Study Guide for Exam 3 Chapter 8 ? Pricing Demand, supply and price equilibrium Demand - The quantity of a product that will be sold in the market at various prices for a specified period. Supply - The quantity of a product that will be offered to the market by a supplier at various prices for a specific period. Elasticity of demand (including factors that affect the elasticity of demand) Elastic Demand - Consumers buy more or less of a product when the price changes. Inelastic Demand - An increase or decrease in price will not significantly affect demand. Unitary Elasticity - An increase in sales exactly offsets a decrease in prices, and revenue is unchanged. Factors that Affect the Elasticity of Demand ? Availability of substitutes, Price relative to purchasing power, Product durability, A product?s other uses, Rate of inflation Pricing strategies Cost determinants of price: Types of costs, Break even Types of Costs ? Variable Cost - Varies with changes in level of output Fixed Cost - Does not change as level of output changes Breakeven ? Demand determinants of price: high price and price sensitivity How much would sales drop off in the face of a price increase? Develop Elasticity estimates using Scanner Data, Survey Data, and Conjoint Analysis Profit maximization Profit = revenue ? expense Revenue = price x quantity sold To maximize profits, find a price where any further increase in price would lead to a large falloff in quantity sold Profit Maximization: marginal revenue equals marginal cost The psychology of pricing No pricing model is perfect Marketers will never know or be able to assess all of the factors that go into the decision to purchase Humans are not always rational and utility maximizing. Some behave sub optimally. Price discrimination Price discrimination is charging different people different prices for the same product Price discrimination is illegal Segment discrimination is not illegal Different segments value different things Nonlinear pricing Changes in prices Chapter 9 ? Distribution Channels What is the role of the marketing channels? Distribution channel A network of inter-connected firms that provide sellers a means of infusing the marketplace with their goods, and buyers a means of purchasing those goods, as efficiently and profitably as possible What are the advantages of using a direct channel to reach customers? Why do you thing Dell uses a direct channel? What are the disadvantages? Why does Nestle or DreamWorks use indirect channels? The advantages to direct channels are that they do not have to sell their products at wholesale to a supplier to get their products to the customer. Dell uses a direct channel because they produce their products after the customer orders them. This allows the customer to customize their products. They must hire people to handle customer orders and shipment. Their products have no customization and can be bought almost anywhere. It would be too costly to directly sell to all of their customers. They also may lose business because people cannot get their products fast enough to purchase them. Distribution intensity Intense distribution Intensive: widely distributed Drugstores, supermarkets, discount stores, convenience stores, etc. Usually for simple, inexpensive, easily transported products Snack food, shampoo, newspapers, etc. Pull strategy: promote directly to end consumers to pull through channel Selective Distribution Selective: less widely distributed Usually for complex and/or expensive products that require assistance Cars, computers, appliances, etc. Push strategy: promote to distribution partners to push goods to consumer Manufacturer has more control due to fewer relationships to manage Exclusive Distribution Exclusive: extreme case of selectivity Manufacturers have the most control May become monopolistic Push vs. pull Pull Strategy Incentives offered to consumers to pull products through the channel Advertise to consumers Distribute widely Offer price and/or quantity discounts, inexpensive trials or free samples, coupons and/or rebates, financing, or loyalty programs/points Push Strategy Incentives offered to distribution partners to push products through the channel Advertise to partners (and consumers) Distribute more selectively Employ a sales force Offer incentives to sales force, price and/or quantity discounts, financing, orallowances for marketing activities Power and conflict Channel Conflict Conflict can arise when channel partners differ in their opinions on how to please customers and maximize profit Conflict may motivate parties to find alternative solutions Types of Power Coercive power: Ability to take away benefits or inflict punishment on other party Information power: Having information other party seeks Legitimate power: Using size or expertise to encourage other party Referent power: One party seeks an affiliation with other Reward power: Ability to provide good outcomes for other party Channel Power and Conflict Power is usually defined by size and effectiveness In the long term, power isn?t a great way to resolve conflict because the less powerful player may feel resentful and act accordingly Revenue Sharing Channel conflict often comes down to revenue sharing Double Marginalization The manufacturer wants a mark-up when it sells to a retailer. The retailer wants a second markup when it sells to the consumer Integration If a company is currently using a partner to do something, it might wish to bring that function back in-house Forward Integration e.g., manufacturer controls its retail stores Backward integration e.g., manufacturer controls raw material Retailing Retailers have been gaining power and momentum over the past 10-20 years Powerful retailers can make or break a new product Types - Categorize retailers according to extent of manager?s ownership Independent retailers Local florist Branded store chains Old Navy Franchises Jiffy Lube Categorize retailers according to their level of service which tends to be positively related to their price points Full service Nordstrom?s Limited service K-mart Categorize retailers according to product assortment Specialty: carry depth not much breadth Toy stores General merchandise: carry breadth but not much depth Department stores Franchising Company can retain some control without complete ownership or capital expenditure Franchisor: the company Franchisee: local owner Pays fee and royalties Product franchising Ford dealer, Coca-Cola bottlers Business format franchising McDonalds, Holiday Inn Ecommerce Retail sales online are about $30 billion Only about 3% of total retail sales Much potential for growth What sells well Computer hardware, software, books, music, DVDs, and travel arrangements Many business drive their customers online to reduce labor costs e.g., Retail banks raise fees to those who want to interact with a teller Integrated marketing channels When designing marketing channels Understand your customers? behavior Ask these questions What are your target market segments? What benefits do they seek? How can we match customer needs to our corporate growth strategies? What mix of channels will facilitate our meeting these goals? Chapter 10 ? IMC What is advertising, why is important and how do you design good advertising? Advertising is the primary means by which a company communicates to its customers about its products, brands, and position in the marketplace TV ads, radio ads, print ads, billboard, pop-up ads, sponsored events, etc. Integrated Marketing Communications Maintain message's holistic nature across all media choices Advertising has short and long-term effects Impact can be immediate and short-lived Impact can have a long-term impact on sales and brand equity Demonstrating direct effect of advertising is complicated Advertising is important because Advertising facilitates customers? awareness by providing information Advertising attempts to persuade potential customers that the brand is superior to competitors? market offerings Advertising M&Ms Advertising goals Cognition awareness, knowledge, interest Affect Attitude, desire, preference Behavior Intention, trial purchase, repeat, WOM Types of advertising (with pros and cons) Cognitive or Rational One-sided Argument Ads Focuses on expressing product?s benefits ?Cleanup is easy and hassle-free? Two Sided Argument Ads Emphasizes benefits but acknowledges weaknesses Stand out and are seen as more credible ?We cost more? because ?we?re of better quality? Noncomparative Ads A brand is mentioned and its features, attributes, image, etc. are conveyed Comparative Ads A brand is mentioned as is the brand of a competitor Market leaders typically do not do comparative ads Product Demonstrations Ads Are vivid and make consumers' expectations clear Consumers see what they'd get for their money Drama Ads A problem is depicted and the brand is featured as the solution Dramas are more memorable than a listing of features Emotional Humor Ads May break through the media clutter and be buzz-worthy May remember joke not product May insult May ?wear out? Usually not cost efficient Fear Ads Are negative emotions For a fear appeal to be effective, the ad must provide a solution to reduce the consumer?s fear Subliminal Ads Ads shown fast enough that viewers cannot point to the ad. The ad was thought to have an effect on the subconscious Considered unethical and never shown to work Image Ads Used to convey an image More abstract than features and attributes Good for positioning Endorsement Ads Have a brand spokesperson Celebrities, Experts, or Regular people Source credibility effect Sleeper effect Effectiveness of the advertising message Measure image and preference Usually done prior to launch Concept testing 3-4 focus groups of 8-10 ?random? participants who may be screened on relevant criteria are shown the underlying ideas of the ad Ads are usually in preliminary development Consumers responses to ad, brand, etc. are evaluated Copy testing Larger random samples of consumers view a TV program and ads. After 30 minutes, consumers take survey. Ad evaluation items Stimulation (curious, enthusiastic, etc.) Information (useful, credible, etc.) Negative emotion (irritation, etc.) Transformation (enjoyment, satisfied feeling, etc.) Identification (felt involved with it, etc.) Chapters 11 ? IMC Continued The communication process Promotion: role, tools, factors to take into account, advantages and disadvantages Personal Selling Personal selling and a company?s sales force are essential communication vehicles for many industries Accounts for 14 million jobs Over 10% of work force Get attention of potential customer e.g., prospecting, qualifying potential customers, and approaching them Get interest e.g., sales presentations Get desire e.g., product demonstrations, handling customer?s objections Get action e.g., closing deal, following up service Sales Promotions Sales promotions activate purchase interest, thus effecting short-term sales Coupons, Rebates, Promo prices, Trade-ins, Deals for loyalty programs, Free trial-sized products, Contests/sweepstakes Public Relations PR communications are the attempt of an organization to reach Customers, suppliers, stockholders, government officials, employees, general community PR?s intention is to convey a positive image and to educate a constituency about the company?s objectives Generate goodwill on behalf of the company Media decisions The choice of media outlet is difficult because? There are more media outlets e.g., more television stations, more radio stations via XM, the Internet, etc. Audiences are fragmented across the many media and use technology to zip past ads Chapters 12 ? Customer Evaluations and CRM CRM ? all, including applications and the implications of retaining loyal customers, CRM, RFM Customer Evaluations (why are important, how are they formed, hygene vs. motivators) Marketers are interested in Customer satisfaction, Customer perceptions of quality, Customer intention to repurchase, Customer likelihood of word of mouth, etc. Marketers want to convert new customers to satisfied, to customers who purchase frequently and finally to loyal customers Measures of quality and customer satisfaction Levels Ideal Some segments are demanding Predicted (expected) Most expect average-level quality Adequate For unimportant purchases, many expect only a basic market offering Zone of tolerance Range of performance deemed acceptable International expansion Chapters 13 ? Marketing Research Be able to match data analysis techniques with specific problems and marketing areas (e.g., clustering segmentation) Cluster analysis for segmentation Perceptual mapping for positioning Focus groups for concept testing Conjoint for testing attributes Scanner data for pricing and coupon experiments and brand switching Surveys for customer satisfaction Network methods to identify opinion leaders in buzz marketing Be able to interpret results (positioning charts, regression coefficients etc.) 1
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