CH 20-21
Friday's class was another extremely informative, and sometimes confusing, class. As I said in my last blog, I really enjoy the structure of this course, but at the same time, I sometimes feel like it is so much information at once. I can't think of a muddiest point from this class, which is really good! I'm super excited to get into the BZBox Shark Tank video because that is my product that I am going to be doing my presentation on!
In Friday's class we talked about the stages in product life cycle (370), the three price strategies (378) and the differences between margin business and volume business.
The first stage in the product life cycle is the introductory stage. During this stage, management sets high prices (hoping to recover its development costs quickly), and demand only originates from the customers who directly need the product or service (and therefore, is inelastic). The next stage is the growth stage, which is where prices stabilize for multiple reasons (competitors have finally entered the market, the product is beginning to appeal to a broader market, instead of just to the people who directly need it, and the economies of scale are lowering costs). The next stage in the cycle is the maturity stage. During this stage, the price further decreases and competition increases and high cost firms are eliminated. Also, distribution becomes a high cost factor, and dealers necessarily absorb high-volume production. The last stage is the decline stage. This is the final stage in the Product Life Cycle, and is when prices continue to decrease and the few remaining competitors fight for the market. When there's only one competitor left, that is when the prices will begin to stabilize, and possibly increase.
According to the book, there are three price strategies; price skimming, penetration pricing, and status quo pricing. Price skimming is when a firm charges a high introductory price, coupled with heavy promotion(s). Penetration pricing is when a firm charges a low introductory price as a way to reach the mass market. Status quo pricing is when a firm charges a price identical or very close to the competitors price. Every time we watch a shark tank video, I feel like I'm going to try and figure out which price strategy they are going to use!
Another concept that we talked about in class that found to be interesting was the differences between margin business and volume difference. First of all, an example of a margin business is Apple, and an example of a volume business is Walmart. One difference between the two is that a margin business has a few units for a bigger price, while a volume business has a lot of units for a smaller price. Another difference is that a margin business has a differentiation cost competitive advantage, while a volume business has a cost competitive advantage. Another difference between the two is that margin business focuses on target markets and brand equity, while volume businesses don't focus on those points as much.
A few concepts that we didn't talk about in class are the multiple different discounts (383), unfair trade practice acts (380), and joint costs (391).
According to the book, there are seven different discounts/allowances in the marketing world. The first one is a quantity discount, where buyers get a lower price when they buy multiple units or paying above a specified dollar amount. In addition to this discount, there are two more sub-discounts which are cumulative discounts and noncumulative discounts. A good example of this discount can be shown by looking at Bath and Body works, because they always have discounts such as "buy three, get three". The next discount is a cash discount, which is when there is a price deduction is offered in return for prompt payment of a bill. The next discount is a functional discount which is when distribution channel intermediaries perform a service for the manufacturer and must be compensated. This discount is usually called a functional discount, or trade discount. The next discount is a seasonal discount which is a price reduction for buying merchandise out of season. An example of this discount could be buying summer clothes in winter time. The next discount is a promotional allowance, which is a payment to a dealer for promoting their products. This is also known as a trade allowance. The next discount is a rebate, which is a cash refund given for the purchase of a product during a specific period. The last discount is a zero percent financing discount, which allows consumers to borrow money to pay for a product with no interest. A good example of this discount is consumers buying from a car dealership.
Another topic we didn't talk about in class, but I found to be interesting was unfair trade practice acts, which are selling below the cost. Unfair trade practices were put in places to protect small, local firms from giants like Walmart, because small businesses can't operate on "razor thin profile margins", like Walmart can. The most commonly used markup figures used are six percent at retail level and two percent at the wholesale level. The only way a wholesaler or retailer can lower prices is if they can provide conclusive proof that the operating costs are lower than the minimum required figure. Fascinating stuff.
Another topic we didn't talk about, but that I thought was important was joint costs. Joint costs are costs that're shared in the marketing and manufacturing of multiple products in a certain product lines, and usually pose a problem in product pricing. In the book, there was a great example of joint costs and how joint costs have several affects, making it a lot easier to understand than a simple definition.
The first stage in the product life cycle is the introductory stage. During this stage, management sets high prices (hoping to recover its development costs quickly), and demand only originates from the customers who directly need the product or service (and therefore, is inelastic). The next stage is the growth stage, which is where prices stabilize for multiple reasons (competitors have finally entered the market, the product is beginning to appeal to a broader market, instead of just to the people who directly need it, and the economies of scale are lowering costs). The next stage in the cycle is the maturity stage. During this stage, the price further decreases and competition increases and high cost firms are eliminated. Also, distribution becomes a high cost factor, and dealers necessarily absorb high-volume production. The last stage is the decline stage. This is the final stage in the Product Life Cycle, and is when prices continue to decrease and the few remaining competitors fight for the market. When there's only one competitor left, that is when the prices will begin to stabilize, and possibly increase.
According to the book, there are three price strategies; price skimming, penetration pricing, and status quo pricing. Price skimming is when a firm charges a high introductory price, coupled with heavy promotion(s). Penetration pricing is when a firm charges a low introductory price as a way to reach the mass market. Status quo pricing is when a firm charges a price identical or very close to the competitors price. Every time we watch a shark tank video, I feel like I'm going to try and figure out which price strategy they are going to use!
Another concept that we talked about in class that found to be interesting was the differences between margin business and volume difference. First of all, an example of a margin business is Apple, and an example of a volume business is Walmart. One difference between the two is that a margin business has a few units for a bigger price, while a volume business has a lot of units for a smaller price. Another difference is that a margin business has a differentiation cost competitive advantage, while a volume business has a cost competitive advantage. Another difference between the two is that margin business focuses on target markets and brand equity, while volume businesses don't focus on those points as much.
A few concepts that we didn't talk about in class are the multiple different discounts (383), unfair trade practice acts (380), and joint costs (391).
According to the book, there are seven different discounts/allowances in the marketing world. The first one is a quantity discount, where buyers get a lower price when they buy multiple units or paying above a specified dollar amount. In addition to this discount, there are two more sub-discounts which are cumulative discounts and noncumulative discounts. A good example of this discount can be shown by looking at Bath and Body works, because they always have discounts such as "buy three, get three". The next discount is a cash discount, which is when there is a price deduction is offered in return for prompt payment of a bill. The next discount is a functional discount which is when distribution channel intermediaries perform a service for the manufacturer and must be compensated. This discount is usually called a functional discount, or trade discount. The next discount is a seasonal discount which is a price reduction for buying merchandise out of season. An example of this discount could be buying summer clothes in winter time. The next discount is a promotional allowance, which is a payment to a dealer for promoting their products. This is also known as a trade allowance. The next discount is a rebate, which is a cash refund given for the purchase of a product during a specific period. The last discount is a zero percent financing discount, which allows consumers to borrow money to pay for a product with no interest. A good example of this discount is consumers buying from a car dealership.
Another topic we didn't talk about in class, but I found to be interesting was unfair trade practice acts, which are selling below the cost. Unfair trade practices were put in places to protect small, local firms from giants like Walmart, because small businesses can't operate on "razor thin profile margins", like Walmart can. The most commonly used markup figures used are six percent at retail level and two percent at the wholesale level. The only way a wholesaler or retailer can lower prices is if they can provide conclusive proof that the operating costs are lower than the minimum required figure. Fascinating stuff.
Another topic we didn't talk about, but that I thought was important was joint costs. Joint costs are costs that're shared in the marketing and manufacturing of multiple products in a certain product lines, and usually pose a problem in product pricing. In the book, there was a great example of joint costs and how joint costs have several affects, making it a lot easier to understand than a simple definition.
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