Principles of Marketing Study Guide Exam 5
Principles of Marketing Study Guide Exam 5 MKTG 3310 - 001
Popular in Principles of Marketing
Popular in Marketing
verified elite notetaker
This 7 page Study Guide was uploaded by Kelsey Bixler on Monday April 4, 2016. The Study Guide belongs to MKTG 3310 - 001 at Auburn University taught by Jeremy Scott Wolter in Fall 2015. Since its upload, it has received 273 views. For similar materials see Principles of Marketing in Marketing at Auburn University.
Reviews for Principles of Marketing Study Guide Exam 5
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 04/04/16
Principles of Marketing Study Guide Exam 5 March 22 : Demand Curves (Appendix 1) What is a price? Price-The money charged for a product, or the sum of all the values that customers exchange for the benefits of having or using the product. Why is pricing so important? (think the value equation) Pricing affects the entire value creation idea. Ex IPhones were not mass adopted at first because they were $600. What are the 4 types of markets we discussed and how do they relate to a firm’s pricing power? Pure competition a lot of buys/sellers products are not differentiated natural laws of demand and supply. Ex shares. Firms do not have a lot of pricing power Monopolistic companies get more control over demand curve Ex Starbucks. More differentiated products. Slightly more pricing power. Oligopolistic competition few sellers companies have even more control over pricing. The companies react to their competitors and try to undercut them Ex Opek tries to control the oil market Pure Monopoly Company has complete control of the market and have the most pricing power. What is a demand curve? Demand curve A curve that shows the relationship between the price of a product and the quantity of the product demanded. What are the assumptions of the demand curve? Ceteris paribus (“all else equal”) condition: The requirement that when analyzing the relationship between two variables—such as price and quantity demanded— other variables must be held constant. Law of demand The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease. Implication: Demand curve slopes downward What is price elasticity? Price Elasticity of Demand (E) = Percentage Change in Quantity Demanded/ Percentage Change in Price Elasticity measures the responsiveness of demand to changes in price How does price elasticity affect a demand curve? Elastic where the % change in demand is greater then the % change in price (more of a horizontal demand curve) Inelastic where the % change in demand is less the % change in price. (Steeper demand curve) What factors influence price elasticity? substitutes (more substitutes means more elastic) necessities necessity= inelastic % of disposable income more % of the income means that your product is usually more elastic If I gave you a product, could you tell me whether it was most likely elastic or not? Gas inelastic because it is a necessity. Salt inelastic because there is no substitute. Movie Theater tickets elastic there are substitutes Netflix, Redbox Diamonds inelastic there isn’t a substitute when it comes to an engagement ring. Cigarettes typically inelastic because of addiction. But for youth spenders more elastic because they don’t have a lot of spending money. What is the difference between movement along a demand curve and moving (i.e., shifting) the demand curve? Movement along the demand curve represents a change in demand based on the price of the product i.e who is willing to buy the product at a specific price A shift in demand represents the entire market’s demand for a product changing shift right= increase in demand. Shift left decrease in demand What are the aspects we discussed that shift a demand curve? Income Prices of related goods Tastes Population and demographics Expected future prices If I gave you a situation with a certain type of product or trend, could you tell me which way a demand curve would shift? Change in income Normal good A good for which the demand increases income rises, and decreases as income falls. Examples: Clothing Vacations Inferior good A good for which the demand decreases as income rises, and increases as income falls. Examples: Secondhand clothing Ramen noodle (Are smart phones normal or inferior? Normal) Change in demand for related goods SubstitutesGoods and services that can be used for the same purpose. Examples: Big Mac and Whopper Jeans and Khakis Complements Goods and services that are used together. Examples: Big Mac and McDonald’s fries Hot dogs and hot dog buns Change in demand from trends Tastes If consumers’ tastes change, they may buy more or less of the product. Examples: Healthy eating trend Population & demographics: Increases in the number of people buying something will increase the amount demanded. Examples: Increase in elderly population Change in Demand from expectations and marketing Expectations: If consumers’ expect prices to change, they may buy more or less of the product Examples: Cash for Clunkers when the program started the demand for cars went up because people were getting money for their old cars. After the program demand went down to national lows. Ex rumor that we were going to run out of gas prices and demand went up March 24 : Pricing Strategies (Chpt 10) Why is pricing so important when considering profitabilitiy? If you have the ability to increase your price it is more profitable than any other element Pricing floor no profits below this price Ceiling no demand above this price Stuff in the middle that affects pricingCompetition and other external factors competitors strategies and prices, marketing strategy, objective and mix. Nature of the market and demand. What is demandbased, costbased, and competitionbased pricing? Costbased pricing Setting prices based on the costs of producing, distributing and selling the product plus a fair rate of return for the company’s effort and riskex construction workers, lawyers Valuebased pricing Using buyer’s perceptions of value as the key to pricing more of a market oriented (market concept) type of pricing. Part of the info you are gathering is taking into consideration what your customers would like to pay. Competitionbased pricingSetting prices based on competitor’s strategies, costs, prices, and market offerings. (kind of a cheat) we look at what our competitors and match it or try to make ourselves look better. What are types of pricing approaches for demand and cost pricing? Cost based pricing approaches Markup (costplus) Adding a standard increase to the cost of a productStores like Publix or WalMart they have too much inventory to try to figure out a demand curve for every product. Experience curve A planned reduction of price for increased production Demand Pricing Goodvalue pricing the right combination of quality and good service at a fair price Valueadded Attaching services and features to a product to support higher prices EDLP pricing / Hilow pricing Keeping prices at a standard low rate vs discounting What is the sequence of steps for demandbased vs costbased pricing? Cost based: Design a good productdetermine products cost set prices based on cost convince buyers of products value Value based pricing access customers’ needs and value perception set prices at to match customer’s perceived value determined costs that can be incurred Design product to deliver desired value at target price What are the types of costs? Fixed costs (overhead costs) costs that do not vary with production or sales level Variable costs vary directly with the level of production Total costs the sum of the fixed and variable costs for any given level of production What is price discrimination? Charging different groups of customers different prices What is the purpose of price discrimination? To gain the most amount of revenue based on customer’s willingness to pay Know the three methods of price discrimination well. Price Discrimination 1 allow customers at the bottom of the demand curve to pay less ex discounts, rebates specials Kmart flashing 2 charge customers at the top of the demand curve more. Examples Amazon, valueadded pricing, feemium. Red dryer costs more just because its red. 3 allows customers to pay exactly what the are willing Radiohead’s Rainbow album %60 of the US downloaded it for free. But they made more money in the digitals then their pervious album because they weren’t paying a label made a ton of money off of it. Why must firms be careful when price discriminating? Unfairness=attribution Are they just trying to make money that’s it? AKA Attribution can be a function of reputation Ex Coke they were looking to increase prices based on the temperature outside people found this to be shady and unfair What are the three determinants of negative attributions? Perceptions of excessive profit In comparison to estimated costs or reference price Perceived immorality Deception Take advantage of a situation Inability to understand pricing strategy Inability to understand price changes Inability to estimate costs Inability to assess real value Acre If you don’t understand what they’re doing then the price will be seen as unfair What does reputation have to do with this? If people believe that the pricing strategies are unfair the company’s reputation will suffer How do you calculate: Price elasticity? (% change in quantity demanded)/(Percentage change in price) Percentage change= (new number original number)/ original number Unit contribution margin? (Price unit variable cost)/ price Breakeven point? Breakeven point and profit under different scenarios? Break even point= Fixed cost/ (price unit variable cost) Example What is the breakeven point for a product that has $10,000 in fixed costs, $175 in unit variable cost, and is priced at $200? Answer= 400 Markup price on cost and price? Dollar mark up= selli cost Markup % of cost= dollar markup/ cost Markup % of price= dollar markup/ price Markup price= unit cost/ desired return on sales) Markup chain? MARKUP CHAIN: DEMANDBASED PRICING Markup chain price = Retail price − retailer margin − wholesaler margin Retailer margin = Retailer price x retailer margin percentage Wholesaler margin = Wholesaler price ∗ wholesaler margin percentage March 31 : Psychological Pricing (Lecture only) Be familiar with how consumers react to the following pricing phenomenon: Odd/even Odd vs Even numbers in pricing ex Bat Man products $24.96 etc when we look at prices we are generally lazy we process the number to the left and ignore the rest 24.99 looks $1 cheaper than 25 Decoys DecoysTed talkswhen given options if you give people a slightly less attractive version of an option the originally option looks significantly better. 3 options option1, option 2, and a more expensive/worse version of option 2 (decoy) now the less expensive version of option 2 looks significantly better. Price placement Price placement placing the price higher up on the page we view it as higher in price we as humans naturally associate up as more. Higher magnitude. We associate smaller with things positioned to the left left best placement of price is bottom left Price preciseness Preciseness we associate preciseness with smaller numbers things sell better when prices are taken all the way to the decimal. Priming Priming› When a stimulus object influences reactions to a poststimulus object Different social identities in different situations can be affected by products. Pain of payment Pain of payment it is painful to give money away companies try to distance themselves from money the act of giving away money ex removing the $ signs from receipts