Objectives

• To identify the elements in the marketing mix.
• To describe the law of supply and demand.
• To evaluate various pricing strategies and discounts.
• To describe the goals and factors which influence retail pricing.
• To identify the sources and methods of marketing research.

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Marketing Research

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Basic Marketing

Pricing

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Marketing

• Is the process of planning, pricing, promoting, selling and distributing goods or services which help to satisfy customer’s needs and wants

Goods

• Are tangible items which possess a monetary value
• Are products you can physically see and touch
• examples include:
• clothing
• food
• equipment

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Services

• Involve a task, idea or performance
• Are received in the form of an action
• examples include:
• personal services such as haircuts, massages, housekeeping, etc.
• veterinary and other animal care
• business and accounting services
• landscaping and lawn care

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Marketing

• Has many benefits when effective, including:
• contributes to the development of new and improved products and services
• informs consumers
• adds value and utility

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Marketing

• Emphasizes how a product or service will satisfy consumers’ wants and needs
• Strategies for goods include highlighting features of the product and comparing the product with the competition’s
• Strategies for services include appealing to the consumers’ want for assistance and promoting the possible increase in quality of life

Marketing for Goods & Services Example

The Acme Burger Barn has a brand new cheeseburger recipe and the marketing department brainstorms an advertising campaign for it. One idea is emphasizing how the new burger is prepared more quickly and will decrease wait time. Another idea is emphasizing the large size of the new burger. Which advertising would market Acme’s good and which would market its service? Can you explain why?

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The Marketing Mix

• Is made up of what marketers call the 4 Ps:
• price
• product
• place
• promotion

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Price

• Is the exchange rate used to purchase products or services
• Should reflect what a customer is willing and able to pay
• Affects the buying and selling process
• Is impacted by discounts, promotions, selling strategies and external factors

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Product

• Refers to the goods and/or services produced and sold
• Includes the design, color, size, shape and other distinguishing characteristics
• Includes the product quantity, packaging and development process
• Determines the need for updates or discontinuation

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Place

• Refers to how and where a product is sold
• Includes the country, region, store and shelf placement of the available products
• Includes the transportation method or delivery process needed for the final sale
• Determines the specific outlets and stocking routines appropriate for each good

Promotion

• Refers to decisions about advertising, personal selling, publicity, discounting, etc.
• Determines how potential customers will be told about a good or service
• Includes the selected message and media channels needed to send the message
• Impacts customers emotions and buying motives

Marketing Outlets

• Include wholesalers
• obtain goods in large quantities from the manufacturer and resell them to an industrial user or retailer
• do not typically sell in small quantities or to individuals
• examples include:
• distribution warehouses
• packing plants
• tree farms

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Marketing Outlets

• Include retailers
• obtain goods from a manufacturer or wholesaler to sell to the final consumer for personal use
• are the most common form of marketing outlet
• examples include:
• grocery stores
• department stores
• discount stores

SWOT Analysis

• Is a business analysis which includes the evaluation of a company’s:

S strengths

W weaknesses

O opportunities

T threats

Strengths & Weaknesses

• Are evaluated as internal factors controlled by the business
• Center around a businesses’ ability to function efficiently, understand and satisfy customers’ needs, and outperform competition
• Are often opposites and mirror each other
• if a weakness is improved upon, it can become a strength
• if a strength diminishes, it can become a weakness

Strengths & Weaknesses

Opportunities & Threats

• Are evaluated as external factors of which the business has no control
• Are used to evaluate a company’s potential competitive advantage
• Also tend to be opposites and mirror each other
• Center around the following external issues:
• political and legal changes
• economic influences
• social and cultural factors
• changes in technology

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Opportunities & Threats

Assessment

1. What are the four elements in the “marketing mix”?
2. What is the difference between a retailer and a wholesaler?
3. List one benefit of marketing.
4. What is a SWOT analysis? Describe each component.

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Price

• Is the rate of value used to exchange goods and services
• May be in monetary or non-monetary terms
• monetary example:
• paying $75 for a pair of shoes
• non-monetary examples:
• an office supply store giving merchandise to a newspaper producer in exchange for advertising

Price

• Can influence the success or failure of a company
• Can establish a business’s image, position in the market and competitive edge
• Is used by customers to make judgments about products and services regarding quality and value

Value

• Is the level of satisfaction associated with a particular good or service
• Is largely influenced by price
• Is perceived differently by each consumer
• Is not the same as quality
• quality is about performance level while value is about performance relative to cost
• for example, a shirt may be of poor quality, but at only $2, it can still be a good value, while a shirt of high quality could be a poor value if priced too high

Goals of Pricing

• Include:
• create/enhance value
• maximize profits
• increase market share
• increase customer satisfaction
• “beat” the competition
• enhance the business’s image

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Factors Affecting Price

• Include:
• costs and expenses
• competition
• customer perceptions
• consumer income
• supply and demand
• laws and ethics

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Costs & Expenses

• Typically directly influence price
• Changes will sometimes result in changes in price
• increased costs will often result in increased prices
• decreased costs don’t always result in decreased prices
• When considered with price, determine a business’s break-even point and profit margins

Competition

• Includes the following types:
• price competition
• refers to competition based solely on price
• largely affects pricing strategy
• can cause industry-based “price wars”
• non-price competition
• refers to competition based on factors other than price, such as customer service or features and benefits
• has much less affect on pricing strategy

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Customer Perceptions

• Refer to how customers view a business and its products and/or services
• everyone sees a different level of value in various business offerings
• Are influenced by factors including personal experiences, opinions of others, and the components of the marketing mix
• When favorable, can result in brand loyalty
• the tendency to be faithful to a specific brand regardless of price or convenience

Consumer Income

• Has a considerable impact on determining a target market
• Should be an influential factor when determining a final sales price
• Should reflect the pricing strategy used

Supply & Demand

• Are basic economic concepts businesses consider when pricing
• supply refers to the amount of goods/services producers are willing to produce and sell
• demand refers to the amount of goods/services customers are willing and able to buy
• Interact to cause the following:
• surplus: when supply exceeds demand
• shortage: when demand exceeds supply
• equilibrium: when supply and demand are equal

The Law of Supply & Demand

• States price and supply move in the same economic direction
• as one increases or decreases, the other will do the same
• States price and demand move in the opposite economic direction
• as one increases of decreases, the other will do the opposite

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Demand Elasticity

• Refers to the degree in which demand is affected by price
• Classifies goods and services as either having elastic demand or inelastic demand
• Can create exceptions to the law of supply and demand
• Indicates whether sales will respond to a change in price

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Elastic Demand

• Applies to products and services for which a small change in price creates a change in demand
• Occurs with non-essential goods/services, those for which a purchase can be postponed, and those for which there are substitutes
• entertainment, travel, convenience foods, luxury items, etc.

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Inelastic Demand

• Applies to products and services for which a small change in price has little or no affect on demand
• Occurs with essential goods and services
• milk, bread, gasoline, toilet paper, medical care, etc.

Basic Pricing Concepts

• Include:
• cost-oriented pricing
• demand-oriented pricing
• competition-oriented pricing
• Are usually used in combination to determine ideal price

Cost-Oriented Pricing

• Is based on projected profit margins
• Takes into account the cost of production and the company’s profit objectives
• for example, if a widget costs a company $10 to make and distribute, and a 20 percent profit margin is needed, the widget is priced at $12
• Is very common because it uses a simple equation to calculate price

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Calculating Price

(C x M) + C = total sales price

Demand-Oriented Pricing

• Is calculated based on the highest price customers are willing to pay
• Allows for changes in price based on changes in demand
• for example, a widget costs a company $10 to produce and distribute, but people are willing to pay $25, so that is where the price is set until demand changes
• Is often used for new or trendy products

Competition-Oriented Pricing

• Is used to price products above, below or at the same level as the competition
• Does not rely on cost- or demand-based methods
• for example, a widget is priced by one company at $25, so a competitor prices it at $20.99 to gain a competitive advantage without losing profitability

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Pricing Policies

• Are either one price or flexible
• a one price policy
• requires all customers pay the same amount for the same product
• is associated with price tags, signs and retail stores
• does not allow for price deviations or bargaining
• a flexible pricing policy
• allows customers to pay different rates for similar products
• permits customers to negotiate sales prices
• is often used when purchasing cars, services, antiques or bundled items

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Law & Ethics

• Are important to consider in pricing
• In pricing classify the following practices as unacceptable:
• price fixing
• price discrimination
• bait-and-switch advertising

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Price Fixing

• Occurs when two or more competing companies conspire to set prices for specific goods and agree not to raise prices
• Is illegal because it eliminates competition and consumer choice, but can be difficult to prove
• Most commonly occurs when gas stations agree to leave gas prices above a set price

Price Discrimination

• Occurs when a company charges customers in similar situations different prices for the same item
• Is illegal in some situations, but because of its various definitions and conditions, is commonly seen in other situations
• for example, car dealerships are often accused, but buyers vary in terms of needs and ability to pay, so discrimination can rarely be proven in these cases

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Bait-&-Switch

• Is a form of fraud in which customers are enticed with a low-price product the seller does not actually intend to sell
• seller baits customers with a seemingly great deal and then tries to switch it for a more expensive item by claiming the bait is out of stock, of low quality, etc.
• Is illegal in most states, but is also very difficult to prove

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General Pricing Strategies

• Include:
• price skimming
• penetration pricing
• price lining
• bundle pricing
• geographical pricing

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Price Skimming

• Sets a high price for a new product to generate popularity or demand
• Is used to stimulate excitement and interest in a product
• Should only be used in short-term situations
• for example, charging a high price for a new brand of cologne in order to appear special

Penetration Pricing

• Is the opposite of price skimming
• Sets a low price for a new product in order to penetrate the market
• Allows the mass market to try the product
• Detracts attention from the competition
• Should only be used with price-sensitive and common household items
• for example, charging $.25 for a new drink in order to get people to try it

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Price Lining

• Is a technique used to create standardized price lines
• Often consists of low, medium and high price levels for a company’s product line based on features, benefits or quality
• for example, one model of computer may come in an economical version at $400, standard version at $500 or loaded version at $600
• Limits the number of prices used for specific groups of merchandise

Bundle Pricing

• Offers complimentary products in a package sold for a single price
• Offers smaller or less expensive products at a reduced rate if purchased with a larger, more expensive item
• for example, a video game console may be discounted when purchased with a number of games
• Is most common with services
• for example, communication providers often offer television, internet and phone services in a package

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Geographical Pricing

• Refers to price adjustments made based on a customer’s location
• Accounts for varying costs of transportation of products
• for example, many products are more expensive in places which include higher transportation costs, such as Alaska and Hawaii

Psychological Pricing

• Is a marketing approach in which illusions are created with the use of strategies based on customer habits and motivation
• Include:
• odd-even pricing
• prestige pricing
• multiple-unit pricing
• everyday low prices (EDLP)

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Odd-Even Pricing

• Is a technique which involves setting prices which all end in either odd or even numbers
• Is based on the principle that odd numbers convey bargains and even numbers convey quality
• Examples include:
• odd pricing- $9.99, $499, $79
• even pricing- $10, $500, $80

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$999.⁹⁹

Prestige Pricing

• Is when an artificially high price is set for a product or service in order to convey status or quality
• Is common for luxury goods and services
• Typically is most effective for well-known brands

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Multiple-Unit Pricing

• Is a pricing technique used to suggest a special deal
• Combines more than one item in the sales price
• Often includes a higher price, if items purchased individually, showing savings
• for example, 1 for $10 or 3 for $25
• Is common for household items, food and items normally purchased in quantity

Everyday Low Prices (EDLP)

• Are used to convey a message of price consistency
• Are not raised or lowered due to discounts, sales or coupons
• Are often associated with large multi-purpose retailers
• for example, Walmart^® claims to save customers money and time with low prices offered everyday

Promotional Pricing

• Is a pricing method in which businesses offer a lower price temporarily
• Includes:
• loss-leader pricing
• special event pricing
• rebates and coupons
• discounts

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Limited Time Only!

Loss-Leader Pricing

• Is used to increase store traffic by offering one popular item at a price below its production cost
• Is used to increase sales of other products once the customer has entered the store
• Is illegal in some states

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Special Event Pricing

• Is when special prices are established for certain dates or seasons
• Is usually associated with specific events or holidays
• Examples include Presidents’ Day sales, Black Friday sales, back-to-school sales, grand opening sales

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Grand Opening!

Rebates & Coupons

• Are partial refunds provided by a manufacturer or retailer
• Are used to attract customer interest
• Are only available for a limited time or in conjunction with specific products

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Discounts

• Are reductions to regular pricing
• Include the following types:
• employee
• quantity (for large orders)
• seasonal (for out-of-season items)
• cash (for timely payments)
• promotional (for specific items, such as old, new or overstocked)

20% off!

Determining Price

• Consists of the following steps:
1. establish pricing objectives
2. determine costs
3. estimate demand
4. study competition
5. select a pricing strategy
6. set a price point
7. monitor, evaluate and adjust the price

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Price Adjustments

• Should account for the following:
• inflation
• changes in trends or customer habits
• changes in competition
• increased or decreased costs
• pricing strategies or company goals
• grading standards and product quality

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Assessment

1. (T/F) Price can be expressed in non-monetary terms.
2. List two goals of pricing.
3. Describe two factors which affect price.
4. What is the difference between elastic and inelastic demand?
5. Calculate the final sales price for a bucket which cost $10 to manufacturer, if the markup percentage is 30 percent.

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Assessment

6. (T/F) Bait-and-switch advertising is legal in most states.

7. What is prestige pricing?

8. What is the purpose of an odd-pricing strategy?

9. What does EDLP stand for?

10. What are two types of discounts?

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Marketing Research

• Is the process of gathering, analyzing and reporting information about marketing
• Is used to:
• develop products
• assess customer needs and attitudes
• determine prices
• evaluate market growth and potential
• verify competitor information

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Types of Marketing Research

• Can be divided by the type of research method used:
• qualitative research
• quantitative research
• Can be divided by the area of interest:
• attitude research
• market intelligence research
• media research
• product research

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Qualitative Research

• Involves a small number of people
• usually less than 100
• Answers questions about “why” and “how” by analyzing attitudes and behavior
• Relies heavily on testimonials

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Qualitative Research

• Includes:
• interviews
• involve questioning people face-to-face
• focus groups
• involve 8-12 people in a group interview process conducted by a moderator
• observations
• involve monitoring the actions of specific individuals
• can be conducted live or by cameras

Quantitative Research

• Requires gathering information from a large number of people
• Answers questions about “who,” “how many” or “how much”
• Relies heavily on statistics

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Quantitative Research

• Includes:
• surveys
• including online, face-to-face, telephone and mail
• experiments
• involve manipulating one or more variables in a controlled environment
• are expensive and time-consuming

Attitude Research

• Is also known as opinion research
• Determines how people “feel” about products, companies or ideas
• Uses the following methods to obtain information:
• opinion polls
• satisfaction surveys
• focus groups

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Market Intelligence Research

• Is concerned with the size, location and competition within a given market
• Consists of company profiles, which include:
• industry statistics
• sales reports and forecasts
• economic predictions

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Media Research

• Focuses on media selection, frequency and ratings
• Studies brand awareness and advertising effectiveness
• Evaluates frequency, reach and audience appeal for specific messages
• Can be collected from surveys and reports compiled by various news agencies

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Product Research

• Evaluates product design, usage and packaging
• Includes collecting information about competitors’ products
• Includes “concept testing” in the early stage of product development
• Can be collected using focus groups, interviews and point-of-sale research

Point-of-Sale Research

• Uses qualitative and quantitative data to analyze shopping and purchase behavior
• Combines observation, interviewing and sales report data
• Requires observation of consumers shopping and interviews with some immediately following a purchase
• Is used to discover what products are most popular, who is purchasing them, and why

Types of Data

Trends

• In marketing research include:
• increase in product quality research
• increased use of internal and external data
• Caused by marketing research include:
• increase in product changes and improvements
• increase in international competition

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Limitations

• To marketing research often include:
• limited time
• limited money
• inadequate equipment or technology
• inaccurate customer feedback and results

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Assessment

1. Describe at least one purpose of marketing research.
2. (T/F) Performing an opinion poll is an example of attitude research.
3. (T/F) Evaluating TV ratings is an example of media research.
4. (T/F) A focus groups consists of 15 or more people.
5. What is the difference between primary and secondary data?

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Final Assessment

Assessment

1. Which of the following is not a benefit of marketing?

A. New and improved products

B. Lower prices

C. Added consumer value

D. Higher prices

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• What does the acronym SWOT stand mean?

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• A company’s strengths are evaluated __________ as opposed to a company’s opportunities which are evaluated based on ___________ factors.

Assessment

4. An office supply store trading supplies to a newspaper company for advertising is an example of which of the following:

A. Competition pricing

B. Non-monetary terms for pricing

C. Percentage pricing

D. Prestige pricing

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• A car dealership setting a high price in order to create a feeling of high quality is known as which pricing practice?

A. Competition pricing

B. Non-monetary terms for pricing

C. Percentage pricing

D. Prestige pricing

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Assessment

6. Calculate the final sales price for a laptop which costs $500 to manufacture, if the mark-up percentage is 30 percent.

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• A store is offering 50 percent off of Halloween decorations on November 1^st since Halloween is past, this is an example of which type of discount?

A. Employee

B. Quantity

C. Seasonal

D. Cash

Assessment

8. Data which has been previously collected and was not generated specifically is which type of data?

A. Primary

B. Secondary

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• Conducting a face-to-face interview is a data collection technique used in which type of research?

A. Qualitative

B. Quantitative

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Assessment

10. A company is wanting to develop a new flavor of toothpaste. In order to determine which flavors are most popular the company is researching the current flavors of toothpaste and how well each flavor performs in the market. The company is conducting which type of research?

A. Attitude

B. Market intelligence

C. Media

D. Focus group

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• http://en.mimi.hu/marketingweb/brand_loyalty.html
• http://www.12manage.com/description_promotional_pricing.html
• http://www.businessdictionary.com
• Farese, L; Kimbrell, G; and Woloszky (2006) Marketing Essentials. Woodlands, CA: McGraw Hill Companies, Inc.

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Amy Baker

Amy Hogan

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Brand Manager

Megan O’Quinn

Production Manager

Dusty Moore

Executive Producers

Gordon Davis, Ph.D.

Jeff Lansdell

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Maggie Bigham

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