FULL REVIEW (4)

Unrealized Surplus (Top)

Definition

When a product is actually very valuable, but customers don’t realize how valuable it is.

Customers don’t recognize the value → marketing problem.

customers don’t see it

Example Unrealized Surplus (Top)

Example

A phone battery lasts two days, but customers think it’s average because the brand doesn’t explain it well. People won’t pay more because they don’t see the extra value.

Consumer Surplus (Middle)

Definition

When customers think a product is worth more than what they pay for it.

Explanation
Customers feel they’re getting a “good deal.”

Customers are getting “too good of a deal” → money left on the table.

Example Consumer Surplus (Middle)

Example

You buy a concert ticket for $50 but would have paid $80. You feel like you got a great deal.

Customers love the deal

Producer Surplus (Bottom)

Definition

When the price of a product is much higher than what it costs the company to make it.

Big gap between price and cost → profit comes from efficiency.

Company controls costs

Example Producer Surplus (Bottom)

Example

A company sells a hoodie for $60, but it only costs $25 to make.

Price Discrimination

Definition

Charging different prices to different customers based on differences in willingness to pay.

Example Price Discrimination

Example:
Movie theaters charge lower prices for students and seniors and higher prices for adults.

Key Idea:
Different customers are willing to pay different amounts → charge different prices to capture more value.

Periodic (Random) Discounting

Definition

Temporary price reductions such as sales, coupons, or promotions to attract price-sensitive buyers.

Example Periodic (Random) Discounting

Example:
Retail stores offering flash sales, coupons, or holiday discounts.

Key Idea:
Temporary discounts attract price-sensitive customers without permanently lowering the price.

Product Line Pricing (Good–Better–Best)

Definition

Offering good–better–best versions so price-sensitive customers choose lower tiers while others trade up

Example Product Line Pricing (Good–Better–Best)

Example:
Apple offering iPhone SE, iPhone Pro, and iPhone Pro Max.

Key Idea:
Give options so price-sensitive customers pick lower tiers while less price-sensitive customers trade up.

Image Pricing

Definition

Using price as a signal of status or quality rather than affordability.

Example Image Pricing

Example:
Designer clothing priced high to signal luxury and status.

Key Idea:
High price itself communicates quality or prestige.

Premium Pricing

Definition

Setting intentionally high prices to reinforce exclusivity or perceived quality.

Example Premium Pricing

Example:
Luxury watches priced far above production cost.

Key Idea:
High prices reinforce exclusivity and attract customers who associate price with quality.

Pay-What-You-Want Pricing

Definition

Allowing customers to choose the price they pay, relying on trust, norms, and low price sensitivity

Example Pay-What-You-Want Pricing

Example:
A museum that lets visitors choose how much to pay for admission.

Key Idea:
Works only when customers are not very price-sensitive and social norms encourage fair payment.

Promotional Strategy

Basic Awareness

Top-of-Mind Awareness

Information

Image / Attitude

Behavior

Basic Awareness (Promotional Strategy)

Definition

Making sure consumers know the brand exists.

Explanation
You can’t be chosen if you’re not known.

Aided awareness (Basic Awareness)

Definition

Recognize the brand when prompted

Unaided awareness (Basic Awareness)

Definition

Recall the brand without prompts

Top-of-Mind Awareness (Promotional Strategy)

Definition
Being the first brand mentioned when a category comes to mind.

Explanation
First mention often becomes the default choice.

Example Top-of-Mind Awareness (Promotional Strategy)

Example:
Saying “Nike” first when asked about athletic shoes.

Information / Knowledge Objective (Promotional Strategy)

Definition
Increasing awareness of specific facts or features.

Explanation
Helps consumers evaluate and justify their choice.

Example Information / Knowledge Objective (Promotional Strategy)

Example:
Communicating “100% organic ingredients” or “24-hour battery life.”

Image / Attitude (Promotional Strategy)

Definition
Shaping how consumers feel and what they believe about the brand.

Explanation

Strong attitudes reduce price sensitivity and increase loyalty.

Example Image / Attitude (Promotional Strategy)

Example:
Positioning a brand as premium, trustworthy, or innovative.

Behavior (Promotional Strategy)

Definition
Driving action, not just awareness or liking.

Explanation
Behavior is where value is created.

Example Behavior (Promotional Strategy)

Example:
Increasing store visits, website traffic, or retail inquiries.

Reach

How many different people see the message.

Frequency

Definition

How many times the same person sees the message.

High reach

Definition

Many people see it a few times

High frequency

fewer people see it many times

Low-involvement products

• Require higher frequency

• Simple, repetitive messages work best

Example Low-involvement products

Examples

Snacks, soft drinks, household items

High-involvement products

Require lower frequency, more information-rich messages

Example High-involvement products

Examples:

Cars, insurance, electronics

Familiarity Effects (Mere Exposure Effect)

Definition
Repeated exposure to a brand increases liking, even without deep processing.

Explanation
For low-involvement products, seeing the brand often can be enough to influence choice.

Example Familiarity Effects (Mere Exposure Effect)

Example:
Choosing a familiar brand on the shelf simply because you’ve seen it many times.

When a company tells consumers “One try is all it takes”, they are emphasizing what sequence of behaviors?

b) Do-Learn (Feel)

Backward Vertical Integration

Definition
When a company takes control of activities earlier in the supply chain (toward suppliers).

Explanation
The firm starts making or controlling inputs it used to buy from others.

Example Backward Vertical Integration

Example:

• A restaurant starts growing its own produce

• Kellerman’s develops dance routines in-house instead of buying them

Key Idea
Used to gain control, reduce dependence, or fix quality problems.

Forward Vertical Integration

Definition
When a company takes control of activities later in the supply chain (toward customers).

Explanation
The firm moves closer to the end consumer.

Example Forward Vertical Integration

Example:

• A manufacturer opens its own retail stores

• A brand sells directly through its own website (DTC)

Key Idea
Used to gain control over pricing, branding, and customer experience.

Horizontal Integration

Definition
When a company acquires or merges with another company at the same level of the supply chain.

Explanation
The firm grows by combining with competitors, not suppliers or retailers.

Example Horizontal Integration

Example:

• One airline merging with another airline

• Two food brands in the same category combining

Key Idea

Used to increase market share, reduce competition, or gain scale.

Backward Vertical Integration

Toward suppliers

Forward Vertical Integration

Toward customers

Horizontal Integration =

same stage, same market