M370 Final Exam Study Guide
M370 Final Exam Study Guide BUS-BE 375
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This 20 page Study Guide was uploaded by Elizabeth Frabotta on Wednesday November 11, 2015. The Study Guide belongs to BUS-BE 375 at Indiana University taught by Kitzmiller G in Fall 2015. Since its upload, it has received 38 views. For similar materials see BUS-BE: I-CORE in Business at Indiana University.
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Date Created: 11/11/15
M370 Final Exam Pricing Price is established when currency for exchange changes hands. HBR Article: Any time perception of benefits is greater than perception of price, we gain market share. Managing Product Lines o Most firms have multiple products in given category o Requires strategic thinking about relationship of products o Price is key factor in conveying different brands to consumer Major Pricing Strategies o Customer Value Based Pricing o Cost Based Pricing o Competition Based Pricing o 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 o 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 o Product Mix Pricing Product Line Pricing Price jumps based on features Consider competition Requires review of product costs Optional product Pricing Start with one model and add options/features Ex. Leather seats, upgraded audio, custom wheels Captive Product Pricing Setting a price for products that must be used along with a main product Ex. Razors and blades or a videogame console and games Product Bundling Pricing Selling two or more products for a single price Ex. Season sports tickets 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 – consumers determine price in their own way o Why do we change price? Competition Liquidity (can quickly sell more) End of season (bring in new products, opportunity cost) Broken assortments (missing pieces) Change in macro-economic conditions o How do we change price? Discounts Allowances Segment Based Pricing Promotional Pricing Dynamic Pricing Adjust Price to Demand o Stocks o Airlines o Hotels o Football tickets Geographic Pricing Pricing based on location Apple prices their phones by region Target takes markdowns based on performance of product by geographic cluster o Goal of Pricing To optimize profits on the product line, not the individual products. Pricing must have consistency across the line to avoid negative consumer sentiment. - Don’t get hung up on examples in Q’s - Ex. Q: “You can order this product with additional features “ Product Option Pricing Price Elasticity Elasticity of Demand % change in Quantity / % change in Price o Elastic sensitive to changes in price Demand > 1 Behavior changes as demand changes o Inelastic Insensitive to changes in price Demand < 1 Ex. Gas prices People grumble, but their behavior does not change much o Perfectly Elastic Straight horizontal line Any very small change in price results in very large change in demand “pure commodities” o Perfectly Inelastic Straight vertical line Quantity demanded does not change when the price changes (products we absolutely need and no other alternatives) o Relatively Elastic Small changes in price cause large changes in quantity demanded o Unit Elastic Any change in price is matched by an equal change in quantity demanded o Relatively Inelastic Large changes in price cause small changes in demand o Using Elasticity to Set Prices Lost Opportunity High price, elastic Gold Rush High price, inelastic Alignment Medium price, elastic The One That Got Away Medium price, inelastic Price is King Low price, elastic Don’t go here Low price, inelastic Factors that Affect Pricing Industry Economy Demand Elasticity Influencers: Gov’t, Social Price Formulas Price = Markup + Cost Markup = Price – Cost Cost = Price – Markup Markup % of price = Markup/Price Markup % of cost = Markup/Cost *Given markup % of cost, Price = Cost*(Markup%+1) *Given Markup % of Price, Price = (Cost/(1-Markup%) Readings on Price “Marketing By the Numbers” o ROI price = Unit Cost + [(ROI*Investment)/(Unit Sales)] o Unit Cost = Variable Cost + (Fixed Costs/Unit Sales) o Breakeven Units = Fixed Cost/ (Price – Variable Cost) o Breakeven Sales = Breakeven Units * Price o Breakeven with a Profit Goal Volume in units = (Fixed Costs + Profit Goal)/(Price – Variable Cost) Sales Volume = (Volume in units * Price) “If Brands are Built Over Years…” o shows how some brands are managed for promotions while a long-term view allows a better pricing strategy o What is scanner data? By quarters, we look at scanner data, we put it on sale more revenue, manage it for the short term If that’s all you look at (short term), you’re not managing the brand equity o What is main point of the article? o What should companies DO as a result? Long Term Data = Long View 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 Focus on Brand Equity “How to Stop Customers from Fixating on Price” o Commoditization o 4 Strategies 1. Use price structure to clarify advantage 2. Willfully overprice to generate curiosity 3. Partition prices to highlight overlooked benefits o “I’ll always find it on sale, it’ll always be cheaper” mindset need to get them focused on brand, not low price “What is a Free Customer Worth?” o use free products daily ex. Google, Spotify, Instagram, Youtube, etc. o What is their business model? Sell the use of accessing “you” to others o 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 o According to estimate, this business model accounts for revenues of 60 of worlds 100 largest corporations o Knowing lifetime value of free customers is crucial to determining Optimal way to grow How much should a company spend at various points in time to acquire and retain free or heaily subsidized customers? Real value of enterprise How much should investors pay for all or part of business with such customers? Best organizational design How should business and its incentive If you answer these questions wrong, your company may go out of business o Value Marketing: Competitive Value Creation Composed of Price, Promotion, Place, and Global Value concepts learned in class are all covered in Pricing section above Communication/Promotion IMC: Integrated Marketing Communications Consumer has 1 positioning o Push Strategy: provide retailer w/ tools and incentives to sell products Marketer directs marketing activities toward channel members to induce them to carry the product and promote it to final consumers Brand Led Push Marketing Geared towards helping the retailer sell more product Via. Merchandising, promotions, equipment, display, pricing, coverage etc. Ex. Silkience pays K-Mart to place brand in K-Mart circular and lower price for a week (major promotion in store) Ex. Flinstones vitamins pays Kroger to put a display at end of aisle o Pull Strategy: Drives consumers into outlets by using both outlet knowledge and buyer behavior insights Marketer directs marketing activities toward final customers to induce them to buy the product Customer led Pull marketing geared to driving the consumer to visit specific locations to buy product Ex. Pringles sends coupons through the mail to your home Ex. Silkience places coupons in newspaper and in Redbook Ex. Tide places coupons in a newspaper to buy “at the store of your choice” not a particular retailer Promotion most closely connects with Communication Objectives of Promotion (I,R,P,BR) o Inform Value Image New product Explain o Remind Pantry stocking o Persuade Preference Switching Value perception o Build Relationships Promotion Mix o Public Relations o Advertising Paid use of media Connects a message with media Typically a pull strategy o Sales Promotion o Personal Selling One-to-one contact with customer o Direct Digital (direct marketing = digital marketing) Foundation for digital interface: E-mail and Website o Which of these does not require company to pay for media usage? Product Publicity (under Public Relations) Advertising Paid use of media Effective Communications/Ads o Message Strategy: general message communicated to customers, first step in creating effective advertising messages 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 ideas 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 or 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 Ad Strategy o A long-term document which extends and elaborates a brand’s marketing strategy into the area of ads o Two Components: Message Media 4 Types of Ad Campaigns o Word hook Repeatable catch phrase from ad to ad Ex. Verzion: “can you hear me now?” o Character hook Uses a hero, villain, or victim to embody a key attribute of a brand Ex. Ronald McDonald Ex. Energizer Bunny o Repeatable Theme A situation that plays out again and again calling out the need for a company’s product Ex. Allstate’s “Mayhem” creates situations from which people need assistance o Consistent Layout Uses a unique design look and repeats these elements at each touch point Customers can easily identify company bc of distinct elements Ex. Apple’s iPod ads with silhouettes Media & Metrics o Traditional Media TV Newspapers Magazines Radio Out of Home (Outdoor) o Digital Video News Information Music Out of Home (Outdoor) o Communication Goals Reach/Frequency + Awareness Customer Lifeycle Approach Database driven, Cost to Acquire, estimate CLV with ongoing marketing costs All Commodity Volume (ACV) = Total $ Sales of stores carrying our brand / Total $ Sales of outlets available Category = same type of products Product Category Volume = Total Category $ Sales of stores carrying our brand / Total $ Category Sales of outlets available Reach: % of people in target exposed to ad Frequency: # of times a person in target is exposed to ad Gross Rating Points = Reach x Frequency CPM = Cost per Thousand PR o Building good relationships with company’s various publics by obtaining favorable publicity, building a good corporate image, and handling or heading off unfavorable rumors o Roles General PR Public Affairs Lobbying Investor relations Development Product Publicity Managing the message about products to make them newsworthy and gain positive placement and attention Focus on innovators and early adopters: blogs Publicity – unpaid communication about an organization that appears in mass media o Unpaid communication about a product appearing in mass media o Important when the company’s image is at risk Media Relations o Press Relations – managing the message to media inquiries or investors Personal Selling o Relationship Selling Focuses on customer Listens to needs Each customer matters Confirm product fit and adjust o Transactional Selling Focus is on each sale Provides information Sell today Sales Promotion o Any short-term incentives to encourage purchase or sale of a product o Coupons o Rebates o Price discounts o Display Reading 8: “Human Experience” o Main point: interaction, experience, not interruption o Execution: What should we do? Public Sphere Engages consumers during downtime when moving from point to point and have attention free for new inputs Social Sphere Helps people forge new connections or enrich existing, can turn social interactions into carriers of ad messaging, must appear in right place at right time with right message, align with social goals, address a social need, and facilitate interaction in innovative ways Tribal Sphere Domain of more-focused social engagement, create consumers’ identification with groups, must suit character and values of those involved while addressing desires for identity & self-expression Psychological Sphere Domain of language, cognition, and emotion Ads designed to insert words, phrases, or emotions into a consumer’s psychological processes, inspiring action or triggering positive feelings Provide new ways to articulate ideas, engender habit formation, guide reasoning, and elicit emotion o Placing ads in the Spheres above Channels Distribution Channel o Set of interdepent organizations that help make a product or service available for use or consumption by the consumer or business user o May include: Wholesalers Splits bulk quantities into manageable lot sizes Brokers or agents Producer Builds products from raw material Retailers Presents goods to end consumer in brick & mortar environment Each entity is financially independent and may work for a number of different channel partners o A downstream component from the supply chain o Faces or connects to the consumer o Conventional Distribution Channel Product > Wholesaler > Retailer > Consumer o Modern: Value Delivery Network vs. Traditional: Supply Chain > Marketing Channel Value Delivery Network Improving performance of entire system, helps system deliver better value Supplier > Supplier > Retailer > Consumer Take on only those tasks which give you competitive advantage Stronger partners influence the whole channel Consumer has multiple points of contact for acquiring offer o Multi-Channel Distribution Ex. Fossil watches sold at Macy’s, on Fossil website, Fossil outlet store, Fossil retail store o Direct Distribution Manufacturer to customer Ex. Dell o Indirect Distribution Manufacturer to Retailer to Customer Ex. Heinz ketchup to Target to customer o Why would we have 3 or 4 levels in a channel? Creates efficiency Have greater contacts/expertise to handle each step in process o Intermediaries Markter > Wholesaler > Retailer > Consumer Wholesaler and retailer are intermediaries between Heinz and customer o Disintermediation Removal of a business from value chain/network Ex. Blockbuster, travel agents o Re-intermediation New intermediaries to reduce complexity The re-introduction of an intermediary Ex. Travel agents via websites (Travelocity, priceline, etc.) took place of former travel agents Intensive v. Exclusive v. Selective Distribution o Intensive Distribution: multi-channel on steroids, everywhere ex. Coke o 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 o Selective Distribution: Best fit based on product (ex. Whirlpool kitchen appliance) o Supply Chain Mgmt vs. Logistics Logistics flows out of operation Goal is to maximize customer service & minimize distribution costs Supports value delivery network Supply Chain flows into operation o Physical Distribution vs. Title Flow PD: moving actual product/ shipping Distribution centers: moving goods, not storing Storing costs money in holding costs Efficiency through information systems TF: Exchanging ownership/ “selling” o Types of Intermediaries Independent Intermediaries Do business with many different manufacturers and customers Merchant Wholesalers Take Title to Goods Merchandise Agents or Brokers Never take Title to Goods o Types of Retailers Superstore A store much larger than a supermarket that offers a large assortment of routinely purchased food products, nonfood items, and services Specialty Store Specializes in a category Ex. Shoe Carnival Narrow line Category Killer A giant specialty store that carries a very deep assortment of a particular line Big box stores Ex. Bed, Bath, & Beyond, PetSmart, Best Buy Deep assortment of one basic type Service Retailer A retailer whose product line is actually a service Ex. Hotels, airlines, banks, colleges, etc. Wholesaler Business-tobusiness firm that buys goods to resell to retailers Discount Store A retail operation that sells standard merchandise at lower prices by accepting lower margins and selling at higher volume Hypermarket A store that offers food, clothing, hardware items, and a large variety of merchandise Similar to superstore Full grocery + nonfood items Off-price retailer Buys at less-than-regular wholesale prices and sells at less than retail (clearance goods) Ex. TJ Maxx, BigLots Independent Off-price Retailer Either independently owned and run or is a division of a larger retail corporation Factory Outlet Owned and operated by a manufacturer and normally carries the manufacturer’s surplus, discontinued, or irregular goods o Retail Convergence Different types of stores converge on each other for one purchase Ex. Target competes with Kroger o Trends in Retail Pop-up Shops Show-rooming Clicks and Mortar Speed (ex. Starbucks) Global OUTLINE 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: i. Economy ii. Political & Legal differences iii. Cultural differences Culture is the most basic cause of a person’s wants and behavior i. Learned from family, church, school, peers, etc ii. Most basic reason marketing factors must change by country iii. Cultural influences consumer behavior iv. 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 i. Export ii. Joint iii. Direct P. 509-515: Global Marketing Program i. Standardized ii. Adapted iii. Marketing Mix How Do We Enter Markets? Which method of international market entry carries the least risk? i. Answer depends on type of risk considered ii. There is risk on both sides (Capital Investment and Marketing Control) Export i. Entering foreign markets by selling goods produced in the company’s home country often with little modification ii. “Make it here, sell it there” iii. carries most brand equity risk iv. carries least capital investment risk Direct Investment i. Entering a foreign market by developing foreign-based assembly, or manufacturing facilities ii. “Buy or Build” facilities, manufacturing, sales offices iii. carries most capital investment risk iv. carries least brand equity risk Joint Strategies (joint venturing) i. Entering foreign markets by joining with foreign companies to produce or market a product or service ii. Licensing iii. Contract manufacturing iv. Joint ownership v. Management contracts Example: Export Joint Strategies Direct Investment i. Financial Capital Risk increases as you move from Export to Joint to Direct Investment ------- ii. Loss of Marketing Control Risk decreases as you move from Export to Joint to Direct --------- iii. Amt of Commitment, risk, control, and profit -- across Risk to Exporting i. 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 i. An international marketing strategy that basically uses the same marketing strategy and mix in all of the company’s international markets Adapted Global Marketing i. 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 i. Changing tastes, needs Promotion i. Communication adaptation Price i. Based on the market not costs ii. Brand perception may be very different by market iii. Exchange rate issues and offsets Place i. Go where the consumers shop for your product ii. 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 Q: Which strategy has highest financial risk? Direct Investment Q: Which has the highest brand risk? Export Make marketing changes because of cultural differences Reading: How Global Brands Compete “The rise of global culture doesn’t mean that consumers share the same tastes or values” consumers are different Global dimensions of brand have significant impact on it’s value o Quality Signal: most important dimension Global brands are perceived as higher quality Viewed as expensive but reasonably priced for value provided o Global Myth An imagined global identity they share with like- minded people Symbols of cultural ideals Global brands make people feel like “citizens of the world” o Social Responsibility Global companies influence society’s well being Expected to address social problems linked to what they sell Consumers don’t demand local companies tackle global issues or that all global brands tackle all global issues Four key issues – bold headlines in article (read the 4 paragraphs) Think in cultural terms Dimensions of global brands Global consumer segments Global citizens o Tied to Global Myth Global Dreamers o Aspirations drive purchase Antiglobals o Don’t want to buy a big global brand; buy local Global Agnostics o Don’t base purchase decisions on a brands global attributes; evaluate products the same way they judge local products Opportunities Think globalness Manage the dark side Build credible myths Treat anti-globals as customers Turn social responsibility to entrepreneurship Clicker Questions: Q: Which online tool helps brands/firms manage social media? A: Hootsuite Q: A new type of interactive laptop to compete with the ipad is introduced at a low price and remains low. This is best called… A: Penetration Price Strategy - a new product is introduced at a lower price Q: Which example is captive product pricing? - Razors & blades Q: What are season tickets? - Price bundling Q: Using reading “If Brands are Built Over Years…,” firms need… A: Data over the long term Q: This photo of different iPads at differing prices shows.. A: Product Line Pricing Q: What best describes a store that offers food, clothing, hardware items, and a large variety of merchandise? A: Hypermarket Q: A very large store specialty retailer with a deep assortment of products and value pricing like PetSmart is best known as which format? A: Category Killer Q 32% Pricing or Pricing Strategy 32% IMC 22% Channels Retail 14% International 6 Qs from readings 6 Qs Calculations HH2083 Friday @ 11 Review
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