Transcript Price as Seen by Consumers or Users

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
equals
Product:
Physical good
Service
Assurance of quality
Repair facilities
Packaging
Credit
Warranty
Place of delivery or
when available
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
equals
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
Exchange Rates for Various
Currencies against the U.S.
Dollar Over Time
N u m b e r o f U n its B a s e C u rre n c y p e r U .S . D o lla r*
B a s e C u rre n c y
1985
1987
1989
1991
1993
1995
1997
1998
B ritish P o u n d
0 .7 7
0 .6 1
0 .6 2
0 .5 7
0 .6 7
0 .6 7
0 .6 1
0 .6 0
Thai B hat
2 7 .20
2 5 .76
2 5 .72
2 5 .53
2 5 .33
2 4 .92
3 1 .07
3 9 .20
G er m a n M a rk
2 .9 4
1 .8 0
1 .8 8
1 .6 6
1 .6 5
1 .4 3
1 .7 3
1 .7 8
J a p a n ese Y en 2 3 8 .4 7
1 4 4 .6 0
1 3 8 .0 7
1 3 4 .5 9
1 1 1 .0 8
9 4 .11
1 2 1 .0 9
1 3 6 .2 0
F ren ch F ra n c
8 .9 8
6 .0 1
6 .3 8
5 .6 5
5 .6 7
4 .9 9
5 .8 3
6 .1 3
A u stra lia n D o lla r
1 .4 3
1 .4 3
1 .2 6
1 .3 2
1 .4 7
1 .3 5
1 .3 4
1 .6 3
C a n a d ia n D o lla r
1 .3 7
1 .3 3
1 .1 8
1 .1 5
1 .2 9
1 .3 7
1 .3 8
1 .4 1
* 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. factory—freight 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 discrimination—selling
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
Alternate Approach for
Computing Channel Markups
M ANUFACTURER
S ellin g p rice $ 2 4 .0 0
C o st $ 2 1 .6 0
1 0 % m a r ku p
o n selling
p rice $ 2 .4 0
W HOLESALER
S ellin g p rice $ 3 0 .0 0
C o st $ 2 4 .0 0
2 0 % m a r ku p
o n selling
p rice $ 6 .0 0
R E T A IL E R
S ellin g P rice $ 5 0 .0 0
C o st $ 3 0 .0 0
4 0 % m a r ku p
o n selling
p rice $ 2 0 .0 0
M a rk u p % o n c os t = m a rk u p % on se llin g p rice /(10 0 % – m a rk up % o n s e lling p ric e )
M a rku p % o n co st:
= 1 0 % / (10 0 % - 1 0 % )
= 1 /9
D o lla r M a rku p :
= 1 /9 x $ 2 1.6 0 = $ 2 .4 0
M a rku p % o n co st:
= 2 0 % / (10 0 % - 2 0 % )
= 1 /4
D o lla r M a rku p :
= ¼ x $ 2 4.0 0 = $ 6 .0 0
M a rku p % o n co st:
= 4 0 % / (10 0 % - 4 0 % )
= 2 /3
D o lla r M a rku p :
= 2 /3 x $ 3 0.0 0 = $ 20 .0 0
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
Results of Average-Cost Pricing
A . C a lc u la tio n o f P la n n e d P ro fit
If 4 0 ,0 0 0 Ite m s A re S o ld
C a lc u la tio n o f C o s ts :
Fix ed O verh ead E xp enses
Lab or an d M aterials ($.80 a u nit)
T o tal C o sts
“P lan n ed ” P rofit
T otal C osts and p lann ed p rofit
$30,000
32 ,00 0
$6 2,000
1 8,000
$80 ,0 00
C a lc u la tio n o f p ro fit (o r lo s s ):
A ctu al un it sales X p rice ($2 .0 0 )
M inu s: total costs
P rofit (loss)
$8 0,000
6 2,000
$18,000
B . C a lc u la tio n o f A c tu a l P ro fit if
O n ly 2 0 ,0 0 0 U n its A re S o ld
C a lc u la tio n o f C o s ts :
Fix ed O verh ead E xp enses
Lab or an d M aterials ($.80 a u nit)
T o ta l C o sts
$30 ,00 0
16,0 00
$46 ,00 0
C a lc u la tio n o f p ro fit (o r lo s s ):
A ctu al un it sales X p rice ($2 .0 0 *)
M inu s: total costs
P rofit (loss)
$40 ,0 00
46,0 00
($6,000 )
R e s u lt:
R e s u lt:
P la n ned p ro fit o f $ 18 ,00 0 is ea rn ed if 40 ,00 0
item s a re sold at $ 2.00 ea ch
P la n ned p ro fit o f $ 18 ,00 0 is n ot ea rn ed. In stead ,
$ 6,000 lo ss results if 2 0,000 item s a re sold at
$ 2.00 each .
Cost
Structure ofT otal
a Firm
T otal
A verage A verage
Q u an tity
(Q )
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
F ixed
C osts
(T F C )
$30,000
30,000
30,000
30,000
30,000
30,000
30,000
30,000
30,000
30,000
30,000
F ixed
C osts
(A F C )
-$3.00
1.50
1.00
0.75
0.60
0.50
0.43
0.38
0.33
0.30
V ariable
C osts
(A V C )
-$0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
V ariable
C osts
(T V C )
-$8,000
16,000
24,000
32,000
40,000
48,000
56,000
64,000
72,000
80,000
T otal
C ost
(T C )
$30,000
38,000
46,000
54,000
62,000
70,000
78,000
86,000
94,000
102,000
110,000
A verage
C ost
(A C )
-$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 point—sales
(units or dollars) needed to break even
• Can be modified to incorporate a target
(1 )
Q u a n tity
Q
0
1
2
3
4
5
6
7
8
9
10
Revenue, Cost, and Profit at
Different Prices for a Firm
(2 )
P rice
P
(3 )
T o tal
R even u e
TR
(4 )
T o tal
V a ria ble
C o st
TVC
$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
(5 )
T o tal
C o st
TC
$200
296
316
331
344
355
368
383
423
507
710
(6 )
P ro fit
(T R TC)
$ -2 0 0
-1 5 6
-5 6
+20
+76
+105
+106
+ 79
+ 1
- 129
- 400
(7 )
M a rg in a l
R even u e
MR
$140
120
91
69
40
14
-1 2
-3 8
-4 6
-6 8
(8 )
M a rg in a l
C o st
MC
$96
20
15
13
11
13
15
40
84
203
(9 )
M a rg in a l
P ro fit
(M R -M C )
$+44
+100
+76
+56
+29
+ 1
- 27
- 78
-1 3 0
-2 7 1
Marginal
and(4)Price
(1)
(2)Revenue
(3)
Q u an tity P rice T otal R even u e
Q
P
(1) x (2) = T R
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
M argin al
R even u e
MR
$140
120
91
69
40
14
-12
-38
-46
-68
Cost Structure for Individual
Firm (fill in the missing
numbers)
(1 )
Q u a n tity
Q
(2 )
T o ta l
fix ed
co st
TFC
0
1
2
3
4
5
6
7
8
9
10
$200
200
200
200
200
200
200
______
______
______
______
(3 )
A vera g e
fix ed co st
AFC
(4 )
T o ta l
va ria b le
co st
TVC
(5 )
A vera g e
V a ria b le
C o st
AVC
$0
200
100
______
50
40
______
______
______
______
20
$0
96
116
_______
_______
155
168
183
223
307
510
$0
96
58
______
______
31
______
______
______
______
51
(6 )
T o ta l co st
(7 )
A vera g e
C o st
(T F C + T V C = T C )
(A C = T C /Q )
TC
AC
$200
296
316
331
_______
_______
_______
_______
_______
507
710
Infinity
$296
_______
110.33
_______
71
61.33
_______
_______
56.33
71
(8 )
M a rg in a l
C o st
(p er u n it)
MC
$96
20
_______
_______
11
13
15
_______
_______
203
Cost Structure for Individual
Firm (with missing numbers
filled in)
(1 )
Q u a n tity
Q
(2 )
T o ta l
fix ed
co st
TFC
0
1
2
3
4
5
6
7
8
9
10
$200
200
200
200
200
200
200
200
200
200
200
(3 )
A vera g e
fix ed co st
AFC
(4 )
T o ta l
va ria b le
co st
TVC
(5 )
A vera g e
V a ria b le
C o st
AVC
$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
(6 )
T o ta l co st
(7 )
A vera g e
C o st
(T F C + T V C = T C )
(A C = T C /Q )
TC
AC
$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
(8 )
M a rg in a l
C o st
(p er u n it)
MC
$96
20
15
13
11
13
15
40
84
203
Demand-Oriented Pricing
Approaches
• Evaluating a
Customer’s Price
Sensitivity
• Value-in-use
pricing
• Auctions
– including online
• Reference prices
• Leader pricing
• Psychological
pricing
– odd-even pricing
– price lining
• Demand-backward
pricing
• Prestige pricing
• Full-line pricing
– complementary
Evaluating a Customer’s 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
Examples of Approaches to
Overcome Specific Marketing
Implementation Problems
M ark eting
M ix D ecision
A rea
P ro d u ct
P la ce
P ro m o tio n
P rice
O peration al P roblem
D evelo p d esig n o f a ne w p ro d uct
as rap id ly as p o ssib le w itho ut
erro rs
P retest co nsu m er resp o nse to
d iffere nt versio ns o f a lab el
C o o rd inate in vento ry le vels w ith
m id d le m e n to avo id sto ck -o uts
Q uic kly d istrib ute T V ad to lo cal
statio n s in m a n y d iffere nt m ark ets
A nsw er final co nsu m ers’ q uestio ns
ab o ut ho w to use a p ro d uct
Id entify freq ue nt c usto m ers fo r a
q uantity d isco u nt
F ig ure o ut if p rice sensitivity
im p acts d e m a nd fo r a p ro d uct;
m ake it easier fo r cu sto m ers to
co m p are p rices
Im plem en tation A pproach
U se 3 -D co m p uter sid ed d esign
so ftw are
P rep are sam p le lab els w ith P C
grap hics so ftw are
U se b ar co d e scanner, E D I, and
co m p uterized reo rd er syste m
D istrib ute final vid eo versio n o f
the ad via satellite link
P ut a to ll-free telep ho ne n u m b er
and w eb site ad d ress o n p ro d uct
lab el
C reate a “favo red custo m er” club
w ith a n ID card
S ho w u nit p rices (fo r exa m p le, p er
o z.) o n shelf m arkers; set d ifferen t
p rices in sim ilar m arkets a nd track
sales, inc lud ing sales o f co m p etin g
p ro d ucts
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
improvement—a 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" quality—must
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
Sales Performances (by region)
(1)
R egion s
N ortheastern
S outhern
M idw estern
W estern
T otal
P opu lation
as P ercen t of
U n ited S tates
20
25
35
20
100
(2)
E xpected
D istribu tion of
S ales B ased
on P opu lation
(3)
A ctu al
S ales
$200,000
$210,000
250,000
250,000
350,000
420,000
200,000
120,000
$1,000,000 $1,000,000
(4)
P erform an ce
In dex
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
C ost of sales
G ross M argin
O ther ex penses
S elling ex penses
A dm inistrative ex penses
T otal other ex penses
N et P rofit of (loss)
T otals
D ept. 1
D ept. 2
D ept. 3
$100,000
80,000
20,000
$50,000
45,000
5,000
$30,000
25,000
5,000
$20,000
10,000
10,000
5,000
6,000
11,000
9,000
2,500
3,000
5,500
(500)
1,500
1,800
3,300
1,700
1,000
1,200
2,200
7,800
Profit and Loss Statement by
Department if Department 1
T otals
D ept. 2
D ept. 3
Were Eliminated
S ales
$50,000
$30,000 $20,000
C ost of sales
G ross m argin
O ther ex penses
S elling ex penses
A dm inistrative ex penses
T otal other ex penses
N et profit or (loss)
35,000
15,000
25,000
5,000
10,000
10,000
2,500
6,000
8,500
1,500
3,500
5,100
1,000
2,400
3,400
6,500
(100)
6,600
Contribution-Margin Statement
by Departments
S ales
V ariab le costs:
C ost of sales
Selling expenses
T otal variab le costs
C on trib u tion m argin
F ixed costs and
adm inistrative ex penses
N et p rofit
T otals
D ept. 1
D ept. 2
D ept. 3
$100,000
$50,000
$30,000
$20,000
80,000
5,000
85,000
15,000
45,000
2,500
47,500
2,500
25,000
1,500
26,500
3,500
10,000
1,000
11,000
9,000
6,000
9,000
Planning and Control Chart for
Cindy's Fashions
C o ntrib u tio n to Sto re
J a n ua ry
P lan n ed
O p era ting
P ro fits
C um .
O p era tin g
P ro fit
D ep t. A
D ep t. B
D ep t. C
D ep t. D
T o tal
S to re
E x p en se
2 7 ,0 00
9 ,00 0
4 ,00 0
-1 ,00 0
3 9 ,0 00
2 4 ,0 00
1 5 ,0 00
1 5 ,0 00
2 0 ,0 00
6 ,50 0
2 ,50 0
-1 ,00 0
2 8 ,0 00
2 4 ,0 00
4 ,00 0
1 9 ,0 00
----------- -----------
-----------
----------- ----------
---------
-----------
-----------
A ctu al
V ariation
F eb rua ry
P lan n ed
V ariation
----------N o vem b er
P lan n ed
3 2 ,0 00
7 ,50 0
2 ,50 0
0
4 2 ,0 00
2 4 ,0 00
1 8 ,0 00
1 06 ,50 0
6 3 ,0 00
1 2 ,5 00
4 ,00 0
9 ,00 0
8 8 ,5 00
3 2 ,0 00
5 6 ,5 00
1 63 ,00 0
3 16 ,00 0
7 0 ,0 00
6 9 ,0 00
-4 ,00 0
4 53 ,00 0
2 88 ,00 0
1 63 ,00 0
1 63 ,00 0
V ariation
D ecem b er
P lan n ed
A ctu al
V ariation
T otal
*the o b jective o f m in u s $ 4 ,0 0 0 fo r th is d ep artm e nt w as estab lis hed o n the
sa m e b asis as the o b jectives fo r the o ther d ep artm e nts- that is, it rep resents
the sa m e p erce nta ge ga in o ver last yea r, w he n D ep artm e nt D ’s lo ss w as
$ 4 ,2 0 0 . P la ns call fo r d isco ntin ua nce o f the d ep artm e nt u n less it sho w s
m a rk ed im p ro ve m e nt b y the e nd o f the year.
Example of a Planning and
Control Chart: Cindy’s Fashions Dept. B
D irect E xp en se
C u m u la tive
J a n u a ry
P lanned
A ctual
V ariatio n
F eb ru a ry
P lanned
A ctual
V ariatio n
-----------N o v e m b er
P lanned
A ctual
V ariatio n
D ece m b er
P lanned
A ctual
V ariatio n
T o ta l
P lanned
A ctual
V ariab le
C o n tribu tio n C o n tribu tio n
S a les
G ro ss
P ro fit
T o ta l
F ix ed V a ria b le
6 0 ,00 0
4 6 ,00 0
-1 4 ,0 0 0
1 8 ,00 0
1 6 ,30 0
-1 ,7 0 0
9 ,0 00
8 ,3 00
700
6 ,0 00
6 ,0 00
0
5 0 ,00 0
1 5 ,00 0
8 ,5 00
6 ,0 00
---------- ------------
to S to re
to S to re
3 ,0 00
1 ,1 50
700
9 ,0 00
8 ,0 00
-1 ,0 0 0
9 ,0 00
8 ,0 00
-1 ,0 0 0
2 ,5 00
6 ,5 00
1 5 ,50 0
---------
--------- -----------
-------------
-------------
7 0 ,00 0
2 1 ,00 0
1 3 ,50 0
1 0 ,00 0
3 ,5 00
7 ,5 00
5 7 ,50 0
9 0 ,00 0
2 7 ,00 0
1 4 ,50 0
1 0 ,00 0
4 ,5 00
1 2 ,50 0
7 0 ,00 0
6 0 0 ,0 0 0
1 8 0 ,0 0 0
1 1 0 ,0 0 0
8 0 ,00 0
3 0 ,00 0
7 0 ,00 0
7 0 ,00 0
Marketing Audit
• A systematic, critical, and unbiased
review and appraisal of the basic
objectives and policies of the
marketing function—and 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
P rofit and Loss S tatem ent, O ne M onth
Month
S ales
C ost of sales
G ross M argin
E x penses:
S alaries
R ent
W rapping S upplies
S tationery and S tam ps
O ffice equipm ent
N et profit
$17,000
11,900
5,100
$2,500
500
1,012
50
100
4,162
$ 938
Spreading Natural Accounts to
Functional Accounts
F u n ction al A ccou n ts
N atu ral
A ccou n ts
S alaries
R ent
W rapping
supplies
S tationery
& stam ps
O ffice
equipm ent
T otal
C ost
$2,500
500
S ales
P ackagin g
A dvertisin g
B illin g an d
C ollection
$1,000
$900
400
$300
50
$300
50
25
25
50
$425
50
$425
1,012
1,012
50
100
$4,162
_______
$1,000
_______
$2,312
Basic Data for Cost and Profit
Analysis Example
P ro d u c ts
A
B
C
C o st/U n it
$ 7
35
140
C u s to m e rs
S m ith
Jones
B row n
T otal
S ellin g
P rice/U n it
$ 10
50
200
N u m b er o f
U n its S o ld
in P erio d
1 ,0 00
1 00
10
S a les
V o lu m e
In P erio d
$ 1 0 ,0 0 0
5 ,0 0 0
2 ,0 0 0
1 ,1 10
$ 1 7 ,0 0 0
N um ber of S ales C alls N um ber of O rders
P laced in P eriod
in P eriod
30
40
30
100
30
3
1
34
R ela tive
“ B u lk ”
p er U n it
1
3
6
P a ck a g in g
“ U n its”
1 ,0 00
3 00
60
1 ,3 60
U n its
of A
U n its
of B
900
90
10
1,000
30
30
40
100
U n its
of C
0
3
7
10
Functional Cost Account
Allocations
S ales calls
B illing
P ackaging units costs
$1,000/100 calls
$425/34 orders
$2,312/1,360
packagin g units
=
=
=
A dvertising
$425/10 units of C
=
$10/call
$12.50/order
$1.70/packagin g unit
or
$1.70 for P roduct A
$5.10 for P roduct B
$10.20 for P roduct C
$42.50/unit of C
Profit and Loss Statements for
Customers
Sm ith
Jon es
W h o le
C om p a n y
B row n
S ales
A
B
C
T o tal S ales
$ 9 ,0 00
1 ,5 00
A
B
C
T o t. C o st o f S ales
G ross m arg in
E x penses:
S ales call ($ 10 ea.)
O rd er co sts ($1 2 .5 0 ea.)
P ackagin g C o sts
A
B
C
A d vertisin g
T otal of E x penses
N et profit (or loss)
6 ,30 0
1 ,05 0
$ 90 0
1 ,5 00
60 0
$ 10 ,50 0
$ 10 0
2 ,0 00
1 ,4 00
$ 3 ,0 00
$ 3 ,5 00
$ 17 ,00 0
2 ,45 0
1 ,05 0
1 1 ,9 00
5 ,1 00
9 02 .40
$ 14 7 .6 0
4 .16 2
$ 93 8
C ost of S ales
6 30
1 ,05 0
4 20
7 ,35 0
3 ,15 0
70
1 ,40 0
9 80
2 ,10 0
90 0
3 00
3 75
4 00 .00
37 .50
3 00 .00
12 .50
1 ,53 0
15 3
1 53 .00
1 53 .00
30 .60
1 27 .50
17 .00
2 04 .00
71 .40
2 97 .50
_ __ __
$ 2 .3 58
$ 79 2
9 01 .60
$ (1 .6 0 )
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 classes—how 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
• Preferences for personal contact
Typical Changes in Marketing
Variables over the Product Life
Cycle
• 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
Market Potential and Sales
Forecast
• Market Potential—what a whole
market segment might buy
• Sales Forecast—an 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
N a tio n a l D a ta
(1 )
N A IC S
Code
311
337
327
331
332
333
335
M a jo r
In d u stry
G ro u p
F ood a nd
K indred
P rod ucts
F urniture a nd
F ixtures
S to ne, C la y, and
G lass P rod uc ts
P rim a ry M eta l
Ind ustries
Fab ricated M eta l
P rod ucts
M achinery
(excep t
electrica l)
E lectrica l
M achinery,
E q uip m e nt a nd
S upp lies
(2 )
V a lu e o f B ox
S h ipm en ts
by
E m p lo ym en t
E n d U se
b y In d u stry
($ 00 0 )*
G ro u p
M a rip o sa C o u n ty
(3 )
V a lu e o f
S h ipm en ts
p er
E m p lo yee b y
In d u stry
G ro u p
(4 )
(5 )
(1 divided by 2)
E m p lo ym en t
b y In d u stry
G ro u p
E stim a ted
S a les In
T h is M a rk et
(3 X 4 )
($ 00 0 )
$ 5 8 6,1 64
1 ,5 78 ,3 05
$371
4 ,9 73
$ 1 ,84 5
8 9 ,34 1
3 6 4 ,1 6 6
245
616
151
2 2 6 ,6 2 1
5 4 8 ,0 5 8
413
1 ,6 12
666
1 9 ,61 1
1 ,1 68 ,1 10
16
2 ,8 89
46
1 3 0 ,7 4 3
1 ,0 62 ,0 96
123
2 ,4 22
298
5 8 ,83 4
1 ,4 45 ,5 58
40
5 ,5 68
228
1 1 9 ,8 4 8
1 ,4 05 ,3 82
85
6 ,5 02
TOTAL
553
$ 3 ,78 7
A Spreadsheet Comparing the
Estimated Sales, Costs, and Profits
of Four "Reasonable" Alternative
Marketing Mixes
Marketing
Mix
A
B
C
D
Price
Selling
Cost
Advertising Total
Cost
Units
Sales
Revenue
Total
Cost
Total
Profit
$15
$20,000
$5,000
5,000
$75,000
$70,000
$5,000
$15
$20,000
$20,000
7,000
$105,000
$95,000
$10,000
$20
$30,000
$30,000
7,000
$140,000
$115,000
$25,000
$20
$40,000
$40,000
5,000
$125,000
$125,000
$0
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
C
Price
Selling
Cost
Advertising Total
Cost
Units
Sales
Revenue
Total
Cost
Total
Profit
$19.80
$30,000
$30,000
7,000
$138,600
$115,000
$23,600
$19.90
$30,000
$30,000
7,000
$139,300
$115,000
$24,300
$20.00
$30,000
$30,000
7,000
$140,000
$115,000
$25,300
$20.10
$20.20
$30,000
$30,000
$30,000
$30,000
7,000
7,000
$140,700
$141,400
$115,000
$115,000
$25,700
$26,400
(Note: spreadsheet is based on Marketing Mix C from Exhibit 21-7)
Summary Outline of Different
Sections of Marketing Plan--Part
A
• 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
B
•
•
•
•
Place
Promotion
Price
Special Implementation Problems to Be
Overcome
• Control
• Forecasts and Estimates
• Timing
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 of—or
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 competitors—at 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)
(2)
(3)
(10-pound
bags)
P rice of
Q u an tity
T otal
P oin t
P otatoes
per B ag
(P )
D em an ded
(bags per m on th )
(Q )
R even u e
per M on th
(P x Q = T R )
A
B
C
D
E
$1.60
1.30
1.00
0.70
0.40
8,000,000
9,000,000
11,000,000
14,000,000
19,000,000
$12,800,000
------------11,000,000
-------------------------
Demand Curve for Potatoes (10Price ($ per bag)
$1.60
pound bags)
1.30
1.00
0.70
0.40
0.00
Demand
0
10
20
30
Quantity (millions of bags per month)
Demand Schedule for 1-CubicFoot Microwave Ovens
P oin t
(1)
P rice per
M icrow ave O ven
(P )
(2)
Q u an tity
D em an ded
per Y ear
(Q )
(3)
T otal
R even u e
per Y ear
(P x Q = T R )
A
B
C
D
E
$300
250
200
150
100
20,000
70,000
130,000
210,000
310,000
$6,000,000
15,500,000
26,000,000
31,500,000
31,000,000
Demand Curve for 1-Cubic Foot
AMicrowave Ovens
300
B
250
Price ($)
C
200
Demand
D
150
E
100
50
0
0
50
100
150
200
Quantity (000)
250
300
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
Price ($)
P
0
Relevant
Range
Current
Price Level
Quantity
Demand Curve for Motor Oil (a
product with few substitutes
Consumers buy less often when
price goes above this level
Price ($)
P
0
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
N u m b er o f
(10-pound bags)
B a g s S elle rs
P o in t
P o ssib le
M a rk et P rice
p er 1 0 -lb . B a g
W ill S u p p ly
p er M o n th a t
E a ch P o ssib le
M a rk et P rice
A
B
C
D
E
$ 1 .6 0
1 .3 0
1 .0 0
0 .7 0
0 .4 0
1 7 ,0 0 0 ,0 0 0
1 4 ,0 0 0 ,0 0 0
1 1 ,0 0 0 ,0 0 0
8 ,0 0 0 ,0 0 0
3 ,0 0 0 ,0 0 0
Supply Curve for Potatoes (10Price ($ per bag)
$1.60
pound bags)
Supply
1.30
1.00
0.70
0.40
0.00
0
10
20
30
Quantity (millions of bags per month)
Price ($ per bag)
Equilibrium of Supply and
Demand
for Potatoes
(10-pound bags)
$1.60
Supply
1.30
1.00
Equilibrium point
0.70
0.40
0.00
Demand
0
10
20
30
Quantity (millions of bags per month)
Interaction of Demand and Supply in the
Potato Industry and theFirms
Resulting
(each producing about
Whole Industry
1/10,000 of industry
output)
Demand
Curve Facing Individual
Potato
$1.60
$1.60
Farmers
Supply
1.30
1.00
Equilibrium point
0.70
0.40
Price ($ per bag)
Price ($ per bag)
1.30
1.00
Demand
0.70
0.40
Demand
.00
0.00
0
10
20
Quantity (millions of bags
per month)
30
0
500
1,000
1,500
Quantity (millions of bags
per month)
Oligopoly Situation with Kinked
Demand Curve
A. Industry Situation
B. Each firm’s view of
P
its demand curve
P
Price ($)
Price ($)
Supply
Market
price
Demand
0
Quantity
Q
0
Quantity
Q
(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)
G ross S ales
L ess: R eturns a nd a llow a nces
N et S ales
C ost of sa les:
B e ginning Inve ntory at cost
P urc hases at billed cost
Less: P urc hase d isco unts
P lus fre ight-in
N et cost of de livered p urc hases
C ost of pro d ucts ava ila b le for sa le
L ess: E nd ing inve ntory at cost
C ost of sa les
G ross m argin (gross pro fit)
E xpe nses:
S elling e xpe nses :
S ales salaries
A dvertis ing e xpe nse
D elivery e xpe nse
T otal S e lling e xpe nse
A d m inistrative e xpe nse :
O ffice sala ries
O ffice s upp lies
M iscella neo us ad m inistrative
expense
T otal ad m inis trative e xpe nse
G enera l e xpe nse :
R ent expe nse
M iscella neo us ge nera l e xpe nse
T otal ge nera l e xpe nse
T ota l e xpe nses
N et pro fit fro m ope ratio n
$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
C ost of S ales S ection of an O peratin g S tatem en t for a M an ufactu rin g F irm
C ost of S a les:
F inish ed products
in ven tory (beginn in g)
C ost of production
(S ch edule 1)
T ota l C ost of F inish ed
products a va ila ble for
sa le
L ess: F in ish ed products
in ven tory (beginn in g)
C ost of S a les
S ch edule 1, S ch edule of cost of production
B eginn in g w ork in
process in ventory
R a w m a terials:
B eginn in g ra w m aterials
in ven tory
N et cost of delivered
purcha ses
T ota l cost of m aterials
a va ila ble for use
L ess: E ndin g ra w
m aterials in ventory
C ost of m aterials pla ced
in production
D irect la bor
M an ufa cturin g
expen ses:
In direct L a bor
M a in tenan ce an d repairs
F a ctory S upplies
H ea t, ligh t and pow er
T ota l M an ufa cturin g
expen ses
T ota l M an ufa cturin g
costs
T ota l w ork in process
durin g period
L ess: en din g w ork in
process in ventory
C ost 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)