Marketing

Marketing: a process by which companies create value for customers and build strong customer
relationships in order to capture value from customers in return

Marketing = Value
Marketing focuses on the needs and wants of the buyer
The key to achieving organizational goals is delivering the desired satisfactions more effectively
and efficiently than competitors.

Filling versus Creating Demand

Market products that deliver benefits demanded by customers, with a focus on their needs and
wants

Needs: Physiological requirements such as food, clothing and shelter

Wants: A felt need shaped by a person’s knowledge, culture and personality

Marketing does not create a need, but shapes wants

Marketing strategy:
Marketing strategy is the marketing logic by which the company hopes to create customer value
and achieve profitable customer relationships

Strategic planning
• Step 1: Define the company mission
• Step 2: Set company objectives and goals
• Step 3: Design the business portfolio
• Step 4: Plan marketing and other strategies

Company’s Mission
The mission is a statement about the organization’s purpose; what it wants to accomplish in the
larger environment.

A mission may address the following:

• Who are we?
- What is our business?
- Who are our customers?
• What do customers value? Market-oriented understanding?
• Realistically, what is (will) our company (be) about?
- Fits the environment?
- Based on company competencies?
- Motivating for employees?
Mission statements are often too broad and do not really convey what the company’s purpose is
or what the company is aspiring to do.

Setting Objectives

Objective 1
Shell’s overall objective is to deliver sustainable excellence in business performance by
benefitting its shareholders, realizing the potential of its people, meeting customer requirements,
and maximizing refinery margins.

Objective 2
“Our deepest purpose as an organization is helping support the health, well-being, and healing of
both people — customers, Team Members, and business organizations in general — and the
planet.

Designing the Business Portfolio

Business portfolio: is the collection of businesses and products that make up the company.
Portfolio analysis: is a major activity in strategic planning whereby management evaluates the
products and businesses that make up the company

Strategic business unit (SBU): a subgroup of a single business or collection of related

businesses within the larger organization. SBUs can be a:
- Company division (geographic)
- Product line within a division
- Single product or brand
Each SBU has:
 A distinct mission for itself (derived from and feeding the mission of the larger
organization)
 A specific target market
 Its own competitors
 Control of its own resources
 Plans independent of other SBUs

BCG matrix
Innovation/Investment Matrix (GE/McKinsey)

Identifying Growth Opportunities (Ansoff)

e.g. Ansoff for google:

Evaluating the Business Portfolio

Do your research:
• What is your business position?
• What is the life stage of the market?
• What do customers want?
• What do competitors offer?

Allocate most resources to profitable or potentially profitable business units

Evaluating the Business Portfolio

Problems with Matrix Approaches:
• Difficulty in defining SBUs and measuring market share, growth, and future prospects
• Time consuming
• Costly
• Restrictive (categories vs. continuums)

Marketing Planning
• How to improve business position?
• How to increase market attractiveness?
• Which customers?
• How to reach the customers?
• Derive from mission, achieve with marketing mix

Segmentation “Identifying groups of consumers who respond in a similar way to a given set of
marketing efforts.”

Targeting “The process of evaluating each market segment’s attractiveness and selecting one or
more segments to enter.”

Positioning “Arranging for a product to occupy a clear, distinctive, and desirable place relative
to competing products in the minds of target consumers.”

Differentiation “Actually differentiating the market offering to create superior customer value.”

Four P / four C model of strategy

( product, price, promotion and place) (Customer solution, Customer cost, convenience,
Communication)
Creative marketing
• “Create with the customer, not just for the customer”
• Includes the product, buying process, the ability to provide support, and customer relationships
over time

---Marketing plan---

Purpose of marketing plan:

• Provide direction and focus for your brand, product, or company
• Describe how specific marketing strategies and actions will help achieve company’s strategic
objectives

Importance of Research in a marketing plan:

• Marketing plan should be supported by market analysis and research
• Assess the environment, competition, market segments, threats, and opportunities
• Conduct market research to learn about customers’ needs, wants, expectations, perceptions, and
levels of satisfaction

Sample Components of a Marketing Plan

Executive summary:
Overview of the primary objective of marketing plan
• Improve differentiation?
• New product launch?
• New channel?
• New branding?

Current Market Situation

• Market description
• Company’s products
• Competition/competitors
• Distribution channels
• Other relevant items that may be company-specific

Additional Sample Components

• Strengths, Weaknesses, Opportunities, Threats (SWOT) Analysis
• Objectives and issues
• Recommendation on marketing strategy (4 Ps) (if a recommendation doesn’t fall into the 4 Ps,
it is not a marketing plan)
• Market research to support recommendations
• Action programs: Lay out the steps and plan for specific marketing actions to implement
recommended marketing strategy

Additional Sample Components

• Budget / financial analysis of marketing actions
- Estimated cost of marketing actions
- Estimated potential increase in revenue
- Analyses of base / worst / best case scenarios
• Risk assessment: What could go wrong / backfire?
• Controls: Describe how the company should monitor and measure the effectiveness of action
programs as well as monitor risks

----

Swot analysis

Internal

External

---Marketing Research----
Marketing research stages
• Step 1: Assess information needs
• Step 2: Develop plan and collect information
• Step 3: Research plan
• Step 4: Interpret findings and make recommendations

Assess information needs

What do we need to know?
Managerial Problem: Why is our market share low?
Research Questions:
• How many consumers know our brand/store?
• What are consumers’ attitudes towards our brand/store?
• What are consumers’ attitudes towards our competitors?
• Which competitors have a higher market share?
• What are the attributes along which those competitors are (perceived to be) better?
• How important is each of these attributes?

Develop plan and collect information

Three sources of marketing information:
1. Internal databases: consumer information and data obtained from sources within the company
2. Marketing intelligence: monitoring, collection, and analysis of publicly available information
about the market
3. Marketing research: systematic design to collect, analyze, and report data relevant to a specific
marketing problem

Research objectives
A combination of one or more of the following:
• Exploratory research: Provides preliminary (broad) information that will help assess and define
the problem
• Descriptive research: Describes the marketing problem (e.g., attitude towards product, profile
of potential customers, etc.)
• Causal research: Tests a research hypothesis (cause-and-effect relationship)

Research plan
Developing the Research Plan
Research objectives are translated into specific information needs. The research plan describes
the:
• Information required: variables
• Data sources and research methods
• Estimated costs

• Secondary: data that is readily available; typically collected for other reasons at an earlier time
- Internal databases
- External databases (commercial online databases, public online databases, offline
databases, etc.)
• Primary: data that are not yet available, and have to be collected for the specific problem

Secondary versus Primary Data

Reasons why secondary data may be preferable:
• Time savings
• Cost savings

Reasons why primary data is more often preferred:

• Answer a specific problem
• Up-to-date/current
• Higher reliability (source is known and trusted)

Data Collection Approaches

Qualitative (exploratory) research approaches:
- Focus groups
- In-depth interviews
- Projective techniques Qualitative
- Observation (can also be quantitative)

Quantitative research approaches:

- Surveys/cross-sectional studies (descriptive research)
- Experiments (causal research)

Qualitative versus Quantitative

Focus Groups
A focus group is a planned, focused discussion involving similar people designed to obtain
qualitative data regarding the perceptions and feelings about products, services, and
organizations.
• Typically 6-10 people
• Skilled moderator facilitating, listening, “focusing”
• Participants offered an incentive to participate
• Participants talk to each other

Other types of focus groups:

• Immersion groups: small groups of consumers interact with product designers without any
moderator
• Virtual groups: members share their experiences and discuss ideas without being physically
present at the same place
In Depth or Personal Interviews
• One-on-one
• Trained professional guides, explains difficult questions, and explores various issues that may
arise.
• While costly, they have two major advantages:
- Allows for intense probing of respondents or reaction to ideas without peer influence
- Permits the investigation of motivations, associations, and explanations behind product
preference

Projective Techniques
Projective techniques have respondents think in metaphorical terms, allowing researchers to
collect sensitive or hard-to-articulate information.
Examples:
• Incomplete stimuli: sentence completion, word associations, story completion
• Creating stimuli: collages, role playing, sketching (e.g., “draw a BMW as if it were a person”)
• Imaginative exercises and personification: visitor from another planet, imaginary universe,
guided fantasy (e.g., “which car would Colgate be?”)

Brand association:
what positive of negative aspects do people think of when they hear a certain brand.

Observation
Observation: collecting data by observing relevant people, events, and situations (without
questioning)
Ethnographic research: observational technique where trained researchers watch and interact
with consumers in their “natural environments.”
Mystery shoppers: researchers posing as customers to gather observational data about a store and
collect data about customer/employee interactions
Cookies: browser trackers to see which web sites customers visited and match the users with
selected ads

Descriptive research examples:

 Survey Data
 Sampling
 Heat map analysis
 Positioning studies
 Market structure analysis
 Segmentation studies

Cross-Sectional vs. Longitudinal

Cross-sectional design: items measured only once; provides snapshot of variables of interest at
a point in time
Longitudinal design: items measured repeatedly over time, using the same sample
Attitudes and Attitude Measurement
Attitude is the most frequently measured variable/construct in marketing research
Attitude: predisposition to respond or act toward that object in a favorable or unfavorable way

Types of Attitudes
Explicit attitude: evaluation which the person is consciously aware of and is assessed by using
self-reports
Implicit attitude: evaluation which the person is typically not consciously aware of and is
assessed using implicit measures

Explicit Attitude Measurement

Types of Questions
 Open-ended question: encourages an answer phrased in the respondent’s own words
 Closed-ended question: asks the respondent to make a selection from a limited list of
responses
 Scaled-response question: a closed-ended question designed to measure the intensity of
a respondent’s answer
 Rank-order question: requires respondents to order items in terms of their appeal

Response Mode Effects

People’s attitudes can depend on the nature of the eliciting task
“Task effects” violate procedure invariance: normative assumption that differences in procedures
used to measure preference should not influence preference

Sampling
A sample is a segment of the population selected for research to represent the population as a
whole:
 Whom is to be studied?
 How many people should be studied?
 How should the people be chosen?

Sampling Considerations
• What are you measuring?
• What’s the population?
• Budget
• Time
• What might the variance be in the population?
• Cost of error?

Sampling Process
• Define the target population
• Determine the sampling frame (“empirical target population”)
• Select sampling technique(s)
• Determine the sample size goal
• Execute sampling

Sampling Techniques
Probability sampling: The probability to select any individual from the population is fixed
(equal chances)
Non probability sampling: Individuals are selected from the population based on judgment of
the researcher

Non Probability Sampling techniques

• Convenience sampling
- AKA Sampling from “nearby”
- Relatively inexpensive
- Straightforward to execute
• Judgmental sampling
- Choosing a sample more like target population
- Ideally shares similar knowledge or characteristics with target population
• Quota sampling
- Choose based on population quotas
- Must know population characteristics

Probability sampling
 Simple random sampling
- Randomly draw, like numbers in a lottery
- Still requires validation against population statistics

 Systematic random sampling

- Define the population
- Choose every n-th individual

 Stratified sampling
- Describe population based on influential characteristics
- Use characteristics to assign each individual to one stratum (accounting for relative
strata sizes)
- Randomly sample within strata
Descriptive Research Goals

Positioning Studies
=>How does a company position its brand?
Positioning studies allow researchers to determine how to market their product based on
customer preferences and needs
Determining product positioning
- Assess whether brands are perceived as similar/different (blind tests)
- Have participants rate how similar various product pairs are for each product in the
consideration set
- Graph products based on similarity to use as a tool to back out what products are seen
as most substitutable

Segmentation Studies
Understanding consumer segment:
• Understand consumers’ needs
• Understand their motivations
• Understand wants
• Understand other things consumers like/prefer

What is a segment?
• A priori assumptions
• Usage characteristics
• Attitudinal characteristics
• Needs-based attributes

Pitfalls of Descriptive Research

• Directionality problem: Does A cause B or does B cause A? (esempio dei pidocchi)
• Omitted variables/confounds: Does A cause B or can the relationship be explained by C,
D, E, or F?
• Spurious correlation: Is there any meaningful relationship between A and B or is it
merely statistical? (when A and B seem to be correlated using data, but actually have
nothing to do with each other)
Descriptive versus Causal
• Descriptive research
- Identify relationships/correlations between variables
- Observe what happens in the “real” world
- Rely on natural variation in the sample
• Causal research
- Identify cause-and-effect relationships
- Collecting data in a controlled setting
- Manipulate some aspect of the environment to create variation in the sample
- Test for effect on some variable(s) of interest

Causality
Causality: A change in one variable (X) will produce a change in another variable (O)
The necessary conditions:
• Covariation: The cause must be related to the effect (i.e., a change in X needs to result in
change in O)
• Time-Order: The cause must precede the effect (the first domino falling causes the tenth
to fall)
• No Confounds: No plausible alternative explanations must exist for the effect other than
the cause

Principles of Causal Research

Independent variable (“IV”) (X)
- Manipulated by experimenter
- Different treatment “levels”
- Examples: different advertisements, different prices, different store layouts

Dependent variable (“DV”) (O)

- Observed or measured outcome variable
- Examples: product attitudes, purchase, willingness to pay, satisfaction
Market Structure Analysis
• Group or partition brands or products in a market
• Different structural alternatives depending on dimensions of interest
e.g.

Types of Experimental Design

• One-group before-after design
• After-only design
• Two-group before-after design

One-Group Before-After
• Uses fewer participants
• What if there are design flaws?
• Participants may remember responses
After-Only
• Cuts down on measurement / experimenter demand effects
• Lose the baseline measure
• Difficult to know whether control / treatment same

Two-Group Before-After
• Also known as “randomized controlled trial”
• Important to have truly random assignment
- Individuals
- Entities

Validity
• Internal validity represents the extent to which a causal conclusion is warranted (and
thus, says something about the quality of the experiment)
• If the observed effect on the DV is caused only by the variation in the IV, then internal
validity has been achieved

Challenges to Internal Validity

• History: Any variables or events, other than the one(s) manipulated by the
experimenter, that affect the dependent variable
• Instrumentation: Changes in the measuring instrument that might account for
differences in the measurement
• Main Testing (or pre-measurement) effect: Measurement itself has a direct effect on
performance in a subsequent measurement
• Experimental mortality: Respondents drop out of the experiment while the research is
still in progress
• Selection bias: Groups formed for the purposes of the experiment are systematically
different in some relevant way from each other (and the population)
 • Demand artifacts / effects: Respondents act upon what is believed to be the expected or
desired behaviour
• Maturation: Participants act as a function of time passing, not the condition to which
they were assigned

External Validity
External validity represents the extent to which experimental results can be generalized across:
• People
• Settings
• Treatment variations
• Outcomes
• Time

---Consumer Decision Making---

The Buying Process

• Step 1: Need recognition
• Step 2: Information search
• Step 3: Evaluation of alternatives
• Step 4: Purchase
• Step 5: Post purchase behavior

Step 1: Need Recognition

Present status < preferred status created through the purchase
Maslow’s hierarchy of needs:
Types of Consumer Needs
Utilitarian (Functional) What can I do with the product/service? e.g. cook, charge my device
Hedonic (Emotional) How do I feel when I use the product? e.g. happy, affluent, beautiful
Social How do others see me when I use the product? e.g. powerful, upper-class

Model of Consumer Motivation

Goal system:
Mental representation of associative networks composed of interconnected goals and means

Goal System Property: Equifinality

Equifinality: A single goal is associated with multiple means
Perceived instrumentality of a specific means: The perception about the effectiveness of the
means in attaining the goal (e.g., because of past experience)

Multifinality: Multiple goals are associated with a single means

Perceived value of a specific means: The sum total of the perceived value of all the goals it
serves

Step 2: Information Search

Internal
- Memory
External
- Personal (family, friends, neighbors)
- Commercial (ads, salespeople, dealer and manufacturer websites, packaging, displays)
- Public (mass media, consumer ratings organizations, social media, online searches,
forums, peer reviews)
- Experiential (direct examinations and use/trial of product)

Short-Term vs. Long-Term Memory

Secondary associations: Associations of associations

e.g. Hermes-Paris

Reciprocal associations: category evokes brand, but does a brand evoke the category?
e.g. Hermes-Luxury bags
Interconnecting associations: used to improve consistency and brand image

Knowledge Accessibility
• Frequency of concept (how often)
• Recency of concept activation (how recent)
• Strength of associations (how strong)
• Number of associations (how many)

Effects of Knowledge Accessibility

• Retrieval
- How specific memories are encoded
- Reconstructive memory
• Evaluation
- More liking
- Higher ratings

Models of Consumer Learning

• Cognitive learning
• Conditioning
- Classical
- Operant
• Modeling

Cognitive Learning
• Repetition: when something is repeated, memory strength is increased
• Elaboration: could include consideration, clarification, analogies, generation of examples
• Mnemonics: associations to aid in memorization (e.g., PEMDAS, EGBDF, ROYGBIV)

Conditioning
• Classical (Pavlov): Associate a stimulus with an involuntary response (learning by repeated
pairing)
• Operant (Skinner): Associate a voluntary behavior and a consequence (learning by repeated
doing / trial and error)
Modeling
• Learning by observing the actions of others (“models”), and the reward/punishment they
receive
• Effectiveness depends on
• Attractiveness/prestige/competence of model
• Similarity to self
• Ability to reproduce observed behavior

External Information Search

Step 3: Evaluation of Alternatives

Components of Attitude
 Once information search is complete, a consideration set (of objects) is formed
 Cognition: Thoughts and beliefs about an object
 Belief: Subjective judgment about the relationship between and object and an attribute
(examples: “Milk is healthy”, “The iPhone screen is high-quality”)

Compensatory Decision Making

• All attributes and beliefs considered simultaneously
• Attributes and beliefs may receive different weights

Three types of decision startegies:

1. Single additive strategy: Add all attributes together and chose the highest rank option
2. Weighted additive startegy:

3. Lexicographic Strategy
Example:
Decision making where you start/focus on your most important feature. If they tie, then you
move on to your second most important feature.
Affect
Affect: Subjective feeling states or moods
• Basic emotions: joy, sadness, anger, happiness, etc.
• Dimensions: valence (positive/negative) and arousal/activation (intensity)

Relying on affect versus thoughts

• Distraction, cognitive load, or time pressure
• Motivation to process information is low
• Information ambiguous
• Lack of expertise in the target domain
• Experiential rather than instrumental motive
• Decision for self versus others

Incidental Affect
Affective experiences whose source is unconnected to the object and may be due to mood or
emotional dispositions

Step 4: Purchase
Intent to purchase does not always translate into a purchase
AKA sometimes just because you like and could purchase something doesn’t mean you will.
e.g. You like meat but you won’t eat it for ethical reasons.

Attitudes versus Behavior

See more about purchase factors at page 26

Step 5: Post purchase Behavior

Satisfaction: Feeling based on the experience of purchasing, consuming or using a product
• Satisfaction
• Dissatisfaction
Disposal process
• When to dispose
• Why to dispose
• Replacement

Importance of Satisfaction
 Satisfaction
- Repeat customers
- Loyalty
- Positive word-of-mouth

 Dissatisfaction
- Lost sales
- Loss of valuable feedback
- Negative word-of-mouth

Expectancy Confirmation Model

 Two dimensions of product performance
- Expectation of product performance
- Perceived product performance

 Expectation linked to satisfaction

- Expectation = Perception → Confirmation
- Expectation < Perception → Positive disconfirmation
- Expectation > Perception → Negative disconfirmation

Experiencing Dissatisfaction
Cognitive dissonance: Discomfort whereby individual simultaneously holds two or more
contradictory values, beliefs, or ideas (e.g., “I made the right purchase” and “I am unhappy with
the purchase”

Reducing cognitive dissonance:

- Revoke the original decision by returning the product
- Seek information that reinforces positivity of choice
- Seek information that reinforces negativity of alternative
- Avoid information that contradicts purchase decision

Attributions of Dissatisfaction
 Internal locus of control (i.e., self-blame): Attribution to internal, dispositional factors
(e.g., personal expectations)
 External locus of control (i.e., other-blame): Attribution to external, situational factors
(e.g., product performance)
  Self-serving bias: Success is attributed to internal factors; failure is attributed to external
factors
 Fundamental attribution error: Attribute behavior to individual/personality and
underemphasize the situational factors for others

Dissatisfaction and Inaction

Determinants of Complaining
• Motivation to complain
- Dissatisfaction salience/strength
- Attribution of dissatisfaction
- Personality traits
• Ability to complain
• Opportunity to complain

Reactions to Complaints
• Respond, and do so quickly
• Gratitude for feedback
• Recommend better alternatives (even when external)
• Route complaint within company (to the right person)
• Provide refunds, coupons, apologies

Material vs. Experience

Material purchases: Purchases made with the primary intention of acquiring a material good; a
tangible object that is kept in one’s possession
Experiential purchases: Purchases made with the primary intention of acquiring a life
experience; an event or series of events that one lives through

Factors Affecting Purchase

• Cultural factors
• Individual factors
• Contextual factors
• Social factors

Cultural Factors
These can be classified as:
• Values
• Behaviors
• Norms
• Rituals and customs
• Myths and histories
• Foods, clothes, and traditions

Power distance: Degree to which inequality and social hierarchy exist and are accepted
(high/low)
Individualism vs. collectivism: Degree to which individual achievement or collective
achievement / interpersonal relationships reinforced (the respect to which the country embraces a
capitalism society)
Uncertainty avoidance: Distaste for uncertainty and ambiguity (high = risk averse, rule-
oriented; low = risk accepting, less rule-oriented)

Individual Factors
• Demographic factors
• Socioeconomic factors
• Psychographic/psychological factors

Age and Product Choice

• Younger people more likely to prefer newer products
• Older people more likely to prefer older, nostalgic products
• Preferences form between ages 15-30, after which people stick to their product choices

Proof that you settle your preferences at around the age pf 23.5

Psychological Factors
• Materialistic tendencies: Degree to which a consumer defines oneself through material
possessions
• Risk tolerance: A consumer’s willingness to take on risky choices
• Need for uniqueness: The motivation to stand out from others
• Social comparison orientation: Extent to which a consumer compares oneself to others
Contextual Factors
What is a context
 Subtle cues in the environment
 Framing of a decision
 Any aspect of the decision that does not change the fundamentals of the decision

Subliminal vs. Supraliminal

• Supraliminal: When a stimulus exceeds the threshold to be consciously detected
- Is it loud enough to be heard?
- Is it large enough to be seen?
- Can its scent be detected?
• Subliminal: When a stimulus cannot be consciously detected • Advertising like this is banned
in many countries
Context Effects
Choice context effects: When people’s preferences for an option depend on the set of
alternatives considered
 Compromise effects
 Attraction effects
 Phantom effects
 Single-option aversion (When people are presented with more options, they will more
likely purchase something compared to when only one choice is put forward)

Social Influence
Types of social influence:
1. Informational influence

• Information transmission influences consumers

- Product information is scant or ambiguous
- Acceptable types of behavior are unclear
• Informational influence has numerous sources
- Product enthusiasts
- Professional advisors
- Opinion/thought leaders (People who are knowledgeable about and have expertise with
products, and whose advice others take seriously and trust. They usually have many
media followers and are recognised leaders)
- Word-of-mouth (Informal, interpersonal communication about a brand, product,
organization or service, between a recipient and a sender who is seen as non-
commercial)
 2. Normative social influence

Peer Pressure
 Consumer has a desire to conform, stemming from the power groups have to reward or
punish people who do or do not follow rules (i.e., social norms)
 Consumer wants to be with in the bounds of acceptability
 Consumers can be influenced by
- Parents and family members
- Friends and peers
- Work organizations

Conformity
The need to adhere to social norms and positive expectations or beliefs of others
Influence depends on:
• Number of observers (size of social group)
• Authority of social group
• Ambiguity of the situation

Perceived Authority
• Authority is usually seen as an undisputed information source
• Authority can be content-based
- Knowledge
- Tangible power over an individual
• Authority can be conveyed by presentation
- Clothing (e.g., hospital white, army green, police blue)
- Looks (grey hair, height)
- Profession (e.g. police officer, doctor, professor)

Commitment
Foot-in-the-Door Technique: Create a small bond, then ask for an escalated commitment
• Two groups asked to place a large, ugly sign on their yard reading “Drive Carefully”
• 17% of those in control group said yes
• The other group was asked to put a very small sign saying “Be a Safe Driver” two weeks prior;
76% posted the large, ugly sign

Low-Ball Technique: Propose an attractive price, get customer buy-in, and raise the price
Low-balling works by increasing evaluations of products or attributes
Low-balling increases perceived costs of not going through with the choice
e.g.
• A car salesperson tells the customer that the car is a steal at only €6,000
• After the customer agrees to buy it, the salesperson ducks into the office to get paperwork, and
comes back to say there will be additional fees of €400
• Examples: car sales, budget airlines

Mere Measurement Technique: Asking for people’s intentions increases the likelihood of the
behavior
• Asking someone if they will buy a car this year
• 3.3% of those asked end up buying; 2.4% of those not asked end up buying

Free Gift or Favor Technique: Give something away so the consumer feels indebted

Social Norms
 Descriptive norms: Perceptions of which behaviors are typically performed Example:
Most people do not engage in tax fraud
 Injunctive norms: Perceptions of which behaviors are typically approved or disapproved
of Example: Most people would consider tax fraud to be immoral

3. Value-expressive influence
• Consumers emulate the behavior of perceived role models or people to whom they are attracted
• Could include personal acquaintances, cultural heroes, or social groups
• Associative identification: behave in ways that allow them to associate with desirable others
• Dissociative identification: behave in ways that allow them to dissociate from undesirable
others

Conspicuous Consumption
• Consumers buy products that signal status to convey identity (associate with desirable groups)
• Products signal status when they are scarce (or expensive) and/or recognizable by others
• Luxury brands are a common target

---Targeting and Segmentation---

Segmentation
• Market segmentation involves dividing overall market into smaller “segments”
• Sometimes goods/services require different strategies or mixes
• Selling the same thing to everyone the same way (“averaging”) is often ineffective

Conditions for Segments

 Differentiable/Useful: Segments are conceptually distinguishable and respond
differently to different marketing mix elements and programs.
 Accessible: Segments can be effectively reached and served
 Actionable: Effective programs can be designed for attracting and serving the segments
 Substantial: Large or profitable enough to serve
 Measurable: The size, purchasing power, and profiles of the segments can be quantified
Types of segmentation
• Geographic
• Demographic
• Psychographic
• Behavioral
• Benefits-based

Geographic Segmentation
• Laws and regulations
• Culture and language
• Climate
• Infrastructure
• Politics, religion, and beliefs

Demographic Segmentation
• Key factors include age, income, sex, educational level, religion, ethnicity, nationality
• Challenges
- Assumes some amount of uniformity/stereotype
- Sometimes inaccurate with respect to behavior

Psychographic Segmentation
• Key factors include opinions, beliefs, values, interests, personality, thinking styles
• Sometimes psychographic data hard to come by
• Can be predicted based on other behaviors (e.g., clicking behavior on social media)

Behavioral Segmentation
• Key factors include purchase frequency, user/loyalty status, purchasing channels, usage
occasions
• Tends to capture important differences among consumers (e.g., who is brand loyal vs. variety
seeking)
• But sometimes requires expensive analytics

Benefits-Based Segmentation
• Why do consumers want/need the product?
• Identify what’s important to consumers and segment based on relative importance
• May involve eliciting consumer preferences through research methods
Targeting
 Targeting is the strategy of evaluating segments and selecting which one(s) to enter
(and how, and with which product(s))
 Evaluating segments: size, expected growth, longterm potential
 Strategies include
- Undifferentiated
- Differentiated
- Concentrated/Niche
- Micromarketing

Undifferentiated Marketing – opposite of marketing

• Undifferentiated marketing: Target the entire market with a single offer
• This is also referred to as mass marketing
• Focuses on common needs rather than differential needs of consumers
• Cost-efficient, but does not accommodate diversity in needs/wants

Differentiated Marketing
• Differentiated marketing: Target several different segments and design separate offers for each
• Defends market share in highly competitive environments
• Requires substantial resources
• Good data necessary
• Cannibalization a constant concern

Concentrated Marketing
• Concentrated marketing: Target a large part of a smaller segment
• Often limited in growth opportunity
• Requires fewer resources given limited competition
• Specialization creates competitive advantage

Micromarketing
• Micromarketing: Target individuals with tailored products and marketing programs
• Hypercustomization fosters loyalty
• Requires extensive resources and data
• Each person is a segment

Targeting Strategy
• Product specifics
• Variability in the market
• Company resources
• Competitor’s marketing strategies
• Product life-cycle stage
• Consumer demand characteristics
---Branding---
Brand Associations
Building Associations
• Colors
• Symbols
• Logos
• Slogans
• Characters
• Musical jingles
• Packaging

Benefits of Associations
• Perceptions of quality
• Consumer loyalty
• Points of differentiation
• Price premium
• Barriers to entry
• Leverage in distribution channels

Brand Personality

Measuring Associations
• Explicit measures (e.g., surveys, interviews)
• Implicit measures
- Reaction times
- Word stem completion
- Facial action coding (“electromyography”)
- Looking times
- Neuroimaging
Brand elements:
Definition of Brand: The name, term, sign, or design (or a combination) that identifies the
product or its seller/maker

• Brand Logos:
- Names
- Characters
- Slogans
- Symbols

• Brand Names
- Reflect benefits and qualities
- Easily pronounceable, recognizable, and memorable
- Distinctive, extendable, translatable, and universal

Benefits of Brands

--Brand Value and Architecture--

Brand Equity and Value

• Brand equity: Differential effect that knowing the brand name has on customer response to the
product or its marketing
• Brand value: Total financial value of a brand (often hard to measure)

Aspects of Brand Equity

• Improved perceptions of product performance
• Greater loyalty
• Less vulnerability to outside forces
• Increased marketing communication effectiveness
Brand Equity Sources
• Brand awareness (prompted, unprompted, in consideration set)
• Brand associations
• Perceived quality
• Brand loyalty (attitudes and behaviors)
• Other proprietary assets (patents, trademarks, relationships)

Brand Positioning
 Frame of reference: Need being satisfied
 Points of parity: Features to demonstrate the brand is at least as good as competition
 Points of differentiation: Competitive features to beat competition (including desirability
and feasibility)
 Levels of brand positioning
- Attributes (easy to copy)
- Benefits
- Beliefs and values (hard to copy)

Co-Branding
When two or more companies come together to produce a product or service that will be labeled
with these brands names, logos, etc..

Brand Portfolios
Large companies with multiple brands.

Brand Architecture
 House of brands: Contains independent, loosely connected brands In which each
independent stand-alone brand maximizes its impact on the market (e.g. unilever)
Features:
- Global influence and flexibility
- Weaker corporate image
- Cannibalization concerns

 Branded house: Uses single master brand to span a set of offerings that operate with
sub-brands only by name (e.g. virgin brands)
Features:
- Growth constraints
- Strong corporate image
- Susceptible to brand crises

Brand Architecture Strategies

 Merge: combine brands
 Sell: transfer ownership to another entity
 Milk: divest, cash in, and allow brand to run its course
  Eliminate: kill the brand

Brand Development

Why create a new brand

• Individual brands are limited in reach
• Competition can erode market share
• New brands can revitalize existing brands

Line/Brand Extensions (Like apple from person computers to MP3)

• Benefits
- Enhances company image
- Attracts new customers
- Allows people to trade up/convert
• Drawbacks
- Could weaken parent company
- Crowd out core brand
- Customer/retailer confusion

Extensions vs. New Brands

• New brands do not dilute or confuse existing brand
• New brands cannot capitalize on brand equity/image
• New brands are costly to build

Successful Brand Extension

• Fit between parent brand and brand extension
• Retailer acceptance of brand extension
• Brand equity of parent brand
• Prior attitudes toward parent brand
• Marketing investment in brand promotion

Brand Extension Goals

• Ascertain what consumers know and like about parent brand
• Identify possible extensions
• Evaluate extensions (assess fit/other factors)
• Develop marketing programs and brand elements
• Measure success and effect on parent

Brand Acquisitions
• Effective way to skip given costs associated with new brand development
• Unclear whether brand acquisitions improve brand value
• Revenues a positive function of brand diversity
Re-Branding
• Not only promotion
• Requires coherent messaging across entire marketing mix
- Product (packaging, features)
- Place (upscale vs. mass market retailer)
- Price (luxury vs. discount prices)

---Promotions---

Advertising Campaigns
• Institutional: Enhance organization’s image
• Product-driven: Promotes (benefits of) product
- Competitive: For established products
- Comparative: For products with the need for some differentiation
- Pioneering: For early-stage products

Advertising Framework (5 M)
 Mission: What do we want to happen?
 Message: What should we say?
 Media: Where/when/how often should we say it?
 Measurement: How effective is the campaign?
 Money: How much money do we need to spend? ROI?

Mission
Message
• What do we want to say?
• Effective ads are integrated with marketing strategy
• Ads should take the customer’s view
• Ads should be unique and creative (but not too creative)

Effective messaging characteristics:

• Understandable and believable
• Memorable (simplicity, unexpectedness, emotion, humour and fear helps one
remember)
• Contagious (such as having cultural relevance

Media
Examples of media:
• Television • Radio • Newsprint • Buzz advertising • Direct mail • Person to person • Internet

Media Terms:
 Reach: Percentage of people in target market who are exposed to the ad campaign
during period
 Frequency: Number of times the average person in target market is exposed to the
message
 Impact: Value of a message exposure through a given medium (versus another)
 Engagement: Ratings, readership, listenership, click-through rates, etc.

Media Problem
 Recency: Most recent parts of advertisements may have large impact
 Primacy: First parts of advertisements may have large impact
 Peak-end: Final part and peak parts have large impact

Sales Promotion Examples

 Free samples / bonus packs
 Discounts, coupons, and rebates
 Buy one, get one free
 Loyalty cards
 Digital coupons
 Games and special events
 Contests and sweepstakes

Functions of Sales Promotions

 “Shot in the arm” to invigorate a mature product
 Provide trial of new products
 Increase usage by loading current customers

Problems with Sales Promotions

  Unclear long-term sales effects of temporary discounts
 Potentially negative effect on brand equity
 Forward-buying
 Increased costs from swings in volume
 They can backfire…

Trade Promotions
 Off-invoice allowances / free products: provide retailers free product
 Bill-back allowances: offer retailers discounts for specific actions (e.g., advertising your
product)
 Slotting allowances: pay retailers to sell product
 Buy-back allowances: pay retailers back if they cannot sell product

Public relations
Public Relations Actions
 Publicity / awareness
 Public affairs
 Corporate communication
 Lobbying
 Crisis management
 Investor relations
 Employee relations

PR Crisis Strategies
 Reaction strategy: Deny or ignore responsibility
 Defense strategy: Put up a fight, but give in where necessary
 Accommodation strategy: Give in to outside pressure
 Proactive strategy: Take on responsibility without pressure

Proactive Public Affairs

e.g. McDonalds informing clients of the calories of their meals’ calories

Personal Selling actions:

 Face-to-face communication
 Telephone / web communication
 Sales presentations and trade shows
Salesperson Motivation
  Bonuses and commission (well-designed)
 Autonomy
 Purpose
 Intrinsic rewards

Digital Marketing
Social Media Objectives
• Promote products and services
• Build relationships and awareness
• Improve customer service

Digital Outlets
• Email promotion
• Website-based promotion
• Search-based advertising promotion
• Social media advertising promotion

---Cambio di prof---

Products versus Services

Product: Anything that can be offered in a market for attention, acquisition, use, or consumption
that might satisfy a need or want
Service: A product that consists of activities, benefits, or satisfactions that is essentially
intangible and does not result in the ownership of anything

Buyer Involvement and Strategy

Buyer involvement: The extent of time and effort a buyer invests in search, evaluation, and
decision processes of consumer behavior
• Information search
• Consideration of alternatives
• Consideration of attributes
• Weighing attributes

Types of Products
Consumer products: Bought for final consumers for personal consumption
• Convenience products
• Shopping products
• Specialty products
• Unsought products

Industrial products: Purchased for further processing or for use in conducting a business
Convenience products: Consumer products and services that the customer typically buys (e.g.
toothpaste, newspaper, coffee)
• Frequently
• Immediately
• With minimal comparison
• With minimal buying effort

Convenience Product Features:

• Attractive packaging
• Product placement
• In-store discounts

Shopping products: Consumer products and services that the customer buys
• Less frequently
• Rather carefully
• With significant comparison along price, quality, and suitability
(e.g. forniture, clothing, phone)

Specialty products: Consumer products and services that the customer buys
• With unique characteristics
• With brand identification
• For which a significant number of buyers makes a special purchase effort
• For which there are relatively few substitutes

Unsought Products: Consumer products and services that the consumer does not know about or
knows about but does not normally think of buying
e.g. funeral services, plumbing, Urgent services, Life insurance

Industrial products: Products purchased for further processing or for use in conducting a
business
• Materials and parts: Includes raw materials and manufactured materials and parts
• Capital items: Aid in the buyer’s production or operation
• Supplies and services: Includes operating supplies, repair and maintenance items, and business
services
Product Line and Mix
 Product line: A group of products that are closely related because they function in a
similar manner, are sold to the same customer groups, are marketed through the same
types of outlets, or fall within given price ranges
 Product line length: Number of items in a product line
- Product line Filling: Adding more products within the existing range (like adding a
convertible option of a car you make that is non convertible)
- Product line Stretching: Expanding product line beyond its existing range
 Downward (lower quality and/or price)
 Upward (higher quality and/or price)
 Both
 Product mix: All the product lines and items that a particular company offers for sale
- Width: Number of different product lines
- Length: Total number of items within the product lines
- Depth: Number of versions of each product in the line
- Consistency: Similarity of product lines in end use, product requirements, or
distribution channels

Services Marketing
Types of services
• Government e.g. police
• Private not-for-profit organizations e.g. Bocconi
• Business organizations e.g. banca Intesa

Services Characteristics
 Intangibility: Services cannot be seen, tasted, felt, heard, or smelled before being
purchased
 Inseparability: Services cannot be separated from their providers
 Variability: Service quality depends on who provides services as well as when, where,
and how the services are provided
 Perishability: Services cannot be stored for later sale or use

Marketing Strategies for Services:

Service-profit chain: Link profits with employee and customer satisfaction
• Incentivize employees
• Tie customer loyalty/satisfaction to employee pay

Interactive marketing: Service quality depends heavily on the quality of the buyer-seller
interaction during the service encounter
• Service differentiation: Creates competitive advantage
- Offer
 - Delivery
- Image
• Service quality
• Service productivity

Internal marketing: The service firm must motivate its customer-contact employees and
supporting service people to work as a team to provide customer satisfaction
• Everyone in the organization has to be customer centered and represent the firm’s values
• Right people need to be hired, and those hired all need to be on the same page

Product and Service Marketing Classifications

Organization marketing: Activities undertaken to create, maintain, or change the attitudes and
behavior of target consumers toward an organization

Person Marketing
Person marketing: Activities undertaken to create, maintain, or change the attitudes or behavior
of target consumers toward particular people

Place marketing: Activities undertaken to create, maintain, or change attitudes and behavior
toward particular places

Social marketing (or cause marketing): Uses commercial marketing concepts to influence
individuals’ behavior to improve their well-being and that of society
e.g. donating blood

---New Product Development---

Product Life Cycle
1. Product development: Stage during which company finds and develops a new product
idea
2. Introduction: Stage during which product enters market; profits are nonexistent due to
high costs
3. Growth: Stage of rapid market acceptance and increasing profits; promotion and
distribution aggressive
4. Maturity: Stage during which profits level off or decline because of increased marketing
outlays to defend the product against competition
5. Decline: Stage when sales fall off
New Product Failure
Insignificant point of difference
Incomplete market and product definition
Insufficient market attractiveness
Poor timing

Human Factors
• Packaging
• Design
• Surface features

New Product Introduction

• In-house development
- Advantages: full control, ownership of property rights
- Disadvantages: resource-intense, risky, slow

• Acquisition
- Advantages: shared risk, less time-intensive
- Disadvantages: shared property rights, royalty fees

Steps of Product Development

Step 1: Idea Generation
• Internal
- Research and development
- Management and staff (e.g., employee workshops)
- Entrepreneurial programs (e.g., in-company incentives)
 - Market and gap analyses
• External
- Customers
- Competitors (get an idea from a competitor)
- Outside consultants
- Crowdsourcing

Step 2: Idea Screening

• New product development costs are high, so screening is essential for picking “winners”
• Assess feasibility
• Determine the extent of competition in market (“blue ocean”)
• Measure costs and benefits (e.g., SWOT)

Step 3: Development and Testing

• Translate the product idea into a product concept
• Ideas for possible products need to take on meaningful traits/attributes
• Introduce and test prototypes on select consumers
• Get early feedback on product characteristics

Step 4: Strategy Development

• Four P’s: product, place, price and promotion
• Segmentation?
• Targeting?
• Differentiation?
• Positioning?

Step 5: Business Analysis

• Sales estimates
• Cost calculations
• Profit analysis
• Product life cycle forecasts

Step 6: Product Development

• Product development: Creation of the physical product from a product concept to ensure that
the product idea can be turned into a workable market offering
• Actual product
- Determine brand name, quality, features, packaging, design
- Leverage engineers and user-experience designers
• Augmented product
- Determine delivery, product support, service, warranties
- Leverage demand information and competition analysis
Step 7: Test Marketing
• Use test markets to fine-tune products
• Sample select consumers for feedback before largescale launch
• For fast movement, this may be skipped
• Likely to occur when investment is large and product and marketing reception uncertain
• Unlikely to occur for mimicked products, simple line extensions, or when management is
confident

Step 8: Commercialization
• Introduce the product into the market
• Choose when to launch
- Consider time of year
- Consider competitor launches
- Consider other products within company (cannibalization)
• Consider where to launch
- Single location
- National market
- International market

New Product Success

Success Factors (“ACCORD”)
• Advantage: Improves upon existing products
• Compatibility: Consistent with current behavior and norms and socially acceptable
• Complexity: Difficult to understand or use
• Observability: Benefits of usage are obvious
• Riskiness: Worry that the product fails to work
• Divisibility (Trialability): Quality is testable

Products as Tactics
New products should be aligned with positioning to fill a need
• Cars: good for families vs. sporty and fun to drive
• Restaurants: Healthy vs. romantic
• Financial services: Easy to use vs. sophisticated
• Gym: Great for losing weight vs. competitive training

---Marketing Channels---
Channels
Marketing (or distribution) channel: Set of firms or individuals (known as intermediaries) who
participate in the flow of products from manufacturers to customers
Types of channels
- Direct: Producers sell directly to customers
- Retailer: Producers sell to retailers
- Wholesale: Producers sell to wholesalers that sell to retailers
- Agent/Broker: Producers sell to agents/brokers that sell to wholesalers

Channel Partners
• Upstream: Supply raw materials, components, parts, information, finances, and
expertise needed to create a product or service
• Downstream: Deliver goods or services to the customer

Information needs
Information a customer requires before or entices the customer to completing a purchase.
e.g.
Trying before buying
Advice and demonstrations (demos)
Price/product comparison
Customization

Logistical needs
Advantages of purchasing through a retailor instead of producer:
Convenience (location)
Variety/assortment
Immediacy of availability

Needs Tradeoffs
• More intermediaries means less information
• Discount channels and one-stop shops offer less information (e.g., Wal-Mart)
• Greater convenience typically results in less customization
• The larger the inventory, the more difficult it is to find products
--Conflicts and Strategies—

Types of conflicts
 Vertical conflict: A conflict between different levels of a distribution channel
 Horizontal conflict: A conflict between two players at the same level of a distribution
channel

Horizontal conflict

Vertical Conflict
• Both producers and channels can have differential power
• Some distributors have brand power because of their associations (e.g., la rinascente)
• Some retailers have logistical power due to size and reach (e.g., Wal-Mart)
• Some products have power because of their popularity (e.g., Nutella)

Horizontal Conflict
• Multiple distributors compete for the same customers
• Stores do not want discount outlets selling the same items (so customers can’t compare
prices as products themselves are different

Horizontal Conflict Resolution

• Product differentiation (e.g., different cuts/shirts)
• Different sizes (e.g., small sizes for express retailers and bulk sizes for Costco-esque retailers)
• Different promotions

Strategic Decisions
• Distribution intensity
• Push versus pull
• Channel design
• Retail strategy
Distribution intensity: How large/far-reaching is the distribution network?
- Having multiple outlets increases access
- But it also reduces exclusivity

Push versus Pull

Push: Direct marketing efforts to channel members (e.g., trade promotions) (more forceful)
- Effective when brand loyalty low, brand choice made at store, product purchases are
impulsive

Pull: Direct marketing efforts to end consumers (e.g., consumer advertising and promotions)
- Effective when brand loyalty high, brand choice made before store visit, and consumers
perceive brand differences

In simple terms push marketing involves pushing your brand in front of audiences (usually with
paid advertising or promotions). Pull marketing on the other hand means implementing a strategy
that naturally draws consumer interest in your brand or products (usually with relevant and
interesting content).

Channel Design
• Channel decisions tend to be long-term and sticky
• In the US, channel members earn 30-50% of selling price
• Good channel strategy can create competitive advantages

Service
Self service (e.g., Wal-Mart)
Full service (e.g., car dealerships)
Limited service (e.g., JBHiFI)

Product Lines
 Specialty stores: narrow product focus (e.g., shoe stores)
 Department stores: broad product focus (e.g., Benetton)
 Supermarkets: broad food and household product focus (e.g., Carrefour)
 Discounters/superstores: low price, high volume (e.g., Wal-Mart)
 Convenience stores: small selection of high-turnover items
 Category killers: deep product assortment and competes heavily in specific category
e.g. Home depot, Toys R Us
Store Decisions and Consumer Behavior

Shopping Motivations

Shelf Layout
- People more likely to see eye-level items
- Product placement changes regularly to reduce habituation
- Products appearing scarce more attractive (overstocking shelves not beneficial for some
product sales)

---Pricing---
How to predict the price of goods or services:
• Expert judgment
• Auctions
• Customer evaluation
• Willingness to pay
• Conjoint analysis
• Price experiments
• Analysis of historical market data

General Pricing Strategies

Cost based:
1. Cost-Based Pricing
 Cost-based pricing determines prices based on the costs for producing, distributing, and
selling the product plus a fair rate of return for effort and risk
 Takes into account both fixed and variable costs
 Accounts for costs that consumer may not see
2. Cost-Plus Pricing AKA markup pricing
  Adds a standard markup to cost
 Beneficial to sellers who are more certain about cost than demand
 Perceived as fair to buyers
 Minimizes price competition
 But ignores demand and competition

3. Break event pricing AKA target return

What price should the company charge to reach revenue/profit level X?

4. Competition-Based Pricing
 involves setting prices based on competitors’ strategies, costs, prices, and market
offerings
 Benchmarking
 Price-cutting (undercutting)

Types of Competition:
 Perfect competition: many buyers and sellers who are price-takers
 Monopolistic competition: a form of imperfect competition in which
differentiated products are sold
 Oligopoly: limited competition between a few sellers
 Monopoly: no competition (one seller)

5. Value-Based Pricing
• Customer-driven
• Uses buyers’ perceptions of value rather than sellers’ costs
• Price set to match customer value

• Typically used for products that are different from those using cost-based pricing
• For cost-based pricing, product is designed, then costs are determined before setting the price
and offering the good to consumers
• For value-based pricing, consumer needs/values are first assessed before target price is set to
determine reasonable costs to incur for product development

• Segmenting allows for price discrimination

• Direct price discrimination
- Across distribution channels
- Across places and regions
- Across verifiable identifiers (to prevent arbitrage)
• Indirect price discrimination
- By usage (volume discounts, bundling)
- By value for quality (menus of options)
- Coupons and rebates
---New Product Pricing---
• Price skimming: A firm charges a high introductory price, often coupled with heavy
promotion; price gradually decreases
• Penetration pricing: A firm charges a relatively low price for a product initially as a way to
reach the mass market
• Predatory pricing: Charging the lowest price to undercut competitors

Price Skimming vs. Penetration

• Price skimming useful when product perceived to have unique advantages
• Price skimming more feasible if there are barriers to market entry (competition difficult or legal
barriers)

---Pricing Mechanisms---

Price Adjustment Strategies

• Discounts and allowances: Price reductions to reward volume buying, early payment, or word-
of-mouth
• Promotional pricing: Temporary price reductions to effect short-run response in sales
• Participative pricing: Consumers influence the price e.g. PWYW
• Dynamic pricing: Change prices to react to variation in value and cost (price changes real time
e.g. taxi)
• Segmented pricing: Discriminate between segments to account for distinct willingness-to-pay
• Psychological pricing: Taking into account the psychology of price and numbers

High Low or Every Day Low

• High low pricing: Charge higher prices on an everyday basis but run frequent promotions to
lower prices temporarily on select items
• Every day low pricing: Charge a consistently low price with few or no temporary price
discounts

Pay What You Want Pricing

• Pay-what-you-want (PWYW) pricing: Consumers pay what they want (even zero) for a
product/service
• Consumers like the ability to choose what to pay
• Better when marginal costs are low
• May or may not be sustainable
• Feeling trusted by seller makes people feel more positive toward them

Pay It Forward Pricing

• Pay-it-forward (PIF) pricing: People pay what they want for the benefit of someone else’s
consumption
• Allows people to feel good about “giving” to others

Name Your Own Price Pricing

• Name-your-own-price (NYOP) pricing: Consumers provide the maximum price they would
pay, and seller can accept or reject price
• Consumers like the ability to choose what to pay
• Better when marginal costs are low
• May or may not be sustainable

Product Form
• Product line pricing: Determination of different prices for various products within a product
line
• Optional product pricing: Offer optional add-ons on top of base price (related to tiered
pricing)
• Captive product pricing: Price-setting for complementary (but essential) products
• Product bundle pricing: Combine products at single reduced price

---Psychological Pricing---

Placebo effect of price:

The higher the cost of a product, the higher quality or enjoyment will one relate to that product.

Price Framing

Pain of payment:
People are willing to pay a higher amount when they pay by card, compared to when they pay by
cash.

---Price Perception----

Price Change Concepts

Price elasticity of demand
- Inelastic: Demand less sensitive to price changes
- Elastic: Demand more sensitive to price changes

Price stickiness: Prices hard to change despite demand shifts (Coca-Cola machine)
Menu costs: Costs firm incurs to change prices

Inferences about Price Reduction

 Product made more cheaply
 Company cut costs
 Product is lower quality
 Product not selling
 Company is desperate
 Company needs to offload supply for new product

Perceptions of Fairness
• Raising prices when costs do not change seen as unfair, even when substitutes are readily
available
• Loss-reducing price hikes fair if they pertain directly to transaction at hand
• Price increases appear more fair if original price was discounted
• Sellers not expected to decrease price if costs go down

Perceptions of Price Changes

• Just noticeable difference (JND): Minimum amount by which stimulus intensity must change
for a difference to be noticeable
• For price increases, stay below JND
• For discounts, stay above JND
• For quantity reductions, stay below JND

Weber Fechner law: Buyers perceive price differences in relative terms (i.e., percentage), not
only in absolute terms

Left-Digit Effects
The left digit counts the most
Mock questions:

B is the answer

C is the answer

B is the answer
D is the answer

C is the answer