Chp 14 Promotion and Pricing 3122

8/3/2019 Chp 14 Promotion and Pricing 3122

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Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Part 4Part 4

MarketingMarketing

ManagementManagement


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Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Chapter 14Chapter 14

Promotion and

Pricing Strategies


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Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.14-3

Chapter ObjectivesChapter Objectives1. Discuss how integrated marketing communications

relates to a firms promotional strategy.2. Explain the concept of a promotional mix and outline the

objectives of promotion.

3. Summarize the different types of advertising andadvertising media.

4. Describe the role of sales promotion, personal selling,and public relations in promotional strategy.

5. Identify the Profitabilitynfluence the selection of apromotional mix.

6. Discuss the major ethical issues involved in promotion.7. Outline the different types of pricing objectives and

discuss how firms set prices in the marketplace.

8. Summarize the four alternative pricing strategies.

9. Discuss consumer perceptions of price.


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Integrated Marketing CommunicationsIntegrated Marketing Communications

Promotioncommunication link betweenbuyer and seller that performs the function ofinforming, persuading, and influencing apurchase decision.

Focusing on Primary Demand

Focusing on Selective Demand


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Integrated Marketing CommunicationsIntegrated Marketing Communications

Coordination of all promotional activities media advertising, direct mail, personalselling, sales promotion, and public relations

to produce a unified customer-focused

message.

Focuses on customer needs to create aunified promotional message

Firms need a broad view of promotion toimplement IMC


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The Promotional MixThe Promotional Mix

Promotional Mixcombination of personaland nonpersonal selling techniques designed toachieve promotional objectives.

Personal Sellinginterpersonal promotionalprocess involving a sellers face-to-facepresentation to a prospective buyer.

Nonpersonal sellingconsists of advertising,

sales promotion, direct marketing, and publicrelations


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Comparing the Components of thePromotional Mix


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Objectives of Promotional Strategy

Providing Information

Differentiating a Product

Increasing SalesStabilizing Sales

Accentuating the Products Value


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Five Major Promotional Objectives


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Objectives of Promotional StrategyProviding Information

Major portion of U.S. advertising isinformation-oriented

Differentiating a Product

Positioning: establishing a place in theminds of customers by communicating

meaningful distinctions about theattributes, price, quality, or use of a goodor service


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Objectives of Promotional StrategyIncreasing Sales

Most common objective of a promotionalstrategy

Stabilizing Sales

Sales contests often used during slackperiods

Sales promotion materials oftendistributed to customers to stimulatesales during off-seasons


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Objectives of Promotional StrategyAccentuating the Products Value

Promotional strategies can enhanceproduct values by explaining often

unrecognized ownership benefits


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Promotional Planning

Increasing complexity and sophistication ofmarketing communications requires carefulplanning to coordinate IMC strategies

Product Placement

Guerrilla Marketing


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AdvertisingAdvertising

Advertisingpaid nonpersonalcommunication delivered through variousmedia and designed to inform, persuade, or

remind members of a particular audience.


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The 15 Largest Advertisers in the United States


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Types of Advertising

Product Advertisingconsists ofmessages designed to sell a particulargood or service

Institutional Advertisinginvolvesmessages that promote concepts, ideas,philosophies, or goodwill for industries,

companies, organizations, or governmententities


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Advocacy Advertising (Cause Advertising):promotes a specific viewpoint on a publicissue as a way to influence public opinion andthe legislative process


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Advertising and the Product Cycle

Product and Institutional Advertising fallinto one of three categories, based onwhether the ads intend to inform,persuade, or remind

Informative Advertisingused to buildinitial demand for a product in the

introductory phase of the product life cycle


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Advertising and the Product CyclePersuasive Advertisingattempts to

improve the competitive status of a product,institution, or concept, usually in the growth

and maturity stages of the product life cycleComparative Advertisingform of

persuasive product advertising thatcompares products directly with their

competitors


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Advertising and the Product CycleReminder-oriented advertisingoften

appears in the late maturity or declinestages of the product life cycle to maintain

awareness of the importance andusefulness of a product, concept, orinstitution


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Advertising MediaMust choose how to allocate advertising

budget

All media offer advantages and

disadvantagesMust consider cost and which media is

best suited for communication


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Advertising Media


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Advertising MediaNewspaper

Continue to dominate local advertising

Ads easily tailored for local tastes andpreferences

Can coordinate newspaper messageswith other promotional efforts

Disadvantage: relatively short life span


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Advertising MediaTelevision

Americas leading national advertisingmedium

An expensive advertising medium

Price for a 30-second ad duringweeknight prime time on network

television generally ranges from$100,000 to more than $500,000


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Advertising MediaRadio

Average U.S. household owns fiveradios

Captive audience of listeners as theycommute to and from work

In major markets, many stations servedifferent demographic groups with

targeted programming


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Advertising MediaMagazines

Includes consumer publications andtrade journals

Can often customize their publicationsand target advertising messages todifferent regions of the country

A natural choice for targeted advertising


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Advertising MediaDirect Mail

Average American household receivesabout 550 pieces of direct mail each

year, including 100 catalogse-mail another option

Must overcome junk-mail and spam

classification


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AdvertisingAdvertisingAdvertising Media

Outdoor AdvertisingJust over 2 percent of total advertising

spending

Share is growing

Majority of spending is for billboardsOther types include: signs in transit stations,

stores, airports, and sports stadiums

Disadvantages include:

yBrief messages are required

yMounting concern for aesthetic andenvironmental issues


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Advertising MediaOnline and Interactive Advertising

Range from Web sites and CDs toinformation kiosks

Currently commands only 3 percent ofmedia spending, but is the fastest-growing media segment


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Advertising MediaSponsorshipinvolves providing funds

for a sporting or cultural event in exchangefor a direct association with the event

Sports sponsorships attract two-thirds oftotal sponsorship dollars

Primary benefits: exposure to the eventsaudience and association with the image of

the activity


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Advertising MediaOther Media Options

Infomercials: 30-minute programs thatresemble regular TV programs, but are

devoted to selling goods or servicesOther Media options include:

yAds in movie theaters

yAds on airline movie screens

yPrinted programs, Subway ticketsyTurnpike toll receipts

yAutomated teller machines


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Sales PromotionSales Promotion

Sales promotionnonpersonal marketingactivities other than advertising, personalselling and public relations that stimulateconsumer purchasing and dealer

effectiveness.Potential advantages:

Short-term increased sales

Increased brand equity

Enhanced customer relationships


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Consumer-Oriented PromotionsGoals of a consumer-oriented sales

promotion include:

Getting new and existing customers to

try or buy productsEncouraging repeat purchases by

rewarding current users

Increasing sales of complementaryproducts

Boosting impulse purchases


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Spending on Consumer-Oriented Promotions


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Consumer-Oriented PromotionsPremiumsitems given free or at a

reduced price with the purchase of anotherproduct.

Coupons offer small price discounts

Rebates offer cash back to consumers

Samplea gift of a product distributed by

mail, door-to-door, in a demonstration, orinside packages of another product


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Consumer-Oriented PromotionsGames, Contests, and Sweepstakes

Offering cash, merchandise or travel asprizes to participating winners

Often used to introduce new goods andservices and to attract additionalcustomers

Court rulings and legal restrictions have

limited the use of contests


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Consumer-Oriented PromotionsPromotional Products (Specialty advertising)

Because these specialty advertisingproducts are useful, people tend to keep and

use themGives advertisers repeated exposure

Originally designed to identify and create

goodwill for advertisersNow generates sales leads and develops

traffic for stores and trade show exhibitors.


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Trade-Oriented PromotionsTrade promotionsales promotion

geared to marketing intermediaries

Used to encourage retailers to:

Stock new products

Continue carrying existing ones

Promote products effectively to

consumers.


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Trade-Oriented PromotionsPoint-of-purchase (POP) advertising

displays or demonstrations that promoteproducts when and where consumers buy

themTakes advantage of many shoppers

tendencies to make purchase decisionsin the store

Trade showspromote goods or servicesto intermediaries


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Personal SellingPersonal Selling

Personal sellinginterpersonal promotionalprocess involving a sellers face-to-facepresentation to a prospective buyer. Usedmost often when:

Customers are relatively few in numberand geographically concentrated

Product is technically complex, involvestrade-ins, and requires special handling

Product is high in priceProduct moves through direct-distribution

channels


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Sales TasksOrder Processingselling, mostly at the

wholesale and retail levels, that involvesidentifying customer needs, pointing them out

to customers, and completing ordersCreative Sellingpersonal selling involving

situations in which a considerable degree ofanalytical decision making on the buyers partresults in the need for skillful proposals ofsolutions for the customers needs


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The Sales Process

Seven Steps in

the Sales

Process


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The Sales Process

Prospecting, Qualifying, and Approaching

Prospecting involves identifying potentialcustomers

Qualifying involves identifying potentialcustomers who have the financial abilityand authority to buy.

Before making the initial contact:

y

Careful preparations are madeyAvailable data about a prospective

customer and other pertinent informationis analyzed


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The Sales Process

Presentation and Demonstration

Involves communicating promotionalmessages

Major features of the product, highlightsof the advantages, and examples ofsatisfied consumers are typicallypresented

Involves the prospect in the salespresentation

Reinforces the message that thesalesperson has been communicating


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The Sales Process

Handling Objections

Allows sales personnel to removeobstacles and complete the sale

Can become a positive part of the salesprocess

Allows the salesperson to presentadditional information


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The Sales Process

Closing

Critical point in a selling relationshipthe time at which the salesperson

actually asks the prospect to buyIf the presentation effectively matches

product features to customer needs, theclosing should be a natural conclusion.


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The Sales Process

Follow-up

Salespersons actions after the sale may welldetermine whether the customer will make

another purchaseBuilding a long-term relationship

By calling soon after a purchase, thesalesperson provides psychological

reinforcement for the customers decision to buyAlso gives the seller a chance to correct any

problems


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Recent Trends in Personal SellingTelemarketing

Outbound telemarketingwhen asales representative calls you at yourplace of business

Inbound telemarketingwhen thecustomer calls a toll-free phone number

to get information or place an order.


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Recent Trends in Personal Selling

Relationship Sellingwhen asalesperson builds a mutually beneficialrelationship with a customer throughregular contacts over an extended period

Consultative sellingmeeting customersneeds by listening to them, understandingand caring about their problems, payingattention to details, suggesting solutions,

and following through after the sale


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Recent

Trends in Personal Selling

Team sellingjoins salespeople withspecialists from other functional areas ofthe firm to complete the selling process

Sales force automation (SFA)incorporates a broad range of tools, frome-mail, telecommunications devices likepagers and cell phones, and laptop

computers to increasingly sophisticatedsoftware systems that automate the salesprocess


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Public RelationsPublic Relations

Public Relationsorganizationscommunication and relationships with itsvarious audiences.

Publicitystimulation of demand for a good,service, place, idea, person, or organizationby disseminating news or obtaining favorableunpaid media presentations.


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Promotional StrategiesPromotional Strategies

Selecting a Promotional MixGuidelines for allocating promotional

efforts and expenditures among personalselling and advertising:

What is your target market?

What is the value of the product?

What time frame is involved?


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Pus

hing and Pulling Strategies

Pushing strategypromotional effort by aseller to members of the distributionchannel intended to stimulate personal

selling of the good or service, therebypushing it through the channel

Cooperative advertisingallowancesin which firms share the cost of local

advertising of their product or line withchannel partners


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Pus

hing and Pulling Strategies

Pulling strategypromotional effort by aseller to stimulate demand among finalusers, who will then exert pressure on the

distribution channel to carry the good orservice, pulling it through the distributionchannel


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Ethics in PromotionEthics in Promotion

Puffery and

D

eceptionPufferyexaggerated claims of a

products superiority or use of doubtful,subjective, or vague statements

Other promotional elements can alsoinvolve deception

Salespeople have deceived customerswith misleading information


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Promotion to

Children and

T

eensRisk of deception is especially great with

promotion targeted to children and teens

Children not sophisticated at analyzing

promotional messages


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Promotion in Public Schools and onCollege Campuses

Includes promotional book covers, posters,and even curriculum materials provided totodays schools

Some schools sign contracts that givecertain brands exclusive access to theirstudents

Can generate a backlash


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Price in the Marketing MixPrice in the Marketing Mix

Priceexchangevalue of a goodor service.

PricingObjectives


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Profitability ObjectivesPerhaps the most commonly used

objective in firms pricing strategies

Some firms try to maximize profits by

reducing costs rather than through pricechanges

Volume Objectives

Bases pricing decisions on market share

Market share: the percentage of a marketcontrolled by a certain company or product


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Price to Meet Competition

Seeks to meet competitors prices

Prestige Objectives

Prestige pricing encompasses the effect of

price on prestigePrestige pricing establishes a relatively

high price to develop and maintain animage of quality and exclusiveness


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Pricing StrategiesPricing Strategies

Price Determination in PracticeDetermined in two basic ways

By applying the theoretical concepts ofsupply and demand

By completing cost-oriented analyses


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Price Determination in Practice

Cost-based pricingpractice of adding apercentage of specific amounts (mark-up)

to the base cost of a product to coveroverhead costs and generate profits.


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Breakeven Analysispricing techniqueused to determine the minimum sales volumea product must generate at a certain pricelevel to cover all costs.

Breakeven pointBreakeven point Total Fixed CostTotal Fixed Cost

(in units)(in units) Contribution to Fixed Costs Per UnitContribution to Fixed Costs Per Unit

Breakeven pointBreakeven point Total Fixed CostTotal Fixed Cost(in dollars)(in dollars) 11 Variable Cost Per Unit/PriceVariable Cost Per Unit/Price

=

=


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Breakeven Analysis


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Alternative Pricing Strategies

Skimming pricing strategysets anintentionally high price relative to the pricesof competing products

Penetration pricing strategysets a lowprice as a major marketing weapon


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Alternative Pricing StrategiesEveryday Low Pricing and Discount

PricingStrategy devoted to maintainingcontinuous low prices rather than relying

on short-term price-cutting tactics

Competitive Pricingproduct priced at

the general level of competing offerings


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Consumer Perceptions of PricesConsumer Perceptions of Prices

Price-Quality RelationshipsConsumers perceptions of product quality

is closely related to price

Most marketers believe that this perceived

price-quality relationship holds over arelatively wide range of prices

In other situations, marketers establish

price-quality relationships withcomparisons that demonstrate a productsvalue at the established price


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Consumer Perceptions of PricesConsumer Perceptions of Prices

Odd Pricing

Odd pricing (charging $39.95 or $19.98instead of $40 or 20)

Commonly-used retail practice, as many

retailers believe that consumer favoruneven amounts

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Chp 14 Promotion and Pricing 3122