MKT 300 1st Edition Lecture 16 Outline of Last Lecture Outline of Current Lecture I. The Role of Price in the Marketing MixII. 1st C: Company ObjectivesIII. 2nd C: CustomersIV. 3rd C: CostsV. Break Even AnalysisVI. 4th C: CompetitionCurrent LectureI. The Role of Price in the Marketing Mixa. Price gets our attention: either in a good way or bad wayb. Determines how much people are willing to purchase: one of the most importantfactors in purchase decisionsc. 4P’s (Price, Product, Place, Promotion) all cost money; price is the only element that generates a revenued. Can be a segmentation variable: not want a high price on kids’ clothing, but probably don’t want to go to the cheapest doctor for cosmetic surgerye. Price is often a symbol of qualityi. Mtn. Dew “Dewshine”: resembles wine coolers—charging moreii. “Extra protein” products are more money per oz.iii. Quantum Duracell batteries are 20% more expensive than regular Duracell batteries.iv. Processing fee on Ticketmaster; Stub Hub’s was all inclusive (but prices were originally higher)II. 1st C: Company Objectivesa. Salesi. Black Friday: Best Buy (2011) did too many promotions: sales were great but profits sufferedb. CompetitorThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.i. Know others’ prices; don’t want other competitor’s to enter the market, so set prices low to discourage thatc. Customeri. Segmentation: some will always buy the lowest price; some will pay more for extra benefitsii. Want to show customers that you care: Costco charges a membership fee so they do not mark their prices upiii. Toms gives away a pair of shoe every time a pair is boughtiv. “Charity Chic”: Warby Parker—giving away a pair of glasses for each pair that’s bought (200,000 so far)III. 2nd C: Customersa. General law of demand: Demand increases as price decreases b. Don’t want to only rely on price decreases to get people into the door—can do promotions/giveaways/events/limited time offers without changing the pricei. Thus we have a shift in demandii. Limited time: Lobsterfest, McRibc. Elastic: price sensitive; non-necessity—there are other options out there (luxury items)d. Inelastic: price insensitive—use all the time: gas, medicine, water, toilet paper; less price sensitive because we have to have these items (to a certain extent)i. Consumers are less sensitive to price increases for necessitiesIV. 3rd C: Costsa. Variable Costs: vary with production volumei. Jeans example: these would be fabric / threadb. Fixed Costs: unaffected by production volumei. Machine that makes jeans: spend the same amount on one pair as you would on millionsc. Total Cost: sum of variable and fixed costsi. Lego years ago had their cost get out of control: too may designs1. Had to refocus objectives and product lines, hire a new CEOii. “Despite complaints, Spirit Airlines is flying high”: low fares, runs late, cramped—profits insanely high; a la carte pricingV. Break Even Analysisa. Fixed cost: price of machineb. Contribution per unit: selling price minus how much it costs you to make the productc. “Pricing a Polo”: $155 per shirt vs $90 normallyi. Fabric from France, buttons from Hong Kongii. Packaged in hand embroidered bags and manufactured in USVI. 4th C: Competitiona. Monopoly: great pricing power, one dominant player: Alabama Poweri. Luxottica: Italian eyewear (almost monopoly); owns Rayban, Sunglass Hut, Oakley; makes for Chanelb. Oligopoly: handful of firms; cell phone networks, video game systems, airlinesc. Monopolistic Competition: lots of competitors; restaurants, clothingd. Pure Competition: paper clips, gas, standardizedVII. 5th C: Channel Membersa. Manufacturers, wholesalers, and retailers can have different perspectives on pricing strategiesb. Manufacturers must protect against gray market transactionsc. Want good relationships with your retailers and manufacturers: have to consider them when pricingd. Apple, Levi, and Rolex are never discountede. Only want luxury products sold in certain places (salon hair products sometimes sold in Walmart/Target)VIII. Macro Influences on Pricinga. Power of internet: today we can check apps and get coupons sent to our phonesb. Consumers have lots of power and optionsc. Prices can vary on consumer’s location (use software to locate)d. If searching for hotels on a Mac, shown more expensive ones than if one were searching on a PC.e. Different prices at different times of the dayi. Dynamic pricing: base off of consumer