Lecture 1 – Introduction
There are 2 different views. It takes a long time to
make a product and this problem generates
potential mismatches between production and
customer needs. Left picture: marketing is placed
centrally in organization and the reason why they
exist, is their marketing function. It cost a lot to
sell goods!
Marketing is the new finance
We know more about consumers and with this data you
can make decisions in a more effective way. Examples:
Google Analytics, Nielsen panel, Own company data.
Following the economic behavior of their customers is a
good thing because you can figure out who those
customers are and learn new things. Another huge
competitive advantage is seeing what people are buying
and the information only YOU have about your
customers.
The Marketing Framework
3 types of pricing strategies
- Cost Based (for highly unique products, not easy to justify in many cases)
- Value Based
- Competitor Based (when there is a lot of competition)
Place and Promotion = market reach (access and knowledge to buy)
Product and Price = market value
,Ultimatum Game
Interaction between 2 parties: Proposer and somebody who accepts (Acceptor).
The acceptance of the Acceptor is an ultimatum. If no accept, money is gone
forever.
Ration decision? Purely looking at economic standpoint. Put yourself in the
position of person B. They choose between getting something vs. getting nothing.
Offer a minimum amount that will be higher than 0$ and will be accepted.
What happens? If you offer 0.01$ the acceptor won’t accept emotional feeling
(upset, unfair, angry) and you want to get back to the bad person who proposes this. If you make an
offer that is too low, people won’t accept.
When consumers says no, there is no value created. There are $10 of value between manufacturer
and consumer. Firm was able to add $10 of value to create a product that consumers value at $10.
How to divide that value between me and consumers? If price is very close to their willingness to
pay, they are likely to buy.
1. 2 persons, encountering one another once
2. Person A proposes to person B how to divide an amount of money
3. Person B can say YES or NO
a. YES A and B divide the money as proposed
b. NO The money disappears and is gone forever
Has been studied in many context. Theory suggest person A proposes minimum to person B, who
accepts. Puzzle: in practice person A proposes much more. This notion of fairness matters when
talking about pricing.
Ultimatum Game: Findings
How stable are these findings?
,Dictator Game
1. Two persons, encountering one another once
2. Person A proposes to person B how to divide an amount of money
3. Person B has to accept!
In this experiment, bad behavior cannot be punished!
Pricing Decisions
Sharing the value a company creates between itself and its customers.
You need to have a good idea about your customers, company and competition. In this lecture we
focus on the customer side.
Step 1: Issues in measuring consumer preferences
What are good measures of preferences?
, Preferences
- Intention to buy
o Too hard a question
o Overconfident about buying probability
- Self-reported importance weights
o Lack of discrimination, everything is important! (consumers
want high quality products, for free)
- Trade-offs
o Benefits and costs
o What is desired most
- Actual purchase data
o Counts
o Sales force reports
Stated intention-to-buy measures
We can ask consumers whether they buyed the product.
Only 12% actually buys the car in the end who said
“definitely yes” on the question if they would buy the
product.
Test: guess something with 90% confidence. So not
100% confidence!
If you are asked 10 questions with 90% confidence. This tells that you are very overconfident. This is
how people deal with uncertainty. You are overconfident in the probability of buying.
Toward Conjoint Analysis
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