MKTG 479 Exam 2
Price elasticity:
% change in quantity relative to the % change in price of a given offering
key profit drivers revenue growth
(top-line growth) can be achieved by increasing sales volume and/or changing the unit price. Growing revenue rather than cutting costs, is more likely to produce sustainable growth over time. Increasing sales volume rather than modifying price is usually the key source to sustainable profitability (growing sales volume= main source of profit growth) Two main approaches for increasing sales revenues: growing sales volume and optimizing price.
Product (tangible)
- Change ownership, can be physically separated from manufacturer and distributed to end users via multiple channels (Ex: might go to the grocery store and pull something off the shelf. Grocery store is the distributor, manufacturer is the one who has put the product on the shelf) - Durable Goods - computers, cars, furniture - Non-Durable Goods - food, cosmetics, laundry detergent, beverages, single use items
Reliability-
-Probability that offering will perform at desired level for projected life and will not malfunction for the duration of its projected life cycle - If you are very consistent, it becomes reliable -Ex: FedEx "absolutely, positively overnight"
Brand Elements
-brand image -brand positioning -brand mantra -brand attributes
Considerations for Products and Services (list)
-performance -consistency -reliability -durability -compatibility -ease of use - technological design - degree of customization - form -style -packaging
PROS of Collaboration
1. Allows specialization- increasing EFFECTIVENESS - A lot of collaborators specialize in a certain specialized part of the value chain ex: research and development, manufacturing, distribution 2. Utilize each other's expertise 3. COST EFFICIENCY- by specializing, leads to greater economies of scale 4. FLEXIBILITY (can rely on partners rather than spend resources developing new distribution options, for example) greater flexibility in terms of switching technologies, entering new markets, and entering existing ones.(require lesser commitment of resources) 5. Increase in SPEED Ex: if you are a trucking company, you are very good at delivering the product to the customer -achieve desired results much faster than building in-house expertise.
Increase sales revenue by Optimizing Price
1. Decrease price? - For how long/how often? - Try to avoid, and if you do them you want to try to keep them on a time frame - Lots of companies use tools like rebates, buy one get one, because they are ways to decrease prices and control how long 2. Increase price? - Always put this on the table. - Customers may or may not be able to handle a price increase. - It might make the product look more attractive - Increase sales revenue by lowering costs -Raising price increases profit margins, which has a positive impact on profits -Raising prices also tends to decrease sales volume due to lower customer value associated with higher prices.
Alternatives to Collaboration Vertical integration
1. Forward (toward buyers) - If you are a manufacturer, you might buy a retailer, a manufacturer acquiring a retailer to establish its own distribution system - extending ownership of activities downstream (toward buyers) 2. Backward (toward suppliers) - Purchase your suppliers - Creates a situation where you can prioritize because you own the suppliers. Get supplies before competitors. -extending ownership upstream (toward suppliers) Ex: a retailer acquiring a wholesaler or manufacturer.
Brands create market value by:
1. Identifying a company's offering 2. Differentiating it from the competition 3. Enhancing the value of the offering The brand is a business tool designed to create market value
cons of Collaboration
1. LOSS OF CONTROL (IKEA) - IKEA uses a lot of collaborators- has had some quality issues and products following apart - Need to have very tight controls and contracts, establish expectations to prevent this - delegating certain aspects of a company's activities to an external entity often leads to loss of control over the value-creation process. 2. LOSS OF COMPETENCIES - If you keep letting everyone else do it for you, you won't have that competency in your company (won't be able to do it on your own) - Not that important unless you are using a collaborator as a very key part of the value chain -Ex: outsourcing research and development over time diminishes companies ability to drive innovation on their own 3. EMPOWER COMPETITION They might create a value chain that is better than yours after seeing yours - might also enable collaborating entities to develop a set of strategic competencies, thus becoming a competitor
(2 types of company value) Understanding Company Value
1. Monetary value - Company's desired financial performance Net income Profit margins Sales revenue Earnings per share ROI - Most common value for profit companies -Maximizing monetary value is primary goal for most companies, so success of most offerings are either directly or indirectly linked to profit 2. Strategic value - Non monetary Strengthening reputation Promoting brand loyalty Attracting employees -psychological value, functional value Ex: creating value for society by improving different aspects of social welfare is a common goal for nonprofits. Ex. software engineers are all fighting for top engineers (the same people) . Make your company attractive, exciting, interesting to potential new employees through these non monetary ideas of what they stand for as a company
Technological Design
1. Product innovations (moving from DVD to thumb drive to...) technology-based innovations and innovative use of existing technology to design new offerings Leads to substantive functional differences 2. Product variation (color, shape, packaging) -leads to offerings characterized by relatively minor variations in their functionality (ex: adding diff colors, flavors, tastes, sizes, designs, packaging variations)
Psychological Pricing
1. Reference price effects- context, relative to other prices (prior price or competitor) -To assess the price of an offering, people evaluate it relative to other prices, which serve as reference points -Internal reference point: remembered price from prior purchasing - External reference point: readily available price of a competitive offering 2. Price quantity effects - very much more sensitive to price changes than to size/quantity changes -Ex: people more likely to react to increasing price of a pack of 10 hotdogs than increasing quantity to hotdogs 3. Price tier effects - $1.99 coded as $1 : People encode prices in tiers Item priced at $1.99 encoded in the "1+" tier Item priced at $2.00 encoded in the "$2+" tier Makes people think difference in two prices is a dollar, not a cent 4. Perception of price is a function of price endings Price ending effects - "9" means sales or discounts; "0" signifies quality 5. Product line pricing - customers can be embarrassed to choose the cheapest price ex: putting wine restaurants try to get rid of as second cheapest because customers embarrassed to buy cheapest
Keys to Successful Branding
1. Start with your customers and allow them to define "value" in their term -Build and manage your profitability from there 2. If you don't stand for something, you stand for nothing -You can't be all things to all people 3. Every organization has a culture and every brand has a soul -Both of these need to be cultivated and enriched, and the brand and its soul provide a nucleus around which you can build your company
How to Avoid a Price War
1. Verify the threat - mistake? Price wars often caused by miscommunication of pricing info or misinterpretation of competitors goals 2. Evaluate the likely impact of competitors actions; which customers will you lose? - Identify customers most likely t be affected by price cuts and estimate their value to the company as well as their likely response to the price cut -May abandon market with no strategic importance and low customer loyalty 3. Develop segment specific strategy to address the competitive threat Ignore 3 basic strategies: - Reposition by lowering price or increasing benefits - Add new lower-priced offerings (not cutting current version) - not taking action
The Key Profit Drivers net income (she says price)
=Revenue - Costs - Revenue = unit price and volume - Costs= variable and fixed To grow income, company must increase revenue and/or reduce costs
Single Brand Strategy+ (umbrella branding) advantages and disadvantages
A single brand for (nearly) all of a company's products - using a single brand for all of a company's products Ex: General electric, Heinz, Virgin, and Costco use a single brand (Kirkland) for nearly all of their products -Often involves sub-branding: umbrella brand is combined with a lower tier brand Advantages Instant recognition leverages equity from existing brand Strengthen brand through increased visibility (especially when adding high-end offering) Disadvantages Spillover of negative information Can be difficult to use name across all categories per performance by any product can hurt reputation
How to create value through pricing
As you set price, you should take into account all of the Five C's Customers needs Company's sales goals (short term and long term) Competitors offerings Collaborators needs/requirements Context- economic conditions, business environment
Break Even Analysis of Fixed Cost Investment
BEV FC = Fixed cost investment/Unit Margin -This is important because it tells us when you start actually turning a profit!Helps figure out if it is a viable business to even start identifies unit or dollar sales volume at which the company is able to recoup a particular investment, such as research and development expenses, product investment costs, and/or costs of advertising campaign.
Service (intangible)
Banking, hotels, airlines, cleaning services, hair stylists No change of ownership Inseparability (can't separate services from those who "create/manufacture" the service" (Ex: Haircutter IS the service. The service is only going to be as good or bad as the person delivering it. It's important that the person giving the service represents the company, Ex: Marriott Hotel trains and rewards employees to keep them motivated so that that employee will give the service the company expects.) Delivered and consumed at the same time (Ex: get a haircut and it's given at the same time.) Inconsistency - difficult to standardize (Because people are flawed, have bad days.) Intangibility - Can't touch, try, taste -Rely on clues of what the service might be like before you try it. Pictures, brochures, personal tours are company's attempts to tangibilize it to the degree they can.
Brand Attributes
Brand Identifies Owned and managed by the company E.g. logo, slogan, character Brand Referents Not owned, but want to identify with E.g. friendly, stylish, ease of use
Brand Mantra
Brands core promise to the customer Examples: Nike: authentic athletic performance Disney: fun family entertainment The brand mantra is captured in the slogan "Just Do It" or "Where Dreams Come True"
The Key Profit Drivers Costs
COGS R&D costs Marketing costs Other costs Costs: can be reduced by lowering various expenses (COGS, research and development costs, marketing costs, and other costs like general and administrative expenses, costs of capital)
The Key Profit Drivers Sales volume
Can focus on CURRENT CUSTOMERS by increasing quantity or frequency of purchases, or it can focus on NEW CUSTOMERS it does not currently serve. 1. New customers - New to the category (Market-growth) - Competitors' customers (Steal-share strategy) Do this when you are in a new category Loyalties have not been formed yet. Tendency to have variety seeking behavior- (ex)keep trying drinks until you establish what you like the best. Once you start to establish those loyalties/ preferences stealing strategy becomes less effective 2. Current customers (market-penetration strategy) - It is easier to deal with current customers than stealing new customers from competitors customers
Brand Repositioning
Change essential aspect of brand, often to increase relevance -involves changes to the identity and meaning of a company's brand reasons to reposition: 1. Changing needs of target customers (one of most common) 2. Reach new target market 3. React to competitor's positioning 4. Respond to legal challenges (Ex: Kentucky Fried Chicken abbreviated to KFC to avoid paying license fees in Kentucky)
Brand Positioning
Company creates a meaningful picture in the customers mind
Company Incentives
Contests Monetary bonuses Recognition and rewards free/discounted goods and services Travel incentives Sweepstakes games/prizes Monetary incentives: performance bonuses, monetary prizes, spiffs Nonmonetary incentives: contests, recognition awards, free goods, vacation and travel incentives
Ways of Pricing
Cost based pricing: calculate your prices based on the company's costs as a benchmark -Final price is determined by adding a fixed mark-up to the cost of the offering Competitive pricing: benchmarking on competitors prices Demand (value) pricing: setting price according to what customers are willing to pay
Harley-Davidson Current Situation why?
Data suggest a considerable generational divide in attitudes toward heavyweight motorcycles Younger people consider buying motorcycles for entirely different reasons than older customers, The survey's most significant finding that 21- to 34-year-olds consider buying a bike for "ease of transportation," whereas older buyers purchase bikes "as a hobby" or because "motorcycles are cool." The average Harley-Davidson customer is a married man in his early 50s, with a household income at or above $90,000. These are the customers buying motorcycles out of a passion for the product or lifestyle. Younger buyers are more motivated to consider motorcycles for practical reasons, and less interested in expensive bikes.
Price
Directly impacts value created for company, customers, and collaborators Price has a psychological impact on customers. Only element of marketing that captures revenue (everything else is a cost) The only "P" that can be changed quickly
Compatibility
Does your offering fit with already offered complementary products? Razors/blades (captivating- cant use anyone's blade! Buy a gillette razor you have to buy Gillete blade) ; shampoos/conditioners; tires/vehicles; Multipart pricing (captive pricing): (printers/cartridges) Revenue is made on all of the accompanying products like the print cartridges. Not about how many printers you sell about how many cartridges company charges relatively low price for the first part of the offering and high prices for complementary parts Can be used strategically by companies to create barriers to entry by ensuring their offerings are uniquely compatible with customers existing systems and processes
Packaging
Flashy? Ease of opening? Vary it by target market? -Amazon frustration-free Might buy something just because of the packaging Packaging can also be used to create value above and beyond the value created by the product itself Ex: Tiffany signature blue box- highlights exclusivity, strengthens brand image, helps differentiate
Functional value:
Functional benefits and costs of the offering An offering can create functional value by facilitating other offerings in the companies portfolio -Ex: entry-level car sold at cost can help manufacturer gain market share among young customers when they decide to trade up, free software program provides company with technological platform for developing high-margin offerings Functional goals don't need to be related to profits Ex: creating value for society by improving different aspects of social welfare is a common goal for nonprofits.
Incentives
Generally short term, meant to increase value of offering Monetary or non-monetary Customers (coupons, rebates, volume discounts, sweepstakes, loyalty programs, contests) Collaborators (price-cut, volume discount, co-op advertising) Company employees (sales contests, bonuses, rewards)
Gross margin:
Gross profit/ Gross Revenue -Companies try to manage margins at around 40-50% but if you go to a grocery store they are around 10%. Every company is different Different from contribution margin because contribution margin includes all variable costs.
What Should Harley-Davidson Do?
Harley Davidson has initiated a plan to lure 2 million more riders to the brand in 10 years. Is setting up riding schools around the country Developing an electric motorcycle called the "Livewire" What else can they/should they do to revive the brand with a younger demographic? What does the customer value? How should they bring their "soul" to the customer? How should they nurture this with a younger demographic?
Brand Image
How the customer sees the brand All brand related associations
How to choose collaborators?
How would we complement what we do to serve the customers' needs?
Price wars- What do they cost?
Huge impact on profitability - absent increase in volume Competitive reaction - rarely sustainable Increased price sensitivity - shifted reference points Brand devaluation - focus on price leads to decrease in brand power Best way to win a price war? Avoid engaging in price war
Brands As A Means of Creating Value Monetary
Incremental revenue and profits Increase valuation of the company Create a separate asset
Durability
Length of life cycle - how long will it last? Do you (manufacturer/marketer) want it to last forever? Products that are perceived to be more durable tend to be preferred by customers However, durability tends to have a negative impact on frequency of repeat purchases because users re reluctant to replace fully functioning products - Companies today don't really build things to last. They fall apart/ designed to not last so you have to buy the next one. - Refrigerators used to last so much longer, some people don't want things to last so long, get sick of old fridge Planned obsolescence: this process of designing new products in a way that makes prior generations inferior
Style
Look and feel...what are your customers seeking? -particularly important for products that have a hedonic and self-expression function (ex: luxury cars, designer furniture, fashion apparel) Could be somewhat less relevant to utilitarian products (ex: manufacturing equip) Sleek? Modern? Classic? Ex: make hospital rooms more appealing so everyone feels better about having IV pumps in rooms. Tried to make it look better, make it more stylish. Because style can create value above and beyond functional characteristics, it is used by companies to differentiate offerings from the competition Ex: Apple revolutionized personal computer that was aesthetically pleasing, Method Products differentiates thorough innovative futuristic styling of containers
3 strategies for growing sales volume
MANAGE CUSTOMER ADOPTION: 1. New to the category (market growth strategy) - People coming in for first time, early in product life cycle - The higher your market penetration is, the harder it is to find people that are new to a category -growing entire market by increasing sales volumes by attracting new-to-the-category customers who currently are not using either the company or competitors offerings 2. Customers from competitors (steal-share strategy) - New customers -growing sales volume by attracting customers who are already in the category and buying competitors offerings MANAGE CUSTOMER USAGE: 3. Current customers (market penetration strategy) -increasing sales volume by increasing quantity purchased by companies own customers rather than trying to "steal" competitors' customers or attract new buyers. Just taking current customers and selling more through 4 core strategies: 1. Increase AWARENESS - communication 2. VR communication Increase ATTRACTIVENESS - Grow sales volume by improving product functionality (functionally 3. VR make it more light weight Increase AVAILABILITY - expanding manufacturing capacity, increasing distribution coverage, strengthening retailer support, minimizing stock-outs. 4. Make it more easily accessed Increase AFFORDABILITY - lower prices, offering incentives, decreasing other costs associated with offering.
Goals of Customer Incentives
Manage purchase timing Optimize value of offering for different segments Responding to competitors offering
How do you calculate market share?
Market share= company's sales in a given market/total sales in a given market -an offerings share of the total sales of all offerings within the product category in which the brand competes. Sales can be defined in terms of revenues or on a unit basis. Example: Company A sells 20 million widgets - total widgets sold for all competitors is 200 million. Company A market share = %10
Degree of Customization
Mass production?offering same products and services to all customers One-to-one customization? MINI (almost) Increasing costs, expensive to customize company's products and services customized for each individual customer Something in the middle? Segment based customization:(care, computers, Nike shoes) Offers variety, but not necessarily customizing (the middle) developing offerings for groups of customers with similar needs Allows company to develop fewer offerings while ensuring those offerings fit customer needs (dell, Porsche, Nike)
Collaborator Incentives
Monetary Slotting allowance/stocking allowance advertising Cooperative advertising allowance Spiff Volume discounts Inventory financing/ floor planning Non-monetary Contests Bonus merchandise Buyback guarantee Sales support and training
Customer Incentives
Monetary - reduce costs Coupons Rebates Price reductions Volume discounts Non-monetary - enhance value Premiums Prizes Contests, sweepstakes, games Loyalty programs
How do you calculate return on investment?
Net income as a percentage of the investment required for generating the income ROI = (gain from an investment -cost of investment)/cost of investment -Example: Company A invests 20 million; net income from investment is 4 million ROI= 4 million/ 20 million= 20%
psychological value
Outcomes of psychological importance for company employees and stakeholders. Ex: a company's socially responsible actions such as preserving the environment can help build corporate brand and culture, offerings that demonstrate a company's leadership in a particular area can create value for the company by helping attract valuable employees and promote brand loyalty.
What's Missing in each Ways of Pricing
Price should not be based solely on any of those Should be a decision about value, not just price The ultimate price should (in combination with product, brand, communication, distribution) deliver the best value All three points miss the fact that the pricing decision is not made in isolation but is an integral part of the offering's strategy and tactics
Ease of Use
Sometimes increased # of attributes is good, sometimes....not Common misperception that greater functionality (such as more features) leads to greater satisfaction In reality, adding functionality in cases where customers lack the knowledge necessary to utilize it can backfire (ex: BMW iDrive had steep learning curve)
Brand Extensions
Strategy of using same brand in different context (different category or price tier) -involves broadening the set of underlying offerings to which the brand is applies Starbucks coffee- Starbucks ice cream Oakley sunglasses - Oakley watches, Clothing Primary reason for extending an existing brand - to leverage equity by applying it to a new offering (building new brands is costly and time-consuming)
SWOT Analysis of the Real Beauty Evolution
Strengths Positive social message Awakeens individual empowerment Helping girls/women to raise self esteem Weaknesses Ads are contradictory Use of attractive or sexy models in other Unilever products e.g. Axe Opportunities New market for real beauty e.g. men/young boys Threats Risk of being a brand for average girls Objectification of women by feminists Copy by competitors Sustainability
Vertical Brand Extensions
Stretch to a different price tier Toyota/Lexus; Honda/Acura Marriott: St. Regis, Ritz Carlton, Residence Inn by Marriott -Upscale brand extensions: the brand is applies to an offering in a higher price tier -Downscale brand extensions: brand applied to an offering in a lower price tier
Types of collaborators:
Supplies, manufacturers, distributors (dealers, wholesalers, retailers), R&D firms, service providers, external sales force, ad agencies, marketing research firms Anybody that helps you deliver your product from the manufacturing to the consumer is a collaborator in your network. 1. Value-design collaboration: product and service development, brand building, price setting, and incentive design 2. Value-communication collaboration: advertising, PR, social media 3. Value-delivery collaboration: actual delivery of company's products and services
Brand Power
The ability to influence market behavior -the ability to differentiate the offering from the competition and create customer value through meaningful associations -Reflects value a brand creates in minds of customers
Brand Equity
The financial value of the brand, premium placed on company because of brand ownership -it determines the premium that should be placed on a company's valuation because of brand ownership
Harley-Davidson Outlook
Unless there is a generational shift among younger riders to see motorcycling as a hobby vs. means of transportation, the outlook for the company could be more dependent on an aging demographic One hopeful sign for the industry is that younger buyers cited the second most common reason to buy a motorcycle is that is 'goes with their self-image'
Horizontal Brand Extensions
Using a new brand in a category not normally associated with -applying the brand to a different product category, typically within the same price tier Snickers Ice Cream Bars Toll House Chocolate Chip Cookie Dough Colgate toothbrushes Ex: Ralph Lauren extended polo brand from clothes to home furnishings such as bedding and towel Downside: brand dilution likely to occur when a brand is extended to diverse categories that are inconsistent with its essence
Break Even Analysis of a Price Cut
You are going slower than expected so we are reducing our prices -If we cut our prices, how much do we have to increase sales volume to remain neutral (not lose money)? BEV PC = Margin OLD PRICE/ Margin NEW PRICE -If you lower prices, your break even point will be even further in the future.
What is a Brand?
Your brand is the emotional connection people have with your business or product. It communicates to the market: Who are you? What do you do? Who do you do it for? A product can be Copied: A brand is Unique Brands benefit customers by creating value that goes beyond the product and service characteristics of the offering. Because their fundamental role in creating market value, brands are among the MOST VALUABLE strategic assets of a company
Alternatives to Collaboration Horizontal integration
acquiring a business entity at the same level of the value-delivery chain. 1. A retailer acquiring another retailer - Ex: starbucks buys a bakery 2. Manufacturer acquiring another manufacturer - Trying to bring more efficiency into the system Favored by companies for gaining access to new markets, acquiring rights to proprietary technology, reducing competition, gaining power over other entities
Credence Attributes
attributes can really never be confidently evaluated, even after purchase (psycho-therapy, dietary supplements, safety of a car) -products and services: greatest amount of uncertainty, quality is not revealed until after consumption - Most difficult to communicate...need to build trust (word of mouth) - Usually characteristics are evaluated over time Ex: toothpaste - cavity prevention is credence attribute More typical for intangible offerings More typical for intangible products
Search Attributes
attributes that customers can readily evaluate prior to purchase (size, price, television picture quality) -products and services: associated with the least amount of uncertainty and are typically identifiable through inspection before purchase Ex: toothpaste - size is search attribute More common for tangible offerings, more typical for products - Easiest to communicate.....inform through advertising - Customer easily understands it - Things we can see, have knowledge about, can evaluate
Experience Attributes
can only be evaluated after purchase, or once customer has experienced (haircut, flight, meal in restaurant) - products and services: carry greater uncertainty and are revealed only through consumption - More difficult to communicate....use trial or sample - Advertising alone does not easily communicate it. - Have to have an experience in order to evaluate Ex: toothpaste - taste is experience attribute More typical for intangible products
Price sensitivity:
degree to which changing the price increases the sales volume Generally decreasing price increases sales volume (but not always)
Gross profit:
difference between selling price and costs of goods sold (COGS) Can be calculated per unit or as a whole (revenue) Gross profit (total)= Revenue (total)- COGS Gross profit (unit)= Price (unit)-COGS
Contribution Margin
difference between total revenue and total variable costs (Total,Per Unit,As a Percentage) See if everything combined contributes to overall profitability of the company Contribution Margin total ($) = Revenue Total - Variable Costs total Contribution Margin (%) = Revenue total - Variable Costs total)/Revenue total Contribution margin (unit)($) = revenue (unit)- variable costs (unit)
Fixed cost:
does not vary by volume of units produced or volume of units sold; expenses that do not vary with volume ( even if no production activity, these remain) Things like building, electricity, water, employees, employee salaries,Rent, insurance, salary of full-time workers, advertising -You don't want out of control fixed costs to raise. It is hard to eliminate employees. They are usually added to your fixed costs.
Collaborators
entities that work with the company to create value for the target customer Make your choices based on that goal because collaborators bring you efficiency, inventory, shipping, storing.. Collaborators are the engine that keeps the company running, at the end of the day what brings value Need to manage collaborators intently, they are very important in the value chain and delivering the value customers expect of you. Typically involved business-to business relationships aimed at creating customer value. Collaboration involves entering into a relationship with an external entity and delegating to it a subset of the company's activities Greater effectiveness and cost efficiency can be achieved from greater expertise and scales of operations.
Skimming:
high price to "skim" profit, sacrifice market share Represented by customers who seek benefits delivered by the offering and are willing to pay relatively high price for it appropriate in cases where: - Demand is inelastic (lower price won't increase sales) - enough prospective customers are willing to buy (price insensitivity of early buyers) - Customers interpret high initial price as high quality - Cost savings not achieved as sales volume increases - Helps to recover costs of development -The company lacks the capital required for large-scale production -Little or no competition for the target segment
Consistency-
how it performs over time, does it perform every time the same way - ensuring that in-kind products and services are identical and consistent with specifications Six Sigma approach - offering should be consistent with specifications (originally - difference between actual and desired outcomes should not exceed six standard deviations) Performance should be consistent at a .000001 standard Today consistency is a given expectation (when you turn on your TV you expect it to turn on) We are in a time frame where if you don't perform on a consistent basis you would not succeed because our expectations are so high.
Brands As A Means of Creating Value Strategic
increase demand Amplify other marketing tactics Greater collaborator support Attract employees
Inelastic demand and elastic demand
inelastic: a change in price results in a little or no change in quantity demanded -profits are increased by raising the price -Absolute value of price elasticity is less than 1 = inelastic elastic: a change in price causes a great (opposite) change in quantity demanded -profits increased by lowering price (small drop in price leads to large increases in sales) -Lowering price to increase volume is most effective Absolute value of price elasticity is greater than 1= elastic
Penetration:
low price to gain sales volume Appropriate in cases where: -Demand is elastic (price sensitivity among customers) - Discourage Competition (target segment is competitive) - Cost savings increase dramatically as production increases - Being pioneer leads to sustainable advantage against competitors
Why would Nike want to share their information with a third party?
o know what percent of the market they own. For example, Nike could go to Lebron James saying they have 90% of the basketball shoe market. Advantage for company to sell information because it helps everyone!
Performance-
products vary on performance in different attributes what is it offering you, how does it actually do in terms of what its supposed to do How might you decide to vary the performance of different offerings that you have? (e.g. nutritional value, mpg, battery life, etc.) Ex; car can vary in engine power, acceleration, comfort, safety, fuel efficiency Key principle when deciding on level of performance of a given offering is optimizing its value for relevant market entities
Multi-Brand Strategy (individual branding) + advantages and disadvantages
separate brand for each product -Ex: Procter & Gamble created Tide, Cheer, Bold,and Era. Chevrolet, Buick, Cadillac, and GMC are individual brands of General Motors... Advantages Establish unique brand identity (can serve diverse segments) Limits negative spillover Greater value in brand assets Disadvantages Substantial financial resources needed substantial amount of time, money, managerial resources Need to create relevant and meaningful images in consumers minds
Price wars
start when company is willing to sacrifice margins to gain sales volume Likelihood of price war depends on: 1. Offering differentiation - easy substitution leads to wars, price wars more likely when offerings are undifferentiated and can be easily substituted 2. Market growth - markets stagnant? Only way to grow is to steal from competitors? price wars more likely to occur when markets are stagnant, and to row sales a company must steal share from direct competitors 3. Customer loyalty - price sensitive and non-loyal customers will take part in price wars. companies more likely to engage in price markets in which customers are price sensitive and their switching costs are low 4. Cost structure" companies more likely to engage in price wars when significant economies of scale can be achieved by increasing volume
Collaborator Power
the ability of a given company to exert influence over another entity 1. DIFFERENTIATED OFFERINGS- companies with differentiated offerings in high demand are likely to have greater power over size collaborators with commoditized offerings -Ex: companies with strong brands like Coca Cola, adidas have more power dealing with their distribution partners 2. SIZE - Better/worse shelf space, volume discounts, promotional allowances - When you're large, you can have more power because of size - Ex: 25% of all products sold at Walmart are Procter & Gamble; they need each other! 3. STRATEGIC IMPORTANCE - Is this distributor the only one (or clearly best) available? -entity tends to have more power when it accounts for a significant portion of its collaborators profits. -Ex: Walmart is in a position of power when negotiating with small manufacturers because their individual net contribution to walmarts net income is low, whereas for many of them walmart accounts for a substantial part of profits. 4. SWITCHING COSTS No one likes to go through the efforts or costs of switching collaborators -an entity is likely to have more power when the switching costs of its collaborators are high and its own switching costs are low.
Variable Costs
vary with units; expenses that fluctuate with volume of units produced -Costs of raw materials, credit card fees, piece rate labor -Have higher variable costs -Ex: In a hotel, housekeeping (people) can vary depending on how many people are staying at the hotel. -Ex: Raw materials that go into Nike shoes- shoe laces -Generally higher proportion of variable costs to fixed costs is looked at more favorably by investors because a profit can be generated at low sales levels (If you have a huge fixed costs and sales decline, you can't make up for those costs anymore. If you have a higher variable costs you are more likely to be able to weather the storm.)
Form-
what kind of shape, size, how product is delivered. physical aspects of offering such as size and shape Design plays important role in manufacturing, transporting, storing, inventorying, consuming product -Packaged goods often available in variety of sizes and shapes because consumers vary in the amount they consume Pain or cough medication (caplets, liquid, tablets...) -(ex; Some people struggle swallowing pills so liquid helps them) 12 pack of 8-inch tortillas, 24 pack of 10-inch - If you live alone you don't need 24 As form changes, you're not changing what the product does. You are allowing customers' needs to prevail. Maybe providing a more appealing format to customers to meet more needs.
