Marketing Test #2

brand personality

a set of human characteristics associated with a brand name, consumers assign personality tratits to products and choose brands that are consistent with their own or desired self-image -pepsi = young -coke = real and honest -Dr. pepper is 'nonconformist and fun'

sub-branding

combines a corporate or family brand with a new brand to distinguish a part of its product line from others -Gatorade and G2

pricing constraints

consumer demand for the product clearly affects the price that can be charged

early majority

deliberate, many informal social contracts (34%)

standard mark-up price

entails adding a fixed percentage to the cost of all items in a specific product class

A fad

experiences rapid sales on intro and then equally rapid decline -products are typically novelties and have as short life cycle ex. silly bands, car tattoos

laggards

fear of debt, neighbors and friends are information sources (16%) - the adoption of new products moves on to the early majority, late majority and laggard categories

oligopoly

few sellers who are sensitive to each other's prices -there is some price competition: price leader or follower of competitors

type of competitive market

from most competitive to least competitive

demand for product, product class, and brand

generally, low demand means low prices. higher demand means higher prices

sales

objective may be to increase sales revenue which will lead to increases in market share and profit

Marginal Revenue & Marginal Cost

-As long as MR>MC I should keep selling more -when MR<MC I should stop selling it; the cost for that extra unit was higher than what I made! -Marginal analysis: keep producing as long as marginal revenue EXCEEDS marginal cost -profit maximization occurs at the quantity when MR = MC

skimming makes most sense when -

-differences in price sensitivity: across multiple segments, with substantial segment size(s) at higher price levels (Comcast premium package) -barries to entry: for competition (only diabetes drug on the market) -economies of scale don't lower costs enough to make penetration attractive (not that many high end hummers are sold)

why is price important

-fundamental element of exchange in the market economy -price is a driver of revenue, and related to your business' profit -psychological elements of pricing --> price communicates value

penetration makes most sense when -

-lack of differences in price sensitivity (group willing to pay higher prices) (amazon fire tablet at 199) -lack of barriers to entry for competition (no patent protection for aspirin) -economies of sale DO lower costs (mass production of electric cars)

fundamentals of estimating revenue

-total revenue: (TR): is the total money received from the sale of a product (TR=P X Q) -average revenue (AR): is the average amount of money received for selling one unit of a product, or simply the price of that unit (AR = TR/Q = price) -marginal revenue (MR): is the change in total revenue that results from producing and marketing one additional unit of a product (MR=change in TR/1 unit increase in Q = change in TR/cahnge in Q = slope of TR curve)

PROFIT = REVENUE - COST

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alternative branding strategies

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branding and brand management

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determine cost, volume and profit relationships

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estimate demand and revenue

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identify pricing objectives and constraints

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packaging and labeling products

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repositioning the product

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select an approximate price level

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strategies available

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factors affecting speed of adoption

1. compatibility - how compatible this product is with my existing behaviors 2. trialability (try it, low risk) 3. relative advantage - advantage vs. another product effects how quickly it's adopted 4. product complexity 5. perceived risk

high learning product

significant consumer education is required and there is an extended introductory period

diffusion of innovation

a product diffuses or spreads through a population

multiproduct branding

a company uses one name for all its products in a product class

brand licensing

a contractual agreement whereby one company (licensor) allows its brand name or trademark to be used with products or services offered by another company (licensee) for a royaltly fee -disney makes billions each year licensing its characters for children's toys, apparel and games

social responsibility

a firm may forgo higher profit on sales and follow a price objective recognizing obligations to customers and society

competitors prices

a firm must know what specific prices is present and potential competitors are charging now as well as what they will charge in the future

price lining

a firm that is selling not just a single product but a line of products may price them at a number of different specific pricing points

trade mark

a trademark identifies that a firm has has legally registered its brand name (making it the trade name or trademark) or brand mark so the firm has its exclusive use, thereby preventing others from using it -customers may benefit most from branding, recognizing competing products by distinct trademarks allows them to be more efficient shoppers -loosing trademark protection when brands go generic (ex. band aid and kleenex)

branding

an organization uses a name, phrase, design, symbols or combination of these to identify its products and distinguish them from competitors, brands help simplify the shopping experience

packaging

any container in which it is offered for sale and on which labels information is conveyed

single product vs. product line

apple introduced its iPad which was unique and the first commercially successful tablet device sold

low learning product

begin immediately because there is little learning required by the consumer and benefits of purchase are understood, easily imitated by comptetitors

demand curve

change in quantity demanded -movement on the curve due to change in price: the lower the price the higher the demand -consumer tastes: depend on demographics, culture and technology -price and availability of similar products: time is considered a substitute so if price of time falls more people will but it means fewer people will buy newsweek -consumer income: as real consumer income increases, demand for a product also increases

growth stage

characterized by rapid increase in sales. Competitors appear in this stage. -result of more competitors and more aggressive pricing is that profit usually peaks during the growth stage -advertising shifts emphasis to stimulation selective demand: product benefits are compared with competitors or the purpose of gaining market share -60% of men who tried Gillette razor adopted the product permanently, the ration of repeat trial purchases grows as the product moves through the lifecycle -changes appear in the product to help differentiate from competitor by an improved version or new features

yield management pricing

charging of different prices to maximize revenue for a set amount of capacity at any given time

late majority

skeptical, below average social status (34%)

price elasticity of demand

how sensitive consumer demand and the firm's revenues are to changes in the products price -the more substitutes the product has the more likely it is to be price elastic -necessities are price inelastic such as open heart surgery or gasoline (not the brand of gasoline) -items requiring large cash outlay compared with persons disposable income are price elastic ex. yachts are price elastic, soft drinks are inelastic

cost of producing and marketing the product

in the short-run, we must cover variable costs; in the long-run we hope to cover variable costs, fixed costs, and make a profit

pricing objectives

involve specifying the role of price in an organization's marketing and strategic plans -profit -sales -market share -unit volume -survival -social responsibilty

trading up

involves adding value to the product (or line) through additional features of higher quality materials. -ex. target and JC Penny can trade up by adding a designer clothes section to their stores

multibranding

involves giving each product a distinct name, useful when each brand is intended for a different market segment -advertising and promotion costs tend to be higher with multi branding -the company must generate awareness among consumers and retailers without the benefit of any previous impressions -ex. marriot hotel offers 18 brands each suited for a particular travel experience and budget

trading down

involves reducing the number of features, quality or price -ex. airlines have added more seats, thus reducing legrooms, and limited snack services - also downsize which means reducing the package content without changing package size and maintaining or increasing package price

odd-even pricing

involves setting prices a few dollars or cents under an even number

inelastic demand

is LESS than 1 (absolute value) with inelastic demand, so slight increase or decrease in price will not significantly affect the demand or units sold for the product

trade name

is a commercial, legal name under which a company does business -ex. coca-cola company is the trade name of that firm

fashion product

is a style of the times, fashio products are introduced, decline and then seem to return (hush puppies, bell bottom jeans)

marginal cost (MC)

is the change in total cost that results from producing and marketing one additional unit of a product MC = (change in TC)/(1 unit increase in Q) (change in TC/change in Q) = slope of TC curve

fixed cost (FC)

is the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold. examples of fixed costs are rent on a building, executives salaries, and insurance

variable cost (VC)

is the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold. For example, as the quantity sold doubles, the variable cost doubles. examples are the direct labor and direct materials used in producing the product and the sales commissions that are tied directly to the quantity sold. TC = FC + VC variable cost expressed on a per unity based is called 'unit variable cost' (UVC) or UVC=VC/Q

total cost (TC)

is the total expense incurred by a firm in producing and marketing a product. total cost is the sums of fixed cost and variable cost. TC = FC + VC

early adopters

leaders in social setting, slightly above average education (13.5%) - for any product to be successful, innovators and early adopters must purchase it

communication benefits

major benefit is label information conveyed to the consumer, directions on how, where and when to use the product and the source and composition of the product -largely via the label, e.g. nutrition, country-of-origin, directions

target pricing

manufactures will estimate the price that the ultimate consumer would be willing to pay for a product. they work backward through markups to determine what price they can chafe wholesalers for the product

monopolistic competition

many sellers who compete on non price factors -there is some price competition, compete over range of prices

pure competition

many sellers who follow the market price for identical commodity products -almost non price competition, market sets the price

cost of changing prices

most firms change the price of their products one a year, some easier than others to change price -ex. sweaters vs. GE jet engines

Decline stage

occurs when sales drop -product enters this stage because of environmental changes -products in decline stage tend to consume a disproportionate share of management and financial resources relative to their future worth -TVs and desktop personal computers

introduction stage

occurs when the product is introduced to its intended target market -sales grow slowly and profit is minimal with large investment costs -create consumer awareness and stimulate trial- the initial purchase of a product by a consumer -Ex. Gillette (budget) -primary demand: the desire for the product class rather than for a specific brand, few competitors with the same product -selective demand: as more competitors enter, focus on the preference for a specific brand

profit

often measured in terms of return on investment -managing for long run profits: companies give up immediate profit by developing quality products to penetrate competitive markets over long term -maximizing current profit: common in many firms because the targets can be set and performance measured-quickly -WSJ: "landlords offer incentives to stay put" - lower prices lead to higher profits -Daily Camera: "Boulder, Denver metro rental vacancies at 10-year-low" - higher prices lead to higher profits -target return: occurs when a firm sets a refit goal usually determined by board of directors

pure monopoly

one seller who sets the price for a unique product -no price competition, sole seller sets price

functional benefits

packaging plays a functional role such as storage, convenience, protection, and product quality -e.g. protect product, easy dispensing, jiffy pop, etc.

perceptual benefits

perception created in the consumers' mind. package and label shape, color and graphics distinguish one brand from another, convey a brands position and build brand equity -where the package supports the position of the product, i.e. the package contributes to the promotional value

product form

pertains to variations within the product class, for prerecorded music, product exists in the technology used to provide the music such as cassettes, compact discs, and digital music players

reference price

price against which buyers compare actual selling price of a product; facilitates evaluation process

elastic demand

price elasticity GREATER than 1 (absolute value) with elastic demand, a slight decrease in price results in a relatively large increase in demand or units sold

internal reference prive

price info saved in the consumers memory, used to assess a current price offering

price

price is the money or other considerations exchanged for the ownership or use of a product or service

survival

profits, sales and market share are less important objectives of the firm then mere survival

market share

ratio of the firms sales revenues or unit sales to those of the industry, often pursued when industry sales are relatively flat or declining

product class

refers to the entire product category or industry, such as prerecorded music

prestige pricing

setting a high price so that quality or status conscious consumers will be attracted to the product and buy it

penetration pricing

setting a low initial price on a new product to appeal immediately to the mass market

skimming pricing

setting the highest initial price that customers really desiring the product are willing to pay and it is effective when no competitors, customers willing to buy product at the high initial price and lowering price has a minor effect. for a new innovative product, set a high price (skimming) during introduction since innovators are price inelastic. later, lower price (penetration pricing) to appeal to early majority during growth

maturity stage

slowing of total industry sales or product class revenue, marginal competitors begin to leave the market -most consumers are either repeat purchases or have tried and abandoned it -product declines due to fierce price competition among many sellers and cost of gaining new buyers at this stage rises -includes soft drinks and DVD players

cost oriented pricing approaches

stressing the cost side of the pricing problem

cost plus pricing

summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at the price

brand equity

the added value a brand name gives to a product beyond the functional benefits provided -provides a competitive value and consumers are often willing to pay a higher price for a product with brand equity -associations with a brand -provides a competitive advantage -are consumers willing to pay a premium? -brand equity has a financial advantange, thus has a financial vale (it is an asset)

bundle pricing

the marketing of 2 or more products in a single package price

newness of the product

the newer the product in the life cycle the higher the price that can usually be charged

brand name

the part of the name that is spoke, including letters, numbers and words -brand mark: the unspoken art of the name such as Nike Swoosh or the white apple logo

brand extension

the practice of using a current brand name to enter a different product class -ex. equity in huggies has allowed kimberly-clard to extend name to full line of bay toiletries

product line extensions

the practice of using current brand name to enter a new market segment in its product class -ex. campbell's soup has lower advertising and promotion costs because the same name is used on all the products

unit volume

the quantity produced or sold as a pricing objective, often sell multiple products at different prices and need to match the unit volume demanded by customers with price and production capacity

product lifestyle shape

the shape of product

product life cycle

the stages a new product goes through in the marketplace: introduction stage, growth stage, maturity stage, decline stage

label

typically identifies the product or brand

value

value = perceived benefits/price -for a given price, as perceived benefits increase, value increases -value pricing is the practice of simultaneously increasing product and service benefits while maintaing or decreasing price

innovators

venturesome, high educated, use multiple information sources (2.5%)

Break-Even

we "break even" at the point when our total revenue = total cost BEP = fixed cost/(unit price-unit variable cost) FC/(P-UVC) -if my fixed costs go up my break even quantity goes up -if my unit price goes up my break even quantity goes down -if my UVC goes up my break-even quantity goes up Profit = (PXQ) - [FC+(UVC X Q)]

demand oriented pricing approaches

weigh factors underlying expected customer tastes such as cost, profit and competition

private branding

when it manufacturers products but sells them under the brand name of a wholesaler or retailer -popular because it produces high profits for manufacturers and resellers -ex. trader joes has own brand name

family branding/corporate branding

when the company's trade name is used ex. microsoft, gen electric- the company's trade name and brand name are identical

mixed branding

where a firm markets products under its own name and that of a reseller -ex. company sells brand through department stores and has a line through walmart