ECON 200 Lecture Notes - Lecture 13: Adverse Selection, Moral Hazard, Home Insurance
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The purpose behind much of advertising is to influence each of the five Consumer Decision Making process (Problem Recognition, Information Search, Evaluation of Alternatives, Product Choice (i.e. Purchase) and Outcomes (i.e. Postpurchase). Each stage of the Consumer Decision Making process has techniques that help consumers to manage the stage and then move onto the next one successfully. Eventually, the consumer moves to purchase (where we get excited to make the sale) but don't underestimate how important the last stage (post purchase) is to making additional sales in the future. Below are guidelines that show basic techiniques used to target and manipulate each Consumer Decision Stage through advertising.
Below are some issues that you will want to consider as you evaluate each of the five chosen advertisements. Please remember that your goal is not simply to answer these questions, but to provide insights into the consumerâs decision making process that you feel would be useful to a marketing manager (e.g., if an ad triggered the consumerâs decision to purchase the product). Other areas to comment on would be level of involvement, etc.
| Consumer Decision Making Stage: | Considerations for Stage: | Common Ad Techniques: |
| Problem Recognition | What problems does this product solve for the consumer? ⢠What triggered the decision to purchase this product? ⢠Was this the first time the consumer purchased such a product? Define and discern the Actual and Desired States | Ask a question (Whatâs for dinner tonight?) Show before (actual state) and after (desired state) Use the word ânewâ or âintroducingâ to initiate curiosity. |
| Information Search | ⢠Did the consumer seek information about the product and about various brands? How was this information collected, and how much information was collected? ⢠Was the consumer searching for any advertisements for the product? What was the consumerâs reaction to these advertisements? | Match amount of information with type of product. Direct consumers to website, free kit or other information venues. Show role models that âlookâ like the target market. Show the entire line of product offerings (all the flavors and colors, etc.) Testimonials, etc. |
| Evaluation of Alternatives | ⢠How many alternatives were considered? How were they selected?⢠What features and characteristics of the product were most important to the consumer? Salient and Determinant defined attributes. | Featuring specific variables that the product is known for (ex. Volvo=Safety). This is known as âpositioningâ a product. Competitive method (brand compares themselves to âleading brand or categoryâ) Comparative method (brand compares themselves to another brand by name (Coke vs. Pepsi) |
| Product Choice | ⢠Did any other people play a role in the decision process? Describe theroles that each person played. | Tell consumers where and how the product is sold. Offer many ways to pay for the product. Divide payments. Offer sales promotion (coupons, rebates) |
| Post-Purchase Evaluation | ⢠How is the product used and consumed? How does the consumer feel when he or she uses the product? Does it merely Does the Ad encourage repeat purchase or loyalty to the brand- how? | Show awards the brand has won. Show how a brand should be consumed. Allow consumers many ways to return the product. Allow consumers to easily provide feedback. Reward consumers loyalty |
This assignment asks you to find one ad that addresses each of the needs of the five stages (in other words five different ads). This means that there must be five different ads for the total project, one for each stage (all ads are different from one another). Create a Power Point Presentation that shows how the advertiser is addressing the needs of the consumer for the specific Consumer Decision Making stage.
*Be aware that there is a helpful power point demonstration in a conference opened this week marked as "Advertising and the Consumer Decision Process (Ad Examples)". This is informative only and does not need to be commented on.
First, show the ad in a slide and then follow-up with a slide which explains (bullet form) why the ad slide targets the Consumer Decision Making process stage. ALL ADS MUST BE STILL ADS (NO VIDEOS or LINKS). Therefore the ad MUST be able to be copied and pasted within the power point slide (NO LINKS). Here is the format of the presentation:
Slide 1: Name, date
Slide 2: Problem Recognition Ad
Slide 3: Explanation why it addresses this stage
Slide 4: Information Search Ad
Slide 5: Explanation why it addresses this stage
Slide 6: Evaluation of Alternatives Ad
Slide 7: Explanation why it addresses this stage
Slide 8: Product Choice (Purchase) Ad
Slide 9: Explanation why it addresses this stage
Slide 10: Outcomes (Postpurchase) Ad
Slide 11: Explanation why it addresses this stage
Slide 12: Conclusion
In the conclusion of the slide presentation choose which ad is most effective (overall) and why.
Logistics Run Down:
-No more than 18 slides in length (includes cover page and bibliography)
-Include a cover page and bibliography of sources. Outside sources (esp. learning resources from weeks covered) are encouraged to be cited and used.
-Organize and utilize the headings given above.
-No more than 2 grammatical/spelling errors are allowed (please proof before submitting).
-Text is required to be in Times Roman, 12 pt font, double space the text.
- Keep voice in business third person. Do not include visuals in text analysis, if need to add create an appendix and refer your reader to such.
Question 1
Which compensation method helps to explain the large difference between the salaries of top-level managers and mid-level managers in a firm?
| A. | Tournaments | |
| B. | New blood | |
| C. | Piece rate | |
| D. | Backloaded compensation |
3 points
Question 2
Please consider the information provided under Question 19 in Chapter 3 (page 54). Based on the stated information, the optimal number of bees kept if the externality is ignored by Yung is 5,000. Is the socially optimal number of bees higher or lower than 5,000?
| A. | We do not have enough information to answer this question | |
| B. | Same | |
| C. | Lower | |
| D. | Higher |
3 points
Question 3
Which of the following factors contribute to the existence of firms?
| A. | All of these factors contribute to firm existence | |
| B. | Risks associated with specialization | |
| C. | Incomplete contracts | |
| D. | Willingness of some people to take on risk in exchange for residual income |
3 points
Question 4
Public goods are often subject to free-rider problems because these goods are:
| A. | Non-rival and non-excludable | |
| B. | Rival and non-excludable | |
| C. | Non-rival and excludable | |
| D. | Rival and excludable |
3 points
Question 5
Which of the following is the most efficient mechanism for allocating scarce goods?
| A. | Government allocation system | |
| B. | First-come-first-served system | |
| C. | Market system | |
| D. | Random allocation system |
3 points
Question 6
Many years ago, most of the major Hollywood movie studios also owned chains of local movie theaters across the US. Today, most of the local movie theaters are owned by other companies. What has happened to the degree of integration in the movie industry over time?
| A. | Less horizontally integrated | |
| B. | Less vertically integrated | |
| C. | More horizontally integrated | |
| D. | More vertically integrated |
3 points
Question 7
Your firm produces replacement parts for the nuclear submarines operated by the US Navy. Which one of Porter's Five Forces will be most prominent in determining your strategies and profitability?
| A. | Bargaining Power of Suppliers | |
| B. | Bargaining Power of Customers | |
| C. | Threat of New Entrants | |
| D. | Threat of Substitutes |
3 points
Question 8
Which of the following statements is NOT true?
| A. | The market mechanism for allocating resources is most efficient due to the incentives it creates. | |
| B. | Markets are always the most efficient way to allocate goods, even if the market is not perfectly competitive. | |
| C. | The random allocation mechanism provides no incentives at all. | |
| D. | The government allocation mechanism provides no incentive for the economy to grow. |
3 points
Question 9
Suppose a firm's cost structure exhibits economies of scope. Which of the following actions is compatible with this cost structure?
| A. | Diversify into other product lines | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| B. | Focus on core competencies and reduce production | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| C. | Focus on core competencies and maintain constant production | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| D. | Focus on core competencies and expand production Question 10 Please refer to Table 8.3 on page 132 in the book. Suppose we change the payoffs in the "low price, low price" cell to 0, 25 from 0, 0. Does this change the Nash equilibrium for the game, and is the game still a Prisoner's Dilemma?
3 points Question 11 Which of the following statements about restricting entry to markets is NOT true?
3 points Question 12 Your firm earns $2 million per quarter in total revenue, and your accounting profits are $100,000 per quarter. You do not charge the firm for the use of an old building that you own because it is 50 years old and fully depreciated. However, another firm has offered you $200,000 per quarter to use the facility, and this is the market rental rate for similar facilities. In this case, we know that your:
3 points Question 13 Please refer to Question 13 in Chapter 1 (page 17). What is the marginal cost of reducing global warming by 0.017 degrees?
3 points Question 14 In Chapter 6, Boyes focuses on negative externalities such as the various types of pollution. However, as we discussed during our online session, we can also observe positive externalities in which external benefits are generated for people. Which of the following is NOT an example of a positive externality?
3 points Question 15 Common property resources are:
3 points Question 16 The free-rider problem arises in markets for common property resources.
3 points Question 17 Firms that set their product price below the actual cost of production may be engaging in:
3 points Question 18 Under a cap-and-trade mechanism to control air pollution, what happens to the price of pollution rights if the supply of righs is reduced (i.e., the supply of rights is reduced)?
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