Exam 4 Flashcards

Pricing Concepts

Markup on Selling Price

• Definition: The percentage of the selling price that represents markup.
• Calculation:
  • If the selling price (SP) is 1000 and the cost is 700, the markup is 300.
  • The markup percentage on the selling price is 30\%, because \$300 (markup) is 30\% of \$1000 (selling price).
  • Markup \% = \frac{Markup}{Selling \ Price} \times 100
• Understanding:
  • 30\% of the selling price is markup, and 70\% of the selling price is the cost.
• Visualization: Use a rectangle to represent the selling price and divide it proportionally to represent cost and markup.

Calculating Markup Percentage

• Formula: Selling \ Price = Markup + Cost
• Determine the markup in dollars, then calculate what percentage of the selling price that markup represents.
  • Example: If the cost is \$50 and the selling price is \$200, the markup is \$150. The markup percentage is 75\% (\frac{150}{200}).

Sample Problems

• Problem 1:
  • Retailer's cost: \$200
  • Retailer's markup on selling price: 50\%
  • Selling price: \$400 (since 50\% of the selling price is markup and 50\% is cost).
• Problem 2:
  • Manufacturer's selling price: \$100
  • Manufacturer's cost: \$35
  • Markup on selling price: 65\%.

Additional Practice Problems

• Selling Price = \$1,800, Cost = \$600. What is the markup ?\%$?
  • Answer: 66.7\% (Cost is 1/3, so markup is 2/3)
• Cost = \$100, Markup = 75\%. What is the selling price?
  • Answer: \$400 (3/4 of the selling price is markup, 1/4 is cost)
• Selling Price = \$300, Markup = 33.3\%. What is the cost?
  • Answer: \$200 (Cost is 2/3 of \$300 selling price)

Break-Even Pricing

• Scenario: Company X sells video games to retailers for \$30. The cost to make each video game is \$20. The total fixed costs are \$20,000.
• Calculation:
  • Profit per product: Selling \ Price - Variable \ Costs = \$30 - \$20 = \$10
  • Break-even point in units: \frac{Fixed \ Costs}{Profit \ per \ Product} = \frac{\$20,000}{\$10} = 2,000$$
  • Company X needs to sell 2,000 products to break even.

Selecting a Basis for Pricing

• Cost (markup and break-even)
• Demand: Flexible/variable pricing

Product Pricing Strategies

• Market Skimming
• Premium
• Overcharging
• Market Penetration
• Good-value
• Economic

Other Pricing Strategies

• Everyday low prices
• Reference pricing (selling against the brand)
• Portfolio Pricing
• Price bundling
• Captive-product pricing
• Multiple-unit pricing
• Single-price
• Loss leader (same as Leader pricing)

Substitutes and Complements

• Definition:
  • Substitutes: If the price goes up for one product and sales of a second product go up, they are substitutes.
  • Complements: Products that are used together.

Marketing Channels

• Channel Strategies

• Intensity of Distribution

  • Intensive, selective, exclusive

• Channel Choice Factors

  • Product, producer, market factors

• Modes of Transportation

  • Consider: Cheapest, most accessible, most reliable

• Push/Pull Strategies

  • Push: Promoting to others in the distribution channel.
  • Pull: Promoting to consumers.

Retailing

• Definition
• Formats
• Direct Retailing vs. Direct Marketing
• Retailing Mix, Customer Service
• Atmospherics

Promotion

• Integrated Marketing Communications

• Marketing Communications Process

• AIDA Concept

• Advertising

  • Impacts attitudes, best at the beginning of the process.

• Sales Promotions

  • Impacts behavior, best at the end of the process.

Goals and Tasks of Promotion

• Informing
• Reminding
• Persuading

Promotional Mix

• Promotional Mix Elements
  • Definitions
  • Strengths/weaknesses of each.
  • Control: Which elements do we have the most control over?
  • Credibility: Which ones are the most credible?

Sales Promotions

• Impact:
  • Attitudes
  • Behavior
  • Where is the most money spent?
• Trade promotions
• Consumer promotions
• Objectives
• Sales Promotion Rates
  • Redemption
  • Displacement
  • Acquisition