Mr. Hurdle Unit 1 Expenses, Pricing, and Accounts
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| promotional advertising | focuses on merchandise with intent of attracting immediate customer traffic and creating a volume of sales
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| institutional advertising | focuses on the business with the intent of building store prestige and store acceptance
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| 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
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| Distinctinveness | How exclusive the product is
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| Special events | Seasonal, Holidays
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| Price of the item | appeal, bargain, is it economical?
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| omnibus | ad that advertises many different unrelated items
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| 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
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| Age of the business | the older and more well-known the business is, the less aggressive it needs to be with advertising
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| Size of the business | smaller stores don't need to advertise as much
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| Competition | more competition needs more aggressive advertising
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| cost | expenditures to pay for goods purchased
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| flat expense | expense that never changes or that is about the same from month-to-month
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| variable expense | expense that differs each month
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| overhead | cost ot operate a store
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| Four categories of Overhead Expenses | 1. Rent, 2. Store maintenance, 3. Recordkeeping, 4. Administrative expenses
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| Administrative expenses | education, training, mandatory seminars, etc.
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| Factors in pricing | 1. Knowing the customer
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| Special sales and pricing | Two types of leader merchandising and premium merchandising
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| leader | priced below normal but still profitable
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| loss leader | priced below cost but will incur losses
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| premium | something of value given free
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| Two types of credit accounts | open account and revolving account
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| 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
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| 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
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| price | the actual cost and the methods of increasing the value of the product to the customers
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| pricing | establishing and communicating the value of products and services to prospective customers
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| economic utility | value is added through changes in form, time, place, or possession
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| elasticity of demand | the relationship between changes in a product's price and the demand for that product
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| inelastic demand | a price decrease will decrease total revenue
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| elastic demand | a price decrease will increase total revenue.
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| price fixing | competing companies at the same level in a channel of distribution (manufacturers, wholesalers, retailers) cannot cooperate in establishing prices
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| 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
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| price advertising | businesses cannot mislead consumers through the advertising of prices and must also clearly communicate the terms of credit offered to customers
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| 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
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| 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
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| 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
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| possible price objectives | maximize profits, increase sales, maintain an image
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| maximum price | the highest possible price that can be charged is determined by the target market
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| minimum price | the lowest price in the price range is determined by the costs of the seller
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| 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
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| fixed costs | the costs to the business that do not change no matter what quantity of the product is produced or sold
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| variable costs | those costs that are directly related to the quantity of the product produced or sold
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| total costs | fixed costs plus variable costs for a specific quantity of the product
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| product price | price at which the business plans to sell the product
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| total revenue | the anticipated quantity that will be sold multiplied by the product price
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| breakeven point formula | (Total fixed costs)/(Price - variable costs per unit)
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| gross margin | the amount that is available to cover the business' expenses and provide a profit on the sale of the product
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| operating expenses | all costs associated with actual business operations-cost of buildings, equipment, utilities, salaries, taxes, and other business expenses
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| net profit | the difference between the selling price and all costs and operating expenses associated with the product sold
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| 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
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| 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
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| pure competition | customers see all product choices as identical
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| monoply | business has the advantage that the customers have no good substitutes
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| skimming price | a very high price designed to emphasize the quality or uniqueness of the product, even though it attracts fewer customers
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| penetration price | a very low price designed to increase the quantity sold of a product by emphasizing the value
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| non-price competition | de-emphasizes price by developing a unique offering that meets an important customer need
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| one-price policy | all customers pay the same price
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| flexible pricing policy | allows customers to negotiate the price within a price range
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| price lines | distinct categories within which products are organized based on differences in price, quality, and features.
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| FOB (free on board pricing) | identifies the location from which the buyer pays the transportation costs and takes title to the products purchased
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| zone pricing | different product or transportation costs are set for specific areas of the seller's market
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| 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
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| quantity discount | offered to customers who buy large quantities of a product
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| seasonal discount | offered to customers who buy during times of the year when sales are normally low
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| cash discount | offered to customers who pay cash rather than using credit or who pay their credit accounts quickly
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| trade discount | specific percentage reduction in price offered to businesses at various levels in a channel of distribution (wholesalers and retailers)
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| trade-in allowance | reduction in price in exchange for the customer's old product when a new one is purchased
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| Advertising allowance | price reduction or specific amount of money given to channel members who participate in advertising the product
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| coupon | specific price reduction offered by a channel member through a printed promotional certificate
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| rebate | specific amount of money returned to the customer after a purchase is made
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| 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
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| trade credit | offered by one business to another business
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| Procedures for making sure credit is a successful part of a marketing strategy | credit policies, approving credit customers, and developing effective collection procedures
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