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HACE 3100
Test 2
104
Economics
Undergraduate 1
10/12/2010

Additional Economics Flashcards

 


 

Cards

Term
Consumer Behavior
Definition
the buying behavior of consumers- the individual, families, and households who buy for personal consumption
Term
Buying Process:
Definition
Pre- Purchase:
1) assessing need
2) searching for informaiton
3) evaluating alternatives
4) selecting
Purchase
5) Buying
Post- Purchase
6) Evaluating
Term
Pre-Purchase
Definition
the consumer tries to determind how much pleasure or pain will be derived from a product or service
(assessing need, searching for information, evaluating alternatives, selecting)
Term
Searching for information
Definition
involves sorting behavior
information either internally or externally is accessed
Term
in the economic theory of choice, the assumption is that the consumer has ________ information
Definition
perfect
Term
Challenges to obtaining Information
Definition
a) number of products or varieties is overwhelming
b) complexity of goods
c) time costs are great
d_ consumers have high expectations
e) false sense of security
f) some information is useless or inaccurate
Term
Challenges to obtaining information: Choice is overwhelming: Deregulation
Definition
Deregulation has brought with it more choices as well as increased competition
its a sign of a healthy economy to have a larger number of products&services, but the diversity may cause confusion for consumers
ex- telephone services, airline tickets
Term
Challenges to obtaining information:: Complexity of Goods
Definition
assessment is harder
new technology is more complex and the info is either more complex or not available
Term
Challenges to obtaining information:: Consumer Ecpectations
Definition
higher levels of education translate into consumers that demand more info
Term
Challenges to obtaining information: false sense of security
Definition
consumers assume theyre protected and don't practice caveat emptor (let the buyer beware)
Term
Why is consumer report a good source of objective information?
Definition
consumer reports is non biased (objective) and does not accept advertisements
Term
cost/ benefits of information search
Definition
Costs: time costs, cost of gasoline or public transportation, cost of obtaining information, emotional cost

benefits: lower tag price, lower consumer cost, satisfaction from shopping, knowledge of what is availible
Term
information search: when should you search for more information?
Definition
expensive product
something you will have a long time
when there is large price dispersion in the market
large variation in quality
Term
information search rule
Definition
consumers will search as long as cost of search is less than expected savings from search

cs< es
Term
3 types of goods (information based)
Definition
Search- consumer gathers relevant and pertinent information before purchase

experience- obtains relevant info after purchase

credence- consumer never obtains relevant information
Term
most goods fall into the ______good category (information based)
Definition
search category
ex: appliances, cars, clothing, furniture
Term
Experience good
Definition
good where product characteristics such as quality or price are difficult to observe in advance, but can be ascertained upon consumption
ex: miracle whip and sugar sandwich moorman loves--> food you need to taste or entertainment where you cant preview the entire event (movie)
Term
Credence Goods
Definition
term used for a good whose utility/impact is difficult/impossible to ascertain
ex: vitamins
Term
information and types of goods (how producers/ gov't make obtaining info easier on consumers)
Definition
search- stores will cluster to lower search costs
experience- cents off coupons, taste tests, and previews to lower search costs
credence: policing credence goods more than others (drug regulation, licensing service providers, etc)
Term
Passive Information vs. Active Information
Definition
passive: encountered when one is doing something else (banner ads, billboards, ads on bathroom doors)

active: actively sought out- test driving a car, internet search, etc.
Term
Selecting--> Two factors intercede between purchase intentions and the actual decision:
Definition
Attitudes of others
Unexpected Situational factors
Term
"post- purchase feelings" can stimulate_______
Definition
brand loyalty, repurchasing, and word of mouth advertising
Term
Why satisfaction is important
Definition
1) delighted customers engage in positive word-of-mouth
2) unhappy customers tell on average 11 other people
3) it costs more to attract a new customer than it does to retain an existing one
4) cognitive dissonance is common
Term
Political-Legal influences on Marketing Strategies
Definition
concern for targeting customers (children)
product safety issues
concern for product patents (generally 20 years)
Term
Surrey School Board/ Products for Gay&Lesbian population
Definition
teacher James Chamberlain attempted to read "asha's mum, one dad, two dads, brown dad, blue dads" and the board of education banned the books citing "grammatical failings"

board pursued to supreme court of canada where they lost and eventually paid 1.2 million
Term
4 Elements of marketing decision-making to satrisfy chosen target markets
Definition
1) Product
2)Price
3) Distribution
4) Promotion
Term
Product Strategy
Definition
What goods/services to offer
customer service
package design
brand names
warranties
product life cycle
positioning
Term
Pricing Strategy
Definition
deals with the methods of setting profitable and justifiable prices
goal is to get to equillibrium price
Term
Distribution Strategy
Definition
Planning that ensures that consumers find their products in the proper quantities at the right times and places
modes of trasnportation
warehousing
inventory control
order processing
Term
Promotional Strategy
Definition
Blending together the various elements of promotion to communicate most effective with the target market
informing, persuading, and influencing a consumer's purchase decision
Term
Companies respond to competition by:
Definition
Reducing Prices
Increasing Advertising
Introducing a new or improved product
buying out the competition
trying to inspire brand loyalty
Term
New Product Development
Definition
development of original products, product improvements, product modifications, and new brands through the firm's own Research and Development Efforts
Term
Bandwagon Effect
Definition
consumer gets satisfaction from being like others in his/her reference group
Term
Veblen Effect
Definition
consumer gets satisfaction from showing others that he/she has a lot of money (even if they don't)

also known as conspicuous consumption
Term
Snob effect
Definition
consumer gets satisfaction from having something that no one else has (at least no one else in their reference group)

consumer wants to be unique
Term
Snob effect
Definition
consumer gets satisfaction from having something that no one else has (at least no one else in their reference group)

consumer wants to be unique
Term
Where was the first computer made?
Definition
Iowa State
Term
Case Study: harley Davidson (building success and measuring success)
Definition
Building Success:
understanding the customers' emotions and motivation
determining the factors of loyalty
translating this information to effective advertising

Measuring Success
currently 22% of all US bike sales
demand above supply
sales doubled in the past 5 years with earnings tripled
Term
Case Study: Microsoft:
Definition
$50 billion in profits over 27 years
early new-product development relied on copying competition
$4.2 billion annually invested in R&D
innovatioin is critical
R&D efforts are mostly internet related
new products/services in development
Term
New Product Development Strategy:
Definition
1) Idea Generation
2) Idea Screening
3) Concept Development
4) Marketing Strategy
5) Business Analysis
6) Product Development
7) Test Marketing
8) Commercialization
Term
5 Product- Life Style Stages
Definition
1) Product Development
2) Introduction
3)Growth
4) Maturity
5) Decline
Term
Products that DO NOT follow the typical product life style?
Definition
fads, styles, fashions
Term
PLC Stages:Development
Definition
Begins when the company develops a new-product idea
sales are zero
investment costs are high
profits are negative
Term
PLC Stages:Introduction
Definition
Low sales
high cost per customer
negative profits
innovators are targeted
little competition
Term
PLC Stages:Growth Stage vs. Intro Stages
Definition
Intro:
offer a basic product
use formulas to set price
build awareness among early adopters
heavy expenditures in sales promotion

growth:
offer product extensions
penetration price (low to create interest)
build awareness/interest via advertising in mass market
reduce sales promotion expenditure to take advantage of consumer demand
Term
PLC Stages: Maturity
Definition
sales at peak
low cost per customer
high profits
middle majority are targeted
competition begins to decline

diversify brand and models
set price to match or beat competition
build more intensive distribution
stress brand differences and benefits in advertising
increase sales promotion to encourage brand switching
Term
PLC Stages: Decline
Definition
declining sales
low cost per customer
declining profits
laggards are targeted
declining competition

phase out weak items
cut price
use selective distribution: phase out unprofitable outlets
reduce level of advertising needed to retain hard-core loyalists
reduce sales promotion to minimal level
Term
can we save/store time? 
Definition
all we can do is spend it 
Term
Parkinson's Law
Definition

a job expands to fill the time availible to accoomplish the task, such as finding and purchasing a product

 

this is why people spend all day shopping and buy the same thing they could have in their lunch hour

(spending 1 hr to buy a white shirt vs a whole saturday) 

Term
Pareto Principal
Definition

80/20 Rule: 20 % of the time expended produces 80 % of the results

 

80% of the time expended produces only 20% of outcomes

 

which means we waste a lot of time (shopping/ laundry) 

Term
Rules of Thumb: Buying Styles
Definition

Rational

Slow

Bargain Shopper versus innovator (laggers buy last)

malls vs ma/pa stores

comparative vs. impluse

Term
Rule of Thumb: Price
Definition
most consumers try to stay within their budget constraints 
Term
Budget Constraint
Definition

quantity of goods that you can buy given set prices and limited income

 

shows all possible combinations of X and Y the consumer can buy when spending all of her income

Term
Ability to Trade
Definition

  • any point on the budget constraint line is indicative of a person's ability to trade between two goods
  • line slopes downward to represent a trade off between the two goods
  • have to give up some of one good to gain the other (opportunity cost) 

Term

not everyone is offered the same opportunities to live according to his or her budget restraints-- some are charged different prices for the same goods and services....what is this called? 

Definition
discrimination 
Term
All or nothing Price Discrimination
Definition

buy a group of items but cannot buy them individually

(candy bars in movie theaters or four light bulbs but no individual light bulbs) 

Term
Two- Part Pricing
Definition

a price for the privilege of buying items

and a price per item

ex: country club dues and greens fees, cover charge to enter and a price per drink

Term

how much do US advertisers spend per year?

How much worldwide? 

Definition

more than 237 billion

approaches 470 billion 

Term
Identity Market
Definition

  • Consumers wear or display their homes product logo on them (nike on shoes)
  • solomon says our identities are formed by an allegiance to common value systems expressed through affiliation with product sets

Term
What is advertising?
Definition

  • producer generated information about products and services
  • the activity of attracting public attention to a product or business, by paid announcement in the print, broadcast, or electronic media

Term
Advertising: Classified by 4 purposes:
Definition

inform

persuade

compare

remind

Term
Components of Commericals
Definition

familiarity (rice krispie commercials)

humor (positive association)

sexuality

animals 

Term
consumer space
Definition

a system in which companies sell with consumers

ex: when you wear a t-shirt with a business' name on it. you are advertising WITH a company (idea that we all want to be like everyone else--> bandwagon effect) 

Term

30 seconds of the superbowl costs_____

for whom did K-Fed advertise?

Definition

2.5 million

an insurance company

Term
Types of Ads: Informative Ads
Definition

 

  • also called Pioneer advertising bc they were the first
  • provides the consumer with specific, understandable, verifiable claims 
  • research indicates: it reduces consumer uncertainty so they are more likely to buy a product
  • an increase in exposure leads to an increase in expected utility (of products)

 

Term

Types of Ads:Puffing Ads

Definition

ads that do not give any relevant information but also do not mislead the consumer 

ex: captain morgan ad

Term

Types of Ads: Deceptive Ad

Definition

  • tendency to deceive
  • impression that the ad is truthful when it isn't
  • omission of important information
  • bait: unrealistically low price for a product
  • switch: to a much higher priced model of the same product (happens alot on black friday) 

Term

Types of Ads: Comparative Ad

Definition

  • companies used to hesitate to do this, but not anymore
  • sometimes it can backfire and cause the viewer not to want to buy the product if the comparison is too hard (ex: political advertising is too nasty) 

Term

Types of Ads: Defensive Ads

Definition

in a market that is saturated with a certain product, everone sellind that product has to advertise or be left out of the market. You don't gain anything by advertising but at least you are still in the game

 

(Defensive strategy) 

Term
Developing Advertising Strategy consists of two major elements:
Definition

creating advertising messages

selecting advertising media

Term

message strategy 

 

Definition

identify customer benefits

appeals should be meaningful, believable, and distinctive 

Term
message execution
Definition

shoose a tone (life insurance vs. doritos)

use memorable, attention-grabbing works (snap, crackl, pop)

Term
Planning the best message: what should an ad accomplish?
Definition

1) gain attention and interest

2) inform and persuade

3) lead to the person buying 

Term
America's Top 5 Advertisers
Definition

Proctor and Gamble

Altria

General Electric

Time Warner

Walt Disney (the vault)

Term
Federal Trace Commission's role in advertising
Definition

  • can issue a consent decree
  • can ask for ad substantiation
  • can issue a cease or desist order
  • can require a corrective ad 

Term
corrective advertising
Definition

  • also called counter advertising
  • FTC requires company found liable for deceptive advertising to issue advertising anew that corrects the earlier misinformaiton

Term
FTC Concerns: Targeting Children
Definition

  • marketing to children because children do not have the cognitive ability to understand many advertisements
  • the average man rule does not work

Term
redress
Definition
consumers have a "right to redress" which is the right to seek and obtain satisfaction for damages incurred through the use of a product or service 
Term
complaint procedure
Definition

  • local business-place from where you purchased
  • manufacturer
  • non-governmental organizations
  • government protection agencies
  • small claims court
  • class action suits

 

Term
effective consumer redress checklist
Definition

 

  1. no emotional outbursts
  2. act promptly
  3. know your rights
  4. get organized (reciepts, model #, when, etc.)
  5. put in writing 

 

Term
Step One of Consumer Redress
Definition

  • Return to the place where the item was purchased
  • currenlty no laws regualte refunds and stores are not required to post their policy but some do (individual stores set their own policy)

 

Term
step two of consumer redress
Definition

-contact the company's HQ by phone, email, or letter
-elements of a written complaint:
1) describe the purchase or service

2) the date and place of purchase/ service

3) name of the product/ person who provided service 

4) serial number of product

-consumer must state problem and the history

-ask for a specific action to resolve dispute

-state how you can be reached and enclose copies of documents

-include a reasonable response time to the issue

Term
keys to effective consumer redress
Definition

 

  • opening of letter should be positive 
  • state facts in an objective manner
  • put requests before justification
  • state conclusions before discussion
  • use attachments
  • send copies of complain letter to 3rd party if appropriate 
  • refer to previous complaints if appropriate

 

Term
Evidence that consumer redress works:
Definition

  • study by Prawitz and Lawrence in 1993- a consumer econ class wrote letters regarding unsatisfactory products/ services
  • 80% got response within 3 weeks
  • 43% complied with requests
  • 64% of the students were satisfied with responses
  • (students with no response will probably no longer do business with the company) 

Term
Better Business Bureau and consumer redress
Definition

  • the BBB Strongly encourages consumers to first attempt to resolve complaints directly with the comnay, however the BBB will not reject a complain is a consumer has not taken this step. 
  • Historically over 70% of complaints through BBB are resolves 

Term
Arbitration and Mediation
Definition

process by which the parties in the dispute submit their differences to the judgement of an impartial person or group appointed by mutual consent

 

the goal is conciliation (to make nice again) 

Term
Legal Remedies: small claims court and class action suits
Definition

small claims court: or civil courts

has a limit

usually without attorney (judge judy)

 

class action suits: 

claims and rights of many people are handled by a single hearing...several consumers banding together. amount consumer receives is small, but the company has to pay out big money. 

Term
Fraud
Definition

occurs when an individual company KNOWINGLY misrepresents or fails to reveal an important fact to the consumer, with the ultimate result that the customer is cheated

 

there must be a deliberate attempt to mislead the consumer 

Term
targets of fraud
Definition
individuals who are unsure of themselves, are dissatisfied with their lives, or fail to use good judgement
Term
cardiff giant
Definition

one of the most famous hoaxes in American history, was a 10-foot tall "petrified man" uncovered on October 16, 1869 by workers digging a well behind the barn of "stub" in BY

 

a giant commissioned by george hull

Term

Types of fraud: contests

Definition

if you get a peive of mail that says you have won a prize- you have NOT. they want to you to buy something or give them information

 

rule of thumb: don't participate if you have to pay to do so

Term

Types of fraud: pyramid schemes

 

Definition

earliest scheme: chain letter

recipient is told to send a sum of money to the first person on the list. the recipient then took that person's name off and everyone's moved up a slot including their own 

 

success rested on the exponential growth of new members. "pyramid" indicates the increasing population at each successive layer

Term

Types of fraud: Charities

Definition

  • pick a cause that you believe in and can verify is legit. have them send you literature
  • plan your charitable giving making these decisions once a year
  • watch out for phony charities
  • never allow anyone to pressure you to give

Term

Types of fraud: Food and Health

Definition

  • dietary supplements- if labeled a "dietary supplement" it escapes FDA scrutiny
  • cosmetics- quick fixes that will make us beautiful or handsome (cosmetics that fall under FDA restriction have to be safe but not effective)
  • inaccurate information- Stouffer's lean cuisine and the sodium mishap (fined and had to correct it)

Term

Types of fraud: Medical Fraud

Definition

  • Fee Splitting: one doctor reccomends you see another and then they split the fee for the follow-up visit
  • conflict of interest: doctos orders tests and what you don't know is that the doctor owns the testing center
  • denial of claims: some insurance companies automatically deny all claims the first time they are filed

Term

Types of fraud: Health Insurance Fraud

Definition

paying for unnecessary services

or services that were never performed

perpetuated by the doctors and hospitals to inflate their payments 

Term

Types of fraud: Repair Services

Definition

  • Home computers
  • many computer repair agencies are legit but others are not
  • low ball technique-"free diagnosis" can tell you anything is wrong with the computer once they take it apart
  • auto: same thing
  • credit card "protection" offers- pays off your balance in the event that you are dead. you are not liable after you are dead. 
  • offer to "protect" you if someone steals your card but federal card regulations already protect you

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