This Week’s Activities

This Week’s Activities

Order ID	53563633773
Type	Essay
Writer Level	Masters
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Sources/References	4
Perfect Number of Pages to Order	5-10 Pages

Description/Paper Instructions

This Week’s Activities

Learning Objectives

Explain the primary aim and basic concepts of marketing.

Describe the elements of the marketing mix (Four Ps).

Define a business market and identify the major factors that influence business and consumer buying behaviors.

Identify the major factors that influence business and consumer buying behaviors.

Explain Distribution & Pricing Methodologies/Strategies.

Learning Outcomes

Discuss the importance of pricing decisions to the economy and to the individual firm.

Explain the role of demand in price determination

Demonstrate how the product life cycle, competition, distribution and promotion strategies, customer demands, the Internet an extranets, and perceptions of quality can affect price

Describe the procedure for setting the right price

Explain how discounts, geographic pricing, and other pricing tactics can be used to fine-tune the base price.

Reading & Assignments

Read Chapters 19 and 20 in textbook

Review Lecture 1 “The importance of Price”

Review Lecture 2 “Setting the Right Price”

Review Video Lecture 3 “Price”

Complete Discussion “The Impact of Pricing”

Complete Assignment “Ethics and Pricing”

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Week 5 The Importance of Price

Greeting class, and welcome to week five of the course. We have really developed the base and framework for understanding the fundamentals of marketing and how the marketing world operates. We covered in week one the basics of marketing, and in week two through four we discussed in depth about three of the four P’s (marketing mix elements). This week we are going to continue forward with the fourth P in the marketing mix, “Price, “ and discover the role “Price” plays within the marketing world as well as the marketing mix.  Let’s dive in together into the wonderful world of Pricing.  What is Price? Price is that which is given up in an exchange  to acquire a good or service.  Price means one thing to the consumer and something else to the seller. To the consumer, it is the cost of something. To the seller, price is revenue, the primary source of profits. In the broadest sense, price allocates resources in a free-market economy. Marketing managers are frequently challenged by the task of price setting. Yet, over the past two decades, managers have learned that meeting the challenge of setting the right price can have a significant impact on the firm’s bottom line.  Large organizations that successfully manage prices do so by creating a pricing infrastructure within the company. This means defining pricing goals, searching for ways to create greater customer value, assigning authority and responsibility for pricing decisions, and creating tools and systems to continually improve pricing decisions.  Price plays two roles in the evaluation of product alternatives: as a measure of sacrifice and as an information cue. To some degree, these are two opposing effects. The Sacrifice Effect of Price, Price is, again, “that which is given up,” which means what is sacrificed to get a good or service. In the United States, the sacrifice is usually money, but it can be other things as well. It may also be time lost while waiting to acquire the good or service. Price might also include “lost dignity” for individuals who lose their jobs and must rely on charity.  The Information Effect of Price – Consumers do not always choose the lowest-priced product in a category, such as shoes, cars, or wine, even when the products are otherwise similar. One explanation of this behavior, based upon research, is that we infer quality information from price. That is, higher quality equals higher price.  The information effect of price may also extend to favorable price perceptions by others because higher prices can convey the prominence and status of the purchaser to other people. Thus, both a Swatch and a Rolex can tell time accurately, but they convey different meanings Pricing Goals To survive in today’s highly competitive market place, companies need pricing objectives that are specific, attainable, and measurable. Realistic pricing goals then require periodic monitoring to determine the effectiveness of the company’s strategy

The Demand Determinant of Price After marketing managers establish pricing goals, they must set specific prices to reach those goals. The price they set for each product depends mostly on two factors: the demand for the good or service and the cost to the seller for that good or service. When pricing goals are mainly sales oriented, demand considerations usually dominate. Other factors, such as distribution and promotion strategies, perceived quality, needs of large customers, the internet, and the stage of the product life cycle, can also influence price.  The Nature of Demand Demand is the quantity of a product that will be sold in the market at various prices for a specified period. The quantity of a product that people will buy depends on its price. The higher the price, the fewer goods or services consumers will demand. Conversely, the lower the price, the more goods or services they will demand. One reason more is sold at lower prices than at higher prices is that lower prices bring in new buyers. With each reduction in price, existing customers may also buy more.  Supply is the quantity of a product that will be offered to the market by a supplier or suppliers at various prices for a specified period.  At this point, combine the concepts of demand and supply to see how competitive market prices are determined.

For example,  Let’s pretend we are selling girl scout cookies, if the price is X, then the consumers will purchase Y amount of girl scout cookies. The demand curve cannot predict consumption, nor can the supply curve alone forecast production. Instead, we need to look at what happens when supply and demand interact. To continue on  with the example of girl scout cookies and to see how the two interact , let’s price the cookies at $3.00 a package and assume the public would demand 35 packages of girl scout cookies. However, the suppliers stand ready to place 140 packages on the market at this price. If the suppliers supply 140 packages and consumers’ only demand (purchase) 35 packages, this would create a surplus of 105 packages of girl scout cookies. How does a merchant eliminate a surplus, they lower the price.   If the price of the cookies was lowered to $1.00 a package, and lets say 120 packages is demanded, but only 25 packages was placed on the market by the supplier, a shortage of 95 units would be created. If a product is in short supply and consumers want it, how do they entice the dealer  (supplier) to part with the unit. They offer more money that is, pay a higher price.  Now let’s examine a price of $1.50. At this price, lets pretend 85 packages are demanded and 85 are supplied. When demand and supply are equal, a state called price equilibrium is achieved. Shortages put upward pressure on price. As long as demand and supply remain the same, however, temporary price increases or decreases tend to return to equilibrium. At equilibrium there is no inclination for prices to rise or fall. 

Prices may fluctuate during a trial-and-error period as the market for a good or service moves toward equilibrium. Sooner or later, however, demand and supply will settle into proper balance.  Other Determinants of Price Other factors besides demand and costs can influence price. For example the stages in the product life cycle, the competition, the product distribution strategy, the promotion strategy, and the perceived quality can all affect pricing. As a product moves through its life cycle, the demand for the product and the competitive conditions tend to change. The Competition Competition varies during the product life cycle, of course, and so at times it may strongly affect pricing decisions. Although a firm may not have any competition at first, the high prices it charges may eventually induce another firm to enter the market.  Often in hotly competitive markets, price wars break out.  Distribution Strategy An effective distribution network can often overcome other minor flaws in the marketing mix. For example, although consumers may perceive a price as being slightly higher than normal, they may buy the product anyway if it is being sold at a convenient retail outlet.  Manufacturers have gradually been losing control within the distribution channel to wholesalers and retailers, which often adopt pricing strategies that serve their own purposes. For example, some distributors are selling against the brand, meaning they place well-known brands on the shelves at high prices while offering other brands, typically, their own private label brands, such as Kroger canned vegetables or fruit at lower prices. Of course then, sales of the higher priced brands decline.

The Impact of the Internet and Extranets The internet, extranets (private electronic networks), and wireless setups are linking people, machines, and companies around the globe and connecting sellers and buyers as never before. These links are enabling buyers to quickly and easily compare products and prices putting them in a better bargaining position. At the same time, the technology allows sellers to collect detailed data about customers’ buying habits, preferences, and even spending limits so that sellers can tailor their products and prices.  Promotion Strategy Price is often used as a promotional tool to increase consumer interest. For example, marketers at the Pittsburg Zoo, for instance have used a series of silly gimmicks to increase attendance. Some of the gimmicks for discounts include “friending” the zoo on Facebook or wearing a tie-dyed shirt, and for playing along with these silly gimmicks one may get into the zoo for $5.  Demands of Large Customers Manufacturers find that their large customers such as department stores often make specific pricing demands that the suppliers must agree too. Walmart is one of the largest retailers in the world, and the company uses that size to encourage companies to meet its needs. When Walmart decided that its grocery department needed to have everyday low prices instead of periodic  rollbacks, it talked to its major suppliers, such as ConAgra, General Mills, and McCormick & Co. to discuss the possibility of offering a consistently lower price to drive business. The risk of not working with Walmart? Either your product is important enough to driving traffic that Walmart doesn’t raise the product price (as happened to Clorox bleach), or it raises prices and market share drops quickly.  The Relationship of Price to Quality When a purchase decision involves great  uncertainty, consumers  tend to rely on a high price as a predictor of good quality. Reliance on price as an indicator of quality seems to occur for all products, but it reveals itself more strongly for some items than for others, particularly items geared toward the wealthy. Research has found that products that are perceived to be of high quality tend to benefit more from price promotions than products perceived to be of lower quality.  My fellow students, we have really discovered a much broader spectrum of “price,” within the marketing world as well as its role within the marketing mix. Let’s dig even deeper into, “Pricing,” by moving along onto lecture two, to learn about the procedure for setting the right price, along with learning about product line pricing.  References

Lamb, C., Hair, J., McDaniel, C., (2014). Principles of Marketing. Mason, OH: South-Western, Cengage Learning

Setting the Right Price

Setting the right price on a product is a four-step process:

Establishing pricing goals.

Estimated demand, costs, and profits.

Choose a price strategy to help determine a base price.

Fine-tune the base price with pricing tactics.

Establishing Pricing Goals The first step in setting the right price is to establish pricing goals. A good understanding of the marketplace and of the consumer can sometimes tell a manger very quickly whether a goal is realistic. All pricing objectives have trade-offs that managers must weigh. A profit maximization objective may require a bigger initial investment than the firm can commit to or wants to commit to.  Reaching the desired market share often means sacrificing short-term profit because without careful management, long-term profit goals may not be met. Meeting the competition is the easiest pricing goal to implement.  But can managers really afford to ignore demand and costs, the lift cycle stage, and other considerations? When creating pricing objectives, managers must consider these trade-offs in light of the target customer, the environment, and the company’s overall objectives.  Estimate Demand, Costs, and Profits Elasticity is a function of the perceived value to the buyer relative to the price. The types of questions managers consider when conducting marketing research on demand and elasticity are key. Some questions for market research on demand and elasticity are:

What prices is so low that consumers would question the product’s quality?

What is the highest price at which the product would still be a bargain?

What is the price at which the product is starting to get expensive?

What is the price at which the product becomes too expensive to consider buying?

After establishing pricing goals, managers should estimate total revenue at a variety of prices. Managers can study the options in light of revenues, costs, and profits. In turn this information can help determine which price can best meet the firm’s pricing goals.  Choose a Price Strategy A company’s freedom in pricing a new product and devising a price strategy depends on the market conditions and the other elements of the marketing mix. If a firm launches a new item resembling several others already on the market, its pricing freedom will be restricted. To succeed, the company will probably have to charge a price close to the average market price. In contrast, a firm that introduces a totally new product with no close substitutes will have considerable pricing freedom.  Companies that do serious planning for creating a price strategy can select from three basic approaches: price skimming, penetration pricing, and status quo pricing.

Price Skimming is sometimes called a “market-plus” approach to pricing because it denotes a high price relative to the prices of competing products. the term price skimming is derived from the phrase “skimming the cream off the top,” (Lamb, C., Hair, J., McDaniel, C., 2014). Companies often use this strategy for new products when the product is perceived by the target markets as having unique advantages.

Penetration Pricing is at the opposite end of the spectrum from skimming. Penetration pricing means charging relatively low price for a product as a way to reach the mass market. The low price is designed to capture a large share of substantial market, resulting in lower production costs. If a marketing manager has made obtaining a large market share the firm’s pricing objective, penetration pricing is a logical choice.

The third basic price strategy a company may choose is Status Quo Pricing, also called meeting the competition or going rate pricing. It means charging a price identical to or very close to the competitions price. Although status quo pricing has the advantage of simplicity, its disadvantage is that the strategy may ignore demand or cost or both.

Fine-Tune the Base Price with Pricing Tactics After managers understand both the legal and the marketing consequences of price strategies, they should set a base price, the general price level at which the company expects to sell the good or service.  The final step, then, is to fine-tune the base price.  Fine-tuning techniques are short-run approaches that do not change the general price level. They do, however, result in changes within a general price level. These pricing tactics allow the firm to adjust for competition in certain markets, meet ever-changing government regulations, take advantage of unique demand situations, and meet promotional and positioning goals. Fine-tuning pricing tactics include various sorts of discounts, geographic pricing and other pricing tactics.

Discounts, Allowances, Rebates, and Geographic Pricing A price can be lowered through the use of discounts and the related tactics of allowances, rebates,  low or zero percent finance, and geographical pricing. Managers use the various forms of discounts to encourage customers to do what they would not ordinarily do, such as paying cash rather than using credit, taking delivery out of season, or performing certain functions within a distribution channel. The following are the most common tactics:

Quantity Discounts: When buyers get a lower price for buying in multiple units or above a specified dollar amount, they are receiving a quantity discount.

Cash Discounts: Is a price reduction offered to a consumer, an industrial user, or a marketing intermediary in return for prompt payment of a bill. Prompt payment saves the seller carrying charges, and billing expenses and allows the seller to avoid bad debt.

Seasonal Discounts: A seasonal discount is a price reduction for buying merchandise out of season. It shifts the storage function to the purchaser.

Rebates: A rebate is a cash refund given for the purchase of a product during a specific period.

Zero Percent Financing: Is when manufacturers offer zero percent financing, which enables purchasers to borrow money to pay for the product/service with no interest charge for a specified time frame.

Geographic Pricing Because many sellers ship their wares to a nationwide or even a worldwide market, the cost of freight can greatly affect the total cost of a product. Sellers may use several different geographic pricing tactics to moderate the impact of freight costs on distant customers. The following methods of geographic pricing are the most common:

FOB Origin Pricing: is a price tactic that requires the buyer to absorb the freight costs from the shipping point (“free on board”).

Uniform Delivered Pricing: a price tactic in which the seller pays the actual freight charges and bills every purchaser an identical flat freight charge.

Zone Pricing: a modification of uniform delivered pricing that divides the United States (or the total market) into segments or zones and charges a flat freight rate to all customers in a given zone.

Freight Absorption Pricing: a pricing tactic in which the seller pays all or part of the actual freight charges and does not pass them on to the buyer.

Single-Price Tactic: a price tactic that offers all goods and services at the same price (or perhaps two or three prices).

Week 5 Review Class, we certainly have learned a lot this week on the fourth P of the Marketing mix, “Price.” I think we can all agree that there is so much more to “Price,” within the marketing mix than what truly meets the eye. We have really gained knowledge this week on the importance of setting the right price on a product/service as well as the importance pricing decisions have on the economy, and the individual company. We also learned the role of demand in price determination, and the necessity of product line pricing.  Let’s continue to advance our knowledge a bit more by moving on to the power point presentation this week and taking a closer look at “Price,” within the marketing mix and the vital role “price,” plays within the wonderful world of marketing. References

Lamb, C., Hair, J., McDaniel, C., (2014). Principles of Marketing. Mason, OH: South-Western, Cengage Learning.

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