Week 7 - 0 MKTG. 4890: Week 7 MKTG. Exam Review (Exam on...

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Unformatted text preview: 0 MKTG. 4890: Week 7 MKTG. Exam Review (Exam on Thursday March 12th Differentiation Pricing Strategies • Pricing Option Mid-term Exam Mid-term Thursday, March 12 at 9:30 a.m. One Hour ten minutes Exam Three Questions out of four Covers all topics through Week 7 Mid-term Exam Mid-term Topics: • • • • • Strategic Business Concepts Competitor Analysis Environmental Analysis Differentiation Pricing H “Marketing planning is pretty useless as a strategic tool in our industry. Things move too fast for any kind of long-term planning.” fast Discuss Explain the relevance of the following terms in marketing Explain planning (give examples to illustrate your points): planning Mission Objectives Goals Strategy Tactics Why is segmentation methodology different Why in Industrial marketing than in Consumer marketing? marketing? “Differentiation becomes more important as the Differentiation products in an industry become mature.” Do you agree with this statement? agree Does this suggest that differentiation has little or Does no importance with newer products? products? Explain what is meant by the term “The Strategic Explain 3-Cs”? 3-Cs”? What causes the variation in the degree of What rivalry from one industry to another and from one time period to another within the same industry? same Environmental scanning is important in Environmental developing marketing strategies. developing • Identify and give your rationale for four (4) social or Identify four technological trends which you believe will have an impact on marketing planning in the next decade. impact Why is it necessary to include Why potential competitors as one of the causes of the degree of rivalry in an industry? industry? Explain the significance of Explain the significance of Weber’s Law in pricing new products Differentiation Differentiation • • The quality option Product features • Perceptual Positioning option • Pricing Option© Pricing: Factors Influencing Pricing: Pricing Objectives © PRICING OBJECTIVES PRICING Maximize short or long­run profits Growth Stabilize the market Desensitize customer to price Maintain price leadership Discourage entrants Speed exit of marginal firms Avoid demands for more from labor/suppliers Enhance image of firm’s offerings Create interest and excitement Build traffic Pricing: Factors Influencing Pricing: Pricing Objectives Costs © Break-even Chart for Determining Target Return Break-even Price and Break-even Volume Price Dollars (in thousands) 1200 1000 800 800 600 400 200 0 10 20 30 40 50 Fixed cost Break-even point Total revenue Target profit profit Total cost Sales volume in units (thousands) Pricing: Factors Influencing Pricing: Pricing Objectives Costs Competition Demand © Inelastic and Elastic Demand Inelastic Price $15 $15 $10 $10 100 105 Quantity demanded per period 50 150 Quantity demanded per period A. Inelastic demand B. Elastic demand 0 PRICING STRATEGIES PRICING Pricing for new Products (Weber’s Law) 0 Weber’s Law: jnd=change in intensity level of original stimulus =k (constant) PRICING STRATEGIES PRICING Strategies for new products(Weber) © Price–Quality relationship © Price/Quality Strategies Price/Quality High Premium High 1. strategy Medium 2. Highvalue strategy 5. Mediumvalue strategy Price Low 3. Supervalue strategy 6. Goodvalue strategy Product Quality 4. Overcharging Medium strategy 7. Rip-off Low strategy 8. False economy 9. Economy strategy strategy PRICING STRATEGIES PRICING Strategies for new products(Weber) © Price–Quality relationship © Effect of Generic Strategies on Pricing© Generic Strategies Generic Size of Firm and its STRATEGY access to Resources COST Smaller Firms with Lesser Access to FOCUS Resources DIFFERENTIATION COST LEADERSHIP Larger Firms with Greater Access to Resources DIFFERENTIATION EXPERIENCE CURVE CONCEPT EXPERIENCE 1.2 1.1 1 log (cost) 0.9 0.8 0.7 0.6 0.5 0.4 10 20 40 80 log (total experience) 80% SLOPE YEAR 1906 1910 1915 Ford’s Cost Leadership Ford’s (Model “T”) SELLING PRICE $850 (Avg. $2000) 690 360 UNITS PRODUCER 6,400 34,500 472,000 Market Share: 1907 15%, Market Share 1913 54%, 1925 75% 1917 $750 Intl. Harvester $900 1920 625 35% Mkt. Share 1922 395 50% Mkt. Share NB: Only 8,000 cars in U.S in 1900. Only 144 miles of paved road Avg. wage was 22 cents/hr ($2.20 per 10 hour day) Only 8% of homes had telephones Fordson Tractor PRICING STRATEGIES PRICING Strategies for new products(Weber) Factors influencing Pricing Price–Quality relationship Effect of Generic Strategies Discount Pricing (C) Discount Pricing Discount Trade discounts Quantity discounts Allowances Seasonal discounts Promotional pricing Psychological pricing (odd­even) PRICING STRATEGIES PRICING Strategies for new products(Weber) Factors influencing Pricing Price–Quality relationship Discount Pricing Flexible Pricing© FLEXIBLE PRICING FLEXIBLE Category pricing (Bausch & Lomb) Customer group pricing (student, seniors) Peak pricing (hotel/airlines) Service level pricing (theater seating) PRICING STRATEGIES PRICING Strategies for new products(Weber) Factors influencing Pricing (C) Price–Quality relationship Discount Pricing Flexible Pricing Bundling–Pricing Strategy Sales Forecasting Estimating Current Demand Estimating Industry Sales Market Share Market Potential© 0 DEFINING THE MARKET TYPES OF MARKETS POTENTIAL MARKET AVAILABLE MARKET QUALIFIED AVAILABLE MARKET TARGET MARKET PENETRATED MARKET 0 Market Potential and Sales Forecasting Market Potential: The maximum sales reasonably attainable under a given set of conditions within a specified period of time. • An upper limit or ceiling on sales.© 0 POTENTIAL MARKET ALL CUSTOMERS WHO MAY BE INTERESTED IN A PARTICULAR OFFERING. RENTAL CAR EXAMPLE: ANY DRIVER WHO NEEDS TEMPORARY TRANSPORTATION 0 AVAILABLE MARKET A SUBSET OF THE POTENTIAL MARKET: CUSTOMERS WHO ARE INTERESTED, POSSESS ADEQUATE INCOME, AND HAVE ACCESS TO THE OFFERING RENTAL CAR EXAMPLE: ANY DRIVER WHO CAN AFFORD THE RENTAL FEES AND IS IN THE AREA SERVED BY RENTAL-CAR SERVICES. 0 QUALIFIED AVAILABLE MARKET A SUBSET OF THE AVAILABLE MARKET: CUSTOMERS WHO ARE QUALIFIED TO BUY BASED ON AGE (FOR PRODUCTS THAT CANNOT BE SOLD TO UNDERAGE CONSUMERS) OR OTHER CRITERIA. RENTAL CAR EXAMPLE: DRIVERS IN THE AVAILABLE MARKET WHO HAVE LICENSES AND MEET MINIMUM (OR MAXIMUM) AGE RESTRICTIONS. 0 TARGET (SERVED) MARKET A SUBSET OF THE QUALIFIED AVAILABLE MARKET: CUSTOMERS THAT THE COMPANY INTENDS TO TARGET FOR A PARTICULAR OFFER. RENTAL CAR EXAMPLE: DRIVERS IN THE QUALIFIED AVAILABLE MARKET WHO NEED TO TRAVEL FROM AIRPORTS TO FINAL DESTINATIONS IN THE AREA. 0 PENETRATED MARKET A SUBSET OF THE TARGET MARKET: CUSTOMERS WHO ARE ALREADY BUYING THE TYPE OF GOOD OR SERVICE SOLD BY THE COMPANY. RENTAL CAR EXAMPLE: DRIVERS IN THE TARGET MARKET WHO HAVE PREVIOUSLY USED RENTAL CAR SERVICES. HOSPITALS (4000) HOSPITALS 0% 25% 75% Cumulative Percentage Penetration % 30 25 20 17.5 15 10 5 2.5 0 0 0 1 2 3 Years 4 5 6.25 11.25 25 Penetration 6 Market Penetration (Units) Market 1200 1000 800 700 600 400 200 100 0 0 1 2 3 4 5 250 450 penetration 1000 Sales Budget year 1 Q1 Q1 Units Price/ Unit Sales 10 $10k $100k Q2 15 $10k $150k Q3 20 $10k $200k Q4 55 $10k $550k Total 100 $10k $1000k Sales Budget (years 1-5) Sales Year1 Sales Sales Units Units Price/ Price/ unit unit Sales Sales 100 $10k $1m $1m Year2 150 $10k $1.5m Year3 200 $9k $1.8m Year4 250 $8k $2.0m Year5 300 $7k $2.1m ...
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