Price as Seen by Consumers or Users Something of Value Price equals

List price Less: discounts Quantity Seasonal Cash Temporary sales Less: allowances Trade-ins Damaged goods Less: Rebate and coupon value Plus: Taxes
Product: Physical good Service Assurance of quality Repair facilities Packaging Credit Warranty Place of delivery or when available

equals

Price as Seen by Channel Members Price equals Something of Value

List price Less: discounts Quantity Seasonal Cash Trade/functional Temporary deals Less: allowances Promotion Damaged goods Stocking Plus: Taxes and tariffs
Product: Branded--well known Guaranteed Warranted Service--Repair facilities Convenient packaging Place Availability--when and where Price Price-level guarantee Sufficient margin Promotion: Promotion to consumers

equals

Base Currency

Exchange Rates for Various Currencies against the per U.S. Number of Units Base Currency U.S. Dollar* 1985 1987 1989 1991Time 1993 1995 1997 1998 Dollar Over
0.77 27.20 2.94 0.61 25.76 1.80 0.62 25.72 1.88 0.57 25.53 1.66 0.67 25.33 1.65 0.67 24.92 1.43 0.61 31.07 1.73 0.60 39.20 1.78 Thai Bhat

British Pound

German Mark

Japanese Yen 238.47 144.60 138.07 134.59 111.08 French Franc Australian Dollar Canadian Dollar 8.98 1.43 1.37 6.01 1.43 1.33 6.38 1.26 1.18 5.65 1.32 1.15 5.67 1.47 1.29

94.11 121.09 136.20 4.99 1.35 1.37 5.83 1.34 1.38 6.13 1.63 1.41

* Units shown are the average for each year 1985-1997. For 1998, units shown are for June 16, 1998.

Discount Policies
DISCOUNTS are reductions from list price that are given by a seller to a buyer who either gives up some marketing function or provides the function himself Quantity discounts
Cumulative quantity discounts encourage repeat purchases and relationships

Geographic Pricing Policies

"Free on Board" (F.O.B) at some place Examples:
F.O.B. seller's factory F.O.B. delivered F.O.B. factoryfreight prepaid

Zone Pricing: an average freight charge to all buyers within specific geographic areas

Pricing Policies Combine to Impact Customer Value

Customer value considers total costs and benefits Costs and benefits are impacted not only by list price but by
Discounts Allowances Delivery terms and geographic pricing policies

Robinson-Patman Act
Regulates price discriminationselling the same products to different buyers at different prices
if it injures competition

Cost differences can justify prices differences

analysis must have been done in advance

You can match a competitor's prices

Markups
Dollar amount added to the cost of the products to get the selling price Markup percent is the percentage of selling price that is added to the cost to get the selling price
percent of selling price unless otherwise noted

Products may be marked up several

Selling price $24.00 Cost $21.60 10% markup on selling price $2.40

Alternate Approach for MANUFACTURER WHOLESALER RETAILER Computing Channel Markups

Selling price $30.00 Cost $24.00 20% markup on selling price $ 6.00 Selling Price $50.00 Cost $30.00 40% markup on selling price $20.00
Markup % on cost = markup % on selling price/(100% markup % on selling price)

Markup % on cost: = 10% / (100% - 10%) = 1/9 Dollar Markup: = 1/9 x $21.60 = $2.40

Markup % on cost: = 20% / (100% - 20%) = 1/4 Dollar Markup: = x $24.00 = $6.00

Markup % on cost: = 40% / (100% - 40%) = 2/3 Dollar Markup: = 2/3 x $30.00 = $20.00

Average-Cost Pricing
Adds a "reasonable" markup to the average cost of a product Simplifies pricing Quite common, especially among middlemen Usually based on estimates or past records
actual average cost depends on quantity

A. Calculation of Planned Profit B. Calculation of Actual Profit if If 40,000 Items Are Sold Only 20,000 Units Are Sold Calculation of Costs: Calculation of Costs:
Fixed Overhead Expenses Labor and Materials ($.80 a unit) Total Costs Planned Profit Total Costs and planned profit $30,000 32,000 $62,000 18,000 $80,000 Fixed Overhead Expenses Labor and Materials ($.80 a unit) Total Costs $30,000 16,000 $46,000

Results of Average-Cost Pricing

Calculation of profit (or loss):

Actual unit sales X price ($2.00) Minus: total costs Profit (loss) $80,000 62,000 $18,000

Calculation of profit (or loss):

Actual unit sales X price ($2.00*) Minus: total costs Profit (loss) $40,000 46,000 ($6,000)

Result:
Planned profit of $18,000 is earned if 40,000 items are sold at $2.00 each

Result:
Planned profit of $18,000 is not earned. Instead, $6,000 loss results if 20,000 items are sold at $2.00 each.

Cost Structure of a Firm Total Average Average Total

Fixed Quantity Costs (Q) (TFC) 0 $30,000 10,000 30,000 20,000 30,000 30,000 30,000 40,000 30,000 50,000 30,000 60,000 30,000 70,000 30,000 80,000 30,000 90,000 30,000 100,000 30,000 Fixed Costs (AFC) -$3.00 1.50 1.00 0.75 0.60 0.50 0.43 0.38 0.33 0.30 Variable Variable Total Costs Costs Cost (AVC) (TVC) (TC) --$30,000 $0.80 $8,000 38,000 0.80 16,000 46,000 0.80 24,000 54,000 0.80 32,000 62,000 0.80 40,000 70,000 0.80 48,000 78,000 0.80 56,000 86,000 0.80 64,000 94,000 0.80 72,000 102,000 0.80 80,000 110,000 Average Cost (AC) -$3.60 2.30 1.80 1.55 1.40 1.30 1.23 1.18 1.13 1.10

Experience Curve Pricing

A type of average-cost pricing using an estimate of future average costs Often leads to low prices if future economies of scale are expected
costs may drop with accumulated production experience

Break-Even Analysis
Used to evaluate whether the firm will be able to cover costs (break even) at a particular price
Indicates the break-even pointsales (units or dollars) needed to break even Can be modified to incorporate a target

(1) Quantity Q

Revenue, Cost, and Profit at Different Prices for a Firm

(2) Price P (4) (3) Total Total Variable Revenue Cost TR TVC (5) Total Cost TC (6) (7) (8) Profit Marginal Marginal (TR- Revenue Cost TC) MR MC

(9) Marginal Profit (MR-MC)

0 1 2 3 4 5 6 7 8 9 10

$150 140 130 117 105 92 79 66 53 42 31

$0 140 260 351 420 460 474 462 424 378 310

$0 96 116 131 144 155 168 183 223 307 510

$200 296 316 331 344 355 368 383 423 507 710

$-200 -156 -56 +20 +76 +105 +106 + 79 + 1 - 129 - 400

$140 120 91 69 40 14 -12 -38 -46 -68

$96 20 15 13 11 13 15 40 84 203

$+44 +100 +76 +56 +29 + 1 - 27 - 78 -130 -271

Marginal Revenue and(4) Price (1) (2) (3)

Quantity Price Total Revenue Q P (1) x (2) = TR 0 1 2 3 4 5 6 7 8 9 10 $150 140 130 117 105 92 79 66 53 42 31 $0 140 260 351 420 460 474 462 424 378 310 Marginal Revenue MR $140 120 91 69 40 14 -12 -38 -46 -68

(1)

Cost Structure for Individual Firm (fill in the missing numbers)

(2) Total fixed cost TFC (3) Average fixed cost AFC (4) Total variable cost TVC (5) (6) Average Variable Total cost (TFC+TVC=TC) Cost TC AVC (7) Average Cost
(AC=TC/Q)

Quantity Q

AC

(8) Marginal Cost (per unit) MC

0 1 2 3 4 5 6 7 8 9 10

$200 200 200 200 200 200 200 ______ ______ ______ ______

$0 $0 $0 $200 Infinity 200 96 96 296 $296 $96 100 116 58 316 _______ 20 ______ _______ ______ 331 110.33 _______ 50 _______ ______ _______ _______ _______ 40 155 31 _______ 71 11 ______ 168 ______ _______ 61.33 13 ______ 183 ______ _______ _______ 15 ______ 223 ______ _______ _______ _______ ______ 307 ______ 507 56.33 _______ 20 510 51 710 71 203

(1)

Cost Structure for Individual Firm (with missing numbers filled in)
(2) Total fixed cost TFC (3) Average fixed cost AFC (4) Total variable cost TVC (5) (6) Average Variable Total cost (TFC+TVC=TC) Cost TC AVC (7) Average Cost
(AC=TC/Q)

Quantity Q

AC

(8) Marginal Cost (per unit) MC

0 1 2 3 4 5 6 7 8 9 10

$200 200 200 200 200 200 200 200 200 200 200

$0 200 100 66.66 50 40 53.33 28.57 25.00 22.22 20

$0 96 116 131 144 155 168 183 223 307 510

$0 96 58 43.66 36 31 28 26.14 27.87 34.11 51

$200 296 316 331 344 355 368 383 423 507 710

Infinity $296 158 110.33 86 71 61.33 54.71 52.88 56.33 71

$96 20 15 13 11 13 15 40 84 203

Demand-Oriented Pricing Approaches

Evaluating a Customers Price Sensitivity Value-in-use pricing Auctions
including online

Psychological pricing
odd-even pricing price lining

Reference prices Leader pricing

Demand-backward pricing Prestige pricing Full-line pricing

complementary

Evaluating a Customers Price Sensitivity

Are there substitute ways of meeting a need? Is it easy to compare prices? Who pays the bill? How great is the total expenditure? How significant is the end benefit? Is there already a sunk investment related to the purchase?

Value in Use Pricing

Sets prices that will capture some of what customers will save by substituting the firm's product for the one the customer is currently using Example: A construction firm that buys a new, more efficient bulldozer at a higher price might still save money on:
labor (operator) expenses

Implementation and Control

Faster feedback (because of information technology) is resulting in more rapid changes Marketing manager must take charge to get information that is needed
Can be a source of competitive advantage

Good implementation means that plans work as intended

Implementation Objectives
Innovative thinking and approaches may help the marketing manager overcome challenges and better achieve major implementation objectives
Better, so customers really get superior value as planned Faster, to avoid delays that cause customers problems Lower cost, without wasting money on

Marketing Mix Decision Area

Examples of Approaches to Overcome Specific Marketing Operational Problem Implementation Approach Implementation Problems
Develop design of a new product as rapidly as possible without errors Pretest consumer response to different versions of a label Coordinate inventory levels with middlemen to avoid stock-outs Quickly distribute TV ad to local stations in many different markets Answer final consumers questions about how to use a product Identify frequent customers for a quantity discount Figure out if price sensitivity impacts demand for a product; make it easier for customers to compare prices Use 3-D computer sided design software Prepare sample labels with PC graphics software Use bar code scanner, EDI, and computerized reorder system Distribute final video version of the ad via satellite link Put a toll-free telephone number and web site address on product label Create a favored customer club with an ID card Show unit prices (for example, per oz.) on shelf markers; set different prices in similar markets and track sales, including sales of competing products

Product

Place Promotion

Price

Total Quality Management

Everyone in the organization is concerned about quality, throughout all of the firm's activities, to better serve customer needs The cost of poor quality is lost customers Achieving quality requires continuous improvementa commitment to constantly make things better one step at a time Uses statistical process controls to identify problems. Examples:

Building Quality into Services

Every firm must implement service quality as part of its plan, whether its product is primarily a service, primarily a physical good, or a combination of both Can't simply "inspect in" qualitymust be there from the start Ongoing training is critical (plan for the

Marketing Control
Feedback process that helps the marketing manager learn
how ongoing plans and implementation are working how to plan for the future

Sales Analysis looks at details of where sales come from

customers

Some Bases for Sales, Cost, or Profit Analysis

Geographic region Product (package size, style, etc.) Customer size Customer type or class of trade Price or discount class Method of sale Cash or charge (financial arrangement)

Development of a Measure of (1) (2) (3) (4) Sales Performances (by region) Expected
Regions Northeastern Southern Midwestern Western Total Population Distribution of as Percent of Sales Based United States on Population 20 25 35 20 100 Actual Sales Performance Index $200,000 $210,000 250,000 250,000 350,000 420,000 200,000 120,000 $1,000,000 $1,000,000 105 100 120 60

Cost Analysis
Must understand costs to control them Analyzing and dealing with fixed costs can be a challenge
full-cost approach allocates fixed costs contribution-margin approach is an alternative two approaches have different benefits, limitations

Profit and Loss Statement by Department Totals Dept. 1 Dept. 2 Dept. 3

Cost of sales Gross Margin Other expenses Selling expenses Administrative expenses Total other expenses Net Profit of (loss) $100,000 80,000 20,000 5,000 6,000 11,000 9,000 $50,000 45,000 5,000 2,500 3,000 5,500 (500) $30,000 25,000 5,000 1,500 1,800 3,300 1,700 $20,000 10,000 10,000 1,000 1,200 2,200 7,800

Profit and Loss Statement by Department if Department 1 Totals Dept. 2 Dept. 3 Were Eliminated Sales $50,000 $30,000 $20,000
Cost of sales Gross margin Other expenses Selling expenses Administrative expenses Total other expenses Net profit or (loss) 35,000 15,000 2,500 6,000 8,500 6,500 25,000 5,000 1,500 3,500 5,100 (100) 10,000 10,000 1,000 2,400 3,400 6,600

Contribution-Margin Statement by Departments Totals Dept. 1 Dept. 2 Dept. 3

Sales Variable costs: Cost of sales Selling expenses Total variable costs Contribution margin Fixed costs and administrative expenses Net profit $100,000 $50,000 $30,000 $20,000 80,000 5,000 85,000 15,000 6,000 9,000 45,000 2,500 47,500 2,500 25,000 1,500 26,500 3,500 10,000 1,000 11,000 9,000

Planning and Control Chart for Cindy's Fashions

Contribution to Store

Dept. A

Dept. B

Dept. C 4,000

Dept. D -1,000

Total

Store Operating Expense Profits 24,000 15,000

Cum. Operating Profit

January Planned 27,000 9,000 Actual Variation February Planned 20,000 6,500 Variation ----------- ----------- ----------November Planned 32,000 7,500 Variation December Planned 63,000 12,500 Actual Variation Total 316,000 70,000

39,000

15,000

2,500

-1,000

28,000

24,000 --------24,000

4,000 ----------18,000

19,000 ----------106,500

----------- ----------- ---------2,500 0 42,000

4,000

9,000

88,500

32,000

56,500

163,000

69,000

-4,000 453,000

288,000

163,000

163,000

*the objective of minus $4,000 for this department was established on the same basis as the objectives for the other departments- that is, it represents the same percentage gain over last year, when Department Ds loss was $4,200. Plans call for discontinuance of the department unless it shows marked improvement by the end of the year.

Example of a Planning and Control Chart: Cindys Fashions - Dept. B

Direct Expense
Cumulative Sales Gross Profit
Contribution Contribution

Total

Fixed Variable

to Store 9,000 8,000 -1,000 6,500

to Store 9,000 8,000 -1,000 15,500

January Planned 60,000 18,000 9,000 6,000 3,000 Actual 46,000 16,300 8,300 6,000 1,150 Variation -14,000 -1,700 700 0 700 February Planned 50,000 15,000 8,500 6,000 2,500 Actual Variation ------------ ---------- ------------ --------- --------- ----------November Planned 70,000 21,000 13,500 10,000 3,500 Actual Variation December Planned 90,000 27,000 14,500 10,000 4,500 Actual Variation Total Planned 600,000 180,000 110,000 80,000 30,000 Actual Variable

------------7,500

------------57,500

12,500

70,000

70,000

70,000

Marketing Audit
A systematic, critical, and unbiased review and appraisal of the basic objectives and policies of the marketing functionand of the organization, methods, procedures, and people employed to implement the policies

Marketing's Link with Other Functional Areas

Link with other functional areas affects strategy planning as well as implementation and control Finance
Money for initial investment and ongoing expenses

Production
Flexibility, costs of products offered

Finance Function Manages Capital

Capital is the money invested in a firm
Investments in fixed assets (facilities, etc.) Working capital: money to pay for short term expenses such as salaries, advertising, marketing research, etc.

Capital may come from internal or

Coordinate Marketing Plan and Production

Production capacity takes many forms
Quantity and quality of specific goods or services the firm is able to produce

Production flexibility may limit or increase opportunities Virtual corporation

Perhaps more flexibility but less control

Mass customization

Accounting Data Helps to Understand Costs and Profit

Traditional accounting data often are not helpful for making strategy planning decisions Activity-based accounting may help
Allocates costs from natural accounts to functional accounts

Natural accounts
Categories to which costs are charged in

Profit and Loss Statement, One Profit and Loss Statement, One Month Month Sales $17,000
Cost of sales Gross Margin Expenses: Salaries $2,500 Rent 500 Wrapping Supplies 1,012 Stationery and Stamps 50 Office equipment 100 Net profit 11,900 5,100

4,162 $ 938

Spreading Natural Accounts to Functional Accounts Functional Accounts Natural Billing and
Accounts Salaries Rent Wrapping supplies Stationery & stamps Office equipment Total Cost $2,500 500 1,012 50 100 $4,162 _______ $1,000 _______ $2,312 Sales Packaging Advertising $900 400 1,012 25 50 $425 25 50 $425 Collection $300 50 $1,000 $300 50

Products

Basic Data for Cost and Profit Analysis Example

A B C Cost/Unit $ 7 35 140 Selling Price/Unit $ 10 50 200 Number of Units Sold in Period 1,000 100 10 1,110 Sales Volume In Period $10,000 5,000 2,000 $17,000

Relative Bulk Packaging per Unit Units 1 1,000 3 300 6 60 1,360

Customers

Number of Sales Calls Number of Orders in Period Placed in Period 30 40 30 100 30 3 1 34

Units Units Units of A of B of C 900 90 10 1,000 30 30 40 100 0 3 7 10

Smith Jones Brown Total

Functional Cost Account Allocations

Sales calls $1,000/100 calls Billing $425/34 orders Packaging units costs $2,312/1,360 packaging units = $10/call = $12.50/order = $1.70/packaging unit or $1.70 for Product A $5.10 for Product B $10.20 for Product C = $42.50/unit of C

Advertising

$425/10 units of C

Sales

Profit and Loss Statements for Smith Jones Brown Customers

A $9,000 B 1,500 C Total Sales $10,500 $900 1,500 600 $3,000 630 1,050 420 7,350 3,150 300 375 1,530 153 _____ $2.358 $792 400.00 37.50 153.00 153.00 30.60 127.50 901.60 $(1.60) 2,100 900 300.00 12.50 17.00 204.00 71.40 297.50 902.40 $147.60 70 1,400 980 2,450 1,050 $100 2,000 1,400 $3,500 6,300 1,050

Whole Company

$17,000

Cost of Sales A B C Tot. Cost of Sales Gross margin Expenses: Sales call ($10 ea.) Order costs ($12.50 ea.) Packaging Costs A B C Advertising Total of Expenses Net profit (or loss)

11,900 5,100

4.162 $938

Human Resources: People Put Plans into Action

Traditional issues include selection, training, supervision, motivation, and compensation New strategy usually requires people changes New strategy must be communicated

Factors that Affect Marketing Mix Planning

Product classeshow are products that consumers see in the same way typically marketed? Stage of product life cycle Size and geographic concentration of customers Value of item and frequency of purchase

 Competition: becomes more intense, moves toward pure competition Product: typically moves toward more variety, and then less variety in decline stage Place: typically moves toward more intensive distribution Promotion: emphasis changes from

Typical Changes in Marketing Variables over the Product Life Cycle

Market Potential and Sales Forecast

Market Potentialwhat a whole market segment might buy
Sales Forecastan estimate of how much an industry or firm hopes to sell to a market segment

Approaches to Forecasting
Extending past behavior
Trend extension Assumes future patterns will be like past patterns

Factor method
Based on finding a variable (a factor) that is related to the variable being forecast Multiple factors may be helpful

Sample of Pages From Sales & Marketing Management's Survey of Buying Power

Solid Fiber Boxes for Industry Groups, Phoenix, Arizona, Metropolitan Statistical Area
National Data
(1) (2) NAICS Code Major Industry Group
Food and Kindred Products Furniture and Fixtures Stone, Clay, and Glass Products Primary Metal Industries Fabricated Metal Products Machinery (except electrical) Electrical Machinery, Equipment and Supplies

Mariposa County

Value of Box Shipments by Employment End Use by Industry ($000)* Group

(3) (4) (5) Value of Shipments per Estimated Employee by Sales In Industry Employment This Market Group by Industry (3X4) (1 divided by 2) Group ($000)

311 337 327 331 332 333 335

$586,164 89,341 226,621 19,611 130,743 58,834 119,848

1,578,305 364,166 548,058 1,168,110 1,062,096 1,445,558 1,405,382

$371 245 413 16 123 40 85

4,973 616 1,612 2,889 2,422 5,568 6,502 TOTAL

$1,845 151 666 46 298 228 553 $3,787

Marketing Mix

A Spreadsheet Comparing the Estimated Sales, Costs, and Profits of Four "Reasonable" Alternative Marketing Mixes
Price Selling Cost Advertising Total Cost Units $5,000 Sales Revenue Total Cost Total Profit

A B C D

$15 $15 $20 $20

$20,000 $20,000 $30,000 $40,000

5,000 7,000 7,000 5,000

$75,000

$70,000 $95,000

$5,000

$20,000 $30,000 $40,000

$105,000 $140,000 $125,000

$10,000 $25,000 $0

$115,000 $125,000

Response Functions
Show how a target market is expected to react to changes in marketing variables Hard to estimate, but that doesn't mean they can be ignored Might be used to evaluate
a firm's whole marketing mix elements of a marketing mix how customers respond to competitors

A Spreadsheet Analysis Showing How a Change in Price Affects Sales, Revenue, and Profit
Marketing Mix Price Selling Cost Advertising Total Cost Units $30,000 $30,000 $30,000 $30,000 $30,000 Sales Revenue Total Cost Total Profit

$19.80 $19.90 $20.00 $20.10 $20.20

$30,000 $30,000 $30,000 $30,000 $30,000

7,000 7,000 7,000 7,000 7,000

$138,600 $139,300 $140,000 $140,700 $141,400

$115,000 $115,000 $115,000 $115,000 $115,000

$23,600 $24,300 $25,300 $25,700 $26,400

(Note: spreadsheet is based on Marketing Mix C from Exhibit 21-7)

 Name of Product-Market Analysis of Other Aspects of External Market Environment (favorable & unfavorable factors and trends) Customer Analysis (organizational and/or final consumer) Competitor Analysis Company Analysis

Summary Outline of Different Sections of Marketing Plan--Part A

Place Promotion Price Special Implementation Problems to Be Overcome Control Forecasts and Estimates Timing

Summary Outline of Different Sections of Marketing Plan--Part B

Exporting
Selling some of what the firm is producing to foreign markets
a market development type opportunity some changes in product may be required

Usually a low risk way to get into international marketing "Red tape" is real, but usually worth the hassles

Multinational Corporations
Have a direct investment in several countries Run the business depending on the choices available anywhere in the world
selecting vendors locations for production target markets to go after

Takes a world view, not just the view of

Causes of Micro-Marketing Inefficiency

Lack of interest in or understanding of consumers
consumer preferences may change rapidly and often improper blending of the four Ps overemphasis on production and/or internal problems rather than customer needs

Lack of understanding ofor

Evaluating Macro-Marketing Effectiveness

Depends on the social and economic objectives of the country Difficult to compare marketing systems across countries with different objectives
Is consumer satisfaction the criterion?

Some Important Changes and Trends Affecting Marketing Strategy Planning - Communication Technologies The Internet and intranets
Satellite communications E-mail and fax communications Teleconferencing and Internet telephone Cellular telephones

Some Changes and Trends (cont.) - Role of Computerization

Personal computers and laptops Spreadsheet analysis Computer networks Scanners and bar codes for tracking Better, easier to learn and use software

Some Changes and Trends (cont.)Marketing Research

Search engines Growth of marketing information systems Decision support systems Multimedia data Single-source data (and scanner panels)

Some Changes and Trends (cont.) - Demographic Patterns

"Wired" households Explosion in teen and ethnic submarkets Aging of the baby boomers Population growth slow-down Geographic shifts in population Slower real income growth in U.S.

Some Changes and Trends (cont.) - Business and Organizational Customers

Closer buyer-seller relationships Just-in-time inventory systems/EDI Internet sourcing More single-vendor sourcing Shift to NAICS ISO 9000 Supply chain management

Some Changes and Trends (cont.) - Product

More attention to "really new" products Faster new-product development Computer-aided design (CAD) R&D teams with market-driven focus More attention to quality

Some Changes and Trends (cont.) - Channels and Logistics

Internet selling (wholesale and retail) More vertical market systems Larger, more powerful retail chains More attention to distribution service Better inventory control Rapid response, JIT, and ECR Automated warehousing and handling

Some Changes and Trends (cont.) - Sales Promotion

Database-directed promotion Point-of-purchase promotion Trade promotion is more sensible Event sponsorships Stocking allowances

Some Changes and Trends (cont.) - Personal Selling

Electronic slide presentations Automated order-taking Use of laptop computers More specialization
Major accounts Telemarketing Team selling

Some Changes and Trends (cont.) - Mass Selling

Interactive media (like web sites) Integrated marketing communication More targeted media
Pointcasting Specialty publications Cable, satellite TV, teletext Specialty radio and (cable) TV Point-of-purchase

Growth of interactive agencies

Some Changes and Trends (cont.) - Pricing

Electronic bid pricing and auctions Value pricing Overuse of sales and deals for temporary price cuts Bigger differences in functional discounts More attention to exchange rate

Some Changes and Trends (cont.) - International Marketing

Collapse of communism worldwide More international market development Global competitorsat home and abroad Global communication over Internet New trade rules (NAFTA, WTO,

Some Changes and Trends (cont.) - General

Explicit mission statements S.W.O.T. analysis Benchmarking and total quality management More attention to positioning and differentiation Less regulation of business More attention to marketing ethics

Demand Schedule for Potatoes (1) (10-pound (2) bags) (3) Price of Quantity Total
Point A B C D E Potatoes per Bag (P) $1.60 1.30 1.00 0.70 0.40 Demanded (bags per month) (Q) 8,000,000 9,000,000 11,000,000 14,000,000 19,000,000 Revenue per Month (P x Q=TR) $12,800,000 ------------11,000,000 -------------------------

Demand Curve for Potatoes (10$1.60 Price ($ per bag) 1.30 1.00 0.70 0.40 Demand

pound bags)

0.00

0 10 20 30 Quantity (millions of bags per month)

Demand Schedule for 1-CubicFoot Microwave Ovens

Point (1) Price per Microwave Oven (P) (2) Quantity Demanded per Year (Q) (3) Total Revenue per Year (P x Q = TR)

A B C D E

$300 250 200 150 100

20,000 70,000 130,000 210,000 310,000

$6,000,000 15,500,000 26,000,000 31,500,000 31,000,000

Demand Curve for 1-Cubic Foot Microwave Ovens A 300

250
Price ($) 200 150 100 50 0 0 50 100 150 200 Quantity (000) 250 300
B C

Demand
D E

Elastic and Inelastic Demand

Elastic Demand: if prices are dropped, the quantity demanded will increase enough to increase total revenue Inelastic Demand: if prices are dropped, the increase in the quantity demanded is not enough to result in an increase in total revenue

Demand Curve for Hamburger (a product with many substitutes

P
Price ($) Relevant Range Current Price Level

Quantity

Demand Curve for Motor Oil (a product with few substitutes

P
Price ($)
Consumers buy less often when price goes above this level

Relevant Range Current Price Level

Quantity

Factors that Affect Elasticity of Demand

Availability of substitutes (i.e., the buyer has a choice) Importance of the purchase in the customer's budget Urgency of the need, and its relationship to other needs

Supply Schedule for Potatoes Number of (10-pound bags) Bags Sellers

Point A B C D E Possible Market Price per 10-lb. Bag $1.60 1.30 1.00 0.70 0.40 Will Supply per Month at Each Possible Market Price 17,000,000 14,000,000 11,000,000 8,000,000 3,000,000

Supply Curve for Potatoes (10$1.60 Price ($ per bag) 1.30 1.00 0.70 0.40

pound bags)
Supply

0.00

0 10 20 30 Quantity (millions of bags per month)

Equilibrium of Supply and Demand for Potatoes (10-pound bags) $1.60 Supply
Price ($ per bag) 1.30 1.00 0.70 0.40 Demand
Equilibrium point

0.00

0 10 20 30 Quantity (millions of bags per month)

Interaction of Demand and Supply in the Potato Industry and the Resulting Firms (each producing about Whole Industry 1/10,000 of industry output) Demand Curve Facing Individual Potato $1.60 $1.60 Farmers Supply
1.30
Price ($ per bag)
Price ($ per bag)

1.30
Equilibrium point

1.00 0.70 0.40 0.00

1.00 Demand 0.70 0.40 .00

Demand 0 10 20 30

500

1,000

1,500

Quantity (millions of bags per month)

Quantity (millions of bags per month)

Oligopoly Situation with Kinked Demand Curve A. Industry Situation B. Each firms view of
P Supply Price ($) Price ($) Market price P its demand curve

Demand 0
Quantity

Quantity

(smaller than industry quantity)

Monopolistic Competition
Sellers in the market feel they have some competition Customers view competing products as heterogeneous, not homogeneous Firms may vary their marketing mixes to further differentiate them Thus, customers can choose among

Basic Operating Statement Relationships

Gross sales - Returns and Allowances = Net sales
Net sales - Cost of sales = Gross margin

An Operating Statement (Profit and Loss Statement)

Gross Sales Less: Returns and allowances Net Sales Cost of sales: Beginning Inventory at cost Purchases at billed cost Less: Purchase discounts Plus freight-in Net cost of delivered purchases Cost of products available for sale Less: Ending inventory at cost Cost of sales Gross margin (gross profit) Expenses: Selling expenses: Sales salaries Advertising expense Delivery expense Total Selling expense Administrative expense: Office salaries Office supplies Miscellaneous administrative expense Total administrative expense General expense: Rent expense Miscellaneous general expense Total general expense Total expenses Net profit from operation $540,000 40,000 $500,000 $310,000 40,000 270,000 20,000 290,000 370,000 70,000 300,000 200,000

60,000 20,000 20,000 100,000 30,000 10,000 5,000 45,000 10,000 5,000 15,000 160,000 $40,000

Cost of Sales Section of An Operating Statement for a Manufacturing Firm

Cost of Sales Section of an Operating Statement for a Manufacturing Firm
Cost of Sales: Finished products inventory (beginning) Cost of production (Schedule 1) Total Cost of Finished products available for sale Less: Finished products inventory (beginning) Cost of Sales Schedule 1, Schedule of cost of production Beginning work in process inventory Raw materials: Beginning raw materials inventory Net cost of delivered purchases Total cost of materials available for use Less: Ending raw materials inventory Cost of materials placed in production Direct labor Manufacturing expenses: Indirect Labor Maintenance and repairs Factory Supplies Heat, light and power Total Manufacturing expenses Total Manufacturing costs Total work in process during period Less: ending work in process inventory Cost of production $20,000 100,000 120,000 30,000 $90,000 15,000 10,000 80,000

90,000 15,000 75,000 20,000

$4,000 3,000 1,000 2,000 10,000 105,000 120,000 20,000 $100,000

Three Methods to Compute Stockturn Rate

1. (Cost of sales) / (Average inventory at cost) 2. (Net sales) / (Average inventory at selling price)
3. (Sales in units) / (Average inventory in units)