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 purchaseo 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 priceo Buyers – ask to pay a low priceo 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.- HISTORICALLY price has operated as the major determining factor of 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 profito 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 Objectiveso Government Regulationso Supplierso 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 anticipateo 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, customerwill 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’thave to know equation^) - If the % change in quantity sold is greater than the % change in price…The customer is price sensitiveo Elastic demando 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 insensitiveo Inelastic demando Price will NOT be a major factor in customer decision processCategories 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 Increaseo Status Quo – Market Shareo Improved Product QualityGOVERNMENT 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 togethero 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 Lawso Taxes: Different states charge different taxes on cigarettes o Enforcement policySUPPLIERS: Affect pricing policy in several ways: Affects the cost you pay, more you have to pay to put product together affects ultimate price1. Affect cost by what they charge for supplies needed . A change in price charged by supplier will ultimately affect the cost and expense incurredby the marketer.
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