Exam 2 Key Vocabulary
Market Segmentation: Involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action.
Market Segments: Relatively homogenous groups of prospective buyers that result from the market segmentation process.
Target Market:
Production Differentiation: A marketing strategy that involves a firm using different marketing mix actions to help consumers perceive a product as being different and better than competing products.
Mass Customization (Segments of One): Tailoring products or services to the tastes of individual customers on a high-volume scale.
Build-to-Order: Involves manufacturing a product only when there is an order from a customer.
Cannibalization: When the increased customer value involves adding new products or a new chain of stores, the product differentiation-market segmentation trade-off raises critical issues: Are the new products or new chain simply stealing customers and sales from older, existing ones?
Geographic Segmentation: Region. Adjusting spice levels by country or region in the country.
Demographic Segmentation: Ex. Household size
Psychographic Segmentation: Lifestyle. Lifestyle segmentation is based on the belief that “birds of a feather flock together.” Thus, people of similar lifestyles tend to live near each other, have similar interests, and buy similar offerings.
Behavioral Segmentation: Product features. Understanding what features are important to different customers is a useful way to segment markets because it can lead directly to specific marketing actions, such as a new product, an ad campaign, or a distribution channel.
Usage Rate: The quantity consumed or patronage (store visits) during a specific period. Frequency marketing focuses on usage rate.
80/20 Rule: A concept that suggests 80% of a firm’s sales are obtained from 20% of its customers. (Usage Rate)
Customer Lifetime Value: represents the financial worth of a customer to a company over the course of their relationship. Consider a customer’s product or service usage rate, loyalty to a company that provides them, and the company’s cost to serve that customer over time, be it months or years. This is useful in comparing the financial worth of heavy versus light users and loyal versus fickle users.
Customer Life Value = $ Margin x Retention Rate %1 + Discount Rate % - Retention Rate %
Personas: Character descriptions of a brand’s typical customers. These bring target market data alive by creating fictional character narratives, complete with images, in one-page descriptions or snapshots that capture the personalities, values, attitudes, beliefs, demographics, and expected interactions of a typical user with a brand. Simplifies target market research.
Product Positioning: Refers to the place a product occupies in consumers’ minds based on important attributes relative to competitive products. By understanding where consumers see a company’s product or brand today, a marketing manager can seek to change its future position in their minds.
Product Repositioning: Changing the place a product occupies in a consumer’s mind relative to competitive products.
Positioning Statement: Derived from the company’s customer value proposition, which directs the company’s overall marketing strategy. Ideally, identifies the target market and needs satisfied, the product/service class or category in which the organization’s offering competes, and the offering’s unique benefits or attributes provided.
Perceptual Maps: A key to positioning a product or brand effectively is discovering the perceptions in the minds of potential customers by taking 4 steps:
Identify the important attributes for a product or brand class.
Discover how target customers rate competing products or brands with respect to these attributes.
Discover where the company’s product or brand is on these attributes in the minds of potential customers.
Reposition the company’s product or brand in the minds of potential customers.
Product: a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers’ needs and is received in exchange for money or something else of value.
Nondurable Goods: Items consumed in one or a few uses, such as food products and fuel.
Durable Good: One that usually lasts over many uses, such as appliances, cars, and smartphones (emphasize personal selling).
Services: Intangible activities or benefits that an organization provides to satisfy consumers’ needs in exchange for money or something else of value. Significant part of U.S. economy.
Consumer Products: Products purchased by the ultimate consumer
Business Products: Products organizations buy that assist in providing other products for resale.
Derived Demand: Sales of business products frequently result (or are derived) from the sale of consumer products. If Toyota car sales increase, the company may increase its demand for paint spraying equipment.
Product Line: A group of product or service items that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same outlets, or fall within a given price range. Nike’s product lines include shoes and clothing.
Product Mix: Consists of all product lines offered by an organization.
Product Line Extension: Incremental improvement of an existing product line the company already sells. Purina added its “new” line of Elegant medleys as “restaurant-inspired food for cats.”
Brand Extension: A significant jump in innovation or technology involving putting an established brand name on a new product in an unfamiliar market. (Manufacturer offers new smartphones or digital cameras)
Open Innovation: Practices and processes that encourage the use of external as well as internal ideas internal as well as external collaboration when conceiving, producing, and marketing new products and services.
Stage-Gate:
Standard Test Market: A company develops a product and then attempts to sell it through normal distribution channels in a number of test-market cities. Test-market cities must be demographically representative of markets targeted for the new product
Controlled Test Market: Involves contracting the entire test program to an outside service.
Product Life Cycle (all stages): Describes the stages a new product goes through in the marketplace: introduction, growth, maturity, and decline.
Introduction: The Product is introduced to its intended market. Sales grow slowly, and profit is minimal. Lack of profit is often the result of large investment costs in product development. Companies often spend heavily on advertising and other promotion tools to build awareness and stimulate product trials among consumers in the introduction stage.
Trial: The initial purchase of a product by a consumer.
Growing: Characterized by rapid increases in sales. Competitors appear.
Repeat Purchasers: People who tried the product, were satisfied, and bought again.
Maturity: Slowing of total industry sales or product class revenue. Marginal competitors begin to leave the market. Sales increase at a decreasing rate.
Decline: Sales Drop.
Deletion: Dropping the product from the company’s product line is the most dramatic strategy.
Harvesting: When a company retains the product but reduces marketing costs. Salespeople do not allocate time in selling and are limited in advertising dollars spent to support. This is to maintain the ability to meet customer requests and promote goodwill.
Diffusion of Innovation: How a product diffuses or spreads through the population when first introduced.
Brand/Product Manager: Manages the marketing efforts for a close-knit family of products or brands. Responsible for managing existing products through the stages of the life cycle. Some are also responsible for developing new products. Developing and executing a marketing program for the product line described in an annual marketing plan and approving ad copy, media selection, and package design.
Product Modification: Involves altering one or more of a product’s characteristics, such as its quality, performance, or appearance, to increase the product’s value to customers and increase sales.
Trading Up: Involves reducing a product’s number of features, quality, or price.
Shrinkflation: Reducing the package content without changing package size and maintaining or increasing the package price.
Branding: A marketing decision in which an organization uses a name, phrase, design symbols, or combination of these to identify its products and distinguish them from those competitors.
Brand Name: Any word, device (design, sound, shape, or color), or combination of these used to distinguish a seller’s products or services.
Trademark: Identifies that a firm has legally registered its brand name so the firm has its exclusive use, thereby preventing others from using it.
Brand Personality: A set of human characteristics associated with a brand name.
Brand Equity: The added value a brand name gives to a product beyond the functional benefits provided.
Brand Purpose: The reason why a brand exists, the place it has consumers’ lives, the solution it provides to consumers, and the brand’s role in making society better off.
Brand Licensing: A contractual agreement whereby one company (licensor) allows its brand names or trademarks to be used with products or services offered by another company (licensee) for a royalty or fee.
Private Branding/Private Labeling: When it manufactures products but sells them under the brand name of a wholesaler or retailer.
Packaging: The component of a product refers to any container in which it is offered for sale and on which label information is conveyed.
Labeling: An integral part of the package and typically identifies the product or brand, who made it, where and when it was made, how it is to be used, and package contents and ingredients.
Competitive Advantage:
Price: The money or other considerations (including products and services) exchanged for the ownership or use of a product or service.
Price Equation: Price = List Price - Incentives and Allowances + Extra Fees
Value: The ratio of perceived benefits to price
Value = Perceived benefits/Price
Value Pricing: The practice of simultaneously increasing product and service benefits while maintaining or decreasing price.
Profit Equation:
Profit = Total Revenue - Total Cost; Profit = (Unit Price x Quantity Sold) - (Fixed Cost + Variable Cost)
6 Steps in Setting Price:
Identify pricing objectives and constraints
Estimate demand and revenue.
Determine cost, volume, and profit relationships.
Select an approximate price level.
Set list or quoted price.
Make special adjustments to the list or quoted price.
Pricing Objectives: Involve specifying the role of price in an organization’s marketing and strategic plans.
Profit: Measured by ROI or ROA.
Sales Revenue: Dollar sales
Market Share: THe ratio of the firm’s sales revenues or unit sales to those of the industry. Often pursue a market share objective when industry sales are relatively flat or decline.
Unit Volume: the quantity produced or sold, as a pricing objective. Sells multiple products at very different prices and needs to match the unit volume demanded by customers with price and production capacity.
Demand Curve: relates quantity sold and price, showing the maximum number of units that will be sold at a given price.
Demand Factors: Factors that determine consumers’ willingness and ability to pay for products and services. Consumer Tastes, Price and availability of similar products, Consumer income
Price Elasticity of Demand: The percentage change in quantity demanded relative to a percentage change in price.
Price elasticity of demand (E) = % change in Quantity Demanded/ % change in price
Elastic Demand: exists when a 1 percent decrease in price produces more than a 1 percent increase in quantity demanded.
Inelastic Demand: exists when a 1 percent decrease in price produces less than a 1 percent increase in quantity demanded.
Total Revenue: The total money received from the sale of a product.
Total Cost: The total expense incurred by a firm in producing and marketing a product. Total cost is the sum of fixed costs and variable cost.
Fixed Cost: The sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold.
Variable Cost: The sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold.
Unit Variable Cost: Variable Cost/Quantity
Contribution margin: Unit Selling price - Unit Variable Cost
Break-Even Point: The quantity at which total revenue and total cost are equal
Break-Even Chart: A graphic presentation of the break-even analysis that shows when total revenue and total cost intersect to identify profit or loss for a given quantity sold.
Demand-Oriented Pricing: Weigh factors underlying expected customer tastes and preferences more heavily than such factors as cost, profit, and competition when selecting a price level.
Skimming: Setting the highest initial price that customers who really desire the product are willing to pay. These customers are not very price sensitive because they weigh the new product’s price, quality, and ability to satisfy their needs against the same characteristics of substitutes.
Effective When;
Enough prospective customers are willing to buy the product immediately at the high initial price to make these sales profitable
The high initial price will not attract competitors
Lowering Price has only a minor effect on increasing the sales volume and reducing the unit cost
Customers interpret the high price as signifying high quality
Penetration Pricing: Setting a low initial price on a new product to appeal immediately to the mass market. The exact opposite of skimming pricing.
Prestige Pricing: Setting a high price so that quality- or status- conscious consumers will be attracted to the product and buy it. Low price, think low quality, don’t buy. Too high, less demand → inverse demand curve
Price Lining: Selling the price of a line of products at a number of different specific pricing points. Assume that demand is elastic at each of these price points but inelastic between these price points.
Odd-Even Pricing: Setting prices a few dollars or cents under an even number.
Target Pricing: Consists of (1) estimating the price that ultimate consumers would be willing to pay for a product, (2) working backward through markups taken by retailers and wholesalers to determine what price to charge wholesalers, and then (3) deliberately adjusting the composition and features of the product to achieve the target price to consumers.
Bundle Pricing: Marketing 2 or more products in a single package price.
Cost-Oriented Pricing: A price setter stressed the cost side of the pricing problem, not the demand side. Pierce is set by looking at the production and marketing costs and then adding enough to cover direct expenses, overhead, and profit.
Standard Markup Pricing: Adding a fixed percentage to the cost of all items in a specific product class.
Cost-Plus Pricing: Involves summoning the total cost of providing a product or service and adding a specific amount to the cost to arrive at a price.
Cost-plus Percentage of Cost Pricing: Fixed percentage is added to total unit cost
Profit-Oriented Pricing: A price setter may choose to balance both revenues and costs to set price using profit-oriented approaches. These might either involve setting a target of a specific dollar volume of profit or expressing this target profit as a percentage of sales or investment.
Competition-Oriented Pricing: Rather than emphasize demand, cost, or profit factors, a price setter can stress what “the market” is doing by using competition-oriented approaches
Above, At, or Below Market Pricing: Setting a market price for a product or product class based on a subjective feel for the competitors' price or market price as the benchmark.
Loss-Leader Pricing: Deliberately selling a product below its customary price, not to increase sales, but to attract customers’ attention to it in hopes that they will buy other products with large markups as well.
Fixed Price Policy: One-price policy, is setting one price for all buyers of a product or service.
Dynamic Pricing Policy: Flexible-price policy, involves setting different prices for products and services in real time in response to supply and demand conditions. (Uber, lyft)
Product Line Pricing: Setting prices for all items in a product line to cover the total cost and produce a profit for the complete line, not necessarily for each item.
The lowest-priced product and price
The highest-priced product and price
Price differentials for all other products in the line
Discounts: Reductions from the list price that a seller gives a buyer as a reward for some activity of th ebuyer that is favorable to the seller.
Quantity Discounts: Reductions in unit costs for a larger order
Seasonal DIscounts: To encourage buyers to stock inventory earlier than their normal demand would require.
Trade Discounts: To reward wholesalers and retailers for marketing functions they will perform in the future, a manufacturer often gives trade, or functional discounts. These reductions off the list or base price are offered to resellers in the marketing channel on the basis of (1) where they are in the channel and (2) the marketing activities they are expected to perform in the future.
Cash Discounts: To encourage retailers to pay their bills quickly, manufacturers offer them cash discounts.
Allowances: Like discounts, are reductions from list or quoted prices to buyers for performing some activity.
Trade-In Allowances: Price reduction given when a used product is accepted as part of the payment on a new product. Effective way to lower the price a buyer has to pay without formally reducing the list price.
Everyday Low Pricing (EDLP): The practice of replacing promotional allowances with lower manufacturer list prices.
Price Fixing: A conspiracy among firms to set prices for a product.