MS-68 Previous Exam Paper - Management of Marketing Communication and Advertising

MBA - Master of Business Administration

Note: This paper consists of two sections A and B. Attempt any three questions from Section A. Section B is compulsory. All questions carry equal marks.

1. (a) The Promotion mix for a vacuum cleaner would certainly differ from the promotion mix of Banking Services. Elucidate and recommend the promotion mix for the above tow product/service categories.

(b) Discuss the status of Radio and Television as media for marketing Communication. Why is radio still used as an advertising medium? Discuss in detail.

2. (a) Suggest a promotional campaign a FMCG which is on the threshord of the maturity stage of life cycle. You may specify your assumptions.

(b) What are the roles and responsibilities of a media planner in relation to both, the agency to which he/she is attached and the clients being serviced by the agency.

3 (a) “Advertisers who ignore research are as dangerous as generals who ignore decodes of enemy
signals.” Explain.

(b) Discuss two methods, each for advertising pre–testing and post–testing.

4 (a) Distinguish between Communication strategies and Advertising strategies.

(b) It is being said that advertising strategy helps in developing creative strategy and media strategy. Discuss by giving examples

SECTION - B

Read the case given below and answer the questions given at the end of the case.

PROMOTION IN A HIGHLY COMPETITIVE ENVIRONMENT

The American Express Company (AmEx) is a large, global, financial service organization. One of its core businesses, credit cards, is faced with heavy competitive pressure and is losing, market share. The number of American Express cardholders decreased by 500,000 in each of the first three-quarters of 1992. The challenge for AmEX is deciding how to use promotion to position its credit card more effectively.

AmEx began in the mid–1980s as a transporter of small packages, important messages, and cash. It soon became apparent that there was a strong demand among consumers for a safe and economical method of
another. To satisfy that need, AmEx developed the money order and, eventually, the traveler’s check.

In 1958 the firm expanded its financial products to include a credit card designed for business travelers. The card–holder makes purchases without the inconvenience of carrying cash and obtains a monthly record of transactions for expense–account and tax purposes. However, with the AmEx card, the user is required to pay the full amount owed every month. The primary advantages of the AmEx card are convenience and services (such as replacement of lost cards and emergency cash advances). Because of these features the AmEx card is known as a “travel and entertainment” credit card.

In the early 1960s other financial institutions, particularly banks, recognized that an opportunity existed in providing consumers with what amounts to preapproved loans in the form of plastic credit cards. Over a period of years these individual bank credit card plans grew and consolidated into two major programs, now known as VISA and MasterCard. Bankcard plans differ from AmEx in that they offer revolving credit. That is consumers can choose to pay the entire balance monthly or pay only a portion of the outstanding amount each month and pay interest on the unpaid portion.

Bankcards offering revolving credit have proven very popular with consumers. From 1970 to 1991, U.S. consumer debt jumped from $125 billion to $765 billion. During the same period, the debt outstanding on credit cards grew from $4 billion to $194 billion. Interest payments on credit cards now amount to more than $33 billion a year. The rapid growth on outstanding debt on credit cards is a result of:

Greater accessibility (less stringent approval standards);
Increased desire for transactions convenience among consumers;
The relatively free–spending behaviour of the 1980s; and
Lower minimum monthly payments required by most cards.

Card issuers receive income from two sources: consumers come from annual membership fees and interest on outstanding credit balances. AmEx, which collects no interest, charges cardholders an annual membership fee that ranges from $55 for its standard Green Card to $300 for its Platinum Card. In comparison, the average annual fee for bankcards is $17.62.

The bankcards generate additional revenue from consumers and merchants. Consumers are charged interest on their unpaid credit card balances. The interest rate very among plants, but the typical range is an annual rate of 17 to 21 percent. The other income source is merchant fees. Depending on the volume of their credit business, merchants that accept bank cards pay a fee of 2 to 3 percent of the amount charged, while AmEx merchants fees that are somewhat higher, at 3 to 5 percent. Worldwide there are about 3.5 million merchants who accept the AmEx card, while VISA and MasterCard are each accepted by amount 10 million outlets.

Three recent events indicate how the competitive pressure in the credit card business has intensified:

The introduction of the Discover Card by Sears, Reobuck and Co in 1986. Discover is a revolving–charge card with no annual fee and an annual 1 percent rebate to the cardholder on all purchases made with the card. As a Sears subsidiary, Discover had immediate access to the charge and payment records of all Sears credit card holders. Thus it had millions of preapproved prospects. In addition, by dropping the annual fee, Discover gained at least a temporary differential advantage over other card issues. By 1992 Discover had over 41 million cardholders.
In 1990, American Telephone & Telegraph introduced its co–branded credit card. The At&T Universal card has no annual fee and a variable interest rate pegged to the prime rate set by the Federal reserve Board. A co–branded card is one that is sponsored jointly by a credit and company (such as VISA or MasterCard) and another firm not normally associated with consumer credit (such as AT&T). Co–branded cards include a special feature provided by the sponsoring firm. For example, AT&T cardholders can make long–distance phone calls at discounted rate. Two other major firms subsequently introduced co–branded cards. General Motors card rewards frequent users with rebated that can be applied to the purchase of most new GM cars. Within 3 months of its introduction 1.5 million GM cards had been issued. General Electric introduced the GE Regards card, which offers discounts on a variety of products as an incentive for use. These examples are only the tip of the iceberg. According to one study, there are over 500 different credit card combinations available from over 100 card issuers. They differ with respect to the mix of annual fee, interest charges, the length of the grace period between the time of a purchase and when the issuer begins calculating interest, and rebates.
In 1991 the Senate passed a bill to put a limit on credit card interest charges. The legislation was reaction to the fact that interest rates on credit cards averaged 17.95 percent, while the rate being paidc on bank savings accounts was less than 4 percent. The credit card industry responded with a tiered rate structure that reduced rates slightly by providing the lowest rates to charging delinquent cardholders higher rates. The increased attention to interest rates on credit cards did not go unnoticed by consumers. A 1992 survey showed that 32 percent would switch credit cards if the interest rate on a new card was 1 percent lower than their current card.

These developments have increased the pressure on all credit card issuers. However, AmEx has felt the impact more than others. The traditional AmEx credit card positioning has been as a product that combined prestige of ownership with excellent service. The different advertising themes used over the years indicate how the form wants the card viewed. The first national advertising compaign was in 1958. It carried the descriptive slogan, “The Company for people who travel.” Later, the value of the card was reinforced with the long running “Don’t leave home without it” compaign. That was followed by compaigns designed to emphasize the status of card ownership by associating it with prominent people (the “Member since _________” compaign), and an appeal to the self–indulgance of the 1980s that used slogan “Membership has its privileges.” This positioning was successful through the 1970s and 1980s, but more conservative values in the 1990s have made it less appealing. The most recent compaign is intended to reinforce the prestige image of the card with the line. “The card. The American Express card.”

At least one competitor has taken a very practical comparative approach in its advertising. For years VISA has emphasized the greater number of merchants that accept its card over AmEx, by focusing on specific examples and ending the ad with some variation of the line “But don’t bother to bring \your American Express card, because at ______________ they only accept VISA.” As an official sponsor of the 1992 Winter Olympics, VISA used the same theme with ads that stated. “The Olympics don’t take America Express.” The ads referred to ticket sales for Olympic events and on–site merchants, but AmEx felt they might be misleading. So it ran ads urging consumers who were “going to the winter fun and games” in Albertville not to believe that American Express was not accepted by area merchants, as some “bank cards” might suggest. AmEx called it clarification advertising. VISA saw it as “ambush marketing –– trading on an event for which a competitor has paid a sponsorship fee.

The recent advertising expenditures on credit cards by the major competitors in millions of dollars are:

An Ex has responded to the competition in two ways:

Expanding its offering by adding the Optima card. This product–line extension offers the revolving–credit feature of bankcards for a $15 annual fee to holders of an American Express card ($25 for noncardholders). The interest rate on the credit balance ranges from 12 percent to 18.9 percent, depending on the amount spent using the card and the cardholder’s payment record. Since its introduction in 1987, it has attracted only about 3.5 million cardholders far fewer than VISA’s 185 million and MasterCard’s 140 million.
Expanding the number of places the card is accepted, VISA and MasterCard have already broadened the acceptance of credit card use into nontraditional areas. For example, they convinced physicians and dentists to accept their cards, and recently they have increased their acceptance by grocery stores. Now they are approaching “small–unit–transaction” markets such as fast–food outlets, movie theaters, and convenience stores. Faced with a declining number of cardholders. AmEx is also seeking to increase income by having its card accepted in more places. According to an AmEx executive, to “make sure the card is accepted in all the places where members want to use (it),” AmEx has created a special sales force to call on large potential accounts such as Sears, Kmart and Walmart.

The Move by AmEx into fast–food, discount retailers, and other establishments will certainly expand the retailer base where the card can be used, and may also attract new card members. However, the AmEx card has always been aimed at upscale markets ––– upper–middle income and above. The key question is whether the advantages of this move will be more than offset by damage to the company’s image and its standing in its traditional markets.

Questions

(1) Evaluate the implications of VISA compaign for AmEx.
(2) What factors should enter into American Express’s decision about the type of promotion program it designs for its credit card? Consider both the AmEx’s markets –– merchants and consumers.
(3) Should AmEx use a different promotion mix? Give justifications.