Advertising A paid form of non personal communication that is transmitted to a target audience through mass media Effective advertising can influence customers purchasing behavior throughout their lifetimes Most organizations even nonprofits engage in advertising Part of the promotional mix Exposures It takes three exposures to remember something Reinforcement Advertising Assures current users they have made the right choice A type of competitive advertising Types of Scheduling Advertising A Continuous runs steadily throughout the year with little variation a Good for continuously used products Flighting runs in spurts advertisements run for set periods of time alternating with periods in which no ads run a Heavy none b Good for seasonal products B Pulsing a combination Runs steadily but with bursts at certain times Types of Advertising 1 Pioneer Advertising a Aka primary demand b Focuses on a product category c Primary demand is stimulated through pioneer promotion which informs potential customers about the product what it is what it does how it can be used and where it can be purchased a Ex Got Milk b Ex Beef 2 Advocacy Advertising a Conveys a firm s position on a public issue 3 Comparative Advertising a A type of competitive advertising b Compares two or more brands on one or more characteristics Recognition unaided recall With all the advertising clutter recall of a typical ad is only 10 Recall of a branded entertainment episode is 24 Posttest o Evaluation of advertising effectiveness after the campaign Recognition Unaided Recall Recognition Recall respondents shown a portion of an ad or sometimes a Aided Recall memorable image and asked o Do you recognize this ad Recognition measure Individuals are more likely to buy the product if they can remember an advertisement about it than if they cannot o Please type in the sponsor of this ad unaided recall measure o Please choose the sponsor of this ad from the following list aided recall Ratings Formula 1 Q Scores Q stands for quality considers two factors a Consumers level of familiarity with a name who have heard of her him i Exam question character is a favorite b The number of respondents who indicate that a person program or c The score is calculated by dividing the two numbers d Example 10 favorite 50 familiar 20 Q Score Elastic vs Inelastic a Inelastic demand does not respond much to price changes b Elastic demand responds a lot to price changes i ii Necessities A vertical line i ii iii Close substitutes Luxuries A horizontal line c Elasticity is greater when i ii i ii iii iv d If it is Then it is Less then one inelastic Greater then one elastic Is One unit elastic Is zero perfectly inelastic The market is defined more narrowly food vs ice cream In the long run people are more free to adjust their behavior Substitute products occur when demand is elastic o Aka demand responds a lot to price changes Substitute Products Ex luxuries Break Even Formula a Break Even Point Where the costs of producing a product equal the revenue made from selling the product b Break Even Point Fixed Costs Price Variable Costs Non Price Competition Emphasizing factors other than price to distinguish a product from competing brands Occurs when a seller decides not to focus on price and instead emphasizes distinctive product features service product quality promotion packaging or other factors to distinguish its product from competing brands Builds consumer loyalty Pricing 1 Reference Pricing a Pricing a product at a moderate level and positioning it next to a more expensive model or brand b The price stored in memory that helps to evaluate the actual price i Serves as an anchor ii Frames the purchase price Internal Develops in buyer s mind through experience with product c d External A comparison price provided by others 2 Penetration Pricing setting the price lower than competing brands to penetrate a market and quickly gain a significant market share a Useful with elastic demand long term focus b Volume over margin discourages competition c Fast Food Dry Cleaning 3 Odd Even Pricing ending prices in odd or non round numbers 2 99 3 95 a Women are more likely to respond then men i Research has produced conflicting evidence on the efficacy of the pricing approach b Makes prices seem lower c Even prices give product an upscale or exclusive image 4 Selling Price 5 Captive Pricing the basic product is sold low and ancillaries are high a Printers and ink cell phones and service contract game consoles and games razors and cartridge 6 Price Bundling a Offering several products for sale in one package i Cable Phone High Speed Internet ii Microsoft Office b Unbundling charging separately for previously bundled products services 7 Loss Leader selling products at or below cost a Purpose is to stimulate sales of other profitable products b Stimulates store traffic promotes habitual buying c Low priced every day products like milk eggs soda 8 Price Elasticity After identifying the target market s evaluation of price and examining demand to learn whether price is inversely or directly related to quantity the next step in pricing is to assess price elasticity of demand i Price elasticity of demand provides a measure of the sensitivity of demand to changes in price it is formally defined as the percentage change in quantity demanded relative to a given percentage change in price b Setting a price is much easier if marketers can determine the price elasticity of demand i If demand is elastic a change in price causes an opposite change in total revenue an increase in price will decrease total revenue and a decrease in price will increase total revenue c An inelastic demand results in a parallel change in total revenue and a decrease in price will decrease total revenue i Marketers cannot base prices solely on elasticity considerations they must also consider the costs associated with different sales volumes and evaluate what happens to profits Mark Up Formulas 1 As a Percentage of Cost a Price Cost Price x 100 2 As a Percentage of Selling Price Price Framing Anchoring price for consumers How much did it cost to fly from New York to L A in 1949 today it costs MSRP Competitor s Price You save around 300 o Answer 1 447 after you adjust for inflation o It cost 747 in 1959 Was it a better experience to fly back then o Yes but there were 2 9 fatal accidents per 100k departures then compared to 098 today o This is an example of an industry in need of some price framing
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