Midterm 2 review Chapter 8 pg.242 A market segment consists of a group of customers who share a similar set of needs and wants. Effective Segmentation Criteria

• Measurable • Substantial • Accessible • Differentiable • Actionable

A flexible market offering consists of two parts: a naked solution containing the product and service elements that all segment members value, and discretionary options that some segment members value. Homogeneous preferences exist when all consumers have roughly the same preferences

Consumers in diffused preferences vary greatly in their preferences.

Clustered preferences result when natural market segments emerge from groups of consumers with

shared preferences

Two Main Market Segments

Consumer markets

Business markets

Forms of Market Segmentation

1. Mass Marketing

Rarely seen today

o Competitiveness of the market

o Need to specifically address consumer needs

2. Segment Marketing

Most common form of segmentation

3. Niche Marketing

Concentrate on a smaller area to be successful

4. Individualized Marketing

Through the use of sophisticated tracking and statistical models, behaviour is predicted

Individual offers are developed

5. Local Marketing

Market Segmentation - Key to success: Balance + satisfy customer needs = profitability

Customerization combines operationally driven mass customization with customized marketing in a way

that empowers consumers to design the product and service offering of their choice.

Segmenting Consumer Markets

Geographic

Demographic

o Age and life cycle

o Life stage

o Gender

o Income

o Generation

o Social class

Psychographic

Behavioural

Age cohort: a group of consumers of the same approximate age who have similar experiences

Perceived Age: You’re Only as Old as You Feel

Chronological Age: Actual number of years lived

Gerontographics: segmentation approach that divides the mature market by level of physical well-being

and social conditions (U.S. data)

Acculturation - Process of movement and adaptation to one country’s cultural environment by a person

from another country

• Five phases of adjustment:

– Honeymoon

– Culture shock

– Superficial adjustment

– Stress and depression

– Integration

Loyalty Status

• Hard-core

• Split loyals

• Shifting loyals

• Switchers

Segmenting for Business Markets

• Demographic

• Operating variable

• Purchasing approaches

• Situational factors

• Personal characteristics

Steps in Segmentation Process

• Need-based segmentation

• Segment identification

• Segment attractiveness

• Segment profitability

• Segment positioning

• Segment acid test

• Market mix strategy

Megamarketing is the strategic coordination of economic, psychological, political, and public relations

skills, to gain the cooperation of a number of parties in order to enter or operate in a given market.

1. In _____ marketing, the seller engages in the production, distribution, and promotion of one

product for all buyers.

a. mass

2. A _____ is a more narrowly defined customer group seeking a distinctive mix of benefits.

a. niche

3. _____ marketing reflects a growing trend called grassroots marketing.

a. Local

4. _____ combines operationally driven mass customization with customized marketing in a way

that empowers consumers to design the product and service offering of their choice.

a. Customerization

5. _____ segmentation calls for dividing the market into groups based on age, family, size, family

life cycle, gender, income, etc.

a. Demographic

6. In _____ segmentation, buyers are divided into groups on the basis of their knowledge of,

attitude toward, use of, or response to a product.

a. behavioral

7. A _____ is a set of segments sharing some exploitable similarity.

a. supersegment

8. In _____ specialization a firm selects a number of segments, each objectively attractive and

appropriate.

a. selective

9. With ________ the firms makes a certain product that it sells to several different market

segments.

a. product specialization

10. A company uses _____ invasion plans to enter one segment at a time.

a. segment-by-segment

11. Some companies claim that mass marketing is dying and are turning to micromarketing.

a. True

12. A target market consists of a group of customers who share a similar set of needs and wants.

a. False

13. Homogeneous preferences show a market with distinct preference clusters called natural

market segments.

a. False

14. The ultimate level of segmentation leads to "segments of one."

a. True

15. Psychographics is the science of using psychology and demographics to better understand

consumers.

a. True

16. The VALS technique bases segments on consumer motivation and consumer resources.

a. True

17. In differentiated marketing, the firm operates in several market segments and designs the same

product for each segment.

a. False (different product for each segment.)

18. Megamarketing is the strategic coordination of economic, psychological, political, and public

relations skills to gain the cooperation of a number of parties in order to enter or operate in a

given market.

a. True

19. Socially responsible marketing calls for targeting that serves not only the company's interests,

but also the interests of those targeted.

a. True

20. The cereal industry has been heavily criticized for marketing efforts directed towards children.

a. True

21. Name the four major segmentation variables and explain what they measure.

Geographic - geographical units such as nations, states, regions, counties, cities, or

neighborhoods.

Demographic - variables such as age, family size, family life cycle, gender, income, occupation,

education, religion, race, gender, nationality, and social class.

Psychographic - divides groups on the basis of psychological/personality traits, lifestyle, or

values.

Behavioral - divides buyers into groups on the basis of their knowledge of, attitude toward, use

of, or response to a product.

22. To be useful, market segments must rate favorable on five key criteria. Discuss these.

Market segments must be:

Measurable - in size, purchasing power and characteristics of the segments.

Substantial - large and profitable enough to serve.

Accessible - the segments can be effectively reached and served.

Differentiable - the segments are conceptually distinguishable and respond differently to

different marketing-mix elements and programs.

Actionable - effective programs can be formulated for attracting and serving the segments.

1. _____ has four levels: segments, niches, local areas, and individuals.

a. Micro marketing

2. _____ preferences show a market with scattered consumer preferences.

a. Diffused

3. Hallmark targets narrowly defined market segments. This is an example of _____.

a. niche marketing

4. When Hilton Hotels customizes its rooms according to location, they are using a _____

segmentation strategy.

a. geographic

5. PRIZM clusters are a form of _____ segmentation.

a. geographic

6. A husband is looking for a new treadmill for his wife's birthday present. The husband seeks

information from his best friend who has a treadmill. The friend is taking on what role in the

buying decision process?

a. influencer

7. A bank may not only identify a group of wealthy retired adults, but within that group, distinguish

several segments depending on current income, assets, savings, and risk reference. This has led

some marketers to use _____ segmentation.

a. needs-based

8. Estee Lauder, the cosmetics firm, offers many market brands that cater to various men and

women of different tastes. Estee Lauder is practicing _____ marketing.

a. differentiated

9. Johnson & Johnson broadened its target market for its baby shampoo to include adults. This is

an example of _____.

a. counter-segmentation

10. After Coca-Cola left India, Pepsi used _____ to enter the Indian market.

a. megamarketing

11. To practice market segmentation, the marketer must first create market segments.

a. False (they identify segments)

12. A naked solution contains the product and service elements that some, but not all, segment

members value.

a. False

13. A discretionary option contains the product and service elements that all segment members

value.

a. False (these are naked solutions)

14. VALS is a tool used to segment consumers into groups based on psychographics.

a. True

15. Psychographic techniques do not vary by culture.

a. False

16. To be useful, market segments must be measurable, substantial, accessible, differentiable, and

actionable.

a. True

17. Undifferentiated marketing is "the marketing counterpart to standardization and mass

production in manufacturing."

a. True

18. Differentiated marketing typically creates less total sales than undifferentiated marketing.

a. False

19. Colgate's ad promoting features designed to get children to brush more often is an example of

socially responsible marketing.

a. True

20. Groups such as "Stop Commercial Exploitation of Children" welcome schools' endorsement of

products and welcome free resources from commercial entities for children.

a. False (they feel that preschoolers are susceptible to advertising.)

21. Name and describe the four "brand loyalty groups".

Hard-core loyals - consumers who buy only one brand all the time.

split loyals - consumers who are loyal to two or three brands.

shifting loyals - consumers who shift loyalty from one brand to another.

switchers - consumers who show no loyalty to any brand.

22. Discuss the five patterns of target market selection a company might consider.

Single-segment concentration - concentrate on small market.

Selective specialization - firm selects a number of segments, each objectively attractive and

appropriate.

Product specialization - the firm makes a certain product that it sells to several different market

segments.

Market specialization - the firm concentrates on serving many needs of a particular customer

group.

Full market coverage - the firm attempts to serve all customer groups with all the products they

might need.

Ch9 pg.270

Strategic Brand Management

• Identifying and establishing brand positioning

• Planning and implementing brand marketing

• Measuring and interpreting brand performance

• Growing and sustaining brand value

A brand is a name, term, sign, symbol or design, or a combination of them, intended to identify the

goods or services of one seller or group of sellers and to differentiate them from those of competitors.

Role of Brands

• Identify the maker

• Simplify product handling

• Organize accounting

• Offer legal protection

• Signify quality

• Create barriers to entry

• Serve as a competitive advantage

• Secure price premium

Branding is endowing products and services with the power of the brand.

Brand equity is the added value endowed on products and services, which may be reflected in the way

consumers, think, feel, and act with respect to the brand.

Customer-based brand equity is the differential effect that brand knowledge has on consumer response

to the marketing of that brand.

Advantages of Strong Brands • Improved perceptions of product performance

• Greater loyalty

• Less vulnerability to competitive marketing actions

• Less vulnerability to crises

• Larger margins

• More inelastic consumer response

• Greater trade cooperation

• Increased marketing communications effectiveness

• Possible licensing opportunities

Brand knowledge consists of all the thoughts, feelings, images, experiences, beliefs, and so on that

become associated with the brand.

A brand promise is the marketer’s vision of what the brand must be and do for consumers.

Brand Equity Models

Brand Asset Valuator

o Differentiation - measures the degree to which a brand is seen as different from others.

o Energy - measures the brand's sense of momentum

o Relevance - measures the breadth of a brand's appeal

o Esteem - measures how well the brand is regarded and respected

o Knowledge - measures how well the brand is regarded and respected

Aaker Model

o Brand identity

o Core identity elements

o Extended identity elements

o Brand essence

BRANDZ

Brand Resonance

o Brand salience is how often an-d how easily customers think of the brand under various

purchase or consumption situations.

o Brand performance is how well the product or service meets customers' functional needs.

o Brand imagery describes the extrinsic properties of the product or service, including the ways in

which the brand attempts to meet customers' psychological or social needs.

o Brand judgments focus on customers' own personal opinions and evaluations.

o Brand feelings are customers' emotional responses and reactions with respect to the brand.

o Brand resonance refers to the nature of the relationship customers have with the brand and the

extent to which they feel they're "in sync" "with it.

Drivers of Brand Equity

• Brand elements

• Marketing activities

• Meaning transference

Brand Elements • Brand names

• Slogans

• Characters

• Symbols

• Logos

• URLs

Brand Element Choice Criteria • Memorable

• Meaningful

• Likeability

• Transferable

• Adaptable

• Protectible

Brand contact is any information-bearing experience, whether positive or negative, a customer or

prospect has with the brand, the product category, or the market that relates to the marketer's product

or service

Designing Holistic Marketing Activities

• Personalization

• Integration

• Internalization

Integration marketing is about mixing and matching marketing activities to maximize their individual

and collective effects

Internal Branding - is activities and processes that help to inform and inspire employees

• Choose the right moment

• Link internal and external marketing

• Bring the brand alive for employees

Measuring Brand Equity

• Brand audits - is a consumer-focused series of procedures to assess the health of the brand,

uncover its sources of brand equity, and suggest ways to improve and leverage its equity

• Brand tracking - Brand-tracking studies collect quantitative data from consumers on a routine

basis over time to provide marketers with consistent, baseline information about how their

brands and marketing programs are performing on key dimensions

• Brand valuation - estimating the total financial value of the brand

Managing Brand Equity

• Brand reinforcement

• Brand revitalization

• Brand crises

Devising a Branding Strategy

• Develop new brand elements

• Apply existing brand elements

• Use a combination of old and new

Branding Terms

• Brand line - consists of all products-original as well as line and category extensions-sold under a

particular brand

• Brand mix - (or brand assortment) is the set of all brand lines that a particular seller makes

available to buyers

• Brand extension - uses an established brand to introduce a new product

• Sub-brand - combine a new brand with an existing brand

• Parent brand - existing brand that gives birth to a brand extension or sub-brand

• Family brand - parent brand is already associated with multiple products through brand

extensions

• Line extension - parent brand covers a new product within a product category it currently serves

• Category extension - parent brand is used to enter a different product category from the one it

currently serves

• Branded variants - specific brand lines supplied to specific retailers or distribution channels

• Licensed product - is one whose brand name has been licensed to other manufacturers that

actually make the product

• Brand dilution

• Brand portfolio - is the set of all brands and brand lines a particular firm offers for sale in a

particular category or market segment.

Brand Naming

• Individual names

• Blanket family names

• Separate family names

• Corporate name/individual name combo

Reasons for Brand Portfolios

• Increasing shelf presence and retailer dependence in the store

• Attracting consumers seeking variety

• Increasing internal competition within the firm

• Yielding economies of scale in advertising, sales, merchandising, and distribution

Brand Roles in a Brand Portfolio

• Flankers - positioned with respect to competitors' brands so that more important (and more

profitable) flagship brands can retain their desired positioning.

• Cash cows - Some brands may be kept around despite dwindling sales because they still manage

to hold on to enough customers and maintain their profitability with virtually no marketing

support

• Low-end, entry-level - The role of a relatively low-priced brand in the portfolio often may be to

attract customers to the brand franchise.

• High-end prestige - The role of a relatively high-priced brand often is to add prestige and

credibility to the entire portfolio

1. _____ is endowing products and services with the power of a brand.

a. Branding

2. _____ is the added value endowed to products and services.

a. Brand equity

3. ______ are those trademarked devices that serve to identify and differentiate the brand.

a. Brand elements

4. A ________ is any information-bearing experience, whether positive or negative, a customer has

with a brand.

a. brand contact

5. _________ marketing is the practice of marketing to consumers only after obtaining their

expressed experience.

a. Permission

6. _____ occurs when customers experience the company as delivering on its brand promise.

a. Brand bonding

7. A _____ is a consumer-focused exercise that involves a series of procedures to assess the health

of the brand, uncover its sources of brand equity, and suggest ways to improve and leverage its

equity.

a. brand audit

8. When a firm uses an established brand to introduce a new product it is called a _____.

a. brand extension

9. A _____ product is one whose brand name has been licensed to other manufacturers who

actually make the product.

a. licensed

10. _____ occurs when consumers no longer associate a brand with a specific product or highly

similar products and start thinking less about the brand.

a. Brand dilution

11. A brand is a "name, term, sign, symbol, or design, or a combination of these that identifies the

goods and services of a seller."

a. True

12. Brand equity is the unique set of brand associations that represent what the brand stands for

and promises to customers.

a. False (this is brand identity.)

13. The brand resonance model views brand building as an ascending, sequential series of steps.

a. True

14. Personalizing marketing is about making sure that the brand and its marketing are as relevant as

possible to as many customers as possible.

a. True

15. Permission marketing presumes that a consumer knows what they want.

a. True

16. Brand tracking studies collect information from consumers on a routine basis over time.

a. True

17. Brand equity is an estimate of the total financial value of a brand.

a. False

18. The branding strategy for a firm reflects the number and nature of common and distinctive

brand elements applied to the different products sold by the firm.

a. True

19. In a category extension the parent brand is used to enter a different product category from that

currently served by the parent brand.

a. True

20. The family brand consists of the set of all brands and brand lines a particular firm offers for sale

to buyers in a particular category.

a. False (this is a brand portfolio.)

21. Describe the functions a brand provides for the firm.

Brands simplify product handling or tracing. Brands help to organize inventory and accounting records.

Brands also offer the firm legal protection for unique features or aspects of the product. Finally, brands

signal a certain level of quality so that satisfied buyers can easily choose the product again.

22. What are the two basic approaches to measuring brand equity?

The indirect approach assesses potential sources of brand equity by identifying and tracking consumer

brand knowledge structures. The direct approach assesses the actual impact of brand knowledge on

consumer responses to different aspects of the marketing.

1. _____ measures the degree to which a brand is seen as different from others.

a. Differentiation

2. _____ measures the breadth of a brand's appeal.

a. Relevance

3. Brand ________ are customers' emotional responses and reactions with respect to a brand.

a. feelings

4. Nike has the distinctive "swoosh" logo, the "Just Do It" slogan, and the "Nike" name based on a

mythological goddess. These devices are called _____.

a. brand elements

5. ________ marketing is about mixing and matching marketing activities to maximize their

individual and collective effects.

a. Integration

6. Burton, a maker of snowboards, is introducing a new snowboard called "The Dominator." This

snowboard will be associated and identified with top professional riders. What marketing

strategy is Burton using?

a. leveraging secondary association

7. Nivea, a strong European brand, has expanded its scope from a skin-cream brand to a skin-care

and personal-care brand through carefully designed and implemented brand extensions. This is

an example of _____.

a. brand reinforcement

8. Dannon Yogurt offers several types of new yogurts, Fruit on the Bottom, Natural Flavors, and

Fruit Blends to name a few. This is an example of a _____.

a. line extension

9. Honda uses the company name to cover different products such as automobiles, motorcycles,

snowblowers, and snowmobiles. This is an example of a _____.

a. category extension

10. A _____ brand may be kept around despite dwindling sales because they still manage to hold on

to a sufficient number of customers and maintain profitability with little or no marketing

support.

a. cash cow

11. Brand equity consists of all the thoughts, feelings, images, experiences, beliefs and so on that

become associated with the brand.

a. False

12. Brand salience relates to how often and easily the brand is evoked under various purchase or

consumption situations.

a. True

13. Brands are not built by advertising alone.

a. True

14. Holistic marketers emphasize personalization, integration, and internalization.

a. True

15. The activities and processes that help to inform and inspire employees is called brand bonding.

a. True

16. Brand equity may be created by linking the brand to other information in memory that conveys

meaning to consumers.

a. True

17. In managing brand equity, it is important to recognize the trade-offs between those marketing

activities that fortify the brand and those that attempt to leverage or borrow from existing

brand equity.

a. True

18. A branded variant is when specific brand lines are supplied to specific retailers or distribution

channels.

a. True

19. Development costs are lower with individual branding than with blanket family branding.

a. False

20. Blanket family names are sometimes referred to as a "branded house".

a. True

21. What are the six criteria used to choose brand elements? Explain each of these.

Memorable - how easily the brand element is recalled and recognized.

Meaningful - the extent to which the brand element is credible and suggestive of the corresponding

category.

Likeability - how aesthetically appealing consumers find the brand element.

Transferable - the extent to which a brand element can be used to introduce new products in the same

or different products.

Adaptable - how adaptable and updatable is the brand element.

Protectible - the extent to which the brand element is legally protectible.

22. Discuss the four general strategies used in choosing a brand name. What are the advantages to

each of these strategies?

First, a company can use an individual name strategy. This way the company does not tie its reputation

to the product's. If the product fails or appears to have a low quality the company's image is not hurt. A

second strategy is to use blanket family names. By, using this strategy, there is no need for "name"

research or heavy advertising to create brand-name recognition; this reduces initial development costs.

A third strategy is to use separate family names for all products. This works best for companies that

produce quite different products and one blanket family name is not desirable. Finally, a company can

use the corporate name combined with individual product names as a branding strategy. The company

name legitimizes and the individual name individualizes the new product.

Ch10 pg.302

Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the

mind of the target market.

Points-of-difference (PODs)

Attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe they

could not find to the same extent with a competitive brand

Points-of-parity (POPs)

Associations that are not necessarily unique to the brand but may be shared with other brands

Conveying Category Membership

• Announcing category benefits

• Comparing to exemplars

• Relying on the product descriptor

Consumer Desirability Criteria for PODs

• Relevance

• Distinctiveness

• Believability

Deliverability Criteria for PODs

• Feasibility

• Communicability

• Sustainability

Addressing negatively correlated PODs and POPs

• Present separately

• Leverage equity of another entity

• Redefine the relationship

Differentiation Strategies

• Product

• Channel - Companies can more effectively and efficiently design their distribution channels'

coverage, expertise, and performance.

• Personnel - Companies can have better-trained employees.

• Image - Companies can craft powerful, compelling images

Claims of Product Life Cycles

• Products have a limited life

• Product sales pass through distinct stages each with different challenges and opportunities

• Profits rise and fall at different stages

• Products require different strategies in each life cycle stage

Product Life Cycles

1 .Introduction - A period of slow sales growth as the product is introduced in the market Profits are

nonexistent because of the heavy expenses of product introduction.

2. Growth - A period of rapid market acceptance and substantial profit improvement.

3. Maturity - A slowdown in sales growth because the product has achieved acceptance by most

potential buyers. Profits stabilize or decline because of increased competition.

4. Decline - Sales show a downward drift and profits erode.

Length of each stage in the product life cycle depends on:

• The product

• The category

• The management

Length and Shape

Industry

Competition

Technological innovations

Approaches to marketing

Extending Product Life Cycle Strategies

1. Target current users – Extended usage strategies (use product differently)

2. Target new consumers – New marketing approaches (Identify an opportunity segment. Attempt to make

product relevant)

3. Revitalize the product (New Trend)

4. Reposition the product (Reposition to meet changing needs)

5. Introduce new product (Introduce line extensions)

6. New uses for product

Marketing Product Modifications

• Quality improvements

• Feature improvements

• Style improvements

Marketing Program Modifications

• Prices

• Distribution

• Advertising

• Sales promotion

• Services

1. _____ is the act of designing the company's offering and image to occupy a distinctive place in

the mind of the target market.

a. Positioning

2. Companies can gain a strong competitive advantage through having better-trained people. This

is called _____.

a. personnel differentiation

3. _____ pass through four stages: distinctiveness, emulation, mass fashion, and decline.

a. Fashions

4. In a _____ pattern of the product life cycle, sales grow rapidly when the product is first

introduced and then fall to a "petrified" level.

a. growth-slump-maturity

5. The _____ stage is marked by a rapid climb in sales.

a. growth

6. During the _____ stage sales slow down creating over-capacity in the industry, which leads to

intensified competition.

a. maturity

7. During the _____ stage sales and profits decline and some firms withdraw from the market.

a. decline

8. _____ calls for gradually reducing a product and business's costs while trying to maintain sales.

a. Harvesting

9. If a new product sells well, new firms will enter the market, ushering in a(n) _____ stage.

a. market-growth

10. Eventually, when competitors cover and serve all the major market segments the market enters

the _____ stage.

a. Maturity

11. Products in a particular category compete closely with one another.

a. False

12. Companies can achieve competitive advantage through the way they design their distribution

channels' coverage, expertise, and performance.

a. True

13. A company's positioning and differentiation strategy must change as the product, market, and

competitors change over the product life cycle.

a. True

14. All products exhibit a bell-shaped product life cycle curve.

a. False

15. Fads are fashions that come quickly into public view, are adopted with great zeal, peak early,

and decline very fast.

a. True

16. Most studies show that the market pioneer has a great advantage.

a. False

17. Managers may try to stimulate sales during the maturity stage by modifying the product's

characteristics.

a. True

18. Weak products consume proportionately less of management's time than stronger products.

a. False

19. Companies that successfully restage or rejuvenate a mature product often do so by adding value

to the original offering.

a. True

20. Many critics of the Product Life Cycle theory say its life-cycle patterns are too variable in shape

and duration to be generalized.

a. True

21. What are the three key consumer desirability criteria for POD's (points-of-difference)?

Relevance - target consumers must find the POD personally relevant and important.

Distinctiveness - target consumers must find the POD distinctive and superior.

Believability - target consumers must find the POD believable and credible.

22. What are the four stages in the Product Life Cycle? Describe what happens at each stage.

In the first stage, introduction, the product experiences slow sales growth as the product is introduced

in the market. In the second stage, growth, there is a period of rapid market acceptance and substantial

profit improvement. In the third stage, maturity, the product experiences a slowdown in sales growth,

and profits stabilize or decline because of increased competition. In the fourth and final stage, decline,

sales show a downward drift and profits erode.

1. Creating the image of a "delivered pizza" rather than a "frozen pizza" category for DiGiorno's

pizza is an example of _______.

a. positioning

2. Attributes or benefits consumers strongly associate with a brand, such as FedEx - guaranteed

overnight delivery - are called _____.

a. points-of-difference

3. Associations that are not necessarily unique to the brand are called _____.

a. points-of-parity

4. A _____ is a basic and distinctive mode of expression appearing in a field of human endeavor.

a. style

5. During the _____ stage prices remain where they are or fall slightly.

a. growth

6. The _____ stage divides into three phases: growth, stable, and decaying maturity.

a. maturity

7. During the _____ stage product managers try to stimulate sales by modifying marketing

program elements.

a. maturity

8. During the _____ stage firms may withdraw from smaller market segments and weaker trade

channels.

a. decline

9. The first step of harvesting is to ________.

a. cut R&D costs

10. In a _____ strategy a new product can be designed to meet the preferences of one of the

corners of the market.

a. single-niche

11. Competitive points-of-parity are associations consumers view as essential to be a legitimate and

credible offering within a certain product or service category.

a. False (these are category points-of-parity.)

12. Category points-of-parity are associations designed to negate competitors' points-of-difference.

a. False (these are competitive points-of-parity.)

13. Many of the attributes or benefits that make up the points-of-parity and points-of-difference

are negatively correlated.

a. True

14. In the cycle-recycle pattern of the product life cycle sales pass through a succession of life cycles

based on the discovery of new-product characteristics, uses, or users.

a. False (this is a scalloped pattern.)

15. During the introduction stage, speeding up innovation time is essential, especially in an age of

shortening Product Life Cycles.

a. True

16. Most products are in the maturity stage of the Product Life Cycle.

a. True

17. Feature improvement aims at increasing the products' functional performance.

a. False (this is quality improvement.)

18. Style improvement aims at increasing the product's esthetic appeal.

a. True

19. Critics of the Product Life Cycle theory charge that marketers can seldom tell what stage the

product is in.

a. True

20. In a diffused-preference market buyer preferences scatter unevenly.

a. False (they scatter evenly.)

21. What are the three main ways to convey a brand's category membership?

Announcing category benefits - benefits are frequently used to announce category membership to

reassure consumers that a brand will deliver.

Comparing to exemplars - well known noteworthy brands in a category can also be used to specify

category membership.

Relying on the product descriptor - the product descriptor that follows the brand name is often a

concise means of conveying category origin.

22. Name and describe three ways for a firm to expand the number of users of a brand.

Convert non users - a firm can attempt to convince consumers who don't use a product to begin using it

and to buy the offered brand.

Enter new market segments - the firm may decide to begin offering their products in new market

segments.

Attract competitor's customers - the firm can attempt to steal customers away from competitors.

Ch14 pg.410

Consumer Psychology and Pricing

• Reference prices

• Price-quality inferences

• Price endings

• Price cues

Possible Consumer Reference Prices

• “Fair price” (what the product should cost)

• Typical price

• Last price paid

• Upper-bound price (reservation price or what most consumers would pay)

• Lower-bound price (lower threshold price or the least consumers would pay)

• Competitor prices

• Expected future price

• Usual discounted price

When to Use Price Cues

• Customers purchase item infrequently

• Customers are new

• Product designs vary over time

• Prices vary seasonally

• Quality or sizes vary across stores

Steps in Setting Price

• Select the price objective

• Survival

• Maximum current profit

• Maximum market share

• Maximum market skimming

• market-skimming pricing, in which prices start high and slowly drop over time

• Product-quality leadership

• Determine demand

• Price sensitivity

• Estimate demand curves

• Surveys can explore how many units consumers would buy at different proposed prices

• Price experiments can vary the prices of different products in a store or charge different

prices for the same product in similar territories to see how the change affects sales.

• Statistical analysis of past prices, quantities sold, and other factors can reveal their

relationships.

• Price elasticity of demand

• If demand hardly changes with a small change in price, we say the demand is inelastic. If

demand changes considerably, demand is elastic.

• Estimate costs

• Types of costs

• Fixed costs (also known as overhead) are costs that do not vary with production level or

sales revenue.

• Variable costs vary directly with the level of production

• Total costs consist of the sum of the ftxed and variable costs for any given level of

production

• Average cost is the cost per unit at that level of production

• activity-based cost (ABC) accounting tries to identify the real costs associated with

serving each customer

• Accumulated production

• This decline in the average cost with accumulated production experience is called the

experience curve or learning curve.

• Activity-based cost accounting

• Target costing

• Costs change with production scale and experience

• Analyze competitor price mix

• Select pricing method

• MARKUP PRICING The most elementary pricing method is to add a standard markup to the

product's cost.

• Target-return pricing, the firm determines the price that, would yield its target rate of return on

investment (ROI).

• PERCEIVED-VALUE PRICING An increasing number of companies now base their price on the customer's

perceived value. Perceived value is made up of several elements, such as the buyer's image of the product

performance, the Channel deliverables, the warranty quality, customer support, and softer attributes such

as the supplier's reputation, trustworthiness, and esteem

• Value pricing charging a fairly low price for a high-quality offering

• Going-rate pricing, the firm bases its price largely on competitors' prices, charging the same,

more, or less than major competitor(s).

• AUTION·TYPE PRICING

• Select final price

• Impact of other marketing activities

• The final price must take into account the brand's quality and advertising relative to the

competition

• Company pricing policies

• The price must be consistent with company pricing policies. At the same time,

companies are not averse to establishing pricing penalties under certain circumstances

• Gain-and-risk sharing pricing

• Buyers may resist accepting a seller's proposal because of a high perceived level of risk

• Impact of price on other parties

• consider the reactions of other parties to the contemplated price

Price-Adaptation Strategies

• Geographical pricing

• Many buyers want to offer other items in payment, a practice known as countertrade

• Barter

• The buyer and seller directly exchange goods, with no money and no third

party involved.

• Compensation deal

• The seller receives some percentage of the payment in cash and the rest in

products.

• Buyback arrangement

• The seller sells a plant, equipment, or technology to another country and

agrees to accept as partial payment products manufactured with the supplier

equipment.

• Offset

• The seller receives full payment in cash but agrees to spend a

substantial amount of the money in that country within a stated time

period

• Discounts/allowances

• Cash discount

• Quantity discount

• Functional discount

• Seasonal discount

• Allowance

• Promotional pricing

• Loss-leader pricing

• Special-event pricing

• Cash rebates

• Low-interest financing

• Longer payment terms

• Warranties and service contracts

• Psychological discounting

• Differentiated pricing - Companies often adjust their basic price to accommodate differences in

customers, products, locations, and so on

• Price discrimination occurs when a company sells a product or service at two or

more prices that do not reflect a proportional difference in costs.

• Customer-segment pricing

• Different customer groups pay different prices for the same product or service

• Product-form pricing

• Different versions of the product are priced differently, but not proportionately to their

costs

• Image pricing

• Some companies price the same product at two different levels based on image

differences

• Channel pricing

• Carries a different price depending on whether the consumer purchases it in a fine

restaurant, a fast-food restaurant, or a vending machine.

• Location pricing

• The same product is priced differently at different locations even though the cost of

offering it at each location is the same

• Time pricing

• Prices are varied by season, day, or hour.

• Yield pricing

• offer discounted but limited early purchases, higher-priced late purchases, and the

lowest rates on unsold inventory just before it expires

Initiating and Responding to Price Changes

• Initiating Price Cuts

o Low-quality trap. Consumers assume quality is low.

o Fragile-market-share trap. A low price buys market share but not market loyalty. The same

customers will shift to any lower-priced firm that comes along.

o Shallow-pockets trap. Higher-priced competitors match the lower prices but have longer staying

power because of deeper cash reserves.

o Price-war trap. Competitors respond by lowering their prices even more, triggering a price war.

• Increasing Prices

o Delayed quotation pricing

The company does not set a final price until the product is finished or delivered.

o Escalator clauses

The company requires the customer to pay today's price and all or part of any inflation

increase that takes place before delivery

o Unbundling

The company maintains its price but removes or prices separately one or more elements

that were part of the former offer, such as free delivery or installation

o Reduction of discounts

The company instructs its sales force not to offer its normal cash and quantity discounts.

Brand Leader Responses to Competitive Price Cuts

• Maintain price

• Maintain price and add value

• Reduce price

• Increase price and improve quality

• Launch a low-price fighter line

1. In considering an observed price, consumers often compare it to an internal price called a(n)

_____ price.

a. reference

2. _____ pricing is used to maximize the company's market share.

a. Market penetration

3. _____ costs do not vary with production or sales revenue.

a. Fixed

4. _____ cost is the cost per unit at that level of production.

a. Average

5. In _____ pricing the firm bases its price largely on competitors' prices.

a. going-rate

6. In _____ pricing the company decides how to price its products to different customers in

different locations and countries.

a. geographical

7. The direct exchange of goods, with no money and no third party involved, is called a(n) _____.

a. barter

8. When PepsiCo sells its cola syrup to Russia for rubles and agrees to buy Russian vodka at a

certain rate for sale in the United States, this is called _____.

a. offset

9. _____ occurs when a company sells a product or service at two or more prices that do not

reflect a proportional difference in costs.

a. Price discrimination

10. Coca-Cola carries a different price depending on whether it is purchased in a fine restaurant,

fast-food restaurant, or a vending machine. This is called _____ pricing.

a. channel

11. Most consumers do not use price as an indicator of quality.

a. False

12. Prices that end with "0" and "5" are thought to be easier for consumers to process and retrieve

from memory.

a. True

13. Demand sets a ceiling on the price the company can charge for its product while costs set the

floor.

a. True

14. In markup pricing the firm determines the price that would yield its target rate of return or

investment.

a. False

15. An important type of value pricing is everyday low pricing or EDLP.

a. True

16. When a buyer offers other items instead of cash as a form of payment, this is called trade.

a. False (countertrade.)

17. Sales management needs to monitor the proportion of customers who are receiving discounts,

the average discount, and salespeople relying on discount. An analysis of these variables to

arrive at the "real price" of their offering is called a net price analysis.

a. True

18. Promotional pricing strategies are often a zero-sum game. If they work, competitors copy them;

if they don't work they have wasted money.

a. True

19. In product-form pricing different customer groups are charged different prices for the same

product or service.

a. False (customer-segment pricing.)

20. In location pricing the same product is priced differently at different locations even though the

cost of offering at each location is the same.

a. True

21. What is the six-step procedure most firms use to set their pricing policy?

The first step is to select the pricing objective. Next, the company must determine demand. After

determining demand the company must estimate its costs. The fourth step is to analyze competitors'

costs, prices, and offers. Next is to select a pricing method. The sixth and last step is to select the final

price.

22. Explain the difference between everyday low pricing (EDLP) and high-low pricing. When would

each of these methods be used?

A retailer using an EDLP pricing policy charges a constant low price with little or no promotions or sales.

This strategy provides constant prices for consumers and can lead to lower perceived prices by

consumers over time. In high-low pricing, the retailer charges higher prices on an everyday basis but

then runs frequent promotions in which prices are temporarily lowered below the EDLP level.

1. Companies pursue _____ as their major price objective if they are plagued with overcapacity,

intense competition, or changing consumer wants.

a. survival

2. If demand hardly changes with small changes in price the demand is _____.

a. inelastic

3. The decline in the average cost with accumulated production is called the _____.

a. learning curve

4. A company charging fairly low prices for high-quality goods is practicing _____ pricing.

a. Value

5. In a(n) _____ auction the auctioneer announces a high price for a product and then slowly

decreases the price until a bidder accepts the price.

a. Dutch

6. In a(n) _____ auction would be suppliers can submit only one bid and cannot know the other

bids.

a. sealed-bid

7. A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the rest in coffee.

This type of practice is called a(n) _____.

a. compensation deal

8. One method of increasing prices is using _____, where the company maintains its price but

removes or prices separately one or more elements that were part of the former offer.

a. unbundling

9. In _____ pricing the company does not set a final price until the product is finished and

delivered.

a. delayed quotation

10. A market leader can respond directly to a competitor's aggressive price-cutting strategies by

_____.

a. maintaining price and adding value

11. Sometimes a company will make a product scarce to signify quality and justify premium pricing.

a. True

12. Companies unveiling a new technology favor setting high prices to maximize market penetration.

a. False (market skimming.)

13. Demand is likely to be most elastic when there are few or no substitutes.

a. False

14. To estimate the real profitability of dealing with different retailers, the manufacturer needs to

use activity-based cost accounting.

a. True

15. Markup pricing is a logical method of pricing since it takes into account current demand,

perceived value, and competition.

a. False (it ignores these items.)

16. It has been found that brands with average relative quality but high relative advertising budgets

were able to charge premium prices.

a. True

17. In a compensation deal, the seller sells a plant, equipment, or technology to another country

and agrees to accept as partial payment products manufactured with the supplied equipment.

a. False (buyback arrangement.)

18. Price discrimination is legal if the seller can prove that its costs are different when selling

different volumes or quantities of the same product to different retailers.

a. True

19. Companies sometimes initiate price cuts in a drive to dominate the market through lower costs.

a. True

20. The fragile-market-share trap of a price-cutting strategy refers to the risk that higher-priced

competitors may cut their prices and have longer staying power because of a deeper cash

reserve.

a. False (shallow-pockets trap.)

21. What five major objectives might a company pursue through pricing? Explain each of these.

A company can pursue any of the following five major objectives through pricing: survival, maximum

current profit, maximum market share, market skimming, or product-quality leadership. The first

objective, survival, is a short-run objective to cover variable costs and some fixed costs. To maximize

current profits the company must estimate demand and costs with various prices and choose the price

that produces maximum current profits. To maximize market share the company sets the lowest price it

can, assuming a price sensitive market. In market-skimming pricing, companies set high prices when

introducing new high-tech products. Finally, with product-quality leadership pricing prices are set to

imply a high level of quality.

22. Describe the various pricing techniques known as promotional pricing that can be used to

stimulate early purchase.

Companies can use several pricing techniques to stimulate early purchases.

Loss-leader pricing is used by retailers to stimulate store traffic by dropping the prices of well-known

brands.

Special-event pricing is used in certain seasons to draw in more customers.

Cash rebates encourage the purchase of the manufacturers' products within a specified time period.

Low-interest financing is also used to attract customers with low interest rates. Monthly payments can

be reduced by offering buyers longer payment terms. Companies can add free or low-cash warranties

and service contracts.

And finally, psychological discounting can be used by setting an artificially high price and then offering

the product at a substantial saving.