MKTG 201 - Exam 4

six steps in setting price

1. identify pricing objectives and constraints
2. estimate demand and revenue
3. determine cost, volume, and profit relationships
4. select an approximate price level
5. set list or quoted price
6. make special adjustments to list or quoted price

step 4: select an approximate price level

demand, cost, and competition-oriented approaches

demand-oriented approaches

skimming

penetration

prestige

odd-even

bundle

yield management

skimming pricing

setting the highest initial price that customers really desiring the product are willing to pay

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(ex: iPhone)

penetration pricing

setting a low initial price to appeal immediately to the market

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(ex: Amazon Video, Netflix, Hulu, etc.)

prestige pricing

setting a high price so that quality-or status-conscious consumers will be attracted

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(ex: Audi, Rolls Royce, Coach, etc.)

odd-even pricing

setting prices a few dollars or cents under an even number

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(ex: OxiClean)

bundle pricing

the marketing of two or more products in a single package price (ex: Dollar Shave Club)

yield management pricing

the charging of different prices to maximize revenue

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(ex: airlines, Uber, hotels, etc.)

cost-oriented approaches

standard markup

cost-plus

experience curve

standard markup pricing

adding a fixed percentage to the cost of all items in a specific product class

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(ex: movie theaters, furniture, grocery items, etc.)

cost-plus pricing

summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price

experience curve pricing

a method of pricing based on the learning effect (the unit cost declines by 10 percent to 30 percent each time a firm's experience at producing and selling doubles)

competition-oriented approaches

customary

above-, at-, or below-market

loss leader

customary pricing

setting a price that is dictated by tradition, a standardized channel of distribution, or other competitive factors

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(ex: candy bars have generally remained the same price for years)

above-, at-, or below-market pricing

setting a market price for a product or product class based on a subjective feel for the competitors' price or market price as the benchmark

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(ex \[above-market\]: makeup at Nordstrom is $49 but the same product is less at Sephora and Ulta) (ex \[at-market\]: Nivea body wash is $6.00 at Walmart and Target) (ex \[below-market\]: generic tissues are $3.99 buy name brands like Puffs are $5.99 at the same store)

loss leader pricing

deliberately selling a product below its customary price, not to increase sales, but to attract customers' attention to it in hopes that they will buy other products with large markups as well

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(ex: items such as milk and bread are intentionally priced lower because consumers will make up that money lost on items that are more expensive)

step 5: set list or quoted price

fixed-price and dynamic pricing policies

fixed-price policy

setting one price for all buyers; also called a one-price policy

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(ex: Dollar Value Stores and 99¢ Only Stores)

dynamic pricing policy

setting different prices in real-time in response to supply and demand conditions; also called a flexible-pricing policy

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(ex: Ticketmaster and Uber)

price war

a competitive effect on pricing; successive price cutting by competitors to increase or maintain their unit sales or market share

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(ex: airlines)

pros of price wars

consumers benefit from lower prices, additional add-on services, and by gaining new customers

cons of price wars

companies that lose a price war lose market share and profits

price wars can lead to less competition and higher prices

consumers have fewer choices for products and services

step 6: make special adjustments to list or quoted price

discounts and allowances

discounts

reductions from the list price that a seller gives a buyer as a reward for some activity of the buyer that is favorable to the seller; three types are quantity, seasonal, and cash

quantity discounts

reductions for a larger order

seasonal discounts

to encourage buyers to stock inventory earlier than their normal demand would require

allowances

reductions from list or quote prices to buyers for performing some activity; two types are trade-in and everyday low pricing

trade-in allowances

a reduction given when a used product is accepted as part of the payment on a new product

everyday low pricing (EDLP)

replacing promotional allowances with lower manufacturer list prices

price discrimination

the practice of charging different prices to different buyers for goods like grade and quality; NOT illegal

first degree price discrimination

known as perfect pricing; charging the max possible price for each unit consumed

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(ex: airline tickets)

second degree price discrimination

charging consumers a different price for the amount or quantity consumed

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(ex: phone plan with minutes)

third degree price discrimination

charging a different price to different consumer groups

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(ex: adults, children, and seniors)

bait and switch

this deceptive pricing practice exists when a firm offers a very low price on a product to attract customers to a store; once in the store, the customer is persuaded to purchase a higher-priced item using a variety of tricks, including (1) downgrading the promoted item, (2) not having the item in stock, or (3) refusing to take orders for the item

bargains conditional on other purchases

this deceptive pricing practice exists when a buyer is offered "1-Cent Sales," "Buy 1, Get 1 Free," and "Get 2 for the Price of 1"; such pricing is legal only if the first items are sold out at the regular price, not a price inflated for the offer; substituting lower-quality items on either the first or second purchase is also considered deceptive

former price comparisons

this deceptive pricing practice exists when a seller represents a price as redacted, the item must have been offered in good faith at a higher price for a substantial previous period; setting a high price for the purpose of establishing a reference for a price reduction is considered deceptive

marketing channel

consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users

agents/brokers

any intermediary with legal authority to act on behalf of the manufacturer

merchant wholesaler

an institution that buys goods from manufacturers, takes titles of goods, stores them, and resells and ships them

retailer

channel intermediary who sells to consumers

direct channel

no intermediaries; the producer and the ultimate consumers deal directly with each other

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(ex: Bark Box, Peleton, Apple, Bowflex, Charles Schwabb, L.L. Bean, Mary Kay)

indirect channel

at least one intermediary; intermediaries are inserted between the producer and consumers and perform numerous channel functions

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(ex: Harry's, Drawbridge, Scholastic, Listerine)

time utility

having a product or service when you want it

place utility

having a product or service available where consumers want it

form utility

enhancing a product or service to make it more appealing to buyers

possession utility

efforts by intermediaries to help buyers take possession of a product or service

vertical marketing system

the type of cooperation between the members of a distribution channel; includes a producer, wholesaler, and retailer collaborating to deliver necessary products to their customers and aims at achieving better efficiency

contractual vertical marketing system

independent production and distribution firms integrate their efforts on a contractual basis to obtain greater functional economies and marketing impact than they could achieve alone

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(ex: McDonald's Subway, Arby''s, Burger King, and other franchises)

intensive distribution

products and services are placed in as many outlets as possible

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(ex: soda, candy, snacks, cigarettes, etc.)

exclusive distribution

only one retailer in a specific geographical area carries the firm's product

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(ex: Droste's, Coach, BMW, etc.)

selective distribution

a firm selects a few retailers in a specific geographical area to carry its products

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(ex: Honda, Apple Watch, Toyota, etc.)

buyer requirements

information

convenience

variety

pre- or post-sale services

total logistics cost factors

materials handling and warehousing, inventory, stockout, order processing, return products handling, and transportation costs

customer service factors

dependability

time

communication

convenience

reverse logistics

a process of reclaiming recyclable and reusable materials, returns, and reworks from the point of consumption or use for repair, remanufacturing, redistribution, or disposal

breadth

number of different product lines

depth

number of items within each product line

retailing

all activities involved in selling, renting, and providing products and services to ultimate consumers for personal, family, or household use

independent retailing

most common type of retailing in the US (ex: local businesses)

corporate chain retailing

ex: Walmart, Kroger, Meijer

contractual systems retailing

ex: franchises such as McDonald's and Subway

retailing mix

retail pricing

store location

retail communication

merchandise

retail pricing

deciding on the markup, markdown, and timing for markdowns

store location

choosing a location and deciding how many stores to operate

retail communication

plays an important role in positioning a store and creating its image

merchandise

managing the breadth and depth of the product line

scrambled merchandising

offering several unrelated product lines in a single store

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(ex: Menards and Kohl's)

types of non-store retailing

direct selling (es: Mary Kay)

telemarketing

online retailing (ex: Amazon)

TV home shopping

direct mail and catalogs (ex: Pottery Barn)

automatic vending (ex: Carvana)

integrated marketing communications (IMC)

a planning process designed to ensure that all brand contacts received by a customer or prospect for a product, service, or organization (consumer touch points) are relevant to that person and consistent over time

promotion

any type of marketing communication used to inform target audiences of the relative merits of a product, service, brand, or issue, most of the time persuasive in nature

promotional mix

advertising

direct marketing

digital/Internet marketing

sales promotion

PR/publicity

personal selling

advertising

any paid form of non-personal communication about an organization, product, service, or idea by an identified sponsor

direct marketing

uses direct communication with consumers to generate a response in the form of an order, a request for further information, or a visit to a retail outlet

sales promotion

a short-term inducement of value offered to arouse interest in buying a product or service

public relations

a form of communication management that seeks to influence the feelings, opinions, or beliefs held by customers, prospective customers, stockholders, suppliers, employees, and other publics about a company and its products or services

publicity

a non-personal, indirectly paid presentation of an organization, product, or service

personal selling

the two-way flow of communication between a buyer and seller designed to influence a person's or group's purchase decision

source/sender

a company or person who has information to convey

channel message

the information sent by a source to a receiver

non-personal channels

ex: print and broadcast

personal channels

ex: word and e-word of mouth

receivers

consumers who read, hear, or see the message sent by a source

encoding

the process of having the sender transform an idea into a set of symbols

decoding

the process of having the receiver take a set of symbols, the message, and transform the symbols into an idea

response

the impact the message had on the receiver's knowledge, attitudes, or behaviors

feedback

the sender's interpretation of the response and indicates whether the message was decoded and understood as intended

noise

extraneous factors that can work against effective communication by distorting a message or the feedback received during the communication process; two most common types of noise are children and technology

promotional objective of the introduction stage

to inform

field of experience

a mutually shared understanding and knowledge that the sender and receiver apply to the message so that it can be communicated effectively during the communication process

promotional activities related to the introduction stage

publicity in magazines

advertising

salesforce calling on intermediaries

free samples

promotional objective of the growth stage

to persuade

promotional activities related to the growth stage

personal selling to intermediaries

advertising to differentiate a product from competing brands

promotional objective of the maturity stage

to remind

promotional activities related to the maturity stage

reminder advertising

discounts, coupons, and events

limited personal selling

direct-mail reminders

promotional objective of the decline stage

to phase out

promotional activities related to the decline stage

little money spent on promotion

push strategy

directing the promotional mix to channel members to gain their cooperation in ordering and stocking the product; manufacturers → wholesalers → retailer → consumers

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(ex: direct selling, point of sale displays, trade show promotion)

pull strategy

directing the promotional mix at ultimate consumers to encourage them to ask the retailer for a product (ex: word of mouth, blogs, search engine optimization)

objective and task budgeting

a company…


1. establishes objectives
2. determines specific tasks
3. estimates costs allocated with tasks