Marketing Management Exam 3 Study Set

Lectures 10, 11, 12, 13

Price is the …

Only element in the marketing mix that produces revenue; all other elements represents costs.

The “right” pricing strategy is the …

One that delivers both value to the customer and profit to the company.

Fixed costs (overhead costs) are …

The costs that do not vary with production or sales level.

i.e. rent, interest, salary

Variable costs …

Vary directly with the level of production. They are called ___ costs because their total varies with the number of units produced.

i.e. packaging, raw materials, electricity

Cost-Plus Pricing (Markup Pricing) …

Adds a standard markup to the cost of the product.

Unit cost =

Variable cost per unit + (total fixed costs/unit sales)

Markup price =

Unit cost/ (1 - desired return on sales)

Margin per unit =

Markup price - unit cost

Break-even pricing (target return pricing) …

The price at which the firm will break even or make the profit that it is seeking.

Break-even volume =

Fixed cost/(price - variable cost)

Inelastic demand =

Less price sensitive

Elastic demand =

More price sensitive

Competition-Based Pricing

Setting prices based on competitors’ strategies, costs, prices, and market offerings.

Cue Utilization Theory

Price serves as a string cue (signal) of:

• Quality

• Popularity

• Exclusivity

• Prestige

Market-Skimming pricing

• A strategy with high initial prices to “skim” revenue layers from the market.

  • Product quality and image must support the price.

  • Buyers must want the product at the price.

  • Costs of producing the product in small volume should not cancel the advantage of higher prices.

  • Competitors should not be able to enter the market easily.

Market-Penetration pricing

• Sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share.

  • Price sensitive market

  • Inverse relationship of production and distribution cost to sales growth

  • Low prices must keep competition out of the market

Discount

• A straight reduction in price on purchases during a stated period of time or of larger quantities.

• “Reward” customers for certain responses:

  • Cash discount

  • Quantity discount

  • Seasonal discount

• The Rule of 100 – choose whichever discount looks bigger to the customers.

  • Use percentage off for items under $100.

  • Use dollars for items over $100.

Loss Leader pricing

• A product is sold at a price below its market cost to stimulate other sales of more profitable goods or services.

Captive-Product pricing

• Pricing products that must be used with the main product

  • E.g. razor blades to be used with the handle or printer ink to be used with the printer

Bundling pricing

• Pricing bundles of products sold together

  • E.g. Combo meals at fast food restaurants

• Segmented pricing

Selling a product at two or more prices, where the difference in prices is not based on differences in costs.

• Customer-segment pricing (student id for amazon prime)

• Location-based pricing (concert seating different prices)

• Time-based pricing (halloween costumes)

• Product-form pricing

Decoy effect

A phenomenon where people tend to have a change in preference between two options when presented with a third option that is asymmetrically dominated.

Price Pack Architecture

Offering the right product size and packaging at the right price to fit different consumer occasions and retail channels.

Dynamic pricing

Adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Freemium

• A basic product/service is provided free of charge, but a premium is charged for additional features or services that expand the functionality of the free version of the product/service.

  • E.g. spotify vs spotify premium

Price Increase:

• Product is “hot”

• Company greed

Price Cuts:

• New models will be available

• Models are not selling well

• Quality issues

Responding to Price Changes:

• 1. Reduce Price

• 2. Raise perceived value

• 3. Improve quality and increase price

• 4. Launch low-price “fighting brand”

Price fixing:

Legislation requires sellers to set prices without talking to competitors.

Predatory pricing:

Legislation prohibits selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business.

Robinson-Patman Act:

Prohibits sellers from charging different prices to competing customers at the same level of trade when this harms competition.

Price discrimination:

Is allowed if the seller can prove that costs differ when selling to different retailers

Deceptive pricing: (e.g., bait-and-switch pricing)

Occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers.

Promotion Mix

Is the blend of advertising, public relations, personal setting, and direct-marketing tools that the company uses to persuasively communicate customer value and build customer relationships

Paradigm #1: Traditional Promotion Mix (Before 1980s)

…

Paradigm #2: Integrated Marketing Communications (IMC) (1980s – 2000s)

The integration of communication channels to deliver a clear, consistent, and compelling message; combine into one big idea.

Above-the-line Marketing (ATL):

Widespread brand-building advertising.

Below-the-line Marketing (BTL):

Highly targeted direct marketing for measurable and behavioral responses.

Paid Media

• Any form of media where brands pay the media owner to place the brand or to insert the brand’s message.

  • E.g. Tv commercials, banner ads, search ads, direct mail.

Owned Media

• Media that is created and owned by a brand.

  • E.g. Homepages, stores, mobile apps, blogs, social media.

Earned Media

• Positive brand messaging that is produced and spread by unpaid consumers or by third-party organizations.

  • E.g. Likes, comments, shares, reviews, UGCs

Paradigm #3: Agile Marketing (2010s – present)

• Smaller ideas w/ smaller budget

  • Affordable

• Monitors which small idea does the best via social media likes, shares, etc

• Then scale up which one does well and start new batch of smaller ideas

Paradigm #4: Brand ___ (2015 – present)

• Brand Co-Creation

  • Continuous, social, dynamic, and interactive process in which firms share control over their brands with all stakeholders and increase the brand value from stakeholder engagement.

    • User-generated content (UGC)

    • Brand community

    • Branded challenge

    • Influencer marketing

    • Creator marketplace

    • Public beta test

    • Brand ambassador

Promotion

• Advertising: Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor.

  • The Challenges:

    • Advertising Clutter

    • Ad Avoidance

    • Ad Skepticism

Advertising Endorcers

• Source attractiveness

• Source credibility

• Cultural Meaning of the Source (meaning-transfer)

Cost-per-thousand (CPM)

The price of 1000 advertisement impressions (exposures)

Cost-per-click (CPC) (aka the Pay-per-click [PPC])

• The price that an advertiser pays a publisher when the ad is clicked

  • Usually a website owner or a network of websites

Creative Brief

The tool used to guide the team's efforts in writing and producing an ad

Public Relations

• Building good relations with the company's publics through favorable publicity, a good corporate image, and effective handling of unfavorable news.

Native Advertising

An online advertisement method in which the advertiser attempts to gain attention by providing content in the connect of the users experience

Sales Promotion

Short-term incentives to encourage purchases or sales of a product or service.

Growth of Sales Promotion

• Product managers are under pressure to increase current sakes

• Companies face more competition

• Competing brands offer less differentiation

• Advertising efficiency has declined due to rising costs, clutter, and legal constraints

• Consumers have become more deal-oriented

Direct Marketing 

Direct connections with carefully target individual consumers to both obtain an immediate response and cultivate lasting customer relationships

Martech - Centric Operations

Marketing technology (martech) is a set of integrated technologies that enables marketing capabilities, such as efficiently and effectively targeting, acquiring and retaining customers.

Interactivity

In direct marketing, interactivity serves as a crucial element that facilitates real-time engagement between brands and their target audience.

• Snapchat x brand filters

Engagement:

A consumer's active investment of attention, emotion, and effort in interacting with a brand, ranging from a simple like to creating a product review video. (Click the like button, hashtag, repost, share, etc..)

General Formula: ER = (total engagements/total audience) x 100

Data - driven Targeting

• Why you're seeing this ad

• Curative targeting; custom audience/lookalike audience

  • Ex. 18+, specific location, gender, specific interest

Measurable Goals & Results

• Tracks metrics in real time, makes it difficult for marketers to lie about poor performance.

• Helps to be able to determine if something is doing well or not

Agile & Iterative Process

• Multiple marketing campaigns at once

• A/B Testing (Or Split Testing): comparing two versions of a product to see which one performs better.

Display Ads

Visual advertisements displayed on digital platforms like websites, apps, or social media, typically in the form of banners, images, or videos.

Real-Time Bidding (RTB):

 Advertising buyers bid on an impression and, if the bid is won, the buyers as is instantly displayed on the publisher’s site.

Search Ads

A method of placing online advertisements on web pages that show results from search engine queries.

Performance Max (Pmax)

A goal-based Google Ads campaign type that lets advertisers reach customers across all of Google’s channels with Google’s AI deciding where, when, and how to show the ads.

Search Engine Optimization (SEO)

The process of maximizing the number of visitors to a particular website by ensuring that the site appears

Zero - Click Search

• A query on a search engine where the user gets their answer directly on the results page without clicking on any external website links.

  • AI Overview on Google

Generative Engine Optimization (GEO)

The strategy of optimizing web content to be cited, referenced, and synthesized by AI-driven search tools like ChatGPT, Gemini, and Claude.

Email Marketing

The use of email to attract, engage, and communicate with potential and existing customers.

Open rate

how many people open (or view) a particular email campaign

Click rate

How many people click on a specific link in an email.

Unsubscribe rate:

How many people opt out of your email list after receiving a particular email campaign.

Hard bounce rate:

 How many emails could not be delivered due to a permanent reason (e.g., invalid or nonexistent address).

Soft bounce rate:

How many emails could not be delivered due to temporary reasons (e.g., full inbox or server issue).

Mobile Apps

The strategic uses of a mobile application to attract, acquire, engage, and retain users.

Geo-Fencing

A location based service that businesses use to engage their audience by sending relevant messages to smartphone users who enter, stay, or leave a predefined area.

 Content Marketing

A strategic marketing approach focused on creating and distributing valuable and relevant content to drive profitable customer action.

Influencer Marketing

A marketing strategy that involves working with influencers to promote a brand, product, or survive to their audience.

Mega Influencers

Celebrities recognised outside of social media of their famous status.

Macro Influencers

Internet stars who have gained popularity mainly through social media.

Micro Influencers:

Experts within their niche with a dedicated following.

Nano Influencers:

Advocates who share your brand online and offline.

Onsite Marketing

Strategies that businesses implement within their websites to convert visitors into leads or customers as well as to enhance the overall brand experience for cross-selling or up-selling.

Return on As Spend (ROAS)

• Ad revenue then divide by ad spend

• Standard is 3 to 4

When a campaign is NOT working

• Change ad creatives

• Change targeting options

• Test a new platform

• Fix the landing page

  • change one at a time so you know what made the difference