Chapter 13

Question 1

Pricing objectives

Answer 1

Goals that sellers hope to achieve when they put a product up for sale for a certain price

Question 2

Pricing objectives: Profit-maximizing

Answer 2

Setting a price where it can bring in highest level of profit. Not necessarily the most expensive price as it turns down customers; nor the cheapest option as you are losing potential profits on each item.

Question 3

What is the revenue formula?

Answer 3

Revenue=Selling price * units sold

Question 4

Pricing objectives: market-share (market penetration)

Answer 4

Initially setting the price at low profit, even losses, to increase the company’s percentage in that product’s total industry sales. Even established companies may have market-share as the main goal, as customers keep coming back to what they are familiar with.

Question 5

Price setting tools: Cost-oriented pricing (selling price formula and markup, formula for markup percentage)

Answer 5

Consider firm’s desires to make profit and cover production costs.
Selling price = seller’s costs + profit
Markup is the added amount to the manufacturing costs to cover other costs, as well as to make profit.
Markup percentage = Markup*100%/sales price

Question 6

What are variable costs? fixed costs?

Answer 6

Variable costs: Costs that change with the number of units of a product being produced and sold. (raw materials, commissions, shipping, etc)
Fixed costs: Costs that must be paid regardless of the number of units being produced and sold (rent, insurance, utility, etc)

Question 7

Price setting tools: Break-even analysis

Answer 7

Determining costs vs revenues for multiple sales volumes, showing the amount of profit or losses at any given volumes of sales

Question 8

What is the break-even point? What is the formula for it? How can you show break even point with the profit formula?

Answer 8

The volume of sales at which total revenue covers exactly the variable and fixed costs.
Break-even point (units) = total fixed costs/ (price-variable costs)
Profit = Total revenue - (Total fixed cost + Total variable cost)

Question 9

What are the three pricing strategies in pricing existing products?

Answer 9

1. Pricing above market prices, taking advantage of common assumption that higher price = higher quality
2. Pricing below market prices
3. Pricing at or near market prices

Question 10

What are the two pricing strategies in pricing new products?

Answer 10

1. Price skimming: setting a high price initially to cover development/introduction costs and generate large profit on each item - only works in an industry with low competition and if the product is truly different from existing products.
2. Penetration pricing: setting a low price initially to establish a new product. Creates customer interest and offers trial purchases. Works well with industry with competitors.

Question 11

Pricing tactics: Price lining

Answer 11

Offering all items in certain categories at a limited number of prices. (i.e., Apple selling iPads at various price points based on processor speed)

Question 12

Pricing tactics: Psychological pricing

Answer 12

Taking advantage of consumer’s irrational mindset when making purchasing decisions. (i.e., odd-even pricing, customers think $999.95 is much cheaper than $1000)

Question 13

What is promotion? What are the main objectives of promotion?

Answer 13

1. Techniques for communicating the uses, features, and benefits about products.
2. Increase sales, increase consumer awareness of their products, makes consumers knowledgeable about product features, and to persuade consumers to prefer a brand over others.

Question 14

Promotional strategies: Push vs Pull (Which kinds of goods use which?)

Answer 14

Push: Promoting products to wholesalers and retailers, who then persuade customers.
Pull: Appeals directly to customers, who have a domino effect on retailers, wholesalers, and finally back to the manufacturers.
(Industrial products use push. Consumer products use pull.)

Question 15

What are the five most powerful tools in marketing? What is the best combination of these tools called?

Answer 15

Advertising, personal selling, sales promotions, direct/interactive marketing, and publicity/public relations
The best combination is called the best “promotional mix”.

Question 16

How are the five marketing tools used during the consumer buying process?

Answer 16

1. Consumer recognized need: Advertising/Publicity to makes buyers aware of their products.
2. Consumers search for info: Advertising/Personal selling to educate consumers
3. Consumers search for alternatives: Personal selling to demonstrate the products in comparison to other competitors
4. Buyers make purchasing decisions: Sales promotion to give consumers an incentive to buy
5. After consumer made purchase: Advertising/personal selling to remind customers they made a good choice

Question 17

Marketing tools: Advertisements (Advertising media)

Answer 17

1. Paid, non-personal form of communication by which a sponsor informs and audience about a product.
2. Since most consumers ignore advertising messages, the specific communication devices (TV, online, mobile, etc.) to carry out specific ads to customers that are interested them.

Question 18

Marketing tools: Personal selling

Answer 18

Most expensive form of promotion; salespeople present to one or two people about a product. Due to its high costs, personal selling has been slowly shifted to telemarketing.

Question 19

Marketing tools: Sales promotions

Answer 19

Short-term promotional activities that encourage consumer purchases or cooperation from distributors, sales agents, or other members of the trade.

Question 20

Types of sales promotions

Answer 20

Free samples (giveaways)
Coupons
Premiums: Free or reduced-price items that are given to consumers for buying a specific product.
Point of purchase (sale displays): Products or services places at end of aisles or near checkout counters to help customers easily locate them.
Trade shows: for B2B promotions, companies rent booths to display and demonstrate products.

Question 21

Marketing tools: Direct/interactive marketing

Answer 21

One-to-one, non personal selling that attempts to have consumers make purchases from places other than retail stores. This enables companies to target that individual and measure the results. (Amazon tracks purchase history, your info, etc to recommend products)

Question 22

Marketing tools: Publicity vs Public relations

Answer 22

Publicity: Free, and its news format makes it objective and believable to the customers. However, the little control they have over bad publicity can negatively impact them.
Public relations: Publicity influenced by the company. Public service announcements and actions that create a positive company image.

Question 23

What is the distribution mix?

Answer 23

Combination of distribution channels by which a firm gets products to end users.

Question 24

What are intermediaries? What are two examples of them?

Answer 24

1. the “middlemen”, help in the distribution of goods, either by physically moving them or providing information that would stimulate the movement from sellers to customers
2. Wholesalers: Sell products to other businesses, which in turn resale to consumers
   Retailers: Sell products directly to consumers

Question 25

What is a distribution channel? What are the four popular distribution channels?

Answer 25

1. the path a product follows from producer to end user

2. Direct distribution, retail distribution, wholesale distribution, distribution by agent/broker

Question 26

Describe the four distribution channels

Answer 26

Channel 1: Direct distribution: Producer->Consumer (used for most business goods, especially those in large quantity)

Channel 2: Retail distribution: Producer->Retailer->Consumer (used by many industrial buyers, like businesses buying supplies from Staples)

Channel 3: Wholesale distribution: Producer->Wholesaler->Retailer/Consumer (used as an alternative to retailers, as wholesalers relieve the costly floor space retailers deal with by using 90% of its space displaying merchandise with almost no room for storage)

Channel 4: Distribution by agents or brokers: Producer -> Agent/Broker->Consumer (Represents producers and receive commissions on the goods they sell)(Sales agents: Deals with related products, i.e., tour agencies that take hotel, airlines, car rental and arranges them for consumers) (Broker: Matches sellers and buyers, i.e., real estate)

Question 27

What are the three distribution strategies?

Answer 27

Intensive distribution: Product is distributed through as many channels as possible. Used for low-cost consumer goods, such as candy/magazines.

Exclusive distribution: Manufacturer grants the exclusive right to distribute or sell a product to one wholesaler or retailer in a given geographic area.

Selective distribution: Falls between intensive and exclusive. Selects only wholesalers and retailers that will give special attention to the product in terms of sales efforts, display position, etc.

Question 28

When does a channel conflict occur?

Answer 28

When there is a disagreement over the roles they should play or rewards they should receive. Also may arise when one member of the channel has more power than others and viewed as receiving unfair benefits.

Question 29

Types of brick-and-mortar retailers: Product-line retailers

Answer 29

1. Department stores: organized into specialized departments (shoes, women, furniture, etc.) i.e., the Bay
2. Supermarkets: organized and divided by related products (food, household, etc) i.e., Loblaws, Sobeys
3. Specialty stores: Serves a specific market segment with full product lines for one item and knowledgeable sales personnel i.e., Aldo shoes
4. Category killers: a very large form of specialty store; focuses on a specific category on a gigantic scale i.e., Best Buy, Staples

Question 30

Types of brick-and-mortar retailers: Bargain retailers

Answer 30

1. Discount stores: Wide variety of merchandise, low prices and low services i.e., Walmart
2. Factory outlets: Large discount stores, usually selling last season’s merchandise, discontinued items, etc i.e., Nike Outlet store
3. Wholesale clubs: Large discounts to customers who pay annual membership i.e., Costco

Question 31

Types of brick-and-mortar retailers: Convenience stores

Answer 31

Easily accessible locations, extended store hours, and speedy service i.e., Circle K

Question 32

What are the two types of non-store retailing?

Answer 32

1. Vending machines
2. Direct-response retailing, firms directly contact customers and receive sales orders.
   - Catalog marketing
   - Telemarketing
   - Direct selling (door to door selling)
   - Video/TV (special channels where people demonstrate products, allowing for orders to be made over the phone)

Question 33

What are the roles of E-intermediaries?

Answer 33

They perform one or both of two functions:

1. Collect info about sellers and present to consumers
2. Help deliver products to buyers
i. e., Amazon

Question 34

What is physical distribution?

Answer 34

Activities needed to move product from manufacturer to customer. Its purpose is to save costs, make goods available where and when customers want it, and provide services to satisfy consumers.

Question 35

Physical distribution: Warehousing

Answer 35

Concerned with the storage of goods. May be owned by manufacturer, wholesaler, or retailer that needs regular storage or privately owned and rented to companies when required.

Question 36

Physical distribution: Transportation Operations

Answer 36

Highest cost for many companies, cost fluctuates depending on transportation methods, nature of product, required delivery speed, distance, etc.