4 p's
product, place, pricing, distribution, promotion
What is price to the seller?
price is revenue
what is price to the consumer?
price is the cost of something
profitability
sales revenue vs expenses
sales revenue
total amount of $$ we make based on the sales of products
sacrifice view of price
price is that which is sacrificed to get a good or service
* low income house pays more for toilet paper b/c they can't afford to buy it in bulk
informational importance of price
people infer quality info based on price
- this relationship is not as consistent as it once was
price
everything that's sacrificed in order to get a good or a service
price quality relationship
when you set a price for your product, you let people know what you're worth
shrinkflation
prevalent in consumer package goods industry
decreasing product quantity size while maintaining or raising the price
trends influencing price
flood of new products
increased availability of bargain priced private and generic brands
price cutting as a strategy to maintain or regain market share
internet used for comparison shopping
US recession- 2007-2009
profit oriented
gap b/w revenues and cost
sales oriented
revenues
***doesn't pay any attention to how much it costs
status quo
competitor pricing
***very much passive in nature
***looking at what our competitors are doing
profit oriented pricing objectives
product maximization
satisfactory profits
target return on investment
profit maximization
we wanna widen that gap b/w revenues and cost as much as we can.
***price skimming: charge as much as you can to generate the biggest profit that you can
satisfactory profits
set a price that is going to generate enough- some profit/revenue that surpasses cost.
***doesn't try to maximize the gap as much as possible
***tries to find a reasonable price- ethics
target return on investment
companies will have to get $$ from shareholders or investors
they give us $$ b/c they believe they will get a return on an investment
***ben and jerrys-benefit corporations. they let unileaver (instead of the lower offer) purchase the entire company b/c t
profit maximization example
meet the most hated man in america- martin shkrelli"
***in prison for securities fraud
***purchase this pill or u die
***he hiked up the price to $500
***not illegal, but HORRIBLY unethical
satisfactory profits example
franklin barbeque-line always out the door-they COULD raise the price but they don't - they wanna keep customers happy
toronto argonauts- want prices affordable for fans b/c they are loyal.
sales-oriented pricing example
ipod is $149, which is way lower than original price when it came out. but there are too many alternatives
amazon saying "u can discount ur prices" - this hurts target, walmart, etc.
sales-oriented pricing : 2 PARTS
market share & sales maximization
market share pricing objective:
trying to get people to buy it- we have to price often in a manner that is lower so people will try the product out.
***of all the $$ that is being spent, your market share is the percentage that you have
***of all the $$ being spent, how much is spent wi
status quo pricing objectives:
maintain existing prices (don't recommend it-not being aware)
meet competition's prices-walmart savings catching app- u can scan receipt and walmart will match the price of another store
demand
quantity of a product that will be sold in the market at various prices for a specified period.
Demand>supply= shortage...raise price
supply>demand=surplus...lower price
supply
the quantity of a product that will be offered to the market by a supplier at various prices for a specified period.
price equilibrium
price at which supply and demand are equal (everyone that wants ur product is equal to how much of product is made)
elasticity of demand
consumers responsiveness or sensitivity to changes in price
***if ur price changes, how will demand change? if u go up...will demand stay the same?
***NETFLIX
elastic demand
consumers buy more or less of a product when the price changes
inelastic demand
an increase or a decrease in price will not significantly affect demand
***ppl don't care to pay a little more for netflix
unitary elasticity
an increase in sales exactly offsets a decrease in prices, so total revenue remains the same.
***lowered price just a little bit, but revenue stays the same :(
elasticity formula:
elasticity= %change in quantity demanded � % change in price of product offered
***greater than one, elasticity
***less than one, inelasticity
inelastic demand:
gasoline, drivers license, we NEED these. stays the same
***craft beer was inelastic for a long time b/c ppl wanted it
elastic demands:
meat! if chicken goes up, we'll just buy beef instead.
price penetration:
offer a wide variety of services for a low price
yield management systems
software systems that optimize dynamic pricing
***book a flight/trip - yield management systems is what is used by these companies
stimulate demand when demand is low
maximize profits when demand is high
dynamic pricing
price can change over short period of time
yield management systems characteristics
discounting early purchases (off-seasons)
limiting early sales at discounted prices
overbooking capacity (flights overbooked)
***go to new orleans in off season (august)
cost determinant of price
variable cost and fixed cost
variable cost
varies with changes in level of output
***when u fly southwest u get lightly salted peanuts-only gonna give out 40 peanuts if only 40 ppl on plane
***hourly wages- walmart tries to minimize costs by keeping their hourly employees under a full time hour li
fixed cost
do not change as level of output changes-
***cost of the two pilots are the same regardless of how many ppl on the plane
methods used to set prices
markup pricing, keystoning, profit maximization pricing, break even pricing
markup pricing
practice of marking up by some percentage the cost of the product b4 u put on retail shelves.
***markup on alcohol that consumers are willing to pay may offset low prices on foods.
***bottle of wine is more expensive in restaurant rather than grocery stor
keystoning
markup pricing but doubling the cost. marking up 100%.
profit maximization pricing
based on cost-understanding what ur costs are and maximizing the gap b/w revenues.
break even pricing
company should understand what price should be so revenues equal costs.
***trying to figure out what price u would need to charge so that your costs and revenues are ok- to at LEAST break even
stages in the product life cycle
1) introductory stage: price is high
2) growth stage: price stabilizes
3) maturity stage: price decreases
4) decline stage: price decreases
EXAM QUESTION: why would prices increase after decline stage of product lifecycle?
b/c niche markets develop
distribution strategy
retailers: SELLING AGAINST THE BRAND- retail strategy that is meant to increase selective demand for private/store label. retailer will price the manufacturer natural brand (jif, nabisco, etc) at a premium. they will INCREASE the price of these brands and
relationship of price to quality
when a price decision involves uncertainty, consumers tend to rely on a high price as a predictor of good quality.
prestige pricing:
charging a high price to help promote a high quality image (luxury brands- lexus, louis vuitton)
dimensions of quality
ease of use-easy to use
versatility-will it work in different contexts-baking soda
durability-range rover breaks down
serviceability-range rover has to be specially serviced
performance-
prestige
price skimming (profit)
a firm charges a high introductory price, often coupled with heavy promotion
***iphone 10: really big price, but giving u flexibility with which you can pay
***ppl don't usually act on rebates
***martin skorelli-daraprim
penetration pricing (sales)
a firm charges a relatively low price for a product initially as a way to reach the mass market
status pro pricing (status quo)
charging a price identical to or very close to the competition's price
***leaving price the same but TYPICALLY we are price matching with other competitors
two-part pricing (profit or sales)
charging two separate prices to consume a single good or service
***concerned w/ gap between cost/revenues or trying to generate market share
***GILLETTE: inventer of two part pricing. they invented the razor and the blade (u need both)
***price really hi
value-based pricing (profit or sales)
setting price based on customer perception of product value as compared with alternatives
***requires the most research
***3 different kroger brands priced differently b/c each shows how much they have of value
NEW pricing strategy: dynamic pricing
changing prices multiple times within a period
product line pricing
setting prices for an entire line of products
***can be complicated
what is a product line meant to do?
any variation you get from product line is going to be equivalent quality as the others. (nutritional info, etc.)
joint costs
costs that are shared in the manufacturing and marketing of several products in a product line
***coca cola different color tops on bottles are NOT joint costs
***ben and jerrys: different flavors are joint costs bc they are the same cost
complementary relationship
need an ipad with a cover."
***u can price one low and one high
substitutes relationship
demand for them is elastic- price for one goes up we purchase the alternative (meat)
neutral relationship
demand for one does not impact the demand for the other
***go to dicks and buy a basketball, i'm not going to buy a football too
retailers:
deal with the consumer
they can "sell against the brand" - price national brand really high so store brand looks good.
unfair trade practice acts
place retail markups on products (6% retail products [jif pb], 2% wholesale)
over half the states have them
***in place to protect manufacturers and suppliers/avoid total retail control- STATE REGULATED
price fixing
agreement b/w two or more firms on price charged for a product (either different levels or b/w members of same level)- keep price at a certain point
***often "vertical" agreement b/w suppliers and retailers/distributors
***apple and book publisher- told a
horizontal agreements
allyn has a tire shop near west oxford and chad has one on south lamar. they sell same tires and don't wanna compete with one another based on price. They decide to charge exact same price for products so that west goes to allyn and south lamar go to chad
price discrimination
selling LIKE tangible goods at different prices, within a short period of time, such that competition is substantially lessened
***allyns pencil retailer- go to walmart and she gives pencils to walmart for $2 a case. then she goes to chaneys TWO days late
three defenses of price discrimination
***why it's difficult to prove-
cost-different prices can be charged if quantity discounts are in place (relationship b/w manufacturer and retailer)
market conditions-demand or nature of the product changes (jack up prices for high demand season...etc...s
predatory pricing
charging a very low price with the intent of driving out competition, then raising prices again
***hurst international came in to compete in market-they accused sinclair systems of reducing their prices really low driving hurst out of the market.
THEN aft
promotional strategy
a plan for the optimal use of the elements of promotion
promotional strategy components
advertising: org pays for and sponsors a message, mass mediated (media has access to multiple viewers)
public relations: has the goal of protecting/enhancing the image of the firm in eyes of society
personal selling: products more complex that require con
what can promotion do?
create competitive advantage for the company
competitive advantage can communicate...
high product quality "high quality childcare can prevent psycho children"
rapid delivery- "u can get in 2 days" PRIME
low prices-sales promotions, etc.
excellent service-avoid higher price that they may be charging (nordstrom)
unique features-
communication
the process by which meanings are exchanged or shared through a common set of symbols
categories of communication
mass communication-one medium, multiple viewers
interpersonal communication-conversation b/w consumer and the company- SALES PPL
communication process
sender
encoding message - putting together the communication (content in advertisement, email)
message channel- media through which the encoding goes-
decoding the message- receiver interpretation of message
receiver: customers, clients
***make sure u com
Note about encoding
often the marketer has more knowledge about what theyre promoting than the consumer does
in encoding process - your sender and receiver have two different fields of experience
you NEED to talk in a way that your receiver understands.
goals and tasks of promotion
informing- letting ppl know ur product is available
reminding: hey we're out here - thx for being customers
persuading: letting ppl know that you're better
connecting: creating a forum that allows your brand to connect with one another
comparative advertising
im better than the other
Indirect comparative advertising: promoter (company that is advertising...) say look at us ...compared to brand X. they do NOT state the actual brand
direct CA: the competitor is specifically stated (compared to KLEENEX) ...has to
persuasive promotion
seeks to encourage brand switching-immediately try product
reminder promotion
remind ppl they need product- or that new version is coming out. maintain customer awareness
connect promotion
getting your customers together - AMEF- invites any card member to be on a forum- invites entrepreneurs to be mentors to new entrepreneurs
public relations
proactive PR: continue giving positive image for the firm
Reactive PR: reactive in nature- negative publicity- minimize negative effects of a scandal,
media
publicity or exposure
communication process and the promotional mix
shift from one-way communication to customer controlled, customized, many-to-many communication
***consumer generated media
***paid media
***earned media- those exposures that we do not control, but that we received organically. SEO strategies increase ea
consumer generated media: two types
solicited- we ask ppl to say things about us(reviews on google)
unsolicited- ppl generate info about us without us asking them to do us (for better or worse)
personal selling often used for...
complex buying decisions...need to teach consumer about product.
sales promotion most effective for...
routine buying decision. to try the product
anything "process oriented" falls under category of
services
what makes services different?
perishable-process has a start and end (haircut) can be evaluated during and after
heterogeneous-results are diff for diff customers-customized
intangible-we can't hold/touch them. i can't hold a haircut.
inseparable- this means usually they're being prov
purpose of promotion and early stages of product life cycle
are often to educate consumers about existence of product/uses
AND if it's a totally new product that consumers don't know about...the purpose is to stimulate primary demand (demand for an entire product category overall...driverless vehicles...mp3 player
push strategy
manufacturer promotes to wholesaler (personal selling-put our products on the shelf)
pull strategy
manufacturer promotes across the board-promote to consumer.
***proctor and gamble, nabisco, etc. - they are HOPING by promoting to consumers that consumers will PULL their products through the retail line.