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Final Butler MKTG
| Question | Answer |
|---|---|
| price | the exchange value of a product or service in the marketplace |
| value | is a consumer’s subjective evaluation of the ratio of the benefits of a product or service to its price. -good value = most benefits + least cost |
| sales formula | sales = price x quantity |
| price formula | price vale = (Benefits -Costs) / $ |
| Value formulas | value = benefit/price or value = benefits - cost |
| value creation | o reliability o performance o Longevity o Cost o Service o design o prestige |
| fair prices | consumers perceive as offering good value and meeting personal and social norms |
| monopoly | single firm is able to act as a price maker, often due to product exclusivity (such as a patent) or high barriers to competitive entry Example: new drugs grant pharmaceutical companies monopoly power. Can be 10x above market price |
| oligopoly | small group of firms shares pricing power through collective ability to control prices. Usually done by restricting supply o Example: OPEC |
| monopolistic competition | limited number of firms compete by offering products with varying degrees of differentiation. Individual firms have a moderate ability to set higher prices depending on customer demand for their specific brand o Example: Nike, Adidas, Reebok |
| pure competition | large number of producers sell mostly undifferentiated products (Ex. Wheat or soybeans). No particular brand of soybean is preferred by consumers, so no producer had any appreciable pricing power. |
| fixed costs (overhead) | Costs that are incurred regardless of any production or sales. |
| variable costs | costs directly attributable to the production of a product or the delivery of a service. |
| total costs | the sum of the fixed and variable costs |
| profit margin | the difference between its price and total cost per unit |
| cast-based pricing | Establishes a price based on the cost to manufacture a product or deliver a service. |
| cost plus pricing | adds a fixed amount to the cost of each item sufficient to earn a desired profit |
| cost-based pricing formula | profit = revenue - costs |
| total cost formula | fixed costs + variable costs |
| cost plus pricing formula | Selling Price / (1 – Mark up % ) |
| Unit gross margin formula | Gross Margin = Selling price - Cost of good sold |
| markup | the additional amount, or margin added to each product |
| markup chain | the manner in which each person in the chain must increase the price of a product to gain margin |
| strong man pricing | marking up a price (MSRP) so that you can knock it down and make it more appealing |
| Mark-Up/Mark-On | The difference between unit selling price and unit cost at each level of a marketing channel |
| Markup on Cost vs. Markup on Selling Price: | Markup can be a percentage of cost or a percentage of selling price. These are calculated differently. |
| margin | the difference between the final price and the unit cost |
| markup formula | selling price - purchase price/ purchase price **MARKUP GENERATES LESS PROFIT |
| margin formula | selling price - purchase price/selling price ** MARGIN GENERATES MORE PROFIT |
| Net Margin Formula | contribution per unit / selling price |
| contribution per unit formula | Contribution Per Unit = Selling Price –Variable Cost |
| break-even point | a projected price and sales volume where a company earns revenue exactly equal to its total cost |
| break-even point formula | Break-Even Volume= Fixed Cost/(Price –Variable Cost) |
| pricing practices | considerations (such as legal requirements or bidding practices) that must be taken into account when establishing a price for a product or service |
| price fixing | two or more companies discuss prices to raise the market price for their product. o Sherman Act: illegal to discuss prices with a competitor |
| price discrimination | firm injures competition by changing different prices for different members of its distribution channel. o Illegal under Robinson-Patman Act and Clayton Act o Cannot offer discount, rebate, coupon, or benefit to one customer and not another |
| predatory pricing | firm sells product at low prices to drive competitors out of the market o Illegal under Sherman Act |
| deceptive pricing | when a price is meant to intentionally mislead or deceive customers. |
| bait and switch | advertising a low price on desirable product, when it is “sold out” many other high priced items are readily available. *ONLY IF IT IS INTENTIONAL* |
| MSRP or sticker price | price offered by a business to a consumer |
| request for quote | document a buyer sends to a potential supplier that outlines the criteria for the goods or services to be purchased. |
| pricing strategies | identifies what a business will charge for its products or services. o Includes all activities that convey and enhance the value of a purchase |
| pricing objectives | goals that keep marketing actions in alignment with overall business objectives. |
| Different pricing objectives include: | • Profitability: • Volume: • Meeting competition: • Prestige: |
| skimming | skim out the market those customers who are willing to pay a higher price for a new product. o Early adopters want the latest and greatest technology, will pay more for a new product when it is first introduced. |
| penetration pricing | product or service is offered at a low price compared to its competition. o Quickly generate sales volume, market segment, production scale |
| price ceiling | the price below which all products in the line have to be priced |
| price floor | the price above which all products within a like will be priced |
| price adjustment strategies | Lower the actual price paid by the customers, while leaving the MSRP intact. -cash discount -quantity -trade in -rebate |
| cash discount | customers paying in cash are given a percentage or fixed amount off quotes price |
| quantity discount | buying larger quantity of an item results in a discount per item purchased |
| trade in | customer is given cash value for an item they trade toward the new purchase |
| rebate | manufacturer makes cash payment back to a customer who has purchases their product at full price |
| marketing channels | the network of parties involved in moving products from the producer to consumers or business to consumers. |
| distribution | process of delivery products and services to customers o 30% to 50% of the ultimate selling price of a product is due to distribution costs |
| contact efficiency | Intermediaries make markets more efficient. In this example, with 6 manufacturers and 6 customers, there are a total of 36 contact points. |
| resellers | take ownership |
| wholesalers | firms that acquire large quantities of products from manufacturers and then sort, store, and resell them to retailers or businesses |
| retailers | all channel members who are involved in selling products or services to consumers |
| brokers | do not take ownership |
| agents | people who facilitate the exchange of products but do not take title (purchase) anything they sell |
| facilitators | do not take ownership |
| transportation companies | organizations that assist in the distribution of products but do not take title or negotiate sales |
| channel structure | determining how many levels of intermediaries should be used to connect the manufacturer to the end customer |
| direct marketing channel | determining how many levels of intermediaries should be used to connect the manufacturer to the end customer |
| indirect marketing channel | contain at least one intermediary between the producer and the consumer. o Manufacturers can capitalize on specialized skills of intermediaries |
| multichannel distribution systems | system where consumer has multiple locations to purchase the product |
| distribution intensity | system where consumer has multiple locations to purchase the product |
| intensive distribution | sold through a large number of retail outlets, so they are readily available • Convenience products • Ex. Coca Cola → vending machines, stores, gas stations |
| selective distribution | ompanies will seek out a few intermediaries and will gain the necessary market coverage through control and lower costs (than by using intensive distribution). |
| exclusive distribution | luxury or high-ticket items. Retailers or wholesalers are given exclusive rights to sell the product. • Frequently used to maintain a perception of exclusivity and prestige for these products |
| logistics | the coordination of all activities related to the movement of raw material and finished goods that occur within the boundaries of a single business organization |
| supply chain | management of all firms or organizations both inside and outside the company, that impact the distribution process |
| outbound logistics | controls the movement of products from points of production (factories), to customers |
| inbound logistics | eals with the flow of products or services from suppliers to manufacturers or service producers o movement of products (say tires) from suppliers (Michelin) to companies (GM |
| reverse logistics | addresses the methods consumers use to send products backward through a channel for return or repair. |
| logistics managers | responsible for coordinating the activities of all members of a company’s distribution channel. Well-managed chains can result in improved customer service due to improved information flows, faster delivery, and easier product returns. |
| third party logistics company (3PL) | a hired company that manages all parts of the distribution network for a firm. o At least 70% of all companies worldwide use some form of 3PL |
| Just in Time (JIT) | inventory management technique in which goods are delivered within a predefined time window. This slot corresponds to exactly when the good are needed, so they arrive “just in time” to be used or sold o Minimizes storage costs o Toyota uses |
| shippers | own goods being distributed. |
| carriers | physically transport goods from shippers to consignees. |
| consignees | receive distributed goods. |
| trucks | most widely used form of transport due to widespread accessibility to roads. Relatively fast, dependable, high frequency of shipments. But it is expensive, only second to air |
| air | fastest, and highly dependable, but high cost. |
| rail | slower than truck or air. Low cost and high flexibility in the type of goods that can be shipped. |
| water | cargo ships or barges. Least expensive, but slower. Limited by where has water access. |
| warehouse | physical facility used primarily for the storage of goods held in anticipation of sale or transfer within the marketing channel. |
| breaking bulk | reducing large product shipments into smaller ones more suitable for individual retailers |
| creating assortment | putting an assortment of products in one truck so five orders make the same trip. |
| distribution center | a large warehouse in a centralized location to stores. o Wal-Mart has a distribution center for every 120 stores |
| cross docking | goods are not warehoused, simply unloaded at a distribution center, immediately sorted by destination, and reloaded for dispatch. o We talked about cross docking in class in reference to produce at the Wal-Mart distribution center. |
| RFID | tag that tracks the movement of goods electronically. Sends precise location of each item to a computer |
| barcodes | when scanned it confirms location and ensures correct destination when being shipped. Also records final sale at checkout |
| Universal Product Code (UPC) | a series of number uniquely identifying a specific product |
| retailing | the activities involved in the sale of products to consumers for their personal, non-business use. |
| retailers | businesses whose primary source of revenues is generates through retailing. |
| functions of retailers | o Utility: o Financial: o Educate: o Handle returns: |
| retailers- utility | Retailers provide the product where it is needed, when it is needed, and typically in a form needed by consumers. |
| retailers- finance | Retailers facilitate payment between the consumer and the manufacturer |
| retailers- education | Retailers can demonstrate a product’s function and use to a potential buyer. |
| Handle Returns | Many products are purchased because the consumer has the opportunity to return the product if it is no longer needed, or they are not satisfied. |
| specialty stores | concentrate on satisfying the specific needs of a select group of customers. o Broad range of choices o Narrow product line o Employees have greater expertise o Higher degree of service • Ex. David’s Bridal, Radio Shack, FAO Schwartz |
| category killer | retailers that offer a wide selection of merchandise in a narrow product category. o Wide selection of merchandise o Narrow product category o Moderate level of service and expertise • Ex. Toys R U, Home Depot, Office Max |
| department stores | carry a wide selection of products organized by departments, such as house wares, men’s and women’s clothing, appliances and luggage o Salespeople well trained o Commission o Top of the line brands • Ex. Dillard’s, Nordstrom, Macy’s |
| discount stores | type of department store focused on turning over products more quickly than traditional department stores by offering lower prices o Ex. Wal-Mart or Target o Lower expenses o Limited service |
| off-price retailers | sell name brand apparel and accessories at prices 20% to 50% less than specialty r department stores. Continually change merchandise. o Only acquire merchandise through manufacturer imperfections • Ex. TJ Maxx, Ross, Marshalls, Big Lots |
| warehouse clubs | carry a limited selection of merchandise in large quantities that deliver higher value for customers and greater unit volume for manufacturers. • Membership fees: members pay from $35 to $100 a year o Ex. Costco, Sam’s Club |
| grocery stores | self-service retailers that carry food and non-food items o Arranged in departments o Located close to residential centers • Ex. Kroger, Publix, Randall’s |
| superstores | combination of discount store and a grocery store. Includes food, electronics, housewares, and home and garden supplies. o Require high customer traffic o Ex. Wal-Mart Supercenter, SuperTarget |
| convenience stores | small self-service retailers that offer few product choices outside of the primary offerings (beer, soda, snacks). o Ex. 7-Eleven, Circle K o Located in high traffic areas o Open 24hrs o Product prices are higher due to convenience |
| nonstore retailing | small self-service retailers that offer few product choices outside of the primary offerings (beer, soda, snacks). o Ex. 7-Eleven, Circle K o Located in high traffic areas o Open 24hrs o Product prices are higher due to convenience |
| vending machines | sell a wide range of products, including soft drinks, snacks, hot and cold meals, gumballs, and toys. |
| internet retailers | offer a wide range of products that are sold online |
| m-commerce | form on nonstore retailing conducted through the use of mobile devices and mart phones. o Most popular uses are financial services such as mobile banking or stock transactions o Done through purchasing apps that allow these actions |
| retail strategies | • the decision to be made regarding the establishment and ongoing operations of a retailer. o Established to satisfy the business objectives or an organization. |
| retail profits | are based on the sales of the merchandise sold, the margin that the retailers make on those sales, minus their operating expenses. |
| retail profits formula | profits = (merchandise sold x margin) - expenses |
| retain margin | difference between a product’s retail selling price and its wholesale cost. |
| overall profitability | determined by 1. the amount of merchandise sold 2. the retail margin on the merchandise 3. the store’s overall operating expenses |
| retail marketing mix | 1. merchandise 2. location 3. pricing 4. promotion 5. atmosphere 6. service |
| pricing | has to match the merchandise mix. The price, location, and merchandise must match to be effective. a. For example, there are no dollar stores on Rodeo Dr. and there’s no Range Rover dealership in the ghetto. |
| atmosphere | a.there are sometimes cookies baking in hotel lobbies, to make it feel more like home. b.restaurants turn down the air conditioner so people will leave faster. c. when people are greeted when they walk in a store, they are less likely to steal. |
| service | service is within the price. a. An example is how Southwest Airlines doesn’t say they offer any exceptional service and that’s exactly what they provide |
| music | carefully selected to reinforce the store’s image. o Music can influence shopper behavior → shoppers spend less time in stores that play up-tempo music • 40% of customers said they have left a store because of the music being played |
| location | • Retailer must balance a location’s cost, with the area’s traffic • Traffic: the number of people or cars that pass by a location. |
| retail price policy | • Establishes a level at which prices will be set compared to competition. • Has to match merchandise mix |
| wholesaler | firm that purchases products from manufacturers and resells them to retailers and industrial buyers |
| functions of wholesalers | • Physical distribution • Product storage • Simplify payment • Collect information • Inject capital • Technical support |
| merchant wholesalers | • Broad group of wholesalers that take title to the products that are purchased from manufacturers. • Purchase in bulk from manufacturers; sell in smaller quantities to retailers |
| full-service wholesalers | assume many responsibilities that otherwise would be performed by manufacturers • Broader understanding of market • Share expertise with customers and manufacturers |
| general merchandise wholesaler | wide assortment of merchandise in a broad product category. • Ex. Pharmaceuticals or groceries • Customers are retail chains and small regional wholesalers • Assist with advertising and promotional allowances or shelf design services |
| specialty line wholesalers | focus on a single product line, and may cover a wide geographic area. • Highly knowledgeable • Willing to share knowledge with customers to increase product sales • Ex. Health food |
| limited service wholesalers | • Perform fewer services for manufacturers but may be the best or only way to reach the markets they serve |
| cash and carry wholesalers | provide few services but low prices on the limited number of goods •Customers must travel to these wholesalers •pay in cash •Customers must transport their purchases •Good for retailers who cannot establish accounts with full service wholesalers |
| mail order wholesalers | use catalogs and the Internet as their sales force. • Many small businesses must use mail-order wholesalers because they lack access to other types of wholesalers due to location or size |
| drop shippers | take title but never take possession. They assume all risks until product is delivered to buyer. • Carry no inventory, place order to manufacturer after sale • Good for products that require a lot of space • Coal |
| jobbers | wholesalers that operate on a small scale and sell and provide services to retailers. • Active in many industries • Automotive parts • Textiles |
| agents and brokers | • Independent businesses that may take possession but never take title • Compensation is commission based |
| manufacturers agents | used as a replacement for a manufacturer’s sales team. o Responsible for sales in a territory o Little control over selling price |
| selling agents | responsible for a wider range of marketing activities in addition to the sales function. o More flexibility with pricing and promotional activities |
| commission merchants | take physical possession, do not take title o Once sold, collect payment from buyer, subtract commission, and pay the seller o Widely used in commodities • Copper • Livestock • Wheat |
| merchandise brokers | focus on linking buyers and sellers together. o Well known in the area they specialize in o Hired by buyer or seller. • Assist in negotiation process • Paid a fee or commission |
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