MKT 300 1st EditionExam # 3 Study Guide Lectures: 16 - 21Lecture 16 (March 24)Chapter 14 MaterialPrice: the overall sacrifice a consumer is willing to make to acquire a specific product/serviceValue: relationship between the product’s benefits and the consumer’s costsThe Five C’s of Pricing:1. Company Objectives: company goals should support pricing strategya. Objectives reflect how the firm intends to grow and be successfulb. Profit Oriented: focused on maximizing profitsi. Firms implement target profit pricing when they have a particular profit goal as their main concernc. Sales Oriented: believing increasing sales will help the firm more than increasing profitsi. Setting prices low to generate sales; sometimes profits may sufferd. Competitor Oriented: strategize according to how they measure themselves against their competitioni. Competitive Parity: setting prices similar to major competitorsii. Status Quo Pricing: having prices only meet those of the competitione. Customer Oriented: setting a pricing strategy based on how it can add value to itsproducts/servicesi. Warby Parker gives away a pair of glasses for each pair that is bought2. Customers: understanding consumers’ reactions to different pricesa. Elastic (price sensitive): non-necessities, luxury items, items with close substitutionsb. Inelastic (price insensitive): necessities, items used often—gas/medicine/water/toilet paper3. Costs: understanding cost structures to determine the degree to which products will be profitable at different pricesa. Variable: vary with production volumei. When making a pair of jeans, these would be the fabric and the threadb. Fixed: unaffected by production volumei. With jeans example, this would be the machine that makes jeans—spend same amount making one pair as you would making millionsc. Spirit Airlines: low fares, making insanely high profitsd. Pricing a Polo: small business that charges $155 per shirt instead of the normal polo price of $90; put much more time/effort into production as well4. Competition: how well competitors react to certain pricing strategiesa. Monopoly: one firm provides the product/service in an industry; less price competitionb. Oligopoly: few firms dominate the market; ex: soft drinks, airlines, cell phone networksc. Monopolistic Competition: many firms competing in market but products are differentiated: restaurants and clothingd. Pure Competition: sellers of standard products: paper clips, gas5. Channel Members: manufacturers, wholesalers, and retailersa. Want good relationships with these people; have to consider them when pricingb. All can have different perspectives on pricing strategiesc. Protect against gray market transactionsMacro Influences on PricingConsumers have lots of power and options thanks to the Internet.- Enables consumers to find the best prices for any product quickly, which increases their price sensitivity and reduces the costs associated with finding lower-price alternatives- Online auction sites such as eBay have had growth- Prices vary based on consumer’s location (use software to locate consumer)- Prices may vary at different times during the day- Dynamic pricing: based off consumer demand- Price may be based off what device consumer is using to shop (Mac vs. PC)Lecture 17 (March 26)Chapter 15 MaterialPricing Strategies:1. Cost-based: determine the final price to charge by starting with the costa. Do not recognize the role of consumers/competitorsb. Downsizing: companies change the package size to less, but charge the same; people notice price change before anything else2. Competition-based: setting prices the way they want consumers to interpret their prices,relative to competitors’3. Value-based: setting prices that focus on the overall value of the product offered (as perceived by the customer)a. Giving consumer value; making them feel like they’re getting benefits with what they’re paying for (fair pricing)Everyday Low Pricing (EDLP) vs. High/Low Pricing- EDLP saves search costs of finding lowest overall price; ex: Wal-Marto Customer knows he will get a low price across the board- High/Low provides the thrill of the chase for the lowest price (almost like a game)o Offers satisfaction of getting a good dealo Relies on promotion of saleso JC Penney Pricing Strategy failure: went from High/Low to EDLP and lost billions- Both create value in different waysNew Product Pricing Strategies1. Market Penetration Pricing: setting a low initial price, discouraging competitors from entering the market because the profit margin is low2. Price Skimming: setting a high initial price, setting a larger price margina. May give the product a better image in consumers’ mindsb. Common in technology and electronicsPricing Tactics Aimed at Consumers1. Markdowns: reductions on initial selling price; gain attention of consumer, often done to clear out past season’s merchandise2. Quantity Discounts: the larger the quantity, the less the cost per ounce3. Seasonal Discounts: encourage year round use, especially in slow season; common with hotels and airfare4. Coupons: offer a discount on the price of a purchased item5. Rebates: issued by the manufacturer; refunds a portion of the purchase price to consumer if rules of purchase are followed6. Leasing: consumers pay a fee to purchase the right to use a product for a specific time period7. Price Bundling: firms bundle products/services together to encourage customers to purchase morea. Popcorn at the movie theater8. Leader Pricing: attempt to build store traffic; aggressively pricing a regularly purchased item9. Price Lining: marketers establish a price floor/ceiling for an entire line of products and set a few other price points in between to represent distinct differences in qualityPrice Tactics Aimed At Businesses1. Seasonal Discounts: additional reduction if next season’s products are purchased early2. Cash Discounts: reduces the invoice cost if the buyer pays the full amount within a set period – 3/10, n/303. Vendor Allowances (Trade Promotions): offered in return for specific behaviors; advertising/slotting4. Quantity Discounts: reduced price according to the amount purchased5. Uniform Delivered vs. Zone Pricing: uniform delivery- same delivery price no matter the distance; zone- cheaper price the closer you areLegal and Ethical Aspects- Deceptive: advertising needs to be correct (no fake sales)- Predatory Pricing: entering the market with low prices with the intent to put