Chapman University Argyros School of Business and Economics Exam 2 Review PDF

Exam 2 Review Instructor: Mohammad Zia Exam 2: Material: Exam 2 would include material from Exam 1. However, most questions would be from material covered after Exam 1. Class Lectures (lecture slides) Framework for Marketing Strategy (Robert Dolan, HBS course pack):...

Exam 2 Review Instructor: Mohammad Zia Exam 2: Material: Exam 2 would include material from Exam 1. However, most questions would be from material covered after Exam 1. Class Lectures (lecture slides) Framework for Marketing Strategy (Robert Dolan, HBS course pack): Page 1-38, EXCEPT sub-sections “Place Decisions” and “Promotion Decisions” Pricing practice assignment. Format: Different types of questions (about 40 questions) Multiple Choice (about 20 questions) fill in the blank (about 5 questions) True/False (about 10 questions) Essay/calculation questions (about 5 questions) In class, on Canvas, about 60 minutes Bring your laptop You should take it in class Closed-book, closed-notes, closed-Internet, closed-mobile Calculator is Ok, Scratch paper is Ok We use Zoom with Screensharing for proctoring purpose.  Segmentation Market Segment: A group of customers who share a similar set of needs and wants, and respond similarly to marketing mix Segmentation: the process of dividing a total market into market segments Different Bases (Methods) for Segmentation: Geographic segmentation Demographic segmentation Psychographic segmentation Behavioral segmentation Sample Question What are four different “bases” of segmentation? Bring at least two examples for each Geographic Segmentation Geographical units Nations, states, regions, Cities, neighborhoods, Zip Coeds Easy to use to reach to potential customers Localized (Regional) Marketing Better addresses needs Might reduce economy of scale Overall brand image dilution Preferences of all customers in an area may not be the same. Use geographic segmentation in conjunction with others. Sample Question Explain one pros and one cons of “Local Marketing”  Demographic Segmentation Easy to Measure , Correlated with Needs/Wants Age and life-cycle Our wants and preferences change with age Age and life cycle can be tricky variables Life stage A person’s major concern (e.g., Wedding, buying a home, divorce) Sample Question Demographic segmentation is useful because it is often highly correlates with customers’ needs and wants (TRUE)  Demographic Segmentation Gender Men and women have different attitudes & purchase preferences Gender differences shrinking: Pampers Income Many marketers are going after lower income groups. Tesla, BMW 3 series Other marketers found success in premium- priced extensions. Middle-market U.S. consumers are migrating toward both discount and premium products. Sample Question The gender differences in shopping behavior has increased in the last decade (False).  Demographic Segmentation: Generations Gen Z (1995- ) most racially and ethnically diverse majority live in metropolitan areas and western states. Millennials (Gen Y): 1977-1994 Echo Boomers, “digital natives” In debt, living with parents Turned off by overt branding street teams, events and student ambassadors Gen X: 1964-1978 Pragmatic and individualistic. Family oriented Baby Boomers: 1946-1964 Controlling three-quarters of the country’s wealth But marketers often overlook them health club, home gym, skin ageing Supplements, organic food, travel Sample Question Gen X controls 75% of the country’s wealth (False)  Demographic Segmentation: Race and Culture Multicultural marketing is an approach recognizing that different ethnic and cultural segments have sufficiently different needs and wants Hispanic Americans $1.5 trillion by 2015 Youthful – median age is 27 California, Texas and Florida Telemundo, Univision, “Spanglish” approach Asian Americans China, Philippines, India, Vietnam, Korea, and Japan Differences in food and language High median incomes “Invisible market” More brand conscious, least loyal African Americans $1.1 trillion by 2015 The most fashion-conscious of all groups Strongly motivated by quality & selection LGBTQ 5-10% of population, $700 billion market Sample Question What is Multicultural marketing? Why is it important in the modern marketing approach?  Behavioral Segmentation Variables Marketers divide market into groups on the basis of their search for, knowledge of, attitude toward, use of, or response to a product Needs and Benefits Toothpaste: whitening, taste, price, sensitive Cars: commute, outdoor, social status, speed, space Detergent: Power, scent, whitening, color expert Gym: get healthy, lose weight, socialize, … Usage Rate or Frequency Heavy, moderate, light Quantity discounts, annual passes Different purchase/subscription plans Sample Question A beverage company has segmented the market into heavy users, moderate users, and light users. This is company is using [demographic/geographic/behavioral/psychographic] segmentation variables.  Behavioral Segmentation Variables User Status Ex-users, potential users, first-time users, loyal customer Banks, Credit cards, Insurances, Cable, Internet, Mobile carriers, Utilities Occasions or Timing Holidays, weekends, Anniversary, Birthday, Valentines Hallmark cards, Jewelry stores, Home appliances Air travel: business, vacation Shopping Channels Online, store, catalogue Decision Roles Initiator, Influencer, Decider, Buyer, User Targeting Targeting is the process of evaluating segments and selecting one or more segments as the focus of certain marketing mix offerings. To select target segments, evaluate: Overall attractiveness of the segment Size, growth, profitability, economy of scale, and low risk Company objectives and resources for serving that segment Core competency, skills Sample Question Explain three different factors that you need to consider before targeting a specific market segment. Is the size of that segment large enough? Is it growing fast? Do I have the skills and competencies to serve that segment? How costly is it to serve that segment? Are other firms also targeting that segment?  Porter’s Five Forces Threat of Rivalry A segment is unattractive if it already contains numerous, strong, or aggressive competitors Threat of New Entrants The most attractive segment is one in which entry barriers are high and exit barriers are low. Threat of Substitutes A segment is unattractive when there are actual or potential substitutes for the product. Threat of Buyer Bargaining Power A segment is unattractive if buyers possess strong or growing bargaining power. Threat of Supplier Bargaining Power A segment is unattractive if the company’s suppliers are able to raise prices or reduce quantity supplied. Sample Question A segment is unattractive if the company’s suppliers are able to raise prices or reduce quantity supplied (TRUE) Undifferentiated (Mass Marketing) A firm attempts to serve all customer groups in the market with one offer. Firm ignores customer differences Mass distribution and Mass communication Works when all customers have roughly same preferences Narrow product line can lead to low cost/price (economy of scale) Increasingly expensive to reach to mass audience Sample Question All of the following are true about Undifferentiated (Mass Marketing) EXCEPT  A firm attempts to serve all customer groups in the market with one offer.  Firm takes into account customer differences  Mass distribution and Mass communication become critical  Works when all customers have roughly same preferences  Narrow product line can lead to low cost/price (economy of scale)  In today’s cluttered markets, it is increasingly expensive to reach to mass audience Differentiated Targeting Firm sells different products to different segments Tide: All purpose family detergent Cheer: is the “color expert” Dreft “Helps remove tough baby stains.” Gain: with an amazing long lasting scent Era: is tough on greasy stains Middle-aged Women Youthful Hipsters Aromatherapy Enthusiast Eco-conscious/ Natural Ingredients Sample Question Explain Differentiated Targeting with an example  Product Strategy Instructor: Mohammad Zia  Product Levels 1. Core benefit: the benefit the customer is really buying. 2. Basic Product: simplest product providing core benefit. 3. Expected Product: Basic product with conditions buyers normally expect. 4. Augmented Product: attributes exceeding customer expectations In developed countries, brand positioning and competition take place at this level. 5. Potential Product: all possible transformations the product might undergo in the future. Sample Question Most of the competition in the developed countries happens at the Potential/Augmented/Basic product level Consumer-Product Classification: Durability and Tangibility Nondurable goods Last one or a few uses They are purchased frequently Marketing strategy: Make them available in many locations Charge a small markup Advertise to induce trial and build preference. Durable goods Survive many uses Require more personal selling and service Command a higher margin Require more seller guarantees. Services Are intangible, inseparable, variable, and perishable products Require more quality control, supplier credibility, and adaptability. Sample Question Explain two differences between marketing strategy for Durable goods versus Non-durable goods. Pricing? Promotional activities? Distribution? What does it mean when we say, services are “inseparable”? Explain with an example.  Consumer-Product Classification: Shopping Habits Convenience Purchased frequently, immediately, and with minimal effort. Impulse goods: purchased without any planning or search effort: magazines Emergency goods : purchased when a need is urgent: umbrellas in rainy days Shopping Consumer compare suitability, quality, price, and style Specialty Have unique characteristics or brand identification Buyers are willing to make a special purchasing effort. Unsought Consumer does not know about or normally think of buying Smoke detectors, life insurance, cemetery plots, gravestones Sample Question Specialty/Shopping/Unsought goods have unique characteristics or brand identification Product Item, Line, and Mix Product mix (product assortment): the set of all products and items a particular seller offers for sale. Product Line: a group of closely related products Width (or Breadth): Number of product lines the company carries Depth (or length): Number of product items in a product line Consistency: how closely related the various product lines are Sample Question Product mix/line/item/breadth is the set of all products and items a particular seller offers for sale. Product Life Cycle (PLC): Introduction, Growth, Maturity, and Decline Sample Question Explain the main marketing objective that a firm should follow in each stages of its product life cycle. How do the promotion and distribution strategies of a firm evolve during different stages of PLC? In the introduction stage of product, the main objective is to gain awareness. (TRUE) Branding Branding is a marketing decision in which an organization uses a name, phrase, design, symbols, or combination of these to identify its products and distinguish them from those of competitors. Brand equity: marketing and financial value of a brand in a market Benefits of Branding: For Customers: Information, consistent quality, status, reduced risk, easier purchase decision For Company: enhance loyalty, charge premium price, assist in positioning, retailer support Sample Question Identify and explain two benefits that branding can bring for firms and customers. Branding Strategies Umbrella Branding (or family branding, or Branded House): Marketing several different products under the same brand name Campbell Soup, Virgin, Nike, Canon, Sony, Samsung, Apple Individual Branding (or House of Brands): Using different brand names for different products. Trix, Cheerios, Lucky Charms, Nature Valley, Yoplait, Mountain High,… Tide, Bounty, Head & Shoulder, Gain, Gillette, … Lipton, Dove, Axe, Magnum, Lux,… Sub-Branding: combine two or more of the corporate brand, family brand, or individual brand names Kellogg's Corn Flakes, Kellogg’s Raisin Bran, Kellogg’s Rice Krispies Microsoft Office, Windows, Excel,… Toyota Camry, Yaris, Corolla, Avalon,… Marriot Residence Inn, Courtyard, Fairfield Inn Co-Branding: Two or more well-known brands are combined into a joint product or marketed together in some fashion Citi AAdvantage Visa, Apple Watch Nike/Hermes, Taco Bell & Doritos, Starbucks & Spotify Brand Extensions: Using existing brand to introduce a new product Apple Computers  Apple iPod Apple iPhone  Apple iPad  Apple Music  Apple TV  Apple Credit Card Dove soap  Dove Deodorant  Dove body lotion  … Virgin Records Mobile  Media Banking Cars …. Sample Question Umbrella Branding/ Individual Branding/ Sub-Branding/ Co- Branding means combining two or more of the corporate brand, family brand, or individual brand names as in Marriot Residence Inn. Developing Pricing Strategies and Programs (Chapter 16) Instructor: Mohammad Zia How Much to Charge for Your Product? Price is the place where all other business decisions come together: Customers must be willing to pay it It must generate enough profit for the company One of the easiest to change in marketing mix elements One of the most difficult and important decisions Small changes in price  big effects on sales and profit Consumer Pricing Psychology Reference prices: Fair Price, Typical Price, Last Price Paid, Rival Price Price-quality inferences Price endings Pricing Objectives: Maximum Profit, Maximum Market Share, Survival, Non-profit firms Sample Questions Price is the most difficult element to change among all other marketing mix elements (FALSE) What is the difference between psychological effects of odd versus even pricing? Price Sensitivity and Price Elasticity of Demand Factors that Reduce Price Sensitivity: The product is more distinctive Buyers are less aware of substitutes Buyers cannot easily compare the quality of substitutes. The expenditure is a smaller part of the buyer’s total income The expenditure is small compared to the total cost of the end product Part of the cost is borne by another party. The product is assumed to have more quality, prestige, or exclusiveness. 𝑄𝑄2 − 𝑄𝑄1 % 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑖𝑖𝑖𝑖 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑄𝑄1 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝐸𝐸 = = % 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑖𝑖𝑖𝑖 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑃𝑃2 − 𝑃𝑃1 𝑃𝑃1 Sample Question All of the following factors reduce consumers price sensitivity EXCEPT, The product is more distinctive Buyers are less aware of substitutes Buyers can easily compare the quality of substitutes. The expenditure is a smaller part of the buyer’s total income The expenditure is small compared to the total cost of the end product Part of the cost is borne by another party. The product is assumed to have more quality, prestige, or exclusiveness.  Calculating Costs Fixed Costs (overheads): Rent, heat, interests, manager salaries, marketing expenses Variable Costs: Wage (labor), Raw material, component Total Costs = Fixed Cost+ Variable Cost Average Cost = Total Costs / No. Units Produced Markup Pricing: Add a standard markup to the product’s Average Cost Markups are usually higher for: seasonal items, specialty items, slow-moving items, high storage and handling costs, demand-inelastic items. Drawbacks: It ignores demand, perceived value and competition Sample Questions Identify and explain 3 drawbacks of markup pricing. It does not take into account changes in demand due to changes in price. It does not take into account how much customers are willing to pay for product. It ignores the competition Markups are usually higher for seasonal and specialty items (TRUE) Profit and Break-Even Analysis Profit = Total Revenue (TR) – Total Cost (TC) TR = Price x Quantity TC = Fixed Cost (FC) + Unit Variable Cost (UVC) x Quantity FC + Profit Quantity = Price − UVC FC + Profit Price = UVC + Quantity At Break-Even : Profit = 0 FC Break-Even Quantity (BEQ) = Price − UVC FC Break-Even Price (BEP) = UVC + Quantity Sample Questions Solve ALL of Questions in Pricing Practice Worksheet Price 99 98 97 96 95 94 93 92 91 90 89 0 5 10 15 20 Time Sample Questions Penetration Pricing can result in price wars and negative product image (TRUE) Starting at the highest possible price in the introduction stage of a new product and lowering the price later is called …………………….Pricing Skimming Pricing Identify and explain 2 advantages and 2 disadvantages of price skimming over penetration pricing.  Pricing Firm’s Product Mix/Line Bait Pricing: Pricing an item in the product Captive Pricing: Pricing the basic line low with the intention of selling a product in a product line low, while higher-price item in the line. pricing related item higher Bait-and-Switch Advertising is ILLIGAL if the Bait item is SOLD OUT ! If the Bait is in stock, Bait Pricing is fine Loss Leader (or Price Leader) Pricing: Setting very low prices (close to or below costs) for some products to attract customers into retail stores in hopes they will buy other products as well. Sample Question ……………………………is a method of pricing that sets very low prices (close to or below costs) for some products to attract customers into retail stores in hopes they will buy other higher margin products as well. Loss Leader (or Price Leader) Pricing:  Price Bundling Pure Component: Only the Components Pure Bundling: Only the Bundle Mixed Bundling: Both Bundle and its Components  Get customers to buy more  Unique value from the product bundle  Get customers to buy higher margin items  Reduce the time for transactions and order processing Every Day Low Pricing Vs. Hi-Lo Pricing EDLP: a constant low price (not too low) Walmart, Target, P&G Lower fixed costs Require less advertising for prices Less labor to execute price changes Fewer stocking and supply-chain problems Simpler pricing and inventory management More predictable consumer demand Good if there is a large Expected-price segment: Customers who do not like comparison shopping Customer who want “peace of mind” of seeing the price they expect High-Low pricing: frequent short-term sales Lower variable costs Move more products by offering discounts Useful in markets for perishable goods Useful if there is a large Cherry-pickers segment Customers who are willing to shop around Customers who love Sales prices Customers who enjoy thrill of hunting the best deal Sample Question Compared to EDLP, Hi-Lo pricing results in more predictable consumer demand (FALSE) Sample Questions from Framework for Marketing Strategy (Robert Dolan, HBS course pack) Sections 2.1 and 2.2 (Marketing Strategy and 5C) According to Peter Drucker and Theodor Levit, what is the purpose of business? What are the six elements of a customer-centric marketing process? What is the "Aspiration Decision"? how about the "Action Plan"? What is the Peloton Difference? How is Peloton differentiating its offering from its competitors such as SoulCycle? Briefly discuss the 5C's analysis for Peloton. In customer analysis, what does the Decision Making Unit (DMU) mean? What is core competency? What are its features? What do we mean by "context"? What are its elements? Sample Questions from Framework for Marketing Strategy (Robert Dolan, HBS course pack) Section 2.3 (STP) 1- Who was Coke Zero's main target market? 2- To whom the Chase Saphire credit card was targeted? 3- What are some of the considerations when choosing the target market? 4- What are the different ways that we can segment the market? 5- What are the elements of an effective positioning statement? 6- Should firms sometimes deliberately exclude some customers from the markets served? How did Dell do that? Sample Questions from Framework for Marketing Strategy (Robert Dolan, HBS course pack) Section 2.4 (Product Decisions) Product Decisions: 1- Identify ten benefits of Nest over and beyond traditional thermostats. 2- For a Credit Card company such as American Express, what are the Core, Basic, and Augmented levels of products? 3- What are the three main product decisions that a firm faces? 4- With examples, define product mix breadth and product line depth. 5- What are Chevrolet's different product lines and positioning strategies? 6- What does trading up and trading down mean? 7- What are different ways that we can test products to get customer feedback? Sample Questions from Framework for Marketing Strategy (Robert Dolan, HBS course pack) Section 2.4 (Pricing Decisions) Pricing Decisions: 1- Name different pricing mechanisms with examples. 2- What is value-based pricing? 3- What are uniform pricing and price customization? 4- Identify four different ways that prices can be customized. 5- What is price sensitivity? What factors impact price sensitivity?