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MKTG Exam 2


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New Product Development: Prototype
Prototype can be functional (works) or nonfunctional (shows what looks/feels like, but doesn't work). Can be expensive. (1) Redesign. End up with final design. (2) Branding, packaging, pricing.
Their mission is to enrich lives.
Competition/Substitute (Diagram)
As the price of Toyota goes up the quantity of Hondas that can be sold goes up.
Growing Product Mix
(1) lengthen existing product line. (2) Add product lines (width) (3) Add flankers (Depth)
Conjoint Analysis
know cost helps find value. Research tool to help us determine the value of a feature. Works by giving people trade offs (Rather have swimming pool or room service?).
How to fight perishability for services?
Production, demand, and staffing. (Ex. Staffing on a game day).
Group of Interest.
Kinds of Probability Samples
(1) Random Sample: known and equal chance of being selected. A complete list of population is required. (2) Cluster Sample: random sample of "clusters." need list of clusters.
Is inconsistency in the product mix good or bad?
It depends. Broadens company. Can be costly if it is too inconsistent.
Can a small retailer survive?
Yes. They need to change. Must do a better job of understanding customer needs and the changing market. WHY DON'T THEY? Tradition. They have made the continuation of bad service a tradition. Cause us to stop what we are doing and focus on the past. Repeat what is important to us. Gives a feeling of comfort. Don't want these things if you want to compete with the big companies.
When talk to everyone in population
Variable Costs
Increase with output
New Product Development- Packaging
Prototype can be functional (works) or nonfunctional (shows what looks/feels like, but doesn't work). Can be expensive. (1) Redesign. End up with final design. (2) Branding, packaging, pricing.
Two way stretch of Product Mix
Start in middle and go both ways. Ex. Audi, BMW
An activity providing benefits that are offered for sale.
Why use a channel member?
(1) Provide expertise. Know how to get stuff to customer. (2) Reduce contacts: cuts down contacts for producers and consumers by adding retailer. (3) Reduce discrepancy in quantity (breaking bulk) and assortment: manufacturer wants to ship large quantities to wholesaler who ships smaller quantities to retailer and retailer ships even smaller quantities. (4) Provide time and place utility: get product where you want it, when you want it.
Pricing- Legal Issues (Sherman Act)
(1890)- outlaws horizontal price fixing. Business cannot discuss price with competing businesses. Businesses can signal price increase. Ex. Airlines will increase prices on Sunday and see what competition does, if competition doesn't increase prices they will lower them Monday.
any business that makes more than 50% of their dollar volume in sales from end consumers.
Cost Based Pricing
Covering costs plus desired profit.
Elements of a Survey
1.Request for cooperation with explanation (maybe incentive) 2. Data Sought. 3. Classification (demographic) information (at end). 3. Identification (optional, might want to make survey actually called or send coupon)
How to fight variability for services
Training (Try to level things), service recovery (How do make up for mistakes).
Consistency in the Product Mix
How products differ in terms of (1) end users: consistent if similar people. (2) Production requirements: consistent if similar product. (3) Distribution requirements.
Marketing Distribution
the strategies related to the movement of goods and services between producer and consumer.
2 Kinds of Sampling
(1) Probability: every item has a known chance of being selected for the sample. (2) Non-probability: the chance of being selected in unknown.
Product Classification
(1) LENGTH OF USE AND TANGIBILITY (a) durable (b) non-durable (c) services (2) BY HOW THE CUSTOMER SHOPS FOR IT. (a) convenience goods (b) shopping goods: gather info and compare (c) Specialty goods: extreme effort to obtain.
Rules for Surveys
(1) Watch ordering (easy first-watch grouping) (2) Watch out for subtle word differences (3) Beware of hard to define words (frequently, often, etc...)(4) Beware of biased questions (5) Beware of double questions. Ex: do you walk to school or take your lunch? (6) Beware of unanswerable questions
Pricing New Product
Figure out how much it costs to make then charge more.
Prepare Research Report
(1) Summary in the beginning (Topline Report) (2) Body of report (3) Recommendations
a smaller number of people that hopefully is representative of the population. Taking a sample saves time and money by representing the population of interest.
Kinds of Non-probability Sample
(1) Convenience sample: whoever comes along that is part of the population of interest. (2) Quota Sample: requirements are set in an attempt to make the sample more representative.
Product Life Cycle
All products eventually die...(1) Intro(profits negative because of investments advertisement, research) (2) Growth( profits peak) (3) Maturation (Competition causes prices to go down and advertising costs to go up, decreasing profits) (4) Decline (Profits continue to decline)
The Wheel of Retailing (Diagram in Jay's Notes)
High service/high price: easiest way to compete is to lower price and service until we get to very low price and very low service. Easiest way to compete with very low service and low price is to raise service and price. Full circle.
New Product Development- Step 1- Idea Development
(1) Observation for ideas. (2) Customer suggestions (end users & channel members) (3) Internal company development and suggestions. (focus groups) (4) Licensing (pay a fee to a company that has technology or product and then you can build on it. Pay fee to person that sells license). (5) Acquisitions (buying a company)
If competition lowers price- possible strategies: (You can do a combination, but hard to say high value when lower price).
(1) LOWER PRICE: makes you competitive, but lowers profit. (2) DON'T RESPOND: lose marginal (not worth a whole lot) customers. (3) EMPHASIZE VALUE: (4) INTRODUCE AND ECONOMY MODEL OR NEW BRAND: Downward stretch (cannibalization and might hurt image). Give lower price alternative. (5) RAISE PRICE: imply prestige and quality. (risky) (6) MAINTAIN PRICE AND BUNDLE IN MORE: throw in additional goodies. Good if perceive value is higher than your cost. (7) LOWER PRICE AND UNBUNDLE: ex. Original Nintendo came with 2 controls, gun, and 2 games. Sega dropped price. Nintendo dropped price and gun, games, and one controller went away. (8) MAKE PRICE COMPARISONS MORE DIFFICULT: if consumer can't compare prices then it doesn't matter if competition lowers prices. Often very true with professional services. Ex. Attorney, don't ask what price is. Ex. Mattress companies make different mattress for each retailer. Say if you can find this mattress for a cheaper price... can't find mattress at other retailer. Consider difficulty before you react. Internet is making it much easier.
How to fight Separability for services
Make easier to evaluate service. (Liscensed, certified, etc...) Remove risk. References (before and after pictures)
Why is a line of a product important?
(1) Enhances the image of the firm. Looks better to have more products. (2) Plugging hole where competition can enter. Once another company enters hole can spread. (3) More chances for a sale. Ex. Yellow Pgs.: Do you want color (1 yes) compared to do you want WKO, Spot, Full photo, full drawing (Option for 4 yeses) (4) Trading up the customers to high-end products. (Bring people up the line)(5) Entry points for customers to move up based on skill and interest changes. (Ex. Prof. Rosen's kids roller blade skates, started with wal-mart skates ended with $350 skates).
Types of Questions
(1) Open end: avoid open-ended questions because people don't like to complete them. Ultimately you have to classify and put in computer. Only use for questions like "is there anything else you would like to tell us?"( 2.) Multiple Choice: must be mutually exclusive, must be exhaustive, check one vs. all that apply. (3) Dichotomous: two options, yes or no or no opinion. (4) Rating Scales: indicate high/low sides
Total Cost (equation)
Test Group and Control Group
Use a test group and control group when doing an experiment. Only the test group gets the independent variable.
Upward stretch of Product Mix
From low features and price to higher. May be growing or greater profits. Maybe competition is weak and high end. PROBLEM: harder because of image. SOLUTION: come out with new brand.
Type if Retailers
(1) Differ by specialty (general vs. specific)-Ex. General= wal mart. -Ex. Specialty= Christmas store (2) Differ in advantage offered (convenience, discount, variety, etc.) (3) Differ in size (corner stores, super stores) (4) Differ in form (brick and mortar, internet, kiosk, vending (machine), catalog)
Slotting Allowance
entry fee charged by grocery stores to put product on shelves. Keeps small businesses off the shelf. Getting rid of slotting allowance would not lower prices, but would allow small businesses to get on shelf.
Small Retailers (what they must do to survive)
Yes. They need to change. Must do a better job of understanding customer needs and the changing market. WHY DON'T THEY? Tradition. They have made the continuation of bad service a tradition. Cause us to stop what we are doing and focus on the past. Repeat what is important to us. Gives a feeling of comfort. Don't want these things if you want to compete with the big companies.
Objective of Distribution
to minimize total cost of distribution for the level of service desired by our customer.
Today's Economy is a service driven economy. Why?
Today's product are all digitally controlled. We need people to service these things. We don't know how to fix them. Another reason is that we don't have time. There are not as many housewives.
Pricing-Legal Issues (Robinson Patman Act)
If I give a discount to anyone, have to make discount available to proportionally the same to everyone. Ex. a business like Wal-Mart might get discount for buying a lot so you must buy as much as Wal-Mart to get discount.
Functions of Channel Members
(don't memorize) buy, resell, sort, store, transport, finance, service, coordinate, assume risk (take responsibility for goods).
Product Line Management
Determined by company product line. A set of products that are related. Might be used together, sold to same market segment, and priced similarly.
Category Killers
Big companies that take over competition. Ex. Home Depot, Barnes & Noble. (1) Can provide lower prices, because they have systems to study sales. Work with suppliers to drive out inefficiencies and lower prices. (2)Many are just savvier marketers: research departments, marketing departments. -Do a better job of understanding their customer. -Do a better job of meeting customer needs. (3) Impact on the economy and retailing in general is tremendous. Ex. Home Depot: they have educated employees, they have classes (to bring customers into the stores and purchase more because they learn new skills)
How to control Selection Effect
Use random assignment.
Is inconsistency in the product mix good or bad?
Depends can be good because it broadens company, but can be costly if it is too inconsistent.
Retail Trends
(1) Domination of major categories by large "category killers." (2) Reflects changing American society: Rushed for time. Want greater service and selection. -We want to go somewhere that we know they will have what we're looking for. -Want more of an experience when shopping. -Feeling that bigger is better- or at least more impressive.
New Product Development- Step 3- Economic Analysis
Consistent or inconsistent with product mix.
Fixed Costs
Constant with output
Develop and Implement Plan
(1) Evaluate results (2) Prepare research report
Golden Rule of channel members
You can eliminate the channel members, but you cannot eliminate their function. -If you can do it more efficiently then get rid of channel members.
Product Life Cycle (Sales and Profits)
Sales: peak in maturation and decline in decline stage. Profits: peak in growth and decline in maturation.
Effects of Experimentation
(1)History: anything that happened in history of experiment. (2)Testing: If they know they are being tested then they will behave differently.(3)Selection: Different personalities in groups.
Product Life Cycle- Strategies in Decline Stage
(1) Kill the product (Still have to cover the product for a minimum of 3 years) (2) Milk the product (Cut out all of our expenses, just put it on the shelf, profits go up if we cut expenses). (3) (Find) New users in the current market. (4) Reposition product for a new market. Monopoly: originally marketed to older people.
Breakeven Analysis (equation)
Price= Total cost/ estimated unit sales
Doesn't have own advertising and management team.
Width of Product Line
The number of lines.
Pricing Relative to Competition- Cross elasticity
The quantity we can sell given the price of competition.
When Prunning Product Line
Consider more than just profitability of products. (1) Important stuff above for product line. (enhance image of firm, etc...) (2) May alienate a special group. (ex. Blonde brownies in Boston. People would stop buy general mills products if blonde brownies weren't sold).
Why not just drop the price instead of doing temporary (sales, rebates, etc.) reduction?
(1) May find it hard to raise prices later. (2)Want people to respond now.
Channel Members
are an essential part of distribution.
Rule for Data Collection
Pretest, pretest your form.
What happens when you're too BIG (Product Line)?
(1) Prunning may be necessary when line gets too big. (2) Market may change over time making some in line less desirable. (3) Too much to manage. (4)Too costly to promote and distribute- spread too thin.
Danger of temporary price reductions?
Overdoing these so customers come to expect them.
Temporary Pricing Reductions
ex. A sale. (1) Break through a 'clutter" (introduction, maturation). (2) Shift demand: often times service can't meet customer needs, because can't be stored. Ex. Restaurants are always busy night times on weekend. Turning people away. Run sale to get people in during the week to shift demand. (3) Pull from competition (build share): want people to try our product and keep buying our product. (4) Remove old product: Don't want to have old and new product on shelf at same time so need to get rid of old product.
Management issues for services
Managing service recovery. What is strategy for service recovery? Often believe Recovery=Disruption Opportunity (to make customer happy) Managing service vs. sales (Same thing, sell people something they need then you are serving them). Managing mix of customers. Ex. Don't mix birthday parties with league bowl time.
Pricing through the channel
Markup through the channel (margin or trade allowance). Difference between what you buy it for and what you sell for. Stated as a percent.
Dirty Data
data that cannot be put in computer.
A unit of exchange for goods and services. Doesn't have to be money. Bartering.
Surveys (Delivery)
Personal (GOOD: personal delivery allows you get longer surveys and get more personal information. BAD: a lot more time consuming and more expensive. Interviewer bias, interviewer may bias results. Done by gestures and body language) , Telephone (GOOD: inexpensive and fast. BAD:response rate, interviewer bias (less than personal, but still can use tone), shorter length, rating scale problem, never quite sure who is calling.) , Mail (GOOD: No interviewer bias. BAD: Response rate is low, expensive with stamps, non-response bias high (people who fill out survey feel strongly one way or another). ) , and Internet (GOOD: cheap. BAD: Non-response bias, non-representative sampling.)
The 4 things that make services are different
(1) Tangibility (2) Inseparability: produced and consumed at the same time. Buy it to try it. Where as products can be stored. (3) Perishability: services cannot be stored. (4) Variability: performed by people. variability in quality of service.
Downward stretch of Product Mix
Features and prices go down. Lower market might be growing faster. Prevents competition from gaining foothold. 2 PROBLEMS: cannibalization and hurt image. SOLUTION: new brand name for cheaper line.
New Product Development- Step 4- Product development/testing
(1) There is no direct relationship between the cost of a feature to implement and its value to the customer. Things that are high value and low value to customer and low cost and high cost to implement. (2) Must do: high value, low cost. (3) Ignore: High cost, low value. (4) Explore: low value, low cost and high value, high cost. (4) Conjoint Analysis: know cost helps find value. Research tool to help us determine the value of a feature. Works by giving people trade offs (Rather have swimming pool or room service?). (5) Prototype can be functional (works) or nonfunctional (shows what looks/feels like, but doesn't work). Can be expensive.
an item with attributes offering benefits that satisfy customers and is received in exchange for something of value.
How to fight Tangibility for services?
Make it tangible in the mind by using logos (Aflac duck and Geico lizard)
Identify The Solution
(1) Edit, code, and analyze. Figure out how to do this prior to gathering data. (2) Apply the criterion.
Retailers strength in the channel has been increasing. -Gained strength back with check out scanners and inventory trackers.
New Product Development- Step 2- Idea Screening
Find out if there is a market for product. (1) The "concept test." Concept statement: A short written statement that describes what the product is. Starts by stating benefit. Show people concept statement then ask if they would buy it. Engineers that don't understand marketing concept tend to write bad concept test. (2) People buy benefits not product. Advantages: done early, inexpensive. Disadvantages: only a rough estimate, only good as the concept, if the product changes substantially, test may not be accurate.
casual research showing the relationship btwn independent variable (Adjust, and look for affect on dependent measure) and a dependent measure (Can't adjust, depends on independent variable). -Must control for all extraneous variables so change in only one variable is reflected in the results.
Add Flankers to Product Mix
(1) Usually easiest to do (cost and consumer acceptance) (2) Helps prevent switching due to boredom (3) May do better job of targeting (4) May push out competition. PROBLEM: may confuse customer. Retailers object do to shelf space. Not enough to just add flankers.

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