Marketing Final

The Service Gaps Model (pp. 278-289)

-designed to encourage the systematic examination of all aspects of the service delivery process and prescribes the steps needed to develop an optimal service strategy >view diagram in book

Advantages, disadvantages, and appropriate uses of: -experimentation -surveys -focus groups -scanner data -observation

>>>experimentation >particularly helpful when we are trying to determine what people do rather than what they think they will do and, in some cases, to examine causation—i.e., what causes what? >>Does it make a difference if subjects (i.e., consumers, people) are treated one way or another way in terms of some outcome (e.g., likelihood of purchase?) -Will consumers rate a red car as more exciting but a blue one as more reliable? >Testing what people actually do rather than way they say or think they will do >Useful in trying to determine causation (e.g., does a product sell more if the packaging is red rather blue?) >Possible to: -Control for factors that are not equal in real life (e.g., If those who pay restaurant checks with credit cards are more likely to be reimbursed by their employers, it is not clear if the credit use was the cause of the higher tip) -Test and rule out competing explanations (subject to some caveats)—e.g., does texting while driving cause accidents because (1) eyes are removed from the road, (2) attention is diverted to the conversation, or (3) a combination >>Two Basic Types of Experiments -Most experiments are of the "between-subject" kind -- means that different treatments are given to different groups of individuals on variables of interest, with everything else kept the same >Between-subject: Different groups of people are treated the same except for the variable or variables manipulated (E.g., One group shops in simulated store in which a credit card logo is displayed; the other group shops in the same simulated store but the credit card logo is removed) >Within-subject: The same individual is treated differently at different times (e.g., at time 1 is given cola drink that includes vanilla and one without at time 2)Subjects are usually counter-balanced to rule out order effects (1/2 receives treatment A first and then B, the other half receives B, then A) >>Subjects in different groups are usually treated differently (E.g., for some, "target" product is given better shelf space, E.g., some get coupon) >Can help isolate causes >Subject is not biased by questions—does not know how others are treated>Experiment costs: HIGH >>>surveys >Surveys are useful for getting a great deal of specific information (can contain open-ended questions (e.g., "In which city and state were you born? ____________") or closed-ended, where the respondent is asked to select answers from a brief list (e.g., "__Male ___ Female.") >Open ended questions have the advantage that the respondent is not limited to the options listed, and that the respondent is not being influenced by seeing a list of responses (However, open-ended questions are often skipped by respondents, and coding them can be quite a challenge) >In general, for surveys to yield meaningful responses, sample sizes of over 100 are usually required because precision is essential >Surveys come in several different forms-Mail surveys are relatively inexpensive, but response rates are typically quite low—typically from 5-20%-Phone-surveys get somewhat higher response rates, but not many questions can be asked because many answer options have to be repeated and few people are willing to stay on the phone for more than five minutes -Mall intercepts are a convenient way to reach consumers, but respondents may be reluctant to discuss anything sensitive face-to-face with an interviewer >Surveys, as any kind of research, are vulnerable to bias -- The wording of a question can influence the outcome a great deal (i.e., more people answered no to the question "Should speeches against democracy be allowed?" than answered yes to "Should speeches against democracy be forbidden?") >For face-to-face interviews, interviewer bias is a danger, too -- Interviewer bias occurs when the interviewer influences the way the respondent answers (i.e., unconsciously an interviewer that works for the firm manufacturing the product in question may smile a little when something good is being said about the product and frown a little when something negative is being said) >Finally, a response bias may occur—if only part of the sample responds to a survey (the respondents' answers may not be representative of the population) >>Types >Forms -Mail (self-administered, single time) -Mail panel (self-administered, multiple surveys administered over time) -Telephone (from central location) -Mall Intercept-Computer/Internet >Planned questions -Open-ended -Closed-ended >Need large sample sizes for precise conclusions -Small samples will have very large standard errors and thus large margins of error -E.g., Presidential polls (with only two choices) require a little more than n=1000 to get results accurate to +/- 3% >>Characteristics of Some Problematic Questions >Difficult to answer—respondent may not have knowledge needed-Amounts spent annually on specific product categories may not be known >Sensitive (embarrassing) >Two in one—e.g., "On a scale from 1 to 10, how fast and reliable are Microsoft programs?" >Leading questions—giving the feeling of the "desired" response-"Do you agree that soft drinks with sugar are bad for you?" >Non-exhaustive question >Non-mutually exclusive answers >>Continuum questions >Questions rating the degree of a characteristic (e.g., agreement or product usage -- 1-5 strongly agree to disagree) tend to be more effective than binary "Yes/No" questions (has a range of options rather than simply a binary choice (5 point scale creates more precision)--Note that if we were to ask people how interested they would be in learning about a new product, "Slightly interested" would be closer to "Not at all interested" than it would be to "Very interested" (However, a respondent who is "slightly interested," when asked whether she is interested or not, would likely answer "yes") >Asking simply "Yes" or "No" on "Are you interested in fashion?" would result in people with very little actual interest potentially answering affirmatively >issues usually addressed w/ continuum questions include -- interest, purchase likelihood, satisfaction, brand loyalty, price sensitivity, knowledge, experience, Involvement, Decision control, Frequency or level of use, Awareness, Information search, Personality traits, and Variety seeking (binary questions will tend to give inaccurate results) >>Online Surveys >Conditional branching—direct skip to relevant question (e.g. if ans. "yes," go straight to q. 17 -- online can do this automatically)-Traditional surveys: Have you bought a new car during the last six months? -- If not, please skip to Question 11 -Conditional branching: Respondent will be taken to the appropriate question according to answer-Customization of questions (E.g., consumer lists three brands subsequent questions ask about these specific brands by name) >Quality of response -Time pressures -Willingness to write out answers or respond to multiple closed-ended questions -Willingness to read and follow instructions is limited>Reliability and browser compatibility issues >>>focus groups >Groups of 5-12 consumers assembled >Start out talking generally about context of product >Gradually "focus" in on actual product >Focus group costs: high -- especially for the amount of info collected (getting small group may be inexpensive, but facilitator and transcription/analysis tend to make the cost high) -Usually not the best approach -- shouldn't be chosen as default research method >>Potential Uses (follow-up w/ more precise methods is essential before firm conclusions can be made) >Identifying possible issues of concern with a new product >Probing complex issues where different factors and issues may affect opinions >Probing differences in perspectives among different groups >Very preliminary pilot testing of ideas >Identifying the actual language used by customers >>Composition >Members of each focus group should generally be similar to each other in terms of factors affecting comfort in speaking openly (e.g., age, gender, socio-economic status) >If the target market crosses such variables, different focus groups should be run>It may be helpful to run focus groups—even with customers otherwise demographically similar—in different cities >>Dynamics >The facilitator should -Allow the focus groups members to talk as much as possible to get at their views and perceptions -Gently attempt to steer the group in the desired direction -Probe and ask for elaboration when interesting ideas are raised >The focus group may involve an activity (e.g., cooking a meal) and/or sampling a product >>Caveats >Even with ten focus groups each with ten members, the total sample size is only 100 >Because of social influence, the opinions expressed by different members are not independent>Issues identified in focus groups should examined with more powerful methods using larger sample sizes (e.g., surveys, scanner data, experiments) >>Focus groups are most useful for identifying issues that should be studied in more detail with more precise methods (Due to the small sample size and social influence on individual responses, it is difficult to generalize much from focus groups) >>>scanner data >>Types of scanner data >Supermarket club -- includes purchases by the specific customer when shopping at the respective chain (assuming that the customer presents his or her card) -- Purchases at other locations are not counted -- Demographic information may be of limited accuracy (Shoppers are often motivated to join by large discounts (often 20-30%) (This is also a method of price discrimination) -- Members may be given individualized coupons for possible products of interest --Only available for grocery products >>Scanner data panels -- In some communities, people can sign up to be part of a "panel" -- Purchases at all local retailers are included (e.g. supermarkets, gas stations, drug stores, convenience stores) -- For a given customer, the database also includes TV viewing and demographics -- Only available for grocery products >>Aggregated retail sales records -- Records of sales volumes of products by UPC may be available from an assortment of retailers, and this data is available for more product categories (information is NOT tied to individual customer data and purchase history)-- means that we cannot relate these sales volumes to anything else (e.g., price charged, advertising spending, type of display given in the store) >>Panel members in test communities agree to Swipe a card prior to each purchase in most stores that sell grocery products (supermarkets, convenience stores, drug stores, discount stores) >Have purchases matched to: -Demographic profiles -Media/coupon exposure -Promotional status of competing brands -Past purchases >>Problems: >Aggregation over household >Aggregation bias--averages of disparate segments obscure! >Only available for grocery products (roughly what you can buy in a supermarket) >Only gives meaningful (accurate and useful) results for products bought at least ten times a year >>Collecting the data >Each time a customer has his or her card swiped in a participating store and buys anything represents a shopping occasion >Each time the customer makes a purchase in the relevant product category (e.g., cereal, laundry detergent, coffee, yogurt) represents a purchase occasion >Variables such price paid, sale status of available brands, coupon availability for each brand, special display status of any brands, advertisements seen, price paid on last purchase occasion, time since last purchase occasion may be considered >>Some Questions That Can Be Tested: >Is one advertising theme (e.g., low price) more effective than another (e.g., nutritiousness)? >What is the effect of the number of times an ad has been seen? (Likely a non-linear relationship) >What is the impact of seeing only part of an ad (usually while fast forwarding on pre-recorded content)? >Impact of demographics (e.g., income, home ownership, occupation, presence of children in household, geographic region, education) on choice"Purchase acceleration:" Do customers "stock up" during sales? Many do not; higher income consumers are more likely to buy ahead (lower income consumers may not have cash to spend and may not have space to store purchases) >>Scanner Panel Data >Reflects actual behavior—not just what people think they will do >Predicts purchase likelihood under different circumstances (e.g., regular price, competitor's price is discounted, coupon is available) >Can help "disentangle" a large number of variables at the same time (e.g., price, advertising, coupon availability, in-store display) >Does NOT identify attitudes—we only observe behavior (e.g., purchase or non-purchase), NOT what is going on inside the consumer's brain.>Can only be used for frequently purchased items (i.e., something bought at least ten times a year).Very efficient and precise predictor since large amounts of data are used. >>Some Limitations.... >Only TV advertising (and not radio, print, billboard, or online) is considered—although online advertising may come about in the near future >Walmart—which accounts for a large share of total sales in many categories—does not participate >Purchases made outside the community and online purchases are not included (although purchases from select online vendors such as Amazon could potentially be added) >>Important Reminder! >Scanner data is only useful for relatively frequently purchased products (i.e., something bought at least ten times a year) >In order to observe the effect of variation in different variables (e.g., advertising exposure, sale status of different brands, coupon availability, and special display space status), we must compare purchase outcome under different combinations of these variables —> need for multiple purchases >>>observation >Looking at consumes in the field—e.g.: -Searching for product category area -Number of products inspected and time spent on each -Apparent scrutiny of labels or other information -involvement of others -Behavior under limiting circumstances (e.g., time constraints) >>Costs: Low to high (depending on coding/analysis needed) -Looking at how consumers select products may yield insights into how they make decisions and what they look for

relative costs in selling online, in retail settings, and combined mode

>>Firm level issues affecting online sales potential >Firm reputation/credibility >Volumes sufficient for -Economies of scale in automation (e.g., automatic conveyor belts to assemble orders) -Volume discounts on shipping >Ability to sell multiple items together >Synergy with traditional retail store operations ("bricks-and-clicks") >>At the firm level, some will be better able to efficiently and effectively sell on the Internet than others >These are some considerations: -Firm reputation/credibility -- Since the customer is buying a product without the opportunity to inspect it, and since the customer will need to have a certain confidence that the merchandise ordered will actually arrive, firms with stronger reputations will be more likely to receive orders -Volumes sold -- One way to limit the labor costs of online sales is to automate the process as much as possible (i.e., rather than having people go around in a warehouse to pick up and assemble different parts of an order, an automatic conveyor belt that will pick up the different products of a customer's order at different "stations" will do much of the work that the customer does in a traditional store) -- The up-front investment in automation is heavy, however, and thus, this investment needs to be spread over a large number of units (As with conventional retail chains, those that buy large quantities have greater bargaining power to get prices down -- This allows for greater margins and/or greater quantities sold at prices lower than what certain competitors can match -- Firms shipping more packages can also negotiate lower shipping costs per unit) -Ability to sell multiple items together -- It is useful to be able to spread the costs of packaging and shipping across a number of different items (The more different but complementary items that an online vendor carries, the more likely it is that customer orders will tend to include a number of different items) -Synergy with traditional retail store operations ("bricks-and-clicks") -- Well known retail chains—e.g., Staples, Costco, and Nordstrom's—have established reputation as discussed above and are thus more likely to be trusted -- Having retail locations also makes it easier to accept returns, and the combined sales of online and brick-and-mortar outlets make for a greater bargaining power >>part II >Location for minimization of sales taxes >Location for low labor and land costs >Potential for repeat sales to the same customer -Increased business volume -Application of collaborative filtering (ability to recommend additional products of possible interest based on a customer's overlap with purchases of another >>Location for minimization of sales taxes -- Some states either do not collect sales taxes or have a small population so that sales within the state are modest -- The rules of taxation of items sold out-of-state through Internet orders are complex -- An increasing number of online merchants, including Amazon, have now agreed to collect sales taxes on shipments to California and a number of other states (There are, however, still some online merchants that manage to avoid collecting sales tax on merchandise shipped to certain other states) -Internationally, there may also be opportunities to avoid sales and duties—sometimes legally and sometimes not -- Location for low labor and land costs -- With ready access to shippers such as UPS and Federal Express in most of the Continental U.S., there is no significant advantage in being located in a major city (Small towns often have much lower real estate costs -- Firms can also locate in areas where wage levels tend to be lower (e.g., because of high levels of unemployment or other economic depressors) -Potential for repeat sales to the same customer -- Just as in traditional brick-and-mortar sales, it is often more cost-effective to sell to existing customers than constantly trying to reach new ones -- This is true online as well >In addition, based on knowing what the customer has bought in the past, it is possible to identify other customers who have bought these same items and identify additional common purchases among these relatively similar individuals -- This process, known as collaborative filtering, is discussed below

geolocation based segmentation

>Members of a volunteer panel have software installed on their phones to identify their locations >Over time, the frequency of visits to different types of establishments can be identified >This information can be integrated with information provided by panel members -Demographics -Interests -Online and offline behavior recorded

The product life cycle: -stages and their characteristics -revitalization -implications

>Products will generally be invented and start with low use. >With decreased costs and improved technology, more people tend to adopt. With more consumer interest, competition increases, driving down prices and up quality, user friendliness, and features offered -"classic" curve -- may differ for specific innovations >If a product is successful after its launch, it will generally reach greater acceptance over time, and sales volumes will go up -- At some point, a saturation point may be reached where there is no further growth, and the product category may eventually be replaced, over time, by another a later innovation >>Introductory Stage >Typically: -Low awareness category awareness -Limited competition—greater interest in category awareness -No finalized standards/protocols (might be unable to get apps for a new cell phone OS) -Fear that the technology may not survive (may fade away or be replaced a different standard) -Limited features -Less reliable technology -High prices -Low unit sales -Low or negative profits—limited sales and high expenses >>Growth Stage >Typically: -Greater consumer awareness -Higher sales volumes -Better and more user-friendly products -Prices are lower, but not as low as they are likely to get (adjusted for inflation, at least) -Although there are more competitors, market growth is large enough to carry the available supply. -Greater interest in differentiation and brand awareness. >>Maturity Stage >Typically: -Greatly increased competition—lower prices, more features, higher quality (capacity has reached its peak but the market is not growing much; any new capacity must take away market share from competitors) -Both increased manufacturing and design in less developed countries -Limited growth opportunities (in either domestic or world market) à limited opportunities to reinvest profits in this category à need to enter new product and/or country markets -Significantly lower prices (relative to inflation) -Sales may be mostly for replacements and new population >>Decline Stage >Will usually eventually occur although the product category dominate last for a long time >Typically: -The product category is increasingly being replaced by other categories (which are often cheaper than the original category) -Competition causes some—if not most—of the manufacturers to exit the market -Product may be used as specialty product (e.g., typewriter to fill out "legacy" (old paper and carbon) forms >>Some Alternatives >In a plateau, the product category is not being actively replaced by anything else, but growth ceases (or remains small) (e.g., fast food in U.S.) >Under revitalization, a new use for the product emerges (or renewed interest develops) (e.g., cranberry juice; car cigarette lighters) >Fad: Product spreads rapidly, but quickly loses appeal >>The Product Life Cycle (PLC) involves ________ over time >Demand for the product >Awareness of the product >Competition in supplying the product -Price -Features -Differentiation >Profitability -Higher during growth -Shrinking at maturity -Possibly negative during decline—only some producers survive >Alternatives available to the product—e.g., a DVD player competes with smart phones and other devices >Investment opportunities: Should you reinvest in creating more capacity or focus on new products? >Appropriate strategies

Technology driven diffusion

>Widespread smartphone diffusion has led to -More people adopting digital photography (developed countries) >Some never photographed before >Some did not want or remember to carry a standalone digital camera -Electronic payment systems >Currency shortage in India made e-payments attractive >Local street vendors in China started to accept mobile payments >Online banking in rural African towns not served by brick-and-mortar banks >Increased Internet bandwidth -Movie streaming became feasible and was easier than renting movies

Lagged effect (p. 371)

a delayed response to a marketing communications campaign -- generally takes several exposures to a campaign before a customer fully processes its message

Gross rating points (pp. 377-378)

-measurement used by marketing communications managers usually to rate their media objectives (GRP) -represents reach multiplied by frequency -- GRP = reach x frequency -can refer to print, radio, or television, but any comparisons require a single medium -ex. if reach is 50% and there are 7 ads, the GRP is 50 x 7 = 350

data enhancement

-Increases the amount of information available about each individual but not necessarily the total number of individuals in the database (individuals are matched across databases and their information is combined in a new, comprehensive one) >Combining information about the same customer from several different sources—e.g., real estate records, past purchases, vehicle registrations, magazine subscriptions -This increases the amount of information available about each individual but not necessarily the total number of individuals in the database (individuals are matched across databases and their information is combined in a new, comprehensive one)

(Product and services) the product-service continuum

-Some people insist on drawing a rigid distinction between tangible goods and services -Most products contain at least some element of both. It is more useful to examine where, on the continuum from a pure tangible good to a pure service a given offering lies -goes from mostly tangible products to mostly service products (ex. cement to surgery) >most of the value on the left comes from the tangible product, while most of the value on the right comes from the service component >NOTE: This Product-Service Continuum is NOT a question of whether the product can be used by the customer to perform a service (e.g., a washing machine can be used to wash clothes). What it identifies is the relative value of what is being provided by the seller: The tangible product component (e.g., the washing machine) and the service component (e.g., delivery and installation, instruction manual, phone and online support, warranty service)

Cross-docking distribution centers (p. 337)

-after merchandise is received and checked, it is either stored or cross-docked >cross-docking distribution center -- merchandise cartons are prepackaged by the vendor for a specific store -the UPC or RFID labels on the carton indicate the store to which it is to be sent

"Gray market" pricing

-channels can be difficult to manage, and distribution outside normal channels does occur --> a gray market employs irregular but not necessarily illegal methods; generally, it legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer -many manufacturers, therefore, require retailers to sign an agreement, that demands certain activities (and prohibits others) before they can become authorized dealers

Perceptual mapping (pp. 197-199). You will not be asked to list each specific step but you should understand the idea and its applications.

-displays, in two or more dimensions, the position of products or brands in the consumer's mind >marketers should recognize that changing their firm's positioning is never an easy task

Metrics to assess advertising impact (pp. 396- 398)

-effectiveness of a campaign must be assessed before, during, and after the campaign has run >pretesting is an assessment performed before, tracking includes monitoring key indicators such as daily or weekly sales volume while the ad is running, and Posttesting is an assessment performed after it has been implemented

Norwegian Cruise Lines and "freestyle cruising"

-example of demographic target -Do what you want when you want --Cruises had historically been more regimented, and catered in large part to "the newly wed and the nearly dead"—honeymooning couples and senior citizens --In attempting to appeal to families, the experience was made more flexible -invented the idea of "free style cruising" --Historically, cruises attracted mainly from the "nearly dead" (older, retired couples) and "newly wed" (honeymooners) >The regimented style of traditional cruises, where dinner was served at a fixed time and activities less family friendly, there was little interest from families -Free style cruising, in contrast, allowed customers to "do what you want when you want" -Meals were available during mornings, days, and evenings, and families could choose from any number of activities ongoing at any time

Competition conditions (pp. 308-309)

-four levels of competition -- monopoly, oligopolistic competition, monopolistic competition, and pure competition (each has its own set of pricing challenges and opportunities) >read pages to get details

"Bait-and-switch" pricing (p. 314)

-occurs when sellers advertise items for a very low price without the intent to really sell any -deceptive practice because it lures customers with low prices (bait), only to aggressively pressure these customers into purchasing a higher-priced model (switch) by disparaging the low-priced item, comparing it unfavorably w/ the higher-priced model, or professing an inadequate supply of the lower priced item -laws against this are difficult to enforce because salespeople, just in their basic function, are always trying to get customers to buy the more expensive model

(Product and Services) Brand dilution (pp. 237-238)

-occurs when the brand extension adversely affects consumer perceptions about the attributes the core brand is believed to hold

(Distribution) Channel conflict—vertical and horizontal (p. 326)

-often, supply chain members have conflicting goals, and this may result in channel conflict -- when supply chain members that buy and sell to one another are not in agreement about their goals, roles, or rewards, vertical channel conflict or discord results (manu to retailer) -horizontal channel conflict can also occur when there is disagreement or discord among members at the same level in a marketing channel, such as two competing retailers or two competing manufacturers (retailer vs. retailer)

"Share of wallet" (pp. 356-357)

-percentage of the customer's purchases made from that particular retailer -for instance, omnichannel retailers use consumer information collected from the consumers' internet browsing and buying behavior to send dedicated e-mails to customers promoting specific products or services -retailers may also offer special discounts to good customers to help them become even more loyal

Measures of brand awareness (pp. 369-370)

-refers to a potential customer's ability to recognize or recall that the brand name is a particular type of retailer or product/service >several metrics -aided recall -- when consumers indicate they know the brand when the name is presented to them >top-of-mind awareness -- highest level of awareness, occurs when consumers mention a specific brand name first when they are asked about a product or service

Substitution effect (p. 304)

-refers to consumers' ability to substitute other products for the focal brand -the greater availability of substitute products, the higher the price of elasticity of demand for any given product will be >ex. if Tide raises prices for detergent, demand for other products may ensue

based methods

-technically a case of demographic segmentation >Regional differences -Climate and physical environment -Tastes (Campbell's Soup) -Lifestyle and values (Urban vs. rural areas) >Micro-segmentation -Adaptation of retail store assortment to the specific area based on: --Residential demographics --Other characteristics (e.g., vicinity of a beach) --May be largely data-driven based on past sales (scanner data) >Micro-segmentation involves attempts by a large chain store such as Target to tailor the assortment of each store location to the needs of the area -- These efforts may be based on demographics such as age distribution, ethnicity, and income levels, whether an area is primarily residential or business, and whether the surrounding area is a vacation destination >>DEMOGRAPHICS -Age -Gender -Income—not generally a reliable predictor (willingness to spend is more useful) -Income ≠ willingness to spend! -Ethnicity -Family lifecycle stage (often strong predictor of needs/ability to spend) >>INCOME AND PRICE SENSITIVITY >Income and wealth are NOT reliable predictors of price sensitivity >In order to be able to buy certain high priced items, a certain level of income or wealth is a necessary, but not sufficient, condition (important distinction) >A book titled The Millionaire Next Door provides strong evidence that many wealthy people have developed wealth through frugality rather than high incomes >Wealthier individuals will NOT necessarily choose higher priced options. >Therefore, segmenting on price sensitivity rather than income or wealth makes more sense. >>Psychographics (combination of demographics/lifestyle) -Motives -Values -Lifestyle (Usually more practical than personality) >>BEHAVIOR: Habits, choices, and tendencies >Some examples: -Usage rate -Brand switching >Brand switchers—variety seeking >Brand switchers—motivated by price >Loyals—extreme temptation is needed to bring about switch >Inertials -Habitual buyers -"If it ain't broke..." -Likely switch if there is a good reason >Other scanner data based methods >>Usage rate >"80/20" rule—20% of consumers may account for 80% of consumption (in many product categories) -Note that larger consumption rate segments may be subject to heavy competition -Reasons for targeting smaller segments -Reduced competition -Opportunity for growth >>Benefits sought >Based on -Differences in arbitrary tastes—a matter of preference rather than significant tradeoffs (e.g., cola vs. non-cola drink) -Tradeoffs (e.g., taste vs. calories; price vs. performance) -Usage situation (e.g., coffee for camping (instant) vs. higher quality for home brewing)

Perspectives on price and customer reaction: marketers and economists

>>>Views of consumers and price response >>Economics -Assumed to have perfect information about >Quality of all brands >Prices of each brand at all locations -Elasticity: A "down-sloping" demand curve means that a higher quantity will be demanded when the price is reduced >>Marketing -Consumer knowledge of product quality and prices is imperfect -Due to imperfect information, a higher price may sometimes be used by consumers to infer greater quality (Research suggests that actual product quality as rated by Consumer Reports accounts for about 25% of product price differences among brands)

Chicken-and-egg problems

>>A potential "chicken-and-egg" problem may exist when it is necessary to have two conditions—each of which depends on the other—met before a product or exchange is possible -These problems come in a variety of forms: >Investment in required infrastructure requires demand -(1) Consumers are reluctant to buy electric vehicles before charging stations are available at hotels and other parking facilities but (2) hotels and operators of parking facilities are unwilling to invest in putting in charging stations until enough consumers drive electric cars >Need for critical mass: Social media sites tend to require a certain "critical mass" before they can attract users -(1) You will not be particularly interested in joining a new social media site before your friends do, but (2) your friends will have limited interest in joining before you do -Similarly, (1) for a potential competitor to Netflix to attract customers, it must offer a strong recommendation database but (2) developing the recommendation database requires input from a large number of customers >Two parties must join, each of which requires the other to join first -A new online auction site will have difficulty attracting (1) potential buyers until sellers list their offerings, but (2) sellers will have limit interest in listing—especially if they have to pay—until there are sufficient numbers of potential buyers >A product needs third party accessories and/or support. If a new cell phone operating system (OS) is introduced to compete with the iPhone iOS, Android, or Windows, (1) customers will have limited interest in adopting until there is a sufficient number of apps available but (2) software developers will have limited interest in investing in creating apps for the OS until there are sufficient numbers of users to provide a profitable market. >>For some innovations to work, two conditions must be met, but each requires the other to happen first -E.g., Uber: must have drivers before riders will sign up, but will need riders before drivers can be recruited >>Most two-sided platforms face chicken-and egg problems, but not all innovations that have chicken-and-egg problems are two-sided platforms -E.g., electric cars, cell phone systems (apps are needed before users will adopt the system) >>Examples of "Chicken-and-Egg" Vulnerable Ventures >Personals sites >Auction sites >Text messaging systems >"Wiki" projects >Crowdsourcing apps >Carpool systems >Electric cars >Computer and cell phone operating systems >>view chicken and egg chart

Consumer price awareness

>>A survey revealed of consumers who had just selected a product suggested: -Avg. time spent before departing from product area: 12 seconds -Avg. no. of products inspected: 1.2; only 21.6% claimed to check price of non-chosen brand -55.6% could state price of just chosen product within 5% >Research suggests a large segment of consumers does not give much attention to the prices of individual products

Distribution intensity/selectivity

>>Approaches to distribution >These strategies require tradeoffs: -Wide--essential to low involvement goods -Selective--desire to maintain image -Exclusive--very high prestige needed or very high service requirements >>Most manufacturers would prefer to have their products distributed widely—that is, for the products to be available in as many stores as possible. This is especially the case for convenience products where the customer has little motivation to go to a less convenient retail outlet to get his or her preferred brand >>For most lower tier manufacturers, wide distribution is not realistically obtainable -In food product categories, for example, the larger supermarkets can carry a large number of brands -Smaller convenience stores and warehouse stores, however, are likely to carefully pick a few brands >>In a very small number of cases, some manufacturers prefer to have their products selectively, or even exclusively, distributed -This is usually the case for high prestige brands (e.g., Estee Lauder) or premium quality image brands (e.g., high end electronic products) that require considerable before and after sales service

Legal issues in pricing: -price discrimination -collusion -predation -tying vs. price bundling -price maintenance (interbrand vs. intrabrand competition)

>>Banned by Federal law: -Discrimination in prices paid by firms which compete against each other unless supported by evidence of cost savings >OK to charge restaurants more than grocery stores >Can only charge Wal-Mart less than Joe's Supermarket if volume savings can be proven—and the price difference must be no greater than the actual provable cost savings >>Banned by some state laws: -Gender discrimination (e.g., charging more for dry cleaning women's clothes than men's clothes) -Discrimination between consumers in general >Senior citizen discounts are explicitly permitted in California >Antitrust issues relevant to prices can be categorized into the following main categories: -Minimum prices: It is generally, with a few relatively complicated exceptions, illegal to sell products below your cost of production -In selling to entities that compete against each other, price discrimination or volume discounts are generally only legal to the extent that a manufacturer can prove actual cost savings associated with serving a large account >>Federal and State bans on: -Collusion (coordinating or even discussing prices with competitors) -Tying: Requiring the customer to buy one product to be allowed to buy another -Predation (offering temporary prices below cost of production to drive competitors out of business and then raising prices) >In general, fully absorbed average cost must be used—cannot use marginal cost -Using monopoly power in one market to "subsidize" new market >>Price Maintenance -refers to the practice of encouraging a certain minimum resale price of products >In 2007, the U.S. Supreme Court reversed the longstanding ban on explicit agreements between manufacturers that the branded product would not be sold below an agreed-upon "floor" price -Although setting minimum retail prices for a brand reduces intra-brand competition (competition between different retailers selling the brand), some believe that minimum prices may encourage investment in service and brand building to the extent that competition between brands increases (inter-brand competition) -Manufacturers generally cannot enforce minimum price agreements on existing inventory, but they can "cut off" offending retailers >>"Gray market" goods: Retailers in the U.S. generally have an absolute right to sell products that they have bought legally at a price lower than the suggested retail price -Diversion: Legitimate retailers buy up extra quantity to be resold to unauthorized dealers and/or geographic shipment. (More details will be given under distribution). >>Intra- vs. Interbrand Competition -- A theory asserted is that, under some circumstances, retail price maintenance may actually increase inter-brand competition, or competition among brands, since retailers will now have a greater incentive to provide services and make investments in brand building knowing that they will not be undersold by retailers not offering these services >Intrabrand Competition: Competition among sellers of the same brand (e.g., Nike Store, Target, and Sports Chalet all sell Nike shoes) -Often focused on price, although retailers can compete on service as well >Interbrand Competition: Competition between different brands (e.g., Nike, Rebok, Adidas) -Both manufacturers and retailers may be involved -Price is one factor -If manufacturers are able to guarantee retailers a certain margin since other retailers will not undersell them, retailers may be motivated to invest in additional services for customers (e.g., salesperson training, in-store repair facilities) >>Tying vs. Price Bundling >Tying: Requiring a customer to buy a less popular item in order to be allowed to buy something more popular -Generally not legal -Involves effective use of monopoly power >Price bundling: Offering two complementary items at a lower price than the sum of the individual items (more likely to be equal) -E.g., hotel alone is $185 per night and care rental is $75 per day, but a special deal is offered of both for $225 per day ($35 saving) -May involve a third party combining offerings of two partner firms (e.g., hotel and car rental service)

Problems with cost-plus pricing

>>In general, simple "cost-plus" pricing is inappropriate because: >Your costs, in a market which is not perfectly competitive, may not be reflective of the costs of your competitors -If theirs are lower than yours, you may be over pricing your products; if it is higher than yours, you may be able to charge higher prices than cost-plus would suggest >Your costs are not reflective of the value of the product to consumers >The prices of some products are more salient than those of others; thus, you may want to use some products as "loss leaders." -Understanding the relationship between price and quantity demanded as well as the cost of producing this quantity will help make decisions on pricing and quantity produced -In this context, note the effects of experience previously discussed in the text -That is, it may be profitable to sacrifice margin immediately to move along the experience curve and enjoy a cost advantage relative to competitors later

Branding: -types of brands -sources of brand value -brand personalities -co-branding -brand extensions

>>International Brands >Some brands gain part of the mystique and value from being ubiquitous across the world—e.g., -Coca Cola -Apple -Disney -Louis Vuitton -Nike >Although adaptations may be made across countries, these are often deemphasized. >>National vs. Regional Brands >National brands -Generally available across the U.S. -Usually have a longer history -Have usually been built with extensive advertising -Often described as "major" brands -Typically more expensive than regional brands >Regional brands -Usually brands that have started in and are available only in some region -Regional entry may have occurred because the manufacturer did not have the investment capital to start a national one -Typically do not have a long history of elaborate advertising -May be adapted for regional tastes -Typically sell for lower prices than national brands -May eventually go national with sufficient success and resources >>Store (Private Label) Brands >Brands owned by a retail chain, a collection of chains, or a consortium -E.g., Sam's Choice (Walmart), Kirkland (Costco), Kroger (owner of regional chains such as Ralph's) >Usually sell for lower prices than national brands >More profitable—event though prices are lower, there are fewer brand building costs >May be manufactured by the same firms that make the major brands, but with different brand name attached >Retailers can put these next to national brands to emphasize savings >More common in Europe, where there are more national grocery retail chains >>Lower Tier Brands >Brands that are usually national in scope, but are less regarded and have been developed less than the major ones >E.g., Shasta (soda) >Quality tends to vary >May emphasize specific tastes or needs >>Generics -- products where no brand name is readily visible >No brand name products >Typically lowest price >Quality tends to vary >>Corporate (Owner) vs. Product Brands >Conglomerates may hold numerous brands >The brand owner may or may not want to emphasize corporate brand -Procter & Gamble does not want to risk damage to the main brand by unsuccessful brands -Brand owners may not feel that their corporate identity adds value to brands that have been built over decades >>Brand Value and Image >Brand equity: Value added to product based on brand name -Choice likelihood -Ability to charge higher price -Use of product as loss leader >Benefit in market share, temporary revenue (Coca Cola) >Possible damage to long term brand image (Louis Vuitton suitcases in Japan) >Brand "personality:" Human associations with product >>Co-branding >Using two or more brands as a way of offering customers greater value -The main take-away hire is that by involving two or more brands, greater value can be created for customers >>Brand Extensions >Use of an existing brand name to a new-to-the-brand product category >May lower cost of launching new product line and increase speed of market penetration, but... >Considerations -Perception of ability to make product well -Extension should not be exploitative—making a "trivial" product by high image brand (e.g., Heineken Popcorn) -Congruence: Are products seen by customers as "sensible" creations by the same brand? >Apple iPod made sense as a "mini computer" with hard drive based music files; iPhone made sense as an extension of the iPod >Would apple "stylish" Apple furniture make sense?

Basic internet economics

>>Basic internet economics >In most markets, online merchants tend to have HIGHER costs than do conventional retailers -Much more of the work is done by the merchant rather than by the customer -Intermediaries usually add value through specialization of labor and consolidation of tasks (Eliminating intermediaries usually results in higher costs) -Customers do a lot of the work when they select, aggregate, bring for check-out, and carry away their products -- Employees of e-commerce companies and their transportation services have to be paid to do this work! >>There are generally both sources of efficiency and inefficiency associated with selling online >In terms of efficiencies: -A smaller number of locations is needed -Distribution centers can be located in areas with lower real estate and labor costs -The use of one or a modest number of warehouses causes the causes over- and under-estimates of demand at different locations to partially cancel out (i.e., sales in some cities served by the same distribution center are higher than expected while sales to other cities in the region are lower than expected) -In the distribution center, products can be packed and shipped at a constant rate—what matters is what is ready to go when shipments have to be sent—while stores may need to adjust staffing depending on the time of the day -Collaborative filtering allows for identifying more items of potential interest to the customer, thus potentially increasing the average sale -The amount of time between the manufacturing of the product and reaching the customer can be reduced >>Collaborative Filtering and Statistical Patterns at the Item Level >Any one item is bought by a certain percentage of customers (usually very low—0.5% or less—but 0.05*244,000,000=1.2 million) -If the choice of items is independent (random), the probability that an individual will buy both is the product of the individual purchase probabilities (e.g., if is one bought by 0.5% and the other is bought by 0.3%, the probability of buying both is 0.005*0.003=0.000015 or 0.0015%) -If the actual percentage of people buying both is 0.0027, there is (given a large sample size with, say, 75,000 and 45,000 customers, respectively, buying each) a disproportionate overlap, suggesting appeal to similar people (Some customers will independently discover both, creating the disproportionate overlap)

Five C's of pricing

>>Company objectives—note that these may not be realistic! -Target profit pricing -Premium pricing -Profit maximization (optimal price structure, if known) >Competition -Competitive parity -Status quo pricing >Channel members -Authorized sellers -"Gray" markets (diversion) >Customers -Customer perceived value -Demand curve pricing (individual and market price elasticity) -Prestige pricing >Costs (note that your costs may not equal those of competitors or value to customers!) -Types: --Variable --Fixed -Break-even quantity -Returns by product category and customer value—may need to take smaller margins on some products

Consumer involvement (types and manifestations)

>>Consumer involvement determines the amount of effort that a consumer will put into collecting information, evaluating this information, and making a decision -- will tend to vary dramatically depending on the type of product >In general, consumer involvement will be higher for products that are very expensive (e.g., a home, a car) or are highly significant in the consumer's life in some other way (e.g., nutritional supplements or acne medication) >Involvement can be manifested in different ways—e.g., -Reading magazines or other publications -Searching for information online -Checking out available offerings in stores -Inspecting and trying out different options -Asking friends, family, or others for advice -Thinking about the information discovered and weighing the pros and cons of different options

Reference prices: -types -implications

>>Consumer reference prices >Consumers typically have some expectation of what they will pay -- This is based on: -Previous experience -Reasoning and "gut" feelings -Perceived fairness >Two kinds of reference prices: -Internal: Based on consumer's memory. -External: Based on environment (e.g., signs, other products in the store) >Internal Reference Prices -Consumers tend to develop some memory of prices of frequently purchased items ---> to make store prices look low, you may want to price especially salient products lower -More knowledgeable consumers typically have tighter price range expectations -Reference prices are constantly updated to some extent, but are hard to change upwards--certain unreasonable "stimuli" (prices) may be rejected as unreal -Consumer reference prices tend to be lower than actual prices ---> "sticker shock" (been a while since they've shopped -- they know about inflation but will not expect it to be that high) >External Reference Prices -Reference prices provided by seller or environment >E.g., -"MSRP $3.99; our price $2.49" -"Sold elsewhere for $20.00; our price $14.99" -"Was $100.00; now $69.95" >Often, the "Suggested retail price" printed on a product is unrealistically high and more than even most full service merchants would charge -Thus, even full service retailers can come across looking good by selling "below retail." >Other cues can be given to customers about what a product "ought" to cost under ordinary circumstances. These may be based on: -The "regular price" (which may not be what most customers actually pay since sales can be very frequent) -The previous price charged -What other retailers charge >Vague notions such as "Compare at" -These are often used by factory outlet stores but do not refer to anything specific -As such, they are likely to be misleading

Direct from manufacturer purchases by very large chains

>>Distribution efficiencies >Certain VERY LARGE retail chains—e.g., Wal-Mart and Safeway—may be able to distribute more efficiently than independent wholesalers -Integration with own demand forecasts >For most other retailers, buying through wholesalers is more efficient >>view potential channel structures in U.S.

Price discrimination: -explicit -implicit

>>Explicit -Only some customers are eligible for special pricing—e.g., >Student discounts on software >Senior citizen discounts >Geographic: Only customers in the 900**-935** zip code areas are eligible for discount Disneyland Admission >>Implicit -No outright rule, but discounted deal is unattractive to some customers >Airlines: Saturday night stay-over or advance purchase requirement >Daily special meal—one cheaper meal but no choice >Periodic discounting (products going on and off sale)

Effects of factory outlet stores and company stores

>>Factory outlet stores >Are generally less efficient than stores selling products from multiple brands, but can: -Increase total quantity sold -Be used to liquidate excess merchandise -Help create awareness of the brand >May lower value of brand if the emphasis is on selling lower quality merchandise >Will likely generate resentment among full service retailers who fear they will lose business and/or that the value of the brand will be eroded >Usually put in remote vacation areas so sales will be predominantly incremental (in addition to what customers would otherwise buy) rather than at the expense of sales of full service retailer sales >>Company Stores (e.g. apple store) >Are often less efficient than traditional distribution channels >Will likely INCREASE the value of the brand due to services made available >May enhance perceived exclusivity or prestige of brand >May result in resentment from full service retailers

micro-payments -- problems, opportunities, and applications

>>Opportunities and costs >Considerable online content and services could be made profitably available for a small charge (e.g., 1¢-$2.00) -- This is usually only viable for electronic content, NOT for tangible goods >However, collecting small amounts of money can be: -Costly—credit card firms or debit processing firms may charge a significant per-transaction fee -Inconvenient—the customer may not be willing to enter much information >Mobile technology (e.g., smartphones or tablets)—with active login—may be helpful for the higher end (e.g., 50¢+) micro-payments due to established billing relationship >>Micro-payments involve payments of small amounts of money—i.e., 50¢-$2.00>Theoretically, it would be possible to sell a number of virtual products online—e.g., songs or documents—at very low prices since marginal costs of production and distribution are minimal (thus, it would be possible to make money on volume even though the revenue for each item is small) >in practice, however, it is very difficult and expensive to collect small amounts of money online (Typically, online payments are made through a credit card or through services such as Paypal -- Credit cards generally charge a percentage of the sale, which can be as high as 3.5% for online merchants (which are deemed to be risker to serve than conventional retailers and most other businesses)) >The big problem, however, is the base fee, which typically ranges from 30-35¢ (With a 35¢ base charge, a payment of 50¢ might incur 35¢+0.35*50¢=37¢, leaving only 13¢ of the original payment)>If consumers were willing to pay something like $20.00 in advance into an "escrow" fund of an online service, that service might be able to dispense small amounts for a more reasonable charge of, say, 5-10¢ (Notice, however, that there would be a serious chicken-and-egg problem here in that few merchants would accept payments from this service until a significant number of customers participate -- Consumers, in turn, would wait to sign up until these payments were widely accepted) >Cell phone service providers—who have an established billing relationship with their customers—may be able to offer this service in the near future as more people switch to ordering through mobile devices >>are generally not: >For tangible goods -- Shipping is too expensive for a small amount (low absolute margin) >For paying over time -- The cost of cutting a payment into very small payments is too high given credit card transaction fees

Price adjustments

>>Price Adjustments For and Discrimination Among Consumers >Cars: List price - manufacturer discounts and rebates - dealer discount >Tuition: List price - scholarships - financial aid >>Occasionally, price adjustments may be made -A car may come from the manufacturer with a base price and adjustments for options -The manufacturer may then indicate a temporary sale or promotion -The dealer may post a further discount, after which the customer may be able to negotiate the price down

(Promotion) elements of the promotion mix

>>Promotion >Ways to reach and influence potential customers -"Triggering" (thoughts about the brand or product) -Awareness -Behaviors (e.g., trial, brand choice) -Beliefs -Preference >>The most well known component of promotion is advertising, but we can also use tools such as the following: >Public relations (the firm's staff provides information to the media in the hopes of getting coverage) -This strategy has benefits (it is often less expensive and media coverage is usually more credible than advertising) but it also entails a risk in that we can't control what the media will say -Note that this is particularly a useful tool for small and growing businesses—especially those that make a product which is inherently interesting to the audience >Trade promotion -Here, the firm offers retailers and wholesalers temporary discounts, which may or may not be passed on to the consumer, to stimulate sales >Sales promotion -Consumers are given either price discounts, coupons, or rebates >Personal selling -Salespeople either make "cold" calls on potential customers and/or respond to inquiries >In-store displays -Firms often pay a great deal of money to have their goods displayed prominently in the store -More desirable display spaces include: end of an aisle, free-standing displays, and near the check-out counter -Occasionally, a representative may display the product >Samples (temporary price discounts not requiring a coupon) >Premiums (e.g., free small tube of toothpaste with the purchase of a toothbrush) >view slide 4 for diagram >>some media alternatives >Television -Generally limited attention -Both visual and auditory modality -Can target specialized audiences -Pre-recording and ad "zipping" >Seeing part of an ad through zipping appears to have a greater impact than seeing the complete ad (attention needed to see if you have "arrived") >Radio -Can certain people at work -Increasing opportunities to "opt out" of ads through paid services >Magazines (print or online)—can reach specialty markets >Newspapers -Increasingly read online >Outdoor >Internet -Can involve animation and interactivity -Advertising based on previous online activity >Point-of-purchase >Other -Movie theaters -On other products >>are pros and cons to different types of advertising media, and some are better suited for certain purposes than others. Note that different types of media are useful for reaching potential customers under different situations

Limits of elite markets

>>Targeting Elite Markets >Only a limited number of customers exist >Competitive intensity is likely to be very high expectations and number of competitors coveting this market >This market may not be the most profitable due to -Limited economies of scale due to modest market size -Costs of developing premium products and delivering required levels of service

Diffusion of innovation case studies

>>The use of ride-share services became increasingly popular as smartphones became more widespread. Uber and Lyft logos on cars have increased awareness. The social proof of the sheer number of people using these services has caused more people to try. >Ride sharing (Uber, Lyft) -Chicken and egg problem -Observability -Imitation >Paleo diet -Word-of-mouth and social currency >MP3 players -iPod users became "walking advertisements" >GPS systems -Initially expensive -Trial through rental cars >Faded, torn jeans -Fads -Innovations do not have to be high tech

Considerations in determining suitability for products and services for sale online

>>Two types of online sellers -Note that manufacturers and retailers may each use more than one channel path—e.g., Dell sells directly and also through retailers; Staples sells both in stores and online >Manufacturers -- SELLING THEIR OWN -- PRODUCTS DIRECTLY TO CUSTOMERS (e.g., Dell, Geico) -- typically offer more limited assortment >Online retailers -- FROM MULTICOMBINING MERCHANDISE PLE MANUFACTURERS (e.g., Amazon, Staples) -- larger assortment, typically more frequent purchases >>Online merchants come in different shapes and forms -Some merchants sell primarily their own products (i.e., although Dell also sells certain computer accessories, they sell mainly the computers that they manufacture -- Some of the computers made by Dell are also sold through retail chains such as Staples and Costco, but Dell usually does not operate many retail stores -- Geico, selling insurance, an intangible product, does much of its business over the Internet, although customers can also call in) -Other merchants such as Amazon have historically sold merchandise acquired from others through the Internet (More recently, Amazon has gotten into the brick-and-mortar business as well by buying the Whole Foods chain and setting up a number of automatic-checkout stores) -- With its online sales of tangible merchandise, Amazon is not much different from other retailers who buy manufacturers or wholesalers and then resell the merchandise—Amazon just does this online with delivery to the customer while most conventional retailers operate stores where customers buy the products >Some retailers blend the two methods -- Walmart and Staples have considerable online sales although they have historically focused on brick-and-mortar stores

Reminder

>Intermediaries usually add efficiency through specialization and economies of scale >"Cutting out the middleman" usually increases costs! >Selling directly to the customer is only likely to be cost effective if: -Value-to-bulk ratios are high -Absolute margins are large -Customers for a specialty product are highly dispersed so that there would be few customers for a retailer in any one area >In the retail store, the customer does most of the work. If you ship directly to the customer, you either have to: -Do those tasks yourself -Hire someone else (e.g., UPS) to do them

Types of intermediaries

>>View slide on adding value >Wholesalers: Typically buy from manufacturers and resell in smaller quantities to retailers (Some sellers are hybrids—e.g., Costco sells both to businesses and to end consumers) >Retailers: Usually buy from wholesalers and sell to end customers. Retailers can be either brick-and-mortar, online (e.g., Amazon), or a combination (e.g., Staples stores and Staples.com). >Brick-and-mortar retailer: A merchant that sells products to its customers through a physical store <Online merchant: A merchant which sells merchandise (usually bought from the manufacturer or an intermediary) to end customers through online ordering with delivery to the customer >Intermediary: Any party that comes between the manufacturer and the end customer. Thus, this category includes both wholesalers and retailers. >>Some sources of intermediary efficiency >Specialization of labor -Manufacturers specialize in designing and making products -Wholesalers specialize in distributing the products >Economies of scale: -One wholesaler can >Pick up supplies or take deliveries from multiple manufacturers >Deliver merchandise from multiple manufacturers to each retailer -Thus, costs of supplying each retailer are spread across a number of manufacturers

Upselling and add-on options

>>upselling >An attempt to get the customer to upgrade to a more expensive option one a lower priced one has been selected—e.g., -Offer to upgrade to "Economy Plus" status on flights -Extra charge for preferred seat (e.g., aisle, extra space, front of plane) -Car rental upgrade >>Add-ons >Collision waiver on rental cars >Flight insurance >Extended warranty options >"VIP package" -add on features to an original package

Types of innovations

>A continuum of "newness:" -Continuous—same product, just small improvements over time—e.g., automobiles -Dynamically continuous—product form changed, but function and usage are roughly similar—e.g., cell phones, HDTV, video streaming, Blu-ray -Discontinuous—entirely new product; usage approach changes— e.g., fax, GPS >The more "new" a product category is, the greater the need to educate the customer on benefits and basic idea of how the product works

Corporate vs. brand level product lines and product mix

>A firm may spread both its product lines and product mix across different brands -Different brand for each product (e.g., Procter & Gamble; Mars Candy) -Different brands for different product lines (e.g., Microsoft Bing [search engine]; Sam's Club) -Different tier brands in same product category (e.g., Courtyard by Marriott, Lexus [owned by Toyota]) -Brands acquired by a firm over time and maintained (e.g., Toblerone is owned by Kraft) -"Vestigial" brands (Rite Aid acquired Payless Drugs which had previously acquired Thrifty stores; the Thrifty brand name is still used on ice cream) >Separately operated divisions using the same brand name (e.g., Virgin Group: Virgin Mobile, Virgin Hotels, Virgin Railways) >Divisions sold off to a buyer who maintains the original brand name (e.g., Kit Kat brand name is owned by different firms in different parts of the World)

The "S"-shaped curve of advertising effectiveness

>Advertising Intensity and Return—A Typical Relationship >view slide 9 >Research suggests that advertising effectiveness follows a sort of "S-" shaped curve -Very small amounts of advertising are too small to truly register with consumers -At the medium level, advertising may be effective -However, above a certain level (labeled "saturation point" on the chart), additional adverting appears to have a limited effect -(This is comparable to the notion of "diminishing returns to scale" encountered in economics)

New products and investments ("big picture" only)

>Calculation of net present value (NPV)--discounted cash flows over time for -R&D expenses -Setting up manufacturing capacity -Period fixed expenses (e.g., cost of buildings and equipment depreciation) -Total revenue >Discount rate should reflect the risk associated with the specific product considered >More complex models assign probabilities to various outcomes (e.g., competitor entry, reaching certain sales levels, changes in resource costs) >This approach is covered in finance and managerial accounting courses >>Main takeaways for exam: >There are certain fixed and start-up costs in introducing a product. If you do not sell a sufficient volume, you will lose money >Demand is uncertain; risk is involved -- The greater the risk, the greater the expected return will be needed to be to justify going ahead >Expenditures and revenues occur at various times. Many expenses are incurred before the first revenues >Money made in the future is worth less ("discounting")

Benefits of retail stores to customers

>Consolidation: Customers can buy a large variety in the same store -Large discount store (e.g., Target or Walmart) -Supermarket (large assortment of both food and other items) >Quantity: Customers can buy products in quantities desired -Those who want to buy can save -Products are available in smaller quantities if desired >Timing: Customers can buy products when these are needed rather than when they are produced >>Consolidation and Distribution -- It would be highly inconvenient for customers to have to buy each product at a different store >>NOTE: Some very large retail chains such as Walmart may be able to handle distribution more effectively than outside wholesalers

Approaches to pricing

>Cost-plus: Add fixed percentage markup (in practice, this does not necessarily reflect the actual value to your customers)—generally NOT a good way to price! >Buyer-based (preferred method when an offering is differentiated from those of competitors) -Perceived value >Going-rate (matching the market price) >Supply and demand results in an equilibrium price for product categories with limited differentiation >Everyday Low Price (EDLP)—low everyday prices but no sales (difficult in practice since manufacturers often pay for lower sale prices) >High/Low Pricing: Higher regular prices with periodic sales

Dynamic pricing

>The effective price may be set based on the past behavior of the customer -Customers who have not shopped at Staples or Staples.com recently may receive a coupon -Amazon.com may base the price offered on previous purchases -- New customers may receive lower price offers. -Those who elect to pay for airline upgrades (e.g., to first class) may be less likely to get such upgrades as comps

Tippability

>The potential of a small factor to change a low stakes decision from one alternative (possibly the one usually chosen) to another one offering this benefit—e.g., Choosing Snapple over other bottled tea brands due to the "fun facts" in the caps

Brand scope and specificity

>Different firms have different policies on the branding on their products -On a continuum, different brands cover varying degrees of breadth: >Single product category brands -Some brands cover only a single product category. Procter & Gamble (P&G) even goes as far as maintaining different brands of laundry detergent which actively compete against each other (e.g., Tide, Ariel, Bold, Era) -The philosophy here typically is that one less well regarded product should not drag the whole brand own with it >Brands covering a broader scope -Disney uses its brands for amusement parks, movies, TV programming, and a cruise line -Although the brands cover a broader scope, there is usually a clear reason why the different products belong under the same brand name -In the Disney case, for example, the different offerings each make use of the Disney image and borrow characters other creations across the offerings >"Umbrella" brands -Some brands cover a very vast scope -Although there may be good reasons why the respective offerings are presented under a common brand, these may not be readily evident to customers -3M, for example, focuses on different types of products that involve bonding materials to surfaces in some way—thus, we have glue, tape, and recordable DVDs (where a metal disk is coated with iron oxide) >>continuum of brand breadth -- narrow to wide

trends in retailing

>Divergence—growth in both low cost, low service and high cost, high service stores more than in the middle >Growth of mega-stores: Large stores with a wide assortment (e.g., Wal-Mart) -Convenient -Extremely strong buying power due to volumes >"Category killers" (e.g., Home Depot, Best Buy, Staples) are finding it more difficult to compete due to aggressive pricing and economies of scale from mega-merchants (e.g., Walmart, Target) and online sellers >Many traditional brick-and-mortar merchants increasingly attempt to add online offerings even if not yet profitable (Walmart now charges higher prices online than in stores for some items) >The threat to specialty stores started long before the Internet with competition from the likes of Target and Walmart! Online sales are merely an additional nail in the coffin! >Online sales represent a modest part of total retail sales, but -Increase competition for price and convenience -Take away a modest share of sales from brick-and-mortar retailers, resulting in a much larger percentage decrease in profits—malls are especially heavily hit >Over the past decade, there has been considerable growth in both extremes of the continuum from low price, low service to high price, high service retailers >For some time, during difficult economic times in the around 2008-2011, discount stores like Walmart actually tended to increase sales as consumers seemed to switch their purchases of the same products from higher priced to lower priced stores rather than reducing the quantity and quality bought in the product categories >"Category killer" chains, which specialize in a broad product category such as office supplies, sporting goods, or electronics, were a strong force in the U.S. retail market from the 1990s until fairly recently -Although their overall sales levels are much lower than giants such as Walmart and Target, their purchase volumes within their chosen product categories are potentially even higher -These chains often commit to large orders a long time in advance of delivery in return for low prices -Thus, they can potentially offer the customer a good deal at any brand that he or she wants in the category, but potentially a truly exceptional price on the featured brand or model

Odd-even pricing

>Does It Have an Impact? -Theory: $3.00 is rounded to $3.00 while $2.99 is rounded to "$2.00 plus change" -Reality: Studies in U.S. have found a small impact (the price elasticity is greater going from $5.00 to $4.95 than from $5.10 to $5.05) -This is a very small impact -- Sales increase only a slight amount (The loss of the extra cents may cancel out profit from increased quantity sales) -Note that odd pricing may signal receiving a bargain, which may nor may not be compatible with the desired product image -Odd pricing has typically been used by tradition (initially implemented to force cashiers to ring up purchases in order to give change) >Reminder: the impact of "odd" prices is tiny!

Exploratory vs. precision market research methods

>Exploratory Methods -Observation (can be more definitive with larger sample sizes and focus on specific behavior) -In-depth interviews -Focus groups -Projective techniques >Precision Methods -Experiments -Surveys -Panel -Scanner data >>The exploratory methods are intended to get some basic understanding of issues that may surround a product or practice -Generally, since the number of people involved with this research tends to be relatively low, it is not possible to generalize the findings to the overall population or even to determine the magnitude of effects -A major benefit of exploratory methods is their flexibility. If a customer says something interesting in an interview, follow-up questions can be asked >Precision methods generally do not offer as much flexibility in this regard

Multi-sided (two-sided) platforms

>Firm adds value as intermediary between two parties—e.g., -Uber (riders and drivers) >Handles matching of riders with nearby driver; collects money -eBay (buyers and sellers) -OpenMenu (diners and restaurants) >Diners can check reservation availability for multiple restaurants in an area and make a reservation in the most preferred available one

Break-even analysis ("big picture" and implications -- you will not be asked to do calculations)

>For a new product, how much do we have to sell at what price to avoid losing money? >Two types of costs -Fixed: Generally independent of quantity produced within a certain range (e.g., R&D, equipment needed, setup, overhead) -Variable (marginal): Costs of making one additional unit (e.g., labor, materials) >chart is on presentation if needed >>Assumptions in Simple Break Even Analysis—Not Very Realistic >No additional manufacturing capacity will be needed to make any of the quantities considered >All customers pay the same price >No discounting on future cash flow from made after the initial period >No periodic fixed effects >Marginal costs of resources remain constant -No quantity discounts -No increase in costs due to limited market supply

Product characteristics favoring direct-to-customer selling

>High need for customization—especially if the work can be done by the customer (Here, online processing may be useful because the customer can do much of the work.) >Rapid decline in the value of inventory (In such a situation, then, trying to reach the customer directly may make sense, even if the direct costs of distribution are higher, because of the inventory value issue) >High value/bulk ratio >Low need for customer to manually inspect the product (Products that are more sensual in nature or where observation is needed to determine quality are less suited for online sales) >Highly specialized product requiring a very large assortment of inventory (Electronic commerce, when value-to-bulk ratios and absolute margins are not favorable, is often not viable when customers are located conveniently close to a retail outlet) >Sufficient absolute margins—a sufficient dollar margin to cover costs of procurement, storage, "picking" of the ordered items, packaging, and shipping

Income/wealth vs. price sensitivity

>INCOME ≠ WILLINGNESS TO SPEND! -Income or wealth is a necessary, but not sufficient, condition for buying certain high price items. -Some customers may value one product category particularly highly. -Many consumers live beyond their means, running up large debts. -It generally makes more sense to segment on price sensitivity than on income or wealth

(Beginning of book) (Segmentation, Targeting, and Positioning) Criteria for segment attractiveness (pp. 188- 190)

>Identifiable -firms must be able to identify who is within their market to be able to design products or services to meet their needs -equally important to ensure that segments are distinct from one another bc too much overlap between segments means that distinct marketing strats aren't necessary to meet segment members' needs >Substantial -once potential target markets are identified, their sizes need to be measured -if a market is too small or its buying power is insignificant, it won't generate sufficient profits or be able to support the marketing mix activities >Reachable -best product or service cannot have any impact, no matter how identifiable or substantial the market is, if it cannot be reached (or accessed) through persuasive communications and product distribution -consumer must know product/service exists, understand what it can do for him/her, and recognize how to buy it >Responsive -customers must react similarly and positively to the firm's offering -if, through the firm's distinctive competencies, it cannot provide products/services to that segment, it should not target it >Profitable -marketers must also focus their assessment on potential profitability of each segment, current and future -key factors include market growth, competitiveness, and access -Profit = (segment size x adoption percentage x purchase behavior x profit margin percentage) - fixed costs

Price introductory effects

>In an experiment, laundry detergent was introduced at $0.49 in one condition and $0.79 in another >After 8 weeks, price was raised to $0.79 for low price intro condition >There were higher cumulative sales in high price intro Introducing a product at a low price without clearly indicating that this is a temporary price to encourage trial will likely create an image among customers that this is a "low priced" brand >Coupons may help avoid sending this signal

impacts of online competition on brick-and-mortar retailers (no calculations needed)

>In most product categories, online sales account only for a modest portion of total product category sales -Why are online sellers such as threat to brick-mortar chains? >>Retailers are highly dependent on having a sufficient volume to cover fixed costs -If a modest part of the volume is lost, earnings can turn negative >TAKEAWAY: A small decrease in volume will have a much larger impact on profitability! >For product categories that lack the needed value-to-bulk ratios and absolute margins, profitability is likely to be low or even negative, but an online presence is generally thought to be needed for the chain to remain competitive (and maintain bricks-and-clicks synergy) >>Recently, Walmart has begun to charge higher prices for selected products—typically with low value-to-bulk ratios and/or absolute margins—when these products are bought online rather than in the retail stores -- This strategy makes the products available to those who are willing to pay extra for the convenience of shopping online and likely also drives a lot of customers into the retail stores where they are likely to buy additional items and can be served more efficiently >It should be noted, however, that a loss in sales volume of, say, 5% will result in a much larger percentage decrease in profits since margins are considerably greater after fixed costs have been met -That is, if you lose five percent in sales volume, you are losing the most profitable five percent, likely among the point at which fixed costs have been covered

Associative network of knowledge

>In order for consumers to function effectively in society and make the best use of information they have accumulated, it is important that different ideas and pieces of knowledge be retrieved when they are more likely to be useful -Thus, the brain uses associations between different "nodes" (ideas or other pieces of information) to activate related others (Here is an example of what may come to mind when a consumer sees a picture of an elephant or otherwise comes to think of one) >Note that each node, in turn, potentially triggers others -- Thus, for example, the "medicine" note might trigger the nodes of physicians, nurses, examining rooms, and prescriptions, each of which in turn may trigger other nodes -From a brand management perspective, it is useful to have one's product tied to as many positive nodes as possible (This allows for more opportunities for the product memory to be triggered, potentially resulting in purchase behavior and/or further elaboration) >each individual will have a different associative network for a given concept depending on his or her experience in life

Characteristics of services (pp. 275-278)

>Intangible -cannot be touched, tasted, or seen like a pure product can -can prove highly challenging to marketers, especially if they are more accustomed to selling products >Inseparable production and consumption -services are produced and consumed at the same time -- service and consumption are inseparable -ex. when you get a haircut, the customer is not only present but also may participate in the service process >Heterogeneous -the more humans are needed to provide a service, the more likely there is to be heterogeneity or variability in the service's quality -ex. a hairstylist may give bad haircuts in the morning bc they went out the last night, but they'll still possibly offer better service than the undertrained stylist next door >Perishable -cannot be stored for use in the future -- you cannot stockpile a membership like you could a juice -provides both challenges and opportunities for marketers in terms of the critical challenge of matching supply with demand

(Distribution) Intermediaries: -tasks performed (discrepancies addressed) -sources of efficiency and cost reduction

>Intermediaries (wholesalers, retailers, and others) generally increase efficiency and reduce costs through -Specialization of labor -Economies of scale -Allowing the customer to do some of the work under self service conditions >Intermediaries help reduce discrepancies between what is produced and what the customer wants -reminder -- In the vast majority of instances, "eliminating the middleman" will greatly increase—rather than decrease—costs. The middleman—who specializes and thus is highly skilled and has economies of scale—can offer its services at a much lower cost than what it would cost for the manufacturer to perform these services by itself >discrepancies -Manufacturers generally prefer to sell in VERY large quantities to a limited number of parties (they do not generally specialize in distribution) -Retailers want to buy in large to moderately large quantities depending on their size and the product category -End customers typically want to buy in single units or in small to modest quantities -Wholesalers and other intermediaries help overcome these discrepancies >distributors add efficiency by: -Breaking bulk—the consumer can buy small quantities at a time. Small and modest scale retailers (e.g., the USC bookstore) can buy modest quantities (This service reduces quantity discrepancy in the supply-demand relationship between manufacturers and end customers) -Consolidation and Distribution -Quantity: Delivering products in quantities desired -By end consumer (e.g., 1 pen instead of 100,000) -By retailers (e.g., 500 pens instead of 100,000) -Assortment: Wholesalers and retailers can combine products from several manufacturers for convenience of --Retailers --Consumers >Temporal: Having products available at the right time—e.g., -Thanksgiving Turkeys -Summer fashions >Carrying inventory -This service reduces the temporal discrepancy between manufacturers who may need to schedule production at relatively constant levels and consumers who need certain products only at certain times (e.g., turkeys needed mostly at Thanksgiving and Christmas) >Financing -Certain small manufacturers may have difficulty waiting for payment until goods are sold to the end-customer -Wholesalers and retailers may negotiate lower prices from the manufacturer in return for quick payment >Temporal discrepancy: The distribution system arranges to have items available to customers when they need them

Profitability of online firms in markets where costs of selling online are lower

>Lower costs --> higher short term profits --> more competitors enter --> lower prices --> normal long term profit >Normal profits are profit levels expected under free competition in a market with similar types of risks and investment requirements-If any firms are making "supernormal" (very high) profits, competitors will enter, offering slightly lower prices -- This will continue until competition causes the benefits of lower prices to go to customers >In some cases, selling online is clearly less expensive than selling in a brick-and-mortar setting (i.e., the customer can do most of the data entry work when airline tickets are bought online rather than through a brick-and-mortar travel agent or through a physical office of the airline) -At first glance, this might seem to suggest that entering businesses where such cost advantages exist will result in high levels of profit (This, however, is not the case) -Sellers who have this cost advantage will be competing with other firms that also have this cost advantage -- Therefore, over time, competition will drive prices down and all, or nearly all, the cost savings ultimately go to the customer -Your online competitors will have the same cost advantage as you do, so by supply and demand, prices will be driven down such that the cost savings go to the customer -- This is a very frequently missed item on the exam -- It is important to remember that even if you have a clear cost advantage relative to brick-and-mortar stores, you will be competing with others who have this same cost advantage (Therefore, prices will be driven down to market rates over time) -If you make "supernormal," or exceptionally high profits selling online, others will notice this and competitors will enter the market until prices are driven down to levels consistent with "normal profits"

Diffusion phenomena: -observability -trialability -imitation -chicken-and-egg problems -network economies

>Observability: Products that can be seen being used advantageously by others tend to spread faster >Imitation: Later adopters follow the lead of earlier adopters whose adoption has been shown to be successful >"Chicken-and-egg" problem: A certain infrastructure is needed to make adoption attractive, but motivation to provide the infrastructure depends on market size—e.g., -Coupons and clearinghouses -Hydrogen/electric cars -HDTV -Social networks >Trialability: People tend to prefer "trying out" a potentially costly innovation on a smaller scale rather than having to commit before trial -In contrast, solar panels are not readily triable >Network economies (the inverse of the chicken-and-egg problem): Some innovations become more valuable when more others have that innovation—e.g., -Peer-to-peer payment systems (Venmo) -E-mail -Online personals sites -Other online communities

(Price) Price as a ratio and price changes

>Price =(resources given up/goods received) >E.g., 12 bullets for $6.00 = $0.50 per bullet >Ways to change the price: -Sticker price (dollar amount) -Quantity—same sticker price but lesser quantity -Quality—use of lower cost materials—e.g., "gooeye" stuff rather than chocolate in candy -Terms (Firms may begin charging for previously free delivery) >E.g., support, accessories, payment terms, delivery >>Examples >Cereal manufacturers put a smaller quantity of cereal in boxes >Paper towel manufacturers use fewer sheets per roll >Candy bar manufacturers use more "gooey" stuff (instead of costlier chocolate) >Some hamburger chains stop using tomato slices when prices spike >Software makers now charge for service (900 numbers or per minute charge) but, adjusted for inflation, sticker prices are lower in this later stage of the life cycle >Most airlines now charge for checking baggage and domestic meals

Category management (pricing/promotion)

>Pricing and promotion decisions are made with consideration of their impact on sales of other products that are potential substitutes -E.g., most of the increase in sales of Coca Cola that would result from a discount on or other promotion of that brand would likely come at the result of sales of Pepsi, other soft drinks brands, juices, and bottled water—the total increase in category sales will be much smaller >Some product categories have greater potential to increase total category sales if one brand is put on sale (e.g., total consumption of snacks can increase)

Product lines

>Product Line: A number of similar or related products—e.g., -BIC writing utensils -Boeing Commercial Aircraft (aircraft and parts) -Nike shoes; Nike clothing -refers to the assortment of similar things that the firm holds -- Brother, for example, has both a line of laser printers and one of typewriters

Product mix

>Product Mix: Assortment of different products offered -E.g., "KFC—we do chicken right!" (Only one product line) -Samsung: Computers, computer parts (e.g., RAM, SSDs), TVs, monitors, cell phones (numerous models for different markets), appliances -describes the combination of different product lines that the firm holds. Boeing, for example, has both a commercial aircraft and a defense line of products that each take advantage of some of the same core competencies and technologies of the firm

Diversion

>Products often end up where manufacturers did not intend them to go -Trade promotions in one region >Within countries (Difficult to do today since sales at a given time can be verified by scanner data) >Between countries--different price sensitivities and structures may exist (e.g., pharmaceuticals, luxury autos) -"Over-purchases" by small authorized retailers to supply unauthorized distributors (e.g., Levis' for Costco)—disliked by full service retailers who have to compete >occurs when merchandise intended for one market is bought up by a distributor that then ships it to a different market -Sometimes, a manufacturer will run a promotion in one region but not in another, and speculators will then buy extra quantity in the promoted area and ship it another area

positioning

>the value proposition exhibit -Customer needs and wants, overlaps with firm offerings -- the value proposition (Desired benefits for a particular customer not readily available from competitors) -competitor offerings should be outside these needs and wants to get them to purchase our product >some positioning strategies >>The value proposition—some possible benefits >Unique product/service >Price -Low price as benefit >Good value compared to competitors -Quality -Prestige -Customer values (e.g., cruelty free foods and personal care items) >Customer communication and education needed >positioning goes into price, product, distribution, and promotion -implementing chosen image and appeal to chosen segment

(segmentation, targeting, and positioning) Segmentation: -Bases -variables, levels, and segments

>Segmentation (IDENTIFYING MEANINGFULLY DIFFERENT GROUPS OF CUSTOMERS) --> Targeting (selecting which segment(s) to serve) --> Positioning (IMPLEMENTING CHOSEN IMAGE AND APPEAL TO CHOSEN SEGMENT) (Product, price, promotion, distribution) >>Identify -Different unique needs and expectations of different customer groups -Tradeoffs among strategies of serving different segments -Methods for selecting and targeting customer groups -Bases for implementing target selection through positioning >>Segmentation -Although not all these consumers are completely alike, they share relatively similar needs and wants -Marketing action involves: efforts, resources, and decisions--product, distribution, promotion, and price -can think about it in different ways -- The first definition emphasizes the pragmatics of selecting customers who have similar needs and respond similarly to marketing action (e.x. in some categories, customers will tend to be quote brand loyal, while in others they switch often) -- second definition involves issue of selecting segments that we can work with in practice (differences in segments should be actionable in the sense that one can provide different value to each group, or choose to focus on one of the segments that one can serve well) >>SPECIFYING SEGMENTS >Variables involve descriptors such as age, gender, income, price sensitivity, brand loyalty, geographic location, usage rate, and involvement >Levels involve the different categories within each variable. For example, for age, levels might be 0-20, 21-30, 31-40, 41-55, 56-65, and 66; for geographic location, Northeast, Southeast, Midwest, Southwest, West or urban, rural. >Segments are obtained by "crossing" the combinations—e.g., crossing usage rate (high, medium, low) with brand loyalty (high, medium, low) gives nine combinations (e.g., low usage, low loyalty; medium usage, low loyalty; high usage, medium loyalty). -Each variable will, in turn, have two or more levels, or values that the variable can take on -note that segmentation calls for tough choices -- may be a large number of variables that can be used to differentiate customers >>Bases -Geographic (technically part of demographics) -Demographic -Psychographic -Benefit Desired -Behavioral (Loyalty, Scanner data-based approaches)

Targeting: -process -approaches

>Selecting segment(s) and specializing "You can't be all things to all people" ---> choose one or more groups --Focus narrows scope of competition, but demands are greater >choice should depend on several factors: -how well are existing segments served by other manufacturers? -how large is the segment? -do we have strengths as a company that will help us appeal particularly to one group of consumers? >>Some criteria in evaluating segment attractiveness >Identifiability (and distinctiveness from other segments) >Reachability >Substantiality (segment size)—note that a large segment may attract heavy competition, however >Profitability >Responsiveness >>Approaches to targeting >Undifferentiated: Offering sold as a commodity by everyone to call customers >Differentiated: Firm makes different offerings to each of several different segments (e.g., auto manufacturers make different cars and trucks aimed at different customer groups) >Concentrated: Firm focuses on serving one segment (or offering one benefit)—e.g., Tesla (electric cars) >Micro-marketing (one-to-one): Unique offerings to each customer >>Identifiability and Reachability >Members of a segment need to be identified either individually or as a group with characteristics and to be reachable (i.e., targeted with advertising and reached with stores or other sales outlets) >Lists of very specific segments—to whom catalogs and other materials can be sent—can be bought from brokers >Examples of lists available: -Occupation (especially if licensed or listed in Yellow pages) -Organizational membership -Medical condition >Reach through specialized media >>Reaching target markets >TV network viewer demographics, lifestyles, and interests -Food network vs. ESPN vs. Bloomberg >Retail store level scanner data—e.g., drug store chain predicting pregnancy >Direct mail lists -Previous purchases - Auto and real estate ownership -Medical conditions -Profession organization membership -Warranty registrations -Area of residence -Estimated income -Other demographics >Specialty media -Specialized TV programs addressing product of interest (e.g., food, travel) -Print or online specialty magazines (e.g., digital photography, home improvement, jogging, travel, hunting) >Search behavior -Paid search—"pay per click" -Products explored online -Sites frequented

Pricing new products

>Skimming: high intro price ---> take advantage of price insensitive consumers -Initial sales volumes will be limited -High margins are likely to encourage competitors to enter and undercut your price -More effective when competitors cannot match your new offerings in the near future (e.g., newest Intel chips) >Penetration pricing: low intro price -Will usually result in higher sales volumes -Sales happen faster (less incentive to wait) -Competitors are less likely to enter and offer lower prices >>skimming pricing -The product is introduced at a high price, P1. Very few customers—only the least price sensitive ones—buy at this price. When the price is later lowered to P2 and then to P3, other customers who value the product less will start to buy The least price-sensitive customers pay a premium for quick access to the new product >>penetration pricing -The product is immediately introduced at a relatively low price (and will continue to be sold at a low price) -The seller sacrifices the higher margins that would have resulted from selling to some customers at a higher price, but, in return gains immediate sales -Fewer competitors are attracted to the market since the apparent profits are not as high -Because of economies of scale and experience curves—the tendency of production costs to decline with the cumulative production—costs are reduced

Main and subbrands

>Some brand names may consist of a main brand and a subbrand: -Apple iPhone -Toyota Prius >These brands may be referred to by the combination or by the subbrand >Even when the main brand is not mentioned, it is usually understood and adds value

"Jump starting" uber

>Subsidies—e.g., for electric cars, car makers and/or the government takes on a large portion of the cost of initial infrastructure (Although there may not be a lot of guests arriving in electric cars immediately, the hotel chain gets "bragging rights" of being the first to offer this. It is now more attractive for consumers to buy electric cars, and as the number of owners increases, more and more facilities find it worthwhile to join in the offering of charging stations) >Starting with a lesser innovation that can be used individually by one of the needed parties -E.g., OpenMenu: First introduced as an internal reservation for restaurants to use; later on, users were invited to join Internet network for diners to make reservations (an easy step that many restaurants could take over a short period of time) >>Jump Starting Uber >Uber must have drivers to attract riders, but recruiting drivers can be difficult if no riders have downloaded the app to hire them >Uber was started in San Francisco -Through regulations promoted by cab firms and their drivers, the supply of taxi cabs in SF has historically been kept artificially low à finding an available taxi is especially difficult and can take a long time -- This increased motivation to download -- This could help persuade drivers to sign up. -SF is a heavy tourist destination -- Once someone downloads the app for use there, he or she can use it elsewhere

(Cumulative) Customer value

>The central idea behind marketing is the idea that a firm or other entity will create something of value to one or more customers who, in turn, are willing to pay enough (or contribute other forms of value) to make the venture worthwhile considering opportunity costs -This idea can best be described as a ratio: (value = benefits received/sacrifices made) >If the customer receives greater benefits than the sacrifices that he or she makes, there is a potential for good value: >>Benefits —perceived by the customer (may not be objectively accurate) -Convenience (In delivery/In usage) -Reliability -Durability -Performance -Style/aesthetics -Prestige -Service component >>Sacrifices -Money -Time -Risk >>Recap -A low quality, low price product represents poor value for many customers -A very high benefit product at a high price can represent value for some segments -Customer segments differ in what they find valuable

Collaborative filtering

>Using "brute" computer force to identify additional items that a customer may want to buy >Two levels: -Product level: Items bought together at higher rates than chance -Individual level: Comparison of an individual to "similar" others who have bought many of the same things >Collaborative filtering is a process that can be used to identify products that an individual may be interested in buying based on identifying purchases which overlap with those of specific others -This allows the identification of products "discovered" by other customers to a customer who is statistically likely to find that product of interest (i.e., two psychologists—Drs. Jonathan Kellerman and Stephen White—both write murder mystery novels in which the protagonist is a psychologist who helps police find the killers -- Very likely, individuals who have read several novels by one of the authors would find those by the other of interest) -In the conventional bookstore, novels are typically arranged in alphabetical order, making this similarity difficult to detect -Online vendors such as Amazon.com, however, can rely on "brute force" computations in identifying overlaps of customer purchases (If even 10% of customers who have bought novels by Jonathan Kellerman have also bought books by Stephen White, this is likely to show up as a strong link, triggering a recommendation to individuals who have bought several books by one of the authors) -Note that a similar situation exists in the area of music: What exactly makes two artists "similar" to the extent that they may have similar potential fans? This overlap could be driven by "sound"—although it may be difficult to concretely describe the "sound" of different artists—lyrics, or other factors that may be difficult to catalog -- Overlap in purchases, however, will identify such apparent similarities >relies on a considerable amount of available information to make high quality recommendations -- Thus, one would expect the quality of recommendations made to improve as an individual accumulates a longer purchase record and as more customers are added to the database-The process works very well for Netflix because a large number of individuals have all rented and rated a large number of DVDs over time (i.e., although the movie Hotel Rwanda never got much interest at the box office, it has become one of the top ten most frequently rented DVDs at Netflix) -Note that the collaborative filtering system is improved considerably at Netflix because customers actually rate the movies after viewing them -- At Amazon, the system is based mostly on the decision of the customer to buy a book or other item rather than a post-experience evaluation -- It is, however, possible at Amazon to respond to recommendations—either by saying that one already owns the item or that it is not actually of interest -"win-win" deal -- merchant has the opp. to sell more items; customer finds value that he/she would otherwise have been less likely to find

The role of cost in pricing

>Your cost may not equal that of competitors or reflect value to customers -In some cases, larger margins can be sought. In others, one will have to settle for smaller ones -- May need to offer unprofitable products to be credible as a full line supplier -In some cases, a product is sold at little if any profit to make larger products on accessories and "consumables"—e.g., >>Amazon Kindle --> e-books and other digital content >>Printers --> cartridges and toner >>In the long run, you will generally need to cover at least your costs across products produced >>However, meeting cost should generally used as a test only after price has set based on market conditions -- Merely having higher costs does not allow a firm to charge higher than market prices

Complementary and substitute products (p. 305)

>complementary products -products whose demands are positively related -- rise or fall together >substitute products -- demands are negatively related -% increase in quantity demanded for one product decreases the quantity demanded of another

(Promotion) Encoding, decoding, and "noise" model

>encoding means converting the sender's ideas into a message, which could be verbal, visual, or both (thus the pepsi emojis signal fun times and activities during which people might be likely to drink carbonated beverages) >decoding refers to the process by which the receiver interprets the sender's message >noise is any interference that stems from competing messages, a lack of clarity in the message, or a flaw in the medium -poses a problem for all communication channels

Promotion signal

>ex. Sale! (reg. and now price) -- Everyday low price! -A segment of consumers will respond to negligible discounts--e.g., "SALE! $3.95 (Was $4.02) -However, merely placing a sign "EVERYDAY LOW PRICE" randomly also increased sales of affected products >Other Manufacturers' "Suggested" Retail Prices (MSRPs) -U.S. manufacturers often put an exorbitantly high "suggested" price on a product so that even full service retailers can look good by selling below the MSRP -In some EU countries, selling below the MSRP is generally not legal—manufacturers must therefore be careful not to "recommend" excessive prices

(Price) Price elasticity (pp. 301-303) (you will not be asked to do any calculations on exams)

>how consumers respond to actual changes in price -responses vary depending o the product or service >measures how changes in a price affect the quantity of the product demanded

Brand repositioning (pp. 239-241)

>or rebranding, refers to a strategy in which marketers change a brand's focus to target new markets or realign the brand's core emphasis with changing market preferences

target's use of data to predict pregnancies

>predicting pregnancy from target purchases >Twenty-five variables used to predict—e.g., -Change to unscented lotions and cotton balls -Dramatic increase in purchases of >Hand sanitizers >Selected vitamins >Wash cloths >Cotton balls >Legal issues >Ethical and public relations issues

Primary vs. secondary packaging (pp. 241-242)

>primary package is the one the consumer uses, such as the toothpaste tube -consumers typically seek convenience in terms of storage, use, and consumption >secondary package is the wrapper or exterior carton that contains the primary package and provides the UPC label used by retail scanners -consumers can use this to find additional product information that may not be available on the primary package -also add consumer value by facilitating the convince of carrying, using, and storing the product

the merge-purge process

>seen in Direct Mail Catalogs >Still used -Spam e-mail is technically illegal and viewed unfavorably -Catalogs get more attention -More elegant and higher resolution images >The "Merge-Purge" process: Combining different sources -Available sources include magazine subscription lists, competitors' customers (more catalogs are believed to increase the "pie" size rather allowing competitors to take away) -No one source contains all potential customers; thus, sources are added together (merge) -There will likely be some overlap between sources, so duplicates must be removed (purge) >Limited response rates -Typically 1-3% when highly relevant sources are used (e.g., past purchase) -Merely sending to everyone in the phone book would result in a much lower rate! -The 1-3% response rate is considerably greater than response to TV, newspaper, and magazine advertising >>see chart in presentation if needed >merge-purge -Increases the number of individuals in the database but does not necessarily add more information about each individual -When no single source contains all the customers of interest, it is possible to combine different lists and remove the duplicates

Supercenters and warehouse clubs (p. 348)

>supercenters -large stores that combine a supermarket w/ a full-line discount store -walmart has them, target -185,000 sq. ft >Warehouse clubs -100,000-150,000 sq. ft -offer a limited and irregular assortment of food and general merchandise, little service, and low prices to the general public and small businesses -Costco, Sam's Club (Walmart) -typically members pay an annual fee, which amounts to significant income for chains

Model of encoding and decoding advertising messages

>view diagram on slide 6 >Sender --> Encoding the Message (Advertisement, Coupon, Sales presentation, Press release, Store display) --> Message channel (Media, Salesperson, Retail store) --> decoding the message (Receiver, Interpretation of the message) --> receiver (Customers, Media audience, News media, Clients) >>> all comes back thru channel feedback >>> also is affected by "noise" (distractors) (Other ads, News articles, Other store displays) -- can impact steps 2, 3 and 4 (message must compete with other ads and for limited customer attention -- Repetition is crucial)

Value proposition (pp. 193-195)

>view pages for diagrams of with or without competitors >the unique value that a product/service provides to its customers and how it is better than and different from those of competitors

Potential channel structures suitable for different markets/conditions

>view slide 13 from this presentation

Retailer type vulnerability to online sales

>view slide 15 from presentation >>Retailers vary in the extent to which they are vulnerable to online competition -Note that certain types of retailers require a certain "critical mass" to be effective -- A number of mall stores have gone out of business, making it less attractive to go to mall (This creates a potential vicious cycle) -Recently, a number of gyms and other athletic facilities have moved into former retail space that has become available mall space, bringing about regular traffic -This appears to have helped restaurants in malls, but it is less clear how much traffic and sales this has brought to retail stores there -Historically, malls were a bit of a hangout, especially for teenagers -- This is not as much the case today.

Parallel distribution structures (multi-channel marketing)

>view slide 18 for diagram >refer to the fact that products may reach consumers in different ways -Most products flow through the traditional manufacturer --> retailer --> consumer channel -Certain large chains may, however, arrange to buy directly from the manufacturer since they believe they can provide the distribution services at a lower cost themselves (This only works if you have enough volume to, in effect, efficiently perform the wholesaling task on your own) >In turn, of course, they want lower prices, which may anger the traditional retailers who feel that this represents unfair competition. In some cases, firms may choose to establish their own company stores (e.g., the Apple Store) -Although it will usually be more expensive to operate these stores than selling through other retailers that can spread costs over a larger assortment of merchandise, company stores may help provide customers additional service (e.g., repair facilities, support, and demonstration of products)