Overview of Lecture
•
•
•
•
•
Revisit Prospect Theory
Endowment Effect results
"Anchoring"
Marketing Channels
Discuss Group Projects (& form groups)
Prospect Theory V(X)
X
• value function defined wrt a reference point
• losses hurt more than gains feel good
• both gains and losses show
diminishing sensitivity
losses exhibit diminishing sensitivity V(X)
-2a
-a
X
V(-2a)
V(-a)
<2
= 2
>2
What would you think about having 50 TV channels?
"kinda nice"
"really bad"
pleasure
pleasure
losses
gains
losses
50
gains
50
pain
reference point =
30 channels
pain
reference point =
70 channels
The endowment effect
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Sell
Sell
4.06
3.30
Buy
Buy
.81
1.04
squeeze
key chain
The "Endowment Effect", the"Status Quo Bias" & reference-dependent valuation
Y
{
amount
of
$k
money
A
B
C
D
0
1
(# of keychains)
X
How many murders in Wisconsin?
40
39
35
30
25
20
15
25
10
5
0
SS#<50
SS#>50
How many home runs did Mark McGuire hit in his rookie season? 33
33
32
31
30
29
28
27
28
26
25
SS#<50
SS#>50
Anchoring in market research
Would you pay $25? YES NO
How much would you pay? ________
Would you pay $200? YES NO
How much would you pay? ________
Estimate the product
1 X 2 X 3 X 4 X 5 X 6 X 7 X 8 = ?????
8 X 7 X 6 X 5 X 4 X 3 X 2 X 1 = ?????
Anchoring on initial impressions
Intelligent – Industrious – Impulsive – Critical – Stubborn – Envious
Envious – Stubborn – Critical – Impulsive – Industrious – Intelligent
Marketing Channels Firm
Channels
Customer
retail stores
wholesalers
telemarketing
mail order catalogs
web sites
"Push" : getting channels to carry your product
"Pull" : getting consumers to ask for your product by name
Marketing Channels Firm
Channels
Customer
"Captive Channels" : channels owned by firm
"Non-Captive Channels" : channels not owned by firm
"When do retailers have "channel power"?
• firm's product is not well differentiated from competitors
• threat of backward integration (e.g. Shaw's cola)
Channel Conflict: Examples
Firm
Retailer
Customer
Firm: Your retail prices are too high, and are driving down demand
Retailer: With your wholesale prices, it’s the only way we can make money
Firm: You carry too many lines, our product isn't even noticed on shelves
Retailer: Customers come first. BTW, why don't you prune your line.
Channel Conflict: the Internet
Website
Firm
retail stores
Customer
• "free – riding" by internet channel
• customers who use more than one channel get confused
• return policies
• origin of merchandise
• different prices