PRICING AND PROMOTION Module 7. PRICING STRATEGY

PRICING AND PROMOTION

Module 7

PRICING STRATEGY

OUTLINE

Pricing ObjectivesAnalyzing the Price SituationPricing ProgramsAdditional Considerations

PRICING OBJECTIVES

Primary Demand Objectives Selective Demand ObjectivesProduct Based Objectives

PRIMARY DEMAND OBJECTIVES

Increase number of users– reduce economic risk of trial– offer better value

Increase rate of purchase– enhance frequency of consumption– enable use in wider situations

SELECTIVE DEMAND OBJECTIVES

Retention– Meet competition (establish price parity)

Acquisition– Undercut competition on price– Use price to signal premium quality

PRODUCT LINE BASED STRATEGIES

Substitutes– Trade up– Distinguish on the basis of features/benefits

Complements– Expand range purchased– Attract new customers

ANALYZING THE PRICE SITUATION

What will be market responsiveness to changes in price?

RESPONSE TO ALTERNATIVE PRICES

How large is the market?What segments exist?How sensitive is demand in segments of

interest to changes in price?How important are non-price factors?What are estimated sales at price levels?

PRICE ELASTICITY

What is elasticity?Price elasticity is the percentage change

in the quantity demanded (when price changes) divided by the percentage change in price.

ESTIMATING PRICE SENSITIVITY

Test marketingAnalysis of historical price/sales dataConsumer panelsExecutive (management) judgment

NON PRICE FACTORS

QualityUniqueness ServiceAvailabilityWarranty

FORECASTS

What are estimated sales at different price levels?

TYPES OF PRICING PROGRAMS

Skimming PricingPenetration PricingParity PricingPremium PricingFlexible Pricing

PRICING FOR SUBSTITUTES

Anchoring

PRICING FOR COMPLEMENTS

Leader pricingPrice Bundling

OTHER PRICE ELEMENTS

CouponsCents-off-dealsPromotion allowancesRebatesQuantity discountsCash discounts

OTHER PRICE ELEMENTS

Credit or financing assistanceLong term contractsNegotiated pricing

ADDITIONAL CONSIDERATIONS

Political/Legal environment International considerations

PROMOTION STRATEGY

OUTLINE

IntroductionFramework for developing an effective

promotion mixBudgetingOther Strategies

PROMOTIONAL MIX

Promotion (Communication) tools consist of:

–Advertising

– Personal Selling

– Sales Promotion

– Public Relations

ADVERTISING

Nonpersonal communication transmitted through the mass media

Sponsor identified

PERSONAL SELLING

Face to face interaction with the clientMore money is spent on the selling

function than is advertising!

SALES PROMOTION

Activities which supplement personal selling and advertising

Trade shows, contests, samples, point of purchase displays, coupons

PUBLIC RELATIONS

Public information about a company, good, or service appearing in the mass media

CHOOSE A STRATEGIC OBJECTIVE

Think about the the buyer’s decision process!

–Need Recognition

–Gathering Information

– Evaluation of Alternatives

–Decision to Purchase

– Product Use

FRAMEWORK FOR PROMOTION MIX

Characteristics of Target Market(s)Business Strategies– Prospectors– Niche Defenders

Positioning Internal EnvironmentExternal Environment

DETERMINING THE PROMOTION MIX

Product Factors– Industrial vs Consumer Goods– Perceived risk– Durable vs Nondurable– Frequency of Purchase

Market Factors– Stage of the PLC– Intensity of competition

DETERMINING THE PROMOTION MIX

Customer Factors– Ability to identify decision maker– Degree of self service

Marketing Mix Factors– Other elements of the Marketing Mix

BUDGETING

Percent of SalesComparative ParityObjective and Task

MEDIA SELECTION STRATEGY

Choosing the appropriate media channel Move customers from unawareness to

buying actionAdvertising objectives– Exposure, awareness, attitude change, sales

ADVERTISING COPY STRATEGY

Designing the content of an advertisement

Considerations? Source credibility, message repetition,

rational versus emotional appeals, comparative advertising

SELLING STRATEGY

Moving the customers to purchase through face-to-face contact

Issues– Sales force size – Organization– Motivating the salesforce– Compensation

SALES PROMOTION STRATEGY

Usually designed to raise awareness and trial

Coordinate with other promotional efforts