MKTG 300 - Final Exam preparation

COST-BASED pricing?

• The practice of setting prices by estimating the average cost of producing and selling the product plus a profit margin.

Cost-Based pricing acronym?

• Product

• Cost

• Price

• Value

• Customer

Drawbacks of cost-based pricing?

• In order for companies to calculate costs, they must make an assumption about how many units they will sell, and this number is often unknown and driven by the price.

What if the cost-based price is?

• Different from what customers are willing to pay?

• Not competitive?

Why competitor-based pricing?

• Easy to implement

• When the competitor’s price is well accepted in the market

• When customers compare prices among choice

Drawbacks of competitor-based pricing?

• Matching prices could mean copying competitors’ strategy and positioning.

• Lowering below competitor’s price could lead to price war.

Lowering below competitor’s price could lead to price war?

• Price war

You have 3 choices when competitor cut prices?

• Focused price response

• Non–price response

• Don’t respond

Decide how to react considering the two things?

• The magnitude of our sale loss

• The strength of the competitor

The loss will be severe if you would lose?

• Exclusive and loyal customers

• Customers who are easy to serve

• Customers who pay full prices

• Those who buy a lot from you

• Reference accounts

• Innovative accounts

• High growth potential account

When we estimate that:
(1) our revenue loss will be severe

(2) competitor is weaker than we are

We should do?

•  “Focused price response”

Focused price response?

• Proactively discount to customers at risk.

• Discount vulnerable products and non-core markets.

When we estimate that:
(1) our revenue loss will be severe

(2) competitor is stronger than we are

What should we do?

• “Non-price responses”

Non-price responses?

• Improve differentiation.

• Strengthen relationship with market collaborators.

• Communicate the risks of switching to a low-price and low-quality competitor.

• Cut costs for long-term survival.

• Switch business model from selling to service.

CUSTOMER VALUE-BASED pricing?

• The practice of setting prices by estimating the willingness to pay for of our customers.

CUSTOMER VALUE-BASED pricing flowchart?

• Customer

• Value

• Product

• Price

• Cost

Sales oriented goal?

• Set the price to maximize sales revenue.

Profit oriented goal?

• Set the price to maximize gross margin.

Market share oriented goal?

• In general, set the price to maximize unit sales.

When the customers are price sensitive?

• Price elasticity is high.

In general, there is a short-term illusion that?

• Raising price increases total sales revenue.

When the customers are price insensitive?

• Price elasticity is low.

Without distribution channel, any business would be?

• Strictly local.

If one channel member is dominant, it can?

• Exert power over the others.

Distribution channels - Product flow?

• Manufacturer → Distribution Channel → End customer

Distribution channels - Money flow?

• End customer → Distribution Channel → Manufacturer

Distribution channels - Information flow?

• Manufacturer = Distribution Channel = End customer

Is Amazon a retailer?

• Amazon is an online “retailer”

• Distribution platform

• Service provider

A Channel Alignment is an aligned channel is one in which?

• All channel members understand that their ultimate goal is to create and capture value for and from the end consumer.

Channel Alignments aren’t easy because?

• Conflicting goals within the channel

• Difficulties in transmitting information, particularly about the end consumer within the channel

• Human element for channel alignment

Channel length?

• The number of channel members in a particular value chain.

Direct distribution?

• A structure with few or no intermediaries between the manufacturer and the end-customer.

Indirect distribution?

• A longer channel structure with more members.

Channel breadth refers to?

• The number of outlets that participate in distributing the end-product to the consumer.

Exclusive distribution?

• A very limited number of outlets.

Selective distribution?

• In between

Intensive or mass distribution?

• As many outlets as possible.

Channel Breadth?

• Very often the breadth of the channel depends on the type of product attribute the firm is seeking to promote.

Credence attribute?

• A credence attribute is one that we cannot evaluate, even after consuming the product.

Credence attributes are most important when customers have?

• High ego involvement in a category.

Search attribute?

• A search attribute is an aspect of the product that can be evaluated prior to product purchase and consumption.

Experience attribute?

• An experience attribute is an aspect of a product that only can be evaluated after consumption.

If our product has powerful experience attributes, we will be interested in getting potential consumers?

• To try it

Channel depth?

• Refers to the extent to which the channel is controlled, via forward and/or backward integration.

In a highly integrated channel?

• The company may own firms that perform many different channel functions: raw materials procurement, manufacturing, transportation, warehousing, and/or retail distribution.

In a less-integrated channel?

• Different, independent companies perform each of these functions.

Channel alignment will be best achieved by?

• Ownership of channel members.

In general, which one is easier to implement? Direct or indirect?

• Indirect

In general, which one is better for a profit goal? Direct or indirect?

• Direct

Consider a case of exclusive distribution: Cartier watches, distributed only in limited, upscale locations by authorized retailers. These high-end watches are awash in __________________, and the channel itself helps establish these attributes for consumers. The exclusive Cartier retailer is thus an important part of the packaging and promotion for the product.

• Credence attributes

Any time the consumer encounters the brand what can take place?

• Marketing communication.

Integrated Marketing Communications (IMC)?

• IMC is to assure that all brand contacts received by a customer are relevant to that person and consistent across all communication channels (=media).

Marketing communications decisions can be sometimes be more?

• Emotional than logical.

What part of marketing communications have been a big challenging issue?

• Measurement and Accountability.

However, marketers should consider?

• Effectiveness and Efficiency of communications.

It is important to identify a primary objective because?

• It is the most important goal for marketing communications to accomplish.

Basic Awareness - Aided Recognition?

• Consumer’s ability, when presented with the brand name or logo, to acknowledge that he or she has seen it before.

How to increase basic awareness - we must?

• Capture the attention of our target customers.

  • Creative work

  • Exposure

Top-Of-Mind Awareness - Unaided recall?

• Customer’s ability to identify the brand with the business category.

Unaided recall - Consumers not only recognize our brand but also?

• They can recall it without aid.

Firms try to increase top-of-mind awareness when?

• Basic awareness is sufficiently high.

How to increase top-of-mind awareness?

• Having memorable names and symbols

• Reminding the brand that they already know

• Continually spending money on communications

• Product placement

• Creative and social media campaign

Information awareness - Communications intended to provide?

• Specific information about the brand.

Information awareness - The information must be focused on the positioning?

• A single-minded campaign.

• A benefit differentiating us from the competition.

Tightly tie our brand to the information, so the brand and the benefit are recalled together?

• Walmart - Always low prices

• Kinkos - Open 24 hours

• Subaru - 4WD

Communications objectives - IMAGE/ATTITUDE?

• To change an attitude toward or of image of our brand.

Image campaigns to capture what? Evoking an emotional response in consumers?

• Share of heart

Most advertising for credence, subjective, emotional benefits has?

• Image objective.

The focus of an image objective is the?

• Person, as opposed to the brand.

Share of mind elements?

• Simple awareness

• Basic knowledge

• Weak attitude

• Trial

• Stronger attitude

• Repeat purchases - rational

Share of heart elements?

• Stronger attitude 

• Advocate 

• Repeat purchases - rational

• Repeat purchases - emotional 

Share of heart and share of mind usually significantly drive?

• Overall Market Share.

Acquisition/stimulate demand?

• First pursue awareness objective 

• Then pursue an information objective 

Acquisition/earn share?

• We pursue informational objective 

• or a Behavioral objective 

Retention/stimulate demand strategy?

• Image or behavioral objective.

Retention/earn share strategy - IF we want them to convert from multi- brand users to exclusive users?

• We pursue an informational or behavior objective.

Retention/earn share strategy - IF we want them use more of ours than competitor’s?

• We use top-of-mind awareness.

Once we have established our communications objective, we must?

• Develop our communications materials.

Once we have established our communications objective, we must also?

• Determine how, and how much, we will spend on media.

Marketing communications are part?

• Part art and part strategy.

The creative work should be?

• Believable

• Unique

• Relevant

• Memorable

The following budgeting bases are common but have drawbacks?

• Level of competitive spending

• Historical spending

• % of sales

• What’s left over

Media planning and buying Advertising spending: Zero-based approach diagram?

• Segments, Targets, Positioning

• Target audience size

• Communication objective

• Creative

• Number of exposures

• Media type

• Total cost

What is Advertising?

• A paid form of communication delivered through media from an identifiable source about an organization, product, service, or idea designed to persuade the receiver.

Traditionally, advertising was mostly?

• Offline

• Passive

In general, advertising is which strategy?

• Pull

Pull strategy?

• Get consumers to pull the product into marketing channel.

Push strategy?

• Increase demand by focusing on wholesalers, retailers, salespeople.

Focus of ad is corporation when the company uses?

• Umbrella branding strategy

  • The communication objective is mostly Image/Attitude.

Consumers view media coverage generated through PR as?

• More credible and objective.

PR toolkits include?

• Print media (press releases, newsletters, brochures and any reports)

• Videos

• Social media sites

• Press kit

Press kit should include?

• Company details, images and headshots, bios, facts, press release and anything that would be compelling enough for a journalist to want to cover your story.

Sales promotions are?

• Special incentives

• Excitement-building programs

Coupons?

• Stimulates demand

• Allows for direct tracking of sales

Deals?

• A short term price reduction

• Encourages trial

• Reduces consumer risk

• May reduce perception of value

Premiums?

• An item for free

• Builds goodwill

• Increases perception of value

Problem with premiums?

• Customers buy for premium not the product.

Distributing samples is one of the?

• Most costly sales promotion tools but also one of the most effective.

What factors should a firm consider when evaluating a sales promotion?

• The realized margin from the promotion should be considered.

What factors should a firm consider when evaluating a sales promotion?

• Demand surge

• The potential loss suffered when customers switch to the promoted merchandise from more profitable products

• The long-term impact on sales of the promotion (Expectation of promotion)