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PART III
ANSWERS TO CHAPTER END QUESTIONS
Chapter 1 – The Role of Marketing in Organizations and Society
1.
In the old days firms dealt at arms length with many suppliers. Today with JIT
inventory controls, firms deal with fewer suppliers. This has lead to computer
links between firms and more emphasis on relationship building. Sales calls are
expensive and it is cheaper to sell to repeat buyers.
2.
The tie-in promotion was intended to reinforce for Starwood the notion that the
Luxury Collection is a global brand. It is no accident that the effort to highlight the
Italian properties was run at what is normally a slow time of the year for leisure
travel. Since most hotel costs are fixed, Starwood can offer the extra night at very
low variable costs. The advantage to Alitalia is they get exposure in glamour
magazines that are read by high-income consumers who are good prospects for
its new Magnifica brand for in-flight services and vacation packages. Also being
associated with high-class hotels can help Alitalia improve its image with
customers.
3.
Figurehead – Makes a speech at sales meeting
Leader – Coordinates activities of product development team
Liaison – Meets with executives of market research supplier
Monitor – Checks supermarket scanner data on product class
Disseminator – Sends new product data to field salespeople
Spokesperson – Talks to trade press about product
Entrepreneur – Makes decisions on which products to grow, which to milk, and
which to drop
Disturbance Handler – Explains company position on product recall
Resource Allocator – Divides funds between advertising and sales promotion
Negotiator – Negotiates billing rates with advertising agency
4.
The answer is clearly no; media selection is not a good use of a brand manager’s
time. Brand managers do not create the ads for their products and they should
not be picking time slots for TV commercials or which issue of a magazine is best
for a print campaign. Media selection is a highly technical job that requires
special training and access to massive data banks. Brand managers should
leave this job to the experts. On the other hand, brand managers should have
some control over which campaign executions are chosen for their brands and
which types of media should be considered.
5.
The best way to create, preserve or change organizational values and behaviors
is through the use of symbols. A symbol elicits or directs individual members’
feeling or values. Symbols may take on numerous forms including: physical
symbols or artifacts, rituals, slogans, myths, ideologies, stories, ceremonies,
language and specialized vocabularies and heroes. Examples showing the
1
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implementation of several types of symbols is given below:
Type of Symbol
Implementation Techniques
Language
Develop specific sayings or slogans that emphasize the
importance of the customer
Stories
Repeat customer-oriented stories in training programs so that
new employees are initiated to the customer-oriented culture
Ceremonies
Hold regular employees gatherings which celebrate the
company’s customer-orientation
Physical Symbols
Reward employees who exhibit the type of customer-oriented
behavior which you would like to see repeated
6.
This question sounds a familiar refrain that marketing is the source of all that is
evil in society. The counter argument is that marketing is the driving force that
leads to growth in gross domestic product. Growth in the economy means more
jobs and higher incomes for everyone. When people have more money they can
join clubs to build personal bonds and they can give contributions to strengthen
community initiatives. You could also say that when marketing helps people
acquire new cars and boats, it builds their self-esteem and makes them happy.
7.
The best response is for the manufacturer to restrict the distribution of these
items so they are unlikely to fall into the hands of people who might use them
illegally. For example, Smith & Wesson has announced that it is no longer going
to sell its regular hand guns to the general public. Instead it will focus on the sale
of these products to police departments and the military. It will continue to sell its
special collectors edition guns to the public. However, these high-priced weapons
are not designed for regular use and are not likely to be favored by criminals.
8.
Nestlé should, of course, be concerned about INFACT. Negative publicity of this
sort can easily spill over and hurt the sales of other Nestlé’s products in the
United States. In this age of instant communications, bad news can find its way
into the public media very quickly. This is the type of problem that needs
attention from the public relations department as well as the marketing
department. A first step should be to determine whether INFACT’s allegations
are in fact true. Does Nestlé use milk nurses to promote the sales of infant
formula in third world countries? Are babies who drink Nestlé’s infant formula
dying at higher rates than breast fed babies? If the answers are no, then Nestlé
could point out in news releases or ads that INFACT does not have its facts
straight. If the answers are yes, Nestlé has the choice of ignoring the problem or
attempting to turn things around. One possibility would be to stop selling infant
formula in countries, which do not have clean water supplies. Another approach
would be to add clean water to the infant formula and sell the product in cans in
countries where fresh water is contaminated. Nestlé could then claim they were
2
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saving the lives of babies who drank the canned formula when their mothers did
not have enough breast milk.
9.
Pager Networks aggressive marketing activities built up a domestic subscriber
base of 10.3 million. However, their successful introductory campaign has left
them with a lot of customers who are not paying their way. This is a common
situation where firms go for sales revenue first and only later worry about how
they are going to make money. In this case, new management brought in to
restructure operations shifted PagerNet’s focus from sales to profits. They hired a
consultant to sift through data on individual customers and sent letters to
marginal subscribers telling them their rates were being increased. This lead to a
loss of 138,000 subscribers in the third quarter of 1998. A company
spokesperson said, “There’s just no free lunch anymore. We’ve done the
research now to feel comfortable walking away with no regrets.” PagerNet now
has a smaller, but more profit mix of customers. In the future they will need to
build growth by recruiting the type of customer that is profitable at the rates they
charge. Another solution would be to vary the pager rates by usage.
10.
Nabisco has several alternatives. One would be to reinstate the Crown Pilot
cracker to New England and find a way to cut the costs of producing this cracker.
A second approach would be to license another firm to make and sell the
crackers in New England using the Nabisco name. A local firm might have lower
costs of production and distribution. A third alternative would be to sell the brand
to another firm and let them market the crackers to New England. Another
approach would be to repackage Crown Pilot crackers in a new smaller box so
Nabisco could make more money on this declining item. When you have
thousands of customers crying for a product, it sometimes makes sense to try to
accommodate them in some way.
Chapter 2 – Marketing Strategy
1.
KeyCorp’s “Snowbelt strategy” of acquiring small town banks is not consistent
with doing targeted selling by marketing segmentation. Targeted selling by
market segmentation is difficult and costly in a town of 5,000 people. Also people
in these small towns do not want a supermarket of financial services, they prefer
traditional services from their branches. KeyCorp decided to shift away from their
“Snowbelt strategy” to focus on urban consumers in towns of 100,000 or more.
From a network of 12 banks in 14 states, KeyCorp has created a single national
bank with one charter. As part of the new centralized strategy, KeyCorp closed
140 branches and sold off 140 branches in rural areas. They also laid off 10
percent of their employees and took a $100 million charge against earnings. The
consolidation is expected to save $110 million a year in expenses and was
applauded by Wall Street.
2.
P&G’s basic problem is that they are not growing fast enough. While earnings
grew in 1996 and 1997 due to cost cutting, revenue lagged behind. The new
3
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streamlined structured will allow it to introduce products faster and in more
markets at once. It will also help turn P&G into a truly global company.
Reorganizing along product lines is not a new concept, but it does signal that
P&G is not sitting still. They are out to change the way they do business. This
new initiative was expected to involve elimination of 5 percent of their 110,000
employees and closing of several plants. At the time of the announcement of the
reorganization in September of 1998, P&G’s stock price was down 24 percent to
$71 from its July high. By November of 1999, performance had improved and the
stock was selling at $104.
3.
The role of manufacturing in today’s competitive market is to be more flexible in
meeting customer needs. A good example is Dell Computer’s ability to take a
customer’s order over the phone one day, build it the next day and ship the
computer to the customer in less than a week. Honda is reorganizing its
automobile assembly lines so that it can build and ship a car to a customer’s
order in 10 days. This is an amazing retooling of auto manufacturing operations
that currently take 6 to 8 weeks to build a car to meet special customer orders.
4.
Perhaps the most important benefit of buying KMart Canada was the acquisition
of some premium store locations with competitive long-term leases. They also
acquired George Heller, KMart Canada’s president and the appointed head of
the combined discount chain. Hudson Bay paid a high price for KMart Canada,
US $167 million or a steep multiple of 12 times earnings. Also the average KMart
Canada was not particularly well run with sales of only C $130 per square foot
compared to C $160 at Zellers and an amazing C $240 at Mall-Mart. Hudson Bay
plans to close 40 of the weakest KMart stores it just acquired and lay off between
4,000 and 6,000 people out of the combined workforce of 72,000. Although
Hudson Bay’s is ahead for now, they will have to learn to operate more efficiently
if they expect to stay ahead of the world’s lowest cost mass marketer.
5.
IBM’s gamble to shift from the fast bipolar machines to slower, cheaper and more
profitable CMOS based machines cost it dearly in terms of market share. In
1995, IBM had 81 percent of the worldwide mainframe computer market and by
1998 this had fallen to 67 percent. Meanwhile, Hitachi’s Skyline series, which
combines the older bipolar technology with some new CMOS circuitry, helped its
market share leap from 7 percent to 23 percent. Some large banks, airlines, and
retirement funds need the higher speeds of Hitachi’s machines to crunch the
massive databases with which they work. Although IBM’s new machines may
have boosted profits, they gave away a lot of revenue to the competition. Until
IBM is able to match the speed of Hitachi’s machines, they will not be able to win
back the very largest customers. They can compete with Hitachi for other
customers by offering competitive prices on a dollar cost per MIP.
6.
Zippo is in a tough spot. Although they have 40 percent of the refillable lighter
market, they face stiff competition from cheap, throw-away, butane lighters.
Greater restrictions on the promotion and sale of cigarettes can only hurt sales of
4
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Zippo lighters in the long run. Zippo is fighting back by designing products that
appeal to the 30 percent of Zippo buyers who describe themselves as collectors.
The line includes models priced from $19 to $40. Some best sellers feature
Vegas-style pin-up girls and outdoor scenes. Also Zippo continues to sell lighters
with camels on them even though Joe Camel has been put out to pasture by R.
J. Reynolds. Zippo has been successful in shifting its marketing focus from the
contracting U.S. cigarette market to less restrictive overseas markets. Zippo now
gets 66 percent of its $150 million volume from offshore markets. Ultimately
Zippo needs to transfer its brand to other categories such as Zippo flashlights,
Zippo camping equipment, Zippo watches and even Zippo jeans.
Chapter 3 – Customer Analysis
1.
Allowing people to check more than one racial category in the U.S. Census will
create more categories of consumers. These new mixed racial categories will be
available to marketers for every census tract in the country. This will allow
marketing programs to target these new market segments with special
promotions. Census data will show where these new segments live, how much
income they have and other useful demographic data.
2.
An aging population affects the types of goods and services that will be sold and
the way they are marketed. Countries with older populations have a greater need
for nursing homes, long-term care insurance, medicine, assisted living
arrangements, hearing aids, retirement villages, special foods, vitamins, wheel
chairs, walkers, and host of other products. Once you have identified the special
products seniors want, you have to design special marketing programs to reach
them. Senior citizens do not watch the same TV shows or read the same
magazines as younger people and this means media selection is crucial to senior
marketing. A lot of direct mail is used for senior market segments because it is
fairly easy to buy mailing lists for specific age categories. As people get close to
65 in the U.S., for example, they get a lot of advertising brochures in the mail for
medicare supplementary health insurance.
3.
P&G’s problem is that Fit is a completely new product category. For years
consumers were told to wash produce with water before eating. Now people are
being told wash produce with FIT. This requires a fundamental shift in the way
customers handle their food. The suggestion that P&G should concentrate on the
dangers of chemical residues on produce is not a good idea. If people believe
that fresh produce is dangerous they will stop buying it entirely. Customers who
shift to canned or frozen food will have no use for Fit. Another problem for P&G is
that consumers have to be reassured that Fit is safe to put on food. Educating
the public about this new food safety product is very time consuming. So far Fit
has been in test markets for four years. The company believes the product can
be a winner, they just have to figure how to get people to buy it.
4.
The better approach to home building is to survey customer’s preferences in the
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markets where you construct your homes. For example, K&B Home Corp
believed that Denver buyers all wanted fireplaces to snuggle up in front of on
cold winter evenings. However when they asked buyers in Denver what they
wanted, they found that half would forgo the fireplace if it meant they could cut
$2,000 off the price of a $130,000 home. K&B no longer offers fireplaces as
standard in Denver, but they are standard in San Francisco where they are more
popular. Also covered porches were considered mandatory until surveys
revealed that less than half the buyers cared. Research has shown that people
everywhere prefer square footage to vaulted ceilings and large master bedrooms
to formal dining rooms. Marketing research has helped builders design standard
homes that better fit customers’ needs and they now offer more custom options.
5.
There are about 27 million people who own in-line skates compared with 15
million who own traditional roller skates. Part of the problem of bringing back
roller skates is the manufacturers tend to be smaller and they do not have large
budgets for advertising and promotion. One theme that could be used is that
roller skates are safer and they have toe brakes for easier stopping. The roller
skate industry’s best marketing weapons are dance troupes and advanced
sidewalk skaters, whose pirouettes on roller skates tend to draw onlookers. The
acrobatics and dance troupe tries to spread the word about roller skates with
workshops and shows that include a medley of axles, salchows and toe loops set
to jazz, hip-hop and ballet music. While in-line skates are faster, roller skates are
easier to turn and dance with.
6.
The availability of massive computerized data banks of information on
consumers and their purchases presents a serious ethical dilemma for
marketers. If marketing managers are too zealous in using this information they
are apt to face lawsuits and restrictive laws that limit access to personal data.
The problem has escalated in recent years because people are charging so
many of their everyday purchases on credit cards. At the present time there are
no clear cut rules on how far marketers can go in mining data banks for useful
information. This means that marketing managers push for more data until the
public starts to scream and then they back off. Congress and the courts will
probably make final decisions on what is ethical in this area.
7.
Activity based costing (ABC) is more inclusive than regular cost accounting as it
looks at the total actual costs of marketing, distributing and servicing a product as
well as the variable manufacturing costs. Research with ABC has shown that
medium sized customers are the most profitable. They pay a good price and
consume moderate amounts of resources. Big customers tend to squeeze your
profit margins and small customers demand more sales and service resources
than their purchase volume justifies. The solution for LSI is to adjust the way it
does business to encourage orders from profitable accounts and discourage
customers where profits are negative. This could involve setting minimum order
sizes on chips so that LSI at least breaks even. Another approach would be to
ask customers to share development costs on special purpose chips. Certainly
LSI should not lop off 50 percent of their customer base without careful analysis.
6
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The reason is that some small customers will become key accounts in the future
so you need a system that identifies them early. Recently IBM shifted the sale of
its PCs from stores to the Internet to cut losses. In the future we can expect more
firms to shift access to marginal products to the Internet to boost profitability.
8.
J. P. Morgan is facing increased competition from no load mutual funds and low
cost online trading. Also there are more index funds available today so investors
can buy whole sections of the market. Why have a bank manage your
investments when index funds often do better? Morgan needs to get more
aggressive about its private client business. Their idea of inviting people who
have $1 million to invest in for comprehensive, integrated analysis of their
situation is quite appropriate. A lot of investors trade too often and Morgan can
increase their returns by holding the positions longer. Others may fail to properly
balance risk versus returns. The idea that Morgan is going down market by
taking on people with $1 million instead of $5 million to invest is nonsense. A
million dollars is still a lot of money and Morgan’s service for the ultra-rich is not
going to suffer if a few million dollar accounts come on board.
9.
Working with data can be messy as this small database illustrates. The first
analyses should look for obvious errors in the data and provide a feel for the
data. In SPSS this means doing Analyze/Descriptive Statistics/Descriptives and
Analyze/Descriptive Statistics/Frequencies in Data Editor menu for all variables
but idno. The data provided is unedited and contains a few obvious errors.
Reading habits are 0 - 1 dummy variables; however, the analyses show values of
2 and 3 for Harper’s Bazaar and the value of 3 for both Sports Illustrated and
Field & Stream. These errors serve as a warning to the would-be analyst that
although something may be in a computer file, it doesn’t mean that it is correct.
The offending cases in this small example can be found by inspection. They can
also be found in SPSS by using Data/Select Cases/Select. The “If conditions is
satisfied option” is chosen. Set If to harpers = 2 or harpers = 3. Do
Analyze/Descriptive Statistics/Frequencies for idno. The Frequency Table will
show the offending observations to have identification numbers 15 and 38.
Comments can be made on the output by using Insert/New Text in the Windows
Viewer menu. For example, one could label this table Harper’s Bazaar. Repeat
the process for the other magazines. Once this process is completed, be sure to
turn the filter off. Using Data/Select Cases/Select, choose All cases.
10.
If one had the original questionnaires, one would pull numbers 15 and 38 and
see what the correct values should be. (This is one reason why anonymous
questionnaires are numbered as they come in.) Without the questionnaires, one
must treat the cases as missing values of the corresponding variable. For
example, in the Data Editor double click on Harper’s Bazaar. This will invoke the
Define Variable menu. Under Change Settings, choose Missing Values. Choose
Discrete missing values and put 2 and 3 in the first two boxes respectively.
Repeat this procedure for the other offending variables. An argument could be
7
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made for dropping observation 15 from the analysis since it contains a number of
errors. (A case may have a number of errors if a keystroke is missed or a double
entry is made.)
11.
Cross-tabulation analysis (Analyze/Descriptive Statistics/Crosstabs) is used to
examine categorical or nominal data for two variables simultaneous. (For more
than two variables, log-linear models should be used.) There are a number of
cross-tabs that can be run, forcing the analyst to think about the relationships
that would be most useful.
12.
Because of the large number of response categories in some of the survey
questions, some of the cross-tabs will have numerous cells. Some of the
expected cell sizes will be less than 5. This would make using the chi-square
approximation suspect. Thus, adjacent rows or columns may have to be
collapsed together. This is done in SPSS with Transform/Recode. Usually one
wants to collapse on the variable that has the most categories (which preserves
the most degrees of freedom). Sometimes its not practicable collapse cells to get
an expected value of at least 5 for all cells.
13.
Consider the usage of products Alpha by gender. From the Data Editor window
choose Analyze/Descriptive Statistics/Crosstabs. For presentation reasons, one
usually makes the variable with the most categories the row variable. Thus make
alphause the row variable and gender the column variable. Under Statistics
check Chi-Square. Under Statistics/Nominal, check Contigency coefficient. Under
Cells/Counts, check Expected. The results show seven cells have expected
counts less than 5. Before recoding a variable, copy it to a new column
(variable). While the new variable will have to be named, it will carry original
variable definition information, such as labels. Having done this for alphause and
named it alpharec (say), do Transform/Recode/Into Same Variable for alpharec.
Move the variable into the Numerical Variables window. Click Old and New
Values button. Under Old Value enter 0, under New Value enter 0, click Add
button. Repeat through 6, 6. Then recode 7 as 6. Change label to reflect new
value definition. Rerun Analyze/Descriptive Statistics/Crosstabs with alpharec
being the row variable. There appears to be a relation between Alpha usage and
gender; however, no causality is proven. Now one would like to do a media
match. Given the high male usage of the product, Playboy would be a possibility.
Another crosstabs run confirms this.
14.
Numerous other cross tabs can be run. The use of Insert/Page Break in the
Viewer window can improve the readability of printed output. Other formatting
can be done using File/Page Setup.
8
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OTC
Descriptives
Descriptive Statistics
N
Minimum
Annual Alpha usage
Annual Beta usage
How learn about product?
Place of purchase
Factors influencing decision
Price sensitivity
Where should product be in drugstore?
How should manufacturer encourage
product usage?
104
104
104
104
104
104
104
1
1
1
1
1
1
1
7
6
6
5
5
4
4
3.20
1.63
3.62
2.20
3.01
2.73
2.49
Std.
Deviation
1.82
1.27
1.86
1.40
1.33
.98
1.24
104
1
4
1.90
.93
Read Harper’s Bazaar?
Read Women’s Day?
Read Playboy?
Read Cosmopolitan?
Read Time?
Read Ebony?
Read Field and Stream?
Read Elle?
Read Esquire?
Read Good Housekeeping?
Read Sports Illustrated?
Read Seventeen?
Age
Education
Income
Marital status
Gender
Valid N (listwise)
104
104
104
104
104
104
104
104
104
104
104
104
104
104
104
104
104
104
0
0
0
0
0
0
0
0
0
0
0
0
1
1
1
1
0
3
1
1
1
1
1
3
1
1
1
3
1
8
8
8
3
1
.27
.17
.37
.28
.41
.30
.31
.24
.32
.16
.31
.15
3.96
4.62
4.35
1.56
.33
.53
.38
.48
.45
.49
.46
.52
.43
.47
.37
.52
.36
1.78
1.50
1.74
.39
.47
9
Maximum
Mean
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OTC
Frequencies
Annual Alpha usage
Valid
none
1-4
5-12
13-26
27-54
55-100
>100
Total
Frequency
29
13
15
15
23
5
4
104
Percent
27.9
12.5
14.4
14.4
22.1
4.8
3.8
100.0
Valid Percent
27.9
12.5
14.4
14.4
22.1
4.8
3.8
100.0
Cumulative
Percent
27.9
40.4
54.8
69.2
91.3
96.2
100.0
Annual Beta usage
Valid
none
1 every 5 years
1 every 2 years
1 per year
2 per year
More than 2 per year
Total
Frequency
79
5
9
4
5
2
104
Percent
76.0
4.8
8.7
3.8
4.8
1.9
100.0
Valid Percent
76.0
4.8
8.7
3.8
4.8
1.9
100.0
Cumulative
Percent
76.0
80.8
89.4
93.3
98.1
100.0
How learn about product?
Frequency
Valid
Friend
Clinic
Store display
Advertisement
Physician
Class
Total
24
10
10
19
20
21
104
Percent
23.1
9.6
9.6
18.3
19.2
20.2
100.0
10
Valid Percent
23.1
9.6
9.6
18.3
19.2
20.2
100.0
Cumulative
Percent
23.1
32.7
42.3
60.6
79.8
100.0
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OTC
Place of purchase
Valid
Drugstore
Vending Machine
Physician
Mail order/Internet
Clinic
Total
Frequency
50
15
18
10
11
104
Percent
48.1
14.4
17.3
9.6
10.6
100.0
Valid Percent
48.1
14.4
17.3
9.6
10.6
100.0
Cumulative
Percent
48.1
62.5
79.8
89.4
100.0
Factors influencing decision
Frequency
Valid
TV ad
Direct mailing
Magazine ad
Cents-off coupon
Newspaper ad
Total
Percent
21
8
44
11
20
104
20.2
7.7
42.3
10.6
19.2
100.0
Valid Percent
20.2
7.7
42.3
10.6
19.2
100.0
Cumulative
Percent
20.2
27.9
70.2
80.8
100.0
Price sensitivity
Valid
Buy least expensive brand
Price not as important as brand
Buy expensive brands as guide to quality
Price not considered in purchase decision
Total
Frequency
12
31
34
27
104
Percent
11.5
29.8
32.7
26.0
100.0
Valid
Percent
11.5
29.8
32.7
26.0
100.0
Cumulative
Percent
11.5
41.3
74.0
100.0
Where should product be in drugstore?
Frequency
Valid
Under the counter
Shelf or display rack
Feminine hygiene
Men’s toiletries
Total
32
23
15
34
104
11
Percent
30.8
22.1
14.4
32.7
100.0
Valid Percent
30.8
22.1
14.4
32.7
100.0
Cumulative
Percent
30.8
52.9
67.3
100.0
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OTC
How should manufacturer encourage product usage?
Valid
Don’t know
Advertise
Educational efforts
Shouldn’t
Total
Frequency
44
32
22
6
104
Percent
42.3
30.8
21.2
5.8
100.0
Valid Percent
42.3
30.8
21.2
5.8
100.0
Cumulative
Percent
42.3
73.1
94.2
100.0
Read Harper’s Bazaar?
Frequency
Valid
No
Yes
2
3
Total
Percent
79
23
1
1
104
76.0
22.1
1.0
1.0
100.0
Valid Percent
76.0
22.1
1.0
1.0
100.0
Cumulative
Percent
76.0
98.1
99.0
100.0
Read Women’s Day?
Frequency
Valid
No
Yes
Total
Percent
86
18
104
82.7
17.3
100.0
Valid Percent
82.7
17.3
100.0
Cumulative
Percent
82.7
100.0
Read Playboy?
Frequency
Valid
No
Yes
Total
Percent
66
38
104
63.5
36.5
100.0
Valid Percent
63.5
36.5
100.0
Cumulative
Percent
63.5
100.0
Read Cosmopolitan?
Frequency
Valid
No
Yes
Total
Percent
75
29
104
72.1
27.9
100.0
12
Valid Percent
72.1
27.9
100.0
Cumulative
Percent
72.1
100.0
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OTC
Read Time?
Frequency
Valid
No
Yes
Total
Percent
61
43
104
58.7
41.3
100.0
Valid Percent
58.7
41.3
100.0
Cumulative
Percent
58.7
100.0
Read Ebony?
Frequency
Valid
No
Yes
Total
Percent
73
31
104
70.2
29.8
100.0
Valid Percent
70.2
29.8
100.0
Cumulative
Percent
70.2
100.0
Read Field and Stream?
Frequency
Valid
No
Yes
3
Total
Percent
74
29
1
104
71.2
27.9
1.0
100.0
Valid Percent
71.2
27.9
1.0
100.0
Cumulative
Percent
71.2
99.0
100.0
Read Elle?
Frequency
Valid
No
Yes
Total
Percent
79
25
104
76.0
24.0
100.0
Valid Percent
76.0
24.0
100.0
Cumulative
Percent
76.0
100.0
Read Esquire?
Frequency
Valid
No
Yes
Total
Percent
71
33
104
68.3
31.7
100.0
13
Valid Percent
68.3
31.7
100.0
Cumulative
Percent
68.3
100.0
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OTC
Read Good Housekeeping?
Frequency
Valid
No
Yes
Total
Percent
87
17
104
83.7
16.3
100.0
Valid Percent
83.7
16.3
100.0
Cumulative
Percent
83.7
100.0
Read Sports Illustrated?
Frequency
Valid
No
Yes
3
Total
Percent
74
29
1
104
71.2
27.9
1.0
100.0
Valid Percent
71.2
27.9
1.0
100.0
Cumulative
Percent
71.2
99.0
100.0
Read Seventeen?
Frequency
Valid
No
Yes
Total
Percent
88
16
104
84.6
1534
100.0
Valid Percent
84.6
15.4
100.0
6.7
19.2
15.4
19.2
20.2
10.6
5.8
2.9
100.0
Valid Percent
6.7
19.2
15.4
19.2
20.2
10.6
5.8
2.9
100.0
Cumulative
Percent
84.6
100.0
Age
Frequency
Valid
<15
15-20
21-25
26-30
31-40
41-50
51-60
>60
Total
Percent
7
20
16
20
21
11
6
3
104
14
Cumulative
Percent
6.7
26.0
41.3
60.6
80.8
91.3
97.1
100.0
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OTC
Education
Valid
Frequency
3
5
17
20
27
26
3
3
104
No formal schooling
Completed grade 3 but less than Grade 9
Grades 9-11
High school graduate no college
Some college but no college degree
College grad
Some post-graduate work
Advanced degree
Total
Percent
2.9
408
16.3
19.2
26.0
25.0
2.9
2.9
100.0
Valid
Percent
2.9
4.8
16.3
19.2
26.0
25.0
2.9
2.9
100.0
Cumulative
Percent
2.9
7.7
24.0
43.3
69.2
94.2
97.1
100.0
Percent
4.8
9.6
18.3
22.1
20.2
13.5
6.7
4.8
100.0
Valid
Percent
4.8
9.6
18.3
22.1
20.2
13.5
6.7
408
100.0
Cumulative
Percent
4.8
14.4
32.7
54.8
75.0
88.5
95.2
100.0
Income
Valid
Frequency
5
10
19
23
21
14
7
5
104
<$20,000
$20,000 - $29,999
$30,000 - $39,999
$40,000 - $49,999
$50,000 - $59,999
$60,000 - $69,999
$70,000 - $99,999
More than $100,000
Total
Marital status
Frequency
Valid
Single
Married
Divorced
Total
Percent
58
34
12
104
55.8
32.7
11.5
100.0
Valid Percent
55.8
32.7
11.5
100.0
Cumulative
Percent
55.8
88.5
100.0
Gender
Frequency
Valid
Male
Female
Total
Percent
70
34
104
67.3
32.7
100.0
15
Valid Percent
67.3
32.7
100.0
Cumulative
Percent
67.3
100.0
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OTC
Harper’s Bazaar
Identification number
Frequency
Valid
15
38
Total
Percent
1
1
2
50.0
50.0
100.0
Valid Percent
50.0
50.0
100.0
Cumulative
Percent
50.0
100.0
Field & Stream
Identification number
Frequency
Valid
15
Percent
1
100.0
Valid Percent
100.0
Cumulative
Percent
100.0
Valid Percent
100.0
Cumulative
Percent
100.0
Sports Illustrated
Identification number
Frequency
Valid
15
Percent
1
100.0
16
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OTC
Crosstabs
Annual Alpha usage * Gender Crosstabulation
Annual
Alpha
usage
None
1-4
5-12
13-26
27-54
55-100
>100
Total
Gender
Male
Female
2
27
19.5
9.5
11
2
8.8
4.3
14
1
10.1
4.9
12
3
10.1
4.9
22
1
15.5
7.5
5
0
3.4
1.6
4
0
2.7
1.3
70
34
70.0
34.0
Count
Expected Count
Count
Expected Count
Count
Expected Count
Count
Expected Count
Count
Expected Count
Count
Expected Count
Count
Expected Count
Count
Expected Count
Total
29
29.0
13
13.0
15
15.0
15
15.0
23
23.0
5
5.0
4
4.0
104
104.0
Chi-Square Tests
Asymp.
Sig.
(2-sided)
.000
.000
.000
Value
df
Pearson Chi-Square
68.352a
6
Likelihood Ratio
75.147
6
Linear-by-Linear Association
44.227
1
N of Valid Cases
104
a7 cells (50.0% have expected count less than 5. The minimum expected count is 1.31.
Symmetric Measures
Value
.630
104
Nominal
by Contingency Coefficient
Nominal
N of Valid Cases
a Not assuming the null hypothesis.
b Using the asymptotic standard error assuming the null hypothesis.
17
Approx.
Sig.
.000
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OTC
Crosstabs
Annual Alpha usage recoded * Read Playboy? Crosstabulation
Annual
Alpha
usage
recoded
none
1-4
5-12
13-26
27-54
>54
Total
Read Playboy?
No
Yes
27
2
18.4
10.6
12
1
8.3
4.8
14
1
9.5
5.5
7
8
9.5
5.5
4
19
14.6
8.4
2
7
5.7
3.3
66
38
66.0
38.0
Count
Expected Count
Count
Expected Count
Count
Expected Count
Count
Expected Count
Count
Expected Count
Count
Expected Count
Count
Expected Count
Total
29
29.0
13
13.0
15
15.0
15
15.0
23
23.0
9
9.0
104
104.0
Chi-Square Tests
Asymp.
Sig.
(2-sided)
.000
.000
.000
Value
df
Pearson Chi-Square
50.904a
5
Likelihood Ratio
56.072
5
Linear-by-Linear Association
42.305
1
N of Valid Cases
104
a 2 cells (16.7%) have expected count less than 5. The minimum expected count is 3.29.
Symmetric Measures
Value
.573
104
Nominal
by Contingency Coefficient
Nominal
N of Valid Cases
a Not assuming the null hypothesis.
b Using the asymptotic standard error assuming the null hypothesis.
18
Approx.
Sig.
.000
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Chapter 4 – Market Segmentation and Product Differentiation
1.
The woman’s hair loss market looks very attractive because while more men
than women have a hair loss problem, almost every woman with thinning hair is
concerned whereas only half of balding men worry about their plight. Minoxidil
also may be more effective for women than men because women are more likely
to be looking to stop hair loss than regrow it. One woman who uses minoxidil
says, “Women will do anything to keep their hair from getting thinner or to get it
back.” Pharmacia & Upjohn decided to enter the over-the-counter market using
their market leading Rogaine brand name. The product was introduces with
television ads saying “They say you can never be too thin – unless you have
thinning hair.” The campaign also included ads in women’s magazines such as
Cooking Light and Weight Watchers telling women to “give yourself a chance to
grow.” Rogaine also set up a free telephone information service and launched a
new women’s magazine for its customers. During the first 10 months
over-the-counter Rogaine was on the market, Pharmacia & Upjohn spent $50
million on advertising. Targeting women proved effective as women made up
only 20 percent of Rogaine buyers when it was available by prescription and 30%
when the company began to sell it over-the-counter. In the 9 months after
minoxidil became available without a prescription, sales totaled $111.6 million
and Rogaine had 87 percent of the market. Bausch & Lomb sells minoxidil under
its Healthguard label in pink boxes with special applicators for women’s hair.
Copley Pharmaceuticals and other drug companies have also started to sell
minoxidil. Since Pharmacia & Upjohn have grabbed 87 percent of the
over-the-counter market with their Rogaine brand, they do not need to introduce
a generic brand of minoxidil at this time.
2.
The overweight teenage girl market for stylish clothes passes all the
requirements for market segmentation. The market is growing in size, customers
are dissatisfied with current selections, segment members are identifiable and
accessible, and specialized media are available. One challenge for firms
advertising larger sizes is to feature models that are attractive – and that means
not too fat. Large-size retailing veteran Lane Bryant ran a fashion show for the
college crowd using celebrity models including actress Liv Tylor’s full figured
sister and the Women’s National Basketball Association star Kym Hampton, who
wears a size 16. And because feet are growing along with waists and hips, shoe
company Candie’s recently added sizes 11 and 12 to popular teen styles and
boosted inventory in sizes 9 and 10. These moves have increased shoe sales by
10 percent.
3.
Kodak is test marketing a private label film under the Colorburst name. This low
cost film uses an older technology and produces pictures that are not as sharp as
its Kodak brand films. The new Colorburst film does not have the well-known
Kodak name anywhere on the package. A low priced Colorburst film would not
be a threat to Fuji because it does not sell private label film in the U.S. However,
it would be a challenge to Agfa, Konica, and Imation who control the U.S. private
label market. If Kodak entered the private label market segment, consumers and
19
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rivals would not know about it because the boxes of film would only carry the
name of the retailer distributing the film. Several stock market analysts have
expressed concern that private label film could harm its leading Kodak brand
franchise. One said, “It makes no sense. Private label tends to put pressure on
premium products. Why stimulate demand for private label products by offering
one?” This suggests that Kodak would be ahead if it could steal private label
market share from Agfa, Konica, or Imation. If total private label market share
increased, Kodak could end up losing margin on lower sales of its regular film.
4.
The alternative segmentation bases from Table 4-1 are classified as
unobservable or observable and as product specific or general below. Some are
easy to classify as putting age, race and sex in the observable/product specific
category. Others are harder such as usage rate. While this can be measured,
you can’t tell just by looking at someone so we put it in the product
specific/unobservable class. The table suggests that most segmentation bases
are product specific.
Unobservable
Observable
Education, lifestyle,
occupation, family life
cycle, social class,
readiness, usage rates
personality
lifestyle
occasion
Age, race, sex, country,
region, density, mfg
industry, brand loyalty
county size
SMSA population
Product Specific
General
Classifying Segmentation Bases
5.
A virtual flood of lawsuits claiming damages from hot coffee, workplace violence,
age discrimination, sex discrimination, harassment, floods, earthquakes,
tornadoes, hurricanes, medical mistakes, over-zealous salespeople and
unscrupulous retailers has prompted many business people to seek better
insurance coverage. Individual insurance firms can react to the explosion of jury
awards in these cases by having their actuaries study the risks of writing
coverage for these events. Then they can design programs that can provide
coverage to clients at affordable rates. Marketing of specialized insurance
requires careful targeting of media and a thoughtful message. AFLAC has done a
20
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good job of selling business people on a supplementary healthcare program that
fills in the gaps in regular programs. TV ads are used showing business
managers choosing AFLAC insurance because they care about their employees
and a son has “his mother’s eyes.”
6.
The common practice of American banks of deliberately bouncing the largest
check that comes in on a given day so they can charge extra bad check fees on
small checks that follow is one of the most unsavory activities the authors have
encountered in many years. Not only is this unethical, it borders on fraud or theft.
You would think the banks would be embarrassed by revelations of their greed
and self-serving manipulations of the order at which they clear checks. This is the
sort of unethical behavior that spawns lawsuits where outraged juries hit
companies with multi-million dollar awards for punitive damages. It can also lead
to the passage of restrictive legislation to outlaw an obviously bad business
practice.
7.
Customizing cars in America has been around for a long time. People who
wanted to be different would buy some special wings, mud flaps, bug deflectors,
moon roofs, cellular phone aerials, gold plated lettering, fake convertible tops,
extra running boards and pay someone to install them on their car, truck or van.
The difference today is that some of these special features are being offered as
optional equipment on new cars. Mercedes should seriously consider a
customization program for the U.S. Their customers can obviously afford to pay
for the extra features. The only problem is adjusting their production process to
allow for fast and easy installation of the desired extra features. This will not be
easy as most Mercedes sedans are made in Germany. This means that even if
the features could be added to a custom order for assembly in Germany due to
flexible manufacturing technology, it still would take several weeks to get the car
shipped across the ocean. It would be a lot easier to offer customization on
Mercedes sport utility vehicles that are built in Alabama.
8.
The goal is to predict the value of one variable from the values of other variables.
This can be done using regression analysis. Some of the variables have already
been transformed by taking their squares or square roots to allow for a nonlinear
function that is nonetheless linear in its parameters, i.e., amenable to linear
regression analysis.
One exploratory step could be to look at variables two at a time using
correlation analysis: Analyze/Correlate/Bivariate. A portion of the correlation
matrix is shown in Landscape Orientation (File/Page Setup). To get the matrix on
one page, activate the Pivot Table (correlation matrix) by double clicking on it.
You first may want to edit out unneeded information. (To delete rows or columns
in a Pivot Table Ctrl-Alt-click the category row or column. From the Pivot Table
menu choose Edit/Clear.) Now right click on the Pivot Table. Select Table
Properties/Printing. Check “Rescale wide table to fit page.” An inspection of the
correlation matrix reveals a large number of significant correlations among the
explanatory variables. This is an indication that multicollinearity might be a
21
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problem in doing a regression analysis. A “quick and dirty” way to handle this
problem is to do stepwise regression: Analyze/Regression/Linear. Make Average
Airtime Minutes of Use (MOU) the Dependent variable. Make the remaining
variables, except County, the Independent(s) variables. Make Method Stepwise.
The final regression model explains something; that is, it statistically significant.
(This is found by looking at the p-value for the F-statistic in the ANOVA table and
comparing it to the level of significance α. Here p = 0.000 < α = 0.05 (say). This
means that the F-statistic falls into the critical region and thus the null hypothesis
that all of the coefficients of the variables in the model are equal to zero is
rejected.) Given that the model explains something, how much does it explain?
The model explains about 70 percent of the variation in the dependent variable
MOU. (This is found by looking at R Square in the Model Summary Table.) This
is a reasonable for territory (county)-level cross-sectional data. Which of the
individual variables contributes the explanation? They all do. (This is found by
looking at the p-values for each of the t-statistics in the Coefficients table and
comparing each to the level of significance α. For example, consider the variable
Service Employees as Percent of Total Employees, its p = 0.004 < α = 0.05
(say). This means that the t-statistic falls into the critical region and thus the null
hypothesis that the coefficient of the variable is equal to zero is rejected. The
computer does a 2-tail test.) Do the significant coefficients have the right signs
and magnitudes? Yes, one would expect each of the independent variables to
have a positive impact on MOU. (There is no prior information about what
magnitude should be expected.) The estimated regression model is
MOU = -19 + 0.012 PopDensity
%ServiceEmployees.
(p)
(0.000)
(0.004)
+
0.48
SqrtHouseholdInc
+
86
(0.000)
The estimated parameters are found in the Coefficients table in the B column
under Unstandardized Coefficients. (Standardized coefficients are never used in
market response models.) One should always provide some information about
the precision/significance of each coefficient. Here p-values are shown but
standard errors or t-values could have been used.
Suppose population density is 250, household income is 46225, and the percent
of service employees (expressed in the data as a fraction) is 0.3. Then our
estimate of MOU is -19 + (0.012)(250) + (0.48)(215) + (86)(0.3) = -19 + 3 + 103 +
26 = 113.
Major providers of cellular telephone service are striving to build national
networks. One use of the regression model could be to value an existing cellular
license of smaller local cellular provider, who is an acquisition target.
22
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CELLULAR
Correlations
Average
Airtime
Minutes of
Use (MOU)
Per
Subscriber
Area
Average Airtime Minutes of
1.000
.112
Use (MOU) Per Subscriber
.
.222
49
49
Area
.112
1.000
.222
.
49
49
Per Capita Buying Power
.544**
-.104
Index
.000
.239
49
49
Per Capita BPI (Premium
.445**
-.103
Products)
.001
.241
49
49
BPI (Premium Products)/BPI
.214
-.058
(Overall)
.070
.347
49
49
Consumer Education
.487**
-.154
Expenditure, Per Capita
.000
.146
49
49
Consumer Food Expenditure:
.352**
-.249
At-Home, Per Capita
.007
.042
49
49
Consumer Food Expenditure:
.432**
-.174
Out-of-Home, Per Capita
.001
.115
49
49
Population Density
.680**
-.047
.000
.374
49
49
Population Density Squared
.622**
-.020
.000
.445
49
49
** Correlation is significant at the 0.01 level (1-tailed).
* Correlation is significant at the 0.05 level (1-tailed).
Per Capita
Buying
Power
Index
.544**
.000
49
-.104
.239
49
1.000
.
49
.864**
.000
49
.427**
.001
49
.675**
.000
49
.678**
.000
49
.667**
.000
49
.453**
.001
49
.331*
.010
49
23
Per Capita
BPI
(Premium
Products)
.445**
.001
49
-.103
.241
49
.864**
.000
49
1.000
.
49
.820**
.000
49
.635**
.000
49
.721**
.000
49
.676**
.000
49
.439**
.001
49
.328*
.011
49
BPI
(Premium
Products)/
BPI (Overall)
.214
.070
49
-.058
.347
49
.427**
.001
49
.820**
.000
49
1.000
.
49
.416**
.001
49
.553**
.000
49
.493**
.000
49
.286*
.023
49
.226
.059
49
Consumer
Education
Expenditure,
Per Capita
.487**
.000
49
-.154
.146
49
.675**
.000
49
.635**
.000
49
.416**
.001
49
1.000
.
49
.810**
.000
49
.964**
.000
49
.259*
.036
49
.181
.107
49
Consumer
Feed
Expenditure:
At-Home,
Per Capita
.352**
.007
49
-.249*
.042
49
.678**
.000
49
.721**
.000
49
.553**
.000
49
.810**
.000
49
1.000
.
49
.904**
.000
49
.275*
.028
49
.191
.095
49
Consumer
Food
Expenditure
Out-of-Home
Per Capita
.432
.00
4
-.17
.11
4
.667
.00
4
.676
.00
4
.493
.00
4
.964
.00
4
.904
.00
4
1.00
4
.19
.09
4
.11
.21
4
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CELLULAR
Regression
Model Summary
Adjusted R
Std. Error of
Model
R
R Square
Square
the Estimate
1
.680a
.462
.451
17.360144
2
.804b
.646
.630
14.243906
3
.840c
.705
.686
13.138583
a Predictors: (Constant), Population Density
b Predictors: (Constant), Population Density, Square Root of Household Income
c Predictors: (Constant), Population Density, Square Root of Household Income, Service Employees as
Percent of Total Employees
ANOVAd
Sum of
Mean
Model
Squares
df
Square
F
Sig.
1
Regression
12186.516
1
12186.516
40.436
.000a
Residual
14164.606
47
301.375
Total
26351.122
48
2
Regression
17018.234
2
8509.117
41.940
.000b
Residual
9332.888
46
202.889
Total
26351.122
48
3
Regression
18583.115
3
6194.372
35.884
.000c
Residual
7768.007
45
172.622
Total
26351.122
48
a Predictors: (Constant), Population Density
b Predictors: (Constant), Population Density, Square Root of Household Income
c Predictors: (Constant), Population Density, Square Root of Household Income, Service Employees as
Percent of Total Employees
d Dependent Variable: Average Airtime Minutes of Use (MOU) Per Subscriber
24
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CELLULAR
Coefficientsa
Unstandardized
Coefficients
B
Std. Error
103.432
2.990
1.671E-02
.003
2.034
20.922
1.498E-02
.002
.490
.100
-19.016
20.526
1.1952E-02
.002
.480
.093
Standardized
Coefficients
Beta
.680
Model
1
(Constant)
Population Density
2
(Constant)
Population Density
Square Root of Household Income
4
(Constant)
Population Density
Square Root of Household Income
Service Employees as Percent of
Total Employees
86.326
28.672
a Dependent Variable: Average Airtime Minutes of Use (MOU) Per Subscriber
25
.486
.425
t
34.592
6.359
.097
6.856
4.880
-.926
5.306
5.176
Sig.
.000
.000
.923
.000
.000
.359
.000
.000
.274
3.011
.004
.610
.434
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Chapter 5 – Competitive Analysis and Product Positioning
1.
The key to building Snap.Com or Infoseek into a dominant portal brand is
promotion. Portal sites are similar in terms of what they offer, so the way to build
these brands is to do more or better advertising. After Snap.Com became
associated with NBC, they chose an advertising agency, launched a short-term
awareness campaign and filmed six commercials. As a result of these activities,
Snap.Com leaped from the 72nd most visited website to number 37 in a few
months. It is not uncommon for portal sites to spend $20 to $75 million a year on
off-site promotion to build up their brand names. When you do not have a great
deal of money, it pays to be creative. Yahoo! has always been outspent by AOL,
but has remained number one by following an unorthodox strategy. This has
included handing out Yahoo! kazoos at company sponsored events and buying
space on the Zamboni that cleared the ice at San Jose Sharks hockey games.
One of Excite’s best promotions was a contest to find someone called Dot Com.
2.
Schmidt needs a marketing program to reposition this industrial firm in the eyes
of its customers. A five step program to reposition the company would include the
following:
a.
b.
objectives.
Establish a unique positioning platform to capitalize on the company’s
strengths.
Determine
the
company’s
long-term
marketing
communications
c.
Determine an annual budget to fund the program.
d.
Develop the correct creative strategy to deliver the message (branding).
e.
Implement the program using a 12-month spreadsheet of activities.
The company’s advertising agency came up with the tagline, “Step Up to
Schmidt,” to help position Schmidt as both high-quality and affordable. They also
gave distributors incentives in the form of free publicity by highlighting their role in
case studies placed in a company newsletter, direct mail and other marketing
material. By positioning the company based on its unique selling propositions
and use of a strategically defined creative approach, Schmidt is now growing 25
percent per year compared with its historic growth of 7-10 percent per year.
3.
SAP is trying to extend their R/3 ERP success into related areas. SAP’s new
programs will be fully compatible with R/3 and customers will avoid the difficult
and costly process of trying to integrate third-party software with R/3. For every
dollar spent on software, companies spend $5 on maintaining the application
integration. SAP’s new programs will reduce the need for expenditures to
maintain third-party software. Customers are interested in SAP’s new programs
because buying from one vendor is easier and cheaper. Niche players are being
26
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hurt as customers check out the performance claims for the new software. Niche
players are likely to cut their prices for their software as they see their market
shares decline. These lower prices could make SAP’s move into the niche
product lines less attractive from a financial standpoint.
4.
The advantages of comparative ads are that they catch customer’s attention,
they allow comparisons on specific product features, they encourage customers
to compare low market share products to market leaders and they have worked
well in some product categories (Pepsi/Coke). Disadvantages of comparative ads
are that they are illegal in some countries (Europe), are likely to be more
expensive as you need independent verification to show the comparison is true
and they can backfire. A market research firm surveyed 1,200 new car intended
buyers and found people were offended with the comparison of Altima to
Mercedes-Benz. Prospects of all ages and both sexes said comparing the two
cars was like comparing apples and oranges. Only 11.4 percent said they would
add Altima to their shopping list, 9.3 percent said the ad would influence their
decision and 17.4 percent said the comparison was fair. This compares with a
fairness rating of 91.4 percent when prospects were asked about a Chevy
Suburban versus a Ford Expedition ad. These results suggest the comparison
should be reasonable and the Altima should be compared to a true competitor
like the Toyota Camry.
5.
To counter the Flippos campaign, Croky responded by inserting plastic discs of
its own called Topshots into bags of chips. However, the Topshot discs were not
round but octagonal and the discs can be used in all kinds of constructions.
Perhaps their best feature is that instead of cartoon figures, Topshots have
pictures of all 198 of the players in the Dutch soccer competition. This was a
clever adaptation as soccer is the most popular sport in Holland and the
European Championships were not far off. Initial responses suggest that
Topshots will reach the same level of acceptance as Flippos.
6.
American Express was able to achieve a high level of awareness at the 1996
Olympics because they were allowed to run ads during the games without being
an official sponsor. In order to maximize revenue, the organizers of the 1996
Olympic Games sold off official sponsorships in many product categories at high
prices and then let competing firms buy time during the games. American
Express bought a lot of game time and made Visa look foolish by spending $40
million to be an official sponsor. There is nothing illegal or unfair about American
Express’ ad campaign. The real problems here is that the Olympic committee did
not spend enough air time telling consumers who the official sponsors were. As a
result, the 2000 and 2004 Olympic Games are likely to have more trouble selling
official sponsorships in product categories when these sponsorships have been
shown to have little market impact.
7.
The question of whether posting prices for tickets on reservation systems that are
open to observation by competitors is collusive behavior is not a clear cut issue.
If the intent of changing airline prices (as it usually is) is to take advantage of
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differences in customer price elasticities, then there is no violation. Here the
objective is to just maximize profits. However, if the intent is to signal your
competitors so they will react in such a way that prices are kept at a level that
artificially controls prices and customers are harmed, then you may have illegal
collusive behavior. The problem here is that it is very difficult to prove in a court
of law that changing prices on reservation systems is really a conspiracy to fix
prices at artificially high levels. At this point the government has not been able to
prove that posting price changes on reservation systems is illegal and the yield
management programs are still in operation.
8.
The executives of the vitamin manufacturing firms engaged in price fixing
because it raised their profits. The advantage to the individual managers is a
reduction in competitive activity. With prices fixed at high levels there is no need
to spend heavily on advertising, promotion and entertaining customers. With
prices kept high, profits are good, manager’s performance evaluations are
outstanding and they win extra bonuses and stock options. With prices fixed,
managers do not have to work hard dreaming up new marketing programs to
grab market share from their competitors. The down side of price fixing for
individuals is their business careers are ruined and they stand a good risk of
spending time in jail. The advantages of price fixing to the firm are enhanced
profits and a simpler competitive environment. When firms are caught fixing
prices the primary penalties are simply multi-million dollar fines. Although fines
are quickly forgotten, jail time is on your record forever and it is hard to
understand why managers get involved in schemes to fix prices.
9.
Oligopolies are formed when firms in the same business combine. We are
currently seeing a lot of mergers in the oil business, securities, banks, grocery
stores, auto manufacturers, phone companies, publishing, and pharmaceuticals.
When two similar firms combine there are often a lot of synergies and economies
of scale. The new larger firm often can save money by closing some plants and
laying off managers where functions like marketing, finance and accounting have
duplicate operations. Another advantage of oligopolies is there are fewer firms to
compete with. Also large oligopolistic firms have the resources to develop new
products, spend more on advertising and buy up channels of distribution.
Coca-Cola is an example of a firm that has successfully used all of these things
to dominate the beverage business all over the world. The disadvantage of
oligopolies from the stand point of business that the very large firms that result
can make life miserable for smaller companies. Benefits to consumers may take
the form of simplification of ordering and billing. For example, the mergers in the
phone business have allowed the oligopolists in that industry to offer customers
pagers, cell phones, long distance, and local phone service all on one bill. A
disadvantage of oligopolists to consumers is they are sometimes slow to
introduce new products that would steal sales from their existing lines. This may
explain why Apple invented the personal computer not IBM and Xerox invented
the office copier not Kodak. The government should intervene to prevent mergers
and break up oligopolies when they have excessive control over a market. The
classic examples would be Standard Oil, AT&T, and Microsoft.
28
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10.
A feel for the standing of the brands in the market can be gotten from descriptive
statistics. Use Analyze/Descriptive Statistics/Frequencies for “Most recent
brand,” “First brand mentioned,” “State favorite brand.” The data shows that prior
to the study, Bounty had a share of 26.9 with Scott close behind at 25.2. Vera,
Regal, and Countess made up the second tier with 11.8, 10.1, and 10.1 shares,
respectively. The brand first mentioned shows the effectiveness of image
building. Here Scott has 37.2 percent, Bounty 23.3, Countess 12.4, Vera 11.6,
and Regal 8.5. Scott is likely to have good consistent theme advertising but may
have problems with pricing or sales promotion. “No preference” was treated as
missing in “state favorite brand.” Perhaps it would be more realistic to include this
category. Click on this variable in the Data Editor to get Define Variable menu.
Click on Missing Values. Clear 99 (No Preference). Do Analyze/Descriptive
Statistics/Descriptives for the sociodemo-graphic variables. This analysis reveals
that the sample essentially consists of married couples.
The correlations (Analyze/Correlate/Bivariate) among brand purchases (and
perhaps among brand attribute ratings) may give some indication of brands in
competition with one another. For example, Bounty purchases and Scott
purchases are negatively correlated. Countess does not seem to be strongly
affected by other brands nor does it seem to strongly affect other brands. One
possible exception is Vera (at the 0.10 level).
Attribute ratings and purchases can be correlated with sociodemographic
variables. Heavily edited tables are shown. “Marital status” and “Does wife work”
are included but this is not strictly appropriate because they are nominal
variables. Bounty is positively correlated with Number of children and negatively
related to Years of schooling of both the husband and wife and Total family
income. Scott has the opposite pattern. Little wonder they share the market
between themselves. Countess is positively correlated with Age of couple and
their youngest child and negatively related to Total number of persons in
household.
Countess has found a niche with “empty nesters.” We do not know whether this
was by chance or plan. We do know that attempting to go head-on against the
market leaders would be folly. If business analysis reveals that this is a viable
niche, then further delay will not enhance the brand’s chances of success on a
national basis.
29
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PAPER TOWEL
Most recent brand purchased (prior to study)
Valid
Missing
Bounty
Regal
Countess
Old South
Scott
Brawny
Vera
Softex
IGA
Scot Lad
Total
Don’t know
System
Total
Total
Frequency
32
12
12
5
30
8
14
3
1
2
119
10
3
13
132
Percent
24.2
9.1
9.1
3.8
22.7
6.1
10.6
2.3
.8
1.5
90.2
7.6
2.3
9.8
100.0
Valid
Percent
26.9
10.1
10.1
4.2
25.2
6.7
11.8
2.5
.8
1.7
100.0
Cumulative
Percent
26.9
.7.0
47.1
51.3
76.5
83.2
95.0
97.5
98.3
100.0
Valid
Percent
23.3
8.5
12.4
3.1
37.2
3.1
11.6
.8
100.0
Cumulative
Percent
23.3
31.8
44.2
47.3
84.5
87.6
99.2
100.0
First brand mentioned
Valid
Missing
Total
Bounty
Regal
Countess
Old South
Scott
Brawny
Vera
IGA
Total
System
Frequency
30
11
16
4
48
4
15
1
129
3
132
Percent
22.7
8.3
12.1
3.0
36.4
3.0
11.4
.8
97.7
2.3
100.0
30
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PAPER TOWEL
State favorite brand
Valid
Missing
Bounty
Regal
Countess
Old South
Scott
Brawny
Vera
Total
Don’t know
No preference
System
Total
Total
Frequency
28
7
14
1
27
12
9
98
2
29
3
34
132
Percent
21.2
5.3
10.6
.8
20.5
9.1
6.8
74.2
1.5
22.0
2.3
25.8
100.0
Valid
Percent
28.6
7.1
14.3
1.0
27.6
12.2
9.2
100.0
Cumulative
Percent
28.6
35.7
50.0
51.0
78.6
90.8
100.0
Valid
Percent
22.0
5.5
11.0
.8
21.3
9.4
7.1
22.8
100.0
Cumulative
Percent
22.0
27.6
38.6
39.4
60.6
70.1
77.2
100.0
State favorite brand
Valid
Missing
Total
Bounty
Regal
Countess
Old South
Scott
Brawny
Vera
No preference
Total
Don’t know
System
Frequency
28
7
14
1
27
12
9
29
127
2
3
5
132
Percent
21.2
5.3
10.6
.8
20.5
9.1
6.8
22.0
96.2
1.5
2.3
3.8
100.0
31
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PAPER TOWEL
Descriptive Statistics
N
Bounty purchases
Regal purchases
Conserve purchases
Countess purchases
Old South purchases
Scott purchases
Brawny purchases
Vera purchases
Softex purchases
Total purchases
Valid N (listwise)
132
132
132
132
132
132
132
132
132
132
132
Mean
1.27
.41
.22
.30
.17
.81
8.33E-02
.49
.28
4.04
Std.
Deviation
2.62
1.16
.60
.90
.65
1.96
.48
.92
.82
3.28
Mean
88.88
86.31
75.79
85.22
81.01
88.31
87.35
84.66
74.83
Std.
Deviation
14.12
13.32
16.67
15.52
14.98
13.70
16.40
15.51
16.51
Descriptive Statistics
N
Bounty attribute rating
Regal attribute rating
Conserve attribute rating
Countess attribute rating
Old South attribute rating
Scott attribute rating
Brawny attribute rating
Vera attribute rating
Softex attribute rating
Valid N (listwise)
101
88
58
105
84
113
71
76
18
12
32
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PAPER TOWEL
Descriptive Statistics
Marital status
Wife’s age
Husband’s age
Number of children
Age of youngest child
Total number of
persons in household
Total number of
years of schooling, wife
Total number of
years of schooling,
husband
Does the wife work?
Husband’s occupation
Total family income
Valid N (listwise)
N
132
132
129
109
109
Minimum
1
23
23
1
1
Maximum
4
73
73
7
43
Mean
1.07
42.83
45.03
2.72
12.46
Std.
Deviation
.39
13.73
14.43
1.31
10.89
132
2
8
3.68
1.54
130
8
21
14.47
2.92
128
132
127
125
96
8
0
0
4500
21
1
8
169500
15.47
.57
2.78
50412.00
4.05
.50
2.16
41989.15
PAPER TOWEL
Correlations
Bounty
purchases
Regal
purchases
Conserve
purchases
Countess
purchases
Old South
purchases
Scott
purchases
Brawny
purchases
Vera
purchases
Softex
purchases
Bounty
purchases
1.000
.
132
-.082
.174
132
-.088
.159
132
-.028
.375
132
-.006
.474
132
-.156*
.037
132
.006
.472
132
-.186*
.016
132
-.057
.258
132
Regal
purchases
-.082
.174
132
1.000
.
132
.631**
.000
132
.022
.400
132
.016
.427
132
.063
.236
132
.062
.241
132
.090
.152
132
-.097
.134
132
Conserve
purchases
-.088
.159
132
.631**
.000
132
1.000
.
132
-.065
.229
132
.295**
.000
132
-.042
.314
132
-.038
.333
132
-.143
.051
132
.029
.370
132
Countess
purchases
-.028
.375
132
.022
.400
132
-.065
.229
132
1.000
.
132
.016
.429
132
-.107
.112
132
.067
.224
132
-.113
.099
132
-.103
.121
132
Old South
purchases
-.006
.474
132
.016
.427
132
.295**
.000
132
.016
.429
132
1.000
.
132
.002
.490
132
.002
.491
132
-.094
.142
132
.022
.400
132
Scott
purchases
-.156*
.037
132
-.063
.236
132
-.042
.314
132
-.107
.112
132
.002
.490
132
1.000
.
132
-.056
.261
132
-.037
.338
132
-.061
.242
132
Brawny
purchases
-.006
.472
132
-.062
.241
132
-.038
.333
132
.067
.224
132
.002
.491
132
-.056
.261
132
1.000
.
132
-.076
.192
132
-.060
.248
132
Vera
purchases
-.186
.016
132
-.090
.152
132
-.143
.051
132
-.113
.099
132
-.094
.142
132
-.037
.338
132
-.076
.192
132
1.000
132
.159
.034
132
** Correlation is significant at the 0.01 level (1-tailed).
* Correlation is significant at the 0.05 level (1-tailed).
33
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PAPER TOWEL
Correlations
Bounty
attribute rating
Regal
attribute rating
Conserve
attribute rating
Countess
attribute rating
Old South
attribute rating
Scott
attribute rating
Brawny
attribute rating
Vera
attribute rating
Softex
attribute rating
Bounty
attribute
rating
1.000
.
101
.254*
.013
77
.226
.050
54
.115
.145
86
.282**
.009
70
-.096
.187
88
.181
.081
61
.059
.325
62
-.172
.262
16
Regal
attribute
rating
.254*
.013
77
1.000
.
88
.335**
.009
49
.316**
.003
75
.157
.101
68
.215*
.029
.79
.241*
.041
53
.392**
.001
62
.521*
.019
16
Conserve
attribute
rating
.226
.050
54
.335**
.009
49
1.000
.
58
.437**
.000
56
.647**
.000
52
.337**
.005
57
.143
.196
38
.616**
.000
40
.851**
.000
15
Countess
attribute
rating
.115
.145
86
.316**
.003
75
.437**
.000
56
1.000
.
105
.451**
.000
76
.363**
.000
96
.494**
.000
61
.359**
.002
65
.124
.323
16
Old South
attribute
rating
.282**
.009
70
.157
.101
68
.647**
.000
52
.451**
.000
76
1.000
.
84
.349**
.001
82
.281*
.021
53
.345**
.006
53
.508*
.032
14
Scott
attribute
rating
-.096
.187
88
.215*
.029
79
.337**
.005
57
.363**
.000
96
.349**
.001
82
1.000
.
113
.036
.388
63
.359**
.001
67
.295
.133
16
Brawny
attribute
rating
.181
.081
61
.241*
.041
53
.143
.196
38
.494**
.000
61
.281*
.021
53
.036
.388
63
1.000
.
71
.080
.297
47
.029
.459
15
Vera
attribute
rating
.059
.325
62
.392*
.001
62
.616*
.000
40
.359*
.002
65
.345*
.006
53
.359*
.001
67
.080
.297
47
1.000
76
.812*
.000
17
** Correlation is significant at the 0.01 level (1-tailed).
* Correlation is significant at the 0.05 level (1-tailed).
35
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PAPER TOWEL
Correlations
Marital
Wife’s
status
age
Bounty
.031
.023
attribute rating
.379
.409
101
101
Regal
.028
-.179
attribute rating
.397
.047
88
88
Conserve
.069
-.151
attribute rating
.304
.128
58
58
Countess
-.067
.089
attribute rating
.247
.184
105
105
Old South
.029
-.094
attribute rating
.395
.197
84
84
Scott
.057
-.003
attribute rating
.275
.486
113
113
Brawny
-.014
-.207
attribute rating
.453
.042
71
71
Vera
-.113
-.168
attribute rating
.165
.074
76
76
Softex
-.179
-.421
attribute rating
.239
.041
18
18
Pearson Correlation/Sig (1-tailed)/N
Husband’s
age
.06
.325
99
-.205
.028
87
-.089
.259
55
.112
.131
102
-.030
.394
83
-.019
.420
110
-.237
.025
69
-.163
.082
74
-.343
.089
17
Number of
children
.044
.347
84
-.064
.296
73
.160
.136
49
.003
.489
88
.137
.128
71
-.064
.270
93
-.002
.493
63
.083
.263
61
.241
.203
14
36
Age of
youngest
child
.165
.067
84
-.156
.093
73
-.240
.048
49
.140
.097
88
-.151
.104
71
-.022
.416
93
-.081
.265
63
-.251
.025
61
-.529
.026
14
Total
number of
persons in
household
-.146
.072
101
.089
.206
88
.118
.190
58
-.147
.067
105
.165
.067
84
-.040
.337
113
.061
.306
71
.061
.299
76
.339
.085
18
Total
number of
years in
schooling,
wife
-.071
.242
100
.007
.473
88
.249
.030
58
.082
.204
104
.091
.205
84
.145
.064
112
-.025
.420
69
.253
.014
75
.090
.366
17
Total
number of
years of
schooling,
husband
-.074
.236
98
.146
.090
86
.254
.031
55
.087
.194
101
.159
.076
83
.188
.025
109
-.025
.419
68
.278
.008
74
.539
.016
16
Does the
wife work?
-.052
.304
101
.097
.184
88
-.088
.255
58
.083
.199
105
-.023
.416
84
.009
.463
113
.121
.158
71
.151
.096
76
.267
.142
18
Husban
occupat
.0
.2
-.1
.0
-.1
.0
-.0
.3
1
-.0
.3
-.1
.0
1
-.0
.4
-.1
.1
-.0
.4
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PAPER TOWEL
Correlations
Marital
Wife’s
status
age
Bounty
-.070
.081
purchases
.213
.179
132
132
Regal
.189
-.126
purchases
.015
.076
132
132
Conserve
.390
-.135
purchases
.000
.062
132
132
Countess
-.057
.185
purchases
.257
.017
132
132
Old South
.073
-.002
purchases
.204
.492
132
132
Scott
-.033
-.055
purchases
.356
.267
132
132
Brawny
-.030
-.056
purchases
.365
.260
132
132
Vera
-.093
-.045
purchases
.144
.303
132
132
Softex
-.012
-.086
purchases
.444
.164
132
132
Total
.027
-.029
purchases
.377
.369
132
132
Pearson Correlation/Sig (1-tailed)/N
Husband’s
age
.104
.120
129
-.155
.039
129
-.141
.056
129
.163
.033
129
.027
.379
129
-.099
.132
129
-.087
.164
129
-.027
.380
129
-.042
.317
129
-.037
.337
129
Number of
children
.165
.044
109
-.237
.007
109
-.157
.052
109
-.020
.420
109
.021
.416
109
-.161
.048
109
.037
.350
109
.103
.144
109
.104
.141
109
-.030
.377
109
37
Age of
youngest
child
.077
.212
109
-.155
.054
109
-.120
.107
109
.212
.013
109
.004
.486
109
-.139
.074
109
-.094
.164
109
-.065
.252
109
-.092
.170
109
-.106
.136
109
Total
number of
persons in
household
.052
.277
132
-.046
.300
132
.027
.380
132
-.146
.047
132
.079
.185
132
.043
.313
132
.088
.159
132
.079
.185
132
.155
.038
132
.105
.116
132
Total
number of
years in
schooling,
wife
-.162
.033
130
-.160
.035
130
-.175
.023
130
-.109
.108
130
-.076
.194
130
.138
.059
130
.069
.219
130
.115
.097
130
-.038
.333
130
-.149
.046
130
Total
number of
years of
schooling,
husband
-.163
.033
128
-.139
.058
128
-.145
.051
128
-.071
.213
128
-.107
.114
128
.149
.046
128
.071
.212
128
.040
.328
128
.007
.470
128
-.135
.065
128
Does the
wife work?
.103
.120
132
-.062
.240
132
-.012
.444
132
-.020
.411
132
-.096
.136
132
.017
.422
132
-.104
.117
132
-.132
.065
132
-.056
.260
132
-.023
.398
132
Husban
occupat
.0
.3
1
.0
.3
1
.0
.1
1
-.0
.4
1
.0
.3
1
-.1
.1
1
-.0
.3
1
.0
.1
1
.0
.4
1
.0
.4
1
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Chapter 6 – Product Development and Testing
1.
Revlon’s problem with the new ColorStay Compact was timing. They had
intended to have the new product on the market in September of 1998 and as it
turned out it took them until September to perfect the new compact. By then it
was too late for the product to help boost third quarter sales. In this case Revlon
knew how to develop cosmetics, but they let the timetable for the introduction fall
behind schedule. Solutions for this problem would include tighter controls on the
development process to pick up problems sooner, testing of more formulations
so the project was not delayed when one item failed consumer testing, and
redesign of the consumer use testing process to speed it up.
2.
After J. C. Penney sold out of the 20,000 Handcuff sweatshirts, they ordered
15,000 more. The retailers put Melon in touch with a manufacturer who could
crank out the volume they wanted and they continued to reorder. Penney also
began to stock Handcuffs for kids. The product life cycle suggests that sales of
the fashion item Handcuffs will eventually peak and decline as competitors copy
the item at lower prices. This means that Mellon will need to come up with some
new ideas to maintain his sales volume. One new item he is considering is a
fingerless glove turtleneck shirt. He also has ideas for a new kind of paper cup,
an automatic shut-off valve for overflowing sprinklers, a baby diaper that changes
color when wet, and an invention for transporting dogs in cars. Note that only one
of his new ideas is a clothing product and it will take a lot of money and time to
transform his other new ideas into commercially successful new products.
3.
The ethical dilemma posed by finding a box of your competitor’s new cereal is
based on an actual event that took place in a focus group facility. The ethically
pure manager would do the “right” thing and return the box to its owner. Also if a
manager discovered that the box of cereal had been stolen by company
employees, he might have it destroyed or returned with an apology. However,
returning a stolen box would be admitting guilt and would lead to a lawsuit for
damages. Most students will say finding the box is like observing a competitors
test market and was not illegal. While taking the box back to the lab is unsavory,
some will say it is just careful monitoring of competitive activities.
4.
Panasonic did not introduce the $3,000 digital TV set to make a lot of money.
The idea was to position Panasonic as an innovative leader in a new technology
that could eventually restore profitability to the TV industry. Often the first firm to
bring out a new item is able to get an early market share lead over the rest of the
industry. Another goal of the introduction is to get the new sets into the hands of
innovators who will show it off to their friends and relations. One of the first to buy
one of the new Panasonic digital TVs in Denver was Sandor Hasznos who owns
a software company. He often buys new electronic equipment and software when
it is first introduced. To get the price of the new TV down to $3,000, Panasonic is
selling the digital receiver separately for $1,500. This allows buyers to get better
reception of regular TV signals for enhanced picture quality immediately and then
the consumer can buy the digital receiver later when digital broadcasting
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becomes more available.
5.
Philips made a number of mistakes in the marketing of its CD machines in the
United States. Although the machine was a technological marvel, it was
complicated to use and needed in-store demonstrations to show customers how
to operate it. Many of the U.S. electronics stores selling the CD machines did not
have the needed sales help. Also the introductory price of $799 was too high
when competing (but inferior) game players were selling for $250. The
introductory price should have been $399. Philips also made a mistake by
promoting the CD machine as an interactive teaching aid for children and their
parents. They ignored the really big game market and had only a few shoot-em
up adventure game titles. The lack of marketing focus and their failure to provide
enough exciting software titles doomed the CD to failure in a competitive market.
6.
The electronic book is an innovative and creative idea for the consumer market.
For this product to be successful, it will have to sell at competitive prices. It
seems unlikely that consumers will pay $1,500 for an Everybook that can only
display reading material when they could spend this amount and get a laptop
computer that plays movies on DVD. Logic suggests the electronic books will
have to sell for between $200 and $300 to be successful. Electronic books can
only work if the book publishers make enough book titles available at competitive
prices. The main problem with electronic books is that publishers will see it as a
way to cut costs and raise their profits. For example, one of the first electronic
book readers on the market was the Rocket eBook priced at a high $499.
However, the book titles cost $18 to $25, close to the cost of hard back books.
The initial market for electronic book readers appears to be small and it is likely
that only one or two firms will make any money. The only way electronic book
readers will succeed is if they have very close ties to the supply of new book
titles. This means they may have to offer publishers stock in their new ventures
to gain their cooperation.
7.
The advantages of focus groups in new product development are that they are
fast, cheap, secret and often surprisingly accurate in their recommendations.
Teenage girls have an uncanny ability to predict which products will be hits with
Japanese consumers of all ages. What’s more, a select pool of these teens can
create a buzz that turns a new product into a nationwide smash. As far as we
know, this is the only example where teenage girls have the ability to make such
accurate predictions about consumer products. Part of their success is their
“brutal honesty and keen eye for details” says Coke’s Ms. Katsube. Other
explanations would include the observation that Japan is a relatively small
country with a homogeneous population. It seems unlikely that teenagers would
be able to predict new product success as well in a large and diverse country
such as the United States. Whatever the reasons, if you want to sell new
products in Japan, you better check first with a panel of teenage girls.
8.
The answer is yes, product development is often driven by new technology.
Nintendo was first with the digital toy camera because they saw how the low-cost
39
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microchip could fill a customer need. Also they already had the Game Boy toy
with a viewing screen on the market. This allowed them to design an attachment
with a
lens to snap on the Game Boy. On the other hand, Mattel had to design and
manufacture a complete camera and it took them longer to reach the market.
9.
The success of Volkswagen’s New Beetle is clearly part emotion, part nostalgia
and part clever marketing. The new model has corrected some of the problems
associated with the original Beetle. Improvements have been made in the car’s
acceleration, heater, front head room and brakes. Accessories now include air
conditioning, power windows, cruise control, and antilock brakes. Deficiencies
that remain are poor rear seat headroom, lack of adequate trunk space and it
only comes as a two door model. The New Beetle has not sold as well in Europe
where buyers are apparently looking for more doors and space.
10.
Although IQ was a failure, this does not mean that Campbell Soup Co. should cut
back on product development. Heart disease kills more Americans than any
other disease (726,974 – 1997) and this new product would have saved lives.
One problem with IQ was the lack of meal options. Participants in the Ohio trial
got tired of eating the same eight or nine dinners over 40 weeks. Perhaps a
bigger problem is that many Americans resist a long-term eating plan: they want
a quick fix, a magic bullet. Unfortunately instead of buying healthy food like IQ,
Americans are eating more bacon cheeseburgers with the result that obesity is
on the rise.
11.
DVD machines caught on slowly because they were high priced ($500-$1,000)
and customers were unfamiliar with them. Even though stores played DVD disks
on TVs, customers had no way to know how good the pictures would be when
they got the DVD players home and hooked them up to their own TVs. The DVD
player rental program that gave you five nights for $14.95 was a very clever way
to show well the machines would work on your own TV. This low cost in-home
trial helped to convert people into buyers. Also the practice of introducing new
movies on DVD and video cassette at the same time made DVD players much
more attractive. New electronic devices catch on slowly because they often are
expensive and no one wants to get stuck with a format that doesn’t make it. For
example, Circuit City pulled the plug on its DiVx video player after selling them
for three years. These machines played DiVx disks and regular DVD disks.
However, DiVx disks could be bought cheaper and then billed through a phone
line for additional play. The DiVx machines cost $100 more and were more
versatile but did not attract enough buyers.
40
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Chapter 7 – Brand Management
1.
Although Bausch & Lomb’s Ray-Ban and Revo brands are cultural icons, they
are receiving strong challenges from such marketing power houses as Nike Inc.
and Oakley Inc. Bausch & Lomb has 35 percent of the sunglass market, but the
division has failed to make the company’s goal of a 5 percent operating margin.
Stock market analysts believe that the eyewear division is a drag on the
company’s overall business. A sale of its sunglasses unit would enable the
company to focus on its core optical health – care businesses: vision care,
pharmaceuticals and surgical products. These businesses are growing at double
digit rates. Getting rid of sunglasses would help boost the firm’s market share
price, an issue of great concern to today’s managers.
2.
Nabisco’s SnackWell’s cookies did so well that the company lost touch with the
market and their competitors. Nabisco did not launch enough new products and
they did not promote their tried-and-true brands. In an effort to boost profits,
Nabisco let its spending on merchandising and advertising lag behind its rivals:
Nabisco spends only 2.5 percent of sales on advertising, compared with six
percent for the average food company. Also competitors such as Keebler Foods
has stolen market share with new full fat cookies.
3.
The decline of 7Up’s growth relative to Sprite’s is probably not related to 7Up’s
sweeter taste. Sprite has the advantage that it is marketed by the largest
distributor of soft drinks in the world, Coca-Cola. Coke has more vending
machines and more exclusive distribution arrangements with schools, arenas
and other sports facilities. 7Up’s change of flavor, new advertising, and new
packaging will help, but it may not be enough to overcome Coke’s huge
advantages in the number of bottling plants and distribution outlets.
4.
Driscoll has been quite successful selling branded strawberries and raspberries
under their own name. One of their innovations has been to package their berries
in clear plastic containers that allow the customers to examine the berries from
all sides prior to purchase. They have positioned themselves as a high quality
product that is superior to no name brands. Also they are careful to only ship
berries that are free of mold and deterioration. A positioning statement used by
the company states “The finest berries in the world.” Driscoll is not shy.
5.
Auto manufacturers like to sell vehicles that appeal to single and young married
customers because they believe that if you can satisfy a young buyer they will
remain brand loyal and buy again and again over their life time. Cadillac has not
paid attention to young buyers and now their average customer is 65 years old.
This means that these customers are dying off and will not have many more
opportunities to buy Cadillacs. General Motors has finally realized the danger of
catering to an elderly market segment and they have introduced some sporty
cars (Catera) to attract younger buyers. Lincoln has a similar problem and is now
selling a smaller sportier LS sedan based on a new Jaguar model.
41
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6.
Warranties are designed to increase the desirability and sales of a product by
reducing consumer risk and maximizing product reliability and convenience.
Although warranties do, in effect, provide substantial service and protection to
consumers, the main purpose is that of promoting the good or the service.
Warranties have provided very powerful strategies in marketing various products,
particularly appliances and automobiles. They affect consumer acceptance and
sales volume, as well as the profitability and liability of the firm.
7.
Parker Brothers made the right decision to recall their Riviton toy. You have to
remember that Parker has a lot of other toys (Monopoly) and General Mills has a
lot of cereals that are also sold to children. Neither company wanted their brand
names hurt by the sale of items that could hurt children. Recalling Riviton was a
decision to protect the long run interests of the firm rather than maximize short
term profits.
8.
The fact that 90 percent of women advocate specific brands from a wide range of
categories that reflect their personalities would be very useful to brand
managers. This means that if you can get trial for your product, women will tell
their friends and word of mouth will increase sales. Also having women’s brands
reflect their personalities means that marketing to target market segments will be
more effective with women than with men. When men advocate for so few
products they are less effective as an advertising target.
9.
Although Hughes Electronics Corp lost money on its DirecTV unit, the parent
company made a profit of $37.6 million in the third quarter of 1998. Hughes
Electronics Corp is owned by General Motors and this suggests a sale of
DirecTV is not called for at this time. GM has the money to keep DirecTV in
business and possibly allow it to buy up some of its competitors in the satellite
TV business. If the satellite firms got together they would be better able to steal
customer from the cable companies. When satellite TV was first introduced, they
had a tremendous advantage in terms of picture quality and number of channels.
Their only weakness was that the U.S. Congress did not let them carry local
news and weather channels and this has slowed them down. While the
marketing costs of attracting new customers has gone up sharply for DirecTV,
the cable companies are improving their networks and now offer digital cable and
more channels. There is no magic answer for DirecTV, they cannot raise prices
and they cannot spend more on advertising. They need to become more efficient
with their existing marketing budgets. The prospects for satellite TV were
improved late in 1999 when Congress reversed themselves and allowed local
programming on satellite systems.
10.
Victoria’s Secret line extension into cosmetics is a smart move and a likely
winner. The company has already done well with a line of fragrances and body
lotions, so the addition of cosmetics is a logical extension. To run its new
cosmetics business, Victoria Secret hired an experienced manager from Estee
Lauder. The new cosmetics are comparable in quality with department store
brands and are priced lower. Victoria’s Secret makeup is made by two suppliers
42
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in Italy and Germany. Just placing the makeup in prominent positions in its 800
stores should provide a strong boost to its success. Also with names like Liquid
Lingerie, Bronze Bombshell, pink Tease, Bronze Tigress, Pleasingly Plump lip
enhancer, and Silk Wear powder, how can they lose.
11.
Although the shift to asthma as a cause failed, The American Lung Association
still has a story to tell. Chronic obstructive pulmonary disease, which includes
asthma, killed 109,000 people in the United Stated in 1997. This makes lung
disease the fourth leading killer of Americans behind heart disease, cancer and
stroke. Thus ALA does have a cause, they just have to find a better way to get
the word out. Part of the reason for the reduced collections was poor
coordination between the national office and the regional offices that recruit
volunteers who go around and ask for the money. Also the national CEO spent
too much time fighting for a tobacco settlement and the related political arena
and not enough time monitoring fund raising costs. The March of Dimes was able
to shift from polio when Salk developed a vaccine to preventing birth defects.
Today it has zoomed up to be the third largest voluntary health organization with
its popular Campaign for Healthier Babies. If the March of Dimes can do it, so
can ALA if they just get their act together.
Chapter 8 – Services Marketing
1.
Alaska Air has a great deal to gain by dumping a marketing agreement with
Northwest Airlines and signing on with the much larger American Airlines. First,
an alliance with American would expand travel and mileage opportunities for
Alaska’s customers and strengthen the smaller airline’s marketing presence on
the West Coast. For American, a tie-in with Alaska would shore up the larger
carrier’s West Coast network. This alliance will allow each partner to expand into
new markets. If the plan works out, the two airlines can expand into code-sharing
where each sells tickets for the other partner.
2.
This is a very provocative question because lawyers have just earned the legal
right to begin advertising in many states. The possibility that some of the $45
million being spent is wasted is a very real possibility. Part of the problem is that
the firms don’t know which part is being wasted. If recruiting lawyers is the best
way to get business, then the whole $45 million could be saved. However, if
someone does not have a lawyer then advertising is needed to get the first time
customers. This suggests that some expenditures are needed on Yellow Pages,
entertainment, brochures, seminars, and newsletters. Part of these expenditures
are designed to get your existing customers to buy more items from your current
product line. The real question is not whether lawyers should advertise, but
rather how much is appropriate and how should it be spread across products and
media. In our town, lawyers specializing in accidents representation have been
very successful with billboard advertising.
3.
Alltel bought up Aliant in Nebraska because it wanted to expand its geographic
43
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footprint and broaden its ability to offer customers one-stop, one-bill service for
telecommunications, including local phone service, cellular operations and
paging. Today customers do not want to have to send one check to their local
phone company, another to their long distance carrier, and third check to their
pager company and a fourth to their cellular phone provider. There are
economies available to firms that offer all of these services on one bill. Large
firms can save on marketing, billing and the installation of high speed equipment.
4.
Although ATMs cost more than human tellers, they also do more work. Further
they do not charge over-time for nights and Sundays. The figure of $50,000 for
an ATM is a little high as it assumes the machines will only last a year or two.
ATMs are being installed because they offer customer convenience and they can
be placed in locations that have too little business for a full service branch. ATMs
are popular with customers and some would rather deal with a machine than a
human teller. Some banks make ATMs pay by charging a service charge for
ATM transactions that involve other banks. A few firms charge everyone for ATM
transactions. It is one thing to put your card in a machine and get money, it is
quite another to put your check in a machine and expect that it will actually get
into your account. This attitude could be changed by the use of advertising and
promotional campaigns designed to get more machine deposits. People who use
the machines could be offered prizes, coupons, and other special incentives.
5.
AT&T bought up TCI’s cable lines so it can provide local telephone and high
speed Internet service to as many as 22 million American homes, circumventing
the Bell company lines that AT&T now pays to use. Adding the cable lines allows
AT&T to bring real competition for local phone service, dramatically lowering
prices for consumers and making the Internet fast and seamless. The actual
implementation of this strategy will take time as the TCI cable networks have to
be improved before they can be used for phone service. At the present time
cable lines do not have their own back up power supplies and they frequently go
out during electrical storms and general power failures. Currently local phones
have independent power supplies so customers can make calls even if their
power is out. Indeed, customers want to have their phones working so they can
call to complain when their lights go out. Also cable lines currently pick up a lot of
static from garage door openers and portable phones and they need better
shielding to eliminate this interference.
6.
Supermarkets are having trouble making money selling their traditional grocery
items and the addition of new services can enhance their margins. The trick is to
find services that pay their way. In addition to video rental, some stores have had
success with lottery tickets, money orders, bank branches, AT machines inside
the store, restaurants, and 1-hour film developing units.
7.
The answer is NO, hospitals should not cut their advertising budgets. In this era
of rapid change in health care in the U.S., hospitals need to communicate their
story more than ever to the final user. The problem hospitals face with their
advertising is they are new to this business and they don’t know what to put in
44
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the ads or where to run them. They don’t know whether to advertise specific
services, convenience, low cost, location or safety. Another problem is that many
hospitals are local in ownership and service area and do not have large
advertising budgets. They hire a small local agency and they often get mediocre
ads as a result. Hospital advertising would improve if they spent more money on
research to find out how people interact with hospitals and what information is
critical to them in their selection of a hospital.
8.
Perhaps segmentation is not the salvation of all service organizations, but it
certainly is an effective approach for many. The airlines, for example, have had a
great deal of success with special fares for a wide variety of special customers.
Northwest has even sold mystery fares for $50 where the destination is not
disclosed until you board the plane. This is a clear appeal to a select group of
adventurers in society.
9.
This is a good example of a trading partner wanting it both ways. The Canadians
love to have access to the U.S. market for goods and services, but they want to
reserve Canadian advertising dollars to Canadian publications. The Canadians
cloak their restrictions with a claim of wanting to protect Canadian culture. From
an American standpoint, the rules seem to be designed to protect Canadian
magazine jobs and perhaps even to grab some votes on election day. The party
that stiffs the Americans on this issue is sure to gain the editorial support of the
Canadian magazine industry.
10.
When you work for a company that is breaking the rules, it is hard to know what
to do. The problems is that whistleblowers are often punished for telling the truth.
Companies expect loyalty so when employees expose wrongdoing, the firm feels
they can no longer trust these employees. As a result, firms or an entire industry
may make it hard for whistleblowers to keep their jobs. Thus whistleblowers have
to judge whether speaking up will right the situation and whether they are willing
to sacrifice their job and/or their career for a better world. If the answer to these
questions is yes, then the first step is to speak to your boss to see if the company
is interested in cleaning up the situation. Should the boss indicate that nothing
can be done, then the employee has to decide whether to appeal to a higher
authority of look for a new job with a more acceptable moral climate.
11.
The bank survey was actually done by Georgia Tech students for the radio
station 96ROCK. While 96ROCK had no trouble getting “tractor pulls” to
advertise on the station, it was less successful in getting local banks to advertise.
It was curious if students chose a bank while at Tech, then stayed with that same
bank through later life. If so, they could make an argument to the bank that they
should take into account the lifetime value of a new customer and advertise now
on 96ROCK. In addition, young people could be valuable to banks on the lending
side: educational and new car loans. Here the problem has been rewritten from
perspective of the bank, and only a portion of the questionnaire included in the
database.
45
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The survey contains Tech alumni stratified by decade of graduation. Thus, the
sample ended up containing mainly males given the historical composition of the
Tech student body. This is revealed in doing descriptive statistics (Analyze/
Descriptive Statistics/Descriptives).
Insight can be obtained by doing correlations among the variables (Analyze/
Correlate/Bivariate). First, one could look for relations among services used.
There is no point in including the variable Services Used – Checking (var10) in
the analysis. Essentially everyone uses checking (see descriptive statistics). One
might also be interested in the correlations among the sociodemographic
variables. Most of these variables are nominal and correlation is not strictly
appropriate but we are looking for managerial insight. As might be expected
Family Income is positively correlated with Age and Net Worth is positively
related to Family Income (and Age).
A number of services used are correlated. This suggests that one might want to
construct a new variable Services Used – Total. This is accomplished using
Transform/Compute. In the Target Variable window type a new variable name,
totuses (say). In the Numerical Expression window, type v11 + v12 + v13 + v14 +
v15 + v16 + v17 + v18 + v19 + v20 + v21 + v22 + v23.
To get more insight, crosstabs are run between ntotuses (column variable) and
age, family income, and net worth (row variables). For a technically correct
analysis, cross tabulation (Analyze/Descriptive Statistics/Crosstabs) is used
instead correlation. To do this, the interval-scaled Services Used – Total variable
must be broken down into categories. Here quartiles will be used. This is done
with Transform/Categorize Variable In the Create Categories For window, put
totuses (or whatever variable name you used). Put 4 in the number of categories
window. This is to create quartiles. This creates a new variable ntotuses,
Quartiles of Services Used - Total. No statistics are required. Click on Cells
button. Remove check from Counts/Observed. Add check to Percentages/Row.
Note the total number uses increase with age, peak for the 35-49 age group,
then begin to decline.
Next the correlations among individual services used and sociodemographic
variables can be examined. Younger people are more likely use services such as
educational loans, auto loans, mortgages, home improvement loans, and credit
cards. Older people are more likely to use safety deposit boxes and cds
(certificates of deposit). Lower income families are more likely to use money
orders. Higher income families are more likely to use cds and safe deposit boxes
as older people do but they also use personal loans, travelers cheques, and
trusts.
Turning to media habits, the three variables—Radio Listening, TV Watching, and
Newspaper Readership—can be correlated with Services Used – Total. No
relationship was found to total usage. Newspaper reading was negatively
correlated with radio listening and positively related to TV watching. Correlating
46
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the media habits variables with individual services did reveal some relationships.
Users of credit cards are more likely to listen to the radio. Users of mortgages are
less likely to watch TV or to read the newspaper. Users of cds, safe deposits,
and trusts are more likely to read the newspaper. Overall television does not
seem to be a very good medium for banks. Taking a closer look at the radio
medium, the different formats can be correlated with individual services. Album
rock is positively correlated with savings and educational loans; classical music
with money orders and cashiers checks. Country and western is a surprisingly
good format for banks, being positively related to savings, home improvement
loans, personal loans, cashiers checks, and credit cards. News and sports are
positively related to safe deposits and trusts. Easy listening, talk, and top 40 do
not seem to be good formats for banks. Finally, one can look at the correlation
between formats and socio-demographic variables.
47
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BANK
Descriptives
Desciptive Statistics
var01: chose present bank – advertising
N
682
Minimum
0
Maximum
1
Mean
1.91E-02
Std.
Deviation
.14
var02: chose present bank – friend
682
0
1
.12
.33
var03: choose present bank – relative
682
0
1
.14
.35
var04: chose present bank – employer
682
0
1
4.84E-02
.21
var05: chose present bank – loan
682
0
1
.11
.31
var06: chose present bank – gift
682
0
1
1.91E-02
.14
var07: chose present bank – location
682
0
1
.52
.50
var08: chose present bank – services
682
0
1
.18
.39
var09: other
682
0
1
.21
.41
var10: services used – checking
682
0
1
.99
.10
var11: services used – savings
682
0
1
.48
.50
var12: services used – cd
682
0
1
.25
.43
var13: services used – auto loan
682
0
1
.20
.40
var14: services used – educational loan
682
0
1
3.37E-02
.18
var15: services used – home improvement
682
0
1
4.25E-02
.20
var16: services used – personal loan
682
0
1
.22
.42
var17: services used – mortgage
682
0
1
5.72E-02
.23
var18: services used – money orders
682
0
1
6.01E-02
.24
var19: services used – travelers cheques
682
0
1
.45
.50
var20: services used – cashiers checks
682
0
1
.22
.41
var21: services used – safe deposit
682
0
1
.56
.50
var22: services used – credit card
682
0
1
.65
.48
var23: services used - trusts
682
0
1
6.89E-02
.25
48
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BANK
Descriptives
Desciptive Statistics
var24: years used
N
680
Minimum
0
Maximum
4
Mean
3.42
Std.
Deviation
.85
var25: radio listening
681
0
4
1.73
.93
var26: album rock
682
0
100
7.28
20.39
var27: classical
682
0
100
10.67
22.60
var28: country and western
682
0
100
6.15
15.91
var29: easy listening
682
0
100
20.70
29.86
var30: news-sports
682
0
100
29.57
33.43
var31: talk
682
0
100
6.69
18.01
var32: top 40
682
0
100
9.45
21.57
var33: other
682
0
100
4.18
16.21
var34: switch stations
663
0
4
.60
.51
var35: tv watching
678
0
4
1.82
.85
var36: newspaper readership
680
0
4
3.65
.81
var37: age
680
1
5
3.29
.99
var38: marital status
680
0
1
.80
.40
var39: spouse work
676
0
7
1.69
2.63
var40: gender
681
0
2
8.22E-02
.28
var41: family income
675
0
6
3.26
.75
var42: net worth
665
1
6
5.13
1.40
Valid N (listwise)
638
49
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BANK
Correlations
var11:
var13:
services
var12:
services
used –
services
used –
savings
used – cd
auto loan
var11: services
1.000
.263**
.070*
used – savings
.
.000
.033
682
682
682
var12: services
.263**
1.000
.020
used – cd
.000
.
.305
682
682
682
var13: services
.070*
.020
1.000
used – auto loan
.033
.305
.
682
682
682
var14: services
.048
.006
.090**
used – educational
.106
.441
.010
loan
682
682
682
var15: services
.103**
-.003
.149**
used – home
.004
.467
.000
improvement
682
682
682
var16: services
.017
.005
.149**
used – personal
.331
.451
.000
loan
682
682
682
var17: services
.092**
.063*
.067*
used – mortgage
.008
.049
.041
682
682
682
var18: services
.090**
-.059
.059
used – money
.009
.060
.062
orders
682
682
682
var19: services
.138**
.044
.016
used – travelers
.000
.126
.338
cheques
682
682
682
var20: services
.134**
.060
.129**
used – cashiers
.000
.058
.000
checks
682
682
682
var21: services
.106**
.216**
.002
used – safe deposit
.003
.000
.483
682
682
682
var22: services
.156**
.064*
.048
used – credit card
.000
.048
.105
682
682
682
var23: services
.051
.099**
.009
used – trusts
.092
.005
.406
682
682
682
** Correlation is significant at the 0.01 level (1-tailed).
* Correlation is significant at the 0.05 level (1-tailed).
var14:
services
used –
educational
loan
.048
.106
682
.006
.441
682
.090**
.010
682
1.000
.
682
.001
.491
682
.057
.069
682
.024
.266
682
.055
.075
682
.061
.057
682
.059
.061
682
-.032
.198
682
.003
.472
682
.045
.118
682
var15:
services
used –
home
improve-m
ent
.103**
.004
682
-.003
.467
682
.149**
.000
682
.001
.491
682
1.000
.
682
.045
.120
682
.198**
.000
682
.008
.419
682
.015
.347
682
.083*
.015
682
-.020
.300
682
.065*
.045
682
.057
.067
682
var16:
services
used –
personal
loan
.017
.331
682
.005
.451
682
.149**
.000
682
.057
.069
682
.045
.120
682
1.000
.
682
.097**
.006
682
-.001
.488
682
.046
.115
682
.165**
.000
682
.098**
.005
682
.071*
.032
682
.120**
.001
682
50
var17:
services
used –
mortgage
.092**
.008
682
.063*
.049
682
.067*
.041
682
.024
.266
682
.198**
.000
682
.097**
.006
682
1.000
.
682
.071*
.033
682
.058
.065
682
.008
.415
682
.102**
.004
682
.143**
.000
682
.033
.197
682
var18:
services
used –
money
orders
.090**
.009
682
-.059
.060
682
.059
.062
682
.055
.075
682
.008
.419
682
-.001
.488
682
.071*
.033
682
1.000
.
682
.132**
.000
682
.166**
.000
682
-.052
.089
682
-.019
.313
682
.004
.456
682
var19:
services
used –
travelers
cheques
.138**
.000
682
.044
.126
682
.016
.338
682
.061
.057
682
.015
.347
682
.046
.115
682
.058
.065
682
.132**
.000
682
1.000
.
682
.213**
.000
682
.165**
.000
682
.168**
.000
682
.081*
.017
682
var20:
services
used –
cashiers
checks
.134**
.000
682
.060
.058
682
.129**
.000
682
.059
.061
682
.083*
.015
682
.165**
.000
682
.008
.415
682
.166**
.000
682
.213**
.000
682
1.000
.
682
.089**
.010
682
.048
.103
682
.067*
.039
682
var21:
services
used –
safe
deposit
.106**
.003
682
.216**
.000
682
.002
.483
682
-.032
.198
682
-.020
.300
682
.098**
.005
682
.102**
.004
682
-.052
.089
682
.165**
.000
682
.089**
.010
682
1.000
.
682
.202**
.000
682
.134**
.000
682
var22:
services
used –
credit card
.156**
.000
682
.064*
.048
682
.048
.105
682
.003
.472
682
.065*
.045
682
.071*
.032
682
.143**
.000
682
-.019
.313
682
.168**
.000
682
.048
.103
682
.202**
.000
682
1.000
.
682
.093**
.008
682
var23:
services
used –
trusts
.051
.092
682
.099**
.005
682
.009
.406
682
.045
.118
682
.057
.067
682
.120**
.001
682
.033
.197
682
.004
.456
682
.081*
.017
682
.067*
.039
682
.134**
.000
682
.093**
.008
682
1.000
.
682
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BANK
Correlations
Correlations
var38:
var39:
marital
spouse
var37: age
status
work
var37: age
1.000
.333**
-.369**
.
.000
.000
680
679
676
var38: marital status
.333**
1.000
-.971**
.000
.
.000
679
680
676
var39: spouse work
-.369**
-.971**
1.000
.000
.000
.
676
676
676
var40: gender
-.381**
-.212**
.233**
.000
.000
.000
680
680
676
var41: family income
.193**
.347**
-.375**
.000
.000
.000
674
674
670
var42: net worth
.547**
.435**
-.464**
.000
.000
.000
664
664
660
** Correlation is significant at the 0.01 level (1-tailed).
* Correlation is significant at the 0.05 level (1-tailed).
51
var40:
gender
-.381**
.000
680
-.212**
.000
680
.233**
.000
676
1.000
.
681
-.088*
.011
675
-.355**
.000
665
var41:
family
income
.193**
.000
674
.347**
.000
674
-.375**
.000
670
-.088*
.011
675
1.000
.
675
.540**
.000
665
var42:
net worth
.547**
.000
664
.435**
.000
664
-.464**
.000
660
-.355**
.000
665
.540**
.000
665
1.000
.
665
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BANK
Crosstabs
var37: age * quartiles of services used – total Crosstabulation
% within var37: age
var37: <25
age
25-34
35-49
50-64
>=65
Total
quartiles of services used – total
1
2
3
4
31.3%
31.3%
18.8%
18.8%
18.4%
44.7%
14.9%
22.0%
16.5%
35.1%
18.6%
29.9%
16.7%
43.1%
17.6%
22.7%
19.7%
42.1%
21.1%
17.1%
17.6%
40.3%
17.8%
24.3%
Total
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
var41: family income * quartiles of services used – total Crosstabulation
% within var41: family income
var41: <$15,000
family $15,000-$34,999
income $35,000-$70,000
>$70,000
Total
quartiles of services used – total
1
2
3
4
38.9%
44.4%
11.1%
5.6%
20.3%
45.8%
18.6%
15.3%
18.2%
13.7%
16.0%
22.2%
14.8%
35.6%
20.0%
29.6%
17.5%
40.6%
17.6%
24.3%
Total
100.0%
100.0%
100.0%
100.0%
100.0%
var42: net worth * quartiles of services used – total Crosstabulation
% within var42: net worth
var42: <$25,000
net
$25,000-$49,999
worth $50,000-$74,999
$75,000-$99,999
$100,000-$124,999
>=$125,000
Total
quartiles of services used – total
1
2
3
4
42.9%
28.6%
14.3%
14.3%
27.1%
47.5%
15.3%
10.2%
22.2%
48.9%
13.3%
15.6%
24.5%
43.4%
5.7%
26.4%
13.8%
44.6%
21.5%
20.0%
14.9%
38.1%
19.3%
27.8%
17.4%
40.6%
17.6%
24.4%
52
Total
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
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BANK
Correlations
var11: services used –
savings
var12: services used – cd
var13: services used –
auto loan
var14: services used –
educational loan
var15: services used –
home improvement
var16: services used –
personal loan
var17: services used –
mortgage
var18: services used –
money orders
var19: services used –
travelers cheques
var20: services used –
cashiers checks
var21: services used –
safe deposit
var22: services used –
credit card
var23: services used –
trust
var37:
age
-.104
.003
680
.170
.000
680
-.104
.003
680
-.079
.020
680
-.083
.015
680
.014
.355
680
-.103
.004
680
-.022
.285
680
-.051
.091
680
-.029
.222
680
.245
.000
680
-.073
.028
680
.038
.160
680
var38:
marital
status
.000
.497
680
.128
.000
680
.006
.442
680
-.072
.031
680
.031
.212
680
.057
.070
680
-.006
.439
680
-.003
.471
680
.041
.145
680
.014
.357
680
.188
.000
680
.005
.446
680
.076
.024
680
53
var39:
spouse
work
.010
.402
676
-.146
.000
676
-.003
.466
676
.075
.026
676
-.023
.279
676
-.065
.045
676
-.003
.474
676
.008
.420
676
-.043
.133
676
-.015
.353
676
-.200
.000
676
-.002
.474
676
-.103
.004
676
var40:
gender
.011
.389
681
-.096
.006
681
-.042
.138
681
.061
.055
681
-.010
.397
681
-.055
.076
681
.063
.050
681
.016
.340
681
.031
.211
681
-.065
.045
681
-.145
.000
681
.010
.399
681
-.018
.321
681
var41:
family
income
-.090
.010
675
.100
.005
675
.002
.480
675
-.055
.077
675
.023
.276
675
.194
.000
675
.065
.045
675
-.095
.007
675
.081
.018
675
.039
.154
675
.220
.000
675
.054
.082
675
.187
.000
675
var42:
net
worth
-.062
.056
665
.172
.000
665
-.010
.402
665
-.047
.111
665
.050
.100
665
.164
.000
665
.038
.164
665
-.046
.116
665
.058
.068
665
.043
.132
665
.278
.000
665
-.015
.348
665
.150
.000
665
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BANK
Correlations
Correlations
services
used – total
services used – total
1.000
.
682
var25: radio listening
.041
.140
681
var35: tv watching
-.048
.106
678
var36: newspaper readership
.028
.236
680
*Correlation is significant at the 0.05 level (1-tailed).
**Correlation is significant at the 0.01 level (1-tailed).
54
var25:
radio
listening
.041
.140
681
1.000
.
681
.052
.089
677
-.083*
.016
679
var35: tv
watching
-.048
.106
678
.052
.089
677
1.000
.
678
.101**
.004
677
var36:
newspaper
readership
.028
.236
680
-.083*
.016
679
.101**
.004
677
1.000
.
680
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BANK
Correlations
var11: services used – savings
var12: services used – cd
var13: services used – auto loan
var14: services used – educational loans
var15: services used – home improvements
var16: services used – personal loan
var17: services used – mortgage
var18: services used – money orders
var19: services used – travelers cheques
var20: services used – cashiers checks
var21: services used – safe deposit
var22: services used – credit card
var23: services used - trusts
var25:
radio
listening
.055
.076
681
-.082
.016
681
.039
.157
681
-.007
.429
681
-.009
.406
681
-.009
.403
681
.038
.163
681
.034
.189
681
.039
.157
681
-.004
.460
681
.006
.442
681
.088
.011
681
-.033
.194
681
55
var35: tv
watching
-.006
.438
678
-.053
.085
678
-.043
.130
678
-.065
.045
678
-.049
.102
678
-.081
.017
678
-.074
.028
678
.047
.110
678
.032
.205
678
.004
.460
678
.059
.062
678
-.037
.170
678
-.050
.095
678
var36:
newspaper
readership
-.076
.024
680
.090
.009
680
.017
.326
680
-.090
.009
680
-.007
.425
680
-.003
.471
680
-.089
.010
680
-.015
.347
680
.045
.122
680
.003
.469
680
.092
.008
680
-.003
.472
680
.083
.015
680
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BANK
var11: services used –
savings
var12: services used –
cd
var13: services used –
auto loan
var14: services used –
educational loan
var15: services used –
home improvement
var16: services used –
personal loan
var17: services used –
mortgage
var18: services used –
money orders
var19: services used –
travelers cheques
var20: services used –
cashiers checks
var21: services used –
safe deposit
var22: services used –
credit cards
var23: services used –
trusts
var26:
album
rock
.079
.019
682
-.106
.003
682
.058
.066
682
.075
.025
682
-.057
.067
682
-.093
.008
682
-.021
.289
682
-.027
.243
682
.032
.202
682
.005
.444
682
-.196
.000
682
-.022
.280
682
-.062
.054
682
Correlations
var28:
country
var29:
var27:
and
easy
classical western listening
.043
.065
-.019
.133
.045
.314
682
682
682
-.036
.035
.039
.176
.184
.152
682
682
682
.028
.045
.008
.230
.118
.419
682
682
682
.014
-.026
-.018
.355
.247
.320
682
682
682
-.037
.124
.022
.168
.001
.284
682
682
682
.020
.087
.007
.303
.012
.432
682
682
682
-.022
-.002
-.025
.284
.480
.255
682
682
682
.066
.011
-.033
.041
.385
.195
682
682
682
.032
.006
-.004
.200
.434
.457
682
682
682
.078
.068
-.089
.021
.037
.010
682
682
682
.025
.039
.016
.256
.155
.337
682
682
682
.077
.093
.015
.022
.007
.346
682
682
682
.038
.013
-.008
.161
.366
.420
682
682
682
56
var30:
newssports
-.035
.183
682
.036
.175
682
-.053
.084
682
-.056
.072
682
.031
.206
682
-.002
.480
682
.033
.193
682
-.063
.049
682
-.045
.120
682
-.044
.124
682
.081
.018
682
-.069
.037
682
.121
.001
682
var31:
talk
-.070
.035
682
.056
.073
682
.027
.241
682
.050
.095
682
-.070
.033
682
.052
.087
682
.023
.279
682
-.010
.397
682
-.066
.041
682
-.005
.443
682
.061
.057
682
-.007
.423
682
-.032
.202
682
var32:
top 40
.022
.280
682
-.032
.202
682
.041
.144
682
.007
.431
682
.003
.469
682
-.079
.019
682
-.011
.384
682
.031
.211
682
.048
.104
682
.049
.102
682
-.054
.079
682
.061
.055
682
-.048
.103
682
var33:
other
-.065
.044
682
-.040
.147
682
-.030
.216
682
.007
.428
682
-.009
.403
682
-.002
.476
682
.030
.216
682
.017
.328
682
.034
.184
682
-.034
.184
682
-.014
.359
682
-.093
.008
682
-.070
.034
682
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BANK
Correlations
var26: album rock
var27: classical
var28: country and western
var29: easy listening
var30: news-sport
var31: talk
var32: top 40
var37:
age
-.411
.000
680
-.034
.191
680
-.057
.069
680
.106
.003
680
.226
.000
680
.172
.000
680
-.324
.000
680
var38:
marital
status
-.288
.000
680
-.031
.211
680
.081
.017
680
.060
.060
680
.183
.000
680
.120
.001
680
-.215
.000
680
57
var39:
spouse
work
.313
.000
676
.040
.149
676
-.072
.031
676
-.053
.084
676
-.212
.000
676
-.123
.001
676
.215
.000
676
var40:
gender
.148
.000
681
.085
.013
681
-.081
.018
681
-.092
.008
681
-.106
.003
681
-.065
.046
681
.140
.000
681
var41:
family
income
-.221
.000
675
.034
.192
675
.074
.027
675
.105
.003
675
.104
.003
675
.030
.219
675
-.146
.000
675
var42:
net
worth
-.369
.000
665
-.023
.275
665
.054
.082
665
.158
.000
665
.165
.000
665
.115
.001
665
-.246
.000
665
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Chapter 9 – Pricing
Pricing Exercises
Pg 378
q
.07
q
Elasticity of Demand =
=
= - 1.4
 p - .05
p
An elasticity of -1.4 is less than unity, which indicates slightly elastic
demand. A 1% change in price per unit results in a 1.4% change in
quantity demanded.
Thus, price cuts will increase total revenue. Without any knowledge of the
ratio of fixed to variable costs, the normal recommendation would be to cut
the price of the TV. A price cut will increase profits if variable costs are
small and most costs are fixed. However, the reverse is probably true for
TV sets.
Pg 382
Dress
Retail selling price = cost/(1 - markup on selling price)
Retail selling price = $40/.40 = $100
Dollar markup = $100 - $40 = $60
Lamp
Cost Multiplier = 400 + 100 = 500
Retail selling price = cost x cost multiplier
Retail selling price = $25 x 5 = $125
Pg 383
Break- even volume =
fixed costs
price - variable costs
Break- even volume =
$2,100,000
= 17,500 units
$200 - $80
Break- even volume =
$2,100,000
= 30,000 units
$150 - $80
58
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The factory selling price of $200 is recommended, with a price of $150,
the company has to sell 71 percent more DVDs to break even. Payback is
quicker with the higher price.
Pg 384
Margin per woman golfer = Price - Variable cost
Margin per woman golfer = $10 - $4 = $6
Potential contribution profit = 60 x $6 = $360
Yes the golf course should accept the 60 women golfers on a Thursday
and pick up a profit of $360. Other factors to be considered are the
possibility that some of the women would play anyway and pay the regular
fee of $15. Also can the course handle the 60 golfers without turning away
others who want to play at the $15 price? The group of 60 golfers is more
attractive when they represent new business.
Pg 390
Skimming Price
$190 - $70 = $120 x 500,000 = $60,000,000 margin
Penetration Price
$99 - $70 = $29 x 2,069,000 = $60,001,000 margin
q
1,569,000
+
+ 314%
q
500,000
Price Elasticity =
=
=
= - 6.55
p
$91
47.9
p
$190
Since the contribution profit is the same with both prices, the skimming
price becomes very attractive. Note that the estimated price elasticity for
the new phone is -6.55. With a price elasticity this large, it is almost
always best to lower prices to expand market penetration.
A low skimming price of $99 for the new innovative phone is going to give
you a large share of the market and give your competitors fits. They will
have to spend heavily on research to develop their own competitive
phones, they will be stuck with a lot of old models they will have to sell at
distress prices and their market shares will decline sharply. Thus while
your competitors falter, a skimming price will allow you to run off with the
market.
59
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End of Chapter Questions
1.
Fuji denies it is in a price war with Kodak, but every time Fuji cuts price, Kodak
strikes back with a vengeance. By the Fall of 1998, Fuji price cutting had slowed
down. Fuji’s home economy in Japan had cooled off so Fuji had less interest in
fighting wars in other locations. Fuji’s willingness to take Kodak on in the U.S.
market was not entirely rational. Kodak’s initial market share of 75 percent
means they had a large volume advantage over Fuji and could make film at lower
costs. Thus in the long run, low cost Kodak could be expected to win a price war.
Gross margins of film makers have historically been about 65 percent of sales.
This means Fuji could afford to cut price to pick up a couple of percent of the
market, which they did. Price cutting reduced revenue and profits at Kodak. To
improve profits, Kodak put all of its advertising support behind its higher priced
Max brand of 400 and 800 speed premium film.
2.
Retail selling price = cost/(1 - markup on selling price)
Retail selling price = $42/.60 = $70
Dollar margin = $70 - $42 = $28
3.
The heavy introductory advertising by Gillette for the MACH3 razor created
strong demand for MACH3 replacement blades. Retailers apparently decided
customers would pay extra for these blades and they kept their prices high.
Gillette can lower their prices for the blades to retailers, but they have no control
over what prices the retailers sell them for. As for consumers, they have been
sold on the merits of the new razor and they are willing to pay whatever the triple
edge blades cost.
4.
106
+ 6%
Elasticity of Demand = 100 =
= - .48
5
- 12.5%
40
Price elasticity is inelastic and total revenue fell from $4,000 to $2,710 under the
new price. Some students will look at these results and say the price should go
back to $40. This is a poor answer and the smart students will realize the price
should be $45 or more. Consumers do not appear to be sensitive to the price of
the Woks and the retailer’s profits can be raised by charging higher prices.
5.
Large firms get involved in price fixing because it increases profits and simplifies
marketing activities. Also price fixing in industrial products is easier to do
because there are fewer buyers than there are for consumer products. In this
case the government is asking for $600 million in damages which will be tripled if
they are able to prove their case. Also if the evidence is strong, managers
60
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involved in a scheme to fix the price of toilet paper face the possibility of going to
jail for one or two years. Given the heavy fines, possible jail time and the
destruction of their careers, it is hard to understand why managers take the risks
to fix prices.
6.
Matsushita set a high skimming price of $1,000 for their new digital compact
cassette because the price elasticity of demand is low for new electronic
equipment. These new products have no competitors and the technology is often
patented. Also a high initial price allows Matsushita to recover some of their
developmental costs and generate cash flow for advertising and sales promotion.
By setting prices high on new items, manufacturers can slide down the demand
curve and maximize profits.
7.
Popular new cars are often hard to get and dealers take advantage of the
situation by setting prices higher than the posted factory prices on the windows of
the cars. The dealers realize demand is inelastic and they respond by asking for
more. Manufacturers and consumers dislike this practice because the window
prices on the cars give the dealers a generous 10% to 25% profit margin. Selling
cars for $500 above list is an example of greed, but it is not illegal. About the only
way a manufacturer can stop this practice is to buy up dealers and turn them into
company stores.
8.
AMD has tried to compete with giant Intel on PC microprocessing chips by
focusing on selected segments of the market. Recently they went after the low
end PC market where machines sell for less than $1,000. Initially AMD was
selling micro-processors for less than $100 and the market for these machines
exploded. When Intel began to lose market share to AMD, Intel cut the prices on
some of its older ships below AMD’s prices and almost put them out of business.
AMD relied heavily on the low priced market and they did not have any high
priced processors to keep sales up like Intel did. The solution followed by AMD
was to develop some micro-processors that were faster than Intel’s processors
and they got them on the market sooner than Intel. There is a sizeable market for
the “fastest” PCs and AMD was able to sign up some manufacturers to use their
new super fast processors. The success of this strategy depends on AMD’s
ability to manufacture and deliver chips that meet the advertised performance
speeds.
9.
Raising the prices of inventory purchased at low prices is common for retailers
and there is little that consumers or government officials can do about it. This
practice is most visible in the pricing of gasoline. The factory price for gasoline
can go up 5 cents one day and the next day the retail price will go up 8 cents.
Since the dealers have not had time to take delivery of new gas, the price
increase is simply price gouging by the manufacturer’s or the dealer’s. About the
only way to stop this sort of activity is for the government to control prices, a
practice that does not work except in times of war or national emergency.
10.
The first thing to do is plot the data (Graphs/Line... Click Simple and check Data
61
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In Chart Are “Values of individual cases,” then click Define. Move Unit Volume of
Margarine into the Lines Represent window. The resultant graph can be edited
by double clicking on it and using the new menu that appears. For example, to
remove the top and right-hand-side lines, click Chart, then click Inner Frame. To
edit an axis title, double click on one. New labels are put in the Axis Title window
and the justification can be changed using the Title Justification menu. Next plot
the prices of margarine and butter on a new chart. This time using Graphs/Line
click Multiple and Define. Move both Price of Margarine and Price of Butter into
the Lines Represent window. The unit volume of margarine shows a decline over
time as well as seasonal spikes (Thanksgiving and Christmas?). The decline in
volume might be explained by falling butter prices.
To estimate elasticities, use the constant elasticity model:
b
c
Q = aPmargarine Pbutter .
It can be shown that the parameters appearing as exponents can be directly
interpreted as elasticities: b is margarine’s own price elasticity and c is butter’s
cross price elasticity. While this model is nonlinear in its parameters, i.e., not
suitable for linear regression, it can be made linear by taking the natural
logarithm of both sides:
ln[Q] = ln[a] + b ln[Pmargarine] + c ln[Pbutter].
This equation can be estimated by linear regression. The computer does not care
what transformations have been performed on the variables, only that the model
is linear in the parameters. To transform each variable, do Transform/Compute.
In the Target Variable window type a new variable name, lnvol (say). In the
Numerical Expression window, type ln(volmarg). (One could make use of the
Functions menu but it is slower if you know the function you want to use.) Repeat
for the two price variables. Now you can do linear regression:
Analyze/Regression/Linear. Make lnvol the Dependent variable. Make the
transformed price variables lnprmarg and lnprbut (say) the Independent(s)
variables.
The regression model explains something; that is, it is statistically significant.
(This is found by looking at the p-value for the F-statistic in the ANOVA table and
comparing it to the level of significance α. Here p = 0.000 < α = 0.001 (say). This
means that the F-statistic falls into the critical region and thus the null hypothesis
that all of the coefficients of the variables in the model are equal to zero is
rejected.) Given that the model explains something, how much does it explain? A
model without seasonality explains only about 45 percent of the variation in the
dependent variable lnvol. (This is found by looking at R Square in the Model
Summary Table.) This is not very good for aggregate time-series data. Which of
the individual variables contributes the explanation? Both elasticities are
statistically significant at the 0.001 level. (This is found by looking at the p-values
62
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for each of the t-statistics in the Coefficients table and comparing each to the
level of significance α. For example, consider the variable lnprmarg, its p = 0.000
< α = 0.001 (say). This means that the t-statistic falls into the critical region and
thus the null hypothesis that the coefficient of the variable is equal to zero is
rejected. The computer does a 2-tail test.) The estimated constant elasticity
model is
–2.67
+1.05
Q = exp[15.032] Pmargarine
Pbutter
.
(p)
(0.000)
(0.000)
(The estimated parameters are found in the Coefficients table in the B column
under Unstandardized Coefficients. One should always provide some information
about the precision/significance of each coefficient. Here p-values are shown but
standard errors or t-values could have been used.) Do the significant coefficients
have the right signs and magnitudes? Generally speaking, yes. One would
expect an own elasticity to be negative and a cross-elasticity for a substitute
good to be positive. The magnitude of the own-price elasticity would be about
what would be about what we would expect for a brand but seems large for a
commodity.
One can create a dummy variable, called Holiday (say) to capture the
seasonality. The dummy variable is 1 for the Thanksgiving holiday and for the
Christmas/New Year holidays (starting approximately 3 weeks after
Thanksgiving) and 0 otherwise. Holiday periods were identified as weeks 5, 8, 9,
10, 58, 61, 62, 114, 117, 118, 163, 166, 167, 215, 218, and 219. A dummy
variable in a constant elasticity model is introduced as an exponent of a multiplier
(here the parameter m); otherwise, predicted sales volume would be 0 when the
value of the dummy was 0.
b
c Holiday
Q = aPmargarine Pbutter m
.
When outside the holiday period, Holiday is 0 and m to the 0-power is 1.
Consequently, volume is unaffected. During holiday periods, the equation is
multiplied by m.
The fit of the regression model with seasonality increases to almost 70 percent.
Margarine’s own price elasticity is now estimated to be about –1.42 (statistically
different) and butter’s cross elasticity is estimated to be 1.03 (statistically the
same). The marked drop in margarine’s price elasticity shows that margarine’s
price was getting undue credit for seasonal increases in demand. To get the
impact of the dummy variable in the structural model, it must be raised to the e
power. The multiplier is EXP[.461] = 1.59. Thus volume increases almost 60
percent during the holiday season.
63
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MARGARINE
Graph
64
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MARGARINE
Regression
Model Summaryb
Adjusted R
Model
R
R Square
Square
1
.673a
.453
.448
a. Predictors: (Constant), LNPRBUT, LNPRMARG
b. Dependent Variable: LNVOL
Std. Error of
the estimate
.1610
ANOVAb
Sum of
Model
Squares
df
1
Regression
4.844
2
Residual
5.860
226
Total
10.704
228
a. Predictors: (Constant), LNPRBRUT, LNPRMARG
b. Dependent Variable: LNVOL
Mean
Square
2.422
2.593E-02
F
93.404
Sig.
.000a
Coefficientsa
Model
(Constant)
LNPRMARG
LNPRBUT
a. Dependent Variable: LNVOL
1
Unstandardized
Coefficients
B
Std. Error
15.032
.118
-2.668
.259
1.050
.097
65
Standardized
Coefficients
Beta
-.518
.545
t
127.013
-10.317
10.850
Sig.
.000
.000
.000
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MARGARINE
Regression
Model Summaryb
Adjusted R
Std. Error of
Model
R
R Square
Square
the estimate
1
.834a
.696
.692
.1202
a. Predictors: (Constant), HOLIDAYS, LNPRBUT, LNPRMARG
ANOVAb
Sum of
Mean
Model
Squares
df
Square
1
Regression
7.454
3
2.485
Residual
3.251
225
1.445E-02
Total
10.704
228
a. Predictors: (Constant), HOLIDAYS, LNPRBRUT, LNPRMARG
b. Dependent Variable: LNVOL
F
171.969
Sig.
.000a
Coefficientsa
Model
(Constant)
LNPRMARG
LNPRBUT
HOLIDAYS
a. Dependent Variable: LNVOL
1
Unstandardized
Coefficients
B
Std. Error
15.458
.094
-1.492
.212
1.028
.072
.461
.034
66
Standardized
Coefficients
Beta
-.290
.534
.543
t
164.681
-7.042
14.234
13.440
Sig.
.000
.000
.000
.000
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Chapter 10 – Selecting Distribution Channels
1.
The 25 dealerships were upset that Dave Smith Motors received higher
allocations of new cars from Chrysler because of the large number of cars Smith
sold over the Internet. The dealers threatened to boycott Chrysler unless they
altered their vehicle allocation procedures. Basically the dispute was over who
would make the profits on the cars sold in their areas. The obvious and preferred
solution for the unhappy dealers would be to open their own websites so they
could sell over the Internet. When customers prefer a new channel of distribution,
its better to climb aboard rather then use illegal tactics to put the new competitor
out of business.
2.
According to Pepsi’s CEO, the acquisition of one of its largest independent
bottlers is part of a plan to accelerate consolidations of its U.S. bottling
operations so they can provide better service to their retail customers and
compete more effectively. The purchase is also a catchup move as Coke now
distributes 70 percent of its U.S. volume whereas Pepsi distributes only 57
percent. In addition, Pepsi is considering a public offering of shares in its $7
billion company owned bottling operation. The $275 million purchase of one of its
largest independent dealers helped Pepsi streamline and strengthen its bottling
system in advance of the public stock offering. Ownership of its bottlers gives
Pepsi more control over pricing, promotion, and distribution of its beverages.
3.
The bottom line is efficiency. With many of America’s large retailers buying direct
from manufacturers, wholesalers are under a great deal of pressure to cut costs.
When SuperValu bought Wetterau they immediately closed a large Wetterau
grocery warehouse in Bloomington, Indiana. The over 100 stores that had been
served from Bloomington were handled by SuperValu’s Champaign, Illinois and
Fort Wayne, Indiana warehouses. The employees who were laid off in
Bloomington were not happy with this development and boycotted stores that
purchased from SuperValu. A number of stores were forced to switch to different
suppliers. SuperValu saved money but they lost some customers as well.
4.
Avon is opening a few stores in the U.S. to boost its low 3 percent growth rate in
their market. Its traditional direct sales approach is not working as well as it did in
the past. Today more women work full-time and are not at home during the day
to greet Avon sales reps. Also it is hard to get Avon reps to make calls at night
and prospects are afraid to open their doors. Avon has found that between 20
and 30 million American women do not know how to contact an Avon sales rep.
The new stores are an attempt to make Avon products available to this large
untapped market. Avon is using a computer mapping program called Tactician to
find areas where sales are weak that might benefit from having an Avon retail
outlet. The company has to be very careful in its placement of the new stores so
they lead to net sales increases and do not just steal sales from their direct sales
reps.
5.
Time-Warner sells a lot of merchandise that could be considered fads or fashion
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oriented. This means that many items have short life cycles so they need wide
distribution to get these items in front of customers before they go out of style.
Time-Warner is adding a website because they believe it will increase total sales
revenue. They want their merchandise in as many venues as possible.
Time-Warner could lose some sales in their regular stores and in their catalog
operation, but they expect total sales to grow. Their strategy is to sell in all three
and let the best channel win.
6.
Data on sales calls, wages and total sales costs for the independent
representatives is presented below. If we assume salaries of approximately
$10,000/year, and a cost of $50,000/year to maintain and operate sales
branches, total costs for a company-owned sales force will equal $600,000/year.
Current data:
Stores/
Salesperson
Calls/
Year
Sales Calls/
Year
Calls/
Day
Time/
Call
Commission/
Year
220
9
1980
8
1 hr
$9,455
Total Sales Costs/Year for Independent Reps
$520,000
The same number of company salespeople as reps will be required to call on the
existing retail accounts, all other things being equal. The current rate of 1 hr. per
call is obviously a very tight schedule for any salesperson, regardless of the
proximity of the stores. Furthermore, Jones Co. is dissatisfied with the current
sales effort and will probably want more frequent and/or extended calls on its
larger accounts. This will require expanding the sales force, whether independent
or company, from 55 to perhaps 83. This represents an increase of 50% which
will allow fewer calls per day (6.7) and longer calls (1_ hrs.).
Jones should retain its independent sales force due to the cost savings
mentioned above and because its sales channels are already well-established.
Jones Co. should consider consigning its goods to the reps, providing
promotional materials, and instituting a training program to improve sales
effectiveness, as well as expansion of the force as indicated above.
7.
GM opened 75 distribution centers in the U.S. because they want to be able to
deliver the exact car or truck a customer wants in less than 24 hours. The
objective is to retrain customers who might go elsewhere if they don’t find the
precise vehicle they want at a dealership. GM estimates that 35 percent of auto
customers don’t find the exact car they want on dealer lots and are forced to
make a compromise. Another 21 percent switch dealerships and 11 percent end
up going to a different auto maker. Under the old plan, dealers often end up
trading with other dealers – which can cost the dealer $150 per vehicle and puts
miles on the car – or waiting as much as 10 to 12 weeks for a special order to
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arrive from the factory. Under the new program, if a regional distribution center
doesn’t have a particular model in stock, GM will guarantee that special orders
will be delivered within 19 days. GM
expects the new distribution centers will increase vehicle sales and produce
higher profits for the company and its dealers.
8.
The price differential between high powered work stations and top of the line
desk top PCs has diminished. The best of the PCs can now do things that once
required a work station. By adding new retail dealers the firms hope to sell work
stations to a broader clientele among business buyers. Motorola and HP have
exhausted the direct sales market for work stations and they expect to expand
sales by adding new channels. They are also responding to moves by Sun
Microsystems that has been selling work stations through Micro Age since 1990.
9.
Military bases are excellent sites for vending machines because of the high
density of personnel, large numbers of soldiers who are restricted to base
housing, and frequent exercise that leads to high consumption of soft drinks. By
bribing the base employee, the bottler expected to gain access to the best sites
so sales and profits would increase. The best way to avoid these problems is to
hire ethical employees, train them to follow ethical business practices and to
discipline or fire those who violate written company ethical standards.
10.
This is a constant elasticity model. (See the answer to Chapter 9, Question 10).
The estimated model explains about 60 percent of the variation in ln[sales]. This
is okay for pooled time-series and cross-sectional data. Price and Availability are
significant at the 0.05 level while Advertising and the National Brand Dummy are
significant at the 0.10 level of significance. The estimated elasticities are
Advertising
Price
Availability
0.27
–2.26
1.15
These elasticities have the appropriate signs and magnitudes. To get the impact
of the dummy variable in the structural model, it must be raised to the e power.
The multiplier is (EXP[-2.092] =) 0.12. This is a very surprising result. It says that
the regional brands have a substantial advantage in the marketplace beyond any
implied by differences in their marketing mixes from those mixes of the national
brands.
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PUDDING
Regression
Variables Entered/Removedb
Variables
Variables
Entered
Removed
DUMMY,
LAVAIL,
LPRICE,
.
LADVa
a. All requested variables entered
b. Dependent Variable: LSALES
Model
1
Method
Enter
Model Summary
Adjusted R
Model
R
R Square
Square
1
.752a
.566
.464
a. Predictors: (Constant), DUMMY LAVAIL, LPRICE, LADV
Std. Error of
the estimate
.3687
ANOVAb
Sum of
Model
Squares
df
1
Regression
3.015
4
Residual
2.310
17
Total
5.326
21
a. Predictors: (Constant), LNPRBRUT, LNPRMARG
b. Dependent Variable: LNVOL
Mean
Square
.754
.136
F
5.547
Sig.
.005a
Coefficientsa
1
Model
(Constant)
LADV
LPRICE
LAVAIL
DUMMY
Unstandardized
Coefficients
B
Std. Error
-3.466
1.786
.272
.140
-2.260
.912
1.151
.373
-2.092
1.006
Standardized
Coefficients
Beta
1.779
-.493
.558
-1.893
t
-1.941
1.939
-2.477
3.084
-2.079
Sig.
.069
.069
.024
.007
.053
a. Dependent Variable: LSALES
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Chapter 11 – Personal Selling and Sales Management
1.
The most obvious reason for Precision Cutting Tool’s success under the
manufacturing representative system is that its own salespeople were poorly
trained. They may have become unaccountable and lazy. They may not have
remained attentive to subtle shifts in competitive techniques. They may have
become too cost conscious and removed desirable buyer inducements from
approved sales expenditures. It is also possible that the salespeople may have
resented recent management decisions on compensation and become less
motivated.
Possible advantages of manufacturers’ reps are that the fine reputation of one
product might be assumed by another. The reps may be better informed about
competitive practices but most importantly, may be able to attract the buyers
attention because of the variety of products offered by the manufacturers’ rep. It
is also possible that the cost of using manufacturers’ reps may be less than an
in-house sales force because selling expenses are shared by many industrial
firms.
An in-house sales force also has advantages when compared with multi-product
reps. It can be held more accountable and, if integrated into the organizational
structure, the sales force can learn valuable corporate directions and later be
promoted into various marketing positions. Communication of desirable product
qualities and potential product improvements are more likely to be made by an
in-house group. This is an important benefit because the sales force is likely to
learn of changes in the market and product uses during their regular sales calls.
The manufacturers’ reps are less motivated to spend the time relaying that
information back to the manufacturer.
2.
Personal selling has several advantages over other forms of promotion.
Advertising and sales promotion are nonpersonal communications, whereas
salespeople talk directly to customers. Personal selling involves two-way
communication with the industrialist and allows Phil to adapt the message to the
interests of the industrialist. It also allows Phil to provide alternative viewpoints
and explanations of the uses and benefits of the gifts. If the industrialist was to
raise objections, personal selling is the only promotional form which allows the
sales pitch to overcome the objection directly. Furthermore personal selling is
more efficient because resources are expended directly on the industrialist – a
qualified prospect. Finally, personal selling allows Phil to close the sale,
something other forms of promotion are considerably less effective in
accomplishing.
3.
Flexibility and situation analysis are important attributes required of an effective
manager. This manager’s statement is probably a gross over-simplification of this
true hiring criteria and was made to leave an impression on the listener. Can you
imagine the reaction if a member of a media were made aware of this statement?
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What would this do to the corporation’s reputation and possibly its sales?
Taken at face value, there are a number of problems with the statement. Hiring
only people in their thirties could lead to age discrimination questions from legal
authorities.
The requirement of a large mortgage and a number of dependents focuses on
only one personal motivation for putting forth work effort: economic need. Once
the economic needs are satisfied, what is there to motivate the person to greater
effort and sales growth?
This manager’s employee requirements do not include some very important
considerations. No mention is made of education requirements for example.
Likewise no mention is made of previous selling experience or sales aptitude.
How aggressive should this person be? Should they be achievement oriented?
This recruiting statement may also say a lot about the culture of the sales
organization. This emphasis on economic need probably results from the
person’s management style, which is probably hands-off. The salesperson is
given the freedom to develop their own territory and selling techniques or to
“hang” themselves. This is a survival of the fittest mentality. Successful
salespeople make a considerable amount of money, while the company invests
very little out of pocket money in the failures. The company’s compensation
system of paying a straight commission on sales also supports this culture.
4.
To answer this question you have to make an assumption about the number of
weeks each salesperson works. If you assume two weeks vacation, then each
rep works 50 weeks x 10 calls per week for a total of 500 calls per year.
Calls Needed Calls
Each Year
Needed
Number
of
Firms
750
Large
X 12
1500
Mediu X 8.67
m
=13,000
3000
Small
=12,000
X 4
Total Calls Needed
5.
=9,000
34,000/500 calls/rep = 68 Reps Needed
Sales territories for insurance agents are large because of infrequent contact with
customers and the high percentage of the agent’s time spent prospecting.
Although the purpose of using the computerized mapping techniques is not to set
boundaries of territories, the insights from the process make computerized data
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analysis worthwhile. Demographic data, policies in force and agent locations all
influence the potential of a particular region to produce more customers.
Computerization of this data enables managers to identify areas suffering from a
misallocation of resources. For example, a particular area may have a great
potential and lack a regional insurance agent able to promote the company’s
policies to potential customers. The computer would allow the manager to
estimate through trial and error, the effects of adding another agent to add
coverage to this underdeveloped area.
6.
Informal leaders may develop in sales organizations when the district manager is
young and inexperienced and the salespeople are all older. This can also happen
when district managers are new or are rotated in and out frequently. When
informal leaders emerge, you can assume that the district manager is not paying
attention to his job. There is no single right way to handle John. However, it is
obvious something must be done before the district manager loses control
completely. Students will suggest a variety of alternatives. One approach is to
arrange for a transfer for John to another district. This gets rid of the problem, but
you lose a good salesperson. Also another informal leader may develop to fill the
void left by John’s departure. Another approach would be to invite John into your
office and explain how his informal leadership is undermining the performance of
the sales team. Ask John for his take on the situation and what should be done. If
he denies being the informal leader and says he is not trying to undermine your
authority, then you might say you expect him to be more of a team player in the
future and a failure to do so could affect his performance rating and year end
bonus. This is a better approach than the first alternative, but John may not react
well to your “Shape Up” message and may decide it is best if he “Ships Out” to
another firm. A third approach would be to call John in and talk to him in general
terms of how well he likes his job, his family, the company’s performance, his
level of compensation, his hobbies, and his plans for the future. You may find
that John has some grievance about some past company action or inaction. John
may be upset because he didn’t get your job, or he did not like his last raise, or
the previous manager took one of his best accounts and made it a house
account or that his territory was unfairly cut in size. If John has been treated
poorly on some dimension, then you can offer to help resolve the issue. On the
other hand, if nothing comes up you can ask John to make a presentation at the
next sales meeting on “How to close the sale,” “Finding new accounts” or
whatever he is good at. Also assign him some new hard to sell accounts and see
if he can crack them. The idea is to get John involved in doing something positive
to help improve district sales.
7.
The challenge to sales managers is to develop a compensation plan that
balances the needs of the organization and the needs of the individual
salesperson. The 75/25 pay plan for the car dealership is a fairly standard
compensation program in the auto retail industry. If the program is managed
properly, it will motivate, encourage success, be profitable for the dealership and
match competitive offers of employment. The problem challenges students to
understand that the sales-person’s seemingly low pay for three hours of work
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actually works to fulfill the goals of the organization. The commission gained is a
direct function of the margin the car is sold for in each circumstance, and/or how
many cars can be sold. The salesperson could make more commission either by
selling the car for a higher margin or high volume approach can benefit both the
salesperson and the dealer. The salesperson should improve his/her ability to
sell for more or more quickly.
Considering the salesperson’s split in commission with another salesperson, this
is a very common occurrence in dealerships as well. The compensation plan
must consider all commissioned employees who contribute to closing a deal. The
important consideration again is the management of the program. The
commission should be split among salespeople that directly contribute to closing
a sale. This implies a fairness standard, which the sales manager must be
concerned with because retaining good salespeople should be a priority of any
compensation program. One frequently used method of tracking contribution by
individual salespeople to a sale is the maintenance of a traffic log. Each
customer contacted by the salesperson is logged into a book allowing the sales
manager to quickly estimate who contributed to a sale, and to what degree.
8.
Merck should rely more heavily on input measures of evaluation in assessing the
performance of reps who do not take orders. An example of such an input
measure would be the number of calls on doctors made during a period. This
particular performance assessment technique does not apply equally well in all
situations. Sales jobs are multidimensional and as such the different activities
driving profitability differ across firms. Whereas input measures of performance
can work for Merck’s representatives, automobile salespeople, for example,
would be better evaluated on outcome-based systems.
9.
Sears’ move to reduce fixed wages and increase the commission portion of big
ticket salespeople’s compensation is designed to cut costs and increase
motivation. It also makes the compensation plan more of a variable cost rather
than a fixed cost. Thus when sales are slow, the salespeople take more of the
burden of lower wages. As you might expect, the older Sears salespeople were
not in favor of the plan as they were paid higher base wages and had the most to
lose. The plan seemed to increase the wages of part-time employees the most. It
is hard to keep both established and new salespeople happy when you shift
commission programs. To keep peace in the workplace it is often necessary to
make adjustments so that one group is not unfairly penalized by the new plan.
10.
Julie is a plateaued sales representative. They are people who are no longer
improving their productivity and their abilities. Rather, they’ve reached a stage
where they’re just holding their own or are falling back in performance.
A recent study by the marketing department at New Mexico State University in
which over 300 sales managers responded lend some insight into how managers
feel a plateaued salesperson problem should be addressed. As might be
expected, a combination of solutions is suggested. The most commonly solution
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is to sit down with the salesperson and talk about the problem. Most sales
managers also suggested discussing the reasons and possible solutions to the
problem with the representative. Other suggestions include:
•
Conducting formal motivation sessions where an attempt is made to inspire
better performance. The format may be designed by the manager or rely on
consultants.
•
Cutting back on the plateaued salesperson’s responsibilities. Suggestions
included reducing territory size, lightening missionary and paperwork
responsibilities, and bringing in a new rep to handle new account development
work.
•
Providing new responsibilities. These could include training new hires, sales
forecasting, recruiting on college campuses, and missionary work with accounts.
•
Providing time off. Relief from the pressures and tensions by getting away from
the job for a week or a month may allow the person to develop a better
perspective.
•
Use an ongoing goal assessment program. Establish agreed upon goals and
periodically measuring and discussing progress towards these goals. A closely
related alternative is to clear the air and redefine the rep’s goals.
•
Assign to a different sales manager. Especially useful if there is friction and
hostility with the old sales manager.
•
Bonuses. Bonus can be awarded for achievement in areas where the rep has
been underachieving.
11.
Vanstar Corporation has discovered that leaving tips on how to improve
operations on customers’ voice mail is a very effective way for reps to get
through and talk with customers. This idea should be discussed at sales
meetings and recommended for implementation by other reps. However, just
because it works for one rep doesn’t mean it should become part of the
performance evaluation system. One problem is that it would not be easy to
measure this input measure. If it became a performance factor, it would have to
be self reported and would be subject to manipulation by salespeople.
12.
The James Weber situation is a difficult one. Since the average sales quota
achievement was 90% of quota within the district, there is probably not a problem
with the quota setting process, though you may wish to check the variance
around this mean. There is clearly a need for counseling here. How should this
be conducted? Each person will have a slightly different style, but a few key
points to keep in mind when watching the role playing exercise include the
following:
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•
State the problems and its history. It’s good to have the employee see that you have
documentation in front of you.
•
Get agreement on the deficiency. You must be assured that James is clear about
the deficiency.
•
Listen. At this point you’ll hear the excuses and rationalizations. In James’ case, his
ex-wife and children probably. Don’t be distracted by asking what kinds of problems.
•
Consider extenuating circumstances. Get agreement that if you take care of these
obstacles, James will deliver.
•
Be prepared to refer James to professional help. Don’t attempt to counsel James in
personal of psychological areas.
•
Develop an action plan for improvement. Who is to do what and when? Include the
date for a review. James should understand this is the final step.
13.
Some students may feel that the employee is justifiably asking for the $100
million as provided for under the whistleblowing provision. They will hold that the
attempted sale via influencing the Saudi princes with “commissions” is illegal
under the Foreign Corrupt Practices Act, and that the payment is in reality a
bribe. Their justification for the high reward in damages is that the company knew
it was exposing itself to this liability when it offered the commission to the
princes, and that the damages are the price United Technology must pay for
breaking the law. Since the employee is risking future employability, this money
is part of his/her compensation for taking on the risk of bringing the alleged illegal
activity to the public. Other students may feel the person is seeking personal gain
from this event and $100 million is far too much in damages for such an offense.
They will contend that payments such as these are required to do business
overseas – a classic “When in Rome” moral foundation – and therefore not
covered under the Foreign Corrupt Practices Act. They may also question if the
employee exercised all internal methods to resolving this ethical dilemma, or did
the lure of a big reward for whistleblowing cloud their perspective.
14.
This is a constant elasticity model. (See the answer to Chapter 9, Question 10).
The estimated model explains about 60 percent of the variation in ln[sales]. This
is a reasonable value for cross-sectional (territory) data. Both explanatory
variables are significant at the 0.05 level. The estimated elasticities are
Calls
People
0.587
0.745
The sales call elasticity has a value similar to ones reported in the literature.
There are not too many estimates of sales call elasticities in the literature. The
problem is that we can only assess the impact of a variable if it varies. Sales
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managers often “suggest” the number of calls that salespeople should do. They
follow up by requiring call reports. If the manager suggests 40 calls, most
salespeople do 40 calls and so. Lack of variation will cause the call variable in
the regression to be insignificant. However, this does not mean sales calls are
not important and can be ignored. Rather it means that sales calls in the
estimated regression are part of the constant. Potential also drives sales.
INDUSTRIAL CHEMICAL
Regression
Variables Entered/Removedb
Variables
Variables
Entered
Removed
LNPEOPLE
LNCALLSa
.
a. All requested variables entered
b. Dependent Variable: LNSALES
Model
1
Method
Enter
Model Summary
Adjusted R
Model
R
R Square
Square
1
.789a
.623
.575
a. Predictors: (Constant), LNPEOPLE, LNCALLS
Std. Error of
the estimate
.2654
ANOVAb
Sum of
Model
Squares
df
1
Regression
1.859
2
Residual
1.127
16
Total
2.986
18
a. Predictors: (Constant), LNPEOPLE, LNCALLS
b. Dependent Variable: LNSALES
Mean
Square
.929
7.045E-02
F
13.192
Sig.
.000a
Coefficientsa
1
Model
(Constant)
Unstandardized
Coefficients
B
Std. Error
1.452
1.635
77
Standardized
Coefficients
Beta
t
.888
Sig.
.388
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LNCALLS
LNPEOPLE
a. Dependent Variable: LNSALES
.587
.745
.228
.172
78
.396
.664
2.577
4.319
.020
.001
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Chapter 12 – Direct Marketing
1.
Federated has been under some pressure to expand beyond its existing
customer base of high-end shoppers. Department stores have been losing
market share to upscale discounters like Target and to specialty stores that offer
better assortments. The Fingerhut purchase allows Federated to greatly expand
their customer mix and get a piece of the rapidly expanding Internet market.
Federated views the Internet as an opportunity to be exploited rather than as a
threat to be contained. Federated’s purchase of Fingerhut is an example of
outside-the-box thinking and not every student will want to take such a risk.
Federated paid $1.7 billion for Fingerhut, a firm with sales of $1.6 billion. The
price was a high 37 times earnings and Federated is clearly looking to future
growth to make this investment pay out.
2.
There are two sides to this question. Some students will see CVS’s use of its
prescription database as an innovative way to increase its prescription business.
The mailings provide information to customers that may improve their quality of
life. Others may see the mailings as an invasion of privacy as they are often paid
for by drug companies. CVS also has to be careful that its mailings do not
promote the use of drugs that later prove to be dangerous. The drug mentioned
in the question is a case in point. The Food & Drug Administration has restricted
the use of Rezulin because it can lead to serious complications. CVS does not
want the bad publicity that could result from letters recommending this drug or
possible damages resulting from lawsuits.
3.
The use of cookies is a controversial issue for Internet marketers. They obviously
have value as they simplify the ordering of merchandise. However, when they
are sold to others there is an opportunity for abuse. The proper use of cookies is
one of many Internet legal issues that have yet to be resolved. Since the Internet
is new there are few laws and precedents to guide the actions of Web sellers.
Thus until the legislators and courts come up with some rules, cookies are likely
to be employed at will. Taxing of Internet sales is another legal issue that has not
been solved.
4.
Babies are a profitable business for hospitals and one that can lead to a long
term relationship with customers. Hospital websites are very useful in
establishing relationships with prospective parents. The first step is to create a
site that has content that will be of interest to new parents. This means extensive
use of color, graphics and interactive dialogues that provides useful information.
For example, the sites should offer prospective parents the opportunity to order
free brochures on “Getting Ready for Baby,” “What to Bring to the Hospital,”
“Bringing Home the Baby,” and “What to Do When the Baby is Sick.” Once
prospective parents give their names and addresses to get the brochures, you
can send them additional mailings describing the hospital’s facilities and baby
services. After you have a website, you need to advertise its address so
prospects will know where to look for it. Prospective parents identified through
website mailings are good candidates to purchase baby equipment and supplies.
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For example, one of the authors signed up for a baby class at the hospital and
soon received a call from a salesperson offering a free teddy bear lamp if I would
listen to his pitch for some baby furniture. Hospitals who are interested in building
a long term relationship with customers should be careful about selling names of
prospective parents to other marketing organizations.
5.
State Attorneys General and the Federal Trade Commission are the primary
policemen of mail order solicitations. The government is currently going after
Publishers Clearing House over their use of deceptive statements in their
sweep-stakes mailings. Contest mailings often imply that you have won a prize
and elderly consumers are enticed to order unneeded magazines to enhance
their chances of winning more prizes. Typical remedies by the FTC in these
situations involves removal of the offensive statement from mailings and remedial
advertising to explain the true chances of winning the sweepstakes.
6.
Selling through the Internet and catalogs is the ultimate test of branding because
the customer is ordering something without the chance to see it, touch it, use it or
try it on. Customers are buying on faith that the “brand” will deliver satisfaction. L.
L. Bean is famous for the high quality of its merchandise and its willingness to
accept returns for credit on anything purchased from its catalogs no matter how
long you have owned it. A survey by Consumer Reports magazine showed L. L.
Bean to be one of the top rated catalog merchants in the U.S. and Fredericks of
Hollywood was one of the lowest rated.
7.
Solicitations of relatives of people who have passed away to sell them
merchandise is one of the sleaziest marketing practices around. People who are
mourning the loss of a relative are vulnerable and often buy things they don’t
need. However, distasteful this practice is, it is not against the law. Only when
these solicitations involve fraud or deceptive advertising are they subject to
review by government agencies. Reputable firms try to avoid selling to customers
during times of great stress. After all, no company wants to find themselves
highlighted on “60 Minutes” using unethical sales practices.
8.
Data availability is very limited. Consequently, relative annual maintenance fee
(AMF) and relative annual percentage (APR) must be calculated by dividing bank
prices by market prices. This collapses four existing variables into two new
variables. These new variables as well marketing spend and applications
processed are transformed into logarithmic form. Then a linear (in the logs)
regression can be run (Analyze/Regression/Linear). Marketing and Relative AMF
are significant at the 0.05 level and Relative APR at the 0.10 level. The estimated
elasticities are
Marketing Spend
Relative AMF
Relative APR
0.105
- 0.072
0.229
Marketing spend has an effect—and its elasticity is very similar to that for
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advertising of an established fast-moving consumer good. Relative AMF has the
correct sign but Relative APR does not. Perhaps Relative APR should be
dropped from the model. (It would have been insignificant if we had done a
one-tail test against the alternative hypothesis that the parameter was negative.)
In any event, applications submitted drop when annual fees go up. It appears
that people considering a credit card shop the market as if they are going to be
convenience users, not revolvers. People may underestimate the likelihood that
they will get into credit difficulties.
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CREDIT CARD
Regression
Variables Entered/Removedb
Variables
Variables
Entered
Removed
LRELAPR,
LRELAMF,
.
LMARKTNGa
a. All requested variables entered
b. Dependent Variable: LAPPLPRO
Model
1
Method
Enter
Model Summary
Adjusted R
Model
R
R Square
Square
1
.843a
.711
.602
a. Predictors: (Constant), LAPR, LAMF, LMARKTNG
Std. Error of
the estimate
1.876E-02
ANOVAb
Sum of
Mean
Model
Squares
df
Square
1
Regression
6.920E-03
3
2.307E-03
Residual
2.814E-03
8
3.518E-04
Total
9.734E-03
11
a. Predictors: (Constant), LRELAPR, LRELAMF, LMARKTNG
b. Dependent Variable: LAPPLPRO
F
6.557
Sig.
.015a
Coefficientsa
Model
(Constant)
LMARKTNG
LRELAMF
LRELAPR
a. Dependent Variable: LAPPLPRO
1
Unstandardized
Coefficients
B
Std. Error
9.500
.537
.105
.036
-7.235E-02
.028
.229
.109
82
Standardized
Coefficients
Beta
.760
-.502
.550
t
17.698
2.877
-2.552
2.092
Sig.
.000
.021
.034
.070
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Chapter 13 – Designing Advertising Programs
1.
Gillette’s shaving line for women is a $400 million a year business and is growing
at 20 percent per year. Women buy 20 percent Gillette’s shaving products and
the firm is spending $41 million a year on advertising. A new advertising theme to
raise awareness for Gillette’s women’s products has the slogan “Gillette for
Women: Are You Ready? The ads convey a none-too-subtle link between
smooth-shaven legs and sex appeal. One print ad shows a leggy young woman
dressed to kill for a night on the town. The copy reads: “You’ve got the shoes.
The dress. And the perfect lipstick. But without soft, smooth legs, are you ready?”
2.
The largest and most successful ISP is America Online. Their strategy was to
spend massive amounts of money on TV ads to gain top of mind awareness of
AOL. They also used print advertising in magazines and newspapers. Since
Internet usage is heavily skewed towards younger people, specific shows and
magazines had to be selected to target these prospects. Smaller players in the
ISP business did not have the cash to blast their way into the market and they
relied more on direct mail, contests, and event promotions to gain awareness.
One firm ran a contest to find the mythical person Dot Com as a way to build
interest in their firm. Sending out disks to people that could be used to install and
sign up for ISP service have been very effective. The ads chosen to promote ISP
have been some of the wackiest, most irreverent, shocking, even crazy
executions ever seen on American TV. These ads will not appeal to anyone over
50 years of age. Clearly ISP providers think the heavy users are the young and
the restless.
3.
The focus of NBC, ABC, and FOX networks and their advertisers on younger
viewers is based more on tradition and folklore than it is on facts. The average
age of NBC viewers is 40, it is 39 for ABC and a low 33 for FOX. CBS (with an
average age of 51) has a lock on the Baby Boomers viewers with 5 of the top 10
shows. FOX dominates with the Generation X customers. One argument notes
that media buyers are in their 20s or 30s and they tend to place ads on shows
they like. This suggests that advertisers are not smart enough to demand that
their ads appear on shows that attract viewers the same age as the buyers of
their products. Even though the Boomers have all the money, advertisers seem
to favor shows for young and trendy audiences. The failure of NBC, ABC, and
FOX to appeal to Boomers may help explain why the network share of
prime-time viewers fell from 68 percent in 1992-93 season to only 59 percent on
1996-97. Meanwhile, cable rose from 24 percent to 34 percent. Most of this shift
came from viewers 35 and older who turned in to The Family Channel, TNT,
Lifetime, Discovery and A&E. As the market continues to shift away from the
networks to cable, networks and advertisers will find it harder to justify their
devotion to youth.
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4.
Most people would say that TJX’s strategy for slashing its newly acquired
Marshall’s advertising budget from 2.5 percent of sales to 1.5 percent was a
recipe for disaster. Often when an outsider takes over a store, advertising
budgets are raised in the short run to help establish a new identity for the store.
In addition to cutting the ad budget, TJX also changed Marshall’s advertising
message. The old message highlighted prices on a number of products and
noted how much of a discount they represented. Shoppers came to the store,
picked up items from advertised specials and left. Marshall’s explicit advertising
had eliminated much of the adventure of off-price selling. TJX changed
Marshall’s advertising to stress “everyday low prices,” – trade jargon for
advertising that leaves out the prices but reminds consumers they are
discounted. The new advertising program at Marshall’s reversed a sales decline
into a 10 percent sales gain for a six month period and profits for the parent TJX
tripled compared with pre-merger results.
5.
This is a question female students will be able to answer and the men will be
baffled. When men open a magazine, they typically go to the table of contents
page to find the location and descriptions of interesting articles. However, with
women’s fashion magazines the ads themselves are the content women are
looking for. Feature articles and editorial comment are secondary. With so may
ads competing for a readers attention, many advertisers are buying bigger ads.
The number of multi-page ads in the September issue of Vogue is up to 128
compared with 69 five years ago. Advertisers are trying to stand out with fancy
inserts, sample offers and unusual types of paper.
6.
Designing an advertising campaign to encourage young people to use condoms
to prevent the spread of AIDS is a difficult assignment. Many heterosexual young
people do not realize that AIDS can be spread from women to men as well as
from men to women. Also, they don’t realize that asking partners if they have
tested negative for AIDS is not protection enough, they have to use condoms
during every sexual encounter. In addition, some organizations are against the
use of condoms because they are a form of birth control and others object to the
promotion of condoms because they believe this promotes premarital sex and
the exposure to venereal disease. Opposition by these groups severely restricts
the media that can be used to promote condom usage. Most network TV
channels will not accept condom ads because they do not want to offend the
groups opposed to their distribution. This means that most condom ads are
restricted to print media and some cable TV stations. Another problem with
promoting condoms to stop the spread of AIDS is the ads need to be directed at
women as well as men. Some students will say that since men wear condoms,
the ads should be directed at men. However, some men don’t believe they can
catch AIDS from women and refuse to use condoms. Also many women feel that
since men wear the condoms they should be the ones that buy the condoms. In
addition, some women are embarrassed to buy condoms for themselves. This
information suggests that separate ad executions are needed for men and
women and they should be run in different vehicles. A women’s ad, for example,
could show a young women selecting a package of condoms from a display rack
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in a drug store with the tag line “AIDS is Everywhere, Be Prepared.” This ad
would be run in women’s magazines such as Cosmopolitan or Redbook. A male
ad could show a man in a bar giving a woman patron the eye with the line “AIDS
Is Contagious.” At the bottom of the ad, a package of Trojan condoms could be
displayed. This ad would be run in men’s magazines such as Playboy. Featuring
actual brands of condoms in the ads could lower the cost of the
ad campaign. Another way to promote condom use would be to get Hollywood to
show young couples using condoms in movie scenes featuring sexual
intercourse.
7.
This is an example of a manufacturer testing the limits of principle of “permissible
puffery.” Although Dassant’s New England Pumpkin Spice Bread & Muffin Mix
title seems exaggerated, it is probably within the law. The term “New England” on
food products often refers to a style of food preparation. New England Clam
Chowder, for example, is made with a cream sauce and New York Clam
Chowder is made with a tomato sauce. Also the manufacturer would claim that
since this is a muffin mix, the word pumpkin simply means buyers can add their
own pumpkin. Dassant should probably be forced by the FTC to put the words
“Contains no pumpkin” on the front of the package since the word pumpkin is so
prominently displayed in the name of the product.
8.
During recessions, the primary role of advertising is to protect and increase
market share by maintaining brand loyalty, attracting new users and encouraging
brand switching. Success in recession-sensitive categories depends on your
ability to understand and address purchase barriers. For example, during the
Korean recession of 1998, Korean buyers began to shun foreign brands because
the country was short foreign exchange. Foreign brands responded by using
advertising to point out the local content of their wares or the fact they were
manufactured entirely in Korea. Also Levi Strauss has consistently gained market
share by advertising during recessions in the U.S. and overseas. When
competitors cut advertising during a recession, firms that continue to advertise
gain a greater “share of voice.”
9.
Advertising is frequently criticized for having more influence on society’s mores
than it actually has. The advertising industry does have a review board that
monitors the content of ads in the U.S. to be sure they do not violate the mores of
society. The idea that advertisers should monitor the editorial content of the
vehicles they use is more difficult. Some advertisers are taking their ads off TV
shows they deem to be too violent. The mores of society are not determined by
any one group, but are rather a composite of everyone and everything.
The argument that marketers contribute to the decline in moral values in society
goes as follows. Sex and violence on TV shows leads to increased levels of
violence in society (probably true). Marketers advertise on violent TV shows and
therefore cause declines in moral values (somewhat of a stretch). The problem
for marketers is that shows that feature lots of sex and violence are often highly
rated. Thus if one firm cuts back on ads on these shows competitors may buy up
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the space and steal market share from them. This suggests that advertisers
should get together and demand less sex and violence on TV shows or they will
take their ad dollars elsewhere. Perhaps a better approach, if Americans are
concerned about declines in mores, is to pressure Congress to pass more laws
restricting the amount of sex and violence on TV shows and movies.
10.
A linear regression (Analyze/Regression/Linear) was run on the salad dressing
data (not transformed into natural logarithms). The fit was disappointing. The
model explained only 25 percent of the variation in base sales. The estimated
model is
Base Volume = 4207660 - 3370801 Base Price + 2024 Awareness.
Base Price and Awareness are statistically significant.
A cut of $0.10 in base price should increase base volume by (-3370801 x -0.10
=) 337080 units. An awareness increase of 200 should increase base volume by
(2024 x 200 =) 404800 units.
The lack of fit is largely due to the failure to take into account seasonality. This
can be seen by plotting base volume versus week. (Graphs/Line... Click Simple
and check Data In Chart Are “Values of individual cases,” then click Define. The
use of Graphs/Line... is explained further in the answer to Question 14.12.) Sales
peak in the summer.
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SALAD DRESSING
Regression
Variables Entered/Removedb
Variables
Variables
Entered
Removed
Awareness,
Base Pricea
.
a. All requested variables entered.
b. Dependent Variable: Base Volume
Model
1
Method
Enter
Model Summary
Adjusted R
Model
R
R Square
Square
1
.500a
.250
.238
a. Predictors: (Constant), Awareness, Base Price
Std. Error of
the estimate
399456.65
ANOVAb
Sum of
Model
Squares
df
1
Regression
6.29E+12
2
Residual
1.88E+13
118
Total
2.51E+13
120
a. Predictors: (Constant), Awareness, Base Price
b. Dependent Variable: Base Volume
Mean
Square
3.14E+12
1.60E+11
F
19.701
Sig.
.000a
Coefficientsa
Unstandardized
Coefficients
Model
B
Std. Error
1
(Constant)
4207660.1
1298503.2
Base Price
-3370801
739424.75
Awareness
2023.600
455.538
a. Dependent Variable: Base Volume
87
Standardized
Coefficients
Beta
-.364
.354
t
3.240
-4.559
4.442
Sig.
.002
.000
.000
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SALAD DRESSING
Graph
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Chapter 14 – Sales Promotion and Public Relations
1.
The key to the success of this promotion was direct mail. The materials invited
them to stop by their local branches to learn more about pension plans. Those
that set up meetings received stylish cotton bathrobes and slippers, those who
opened medium sized accounts received embroidered monograms on their robes
and those who opened large accounts received three monogrammed towels.
Posters in 300 branches pictured bathrobes and slippers with no copy. Only
those receiving the mailing understood the posters. The program generated an
incredible 40 percent response rate from its initial mailing and 1,536 people
opened new pension plan accounts.
2.
In this case, Warner-Lambert could not rely on sampling doctors to get its
over-the-counter anti-itch cream Benedryl into the hands of heavy users. Also
sampling the general population with door knob samples would be useless for
this specialized drug. Warner-Lambert came up with a very creative idea of
working with KOA Kampsites to distribute samples to active families at what it
calls the “point of itch.”
3.
Visa came up with a promotion where card holders got their purchase free if the
transactions occurred during specified one-second periods chosen daily during
the Christmas season. The promotion was called Magic Moments and it
produced a total of 16,826 winners. The largest free purchase was a $5,998 tab
at a Virginia auto repair shop. One woman received free tuition for her son at the
University of Vermont. Magic Moments cost Visa $1.2 million and was
appreciated by card holders.
4.
For Worthington’s, Bass created a “It’s a Man’s Thing” promotion. The campaign
played off the target markets tendency to skip out on household chores and hit
the pub. Pub-goers were rewarded with pints towards a “brilliant white lies”
T-shirt each time they drank a pint of Worthington’s. Customers received
collector cards and eight stamps earned them a T-shirt. The T-shirts came in
cans that resembled paint tins, a playful reminder of the duties they shirked.
5.
There is some question whether stocklifting is ethical. Merchandise is switched in
a retail store without regard to how well it sells, but because another company
wants the display space. Consumers don’t know why some products vanish.
Stocklifting can reduce consumer choices and gives them less opportunity to
express their preferences to drive the market. A manufacturer may violate federal
antitrust laws if it stocklifts from a competitor so often as to shut it out of a
market. However, violations of the Sherman Antitrust laws are hard to prove in
court. Stocklifting is likely to continue until someone complains they have been
injured by the practice. Certainly retailers do not object to stocklifting because it
makes it easy for them to change vendors.
6.
The problem for professional services is that advertising has only been legal for a
few years and there has not been enough experience with promotion to develop
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good rules of thumb on allocation decisions. Another way to say this is that
advertising and promotion elasticities vary widely among types of professional
specialities, geographic areas and across time. Under these conditions,
professionals should try to measure the response to each new media alternative
they try. With newspaper ads you can insert coupons to gauge response. With
TV ads you can include a special phone number to call for an appointment.
When new customers show up, ask them if they saw your billboard or newspaper
ads.
7.
The “Pepsi Stuff” promotion shows how unpredictable corporate contests and
promotions can be. When redemption ran higher then expected, Pepsi canceled
the last phase of media advertising for the six month campaign. Pepsi says the
jump in sales revenue associated with the promotion more than paid the cost of
extra prizes handed out. No consumers were denied their “stuff” during the
campaign and Pepsi was satisfied with the results of the promotion. Perhaps the
most expensive over-response to a promotion occurred with Maytag’s British
Hoover division. The company had to make good on $26 million of airline tickets
customers claimed for buying appliances. In this case the executives in charge of
the promotion were fired.
8.
Taco Bell has created a popular promotional icon that has attracted some
attention from groups that are pushing their own agendas. The idea that a
promotional Chihuahua could be responsible for hate crimes is ridiculous. It
appears that the United Latin American Citizens group is just trying to get some
free publicity themselves. Taco Bell should make a simple denial that their dog
has anything to do with crime and to continue on with their dog ads and sales of
$2.99 toy dogs at their restaurants. In response to charges by Hispanic leaders
that “When people laugh at the dog, they’re laughing at all Hispanics,” Taco Bell
should just say that polls show the dog ads are more popular among Hispanics
than Anglos. The bottom line is that the talking dog has helped boost sales. In
1998 when industry sales were flat, Taco Bell’s sales were up 3 percent.
9.
The Philip Morris Retail Masters program is very aggressive and very successful.
It has helped Philip Morris increase its market share in the U.S. to over 50
percent. Retail Masters does restrict competitive firm’s marketing activities and
the FTC is investigating the program to see if there are any violations of antitrust
laws. The program pays retailers for various levels of participation. Philip Morris
is essentially buying display space for cigarettes and wall space for signs. Philip
Morris’ successful marketing programs has led to market share declines at R. J.
Reynolds. In 1999, Reynolds sued Philip Morris claiming they violated federal
and state antitrust laws through its Retail Leaders program, which pays retailers
to prominently promote and display cigarette brands much like the Retail Masters
program. The new plan denies critical promotional discounts to any retailer who
is not a participant.
10.
Fortunately for professional sports leagues, fans have short memories for labor
disputes. While the baseball strike did cut attendance after the strike was settled,
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in most other leagues the strikes have not had serious long run impacts. During
strikes, league officials have to keep sponsors informed so they can adjust
marketing programs to work around gaps caused by canceled games. For the
NBA strike, Coke came up with a Sprite Salary Cap promo to involve its
sponsorship of the Atlanta team. Sprite drinkers looked under the caps of their
drinks for instant wins of $25,000 – the daily salary of an NBA player. They also
gave out signing bonuses of $25 and free product. TV spots advertised a
1-800-TALL-MEN hot line for idle NBAers. The ads featured Grant Hill and Tim
Duncan mowing lawns and pulling cats out of trees. Over 400,000 consumers
called the number and got more information on the promotion. Strikes do cause
problems for leagues when they try to resign sponsors. If these contracts run out
during a sports strike or shortly thereafter, the league is not as apt to get as good
a deal on the new contract. For the sports leagues the answer is damage control.
Their objective is to remain positive during a strike and to get as good a spin from
the media as they can.
11.
Coke’s response to the sick children in Belgium was slow and ineffective. The
total cost of product recalls is estimated at $103 million. In two weeks the
company’s stock declined 7.5 percent and the shares of its European bottler
Coca-Cola Enterprises fell 13 percent. At first, Coke did not seem to realize how
serious the problem was. The Belgian’s were very sensitive to food
contamination problems because they had just gone through a very scary
situation where the deadly poison dioxin was found in the food chain. Health
officials wanted to show they were doing their jobs so they quickly shut down the
two Coke plants affected and did not let them open right away. Coke’s
explanation that the fumes that caused the children to get sick came from bad
carbon dioxin and fungicide on wooden pallets made it sound like Coke did not
inspect its raw materials or operate its plants in a sanitary manner. Also, Coke
Chairman M. Douglas Ivester did not immediately apologize to the Belgian
people and he did not come to Belgium quickly to check out the problem first
hand. Clearly Coke’s initial response was too little and too late. The answer to
the question is that Coke needed to do more and do it quicker to better contain
the problem. Coke lost shipments and sales all over Europe from problems at
two bottlers. Eventually Coke’s chairman did go to Belgium, he did apologize to
the Belgium people, the plants were cleaned up and Coke was allowed to
resume shipping product. To help regain consumer confidence, Ivester promised
to buy every Belgian a free Coke. Thus Coke was forced to give away millions of
bottles of Coke to correct a problems that never should have occurred.
12.
A linear regression can be used to assess whether the promotion generated
regular sales of Garth Brooks’ albums. A 0-1 dummy variable is used to capture
the additional sales. The dummy variable, called promo in the data set, is 1 for
the four weeks ending September 11 through October 2 and is 0 otherwise. The
first step is to graph the data series: Graphs/Line... Click Multiple and check
Data In Chart Are “Values of individual cases,” then click Define. Move Industry
sales, In Pieces sales, and No Fences sales into the Lines Represent window.
Under Category Labels click Variable. Move Week Ending into this window. The
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resultant graph can be edited by double clicking on it and using the new menu
that appears. For example, to change the style and weight of a line, click on the
line and use Format/Line Style The promotional period can be delineated
using Chart/Reference Line/Category. The graph shows strong seasonality in the
data—especially for Christmas season. This is addressed in the regression by
using Nation sales as a covariate. Separate regressions were run for each
album. The regression for In Pieces was
In Pieces sales = 2487 + 3243 McDonald’s promotion dummy + .892 National
sales.
(.003)
(.000)
and for No Fences was
No Fences sales = 880+1898 McDonald’s promotion dummy+.562 National
sales.
(.001)
(.000)
The models explained about 80 percent of the variation in sales. The promotion
had a statistically significant impact on the sales of both albums. The incremental
sales were (3243 + 1898 =) 5141 albums per week times 4 weeks, or over
20,000 albums for just these two Garth Brooks’ titles.
An examination of the graph shows that the sales of Garth Brooks’ albums
started to move against the pattern of national sales about the week ending
08/28. The promotion was likely advertised before it was in the McDonald’s
outlets. The dummy variable could be changed to reflect this and the regressions
rerun.
GARTH BROOKS
Graph
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GARTH BROOKS’ IN PIECES
Regression
Variables Entered/Removedb
Variables
Entered
National sales (000)
McDonald’s promotion perioda
a. All requested variables entered.
b. Dependent Variable: In Pieces sales
Model
1
Variables
Removed
.
Method
Enter
Model Summary
Adjusted R
Std. Error of
Model
R
R Square
Square
the estimate
1
.891a
.794
.775
1677.62
a. Predictors: (Constant), National sales (000), McDonald’s promotion period
ANOVAb
Sum of
Mean
Model
Squares
df
Square
F
1
Regression
2.39E+08
2
1.19E+08
42.443
Residual
61916813
22
2814400.6
Total
3.01E+08
24
a. Predictors: (Constant), National sales (000), McDonald’s promotion period
b. Dependent Variable: In Pieces sales
Sig.
.000a
Coefficientsa
Model
(Constant)
McDonald’s promotion period
National sales (000)
a. Dependent Variable: In Pieces sales
1
Unstandardized
Coefficients
B
Std. Error
2487.355
1345.778
3243.464
966.282
.892
.097
94
Standardized
Coefficients
Beta
.343
.940
t
1.848
3.357
9.203
Sig.
.078
.003
.000
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GARTH BROOKS’ NO FENCES
Regression
Variables Entered/Removedb
Variables
Entered
National sales (000)
McDonald’s promotion perioda
a. All requested variables entered.
b. Dependent Variable: No Fences sales
Model
1
Variables
Removed
.
Method
Enter
Model Summary
Adjusted R
Std. Error of
Model
R
R Square
Square
the estimate
1
.917a
.840
.826
904.23
a. Predictors: (Constant), National sales (000), McDonald’s promotion period
ANOVAb
Sum of
Mean
Model
Squares
df
Square
F
1
Regression
94636526
2
47318263
57.873
Residual
17987787
22
817626.69
Total
1.13E+08
24
a. Predictors: (Constant), National sales (000), McDonald’s promotion period
b. Dependent Variable: No Fences sales
Sig.
.000a
Coefficientsa
Model
(Constant)
McDonald’s promotion period
National sales (000)
a. Dependent Variable: No Fences sales
1
Unstandardized
Coefficients
B
Std. Error
879.585
725.367
1898.071
520.821
.562
.052
95
Standardized
Coefficients
Beta
.328
.968
t
1.213
3.644
10.757
Sig.
.238
.001
.000
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Chapter 15 – International Marketing
1.
To encourage the development of local businesses, Latin American countries
have stiff tariffs on imported goods. Dell believes that Latin America is key to its
expansion in international markets. Brazil is the largest computer market in South
America and Dell wants to use its plant there to ship to other nearby countries.
By locating a plant in Brazil, Dell can avoid some import duties and operating
expenses will be reduced due to lower costs for taxes, shipping, labor and the
free land for the plant. Dell expects to hire a local sales force that will follow the
company’s model of selling directly to businesses and consumers.
2.
The success of Rover’s Mini in the Japanese market is a classic example of a
triumph of localized marketing over the uniformity of global marketing. Part of the
success of the Mini is that it was first introduced in Japan in 1985 when the
country was in the midst of a “retro” boom. The Mini certainly qualified as “retro”
as it had 40 year old styling and 40 year old engineering. To keep interest up in
the car, Rover kept tweaking its design. One year it introduced the Paul Smith
mini, a limited edition of 1,500 cars designed by the British fashion guru Paul
Smith. Another year it offered 750 special editions of the Mini Cooper, modeled
after the car that 30 years ago won several European touring car races. In 1998,
Rover offered 200 “Mr. Bean” Minis, painted to look like the hapless car driven by
comedian Rowan Atkinson’s eccentric television character. A competitor
remarked that “Rover’s done a good job with the special campaign, which is very
important in Japan.”
3.
The EEC has very unique ways of calculating prices in dumping situations that
often show the targeted items are being dumped according to EEC rules. It is
clear that the rules are designed to find dumping when it may not occur so
antidumping duties will act as tariffs to keep unwanted merchandise out of
European markets. The antidumping duties will raise the cost of printers in
Europe and act as a subsidy to European printer manufacturers. The duties have
prompted the Japanese to start manufacturing printers in Europe to protect their
existing market shares. This may help employment, but it may not save the
European printer manufacturers from being destroyed by the high quality
Japanese printers.
4.
For many years Anheuser-Busch had been trying to break into the Japanese
beer market with its Red Wolf, Budweiser and Busch beers but was only able to
grab 1 percent of the market. To help improve their market share,
Anheuser-Busch introduced “Buddy’s” created just for the Japanese market. A
can of Buddy’s has 20 percent more alcohol than a can of Budweiser and sells
for two-thirds the price. The lower price and higher alcohol content proved to be
attractive to consumers and Anheuser’s sales of Buddy’s exceeded its modest
first year goal of 500,000 cases. Anheuser’s introduction of Buddy’s in Japan is
an example of successful localized marketing and was not an attempt to take
advantage of consumers or harm their health. In Japan, drinking is widely
considered part of the work ethic: Many businessmen don’t think twice about
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getting drunk and openly talk about doing so. Also whiskey is advertised
abundantly on television. Beer is even sold from vending machines on the street.
To promote their new Japanese beer, Anheuser ran a TV commercial showing
an airplane being refueled at a can of Buddy’s. After a few loud gulps, the plan’s
wings go limp – presumably because of the brew’s intoxicating power. “The
fulfilling taste of 6%,” the narrator quips, as the label “Buddy’s Extra Strong 6%,”
flashes across the screen. This commercial would not fly in the U.S. However, a
Japanese advertising researcher says that in Japan “Telling consumers the
strength of the brew assures them that it is of high quality.” So far Buddy’s has
helped Anheuser-Busch raise its market share in Japan to 1.2 percent.
5.
The Chinese run a huge positive balance of trade with the U.S. Americans buy
large amounts of clothing, shoes and toys manufactured in China. If China were
to continue to block our shipments of medical equipment, autos, phones and
other products into their country, the U.S. could easily make it hard for the
Chinese to sell here. Trade is a two way street and China realizes both countries
can benefit from lower trade barriers.
6.
3M wants to control its future. While licensing and joint ventures allow you to
enter foreign markets quicker, they often lead to problems in the long haul.
Licensees often become competitors and joint ventures can be subverted by
partners who look out for their own interests first. 3M’s process gives them
complete control and allows them to build more durable foreign market positions.
7.
You have to look at this from the relative size of each market. U.S. manufacturers
are not getting too much as the Canadian market is so small. However, small
Canadian firms are gaining free access to a huge market and many of them are
ecstatic. If they have good products and good prices, they only need a small slice
of the U.S. market to do very well.
8.
Germany has relatively high wages and exporting all heavy duty trucks would
make them expensive and reduce DB’s expected market share. By having
factories around the world, they can produce parts in the lowest cost locations
with a given set of currency exchange rates. As exchange rates and costs
change, they can move production to new locations and take advantage of the
situation. Daimler-Benz’s 42 factories on five continents give it a tremendous cost
advantage over firms who just have a few factories. A few years ago,
Volkswagen built a plant in Brazil to make its Fox model to sell in the U.S.
However, inflation in Brazil got out of hand and the cars became too expensive to
sell competitively in the U.S. Volkswagen did not have another low cost source to
ship from. They would have been better off putting the Fox plant in a country with
a more stable currency.
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Chapter 16 – Marketing Planning
1.
Although PC sales were expanding rapidly in 1998, the sharp decline in prices
meant that total revenue remained constant. The big firms picked up market
share at the expense of the smaller companies. For the small firms to survive in
the long run, they had to create new designs and cut the cost of production.
Apple’s brilliant new colored plastic see through; all in one designed iMac was a
smashing success in the market. Low priced Packard Bell did little to their
products or marketing programs and lost market share to the point they pulled
their machines from retail stores. Dell’s reputation for quality machines, good
service, and Internet and phone order selling propelled them to the top of the
U.S. market by 1999. Even IBM had problems with falling PC prices that forced
them to switch from selling through retail stores to an Internet distribution plan. It
looks like many small PC players are going to be driven from the market by
falling prices and the big market firms like Compaq and Dell.
2.
With two years of orders for new gas turbines in the books, GE and ABB are now
reaping big rewards in terms of strong prices and big profits. While some
adjustments to marketing plans are in order, it would be foolish to stop all
marketing activity entirely. Sales will eventually decline in this cyclical industry
and getting orders will depend on the relationships your salespeople have built
and maintained with their customers. When you don’t have many delivery slots to
sell, it makes sense to cut back on advertising. After all, you do not want to build
up demand for power turbines that you can’t deliver. However, it would be foolish
to cut your sales force because you need to maintain relations with all customers
for the future when orders fall and you have delivery slots to sell again.
3.
The simple merger of Ames Department Stores with Hills Stores Co. does not
guarantee that the combined firm will be a success. However, the merger will
increase Ames purchasing power with suppliers and this could translate into
some lower prices for its customers. To be successful, Ames has to reduce its
distribution costs so it can compete with the number one and number two firms
WalMart and KMart. WalMart is an extremely efficient retailer with a cost ratio of
about 15 percent of sales. This means they can underprice anybody they choose
and make life miserable for small firms like Ames. The number three discounter,
Target, focuses on an upscale customer that is different from the top two firms
and from Ames. By focusing on lower income and elderly customers, Ames has a
chance but they will need a good advertising program and careful attention to
costs.
4.
The average car currently has 210 pounds of aluminum and GM expects to
increase this by 7 percent or more a year. Aluminum’s greatest advantage is its
light weight. Auto manufacturers want to reduce the weight of autos to reduce the
emission of carbon dioxide which is linked to global warming. Lighter cars burn
less fuel and cutting weight is the final frontier of emissions control. Every one
ton reduction in vehicle weight results in a 20 ton reduction over the vehicle’s life
in emissions of carbon dioxide. The new Lincoln LS Sedan uses 261 pounds of
98
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aluminum each in the form of fenders, wheels, hoods, trunk lids, bumpers,
suspension parts, brake parts, engine blocks, pistons, and cylinder heads. lighter
cars not only burn less fuel, but they also accelerate faster and stop quicker.
Marketing’s job at auto firms will be to convince auto buyers that aluminum cars
are better cars for the future.
5.
State Farm realized that the barriers between insurance companies and banks
are crumbling. In 1999, President Clinton signed legislation that allows banks and
insurance companies to sell each other’s products. State Farm wants to broaden
their product line to become a one-stop financial supermarket. By buying a
Federal Thrift Charter, State Farm can learn the banking business and better
compete in the marketplace. Also by getting into banking they make themselves
less of a prospect for a take-over by a large bank seeking to expand their
financial services. Combinations of banks and insurance companies can lead to
great synergies in terms of database mining and cross selling.
6.
The advantage to Daimler is they now have a much broader line of vehicles to
sell in each company’s market areas. Also Chrysler has higher profit margins
than Daimler and will help improve Daimler’s bottom line. In addition, the
combined company will have greater purchasing power and should reduce the
costs of buying parts. Chrysler, which sold off its European operations when it
was in financial trouble, will again have a way to sell its cars in Europe.
7.
The American Italian Pasta Company has proved itself to be a fierce competitor
for national brands. AIPC sells to eight out of the 10 largest grocery chains as
well as WalMart. With many of these accounts, AIPC has won the highly
desirable contract to set up the pasta aisle, allowing it to give its products the
best display. Because its costs are 20 percent below its competitors, due to
newer plants and equipment, it can offer customers higher cost ingredients and
more pasta shapes and flavors. Also because it sells under store labels it does
not need to spend money on advertising and promotional activities. In this
particular case, a private label firm has the national brands on the run and the
future looks bleak. Indeed, Hershey is selling off its $400 million a year national
pasta brands because of low returns. If the national brand pasta companies hope
to survive, they will have to cut their production costs to match AIPC. In addition,
the national brands are in desperate need of innovative advertising to build up
the power of national brands.
8.
Most consumers do not realize that most granola bars now have more calories
and fat than the popular Milky Way candy bar. The granola bar manufacturers
have shown how to boost sales by corrupting the once healthy granola bar. What
they have done is not illegal and probably not unethical. You can say they were
opportunistic and aggressive in their zeal to seduce consumers with a seemingly
healthy granola label. The marketing tactics of the granola bar manufacturers is
certainly distasteful but does not cross the line into truly deceptive marketing
activities.
99
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