Marketing Pricing and Strategy Services Economics of Pricing: Distribution Cannels Integrated Marketing

Price Strategy: QUESTION: What is the best way to price a new product (how do you enter the product into the market through pricing)? Elasticity: Change in Quantity/ change in price Elasticity: is the first question marketers ask when considering pricing strategy Draw graph here:

This graph represents sloping demand curve. Over a measure of time you want to sell the most products at the highest price. If you have a wait list, then you need to raise your price because people are willing to pay more. Elastic: This happens when the product is new and people are willing to pay the maximum amount for the product. The company may sell very few, but it will reach those willing to pay the premium price. As time passes and craze over the new product decreases, the marketer has to decrease the price to reach more people. Unitary: The maxim point in time where the company is selling the most product for the best price to the most people is the unitary demand function. Your marginal cost equals your marginal revenue. This is where you will sell five widgets at six dollars. This is where profit maximization occurs. As time passes, and the company is coming out with a new model, the demand for the old model become inelastic. This is where you sell nine or ten of them for one or two dollars. Other Pricing Strategies that affect the demand curve. Premium pricing: Trying to reach those that want the product now, and those that want to have it pay a premium price for it. E.g., Playstation on day 1. This is an elastic demand. There is room to adjust your price down, but as long as you are selling the product, the price does not need to come down. Periodic discounting : Demand is low, while your fix costs are still there. So you should sell something . . .anything. E.g., twighlight golf, happy hour at the bar. Manantee movie tickets, and offseason clothing. Price signaling: Information about price is easier to get than price quality. Quality before purchase is hard to access. We tend to think that if it cost more, then it is better quality. Most people will not read reviews. E.g., some items price is part of the product. You dont want a cheap lawyer/surgeon/carpenter. Consulting, wine, consumer reports. Price bundling: You want to buy a ticket to the OU game, you get a free ticket to New Mexico State. Movie example. Distributor forcing the movie theater to buy both movies at a bundle price to maximize profit. This prevents price discrimination in violation of the law: Robinson Patman Act of 1936. Pure bundlingonly the package is available, but is probably illegal. What is legal is selling at high price individually and paying less for both.

Market Discounting: Second Market Discounting: Selling new product in a second market for very little cost, as long you cover your variable cost because your fixed cost is the same. (Walmart Great Value). (GNC card discount for GNC Products) Periodic Discounting: Figure our average cost, start high and then bring it lower over a period time to get your average price. Random Discounting: The average consumer: the searcher and the Non Searcher. Non Searcher (Brad) shows up and may or may not get the discount. Searcher spends lot of time looking for the discount, and then goes after the lowest price. Average consumer show up at store and make a decision based on options available. (store puts random discounts on their products) Penetration Pricing: Same set up as random discounts but everyday low price WALMART. They are not going to have frequent sales, but are going to have everyday low prices. JCPs new pricing strategy. Experience Curve Pricing: the more you produce the lower your cost per unit. Economies of scale! The more you do, the better you get at it. Reference Pricing: place a high price version of a product next to a much higher price version. This can lead to increased sale of the lower priced model. Makes the lower priced item more appealing. Shipping: (1) Free on board; (2) uniform delivery; (3) zoneA)B)C)= x dollars. Robinson Patman Act of 1936: Cant give one competitor a competitive advantage. Distribution Issue: How does a distributor reduces the number of channel transactions? By the use of good intermediaries. Definition: An intermediary is the middleman and exist in the long run because they provide efficiencies that outweigh their costs; e.g., Prof.s college grocery store example. Channel Management: Selecting ,training, motivating, and evaluating. Two Categories: Push and Pull Strategy Push Strategy: Your marketing strategy is built to appeal on pushing your product on the intermediaries who in then markets to the retailer; the retailer then pushes the product on the consumer. E.g., Crest make the toothpaste the same--nice Pull Strategy: Consumers create enough demand to pull the product through the supply chain. E.g., Apple. Most companies use both strategies. Best Buy Problem: Best buy has become a show case for online purposes. People go to Best Buy and to look at the item then will buy the product on line. Sony will benefit from this. So Sony will give Best Buy the difference in margin to help keep them open. Grocery store problem. Push strategy. Pay the retailer to get access to the limited floor space.

Channels of Conflict: What is good for the retailer is not good for the manufacture. E.g., Car. Toyota want the retailer to buy now and to do local marketing. The dealership wants Toyota to hold onto the car and to do national advertising. E.g., Coke and COSCO.

Vertical Marketing: Everyting is fluid to the consumer. Apple, own store, website, and intermediaries. Communication: Question: How do marketers reach the consumer. Integrated Marketing: Everybody promotes the same message. E.g., Texas Techeveryone on the same page. Consistent theme. (1) Overcome selective attention. E.g., Adds are getting strange to grab our attention. Nissan: father son painting example: life is a Journey, enjoy the ride. First you have to get their attention, engage in comprehension, then actively process. (2) Selective Distortion. E.g., every guys conversation with wife. Hear what you want. (3) Gorilla Marketing. Items in t.v. shows and movies that you dont ignore. Harley Davidson VRod in the movie Blade. Effective Communication: (1) ID Target Audience; (2) Determine communication obj.; (3) Design the message (lead the consumer to draw the conclusion); (4) select channels; (5) establish budget; (6) decide on media mix; (7) measure results. To receive the communication, you have to be aware that you are being communicated to. Gorilla Marketing is a good example of this. Advertising Objectives: (1) information; (2) reminder; (3) persuasive; (4) reinforcement. E.g., Chicka-Filla with the cow painting saying eat more chicken. Advertising strategy Issue: How would you capture the markets attention through advertising? Focus on one message, dont do everything in one add, provide information, beware of celebrities. Promotion: try a new product, pull away from competition, whole reward and loyalty programs. Promotional tools: samples, coupons, buy back. More money is spent on promotion than advertising. With advertising it is difficult to measure your results. Promotion you can tell how much you revenue you brought in based off of the promotion. Immediate measureable result. Companies advertise because their competition is advertising. (Use promotion graph). Promotion gets more weight because it is easier to measure? Why is there an increase in sales promotion? Growing retailer power, declining brand loyalty, increased promotional sensitivity, brand proliferation, fragmentation of consumer market, short term focus, increased managerial accountability. Dynamics of persuasion Six principles: (1) Reciprocity, (2) Scarcity; (3) Authority; (4) consistency; (5) Consensus; (6) Liking (1) Reciprocity: Moment of power occurs right after someone says no. Seize the moment. E.g., fundraising example. Wanted 1 million, asked for 10, got 6.5. (2) Scarcity: People want what is less available. A fear of missing out. To charge more, create less product then charge more. Losses hurt more than gains help . . .missing out. (3) Authority: Dont toot your own horn. Expertise, knowledge, are powerful. I dont know who you are, what your product is, now what are you trying to sell me? (4) Affirmative response. The power of commitment. E.g., Reservation example.

(5) people do it once. (6) The Evolution of Cooperation:

Consensus: Social Proof. Best selling item. Hotel towel example: most Liking: Positive connections. Tupperware party.

Business does not have to be about winning; it is about making money. As long as you are making profit, it does not matter if you are winning. Strategy where you do better, but not win. Tit-for Tat is the best strategy. This is the best for competition. You cant collude, so you do tit-for tat in a non-confrontational manner. Tit-for-two-tats. Dont defect until the other guy has done it twice. E.g., Houston on the highway, you will never see them again. E.g., Japan trade agreement. Tit-for-tat creates good relationships without colluding. It protects both peoples self interest.

Business to Business Marketing: Personal relationships and selling. The message changes, but advertising is still the same. Advertising may not be as effective, but it will reach the target audience. Reverse demand curve. Price goes down, quantity goes up because of the ability to hold inventory. The purchasing manager can hold the inventory at a lower cost. Demand is driven from ultimate demand of consumer goods. If ford is selling cars then they are buying auto glass. Services vs. product. Make your product part of the companies fixed cost. E.g., copy machines. Instead of selling the copy machine, sell the service. People will still make copies in bad times, but they may not replace an old copier.

Professional buyers are people and they buy from people that they like. Reciprocity, e.g., six checking accounts equal customer, Chevy supplier will not drive a Ford. Kickbacks and what not can go overboard. E.g., giving a cadallic with Jack Daniels. Competition Market Discounting