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Marketing, Pricing, & Merchandising > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

What are the 5 different pricing approaches?

A
  1. Marginal Revenue = Marginal Cost
  2. Cost Based
  3. Customer Driven
  4. Competitor Driven
  5. Value Based
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2
Q

Cost Based Pricing (examples and process)

A
  • Cost-plus (mark-up) pricing
  • ROI pricing
  • Product > cost > price > value > customers
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3
Q

5 Kinds of Customer-Driven Pricing (PEATY):

A
  1. Auction
    * Think eBay
  2. Target
    * First determine price, then a product to sell at that price.
  3. Elasticity
    * Charge more to those whose demand is inelastic, charge less to those whose demand is elastic.
  4. Price Skimming
    * charge high prices to “early adopters”
  5. Yield Management
    * Charging different prices for the same thing to customers (think airlines)
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4
Q

Competitor Driven Pricing:

A

What are competitors charging?
* Price is set to strengthen/maintain market share
* Bayesian Pricing

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5
Q

Value-Based Pricing:

A
  1. Start with the CUSTOMER
  2. Find what gives them VALUE
  3. Determine our COST
  4. Provide a PRODUCT that delivers that value
    * Conjoint Pricing
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6
Q

Mixing Market (4 P’s)

A
  1. Product: creates value
  2. Place: creates value
  3. Promotion: communicates value
  4. Price: captures value, easiest to manipulate (often neglected)
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7
Q

What is a parallel market?

A

The price difference between 2 markets is greater than the cost of transportation.
Ex: Levi Jeans $100 in Russia; $40 in USA

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8
Q

Full-Cost Pricing:

A

no unit of a similar product is different from any other unit in terms of cost, which must bear its full share of the total fixed and variable cost.

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9
Q

Variable-Cost Pricing:

A

firms regard foreign sales as bonus sales and assume that any return over their variable cost contributes to net profit

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10
Q

Skimming Pricing:

A

This is used to reach a segment of the market that is relatively price insensitive and thus willing to pay a premium price for a product

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11
Q

Penetration Pricing:

A

This is used to stimulate market growth and capture market share by deliberately offering products at low prices

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12
Q

What is price escalation?

A

the added costs incurred as a result of exporting products from one country to another.

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13
Q

What are the factors of price escalation?

A

Costs of exporting, taxes, tariffs, administrative costs, inflation, middleman and transportation costs, exchange rate fluctuations, varying currency values.

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14
Q

What are 2 definitions of dumping?

A
  1. The products are sold in the foreign country below their cost of production.
  2. Selling goods in a foreign market below the price of the same goods in the home market.
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15
Q

What are the 4 distinct transactions in countertrade?

A
  1. Barter
  2. Compensation deals
  3. Counter-purchase/off-set trade
  4. Buy-back
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16
Q

Barter:

A

The direct exchange of goods between two parties in a transaction.

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17
Q

Compensation deals:

A

The payment is in goods and in cash.

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18
Q

Counter-purchase or off-set trade:

A

The seller agrees to sell a product at a set price to a buyer and receives payment in cash and may also buy goods from the buyer for the total monetary amount involved in the first contract or for a set percentage of that amount, which will be marketed by the seller in its home market.

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19
Q

Buy-back:

A

When the seller agrees to accept a certain portion of the output that is produced as partial payment.

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20
Q

Sherman Act (1890):

A

Governs antitrust policy and law

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21
Q

Clayton Act (1914):

A

forbids specific trade practices focused on tying, bundling, and price discrimination

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22
Q

Robinson Patman Act (1936) increased focus on price discrimination and forbade what 2 things?

A
  1. Elective rebates
  2. Retailers soliciting lower prices from manufacturers IF it resulted in PD
23
Q

4 Bullet Points for Price Discrimination (CILL):

A
  1. Commodities of like grade and quality
  2. In commerce
  3. Levels of competition
  4. Legal defenses for price discrimination
24
Q

What is predatory pricing?

A

Prices are set so low that a firm harms its own profitability with the end goal of doing greater harm to its competitor(s).

25
Q

What did Marriot use conjoint analysis for?

A
  1. To cater to business travelers who have no need for many features offered at upscale hotels.
  2. Get recommendations (external, rooms, lounges, services, leisure, etc.)
    * Very successful
26
Q

3 Steps of Conjoint (CEM):

A
  1. Collecting trade-offs
  2. Estimating buyer value systems
  3. Making choice predictions
27
Q

5 conjoint guidelines for attribute levels (LLDBM):

A
  1. Levels are assumed to be mutually exclusive
  2. Levels should have concrete/unambiguous meaning
  3. Don’t include too many levels for any one attribute (3-5)
  4. Balance the number of levels across attributes
  5. Make sure levels from your attributes can combine freely with one another without resulting in utterly impossible combinations
28
Q

What is the “Number of Levels” effect in conjoint?

A

Holding all else constant, attributes defined on more levels than others will be biased upwards in importance.

29
Q

What type of data can the “Number of Levels” effect apply to?

A

Quantitative
* (e.g. price, speed)
Categorical
* (e.g. brand, color)

30
Q

Full-Profile Conjoint: 3 things

A
  • Shows all attributes at the same time
  • More realistic
  • Need to limit the study to a few attributes
31
Q

Self-Explicated (ACA) Conjoint: 4 things

A
  • Allows you to study more attributes
  • Shows only a few attributes at a time (partial profile)
  • Can measure many attributes without wearing out the respondent
  • Has to be computerized
32
Q

Choice-Based Conjoint: 4 Points

A
  • Shown a set of cards and asked which one they would buy (or None)
  • Mimics what buyers do in the real world
  • Requires larger sample sizes
  • More complex analysis so respondents can process fewer attributes
33
Q

5 Steps for Creating Conjoint Simulators in Excel: (CHMCC)

A
  1. Create the drop-down options using data validation
  2. HLookUps
  3. Max
  4. Choice (Match)
  5. Creating the reporting part (market share, profit, etc)
34
Q

In the Excel simulator, we multiply the ________ scores by the trade-off scores to arrive at the ______ scores which we then add up in the simulators to figure out market share estimates.

A

Preference
Adjusted

35
Q

8 Steps in the Merchandise Management Process: (DVIIEIIM)

A
  1. Dollar-Merchandise Planning & Control
  2. Vendor Contract
  3. Item Negotiation & Inventory Purchase
  4. Item & PO Creation
  5. Everyday (shelf space) & Special Buy (display)
  6. Inventory Replenish & In-Store Handling
  7. Item/Line Review
  8. Markdown
36
Q

Gross margin return on inventory (GMROI):

A
  • A model used to analyze inventory performance
  • = gross margin divided by average inventory at cost
  • Or, = gross margin % multiplied by net sales divided by average inventory investment.
37
Q

Four Methods for Planning Dollars Invested in Merchandise:

A
  1. Basic Stock
  2. Percentage Variation
  3. Weeks’ Supply
  4. Stock-to-Sales-Ratio
38
Q

Basic Stock:

A

Maintain a base level of inventory at all times + a variable amount depending on expected sales.

39
Q

Percentage Variation:

A
  • Assumes the percentage fluctuations in monthly stock from average stock should be half as great as % fluctuations in monthly sales from average sales.
  • Used when high annual inventory turnover is present
40
Q

Weeks’ supply

A

Inventory level should be set equal to a predetermined number of weeks’ supply, which is directly related to the desired rate of stock turnover.

41
Q

Stock-to-Sales-Ratio:

A
  • The amount of inventory planned for the beginning of the month is a ratio of stock-to-sales
  • Ratio is obtained from trade associations or the retailer’s historical records
42
Q

6 Steps in “Using the Item File to Manage Inventory” (DDDDRO):

A
  1. Determine which categories/subcategories the item will be assigned to.
    * The item’s performance will be linked to that category.
  2. Decide how many items to create in the system.
    * Track it by shirt style, size, or color?
  3. Decide if there are any existing items that the new item should be linked to.
    * If they are the same or very similar.
  4. Display the item every day on the shelf or as a special display on the endcap.
    * This decision will affect other items that need to be cleared/moved.
  5. Replenish basic stock items by using a forecast based on the history of a similar item.
  6. Occasional replenishment of special buys.
43
Q

What are the five common conflicts in stock planning?

A
  1. Maintaining a strong in-stock position on genuinely new items while trying to avoid the 90 percent of new products that fail in the introductory stage.
  2. Maintain an adequate stock of the basic popular items while having sufficient inventory dollars to capitalize on unforeseen opportunities.
  3. Maintain high inventory-turnover goals while maintaining high gross-margin goals
  4. Maintain adequate selection for customers while not confusing them.
  5. Maintain space productivity and utilization while not congesting the store.
44
Q

Vendor Profitability Analysis Statements provide a record of what 6 things?

A
  1. all the purchases you made last year
  2. the discount granted you by the vendor
  3. transportation charges paid
  4. the original markup
  5. markdowns
  6. and the season-ending gross margin on that vendor’s merchandise.
45
Q

What 2 things does the vendor analysis provide in addition to VPA?

A
  1. a three-year financial summary
  2. The names, titles, and negotiating points of the entire vendor’s sales staff.
46
Q

Trade (Functional) Discounts

A

A form of compensation that the buyer may receive for performing certain wholesaling or retailing services for the manufacturer.

47
Q

Quantity Discounts

A

A price reduction is offered as an inducement to purchase large quantities of merchandise.

48
Q

Trade (Functional) Discounts

A

A form of compensation that the buyer may receive for performing certain wholesaling or retailing services for the manufacturer.

49
Q

Promotional Discounts

A

A discount is provided for the retailer performing an advertising or promotional service for the manufacturer.

50
Q

Seasonal Discounts

A

a discount provided to retailers if they purchase and take delivery of merchandise in the off-season.

51
Q

Cash Discounts

A

A discount offered to the retailer for the prompt payment of bills.

52
Q

Free on-board factory

A

The buyer assumes title at the factory and pays all transportation costs from the vendor’s factory.

53
Q

Free on-board shipping point

A

the buyer assumes title to the goods at the factory and pays all transportation costs from the vendor’s factory.

54
Q

Free on-board destination

A

The vendor pays for transportation to a local shipping point where the buyer assumes title and then pays all further transportation costs.

Marketing, Pricing, & Merchandising (2 decks)

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