MARKETING FINAL EXAM STUDY GUIDE Marketers are customer oriented consistent in how they do everything end result is a satisfied customer PRICE One of the most challenging strategies to plan marketer must recognize how to blend company pricing objectives with customer desires and expectations Price means different things to customers and marketers o The customer views price as the cost of making a purchase o The marketer views price as a means of obtaining revenue price helps allocate resources in a free market economy Price represents the perceived value of a good or service Historically price was determined through a process of bargaining and haggling o Sellers ask for a high price o Buyers ask to pay a low price o Parties eventually compromise TODAY many products are sold on the basis of a one price system o The price is determined and the product is sold at that price without bargaining and haggling Price adjustments can be made from time to time many non pricing factors have become relatively more important with regard to buyer choice price has operated as the major determining factor of HISTORICALLY buyer choice Price is the key determinant of revenue don t have to know equations just general idea that revenue is all income o Revenue price per unit x of units sold Revenue is a determinant of profit o Profit Revenue Cost Pricing is the only element in the marketing mix that is exclusively revenue oriented The other 3 marketing elements are cost related Referring to the other 4 Ps Marketer must develop pricing strategy that meets the company s needs as well as the customers expectations Factors That Affect Pricing Decisions o Target Customer most important factor o Company Objectives o Government Regulations o Suppliers o Competitors TARGET CUSTOMER o In order for a product to sell the product s price must be consistent with the customer s perceived value of that product If perceived value is lower than planned the product will not realize a high enough price to pay expenses and realize a profit o Customers will form an opinion regarding the price they expect and are willing to pay for a product this is known as the product s reservation price o If the price is set at a level that is within a customer s Zone of Tolerance total range what you think is the fair price aka at the movies you think fair price is 8 12 dollars and as long as the price is within that range the price will be the reservation price anywhere above or below questions quality or turns customer away from buying that product Right in between is really what you anticipate o For the purchase of any product Customers develop a price range they might expect to pay for any good or service Slide 27 o If the price is higher than a customer s reservation price customer will build up price resistance the customer will view the purchase as a sacrifice feel like you are giving up a dollar at movies if its more o If the price is lower than the reservation price but not outside of the Zone of Tolerance the customer will view the purchase as a value think that is a great deal o Marketers must understand the customers they are serving especially these customers price sensitivity Price Sensitivity is the degree of responsiveness that customers exhibit to changes in price has to do with selling at a certain price If price is sold 10 percent and if you only sell a few less you are still ahead of the game if you sell it 50 percent less you can get a LOT more price sensitive price not every customer or product is the same with regard to that but this will this effect how many I sell Price Elasticity change in quantity sold DIVIDIED BY change in price don t have to know equation If the change in quantity sold is greater than the change in price The customer is price sensitive o Elastic demand o Price will be a major factor in customer decision process If the change in quantity sold is less than the change in price The customer is price insensitive o Inelastic demand o Price will NOT be a major factor in customer decision process Categories of Customers Economical Price Sensitive means a lot not very loyal want lowest price Personalizing Somewhat price sensitive other things are more important but you like shopping there Ethical Price isn t very important you want to shop at a place that only uses American Labor because you support that labor or practices green environment Apathetic People don t look at price they just pay Company Objectives Since pricing decisions ultimately determine revenue and therefore profit outcome the company s objectives must be considered objectives can vary and even change over time Major Pricing Objectives What does the company need to accomplish o Cash Flow How to convert this product into sales probably will lower price most people lower prices furniture runs 30 percent sale off end of season o Survival Staying Consistent and keeping price moderate o Profit Maximization Charge everything I can get for it o Return on Investment Set a price up that you know you will make a certain amount of profit off of o Market Share Increase o Status Quo Market Share o Improved Product Quality GOVERNMENT RELATIONS The government at all levels can affect price by passing and enforcing laws and imposing sales taxes o Various Federal and State laws are designed to prevent illegal pricing practices Horizontal Price Fixing price collusion competing firms work together o Vertical Price Fixing through the channel system different levels try to convince each other to price their products such as manufacturers encourage retailers to sell their merchandise at a specific price o Predatory Pricing firm lowers price to drive out competition o Price Discrimination when firm sells same product to different firms at diff prices Sales tax can also affect the ultimate price paid by the customer e g tobacco Government influence includes o Laws o Taxes Different states charge different taxes on cigarettes o Enforcement policy SUPPLIERS Affect pricing policy in several ways Affects the cost you pay more you have to pay to put product together affects ultimate price charged by supplier will ultimately affect the cost and expense incurred 1 Affect cost by what they charge for supplies needed A change in price 2 Establish consistency of prices paid for supplies by the marketer This must be considered when setting price of product being marketed paid will affect the ultimate stability of the marketer s pricing policy The number of
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