Role of Government in free markets

JWI 515 Managerial Economics, Week7 Summary, 11/25/12

This week we learned principles of social welfare economics, perfect competition, the role of government and pros and cons of deregulation in an industry.

Social welfare = Consumer and producer surpluses
***********************************************************
Consumer surplus is the difference between the maximum amount consumers are willing to pay for a product and what they actually pay. Producer surplus is the difference between the minimum amount producers are willing to receive for a product and what they actually receive.

Role of Government in markets
*************************************
- Balance consumer sovereignty and social fairness by stepping in to mitigate externalities, the unforeseen consequences in a free market.
- set price floors and price ceilings as part of public policy

Perfect Competition
************************
Markets are said to be perfectly competitive when they
- feature a large number of buyers or sellers that each have a non-controlling market share and
- when they are filled with homogeneous products that can easily be substituted for one another.
- Free entry and exit also exist, meaning no legal barriers of regulation exist that potential firms must satisfy to be members of an industry. 
- Meanwhile, everyone in the industry has wide access to cost information, so companies are price takers.
- Finally, companies have the ability to earn a normal profit over the long run.

NYSE has several deviations from perfect competition as we discussed in DQ1.

Deregulation
****************
The process of simplifying or eliminating government rules that hinder businesses and thereby spur competition, attract investment.
The pros and cons of deregulation in several industries such as telecom, airlines and trucking were examined.

Dr DP

Make Smart Choices in Pricing Options

JWI 518, Marketing in a Global Environment, Week7 Summary, 11/25/12


This week we learned the importance of making smart choices in pricing and how to develop sound pricing strategies to support the firm's overarching objectives.

5 steps to setting prices effectively
****************************
To set prices effectively, a company follows these steps: (1) know the firm's strategic market objective, (2) determine demand, (3) estimate costs, (4) analyze competitor's costs, prices and offers, and (5) pick a compelling pricing strategy - including pricing method and final price.


Pricing Options
*************
Pricing options include target return pricing (build profit margin into price; also known as cost-plus pricing), going-rate pricing (match competitors offer), perceived value pricing (consumer perception focused), value-in-use pricing (guarantee value and participate in up side or down side of the firm). To adapt pricing, companies also use discounts & allowances, offsets, special financing, customer segment pricing, channel pricing, product-line pricing, optional-feature pricing, two-part pricing, product-bundling pricing, geographical pricing, promotional pricing and differentiated pricing.


Lower Perceived Cost, Increase Perceived Value
***************************************
As price is perceived by consumers as an indicator of quality, managing customer perception is key when a firm raises or lowers its prices. Instead of engaging in cost-cutting and price wars, it is smarter to create the right image, reduce perceived cost and increase perceived value to support the right image that supports the price you want to charge. Reaction from competitors or even the government must be anticipated.

Dr DP

Market Positioning & Brand Equity

JWI 518 Marketing in a Global Environment, week6 summary, 11/18/12
**********************************************************

This was an exciting week of learning core marketing concepts such as techniques for successful positioning and creating brand equity that I knew practically nothing about. I have gathered numerous take ways as shown below that I can apply in my current and future jobs at many levels.

The DQs made me think about brand positioning and the use of social media to take marketing to the next level. I also learned the difficulties inherent in measuring the effectiveness of the techniques. But as one of my class mates pointed out, a van with cup cakes, with just tweets to advertise, was successful in generating awareness and so I am  beginning to believe in social media.

Keller's "Maintaining a strong brand means striking the right balance between continuity and change" resonates with me.

Dr DP

JWI 518 Marketing in a Global Environment, Week6 Summary

I. Marketing Strategy at GE (Jack Welch video, Week6)
********************************
Marketing strategy was not around formulaic 4Ps and 5Cs.
It was about meeting consumer needs.
Tell consumers and business customers what we had to meet the needs.
The goal was to build a great brand, do lots of brand advertising.
Come out with new products, advertise the hell out of them to go right at what the features that we brought out.
Gain share, gain reputation as innovator and build the brand all the time

II. Marketing Products vs. Marketing Services (Jack Welch, video Week6)
***************************************************
Marketing services is tougher than marketing products
Products: easy to show the absolute Aha, what they bring to consumer eg. Apple's iPod; GE's jet engines at forefront of technology.
Service contracts not easy to advertise eg. selling a strong service organization's ability to maintain the engine for 20 years.
Services are more often sold as a follow on to a product offering.
In product sale, have a relationship with customer, build a long term services contract.
eg. Home Protection business - product sales person establishes relationship with consumer, signs multi-year product

III. Market Positioning  (week6, Lecture1)
**************************
Goal: Create a customer perception that your product is the best and grab market share
*****************************************************************************************************
(1) Recognize that Customers have a ladder of preference.
Brands that occupy one or two top positions on a ladder have tremendous advantage.
(2) Positioning is based on attributes, benefits, uses, quality, hipness, ease of use, customized experience, relative to competitor
(3) Seven steps to differentiate your product from competition and grab market share
*************************************************************************************************
(i) Analyze competitor's product for back door vulnerability
(ii) List all potential problems of your competitor's product.
(iii) Create ads messages that emphasize competitor's problem.
Use humor. Never attack directly. Focus on one disadvantage of a rival and one advantage of the firm.
(iv) Show how your product does everything you competitor's does but without the problems
(v) Move up a new ladder in the consumer's mind.
(vi) Keep at it - repeat constantly over time until sales figures show you have moved up the ladder; research
(vii) Look at your own product - where are you vulnerable ? where can a competitor out-position you ?

IV. Brand Equity (week6, lecture2)
*****************************************
Goal: Create a strong brand to earn customer's enduring devotion and profits
*****************************************************************************************
To charge more, create loyal customers, fend off competitors
To navigate through changes and shifts in marketplace and product life cycles

(i) Brand Equity is the added value a brand image gives to a product or service
******************************************************************************************
- It influences company's sales, market share, profits, stock price, pricing.
- To differentiate among choices, people use brands' perception, image of quality & performance, loyalty; the way brands make them feel, think and act
- Brand equity is composed of assets and liabilities
- Elements of brand equity: brand loyalty, name awareness, perceived loyalty, brand associations, other brand assets eg. patents & trademarks
- Brand equity is built through marketing choices and each element of product's message:
Brand's name, logo, tag line, symbols
Characters, spokespersons, celebrity endorsers
Advertising themes, packaging, signage
Customer service
- brand image leads to brand promise which generates brand equity

(ii) Brand audit
******************
- done to understand the most current image buyers have of the brand
surveys, focus groups, internet visits, sales data

(iii) Brand portfolio
**********************
Line extension - derivative products
Flanker brand - low cost version of core brand
low end entry level brand - attract new buyers; create satisfaction; trade up
Cash cows - high profit margins; support less profitable brands & new products
Prestige brands - create positive halo around the firm; high performance high price; nice market

(iv) Integrated marketing strategy
***************************************
- Define target group of customers
- understand consumers' perceptions about the brand
- understand promises buyers want the brand to make
- create messages to create and reinforce a core image: Design every marketing message (through TV, print, internet, PR) to make the same promise & create same image of the brand
- image leads to brand promise which generates brand equity

V. Brand Report Card (Keller, HBR 2000)
***********************************************
Top 10 attributes of a strong brand are:
(i) Delivers benefits customers desire: creates engaging customer experience eg Starbucks
(ii) Stays relevant: brand elements modified to fit constantly eg Gillette
(iii) Priced based on consumer perception of brand value: premium vs staple eg. Procter & Gamble  "everyday low pricing"
(iv) Is properly positioned: clearly communicates similarities & differences eg Visa
(v) Is consistent: marketing communications dont sent conflicting messages eg. Michelob beer
(vi) Fits sensibly into brand portfolio: brands work logically together eg. High end Banana Republic; Basics - Gap ;  Old Navy - mass market
(vii) Has integrated marketing strategy: all marketing activities and channels communicate same message about brand & strengthen brand identify eg. Coke - originality, classic refreshment
(viii) Has meanings managers understand: Managers know consumers' different perceptions of brand eg. Gillette manual razors & Braun electric razors
(ix) Receives sustained support: companies consistently invest in building and maintaining brand awareness
(x) Is constantly monitored: Formal brand-equity-management system eg. Disney over exposure of characters
Maintaining a strong brand means striking the right balance between continuity and change.

Maximize Profits with Smart Price-Output Decisions

JWI 515 Managerial Economics, Week6 Summary, 11/18/12

Very interesting week with many important take aways.  As the technology industry evolves rapidly, this training prepares me to confidently face a variety of business situations.



(i) Maximizing profits with smart price-output decisions is the goal.

(ii) Recognition of imperfect competition and appreciation of market structure within which a firm operates are key to make good managerial decisions.

(iii) Competition types: Perfect competition, Oligopoly, Monopolistic competition, Monopoly






Monopoly - A pure monopolist is the sole provider of a product or service with no close substitutes, is often a price maker and maximizes profit when MR=MC.The marginal revenue curve is below the demand curve. Monopolies can cause a dead weight loss to society but are not necessarily always harmful. With strong economies of scale, natural monopolies can offer lower prices than if several small companies competed. Antitrust laws keep monopolies in check.

Monopolistic competition - each firm produces a small percentage of the total market share and cannot control prices; product differentiation key. Monopolistically competitive firms should focus on product differentiation.

Oligopolists must focus on price, output and reactions of rivals.

Cartels & Collusions - group of competitors formally or informally agreeing to fix prices and output

(iv) Price-Output decisions Models
Cournot: a firm will make independent decisions to maximize its profit
Stackelberg: firm acts according to Cournot + first mover advantage
Bertrand: Homogeneous oligopolists; consumer goes after lowest price; price wars ensue to capture market share
Sweezy: firms will follow rivals' price decrease but ignore price increase

Dr DP

Control costs before they control you

JWI 515, Managerial Economics, Week5 Summary, 11/11/12

This was a challenging week with many key economic concepts to think about and grasp. We learned the importance of cost function and the necessity to control costs before they control us. The nature of competitive markets, techniques to map out the market structure and the use of Porter's 5 forces model to arrive at competitive economic strategy were explored.

"control costs before they control you" is a principle that carries profound insight with applications every day in business and in life.

Dr DP

I. Hirschey, Chapter 8: Cost Analysis and Estimation; Week5 Lecture1
**********************************************************************************
Successful managers control costs effectively (Hirschey, 2009)
Control costs or they will control you (Week5, lecture1)

Different types of costs are
*******************************
fixed cost - does not vary with output; buildings, machinery
variable cost - fluctuates with output; utility, wages, rent, office supplies raw materials
historical cost - what was paid in the past
current cost - the current value
replacement cost - cost of duplicating productive capability with existing technology
opportunity cost - foregone value associated with current use of asset rather than going with next best alternative
economic cost = explicit cost + non cash implicit cost
incremental cost - change in cost caused by a managerial decision
marginal cost - change in cost from a one-unit change in output
sunk cost - expense made in the past that cannot be recovered in future

Cost Function
**************
Cost function: Cost-Output relation
Short run cost function: used for day to day operation; determines plant capacity; fixed costs will not change in short run eg buildings, machinery
Long run cost function: used for long range planning; determine minimum cost of output for a given plant size & technology in current operating environment

Economy of Scale & Scope
********************************
Economy of scale - long run average cost (LRAC) declines with firm's size
Minimum efficient scale - ouput level at which LRAC is minimized
Maximum efficient scale - optimum output level with least cost per unit beyond which average cost will rise and diseconomy of scale will set in
Diseconomy of scale - LRAC increases with firm's size
Economy of scope - cost of joint production of outputs is less than cost of producing multiple outputs separately
Breakeven - when Cost equals Revenue


II. Hirschey, Chapter 10: Competitive Markets; week5 lecture2
***********************************************************************
To win in the market place, these key concepts should be noted:

Companies and markets are not static - they change and evolve from one market structure to another
Competitive market concepts help make sound economic decisions.
Map countours of market, understand market structure and maximize profit
Understanding demand, production and costs.

Market - all firms and individuals, current and potential, willing and able to buy or sell a product
*******
Market structure - competititve environment in which exchange of goods or services occur
*******************************************
 # - number and size of buyers, sellers and potential entrants
 cost info - access & availability of product price and cost information; price takers vs price makers
 product differentiation - degree of real/perceived product differentiation; what sets the product apart in quality, advertising, promos, customer service
 scale - production characteristics; minimum efficient scale
 entry - ease of entry into the marketplace; barriers - patents, licenses, economy of scale, lawsuit restrictions, regulations
 other - shipping distance of perishable items

Potential entrant - poses credible threat to price-output decisions of incumbent firms
Product differentiation - real or perceived differences in quality of goods and services;
  caused by physical differences, superior R&D; effective advertising & promotion
Price competition - most vigorous in markets with homogeneous products with few perceived differences

Barrier to entry - industry characteristic that creates advantage for incumbents over new arrivals; legal rights - patents & licenses
Barrier to mobility - creates advantage for large leading firms over smaller nonleading rivals
  eg. economies of scale or scope, large capital or skilled labor requirements, ties of customer loyalty
Barrier to exit - restricts incumbents to redloy assets to another industry

Types of competition
***************************
Perfect competition - large # of buyers and sellers of the same product; each participant is a price taker, too small to influence prices
Monopoly - one firm dominates the entire market
Monopolistic competition - multiple firms with similar products that are not substitutable, price makers offering high prices
Oligopoly - a few firms dominate the market

Marginal analysis
*********************
Total profit maximized when marginal revenue equals marginal cost
Productive efficiency - production of goods in least cost way
Allocative efficiency - appropriate allocation of resources among firms to yield correct mix of goods and services demanded

III. Welch, What’s Right about Wal-Mart
**********************************************
Helps consumers and employees win and grow.
Improves lives for customers by holding down low prices, doing more to households than any social or govt program.
Business model threatens rivals. Purchasing power frightens suppliers - forces them to look inside businesses to lower costs. Huge market share gives it enormous leverage.
Employee wealth sharing, salaries, life insurance, benefits, development through training and opportunity (international growth) & upward mobility.
Ethical, fair, tough.

IV. Week 5 DQ1 - How to mitigate diseconomy of scale
***************************************************************
For large companies to mitigate the effects of increased per unit costs when diseconomies of scale are operative, focus on:
Coordination - ensure business units grow together
Communication - counter effect of lengthening hiearchy
Motivation - pay for performance; give performance incentive to employees
Technical - manage complexity

V. Week 5  DQ 2: How WalMart wins in the Competitive Market place
*********************************************************************************
Wal-Mart is the most profitable discount retailer in one of the most viciously competitive markets imaginable.
Wal-Mart is able to achieve such a high level of success through both upturns and downturns in the economy because of:
Low cost leadership focus, economy of scale, purchase power that dictates price to suppliers, diversification of products and geography

Focus with Market Segmentation

JWI 518, Marketing in a Global Environment, Week5 Summary, 11/9/12

This week we learned the value of segmenting markets and also the pitfalls to avoid with segmentation. Market segmentation is a strategy marketers use to identify and profile distinct groups of buyers who differ in their needs, wants, desires and fear. Segmentation allows marketers to focus the firm's resources by tailoring specific messages to target groups instead of relying on a one-size-fits-all mass marketing approach which could be ineffective. Broad segments typically are geographic, demographic, psychographic (Values, Attitudes, Lifestyles) and behavioral. 

Segmentation to be useful must result in segments that pass five key criteria: they must be measurable, substantial, accessible, differentiable and actionable. Cost of time and resources, accuracy, too narrow a focus, not recognizing shifts in market and consumer behavior after the segmentation are among the traps to avoid.

Based on the insights from segmentation, a firm can decide its zone of market focus: Niche within a segment, segment, multiple segments or mass market. 

Dr DP

Drive Productivity through Knowledge & Innovation

JWI 515, Managerial Economics, Week4 Summary, 11/4/12

This week we learned to recognize key economic indicators and apply economic concepts to analyze optimum production strategies and controls. The concepts we learned this week further clarify and refine my understanding of the underlying economic principles and help take my production management skills to the next level.

I. Readings
Hirschey, Chapter 7: Production Analysis and Compensation Policy
************************************************************************
Fortune500 CEOs make a minimum of 5M$ a year and above.
CEOs must be made to earn their pay and not just preside over a firm that is in trouble
Some CEOs do earn their pay - what they do and the returns they achieve for shareholders justify their high compensation in terms of salary, bonus, stock options, stocks

II. Week 4, Lecture 1: The Productivity Imperative
*********************************************************
1. Productivity
***************
Productivity - a real economic measure that managers use to make their plant, office, or company more effective and efficient.
Productivity growth - rate the output increases per unit of input is a fundamental economic indicator
Rising productivity - from smart use of labor & capital, product innovation, capital funding - improves economic and social well-being of an economy.
When productivity grows everybody makes more money.

2. Production Process
*************************
Create something of exchange value by using optimal combination of input components together with technology and labor.
Managers should correlate Inputs vs Revenue, Cost, Output, other resources

3. Production function
**************************
Used to assess maximum output from a given level of input.
Goal is to ensure production function is changed as needed to achieve maximum production and profit potential.
Discrete production function - has a set combination of inputs that lead to a specific output.
Continuous production function - inputs varied in an unbroken fashion.

4. Production Scaling - up or down
*****************************************
(a) Return to scale: All inputs proportionally changed and output is assessed
(b) Increasing return to scale: more is produced with less; target zone; proportional increase in output is greater than proportional increase in input
(c) Constant return to scale: same proportional change in outputs and inputs
(d) Decreasing return to scale: output increasing at a slower rate than proportional change in inputs
(e) Return to factor: One input is changed and output is assessed

5. Total Product = Total amount of output produced
*******************
Average Product = Total product/# input units used
Marginal Product = change in output from a one-unit increase or decrease in input

6. Marginal product curve
******************************
Increasing returns: output increases with more labor
Diminishing returns: at one point, adding more workers causes efficiency to fall (but total product can still increase)
Negative returns: output decreases with more inputs

7. Marginal product vs Total Product
******************************************
So long as Marginal product is positive, Total product will increase with each added input unit

8. Isoquant & Isocost curves
********************************
Isoquant- constant level of output quantity vs various combos of inputs
Isocost - constant level of Total cost vs various combos of inputs ; to be technically efficient, use lowest cost combinations of inputs
Overlay Isoquant with Isocost => pick inputs; figure out path for production expansion or contraction

9. Production Cost control
*******************************
Marginal rate of technical substitution (MRTS) - How much of one input can be substituted for a constant output
eg. substitute machinery; change fuels

10. Marginal Revenue Product (MRP) & Marginal Resource Cost (MRC)
***********************************************************************************
MRP - Revenue generated from one additional unit of input
MRC - Cost of adding one additional unit of input

11. Production Manager's job
***********************************
Determine Product function
Determine right combination of inputs with lowest cost

eg. Straw berry season
Inputs - Labor
Output - pints of strawberries
Increase labor to get berries, increase marginal product
Crowded field of workers begin to step on each other's feet
Farmer has to optimize labor input to maximize output of berries
=> figure out the production function (ie the yield model)

III. Week 4 DQ1: The Productivity Imperative
******************************************************
Bureau of Labor Statistics website (http://www.bls.gov/) - learn more about labor productivity and costs.
Determined the current productivity results for the non-farming business sector and the manufacturing sector.
Discussed recent productivity and cost trends to make predictions for the future.

IV. Week4 Assignment: US Economy
*******************************************
Key Point:
Knowledge & innovation have major impact on economic growth and are the basis of increasing international competition.

Changing economic forces and underpinnings of US adaptability
**************************************************************************
(i) Low wage competition: from foreign countries; Mexico & China intensified it
*************************
(ii) Technology acceleration: starting 1960s
********************************
- new high tech industries grew; located in cities with skilled workforce & university research
- Technological capability is key to competitiveness in open & integrated world
(iii) Continual pervasive pursuit of material success
**********************************************************
- key driver of economic system
(iv) US financial system
*************************
- essential element in business startups
(v) Triple helix
*****************
universities, governments & businesses
Universities: sources of knowledge & education + industrially valuable technical skills, innovation, entrepreneurship
Businesses: they follow open innovation system; actively pursue innovations outside immediate industrial context
Governments: Taxes, Regulations & Public policy
(vi) Knowledge & innovation
*********************************
- University industry linkage (UIL) depends on the Innovation system
- extent and nature of knowledge economy differs among nations
(vii) Financial system
*************************
Very important element in firm's success in knowledge economy
Startup and growth of a firm based in knowledge economy depends on a financial system that can provide it adequate funding
Traditional firms:
******************
Firm borrows with fixed assets as security for a loan
Firm's book value guides stock valuation
Traditional Banking system - borrow from depositors, charge interest rates, lend to borrowers
Knowledge economy firms:
*********************************
Firm borrows against knowledge assets - Difficult to value
Traditional Banking system (borrow from depositors, charge interest rates, lend to borrowers) severely limited
Supplementary financial activities
**************************************
Disintermediation - firm obtains funding directly from investors & new financial intermediaries
VCs, angel investors, investment bankers, PE funds, bought deals, IPOs
Gap in availability of such funding is a key contributor to relative productivity growth among nations

(viii) 2007-2009 Financial & Economic Crisis

(A) Causes:
(i) Lack of adequate government regulation
***************************************
 - allowed mortgage bankers to arrange house financing geared tp skyrocketing real estate prices
(ii) Subprime mortgages
*******************
 - enabled households to borrow more than they could afford to repay
 - institutions combined these mortgages to create collateralized debt obligations (CDOs); securitization process distributed the tainted assets worldwide
 - CDOs insured through credit default swaps
(iii) Real estate prices started to fall
***********************************
 - financing process stopped
 - many banks held CDOs worth much less than their face value
 - insurance companies did not have adequate funding to meet their commitments

(B) President Obama's Actions & Reforms
********************************
 - Assisted financial institutions through loans, purchase of shares, debt guarantees, purchase of non-performing loans
 - Monetary policy: lower interest rates; expand money supply
 - Fiscal policy: tax cuts; huge increases in expenditures; deficit > 10% GDP
 - Assisted Housing & Automobile sectors financially

(C) Open issue - Current Recession
***************************
How long would it last ? What does it impact? What results will come from govt policies ? eg. Rapid inflation could occur.

Dr DP

Generate demand through strategic marketing

JWI 518 Marketing in a Global Environment, Week4 Summary - 11/4/12

This week we got inside the mind of the consumer, to understand the logical and emotional motivators in purchase decisions and create an effective marketing strategy.

I learned a lot of valuable marketing insights that I can use gainfully going forward, not only during my interactions with the marketing department but also on a daily basis since I am always selling something to external or internal customers.
   
I. Kotler, Chapter 5: Analyzing Consumer Markets
******************************************
Traditional marketing view: Make and Sell focus
************************************************
- works only in developing markets when consumers are not fussy about quality, features, style

Strategic marketing view:  Deliver superior Value
**************************************************
Value delivery process
Choose the value: Segment, Target, Position (STP)
Provide the value: features, prices, distribution
Communicate the value: sales force, internet, advertising

Value Chain (Porter)
*********************
Tool for identifying ways to create more customer value
Firm should examine costs and performance of each activity
Benchmark competitors as well as best in class practices of best companies
Create superior value delivery network - the supply chain

5 primary activities
*********************
(i) inbound logistics
(ii) operations to convert materials into final products
(iii) outbound logistics - shipping out final products
(iv) marketing & sales
(v) service
4 support activities
********************
(i) procurement
(ii) technology development
(iii) HR management
(iv) firm infrastructure - Cost of General Management, planning, finance, accounting, legal, govt affairs

Strong firms develop core competencies in 5 core business processes
********************************************************************
(i) Market sensing
(ii) New product realization
(iii) Customer acquisition & retention
(iv) CRM - build, understand relationship with individual customers
(v) Fulfillment management

Companies no longer compete - marketing networks do
****************************************************
Holistic marketing
Manage relationships with itself, customers, stakeholders
Integrate value exploration, creation delivery

Market oriented strategic planning
***********************************
Develop a viable fit between firm's objectives, skills, resources
and its changing market opportunities

Measure Marketing Performance
*****************************
Metrics - Short term results, changes in brand equity
Marketing dashboard: customer performance scorecard, stakeholder performance scorecard

II. Wathieu, Apple Stores, HBS case study 2002, 2010
*****************************************************
Market positioning - do more with the computer elegantly
Store design with theater - enrich customers and convert them from PC use
Store manager, Genius, Sales Associate - elevate customer service with clear cut responsibilities

III. Video: Jack Welch, A Great Marketer
**********************************************
Great marketers - Have True Empathy for who they are talking to; they feel like the consumer & business audience;
not hawking a product; trying to meet a need; putting themselves in shoes of the eventual customer

IV. Video: Jack Welch, Creative Promos
**********************************************
Creative Promos: Clear as glass, tough as steel; To break into Detroit Auto market
Jerry McClain, famous pitcher - held plastic while he pitched - the ad got talked about
Exaggerate - use creative talents of ad agency and your people
Bob Gibson - China shop, could not break it
there is no formula to get there

V. Week 4 | Lecture 1: Marketing Psychology: Understand Why People Buy
***************************************************************************************
Traditional marketing strategy - "Find a need and fill it" - limited and can lead to disasters
Understand customers, psychology and behavior to design a well-focused marketing and advertising plan

(i) Consumer motivation begins with a need.
******************************************
Basic fact: People do not want what you are selling. People buy anticipated satisfactions, not products
**********************************************************************************************************************
Buyers are looking for satisfaction from a solution to a problem, above and beyond a product and its features.
need -> critical features -> right product -> at right value (cost/benefit; emotional/logical; weigh fears vs needs, wants, desires) -> solution  -> satisfaction
   
                         Sells-Product
Gillette              Clean shave-Blade
Revlon              Romance-Nail polish
Betty Crocker    Feeling of love & pride-Tasty cake

Winning Products are in the critical path to customers' satisfaction
Understanding real motivations of buyers is the first step in creating a successful marketing strategy

(ii) Firm's 10-step marketing strategy
*******************************************
Segment Demographics -> market research motivation for each segment -> identify attributes in product that customers value : concrete, functional, abstract -> identify logical and emotional motivations of each segment -> match segment vs attributes -> combine segments with similar emotional/logical motivations -> identify right media based on budget & target market
-> create right marketing message -> connect the product to motivation in the mind of the customer

(iii) Marketing Message to Persuade Buyers
*****************************************************
Know the buyer's motivations and understand how to motivate them (this is the foundation for any marketing strategy)
The primary underlying thought in buyers’ minds is this: “What’s in it for me?”
Remind buyers of some key satisfactions they want to achieve
Promise you can make it happen
Highlight the key features of the product or service
 - The role of features is simply to prove to the buyer that a product can deliver on its promise of satisfaction
 - Use the product’s attributes as a way to validate your promises, not as the primary focus of the message. The focus must be on customer satisfaction.
Provide testimonials to convince people that you can deliver on your promise.
ask customers to take the next step in the buying process-go to the showroom, the store, the Web site, or pick up the phone.

This approach is far more effective than simply selling features.

   
VI. Week 4 | Discussion 1: Marketing Psychology - Get inside the buyer's mind
*******************************************************************************************
When we analyze a buyer’s motivations as they relate to our type of product or service,
we also take into account the method (channel) by which he may find or buy our product.
The internet has affected the motivations of consumers by making them do things they may not normally do.

VII. Week 4 | Lecture 2: Generating Demand
*****************************************************
Many years ago, Xerox built computers that were very good. No one bought them.  Despite having an excellent product, the company created no compelling reason for customers to own a Xerox computer. Without demand, it had no sales.

Seven ways to generate demand
***************************************
(1) Create favorable perceptions of the brand in the buyers’ minds (this is the marketer's job)
(2) Develop features that make the brand different and stand out.
(3) Create a winning Image of superior quality with product appearance and packaging
- What the product looks and feels like makes a big difference.
- Packaging isn’t just what wraps the product. It is how a store gives an image to its products.
- clean floors, uplifting smells, well mannered employees key for good business
- the experience and the assurance that anything they buy can be returned without a problem. 
- offer a classy look in the store, which conveys to shoppers the message that everything in the store is of high quality.
(4) separate your brand from the competition through the distinctive offers you make - find a way to increase the perceived value of the offer to the buyer.
-if you lose your job within six months, the company will take back your car.
- create the perception of value in the buyer’s mind.  Bath products + loofah sponge; gym membership + trainer
(5) Provide Prestige
Countries like Italy, France, and Germany have high-quality images that rub off on their products and, buyers hope, on them.
-make a customer feel special and give him a reason to hope, gain respect and envy
(6) Innovate Distribution - differentiate and increase value
- fast home delivery when other pizza companies made you come in to pick up your food.
- shop from your easy chair
- gets your package there the next day, unbroken.
- build multibillion-dollar empires on a more attractive distribution model. Break down tradition - the only place you can buy is a store
(7) Offer More - greater customer value

VIII. Week 4 | Discussion 2: Generating Demand
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ABI Research Mobile Marketing Strategies http://www.abiresearch.com/products/service to learn more about it.
As a consumer, I have mixed feelings about targeted ads coming at me on my mobile.
Marketing managers must balance giving valuable deals real time vs intrusive messages.
Ideally customers should opt in or opt out of mobile marketing (as suggested by Ken Sneed)

Dr DP