Overview of Lecture Revisit Prospect Theory Endowment Effect results "Anchoring" Marketing Channels Discuss Group Projects (& form groups)

Prospect Theory

losses exhibit diminishing sensitivity

What would you think about having 50 TV channels?

The endowment effect

The "Endowment Effect", the"Status Quo Bias" & reference-dependent valuation

How many murders in Wisconsin?

How many home runs did Mark McGuire hit in his rookie season?

Anchoring in market research Would you pay $25 ? YES NO How much would you pay? ________ Would you pay $200 ? YES NO How much would you pay? ________

Estimate the product 1 X 2 X 3 X 4 X 5 X 6 X 7 X 8 = ????? 8 X 7 X 6 X 5 X 4 X 3 X 2 X 1 = ?????

Anchoring on initial impressions Intelligent – Industrious – Impulsive – Critical – Stubborn – Envious Envious – Stubborn – Critical – Impulsive – Industrious – Intelligent

Marketing Channels "Push" : getting channels to carry your product "Pull" : getting consumers to ask for your product by name Firm ChannelsCustomer retail stores wholesalers telemarketing mail order catalogs web sites

Marketing Channels "Captive Channels" : channels owned by firm "Non-Captive Channels" : channels not owned by firm "When do retailers have "channel power"? firm's product is not well differentiated from competitors threat of backward integration (e.g. Shaw's cola) Firm ChannelsCustomer

Channel Conflict: Examples Firm: Your retail prices are too high, and are driving down demand Retailer: With your wholesale prices, it’s the only way we can make money Firm: You carry too many lines, our product isn't even noticed on shelves Retailer: Customers come first. BTW, why don't you prune your line. Firm RetailerCustomer

Channel Conflict: the Internet "free – riding" by internet channel customers who use more than one channel get confused return policies origin of merchandise different prices Firm Website Customer Retail stores