Price as Seen by Consumers or Users - PowerPoint PPT Presentation

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Price as Seen by Consumers or Users

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  1. Price as Seen by Consumers or Users Price equals Something of Value List price Less: discounts Quantity Seasonal Cash Temporary sales Less: allowances Trade-ins Damaged goods Less: Rebate and coupon value Plus: Taxes Product: Physical good Service Assurance of quality Repair facilities Packaging Credit Warranty Place of delivery or when available equals

  2. Price as Seen by Channel Members Price equals Something of Value Product: Branded--well known Guaranteed Warranted Service--Repair facilities Convenient packaging Place Availability--when and where Price Price-level guarantee Sufficient margin Promotion: Promotion to consumers List price Less: discounts Quantity Seasonal Cash Trade/functional Temporary deals Less: allowances Promotion Damaged goods Stocking Plus: Taxes and tariffs equals

  3. Exchange Rates for Various Currencies against the U.S. Dollar Over Time * Units shown are the average for each year 1985-1997. For 1998, units shown are for June 16, 1998.

  4. Discount Policies • DISCOUNTS are reductions from list price that are given by a seller to a buyer who either gives up some marketing function or provides the function himself • Quantity discounts • Cumulative quantity discounts encourage repeat purchases and relationships • Noncumulative encourage large orders • Seasonal discounts smooth out demand • Cash discounts encourage early payment • Trade (functional) discounts go to middlemen

  5. Geographic Pricing Policies • "Free on Board" (F.O.B) at some place • Examples: • F.O.B. seller's factory • F.O.B. delivered • F.O.B. factory—freight prepaid • Zone Pricing: an average freight charge to all buyers within specific geographic areas • Uniform Delivered Pricing: the same (average) freight charge to all buyers • Freight Absorption Pricing: seller pays freight cost so delivered price matches competition

  6. Pricing Policies Combine to Impact Customer Value • Customer value considers total costs and benefits • Costs and benefits are impacted not only by list price but by • Discounts • Allowances • Delivery terms and geographic pricing policies • Sales and deals • Price flexibility (and transaction costs) • Value pricing leads to superior customer value • Value pricing is setting a fair price level for a marketing mix that really gives the target market superior customer value

  7. Robinson-Patman Act • Regulates price discrimination—selling the same products to different buyers at different prices • if it injures competition • Cost differences can justify prices differences • analysis must have been done in advance • You can match a competitor's prices • Functional discounts are usually ok • Does not apply to sales to final consumers

  8. Markups • Dollar amount added to the cost of the products to get the selling price • Markup percent is the percentage of selling price that is added to the cost to get the selling price • percent of selling price unless otherwise noted • Products may be marked up several times through the channel • the sequence of markups is the markup chain • High markups don't always mean high profits • depends on the stockturn rate

  9. Alternate Approach for Computing Channel Markups

  10. Average-Cost Pricing • Adds a "reasonable" markup to the average cost of a product • Simplifies pricing • Quite common, especially among middlemen • Usually based on estimates or past records • actual average cost depends on quantity sold! • quantity sold depends on price

  11. Results of Average-Cost Pricing

  12. Cost Structure of a Firm

  13. Experience Curve Pricing • A type of average-cost pricing using an estimate of future average costs • Often leads to low prices if future economies of scale are expected • costs may drop with accumulated production experience • Can be very risky if costs do not drop, or if expected volume is not achieved

  14. Break-Even Analysis • Used to evaluate whether the firm will be able to cover costs (break even) at a particular price • Indicates the break-even point—sales (units or dollars) needed to break even • Can be modified to incorporate a target return • Problems: • assumes any quantity can be sold at a given price • total cost curve is assumed to be a straight line

  15. Revenue, Cost, and Profit at Different Prices for a Firm

  16. Marginal Revenue and Price

  17. Cost Structure for Individual Firm (fill in the missing numbers)

  18. Cost Structure for Individual Firm (with missing numbers filled in)

  19. Evaluating a Customer’s Price Sensitivity Value-in-use pricing Auctions including online Reference prices Leader pricing Bait pricing Psychological pricing odd-even pricing price lining Demand-backward pricing Prestige pricing Full-line pricing complementary pricing bundle pricing Demand-Oriented Pricing Approaches

  20. Evaluating a Customer’s Price Sensitivity • Are there substitute ways of meeting a need? • Is it easy to compare prices? • Who pays the bill? • How great is the total expenditure? • How significant is the end benefit? • Is there already a sunk investment related to the purchase?

  21. Value in Use Pricing • Sets prices that will capture some of what customers will save by substituting the firm's product for the one the customer is currently using • Example: A construction firm that buys a new, more efficient bulldozer at a higher price might still save money on: • labor (operator) expenses • "down-time" for repairs • fuel consumption • maintenance costs

  22. Implementation and Control • Faster feedback (because of information technology) is resulting in more rapid changes • Marketing manager must take charge to get information that is needed • Can be a source of competitive advantage • Good implementation means that plans work as intended • Builds relationships with customers

  23. Implementation Objectives • Innovative thinking and approaches may help the marketing manager overcome challenges and better achieve major implementation objectives • Better, so customers really get superior value as planned • Faster, to avoid delays that cause customers problems • Lower cost, without wasting money on things that don't add value for the customer

  24. Examples of Approaches to Overcome Specific Marketing Implementation Problems

  25. Total Quality Management • Everyone in the organization is concerned about quality, throughout all of the firm's activities, to better serve customer needs • The cost of poor quality is lost customers • Achieving quality requires continuous improvement—a commitment to constantly make things better one step at a time • Uses statistical process controls to identify problems. Examples: • Pareto charts • Fishbone diagrams • "Slay the dragons first"... to get a return on quality • Specify jobs and benchmark performance

  26. Building Quality into Services • Every firm must implement service quality as part of its plan, whether its product is primarily a service, primarily a physical good, or a combination of both • Can't simply "inspect in" quality—must be there from the start • Ongoing training is critical (plan for the special) • Empower employees to correct a problem without first checking with management

  27. Marketing Control • Feedback process that helps the marketing manager learn • how ongoing plans and implementation are working • how to plan for the future • Sales Analysis looks at details of where sales come from • customers • products • territories, etc. • Performance Analysis compares actual with targets • Cost Analysis controls spending

  28. Some Bases for Sales, Cost, or Profit Analysis • Geographic region • Product (package size, style, etc.) • Customer size • Customer type or class of trade • Price or discount class • Method of sale • Cash or charge (financial arrangement) • Size of order • Commission class

  29. Development of a Measure of Sales Performances (by region)

  30. Cost Analysis • Must understand costs to control them • Analyzing and dealing with fixed costs can be a challenge • full-cost approach allocates fixed costs • contribution-margin approach is an alternative • two approaches have different benefits, limitations

  31. Profit and Loss Statement by Department

  32. Profit and Loss Statement by Department if Department 1 Were Eliminated

  33. Contribution-Margin Statement by Departments

  34. Planning and Control Chart for Cindy's Fashions

  35. Example of a Planning and Control Chart: Cindy’s Fashions - Dept. B

  36. Marketing Audit • A systematic, critical, and unbiased review and appraisal of the basic objectives and policies of the marketing function—and of the organization, methods, procedures, and people employed to implement the policies • Should not be necessary, but usually is • May require objective, outside experts

  37. Marketing's Link with Other Functional Areas • Link with other functional areas affects strategy planning as well as implementation and control • Finance • Money for initial investment and ongoing expenses • Production • Flexibility, costs of products offered • Accounting • Understanding costs and profits of decisions • Human resources • People to do the work that needs to be done

  38. Finance Function Manages Capital • Capital is the money invested in a firm • Investments in fixed assets (facilities, etc.) • Working capital: money to pay for short term expenses such as salaries, advertising, marketing research, etc. • Capital may come from internal or external sources • External funding (investors): sales of stock or debt • Internal funding: profits and cash flow

  39. Coordinate Marketing Plan and Production • Production capacity takes many forms • Quantity and quality of specific goods or services the firm is able to produce • Production flexibility may limit or increase opportunities • Virtual corporation • Perhaps more flexibility but less control • Mass customization • Tailors production to needs of individual customers • Price must cover production costs • Cut costs that don't add value for customers

  40. Accounting Data Helps to Understand Costs and Profit • Traditional accounting data often are not helpful for making strategy planning decisions • Activity-based accounting may help • Allocates costs from natural accounts to functional accounts • Natural accounts • Categories to which costs are charged in the normal accounting cycle • Often of limited value for marketing control • Functional accounts • Shows costs arranged by the purpose for which expenditures were made

  41. Profit and Loss Statement, One Month

  42. Spreading Natural Accounts to Functional Accounts

  43. Basic Data for Cost and Profit Analysis Example

  44. Functional Cost Account Allocations

  45. Profit and Loss Statements for Customers

  46. Human Resources: People Put Plans into Action • Traditional issues include selection, training, supervision, motivation, and compensation • New strategy usually requires people changes • New strategy must be communicated • Rapid change may cause strain • Time for training • Time for required activities

  47. Factors that Affect Marketing Mix Planning • Product classes—how are products that consumers see in the same way typically marketed? • Stage of product life cycle • Size and geographic concentration of customers • Value of item and frequency of purchase • Preferences for personal contact • Perishability • Technical complexity

  48. Typical Changes in Marketing Variables over the Product Life Cycle • Competition: becomes more intense, moves toward pure competition • Product: typically moves toward more variety, and then less variety in decline stage • Place: typically moves toward more intensive distribution • Promotion: emphasis changes from primary demand to selective demand, and becomes more frantic • Price: moves toward more price cutting and dealing

  49. Market Potential and Sales Forecast • Market Potential—what a whole market segment might buy • Sales Forecast—an estimate of how much an industry or firm hopes to sell to a market segment

  50. Approaches to Forecasting • Extending past behavior • Trend extension • Assumes future patterns will be like past patterns • Factor method • Based on finding a variable (a factor) that is related to the variable being forecast • Multiple factors may be helpful • Example: Buying Power Index • Leading series • Factors that move in advance of what is being forecast