Marketing Quiz 2

operating profit equation

operating profit = revenue - cogs - operating expense

how is revenue calculated

revenue = sales volume x unit price

main insight from competitive pricing dynamics

optimal pricing depends on competitor behavior

price elasticity

measures how sensitive the quantity demand is to price changes

elastic

demand is more sensitive to price

examples of industries where demand is typically elastic

situations where there are a lot of substitutes (casual dining, fast food, leisure travel)

inelastic

demand that is not sensitive to price

examples of industries where demand is typically inelastic

offerings without close substitutes; high brand loyalty (necessities like food, gas, healthcare)

price elasticity formula

% change in demand / % change in price

Absolute value of price elasticity >1

means that demand is elastic

Absolute value of price elasticity

means that demand is inelastic

Absolute value of price elasticity =1

means unitary demand

when is lowering price most effective to boost volume

when demand is elastic

factors influencing elasticity?

availability of subsitutes, share of income, necessity, brand loyalty

break even formula

fixed costs / (selling price per unit - variable cost per unit)

another name for selling price per unit - variable cost per unit

contribution margin

what two pricing strategies are firms picking between when they launch a new product

skim or penetration

skim pricing

charging a high price to maximize margins at the expense of market share

when is skim pricing appropriate

little competition, inelastic demand, a company that doesn't let you mass produce

penetration pricing

setting a low initial price to gain market share quickly

when is penetration pricing appropriate

elastic demand, many competitors, scalable mass production

example of penetration pricing

Netflix is free for the first month then paid subscription

economy/value pricing

no frills, low-price approach (e.g., Walmart)

premium pricing

high price to reflect exclusivity or quality (ex apple)

psychological pricing

Using price endings like $19.99 instead of $20 to boost sales

cost-plus pricing

Adding a fixed markup % to cost (e.g., Kroger)

optional-product pricing

Selling extras or upgrades to raise total purchase price (upselling)

captive-product pricing

Companies charge premium price for necessary product complements (selling a printer at a loss and have huge margins for ink)

Productive bundle pricing

Selling multiple products together (e.g., game console + games)

promotional pricing

Temporary discounts - BOGO, coupons, sales

geographic pricing

Adjusting prices by region to reflect cost or market differences

what is the purpose of price optimization

to find the price that balances value perception, cost, and demand

why can higher prices sometimes increase break even ease?

because contribution margin rises, so fewer units are needed

what factors increase a consumers willingness to pay

time savings, convenience, environmental benefit, or quality improvements

why does trust matter in promotion

drives targeting accuracy, customer loyalty, and brand credibility

marketing funnel stages (top down)

1. awareness

2. interest

3. desire

4. action

5. loyalty

6. advocacy

why are awareness + action ads hard to combine

they require different messaging (education v conversation)

branded content

advertising that uses entertainment or media content to promote a brand

how is branded content different from embedded marketing (eg product placements)

branded content is built around the brand not just placed in it (ex barbie movie)

challenges of branded content

high cost, risk of backlash, competition for attention, potential to dilute brand

guerrilla marketing

form of advertising designed to promote offerings in an unconventional way with little budget to spend

typical format for guerrilla marketing

out of home (OOH) stunts that encourage social sharing

key benefits of guerrilla marketing

low cost, viral potential, high engagement

risks of guerrilla marketing

misinterpretation, backlash, loss of control once content is public

four essential web metrics

visits, duration, bounce rate, conversation rate

what is the difference between visits and visitors

visits = total sessions; unique visitors = distinct users

when is low repeat behavior acceptable?

when the website has a information goal (ex. event info pages)

what is duration

time spent on a page; indicates engagement

web session

once you start surfing the web

click stream behavior

every time you click some data is recorded; need this to measure duration

what does high bounce rate mean

user leaves after one page. good for info sites; bad for shopping or engagement focused pages

how can we interpret bounce rate with duration

high bounce rate with low duration shows poor engagement. high bounce rate with high duration shows that the goal is quickly achieved

what is conversion rate

(#success outcomes) / (#unique visitors)

examples of success outcomes

purchases, form submissions, applications

why are conversion rates typically low

many visitors browse without taking action

What other online metrics may be useful to determine how effective your website is?

where people came from

what is SEO

increasing organic visibility by improving page quality of links to a site

what algorithm ranks sites in google

PageRank (based on number and quality of links to a site)

key factors influencing PageRank

keyword density, title tags, meta descriptions, URL structure, link quality

what is GEO

optimizing content to appear in AI tools by making web information easy to summarize

how does search advertising work

advertisers bid on keywords; placement depends on bid + quality score; pay per click

what are product listing ads (PLAs)

sponsored product ads in e-commerce results (amazon, google shopping)

why do PLAs have higher CTR?

users are already shopping so they are closer to conversion

what is display advertising

ads shown on websites

three main pricing models

CPM (cost per thousand impressions) , CPC (cost per click), CPA (cost per acquisition)

when use CPM (cost per thousand impressions)

for brand awareness on high traffic sites

when use CPC (cost per click)

for targeted performance campaigns

when use CPA (cost per acquisition)

when you pay only after conversation (since this is when someone clicks and they buy)

what is targeting

showing ads to audiences most likely to convert

what are main targeting types

Characteristic-based (demographics), Geotargeting, Behavioral, Retargeting, Demographic Inference, Contextual

What is behavioral targeting

Based on users' clickstream or browsing history

What is retargeting

Serving ads to people who viewed a product but didn't buy it

What is demographic inference

Estimating traits (age, income, gender) from browsing patterns

What is contextual targeting

Matching ad content to the website's theme (e.g., sports gear ads on ESPN)

What are the two biggest spending buckets in social-media budgets?

Content creation (largest) Analytics (monitoring, measurement, optimization).

What are the two most common social-media metrics firms track?

volume and sentiment

What does "volume" measure in social media

How much conversation or how many mentions a brand or topic receives

Strengths of volume metrics

Easy to measure; shows popularity or awareness levels

Weaknesses of volume metrics

Doesn't show tone or meaning; buzz can be negative; conversations may be off-topic (e.g., Apple vs apple fruit)

Best uses of volume data?

Establish a baseline, track shifts from baseline, and test if changes in volume relate to business outcomes

Example of volume not always being good

When AWS went down (huge spike in mentions but all negative)

What does "sentiment" measure?

The overall tone of conversation (positive (+1), neutral (0), negative (-1))

What scale types can be used in sentiment coding?

Dichotomous (positive/negative) or continuous (full range of scores)

What is the most common sentiment found on social media

neutral

Why be cautious with average sentiment scores

they discard variation; negative comments contain valuable insights

Strengths of sentiment analysis

Provides some idea of what people are saying; richer than volume alone

Weaknesses of sentiment analysis

Can be skewed by a few vocal users, sarcasm, or measurement error

Why must social-media monitoring be done cautiously

Because of the silent-majority vs vocal-minority issue — online voices may not represent most customers

What factors shape what you "hear" online

Which platforms you monitor, fake/AI reviews, and users motivations (self-enhancement vs altruism)

What is the key insight about consumers and social media

Consumers (not brands ) dominate social-media conversations

What is boycotting

Refusing to buy to punish a company

What is buycotting

Intentionally buying from brands whose values align with yours

Which is typically stronger (buycotting v boycotting)

Buycotting — positive alignment drives stronger, longer-lasting behavior

Why is emotion one of the strongest drivers of virality

High arousal emotions (anger, excitement, awe) increase attention and sharing speed.

What does STEPPS stand for (6 factors that increase how likely the content is to go viral)

Social Currency, Triggers, Emotion, Public, Practical Value, Stories

What is Social Currency in the STEPPS Model

people share things that make them look good, smart, or "in-the-know." The brand gives them something remarkable to talk about (ex. ice bucket challenge)

What are Triggers in the STEPPS Model

Everyday cues that remind people of a brand or idea and prompt them to think or talk about it (ex. geicos hump day)

What does Emotion mean in the STEPPS Model

People share content that makes them feel strong emotions, the higher the emotional arousal, the more engaged they are (heartwarming ads like coca-colas holiday campaign)

What is "Public" in the STEPPS Model

People imitate what they can see, making a product visible encourages others to use or talk about it (ex. Starbucks cup)

What is Practical Value in the STEPPS Model

People share things that are useful, helpful, or save time and money (dollars shave club video, showed cheap simple razors while entertaining consumers)