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First exam notes

by: Meagan Hudson

First exam notes MKT 337

Meagan Hudson
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random notes from a few classes for the first exam ... more to come
Principles of Marketing
Professor Gabbi
Class Notes




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This 12 page Class Notes was uploaded by Meagan Hudson on Thursday September 29, 2016. The Class Notes belongs to MKT 337 at University of Texas at Austin taught by Professor Gabbi in Fall 2016. Since its upload, it has received 3 views.


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Date Created: 09/29/16
MKT 337 Notes – August 24, 2016 PowerPoint published in advance (print) Skim chapter before class, and read & prep article Grading Exam 1 – 20% (in class) Exam 2 – 20% Exam 3 – 20% Marketing Plan 1 – 10% Marketing Plan 2 – 10% Participation – 20% 1 point – showing up, +(1,2) contribution Tip: make a compelling comment 1 in every 4 classes Final: used as a makeup for exam 1, 2, or 3 missed… not required Exams – extremely hard, low averages (72 – 78%) Extra credit – to be on final grade Participation in Studies Internship opportunities: Wonders and Worries – therapeutic & coping skills for kids whose parents are sick 10 hours/week, paid 5 positions 3 in development (marketing, social media, etc.) 2 in operations (office management, finance, etc.) Email him your resume Stock Features and Markets Two ways to issue equity  Private Placement of Equity Obtain cash from an angel investor  person willing to invest Or venture capital firm  Public Issue of Equity Sell stock to the public First public issue = Initial Public Offering Common Stock – most common Features: Represents ownership of the company No maturity date May/may not pay dividends Each quarter when the company puts it financial statements, they can choose to pay dividends…example: Dell Voting rights Last in line in event of liquidation Owners have last priority when it comes to liquidating the company Advantages: Does not require the firm to make fixed payments Never matures, never has to be repaid/repurchased Does not increase the firm’s debt ratio Vs. keep borrowing money Interest expenses + amount borrowed Disadvantages: -Requires giving up some ownership & control -Dividend payments are not tax-deductible expenses No dividend expenses…does not reduce income before tax…does not reduce taxes…because they are just transfers of cash Compare: interest expense…subtract out of profits before paying taxes -Investors demand greater return than on debt Greater risks when investing in stock than investing in debt Preferred Stock – more risk Features: Receives preferential treatment (relative to common stock) regarding Payment of dividends Priority in the event of liquidation Considered a hybrid security: Provides regular income to owners Like a bond Predetermined dividend payments Cannot cause bankruptcy Like common stock Only debt holders/creditors/lenders can do this Meet and force company to file for bankruptcy Advantages: -Does not involve issuing voting rights Good for company -Dividends can be deferred Can fail to pay dividends when supposed to -Does not increase the firm’s debt ratio Disadvantages: -Dividend payments are not tax-deductible expenses -Investors expect greater return than on debt Because of the risk-return trade-off How do real estate investors make money? Assume you own an apartment building. How might it earn you money? Rent: form of income Income is taxable when earned Sell building: for a capital gain Sell for more than purchase price Gain taxable when realized When you actually sell the asset Earned would be if you just looked up the value of it and compared the differences How do stock and bond investors make money? Income (taxable when earned) Semi-annual interest is paid to bondholders Quarterly dividends may be paid to stockholders Capital gains (taxable when realized) – helps you choose when Capital gain: When the value of an asset rises above the price you paid for it Capital loss: When the value of an asset falls below the price you paid for it Stock Yield: an investment’s total earnings, expressed as a percentage Yield = Dollar Return/Beginning Value = Income + Capital Gain/ Beginning Value = (Income + (Ending Value – Beginning Value))/Beginning Value Yield = Percent return = Holding period return  I bought 1 share of IBM stock on January 1 for $85.00  I received dividend payments of $0.63 on March 31 and June 30, plus $0.64 on Sept 30 and $0.65 on Dec 31  At the end of Dec 31, the stock closed at $90. I still own my share. What was my yield? Dollar return Dividend income = $0.63 + $0.63 + $0.64 + $0.65 = $2.55  Unrealized capital gain = End value – beginning value = $90 - $85 = $5.00 TOTAL DOLLAR RETURN = Income + Capital gain/loss = $2.55 + $5.00 = $7.55  Yield = Dollar return/beginning value = $7.55/$85.00 = .0888 = 8.88% Over the course of one year, I earned an 8.88% return on my investment Stock’s Yield can be separated into two components: Yield = Dividend Yield + Capital Gains Yield Dividend Yield = Dividend Income/Beginning Value = $2.55/$85 = 3.00% Capital Gains Yield = Capital Gain/Beginning Value = $5/$85 = 5.88%  3.00% + 5.88% Comparing returns to an index After calculating the yield (return) on an investment, compare it to an index Index: collection stocks, bonds, or consumer goods As prices rise or fall, the index rises and falls commensurately Used to gauge performance in the market and/or economy DIJA – oldest index Dow Jones Industrial Average: measure of the stock prices of the 30 largest firms in the United States Established in 1896 and includes 3M AT&T Boeing CocaCola….etc An Index for everyone S&P 500 Measures the performance of the 500 largest US firms (large caps) Nasdaq Composite Index Measures performance of the 3,000+ stocks traded on the Nasdaq Russell 2000 Measures performance of US small caps Bond and international indices also exist. Ways to Evaluate Financial Markets Equity market vs. debt market Share of general electric stock – equity Stock market vs. bond market Stock exchange vs. over-the-counter market Primary market vs. Secondary market Capital market vs. money market Stock Exchange vs. OTC Market Stock exchange (market): physical or virtual place where securities are traded Have to be big enough to be listed Examples: New York Stock Exchange – organized, physical exchange Nasdaq – organized, virtual exchange OTC market: not an exchange Trading is directly between buyer and seller Not regulated, super risky … usually referred to as “penny stocks” because worth less than a dollar. Example: Pink sheets OTC Bulletin Board Primary vs. Secondary  During eBay’s 1998 initial public offering (IPO), it offered 3.5M(9%) of its shares to the public at $18 per share In 1999, eBay offered an additional 6.5M shares to the public at $270 per share. 4.25M shares offered by company Secondary public offering in the primary market 2.25 shares offered by insiders Secondary public offering in secondary market Already used shares Angel investors, employees Investors selling the shares get the money September 2, 2016, eBay closed at $32 Primary – company gets the money Secondary – previous owners of shares get money Secondary investors buy from initial in exchange for money…through broker. Stock split – does not cause the stock price to go up… performance and desire in stock does Examples: 600 shares each costing $4.50 12,000 shares each costing $2.25 Market cap (outstanding shares x Stock price) stays exactly the same before and after the split…Stock quote: Close – stock price for that day Adjusted – to account for splits and dividends  Capital Market vs. Money Market Long-term financial instruments trade in Capital Markets Ex: 10 year bond Ex: Share of stock traded Short-term financial instruments trade in Money Markets Ex: 90-day T-Bill Only thing that can be traded is debt???  Brokers vs. Dealers Broker matches buyers and sellers Don’t own inventory Earn money through commissions on all buy & sell transactions Dealer buys and sells Owns their own inventory Make money on the spread between bid and ask (purchase and sale) price Ex: car dealer, Amazon, retail stores Investment Bankers: help firms raise cash Helps decide: How much cash to raise How many/what kind of securities to issue Offering price/date May underwrite the issue, or work on best-efforts basis Commits to paying some amount of money to the firm, buys the stock from the company, and sells it at the offer price We can’t see that they bought it (usually 7% less) So makes around 7% Investment banker taking all the risk if stocks aren’t all sold SEC: regulates the listing and trading of financial securities Regulations attempt to ensure that: Investing public receives accurate information Corporate insiders cannot profit at the expense of other stockholders No one artificially manipulates stock prices Regulations cannot prevent investors from making foolish decisions MKT 337 Notes – Chapter 4 4-1: The external Marketing Environment Most important decisions a marketing manager must make relate to the creation of the marketing mix. Marketing mix: unique combination of product, place, promotion and price strategies Designed to appeal to a target market Target market: group of people for whom an organization designs, implements and maintains a marketing mix intended to meet need of that group Mutually satisfying Why alter – changes in environment, maturing markets, technology 4-1 a) Understanding the External Environment Environmental scanning: organizations assemble team of specialists to continually collect and evaluate environmental information Identify future market opportunities and threats -Understand current customers: how, where, what, when Ex: Walmart discovering that its market is value-oriented, not just lower income…discovered during recession of 2008-2009. -Understand what drives consumer decisions: tracking customer spending Deep knowledge about each customer’s life -Identify most valuable customers and understand their needs: 25% of firm’s customers produce 80% of firm’s revenue Maintain and enhance what is driving those loyal customers -Understand the competition: know competitors and forecast their future moves. Competitors threaten market share and profitability 4-1 b) Environmental Management No business is large enough to create major change in external market Marketing managers – adapters…not agents of change Environmental management: when company implements strategies that attempt to shape external environment within which it operates Factors: 1) social, 2) demographic, 3) economic, 4) technological, 5) political, 6) legal, and 7) competitive 4-2: Social Factors Social change = most difficult external variable for marketing managers to forecast, influence or integrate into marketing plans Attitudes, values, lifestyles 4-2 a) American Values MKT 337 Notes – Chapter 4 Value: strongly held and enduring belief that influence attitudes and lifestyles Self-sufficiency – every person should stand on his or her own two feet Upward mobility – success will come to anyone who got an education, worked hard, and played by the rules Work Ethic – hard work, dedication to family, & frugality were moral & right. Conformity – no one should expect to be treated differently by anybody else. Values formed through interactions with people and changing environment Characteristics of product quality 1. Reliability 2. Durability 3. Easy maintenance 4. Easy of use 5. Trusted brand name 6. Low price 4-2 b) The Growth of Component Lifestyles Component lifestyles – practice of choosing goods and services that meet one’s diverse needs and interests rather than conforming to a single, traditional lifestyle Increase the complexity of consumers’ buying habits because unique lifestyles require different marketing mix 4-2 c) How Social Media Have Changed Our Behavior Consumers interact constantly Share beliefs, values, ideas, and interests Most active users – ages 18-24 Social networking – opinion sharing, such as “likes” on Facebook How firms use social media: -Monitor what is being said about the brand Data dashboards: series of graphs, charts and gauges that give signs about how a business strategy or tactic is performing -Respond to positive and negative buzz about company/brand -Introduce new products -Amplify a promotional campaign Invite customers to join the conversation about a brand 4-3: Demographic Factors Demography: study of people’s vital statistics (age, race, ethnicity, location) Uncontrollable variable in external market MKT 337 Notes – Chapter 4 4-3 a) Population People are the basis of all markets, with population as most basic statistic China – 1.34 billion India – 1.18 billion US – 315 million Useful when broken into smaller, more specific increments like age Tweens, teens, millennials, generation x, baby boomers Tweens – ages 8-12 population of more than 20 million Responsible for sales of over $180 billion annually $30 billion from kids, rest from parents Fastest growing markets: mobile games and other phone apps Also wanting to look more mature Makeup Social networking Electronic entertainment or communication devices Digital cameras, digital music players, cell phones “Getting a good education,” and “being rich” Teens – 25 million teenagers in US using television, Internet, music, video games and cell phones, Shopping (most teens prefer to shop in stores instead of online) Big box retailers (Best Buy) Luxury boutiques (Michael Kors) Little room for RETAILERS (“love Taco Bell as much as Gucci) Biggest purchase influence – friends Millennials – AKA Generation Y, born between 1979 and 1994 2 different stages of the life cycle Entering adulthood  already started careers, parents, dramatic lifestyle changes Hurt by recessions because jobs eliminated Most tech-savvy generation yet More time on web than TV, radio, newspaper Brands on social media Online shopping – price, brand and reviews Generation X – people born between 1965-1978, 50 million US consumers -First generation of latchkey children Latchkey children – products of dual-career households, or divorced or separated parents MKT 337 Notes – Chapter 4 -Known for being: independent, resilient, adaptable, cautious, and skeptical Spent most time without adult support -Great Recession hit hard on them Stagnant careers, growing debt, 59% decline in net worth 2005- 2010 Baby boomers delaying retirement and keeping high-pay jobs Gen Y willing to work for less -Entering peak earning and spending years -Spend more than any other generation on: Food Housing Apparel Entertainment -Primary target for marketers promoting family-oriented products and services Constitute 45% of households with children Baby Boomers – people born between 1946-1964, 75 million in US Life expectancy at all time high Substantial financial burdens Mortgages Health care expenses Children’s educations Postponing retirement to pay debt Control 70% of America’s net worth Spend disproportionately more money than any other age group $1.8 trillion annually Food, cars, personal care, personal products Willing to change brands and try new things Affluent, experienced, flexible 4-4 Growing Ethnic Markets United States’ Hispanic consumer market larger than all but thirteen world economies Other growing markets: African American, Asian American One in three U.S. residents is member of minority group Will flip to majority-minority completely in 2041 Minority populations embrace other cultures & companies that understand theirs 4-4 a) Marketing to Hispanic Americans -60% Mexicans, 10% Puerto Ricans, 5% (each) include Central Americans, Dominicans, South Americans, and Cubans MKT 337 Notes – Chapter 4 -Commitment to family Traditional family -Prefer products from their native country Southern regions import from Mexico If not available, brands that reflect their native values and culture -Men/fathers have most influence on household purchasing decisions Age 45-64 most Age 35-44 just half Traditional stores or mass merchandisers (especially family) Samples -Influenced by advertisements on Spanish-language than English 4-4 b) Marketing to African Americans Six years younger on average than other American consumers (18-49) Top-spending age demographic 54% of children raised by only mother Of this 88% below poverty line Health and beauty aids Radio 4-4 c) Marking to Asian Americans Fastest growing among minority groups Highest average family income of all groups $68,780 compared to average US of $53k Younger, better-educated, higher incomes “Marketer’s dream” Heavy users of technology Early adopters of latest gadgets Hold on to cultural values of particular subgroup Koreans and Chinese speak native tongue at home Stores owned and managed by other Asian Americans Small businesses (flower shops, grocery stores, appliance stores)


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