marketing exam 2

greater

"Elastic" demand occurs when the percent change in quantity is __________ than the percent change in price- e.g., if quantity declines by 2% when price is increased by 1%, price elasticity would be -2, which is "elastic."

less

"Inelastic" demand occurs when the percent change in quantity is _______ than the percent change in price - e.g., if quantity declines by 0.5% when price is increased by 1%, price elasticity would be -0.5, which is "inelastic."

pure competition

"Wheat Prices Fall As Plantings Rise"; You can't affect prices. Price Taker. If you planted more wheat because high price last year, supply goes up and prices come down. What kind of competition is this?

loss leader; additional; cherry pickers

A "______ ________" is a product that that a retailer sells for below cost that is expected to be noticed by grocery shoppers to the point that it gets them in the store (e.g., diapers). If they do __________ shopping for other items, the profits on those other items outweigh the loss on the loss leader. However, there are some consumers who are "________ ________." They purchase only items on deep sale and do not buy other merchandise at normal price. If you have a lot of cherry pickers, running loss leaders is a horrible money-losing idea.

wholesaler; retailer; titel

A ________ sells to another intermediary, and a ________ sells to the end consumer; both take _______

units; price; cost

A break even analysis figures out how many ________ we would have to sell at a particular _______ and ______ structure to break even. Put differently, we start in the hole for our fixed costs. How many units do we have to produce to exactly cover our fixed costs?

oligopoly

A handful of sellers who are sensitive to each other prices. e.g., airlines. When one firm drops prices, others tend to follow because differentiation is slight. The less differentiation, the more the likely competitive response to any firm's actions. What kind of competition is this?

Internal reference price

A mentally stored price or price impression generated that is used to evaluate encountered prices such that prices about the IRP are evaluated unfavorably and prices below it favorably. The exact same offered price can be coded as a good deal or a bad deal depending on the IRP. Donnie's example was of purchases of Gatorade and of purchases of Newton Running Shoes. Depending on what he thought was the "real normal" price, the discount price looked like a good deal or a bad deal

intermediary; consumer

A wholesaler sells to another __________, and a retailer sells to the end __________

affordable; fighter; cannibalizing; equity; image

Another trap is to deal with increased cost to manufacture your brand by creating a more __________ but lower quality "________ brand" (see p. 3 of the article) This can backfire if people just buy the cheap brand instead. Then you will be ____________ sales of your (presumably higher margin) regular brand when people buy the fighter brand. The other risk is that they don't like the fighter brand and it diminishes the brand _________ and _______ of your overall brand

margin; quantity; fixed costs; price; variable costs

Another way to think of profit is: _______ x _______ - ________ _______. "Margin" = ______ - ______ _____. If it costs you $0.50 per hamburger for ingredients and you sell it for $1.25, Margin = $0.75. If you start a new hamburger stand and buy a food truck for $50 K and pay someone $30 K to run it, your fixed costs are $80K. Now suppose you sell 400,000 hamburgers per year, your profit would be: $0.75 x 400,000 - $80,000 = $300,000 - $80,000 = $220,000 per year.

decline

At the _______ stage of the product life cycle, competitors start to thin out and you crank back dramatically on marketing spending

growth

At the ________ stage of the product life cycle, the category starts to become profitable and attracts new competition

introductory

At the __________ stage of the product life cycle, there are very few competitors and the focus is on creating primary demand

maturity; uses; users

At the ___________ stage of the product life cycle, the category is a bit cursed with product proliferation, the most competitors of any stage. To avoid having this become a big zero sum game, you have to find new ____ for your product and new ____

10

Be able to do percent change in quantity example on second page of takeaway __

associations; favorable; strong; unique; parity; difference

Brand definition defined by the set of _____________ discussed in class under "Brand Knowledge Structures." Strong brands have associations that are a) ________, b) ________, c) _______. We talked again about points of __________ and points of __________ among the associates of a brand. Brand personality is one type of brand association

revenues; private label; quantity; higher

Brand equity generally refers to excess __________ for a branded product compared to a _______ ________ with the same characteristics. That excess revenue may come from selling more _________ than the competitors at the same price, or from selling the same quantity as competitors but at a ________ price (or the combo). Brands have financial value, as reflected in the Interbrand brand rankings.

upstream

But if there are no restrictions, a company has a fundamental decision of whether to make or buy from an ____________ channel partner. For instance, major retailers may choose to manufacture their own private label brands rather than buying them from a food and beverage producer.

channel conflict; independent; manufacturers; dual distribution

Channel members act in their own self-interest, and this produces "________ ________" between channel members. The fact that _____________ retailers set higher prices than _______________ which illustrates the general principle that independent channel members act in their own self interests, which sometimes collide with the interests of their channel partners. Channel conflict can also arise from "________ __________" (Gillette shave club case). P&G has tremendous channel power due to popularity of Tide etc., creating conflict with Wal-Mart who wants them to lower prices. P&G wouldn't budge, so Wal-Mart struck a deal with the most popular European brand, Persil, for exclusive distribution in Wal-Mart

menu costs; online; store

Cost of changing prices and how long prices will prevail: (Sometimes called "__________") By now pretty easy to change prices ________. Harder in physical ________.

fall; model; low

Demand for product class: If demand for product class _____, it is hard for me to price high for my specific ______; Fluctuations in product class demand affect my product more if I have _____ differentiation.

inelastic; elastic

Distinguish the issue of elasticity of demand for the product class versus elasticity of demand for your brand. Demand for gasoline may be price __________: you don't drive a lot more lately just because gas prices are much lower than a couple of years ago, and when prices were high, you couldn't readily switch to modes of transport besides cars. But at the same time, demand for a specific brand of gasoline may be highly price _________, because different brands are perceived as close substitutes.

elasticity; margin

EDLP requires extreme price __________ for the change in regular price to generate enough extra quantity to outweigh the loss in ________ on "regular price" sales.

vigilant; deal; promotions

Empirical research shows that most consumers are not price _______ and can't tell you the price of something they just put in their shopping cart. But most people still have a sense of whether something is a good ______. ___________ are one signal that people use to see that they got a good deal.

quantity; prices; varying; customer; DVD

Figure 13-5 A. Movement along a demand curve: How _________ declines when ________ increase. Can estimate by __________ prices to different ________ groups chosen at random. Example Amazon ______ pricing experiments

right; left; raise; quantity

Figure 13-5 B. Shift of the demand curve. This happens when market conditions become more favorable (shift to _______) or less favorable (shift to ______). E.g., competitors ________ prices, so now higher _______ of us demanded at same price we were charging before.

positive; revenue

Figure 13-7 (with Donnie's altered numbers). Newsweek example. Marginal Revenue is _______ until a quantity of 4.5 when it become 0, so that's the place where Total ________ is maximized.

BEP; margin

Fixed Costs = _____ Quantity x Unit ______ (know examples of this from takeaway 10)

market share

Focus on how we are doing relative to competition; Common for consumer packaged goods

class, newness, single, line, producing, marketing, changing, prevail, competitive

Identifying constraints on pricing: demand for product ______, _________ of the product, _______ product versus product ________, cost of _________ and __________ a product, cost of ________ prices and how long prices will _______, type of ________ market

revenue

If marginal revenue is negative, a wise seller will not produce an additional unit because it just reduces the seller's total __________

substitutes; good; differentiated

In general, demand is elastic when there are readily available ____________ (smoothie example) and inelastic when there are not ______ substitutes in the consumer's eyes (sunglasses at beach resort example). Donnie noted at the end of session 9 that a ___________ brand (e.g., Horizon Organic Milk) may be facing inelastic demand when a generic competitor is facing elastic demand .

up; down

In pure competition, when supply goes _____ and prices come ______

0; 0

In session 10, Donnie revisited a figure showing demand and marginal revenue, noting that obviously you don't want to produce more when marginal revenue falls below ___. But you don't want to produce to the point that marginal revenue = ____ unless marginal cost is 0, which almost never happens

alternatives; disintermediation; fulfillment; disintermediate

In the Interactive Home Shopping article, we analyzed how the creation of those types of utility differs for online shopping versus catalogs and various kinds of brick and mortar store formats. Retailers provide alternatives for consideration, scree alternatives to help consumers form their "consideration sets", they provide key information to help consumers select from their consideration sets, they lower transaction costs of ordering and fulfillment, and provide other benefits. The article concludes that a major advantage of online shopping is the ability to provide very large numbers of _____________, to help the consumer screen alternatives in line with their preferences, and to provide deeper information for making a choice. The article also analyzed whether the online channel was likely to produce extensive "_____________", where firms sell directly to consumers, bypassing retailers. The conclusion was that this would be relatively rare for large brands, because manufacturers and consumers need many of the services provided by the retailer. Only if the online channel could offer those benefits in another way was disintermediation likely. For example, if ____________ costs are a small part of overall costs - e.g., in selling software to consumers - would disintermediation be likely. We argued that for brands with good store distribution, strong brands (e.g., Levis) would be more likely to ________________ than weak brands (e.g., Savane). On the other hand, small brands that now have poor distribution and shelf space have more incentive to disintermediate to have a chance to be considered. This played out in Amazon Marketplace and other pure-play ecommerce

upstream

In the assigned article Companies More Prone to Go Vertical, we saw that companies may choose not to do this if they want to stick with their "core competencies." But the article laid out the case that firms like steelmaker Arcelor, Pepsi, GM, and Boeing might buy ____________ suppliers to have more control over raw materials, to have more authority over distribution, or to assure quality and quantity of vital supplies.

promotion; spike; incremental; buy

It is common to offer temporary price __________ on a consumer packaged good and for sales to _______ with that price discount. The question is how many of those sales are _________. You want the discount to pull in people who would normally not ______. But often you just get deal prone consumers in your current franchise to stock up and buy at a low price something they would have otherwise bought at a regular price. Evaluate the success of a promotion by incremental profit both in the weeks of a promotion and thereafter. See top of p.5 of the article

long-run; Amazon; Rolling Stones

Managing ___________ profits: Example 1. ____________ which plows profits back into the business, showing break even performance for long periods of time with goal of building market share. Example 2. _____________ ticket concert ticket pricing in the 80s (!!). Concert tickets priced low. Scalpers buy them and mark them up. Stones at time got most revenue from record sales, so did not want to risk alienating fans with jacked up ticket prices. Completely changed in current music industry where tour generate large part of profits

target return; assets; higher

Managing for ________ ________: Many fortune 500 companies use this objective, to allow ________ of the firm to be allocated to projects that get ______ rates of return.

current; rental markets; renters; alternatives; tightened; apartment complexes; entry

Managing for ________ profits: This was illustrated by three articles about the Boulder / Denver _______ ________from 2009 to 2015. In 2009, supply of apartments was plentiful, and ________ had the upper hand. Owners flexibly negotiated prices. With high fixed costs and low variable costs, it was better to rent for something than to leave a unit vacant. Owners did not simply lower rents, so renters who did not search and find ___________ paid regular prices. By 2011, supply had __________. In this environment, the _________ __________ had pricing power and raised prices and therefore profits. When profits increased, this invited new _______ and the building of new apartment complexes, as seen in the 2015 article as well.

monopolistic competition

Many sellers who sell on non-price factors - e.g., based on brand equity. Iron Man Triathlon sells out, when the same course by a different promoter does not. Apple name makes people willing to pay more. What kind of competition is this?

merchant; functional

Middlemen who take title are called "___________" middlemen. Middlemen who do not take title are called "____________" middlemen. We saw the distinctions in the class discussion of Alibaba (a Chinese blend of Amazon, eBay, Pay Pal and Google). Whereas Amazon actually takes title to (some of) its merchandise, Alibaba gets paid for advertising and other services to help sellers make their merchandise stand out. In the Amazon Rising video, we saw that Amazon actually takes title, and constantly pressures its sellers to lower prices to get good display position. This played out in the assigned article "US Sues Apple, Publishers over E-Book Pricing." (know rest of example)

life cycle; high; substitutes

Newness of the Product: Stage of Product _____ _______; In introductory and growth stages, there is more ability to price ______. In maturity stage of life cycle there are many _________ and so it is hard to price high.

unit volume

Number of units sold (sometimes comes into play when one is worrying about break even volume)

consideration set; loyalty; margins; elasticity; communications; brand extension

On the consumer side, a brand helps get the product into the consumer's "__________ ______" and engenders customer ________ so they aren't looking around for alternatives. That makes a strong brand relatively immune to competitors marketing actions or their own marketing crises (think Toyota unintended acceleration crisis). Strong brands command larger _________ with less price _________ of demand. Moreover, channels of distribution are favorable; retailers want to carry and support strong brands because it is in their interest to do so. Moreover, strong brands have more efficient spending for marketing _______________. Finally, strong brands produce licensing and "_________ _________" opportunities.

Acquisition; transaction

One of the most important ideas in behavioral pricing is the distinction between "transaction" and "acquisition" utility. ______________ utility is the standard economic concept of a comparison of (Inherent need satisfying aspects of purchase - price). __________ utility is a comparison of (Internal Reference Price - Price)

bundling

One strategy for changing the Internal Reference Price not listed below in this takeaways document is "__________." Instead of selling items a la carte, bundle items into a premium package. See his example of the Delta Smart Travel Pack. He also discussed spa experiences

customer; incremental; incremental

Percentage of sales with a discount and coupon redemption rates do not measure success. _________ retention, _____________ sales, and _____________ profit are much better measures, even tougher to assess

elasticity; quantity; negative

Price ________ is defined as: % change in quantity / % change in price. Because raising price lowers ________ and vice versa, price elasticity is (almost) always __________. (Although sometimes writers will leave off the negative sign.)

long-run, current, target, sales, market, unit, survival, social, status quo

Pricing objectives: managing ____ ____ profits, managing for ________ profits, managing for ______ return, _____ objectives, _____ share, ____ volume, ________, _______ responsibility pricing, ______ _____

high; make; sell; low; high; incremental

Products that are ______ variable cost are bad for Groupon, because (in case of bakery example), it costs you more to ______ the product than the price you ____ it for. Donnie and the article noted that products that have _____ variable costs and _____ fixed costs are a better fit... for example, a hair salon with excess capacity is paying employees independent of quantity. So if Groupon leads to some incremental sales, that fill up that unused capacity, that's _____________ profit.

demand; cost; profit; competition

Prof. Lichtenstein opened with the figure from the text that discusses four approaches: ________ oriented (figuring out what the market will bear, as in selling a house), _____ oriented (typically cost -plus with some fixed percentage markup), ______-oriented (get target profit, or return on sales, or return on investment), and ________ -oriented approaches

maximized

Profit is __________ at a price and quantity level such that MR = MC

up; down; inelastic demand; substitutes; pricing power; revenue; quantity; patents; elastic; loyalty; inertia; payer; rebates; substitutes

Pure Monopoly: (For Prescription Drug Makers, Price Increases Drive Revenue). When prices go ___, quantity demanded goes ______. So much that Total Revenue (Quantity x Price) goes down, or does it actually go up because the higher price outweighs the small loss in quantity. When raising prices actually increases total revenue, this is the definition of "_______ ________." With monopolies, there is lack of ____________, and this results in "________ _________" documented in the article. Increasing prices increases total _________, rather than causing declines in ________ that are so steep that total revenue goes down. The article discusses how __________ create monopolies. When a drug comes off-patent, now generic substitutes come into market and demand becomes more ________ because of existence of substitutes. Even when a drug comes off patent, they still may retain some pricing power due to customer ________, _______, and 3rd party ______ systems where the customer gains little from choosing the cheaper generic. A patented drug can still have substitutes, and the __________ that drug companies give to insurance companies are steeper if there is some other patented drug that is a close __________.

quantity; price; marginal revenue; high; negative

Sales Revenue estimation (Figure 13-6). Total Revenue = _________ x _______; _________________ = change in revenue with selling 1 additional unit; Donnie showed you how, for a particular demand curve, marginal revenue may start ______ with low quantities, and at higher quantities becomes _________. In his example Total Revenue was maximized at a quantity of 6. Marginal revenue becomes negative at quantities higher than 6 in the example.

sensitive; discriminate

Say you use a coupon as a way to give a price discount. Only price ___________ consumers will search for those, and hence you can price ___________ between a price sensitive segment that will use the coupon and the rest of the market that will pay full price. See p. 2 of the article

downstream

Similarly, in ______________ vertical integration, a company can choose to sell through independent retailers or franchisees who take title to merchandise or to set up their own company-owned stores, like Polo and Ralph Lauren having their own stores. When companies both sell direct and through retailers this can cause channel conflict, as we saw in our discussion of Gillette's "dual distribution" via its Shave Club.

cannibalization; profits

Single product versus product line: In product line pricing, you have to worry about _____________. A new product that looks successful as a stand-alone but that cannibalizes another higher margin product may not improve _________

survival

Sometimes when you can't make money on a customer, you accept a price that covers variable costs even if it will not cover fixed costs

decoy effect

Suppose that you offer a high priced, higher value option A (Online Plus Print Economist for $125) and a low priced, lower value option B (Online Only Economist Access for $59). Consumers have conflict, because they aren't entirely sure of the price versus value tradeoff. By adding a third option (A-) to the set that is a clearly inferior version of the high priced, high value option (Print Only Economist Subscription for $125), consumers now see a clear comparison that favors A over A-. That makes them more likely to choose option A than if you did not have A-. This is an example of the _______________

consideration; precedent; direct; double marginalization

Tesla's model was to provide show-rooms in high traffic shopping areas to get to consumers before they had firmed up their ______________ sets. Tesla specialists were there to provide information. Service would be provided not at your local dealership, but at a central service centers. Dealer networks for other brands sued Tesla and used their local political power to persuade politicians to create new regulations banning the model. Many states have laws requiring franchise dealerships and banning direct sales to from manufacturers to consumers. Dealers were not worried about Tesla but about the _____________ if Ford were now allowed to sell direct and compete with the local Ford dealer (See discussion later about channel conflict with dual distribution systems.) They also worried that some new very low cost Indian or Chinese firm were to enter the market using _________ channel. Dealers argued in court that dealerships stand as consumer advocates in disputes with manufacturers such as the GM ignition switch crisis. Further, they argued that prices are lower with independent dealers because of competition among dealers. We'll see later in session 12 that the latter claim is untrue. Dealers will always cause higher prices via "_____________ ______________."

camouflaging; notice; ripped

The article (How companies can get smart about raising prices) warned against _________ a price increase, as for example by slightly decreasing the weight or volume of a package whose price and pack size appear constant. Most people won't _______, but those who do will feel _______ off and you can expose yourself to lawsuit.

fair; increases; bear

The exact same price increase can be seen as either okay or a ripoff depending on whether consumers think it is "_____." Economists would say that consumers should simply evaluate the Acquisition Utility at the new, higher price, and purchase if there is positive Acquisition Utility. But if a price increase is unfair, they heavily anchor on what they think is the "fair" price. Donnie explained that because of this, consumers are much less likely to abandon you when you raise your prices if the price increase is based on cost _________ from the producer than if they are just based on what the market will ______. Donnie pointed out that in some markets, consumers understand and accept market principles. It is not considered unfair to sell your house for what comparable houses are going for, even though you bought it for hundreds of thousands less. But in other categories, the "fairness" mindset strongly affects Internal Reference Prices.

categories; brands; introductory; growth; maturity; decline

The product life cycle is generally applied at the level of __________ of products (e.g., faxes, smart phones, soft drinks) rather than at the level of _______. Every innovation has a diffusion curve that shows an ____________ stage (electric cars example), a ________ stage (Cuties), a _________ stage (coffee), and a ________ stage (greeting cards and arguably Coke in the reading Coke Sticks to Its Strategy). Moreover, competition is quite different at each stage.

wholesale price; direct; double marginalization; manufacturer; independent

Then we looked at how things would change if they had the same cost structure but sold at a "_________ _________" to a monopolist retailer, who in turn set its own profit maximizing retail price. We saw that the retailer would set a price to a consumer that was higher than the "______" price of the manufacturer selling direct to consumers. That increase in price due to markup needs from the intermediary is called "_________ ______________." This refutes a key argument of the dealers associations in the Tesla case. Moreover, because price is higher, quantity sold is lower. Finally, and interestingly, total channel profits are higher for the direct case (____________ profits alone) than when selling through an ____________ retailer. In the latter case, Total Channel Profits = (Manufacturer Profits + Retailer Profits)

fixed, variable

Total costs = _____ costs + _______ costs

loss leaders; cherry pickers; cannibalize

US Toy got stung by selling "____________" via Groupon in hopes that consumers would come to their stores and buy other stuff. But they came in and bought only the loss leader item. It is a common experience. Groupon basically attracts _____________. If they are current customers, the Groupon sales just _____________ sales that might otherwise have been made at higher prices.

wholesalers; retailers; consumers; inefficient; bypassed

Very much like the car industry, many states require middlemen in the process, in what is called a "three tier" system where wine, beer, and alcohol producers sell to ____________ who in turn sell to ____________ who in turn sell to _____________. There were reasons for these laws when they are passed (we discussed an article "Big Beer a Moral Market"). But at this point they are propping up ___________ channel partners who could be easily _____________ with benefits to end consumers.

fixed costs, variable costs, total costs, marginal cost

What are the 4 types of costs?

down; up; 1; old; new

When demand is "elastic", total revenue goes ______ when you raise the price. When demand is "inelastic", total revenue goes ____ when you raise the price. If elasticity was exactly __ (neither elastic nor inelastic) total revenue would be the same at ___ and ____ prices.

increase; declines

With elastic portion of a demand curve (left side of 13-7B with high prices, when you lower your prices, you actually ________ revenue. In the inelastic portion of a demand curve (right side of 13-7B) with low prices if you lower your prices further, total revenue __________.

positive; revenue; costs

You don't keep producing quantity as long as marginal revenue is ___________. The key is that marginal _________ has to be more than marginal _______.

transaction utility

You don't want a pricing policy that leads deal prone consumers to simply stock up at cheaper price on a product they would have bought otherwise at a regular price. They key is that deal prone consumers are highly sensitive to "___________ __________."

soft drinks; cigarettes, tuition

You should be able to answer questions about Donnie's examples of price elasticity of demand for ______ ______, ________ and for CU ________.

FIxed

_______ Costs are costs we incur even when producing 0 units. They are also thought of as costs that do not change with how many units you produce.

agents; brokers

_______ or _______ facilitate a sale on behalf of the manufacturer but do not take title to the merchandise

agents; brokers

_______ or _______ facilitate a sale on behalf of the manufacturer but do not take title to the merchandise.

price skimming; high; reduce; lower; quantity; positive; barriers

________ ________ involves changing prices over time. Start out selling at a ______ price and therefore having low quantity but high margin. Then in later periods, _______ the price to sell to people who did not already buy at the higher price. Margins are _______ than for the first set, but we pick up additional _________. Continue reducing price in subsequent periods until you get to the point that sales are not generating _________ margin. This is really price discrimination over time. Donnie noted that it works when you aren't giving up scale economies by selling lots more initially, as you would do if you set a single price in Figure 13-7. More importantly, there must be _________ to competition. You don't want to sell only to customers willing to pay a very high initial price, only to have a competitor swoop in to clean up the rest of the market.

vertical integration; downstream;

________ ___________ - Should the entities performing different channel functions be separate entities or owned by the same firm? One way that independent channel members are disintermediated is when one firm buys or takes over the functions of a ____________ partner. The Tesla case provides one illustration. Sometimes there are legal restrictions on doing so, as we saw with the protectionist auto and alcohol industries.

bread; medicines

________ would be an elastic commodity while some ________ would be inelastic

Disintermediation

_________________ occurs when one channel member bypasses another, most typically manufacturers bypassing wholesalers to sell to retailers or bypassing retailers to sell to consumers. This will happen to channel members who don't create value. Read more about in takeaway 13

marketing channels

__________________ refer to the path from original manufacturer to end consumer or to end B-to-B customer. This is also thought to be about the "Place" P of the 4 Ps. For example, if a manufacturer sells to a retailer, who in turn sells to a consumer, the retailer is the "place" of the transaction (where?) as well as the "how" of purchase.

marginal costs

change in total cost that results from producing 1 more unit of quantity: the slope of the total cost curve in Figure 13-9B. It is the counterpart to "marginal revenue" which is the increase in revenue from selling 1 more unit

variable

costs that change with how many units you produce

pure competition, monopolistic competition, oligopoly, pure monopoly

name 4 types of competitive markets

relative

price perceptions are __________

sales objective

sell a certain amount in coming year

status quo

when you charge the going price in the industry