Chapter 5: Price, Promotion and Place

Question 1

What significance do prices have among the marketing tools?

Answer 1

• Together with the product, they define the performance and also the customer value via the perceived cost-benefit ratio
  • Prices directly affect turnover as compensation per sold good or service

Question 2

What is the definition of pricing policy?

Answer 2

The sum of all “marketing policy measures for determining and ensuring monetary return from the customer for the good or service offered by an enterprise”

Question 3

What is the contraction policy?

Answer 3

Goes further than pricing policy and comprises, besides pricing policy, terms polics and marketing

Question 4

What does marketing rely on during the design of the pricing tool?

Answer 4

During the design of the pricing tool, marketing relies on customer behavior assumptions or behavior models that are similar to those of microeconomics

Question 5

What is the neoclassical pricing theory?

Answer 5

Neoclassical theory assumes that people behave in a purely utility-optimising way (homo oeconomicus)

=> this model assumes a largely mechanistic customer behavior in the sense of a homo economicus

Question 6

What is the behavioral pricing theory?

Answer 6

Behavioural science theory assumes that human beings do not always behave like “homo economicus”

Question 7

What does the demand curve show regarding prices?

Answer 7

The curve shows how much of a product can be sold at a specific price (P) on the total market.
On an individual level, every tiny point on the demand line (D) corresponds to a customer.
- If a customer or his or her preference and thus willingness to pay are above the price line, they will buy.
- If a customer is beneath the price line, he or she does not make the purchase

Question 8

What is a consumer surplus?

Answer 8

A customer who is willings to pay a higher price than price P gets a consumer surplus (e.g. customer W who is willing to pay P’).
==> The customer gets the good or service for a more favorable price than what he is willing to pay

Question 9

What are price elasticities?

Answer 9

A relative change in the quantity of sales in reaction to a relative change of price

Question 10

When do we speak of a high price elasticity?

Answer 10

If the percentage change in quantity demanded is strong compared to the percentage price change, one speaks of high price elasticity.

Question 11

When do we speak of a price inelastic demand?

Answer 11

If the percentage change in demand to a given percentage price change is slight, one speaks of a price inelastic demand.

Question 12

What are examples for inelastic price reactions?

Answer 12

• With “compulsory products”
  (garbage sacks, toilet paper, sugar or salt)
  • With products for which the purchase price has little relevance for the consumption decision
    (for example buying skiing day passes during bad weather:
    The bad weather is a dominant stimulus that leads to non-purchase even with a large discount)

Question 13

When do discounts make sense and why?

Answer 13

For companies, price discounts pay off during price-elastic demand and relatively low marginal cost for additional performane units because the total turnover increases with little additional cost.
(The percentage increase of the quantity of sales is higher than the percentage price loss).

Question 14

What is the tipping effect with inelastic demand?

Answer 14

increases in the market price often pay off during inelastic demand.
In practice tipping effect can often be observed here; if prices change out of a certain fluctuation margin, customers react powerfully.

Question 15

Behavioral-science pricing models:
There are two basic concepts.
What are anchor or reference prices?

Answer 15

Anchor or reference prices that price stimuli are compared to.
In this comparison, prices are assessed relative to the reference price as an assessment anchor and not starting from the absolute price that has to be paid

Question 16

Behavioral-science pricing models:
There are two basic concepts.
What are Price stimuli?

Answer 16

Price stimuli lead to purchase or non-purchase or a quantity decision, as well as to behavioral-science responses.
Example: this can be a change of image
==> If an offered price for a good or service is below what one expects from the provider on the bassis of his image it can lead to non-purchase beacause one does not trust the offer - the provider’s image is affected

Question 17

What is the insurance function (regarding the concept of price stimuli)?

Answer 17

Insurance function

Prices also have an insurance function
If customers have little experience consuming certain tyoes of products (for example during the initial purchase of medication) many do not choose the cheapest variant.
==> One expects higher quality of the higher price. The higher price thus acts like an insurance rate

Question 18

Assimilation contrast theory: What is assimilation?

Answer 18

If a price stimulus is within certain ranges, the good or service is bought and the reference price adjusted where necessary

Example:
a customer has a fixed reference price of 900 CHF for a flight from Europe to New York.
If he gets a seasonal special offer of 360 CHF and his lowest point for assimilation is 250 CHF he will book the flight and adjust his reference price downward at the same time.

Question 19

Assimilation contrast theory: What is the contrast?

Answer 19

If the price lies outside a range it is suppressed or not perceived as relevant.
==> the good or service is not purchased (resistance) or there is negotiation.

Example:
a customer has a fixed reference price of 900 CHF for a flight from Europe to New York.
If he gets a seasonal special offer of 360 CHF and his lowest point for assimilation is 250 CHF he will book the flight and adjust his reference price downward at the same time.

Question 20

What conclusions do companies draw on the basis of the behavioral-science pricing models?

Answer 20

• A provider can establish a higher price on the market with a better good or service and through high-quality positioning of it with marketing tools like advertising
  (For example through developing into a more high-quality price category among customers)
  
  • When offering a similar good or service compared to competitors, companies can gain competitive advantages with a lower price, provided that the market reacts elastically and the marginal costs are in reasonable proportion to the price.

Question 21

“Prices always have a threefold effect” Which effects are these?

Answer 21

• An acquistive effect as price stimuli
  
  • An effect via their function as cost-and-profit coverage
  • And a behavioral-science effects as an influence on image, price satisfaction, perceived fairness or insurance

Question 22

What are the short-term effects of discounts?

Answer 22

A massive lowering of prices via a discount can lead to mroe products being sold in the sense of the neoclassic theory.

Question 23

What is the long-term effect of discounts?

Answer 23

On the basis of the behavioral-science price theory one has to assume that consumers learn and either
- adjust their price expectation downwards so that higher prices can hardly be esatblished after the discount
- Or rate the provider’s image lower
==> Price stimuli for short-term acquisition goals thus have to be carefully examined and accompanied by communicatoin measures
(for example reasons for the discount like seasonal discount, limitation to specific customer groups)

Question 24

Which are the two basic pricing tasks?

Answer 24

1. Determining a basic price
   
   2. The reasonable organization of price differentiation measures

Question 25

Revenue Management:
Which three different concepts are there?

Answer 25

• Price differentiation
• Yield Management
• Dynamic pricing

Question 26

What is price differentiation?

Answer 26

Sale of factually identical products (goods and services) by one supplier to different customers/customer groups (market segmentatoin) at a different price; enables the (partial or total) skimming off of profit potential (price management)

Question 27

What is yield management?

Answer 27

System of demand management based on capacity availability and prices; this is used by service companies with the aim of maximizing the overall turnover of the company by giving priority to the demand with the highest willingness to pay

Question 28

What is dynamic pricing?

Answer 28

Pricing strategy in which companies permanently adjust the prices of products or services to the market situation. This price adjustment often takes place automatically using defined algorithms.
Factors such as competitive prices, supply and demand, weather etc. are included.

Question 29

Where can we start when we want to determine a basic price?

Answer 29

One can start from the central dimensions of price formation to determine a basic price
- Provider’s costs
- Customer benefit
- Competitors
==> Prices have to be in reasonable accordance with the benefit received by the customer and correspond to the good’s or service’s positioning compared to competitors.
At the same time they have to afford sufficient cost coverage.

Question 30

What is long-term development of a price?

Answer 30

During the introduction of totally new products (such as the iPad) the issue of long-term development of a price arises.
- Low prices would make a rapid spread of the product easier, whereas it would be difficult to raise prices during a later phase.
The customers’ reference prices would have to be shifted.
- A higher price make the product’s diffusion more difficult but can help position the product as high quality and exclusive.

Question 31

What is the penetration strategy?

Answer 31

Low prices that are raised slowly

Question 32

What is the skimming strategy?

Answer 32

High prices that are lowered successively

Question 33

What is important in the individual price determination? What are fencing techniques?

Answer 33

It is important that individual pricing models are consequently guided by the customer benefit of the respective customer or customer category.

Differentiation mechanisms are necessary so that customers who get a high customer benefit do not benefit from low price categories
(One also speaks of so-called fencing techniques)

Question 34

How can price schemes be designed?

Answer 34

These mechanisms are applied so that different prices are acceptable for the customers as well.
Products are “framed” so they are acceptable in customer perception.

Example:
Very expensive flight categories have special services, economy not.
Price differentiation can address different features of demand for this.

Question 35

What are the goals of dynamic pricing?

Answer 35

• Skimming e.g. bank
• Inventory control e.g. airline
• “Stealth Price increases” e.g. ski resorts

Question 36

Pricing over time:
What is the static view?

Answer 36

Base price –> Price differentiation

The determination of the basic price is set together from the costs, the demand (customer benefit and elasticity) and the competitors (Market structure, substitutability, strategic objectives)

Question 37

Pricing over time: What is the dynamic view? Which two strategies are there?

Answer 37

Modificatoin of prices over time.

Skimmin strategies
==> First skim highest willingness to pay, the reduce prices gradually

Penetration strategies
==> First penetrate markets with low prices, then gradually increae prices

Question 38

What is the definition of a distribution policy?

Answer 38

The distribution marketing tool refers to all decisions by an enterprise that serve to supply the various performance elements in the offering to the consumer.

Question 39

Which are the two most important functions of distribution? What are the goals of these?

Answer 39

Acquisitional distribution:
Design, relationship with buyers
Goal: Retention, Acquisition

Physical logistical distribution:
Transport, storage, delivery, commissioning, service
Goal: Delivery in the right place, in the right quantity, at the right time

The importance depends on the product

Question 40

How did the marketing tool distribution change over time?

Answer 40

Originally the task was mainly to overcome the physical distance between producer and consumer.
Later the goal widespread availability in all those locations where the customer could develop a need for the good or service had priority.
Today it is mainly about creating additional customer benefit for high-involvement and community products
Example: by designing distribution as events in the form of community meeting points

Question 41

Which six functions does distribution have?

Answer 41

• Logistic function
  (overcoming distance between provider and customer)
• Payment function
  (collection from customer and securing return flows to provider)
• Range function
  (presenting the product in a range and integrating the product into a saleable output system for example if ski boots are integrated into skiing equipment)
• Acquisition function
  (Acquiring customers through direct contact and reaching as many customers as possible)
• Experience function and further customer value functions
  (by designing purchase as an experience and offering other usage components such as the opening of social networks)
• Service function
  (delivery and installation or maintenance)

Question 42

There are three strategies in the distribution sector. Which are they?

Answer 42

• Selective distribution
• intensive distribution
• exclusive distribution

Question 43

What is selective distribution? Advantages and disadvantages?

Answer 43

A product is only available via individual speciality retailers.
==> This leads to a high consultancy service and low distribution costs but also a limited acquisition potential.

+ Low distribution costs
- Low acquisition potential

Question 44

What is intensive distribution? Advantages and disadvantages?

Answer 44

A product is made available almost anywhere
==> this leads to a higher acquisition potential via availability but also raises distribution costs.
Often, shelf space for new products in retail has to be bought with special discounts or margis for the retailer

+ Broad availability
- High costs

Question 45

What is exclusive distribution? Advantages and disadvantages?

Answer 45

Products are made available through distribution channels where they go through a special image transfer
==> these products have a large positioning effect and limited sales or diffusion potential
(for example when fashion products are only available in airports and in prominent locations in the world’s largest cities)

+ Positioning
- Reduced availability

Question 46

What are criteria based on which the distribution system can be designed?

Answer 46

• Costs and revenue effect
  
  • Customer behavior
  • Product-specific features such as special storage conditions or specific servie requirements

Question 47

Classic distribution systems are based on different stages.

Which are these stages?

Answer 47

• Retail (e.g. supermarkets)
• Wholesale (e.g. a general importer)
• and other forms of sales intermediaries depending on the industry

Question 48

What is intermediation and disintermediation?

Answer 48

Intermediation:
Involvement of new sales means such as brokers

Disintermediation
Elimination or bypassing of stages for example farmers selling directly online

Question 49

What are the distribution decision-making criteria?

Answer 49

• Effects on capital, costs, revenues
  (importance of cash reflows)
• Properties of demand
  (type of decision-making, quantity)
• Product-specific properties
  (complexity, perishability)
• Properties of intermediaries
  (closeness to customers, qualification of the staff)

Question 50

What does the communication policy encompass?

Answer 50

Communicatoin policy encompasses all the decisions and action for the determination and communication of information and meaning contents in chosen target groups with the objective of influencing.

While price and performance influence customer value directly, distribution influences it indirectly through availability and additional benefit categories.

Question 51

How does communication create indirect customer value?

Answer 51

Communication can create indirect customer value in the form of prestige, imbuing products with an image, and thus enabling products to contribute to identity.

Question 52

Which are the two goals of a communications policy?

Answer 52

Acquisition goal
- short-term
- sales
==> turnover/contribution margin

Reputation goal
- Long-term
- image
==> Brand equity

Question 53

How is the impact of communication channels understood especially?

Answer 53

The impact of communication models is understood especially in process models.

- The encoding of the message has to be compatible with the decoding mechanism of the recipient i.e. the same tonality of the language and the same symbols should be used.
(communicate according to the target group)

- Communication media or transmission channels have to aim at the right target group but also at the right point in time and the right product category.
(For high-involvement products such as sports equipment, consumers look for information in professional journals or on professional and community websites rather than in general magazines.

Question 54

Communication’s objectives can be depicted in a hierarchy and include which objectives? (Also in the correct order)

Answer 54

• Awareness objectives
  which bring goods and services, products and brands into the consumers’ “latent set”, meaning general awareness
  • Acceptability objectives
    which bring goods and services, products and brands into the consumers’ accepted short list (evoke set) for a use, purpose or a usage category
  • Profiling objectives
    which positiviely differentiate goods and services, products and brands from competing offers

Question 55

Planning model for communication:
The essential aspects of a communication concept can be worked on by answering seven questions in the sense of a decision template.

Which are these questions?

Answer 55

Who?
Target group

What
Content of information

How?
Design, message

With what?
Communication tools

How much?
Budget

Where?
Input location

When?
Input time

Question 56

Which are the traditionally seen communication tools?

Answer 56

• Advertising
• Sales promotion
• Fair
• Personal sale
• Sponsoring
• Product placement
• Event marketing
• Multi-media communication

Question 57

What are examples for new media areas?

Answer 57

Internet and social media presences

Question 58

Which communication tool is getting more and more attention?

Answer 58

Public relations

Question 59

What is advertising?

Answer 59

Communication that is based on paid media (e.g. newspaper advertisements) and is completely in the hands of the company or the broadcaster regarding content, form and placement.

Question 60

What are public relations?

Answer 60

a strategic process that helps an organization build and maintain positive relationships with its various publics, such as customers, employees, investors, and the media. It involves crafting and delivering a consistent message that aligns with the organization’s goals and values.

Typically, one does not communicate in paid media that are under the autonomy of an editorial team.
This can be the case if a media conference is held for the launch of a new product and online information platforms or regional TV stations cover the new offer afterwards.

Question 61

What are sales promotions?

Answer 61

Denotes a wide range of measures for the short-term stimulation of sales.
Appearances at fairs or creating prize competitions are important sub-tools of sales promotion.
Often the transition from sales promotion to personal sale is fluid.

Question 62

What are personal sales?

Answer 62

Is the individual interaction with individual customers or customer groups, for example if a sales person approaches potential buyers at a carnival.

Question 63

What is sponsoring, product placement and event marketing?

Answer 63

Are indirect tools with which products or messages are delivered via third parties, e.g. a sponsored athlete.

The media space of the event, the film or the sponsored object or person is effectively used jointly.

Question 64

Which are examples for different possible forms of an internet presence?

Answer 64

• Designing one’s own web presence and sales platforms (e-commerce) or even community-chat platforms that faciliates the exchange in a company or brand-related community
  
  • Buying advertising space on websites
  • Placing one’s own products, brands or enterprise in search engines through active influencing or by buying placements

Question 65

What is tactical communication planning?

Answer 65

This is about coordinating the individual tools

Question 66

Which are the three steps depicted in a simplified impact diagram?

Answer 66

1. It makes sense to do general public relations before a product launch to create awareness.
2. Later a preference can be created through advertising.
3. Following this, a profiling can be achieved through sales promotion and personal sales, for example in the form of direct marketing by personally addressing individual customers.

Accompanying tools such as sponsoring an event that is compatible with the image and takes place at the same time can support this course of action.

Question 67

What developments can be observed in marketing and what challenge can be derived?

Answer 67

Generally, a change from unilateral media to interactive media and thus a development toward more on-demand information can be observed
==> Therefore marketing communications’ challenge is to call enough attention to a company or product or brand that the intended target groups actively seek information.
In this context, many speak of the scarcity of attention or “attention economy”.

Question 68

What is viral marketing?

Answer 68

Another trend is viral marketing
By providing suitable contents (e.g. attractive films or games) one activates an actual C2C action process.

Question 69

What is the definition of the marketing mix?

Answer 69

“Selection of marketing tools on their qualitative and quantitative level for the achievement of long-term strartegic and short-term operational marketing and corporate objectives”

The application of the individual marketing tools or their sub-tools has to be geared to the marketing objectives and brought into agreement with the strategy.
==> The decision regarding the application of the whole set of tools is called marketing mix

Question 70

What is the overall objectives of the marketing goals?

Answer 70

• The overall objective is to reach a maximum effect on customers
  (in the form of short-term contribution margins and/or long-term market positions)
  • With a given use of resources
    (marketing budget)

Question 71

Which difficulties arie when planning the marketing mix?

Answer 71

• The individual tools influence each other in their effect and thus their application
  
  • The conditions for the application change constantly due to market conditions or environment conditions and because new marketing tools are developed frequently
  • A large number of combination options of the different tools exist and there is therefore a very large space for solutions
  • A marketing mix for a target group radiates to other market segments due to the diffusion effect of some tools

Question 72

What is a dominance-standard model?

Answer 72

Concerned with the search for an optimal sequential prioritization or simultaneous application of marketing tools in the marketing mix.

Question 73

Which two different methods are there to optimize tool application?

Answer 73

• Quantitive optimization models
  aimed at calculating an optimum application of resources (e.g. regarding budget allocation),
  ○ with mathematical methods (e.g. from the area of operations research)
  ○ and in multi-stage computing processes on the basis of behavioral models.
  
  • Heuristic methods
    budgets are assigned to individual tool groups and then successively to individual tools in multi-stage decision processes

Question 74

What is the marketing plan?

Answer 74

Common method in practice is the marketing plan

(Companies often develop their own template for this)
In most of these templates, the individual tools are listed and concrete measures per tools are defined.

The plan determines the budget allocation and timing of tool application over the course of the year.
==> Overviews like that are especially helpful for the coordination of the interaction of the tools over time