Select any one of the following starter bullet point sections. Review the important themes within the sub questions of each bullet point. The sub questions are designed to get
Select any one of the following starter bullet point sections. Review the important themes within the sub questions of each bullet point. The sub questions are designed to get you thinking about some of the important issues. Your response should provide a succinct synthesis of the key themes in a way that articulates a clear point, position, or conclusion supported by research. Select a different bullet point section than what your classmates have already posted so that we can engage several discussions on relevant topics. If all of the bullet points have been addressed, then you may begin to reuse the bullet points with the expectation that varied responses continue.
- Perceived value of a product is directly related to its perceived quality and inversely related to its price.
- Assuming that we keep the perceived quality constant, explain what would happen to the perceived value of the product if we increase its price.
- Explain what will happen if we decrease its price.
- Conversely, if we keep the price constant, explain what will happen to the product's perceived value if we increase its perceived quality.
- Explain what will happen if we decrease its perceived quality.
- As a part of the campaign for a new gourmet foods store, advertisement flyers will be sent through direct mail to high-income zip codes to solicit business from household heads. The mailers will contain information about the variety of products and services offered by the new store. Write the key marketing messages for an advertisement flyer positioning the store as a place where consumers interact with others interested in quality foods for everyday use and entertainment. In addition, select a method to measure the effectiveness of the mailer. Make reasonable assumptions.
- Using your selected method, how will you measure the effectiveness of the advertisement flyer?
- Why do you think your method is appropriate in the given situation? Provide detailed justification for your choice.
- A free-market national economy is experiencing a recession with no apparent end in sight. Determine what two pricing objectives you would recommend for producers of goods and services in the country. Explain why you would recommend these two pricing objectives.
- Explain the way pricing strategy changes over the course of the four stages of the product (category) life cycle: introduction, growth, maturity, and decline. Provide reasoning to support your answer.
- Identify three internal and three external factors influencing the setting of prices. Discuss how each of these factors influences the price of a service.
Respond to your peers throughout the week. Justify your answers with examples, research, and reasoning.
Your initial posting should be the equivalent of 1.5 single-spaced pages (700 to 800 words) in length.
Channels of Distribution and the Communication Mix.html
Channels of Distribution and the Communication Mix
The communication mix refers to the blending of promotional elements, also known as media types, into the right combination. Examples of media types include advertising, personal selling, sales promotion, public relations, publicity, and the Internet. Some of these media types are more complex than others.
Advertising is the most widely used and well-developed of all media types. Advertising messages can be expressed in many forms and through many mediums, such as television, newspapers, radio, magazines, billboards, and the Internet. This makes advertising the most flexible and prolific type of communication tool.
In designing a channel of distribution, several managerial decisions concerning the channel objectives, the channel structure, types of channel members, and strategic relationships (within the channel) need to be made.
Generally, channel objectives are formulated on the basis of the needs of customers and the organization. Regardless of whether a consumer, commercial, or service channel is designed, customers’ needs revolve around four types of utilities: place, time, form, and ownership.
The structure of a channel refers to the combination of two things—the number of channels of distribution the organization needs to have between it and consumers (or business customers) and the number of channel members in each of the channels. Overall, the greater the intensity of business, the larger the number of channels and channel members involved.
The types of channel members vary with the length of the channel and the types of customers. For example, to distribute sweet potatoes to consumers in remote geographical areas of the United States, a producer’s cooperative, a product distributor, two levels of wholesalers, and a retailer will be needed. The process may also involve making decisions concerning the relative importance of wholesaling functions in various channels of distribution.
A marketing channel is a collection of organizations that perform the functions necessary to move a product or service from its source to a user, whether the user is a business or an individual.
Organizations that assist in the movement can be intercompany or intracompany. Companies that perform these functions within their own organizations are considered intercompany. These companies perform the functions necessary to move a product or service from its source to a user within the resources of the company. For example, the Firestone Tire and Rubber Company® manufactures, distributes, and sells tires through its own retail stores as well as through other channels.
An increasing number of companies are relying on other companies that specialize in several of the product/service movement functions to assume some part of the responsibilities concerning product/service movement. In this case, the movement is considered intracompany and the outside companies are called channel members. For example, General Mills® manufactures food products and uses grocery distributors and retail grocery stores to sell its merchandise.
In many cases, the term marketing is used interchangeably with the term sales. Some companies refer to sales representatives as marketing representatives. In fact, marketing and sales are substantially different functions, albeit intertwined. In general, marketing staff focuses on product, packaging, pricing, distribution models, advertising, service, and a variety of other functions that include designing, implementing, and managing the channel. The sales staff focuses on selling the product or service by convincing a targeted market segment to buy it for a fee. If multiple companies are involved in a channel, there may be a sales function at each layer or level of distribution within the channel.
The use of multiple functional organizations within the same company to move products and services from origination to the consumer is itself a channel.
Channel management is the process of putting all this together and managing the effectiveness and efficiency of this movement or channel flow.
Channel management has as its objective the coordination of the flow within the channel to achieve maximum potential.
Additional Materials
View the PDF transcript for Channels of Distribution and the Communication Mix
media/transcripts/SUO_MBA6011 W5 L1.pdf
Channels of Distribution and the Communication Mix
© 2016 South University
Page 2 of 2
Strategic Marketing
©2016 South University
2 Channels of Distribution and the Communication Mix
MBA6011 Week 5 Lecture 1
In designing a channel of distribution, several managerial decisions concerning the channel objectives, the channel structure, types of channel members, and strategic relationships (within the channel) need to be made. Channel Objectives Generally, channel objectives are formulated on the basis of the needs of customers and the organization. Regardless of whether a consumer, commercial, or service channel is designed, customers’ needs revolve around four types of utilities: place, time, form, and ownership. Examples of channel objectives based on customers’ utilities include: • Making the product widely available • Expediting the transaction time • Maintaining the brand’s image • Physically protecting the product From the organizational standpoint, channel objectives may include: • Estimating distribution costs • Developing new accounts • Building distributor support • Penetrating the market Channel Structure The structure of a channel refers to the combination of two things—the number of channels of distribution the
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Strategic Marketing
©2016 South University
3 Channels of Distribution and the Communication Mix
MBA6011 Week 5 Lecture 1
organization needs to have between itself and consumers (or business customers) and the number of channel members in each of the channels. Overall, the greater the intensity of business, the larger the number of channels and channel members involved. Types of Channel Members The types of channel members vary with the length of the channel and the types of customers. For example, to distribute sweet potatoes to consumers in remote geographical areas of the United States, a producer’s cooperative, a product distributor, two levels of wholesalers, and a retailer will be needed. The process may also involve making decisions concerning the relative importance of wholesaling functions in various channels of distribution.
The communication mix refers to the blending of promotional elements, also known as media types, into the right combination. Examples of media types include advertising, personal selling, sales promotion, public relations, publicity, and the Internet. Some of these media types are more complex than others.
Advertising is the most widely used and well developed of all media types. Advertising messages can be expressed in many forms and through many mediums, such as television, newspapers, radio, magazines, billboards, and the Internet. This makes advertising the most flexible and prolific type of communication tool.
Page 4 of 2
Strategic Marketing
©2016 South University
4 Channels of Distribution and the Communication Mix
MBA6011 Week 5 Lecture 1
When creating a message for the audience, marketers need to choose a compatible media type or vehicle. Generally, advertising agencies perform this job for most medium-sized and large organizations. These agencies specialize in presenting a message in such a manner that it gets the attention and interest of the target audience.
When choosing the media type or vehicle, advertising agencies make decisions regarding the reach, frequency, and timing of the exposure (or impression) for the target audience. In Week 4, you learned about JELL-O®, a hugely successful product sold by Kraft Foods. Its marketing strategy included aggressive advertising of the product by enlisting celebrities to endorse it. Moreover, the message that eventually built brand recognition was dispersed simultaneously through various advertising media.
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Setting Prices and Break Even Prices.html
Setting Prices and Break Even Prices
The role of pricing objectives is to respond to the environmental factors influencing the company, whether internal (such as an increase in company productivity) or external (such as a rise in the inflation rate).
Pricing strategies are guided by pricing objectives.
Once price objectives and strategies have been established, the company should provide "rules of engagement" for the everyday operation of its business.
Pricing methods are used to set price for a product. One of the best- methods is break-even pricing.
A company reaches a break-even point (BEP) when it generates enough unit sales (or revenue) to cover all the costs necessary to run the business. Break-even pricing is calculated by determining fixed costs (FCs), variable costs (VCs), the revenue, and the contribution margin (CM).
- FCs, such as insurance, rent, and utilities, usually remain the same for varying sales volumes.
- VCs, on the other hand, change depending on the sales volumes; examples include overtime payments, wages of new hires, and cost of raw materials.
- Revenue is the money coming into the business from the sale of the product to customers.
- The CM is calculated by subtracting the VCs per unit (VCU) from the price of the product (P).
The following formula is used to compute the P when the revenues are just large enough to cover the total costs (FCs + VCs) but don't offer any profit (Pr).
BEP = FC/P – VCU = FC/CM
In a variation of the previous formula, Pr is added to the BEP calculation.
BEP = (FC + Pr)/ (P – VCU) P = (FC + Pr/BEP) + VCU
Break-even price is the price a company must sell its product at given a particular volume of production. Calculating the break-even price helps the company determine the price it will need to charge for its products. It also helps the company plan its future production. To calculate break-even price, the company needs to know its total fixed costs, the volume of production and the variable costs per unit. The total fixed costs are costs that do not change with the level of production. Variable costs, on the other hand, do change with the level of production.
Additional Materials
View the PDF transcript for Setting Prices and Break Even Prices
media/transcripts/SUO_MBA6011 W5 L3.pdf
Setting Prices and Break Even Pricing © 2016 South University
Page 2 of 2
Strategic Marketing
©2016 South University
2 Setting Prices and Break Even Prices
MBA6011 Week 5 Lecture 3
When setting prices, it is important to differentiate among pricing objectives, strategies, and policies because they play different roles. Pricing policies are laid down after the pricing strategy is established, which is guided by the pricing objectives.
When setting prices, it is important to differentiate among pricing objectives, strategies, and policies because they play different roles. Pricing policies are laid down after the pricing strategy is established, which is guided by the pricing objectives.
Pricing Objectives
The role of pricing objectives is to respond to the environmental factors influencing the company, whether internal (such as an increase in company productivity) or external (such as a rise in the inflation rate). Pricing objectives must be closely aligned with the company's marketing objectives and take into consideration the impact of the price on the sales volume, the sales revenue, the market share, the competitive position, and profits.
Pricing Strategies
Pricing strategies are guided by pricing objectives. The pricing strategy is more specific to the industry or the product category to which the product (or brand) belongs. This explains why so many types of pricing strategies have developed over the years.
Pricing Policies
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Once price objectives and strategies have been established, the company should provide "rules of engagement" for the everyday operation of its business. Establishing pricing policies is particularly important for an organization with a large number of operating units spread over a large geographic area. The purpose of creating pricing policies is to bring about internal consistency and harmony in the overall functioning of the organization.
Pricing methods are used to compute the price for a product. One of the best-known and most widely used methods is break-even pricing.
A company reaches a break-even point (BEP) when it generates enough unit sales (or revenue) to cover all the costs necessary to run the business. Break-even pricing is calculated by determining fixed costs (FCs), variable costs (VCs), the revenue, and the contribution margin (CM).
• FCs, such as insurance, rent, and utilities, usually remain the same for varying sales volumes.
• VCs, on the other hand, change depending on the sales volumes; examples include overtime payments, wages of new hires, and cost of raw materials.
• Revenue is the money coming into the business from the sale of the product to customers.
• The CM is calculated by subtracting the VCs per unit (VCU) from the price of the product (P).
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Strategic Marketing
©2016 South University
4 Setting Prices and Break Even Prices
MBA6011 Week 5 Lecture 3
The following formula is used to compute the P when the revenues are just large enough to cover the total costs (FCs + VCs) but don't offer any profit (Pr).
BEP = FC/P – VCU = FC/CM
In a variation of the previous formula, Pr is added to the BEP calculation.
BEP = (FC + Pr)/(P – VCU) P = (FC + Pr/BEP) + VCU
Scenario
The owner of a newly established mall kiosk believes that he needs to sell refrigerator magnets for under $2.50 to be competitive with other kiosks and gift shops. More importantly, he believes that at this price, he can sell about 2,000 magnets. By the same token, he believes that even if the price was to fall significantly, he could not sell more than 3,000 magnets in a given month because of the amount of foot traffic at the mall.
The monthly FC, including rent and wages, is $4,500. The average cost per unit when 2,000 magnets are sold at retail is $0.50; for each additional 1,000 magnets sold, the cost to the owner per unit is 5 cents less, until it reaches 5,000 units, at which point, the average cost of buying the magnets from the manufacturer stays the same (at $0.35). The kiosk owner receives the refrigerator magnets on consignment from a local manufacturer, which means that the owner does not have to pay for the magnets until he sells them. However, the owner needs to sell a minimum number of magnets to cover his FCs.
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5 Setting Prices and Break Even Prices
MBA6011 Week 5 Lecture 3
Estimate the price of the magnets using the following formula:
P = [(FC + Pr)/BEP] + VCU
You may manipulate the values of the BEP (the quantity of magnets sold) and the Pr.
You may choose one of the following:
• Make less profit (lower Pr). • Sell more units of the refrigerator magnet (a higher BEP). • Choose a combination of the two.
Solution
Click here to view the calculations. According to the information given in the scenario and the manipulation of prices in the spreadsheet, it seems that the kiosk owner's price for the magnets ranges from $2.28 to $1.95. Because the lower price would not provide the owner any profits, he might want to start the month with the higher price and then lower it as needed to ensure the required sales of 3,000 units to meet his FCs and to obtain the discount ($0.05) from the manufacturer.
Pricing and Breakeven Analysis Excel, a tool available online, can determine the impact of a price change on a business. It calculates current BEPs using revenue, VC, and FC inputs. These are combined with estimates for price and sales volume variations to produce revenue and surplus (profit or loss) forecasts by price. The model also determines the optimum pricing to maximize the surplus and can be applied to new or established businesses, product or service lines, or individual items.
The tool is compact and easy to use and requires minimal inputs. Outputs include break-even charts for current, increased,
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6 Setting Prices and Break Even Prices
MBA6011 Week 5 Lecture 3
decreased, and optimum pricing. In addition to determining the optimum price to maximize the business surplus, the tool also calculates the revenue, the surplus, and the volume of sales for prices ranging from –50 percent to +50 percent of the current price.
Different Pricing Objectives, Strategies, and Policies Pricing Objectives: • Target return: This is a profit-oriented objective and used during pricing in order to make a specific amount of profit for a specific purpose. • Profit maximization: This is a profit-oriented objective that can be used in markets where the competition for the product is little to none. • Sales growth: This is a sales-oriented objective that aims to maximize sales by increasing the sales volume. • Growth in market share: This is a sales-oriented objective that highlights the fact that lower prices can translate into a larger percentage of market share. • Meeting competition: This is a status-quo approach to ensure that the company just survives in the market amid stiff competition. • Nonprice competition: This objective aims to differentiate the product in terms of attributes other than its price. • Breakeven pricing: The objective is to arrive at the point where total cost equals total revenue. Pricing Strategies: • Penetration pricing: In this strategy, a product is introduced into a market at a much lower price than that of the competition in order to quickly gain market share. The strategy is used in highly competitive markets. • Price skimming: In this strategy, high prices are charged for a product so that profits can be maximized in the short term. The
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strategy is used when new products are introduced in technologydriven industries. • Product-line pricing: In this strategy, the products within a line are priced according to their relative values and segmented on price- point perceptions, for example, a manufacturer of men’s suits offering different qualities and price points. • Product-bundle pricing: In this strategy, several products (whether complementary or not) are combined and offered at a reduced price. • Promotional pricing: In this strategy, the price of a product is reduced to attract customers. Sales promotions are used along with these prices. • Psychological pricing: Because this is a pricing approach that considers the perceived value that the buyer attaches to the product, the seller has to gauge this perceived value and price the product accordingly. • Loss leader pricing: In this strategy, a particular product is sold at a price lower than regular prices in order to attract customers into a store. This strategy is preferred in retail or convenience store settings. Pricing Policies: • Price changes: Whenever price changes are required, companies should have a protocol or procedure to follow for implementation. • Price discount: The company has stated (or fixed) percentage discounts based on the type of customer or the quantity purchased. • Price promotion: Some retail stores accept as a matter of policy the sales promotions issued by competitors as a way to steer customers to their product or services. Examples of sales promotions include coupons, rebates, and price-off discounts.
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8 Setting Prices and Break Even Prices
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• Price standardization: The price of the product is uniformly applied across company stores, districts, or regions, for example, the cost of standard overnight shipping within national borders. • Price customization: The value of the product varies from market to market, from one customer segment to another, from one situation to another, or over time. For example, soft drinks cost more when bought at a stadium instead of a supermarket. • Markup pricing: A constant percentage is added to the cost of the product in order to get the selling price. This pricing policy is common among retailers. • Price warranty: The tendered price is warranted by the company over a specific period of time, during which the price remains fixed.
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IMC and The Role of Pricing.html
IMC and The Role of Pricing
Integrated marketing communication (IMC) is a comprehensive strategy created to reach the organization's internal (employees) and external markets (customers). Employees are included in IMC because they too need to understand and embrace the core strategy established by the company for the product.
The primary corollary of the IMC campaign is that the message (or the advertisement) should be standardized to the point where it can be used and simultaneously delivered across all media types or vehicles. This brings consistency to the message being communicated and eliminates possible confusion for the final audience.
Failure to create an effective IMC strategy may result in the derailment of other strategies in the marketing mix. For example, if the IMC message does not successfully convey the right core strategy—value proposition and positioning—to the target market, diminishing perceptions of the value of the product will creep into consumers' minds. This situation will render the already established price ineffective in pulling customers toward the brand. As a result, distribution costs will be affected because the intermediaries will demand higher slotting fees to carry the product, not to mention the higher inventory and warehousing costs because of unfulfilled sales projections.
Of all the elements of the marketing mix, price is the only one that allows the organization to generate immediate revenues. All the other elements—product, place, and distribution—are considered either investments or expenditures for the organization. Regardless of the nature of a product, its price and demand are closely related.
Pricing influences the value of a product. Value positively influences the willingness to buy and, hence, the demand for the product. The following formula recognizes that changes in prices play a critical role in influencing purchase decisions.
The integrated marketing communication approach is the latest strategy used by marketing managers to promote their brand in the target market. The strategy basically combines the different elements of the promotion mix under a common theme, which is focused on a specific market. When all the elements of the promotion mix send the same message, they reinforce each other and the message in the minds of the target market.
Additional Materials
View the PDF transcript for IMC and The Role of Pricing
View the PDF transcript for A Scenario
View the PDF transcript for The Relationship between Price and Demand
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