17. Determining Profit 1,000 baseball bats sold $175 each Subtract the cost of goods sold and the company’s expenses from the money it generated in sales revenue. $175,000 revenue = - $90,000 to purchase the bats $90 each - $60,000 in business expenses = $25,000 Profit
Nike’s Air Flight Lite basketball shoe is a product item; all Nike shoes would be called a product line.
Goods can be used for both consumer and business goods. If shoe is purchased at Foot Locker; it is considered a consumer good. (promoting on TV & sporting events) However, if Foot Locker purchases shoes from Nike it is considered a business good. (discounts for volume purchases) Example a new body Speedo suit worn by Michael Phelps in setting Olympic milestones.
Idea generation: feedback from consumers, employees, research/development, competitors—New Balance/Nike child shoe. Screening/Evaluation: Focus groups. How to get consumer acceptance of an unproven product.
Business analysis: Financial aspects, marketing. What is needed to take product to market. Legal factors, copyright, patent. Development: Prototype (first model) development. Testing. Can it be produced at a reasonable cost? Standards of quality and safety. Test marketing: Sell in small geographic area. All aspects tested of marketing mix (produce, place, price, promotion) Commercialization: Full scale promotion. Regional rollout.
Gatorade example
Gatorade, then Powerade.
Product modification: Changing characteristics. Features, appearance, packaging, design, quality. Different Gatorade ex. Market modification: Find new customers. Repositioning: Ex. New Balance redesigned shoe for older people with wider feet and foot problems. Promoted to Podiatrists.
Quick Check Answers The steps are 1) SWOT analysis, 2) idea generation, 3) screening and evaluation, 4) business analysis, 5) development, 6) test marketing, and 7) commercialization. introduction, growth, maturity, and decline Modify the product; market the product; and reposition the product.
Barter: trading goods or services for someone else’s goods.
Prestige pricing: based on consumer perception. Expensive items priced above average market price to attract customers who judge a product’s quality by the price. Odd-even pricing: related to consumer perception. Ex. $25.99 reflects a bargain. $100 reflect quality. Expensive goods are often priced with even amounts. Target pricing: based on what consumer is willing to pay. Manufactures estimate a target price and then work backwards at determining wholesalers and retailers.
Demand: Granite countertop example. Yearbook example. Elastic demand: a change in price will effect demand. Inelastic demand: product is a necessity. No substitutes. OJ example, gas. Newness of product: pricing a new item high is called skimming. Pricing below competition is called penetration pricing.
Profit objective. Surcharge example.
Country Ski example.
Price discrimination: the practice of charging different prices to similar buyers.
Quick Check Answers Price helps determine a company’s profit or loss; it’s related to the marketing mix because it must be directed to the target market. Price is one of the Four Ps of the marketing mix. consumer perception, demand, cost, product life cycle stage, and competition Answers may include profit objectives and market share objectives; price lining, bundle pricing, loss-leader pricing, and yield-management pricing.
Checking Concepts Answers A product item is a specific model or size of a product; a product line is a group of closely related products that are sold by a company. Products can be classified as consumer goods or business goods. Products are goods, services, or ideas that satisfy consumer needs; products can be tangible (goods) or intangible (services). SWOT analysis, idea generation, screening and evaluation, business analysis, development, test marketing, and commercialization are the seven steps.
Checking Concepts Answers The stages are introduction, growth, maturity, and decline. Price is defined as the value placed on goods or services being exchanged. Every item sold carries a price. The number of items sold times the price equals sales revenue. The amount of profit equals costs subtracted from price. Pricing strategies are influenced by consumer perception, demand, cost, product life cycle stage, and competition.
Checking Concepts Answers Markup is the difference between the retail or wholesale price and the cost of an item. Cost-plus pricing involves calculating all costs and expenses and adding desired profit to arrive at a price. In a sense, markup is the profit component in cost-plus pricing.
