exam jan 2011 revision

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Exam Jan 2011Exam Jan 2011Revision Revision

Dr. Vesselin Blagoev

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Pricing policyPricing policy Dr. Vesselin Blagoev

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Pricing methodsPricing methods

Cost based

Competition

Marketing

Pricing methods

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Cost based Cost based methodsmethods

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Cost-oriented pricingCost-oriented pricing MarkupMarkup

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

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Average-cost pricingAverage-cost pricing

Average-cost pricing means adding a reasonable markup to the average cost of a product

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BEP pricingBEP 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

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BEP pricingBEP pricingT

otal

rev

enue

and

cos

t (U

SD

000)

Units of production (000)

100

75

50

25

Profit area

Loss area

Total cost curve

Total revenue curve

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BEP pricingBEP pricingLet 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 EuroBEP =

0.40 Euro= 75,000 units

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Competitors Competitors based based

methodsmethods

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Competitor-oriented pricingCompetitor-oriented pricing

Bid pricingBid pricing

Bid pricing means offering a specific price for each possible job rather than setting a price that applies to all customers, i.e. building contractors.

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Expected profit = Profit x Probability of winning

Profit = Bidding price - Costs

Based on past experience about the pricing (bidding) policy of the competitors

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Bid price200021002200230024002500

Profit0

100200300400500

Probability0.990.900.800.400.200.10

Expected0

901601208050

Which bid price do you recommend ?

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Bid price200021002200230024002500

Profit0

100200300400500

Probability0.990.900.800.400.200.10

Expected0

901601208050

The recommended bid price is EUR 2200 – based on the Expected Profit criterion

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Marketing Marketing methodsmethods

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Perception pricingPerception pricing

Weight Characteristics Products

% A B C

25 Durability 40 40 20

30 Reliability 33 33 33

30 Delivery terms 50 25 25

15 Quality of service 45 35 20

100% 41.65 32.65 24.9

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Conditions for charging Conditions for charging high priceshigh prices

Lack of competition Product provides high valueCustomers have high ability to payConsumer and bill payer are differentHigh pressure to buy

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Conditions for charging Conditions for charging low priceslow prices

Only feasible alternativeDominating competitorsMake money laterMake money elsewhereExperience effect (computers)Barrier to entryPredation – an attempt to put other

companies out of business

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Channels of Channels of distributiondistribution

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Direct MarketingDirect Marketing

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

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Direct MarketingDirect MarketingDirect-mail and Catalogue

MarketingTelemarketing (by phone)TV marketinge-commerce (e-shopping)

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Direct-mail MarketingDirect-mail MarketingDirect-mail marketing 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.)

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Direct SellingDirect SellingDirect-mail and Catalogue

Marketing with ORDER FORMTelemarketing (by phone)Television marketinge-commerce (e-shopping) i.e.

www.amazon.com, publibook.com

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Rack JobbersRack JobbersRack jobbers usually 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.

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Cash-and-Carry Cash-and-Carry Cash-and-carry wholesalers are characterized by:

They have a limited line of fast-moving goods

Sell to small retailers for cashNormally 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.

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Drop ShippersDrop ShippersDrop shippers operate in bulk industries such

as coal, lumber, and heavy equipment. They do not carry inventory or handle the

productOnce an order is received, they find a

producer who ships the goods directly to the customer

The drop shippers take the title and the risk from the time the order is accepted to the time the goods are delivered to the customer

Their costs are lower

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Truck JobbersTruck JobbersTruck Jobbers (Truck Wholesalers):

Perform selling and delivery functionsThey 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

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Marketing Marketing communicationscommunications

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Push and Pull StrategiesPush and Pull Strategies

Manufacturer

Wholesaler

Retailer

Consumer Consumer

Retailer

Wholesaler

Manufacturer

Pull Strategy Push Strategy

Pur

e F

orm

Pus

h

Mix

ed F

orm

Pus

h

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Advertising channelsAdvertising channelsA/ Printed D/ Out of Home

–Newspaper - Billboards –Magazine

B/ Electronic E/ Internet/websites–Radio - Banners–Television

C/ Direct Mail F/ Brochures

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Personal sellingPersonal sellingThe 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

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Major Steps in Effective Major Steps in Effective Personal SellingPersonal Selling

Prospecting and qualifying

Presentation anddemonstration

Handlingobjections

Pre-approach

Closing

Approach

Follow-up

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Market Market segmentationsegmentation

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Consumer segmentationConsumer segmentation

Profile Behavioral Psychographic

Demographic

Geographic

Socio-economic Purchaseoccasion

Perceptionsand

beliefs

Usage

Benefitssought

Purchasebehavior Lifestyle

Personality

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