notes

# COMM 296: Practice Questions

# Product

1. A service is a product that is intangible, inseparable, heterogenous, and perishable.

  • Microsoft Word
    • Intangible -> Tangible; it has a physical presence in the application itself
    • Inseparable -> Not inseparable; the application was "produced" when it is developed. It is being "consumed" when you are using it to write documents.
    • Heterogenous -> There is no variability in the quality of the product. Bugs may occur, but those bugs would have always been present.
    • Perishable -> Can be stored; in your computer.
  • Starbucks coffee
    • Intangible -> Tangible
    • Inseperable -> It is produced by the barista and consumed later by you. It can be tried e.g. free samples.
    • Heterogenous -> It is variable, as the barista always creates a new coffee when you order it.
    • Perishable -> Can be stored
  • Shampoo
    • Intangible -> Tangible
    • Inseperable -> Production and consumption are separate
    • Heterogenous -> Likely small variations due to production method but not enough to classify it as a service
    • Perishable -> Can be stored
  • Eyebrow waxing
    • Intangible -> Intangible, the product is the act of eyebrow waxing
    • Inseperable -> True, cannot be tried
    • Heterogenous -> Likely large variations because of performance of person doing the waxing
    • Perishable -> True, cannot be stored

2a. This could be a good strategy for Zippo as it allows them to diversify in preparation of them losing sales in their lighter product.

By performing this brand extension, Zippo is able to cut costs in new product development and experience more efficient promotion. By establishing a brand name in the business of other fire-related goods, they are able to increase their brand awareness if they choose to start producing their own goods in this industry in the future.

Despite this, Zippo has to be careful that their licensees don't misuse the brand name. This can lead to poor repurcusions where their brand image becomes tainted.

2b. One strategy Zippo could use is diversification; to develop a new product in a new market. Specifically, they can go into the business of something like grills or fireplaces.

This would be an example of a related diversification, as there are similarities between the new product and the current product, the Zippo lighters. Grills and fireplaces can utilize similar, albeit more complicated, technology that Zippo already currently understands in their lighters.

By implementing a related diversification strategy, Zippo can utilize their current distribution channels and don't have to invest much further in R&D. They can also use their strong brand awareness to allow them to bypass potential barriers to entry in the new market.

# Distribution (Place)

1. A&B Sound can only develop a marketing mix if it has chosen an appropriate target segment.

As with other products in the decline stage (as with physical music products), they have two options: to target a niche or exit the market.

One possible niche A&B Sound can enter is the vinyl market. Listeners to vinyls are definitely still around and are active consumers who are willing to pay high prices for high quality vinyls.

Given that niche, A&B Sound can create their marketing mix as follows.

  • Product -> Their product should consist of an assortment of both vinyls and vinyl players. They could also collaborate with a manufacturer of vinyl players to create an exclusive brand, differentiating them from other vinyl stores.
  • Price -> Here they have the option to price low or high. As the number of vinyl customers are already small and they care about their sound quality, it might be a better option to price a premium and source higher quality vinyl players.
  • Promotion -> A&B Sound should invest in m-commerce and e-commerce. Having an online marketplace could allow them to not only further differentiate from competitors, but to also reach out to a growing number of users who are shopping through their devices.
  • Place -> A&B Sound already have a significant number of stores so they could likely use the ones that they already have. However it might be beneficial to keep only a select few stores given their current financial state.

# Promotion

1a. It is a pull strategy because Walmart is attempting to attract end consumers.

1b. Sponsorship is when a corporation supports, financially or otherwise, an activity.

1c. Walmart has the option of choosing between advertising, sales promotions, personal selling and direct marketing. Between these options, it seems that sales promotions and personal selling would best take advantage of Walmart's current partnership with the tv show.

  • Advertising is costly and provides no further information for viewers who already watch the tv show.
  • Direct marketing also does not take advantage of partnership because of viewers are already aware of the products in the tv show.
    • In store, direct confrontation may appear to be annoying and an inconveniece for customers.
  • Sales promotions -> Provide coupons specifically for viewers of the show or sweepstakes; allow viewers to enter a contest to win products.
  • Personal selling -> Provide customer representatives at walmart stores that can help with providing more information
    • There are likely to be people who are looking for particular products that are shown in the TV show

# Pricing

1a.

  • Profit oriented -> These companies are aiming to either maximize profits, achieve a certain profit goal, or maximize return on investment.
    • This requires determining an appropriate economic model and using that model to find the most optimal price.
  • Sales oriented -> Aims to set prices in order to maximize sales.
    • Sometimes done in order to gain market share.
    • The lowest priced product does not necessarily result in maximum sales.
  • Competitor oriented -> Sets prices based on competitor actions.
    • Competitive parity is a strategy to set prices to match competitor prices.
    • Status quo pricing is a pricing strategy to change prices whenever a competitor changes prices.
  • Customer oriented -> Sets prices to maximize customer perceived value.

1b. Bundle pricing is a pricing tactic that involves selling a group of related products together as a bundle, where the price of that bundle is less than the price of each product combined.

This is commonly used in software such as the Adobe Suite, where a bundle of all 10 or so applications can be bought for $50/month whereas each individual application is $10/month. This leads consumers to believing that the bundle is of higher "perceived value", so customers will pay more to receive all the applications even though they may not necessarily use them all.

2a. Contribution per unit is $70 - $48 = $22. Break even point is 278,000/22 = 12,637 units.

2b. The new product has a contribution margin of $22 which is less than that of WebTech's other product. This suggests that, on a per unit basis, the other product is more profitable for WebTech. If the risk of cannibalization is significant, it may be more beneficial for WebTech to not move forward with the product launch.

  • There are other factors that may lead to WebTech wanting to continue with the launch.
    • Innovative product may open new market -> WebTech having large proportion of market share
    • All factors have to be considered before cancelling the launch entirely

3a. Skimming may be an effective strategy for a new video camera.

  • Video camera industry is an industry where people are willing to pay high prices
  • Fans of new technology may be quick to try out new camera (innovators)
  • Typically signals higher quality
  • Risks
    • Must have innovative features otherwise even innovators would not try it out
    • Potentially high unit costs due to low sales volume

3b. In the camera industry higher prices typically correlate with higher quality cameras. So higher price -> higher perception of quality.

3c. Bundle pricing can be used to bundle together the camera body and its associated lens. This will attract new consumers e.g. hobbyists who are looking to get their first camera.