MGMT 324 Purdue Final Exam questions with complete verified solutions already graded A+

•Starbucks - 2013

•Selectively raised its prices on a number of products (not their highest margin items) in a few regions around the US

•Tall drinks, as well as a few others, were increased by almost 10 cents in the Sunbelt and Northeast

•Starbucks communicated the increase as "Approximately 1% across all beverages", "Less than a third will be affected", "Offset rising labor and non-coffee commodity costs"

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•Result - Net income rose by 25% year over year

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•What pricing strategy (or strategies) did they use?

•What psychology of pricing elements are present?

Framing pricing

Your friend is running a small retail clothing store in Lafayette and is asking for your help to draw in more customers. You suggest that your friend should use sales promotions. Choose two types of sales promotions that would be beneficial to your friend's store and defend your choices. Also state any potential drawbacks that might occur based upon your choices.

Sales

Your firm is deciding whether or not to purchase a new manufacturing plant to increase production. Due to the competitive nature of the market, your manager would like to pay off the cost of the plant within one month of purchase. The assumed cost of purchasing the plant is $10,000. Operating in this new facility allows your firm to be more efficient in manufacturing, so the marginal cost per unit has decreased from $5 per unit to $2 per unit. The demand for your product in this market can be expressed by the following formula:

Where Q is the quantity sold during month t and in 1000s of units. P is the price you are going to charge in month t. A is the advertising spend during month t in 100's of dollars.

To enhance demand, you plan on advertising $2000 during the month. What is the break even price (rounded to the nearest cents), units sold (to the nearest whole unit), and profits?

N/A

A sales promotion given by a manufacturer to a retailer's sales personnel to give additional incentive to sell a product.

N/A

The concept where advertising, sales promotion, public relations, and personal selling are all aligned with one common message and goal. An example of this is the Tylenol marketing campaign after deaths were reported from poisoning.

Unified marketing strategy

(Term Question) This model is used to assess the probability of a target market shopping at a particular location based on its size and distance to the market, relative to the store size and distance to other options.

This is a low cost promotional strategy that leverages the novelty of the approach and targeting customers during their daily activity. Examples of this practice are "sticker bombing" and the Adobe Photoshop Bus Station.

Geurilla advertising

This is a commonly used metric when deciding while media choice a firm should use. It is the ratio of the promotion cost divided by the number of people in the target audience reached by the promotion

CPM or cost per thousand

Examples of this contractual vertical marketing system can be found in the fast-food industry or auto-dealers.

Franchising

Yesterday the coffee vending machine in Rawls Hall was replaced with a popcorn machine. This effectively granted Koffee for Kids (KforK) a monopoly on coffee at the Krannert School. You know the following information:

Consumers can be divided into two segments, A and B.

Segment A has 10 consumers while segment B has 30 consumers

Consumers in each segment all behave exactly same.

Consumers buy either 0 or 1 cup of coffee.

Marginal cost for low quality coffee is $0.1 per cup and for high quality coffee is $0.3 per cup.

The benefit each segment derives from low or high quality coffee is as follows:

Answer the following questions given this information:

1) What is the maximum profit and associated price for only offering Low Quality Coffee?

2) What is the maximum profit and associated price for only offering High Quality Coffee?

3) What is the maximum profit and associated prices for offering both Low and High Quality Coffee?

N/A

Your firm is considering opening up a new store within a market of 30,000 people. Below, you have details on each store (option), the size of each location (size in square feet), and how far away the store is from the center of the city (distance in miles). Given the information below, answer the following questions:

1) Which store should you pick?

2) What is the market share of the optimal choice?

2) What is the market share of option B?

N/A

What is the term for when Billie sells a razor handle but it only works with their blades?

Tying

North Face lets customers choose the color and down fill level of their coat. What is the term for this?

Mass customization

Kroger's uses the data they collect from customers to decide which popular items to put on sale in the weekly ad. What is the term for this?

Crowdsourcing

Two examples of this pricing strategy are Cards Against Humanity and Panera Cafe.

Pay What you Want

Starbucks employed this tactic when pricing their Tall drinks to make their larger drink sizes seem like a better deal.

Reference pricing

The characteristics of a product or service that a firm must highlight in order to be considered by customers in the market.

Points of parity

Comparison pricing is a method commonly employed by retailers. Describe one advantage and one disadvantage of this psychology of pricing topic. Provide an example of comparison pricing.

N/A

What is the difference between unbranding and private label?

Unbranding is a brand unto itself. Private label is a store brand put on many different products.

How does the consumer surplus framework influence pricing decisions?

The consumer surplus determines how much customers are willing to pay for your product

What is a monopoly?

the exclusive possession or control of the supply or trade in a commodity or service.

What is a duopoly?

a market with two firms

What is monopolistic competition?

many companies selling similar but not identical products

What is perfect competition?

a market structure in which a large number of firms all produce the same product

What is price elasticity?

a measure of the sensitivity of demand to changes in price

How do you compute price elasticity?

N/A

What does price elasticity tell you?

Whether goods are compliments or substitutes

What information can you get from a clout/vulnerability matrix?

How one company is affected by its competitors

What are the six strategies to defend against competition?

Position, flank, preemptive, counteroffensive, mobile, contraction

What is an example of the position strategy?

N/A

What is an example of the flank strategy?

N/A

What is an example of the preemptive strategy?

N/A

What is an example of the counteroffensive strategy?

N/A

What is an example of the mobile strategy?

N/A

What is an example of the contraction strategy?

N/A

Give an example of how user generated content can be used to build a brand.

Burberry Art of the Trench

What is the difference between a product and a brand?

A product is anything that satisfies a need or want. A brand is a product with a unique identity.

How does a brand add value?

It increases consumer benefit beyond just the benefit of the product.

What are the different benefits of a product?

N/A

What is the entry game?

N/A

Name the four entry deterring strategies, how they are used, and how they deter entry.

Predatory pricing, slotting allowances, limit pricing, doomsday device

What is predatory pricing?

selling a product below cost for a short period of time to drive competitors out of the market

What is product proliferation?

When one company produces a large number of different types of products in the same category

What is the term for the strategy that Aveeno is deploying when they sell a variety of products in the body wash category?

Product proliferation

What is a slotting allowance?

A deterrence strategy designed to raise fixed costs by requiring the manufacturer to pay the retailer a fee for product placement

What is limit pricing?

reducing the price of a good to just above cost to deter the entry of new firms into the market.

Why does limit pricing deter firms from entering a market?

It makes profit seem lower than actual

What is a network effect?

How much you gain from a product depends on how many other people use it

Give an example of a product that benefits from network effects.

The telephone.

What is a doomsday device?

An action by a company that makes the market unattractive to enter due to the competition

What is one example of a doomsday device?

A company building lots of extra warehouses that aren't currently needed in case of competition (excess capacity investment)

What are the 4 P's?

Product, Price, Promotion, Place

What does VRIO stand for?

Value, Rarity, Imitability, Organization

What are the 4 C's?

customer, cost, convenience, communication

What does the product decision focus on?

How to increase the "benefit" component of consumer surplus

What is consumer surplus?

It is the difference between total willingness to pay and the total amount actually paid.

What is the formula for consumer surplus?

benefit-price-risk-purchasing costs

What does AIDA stand for?

Awareness, Interest, Desire, Action

What is an example of the "A" in AIDA?

A billboard advertising Tito's vodka

What is an example of the "I" in AIDA?

A customer thinks the Tito's ad is funny and makes a mental note to research their vodka later

What is an example of the "D" in AIDA?

A customer sees a celebrity drinking Tito's and decides that they want to get some

What is an example of the last A in AIDA?

A customer buys Tito's because there is a 10% off sale

if cross price elasticity is positive

goods are substitutes

if cross price elasticity is negative

goods are complements

An indifference curve shows

All combinations of two products from which the consumer derives a specific level of total utility

According to the Bass DIffusion Model, what are the two sources of sales?

Innovators and Imitators

What is the purpose of the bass diffusion model?

To predict adoption and diffusion of a durable good

What is the bass diffusion model?

total sales = sales to innovators + sales to imitators

Sales to innovators =

(total market-previous buyers) X % of innovators

Sales to imitators =

(total market-previous buyers) X % of imitators X (previous buyers/total market)

If P > Q in Bass diffusion model, then:

sales start high and decline each period

If P

Sales resemble an umbrella

Bass diffusion model: Given that the market has 100M people, the parameter of innovation is .1 and the parameter of imitation is .5, how many units are sold in period 1? Period 2?

𝑄1 = 100 ∗ .1 + 0 100 ∗ .5 ∗ 100 = 10

𝑄2 = 100 − 10 ∗ .1 + 10 100 ∗ .5 ∗ 100 − 10 = 13.5

Assume there are two markets, with two different levels of innovation and imitation Market 1: 100 M people, p=.05, q=.8 Market 2: 100 M people, p=.1, q=.1 Which market will you sell the most in periods 1 and 2 combined? What is the difference in units sold over the two periods?

What are the four stages of the product life cycle?

Intro, growth, maturity, decline

Give an example of a product using the stages of the product life cycle.

Cell phone: Introduction (car phone), growth (flip phone), maturity (iphone), decline (Iphone SE)

Give an example of the product life cycle.

Home entertainment: Intro (VHS tape/betamax), Growth (DVD), maturity (Netflix), decline (N/A)

Why are private label products a threat?

They are often the same quality or better quality than name brands at lower prices

Why do new products fail?

No discernible benefits

Poor match between features and customer desires

Overestimation of market size

Incorrect positioning

Price too high or too low

Inadequate distribution

Poor promotion

Inferior product

Sales per period =

Points of parity

Similarities that are necessary to compete

What is an example of a point of parity?

All hairbrushes should have bristles

Points of difference

characteristics of a product that make it superior to competitive substitutes

What are the components of desirability criteria?

Relevance, distinct and superior, believable and credible

What are the deliverability criteria?

Feasible, profitable, sustainable

Benefit segmentation

the process of grouping customers into market segments according to the benefits they seek from the product

How does benefit segmentation relate to product positioning?

It helps you to determine which benefit segments you are competing on

What is the term for when T-Mobile requires you to buy DirectTV with your cellular data plan?

Bundling

How does tying increase firm profitability?

You can't use your product without buying additional products

How does bundling increase profitability?

People who might buy one or the other will now buy both products

What are the four types of advertising?

Informative, Persuasive, Comparison, Reminder

What are the objectives of advertising?

Specific communication tasks, Specific target audiences, during a specific period of time

What is prankvertising?

When a company does staged stunts for public and media attention

What framework is used to analyze the mission of an advertisement?

AIDA

What is the difference between a spokesperson and product placement?

Spokesperson is paid to represent the company. Product placement is a one or more time placement of a product.

Comparison pricing is a method commonly employed by retailers. Describe one advantage and one disadvantage of this psychology of pricing topic. Provide an example of comparison pricing.

Describe what a brand is and how it adds value to the firm's products or services. In addition, pick two ways that a firm can build their brand using topics we have discussed in class with an example of each.

A Brand is a promise of quality. It is an artifact sits in the minds of consumers and informs them how the product or service "should be viewed." As a result, strong brands can enhance the value of a product as an additional attribute

•This model is used to assess the probability of a target market shopping at a particular location based on its size and distance to the market, relative to the store size and distance to other options.

Gravity model

• This is a low cost promotional strategy that leverages the novelty of the approach and targeting customers during their daily activity. Examples of this practice are "sticker bombing" and the Adobe Photoshop Bus Station.

Geurrilla marketing

• Examples of this contractual vertical marketing system can be found in the fast-food industry or auto-dealers.

Franchising