M370 Lecture Notes - Final Exam Portion
M370 Lecture Notes - Final Exam Portion BUS-BE 375
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This 38 page Bundle was uploaded by Elizabeth Frabotta on Wednesday November 11, 2015. The Bundle belongs to BUS-BE 375 at Indiana University taught by Kitzmiller G in Fall 2015. Since its upload, it has received 61 views. For similar materials see BUS-BE: I-CORE in Business at Indiana University.
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Date Created: 11/11/15
M370 Lectures Part 2 10/12/2015 ▯ Price ▯ 3 Major Pricing Strategies ▯ Price Elasticity of Demand ▯ Pricing Formulas ▯ ▯ Ex. True Religion jeans – send all of us to buy them, what would make price vary? Sell Below Cost holding inventory costs money (>sale), sunk cost and need to recover something, **Opportunity Cost** o Opportunity cost – only have so much retail space, place products you can make a lot of margin on ▯ Everything is ALMOST Negotiable ▯ ▯ Pricing ▯ Price>Elasticity & Demand>New Product Pricing>Product Mix Pricing ▯ ▯ - Gas prices are relatively inelastic ▯ - Demand Changes and Behavior Changes somewhat elastic ▯ - Inelastic: people grumble, but they still fill their tank, demand doesn’t change much by price changes ▯ *Consumers are not always rational, certainly not about price ▯ ▯ *Price is established when currency for exchange changes hands* (p.297) ▯ ▯ (Seller=>)If Price= or < Perceived Value; and Price > Price Floor….Exchange could happen (<=Buyer) ▯ ▯ Harvard Business Review: any time perception of benefits is greater than perception of price, we gain market share ▯ ▯ Major Pricing Strategies ▯ What’s cost, what do consumers think, what’s demand, what’s competition Customer Value Based Pricing Cost Based Pricing Competition Based Pricing ▯ - Price is not based on cost ▯ ▯ Price Elasticity % change Quantity/% Change in Price If <1, Inelastic If >1, Elastic Perfectly Elastic Demand Curve Horizontal Line Perfectly Inelastic Vertical Line (little substitute) For relatively elastic, small change in price = large change in Q Relatively inelastic (ex. Gas) Perfectly inelastic (monopolistic prices, company can’t raise price that much because they are regulated) ▯ Using Elasticity to Set Prices Lost Opportunity o High price, elastic Gold Rush o High price, inelastic Alignment o Medium price, elastic The One that Got Away o Medium price, inelastic Price is King o Low price, elastic Don’t go here o Low price, inelastic ▯ P. 260-265 in text ▯ Factors that Affect Pricing Industry Economy Demand Elasticity Influencers: Gov’t, Social ▯ Ex Q: Cost of 690, want 30% margin, what is selling price? 986 ▯ (What’s our margin as a % of our selling price?) ▯ 690/(1-.30) ▯ Second q: Unit cost of 200, achieve margin of 20% based on cost what is selling price? 240 200+(200*.20)=240**only applies when we have markup as a percentage of the cost ▯ ▯ Pricing Fundamentals ▯ Proposed Selling Price (Retail) ▯ Product Cost ▯ Difference between Retail and Product Cost is Margin or Mark-Up ▯ Ex. Proposed Selling=$100 ▯ Product Cost=$55 ▯ Margin=100-55=45 ▯ ▯ Cost Based Markup=.82 (Markup$/Cost) 45/55 ▯ Retail Based Markup (Mur)= 45% (Markup$/Retail) 45/100 ▯ Markup Dollars= Margin+Product Cost ▯ ▯ Formulas Price=Markup+Cost Markup=Price-Cost Cost=Price-Markup Markup % of price= Markup/Price Markup % of cost= Markup/Cost ▯ **IF we are given markup as % of cost, we can find price Price=Cost + (cost*markup%) o Price=Cost*(Markup%+1) ▯ **IF given markup as % of selling price Price=(Cost/1-Markup%) ▯ =200*1.2=240 240*1.2=$288 ▯ ▯ Cost-Plus Pricing P=2000 C=1333.333 MU=666.67 MUp=.3335 MUc=.5 ***TRY TO SOLVE FOR WEDNESDAY wishes to have 50% markup charges 2000 for a thing (price), find 5 unknowns ▯ ▯ MUp=MU$/Price$ ▯ MUc=MU$/Cost$ ▯ Price$=MU$+Cost$ ▯ C$=Price$-MU$ ▯ ▯ Day 2 ▯ Power of Price ▯ Very powerful influencer on consumer behavior ▯ Flexible ▯ Easy to change ▯ Easy to communicate differences relative to competitors ▯ - pricing is a key element of the total marketing mix used to quickly adjust consumer perception of a market offering ▯ - several different broad strategies marketers can consider when pricing ▯ - price should be set by assessing consumer perceived value not cost ▯ - elasticity of an offering can guide strategy ▯ ▯ ex. M Corp sells to Distributor 1 who sells to Retailer. Costs M Corp 500 to make 50 units. M Corp receives 20% margin on price. Distributor 1 receives 20% margin on Price. Retailers receives 10% markup on cost. What does retailer charge? ▯ ▯ 10/(1-.2)= 12.5 selling price for M Corp ▯ 12.5/(1-.2)=15.625 ▯ (15.625)*.10+15.625=17.1875 ▯ ▯ Why is iPhone 6 expensive? Why is iPhone 5 cheaper? Costs a lot to develop Many people will pay a lot There are different segments at different price levels Apple uses SKIMMING Pricing ▯ ▯ Price Skimming Charging a high premium price at start & drop later Product benefits that customers want at any cost Little chance that competitors can enter market quickly Several customer segments with different levels of price sensitivity ▯ Will skimming work for a candy bar? Not if we want to directly compete with Snickers Dove did this Originally in specialty shops Eventually lowered prices, but never came down to level of snickers bc want to be seen as the lexus or audi of candy bars Can work for candy bar ▯ Penetration Pricing A new product is introduced at lower price Low price encourages demand and sales in early stages of product life cycle Discourages competitors from entering the market Pioneering brand ▯ Product Mix Pricing Product line Optional product Captive product Product bundling ▯ Managing Product Lines Most firms have multiple products in given category Requires strategic thinking about relationship of products Price is key factor in conveying different brands to consumer ▯ Product Line Pricing Price jumps based on features Consider competition Requires review of product costs ▯ The goal of pricing is to optimize the individual markup for each product in the line True or False?? The goal is to optimize profits on the product line, not the individual products Pricing must have consistency across the line to avoid negative consumer sentiment ▯ Optional Product Pricing Start with one model and add options o Leather seats, upgraded audio, custom wheels to cars ▯ ▯ Throughoustly study price, chapter 7 ▯ Review marketing by the numbers pp.355-360 ▯ Read readings 5,6,7 ▯ Homework to be posted ▯ Study help session Friday AM ▯ Price=cost+(costxmarkup) ▯ Price=cost/(1-markup) ▯ ▯ Elasticity of Demand ▯ Demand < 1 inelastic ▯ Demand > 1 elastic ▯ ▯ **Sample Questions** ▯ This photo of different iPads at differing prices shows… Product Line Pricing Not different models over time, not price skimming ▯ Retailer Q buys product Q from Distributor paying $3 each, with 20% MUp. Genco (maker/marketer) has cost of $1.50 per unit and a margin on prie of 25%. What is MU % cost for distributor? ▯ 3+(1*.2)=6.6 (6.6-3.0=3.6 MU) ▯ 3.375 ▯ 3/.8=3.75 ▯ **markup% price price=c/(1-MU%p) ▯ 1.5/(.75)= $2 Genco ▯ Distributor’s P=$3 ▯ ▯ 3-2/2=.5 Genco Distributor Retailer ▯ P $2 3 3.75 ▯ M $0.50 1 .75 ▯ C $1.5 $2 3 ▯ M%p .25 .333 .2 ▯ M%c .333 0.5 .25 ▯ ▯ ▯ Price=1.5/(1-.25) $2 ▯ 2-1.5=0.50 markup ▯ 0.50/1.5=.3333 ▯ Price Genco= Cost Distributor Price Distributor = Cost Retailer Price=3/(1-.2)=3.75 ▯ ▯ ▯ ▯ Price Bundling Ex. Computer monitor, mouse, keyboard, processor Selling two or more products for a single price Ex. Value meal at fast food restaurants ▯ Product Option Pricing Adding additional features etc ▯ Product Line Pricing Cars ▯ ▯ Psychological Pricing Quality is associated with price High price creates a quality signal ▯ Internal Reference Price You likely know the current price of gasoline You may not know the price of an oven Internal, reference prices help us know when we’re getting a bargain ▯ ▯ Price Adjustments Why do we change price? o Competition o Liquidity (can quickly sell more) o End of season (bring in new stuff, opportunity cost) o Broken assortments (missing pieces) o Change in macro-economic conditions How do we change price? o Discounts o Allowances o Segment Based Pricing o Promotional Pricing o Dynamic Pricing ▯ Geographic Pricing Pricing based on location o Apple prices their phones by region o Target takes markdowns based on performance of product by geographic cluster ▯ Dynamic Pricing Adjust Price to Demand o Stocks o Airlines o Hotels o Football tickets ▯ Price Adjustments Consumers determine price in their own way ▯ ▯ Ex. Q: Season tickets for a sporting event are considered which strategy? Price Bundling ▯ Which of the following is an example of captive product pricing? C. Razors and blades Given options on an airplane, Optional Pricing ▯ Research on wine reveals higher prices are associated w/ better taste by consumers. This is an example of what type of pricing effect? ▯ ▯ Marketing by the Numbers ▯ ROI price=Unit Cost + [(ROI x Investment)/(Unit Sales)] ▯ Unit Cost= Variable Cost + (Fixed Costs/Unit Sales) ▯ BreakEvenUnits=BEPunits=FC/(P-VC) ▯ BEP$=BEPuxP ▯ Breakeven with profit goal ▯ Volumeunits=(FC+profit goal)/(p-vc) ▯ Sales=VolumeuxP ▯ ▯ Practice Problems ▯ 1. Unit cost 200, sells for 450, what is BEP units for 200,000 Fixed costs? ▯ BEPu=FC/(p-vc) ▯ 200,000/450-200 ▯ =200,000/250=800 units ▯ ▯ 2. A manufac unit cost 200 sells for 450, 200,000 fixed, what is BEP $ ▯ BEPu=800x450=$360,000 ▯ ▯ 3. Unit cost 500 sells for 800, what is BEP+Profit goal UNIT VOLUME if fixed = 1,200,000 firm wants 1,000,000 profit goal ▯ 1200000+1000000/ 800-500 ▯ 2200000/300=7,333.333 desks ▯ ***in reality it is 7,334 desks ▯ ▯ ▯ READINGS ▯ 5: “If Brands are Built Over Years..” shows how some brands are managed for promotions while a long- term view allows a better pricing strategy What is scanner data? o By quarters, we look at scanner data, we put it on sale more revenue, manage it for the short term o If that’s all you look at (short term), you’re not managing the brand equity What is main point of the article? What should companies DO as a result? o Long Term Data = Long View o We can look at what sales could be over long term by forming baseline, this would’ve been our baseline sales if we hadn’t put it on sale o Focus on Brand Equity ▯ 6: “How to Stop Customers from Fixating on Price” Commoditization! Four Strategies o 1. Use Price Structure to Clarify Advantage o 2.Willfully overprice to generate curiosity price premium of 50-80% o 3. Partition prices to highlight overlooked benefits tires as example, more mileage for each different tire I’ll always find it on sale, it’ll always be cheap buyer mindset need to get them focused on brand not low price ▯ 7: “What is a Free Customer Worth?” use free products almost daily o ex. Google, spotify, instagram, youtube, facebook what is their business model? o Sell the use of accessing you to others Free customers: customers who pay little or nothing and are subsidized by another set of customers are essential to a vast array of businesses including shopping malls, real estate, info tech providers, auction houses, online media According to estimate, this business model accounts for revenues of 60 of worlds 100 largest corporations Who are MAJOR retailers at College Mall? o Target, Dicks, Seats, Macys, Bed Bath and Beyond o Pay less per square ft bc they bring people onto mall property Knowing lifetime value of free customers is crucial to determining o Optimal way to grow How much should a company spend at various points in time to acquire and retain free or heaily subsidized customers? o Real value of enterprise How much should investors pay for all or part of business with such customers? o Best organizational design How should business and its incentive If you answer these questions wrong, your company may go out of business ▯ ▯ HW: ▯ Study ch7 ▯ Marketing by numbers ▯ Readings ▯ Read chapter 8 ▯ Homework due FIRDAY ▯ Promotion – communication ▯ Integrated Marketing Communication (IMC) – consumer has 1 positioning ▯ Promotion Push vs. Pull strategy Push promotions for short term to consumer thru store Brand messages to consumers for any store, pull ▯ Promotion Objectives (I,R,P,BR) 1. Inform 2. Persuade 3. Remind 4. Build Relationships (not in text) ▯ Ad. Strategy (1. Message, 2. Media are major components) – what are consumers going to see or hear, where are they going to see or hear message, long term document which extends and elaborates a brand’s marketing strategy into the area of ads ▯ Promotion Budget Methods ▯ ▯ Today ▯ 4 types of Ad Campaigns (not in text) 1. Word hook o Repeatable catch phrase from ad to ad o Ex. “Can you hear me now?” – Verizon o Ex. 15 minutes will save you 15 or more on your car insurance 2. Character hook o Uses a hero, villain, or victim to embody a key attribute of brand o Ex. Ronald McDonald o 96% of school children in US can identify Ronald o ex. Geico has word hook & character (15% and gecko) 3. Repeatable Theme o A situation that plays out again and again calling out the need for a company’s product o Ex. Got Milk ads and Peppermint Patty ads o Consumers know punch line that is coming o They love to see the set-up played out in different situations & it is satisfying to be in on the joke o Ex. Allstate character “Mayhem” creates situations from which people need to be assisted Appears over and over again in a similar theme in various commercials Word hook, character hook, theme (phrase mayhem is everywhere) not a design element 4. Consistent Layout o A consistent layout uses a unique, design look and repeats these elements at each touch point o Allows customers to easily identify your company in a blink o The more distinct these elements are from your competitors, the easier it is to stand out from the clutter o Ipod commercials o Ex. iPod ads w/ silhouetted dancers w/ bright backgrounds Ex question: Word hook, character hook, repeatable theme, but no consistent layout for Allstate Mayhem commercials Use combination of 4 things or one of them for most successful campaign If you don’t use one of four, you aren’t getting a good return on investment for marketing spending ▯ Ex question. Energizer brand used a bunny in ads. Which major strategy is this? ▯ ▯ Effective Communications Message Strategy: general message communicated to customers, first step in creating effective advertising messages o Tend to be plain, stirahgtforward outlines of benefits and positioning points that advertiser wants to stress Creative Concept – second step, big idea that will bring message strategy to life in a distinctive and memorable way o Simple message idas become great ad concepts, hoping one will turn out to be big idea o May emerge as visualization, phrase, or combo of two o Guides choice of specific appeals to be used in campaign o Advertising appeals should 1. Be meaningful 2. Be believable 3. Be distinctive Message Execution: third step, best approach, style, tone, words, and format to be processed in various execution styles o Slice of Life o Lifestyle o Fantasy o Mood ir image o Musical o Personality Symbol o Technical expertise o Scientific evidence o Testimonial evidence or endorsement Geico – great story of truly effective mass market advertising Geico effectively did not exist in consumer minds years ago Sub of BH but probably not ▯ ▯ ▯ Media & Metrics Book covers Traditional Media o TV o Newspapers o Magazines o Radio o Out of Home (Outdoor) Digital (not in textbook) o Video o News o Music o Information o Out of Home (Outdoor) ▯ Metrics Reach o Percentage of people in target exposed to ad Frequency o Number of times a person in target is exposed to advertisement R*F= Gross Rating Points CPM= Cost Per Thousand o Ex. Target paid $100 to reach 1000 households, what is their CPM in households? 100 1000 households were reached, how many thousand households were reached? 1. Then 1*100=100 Ex. 30% of all college students exposed to ad, on average they see it 3 times 30*3= 90% gross rating point ***multiply percent NUMBER, 30, not .30 What is our cost for reaching 1000 people? $5 per 1000 people Communication Goals o Reach/Frequency + Awareness 75% of target audience will see ad at least x times of the next 6 weeks campaign will generate a 5% lift in sales one week after initiation and create sustained lift of 3% Brand Awareness will increase by X percent after campaign o Customer Lifecycle approach: Data base driven, easier to measure Cost to Acquire Estimate CLV ▯ PR ▯ Personal Selling ▯ Sales Promotion ▯ Reading… “Human Experience” (Reading 8) Main Point: Interaction, Experience, not Interruption o Four spheres: Public sphere Where we move from one place or activity to another, both online and off Advertising engages consumers during moments of downtime when they’re moving between one activity and the next Social sphere Where we interact with and relate to one another Turn social interactions themselves into carriers of ad messaging Must appear in right place at right time with right message Must be relevant in context, align w/ social goals, address Tribal sphere Its just us and our circle Can use or help create consumers’ identification w/ groups Advertising that leverages tribal affiliation must suit character and values of those involved; address desires for identity, self-expression, and membership; provide a social signal or status marker; and empower the individual Ex. Watches, certain people align w/ certain wearable products Psychological sphere It’s just use and who we are as a person Speaks to that emotion Domain of language, cognition, and emotion Ads optimized to insert words, phrases, or emotions into psychological processes where they serve as shorthand for complex concepts, inspiration action or triggering positive feelings Such ads provide new ways to articulate idas, engender habit formation, Ex. Nike – Just Do It ▯ Public Relations General PR o Public Affairs o Lobbying o Investor Relations o Development Product Publicity o Media Relations Ex. Harry Potter and Deathly Hallows Scholastic Books #1 Search term on Youtube and Google ▯ ▯ Personal Selling IMC: Personal Selling (p.329) One to One Relationship Selling vs. Transactional Selling Transactional o Focus is on each sale o Provides information o Sell today Relationship o Focuses on the customer o Listens to needs o Each customer matters o Confirm product fit and adjust ▯ Sales Promotion – are going to get the sale today, incentivize, short term Coupons Rebates Price Discounts Display ▯ ▯ Homework Study Chapter 8: in particular 5 types of promotion and how to use each, table 8.1 Study Reading 8 You may skim Chapter 9 for next week ▯ ▯ *must carefully coordinate all of these customer touch points to ensure clear brand message ▯ ▯ Five Types of Promotion – Promotion Mix/Marketing Communication Mix Used to persuasively communicate customer value and build customer relationships ▯ 1. Advertising: any paid form of nonpersonal presentation & promotion of ideas, goods, or services by identified sponsor ▯ 2. Sales Promotion: short-term incentives to encourage purchase or sale of a product or save coupons, discounts, contests, short-lived effects ▯ 3. Personal selling: personal presentation by firm’s sales force for the purpose of making sales and building customer relationships ▯ 4. Public Relations: building good relations with company’s various publics by obtaining favorable publicity, building a good corporate image, and handling or heading off unfavorable rumors ▯ 5. Direct Marketing: direct connections w/ carefully targeted individual consumers to both obtain an immediate response and cultivate lasting relationships ▯ ▯ ▯ ▯ 10/28/15 ▯ Impressions to conversion ▯ Types of Social Media & Outcomes ▯ Basis or Foundation ▯ Management of Social Media ▯ Marketing today is about all the different touchpoints Considering the Digital side along with Traditional side and how they interact As a marketer, we need to get to a purchase or an action point ▯ ▯ Digital TV YouTube Spotify Facebook Instagram Email Twitter Google ads Snapchat Outdoor o Impressions Clickthru/Shop Conversion to Purchase o CRM: Loyalty rewards + Email o Should try to figure out which media drove purchase Then segment by media type ▯ Segmentation through CRM ▯ (Email, Gender, Segment) > Impressions > Conversion >CRM Captura Email o Loyalty program Male Price image Female Price Image Email Impressions Conversion CRM Captura ▯ What has been a foundation for digital interface? E-mail ▯ Understanding the Major Options Social Media for the Enterprise o Facebook has most active users o 1.49 billion monthly active users o 1.31 billion mobile monthly active users o 1/5 people on earth is on facebook o 83.1% of daily active users are outside the US and Canada What is primary use and benefit of Facebook? o Customized ads Youtube o Over a billion users—almost a third of all people online o 80% outside of the US o advantage: unlike TV, you drive it/are in control of what you watch, watch anywhere any time, Instagram o 400 million monthly active users (number 3, fb, youtube, instagram) o 70% outside US o 30% of all U.S. social media users o per follower engagement rate for top brands is 58 times higher than on Facebook and 120 times higher than on Twitter o very visual, easy medium Twitter o 316 million monthly active users o 77% outside US ▯ Social Media in the Life of the Business Old spice commercial o Creating awareness, hoping they’re building relationships o Managed over quarters to build brand equity That was funny, interest, etc. If awareness doesn’t translate to conversion or brand equity no sale Advertising today is content creation sfdfd ▯ HOMEWORK: Read Chapter 9 ▯ ▯ Indirect Channel = there’s a store, sometimes we have to use ways to get into that store ▯ ▯ Marketing Channel vs. Value Delivery Network ▯ Intermediaries ▯ Intensive vs. Exclusive Distribution ▯ ▯ Hootsuite helps brands manage social media ▯ ▯ What is a Distribution Channel? A set of interdependent organizations that help make a product or service available for user or consumption by the consumer or business user Includes: o Wholesalers o Brokers or Agents o Retailers o Etc. Conventional Distribution Channel o Producer Builds product from raw material o Wholesaler Splits bulk quantities into manageable lot sizes o Retailer Presents goods to the end consumer in brick and mortar environment o Consumer o Each entity is financially independent and may work for a number of different channel partners Modern: Value Delivery Network - Improving performance of entire system (deliver better value) Traditional: Supply chain>Firm>Marketing Channel ▯ ▯ Value Delivery Networks VDN: Supplier > Supplier > Retailer > Consumer o Take on only tasks which give you competitive advantage. Stronger partners influence the whole channel. o Consumer: Has multiple points of contact for acquiring the offer o Ex. Wal-Mart buys from Hasbro, consumer buys from Wal-Mart o Now the biggest seller of toys and has a big influence on Hasbro o Shift that has happened over last 20 years ▯ ▯ Direct and Indirect Distribution Direct: Manufacturer to Customer (ex. Dell) Indirect: Manufacturer to Retailer to Customer (ex. Heinz ketchup to Target to customer) Why would we ever have 3 or 4 levels in a channel? o (ex. Manufacturer > Wholesaler > Distributor > Retailer > Customer) o creates efficiency o have greater contacts/expertise to handle it Multi-Channel Distribution o Ex. Selling Fossil watches Fossil outlet stores Macy’s Fossil retail store at mall Fossil online ▯ Intermediaries Marketer > Wholesaler > Retailer > Consumer o Wholesaler and retailer are intermediaries between Heinz and you ▯ Disintermediation The removal of a business from the value chain/network Blockbuster wasn’t quick enough to see what was coming, Netflix came in w/ dvd and streaming, redbox fills spontaneous need for dvds ▯ Re-intermediation First travel agents New intermediaries to reduce complexity The re-introduction of an intermediary ▯ ▯ Intensive v. Exclusive v. Selective Distribution Intensive Distribution: multi-channel on steroids, everywhere ex. Coke Exclusive Distribution: can only buy it at certain places (ex. If you wanted to buy a Rolex watch, where are you likely to buy it?), only certain outlets, luxury products, high information needs Selective Distribution: Best fit based on product (ex. Whirlpool kitchen appliance) ▯ ▯ Supply Chain Mgmt vs. Logistics Logistics flows out of operation Supply Chain flows into operation ▯ Physical Distribution vs. Title Flow PD: moving actual product/ shipping TF: Exchanging ownership/ “selling” ▯ Selling to consumers Retail ▯ ▯ Week 12: ▯ Retail ▯ Types of Retailers ▯ Trends in Retail ▯ Wholesalers and Brokers* ▯ Difference between Wholesale and Broker* Wholesaler buys and sells, Broker passes along the title don’t own it, facilitate the sale and make a commission, stockbrokers make commission and helps people buy stock, people don’t buy a bunch of stock & sell it wholesaler does 5 to 7 exam questions on this stuff especially wholesalers vs brokers ▯ ▯ Exam Prep: Start w/ Slides what we covered in class is more likely to be on the exam (align text with slides) Readings: main point execution & example Question on “what is a free customer worth?” from readings Course study guide in text Quantitative: pricing and breakeven problems* ▯ Exam Details 50 MC questions 32% Pricing or pricing strategy 32% IMC 22% Channels Retail 14% International (kind of common sense q’s, about 7 qs) 6 q’s from readings (especially how Global Brands Compete, Pricing, etc) 6 q’s require a calculator Homework – designed to be practice for exam, due 11/13 at 11:55* Survey for Extra Credit: Oncourse Today: Why change marketing by country? How to enter international markets Global Marketing Programs o About 7 questions on the exam ▯ ▯ Global Marketing: step by step map Global Marketing Environment o Go global or not Which markets to enter How to Enter Markets Global Marketing Program o Global marketing organization ▯ ▯ Global Marketing Environment provides challenges based on Economic Differences Political Differences Cultural Differences ▯ To Enter a Foreign Market: Market Entry Strategy ▯ Global Marketing Strategy focuses on: Standardized Marketing Adapted Marketing Global Brands compete on specific dimensions and attract consumers differently in foreign markets than at home ▯ ▯ Why do we have to change marketing when we go from one country to another? 3 Reasons: o Economy o Political & Legal differences o Cultural differences ▯ Culture is the most basic cause of a person’s wants and behavior o Learned from family, church, school, peers, etc o Most basic reason marketing factors must change by country o Cultural influences consumer behavior o Reflects basic values, perceptions, wants, and behaviors ▯ Textbook P. 495-498 Global firm: 190 countries International firm: do business between different companies P 498-502 : Economic, Political, Cultural P. 505-508 How to Enter Market o Export o Joint o Direct P. 509-515: Global Marketing Program o Standardized o Adapted o Marketing Mix ▯ How Do We Enter Markets? Which method of international market entry carries the least risk? o Answer depends on type of risk considered o There is risk on both sides (Capital Investment and Marketing Control) Export o Entering foreign markets by selling goods produced in the company’s home country often with little modification o “Make it here, sell it there” Direct Investment o Entering a foreign market by developing foreign-based assembly, or manufacturing facilities o “Buy or Build” facilities, manufacturing, sales offices Joint Strategies (joint venturing) o Entering foreign markets by joining with foreign companies to produce or market a product or service o Licensing o Contract manufacturing o Joint ownership o Management contracts ▯ Example: Export Joint Strategies Direct Investment Indiana expansion Four Seasons Hotel – Singapore | Subaru add 1200 jobs in o Financial Capital Risk increases as you move from Export to Joint to Direct Investment ------- o Loss of Marketing Control Risk decreases as you move from Export to Joint to Direct --------- o Amt of Commitment, risk, control, and profit -- across Risk to Exporting o Lose control of equity of brand name ▯ ▯ Q: Which method of international market entry carries the least risk for Capital Investment? Export From capital investment standpoint, we don’t need to spend anything for Export ▯ ▯ Standardized vs. Adapted Strategies The two strategies bound a continuum that ranges from a completely standardized marketing approach to entering new markets to one that completely customizes the entry. ----------------------------------------------------- Standardized Adapted or Customized ▯ Standardized Global Marketing o An international marketing strategy that basically uses the same marketing strategy and mix in all of the company’s international markets Adapted Global Marketing o An international marketing strategy approach that adjusts marketing strategy and mix elements to each international target market, which creates more costs but hopefully produces a larger market share and return ▯ ▯ Same Product Product Adaptation Same Promotion | Straight Extension Product Adaptation | - Heineken - Nokia | - Starbucks - BP | Different Promotion | Promotion Adaptation Dual Adaptation | - Drakkar Noir - Some soft drinks | - Some clothing ▯ ▯ Global Marketing Adaptation Product o Changing tastes, needs Promotion o Communication adaptation Price o Based on the market not costs o Brand perception may be very different by market o Exchange rate issues and offsets Place o Go where the consumers shop for your product o Must meet local challenges ▯ Q: Same Product, Same Promotion? Straight Extension Strategy ▯ Q: Same Product, Different Promotion? Promotion Adaptation Strategy Q: Different Promotion, Adapted Product? Dual Adaptation Strategy ▯ Q: Same Promotion, Adapted Product? Product Adaptation Strategy ▯ Q: Coke has dozens of different formulas for their soft drink globally because…** Culture causes different expectations ▯ ▯ REMEMBER: HOMEWORK 4 ONE MORE READING ▯ Monday after Thanksgiving – case begins ▯ Case kickoff online ▯ Tuesday, Wednesday, Thursday, Friday – ask questions in advance electronically ▯ For an hour every day, each subject will be online in Adobe Connect to answer questions. ▯ 4 hoursa day x 4 days = 16 hours of answering q’s
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