MAR 3023 Exam 4 Massiah

Price

The overall sacrifice a consumer is willing to make (money, time, energy) to acquire a specific product or service. Price ranked as one of the most important factors in purchase decisions. Changes the quickest; generates revenue.

The 5 C's of Pricing

Company objectives, customers, costs, competition, channel members

Profit-oriented

Company objective focusing on maximizing profits, target profit pricing, or target return pricing.

Ex: institute a companywide policy that all products must provide for at least an 18% profit margin to reach a particular profit goal for the firm.

Sales-oriented

A company objective based on the belief that increasing sales will help the firm more than will increasing profits.

Ex: set prices very low to generate new sales and take sales away from competitors, even if profits suffer.

Competitor-oriented

A company objective based on the premise that the firm should measure itself primarily against its competition.

Ex: to discourage more competitors from entering the market, set prices very low.

Customer-oriented

A company objective based on the premise that the firm should measure itself primarily according to whether it meets its customers' needs.

Ex: target a market segment of consumers who highly value a particular product benefit and set prices relatively high (referred to as premium pricing)

Demand curve

Shows how many units of a product or service consumers will demand during a specific period of time at different prices

Price elasticity of demand

-Measures how changes in price affect the quantity of the product demanded

-Formula: % change in quantity demand/% change in price.

-% Change in price = New-old/old

Cross-price elasticity

The percentage change in demand for product A that occurs in response to a percentage change in price of product B.

Ex: An increase in the price of milk results in a decrease in demand for cereal.

Break-even analysis

Technique used to examine the relationships among cost, price, revenue, and profit over different levels of production and sales to determine the break-even point.

Break even point (units)

-Fixed costs / Contribution per unit.

-Contribution per unit= Price-VC per unit.

The point at which the number of units sold generates just enough revenue to equal the total costs; at this point, profits are zero

Value-based methods

Setting prices that focus on the overall value of the product offering as perceived by the consumer.

Ex: Cost of ownership method

Market penetration pricing

Strategy in which the initial price is set relatively low with the objective of building sales, market share, and profits quickly and to defer competition from entering the market

Predatory pricing

Setting a very low price for one or more of its products with the intent to drive its competition out of business; illegal under both the Sherman antitrust Act and the Federal Trade Commission Act

Designing marketing channels

All marketing channels take the form of a direct channel, indirect channel, or some combination thereof.

Making Information Flow

Flow 1 (Customer to Store)

Flow 2 (Store to buyer)

Flow 3 (Buyer to manufacturer)

Flow 4 (Store to manufacturer)

Flow 5 (Store to distribution center)

Flow 6 (Manufacturer to distribution center and buyer)

Channel Member Characteristics

-The larger and more sophisticated the channel member, the less likely that it will use supply chain intermediaries.

-Can gain more control, be more efficient, and save money.

Benefits of stores for consumers

browsing, touching and feeling products, personal service, cash and credit payment, entertainment and social experience, immediate gratification, risk reduction

fulfillment center

Used instead of shipping to stores. They're used to ship directly to customers.

Food retailers

Include: supermarkets, super centers, warehouse clubs, convenience stores, online grocery retailers.

Effective omnichannel retailing

integrated CRM, brand image, supply chain, pricing

Income effect

The change in the quantity of a product demanded by consumers due to changes in their incomes

Substitution effect

Ability to substitute other products for the focal brand

Competition

Impact on pricing strategies; focus on its effects as well as how competitors react to certain pricing strategies

Channel members

Ex: Manufacturers, wholesalers, and retailers

-Larger firms are less likely to use supply chain management.

-Can gain more control, be more efficient, and save money.

Cost-based methods

Determines the final price to charge by starting with the cost, without recognizing the role that consumers or competitors' prices play in the marketplace

Competitor-based pricing

Set prices to signal information of how products compare with competitors. Often used to gain market share or exploit a cost advantage they have achieved.

Ex: Premium pricing

Everyday low pricing

-Companies stress the continuity of their retail prices at a level somewhere between the regular, non sale price and the deep-discount sale prices their competitors may offer

-Saves search costs of finding lowest overall pricing.

High low pricing

-Relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases.

-Provides the thrill of the chase for the lowest price.

Price skimming

Selling a new product or service at a high price that innovators and early adopters are willing to pay in order to obtain it

Pricing tactics

Short-term methods used to focus on the 5 C's (company objectives, costs, customers, competition and channel members)

Deceptive or illegal price advertising

Should never deceive consumers to the point of causing harm

Price discrimination

Selling the same product to different resellers (wholesalers, distributors or retailers) at different prices

Price fixing

-Colluding with other firms to control prices.

-Horizontal price fixing illegal under Sherman Antitrust Act; Vertical falls under gray area

Supply chain management

Set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores and transportation intermediaries in the right quantities, to the right locations at the right time and as well as minimize system wide cost while satisfying the service levels their customers require

Simplified Supply Chain Exhibit

-Manufacturers ship to a wholesaler or to a retailer's distribution center or directly to stores.

-Retailers sell to consumers directly and wholesalers sell to other businesses.

Supply chain, marketing channels, and logistics are related

Marketing channels add value - Supply chain management streamlines distribution

When products are designed and manufactured, how and when the critical components reach the factory must be coordinated with production. The sales department must coordinate its delivery promises with the factory or distribution or fulfillment centers.

Marketing channels add value- Supply chain management affects marketing

Marketing channels allow companies to get their products in the appropriate outlets in sufficient quantities to meet consumer demand. Each marketing channel adds value to the product by either: finding raw materials, manufacturing products, or getting them to where they could be used on their own. Marketing channel management also creates value for each firm in the chain and helps bind together many company functions, including: manufacturing, inventory management, transportation, advertising and marketing

Making Merchandise Flow

Ex:

1. Sony to Best Buy's distribution centers, or

2. Sony directly to stores.

3. If the merchandise goes through distribution centers, it is then shipped to stores.

4. and then to the customer.

Choosing Retail Partners

-channel structure

-customer expectations

-channel member characteristics

-distribution intensity

Channel Structure

The level of difficulty a manufacturer experiences in getting retailers to purchase their products is determined by the degree to which the channel is vertically integrated

Customer expectations

Manufacturers need to know where their target market customers expect to find their products and those of their competitors

Distribution intensity

-the number of supply chain members to use at each level of the supply chain

-how available you want this product.

-Types: intensive (Coke; found everywhere), exclusive (Tiffany's), selective (Jaguar car; an buy at Ford Jaguar)

Developing a retail strategy

Using the 4 P's:

Product mix: providing the right mix of merchandise and services that satisfies the needs of the target market is one of the retailers most fundamental activities.

Price: helps define the value of both the merchandise and the service, and the general price range of a particular store helps define its image.

Promotion: Good promotion can mean the difference b/w flat sales and growing consumer base.

Place: retailers have realized that convenient locations are key to success.

Distribution center

a facility for the receipt, storage, and redistribution of goods to company stores or customers; may be operated by retailers, manufacturers, or distribution specialists

direct marketing channel

a marketing channel in which there are no intermediaries; the manufacturer sells directly to the buyer.

indirect marketing channel

when one or more intermediaries work with manufacturers to provide goods and services to customers.

retailing marketing strategy

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

Omnichannel/multichannel strategy

involves selling in more than one channel (e.g., stores, catalog, internet)

Factors for Establishing a Relationship with Retailers

1. Choosing retailing partners

2. Identifying types of retailers

3. Developing a retail strategy

4. Managing an omni-channel strategy

Types of Retailers

Food retailers, general merchandise retailers, service retailers.

General merchandise retailers

Include: department stores, full-line discount stores, specialty stores, category specialists, home improvement centers, off-price retailers, and extreme-value retailers.

Service Retailers

A firm that primarily sells services rather than merchandise.

Ex: airlines, banks, hotels, and insurance and express mail companies sell their services to businesses and consumers.

Benefits of the internet and omnichannel retailing

-Deeper and broader selection

-Personalization (gain insights into consumer shopping behavior, increase customer satisfaction and loyalty)

-Expand market presence

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