AP Business Unit 2 Study Guide: Marketing (Tasks 1

Jump to: 1. Target customers · 2. Consumer behavior · 3. Market research · 4. Product · 5. Price · 6. Place · 7. Promotion · 8. On the exam · Key terms · Check yourself

1. Marketing & Target Customers

Topic 2.1 · Project Task 1 (target customers and customer profile)

Marketing: the process of understanding customers and creating, communicating, delivering, and exchanging value. It's much more than advertising; it starts with knowing who your customer is.
Customer data: information about customers' characteristics, behaviors, and preferences. Two kinds show up constantly:

Demographic data	Psychographic data
Measurable traits: age, income, education, location, family size	Values, interests, attitudes, motivations, lifestyle
“Ages 14–18, lives within 10 miles, part-time job”	“Cares about sustainability, loves thrifting, follows fashion creators”

From the whole market to one customer

Market segmentation: divide the market into smaller groups with similar characteristics.
Target customers: pick the group (or groups) you most want to reach. A new business has limited money and time, so it focuses on the customers most likely to buy.
Customer profile: describe that customer's traits, needs, and buying behavior in detail. A strong profile is specific enough to guide decisions about product, price, place, and promotion. “Everyone” is not a customer profile.

What a customer is worth: CAC and CLV

Customer acquisition cost (CAC): the average cost of gaining one new customer = marketing and sales spending ÷ new customers gained.
Customer lifetime value (CLV): the total value a customer is expected to generate during their whole relationship with the business.
The rule: CLV must be greater than CAC, or every new customer loses money. You can improve the relationship by lowering CAC (cheaper ways to win customers, such as referrals) or raising CLV (keeping customers longer or having them buy more).
Referral: a recommendation from an existing customer that leads to a new customer, often the cheapest way to acquire customers.

How to calculate it:

A practice-quiz app spends $3,000 on ads and gains 150 new students. Each student pays $25 a month and stays 6 months on average. Serving one more student costs the app almost nothing, so we'll measure CLV with revenue.

CAC = $3,000 ÷ 150 = $20 per new student

CLV = $25 × 6 months = $150 per student

CLV − CAC = $150 − $20 = $130 of value per new student, so this campaign is worth repeating.

Some questions calculate CLV from profit instead of revenue. Always use the formula the question gives you.

Personal finance connection: data breaches and identity theft

Businesses collect a lot of customer data, and they have an ethical and legal duty to protect it.

Data breach: an unauthorized release or exposure of sensitive information, such as hackers copying a store's customer database.
Identity theft: the fraudulent use of someone else's personal information, such as opening a credit card in their name.
If your data is exposed: place a free credit freeze with Equifax, Experian, and TransUnion so new credit can't be opened in your name (you can lift it temporarily when you apply for credit yourself); change passwords and turn on two-factor authentication; watch your bank and card statements; check your credit reports at AnnualCreditReport.com (free every week); and report identity theft at IdentityTheft.gov.

2. Consumer Behavior & Persuasion

Topic 2.2 · Project Task 2 (sales tactic and customer relationships)

Consumer behavior is the study of how people make purchasing decisions. Four groups of factors influence every purchase:

Factor	What it includes	Example
Personal	Age, income, occupation, lifestyle	A retiree with free time takes up golf and buys clubs
Psychological	Motivations, perceptions, beliefs, attitudes, emotions	A buyer picks a car because she believes it's the safest
Sociological	Family, peers, culture, social groups	A teen buys the phone brand his whole family uses
Situational	Temporary conditions or circumstances	A fan buys a $6 water at a stadium because it's the only option

Purchasing patterns: recurring habits in how and when customers buy (snack sales spike on Friday afternoons). Businesses plan staffing, stock, and promotions around them.
Consumer psychology: how thoughts, emotions, and perceptions shape buying decisions. Marketers use it through seven persuasion principles:

Principle	People tend to…	Marketing example
Scarcity	Value things that seem limited or hard to get	A sneaker drop limited to 1,000 pairs
Authority	Follow experts and trusted authorities	A famous chef recommends a cookware brand
Consensus	Follow what many others do (social proof)	A “best seller” badge on a product page
Liking	Say yes to people they like or relate to	A friendly, relatable creator reviews the product
Reciprocity	Return favors and gifts	A free trial gift when you sign up for emails
Consistency	Act in line with earlier commitments	Users who set a goal at sign-up get reminded of it later
Unity	Favor people who share their group or identity	“Made in Detroit, by Detroiters”

Liking vs. unity: liking depends on a specific likable person (a friendly spokesperson, a relatable creator). Unity is a shared “one of us” identity: family, hometown, team.

Ethics check: persuasion is fine when it's true. A fake “only 2 left!” message or a countdown timer that resets is deceptive, and it destroys the trust a business needs for repeat customers.

Sales tactics & customer relationships

Sales tactic: a specific method for persuading a customer to buy, such as a first-order discount, a bundle deal, or a free trial.
Customer relationship: the ongoing connection that keeps customers coming back: loyalty rewards, great service, follow-up messages, a community. Keeping customers longer raises CLV, and happy customers bring referrals that lower CAC.

3. Market Research & Hypothesis Testing

Topic 2.3 · Project Task 3 (primary research) and Task 4 (secondary research and a data visualization)

Market research is collecting and analyzing information about customers, competitors, and markets so decisions rest on evidence instead of guesses.

Primary research	Secondary research
Original information you collect for your own question	Existing information collected and published by others
Surveys, interviews, focus groups, experiments, A/B tests	Industry reports, government data, news articles, competitors' published results
Specific to your customers, but takes time and money	Fast and cheap, but may not fit your exact question

Quantitative data: numbers you can measure and calculate (sales, percentages, ratings).
Qualitative data: descriptions, opinions, and explanations (interview quotes, written comments). It tells you why.

Method	Best for
Survey	Questions to many people; mostly quantitative results
Interview	In-depth answers from one person at a time
Focus group	A small group discussing reactions to a product or idea
Experiment	Changing one variable to measure its effect on behavior
A/B test	Comparing two versions (two prices, two ads) to see which performs better

Business hypotheses and hypothesis testing

Business hypothesis: a testable assumption about customers, products, or markets. Write it so evidence can prove it wrong: “At least 25% of gym members who try a free sample will buy a 6-pack within a week.” “People will love it” is not testable.
Hypothesis testing: (1) state the hypothesis, (2) choose a test such as a survey, an A/B test, or an MVP, (3) collect the evidence, (4) decide whether it's supported, and (5) act on it: keep, change, or drop the idea.
Say vs. do: what customers do (buy, sign up, click) is stronger evidence than what they say they'll do. If 72% of survey takers say they'd buy but only 10% of real shoppers do, believe the shoppers.
Feasibility vs. viability: feasibility asks whether you can realistically build and run it (permits, equipment, skills). Viability asks whether it can succeed and last (enough customers and profit over time).

Choosing a data visualization

To show…	Use
Quantities compared across categories (units sold by each salesperson)	Bar chart
Totals plus how subcategories add up (each region's sales, split by product)	Stacked bar chart
Change over time (website visits each week this year)	Line graph
Parts of one whole (share of sales from each flavor)	Pie chart

4. Product

Topic 2.4 · Project Task 5 (MVP, value proposition, and branding)

Product: a good or service offered to customers. Product development is the process of creating, improving, and refining it.
Ideation → validation: ideation generates ideas; validation tests whether an idea actually solves a customer problem (pre-sales, pilots, sign-ups).
Minimum viable product (MVP): the simplest version that delivers the core value, used to test real demand before spending heavily. Testing a cookie-delivery idea by taking orders through a simple online form and delivering by hand is an MVP; a fully built app is not.
Product-market fit: the product satisfies strong market demand. Signs include customers buying again and recommending it without heavy discounts.
Value proposition: a clear statement of the value customers get. Try this template: For [target customer] who [need], our [product] [key benefit], unlike [alternative]. It should name a benefit, not your history or your goals.
Brand: the associations, perceptions, and expectations customers have about a business. Brand identity (name, logo, colors, voice) is the part the business designs to shape that brand.

The product life cycle (PLC)

Stage	Sales	Competition	Typical moves
Introduction	Low, just starting	Few rivals	Build awareness; heavy promotion; costs are high
Growth	Rising fast	Rivals enter	Expand distribution and production; build the brand
Maturity	Growth slows or flattens	Intense	Defend share: new versions, promotions, price moves
Decline	Falling	Rivals exit	Cut costs, refresh the product, or discontinue it

5. Price

Topic 2.5 · Project Task 6 (pricing strategy)

Perceived value: what customers believe a product is worth. A price above perceived value won't sell; a price far below it leaves money on the table.
Per-unit cost: the average cost to produce one unit = total costs ÷ units produced.
Per-unit profit margin: the profit on each unit sold = price − per-unit cost.

How to calculate it (this will be on the test):

A candle business pays $1,200 a month for rent and equipment, plus $6 in wax, wick, and jar for each candle. It makes 300 candles a month and sells them for $18.

Per-unit cost = ($1,200 + $6 × 300) ÷ 300 = $3,000 ÷ 300 = $10

Per-unit profit margin = $18 − $10 = $8

Cost-based price with a 50% markup = $10 + (50% × $10) = $15

Pricing strategies

Strategy	How the price is set	Watch out for
Cost-based	Per-unit cost + a desired profit (markup)	Ignores what customers will actually pay
Competitive	Based on competitors' prices	Can lead to price wars and thin margins
Value-based	Based on customers' perceived value	Requires knowing your customer well
Penetration	Low starting price to gain market share fast	Customers may leave when the price rises

Price elasticity of demand and pricing power

Price elasticity of demand: how much the quantity demanded responds to a price change. Compare the percentage changes:
- Elastic: quantity changes by a larger % than price, so customers are price-sensitive and raising the price lowers revenue.
- Inelastic: quantity changes by a smaller % than price, so customers aren't very sensitive and raising the price raises revenue.
Pricing power: the ability to raise prices without losing much demand. It comes from differentiation, strong brands, and few close substitutes, which make demand inelastic.

Elastic or inelastic?

A shop raises a price from $20 to $25 (+25%).

Case 1: units fall from 1,000 to 900 (−10%). Since 10% < 25%, demand is inelastic. Revenue goes from $20,000 to $22,500 (up).

Case 2: units fall from 1,000 to 600 (−40%). Since 40% > 25%, demand is elastic. Revenue goes from $20,000 to $15,000 (down).

Legal and ethical pricing

Term	What it is	Example	Legal?
Collusion	An agreement between competitors to coordinate prices	Two airlines secretly agree on fares	Illegal under federal antitrust law
Price gouging	Excessively high prices during an emergency or shortage	Tripling generator prices during a blackout	Illegal in many states during declared emergencies
Price discrimination	Different prices to different customers for the same product	Student and senior discounts at a museum	Usually legal; illegal if based on race, sex, or other protected traits

Matching a competitor's price on your own is legal competitive pricing. Agreeing with a competitor on prices is collusion.

6. Place & Distribution Channels

Topic 2.6 · Project Task 7 (marketing channels)

Place: how a product reaches customers. A distribution channel is the path a product follows from producer to customer.
Direct channel: the business sells straight to the customer (its own website or app, a farm stand). It keeps the full price and controls the experience, but it must find every customer itself.
Indirect channel: the product goes through intermediaries such as wholesalers, retailers, or online marketplaces. It reaches far more customers, but the business gives up part of each sale and some control.
B2B (business-to-business): one business sells to another (a supplier selling cleaning supplies to hospitals, or a brand selling cases to grocery stores).
B2C (business-to-consumer): a business sells to individual consumers.

One company can do both. A drink brand selling on its own website is direct and B2C. When it sells cases to grocery stores that resell them, that sale is B2B, and the path to the drinker is an indirect channel.

7. Promotion & Marketing Campaigns

Topic 2.7 · Project Task 8 (marketing campaign with digital tools)

Promotion is communication that informs, persuades, or reminds customers. The promotional mix is the combination of tools a business uses:

Tool	What it is	Example
Media advertising	Paid messages in media (TV, radio, streaming, social, billboards)	A sponsored post on TikTok
Personal selling	A salesperson interacting directly with a customer, often with a sales pitch	A car salesperson giving a test drive
Sales promotion	Short-term incentives to buy now	Coupons, BOGO deals, free samples
Direct marketing	Messages sent straight to targeted customers	A personalized email or text offer
Public relations (PR)	Building and protecting a positive public image	A press release about a charity donation

Digital marketing: promotion using websites, social media, email, and search. It's cheap to start and easy to measure.
Big data: very large, complex data sets (millions of purchases or clicks) used to spot patterns and guide decisions.
Marketing campaign: a coordinated set of promotional messages and activities aimed at a goal, such as launching a product.
Judge a campaign with data: compare CAC across tools. The tool that brings the most customers isn't always the one that brings them most cheaply.

8. How Unit 2 Shows Up on the Exam

Multiple choice (20–30% of Section I): questions come in sets built on a short business case, often with data such as survey results, an A/B test, a price test, or a table of promotion costs. Expect to calculate and interpret, not just define.
Math to know cold: CAC, CLV, per-unit cost, per-unit profit margin, markup, percentage change, and revenue (price × quantity) before and after a price change.
FRQ 1 (Business Canvas Project): it asks you to pitch your product and to explain how you used hypothesis testing to make a decision. That's Unit 2. Know your own hypothesis, how you tested it, and what the results told you. See the canvas project guide.
FRQ 3 (Business Concept Application): you interpret a business's data and explain how it could reach its goals. Unit 2's research and visualization skills apply directly.

Key Terms to Know

Term	Meaning
Marketing	Understanding customers and creating, communicating, delivering, and exchanging value
Demographic data	Measurable traits: age, income, location, education
Psychographic data	Values, interests, attitudes, lifestyle
Market segmentation	Dividing a market into groups with similar characteristics
Target customers	The specific group a business wants to reach
Customer profile	A detailed description of likely customers' traits and behaviors
Customer acquisition cost (CAC)	Marketing and sales spending ÷ new customers gained
Customer lifetime value (CLV)	Total value a customer brings over the whole relationship
Referral	A recommendation from a customer that brings in a new customer
Data breach	Unauthorized exposure of sensitive information
Identity theft	Fraudulent use of someone else's personal information
Consumer behavior	How people make purchasing decisions
Personal / psychological / sociological / situational factors	Traits / thoughts and emotions / social groups / temporary circumstances
Purchasing patterns	Recurring habits in how and when customers buy
Scarcity / authority / consensus	Limited supply / experts / “everyone's doing it”
Liking / reciprocity / consistency / unity	People we like / returning favors / earlier commitments / shared identity
Market research	Collecting and analyzing information about customers, competitors, and markets
Primary / secondary source	Data you collect yourself / data collected by others
Quantitative / qualitative data	Numbers / descriptions and opinions
Business hypothesis	A testable assumption about customers, products, or markets
Hypothesis testing	Collecting evidence to see whether a hypothesis is supported
Survey / focus group	Questions to many people / small group discussion
Experiment / A/B test	A structured test of one variable / comparing two versions
Feasibility / viability	Can it be built and run? / Can it succeed and last?
Bar / stacked bar / line / pie	Compare categories / totals with parts / change over time / parts of a whole
Product development	Creating, improving, and refining products
Ideation / validation	Generating ideas / testing that an idea solves a real problem
MVP	Simplest version that delivers core value, used to test demand
Product-market fit	A product that satisfies strong market demand
Value proposition	A clear statement of the value customers get
Brand / brand identity	Customers' perceptions / the name, logo, and style that shape them
Product life cycle	Introduction → growth → maturity → decline
Perceived value	What customers believe a product is worth
Per-unit cost	Total costs ÷ units produced
Per-unit profit margin	Price − per-unit cost
Cost-based / competitive / value-based pricing	Cost + markup / rivals' prices / customers' perceived value
Penetration pricing	Low starting price to gain market share quickly
Price elasticity of demand	How much quantity demanded responds to a price change
Pricing power	Ability to raise prices without losing much demand
Collusion / price gouging / price discrimination	Illegal price agreements / emergency overcharging / different prices for the same product
Distribution channel	The path from producer to customer
Direct / indirect channel	Sell straight to customers / sell through intermediaries
B2B / B2C	Business sells to business / business sells to consumers
Promotional mix	The combination of promotional tools a business uses
Media advertising / personal selling	Paid media messages / direct salesperson interaction
Sales promotion / direct marketing / PR	Short-term incentives / targeted messages / public image
Digital marketing	Promotion through websites, social media, email, and search
Big data	Huge data sets used to find patterns and guide decisions
Marketing campaign	A coordinated set of promotional messages and activities

Check Yourself

New practice questions (not from any test). Try each, then reveal the answer.

1. Label each as demographic or psychographic: (a) household income (b) loves outdoor adventure (c) age 16–18 (d) cares about sustainability.

Show answer

(a) Demographic (b) Psychographic (c) Demographic (d) Psychographic.

2. A startup spends $2,500 on ads and gains 100 customers. Each customer pays $15 a month and stays 10 months. Find CAC and CLV. Is it worth acquiring these customers?

Show answer

CAC = $2,500 ÷ 100 = $25. CLV = $15 × 10 = $150. Yes: CLV is well above CAC, so each new customer brings $125 more than it cost to win them.

3. What's the difference between a data breach and identity theft? Name two things you should do if your information is exposed.

Show answer

A data breach exposes information; identity theft is someone fraudulently using it. Steps: freeze your credit at Equifax, Experian, and TransUnion; change passwords and turn on two-factor authentication; watch your statements; check your credit reports at AnnualCreditReport.com; report theft at IdentityTheft.gov.

4. Name the factor: (a) a college student buys the laptop her roommates recommend (b) a driver with a flat tire buys the first replacement the nearest shop has (c) a new parent starts buying diapers in bulk (d) a shopper avoids a brand because she believes it treats workers poorly.

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(a) Sociological (b) Situational (c) Personal (d) Psychological.

5. Name the persuasion principle: (a) an ad shows a pro trainer praising a protein powder (b) “Only 50 seats left at this price” (c) a bakery hands out free cookies and customers feel they should buy something (d) “30,000 sold this month.”

Show answer

(a) Authority (b) Scarcity (c) Reciprocity (d) Consensus.

6. When does using the scarcity principle become unethical?

Show answer

When it's false, such as claiming “only 2 left” when there are plenty or using a countdown that resets. That's deceptive, and it destroys customer trust.

7. Primary or secondary? (a) your own customer survey (b) an industry sales report (c) a taste test you ran (d) census data.

Show answer

(a) Primary (b) Secondary (c) Primary (d) Secondary.

8. Rewrite as a testable hypothesis: “People will love our energy bar.”

Show answer

Example: “At least 25% of gym members who try a free sample will buy a 6-pack within one week.” It names a customer, an action, and a measurable result.

9. For a food truck idea, write one feasibility question and one viability question.

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Feasibility: Can we get a truck, a permit, and trained cooks? Viability: Will sales cover our costs and earn a profit month after month?

10. Which chart? (a) app downloads each week for a year (b) the share of a café's sales from coffee, food, and merchandise (c) sales at four stores (d) each month's sales split into new and returning customers.

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(a) Line graph (b) Pie chart (c) Bar chart (d) Stacked bar chart.

11. Describe a good MVP for a dog-walking app idea.

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Skip the app at first: match walkers and owners by hand through a simple sign-up form and text messages for a few weeks, with paying customers. If people pay and come back, demand is validated.

12. Write a value proposition for a phone-repair kiosk at a mall.

Show answer

Example: “Cracked screen fixed in 30 minutes while you shop, with a 90-day warranty.” It names a specific benefit the customer cares about.

13. Name the PLC stage: (a) brand-new, low sales, heavy spending on awareness (b) sales climbing fast and rivals entering (c) sales flat with many rivals competing on price (d) sales falling every year.

Show answer

(a) Introduction (b) Growth (c) Maturity (d) Decline.

14. A company has $3,000 in fixed costs and $4 in materials per unit, and makes 600 units. It sells each for $15. Find the per-unit cost and per-unit profit margin.

Show answer

Per-unit cost = ($3,000 + $4 × 600) ÷ 600 = $5,400 ÷ 600 = $9. Margin = $15 − $9 = $6.

15. A price rises from $50 to $55 and units sold fall from 1,000 to 800. Is demand elastic or inelastic? What happened to revenue?

Show answer

Price +10%, quantity −20%. Quantity changed more than price, so demand is elastic. Revenue fell from $50,000 to $44,000 (down $6,000).

16. Name it: (a) the only two gas stations in a town agree to keep prices at $4.10 (b) a store charges $30 for a bag of ice during a hurricane (c) a streaming service offers a cheaper student plan.

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(a) Collusion (illegal) (b) Price gouging (c) Price discrimination.

17. Direct or indirect channel? (a) shoes bought on the brand's own app (b) the same shoes bought at a sporting-goods chain (c) a farm stand (d) cereal sold at a supermarket.

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(a) Direct (b) Indirect (c) Direct (d) Indirect.

18. A laptop maker sells 500 laptops to a school district and also sells one laptop on its website to a student. Which sale is B2B and which is B2C?

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School district = B2B. Student on the website = B2C (and a direct channel).

19. Name the promotional tool: (a) a TV commercial (b) a salesperson demonstrating a copier to an office manager (c) a 20%-off coupon (d) a press release about a charity event (e) a personalized email offer.

Show answer

(a) Media advertising (b) Personal selling (c) Sales promotion (d) Public relations (e) Direct marketing.

20. Social ads cost $5,000 and brought in 250 customers. An email campaign cost $800 and brought in 80. Which had the lower CAC?

Show answer

Ads: $5,000 ÷ 250 = $20. Email: $800 ÷ 80 = $10. Email had the lower CAC, even though ads brought in more customers.

21. FRQ 1 practice: in two or three sentences, explain how you could use hypothesis testing to choose your product's price.

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Example: “I hypothesized that at least 20% of students who saw my product would buy it at $15. I ran an A/B test with 40 classmates: 6 of 20 bought at $12 (30%) and 5 of 20 bought at $15 (25%). Because $15 still beat my 20% target and brought in more revenue ($75 vs. $72), I chose $15.”

Take the Unit 2 Practice Test Unit 2 AP-Style Case Sets FRQ Practice Unit 1 Study Guide