Overview of Lecture Revisit Prospect Theory Endowment Effect

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 Mc. Guire 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 – Stubborn – Critical – Impulsive – Industrious – Intelligent

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

Marketing Channels Firm Channels Customer "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)

Channel Conflict: Examples Firm Retailer Customer 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.

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