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34 Cards in this Set
- Front
- Back
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PRICE |
A measure of visible value to both buyers and sellers The amount of money charged for a product or service The sum of all values that consumers exchange for the benefits of having the product Seller's notion of value |
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Price is a signal |
Prices can be both too high and too low Price set too low may signal poor quality Price set too high might signal low value Pice as a signal becomes more important when consumers have less familiarity with the product |
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The Role of Price in the Marketing Mix |
Price is usually ranked as one of the most important factors in purchase decisions Is the only marketing mix element that generates revenue and can easily be changed |
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Product Promotion Place |
Creates Marketplace Value |
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Price |
Captures Value Via Profits |
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The 5 C's of Pricing |
Company Objectives Costs Competition Customers Channel Members |
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1st C : Company Objectives |
Profit Oriented Sales Oriented Competitor Oriented Customer Oriented |
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Profit Orientation |
Target return pricing Target profit pricing Maximizing profits |
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Sales Orientation |
Focus on increasing sales Does not always imply setting low prices More concerned with overall market share |
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Competitor Orientation |
Competitive parity - set prices to similar competition Status quo pricing (changes prices to meet competition e.g., Air NZ Grab a Seat) Value is not part of this pricing strategy |
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Customer Orientation |
Focus on customer expectations by matching prices to customer expectations Tactics : no deals, one price policy, premium pricing, price promise |
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2nd C : Customers Demand Curves and Pricing |
Knowing demand curve enables to see relationship between price and demand |
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Price Elasticity of Demand |
Elastic (price sensitive) e.g., Air Travel Inelastic (price insensitive) e.g., Milk, Petrol Consumers are less sensitive to price increases for necessities. PED = %change in QD / %change in P E> 1 = elastic E< 1 = inelastic |
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Factors Influencing PED |
Cross Price Elasticity Income Effect Substitution Effect |
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#3rd C : Costs |
Variable Costs: Vary with production volume Fixed Costs: Unaffected by production volume Total Cost: Sum of variable and fixed costs |
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4th C : Competition |
Monopoly - One firm controls the market Oligopoly - A handful of firms control the market Monopolistic Competition - Many firms selling differentiated products at different prices Pure Competition - Many firms selling commodities for the same price |
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5th C : Channel Members |
- Manufacturers, wholesalers and retailers can have different perspectives on pricing strategies - Manufactures must protect against gray market transactions |
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New Product Pricing |
Price Skimming - selling to the top of the market at a high price before aiming at more price sensitive customers (maximize profits from each layer of the target market) |
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Advantages of Price Skimming |
- Recover r&d costs more quickly - Quick cash flow - High price may signify high quality |
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Disadvantages of Price Skimming |
- Market share growth is slow - Profits may attract competition |
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Penetration Pricing |
- Price low to capture large market share |
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Advantages of Penetration Pricing |
- Builds market share - Get economies of scale - Discourages Competition - Stimulates brand loyalty |
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Disadvantages of Penetration Pricing |
- Longer times to recover costs - Possible cash flow problem |
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Marketing Channels |
The distribution channel involves a group of individuals and organisations directing products from producers to end users Marketing intermediaries are individuals or organisations that act in the distribution chain between the producer and the end user e.g., industrial buyers, wholesalers, retailers |
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Intermediaries |
Indirect distribution |
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Using Intermediaries |
Advantages: 1. Manufacturers may lack financial resources to carry out direct distribution 2. Manufacturers may earn a greater return by focusing on their core business 3. Involving intermediaries makes distribution more efficient for producers and consumers 4. Intermediaries match supply and demand |
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Marketing Channel Affects Other Aspects of Marketing.. |
Fulfilling delivery promises Meeting customer expectations Reliant on an efficient supply chain |
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Effective intermediaries in marketing channels achieve... |
Time utility: Making products available at the time the consumer wants to purchase them Place utility: Making products available in the locations that the consumer wants them Form utility: Customising products to the consumer's particular needs Exchange efficiencies: Making transactions a simple and cheap as possible by establishing and managing efficient exchange processes |
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Marketing Channels Functions |
Information: Gather and distribute information e.g., market research Promotion: Develop and spread persuasive communication Contact: Finding and communicating with prospective buyers Matching: Customising the offer to the buyer's needs Negotiation: Reach agreement involving factors such as price, payment, service Distribution: Transporting and storing goods Financing: Acquiring and using funds to cover costs Risk Taking: Assuming the risks of distribution |
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Two Critical Roles for Intermediaries |
1. Sales Specialists for Suppliers e.g., experience, information, promotion, negotiation, financing 2. Purchasing Agents for Customers e.g., anticipate wants, subdivide, create assortments |
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Types of Distribution Channels |
A key decision is how many channel levels to use (how many different categories of intermediaries on that channel should be used) Firms may choose a direct channel, sell directly to the end consumer -- or they may choose an indirect channel, which may consist of a retailer and one or more wholesalers |
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Direct (producer to consumer) Distribution |
Is common... - in business to business marketing - when aggressive personal selling is required - where customers need special technical advice/service - where it would be difficult to maintain control of the marketing mix when working with intermediaries - where the producer can perform marketing functions more efficiently (economically) by itself |
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Indirect Distribution |
- Used because they can meet the needs of the target market more effectively and efficiently than direct distribution - When intensive distribution is needed - When control may not be critical or adherence to standards can be ensured relatively easily |
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Dual Distribution |
Using more than one distribution channel at the same time e.g., Hewlett Packard |
