Marketing Unit 4
print to the 1960's, American business culture believed in the legal concept....
"let the buyer beware"
Which of the following is not an advantage of expanding the product line?
Guaranteed market share
the Lanham Act (1946) provided for the registration of a company's trademarks
Historically, the first user had the exclusive right to use the particular word, name or symbol in its business consumers benefit from trademarks because they allow them to correctly identify products they want to purchase
Which set of goods most closely relates to the phrase "payment after/during consumption?"
Houses and automobiles
What kind of pricing strategy is used to drive out competitors from a market by undercutting them?
Predatory
The mechanism by which a firm captures value is
Price
What is it called when a seller sells identical goods to different consumers at different prices?
Price discrimination
What is it called when competitors collude to raise prices?
Price fixing
This pricing strategy gets at the real value of the product to consumers
Price gauging
What is the percentage change in quantity demanded that occurs in response to percentage change in price at a given point?
Price sensitivity analysis
Sale signs are an example of...
Pricing cues
economic theory - topics to consider
companies care about costs break even analysis consumers price elasticity of depend
we want consumers to ...
consume products they have already purchased
be heard
consumer should have access to public policy makers to make complaints about offerings
tying
consumers required to buy something they do not want as a condition of buying something they dot want illegal in the US
price too high and ...
consumers won't buy
ethics codes typically address
contributions to government officials and political parties relations with customers and suppliers conflicts of interest accurate record keeping
the sunk cost effect
cost drives consumption - we use products we already paid for to avoid feeling that we wasted money consumption is driven by the perceived costs and not to be what was actually paid
how do companies set prices?
cost plus price gauging see what competitors are doing consider legal environment
factors in the economics of pricing in regard to the company
costs breakevent
disadvantages of penetration
created long term price expectations, may upset consumers who eventually pay higher price
consumers rely on ...
cues that indicate whether the price is a good deal or not
breakeven analysis
determine how many units must be sold at a given price to cover fixed costs how many units will give us 0 profit
variable/marginal costs
directly related to quantity
Because of trust issues and the overuse of permission marketing, many consumers create ....
dump accounts
the Clayton act (1914)
forbids certain actions that are likely to lessen competition, although no actual harm has yet occurred
mixed gains
integration is preferred (cancel small losses with large gains)
multiple losses
integration of losses preferred
price gauging
see what consumers are willing to pay . it gets at the real value of the product to consumers but they don't like it
mixed losses
segration (every cloud has a silver lining)
alternative to government regulation
self-regulation
see what competitors are doing
usually this is a bad idea b/c it assumes your products, customers and costs are similar
price fixing
viewed as per se illegal
The left-digit effect is best show in which price?
4.99
Which of the following is not an example of a bundle?
Bananas and strawberries
calculating elasticity
%change in quantity / % change in price
recent changes in trademark regulations and rulings
- US Supreme Court held that company may obtain trademarks for colors associated with their products - Consumers associate a particular color with a specific brand over time
regulation exists to protect
- companies to ensure competition and fair business practices - consumers to protect against unfair trade practices and ensure safety
the FTC Act has the power to
- issue, cease or desist orders - can order a company to stop practices it considers unfair - order corrective advertising, which means that it can require a company to spend money on advertising to correct previously misleading ads
3 problems with self regulation
- non-compliance members - enforcement - may violate the robinson-patman act is self regulation attempts are too strong
standards often ...
- reflect laws and regulations - affect social and economic behavior - can create ethical dilemmas
business culture affects ethical conduct in 2 ways
1. in the exchange relationship between sellers and buyers 2. in the competitive behavior among sellers
there are at least 4 possible reasons the stat of perceived business ethical conduct is at its present level
1. increased pressure on business people to make dicisions in a society characterized by diverse value systems 2. growing tendency for business decisions to be judged publicly by groups with different values/interests 3. the publics' expectations of ethical business behavior has increased 4. ethical business conduct may have declined
mental accounting properties (3)
1. the assignment of activities to specific accounts 2. the frequency with which accounts are evaluated affects our decisions 3. gifts are different from products we purchase
Both company and consumer protection
1. trademarks are intended to protect both firm selling trademarked product and consumer buying it 2. the Lanham Act (1946) provided for the registration of a company's trademarks 3. in 2003, the US agreed to participate in the Madrid Protocol 4. recent changes 5. the federal dilution act (1995) 6. the Gramm-Leach Bliley Act of 1999
research on catalog pricing shows sale signs can increase demand by more than ________% even without carrying the prices
50%
_____% of US companies have an ethics code _____% of large companies have a corporate ethics officer
86 25
What is a loss leader?
A product sold at a loss to attract customers to another item
Signpost items depend on...
A well-known benchmark price of that good
Which relationship describes buyers' behavior
As price decreases, quantity demanded increases
Which of the following describes businesses' behavior?
As price decreases, quantity demanded increases and as price increases, quantity demanded decreases.
Why do managers prefer for their consumers to use the good they purchase rather than not use it and just purchase it?
Because consumption will lead to renewals and more publicity
One property of mental accounting has to do with the frequency of which specific accounts are evaluated. Which phrase best reflects this property?
Behavior is altered by our current position and not our overall lifetime position
Best known self regulatory group
Better Business Bureau (BBB)
When companies offer several products for sales as one combined product the pricing strategy is called
Bundling
According to mental accounting, most people will buy something they need with (a) __________ and something they want for fun with (a) __________.
Cash; gift card
As price gets __________ elasticity gets __________.
Cheaper; smaller
When pricing a product line, one product can be more expensive than another when they are
Complements
What is an additional advantage to consumption according to class material?
Consumption helps establish high switching costs
Adding a mark-up on your own cost is called
Cost plus
How do cash transactions differ from credit transactions?
Credit card transactions mask the price more than cash transactions
When there is a price decreases and the demand is inelastic, total revenue will
Decrease
father of mental accounting
Dick Thaler
the __________ requires a company to follow its police or face severe penalties, even if the company is not required by the Gramm-Leach Bliley Act to have a privacy policy
FTC
Overstock.com was found guilty of doing what?
Falsely advertising list prices
Which pricing strategy involves giving basic products for free but charging a premium for advanced features?
Freemium
When companies price their products, sunk costs should be
Ignored
Paying for utilities, such as the lights in a factory, is considered a
Incremental fixed cost
If the price of a good increases and there is a small change in demand for that good, it can be said that the demand is
Inelastic
Fill in the blanks: In mixed gains __________ is preferred, while __________ is preferred for mixed losses.
Integration; segregation
Why do most people prefer to use mental accounting even though it results in them paying more in some situations?
It makes them feel more financially safe
What is a disadvantage of using sale signs?
It may hurt the reputation of the seller if the good isn't truly discounted
in 1962, _______ outlined a consumer bill of rights that codified the ethics of exchange between buyers and sellers which were the right to 1. 2. 3. 4.
JFK Safety be informed choose be heard
Which scenario best describes the concept of "multiple gains"?
Kids are happier when they open more presents compared with one box that holds all of the presents inside of it
How did Michelob, a pricy beer brand, use mental accounting to target consumers?
Michelob figured that consumers tend to drink pricier beer on the weekend, so they marketed their beer to be associated with weekends
What is one method used by retailers to obscure the reference price of a good?
Monthly payments
Demand is __________ elastic if there are __________ close substitutes.
More; many
If a product is advertised as getting the first 3 months of membership for $7/month and just $15 after that, this would be an example of
Penetration
When a new product is introduced at a low price to secure market acceptance the price is called
Penetration
One systematic error in transaction utility is derived from...
People comparing options to past purchases rather than possible purchase
Which of the following is not a way to beat online price discrimination
Purchase right away
Companies are not allowed to discriminate based on
Race
According to the Wall Street Journal, McCormick was accused of doing what?
Reducing the goods in each package subtly without changing the packaging or price
Briefly define mental accounting.
Refers to the act of allocating funds into different accounts that have a unique purpose
A consumer's income, needs, and the availability of substitutes play a role in determining their
Reservation price
Which of the following is not true regarding price discrimination?
Revenues of each segment must exceed costs
When the price varies according to the quantity sold it is called
Second degree price discrimination
Which one of the following is an example of a signpost item?
Selling convenience item for a loss to attract business into other parts of the store
What is one method used by retailers to obscure the reference price of a good?
Selling the good in an unusual size
the ___________ was punitive towards monopolies, whereas the __________ was preventive
Sherman antitrust act Clayton act
Low price advantages due to price wars are often
Short lived
Price wars
Should be avoided
If demand is elastic and price goes up, a large proportion of customers will purchase
Substitutes
If the price level for a good is set above the market price, then there is a
Surplus
SPAM
Term for unwanted commercial email similar to junk mail
In an example from the slides, two couples were reimbursed $400 for salmon that the airline had lost in transportation. How come they spent $325 on dinner with that money when they had never dined out for nearly that much?
The couples viewed the $400 as part of their entertainment and food account
Referring to class material, a study was done to test the effects of a placebo pain killer pill (no direct health benefits) at different prices. Which sentence summarizes the study?
The group that paid less for the pill had less people say the pill reduced pain that the group that paid more for the pill.
Why do most consumers rely on pricing cues?
They don't know the true value of the item
Why does Amazon sell the Kindle at a loss?
They make the money up in paid content sold through the Kindle
What is the strategy where consumers are required to buy something they don't want as a condition of buying something they do want?
Tying
Which category of costs is directly related to the quantity produced?
Variable costs
In first degree price discrimination the seller is concerned with the __________ of each consumer
Willingness to pay
consumerism
a grassroots movement started in the 1960s (increase the influence, power, and rights of consumer's in dealing with institutions)
Exclusive territorial distributorships
a manufacturer grants a distribute the sole rights to sell a product in a specific geographic area
Do not call registry
a nationwide list of consumers' telephone numbers who don't want unsolicited telemarketing calls
digital millennium copyright act (1998)
act designed to prevent copyrighted material from being pirated online. while prominent cases involve downloading music, your marketing info is also included
cost plus
add a mark on your own cost not desirable when consumer valuation is really high or when demand is unknown
why should we avoid price wars
advantages fade quickly price expectations distorted long term customers become less benefit sensitive
slack fill example
air in a potato chip bag
sunk costs
already incurred, cannot be recovered, always IGNORE them
signpost items
although consumers often do not know exact prices, they have benchmarks consumer suse signpost items' prices to form overall impression of store's prices
predatory
an aggressive pricing technique (undercutting) intended to drive out competitors from a market illegal in US
price wars should be ...
avoided
people are more likely to consume a product when they are...
aware of its costs
before companies can display the BBB accredited business logo on their websites, they must
be members of their local BBB Have been in business for at least 1 year agree to participate in the BBB's advertising self-regulation program abide by the BBB code of business practices resolve consumer disputes over goods/services promoted or advertised on their website
2. the frequency with which accounts are evaluated affects our decisions
behavior is altered by current position and not lifetime position
ethical exchanges between buyer and seller should result in ...
both parties being better off after transactions
________________ comprise the effective rules of the game, the boundaries between competitive and unethical behavior and the codes of conduct in business dealings
business cultures
quantity discounts
buyers can be charged different prices for a product, provided there are difference in manufacturing or delivery costs
__________ highlights perceived costs __________ masked perceived cost
cash credit
consumer protection
child protection act (1966) nutritional labeling and education act (1990) consumer product safety act (1972)
______________ is a formal statement fo ethical principles and rules of conduct
code of ethics
if demand is elastic and .. price increases, then total revenue ... price decreases, then total revenue ...
decreases increases
2 kinds of unethical competitive behavior are most common
economic espionage giving/receiving bribes/kickbacks
3. gifts are different from products we purchase
economics theory of gift giving - maximize utility of the recipient given the budget.
large change -->
elastic
factors in the economics of pricing in regard to the consumer
elasticity reservation discrimination
Dump accounts
email addresses they use whenever they need to register for something online only used for this purpose so all spam goes to one account
consumer product safety act
established the consumer a product safety commission. monitors product safety and establishes uniform product safety standards
___________ are based on the personal moral philosophy of the decision market
ethical choices
Laws/regulations relating to distribution
exclusive dealing requirement contracts exclusive territorial distributorships tying arrangements
Which is not an example of how retailers can increase sales?
expensive signpost items
segregate mixes losses
explains the use of rebate segregate savings and payment
major federal levitation has been passed to encourage _______________ because it permits the consumer to determine which competitor will succeed or fail
fair competition
how is price determined ?
fairness is main factor depend on cost to the seller
advantages of penetration
fast product adoption sets barriers of entry for competitors
pricing right is the ...
fastest, most effective and most important way for companies to gain profit
price matching
firm can meet competitors price in good faith
advantages of skimming
firms recover research and development costs before competitors enter market firms capture all consumer surplus
companies care about costs
fixed costs variable/marginal costs opportunity costs sunk costs
the Sherman antitrust act (1890)
forbids contracts, combinations, or conspiracies in restraint of trade forbids actual monopolies or attempts to monopolize any part of trade/commerce
choose
freedom of choice in the form of practices by firms that do not limit the availability of new products to consumers
A company can lose its trademark if it comes ...
generic if it has primarily become a common descriptive word for the product it can be used by anyone aspirin and escalator have lost their trademark protection
bribes and kickbacks are often disguised as
gifts, consultant fees and favors
copyright law
gives author of literary, drama, music, or art work from the exclusive right to print, perform or otherwise copy that work. copyright is secured automatically when work is created
patent law
gives inventory right to exclude others from making, using, or selling products that infringe on patented invention
the price paid for the product compared to some reference price: we are _________________ if we think we got a good deal
happier (higher utility)
consumption establishes ...
higher switching costs
consumers
how the QD will change if we raise/lower the price (what is their price sensitivity level) what is the maximum price consumers are willing to pay for our product?
reservation prices depend on ...
income, needs, substitutes
methods of raising prices without generating excessive negative truncations utility
increase perceived regency price obscure reference price
if demand is inelastic and .. price increases, then total revenue ... price decreases, then total revenue ...
increases decreases
fixed costs
incremental - utilities non-incremental - rent
bribes and kickbacks are more common in
industries experiencing intense competition countries in earlier stages of economic development B2B and government marketing than consumer marketing
small change -->
inelastic
freemium
involves offering basic products/services free but charging premium for advanced features or functionality
Exclusive dealing
is an arrangement a manufacturer makes with a reseller to handle only its products of one manufacturer and not those of competitors is illegal under Clayton act when it substantially lessens competition
economic espionage
is the clandestine collection of trade secretes or proprietary information about a company's competitors illegal and unethical and carries serious criminal penalties
the ______________________ is a major reason for the violation of ethics codes
lack of specificity
a person's moral philosophy is ...
learned through the process of socialization with friends/family/formal education
price discrimination is ... requirements
legal must be legal multiple segments inability to resell better if revenues of segments are greater than costs no resentment from differential pricing
implication - make a popular signpost item your ...
loss leader
the Robinson-Patman Act (1936)
makes it unlawful to discriminate in prices charged to different purchasers of same product where the effect may substantially lessen competition of help create a monopoly
be informed
marketers have obligation to give consumers complete and accurate information about their offerings
promotional allowances
maybe be given to buyers on an equal basis proportionate to the volume purchased
what is price?
mechanism by which firms capture value from consumer side, price can be more than money
the system that households use to evaluate regulate and process their home budget - violates the fundability of money (end of losing money)
mental accounting
ethics
moral principles and values that govern actions and decisions of an individual or group
____________ can be different in different cultures
moral standards
how does the BBB encourage companies to follow its standards for commerce
moral suasion
the BBB use ___________________ to get remembers to comply with its standards
moral suasion
Tying arrangements
occurs when a seller is required to purchase one product to also buy another item in the line
bundling
offering several products for sale as one combined product a "deal"
1. the assignment of activities to specific accounts
often both the sources and the uses of the funds are labeled expenditures are groups into categories spending is constrained by implicit budgets
price discounting
only certain forms are allowed - quantity discounts - promotional allowances - price matching
whether we go or not go depends on ______
pain of payment if payment was done a long time ago, we don't feel the pain anymore
company protection
patent law copyright law digital millennium copyright act
timing is usually set to increase demand payment options
payment last consumption payment in advance payment after/during consumption
when identical goods.services are sold by the same provider at different prices
price discrimination
price elasticity of demand
price elasticity of demand is measure as the %change in QD that occurs in response to a %change in price at a given price point
how price changes affect the total revenue depends on the ...
price elasticity of the demand
2nd degree price discrimination
price varies according to quantity sold
factors in the economics of pricing in regard to the competitor
price wars
the best run companies go to almost any lengths to avoid ...
price wars
_________ is the only way to capture consumer value and to make money for the company
pricing
product line pricing
profit maximization from product line vs a particular product cannibalization
the federal dilution act (1995)
prohibits the use of a trademark on a non-competiting product
telephone consumer protection act (1991)
provides requirements for telemarketing promotions
deceptive mail prevention and enforcement act (1999)
provides specifications for direct mail sweepstakes requires that the "no purchase is necessary to enter" statement be displayed in the mailing, rules, entry form
price discrimination is illegal if its done on the basis of...
race, religion, nationality, or gender or if it is in violate of antitrust or price fixing laws
______________ can trigger suicidal price wars
reducing prices
__________ consists of restrictions that state and federal law place on businesses with regard to the conduct of its activities
regulation
Requirement contracts
requires a buyer to purchase all or part of its needs for a product from one seller for a period of time legality depends on a court's interpretation of their impact on distribution
The Gramm leach Biliey Act of 1999
requires financial institutions to provide written notice of their privacy policies the law was broadened in 2003 to apply to a wider array of companies and consumer information
CAN SPAM Act (2004)
restricts collection fo personal information and unsolicited email promotions on the internet. prohibits the use of email, faxes, and other technology to randomly push a message to a potential consumer.
what rights are included in the consumer bill of rights
rights to safety, to be informed, to choose and to be heard
sales signs
sale signs signal to customers that the item is a bargain no cost for the retailer, usually no commitment to a particular level of price be careful not to upset customers
pricing cues
sales signs signpost items keep it simple, no comma, period, dollar signs, cents decoy - anchoring, attraction effect call is small "a small $1 fee"
sugging
sell or attempt to sell a product under the guise of conducting market research. misrepresenting or lying about the source of the info in an effort to gain an unfair advantage term was primarily applied to a practice in which a salesperson would pretend to be doing market research by interviewing a consumer, and then turn the consumer's answers into reasons to buy more recently, some companies have hired young, good looking outgoing men and women to hang out in bars and surreptitiously promote a particular brand of alcohol or cigs legal but not fair
consumption is vital to businesses that
sell subscriptions and memberships
obscure reference price
sell the product in an unusual size, change the size, or slack fill
1st degree (perfect) price discrimination
sell to each consumer at different price. usually we sell just below reservation price
3rd degree (indirect)
sell to each segment at different price
integrate losses
sellers have an advantage in selling something if its costs can be added on to another larger purchase
multiple gaines
serration of gains is preferred
penetration
set initial price relatively low (lower then eventual market price) to secure market acceptance
culture
set of values, idea, attitudes that are learned and shared among the members of a group
corporate culture
set of values, ideas, and attitudes that is eland and shared among members of an organization dress, sayings, manner of work is apparent in formal codes of ethics and ethical actions of top management/co-workers
skimming
set price of product relatively high at first, then lower price over time
special pricing methods
skimming penetration predatory bait and hook freemium product line pricing bundling tying
disadvantages of skimming
slows down product adoption may upset customers
___________ affect ethical and legal relationships among individuals, groups, business and institutions and organizations
social values
culture serves as a ...
socializing force that determines what is considered to be morally right and just
laws
society's values and standards that are enforceable in the courts
privacy policies
statements regarding how a company will use and protect a consumers' private data
increase perceived regency price
suggested retail price, increase perceived costs
_________ seems to be a good term to apply to fake reviews
sugging
Permission marketing
term created to suggest that marketers should always ask for permission to sell or ot offer buyers marketing messages - the idea was that when permission is granted, the buyer is willing to listen
the ____________ closely monitors promotion and advertising to identify deceptive or misleading advertising and unfair business practices
the FTC Act (1914)
A treaty that protects US trademark rights globally
the Madrid Protocol
safety example
the US consumer product safety common checks the safety of 15,000 consumer products
bait and hook
the basic product (hook) is offered cheaply or free, the complementary product or refill (bait) is sold expensively. the basic product cannot be used without the complementary product
laws/regulations relating to online and offline promotion
the federal trade commission act (1914) deceptive mail prevention and enforcement act (1999) telephone consumer protection act (1991) controlling the assault of non-solicited pornography and marketing act (2004) do not call registry
reservation price
the maximum price a consumer is willing to pay for a good/service
workers sometimes violate ethics codes because of how they perceive the behavior of ...
top management/co-workers
how much are you willing to pay and how will it make you feel
transaction utility
economic espionage examples
trespassing, theft, fraud, misrepresentation, wiretapping, teaching trash, violation or written and implicit employment agreements with non-compete clauses
starting int the mid 2000s (recession)m there has been a public outcry about the ...
unethical practices of business people.
the federal trade commission monitors
unfair business practices
BBB
voluntary alliance of companies whose goal is to help maintain fair business practices has no legal power
opportunity cots
what else can we do with these resources
self-regulation
when an industry attempts to police itself
kickback
when money is paid after exchange occurs
bribe
when money is paid before an exchange occurs
segregate gains
when selling a product with more than one dimension, it is desirable to have consumers evaluate each dimension separately
employees who report unethical or illegal actions of their employers
whistleblowers
price too low and ...
you leave money on the table