MKT 100 Lecture Notes - Monopolistic Competition, The Home Depot, Marketing Mix

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Published on 19 Nov 2012
Department
Course
Nov 14
MKT 100
Pricing
Price is a signal
Prices can be too low or too high
Low price signals poor quality
Overpriced signals low value (rip off)
Role of price in marketing mix
Price is usually ranked as one of the most important factors in a purchase decision
Price is the only element of the mix that generates revenue
Price needs to
Achieve financial goals of company
Fit environment (will customers buy at that price)
Support product positioning (support price that customers have of product ex: premium brand
would want to have high price)
Price has to be consistent with other marketing mix variables
Types of supply markets
Monopoly: single supplier which controls price, quality and supply ex: LCBO
Oligopoly: one or two major suppliers, with large start-up investments ex: Microsoft, Linux,
MacOS
Monopolistic competition: many suppliers with a variety of products, each of which have a small
market share, which are all perceived differently by consumers (ex:restaurants)
Perfect competition: no differentiation between products so consumers don’t really notice a
difference with the deciding factor often being price (ex: grapes, apples, corn)
Laws of market forces
Demand increases more than supply-price rises
Demand increases less than supply-prices fall
Demand decreases less than supply-prices rise
Demand decreases more than supply-prices fall
Price elasticity
Elastic demand: consumers very price sensitive (price changes will have significant changes in
demand)
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Inelastic demand: consumers not as price sensitive (price changes will not have significant
impact on demand
Price elasticity and demand
Availability of substitutes: the more available substitutes the greater the elasticity
Degree of necessity or luxury: luxury products have higher elasticity than products which are
necessities
Proportion of income: products that represent a higher portion of income of a consumer will be
more elastic
Timing: a one day sale will have different results than a permanent price decrease
Price points: decreasing from $2.00 to $1.99 will have more elasticity than from $1.98 to $1.97
Price sensitivity
Price sensitivity is higher when a product is featured
Price sensitivity is higher when the percent of a person’s income spent on a certain product is
higher (ex: food in developing countries)
Price sensitivity is high when there are more competitors
Price sensitivity is high when there is a recession
Price sensitivity is high when the cost of searching is low (ex: websites that allow consumers to
compare prices)
Factors affecting pricing strategies
Reference pricing
Everyday low pricing
Odd prices
Price quantity relationships
Reference prices
Internal: thinking about previous prices of a product that you are currently viewing
External: real-time external ques that you see when you are considering a purchase (ex: sale
stickers on a “actual” cost tag)
Everyday low pricing
With companies that employ these strategies often do not have sales
They market themselves at having “lower prices daily” (Wal-Mart)
This causes consumers to believe that all products sold at these companies are lower, so people
will buy there
These come in the form of “rollbacks” at Wal-Mart or “special buys” at Home Depot
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