Promotion
What is the difference between recognition and recall?
Understanding that you have heard of something vs. being able to come up with it
What is the GRP formula?
Reach x Frequency
What are the main functions of price?
Allocate surplus between producers and consumers, allocate scarce goods throughout the economy, lessen shortages, increase supplies of certain products
What is a risk of pay what you want pricing? Why is it used? Where is it used?
Leads to free riding. Used for prosocial issues and on platforms like Patreon and Twitch.
What are the functions of the wholesaler in the channel? (list 4 for credit)
Break up large amounts of product, store large quantities, reduce inventory risks to retailers, reduce inventory costs, decrease the number of transactions that take place, reduce the discrepancy between goods produced and demanded
What are the risks of entertaining ads and how can you mitigate them?
People will forget which brand entertained them, you should integrate the brand throughout the ad even though some entertainment may be sacrificed
When is it important to prioritize high reach? When is it important to prioritize high frequency?
You want high frequency when there are strong competitors pushing back on your messaging, high customer resistance, or a complex story
How can you increase producer surplus? How can you increase consumer surplus?
Producer surplus - Cut costs, reduce product size, increase price
Consumer surplus - Sales, coupons, reduce prices, increase perceived value without increasing price
What is a loss leader? What is an example of a loss leader?
When you offer a good at a low price to get people in the door ex. milk
How can channel coordination lead to issues in the chain? (specifically related to price)
Double marginalization or markups throughout the chain increase the price over consumer's WTP, retailer competition can lead to prices being too low from a manufacturing perspective
What are two benefits of repetition?
Familiarity increases likeability and truthiness
Why can advertising at the superbowl be an example of the prisoner's dilemma?
Describe each degree of price discrimination and provide an example of each
1st degree is perfect price discrimination where willingness to pay is maximized, 2nd degree is where you charge less to those who buy in bulk, 3rd degree the seller charges different amounts to different classes of buyers based on their willingness and/or ability to pay
Note: Price discrimination requires some level of market/monopoly power, segmentation of consumers with demand elasticities, and maintaining separation of buyers
What should companies focus on if they take a competitive pricing approach?
Differentiation and stealing share. Competitive pricing leads to a race to the bottom.
Differentiate between horizontal and vertical integration.
Horizontal = merging with or acquiring peers, Vertical forward incorporates dist. activities, vertical backward incorporates increased control over the production process and can be a point of differentiation ex. Dominos
What is the most common type of consumer promotion?
Coupons
What is the difference between zipping and zapping? What increases the likelihood of each?
Zapping means changing the channel or physically leaving, zipping means skipping the ad. Factors that increase both include actors over 40, negative messaging, annoying stimuli, political ads
Differentiate between direct and indirect price discrimination and provide an example of each.
Direct is offering different prices to different buyer classes, indirect is offering a menu of prices to customers who then self-select ex. coupons, versioning premium products
How might you increase spending or encourage purchases using pricing psychology?
Utilize left digit bias (4.99 vs. 5.00), decrease the pain of paying (Apple pay or Amazon stores)
What are the three most important channel characteristics?
Length or the number of intermediaries (direct vs. indirect), breadth or the ease with which you access products and the number of outlets, and depth or the degree of vertical integration
Note: Breadth has diminishing returns. Difficult to be direct and mass because you have to own all of the retailers, likely indirect and mass or direct and exclusive. Avoid advertising sustainable supply chain if the chain is not ENTIRELY sustainable (maximal chain)
Why should you be cautious when bundling?
People tend to average the price of the two items which can lower their willingness to pay
How are online ads sold? How are they typically priced?
Sold in a demand side auction where the slot is first offered to preferred partners and then opened up. Often priced in cost per mile (CPM) or cost per 1,000 impressions, or cost per click (CPC)
- ROI of ads is difficult to assess
What are some factors that may lead to lower price sensitivity?
Consumer attachment to a well-differentiated brand, buyers are less aware of substitutes, small purchase relative to buyer income, prestige products (ex. wedding planner)
What are the advantages and disadvantages of cost-plus pricing?
Decrease retail space/rent costs, mitigate price matching risks, easier to manage the environment, shop with confidence, reduce retailer competition, limits breadth by narrowing distribution, offers accessible service support