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Principles of Marketing Study Guide Exam 5

by: Kelsey Bixler

Principles of Marketing Study Guide Exam 5 MKTG 3310 - 001

Marketplace > Auburn University > Marketing > MKTG 3310 - 001 > Principles of Marketing Study Guide Exam 5
Kelsey Bixler
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Study Guide for Exam 5 with Wolter.
Principles of Marketing
Jeremy Scott Wolter
Study Guide
Principles, Marketing, Wolter, auburn, Study Guide, exam 5
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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.

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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


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