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Introductory Marketing Concepts
What is marketing?
What conditions must exist for an exchange to occur?
Voluntary participation by all parties
Two or more parties involved
Each party must have something of value to exchange
Parties must communicate with each other
Who is the customer?
User
Decider
Buyer
Influencer
Where can marketing be applied?
All exchange situations - private, public, business-to-business
Evolution of marketing
Production-orientation
Sales-orientation
Marketing-orientation
What is the marketing concept?
Coordinated customer-orientation to achieve organizational performance
objectives.
What are organizational performance objectives?
What is relationship marketing?
Personal, long-term bonds with customers more like a partner than a participant in
an exchange.
What is the societal marketing concept?
Social responsibility
Recycling
Sustainability
What is ethical behavior?
Golden rule
Kant - greatest good for the greatest number of people
Relativism
Banner Headline
What is quality?
Dimensions -- Performance
Time saving
Perceived quality
Durability
What is value?
What is utility?
The something in the product that satisfies needs is utility. Marketing helps create
utility.
Time utility
Place utility
Possession utility
What is positioning?
Product's image in relationship to direct competitors
What is a differential advantage?
Feature of the organization or brand perceived by customers to be desirable and
different from those of the competition.
What is a target market?
Group of people or organizations at which a firm directs a marketing program
What is the marketing mix?
Product
Place
Price
Promotion
What is a SBU?
Major market or product
What is the BCG matrix?
Industry
Growth
Rate
Stars
Question
Marks
Cash
Cows
Dogs
Market share
What is the product/market growth matrix?
Present
Market
Penetration
Product
Development
New
Market
Development
Diversification
Markets
Present
New
Products
What is planning?
What is strategic planning?
Managers match an organization's resources with its market opportunities over the
long-run
What is a strategic window?
Limited amount of time that a firm's resources coincide with a particular market
opportunity.
What are key planning concepts/operations?
Where are we? Situation analysis
Where do we want to go? Mission/objectives
How doe we get there? Strategies/tactics
How do we know whether we got to where we want to go? Assessment or
evaluation
KISS - keep it simple stupid
What is the difference between a strategy and a tactic?
Strategy is a broad plan of action
Tactics - the way a strategy is implemented
What is the process of strategic marketing planning?
Situation analysis
Set marketing objectives
Determine position & differential advantage
Select target markets & measure market demand
Design a marketing mix
Marketing Opportunity Analysis
1.
2.
3.
4.
5.
Benchmark performance standards to assess effectiveness of marketing
plans
Customer satisfaction research
Marketing Cost Analysis – cost efficiency of the marketing plan
(accounting traces results of account/market costs and MIS generages
usable information for marketing decision-makers)
Sales Analysis
Marketing Audit – systematic, critical and impartial review of the
marketing effort
a. Horizontal – marketing mix
b. Vertical – functional audit
What is an Integrated Marketing Plan?
1.
2.
3.
4.
5.
6.
7.
Clear statement of organizational mission – organization’s commitment to
a type of business and place in the market
Long-term competitive advantages – Can be at the company, product or
marketing level but must be defendable over time
Defined target markets
Compatible long-, moderate-, and short-term subplans
Coordination among SBUs
Coordination of the marketing mix
Stability over time
Organizing the Marketing Effort
Functional
Geographic
Product
Product/Market matrix
Criticisms of Marketing
Exploitation
Inefficiency
Stimulating unwholesome demand
Planned obsolesce
Consumerism
New calls for consumer protection in the U.S. Recent examples include lead paint used
on toys imported from China, beef recall, subprime mortgage lending
The Marketing Environment
Environmental Scanning
Gather information on external environment
Analyze the external environment
Forecast impact on whatever trends exist
External Environment
Demographics - Baby Boomers (One turns 50 every 7 seconds), Generation X,
Echo Boomers
Economic conditions - interest rates, inflation
Social & Cultural forces - green marketing, gender roles, Health and fitness,
Investment clubs for women.
Political Legal forces - Antitrust, Product Liability, Trademarks, Patents,
Contracts
Technology - Chrysler plastic car, Blue ray versus HD players
Market - needs to be satisfied, money to spend willingness to spend
Suppliers
Intermediaries
Internal Environment
Marketing
Finance
Human Resources
Information Technology
Accounting
Operations
Global Marketing
Organization of global marketing effort
Exporting
Contract manufacturing
Licensing
Direct investment - joint venture
Social and cultural forces
Social customs
Education - literacy rate
Language differences
Economies
Market driven versus command economy
Level of economic development
Infrastructure
Political
Trade barriers - tariffs, import quota, local content law
Trade agreements - GATT 120 countries 40% decrease in tariffs
NAFTA
European Union
WTO
Understanding Consumer Market Behavior
What are the different markets?
Consumer market
Government market
Business-to-business market
What is the buying process?
Need recognition
Identification of alternatives
Evaluation of alternatives
Decision
Postpurchase behavior - cognitive dissonance
Involvement
Level of involvement affects consumer decision-making. The more the consumer
is involved in the process, the longer the purchase process. Involvement is the
amount of time and effort the consumer puts into the purchase process. Factors
that influence the amount of involvement include experience, interest, perceived
risk, social visibility, situation.
Low involvement is a characteristic of impulse buying
High involvement is a characteristic of a shopping or specialty purchase.
Influences of buying behavior
Social Influences
Culture - set of symbols and artifacts created by society and handed down
from generation to generation as determinants of behavior. Baseball hats
Subculture - Hispanic market
Social class - consumers belong or aspire to belong to.
Upper class 2% - executives, Fortune 400
Upper middle class 12% - professional
Lower middle class 32% - small business owners, teachers
Upper lower class 38% - blue collar
Lower lower class 16% - unskilled
Reference Groups - group that develops its own standards of behavior
(clothes, shampoo). Aspiration reference group are influenced by opinion
leaders.
Families and households - structure determines marketing strategy
Initiator, influencer, decider, user, buyer (Buying roles)
Family Life Cycle
Bachelor (male or female)
Newly married
Full nest I (children < 10)
Full nest II (children 10-13)
Full nest III (children 14-22)
Empty nest
Sole Survivor I (remaining spouse is active)
Sole Survivor II (remaining spouse is inactive)
Psychological models
Motivation - motive is a need sufficiently stimulated to move to action
(satisfaction)
Maslow's hierarchy of needs
Self actualization – self fulfillment
Esteem
Belonging and love - social
Safety
Physiological
Perception - receiving, organizing and assigning meaning to information
gathered by the five senses.
Selective attention - selective distortion - selective retention
Learning
Stimulus - response model
Airline power off at airport yet people were queued up
Personality - confidence, dominance, friendliness
Psychoanalytic model – id (basic desires), ego (rationality), superego
(moral standards)
Perceived risk – decision-making is a function of a perception of the
amount and type of risk that is associated with a purchase
Types of risk: financial, social, physical, performance, time
Self concept - Self image (see yourself)
Ideal self concept (way you would like to be seen)
Social self concept (way you are viewed by others)
Attitudes -predisposition to respond to an object in the same way.
Beliefs (evaluation of beliefs) = attitudes
Aact = ∑ bi ei
Attitudes are learned
Attitudes have an object
Attitudes have direction and intensity
Situational influences that influence purchase behavior
Time - when
Physical and social surroundings - where
Terms of purchase - How
Temporary state - moods
Buying motives for purchasing
Rational
Economy of purchase
Durability
Ease of Repair
Availability
Economy of use
Emotional
Pride of appearance
Fear
Safety
Desire to create
Desire for security
Analyzing purchase behavior
6 Os of consumer buying behavior
Origins of purchase
Objectives of purchase
Occasions of purchase
Outlets of purchase
Operations of purchase
Objects of purchase
Who buys?
Why do they buy?
When do they buy?
Where do they buy?
How do they buy? (What is the process used
to make a purchase)
What do they buy?
Do consumers buy features or benefits?
Features
Performance
Reputation
Colors
Size
Service
Workmanship
Benefits
Time saved
Prestige
Increased sales
Greater convenience
Economy of use
Long life
Understanding Business Markets
Types of Markets
Agriculture market $190 billion
Reseller market 500k wholesalers, 2.7 mil retailers
Government market 86k Fed, State and Local units
Services market
Nonprofit market
International market 40% of earnings from outside the U.S.
What is derived demand?
Derived from the end user (consumer)
Inelastic demand
What is an SIC - Standard Industrial Classification System
What are the various buying situations?
Rebuy, modified rebuy, new task
What is the buying process?
Need recognition
Identification of alternatives
Evaluation of alternatives
Purchase decision
Postpurchase behavior
What is the buying center?
Individuals or groups of people involved in the decision making process regarding
what to purchase.
Characteristics of purchase
Infrequent
Large order size than consumer market
Usually direct purchase
Longer negotiation period
Demand service
Market Segmentation
Energy Drink Market
2007 consumption of carbonated soft drinks = 14.7 billion gallons
8.7 billion gallons of bottled water
313 million gallons of energy drinks, 3.5 billion cans or about $10 billion
There are about 250 energy drink brands. Some of these are:
Vegas Fuel targeting brighter moods
Coke’s Enviga targeting weight management
Tab Energy targeting fuel for the fabulous
5 Hour Energy targeting more energy without the crash
Go Girl targeting women
Pro Player targeting poker lovers
Kabbalah targeting spiritualists
Red Bull
Rockstar
Monster
What is market segmentation, market segment, target market?
How to segment a market?
Demographic
Geographic - urban, rural, southeast, northeast
Psychographic - personality, lifestyle, attitude
Benefits Sought - usage rate, usage occasions
Behavioral
Requirements - measurable, accessible, data available, size
What are the different segmentation strategies?
Undifferentiated - market aggregation
Concentrated - single segment
Multisegment - multiple segment
Process of selecting a target market
1.
2.
3.
4.
5.
Select a market
Divide market into segments using one of the methods of segmentation
Profile and analyze segments
Select target market
Design marketing mix
Evaluating viability of market segments
1.
2.
3.
4.
Can the segment be identified?
Can the segment be measured?
Is the segment large enough to support the marketing effort?
Can the segment be reached with a marketing mix?
What is product positioning?
Perceptual mapping
Positioning - Developing an image in relation to competitive products.
- Position relative to a competitor
- Position relative to a product class or attribute
- Position relative to a price & quality
Repositioning
What is market potential, sales potential, market share, sales forecast?
Marketing Research
What is research?
[Asking ‘what if’ questions]
Discrete studies to assist in decisions
What is marketing intelligence?
Continuous flow of information
What is a customer database?
Why is such a database important?
Sources of data for databases - Scanners
Commercial sources
Business cards
Product registration cards
Contests
Marketing research process?
1. Define objectives
2. Situation analysis - helps refine the research problem
3. Informal investigation - using available information, "Is a formal study
needed?"
4. Formal study
Types of Data
Secondary
Cheaper
Previously collected
May not be in the exact form that is needed
Question accuracy
Question timeliness
Primary
More expensive
Must be gathered for the project
Focus group
Experiments - test markets
Surveys and observation
5. Gather data
6. Analyze data
7. Prepare report
Types of Studies
Type of study
Sample
Exploratory
Convenience
Descriptive
Convenience,
Predictive
Random, systematic
Type of data
Qualitative
Data collection
method
Observation, case
studies, mall
intercept, consumer
panel
random, systematic
random, cluster,
stratified
Qualitative or
Quantitative
Mail, telephone,
personal interview,
web survey, email
random, cluster,
stratified
Quantitative
Experiment – for
example test market
Data Collection Methods
Type of Survey
Mail



Advantages
Frequently used
for social
research
Low cost
(almost 75%
less than
personal
interviews)
Limits potential
interviewer bias




Telephone




Web



Reach 96% of
all homes
Computer
software
streamlines
process
Interviewers can
ask for
clarification on
responses
Very fast

Very low cost
Very fast
Able to ask
complex
questions





Disadvantages
May result in
biased sample
based on
response rate
Time! Need to
wait at least
several weeks
for responses
Low response
rate
Limited to
mostly closedended questions
Sales calls often
pose as research
calls
Typical calling
window
interrupts
respondents
Call screening is
common
No observation
of interviewee
Limited mostly
to closed-ended
questions
Do not reflect
population as a
whole (not
everyone has
Internet service)
Recommendation
 Target
population is
highly literate or
is in a group
with specialized
interests

General
population
surveys

Use when
desired target
population
consists of
Internet users
(business-to-



Email



Anonymity of
responses for
sensitive topics
Able to ask
more openended questions
Software
simplifies
compilation and
analysis of data
Similar to mail
survey
Low cost
Fast





Personal Interview



Frequently used
to gauge
attitudinal
behavior
Excellent
response rates
Longer
interviews are
tolerated




Respondent
completion rates
low for long
surveys
Random
respondents may
reply
business
research,
employee
attitude surveys)
Mailing list

required
Spam filters
prevent
reception of
survey
Limited to
length of
questionnaire
and closedended questions
Very expensive 
Time consuming
May produce
nonrepresentative
sample
Higher chance
of interviewer
bias
Use when
desired target
population is
connected to the
Internet
Very specific
target population
that has interest
in a particular
service or
product
Product Concepts
What is a product?
A bundle of benefits that satisfies a human need or want.
Classification of Products
Consumer
Business
Convenience
Raw materials
Shopping
Fabricating materials and parts
Specialty (strong
Brand preference)
Assembled or undergo further processing
Unsought (new product
Consumer is unaware
Or consumer is aware
but doesn't want it
right now.
Installations
Accessory Equipment
Operating supplies
Importance of Product Development
40% of sales and 60% of profits from new products
Types of New Products
Imitative
Really innovative
Significantly different
Product Development Process
Generate New Product Ideas
Screen Ideas
Business Analysis
Prototype Development
Market Tests
Commercialization -- Launch
Criteria for New Products
1.
Adequate market demand
2.
3.
Financial standards met
Fit into company marketing structure
Adoption process
Awareness
Interest
Evaluation
Trial
Adoption
Innovators 3% Venturesome
Early adopters 13% Respected
Early majority 34% Deliberate
Late majority 34% Skeptical
Laggards 16% Tradition-bound
Factors Affecting Adoption
Relative advantage
Compatibility
Complexity - difficulty in understanding
Trialability - may be sampled
Observability - demonstrated
Differences between products and services
Intangible
Perishable
Inseparable
Heterogeneous
Word of mouth critical
Greater customization
Service quality is defined by the customer, not the producer
Marketing mix for service marketing
Future challenges in services marketing
Need for increased productivity - how if heterogeneous?
Nonprofit organizations
Ability and interest in giving time or money
Pricing = volunteer
Confirmation
Product mix depth, width (breadth), product line
Product Positioning
Developing an image in relation to competitive products.
- Position relative to a competitor
- Position relative to a product class or attribute
- Position relative to a price & quality
Line Extensions
Trading up and trading down
Product Life Cycle
Characteristic
Sales
Profits
Competition
Product
Promotion
Distribution
Price
Introduction
Slow to build
Loss or slight
profit
Few or many
depending on
type of new
product
One model
Growth
Peak
Peak
Maturity
Level off
Fall
Intense
Intense
Attributes
added to basic
model
High
Moderate
expenditure to
expenditure to
build awareness attract early
(advertising)
majority
(advertising and
sales
promotion)
Limited or
Intense
intense
depending on
type of new
product
Skimming or
Keep price in
penetration
high part of
depending on
price range to
type of product maintain
Many models
Decline
Fall off
Stable but low
margin
Few
competitors
remain as
resources
directed at new
markets
Best selling
model remains
High
expenditure to
stabilize market
share (sales
promotion and
advertising)
Low
expenditure to
maintain
distribution
(trade
promotion)
Intense
Limited as
channels drop
low margin
products
Competition
forces price
reductions
Stable price to
generate
acceptable
margins
margins and
improve
profitability
Brand name, brand mark, trademark
Generic versus branding
Producer's brands -- middleman's brands
National brand - private label
Cobranding
1.
2.
3.
Ingredient – Cereal contains Sunmaid Raisins
Cooperative – Coach Leather and Lexus cars
Complementary – Segrams 7 and 7 Up
Why brand?
Benefits of branding
product identification
brand equity
global brand
brand loyalty
What are the characteristics of a good brand name?
1.
2.
3.
4.
5.
6.
Identifiable
Understandable
Memorable
Able to protect
Supported by marketing mix
Supports product positioning
How to deal with product counterfeiting?
Brand Equity
Value brand adds to the product -- e.g., Oreo cookies in ice cream
Packaging
Purposes - convenience, protection, acceptance from the trade, promotion
Labeling
Brand label
Descriptive label
Grade label
Nutritional labeling
Design and Color - Bring in samples of labels, packages, brand names.
What a Car Says About You
Minivan – nurturing and escape
SUV – adventure
Hummer, or large SUV – power and control; a warrior mentality
Hybrid – character, doing the right thing, fear of judgment
Compact – deficient in rationality and character
Convertible – freedom and independence
Sports car – youthful exuberance, rejuvenation
Four-door sedan – practically and nurturing
Full-size truck – power and control
Four-door truck – independence (women)
Lexus – status and rejuvenation
Mercedes-Benz – status and power
BMW – status and control
Corvette – immortality
Source: The Right Brain People, a self-described consumer psychology consulting
firm.
What Color Means
Silver – elegant, loves futuristic looks, cool
White – fastidious
Vibrant red – sexy, speedy, high-energy and dynamic
Deep blue-red – some of the same qualities as red, but you’re far less obvious
about it
Taupe or light brown – timeless, basic and simple taste
Black – empowered, not easily manipulated, loves elegance, appreciates classics
Neutral gray – sober, corporate, practical, pragmatic
Dark green – traditional, trustworthy, well balanced
Bright yellow-green – trendy, whimsical, lively
Yellow-gold – intelligent, warm, loves comfort and will pay for it
Sunshine yellow- a sunny disposition, joyful and young at heart
Deep brown – down to earth, no nonsense
Orange – fun loving, talkative, fickle and trendy
Deep purple – creative and individualistic
Source: The Color Answer Book, Leatrice Eiseman
Distribution Concepts
Structure of Distribution Decisions
Distribution Objectives
Channels
Retailing
Wholesaling
Agents/brokers
Power
Conflict
Direct/indirect
Physical Distribution/Logistics
Transportation
Order processing
Warehousing
Pallets
What is a channel of distribution?
All organizations involved in the movement of products and services to the final
customer.
Long-term relationship
Physical Flow
C
R
W
M
Insurance, financing, marketing research
How important are middlemen?
Reduce transaction costs
Break bulk
Merchant wholesalers - take title to products
Agent wholesalers - don't take title to products, bring buyer and seller
together.
Factors in choosing a channel of distribution
Perishabililty of product
Service level required
Number of customers
Geographic concentration
Order size
Degree of channel control
What is a vertical marketing system?
Contractual
Corporate
Administered
Coordination of control
Factors to consider in selecting intensity of distribution
Intensive distribution - convenience goods
Selective distribution - shopping goods
Exclusive distribution - dealership or distributorship
How does channel conflict = doing business
Horizontal conflict = competition
Main source is scrambled merchandising
Vertical conflict = channel inefficiencies
Mfg using the Internet to sell direct to the consumer
How to solve vertical conflict
Channel captain
Coercive power
Economic power
Referent power
Legitimate power
Expert power
Legal considerations
Non price restraints
Interbrand vs. intrabrand competition
Exclusive dealing rule of reason
Territorial restraints rule of reason
Tying arrangements - per se illegal (one product vs. two)
Refusals to deal - rule of reason
Distribution of Services
Direct channel and possible franchising
What is retailing?
Where do you take your dog to get a new tail!
2.7 mil stores in the U.S.
$2.2 trillion
Operating costs are roughly 2.5 more than wholesaling
Types of Retailers
Dept store
Discount
Limited-line
Specialty
Off-price
Category killer
Supermarket
Convenience store
Warehouse store
Breadth and depth of product mix
Broad, deep
Broad, shallow
Narrow, deep
Very narrow, deep
Narrow, deep
Narrow, very deep
Broad, deep
Narrow, shallow
very broad, very shallow
Scrambled merchandising
Nonstore retailing
$200-250 billion 10% of all retailing
Telemarketing - $50 billion
Automatic vending - $25 billion (Coke’s idea to price vending relative to outside
temperature)
Direct marketing - $150 billion (direct mail, catalog, online)
What is wholesaling?
Resale, use in producing other goods or services, operating an organization
$3.2 trillion in 1992
Category
Merchant wholesalers - full service, truck jobbers, drop shippers (don't handle the
product)
Agent wholesalers - mfg reps, brokers (represent sellers)
Manufacturer's sales facility
Physical Distribution
$1 saved in supermarket sales for supermarkets = $100 in sales
Uses of PD
Improve customer service
Reduce distribution costs
Create time and place utilities
Stabilize prices
Control shipping costs
Where to establish distribution centers? Factors?
Hub and wheel
Types of warehouses - private (no seasonality, special handling and storage
requirements), public (variable cost)
Materials handling
Containerization
Standard pallets
Inventory control
JIT
Market response system - purchase by final consumer activates process to
produce and replace
EOQ (carrying costs, order processing costs)
Order processing issues
Database
Insure correct delivery address
VF computers in Penny's and Walmart link their computers to order replacements
Transportation
Rail
Water
Highway
Pipeline
Air
Freight forwarders
Ship less than a carload combined into a full shipment
Promotion Concepts
What is the promotional mix?
Personal selling - direct presentation of the product to the customer
Advertising - impersonal communication, paid
Sales promotion - demand stimulating supplements advertising and personal selling
Public relations - no specific sales message (newsletters, annual reports)
Publicity - nonpaid, news stories about products
Integrated marketing communication is all of the elements of the promotional mix
What is the communication process?
Define message
encode
transmit
receive
decode
response
feedback
What is the purpose of promotion?
Informs, persuades and reminds
What factors influence selection of promotional mix?
 Target market
1.
Readiness to buy - Hierarchy of Effects Model (AIDA)
Awareness
Knowledge
Liking
2.
Type of customer
3.
Concentration of the market
4.
Geographic scope of market
Preference
 Nature of product
1.
Presale/postsale service, unit value (low=low risk)
 Stage of Product Life Cycle
What is the difference between a push and pull strategy?
Methods of Budgeting promotion
% of sales
available funds
Conviction
Purchase
competitive parity
objective/task
Regulation of Promotion
FTC - misleading advertising
Robinson-Patman - promotional allowances
Lanham Act - 1988 Trademark Improvement Act
Types of salespeople?
Inside order taker - retail sales
Outside order taker - Pillsbury
Missionary salesperson - doesn’t close sale, builds goodwill, perform promotional
activities
Creative order getter - commission sales project oriented
What is systems selling?
Selling a total package of goods and services
What is relationship selling?
Build long-term relationship with customer
What is the selling process?
Prospecting
Preapproach
Presentation - AIDA
Post sale services
What are the types of advertising?
Consumer, business-to-business
Product, institutional (an organization’s position on an issue)
Social (Drug free America campaign)
Primary demand - introductory period (pioneer advertising)
Selective demand - comparative advertising
What is cooperative advertising?
Vertical coop advertising, advertising allowance
Advertising Objectives




Build awareness
Reminder to use
Change attitudes about use of a product
Change perceptions of importance of brand attributes
Characteristics of various media
Newspaper - flexible and timely, perishable, clutter
TV - motion, sound and visual effects, products demonstrated, relatively
expensive
Radio - attention low, audio only, relatively inexpensive for frequency
Outdoor - rule of thumb is 6 words or less, make it brief, limited locations
Direct mail - most personal and selective of all media, low amount read
Magazines - high quality printing and color are desired, pass along rate
Yellow pages - difficult to differentiate, timeliness is an issue
Internet – click rates vary, relatively inexpensive
How to evaluate ads?
Direct tests - recognition, aided recall, unaided recall
CPM = cost of an ad x 1,000/circulation
Reach (percentage of target audience that could be exposed to the ad)
Frequency (average number of times a member of the target audience is exposed to the
ad)
Gross Rating Points = reach x frequency
What is the purpose of sales promotion?
Short-term sales results
Techniques
 Sampling
 Couponing
 Sponsorship and event marketing
 Trade shows
 Product placements
Possible objectives
 Inquiries (free gifts, mail-in coupon for information, catalog offers, exhibits)
 Trial (coupons, free samples, contests, premiums, demonstrations)
 Inventory building (return allowances, slotting allowances)
 Promotional support (reusable display cases, sales contests, merchandise
allowances)
 Repurchase (on-pack coupons, mail-in rebates)
 Traffic building (special sales, weekly sales, entertainment events, retailer
coupons)

Increase rate of purchase (multipacks, special price on twos)
Evaluation methods
 Redemption rates
 Acquisition rates
 Displacement rates
 Conversion rates
 Stock-up rates
What is the purpose of PR?
Less than 1% of for profit organization’s promotion budget
Large part of nonprofit organization’s promotion budget
Viewed as a more creditable message compared to advertising
Difficult to control
How do you evaluate PR?
Difficult to evaluate
Pricing Concepts
What is price?
Price is the amount of money and/or other items with utility to acquire a product.
Importance of Price
Only variable that generates revenue. In the economy, price determines the
allocation of goods and services.
What are pricing objectives?
Profit-oriented
Sales-oriented
Target return
Maximize profits
Increase sales volume
Maintain or increase market share
Stabilize prices
Meet the competition
Factors that Influence Price
Estimate demand
Determine competition reaction
Look at the marketing mix
Product positioning
Distribution
Promotion
Cost of the product
Don't worry about average fixed cost curve, average variable cost, average
total cost, marginal cost curve.
Computing Price
Cost method
(1 + markup %) cost = price
Retail method
Cost
= price
(1 - markup %)
Breakeven Analysis
Total Fixed Costs
BEP =
Contribution margin (sp-vc)
Pricing Through a Channel of Distribution
Retail price = $40
Retail margin = 20%
Wholesaler margin = 50%
Manufacturer margin = 505
What is the maximum cost for the manufacturer to produce?
Price Thresholds - price ranges
Pricing Strategies
Price competition versus non price competition - shift demand curve
Value pricing - ratio of benefits to its price and related costs
Market entry strategies
Market skimming
Market penetration
Discounts
Quantity - cumulative, noncumulative
Trade
Cash
Seasonal
Promotional Allowance
Robinson-Patman Act
Geographic Pricing
Uniformed delivered pricing - postage stamp pricing
FOB factory pricing - seller doesn't pay freight costs
Zone delivered pricing - uniformed delivered pricing for each zone
Freight-absorption pricing - absorb some or all freight costs
One price strategy - charge same price to all buyers
Flexible pricing strategy - different customers pay different prices. Greater bargaining
situations.
Price lining - limited number of prices at which a business will sell related products
Odd pricing - psychological pricing
Leader pricing - leader items where price is cut
Everyday low pricing
High/low pricing - everyday low prices on some products and higher prices on other
products
Resale price maintenance and suggested list price