MARK 3321 1st Edition Exam 4 Study Guide Lectures 12 15 Lectures 12 15 Tuesday April 14 Tuesday April 28 CH 19 Pricing Concepts What is Price o Price is that which is given up in an exchange to acquire a good or service The importance of price to marketing managers o o Revenue The price charged to customers multiplied by the number of units sold Price x quantity Profit Revenue minus expenses Pricing objectives o Profit oriented Profit maximization Satisfactory profits Target return on investment ROI net profits after taxes total assets o o Sales oriented o ROI 550 000 4 500 000 12 2 Market share Can be based on revenue or units Based on the industry you re competing it To calculate it you need the size of industry Sales maximization Status quo The demand determinant of price o Demand o Supply o The priced at which demand and supply are equal Elasticity of demand The quantity of a product that will be offered to the market by a supplier at various prices for a specified period Price equilibrium o The quantity of a product that will be sold in the market at various prices for a specified period Consumers responsive or sensitivity to changes in price Factors that affect elasticity of demand o o Availability of substitutes When many substitutes are available it is easy to switch products making demand elastic The same is true in reverse if no substitutes are available Price relative to purchasing power o Product durability o The greater the number of uses for a product the more elastic demand tends to be If a product has only one use the quantity purchased probably will not vary as price varies Rate of inflation Yield management systems o Repairing durable products rather than replacing them prolongs their useful life If the cost of a new product increases people might elect to repair the old product Thus people are sensitive to the price increase and the demand is elastic A product s other uses o If a price is so low that it is an inconsequential part of an individual s budget demand will be inelastic and people are not sensitive to the price increase A technique for adjusting prices that use complex mathematical software to profitably fill unused capacity The cost determinant of price o Types of costs Variable costs Fixed costs Varies with changes in level of output The Break even Point Do not change as level of output changes Profit Maximizing Pricing o Profit maximization o Marginal revenue cost o A method of setting prices that occurs when marginal revenue equals marginal cost The change in total revenue cost with a one unit change in output Understand Table 19 8 in book Markup Pricing o Markup pricing o Uses the cost of buying the product plus amounts for profit and for expenses not otherwise accounted for Markup Price Cost 1 Desired Return on Sales o Keystoning The practice of marking up prices 100 over cost or doubling the cost Desired return on sales is 50 Other determinants of Price o Stages of the product life cycle o Competition o Distribution strategy o Promotion strategy o Perceived quality The relationship of price to quality o Prestige pricing Charging a high price to help promote a high quality image CH 20 Setting the Right Price How to set a price on a product or service o Establish pricing goals o Estimate demand costs and profits o Choose a price strategy o Fine tune with pricing tactics o Results lead to the right price Price strategy o A basic long term pricing framework that establishes the initial price for a product and the intended direction for price movements over the product life cycle Choose a price strategy o Price skimming o Penetration pricing o A firm charges a high introductory price often coupled with heavy promotion A firm charges a relatively low price for a product initially as a way to reach the mass market Status quo pricing Charging a price identical to or very close to the competition s price Price strategies Skimming vs Penetration Price skimming o Situations when Price Skimming is Successful Inelastic demand Unique advantages superior Legal protection of product Technological breakthrough Blocked entry to competitors Penetration pricing o Can lead to lower costs per unit as production expands o Discourages competition from market entry o Most effective when the market is price sensitive o Penetration is more risky The Legality of Price Strategy o Unfair trade practices o Price fixing o State laws that prohibit wholesalers and retailers from selling below cost An agreement between two or more firms on the price they will charge for a product Price discrimination The Robinson Patman act of 1936 o o Cost o Market conditions o Competition Predatory pricing Seller defenses The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market Tactics for fine tuning the base price Other pricing tactics Tactics for Fine Tuning the Base Price Consumer Penalties o Businesses impose consumer penalties if An irrevocable loss of revenue is suffered Additional transaction costs are incurred Product line pricing o Product line pricing o Setting prices for an entire line of products Joint costs Costs that are shared in the manufacturing and marketing of several products in a product line CH 15 Marketing Communications The role of promotion o Promotion Communication by marketers that informs persuades and reminds potential buyers of a product in order to influence an opinion or elicit a response Goals and tasks o Target audience Informing Reminding Promotional strategy competitive advantage A plan for the optimal use of the elements of promotion Advertising Public relations Sales promotion Personal selling Social media Communication o PLC stages Growth Maturity The role of promotion o PLC stages all stages Persuading PLC stage Maturity Connecting PLC stages Introduction Early growth The process by which meanings are exchanged or shared though a common set of symbols Marketing communication o Categories of communication Interpersonal communication Direct communication face to face Mass communication Normally to large audiences usually through some type of media The communication process Characteristics of the Elements in the Promotional Mix The AIDA Concept The Promotional Mix and AIDA Integrated Marketing Communications o The careful coordination of all promotional messages to assure the consistency of messages at every contact point where a company meets the consumer Factors affecting the