MAR 3023961

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MAR 3023-961

• Basic Marketing
• Fall 2003St. Petersburg
• Price
• The More You Pay, The More Its Worth
• Rich Gonzalez University of South Florida
• November 19, 2003

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URL

• www.bestbuy.com
• www.bombardier.com
• half.com
• www.Everybookstore.com

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Agenda November 19, 2003

• Some Assignment A Descriptions
• Exam Mini Review
• Quiz 6
• WSJ Article on DVD Prices
• Pricing VideoBombardier
• Pricing
• For November 26

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Assignment AGradingCheck Your Handout

• One page summary
• A. Person identified by name (or explanation)
• B. Written communication to and from company (or
  explanation)
  
• C. Valid complaint about a product
• D. Response and resolution (or details)
• E. Prepared to verbally present

Assignment A will be graded and returned on Dec
3rd
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Assignment A Grading

• FFormat
• NName (or explanation)
• LCopy of your letter
• RCopy of Response (or explanation)
• TThoroughness (summary letter)

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Assignment A Purpose

• Customer Orientation
• Responsiveness
• Handling of Complaints (Interaction)
• Openness(i.e., name)
• Variation Among Companies
• Do They Value Customers Business?

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Marketing Concept
Companywide consumer orientation with the
objective of achieving long-run success.
Invented by GE in the 50s, Drucker talked about
it too.
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Marketing Concept

• Target market
• Customer needs wants
• Integrated company efforts
• Profits

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Assignment A Company Ratings

• Very Poor----------------------Excellent
• 1 -----------------------------------5
• Customer Orientation (Before/After Complaint)
• Responsiveness
• Recovery (How Effective?)

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Assnmt. APresent Results

• 1. Company --- Customer Orientation
• 2. Describe problem
• 3. Your reactions then
• 4. Company response
• 5. Satisfied now?

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Presentations Here
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Assignment AQuality Cues 9

• Easy to get a name
• 800 number
• 800 number that works
• Personalized letter/phone call
• THANKS you for telling them about a problem
• Tells you how theyre fixing process
• Firm knows about customer loyalty
• Responsiveness
• Empathy

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Assignment AQuality Cues 6

• Assigns case to complaint
• Convincingly values your business
• NEVER ignores you
• Gives you a personal phone
• Compensation (necessary, but not sufficient)
• Any others?

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Assignment AQuality Cues

• For customers
• Patience/adaptability/understanding
• Thoughtful suggestions
• Good details
• Encouragement (i.e., thank you letter)

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For Today November 19

• Chapter 13 14 Price
• Cheaper DVD Recorders for TV Could Be a Big
  Christmas Hit, Gary McWilliams, WSJ, October 20,
  2003
  

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For November 26

• Chapter 17---IMC
• Chapter 18---Advertising

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Exam 2 Mini-Review

• Mark Scantron for yourselfyou keep
• View test booklet---must returnno exceptions

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Exam 2

• µ 76 (up 2 points)
• s 8.0 (Exam 1 10.6)
• R 59-93 (Exam 1 45-93) (Includes
  extra credit)
  
• 56 questions came out OK statistically

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Compare toExam 1Difficult?
n35
2
1
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Compare toExam 1Prepared?
n35
2
1 no answer
1
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Fill-In-The-BlankExam 2

• 52. shopping good 69 .103
• 53. Designed Nike swoosh 51 .271
• 54. Define the problem 69 .048
• 55. Marketing Innovation 60 .181
• 56. Consumer Innovators 63 .465

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Extra Credit Question
Marketing Concept

• Target market
• Customer needs wants
• Integrated company efforts
• Profits

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Pass Back the Exams

• You keep the Scantron

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Extra Credit Paper

• Select a New Product or Service
• Using Chapter 172 Page Paper1. Describe How
  Promotional Mix Is Being Used for your
  product/service2. Based on concepts youve
  learned in this course, complete the
  statementThis product will be a success (or
  failure) because
• 25 Points
• Grading Criteria Relevance to Text/Class
  Concepts and persuasiveness in opinion.
  
• Due December 10No late papers accepted. No
  folders.
  

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WSJ ArticleCheaper DVD Recorders

• Price on DVD Recorders?
• Whats going on?
• Would some people buy a DVDR for 800 this year?
• Competition?
• VHS?

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Stages in the Product Life Cycle
Introduction
Growth
Maturity
Decline
Desktop Computers
Cassette Tapes
Cellular Phones
E-books
Sales and Profits
Industry Sales
Industry Profits
Time
Why do profits start to decline?
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Quiz 6

• Quiz 6

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Quiz 6---Bonus Question

• 6. In the video case writeup for Bombardier
  Aerospace, it was described how it sold business
  jets for
  
• A) up to 5.1 million.
• B) between 280,000 to 450,000.
• C) up to180 million.
• D) up to 40 million.
• E) at least 40 million.

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Quiz 6 Q1

• 1. After reading Chapter 13 on Price
  Determination and because price discrimination
  laws are complicated,
  
• A) NEVER discriminate in pricing.
• B) NEVER offer discounts.
• C) ALWAYS charge the same price.
• D) good marketing requires good legal advice.
• E) good marketing requires charging the lowest
  legal price.
  

D Chap 13 p377
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Quiz 6 Q2

• 2. Lamborghini automobiles would probably be sold
  using a(n) __________ pricing strategy.
  
•  
• a. cost plus
• b. ROI
• c. prestige
• d. revenue improvement
• e. sales maximization
•  

C Chap 13 p380
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Quiz 6 Q3

• 3. In the WSJ article about DVD recorder pricing
  for the 2003 holiday shopping season, we learned
  that
  
• a. there are about 12 brands of DVD recorders to
  choose from this holiday season.
  
• b. DVD recorders are still too expensive to reach
  the masses.
  
• c. there are only 4 brands of DVD recorders to
  choose from.
  
• d. consumers will have to keep their VHS
  recorders.
  
• e. Retailers will sell about 45.8 million units
  in the U.S. in 2003.

A Lecture, WSJ
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Quiz 5 Q4

• 4. A skimming price strategy is a relatively low
  price compared to competing products.
  
• A) True
• B) False

B Chap 14 p407
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Quiz 6 Q5

• 5. Break-Even analysis is used to evaluate the
  company's profits and costs with particular
  prices.
  
• A) The break even point (BEP) means that total
  costs equal total revenue.
  
• B) Half of the profits are before the BEP.
• C) The BEX means monopolistic profits.
• D) You cannot do break even analysis with value
  pricing.
  
• E) Half of the profits are after the BEP

A Chap 13, p395
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Quiz 6---Bonus Question

• 6. In the video case writeup for Bombardier
  Aerospace, it was described how it sold business
  jets for
  
• A) up to 5.1 million.
• B) between 280,000 to 450,000.
• C) up to180 million.
• D) up to 40 million.
• E) at least 40 million.

D Video Case VC-17
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Mantras

• 1--The purpose of a business is to create a
  customer.
  
• 2--It is the customer who determines what a
  product/service is.
  
• 3--Know your customer(s).
• 4Brand is the communication interface between
  marketers and customers.
  

5Customer Benefits are more important than Price
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Bombardier Aerospace

• Video CaseChap. 14
• Use the Worksheet
• http//www.bombardier.com/

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Bombardier Aerospace

• Discussion
• http//www.bombardier.com/

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Price
The more you pay, the more its worth.
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Selected Concepts

• Legal constraints on pricing
• Major categories of pricing objectives
• Concept of price elasticity and its determinants
• Practical problems involved in applying price
  theory concepts to actual pricing decisions
  

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Selected Concepts

• Major cost-plus approaches to price setting
• Major advantages and shortcomings of using
  beakeven analysis in pricing decisions
  

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Price

• The exchange value of a good or service, what it
  takes to effect the purchase in the marketplace.
  
• The sum of the values consumers exchange for the
  benefits of having/using a product or service.
  
• The amount of money that is charged for something
  of value.
  

Does it need to be money?
How complicated can pricing be?
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Prices

• Tuition
• Fees (access, landing, etc.
• Dues
• Loan interest
• Rent
• Room rate
• Wage
• Assessment

• Service Fee
• Convenience Fee
• Facility Fee

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Pricing Objectives

• Profitability Objectives
• Profit Maximization
• Target Return
• Volume Objectives
• Sales Maximization
• Market Share
• Meeting Competition Objectives
• Prestige Objectives

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Pricing Objectives
Exhibit 17-4
17-4
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• Amazon.com
• Great Prices?
• Announced Free Shipping on 49 Orders
• Buy.com Announced 10 Pricing
• Amazon Stock Falls 12 Yesterday

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Pricing In Action November 11

• Product Promotion and DistributionU.S. and
  Canada
  
• Rolling StonesFour Flicks, 4 DVD Set3
  Concerts5 Hours2 Documentaries
  
• Sold In Best Buy Exclusively, 4 Months
• 686 Stores
• 29.99
• http//story.news.yahoo.com/news?tmplstoryu/nm/
  20031011/music_nm/music_best_buy_dc_2
  

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Best BuyMonster Promotion

• TV Ads
• Print Ads
• Online Advertising
• Sunday circulars
• In-store Advertising
• http//biz.yahoo.com/prnews/031111/nytu134_1.html

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(No Transcript)
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Profit Maximization
The point at which the additional revenue gained
by increasing the price of a product equals the
increase in total costs.

If you raise price by 10 and unit volume
decreases by 8, are you better off?
It means youve squeezed all of the profit out of
the market. Theoretical. Not obtainable.
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Target Return Objective
A short-run or long-run pricing practice intended
to achieve a specified return on either sales or
investment.
Long run High profits, like name brand
golfballs.
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Robinson-Patman Act
A federal law prohibiting price discrimination
that is not based on a cost differential as well
as selling at unreasonably low prices to
eliminate competitors
Is it illegal to charge two retailers different
prices for the same product?
Microsoft casepredatory pricing.
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Unfair-trade Law
A state law requiring sellers to maintain minimum
prices for comparable merchandise.
Protectionism of businesses or consumer benefit?
Selectively applied?
53
Fair-trade Law
A statute (enacted in most states) that permits
manufacturers to stipulate minimum retail prices
for their products. Manufacturers may require
dealers to protect these prices.
How would you feel if a retailer wants to sell
at a lower price but cannot?
Basis Who owns the brand?
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Price Regulation
Muddled, complicated, selectively enforced.
To a great extent, diminished by market
competition.
Competition/information may do a better job than
regulation?
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Profits and Revenue
Profits Revenue -- Expenses

Revenue Price Per Unit X Quantity Sold
Earnings and Sales
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Profit Maximization
The point at which the additional revenue gained
by increasing the price of a product equals the
increase in total costs.

If you raise price by 10 and unit volume
decreases by 8, are you better off?
It means youve squeezed all of the profit out of
the market. Theoretical. Not obtainable.
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Target Return Objective
A short-run or long-run pricing practice intended
to achieve a specified return on either sales or
investment.
Long run High profits, like name brand diamonds.
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Price Level Policies
Exhibit 13-
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Price Level Policies
Exhibit 17-5B
17-7
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Pricing Process
Determining Demand
Setting the Objective
Estimating Costs
Selecting a Pricing Method
Analyzing Competitor Prices
Setting the Price
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Profit Impact or Market Strategies (PIMS) Project
A research program that discovered a strong
positive relationship between a firms market
share and its ROI.
What did marketing firms then do?
Remember that market share can be very profitable.
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Value Pricing
A pricing strategy that emphasizes benefits a
product provides in comparison to the price and
quality levels of competing offerings.
Does value pricing mean cheap?
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Prestige Pricing
A strategy to maintain the image of quality and
exclusivity of a brand, not strongly related to
profitability or sales volume.
Homes, autos, jewelry, stereos...
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Diablo RoadsterVT
regularVT248,700, SV238,800
287,500
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Customary Price
The traditional amount that customers expect to
pay for a certain good or service.
How much will you pay for a 5 stick pack of gum?
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Allowances
17-9
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Demand
A schedule of the amounts of a firms product
that consumers will purchase at different prices
during a specified time period.
It is a function.
Can you increase demand by decreasing price?
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Demand

• Price

Price
Shift the demand curve
Quantity demanded
Demand
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Demand Curve

• Price
• Income
• Taste
• Complements
• Substitutes
• Expectations

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Supply
A schedule of the amounts of a good or service
that a firm will offer for sale at different
prices during a specified time period.
It is a function.
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Pure Competition
A market structure in which many buyers and
sellers exchange homogenous products, so no
single participant has a significant influence on
price.
Do we have this?
How is the Internet affecting this?
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Monopolistic Competition
A market structure in which large numbers of
buyers and sellers exchange heterogeneous
relatively well-differentiated products, so
marketers exert some control over prices.
Marketing drives the differentiation...and
therefore the price level.
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Oligopoly
A market structure in which relatively few
sellers compete, while high start-up costs form
barriers to keep out new competitors.
Cigarettes, autos, pharmaceutical drugs,
gasoline...
Oligopoly in computer hardware? Software?
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Oligopoly

• Not always avoidable or undesirable. It can
  produce efficiencies that allow firms to offer
  consumers better products at lower prices and
  lead to industry-wide standards.
• Can allow big businesses to reap big profits and
  destroy competition.

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Oligopolies

• Wireless Telecoms2002 4 71(Verizon,
  ATT,Sprint, Cingular, Nextel)
  
• Employment Websites1999 10, 2002
  3(jobsonline.com, monster.com, hotjobs.com)
  
• Radio Broadcasting (Clear Channel, Infinity)
• College Textbooks1990 3 Publishers 35 of
  market2002 3 Publishers 64 of
  market(Pearson, Thompson, McGraw-Hill)

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Monopoly
A market structure in which only one seller
dominates trade in a good or service for which
buyers can find no close substitutes.
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www.everybookstore.com

• Demo

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Distinguishing Features of the Four Market
Structures
Type of Market Structure
Characteristics
Pure Competition
Monopolistic Competition
Oligopoly
Monopoly
Number of competitors
Many
Few to many
Few
No direct competitors
Ease of entry into industry by new firms
Easy
Somewhat difficult
Difficult
Regulated by government
Similarity of goods or services offered by
competing firms
Similar
Different
Can be either similar or different
No directly competing goods or services
Control over prices by individual firms
None
Some
Some
Considerable
Demand curves facing individual firms
Totally elastic
Can be either elastic or inelastic
Kinked inelastic below kink more elastic above
Can be either elastic or inelastic
Examples
200-acre farm
Old Navy stores
Mobil
Commonwealth Edison
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Elasticity
A measure of the responsiveness of purchasers and
suppliers to changes in price.
At what point do you stop buying a product
because of a price increase?
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Costs Revenues

• Fixed Costs Rents, plant, insurance
• Variable Costs Related directly to production
• Average Cost
• Total cost/quantity produced
• Average Revenue
• Total revenue/quantity sold
• Marginal Revenue revenue for one additional
  unit sold
  

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Determining Price by Relating Marginal Revenue to
Marginal Cost
Marginal Cost
Average Total Cost
P
Dollars
Average Revenue (demand)
Marginal Revenue
Q
Quantity
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Price Determination Using Marginal Analysis
Price
Number Sold
Total Revenue
Marginal Revenue
Total Costs
Marginal Costs
Profits (Total Revenue - Total Costs)
--
--
--
--
50
--
(50)
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1
34
34
57
7
(23)
32
2
64
30
62
5
2
30
3
90
26
66
4
24
28
4
112
22
69
3
43
26
5
130
18
73
4
57
24
6
144
14
78
5
66
22
7
154
10
84
6
70
20
8
160
6
91
7
69
18
9
162
2
100
9
62
16
10
160
(2)
110
11
50
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Cost-Plus Pricing
The practice of adding a percentage or specified
dollar amount (markup) to the base cost of a
product to cover unassigned costs and provide a
profit.
What is wrong with this strategy?
Competition and Demand?
84
5 Reactions to Adoption

• Ignore
• Ridicule
• Attack
• Copy
• Steal

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Patterns to Product Markups

• Highly Visible--
• Higher Competition--
• Higher Risk--
• Seasonal Merchandise--
• Perishable Items--
• Higher Inventory Turnover Rates--

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Breakeven Analysis
A pricing technique that determines the number of
products that a firm must sell at a specified
price in order to generate enough revenue to
cover total cost.
At what point will profits start to accrue?
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Breakeven Chart---Price 10, Var. Cost 5
Total Revenue (10 per unit)
160,000
Total Cost
120,000
Profits
Breakeven Point
Revenue and Costs
80,000
Total Variable Cost (5 per unit)
Losses
40,000
Total Fixed Cost (40,000)
8,000
12,000
16,000
20,000
4,000
Quantity (Units)
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Are Zero Profits Good?

• at breakeven profits (losses) are zero
• In the red before this point
• Profits (permanently) begin to accrue

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The Problem

• Most companies do not charge enough for their
  products and services.
  
• Some companies charge too much for the value they
  offer their customers.

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Listening to customers

• Discover what customers are willing to pay first,
  then decide whether or not to sell.

Most companies do little research on customer
willingness to accept a price level.
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Focus away from price

• Most advertising and promotion educate customers
  that price is all that matters.
  
• Consumers naturally gravitate to price as the
  deciding factor in the purchasing decision.

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www.everybookstore.com

• Demo

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Mantras

• 1--The purpose of a business is to create a
  customer.
  
• 2--It is the customer who determines what a
  product/service is.
  
• 3--Know your customer(s).
• 4Brand is the communication interface between
  marketers and customers.
  

5Customer Benefits are more important than Price