Marketing Flashcards
(88 cards)
1
Q
Explain market exchange
A
The idea that a company will market a product when there is a revenue which exceeds the cost of producing & distributing a product.
However the customer will only buy the product if the benefits exceed the costs (both monetary, transactional and other opportunity costs of acquiring the product e.g searching web, walking to shop etc).
There is VALUE if there is an exchange between the seller & the buyers (market exchange).
2
Q
what are the 4Ps of marketing
A
Productr/service
Price
Place
Promotion
Purpose
3
Q
define marketing
A
the activity & processes for creating, communicating and delivering / exchanging offerings which provide value to customers, clients, partners and the society at large
4
Q
what is consumer behaviour and why is it important to understand
A
Consumer behaviour = totality of consumers’ decisions with respect to the acquisition, consumption and disposition of goods / services / ideas over time.
You need to understand consumer behaviour to understand how the 4Ps can lead to marketing KPIs
5
Q
why is consumer behavioural theories studied
A
Consumer behavior is studied because it reflects decisions based on acquisition, consumption and disposition of goods and services over time. Unless it is a black box.
Remember that consumers are not always rational so theories are not straightforward
6
Q
Explain asymetircal dominated alternatives
A
- If we have choice to go to Rome or Paris with free accommodation and breakfast, there may be no clear decision
- If we add a decoy ie Rome with free accommodation and breakfast but no coffee, consumers are more likely to choose Rome with free both
- When the decoy is removed the results are swapped so then consumers would be more likely to choose Paris
7
Q
why is marketing important now ?
A
- Functional product benefits become increasingly similar between companies
- Consumers have increasing choice options and things like branding are needed to differentiate choice options
- Branding - where there are strong brand which can lead to preferential revenue
- Information overload & digitalisation - big data and analytics for segmentation & targeting strategies (e.g targeting with big 5 personality traits)., hence harder to reach out to right consumers at right time
- Taking pics enhaces experience only when it doesn’t interfer
FIND REAL LIFE EXAMPLES
8
Q
Explain the definitions of a substantial and expanded product
A
A substantial product definition refers to the tangible, functional & physical characteristics of a product.
An expanded product definition includes all the intangible characteristics such as an included service or feature (e.g insurance discount with a car purchase)
9
Q
Explain the difference between high involvement and low involvement product.
involvement being the person’s percieved relevance of a product/serivce
Based on needs/values /interests
A
Low-involvement = low perceived relevance of the object with a passive decision process based on a few simple criteria (it is a heuristic decision e.g with commodities)
High-involvement = high perceived relevance with many active & complex decision process (e.g buying a house) with choice based on an extensive comparison of multiple alternatives
10
Q
what is invovlement determined by?
A
- Cost
- Interest in the product category .
- Perceived risk (social, financial, physical…)
- Situation of use (e.g clothes for a wedding/funeral are higher involvement than for everyday usage)
11
Q
in contrast to product involvement, what is a product concept?
A
the more detailed version of the product idea which is a statement about the expected product features which will generate specific benefits relative to already existing offerings
12
Q
what does the product concept involve?
A
- The product features both functional (features, aesthetic) and intangible (product image)
- Intended target groups in the market
- Unique selling proposition (USP) relevant to the target group
- Target positioning (defining the target positioning in terms of relevant product features to distinguish the product from competitors in consumer minds)
- customer experience
It is based on the idea that customers prefer products with the highest quality, performance, features (although some prefer simplicity)
13
Q
What is market segmentation
A
Segmentation involves finding subsets of consumers with similar characteristics which can be profitable for companies to address - market segments are subgroups of markets.
Find segments that are homogenous within and heterogenous between (segments)
If you do not segment then it runs the risk of other firms coming into the competitive spaces to develop more specific products to target different niches.
Also look at reactions and response
14
Q
What does segmentation strategies entail?
A
Demographics → age, gender, occupation, income levels, marriage, educational level.
Geographic → world, region, country, city vs rural…
(Demographic / geographic variables are insufficient to segment on their OWN they need additional variables such as behavioural / psychographic characteristics).
Behavioural → consumption behaviour (needs, preferences, luxury-seeking, price-sensitive, quality conscious), usage frequency (heavy vs light users), loyalty (loyal vs switching customers).
Psychographic → lifestyle factors (e.g environmentalists, traditionalists, socially aware consumers), values (e.g innovation, conservative)
15
Q
what are the key segmentation requirements for it to be effective?
A
- Behavioural relevance / actionability
- Clear differentiation between groups (heterogeneity)
- Good measurability - e.g can this be measured by digital footprint etc… - most important
- Stability of segmentation over time
- Economic feasibility / substantial - i.e is it profitable, is it growing, is it large enough, will it provide adequate expected returns / ROI
https://www.investopedia.com/terms/m/marketsegmentation.asp
16
Q
What are the benefits of market segmentation
A
To the firm:
* Addresses unmet customer needs
* Tailored product / service design
* Targeted communication/ advertising
* Increasing customer satisfaction with the product offering
To the customer:
* Better need fulfilment
* Higher perceived value
* Personalised experience
17
Q
What does the choice of segmentation strategy depend on? (Giver broad strategies):
A
Who are the customers? (e.g demographics, lifestyle etc)
What have the customers bought? (e.g usage / loyalty)
Why do customers make the decisions they do? (e.g needs & preferences)
18
Q
Explain the segmentation process
A
- Segmentation
- Targeting
- Segment selection, characteristics such as size, growth rate, profitability (manufacturing costs, competition, WTP)
Positioning - USP > specific, unique, and superior reason to purchase product
- USP is relevant and addresses a fundamental need
- Points of parity > product or brand attributes shared across competitors
- Points of difference > price premium, brand position to justify cost
- Eg value proposition > “For [upscale consumers looking to make a design statement with their choice of water] Voss is a bottled water that offers [the purest and most distinctive drinking experience] because [it derives from an artesian source in southern Norway and is packaged in a stylish, iconic glass bottle]
19
Q
what does the attractiveness of marketing to a certain segment depend on
A
Characteristics such as:
segment size, segment growth rate & profitability (e.g margins, cost, competition…)
20
Q
explain a USP
A
A value claim which offers a prospective customer a specific, unique and superior reason to purchase a product → it must be relevant and address a fundamental need of the consumer
21
Q
What must you leverage to create a strong value claim
A
points of parity: must haves
points of difference: unique but large enough to justifiy premium
it is also important to clearly define the customer market, create a unique value claim and THEN give customers reasons to believe the unique value claim
22
Q
Draw out the table of crafting a value claim
A
Find real life examples
23
Q
Explain branding
A
- Name, term, sign, symbol, design, or combination intended to identify the goods of one seller and differentiate them from others.
- Brands are the ideas formed in consumers’ heads about the product/service/activity it offers in a physical and emotional sense, features and emotional response create a brand
24
Q
Explain benefits of brands for consumers and for firms
A
Consumers:
* Reduces consumption risk
* Reduces search cost
* Symbolic device
Firms:
* Reduces cash flow risk
* Increases cash flow level in premiums, brand extensions
* Accelerates cash flows via responsiveness of marketing
25
What are the 3 main brand metrics?
Financial brand equity
Brand awareness
Brand associations
26
Explain financial brand equity
This is the difference in price between branded and unbranded products - branding costs (Chernev, 2017)
Brand equity = (P brand - P generic) * Volume (brand) - branding costs
- The brand value is the difference in value between branded and unbranded products
- Consumer-based brand equity > brand knowledge
* awareness > recall and recognition
* association > type, favorability, strength, uniqueness
- Elements include name, logo, symbols, packaging, slogans, characters, jingles
27
Explain brand recall and brand recognition
Brand recall (spontaneous recall)→ when the brand name is evoked by memory given a cue such as a product category name (e.g brands of larger) - consumers typically** 3-5 **(not many can do >7)
Brand recognition (aided recall) → the ability of the consumers to confirm that they have seen or heard of a brand before - they can recognise the brand on representation (not necessarily the name) e.g recognising the Nike Logo
28
what are the brand associations
* Types of brand associations
* Favourability of brand associations (valence)
* Strength of brand associations
* Uniqueness of brand associations - if these associations are held uniquely for one brand vs another
29
Explain spreading activation theory
This involves the idea that priming a concept can increase the accessibility and evaluation of RELATED concepts (e.g exposing to cat photos can increase evaluation of Puma brand) → by priming a concept it makes it easily accessible e.g using **implicit brand primes**
30
what are implicit brand primes, give examples and how to leverage it
Implicit brand prime may include things like font, product colour, shape etc. (e.g Coca Cola font)
Brand prime activates or “primes” the associated concepts into the short-term memory
The success of the implicit primer depends on the strength of association between the brand node and the implicit prime
It also depends on the strength of association between the prime and OTHER competing brands
31
what factrs make brand **names** effective?
Ease of spelling
Meaningful and familiar name (higher recall)
Unique (differentiate from competition)
32
what are the key **elements** of a brand?
- Name
- Logo, symbols
- Slogan, jingle
- Packaging
- Characters
33
what is brand extension anf give 2 types of it
The use of established brand name by a firm to introduce a new product which can be:
**Category extension **→ e.g Coca Cola moves to a new food market → where there is brand transfer on a product of a different product category
**Line extension **→ e.g Coca Cola moves to a new drink like Diet Coke → where there is brand transfer on a product within the same product category
34
explain the the 2 main effects of brand extension and discuss any potential relationships
Consumers will use their prior brand knowledge about the parent brand to evaluate the new product ⇒ thus extension products can capitalise on the parent’s brand equity.
Through both forward & backward spillover effect.
Forward spillover → parent brand affects extension’s brand equity (+vely or -vely)
Backward spillover → extension affects parent brand equity (+vely or -vely)
35
what is needed to ensure adequate brand extension
**Perceived fit** is needed between the extension and parent brand (key success factor) - the fit being the extent to which a **consumer believes** the new product is a **reasonable extension** of the parent brand.
Without brand fit it may not gain customer acceptance and confuse the consumer.
This decreases brand-equity as well as numerous brand extensions
36
what are the key advantages of brand extension are:
* Saving economic resources.
* Extension can gain acceptance more easily due to awareness of existing brand.
* Spillover effects of loyalty.
* Increases ease of gaining shelf space (retailers less hesitant for extensions of known brands).
* Reduces customer uncertainty.
37
Brand architecture
What are the advatnades and disadvantages of using a single brand?
**Single brand strategy**
* Cost efficiency - by leveraging the power of an existing brand (instant recognition & avoid costs of building new brand)
* Speed - it relies on existing brand so launch can be immediate and be instantly valued by customers
* Synergies - strengthen brand by increasing visibility across multiple product categories & purchase occasions.
**Disadvantages**
* Brand dilution = difficult to establish meaningful brand image across a broad set of product categories & purchase occasions
* Negative halo = risk of spillover of negative information which can now affect the WHOLE portfolio of products (hurting reputation of entire brand)
* Opportunity cost of building a new brand to create a separable company asset which increases value & diversification
38
what are the pros and cons of Multibrands architecture
**Pros**
* Distinct brand image → enables company to establish unique brand identity for different product categories and purchase occasions
* Limited possibility of negative halo
* Separable company asset increasing the market value (brand equity) as each brand represents a distinct company asset with its own valuation and can be divested if necessary,
**Cons**
* Significant resource investment - each brand has its own identity and can create value, making a portfolio of distinct brands needs substantial financial resources
* Long time-horizon - building new brands calls for a long timescale as the brand must be internalised by customers and related to a particular set of needs / values (which can take years or more!)
* Unutilized brand portfolio synergies - doesn’t capitalise on the breadth of portfolio offerings to enhance visibility and impact - they don’t take advantage of potential synergies which can derive from the company’s scope
39
what are the different brand personalities?
- Sincerity (Tropicana)
- Excitement (Red bull)
- Competence (Microsoft)
- Sophistication (Rolls)
- Ruggedness (Reebok)
40
What are the differences between traditional communication channels and social media.
How do you evaluate it?
- **Reach** > limited and hard to measure success
- **Two -way comms **> personally or online deliver sources more valuable
**- Credibility** > marketing sources perceived to be less credible, more biased and manipulative
Social media marketing spend has increased over the years
41
Explain the Sales funnel
It is each step that a consumer must take in order to become your customer.
At each phase there is a potential for bottleneck which can prevent flow down the subsequent steps of the sales funnel - social media can address bottlenecks in all these stages.
So we need conversion rate at each stage
42
what are the KPIs for the stages of the sales funnel
**Awareness** → views / impressions
**Consideration** → time spent with content, clicks, video view completion
**Purchase** → conversion rate, cost to convert
**Loyalty** → up & cross buy, repurchase, reviews, positive WOM
43
why do firms use social media as a comms channell
brand awareness/building,
acquiring customers,
introducing new products,
retaining customers
44
Explain Retention in terms of the sales funnel
- Favorable attitude is more likely to lead to behavior
- Retention means cross and up buying
- Cross > different product line
- Up > more or more expensive products
45
Explain the difference between Owned Social Media and Earned Social Media.
**Owned media (OSM) **is the social media activity related to a company or brand that is generated by the company itself of the brand (e.g twitter posts, YT videos, insta pages…)
**Earned media (ESM) **is the social media activity related to a company or brand which is not directly generated by the company or brand itself but by other entities such as consumers (e.g videos by consumers, posts & likes on social media, influencer marketing)
46
# Social Media
What are the different impact of ESM v OSM
For various aspects OSM vs ESM have different impacts:
* Brand awareness → ESM > OSM → credibility
* Purchase intention → ESM > OSM → credibility (as people believe earned social media is more credible) - OSM actually has a negative impact on purchase intention
* Customer satisfaction → OSM > ESM
Owned media is used to increase brand awareness and customer satisfaction rather than directly increasing purchase intentions.
Design owned media to be used in order to generate earned social media.
It pays to use OSM to address customer complaints to increase perceived quality and positive word of mouth (WOM)
47
what is the formula for the ROI for social media
48
Attention and Persuasio.
Explain the NYT study
it looked at which articles most emailed in 24hrs looking at its valence & evocation of emotions:
* Positive content is more viral than negative content
* Sharing is not about valence alone and virality can be driven by physiological arousal where there is high positive (awe) or negative (anger) emotions
* Content evoking low arousal or deactivating emotions (e.g sadness) is less viral
* (Even when controlled for the usefulness of the article)
49
what is overrall activation
The physiological & psychological ready state of the body for reaction
* It regulates consciousness, attention, information processing and thus is the bases of emotional, motivational & behavioural reactions
50
What types of stimuli determines the level of activation
* emotional > sexual, fear, childlikeness, humour (can be overdone > negative spillover affect)
* cognitive > novel, surprising, unusual, puzzling
* physical > texture or color
Level of activation leads to attention/sharing
51
Explain attitudes and what it can lead to
- overall evaluation that expresses like or dislike for something (Petty et al, 1991)
- Attitudes are acquired and relatively stable over time
- if strong then relatively stable over time
- AB hypothesis states that attitudes drive behaviour → however this depends on attitude strength as weak attitudes are weakly correlated with behaviour
* determined by importance, own vs learned experience, elaboration
52
What is a strong attitude and what are they a predictor of?
Attitude strength = latent psychological construct which is presumably represented in memory by various attributes of the attitude.
Strong attitudes are a a function of :
* Elaboration (reconsidering attitude multiple times)
* Accessibility (how easy to retrieve an attitude - response latency is a good metric for this)
* Stability (little fluctuations in attitude over time with relative stability)
* Perceived importance of the attitude
* Learned from own experience vs others’ experience
The stronger the attitude the more reliably it predicts the behaviour
53
Explain the Elaboration likelihood model
Central route processing (high elaboration of argument) leads to better outcomes with stronger attitudes.
The peripheral route processing (low elaboration) leads to weaker attitudes
Involvement & ability (cognitive capacity available at the stimulus interaction time) are key drivers of the elaboration likelihood which thereby influences whether information goes down the central or peripheral route → i.e central is only achieved when involvement and cognitive processing ability are high at the time
54
Elaboration likelihood model
How do we get past the peripheral routes
- Strong attitudes can also develop through repeated exposure even if peripheral route
- Peripheral cues for both routes include **music** which must subjectively fit with the message (MacInnis and Park, 1991)
- However music must have a high subjective **fit** to the overall ad message (i.e consumer subjective perceptions of the music’s **relevance** / **appropriateness** to the central message)
E.g John lewis Christmas ad and ELTON jOHN music in 2018 where he played "Your song": fit as it's about power of giving gifts
55
what are factors affecting elaboration (involvement):
relevance,
motivation,
pre-existing knowledge,
identity-relevance
56
what are the difference between high and low involvement in the elaboration model
57
explain how the favoirability of attitudes changes in the elaboration model (wear out effect)
However there are wear-out effects of persuasive messages where positive habituation will increase rapidly in the initial phases but will eventually plateau as a function of exposure (as people get bored)
it can be explained by the two factor theory
58
Explain the two factor theory in exposure
- Two factor theory: relationship between frequency of exposure and favorability of attitude
- On first exposure there is **positive** habituation > satisfying curiosity, decreasing conflict, less uncertainty, happy to learn
- Becomes **tedious** with MORE exposure
You can avoid wear out by controlling exposure and using slight **variations** of each exposure eg variations in ads
59
What is the CSR initiative ?
CSR = company’s obligation to exert positive impact and minimise negative impacts on society
Attributions are critical for the success of a CSR initiative:
* Self centred / egoistic/ extrinsic motives (e.g image reasons, increasing sales etc…) lead to less positive customer attributions
* Other-centred / altruistic / intrinsic motivate (e.g they care, owe the community, helps customers to help) leads to more positive customer attributions
60
what are the conditions which will cause the positve effective of CSR to be diminished:
* Company’s motivation to engage is perceived as extrinsic
* Company fails to live up to CSR image
* Information is inconsistent
* CSR is only reactive (e.g to a crisis)
* CSR advertising spending is higher than CSR spending itself
* Source of information is thought to be biased
* Fit between cause and company is low
61
What is influencer marketing
This is also called consumer to consumer (C2C) marketing where you first influence one consumer and they influence others (in a cycle):
- Seeded marketing campaigns
- Influencer campaigns
62
what are the differences between the 2 ways of influencer marketing
**Seeded marketing** campaigns:
* Sending free products to a select group of customers (the seeds)
* Encourages generation of WOM
* Seeds generally tend to be “normal” people
**Influencer** campaigns:
* Similar to seeding but tends to be sent to people with more “special” qualities which make them useful (e.g YT for unboxing video)
* Another example would be perks for referring friends (e.g Harry’s shaving kit)
63
explain the power of influencer
Influencers are not necessarily having large social media followings but are people who have the power to influence the perception of others or gets them to do something different:
Influencers have a combination of:
1. Reach
1. Contextual credibility
1. Salesmanship
64
Explain how and why you work with Microinfluencers
Micro-Influencers = influencers with 1,000 - 100,000 followers
* They are better able to generate higher engagement than top influencers - there is** lower engagement the more followers somebody has**.
* Considered experts in their respective categories thus will be more relevant for the customers
* Known for their ability to influence people’s op**inions and purchase decisions**
* Considered more credible and help establish **trust** with consumers
* They are less expensive and thereby more c**ost-effective**
Beware of negative spillover effects (through negative WOM)
65
# Price
Define Price
Price is the cost of receiving a benefit from a product or service during its ownership
Revenue = Q x P (P is the only 4Ps that directly impacts revenue).
66
Explain Pricing power
- The ability of firms to set prices above marginal costs
- Marketing allows us to secure some monopoly power and set prices
- In perfect competition firms are price takers
67
what are the three generic methods (strategy) of pricing ?
* Cost-based pricing → e.g cost plus pricing (cost + markup) & markup pricing (cost x markup)
* Value-based pricing (customer WTP)
* Competitor-based pricing (competitor price + adjustment)
68
Explain cost-based pricing
You look at the costs of producing the product / service and add a **price premium** to derive the selling price
It is easy to implement
BUT it **does not** take into account the customer **WTP** and competitor prices are ignored
There is an issue of “circular reasoning” where cost is a function of the number of units produced (EOS), the price charged has an impact on demand which has an impact on units produced (paradox)
69
Explain value based pricing
Based on setting prices based on th**e customers’ perceived value** for the product / service.
Which is a customer-focused pricing method (based on how much customer believes the product is worth) - by measuring customers’ willingness to pay (WTP)
It is good because it tends to** exploit potential revenue well **better than cost-plus
BUT it requires needing to figure out the WTP** through experimentation**
70
Explain competitor based pricing
Where you determine the price of the product by considering the competitors price and adding / subtracting a difference in price (adjustment)
Price setting in this context is reactionary (copying others)
It is easy to implement BUT customers’ willingness to pay is not considered (potential revenue loss) and there is the potential for i**ntense price wars** depending on the competitive rivalry of the industry → **Gas market **is a classic example of this
Price wars:
* These are extreme focus on market share based on overcapacities and usually occurs in products with a lack of differentiation
71
# Economics of pricing
Explain the function of profit and the curce
Marginal costs are on a per-unit basis and do not include other overheads such as advertising and spending.
Profit = quantity * (price -marginal cost)
This takes a U shape as when you increase the price, there is less demand but when you decrease the price there is less contribution per unit.
72
As firms try to maximise profit , explain how you derive the price
The price of profit maximisation involves taking the derivative of the profit function and setting it equal to zero - you end up with the** inverse elasticity rule (the equation):**
Price elasticity is the ratio of the relative change in demand with respect to the relative change in price:
73
explain elasticity of price
Price elasticity is the ratio of the relative change in demand with respect to the relative change in price:
* Elasticity is a measure of the responsiveness of the demand to price
* Find the negative reciprocal of this to find the profit-maximising price (inverse elasticity rule)
* You can use this to find the optimal mark-up for a product
74
the method of price derivation , what does it capture
it treats:
* Costs are the mark-up over the marginal costs
* WTP is captured by the demand elasticity
* Competitors influence elasticity and this change the demand and are taken into account with the profit-maximising price
75
explain the difference between elastic and inelastic market and when does inelastic market occur?
Inelastic markets occur when there are no substitutes, high switching costs and high brand loyalty (brand equity) → i.e the elasticity is between -1 and 0.
It derives both the demand function and hence the price elasticity
76
what are the ways to measure demand function and elasticity
- Expert survey (subjective estimate)
- Customer survey (direct, indirect or price experiments)
- Market data (econometric modelling)
77
what are the two broad pricing strategies?
Penetration strategy
Skimming strategy
78
Explain penetration pricing strategy
The idea is that you aim at a **low price** to achieve high diffusion and to achieve a high market share
It involves higher sales volume (leading to lower cost per unit)
BUT consumers must be **price sensitive**, production cost must fall eventually, low price discourages the competition and that there are network effects.
o Network effects (as more users join, the service is improved + more join to benefit from this eg Etsy, requires a **critical mass**, too many users leads to congestion
79
explain skimming price strategy
This involves setting an **initial high price** to maximise the current profit per unit (for example apple) - high CM per unit (or cont/unit)
It sends a **quality** signal to users - and then over time you price the products lower
The key conditions are:
* Enough consumers who are price-insensitive to create a sufficient initial high demand (high WTP)
* High quality signal
* Not excessive small-value unit costs
* That there are no capacity constraints
80
Explain price discrimination and differentiation
Price differentiation occurs when a company sells a product / service at two or more prices which do not reflect a proportional difference in the cost or performance (an example is bundling two different products to maximise revenues - e.g with Tesco Meal Deals).
When two products have different WTPs (one high and one low) they can be bundled together to maximise revenue, each product is charged at WTP
81
what factors will affect price differentiation
Price differentiation will work with different:
* Demographics
* Geographical location
* Temporal (e.g airlines)
* Benefit-based (based on needs / preferences of segments)
* Quantity-based (EOS buying in bulk)
* Bundling
82
what are the **boundry** conditions for price discrimination
- There must be differences in the market eg demographic, demand, price-responsiveness, cost to serve different segments
- There are different elasticities of demand in sub-markets > higher price paid in relatively inelastic submarket
- Firm can set up a mechanism for separating customers, have monopoly power
- Consumers should **not** be able to engage in arbitrage (**reselling**)
83
Explain behavioural pricing model
Behavioural pricing is based on the theory that consumers’ **WTP** is driven **not** only by **economic** utility of transaction BUT also by the **psychological utility** influenced by customers’ **perception** of **fairness**
- Fairness comes from the input costs of manufacturers
- Friend prices similar to costs, stranger prices similar to marketplace (casual selling)
84
Apart from cost to manufacturers, what determines the concept of fairness
Consumers consider the economic utility from the transaction and the **consistency** between the **actual price **and a** salient reference price** → the consistency between the two is a determinant of fairness:
**External** references prices are made up in specific buying situations based on the **observed prices** in the buying **environment** (e.g prices of similar products of the same / other providers).
**Internal** reference prices → based on memorised price concepts (e.g prices paid in the past, WTP, perceived fairness of the price and price paid by other people)
**Price cuts** bring down profitability since they change reference prices and lead to perceived unfairness when price goes back to normal
85
explain the effect of anchoring and adjustment in behavioural price modelling
Price of an unrelated good can affect people’s WTP for a commodity even if they are **COMPLETELY unrelated** (e.seeing £9 CD after 80 hoodie) .
Anchoring & adjustment are a heuristic where people make estimations which tend to start from an **initial value** and then they make adjustments to it:
Any **number** present in the environment or highly salient in the memory at the moment of judgement **CAN function** as an anchor regardless of its source, context, scale or relevance
86
Explain price quality heuristics and compromise effect
- **Price quality heuristic** > we infer quality from price, affects consumer experience
- **Compromise effect** > if people don’t have set preferences, then they will choose a middle-price option
87
Explain the valuation of digital goods using the right model
The materiality of physical goods gives them a greater possession-self link, the theoretical model is as follows:
It revolves around the idea of **psychological** ownership (for example there is less feeling of ownership for rented vs purchased goods)
Physical products valued over digital if they are perceived to be identity relevant (record over streaming)
* Not associated with manufacturing cost
* Product is expected to be **owned** not rented - weaker self-link
* Permanence
* Anticipated consumption enjoymenet
88
Explain identity relevance
Where there is high identity relevance there is a preference to physical copies over digital copies
For example Hardcovers being more expensive than Kindle copies of books
Sales management can increase identity relevance by presenting digital goods in a similar way to physical goods (e.g digital bookshelf)
You can also use it to segment market based on to what extent customers have high identity with the product → it can help motivate where to advertise which product format and how
