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Marketing

Marketing. Chapter #7. What is Marketing?. All the economic activities involved in preparing and positioning the product for the final consumer. What is Utility?. Customer satisfaction consumer needs. Form Utility. In what form is a product available Whole chicken Chicken parts

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Marketing

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  1. Marketing Chapter #7

  2. What is Marketing? • All the economic activities involved in preparing and positioning the product for the final consumer

  3. What is Utility? • Customer satisfaction • consumer needs

  4. Form Utility • In what form is a product available • Whole chicken • Chicken parts • Cooked chicken • Each step adds value

  5. Place Utility • Where is a product available • Convenience

  6. Time Utility • When is a product available

  7. What percentage of the final product does the producer receive? • Dairy farmer = 34% for milk • Grain products = 9%

  8. What is the Law of Demand? • At any point in time, the rational consumer will take more only at a lower price. • Ex: How many hamburgers would you buy at $2? • How many hamburgers would you buy at $1? • How many hamburgers would you buy at 50 cents? • How many hamburgers would you buy at 25 cents?

  9. Law of Demand Price Demand Quantity

  10. What is the Law of Supply? • Producers are willing to offer more only at a higher price • Ex: How many acres of wheat will you plant if wheat is worth $2 / bu.? • How many acres of wheat will you plant if wheat is worth $4 / bu.? • How many acres of wheat will you plant if wheat is worth $8 / bu.?

  11. Law of Supply Supply Price Quantity

  12. Law of Supply & Demand Supply Price Demand Quantity

  13. What is Equilibrium Price? • Price is determined where supply and demand curves intersect

  14. Law of Supply & Demand Supply Price Demand Quantity

  15. What is Price Discovery? • The process of searching for the Equilibrium Price • Many things involved that can alter supply and demand • Government incentives • Weather • World Trade • Surplus

  16. How does change in supply affect price, if demand stays the same? Supply 1 Price Supply 2 Demand Quantity

  17. Economies of Size • Within Limits, larger businesses (farms) can produce at a cheaper cost per unit of production • Eventually, as business becomes too large, costs increase

  18. Futures Market

  19. Futures Contract • Futures Contract = a contract calling for delivery of a carefully described commodity at some later time • Not intended for actual delivery of commodity, but price discovery for later period • Method of transferring risk of cash market of producer to speculator in futures market

  20. Basis • The difference between cash market and futures market • Cash - Futures = Basis • usually negative

  21. Forward Pricing • Forward Contract = a contract which locks in a price for later delivery • Forward Price = Futures Price + Basis • Ex: Futures Contract = $3.10 • Basis = -20 cents • Forward Price = $3.10-.20 = $2.90

  22. What are Put Options? • The Right to sell futures contracts at specific prices. • Strike Prices offered in 10 cent intervals for corn • Want to buy a Put Option for $3.10 corn • Basis = -.20 Premium = .12 • Price Floor = Strike Price + Basis - Premium • Price Floor = $3.10 - .20 - .12 = $2.78

  23. What are Put Options? • What if price goes up? • Futures = $3.50 Cash = $3.30 • Net Price = Cash Price + Option Value - Premium • Net Price = $3.30 + 0 - .12 = $3.18 • What has the Put Option accomplished?

  24. What are Put Options? • What if the price goes down? • Futures = $2.50 Cash = $2.70 • Net Price = Cash Price + Option Value - Premium • Net Price = $2.70 + .40 - .12 = $2.78 • What has the Put Option accomplished?

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