I have attached the discussion board 6 questions,scenario. and lectures for yourreview and response. I will submit a students questions for a response when I receive one. Thank You

MKT500 Discussion Board 6 Scenario MKT 500 Week 6 Scenario: Setting the Right Price and Deciding on Distribution Channels and Logistics Slide # Slide 1 Scene # Scene 1 Narration MKT500_6_1_Ed-1: Hello, Samantha. How are you this morning? [Ed, Samantha - Ed's Office] Ed and Samantha meet in the morning to discuss the next steps in the tablet PC launch. MKT500_6_1_Samantha-1: I'm doing great, thanks. I saw that you were in Carl's office earlier. What did he have to say about our progress? MKT500_6_1_Ed-2: Well, now that we have our strategy for managing the tablet's product life cycle, he agrees that next we need to examine how we are going to price the new tablet. We also need to start considering the distribution channels and logistics. MKT500_6_1_Samantha-2: Yes, these are all important issues that need to be addressed prior to launch. Something else to think about is our strategy for distributing the tablet to our target market as our tablet gains in popularity. MKT500_6_1_Ed-3: Hmm. I assumed that we would use our current distribution channel for the tablet product. Isn't that what we agreed upon? MKT500_6_1_Samantha-3: Yes, you're right. I do recall our discussion on this topic, but we should probably address pricing first. As you know, pricing provides the company a mechanism of obtaining value back from customers. It is also used as a segmentation tool, as we discussed in previous meetings. We have to understand how customers perceive prices and price changes such as promotions to know how prices will be received and affect demand. Also remember, we are targeting the innovators for the first segment of our tablet launch. MKT500_6_1_Ed-4: You're absolutely right. You'll also recall, then, what occurs in each stage of the product life cycle and how this affects prices. Pricing typically varies over the course of a product's life cycle. Willingness to pay varies across segments, so a firm might offer differential prices to those different segments. The impact of changing price is easier to measure than modifications of the other 4Ps. MKT500_6_1_Samantha-4: I remember having a discussion about pricing in school. Pricing plays an important role in sending a signal to customers, competitors, and collaborators regarding the positioning and image of the brand. MKT500_6_1_Ed-5: You're absolutely correct. Pricing also has a huge impact on profit. Profit can be defined according to this formula. Display formula: Profit = = (price x demand) - (fixed costs) - (variable costs x demand) = [(price - variable costs)] x demand - (fixed costs), then profits increase as price increases. (Display formula on screen) Fixed costs are those costs that are recurring every month, like our mortgage and utility bills. Variable costs are those that vary with the production of our computers, including materials and labor. Understanding these costs is important for Golds Reling. MKT500_6_1_Samantha-5: What does this mean for the tablet launch? MKT500_6_1_Ed-6: Based on the profit formula, we will need to forecast demand. One way we can do this is to review the inverse relationship between price and demand. (Display Demand curve figure) (Display Demand Curve figure) Take a look at this demand curve. The demand curve is a graph depicting the relationship between the price on the Y axis and quantity demanded on the X axis of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price. It is a graphic representation of a demand schedule. The demand curve for all consumers together follows from the demand curve of every individual consumer: the individual demands at each price are added together. The red arrows represent movement along the demand curve. MKT500_6_1_Samantha-6: So, based on the demand theory as shown in the figure, movement along the demand curve typically occurs as price decreases and the demand moves to the right of the graph and increases. MKT500_6_1_Ed-7: Right. Furthermore, Golds Reling's profits will increase as fixed or variable costs decrease. MKT500_6_1_Samantha-7: Ed, if price is a function of demand, how do you propose we set price at the launch of the new tablet? MKT500_6_1_Ed-8: Samantha, that is a great question. Let me discuss the concept of elasticity or price sensitivity. One way to describe elasticity is this: if a company drops prices on a product, there should be a volume increase, and the question is whether enough additional units will be sold to \"stretch\" and cover the profits lost due to the price decrease. (Display Demand Scenarios) Another popular interpretation of elasticity is from a consumer's point of view: if there is a price drop, or increase, just how much does demand increase or decrease? If demand is barely affected, the demand is inelastic; whereas if demand bounces around, it is elastic. (Display Demand Scenarios) This figure shows two demand scenarios. The left plot shows relatively elastic demand. The right scenario shows inelastic demand. Inelastic demand means that a particular item will be purchased by many even if the prices are raised. The figure also shows that elasticity is characterized differently depending on the slope of the lines. Elasticity is defined as the proportion change in quantity compared to the proportion change in price. MKT500_6_1_Samantha-8: I see. Can you tell me how elasticity is determined? Slide 2 Interaction Ed narrates: Click the tabs to learn more about MKT500_6_1_Ed-9: Click the tabs to learn more elasticity. about elasticity. (Display Equation) MKT500_6_1_Ed-9_Tab A: If elasticity, or E, is greater than one, demand is said to be elastic. Price and revenue go in opposite directions. With a price drop, revenues shoot up; with a price increase, revenues fall off. Q2 Q1 Q1 P Q Q1 E 1 2 P2 P1 Q1 P2 P1 P1 MKT500_6_1_Ed-9_Tab B: If zero is less than or equal to elasticity and less than or equal to one, then demand is inelastic. Revenue follows price in the same direction. If price goes up, revenue goes up; if price goes down, so do revenues. Note: Elasticity is always computed to be negative. MKT500_6_1_Ed-9_Tab C: If elasticity is equal to one, demand is said to be \"unitary\". Price goes up or down, but revenues remain about the same. The equation for determining elasticity is given as: 1. If elasticity, or E, is greater than one, demand is said to be elastic. Price and revenue go in opposite directions. With a price drop, revenues shoot up; with a price increase, revenues fall off. 2. If zero is less than or equal to elasticity and less than or equal to one then demand is inelastic. Revenue follows price in the same direction. If price goes up, revenue goes up; if price goes down, so do revenues. 3. If elasticity is equal to one, demand is said to be \"unitary\". Price goes up or down, but revenues remain about the same. Slide 3 Scene 1, cont. [Ed, Samantha - Ed's Office] MKT500_6_1_Samantha-9: So, based on the elasticity formula, Golds Reling has to set prices for the new tablet to the innovators and early adopters assuming inelasticity demand. In other words, we have to build a lot of value and promote the quality of our new tablets so that price is not a primary issue. MKT500_6_1_Ed-10: Exactly right! MKT500_6_1_Samantha-10: Thanks, Ed. Your pricing and demand formula makes sense to me. Now, let's put our data together to share with Carl. MKT500_6_1_Ed-11: Sounds like a plan! Slide 4 Scene 2 [Ed, Samantha, Carl - Conference Room] Ed and Samantha meet with Carl in the conference room to share the next steps for the tablet launch covering pricing and distribution. MKT500_6_2_Ed-1: Hello, Carl. Hope you had a good lunch. We have a lot to share with you regarding the product pricing and distribution of our new tablet. MKT500_6_2_Carl-1: Yes, I had a great lunch, pasta and meatballs at a new Italian restaurant up the street. What do you have for me, Ed and Samantha? MKT500_6_2_Ed-2: Well, our thoughts are that no matter how well Golds Reling thinks it knows a marketing system, we are still dealing with human beings. Even if the purchase seems simple, there are seemingly endless factors that contribute to consumers' decisions. Pricing is obviously one of these factors. Much of our pricing formula is derived from economics, and it's sort of complicated. MKT500_6_2_Samantha-1: We feel first and foremost that a competitive price needs to be established, and of course, we also determined the breakeven point for our new tablet. A Golds Reling product price is often associated with quality. Counter to the anticipated economic effect of higher prices causing a decrease in demand, for some products and services, higher prices can actually make a purchase seem more appealing. (Show as breakeven point graphic) MKT500_6_2_Ed-3: For some purchases, like our new Tablet, customers will use price as a cue to quality, implicitly reasoning that our new Tablet brand can command a high price because its quality is so good. So, we have decided to start out with a fifteen hundred dollar suggested manufacturer price, and then allow our retailers to offer rebates and use the loyalty programs already in place for the purchase of the new Tablet. (Ed points to breakeven point graphic) Based on our company strategy of market skimming, a high price of fifteen hundred minus rebate is set because we are seeking profit margin, not volume. We feel that the customers who will buy our brand at a high price are the ones who really want it - the innovators and early adopters we discussed in previous meetings. There are a lot of these types of consumers in our domestic and international markets. MKT500_6_2_Samantha-2: So, based on our plan, during and after our launch we will incentivize our retailers and distributors with money bonuses, discounts, and training to get our retailers and distributors excited about the new tablet. As our marketing channels proliferate, increasing care must be taken to coordinate and integrate across their efforts, data, and customer touchpoints, and so forth. We are trying to understand customer behavior, to see what marketing channel attributes are important, and what impacts customer choices. We are also trying to be strategic, considering how an additional channel and the increased use of our e-commerce efforts will impact sales and profits, and therefore, how to allocate resources across channel options. MKT500_6_2_Ed-4: Remember, our marketing channels are supposed to make access easier for customers so that we can focus on the customer buying behavior for our products. Channel design is an integral part of marketing strategy and positioning, and it needs to be consistent with all the other marketing elements. The extensiveness of our distribution channels is also related to the brand's life cycle and Golds Reling's reputation and maturity in the marketplace. Furthermore, we have to decide whether the channel design allows a push or pull strategy. MKT500_6_2_Carl-2: You're right. Tell me, what information have you gathered around which strategy would be best for Golds Reling? Slide 5 Interaction Click the images to learn more about push / pull marketing strategies. In a pull marketing strategy, Golds Reling can temporarily MKT500_6_2_Ed-5: Click the images to learn more about push / pull marketing strategies. MKT500_6_2_Ed-5_A: In a pull marketing strategy, Golds Reling can temporarily reduce pricing, or enhance size or quantity. The company can offer trials or free samples, coupons or rebates, financing, and points toward rewards in loyalty programs. The company still must manage its relations with distributors and retailers, but pull strategies are targeted to the end-user, to engage the consumers' awareness and loyalty. MKT500_6_2_Ed-5_B: Push marketing strategies would involve Golds Reling offering incentives to distributors to sell product to endusers. While the manufacturer targets the channel member rather than the consumer, push marketing tools resemble those of pull. For example, the reduce pricing, or enhance size or quantity. The company can offer trials or free samples, coupons or rebates, financing, and points toward rewards in loyalty programs. The company still must manage its relations with distributors and retailers, but pull strategies are targeted to the enduser, to engage the consumers' awareness and loyalty. Slide 6 Push marketing strategies would involve Golds Reling offering incentives to distributors to sell product to end-users. While the manufacturer targets the channel member rather than the consumer, push marketing tools resemble those of pull. For example, the company can offer its distributor or retailer temporarily reduced pricing, an allowance to help cover marketing activities, a discount for purchasing larger quantities, financing a payment for several months, and so on. Scene 2, cont. [Ed, Samantha, Carl - Conference Room] Slide 7 Slide 8 Push vs. Pull Marketing | Katie Wagner Social Media http://www.youtube.com/watch? v=w6rBBVuXEPw&feature=you tu.be Scene 2, cont. [Ed, Samantha, Carl - Conference Room] company can offer its distributor or retailer temporarily reduced pricing, an allowance to help cover marketing activities, a discount for purchasing larger quantities, financing a payment for several months, and so on. MKT500_6_2_Ed-6: I also have a short video here that explains more about push / pull marketing. MKT500_6_2_Carl-3: Thanks, Ed. Which strategy did you and Samantha decide Golds Reling should use for our tablets? MKT500_6_2_Ed-7: We will adopt the push strategy. Golds Reling will offer incentives to our distributors to sell our products to the end-users during the initial launch of our Tablets. We will support our top-tier distributors with pre-launch quantity discounts when they order, along with point-of-purchase displays that will be used to display our Tablets in the retail stores. MKT500_6_2_Samantha-3: Ultimately, we believe that our current distribution channels are well designed, and our partners are happy. However, this is an important launch and the first Tablet introduction for Golds Reling so we have to be careful to monitor the distribution channels throughout the launch. MKT500_6_2_Carl-4: The pricing and distribution strategies that you two have come up with are very impressive. Golds Reling is in good hands with the both of you in charge of this launch. I'm eager to see your plans for the next steps of advertising and promotions. Good work! Slide 9 Check Your Understanding ChanC Channel design is an integral part of all of the following EXCEPT: a. b. c. d. marketing strategy positioning pricing Incorrect answer A: Marketing is a big part of channel design, and therefore should be included in selecting a channel member. Incorrect answer B. Strategy plays a huge role in how the channel is designed and where the producer will use intensive or exclusive distribution strategy. Incorrect answer C: Position is a consideration for designing the channel, as highly positioned products may require exclusive distribution and low price. Lower quality products usually require intensive distribution. Correct answer D: Pricing is not a decision point for designing a channel, but relates to the product. Slide 10 Scene 3 [Ed, Samantha - Hallway] MKT500_6_3_Samantha-1: Everything seems to be coming along very well. We've set a price using the pricing and demand formulas with consideration for our target market of the innovators and early adopters. We've also determined our distribution channels, a vital part of our marketing strategy. MKT500_6_3_Ed-1: Yes. Next we'll need to examine advertising for our tablet. However, for now, you can complete the e-Activity and the weekly threaded discussion, where we can discuss pricing and distribution channels further. See you next week! Week 6 Discussion "Pricing Products and Distribution Channels" Please respond to the following: Question 1 From the scenario, (see attachment) evaluate the capacity of the most common distribution channels available for the new product launch to provide consumers with easier access to the product. Speculate on the extent to which Golds Reling, Inc. could use each channel to meet profit goals. Choose the most beneficial distribution strategies, and suggest two (2) ways in which this selection could potentially affect consumer adoption of the new product. Provide a rationale for your response. Question 2 Imagine that you are a manager at a brick and mortar store that has an online storefront as an additional source of revenue. The company has tasked you with creating ideas to improve logistics in order to increase profitability. Write a short 3 to 5 minute presentation and share your ideas. MKT500 WEEK 6 Lecture 2: Marketing Management Slide 1 Introduction In this lesson, you will learn about distribution channels, logistics, channel relationships, and supply chain management. Please go to the next slide. Slide 2 Objectives Upon completion of this lesson, you will be able to develop pricing strategies and distribution channels for products. Please go to the next slide. Slide 3 Distribution All companies need to determine how and where they will provide their good to potential consumers for sale. Companies often use various methods to distribute their goods to various locations. By using more than one distribution method, the company can maximize its revenue by reducing its inventory. However, it may not be practical to sell all inventory in one location which may or may not be convenient for potential consumers to purchase. Both Target and Wal-Mart now have stores that sell a full array of grocery items in addition to their traditional clothing, electronics, and house ware products. These stores may also include a deli, bakery, florist, bank, vision center, hair salon, and a fast food restaurant all under one roof. This allows the consumer the ability to purchase a variety of goods at one location in lieu of traveling to multiple locations. Typically, your average consumer will desire to buy smaller quantities of a limited amount of goods instead of larger quantities of a larger amount of goods. The location of a one stop shopping store such as Target and Wal-Mart is convenient for the customer. Please go to the next slide. Slide 4 Slide 5 Distribution Channels Distribution Channels (continued) A distribution channel is an interconnected network of businesses with the common goal of providing sellers a method by which to get their product to buyers while also providing buyers with a way to purchase the product in the most efficient and profitable manner possible. The players in this network can include manufacturers, transportation companies, wholesalers, consumers, and distributors. The tasks that are accomplished can include ordering, shipping and handling, storage, display, financing, and promotion. These players are connected and each player in the equation is responsible for specific, individualized tasks and responsibilities such as moving the product, payment flow, or marketing activities. Each player expects payment for the job that is done as part of the equation. A company will consider whether or not it is more efficient and cost effective to have the company do all of these tasks or if it will outsource the various functions to individual companies that will receive payment for the work. Please go to the next slide. There are three main types of distribution channels that are used. The first type is when the company provides it's good directly to the customer. The second type of distribution channel is when the company uses another company or intermediary to provide the good to the customer. With this type of distribution channel, there is a cost for the services of the intermediary. The third type occurs when a company produces a good and provides the good to an agent. The agent then provides the good to a retailer who provides the good to the customer. Each of these options means that the company has different issues to deal with in getting their good to the potential customer. Please go to the next slide. Slide 6 Logistics and Supply Chain Management Now that you are aware of the different types of distribution channels, we will discuss what is known as logistics and how it relates to distribution channels. Logistics involves coordinating the flow of work throughout the various channel members. Company managers are often responsible for scheduling the logistics tasks and ensuring that the various channel members are doing the work they are hired to perform to get the good to the end user, the customer. The supply chain includes all of the company partners who supply the good such as the manufacturer, wholesaler, and retailer. These members are referred to as upstream partners. The actual dealings with these upstream partners is known as supply chain management. The firms that assist the company with channeling the good to the customers are known as channel members and are referred to as downstream partners. Slide 7 Smart Distribution Systems Please go to the next slide. A company also needs to consider how it can design and optimize its distribution system for efficiency purposes. There are two types of distribution method designs that are used to add value to the process of distribution for the company. The first method is referred to as distribution intensity and takes into consideration the number of intermediaries that the company will use to get its good to the customer. There are many products that are distributed intensively such as magazines, office supplies, and personal hygiene products. These products can be found at many locations such as drug stores, grocery stores, and convenience stores. A company must often sell these types of products in larger volumes since the costs to purchase them are low. Further, specifically trained sales staff are not necessary to sell these products. The other type of distribution method is referred to as selective. This type of method is often used for goods that are more complicated, specialized, and sells at a higher cost. A consumer may need the assistance of a sales person for the provision of information about the product and to explain its features. More thought goes into purchasing higher cost products and they are purchased less frequently. An example of this type of product is a new household appliance, automobile, or personal computer. The customer must gather and consider more information and give thought to the purchase before buying the product. Please go to the next slide. Slide 8 Channel Relationships It is imperative that the relationships between the channel members are productive. Otherwise, a risk exists as to whether or not the good will make it from the company to the customer which is the end goal, along with satisfied customers who are pleased with the good that they have purchased. Additionally, the goals of all channel partners must be compatible. Sometimes conflicts arise between channel partners regarding prices and the profit margin that each is entitled to. Channel partners may also experience different perspectives on situations and be motivated to resolve any differences that exist so that all partners are satisfied and the goals of each are maximized. While it is expected that conflict may arise, at times one partner is inherently more powerful than another based upon the size of the partner company and its effectiveness. If the conflict is not resolved, the less powerful partner may opt out of the channel distribution arrangement and seek more productive arrangements with other companies. Transaction cost analysis is a model that is used that takes into consideration the production costs related to producing and distributing goods to the customer by the intermediary. Governance costs are also considered and are the costs associated with attempting to control a company's partners. The ideal is to minimize both of these costs. More recently, this model has been referred to as transaction value analysis which places emphasis upon the value, beyond production costs and governance costs, that each partner brings to the relationship. Values such as trust, communication, and satisfaction between the partners are emphasized and used to work through any conflicts that may arise and which will benefit both partners. Please go to the next slide. Slide 9 Retailing Slide 10 Retailing (continued) Retail stores are those that are often most visible to the customer. Many of the larger retail stores such as JC Penney, Macy's, and Sears are located in urban and suburban malls. Retail stores are classified using a variety of criteria such as manager ownership, level of service, and brand. Manager ownership refers to how the establishment is classified including independent, a branded store chain, or a franchise. An example of an independent retail store is a local, community-based village bakery. Abercrombie and Fitch would be an example of a branded store chain and McDonald's is an example of a franchise. Further, retailers can also be categorized based upon the level of service which is provided and the associated pricing strategy employed. Examples of this type of categorization would be The Dollar Store, Saks, and Wal-Mart. Retail establishments such as a Lady Foot Locker are a type of specialty store that specializes in a variety of sneaker types and brands. A general merchandise retailer such as a department store offers a broader assortment of items, but not as many brands of items such as what is available at a specialty store. Stores such as Costco and Sam's Club are classified as mass merchandise retail stores. Smaller general retail stores include drugstores and convenience stores. Please go to the next slide. The value of the front line employee at retail stores has been studied in terms of both employee and customer satisfaction and how this translates to the service the employee provides. Thought has also been given to the importance of recruiting the right employees, employee training, and the wages they are paid. Successful companies should be thoughtful about the satisfaction of their employees as well and be willingness to reward them for a job well done. A customer may be unwilling to purchase a make up product from a Clinique employee if the salesperson does not have a good complexion and is unfamiliar with the products she is selling. Retail stores are increasingly offering their customers a selfservice option for those customers who wish to utilize this service. Grocery stores, Wal-Mart, Lowe's, Home Depot, and Ikea all offer self-service checkout areas with one employee overseeing up to six self-service stations to assist customers if necessary. By utilizing one employee versus six employees, the company is more efficient and profitable. The location of retail establishments is of critical importance and numerous methods are used to determine where to situate a retail store to maximize sales. A company may study geography, population density, income, social class distributions, household compositions, and median ages of their potential customer base prior to making the final decision on where to locate retail stores. A retailer, once successful, may wish to expand its operations to additional sites or increase the level and type of services offered to customers. These strategies may result in the retailer garnering additional segments of customers. Or, a retailer may give thought to expanding internationally which is a form of multi-site expansion. However, the retailer must be aware of tailoring the marketing mix to the country and its cultures and local market to increase the chances of successful operation in a foreign country. Slide 11 Franchising Please go to the next slide. A franchise is a type of multi-site expansion where the company retains some control without full ownership or having to invest much capital. There are two types of franchising which are product franchising and business format franchising. In product franchising the company allows a distributor to provide the company's product, use its brand name, and benefit from company advertising for the product. Examples of product franchising can be seen with Sunoco gas stations and Dairy Queen. Business format franchises provide an entrepreneur with the ability to follow a system or model of operation to do business in addition to marketing support, and use of the brand name and advertising to a franchisee who runs a local store. Examples of business format franchises are Circle K and Burger King. Up-front fees are paid by the franchisee for both product and business format franchises. Then, the franchisee also pays regular royalties to the parent company which are often based upon sales. Franchises are a way for an individual to run a business without the risk of having to invest huge sums of capital, while still benefiting from support from the parent company in the form of marketing the brand name, operations, advertising expenses, and capital expenses such as buying or renting a building and investing in necessary equipment. A franchise appeals to many customers because of the standardization factor. Regardless of the franchise location, the customer knows that he will typically be able to receive the same product or service with the same quality on a consistent basis. Please go to the next slide. Slide 12 E-Commerce The advent of the Internet and the use of it to purchase items on line is steadily growing with increasing options for a consumer to buy goods and services online. Both the volume of sales and the type of items and services that can be purchased online have expanded. Each year, a consumer has increased options as to what specifically can be purchased online. Music downloads, online banking, tickets for sporting events, medications, and even luxury items can now be purchased online with relative ease and convenience. In the past, most online shoppers tended to be younger, more affluent individuals which makes sense since they are the wired in generation that has grown up with computers and have come to use them on a daily basis for a variety of purposes. However, as time transpires, online customers are becoming more representative of the general market segments. This fact provides a wonderful opportunity for many companies to break into e-commerce or to expand their online offerings. But, even though all of these trends appear to be positive, there is a concern that cannibalization and new competition has begun and will continue to occur. For example, there was a time when Blockbuster did not offer online rental options to its customers at a time when Netflix began operating and offering online DVD rentals. Customers are empowered by their ability to make online purchases which has the potential to impact upon sales in other areas and in store locations. Hotwire, Priceline, Craigslist, eBay, and Overstock dot com are examples of online sites that compete with other similar sites for a customer's business. Conducting business online is also inexpensive and some companies are urging their customers to take advantage of the convenience and cost savings it affords. Please go to the next slide. Slide 13 Integrated Marketing Channels Slide 14 Check Your Understanding Slide 15 Summary As the number of marketing channels increases, so does the need for coordination, collaboration, and integration of efforts, information, and contacts across marketing channels. It is important for companies to continue to learn more about their current customers, as well as potential future customers. Further study and research needs to occur regarding customer behaviors, channel attributes that customers find to be important, the choices that customers make and why, and what specifically drives customer loyalty. It is critical for companies to keep the customer first and foremost in their decision making and to use a customer-focused distribution strategy to meet the goals of the company. Please go to the next slide. We have reached the end of this lesson. Let's take a look at what we've covered. First, we explained distribution channels. Next, we discussed logistics, supply chain management, and different types of businesses including retail, franchise, and e-commerce. This completes this lesson. MKT500 WEEK 6 Lecture 1: Marketing Management Slide 1 Introduction In this lesson we will examine pricing strategies, price sensitivity and discrimination, yield management, and break-even analysis. Additionally, you will learn about distribution channels, logistics, channel relationships, and supply chain management. Please go to the next slide. Slide 2 Objectives Upon completion of this lesson, you will be able to develop pricing strategies and distribution channels for products. Please go to the next slide. Slide 3 Pricing Strategy How do companies determine the price of products? There are several ways that this is accomplished. A company must be aware of the price that consumers are willing to pay for a product, how they perceive prices and price changes, and whether or not the prices set will be received well by consumers. Take into consideration the cost of a package of one hundred paper plates. Most consumers would perceive the cost of fifteen dollars for a pack of one hundred paper plates to be too high and they would not buy the plates at this set price since this is not perceived as a good value. Further, if a grocery store priced a can of albacore tuna fish at nineteen cents, many consumers would question the quality of the product based on such a low price. Demand for a product tends to decrease as the price of the product increases. If the price is lowered, the demand for it will typically increase. Pricing is the easiest variable of the four P's to adjust. One common method for typical pricing strategies is to consider pricing the product low, medium, or high. If a company prices a product low, the company usually is just able to cover production and distribution costs and make a small profit. To set a high price for a product, the company must be aware of how much a consumer is willing to pay and set the price near this mark. A company will set a medium price in comparison to the prices competitor companies charge for the product and add on a profit margin. Prices for a product also tend to vary over the life cycle of the product and across different segments. The price for a product is the easiest to change and some might say that it is the most important of the four P's because it is easiest to measure how a price is assessed by a consumer. Please go to the next slide. Slide 4 Pricing Strategies (continued) Slide 5 Elasticity, Demand, and Price Sensitivity The three C's of marketing which include customer, competitor, and company also impact how a company determines a product's price. Being aware of how a customer perceives the value of a product determines a high price point. The price is determined by taking the customer's willingness to pay minus a markdown. Knowing what a competitor charges for a product will result in a medium priced product. A company might ask, \"what's the going rate being charged for this product by our competitors?\" Lastly, knowing the costs incurred by a company for producing a product will help determine a lowpriced product. A markup is added to the cost a company incurs for creating the product. Please go to the next slide. If a company drops the price of a good, often sales of the good will increase. But, will the amount of sales increase be sufficient to cover any profits lost due to lowering the price? This is known as elasticity or price sensitivity. Another way to understand this concept is to consider what would happen if the price of a good is increased or decreased, how much will the demand for the product increase or decrease? If the demand does not change much, it is considered to be inelastic. If the demand changes quite a bit, it is thought to be elastic. Elasticity varies because some goods are essential to consumers. Examples of essential goods are bread, toilet paper, and vegetables. Consumers will continue to purchase these essential goods despite an increase in price and hence, essential goods are considered to be inelastic. Non essential items and luxury goods are more often thought to be elastic since products such as this are not routinely purchased and hence, consumers are more sensitive to the high prices that are charged. You would be more apt to pay ten cents more for a dozen eggs than you would be to pay seventy five dollars more for a pair of designer blue jeans or fifty dollars more for a pedicure at a salon. What are the factors that have an impact upon demand for a good or service? One factor that affects demand is how much a consumer wants a good. We are all familiar with the difference between wanting a product versus needing a product. Many parents struggle in this materialistic world to teach this valuable lesson to their children. Another factor affecting demand for a good concerns the benefits of the product or the image of the product. If the product has appealing benefits or portrays a certain image, demand has the potential to increase. A consumer might prefer to buy an Apple iPod because of the many features it possesses in comparison to a non-brand name MP three player that is merely able to play songs. Demand may also go up if a competitor's product is not perceived to be of the same quality or if the product costs more to buy from a competitor. What are the factors that have an impact on how price sensitive consumers are? One factor affecting price sensitivity is a lack of preference for buying a specific brand. One example might be the brand of coffee one purchases. The consumer may not be loyal to a specific brand and they are more concerned with buying the brand that saves them the most money. Or, the consumer may not care about buying Canada Dry ginger ale because to them, ginger ale is ginger ale, regardless of the brand name. Also, consumers are more apt to be price sensitive when they possess a lower household income. The bottom line for the family on a tight budget is to make their dollars stretch as far as possible and they are conscientious of how much they pay for every item. Lastly, the availability of information via the Internet has made comparison shopping much easier than it once was. Consumers can now visit one stop shopping websites such as Travelocity or Expedia. Sites such as these provide the cost and schedules for an airline ticket for numerous airlines simultaneously with just a few points and clicks Slide 6 Breakeven Analysis How does a company determine how much of a good or service must be sold before it begins making a profit? One of the ways is to conduct a breakeven analysis which is a formula for calculating how many units must be sold to before the company makes any money. The fixed costs include marketing, advertising, research and development, and depreciation costs. Variable costs include labor and unit components. In terms of units sold, we first look at how profit is defined in terms of a formula. Profit equals price minus variable costs times demand minus fixed costs. To break even, we calculate fixed costs divided by price minus variable costs. These formulas may appear to be confusing, but when you plug in actual numbers, the calculations are actually quite simple. The formula for calculating the breakeven analysis for a good is the same as it is for a service. However, since there are more variable costs associated with selling a service, you will have more numbers that will be summed to result in your total variable cost figure. Please go to the next slide. Slide 7 Check Your Understanding Slide 8 Price Discrimination What do you think about a company charging different prices to different customers for the same good or service? Morally and ethically, this does not sound right. Why should one customer pay more than another? As a matter of fact, if a company were to actually do this, they would be discriminating against some consumers. This practice is known as price discrimination and it is illegal. However, in business, marketers have found a way to determine which consumer segments value different things. Then, the company prices the good or service according to these consumer preferences. This is known as segmentation pricing and it is legal and widely practiced. You see, some consumers are more concerned with the cost of a good, whereby others are less concerned about the cost and more concerned about the quality, features, and benefits of a good or service. It is perfectly legal and acceptable for a company to offer more than one option for a good or service to a customer and charge varying prices accordingly. Another form of segmentation pricing is the use of quantity discounts which I am sure you are familiar with. For anyone who has vacationed in an area such as Orlando, Florida or Virginia Beach, the sale of souvenir tee-shirts is an item that many tourists often purchase. An example of a quantity discount would be offering one tee-shirt for six dollars, two tee-shirts for ten dollars, and three tee-shirts for twelve dollars. The more tee-shirts you buy, the less each tee-shirt costs to purchase. Companies use quantity discounts to increase the volume of sales, even though the profit margin for each individual good is less. Please go to the next slide. Slide 9 Slide 10 Yield Management Summary Companies have discovered that consumers will respond to service deals where they are able to purchase a good for a reduced cost based upon when the purchase is made. Consumers can be cognizant of the value of shopping around for these deals and saving money. A relationship exists in this regard between the price of the good or service and the timeframe when the purchase is made. For example, some restaurants will offer buy one meal and get one meal free deals during times when the restaurant experiences a fall off in customers such as nights during the week, the time between four and six p.m., or an hour prior to closing. This practice is done to enhance revenue and increase seating capacity and hence, business during slow periods. The restaurant would rather gain some revenue, albeit reduced, than no revenue. Please go to the next slide. We have reached the end of this lesson. Let's take a look at what we've covered. First, we explained pricing strategies, and discussed demand, supply, and elasticity. Next, we described breakeven analysis, and the concepts of price discrimination, and yield management. This completes this lesson. Consignment Resales, Inc. Logistics Cncepts Felicia Dixon 02/09/17 Comprehensive Logistic Improvement Concept Tech Support Call Center E-fulfillment Centers Shop and Store Coupons and Lucky Draw Tech Support Desk The tech support desk will facilitate the company to have a direct communication with the consumers. The customers will be in a position to track their orders in a better way. The tech support will also help them in gaining knowledge about the features of the product as well as how to operate it. The views, grievances and suggestions of the consumers could also be entertained at tech support desk. E-fulfillment Centers E-fulfillment centers established at all the major cities. It would facilitate the storage of goods and prompt delivery can be given to the customer at their doorstep. The customers will get goods sitting at their home and will be more attracted towards online purchasing. Shop and Store The customers can also be provided with facility of purchasing the goods online and to pick them from store. The customers will be free to pick the goods at their own convenience as well as to make purchases from their homes at any time when they are free. It would reduce the logistics cost and will add to profitability. Coupons and Lucky Draw Coupons and lucky draw are the other method of increasing the interest of customer to make online purchases. The customers will make more purchases when they will find a chance to win free gifts. It will promote online sale and as a result of it the online sale will increase and consequently profitability will increase. Consignment Resales, Inc. Benefits of implementation of logistics concepts Increased revenue Customer satisfaction Customer Referral Consignment Resales, Inc. Logistics Concepts Felicia Dixon 02/09/17 Comprehensive Logistic Improvement Concept Tech Support Call Center E-fulfillment Centers Shop and Store Coupons and Lucky Draw Tech Support Desk Direct communication with customers. Tracking of order by customers. Know about the features of the product. Grievances and suggestions of the customers. E-fulfillment Centers E-fulfillment centers at all major cities. Storage of goods and prompt delivery. Purchases from home. Shop and Store Purchase online and pick after. Pick the goods at own convenience. Reduction in logistics cost. Add to profitability. Coupons and Lucky Draw Coupons and lucky draw. More purchases to win gifts. Increased online sale. Consignment Resales, Inc. Benefits of implementation of logistics concepts Increased revenue Customer satisfaction Customer Referral Consignment Resales, Inc. Logistics Cncepts Felicia Dixon 02/09/17 Comprehensive Logistic Improvement Concept Tech Support Call Center E-fulfillment Centers Shop and Store Coupons and Lucky Draw Tech Support Desk The tech support desk will facilitate the company to have a direct communication with the consumers. The customers will be in a position to track their orders in a better way. The tech support will also help them in gaining knowledge about the features of the product as well as how to operate it. The views, grievances and suggestions of the consumers could also be entertained at tech support desk. E-fulfillment Centers E-fulfillment centers established at all the major cities. It would facilitate the storage of goods and prompt delivery can be given to the customer at their doorstep. The customers will get goods sitting at their home and will be more attracted towards online purchasing. Shop and Store The customers can also be provided with facility of purchasing the goods online and to pick them from store. The customers will be free to pick the goods at their own convenience as well as to make purchases from their homes at any time when they are free. It would reduce the logistics cost and will add to profitability. Coupons and Lucky Draw Coupons and lucky draw are the other method of increasing the interest of customer to make online purchases. The customers will make more purchases when they will find a chance to win free gifts. It will promote online sale and as a result of it the online sale will increase and consequently profitability will increase. Consignment Resales, Inc. Benefits of implementation of logistics concepts Increased revenue Customer satisfaction Customer Referral Consignment Resales, Inc. Logistics Concepts Felicia Dixon 02/09/17 Comprehensive Logistic Improvement Concept Tech Support Call Center E-fulfillment Centers Shop and Store Coupons and Lucky Draw Tech Support Desk Direct communication with customers. Tracking of order by customers. Know about the features of the product. Grievances and suggestions of the customers. E-fulfillment Centers E-fulfillment centers at all major cities. Storage of goods and prompt delivery. Purchases from home. Shop and Store Purchase online and pick after. Pick the goods at own convenience. Reduction in logistics cost. Add to profitability. Coupons and Lucky Draw Coupons and lucky draw. More purchases to win gifts. Increased online sale. Consignment Resales, Inc. Benefits of implementation of logistics concepts Increased revenue Customer satisfaction Customer Referral