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83 Cards in this Set
- Front
- Back
Pricing methods
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1. Cost/ demand pricing (break even analysis)
2. Going rate (competitive pricing) 3. Perceived value pricing |
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Going rate pricing
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-Pricing according to what competition is doing
-Commodities use this (oil companies, fruits and veggies) |
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Perceived value pricing
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-Basing price on perceived value to customer
-Often used in conjunction with heavy promotion |
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Profit equation
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Profit = total revenue - total cost
Total revenue = Unit price x quantity sold Total cost = fixed cost + variable cost |
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Fixed costs
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Overhead
Costs that don't vary with sales or production levels executive salaries rent |
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Variable costs
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Costs that do vary directly with the level of production
Raw materials |
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Total costs
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Sum of the fixed and variable costs for a given level of production
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Break even point
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that quantity of output at which total revenue equals total cost, assuming a certain selling price
Break even point in units |
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Break even point formula
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Total fixed costs / (price - unit variable cost)
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List the six steps to setting pricing policy
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1. Selecting the pricing objective
2. Determining the demand 3. Estimating costs 4. Analyzing competitors' costs, prices and offers 5. Selecting a pricing method 6. Selecting final price |
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Objectives of pricing existing and new products
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1. Segmentation and positioning
- consistency with target markets and competitive position 2. Signal of product quality 3. Sales and profit goals 4. Market share goals - Economic/ industry conditions - Survival or domination goals 5. Social responsibility - predatory pricing, drug companies gouging brings regulatory heat |
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New products - Penetration pricing
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- Set price low to gain immediate sales/ market share, scare off competitive entry
- Negative sales impact - slow recovery of investment profits Example - New airline route fares, internet browsers, MICROSOFT |
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New products - Price skimming
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- Set price high to achieve quick/ large profits
Example - Intel's new processors always priced high. Gillette razors, Apple |
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Existing products characteristics- Perishability
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- Foods - produce, bread, bakery items
- Services -airline flights, concerts and sports events - Short times demand - Christmas cards/ wrapping paper - Need flexible pricing strategy |
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Existing products characteristics- Distinctiveness
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-Higher price for high quality products
-Depends on product class (gasoline vs. watches) -Depends on consumer perception (perrier vs. arrowhead) |
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Existing products characteristics- Nature of competition
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- In general... greater the competition = lower the price
- Product life cycle - generally price decreases as product moves from growth -> maturity -> Decline |
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Promotional pricing methods
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1. Loss-leader pricing - Safeway - offer lower priced items to get people into the store
2. Special events pricing 3. Cash rebates 4. Low interest financing 5. Longer payment terms 6. Warranties and service contracts 7. Psychological discounting |
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Discriminatory pricing
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Legal as long as it doesn't substantially hinder competition
-Victoria's Secret charges more in CA than in MO -Movie theaters charge different rates for students/ senior citizens |
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What must be true for discriminatory pricing to work?
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1. Market must be segmentable and segments must have different intensities of demand
2. Members in low-priced segment must not be able to sell product to high priced segment 3. Cost of servicing different segments must not excceed profit generated by discrimination 4. Must not breed resentment or ill will 5. Must be legal |
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List the intermediary functions of distribution (benefits)
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1. Trancactional
- Buying and selling, Risk taking 2. Logistical - Concentration, storing, sorting, physical distribution 3. Facilitating - Financing, grading 4. Informing - Marketing research: to companies - Providing information: to consumers |
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Distribution strategy - coverage or channel width
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The number of distributors offering product/ service
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Distribution strategy - channel depth
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The levels of warehouse/ distributors/ brokers between producer and consumer
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Three coverage strategies
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1. Intensive
2. Selective 3. Exclusive |
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Intensive distribution
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1. Provide offering in as many outlets as possible - maximize exposure
2. Coverage/ sales effort trade off - maximum coverage and no sales effort at point of purchase -usually lower priced items -sales depend on consumers seeing product and easy buying opportunity |
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Selective distribution
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1. Provide offering in selective outlets
- restrict distribution in area to intermediaries based on performance capability 2. Coverage/ sales effort tradeoff -Middle ground - medium coverage and sales effort example - compaq computers at fry's and computerland, but not sears 2. |
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Exclusive distribution
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1. Using only one outlet in a geographic area
- maximize "push" of a distributor 2. Coverage/ sales effort tradeoff - Maximum sales effort at point of purchase - minimum coverage -Exclusive distributor may only carry one product line |
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Define retailing
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The sale, and all activities directly related to the sale of goods and services to ultimate consumers for personal, non business data.
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Define retailer
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A firm primarily engaged in retailing
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List some activities that retailers perform
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Anticipating customers' wants, developing market information and financing
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How many retail stores are there in the US?
Is retailing easy to get in and out of? |
2.7 million
YES! |
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Largest retailers in the world
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1. Wal mart
2. Carofor 3. Home depot 4. Metro I.G. 5. Tesco 6. Kroger |
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Small retailers typically succeed by:
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1. Serving customers who seek benefits that small companies can provide better than large stores (service)
2. Forming or joining a contractual vertical marketing system |
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The ten largest retailers in the U.S. account for what percentage of total retail trade in the U.S.?
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13%
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Corporate chain
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Centrally owned and managed stores that carry similar products
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Independent
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Single unaffiliated store
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Contractual vertical marketing system
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- contract specifies how members will operate
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Retailer cooperative
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Small retailers establish and operate a wholesale warehouse
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Voluntary chain
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wholesalers contract with interested retailers to provide services to them
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Franchising
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Franchisor provides trademark and assistance in return to payments from franchises
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Factory outlet
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A store owned by a manufacturer that sells clearance items, regular merchandise and sometimes even otherwise unavailable items
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factory outlets seem to be losing their edge because:
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1. Malls, starving for customers, are narrowing the price gap
2. Explosive growth is raising fears of market saturation 3. Factory outlet centers are being forced to upgrade to draw shoppers |
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Factory outlet centers are fighting back by adding:
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- New brand name tenants
- Different product categories - New conveniences |
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Nonstore retailing
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retailing activities that take place away from a retail store
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Direct selling
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Personal contact between a salesperson and a consumer away from a retail store
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Door to door
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Type of direct selling which involves canvassing or occurs after other initial contact
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Party plan
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type of direct selling where a host invites people to "party" with a sales rep.
Mary flippin Kay |
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Telemarketing
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Salesperson initiates contract with a shopper and also closes sale over telephone
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Automatic vending
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Sale of products through a machine with no personal contact between buyer and seller
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Direct marketing
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use of advertising to contact customers who, in turn, purchase products without visiting a retail store.
-Direct mail -Catalog retailing -Televised shopping -Online retailing |
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Integrated marketing communications
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The concept of designing marketing activities - advertising, personal selling, sales promotion, and public relations - to provide a consistent message across all audiences is referred to as integrated marketing communications (IMC).
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List the four elements of promotion
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1. Advertising
2. Personal selling 3. Public relations 4. Sales promotion |
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Advertising
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Paid form of nonpersonal communication
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Personal selling
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Two way, personal communication
face to face |
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Public relations
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Communications management that seeks to influence stakeholders
Publicity, lobbying, etc |
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Sales promotion
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Short term inducement of value to arouse interest
coupons, samples, contests, etc |
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Promotional mix
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combination of one or more promotional elements
Goal is to have all elements work together (IMC) |
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Factors affecting promotional mix decision
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largest audience, stage of product life cycle, product characteristics, buyer decision stage, distribution channel strategy
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Target audience
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Stakeholders other than consumers
-Public relations |
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Channel members
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Personal sales (main promo tool)
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Consumers
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Advertising (particularly when there is large number who are geographically depressed
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List the stages of product life cycle
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Introduction
Growth Maturity Decline |
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Introduction stage of product life cycle
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- Publicity to potential customers
- Advertising to stimulate primary demand - Personal selling to channel members |
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Growth stage of product life cycle
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- Advertising to differentiate brand
-Personal selling to channel members |
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Maturity stage of product life cycle
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- Reminder advertising
- Sales promotion -some effort made here to discourage switching |
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Decline stage of product life cycle
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- Not much money is usually spent on promotion
- Limited sales promotion |
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Complexity
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- Technical sophistication of product (information required to understand it)
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Purchase risk
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-Financial, social, physical
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The higher the complexity and risk:
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- The greater the need for personal selling as opposed to advertising
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List the stages of a buying decision
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1. Prepurchase - advertising to inform, sales promotion to induce trial
2. Purchase - Personal selling to close sale, sales promotion 3. Post purchase - Personal selling and advertising to reduce anxiety |
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Push strategy
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-Personal selling (to inform/ gain support)
- Sales promotion (contests to motivate, discount, allowances to support channel effort) |
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Pull strategy
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- Advertising
Nicoderm - "ask your doctor" Intel inside |
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Message problems
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Selective attention
Selective distortion Selective retention |
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AIDA
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Attention
Interest Desire Action |
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AIDA - Attention
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Get the attention of the target market.
- Break through clutter by -reaching and focusing on target market - Involves right choice of media and message - Distinctive and relevant message |
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AIDA - Interest
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Generate interest in what you're selling
-Focus on benefits, not features Talk directly to needs of target market - Gatorade "Thirst quenching need" |
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AIDA - Desire
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Build desire by:
Using emotion - show benefits and uses of product/ service Using logic - Humor - miller light ads build desire to have fun |
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AIDA - action
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Get target market to act
- direct action - buy the product, try product, send for free information kit - indirect action - encode a thought or image - remember name of product, have positive image, associate product with benefit - Always call for action - ask for sale |
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Alternative vehicles
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Trend is away from traditional promotion
-need for more efficient/ effective tools |
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List the main limitations with promotional tools
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Clutter
Low credibility and sophisticated/ jaded consumers |
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Product placement
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Paid integration of product communication into medias
-Fastest growing promotional expenditure - grew 30% to $3.5bil in 05 - Growing the fastest on: Reality tv and niche learning channels |
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Product placement and celebs
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- Wearing Armani on Oscar night
- Gift bags |
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Product placement - Movies
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- Product placement gone wild
"Herbie Fully Loaded" was said to have a commercial in every frame |
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Drop ins
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growing use in both radio and tv advertising.
"Hot pitch of the day brought to you by hardees hot n spicy sammy" |