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Class Notes for Exam 3

by: Caitlyn Traenkle

Class Notes for Exam 3 MKT 301

Marketplace > University of Miami > Business > MKT 301 > Class Notes for Exam 3
Caitlyn Traenkle
GPA 3.4
Professor Kettle

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This 58 page Bundle was uploaded by Caitlyn Traenkle on Monday September 28, 2015. The Bundle belongs to MKT 301 at University of Miami taught by Professor Kettle in Spring 2015. Since its upload, it has received 43 views. For similar materials see Marketing in Business at University of Miami.

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Date Created: 09/28/15
Ch 1415 Pricing ConceptsStrategies 03262015 Price and perception of product connected 0 Even tho rationally they should not be connected Price elasticity of demand measure of sensitivity to a change in price Refers to change in quantity demanded how much people buying for a given change in price 0 change in quantity demanded change in price 0 change nal initia initial Elastic vs inelastic demand Inelastic products price insensitive 0 Ex Gasoline 0 Still buy same amount bc it s a necessity and no alternatives 0 Ex Cigarettes addictive few substitutions 0 Price elasticity of demand less than 1 0 Elastic products price sensitive 0 Ex Cocacola Many substitutes Price goes down people stock pile incr sales 0 Price elasticity of demand greater than 1 Ex gasoline 0 P1 3gallon P2 4gallon Q1 1000 gallons Q2 900 gallons AQ Q2Q1Q1 9001000900 01 10 0 AP P2P1P1 433 033 33 o 01033 03 l inelastic ex coke P1 3 12 pack P2 360 Q1 1000 casesday Q2 500 AQ Q2Q1Q1 50010001000 50 AP 3633 20 0502 25 l elastic 0 negative because decrease in demand most products Graphs in notebook Most product s slope is negative Inelastic products slope more steep What is the price 0 Overall sacri ce 0 Money time effort 0 Pay more for convenience Price is a signal 0 Greater sacri ce signals quotmore worthwhilequot 0 Ex I had to drive across town to get this 0 Higher price higher quality 0 Ex Wine The 5 C5 of Pricing Company objectives what is company trying to achieve 0 Customers Costs 0 Competition 0 Channel members Company Objectives 0 Price differently according to goal 0 Most price to maximize pro ts 0 Pro t orientation 0 Maximizing pro ts Use mathematical model to identify price when pro ts max 0 Target pro t pricing main concern is a pro t goal Charity 0 Target return pricing use to produce speci c return on their investment of sales Want longterm return to counteract investment 0 Sales orientation goal based on belief that incr sales will help rm more than incr pro ts 0 Maximizing sales Ex Facebook free bc want a lot of members 0 quotprice warsquot 2 rms compete by lowering their prices lower prices to discourage new rms from entering market or to push them out predatory pricing 0 premium pricing deliberately price above competing product prices target high end customers 0 Competitor orientation price based on what competition is pricing 0 Competitive parity similar prices on products set prices similar to major competitors Ex Walmart vs target 0 Statusquo pricing prices only change when competitors do Only change price when competitor does Ex Coke buy from store that is cheaper Important to stay up to date with elastic products bc choose store based on coke price then buy other products while there a Elastic products drive people to switch stores 0 Customer orientation pricing focused on adding value 0 Most efficient pricing strategy set price with consumer perception of value in mind 0 Ex free shipping 0 Ex no haggle pricing Customers o lnelastic demand gt1 0 Large price changes have little effect on quantity demanded gas 0 Elastic demand lt1 0 Small price changes have a large effect on quantity demanded starbucks coffee 0 What affects price elasticity of demand 0 Income effect Consumers buy highpriced items when their income is higher less price sensitive o Substitution effect How available are substitutes n Ex air travel movies many sub cigarettes no subs n More substitutes l more elastic demand a Ex air tavel vs other kinds of travel inelastic 0 But air lines vs other air line elastic Crossprice elasticity how the change in another product s price affects change in quantity demanded o Complementary products products whose demands are positively related rise or fall together Ex ipad and apps u If price of ipad decrease how should this affect demand for apps incr demand for apps Decr in price decr in price of other product 0 Substitute products changes in their demand are negatively related Ex ipad vs Samsung tablet u If price of ipad decr how should this affect demand for Samsung tablet l switch from Samsung to ipad Decr price of other product decr demand for you product Costs 0 Total costs xed costs variable costs 0 Fixed costs same no matter how many units are sold 0 Ex rent management salary Variable costs vary with productionsales 0 Ex coffee beans for starbucks labor for GM 0 For each unit sold these incr total costs 0 Costs vs revenue 0 Pro ts total revenue total costs 0 Total revenue price x quantity 0 Total costs xed costs variable cost per unit 0 Total variable cost quantity x variable cost per unit o In class exercise 0 Want to open coffee shop Fixed cost per day 1000 Price per cup 250 Variable cost per cup 050 Breakeven analysis how many units do you need to sell to make a pro t Where revenue gt total costs pro ts Contribution per unit price variable costs PER UNIT Breakeven point quantity xed costs contributions 0000 per unit a Breakeven point where revenuetota costs pro ts 0 o Breakeven quantity cups per day Fixed costs 1000 Contribution per unit 250 050 2 Breakeven point 10002 500 cups per day 0 To check Pro t rev costs Rev 500 x 250 1250 Costs 1000 500 x 050 1000250 1250 Pro t 12501250 0 Competition Monopoly absence of competition 1 rm in market 0 Ex FL power and light gov t regulated 0 Price determined by gov t usually to prevent uncontrolled price incr Oligopositisitc competition few large rms dominant market 0 Entry costs are prohibitive 0 Ex airlines soft drinks oilgas 0 Price xingcollusion a problem 0 Prices all the same 0 Monopolistic competition many rms all differentiated 0 Ex grocery stores cell phones 0 Prices and products differ Pure competition large of sellers that offer exact same product 0 Not common in US more common in less developed countries 0 Very aggressive price competition keep prices low 0 Ex farmers markets Channel members Manufacturers Wholesalers Retailers 0 Can give different perspective on pricing strategy 0 Can be difficult to coordinate Ex Apple iBooks 0 Wanted to change pricing model for books all 999 Publishers against bc electronic book same costs regardless of length of book unlike published books Must coordinate PriceSetting Methods Costbased method price based on input costs 0 Costs pro t margin price 0 Ex car repair shop 0 Ignores competitors and value to customers Competitorbased method price based on what competitors are charging 0 Ex walmart and target airlines 0 Price as a signal Charge higher price to signal that product of higher quality Positioning strategy Valuebased methods price based on value to customer 0 O O O Improvement value Comparison with similar products How much more is a consumer willing to spend Ex apple computer costs more for more memory Ex ultra doesn t cost 400 but priced based on what people willing to pay Cost of ownership over lifespan of the product Price Strategies Everyday low pricing EDLP keep price same year round no sales 0 Ex wamart Signaling that they have the lowest pricelower quality Targeting low income customers Price sensitive but not shopping around Highlow pricing have regular price but always stuff on sale 0 O 0 Most retailers engage in highlow pricing Ex grocery stores Ex target Buy stuff on sale targets price sensitive customer and middle class Preferred bc attracts multiple segments Sarah not price sensitive always shops at target regardless of price changes Brandon price sensitive shops at wamart when target price high and at target when there s a sale Downgde John stockpiler buy 3 months worth when on sale 0 Timing of highlow prices Try to time to attract different customers at different times Don t have sale on product at same time as competitor New Product Pricing Strategies 0 Market penetration pricing 0 Initial low price Quickly build sales market sales pro ts Recoup xed costs quickly 0 Experience curve effect 0 Price skimming 0 Higher initial price 0 Innovatorsearly adopters willing to pay higher price 0 Objective get max price from each customer Markdowns 0 Key part of highlow strategy 0 Get ride of merchandise that is Slowmoving Obsolete Seasonal 0 quotloss leaderquot Pricing Tactics 0 Quantity discounts o Lowers perunit price Larger packages Multiple items Greater quantities Seasonal discounts o Stimulate demand in offseason 0 Services 0 Goods Coupons 0 Increase sales shortterm o Induce customers to try a product 0 Protect market share 0 Segment the market Price sensitive people will use others will not Rebates o Coupon get money back right away rebate get money later 0 Manufacturer NOT the retailer provides the discount 0 90 of customers never collect the rebate give illusion of lower price Leasing renting 0 Customers pay a fee to use the product for a speci ed time pedod 0 Ideal for customers who Always want the newest model a Not price sensitive Have shortterm needs Have no savings 0 Price bundling 0 Multiple productsservices for a single price Complementary productsservices 0 Ex cell phone companies Enables rm to capture more of a customers business Encourages customer to try new product 1 in bundle that they don t necessarily want 0 Why bundle Get more sales from single customer Trial new product Incentive to buy less desirable products 0 Leader pricing 0 Aggressive pricing of a particular product to build store traffic quotstaple productsquot a milk sodas pasta sauce toilet paper restaurants a quotdollar menuquot a cheap wings BZB Pricing Tactics and Discounts 0 Seasonal discounts discount for preordering stock 0 Shift risk to retailer 0 Ex home depot orders snow blowers in summer Get discount from manufacturer 0 Cash discount o retailers often pay on credit ie due in 30 days 0 Rewards retailers for paying early 0 Vendor allowances vendor pays retailer 0 Advertising allowances o Slotting allowances Vendors pays to have certain products in prime locanns Quantity discounts o Retailers get discount from manufacturer for ordering a lot 0 Gives upper hand to large rms that can afford to go this Favors big retailers o Noncumulative single order 0 Cumulative multiple orders 0 Uniform delivers vs zone pricing 0 Uniform same price for all vendors everywhere Ex cars higher priced products 0 Zone pricing geographic pricing Ex oranges more expensive in Montana than FL Deceptiveillegal pricing 0 Loss leader pricing takes tactic of leader pricing 1 step further by lowering price below the store s cost 0 Suggests cost lower than it is Deceptive reference prices 0 Put sale price next to altered regular price to make sale look better Bait and switch advertise items for very low price wo intent to really sell any 0 Bait for product that s not available o Lures customers in with low price only to pressure customer into buying higherprices model 0 Ex Black Friday advertising for cheap tv but there s only 1 available But now they already have you in the store Must say how many units available Predatory pricing rm sets very low price with the intent to drive its competition out of business 0 Goal to drive competitors out of business 0 Ex walmart moves into town and lower price below their costs temporarily until competitors go out of business then raise prices to normal Price discrimination when rms sell same product to di resellers at diff prices 0 Ex pay day loans End up paying BOO600 interest Price xing colluding with other rms to control prices Collusion among competitors to x price 0 Work together and all raise price together Ex gas prices 0 Can happen with local gas stations in a town When fewer rms easier to do Have agreement to not compete on price forces consumers to by at raised price 0 Horizontal among competitors 0 Vertical bw channel members How to Price Groupon Offer service for discounted price Bene ts to company using groupon 0 New customers 0 Forget voucher rebate o Promotionadvertisement Costs to company using groupon o Cuts into pro ts 0 Customers very price sensitive probably wont come back 0 Perception of value decreased 0 1 competition based 0 direct competition price 0 Set price lower 0 Price higher l position as higher quality 0 Con not focused on what customers willing to pay 0 2 cost based 0 costs xed HIGH a management a rentutilities n equipment variable LOW n trainers 0 con still not focused on customer value generally has low price to get a lot of members makes gym less desirable 3 value based 0 A per unit cost vs unlimited membership Classes Number of times per week 0 B volume discounts Family 20class or 15010classes pay less longer you are a member 0 c market penetration free classes trail period con not necessarily attracting loyal customers a lowers pro t a lowers perceived value lowers customer risk 0 d how to lower customer risk and keep current customers happy Allow members to bring a friend for free 2 options I offer trial 3mo for 50mo 150 a Offer a money back guarantee 0 50 after 3 months at 100mo normal price if dissatis ed 0 gym still gets 150 0 and many people do not follow thru with rebate type deals encourages customer to actually go bc paying more per month What is the supply chain 0 All activities and institutions required to get a product to the customer 00000 O Suppliers Manufacturers Warehouses Stores Customers Transportation to get product from AljB Supply chain marketing channel 0 Supply chain management set of approaches rms employ to ef ciently integrate their suppliers manufacturers warehouses stores and transportation intermediates into a seamless operation in which merchandise is produced and distributed in right quantities to right locations and at right time and to minimize systemwide costs while satisfying the service levels customers require Ex supply chain for gasoline Oil extraction 0 O O Pipelinessupertankers to re neries Re nedes Bargespipelines Fuel terminals Tanker truck Gas stations Price usually determined higher up on supply chain which affects prices at nal consumer Ex supply chain for cars 0 Raw minerals O Trainstrucksships Parts manufacturers O Tra i nstrucksshipsa i rcraft Auto manufacturers O Trainstrucksships 0 Auto dealers F150 article delayed bc made out of aluminum caused supply chain problem high up bc 0 could not nd enough Al 0 parts manufacturers normally work with steel 0 repairs on Al trucks diff need new equipment to work on How Does a Supply Chain Add Value 0 Each member in chain adds value 0 Ex Ford to make car rely on Raw material extraction a Transportation Components manufacturers Product manufacturers Distributers Retailers Marketing channel information ow Vendormanaged inventory Manufacturer not the retailer manages the inventory 0 Goal to improve market channel efficiency 0 Ex vending machines 0 Consignment manufacturer own merchandise until its sold by retailer at which time retailer pays for the merchandise 0 manufacturer owns the inventory 0 Reduces risk to retailer Pull supply chain merchandise orders based on sales 0 Push supply chain merchandise orders based on forecasts Merchandise ow 0 Distribution centers vs direct store delivery facility for the receipt storage and redistribution of goods to store or customers 0 More accurate demand forecasts Average over multiple stores 0 Reduces amount of instore stock 0 Reduces chances of a quotstockoutquot 0 Saves money Managing the supply chain 0 Independent conventional supply chain several independent members manufacturer wholesaler retailer each attempt to satisfy its own objectives and maximize its pro ts often at expense of other members 0 Channel members are independent 0 Ex grocery stores don t own the food wholesalers 0 Vertical marketing system marketing channel in which the members act as a uni ed system 0 Channel members act as a uni ed system Contractual vertical marketing system independent rms at diff levels of marketing channel join together thru contracts to obtain economies of scale and coordination and to reduce con ict No formal ownership Formal contracts bw channel members Economies of scale Coordination Reduces con ict Ex franchises Franchises don t own the vertical marketing system but they have strict contracts 0 Corporate vertical marketing system parent company has complete control and can dictate priorities and objective of marketing channel bc it owns multiple segments of the channel 0 Formal ownership OOOOO Retailing Activities that add value to products and services sold to customers Retailing adds value to that product by enabling me to purchase it with different levels of service or convenience 0 Ex stores catalogues internet services Food retailers Supermarkets Supercenters grocery stores that sell other merchandise like clothes and sporting goods Warehouse clubs Convenience stores Can buy can of campbell s soup at any of these locations BUT they are adding value General merchandise retailers Department stores Full line discount stores Specialty stores Service golf store or electronics store 0 Ex Golftown will give you extra expertise additional value on top of product Drugstores cvs pharmacy l Pharmaceuticals Lots of overlap and cross categorization walmart pharmacy Category specialists big box retailers offer narrow but deep assortment of merchandise 0 michaels or barnes and noble o sell lots of one thing 0 deep selection extreme value retailers dollar stores off price retailers 0 outlet stores 0 closeout retailers at T max or dollar store don t know what they will be selling exactly depends on the salesdeals the store got Service retailers Offer services 0 Banks Auto services Vision centers Spas Bene ts of stores Browsing people like to go to stores and browse Touching and feeling products apple store 0 Personal service some products you d never buy online like a tted suit tailored stuff 0 Don t get entertainment and social experience when you shop online 0 Immediate grati cation Risk reduction Bene ts of internet and multichannel ie macys having in store and also online stuff Deeper and broader selection Personalization 0 Customer service 0 Offerings o Insights into consumer shopping behavior 0 Tracking individual consumers 0 Recommendations 0 Customer satisfaction and loyalty o Cannibalization o Showrooming go to store to pick out exactly what you want but then go an buy for cheaper online Ex sony has tvs available at bestbuy and also on amazon at a lower price consumers use bestbuy as a showroom 0 Now stores like walmart and best buy are allowing order online and pick up in store Avoids cannibailization and limits the effects of showrooming bene t of having both is getting the customer sale without them going to a competitor o Showrooming Is it ethical How can retailers compete l by having exclusive products similar to exclusive cobranding analyze the starbucks racetogether initiative Page 1 begin with SWOT and STP for starbucks SWOTSTP done earlier in notes then discuss whether or not the racetogether initiative was a good idea or not discuss whether any changes could have been made and whether it ts with Starbuck s longterm strategy SWOT Strengths Atmosphere 0 Work meetings 0 Relaxed 0 Brand equity Loyal customers 0 Loyalty program encourages frequent customers 0 High quality products and service 0 Variety Many locations Weaknesses 0 Service speed slowing if initiating a conversation 0 Just came for coffee don t want to be imposed with complex issue 0 Can t have educated convo with such a time limit 0 Employees not trained properly to mediate such a conversation 0 People don t want to talk with strangers about such a topic 0 Many employees are minorities while customers mainly white 0 Uncomfortable Opportunities 0 Service community Conversationengagementawareness rst step to solving a problem 0 Pushback brought it even more attention Attracting customers who agree with the initiative Strengthens brand Associating the brand with awareness and taking initiative 0 Enhance customer experience Threats Discussions becomes controversial o Ruin customer experience 0 Brand viewed as ignorant STP Strategy and objectives 0 To create an opportunity to discuss race Segmentation methods Behavioral o rewards loyal customers o occasion work meetings 0 Geographic urban areas 0 Demographic higher income Segment attractiveness Identi able 0 Where they live 0 Member card holders Substantial 0 Many loyal customers Reachable 0 Know where they live 0 Email card carriers Responsive o Loyal customers are 0 Urban people open to new things Pro table 0 Loyal group is 0 Urban people generally have more money Select target market 0 Target loyal and urban customers Position strategy 4Ps Product convenient consistent high quality coffee 0 Price higher 0 Place coffee shop as a place where people gather 0 Promotion on cup and employees initiating conversation race together does not explain itself needs an explanationconversation TIME Starbucks Race Together39 lnitative ls Brilliant httptimecom3749221starbuckshowardschultzracetogether initiative 0 march 18 2015 encourages baristas to write quotrace togetherquot on cups to foster opportunity to reexamine how we can create a more empathetic and inclusive society ie discuss race 0 writing this initiates conversion about race danger discussions become controversial polarizing destructive to starbucks business 0 train baristas how to manage the challenges of discussing race relations pros service country strengthen brand customer experience Rolling Stone Starbucks to stop writing Race Together39 on coffee cups httpwwwrollinostonecomculturenewsstarbucksscrapstheir racetogether initiative20150322 0 march 222015 0 goal to stimulate conversation empathy and compassion towards one another then to broaden that dialogue beyond starbucks family to American public 0 initial push for much needed national discussion around difficult topics canceled bc of mounting criticism 0 launched march 17 cancelled on march 22 o hashtag mocked 0 NY Times Readers respond to Starbucks Race Together39 initiative httpwwwnvtimescom2015O321businessreadersresoondto sta rbucksracetoqether initiativehtmlr0 march 21 2015 people don t want to talk about sensitive subjects in morning when employees did not feel comfortable being forced to explain it and start the conversation barista opinion 0 only concrete element was plan of writing race together on cups dif cult in high traf cked store little time to make an educated comment on such a complex topic came off as some people liked 0 think any act of social good will be rejected by Americans 0 took message to America as if we race together we can live together NY Times starbucks ends conversation starters on race httpwwwnytimescom20150323businessmediastarbucks endstempestuousinitiativeonracehtml march 22 CEO Schultz quotdidn t expect universal praise 0 quotLeading change isn t an easy thing to accomplish starbucks executive team less diverse than lower paid staff ordering a coffee should not impose a deep conversation still continuing dialogue on dif cult topic in other ways 0 mission to inspire and nurture human spirit 1 person 1 cup of coffee at a time 0 quotdoing nothing makes us part of the problem Bloomberg video Starbucks race together39 intentions were good Kaplan httpwwwboombergcomnewsvideosZOl50324starbucks racetogether intentionsweregoodkaplan Intentions good F Training employees important 0 Hirecareer development 0 Create forums to disscuss Starbucks associated with class expensive so already a target 0 Not place you want to have discussion on heavy topics Poor timing with ferguson very sensitive too soon Forbes would you discuss race with your starbucks barista httpwwwforbescomsitesruchikatulshyan20150318wouIdyou discussracewithvourstarbucksbarista march 18 campaign sparked by recent uptick in nationallycovered racially charged tragedies starbucks missed mark by compelling people to have these signi cant conversations with strangers o no context or guidelines on how to do so race together but thrust upon customers demographic difference bw baristas 40 minorities and customers 78 white 0 not comfortable conversation o burdened people of color with job of teaching noncolored people time constraint how meaningful could that conversation be Discussing race most impactful when everyone equally ready to engage in the dialogue 0 At starbucks just want to get a coffee Without proper training context and sensitivity race together appears to be an awkward onesided initiative with its heart in the right place Forbes Applause for starbucks39 racetogether from retail insiders httpwwwforbescomsitesretailwire2015O319applausefor starbucksracetogetherfromretailinsiders march 19 starbucks own policies low wages lead to some racial inequality some question pro t motives nai39ve to think any real discussion could take place in busy coffee shop but if idea was to start conversation and highlight what it uncovers l pushback made it even more successful agree that ignoring the subject by relying on gov t solution not working 0 need dialogue and engagement breaks rule of keeping politicsreligion out of business discussion Case 3 lnClass Overview SWOT Strengths Brand equity Loyal customers High quality Atmosphere Dnnks Efficient supply chain 0 Good serviceemployees Weaknesses 0 Slow long lines o Expensive Bad publicity from other movements 0 Antigun progay marriage Unhealthy 0 Image of typical customer white rich Opportunities 0 Global expansion Branded products 0 New products 0 Alcohol gelato Threats Competition 0 Cheaper McD DD PubHc y Supply 0 Coffee products costs 0 Economy STP Segmentation Demographic higher disposable income Behavioral occasion Geographic urban uppermiddle class areas 0 Lifestyle 0 Freelance o Lululemon Loyalty Target Uppermiddle class Wealthy Urbanites 4Ps product 0 customized product 0 serVIce 0 price higher 0 place urbantrendy areas 0 promotion promote loyalty customizable experience Goal Baristas write racetogether on cups and start conversation 0 Normally conversation just name and drink 0 Predictable 0 Nice environment 0 Get personable special experience makes us feel good 0 racetogether inconsistent with normal service o unexpected l does NOT make you feel good 0 other messages starbucks have done 0 antigun 0 support gay marriage 0 difference didn t write on cup with a didn t force on people 0 cometogether different bc more suggestive than forceful other ways they could have spread the message 0 forums for discussion 0 hire minorities 0 new locations 0 attend ralliessupport o sponsoring o legitimacy Not congruent with brand McDonald s Social responsibility 0 Ronald McDonald house provides housing for people who are sickin hospital Starbucks social responsibility Fairtrade pay fair amount to suppliers no nike sweatshop 0 Environmental These are noncontroversial Corporate charities o mcD RMDH tim hortons campschildrens foundation 0 send underprivledged kids to camp 0 not controversial starbuck responsibility tab on websites 0 TON of responsibilities Multiple categories 0 Responsibility central to starbucks but customers can t associate the brand with one thing Question legitimacy of Starbucks RT 0 Looks like publicity stunt bc they were not contributing any money to the cause 0 All talk didn t actually do anything 0 Better to support 0 Then advertise their efforts put the charity on the cup Economics the study of how consumers SHOULD behave assumes people are rational Consumer behavior the study of how consumers ACTUALLY behave Consumer Decision Process How to consumers decide what product to buy 0 1 need recognition 2 info search 3 alternative evaluation 4 purchase 0 5 post purchase evaluation Need Recognition 0 Functional needs satis es a core need 0 Ex car transportation Psychological needs satis es an emotion affect how you feel 0 Ex car gets a luxury car 0 Ex university choice 0 Functional needs Education gives you skillsknowledge job 0 Psychological needs Weather Close to family Place where you t in Information Search 0 Internal search 0 What do you ALREADY known about the product 0 External search 0 You conduct Marketing Research Secondary data a Research online Primary data a Visit campus a Test drive car 0 Consumer search 0 Costs vs bene ts How much search is worthwhile Depends on n Importance of purchase 0 Lots of research for university choice not much for soda choice a Cost of item 0 More more research bc higher risk a Potential impact of the search a Product knowledge 0 Already know a lot about product so don t search as much 0 Actual and perceived risk Greater risk l greater search a Performance risk perceived danger inherent in poorly performing products shirt shrinks a Financial risk initial cost of purchase and cost of using item a Social risk fears that consumers suffer when they worry others might not regard their purchases positively a Safety risk fear of actual harm should product not work properly a Psychological risk way people will feel if product doesn t convey the right image Alternative Evaluation 0 Consideration sets 0 Universal set includes all possible choices for a product category All universities in the USA 1200 Don t usually look at this set too much 0 Retrieval sets brandsstores that can be readily brought forth from memory Universities that you immediately think of Different for everyone a From Boston think of mass schools 0 Evoked set alternative brandsstores that consumer states they would consider when making purchase decision Universities that are on list after some research a Edit and add to retrieval set Evaluative criteria important attributes of a product 0 Ex for a car price MPG engine HP brand warranty 0 Ex university ranking class size location tuition Determinant attributes perceived to differ among competitors 0 Drive the decision making Helps to decide bw very similar products have similar important attributes 0 Ex quality ratings product features 0 Consumer decision rues criteria that consumers use to quickly select from several alternatives 0 Compensatory decision rule trade off one characteristic for another such that good things compensate for bad tradeoffs bw attributes H ex price vs quality 0 Noncompensatory decision rule choose product on basis of 1 characteristic regardless of the values of its other attributes ignore other attributes n ex brand name price Purchase 0 conversion rate of consumers who purchase after searching o differs across channels retail stores more likely to buy auto dealer housing market internet less likely to buy university of miami 30 Postpurchase Customer satisfaction 0 Actual vs expectation Ex buy cheap car that breaks down less dissatis ed bc did not have high expectations 0 Enhancing customer satisfaction 0 O O O O Realistic expectations Proper product usage Ex having an attendant at the self check out counters Customer feedback Maintain contact with customers Servicewarranties Consumer Identity 0 What is your identity 0 Overall sense of who you are Selfconcepts O Eg athletic intelligent thoughtful Social identities 0 Share identity with a group 0 Eg nationality UM student CrossFit athlete Reference groups a group of people whom you compare yourself to 0 Group you belong to or group you don t belong to lngroup a group that you belong to Outgroup a group that you don t belong to 0 Can want to be like that group or not Aspirational reference group group that you ASPIRE to belong to Dissociative reference group reference group that you wish to AVOID being associated with Conformity want to conform to group you belong to 0 Consumer gets same products as group members 0 Identity con rmation Conform if uncertain and want to affirm that identity Ex freshmen wearing UM shirts 0 Signal membership Want to signal your identity Ex where UM shirt at home town 0 Social pressure Divergence consumer different products than group members 0 Why diverge Signal uniqueness Signal nonmembership Conformity and divergence o Consuming variations of the same product as others Why does consumer identity matter l consumers use brands and products to signal identity 0 BUY identitycongruent products and brands Eg reebok cross t shoes underarmour football gear 0 AVOID brandsproducts that are incongruent with their identity Eg business blackberry vs creative iphone When does an identity in uence behavior 0 Identity salience When is an identity relevant n Minority when you are the minority your identity becomes more important and want to represent it more D Situation 0 Eg UM law students student identity vs lawyer identity 0 Identity threat Consumers seek to AFFIRM that identity Behave in an identitycongruent manner Consumer identitycongruent products Ex after 911 people bought more American products and has more American ags Heuristic simple experiencebased rules of thumb used to guide decisions 0 Higher price higher quality 0 Avoid dark alley l probably dangerous Bias systematic error in processinginterpreting info Overestimate prob of rare events plane crash Underestimate prob of common events car crash Why are heuristics valuable Simplify decision making 0 Reduce search costs 0 Reduce thinking costs Reasonably accurate 0 Based on prior experience Why are heuristic problematic Cause error 0 Suboptimal decisionmaking Eg mazda vs ford ranger for a truck n nfer ford better bc of brand and higher price even though they are the same truck 0 Stereotypes Racial pro ling Types of Heuristics Anchoring and adjustment 0 When making an estimate eg price people anchor on a number and adjust from there Ex population of London is 10mil n What s the population of Paris 0 Anchor on 10mil and then think is Paris largersmaller 0 Why does this work When we have uncertainty about a quantity we have to start somewhere to make our estimate o In marketing pricing Reference prices Competitorbased pricing Costbased pricing n Anchor on what you are willing to pay 0 Availability heuristic what comes to mind rst 0 Ex what s the largest city in Europe Think London bc just talked about it 0 Ex which is larger London or Moscow Think London bc hear about it more even tho Moscow larger 0 Why does this work It must be biggermore likelybetter is it s easy to recaH o In marketing brand effects Eg quotwhat is the best laundry detergentquot n Immediately think Tide Representativeness heuristic 0 how similar prototypes are in your mind ex dave is an economics professor Is he a democrat or republican Republican ex greta an English professor l probably democrat 0 why this works Things are naturally correlated in the real world 0 In marketing category leaders Starbucks prototype coffee shop a quotis it like starbucksquot BMWMercedes prototype luxury car a When kia wanted to make luxury car made one with very similar design to prototype Scarcity heuristic o Scarcer items worth morehave greater value 0 Why does this work Scarcity is informative food jobs wealth o In marketing promotions Limited edition only 50 remain o Effort heuristic o What took more effort to make is betterhigher qualityworth more Eg handcrafted products homemade food 0 Why does this work Effort informative Effort you exert is correlated with value of the outcome o In marketing craftsmanship Hand crafted higher quality Bentleyrollsroycemorgan a Lower quantities Types of Biases Fundamental attribution error 0 We attribute our successes failures to internal external causes and attribute others successes failures to external internal causes If I fail an exam its bcexcuses If someone else fails its bc they are smart lfl ace exam its bc I m smart Someone else aces its bc they cheated o In marketing auto insurance quotwhy pay for other people s bad drivingquot if you get into accident not your fault Loss aversion 0 We strongly prefer avoiding losses as compared to acquiring gains Find 5 pretty happy Find 10 but lose 5 of it less happy than just nding the 5 a Less happy bc pain of loss larger than join of gain 0 ln marketing Extended warranties and limited time offers a Avoid future losses a People get warranties bc they re loss averse Con rmation bias o Interpreting info in a manner consistent with one s current beliefs Eg what s the best university in FL Umiami o In marketing your favorite brand Selectively processinterpret new info You seek out info that supports you current beliefs a quotUS news ranks UM 39 and UF 48 ignore info that does not support your beliefs I Forbes ranks UF 74 and UM 124 Unskilled and unaware o Unskilled people think that they re bettermore capable than they actually are Why lack of calibration I Can t compare themselves bc unskilled o In marketing Advertising claims a Ex good golfer knows goodbad club knows it will not make huge difference bad golfer does not know this What is a nudge Aspect of the quotchoice architecturequot 0 How the choice is set up Predictably alters people s behavior 0 Based on research 0 Does not forbidexclude options 0 Not a mandate Easycheap to avoid 0 Not overruling somebody but guiding their behavior Ex smoking 0 No smoking on campus not nudge bc a mandate Fishbowl smoking rooms in airports l nudge bc people choose on own not to smoke Choice Architecture 0 How the choice is presented to the decisionmaker 0 Default options 0 Order of choice 0 Choice set 0 quotframingquot the info 0 ex large vs small recycling bin 0 small bin l think there should be less recycling 0 large bin l think there should be more recycling 0 ex large prominent stairs in SAC l likely to take stairs over elevator 0 business building people take elevator bc stairs hiddeninconvenient power of the default 0 O the default l doing nothing ex countries where you have to optin for organ donation of divers license have far less donors than countries where you have to optout why is default so powerful Lazinessignorance Suggestive u quotthere must be a reason it s the defaultquot H ex signing up for Obamacare people have to opt out of automatically renewing their medical coverage loss aversion u always view our current position relative to our possible position query theory our preferences are affected by what we think about rst a why would you like to donate your organs In Why would you like to keep your organs 0 Order of choice what comes rst 0 Ex Healthy food put rst in lunch line people choose greater amount of healthy 0 What comes rst Giving a choice allowing people to perceive that they have an option will allow people to in uence their behavior ex social experiments getting high school students to stop drinking their milk a Students in Oregon chocolate milk in back white milk in front l drank white milk 0 Choice set food beverage car or truck or etc o For a truck could buy a red Chevrolet Colorado or a red Chevrolet Silverado or a Silverado 3500 0 Introducing the larger option the Silverado 3500 is going to lead to a bigger choice o If you add another small truck it increases preference for a smaller truck Compromise effect adding an extreme alternative to the choice set increases preference for the closer alternative 0 IPAD 400 500 600 16gb 32gb 64gb o in uencing consumers choices by changing the structure of the choice set 0 why Extremeness aversion people have an aversion to choosing extreme options prefer to compromise Ex Is the NYC soda ban a nudge no it s an in uence 0 How could we nudge consumers to buy smaller drinks Frame identical info and present it in a different way Heart shaped picture frame Use framing lots of different ways we can frame things to nudge people O O O O O Gain vs loss People are very averse to losses Framing Healthy behavior and framing Imagine you want to incentivize exercise at your workplace lunchtime walking group Current pay 10hour Option A Pay an extra 1hour to each employee who does the lunchtime exercise that day Option b Increase pay to 11 an hour Take 1 hour away from each employee who does not do the lunchtime exercise that day 0 Option B is more effective bc people afraid of losing the money Nudging guiding behavior vs mandating it 0 Ex Smoking Alcohol 0 Perhaps a nudge more effective than a mandate for 21 drinking age Framework 0 Target behavior healthier lifestyle 0 How do nudges vary 0 Boost self control vs activate desired behavior Ability to resist temptation when you are pursuing a goal is self control 0 Externally imposed vs self imposed o Mindful vs mindless 0 Encourage vs discourage Boost self control helps individuals follow thru with a decision 0 Getting people to follow through on an existing goal 0 Ex Placing healthy food in more prominent locations Activate desired behavior in uences a decision that an individual is indifferent or inattentive to 0 Making a goal active so that it affects behavior 0 Ex Placing reminders about the contents of healthyunhealthy food 0 Google employees gaining weight To boost self control they put the healthier foods at the beginning of the line Externally impose passively shape behavior bc of the way they present available options without constraining them 0 Choice architecture 0 Ex Google would be an externally imposed nudge 0 Default option 0 Choice set Self imposed voluntarily adopted by people who wish to enact a behavioral standard that they feel is important 0 Voluntarily adopted nudge 0 Fitness tracker 0 Ex Setting a reminder on phone for assignment Ex John hancock insurance Fitbit 0 Customers ofjohn hancock could accept this nudge o If people workout more then they can reduce the number of health insurance claims Mindful help people follow thru with a behavioral standard that they would like to accomplish but have trouble enacting o Deliberate requires thinking 0 Ex Reminders to exercisebe healthy Mindless use emotion framing or anchoring to sway decisions that people make 0 Automatic no thinking required 0 Ex Make a healthy option the default 0 Restructure the choice set 0 Ex To go work out we can take an escalator or escalator mindless Encourage use emotion framing or anchoring to sway decisions that people make 0 focus on increasing desired behavior 0 how to promote healthy living 0 ex putting public transit lanes next to sitting traffic encouraging people to bike ride the bus Discourage hinderprevent behavior that is believed to be undesirable 0 focus on eliminating undesired behavior 0 ex city tax on soda target behavior reduce soda consumption the soda tax is not a nudge because it s a mandate a nancial incentive is not a nudge will it work probably not bc inelastic demand for soda ex When you go to a grocery store cigarettes are behind the counter o In Canada they used to have the same layout now they are required to cover them up if you want a cigarette you have to actively pursue it Design a nudge boost self control or activate desired behavior Externally imposed or voluntary Mindful or mindless Encouraging or discouraging Ex John hancock tbits Target behavior live healthier Is this a nudge Boost self control or activate desired behavior 0 Externally imposed or voluntary Mindful or mindless Encouraging healthy behavior so it s encouraging you to get up and exercise Ex Nudging UM students 0 Target behaviors 0 Student alcohol consumption 0 Timely acceptancedecline of enrollment 0 Riding bicycles vs taking bus 0 Class attendance 0 Other 0 Could have dedicated bike paths or multiuse paths Marketing ethics moral and ethical dilemmas that arise in a marketing setting Blasts from the past 0 Ex doctors smoking camels cigarettes o Unethical bc its unhealthy but the inference is that it is heakhy o CVS made ethical decision to stop selling cigarettes as a pharmacy 0 Ex guns for children 0 Unethical bc promotes violence 0 Look like real guns and kids can pick up real gun thinking it s a toy gun 0 Ex intstones guys watching women work while they relax and smoke a cigarette o Unethical bc targeting to children Shortterm pro ts vs longterm customer needs 0 Ex coke sells a lot to high school students but concerned about negative health affects in longterm Ex mortgage crisis 0 Get bonus for selling mortgages Incentive to sell a lot of mortgages in shortterm 0 Bank executive compensation shortterm performance 0 Standards for mortgage approval longterm implications Personal ethics 0 Why do people act unethically 0 Personal gain Pro t Stresspressure Failure to understand ethics Cultural standards Ex in other countries theftblack market normal 0 Lax rules American Marketing Association Code of Ethics 0 What is a norm not a written rule but how people are expected to behave 0 Ethical norms 0 Do no harm 0 Foster trust in marketing system Ex don t outsource manufacturing to sweat shops 0 Embrace ethical values 0 Ethical values 0000 o Honesty Truth in lending Truth in advertising 0 Responsibility Accept consequences Ex product recalls o Fairness Balance needs of the buyer and seller Ex are extended warranties fair I Ethical to sell car to someone you know can t really afford it 0 Respect Basic human dignity of all stakeholders n Ex unethical to pay employees insufficient wages o Transparency Disclose risks and all prices Ex auto dealers advertise price much higher Ex pharmacies half of commercial is the side affects health disclosures 0 Citizenship expect companies to be good citizens Economic legal philanthropic societal responsibly give back to society Restaurant Article Refused service to group of mentally disabled people 0 Claimed they would disturb other customers Unethical bc o Discriminationstereotype Assume they will misbehave based on their stereotype 0 Its out of their control As opposed to loud college students 0 Trade off bw short term pro t and longterm customer needs Creating an Ethical Climate Creating a set of values 0 Johnson and Johnson credo known as very ethical company 0 USMA West Point Honor code quota cadet will not lie cheat or steal or tolerate those who doquot 0 UM business honor code Does the mission statement include ethics 0 Ex Conoco Philips developing energy responsibly Who is the target market 0 Ethical to target that group Ex target cigs to children no alcohol commercials on Sunday morning How do you target that group 0 What mix of 4Ps do you choose o Is it an ethical mix Monitoring ethical issues o Is there a structure in place Ex UM has honor council Truth in Advertising 0 quotmade in USAquot o 50 of materials OR 75 manufacturing costs 0 car ads 0 highend model shown at lowend price ne print says starting price Pay Day Loan 0 Get shortterm loan for 12 weeks pay back at next pay day 0 But then when pay back need money so have to get another loan 0 Cost 1020 of loan amount 0 Target 0 Lowincome o Financially insecure o Are they ethical 0 7580 percent renewal 80 need another payday loan to pay off previous payday loan 0 Are they promoted ethically 0 Min 750mo income l very low income 0 No credit check l target people with bad credit 0 Can get up to 1000 more than 1 months pay check American Apparel 0 About their ethics CEO wild card o Is company ethical or not The purpose of this case is to get you to evaluate the ethical decision making of a company and identify how a company ought to address ethical Issues 0 Did American Apparel have a problem Why or why not 0 Yes deeply in debt so something must change Millennials not shopping there anymore Started with immigration audit a CEO not practical Advertisements offended many Sexual harassment further diluted brand 0 Due to CEO and advertisements o Strengths overshadowed by CEO debt advertisements What would have been the value to American Apparel of engaging in more socially responsible more ethical advertising 0 Increases brand s image positively Many admire AA s ethical and altruistic initiatives 0 While sexual advertisements brought attention but wrong kind of attention Stay edgy thru social issues 0 In light of recent June 2014 developments red CEO do you think the company did the right thing 0 Yes CEO was center of most issues and change must start from the top 0 Is it unethical o No lacks respect 0 Change 0 New CEO women 0 Stay edgy but less sexy and more social issues 0 Expand on millennial target market 0 Focus more on its social responsibility In class we will discuss whether and when merely offending someone or some group of people is unethical Is it always 0 For example consider recent advertising campaigns featuring samesex or interracial couples Some are offended by this Is this unethical SWOT Strengths Socially responsible business practices 0 Environmentally conscientious organic cotton recycled fabric 0 Supports charitable causes donates clothes 0 quotmade in USAquot prolabor practices w immigrants high wagesbene ts to workers quotsweatshop freequot Vertically integrated business model reduces costs 0 Brand equity customer loyalty via ideals and high quality products 0 Internationally known 0 Known for natural beauty models not photo shopped 0 Known for moderately priced logofree clothes 0 Loyal millennials Weaknesses Controversialsexually based advertising 0 CEO a liability inappropriate behavior in workplace sexual harassment lawsuit 0 Debt 120 mil in 2011 0 High production costsprices Opportunities Reform ad campaign focus more on AA s positive aspects 0 Focus product lines eliminate those that aren t pro table Construct more positive public image Threats 0 Competition from other clothing companies 0 Larger companies Gap 0 Specialty companies AampF 0 Firms that offer cheaper product bc using low cost foreign manufacturers Rise in raw material prices cotton or manufacturing costs 0 Investors less willing to assist AA in rebounding from near bankruptcy STP Target market young urbanites Young adult consumers who seek natural beauty thru fashion 0 Progressive thinkers Segmentation Psychographic socially conscious progressive thinkers Geographic urban Demographic young adults 4Ps product high quality 0 price moderate place in store 0 promotion shocking ads trendy clothing fortune AA updates its ethics code after ousting Charney httpfortunecom20150106americanapparelnewethicscode o jan2015 updated ethics code after ring CEO Dov Charney included quotno managementlevel employee may make sexual advances toward any subordinatequot could be positioning AA for a sale but rst need to reestablish the brand new CEO Paula Schneider goal to make AA better company while staying true to core values of quality creativity preserving sweatshopfree made in USA manufacturing philosophy expected to report 5th annual loss for 2014 Bloomberg AA CEO Adds New Angle to Edgy Brand httpwwwbloombergcomnewsvideos20150209americanapparel ceoaddsnewangletoedgybrand feb2015 new CEO a women wants brand to be just as provocative but with some changes less skin 0 Charney knew her makes transition easier wants to keep edginess but less sexualsuggestive take on social issues gay marriage anitbullying provocative in this way instead on a social stance trying to expand demographic o 305 women older millennial familiar with brand bc got when younger o millennial hard to get but have it so should expand on it marketing will be less sexualized and will instead dive into social issues of the day 0 highlight made in USA high wages for workers strength strong connection with millennial shoppers o overshadowed by Charney s personal life criticism of suggestive ads nancial woes lack of strong systems and processes holding company back Charney committed to returning to company in some capacity Having inhouse manufacturing means AA can respond to shifts in industry where trends change quickly Schneider said quotif has to be a little sexyquot sell lingerie 0 Just make sure not to cross the line 0 Should be about empowering women Forbes Dov Charney Firing aside do millennials still care about AA httpwwwforbescomsitesclareoconnor20140619dovcharney ringasidedomillennialsstillcareaboutamericanapparel o 62014 Charney s sleazy persona heart of the brand with borderline pornographic ads hipster aesthetic and stunts pubic wigs on mannequins Since CEO red AA stock surged but nancial performance lately has been lackluster o Decrease in store sales share price cut in half 0 Poor performance partly result of loss of interest in brand among target demographic millennials o 2013 AA slumping while rivals trended upwards 0 people less likely to shop at AA vs rivals less purchase consideration Forbes AA res Dov Charney and hires women CEO httpwwwforbescomsitesclareoconnor20141216american apparel resdovcharneyandhires rstwomanasceo 0 122014 0 while suspended Charney served as consultant relationship now terminated Paula Schneider replaced as CEO rst women CEO of rm 0 Previously pres or senior of cer at number of retail and apparel companies NY times AA is a lesson in how not to run a company httpwwwnytimescom201407120pinionjoenoceraamerican apparelisalessoninhownottorunacompanyhtmlr0 july 2014 0 only started to worry when they saw nancial disaster 0 board looked other way bc o Charney founded company his identity intertwined with company Charney has classic aws of a founder o Passion got company up and running but lacked skill necessary for guiding large enterprise 0 Micromanaging drove off every talented executive hired Resistant to advice 0 Oversized dreams expanded too quickly Subjected to immigration audit 2009 l had to lay off factory workers l Delayed shipmentsExpensive hiringtraining o Downhill ever since Sales slowed stock tanked Huff post AA now explicitly bans managers from hitting on workers httpwwwhuffinotonpostcom20150107americanapbarel ethicsn6432376html 12015 month after ring CEO revamped code of ethics 4x longer 0 packed with policies to combat sexual harassmentprevent relationships bw supervisors and subordinates policies to curb discrimination and abuse in workplace any form of abusive conduct not tolerated board accused CEO of sexual harassment and misusing corporate funds buying plane tickets for family mitigating workplace harassment comes down to company s culture and its employees 0 starts with senior management change starts here Unethical Ethics disconnectedcontradict Ethical in many ways quotmade in USAquot respect environment charity citizenship high quality products natural beauty honesty Unethical target market are young adults not ethical to show them highly sexualized ads targeted contemporary adults who desired sexual freedom claimed praising women for their natural beauty but most don t see it that way pornographic should empower women not sexualize them unethical nature extended to other area of business sex harassment made ads seem worse CEO was a liability Sexual harassment lawsuit And incapableirresponsible l led to debt passion to start rm but lacked skill to run large enterprise drove away every talented executive hired oversized dreams resistant to advise Fired right thing to do change starts at the top Regardless of his persona being heart of brand His identity intertwined with rm In many peoples opinion this was overduedelayed Change new CEO women New code of ethics creates set of values Emphasis on sexual harassment Focus more on social responsibility in ads BUT stay edgy thru social issues less sexualized marketing Targets progressive thinkers in positive way Suggestive ads got them attention but wrong kind of attention


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