Marketing Midterm 1

>environment involves factors that, for the most part, are beyond the control of the company -Thus, the company must adapt to these factors -- It is important to observe how the environment changes so that a firm can adapt its strategies appropriately. >>Competition: Competitors often "creep" in and threaten to take away markets from firms (i.e., Japanese auto manufacturers became a serious threat to American car makers in the late 1970s and early 1980s -- Similarly, the Lotus Corporation, maker of one of the first commercially successful spreadsheets, soon faced competition from other software firms) -Note that while competition may be frustrating for the firm, it is good for consumers) >Note that competition today is increasingly global in scope -- It is important to recognize that competition can happen at different "levels": -At the brand level, two firms compete in providing a very similar product or service (i.e. Coca Cola and Pepsi compete for the cola drink market, and United and American Airlines compete for the passenger air transportation market) -Firms also face less direct—but frequently very serious—competition at the product level (i.e., cola drinks compete against bottled water -- Products or services can serve as substitutes for each other even though they are very different in form --i.e. Teleconferencing facilities are very different from airline passenger transportation, but both can "bring together" people for a "meeting") -At the budget level, different products or services provide very different benefits, but buyers have to make choices as to what they will buy when they cannot afford—or are unwilling to spend on—both (i.e., a family may decide between buying a new car or a high definition television set -- The family may also have to choose between going on a foreign vacation or remodeling its kitchen) --Firms, too, may have to make choices (the firm has the cash flow either to remodel its offices or install a more energy efficient climate control system; or the firm can choose either to invest in new product development or in a promotional campaign to increase awareness of its brand among consumers) >>Culture -- The culture of a country or region involves not just behaviors but also values, expectations, and perceptions in the World -Firms operating in the U.S. will tend to face customers who will value individuality more than is the case in certain other countries -The culture of a country may also impact the extent to which status differences among individuals are emphasized or deemphasized -There is also some evidenced that there are differences in the attributions made for certain medical conditions >>The economy -- Two economic forces strongly affect firms and their customers: >Economic Cycles -- Some firms in particular are extremely vulnerable to changes in the economy -Consumers tend to put off buying a new car, going out to eat, or building new homes in bad times -- In contrast, in good times, firms serving those needs may have difficulty keeping up with demand -One important point to realize is that different industries are affected to different degrees by changes in the economy -- Although families can cut down on the quality of the food they buy—going with lower priced brands, for example—there are limits to the savings that can be made without greatly affecting the living standard of the family -On the other hand, it is often much easier to put off the purchase of a new car for a year or hold off on remodeling the family home -- if need be, firms can keep the current computers—even though they are getting a bit slow—when sales are down -The economy goes through cycles (In the late 1990s, the U.S. economy was quite strong, and many luxury goods were sold --Currently, the economy fluctuates between increasing strength, stagnation, or slight decline) -Many firms face consequences of economic downturns (i.e. Car makers, have seen declining profit margins (and even losses) as they have had to cut prices and offer low interest) >>Rates on financing -- Generally, in good economic times, there is a great deal of demand, but this introduces a fear of possible inflation -In the U.S., the Federal Reserve will then try to prevent the economy from "overheating" -- is usually done by raising interest rates (makes businesses less willing to invest, and as a result, people tend to make less money) -During a recession, unemployment tends to rise, causing consumers to spend less -- may result in a "bad circle," with more people losing their jobs due to lowered demands -Some businesses, however, may take this opportunity to invest in growth now that things can be bought more cheaply >>Inflation -- Over time, most economies experience some level of inflation -- Therefore, it is useful to explicitly state whether a reference to money over time involves the actual dollar (or other currency) amount exchanged at any point (e.g., one dollar spent in 1960 and one dollar in 2007) or an "inflation adjusted" figure that "anchors" a given amount of money to the value of that money at some point in time (i.e., suppose, that cumulative inflation between 1960 and 2007 has been 1,000%--that is, on the average, it costs ten times as much to buy the same thing in 2007 as it did 47 years earlier -- If the cumulative inflation between 1960 and 1984 had been 500%, we could talk about one 1984 dollar being worth fifty 1960 cents or two 2007 dollars) -It is important to note that inflation is uneven (Some goods and services—such as health care and college tuition—are currently increasing in cost much higher than the average rate of inflation) -Prices of computers, actually decline both in absolute numbers (e.g., an average computer cost $1,000 one year and then goes for $800 two years later) and in terms of the value for money paid once an adjustment has been made for the improvement in quality (That is, two years later, the computer has not only declined in price by 20%, but it may also be 30% better (based on an index of speed and other performance factors) -- In that case, then, there has actually been, over the period, a net deflation of 38.5% for the category) >>Culture (covered under international marketing) >>demographics >>social >>Technology >>Economic >>Political and legal factors >Political -- Businesses are very vulnerable to changes in the political situation (i.e., because consumer groups lobbied Congress, more stringent rules were made on the terms of car leases -- The tobacco industry is currently the target of much negative attention from government and public interest groups) -Currently, the desire to avoid aiding the enemy may result in laws that make it more difficult for American firms to export goods to other countries -Many industries have a strong economic interest in policies that benefit the industry may have a negative impact on the nation as a whole but enhance profits for the industry (i.e., regulations that limit the amount of sugar that can be imported into the United States is estimated to cost each American approximately $10.00 a year -- The total increase in profits to the sugar industry is difficult to estimate because many of the large producers of refined sugar are privately held corporations, but it is likely that the net gain to the industry is as much as the roughly $3 billion lost by Americans a whole) -- However, the interests of the industry are much more concentrated -- The industry can rally its stockholders, unions and employees, and suppliers (e.g., fertilizer manufacturers and manufacturers of sugar cane processing equipment) together to lobby for their special interests -- In turn, the industry can join forces with other agricultural interests which each support each other's programs >>Legal -- Firms are very vulnerable to changing laws and interpretations by the courts -- Firms in the U.S. are very vulnerable to lawsuits (i.e., McDonald's is currently being sued by people who claim that eating the chain's hamburgers caused them to get fat) -Firms are significantly limited in what they can do by various laws—some laws, for example, require that disclosures be made to consumers on the effective interest rates they pay on products bought on installment -A particularly interesting group of laws relate to antitrust -- These laws basically exist to promote fair competition among firms (We will consider such laws when we cover pricing later in the term) >>Demographics -- involves "statistical" characteristics of people such as age, gender, occupation, income level, area of residence, education, and ethnicity (e.g. Fewer babies today are being born, resulting in a decreased demand for baby foods -- More women work outside the home today, so there is a greater demand for prepared foods -- There are more unmarried singles today, providing opportunities for some firms (e.g., fast food restaurants) but creates problems for others (e.g., manufacturers of high quality furniture that many people put off buying until marriage)) --Today, there are more "blended" families that result as parents remarry after divorce -- These families are often strapped for money but may require "duplicate" items for children at each parent's residence >>Social -- Changes in customs, values, and lifestyles affect demand for products (i.e., Today there is an increasing environmental awareness and commitment to buying "green" products even if these are more expensive) >>Social factors >Values—tensions -Value of privacy and security vs. convenience -"Green" products vs. (Cost, Convenience, and Performance) >Later ages of marriage >The social environment involves values, lifestyles, and beliefs -often change considerably over time (i.e., In the 1960s, many parents found the "overly long" hair of members of the Beatles—which would look quite ordinary by the standards of today—quite worrisome and offensive -- despite the fact members of the group frequently wore suits and ties on stage!) -In recent years, concern about the environment has increased significantly -- There are significantly greater efforts at recycling and minimizing the "carbon footprint" of one's activities. --Paper made from recycled material tends to sell at higher prices than the less environmentally friendly kind --However, there is a limit to what consumers are willing to accept --Environmentally friendly products that either fail to perform as desired or are inconvenient to use have often been unsuccessful -In today's world, we increasingly face an issue that was not considered much a generation ago: --Advances in computer technology have made both the collection and possible dissemination of personal information increasingly feasible, and many consumers are expressing concern about privacy --A large proportion of consumers are concerned not just about practical issues such as the potential for identity theft or the risk of the spread of truly personal information; some express a concern about: >>The collection of information that is not tied to the individual but used for statistical purposes to identify trends, behaviors, and preferences across consumer groups >>Data analysis techniques allowing merchants to things such as the likely ages of one's children

(ppt3) the marketing environment

>Industrial equipment >Collectibles (and replacement parts) >Replacement parts for rare products (e.g., specialty foreign automobiles) >Climate related products outside primary area of use (e.g., equipment to deal with snow, auto snow chains, fertilizer for tropical plants) >Other region related products outside primary regions (e.g., agricultural products in cities) >Specialty foods or regional/ethnic foods outside primary region >>Note here that there may be a large number of customers for certain products in regions conducive to their use, with demand in order areas being more limited (i.e., in agricultural areas, there may be specialty stores carrying agricultural tools and other products, and some of these may be sold in retail stores such as Walmart and Home Depot -- In urban areas, however, it may be more difficult to find products used for farming that are being bought only by a small proportion of customers, often for use in their gardens) >>ways to distribute >Special orders through conventional retailers (labor intensive and expensive) >Online merchants -Specialty oriented -Massive assortment merchants (e.g., Amazon) >Sales listed through multi-sided platforms such as eBay -Consumer-to-Consumer (C2C)—costs of labor may not be counted -Consumer-to-Business (C2B—rare) -Business-to-Consumer (B2C) -Business-to-Business (B2B) >Products may be sold on an ad hoc basis -Selling of inventory one got "stuck with"—inventory was not acquired for purposes of resale and the seller may know little about levels of demand -E.g., a collector sells to others; items bought at liquidation are resold; unreturnable merchandise is resold (e.g., auto parts) >Historically, local stores would often special order products for customers who needed them -- This is not particularly efficient since these products now have to be shipped in small quantity to the retailer, who in turn has to handle these products, possibly notifying the customer and retrieving them from storage when the customer arrives to pick them up >Today, certain online merchants specialize in certain types of products (i.e., One online merchant may carry a large assortment of parts for classic cars -- Amazon and a limited number of online merchants may carry a large assortment of products so that you can order almost anything you want there) >A number of sellers—whether consumers or businesses—may list their products on "multisided platforms" such as eBay, sites that connect potential buyers and sellers -- Often, the merchandise they carry is rather ad hoc—the merchandise was not bought with the intention of resale, but the seller lists what it has available -A collector may have duplicate items or may sell certain items to be able to buy others or due to a loss of interest -A customer may have mistakenly bought a product that cannot be returned and therefore tries to cast a wide net to see if anyone will buy it -In many cases, an individual uses his or her own time to get rid of stuff for which he or she has no use, and the sale might not have been cost effective if an employee had to be paid for the work involved >Some entrepreneurs will buy closeouts from chains such as Target and Walmart and then resell these items on eBay

Some types of specialty products

-businesses -gov. units (e.g. encourage healthy eating, discourage illegal border crossing, encourage participating in elections, etc.) -non-prof. and cause-related orgs (e.g. raise money or promote goals such as understanding individuals on the autism spectrum)

Types of organizations that use marketing

>Low effort decision rules for low stakes decisions that should be made quickly—e.g., -If either Coke or Pepsi is on sale, buy that brand; otherwise, buy Coke >Intended for a quick decision rather than the best one that could be made with more effort and time >simplified decision rules that may be used by consumers under conditions of low involvement or lack of information

heuristics

>what are some alternative ways of solving the problem? -if your car breaks down -- you might buy a new car, buy a used car, take your car in for repair, ride the bus, ride a taxi, or ride a skateboard to work

information search

>each side receives something more valuable than it gave up -- "win-win" deal and customer value -in a free market, for a deal to take place, both sides should prefer the trade >part of value may be assurance of continued quality over time (value of brand) >in principle, money does not have to be exhanged -for g&s, is usually most convenient way of trade -for ideas, may be no monetary exchange (e.g. voting, engaging in recycling) >Customers -- individuals, orgs. or entities who buy from seller, whether on a single time basis or continually >clients -- usually buyers of services such as advice, research, or logistics >partners -- Other parties, such as suppliers, consultants, other firms who participate in joint ventures, distributors, advertising agencies, and financiers who help make the complete product or service as a whole readily available to the customer >Society at large -- Marketers also have responsibilities to individuals and organizations other than their customers. A product that pollutes heavily or brings about some other danger may, as a whole, be valuable to the customer but may involve externalities for society

marketing as an exchange

>>mobile phone/PDA/"gadget access and sales >High growth in mobile technology with Internet access -Access through Internet browsers (.mobi domain is intended for web sites optimized for small screens) -Smart phone "apps" (E.g., banking (for specific bank), information (e.g., Yelp) -- Integration with GPS, messaging) >Many countries are running ahead of the U.S. >Growth opportunities with "tablet" (e.g., iPad) computers that offer easy portability with larger screens >>M-Commerce >People increasingly access the Internet through cellular phones and other portable devices -- Today, these can be used two ways: >Web sites can be accessed through a browser >In addition, certain firms may make "apps" that make accessing their particular content easier, possibly adding certain security features (i.e., a bank may create an app that lets customer access account information and perform transactions -- Thus, the design can be made to make the best use of the available screen space) >Information service providers such as Yelp may create applications optimized for the display of relevant information that they provide >M-Commerce tends to be more developed in certain countries—e.g., Japan, Finland, and even India—than in the U.S -- In places where fewer people have easy access to computers, accessing the Internet through a smart-phone will tend to be more popular—thus the emphasis on M-Commerce in India, for example >Recent research in the United States has also found that a large proportion of young people from a lower socio-economic background report a cell phone as their primary means of accessing the Internet >One significant promise of M-Commerce is that this may make micro-payments more cost effective -It is generally very costly and difficult to collect small amounts of money—say, 25 cents to $2.00 through traditional credit cards -- Usually, the bank involved will want a minimum of $0.30 plus some 1.75-3.5% of the amount charged (The percentage is not as big a problem, but $0.30 eats a great deal of a 50 cent—or even $1.00—charge) -However, since cell phone service providers already have an established billing relationship with its customers, they may be able to collect these small amounts more easily, keeping costs down >>Opportunities >Location based services ("L-Commerce") -- (i.e. search engines may be able to detect where a mobile searcher is located based either on tower information or the cell phone GPS (if allowed by the user) -- Since some search engine results are determined in part by location, the results can be optimized for the current situation—e.g., if the person is searching for a "restaurant" or "pharmacy") -Identification of offers and services based on GPS location >Mobile banking and micro-payments >Mobile tickets and documentation >Beyond the browser: Mobile apps (Certain smart phone apps may alert users either when they pass by a location offering a special deal (e.g., discounted restaurant meals) or of special sales in a store that the customer is currently visiting) >Secure transactions on the go (established security protocol with phone carrier—not when open wi-fi is used) >Mobile entertainment

m-commerce

>>Approaches to introduction --Firms face a choice of alternatives in marketing their products across markets: >>An extreme strategy involves customization, whereby the firm introduces a unique product in each country, usually with the belief tastes differ so much between countries that it is necessary more or less to start from "scratch" in creating a product for each market >On the other extreme, standardization involves making one global product in the belief the same product can be sold across markets without significant modification (e.g., Intel microprocessors are the same regardless of the country in which they are sold) >Finally, in most cases firms will resort to some kind of adaptation, whereby a common product is modified to some extent when moved between some markets (e.g., in the United States, where fuel is relatively less expensive, many cars have larger engines than their comparable models in Europe and Asia; however, much of the design is similar or identical, so some economies are achieved) >>Reasons for Standardization >Avoiding high costs of customization, if applicable >Technological intensity -Reduced confusion -International compatibility among product group components -Faster spread of rapid life cycle products >Convergence of global consumer tastes/needs >Country of origin positioning >Advantages -Economies of scale (higher quantities produced also lead to a faster advancement along the experience curve) -More resources available for development effort (Better quality possible) -Rapid product life cycles may make extensive adaptation infeasible >disadvantages -Unnecessary features -Vulnerability to trade barriers -Strong local competitors >>Product Adaptations >Mandatory—required by laws of nature or laws of government -Legal requirements -Infrastructure >"Discretionary"—not required by natural or human laws but often not really "optional" in practice (needed to compete with brands that do offer adaptations) -Local tastes -Fit into cultural environment >Mandatory Adaptation Issues -Infrastructure differences—e.g., electricity supplies vary among countries in (Voltage, Frequency (time between flips in polarity under alternating current), and Plugs) -Conflicting rules between countries—it may not be possible to make a product that would be simultaneously legal in both of two countries (i.e. warning labels, product specifications, safety features) >>Country of origin effects >Perception of product based on associations with the country -Quality (e.g., Japan, Germany) -Elegance and style (e.g., France, Italy) >Positioning strategies -Emphasis on origin (e.g., French wine) -De-emphasis or obfuscation of country of origin (e.g., French beer, American made shampoo intended only for the U.S. with instructions in French) >Today, in practice, the country of origin may be ambiguous -High quality products can now be manufactured in many countries -The brand name (e.g., Sony) may invoke the that country's image (e.g., Japan) rather than the country in which the product was actually made (e.g., China)

product standardization, adaptation, and customization (advantages and disadvantages of each approach, mandatory vs "discretionary" adaptations)

>>reality >Intense competition for large market products (large quantity demanded attracts many sellers) >Use of large demand products as loss leaders (e.g., Amazon.com bestsellers -- has found it necessary to discount best selling books deeply -- Higher prices—closer to the list price—can be charged for specialty books, but for a large part of the market, competition will be intense) >Competition will force reduced costs—if any—to be passed on to customers (Even if there is a cost advantage to selling online in a particular market, you will NOT be competing just against "brick-and-mortar" stores but also against those who have the same cost advantage in selling to customers) -- In the long run, you can probably make NORMAL profits but not above market level profits >Competition makes charging for shipping and handling difficult -- This is usually more expensive than traditional distribution because of: -Lesser economies of scale -Lower likelihood that the customer will be home to take delivery the first time around >Less competition on specialty products --> greater margins >A new online merchant will face competition from established traditional merchants (These will often have the cash reserves to stay in business for a long time even with temporary competition) -- The online merchant, if it has no cash reserves other than stockholders' investment, may run out of cash before it can become profitable >>suitability for online sales >We examined the suitability of a number of different products for sale online: -A pair of pearl earrings -A current New York Times hardcover novel -A typewriter -A TV set >Note that these are "messy" examples where some factors may favor and others disfavor online sales -- Note also that buying these products online may be attractive to some customer segments and not to others >In examining the suitability for online sales, we need to consider both the interests of the buyer and the seller -- Note that: -Buying a product online may be very attractive to customers, but not a cost effective way of selling the product for the merchant (i.e., paper towels are just to expensive to ship relative to the sales revenue they bring in) -In the short run, many merchants are willing to run up considerable losses when they enter the online market (This is done with the hope that they will eventually become profitable as they learn to operate more efficiently and as the market matures) -Firms may compete heavily in the beginning to become established sellers (As some firms drop out, it is anticipated that prices can be raised) -In the long run, firms may be willing to continue to incur losses on some product categories (It may be necessary to carry these products in order to be considered a convenient venue for customers to shop, and firms may be able to recoup the losses on these products from the more profitable sales they can make on others) -In the long run, firms will generally need to be able to profit on online sales as a whole (This means that they must start facing true costs -- They can either stop selling online, drop certain products, charge higher prices, and/or impose a separate shipping charge, making the offer much less attractive to customers)

reality of online economics and competition

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

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

>>Types of scanner data >Supermarket club -- includes purchases by the specific customer when shopping at the respective chain (assuming that the customer presents his or her card) -- Purchases at other locations are not counted -- Demographic information may be of limited accuracy (Shoppers are often motivated to join by large discounts (often 20-30%) (This is also a method of price discrimination) -- Members may be given individualized coupons for possible products of interest --Only available for grocery products >>Scanner data panels -- In some communities, people can sign up to be part of a "panel" -- Purchases at all local retailers are included (e.g. supermarkets, gas stations, drug stores, convenience stores) -- For a given customer, the database also includes TV viewing and demographics -- Only available for grocery products >>Aggregated retail sales records -- Records of sales volumes of products by UPC may be available from an assortment of retailers, and this data is available for more product categories (information is NOT tied to individual customer data and purchase history)-- means that we cannot relate these sales volumes to anything else (e.g., price charged, advertising spending, type of display given in the store) >>Panel members in test communities agree to Swipe a card prior to each purchase in most stores that sell grocery products (supermarkets, convenience stores, drug stores, discount stores) >Have purchases matched to: -Demographic profiles -Media/coupon exposure -Promotional status of competing brands -Past purchases >>Problems: >Aggregation over household >Aggregation bias--averages of disparate segments obscure! >Only available for grocery products (roughly what you can buy in a supermarket) >Only gives meaningful (accurate and useful) results for products bought at least ten times a year >>Collecting the data >Each time a customer has his or her card swiped in a participating store and buys anything represents a shopping occasion >Each time the customer makes a purchase in the relevant product category (e.g., cereal, laundry detergent, coffee, yogurt) represents a purchase occasion >Variables such price paid, sale status of available brands, coupon availability for each brand, special display status of any brands, advertisements seen, price paid on last purchase occasion, time since last purchase occasion may be considered >>Some Questions That Can Be Tested: >Is one advertising theme (e.g., low price) more effective than another (e.g., nutritiousness)? >What is the effect of the number of times an ad has been seen? (Likely a non-linear relationship) >What is the impact of seeing only part of an ad (usually while fast forwarding on pre-recorded content)? >Impact of demographics (e.g., income, home ownership, occupation, presence of children in household, geographic region, education) on choice "Purchase acceleration:" Do customers "stock up" during sales? Many do not; higher income consumers are more likely to buy ahead (lower income consumers may not have cash to spend and may not have space to store purchases) >>Scanner Panel Data >Reflects actual behavior—not just what people think they will do. >Predicts purchase likelihood under different circumstances (e.g., regular price, competitor's price is discounted, coupon is available). >Can help "disentangle" a large number of variables at the same time (e.g., price, advertising, coupon availability, in-store display) >Does NOT identify attitudes—we only observe behavior (e.g., purchase or non-purchase), NOT what is going on inside the consumer's brain. >Can only be used for frequently purchased items (i.e., something bought at least ten times a year). Very efficient and precise predictor since large amounts of data are used. >>Some Limitations.... >Only TV advertising (and not radio, print, billboard, or online) is considered—although online advertising may come about in the near future >Walmart—which accounts for a large share of total sales in many categories—does not participate >Purchases made outside the community and online purchases are not included (although purchases from select online vendors such as Amazon could potentially be added) >>Important Reminder! >Scanner data is only useful for relatively frequently purchased products (i.e., something bought at least ten times a year) >In order to observe the effect of variation in different variables (e.g., advertising exposure, sale status of different brands, coupon availability, and special display space status), we must compare purchase outcome under different combinations of these variables —> need for multiple purchases

scanner data

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

tippability

>Customizing computers for each customer probably does NOT save money -- It is probably cheaper to provide a limited number of computers that offer each consumer a little bit MORE than what he or she would have wanted in a customized unit >Prices for "upgrades" to default models tend to be very high—e.g., additional RAM often costs more than twice as much as the "street" price for the components -- "Base" models usually have low prices, but the final prices paid tend to be high -Although the percentage margins on computers tends to be low due to competition (e.g., 10-25%), absolute margins can be significant—e.g., 10% of $1,500=$150 -- That margin can pay for a lot of work -It would probably be cheaper to ship directly to an efficient retailer—e.g., Wal-Mart may take in hundreds of computers and a number of other materials at one time -- These items are put out on floors using fork lifts and other efficient transportation methods (The customer does much of the work) -However, because computer parts may lose as much as 1.5% in value per week (reducing distribution lag time by five weeks may "rescue" 7.5%) >If Dell claims to have an inventory turnover time of 48 hours, someone else—probably a supplier—has to carry the needed "buffer" inventory to accommodate fluctuations in demand >>Dell prides itself on selling online and claims that this method is an effective way to reduce costs -- The evidence for this assertion is missed: -One claim is that by making a custom order computer with only the components that the customer wants, money can be saved -- This assertion holds little merit (It would probably be cheaper to let each customer choose from one of, say, ten models) -Each customer could very likely get a little bit more than what he or she needs at a lower price than a customized unit since many computer parts are relatively inexpensive today --Customization is more useful if a customer needs a computer with specifications that cannot readily be found among pre-fabricated ones >Although shipping to individual customers is costly, this process is considerably faster than going through the distribution system that is optimized for efficiency rather than speed -- It has been estimated that computer parts may decline by as much as 1.5% in value per week due to rapid innovation in the field (If the time to reach the customer can be decreased by five weeks, up to 5*1.5%=7.5% might be preserved in value) >Dell claims an average turnover of forty-eight hours or less (That is, on the average, parts coming in will have been assembled into computers within forty-eight hours) -Note, however, that since Dell depends on being able to buy exactly what they need at any time, which cannot be precisely predicted ahead of time, this forces the holding of inventory into the distribution channel, and suppliers must pass on this cost to Dell, so it is really more a matter of changing where inventory is kept >>Value of customization at Dell >For the vast majority of customers, customization really does not add value -- Since computer parts are relatively cheap, it is generally possible to provide, say, choices of some half dozen computers -- A computer that offers a bit more than what the customer wanted will probably be cheaper to make than a customized one -there is not much to be gained from eliminating inexpensive parts that the customer does not need >For customers who seek a very specific combination of parts—e.g., a specialized graphics card and a very specific hard drive--Dell may offer a benefit in allowing that specific combination -- The benefit here is not so much cost saving as the ability to get exactly what you want -- In other words, the computer will be relatively expensive, but it may match the customer's exact wishes >It has been suggested that buying a computer made to order from Dell can save the customer money because "you only pay for what you want." (In practice, this does not actually work out) -Because computer parts are generally relatively inexpensive, it is often possible, by having a modest number of models, to offer each customer a little more than he or she wants (e.g., a one terabyte hard drive instead of a 500 gigabytes one) at a lower price -- The extra cost of higher capacity and certain features are not enough to pay for the complications to the assembly line (Therefore, the value in being able to customize a computer is not in reducing costs of "run of the mill" type computers) >When ordering a customized computer, the customer will often see a relatively low price for a base, rather "stripped down" model -- He or she can then choose to add features and/or capacity at an additional cost -These upgrades, however, are typically much more expensive than the cost of the parts themselves >The real value of customization, instead, is in allowing customers who want a very unusual combination of features to get what they want -They will not get a particularly low price on the computer as such, but they can avoid having to have additional hard drives and other hardware installed once they have bought the computer

the case of dell computer

>Traditional retail chains and online presence tend to have synergy -Online access to store information—hours, locations, directions -Checking on "in stock" status on local stores -Online orders with store pickup -Online orders with delivery; store return option >Brand equity >Volume purchasing power >Inventory assortment warranted by combined store and online sales >>There is a potential for synergy between brick-and-mortar retail operations and online sales for the same firm (i.e., if both the Staples retail stores and its online operations are owned by one firm, these assets will generally be worth more than if two different firms each owned one of the two for a number of reasons: >Retail chains that customers have already patronized have an established reputation and are more likely to be trusted when consumers are looking for an online seller >The seller can avoid using valuable floor space on products with low sales volume by selling these only online >Items bought online can be returned to a retail store, reducing costs for both the customer and the seller >>With combined higher sales volumes from the two outlets, the firm gains greater bargaining power with suppliers and will often be able to negotiate lower prices -- these lower prices be used to increase margins and/or to offer customers lower prices that can lead to even higher sales volumes

"bricks-and-clicks" potential

>>"win-win" deals and social responsibility >By pooling resources, different organizations may each get more than what they put in -Firms may be able to contribute not only cash but also relevant expertise -Favorable publicity may be worth more than the same amount spent on advertising -Charitable groups may provide access to potential customers >>Ultimately, ethical decisions come down to personal convictions and the way that the individual decision maker sees the product or campaign is seen as a whole >The model presented will not flag all possible ethical violations; this is why the end points indicate "more likely" and "less likely" rather than a more definitive conclusion >In some cases, it may actually be profitable for companies to do good deeds (i.e.,This may be the case when a firm receives a large amount of favorable publicity for its contributions, resulting in customer goodwill and an enhanced brand value -- i.e. A pharmacy chain might pay for charitable good to develop information about treating diabetes -- The chain could then make this information on its web site, paying for bandwidth and other hosting expenses that may be considerably less than the value of the positive publicity received >>Promotional events >A large retail chain might sponsor a concert series by paying all expenses in return for considerable publicity >>Triple "win-win-win" deal: -The charity receives the proceeds without having to pay costs -The sponsor receives publicity (Tickets are bought in the store or on its web site) -An aging artist—whose fans are now in their prime earning years—gets an opportunity to revive a career or promote a new venture (e.g., movie role) >potential for a triple "win-win-win" opportunity exists when a sponsor—in this case, a retrial chain—pays for all the expenses for a benefit concert tour (A singer donates his or performance -- A non-profit organization benefits from the revenue -- The sponsor benefits both from the favorable publicity and the reality that the only place you can buy a ticket is on its web site, thus generating traffic and interest -- An aging performer whose fans are now in their prime earning years may like to be able to fill large concert venues again and may have a book or a role in a movie to promote)

"win-win" opportunities for firms and non-profit organizations

>A representation of how a firm intends to achieve desired objectives (usually eventual profitability) over time -E.g., ride sharing (Uber and Lyft): A commission is earned as the firm creates value by connecting customers and service providers >Often, new models are "unproven" in the sense that they have not been shown to work by other firms in the past -Some business models are clearly not realistic, and some appear to largely reflect wishful thinking (e.g., MoviePass started out as a subscription service that, for a monthly membership fee provides members with tickets potentially see a new movie in a theater every day of the month—at no additional cost) --MoviePass runs large losses since they actually have to buy each ticket from the respective theater at the regular price—not even receiving any quantity discount at all --Numerous modifications to the program have been made over the years -- in August of 2018, a limit of three movies per month was set (The intention of venture was to make money through selling data on member patterns and, potentially, to be able to negotiate discounts from theaters over time) -It appears that the value of the information that could be collected was vastly over-estimated by the firm, thus making the model unworkable in practice

(ppt2) business models

>Businesses and people face some constraints on what can ethically be done to make money or to pursue other goals -Fraud and deception are not only morally wrong but also inhibit the efficient functioning of the economy -There are also behaviors that, even if they are not strictly illegal in a given jurisdiction, cannot be undertaken with a good conscience -- are a number of areas where an individual must consider his or her conscience to decide if a venture is acceptable (i.e., Some "paycheck advance" loan operators charge very high interest rates on small loans made in anticipation of a consumer's next paycheck -- Depending on state laws, effective interest rates (interest rates plus other fees involved) may exceed 20% per month -- In some cases, borrowers put up their automobiles as security, with many losing their only source of transportation through default --Although some consider this practice unconscionable, others assert that such loans may be the only way that a family can obtain cash to fill an immediate need -- Because costs of administration are high, these costs, when spread over a small amount, will amount to a large percentage -- Further, because the customer groups in question tend to have poor credit ratings with high anticipated rates of default, rates must be high enough to cover this) >>One framework to evaluating ethics of marketing activities >(slide 20 ppt 1) Is the act deceptive, manipulative. or misleading? -yes - is there a sufficiently redeeming purpose? -- no --> MORE LIKELY TO BE ETHICALLY PROBLEMATIC -yes - is there a sufficiently redeeming purpose? -- yes - does the act prey on personal insecurities? --> MORE LIKELY TO BE ETHICALLY PROBLEMATIC -no - does the act prey on personal insecurities? -- no - is a harmful or dangerous product involved? -- no --> LESS LIKELY TO BE ETHICALLY PROBLEMATIC -no -- does the act prey on personal insecurities? - no -- is a harmful/dangerous product involved? - yes -- do benefits appear to outweigh risks to user? --> yes --> LESS LIKELY --> no --> MORE LIKELY >>The flow chart raises a number of issues with issues being raised in sequence: >Deception and Manipulation -For something to be misleading or deceptive, it does not have to involve outright lies -- Statements can be true and still misleading (i.e., the Kraft cheese advertisement which mentioned the importance of calcium for bone growth and then showed the Kraft cheese slices to include a large amount of milk while the competing brand did not include any did not actually state that the competing brand had less calcium -- That would not be true, but most people would tend to infer this given the information provided -- However, in this case, the inference would be incorrect since the competing brand had calcium added separately) >Note that, in some cases, there may be a "redeeming" purpose of acts or programs that may be manipulative if these efforts are intended for a good purpose (e.g., a non-profit program trying to get individuals to stop smoking by getting them angry at tobacco executives). >>Preying on personal insecurities: >Advertisements may cause consumers to focus on bodily imperfections and other perceived personal limitations, causing the consumer to buy products that he or she may not otherwise have bought >>Product dangers >Products that can potentially cause consumers harm tend to be problematic -In some cases, there may be some danger in using a product that is unavoidable (i.e., it is not possible to design a car that can guarantee no risk of injury -- In such cases, the benefits may outweigh the potential danger, but products that may cause serious injury or harm without sufficient redeeming benefit are more likely to be suspect)

(ppt4) model for identifying ethical concerns

>In economics, the profit levels that you would expect for a given level of investment and risk are known as normal profits -- In a free market, in the long run, competition drives down profits to these normal levels -If firms in an industry are making "supernormal" profits—higher than the normal profits that would be expected—other firms will enter the market to take advantage of this opportunity for high prices (This entry will continue until profits have been driven down to "normal" levels) -Online competition is likely to be intense since a firm is now competing at least at the national level, and quite possibly at the international level >Economists speak of the idea of normal and supernormal profits --Generally, in a free market where there are no major barriers to entry, prices (in the long run) are driven down to such levels that firms can make only profits commensurate with the risk levels, investment required, cost of operations, and other relevant industry factors (Some firms are more efficient than others, but, in the long run, the less efficient ones tend to go out of business -- Therefore, efficient firms generally end up competing against other efficient firms -- If profits in an industry are exceptionally high, other firms will generally enter until prices are driven down to normal levels) >Supernormal profits may occur when competition is limited -Historically, some larger firms have attempted to drive smaller firms out of business and some have colluded with others (a practice known as price-fixing, which is generally illegal) -Occasionally, a firm may have patents that other firms may be unable to work around, but in practice, competitors are usually able, after a brief amount of time, to find ways of making comparable products without violating the patents -- Therefore, supernormal profits are very rare in the real world >If it is more efficient to perform certain types of sales online, prices will generally be driven down and all the savings go to the customer

(ppt5) "normal" profits in free markets

>Consumers experience a great deal of uncertainty. -- There are many questions about products and other consumer related questions whose answers are not obvious >One may be able to search for answers online, but there will often be conflicting accounts, and it may be difficult to tell who may be right -And there is a possibility that some of the "information" has been posted by parties who want to sell products and/or have other vested interests >i.e. is my mechanic honest?

(ppt6)consumer uncertainty

>Culture -- "That complex whole which includes knowledge, belief, art, morals, custom, and any other capabilities and habits acquired by man as a member of society" -- alternative "Meanings that are shared by most people in a group [at least to some extent]" >We tend to associate the word "culture" with behavior -- However, the term is technically defined as a set of "shared meanings" (This, obviously, is a somewhat deeper definition, focusing more on the basis for the observed behaviors) >second definition listed focuses more on the reasons why behaviors and customs occur rather than on the specifics of these in their own right >A concept related to that of culture is socialization--the way that one learns to be part of a society

(ppt7)culture and its implications

>>Primary vs. secondary research methods -- There are two main approaches to marketing: >Secondary research involves using information that others have already put together (i.e., if you are thinking about starting a business making clothes for tall people, you don't need to question people about how tall they are to find out how many tall people exist—that information has already been published by the U.S. Government) >Primary research, in contrast, is research that you design and conduct yourself (i.e., you may need to find out whether consumers would prefer that your soft drinks be sweater or tarter) -Research will often help us reduce risks associated with a new product, but it cannot take the risk away entirely (It is also important to ascertain whether the research has been complete -- i.e., Coca Cola did a great deal of research prior to releasing the New Coke, and consumers seemed to prefer the taste -- However, consumers were not prepared to have this drink replace traditional Coke)

(ppt8) primary research

-Clothing sold online has very high return rates, in large part because customers cannot try it on or even hold up the clothing against their bodies -- Size measurements often do not mean the same thing across brands (For certain other types of products, customers may want to feel the texture or examine things closely) -In order to achieve fast rendering, many photos of products are relatively low in resolution -- There is also considerable variation in how the colors of a photo may be displayed on different types of monitors >without seeing in person -Does the customer have to see the product to determine fit and/or quality? -Clothing sizes do not tell the whole story—"fit" differs among brands -Texture and other difficult to describe qualities are important for certain "experiential" products -Customers are less likely to need to see a standard product—e.g., an iPhone X—sold by a reputable online dealer -Lesser known brands may require more inspection, but online reviews can help reduce uncertainty >Some products may either be repeat purchases of standard products or items that can be readily evaluated without seeing the product in person (i.e., if you want an new iPhone exactly like the one a friend has, you will get the same thing from any reputable retailer such as Costco.com, Amazon.com, BestBuy.com, ATT.com, or Walmart.com) -In other cases, an individual may want to examine the texture or other aspects in person -- Note that to facilitate rapid rendering, most photos used online tend to be in limited resolution -- Different computers may also show colors somewhat differently

Ability of consumer to evaluate quality and fit through online description (without seeing in person)

>refer to the actual dollar amounts that are made (Some products may have a rather high percentage margin—e.g., a scarf bought at wholesale at $10 and marked up 100% to be sold at $20 -- However, the absolute margin is only $20-$10=$10 -- In contrast, a laptop computer may be bought at $1,000 and be marked up by only 15%, or $150, for a total price of $1,150 -- Here, however, the absolute margin will be larger -- $150 (This allows the merchant to spend money on processing, packaging, and shipping the order -- Ten dollars, in contrast, can only cover a small amount of employee time and very limited packaging and shipping) -Some online merchants do charge for shipping, but doing so will ultimately make the online merchant less competitive >Note that we are usually taught in business school to think of margins in percentage terms (This works well in some settings, but NOT in the case of shipping low value items directly to end customers!) >When the term "margin" is used without further specification, this usually refers to a percentage figure (i.e., if you buy a book for $5 at wholesale and sell it for $10, you have a 100% markup and a gross margin of (10-5)/10) =50% --The 50% gross margin may sound impressive, but it only amounts to an absolute amount of $5.00, a figure for which you can only do a limited amount of work -- It may not cover the cost of retrieving the item, packing it, and shipping) >Absolute margins refer to dollar amounts -- In the above case, the absolute margin is $5.00 (Note that if there is a 15% gross margin (a much smaller percentage) on a $1,000 notebook computer, that amounts to $150 — a figure that can cover much greater costs even though the percentage margin is less) >>Again, dollar amounts are often much more important than percentage margins -- If you do not have a sufficient percentage margin, you will have problems, but even large percentage profits may not be conducive to the shipping of products that are ultimately of modest value

Absolute margins

>In some cases, a large number of variations may be needed, meaning that a large number of different versions of the product have to be stocked (i.e., This is often the case if clothing needs to come in a several different colors and sizes) >Some product categories will require a large assortment of combinations -E.g., clothing: Color (5) * Sizes (7) = 35 variations >These products are inherently expensive to make and distribute -Large amount of space may be needed for display in costly retail areas -Exact demand for each combination may be difficult to predict for a specific brick-and-mortar location—in a centralized warehouse, many of the store level fluctuations cancel themselves out >>When two variables are "crossed"—such as when a piece of clothing needs to be available in several different sizes, each of which, in turn, has to be available in several different colors, the total number of combinations can escalate dramatically >This introduces two problems: -If the product has to be available in a self-service store so that the customer can access it, rather than having to ask a clerk to retrieve it, each size-color combination may need its own slot -- This can be problematic both in terms of making the store larger and thus more "intimidating" and more difficult to manage, and in terms of cost when stores are located where real estate is expensive -With more item combinations available, it becomes progressively more difficult to predict the exact demand for each combination at each location (Thus, many stores will end up significant understocking of some combinations and/or overstocking of others -- Understocking may result and loss of sales and/or customer dissatisfaction --Overstocking means that merchandise will have to be shipped back at some point and be redistributed among other store locations) -This can be especially problematic if seasonal clothing is involved since there is limited time for redistribution (Since fashions often change from year to year, leftover merchandise will often have to be sold at steeply discounted clearance prices)

Assortment of variations needed

-Some consumers may be willing to pay for the convenience of having products delivered to their door (i.e., delivering high bulk, generally low value groceries is generally not efficient -- However, for some customers, it may be worthwhile to pay to avoid an inconvenient trip to the grocery store) -Walmart now sells certain low priced items at higher prices online, as evidenced by some of the examples we saw in class -- In addition, even to be able to get the products at these higher prices, the customer must spend a certain amount or pay a separate shipping fee >>Customers may be willing to pay a premium to avoid having to pick up an item >Specialty items with limited distribution that would require -Travel for considerable distance -Uncomfortable travel (e.g., in highly congested area) >Items that require frequent replenishment and/or critical time delivery (e.g., grocery and restaurant meal delivery) >Items that are difficult to transport >>In practice, it is difficult to get customers to pay for shipping and handling due to intense competition >>A number of supermarkets have been able to charge customers some $8.00-$15.00 for delivery of groceries -Amazon's PrimeNOW does not charge for delivery per se, but the customer is expected to provide the delivery person with a tip, typically paid when the order is made -Delivery services such as Uber Eats and Grubhub.com demonstrate that at least some customers are willing to pay for the convenience of delivery under some circumstances >In practice, competition on the Internet has become so intense that, as a matter of pragmatics, it may be difficult to collect much if anything for delivery -- Note that willingness for delivery in the very near future—as opposed to something delivered over the next few days—may be greater

Convenience to the customer and willingness to pay for this convenience

>In some cases, customers may be able to anticipate their needs well in advance and may be able to order online in time for an item to arrive (i.e., if your calendar reminds you well in advance of the birthday of a relative, you can order online) -This can be especially convenient if you would have had to ship the product to someone not living in your household anyway >In other cases, when a need was not anticipated and addressed in advance, waiting may be less attractive (i.e., someone who does not have safety stock of light bulbs may not want to wait for replacement until a shipment has arrived -- If you forget about a birthday or anniversary until the last moment, a delayed delivery could have serious social repercussions) >>Attempts to reduce delivery delays >Hybrid formats—ordering online for pickup in store >Amazon PrimeNow—delivery within one or two hours (extra charge) >Amazon Pantry—groceries delivered to one's home by Amazon vans rather than UPS or other shippers >Partnerships with local retailers to stock and possibly deliver merchandise >Next day deliveries by retail chains from their existing distribution centers >>Merchants have stepped in to help address the delay problem >In a sort of hybrid shopping mode, you may be able to order a gift online—then knowing that it is in stock where it is convenient to pick up—and then pick it up on the way to a birthday party -- This will take only a brief stop if you have paid in advance and the product is held, ready to go, at the customer service counter >Amazon PrimeNow offers certain products delivered within a few hours -- Although shipping is often free for purchases over a certain minimum, the customer is nevertheless expected to tip the delivery person

Customer sensitivity to delayed delivery

>Customization, here, does not so much refer to the creation of monograms or custom tailoring, but rather to products and services for which specific information must be provided (i.e., A customer buying an airline ticket, needs to have a specific point of departure, destination, travel time, and name -- This is actually one case where the customer can actually take over much of the work when the order is done online) -It is usually no more effort for the customer to enter the required information than to tell it verbally to a clerk, and now the customer can shop at a convenient time without having to go to a physical location -Insurance policies similarly require a large amount of individual information that can be entered conveniently at home >>Customization can come in multiple forms >An airline ticket should be for a specific name for travel to a specific destination from a specific origin at a specific time -Efficiency is introduced when the customer can enter the relevant data >Insurance policy requires customer-specific info >Clothing may now be customized taking into account many more measurement points >>The term "customization" may bring things such as monograms or the alteration of clothing to mind -- Such customization certainly happens, but in the online context, we are more likely to be dealing with customization that is made to apply individual information to a service (i.e., when flying, you need to specify your point of origin, destination, time of travel, and legal name -- In fact, if the name on a ticket does not match that of a traveler's identification, he or she will not be able to board -- Similarly, for auto insurance, an individual will need to specify his or her driver's license information to establish driving history (e.g., accidents and violations) in addition to vehicle information and number of miles driven per year) -This is actually a situation where online sales can reduce labor needed -- It may actually be easier for a customer to type in his or her own information rather than having to spell names and other information to a clerk taking it in -- In addition, transactions can be done at the convenience of the customer rather than during more limited store hours

Extent of customization needed

>Some products—especially high tech products—have a very high effective carrying costs -- It has been estimated that because of the rapid technological progress made in the computer field, computer parts may lose as much as 1.5% of their value per week >If shipping directly to the customer can reduce the channel time by five weeks, this potentially "rescues" as much as 7.5% of the product value -- in such a situation, then, trying to reach the customer directly may make sense, even if the direct costs of distribution are higher, because of the inventory value issue >Because of rapid innovation and resultant product obsolescence, computer products may lose 1.5% of value per week >Distributing through individual delivery may cost more than distributing through retail stores, but shipping to individual customers may be faster, thus resulting in a product that is more valuable at the time of purchase >Overall, the pros and cons of selling computers online seem to roughly cancel out each other -Desktop computers, which are bulkier, might slightly favor brick-and-mortar distribution and laptops, which are more compact, may slightly favor online selling -What is more important, however, is that some customers prefer to buy online and others prefer to buy in retail stores -Both methods are viable -- Most computer makers sell both ways in order to maximize their total sales volume

Extent of inventory value decline over time

>There are certain products for which an efficient method of distribution simply does not exist -- If a product is a specialty one where few communities have a large enough number of local customers needed to make a store brick-and-mortar cost effective, selling online with shipment to the customer may end up being the least inefficient method of getting a product to the customer >For specialty products, customers may be scattered over large areas (e.g., Bee keeping equipment, Specialty collector items, Big and tall clothing) >Both brick-and-mortar and online distribution will be costly, but, by default, online sales may be less so >Some communities have a high concentration of appropriate trees, potentially allowing for a large number of bee keepers to operate -- In areas of lesser concentration, bee keepers may be more few and far between, and it may not be efficient to carry merchandise for this type of business in many communities -Therefore, the least inefficient way to get these to the customer may be to get them delivered to customer -There is no efficient way to deliver this product (The cost of distribution will, invariably, be rather high compared to its value) -- This, then, is not a case of efficient delivery, but rather a matter of reducing the inefficiency of delivering this product as much as possible >In Paso Robles, California, which has emerged as wine country over the last several decades, Fedex has one truck dedicated to making deliveries among the many wine growers on the route, each of whom may order very specialized products

Geographic dispersal of consumers

-Different firms should attempt to offer different forms of value, appealing to different customer segments—otherwise, competition is likely to degenerate into price competition (e.g. well balanced gadget industry -- one firm focuses on ease of use, one performance, one low price, another small size, and the last speed) -In a more balanced industry, different firms will attempt to serve the unique needs of different market segment -Thus, competition becomes more a matter of best serving the needs of the segment rather than selling at the lowest price -- In an extreme case where there is little differentiation, the only remaining area where firms can compete is on price (results in price wars, driving down profits -- Both buyers and sellers are likely to be better off if each customer receives a product fitting his/her needs at a higher price than if they receive a less well suited product at a lower price)

Market balance

"the activity, set of institutions, and processes for creating, capturing, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large" >What is marketed? -'offerings' may come in forms of goods, services, or ideas (e.g. candidates who run for office and seek to persuade voters that the policies they favor are preferable to opponents, firms or gov. trying to persuade cons. to adopt environmentally friendly practices) >Who buys? -ultimately consumers -organizational buyers (for internal use, for resale (wholesalers, retailers), manufacturers (components) -marketer may attempt to either reach end customer or various intermediaries >Customer benefits? -utility (consumption, convenience)

Marketing

>Strengths, weaknesses, opportunities, and threats analysis (SWOT) -internal to firm -- strengths and weaknesses -external to firm -- opportunities and threats --these four factors all are incorporated in a firm's strategy >Note that merely listing each factor has limited use -- We need to analyze: -How to take advantage of strengths and opportunities -How to address weaknesses and threats -How to use strengths and opportunities to counter weaknesses and threats >SWOT is used to help the firm identify effective strategies -Successful firms such as Microsoft have certain strengths -- i.e., has a great deal of technology, a huge staff of very talented engineers, a great deal of experience in designing software, a very large market share, a well respected brand name, and a great deal of cash -- also has some weaknesses, however: The game console and MSN units are currently running at a loss -Firms may face opportunities in the current market (i.e. microsoft, may have the opportunity to take advantage of its brand name to enter into the hardware market -- may also become a trusted source of consumer services) -Microsoft currently faces several threats, including the appeal of Apple products (where sells some software, but not the operating system) and Linux, the operating system that is available for free -Because fewer new computers are bought during a recession, fewer operating systems and software packages >Compensating for weaknesses and threats -Rather than merely listing strengths, weaknesses, opportunities, and threats, a SWOT analysis should suggest how the firm may use its strengths and opportunities to overcome weaknesses and threats: -Decisions should also be made as to how resources should be allocated (i.e., Microsoft could either decide to put more resources into the Bing search engine or to abandon this unit entirely -- Microsoft has a great deal of cash ready to spend, so the option to put resources toward the Zune is available) -Microsoft will also need to see how threats can be addressed --the firm can earn political good will by engaging in charitable acts, which it has money available to fund (i.e., Microsoft has donated software and computers to schools) --It can forego temporary profits by reducing prices temporarily to increase demand, or can "hold out" by maintaining current prices while not selling as many units >SWOT -Deciding where to concentrate resources -Taking advantage of strengths and opportunities -Addressing weaknesses and threats -Using strengths and opportunities to compensate for weaknesses and threats --Insights from SWOT analysis can be used to help make a number of decisions (i.e., how can resources best be deployed to augment strengths, take advantage of opportunities, help address weaknesses, and address potential threats faced) --Note that strengths and opportunities can be used to compensate for weaknesses and threats

SWOT analysis

>a number of steps (doing customer research, developing new products, creating/scheduling ads, and maintaining an efficient supply chain are involved) -creating...value: value -- providing customer or party w/ more benefits than what is being given up (usually $) is created thru the special competencies of the firm and/or the use of other resources -capturing... -- is what the firm, marketer, or seller gets back in the exchange -- usually $, but could also be something that helps firm get toward long term profitability (e.g. inc. brand name rec./inc. brand value thru association w/ quality) -communicating... -- customer will not know to buy your product if he/she does not know it exists or the specific benefits offered -- this comm. could happen thru ads or thru word of mouth (resulting from prod. quality or other marketing) delivering... -- product must be available to potential cust. in a reasonably convenient manner (is not conv. for most car buyers to pick car up at manu. site) -- for certain prods such as soft drinks is necessary to have available so it can be bought without much effort/planning -- must also be avail. in a quantity conv. for the customer (e.g. cust. usually wants to buy pencils in quantities of 1-10 rather than in the bulk they are sold to wholesalers and large retail chains) -exchanging... -- here, customer provides seller compensation (usually $) in return for the product/service -- note that for a deal to go thru, both sides must value what they receive more than what they give up -offerings -- usually g&s, could also involve an exchange of ideas or preferences (as in the case of political candidates who run for public office and seek to persuade voters that their policies are favorable) or practices (e.g. firms/govs. trying to persuade customers to adopt environmentally friendly practices such as recycling) -value -- idea that what is received is worth more than what is given up (could also be time, effort, or the opp. to make a different choice)

Scope of marketing

>We now turn to the consumer's search for potential solutions to the problems that he or she is facing -- Search strategies can be divided into those involving internal and external search, although consumers may use both in some combination >>Internal search is based on the consumer's memory and his or her thinking processes (use of what is inside consumer's mind -- typically used more for low involvement decisions) -- (In the case of a motorist stranded with a blown tire, for example, he or she may remember preferred provider of replacement tires and thus go to that one (An implication of this reality is that it may pay to advertise to establish an identity among potential future consumers -- i.e., bail bonds people will advertise on TV to people, suggesting a solution if they, for some reason, should find themselves in jail) >The marketer, however, faces some significant problems in creating this kind of awareness -First, many consumers, not readily expecting to encounter a need for the products and services in question, may have little motivation to process and store the information -Secondly, recalling the relevant information may be difficult as need arises. >>External search involves the consultation of outside sources, ranging from friends and acquaintances to the yellow pages and the media (word of mouth, media, store visits, trial -- use of info inside the consumer's mind -- talking to others, reading, visiting stores -- typically more for high involvement decisions)

approaches to alternative identification (solution search) -- internal vs. external search

-review two handouts in marketing midterm 1 folder

appropriate methods for addressing different types of questions

>Even costlier than focus groups per person reached >Structured (planned set of questions) vs. unstructured interviews (going where the discussion takes you) >Generalizing to other consumers can be difficult, but contrasting types of consumers can be identified >Often useful for highly emotional, identity involved products (e.g., cars, furniture, clothing) >Biases -Subtle, inadvertent feedback >>In-depth interview costs: very high >benefit is you can get really in depth, but is costly and extremely vulnerable to interviewer bias (inadvertent signaling)

in-depth interviews

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

associative network of knowledge

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

basic internet economics

>U.S. -by 2050, people age 65 and older will equal 20% of the population >Japan -we again see two issues -- The growth—up to a point—in the overall population and the increasing proportion of older people. -Due in part to the high cost of having children and the major negative effects that having children tend to have on the career of a Japanese woman, birth rates are now running below the level needed for replacement -As a result, the Japanese population is actually decreasing (as is also the case in many European countries) -Japanese policy makers have historically been uncomfortable with the idea of immigration (which accounts for a large portion of the population growth in the U.S.) -With a large increase in the aging population needing extensive health care, an attempt was made to encourage the immigration of nurses from the Philippines -- This effort was not successful, however, since it was difficult for the immigrants to learn the Japanese language -- Many of the elderly patients had special difficulty understanding the nurses, making communication difficult >China -In China, the one child policy that was in full effect until 2013 and only loosened in more recent years led to a population with an increasing share of older individuals -Birth rates, even today, are reduced by the high costs of raising a child -- In many areas, parents are expected to pay for even a child's elementary school education

broad implications of aging populations in the U.S., Japan, and China (no specific figures needed)

>>many firms employ professional purchasing staffs -- job is to identify and negotiate the best deal (therefore, user may be different from buyer) >initiator -- originates a decision process (point out equipment is worn down) >Influencer -- discusses current component (frequent breakdowns) >Decision maker -- evaluate potential new suppliers and decide how to proceed >Buyer >Gatekeeper -- either possesses knowledge that may only be passed on if it favors this individual's preferences -- In other cases, a gatekeeper may be able to veto a choice not favored >User

buying center roles

>>involves several steps >problem recognition—you realize that something is not as it should be (car isn't accelerating well) >second step is information search—what are some alternative ways of solving the problem? (buy a new car, take it to get repaired, etc.) >third step involves evaluation of alternatives -- A skateboard is inexpensive, but may be ill-suited for long distances and for rainy days >Finally, we have the purchase stage, and sometimes a post-purchase stage (e.g., you return a product to the store because you did not find it satisfactory) >>In reality, people may go back and forth between the stages (i.e., a person may resume alternative identification during while evaluating already known alternatives) -It should also note that, in reality, the stages are often blurred in real life (A consumer who goes car shopping, for example, will probably start the evaluation process while doing the information search -- A major problem that car dealers experience is the so-called "sticker-shock:" If the consumer last bought a new car several years ago, he or she knows that there has been some level of inflation and expect to pay a little more than they did the last time -- However, most consumers tend to greatly underestimate the actual degree of inflation that has occurred -- As a result, he or she will likely be surprised at how more expensive the cars are than was expected) >>Most useful to determine how search for a particular consumer need or a product category may systematically differ from others >Importance of different steps >What may happen in each step (e.g., brand switching) >Extent of overlap of stages >Likeliness of different types of post purchase behaviors (e.g., WOM, positive or negative review, returning product) >>Not as useful for assessing search for frequently used products

consumer decision stages -- theory and reality

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

collaborative filtering (recommendation systems)

>customers must know the product exists -Awareness through advertising requires a very elaborate, lengthy, and expensive campaign -Social media and "guerilla" marketing -Exposure through retail setting --Retailers must carry the product—for every new one they take on, they generally must sacrifice an existing one --Even if carried, a product may "drown" among the "sea" of other products -For some products, the customer must see what the product actually does in order to recognize value (e.g., a Pillow Pet is not just "another stuffed animal.") >Communicating to customers the value that a firm's offerings present may be a major challenge -Advertising has limited effectiveness, and it may be difficult to get much display space in retail stores

communicating value to customers

*>Compensatory -- decision based on overall value of alternatives (good attribute can outweigh bad ones) *>Non-compensatory: Absolutely must meet at least one important criterion (e.g., car must have automatic transmission) >Hybrid: Combination of the two (e.g., one non-compensatory measure, then compensatory tradeoffs on other attributes) >Abandoned strategy: Consumer finds initial criteria unrealistic and proceeds to less desirable solution

compensatory vs. non-compensatory decision strategies

>Conjoint Analysis: Determining the Relative Importance of Product Attributes -Consumers rate several "profiles" (combinations of features) -Statistical analysis is used to "decompose" ratings into preferences >>how important are gas mileage, repair record, and the safety record of a car, we would likely get an answer of "very important" or at least "important" for each one -- examines the combination as a whole rather than providing an explanation for each attribute

conjoint analysis

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

considerations in determining suitability for products and services for sale online

>Global trade implies that purchasers in one country must pay others -- Although, as we will see later, transactions often take the form, at least in part, of barter, it is often necessary that a buyer or seller convert money from one currency to another (While certain currencies are "closed," so that it is generally not possible to freely convert money into some other form, active markets exist for the exchange of others) >Exchange rates -Floating (supply and demand) --When a country imports, it must sell its currency (causing an increase in supply) to be able to buy the currency of the country from which it is importing (whose currency, then, will experience an increase in demand) -Floating within a limited range -Fixed (between 1947 and early '70s, major currencies had fixed exchange rates) >Trade balances and their impact on exchange rates >The value of the U.S. dollar, and many other currencies, is entirely based on confidence in the currency >>Basically, when a country spends more than it earns abroad, its currency will experience downward pressure as its supply increases relative to demand (Thus, the value of the currency will decline, and foreign imports will become less attractive as they become more expensive -- Conversely, the country's products will tend to decline in cost (as measured in foreign currency) abroad, and its exports will tend to increase) >There are, however, some complications to this picture -- One way to increase the "demand" for currency is to borrow heavily abroad (In the past, both the U.S. government and U.S. firms have tended to borrow heavily abroad, often being willing to pay considerably higher interest rates than foreign governments and firms would pay -- In part, this may have to do with the attractiveness in investing in the U.S. and the returns that may be achieved from an economy known for high levels of productivity) >The effects of long term borrowing on the value of a country's currency are complex, but the increased demand that results may result in in appreciation of its currency >>Role of gov. activity >Some governments play a larger role in their countries' economies than in others >The government may pay for services such as -Healthcare, Education >Such policies will influence disposable income for consumers -Much higher taxes will limit the ability to buy discretionary items (may drive down real estate values dramatically) -Certain expenses will be eliminated or reduced, and consumes are less likely to experience catastrophic losses (e.g., from unemployment or major illness) -Wealth is transferred from higher income to lower income consumers -Consumer choice may be reduced as the decision power is assumed by the government (but provides a sense of security)

international economics (floating exchange rates, exchange rates and trade imbalances, some influences of exchange rates, role of government activity in an economy

>Consumers have limited capacity to process all stimuli encountered in their environment (means that some stimuli have to be prioritized over others and that some may be processed with conscious awareness while others are mostly processed unconsciously if at all) >The first issue raised is whether the stimulus (e.g., the advertisement) is even perceived (i.e., if the consumer does not look in the direction of a large print advertisement, in will not be perceived -- An advertisement some distance away may contain text that is not large enough to be read) >It should be noted that this chart is a simplified version of reality and that events may not happen strictly in the sequence depicted below -- Some steps may happen in parallel, and the consumer may return to a prior step while going through the process >Even if the stimulus is perceived—i.e., going into the brain through vision or hearing—this does not mean that any significant amount of attention will be given (There may be other things going on which call for the consumer's attention and interfere—e.g., listening to a cell phone call or carrying on an in-person conversation with someone else -- You may register a brand name that comes out in a radio advertisement, but may do no further processing after that) >>key takeaways >Perceived stimuli are prioritized; not all are given conscious attention >Limited attention tend to lead to less (or no) thinking and behavior in subsequent steps >Under low involvement, a message may not be comprehended >The more attention, the more linking >Storage in memory means that a possibility (but not a certainty) of recall is possible >If triggers do not occur, retrieval (remembering) is unlikely >Elaboration strengthens a memory in storage, possibly adding new triggers (thinking brings about new links/thoughts( >Relevant behavior strengthens storage, possibly adding new triggers

consumer information processing

>problem: Discrepancy between ideal and actual state--e.g., consumer: -Has insufficient hair -Is hungry -Has run out of ink in his or her inkjet cartridge >Problems are not always recognized immediately (e.g., an individual may develop alcohol problems and be in denial) >Problems can range from very small to very large >Problems can be solved in several ways--e.g., stress reduction vacation, movie, hot bath, medication >can be minor or major -- may motivate the consumer to take action (possibly involving a product or service, and products and services can be positioned as potential solutions to problems)

consumer problems, recognition, and solutions

>Broad, fundamental capabilities —not readily imitated by competitors (in which an organization excels) -Deployable across a variety of products and situations (E.g., stylish design of electronics (Apple), E.g., economies of scale and broad assortment of online and supermarket merchandise (Amazon)) >involve the firm's ability to significantly outperform other firms in certain areas in a way that cannot be readily imitated by competitors -- A firm may have one or more sets of core competencies, which may or may not be closely related >Apple is able to make a product that is not only performs well and reliably, but is also easy to use -- In addition, Apple has been able to add a sense of elegance and style to its product, a strength that has not been well matched by many of the competitors >Amazon's large investments in information systems, automation, and efficiency, along with a massive infrastructure of distribution centers and large quantities sold, is able to provide customers a large number of products quickly and at low prices -- It would be very difficult and costly for competitors to match Amazon's technology, and this would take considerable time (In addition, few other online merchants have the volumes of Amazon to achieve economies of scale)

core competencies

>Electronic currencies such as Bitcoin allow for anonymous online transactions >The details of the technology are rather complex >These can be used to circumvent oppressive governments (e.g., women may not be able to open independent bank accounts in Saudi Arabia, but can be paid in cryptocurrency) >Security may be enhanced under some circumstances. >>Over the last decade, an number of "crypto" currencies have developed: -These are entirely digital in nature and permit completely anonymous transactions -Most are based on so called "block chain" technology where a number of parties are involved in verifying a transaction, reducing the role of any centralized organization -The technology behind these currencies is quite complex and require a great deal of computer processing power >There are some potential benefits in that such currencies, including the potential for processing micropayments at a reduced cost >Cryptocurrencies often appeal greatly to certain civil libertarians who want to reduce the role of the government both in being the main source of currency and to regulate and oversee transactions between individuals >>Some problems >Facilitation of illegal activities (e.g., ransomware, illegal drug sales, human trafficking) >Tool for circumventing taxation (untraceable payments and receipts can be hidden from authorities) >Use by terrorist groups >High fluctuation in value (exchange rates to ordinary currencies) -- supply/demand fluctuates widely >Relies heavily on computing power; high energy costs

cryptocurrencies

-customer benefit -- is the customer benefit received greater than the sacrifice? --> no? (poor value) --> yes? (potential good value) >Firms are more likely to be successful when thinking about the long term needs and interests of their customers rather than just focusing on making the current sale -By anticipating customer needs and investing in meeting the special needs of the customer, the firm is more likely to build up good will and remain a trusted, valued, and relevant supplier -Rather than thinking about a "one shot" sale to the customer, it is helpful to think in terms of the potential for future business with that customer based on satisfaction and the feeling that genuine value is received -It is important to think it terms of customer benefits—e.g., the ability to watch movies—rather than product/service form—e.g., DVD rental, DVD rental by mail, or video streaming >>The customer is looking for the ultimate benefit in whatever form is more desirable, not for the specific product form<<

customer benefits and delivering value

>particularly helpful when we are trying to determine what people do rather than what they think they will do and, in some cases, to examine causation—i.e., what causes what? >>Does it make a difference if subjects (i.e., consumers, people) are treated one way or another way in terms of some outcome (e.g., likelihood of purchase?) -Will consumers rate a red car as more exciting but a blue one as more reliable? >Testing what people actually do rather than way they say or think they will do >Useful in trying to determine causation (e.g., does a product sell more if the packaging is red rather blue?) >Possible to: -Control for factors that are not equal in real life (e.g., If those who pay restaurant checks with credit cards are more likely to be reimbursed by their employers, it is not clear if the credit use was the cause of the higher tip) -Test and rule out competing explanations (subject to some caveats)—e.g., does texting while driving cause accidents because (1) eyes are removed from the road, (2) attention is diverted to the conversation, or (3) a combination >>Two Basic Types of Experiments -Most experiments are of the "between-subject" kind -- means that different treatments are given to different groups of individuals on variables of interest, with everything else kept the same >Between-subject: Different groups of people are treated the same except for the variable or variables manipulated (E.g., One group shops in simulated store in which a credit card logo is displayed; the other group shops in the same simulated store but the credit card logo is removed) >Within-subject: The same individual is treated differently at different times (e.g., at time 1 is given cola drink that includes vanilla and one without at time 2) Subjects are usually counter-balanced to rule out order effects (1/2 receives treatment A first and then B, the other half receives B, then A) >>Subjects in different groups are usually treated differently (E.g., for some, "target" product is given better shelf space, E.g., some get coupon) >Can help isolate causes >Subject is not biased by questions—does not know how others are treated >Experiment costs: HIGH

experimentation

>>Considerations in evaluating e-commerce potential >Value-to-bulk ratio -- High value, low weight/volume items can be more readily handled and shipped. >Absolute margin -- Even if the percentage margin on a high price item is low (e.g., 15%), the absolute margin can cover considerable expenses (e.g., 0.15x$1,000=$150) >Ability of consumer to evaluate quality and fit through online description -- Standard branded items from a trusted source can be more easily evaluated than items that need to be examined up close >Convenience to the customer and willingness to pay for this convenience -- Some consumers may be willing to pay more for door-to-door delivery (i.e., It is usually more expensive to buy groceries online) >Customer sensitivity to delayed delivery. >Extent of customization needed -- Highly customized items—e.g., insurance, plane tickets, personalization—allow the customer to do much of the work (i.e., data entry) >Geographic dispersal of consumers -- Even if direct-to-consumer sales are not efficient, this may be the only cost effective way to reach customers who are widely dispersed (e.g., bee keepers, Civil War buffs, tall people) >Extent of inventory value decline over time -- A computer can be distributed to consumers at a lower price through retailers, but the process takes longer and computer parts lose value fast >Assortment of variations needed (e.g., clothing colors and sizes) >>"Because Amazon's costs are about the same whether it is shipping a $10 book or a $1,000 skirt, "gross profit dollars per unit will be much higher on a fashion item." Jeff Bezos Clifford, 2012 (illustration of both absolute margins and value-to-bulk ratios)

firm level factors affecting online sales potential

>Groups of 5-12 consumers assembled >Start out talking generally about context of product >Gradually "focus" in on actual product >Focus group costs: high -- especially for the amount of info collected (getting small group may be inexpensive, but facilitator and transcription/analysis tend to make the cost high) -Usually not the best approach -- shouldn't be chosen as default research method >>Potential Uses (follow-up w/ more precise methods is essential before firm conclusions can be made) >Identifying possible issues of concern with a new product >Probing complex issues where different factors and issues may affect opinions >Probing differences in perspectives among different groups >Very preliminary pilot testing of ideas >Identifying the actual language used by customers >>Composition >Members of each focus group should generally be similar to each other in terms of factors affecting comfort in speaking openly (e.g., age, gender, socio-economic status) >If the target market crosses such variables, different focus groups should be run >It may be helpful to run focus groups—even with customers otherwise demographically similar—in different cities >>Dynamics >The facilitator should -Allow the focus groups members to talk as much as possible to get at their views and perceptions -Gently attempt to steer the group in the desired direction -Probe and ask for elaboration when interesting ideas are raised >The focus group may involve an activity (e.g., cooking a meal) and/or sampling a product >>Caveats >Even with ten focus groups each with ten members, the total sample size is only 100 >Because of social influence, the opinions expressed by different members are not independent >Issues identified in focus groups should examined with more powerful methods using larger sample sizes (e.g., surveys, scanner data, experiments) >>Focus groups are most useful for identifying issues that should be studied in more detail with more precise methods (Due to the small sample size and social influence on individual responses, it is difficult to generalize much from focus groups)

focus groups

>Equivalent outcomes can be stated in different ways -$35 per month vs. "about a dollar a day" -Airfare of "$350 each way" even though return ticket purchase is required for that price >>different ways of expressing equivalent information (may affect how product is perceived) >i.e. Marshall has recently put in dual disposal containers, one of which is labelled as "recyclables" and the other one as "landfill." By using the term "landfill" rather than "garbage," the individual is being reminded that what is not recycled will go to a landfill or other environmentally undesirable destination >often used in manipulating the timeframe, pricing, and deals

framing

>>Some ethical issues -Misleading advertisements and marketing in general -Taking advantage of consumer ignorance -Marketing of harmful products (i.e., Physically dangerous, Over-consumption; marketing to people living above their means) -Marketing of products banned or not marketed in the U.S. to other countries >Different individuals vary in their ethical convictions (i.e., Some are willing to work for the tobacco industry, while others are not -- Some are willing to mislead potential customers while others will normally not do this -- There are, however, also broader societal and companywide values that may influence the individual business decision maker (i.e., Some religions, including Islam, disfavor the charging of interest --Although different groups differ somewhat in their interpretations of this issue, the Koran at the very least prohibits usury—charging excessive interest rates -- There is some disagreement as to whether more modest, fair interest rates are acceptable -- In cultures where the stricter interpretation applies, a firm may be unwilling to set up an interest-based financing plan for customers who cannot pay cash -- The firm might, instead, charge a higher price, with no additional charge for interest) -Some firms also have their own ethical stands, either implicitly or explicitly (i.e., google has the motto "Do no evil" -- Other firms, on the other hand, may actively encourage lies, deception, and other reprehensible behavior( i.e., Some firms elect to sell in less developed countries products that have been banned as unsafe in their own countries)

general ethical concerns: misleading communication, potentially harmful products, taking advantage of ignorance

>An increasing number of devices and appliances can be connected to the Internet through: -Wi-fi -Cellular connections -Bluetooth and other "patch-ins" >In the consumer's household, this can often be done through an existing wifi-connection -- Thus, it is possible for appliances to send back error codes to manufacturers, to download software upgrades automatically, and to be controlled remotely -Here are some examples of possibilities: >>A printer, sensing that it is about to run out of toner, can automatically notify Amazon to send a replacement cartridge without human intervention >>A vending machine can notify its operator about how many of each items offered are left so that (1) unnecessary trips can be avoided when all items are available in sufficient quantity and (2) the operator can avoid bringing more merchandise than is actually needed >benefits >>Remote control—e.g., stolen car or car driven by other criminal can be disabled; heater can be turned on before the resident returns home >>Limiting control to authorized persons (e.g., temperature or lighting at a location can be done only through a device with proper validation) >>Communication between devices and service providers (e.g., diagnostics to assess repair needs; replenishment of consumables) >>Device as menu system (functions in a small appliance—e.g., a light bulb—can be controlled from a device so that it is not necessary to build in such a system into the appliance itself) >some issues >>Use of bandwidth (massive amounts of data can be generated by a single appliance or device!) >>Privacy -Substantive (release of audio, video, or personal records) -Theoretical (use of data for analysis with no personal attribution) >>Security (hacking potential) >>Dependence/impact of loss of connection >>Cost savings -Energy -Maintenance

internet of things

>>U.S. laws of particular interest to firms doing business abroad: >Anti-trust -- U.S. antitrust laws are generally enforced in U.S. courts even if the alleged transgression occurred outside U.S. jurisdiction >The Foreign Corrupt Influences Act -- came about as Congress was upset with U.S. firms' bribery of foreign officials -- Although most if not all countries ban the payment of bribes, such laws are widely flaunted in many countries, and it is often useful to pay a bribe to get foreign government officials to act favorably -- Firms engaging in this behavior, even if it takes place entirely outside the U.S., can be prosecuted in U.S. courts, and many executives have served long prison sentences for giving in to temptation (In contrast, in the past some European firms could actually deduct the cost of foreign bribes from their taxes! -- There are some gray areas here—it may be legal to pay certain "tips" -known as "facilitating payments"—to low level government workers in some countries who rely on such payments as part of their salary so long as these payments are intended only to speed up actions that would be taken anyway) >Anti-boycott laws -- Many Arab countries maintain a boycott of Israel, and foreigners that want to do business with them may be asked to join in this boycott by stopping any deals they do with Israel and certifying that they do not trade with that country -- It is illegal for U.S. firms to make this certification even if they have not dropped any actual deals with Israel to get a deal with boycotters (Technically, it is illegal to participate in boycotts of other countries not sanctioned by the U.S. Government, but the emphasis is on Israel) >Trading With the Enemy -- With a few very limited exceptions, it is illegal for U.S. firms to trade with certain countries that are viewed to be hostile to the U.S. (e.g., Cuba, North Korea, Libya and Iran) -- The idea is that trade will strengthen these enemies, thus giving them greater strength to harm the U.S. or its allies -- There are also certain product categories—e.g., high speed computers—that are subject to certain export limitations so that these products will not end up in the hands of U.S. enemies (Sometimes, advances in certain types of technology will make very simple computers—and occasionally even high end video games—off limits for exportation since it is believed that these devices could be modified to be used in military applications) >Extra-terratoriality -- In some instances, U.S. law will be applied by U.S. courts to behavior that took place entirely abroad

laws of interest to U.S. firms doing business abroad

>Involvement: The extent to which the consumer is willing to make an effort to make the best decision >Involvement levels: A continuum from very low to very high (typically dependent on the importance of the product category) >Involvement duration -Temporary: The consumer may temporarily become highly involved to make an impending decision on an important purchase (e.g., a car) but may then stop following the category if it is not of great interest -Enduring: The consumer has a lasting interest in the product category even if he or she will not need to make a purchase in the near future >>Consumer involvement determines the amount of effort that a consumer will put into collecting information, evaluating this information, and making a decision -- will tend to vary dramatically depending on the type of product >In general, consumer involvement will be higher for products that are very expensive (e.g., a home, a car) or are highly significant in the consumer's life in some other way (e.g., nutritional supplements or acne medication). >Involvement can be manifested in different ways—e.g., -Reading magazines or other publications -Searching for information online -Checking out available offerings in stores -Inspecting and trying out different options -Asking friends, family, or others for advice -Thinking about the information discovered and weighing the pros and cons of different options

level of involvement and decision characteristics: duration, magnitude, and manifestations

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

micro-payments -- problems, opps. and applications

>Looking at consumes in the field—e.g.: -Searching for product category area -Number of products inspected and time spent on each -Apparent scrutiny of labels or other information -involvement of others -Behavior under limiting circumstances (e.g., time constraints) >>Costs: Low to high (depending on coding/analysis needed) -Looking at how consumers select products may yield insights into how they make decisions and what they look for

observation

>organizational buyers, who make buying decisions for their companies for a living, tend to be somewhat more sophisticated than ordinary consumers (are also often more risk averse, however) -there is a risk in going with a new, possibly better (lower price or higher quality) supplier whose product is unproven and may turn out to be problematic (Often the fear of running this risk is greater than the potential rewards for getting a better deal) >Types -Manufacturer (components) -Reseller -Government, businesses, and non-profit organizations >Purchase types -Straight rebuy (same brand, same vendor as last time) -Limited decision making -Extended decision making >Characteristics -Greater involvement (more important decisions) -Bureaucracy (more people involved) -Long term relationships—investing in providing value to the customer over time; anticipating customer needs -Price is important but may not be the most important factor

organizational buyers (types, characteristics, purchase types)

>>Organizational buying usually involves more people than individual buying >Often, many people are involved in making decisions as to (a) whether to buy, (b) what to buy, (c) at what quantity, and (d) from whom (An engineer may make a specification as to what is needed, which may be approved by a manager, such long purchase processes can cause long delays)

organizational culture and buying decisions

>Brief statement of the "big picture" of what the organization exists to do (E.g., for Apple, to produce elegant, user friendly consumer technology) >Focus on enduring strategy and contributions over time rather than on specific products at specific times >Subject to reconsideration over time technology, values, competitors, and customer needs change over time >The firm needs to identify the business it is in -Here, a balance must be made so that the firm's scope is not defined too narrowly or too broadly -A firm may define its goal very narrowly and then miss opportunities in the market place (i.e., if Dell were to define itself only as a computer company, it might miss an opportunity to branch into PDAs or Internet service -- Thus, they might instead define themselves as a provider of "information solutions") -A company should not define itself too broadly, however, since this may result in loss of focus (i.e., a manufacturer of baking soda should probably not see itself as a manufacturer of all types of chemicals) -Sometimes, companies can define themselves in terms of a customer need (i.e., 3M sees itself as being in the business of making products whose surfaces are bonded together -- this accounts for both Post-It notes and computer disks) >A firm's mission should generally include a discussion of the: -customers served (e.g., Wal-Mart and Nordstrom's serve different groups) -the kind of technology involved -the markets served. >Several issues are involved in selecting target customers -We will consider these in more detail within the context of segmentation, but for now, the firm needs to consider issues such as: -The size of various market segments -How well these segments are being served by existing firms -Changes in the market (e.g., growth of segments or change in technology) -How the firm should be positioned, or seen by customers (i.e., Wal-Mart positions itself as providing value in retailing, while Nordstrom's defines itself more in terms of high levels of customer service)

organizational mission

>>Consumer bodily responses are watched at various phases of advertisement or other marketing exposure >Tracking of: -Eye movements(For areas of focus, & For attention, involvement) -Heart rate -Skin conductivity -Brain waves (State of mind, Attention) >Costs: HIGH >>An important feature of physiological measures is that we can often track performance over time (i.e., A subject may be demonstrating good characteristics—such as appropriate level of arousal and eye movement—during some of the ad sequence and not during other parts -- This, then, gives some guidance as to which parts of the ad are effective and which ones need to be reworked) >>Real-Time Response Over Time >Participant may be asked to move a lever or dial to adjust how he or she likes, agrees with, or is positive toward some message over time >can be used to test which statements are more effective in persuasion or bring about favorable affect

physiological measures

>Brick-and-mortar stores -Existing stores must generally drop an existing product to make room for a new one (and retailers may have relationships with existing brands) -Some stores—e.g., convenience stores—have room for few brands in each category. Stores in many foreign countries are smaller than typical U.S. stores -The customer must be able to find the product >Online -Delivery to customer must be cost effective -The customer must know where to order (easier if carried at major sites such as Amazon) -The product must be findable at the site --Showing up in customer search (Specific brand (requires awareness), general category) --featured product --suggested (e.g. "Customers who bought this also bought...", Individualized recommendation based on prior purchases) >cost control and convenience for the customer are both important -- both have pros and cons, and are each suitable for different situations >important to note that it is not enough to merely have a great product if the customer (1) does not know that it exists and/or (2) cannot buy it in a convenient manner

potential obstacles to selling highly valuable products to customers

-surveys -experimentation -taste tests and the "triangle test" -observation -focus groups -in-depth interviews -projective techniques -physiological measures -online research -scanner data -conjoint analysis -hybrid methods -sentiment analysis

primary research methods -- characteristics, advantages, and disadvantages of each

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

primary research methods: exploratory vs. precision methods

>are effectively illegal in ads in the U.S. >almost certainly not a useful method to sell products -at most one or two syllables can be "registered" (understood -- more than two has no impact on consumers) -complex messages cannot be processed subliminally

subliminal messages

>Surveys are useful for getting a great deal of specific information (can contain open-ended questions (e.g., "In which city and state were you born? ____________") or closed-ended, where the respondent is asked to select answers from a brief list (e.g., "__Male ___ Female.") >Open ended questions have the advantage that the respondent is not limited to the options listed, and that the respondent is not being influenced by seeing a list of responses (However, open-ended questions are often skipped by respondents, and coding them can be quite a challenge) >In general, for surveys to yield meaningful responses, sample sizes of over 100 are usually required because precision is essential >Surveys come in several different forms -Mail surveys are relatively inexpensive, but response rates are typically quite low—typically from 5-20% -Phone-surveys get somewhat higher response rates, but not many questions can be asked because many answer options have to be repeated and few people are willing to stay on the phone for more than five minutes -Mall intercepts are a convenient way to reach consumers, but respondents may be reluctant to discuss anything sensitive face-to-face with an interviewer >Surveys, as any kind of research, are vulnerable to bias -- The wording of a question can influence the outcome a great deal (i.e., more people answered no to the question "Should speeches against democracy be allowed?" than answered yes to "Should speeches against democracy be forbidden?") >For face-to-face interviews, interviewer bias is a danger, too -- Interviewer bias occurs when the interviewer influences the way the respondent answers (i.e., unconsciously an interviewer that works for the firm manufacturing the product in question may smile a little when something good is being said about the product and frown a little when something negative is being said) >Finally, a response bias may occur—if only part of the sample responds to a survey (the respondents' answers may not be representative of the population) >>Types >Forms -Mail (self-administered, single time) -Mail panel (self-administered, multiple surveys administered over time) -Telephone (from central location) -Mall Intercept -Computer/Internet >Planned questions -Open-ended -Closed-ended >Need large sample sizes for precise conclusions -Small samples will have very large standard errors and thus large margins of error -E.g., Presidential polls (with only two choices) require a little more than n=1000 to get results accurate to +/- 3% >>Characteristics of Some Problematic Questions >Difficult to answer—respondent may not have knowledge needed -Amounts spent annually on specific product categories may not be known >Sensitive (embarrassing) >Two in one—e.g., "On a scale from 1 to 10, how fast and reliable are Microsoft programs?" >Leading questions—giving the feeling of the "desired" response -"Do you agree that soft drinks with sugar are bad for you?" >Non-exhaustive question >Non-mutually exclusive answers >>Continuum questions >Questions rating the degree of a characteristic (e.g., agreement or product usage -- 1-5 strongly agree to disagree) tend to be more effective than binary "Yes/No" questions (has a range of options rather than simply a binary choice (5 point scale creates more precision) --Note that if we were to ask people how interested they would be in learning about a new product, "Slightly interested" would be closer to "Not at all interested" than it would be to "Very interested" (However, a respondent who is "slightly interested," when asked whether she is interested or not, would likely answer "yes") >Asking simply "Yes" or "No" on "Are you interested in fashion?" would result in people with very little actual interest potentially answering affirmatively >issues usually addressed w/ continuum questions include -- interest, purchase likelihood, satisfaction, brand loyalty, price sensitivity, knowledge, experience, Involvement, Decision control, Frequency or level of use, Awareness, Information search, Personality traits, and Variety seeking (binary questions will tend to give inaccurate results) >>Online Surveys >Conditional branching—direct skip to relevant question (e.g. if ans. "yes," go straight to q. 17 -- online can do this automatically) -Traditional surveys: Have you bought a new car during the last six months? -- If not, please skip to Question 11 -Conditional branching: Respondent will be taken to the appropriate question according to answer -Customization of questions (E.g., consumer lists three brands subsequent questions ask about these specific brands by name) >Quality of response -Time pressures -Willingness to write out answers or respond to multiple closed-ended questions -Willingness to read and follow instructions is limited >Reliability and browser compatibility issues

surveys (open vs. closed-ended, continuum vs. binary answer scales, forms, problem questions, conditional branching)

>Exposure to a stimulus in order to influence—at the unconscious level—the consumer's response >Credit card study -Participants were asked to fill out a survey in a professor's office -In half the cases, a VISA card logo was present on the wall -An individual soliciting donations to the Red Cross came by -- Participants could only give cash—credit card donations were not accepted -Those exposed to the VISA logo gave higher average donations (credit cards were not accepted -- thus, it was not a matter of the credit card being used in the place of potentially limited cash on hand) >Cars study -- see slide >>Applications >Package/store design >Background music—e.g., elegance, pace, mood >Advertising setting/scenes >Advertising messages—situations imagined

priming

>>One component of ability >Knowledge—some conscious and some unconscious—of how to do something -Drive a car -Handwrite -Hit a baseball with a bat >Usually contains a large unconscious component (over time, clumsy conscious actions become semi-automatic with practice) >Often involves a component of fine motor skills >Lack of training may prevent consumers from buying and using certain products—e.g., manual transmission car, motorcycle >Some products can be optimized to reduce the effort needed to gain sufficient procedural knowledge >The difficulty of gaining the needed procedural knowledge can be a major obstacle to the adoption of certain products by consumers who might have been interested had they had the needed skill

procedural knowledge and its implications

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

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

>>used when a consumer may feel embarrassed to admit to certain opinions, feelings, or preferences (i.e. , many older executives may not be comfortable admitting to being intimidated by computers) -- has been found that in such cases, people will tend to respond more openly about "someone else" (Thus, we may ask them to explain reasons why a friend has not yet bought a computer, or to tell a story about a person in a picture who is or is not using a product -- main problem with this method is that it is difficult to analyze responses) >Getting at motivations that may not be consciously known— "Tell a story about this picture" >Measurement of attitudes consumers are unwilling to express -it is easier to admit something embarrassing about someone else >Consumer discusses what other consumer might think, feel, or do >costs: usually high if personal interviews or extensive interpretation is needed (inherently inefficient to use)

projective techniques

>selling (selling existing products with whatever methods are necessary) vs. marketing orientation (serving customer needs whether in current or new forms) >Maintaining a relationship with the customer over time rather than just focusing on immediate sales -Anticipating customer needs -Providing solutions -Investing in products and services optimized for the customer >review customer value and providing benefits >>at the industrial level, suppliers may invest considerably in optimizing their products for the need of a particular manufacturer with the expectation of recouping the investment over time

relationship marketing

>>search engines >Use an algorithm to identify the most optimal links >Algorithms may involve: -"Popularity" (number of links pointing inward) -Usage of keywords (limited impact) -"Click-through" rates from the respective search engine (NOT overall traffic volume on the site) -Location (as determine by IP address) (added 2010) -Small screen friendliness -Possible impact of social media "likes" (mixed evidence) -Other criteria—often proprietary >Historically, key word repetition was the most important factor -- Today, on Google, quality links appear to be more important than key words >Internet consultants will make recommendations for a fee -- Many have strong opinions on "what works" (Most are short on evidence that they are correct) >>Search engines often have different types of strategies >Google is very much technology oriented while Yahoo! appears to be more market oriented -Another major goal of Google is speed -- Some sites may contain more content of one type than another (i.e., AltaVista appears to have more images, as opposed to text pages, indexed) >Types of search engines -- Some engines, such as Google, are general purpose search engines -- Some are specialized -- Some are hybrids, containing some directory structure in addition to search engine capabilities -- Some sites are aggregator sites—they do not have their own databases but instead combine the results from simultaneous searches on other search engines >In 2009, Microsoft released the Bing, the "decision engine," which is intended to provide more "intuitive" results -- (i.e., Rather than identifying a number of airlines offering a fare between two cities is intended to actually show these fares -- Yahoo has signed an agreement to use Bing as its search engine source) >Search engine rankings -- The order in which different sites are listed for a given term is determined by a secret algorithm developed by the search engine: -An algorithm is a collection of rules put together to identify the most relevant sites (The specific algorithms are highly guarded trade secrets, but most tend to heavily weigh the number of links from other sites to a site and the keywords involved) -More credit is given for a link from a highly rated site—thus, having a link from CNN.com would count much more than one from the site of the Imperial Valley Press (On any given page, the weight given from a link will depend on the total number of links on that page -- Having one of one hundred links will count less than being the only one) -- One source reports that the weight appears to be proportional so that one out of one hundred links would carry one percent of the weight of being the sole link, but that may change and/or vary among search engines >>optimization >The most important factor in search engine rankings is the "quality" and number of links to the site ("Popularity Index") >Links from highly ranked sites ("high quality") have much more impact than lower ranking sites >Many Internet users find desired information and sites through search engines such as Google (Research shows that a large proportion of the traffic goes to the first three sites listed, and few people go so sites that appear beyond the first "page" or screen) -- On Google, the default screen size is ten sites, so being in the top ten is essential >Because of the importance of search engines, getting a good ranking or coming up early on the list for important keywords is vitally important -- Many consultants offer, for large fees, to help improve a site's ranking >Several issues in search engines and directories are important: -Some search engines, such as Google, base rankings strictly on merit (although sites are allowed to get preferred paid listings on the right side of the screen) -Other search engines allow sites to "bid" to get listed first (Some sites may end up paying as much as a dollar for each surfer who clicks through -- If a potential customer is valuable enough, it may be worth paying for enhanced listings) -Often, however, it is better to be listed as number two or three since only more serious searchers are likely to go beyond the first site -- The first listed site may attract a number of people who click through without much serious inspection of the site >Some search engines are more specific than others -- The goal of Google, Yahoo! and MSN is to contain as many sites as possible -- Others may specialize in sites of a specific type to reduce the amount of irrelevant information that may come up >>For Google, some of the main ranking factors appear to be: >Number and quality of links to the site, as discussed above -- This is by far the most significant factor. >Relevant keywords -- Note that the ranking algorithm tests for "spam" -- Reckless repeating keywords may actually count against the rating of the site >The "click-through" share of the site -- Sites that are selected more frequently may improve in rank and those less frequently selected—despite their merits presumed from the other factors—may move down >Location -- This is a new factor that has recently begun to affect items -- A user's geographic location can usually be identified based on his or her "IP address," a way of identifying a particular computer (If one were to search for "Chinese restaurants" on a computer located at USC, many of the results would be generally, discussing issues relevant to Chinese restaurants overall without any necessary reference to any specific ones -- However, certain prominent Los Angeles area Chinese restaurants may also be listed -- In Portland, OR, the list would thus be different, possibly including some local establishments there) >The extent to which the site is "small screen" (i.e., smartphone) friendly --Successful integration with social media and sizable followings on social media platform (evidence of the impact of this factor appears to be inconsistent)

search engines and search engine optimization

>involves computerized gathering and analysis of social media postings -- This method takes advantage of the vast amount of information online that can be used to gauge customer attitudes toward a brand, firm, or other object (A number of different algorithms are used to do the analysis) >>Sentiment Analysis >Making sense of online postings in social media >Twitter >Photo sites (e.g., Instagram) >Blogs >Facebook >Tracking of massive amounts of data by computer (for large sample size and powerful predictions) >Machine (Computer) Interpretation of postings based on >Specific words and combinations of words used >Language use (pronouns, active vs. passive voice) >Context >Indicators of sarcasm, irony >Hashtags as brand identifier and emotion/evaluation >Heavily proprietary specific methods (firms develop methods and keep these secret) >>Sentiment Analysis: Some Functions and Tools >Association of brands common to posts Identification of probable poster characteristics (e.g., male/female, age) by language use >Vocabulary use of different consumer groups >Identifying expressions by opinion leaders -As a source of influence on large numbers of other consumers -As "early warning" of opinions that may emerge among consumers in general >>Some Complications in Sentiment Analysis >Detection of irony, sarcasm, and humor in the specific context -Emergence of slang: -New slang terms -Context-specific slang terms -Slang used by limited consumer subgroup -Aggregation of responses from different group (e.g., demographic groups, positive/negative to the brand) making for meaningless average responses unless adjusted for group effects -Change of meaning by context (e.g., a consumer goes to Starbucks to improve a negative mood; thus, the negative affect should not be attributed to the brand) -Interpretation of "pseudo-hashtags" invented to be funny and not to be used across postings (e.g., #tastedkindofbad) -Integration of photo or video information into interpretation, especially if text only makes sense in the context of the images >>Sentiment Analysis: Cross-Cultural Issues >Language structure and meaning (e.g., vague or precise word meaning, sequence of words, ambiguity of implicit objects/subjects) >Homonyms (words with same spelling but different meaning) >Customs of product category usage (e.g., "candy bar" vs. "chocolate bar") >Slang and word meaning in context >Focus on self vs. others

sentiment analysis

>in a supermarket/discount store -- customer does much of the work: -The customer walks around the store and assembles his or her purchases -The customer takes the purchases up to the checkout stand and puts the items on the conveyor belt -If the customer does not use self-check-out, the clerk rings up the purchase -Either a clerk or the customer bags the items -The customer hauls away the purchases >However, there are major costs associated with selling online as well: -All the work done by the customer in the retail setting must be done by employees or outside contractors (e.g., collecting all items in the purchase, bringing items to the cashier for checkout, and transporting the items home) -Several delivery attempts may be needed to reach the customer at home -Many common products—including liquid laundry detergent—are considered "hazardous" goods and cost more to ship -The costs of handling each returned item are higher -Rates of returned items are likely to be higher since customers did not have an opportunity to examine the merchandise closely -Additional costs of packaging --For the vast majority of products, the inefficiencies will greatly outweigh the efficiencies >>Comparisons -Yes, when you sell online, you may not need as many store locations—which will save money—but you will face other costs (e.g., labor to compile and deliver orders) which may more than cancel out the savings from having fewer store outlets -Online merchants typically have higher overall costs unless favored by special characteristics of the product category -The actual cost effectiveness of online selling depends on the specific product, customer practices, and firm characteristics -A great deal of labor is done by the customer when shopping in conventional self-service stores -If you ship products directly to the customer, your firm has to do this work or hire someone else to do this -- This is efficient only for a modest percentage of products sold in retail stores >>Online/brick $ mortar costs vs. service levels >Service levels offered by online merchants and different retail chains vary -Walmart offers very low cost retail distribution, but with limited service -Best Buy offers high levels of customer service—well trained "blue shirt" employees -High and low service levels can be offered both at online and brick-and-mortar stores -Retail chains that also sell online can offer services for online customers through retail stores (e.g., easier returns) ("Bricks-and-Clicks") -High and low service levels can be provided both online and in brick-and-mortar stores >Some critics point out that Best Buy has very high costs due to the large number of "blue-shirt" employees they maintain -- That is true, but it should be noted here having experts available in the store is a choice that Best Buy has made -That may or may not be a viable one, but service levels and the venue of sales are not the same thing -- Walmart operates retail stores very efficiently, offering acceptable but lower levels of service -Thus, it is important to compare like levels of service when comparing online and brick-and-mortar sales -- Comparing the costs of a high service brick-and-mortar retailer with the costs of a low service online merchant is not a legitimate analysis -If certain aspects of service can be automated so that, with little human involvement, high levels of service can provided, a better case can be made for the efficiency of online sales (i.e., It is possible that artificial intelligence may be used to help effectively answer customer questions) -In principle, it is also possible to offer high levels of service online, although it might be more difficult to find customers who are willing to pay for it there

service level strategy: both brick-and-mortar online retailers can offer various degrees of service -- to assess cost effectiveness of each approach, the comparison should be between vendors (online/offline) with comparable levels of service

>>Paid advertising >"Sponsored" posts targeted by -Demographics, interests, and other characteristics (as sites visited, profile information, post "liking," and the words used in posts—can be used to predict individuals more likely to be interested in a product or otherwise be responsive to various messages) -Search behavior -Online behavior (e.g., liking or commenting) >Unpaid firm/brand pages (channels) (often include customer contributed content (questions, photos, commentaries) >Hashtags (identifies product categories, brands, and contexts) -Brands (@) -Product category -Context -Pseudo-hashtags (longer descriptions, usually unique—e.g., "#abouttimemomfedme" by baby or dog) >>Types and strategies >User generated content -Blogs -Video channels (e.g., Youtube) -Instagram -Twitter: Mostly for announcements >Contests to encourage user generated content >>International Issues >Censorship (e.g., Russia, China, Egypt) >Country or region specific platforms >May take on different combinations of functions—e.g., -Messaging -Photo share -Blogging -Micro-blogging (brief postings of the type made at Facebook and Twitter) -Commercial content (e.g., movies or TV like shows)

social media

>Amazon.com—likely the most efficient and well run major online merchant—makes very little on selling tangible merchandise (e.g., print books, office supplies) sent to customers due to high expenses -- Profits tend to come from: -Sales of electronic content (e.g., books, movies, music) -Extensive web site hosting (including Netflix!) and other server services -eBay like "brokering" of used merchandise shipped from the seller to the buyer (no labor for Amazon) -Services provided to smaller online retailers (e.g., sales tax assessment and disbursement) >Again, selling most "run of the mill" type of low value products online is typically not cost effective -- Amazon generally offers free shipping on most products to its Prime members and free shipping on most orders over $35 to those without prime -Chances are that some of these sales will be profitable while the vast majority will not, many resulting in large losses -- Around 2012, it was estimated that Amazon lost some $4-5 billion a year on the tangible merchandise it sold and had to ship (It appears that a least a large part of this loss has now been avoided, but in and of itself, selling the tangible merchandise online at best provides very limited profit to Amazon) -They are, however, able to make money on some of the other items listed above -- Some of these have been made possible in large part due to the investments in technology that Amazon has made to make its original business of selling tangible merchandise online profitable

sources of profitability for amazon.com

>Plans are subject to the choices and policies that the organization has made -Some firms have goals of social responsibility (i.e., Some firms are willing to take a greater risk, which may result in a very large payoff but also involve the risk of a large loss, than others) >Strategic marketing is best seen as an ongoing and never-ending process -- Typically: -The organization will identify the objectives it wishes to achieve --could involve profitability directly, but often profitability is a long term goal that may require some intermediate steps -The firm may seek to increase market share, achieve distribution in more outlets, have sales grow by a certain percentage, or have consumers evaluate the product more favorably -Some organizations have objectives that are not focused on monetary profit—e.g., promoting literacy or preventing breast cancer -An analysis is made, taking into consideration issues such as organizational resources, competitors, the competitors' strengths, different types of customers, changes in the market, or the impact of new technology --Based on this analysis, a plan is made based on tradeoffs between the advantages and disadvantages of different options available >This strategy is then carried out -firm may design new products, revamp its advertising strategy, invest in getting more stores to carry the product, or decide to focus on a new customer segment -After implementation, the results or outcome are evaluated -- If results are not as desired, a change may have to be made to the strategy -Even if results are satisfactory, the firm still needs to monitor the environment for changes >strategy takes into account a firms: -resources -environment -experimentation/experience -priorities/opp. costs

strategic objectives

>Plan -To achieve desired objectives (e.g., profit, market share) -Based on available resources (e.g., financial, patents, trademarks, people, brand name/ image , distribution channels) -Subject to choices made (e.g., willingness to take risk, short run vs. long run goals) >Plans are needed to clarify what kinds of strategic objectives an organization would like to achieve and how this is to be done -Such plans must consider the amount of resources available >One critical resource is capital (Microsoft keeps a great deal of cash on hand to be able to "jump" on opportunities that come about -- Small startup software firms, on the other hand, may have limited cash on hand (means that they may have to forego what would have been a good investment because they do not have the cash to invest and cannot find a way to raise the capital) >Other resources that affect what a firm may be able to achieve include factors such as: -Trademarks/brand names (would be very difficult to compete against Coke and Pepsi in the cola market) -Patents (would be difficult to compete against Intel and AMD in the microprocessor market since both these firms have a number of patents that it are difficult to get around) -People (Even with all of Microsoft's money available, it could not immediately hire the people needed to manufacture computer chips) -Distribution (Stores have space for only a fraction of the products they are offered, so they must turn many away -- A firm that does not have an established relationship with stores will be at a disadvantage in trying to introduce a new product) >Plans for a firm can be made at several different levels -At the corporate level, the management considers the objectives of the firm as a whole (i.e., Microsoft may want seek to grow by providing high quality software, hardware, and services to consumers -- To achieve this goal, the firm may be willing to invest aggressively)

strategy -- purpose

>Not experiments unless -Two or more groups of people are treated differently (e.g., get different food version) or -The same person is being treated differently at separate times (e.g., half the participants receive new formulation, then current; half the participants receive in the opposite order) >"Triangle" Measure --tool used to examine the extent to which people can reliably taste a difference (A participant is given one sample of version A, one of version B, and then, randomly, either another A or another B -- He or she is then asked to identify the "odd one out" -- By chance, an individual should get this right about 1/3 or 33.33% of the time -- If 50% get it right, it means that some can reliably taste the difference, and when the figure is higher, such as 80%, there is an indication that the difference can be more readily identified) -Each respondent is given three items: One current, one new, and one duplicate of either old or new -Asked to identify the one that is different and explain why

taste tests and the "triangle test"

-from the bottom line -- Kellogg almost certainly made this decision because market research showed customers responded more favorably to versions of Tony that had a scarf (few marketing decisions are accidental -- likely multiple "tonies" were tried, and the one that "tested" best was chosen -often, marketing research is usually a "numbers game" -- prepare several ads, package designs, or cartoon figures -- select the one consumers rate highest (frequently, it isn't the one you liked best, or even predicted people would have liked -- consumers have minds of their own) -now for why -- is potentially a delicate balance to be struck in making Tony genuine enough as a tiger, while still a likable role model for cereal consumption -- adding the scarf, may help tony take on slightly more human characteristics -note that while we can provide a seemingly rational explanation as to why consumers prefer Tony with a scarf, marketers are best off making actual decisions on test results rather than intuitions or theories

the "scarf of the tiger"

-attributes --> consequences --> values (promotion/positioning should be aimed at higher levels of chain) >i.e. high caffeine content --> mental alertness --> more productive at work --> promoted --> self-esteem >>steps in the means-end chain >>Product attribute --> consequence of attribute --> consequence of consequence --> terminal (end) value (something that is valued in its own right) >A chain must start with a concrete attribute—e.g., engine size [of a car], high quality cloth [of a suit], compactness [of an MP3 player] -- The product category is NOT an attribute (E.g., you would NOT start with "car!") >The chain must move toward an "end goal"—something the consumer desires to obtain for its own sake (e.g., self-esteem, happiness, comfort). >Each step must logically lead to the next one -- One step should NOT lead to a "parallel" benefit that does not result directly from the prior step >Means-end chains generally only portray one path -- Different chains can be drawn to show different "means-end" benefit path

the means-end chain

>>options identified and considered >universal set (all possible options) >retrieved set (options that readily come to mind) >evoked/consideration set (options that will be considered by the consumer) >Note: Retrieved and evoked sets will vary among different consumers -- Brand awareness is important since this is required for the brand to be in the evoked and retrieved sets >>It is useful to examine different options available in terms of several sets: >The universal set involves all products available -- However, the customer will not be aware of all available brands in many products (Further, although a consumer may recognize a brand when he or she sees it (aided recall), it may not readily come to mind when the customer is thinking about available option) >The retrieved set includes all the options that are "retrieved" from memory, or come to mind, when the consumer thinks of options -- Among this set, however, there may be several brands or other options that are not considered acceptable (For example, the consumer may not like the taste of certain brands, and others may be rejected if they contain too much sugar) >The evoked set (also known as the consideration set) -- involves those brands that the consumer remembers are actively considers (For example, in shopping for cola drinks, the consumer may consider Coke or Pepsi but not other brands) >>For some small share brands, a major challenge is to get into the retrieved set—that is, to make consumers sufficiently aware that the exist that they will be recalled when the customer thinks of options -- Other brands may want to get into the evoked set (This may require trial, which may only happen if the customer's preferred brand are not available on a given occasion)

universal, retrieved, and evoked (consideration) sets

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

value engineering

>Value generally refers to market price >Bulk involves anything making it difficult and/or costly to ship: -Large volume -Heavy object -Oddly shaped object -Perishable object -Fragile object -Hazardous object >Certain products have poor value-to-bulk ratios --In this context, bulk refers to anything that makes it costly or inefficient to handle and ship the product. This may include: -Weight -Package size -Irregular shape of the package -Fragility -"Hazardous" nature of the product (Even liquid laundry detergent is considered "hazardous materials' and the shipper will charge higher rates) -Perishability >>Some potential examples of poor value-to-bulk ratios: -Although not that heavy, paper towels and toilet paper take up considerable space but are worth relatively little -Bagged dog food is not only limited in value; the bag is not easy to handle in shipping -- It may need to be put in a large box, and "popcorn," "stuffing," or air bags may be needed to fill empty space -Many produce products are both vulnerable to bruising and highly perishable >>"Value-to-bulk" ratio -- products that have a lot of value squeezed into a small volume (e.g., high end jewelry and certain electronic products) are often more cost-effective to ship to end-customers than are bulkier products with less value (e.g., low end furniture) -When an individual buys an item like an iPhone, there may be little need to actually inspect the product in person since, if you have seen one bought by a friend, you will generally get exactly the same thing -- There is also a benefit here that you will get the same item regardless of which reputable seller (e.g., Amazon, Costco, Staples, Best Buy, or the AT&T Store) you order from

value-to-bulk ratio

>evaluating sites >>Some variables -Unique visits -Repeat visits -Average time spent on site >Google now offers a set of "Analytics" tools, including a set of web traffic statistics -- Webmasters can sign up voluntarily to participate in this by placing certain "meta tag" code in their web pages (This code is invisible to people viewing the respective web page in its regular display mode) -- Therefore, for such sites, Google does, in principle, have access to traffic information from all sources, including other search engines or links from other sites (It is not clear whether Google actually uses this information, however)

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