M300 1st EditionExam # 1 Study Guide Lectures: 9-14Lecture 9 (February 17)What can segmentation increase the effectiveness of?- Promotions, Product development, PricingWhat are the 4 steps in market segmenting/targeting?- 1. Define the market- 2. Use criteria or variables to divide market into segments- 3. Select segments to target- 4. Use 4P’s to positionWhat are the criteria for success in segmentation? -(MRRP)-Measurable, Reachable, Relevant, ProfitableWhat is the PUNGD system for segmentation?- Psychographics- Usage- Needs- Geography- DemographicsIn the PUNGD system, what does Psychographics mean?- Divide the population into groups based on behavioral and lifestyle profiles. (Includes attitudes and aspirations)In the PUNGD system, what does Usage mean?- Divide the population into their purchase frequency and usage level. In the PUNGD system, what does Needs mean?- Divide a population into groups based on the product’s ability to satisfy needs. - Example: size, price, safety.In the PUNGD system, what does Geography mean?-Divide overall market into groups based on geography.IN the PUNGD system, what does Demographics mean?-Divide consumers into groups based on sex, income, age, occupation, race, religion,education, etc. Use the PUNGD segmentation system for marketing a baseball bat.- P- people who watch baseball/athletics.- U- heavy baseball users (boys)- N- performance, comfort, preference- G- south, warmer clients who play baseball often- D- men, younger 12-20Positioning creates a _____________________. - Competitive advantage and a perception about the product.Positioning affects what consumers ________________________.- Think of you relative to other products. How can marketers reposition existing products? Give an example. - Move to a better location on the perceptual map.- Example: Target had to move to a slightly higher cost, more stylish market because Wal-Mart was the cost leader. Lecture 10 (February 19) How should a product’s price be viewed?- From the customer’s perspective.What is a customer?- Could be a consumer or a channel intermediary (like a retailer or wholesaler)What is customer value?- Product’s benefits/priceWhat impacts price?- Quality- Perceived Value- Cost- Supply/Demand- Competition- Urgency of needTo effectively set pricing, what are the 4 factors one must consider?- 1. Customer price sensitivity (Elasticity)- 2. Product costs- 3. Value of product to the customer- 4. Competition’s pricesWhat is sensitivity/elasticity?- The degree to which pricing influences demand. - Helps us understand what the price should be. If a product is elastic, this means that…- It fluctuates a lot / responds easily.If a product is inelastic, this means that…- It is fixed. - Example: gas, people will continue to buy if the price goes up. How can you determine whether a product is inelastic/elastic?- Elasticity = %change in demand / %change in price- Elastic <-1.0 > Inelastic < 0Example of determining elasticity: Current price is 5, current units sold is 10. Test price is 4, test units sold is 15. - Elasticity = %change in demand / %change in price- Change in price: -1/5- Change in unit: +5/10- -1/5 divided by +5/10 = -2.5- -2/5 is elasticWhat factors cause demand for a product to be elastic/inelastic?- Necessity vs. unnecessary- Importance vs. unimportance- Substitutes vs. no substitutes- Availability vs. not available. Type of DemandPrice Revenue ImpactUnit sales ImpactElastic Increase Down DownElastic Decrease Up UpInelastic Increase Up Slightly DownInelastic Decrease Down Slightly UpWhat is the optimal place to be with elasticity?- Better to have bargain price (Wal-Mart)What is the optimal place to be with inelasticity?- Better to have premium price, and inelasticity built through non-pricing actions. What is the equation to measure elasticity?- (Q2-Q1)/(Q1) divided by (P2-P1)/(P1) equals E- E = points of elasticity- Qs = unit sales at different weeks, months, etc.- Ps = unit prices at different times- 1s = old- 2s = newHow do you calculate what price a different geographical segment should charge?- (P1/P2) equals (E1(E2) + E1) divided by (E1(E2) + E2)- Multiply this by P1/x to get X = unknown price- P = price- E = elasticity Lecture 11 (February 26) What is promotional pricing?- The use of heavily advertised temporary price reductions.- Example: loss leader – store is willing to lose money on one product because they hope you will buy other products. (Black Friday Sales)Why do firms offer price promotions?- They increase demand for the product (short/long term) and drive traffic to storeIs demand considered elastic or inelastic for a product being considered for a promotion?- ElasticWhat is EDLP Pricing and why would a firm engage in this strategy?- EDLP pricing is a promotion-oriented everyday low pricing strategy. One might engage in this strategy because of the logistics, easy, and its appropriate for customers.When would EDLP be effective?- When customers are sensitive. Why would a retailer like using the same price?- It is easier to predict how much volume they need to bring into the store.What is customary pricing?- Tradition drives pricing as customers expect certain prices for certain products.- Examples: USA today, soft drinks, 1.99 single on iTunesWhat is a price quality relationship?- There is a positive relationship between price and perceived quality in the absence of other product cues. What is odd pricing?- The belief that certain prices carry information above/beyond the price itself and that some prices are more appealing than others. What is markup pricing? - A specified amount added to the cost of the product to yield a price.- Think of markup as the firm’s profitWhat is the equation for markup?- P = Mu + C- Mu on Price = Mu/P- Mu on Cost = Mu/CNew image is a small company that develops webpages for local firms. The company wishes to have a 50% markup on the cost of its services. It charges $2000 for a standard web development effort. - P = 600- C = 400- MU = 200- MUp = 1/3- MUc = 1/2Lecture 12 (March 03)Why is brand important?- Brand is responsible for 18% of total purchase decision.What is the difference between strong vs. weak brands? -Stronger brands can charge 19% higher.What is the definition of brand?- Name, symbol, or design used to