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CORNELL / Applied Economics and Management / AEM 2400 / What is the definition of retailing?

What is the definition of retailing?

What is the definition of retailing?


School: Cornell University
Department: Applied Economics and Management
Course: Marketing
Professor: Debra perosio
Term: Fall 2016
Cost: 50
Name: Prelim 2 Notes
Description: These notes cover the material on the Exam from the second half of the year. See Midterm exam review for material from the first half of the year.
Uploaded: 12/06/2017
20 Pages 136 Views 28 Unlocks


What is the definition of retailing?

AEM 2400

Final Review Sheet

Product Portfolio

- Products – everything both favorable and unfavorable that a person  receives in an exchange

o Convenience product – a relatively inexpensive item that merits  little shopping effort

o Shopping product – a product that requires comparison  shopping because it is usually more expensive than a convenience product and found in fewer stores

What is integrated marketing communications?

o Specialty product – a particular item for which consumers  search extensively and are very reluctant to accept substitutes  (i.e. certain cars, watches)

o Unsought product – a product unknown to the potential buyer or a known product that the buyer doesn’t actively seek

- Product item – a specific version of a product that can be designated as  a distinct offering among an organization’s products (i.e. Campbell’s  Chicken Noodle soup) We also discuss several other topics like What is astronomy?

- Product mix – all product that an org. sells (i.e. all of Campbell’s products – soups, sauces, frozen entrées, ect.) each product in the mix may  require a separate strategy

- Product lines – a group of closely related product items (i.e. all of  Campbell’s soups)

What is digital media?

How will you organize your products?

o Width – the number of product lines an organization offers (i.e.  the width of Campbell’s product mix is five product lines (soups,  sauces, ect.))

o Increase width to diversify risk and capitalize on established  reputations

o Length – The number of product items in a product line (i.e.  Campbell sells four types of sauces)

o Increase depth to attract buyers with different preferences,  increase sales and profits by further segmenting the market, capitalize on economies of scale in production and  

marketing and even out seasonal sales patterns

o Breadth

- BCG Matrix

How do you decide where the resources go?

o Market growth/market share

o Stars (high growth, high share), cash cows (low growth, high  share), question marks/problem children, dogs (low market, low  share) If you want to learn more check out What is the formal definition of gene?

o Link to product life cycle

o Growing markets at the beginning, dogs at the end, cash  cows at maturity

- Video: Zappo’s

o Different product lines

Developing and Managing New Products

- New product strategies

o Pioneering/new-to-the-world products – products that create an  entirely new market  high risk, high reward

o Incremental products (“Second-but-better” products)

o Me-too products  low risk, low reward

o Risk

o Technological – Can we actually make it?

o Commercial – Will people actually buy it?

- New product development process

o New product strategy – links the new-product development  process with the objectives of the marketing department, the  business unit and the corporation

o Idea generation – comes from customers, employees, distributors,  competitors, research and development, consultants, other  experts Don't forget about the age old question of Define what the manhattan project is.

o Idea screening – eliminate ideas

o Business analysis – (second stage of screening process) calculate  preliminary figures for demand, cost sales, and profitability

o Development – create a prototype and outline a marketing  strategy

o Test marketing – in test city or lab

o Commercialization – the decision to market a product  order  production materials/equipment, start production, build  

inventories, ship the product to field distribution points, train the  sales force, announce the new product and advertise

o New product

- Adoption and diffusion

o Adoption categories

o Innovators – the first 2.5% of all adopters; eager to try new  things/ideas

o Early adopters – the next 13.5% of all adopters; rely slightly  more on group norms/values; influencers

o Early majority – 34%; weighs pros/cons before purchasing;  tend to be opinion leaders friends and neighbors

o Late majority – 34%; adopt a new product because their  friends/family have

o Laggards – 16%; do not rely on group dorms; tradition/the  past heavily influence their decisions

o Variables affecting adoption, diffusion patterns

o Link to product life cycle

o Innovators and early adopters  Introductory stage

o Early majority  growth stage

o Late majority  maturity stage

o Laggards  decline stage

- Video: Gaga Sherbetter We also discuss several other topics like What is the primary purpose of money?

o Doing a lot of taste-testing to build-up demand

o Sales promotion, free trial

o Launching positive word of mouth through free samples

Brad Treat

- How startups think of marketing

- Public Relations

- Twitter and bloggers

- Adwords, paid social media, analytics

- Business development basics

- Sales tactics

- Names and logos

- *Trade shows

- Surveys

- Resources for entrepreneurs


- Definitions

o How services differ from goods:  

o Intangibility (inability to be seen, touched, tasted, heard,  ect.)

o Low search qualities (a characteristics that can be easily  assessed before purchase)

o Inseparability (inability to separate the production from  consumption – customers must be present during  Don't forget about the age old question of What is the problem with sodium layers?


o Heterogeneity (The variability of the inputs and outputs of  the services, less standardizes and uniformed)

o Perishability – The inability of services to be store,  

warehoused or inventoried

o Good = tangible product vs. service = action or activity

o Blended products = good and service

- Importance – dominates economy

- Special characteristics

o Intangibility

o Problem

o Hard to display, sample or communicate

o Hard for consumers to evaluate until after

o Can be easily coped by competitors, cannot be  

protected with patents, ect.

o Solutions

o Stress tangible cues (i.e. movie tickets, college  


o Seek service excellence – make sure users have good  


o Use word-of-mouth, post-purchase communication

o Use sampling where possible (i.e. Movie trailers)

o Customer involvement We also discuss several other topics like What is imposed under the 1852 foreign miners tax?

o Problem

o Customers involved in “production” – there to view  

problems or glitches first-hand

o Customer visits “factory”

o Uses customers time

o Solutions

o Make facility and staff look professional

o Stress employee training/curtsey

o Use multiple locations – decrease travel time

o Queuing theory – have one line feed all cashiers to  

decrease wait

o Perishability

o Problems

o Capacity is limited

o Demand can be unpredictable

o Services cannot be inventories or backordered

o Solutions

o Strive to accurately predict demand

o Manage/shift demand with marketing tools –  

encourage people to go at less popular times (i.e. bars

host “Happy Hour”)

o Manage/shift supply – extent hours (i.e. urgent care so  

doctors are open late and on weekends)

o Producer variability/inseparability

o Problems

o Different service providers

o Hard to mass produce

o Hard to ensure consistent quality

o Hard to communicate quality to consumer

o Solutions

o Strong training programs, performance rewards

o Use tools to aid standardization

o Focus on personal attention – friendly employees  

overcome pitfalls

o Consider licensing, other credentials

- Servqual gap model

Gap 1 – customer expentation vs. management’s perception of their  expectations

- What customers want vs. what management think the customers want - Research customer satisfaction

Gap 2 – management perceptions vs. service specifications

- What management thinks customers want

vs. the quality specifications that

management develops to proceed the service

- Inability to translate customers; needs into delivery

systems within the firm

Gap 3 – service specifications vs. service


- The service quality specifications vs. the

services that are actually proceed

- If gaps 1 and 2 have been closed, then gap 3 is due

to the inability of management and employees to do

what should be done

Gap 4 – service execution vs. communication

- What the company provides vs. what the customer is told it provides - Communication gap

Gap 5 – service execution vs. customer expectation

- The gap between the service customers receive and the service they  want

- Positive or negative

- Video: Pepe’s Pizza

o High quality product (artisan pizza), low prices, quality  


o Intangibility – don’t know what pizza tastes like until you  try it

o Customer involvement – customers in restaurant, see pizza mistakes

o Producer variability/inseparability – who makes and service the pizza, make sure consistent


- Distribution channels

o Intermediaries – anyone between the

manufacturers and the service provider

o Length

- Roles of intermediaries

o Physical distribution

o Assortment

o Break bulk

o Accumulate bulk

o Transport & storage

o Specialization

o Reduce transactions  

o Communication

o Marketing research

o Buying role for consumers – retailers are the ones talking to  the consumers (likes/dislikes, returns)

o Selling role for marketers – IMC (advertising, publicity, sales  promotion, digital media, ect.), personal selling, point-of-sale (POS), after-sale service

- Distribution decisions

o Channel structure

o Omnichannel – all channels are the same

o Multichannel – the channels are different

o Intensity




# of  



Achieve mass market selling Convenience goods



Work with selected intermediaries Shopping and some specialty  goods



Work with a single intermediary Specialty goods and industrial  equipment


o Control

o Partnering

o Vertical integration

o Conflict

- Considerations

o Customer needs

o Convenience

o Assortment

o Speed  

o Add-on services

o Product characteristics

o Perishability

o Bulk

o Company characteristics

o Size, financial resources

o Core competencies, brand reputation

o Intermediary characteristics

o Competitor characteristics

o Avoid competitors

o Duplicate

o Retailing

o Retailers = last point of contact with consumers

o 5 Bases for competition

1. Merchandise selection – draw customers with merchandise  offered

o Three types of stores…

o Specialty store (i.e. Zara, Gap)

o Category killer (i.e. Toys R Us, Best Buy, Lowes)

o Department store (i.e. Sears, Macy’s)

2. Pricing – draw customers with low prices

o Discounters

o Off-price

3. Organizational structure (size) – draw customers on the basis of size

o Consistency

o Brand recognition  

o Economies of scale

o How get big?

o Chain stores

o Contractual retailing

o Franchising

o Cooperative retailing

4. Convenience – draw customers on the basis of time/travel  convenience

o Food retailing

o Professional services

o Direct selling

o Online/mobile

5. Experience – draw customers on the basis of shopping  


- Video: New Balance Hubway, Boston Bike Share Service

o Retailer

o Reinvented distribution and retailer to fit their  

purpose/competitive advantage

o Online

Integrated Marketing Communications

- IMC overview

o Role of promotion

o There must be substance to the product behind the  


o IMC concept

o IMC mix

o Advertising

o Sales promotion

o Publicity

o Personal selling

o Digital media (social media)

Push vs. pull communications


- Trade promotion, personal selling

- Convinces channel partners to stock product, put on shelves - Pushes product through channel(s)

- Push budget is actually considerably more expensive

Manufacturer Retailer Consumer


- Consumer advertising, sales promotion, publicity, social media - Drives consumers into stores, toward websites, ect

- Demand pulls product through channel(s)

- Aimed at the end consumer; aimed to create demand

Manufacturer Retailer Consumer- Communication process

o Sender/message

o Encoding – the way to send the  message

o Channel – how the message is  

delivered to the  

target; IMC  


o Decoding –  interprets  


o Receiver –  target of  


o Noise, fields of experience (background of sender and receiver)

- Response hierarchy

o Attention/awareness

o Interest

o Desire

o Action

- Determinants (p. 276)

Someone has to decide which tool to use, when to use them and how to use them.

o Nature of the product – consumer or business product o Stage in PLC – in the early stages, use a lot of sales promotion  and advertising; once you get to maturity pull back and do more  reminders about the product

o Target market characteristics – lots of types of advertising  are become obsolete, must be aware of these

o Types of buying decision – level of involvement; product you  buy all the time or specialty good

o Promotion funds – do you have the money to do this  advertising (i.e. not everyone can advertise on the super bowl) o Push or pull strategy – plan an appropriate communication  strategy to get your product bought


- Concept – paid media

- Advantages

o One-to-many (mass media costs – per person is fairly low)

o Control of message/consistency – once you put ad out it does not change and is the same for everyone

o Creative

- Disadvantages

o Impersonal

o Inflexibility

o One way/lack of feedback – major issue of advertising: how do  you know it’s working?

o Control over situation – control over noise, if customers are  listening

o Total cost can be substantial – per person usually pretty  reasonable, but total cost is very expensive (i.e. Super bowl) - Marketing decisions

o Target

o Message -- generic strategy (differentiation? low cost?),  positioning, CBP

o Objective – what trying to achieve? AIDA

- Creative decisions

o Enhance sender/source

o Management/owner

o Celebrity

o Encoding

o Break through the “clutter,” and gab attention of the target  by speaking there language

o Appeal (Table 16.1 from text, p. 286)

o Rational

o Emotional

o Profit (rational), health, fear (emotional), admiration  

(emotional), convenience, fun and pleasure (emotional),  vanity and egotism, environmental consciousness

o Execution (Table 16.2 from text)

o What will it look/sound like? How get the message across? o Slice-of-life – very popular

o Tell a story

o Jingle

o Cartoon dancing around

o Celebrity

o See table in book

- Media decisions

o Media choices, advantages/disadvantages (Table 16.3 from text, p. 288)

o Television

o Radio

o Magazine

o Newspaper

o Outdoor (billboard, sides of buses, subway walls)

o Internet

o Other (direct mail, phone directories)

o Objectives

o Reach – how many ads reach the target at least once?

o Frequency – how often viewers see the ad on average?

o Media vehicles

o Cost

o Audience attention

o Audience quality

o Editorial quality (quality of medium i.e. NYT is high quality) - Assessment

o DAGMAR (Defined Advertising Goals for Measured Advertising  Results) – all advertising objectives should precisely define the  target audience, the desired percentage change in some specified  measure of effectiveness, and the time frame in which that change is to occur

o Reference objectives

Sales Promotion

- Concept (value equation)

o Value-adding incentives to encourage purchase

o Short-term

o “Brand activation”

o Value = benefits


o Increase value by:  

o Increasing numerator (benefits)

o Decreasing denominator (price)

- Advantages

o One-to-many (mass media costs)

o Control over message/consistency

o Can be creative

o Can be measured (in a different way than in advertising because  a lot easier and more precise)

o Can leverage with other IMC

- Disadvantages

o Impersonal

o Inflexibility

o One way/lack of feedback

o Control over situation

o Total cost can be substantial

o Sales promotion trap – you never get back to full price  because customers get so used to buying it on discount

- Uses

o Consumer

o Induce trial

o Encourage repeat purchase

o Counter competitive efforts

o Attract attention/publicity/buzz

o Encourage to buy in large quantities  

o Goodwill

o Trade

o Introduce new products

o Obtain shelf-space; retail support

o Motivate sales force

- Consumer tools

o Reduce price

o Price reductions  

o Price packs

o Multiple unit – buy one, get one free; ect.

o Bonus pack – 16oz for the price of 12oz, ect.

o Coupons

o Refunds/rebates – you buy one we will give you something  back (rebates are associated with more expensive items) o Samples/trail sizes

o Increase benefits – becoming more popular

o Contest, sweepstakes, games

o Premiums (things you get with your purchase), specialties  (giveaways for free)

o Tie-ins – a promotion that takes advantage of some event  (i.e. Pumpkin-spice latte)

o Sponsorship – paying to be officially aligned with an event,  stadium, athlete, ect.

o Event – sponsor an event or create your own

o Loyalty program

- Trade tools

o Trade allowances – illegal to charge different stores different  prices, but can five a discount for…

o Quantity – if the store buys in large quantities

o Price-off allowance –displays, co-op advertising, sales  training, ect.

o Dealer loaders

o Gifts/premiums for people purchasing in quantity

o Performing services

o Trade contests

o Merchandising (POS – point of sale/POP – point of purchase)  materials

o Displays increase sales a tremendous amount

o Often paired with trade allowances

o Trade shows

o Usually big companies

- Examples

o Consumer – giant baby carriage for adults to try (winner of the Pro  Awards 2017 sales promotion of the year)

o Trade – M&M’s buy one, donate one promotion for the troops

- Marketing decisions

o New balance store opening

o Charmin bathrooms in Times Square

- Creative decisions

o Sales promotion tools

o Value to target

o Something to do with the brand (i.e. New balance running and  Charmin bathrooms)

o Leveragable (publicity/digital media)

- Channel decisions/media

o On-the-ground

o In the store

o On social media

- Assessment decisions

o Participants

o Media impressions

o Social media metrics

o And back to objectives


- Concept

- Advantages/disadvantages

- Proactive publicity – planned; get out your version of the story that is  then picked up by the media or consumers; can loose control o Creating

o Marketing, creative, media, assessment decisions

- Reactive publicity – something bad has happened, need to manage crisis

Personal Selling

- Only person-to-person

- Two-way communication tool

o Not an example of mass organization (like sales promotion,  organization, advertising, ect. – which are one-to-many  

communication tools)

o Social media changed this (because can be one-to-one), but still  the only one-to-one and face-to-face

- Advantages

o One-on-one

o Persuasive

o Flexible

o Metrics/feedback

o Demonstration  

- Disadvantages

o Cost

o Lack of control/inconsistency

- Circumstances of use (from text)

o Relationship marketing

Focuses on customer needs  modern sales all about making  relationships with the customer and making their life better  o TRUST is very important

o Identify customer’s needs

o Match to your organization’s offerings (if possible)

o Convince customer of match

o Sales positions

o Inside (order-taking)

o Phone

o Retail  

o Brokers

o Outside (creative)

o Other

o Missionary

o Missionary sales is purely trying to drum up  

new customers

o Installation

o After-sale service

- Traditional/relational (from text)

- Selling process

o Prospecting/generating and qualifying leads

o Cold-calling

o Secondary sources

o Networking

o Help from firm

o Pre-approach

o Further research

o Key players and decision-makers

o Call objectives (AIDA)

o Approach

o Initial approach:

o Meet and greet

o Presentation (need/solution)

o Modern sales is not a pitch… should be more of a  

conversation about a need and the solution you can  


o Story

o Need/solution approach

o Listening (75%)

o Demonstration

o Handling objections  

o Seek out, clarify

o Preparation

o There will always be some objection to the suggested deal o Closing

o Seeking and gaining commitment

o Need to eventually explicitly ask for the sale

o Process, not manipulation

o Typically manipulation doesn’t work on professional  


o Example of manipulation: car salesperson saying car  

won’t be available tomorrow

o If you have done a good job with the previous parts  

of the sale, then the closing should come naturally

o Follow-up

o Ensure satisfaction

o Continue relationship

o Modern sales is about relationships – want a long-term  relationship

o Good to talk without always having a sale

o Sales management

Sales management

- Territories – must be organized in some way so that each client only has  one rep calling them

o Geography  

o Product

o Customer

o Sales task

- Personnel

o Special traits of salespeople

o High turnover  

o Selection, motivation and retention can be difficult

- Compensation  

o Salary (base) vs. commission

o Quotas and bonuses

Digital Media

- Concept

o Interactive internet/mobile communication

o Very cheap mass-market

o Can do both one-to-many and person-to-person

o Types

o Blogs

o Microblogs (Twitter)

o Social networks

o Media sharing

o New sharing

o Reviews

o Apps/loyalty programs

o Location-based

o Virtual worlds

- Advantages

o One-to-many capability

o Person-to-person capability  

o Creativity

o Minimal media costs

o Fits well with other IMC – can leverage sales capability o Metrics/feedback

- Disadvantages

o Control over message

o Control what goes out there but loose control over what  happens next

o Need to monitor and rapidly respond

o Still not 100% certain how people react to marketing  

messages on their digital media  If too blatantly  

marketing people will just turn it off, but some people do  follow their favorite products

o Need for monitoring/rapid response

o Uncertainty of acceptability of marketing messages

- Uses

o Must be of interest to consumers – interesting

o Different accounts, different purposes

o Listening – responsive to negative reviews

o Conversations

- Metrics

o Can support…

o Volume

o Sentiment – pos., neg., neutral

o Influence – do the people talking about your product have  influence?

- Marketing (support other IMC), creative, channels, media assessment  decisions


IMC Strategy from Marketing point-of-view  

Full IMC strategy: you have targeted segments and you want them to go  from uniformed consumers to informed buyers

Transition from…

- Attention

- Interest

- Desire

- Action (sales)

Tools to achieve each of these

- Advertising

- Public relations

- Sales promotion

- Personal Selling

- Social media


- Importance of pricing

o Pricing mistakes, value equation

- Pricing strategies

o Generic Strategies

1. Price Leader – has power to set the price (usually cost  


2. Price Follower – stay close to the price leader; have similar  products that are marginally better if at all

3. Price Niche – go after niche segment that tends to be willing  to pay more

o Circumstantial

1. Penetration strategy – grab market share by dropping price  low until get business

2. Skimming pricing – temporarily have advantage so make  profit while you can by charging higher price

- Determinants of price

o Internal

o Costs

o Variable costs

o Fixed costs

o Break-even pricing – make enough to cover costs

o Break-even analysis (B/E)

o B/E =  FC


o Margins

o External

o Gouging – overpricing  o Competition – know your strategy


Price elasticity  of demand

change∈quantity demanded change∈price

o Customers – supply and demand

o Elastic = if change in price changes demand  drastically

o Inelastic = if change in price changes demand does  not change

o Legal – pricing is heavily regulated

o Price fixing – illegal  

o Horizontal price fixing – when competitors agree

to pay same price

o Vertical – technically illegal, when you try to get  

people in your distribution chain to charge a  

certain price

o Predatory pricing – drop artificially low level with

purpose of driving out competition (legal if still  

make a profit)

o Deceptive pricing – former price comparisons,  

competitor comparisons, MSRP comparisons,  

Bait and switch

- Pricing tactics

o Differential pricing

o Single or variable price

o Buy/lease

o Second market discounting

o Periodic discounting/EDLP (every day low prices)

o Inflationary pricing

o Increase price

o Decrease quantity

o Kind of shady technique – hope customers don’t notice o Psychological pricing

o Prestige pricing – price high to be perceived as prestige  brand

o Reference pricing – have something else to compare to o Odd/even pricing – odd goes along with discount and even  goes along with quality

o Product line pricing

o Captive pricing – hook customers and make money off the  follow-up

o Two-part pricing – membership and service contracts

o Leader pricing

o Bait/leader – get people into a retail store and they  

buy other stuff at full price

o Cherry picking – people who come into each  

Supermarket and buy discounts rather than buying the

“other stuff”

o Price lining – when you get people used to buying at  

different price levels

o Bundling – put together different products and offer special  price

o Multiple unit pricing – bundling all the same product

- Video: Ski Butternut

o Three price levels

o Cheaper price during weekdays o High price during holidays o Regular weekend price

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