BUSSPP 0020 1st Edition Exam 3 Study Guide Lectures 13 17 Lecture 13 I Price Pricing A Definition of price amount of money that a seller is asking or a buyer is bidding for a product 1 Contains all known information 2 Refers to the idea that both parties to the transaction have complete symmetric information B Definition of pricing process by which price is arrived at 1 Decision making process C Decision making process 1 Objectives of pricing a Profit focus nudges prices upward i Maximizing ii Satisficing target setting b Market Share nudges prices downward i Attract customers increase market share with low prices c Status Quo Pricing keeps prices constant i customers much prefer a stable price for a predictable period of time ii Won t have to adjust frequently d Entry Barrier Pricing nudges price downward i Someone is going to attempt to enter the market ii Lower price e Survival i when a firm believes that its existence is threatened it does weird things with prices ii Drop prices generate as much as possible get out iii Lower raise prices on certain things etc II Strategies A Primary 1 Focus on demand a Up raise price b Down drop price c Price at maximum adjust for demand d May adjust in real time or in anticipation of future demand e In anticipation of spring break hotel prices in spring break towns go up long before demand is actually observed 2 Focus on Cost a set price as to cover costs and hopefully make a profit 3 Focus on Competition a Price similarly to competition 4 Auction Pricing a buyer pricing b reserve price seller won t sell below x 5 Negotiations a involve both parties setting price b house buying concept i price not set by one party common agreement c jobs negotiation is acceptable within bounds i signing bonus ii Time of vacation accumulation iii Moving Expenses iv Schedule home long hours long weekend etc 6 Gray Market crossing a border to obtain legal illegal goods at a lower price for personal consumption B Secondary Lecture 14 I Legal Considerations A Story 1 tells us a story about two people meeting in secret to change prices ILLEGAL Story 2 when one person changes prices and another follows that is considered LEGAL B Collusion to fix prices story 1 is illegal and a FEDERAL OFFENSE 1 Explicit collusion flat out conspiring to raise prices in a joint and organized manner 2 Implicit collusion looks like there has been a collaboration between two companies but have not a Signal when any party puts information into the market place and has been perceived by other players overall puts information into market and have people adjust accordingly i Example is raising prices and others following along ii Adjusting your behavior accordingly iii One party buyer seller third puts information into the marketplace b If the market is expecting information and doesn t get it i This is the absence of expected information ii Ex your mom knows you had a test today and when you don t call after it she will assume the worst Takeaways Pricing is one of the things a company has control over but also has significant legal constraints on how to spread information II Objectives Strategies part 2 A Multiples combinations of objectives B combining strategies 1 Competition based 2 Types of prices a Premium prices Nordstrom s b Middle price middle of the road Macy s c Discount price Wal Mart 3 a Back in the day used to be many middle of the road stores b Today there is a growth in discount and premium stores and a decrease in middle of the road stores 4 Stores try to stay in their price range for competitors a i e Wal mart will crush any competition so there are many stores between macy s and WM i Target kohls JCP etc b Below WM are the dollar stores 5 Strategic decisions where all of these stores decided to be located in terms of competition and pricing III Cost basis A Types 1 Multiple break even point B Develop 1 Algebraically 2 Geometrically 3 Algebra Profit revenue expenses Profit P Q variable fixed Total variable is equal to variable costs quantity fixed and P V is equal to contribution margin Profit PQ VQ F At break even profit 0 0 PQ VQ F 0 Q P V F 0 CMQ F F CMQ fixed costs are always positive F P V Q Unless CM is positive we can never break even Necessary conditions 1 P V 0 price must exceed variable costs 2 Q of break even must be less than or equal to capacity 3 If break even price is outside the range fo what customers typically pay the price of Break even must be gettable Lecture 15 I Promotion A Make the customer understand that we exist in the market as a seller B Value proposition II A Story A Firm buy a car 1 Atkin REALY loves cars yet buys them as transportation only 2 2002 2003 Atkin s in Dublin 3 Letter from fancy car dealer 4 Salespeople match the demographics of the buyer think Saturn B What elements of promotion 1 Direct marketing 2 Personal sales 3 Sales promotion try or buy 4 Advertising throughout 5 Public relations salesperson attire business presentation a try to estimate how much this campaign cost fixed cost independent of quantity sold b Who pays for this campaign Dealership Domner Benz Gift card 1 Gift card 2 Saks x x 25 000 35 350 Mailing 1 Mailing 2 Sales reception cookies Car Mailing List x x x x x x 10 10 20 x 50 Mark up there s a cost to the retailer Retailer multiplies by some factor to get price 2 3x amt Retail value DOES NOT imply total cost Lecture 16 I Introduction to supply chain A Has moved from an engineering focus to a business function 1 Area useful for cost reduction if utilized efficiently 2 Used as a way of driving business in general provide competitive advantage B Many terms used to identify this area 1 Logistics math modeling of supply chains now just generally refers to supply chain mgmt 2 Distribution concept of linking any two particular parts of a supply chain 3 Distribution System distribution of entire chain from raw material to finished good II Basic Supply Chain Model A Raw material s Intermediate goods Finished product Manufacturer Possible Wholesaler Possible Retailer End User B Goal of Supply Chain Management right amount right stuff right place right time at the minimum possible cost C Example American Eagle Retailer 1 60 SKUs of sweaters a You want an XL navy crew neck sweater b 2 situations have it don t have it i don t have it excess inventory of something else lost sale 2 Right amount right stuff right place right time at the minimum possible cost D Manufacturer needs design fabric thread E Any delay ANYWHERE in the