Marketing and Price: Understanding the Role and Impact, Study notes of Principles of Marketing

Download Marketing and Price: Understanding the Role and Impact and more Study notes Principles of Marketing in PDF only on Docsity! © 2013 Cengage Learning. All rights reserved. 1-1 1-2 12: Pricing Fundamentals Part 5: Pricing Decisions © 2013 Cengage Learning. All rights reserved. 1-5  Price is the only marketing mix variable that can be changed rapidly  Price is related directly to total revenue and profit  Profit=Total Revenue-Total Costs  Profit=(Price x Quantity Sold)-Total Costs  Price has a psychological impact on customers  Marketers may use price symbolically  A high price can emphasize quality and prestige The Importance of Price to Marketers © 2013 Cengage Learning. All rights reserved. 1-6  Emphasizing price as an issue and matching or beating competitors’ prices  To compete effectively, firm must be the low- cost seller  Firms that compete on price tend to market standardized products  Gives marketers flexibility  Price war with competitors is a danger Price Competition © 2013 Cengage Learning. All rights reserved. 1-7  Emphasizing distinctive product features and other factors to distinguish a product from competing brands  Can help a firm build customer loyalty  A firm must be able to distinguish its brand  Unique features  High quality  Promotion  Packaging  Excellent customer service  Even in nonprice competition, marketers must be aware of competitors’ brands Nonprice Competition © 2013 Cengage Learning. All rights reserved. © 2013 Cengage Learning. All rights reserved. 1-10 Demand Curve Illustrating the Relationship Between Price and Quantity for Prestige Products © 2013 Cengage Learning. All rights reserved. 1-11  What do you think the demand curve looks like (regular or prestige) for the following products?  Creamland milk  Seven for All Mankind premium jeans  Veuve Clicquot champagne  Entenmann’s coffee cake  Bic pens Discussion Question 1-12  Changes in buyers’ needs  Variations in effectiveness of marketing  Presence of substitutes  Dynamic environmental factors  Seasonality Analysis of Demand: Demand Fluctuations © 2013 Cengage Learning. All rights reserved. © 2013 Cengage Learning. All rights reserved. 1-15 Elasticity of Demand 1-16  Availability of substitutes  Can consumers replace coffee with tea?  Amount of income available to spend on a good  With an increase in price, will the consumer who is on a fixed income be forced to buy less?  Time  Over time will a consumer cut back/ quit smoking if the price of cigarettes goes up? Factors Affecting Elasticity of Demand © 2013 Cengage Learning. All rights reserved. © 2013 Cengage Learning. All rights reserved. 1-17  Frito-Lay is a major producer of potato chips  It requires a large supply of potatoes to make its snack foods  Do you think the potato chip industry’s demand for potatoes is elastic or inelastic?  What factors could affect demand? Think About It © 2013 Cengage Learning. All rights reserved. 1-20 Costs and Their Relationships © 2013 Cengage Learning. All rights reserved. 1-21 Typical Marginal Cost and Average Total Cost Relationship © 2013 Cengage Learning. All rights reserved. 1-22 Typical Marginal Revenue and Average Revenue Relationship 1-25  Break-even point  The point at which the costs of producing a product equal the revenue made from selling the product • The marketer should determine the break-even point for several alternative prices Break-Even Analysis © 2013 Cengage Learning. All rights reserved. Breakeven Point = Fixed Costs Per-Unit Contribution to Fixed Costs (Price – Variable Costs) © 2013 Cengage Learning. All rights reserved. 1-26 Determining the Break-Even Point © 2013 Cengage Learning. All rights reserved. 1-27 Factors Affecting Pricing Decisions 1-30  Costs are a crucial issue when establishing price  Ideally, goods are sold above cost—exceptions (in the short-term) are  To match competition  To generate cash flow  To increase market share  Marketers must be certain to include all costs when calculating price  Cost reduction has been a major focus for marketers Costs © 2013 Cengage Learning. All rights reserved. 1-31  All marketing mix variables are highly interrelated  Price can affect demand  Perceived price/quality relationships influence image of products or brands  Price is linked to how a product is distributed  Price may determine how a product is promoted Other Marketing Mix Variables © 2013 Cengage Learning. All rights reserved. 1-32  Channel members often expect to receive discounts for large orders and prompt payments  Resellers may expect producers to provide support activities  Producers must consider the associated costs of discounts and support activities Channel Member Expectations © 2013 Cengage Learning. All rights reserved. 1-35  Value-conscious: Concerned about both price and quality of a product  Price-conscious: Strive to pay low prices  Prestige-sensitive: Focus on purchasing products that signify prominence and status Categories of Buyers © 2013 Cengage Learning. All rights reserved. © 2013 Cengage Learning. All rights reserved. 1-36  Subway is known for being healthy relative to other fast food establishments  It also has a reputation for being a bargain versus other sandwich shops  Click here to view an advertisement  To what category of buyer do you think this ad is appealing? Think About It 1-37  Marketers must know competitors’ prices so they can adjust prices accordingly  Price adjustments must be assessed in terms of competitor’s response  Regulated industries limit competitive pricing  Unregulated monopolies can set any price  Price cuts in oligopolies are not an effective strategy  In monopolistic competition, nonprice competition is most effective  In perfectly competitive markets, there is no flexibility in setting prices Competition © 2013 Cengage Learning. All rights reserved. 1-40  Price discounts fall into five categories  Trade  Quantity  Cash  Seasonal  Allowance  Discounts can be a significant factor in marketing strategy Pricing for Business Markets © 2013 Cengage Learning. All rights reserved. © 2013 Cengage Learning. All rights reserved. 1-41 Discounts Used for Business Markets 1-42  Trade (Functional) discounts: A reduction off the list price a producer gives to an intermediary for performing certain functions  Quantity discount: A reduction off the list price for purchasing in large quantities  Cumulative discounts: Aggregated over a stated period of time  Non-cumulative discounts: One time price reductions based on the number of units purchased, the dollar value of the order, or the product most purchased Discounts © 2013 Cengage Learning. All rights reserved. 1-45  Uniform geographic (Postage stamp) pricing: The same price is charged to customers in all geographic locations  Zone pricing: Pricing based on transportation costs within major geographic zones  Base-point pricing: Geographic pricing that combines factory price and freight charges to the nearest buyer  Mostly abandoned because of questionable legality  Freight absorption pricing: The seller absorbs the freight costs Geographic Pricing (continued) © 2013 Cengage Learning. All rights reserved. 1-46  Occurs when one unit in an organization sells a product to another unit  Price is determined by a number of methods  Actual full cost: Dividing all fixed and variable expenses by the number of units produced  Standard full cost: What it would cost to produce the goods at full plant capacity  Cost plus investment: Full cost plus a portion of the selling unit’s assets  Market-based cost: The market price less a discount to reflect expenses Transfer Pricing © 2013 Cengage Learning. All rights reserved. © 2013 Cengage Learning. All rights reserved. 1-47 Key Concepts Price Average variable cost Barter Total Cost Price competition Average Total Cost Nonprice competition Marginal cost (MC) Demand curve Marginal revenue (MR) Price elasticity of demand Break-even point Fixed costs Internal reference price Average fixed cost External reference price Variable costs Value conscious