Diccussion questions:
1. A- Identify and discuss reasons why firms become so infatuated with pricing.
There is no other component of the marketing program that firms become more infatuated with than pricing. There are at least four reasons for the attention given to pricing. First, the revenue equation is pretty simple: Revenue equals the price times quantity sold. There are only two ways for a firm to grow revenue: increase prices or increase the volume of product sold. Rarely can a firm do both simultaneously. Although there are literally hundreds of ways to increase profit by controlling costs and operating expenses, the revenue side has only two variables-one being price and the other being heavily influenced by price.
A second reason that firms become enamored with pricing is that it is the easiest of all marketing variables to change. Although changing the product and its distribution or promotion can take months or even years, changes in pricing can be executed immediately in real time. Likewise, product, distribution, or promotion changes can also be quite expensive, especially if research and development (R&D) or production must be rescheduled. Conversely, changing prices is a very low-cost option.
The third reason for the importance of pricing is that firms take considerable pains to discover and anticipate the pricing strategies and tactics of other firms. Salespeople learn to read a competitor's price sheet upside down at a buyer's desk. Retailers send "secret shoppers" into competitors' stores to learn what they charge for the same merchandise. In this age of e-commerce, tracking what competitors charge for their goods and services has become so daunting that an entire price-tracking industry has emerged.
Finally, pricing is given a great deal of attention because it is considered to be the only real means of differentiation in mature markets plagued by commoditization. When customers see all competing products as offering the same features and benefits, their buying decisions are primarily driven by price.
Having a solid understanding of these issues is important because far too many firms and their managers use a seat-of-the-pants approach to pricing by guessing the best price for their goods and services. Guessing is never a good strategy in marketing; it can be downright deadly when it comes to setting prices.
B- Why is pricing given a great deal of attention? ( answer this in your way please)
2. In many (if not most) circumstances, cutting prices to increase sales volume is not a good idea. Explain why this is so. What are some alternatives that are preferable to cutting prices?
All marketers understand the relationship between price and revenue. However, firms cannot charge high prices without good reason. In fact, virtually all firms face intense price competition from their rivals, which tends to hold prices down. In the face of this competition, it is natural for firms to see price cutting as a viable means of increasing sales. Price cutting can also move excess inventory and generate short-term cash flow. However, all price cuts affect the firm's bottom line. When setting prices, many firms hold fast to these two general pricing myths:
Myth 1: When business is good, a price cut will capture greater market share.
Myth 2: When business is bad, a price cut will stimulate sales.
Unfortunately, the relationship between price and revenue challenges these assumptions and makes them a risky proposition for most firms. The reality is that any price cut must be offset by an increase in sales volume just to maintain the same level of revenue. Let's look at an example. Assume that a consumer electronics manufacturer sells 1,000 high-end stereo receivers per month at $1000 per system. The firm's total cost is $500 per system, which leaves a gross margin of $500. When the sales of this high-end system decline, the firm decides to cut the price to increase sales. The firm's strategy is to offer a $100 rebate to anyone who buys a system over the next three months. The rebate is consistent with a 10 percent price cut, but it is in reality a 20 percent reduction in gross margin (from $500 to $400). To compensate for the loss in gross margin, the firm must increase the volume of receivers sold. The question is by how much. We can find the answer using this formula:
Percent Change
in Unit Volume = Gross Margin %
Gross Margin % ± Price Change % -1
.25 = .50
.50 - .10 -1
As the calculation indicates, the firm would have to increase sales volume by 25 percent to 1,250 units sold in order to maintain the same level of total gross margin. How likely is it that a $100 rebate will increase sales volume by 25 percent? This question is critical to the success of the firm's rebate strategy. In many instances, the needed increase in sales volume is too high. Consequently, the firm's gross margin may actually be lower after the price cut.
Rather than blindly use price cutting to stimulate sales and revenue, it is often better for a firm to find ways to build value into the product and justify the current price, or even a higher price, rather than cutting the product's price in search of higher sales volume. In the case of the stereo manufacturer, giving customers $100 worth of CDs or DVDs for each purchase is a much better option than a $100 rebate. The cost of giving customers these free add-ons is low because the marketer buys them in bulk quantities. This added expense is almost always less costly than a price cut. And the increase in value may allow the marketer to charge higher prices for the product bundle.
3. Discuss the issues associated with the increasing fragmentation of mass media audiences. How are advertisers and media companies coping with the issue?
The traditional media business is hanging on for the ride of its life. That ride is called fragmentation and it's going to forever change the way both media and advertisers do business. The problem is that consumers' attention is being spread across an increasing array of media and entertainment choices. Those choices include the Internet, targeted cable programming, video-on-demand, TiVo (or digital video recorders), iPods, DVDs, video games, and wireless phones. Today, mass audiences are dwindling fast as consumers spend less time with traditional media such as television, magazines, and newspapers. Consumers now expect to use media whenever and wherever they want, and on any device. They are no longer wed to full-length television programming or to leisurely reading the newspaper.
For advertisers, these trends are alarming because it is their traditional bread-and-butter demographic that is fragmenting the most. For example, the number of 18- to 34- year-old men who watch primetime television has been declining steadily since 2000. Those who watch television increasingly use TiVo or other DVR devices to skip advertising. These changes are forcing marketers to adapt by finding newer, more effective ways to reach their target audiences. One way marketers are countering the trend is by linking sales promotion to target markets through strategic integration into related television programming. Company sponsorship of programming can allow a close connection between brand and target market.
In addition to outright sponsorship of popular programs, marketers are also making deals with television and cable networks to place their products into actual programs. In-program product placements have been successful in reaching consumers as they are being entertained rather than during the competitive commercial breaks. Media companies themselves have also been forced to adapt, most notably by fragmenting their content and business models to match their fragmented audiences. One way that companies have addressed the problem is by making their content available on multiple platforms.
Despite the challenges of reaching fragmented audiences, the trend actually has a big side benefit. The science behind traditional broadcast television ratings and audience measurement has always been uncertain. With on-demand services, advertisers are able to precisely measure audience characteristics whether the content is delivered via the Internet, cable, or wireless devices. This one-two punch of profits and precise measurement may mark the death of the traditional 30-second primetime television spot.
4. Discuss the steps involved in the AIDA model of outlining promotional goals. How does IMC strategy shift from one step to the next in the model? How does the important of various promotional elements vary across the steps?
Ultimately, the goals and objectives of any promotional campaign culminate in the purchase of goods or services by the target market. The classic model for outlining promotional goals and achieving this ultimate outcome is the AIDA model-attention, interest, desire, and action:
Ÿ Attention - Firms cannot sell products if the members of the target market do not know they exist. As a result, the first major goal of any promotional campaign is to attract the attention of potential customers.
Ÿ Interest - Attracting attention seldom sells products. Therefore, the firm must spark interest in the product by demonstrating its features, uses, and benefits.
Ÿ Desire - To be successful, firms must move potential customers beyond mere interest in the product. Good promotion will stimulate desire by convincing potential customers of the product's superiority and its ability to satisfy specific needs.
Ÿ Action - After convincing potential customers to buy the product, promotion must then push them toward the actual purchase.
The role and importance of specific promotional elements varies across the steps in the AIDA model. Mass-communication elements, such as advertising and public relations, tend to be used more heavily to stimulate awareness and interest due to their efficiency in reaching large numbers of potential customers. Along with advertising, sales promotion activities, such as product samples or demonstrations, are vital to stimulating interest in the product. The enhanced communication effectiveness of personal selling makes it ideally suited to moving potential customers through internal desire and into action. Other sales promotion activities, such as product displays, coupons, and trial-size packaging, are well suited to pushing customers toward the final act of making a purchase.
5. Identify and discuss the issues and challenges involved in measuring the effectiveness of an advertising campaign. Is it relatively easier to measure effectiveness before or after the campaign has been implemented? Explain.
Evaluating the effectiveness of advertising is one of the most challenging tasks facing marketers. Many of the effects and outcomes of advertising take a long time to develop, especially regarding important outcomes such as enhanced brand image, corporate reputation, and positive product attitudes. The effect of advertising on sales lags in some cases, with the effect occurring long after the campaign has ended. The seemingly unending methods that can be used to evaluate advertising effectiveness further complicate the task of measuring advertising results. Some methods include evaluating the achievement of advertising objectives; assessing the effectiveness of advertising copy, illustrations, and layouts; and evaluating the effectiveness of various media. Effectiveness measures can also look at different market segments and their responses to advertising-including brand image; attitudes toward the advertising, the brand, or the firm; and actual customer purchasing behavior.
Advertising effectiveness can be evaluated before, during, or after the campaign. A pretest attempts to evaluate the potential effectiveness of one or more elements of the advertising program. To pretest advertisements, firms often use a panel of actual or potential buyers who judge one or more aspects of an advertisement. Pretests are founded on the belief that customers are more likely to know what type of advertising will influence them. During an ad campaign, the company typically measures effectiveness by looking at actual customer behavior patterns such as purchases, responses to toll-free telephone numbers, rate of coupon redemption, page visits to the firm's website, or even personal communications. The firm may record the number of inquiries or communication contacts, and judge advertising effectiveness based on industry norms or the firm's own internal benchmarks. Firms may even peruse blogs for evidence of the effectiveness of their promotional campaigns.
The evaluation of advertising effectiveness after a campaign is a posttest. The nature of the firm's advertising objectives will determine what kind of posttest is most appropriate. For example, if a campaign's objective is to increase brand awareness or create a more favorable attitude toward the firm, then the posttest will measure changes in these variables. Customer surveys, panels, or experiments may be used to evaluate a campaign based on communication objectives. Firms will also use performance outcomes such as sales or market share changes to determine campaign effectiveness. Unfortunately, the connection between advertising and these types of outcomes is not always clear. The difficulty in linking advertising to sales becomes compounded by the fact that many factors can affect sales. Furthermore, most of these factors are beyond the control of the firm. For instance, competitors' actions, regulatory decisions, changes in economic conditions, and even the weather might influence or diminish a firm's sales or market share during a specific time period when advertising effectiveness is under scrutiny.
6. Discuss the role of sales promotion in consumer markets. In your answer, identify several types of consumer sales promotion activities and how they might be used in an overall IMC program.
Any member of the supply chain can initiate consumer sales promotions, but manufacturers and retailers typically offer them. For manufacturers, sales promotion activities represent an effective way to introduce new products or promote established brands. Coupons and product sampling are frequently used during new product launches to stimulate interest and trial. Retailers typically offer sales promotions to stimulate customer traffic or increase sales at specific locations. Coupons and free products are common examples, as are in-store product demonstrations. Many retailers are known for their sales promotions such as the free toys that come with kid's meals at McDonald's, Burger King, and other fast food establishments.
A potentially limitless variety of sales promotion methods can be used in consumer markets. Truthfully, developing and using these methods is limited only by the creativity of the firm offering the promotion. However, firms will typically offer one or more of the following types of sales promotions to consumers:
Ÿ Coupons - Coupons reduce the price of a product and encourage customers to try new or established brands. Coupons can be used to increase sales volume quickly, to attract repeat purchasers, or even to introduce new product sizes or models. To be most effective, coupons need to be accessible, easy to recognize, and easy to use. For the most part, this requires that coupons be distributed on packages (the highest redemption rates), through inserts in print advertising, through direct mail, or through in-store displays.
Ÿ Rebates - Rebates are very similar to coupons except that they require much more effort on the consumer's part to obtain the price reduction. Although consumers prefer coupons because of the ease of use, most firms prefer rebates for several reasons. First, firms have more control over rebates because they can be launched and ended very quickly. Second, a rebate program allows the firm to collect important consumer information that can be used to build customer databases. The best reason is that most consumers never bother to redeem rebate offers. This allows a firm to entice customers to purchase a product with only a minimal loss of profit.
Ÿ Samples - Free samples are one of the most widely used consumer sales promotion methods. Samples stimulate trial of a product, increase volume in the early stages of the product's life cycle, and encourage consumers to actively search for a product. Samples can be distributed through the mail, attached to other products, and given out through personal selling efforts or in-store displays. Samples can also be distributed via less direct methods. For example, free samples of soap, shampoo, coffee, or sunscreen might be placed in hotel rooms to create consumer awareness of new products.
Ÿ Loyalty Programs - Loyalty programs, or frequent-buyer programs, reward loyal customers who engage in repeat purchases. These programs are popular in many industries due to their potential to dramatically increase profits over the long term. We are all familiar with the frequent-flier programs offered by major airlines. Other companies, such as hotels, auto rental agencies, and credit card companies, offer free goods or services for repeat purchases.
Ÿ Point-of-Purchase Promotion - Point-of-purchase (POP) promotion includes displays, counter pieces, display racks, or self-service cartons that are designed to build traffic, advertise a product, or induce impulse purchases. POP promotions are highly effective because they are used in a store where consumers make roughly 70 to 80 percent of all purchase decisions. Another type of POP promotion is an in-store product demonstration. Examples of these demonstrations include fashion shows, food preparation demonstrations in grocery stores, and free makeovers in the cosmetics departments of department stores and specialty stores.
Ÿ Premiums - Premiums are items offered free or at a minimum cost as a bonus for purchasing a product. Examples of premiums include a free car wash with a gasoline fill-up, a free toothbrush with a purchase of a tube of toothpaste, and the toys offered inside a
McDonald's Happy Meal. Premiums are good at increasing consumption and persuading consumers to switch brands.
Ÿ Contests and Sweepstakes - Consumer contests, games, and sweepstakes encourage potential consumers to compete for prizes or try their luck by submitting their names in a drawing for prizes. In addition to being valuable information collection tools, contests and sweepstakes are good at attracting a large number of participants and generating widespread interest in a product. Because they require no skill to enter, sweepstakes are an effective way to increase sales or market share in the short term.
Ÿ Direct Mail - Direct mail, which includes catalog marketing and other printed material mailed to individual consumers, is a unique category because it incorporates elements of advertising, sales promotion, and distribution into a coordinated effort to induce customers to buy. The use of direct mail has grown tremendously in recent years due to consumer time constraints, relatively low cost, and the advent of sophisticated database management tools.
Firms can use any one or all of these consumer promotion methods in their overall IMC program. However, the choice of one or more methods must be made in consideration of the firm's IMC objectives. Furthermore, the choice must also consider the use of sales promotions by competitors and whether a particular method involves ethical or legal dimensions. Consumer sweepstakes, in particular, have specific legal requirements to ensure that each entrant has an equally likely chance of winning.
7. Discuss the relationship between customer expectations and customer satisfaction. What might cause expectations to be higher or lower? How is the zone of tolerance a useful diagnostic tool in terms of developing strategies aimed at improving customer satisfaction?
Customer expectations can vary based on the situation. For example, expectations are likely to be very high (that is, closer to the ideal end of the range) in situations where personal needs are very high. Expectations also tend to be higher when customers have many alternatives for meeting their needs. Other situations can cause customer expectations to be lower. Customers may have lower expectations (that is, closer to the tolerable end of the range) when the purchase is not involving or when the monetary or nonmonetary prices are low. Customers can also become more tolerant of weak or poor performance when they have fewer product alternatives or when the poor performance is beyond the control of the firm (e.g., bad weather, excessively high demand, or natural disasters).
The difference between the upper and lower end of the range of possible customer expectations is an important strategic consideration in managing customer satisfaction. Marketers often refer to the upper end of expectations as desired performance expectations (what customers want) and the lower end of the range as adequate performance expectations (what customers are willing to accept). The extent of the difference between desired and adequate performance is called the zone of tolerance. The width of the zone of tolerance represents the degree to which customers recognize and are willing to accept variability in performance (i.e., quality, value, or some other measurable aspect of the marketing program). Performance can fall above the zone of tolerance (i.e., customer delight), within the zone of tolerance (i.e., customer satisfaction), or below it (i.e., customer dissatisfaction).
We can think of these issues in a strategic sense by considering the zone of tolerance as a moving target. If the zone is narrow, the difference between what customers want and what they are willing to accept is also narrow. This means that the marketer will have a relatively more difficult time matching performance to customer expectations. Hence, customer satisfaction is harder to achieve when the zone of tolerance is narrow. Conversely, customer satisfaction is relatively easier to achieve when the zone of tolerance is wide. In these instances, the marketer's hurdle is lower and the satisfaction targets are easier to hit. Delighting the customer by exceeding desired expectations is an exceedingly difficult task for any marketer. Causing customer dissatisfaction by failing to meet even adequate expectations is a situation that should be avoided at all times.
8. Explain the overall objective of customer relationship management and the stages that customers are pulled through in the process. For each stage, identify the marketing goals during the stage as well as examples of strategies that may be used
The objective of CRM is to move customers from having a simple awareness of the firm and its product offering, through levels of increasing relationship intensity, to the point where the customer becomes a true advocate for the firm and/or its products. The stages, goals, and examples include:
Awareness
Goals: 1) promote customer knowledge and education about the product
or company
2) prospect for new customers
Examples: product advertising, personal selling (cold calls), word of mouth
Initial Purchase
Goals: 1) get product or company into customers' evoked set of alternatives
2) stimulate interest in the product
3) stimulate product trial
Examples: advertising, product sampling, personal selling
Repeat Customer
Goals: 1) fully satisfy customers' needs and wants
2) completely meet or exceed customers' expectations or product
specifications
Examples: good product quality and value-based pricing, good service before, during,
and after the sale, frequent reminders and incentives
Client
Goals: 1) create financial bonds that limit the customer's ability to switch
products or suppliers
2) acquire more of each individual customer's business
3) personalize products to meet evolving customer needs and wants
Examples: frequent customer cards, frequent-flier programs, broad product offering
Community
Goals: 1) create social bonds that prevent product or supplier switching
2) create opportunities for customers to interact with each other in a
sense of community
Examples: membership programs, affinity programs, ongoing personal
communication
Advocacy
Goals: 1) create customization or structural bonds that encourage the highest
degree of loyalty
2) become such a part of the customer's life that he or she is not willing
to end the relationship
3) think of customers as partners
Examples: customer events and reunions, long-term contracts, brand-related memorabilia