MKTG 101 Study Guide - Final Guide: Fair Deal, Organizational Culture, Federal Communications Commission
Marketing 101 Study Guide
Pricing
● Price Planning: Develop pricing objectives->estimate demand-
>determine costs->evaluate pricing environment->choose pricing
strategy->choose pricing tactics
● Pricing Objectives:
-Sales or market share
-Profit: Pricing to max profitability can increase ideal price
-Competitive Effect
-Customer Satisfaction
-Image Enhancement: If decrease prices, could degrade image as best/ most elite;
establish a position
● Estimating Demand
-Higher the price, the lower the quantity demanded
-Vertical= more inelastic; % change in price only changes quantity demanded by
small %
-Horizontal=More elastic; % change in price produces large % change in quantity
->Luxury Market Demand Curve: Backward bending because if decrease price too
much, lose exclusivity
● Pricing Environment
-Economic Factors
-Competitive factors (your price changes will be met by competitors)
-Channel Concerns (collaborators- do they absorb or pass costs to consumers?)
-Consumer trends (ie frugality)
-Governmental Concerns (price gouging, discriminatory pricing, etc)
->)f can’t raise prices, decrease size of product
->Good Value pricing: Try not to upset consumer
->The less substitutable a product is, the more the firm can dictate its price
● Pricing strategies
1. Cost-Plus: Starting with cost of the product as a baseline and adding above
that to get profit; consider own costs and try to identify a target margin;
guarantees covering cost but only looks at internal issues
2. Competition-Based: Going rate (price similarly to competitors), price
leadership (being the first in the industry with a certain price range;
communicate different position and take different part of the market)
3. Demand-Based: Target-Costing (choosing a price point and creating a
product that fits this price point) and yield management (managing
capacity and max revenue simultaneously!; hotels and airplanes:
changing price based on actual vs expected demand (% full) at different
times)
4. Value Based: Delivering value to customers and receiving/capturing
value back; EDLP=Everyday Low Price (same prices everyday; offer
lowest price in the market all the time; deliver value to customer by
increasing convenience and psychological value; no sales because prices
already as low as they can go; Walmart) and EVC=Economic Value to the
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Customer (product pricing reflects the amount of benefit it is providing to
the customer; pricing based on what customers think product is worth;
more than the sum of its parts)
5. New Product: Skimming (high price, low distribution, give product to
customers that most value it so they can work out kinks), Penetrating
low price, high distribution to many customers, don’t work out many
problems before wide distribution), and trial (between skim and
penetrate; have initial low price and then raise low price later)
● Pricing Tactics
1. Individual Products: Two-part pricing (divide product into two parts
priced separately; pay upfront cost and then more costs later), Payment
pricing (pay on payment plan, not all at once; break down over multiple
payments)
2. Multiple Products: Bundling (put many products together under one
price; pair faster moving products with slower moving products to move
slower ones faster; create induced trial) and Captive Pricing (low price,
low margin base durable product, high price, high margin replacement
parts)
3. Channel-Based: Business to business issue; prices based on FOB (freight
on board)
4. E-Commerce Pricing: Dynamic Pricing (price changes frequently/ updated
constantly; based on real time demand) and Auction (online bidding
websites)
5. Psychological: Reference Prices (consumers have a clear idea of cost of
item and if price different from that=not good), Price-Quality Inferences
(higher price infers higher quality and vice versa, Odd-Even Pricing (odd
pricing=lower quality, even pricing=higher quality/ perceived as more
desirable if want more value), Price Lining (marking prices down by
drawing line (?), Promotional-Cues
Product Life Cycle
● Life Cycle Stages: Introduction->Growth->Maturity->Decline
-Periods can vary dramatically by industry (ie pharma with long intro)
-If entering market, want to understand what phase market is in
-Refers to product category and not specific product
● Introduction: market development stage, Low competition, low/negative
profit, not many customers, product attributes/functions may not be fully
developed, high risk
● Growth: takeoff stage, Rising profits, many more competitors, more
customers, medium risk, product differentiation begins; profit increasing and
peaks because high margins
● Mature Stage: Static market, only most profitable companies stay (as quickly
as firms enter, they get shaken out), high profit, clear segmentation, cost cut,
repeat and replacement sales are key, so many competitors that profits
decrease, market share valued at least as much as profits, squeeze out profits
via niche branding, cost cutting, and differentiation on smaller attributes, get
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squeezed on shelf space because most retailers don’t give space to old
brands, last longest.
● Decline Stage: falling profits and sales, less customers and virtually none are
new, no new firm investments, due usually to dominant replacement
technology,
-4 strategies: harvest (invest as little as possible but get profit from sales that are
happening), withdraw (get out of market), niche (identify pockets of
strength), and market leadership (if change in tastes leading to decline then
can bring market back)
● Introduction key issues: diffusion curve (how does an idea move through a
population?); skim or penetrate??
● Adopter Category and Order based on Innovativeness
-innovators->early adopters->early majority->late majority->laggards
-can be seen with diffusion curve (bass model), bell curve, or networking effect via
clusters
-Diffusion curve/bass model: inflection point=when lots of people pile into market;
s-shape represents risk and complexity
->When little risk or complexity, the curve has positive slope but more constant
negative derivative throughout the whole graph; adopted very quickly and
reach max very quickly
-Innovators are the key to diffusion
-Skim: start slow then grow, highest profits come later though can be profitable from
the start, follow diffusion of innovation framework, firm can extract max
value from most interested customers
-Penetration: big bang, wide diffusion, high profits; number of new adopters peaks
early; requires significant resources, but can yield high ROI, companies more
eager to diffuse widely now because tech is moving so fast
● ACCORD
1. Relative Advantage over old product
2. Compatibility with current way to handle task that the product replaces
3. Complexity of communicating the benefits
4. Observability of benefits
5. Risk of product failure
6. Divisibility of product into the market/ trialability
● Skim vs Penetration: 4 Ps
-Skim: high price, selective place, product: complex ACCORD, selective promotion
focusing on education
-Penetration: low price, extensive place, product: simple ACCORD, intensive
promotion focusing on awareness
● Strategies: PLC
-Skim: introduce at high price with low selling effort because people buying your
product are the people who most value it, growth phase: move to high selling
effort and lower price as you diffuse to more people, mature phase: move to
either low price, low selling effort or high price, high selling effort (think
Tide)
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Document Summary
>determine costs->evaluate pricing environment->choose pricing strategy->choose pricing tactics. Profit: pricing to max profitability can increase ideal price. Image enhancement: if decrease prices, could degrade image as best/ most elite; establish a position. Higher the price, the lower the quantity demanded. Vertical= more inelastic; % change in price only changes quantity demanded by small % Horizontal=more elastic; % change in price produces large % change in quantity. >luxury market demand curve: backward bending because if decrease price too much, lose exclusivity. Competitive factors (your price changes will be met by competitors) Channel concerns (collaborators- do they absorb or pass costs to consumers?) >)f can"t raise prices, decrease size of product. >good value pricing: try not to upset consumer. >the less substitutable a product is, the more the firm can dictate its price. Periods can vary dramatically by industry (ie pharma with long intro) If entering market, want to understand what phase market is in.
