MGM 301 ~ Final Review CH 5 1} 5 Steps in the Consumer Purchase Decision Making Process 1 ~Problem Recognition: Consumers discover a need for a product. 2 ~ Information Search (external/internal): External {personal sources-friends &fam/public sources-consumer report/market dominated sources-sales rep & ads} Internal{Relying on previous experience with a product/most used for frequent purchased goods} 3 ~ Alternative Evaluations: Developing consumer value perception Evaluation Criteria-Factors to evaluate when deciding {space on HDD} Consideration Set-Brands to evaluate when deciding {Seagate,Hitachi brand HDD} Multi-Attribute Model- Ask ? s to find important attributes of product of service from 1 to 7 scale(very good) 4 ~ Purchase: Time to Buy(waiting for deals/upgrades) and Place to buy (best price & customer service) 5 ~ Post-Purchase Behaviors: Post purchase evaluation of the product. Comparison of actual product w/ expectations Satisfaction Drives-Repeat purchase/customer life time value. Word of mouth advertising(3/9 rule in phone industry. Dissatisfaction can arise out of-Deficient product/Very high expectations Cognitive Dissonance feeling doubtfulness after purchase of an important purchase. 2} Problem Solving (extended, limited, routine) Extended-buying a car Limited-buying a toaster Routine-purchasing milk 3} Consumer Involvement- depends on price, social cost, and consequence of purchase. (What drives involvement/marketing strategies for different levels of involvement) 4} 4 main influences on a consumer purchase decision a. Situational influences Purchase situation factors that will influence purchase decision process Purchase task reason for engaging in the decision Social surroundings people present when a purchase is made Physical surroundings dcor & environment of the store Temporal effects time of day & amount of time available to make the purchase Antecedent states consumer s mood & amount of cash on hand b. Marketing mix influences 4 P s {product/price/promotion/place} c. Psychological influences motivation, personality, perception, learning, values/beliefs/attitudes, lifestyle d. Social cultural influences word of mouth, personal, reference groups, family, social class, culture and subculture 5) Hierarchy of needs physiological, safety, social, personal and self-fulfillment
10) Perception Process by which an individual selects, organizes & interprets info to create a meaningful picture of the world. (selective perception, exposure, comprehension, subliminal perception ) 11) Learning - Results from repeated exercise & reasoning (behavioral & cognitive learning) 12) Attitudes and beliefs Learned predisposition to respond to an object or class of object in a consistent favorable or unfavorable way ; shape our belief. 13) Psychographics
14) Consumption meaning
15) Cultural influence
16) Word of Mouth -
CH 13/14 Price=money or products exchanged for ownership or use of a product (also called tuition/rent/dues/fare/premium) direct effect on revenue & demand. Indirect effect on Variable cost 1) Price equations: Final price = List price Incentives + Extra fees Value = (perceived benefits/price) Profit = (unit price * quantity sold) (fixed cost + variable cost) or Total revenue Total cost Total Revenue = (unit price * quantity sold) Total Cost = Fixed cost + Variable cost Variable cost = quantity sold * unit variable cost Average Revenue = Total Revenue / Quantity sold .or Price Marginal Revenue = Change in Total Revenue / change in Quantity sold Unit Variable Cost = Variable Cost / Quantity sold Marginal Cost = Change in Total Cost /change in Quantity sold
Price Elasticity of Demand =
2) Value pricing Aligning the price w/ the value offered. Customers are more value conscious than price conscious. Value involves judgment of product s worth compared to reference value of substitute goods. 3) Five steps to determine optimal pricing Identify pricing objectives (profit, sales, market share, unit volume, survival, social responsibility) and constraints (demand, stage in PLC, product line, cost & floor price, cost of changing, types of competition monopoly, monopolistic, oligopoly, pure), competitive prices Floor price-minimum price that should be charged to cover fixed & variable costs Difficult to change price in supermarkets & catalog retailers y Type of competition y Pure competition : Marginal cost pricing y Monopolistic competition : Price wars reduced margins (E.g. Airlines) y Oligopoly : Few firms avoid competition to prevent disastrous price wars (Xbox loses $126 on every unit sold) y Monopoly: Can set any profitable price
4)Demand curve-> Higher Demand->higher price Demand Factors a. Consumer tastes preference for fuel economy b. Price & availability of similar products if substitutes are available, consumers can shift.
c. Consumer Income {demand increase in general .but demand of inferior goods would decrease} 5} ~Optimal pricing point or maximum revenue occurswhen marginal revenue=0 or equal to marginal cost. After that point it loses money by selling more units at a reduced price. 6} Role of Elasticity-> Elastic Demand: Slight decrease implies higher revenue & profits (e.g. electronic goods) Unit Elastic: Marginal revenue is zero (e.g. University) Inelastic Demand: Increase prices as demand does not change 7} Cost, Volume and profit-> Marginal Cost(higher @ lower quantity levels/ to minimum through economies of scale/ due to inefficiencies) Marginal Revenue Downward slope Profit is maximum when Marginal Revenue(MR) = Marginal Cost (MC) 8) Break-even point (BEP quantity, BEP sales) relationship between total cost and total revenue. Point where total cost = total revenue
7) Demand Oriented Pricing-> Take into account consumer wants & needs over profit and revenue, and costs, etc. ~Price skimming-> Price is set at highest possible demand point, and slowly lowered. / Effective when enough demand at high price to make profit. / The high initial price will not attract competitors/ lowering the price will only have small impact on increasing sales volume & reducing unit costs/ Consumer interpret high price as signifying high quality. ~Price Penetration-> Opposite of Skimming ; set low initial price ~Prestige Pricing-> setting a high price so consumers see it as a high quality product, then lowering it appearing to be a bargain . ~Price lining-> when there are multiple product lines priced at different price points. ~Odd-Even pricing-> pricing something a few dollars or cents under an even number. ~Target Pricing-> The product price is set at a prediction due to demand, & price is worked backwards to charge manufactures the correct price. ~Bundle Pricing-> Lower total cost, very attractive to consumers. ~ Yield Management Pricing-> Continual matching prices to equal supply and demand. 8) Cost orientedpricing cost plus (fixed fee, fixed %) pricing, experience curve pricing, ~Standard markup pricing-> Managers set a price equal to a markup rate since its impossible to predict demand for every product. ~Cost plus Pricing->Summing a product unit cost and certain amount Cost plus % of cost fee: fixed % added Most of the B2B products have fixed markups on cost {} Cost plus Fixed fee: fixed fee of profit + total cost.{ E.g. Govt. projects usually offer fixed profits to contractors } ~Experience curve pricing->As a product s sales double the cost to produce it falls. 9) Profit oriented pricing - target profit pricing, target return on sales pricing, target return on investment, advantages/disadvantages of cost and profit oriented approach ~Target Profit Pricing->Profit = Total Revenue Cost = P * Q [FC + UVC * Q] ~Target Return-on-Sales Pricing->Return on Sale = Target Profit / Total Revenue = (P * Q [FC + UVC * Q])/(P*Q)
~Target Return-on-Investment (ROI) Pricing -> 10}Issues with Cost & Profit Oriented Pricing-> Internal focus/ Ignores demand,competitive effects/fails to acount economies of scale. 11) Competition oriented pricing ~Customary pricing->Less change in pries {vending machine products}
~Above, at or below market pricing ~Loss leader pricing->attract customers by having low prices {milk in supermarkets} 12) Value oriented pricing > mostly used in luxury, premium products / Value = Perceived Benefits Price 13) One price-> Fixed pricing .flexible pricing-> Dynamic pricing 13) Special adjustments Discounts/Allowances/Geographical ~Discounts-> Quantity: Cumulative is when you have to make a certain amount of purchases over a set amount of time. NonCumulative when you buy a large amount and get a discount. Seasonal: To smooth out seasonal peaks and troughs{e.g. seasonal clothes sell out} Trade: manufacturers share the cost of retail promo efforts Cash: discount of paying a bill/credit quickly ~Allowances-> Trade-in: Price reduction given when a used product is part of the payment on a new product (car trade in) Promo: actual cash payments(free goods for big purchases / supermarket discounts) ~Geographical-> Free On Board Origin (FOB pricing): seller s price quote does not cover transport charges Uniform Delivered Pricing: seller covers transport & delivery charges Single zone pricing (same price everywhere) Multiple zone pricing (price varies with location) FOB with freight allowed (reimbursement of transportation charges) Basing point pricing (freight charges from designated delivery points) 14) Legal aspects ~Price Fixing-> Horizontal price fixing: collaboration among competitors (Sherman Act) Vertical price fixing: Coercing retailers to sell above a floor price (Consumer Goods Pricing Act) ~Price discrimination-> Goods of same quality and grade have to be sold at same price to all buyers (Robinson Patman Act) ~Permitted Price discrimination-> Cost justification defense: Prices can vary based on cost of delivering to different consumers Changing market conditions Meet the competition defense: Price changes to meet competitor s price Proportionally equal promotional allowances are allowed ~Predatory pricing-> Practice of charging very low price for a product to drive competition out of business Increasing the price once the competitors leave the market CH 11 1) Product life cycle (PLC) stages introduction, growth, maturity, decline strategies and marketing mix in each stage a. Introduction stage Slow growth/minimal profit/small # of brands/objective is to create awareness & simulate a consumer trial/companies focus on triggering primary demand/Price strategies-penetration & skimming/sales depend on ads b.Growth stage Rapid in sales & brand proliferation/ repeat purchase/focus on selective demand & distribution c.Maturity Stage-> Slowing of industry sales/profits /fierce competition/sales depend on price reduction & promo/focus on maintain market share/mostly repeat purchases/ marginal competition leave market/ d. Decline stage Drop in sales & profits due to tech innovation, next product cycle has begun/Strategies to handle decline (product deletion like floppy disks/harvesting like cd drives) 5) PLC characteristics length, shape how it looks for different products Length: can be in days or centuries. (Consumer goods have shorter lifecycle than business goods) (Shorter product life cycle for technology goods)
6) Classifying consumers Innovators: higher educated/use multiple info sources/venturesome (2.5%) Early adopters: leaders in social setting/ slightly above educated (13.5%) Early majority: deliberate/many info social contacts (34%) Late majority: skeptical/below average social status (34%) Laggards: fear of debt/neighbors & friends are info sources (16%) 7) Category development index (CDI)
Brand development index (BDI)
8) Extending PLC > Market change Market penetration ( use) Market development (new users) Create new use situation Product change Product modification (change product) (e.g. cell phone versions) Product repositioning (change price, promo, or place 9) Product repositioning reasons Reaching new market-> e.g. Ice tea positioned against soft drinks Reacting to competition-> e.g. GM focusing on gas mileage Catching rising trend-> Healthy alternative from all regular products Changing value offered (trading up cable/down airline) 10) Definitions Brand Name: Word, design, sound, shape, color to distinguish the seller s goods or service (e.g. Windows) Trade Name: Company s legal name (e.g. Microsoft) Trademark: Legally registered brand or trade name to prevent counterfeiting (e.g. Nike swoosh) Brand Personality: Human characteristics associated w/ brand name Brand Equity: Added value to the product beyond the functional benefit (competitive advantage & willingness to pay more). 11) Branding strategies multi product branding (line extension, brand extension, sub-branding, co-branding), multi branding, private branding, mixed branding ~Multiproduct Branding: Using same brand name {E.g. Sony, GE}
Types Brand Extension: Using same brand name in a different category {E.g. Weight Watchers Cereal} Line Extension: Using same brand name for an incrementally new product {E.g. Aquafina water in Strawberry, Blueberry flavors} Sub-branding: Combine family brand name with new brand name {E.g. Gatorade X-Factor} Co-branding: Combine with other company s brand name {E.g. Crest with Scope} ~Multi branding: Giving a distinct name to each product {E.g. Toyota & Lexus} ~Private Branding: Store Brands {E.g. Wegmans Eggs, Care One Toothbrush} ~Mixed Branding: {Uses own & reseller s brand name E.g. Epson & IBM Printers} 12) Packaging benefits (communication, functional, perceptual), warranties express, implied, full warranties Usually account for 15% of consumer product costs Warranties->statements indicating the liability of manufacturer for product deficiencies. CH 15 1) Definitions Middle men: Any intermediary between manufacture and end-user markets. Agent or broker: Any intermediary with legal authority to act on behalf on the manufacturer. Wholesaler: Any intermediary who sells to other intermediaries. Retailer: Any intermediary who sells to consumers. Distributor: An imprecise term usually used to describe intermediaries who perform a variety of distribution functions (selling/inventory maintenance/credit extension/etc) May also be referred as wholesalers. Dealer: An even more imprecise term that can mean the same as distributor, retailer, wholesaler, and so forth. 2) Utilities offered (time, place, form, possession) Time E.g. Time of delivery Place E.g. Gas stations in highways Form E.g. Bottlers for soft drinks Possession E.g. Travel agency delivering air tickets 3)Functions performed (transactional, logistical, facilitating) Transactional: buying, selling and risk taking Logistical: gathering, storing and dispersing Facilitating functions: making goods and services more attractive to consumers
4) Types merchant wholesalers (general, specialty, rack jobbers, cash & carry, drop shippers, truck jobbers), agents (manufacturer s agents, selling agents, brokers)
5) Channel structure direct channel/indirect channel, electronic, direct marketing (telemarketing, direct mail, catalog) 6) Multi channel distribution dual distribution, strategic channel alliance examples Dual Distribution E.g. Hallmark cards in Hallmark stores and Ambassador brand cards through retail stores Strategic Channel Alliance E.g. Kraft and Starbucks 7) Vertical marketing systems A->Corporate Vertical Marketing System Forward Integration E.g. Ralph Lauren/Polo Backward Integration E.g. Kroger B->Contractual Vertical Marketing System Wholesale sponsored: Wholesalers having contracts with small independent retailers Franchising: Contract between a parent company and a franchisee Retail sponsored: Small independent retailers cooperate to operate as a wholesaler C->Administered Vertical Marketing System E.g. P&G as a manufacturer E.g. Walmart as a retailer
8) Channel choice considerations A->Target market coverage (intensive, exclusive, selective distribution) Intensive distribution {E.g. cola, coffee} Exclusive distribution {E.g. Gucci, Automobile dealers} Selective distribution {E.g. Rolex watches, Branded clothes} B->Satisfying buyer requirements (information, convenience, variety, pre-post service) Information {E.g. Apple stores} Convenience {E.g. Seven-Eleven stores} Variety {E.g. Tops, Wegman s, Petco} Pre or Post sales service {E.g. Whirlpool} C->Profitability (cost, profit) 9) Legal issues Dual distribution: selling through multiple channel members isn t directly illegal, but intended to reduce competition.
Vertical integration: multiple channel members owned by the same company is treated the same way. Tying arrangements: when a supplier requires the distributor to buy other products as well. Refusal to deal: is sometimes illegal (supplier refusing to deal) Resale restrictions: When a manufacturer restricts where the distributors can distribute the product. 10) Channel management vertical conflict (dis-intermediation, margin disagreement, marginalization), horizontal conflict, channel captains, sources of channel influence (economy, expertise, identification, legitimate right examples) A->Vertical conflict Disintermediation(e.g. Jenn-Air) | Margin disagreement (e.g. Universal music case) | Marginalization(e.g. Nike vs. Footlocker) B->Channel Influence Economic (e.g. Wal-mart) | Expertise (e.g. American Hospital supply) Identification (e.g. Ralph Lauren line) | Legitimate right (e.g. franchising) CH 19 1) Advertising: Any paid form of non-personal communication about an organization, product, service or an idea. A->Product Advertisements Pioneering (Informational): What, Where, Interesting, Convincing and Effective Competitive (Persuasive): Comparative (Brand s features and benefits) | Reminder: Reinforcement B->Institutional Advertisements (Public relations) Advocacy: Position of the company on an issue | Pioneering: What, Where (about the company) Competitive: Promote one product class over another | Reminder 2} Developing the Advertising Program A->Identifying the Target Audience: Lifestyles, Attitudes, Demographics B->Specifying Advertising Objectives: Promotion Decisions (selecting media, evaluating a campaign, evaluating sales) | Creating awareness | Factors Influencing Ad campaign (product category, brand name, consumer involvement) C->Setting the Advertising Budget D->Designing the Advertisement: Message Content (fear, sex, humor appeals) | Actual message (informational, persuasive) E->Selecting the Right Media:
To find best way to meet customers use Cost per Thousand (CPM) formula
F->Scheduling the Advertisement Factors (buyer turnover/purchase frequency/forgetting rate) Continuous schedule (steady-throughout the year) | Fighting schedule (-intermittent seasonal) Pulse (Burst) Schedule: sudden in demand / heavy promo/ new product info 3) Pre-testing Portfolio tests: choosing 1 among many ads Jury tests: rating selected ad Theater testing: through device or questionnaires 7) Ad execution agency types (full service, limited service, in-house)
8) Post testing Aided recall: people are shown an ad, then shown an aid to remember the ad & asked what they remember. Unaided recall: What ads do you remember seeing yesterday? Attitude tests: Respondents are asked questions to gauge the change in their attitudes after viewing ad. Inquiry tests: Additional info on the product is offered after the ad is shown; the one w/ the most inquires Sales tests: ads shown in certain markets/manipulating ad variables 9) Promotions allowances (merchandise, cash, finance (floor stock protection, freight allowance), cooperative advertising
