BUSML 3250 Principles of Marketing Final Exam Study Guide Professor Rebecca Naylor Chapter 10 Price the amount of money charged for a product or service or the sum of the values that customers exchange for the benefits of having or using the product or service Value based pricing offering just the right combination of quality and good service at a fair price assess customer needs and value perceptions set target price to match customer perceived value determine costs that can be incurred design a product to deliver desired value at target price Cost based pricing setting prices based on the costs of producing distributing and selling the product plus a fair rate of return for effort and risk design a good product determine product costs set price based on costs convince buyers of product s value Competition based pricing setting prices based on competitors strategies prices costs and market offerings Demand curve a curve that shows the number of units the market will buy in a given time period at different prices that might be charged In the normal case demand and price are inversely related meaning that the higher the price the lower the demand Vertical axis represents the different prices a firm might charge Horizontal axis shows the number of units Price Elasticity of Demand a measure in the sensitivity of demand to changes in price Elastic small percentage changes in price lead to substantial percentage changes in the number of units bought Inelastic large percentage changes in price leads to small percentage changes in the number of units bought Chapter 11 Market skimming pricing setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price the company makes fewer but more profitable sales Product quality and image must support the price Buyers must want the product at the price Costs of producing the product in small volume should not cancel the advantage of higher prices Competitors should not be able to enter the market easily Market penetration pricing setting a low price for a new product in order to attract a large number of buyers and a large market share Price sensitive market Low prices must keep competition out of the market Product Mix Pricing Strategies Product line pricing setting the price steps between various products in a product line based on cost differences between the products customer evaluations of different features and competitors prices Optional product pricing the pricing of optional accessory products along with a main product Captive product pricing setting a price for products that must be used along with a main product such as blades for a razor and games for a video game console By product pricing setting a price for by products in order to make the main product s price more competitive Product bundle pricing combining several products and offering the bundle at a reduced price Reference prices prices that buyers carry in their minds and refer to when they look at a given product If the actual price is higher consumers will feel the product is overpriced If it is too low below the internal reference price consumers may assume its quality is inferior Price Image global impression of the overall price level of a store evaluated in context relative to other stores Imperfectly correlated with quality and price Everyday low pricing charging constant everyday low prices with few sales of discounts ex Walmart Costco and Family Dollar High low pricing charging higher prices on an everyday basis coupled with frequent sales and other price promotions to increase store traffic create a low price image or attract customers who will buy other goods at full prices Odd even pricing a psychological pricing tactic in which numeric value is utilized to affect the customer s perception of product value Odd pricing refers to a price ending in an odd number such as 2 47 Even pricing refers to a price ending in a whole number or in tenths such as 2 50 Price Quality Relationship most inexperienced consumers use price as an indicator of quality however price becomes crucial when consumers have little knowledge about certain products brands Loss leader pricing setting prices near or below cost in order to attract customers to a store Legal and Ethical Aspects of Pricing Horizontal price fixing illegal to agree on a price within a group of manufactures or retailers of wholesalers Vertical price fixing retailers cannot be forced to adhere to minimum retail prices manufacturers wholesalers can set maximum prices if it doesn t adversely impact competition Price discrimination manufacturers wholesalers cannot charge a different price to different retailers discounts must be equitable Price advertising guidelines laws regarding advertising price reductions advertising prices in relation to competitor s prices and bait and switch advertising Predatory pricing means that a company sets a very low price for the purpose of driving competitors out of business they will then raise prices when competitors are gone illegal Chapter 12 Distribution Channel a set of interdependent organizations involved in the process of making a product or service available to the final consumer Between the producers and the consumers there are a variety of intermediaries wholesalers distributors which constitute the distribution channel Channel members add value to the consumer s experience in 3 ways 1 Product Utility intermediaries bridge the discrepancy between the assortment of goods produced and demanded 2 Time Utility intermediaries can reduce search time increase delivery time 3 Place Utility intermediaries can reduce distance between consumer and product Direct marketing channel a marketing channel that has no intermediary levels Useful because they allow for maximum control over presentation to the end user and positioning efforts Indirect marketing channel a marketing channel containing one or more intermediary levels Can greatly expand the reach to targeted end users builds on the distribution expertise of channel partners relinquishes control of downstream activities Channel conflict disagreements among marketing channel members on goals roles and rewards who should do what and for what rewards Channel design decisions designing effective marketing channels by analyzing customer needs setting channel objectives identifying major channel alternatives and evaluating those alternatives Types of Distribution Intensive
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