Final Review Notes on STP & Marketing Research PDF

Chapter 5 STP & Marketing Research Segmentation Targeting Different customers want different things, pay different prices, different information sources, Once i...

Chapter 5 STP & Marketing Research Segmentation Targeting Different customers want different things, pay different prices, different information sources, Once identi ed groups, choose which we will target and buy at different places (4Ps) Factors when selecting Target Markets (Big Picture): Developing different marketing program for each customer is extremely expensive ◦ Compatible with organizations’s goals & image Segmentation allows a marketer to identify and group people that behave similarly ◦ Match company’s resources Companies tailor or personalize their website for individual users ◦ Generate enough sales to generate pro t Markets can position their products to t their target market segment ◦ Able to enjoy competitive advantage Example: Air Travel — One company serving many segments ◦ Business/Executive: In exible; price insensitive, small number of people, travel often Positioning ◦ Leisure Traveler/Student: Flexible; very price sensitive (Other methods of travel or travel may not be essential), very large segment ◦ Comfort Travellers: Comfort important; willing to pay, small segment Use of various marketing techniques & marketing-max variables to Requirements for Effective Segmentation create the image/perception that will best t what the company ◦ Pro tability sustainable over time wishes to be known for ◦ Measurability with accessible data Designing an offering so that the target segment perceive it in a ◦ Segment accessible through existing distribution, advertising, etc. distinct and valued way relative to competitors ◦ Homogenous (Similar needs & desires within segments) Three main ways to position a product ◦ Mutually exclusive (Different needs and desires among segments) ◦ Unique (“Only product/service with ___”) ◦ Difference (“More than twice the ___ vs. competitor”) ◦ Similarities (“Same functionality as competitor; lower price”) Establishing a Brand Done with attributes, bene ts, usage situations, or product class Tools Factor Analysis Discriminant Analysis Four main tools for STP Mathematical technique that looks at all responses Identifying these groups from cluster analysis ◦ Factor Analysis (REDUCE) from all respondents and nds attributes that can Link grouping so something observable; age, income, magazines ◦ Cluster Analysis (SEGMENT) be grouped together read etc. ◦ Discrimination Analysis (TARGET) ◦ Most respondents who think White Balance Descriptor Variables, used to identify & target (reach) different ◦ Perceptual Maps (POSITION) is important also think Image Stabilization segments of consumers Marketing Research is any activity involving is important Mathematical technique that links grouping of consumers with collecting, analyzing, or interpreting market Have fewer attributes to describe digital cameras descriptor variables information ◦ Merge attributes, White Balance & Image Example; two groups identi ed through cluster analysis Most common method of collecting Stabilization into “Professional Features” ◦ First group composed mostly of age 35-55, income information is to ask Purpose is data reduction $70,000–$90,000 Digital Cameras Example: Reduce to a more manageable number without ◦ Second group age 15-40, income $50,000–$70,000 ◦ Potential consumers rate importance of losing important information ◦ First group mainly watches news on TV, second group each attribute mostly watches reality shows ◦ Potential consumers than rate the ◦ Helps target ads, during news shows or during reality following brands based on attribute Cluster Analysis shows ◦ Each number represents the average Use survey to collect data, asking about gender, income, age, Finding patterns among responses of different address, etc. from all respondents groups of consumers ◦ Group of consumers that rates Mega pixels & Professional features high, but rate LCD size & price low ◦ Another group that rates size & price highly, but not any other attributes Mathematical tool that looks for and nds these groups of respondents Tool for segmentation Segmenting based on “Needs Variables” (Attributes of product), called “Bases variables” Not segmenting based on income, age, etc. Perceptual Maps Get an idea of what our average consumer thinks of us The Position we occupy in the consumer’s mind May not be what we want it to be, or what we think it should be ◦ Produced a really save car, however consumers think of it as “unsafe” due to negative stories Perceptual Maps represent information gathered in a visual manner “Snake Plot” simple & traditional way to “see” the differences among brands Further simpli ed and reduced to two main dimensions ◦ Simple — Advanced ◦ Low Price — High Price Vectors represent each attribute ◦ Attributes that have higher correlation with each other are “closer” ◦ Length of vector represent importance of attribute in consumer’s mind After condensing several attributes into two main attributes, we can see see what consumers think of the brands Able to visualize brand’s position relative to other brands Target “empty” areas of the map and identify which parts of the map have intense competition (Potentially avoid) Snake Plot Perceptual Map with Attributes Perceptual Map with Brands  Chapter 6 Product Types of Product Consumer Goods Product is a good, service or idea consisting of bundle of Goods purchased by the ultimate consumer (User) tangible (Physical) & intangible (Perceived, felt, experienced) Convenience Goods Shopping Goods attributes that satis es consumers’ needs ◦ Purchased frequently & involve minimal ◦ More expensive than convenience goods Has to be a form of exchange shopping effort ◦ Require effort deliberations and thought before Two main types of product classi cations ◦ Ex. Milk, chewing gum, pop etc. purchase decision ◦ Consumer vs. Industrial Goods ◦ Generally inexpensive and can be bought at ◦ Purchased infrequently & only bought at ◦ Durable vs. Non-durable Goods many different types of stores particular stores ◦ Consumers not particularly brand loyal, accept ◦ Consumers generally go through all ve stages substitutes, price conscious of consumer decision process Industrial Goods ◦ Marketers focus on building awareness of ◦ Ex. Cars & electronics Not purchased by ultimate consumer, purchased by other brands, easy availability is important in ◦ Consumers are brand conscious producers who then manufacture other goods determining sales ◦ Marketers focus on differentiating their brand Assists in providing products for resale Specialty Goods Unsought Goods Bought by companies to be put into production used in ◦ Usually very expensive ◦ Not characterized by price or availability manufacturing other goods ◦ Purchased at very limited number of stores ◦ Purchased very infrequently Sale is the result of derived demand ◦ Ex. Mont Blanc pens, Harley Davidson ◦ Consumers generally do not go look for these ◦ Comes from the demand for the nal consumer good Motorcycles, Vintage cars products ◦ Ex. Demand for bicycle wheels is derived from the ◦ Availability is not important, but rather ◦ Ex. Life insurance, Education Bonds, Anti- demand for bicycles exclusiveness smoking aids ◦ Marketers stress uniqueness and status of brand ◦ Marketers emphasize awareness, key to Durable & Non-Durable Goods educating consumer to buy their product Durable goods last over an extended period, purchased only New Products infrequently 80% of new products fail Companies use creative ways to ◦ Cars, laptop, computers, washing machines etc. New product launches cost several hundred million dollars keep track of new opportunities, ◦ Printers Typically fail due to; some process for idea generation Non-Durables (Consumables) are used up in one or a few ◦ Poor Concept (No one wants it) (From both consumers & uses and must be purchased again & again ◦ Inadequate selection & targeting (Wrong consumers are targeted) employees), screening, and ◦ Batteries, cereal, pencils etc. ◦ Inadequate differentiation (Very similar to existing products, no development ◦ Printer Cartridges reason for consumers to switch) A rm has four main options in Indicates to the marketer the behaviour of consumers ◦ Marketing Mix Issues terms of opportunities ◦ Encourage repeatedly to keep buying vs. having ‣ Poor Execution message reach consumer mostly at the point in time ‣ Poor Quality when considering buying a durable item ‣ Bad Timing ‣ No Access to Buyers (Distribution weakness) Product Life Cycle Key element of new product development process is attribute tradeoffs ◦ Larger TV for higher price Every product has a life cycle from “birth” to “death” Conjoint Analysis elicits this trade-off information from consumers Variations on the shape of Product Life Cycle (PLC) depending on product ◦ Having consumers make choices between alternative combinations Options for Expansion of different attribute levels Fads (Products that quickly become popular, but fades away ◦ Helps gure out how much consumers are willing to pay for X, or quickly) have a very narrow peak what they are willing to give up for a cheaper price Life cycle length varies (Ketchup PLC can last several decades) 4 Stages in PLC Introduction Maturity ◦ Just been introduced in the market ◦ Product beings to peak and level off ◦ Customers are not familiar with product ◦ Pro ts peak around this time ◦ R&D costs that go into every new product, company is ◦ Focuses on defending market share generally losing money ◦ Reminding consumers of value and ◦ Not much competition, company focuses on building differentiation from competition awareness Growth Decline ◦ Sales being to “take off” ◦ Sales & Pro ts fall ◦ Threshold of awareness is crossed ◦ “Harvest” the product ◦ More competition, company must continue to inform ◦ Eventually delete from product line (Stop potential customers about competitive advantages manufacturing) Product Life Cycle Diffusion of Innovation Shape of PLC links to how quickly new product or idea (Innovation) spreads (Diffuses) amongst population 4 Main categories of consumers who adopt products at different speeds Innovators ◦ Motivated by being pioneers & buying the “latest & greatest” product ◦ Really small group, inclined to pay higher price for new product ◦ Referred to as being at the “bleeding edge” ◦ High tolerance of risk Early Adopters ◦ Slightly larger group, also value trying something new, less informed about new products than innovators Diffusion of Innovation & Different Categories of Adopters ◦ Well ahead of the curve Certain characteristics of innovation serve to improve or detract from chances of adoption by consumers & time frame ◦ Also willing to pay higher prices (Skimming pricing Perceived Complexity strategy works well) ◦ More complex, slower consumers adopt ‣ Recouping costs quicker, slows diffusion Compatibility process ◦ Is it compatible with present behaviour patterns & complementary products Majority ◦ More similar in use to existing behaviour, faster the spread ◦ Enough people have already tired it and the “bugs” Observation & Communication of Features/Bene ts have been discovered & xed ◦ The easier the features & bene ts can be observed and communicated, the easier it is for word of mouth to ◦ Average tolerance of risk spread (Faster adoption) ◦ Price sensitive Risk Late Adopters (Laggards) ◦ The higher the risk attached to adoption, the bigger the barrier to quick adoption ◦ Extremely risk-averse ◦ Physical, Financial, Social ◦ Wants competitive price ‣ Higher the price, slower adoption curve Diffusion is different from person to person, depending on Trial of Innovation de nition of perceived risk ◦ If innovation can be tried on a limited basis before being adopted on a large scale Each stage in the adoption process has it’s own “Diffusion ◦ Easy trial reduces risk of buying something new, faster adoption Curve” ◦ Each curve in uences the succeeding ones ‣ If spread of awareness is slow, other parts are atomically slowed, nal adoption also slow Adoption Process  Chapter 7 Price Cost-Plus Pricing Company Fucking Economics Demand Curve, relationship between price and quantity demanded ◦ Price increases, fewer units sold, curve generally downward sloping Ex. Q = 50 — P ◦ $1 : 49 units sold $48 : 2 units sold TR = P X Q ◦ Total revenue = Price times Quantity demanded As price drops, quantity demanded increases, total revenue increases as well ◦ At a certain point, even though price is low and quantity demanded increases, total revenue starts to drop ◦ Total revenue is highest when P = 25 & Q = 25 Demand Curve Marginal Revenue is the additional revenue from increasing the quantity sold by 1 unit ◦ MR = d/dQ (TR) ◦ MR = d/dQ (PQ) ◦ MR = d/dQ (50-Q)Q ◦ MR = 50 — 2Q ◦ Optimal price when MR = 0 Costs are broken into Fixed Costs (Independent of number of units produced) & Variable Costs (Costs that increase with number of units produced) Marginal Cost is the cost of producing one addition unit ◦ Marginal cost curve is generally at or downward sloping ◦ Downward sloping re ects the learning curve and economies of scale ◦ Gets better at producing the more units it produces, becomes cheaper ◦ Sometimes larger quantity can be cheaper per unit Ex. MC = 30 — Q ◦ Area between Marginal Cost & Marginal Revenue represents “gain” from producing an additional unit ◦ Increase quantity up to MR = MC Demand Curve ◦ MR = MC when P = 30 & Q = 20 ‣ MR = MC ‣ 50 — 2Q = 30 — Q ‣ Q = 20 ‣ P = 50 — Q ‣ P = 30 Breakeven Analysis Pro t = π = Total Revenue — Total Cost Total Revenue = Price X Quantity Total Cost = Fixed Cost + (Unit Variable Cost X Quantity) π = P X Q — (FC + Q X VC) ◦ π = Q(P — VC) — FC Demand Curve with Marginal Cost Breakeven point is the quantity we need to produce to just recover our costs Breakeven Point (BEP) is the number of quantity that leads to 0 pro t ◦π = 0 ◦ Q(P — VC) — FC = 0 ◦ Q(P — VC) = FC ◦ Q = FC/(P — VC) ◦ Fixed Costs are covered by the “Contribution” (P — VC) Breakeven Analysis provides a tool to incorporate costs (Variable & Fixed) into the pricing decisions Breakeven Analysis Value Based Pricing Competition Based Pricing Looks at the price decision from the perceived value of Pricing in the face of competition is like a “game” product in the minds of the consumer ◦ Often someone wins & someones loses Charging “what the market will bear” ‣ Item being won or lost is market share Focusing on the value we are offering the consumers If you lower your price, competitors are likely to do the same Using customers’ perception of value, rather than company’s ◦ Leads to price wars, typically bad for both participants, cost worse for company with higher market share Reservation Price When xing price, anticipate competitors response and ◦ Economic term de ned as the highest price a account for it consumer is willing to pay ◦ Price is the same as customer’s perception of the value Conclusion ◦ Customer will not pay more for a product than the Cost analysis typically gives a “ oor” or minimum price we value they believe the item holds for them need to charge to meet our costs Reference Price Value analysis gives us a “ceiling” or maximum price our ◦ Combination of the following: customers are willing to pay ‣ Fair Price We will price our products between these two extremes ‣ Frequently Charged Price ‣ Last Price Paid ‣ Price of Brand usually bought ‣ Average price for similar products ‣ Expected future price ‣ Typical discounted price Price Sensitivity/Price Elasticity ◦ Availability of alternatives, perceived substitutes, reference points, switching costs etc. all contribute to price sensitivity ◦ Consumers may perceive higher prices to be a signal of quality, therefore not be very price sensitive Prospect Theory strikes again, gains vs. losses, losses feel much worse than gains feels good ◦ We like seeing on sale stuff, attracted by “gain” ◦ Marketers try to frame purchases as gains denied rather than losses Price Overview ◦ Better to raise price by one big jump, rather than gradually, in many steps  Chapter 8 Place Channels Functions Distribution is how the product gets from producer Provide ef ciencies in the interactions between to consumer producers & consumers Distribution channel is the set of companies & If all different items sold needed an outlet to individuals who participate in distribution access consumers directly, the number of outlets Getting product to consumer is important not only required would be huge geographically but also across time Grocery stores collect all different items under ◦ Having product a available at local grocery one roof and consumers now deal with a few store (Geographically) stores instead of tons of different manufacturers ◦ Tomatoes ripen in May, but sold in store Distribution Channel members (Intermediaries) year round (Across time) provide the following functions ◦ Assuming title (Ownership) ◦ Physical ownership of products (Storing Control the products) ◦ Taking risks by stocking product Longer channel, company has to make sure ◦ Gathering, sorting & delivering Direct (0-Level) Channel with Many Interactions interests of intermediaries align with it’s own ◦ Providing information about product Ex. Cereal at Grocery Store ◦ Financing product ◦ Pro ts don’t depend on sale of any one of Ex. Tomatoes the brands, rather all of the cereals it carries ◦ Channel members buy tomatoes when ◦ Interest of particular cereal manufacturer ripen may not align with grocery store’s interests ◦ Won’t be sold immediately, channel ‣ Maximize sale of own brand vs. members assume tasks of storing until maximize sale of brand with higher sold, transporting to stores, sorting them, margin to the store dealing with unsold, keeping them look Franchising agreements, a situation where fresh company needs independent agents to reach Wholesalers, retailers, dealers, distributors, customers, give up degree of control brokers, franchises, agents etc. are all members ◦ Contracts & monitoring are vital of channel distribution Shorter channel with great degree of control needs All channels don’t have same number levels of to make sure the company has the resources & members ability to effectively distribute their product ◦ Dell sells directly, no intermediaries, zero levels ◦ Proctor and Gamble has wholesalers & Conclusion retail stores, 2-level channel 2-Level Channel with Much Fewer Interactions Shorter channels occur with fewer consumers, Remember the functions of intermediaries & issues higher service needs, product complexity, that accompany lack of control & alignment of perishable, or demand high degree of control incentives Longer channels are required when consumers Good decision making on distribution channels are highly dispersed, products are standardized, provide huge competitive advantage & key to inexpensive, no expertise in distribution & need corporate success for control is low  Chapter 9 Promotion What’s “Promotion” Integrated Marketing Advertising Communications (IMC) ◦ Paid form of non-personal presentation & promotion of ideas, goods & services In the past, experts in separate departments handled separate functions ◦ Identi ed sponsor IMC involved all elements of promotional mix to be strategically integrated Sales Promotions Allows advertising message to be the same through different channels ◦ Short term incentives to encourage purchases ◦ Message should be consistent with any communication ◦ Temporary Purpose is linked to branding Personal Selling Focuses on managing two dimensions ◦ Oral presentation in a conversation for making sales ◦ Consistency ◦ Personal to personal contact ‣ Message is the same & not con icting Public Relations ◦ Complementary ◦ Obtaining good publicity & creating good corporate image ‣ Different elements of the message work well together ◦ Free ‣ Strength inherent in one method of communication Direct Marketing counterbalance disadvantage in another ◦ Contacts consumer directly Ideal communications program, picking among large number of media options ‣ Mail, telephone, internet etc. to best “ t” with target market ◦ Chance to implement personalized one-to-one marketing Messages should share core meaning, re ect core branding strategy 5 M’s Mission Money “Big Picture” of Promotion & IMC Deciding the objectives Vital to decide budget on IMC campaign Push Strategy Percentage of sales & modi cations of previous years’ ◦ Channel members budgets ◦ Low brand loyalty Factors to be considered ◦ In-store purchases or impulse buys ◦ Stage in Product Life Cycle Pull Strategy ◦ Market Share & Consumer Base ◦ Final customer ◦ Competition & Clutter ◦ High brand loyalty ◦ Advertising Frequency ◦ High involvement in category ◦ Product Substitution ◦ Purchase decision made before trip to store Inform, Persuade, or Remind consumers Message Media What we wish to convey to our consumer Selection of medium or carrier of message Keeping It Short & Simple Reach Message Generation ◦ Number of different people or household exposed to ◦ Picking & balancing Desirability, Believability an ad & Exclusiveness of the message Rating (TV/Radio) Message Evaluation & Selection ◦ Percentage of households in a market that are tuned ◦ Choosing between rational & emotional to particular TV or Radio show position strategies Frequency ◦ Cognitive Appeal ◦ Average number of times an individual is exposed to ‣ Rational side of consumers an ad ◦ Affective Appeal Gross Rating Points ‣ Emotional side of consumers ◦ Reach (Percentage of total market) multiplied by Message Execution Frequency ◦ Selecting Style, Tone, Words & Format CPM (Cost per Thousand) ◦ Cost of advertising divided by number of thousands Measurement of individuals or households exposed Measure effectiveness Communication Impact ◦ Hard to measure, perceptions in the consumer’s mind (Awareness & Interest) Sales Impact ◦ Easily measured, hard to link to particular campaign, lag between message and impact ◦ Impact of campaigns lingers for various periods after ending, harder to judge sales impact of particular campaign Lecture 5 STP & Market Research Good Segmentation Classifications Large Enough Personal Characteristics ◦ Political Af liation ◦ Demographics ◦ Ex. Bipartisan Wings ‣ Easily measurable with statistics ‣ Covers both right and left wings ‣ Gender (Makeup) Identi able ‣ Ethnicity & Race (Magazine for Hispanics) ◦ Don’t be too broad ‣ Age (Phone with big buttons for older people) ‣ Ex. Spiritual people (Too broad) ‣ Income (“Your richer than you think”) ‣ People who practice yoga 2/3 times a Scotiabank targeted incorrectly, non-rich people week were getting this ad Distinctive ◦ Psychographics & Lifestyle ◦ Income differences ‣ Create new forms of measures that focus on consumption ‣ $10,000 vs. $100,000 vs. $1,000,000 ‣ Activities, Interests, Opinions (AIO) vs. Classi cation on Stable psych dimensions ◦ Consistent & Predictable Interests vs. Personality ◦ Re ects through products ‣ Combined: VALS ◦ Ex. Apple making iPhones -> iPads -> iMacs Resources ◦ How many resources each group has Target Market Selection ◦ Differentiate Innovators (High) from Survivors (Low) VALS Framework Market Opportunities for Pro t Primary Motivation ◦ Segment Size ◦ What governs activities ◦ Growth Rate / Potential ◦ Ideals: guided by knowledge & principles Competitive Intensity ◦ Achievement: products to show success ◦ Unserved Needs? ◦ Self-expression: Desire activity, variety ◦ Competitors’ Strengths? ◦ Geographical Segmentation Company Fit ‣ Regional Segmentation ◦ Objectives ‣ ZIP clustering ◦ Competencies Distinct marketing for similar types of ◦ Customer Base neighbourhoods across nation Regional Segmentation ◦ Resources Type in postal code activity Use product lines to target different segments Bene ts Sought ◦ Different brands at different intervals ◦ How they respond to the product ◦ Bene ts people seek in consuming are the basic reasons for the existence of true market segments ◦ Attempts to measure consumer value systems & perceptions of various brands in product class Product-related Behaviours ◦ Brand Loyalty ◦ Amount of brand usage ◦ Measurable by behaviour ‣ Purchase Frequency Positioning Statement ‣ Heavy-user Segment (80-20 Rule) Bene t Segmentation: Jeans Positioning 80% of the outcome can be explained by 20% of ◦ Telling consumers who we are the price Product’s Position ‣ Brand switching rates ◦ Do consumers actually think that of us A positioning statement must include Positioning Strategy Questions Positioning Strategies ◦ To customers who are Which positions are of greatest value to target By Attribute (Baking soda toothpaste) ‣ Target summary customers? By Bene t (Prevacid ‘24 hour relief’) ‣ Ex. Generation F3 (Fast gas station) Which positions are taken, and which are free from By Price/Quality (The Bay; Dollarama) ◦ Our product offers competition? By Use/Occasion (NyQuil & ZQuil) ‣ What product does from consumers’ Which available positions t with objective and our By Product User (Baby food) point of view capabilities? Respect to Product Class (7-up ‘Un-cola’) ‣ Ex. Inexpensive gas, food, washrooms Are our positioning messages consistent? Respect to Competitor (Avis #2 vs. Hertz) ◦ Relative to By Emotion (Got milk?) ‣ Competitive alternatives ‣ Ex. Gas stations without these fi Marketing Research Exploratory Research Descriptive Research Process of Involves small samples, non-structured data collection Surveys ◦ De ning marketing problem/opportunity Provides initial insights, ideas, or problem understanding Greater structure, pre-determined questions ◦ Collecting & analyzing information Shouldn’t be used to recommend nal action Phone, mail, in person, web-based ◦ Recommending actions for improvement Focus Groups / Depth Interviews Evaluates time, cost, length, response rates Monitoring of ◦ Qualitative research Advantages ◦ Customers, competition, context (PEST) ◦ Monitored group discussion ◦ Attitudes, interests, classi cation, convenience Eyes & ears of corporation ‣ Focused on topics from discussion leader Disadvantages ◦ Helps you get close to your customers ‣ Express own views, respond to others’ ◦ Considerable judgment Types of research methods & examples ◦ Best for preliminary research ◦ Bias ◦ Exploratory: focus, projective, observation ◦ Followed up by surveys or experiments ◦ Descriptive: surveys ◦ Applications Casual Research ◦ Casual: experiments ‣ Perceptions, opinions, behaviours ‣ Product planning Cause & Effect ‣ Advertising (Concepts or Content) Attempt to specify the nature of the functional or casual ◦ Advantages relationship between two or more variables ‣ Rich data ‣ Versatile interaction style ◦ Disadvantages ‣ Lack of generalizability ‣ High cost Projective Techniques ◦ Unstructured & indirect questioning ◦ Encourages respondents to project underlying motivations, beliefs, or attitudes ◦ Word association ‣ Apple — ? ◦ Sentence completion ‣ Apple users are ? ◦ Pros ‣ Gets tough response — unwilling, subconscious ◦ Cons ‣ Requires skilled interpreter: risk of bias Observation ◦ Systematic recording of behavioural patterns ◦ Interacts with targets sometimes ◦ Pros ‣ Track info people won’t tell you ◦ Cons ‣ Only behaviour, no underlying info  Lecture 6 Price Customer Value Measuring Customer Value How much a customer is willing to pay for Responsiveness product/service Price Elasticity (E) Perceived Value (PV); Price; Cost ◦ % change in quantity demanded/ % change in price ◦ PV > Price > Cost (Value Pricing) ◦ |E| > 1 = Elastic Demand ◦ Price > PV > Cost (Mistake -> Adjust) ‣ Small change in price -> large change in ◦ Price > Cost > PV (Failure) demand ‣ $5 to make, people view the ◦ |E| < 1 = Inelastic Demand value as only $2, no one will ‣ Small change in price -> smaller change in buy demand ◦ |E| = 1 = Unitary Elastic Demand ‣ Change in price -> equivalent change in Pricing Objectives demand Factors affecting price elasticity Cost Oriented Approaches (ECONOMICSSSS) Changes in Total Revenue as Price Increases ◦ Availability of substitutes / uniqueness ◦ Standard Markup (Adding to Cost) ◦ Dif culty of comparisons ◦ Ignoring demand & competition ◦ Importance Pro t Oriented Approaches ◦ Ability to stockpile ◦ Target Pro t (Expected Sales & Costs) ‣ Fresh vs. Canned ◦ Ignores demand & competition Economic value to customer ◦ Dif cult to predict sales volume ◦ Identify Lifecycle Competition Oriented Approaches ◦ Identify Cost ◦ Above/at Par/Below ◦ Identify Total Lifecycle Cost ◦ Loss-Leader ◦ Determine Equivalent Units of Comparison Product ‣ Selling at a loss for main ◦ Repeat 2&3 for Comparison Product product, hoping for cross- Survey Based Methods selling ◦ Willingness-to-pay Branded vs. Generic ◦ Product-Line Pricing ◦ Dollarmetric Method ‣ Different prices within same ◦ Gabor-Grainger Method product-line ‣ Single product exposure to multiple price ‣ Tiers of services points ◦ Ignores Demand Economic Value of Lightbulb ‣ Would you buy at $X? Demand Oriented Approaches ‣ Plot number of af rmatives on each price point ◦ Buyer’s PV rather than seller cost to get demand curve ◦ Starts with price you want to charge ◦ Brand Price Trade-Off (BPTO) ◦ Work backward to create cost ‣ Matrix of brands & prices, choose one structure ‣ Prices adjust until you choose none Pricing Strategies & Tactics Demand Oriented Approaches Branded vs. Generic Dollarmetric Bundle Pricing ◦ Combo Meals Value Pricing ◦ Nofrills lower food prices Prestige Pricing ◦ Normal Beer vs. Premium Beer Yield Management Pricing ◦ No empty seats ◦ Cheap fares = y at a loss ◦ Pro tably ll capacity ‣ Set price, observe demand, adjust Perceptions of Price Differences Reference Price Odd-Even pricing effect Standard of comparison against which an observed ◦ $2.99 vs. $3.00 price is compared Weber-Fechner Law Internal ◦ Buyers perceive price difference in relative ◦ In uenced by consumer’s experiences terms (Percentage) ‣ Fair Price ◦ Not always in absolute terms ‣ Usual Price ‣ Does matter too especially if large ‣ Last Price enough ‣ Average Price ‣ $2,000 difference when buying car External ◦ $10 dollar difference when buying calculator ◦ In uenced by consumer’s context vs. car ‣ MSRP (Manufacturer's Suggested Retail Price) ‣ What’s nearby ‣ Prices for others in the line ◦ Choice Sets Decoy Effect Mental Accounting People are ‘naive’ accountants Where they draw boundaries between accounts can have large impact on choices ◦ Amounts within account are equivalent Separate Accounts ◦ Amounts across accounts are not Separate Accounts ◦ Theatre Example ◦ Separate account for ticket cost & lost money ◦ Same account for both ticket & money = $20 Prospect Theory ◦ Surcharges suck Prospect Theory Endowment Effect ◦ Pain of giving up something is greater than pleasure of getting it ◦ Bank accounts Preference for Status Quo ◦ Feels worse when we change into the wrong Endowment Effect answer ◦ Rather bad thing happen because we did nothing rather than we did something Price Bundling ◦ Yearly payment vs. Monthly payment ‣ Makes ‘cost’ of missed day obvious ‣ Sunk cost effect ◦ Health club usage Preference for Status Quo Price Bundling  Lecture 7 Place/Product Functions of Distribution Types of Distribution Systems Transactional Function Direct ◦ Buying, Selling, Negotiating ◦ Own sales force Logistical Function ◦ Control over distribution functions ◦ Assorting, Storing, Sorting, Transportation ◦ Better satisfy customer needs Facilitating Function ◦ Cost effective (Large enough volume base) ◦ Financing, Grading, Providing Information Indirect ◦ Through intermediaries ◦ Corporate Systems Density of Channel ‣ Vertically-integrated ‘captive’ ‣ Raw materials → Production → Distribution → Retail Intensive Distribution → Customer ◦ As many as possible ‣ Forward ‣ Soft Drinks Takes control over activities closer to end Selective Distribution customer ◦ Limited number of outlets Retail & Distribution Choice between the two Clothing brand Types of Distribution Systems ◦ Product ‣ Backward ‣ Convenience or Specialty Takes control over activities that are further ◦ Buying upstream Retailing ‣ Low frequency or Brand loyalty Raw materials & Production ◦ Control Grocery ‣ Price, Image, Display, Assistance All activities involved in selling, renting, providing ‣ Advantages Channel Modi cations goods and services to ultimate consumers Control ◦ Competitive Customer Service ◦ New customer segment ‣ Disadvantages ‣ New geographical region Investments Channel Con ict ◦ Contractual Systems ◦ Vertical ‣ Independent intermediaries ‣ Different level of supply chain ‣ Franchising ‣ Manufacturers - Retailer ‣ Trade Name ‣ Franchisor & Franchisee Gas Franchisor wants franchisee to ‣ Format renovate constantly Fast Food Pain in the ass for franchisee ‣ Advantages ◦ Horizontal No experience ‣ Same level of supply chain Easy help (You have no rights, no control) ‣ Retailer - Retailer Retail Positioning Matrix ‣ Disadvantages Too many Tim Horton locations Overcharging Start competing with each Vulnerable, quick buck (Short-term, giving up other leading to less sales on you, high risk) combined ◦ Conventional Systems ‣ Utilizes independent intermediaries ‣ Taking care of own section in a group project Moving Company Example ◦ Separate people for packing, driving, etc. ‣ Advantages Risk reduction Ef ciency ‣ Disadvantages Coordination Instability New-product Development Idea Generation → Screening → Idea Evaluation → Development → Commercialization ◦ Customers & Users ◦ Strengths & ◦ Concept Testing ◦ R&D ◦ Finalize product & ◦ Marketing Research Weaknesses ◦ Reactions from ◦ Develop prototype marketing plan ◦ Competitors ◦ Does it t with customers ◦ Test marketing mix ◦ Start production & ◦ Other Markets objectives ◦ Estimates of costs, ◦ Revise plans marketing ◦ Company People ◦ Market Trends sales, pro ts ◦ ROI estimate ◦ Roll out in select ◦ Middlemen, etc. ◦ Rough ROI Estimate markets ◦ Final ROI estimate Shit is EXPENSIVE  Lecture 8 Product Conjoint Analysis Simulated Test Marketing (STM) Test Marketing Idea Evaluation Development Commercialization ◦ Evaluated without actual product ◦ Product & part of marketing mix is evaluated ◦ Product & complete marking mix is evaluated Figure out most important attribute Laboratory Test Markets Marketing program implemented in limited but Golf Ball Example ◦ Simulated an actual test market carefully selected parts of market ◦ Attributes ◦ Having people walk into a “fake” store and see if they Gain information & experience with the marketing ‣ Average Driving Distance (225 yards; will buy it program before full commitment 250; 275) x=3 Estimates initial purchase rates & ultimate repeat purchase ◦ If it works in test places, we chilling ‣ Average Ball Life (18 holes; 36; 54) rates ◦ If doesn’t work, change shit y=3 Advantages (Compared to true test markets) Predict program’s outcome when applied to total ◦ Consumers evaluate product “pro les” ◦ Fast market ‣ 3 X 3 = 9 Possible pro les ◦ Cheap Two types of test markets Total amount of possibilities ◦ Flexible ◦ Sell-in Test Marketing (Full-blown) x(y) Limitations ‣ Cities where product is sold just as it ‣ Rate or rank them ◦ Assumes data are valid predictors of real world would be in a national launch ‣ Ball 1: 225 yards 36 holes ‣ Does fake store really re ect real store outcomes ‣ Ex. Films ‣ Ball 2: 250 yards 18 holes ◦ Convenience sample Coming to select theatres ‣ Ball 3: 225 yards 36 holes etc. ‣ People you hire to test might not re ect actual National release another date ◦ Ranking them all best to worst (1-9) population ‣ Issues ‣ Best distance & life will always be 1st ◦ Attrition Selecting test cities ‣ Worse distance & life will always be ‣ Drop-off rate Implementing, controlling, 9th Typical STM Procedure evaluating the test ‣ Depends what comes in the middle ◦ Recruitment Timing & cost ◦ Design product to appeal to segment(s) ‣ Getting quali ed shoppers ◦ Controlled Test Marketing ‣ Distance > Life Golfers ‣ Cities for distribution is prearranged ‣ Distance = Life ◦ Background Questions ‣ Purchases are monitored ‣ Distance < Life ‣ Familiarity, preferences, usage ‣ Ex. BehaviourScan Knowledge of golf ball differences 3,000 homes in 7 cities ◦ Screening of ads ID card presented to ‣ Ad for target product & ad for other products supermarket Your ad mixed in with others, shoppers In-store conditions controlled don’t know which one is yours & monitored ◦ Simulated Shopping Media consumption ‣ Respondents given money monitored ‣ Invited to mock/real store ‣ Can buy any item Here’s $50, go buy some golf balls ◦ Debrie ng ‣ Choices recorded ‣ Reasons for (non)purchase ‣ Non buyers given free sample Why didn’t you buy our product? Adoption Process ◦ Reinterview (Few weeks later) ‣ Product attitude ‣ Usages ‣ Satisfaction ‣ Attrition part You like? Product Life Cycle *PLC Shapes Vary* Life Cycle & Growth Matrix Levels of a Product Brand Name Car Example Just knowing brand makes people think Core Bene t/Service higher/lower quality ◦ Point A -> B Stock with simpler names (Hillard) perform ◦ The needs to drive me, that’s it better than stocks with complex names ◦ What any car can do (Yoalumnix) Pronounceable vs. Unpronounceable Ticker Codes Actual ◦ Packaging ◦ Brand Name Packaging Four Brand Strategies ◦ Quality Level ◦ Features Bene ts Nike new shoe example ◦ Design ◦ Functional Existing Brand Name ◦ What this car brings, how is this car ‣ Packaging itself ◦ Nike same name brand unique to other cars ‣ Dispensers ‣ Still called Nike Augmented ◦ Communication ◦ Existing Product Category (Brand) ◦ Installation ‣ Labels ‣ New Nike runnings shoe ◦ Delivery & Credit ‣ Information Nike makes runnings shoes already ◦ Warranty ◦ Perceptual ‣ Line Extension ◦ After-sale Service ‣ Logo ◦ New Product Category (Brand) ◦ Extra Shit ‣ Packaging Colour ‣ Nike makes hiking boots Nike does not make hiking boots as a whole ‣ Brand Extension What is a Brand? New Brand Name ◦ Nike no longer same brand Name, term, sign, symbol, or design used to identify the goods & services ‣ Nike 2.0 of one seller to differentiate from competition ‣ Selling cheaper shoes under new brand name so the original Nike brand ◦ Value customer gets out of knowing it doesn’t get negatively impacted Promise rm makes to customers based on the idea of trust & consistency Nike still upholds high price & good quality branding ◦ What to expect ◦ Existing Product Category (Company) Brand Equity ‣ Keeps selling running shoes ◦ Image ‣ Multibrands ‣ Differential effect of brand knowledge on consumer ◦ New Product Category (Company) response to the marketing of the brand ‣ Go complete new ‣ How to measure New brand, new item Blind (taste) tests Nike -> Hikey Young & Rubicam Brand Asset Valuator (BAV) ◦ Shoes -> boots ◦ How distinctive is brand? ‣ New Brands ◦ How relevant & useful is brand? ◦ Is it considered best in category? ◦ Does brand have clear & consistent image? ◦ Asset ‣ Brand assets linked to a brand, name & symbol that add add to (or subtract from) value provided by product ‣ How to measure Interbrand’s S-Curve Method ◦ Separately identi able, legally protected, transferable ◦ 1. Annual net after tax pro ts, adjusted to exclude earnings expected for an equivalent unbranded product, averaged over time Young & Rubicam’s BAV Interbrand’s S-Curve Method ◦ 2. Brand strength -> a multiple (or discount rate) re ecting brand’s strength ‣ Leadership (25) ‣ Stability (15) ‣ Market (10) ‣ Geographic (25) ‣ Trend (10) ‣ Support (10) ‣ Protections (5) ‣ Total = 100 ◦ Multiple 1 & 2 to get brand value Young & Rubicam’s BAV Example Example of Interbrand’s S-Curve  Lecture 9 Promotion Who to Target? Major Objectives of Communications Customers Build Awareness ◦ Product -> Buyer ◦ Do you know it exists? Channel Partners Create Associations ◦ Product -> Channels -> Buyer ◦ What do you associate with the product? In uencers Develop Motivation to Act ◦ Product -> In uence -> Buyer ◦ Get people to buy/research product ◦ TikTok people Short Term ◦ Increase purchase intentions & precursors Long Term Approaches to Promotion (Models) ◦ Build brand equity Creating Messages Ad Appeals (Meaningful, believable, distinctive, etc.) Effectiveness of each Promotion Tool Big Ass Section Plan message strategy ◦ Doing the thing to achieve message ◦ General message to be communicated to ◦ Affective: feelings, moods, mind states customers ‣ Emotional Develop Position & Personality (Focus on bene ts) ‣ It’s a fucking talking gecko, fun stuff not ◦ Problem = Price too high serious ◦ Brand and personality to x problem ◦ Cognitive: thoughts, beliefs, attitudes ‣ What bene ts are we offering to ‣ Rational justify price ‣ Nerds, full statistics Creative Concept “Big Idea” ‣ Company knows it’s customer are smart, so ◦ Visualization or phrase or both they treat you smartly ◦ Ex. Apple “Think Different” (No product on ad) ◦ Attitude to brand = f(attitude to the ad) ‣ Promoting brand > product ‣ Ad is X, Person thinks company is X Product Life Cycle Stages & Promotional Objective ‣ That’s their creative big idea ◦ Positive Affect ‣ Humour Cognitive appeals ◦ Idea that creates impact ‣ Excitement: Sex, Money ◦ Attitude = Sum of attributes in brand by importance ‣ Relevance + Originality Does sex sell? + Sum of other’s opinion of brand by importance ◦ Implements ad strategy ◦ Gets attention, arouses ◦ Progressive ad ‣ Grabs attention & memorable ◦ Celebration vs. Objecti cation ‣ Insurance is a rational product ‣ Stands out from traditional ◦ Muted sex appeal & related to No one has fun shopping for ◦ Serves as umbrella theme in campaigns product works (perfume) insurance (series) ‣ Warmth: Kids, Animals, Smiling No ad saying our insurance is cool ‣ Underlying theme throughout ◦ Negative Affect Compare numbers, cost effective ◦ 4 Characteristics of a creative concept ‣ Fear & Guilt ‣ Use rational approach like comparative ‣ Focus: simple & single minded Little fear motivates elaboration on advertising Geiko uses a gecko as negative consequences ◦ Comparative Advertising spokesperson because Geiko Too much elaborating (fear), ‣ Competitors are directly or indirectly referred sounds like gecko defensiveness kicks in in the ad ‣ Uniqueness: no one has ever seen ◦ Brain starts rejecting ‣ Helps position effectively before ◦ Spokespeople ‣ Higher encoding & recall Ain’t no one using speaking ‣ Celebrities ‣ Attention-getting gecko before Grabs attention & likeable ‣ People could dislike tone ‣ Generativeness: extend to new related Useful when credible & consistent Practically shit talking competitor ideas with image ‣ Ad for competitor? ‣ Honesty: reveals some truth about Costs a shit ton You are saying their name, giving product ◦ Image Advertising them screen time ‣ Few concrete attributes, abstract image appeal Media Strategy When & how often Scheduling ◦ Frequency ‣ Wear-out ‣ Same thing being played on-repeat becomes miserable ◦ Media Timing Patterns ‣ Continuous (Steady) Schedule ‣ Purse (Burst) Schedule ‣ Flighting (Intermittent) Schedule Variable reinforce Event triggers randomly Checking email ◦ Not receiving correct email every check ◦ Keep checking everyday until boom, there’s email Where ◦ Selecting medium or media mix for maximum reach & minimum cost ◦ Contextual t ◦ Traditional ‣ TV, print, billboards, direct mail ◦ Non-Traditional ‣ Placements Street campaigns Unique locations ‣ Personal Documentaries Vans is known for skateboarding Vans sponsors skateboarding documentary Skateboarding interest goes up, Vans interest goes up ‣ Internet Advertising Common shit today Banner, video, pop-ups, sponsored content, etc. ‣ Product Props Incorporating real world objects into ad Pro-social product props ◦ Do this, feed kids ‣ Viral (Buzz) Marketing Do something that will go viral