Marketing Management: Price Decisions PDF

Marketing Management  2 Recap: Implementation: The marketing mix and its instruments - Product Customer value is derived from three different levels of the “product”: (1) core customer value, (2) actual produc...

Marketing Management  2 Recap: Implementation: The marketing mix and its instruments - Product Customer value is derived from three different levels of the “product”: (1) core customer value, (2) actual product, (3) augmented product. Product decisions about quality, features, packaging, style and design, branding and support service need to be made. Brands influence the customer through a rational and emotional component and help to differentiate a firm’s offering. Managing a “product” over time comes along with important tasks such as new product and brand architecture development. Digitalization changed product innovation and other processes a lot. Potential ethical issues with regards to “product” are widespread. Week 9: Marketing mix: Price  4 Week 9: Roadmap Managing “price” over What does “price” mean? “Price” in a digital world time 1 3 4 2 5 Price decisions Ethical “price” issues  What does “price” mean? 1 "Price" takes a particular role in the marketing mix as price changes have an immediate business impact. However, price management has its own set of challenges.  6 What does “price” mean? o A definition of price and its importance o Challenges of price management  7 A definition of price and its importance  8 What is “price”? A definition and its broader importance o The price is the number of monetary units which a buyer must hand over for one unit of a product. o Beyond a firm’s own interest, many stakeholders study pricing actions: o Among others, managers rely on scholarly research for guidance: «Price» is a research subject in many disciplines such as macroeconomic price theory, microeconomics, marketing science, behavioral economics, and even brain research. o Legal regulations setting boundaries on pricing options: Price Reference: , p.5, 16f. management is subject to a multitude of legal regulations designed to keep businesses from restraining competition or abusing their pricing power.  9 “Price” stands out in the marketing mix for several reasons (1/3) o Price is the only marketing instrument which does not require upfront expenditures or investments. o Price has a strong influence on volume and market share. o Price is an instrument known for its fast applicability. o Price is an instrument known for its fast impact as changes manifest quickly on the demand side. o On the flipside, competitors can change just as swiftly their own prices. o Reference: , p. 6ff. There are only three profit drivers: (1) price, (2) volume, and (3) costs. In contrast to limited cost cutting and demand creation options in today’s markets, pricing improvements have more potential.  10 “Price” stands out in the marketing mix for several reasons (2/3) A deep understanding of the relationship between price and demand, enables to leverage this marketing instrument further: Price can not only be a powerful driver of profit but also of growth. This is enabled e.g., by non- Reference:. linear systems. https://www.youtube.com/watch?v=aNnQcQ2P3SY  11 “Price” stands out in the marketing mix for several reasons The example of (3/3) Apple illustrates the impact of pricing of profits: iPhone is only 14% of global smartphone volume share, and 42% of revenue share, but it's 80% of profit share.  12 Challenges of price management  13 Price management is not an easy task, mainly due to 2 fundamental reasons (1) Complex price-response relationships characterize the real-world impact of pricing (2) Manifold pricing systems provide sheer endless possibilities to optimize pricing Reference: , p. 10ff. ! Besides, as with any other managerial decision making, organizational implementation barrier and industry specifics might stand in the way of an effective price management.  14 (1) Complex price-response relationships characterize the real-world impact of pricing There is the need to consider possible price-response relationships when assuming several competitors, several time periods, or multistage sales. These might look like this: o Price -> Competitors’ price -> Market Share -> Volume -> Revenue -> Profit o Price (current) -> Volume (future) -> Revenue (future) and Profit (future) o Price (current) -> Volume -> Costs (future) -> Profit (future) o Price (manufacturer) -> Price (retailer) -> Volume -> Revenue -> Profit Reference: , p. 11f. ! These examples do not even account for psychological effects such as price thresholds and price anchors and the snob or Veblen effect (associating high quality or prestige with high prices).  15 (2) Manifold pricing systems provide sheer endless possibilities to optimize pricing o Differentiated prices by package size or product variant o Differentiated prices based on customer segment, time of day, location, or phase of the product life cycle o Prices for complementary or substitutive products o Prices for special or additional services o Prices with two or more dimensions (e.g., upfront charge and a usage fee) Reference: , p. 5.  Price decisions 2 While three main pricing strategies can be distinguished (customer- based, cost-based and competitive-based strategies), customers’ perception of the price-value-relationship should be the primary consideration when making pricing decisions.  17 “Price” decisions o A guiding principle for pricing decisions o What are major pricing strategies?  18 A guiding principle for pricing decisions  19 A guiding principle for pricing decisions o The customer's perception is o the decisive factor. Deviations from the consistency band can be perceived as fair or unfair in the eyes of the customer. o Price and value should always be seen relative to each other. So, the price positioning should Reference: , p. 41f. be interpreted from the perspective of the price-value relationship.  20 What are major pricing strategies?  21 3 major pricing strategies and why all are needed (1/2) (1) Cost-based pricing (2) Customer value-based pricing (3) Competition-based pricing Reference: , p. 303ff.  22 3 major pricing strategies and why all are needed (2/2) o Both value-to-customer [#1] and competitors’ prices [#3] define the upper limit for the price, and in practical terms the sharper of the two limits is the one which counts. o A company’s costs [#2] determine the lower limit for the price. ! Reference: , p. 303. Further, the business context matters: Company targets and legal/regulatory constraints can shift the upper and lower limits for price in either direction. For example, if a company sets a minimum margin target, the price margin shifts upwards, while a minimum market share target shifts it downwards.  23 How is the price determined? The price signals the perceived value, and it must cover (internal) costs at the same time to enable a successful pricing strategy. Reference:. https://www.tiktok.com/@y_combinator/video/7195692441729584426?_r=1&_t=8fZ5c6BNGF7  24 (1) Customer-value based pricing: Overview o In this context, a customer’s perceived value is key : Value-based pricing means that the marketer cannot first design a product and marketing program and then set the price. Price is considered along with all other marketing mix variables before the marketing program is set. o It’s important to remember that ‘good value’ is not the same as ‘low price’. For example, some owners consider a luxurious Patek Philippe watch a real bargain, even at prices ranging from CHF 20,000 to CHF Reference: , p. 303ff. 400,000. o The core metric is customer’s willingness to pay.  25 (1) Customer-value based pricing: 2 major types of customer-value based pricing o Good-value pricing means to offer the right combination of quality and good service at a fair price. o This involves introducing less-expensive versions of established brand-name products or new lower-price lines. o It can also mean redesigning existing brands to offer more quality at a given price or the same quality at a lower price. Some firms are even successful by offering less value, but at very low prices. o Or with the daily low-price policy. This means charge a constant, Reference: , p. 306. daily low price with few or no temporary discounts. o Value-added pricing means improving quality/service by adding features to differentiate offers and thus, support higher prices.  26 (2) Cost-based pricing: Overview o For the price decision, the most important aspect of the cost analysis is the clear distinction between fixed and variable costs. Fixed costs do not depend on the volume produced, while variable costs change depending on production volume. o In contrast to the price-response function, the cost function is simpler to determine, because the necessary information comes from within the company. Reference: , p. 87.  27 (2) Cost-based pricing: Key use case (1/2) “” “The cost is not important for establishing the price. It only serves for knowing if you should or shouldn’t fabricate the product”. read more Although not illegal, Dior raised eyebrows when it came to light that a bag that the luxury fashion house sells for 2,780 USD Reference:. only cost 57 USD to manufacture – with workers being paid as little as 2 USD an hour. See for more details. Philip Kotler Textbook author  28 (2) Cost-based pricing: Key use case (2/2) o With the help of cost information, a company can determine a lower bound for the price. Thereby, the lower limit corresponds to the lowest price at which a product would be offered for sale or at which the company would accept an order. o In the long run, the lower price limit is defined by the “fully loaded” unit costs (fixed + variable costs). o In the short run, the lower price limit definition is more complicated. For example, it is often reasonable to only look at the variable unit costs. Reference: , p. 87f.  29 (3) Competition-based pricing: Overview o In many markets, competitors’ prices exert a strong influence on a company’s sales volume. o If competitors feel threatened by price measures, they tend to react, i.e., their reaction elasticity is likewise significant. o A company can implement its own price actions quickly, but competitors can usually respond just as fast. Reference: , p. 90f.  30 (3) Competition-based pricing: Analysis process to derive benchmarks from competition 3 tasks for analyzing competitors pricing actions o Identifying the relevant competitors o Analyzing the current prices of the competitors o Anticipating their potential future price behavior ! The degree of competition and homogeneity of products primarily Reference: , p. 91. shapes the weight a company attaches to such competitive information. For example, strong competition and high homogeneity of products increase the importance of competitive pricing.  Managing “price” over time 3 It is of great importance to understand how customers react to price changes, how this affects the company and how much freedom a company has in setting prices.  32 Managing “price” over time o When to consider price changes? o Understanding the impact of price changes through analyzing price elasticity o The psychology of pricing o Price communication  33 When to consider price changes?  34 When to cut or increase prices? Motives for price cuts: Motives for price increases: o Excess capacity ○ Improve profits o Falling demand in the face ○ Rising costs of strong price competition ○ Manage over-demand in or a weakened economy. case of short supply o Gain market share to dominate the market through lower costs. o Price cuts by competitors Reference: , p. 80.  35 What to expect when increasing or cutting prices? (1/2) o Price repositioning downwards: Good chance of success due to positive response. The originally established position in the upper segments can potentially be threatened and affect profitability if costs are not reduced accordingly. o Price repositioning upwards: Difficult and time intensive. Both changes require a redesign of many functions (R&D, production, quality, design, distribution) to be cost competitive in the lower segments or performance competitive in the Reference: , p. 80. higher segments. ! As an alternative to repositioning an established product or brand, a company could consider creating new brands or acquiring existing brands in the targeted price range.  36 What to expect when increasing or cutting prices? (2/2) However, consumers do not always interpret price changes in a straightforward way. The individual perception of consumers matters. o Consumers may view a price cut in several ways. A price change, especially a drop in price, can adversely affect how consumers view the brand. o A price increase, which would normally lower sales, may have some positive meanings for buyers (see e.g., snob effect). Reference:.  37 What will competitors do? Competitors are most likely to react when (1) the number of firms involved is small, (2) when the product is uniform, (3) when the buyers Reference: , p. 337. are well informed about products and prices.  38 Understanding the impact of price changes through analyzing price elasticity  39 How to understand the price-demand relationship? (1/2) o Understanding the price–demand relationship is key to optimize prices. o A measure of the price demand relationship is price elasticity. o Various price elasticity metrics exist that inform how the own demand changes based on (1) own price changes or (2) competitor’s price changes Reference:.  40 How to understand the price-demand relationship? (1) Own-price elasticity (i.e., impact of own (2/2) prices on one’s own volume) (2) Cross-price elasticity (i.e., impact of competitors’ prices on one’s own volume) https://www.youtube.com/watch?v=z_iv6QBVcHU&t=116s Reference: ,. read more If you can program in Python or want to learn how to do this, check out this free online course which shows to calculate the various price elasticity metrics, see.  41 Interpreting of price elasticity metrics Own-price Cross-price elasticity elasticity Reference: , p. 13, 22f. o Relationship between Wieners and Hamburger: 0.4/0.2 = 2 → Substitutes o Relationship between Wieners and Hot Dog Bread: -0.4/0.2 = -2 → Complements  42 Interpreting of price elasticity metrics (2/2) (1) Own price elasticity: If a price decrease of 10% results in volume increase of 20%, the price elasticity is -2. The negative sign indicates that volume and price changes move in opposite directions. The price elasticity of -2 says that the percentage change in sales volume is twice the percentage change in price. (2) Cross-price elasticity: If the competitor cuts its price by 10% and one’s own volume drops by 5%, the cross-price elasticity is + 0.5. The sign is positive because both changes Reference: , p. 96ff. (the competitor’s price cut and one’s own sales decline) move in the same direction. If both products are complements (e.g., copy machines and cartridges), the cross-price elasticity is negative.  43 When do price changes have a high impact, i.e., when is price elasticity high (1/2) Market, customer and product Market characteristics characteristics are to be o High competitive pressure on the selling considered. Some examples: side o High price transparency o Heavy price pressure from customers Product characteristics (procurement/purchasing) o High similarity and substitutability among o … competing products; little differentiation. o High purchase frequency. Customer characteristics o Mass-market quality, positioning, and o High price awareness Reference: , p. 107f. distribution. o High willingness to accept risk o Frequent use of the product for discounts; o Low importance of image and prestige heavy price advertising. o Low brand loyalty o … o …  44 How do real-world price elasticities across industries look like? o Research findings are Distribution of econometrically estimated price elastics inconclusive as different studies found different price- elasticities for the same sectors. o Price elasticities must be determined on a case-by-case basis. o Example: The compact car Reference: , p. 102ff. segment has relatively elastic demand. The demand depends highly on the price.  45 Static price-elasticity is an oversimplification, some price changes have a stronger impact (1/2) The starting point is the elasticity of your sales to price: By how much % do your sales change if you change your price? The typical answer is -2.5: if you decrease price by 10%, sales go up by 25%. Reference:.  46 Static price-elasticity is an oversimplification, some price changes have a stronger impact (2/2) But this static price-elasticity value only applies to the business-as-usual zone, i.e., close to what the consumer expects to pay for your brand (“reference price”). If you price beyond the “constant elasticity” zone, you will you get higher or lower elasticity after a threshold is reached. 2 examples: Reference: [268, 450].  47 Five methods to determine the price elasticity Various methods are o available to determine the price-quantity ratio, each with its own advantages and disadvantages: (1) expert judgements, (2) direct cust. surveys, (3) indirect cust. surveys, (4) experiments Reference: , p. 137. (5) market observations.  48 The psychology of pricing  49 Not only the objective price, but customers’ perception of the price matters *** Flashback *** The sales volume depends on both the “objective” price and on how the customer perceives the price, what role the price plays for the customer (e.g., as an indicator of prestige or quality), and Reference: , p.131. how and in what context the price is communicated.  50 7 exemplary psychological effects that shape customers price perception Left-digit effect: Ever wondered why prices end in 90 or 99? You can find “99” price tags everywhere, from your bar of chocolate at the supermarket to your monthly gym subscription. Due to what is known as the left-digit effect, customers tend to round to the next lowest monetary unit. A lower number at the start of a price has a huge impact, even though the price is the same. Reference:.  51 7 exemplary psychological effects that shape customers price perception Veblen effect o This effect describes the increasing demand with increasing product prices. o Mainly, consumers buy Veblen goods to achieve a higher (perceived) social status. o Example: The whiskey brand Chivas Regal devised a newer, more attractive label and Reference: ; , p. 145. raised prices by 20%. Thus, the sales volume rose significantly while the product stayed unchanged.  52 7 exemplary psychological effects that shape customers price perception Compromise effect If a very expensive product is added to the product range, the previously most expensive product is sold more, because after adding this new product it appears cheaper in comparison. Transaction utility effect Consumers who are offered a discount are more likely to buy the product, even if the effective price, which is Reference:. to be paid, is the same.  53 7 exemplary psychological effects that shape customers price perception Endowment effect Customers try to avoid losses increases their willingness to pay. Price perception differs depending if one wants to sell or buy. Decoy effect Reference points steer the customer towards a particular decision. “Dummy options” of lesser value convince the customer to choose the more expensive option. Value effect Explicit reminders, such as visuals and other cognitive support, Reference:. help to steer customers towards a specific value perception of a product (e.g., drink in exclusive hotel).  54 5 further psychological effects that shape customers price perception o Ego pricing o Comma effect o Relative size effect o Consolidated surcharges o Descending order effect Reference:. https://www.youtube.com/watch?v=c_yOcEXqnZs  55 Price communication  56 Price communication matters: An overview on selected topics o Classic versus innovative price communication o What to do when the there are price changes? How to communicate price increases and reductions?  57 Classic ways of price communication 3 Principles of a classic price communication approach to support a high-value brand: o Prices end in triple-nines and quadruple-nines, i.e., X9.99 or X99.99. o Significant discounts are shown in “double whole” dollars to enhance their perceived magnitude. o Variable discounts are shown as “percentage off” as a last resort, if the Reference:. range of discounted prices is really wide.  58 Innovative ways of price communication (1/3) “” “Explaining the price to customers is just as important as setting the price. Here, IKEA's "It's that affordable" price tags communicate just how affordable its furniture is by explicitly converting the price of its products to other (cheaper) everyday things that shoppers may buy more frequently. For example, a bookcase equates to two pizzas.” Reference:. Utpal Dholakia Professor of Marketing  59 Innovative ways of price communication (2/3) Ikea has transformed their prices into a new currency, into graphic symbols of everyday things. Reference:. https://vimeo.com/207427874  60 Innovative ways of price communication Steve Jobs relied on price psychology (i.e., defining an specific anchor/reference price) when announcing the price of the first IPad. Reference:. https://www.youtube.com/watch?v=gWtfFhQjEaU  61 When the price changes – either is increased or reduced - active communication matters (1/3) There is an asymmetry in the communication of price changes: o Businesses want customers to notice price reductions to the greatest degree possible. o However, in case of a price increase should escape notice in order to minimize negative effects on sales volume. Reference: , p. 366.  62 When the price changes – either is increased or reduced - active communication matters (2/3) A study found that for a consumer goods brand that… o … a price reduction combined with a high level of advertising can lead to very strong volume growth. If the price reduction is not supported by advertising, the volume growth is not significant. o … a price increase without advertising support has a strong negative effect on volume. If the firm accompanies the price increase by advertising, there is no noticeable decline in volume ! Reference:. The conclusion is that both price increases and price decreases call for appropriate support by advertising.  63 When the price changes – either is increased or reduced - active communication matters (3/3) o Price cuts: Should be supported by intensive communication, with the advantage of the lower price at the forefront. The goal is to increase the price elasticity (in absolute terms). o Price increases: Should be cushioned by enhanced communication efforts which emphasize product quality. The goal is to reduce the price elasticity (in Reference: , , p. 497ff. absolute terms). ! o For more tips on how to communicate price increases, see here. o For more information on how to conduct and communicate temporary price cuts (price promotions), which are popular in retailing, see here:.  “Price” in a digital world 4 Exemplary trends for “Price” that have been triggered or fostered by the digitalization.  65 “Price” in a digital world o The price you pay is “data” o Price transparency o Dynamic and personalized pricing techniques o Long-term price optimization with relationship-based pricing  66 The price you pay is “data”  67 There is always a price to pay: Even in the digital world, there is no “free lunch” o Online platform companies o exchange “free” digital goods and services for consumer data, reaping potentially significant economic benefits by monetizing data. o The two main monetization strategies to leverage this data to make money for the business are: Reference:. (1) data licensing (2) data-based targeting services  68 15% of businesses know how much you weigh. Which business has access to what data? The kind of data which companies collect include your name, date of birth and email address, but also people’s hobbies, height and weight and if they have pets. Reference:.  69 Recent regulatory initiatives are aim to reduce these practices o A basic principle of modern data privacy is to collect as little information as required and store it only for as long as necessary. This is called "privacy by design". o Recently, Apple has made a big change in this regard limiting the tracking of data through iOS devices. Meta (Facebook) stated that Apple's iOS privacy shift will lead to a $10 billion drop in revenue in 2022. Critics say that this iniative also Reference:. boost Apple’s own advertising products.  70 Price transparency  71 Price comparison webpages have empowered customers o Consumer use price comparisons extensively: o 80% of consumers compare prices online before deciding to purchase. o 65% of consumers check out price comparison websites on their mobile phones while in-store. o Retailers and brand manufacturers are reacting by acknowledging this and taking measure to address consumers’ need for price transparency. Reference:.  72 Even retailers take initiatives and pro- actively provide price transparency o To create customer trust and o thus, strengthen their brand, retailers start providing transparency on product- specific price history. o Example: In 2022, Digitec Galaxus has been the first online retailer in Switzerland to disclose the historical price Reference:. development of all its products.  73 Some D2C brands use price transparency to differentiate from the competition The fashion brand ”Everlane” aims to positions itself by providing detailed information on their production costs as well as their markup. In the screenshot the production cost of a pair of denim jeans are detailed. Reference: ,.  74 Dynamic and personalized pricing techniques  75 To address individual customers’ willingness to pay, firms move away from static prices Two pricing strategies that leverage the fact that customers’ willingness to pay varies based on their preferences/needs as well as other characteristics are getting more popular: (1) Dynamic pricing builds on time-based differentiation in prices to increase profits. (2) Personalized pricing builds on a segmentation according to the characteristics of the buyers (also based on, e.g., store location) Reference: , p. 209ff. (3) Personalized dynamic pricing as a combination of both techniques. read more For further ways to implement price differentiation, see , p. 209-238. All methods can be mixed and matched.  76 (1) Dynamic pricing How does dynamic pricing work? o Dynamic pricing largely builds on the concept of time-based price differentiation. This means that a seller charges different prices over the course of various time periods for a product which is otherwise identical in terms of location, performance, and volume in each period. o Examples include price differentiations based on o the time of day (telephone, electricity), o weekdays (admissions, transportation tickets, ski passes ), or Reference: , p. 230. o seasons (air travel, tourism).  77 (1) Dynamic pricing Examples Dynamic pricing was (1/2) first used on a large scale in the airline industry. Following the launch of the dynamic pricing model by American Airlines, the competitor went bankrupt, triggering a wave of adoption that Reference:. has been rising since.  78 (1) Dynamic pricing Examples (2/2) For some tech firms such as Uber, dynamic pricing is at the heart of their business model. These businesses use complex algorithms to adjust their prices to balance consumers’ demand for rides and the supply of drivers Reference:. willing to work. https://www.youtube.com/watch?v=vTWhsgs3ZRA  79 (2) Personalized pricing How does personalized pricing work? o Person-based price differentiation depends on a segmentation according to the characteristics of the buyers. The characteristics should reflect customers’ buying behavior. These could be o sociodemographic such as age (prices for children or seniors) o school status (college student, high school student), o work or group affiliations (associations, parties) o device that is used to browse the internet (e.g., mobile phone with Reference: , p.229f. Android or iOS). o Examples include discounts coupons printed on the Migros receipt or discounted tickets to seniors offered by transportation providers.  80 (3) Dynamic personalized pricing Beyond personalized versus dynamic pricing o Personalized dynamic pricing involves dynamically setting individual- consumer prices for the same product or service according to consumer-identifying information. o Despite its profitability, this pricing provokes strong negative fairness perceptions, explaining why managers are reluctant to implement it. See press coverage of respective trials at grocery retailer Kroger’s. o Real world case studies are rare. Airlines are evaluating the such dynamic personalized pricing systems for ancillary services such as in- Reference: ,. flight meals or additional luggage. For a respective academic experiment in context of a HR recruiting service, see [430, from minute 14 to 50].  81 Long-term price optimization with relationship-based pricing  82 Can pricing help with relationship marketing which aims to maximize long- term profits? o Relationship marketing involves maximizing the long-term profit generated by a customer. Relationship marketing is not specifically focused on price nor is it limited to price. It covers the entire marketing mix. Nonetheless, it offers many touch points for pricing. o Pricing can be an important instrument for customer retention. Pricing is among the key reasons for customer attrition. As reported by an industry study, 52% of customer cited service-related issues as the primary reason for switching, while 29% cited price and 18% identified Reference: , p. 286ff. poor product quality as their primary reason for switching.  83 How to implement relationship-based pricing? o How? Pricing policies aimed at increasing customer loyalty focus on price reductions by the seller depending on the duration or the intensity (in terms of revenue, purchase frequency, etc.) of the customer relationship. o Advantage: Price plays a central role in customer retention, in part because it is easier and faster to change than service, employee behavior, or product quality. o Disadvantage: When every competitor can simply duplicate that Reference: , p. 286ff. method, the only thing one has accomplished is the start of a downward price spiral. In the end, there is no net gain in customer loyalty, but prices end up at a lower level.  84 Examples of relationship-based pricing o Example for retention-oriented pricing is frequent flier programs which offer points which can be redeemed for future travel. Basically, they are a discount that builds on a future payback (in form of a reward) that only manifest after multiple flights have been taken to collect enough frequent flyer points. o Amazon’s “save and subscribe” service allows to customers purchase consumer goods at Reference: , p. 290f. a discount when they agree to have items automatically delivered from Amazon in fixed time intervals.  Ethical “price” issues 5 “Price” decisions have to consider potential ethical issues. Some managerial options should not be considered due to this.  86 Potential ethical “price” issues o Price deception (e.g., misleading reference pricing claims) o Price discrimination (e.g, personalized prices) o Price cartels (e.g., OPEC) o Predatory pricing (e.g., prices below costs) o Fraudulent refund policies Reference  87 Some examples: Retail worker reveals price deception practices in viral TikTok In the US grocery chain Kroger, a clerk removes a $2.49 price sticker and replaces it with a sale sticker where the sale price is the same $2.49, but the alleged original price is $2.99. Reference: ,. https://www.tiktok.com/@kekm_/video/7054189752127474990?is_from_webapp=v1&item_id=7054189752127474990  88 Some examples: Conforama confronted with allegations of price deception Conforama is facing claims of misleading pricing practices in Switzerland. The claims are that it violated the Price Indication Ordinance by artificially inflating original prices to simulate discounts. The french-speaking Swiss consumer protection agency has filed a lawsuit citing 88 cases of abusive pricing. Conforama denies wrongdoing, while the court will determine whether the company violated the Price Disclosure Regulation, which contains Reference:. specific requirements for price comparisons.  89 Some examples: Rihanna’s lingerie brand accused of price deception Prices for items in the online store defaulted to “VIP” pricing, without giving the option to purchase for a “regular” price. When navigating to the shopping bag, if an item had been added, a “Savage X Monthly Membership” was also added automatically, without changing the pricing. The only way of knowing thatmembership would result in more charges is by clicking a small “Learn More” button that explains it would incur a $49.95 monthly charge, or by reading a description to the right Reference:. of the checkout options.  90 Some examples: Amazon has been called out in the past for using predatory pricing (1/2) Experts claim that Amazon is engaging in "cut-throat competition". For example, Amazon buys a book for $13 and sells it for $9. As customers crave a discount, Amazon could continue to sell books at a discount until it has captured almost all of the Reference:. market share. https://www.cnbc.com/2014/06/30/amazons-predatory-pricing-questioned.html  91 Some examples: Amazon has been called out in the past for using predatory pricing According to U.S. court documents Amazon employed also other illegal tactics to guarantee that a seller has always the lowest price for a product on Amazon. In this context, Amazon also employed tactics from game theory, see for details. Reference:.  92 Recap: Key learnings of this session Pricing has a strong effect on the profit of the companies, but price management has its own set of challenges. There are three major pricing strategies: (1) value-based pricing, (2) cost-based pricing, and (3) competition-based pricing. The price-demand relationship is key optimize prices. Price elasticity is used to measure this relationship. Digitalization had significant impact on pricing. For example, it empowered consumers by creating more transparency as comparing prices and monitoring price changes became easier. Ethical price issues often go viral and harm a firm’s reputation.  93 Dig deeper into the topic Watch o Confessions of The Pricing Man Best Audiobook Summary By Hermann Simon: https://youtu.be/TRZceJMNYqc o Pricing of Apple products: https://youtu.be/t6VYByDYg7c o Dynamic pricing - How airlines set ticket prices: https://youtu.be/EhhLXZB3kRw Read o OPTIONAL: Customer Analytics in Python Course: https://365datascience.com/courses/customer-analytics-in-python/ Marketing Management  2 Recap: Marketing Mix: Price Pricing has a strong effect on the profit of the companies, but price management has its own set of challenges. There are three major pricing strategies: (1) value-based pricing, (2) cost-based pricing, and (3) competition-based pricing. The price-demand relationship is key optimize prices. Price elasticity is used to measure this relationship. Digitalization had significant impact on pricing. For example, it empowered consumers by creating more transparency as comparing prices and monitoring price changes became easier. Ethical price issues often go viral and harm a firm’s reputation. Week 10: Marketing mix: Promotion  4 Session 7: Roadmap Managing «promotion» Ethical «promotion» What is “promotion”? over time issues 1 3 5 2 4 «Promotion» decisions «Promotion» in a digital world  What is “promotion”? 1 When asked to define marketing, people often respond with a description of the marketing mix element “promotion”. This is illustrates the key role of this marketing mix element within marketing.  6 In general, what does “promotion” actually mean? o A definition of promotion and key elements of the promotional mix o Key challenges for promotional mix decisions  7 A definition of promotion and key elements of the promotional mix  8 What is “promotion”? A definition and its key elements (1/3) A company’s total promotion mix – also called its marketing communications mix – consists of the specific blend of (1) advertising, (2) sales promotion, (3) personal selling, (4) public relations, and (5) direct marketing that the company uses to (a) engage consumers, (b) persuasively Reference: , p. 438. communicate customer value and (c) build customer relationships.  9 What is “promotion”? A definition and its key elements (2/3) (1) Advertising: Any paid form of nonpersonal presentation and promotion of ideas, goods or services by an identified sponsor. (2) Sales promotion: Short-term incentives to boost a purchase. 8 Types: o Percentage discounts (e.g., Get today 20% off all electronics!) o “xx Dollars off” (e.g., Save $50 on your purchase of $200 or more) o Buy One Get One Free (e.g., Buy one shirt, get the second free!) o Multi-buys (e.g., Buy 3 books for the price of 2) Reference: , p. 421;. o Multi-save conditional promos (e.g., Buy a laptop, get 50% off bags.) o Free shipping (e.g., Enjoy free shipping on all orders over $50) o Try before you buy (e.g., Free 7-day trial of our new software) o Gift with purchase (Free tote bag with $30+ purchase)  10 What is “promotion”? A definition and its key elements (3/3) (3) Personal selling: Personal customer interactions by the firm’s sales force for the purpose of engaging customers and making sales. (4) Public relations (PR): Building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable incidents. (5) Direct marketing: Engaging directly with carefully targeted individual consumers to obtain a response and build relationships. Reference: , p. 421.  11 Key challenges for promotional mix decisions  12 Key challenges for promotional mix decisions o Ensuring consistency across the promotional mix: Integrated marketing communications o Picking the right promotional channels: Digitalization turns the media landscape upside down  13 Consistency is the imperative to ensure efficiency across a firm’s promotional mix Integrated marketing communications is key, i.e., the company carefully integrates its many communication channels to deliver a clear, consistent and compelling message about the organization Reference: , p. 424. and its products.  14 Consistency is the imperative to ensure efficiency across a firm’s promotional mix But how does integrate marketing (2/2) communications actually work? An explainer video. Reference:. https://www.youtube.com/watch?v=1ZkSqLK6Q6w  15 Three keys to effective multi-platform campaigns (1/1) o Build cumulative reach more effectively to reach more people without spending advertising dollars on duplication. o Widen the timing and context of consumer touchpoints to reach fragmented target audiences and thus, achieve a reach that fits the brand's target audience. o Across media, ensure increased repetition to achieve cross-platform media synergies. Reference:.  16 Digitalization changed the promotional mix a lot as digital channels are nowadays key o In 2017, internet advertising o (1/3) surpassed the spending of any other medium and has further grown since then. o Print ads in newspapers and magazines saw the largest decrease share wise. But TV's share has also fallen about one-third. Reference:.  17 Digitalization changed the promotional mix a lot as digital channels are nowadays key Reference:.  18 Digitalization changed the promotional mix a lot as digital channels are nowadays key o For now, Instagram remains the platform of choice for social influencers. According to eMarketer’s estimates, 76.6% of U.S. marketers will use Instagram for their influencer campaigns in 2023. o But keep an eye on TikTok. While only 36% of U.S. marketers used TikTok for influencer campaigns in 2020, almost Reference:. 50% will do so in 2023. 2 “Promotion” decisions A manager’s first «promotion» decision is likely the one of how much to spend overall on promotional activities. Next, more detailed decisions about specific promotional mix elements must be made such as on how to set up a specific advertising campaign.  20 “Promotion” decisions o What budget to spend on promotion? o Major decisions when setting up an advertising campaign o Using media typologies to better understand and select channels for any promotional activities o Sales promotion – 8 types and how to implement them  21 What budget to spend on promotion?  22 There are many approaches to define the overall promotion budget o The company usually determine how much to spend on promotion during a particular year. Firm either (a) use static or dynamic advertising response models or more likely (b) rely on heuristic approaches such as o spending what the company can afford, o using a percentage of previous/predicted sales, o derive own promotion budget based on competitors’ spending, o relying on an analysis that predicts the costs to achieve defined Reference: , p. 438. promotion objectives. o Next, the company must divide the promotion budget among the major promotional mix elements to create the promotion mix.  23 Market studies show that the overall budget for promotion varies by sector/industry (1/3) o More mature marketers tend to slow their promotional spendings as better results measurement enables them to spend smarter. o The budget for promotion is increasingly spend on digital channels. o The promotion budgets lies between 6 to 14% of a firm’s total revenue: o B2C firms spend more on marketing compared to B2B firms. o Smaller firms spend more on marketing as a percentage of Reference:. (a) their total revenue as well as (b) their total operating budget.  24 Market studies show that the overall budget for promotion varies by sector/industry (2/3) Key factors to further consider when determining the promotion budget: Stage of the product life cycle Market share New products usually require relatively high Building market share or taking market share from promotion budgets to raise rivals needs higher promotion spend awareness and convince than just maintain current share. consumers. Amount of competitors Brand differentiation Brands in a market with many competitors Brands that are very similar to other brands Reference: , p. 438. and a high volume of advertising need to in their product class (soft drinks, be promoted more strongly to be detergents), may need to be heavily noticed in the noise of the advertised to differentiate themselves market. from them.  25 Market studies show that the overall budget for promotion varies by sector/industry (3/3) In the consumer-packaged goods industry, especially the internet first, direct-to- consumer companies such as Warby Parker, Emma, or mymuesli, marketing plays a very big role in the customer acquisition processes. Here promotional activities account for a high percentage Reference:. of a firm’s overall budget.  26 Major decisions when setting up an advertising campaign  27 Effective advertising is hard… “” Ninety-nine percent of advertising doesn't sell much of anything. Reference:. David Ogilvy Advertising tycoon  28 … but not doing advertising is not an option. “” Stopping advertising to save money is like stopping your watch to save time. Reference:. Henry Ford Automobile Industrialist  29 An overview on major decisions when setting up an advertising campaign Advertising is only one part of a broader set of marketing and company decision. Its job is to help communicate the brand’s value proposition to target customers. Advertising must blend well with other promotion and marketing mix decisions. Reference: , p. 451.  30 (1) Objective setting Three key advertising objectives are informative, persuasive and reminder advertising. Informative advertising Persuasive advertising Reminder advertising io Communicating customer value, o Building brand o Maintaining customer e.g., suggesting new uses for a preference, e.g., relationships, e.g., product persuading customers reminding customers o Telling the market about a new to purchase now where to buy the product, e.g., describing available o Encouraging switching product services and support to a brand, e.g., creating o Reminding customers o Building a brand and company customer engagement that the product may be Reference: , p. 437. image, e.g., informing the market o Changing customer needed in the near of a price change perceptions of product future, e.g., ping the o Explaining how a product works, value, e.g., building brand in a customer’s e.g., correcting false impressions brand community mind during off seasons  31 (2) Campaign budget decisions o While dependent on the generally available budget for advertising, the budget for specific campaigns is set based on a firm’s priorities. To better manage the risks of a failed campaign, a firm will usually distribute the total advertising budget across multiple campaigns. o In general, one can distinguish if the budget for a specific campaign is fixed or adapted depending on the performance of the advertising campaign (i.e., increased or decreased).  32 (3) Message decisions: Overview The major steps in advertising message selection are: (c) Message strategy (d) Message execution Reference: , p. 459ff.  33 (3) Message decisions: (a) Message strategy Step 1: Step 2: General message strategy: Creative message strategy: o Deliver a message: Ads outline the o “Big idea” that will bring the general benefits and points of positioning message strategy to life. that the advertiser wants to o In the message execution phase, the promote in a simple way.. creative concept will guide the o Targeted: The message must be choice of specific appeals to be used customized towards the particular in an advertising campaign. target group of the campaign. Reference: , p. 459ff. o Consistent: Aligned with a firm’s o Good appeals have 3 characteristics: brand strategy. (1) be meaningful, (2) be distinctive, and (3) point to the product benefits.  34 (3) Message decisions: (b) Message execution (1/2) o The advertising message can be presented in different styles of execution. Some exemplary styles are “slice of life”, “fantasy”, “mood”, “scientific evidence”, or “testimonial evidence”. o Then, further details of the message have to be defined. Among these are the tone of the ad, catchy and attention-grabbing words and the right visual format. In a print ad, for example, the illustration, headline and the text must work together effectively. o General fit as well as consistency with the firm’s brand guidelines is key. Reference: , p. 459ff. ! But remember, an artsy message execution is NOT the goal, the message execution simply aims to meet the campaigns objectives and not to win an award for creativity.  35 (3) Message decisions: (b) Message execution (2/2) In case of digital advertising, o (2/2) ad spy tools can help to boost your creativity by getting inspiration based on what your competitors are doing Reference:.  36 (4) Media decisions: Overview The major steps in advertising media selection are: (a) Determining reach, frequency, impact and engagement (b) Choosing among major media types (c) Selecting specific media vehicles (i.e., one of the various forms of advertising available for the selected channels) (d) Timing of advertising Reference: , p. 444ff.  37 (4) Media decisions: (a)-(c) Overview (1/3) o Marketers want to select media that will effectively and efficiently deliver the advertising message to the target customers. o Thus, marketers need to know the reach, frequency, impact and cost of each major media type. o With this knowledge, marketers selects a mix of media channels and specific media vehicles. In a concerted approach, the marketer puts them together to create a fully integrated marketing communications campaign. Each medium plays a specific role in this process. The media Reference: , p. 444ff. mix needs to be reassessed regularly.  38 (4) Media decisions: (a)-(c) Overview (2/3) What’s hot and (2/3) what’s not? Trends in media usage for ad campaigns in 2022. Reference:.  39 (4) Media decisions: (a)-(c) Overview (3/3) Consumers’ context determines these media (3/3) decisions: Selecting the right media type with the right ad format for the right audience is getting more important. Reference:. https://www.youtube.com/watch?v=nvl_yvJvaXM  40 (4) Media decisions (d) Timing of advertising Blitzing Continuity o Occurs in the early part of the o Ad runs evenly with little planning horizon. fluctuation during the o Used by new products trying to campaign period. penetrate the market or by o Primarily suitable for durable dominant brands in competitive basic products, services and markets. packaged goods. Flighting Pulsing o Seasonal product categories o Combination of flighting and o Flighting involves intermittent continuous scheduling and irregular advertising periods o Suitable for product categories Reference:. alternating with shorter periods that are sold throughout the without any advertising. year but experience a sharp spike in sales at certain times  41 (5) Advertising evaluation “” Half my advertising is a waste – I just don’t know which half. Henry Ford Engineer and Industrialist  42 (5) Advertising evaluation (1/2) Marketers should assess two types of advertising results on a regular basis: (a) Communication impact (b) Sales and profit impact o Measuring the communication impact of an o One way to statistically model the impact ad or advertising campaign provides of advertising on sales and profits is to information on whether the ads and media benchmark past sales and profits against are communicating the advertising past advertising expenses. message well. o Another way are geo-experiments, where o The perception of individual ads by the specific regions are not target with an focal target group of the advertising advertising campaign and serve as a campaign can be tested before these ads benchmark. are placed. o However, both approaches require Reference:. significant organizational efforts and might not work in all contexts.  43 (5) Advertising evaluation (2/2) In business practice o (2/2) advertising evaluation, is often executed with rather simple heuristics. Thus, be aware of two key industry metrics that are often used to assess the sales and profit impact of a (digital) ad campaign: o ROAS: Return on Advertising Spend Reference:. o ROI: Return on Investment  44 Using media typologies to better understand and select channels for any promotional activities  45 The most obvious media typology distinguishes 4 media types Each media type has its advantages as well as specific limitations: o Print channels (e.g., magazines) o Broadcast channels (e.g., TV, radio) o Out-of-home (OOH) Reference: , p. 447. chan. (e.g., billboards) o Internet channels (e.g., advertising on podcasts)  46 4 other media typologies and the key idea behind each of these Advertising media are often referred to as belonging to a certain category. In the following, key media typologies are listed: (1) Below the line / above the line: Builds on the idea of media types for untargeted versus targeted advertising (2) Top of funnel / middle of funnel / bottom of funnel: Builds on the idea that media types for advertising address purchase stages differently (3) Paid media / earned media / owned media: Builds on the idea who controls which media types for advertising (4) Inbound marketing / outbound marketing: Builds on the idea of media types for push versus pull advertising  47 4 other media typologies: (1) Below the line / above the line The difference between "above the line" and "below the line" marketing is the target group of the advertising campaign: o Above the line advertising is used when the focus is on mass media promotion to reach a large audience, i.e., create awareness by leveraging media channels with large reach. It includes media such as radio, TV, print media such as newspaper and magazines, and billboards. o Below the line advertising is directed to reach a small, targeted audience and thus, enables to address target segments in a customized and cost-effective way. BTL includes marketing activities such as brochures, direct mail, flyers, sponsorships, and email campaigns.  48 4 other media typologies: (2) Top of funnel / middle of funnel / bottom of funnel (1/3) o Funnel marketing builds on the idea of the AIDA model. o The AIDA Model is a response hierarchy model that identifies purchase stages an individual goes through during the buying process. This model is often referred as the prototype of a customer funnel. Reference:.  49 4 other media typologies: (2) Top of funnel / middle of funnel / bottom of funnel (2/3) Accordingly, funnel marketing distinguishes marketing activities according to the stage in the purchase process that they aim to address the consumer and thus, relates to the AID model: o TOFU: Top of the funnel o MOFU: Middle of the funnel o BOFU: Bottom of the funnel Reference:.  50 4 other media typologies: (2) Top of funnel / middle of funnel / bottom of funnel (3/3) An example from digital advertising shows how advertising content can be assigned to the funnel stages to help to create a clear and disciplined process to engage your target audience with specific Reference:. content.  51 4 other media typologies: (3) Paid media / earned media / owned media (1/4) o Paid media: directly reach o (1/4) consumers with advertising messages. o Owned media: reach consumers with messages that are controlled by the company. o Earned media: reach consumers with messages that are generated by word-of-mouth Reference:. or through social media.  52 4 other media typologies: (3) Paid media / earned media / owned media (2/4) Paid media comes from traffic driven by ads. It is usually the fastest and simplest way to expose a company’s brand to a new audience. Reference:.  53 4 other media typologies: (3) Paid media / earned media / owned media (3/4) Owned media are the marketing o (3/4) channels a company control. Reference:.  54 4 other media typologies: (3) Paid media / earned media / owned media (4/4) Earned Media is the free o (4/4) advertising a company receive from fans, followers, bloggers and the press. Reference:.  55 4 other media typologies: (4) Inbound marketing / outbound marketing (1/3) The distinction between inbound marketing and outbound marketing builds on the idea of push and pull marketing: o Push marketing is a type of marketing where companies attempt to send their message directly to consumers, without the use of any intermediate channels. It involves pushing your brand in front of audiences –usually with paid advertising or promotions. o Pull marketing is the opposite of push marketing, where companies attempt to attract consumers to their message using intermediate channels. This means implementing a strategy that naturally draws consumer interest in your brand or products.  56 4 other media typologies: (4) Inbound marketing / outbound marketing (2/3) Outbound marketing is a technique that focuses on getting a company’s message out to the masses, regardless of whether or not they want to hear from them. Reference:.  57 4 other media typologies: (4) Inbound marketing / outbound marketing (3/3) Inbound marketing attracts customers by creating valuable content and experiences tailored to them. For example, attracting new visitors with an article on your website on a specific, often educational topic is inbound marketing. People find and access the article via a search engine. Reference:. read more The firm HubSpot has been a pioneer in inbound marketing, see for more information.  58 Sales promotion – 8 types and how to implement them  59 8 types of sales promotion and its implementation (1/5) Percentage discounts «n% off» is one of the most popular and effective types of promotions. Percentage discounts on the entire shop work best. «xx dollars off» Items are discounted by a flat monetary amount. For expensive products, the flat-rate discount tends to perform better and for inexpensive products, the percentage discount performs better.  60 8 types of sales promotion and its implementation (2/5) Buy one get one (BOGO) There are two types of application: either you buy one item for free, or you buy one item and get a discount on the second item. It is usually used to shift stock. Multi-buys This is another good way to stock out. However, the success of multiple purchases depends largely on the type of products you are selling. F.e. "Buy 2 and get 1 bottle of wine free" is a big runner.  61 8 types of sales promotion and its implementation (3/5) Free shipping It is recommended to offer free shipping for all purchases above a certain value, e.g., rather than just for selected orders. This would help retailers avoid confusion among consumers. Try before you buy Customers can have the product sent to their home to try it on before they definitely buy it. This is worthwhile for products with extremely high satisfaction.  62 8 types of sales promotion and its implementation (4/5) Multi-save and conditional promotions The multi-savings promotions include offers such as: o Buy and save off the entire sale. o Buy and pay a fixed price. Conditional special offers include: o Buy and get one or more items for free or at a discount o Buy and earn loyalty. These types of special offers promote sales without necessarily affecting sales or basket value and encourage customers to look at more products than just the sale offers.  63 8 types of sales promotion and its implementation (5/5) Gift with purchase Customers receive a free gift for purchases made. This offer is ideal for retailers who have excess stock or simply want to increase conversion rates and can be extremely effective in getting customers to buy.  64 Possible restrictions If retailers want to protect their profits or prevent the offer from being exploited, restrictions can be set: o Product specific promotions The offer is valid for certain products or categories. o Sales thresholds The promotion applies if customers spend above a certain amount. o Customer-specific promotions The offer is valid for a specific buyer segment It should be noted that the more hurdles customers need to overcome, the less likely they are to make a purchase.  65 How to improve the performance of sales promotions Have a theme Include customer Solid retail platform to Sense of urgency Design offers around a loyalty programme implement promotions Limited time offers specific theme, so that Inspire new and loyal Equip the shop with a encourage customers it will be easier for customers with retail management to hurry. The best customers to grasp exclusivity to increase system so that results are achieved and remember the membership and promotions can be run through countdowns. offer. sales. easily. Combine promotions When stocks need to Flexible payments Implement targeted be reduced, Offer flexible payment offers promotions can be options, f.e. lay-away Promotions can be combined, f.e. an or afterpay. This targeted to specific additional 20 % increases sales and customer groups. discount on already shopping basket. reduced items. 3 Managing “promotion” over time Empirical generalizations serve as an aid to marketers to providing guidance on developing and planning of the advertising strategy. However, despite intensive research in this area, measuring the impact of advertising remains a challenge.  67 Managing “promotion” over time o Recommendations from literature on managing “promotion” over time o Measuring and optimizing promotion activities  68 Recommendations from literature on managing “promotion” over time  69 Empirical generalization on managing promotional activities (1/3) Literature suggests that specific empirical patterns uncovered by advertising research can be generalised across a wide range of known conditions. These empirical generalisations provide us with standards, predictions and valuable insights into effective and efficient advertising. These empirical generalisations can be grouped into four broad themes: (1) Return on investment (ROI) of advertising (2) Online versus offline advertising (3) Value of TV advertising Reference: , p. 213f. (4) Impact of creative quality in advertising  70 Empirical generalization on managing promotional activities o of ROI (2/3) advertising Online versus offline advertising o Advertising typically has a half-life of o If a recalled advertisement was on three to four weeks. traditional media, it was more likely to o If advertising changes by 1 %, sales or leave a positive impression than if it was market share will change by about 0.1 %. on digital media. That is, advertising elasticity is 0.1. o The impact of advertising varies based o If advertising elasticity is approx. 0.1, net on brand familiarity. Managers of profit is optimized by setting the unfamiliar brands may obtain substantial advertising budget to be 10 percent of synergy from offline marketing spending, gross profit. If the elasticity is 0.15, then whereas managers of familiar brands Reference: , p. 213f. the advertising budget should be 15 can generate more synergy by investing percent of gross profit, and so on. in different online media. o Brand advertising often has a o TV advertising does influence online pronounced short-term sales impact. sales positively,  71 Empirical generalization on managing promotional activities o (3/3) Value of TV advertising Impact of creative quality o TV appears to be more effective than o Ads that communicates a unique selling online or print in creating brand proposition are better than ads that do awareness and recognition. not. It is effective if it is unique in the o TV ads still have a very high reach. eyes of consumers, even though other Declining viewership number for specific brands might make the same claim. TV channels are due to fragmentation, o The number of times a brand appears not a decline in TV consumption. visually in a TV ad increases the degree o TV still seems to be influential among to which the brand is correctly key target audiences. The influence of associated with that ad. Reference: , p. 213f. digital media has increased but has not o Emotional response to a TV ad led to a respective decline in the influences both branded engagement perceived importance of TV. and persuasion, and therefore, the likelihood of short-term sales.  72 Measuring and optimizing promotion activities  73 Measuring advertising impact is not trivial The sales impact of advertising is hard to see in weekly or monthly sales figures. Two exemplary aspects illustrate this fact: Most advertising is aimed at The sales effects of advertising are maintaining market share. stretched over time. Broadbent (1989) provides an apt In contrast to the impact of today’s analogy: "The sales of a brand are like price promotions, the impact of the altitude at which an aeroplane flies. today's advertising is spread very Advertising expenditure is like the thinly over a long period of time on engines: as long as the engines are weekly sales figures. Dramatic jumps Reference:. running, everything is fine, but when in spending are usually required to the engines are turned off, eventually make a noticeable increase in a week's the descent begins". numbers  74 To identify advertising impact requires long time-series or individual-level data o Analyzing aggregate-level data with statistical models to disentangle the relationship between the changes in advertising spend and changes in overall sales often only report a weak association. o The picture becomes clearer with the help of individual-level data. If we divide the consumers who were exposed to the advertising from those who are not, then we can see sales effects that were masked in previous analysis of aggregate-level data. Reference:.  75 Optimizing promotion activities often relies on marketing mix modeling Given stricter privacy laws which make usage of individual-level data hard, marketing mix modeling based on aggregate-level time series data (e.g., channel spending and sales per region) is nevertheless on the rise to optimize the Reference:. ad spend per channel. https://www.youtube.com/watch?v=LIQbP8Gv6cQ  “Promotion” in a digital world 4 Social media platforms like Facebook mainly earn money through advertisements. But how does this work? And what about influencers? Should firm engage in influencer marketing?  77 “Promotion” in a digital world o The digitalization has enabled the marketing industry to bid in a complex auction process if an individual gets shown an ad o How influencer marketing fits in the promotional mix of a business o TikTok – the social media platform “du jour”  78 The digitalization has enabled the marketing industry to bid in a complex auction process if an individual gets shown an ad  79 The decision which online ad gets shown is based on a complex process Online advertising largely builds on automated auctions to find a price given supply (i.e., visitor that accesses a website with an ad placeholder) and demand (i.e., advertiser that wants to show an ad to a Reference:. specific target group).  80 Let’s have a detailed look how real-time bidding for ads work Real-time bidding is an automated digital auction process that allows advertisers to bid on ad space from publishers. Reference:. https://www.youtube.com/watch?v=ylhKJSrxutM  81 Today, there is more than Google ads, even retail companies have an ad business o On a smaller scale such ad exchanges are also found at marketplaces and other retailers. Known as retail media advertising, this is likely to be seen on many more online shops. o Example: Amazon.com returns organic search various sponsored results. results Amazon’s ad service division Reference: ,. makes >6% of the marketplace’s ads return.  82 A lot is going on in the ad industry: The Google-Meta advertising duopoly is attacked Digital advertising enters a period of transformation: o TikTok has significantly sucked ad dollars away from Meta’s Facebook and Instagram. o Amazon is forecasted to take 7% of worldwide digital-ad revenue in 2022. o Microsoft is expected to take more than 2% of global sales this year. Microsoft’s social network, LinkedIn, is unglamorous but its business-to- business ads allow it to monetize the time users Reference:. spend on it at a rate four times that of Facebook.  83 How influencer marketing fits in the promotional mix of a business  84 Theoretical basis: Influencer marketing builds on the principle of social influence How does social influence work? o Social influence can be generally divided into (1) peer pressure and (2) social learning. o Social influence should not be confused with homophily, i.e., that some people naturally share similar interests (even in case they do no have social connections at all).  85 Practical relevance: How many firms are actually using influencer marketing o Influencer marketing is used by o (2/2) more than 70% of U.S. marketers from companies with 100 or more employees in 2022. o In 2021, influencer and other paid content represent 20% of U.S. agency and marketing professionals' digital ad budgets in 2021, according to a survey by Advertiser Perceptions in Reference:. November 2020.  86 Practical relevance: How many firms are actually using influencer marketing In a March 2021 survey by o (2/2) influencer marketing platform Linqia, 68% of US marketers said they were planning to use TikTok for influencer marketing, up from just 16% in February 2020. Reference:.  87 Types of influencers and for which marketing objective to rely on which type Influencers are (1/3) genera