used to the product
Penetration pricing used when
Used to discourage competition because prices will be lower than those the competitors can profitably offer
When market is price sensitive, costs must fall as volume increases, competition must be kept out
Logistics Management
Manufacturers effort
Focused on Efficiency, Cost Minimization
Engineering driven
Supply Chain Management
Collaborative effort led by Manufacturer
Focused on Competitive advantage
Marketing driven
Marketing logistics (physical distribution)
Planning, implementing and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit.
Goal of the logistics system
Deliver a targeted level of customer service at the least cost
Major logistics functions
Warehousing
Inventory management
Inventory
Logistics information management
Intermediaries
Organizations that specialize in distribution (middlemen)
Merchant intermediaries take title to the product
They make money by adding a markup and reselling a product
Ex. Retailer, stock broker
Channel of Distribution
Sequence of marketing organizations involved in bringing a product from the producer to the consumer
Conventional Distribution Channel
There is a trade between speed and cost.
Loosely aligned
Autonomous organizations
This means they are independent companies
Carry out a trade relationship
The orgs will do business with one another as long as there is a mutually beneficial relationship
Conventional distribution channels are not governed by contracts, ownership, or formal agreement
There is a trade between speed and cost
Minimum cost, minimum satisfaction
Maximum cost, maximum satisfaction
Channel Management Decisions
Selecting channel members
Managing and motivating channel members
Partner relationship management
Evaluating channel members
Why are Intermediaries used?
They create greater efficiency in making goods available to target markets
Things are less expensive for consumers when there
ARE middlemen involved
Intermediaries have economies of scale and system efficiencies
They lead to LOWER costs for the final consumers
Channel length tends to increase INCREASE when:
Price is low |
Product is durable |
Product is simple |
Firm has limited resources |
Numerous small customers and producers |
Capable intermediaries exist |
Channel length tends to DECREASE when:
Price is high |
Product is perishable |
Product is complex |
After-sale service is needed |
Few large customers, few producers |
Intermediaries are few or unavailable |
Piggyback
Semi-truck trailers on railroad cars
Birdyback
Planes loaded with containers
Fishyback
Truck-beds on barges or ships
Exclusive Dealing
Supplier prohibited intermediaries handling its products from selling products of competing suppliers
Illegal if it restricts competition
Exclusive Territory
Contractual relationship where only one intermediary in the area is allowed to sell a manufacturers product
Justified if..
High investments is required of dealers
The image is critical for success
Illegal if competition is restricted
Tying Contracts
Require a channel intermediary or buyer to purchase lines of merchandise supplementary to the product the purchaser wishes to buy
Usually illegal
Retailing
All the activities involved in selling goods or selling directly to final consumers for their personal, non-business use.
The different types of retailers can be classified based on:
The amount of service they offer
The breadth and depth of product lines
How they are organized
The relative prices charged
Types of Retailers:
Classification by the amount of service
Retail classifications by product line
Relative prices classification
Retailer Strategy
Segmentation and targeting
Store differentiation and positioning
Retail marketing mix
Retail marketing mix
Retailers cannot make meaningful decisions related to the retail marketing mix until they first define and profile their target market
Retail Trends and Developments
New retail forms, shortening retail life cycles, and retail convergence
Larger retailers
Showrooming is now a common practice in stores but buying them online
Growing importance of retail technology
Enviormentalism
Functions performed by wholesalers
Selling and promoting
Buying and assortment building
Bulk-breaking
Warehousing
Transportation
Financing
Risk bearing
Market information
Management services and advice
Merchant Wholesaler
Largest group of wholesalers (account for 50% of wholesaling)
Sell primarily to retailers
Provide a full range of services
Types of merchant wholesalers
General merchandise, Specialty wholesalers
Industrial Distributors
Sell industrial products to manufacturers
Carry stock
Offer credit
Provide delivery
May carry a broad range of merchandise, a general line, or a specialty line
Brokers and agents
Do not take title to goods
Perform only a few functions
Specialize by product line or customer type
Brokers
bring buyers and sellers together
Agents
represent buyers on a more permanent basis
Manufacturers sales branches and offices
Involves wholesaling by seller or buyers themselves rather than through independent wholesalers
Cash and carry wholesalers
Carry a limited line of fast-moving goods
Sell to small retailers for cash
Truck wholesalers
Perform primarily a selling and delivery function
Dropshippers
Do not carry inventory or handle the product
Rack jobbers
Price the goods
Keep goods fresh
Set up point-of-purchase displays
Keep inventory records
Producers’ cooperatives
Farmer-owned members
Assemble farm produce for sale in local markets
Wholesaler Strategy
Segmentation, targeting, differentiation, and positioning
Horizontal conflict
occurs among firms at the same level of the channel
Vertical conflict
occurs between different levels of the same channel
Conventional distribution channel
Consists of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole
Vertical marketing system (VMS)
A distribution channel structure in which producers, wholesalers, and retailers act as a unified system
One channel owns the other, has contracts with them, or has so much power that they all cooperate
Corporate VMS
A vertical marketing system that combines successive stage of production and distribution under single ownership. Channel leadership is established via common ownership
Contractual VMS
A vertical marketing system in which independent levels of production/distribution join together through contracts to obtain more economies of scale than they could alone
Franchises
are a common form of contractual vertical marketing system
Marketing's Impact on Society
False Wants
Too much consumerism
Cultural pollution
Too few social goods
Marketing's Impact on Other Businesses
Big budgets disadvantage smaller competitors
Marketing practices that create barriers to entry
Unfair competitive marketing practices
Marketings Impacts on Individual Consumers:
High prices
Deceptive practices
High-pressure selling
Shoddy, harmful, or unsafe products
Planned and perceived obsolescence
Poor service to disadvantaged consumers
Traditional buyers’ rights to include the right to…
Not buy a product that is offered for sale
Expect the product to be safe
Expect the product to perform as claimed
The right to be well informed about important aspects of the product
The right to be protected against questionable products and marketing practices
The right to influence products and marketing practices in ways that will improve “quality of life”
To consume in a way to preserve the world for future generations of consumers
Sellers Bill of Rights
To introduce any product in any size and style–with proper warnings and controls, if necessary
To charge any price for the product without any discrimination
To spend any amount to promote the product if competing fairly
To use any product message that is not misleading or dishonest
To use buying incentive programs that are not unfair or misleading
Christian Ethics
Lead by example - whether you know it or not, people are watching you
There is a correlation between how you deal with ethical dilemmas and how effective you are as a leader and a witness for Christ
Faith is essential for holding to Biblical convictions regardless of the consequences
Stay involved in the disciplines of the faith…as your practice of Christianity sways, so will your morality
An ethical decision is not a last-minute decision
Your convictions will be tested when you are detached from the Christ-centered subculture
Friendships are a key part of shaping and maintaining Biblical convictions
Stay accountable to Godly people
Ethical standards must be applied consistently to ALL areas of life
Organizational ethics may not align with Biblical ethics
At times God may ask you to “walk”
Trust Him - it will work out
The Golden Rule
“Do unto others as you would have them do unto you”
The Utilitarian Principle
Do the greatest good for the greatest number of people
Kant’s Categorical Imperative
Act in such a way that the action taken under the circumstances could be a universal law or rule of behavior
Note
Flashcard