MKTG 4300 Final
How does traditional segmentation relate and differ from value segmentation ?
Same; create as many segs as possible -tradit: for reaching all needs and thus profit -value- for maximizing profit with capabilities Different: segmentation criteria -tradit: by needs -value: by value drivers; weights
Customer Driven Pricing (Value Based Pricing)
a method of pricing in which the seller makes a decision based on the prices of its competition
Marketing is the process of
planning and executing the conception, pricing, promotion and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals.
FOB Point of Purchase Pricing
seller pays cost of loading goods on carrier; the customer pays entire transportation costs (shortest distance from manufacturer is cheapest, farthest distance from manu is most expensive)
Psychological Pricing
setting prices to advantage of a customer's perception of value of the product --> common for prices to be set below the key price to make the product appear cheaper than it is ($999 vs $1000... 3 digits vs 4 digits) quality is subjective
what is contingency value pricing
when price is not identifiable before service/good is provided ex: real estate commissions; they do it then calculate value of it/price
What's the equation for EV?
+ differentiation value + reference value - costs of your brand = + diff value= labor savings, yield savings =costs= sample size costs
Which of the following statements regarding value-based pricing is false? A. One need to identify customer value B. One needs to estimate the economic value C. One needs to find way to capture customer value D. One needs to communicate the product value E. None of the above
None of the above
What is a solution to PUP and MLOT?
Nonlinear pricing - two part tariffs etc
Who is more price sensitive and costly to a company, light user or heavy user?
P: heavy user, understands value C: LIGHT USER, less revenue from them to over same cost to service them as a heavy user
Who is more price sensitive to a company, students or retired?
P: students, generally poor and low income
2) Which of the following is NOT one of the reasons that fueled the growth of the 1970s consumerism movement? a. skyrocketing inflation b. automation c. deregulation d. more informed consumers e. surplus labor
e. surplus labor
Price
is a noun and a verb - that WTP and giving up something
Product Line Pricing: Product Mix Width
P&G Personal Care and Food&Drinks --> These two categories are the width
The more channel service requirements for consumers are met, the more total costs go ______
UP
Role of Distribution Channel: Info
gathering and distributing market research and intelligence - important for marketing planning
pricing policy
general guideline that reflects marketing objectives and influences specific pricing decisions Specifies: What prices to be charged? Conditions for those prices to be charged When To whom? How much?
Promotional Discount
given to distributors as an allowance for the distributor's efforts to promote the manufacturer's product through local advertising, special displays, or other promotions (cooperative advertising) WHY? --> to reward distributors that promote the manufacturer's product in many ways
promotional discount
given to distributors as an allowance for the distributors' efforts to promote the manufacturer's product through local advertising, special displays, or other promotions (B2B) Cooperative advertising, etc.
quantity discount
granted for volume purchased Induce customers to buy more
Quantity Discounts
granted for volume purchases (price reductions designed to induce large orders) -buy 2 get one free
Product Line
group of related products under a single brand sold by the same company Ex: P&G
Direct Distribution
high control, limited reach -few large customers -expensive to scale
Manufacturers' loss leader pricing
(= captive product pricing) - manufacturers have loss leaders and make profit from other supplementary products
Brands Can Move On the Matrix
- by developing the right messaging, a company can differentiate - if you can persuade customers that buying from the company matters a lot, you can grow market share rapidly - there is a structured approach called - laddering - that is used by leading marketing companies to develop such messages
Why Value Matters?
- "Frugalnomics" and the economic buyer - Multi-channel competition - Global competitors - Less emphasis on relationships
Profitability Analysis - elements of profitability
- (P) Price Per Unit - (Q) Volume - units - sold per period - Costs - - Variable per unit (or activity) (VC) - - Fixed per period (FC)
Vertical Marketing System Examples
- 7 eleven sells Dunkin Donuts -embassy suites has red lobsters -chain fast food operations in convenience stores
What distributors say about value
- 90% of respondents believe that they deliver more value than their competitors - This response is nearly identical to the response from two years ago. - Two issues: 1) Price Pressure 2) Unclear understanding of value
Commercial Loans Revolving Credits
- A hybird of short-term working capital loans and term loans - typically involves the commitment of funds for 1 - 5 years - at the end of some interim period, the outstanding principal converts to a term loan - during the interim period, the borrower determines how much credit to use - Mandatory principal payments begin once the revolver is converted to a term loan
The Lake Wobegon Effect
- A natural tendency to overestimates one's capabilities, is named after the town. The characterization of the fictional location, where "all the women are strong, all the men are good looking, and all the children are above average," has been used to describe a real and pervasive human tendency to overestimate one's achievements and capabilities in relation to others
Judging the Loan Requests: Credit Risk and Negative Signals
- Assessing credit risk: commitment and ability to repay; compliance with loan policy and credit underwriting - Negative Signals include borrower's: account overdrafts; changes in business structure; cash shortages; personal habits changing for the worse; and Business goals incompatible with stockholders, employees and customers
Sample Loan Covenants Affirmative
- Borrower must maintain following financial ratios: current ratio > 1.0; days receivables outstanding < 50 days; inventory turnover > 4.5 times; debt to total assets < 70%; Net worth > $1 million; fixed charge coverage > 1.3 times; cash flow from operations > dividends + current maturities of long-term debt - certified financial statements must be provided within 60 days of end of each fiscal year - Borrower will maintain %400,000 key man life insurance policy on company president, with bank named as beneficiary - Banks will be allowed to inspect inventory receivables, and property periodically - borrower must pay all taxes and government fees, unless contested in good faith, and comply with all laws - borrower must inform bank of any litigation or claim that might materially affect its performance - borrower must maintain all property in good condition and repair
Judging the Loan Request: Screening the risk
- Borrower's management, operations, and industry: business risk, competition, technology; economic risk: local, regional, national, international - Analysis of the borrower's financial ratio analysis - analysis of cash flow - projections and/or pro-formas
Judging the Loan Requests: How much is the right amount?
- Borrowers often seek loans(s): without understanding how much is available from existing INTERNAL resources; before hey understand how much EXTERNAL financing in needed - Borrowers often...: ask for too little; and return later for more funds - The LENDER SHOULD ESTIMATE how much a borrower needs now and in the future
CREDIT ENHANCEMENTS TO REDUCE RISK
- Collateralization - Loan Guarantees - Credit Insurance - Credit Derivatives - Excess cash flow - Reserve accounts
The Credit Process - Credit Analysis
- Collect information for the credit file - Evaluate management, the company, and the industry - conduct a financial statement analysis - project the borrower's cash flow and its ability to service the debt - evaluate collateral or the secondary source of repayment - write a summary analysis and making a recommendation
Measuring Loan Portfolio Risk - Loans
- Concentration Risk - Country Risk
Real Estate Loans
- Construction and Development Loans - due upon completion and or sale - Interim financing, balloon financing, tailored financing terms - Commercial Real Estate - Typically short-term loans consisting of: Land development, construction and building loans; loans secured by commercial real estate - Multi-Family Residential Real Estate and 1 -4 family residential: Portfolio loans or sold to secondary markets - Home Improvement and Home Equity Lines and Loans - Farmland - Other Real Estate Loans
#3 Medical Products - Asthma Management
- Exercise - series of products that were aimed at management... § What was done and how it was used to solve a business problem § So the actual business thing that was going on is that the company was trying to buy a technology company that made a new enhancement technology § There was a established market leader in the market place § And a fairly expensive product that cost -> 10s of thousands of dollars to buy § That was what we called market leader -> $42K for the product § Average cost per test was $12 § Product lasted a long time (30K views) before you had to refer to get something new § Harder to maintain because it was older technology - and the maintenance cost was higher § It took longer to do the test > 12 minutes rather than 6 or 5 minutes § So there was higher labor cost -> high end nurses... § Maybe the assumption that the revenue per test was the same § So there wasn't a real big difference there § Also discovered that for certain test and technologies - there was something called the retention referral that patient came back and they came back monthly, quaterly, or every three or six months to see if they were giving the patient were working or not - how well they were working and if use the test to measure the effectiveness § So two of the technologies actually had benefit there § There were three different kinds of physicians that were evaluated § Allergies - typical allergy office might have dozen physicians § Couple nurses § And do couple thousand visits primary care doct
CDS Triggers
- FAILURE TO TIMELY PAY principal and interest payments - RESTRUCTURING that negatively affects lenders/investors - BANKRUPTCY OR INSOLVENCY where debt remains unpaid - ACCELERATION of the principal and interest payments prior to original loan schedule - REPUDATION OR MORATORIUM where lender(s) rejects or refuses to pay the debt
Judging the Loan Requests: Sources of repayment Other sources of repayment
- GUARANTORS' cash flow or liquidation of assets - VOLUNTARY SURRENDER of collateral: extinguishment of debt; tax consequences - LIQUIDATION of collateral - FORECLOSURE litigation - Judgment creditor SEIZURES - Charge-off RECOVERIES
The cost questions in pricing are:
- How much sales gain would be required to profit from a price cut? - How much sales loss would be tolerable to profit from a price increase? - What costs can we afford to incur and still earn a profit?
The Credit Process - Credit Execution and Administration Loan Decision
- Individual officer decision - committee - centralized underwriting
Judging the Loan Requests: Use of Loan Proceeds
- Legitimate business operating purposes, including: seasonal and permanent working capital needs; purchase of DEPRECIABLE assets; EXPANSIONS of physical plant, geographical scope, product mix; ACQUISITION of other firms - speculative asset purchases and debt substitutions whould be avoided - Use of loan proceeds can either ENHANCE the ability to repay or make it RISKIER
The Credit Process - Credit Execution and Administration
- Loan Decision - Loan Agreement - Loan Covenants - Documenting the Security Interest - Loan Review - Handling Problem loans
The Credit Process - Three Components Credit Execution and Administration
- Loan committee reviews proposal/recommendation - accept/reject decision made, terms negotiated - loan agreement prepared with collateral documentation - Borrower signs agreement, turns over collateral, receives loan proceeds - file materials in credit file - process loan payments, obtain periodic financial statements, call on borrower
The Credit Process - Policy, Philosophy, Culture
- Loan policy: formal lending guidelines - Credit Philosophy - Credit Culture - management principles - how management analyzes risk
Shared National Credits (SNC)
- Loans and loan commitments of 420 MILLION OR MORE made by: 3 or MORE UNAFFILIATED financial institutions; under a FORMAL LENDING AGREEMENT - Created in 1977 by regulator agencies to monitor and review: RISK STRUCTURE of large syndicated loans; CONCENTRATION RISK; AND mitigate risk of LACK OF DIVERSIFICATION in economic crises
The Credit Process - Credit Analysis Five C's of Good Credit
1) character 2) Capital 3) Capacity 4) Conditions 5) Collateral
Loans to Individual and Consumer Loans
- Loans to individuals to loans to real persons, not businesses or corporations: commercial or consumer terms Consumer loans: - loans for personal and family purposes - Installment lending: require periodic payments of principal and interest; usually level monthly payments for term of the loan - Credit Card - revolving credit terms on retail cards
Goal of Pricing and Financial Analysis
- Managerial Question: Should we increase - decrease - our price next year? - A useful financial analysis involves an accurate identification of the true cost of sales, and determination of the effects of sales changes on profitability - the goal of financial analysis is to identify the trade offs between the levels of price and sales volume that will increase profits
The Credit Process - Three Components Business Development and Credit Analysis
- Market Research - Advertising, public relations - officer call programs - obtain financial statements, borrowing resolution, credit reports - Financial statement and cash-flow analysis - evaluate collateral - line officer makes recommendation on accepting/rejection loan
Disadvantages of indirect distribution channels
- No control on the market - lack of direct info from market - no contact with endusers - Risk of substitution from intermediaries
Loan Categories as named by Regulators
- Real estate loans - commercial loans - individual loans - agricultural loans - other loans and leases in domestic offices - loans and leases in foreign offices
The Credit Process - Three Components Credit Review
- Review loan documentation - monitor compliance with loan agreement: positive and negative loan covenants; delinquencies in loan payments; and discuss nature of delinquency or other problems with borrower - Institute corrective action: Modify credit terms; obtain additional capital, collateral, guarantees - Call loan
Commercial Loans SEASONAL working-capital loans
- SEASONAL working-capital loans: need arises on a regular basis; cycle completes itself within one year; Finance temporary increase in net current assets; SELF-LIQUIDATING if repayment derives from sales of finished goods
Collateralizing the loan Collateral must have...
- STABLE VALUE over time and retain value through economics cycles - GENERAL VALUE to a wide audience of potential buyers - GOOD LIQUIDITY to a wide audience of demand
Commercial Loans Asset-Based Loans
- Securities by assets of the borrower, i.e., raw materials, work in progress, inventory, accounts receivable, or other assets - if secured by accounts receivable, payments made to Lockbox - fixed-asset financing - interim or permanent
#2 Promotion - Email Archiving
- So that was something that they were able to expand the product § Email archiving - big business that had email systems - spending lot of money and free of email storage § They don't need much storage and managed the email better § It turned out that it did same a lot of money in managing mailboxes to the users § But the real cost savings for businesses for this set of products was that it made them able to respond to lawsuits § Because they was selling into things like law firms and businesses that have lots of high liability § So the real cost savings or real financial benefit was that they didn't have to drop everything and go through gigabytes of documents in order to respond to a lawsuit § But the other thing was that when they did financial analysis - with the value model - the annual TCO for what they were doing currently was over a million of dollars but the actual cost to IT was only $50 per user The other new solutions were different § They though that their initial sales were IT sales that made the IT guys life easier - but it turned out that - their really feed out other time for all the other people in the office - otherwise had to go through their own archives... So totally change the productivity profile of all the employees
Judging the Loan Requests: Quality of Financial Statements
- TAX RETURNS prepared by profession tax preparer - AUDITED FINANCIAL STATEMENTS - ACCOUNTING CHOICES requiring estimates and judgments: changing in accounting periods; changes in accounting principles, methods or key assumptionsm made; extraordinary expenditures and nonrecurring transactions and significant differences in income-expense versus cash flow; and non-operating income, gains an losses
Limitations of Break-Even Analysis
- The assumption that variable cost remain proportional to volume at all output levels - the assumption that price is constant over relevant volume levels - costs used in the analysis may be relevant over a limited range of volume
Key Learning from Alpha Case
- The key success often resides in gaining a clear understanding of the real attributes driving customer choice and their relative importance - Softer nontechnical attributes - perceived reliability, quality of vendor support, ease of doing business - are often as important as or more important than precisely measurable technical features - trusting internal perceptions of which attributes drive customer choice can be a fatal mistake: rely on customers for the critical information
The loss leader pricing is effective when
- The manufacturing cost of the loss leader is minimal - consumers purchase other item(s) in addition to the loss leader
Loss-Leader Pricing
- sell a product at a loss to get a bunch of customer in the door - Example: Sell turkey at a loss on thanksgiving and people buy other things - deliberately selling a product below its customary price to attract attention to it (not always loss)
USPS: cost based pricing
- USPS change their pricing they kept increasing their costs of stamps because they were trying to cover more and more costs - but everytime they did their pricing piece - their extra volume wend down - people starting to look for alternatives such as DHL, FedEx - so its not always a simple formula that can simply change the dynamics of the margin
La Grand Alliance (LGA) - Summary
- Use complex allocation schemes only when they are appropriate - think about how cost information will be used when designing a cost information system - think of ways to control costs other than allocation - consider the behavioral implication of any system you design
Collateralizing the loan Collateral must exhibit three features:
- VALUE MUST EXCEED OUTSTANDING LOAN BALANCE by acceptable margins (50%?...60%?...80%?...???%)...Loan: Value ratios - Lender must have PERFECTED LIENS, sometimes PHYSICAL POSSESSION - Be easily obtainable by the lender - VOLUNTARY SURRENDER or in FORECLOSURE
Customer Value-Based Pricing
- Value-based pricing: firms set selling prices on the perceived value to the customer, rather than the actual cost of the product, the market price, competitor prices, or the historical price goal of value-based pricing: to align price with value delivered - marketing: creating value for consumers - pricing: capturing the value created fro consumers
Value and Price Positions
- We offer - much more value - than our competitors for a - higher price - than our competitors We offer - more value - than our competitors for roughly the - same price - as our competitors - We offer - comparable value - to our competitors for a - lower price - than our competitors - we offer - less value - than our competitors for a - much lower price - than our competitors - we offer - more value - than our competitors for a - lower price - we offer - comparable value - to our competitors for roughly the - same price
Loan Requests: Judging Credit Risk Important questions regarding loans requests
- What is the CHARACTER of the borrower, the nature of he loan request and quality of information provided? - How will the loan proceeds be used?...PURPOSE of the loans? - How much does the borrower NEED to borrow? - What is the PRIMARY SOURCE OF REPAYMENT, and when will the loan be repaid (i.e., TERMS OF THE LOAN)? - What is the SECONDARY SOURCE OF REPAYMENT; that is, what collateral, guarantees, or other cash inflows are available?
Recent Trends in Loan Growth and Quality
- Wholesale Bank: emphasizes lending to business - Retail Bank: emphasizes lending to individuals; primary funding is from core deposits
Fixed cost
- a cost that does not vary with sales or production levels - Ex. rens, administrative salaries
Variable Cost
- a cost that is directly related to production volume - Ex. parts, labor
loan quality problems Net Losses (aka Net Charge-offs)
- all loans that are formally charged off as uncollectible, minus recoveries (payments received) on loans previously charged off
Financial Projections PRO FORMA projections reveal: exactly HOW THE LOAN PROCEEDS WILL BE USED:
- asset acquisition: equipment, related premises expense - expansion plans: geographic or product-mix - human-resource expenses: new or expanded pay scale - interest-expense reserves, other contingencies - other panned expenditures: legal, marketing
CREDIT ENHANCEMENTS TO REDUCE RISK COLLATREALIZATION
- assets pledged to secure the loan
Break-even analysis
- break-even point is the quantity of output at which total revenue = total cost - sales exceeding break-even point result in a profit - sales below it results in loss
What types of direct channels have highest margins
1. Corporate - dell, mac, companies website 2. Specialty - reseller , catalog
Sample Loan Covenants Negative
- capital outlays cannot exceed $3 million annually - cash dividends cannot exceed 60% of periodic earnings - total officers' salaries cannot exceed $500,000 annually - No liens on assets beyond existing liens - No mergers, consolidations, or acquisitions without bank approval - no sale, lease, or transfer of more than 10% of existing assets - No change in senior management - No additional debt without bank approval
The Credit Process - Credit Execution and Administration Handling Problem loans
- collection and recoveries - keep as separate function from other lending responsibilities - modify terms of the loan agreement to increases the probability of full repayment
Recent Trends in Loan Growth and Quality FDIC Bank-lender categories
- commercial lenders - majority of FDIC-insured banks - credit card banks - international banks - agricultural banks
The Credit Process - Credit Execution and Administration Loan Agreement
- confirms loan purpose - terms of the loan - repayment schedule - collateral required - any loan covenants - elements of default
pricing orientations
- cost-driven pricing; most basic, ability to produce high quality at low cost - Customer-driven pricing; something that meets value - Costco going after segment that cares about getting a good deal - competition-driven pricing;
Financial Ratio Analysis
- current ratios (CA/CL) - Quick ratio - sales-to-asset ratio - days accounts receivable and turnover rates - days inventory and turnover rates - days accounts payable - times interest earned - fixed charge coverage ratio - debt-to-total asset ratio - net fixed assets to tangible net - dividend payout ratio - return on equity - ROA - sales growth
Trends in Loan Growth and Quality
- dependence on loans - largest loan category for banks - second largest loan category for banks
The Credit Process - Policy, Philosophy, Culture Loan Policy: Formal lending guidelines
- established by management and approved by the boar of directors: secured and unsecured loan authorities, portfolio allocations; approved types of loans, level of authority - position limits: maximum allowable credit exposure to any single borrower, industry or geographic local - Risk Rating Loans: evaluating characteristics of the borrower and loan to assess the likelihood of default and the amount of loss in the event of default
cost plus pricing advantages
- fair returns over costs for each item sold. - simple
Agricultural Loans Long-term "Ag term loans"
- finance livestock, equipment, and land purchases - repaid from cash-flows from sale of livestock and harvested crop in excess of operating expenses
cost-driven pricing Strategic - the cost questions relevant to pricing are:
- how much sales volume would we need to profit from a price cut? - how much sales volume could we afford to lose and still profit from a price increase? - What costs can we afford to incur and still earn a profit on the resulting sales?
steps of value oriented pricing
- identify potential economic value - build economic value model - validate economic value with voice of customer - develop price model
Customer Driven Pricing
- is figuring out what is the customer willing to pay but its not customer WTP but what price is justifiable - the customer question relevant to pricing is not: What price is the customer willing to pay? the customer questions relevant to pricing are: - what price can we convince customers is justified by the value of our product - or service - to them? - How can we better segment customers to reflect the differences in value to different types of customers?
cost plus pricing - disadvantages:
- it may not be able to determine the costs before the price. Why? - may not know cost for a year - volume changes with the price - passive pricing, not proactive - may lead to a death spiral
Trends in Loan Growth and Quality Dependence on Loans
- larger banks have less dependence: largest share of loans to individuals - smaller banks still are dependent: largest share of loans on farmlands and farms
Commercial loans
- short-term - seasonal - lines of credit - term loans - revolving credits - asset-based loans - fixed-asset financing - HLTs
Documenting other source of repayment Liquidating collateral as a last resort:
- litigation and foreclosure COSTS - BANKRUPTCY LAWS block foreclosures, in the short term - seizure of collateral...the KISS OF FINANCIAL DEATH
Benefits of Loan Participation, Syndication, Sales
- loan portfolio DIVERSIFICATION by industry or location - compliance with LOAN POLICY and in-house LOAN LIMITS - Greater LEVERAGING OF DEPOSIT BASE, while REDUCED LOAN RISK - increased SCREENING of borrower's financials and credit risk - reduction of ASYMMETRIC INFORMATION - selling-bank's retention of SERVICING FEES, share of INTEREST INCOME - SHARING OF LEGAL FEES in litigation of foreclosure
Common pricing strategy and tactics
- loss leader pricing - discount/ allowance - segmented pricing - psychological pricing - geographic pricing
the goal of pricing strategy should be to
- maximize long run profitability Pricing Strategy: costs, competition and customers -> strategic objectives > goals > tactics
The Credit Process - Credit Execution and Administration Loan Review
- monitoring performance of the loan - keep as separate function from credit analysis - loan review committee should act independently of loan officers and report directly to the CEO of the bank
Recent Trends in Loan Growth and Quality FDIC Bank Categories
- mortgage lenders - consumer lenders - specialized banks (< $1 Bil assets) - Other Banks (< $1 Bil assets) - Other Banks (> $1 Bil assets)
loan quality problems
- non current loans and leases - net losses (aka net charge-offs)
loan quality problems Noncurrent loans and leases
- payments past-due 90 day or more - interest-accruing and non-accrual status - nonaccrual loans and leases: deterioration in the financial position of the borrower; full payment of interest and principal is not expected - principal or interest in default for 90 days or more, unless well-secured and in process of collection
Documenting other source of repayment Guarantors
- personal CONTINUING GUARANTEES and/or OTHER GUARANTEES - GUARANTOR'S CASH FLOW with net worth in reserve - COLLATERALIZED guarantees
The Credit Process - Credit Execution and Administration Loan Covenants
- positive (aka affirmative) - specific provisions to which the borrower must adhere - negative - indicate financial limitations and prohibited events
Demand
- price and demand are inversely related - price elasticity of demand - the: Change of Demand / Change of Price
psychological pricing
- prices as a quality cue - Ex. Starbucks - Prestige pricing; raising price above competitive level - Ex. Tag Heuer raised average price from $250 to $1,000 - Odd pricing - setting the prices at uneven amounts such as $1.99 rather than $2.00
cost-plus pricing
- pricing based on costs and markup - percentage of selling price that is added to the cost to get the selling price - selling price = cost + markup - most retailer and wholesalers use cost-plus pricing
Judging the Loan Requests: Sources of repayment
- primary sources of repayment determines risk of the loan - specific cash-repayment sources based on types of loans: short-term and seasonal WORKING CAPITAL LOANS repaid from (receivables payments, and/or, sale or liquidation of inventory); term loans typically repaid from cash flows from operations - repayment from four primary sources of CASH FLOW: cash flow from NORMAL OPERATIONS; new DEBT OR REFINANCING; SALE OF ASSETS; and new EQUITY CAPITAL (new or existing owners)
Agricultural Loans Loan proceeds are used to:
- purchase seed, fertilizer and pesticides - pay other production costs - Repaid when crops are harvested and sold
La Grand Alliance (LGA) - Cost Information
- raw materials are a normalized estimate of the target cost of an individual dish - in practice, cost would be increased by waste in preparation, imperfections in measurement, "fix-ups", staff meals, spoilage, and shrinkage - prep time for an individual dish did not take into account time spent on prior preparation, e.g. stocks, sauces, dough, etc. - prior prep could be as much as 30% of staff time
Trends in Loan Growth and Quality Largest loan category for banks
- real estate as collateral - residential 1 - 4 unis homes - largest component of R/E loans - commercial real estate - highest for banks with $100 million to $1 billion in assets
The Credit Process - Credit Execution and Administration Documenting the Security Interest
- require borrower to sign a security agreement that assigns the collateral - perfected: filed in local- country records
Financial Projections PRO FORMA projections reveal: Expected increase in CASH FLOW FROM OPERATIONS
- revenues targets, gross profits, net income, cash flow - pro-forma interest expense - specific impact of pro-forma on specific income and expense categories
CREDIT ENHANCEMENTS TO REDUCE RISK EXCESS CASH FLOW
- securitizations where payments to investors are less than paymetns by the borrower(s) CREATING CASH RESERVES TO PAY MISSED PAYMENTS
price elasticity
- soft drink, coffee, snack: 1.5 to 2.5 - fruit, vegetable, wine: 0.8 - watches: 0.4 - Gasoline: 0.2
rational vs emotional buying behavior
- some purchases are inherently more emotional than others - large purchases are inherently less subjective than small purchases - buyers often use analytical tools to evaluate large purchase options - there are often multiple decision markers, which "washes out" biases
Demand is less elastic when
- there are no or few substitutes - buyers have strong preferences towards products or brands - buyers think that higher prices are justified by quality improvement: high price signals high quality
Value Analysis
- to know who we should charge to, and how much to charge, we need customer value analysis - customer value analysis is to understand all the experiences that customers have with the products and services the firm provides them
La Grand Alliance (LGA) - Background
- week before restaurant opening in Boston in 1976, US bi-centennial - la Grand Alliance is in the Lafayette Hotel and owned by L'unions des Grand Hotels (UGH) - capacity of 100 people at a time, 700 dinners per week, 750 lunches, 4.3 weeks per month - Aim for "average check" of $15 per dinner and $7.50 for lunch - cost handled elsewhere; wine cellar; shared services such as laundry and cleaning
Vertical Marketing System: Degrees of Direct Control
-Corporate: common ownership at different levels of the channel -Contractual: contractual agreements among channel members -Administered: leadership is assumed by one member or a few dominant members
Damaged Goods Strategy
-IBM example: LP printer, created LPE that just prints more slowly at a cheaper price. Offered for an additional $1099, one can upgrade the LPE to the LP. Obvious choice over HP counterpart -Sony Blank mini-discs, 60 minute discs ($13.99) vs 74 minutes discs ($16.99) -Mathematica: student version at $180, numerical calculations took much slower price was 1/4 the normal version (this makes the students want to buy the faster one, this increases profit)
Pricing New Products -- two methods
-Price Skimming -Penetration
The Credit Process - Three Components
1) Business Development and Credit Analysis 2) Credit Execution and Administration 3) Credit Review
Types of Channel Conflict
-Vertical Channel Conflict -Horizontal Channel Conflict -Multichannel Conflict
The Credit Process - Credit Analysis Five C's of Bad Credit
1) Complacency 2) Carelessness 3) Communication 4) Contingencies 5) Competition
Examples of Promotional Discount
-advertising in local newspapers -special displays -a percentage reduction in the price paid -additional merchandise (a free case for every dozen cases ordered) -cash payment -special deals
Segmented Pricing Product Examples
-airline industry (different prices for same seat, time is the differentiator)
Aggression
-also known as a competitive style -it means being concerned about one's own goals without any thought for the others -the dominating channel partner (may be the principal) dictates terms to the others
Collaboration
-also knowns as the problem solving approach -tries to maximize the benefit to both parties while solving the dispute -most ideal style of conflict resolution -requires a lot of time and effort to succeed -sensitive info may have to be shared
Finding the Ideal Channel
-asses the importance of end-user's demand for channel services -assess costs of service provision of different channel structures or systems
Resolving Conflicts
-avoidance -aggression -accommodation -compromise -collaboration
Compromise
-both sides have to give up something to meet mid way -can only work with small and not so serious conflicts
E-commerce
-breaking the tradeoff between reach and control -saves money while creating networks
Indirect Channel
-bug buyers (supermarkets, chain stores, other manufacturers) -importers -wholesalers -trading companies -commissioned agents -cooperatives suppliers are typically higher cost providers of logistic services than intermediaries -when logistics is more important
Making Sense of Bundling
-bundle products that provide the customer with a clear better-together value proposition (Adobe) -focus on attach products with low penetration but high potential (triple play --> tv phone and internet) -stick with higher-margin attach products: HP, VMware, Microsoft combo -Ensure that the value of the attach product is high enough compared with the core product
Marketing Factors
-buyers may mandate that products be sold a certain way -customer needs regarding product information, installation, technical assistance -willingness to channel intermediaries to sell and distribute a company's product -profit margins demanded by wholesalers and retailers, and the commission demanded by sales agents -location/geographic concentration of customers
Segmented Pricing: Examples on what to vary on
-channel purchase (online vs in store purchase) -time used (vacation packages depending on time of year) -time of purchase (items are priced higher before holidays) -location (theaters and concert venues, depending on how close you are to the stage) -volume (large volume you order, the smaller price per unit you pay) -attribute or feature (first class vs coach, hardwood or laminate) -service offering (plane ticket that is non-refundable is usually less expensive than ticket that is fully refundable)
Developing Markets: Creating A Winning Channel
-choose the right partners -establish the right structure and distribution setup -build internal capabilities for active channel management -enable the channel partners to perform
Intensive Distribution
-convenience products (coke, pringles, duracell) -available in many retail outlets -product is inexpensive -customers can choose from large number of good brands -provides max coverage of market by using all available outlets -most purchases are unplanned and impulsive -- spotted by customer -seek out new outlets
Channel Member Selection Criteria
-credit/financial condition -sales strength -product lines -reputation -market coverage -sales performance -management succession -management ability -attitude -size of channel member -own sales force -reputation -current business
Benefits of Bundling
-customers see bundled products as a "deal" -it influences customer's buying decision (subconsciously) --> The Blue Pack (men's accessories paired together already) -it increases average order value (Baublebar)
Product Factors
-design/production of large and complex products need personal contact between manufacturer and customer -manufacturer and customer remain in active contact during the lifetime of equipment
How Segmented Pricing Can Go Wrong
-dilution -backlash -stagnation
Direct Channel: Advantages
-direct market control -own people more efficient -immediate changes on mktg mix -more info from the market -sale actions more efficient and lasting -presence on markets without intermediaries -brand diffusion -intermediaries mark ups retention
Perceived Conflict
-discords become noticeable-channel members are aware of the opposition -channel members take the situation in their stride and go about their daily business
Taza Example
-face to face relationship with farmer -premium price/brand -distributors buy in largest quantities -wholesale is the best channel -delivering perishable products -distributors often hold inventory in refrigerated warehouses to have ready for next day delivery when retailers place orders
Examples of Advance Purchase Discounts
-flight tickets (lower price with advanced booking, high price with last minute purchase) -concert tickets
Competitive Factors
-if competitors control traditional channels of distribution, a company has to decide to sell directly or set up its own distribution network -players of an industry sell/distribute in a particular way, but a manufacturer should not assume that channels of distribution used by competitors are the only way to reach their customers
Distribution Intensity
-intensive -selective -exclusive
Divergences from the ideal channel occur due to
-lack of free competition - barriers to entry or exit -legal constraints -resource constraints
Stages of Conflict
-latent conflict -perceived conflict -felt (affective conflict) -manifest conflict
Penetration Pricing
-low intro price -reasons: customer should quickly come into contact with product, quick deduction of large amounts, diffusing the competition -low price is slowly increased -example: software
Disadvantages of Cash Discounts
-may be more economical for a firm to borrow money on a short-term basis than to offer cash discounts in case of liquidity crunch -large buyers may take the cash discount as a matter of routine, even though the payment is not made within the discount period
Channel Management in Emerging Markets
-mom and pop shops still make up 40-90% of retail sales depending on the country -Brazil, Russia, India, China and Indonesia -- retail formats growing annualy by 20% -have to work with a huge number of small, independent outlets --> costly -have to use fragmented network of third-party agents, distributors, and local wholesalers --> this diminishes the margins of all channel partners and reduces the upward flow of market intelligence and visibility to the company -rely on Direct Distribution, selective outsourcing, integrated distribution, distributed distribution, e-commerce
Manufacturer Factors
-most manufacturers are good at designing and producing products, and hence want to delegate the task of selling and distributing to channel intermediaries (some dont have the financial/managerial resources to take on tasks of selling/distributing) -wide mix of products makes direct distribution feasible -when a company uses indirect channels, it loses control over the way the product is sold to customers, price, stocked, presented
Indirect Distribution Channels: Disadvantages
-no control of the market -lack of direct info from the market -no contact with the endusers -risk of substitution from intermediaries
Indirect Distribution Channels: Advantages
-no costs and risks entering the market -no need to know market characteristics -no need to know customers requirements and behaviors
Benefits of Policy Driven Pricing
-provides greater consistency across customer base -mitigates cost associated with ad-hoc discounting -increases perceptions of price integrity -creates more efficient selling process
Felt (Affective) Conflict
-reaching the stage of worry, concern, and alarm -parties trying to outsmart each other -causes could be economical or personal -needs to be managed effectively and not allowed to escalate
Roles of Distribution Channel Members
-reduces producer's cost -serve end-consumers Marketing activities of intermediaries involves: -contact with customers -gathering and distributing marketing info -promoting the product -storage -financing -negotiation
Manifest Conflict
-reflects open antagonistic behavior of channel partners -initiatives taken are openly opposed affecting the performance of the channel system -may require outside intervention to resolve
Causes of Channel Conflict
-resource securities -role incongruities -perceptual differences -goal incompatibilities -communicational difficulties -decision damping disagreements
Direct Channel
-salesmen, sales reps, branch, subsidiary -suppliers are typically lower cost providers of complex info than intermediaries -when info is most important
Selective Distribution
-shopping products (ipods, tv, dvd players, shoes) -available in some outlets -develops close relationships with the outlets and trains their salespeople -customers needs to want to learn about the product and eval alternatives
Accommodation
-situation of complete surrender -one party helps the other achieve its goals without being worried about its own goals -emphasis is on full cooperation and flexibility in approach. may generate matching feelings in the receiver -if not handle properly, can result in exploitation (for the big partner)
Examples of Peak Loading Pricing
-ski passes sold close to ski season -Disney tickets -electricity (prices per unit are lower form 11pm-5am bc lower demand) -phone calls (lower prices from 7pm-6am)
Latent Conflict
-some amount of discord exists but doesnt affect the working/delivery of customer service objectives -disagreement could be on roles, expectations, perception or communication
Examples of Trade/Functional Discounts
-some distributors provide storage facilities -some help retailers set up displays -some perform personal selling services for the manufacturer
Exclusive Distribution
-specialty products (haute couture, Mont Blanc pens, BMWs, Fendi handbags) -available in very few outlets -product is important to customer and they are willing to travel to buy preferred brand -product is expensive, company will incur high inventory holding costs if it is stocked at too many locations -only one wholesaler/retailer is used in one geographic area -close cooperation between manufacturer and retailer
Price Skimming
-starts with high introductory price -little by little or because of the competition, the price is slowly lowered -reason: new products, companies with a monopoly -examples: computer hardware, hi-fi systems
Three steps for financial analysis for pricing
1) Determine the contribution margin 2) Calculate the break-even sales change for the price change - or difference - 3) Calculate the profit implications of the actual sales change: is it greater or less than the break-even sales change
Financial Projections PRO FORMA projections reveal:
1) Exactly HOW THE LOAN PROCEEDS WILL BE USED 2) Expected increase in CASH FLOW FROM OPERATIONS
Horizontal Marketing System Examples
-supermarkets and airports having ATM of leading banks -Seaworld offers tickets at a discount to AAA members -Airline alliances
Effect of Intermediaries on Information
-tends to deteriorate when passed through the hands of intermediaries -where critical to the end-user, intermediaries become more specialized and/or channels become shorter DIRECT CHANNELS
Effect of Intermediaries on Logistics Service
-tends to improve as intermediaries hold inventory to facilitate end user access to goods/services -where critical to the end user, channels become longer or suppliers offer specialized logistical arrangements INDIRECT CHANNELS
Horizontal Marketing System
-tie-ups -2+ at the same level join together for marketing purposes to capitalize on a new opportunity
Reasons to apply cash discounts
-to encourage prompt payment of invoices -to reduce credit risks and the cost of collecting overdue accounts -to follow industry or historical practice
Types of Discounts
-trade/functional -promotional -cash -advance-purchase -peak-load pricing -quantity
Segmented Pricing Typology
-uniform price (limited info on consumer's willingness to pay) -menu pricing (2nd degree): no observable indicators, use of self-selecting devices (target a specific package for each class of buyers) -group pricing (3rd degree): segmentation based on indicators related to consumer's preferences (different prices per group) -personalized pricing (1st degree, perfect info on willingness to pay): individualized price for each unit purchased by each buyer (full surplus extraction)
Avoidance
-used by weak channel members -problem is postponed -relationships are not of much importance -as there is no serious effort on getting anything done, conflict is avoided
Menu Pricing Examples
-versioning based on quality (free version vs full version) -versioning based on time (books: first in hardcover, then in paperback, movies: first in theaters, to dvds, then TV) -versioning on quanitity
Direct Channel: Disadvantages
-very expensive initial investment and high yearly costs -need of highly skilled HR -need of a large market share to absorb investments and yearly costs
Hybrid Channels
-when both info and logistics are important/both aren't important -info flow is separated from product flow -each is carried by its low-cost provider
Menu Pricing
-willingness to pay = private info -seller must bring consumer to reveal this info How? -identify product dimension valued differently by consumers -design several versions of the product along that dimension -price versions to induce consumer's self-selection -screening problem: uninformed party brings informed parties to reveal their private info
The Credit Process - Credit Culture Essentials 20 essentials of good banking fostered by a strong credit culture
1) commitment to excellence 2) Philosophical framework for day-today decision making 3) sound value system that will cope with change 4) uniform approach to risk taking that provides stability and consistence 5) development of common credit language 6) Historical perspective on the bank's credit experience 7) Bank comes first and ahead of every profit center 8) Candor and good communication at all levels 9) Awareness of every transaction's effect on the bank 10) a portfolio with integrity and an appreciation of what properly belongs in it 11) accountability of decisions and actions 12) long-term view as well as short-term view 13) respect for credit basics 14) reconciliation of market practice with common sense 15) use of independent judgment and not the heard instinct 16) Constant mindfulness of the bank's risk-taking parameters 17) Realistic approach to markets and budgeting 18) An understanding of what the bank expects and the reasons behind its policies 19) Credit system with early-warning capabilities 20) Appreciation that in risk-taking there are no surprises, only ignorance
Fundamental Credit Issues two types of ERRORS IN JUDGMENT when evaluating loan requests:
1) first is extending credit to a customer who will ULTIMATELY DEFAULT: Banks screen this risk well! 2) Second is denying a loan to a customer who would ULTIMATELY REPAY the debt: Banks are often too selective and turn away potentially good loans
Channel margin analysis 1) manufacturer to retailer price 2) retailer to manufacturer price equations
1) price/cost to party / (1- margin) 2) price * (1- margin)
Why do price wars unintentionally start
1. Aysymmetric info -comp not knowing as much info as the other -comp knowing much more about themselves than other comp -misreading p change/ change of comp -not understanding why comp prices that way 2. Value add to your product not considerate with your price -didnt change your price when you added a feature/benefit
Segmentation types and examples (7)
1. By buyer identification - obvious characteristic differences -Apple consumers; early adopters -Student vs retired; differ on basis of value an costs 2. By purchase location -Where consumer buys product, brick and mortar v online, or even differences between individual brick and mortar stores (mcdank on baseline is more in demand than any other one in the world lol) - Person in hotel buying all there vs liquor store down the road; in hotel expensive; basis of value/ convenience 3. By time of purchase - When they buy - peak load pricing, during dinner peak or before it 4. Purchase quantity - Price by volume of purchase, less price by each incremental unit purchased bc economies - Block pricing, step up pricing 5. Different product designs - Pricing different forms of good or augmented service version of a product differently - software, inkjet 6.Bundling - pricing for segments valuing all in one 7. tie ins - Pricing ancillary product that works with one already purchased to work with it; blade and razors -Pricing to match consumer value of usage intensity 8.Metering -variable fee fluctuating by usage intensity - Pricing to match consumer value of usage intensity -Rentals; electricity, tyler using a ton for fort nite
Sensitivity of changes to margin/ cogs in channel margin 1. COGS increase 2. WTP of consumer goes down
1. Consumer takes hit, prices increase in all levels bc margins have to 2. cogs need to decrease (also prices down chain might have to also)
Channel Strategy Components
1. Deciding between direct vs indirect distribution models 2. Leveraging e-commerce 3. Selecting and signing partners 4. Developing a distribution management process 5. Planning for future transactions
Important considerations when doing multiple products in a line
1. Demand relationships between the two- will this steal demand for another bc its a substitute? 2. Cost relationships will this steal resources and cost us more than its worth? 3. Segmentation must make sense - segmentation for each product distinct and not overlapping
Conditions/ reqs of nonlinear pricing
1. Differentiated good 2. Must monitor purchase data- who's buying, logistics of buying to see if working 3. product not available on resale markets- could undercut this strategy
The following parties influence the purchase and use of a new drug 1. Doctor 2. Pharmacist 3. Hospital administrator 4. Insurance company
1. Doctor 2. Pharmacist 3. Hospital administrator
Why channel management important?
1. Efficiency- reduce total transaction costs of doing it alone, each member pays it part at an expert level 2. Serve consumer better- info and expertise spread more 3. Marketing help- storage, marketing co op, gathering
Benefits of pricing policy
1. Efficiency- sell better and more and lessen damage of spastic p changes 2. Integrity perceptions to consumers- you look good 3. Manage unfair consumer expectations and behaviors- they know what to expect 4. Price wars reduced- cant undercut strong strategy 5.firm performance increases- sales and share 6.manage transactions- flexibly to react to comp better and cost fluctuations better with price
Finding optimal price and revenue for individual products
1. Find sales amount if product was priced in each segment valuation price (45, 52, 2, 6) 2.Find revenue per segment: multiply sale column number by that price / WTP in that segment (45 * 2) , do for all segments 3. Biggest revenue segment is your optimal price segment for that individual good Revenue Simply take revenue from optimal price segment for each product and add together to get total revenue for both together (7500 +8100= 15600)
Channel margin differences questions 1. Why would cereal manufacturers make more higher margins than retail people? 2. Why do jobber distributors, who are more involved in transferring info and stuff , have high 60% and higher margins which is much high than most distributors? 3. Why do care dealers make way less margins now bc of online used car websites and why are they selling more used cars now not just new?
1. Higher powers, and high wholesale price equals high manuf margins 2. More channel power- info AND product flow unlike normal distributors 3. Bc manufacturer online sites such as these are gaining power bc of their new found power of info movement not just product movement, and dealers/ retailers of cars used to have all that power
Benefits of nonlinear pricing
1. Increase efficiency per volume if volume dependent sales 2.Segments people by quantity- compete for them better and get more money out of them
Two end user interface service options you must choose from to decide channel structure for your company
1. Information Things needing to be communicated to consumer primary- educate consumer customization quality assurance- RTB easily communicable comparative 2. Logistics Variety: color, sizes access: how easy to get from them availability: how quick you can get it to consumer lot size flex- min and max order quantity is flexible to what you need from them
Class Examples
1. JC Penney 2. Zappos
Reasons why vertical integration is maybe not the best idea to solve channel conflicts
1. Laws regulate most big companies cant do it- anti trust laws 2.Bureaucrachy/ management becomes difficult 3. Costs
Nonlinear pricing types and examples ("tariffs"
1. Linear 2. Fixed fee 3. Block- multiple different price levels, quantity buyers like quantity discount (diff levels of valuation) 4. Two part tariff- fixed fee and variable on top, disney, care leasing. MC = VC, so charge access fee that's considered a variable fee. Disney- only FF( no vc), MC of person is 0= VC Car rental- FF + VC, fee for base mileage, additional variable over and above that
Price bundling: what it is, benefits, and where it works best
1. Pricing more than one good less than they would each be individually 2. Exploit consumer surplus;(get as much $ out of all people as possible) , increase sales, leverage existing popular brand, spread costs out
What are information needs of a product in channel selection
1. Primary- education on product ( this most key to determining channel selection is info based (direct) 2. Comparative- explain advantages compared to others 3. Quality 4.Customization- just in time fulfillment/ flexibility of your good to consumer
Push vs pull channel strategies
1. Push- trade promotion, retailer promotes good most 2. Pull- company promotion, manufacturer promotes good most
Psychological Pricing: 1-10
1. Reduce the left digit by one 2. choose prices with fewer syllables 3. display prices in a small font size 4. remove the comma 5. use words that are related to a small magnitude 6. separate the shipping and handling 7. offer payments in installments 8. mention the daily equivalence (14.99/month VS 0.49/day) 9. be precise with large prices 10. position low prices towards the left
Finding target customers for pricing multiple products
1. Target or individual concerts- highest price segment (rev of them is price times how many would buy it, should be lowest amount, $45 *100) 2. Bundle- take most balanced and profitable segment of two most balanced segments- ( $25 and $37 pricing for products closest valuation to each other but $30 and $27 sells 200 while former sells 100, that total WTP segment is $57 so use that) 3. Find revenue for individual concerts and target bundle and add. THE POINT: Compare final revenue here to normal bundling revenue and individual concert revenue to decide what to do.
Finding optimal bundle price and revenue
1. Sum segment WTP for bundle :summed prices of each good in segment bundle ( add across, 45 + 2= wtp for bundle of 47) 2. Find sales for segment bundle- (400 bc lowest bundle price segment, all regs can afford) 3. Find segment revenue : 47* 400 sales= 18,800 4. Look at revenues per segment, pick largest and that is your bundle optimal price segment
reasons for cash discounts
1. To encourage prompt payment of invoices 2. To reduce credit risks and the cost of collecting overdue accounts 3. To follow industry or historical practice
Discount Types and benefits
1. Trade- (given list price and discount scheme ) discounts to distribution network partners for performing function for you (inventory handling) 2.Promotional- co op advertising, discount for promoting your good 3.Cash- up front cash for timely payment to you 4. Advance purchase- discount for buying early, airline tix ( Benefits: rio on consumer, uncertainty down, increase sales volume, segment by this) 5.Peak load - pricing discounts in non peak times (for fluctuating demand goods, capture value of both peak buyers and non) 6.Quantity - incremental costs go down so price does too (ppl have different incremental volume value)
What are logistics needs of a product in channel selection
1. Variety- color, size, type- this most key to determining channel selection is logistics based (indirect) 2. Convenience- access to it easily 3. Time- Availability time- gets to you quick 4. lot size flexibility- min and max product order very flexible for consumer
Prospect Theory
1. people always have a reference point in decision making (status quo) 2. they then characterize the prospective outcomes of a decision either as a net gain or net loss 3. there are diminishing returns to both gains and losses
which of the following is not a reason for offering advance purchase discounts?
1. reduce demand uncertainty - does this, so no 2. smooth demand patterns, lower unused facility- does this, so no 3. accrue cash flow by receiving early payments- does this, no 4. inventory cost reduction, does this , no 5. build customer loyalty- YES, doesn't do this
Issues with cash discounts
1.not economical for firm, 2receivers expect it, 3. ppl still cant afford your good with this during inflation
Unit price: $3 Variable cost $1 Total fixed cost: $2,000 The break even point is
1000
Psychological Pricing: 11-20
11. expose customers to two multiples of your price (pizza hut ex: 6x4=24 VS 3X8=24) 12. use the right amount of "roundedness" 13. tailor prices towards names and birthdays 14. show prices at the optimal time (show the price after the product if you want it to be based on quality) 15. display red prices to men 16. start negotiations with high precise number 17. expose people to higher "incidental" prices 18. expose people to any high number (join 2,387 happy customers) 19. raise the price of your previous product 20. sort prices from high to low
Performance and condition ratio - subjective assessment of Trends. Includes:
15) Loss Provision as % of Net Charge-Offs 17) Efficiency Ratio (overhead exps/revenue) 18) Assets per Employee 20) Earnings Assets / Assets 22) Loss Allowance / Non-Current Loans 25) Net Loans and Leases / Assets 26) Net Loans and Leases / Deposits 27) Net Loans and Leases Core Deposits 28) Domestic Deposits / Total Assets
Kmart buys towels for 180.00 per case of 12 and sells each towel for 18.00 and is the unit contribution of each towel. What is the unit contribution of each towel?
180 12X18= 216 216-180= 36 36/12 = 3$ contribution
Performance and Condition Ratio: Objective Assessment of Trends How to objectively assess trends:
1st consider the observable trend from the perspective of bank-management's focus on positive on financial results 2nd compare the ratio at the beginning of comparison period to the ratio at the end of the comparison period
Cost-Plus Pricing is appropriate when 1. Demand is highly elastic 2. Sales forecast is generally reliable 3. The company is very reputable 4. The product in question is a commodity
2 AND 4
The loss leader pricing is effective when 1. The manufacturing cost of the loss leader is minimal 2. Consumers purchase other item(s) in addition to the loss leader 3. The competitors are doing it 4. Consumers differ in price sensitivities
2. Consumers purchase other items in addition to the loss leader
Psychological Pricing: 21-30
21. Position prices to the right of large quantities (70 items for $29) 22. Add visual contrast to sale prices 23. offer a decoy option 24. remove the currency symbol 25. charge customers before they consume 26. attribute bundled discounts to hedonic products 27. don't bundle expensive and inexpensive products 28. shift the focus toward time-related aspects (spend a little time and enjoy this lemonade, instead of "spend a little money and enjoy this lemonade") 29. create a payment medium 30. avoid language related to money
Calculate the WTP . Segment size UC = 10$ Segment 1 . 36$ . 3,000 segment 2 . 30$ 2,000 segment 3 . 25$ 1,500
30$ After you add the UC
Trade discounts equation
30, 10, 5, 2/10 net 30 If you pay before 30 days, the last number, you get this total calculated number discount , if before the number in denominator of second to last number, you add that to the equation
Psychological Pricing: 31-40
31. emphasize the inherent costs of your product (our coffee beans are 100% organic) 32. add slight price differences to similar products (gum packs) 33. use more frequent (yet smaller) price increases 34. downsize a feature besides price 35. follow the "rule of 100" -- give percentage discounts when your price is under $100 36. provide a reason for the discount (clearance) 37. offer discounts that are easy to compute 38. offer discounts toward the end of the month 39. position sale prices to the right of the original prices 40. only give discounts on low price products
Psychological Pricing: 41-42
41. End discounts by phasing them out gradually 42. offer discounts with low right digits ($18 vs $22)
According to the webers law, which of the following price changes is more noticeable than the others
A change from $1 to $1.50 is more noticeable then 100,000 to 105,000
Difference between pricing strategy and tactics?
S- long term, repeated actions T- short term, not repeated
A pricing strategy is
A long term plan of action that helps the firm achieve maximum profit
Performance and Condition Ratio: Objective Assessment of Trends Yield of Earning Assets: A) Trend = 2016 ratio - 2012 ratio = 4.64% - 4.80% = - .16% B) Trend = 2016 ratio - 2013 ratio = 4.64% - 4.59% = .05%
A) deterioration and stable b) improvement and stable
Performance and Condition Ratio: Objective Assessment of Trends Non-Interest Expense A) Trend = 2016 ratio - 2012 ratio = 3.71% - 2.42% = 1.29% B) Trend = 2016 ratio - 2013 ratio = 3.71% - 2.54% = 1.17% improvement
A) deterioration, very negative B) deterioration, very negative
Which of the following statement is false? A. 80% consumers visited Tweeter to figure out what to buy and then went to its competitors believing they could get a better deal there B. On average, consumers visited two to three retalies prior to purchasing a desired product C. 80% consumers viewed tweeter as being more expensive than its competitors D. On average, consumers actively thought about purchasing a new product one to two months before actually making the purchase E. 80% consumers checked newspaper ads and delayed purchase until they found a deal
A. 80% consumers visited Tweeter to figure out what to buy and then went to its competitors believing they could get a better deal there
Which of the following statement is true according to prospect theory?
A. Happiness from one dollar gain > Pain from one dollar loss B. $1 decrease in price has a bigger impact on sales then $1 increase C. Happiness from two dollar gain > 2*HAPPINESS FROM $1 Loss D. Pain from two dollar loss > 2*PAIN from one dollar loss E. None of the above
Segmenting By Tie-ins
An explicit or implicit requirement that buyers of an asset purchase consumables used with the asset only from the seller Buyer's value of the asset is proportional to use intensity Apple headphones for iPhone
You want to measure demand and consumer WTP for an existing brand of orange juice. Which method should be used?
Analysis of historical sales data.
overview of Credit Policy and Loans
Approved (rules) Denied
Regarding the case " The Medicines Co" Which of the following statements is true? A. Competition is the most important factor in TMC'S pricing strategy B. Customer valuation is the most important factor in TMC'S pricing strategies C. Neither competition nor customer valuation is relevant in TMC'S pricing strategies D. Costs are the most important factor in TMC'S pricing strategy
B. Customer valuation is the most important factor in TMC'S pricing strategy
All of the following statements pertaining to the SERVQUAL scale are correct except: A. when the gap score equals zero, the customer is satisfied. B. the first section of questions asks respondents to record their experiences with excellent firms in the specific service industry. C. SERVQUAL consists of five service quality dimensions. D. SERVQUAL compares perceptions to what a customer should expect from a firm the delivers high-quality services. E. SERVQUAL is a 44-item scale.
B. the first section of questions asks respondents to record their experiences with excellent firms in the specific service industry.
Breakeven Quantity Equation
BEQ = FC / (P - VC)
Performance and condition ratio - subjective assessment of Trends. Includes: Net Loans and Leases / Deposits (increasing trend) :
Bankers: if viewed from the perspective of the bank's positive financial performance, Trend is Positive, because: - greater leveraging of deposits increases ROE - Positive impact on positive financial results Regulators: Alternative analysis: - if viewed from the perspective of bank's over-reliance on deposits as funding source (the regulatory perspective), - Trend is Negative
What nonlinear pricing policy relates to quantity discounts?
Block pricing / two part tariff
#1 Product - Building Access Control
Belief: - Simple installation: IP Technology over LAN solution self-configuration tools - Lower Cost: Lower price per reader than other vendors - Low Power Consumption: IP Technology requires less power - Reduced Administration: Better software solution Reality: simple installation - IP Technology over LAN solution - self-configuration tools lower cost - lower cost per reader than other vendors - low power consumption: IP technology requires less power - Reduced Administration - better software solution
The Credit Process - Business Development and Credit Analysis
Business Development, Advertising and PR, Credit Analysis: - Business developments and market research - Train employees: credit policy and philosophy; loan products and procedures - officer call programs: identify and research targets before making the call; how to make the call - credit analysis: evaluate a prospective borrower's ability and willingness to repay - question to address: what risks are inherent in the operations of the business?; what have managers done or failed to do in mitigating those risks?; and How can a lender structure and control its own risk in supplying funds?
Segmenting by buyer identification
Buyers have obvious characteristics that distinguish them : consumers who are price insensitive can be charged more than those who are price sensitive Expedia, Amazon and other companies tend to charge higher prices to Mac users
In the case, the "three pronged attack does not include A. Shift from newspaper to radio and tv advertising B. Everyday fair price instead of weekend sake C. Abandonment of price biter D. Automatic price protection
C. Abandonment of price biter
You want to determine price sensitivity for an existing brand of orange juice. Which of the following methods is the most cost-effective approach? A. Surveys B. Conjoint analysis C. Historical sales data D. Focus groups or in-depth interview E. Laboratory experiment
C. Historical sales data
Which of the following statements regarding the economic value estimation framework is false? A. One needs to identify the negative differentiation value B. One needs to quantify the differentiation value C. The best practice is to charge a price that captures the entire net positive differentiation value D. One needs to identify the positive differentiation value E. The competitive reference value stems from the next best alternative
C. The best practice is to charge a price that captures the entire net positive differentiation value
If C>A and if C<A
C>A= The company makes more profit after the price change C<A= The company makes less profit after the price change
What is a paradox to the channel structure method we learned? What product does not fit the structure it should given consumer benefits sought (logistics and/or info)?
Car dealerships- by definition they are indirect, but should be hybrid -bc consumers want high info and logistics when buying cars (anti trust laws keep this from happening)
Who gets the highest margins in a channel network?
Channel accomplishing most channel powers -info, product, payment,
What is channel coordination and what does it include
Channel conflict management , specified members roles at onset
What makes the channel functions such a necessity for business?
Channel functions are essential to a successful business, even if you get rid of the members doing the functions, the functions are always essential
Growth (or decline) rates
Check Lecture #3
What are two long term effects of channel selection
Competitive advantage w: channel partners and consumers -partners: build efficiency and sales with little change: if you change too much channel partners retaliate, but if you don't they love you - consumers: build loyalty with lack of change - if you change too much consumers can't find your good, but if you do it right they become loyal
Horizontal conflicts
Conflicts among firms on the same level of distribution
What are the 3 C's of pricing we studied? A. Context B. Costs C. Customer D. Competition
Context
Of the four direct channels, corporate, specialty, wholesale, discount, which have highest margins?
Corporate, least interactions with other parties taking royalties
Consumer Value-Based Pricing
Costs, Customers, and Competitors -> Strategic Objectives -> Goals -> Tactics
Direct vs indirect channel structure examples and why
D: apple, computer software : information service requirement high, but logistics low I: gas station : information service requirement low, logistics of convenience of the gas super high Hybrid: info and logistics service needs tackled separately but both at same time, furniture shopping is high and high, and student textbooks low and low
Effect of channel decisions and intermediaries long term
D: competitive advantage if strong teamwork, but also retaliation or partners if you change (cant change much) , and confused customers and relationships Int: information gets less easy to communicate (too many hands in the pot), logistics get even better (more efficient the more you have working on a channel)
Direct vs indirect channels and examples
D: manuf/ company straight to consumer. Corporate ( website Dell, mac), specialty (reseller), wholesale (booker), discount (ross) I: manuf - retail / wholesale- consumer
Why does channel conflict happen
Differ on their ideas of roles in the network and profit goals
Choose to have a _________ Channel when info is important
Direct
When consumers care most about understanding the pricing , model and understanding all of these things about a good, what channel structure would be best for that product?
Direct- for information seeking consumers
In cost driven pricing, which of the following statements is true? A. One should consider fixed costs only in pricing B. None of the above C. One needs to consider both fixed costs and variable costs in pricing D. It depends on the situation, one or both costs might be relevant E. One should consider variable costs only in pricing
E
Why do companies have many products?
Economies of scale - spread costs Economies of scope- more revenue People value your brand more than others; get more out of them
Wealthy customers shop from hard discounters only during the recession times True False
False
How to price segment and why to do it
Estimate value of segments' key value drivers (pricing and valuation identifies them benefits/ sacrifices) 1. EVE/ CONJOINT to find value drivers (cost, value, price) Understand how different groups of people value the product and hypothesis how they will perceive the pricing to accommodate this 2. To capture value differences between segments
Whole Food stores in NYC systemically listed improper weights on the prepackaged food, resulting in overcharges from 80 cents to nearly $15 an item this an example of price segmentation True False
False
Vertical Marketing Systems: Disadvantages
Franchisor: -lower potential profits -controlling service quality -controlling firm image Franchisee: -franchisee fees -lack of freedom -controlled by franchisor
Steinway piano segmentation pricing example- what segment pricing tactic was used and what were the segments?
Every piano sold was sold with free lessons to whoever wanted to redeem it related to purchaser 1. By buyer identification; players and non players very different piano valuation 2. Piano players and non players Help segments to understand value of a piano
Which of the following statement regarding the economic value estimation framework is false? A. One needs to identify the competitive reference value B. One needs to identify the positive differentiation value C. One needs to identify the negative differentiation Value D. One needs to charge a price that captures the entire net positive differentiation value E. One needs to quantify the differentiation value
False. D. One needs to charge a price that captures the entire net positive differentiation value
geographic pricing strategies
F.O.B. (free on board) point-of-purchase pricing - seller pays cost of loading goods on carrier; the customer pays entire transportation cost (A to B: paid by buyer - fuel cost) Uniform delivered pricing - same delivered price for all customers, Zone-delivered pricing - customer within the same zone pay the same total price
Based on the display given below (price tag comes first), one can infer that this product is a luxury item (image shows a price tag of $29) True False
False
Companies should offer free trails toward the end of the month True False
False
Incumbent distributors with strong positions in emerging markets are less likely to deliver a sales plateau to maintain their market share True False
False
Most of the purchases are unplanned and impulsive in nature for the products that have been carried by selective distribution channel True False
False
Taza Chocolate deals indirectly with the certified organic suppliers to meet its social responsibility goals and to ensure the kind of quality that commands a premium price True false
False
segmenting by purchase location
If customers in one market segment purchase at different locations, they can be segmented by location McDonalds charges different prices in different locations (Apsen, Hawaii, Airports)
Nonlinear pricing
Firm offers a menu of quantities and corresponding prices so that each customer can choose the preferred quantity and pay the associated charge.
What is known as the end user interface in channel selection
The channel service outputs required by the consumer of the channels
Financial Projection - The importance of Assumptions
Forward projections of income and expenses Based on realistic assumptions: FORECASTS based on historical financial results; PRO-FORMAS based on impact and results of the loan funding Three scenarios of sensitivity Analysis: - BEST CARE SCENARIO: ACHIEVEMENT of the planned financial performance - WORST CASE SCENARIO: FAILURE to achieve key financial goals. Results: ADVERSE IMPACT on sales, earnings, and net worth of the borrower and guarantors - MOST LIKELY SCENARIO: Most reasonable circumstances and likely results of the loan funding
Vertical Marketing System: Advantages
Franchisor: -capital for growth -faster growth -additional management -additional income Franchisee: -lower risk -established brand name -successful business plan -expert assistance
In the example about gatorade, who owned it and what was the point
Gatorade got bought by quaker then quaker by pepsi Took Pepsi 10 years to get its channel selection perfect for gatorade -Point: channel selection is very tedious and takes time to get right to your advantage
Vertical and horizontal markting systems, what is the general list and examples
General - manufacturer taking on more roles Examples-Vertical 1. corporate- common owners of many levels of chain 2. contractual - contracts between members on roles 3. Administered- one or two members control all 4. franchising - corporate company gives rights to franchisee to " be them", advertising, brand name, licensing 5. alliances- capitalize on vertical channel partner strengths to do well together ; dunkin sold at all 7 elevens Examples- horizontal 1. Alliances- multiple horizontal members capitalize on strengths of each other; delta airlines and korean airlines (customers, network strengths ) 2. Multichannel- head company controls multiple retail/ horizontal members
What is a channel network
Group pf interdependent channel members that play a role in powers of channels: info, product, and payment movement
When both information and logistics are important or neither a _____ structure is important
Hybrid
Segmenting by time of purchase
If customers in different market segments purchase at different times, one can segment them by time of purchase Airline ticket or ski passes Coke vending machines that price changes due to weather temp (bad idea)
Segmenting by purchase quantity
If customers in different market segments purchase different quantities, one can segment them for pricing with quantity discounts. Costco Block pricing
Who is more price sensitive and costly to a company, new buyer or established buyer?
P: established, been around and know value C: new buyer bc advertising and educating them
What would make a channel partner extremely powerful? What does this also do?
If they have more than one of the three channel powers- info, pmt, product flow Margin is also highest for these powerful channels
Choose to have a ________ channel when logistics are important
Indirect
When consumers care most about having options of variety in a product, color, and convenience in getting it, what channel structure is best for that product?
Indirect- for logistics seeking consumers
When deciding channel structure, the company needs to analyze which two channel service requirements consumers care about?
Information Logistics
Of the four channel powers, what two are the focus of designing channel selection/structure?
Information and product flow
CREDIT ENHANCEMENTS TO REDUCE RISK CREDIT DERIVATIVES
Instruments or contracts deriving value from the underlying credit risk of a loan or bond
segmenting by product design
Involves offering different version of the product or service most common = software Apple iPhone Use: When two consumer segments place different levels of value on a specific product
Commercial Loans Lines of Credit
LINES OF CREDIT - meets temporary needs in addition to seasonal needs: - Informal line credit - not legally binding but promise to lend; - Formal credit line - legally binding, but no written agreement
Decision Criteria for Short Channels
Market Factors: -business users -geographically concentrated -extensive tech knowledge and regular service required -large orders Product Factors: -perishable -complex -expensive Org Factors: -manufacturer has adequate resources to perform channel functions -broad product line -channel control important Competitive Factors: -manufacturer feels satisfied with marketing intermediaries performance in promoting products
Decision Criteria for Long Channels
Market Factors: -consumers -geographically dispersed -little tech knowledge and regular servicing NOT required -small orders Product Factors: -durable -standardized -inexpensive Org Factors: -manufacturer lacks adequate resources to perform channel functions -limited product line -channel control not important Competitive Factors: -manufacturer feels dissatisfied with marketing intermediaries performance in promoting products
Producer Cost = $21.60 Markup = $2.40 Margin? Markup?
Markup 2.40/21.60 = 11% Margin 2.40/(2.40+21.60) = 10%
Goal of channel mgmt
Max profit, minimize conflict
What is the ideal channel structure or key selection criteria to pick a channel structure, and process to getting there
Minimize total costs while meeting most consumer service needs via best channel :direct/ or indirect Process 1. Realize consumer service needs 2. Find costs of service needs 3. Find best way to meet most service needs in cheapest way
Where is the optimal level on the channel costs/ service provide graph?
Minimum of total costs curve- sum of customers costs and channels costs - dont want it where those two meet- channel and customer costs lines
Profit triangle, keys
Money you miss from people bc you aren't using nonlinear pricing MLOT- WTP > P PUP- WTP > COST
Multichannel vs Omnichannel
Multichannel: -customers see multiple touch-points act independently -brands' channels knowledge and operations exists in technical and functional silos Omnichannel: -customers experience a brand and not a channel within a brand -brands leverage their "single view of the customer" in a coordinated and strategic way -all channels available to the consumer AND are all connected -very integrated
segmented/targeted pricing
Offer different prices to different segments depending on customer's differences in price sensitivity, costs, and competition
Product Line Pricing: Product Mix Length/Breadth
P&G Under personal care, they have soaps, shampoos, creams, and toothpastes --> this is the product line length
Product Line Pricing: Product Mix Depth
P&G Under the soap category: Lux, Dove, Lifebuoy --> these three are the product line's depth
Which restaurants should not offer lunch specials?
Ones with high peak purchasing at lunch time -would only do specials when capacity is not fully utilized
What are the three basis's or price segmentation ?
Overall- consumer price sensitivity 1. Cost 2.Value 3. Competition
Channel pricing targeting game-the overall jist and effects of perfect targeting, no targeting, and 80% accuracy targeting
Overall: the idea that product being sold in channels is going to multiple segments with different valuations - $10 and $8 Perfect targeting : of 2 segments and that includes 200 ppl, sell to half at $10 and other half $8. 10 *100 + * * 100= $1,800 revenue No targeting Pick price all segments will buy at, $8 revenue = 200 *$8= $1,600 80% accuracy Sometimes targeting isn't optimal, and no targeting might be better, such as when pricing strategy segmentation isn't 100% accurate (fully fulfilled in store) High value segment : 10* 100* .8 + 8 * 100 * 20 = $960 Low value segment: 8 * 100 * .8 = $640 (only this, bc at $10 they can't buy it) Revenue = 1,600, same as no targeting. Not worth it.
Who is more price sensitive to a company, personal or business travelers ?
P : more sensitive bc biz travelers don't pay for their travel
Performance and Condition Ratio - Objective Assessment of Trends
Performance ratios (3-14, 16, and 19): 3) Yield on Earnings; 4) Cost of Funding Earning Assets; 5) Net Interest Margin; 6) Non-interest income/ Earning Assets; 7) Non-interest Expense / Earnings Assets; 8) Loan/lease loss provision/Assets; 9) Net Operating Income/Assets; 10) ROA; 11) pre-tax ROA; 12) ROE; 13) RE/Avg. Assets; 14) Net Charge-offs / Loans; 16) Earnings Coverage (X) Net Charge-Offs; and 19) Cash Dividends / Net Income Condition Ratios (21, 23, 24, and 29-33): 21) loss allowance / loans; 23) non-current assets and ORE / Loans; 24) non-current loans / loans; 29) equity capital / assets; 30) Core Capital - leverage - ratio; 31) Tier 1 Risk-Based Capital; 32) Total Risk-Based Capital Ratio; and 33) Common Equity Tier 1 Cap Ratio
Tweeter case main points
Point: successfully did pricing policy to manage expectations and behavior - App and everyday low p 1. Price- medium to high end to start, then everyday low price APP price matching 2. Product- consumer electronics 3.Place- 21 botique electronics stores 4. People- was selling best to quality focused people, but new pricing gets them to price biters 5. Promotions-first promo on sales in newspapers only, then price matching and radio/tv Price biters best- higher share of market segment so larger opportunity and not biggest share in quality focused consumer segment
What is the number one that influces what shoppers buy
Price
What is the main overall goal of pricing strategy ?
Profit maximization
Distribution strategies - push and pull , what type of goods, and who does it
Pull- pull consumer in to buy with advertising from company direct, commodity goods, company/manufacturer promote mostly Push- push stocker/retailer to advertise, more complex stuff like beds, retailer promotes
A fancy steak house in a shopping mall offers a 20% discount to employees of other stores in the mall, provided that they eat before 6:00 PM or after 8:00 PM • Can you explain the rationale for this strategy?
Rationale 1. Why mall workers only offered to- purchase location , they often value food in the mall more because they eat there often and need a quick bite to eat 2. Why before 6 and after 8: peak load pricing, peak dinner time is then so capacity is maxed, unused capacity before and after will increase revenue for business
Roles of distribution channel
Reduces producer's cost Serve end-consumers - Better consumer information - More expertise in distributing products Marketing activities of intermediaries involves - Contact with customers - Gathering and distributing marketing information - Promoting the product - Storage - Financing - Matching - Negotiation Using distribution channels can be very efficient to the society
Performance and condition ratio - subjective assessment of Trends. Includes: Loss Provision / Net Charge Offs: Increasing Trend (vice-versa)
Regulators: If viewed form the prespective of the bank's positive financial performance, Trend is very negative because: - changes in loss provision compared to changes in net charge-offs - if change in loss provision is greater than change in charge-offs, more money is going into loss reserves than is being charged-off Bank: Alternate analysis - if viewed from the perspective of the bank's cushion against loan losses, Trend is Positive
Performance and condition ratio - subjective assessment of Trends. Includes: Efficiency Ratio (overhead Exp / Revenues): Increasing Trend (vice-versa)
Regulators: If viewed from the perspective of the bank's positive financial performance, Trend is very negative, because: - Changes in overhead expense compared to change in Revenues - If change in overhead expense is greater than change in revenues, growth in overhead expense is out-pacing growth in revenues - negative impact on positive financial results Alternative analysis: - If viewed from the perspective of bank's successful expansion of market area, facilities and employees - Trend in Positive
Segmenting By Metering
Rental or lease arrangements with a variable rental fee dependent upon a metered usage rate Buyers' value of the asset is proportional to use intensity
Why is it hard to meet the ideal channel structure ?
Resources- meeting all service needs is costly, sometimes too costly Barriers to entry Laws- Anti trust laws
How do you choose your channel selection?
Select channels that will get as close as possible to the ideal- lowest total costs and most services demanded met Close gaps between current channel structure and what you need to get to
distribution channel
Set of interdependent organizations involved in the process of marketing a product or service available for use or consumption by the consumer or business user
The following questions refer to the case ^ In the case, the risk for the patients undergoing an angioplasty does not include A. Need for a repeat angioplasty B. Shock C. Heart attack D. Death
Shock
Performance and Condition Ratio: Objective Assessment of Trends How to objectively assess trends:
Stable is change of +/- .25% Positive is improvement of greater than .25% Negative is deterioration of .26% to .75% Very negative is deterioration of greater than .76%
pre-conditions for Nonlinear pricing
Sufficiently differentiated product, or Monopoly power - In the absence of market power, the pricing structure would not be defensible in the market. No resale markets - Else, bulk purchasers could resell at lower prices - Example: Electricity, 1010XXXX. Ability to monitor purchase, and disaggregate data - Who is the customer? Ad agencies or advertiser - What is the dimension of the tariff? Units, Transactions, Dollar value - What is the billing method? Transaction or billing cycle based
The Break-even Sales Change
The change that would sustain the same level of profit contribution at the new price as was achieved at the original price. A higher level of sales will produce higher profitability; a lower level of sales, lower profitability.
What is the point of trying to minimize change in channel structure for your good?
The less change there is, the more you can be a "premium product"
What makes a channel member powerful ?
The more of the three channel powers they accomplish info product pmt Movement
Which of the following statements is false A. Price can change the way people behave B. Price generally depends on costs, consumer valuation and competition C. The most important determinate of price is the variable cost D. Price is only marketing mix element that produces revenue and profit E. Price can serve as the product differentiation and a positioning tool
The most important determinate of price is the variable cost
Rational to 1.1 A
The president's current thinking is flawed. Without knowing the price sensitivity of the market, he can't assume he'll sell 80K units at $9.25. In fact a price increase is likely to decrease sales further. What's needed is to first determine the likely impact of the price change on sales volume.
What does it mean in channel selection that you want to be as close to the "ideal" structure as possible?
To be at the minimum of the total cost curve- cost to consumer and cost to channel combined
What is the point of pricing policy?
To design pricing in a strategic long term way (and implement it that way) Implications Consumer- expectations and behavior (how they perceive it they perceive you) Competition- reduce price wars
Uses of Nonlinear Pricing
To promote efficiency - Shipping costs could vary with the size of order - Customer inventory carrying cost is lower To handle competition in submarkets - Frequent Flier miles to attract business travelers To maximize profits in markets segmented by usage volume - Photocopier sales: High Fixed cost+ low marginal cost versus
Performance and condition ratio - subjective assessment of Trends
Trends of certain other ratios must be assessed subjectively, considering the dynamics of the ratio components.
Customers might value the bundle less than they would value the individual component products if there is a negative synergy associated with the bundle True False
True
Most of the brand manufacturers are missing an important merchandising opportunity by not presenting their brand in an attractive outer case in a hard discount store. True False
True
Some manu. disable features and degrade performance to create a lower quality product which they sell at a lower price without significantly reducing demand for the high-quality product True False
True
The smaller the price gap between a manufacturer's brand and a hard discounter's private label, the more the hard discounter's private label brand will be cannibalized True False
True
The use of intermediaries will automatically lead to loss of some control over the marketing of the firm's products True False
True
Channel Structure framework
Use interface service requirements + total service costs Channel structure Control :Direct activités + distributors activities
The cost question in pricing is not
What prices do we need to cover costs and achieve our profit objectives?
cost-driven pricing Tactical - the cost question relevant to pricing is NOT:
What prices do we need to cover the costs and achieve our profit objectives?
Horizontal channel conflict
What- conflict across channel level - kingsoopers and safeway Types -Free riding Solutions Monitoring Royalty fees
Vertical channel conflict
What- conflict up and down channel network Types Moral hazard ex: p and g and kingsoopers ,quiznos overstating sales and having to raise fees on franchisers to receive it Solutions monitoring royalty fees vertical integration two part tariff
What is channel conflict
When channels vertically of horizontally do not agree on their individual roles and goals -must work together to accomplish goals via individual roles
What is double marginalization and what it looks like / benefits, and what is a solution
When manufacturers or some party member gets margin from fixed fee and variable essentially, two parts to their margin and profit When it benefits manufacturer: Wholesale price is high - retailer has to increase price to battle it, and that decreases demand When it benefits retailer; wholesale price is low Solution: two part tariff - Manuf doesn't have to forfeit profit in order to keep retailer and consumer happy (prices) - Manuf charges high fixed fee to retailer in exchange for low wp charged , F * WP * Q= profit to manuf - Keeps prices low for retailer, and demand high
When is price bundling the most useful? What about mixed bundling?
When there is high variation in consumer pricing valuations /WTP specific: segment A values Casablanca more than Monster movie and vice versa, thus prices it higher than monster, vice versa Mixed bundling- When there is extreme variation- WTP 45 versus 2
Segmented Pricing Class Exercise
Which segments are more costly to serve/price sensitive? -new to market vs established customers -light users vs heavy users -students vs professionals -peak vs off peak purchasers
Product mix width and breadth and examples, and types of new product types
Width- multiple product line types horizontally (soap, detergent ) Breadth- multiple product varieties within column up and down (ivory soap, tide soap) Why- capture lower or higher value segments you haven't Types Damaged Goods- Intel slower processors printer, IBM, New lesser good- more expensive to do than damaged , might cannibalize
Which of the following is false? New customers are more price sensitive than experienced Buyers Light users are less price sensitive than heavy users Light users are more costly to serve than heavy users New customers are more costly to serve than experienced Buyers
a
compromise effect
a consumer is more likely to choose the middle option of a selection set rather than the extreme options.
Two-part tariff
a situation in which consumers pay one price (or tariff) for the right to buy as much of a related good as they want at a second price Ex. -> car lease, have to pay for the lease (fixed fee) and have to pay for anything that exceeds the terms of the lease (variable fee)
Which of the following most accurately describes the relative length of consumer and industrial distribution channels? a. Consumer channels tend to be longer than industrial channels b. Industrial channels tend to be longer than consumer channels c. Both consumer and industrial channels tend to be long d. Both consumer and industrial channels tend to be short
a.
_____ examine(s) the customer's perspective of a firm's strengths and weaknesses. a. Customer research b.Employee survey c.Noncustomer research d.Customer complaints e.Service quality survey
a. Customer research
____ is a short-term, transaction-specific measure. a. Customer satisfaction b. Focus group interviews c. Noncustomer research d. Service quality e. Customer retention
a. Customer satisfaction
20) ____ is the level of service the customer actually wants to receive. a. Desired service b. Predicted service c. Perceived service d. Adequate service e. Derived expectations
a. Desired service
34) Which of the following is NOT a criticism of customer satisfaction research? a. It focuses on customers' future needs and fails to investigate current needs b. It focuses on registered complaints but many customers who defect never relay their complaints. c. It tends to focus on global attributes and ignores operational elements. d. It often excludes the firm's employees from the survey process. e. Customers may not know what they want.
a. It focuses on customers' future needs and fails to investigate current needs
Tying
proportions might vary in the mix of goods -example: printer and cartridges needs to be complimentary products
35) Naomi's children are giving her a week at a spa for her seventieth birthday. Their expectations of the services the spa will provide are much higher because they are selecting the spa for their mother's approval rather than for their own use. This is an example of a(n) ____ expectations. a. derived b. self-perceived c. explicit service d. enduring service e. transitory service
a. derived
A hotel may feel that its customers prefer comfortable rooms, when, in fact, the majority of the hotel's customers spend little time in their rooms and are more interested in on-site amenities such as the pool, spa, and restaurants. This hotel is suffering from a _____ gap. a. knowledge b. standards c. delivery d. communications e. confirmation
a. knowledge
As a service organization's hierarchy becomes more complex and more levels of management are added, the firm is more likely to experience a _____ gap. a. knowledge b. standards c. delivery d. communications e. confirmation
a. knowledge
Understanding the customer is a critical step toward minimizing or completely eliminating the _____ gap. a. knowledge b. standards c. delivery d. communications e. confirmation
a. knowledge
The firm's increased research orientation and enhanced upward communication will assist the firm in decreasing which one of the following gaps? a. knowledge gap b. standards gap c. delivery gap d. communications gap e. confirmation gap
a. knowledge gap
Which of the following is NOT a key component that needs to be built into every service quality system? a. listening b.reliability c.servant leadership d.individual play e.service design
a. listening
18) Customer satisfaction can be defined by comparing: a. predicted service and perceived service. b. predicted service and desired service. c. desired service and perceived service. d. adequate service and perceived service. e. expected service and desired service.
a. predicted service and perceived service.
All of the following are factors influencing the delivery gap except: a. research orientation. b. role ambiguity. c. disperson of control. d. inadequate support. e. role conflict
a. research orientation.
33) Inflated satisfaction ratings received from a limited group of respondees is the result of _____ bias. a. response b. question c. social desirability d. collection e. limited
a. response
The distance between a customer's expectations of a service and the perception of the service actually delivered is called the _____ gap. a. service b. knowledge c. standards d. delivery e. communication
a. service
Employees of excellent companies will be neat in appearance is a typical statement within the ____ dimension of the SERVQUAL scale. a. tangibles b.reliability c.responsiveness d.assurance e.reliability
a. tangibles
The SERVQUAL dimension that is typically noted as the least important by customers is the ____ dimension a. tangibles b.empathy c.responsiveness d.assurance e.reliability
a. tangibles
The SERVQUAL dimension that measures consumer views of the firm's personnel and communications materials is the ____ dimension. a. tangibles b.employee satisfaction c.responsiveness d.assurance e.reliability
a. tangibles
9) Of the following customer satisfaction measurement methods, which is the least effective in producing meaningful results? a. the "Scale of 100" approach b. personal interviews c. the "very dissatisfied/very satisfied" approach d. the combined approach e. employee surveys
a. the "Scale of 100" approach
____ refers to the situation in which the customer rates performance higher if a failure occurs and the contact personnel successfully recover from it than if the service had been delivered correctly the first time. a.Service recovery paradox b.Service recovery c.Critical incident d.Moment of truth e.The critical incident technique
a.Service recovery paradox
Services that do not meet customer expectations are called: a.service failures. b.critical incidents. c.servuction failures. d.service recoveries. e.instrumental complaints.
a.service failures.
Under which subgroup of the service failure category relating to customer needs and requests would preparing a meal for a vegetarian fall? a.special needs b.customer preferences c.disruptive others d.customer errors e.level of attention
a.special needs
All of the following are reasons customers make noninstrumental complaints except: a.to alter an undesirable state of affairs. b.to regain some control through indirect retribution. c.to solicit sympathy. d.to create the impression of being more intelligent and discerning. e.to release frustration
a.to alter an undesirable state of affairs.
Role of Distribution Channel: Financing
acquiring and using funds to cover the costs of the distribution channel
Role of Distribution Channel: Matching
adjusting the offer to fit a buyer's needs, including grading, assembling and packaging
Cost-driven pricing
advantages: - most common pricing method - pricing to yield a fair return over all costs. simple. Disadvantages: - it may be impossible to determine the cost before determining the price. Why? - problem - costs change with volume. - price proactively rather than re-actively - may lead to a death spiral
CREDIT ENHANCEMENTS TO REDUCE RISK LOAN GUARANTEES
aka continuing guaranties with or without collateralization of the guaranties
Which of the following is NOT a component of a service quality information system? a. mystery shopping b. customer retention interviews c. after-sale surveys d. employee surveys e. total market service quality surveys
b. customer retention interviews
Price is the
amount of money needed to acquire a product or service: - Buyers: cost - Sellers: Income
Segmented Pricing
anytime you can define a piece of your target market based on some characteristics
Role of Distribution Channel: Risk Taking
assuming some commercial risks by operating the channel (ex: holding stock)
Which of the following is the least favorite aspect of online shopping for American customers? a. Difficult to return items b. Paying for shipping c. Concerns about privacy d. Hard to navigate sites
b.
17) ____ is the level of service quality a customer believes is likely to occur. a. Desired service b. Predicted service c. Ideal service d. Adequate service e. Derived expectations
b. Predicted service
Management's inability to translate what consumers want into a written business plan will increase the size of the _____ gap. a. Knowledge b. Standards c. Delivery d. Communications e. Confirmation
b. Standards
The firm's overemphasis on cost reduction and short-term profits will increase the size of the _____ gap. a. Knowledge b. Standards c. Delivery d. Communications e. Confirmation
b. Standards
Which of the following is a major criticism of the SERVQUAL scale? a. The questionnaire is too short to adequately assess the dimensions. b. The five service quality dimensions do not hold up under statistical scrutiny. c. The results do not predict consumer purchase intention. d. The perceptions section is of no real value. e. More emphasis should be placed on the expectations section.
b. The five service quality dimensions do not hold up under statistical scrutiny.
1) According to the Journal of the Academy of Marketing Science, the most studied area in marketing is: a. employee satisfaction. b. customer satisfaction. c. green marketing. d. advertising effectiveness. e. market reach.
b. customer satisfaction.
Excellent companies will have the customer's best interest at heart is a typical statement within the ____ dimension of the SERVQUAL scale. a. tangibles b. empathy c.responsiveness d.assurance e.reliability
b. empathy
Which of the following is NOT one the five dimensions that is measured by the SERVQUAL scale? a. tangibles b. employee satisfaction c.responsiveness d.assurance e.empathy
b. employee satisfaction
24) Which of the following is NOT a factor that influences predicted service? a. explicit service promises b. perceived service alternatives c. past experience d. implicit service promises e. word-of-mouth communications
b. perceived service alternatives
A complaining outcome in which the consumer takes action deliberately designed to damage the physical operation or hurt future business is called: a.voice. b. retaliation. c.service recovery. d.exit. e.service recovery paradox.
b. retaliation.
A firm's reaction to a customer complaint that results in customer satisfaction and goodwill is called a: a.service recovery paradox. b. service recovery. c.critical incident. d.moment of truth. e.the critical incident technique.
b. service recovery.
The difference between what management perceives consumers to expect and the quality specifications set for service delivery is called the _____ gap. a. knowledge b. standards c. delivery d. communications e. service
b. standards
27) One of the major factors driving desired service expectations is: a. predicted service. b. the customer's personal service philosophies. c. adequate service. d. transitory service intensifiers. e.perceived service alternatives
b. the customer's personal service philosophies.
____ complaints are registered for the expressed purpose of altering an undesirable state of affairs. a.Ostensive b.Instrumental c.Reflexive d.Noninstrumental e.Critical
b.Instrumental
Complaints about the weather being too hot can be classified as: a.instrumental and ostensive. b.instrumental and reflexive. c.noninstrumental and ostensive. d.noninstrumental and reflexive. e.ostensive and reflexive
b.instrumental and reflexive.
The smallest number of complaints registered by individuals are: a.instrumental and ostensive. b.instrumental and reflexive. c.noninstrumental and ostensive. d.noninstrumental and reflexive. e.ostensive and reflexive.
b.instrumental and reflexive.
During a service recovery effort, the employee was very empathetic to the customer's plight and agreed to replace the defective product. However, it took three months for the replacement product to show up, which was much later than the customer had anticipated. As a result, the recovery effort violated the customer's ____ justice need. a.social b.procedural c.interactional d.distributive e.ethical
b.procedural
Trade (funtional) discount
based on a distributor's place in the distributive sequence; represent payment for performance of certain marketing functions that would otherwise be performed by the manufacturer (B2B) Warehousing, inventory holding, etc.
Trade/Functional Discount
based on a distributor's place in the distributive sequence; represent payment for performance of certain marketing functions that would otherwise be performed by the manufacturer (warehousing, inventory holding) WHY? --> different distributors perform different functions, and should be compensated according
why can certain industries have higher margins (cosmetics) and why other industries have lower margins?
because its a case where its purely a perception of the brand vs someone who is actually a bargin shopper, who is trying to buy the same thing - and you have brands that is considered to be price effective that you buty them specifically because you can afford them
What nonlinear pricing policy relates to peak load discounts?
block pricing ?
A Rolex Watch should have ________ distribution because buying a prestigious, high quality, and somewhat fragile timepiece entails a very carefully thought-out-infrequent purchase by a narrow target marktet a. Intensive b. Selective c. Exclusive d. Primitive
c.
The length of channel must be shorter if the product is ____________ I. Expensive II. Durable III. Perishable IV. Standardized a. Only I b. Only IV c. I and or III d. II and or IV
c.
Which of the following airline company was the first charge for checked baggage? a. American b. United c. Spirit d. Southwest e. None of the above
c.
Which of the following can be considered as a benefit of direct distribution channels? I. Ability to make immediate changes in the marketing mix II. No contact with end users III. Higher level of control a. Only III b. I and II c. I and III d. II and III e. I, II, and III
c.
Which of the following does Not reduce the impact of price segmentation strategy? a. Stagnation b. Dilution c. Inflation d. backlash
c.
Which of the following is NOT a European hard discounter? a. Edeka b. Lidl c. Dollar General d. Carrefour
c.
Which of the following is an example of tying? a. A fancy steak house in a shopping mall offers a 20% discount to employees of other stores in the mall if they eat before 6 pm or after 8 pm b. Restaurant offering weekly meal tickets for $30 as the dinner specials at the restaurant c. Steinways offer of free piano lessons with the sale of each piano d. Hotels lending iron and ironing board free of charge to its customers
c.
Which of the following is good advice for a multinational company that aims to enter into an emerging market? a. Be reluctant to commit resources at early stages of expansion b. Treat local distributors as temporary market entry vehicles c. Look for distributors capable of developing markets d. Work with the most eager potential distributor
c.
Which pricing tactic did Economist use to achieve the results shown below? (an example is web only, print only, web and print) a. Being precise with large prices b. Sorting prices from high to low c. Offering a decoy option d. Adding slight price differences to similar products
c.
14) Under which of the following scenarios is it more likely that a firm would invest the resources necessary to increase its satisfaction ratings from 95% to 98%? a. Competing firms have 90% and 88% satisfaction ratings. b. Competing firms have 85% and 75% satisfaction ratings. c. Competing firms have 96% and 97% satisfaction ratings. d. There are many opportunity costs associated with the investment. e. The market share gained has little effect on the firm's bottom-line profits.
c. Competing firms have 96% and 97% satisfaction ratings.
3) Which of the following statements regarding customer satisfaction is correct? a. The average business hears from 85% of its unhappy customers. b. For every complaint received, 9 or 10 people actually have the same problem. c. Complainers are more likely to do business with you again than noncomplainers. d. The average person with a problem tells more than 20 people. e. Customers who have their complaints resolved tell an average of 15 people.
c. Complainers are more likely to do business with you again than noncomplainers.
All of the following are part of the logic for the position that satisfaction assists consumers in revising service quality perceptions except: a. Consumer perceptions of the service quality of a firm with which he or she has no prior experience is based on the consumer's expectations. b. Subsequent encounters with the firm lead the consumer through the disconfirmation process and revised perceptions of service quality are formed c. Once service quality perceptions are fixed, additional encounters with the firm have little bearing. d. Revised service quality perceptions modify future consumer purchase intentions toward the firm. e. The sum of a customer's satisfaction over time with a single firm equals the customer's service quality perception
c. Once service quality perceptions are fixed, additional encounters with the firm have little bearing.
____ refers to the service firm's commitment to providing its services in a timely manner. a.Tangibles b.Empathy c. Responsiveness d.Assurance e.Reliability
c. Responsiveness
Horizontal Channel Conflict
same level within the channel
4) Which of the following statements regarding customer satisfaction is incorrect? a. Bad news is communicated to more people than good news. b. Complainers are more likely to do business with you again than noncomplainers. c. The average business hears from more than 10% of its unhappy customers. d. For every complaint received, 26 customers actually have the same problem. e. Of customers who have their complaints resolved quickly, 95% will continue to conduct business with the firm
c. The average business hears from more than 10% of its unhappy customers.
13) Which of the following tactics would yield higher customer satisfaction scores? a. utilizing mail surveys instead of personal interview b. stating the question in a negative (dissatisfied) form instead of a positive (satisfied) form c. asking general questions prior to specific questions d. avoiding data collection until a substantial period of time had elapsed since the purchase. e. all of these would generate lower customer satisfaction scores
c. asking general questions prior to specific questions
Minimizing the amount of role conflict and role ambiguity experienced by employees will help reduce the size of the _____ gap. a.knowledge b.standards c. delivery d.communications e.confirmation
c. delivery
The difference between the quality standards set for service performance and the actual quality of the service performed is called the _____ gap. a.knowledge b.standards c. delivery d.communications e.service
c. delivery
Employee willingness to perform and employee-job fit are directly related to which of the following service quality gaps? a. knowledge gap b. standards gap c. delivery gap d. communications gap e. service gap
c. delivery gap
22) The zone of tolerance is defined as the difference between: a. predicted service and perceived service. b. predicted service and desired service. c. desired service and adequate service. d. adequate service and perceived service. e. expected service and desired service
c. desired service and adequate service.
6) Positive disconfirmation of consumer expectations occurs when: a. expectations meet perceptions. b. expectations exceed perceptions. c. expectations are less than perceptions. d. perceptions are less than expectations.
c. expectations are less than perceptions.
30) When forming customer expectations, the firm's brochure acts as a(n): a. enduring service intensifier. b. transitory service intensifier. c. explicit service promise. d. implicit service promise. e. situational factor.
c. explicit service promise.
21) The zone of tolerance is most directly related to which of the following unique service attributes? a. intangibility b. perishability c. heterogeneity d. inseparability e. homogeneity
c. heterogeneity
During a service recovery effort, the employee promptly refunded the customer's money, but threw the money at the customer. As a result, the recovery effort violated the customer's ____ justice need. a.social b.procedural c. interactional d.distributive e.ethical
c. interactional
11) In general, the distribution of most companies' customer satisfaction ratings is: a. bimodal. b. normal. c. negatively skewed. d. positively skewed. e. erratic.
c. negatively skewed.
All of the following are a main service failure category discussed in the text except: a.unprompted and unsolicited employee actions. b.failures relating to customer needs and requests. c. pricing failures d.core service failures e.failures relating to problematic customers
c. pricing failures
This type of complaint is not usually heard because people seldom want to convey negative attributes about themselves to others. a.ostensive b.instrumental c. reflexive d.noninstrumental e.critical
c. reflexive
Consumer complaints tend to be: a.instrumental and ostensive. b.instrumental and reflexive. c.noninstrumental and ostensive. d.noninstrumental and reflexive. e.ostensive and reflexive.
c.noninstrumental and ostensive.
In general, individuals avoid making this type of complaint so as not to reinforce negative self-esteem. a.ostensive b.instrumental c.reflexive d.noninstrumental e.critical
c.reflexive
discount and allowance
cash discounts - deduction granted for paying bill within a specific time quantity discounts - deduction for large quantity purchases - encourage large volume purchase seasonal discount - deduction granted fro orders during off-season
Trends in Loan Growth and Quality second largest loan category for banks
commercial and industrial loans
Vertical conflicts
conflicts among firms at different levels
segmented Pricing
consumer-segment pricing - discount for children and students product-form pricing - different versions of products with different prices - software: student version; standard version; premium version location pricing - seat prices in a concert (front seats are more expensive relative to the back) time pricing - call phone service's off-pick discounts
pricing orientations
cost-driven pricing customer-driven pricing competitive-driven pricing
The ____ dimension is an assessment of the firm's consistency and dependability in service performance. a.tangibles b.empathy c.responsiveness d.assurance e. reliability
e. reliability
perceived acquisition value
customer value = perceived benefits/ total sacrifice - what are the sacrifices to consumers in the purchasing process? costs to customers: - price; purchasing cost; time; - search cost: risk of non-performance; - service and maintenance, and any other life-cycle cost involved; - psychological costs involved in shopping and searching - opportunity cost of forgoing alternatives What are the benefits to consumers in the purchasing process? Benefits to customers: - products and their functions - reputation and image of products - additional services to provide reliable parts or service - a product's ability to reduce costs or improve gains through its use
value-based pricing
customers > value > price > cost > product
Based on the image below, the subcategories of Kitchen of India (curry, pasta, biryani, and conserves) represent ________________. a. Product mix width b. Product mix length c. Product line length d. Product mix depth e. Consistency
d.
When Goodyear decided to expand its market coverage by allowing Sears and Discount Tire to sell its products, 2,500 independent Goodyear dealers got upset and began giving less attention to selling Goodyear products. This is an example of __________ a. Up-selling b. Cross-selling c. Training deficiency d. Channel Conflict
d.
Which of the following can be a learning lesson based on the example below? "A global leader in hydraulic components did not show that its Hong Kong distributor was achieving almost half of its sales revenues with mainland China, nor that the products were being sold for about half of their Hong Kong price. When the multinational acquired the Hong Kong business and established a subsidiary, it also found itself saddled with a demand for drastic price reductions in Hong Kong, an active parallel importing problem, and discontented customers in China complaining about the lack of service support." a. Support market entry by committing money, talent, and proven marketing ideas b. Build links among national distributors at the earliest opportunity c. Treat the local distributors as long-term partners d. Make sure distributors provide you with detailed market and financial data
d.
Which of the following can not be considered as a price sensitive customer group? a. Students b. Light users c. New to market customers d. Peak purchasers
d.
Which of the following can not be considered as one of the main differences between the U.S. and European hard discounters? a. Outlet location and decoration b. Number of products carried c. Store Size d. Having an extremely efficient supply chain
d.
Which of the following cannot be categorized under marketing factors affecting channel strategy? (chapter 12) a. Location and concentration of customers b. Buyer expectations c. Willingness of channel intermediary d. Complexity of product
d.
Which of the following is NOT a downside of the social coupons? a. Low chances of covering coupon customers to regular b. Risk of converting an existing customer into coupon customer c. Possibility of rejecting a full-price customer with a coupon customer because of exceed capacity d. Driving new customer to the business e. The deals can be a threat to price integrity
d.
Which of the following is the first component of channel strategy? a. Channel member selection b. Channel member coordination c. Leveraging e-commerce d. Deciding between direct and indirect distribution models
d.
Which of the following refers to the intensity in channel design? a. Number of channels b. Types of intermediaries c. The number of intermediary levels between the manufacturer and the end users d. The number of intermediaries at each level e. None of the above
d.
____ is an attitude formed by a long-term, overall evaluation of a firm's performance. a. Customer satisfaction b. Negative disconfirmation c. Positive disconfirmation d. Service quality e. Customer retention
d. Service quality
25) Situational factors such as bad weather, catastrophe, and random events of over-demand influence: a. desired service. b. perceived service roles. c. ideal service. d. adequate service expectations. e. derived expectations.
d. adequate service expectations.
26) The number of competing alternative service providers available has the biggest influence on: a. desired service. b. perceived service roles. c. ideal service d. adequate service expectations. e. derived expectations.
d. adequate service expectations.
Service failures NOT relating to problematic customers include: a.uncooperative customers. b.breaking company policies. c.drunkenness. d.admitted customer error. e.verbal and physical abuse.
d. admitted customer error.
The SERVQUAL assessment of a firm's competence, courtesy to its customers, and security of its operations is the ____ dimension. a.tangibles b.employee satisfaction c.responsiveness d. assurance e.reliability
d. assurance
The ____ gap is the difference between the service the firm promises to deliver through its external communications and the service it actually delivers to its customers. a. knowledge b. standards c. delivery d. communications e. service
d. communications
When competing firms begin to overpromise in order to top one another, a ____ gap is likely to occur. a.knowledge b.standards c.delivery d. communications e.service
d. communications
15) The primary contribution of Babich's customer satisfaction models is that it stresses the importance of knowing _____ satisfaction ratings. a. customer b. supplier c. employee d. competitor e. stockholder
d. competitor
The component of perceived justice that refers to the outcomes associated with the service recovery process is referred to as ____ justice. a. social b.procedural c.interactional d. distributive e.ethical
d. distributive
31) The higher the number of perceived service alternatives the: a. higher the level of adequate service expectations. b. lower the level of adequate service expectations. c. more narrow the zone of tolerance. d. higher the level of adequate service expectations and the more narrow the zone of tolerance. e. lower the level of adequate service expectations and the more narrow the zone of tolerance.
d. higher the level of adequate service expectations and the more narrow the zone of tolerance.
28) When forming customer expectations, price acts as a(n): a. enduring service intensifier. b. transitory service intensifier. c. explicit service promise. d. implicit service promise. e. situational factor.
d. implicit service promise.
29) When forming customer expectations, the firm's physical facility acts as a(n): a. enduring service intensifier. b. transitory service intensifier. c. explicit service promise. d. implicit service promise. e. situational factor.
d. implicit service promise.
The component of a firm's service quality information system that is used specifically to assess employee performance is: a.solicitation of customer complaints. b.customer focus group interviews. c.employee surveys. d. mystery shopping. e.total market service quality survey.
d. mystery shopping.
32) Greg 's flight on United Airlines from Chicago to San Francisco departed two hours late because of a snowstorm in Chicago. The snowstorm that delayed Greg's flight is a: a. transitory service intensifier. b. self-perceived service role. c. predicted service intensifier. d. situational factor. e. personal needs.
d. situational factor.
12) All of the following are indirect measures of customer satisfaction except: a. sales records. b. profit reports. c. registered complaints. d. the "Scale of 100" approach.
d. the "Scale of 100" approach.
10) Of the following customer satisfaction measurement methods, which is the most effective in producing meaningful results? a. the "Scale of 100" approach b. personal interviews c. the "very dissatisfied/very satisfied" approach d. the combined approach e. employee surveys
d. the combined approach
5) The most popular definition of customer satisfaction/dissatisfaction is based on: a. the SERVQUAL model. b. the servuction model. c. the scale of market entities. d. the expectancy disconfirmation model.
d. the expectancy disconfirmation model.
Ritz Carlton employees take initiative to spend up to $2,000 on recovery efforts. This is an example of which service recovery basic rule of thumb? a.Measure the costs. b.Actively encourage complaints. c.Train employees d.Empower the front line. e. Respond quickly.
d.Empower the front line.
____ complaints are expressed without the expectation that the problem will be solved. a.Ostensive b.Instrumental c.Reflexive d.Noninstrumental e.Critical
d.Noninstrumental
Which of the following statements pertaining to the SERVQUAL scale is correct? a.SERVQUAL compares perceptions to what customers would normally expect. b.SERVQUAL is a 22-item scale. c.SERVQUAL consists of four service quality dimensions. d.SERVQUAL compares perceptions to what a customer should expect from a firm that delivers high-quality services. e.SERVQUAL consists of one in-depth and two sub-sections of questions.
d.SERVQUAL compares perceptions to what a customer should expect from a firm that delivers high-quality services.
Perceived justice consists of three components: a.social, distributive, and ethical justices. b.procedural, psychological, and social justices. c.social, interactional, and physical justices. d.distributive, interactional, and procedural justices. e.social, ethical, and physical justices.
d.distributive, interactional, and procedural justices.
Which of the following is NOT one of the broad recovery strategy categories? a.compensatory strategies b.restoration strategies c.apologetic strategies d.replacement strategies e. responsive strategies
e. responsive strategies
geographic pricing
delivery - further you live - the higher the cost
elastic demand
demand changes greatly with a small change in price
inelastic demand
demand hardly changes with a small change in price
Role of Distribution Channel: Promotion
developing and spreading communications about offers
Vertical Channel Conflict
different levels in the same channel
Multichannel Conflict
different market channels
channel conflict
disagreement among marketing channel members on goals and roles
Stagnation
don't make the mistake of implementing your pricing strategy and forgetting it. You should always be researching and exploring new ways to add value to your product or service
If a company wants to assess whether offering social coupons makes sense, of the following variables it should take into account? I. Whether a customer spends more than the face value of coupon II. How many existing customers purchase the coupon III.What % of the discount customers become regular IV. The cost of delivering the additional sales a. I and IV b. II and III c. I, II, and IV d. II, III, and IV e. I, II, III, and IV
e.
16) According to one group of consultants, on average, ____ of customers who defect to competitors say they were "satisfied" or "very satisfied" with their former providers. a. 5% to 25% b. 15% to 35% c. 25% to 45% d. 45% to 65% e. 65% to 85%
e. 65% to 85%
Which of the following compensates the customer to offset the cost of the service failure? a.replacement b.correction c.substitution d.front-line e. coupon
e. coupon
23) Personal factors that are stable over time and that increase a customer's sensitivity to how a service should be best provided are referred to as: a. situational factors. b. explicit service promises. c. perceived service alternatives. d. transitory service intensifiers. e. enduring service intensifiers.
e. enduring service intensifiers.
7) Customers are most dissatisfied when a ____ occurs. a. disconfirmation b. zone of intolerance c. positive disconfirmation d. confirmation e. negative disconfirmation
e. negative disconfirmation
8) All of the following are benefits of customer satisfaction except: a. the firm is more insulated from price competition. b. the firm provides a positive work environment for its employees. c. positive word-of-mouth communications is generated from satisfied customers. d. satisfied customers make purchases more frequently. e. none of these are exceptions.
e. none of these are exceptions.
19) Which of the following are service quality measures? a. customer satisfaction b. desired service c. perceived service superiority d. perceived service adequacy e. perceived service superiority and perceived service adequacy
e. perceived service superiority and perceived service adequacy
Excellent companies will perform the service right the first time is a typical statement within the ____ dimension of the SERVQUAL scale. a.tangibles b.empathy c.responsiveness d.assurance e. reliability
e. reliability
The SERVQUAL dimension that is typically noted as the most important by customers is the ____ dimension. a. tangibles b. empathy c. responsiveness d. assurance e. reliability
e. reliability
The component of a firm's service quality information system that assesses the firm's and competitor's service quality ratings is: a.solicitation of customer complaints. b.customer focus group interviews. c.employee surveys. d.mystery shopping. e. total market service quality survey.
e. total market service quality survey.
According to the text, which of the following is NOT a type of complainer? a.meek customer b.aggressive customer c.high-roller customer d.rip-off customer e. ugly customer
e. ugly customer
Why is it that a great percentage of service customers never complain to the offending party? a.They don't think it will do any good. b. They accept part of the blame since they are directly involved in the process. c.They don't know who to complain to. d.They don't want to create a confrontation. e.All of these are reasons customers do not complain.
e.All of these are reasons customers do not complain.
The manager of a bank branch contacted complaining customers to explain how their voices resulted in bank policy changes. This is an example of which service recovery basic rule of thumb? a.Actively encourage complaints. b.Train employees. c.Empower the front line. d.Respond quickly. e.Close the loop.
e.Close the loop.
Sony Channel Conflict
every purchase at a retailer required them to Sell Sony music label CD's that included hyperlinks to Columbiahouse.com and their own music store -allowed Sony to get consumer's email and music preferences, and allowed consumers to bypass retailers without any compensation
Measuring Loan Portfolio Risk - Loans Country Risk
exists when banks lend in - international loans to borrowers in a country refusing to make timely payments
Advantages of franchising for franchisor and franchisee
franchisor- company growth, mgmt help, income ^ -disadvantage: hard to control image that far away franchisee- lower risk: brand image and successful business model - disadvantage: controlled
Role of Distribution Channel: Contact
finding and communicating with prospective buyers
Bundling
fixed proportions -pure bundling: only the package is available -mixed bundling: combined products are also sold separately example: software suite, tv cable subscriptions needs to be complimentary products
Backlash
higher paying customers may not see the value they are receiving from the premium price they are paying and will feel taken advantage of
Peak Loading Pricing
higher prices during period of higher demand, and lower prices during off-peak periods originally developed for public utility, regulated monopolies when demand is periodic and subject to fluctuations
peak load pricing discount
higher prices during periods of higher demand, and lower prices during off-peak periods uber surge pricing
Commercial Loans HLTs
highly leverages transactions aka leveraged buyouts
What kind of price sensitivity research should you do to figure out EV of this brand? You want to determine price sensitivity for an existing brand of orange juice.
historical sales- existing brand, not super price dependent product (if there's new comp changing demand it doesn't affect them much)
What is the ideal channel structure for a furniture product
hybrid- for logistics and info seeking consumer
What is the ideal channel structure for textbook products
hybrid- for non logistics or non info seeking consumer- students dont care much about either
For pricing decisions, what costs do you consider ?
incremental- not FCs
What is the ideal channel structure for a gas station
indirect- for logistics seeking consumers
Dilution
it's possible that customer who would pay your higher price will find ways to buy at your lower price
CREDIT ENHANCEMENTS TO REDUCE RISK RESERVE ACCOUNTS
lead bank creates a RESERVE FUND which is used to make up any deficits in payments by borrowers
retailers' loss leader pricing
loss leaders: temporary price cut to attract customers
Distributed Distribution
low to medium control, high reach -work with many distributors and wholesalers
advance purchase discount
lower prices for early purchases Airplane ticket
Advance Purchase Discounts
lower prices for early purchases WHY? -less demand uncertainty -inventory cost reduction -lower risk with consumer commitment on purchase -smooth demand patterns for seasonal goods -lower unutilized on facility
Vertical Marketing System
main members of a distribution channel work together as a unified group in order to meet consumer needs -allow 2+ organizations to benefit from each other's strength (companies in the SAME INDUSTRY)
The Credit Process - Policy, Philosophy, Culture Credit Culture
management principles - how management analyzes risk: - values driven - focus on credit quality - current-profit driven - focus on short-term earnings - market-share driven - focus on having highest market share
The Credit Process - Policy, Philosophy, Culture Credit Philosophy
management's philosophy of how much risk the bank will take and in what form
Competition-driven pricing
match the competition: - pricing to meet competition - pricing below competition - pricing above competition - short-term gains in market shares - long-term consequences of price wars - erosion in profits - price wars The competitor question relevant to pricing is not: What level of price will enable us to achieve our sales and market share objectives? The competitive question relevant to pricing are: what level of market share can we most profitably achieve, and how can we most profitable achieve it?
Commercial Loans Term Loans
maturities greater than one year: - multi-year loans with bullets and balloons in medium time horizon (-5 years)
Selective Outsourcing
medium control and reach -maintain own sales force while selectively outsourcing less critical functions (delivery and collection)
Integrated Distribution
medium control, high reach -actively partner with large distributors
Ideal Channel Structure
minimizes the total system costs of providing the channel services to end users (including end-user's costs)
Is this a valid competition base pricing strategy question? What level of price will enable us to achieve our sales and market share objectives?
no; better would be; how do we profitably meet this market share goal?
Psychological Pricing
not a rational buying decision - getting into your head
Reduce the Pain of Paying
pain emerges from: -saliency of payment (we feel more pain if we see money leaving our hands) -timing of the payment (we feel more pain if we pay after we consume)
discount/allowance
people don't expect to pay list price - promotion
revenue
price x unit-sales
Segmented Pricing Definition
pricing based on differences among buyers in terms of costs, price sensitivities, and competition
Product Line Pricing
pricing different products within the same product range at different price points. the greater the features and the benefit obtained, the greater the consumer will pay. this form of price discrimination assists the company in maximizing turnover and profits
cost-based pricing
product > cost > price > value > customer
CREDIT ENHANCEMENTS TO REDUCE RISK CREDIT INSURANCE
provide payments for losses stemming from default
Value is the
ratio = (perceived benefit/ Price)
Role of Distribution Channel: Negotiation
reaching agreement on price and other terms of the offer
discounts & allowance vs. loss-leader pricing
really about the strategy or whatever you are doing - loss leader: short-term sacrifice to build business later - discount can be a standard policy
CREDIT DEFAULT SWAPS aka CDS contracts
relatively un-regulated DERIVATIVE INSTRUMENTS based on the underlying paymnets and values of fixed-income securities: privately negotiated between CDS buyer and seller; similar to an insurance contract; CDS are traded on an exchange; Buyer pays a premium based on risk of default; seller receives the payment and assumes the risk of default CDS: - CDS seller -> Payment if credit event occurs - CDS Buyer Premium Paid
profit
revenue - cost
Cash Discounts
reward for the payment of an invoice or an account within a specified period of time
Cash discount
reward for the payment of an invoice or an account within a specified period of time
Group/Personalized Pricing
seller can infer consumer's willingness to pay from observable and verifiable characteristic (age)
product line pricing
setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors' prices
Commercial Loans - SHORT TERM commercial loans to business:
short-term funding needs are financed by short-term loans, while long-term needs are financed by term loans with longer maturities
Performance and Condition Ratio - Objective Assessment of Trends
some ratios are assessed objectively by comparing the changes in the ratios from one period to another
Total Cost
sum of total fixed cost and total variable cost
Implications for competitors
tells competitor this is what I do, if you compete on price I will match you
Setting Value, Not Price
you should be trying to figure out - instead of coming up with price - it should be the last thing that you should come up with in your arithmetic - focus on value
Product Mix Width
the number of product line carried
Product mix
the set of all products offered for sale by a company
price bundling
the tactic of marketing two or more products and/or services for a price below the sum of the individual prices creates an incentive for purchasers of one product to also buy other(s). vacation packages, tv plans, season tickets, etc.
Role of Distribution Channel: Physical distribution
transporting and storing goods
damaged goods
used to create differentiation between products ex. fed ex offering 1 day vs 3 day service - 3 day service costs more for fed ex, but cheaper for consumer; the 1 day service is more expensive to consumer but cheaper to fed ex; 3 day service = damaged good
Product mix length
variety of sizes, colors, and models offered within each product line
Segmented Pricing
when a company sells a product/service at two or more prices that do not reflect a proportional difference in costs -customer-segment pricing -product-form pricing -location pricing -time pricing
Measuring Loan Portfolio Risk - Loans Concentration Risk
when bank lend in: - narrow geographic area - heavy "concentration" in one or more particular industries
Channel Conflict
when channel members disagree over goals and roles
Xbox demand is price iPhone Demand is price
xbox...elastic -> low price inelastic -> high price
disadvantage of cost-based pricing
you don't always know what the cost is all the time
Conjoint analysis- what used for, why , and process
1. Used for: segmenting customer market- run regression on each individual customer and find similarities between their regressions to group in segs - can always use for any attributes curious about: use price and see how sensitive segments are to price changes 2.Why- useful for products looking for EV(Thus cv since ev is the quantified part of that) that have many attributes they want to mess around with 3. 1. Understand all drivers important -brand, color, price 2.Create combos of attributes -factorial design; 3 brands * 2 colors * 3 prices 3.Run regression on each type of combo -find y (customer rating on that combo), b0 (intercept, utility/ value of that combo), b1-b5 (incremental value of other attribute not in combo (in red, brand a, $100 combo: blue, brand c and b, $50 and $150 are missing ) 4.Compare y/ intercept to other b/attribute in regression , if b0 > b1-5; that combo is valued highest (that combo has all attributes you can group seg by )
Which is not a cost driven pricing STRATEGY question rather than a tactic question? A What prices do we need to cover the costs and achieve our profit objectives? B How much sales volume would we need to profit from a price cut? C How much sales volume could we afford to lose and still profit from a price increase? D What costs can we afford to incur and still earn a profit on the resulting sales?
A- not looking long term, just trying to figure out how to cover costs to get a profit, others are planning around something that is long term (price cut, sales increase profit ) startegy- what do we need to plan vs tactic- what do we need to do/how do we react?
Advantages and Disadvantages of Customer Driven Pricing
Advantage: -short term gains in market shares Disadvantage: -long term consequence: price wars (erosion in profits)
Advantages & Disadvantages of Cost Plus Pricing
Advantages: -fair returns over costs for each item sold -simplicity (easy to calculate) Disadvantages: -it may not be possible to determine the costs before the price -volume changes with the price -passive pricing, not proactive -may lead to a "death spiral"
Why Plastic Mousetrap failed?
Although plastic mousetrap were more efficient but more expensive - it failed in the market because people were used to the idea of throwing stuff away
Contribution Margin
CM = Sales - VC
Prisoners dilemma important takeaways
Cooperation is key, competition is infinitely complicated The only thing that matters is the sequence of the movement in pricing between competition in prisoners dilemma- the first mover advantage vs second mover (price low and get more customers)
Price determines the demand and supply of products in the economic system: why?
D: determines who is willing to pay for it; willingness to pay determined by price ; elasticity of consumer S: profit, determines how much company can afford to price at
Calculating EVE, what used for, and process
Economic value estimation - a tool to estimate CV for customer segments 1.Understand customer economics- value drivers -what drivers they care about most and go after those drivers -differential value = found here; pick to driver that make our product best (performance) 2.Quantify value drivers- performance -put #s to attributes -research required to find: uncontrolled and controlled PRICE SENSITIVITY research -choose: research that has info you need most (historical sales would help orange juice brand existing , saves money and its an unsaturated market so they can rely on the data) -best: conjoint analysis: weight attributes by importance to customer -ex: performance: $50, quality: 40, increased cost to use us: $10 3 Calculate EV - + differentiation value (extra value your brand offers $) - costs of ur brand + reference differentiation value (other similar product value p) -ex: $50+$40 - $10= $80 EV
Price as a product differentiation and a positioning tool: why?
Positioning: signals value to specific target segments Differentiator: because of above; signal of its value
Customer Drive pricing Outline of how pricing process goes For Relevant questions
customer- value- price- cost for:Highly segmented products, brands were you can segment to reach many different segs and profit off many How can we segment to signal value to different groups of customers? What prices will justify value to our customers?
Zone Delivered Pricing
customers within the same zone pay the same total price (first zone pays $1, second ring zone pays $2, etc.)
Prisoner's Dilemma- general meaning and different scenario types and best options
generally- cooperation is best option for both parties; low and low etc First mover advantage- competitor first in market, advantage of getting first customers and resources, can afford price drops etc -Best options: cooperation yes; high and high, but MOSTLY price low while others have to price high coming in (bc they can price low) Second mover- second in to market Best options: match the first mover, H and H, L and L; customer won't question high or low p for quality; you're simply a second option so u need to match
Quantity Discount
price reduction to buyers who buy in large quantities -30 beers -costco
Seasonal Discount
price reduction to buyers who buy products or services out of season -halloween candy on Nov 1
Cash Discount
price reduction to buyers who pay their bills without delays -paying off car on time
price vs value
price: amount of money needed to acquire a product or service (cost of the buyer) value: ratio of perceived benefits to price (perceived benefit/price)
Time Pricing
prices vary by season, day, or hour --> lunch specials, matinee movie tickets
Cost Plus Pricing
pricing based on costs and markup (percentage of selling price that is added to the cost to get the selling price) -selling price = cost + markup -most retailers and wholesalers
pricing strategy
proactive, planned, focusing on long-term effect
Loss Leader Pricing
product sold at a very low price to encourage customers to buy other products -Best Buy and DVD example -Walmart offering new cds -flights (expensive), carry on (cheap)
Uniform Delivered Pricing
same delivered price for all customers, regardless of their locations (all locations = $2)
Why study pricing strategy and tactics? - Importance of Price
- Price is the only marketing mix element that produces revenue and profit. - can effect the bottom line through pricing
Marketers today
- Segmentation - need to figure out some way to identify characteristics - Pricing - product improvement for price to increase - Communication - - Product Development
Pricing Strategy?
- a strategy is a long term plan of action designed to achieve a particular goal, most often "winning" - strategy is differentiated from tactics or immediate actions with resources at hand - originally confined to military matters, the word has become commonly used in many fields: - business strategy, economic strategy, marketing strategy, treading strategy, technology strategy, game theoretical strategy.
other marketing mix elements
- product; product life cycle, product quality and benefits - distribution; types of distribution outlets - promotion; sales promotion
Pricing Tactics
- reacting to marketing conditions; offensive or defensive; focusing on short-term effect
What makes price unique compared to other marketing mix elements
-first thing consumers care about -its the value of the product -****it varies constantly and frequently -***it helps the business know how they will profit (direct effect on revenues and profits) -determines demand and supply of products -tool of product differentiation
Geographic Pricing
-FOB point of purchase pricing -Uniform Delivered Pricing -Zone Delivered Pricing
La Grande Alliance Case Facts
-Restaurant in Lafayette hotel in UGH hotel chain hotel in Boston -Type: fine dining -Issue- pricing menu to look premium/ maintain high quality look that doesn't have to change , but issue with serving sizes and making sure dont waste anything -solution: pricing way above costs to premium price but then "running out" of menu items, price is value based
Customers are less sensitive to price changes when:
-product is more distinctive (Apple) -assumed to have high quality and prestige -less aware of substitutes (cab vs Uber) -cannot easily compare the quality of substitutes -used with previously purchased assets (complimentary products) -expenditure is a smaller part of buyer's total income -small compared to the total cost of the end product -cannot store the product -part of the cost is paid by another party
"Pricing as a Strategy Capability"
-strategic capability: a contributor to a company's ability to devise and implement its strategy, ability to set the right price at the right time -Polaroid: film going digital, pricing strategy of cheap cameras and expensive film did not transition well -Sun Country Airlines: mimicked competitors or really basic rules (decrease in demand, cheaper tickets), struggled to segment market -Roche: medical products company, many acquisitions --> had to consider so many members to create prices, it differed for every dept --> created a Roche Marketing University --> invested in new software system to maintain prices --> brought diverse people from different depts together to create balance with pricing --> increase of 10% in profitability in first year --> Human Capital: well trained people who understand complexities of company... Roche employee put together a package to help recognize a good deal with equation --> Systems Capital: AT&T and Sears failed (lacked computer infra to easily set different prices for stores ------- HSN and large groceries invested in good systems that let them react to customers in real time --> Social Capital: internal glue that coordinates and holds together the many participants in the pricing process ------manager at manu comp had offsite meetings to talk pricing with everyone involved bc he couldnt convince the decisions to implement pricing ideas ------ anticipate and manage customer responses to price changes ------ Proctor and Gamble upset retailers and wholesalers bc they changed internal processes and routines... SuperValu added surcharge to P&G products bc they were upset ----- need to invest in social capital to prevent a total meltdown of customer relationships -AVOID IMITATING COMPETITORS: following rivals into forms of pricing that are much more costly for them than they are for their competitors is a silly mistake
Less Elastic?
-there are no or few substitutes -buyers have strong preferences towards products or brands -buyers think that higher prices are justified by quality improvement: high price signals high quality
Anheuere Busch (Budweiser) and Miller Coors case- What happened
1. 1989- anheuser dominant share of market , coors match it and dropped prices 22% 2.Press release by marketing head anhesuer- expressing concern about effect price change could have- if we continue market will corrode, we will be slowing price reductions and will do whatever comp wants (coors ) 3. anheuser prices stabilized and reduction stopped in almost all markets- market followed bc had to- market stabilized
Discount and Allowances
1. Cash Discount 2. Quantity Discount 3. Seasonal Discount 4. Allowances
Elasticity, equation , examples of elastic goods, and reasons why good would be elastic
1. Chg in d / chg in p -how much demand changes due to price change 2. gas, orange juice, many options 3. Substitutes, brand loyalty, p perceived by most as true quality, elastic good= can't use value based pricing, inelastic good= can use value based
Price Orientations
1. Cost (cost-plus method, target ROI/ROS, breakeven based analysis, target CM pricing) 2. Customer (perceived value pricing, performance based pricing, WTP) 3. Competition (penetration pricing, price skimming, price follower behaviors, price according to avg market price)
Negatives of price wars
1. Customer price sensitivity up -dont value brand as much, care more about price 2.Value sensitivity down -customer not valuing brand as much now 3.Erode market growth -anheuser was afraid of this; capping growth of entire market when all fighting over one bean 4. Customer reference price point long term -customer sees that price as necessary to buy for rest of time (the change u had to follow and them)
What's 2 example of a pricing segment fence?
1. Giving discount to locals to disneyland Segmentation value driver criteria: willingness to pay (low bc not a novelty good like out staters) 2.Ups Discount to 3 day delivery vs higher 2 day delivery ppl- segmentation value driver criteria : speed of delivery (2 day pay more bc value speed more)
7 Biggest Mistakes in Setting Price
1. Going in too low and undercutting all the time 2. Using the same margin for all products 3. Not understanding the difference between margin and markup 4. Forgetting to take all costs into account 5. Finding out what competition charges and doing the same 6. Setting sales commissions based on sale prices vs percentage of profit (you want to base it on profit) 7. discounting instead of adding value...Discounting takes a toll on profits
Pricing strategy types
1. Loss leader - pricing below normal p - to: attract customer and attract value chain; manufacturers (printer inkjet) -Price ancillary goods high afterwards 2.Discounts -per volume and season; incentivize mass volume and buying in off szn 3. Segmented pricing -types: customer segs(adult vs college ), product form (easier software for one seg), location 4.psychological pricing -cue quality; raise above comp value or below,, above tag heuer 5.Geographic pricing -FOB point of purchase ; seller pays to get good on truck, customer pays transport costs ; increase the farther away they are - uniform and zone delivered
Common Pricing Strategies and Tactics
1. Loss leader pricing 2. Discount/Allowance 3. Segmented Pricing 4. Psychological Pricing 5. Geographical Pricing
Positives of Price Wars
1. More customers- attract with low p 2. Deeper pockets- p down leads to higher sales volume often
3 benefits of price
1. S/ D determinant- D- determines willingness to pay or demand form customer segs S- determines what output at that p can be profitable to supply 2.Profit- price only mktg mix element with direct relationship to profit 3.Segmentation- signal of value to segs
How to avoid price wars
1. Understand your competition - avoid asymmetric info -why they price the way they do 2.Don't price react- react without a price change 3.Carefully know your value adv -what POD you have; does a p chg reduce ur value? 4.Communicate to customer why you price the way u do 5.Price segment- p differently per regs more receptive to comp p pressure 6.Price bundle- price different parts of product lower; convince them to buy one and others will follow
Disadvantages of break even analysis
Assumes 1.VC proportionate to all vol output levels -will fluctuate bc by nature vc increases per output and utilization of manufacturing 2 P constant w vol output levels - increase when vc does if you're pricing right 3.Costs used incorrect
Medicines Company Case Takeaways
Big picture; EVE framework of valuing
- Price determines the demand and supply of products in the economic system: Why?
Business takes time and it sets up a plan
Pricing orientations- the outline of this class
Cost Customer Competition
Breakeven Point
Revenues = Costs
Pricing and value creation- steps to value based pricing , and what's the overall goal
Figure out who to charge, and how much to charge (CV) Pricing captures this cv, marketing communicates it 1. Conceptualize CV -what factors do consumers consider benefits -find benefits and sacrifices , value= perceived benefits/ sacrifices 2.Understand key value drivers -what attribute are like and not, create customer profiles based on this -SEGMENTATION: -criteria to make segs -attach key value drivers for the groups to the groups(this group values superior performance driver most) -determine capabilities u have to meet drivers - create segs -price to segs- metrics and fences 3.calculate EVE -EVE 4.Communicate EV 5.Capture cv - pricing -metrics and fences
Value based segmentation
Grouping customers based on their perceived value of your product; many different values 1. Conceptualize CVs- perceived benefit / sacrifices -benefits: function, quality, brand, cost -sarcrifices: time, money, time spent looking, risk 2.Understand value drivers -most important factors of CV for each segs -std dev on weights of factors between people will naturally fit them into segs -ex: the functionality (superior performance?), the low costs? 3.Group segments and estimate CVS -through eve framework - conjoint analysis: present combos of value drivers to consumers in interviews/ focus groups and find EVS= 4..Communicate value to customers 5.Capture CV -metrics/fences -metrics: price lower per mile for segs driving more (segmented by behavioral characteristics ) -fences: offer specifics kinds at diff times to segs; discounts to certain segs, scholarships to lower income
why is value based pricing helpful??
Helps you conceptualize who the customers are, what they want, and what to charge them (p)
what price sensitivity research to use to find EV from customers with this problem; You are a long distance telephone company trying to determine what causes price sensitivity and how price sensitive consumers are in their selection of a long distance telephone service.
Historical- existing company - also cheapest method available
What kind of price sensitivity research should you do to figure out EV of this brand? You are a laundry detergent maker introducing a flanking brand and want to see how many sales you will take away from your flagship brand as well as from competitors' brands. It is important, however, that competitors not find out about the test. Otherwise, they will be forewarned of the new brand's introduction.
Intention/pref research first off: bc brand new brand -of types of intention research:controlled , want secure data collection so no one finds out
Why do price wars are created, wanted
Intentional strategic move 1.Drive competition out 2. Battle for customers and business
Margin vs Markup
Margin: based on sales price Markup: based on cost
"Mind Your Pricing Cues"
PSYCHOLOGICAL PRICING -sale signs (most straightforward pricing cue), putting "sale" next to price can increase demand by more than 50% --> making a sign costs virtually nothing --> not always truthful --> putting sale signs on more than 30% of items diminished the effectiveness of pricing cue --> placing sale signs on multiple items can increase demand for those items, but can decrease overall demand -signpost items (airport items are marked up) --> customers use prices of signpost items (coke, movie tickets, etc.) to form an overall impression of a store's prices --> signpost item strategy is intended to be used on products for which price knowledge is accurate --> don't want cheap price to be because of a special circumstance... it makes the customer feel weird - customers often interpret discount as a signal of weak demand -tracking effectiveness: measurements should begin even before a pricing cue strategy is implemented to help determine which items should receive cues and how many should be used --> have to consider long run impact of cues (policies that max short run profit lead to suboptimal profits long term) --> marketers focus more on customers' perceptions of prices than on their perceptions of quality --> even when marketers have such data under their noses, they too often fail to act (limiting number of items on sale in each department)
Price as a product differentiation and a positioning tool: Why?
Same products - different labels - have different price - due to: Status, - its really about what they can get for - and is called value
Strategy vs Tactic
Pricing Tactic: reaction to marketing conditions --> passive, defensive, focusing on short-term effects Pricing Strategy: a strategy is a long term plan of action designed to achieve a particular goal --> proactive, planned, focusing on long term effect
What is the overall purpose of marketing?
Process of planing, executing, and promoting ideas to meet consumer needs and reach consumer values and org goals - a biz function
Cost Pricing - Cost Plus Outline of how pricing process goes Equation For Advs/dis
Prod - cost - price - value - customer % of SP + cost = SP For: retailers, those well aware of sales and volumes- costs correlated a lot with sales (USPS didn't know sales well, so couldn't use well) Advs - simple, profit per unit Disadv -P not often consistent with volume - cost often not consistent with volume (death spiral ; costs don't flow with a decrease or increase in d ) -not proactive/ reactive
What is the overall goal of pricing strategy ?
Profit maximization
Breakeven Equation
Revenue - Costs = Profit Revenue - VC - FC = Profit Revenue - VC - FC = 0 Revenue = VC + FC Revenue = (#Units Sold) * (Selling Price $/Unit) VC = (#Units Sold) * (VC $/Unit)
What's the solution to asymmetric competition info?
Signals= quality + market/competitive Quality 1.Default -price independent of product quality/performance - advertising, decorations in office capex; all increasing p but not bc of your product/ not strategic 2.Dependant -price dependent on product performance, -a p change bc its in nature of the good not bc trying to compete ; warranties, money back guarantees Market Signal to help competition understand/ make inferences or something about them 1.Aggresisve- fast, threatening, elicit quick response back ; clorox free to door stuff 2.Cooperative -cooperation, elicit integration if understood; anheueser
What is the meaning of the break even sales change ?
The change in sales volume that's required to maintain current profit level despite price changes questions relate- by how much would sales have to increase to continue to break even with a price cut? by how much could sales drop that we could absorb for us to still profit off a price reduction?
When competition in a market is low, how do your brand profits do?
They're less pressured: inflated/ not surpressed , can increase
What's the relationship between price and value?
Value= perceived benefit / price >1 = highly valued brand
Competition Driven Pricing Relevant questions
What market share can we reasonably profitably maintain? (not what p do we need to achieve our profit goal )
What is a death spiral from cost pricing?
When demand of a good starts going down and the costs stay the same, the UC begins to > P; a loss that continues to deepen
Marketing is a function of
a business, distinct from finance and operations
What kind of price sensitivity research should you do to figure out EV of this brand? You are a hotel chain trying to determine what features to include in a room (color TV, free toiletries, etc.).
conjoint - figure out which attributes matter most to them
Customer Segment Pricing
different customer groups are charged different prices for the same product --> discounts for students, airfare for children
Product Form Pricing
different versions of the product are priced differently but not according to differences in their costs --> software: student/standard/premium version
strategy or tactics; a price cut at the selling season?
discounts - people want to know that they are beating someone through discounts
pricing strategy
does affect the survival of firms
price should depend on
marketing environment; consumers, competitors, distribution channel members
Allowances
other types of reduction from the list price (promotional allowances, trade-in allowances) --> sale, coupon, rebate
Price Elasticity of Demand
the degree of response of quantity demanded to a change in price can vary considerably. If quantity demanded changes proportionately, then the value of PED is 1, which is called unit elasticity. PED < 1, inelastic PED > 1, elastic PED = 0 , perfectly inelastic PED = infinite, perfectly elastic
Location Pricing
the same product is priced differently at different locations, even though the cost of offering at each location is the same --> concert seats, airplane seats
definition of price
the value that customers give up or exchange to obtain a desired product/service