Principles of Marketing Final Exam Study Guide
Principles of Marketing Final Exam Study Guide MKTG 3310 - 001
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Principles of Marketing Final Exam Study Guide January 19 : Marketing What are the eras of different orientations in the history of American business? Eras of Orientation for American Business- Simple trade era (pre industry- black smiths and tradesmen Production era (1860-1920)- how fast you can make things is what makes you successful – “If we make it , it will sell” **This was on test 1 Sales era (1920-1950)- this is where you get your traditional depiction of sales men Marketing Eras Marketing department era (1950-1970)- began to focus on the customer Marketing company era (1970- 1990) focus on customer became the most important thing. Customer’s view becomes the view of the entire company. Relationship marketing- 1990- 2005 Companies began to think about building relationships so that they focus on customers buying things more than one time. One-to-one marketing era (2005- )- based on technologies- building relationships but on a larger scale Are all companies now in the marketing era? No- some companies have remained product oriented, which is associated with the Sales Era. This line of thinking occurs when a company becomes so proud of their product that they distance themselves from the customer. What are the two characteristics that define a market? Satisfy the needs of the customer at a profit/ keeping the companies goals in mind What is marketing? What marketing is- Marketing is the art and science of creating and managing value (innovation, communicating, delivering, servicing, procuring) AND business philosophy, discipline, distinct unit in an organization, and a set of business activities What is marketing not? selling more things to more people more often for more money, the devil, just advertising, or unnecessary What is the marketing concept? The Marketing Concept- marketing concept, which includes three basic ideas 1- customer, satisfaction 2- total company effort 3- profit (not just sale) What is a market orientation? 1- customer, satisfaction 2- total company effort 3- profit (not just sale) Marketing Orientation- Instead of trying to get the customer to buy what the firm has produced, a market oriented firm tries to offer customers what they need. This means carrying out the marketing concept. o What three characteristics of a firm are needed to be market oriented? What is a production orientation and how does this exemplify narrow thinking? Production Orientation- making whatever products are easy to produce and then trying to sell them. This causes narrow thinking/lack of central focus in a business firm because they think of customers as existing to buy the firm’s output rather than the firm existing to serve the customer/needs of society. What is value and how is it determined? Value and how it is determined- Customer value- the difference between the benefits a customer sees from what the market is offering and the costs of obtaining those benefits- what you get/ what you give (time, effort, costs (for example how difficult it is to turn into a McDonalds) – Companies do not determine value- they offer value proposition Price can determine value but not always- price and coast of labor and resources can provide a rough estimate of value BUT if the good/service does not meet the customers needs it will result in low customer value even if the price is low. Basically- While price can’t not always be used to find value BUT pirce (especially a high price) can be indicative of a products value to society What is the unique contribution of marketing to a firm? Unique contributions of marketing firms Accounting- Tracks revenue, cost flows, profit etc. and communicates these to managers and owners Manage- Organize resources to achieve goals efficiently and strategically Finance- Acquire cash flow from investors. Evaluate and manage the firms risk assets and shareholders Marketing- Acquire cash flow from customers- stimulate demands and evaluate and manage customer value What is a shareholder orientation? o How does it differ from the marketing concept? o What are potential problems with a focus on shareholders? a companies main focus is to maximizing shareholder value. The idea here is that if you are taking care of the shareholders, you are taking care of the company. This differs from the marketing concept because it puts shareholder as the main focus rather than customer satisfaction. This causes companies to be very short term focused in order to make quarterly earnings. This makes the market volatile in the long run. The average stockholding period` has gotten significantly shorter st January 21 : Going beyond the marketing concept What is the macromicro dilemma? Macro-micro dilemma- Bottled water example- sometimes what people purchase (micro level) could not be what is in the best interest on the macro level. Buying bottled water is convenient for an individual, but it could have negative effects such as increased pollution and wasted resources. What are the differences between a command economy and a market directed economy? Command economy vs. Market economy- Command Economy (North Korea) vs. Capitalist/Market Economy (the US)- command economies have less freedom, more corruption, and less incentive to be creative. What is the Milton Friedman view of businesses role in the world? o Milton Friedman- believed that business’ only concern should be profit o What is an argument for why this is the correct view? Profit is the main goal of a company all elements of a business are working toward making a profit What are the three arguments for businesses to engage in other causes besides seeking a profit? Businesses have more resources than government agencies- 60 of the 150 most important economic entities in the world are companies not countries. Because of this companies are starting to take on issues Why may businesses be better suited than NGOs and GOs for taking on causes? Businesses have more resources than government agencies- 60 of the 150 most important economic entities in the world are companies not countries. Because of this companies are starting to take on issues o What is an evitable result if businesses choose not to take on causes? The government will have to step in and gain more resources in order to get things done. This would result in a loss of power for businesses and gained power for GOs. o Is marketing the same for NGOs (e.g., nonprofits) as it is for forprofit organizations? Is it the same in theory and in practice? NO- Non-profits spend money on advertising, which makes them look bad because the money could be going to their cause. So even if they bring in more money through advertising the consumer has to pay attention to the percent on the dollar that actually goes towards the cause. What is a stakeholder? What is a stakeholder orientation (i.e., responsibility)? Stakeholder responsibility- a firm’s obligation to improve its positive effect on the people who have a stake in the company. Stakeholder orientation is when the needs of the stakeholders come first What is a societal orientation (i.e., responsibility)? o The view that organizations have an obligation to the general public and to preservation of the environment Ex Wriggly encouraging Africa Americans to go to the doctor **example used in test 1 o How does societal responsibility differ from a stakeholder responsibility? Stakeholder responsibility is only concerned with the people who actually have a stake in the company. Societal responsibility is concerned with society as a whole. Are there selfinterested reasons for businesses to engage in causes (i.e. CSR)? Cause related marketing- when charitable actions of a firm are tied directly to consumer revenue YES people are more willing to support a company and pay more for the good/service if the company is involved in a cause. o What factors determine whether firms are “rewarded” for engaging in CSR? o A lot global consumers said they would be willing to reward companies that give back to society by paying more for their goods and services. o Being associated with a good cause given comparable quality and price can influence the “reward” nd January 28- February 2 - Marketing Strategies What is the idea of value creation and appropriation? Value Creation Creating products with value Influences the magnitude of the advantage Value Appropriation Influences the amount of the advantage the firm is able to capture and the length of time the advantage persists Who are the main appropriators? Firm, Society, and competitors Is marketing more related to value creation or appropriation? Typically marketing from a firm standpoint is a value of appropriation tool. Value creation- R&D, Supply and chain Coordination, Co-creation Value appropriation- patents, branding, and advertising. Basically firms have to figure it out What is marketing strategy? Specifies a target market and a marketing mix. What is a target market? A fairly homogenous group of customers to whom a company wishes to appeal What is the marketing mix? The controllable variables the company puts together to satisfy this target market What are the 4 Ps? Product, Price, Place, Promotion What is the difference between massmarketing and target marketing? Mass Aiming at “everyone” with the same mix shotgun approach. (Book says this is the typical productionoriented approach) Target Varying some element of the mix for target market rifle approach (Book says the marketing mix is tailored to fit some specific target customers) Are there companies who massmarket? Google- decent example- electric company- but there are no great examples for the most part because pretty much everyone targets to some degree. Why do companies engage in target marketing? Companies hope that incremental amount of money that it takes to target will be off set by the profit that can be brought in. What is marketing myopia? Why does it matter? (What did we deduce?) Marketing Myopia suggests that businesses will do better in the end if they concentrate on meeting customers’ needs rather than on selling products. Ex Theodore Levitt’s quote about Amtrak “The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented they were product oriented instead of customer oriented” What happens if a firm goes too far and defines itself too broadly? When you define yourself so broadly you can go into decline when one your several markets go down You are all over the place. Example Amazon What is differentiation? Uniqueness perceived by the customer Book definition Here the company concentrates on creating a highly differentiated product line and marketing program so that it comes across as a class leader in the industry. Examples Nike and Caterpillar What is the long tail? The long tail- the idea is that we have a group of product on the x and the demand on the y- there are some products that have a lot of demand (market leader) but the other percentages of the market are being fought over in the red waters. Then you have the niche products- there are a lot of them (the tail). The belief is that eventually the demand in the tail will provide more money than the head. What is the long tail enabled by? The belief that as companies build more niche products more distribution channels and communication channels will open up. Customers will learn about it and demand will go up Based on the theory, where does the majority of potential revenue fall, in the head or the tail? The Tail Where are the products with the majority of demand? The Head What are the generic approaches for segmenting productmarkets? A market with broadly similar needs and sellers offering diverse ways of satisfying those needs 3 generic ways to segment the market 1. Single target market 2. Multiple target markets example Cheer and Tide 3. Combiner if I cannot serve a market economically I lump it into another market and see if I can market it better. Trade off in decisionmaking process What are the criteria in creating segments? Be able to name all of the criteria and understand why each criteria is used. Criteria for “good” market segments 1. Homogenous within the segmentwe want the segment to react similarly to things example – reacting to humor in commercial 2. Heterogeneous between the segmentswe want to make them different than our other market segment if we don’t there could be segment bleed 3. Substantial (profitable) 4 Operational (segmenting variables should be useful) What do you do if a segment is not profitable? Broaden market definition to find opportunity try to match the firm’s resources and objective ( the market should be bigger than the firm’s present product market but not so big that it couldn’t expand and become an important competitor) What is the difference in using geographic, demographic, behavioral, or psychographic variables for segmentation? Geographic (region, city size, statistical area) 88% It is an easy way to look up info about geographic tendencies Demographic (Gender, age, marital status) 53%used to be used a lot Psychographic (Personality, needs, values) 43% more difficult to obtain what is in people’s heads Behavioral (Usage rate) 65%look for tendencies in people Which is generally the hardest to collect? Psychographic Which is generally the easiest? Geographic Which one(s) do companies typically utilize the most for segmentation? Geographic, Behavioral Which one(s) do companies typically utilize the least? Psychographic What is the problem with demographic variables? Does this problem also hold for geographic variables? Problems with demographics and geographic you could think that you have a homogenous group but you could have a lot of variability within the group What is the goal of most marketing research? The goals of most marketing research is to uncover unique (and actionable) customer (and market) insight. What is the fourstep approach to marketing research? 1 define the problem 2 develop the plan 3 collect and analyze the data 4 interpret and report What are the three types of marketing research? What is each used for? How do they relate to the problem? How do they differ from each other? Exploratory exploring what your problem is PBR hipster example they had to figure out what was driving up sales (even though this was a good thing. Go out and talk to people to pin point what is going on Descriptive research flesh it out we’ve figured out that hipsters are driving sales now we need to figure out what is a hipster. Quantify things now and bring number into the equation Causal now we have to pin point the causal mechanism going on. Pin point precisely what is driving the problem (or sales with the PBR case). Maybe we find out that it’s because PBR is cheap or maybe its authentic. Experimentation happens here. What is the difference between correlation and causation? What is the benefit of each? What is a downfall of correlation? Correlation things tend to happen together/at the same time Causation one thing causes another Example of useful correlation Big Data weather can affect sales WalMart puts umbrellas at the front of the store when it’s raining. People also don’t like to eat berries when it’s really windy. They did things to direct people to buy berries on days when it’s calm. Downfall Before you jump to the conclusion that one is causing the other you need to consider a compound (a third variable) that could be causing both. Be aware of primary and secondary data sources. Primary Info is collected for the specific purpose at hand ex WalMart acquired berry sales from the weather channels. More expensive to get customers to talk (focus groups) you have to pay them. You also have to replicate things several times. Mail (small amount of response) , telephone, personal (expensive), telephone, online. Secondary Info that already exists somewhere, having been collected for another purpose.. There is a problem though it has to be relevant, accurate, current and impartial. What did we learn from the Microsoft Vista case study in regards to marketing research? For new insights, new methods are sometimes needed. •Every method has its limitations. •Even new methods and new data can still lead you into trouble so a balanced approach using multiple methods and data is needed. Microsoft’s sample group said they were concerned with privacy but the pop up they created to ease this concern was a huge bust In general, is there too little or too much data? Too much In regards to the Microsoft case study and the use of marketing data, what are the things we need to do and understand to ensure we are actually using true customer insights and not a misrepresentation or false information? Triangulation "For every data point that we get, there is often a triangulation required…that means talking to more customers, looking at telemetry data, and drilling more into a complaint, bug report, or suggestion.” Be aware of the “unknown unknowns ”Understand the noise-to-signal ratio is growing February 23 Buyer Beware Purchase decision process Purchase decision process- at some level customers go through 5 stages of decision making and purchasing Know each stage and what happens in each stage/ How can marketing influence these stages? -Need recognition- you have a problem and you are looking for a product to solve it. Marketing may give you a need recognition if you have a problem that you didn’t even know you had. -Information search- look at all the alternatives. -Alternative evaluation- narrow it down to the criteria that are most influential for your decision. Pick out consideration set. -Purchase decision- actually going to buy the product. Trying to get people to get up and go buy the product. Go out and buy now! -Post purchase- this is where you can find buy remorse- something gives you dissonance after buying something. You can have marketing that makes customers feel better about having made that purchase. Ex- car dealer calling a few days after someone buys a car What does marketing look like that tries to influence these stages? If I were to give you an ad, could you pinpoint the stage that the ad is targeting? Coin card example- this was an example of need recognition and information search- showed that having a lot of cards could be a problem. Then gave you a lot of info about the product Vovlo Trucks- Alternative evaluation- gives you the criteria that is important(dynamic and straight steering) Kia Labor Day Sale commercial- Purchase decision- they are telling you to come right now in order to get 0% APR. Understand how cultural, social, personal, and psychological factors influence buyer behavior. we have the buyer in the middle- then we have Psychological personal, social, cultural things that can influence their behavior. Cultural and social influences- •Nationality •Subculture •Social class Localized groups also come into play •Social groups •Family •Roles Personality- Unique psychological characteristics that distinguish a person. Self concept- actual vs Ideal- Which do you use in your marketing? Actual is more likely to get favorable responses. Self esteem? Except Ideal works better for people with low self esteem. Dove- real beauty campaign- actual advertising Psychological influences- Motivation •Perception •Attitude & attitude change What are the levels of Maslow’s Hierarchy? Selfactualization needs (self fulfillment) Personal needs status, respect, prestige Social needs status, respect, prestige Safety needs Freedom from harm, financial security Physiological needs food water shelter, oxygen What is the selfconcept? What is the actual an ideal selfconcept? Generally, which form of the selfconcept should be used in marketing? Why? What could make it so that the ideal selfconcept is used? Self concept- actual vs Ideal- Which do you use in your marketing? Actual is more likely to get favorable responses. Self esteem? Except Ideal works better for people with low self esteem. What is an attitude? How stable is it and how easy is it to change? Once an attitude is stable, what causes it to change? Attitudes- A person’s relatively consistent evaluations, feelings, and tendencies toward an object or idea. Consumer reports car brand rankings- the well established brands have not changed. Shows how difficult it is to change attitudes. So how can we change attitudes- critical incidents- Ex- Ford Recalls Involvement- The personal, social, and/or economic significance of a purchase to a consumer. March 1 Products What is the customervalue hierarchy? 5 product levels each level adds more customer values Levels Core benefit, basic product, expected augmented products, potential products What happens at each level? Core benefit the service or benefit the customer is really buying Basic product marketer must turn the core benefit into a basic product for example a hotel must offer a bed, towels, desk, etc. Expected product a set of attributes and conditions buyers normally expect when they purchase this product example clean bed Augmented exceeds customer expectation Potential encompasses all the possible augmentations and transformations the product or offering might undergo in the future Know these product classifications and how each affects the marketing mix: Differentiation arises and completion increasingly occurs on the basis of product augmentation. Each augmentation adds cost, however, and augmented benefits soon become expected benefits and necessary pointsofparity Durable, nondurable and service products Nondurable tangible goods normally consumed in one or a few uses. 5hour energy, fuel, paper towels lower margins, usually chosen on convenience, needs to be available in many locations, advertise heavily. Durable goods tangible goods that normally survive many uses normally require more personal selling and service, command higher margin, and require more seller guarantees. Ex phones, clothing, refrigerator Services intangible, inseparable, variable, and perishable products that normally require more quality control, supplier credibility and adaptability. Ex haircuts, legal advice Convenience, shopping specialty, and unsought products. Convenience purchased with frequently, immediately, and with minimal effortex Q Tips Shopping consumer characteristically compares on such bases as suitability, quality, price and style Ex Toms Specialty have unique characteristics or brand identification for which enough buyers are willing to make special purchasing effort. Oculus Virtual Reality head sets Unsought the things you buy because you absolutely have to you don’t want to buy it ex coffin, life insurance Distribution is going to be limited What is a product, product line, and product mix? Product Anything that can be offered to a market to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas. Product line any group of products that serve a similar needExline of angry birdy games. Satisfy a class of needs, Are used together, Are sold to the same customer group, or fall within the same price range, Each product line has its own marketing strategy Product mix Width length, depth, consistency What is length, width, and depth in relation to a product mix? In what ways can a line be stretched? Width number of product lines I have Depth number of product within a single product on a line how much variance it has extide length the distance down Line stretching Downmarket stretch lowering price market Upmarket stretch going up in price market ex Kia trying to move into luxury car market Twoway stretch Line filling taking care of a middle market area Cannibalization can happen here product within it need to differentiated enough for your products to not steal customers from each other. Line modernization Line featuring Line pruning What is a brand? A name, term, sign, symbol, or design or combination of them intended to identify the goods or services of one seller or group of sellers and to differentiate them form those of the competitors. What is customerbased brand equity (cbbe)? The differential effects brand knowledge has on a consumer response to the marketing of a brand Know the Brand Resonance Pyramid and BrandDynamics model of CBBE models. Brand Resonance Pyramid the idea is that we have 4 levels that we build our brand on going from the bottom to the top. Awareness, Meaning Response, connection Brand Dynamics Model if we build the right brand associations we will get the results we want. The Associations need to be meaningful, different, and salient. See slides to see the model. What does Chevrolet and CocaCola tell us about creating a powerful brand? Chevrolet misstep ways they have tried to define themselves over the years has been all over the place. Identity crisis. They lack consistency. Coke has remained consistent and have built a very strong brand because of this. Coke even put people in an MRI machine and they saw the change in physiological response to the brand. What does the Pespi Taste Challenge tell us about the power of branding? Coke or Pepsi? If you build up a brand like coke you change the reaction to it and activate different parts of the brain. Pepsi doesn’t compare to Coke in this yet. Brand love is just as important as taste What does the Oldsmobile tell us about the power of branding? Oldsmobile- they are not still around. People didn’t adopt them. It was doing very well but hit a downturn. “This is not your father’s Oldsmobile”- this caused a surge. This came out in the 70s- now a day it is your father’s Oldsmobile. They captured the moment so well that it locked them into a certain place. Sometimes you become so powerful that you can’t move past it. If you build your brand on something that can’t evolve you can’t move forward and the brand dies. Know the difference between corporate branding, separate branding, and subbranding strategies Separate branding branding different products with different names advantage is a product fails the company has not tied it to its reputation Corporate (umbrella branding) companies use their company brand as an umbrella brand across their entire range of products Subbranding combing two or more corporate brands, family brands, or individual product brands. March 8 Position What is positioning? The act of designing a company’s offering and image to occupy a distinct place in the minds of a target market What are the key ideas of positioning? Key Ideas of positioning 1 you can only own one position 2 A position can only be owned by one brand What are the three steps to positioning? (Book)1 choosing a frame of reference by identifying the target market and relevant competition, 2 identify the optimal points ofparity and pointsofdifference brand associations given that frame of reference 3creating a brand mantra summarizing the positing and essence of the brand (In class version) Three steps to positioning 1. Choose competitive frame of reference 2. Identity and choose POP & POD 3. Create a brand mantra to summarize the essence of position What are POP and POD? PODs Points of Difference attributes or benefits that consumers strongly associate with a brand, positively evaluate, and believe they could not find to the same extent with a competitive brand POPs Pointsof Parity attributes or benefit associations that are not necessarily unique to the brand but may in fact be shared with other brands. 3 basic forms category, correlation, and competitive. This is what makes you the same as everyone else Categorywhat is expected, correlational, competitive the things people have to do that distinguish a category from other categories What is a perceptual map? Visual representations of consumer perceptions and preferences. What is the perceptual map used for? (Book) The provide qualitative pictures of market situations and the way consumers view different products, services, and brands along various dimensions. (Book) By overlaying consumers view with brand perceptions marketers can reveal “holes” or “openings” that suggest unmet consumer needs and marketing opportunities (In Class) You “map” your brand along with competitor brands to get a sense of the market 1. Identify important attributes 2. Discover how company’s products/brands are perceived 3. Discover how target customers rate competing products/brands 4. Reposition… a) company’s products/brand b) competitor’s product/brand example Apple made Microsoft not cool c) or both March 22 Demand Curve What is a price? Price-The money charged for a product, or the sum of all the values that customers exchange for the benefits of having or using the product. Why is pricing so important? (think the value equation) Pricing affects the entire value creation idea. Ex IPhones were not mass adopted at first because they were $600. What is a demand curve? Demand curve A curve that shows the relationship between the price of a product and the quantity of the product demanded. What is price elasticity? Price Elasticity of Demand (E) = Percentage Change in Quantity Demanded/ Percentage Change in Price Elasticity measures the responsiveness of demand to changes in price How does price elasticity affect a demand curve? Elastic where the % change in demand is greater then the % change in price (more of a horizontal demand curve) Inelastic where the % change in demand is less the % change in price. (Steeper demand curve) What factors influence price elasticity? substitutes (more substitutes means more elastic) necessities necessity= inelastic % of disposable income more % of the income means that your product is usually more elastic What is the difference between movement along a demand curve and moving (i.e., shifting) the demand curve? Movement along the demand curve represents a change in demand based on the price of the product i.e who is willing to buy the product at a specific price A shift in demand represents the entire market’s demand for a product changing shift right= increase in demand. Shift left decrease in demand What are the aspects we discussed that shift a demand curve? Income Prices of related goods Tastes Population and demographics Expected future prices March 24 Pricing Strategies Why is pricing so important when considering profitabilitiy? If you have the ability to increase your price it is more profitable than any other element Pricing floor no profits below this price Ceiling no demand above this price Stuff in the middle that affects pricingCompetition and other external factors competitors strategies and prices, marketing strategy, objective and mix. Nature of the market and demand. What is demandbased, costbased, and competitionbased pricing? Costbased pricing Setting prices based on the costs of producing, distributing and selling the product plus a fair rate of return for the company’s effort and riskex construction workers, lawyers Valuebased pricing Using buyer’s perceptions of value as the key to pricing more of a market oriented (market concept) type of pricing. Part of the info you are gathering is taking into consideration what your customers would like to pay. Competitionbased pricingSetting prices based on competitor’s strategies, costs, prices, and market offerings. (kind of a cheat) we look at what our competitors and match it or try to make ourselves look better. What are types of pricing approaches for demand and cost pricing? Cost based pricing approaches Markup (costplus) Adding a standard increase to the cost of a productStores like Publix or WalMart they have too much inventory to try to figure out a demand curve for every product. Experience curve A planned reduction of price for increased production Demand Pricing Goodvalue pricing the right combination of quality and good service at a fair price Valueadded Attaching services and features to a product to support higher prices EDLP pricing / Hilow pricing Keeping prices at a standard low rate vs discounting What is the sequence of steps for demandbased vs costbased pricing? Cost based: Design a good productdetermine products cost set prices based on cost convince buyers of products value Value based pricing access customers’ needs and value perception set prices at to match customer’s perceived value determined costs that can be incurred Design product to deliver desired value at target price What are the types of costs? Fixed costs (overhead costs) costs that do not vary with production or sales level Variable costs vary directly with the level of production Total costs the sum of the fixed and variable costs for any given level of production What is price discrimination? Charging different groups of customers different prices What is the purpose of price discrimination? To gain the most amount of revenue based on customer’s willingness to pay Know the three methods of price discrimination well. Price Discrimination 1 allow customers at the bottom of the demand curve to pay less ex discounts, rebates specials Kmart flashing 2 charge customers at the top of the demand curve more. Examples Amazon, valueadded pricing, freemium. Red dryer costs more just because its red. 3 allows customers to pay exactly what they are willing Radiohead’s Rainbow album %60 of the US downloaded it for free. But they made more money in the digitals then their pervious album because they weren’t paying a label made a ton of money off of it. March 29 Pricing Formula How do you calculate: Price elasticity? (% change in quantity demanded)/(Percentage change in price) Percentage change= (new number original number)/ original number Unit contribution margin? (Price unit variable cost)/ price Breakeven point? Breakeven point and profit under different scenarios? Break even point= Fixed cost/ (price unit variable cost) Example What is the breakeven point for a product that has $10,000 in fixed costs, $175 in unit variable cost, and is priced at $200? Answer= 400 Markup price on cost and price? Dollar mark up= sellin cost Markup % of cost= dollar markup/ cost Markup % of price= dollar markup/ price Markup price= unit cost/ desired return on sales) Markup chain? MARKUP CHAIN: DEMANDBASED PRICING Markup chain price = Retail price − retailer margin − wholesaler margin Retailer margin = Retailer price x retailer margin percentage Wholesaler margin = Wholesaler price ∗ wholesaler margin percentage April 11 Promotion I IMC Chapter 11 What are the parts of the communication process? Send >encoding > message (Media) Noise> Decoding> receiver> response> feedback What are the five main categories of promotion covered in Chapter 11? • Advertising, Sales promotion, Public relations, Direct marketing, personal selling What are the strengths and weaknesses of each category? Advertising: Reach / Cost Promotions: Purchase incentive / Bad for branding? Discounting a product in the minds of a customers if you constantly discount the brand people won’t buy it unless its on sale PR: Credibility / Lack of control Personal Selling: Customizable / Cost Personal interaction can be affective. But this can be expensive Direct: Customizable / Low response? Collecting data on people can show who you can sell to. But a lot of these things that are sent out have very low responses What is the approximate amount of spending on each category? Advertising 49% $160b Promotion 12% $40b Digital 15% $50b Direct 13% $44b Sponsorship 6% $20b PR 2% Social Media 2% Cause 1% What is breakage in regards to sales promotions? What is an argument for and against breakage? There is an idea that the lower the amount that gets reimbursed through rebates (through the sales promotion) actually saves the company money so sometimes companies try to maximize the amount of people who won’t use the rebate. Is this a good tactic? By doing this you are decreasing the customer experience shows lack of customer/marketing orientation you aren’t making it customer friendly What are the methods of promotion budgeting? Affordable method Percentage of sales method Competetive parity method Objective a task method Which is most representative of the marketing concept? Objective and task method What are the deficiencies of each? Affordable this method completely ignores the effects of promotion sale. Tends to place promotion last among priority spending. Long range marketing planning is difficult. Often results in under spending. Percentage of sales wrongly views sales as the cause of promotion rather than the results. Based on the availability of funds rather than on opportunities. Long range planning is difficult. Method does not provide any basis for choosing a specific percentage. Competitive parity there is no grounds for believing that the competitor has a better idea of what the company should be spending on promotions. Companies needs differ greatly. No evidence that this method prevents promotion wars. Objective and task most difficult method to use. It is difficult to figure out which specific tasks will achieve the objective What is integrated marketing communications? The concept of designing marketing communications programs that coordinate all promotional activities Carefully integrating and coordinating the company’s communication channels to deliver a clear, consistent and compelling message about the organization and its products. What are the two things that IMC helps a firm obtain? Synergy if you use the channels well then they help each other. This means that you need to help each channel even when they aren’t your most important channels. A clear consistent message What is IMC not? A common mistake is to imagine that having the same look and feel across different channels "matching luggage" will create successful integration. But that's a terrible basis for creating an integrated campaign. Just because the press ad and website have the same look and copy, it won't necessarily connect with consumers. It may just get boring. Or a bureaucratic nightmare What are touch points? Customer touch point Any point where there is an interface between an organization and a stakeholder. An interface can be through a product, front line employee, marketing communication, etc. What is silo mentality? A mindset present when certain departments or sectors do not wish to share information with others in the same company. Why is IMC hard? IMC is difficult because …you are aligning different functional areas …you are aligning different external partners …the manifestations of the “brand message” has to make sense in the promotional channel …the organization’s nimbleness must be maintained April 13 Promotion II • What does advertising spending fluctuate with? GDP goes up spending on advertising goes up companies will have more money so they will have more to spend on advertising. What does this tell us about firm’s advertising spending? Most likely, how do firms probably see advertising? There is a theory that if you do not have a strong enough action component meaning it pushes people to buy within the first 24 hours then your ad is useless. What are the different types of advertising appeals? (some are in in Chapter 11) Message content Rational appeals( informational, persuasive, comparative) Moral appeals, emotional appeal (fear, humor) sex appeals, bandwagon appeals. What happens if fear, humor, and sex appeals do not have a link with why someone buys a product? Humor Appeals fear appeals and sex are similar in that they must connect to the product in a meaningful way…i.e. in a way that connects to reasons people purchase. Using these may catch people’s attention without moving sales Can an appeal such as fear or humor go too far? Some people say that you should not have too strong of a fear appeal because people may just tune it out. Ex some youth smoking commercials are so Ludacris that youths find it funny Some also believe you can go too far with humor What is reach and frequency? Reach: Number of different people exposed to an ad Rating: % of houses that watch a channel or program Frequency: Avg # of times a person is exposed to an ad What is CPM and how do you calculate it? CPM: Cost per thousand impressions How to calculate CPM= (cost of cost/ audience size) x 1,000 or Cost of ad/ (audience size/1,000) Is the Superbowl considered a good buy? Super Bowl has a huge audience base if you can afford to advertise Super Bowl commercial CPM Cost= 3,000,000 Audience= 110,000,000 answer= $27. This is a good deal. Why may the Superbowl be considered a bad buy? What’s the problem with this though not everyone has 3,000,000 to spend on advertising. Also there is a wide variety of people that you are advertising to. You can’t have too segmented of an advertisement. This means that you can be paying to put your advertisement in front of people who don’t care. This is defined as waste. YAY THAT’S IT GOOD LUCK!
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