Unit 1

Description:	Mr. Hurdle Unit 1 Expenses, Pricing, and Accounts
Category:	Marketing
Created by:	sissiloo on 2009-02-08

Question	Answer
promotional advertising	focuses on merchandise with intent of attracting immediate customer traffic and creating a volume of sales
institutional advertising	focuses on the business with the intent of building store prestige and store acceptance
Factors affecting the promotional mix:	1. Current demand of the product, 2. Fashion, 3. Distinctiveness, 4. Special events, 5. Price of the item, 6. Promoting single versus multiple items, 7. Advertising a private brand versus a national brand
Distinctinveness	How exclusive the product is
Special events	Seasonal, Holidays
Price of the item	appeal, bargain, is it economical?
omnibus	ad that advertises many different unrelated items
Determinants of how much to invest on advertising	1. Age of business, 2. Size of business, 3. Competition, 4. Merchandise offered, 5. Store location, 6. Size and nature of market area, 7. Media available, 8. Business philosophy
Age of the business	the older and more well-known the business is, the less aggressive it needs to be with advertising
Size of the business	smaller stores don't need to advertise as much
Competition	more competition needs more aggressive advertising
cost	expenditures to pay for goods purchased
flat expense	expense that never changes or that is about the same from month-to-month
variable expense	expense that differs each month
overhead	cost ot operate a store
Four categories of Overhead Expenses	1. Rent, 2. Store maintenance, 3. Recordkeeping, 4. Administrative expenses
Administrative expenses	education, training, mandatory seminars, etc.
Factors in pricing	1. Knowing the customer
Special sales and pricing	Two types of leader merchandising and premium merchandising
leader	priced below normal but still profitable
loss leader	priced below cost but will incur losses
premium	something of value given free
Two types of credit accounts	open account and revolving account
open account	the whole month's purchases are billed at the end of the month, and one is expected to pay in full; not as common anymore
revolving account	account used for credit cards; customers have a credit limit and may charge up to it until the unpaid balance at the end of the month is paid in full; much more expensive than it appears; is very dangerous
price	the actual cost and the methods of increasing the value of the product to the customers
pricing	establishing and communicating the value of products and services to prospective customers
economic utility	value is added through changes in form, time, place, or possession
elasticity of demand	the relationship between changes in a product's price and the demand for that product
inelastic demand	a price decrease will decrease total revenue
elastic demand	a price decrease will increase total revenue.
price fixing	competing companies at the same level in a channel of distribution (manufacturers, wholesalers, retailers) cannot cooperate in establishing prices
price discrimination	businesses cannot discriminate in the prices they charge to other businesses in their channel of distribution. A manufacturer must offer equivalent prices, discounts, and quantities to all wholesalers or retailers rather than giving an unfair advantage
price advertising	businesses cannot mislead consumers through the advertising of prices and must also clearly communicate the terms of credit offered to customers
examples of misleading advertising	phony list prices (price at which product is never sold), incorrect comparisons with competitors' prices, or continuous promotion of a sale price
bait-and-switch	companies cannot lure customers into a store with offers of extremely low prices and then tell the customer the low-priced product is unavailable or inferior
unit pricing	many products that are sold in varying quantities or package sizes must carry a label listing the price for a basic unit of measurement, such as a liter, ounce, or pound, so consumers can make price comparisons
possible price objectives	maximize profits, increase sales, maintain an image
maximum price	the highest possible price that can be charged is determined by the target market
minimum price	the lowest price in the price range is determined by the costs of the seller
breakeven point	the quantity of a product that must be sold for total revenues to match total costs at a specific price; calculated using fixed costs, variable costs, total costs, product price, and total revenue
fixed costs	the costs to the business that do not change no matter what quantity of the product is produced or sold
variable costs	those costs that are directly related to the quantity of the product produced or sold
total costs	fixed costs plus variable costs for a specific quantity of the product
product price	price at which the business plans to sell the product
total revenue	the anticipated quantity that will be sold multiplied by the product price
breakeven point formula	(Total fixed costs)/(Price - variable costs per unit)
gross margin	the amount that is available to cover the business' expenses and provide a profit on the sale of the product
operating expenses	all costs associated with actual business operations-cost of buildings, equipment, utilities, salaries, taxes, and other business expenses
net profit	the difference between the selling price and all costs and operating expenses associated with the product sold
markup	an amount added to the cost of a product to determine the selling price; usually stated as percentage rather than dollar amount; can be percentage of cost or percentage of selling price
markdown	a reduction from the original selling price; can be expressed as specific dollar amounts or as a percentage of the original selling price; usually viewed as business mistakes
pure competition	customers see all product choices as identical
monoply	business has the advantage that the customers have no good substitutes
skimming price	a very high price designed to emphasize the quality or uniqueness of the product, even though it attracts fewer customers
penetration price	a very low price designed to increase the quantity sold of a product by emphasizing the value
non-price competition	de-emphasizes price by developing a unique offering that meets an important customer need
one-price policy	all customers pay the same price
flexible pricing policy	allows customers to negotiate the price within a price range
price lines	distinct categories within which products are organized based on differences in price, quality, and features.
FOB (free on board pricing)	identifies the location from which the buyer pays the transportation costs and takes title to the products purchased
zone pricing	different product or transportation costs are set for specific areas of the seller's market
discounts and allowances	reductions in a price given to the customer in exchange for performing certain marketing activities or accepting something other than what would normally be expected in the exchange
quantity discount	offered to customers who buy large quantities of a product
seasonal discount	offered to customers who buy during times of the year when sales are normally low
cash discount	offered to customers who pay cash rather than using credit or who pay their credit accounts quickly
trade discount	specific percentage reduction in price offered to businesses at various levels in a channel of distribution (wholesalers and retailers)
trade-in allowance	reduction in price in exchange for the customer's old product when a new one is purchased
Advertising allowance	price reduction or specific amount of money given to channel members who participate in advertising the product
coupon	specific price reduction offered by a channel member through a printed promotional certificate
rebate	specific amount of money returned to the customer after a purchase is made
consumer credit	credit extended by a retail business to the final consumer. may be provided by seller or may be offered by another business that is participating in the marketing process, such as a bank, finance company, or a credit card company like VISA
trade credit	offered by one business to another business
Procedures for making sure credit is a successful part of a marketing strategy	credit policies, approving credit customers, and developing effective collection procedures