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UNIT VIII STUDY GUIDE Price Setting and Ethical Marketing Learning Objectives Reading Assignment Chapter 17: Price Setting in the Business World Chapter 18: Ethical Marketing in a Consumer-Oriented World: Appraisal and Challenges Supplemental Reading Exhibit 17 Exhibit 18 Upon completion of this unit, students should be able to: 1. Describe how most wholesalers and retailers set their prices by using markups. 2. Explain why turnover is so important in pricing. 3. Define the concepts of costs including average cost pricing, total cost, and average cost. 4. Explain how to use break- even analysis to evaluate possible prices. 5. Discuss the advantages of marginal analysis and how to use it for price setting. 6. Identify the various factors that influence customer price sensitivity. 7. Describe why marketing must be evaluated differently at the micro and macro levels. 8. Discuss the elements of the marketing strategy planning process. 9. Explain how to prepare a marketing plan and how it relates to marketing strategy planning. 10. List challenges marketers face as they work to develop ethical marketing strategies that serve consumers’ needs. Learning Activities (Non-Graded) Written Lecture See information below. In Unit VII, we discussed advertising objectives and when various kinds of advertising are needed and pricing and price flexibility. Key Terms 1. Average cost (per unit) 2. Average-cost pricing 3. Average fixed cost per unit) 4. Average variable cost (per unit) 5. Bait pricing 6. Bid pricing 7. Break-even analysis 8. Break-Even Point (BEP) 9. Complementary product pricing 10. Demand-backward pricing BBA 3201, Principles of Marketing In this unit, we expand on various pricing concepts and strategies. Generally, retailers and wholesalers use markups when setting prices. Some just use the same markups for all their items because it is simpler, but this is not usually the best approach. It is more effective to consider customer demand, competition, and how markups relate to turnover and profit. It is important for marketing managers to understand costs. If customers are not willing to pay a price that is at least high enough to cover all of the costs of the marketing mix, the firm will not be profitable. There are different types of cost that a marketing manager needs to understand. One strategy used to set prices is average-cost pricing. This approach can fail because it ignores demand. Marketers should use a break-even analysis, which is a variation of the cost-oriented approach. It is useful for analyzing possible prices. However, managers must estimate demand to evaluate the chance of reaching these possible break-even points. The major difficulty with demand-oriented pricing involves estimating the demand curve. Experienced managers, perhaps aided by marketing research, can estimate the nature of demand for their products. Even if estimates are not exact, they can help get prices in the right ballpark. There is usually a profitable range around the most profitable price. Marketers should consider demand when setting prices. This is done with value in using pricing, psychological pricing, 1 11. Fixed-Cost (FC) contribution per unit 12. Full-line pricing 13. Leader pricing 14. Marginal analysis 15. Markup (percent) 16. Markup chain 17. Markup 18. Negotiated price 19. Odd-even pricing 20. Prestige pricing 21. Price lining 22. Product-bundle pricing 23. Psychological pricing 24. Reference price 25. Stockturn rate 26. Total cost 27. Total fixed cost 28. Total variable cost 29. Value in use pricing odd-even pricing, full- line pricing, and even bid pricing. Understanding the factors that influence customer price sensitivity can make these approaches more effective. Cost-oriented approaches should not be used by themselves, but they do help the marketing manager understand the firm’s profitability. Pricing decisions should consider the cost of offering the whole marketing mix. Smart marketers do not accept cost as a given—target marketers always look for ways to be more efficient — to reduce cost while improving the value that they offer customers. Macro-marketing is not very costly. Consumers have assigned business the role of satisfying their needs. Customers find it satisfactory and even desirable to permit businesses to cater to them and even to stimulate wants. As long as consumers are satisfied, macro-marketing will not be costly and business firms will be permitted to continue as profit making entities. Businesses exist at the consumer’s discretion. It is mainly by satisfying the consumer that a particular firm — and our economic system — can justify its existence and hope to keep operating. In carrying out this role, business firms are not always as effective as they could be. Many business managers do not understand the marketing concept or the role that marketing plays in our way of life. They seem to feel that business has a God given right to operate as it chooses. They proceed in their typical production-oriented ways. Further, many managers have had little or no training in business management and are not as competent as they should be. Others fail to adjust to the changes taking place around them. A few dishonest or unethical managers can do a great deal of damage before consumers/citizens take steps to stop them. As a result, marketing by individual firms often does cost too much. The situation is improving. More business training is now available, and people that are more competent are being attracted to marketing and business generally. The marketing strategy planning process provides a framework that will guide marketing managers to more effective marketing decisions and marketing that really does deliver superior value to customers. It also benefits the firm, through profits and growth. It is truly a “win-win” situation. In our competitive, marketdriven economy, managers and firms that lead the way in creating these successes will not go unnoticed. As effective marketing management spreads to more companies, the whole macro-marketing system will be more efficient and effective. To keep our system working effectively, individual firms should implement the marketing concept in a more efficient, ethical, and socially responsible way. At the same time, consumers should consume goods and services in an intelligent and socially responsible way. Learning Activities (Non-Graded) Article Review For this assignment, choose a peer-reviewed article to review. Search for an article related to one of the topics discussed in Unit VIII. Use the databases within the CSU Online Library or use another source that contains peer-reviewed articles. The purpose of this assignment is for you to practice reviewing articles related to the field. The authors of these articles are researchers and professionals in the field. Use these skills to contribute to research papers and other scholarly writing. As you read the articles, consider the following questions: How could the topic of this article apply to your personal or professional life? How could it apply to an organization you have observed? BBA 3201, Principles of Marketing 2 The article you choose must meet the following requirements: 1. Peer reviewed 2. Related to the concepts within this course 3. At least five pages The writing you submit must meet the following requirements: 1. At least two pages 2. Identify the main topic/question 3. Who is the author’s intended audience? 4. Summarize the article for page one 5. Think critically about the article and how it applies to this course for page two Format your article review using APA Style. Use your own words and include citations for other articles as needed to avoid plagiarism. This is a non-graded activity, so you do not have to submit it. BBA 3201, Principles of Marketing 3