Marketing Chapter 13
Marketing Chapter 13 MAR 250
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This 5 page Class Notes was uploaded by Melanie Guerrero on Sunday February 28, 2016. The Class Notes belongs to MAR 250 at Pace University taught by Harvey Markowitz in Winter 2016. Since its upload, it has received 28 views. For similar materials see Principles of Marketing (20335) in Marketing at Pace University.
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Date Created: 02/28/16
Marketing Chapter 13 Vocabulary: Average revenue (AR) – the average amount of money received for selling one unit of a product, or simply the price of that unit Barter – exchanging products and services for other products and services rather than money Break-even Analysis – technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output Break-event chart – a graphic presentation of the break-even analysis Break-even point – the quantity at which total revenue and total cost are equal Demand Curve – a graph that relates the quantity sold and price, showing the maximum number of units that will be sold at a given price Demand factors – factors that determine consumers’ willingness and ability to pay for products and services Fixed cost (FC) – the sum of the expenses of a the firm that are stable and do not change with the quantity of a product that is produced and sold Marginal Analysis – a continuing, concise trade-off of incremental costs against incremental revenues Marginal Cost (MC) – change in total cost that result from producing and marketing one additional unit of a product Marginal Revenue (MR) – the change in total revenue that results from producing and marketing one additional unit of a product Price – the money or other considerations (including products and services) exchanged for the ownership or use of a product or service Price elasticity demand – the percentage change in quantity demanded relative to a percentage change in price Pricing constraints – factors that limit the range of prices a firm may set Pricing objectives – specifying the role of price in an organization’s marketing and strategic plans Profit equation – Profit = Total revenue – total cost Total (TC) – the total expense incurred by a firm in producing and marketing a product Total revenue (TR) – the total money received from the sales of a product Unit variable cost (UVC) – variable cost expressed on a per unit basis of a product Value – the ratio of perceived benefits to price (perceived benefits/price) Value-pricing – the practice of simultaneously increasing product and service benefits while maintaining or decreasing price Variable cost (VC) – the sum of the expenses of the firm that vary directly with the quantity of a product that produced and sold I. Nature and Importance of Price A. What is price? 1. Price – vocab** 2. Barter – vocab** 3. The Price Equation Final Price = [List price] – [(Incentives)+ (Allowances)] + [Extra Fees] B. Price Transparency 1. A consumer’s near-instantaneous access to competitor’s prices for the same offering, exists today for both products and services through online websites 2. Price transparency revolution affects actions across marketing C. Price and global marketplace *International firms span the globe to find: 1. Suppliers who efficiencies and lower hourly wages can reduce the prices the buying firms must pay 2. New markets to increase revenues D. Prices as an indicator of value 1. Value Value = Perceived benefits Price 2. Using Value Pricing a. Value pricing – vocab** E. Price in the Marketing Mix 1. Profit Equation Profit = Total revenue – Total Cost = (Unit price * Quantity sold) – (Fixed cost + Variable cost) 2. There are 6 major steps in the process organizations go through in setting prices: a. Identify pricing objectives and constraints b. Estimate demand and revenue c. Determine cost, volume, and profit relationships d. Select an approximate price level e. Set list or quoted price f. Make special adjustments to list or quoted price II. Identify pricing objectives and constraints A. Identifying pricing objectives 1. Pricing adjustments – vocab** 2. Profit a. Managing for long run profits – companies give up immediate profit by developing quality products to penetrate competitive markets over the long term b. Maximizing current profit – is common in many firms because the targets can be set and performance measured quickly 3. Sales 4. Market Share a. The ratio of the firm’s sales revenues or unit sales to those of the industry (competitors plus the firm itself) 5. Unit Volume a. The quantity produced or sold, as a pricing objective 6. Survival 7. Social responsibility B. Identifying pricing constraints 1. Pricing constraints – vocab** 2. Demand for the product class, product, and brand 3. Newness of the product: stage in the product life cycle 4. Cost of producing and marketing the product 5. Cost of changing prices and time period they apply 6. Single product vs a product line 7. Type of competitive market a. Pure competition b. Monopolistic competition c. Oligopoly d. Pure monopoly 8. Competitor’s prices and consumers’ awareness of them a. Consumer-driven pricing actions b. Seller/retailer-driven pricing actions 9. Legal and ethical considerations III. Estimate demand and revenue A. Estimating demand 1. The demand curve – vocab** a. Consumer Tastes b. Price and availability of similar products c. Consumer income 2. Movement along vs. shift B. Estimating revenue 1. Total revenue TR = Total revenue P = unite price of the product Q = quantity of the product sold TR = P * Q 2. Average revenue AR = TR = P Q 3. Marginal revenue MR = ___Change in TR___ = ∆ TR = slope of TR curve 1 unit increase in Q ∆ Q C. Demand and total revenue curves 1. Demand and marginal revenue curves 2. Total revenue curve C. Price elasticity of demand Price Elasticity of demand (E) = Percentage change in quantity demanded Percentage change in price 1. Elastic demand and in elastic demand a. Elastic demand – exists when a 1% decrease in price produces more than 1% increase in quantity demanded, thereby actually increasing total revenue b. Inelastic demand – exists when a 1% decrease in price decrease in price produces less than a 1% increase in quantity demanded, thereby actually decreasing total revenue III. Determine cost, volume, and profit relationships A. The importance of controlling costs 1. Total cost (TC) – vocab** 2. Fixed cost (FC) – vocab** 3. Variable cost (VC) – vocab** TC = FC + VC 4. Unit variable cost (UVC) – vocab** UVC = VC Q 5. Marginal cost (MC) – vocab** MC = __Change in TC__ = ∆TC = Slope of TC curve 1 unit increase in Q ∆Q B. Marginal analysis 1. Marginal analysis – vocab** C. Break-even analysis 1. Break even analysis – vocab** 2. Break-even point (BEP) – vocab BEP (Quantity) = _______Fixed Cost______ ____ = ____FC____ Unit Price – Unit Variable cost P – UVC D. Break even chart 1. Vocab**