Exam 3

Economic Value:

Offering provides tangible monetary benefits (typically in the form of savings) either at the time of purchase or over its long-term use*

customer retention

Percentage of customers who stay with a company in a given period• Companies often report churn rate (AKA: customer defection or attrition rate): 100% - retention rate expected customer lifetime+ 100%/100%-r

value pricing

Pricing strategy that emphasizes benefits derived from a product in comparison to the price and quality levels of competing offerings.

What would it mean to price "too high,' based on the concept of the value-pricing thermometer?

Product price set above perceived value

the value-oriented pricing thermometer (image)

TEV Perceived Value Consumer's incentive to purchase=perceived value-price Product Price Firms Incentive to sell =price-COGS Cost of Goods Sold

customer lifetime value defintion

The present value of all future streams of profits that an individual/organization generates over the life of their business with the firm

Which term below is used to describe the time in the Market Development Life Cycle when a technology has passed the test of usefulness and is now perceived as necessary and standard for many applications. All the pragmatists who were hanging back from committing are rushing into the market to make sure they don't get left behind. Customers of many types from many fields are making their first purchases of the technology, and revenues are growing at double or even triple-digit rates. Competition is fierce, with investors bidding up the stock of every company that can participate in the category. - Tornado - Bowling Alley - Chasm - Fault Line

Tornado

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price % change in quantity demand /%change in price

set the price based on buyer characteristics

age, gender,location, or affilation, when those characteristics correlate with TEV and/or PV for an individual

Unit Elastic E=1

any change in price is matched by an equal change in quantity

perfectly elastic E=00

any very small change in price results in a very large change in quantity demanded

Functional Value

based on features or functional benefits. Often involves difficult trade-offs for customers

social value

benefits derived based on our social interactions with family, friends, similar others (people we believe are like us), and/or aspirational others (people we would like to be more like). •Network Effects•Preference Formation•Social Capital•Social Relationships

Control the availability of prices

by selectively presenting an offer to a particular group of customers but not others

Extension or ethnocentric pricing

calls for the per-unit price of an item to be the same no matter where in the world the buyer is located one price fits all

A cruise line could control the availability of prices by offering deals to specific groups of buyers based on all of the following EXCEPT: - purchasing history - information gathered via e-commerce - coupon usage - competition - location

competition

geocentric pricing

coordinated approach to leveraging global pricing experiences that take local issues into account

decreasing variable cost per unit

curve

Assume Levi Strauss & Company sells its jeans in a wide variety of global markets. Physical environmental factors such as climate (e.g., heat, humidity) have influenced the types of jeans demanded and sold. For example, colder climates are well-suited for traditional length and weight jeans, while hotter climates prefer shorter and lighter weights. Likewise, differences in competitive landscapes (i.e., amount of competition, type of competition, and intensity of competition) have influenced brand positioning: Levis is positioned as relatively expensive and prestigious in Russia yet positioned as more casual and relatively inexpensive in the United States. For Levi's, which adaptation strategy is likely most appropriate across its global markets? - product adaptation - straight extension - communication adaptation - dual adaptation

dual adaptation

price- price sensitivity high if

easily comparibility high in realtive sense reference price exist not needed as quality cue

perceived value

f((product)(place)(promotion)/(price)

break even volume

fixed cost/(price-variable cost)

All of the factors below affect why a company might customize prices EXCEPT: - nature of use - consumer tastes - intensity of use - fixed costs - competition

fixed costs

Company Beta has created a very strong brand, business model, and set of operational practices in their home country and would like to duplicate the formula in international markets. They are not interested in direct ownership of entities in international regions, but they want total control of their trade names, trademarks, marketing plans, quality standards, and training, through contractual relationships with other entities, and expect to receive upfront fees and future royalty payments for the bterm-44enefits they provide to these contracted entities.

franchising

The functional value of a product to a customer is BEST understood by understanding the product's - features - functional benefits - economic value to the customer - emotional value - minimum thresholds

functional benefits

New Balance offers a variety of types of shoes to its customers at various price points, typically in 3 basic tiers, based on the quality of the material and components of the shoe. This is an example of: - good/better/best strategy - observable buyer characteristics - controlling the availability of prices - pricing based on transaction characteristics

good/better/best strategy

To achieve the realizations described in the question above, companies should turn to expert "___________" from far-flung fields with a novel perspective on users, rather than rely solely on users themselves. - interpreters - Reddit users - bloggers - facilitators - teachers

interpreters

Hofstede's Cultural Dimensions

it s

Packaging

it serves dual purposes since it is both functional and promotional. When considering global markets, several factors come into play including: shipping, functionality, aesthetics, modifications/labeling, local customs, and other costs.

When calculating elasticity of demand (E), a relatively inelastic demand (0 < E < 1) indicates that: - any change in price is matched by an equal change in quantity - small changes in price cause large changes in quantity demanded - large changes in price cause small changes in quantity demanded

large changes in price cause small changes in quantity demanded

relatively inelastic 0<E<1

large changes in price cause small changes in quantity demanded

Which of the following is NOT one of the variables included a basic calculation of customer lifetime value? - a discount rate across a period of time - the period of time - retention probability during a period of time - market capitalization of the company over a period of time - profit or contribution margin during a period of time

market capitalization of the company over a period of time

product adaptation

modifying an existing product for greater appeal in different countries

Functional value pt 2

multi-attribute model= compensatory common in b2b not common in b2c

A customer's incentive to purchase is equal to: - product price minus cost of goods sold - true economic value (TEV) minus product price - true economic value (TEV) minus costs of goods sold - perceived value (PV) minus price

perceived value (PV) minus price

All of the following are price indicators of customer price sensitivity EXCEPT: - the existence of reference prices - performance as expected - high in a relative sense - easy comparability

performance as expected

Importance of price to Marketing Managers revenue Revenue

price charged to customers multiplied by the number of units sold

unit margin

price we sell at- cost to make/purchase

All of the following are inputs to any value-pricing analysis EXCEPT: - product price - costs of goods sold - true economic value - perceived value

product price

A customer is comparing two similar products online. One is made in the United States, one in a foreign country to her. She opts for the choice made in the United States, judging it to be better quality despite favorable online reviews for each. This instinctual bias is known as: - brand loyalty - corona effect - brand resonance - provenance paradox

provenance paradox

perfectly inelastic E=0

quantity does not respond at all to changes in price

total revenue

quantity sold(units)x price per unit

product price

set price because this is a perfectly competitive product market

constant variable cost per unit

slope

relatively elastic 0<E<00

small changes in price cause large changes in quantity demanded

setting the price based on buyer characteristics

softaware ventirs apply this pricing by offering a more attratctive upgrade deal to customers who purchased a recent version of that same software than to those who purchased an older version.

Buyer Price Sensitivityis high if

sophisticated, deliberative bearing costs able to switch easily not motivated by prestige

The group of customers who receive high value from customer experience and who provide high value to the company are referred to as - vulnerable customers - free riders - star customers - lost causes

star customers

manage the product-line offering aka +/good/better/best strategy

such that the offered assortment provides increasing functionally at an increasing price,

The article, "Designing Breakthrough Products," introduces a term to describe an approach to innovation that contrasts with conventional product development. The author suggests that if companies want to create breakthrough products, "they should seek to understand how those technologies could be used to address needs that customers may not realize they have." These realizations are termed: - technology epiphanies - technology intuitions - technology hints - technology perspectives

technology epiphanies

Product indicators of sensitivity to price include all of the following EXCEPT: - performance as expected - low differentiation of alternatives - the ability to switch easily - easy comparability

the ability to switch easily

COGS

the cost of goods sold; what you pay for what you sell

breakeven analysis

the process of determining the number of units a firm must sell to cover all costs fixed costs/

perceived value

the relationship between a product's or service's benefits and its cost

setting the price based on transaction characteristics

the timing of a purchase or the quantity of the item being purchased.

Profit

total revenue - total cost

percentage margin

unit profit / unit we sell at (revenue per unit)

total costs

unit variable costs x quantity produced (units) + total fixed costs

CLV (customer lifetime value)

using Margin Multiple, given constant contribution, retention rate, & discount rate

True Economic Value

value that a fully informed buyer would or should ascribe to the product

IKEA has a breakeven volume of 100,000 units for their new AGUNNARYD lamp. The variable cost per unit is $75 and the revenue per unit is $99.99. The fixed costs are: - $5,000,000 - $2,499,000 - $3,333,000 - $2,799,000

$2,499,000

Price elaticity of demand

% change in quantity demanded / % change in price

Net Promoter Score

% of promoters - % of detractors

%change in quantity demanded

(new quantity-old quantity)/ old quantity

adaptation/polycentric pricing

- Permits independent distributors to establish prices they feel are most desirable in their circumstances - Sensitive to market conditions but creates potential for gray marketing

The demand curve suggests that an auto manufacturer will sell 20,000 Mercedes-Benz M-Class vehicles when they are priced at $50,800, but when the price is reduced to $45,000, that quantity will increase to 27,000 units. What is the resulting elasticity? - -3.07 - 1.24 - -4.38 - 6.73

-3.07

Global Market Entry (easiest to hardest)

-Indirect Exporting -Licensing and direct export Contract manufacturing -Franchasing -Product Joint Ventures/Strategic Commercial Joint Venture Subsidiary Foreign Direct Investment

Placement (Distribution)

. A product must make its way from the producer to the final buyer by means of one or more channels, a process that can be quite simple in certain areas but incredibly complex in others. These choices typically go hand in hand with the decision on how to go global.

Churn Rate

00% - retention rate

From the article, "Darwin and the Demons," there are a number of different types of innovation describe from which leaders can choose to focus their resources. Match each of the types of innovations described below on the left with their correct term on the right. 1) Markets appear as if from nowhere, creating massive new sources of wealth. It tends to have its roots in technological discontinuities, such as the one that enabled Motorola's rise to prominence with the first generation of cell phones, or in fast-spreading fads like the collector card game Pokémon. 2) Takes existing technologies into new markets to serve new purposes, as when Tandem applied its fault-tolerant computers to the banking market to create ATMs and when OnStar took Global Positioning Systems into the automobile market for roadside assistance. 3) Takes established offers in established markets to the next level, as when Intel releases a new processor or Toyota a new car. The focus can be on performance increase (Titleist Pro V1 golf balls), cost reduction (HP inkjet printers), usability improvement (Palm handhelds), or any other product enhancement. 4) Makes processes for established offers in established markets more effective or efficient. Examples include Dell's streamlining of its PC supply chain and order fulfillment systems, Charles Schwab's migration to online trading, and Wal-Mart's refinement of vendor-managed inventory processes. 5) Makes surface modifications that improve customers' experience of established products or processes. These can take the form of delighters ("You've got mail!"), satisfiers (superior line management at Disneyland), or reassurers (package tracking from FedEx). 6) Improves customer-touching processes, be they marketing communications (use of the Web and trailers for viral marketing of The Lord of the Rings movie trilogy) or consumer transactions (Amazon's e-commerce mechanisms and eBay's online auctions). 7) Reframes an established value proposition to the customer or a company's established role in the value chain or both. Examples include chestnuts like Gillette's move from razors to razor blades, IBM's shift to on-demand computing, and Apple's expansion into consumer retailing. 8) Capitalizes on disruption to restructure industry relationships. Innovators like Fidelity and Citigroup, for example, have used the deregulation of financial services to offer broader arrays of products and services to consumers under one umbrella. Nearly overnight, those companies became sophisticated competitors to old-guard banks and insurance companies.

1) Disruptive Innovation 2) Application Innovation 3) Product Innovation 4) Process Innovation 5) Experiential Innovation 6) Marketing Innovation 7) Business Model Innovation 8) Structural Innovation

We've mentioned Peloton previously and it's interesting to consider the ways in which they attempt or could attempt to provide value for various customer segments. For each aspect of their marketing program listed below on the left, identify the most salient type of customer value from the choices on the right. 1) Value calculator on the Peloton website to help you determine how much you could save on Peloton equipment/subscription over a gym membership 2) Resistance knob that will automatically adjust based on the instructor's recommended resistance during a class 3) Leaderboard to work alongside other members 4) Sleek modern design that mimics the look of cool racing cycles 5) Peloton branded apparel 6)Workout alongside others with a list of other users in class with you and the ability to text chat 7) Financing plans to spread out payments over 12, 24, or 36 months 8) Over 1000 classes across many exercise categories not tied to just the equipment you purchase

1) Economic value 2) Functional Value 3) Social Value 4) Experiential Value 5) Experiential Value 6) Social Value 7) Economic Value 8) Functional Value

customer development growth strategies

1) Increasing share of wallet 2) cross-selling and upselling 3) redefining the business

Based on your understanding of Blue Ocean Strategy, select either "Red Ocean" or "Blue Ocean" for each of the companies listed below. The companies are selected based on how they first emerged into the marketplace, so you may need to look-up their history if you are not familiar with their origin story. And, of course, this designation is a bit subjective, based on the intent of the organization and based on interpretation of the marketplace they entered. The question below allows you to provide justification for your choices, if you desire. 1) Microsterm-27oft XBOX 2) Nintendo Wii 3) Peloton 4) L.A. Fitness 5) Starbucks 6) Mike's Jersey Subs 7) Apple iPod + Music 8) Sirius XM 9) Uber 10) Austin Cab Company 11) AirBnB 12) aloft Hotels by W

1) Red Ocean 2) Blue Ocean 3) Blue Ocean 4) Red Ocean 5) Blue Ocean 6) Red Ocean 7) Blue Ocean 8) Red Ocean 9) Blue Ocean 10) Red Ocean 11) Blue Ocean 12) Red Ocean

Determine whether each of these costs are fixed or variable. 1) Factory labor 2) Accountant Salaries 3) Manufacturing Equipment 4) Sales Commissions 5) Utilities 6) Office Computers 7) Materials

1) VC 2) FC 3) FC 4) VC 5) FC 6) FC 7) VC

The process by which a firm understands the needs of its customers through market research is described as market-driven ; by contrast, the process by which a firm creates its own products based on its own vision of the future is described as market-driving

1) market-driven 2) market-driving

Customer value has two sides: capturing value through customer _____ and delivering value through customer ______

1) profitability 2) experience

Customer _____ is the percentage of customers who stay with a company in a given period, while customer ______ is the percentage of customers who leave a company within a given period of time.

1) retention rate 2) churn rate

Value-Oriented Pricing- important points

1. Within the range between TEV & COGS, the price that is set will determine the firm's & potential buyer's relative incentives to make the sale happen 2. Value will likely vary across customer segments 3. Pricing must work in concert with the other Ps (product, place, & promotion)

5 Customer Acquisition Strategies

1. increase market size 2. increase marketing investment 3. increase effectiveness of acquisition programs 4. offer discounts and incentives 5. generate positive word of mouth

Product- price sensitivity is high if

1. low differentiation of alternatives 2. easily comparability 3.Will perform as expected 4. not mission-critical

value-oriented pricing

2 Key Element s 1. a value orientation: a focus on the economic value created by an organization's product for a given customer 2. set of processes to capture a portion of that value for the firm

Which of the answer choices correctly ranks, from lowest risk to highest risk, the following methods of foreign market entry? 1. Foreign direct Investment 2. Franchising 3. Indirect export 4. Product joint venture

3,2,4,1

If a brand is truly global, which of the following brand variables is typically the same across geographies? (A) Positioning (B) Product name and features (C) Promotion

A, B, and C

Which of the following statements about economic value to the customers (EVC) is FALSE? (note, we could also call this total economic value or TEC - same thing) - EVC is the maximum price that a customer should be willing to pay for a product. - When comparing two products, it is important to compare them on the same time frame - A firm generally charges less than EVC in order to provide some incentive to the customer to switch - EVC is calculated as the total life cycle cost or cost of ownership over the entire life of the product - Any two customers will derive the same EVC for the same product.

Any two customers will derive the same EVC for the same product

Marketers often use which of the following techniques to determine the impact of a price on volume required to reach profitability? - Price Elasticity - Competitive Analysis - Assessing Perceived Value - Breakeven Analysis

Breakeven Analysis

Which method for building experiential value is most likely to have the most variability for consumer-based service organizations such as hotels and restaurants? - Branding - Functions - Design - Features - Customer Service

Customer Service

Framework Linking Marketing Actions to Lifetime Value & Company Value

Financial Value: Firm value Customer Profitability:Lifetime Value Drivers of Customer Value: Customer Acquisition, Customer Retention, Customer Development Firming Actions: Marketing Programs

Company Gamma is interested in entering a foreign market by wholly acquiring a business entity that is already operating in the region and they are willing to commit significant resources and take on all of the associated risk so that they can have total control over the operations and benefit fully from the profits produced.

Foreign Direct Investment

U10 Vulnerable customers(two sides of customer value)

High Customer profitability, Low customer experience

U10 Star customers

High customer profitability, high customer experience

Company Delta would like to enter an international market, but they want to only take on the least amount of risk and commitment the fewest amount of resources.

InDirect Investment

Which of the following choices is NOT one of the reasons cost-plus pricing is so popular? - It is easy to justify to various stakeholders. - It simplifies an otherwise complex pricing process. - It captures the full price that customers might be willing to pay for a product. - It is easy to measure or estimate.

It captures the full price that customers might be willing to pay for a product.

Company Alpha is interested in making a significant investment of resources in an international region by partnering with a local company in that region, so that they may learn about the new market and share the risk of ownership, including financial and political risk. Licensing, Contract Manufacturing, Direct Export

Joint venture

Experiential Value

Less tangible features and benefits that often have psychological &/or emotional benefits for customers •Branding•Design•Customer Experience•Customer Service

U10 Free riders

Low Customer profitability, High Customer Experience

U10(Lost causes)

Low customer profitability, Low customer experience