marketing6

Slide #

Scene #

Narration

Slide 1

Scene 1

[Ed, Samantha – Ed’s Office]

Ed and Samantha meet in the morning to discuss the next steps in the tablet PC launch.

Display formula:

Profit = π = (price x demand) – (fixed costs) – (variable costs x demand) = [(price – variable costs)] x demand – (fixed costs), then profits increase as price increases.

Ed-1: Hello, Samantha. How are you this morning?

Samantha-1: I’m doing great, thanks. I saw that you were in Carl’s office earlier. What did he have to say about our progress?

Ed-2: Well, now that we have our strategy for managing the tablet’s product life cycle, he agrees that next we need to examine how we are going to price the new tablet. We also need to start considering the distribution channels and logistics.

Samantha-2: Yes, these are all important issues that need to be addressed prior to launch. Something else to think about is our strategy for distributing the tablet to our target market as our tablet gains in popularity.

Ed-3: Hmm. I assumed that we would use our current distribution channel for the tablet product. Isn’t that what we agreed upon?

Samantha-3: Yes, you’re right. I do recall our discussion on this topic, but we should probably address pricing first.

As you know, pricing provides the company a mechanism of obtaining value back from customers. It is also used as a segmentation tool, as we discussed in previous meetings. We have to understand how customers perceive prices and price changes such as promotions to know how prices will be received and affect demand. Also remember, we are targeting the innovators for the first segment of our tablet launch.

Ed-4: You’re absolutely right. You’ll also recall, then, what occurs in each stage of the product life cycle and how this affects prices.

Pricing typically varies over the course of a product’s life cycle. Willingness to pay varies across segments, so a firm might offer differential prices to those different segments.

The impact of changing price is easier to measure than modifications of the other 4Ps.

Samantha-4: I remember having a discussion about pricing in school. Pricing plays an important role in sending a signal to customers, competitors, and collaborators regarding the positioning and image of the brand.

Ed-5: You’re absolutely correct. Pricing also has a huge impact on profit.

Profit can be defined according to this formula.

(Display formula on screen)

Fixed costs are those costs that are recurring every month, like our mortgage and utility bills. Variable costs are those that vary with the production of our computers, including materials and labor. Understanding these costs is important for Golds Reling.

Samantha-5: What does this mean for the tablet launch?

Ed-6: Based on the profit formula, we will need to forecast demand. One way we can do this is to review the inverse relationship between price and demand.

(Display Demand curve figure)

(Display Demand Scenarios)

(Display Demand Curve figure)

Take a look at this demand curve.

The demand curve is a graph depicting the relationship between the price on the Y axis and quantity demanded on the X axis of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price.

It is a graphic representation of a demand schedule. The demand curve for all consumers together follows from the demand curve of every individual consumer: the individual demands at each price are added together. The red arrows represent movement along the demand curve.

Samantha-6: So, based on the demand theory as shown in the figure, movement along the demand curve typically occurs as price decreases and the demand moves to the right of the graph and increases.

Ed-7: Right. Furthermore, Golds Reling’s profits will increase as fixed or variable costs decrease.

Samantha-7: Ed, if price is a function of demand, how do you propose we set price at the launch of the new tablet?

Ed-8: Samantha, that is a great question. Let me discuss the concept of elasticity or price sensitivity. One way to describe elasticity is this: if a company drops prices on a product, there should be a volume increase, and the question is whether enough additional units will be sold to “stretch” and cover the profits lost due to the price decrease.

Another popular interpretation of elasticity is from a consumer’s point of view: if there is a price drop, or increase, just how much does demand increase or decrease? If demand is barely affected, the demand is inelastic; whereas if demand bounces around, it is elastic.

(Display Demand Scenarios)

This figure shows two demand scenarios. The left plot shows relatively elastic demand. The right scenario shows inelastic demand.

Inelastic demand means that a particular item will be purchased by many even if the prices are raised.

The figure also shows that elasticity is characterized differently depending on the slope of the lines. Elasticity is defined as the proportion change in quantity compared to the proportion change in price.

Samantha-8: I see. Can you tell me how elasticity is determined?

Slide 2

Interaction

Click the tabs to learn more about elasticity.

The equation for determining elasticity is given as:

(Display Equation)

(

)

(

)

1

2

1

1

2

1

1

1

2

1

1

2

P

P

Q

Q

Q

P

P

P

P

Q

Q

Q

E

-

-

=

-

-

=

Note: Elasticity is always computed to be negative.

1. If elasticity, or E, is greater than one, demand is said to be elastic. Price and revenue go in opposite directions. With a price drop, revenues shoot up; with a price increase, revenues fall off.

2. If zero is less than or equal to elasticity and less than or equal to one then demand is inelastic. Revenue follows price in the same direction. If price goes up, revenue goes up; if price goes down, so do revenues.

3. If elasticity is equal to one, demand is said to be “unitary”. Price goes up or down, but revenues remain about the same.

Ed narrates:

Ed-9: Click the tabs to learn more about elasticity.

Ed-9_Tab A: If elasticity, or E, is greater than one, demand is said to be elastic. Price and revenue go in opposite directions. With a price drop, revenues shoot up; with a price increase, revenues fall off.

Ed-9_Tab B: If zero is less than or equal to elasticity and less than or equal to one, then demand is inelastic. Revenue follows price in the same direction. If price goes up, revenue goes up; if price goes down, so do revenues.

Ed-9_Tab C: If elasticity is equal to one, demand is said to be “unitary”. Price goes up or down, but revenues remain about the same.

Slide 3

Scene 1, cont.

[Ed, Samantha – Ed’s Office]

Samantha-9: So, based on the elasticity formula, Golds Reling has to set prices for the new tablet to the innovators and early adopters assuming inelasticity demand. In other words, we have to build a lot of value and promote the quality of our new tablets so that price is not a primary issue.

Ed-10: Exactly right!

Samantha-10: Thanks, Ed. Your pricing and demand formula makes sense to me. Now, let’s put our data together to share with Carl.

Ed-11: Sounds like a plan!

Slide 4

Scene 2

[Ed, Samantha, Carl – Conference Room]

Ed and Samantha meet with Carl in the conference room to share the next steps for the tablet launch covering pricing and distribution.

(Show as breakeven point graphic)

Ed-1: Hello, Carl. Hope you had a good lunch. We have a lot to share with you regarding the product pricing and distribution of our new tablet.

Carl-1: Yes, I had a great lunch, pasta and meatballs at a new Italian restaurant up the street. What do you have for me, Ed and Samantha?

Ed-2: Well, our thoughts are that no matter how well Golds Reling thinks it knows a marketing system, we are still dealing with human beings. Even if the purchase seems simple, there are seemingly endless factors that contribute to consumers’ decisions. Pricing is obviously one of these factors. Much of our pricing formula is derived from economics, and it’s sort of complicated.

Samantha-1: We feel first and foremost that a competitive price needs to be established, and of course, we also determined the breakeven point for our new tablet. A Golds Reling product price is often associated with quality. Counter to the anticipated economic effect of higher prices causing a decrease in demand, for some products and services, higher prices can actually make a purchase seem more appealing.

Ed-3: For some purchases, like our new Tablet, customers will use price as a cue to quality, implicitly reasoning that our new Tablet brand can command a high price because its quality is so good. So, we have decided to start out with a fifteen hundred dollar suggested manufacturer price, and then allow our retailers to offer rebates and use the loyalty programs already in place for the purchase of the new Tablet.

(Ed points to breakeven point graphic)

Based on our company strategy of market skimming, a high price of fifteen hundred minus rebate is set because we are seeking profit margin, not volume. We feel that the customers who will buy our brand at a high price are the ones who really want it - the innovators and early adopters we discussed in previous meetings. There are a lot of these types of consumers in our domestic and international markets.

Samantha-2: So, based on our plan, during and after our launch we will incentivize our retailers and distributors with money bonuses, discounts, and training to get our retailers and distributors excited about the new tablet.

As our marketing channels proliferate, increasing care must be taken to coordinate and integrate across their efforts, data, and customer touchpoints, and so forth.

We are trying to understand customer behavior, to see what marketing channel attributes are important, and what impacts customer choices. We are also trying to be strategic, considering how an additional channel and the increased use of our e-commerce efforts will impact sales and profits, and therefore, how to allocate resources across channel options.

Ed-4: Remember, our marketing channels are supposed to make access easier for customers so that we can focus on the customer buying behavior for our products. Channel design is an integral part of marketing strategy and positioning, and it needs to be consistent with all the other marketing elements. The extensiveness of our distribution channels is also related to the brand’s life cycle and Golds Reling’s reputation and maturity in the marketplace.

Furthermore, we have to decide whether the channel design allows a push or pull strategy.

Carl-2: You’re right. Tell me, what information have you gathered around which strategy would be best for Golds Reling?

Slide 5

Interaction

Click the images to learn more about push / pull marketing strategies.

In a pull marketing strategy, Golds Reling can temporarily reduce pricing, or enhance size or quantity. The company can offer trials or free samples, coupons or rebates, financing, and points toward rewards in loyalty programs. The company still must manage its relations with distributors and retailers, but pull strategies are targeted to the end-user, to engage the consumers’ awareness and loyalty.

Push marketing strategies would involve Golds Reling offering incentives to distributors to sell product to end-users. While the manufacturer targets the channel member rather than the consumer, push marketing tools resemble those of pull. For example, the company can offer its distributor or retailer temporarily reduced pricing, an allowance to help cover marketing activities, a discount for purchasing larger quantities, financing a payment for several months, and so on.

Ed-5: Click the images to learn more about push / pull marketing strategies.

Ed-5_A: In a pull marketing strategy, Golds Reling can temporarily reduce pricing, or enhance size or quantity. The company can offer trials or free samples, coupons or rebates, financing, and points toward rewards in loyalty programs. The company still must manage its relations with distributors and retailers, but pull strategies are targeted to the end-user, to engage the consumers’ awareness and loyalty.

Ed-5_B: Push marketing strategies would involve Golds Reling offering incentives to distributors to sell product to end-users. While the manufacturer targets the channel member rather than the consumer, push marketing tools resemble those of pull. For example, the company can offer its distributor or retailer temporarily reduced pricing, an allowance to help cover marketing activities, a discount for purchasing larger quantities, financing a payment for several months, and so on.

Slide 6

Scene 2, cont.

[Ed, Samantha, Carl – Conference Room]

Ed-6: I also have a short video here that explains more about push / pull marketing.

Slide 7

Push vs. Pull Marketing | Katie Wagner Social Media

http://www.youtube.com/watch?v=w6rBBVuXEPw&feature=youtu.be

Slide 8

Scene 2, cont.

[Ed, Samantha, Carl – Conference Room]

Carl-3: Thanks, Ed. Which strategy did you and Samantha decide Golds Reling should use for our tablets?

Ed-7: We will adopt the push strategy. Golds Reling will offer incentives to our distributors to sell our products to the end-users during the initial launch of our Tablets. We will support our top-tier distributors with pre-launch quantity discounts when they order, along with point-of-purchase displays that will be used to display our Tablets in the retail stores.

MKT500_6_2_Samantha-3: Ultimately, we believe that our current distribution channels are well designed, and our partners are happy. However, this is an important launch and the first Tablet introduction for Golds Reling so we have to be careful to monitor the distribution channels throughout the launch.

Carl-4: The pricing and distribution strategies that you two have come up with are very impressive. Golds Reling is in good hands with the both of you in charge of this launch. I’m eager to see your plans for the next steps of advertising and promotions. Good work!

Slide 9

Check Your Understanding

ChanC Channel design is an integral part of all of the following EXCEPT:

a.

marketing

b.

strategy

c.

positioning

d.

pricing

Incorrect answer A: Marketing is a big part of channel design, and therefore should be included in selecting a channel member.

Incorrect answer B. Strategy plays a huge role in how the channel is designed and where the producer will use intensive or exclusive distribution strategy.

Incorrect answer C: Position is a consideration for designing the channel, as highly positioned products may require exclusive distribution and low price. Lower quality products usually require intensive distribution.

Correct answer D: Pricing is not a decision point for designing a channel, but relates to the product.

Slide 10

Scene 3

[Ed, Samantha – Hallway]

Samantha-1: Everything seems to be coming along very well. We’ve set a price using the pricing and demand formulas with consideration for our target market of the innovators and early adopters. We’ve also determined our distribution channels, a vital part of our marketing strategy.

Ed-1: Yes. Next we’ll need to examine advertising for our tablet. However, for now, you can complete the e-Activity and the weekly threaded discussion, where we can discuss pricing and distribution channels further. See you next week!