UMICH MKT 300 Exam #2 Study Guide

promotion

(aka: what we do to communication with our shareholders)

-means by which firms attempt to inform, persuade, and remind consumers about the products/brands they sell

-they represent the "voice" of the company and its brands

-it is HERE that we convert consumer propositions into taglines, slogans, ads, etc. ( it is sometimes to INFORM and other times to remind)

Who articulates the consumer proposition?

**normally this does not happen in house, they get firms to do it and you are the strategy maker

-manufactures often work with ad agencys account managers to develop a creative belief

-it is a document that includes background info on the brand, category, targeted segment(s), budget, goals

-ad agency creative team (eg writers, art directors) interprets creative brief and purposes a campaign (clients always have FULL POWER at an agency)

Sample Creative Brief Outline

-The problem

-the big picture

-the facts

-the objective

-benefits

common misconception

commericals = advertising = mkt communication

but in reality adveritsing and commericals are all under the umbrella of marketing communication

The Marketing communication mix

-advertising (print web, broadcast ads, product placemnt, billboards, point of purchase/in store displays)

-consumer/price promotions (coupons, rebates,games, gifts, samples = increasing short term sales)

-events, sponsorships, and experiences

-public relations (things like general will and donating pizza to people who were just in a natural disaster)

-direct and interactive marketing

-sales presentations, trade shows

Common Marketing Communications Objectives

-achieve basic awareness (increase recognition)

-achieve top of mind awareness (increase recall)

-achieve an information goal (increase awareness of a piece of info)

-achieve an image goal (increase % agreement with "brand X is contemporary"

-achieve a behavior goal (increase "retail inquiries)

Basic Awareness

you want your customers to recognize you - this is mainly for new brands

Top of Mind awareness

you want them to think of ur brand when it comes to mind to get something from their category

Measuring recognition and recall

-examples of measuring recognition:

which of the following headache medications have you heard of? (your company wants to be the first one that comes to mind when you ask someone this question)

-examples of measuring recall:

name the first five headach medication that you can think of:

Marketers interest in memory

-many ads not intended to encourage immediate purchase

-many consumer decisions are purely memory based (eg: picking a restaurant for dinner)

Information

the early ads in the 1900s were purely information based on where you should say shop for groceries for example

Image

Creating a story with a certain person or image that will allow people to remember this idea of the brand

-it is also this idea of image building, not to make you run to the mall right now

Behavior

goal for you to take immediate action

-tv ad with a number and a sale/where you can buy this porduct

Common to pursue multiple communication objectives

-example is the President Reagan campaign because it had lots of numerical data and there are also feelings like warmth and comfort

How entertaining should our ads be?

-in general, entertainment that precedes information about the brand is risky (people may forget who entertained them, people may turn the channel before the brand is revealed)

-better to get to the point and be the strong to the brand rather than to entertain (AT&T just talking to kids was enteretaining but didnt have much to do with the brand)

-better to integrate the brand throughout, even if some entertainment must be sacrificed

how much is advertising required?

Thomas Smith (1885), Successful Advertising

-the first time a man looks at an ad, he doesnt see it

-the fifth time, he reads the ad

-the eighth time, he says "Heres that confounded thing again"

-the ninth time, he wonders whether it amounts to anything

-the thirteenth time, he thinks it might be worth something

-the sixteenth time, he thinks he will buy it someday

-the twentienth time, he buys the article

Two common sale response models

A. Concave downward response curve

B. S Shapes response function

-diminishing returns to advertising because it loses its novelty/becomes annoying, wider audience

the truth effect

-REPETITION does help

-with repetition, consumers can come to believe the claim that is being made

Even when you tell someone something is false 3x and then you ask them again they might even call it true because they just remember hearing ab it and not what the actual anwser was.

the sleeper effect

-memory for content > memory for context

-as times goes by you cannot remember the context - we remeber the storys and not where we are told them

-spread of disinformation can occur even when the intital message is from a low credibility source (message might not have been immediatly persuasive, but this can change with time)

bad way to debunk (repeating false info)

flu vaccine - facts and myths

better way to debunk

would it kill you to say you're sorry?

another benefit of familiarity: greater likeability

the mere exposure effect - you will like something more when you are exposed to it

familiarity and likeability: a study of undecided voters a week before 2004 election

-candidates picked the person who was morpohed with thier own pictures because it looked familiar

-this leads to product placements and why those work

important to control the context in which your product is shown

for example when Sex and the City had peleton and Big dies from it

Turning to new ad media

drones, trump tower, toilet paper, drones, creating mystery

native advertising

-content that is camoflashed and the audience does not realize that it is an ad (carter and NYT)

ethical/legal issues in native advertising

-FTC: "Wehn ads resemble editorial content, an advertiser risks implying the information comes from a non biased source, which it does not"

-FTC standard is "clear and conscipicuous disclosure"

-native ads must be clearly labeled as such, and identified as an ad before the user clicks on the link

-FTC continually developing regulation policies

-FTC has since issued clearere guideance on when influencers need to make disclosures

-social media platforms such as instagram built UI functionality to better distinguish sponsered content

Consumer Promotions

a lot more coupons are distrobuted than redeemed

Benefits of unused coupons

people who receive cooupons spend more than ppl who dont however moste of the people that get these coupons doent even end up using them

caution needed when offering free gift with purchase

-common assumption: free gifts that do not reduce that value of the product in any way ( and do not raise its price) can only increase sales

-consumers asked how much they'd be willing to pay for: a package of pillsbury cake mix or a package of pillsbury cake mix PLUS a plate which actually reduced peoples willingness to pay

Strong tendency to average

ppl think a burger is less calories when it has an apple with it

some marketing communications takeaways

-mtg comm broader than commercials, print ads

-most ads are not intended to immediatly change behavior

-pure entertainment (without emphasiing the brand) is not pursuasive

-many benefits from familitaity

-free gifts with purchase can reduce purchase lieklihood

media planning

after deciding how to coney the clients consumer prop, the advertiser works with media buyers and the client to develop a media plan for the campaign

-involves selecting desired reach, frequency

-choosing among media types (TV, online, radio, etc.)

-choosing a specific vehicle within a media type (eg a primetime show vs the superbowl)

reach and frequency

reach: the percent of a relevant persons or households exposed to a particular media campaign at least once during a specified time period

-does exposed = actually watching the ad?

NO, exposed is just the "oppurtunity to see it"

-Usually, anywhere between 50% and 95% of people watching a program will actually see ads run during that program

frequency: (F; also known as average frequency): the average number of exposures among those reached by the ad campaign

Gross Rating Points (GRPS)

-GRPS = total number of exposures = R*F

-Different ways to get the same GRP

eg: 20% reach * frequency of 1 = 20 GRPS

eg: 10% reach * frequency of 2 = 20 GRPS

-maximum possible GRPs?

-cost is the main issue here

-its a metric to gage your media plan

GRPs

-commonly used to gauge the strength of an ad campaign

-generally considered to be the common "currency" of media planning

-can be used across a number of platforms (eg TV, radio, newspapers, magazines)

Reach vs. Frequency

TRADEOFF

-low reach high frequency vs high reach low frequency

how to interpret: number of exposures among different audiences

EXAMPLE:

-lets say there are 2 shows you'd like to advertise on

15% of households watch NCIS

10% of households watch This is US

5% watch both

reach is 20%

reach vs frequency: general recommendations

cant choose both

reach:

-generally most important when launching a new product, an extension of a well known brand or when going after a poorly defined target market

frequency:

-generally most important when there are strong competitors, a complex story to tell, or high consumer resistance

EMPHASIZE FREQUENCY

more complex than calculating GRPs: determining how ads interact to influence sales

-marketers commonly measure the performance of each of their marketing activities as if they work indepedently of one another - so called swim lane measurement

swim lane ignores those assisted effects

-this kind of multitasking was once viewed very negatively by content providers and advertisiers

-buy you do see spikes in web traffic and purchasing following some types of commercials

are super bowl ads effective?

-recent comparison of consumer packaged goods that did or did not advertise during super bowl

-a natural experiment in viewership based on cities affinity towards super bowl teams

-utilize the randomness in which teams get into the super bowl

-more households in Madison, WI would have watched SB 55 had the Packers beat the Buccaneers in playoffs (more demand where audience is from team playing)

-big boost in household spending on advertised goods in cities watching the super bowl

-ads are linked to an increase in sales when your close competitors are not advertising (if coke is already, pepsi maybe should not)

worth noting: there is disagreement about how certain we can be about the ROI for advertising

-2015 article in quarterly journal of economic

-"most advertisiers do not, and indeed some cannot, know the effectiveness of their advertising spend"

-basic intuition: ads are, by design, targeted - not randomly assigned. hard to know whether targeted consumers would have bought without seeing the ads

-will this lead to over or under estimates of ads ROI?

A famous marketing adage by John Wanamaker

"half the money i spend on advertising is wasted; the trouble is I dont know which half"

Upfronts in may

-broadcasters sell 75-90% of their advertising inventory for the upcoming year

-about $9 billion committed by advertisers at most recent upfront

-some is held back for the scatter market (just-in-time purchases)

-networks guarantee ads will reach a certain audience size

-provide audience deficiency units ("make-goods") if they fail to meet that target

Content you show alongside the ad matters

where the ad lives is just as important as who reaches it, and maybe even more

how is viewership measured?

-20,000 US homes are members of a nielsen panel (inveitations are sent at random)

-"peoplemeter" is attached to their TV(s)

-each member of the home as their own remote, which they use to indicate that they are watching

-panel members trained to turn off TV when not watching; lots of attention checks

why does out of home viewing present a challeneg

-places like gyms, bars, airports where you cant really regulate activity as much

-nielsens answer: the nielsen portable people meter

measuring streaming viewership

-nielsen faced criticism for falling behind on measuring streaming viewership during the pandemic

-2021: nielsen released "The Gauge" monitering internet router traffic in a subset of Nielsen households

-other households monitored through audio recognition, same technology used in quantifying out of home viewing

Nielsen wants to carefully measure viewers' attention, because there are many ways to avoid ads

-Zapping (change channels)

-Multi tasking (diverting attention to people, other media)

-Physical zapping (leaving room)

-Zipping (fast forward through recorded programs (eg DVR)

commerical breaks

-first slot within a commerical break is most valuable to advertisiers

-with few exceptions, this value is not typically priced

-ads typically shown in random order

-even when price is based on slot, price ignores the likelihood that viewers change channel based on previous ad

different ways to go second in a commercial break

you need to figure out the right ad to follow

factors that increase pr(zapping)

-actors older than 40

-convey negative messages

-depicts scenes of frustration

-annoying stimuli (eg intentionally bad dancing, high pitched rapid speech, using made up words in conversation)

-political

a non obvious benefit of ads

they can disrupt adaptation to hedonic experiences -which are good experiences like intermission in a play

-traditional advertising (TV, print, radio) was surpassed by digital advertising in 2019

-digital ad spending boomed during the pandemic, predicted to grow further

-digital advertsing dominated by a handful of firms (at least in the US)

media buying online

-two many options

-CPM: cost per mille/cost per 1000 impressions

-CPC: cost per click

media buying online

-most online ads are sold by auction

-entire process completes in under 200 miliseconds (1/5th of a second)

online advertising is quite accessible

-campaign to promote local asian restaurant

-targting on geographic location, interests, language settings

-split test to identify most receptive audiences

-took 30 minutes to set up, reached 4.4k indivisuals in 4 days for under $70

advertising technology is continually advancing

-the publishers attention to buy model will see it charge advertisers only for display ad impressions that generate over 5 seconds of "active" view time

-scrolling up and down a page, typing on a keyboard or using the mouse will all count as active reader behaviors

constantly changing guidelines on where, when ads are shown

-monetiziation

-youtube

-parter videos

-FTC required payed advertisement labels

-the ad thing on google

-sponsored search

many challenges for measuring ROI of ads

-hard to construct a full history of advertsiing exposures (online ads, direct communications, commericals, billboards etc)

-ads may exhibit complementarities

-customers may view ads online then purhcase through offline channels or vise verse

-all of the above mean MASSIVE data requirements

Different pricing strategies have to do with...

Consumer Surplus and Producer Surplus

what values is the consumer getting?

one option for increasing producer surplus: cut costs (UVC)

-reduce the amount of product without noticeably changing product appearance

Babybel did this by putting just a bit less cheese in their packs

a second option is simply increasing price (cutting into consumer surplus)

-netflix increased their subscription price and later had to come up with an explanation

the benefits of giving a reason

YOU need to have an explanation for raising prices

Insights from research on perceived price fairness

- Acceptable for a firm to raise prices when profits are threatened

- Also fine to maintain prices when costs decrease

- Unfair to exploit shifts in demand by raising prices

what helps to explain a variety of pricing patterns in the market

-prices are often maintained during disasters (when supplies are limited)

-price changes are more responsive to increases in costs than to increases in demand

-price changes are more responsive to cost increases than to cost decreases

cost differences are not always reflected in prices

Pirates of the Caribbean vs The Blair witch project had very different production costs

-$1 for either a burger or a coke but both of them cost different amounts

a related puzzle: uniform pricing in retail chains

-most grocery, drug and mass merch chains charge nearly unform prices across stories

-despite wide variation in consumer demographics and level of competition

-eg price of oreos in CA is not the same as in MIA

a third option is increasing WTP and then increasing price

you cant sell cheap sometimes it will damage the luxury spect of the brand

ideally (for firms), price =

max WTP for each person (a form of price discrimination_

price discrimintation

-selling a product/service at two or more prices that do not completely reflect a difference in coswts

-1st degree: seller charges each buyer their max willingness to pay (theoretical ideal for sellers)

-2nd degree: seller charges less to buyer who buy in bulk

-3rd degree: seller charges different amounts to different "classes" of buyers (often based on willngness or ability to pay)

an alternative framework: direct vs indirect price discrimination

-direct price discrimination: offering different prices to different classes to buyers (same as 3rd degree PD)

-indirect price discrimination: offer a menu of prices or options to all customers and let customers self select (broader than traditional definiton of 2nd degree PD)

-many pricing schemes driven by indriect price discrimations (coupons, price fluctuations, versioning/premium products)

requirements for a firm to price discrimiante

-some level of market/monopoly power (competitors dont undercut prices)

-must be able to identify/segment buyers with different demand elasticities

(adult vs students/ impatient vs impateint)

-must be able to maintain speration of buyers to avoid arbitrage

(adults cant buy a student ticket and airline passengers cant trade tickets)

estimating demand curves

quantitative analysis of past prices, quantity sold

surveys: how likely would you buy at $x, $y, $z

-strategic responding possible

price experiments ("A/B testing") in the field

-e.g., every 10th customer gets a 5% off coupon

("own") price elasticity/price elasticity of demand (PED)

% change in quantity demanded/% change in price

how does price level affect price elasticity?

-PED becomes more elastic as price increases

-because PED is a ratio of percentage changes

Implications for pricing

-when PED =0, demand is "perfectly inelastic"

-when -1

short vs long run elasticity

-easier to estimate short run PED

-but PED may differ or even change in the long run

some factors leading to less price sensitivity

- Consumers become attached to a well-marketed, well-differentiated brand

- When buyers are less aware of substitutes

- The purchase is small compared to buyer's income/budget

- Prestige products

other common pricing tactics we should know

- Pay what you want

- Loss leader pricing

- Competitive pricing

- Markup pricing

loss leader pricing (aka penetration pricing)

-offer a good ( called the loss leader) at or below cost to entice customers to come in and buy other, higher margin goods

-also see loss leader pricing for products that require constant part replacement

-here, consumers are enticed and "locked in" to a technological ecosystem rather than a physical store

competitive pricing

-setting prices based on competitors prices

-pricing aggresively relative to competitors can be used to steal share

perhaps the simplest pricing method: "markup" or "cost plus" pricing

-adding a markup to the products cost

-ignores current demand, perceived value

-costs to determine than demand

-despite non optimality, remains popular

the psychology of price

-how do we know how much we are willing to pay for something?

-when we're uncertain, and we're asked to consider a price, that price can act as a suggestion that infleunces our WTP

*even when the price that we're asked to consider is clearly randomly determiend

left digit bias

People tend to overweight the left-most digit(s) of a price, subconsciously rounding down.

different perspectives on how consumers make spending decisions

-traditional economics: what am i giving up later?

-behavioral economics: how much will this hurt?

-can encourage spending by reducing pain, without increasing objective value of the purchase

how do people differ in their tendency to experience a pain of paying

-tight-wards (high pain of paying)

-spendthrifts (low pain of paying)

channel

-a set of interdependent organizations involved in the process of making a product or service available to the final consumer

wholesalers (aka distributors)

- Help manufacturers reach many small business customers at low cost

- Hold inventories, reducing inventory costs and risks to retailers

- Achieve savings for retail clients by buying in discounted bulks, and breaking down into smaller units

intermediaries reduce discrepancy between the assortment of goods produced and demanded

-manufacters produce a large quantity of limited variety of goods

-consumers generally desire a small quantitiy of a wide variety of goods

channel coordination

each channel member makes decisions that affect other channel members' decisions/actions

-eg: if a retailer changes what products surround your product on the shelf, causing a decrease in your volume, you'll observe this & react

-all channel members can exercise some control over other members' decisions/actions

some common channel coordination problems

- double marginalization: successive markups by manufacturer, wholesaler, and retailer can lead to prices being too high

- retailer competition: competition among retailers can lead to prices being too low (from manufacteres perspective)

given coordination problems, theres often a temptation to vertically integrate. what are two types of vertical integration?

-forward vertical: incorporating distribution activities (going direct)

-backward vertical: taking greater internal control over the production process (producing apples from your own apple trees)

horizontal integration

the merging of companies that make similar products who perform similar functions

eg: microsoft buying out smaller software companies

starbucks buys a 600 acre coffee farm in Costa rica, what type of vertical integration is this?

backward vertical inegration

an example of how degree of backward integration can be a point of differentiation

making dough in house for pizzas

three important channel characteristics

- Length (number of intermediaries)

- Breadth (ease of accessing product / # of outlets)

- Depth (degree of vertical integration)

an example of going direct

HBONOW

examples of why more breadth is not always better

the appeal lies in being more exclusive for most brands

length and breadth

Certain combinations are more common than others

•e.g., Difficult to be direct and mass

(We can buy Coke everywhere, but usually not directly from Coca-Cola)

•Other combinations (direct and exclusive; indirect and mass) are more common

an examples of understanding the infleunce on consumer environment and retail

the Wynn is a relaxed place to people will place more bets

a challenge facing retailers: how to properly allocate shelf space

-typical large supermarket carries around 55,000 different items or SKUs

-each new product adopted by retailer is accompanied by unvertainty regarding where to display and optimal amount of shelf space to allocate

-improper location or under allocation of space may ruin a product before it achieves full sales potential

trade promotions

-manufacteres spend a great deal on trade promotions to motivate channel partners (eg retailers) to carry brand, provide good shelf space

-often come in the form of "slotting fees"

-common belief: unseen is unsold