Marketing MC Concepts

Question 1

Sole Proprietorship

Answer 1

• owned by one person
• complete responsibility for liability/debt (unlimited liability)

Question 2

Partnership

Answer 2

• 2+ people
• general have unlimited liability
• limited, at least 1 general (unlimited liability), 1 limited (liable for capital contribution)

Question 3

C - Corporation

Answer 3

• separate legal entity from those who own it
• disadvantage: more tax deductions, double taxation (corporation pays taxes on profits, stockholders pay taxes on earnings)
• advantages: no limit on shareholders, limited liabilities, perpetual existence, unlimited growth potential (Stocks)
• shareholders elect board of directors to make decisions

Question 4

Limited Liability Company (LLC)

Answer 4

• members of an LLC are considered self-employed
• protects its owners from personal responsibility for its debts or liabilities
• advantages: limited liability, taxed at personal level, operational flexibility

Question 5

S - Corporation

Answer 5

• subchapter s corporation - no more than 100 shareholders
• taxed under Subchapter S of Internal Revenue Service (IRS) Code
• avoidance of double taxation, taxed at personal level

Question 6

Perfect Competition

Answer 6

• Many firms
• Freedom of entry/exit
• Homogenous goods - perfect information
• Normal profit

Question 7

Monopoly

Answer 7

• One firm domintates the market (at least 25% market share)
• Barriers to entry
• Possibly supernormal profit

Question 8

Oligopoly

Answer 8

• An industry dominated by a few firms
• Some barriers to entry
• Interdependence of firms
  1. Collusive behaviour - firms seek to form an agreement to increase prices
  2. Kinked demand curve - when prices are stable and firms compete on non-price competition

• e.g. 5 firm concentration ratio of > 50%

Question 9

Monopolistic Competition

Answer 9

• Several firms with brand loyalty
• Low barriers to entry
• Firms have differentiated products
• Less profit than monopoly
• Likelihood of normal profits in the long term

Question 10

Contestable Markets

Answer 10

• An industry with freedom of entry and exit
• Low sunk costs
• The theory of contestability suggests the number of firms is not so important, but the threat of competition

Question 11

Duopoly

Answer 11

• Where two firms dominate the market
• A duopoly falls between a monopoly and an oligopoly

• e.g. Pepsi and Coca Cola
• e.g. Android vs Apple

Question 12

Collusive Oligopoly

Answer 12

• A few firms fix prices and deter entry
• High profits like monopoly

Question 13

Matrix Organizational Structure

Answer 13

• Members of different groups/departments work together to develop product
• Uses horizontal authority to integrate departmental functions
• Applies resources efficiently since there’s a rep/expert on each major department

• Horizontal communication: within department
• Lateral communication: same level different department
• Upward/vertical communication: different levels

Question 14

Functional Organizational Structure

Answer 14

• Groups individuals through specific task performed, managers of the departments then report up to one president/vp

• Good: Separated by expertise
• Bad: Sometimes only focus on their area and don’t support functions of other departments

Question 15

Product Organizational Structure

Answer 15

• Organized by specific product type, one executive and then rest fall under it’s line of products

• Good: organizes by category
• Bad: Can create completely separate processes from each other
• e.g. Kraft > salad dressing, lunch meats, mac and cheese, ketchup, BBQ sauce

Question 16

Customer Orientated Organizational Structure

Answer 16

• Organized by customer type, done in effort to ensure specific customer expectations

• Good: specializes in needs of their customer groups
• Bad: can ignore needs of different customer types
• e.g. Health Care

Question 17

Geographical Organizational Structure

Answer 17

• Organized by geographical regions, logistical demands
• Typically reports up to a central oversight person

• Good: caters to different cultural and geographic customer expectations
• Bad: can cause conflicts between local and central management; duplication of jobs, resources, and functions

Question 18

Flat / Horizontal Organizational Structure

Answer 18

• Fewer levels of management or executives over employees
• Oftentimes, there are no middle managers present at the company

• Good: employees receive more responsibilities and allows for quick communication and decision making
• Bad: challenging for employees to specialize

Question 19

Traditional Economic Systems

Answer 19

• Based on goods, services, and work, all of which follow certain established trends
• Relies a lot on people
• Very little division of labor or specialization
• Usually very few resources to share in communities with traditional economic systems

Question 20

Command Economic Systems

Answer 20

• There is a dominant centralized authority – usually the government – that controls a significant portion of the economic structure
• Common in communist societies since production decisions are the preserve of the government
• In theory, the command system works very well as long as the central authority exercises control with the general population’s best interests in mind (not usually the case)

• Rigid
• React slowly to change because power is centralized
• Makes them vulnerable to economic crises or emergencies because they cannot quickly adjust to changing conditions

Question 21

Mixed Economic Systems

Answer 21

• Combine the characteristics of the market and command economic systems
• Also known as dual systems
• Mixed systems are the norm
• Supposedly combines the best features of market and command systems

• Practically speaking, mixed economies face the challenge of finding the right balance between free markets and government control
• Governments tend to exert much more control than is necessary

Question 22

Market Economic Systems

Answer 22

• Based on the concept of free markets
• Very little government interference
• Mostly theoretical
• From a theoretical viewpoint, market economy facilitates substantial growth

• Allows private entities to amass a lot of economic power (particularly those who own resources of great value)
• The distribution of resources is not equitable because those who succeed economically control most of them

Question 23

Income Tax

Answer 23

• A percentage of generated income that is relinquished to the state or federal government

Question 24

Payroll Tax

Answer 24

• A percentage withheld from an employee’s pay by an employer, who pays it to the government on the employee’s behalf to fund Medicare and Social Security programs

Question 25

Corporate Tax

Answer 25

• A percentage of corporate profits taken as tax by the government to fund federal programs

Question 26

Sales Tax

Answer 26

• Taxes levied on certain goods and services; varies by jurisdiction

Question 27

Property Tax

Answer 27

• Based on the value of land and property assets

Question 28

Tariff

Answer 28

• Taxes on imported goods; imposed with the aim of strengthening domestic businesses

Question 29

Estate Tax

Answer 29

• Rate applied to the fair market value (FMV) of property in a person’s estate at the time of death; the total estate must exceed thresholds set by state and federal governments

Question 30

Secured Personal Loans

Answer 30

• When you get a secured personal loan, you might provide your lender with access to your savings account, or secure the loan with a valuable item
• Banks often require a savings account or CD, while pawnshops can be sources of secured loans with a variety of valuable items
• If you don’t repay your loan, the lender can keep your property

Pros:
- potentially lower rates, because the security reduces risk to the lender
- potentially higher loan amounts, depending on collateral value

Cons:
- if you can’t repay the loan, you could lose your collateral

Question 31

Unsecured Personal Loans

Answer 31

• Rather than requiring collateral, lenders making unsecured loans rely on your credit score to make a decision about how much you can borrow and the rate you’ll pay

Pros:
- you’re not putting up anything of value as collateral, so the risk to you is lower
- in many cases, your payments and interest are predictable, so you know exactly when you’ll be done paying the loan
- if you have good credit, you’ll be rewarded with more favorable terms

Cons:
- you might be limited in how much you can bottow
- it can be harder to get a good rate if you have poor credit

Question 32

Cyclical Unemployment

Answer 32

• Occurs with changes in economic activity over the business cycle
• An increase in cyclical unemployement might suggest the economy is operating below its potential
• With more people competing for jobs, businesses might offer lower wage increases, which would contribute to lower inflation

Question 33

Structural Unemployment

Answer 33

• Occurs when there is a mismatch between the jobs that are available and the people looking for work
• Workers may become unemployed if they work in industries that are declining in size or have skills that could be automated as a result of large-scale technological advances
• Tends to be longer lasting than other types of unemployment

Question 34

Frictional Unemployment

Answer 34

• Occurs when people move between jobs in the labour market, as well as when people transition into and out of the labour force
• Generally shorter term (less than one month)
• Likely to occur at all points of the business cycle and may not influence wages or inflation

Question 35

Disruptive Innovation

Answer 35

• Most well-known
• Comes with effective uses of new technology and high-impact results
• Extremely flash and grabs headlines
• Comes with many nuances and challenges

Question 36

Incremental Innovation

Answer 36

• Constitutes a gradual, continuous improvement of existing products and services
• Least flashy
• Offers most evident value to an established bottom line
• By continuously improving products, services, and business operations, organizations can reduce stagnation and consistently grow market share

Question 37

Sustaining Innovation

Answer 37

• The best way to protect an organization’s position in a market
• Focuses on larger changes to gain or maintain a market-leader position
• Focused on creating new features or services that differentiate a product from all of its competitors

Question 38

Radical Innovation

Answer 38

• Typically utilizes a technological breakthrough that transforms industries and creates new markets
• Completely changes how an organization interacts with the marketplace
• Success is often related to the firm’s organizational behavioiurs and capabilities that create the right conditions for new ideas to be successfully commercialized in the first place

Question 39

Express Warranty

Answer 39

• Created when the seller makes a guarantee to the buyer that the product or service being offered has certain qualities

For an express warranty to exist, there must exist…
1. a statement regarding the product or service must be made to the buyer
2. the statement must play a role in the buyer’s decision to purchase the product or service

Question 40

Implied Warranty

Answer 40

• An unwritten promise created by the specific nature of the transaction, and the inherent understanding by the buyer
• Also applies when sellers present and sell a product fit to fulfill a specific purpose
• The buyer relies on the seller’s expertise to purchase the product
• Any statements made by the seller regarding the product can be considered assurances

Question 41

Extended Warranty

Answer 41

• A type of warranty that covers the repair and maintenance of a product beyond the manufacturer’s warranty
• Available on products of substantial value, such as cars, electronics, and appliances
• Sold by the retailer, the manufacturer is responsible for executing the extended warranty on behalf of the customer

Question 42

Special Warranty Deed

Answer 42

• Specific to real estate transactions whereby the seller issues a guarantee against title defects occurring during their ownership of the property
• Transfer property ownership from one person to another
• Assures the buyer that the title, during the seller’s ownership, is free of encumbrances, liens, or claim

Question 43

Balance Sheet

Answer 43

• The purpose of the balance sheet is to report the financial position (amount of assets, liabilities, and stockholders’ equity) of an accounting entity at a particular point in time

• Assets = Liabilities + Sockholder’s Equity

Question 44

Income Statement

Answer 44

• Statement of income, statement of earnings, or statement of operations
• Reports the accountant’s primary measure of performance of a business, revenues less expenses during the accounting period

• Revenues - Expenses = Net Income

Question 45

Graphic Rating Scale

type of survey rating scale

Answer 45

• Also known as a continuous rating scale
• The ends of the continuum are sometimes labelled with opposite values
• Respondents are required to make a mark at any point on the scale that they find appropriate
• Sometimes there are numbers along the markings of the line too
• At other times, there are no markings at all on the line

Question 46

Likert Scale

type of survey rating scale

Answer 46

• Typically contains an odd number of options, usually 5 to 7
• One end is labelled as the most positive end while the other end is labelled as the most positive one with the label of ‘neutral’ in the middle of the scale

• The phrases ‘purely negative’ and ‘mostly negative’ could also have been ‘extremely disagree’ and ‘slightly disagree’

Question 47

Semantic Differential Scale (Max Diff)

type of survey rating scale

Answer 47

• A combination of more than one continuum
• Usually contains an odd number of radio buttons with labels at opposite ends
• Often used in trade-off analysis such as conjoint
• Can be used in new product features research or even market segmentation research to get accurate orderings of the most important product features
• Derives utilities for each of the most important product features which can be used to derive optimal products, using market segmentation to put respondents into groups with similar preference structures, or to prioritize strategic product goals

• “Least” and “Most”

Question 48

Side-by-Side Matrix

type of survey rating scale

Answer 48

• Common question is the importance/satisfaction question
• With this type of data, you can actually see where your company needs to increase its efforts to more closely meet the needs of the customer
• Be sure to offer a variety of scales
• Using different scales will rengage the respondent more fully and prevent them from clicking the highest, lowest or middle rating all the time
• Each scale provides you a unique perspective on the data that you are analyzing

• Before designing your survey, review the different types of scales and question types
• Make sure to pick the one that will best help you make your decision

Question 49

Quotas

Answer 49

• A limit to the quantity coming into a country
• The quota creats a relative shortage
• The amount imported falls to the quota level
• It is this price rise that provides an incentive for less efficiaent domestic firms to increase their output

• The welfare loss associated with a quota may be greater than a tariff because there is no tax revenue earned by a government
• Quotas are less frequently used than tariffs

Question 50

Tariffs

Answer 50

• Tariffs (customs duties) are taxes on imported products, usually in an ad valorem form, levied as a percentage increase on the price of the imported product
• Tariffs are one of the oldest and most pervasive forms of protection and barrier to trade

The imposition of tariffs leads to the following:
- higher prices
- welfare loss
- distortion
- retaliation

Question 51

Secured Credit

Answer 51

• The creditor guarantees that it will be paid back by putting a lien (a form of security interest) on an asset you own
• The lien entitles the creditor to take the asset if you don’t live up to the terms of your credit agreement

• Car loans
• Mortgages
• Home equity loans

Question 52

Unsecured Credit

Answer 52

• When your credit is unsecured, you simply give your word to the creditor that you will repay what you borrow

• Credit card
• Medical bills
• Utility bills

Question 53

Revolving Credit

Answer 53

• The creditor has approved you for a set amount (your credit limit) and you can access the credit whenever you want and as often as you want
• In return, you must pay the creditor at least a minimum amount on your account’s outstanding balance each month

• Credit cards
• Home equity lines of credit

Question 54

Installment Credit

Answer 54

• You borrow a certain amount of money for a set period and you repay the money by making a series of fixed or installment payments

• Mortgages
• Car loans
• Student loans

Question 55

Production Concept

Answer 55

• Oldest of the concepts in business
• Holds that consumers will prefer products that are widely available and inexpensive
• Managers focusing on this concept concentrate on achieving high production efficiency, low costs, and mass distribution
• Makes sense in developing countries (consumers are more interested in obtaining the product than in its features)

Question 56

Product Concept

Answer 56

• Holds that consumers will favor those products that offer the most quality, performance, or innovative features
• Managers focusing on this concept concentrate on making superior products and improving them over time
• However, these managers are sometimes caught up in a love affair with their product and do not realize what the market needs

• Management might commit the “better-mousetrap” fallacy, believing that a better mousetrap will lead people to beat a path to its door

Question 57

Selling Concept

Answer 57

• Holds that consumers and businesses, if left alone, will ordinarily not buy enough of the selling company’s products
• The organization must, therefore, undertake an aggressive selling and promotion effort
• It also assumes that the company has a whole battery of effective selling and promotional tools to stimulate more buying

• Their aim is to sell what they make rather than make what the market wants

Question 58

Marketing Concept

Answer 58

• A business philosophy that challenges the production, product, and selling concepts
• Holds that the key to achieving its organizational goals consists of the company being more effective than competitors in creating, delivering, and communicating customer value to its selected target customers
• The marketing concept rests on four pillars: target market, customer needs, integrated marketing and profitability
• Provides the foundation to achieve competitive advantage

• Focuses on the needs of the buyer
• Preoccupied with the idea of satisfying the needs of the customer by means of the product as a solution to the customer’s problem (needs)

Question 59

Societal Marketing Concept

Answer 59

• Holds that the organization’s task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors
• Additionally, it holds that this all must be done in a way that preserves or enhances the consumer’s and the society’s well-being

• This orientation arose as some questioned whether the Marketing Concept is an appropriate philosophy in an age of environmental deterioration, resource shortages, explosive population growth, world hunger and poverty, and neglected social services

Question 60

Horizontal Channel Conflicts

Answer 60

• Refers to a disagreement among two or more channel members at the same level

Example:
* If a toy manufacturer has deals with two wholesalers, each contracted to sell products to retailers in different regions
* If one wholesaler decides to branch its operations into the other wholesaler’s region, a conflict will result

Question 61

Vertical Channel Conflicts

Answer 61

• Involves a disagreement between two channel members on consecutive levels

Example:
* If the toy manufacturer discovers its products are arriving at retail store later than scheduled, a conflict may develop between the manufacturer and the wholesaler responsible for shipping to retailers
* The retail stores might also be in conflict with the wholesaler due to its inability to ship products on time

Question 62

Ownership Investments

Answer 62

• Ownership investments are the most volatile and profitable class of investment

• Stocks
• Business (money put into starting and running)
• Real estate
• Precioius objects and collectibles

Question 63

Lending Investments

Answer 63

• Lending money is a category of investing
• The risks generally are lower than for many investments and, consequently, the rewards are relatively modest

• Bonds
• Savings acounts

Question 64

Cash Equivalents

type of investment

Answer 64

• These are investments are “as good as cash,” which means that they can be converted back to cash easily and quickly.
• e.g. Money Market Funds (similar to savings accounts and can be purchased at any bank)

Question 65

Tax Credits

Answer 65

• Directly reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability
• A tax credit valued at $1,000, for instance, lowers your tax bill by the corresponding $1,000

Question 66

Tax deductions

Answer 66

• Reduce how much of your income is subject to taxes
• Deductions lower your taxable income by the percentage of your highest federal income tax bracket
• So if you fall into the 22% tax bracket, a $1,000 deduction saves you $220

Question 67

Commodity Money

Answer 67

• The simplest and oldest type of money
• Its value is defined by the intrinsic value of the commodity itself
• The commodity itself becomes money

• gold coins
• beads
• shells
• spices

Question 68

Fiat Money

Answer 68

• Gets its value from a government order (i.e. fiat)
• The government declares fiat money to be legal tender (requires all people and firms within the country to accept it as a means of payment)
• Not backed by any physical commodity
• Its intrinsic value is significantly lower than its face value

• Its value is derived from the relationship between supply and demand
• e.g. coins, bills

Question 69

Fiduciary Money

Answer 69

• Not declared legal tender by the government, so people are not required by law to accept it as a means of payment
• The issuer of fiduciary money promises to exchange it back for a commodity or fiat money if requested by the bearer
• So long as people are confident this promise will not be broken, they can use fiduciary money just like regular fiat or commodity money

• cheques
• banknotes
• drafts

Question 70

Commercial Bank Money

Answer 70

• Can be described as claims against financial institutions that can be used to purchase goods or services
• It represents the portion of a currency that is made of debt generated by commercial banks
• Commercial bank money is created through what we call fractional reserve banking

Question 71

Patent

Answer 71

• Safeguards inventions and processes from other parties copying, making, using, or selling the invention without the inventor’s consent
• Technical inventions, such as chemical compositions like pharmaceutical drugs, mechanical processes like complex machinery, or machine designs that are new, unique, and usable in some type of industry

e.g. a new type of hybrid engine

Question 72

Copyright

Answer 72

• Protects your exclusive right to reproduce, distribute, and perform or display the created work, and prevents other people from copying or exploiting the creation without the copyright holder’s permission
• Artistic, literary, or intellectually created works, such as novels, music, movies, software code, photographs, and paintings that are original and exist in a tangible medium, such as paper, canvas, film, or digital format

e.g. song lyrics to “Let It Go” from “Frozen”

Question 73

Trademark

Answer 73

• Protects the trademark from being registered by others without permission and helps you prevent others from using a trademark that is similar to yours with related goods or services
• A word, phrase, design, or a combination that identifies your goods or services, distinguishes them from the goods or services of others, and indicates the source of your goods or services

e.g. Coca-Cola for soft drinks

Question 74

Traditional Franchise

Answer 74

• The products manufactured or supplied by the franchisor take center stage, not the franchisor’s system of how the business should be conducted
• The manufacturer licenses to the franchisee the right to sell or distribute a specific product using the franchisor’s trademark, trade name, and logo
• Generally found in automobile, truck, mobile home, and farm equipment dealerships
• In a traditional franchise the franchisee generally only sells the product line provided by a single manufacturer from their business location

Question 75

Business Format Franchise

Answer 75

• The most common type of franchising and is what most people think of when they talk about franchising
• The franchisor licenses to its franchisees its trade name and service marks together with its system for delivering products and services under the franchisor’s brand
• The franchisee is known to consumers by the licensed name it shares with the franchisor and the other franchisees in the system
• Business format franchisors establish the look and feel of the business

Question 76

Disposable Income

Answer 76

• The money that is available to invest, save, or spend on necessities and nonessential items after deducting income taxes
• An increase in disposable income means an increase in the stock maket value

disposable income - all necessary payments = discretionary income

Question 77

Discretionary Income

Answer 77

• What a household or individual has to invest, save, or spend after necessities are paid