Chapter 7

Question 1

what are the 4 Ps

Answer 1

Product, price, place, promotion

Question 2

define advertising, direct marketing, sales promotion, personal selling

Answer 2

advertising: any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor

direct marketing: the use of mail, telephone, the Internet, and other non-face-to-face contact tools to communicate with or solicit a response from specific customers + prospects

Sales promotion: Short-term incentives to encourage customers to try or purchase a product/service

personal selling: face-to-face interactions with one r more prospective customers for the purse of making a sale

Question 3

what are the interactions marketers use to influence customer demand

Answer 3

marketing levers, delayed effects (spending now may affect demand in the future), competitive effects (current actions may cause or be driven by competitive actions), product line, geographic, and channel considerations

Question 4

why is price the only marketing variable that directly affects revenue

Answer 4

profit = (unit price - unit cost) x Quantity sold

price affects margins by the unit price, has an indirect effect on unit cost, and price affects the quantity sold

Question 5

explain the law of demand in marketing and economics perspective

Answer 5

based on the postulate of a rational customer who has full knowledge of the available goods + their substitutes, a limited budget, and drive to maximize their utility

Question 6

what’s the formula to price elasticity fo demand

Answer 6

elasticity = fraction change in demand/ fraction change in price = [(Q1-Q0)/Q0]/[(P1-P0)/P0]

Question 6

how can we determine if the firm’s price is too high or too low and how to maximize revenue

Answer 6

using the demand function we can determine the firm’s price and if the firm’s price is too high to maximize revenue

maximize profit depending on cost behaviour

Question 7

what represents the price quantity relationship

Answer 7

linear and constant-elasticity
(curvilinear relationship)
assumptions: firm’s objective in setting its price is maximizing the short-run profits it can realize from a particular product, the only outside parties to consider in setting the price are the firm’s immediate customers, price setting occurs independently of the levels set for other variables in the marketing mix, demand and cost equations can be estimated with sufficient accuracy, the firm has true control over price; it’s a price market not a price taker, market responses to price changes are well understood

Question 8

how may customers interpret price reduction

Answer 8

the product is about to be superseded by a newer model, the product has some faults and is not selling well, the firm is in financial trouble and may not stay in business to supply future parts, the price will come down further so it’s better to wait, quality has decreased

Question 9

how may customers interpret a price increase?

Answer 9

the product is hot and may soon be unobtainable, the product represents an unusually good value, more price increases are ahead so it’s better to buy now

Question 10

is the classical model useful for decision making in pricing?

Answer 10

no, firms tend to base their pricing decisions on cost, demand or competition

Question 11

when can a rigid markup at the right level led to optimum profit

Answer 11

if average unit costs are fairly constant for different points on the demand curve and costs are constant over time

Question 12

the more ____ the demand for the product is, the ___ the markup over marginal cost should be

Answer 12

the more inelastic the demand for the product is, the higher the markup over marginal cost should be

Question 13

what’s a caveat of cost oriented pricing

Answer 13

many firms set their prices on the basis of their costs, but t generally doesn’t make sense to use a rigid, customary markup amount over cost bc it ignores the current elasticity of demand

Question 14

what’s demand oriented pricing

Answer 14

observes demand for the product at various price levels - focusing on customer value. demand oriented pricing attempts to charge a higher price when demand is strong and a lower price when demand is weak, even if product cost remains the same

Question 15

what’s the gabor-granger method

Answer 15

the simple method to estimate customers’ willingness to buy at different price points and interpolate between those price points - viewed as a simple alternative to conjoint analysis except that it focuses only on price.

Question 16

what’s the problems with the gabor granger method

Answer 16

customers overestimate their likelihood of buying, there isn’t enough data to estimate a demand curve for each respondent; respondents are aggregated and a respond curve is estimated for the entire sample.

the results are sensitive to how the survey responses are translated into purchase likelihood, the model might overestimate the optimal price point and sales potential, if the optimal price point falls outside the range of tested price levels - the model predictions aren’t reliable and study should be conducted again to include those price levels, the model doesn’t readily provide margins of error or confidence intervals for the optimal price level. as well, at the optimal price point, sales never reach maximum potential, there will always be customers who do not buy the product bc it falls outside of their price range - thus if no customer complains that your prices are too high, it means that your product is priced too low for optimal profit

Question 17

what’s the van westendorp pricing method

Answer 17

asks 4 questions; at what price would you say product X is: too cheap, a bargain, expensive, too expensive - provides a good framework when there’s insufficient solid data.

optimal psychological price is where too cheap and too expensive lines cross. expected price is where the bargain and the expensive line cross .
marginally expensive price is where too expensive cross bargain
marginally cheap is where too cheap and expense cross

Question 18

what’s value-based pricing

Answer 18

product’s price should relate to the value a customer places on the product

Question 19

what’s competition-oriented pricing

Answer 19

a firm tries to maintain its price at the average level charged by the industry

selling in a competitive market with a homogenous, means that the firm is a price taker

in an oligopoly the firms are similar as lower prices will likely capture of the market share

in markets with product differentiation, individuals firms have more latitude in their pricing decisions.

Question 20

what are the difficulties in implementing price discrimination

Answer 20

1. identifying customers’ reservation prices is difficult
   2, targeting a particular price at a particular segment is difficult
2. preventing arbitrage is difficult
3. charging different prices to different segments for an identical product may be illegal if price differences are based on certain groups or if price discrimination has the effect of reducing competition in the industry
4. customers may view price discrimination as unfair

Question 21

what customer characteristics are most commonly used for price discrimination?

Answer 21

age, income/education, profession, membership

Question 21

how can a firm implement price discrimination

Answer 21

the firms must understand how to separate the market segments and support the price discrimination program through advertising, distribution and other marketing instruments - geographic and temporal variations in pricing, use nonlinear pricing and employ nonprice marketing instruments

Question 22

when would it not be appropriate to single price products

Answer 22

products in a line may relate to one another on the demand side (substitutes or complements)

cost interdependencies may mean shared production, distribution or marketing expenditures

some products might be sold together as a bundle, which creates complementarities

the price of 1 product in a line may influence the buyer’s subjective evaluation of other products in the line

Question 23

what are the questions to ask when justifying marketing communications and promotions budgets

Answer 23

how much should we spend in total during a given planning horizon?

how should that spending be allocated to each marketing mix element? how much of our budget be spent on advertising and other forms of impersonal marketing communications? one sales promotion? on the sales force?

how should those individual budgets be allocated? to customers? to geographies? to sub elements of the marketing communications mix? over time?

Question 24

advertising vs promotions in price sensitivity

Answer 24

advertising reduces price sensitivity in the long term, while promotions increase price sensitivity

Question 25

why is advertising so confusing?

Answer 25

firms want advertising to increase company sales and profits but advertising can rarely create sales by itself

advertising decisions and their effectiveness depend on their interaction with marketing objectives, product characteristics and various other elements of the marketing mix

Question 26

when to use personal selling

Answer 26

personal selling is far more effective than advertising but it’s more expensive, so it’s most effective when the expected level of sales to a single prospect is large (B2B)

Question 27

tell me about branding

Answer 27

brand names can be used to advertise separate products or combine different products into 1 line to advertise. there’s pros and cons to each

Question 28

tell me about pricing

Answer 28

any advertising must reinforce and be consistent with the brand’s price position

advertising for premium priced brand should emphasize tis differentiated qualities where as a low priced brand should stress its low price

Question 29

how can a firm influence wholesales or retailers

Answer 29

push or pull strategy

push strategy; firm directs its marketing efforts towards salespeople or the trade industry with the objective of pushing the product through the distribution channel

pull strategy: requires the firm to aim its marketing strategy at the ultimate consumer in an attempt to stimulate consumer demand - pulls the merchandize through distribution channels

Question 30

what are the 3 major decisions surrounding advertising

Answer 30

1. setting objectives and budgeting
2. developing the message
3. choosing media and vehicles through which the message will be delivered - both online and offline

time is an issue for all 3 decision area - timing of message, effectiveness of message (copy), spending over time

Question 31

what are the advertising decisions in practice

Answer 31

1. affordable method - set the advertising budget o what they believe their company can afford - fluctuating advertising budget that makes it difficult to plan for long range market development
2. percentage of sales method - advertising expenditure at a specified percentage of their sales - advertising expenditures vary with what the company can afford, encourages managers to think in terms of the relationship among advertising cost, selling price and profit per unit, and encourages competitive stability, but it uses circular reasoning, provides no logical basis for choosing a specific percentage expect historical precedent, costs, doesn’t encourage firms to appropriate funds for advertising constructively
3. competitive parity method - companies set their advertising budgets to match competitor’s outlays - competitors expenditures represent the collective wisdom of the industry and helps prevent advertising wars but not rlly bc there’s no evidence that it helps to stabilize industry advertising expenditure
4. objective and task method - advertisers develop their budgets by defining their advertising objective detailed, determine the tasks required to achieve these objectives and estimate the cost of those tasks - firms develop specific advertising goals, method enjoys strong appeal and broad popularity but it cannot choose the specific objectives or how to evaluate them to determine whether they are worth the cost of attaining them
5. marketing engineering approach - advertising response model that has the general structure of determining the market response to a spending level then determine the gross profit margin, then find the subbudgets to maximize profit

Question 32

what are the sales force decisions

Answer 32

1.organization - sales force structuring, sales force sizing, territory design
2. allocation - over products, customers, prospects, segments, timing/call planning
3. control - compensation, evaluation, motivation

Question 33

how to determine size of sales force

Answer 33

number of sales people = selling expenses as a % of sales / average cost of a salesperson

or number of salesperson = forecasted sales / average revenue generated by a salesperson

caveats; don’t account for possibility that some accounts or prospective may respond differently than the average account does, and fail to recognize that a firm cannot determine the best sales force size without knowing how to allocate the total sales effort most effectively

Question 34

what’s the marketing funnel

Answer 34

when experimentation is combined with a measurement approach 0 it facilitates both marketing budgeting and resources allocation - summarizes the mental stages that customers go through, from become aware of a product to eventually become loyal customers

acts as a useful tool to combine the psychology associated with customer behaviour with an assessment of the business value of various marketing activities

Question 35

what are sales promotions and examples

Answer 35

short term incentives designed to stimulate earlier or stronger responses from customers in a target market

coupons, premiums, contests, buying allowances, cooperative advertising allowances, free goods for distributors and dealers, discounts, gifts and extras for industrial users, sales contests and special bouses or members of the sales force

requires coordinated effort among retailers, wholesalers, etc

Question 36

how can a firm model promotional effects

Answer 36

firm must determine
1. the objectives of the promotion
2. characteristics of different promotion types and their purported effects on those objectives
3, the effectiveness of different promotions
4. range of promotion decisions

Question 37

what are the general objectives of promotions

Answer 37

1. communication - gain attention and provide information that may lead the consumer to the product
2. incentive: incorporate some concession, inducement or contribution designed to represent value to the receiver
3. invitation; include a distinct invitation to engage in the transaction immediately

Question 38

are brands with higher market shares less deal elastic?

Answer 38

yes

Question 39

what’s the effect of deal frequency

Answer 39

changes consumers reference prices

lower consumer reference price reduces the premium the firm can charge for its brand in the marketplace

greater deal frequency minimizes the sales spike in response to a deal

Question 40

are cross promotional effects symmetrical?

Answer 40

no they are asymmetrical promoting higher quality brands affects weaker brands disproportionately - as promoting higher brands generates more switching behaviours than does promoting lower tiers brands

Question 41

what’s the impact of promotions

Answer 41

brand loyalty, new triers may be attracted, promotions interact with other elements of the marketing mix, promotion results interact with production and distribution and thereby affect inventory levels rapidly and dramatically, promotional frequency influences promotion effects and relates to the average length of the product’s purchase cycle, the type of promotion can have differential effects on brand loyalty and promotional attractiveness, promotion size may have threshold and saturation effects (s-shaped sales response relationship), firms may experience different levels of success when implementing different promotions

Question 42

how to effectively determine sales force allocations

Answer 42

best models enable managers to monitor sales activities and focus on encouraging salespeople to work smarter not just harder