Principles of Marketing Notes Week 11
Principles of Marketing Notes Week 11 MKTG 3310 - 001
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This 3 page Class Notes was uploaded by Kelsey Bixler on Sunday April 3, 2016. The Class Notes belongs to MKTG 3310 - 001 at Auburn University taught by Jeremy Scott Wolter in Fall 2015. Since its upload, it has received 70 views. For similar materials see Principles of Marketing in Marketing at Auburn University.
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Date Created: 04/03/16
Principles of Marketing Week 11 March 29, 2016 Appendix 1, 1.1 to 1.11 Appendix 2- 1.2 to 1.5 Price Elasticity= % change in quantity demand/ % change in price- If the price of a product changes from $5.00 to $7.50 and, as a result, demand falls from 500,000 units to 300,000 units, what is this product’s price elasticity? (300 500)/500 (200)/500 .4 40% Price % chg ($7.5 $5)/$5 (2.5/ 5 .5 50% elasticity= 40%/ 50%= .8 Total cost= total variable costs + total fixed costs Unit cost= unit variable cost=total fixed cost/unit sales Unit cost= (total variable cost/ unit sales) = total fixed cost/unit sales Unit contribution margin= price unit variable cost/ price If the price of a product is $14.00 and the unit variable cost is $10.00, what is the unit contribution margin? UMC (1410)/14 4/14 .286 answer =29% Dollar mark up= selling cost Markup % of cost= dollar markup/ cost Markup % of price= dollar markup/ price Supposed a company purchases clothing for $15 and sells it for$75. What is the markup percentage of cost and price? Supposed a company purchases sausage for $2 and sells it for $6.What is the markup percentage of cost and price? % of markup %= 66.7% Markup price= unit cost/ (1desired return on sales) Supposed a company wants to earn a 40% markup on sales for product that costs $75. What is the necessary markup price? Markup price =75 /1.40 markup price= 75/ .6 markup price Answer= $125 Supposed a company wants to earn a 10% markup on sales for a product that costs $225. What is the necessary markup price? Answer= $250 Supposed a company wants to earn a 20% markup on sales for a product when total fixed costs are $5,000, total variable costs are $20,000, and the company produces 2,000 units during this timeframe. What is the necessary markup price? Answer $15.63 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 Manufacturer price = Wholesaler price − wholesaler margin Wholesaler price = Retailer price − retailer margin Suppose retailers for a certain product typically expect a 20% markup and wholesalers typically expect a 30% markup and a manufacturer expects a product to sell well at $250. What price can the manufacturer sell to the wholesaler to achieve the $250 retail price? Answer= whole sale price (200) –60 Manufacture price= $140 Suppose retailers for a certain product typically expect a 10% markup and wholesalers typically expect a 25% markup and a manufacturer expects a product to sell well at $250. What price can the manufacturer sell to the wholesaler to achieve the $250 retail price? Answer= $168.75 March 31, 2016 Analysis to determine the unit volume and dollar sales needed to be profitable given a particular price and cost structure Breakeven point = Fixed cost / (Price – Unit variable cost) BEP is the quantity at which total revenue = total cost Total revenue = Total cost(Price * Quantity) = Total cost (Price * Quantity) = Fixed cost + (UVC * Quantity) (Price * Quantity) – (UVC * Quantity) = Fixed cost Quantity * (Price – UVC) = Fixed cost Quantity = Fixed cost / (Price – UVC) What are we trying to figure out? What number of units do we need to sell in order to break even. What is the breakeven point for a product that has $3,000 in fixed costs, $2 in unit variable cost, and is priced at $4? $1, 500 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 Let’s say we get more equipment this will change the break even point Example from slides increase BEP by 3,000 units – in this case the new production method has a potential for more profit but at more of a risk Profit difference figure out revenue (price x quantity) cost (fixed x variable x quantity) for original and new product method. Total rev total cost= 50,00042,500= 7500 New 50,00040,000= 10,000 so more profit potential Psychological Process Reference prices› Buyers prices carry in their minds and refer to when they look at a given price. Processing Fluency› The ease in which consumers process information. Priming› When a stimulus object influences reactions to a poststimulus object Differently social identities in different situations can be affected by products. 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 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, more expressive/worse version of option 2 (decoy) now the less expensive version of option 2 looks significantly better. Price sizes the size creates a different magnitude of the cost the Bigger the price the more it seems to cost. People react to smaller prices more favorably 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 left best placement of price is bottom left Preciseness we associate preciseness with smaller numbers things sell better when prices are taken all the way to the decimal. Kong dog toy experiment If people are exposed to a large number they react better to numbers that are smaller we start overestimating Shoes bottom left, small font, being number at the top of the page Tiffany diamond ring very small print because its $12,000 irrational decision For test you’ll be given an example point out the strategy that is being used. Pain of payment it is painful to give money try to distance yourself from money ex removing $ signs from receipts.
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