A
17
B
17
29
$20
29
29
17
# allocated
to $20 cup
B
0
A
$10
1
2
3
0
5
5
6
24
10
20
1
24
6
15
15 13.3 16.7 15
15
2
22.5 7.5
16.7 13.3 15
15
18
12
3
20
15
18
10
10
10
15
7.5 22.5
12
A
17
B
17
29
$20
29
29
17
# allocated
to $20 cup
B
0
A
$10
1
2
3
0
6
24
10
20
1
15
15 13.3 16.7 15
15
2
16.7 13.3 15
15
18
12
3
15
18
10
10
15
7.5 22.5
12
A
17
B
17
29
$20
29
29
17
# allocated
to $20 cup
B
0
A
$10
1
2
3
0
6
24
1
15
15 13.3 16.7
2
16.7 13.3 15
15
3
15
18
15
7.5 22.5
12
A
17
B
17
29
$20
29
29
17
# allocated
to $20 cup
B
0
1
2
3
0
A
$10
1
2
3
16.7 13.3 15
15
A
17
B
17
29
$20
29
29
17
# allocated
to $20 cup
B
0
1
2
3
0
A
$10
1
2
3
15
15
A
17
B
17
29
$20
29
29
17
# allocated
to $20 cup
B
0
A
$10
1
Nash Equilibrium
2
3
0
5
5
6
24
10
20
1
24
6
15
15 13.3 16.7 15
15
2
22.5 7.5
16.7 13.3 15
15
18
12
3
20
15
18
10
10
10
15
7.5 22.5
12
17
29
17
29
29
17
$20
$10
20
18
Nash equilibrium
predictions
16
14
# allocated
to $10 cup
12
10
8
6
4
2
0
0
2
4
6
8
10
12
14
# allocated to $20 cup
16
18
20
The totality of my undergraduate education
F = ma
Intro to Marketing Management
The Cliffs notes � Analyze products in terms of underlying needs.
� helps you design better products
� helps you understand who your competitors are
� Recognize that not all needs can be articulated � Segmentation & Targeting
� lifetime customer value. +$1.58 $1.58 $1.58 $1.58 $1.58
…………
lifetime customer value
customer
acquisition
cost
-$53
time
� Brand Equity.
18
16
14
12
10
8
Gusto
Schlitz
6
4
Gusto
Schlitz
2
0
1972 1974 1976 1978 1980 1982 1984 1986 1988
� Product vs. Perception. 1991
1994
Makita
Makita
Other
Other
Black &
Decker
DeWalt
Everybody is not like me!
25
20
your
estimate
of the
market
value
15
10
true market value
5
0
0
5
10
15
your personal value
20
25
� Be wary of survey data.
� Did people interpret the question as intended?
� Could people plausibly retrieve the information required to answer
the question?
� Did the response scale bias the responses?
How many hours a week do you spend watching TV ?
up to 4
up to 20
4 to 8
8 to 12 12 to 16
16 to 20 more than 20
20 to 25 25 to 30 30 to 35
35 to 40 more than 40
� Be wary of survey data.
� Are there question order effects?
1. How satisfied are you with your
life, in general?
1.
How many dates did you have
last month?
2.
2.
How satisfied are you with your
life, in general?
How many dates did you have
last month?
r=0
r = 0.66
2 views of preferences
Economic vs. Psychological • Economic view
– preferences are fixed, stable, precise
– labels don't matter (e.g., 10% fat = 90% lean)
– pairwise preferences do not depend on the other options
in the choice set.
• Psychological view.
– preferences are easily manipulated, unstable, fuzzy
– preferences depend on how the choice is "framed"
– pairwise preferences sensitive to particular choice set.
Do people have precise values?
I once paid $2.25 for a tiny cognac truffle at a Toiva candy store. After I
had eaten it, my friend asked me "Was it was worth the money?"
I pondered his question. I first considered what else I could have gotten
for $2.25-- four Snickers bars, a copy of Sports Illustrated, or a nicer glass
of wine at dinner later that night. Or, I could have saved the money-- it's
not much, but together with other small sacrifices, maybe I could get a
nicer apartment next year. Then I tried to imagine the value of those
alternate experiences. I recalled that Snickers taste pretty good too-maybe not as good as this truffle, but pretty good-- and two Snickers would
have lasted a lot longer. And although a more spacious apartment would
be great, it would be $100 more a month, and that would mean hundreds of
such sacrifices over the course of a year. I then began to evaluate those
tradeoffs in a larger context of choices, and thought, Hell, if I'm going to
give up anything, I should give up cable TV. I don't watch TV that much
anyway. With the $32 a month I'd save, I could have all the truffles I want.
But the NBA playoffs are coming up....hmm.... Finally, I turned to my
friend and admitted "I don't know."
The effect of labels on preferences
• The government is spending too little on "welfare"
Yes
No
• The government is spending too little on "assistance to the poor"
Yes
No
� The effect of labels on preferences ("framing").
� "90% survive" vs. "10% die"
� "90% lean" vs. "10% fat"
Irrelevant ("decoy") options DO matter.
Panasonic "B"
Price
Panasonic "A"
Emerson
Power
The "Anchoring"effect
How many people were murdered in Wisconsin last year?
100
90
80
70
60
50
40
30
20
10
0
54
30
00-49
50-99
Social Security Number
"The Endowment Effect"
keychain flashlights
$5.00
$4.00
$4.67
$3.00
$2.00
$1.00
$1.86
$0.00
buyers
sellers
"The Endowment Effect"
deck of cards
$10.00
$9.00
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
$8.51
$0.84
buyers
sellers
The "mere exposure" effect
Which letter do you like more?
Y
or
Z
Which letter do you like more?
K
or
L
Which letter do you like more?
A
or
B
Which letter do you like more?
I
or
O
The mere exposure effect:
Do whitefish love grapes?
first trial
one week later
The statue of liberty
is made out of graphite.
The fastest human can run
39 miles an hour.
Saltwater boils at a higher
temperature than freshwater.
Mount Everest is the tallest
mountain in the world.
Whitefish love grapes
Whitefish love grapes
…
…
…
…
"False"
"True"
�The expected value of perfect information (EVPI)
is the upper bound on the value of market research
"X" succeeds
Introduce "X"
0.7
0.3
+ $8 M
"X" fails
- $12 M
"Y" succeeds
+ $46 M
"Y" fails
- $4 M
Decision
Introduce "Y"
0.1
0.9
Pricing, demand curves, &
price discrimination demand curve
Price(s?)
charged
P*
Q(P)
Quantity
demanded
Price Bundling
Soup
Prices
Salad
$4
$4
Harry's values
$5
$2
Sally's values
$2
$5
Soup & Salad
$6
Technological Diffusion
TiVo
The
Chasm
Technological
enthusiasts
Early Majority
Late Majority
Laggards
� If you can't beat them, redefine the game
� "It’s a fashion accessory that happens to tell time."
Foundations for future work ....total demand, potential demand, test-markets, fixed
costs, variable costs, break even quantity,
competition, price wars, reference prices, fairness,
“framing”, decision difficulty, joint vs. separate
evaluation, customer needs, substitutes, complements,
segmentation, targeting, positioning, demand curves,
price elasticity, price discrimination, price bundling,
price promotions, prospect theory, brand image,
customer loyalty, customer satisfaction, customer
service, word of mouth, lifetime customer value.
It's fun to smoke marijuana.
Ethical Rules
• ARE DISTINCT FROM LEGAL RULES
• CHANGE OVER TIME
– e.g., men going topless
• DIFFER ACROSS SOCIETIES
– e.g., women going topless
– cannibalism
• SOMETIMES CONFLICT WITH ONE ANOTHER:
– e.g., "How do you like my new haircut?"
• What are the principles being weighed against one another?
Ethics in Business:
Two concepts of corporate responsibility
• Profit Responsibility
– "There is one and only one social responsibility of business --- to
engage in activities designed to increase its profits."
Milton Friedman
• Social Responsibility
– McDonald's voluntarily stopped using styrofoam containers
– Perrier voluntarily recalled 160 million bottles of water
• Do these two concepts conflict or coincide?
"We wanted to remove any doubt, minimal as it might be, that would
weigh on the image of the quality and purity of our product."
Is marketing unethical?
•
•
deceptive packaging & advertising
the creation of "false" needs
"The trade of advertising is now so near to perfection, it is not easy
to propose any improvement. But as every art ought to be exercised
in due subordination to the publick good, I cannot but propose it as
a moral question whether [advertisers] do not sometimes play too
wantonly with our passions." (Samuel Johnson, 1759)
•
invasion of privacy
telemarketing sales calls
selling your purchase histories
Is marketing unethical?
•
selling harmful or addictive products
How (un)ethical is it?
clearly
wrong
-100
ethically questionable
clearly
ok
0
¾ Marketing brine shrimp as "Sea Monkeys" How (un)ethical is it?
clearly
wrong
-100
ethically questionable
clearly
ok
0
�
�
�
�
In 1990, the R.J. Reynolds Tobacco Company planned to
test market Uptown cigarettes in Philadelphia.
Uptown was targeted at black male smokers, because tests
showed that this segment had a much higher preference for
menthol cigarettes than other segments.
Black men have a 58% higher incidence of lung cancer
than white men.
Menthol cigarettes are no more dangerous than regular
cigarettes.
Is it unethical to market Uptown?: 3 views
"This brand is cynically and deliberately targeted toward black Americans
… when our people desperately need the message of health promotion,
Uptown's message is more disease, more suffering, and more death for
a group already bearing more than its share of smoking-related illness
and mortality"
Louis Sullivan (HHS)
"We regret that a small coalition of anti-smoking zealots apparently
believes that black smokers are somehow different from others who
choose to smoke"
R.J. Reynolds Tobacco
"Targeting is a standard procedure for marketing…this is a product that
is deadly when used as intended; that's the real issue"
Institute on U.S. smoking policy
Telemarketers
Car Salesmen
Advertising execs
Stock Brokers
Military officers
Nurses
100%
90%
% agreement
80%
with statement
70%
[ ] have ethics
60%
50%
that are
"very high" 40%
30%
or
20%
"high"
10%
0%
Firefighters
What is the public's perception of marketing?
Marketing can be a force for good as well as evil
Campaigns & Counter Campaigns Doing good.....badly The Ad Council
(doing good well)
Only You...
can prevent forest fires
Take a bite out of crime!
People start pollution.
People can Stop it.
You could learn a lot
from a dummy.