SIUE MKTG 300 Petry Exam #2

Reference prices are the prices that consumers consider reasonable and fair for a product. •Instead of just seeking to identify reference prices and price accordingly, marketers can also seek to establish reference prices for consumers. Underpricing, or charging someone less than they are willing to pay, is a common mistake in pricing. It is considered unethical to overcharge, or price gouge, a customer in times of great need.

Step 5: Choose a Price

Awareness: consumer has been exposed to the product and knows that it is available on the market Interest: occurs when the product registers as a potential purchase in a consumer's mind and he/she begins to look for info concerning the product Evaluation: Customer thinks about the product's value and whether to try it out. Customer evaluates competing products and determines which product best satisfies their needs + wants Trial: Consumer tests the product to see if it meets requirements. Trial examples include test driving a car, borrowing a new shampoo from a friend, or signing up for 30-day access to an online streaming service Adoption: Consumer buys & uses product. Happens at different times depending on the type of adopter

5 Stages of Diffusion/Product Adoption

new product strategy development idea generation idea screening business analysis product development test marketing product launch

7 Stages of New Product Development (NPD) process

revamped product

A new product can sometimes take the form of a ??? that has new packaging, different features, and updated designs and functions. If you have seen a label claiming a product is new and improved, it falls within this category. Reformulations of current products are a common type of revamped product. If you have seen a label claiming a product is new and improved, it falls within this category. Legally, a company can label a product new only if, according to the Federal Trade Commission (FTC), the product has been changed in a "functionally significant or substantial respect."10 Also, the company can advertise a product as new and improved for only six months after it hits store shelves. For example, yogurt maker Yoplait introduced a line of French yogurt called Oui in 2017 as an extension of its regular and Greek yogurts. Oui is different because it is packaged in glass jars and has a sweeter and less tart taste than other yogurts Because firms base revamped products on existing brands, they carry less risk than new-to-the-market products or new category entries. In addition to leveraging brand recognition and customer loyalty, firms can advertise the revamped products along with existing ones and capitalize on the existing network to sell the products

Advertisements need to be better planned, more imaginative, more entertaining, and more rewarding to consumers •Madison & Vine—the intersection of Madison Avenue and Hollywood—represents the merging of advertising and entertainment •Expected to reach almost $18 B in 2022

Advertisements need to be better planned, more imaginative, more entertaining, and more rewarding to consumers •Madison & Vine—the intersection of Madison Avenue and Hollywood—represents the merging of advertising and entertainment •Expected to reach almost $18 B in 2022

Nonpersonal promotional communication about goods, services, or ideas that is paid for by the firm identified in the communication. Advertising is communicated through media channels, which can include any medium that connects a firm with an audience for a fee.

Advertising

Marketers use advertising campaigns to achieve three unique objectives: to inform, to persuade, and to remind. Marketers choose one type over the other based on the marketing goals for the product they are promoting. How do marketers decide which type of advertising to use? One way is to consider where the product falls within the product life cycle (PLC).

Advertising Objectives

Marketers must monitor and evaluate the decision to determine how effectively the strategy meets the pricing objectives. One of the most challenging aspects of pricing is initiating price increases. Unbundling provides value for customers who are focused on a specific price point rather than the complete product offering. An escalator clause is an agreement that provides for price increases depending on certain conditions. •Ex: Mobile data contracts.

Step 6: Monitor and Evaluate the Effectiveness of the Price

How a firm develops its direct marketing campaign can lead to very different response rates from consumers. These response rates, as well as the response types, tie directly to potential benefits for the firm. Response types can include: Registering for further information Requesting to be contacted by a salesperson Making a purchase Quick consumer responses allow marketers to also respond quickly and to know immediately whether their messages are motivating consumers to "act now." Direct marketing can result in a range of benefits for firms, including: •the development of new customer relationships; •an increase in sales; •the ability for consumers to share compelling content with other consumers and users; •the ability to test the appeal of a product or service; •the ability to test various marketing approaches to see which is most effective with a target audience; •the ability to test different marketing message elements, such as word or visual choices, for example, the word "purchase" instead of "buy" or an ad's background color.

Benefits of Direct Marketing

1: sender 2: encoding 3: message 4: channel 5: receiver 6: decoding *Noise between message, channel, and receiver*

communication process steps

Cost per thousand efficiency calculation

CPM

1. (opportunity to charge higher prices because consumers are captive) (Ex: Concessions at a Cardinals game, "held captive and have to pay the higher price")

Captive-product pricing

Intangibility Heterogeneity Inseparability Perishability

Characteristics of a Service

Advertising: Best for markets that are large and diverse. Also, digital advertising may be the only option for a younger market segment. Sales Promotion: Best for markets that have highly informed buyers because a sales promotion can encourage use for customers who already are informed about the product. Personal Selling: Best suited to markets where a small set of customers for higher-priced products can easily be defined. Public Relations: Best for markets that are very large and where the firm has multiple products.

Characteristics of the target market may dictate which promotional element is selected:

describes how a message is transmitted from a sender to a receiver. The ability to effectively communicate a marketing message is the difference between success and failure. The process of communicating a message is often difficult to accomplish. The process is familiar because you use it to communicate every day with friends, teachers, and family members. Communication requires a sender and a receiver who encode and decode messages. To transmit a message, some method of communication must be used, for example, a text message, a television advertisement, a billboard, or most powerful, word of mouth. Not all messages are received because sometimes noise interferes with the transmission of a message: a crying child can distract you from a television commercial, or talking to friends can divert your attention from an online advertisement—both instances are considered noise that disrupts the reception of a message. Feedback closes the communication loop when the message is received and a response is returned to the sender.

Communication Process

Not having the items that people want to buy when they want to buy them is an example of a service failure caused by the company. A company can cause the failure through poor planning, undertraining employees, overpromising in communications, or any other of the plethora of ways the firm can influence expectations or perceptions. For example, let's say you're on your way to the airport to board a flight to your vacation destination. You get to the airport, and you learn your flight is delayed by an hour due to a mechanical error. Then, when you're finally boarded, you ask for an extra packet of snack mix but the flight attendant rolls his eyes and says you're allowed to have only one. Those are examples of breakdowns in service execution that lead to a mismatch in expectations and perceptions (that the airplane should be well maintained and that the flight attendant should be more willing to respond to your simple request) and subsequently a dissatisfied customer.

Company fault

Refers to how well a new product fits a potential customer's needs, values, product knowledge, and past behaviors. For example, a new beer will not be a compatible product in countries that abstain from alcoholic beverages due to religious reasons

Compatibility

A product obtains a competitive advantage over competing products if consumers believe it has more value than other products in its category. If a product has a competitive advantage, it will be adopted quickly. Ex: The Amazon Echo has a competitive advantage over similar offerings by Google and Apple by having a more responsive product to human voice commands. That competitive advantage is reflected in the fact that the Amazon Echo has an 88 percent share of the market.

Competitive advantage

•When calculating, the solution is negative; concerned with the absolute value •PED > 1, demand is elastic; PED < 1, demand is inelastic •Other factors influence elasticity aside from price -Availability of Substitutes -Product uses -Income ratio •Cross - Elasticity: Products are substitutes or complements if a change in price of one affects the demand of the other (two-part tariff = razors, video games) -Lower margin or take loss on one to stimulate demand of the other -Loss leaders

Elasticity

Typically, the easier it is to understand and use a product, the faster it will diffuse. If the market finds a new product too difficult to use, as happened with the first personal computers, sales often will not increase until the product is simplified. In the case of the personal computer, the addition of easier to use operation systems, such as Microsoft Windows, made it possible for the average user to use a computer. The effect of complexity may differ between regions of the world. In industrialized societies, consumers are exposed to and use more technologically complex products and therefore may accept and even desire intricate products that offer additional features.

Complexity

Digital marketing creates value by allowing consumers to search for products from different media, no matter where they happen to be; this, in turn, helps to reduce search costs. Digital marketing also provides consumers with the ability to compare prices across a variety of sellers. Digital marketing helps companies build customer relationships through exceptional customer experiences.

Creating Customer Value through Digital Marketing

social media

Electronic, two-way communication that allows users to share information, content, ideas, and messages to create a customizable experience.

transformation of the sender's ideas and information into a message that usually includes words, symbols, and/or pictures. •It is very important for marketers to properly encode their message so consumers can understand it. It is very important for marketers to properly encode their message so consumers can understand it. If marketers do not properly encode their message, the money and other resources used to create and transmit it are wasted. Ex: Chase Bank pig commercial

Encoding

Preceded by declining sales and profits; competitors drop out of the market; firm will likely cut prices. Depending on the product, the decline in sales may occur over a long period of time. During the decline stage, competitors drop out of the market as the product becomes unprofitable. The firm will likely cut prices to generate sales, curtail advertising, eliminate unprofitable items from the product line, and reduce or eliminate promotion to individual consumers and resellers. Little or no effort is put into changing a good's appearance or functionality at this stage because consumers have moved on to other products. For example, travel agencies are in far less demand than they were a generation ago, before travelers could research and book trips online. In response, many travel agencies have shifted their focus from general consumer markets to niche markets, such as horseback-riding trips in South America or wine-tasting tours in Europe. Such trips generate limited demand but can still earn profits for the agency.

Decline

how the receiver perceives and interprets the sender's message. is important because it really doesn't matter what message the marketer sends; rather, it matters how it is decoded by the consumer. Thus, marketers work hard to create messages that consumers will decode properly, and that the encoding is aligned with decoding. How an individual decodes a message is different for everyone depending on attitudes, experiences, beliefs, and so forth. If messages are not encoded properly, problems decoding the message may occur.

Decoding

The gap between what the company thinks the customer expects and how it actually delivers that service. A company needs to understand not only what and how the customer wants a service delivered, but also to make sure it delivers that service accordingly. Otherwise, that company faces a service delivery gap. If the company doesn't understand what the customer wants, or if it knows what the customer wants but doesn't deliver it exactly or completely, then the service delivery gap becomes problematic for service quality. •Companies should have a plan. •Companies should connect service design and standards to customer needs and company positioning. •Companies should monitor and control its physical components in an effort to match them to their service goals.

Delivery Gap

Directly related to a product's price elasticity is the product's demand curve. In general, as price increases, demand decreases. For perfectly inelastic products (where price changes don't impact demand), the demand curve would be a straight, vertical line. •For perfectly elastic products (where any price change ends demand), the demand curve would be a straight, horizontal line. •For most products, the demand curve is less distinct.

Demand Curves

Break-even analysis

process of calculating the break-even point, which equals the sales volume needed to achieve a profit of zero. Doesn't measure price sensitivity

The gap between the service design and standards and the service delivery, or the difference between the company's plan and the company's execution of that plan. This is the gap between the company's plan and the company's execution of that plan. To satisfy a customer's expectations, the company must put certain standards in place to determine quality service, train employees, and measure employee performance. In other words, it is the difference between the company's plan and the company's execution of that plan. Importantly, ensuring effective execution of service delivery is where, for most businesses, the proverbial torch passes from upper management to middle management and/or staff. Service delivery is where the customer enters the picture and the service experience actually takes place. To close the design and standards gap, companies can •Hire and train like the business depends on it, because it does. •Use tools like forecasting to appropriately match supply and demand •Use the price element of the marketing mix to increase or decrease demand to match supply Monitor and control the people and process elements of the extended services marketing mix. Train customers. Because services are co-produced between the service provider and the customer (for example, customers may pump their own gas at self-serve gas stations or assemble their own workbenches from Home Depot), companies should make sure that their customers know their role in the production.

Design and Standards Gap

total number of activities a seller engages in to encourage the exchange of goods and services with the buyer. Direct Marketing includes: •Catalogs. •Direct Mail. •Email. •Online direct (digital). •Mobile. Often direct marketing is trying to elicit an immediate response. Due to the needs for immediacy and action, this type of advertising is termed direct response advertising. The seller communicates with the target audience using one or more forms of media in order to solicit a response from a prospect or customer. Direct marketing includes both offline media (such as catalogs, direct mail, telemarketing, and televised infomercials) as well as digital media (such as e-mail, text-message marketing, and mobile advertising). Pottery Barn, for example, offers a portfolio of catalogs. A family with small children might receive a Pottery Barn Kids catalog, while college students might receive a Pottery Barn Teens catalog. This differentiation is an example of direct marketing. Amazon, however, uses a more customized approach of direct marketing by sending carefully crafted and curated e-mails to consumers based on individual preferences.

Direct marketing

•the development of new customer relationships; •an increase in sales; •the ability for consumers to share compelling content with other consumers and users; •the ability to test the appeal of a product or service; •the ability to test various marketing approaches to see which is most effective with a target audience; •the ability to test different marketing message elements, such as word or visual choices, for example, the word "purchase" instead of "buy" or an ad's background color.

Direct marketing can result in a range of benefits for firms, including:

Size of Expenditure: Customers are less sensitive to the prices of small expenditures which, in the case of households, are defined relative to income. Shared Costs: Customers are less price sensitive when some or all of the purchase price is paid by others. Switching Costs: Customers are less sensitive to the price of a product if there is added cost (both monetary and nonmonetary) associated with switching to a competitor. Perceived Risk: Customers are less price sensitive when it is difficult to compare competing products and the cost of not getting the expected benefits of a purchase is high. Importance of End-Benefit: Customers are less price sensitive when the product is a small part of the cost of a benefit with high economic or psychological importance. Price-Quality Perceptions: Customers are less sensitive to a product's price to the extent that price is a proxy for the likely quality of the purchase. Reference Prices: Customers are more price sensitive the higher the product's price relative to the customers' price expectation. Perceived Fairness: Customers are more price sensitive the higher the product's price relative to the customers' price expectation. Price Framing: Customers are more price sensitive when they perceive the price as a "loss" rather than as a forgone "gain." They are more price sensitive when the price is paid separately rather than as part of a bundle.

Factors influencing price sensitivity

Sales and profits begin to rise; the firm has to promote the differences between its brand and the competition Competitors enter the market, which forces prices down. May attempt to refine aspects of the product by improving quality or adding new features. Also during this phase, a company typically tries to focus its marketing efforts on showcasing the competitive advantage of its product over others. If the product satisfies the market, repeat purchases help make the product profitable, and brand loyalty begins to develop.

Growth

communication from the receiver to the sender. Traditionally, it has been hard for marketers to receive feedback because mass media communication methods (television, billboards, newspapers, etc.) do not allow for consumers to respond. One way that marketers gauged feedback was by measuring sales volume before and after an advertising campaign to determine changes caused by the campaign. Today, feedback is much more prevalent. Social media have revolutionized how consumers engage with companies and with each other. •Consumer feedback may not be shared directly with a firm, but marketers can monitor popular blogs and rating sites to observe consumer feedback concerning their products and marketing messages. An advertisement that goes "viral" is one form of feedback. Consumers are now able to transmit messages further than they formerly could. Social media and other easy-to-use communication methods (text messaging, e-mail, Snapchat, etc.) make it simple for consumers to indicate their interest in a marketing message. Sharing a funny or provocative commercial is a form of feedback

Feedback

Firms use marketing research techniques to continuously assess which promotional mix elements have the most influence on different market segments at different points in the product life cycle. Based on this research, the marketing department can allocate more of its promotional budget to the elements that are most effective—those that can increase sales, build brand equity, and improve customer relationships when designed efficiently and implemented throughout the organization. In addition to marketing research, firms can determine which elements to use based on which communication method fits best with their marketing goals, characteristics of the product, target market characteristics, and their marketing budget.

Firms use marketing research techniques to continuously assess which promotional mix elements have the most influence on different market segments at different points in the product life cycle. Based on this research, the marketing department can allocate more of its promotional budget to the elements that are most effective—those that can increase sales, build brand equity, and improve customer relationships when designed efficiently and implemented throughout the organization. In addition to marketing research, firms can determine which elements to use based on which communication method fits best with their marketing goals, characteristics of the product, target market characteristics, and their marketing budget.

# of times the consumers are exposed to an ad

Gross impressions (GIMP)

Experience changes each time Cannot be mass produced Gap analysis- to identify gaps in quality. Heterogeneity means that services can be different every time you experience them. With the manufacturing of goods, production can be standardized and replicated perfectly for each unit of production, whereas with services, perfect replication is impossible. Although standardization is possible, it is not necessarily guaranteed. There are two main reasons why services cannot be perfectly standardized. •First, services usually depend on some sort of interaction between a customer and a service provider. Any time human beings are involved in production or consumption of a market offering, there is always the chance for variability. •Second, services are difficult to measure. One of the benefits of mass production is quality control, where finished goods can be inspected prior to sale to make sure they came off the assembly line as intended. Because there is no standardized production of services, it can be difficult to know whether the service that was delivered exactly matches the service that was supposed to be delivered.

Heterogeneity

To calculate the break-even point, we divide total fixed costs by the unit contribution margin, which is determined by subtracting the variable cost per unit from the selling price per unit. Fixed cost / (Selling price per unit - variable cost per unit)

How to calculate break-even point

KNOW THE SERVICE GAPS MODEL PICTURE

KNOW THE SERVICE GAPS MODEL PICTURE

Know Responding to Price Changes Picture

Know Responding to Price Changes Picture

In most cases, advertisers desire to reach as many consumers as they can, as frequently as they can.

In most cases, advertisers desire to reach as many consumers as they can, as frequently as they can.

Production and consumption occur at the same time degree to which human action is associated with the product The third unique characteristic of services is that production and consumption are inseparable. For most physical goods, production and consumption are entirely separate activities. Consider a can of Coca-Cola: The consumer does not need to be present at the Coke factory during production and bottling, and Coke employees do not need to be present when we drink a bottle. For services, however, the two occur simultaneously. It is impossible to think about getting your hair cut without having your hair stylist standing behind you with scissors, or taking a flight without an airplane and a cabin crew. What's important to consider is how each customer and service provider, and even other customers or employees present, influence the service encounter and each other. Service production and consumption is a dynamic activity that occurs in real-time between the organization and the customer. services are inseparable as well they're inseparable from the service provider and so just kind of use an example because a restaurant which is largely served as I mean it has a product element associated with it but we need to understand as a marketer that we're inseparable people who were carrying out the service so use an example let's say you go to an Applebee's for dinner and service bed who takes a long time and you know all these things that make her a poor experience for you as a customer blame Applebee's for that even though the service provider was you know the server and the cooks in the kitchen and you know that type of thing but yet we we blame the brand right and that works both ways we have great interaction there that happens we have great service comes up quickly we say Applebee's is great right and so you know kind of all points in between I'm kind of talking toward the extremes but if if I'm a marketer right for that particular product and understanding this inseparability then I want to make sure I invest the effort necessary in order to ensure that that service is provided a higher good employees train them well and and help them be educated on customer service and you know all those different elements that are going to matter and come into play when that inseparability occurs services are variable uh they change from person to person you think about you know going to the doctor right that's that's a service and the reason we might go to the doctor you know

Inseparability

Not physical Cannot be touched Cannot be stored Cannot be possessed provide logo's furnishing, web-sites One factor that makes services unique is their intangibility—services have no physical substance, and so cannot be touched, stored, or possessed like goods. Marketers put goods and services on opposite ends of a spectrum, with pure goods on one end and pure services on the other end. Most market offerings exist somewhere along this spectrum, not at the extremes. Marketers put goods and services on opposite ends of a spectrum, with pure goods (for example, the gasoline in your car or the salt in your shaker) on one end and pure services (for example, a football game or your marketing class) on the other end. The reality is that, as you can see in this figure, most market offerings exist somewhere along a spectrum, not at the extremes This digital textbook you're reading right now is a perfect example of something halfway along the spectrum between goods and services: a regular textbook is almost a pure good, but the ability to read it online and interact with the content is very much a service. Fast food like McDonald's is also approximately halfway between goods and services: Your hamburger and fries are tangible goods, but the process of taking your order, cooking it, and providing it to you in a specific environment is a service. What this means for marketers is that no matter what companies end up selling, there is almost always going to be an element of service involved. Can't get your hands around it like a product Ex: Sports event, concert

Intangibility

Begins when the product is launched; few or no competitors; sales are slow. If the firm is first to market, it may be able to capture a large percentage of the market early, giving it advantages in economies of scale and brand recognition. Also, if the product is a good, the company may be able to monopolize the capacity of available suppliers, making it more difficult for other companies to get supplies of components from which to make the product. However, due to the high cost of developing, advertising, manufacturing, and distributing a new product, profits are often low or negative at this point in the PLC. A number of factors influence how long the introduction stage lasts, including the product's relative advantage, the amount of resources the company puts into promoting the product, and the effort required to educate the market about the product's attributes. For example, high definition televisions moved slowly through the introduction stage; smartphones, on the other hand, moved quickly.

Intro

The capacity to provide a service when needed. (Disaster relief, Fast food lunch-time rush, Tax Day April 15th and CPAs) if we think about peak times and really important times for certain types of services we need to have the you know the labor available the supplies needed to sort of carry out that service in the case of disaster relief is it's a a restaurant during peak times dinner and lunch times or whatever it might be we need to have the right people on board we need to have the right supplies in order to carry out that particular service so there's an inventory element related to it that's different than products because products might be predictable you know that we know that certain things because we can look at past patterns and say these are critical times we need to make sure we're ready to go or maybe that inventory is relatively stable you know there aren't these peaks and valleys that might exist with services

Inventory

Have you ever searched Google for a product and then noticed that the next time you opened your browser or a social networking site like Facebook the ads that appear on the page were for the product you searched for? How did those ads get there? The answer is with cookies. Cookies are small data files stored on websites that can generate a user profile about a consumer; the profile might include browsing history or login information. Cookies are "invisible" to the user. Through cookies, marketers know what consumers are searching for and where they are searching. •Cookie synching allows cookies to embed in a person's computer and follow that person as he or she moves through various websites. Tracking, such as that performed by cookies, can also be used to inform marketers how much consumers are willing to pay for a good based on their previous purchases. This means that as consumers move through websites, the price of the good or service they are searching for may start to be the same regardless of the site they search. Geotracking allows marketers to use a consumer's geographic location to determine what goods and price points for these goods will come up in a search. For example, Staples may offer a 20 percent discount on its products if geotracking shows that competing stores are also in the consumer's local area. Bots are software applications that run automated tasks over the Internet. •On Facebook and other websites, bots look for keywords such as "vacation" "Barbados" "beach" and then automatically send consumers information related to those keywords (e.g., Facebook ad, email ad). These marketing messages might show up as an ad on Facebook or a sponsored ad on Instagram. Or, consumers might receive an e-mail touting a special deal on a "beach vacation."

Invisible Marketing Influences

The difference between actual customer expectations and the company's perceptions of customer expectations. This is the difference between a customer's expectations and the company's perceptions of those expectations. Companies should spend less time telling customers what they think they want and more time listening to what they actually want. The only real way for companies to know what their customers want or expect is to ask them—and then they must listen. Companies should: •Conduct more and better marketing research about the service offering and experiences. Observations, focus groups, and surveys are commonly used techniques. •Build closer relationships with customers so they're more likely to share their thoughts and opinions. Encourage upward flow of information—that is, direct communication with the company—by providing customers with opportunities to share their opinions and concerns and encouraging them to do so. •Follow-up with customers after their service experiences, particularly for negative experiences. "What could we have done better?" is a powerful question to ask. Customers will be vocal about whether companies can fix or improve something in their service design.

Knowledge Gap aka Listening Gap

sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share •Price sensitive market •Inverse relationship of production and distribution cost to sales growth •Low prices must keep competition out of the market •Low barriers to entry à competition low price in order to make up for it in volume, smaller profit margins but we sell a lot of it, typically for more price sensitive consumers/market or when competition is intense, and we compete on price, low price wards off competition, marketing activities (positioning, branding, etc.) need to support a low price), customer service on low end of spectrum Ex. IKEA, Walmart

Market-penetration pricing

strategy with high initial prices to "skim" revenue layers from the market •Product quality and image must support the price •Buyers must want the product at the price •Costs of producing the product in small volume should not cancel the advantage of higher prices •Competitors should not be able to enter the market easily Charge high prices, tradeoffs in volume in order to sell products, strategic goal: healthy profit margin Positioning has to fit, marketing needs to fit, product image needs to fit Ex: Porsche strategy, Lamborghini strategy, high priced cars

Market-skimming pricing

Advertising Strength: Attention and Interest Sales Promotion Strength: Desire and Action Personal Selling: Interest, Desire, and Action Public Relations: Attention and Interest

Marketers follow the AIDA process in their communications. First a consumer must focus attention (A), to generate interest (I), and finally desire (D) for the product. If they get to desire, they are more likely to take action (A) and purchase the product. Each element of the marketing mix has different strengths in regard to the AIDA model. Marketers can choose one method over another based on these strengths:

Markup pricing, or cost-plus pricing, is a pricing method in which a certain amount is added to the cost of the product to set the final price. Traditionally jewelers, furniture stores, and gift shops will markup the products they sell by 50 percent. •A ring that costs a jeweler $500 would be sold for $750 [$500 cost + $250 markup ($500 × 50%) = $750 selling price]. The markup method is commonly used because it is easy to implement and it provides a good estimate of potential profit for planning purposes. However, many firms opt to use more precise methods of pricing because a standard markup policy does not take into account changing levels of customer willingness to pay. In some cases, this type of markup may be overpricing products, but it also may cause situations where products are underpriced.

Markup Pricing

Main objectives are profitability and maintaining the firm's market share; sales level off as market becomes saturated; marketing costs rise. Late majority and repeat buyers make up an increasing percentage of the customer base. The main objectives of the maturity stage are earning profits and maintaining the firm's market share for as long as possible. Sales level off as the market becomes saturated and competition becomes fierce. Companies not doing well drop out of the market. Marketing costs rise due to competition as each firm tries to find ways to gain market share. The firm may need to make large promotional expenditures to show the differences between the firm's product and the competition and feel pressure to reduce prices. As a result, profits typically begin to decline during this stage.

Maturity

Competitive advantage Compatibility Observability Complexity Trialability

New Product Characteristics

Two strategies specific to new products are often used by firms to stimulate demand or maximize profits of new products. Profit maximization, or price skimming, is a pricing strategy that involves setting a relatively high price for a period of time after the product launches. •Example: smartphones. Volume maximization, or penetration pricing, is a pricing strategy that involves setting prices low to encourage a greater volume of purchases. •Example: common for consumer products, such as food and services. For example, Papa John's may introduce a new pizza or type of side dish at an artificially low price to encourage trial and adoption of the product by consumers. Service providers of haircuts, nail care, or oil changes may also use penetration pricing in a competitive market to drive awareness of a new location or for expanded services

New Product Pricing

When people can see others using a product and perceive value in its use, the product will diffuse quickly. Some products are naturally more visible than others. For example, consumers can observe others using Bluetooth headphones in many public places. Personal products such as Banana Boat sunscreen lotions, on the other hand, are not as easily observed, and how well they work can be difficult to confirm.

Observability

Odd pricing is a pricing tactic in which a firm prices its products a few cents below the next dollar amount. Everything from hamburgers to cars are sold at prices that end in 3, ($2.93 for dish soap at Walmart), 5 ($4.95 for a drink at Starbucks), 7 ($12.97 for sandals at Target), or 9 ($14.99 for a pizza deal at Papa Johns). This tactic draws upon a basic human processing error, which is based on mental calculations that tend to see the price of $1.97 as much lower than $2. It is obvious that the difference is only three cents, but our brains tend to discount the extra change and focus on the whole number ($1 in this case). The same is true with larger numbers. A car dealer may price a vehicle at $4,995 instead of $5,000 because the odd price is viewed as closer to $4,000 than $5,000—even though the difference is only $5. Thus, marketers use this obvious yet effective practice to improve price perceptions of their products.

Odd Pricing

High-volume retailers have many problems with other people negatively impacting customer experiences. In this case, a customer arguing with a cashier and causing a backup in the checkout lines can be interpreted by other customers as a service failure. Think of that same flight, but instead of turbulence there was a crying baby on board. It's not fair to "blame" the baby for the crying, but it probably leads to dissatisfaction for most of the people sitting in adjacent rows on the plane. The bigger the gap between service expectations and service perceptions, the more likely customers will talk about it and share their story, for better or worse. Very high-quality services lead to positive word of mouth, which is the most wonderful thing that can happen to a business. But very low-quality services lead to negative word of mouth, which is the kiss of death for almost any business. If companies are lucky, the dissatisfied customer will complain directly to them. Why? Think back to the service provider listening gap from the previous section and how critical it is for good marketers to always listen to their customers and create opportunities for the upward flow of information. This is because not all service failures lead to complaints. A customer complaint is a gift for two reasons: It tells the company exactly how to address the listening gap and subsequently its service design and standards to avoid future failures. If a company knows who the dissatisfied customer is and why he or she is dissatisfied, it has given the company an opportunity to recover from the failure.

Other customers

Cannot be stored indefinitely Cannot be reused short-lived. Price may adjust to influence demand, capacity management The final unique characteristic of services is that they are perishable. Just like flowers or fresh fruit, you can't store them indefinitely, and they don't keep. Once a flight takes off with empty seats, that airline can no longer sell seats for that flight. And if you have a bad flight, you are unable to return the flight and get another one. If there are no Uber drivers available when you need a ride home from the airport, you either have to wait or find another means of transportation. Or if the Planet Fitness class is only half full, those other spots can't be saved for the next day. More so, you can't buy a flight, an Uber ride, or a specific fitness class and keep it to use again the next day. Considering that production and consumption occur simultaneously, it follows that it can be difficult to synchronize supply and demand for service offerings. A restaurant buys all of its food supplies anticipating a certain number of customers, but if nobody actually walks in, the food will go to waste. On the contrary, of course, if more customers show up than anticipated, there won't be enough food. Grocery stores and florists think in much the same way as service managers in that they try to buy just enough supply to meet demand without having too much excess. When we you know go to that sporting event or that concert right and it's over in two to three hours or whatever it might be that experience of that service is over and so we want to you know from the marketing side of it think about things that are going to make it memorable so that way when the perishable experiences over we still have the memory of it you know so that way when we have the opportunity to patronize that service again go to that sport and see that you know band or whatever it is in concert again that the memory of it kind of has a carryover effect that makes us want to become repeat customers and as marketers we kind of need to understand that because there are going to be critical components of that experience that we want to make sure we kind of check the boxes necessary to make that experience memorable for consumers

Perishability

The two-way flow of communication between a salesperson and a customer that is paid for by the firm and seeks to influence the customer's purchase decision. Personal selling is a highly adaptive and personal way that firms promote their products and services directly to customers.

Personal Selling

Prestige pricing is a pricing strategy that involves pricing a product higher than competitors to signal that it is of higher quality. Firms that want to promote an image of superior quality and exclusivity to customers may pursue a strategy of prestige pricing. Luxury brands, such as Louis Vuitton, Cartier, and Mercedes-Benz use high prices to suggest their products are of high quality and stylish. Simply improving the look, packaging, delivery, or promise of a product can justify a higher price and support a prestige pricing strategy.

Prestige Pricing

Price bundling is a strategy in which two or more products are packaged together and sold at a single price. Marketers often use bundling as a tool because they can charge higher prices for the bundle than they could for the elements individually. Assume you are buying a new Ford Escape SUV. Would you prefer to purchase the base model and then handpick options, such as a moon roof or satellite radio, or are you better off buying the vehicle as one all-inclusive bundle? Conventional wisdom says that à la carte pricing benefits the customer and bundled pricing benefits the firm. Undoubtedly, price bundling simplifies things for marketers. The company can sell the same bundle to everyone, leading to reduced advertising and selling costs. Think of the success bundled software packages such as Microsoft Office enjoy, despite the fact that many of the software's users need only a fraction of the available functionality. Price bundling has come up against increased customer resistance in some industries in recent decades. Cable television providers have always relied on a bundling strategy in which customers have to buy a package of channels rather than paying individually for the channels they want. In recent years, as the price of those channel bundles keeps rising, the practice has come under fire. In many cases, consumers are dropping cable because of bundled packages in favor of streaming services that are more flexible.

Price Bundling

Marketers must understand consumers' price sensitivity, which is the degree to which the price of a product affects consumers' purchasing behavior. Price elasticity of demand is a measure of price sensitivity that gives the percentage change in quantity demanded in response to a percentage change in price. •Elastic demand is where demand changes significantly due to a small change in price. For elastic products, demand is greatly affected by changes in price, either increasing when the price drops or decreasing when the price is raised. Products with elastic demand include things that aren't critical to daily life. An example would be movies that you see in a theater. If the price of movies decreases ($5 Tuesday, 2 for 1 Thursday, etc.), the number of consumers who see movies increases. Conversely, if the price of movie tickets increases (which seems the trend), less people see movies at the theater and demand decreases. •Inelastic demand refers to a situation in which a specific change in price causes only a small change in the amount purchased. Gasoline is a good example. If the price of gas increases by 10 percent, do you drive less? If the price of gas decreases by 10 percent, do you drive more? The answer is likely "a little more or less," but in most cases driving habits are not greatly changed by price changes to the product. Almost no products are perfectly elastic (any amount of price change will affect demand) or inelastic (no amount of price change will affect demand), but products that are considered luxuries (boats, vacations, movies, etc.) or nonessential items are usually more elastic, while essential products (food, electricity, water, etc.) are more inelastic.

Price Elasticity of Demand

1. Define the pricing objectives 2. Evaluate demand 3. Determine the costs 4. Analyze the competitive price environment 5. Choose a price 6. Monitor and evaluate the effectiveness of the price

Price Setting Process

(% change in quantity demanded) / (% change in price)

Price elasticity formula

Which pricing tactic to use depends on the value customers perceive the product to have, their ability to pay for it, and how they intend to use the product. Profit margin is the amount a product sells for above the total cost of the product itself. Pricing, like all aspects of marketing, requires firms to really understand their customers' needs and wants.

Pricing Tactics

REVIEW LECTURE NOTES + PICS Introduction stage = Begins when the product is launched; few or no competitors; sales are slow. Growth stage = Sales and profits begin to rise; the firm has to promote the differences between its brand and the competition. Maturity stage = Main objectives are profitability and maintaining the firm's market share; sales level off as market becomes saturated; marketing costs rise. Decline stage = Preceded by declining sales and profits; competitors drop out of the market; firm will likely cut prices. Product life cycles can be of varying lengths, depending on the type of product. Marketers must also consider what type of PLC their product is likely to have. •High-learning products take longer for consumers to see the benefits of and often do not have a good infrastructure in place to support them. •Low-learning products are products with benefits customers can easily see. •A fad product is very popular for a relatively short amount of time. •A fashion product comes in and out of favor with consumers.

Product Life Cycle

1. Product line pricing 2. Segmented pricing 3. Captive-product pricing 4. Geographic pricing 5. Product bundle pricing

Product Mix Pricing Strategies

(complementary goods/services and package them together as a bundle and offer a price for that bundle)(bundle = saves money) (Ex: Spectrum -> phone, TV, internet bundle)(bundle actually benefits the company more, gets consumer to want to bundle things + pay more for bundles because of the perception of savings) (build a bundle, pair attractive/complementary g/s increase consumers' willingness to pay)

Product bundle pricing

(multiple versions of products that I might sell (ex: cars), base model w/ less options, mid-range model slightly more options, fully loaded model with all options, price difference between 3 models needs to make sense in the eyes of the consumer) (too close in price, rob sales from base model)

Product line pricing

new-to-the-market products

Products that have never been seen before and create a new market are considered... Products that have never been seen before and create a new market Although they make up the smallest percentage of new products, they disrupt the market because they provide innovative benefits that often render existing products obsolete. represents tremendous upside potential for firms because getting to the market before competitors do often means increased sales, profits, and customer loyalty, as well as a leadership position in that market New-to-the-market products can be time consuming and expensive to develop, creating significant risk for a firm. vast majority of new products fail, leaving the firm with no revenue to compensate for expenditures of financial and human resources EX: Uber app

Marketers not only need to be consistent in how they present their message, they also need to be smart regarding where they communicate their message. Marketers communicate the value of their product by using different elements of the promotional mix—which includes advertising, sales promotions, public relations, and personal selling—to engage their customers The promotion mix is a combination of tools used by marketers to promote goods, services, and ideas and to accomplish their communication objectives. Typically, more than one element of the promotional mix is used, which is why it is called a mix.

Promotional mix

when prices are temporarily priced below list price or cost to increase demand •Loss leaders •Special event pricing •Cash rebates •Low-interest financing •Longer warrantees •Free maintenance Risks of promotional pricing •Used too frequently, and copies by competitors can create "deal-prone" customers who will wait for promotions and avoid buying at regular price •Creates price wars (when we set prices low temporarily in order to stimulate demand, perception of savings is great, increases perceived value + motivates to purchase)

Promotional pricing

Nonpersonal communication focused on promoting positive relations between a firm and its stakeholders. Public relations strategies provide information and build a firm's image with the public, including customers, employees, stockholders, and communities. Public relations differs from other promotional mix elements because it is unpaid promotion that is facilitated through media, other outlets, and community relations.

Public Relations

Used to support the other elements of the promotional mix. Sales promotions typically include some type of action-oriented marketing message. Things like coupons, rebates, samples, contests/sweepstakes, and loyalty programs are all marketing promotions used to encourage a customer to make a purchase decision.

Sales Promotions

Seasonal discounts are price reductions given to customers purchasing goods or services out of season. Disney World pursues this strategy by offering its best rates in months like February, when demand is at its lowest due to cold weather and the fact that children are in school. The strategy also exposes new customers to the brand.

Seasonal Discounts

The sender starts the communication process by transmitting a message. •Usually marketers send messages that relate to their product or brand. Marketers are in the business of sending messages, so they are good at deciding what needs to be sent. Usually marketers send messages that relate to their product or brand. In addition to creating marketing messages (e.g., sales-related or informational messages), marketers must be adept at determining to whom the messages should be sent. The days of placing a single ad on network television for the whole world to see are long gone. Today, marketers take a targeted approach to identifying exactly who their target market is and how to most effectively send messages to those potential customers. The receiver interprets the message transmitted by the sender. •For marketers, receivers are usually consumers (although they could be other things, such as stockholders, governments, or even competitors). Noise results from distractions such as competing messages, poor clarity of the messages, or an ineffective communication method. In the case of a billboard, noise can come from things such as heavy traffic, weather, or even other road signs. Yet despite the prevalence of noise, many messages do get through to the sender, especially if they are based on IMC principles that make them easy for the receiver to identify and process.

Sending and Receiving Messages

There are four gaps that companies need to consider when putting on their customer hat to evaluate service quality: •Knowledge gap •Design and standards gap •Delivery gap •Communication gap These gaps make up what's called the Service Gaps Model. provides companies with a framework for understanding the differences between customers' perceptions and the customers' initial expectations of a service outcome. The framework presents four key criteria that firms must consider in order to ensure they are delivering optimal service to their customers The goal of developing marketing strategy around these four criteria is to manage the gap between the customer's expectations and perceptions, and thus the perceived quality of service.

Service Gaps Model

1) Set a goal: The first step in a social media marketing campaign (as with any marketing campaign) is setting a goal. For example, the goal may be to increase brand awareness, increase the number of app downloads, or communicate product information. To achieve their goals, marketers develop strategies. To choose the right strategy, marketers start by defining what area of the marketing mix (the four Ps) they will be addressing with their social media and/or mobile campaign. 2)Select the Correct Combination of Social Media Platforms: Marketers must determine their target audience. Sometimes the most appropriate platform is the company's own website, whereas other times the best platform is an external social media platform that has a larger reach with the target audience. Often a combination of social media and websites is used at the same time. For example, Samsung uses Facebook, Pinterest, and Twitter to promote new Galaxy smartphones. 3) Create Marketing Content: Often marketers take direction of which social media to use based on what their competition is doing. Monitoring the competition's social media can lead a marketer to follow or identify new areas that the competition has missed. Most consumers respond best to original content versus reposted content. 4) Monitor the Campaign:

Social Media Marketing Steps

Traditional mass media (e.g., print and TV ads): -Static -Not easily changeable -One-way communication -May reach more than intended audience -In addition, a firm that relies on traditional advertising may receive little direct feedback about its campaigns. Such campaigns may also reach more than just the intended target audience. Social media: -Customizable -Two-way communication -Targeted

Social Media v. Traditional Advertising Media

involves determining the direction a company will take when it develops a new product. A new-product strategy accomplishes the following: •Provides general guidelines for the NPD process. •Specifies how new products will fit into the company's marketing plan. •Outlines the general characteristics of the types of products the firm will develop. •Specifies the target markets to be served by new products. should also include an estimate of the profit the company hopes to make and when the firm can expect the product to be profitable.

Stage 1: New Product Strategy Development

Idea generation involves coming up with a set of product concepts from which to identify potentially viable new products. Few of these ideas ever become marketed products. In fact, a firm must generate as many as 100 ideas to find one product that will actually make it to the marketplace. Internal idea generation: •Company employees. External idea generation: •Customers. •Competitors' products. •Outsourcing to independent labs. •Suppliers, universities, independent inventors.

Stage 2: Idea Generation

At the idea screening stage, the company often ends up rejecting most new product ideas for one reason or another. Potential issues with product safety may cause a firm to reject an idea for both regulatory compliance and liability reasons. Firms may also want to make sure that the potential product meets their return-on-investment (ROI) requirements. Companies often have a minimum ROI "hurdle" over which a new product must be expected to perform. Can it be done by the firm? Can the company make it? What is the role of social media?

Stage 3: Idea Screening

Even if a product passes the idea-screening step, the firm cannot guarantee that it will be profitable. Firms must use complex analysis before they can be reasonably sure that a new product will provide sufficient profitability to make it worthwhile to develop. Profitability, measured by subtracting costs (i.e., all the costs to produce and sell the good or service) from revenue (i.e., the price of the good or service multiplied by the number of units sold), can be difficult to determine, especially if the product is new to the market. To determine profitability, a company must estimate costs, identify pricing, and evaluate demand for the product.

Stage 4: Business Analysis

In the product development stage, the firm determines that the product can be produced in a way that meets customer needs and generates profits. For a good, the company may create a prototype based on previous concept testing. A concept test is a procedure in which marketing professionals ask consumers for their reactions to verbal descriptions and rough visual models of a potential product. A prototype is a mockup of the good, often created individually with the materials the firm expects to use in the final product. Prototype tests ensure that the product will not be a hazard to users, that it can be produced in the company's or supplier's facilities, and that it can be manufactured at a cost low enough to generate profits. If the firm is developing a new service rather than a good, it may use this stage to establish protocols for training employees, identify equipment needed, and determine the staffing required. The marketing department also begins developing a marketing strategy during this stage. Regardless of whether the product is a good or service, the product development stage of the NPD process can be long and costly, which is another reason only a small number of ideas make it this far in the process.

Stage 5: Product Development

Test marketing involves introducing a new product to a geographically limited market to see how well the product sells and the reaction to it from potential users. The company selects test markets based on how well they mirror the overall target market in terms of demographics, income levels, lifestyles, and other factors. The selection of test markets is critical to ensuring that the results of the test will be representative of the sales the company can expect. During the test marketing stage, the firm tests not only the product itself but also the marketing strategy related to it. The marketing department may try different approaches in different test markets to see which marketing mix approach works best. For example, an airline might offer more legroom in certain sections of the airplane at a higher price in one region while offering no luggage fees for first- and business-class customers in another region to see which offering generates the most seat upgrades. Although test marketing can be valuable, there are downsides. The process is expensive and it can be time-consuming. An additional risk to test marketing is that firms open themselves up to imitation from competitors, which can diminish the advantages of being first to market.

Stage 6: Test Marketing

Dashboard: Central location where all social media can be easily monitored To measure the success of a campaign, companies can determine: Bounce rate = the percentage of visitors who enter a website and then quickly depart, or bounce, rather than continuing to view other pages within the same site. Click path = a sequence of hyperlink clicks that a website visitor follows on a given site, recorded and reviewed in the order the consumer viewed each page after clicking on the hyperlink. Conversion rate = the percentage of users who take a desired action, such as making a purchase. Sentiment analysis looks at whether people are reacting favorably or unfavorably to products or marketing efforts.

Step 4: Monitor the Campaign

The product launch involves completing all the final preparations for making the fully tested product available to the market. At this stage, the firm may undertake any of the following activities: •Purchasing the materials to make and package the good •Hiring employees, such as bank tellers, to provide the service •Manufacturing enough of a good to fill the distribution pipelines and to store as inventory for continuing distribution •Preparing internal systems for taking service orders Firms must carefully plan the product launch to ensure that the product hits the market according to schedule. Numerous product launches have been delayed because suppliers could not deliver on time, consumer demand was unexpectedly high, or goods couldn't be released due to quality problems. For example, in November 2017, Apple delayed the release of its HomePod until early 2018. This announcement caused the product to be unavailable for sale during the Christmas shopping season, allowing competitors such as Amazon Echo to gain more market share. Delayed product launches often cost companies a great deal of money in overtime labor and shipping charges.

Stage 7: Product Launch

Pricing objectives should be an extension of the firm's marketing objectives. They should describe what a firm hopes to achieve through pricing and, similar to the firm's marketing objectives, they should be specific, measurable, and reflect the market realities the firm faces. Additionally, pricing is often a signal to customers about the quality of the product or service. Firms should carefully consider the quality perception that they want to develop in the marketplace when setting their prices. Common pricing objectives include: •Profit maximization or price skimming - This pricing strategy involves setting a relatively high price for a period of time after the product launches. Ex: An example of profit maximization is Apple. Every time Apple introduces a new iPhone, the price is initially very high and then decreases as the product progresses through the life cycle. •Volume maximization or penetration pricing - This pricing strategy is designed to maximize volume and revenue for a firm, as well as encourage a greater volume of purchases. •Survival pricing - This pricing strategy involves lowering prices to the point at which revenue just covers costs, allowing the firm to endure during a difficult time. Ex: during the 2007 recession, General Motors reduced prices in an effort to avoid bankruptcy and sustain the firm.

Step 1: Define the Pricing Objectives

Place: Using social media, consumers can shop, share, and interact with companies from wherever they are. In essence, a marketer's "store" can be anywhere. Product: Social media and mobile technology can be used together as a means to deliver service products (e.g., Uber, Airbnb). Promotion: With a viral campaign, messages spread quickly by social media users forwarding promotional messages throughout their social networks. Price: Showrooming, customer feedback, and payment methods such as Apple Pay are examples of social media's effect on price.

Step 1: Set a Goal—Integrating Social Media into the Marketing Mix

The concept of supply and demand sits at the heart of setting prices. Marginal revenue is the change in total revenue that results from selling one additional unit of product. Marginal cost is the change in total cost that results from producing one additional unit of product. What is the optimal price that maximizes marginal revenue while minimizing marginal costs?

Step 2: Evaluate Demand

The choice of which social media platform a marketer chooses for a particular strategy is driven by the goals and target market of the strategic marketing plan. When a marketer has a specific target, they select specific social media platforms to more effectively reach their desired audience. •Pinterest has become an effective tool for marketers that use engaging photos of their products or services. Where is our target audience spending time on social media? -> This is the largest determiner of the social media site choice. Placing marketing messages in the right place for the right audience is a fundamental marketing principle. What type of content do we want to create within the campaign? -> If marketers want to create engaging videos, YouTube may be a good choice, whereas Instagram is well suited to still-image campaigns. If the campaign is designed to share professional articles and news about the company intended for a professional audience, then LinkedIn may be an appropriate channel. What social media channels are our competitors using? -> Often, maintaining a marketing presence in proximity to their competitors is an effective way to highlight product differentiation. Marketers learn a lot about what customers want and how that is changing by observing what their competitors are doing with their social media.

Step 2: Select the Correct Combination of Social Media Platforms

A common goal of social media marketing is promoting products through creating customer conversations about a particular brand or product. The conversation around the product or campaign is almost more important than the message the company is sending Additional social media marketing goals revolve around determining the needs of customers and increasing customer service. The process of achieving goals is built upon objectives, which are the activities that need to be completed in an effort to achieve a goal.

Step 3: Create Marketing Content—Set Social Media Objectives

Accurately determining the costs to make a product sets a lower price limit for marketers and ensures that they will not lose money by pricing their products too low. A marketer should understand all of the costs associated with its product offering. Costs include the money, time, and effort expended to produce and market a product.

Step 3: Determine the Costs

Marketers must consider what competitors charge for their products. Marketers must also consider how competitors might respond to their pricing. Competition is especially important because consumers are increasingly empowered by technology that allows them to comparison shop within stores and even without visiting stores.

Step 4: Analyze the Competitive Price Environment

The gap between service delivery and the company's external communications. It's important that what a company says it does and what it actually does align. For example, this image promotes all organic produce; if the company delivers nonorganic products to the customer, it will have created a communication gap. Although at first company communications appear to be only advertising and promotions, companies speak to customers in a variety of ways. It's important that what the company says it does and what it actually does are very closely aligned. This is the "promise" part of the underpromise-and-overdeliver saying. It's important that what the company says it does and what it actually does are very closely aligned. Companies should: •Integrate brand communications and messages across all customer touchpoints, and manage it centrally. •Manage customer expectations, but never overpromise. •Never underpromise, either.

The Communication Gap

Price is the amount of something—money, time, or effort—that a buyer exchanges with a seller to obtain a product. Pricing is one of the most important strategic decisions a firm faces. reflects the value the product delivers to consumers as well as the value it captures for the firm When used correctly, pricing strategies can maximize profits and help the firm take a commanding market position. When used incorrectly, pricing strategies can limit revenue, profits, and brand perceptions. Price has always been important, but in today's technology-enabled environment, consumers are more able to compare prices between multiple competitors, which makes having the correct price the difference between success and failure. Pricing is the essential element for capturing revenue and profits. •Revenue is the result of the price charged to customers multiplied by the number of units sold. •Profits are simply revenue minus total cost.

The Importance of Pricing Strategy

For very high-end, prestige products, demand actually increases as prices rise and decreases as prices fall. This phenomenon is a result of consumers who specifically equate quality, status, and luxury with higher, exclusive prices.

The Prestige Demand Curve

•Mobile marketing uses many of the same platforms as social media marketing. A social media platform is a website-based media channel used to facilitate communication and connection (e.g., Facebook, Snapchat, Instagram, Twitter). •Mobile marketing allows for location-based advertising. in which mobile users receive notifications and advertising messages based on their physical proximity to a store or an object. Whole Foods has used this location-based mobile marketing with great success. This type of mobile marketing senses when a consumer who has the Whole Foods app is in proximity of a Whole Foods location. Then, a marketing message is sent directly to the consumer through a push notification. Whole Foods even sends customers messages when they are about to enter a competitor's store, hoping to lure the shoppers back to Whole Foods •Mobile marketing channels allow for more instantaneous feedback compared to other social media marketing channels. For example, diners can review their meal while they are eating it, Uber passengers can rate their ride as they leave the car, and marketing surveys can be pushed to the consumer's phone immediately after a hotel stay. •Mobile technology also makes it easier for customers to make educated last-minute decisions on where to eat. Mobile apps such as Yelp and Google help diners easily see all the options available near them, including reviews, menus, special offers, and prices, all without prior planning. Apps such as Hookedapp.com allow college students at many universities to see time- and location-sensitive special offers at nearby restaurants and bars Mobile Applications Used in Social Media Marketers use different types of mobile applications in their social and mobile marketing campaigns. Facebook and Twitter reach a broad audience of consumers; Snapchat is a mobile-based app popular among younger mobile users. Marketers choose which apps to use and what delivery platforms are most efficient (e.g., mobile, website, etc.) based on which will most appeal to their target audience.

The Similarities and Differences between Social Media and Mobile Marketing

Social media is electronic, two-way communication that allows users to share information, content, ideas, and messages to create a customizable experience. Social media is described as customizable because consumers are able to choose the specific content they wish to interact with or view. Social media is a relatively new and still evolving media. As with other media, marketers have embraced social media as a way to communicate both mass and personalized messages. •Many Facebook users get their news from a customized news feed that delivers news designed to match the users' interests. •Personal posts allow users to voice their opinions or let their friends know what is going on in their lives.

The Value of Social Media Marketing

•Advertising. •Sales Promotion. •Public Relations. •Personal Selling. Firms use marketing research techniques to continuously assess which promotional mix elements have the most influence on different market segments at different points in the product life cycle.

The basic elements of the promotional mix include:

Mass Advertising: Simple products sold to a large audience, typically at a lower cost. Sales Promotion: Often used for newly introduced products to increase trial of the product. Personal Selling: Typically used for complex, higher-cost products. Public Relations: Used to increase awareness of an overall brand or product line.

The promotional mix elements can be chosen based on characteristics of the product. Compare each element and the product types they are most associated with:

company fault unanticipated and unavoidable external circumstances other customers

Three common causes of service failure:

Products that consumers can try without significant expense will diffuse more quickly than others. For example, a photo app that costs 99 cents will diffuse a lot faster than one that costs $100. Similarly, consumers may adopt a product they are first exposed to through trial sizes, free-sampling programs, and in-store trials (e.g., taste testing food).

Trialability

Innovators (2.5%): First to try new products, unafraid to take risks. Tend to be younger and more mobile than those who adopt a product later in the diffusion process. Are often obsessed with the idea of newness and unafraid to take risks when it comes to trying new products. In addition, they tend to be very knowledgeable, have higher-than-average incomes, possess self-confidence, and choose not to follow conventional norms. While only a small number of purchasers fit into this category, firms value innovators because they share information about the product with others, which can help the product gain market acceptance. If you are always one of the first people you know to try a new product, you probably fall into this category early adopters (13.5%): Purchase product soon after it is introduced, wait for product reviews and info before purchasing. Purchase and use a product soon after it has been introduced, but not as quickly as innovators. They tend to conform to group norms and values more closely than innovators and have closer ties to social groups and their communities. Though they adopt products earlier than the remaining categories, unlike innovators, they wait for product reviews and further information concerning new products before purchasing them. Early adopters are typically well respected by their peers, and marketers seek to gain their acceptance because they tend to be opinion leaders who are willing to talk to other people about their experiences with their purchases. These individuals are therefore important to the diffusion of a new product. early majority (34%): Careful in their approach, more competitors have entered the market by this time so they have some choice as to which product to buy. Typically, by the time early majority adopters buy a product, more competitors have entered the market, so they will have some choice as to which product to buy. Members of the early majority generally are not opinion leaders themselves, but they often are associated with such leaders. If early majority adopters do not purchase the product, the good or service will likely fail to be profitable. The early majority group also serves as a bridge to the next group of adopters: the late majority. late majority (34%): Tend to be cautious about new things and ideas, often older. Tend to be cautious about new things and ideas. They often are older than members of the previous three categories and may not act on a new product without peer pressure. They often rely on others for information, buying a good or service because their friends have already done so. Members of this group tend to be below average in income and education. When late majority adopters purchase a product, the product typically has achieved all it can from a market in terms of profitability and growth. laggards (16%): Don't like change, may remain loyal to a product until it is no longer available, may not use the Internet. Tend to not like change; they may remain loyal to a product until it is no longer available for sale. Laggards are typically older and less educated than members of the other four categories. Many choose not to use the Internet. They tend to be tied to tradition and are not easily motivated by promotional strategies. In fact, marketers may never convince laggards to buy their good or service, making them a group on which marketers should not expend a great deal of time or effort. Individuals who have no access to the Internet are examples of laggards who will not be using Amazon as a source from which to buy products.

Types of Adopters

•Inbound marketing utilizes such tools as blogging, webinars, or follow-up e-mails. The intent is to entice consumers to find a firm's products or services without "forcing" an interaction. Inbound marketing attempts to provide value and information to the customer at every stage of the buying journey. •Search engine optimization (SEO) is the process of driving traffic to a company's website from "free" or "organic" search results using search engines. Try typing in a word or phrase in a search engine and take note of which websites appear first. These companies have utilized SEO to ensure that their sites appear at the top of the list of search results. Thus, SEO is the process of increasing high-quantity and high-quality traffic to a website. •E-mail marketing is a cost-effective method of retaining, nurturing, or attracting a new customer base. The primary advantage to e-mail marketing is that firms know that most consumers have e-mail addresses. •Social media marketing encompasses marketing activities that utilize online social networks and applications as a method to communicate mass and personalized messages about brands and products. One of the most popular forms of digital marketing and is the focus of this module

Types of Digital Marketing

Delaying a store's opening or making it hard for customers to get into the store because of a major snow storm is an example of a service failure caused by external circumstances. Sometimes a service failure can be the result of unanticipated and unavoidable external causes that are completely out of the company's control; for example, flight delays due to bad weather or turbulence during a flight. Though most customers understand that weather is out of the control of the airline, it still can make them have a negative experience (especially if the bad weather is in a distant city). Almost all firms have some component of their service delivery that is out of their control. Have you ever had to wait a long time to check out at a store? It may be the fault of the manager's poor staffing decisions, the result of a flu outbreak that has left the retailer unavoidably understaffed, or even an unexpected increase in customers due to an accident that closed a nearby road (changing normal traffic patterns and where customers shop).

Unanticipated and unavoidable external circumstances

•Also known as contribution pricing, focuses on VC only •Common when a company is operating at less than full capacity or has a high amount of FC •Is concerned with the short term as less than full capacity is temporary •Intended to stimulate or shift demand to lower cost occasions •Assumes that fixed costs have to be met no matter what Cost associated with making and marketing product, used when companies need to stimulate demand at certain times Ex: Movie Theatre (middle of the day -> lower price), Airlines

Variable Cost Pricing

Paid search is online advertising in which a company pays to be a sponsored result of a customer's web search. Companies usually purchase a given search term—"women's watches," for example—and pay each time a customer clicks on their sponsored search ad. Paid search advertising is usually sold using an auction system with the search terms awarded to the highest bidder. Paid stories are ads that appear as content designed to look like stories to the viewer. Most advertisers and publishers aspire to deliver paid ads that are cohesive with the page content. For example, on a page that is discussing the top five cruise vacations for Millennials, there may be a "story" about UniWorld, a cruise agency that targets Millennials. In this case, UniWorld would have paid for that story to appear on the page. Paid display advertising includes everything from banner ads to YouTube video advertising. These ads generate awareness as well as (hopefully) drive traffic to a website. Companies can also purchase advertising on social media sites such as Instagram and Facebook. Sponsorship firms often sponsor YouTube or Instagram celebrities who in turn endorse the firms' products. These so-called online influencers are often compensated in multiple ways for their endorsements. For example, a celebrity may be paid a fee to discuss the firm's products on his or her YouTube channel and then get paid again when consumers click on the display ad on the YouTube page. Some YouTube celebrities have become millionaires through such advertising fees.

Visible Marketing Influences

Diffusion

When a consumer purchases and uses a product, the product has been adopted The process through which a product is adopted and spreads across various types of adopters how their new products are likely to be adopted, the rate at which they will be adopted, and the process through which their products will spread into markets Marketers who understand ??? have a better chance of successfully launching and sustaining new products gives marketers a way to figure out who will likely buy their product over a period of time, plan an appropriate marketing mix, and forecast potential sales. The result of diffusion is a well-understood process of product adoption, which comprises five stages:

advertising objective Objectives classified by primary purpose: Inform Persuade Remind

a specific communication task to be accomplished with a specific target audience during a specific time

advertising puffery Examples of puffery can be found in advertising for food, such as "the best pizza in town" or for a car dealership as "the best prices in the state." These types of claims are difficult to prove as either true or false; they depend on whom you ask or when you measure. Advertising puffery is hard to regulate and even harder to prosecute under the law. But usually consumers can detect puffery, so its impact is often limited.

advertising that makes broad exaggerated or boastful statements about a product or service that are subjective (a matter of opinion) rather than objective (measurable facts). In these cases, marketers are able to make claims that cannot technically be proven false, so they are legal—yet the claims may be exaggerations that mislead consumers.

emotional appeal The advertiser might use humor, fear, concern, or love to help the viewer feel positive toward the product. An advantage of emotional advertising is that when people feel good after viewing an ad for a product, they become more connected to the product and brand. However, emotional advertising can be risky because sometimes consumers are not able to properly decode the marketer's message. An example of an emotional appeal would be the Procter & Gamble, "Thank you Mom" campaign during the 2012 and 2016 Olympics. However, emotional advertising can be risky because sometimes consumers are not able to properly decode the message that the marketer is trying to send. In these cases, advertising that isn't understood by the target audience is ineffective and does not deliver the expected results. If marketers decide to use an emotional appeal in their advertising, they are likely to draw on emotions such as fear, admiration, pleasure, or envy.

aims for an emotional response from the viewer.

Informative advertising This kind of advertising is especially important during the introduction stage of the PLC. The introduction stage is characterized by few or no competitors. In this state, the product is new to the market, and sales are typically slow because customers are not yet accustomed to the product. The introduction stage is also characterized by high levels of advertising spending. To increase consumer awareness and comfort with a new product, marketers use informative advertising. For example, informative advertising may be used to promote an upcoming meeting of a new club at your school. Things such as the date, time, room number, and a description of the guest speaker help college students (consumers) identify whether the club relates to their interests. To increase consumer awareness and comfort with a new product, marketers use informative advertising. how marketers use informative advertising to position their product in the consumer's mind, rather than to persuade them to buy the product. In other words, informative advertising is effective at "setting the stage" for a new product, event, or brand.

attempts to develop initial demand for a product.

Persuasive advertising It is common during the growth stage of the PLC as firms attempt to take away market share from competitors. To gain market share from competitors, a company focuses its marketing efforts on showcasing the competitive advantage of its product over others to persuade consumers to try the new product or switch from other products. Marketers invest heavily in advertising during this stage, but generally spending drops from the high levels of the introduction stage. The marketers of milk transitioned from informative advertising to persuasive advertising as their campaign advanced. Messages turned from informative facts to persuasive calls from celebrity endorsers that were intended to persuade consumers to drink more milk. Persuasive advertising can be used for a long period of time as a product grows from a new product into a mature product.

attempts to increase demand for an existing product.

Fixed cost

costs that remain constant and do not vary based on the number of units produced or sold. Ex: Salary, rent, insurance, advertising, Annual liability insurance premium (in case of passenger injury)

Variable costs

costs that vary depending on the number of units produced or sold. Ex: Materials, sales commissions, utilities, delivery costs, Number of Complimentary sodas Given to passengers

Frequency

count of how often a consumer is exposed to a promotional message (television advertisement, online advertisement, billboard, etc.).

Narrowcasting

focuses the message on selected market segments •Lowers cost •Targets more effectively •Engages customers better

product line

group of related products marketed by the same firm

used to coordinate the various promotional mix elements to provide customers with a clear and consistent message about a firm's products, which in turn allows firms to more effectively create and develop relationships with customers. Communicating a clear marketing message across the promotional mix is important. If the look and sound of the message are inconsistent in different places, it is destined to be less effective. For example, imagine if Red Bull used Illume adventure and action sports imagery contest on social media, but then used performing arts such as ballet and theater in its marketing communications in magazines and on television. Both may be effective approaches, but by using a different look and theme, Red Bull is making its advertising less recognizable across settings. If the look and sound of the message are inconsistent in different places, it is destined to be less effective. An IMC approach adapts the communication for each element of the promotional mix, but keeps the messaging consistent across all aspects of the promotional mix. By following an IMC strategy, marketers make it easy for customers to recognize their messages, regardless of where they see or hear them.

integrated marketing communications (IMC) strategy

Advertising Advertising is one of the most noticeable activities of marketers because it is everywhere we look. Specifically, marketers use advertising to inform, persuade, and remind consumers about unique features and benefits of their products. Advertising is important because it helps to keep marketing and brand messages in the minds of consumers. Two words in this definition—paid and nonpersonal—are key to understanding how advertising fits into the promotional mix. Paid advertising requires a purchased time or space for communicating a message. Because it is paid, advertising has the advantage of control; the purchaser decides how to present the message to the public. Advertising helps marketers control how their message is encoded. Nonpersonal advertising uses media to transmit a message to large numbers of individuals rather than marketing to consumers face-to-face. Firms spend hundreds of billions of dollars on advertising campaigns each year in an effort to appeal to large numbers of individuals. An advertising campaign is a collection of coordinated advertisements that share a single theme. For example, the milk industry spends in excess of $50 million annually on its advertising campaigns—the previous "Got Milk?" campaign and the more recent "Milk Life" campaign

nonpersonal promotional communication about goods, services, or ideas that is paid for by the firm identified in the communication.

Digital marketing

online marketing that can deliver content immediately to consumers through digital channels, devices, and platforms.

Reach

percentage of the target market that has been exposed to the promotional message at least once during a specific time period.

target profit pricing Total units = (profit + fixed cost) / (price - variable cost)

price at which the firm will break even or make the profit it's seeking

product line extensions

products that extend and supplement a company's established product line may add new functions, flavors, or other attributes to an existing product line Carry less risk than new-to-the-market products or new category entries; company and brand are already recognizable. Advantages of a product line extension include that the company and brand may be easily recognized; customers may already feel loyalty to the product line; manufacturing may be easier and more efficient because the firm already produces similar goods; and the new product can be advertised alongside existing products. carry risk due to uncertainty about how well the new products will be accepted by the market, but they carry far less risk than new-to-the-market products or new category entries. Taco Bell excels at product line extensions. One line extension, the "Nacho Cheese Doritos Locos Tacos Supreme," utilizes cross branding with Doritos to extend Taco Bell's product line. Product line extensions are common, especially among companies hoping to offset reduced sales on other products due to seasonality or trends. For example, the Vaseline Intensive Care brand added SPF (sun protection factor) to its products such as lotion and lip balm. Vaseline extended its product line in part to reach new markets, and also due to slower sales of body lotions during the summer months.

Reminder advertising This kind of advertising is common in the maturity and decline stages of the PLC. The main objectives of the maturity stage are profitability and maintaining the firm's market share for as long as possible. One strategy maintains an accepted product (rather than altering it) through reminder advertising. To accomplish this, firms can follow a couple of different paths. One path attempts to restart the PLC through product modifications and enhancements. The other follows a strategy of maintaining an accepted product (rather than altering it) through reminder advertising.

seeks to keep the product before the public in an effort to reinforce previous promotional activity.

When the perceived quality of a service encounter is negative

service failure

Mobile marketing Mobile marketing has quickly become one of the most used marketing tools, as more than 77 percent of all Americans own a smartphone. 71 percent of total minutes spent online in the United States are on a mobile device, making mobile marketing a powerful and important marketing tool.

set of practices that enables organizations to communicate and engage with their audience through any mobile device or network.

break-even point Once the firm has established the break-even point, it has a starting point for estimating how much revenue it must generate to earn a profit.

the point at which the costs of producing a product equal the revenue made from selling the product.

rational appeal An advantage of rational advertising is that it clearly communicates a product's features. However, because rational advertising focuses on product features, it is usually a less entertaining form of advertising than emotional advertising. When marketers decide to use a rational appeal to deliver their message, they typically focus on topics such as savings, health, convenience, or environmental impact. For example, banks and financial services that encourage people to think about their retirement planning often use rational appeals to reach their target audience.

uses logical arguments to attempt to make the viewer think about the product and its benefits to better understand why purchasing or using the product is a good decision.