Marketing Flashcards
Explain market exchange
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).
what are the 4Ps of marketing
Productr/service
Price
Place
Promotion
Purpose
define marketing
the activity & processes for creating, communicating and delivering / exchanging offerings which provide value to customers, clients, partners and the society at large
what is consumer behaviour and why is it important to understand
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
why is consumer behavioural theories studied
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
Explain asymetircal dominated alternatives
- 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
why is marketing important now ?
- 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
Explain the definitions of a substantial and expanded product
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)
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
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
what is invovlement determined by?
- 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)
in contrast to product involvement, what is a product concept?
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
what does the product concept involve?
- 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)
What is market segmentation
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
What does segmentation strategies entail?
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)
what are the key segmentation requirements for it to be effective?
- 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
What are the benefits of market segmentation
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
What does the choice of segmentation strategy depend on? (Giver broad strategies):
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)
Explain the segmentation process
- 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]
what does the attractiveness of marketing to a certain segment depend on
Characteristics such as:
segment size, segment growth rate & profitability (e.g margins, cost, competition…)
explain a USP
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
What must you leverage to create a strong value claim
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
Draw out the table of crafting a value claim
Find real life examples
Explain branding
- 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
Explain benefits of brands for consumers and for firms
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
What are the 3 main brand metrics?
Financial brand equity
Brand awareness
Brand associations
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
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
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
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
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
what factrs make brand names effective?
Ease of spelling
Meaningful and familiar name (higher recall)
Unique (differentiate from competition)
what are the key elements of a brand?
- Name
- Logo, symbols
- Slogan, jingle
- Packaging
- Characters
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
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)
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
what are the different brand personalities?
- Sincerity (Tropicana)
- Excitement (Red bull)
- Competence (Microsoft)
- Sophistication (Rolls)
- Ruggedness (Reebok)
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
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
what is the formula for the ROI for social media
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
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
what are the difference between high and low involvement in the elaboration model
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
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
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 opinions and purchase decisions**
* Considered more credible and help establish trust with consumers
* They are less expensive and thereby more cost-effective
Beware of negative spillover effects (through negative WOM)
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)
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 intense 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
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.
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:
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
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
what are the two broad pricing strategies?
Penetration strategy
Skimming strategy
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
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
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
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
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
