Principles of Marketing - Test 2

Factors that affect pricing

*Demand* *Supply* *Costs* *Product Characteristics* Perishability/Seasonality Luxury status Distinctiveness *Marketing Environment* Economy Socio-Cultural Trends Competition Government regulation

Types of utility (middlemen) *ESSAY QUESTION*

*time utility* - convenient hours of operation *place utility* - convenient locations *ownership/transaction utility* - accept payment in various forms * assortment utility* - breaking bulk and creating meaningful assortments of products in one location *service* - provide information and customer service to the consumer

Influences of omni-channel retailing

.1. Evolvement of the online channel; specifically due to increases in technology and e-commerce 2. Changes in consumer behavior Shopping for convenience and price Millennials, Boomers, and Seniors all make up the e-commerce population Search Engines are the most important source for consumers when shopping online 3. Increased service demands and value

*NEW PRODUCT DEVELOPMENT* (essay question)

1. Idea generation - brainstorming and customer feedback 2. idea screening - feasibility testing for commercial success 3. Project planning - budget and responsibilities 4. concept development and testing - find a clear distinctive positioning 5. product development - prototype testing and fixing technical issues. 6. marketing strategy development 7. test marketing - in the real world; might be beginning stages of product launch 8. Commercialization, launch, rollout - followed by tracking studies

Different segments adopt innovations earlier or later, depending on their characteristics *ESSAY QUESTION*

Adopter categories Innovators-really into product (minority of adopters) Early adopters-socially integrated; may be opinion leaders; affluent Early majority-less risk by now, must keep up with times Late majority-middle/working class, product is easy to get and afford Laggards-older, poorer, anti-change, like the good ole days

Nonstore retailing

Any method a firm uses to complete an exchange that does not require a customer to visit a store Direct selling Door-to-door sales Party plan system Multilevel network: a master distributor recruits other people to become distributors Illegal pyramid schemes: people pay money to advance in company, profiting from others who might join

How do marketers create brand awareness?

Anything that causes consumers to experience more of the brand. Associate rich multisensory cues with your brand. Repetition increases recognition chances; pairing a brand with a song/jingle facilitates recall and recognizably. In a highly competitive setting and or for new entrants, linking the brand to the category helps in awareness

Shifts in demand curves

Changes in marketing strategy (improved product, new advertising) or non-marketing activities can cause upward or downward shifts in demand. At a given price, demand is greater or less than before the shift. Marketers can facilitate an upward shift

Limitations of BRC e-commerce

Customers must wait to receive products and pay sometimes a lot for shipping. Sites can suffer from poor design. Security is a concern to consumers/marketers. Internet fraud is a danger (e.g., phishing). People need "touch-and-feel" information. Firms need "bricks-and-mortar" presence to maintain base of loyal customers. Developing countries with cash economies can't easily pay for Internet purchases; lack of credit cards. Online inventory may cannibalize major retailer store sales.

Benefits of B2C e-commerce

Facilitates exchanges in global marketplace. Increases convenience for consumers. Can fulfill experiential needs. Allows specialized businesses to succeed. Makes price and detailed product information easily available. Allows businesses to reduce costs. Provides lots of customer and marketing research information to marketers. Experts predict a rosy future for B2C e-commerce, with exponential increases in Internet sales of some product categories within a few years.

Demand

How much of a product are customers willing to buy as its price goes up or down? Known as demand elasticity, or price sensitivity

Key advantages of online marketing *ESSAY QUESTION*

Integration with social media and mobile applications: ex. Walmart Iphone App Enables interactivity: ex. Absolute cause-related campaign "In an Absolut World, every sip makes a statement." Codes imprinted on bottles—consumers must go to website and enter code to read the message and choose one of three charities for Absolut to donate $1 to: The Ocean Foundation, Fruit Tree Planting Foundation, or the Environmental Media Association Absolut city campaign (next slide) Allows for the sale of a wide and/or deep product mix with less cost Hard to find, limited edition products A large stock of limited editions - buy Absolut Vodka at our online shop Supplement in-store inventory

Buyer's pricing expectation

Internal reference price: consumers use a price/price range to evaluate product's cost. Assimilation effect Contrast effect Price/quality inferences: consumers assume higher-priced product has higher quality.

The wheel-of-relating hypothesis

New retailers enter the market by offering lower-priced goods and simpler facilities. They gradually improve facilities, quality and assortment of merchandise, and amenities and increase prices. Example: Wal-mart stores started out simple, but over the years have gotten bigger and fancier with more and more products, trying to compete with Target and provide customers with more service and utility.

The rate at which new products spread through a society is affected by these factors *ESSAY QUESTION*

Relative advantage-degree of improvement Compatibility-fit with existing practices Complexity-difficulty of using product Trialability-ease of demonstration or trial Risk-possible negative consequences

Retailers

Retailing: the process by which goods and services are sold to consumers for their personal use The retailer adds/subtracts value from the offering with its image, inventory, service quality, location, and pricing policy. Retailing is big business: one of every five U.S. workers is employed in retailing. Retailers belong to a channel of distribution, providing time, place, and ownership utility to customers.

Price can have multiple objectives

Sales or market share objectives Profit objectives Competitive effect objectives Customer satisfaction objectives Image enhancement objectives

Wholesalers

Sell to other Resellers Functions/Activities of Wholesalers -transportation -storage/warehousing -breaking bulk -financing, granting credit to retailers -absorbing some of the risk by taking title to the goods

Price elasticity of demand *ESSAY QUESTION*

The percentage change in unit sales that results from a percentage change in price.

Inelastic demand

a change in price has little or no effect on quantity demanded; few substitutes (e.g., gas)

Elastic demand

a change in price results in a substantial change in quantity demanded; there are usually plenty of substitutes (e.g., pizza)

Prestige products and demand

a price increase may actually result in an increase in quantity demanded (see next slide); at a certain point, the price decrease leads to a decrease in the luxury image of the product

Value pricing or everyday low pricing (EDLP)

a pricing strategy in which a firm sets prices that provide ultimate value to customers (pricing strategies based on customers' needs)

Direct channel

a producer and a customer with no intermediaries

Product line

a related group of products, usually marketed to similar customers through the same types of outlets

Skimming pricing (new-product pricing) *ESSAY QUESTION*

a very high premium price: a more short-term strategy used to recover high costs; works well with distinctive hard-to-copy products, but encourages competition into the market

Penetration pricing (new-product pricing) *ESSAY QUESTION*

a very low price to encourage more customers to purchase; a more long-term strategy used to build market share; discourages competition from entering the market

Brand recall

ability to retrieve the brand from memory when a certain cue is given (say, the product category or usage situation)

Retailers can be classified

according to product mix (department stores, convenience stores, specialty stores, grocery stores); see next slide according to price/service levels (discount stores, full-service retailers, self-service) according to ownership (mom&pop owner-operated stores, chain stores, franchises, etc.)

Supply chain are

all activities necessary to turn raw materials into a good or service and put it in the hands of the consumer. Includes suppliers of raw materials and component parts.

Brand image

all the associations that come to mind when you think of a brand

Product mix

all the products a company sells

Channel members or middlemen

all those members of the channel who take title to the goods (i.e., they buy and re-sell)

Product

anything that satisfies needs, or a bundle of attributes that satisfies some underlying need

Law of demand

as price goes up, quantity demanded goes down for most products

Examples of anti-brand activism

boycotts, organized negative publicity, and cultural jamming

The best manifestation of emotional branding is via

brand communities. HOG and apple enthusiasts, communities are examples of shared brand ownership

Brand awareness is made up of *ESSAY QUESTION*

brand recognition and brand recall

Design of packaging facilitates

brand recognition and differentiation at the point of purchase and helps to aid in developing brand image and associations

Retailers can be classified by breadth and depth

breadth (narrow and broad) as well as depth (shallow and deep)

Emotional branding is often believed to be the

central pillar of market differentiation and sustainable competitive advantage

Managing the channel

channel leader/captain: the dominant firm that controls the channel

Parts of the channel distribution *ESSAY QUESTION*

channel members or middlemen, facilitators, and selecting channel partners

Price discrimination

charging different customers different prices not based on cost differences *unethical pricing*

Predatory pricing

company sets a very low price (below cost) for purpose of driving competitors out of business *unethical pricing*

Layers of the product *ESSAY QUESTION*

core product - the basic benefits actual product - features of the product augmented product - the extras of the product

Variable costs

costs of production that are tied to and vary depending on the number of units produced. Average variable costs may change as the number of products produced changes.

Fixed costs

costs of production that don't change with number of units produced Rent, cost of owning/maintaining factory, utilities, equipment, fixed salaries of firm's executives

New to the world/true innovations (also called discontinuous innovations)

create an entirely new market and way of doing things (ex. the microwave)

Brand equity

different outcomes result from the marketing of a branded product than if it were not branded; such different outcomes arise from the value (created in several different ways) attributed to the product as a result of the past marketing activities

Deceptive pricing practices

going out of business sales, and bait and switch

New and improved products (also called continuous innovations)

improved performance, new styling, replace existing products. (Ex. re-sealable dog food packages)

Why is brand awareness important?

increases the chances of including the brand in the consideration set and ultimately choosing it. During low involvement situations , consumers often make a choice based on brand awareness;

Price leadership strategy

industry giant announces price, and competitors get in line or drop out

Types of distribution *ESSAY QUESTION*

intensive, selective, exclusive

Omni-channel retailing

is a seamless approach towards the use of multiple channels that are centered around the consumer experience

A highly influential brand paradigm

is consumer centric, relational, story-driven approach to developing bonds

Brand recogntion

is the ability to recognize a brand once exposed to it. When a decision is made in situations where a lot of competing information is usually present, recognition is more important

Brand personality

is the personification of a brand to which the consumer can relate

Convenience

little effort and purchased frequently *consumer product*

Trial pricing (new-product pricing) *ESSAY QUESTION*

low promotional price for a limited period of time

Criteria for choosing brand elements

memorable, meaningful, likable, transferable, adaptable, protectable

It is believed that a rational benefit driven approach can be

more easily emulated at some point in time; especially if the benefits are tied to technological and product features. Strategic objective of emotional branding is to forge strong and meaningful emotional/feelings based bonds with consumers.

Selecting channel partners

normally a long-term commitment

Vertical conflict

occurs between firms at different levels in the same channel (e.g., the wholesaler delivers defective goods to the retailer). Vertical conflict is inherent as the channel members are all trying to maximize their profits by cutting costs and selling as high as possible.

Horizontal conflict

occurs between two resellers at the same level in the channel, like between two retailers (example is two car dealerships feeling like their territories overlap)

Indirect channel

one or more intermediaries - firms/individuals such as wholesalers, agents, brokers, and retailers that help to move the product to consumer or business user

Business to consumer B2C e-commerce

online exchange between companies and individual consumers

A shortage of a product can lead consumers to

pay outrageous prices for it; e.g., Tickle-Me-Elmo going for over $1000 a few Christmas's ago, or people lining up to pay $4/gallon of gas when we thought they were running out Marketers can manipulate the supply of a product in order to keep prices high

Price per unit must cover total costs per unit

plus allow for a certain profit if you are a for-profit firm

An over-supply of product will lead to

price reductions. ; e.g., there are lots of SUVs (new and used) on the market today, resulting in heavy price promotions for new SUVs and cheaper prices for used SUVs

Odd-even pricing

prices ending in 99 or 95 or some odd number (called discount pricing) rather than 00 lead to consumer perception that the price is lower and in turn to increased sales

Product line pricing *ESSAY QUESTION*

pricing differently branded products in the same product category made by the same company at different levels to facilitate different brand images for those products (ex. Anheuser Busch prices Busch the lowest, followed by Budweiser, followed by Michelob, leading to different quality perceptions for each brand). *pricing for multiple products* Also called price lining

Ballpark pricing

pricing near, at, above, or below the competition. (pricing strategy based on competition)

Captive pricing *ESSAY QUESTION*

pricing two products that work only when used together (ex. pricing printers low, but ink cartridges high, so that profit is made from ink sales) *pricing for multiple products*

Facilitators

provide services like transportation and warehousing

Supply chain

raw materials -> parts suppliers -> manufacturer -> resellers -> consumers

Speciality

require special effort to obtain *consumer product*

Proper execution of brand personality strategy

requires that the brand's personality, just like a person's, must be consistent and enduring over time, as well as serve to differentiate the brand from all others

Exclusive distribution

selling only through a single outlet in a region or territory; a contractual arrangement is in place Advantages: gives product a higher quality image and allows for greater customer service; arrangements are written out so there is less channel conflict Disadvantages: may be hard to find or limit the number of customers

Intensive distribution

selling through all suitable outlets in order to get the product to as many people as possible Advantages: gets the product to as many people as possible Disadvantages: very little control over the product's display and makes the product seem common

Price bundling *ESSAY QUESTION*

selling two or more goods or services as a single package for one price (ex. cell, internet, and tv all in one) *pricing for multiple products*

Shopping

shop around, durable goods *consumer product*

Brand personality framework *ESSAY QUESTION*

sincerity, excitement, competence, sophistication, and ruggedness

Consumer products are

sold to final consumers

New product lines

supplement a company's existing products

Price gouging

taking advantage of a captive audience by charging very high prices (like in an airport or selling supplies during a hurricane) *unethical pricing*

Price is the

the assignment of value, or the amount the consumer must exchange to receive the offering: Money, goods, services, favors, votes, or anything else that has value to the other party

Uncontrollable variables of pricing *ESSAY QUESTION*

the economy, social trends, new technology, and pricing regulations

Profits and sales in the product life cycle

the growth stage is the most desirable, meanwhile the maturity stage is usually the longest for most products

Supply chain management

the management of flows among the firms in a supply chain to maximize total profitability; includes physical movement of and sharing of information about goods

Logistics

the process of designing, managing, and improving the movement of products through the supply chain

Atmospherics

the use of color, lighting, scents, furnishings, sounds, fixtures, layout, and other design elements to create a desired setting Store location: - Business districts - Shopping centers: malls and lifestyle centers - Freestanding retailers - Nontraditional store locations

Store image

the way a retailer is perceived in the marketplace relative to the competition; all the associations that come to mind with the store's name

Product life cycle *ESSAY QUESTION*

the way products go through four distinct stages from birth to death -- introduction, growth, maturity, and decline. Introduction: Goal is to get first-time buyers to try product; Firm does not make a profit during this stage. Growth: product is accepted and sales rapidly increase; Goal is to encourage brand loyalty; profits peak Maturity: longest stage in the product life cycle, during which sales peak and profit margins narrow; competition is most intense; Firm resorts to price reductions and reminder advertising Decline: sales decrease as customer needs change; market as a whole begins to shrink, profits decline, fewer product variations exist, and suppliers pull out; Firm's major decision is whether to keep product at all.

Functions of middlemen

to provide utility and to ease the flow of goods from producer to customer

Cost-plus pricing

total all product costs and add markup (pricing strategies based on cost)

Price fixing

two or more companies conspire to keep prices at a certain level or to raise prices *unethical pricing*

Industrial/B2B products

used in the production of other products (ex. tools)

Selective distribution

using fewer outlets than intensive but more than exclusive distribution; allows people to shop around Advantages: allows for some control and lets people shop around Disadvantages: can lead to horizontal channel conflict due to lack of exclusivity

Channel conflict could occur in two different ways *ESSAY QUESTION*

vertical conflict and horizontal conflict

Product mix dimensions

width: number of different types of products/product lines sold Depth: variety of choices within the product lines sold