Growth of Direct Marketing, Discuss the Growth and Benefits of Direct Marketing

 Q: Growth of Direct Marketing?

Ans:

1) Rapid advance in technology, 2) At home shopping, 3) increasing the use of internet, 4) The growth of affordable  computer power and customer database, 5) Increasing the use of credit card, 6) Fast, Easy and inexpensive reaching to customers, 7) Reducing investment risk, 8) The desire for convenience shopping

 

Q.   Discuss the Growth and Benefits of Direct Marketing

 

Direct marketing consists of direct connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships

•      No intermediaries

•      An element of the promotion mix

•      Fastest-growing form of marketing

 

Benefits to Buyers

•      Convenience

•      Ready access to many products

•      Access to comparative information about companies, products, and competitors

•      Interactive and immediate

Benefits to Sellers

•      Tool to build customer relationships

•      Low-cost, efficient, fast alternative to reach markets

•      Flexible

•      Access to buyers not reachable through other channels

 

Customer Database

Customer database is an organized collection of comprehensive data about individual customers or prospects, including geographic, demographic, psychographic, and behavioral data

Uses:

•      Locate good and potential customers

•      Generate sales leads

•      Learn about customers

•      Develop strong long-term relationships

 

Q:  Discuss the Forms of Direct Marketing

 

•      Personal selling direct marketing

•      Direct-mail direct marketing

•      Catalog direct marketing

•      Telephone marketing

•      Direct-response television marketing

•      Kiosk marketing

•      Digital direct marketing

•      Online marketing

 

Direct-mail marketing involves an offer, announcement, reminder, or other item to a person at a particular address

•      Personalized

•      Easy-to-measure results

•      Costs more than mass media

•      Provides better results than mass media

Catalog direct marketing involves printed and Web-based catalogs

Benefits of Web-based catalogs

•      Lower cost than printed catalogs

•      Unlimited amount of merchandise

•      Real-time merchandising

•      Interactive content

•      Promotional features

Challenges of Web-based catalogs

•      Require marketing

•      Difficulties in attracting new customers

Telephone direct marketing involves using the telephone to sell directly to consumers and business customers

•      Outbound telephone marketing sells directly to consumers and businesses

•      Inbound telephone marketing uses toll-free numbers to receive orders from television and print ads, direct mail, and catalogs

Benefits of telephone direct marketing

•      Purchasing convenience

•      Increased product service and information

Challenges of Web-based catalogs

•      Unsolicited outbound telephone marketing

•      Do-Not-Call Registry

 

Direct-response television (DRTV) marketing involves 60- to 120-second advertisements that describe products or give customers a toll-free number or Web site to purchase and 30-minute infomercials such as home shopping channels

•      Less expensive than other forms of promotion

•      Easier to track results

 

Kiosk marketing involves placing information and ordering machines in stores, airports, trade shows, and other locations

 

Digital direct marketing technologies

•      Mobile phone marketing

•      Podcasts

•      Vodcasts

•      Interactive TV

 

Mobile phone marketing includes:

•      Ring-tone giveaways

•      Mobile games

•      Ad-supported content

•      Contests and sweepstakes

 

Podcasts and Vodcasts involve the downloading of audio and video files via the Internet to a handheld device such as a PDA or iPod and listening to them at the consumer’s convenience

 

Interactive TV (ITV) lets viewers interact with television programming and advertising using their remote controls and provides marketers with an interactive and involving means to reach targeted audiences

Direct Marketing? Benefits of direct marketing

 A form of advertising in which physical marketing materials are provided to consumers in order to communicate information about a product or service. Direct marketing does not involve advertisements placed on the internet, on television or over the radio. Types of direct marketing materials include catalogs, mailers and fliers.

 Direct marketing removes the "middle man" from the promotion process, as a company's message is provided directly to a potential customer. This type of marketing is typically used by companies with smaller advertising budgets, since they cannot afford to pay for advertisements on television and often do not have the brand recognition of larger firms.

Philip Kotler & Gray Armstrong: Direct marketing consist of direct communications with carefully targeted individual consumers to both obtain an immediate responses, and cultivate lasting customer relationships.

American Direct Marketing Association: Direct marketing is an interactive form of marketing using one or more advertising media to affect a measurable response and or transaction at any location.

Benefits of direct marketing:

Direct marketing gives you the opportunity to promote your products and services directly to the customers who most need them. A good direct marketing campaign will:

• help you build relationships with new customers
• test the appeal of your product or service
• tell you which marketing approaches reach your target market
• increase sales.

Direct marketing campaigns require careful planning and a clear understanding of responsible direct marketing practice. Being aware of the benefits and challenges of direct marketing will help you use direct marketing effectively as follows:

Making the most of direct marketing

A well-planned direct marketing campaign can take you straight to your ideal customers. Identifying the benefits of direct marketing will help you stay focused on getting the most out of your direct marketing campaign.

Target your ideal customers

Using direct marketing allows you to target specific groups of customers with tailored messages. A well-targeted direct marketing campaign will also provide you with an accurate understanding of how your customers are responding to your product and service offers.

Market on a budget

Direct marketing that is targeted to a specific audience can help you set realistic sales goals and improve sales results on a tight marketing budget. Businesses can run effective and purposeful direct marketing campaigns at a fraction of the cost of broadcast advertising.

Increase sales to current and lapsed customers

Most customers welcome contact from familiar business people who make an effort to understand their needs and build a personal relationship. You can increase sales to your existing customers by maintaining reliable customer records and choosing simple, well-planned promotional tactics.

Improve customer loyalty

Direct marketing helps you build direct relationships with your customers. You can personalize promotions, letters and offers to create an immediate link with your customer and increase their personal connection to your business.

Create new business

When using direct marketing you can communicate directly with your chosen target market and this should give you a better sales success rate than communicating to the mass market, many of whom may not be interested in your products and services.

For example, you could use a direct marketing campaign to:

·         boost sales of a particular product

·         run out discontinued stock

·         renew stale sales figures

·         increase customer contacts

·         directly follow-up on a promotion.

Test and measure your products and sales performance

Direct marketing also allows you to test new markets, review sales results, measure the effectiveness of your sales and advertising tactics, and easily make adjustments to your campaign. Each time you run a direct marketing campaign you should monitor and review the results, using this information to improve the success of your next campaign.

How forecast future demand

 Forecasting is the art of estimating future demand by anticipating what buyers are likely to do under a given set of future conditions. Very few products or services lend themselves to easy forecasting. Those that do generally involve a product with steady sales, or sales growth, in a stable competitive situation. But most markets do not have stable total and company demand, so good forecasting becomes a key factor in company success. Poor forecasting can lead to overly large inventories, costly price markdowns, or lost sales due to items being out of stock. Companies commonly use a three-stage procedure to arrive at a sales forecast. First they make an environmental forecast, followed by an industry forecast, followed by a company sales forecast. The environmental forecast calls for projecting inflation, unemployment, interest rates, consumer spending and saving, business investment, government expenditures, net exports, and other environmental events important to the company. The result is a forecast of gross domestic product, which is used along with other indicators to forecast industry sales. Then the company prepares its sales forecast by assuming that it will win a certain share of industry sales. Companies use several specific techniques to forecast their sales. Table A2-1 lists many of these techniques.

Table A2-1 Common sales forecasting Techniques

Based on	Methods
What people say	Surveys of buyer’s intention Composite sales force opinions Expert opinion
What people do	Test Markets
What people have done	Time series analysis Leading Indicators Statistical demand analysis

All forecasts are built on one of three information bases: what people say, what people do, or what people have done. The first basis—what people say—involves surveying the opinions of buyers or those close to them, such as salespeople or outside experts. Building a forecast on what people do involves putting the product into a test market to assess buyer response. The final basis—what people have one— involves analyzing records of past buying behavior or using time series analysis or statistical demand analysis.

It includes three methods: surveys of buyer intentions, composites of sales-force opinions, and expert opinion. Also other methods may be used and they are test marketing, past sales marketing & leading indicators

Estimate the Market Demand

 Marketers will want to estimate three aspects of current market demand- total market demand, area market demand and actual sales & market shares.

The total market demand for a product or service is the total volume that would be bought by a defined consumer group in a defined geographic area in a defined time period in a defined marketing environment under a defined level and mix of industry marketing effort.

Total market demand is not a fixed number, but a function of the stated conditions. It will also depend on many environmental factors, ranging from the level of consumer health concerns to the weather in key market areas.

 Figure A2-1 shows the relationship between total market demand and various market conditions. The horizontal axis shows different possible levels of industry marketing expenditures in a given time period. The vertical axis shows the resulting demand level. The curve shows the estimated level of market demand at varying levels of industry marketing effort. Some minimum level of sales would occur without any marketing expenditures. Greater marketing expenditures would yield higher levels of demand, first at an increasing rate, and then at a decreasing rate. Marketing efforts above a certain level would not cause much more demand. This upper limit of market demand is called market potential. The industry market forecast shows the expected level of market demand corresponding to the planned level of industry marketing effort in the given environment.

Companies have developed various practical methods for estimating total market demand. We will illustrate two here. Suppose Warner Communications Company wants to estimate the total annual sales of recorded compact discs. A common way to estimate total market demand is as follows:

Q=n x q x p

Where

Q = Total Market Demand

n= Number of buyers in the market

q = quantity purchased by an average buyer per year.

p = price of an average unit.

 

Thus, if there are 100 million buyers of compact discs each year, the average buyer buys six discs a year, and the average price is $17, then the total market demand for discs is $10.2 billion = (100 000 000 x 6 x  $17).

A variation of this approach is the chain ratio method. This method involves multiplying a base number by a chain of adjusting percentages. This simple chain of calculations would provide only a rough estimate of potential demand. However, more detailed chains involving additional segments and other qualifying factors would yield more accurate and refined estimates.

ESTIMATING AREA MARKET DEMAND

Companies face the problem of selecting the best sales territories and allocating their marketing budget optimally among these territories. Therefore, they need to estimate the market potential of different cities, provinces, and countries. Two major methods are available: 1) Market-buildup method, which is used primarily by business goods firms, and 2) Market-factor index method, which is used primarily by consumer goods firms.

 

Market-Factor Index Method

Consumer goods companies also have to estimate area market potentials. A common method for calculating area market potential is the market-factor index method, which identifies market factors that correlate with market potential and combines them into a weighted index. The Market Rating Index(MRI) for a specific area is given by MRI = percentage of national retail sales in the area / percentage of national population in the area.

 

ESTIMATING ACTUAL SALES AND MARKET SHARES

Besides estimating total and area demand, a company will want to know the actual industry sales in its market. Thus, it must identify its competitors and estimate their sales.

Industry’s trade associations often collect and publish total industry sales, although not individual company sales. In this way, each company can evaluate its performance against the industry as a whole.

Type of Retailer

 There are 7 main types of retailers which can be defined by the size of their business and the way they in which they sell their products.

The 7 main types of retailers are;

1.       Department Store – This type of retailer is often the most complex offering a wide range of products and can appear as a collection of smaller retail stores managed by one company. The department store retailers offer products at various pricing levels.

2.       Supermarkets – Generally this type of retailer concentrates in supplying a range of food and beverage products. However many have now diversified and supply products from the home, fashion and electrical products markets too. Supermarkets have significant buying power and therefore often retail goods at low prices.

3.       Warehouse retailers – This type of retailer is usually situated in retail or Business Park and where premises rents are lower. This enables this type of retailer to stock, display and retail a large variety of good at very competitive prices.

4.       Specialty Retailers – Specializing in specific industries or products, this type of retailer is able to offer the customer expert knowledge and a high level of service. They also add value by offering accessories and additional related products at the same outlet.

5.       E-tailer – This type of retailer enables customers to shop on-line via the internet and buy products which are then delivered. This type of retailer is highly convenient and is able to supply a wider geographic customer base. E-tailers often have lower rent and overheads so offer very competitive pricing.

6.       Convenience Retailer – Usually located in residential areas this type of retailer offers a limited range of products at premium prices due to the added value of convenience.

7.       Discount Retailer – This type of retailer offers a variety of discounted products. They offer low prices on less fashionable branded products from a range of suppliers by reselling end of line and returned goods at discounted prices.

What is retailing? Functions of retailing? Derives types of retaining

: Commercial transaction in which a buyer intends to consume the good or service through personal, family, or household use. Retailing includes all the activities involved in selling goods or services directly to final consumers for their personal, non-business use. Retailing consists of business activities involved in selling goods & services to consumers for their personal, family or household use.

 

Functions of Retailing:

The functions of retailing include :

a.   Sorting :The items are arranged in order by the retailers so that the customers are able to locate and pick up their needed goods easily.

b.   Storage: The retailer holds stocks of goods and thereby meets the day-to-day needs of the consumer.

c. Channels of communication: The retailer spreads by word-of-mouth communication, valuable information to the customers about the product.

d. Transportation: Nowadays, small grocery stores are undertaking the work of door deliver orders in case of durable goods.

e. Breaking Bulk: Breaking bulk is another function performed by retailing. The word retailing is derived from the French word retailer, meaning ‘to cut a piece off’. To reduce transportation costs, manufacturers and wholesalers typically ship large cartons of the product, which are then tailored by the retailers into smaller quantities to meet individual consumption needs.

f. Holding Stock: Retailers also offer the service of holding stock for the manufacturers. Retailers maintain an inventory that allows for instant availability of the product to the consumers. It helps to keep prices stable and enables the manufacturer to regulate production. Consumers can keep a small stock of products at home as they know that this can be replenished by the retailer and can save on inventory carrying costs.

 g. Additional Services: Retailers ease the change in ownership of merchandise by providing services that make it convenient to buy and use products. Providing product guarantees, after-sales service and dealing with consumer complaints are some of the services that add value to the actual product at the retailers’ end. Retailers also offer credit and hire-purchase facilities to the customers to enable them to buy a product now and pay for it later. 

Define Wholesaling? Function of wholesaling

 The sale and distribution of goods to users other than end consumers. Wholesaling involves selling merchandise to retailers, wholesalers and merchants, or to industrial, commercial and institutional users. A wholesaler can act as a middleman, brokering deals between these businesses. Wholesaling often occurs when large quantities of merchandise are reassembled, sorted, then repackage, and distribute in smaller lots.

Wholesaling includes all activities involved in selling goods & services to those buying for resale or business use.

Wholesaling is one step on the supply chain, which includes various companies like suppliers, manufacturers and retailers. Retailers and other users purchase goods from wholesalers, and then sell the products at a higher price to cover costs and generate profits..

 

Type of wholesaler:

1.  Merchant wholesalers

2.  Agents

3.  Brokers

1) Merchant wholesalers are the largest single group of wholesalers, accounting for roughly 50 percent of all wholesaling . Merchant wholesalers include two broad types full service wholesalers and limited service wholesalers .

2) Broker and agents differ from merchant wholesalers in two ways: They do not take title to goods and they perform few function like merchant wholesalers, Like merchant wholesalers, they generally specialize by product line or customer type .A broker brings buyer and sellers together and assists in negotiation .Agents represent buyers or sellers on more permanent basis

 

Function of Wholesaler:

Function of Wholesaler: A wholesaler is necessary because he performs several marketing functions which are given below:

1. Assembling: A wholesaler buys goods in bulk from different manufacturers and keeps them at one place. He collects good from several places much in advance of demand. He may also import goods from foreign countries.

2. Warehousing or storage: There is usually a large time gap between production and consumption of goods. Goods must, therefore, be stored for a considerable time. A wholesalers stores goods in his warehouse and makes them available to retailers & when demanded. He stabilizes prices of the goods by adjusting the supply with the demand. He creates time utility.

3. Dispersion: A wholesaler distributes the assembled goods among a large number of retailers scattered at different places. He sells goods in small quantities according to the choice of retailers. This is known as breaking of bulk.

4. Transportation: A wholesaler arranges for the transport of goods from producers to his warehouse and from the warehouse to retailers. He carries goods in bulk thereby saving cost of transport. Many wholesalers maintain their own trucks & tempos to carry goods far and wide quickly.

5. Financing: A wholesaler often provides advance money with orders to manufacturers. He purchases goods in bulk on cash basis from them. In addition, he often sells goods on credit basis to retailers. In this way he provides finance to both producers and retailers.

6. Risk-bearing: A wholesaler assumes the risk of damage to goods in transit and in storage. He also bears the risk arising from changes in demand and bad debts. He serves as the shock absorber in the distribution of goods.

7. Grading & Packing: Many wholesalers classify the assembled goods into different grades, pack them into small lots and put their own trademarks & brand names. In this way, they perform grading, packing and branding.

8. Pricing: A wholesaler anticipates demand and market conditions. He helps to determine the resale price of goods.

Service Marketing? Importance of Service Marketing

 Services marketing is a sub field of marketing, which can be split into the two main areas of goods marketing (which includes the marketing of fast moving consumer goods (FMCG) and durables) and the marketing of services. Services marketing typically refers to both business to consumer (B2C) and business to business (B2B) services, and includes marketing of services like telecommunications services, financial services, all types of hospitality services, car rental services, air travel, health care services and professional services.

Philip Kotler & Gary Armstrong: A service is any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything.

W.J. Stanton, Etzel & Walker: Service are identifiable intangible activities that are the main objects of a transaction designed to provide want satisfaction to customer.

Importance of Service Marketing:

Given the intangibility of services, marketing them becomes a particularly challenging and yet extremely important task.

§  A key differentiator: Due to the increasing homogeneity in product offerings, the attendant services provided are emerging as a key differentiator in the mind of the consumers. Eg: In case of two fast food chains serving a similar product (Pizza Hut and Domino’s), more than the product it is the service quality that distinguishes the two brands from each other.

§  Importance of relationships: Relationships are a key factor when it comes to the marketing of services. Since the product is intangible, a large part of the customers’ buying decision will depend on the degree to which he trusts the seller.

§  Customer Retention: Given today’s highly competitive scenario where multiple providers are vying for a limited pool of customers, retaining customers is even more important than attracting new ones. Since services are usually generated and consumed at the same time, they actually involve the customer in service delivery process by taking into consideration his requirements and feedback.

§  Multiple Touch points : Service marketing involves many touchpoints for the consumer. Interactions with multiple people and experiences that are less tangible than when buying an actual product all impact the consumer's perspective of the purchase process. These touchpoints work together to establish a perception in the consumer's mind.

§  Services Proliferate: Consumers have many service options to choose from, and because the product is intangible, the challenge for the service marketer is to somehow make her services stand out from the crowd. Because service marketing is so prolific, marketers must think of ways to communicate the benefits of the service they offer in language that reflects consumer need and value.

§  Feedback Improves Service: Unlike the marketing process for a tangible product, service marketing actually involves the consumer in the marketing process. He is engaged in the process and contributes to a positive outcome. For this reason, it is important to seek consumer feedback and to use that feedback to improve service marketing effectiveness.

§  Technology Impacts: Technology is having a major impact on the service economy. You can use technology to streamline service activities and provide do-it-yourself options for consumers. Internet-based services, for instance, allow consumers to participate actively in the service marketing process, often never involving contact with another human being.

Classification of different forms of service?

 Service by profit Organization

·         Housing, 

·         Household operation,

·         Private Education

·         Insurance, banking and other financial service

·         Recreation & entertainment

·         Medical & other health care

·         Personal care center

·         Transportation

·         Other professional service

·         Communication

Service by non-profit Organization

·         Educational service

·         Religious Organization

·         Charitable & Philanthropic Organization

·         Cultural activities

·         Social

·         Social Organization

·         Health care

·         Political

Difference between Product & Service? Classification of different forms of Services

 5 differences between products and services

1. Products go to the customers through distribution channels. Customers come to the service locations to avail them.
2. Customers like their products to be standardized. Customers like services to be customized to their needs.
3. The quality that expect from a product is mostly embedded in the product itself at the time of its manufacture and depends in turn on the quality of the materials used and the setting of the machines. Both materials and machines, being inanimate, can be standardized. On the other hand the quality that people expect from a service is quite different : customization and variation is appreciated in service and this depends a lot on the experience, skill and motivation of the service-giver on the spot.
4. The products are tangible and can be inspected / sampled before buying. Service on the other hand is experiential and sometimes based on a belief. 
5.  Expanding the market reach and access to more customers expands the product business. In services the constraint in increasing the business is also in creating good service providers through recruitment, induction, training and motivation.

Define Service? Feature/Characteristics of Service

 

The generic clear-cut and complete, concise and consistent definition of the service term reads as follows:

A service is a set of one time consumable and perishable benefits

· delivered from the accountable service provider, mostly in close co-action with his internal and external service suppliers,

· effectuated by distinct functions of technical systems and by distinct activities of individuals, respectively,

· commissioned according to the needs of his service consumers by the service customer from the accountable service provider,

· rendered individually to an authorized service consumer at his/her dedicated trigger,

· and, finally, consumed and utilized by the triggering service consumer for executing his/her upcoming business activity or private activity.

Feature/Characteristics:

Services can be paraphrased in terms of their key characteristics, sometimes called the "Five I's of Services".

1. Intangibility

Services are intangible and insubstantial: they cannot be touched, gripped, handled, looked at, smelled, tasted. Thus, there is neither potential nor need for transport, storage or stocking of services. Furthermore, a service can be (re)sold or owned by somebody, but it cannot be turned over from the service provider to the service consumer.

2. Inventory (Perish ability)

Services have little or no tangible components and therefore cannot be stored for a future use. Services are produced and consumed during the same period of time.

Services are perishable in two regards

The service relevant resources, processes and systems are assigned for service delivery during a definite period in time. Examples: The hair dresser serves another client when the scheduled starting time or time slot is over. An empty seat on a plane never can be utilized and charged after departure.

When the service has been completely rendered to the requesting service consumer, this particular service irreversibly vanishes as it has been consumed by the service consumer. Example: the passenger has been transported to the destination and cannot be transported again to this location at this point in time.

3. Inseparability

The service provider is indispensable for service delivery as he must promptly generate and render the service to the requesting service consumer. In many cases the service delivery is executed automatically but the service provider must preparatory assign resources and systems and actively keep up appropriate service delivery readiness and capabilities. Examples: The service consumer must sit in the hairdresser's shop & chair or in the plane & seat; correspondingly, the hairdresser or the pilot must be in the same shop or plane, respectively, for delivering the service.

4. Inconsistency (Variability)

Each service is unique. It is one-time generated, rendered and consumed and can never be exactly repeated as the point in time, location, circumstances, conditions, current configurations and/or assigned resources are different for the next delivery, even if the same service consumer requests the same service. Example: The taxi service which transports the service consumer from his home to the opera is different from the taxi service which transports the same service consumer from the opera to his home – another point in time, the other direction, maybe another route, probably another taxi driver and cab.

5. Involvement

One of the most important Characteristics of services is the participation of the customer in the service delivery process. A customer has the opportunity to get the services modified according to specific requirement.

Define Pricing? Approaches of pricing?

Method adopted by a firm to set its selling price. It usually depends on the firm's average costs, and on the customer's perceived value of the product in comparison to his or her perceived value of the competing products. Different pricing methods place varying degree of emphasis on selection, estimation, and evaluation of costs, comparative analysis, and market situation. See also pricing strategy.

Considering Six Approaches to Effective Pricing

Pricing is an integral part of the marketing process. The right price can generate more sales; the wrong price can make your potential customers and clients look elsewhere. The following are six of the most common approaches to setting prices.

• Start-up pricing: If anyone just getting started in his/her business, offer customers an introductory rate that's set at a point somewhere between what other, established businesses charge and the amount you would be paid if you were doing the work on salary for an employer.

• The going rate: Set price at the going rate and differentiate business through things other than price, such as better customer service.

• Splitting the difference: If competitors offer a range of prices for the same products or services — some high, some low, and some in between — split the difference between the top and the bottom of the range so you can be sure that your price is neither too high nor too low.

• Percentage of the results: Rather than focusing on price, focus on results by tying your fees to the outcomes that you bring about. For example, if you run a collections business out of your home, you may charge a percentage of the money that you collect, say 40 percent, or 40 cents of every dollar collected.

• Bargain basement: If anybody really want to generate a lot of business quickly, you can dramatically undercut your competitors' prices. Before you try this approach, understand that some potential clients may be wary of buying products and services that are priced substantially below the competition. Understand, too, that you may not be able to keep this approach up for long without doing serious financial damage to your company.

• Premium: Another option is to set the price at a premium, above your competition. This approach works well when the product or service you sell can be differentiated from those offered by your competition, and you can add value that your clients and customers can see and appreciate.

After set  prices, keep close tabs on what your competition is doing. Are they raising their prices? Lowering them? When your competition moves, be prepared to adjust your prices accordingly. Many times, you simply want to maintain your prices exactly where they are, and deny requests to lower or discount them. While you may lose potential customers in the process, your business will be healthier.

Break even analysis

 An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.

                Break-even analysis is a supply-side analysis; that is, it only analyzes the costs of the sales. It does not analyze how demand may be affected at different price levels.

For example, if it costs $50 to produce a widget, and there are fixed costs of $1,000, the break-even point for selling the widgets would be:

If selling for $100: 20 Widgets (Calculated as 1000/(100-50)=20)

If selling for $200: 7 Widgets (Calculated as 1000/(200-50)=6.7)

In this example, if someone sells the product for a higher price, the break-even point will come faster. What the analysis does not show is that it may be easier to sell 20 widgets at $100 each than 7 widgets at $200 each. A demand-side analysis would give the seller that information.

According to Boone & Kurtz: The break-even point is the point where total revenue just equals total cost.

According to Pride & Ferrell: Breakeven point is the point at which the costs of producing a product equal the revenue made from selling the product.

According to Steven J. Skinner: The break –even point is the point at which the cost of making a product equals the revenue made from selling the product.

Define price policy

 The policy by which a company determines the wholesale and retail prices for its products or services. See also pricing strategy.

According to Pride & Ferrell: A guiding philosophy or course of action designed to influence and determine pricing decisions.

Product mix pricing strategies

 Pricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organization. The remaining 3p’s are the variable cost for the organization. It costs to produce and design a product, it costs to distribute a product and costs to promote it. Price must support these elements of the mix. Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organization. Pricing should take into account the following factors:

1.       Fixed and variable costs.

2.       Competition

3.       Company objectives

4.       Proposed positioning strategies.

5.       Target group and willingness to pay.

 

Product mix pricing strategies

1.  Product/service line pricing: Setting price steps between various products in a product line based on cost differences between the products, customer evaluations of different features and competitors and service line items.

Example: An example would be a DVD manufacturer offering different DVD recorders with different features at different prices eg A HD and non HD version.. The greater the features and the benefit obtained the greater the consumer will pay. This form of price discrimination assists the company in maximizing turnover and profits.

2.  Optional-product pricing: Pricing optimal or accessory products sold with the main product. The organization sells optional extras along with the product to maximize its turnover.

Example: This strategy is used commonly within the car industry as i found out when purchasing my car. 
3.  Captive-product pricing: Pricing products that must be used with the main product

4.  By-product pricing: Pricing low–value by-products or services to get rid of them,

5.  Product-bundle pricing: Pricing bundles of products sold together. The organization bundles a group of products at a reduced price. Common methods are buy one and get one free promotions or BOGOF's as they are now known. Within the UK some firms are now moving into the realms of buy one get two free can we call this BOGTF i wonder?

Example: This strategy is very popular with supermarkets who often offer BOGOF strategies.