Exam Jan 2011 Revision

1. Exam Jan 2011Revision Dr. VesselinBlagoev

2. Pricing policy Dr. VesselinBlagoev

3. Pricing methods Cost based Marketing Pricing methods Competition

4. Cost based methods

5. Cost-oriented pricing Markup The Markup is a money amount (EUR, $, BGN), or percent, added to the cost of products to get the selling price Example: Cost 1 Euro + 0.50 Euro markup = 1.50 Euro

6. Average-cost pricing • Average-cost pricingmeans adding a reasonable markup to the average cost of a product

7. BEP pricing • Break-even point represents the quantity where the firm’s total cost will just equal its total revenue Total fixed costs BEP (units) = Fixed cost contribution per unit

8. BEP pricing Total revenue curve 100 75 50 25 Total revenue and cost (USD000) Totalcost curve Profit area Loss area Units of production (000)

9. BEP pricing Let us take an example: Let the price of product A = 1.2 Euro Let the total fixed cost is 30,000 Euro. Let the variable cost is 0.80 Euro. Then the fixed cost of that product is (1.2 – 0.8) = 0.4 Euro per unit. 30,000 Euro BEP= = 75,000 units 0.40 Euro

10. Competitors based methods

11. Competitor-oriented pricingBid pricing • Bid pricingmeans offering a specific price for each possible job rather than setting a price that applies to all customers, i.e. building contractors.

12. Competitor-oriented pricingBid pricing Expected profit = Profit x Probability of winning Profit = Bidding price - Costs Based on past experience about the pricing (bidding) policy of the competitors

13. Competitor-oriented pricingBid pricing Bid price 2000 2100 2200 2300 2400 2500 Profit 0 100 200 300 400 500 Probability 0.99 0.90 0.80 0.40 0.20 0.10 Expected 0 90 160 120 80 50 Which bid price do you recommend ?

14. Competitor-oriented pricingBid pricing Expected 0 90 160 120 80 50 Bid price 2000 2100 2200 2300 2400 2500 Profit 0 100 200 300 400 500 Probability 0.99 0.90 0.80 0.40 0.20 0.10 The recommended bid price is EUR 2200 – based on the Expected Profit criterion

15. Marketing methods

16. Perception pricing

17. Conditions for charging high prices • Lack of competition • Product provides high value • Customers have high ability to pay • Consumer and bill payer are different • High pressure to buy

18. Conditions for charging low prices • Only feasible alternative • Dominating competitors • Make money later • Make money elsewhere • Experience effect(computers) • Barrier to entry • Predation – an attempt to put other companies out of business

19. Channels of distribution

20. Direct Marketing Marketing through various advertising media that interact directly with the consumers, generally calling for the buyer to make a direct response

21. Direct Marketing • Direct-mailandCatalogue Marketing • Telemarketing(by phone) • TV marketing • e-commerce(e-shopping)

22. Direct-mail Marketing Direct-mailmarketing involves single mailings that include letters, ads, samples, foldouts, and other sent to prospects on mailing lists. Mailing lists are developed from customer lists or obtained from mailing list companies, which provide names of people fitting different descriptions (heavy users, veterinarians, etc.)

23. Direct Selling • Direct-mailandCatalogue Marketingwith ORDER FORM • Telemarketing(by phone) • Television marketing • e-commerce(e-shopping) i.e. www.amazon.com, publibook.com

24. Rack Jobbers Rack jobbersusually serve drug and grocery retailers, mostly in the nonfood sector. They send delivery trucks to stores and the delivery person sets up racks of newspapers and magazines, toys, sunglasses, hardware items, health and beauty aids, and other. They price the goods, keep them fresh, and bill the retailers for the sold items only.

25. Cash-and-Carry Cash-and-carry wholesalers are characterized by: • They have a limited line of fast-moving goods • Sell to small retailers for cash • Normally they do not deliver Example: A small fish store buys several crates of fish from a cash-end-carry wholesaler and pays at the spot.

26. Drop Shippers • Drop shippers operate in bulk industries such as coal, lumber, and heavy equipment. • They do not carry inventoryor handle the product • Once an order is received, they find a producerwho ships the goods directly to the customer • The drop shipperstake the titleand the risk from the time the order is accepted to the time the goods are delivered to the customer • Their costs are lower

27. Truck Jobbers Truck Jobbers (Truck Wholesalers): • Perform selling and delivery functions • They carry a limited line of products (milk, bread, wines, snack foods) • They sell for cash as they make their rounds to small retailers, supermarkets, restaurants, hospitals, factory cafe, hotels

28. Marketing communications

29. Push and Pull Strategies Pull Strategy Push Strategy Manufacturer Manufacturer Wholesaler Wholesaler Mixed Form Push Pure Form Push Retailer Retailer Consumer Consumer

30. Advertising channels A/ PrintedD/ Out of Home • Newspaper - Billboards • Magazine B/ Electronic E/ Internet/websites • Radio - Banners • Television C/ Direct Mail F/ Brochures

31. Personal selling The work done by salesperson at different positions: • Deliver the product, such as bread, milk • Inside order taker – department store salesperson standing behind the counter • Outside order taker – in the packing room • Building goodwill or educating customers – calling doctors on behalf of a pharmaceutical company • Technical knowledge – consulting the client • Creative sale of tangible products – houses, encyclopedia, or intangibles – insurance, or education

32. Major Steps in Effective Personal Selling Prospecting and qualifying Pre-approach Approach Presentation and demonstration Handling objections Closing Follow-up

33. Market segmentation

34. Consumer segmentation Profile Behavioral Psychographic Demographic Benefits sought Purchase behavior Lifestyle Socio-economic Usage Purchase occasion Personality Geographic Perceptions and beliefs