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Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Part 4Part 4
Marketing Marketing ManagementManagement
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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Chapter ObjectivesChapter Objectives1. Discuss how integrated marketing communications
relates to a firm’s promotional strategy.2. Explain the concept of a promotional mix and outline the
objectives of promotion.3. Summarize the different types of advertising and
advertising media.4. Describe the role of sales promotion, personal selling,
and public relations in promotional strategy.5. Identify the Profitabilitynfluence the selection of a
promotional 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
Promotion—communication link between buyer and seller that performs the function of informing, persuading, and influencing a purchase decision.Focusing on Primary DemandFocusing on Selective Demand
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Integrated Marketing CommunicationsIntegrated Marketing Communications
Coordination of all promotional activities – media advertising, direct mail, personal selling, sales promotion, and public relations – to produce a unified customer-focused message.Focuses on customer needs to create a
unified promotional messageFirms need a broad view of promotion to
implement IMC
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The Promotional MixThe Promotional Mix
Promotional Mix—combination of personal and nonpersonal selling techniques designed to achieve promotional objectives.
Personal Selling—interpersonal promotional process involving a seller’s face-to-face presentation to a prospective buyer.
Nonpersonal selling—consists of advertising, sales promotion, direct marketing, and public relations
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Comparing the Components of the Promotional Mix
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The Promotional MixThe Promotional Mix
Objectives of Promotional StrategyProviding InformationDifferentiating a ProductIncreasing SalesStabilizing SalesAccentuating the Product’s Value
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Five Major Promotional Objectives
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The Promotional MixThe Promotional Mix
Objectives of Promotional StrategyProviding Information
Major portion of U.S. advertising is information-oriented
Differentiating a ProductPositioning: establishing a place in the
minds of customers by communicating meaningful distinctions about the attributes, price, quality, or use of a good or service
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The Promotional MixThe Promotional Mix
Objectives of Promotional StrategyIncreasing Sales
Most common objective of a promotional strategy
Stabilizing SalesSales contests often used during slack
periodsSales promotion materials often
distributed to customers to stimulate sales during off-seasons
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The Promotional MixThe Promotional Mix
Objectives of Promotional StrategyAccentuating the Product’s Value
Promotional strategies can enhance product values by explaining often unrecognized ownership benefits
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The Promotional MixThe Promotional Mix
Promotional PlanningIncreasing complexity and sophistication of
marketing communications requires careful planning to coordinate IMC strategies
Product PlacementGuerrilla Marketing
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AdvertisingAdvertising
Advertising—paid nonpersonal communication delivered through various media 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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AdvertisingAdvertising
Types of AdvertisingProduct Advertising—consists of
messages designed to sell a particular good or service
Institutional Advertising—involves messages that promote concepts, ideas, philosophies, or goodwill for industries, companies, organizations, or government entities
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AdvertisingAdvertising
Advocacy Advertising (Cause Advertising): promotes a specific viewpoint on a public issue as a way to influence public opinion and the legislative process
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AdvertisingAdvertising
Advertising and the Product CycleProduct and Institutional Advertising fall
into one of three categories, based on whether the ads intend to inform, persuade, or remind
Informative Advertising—used to build initial demand for a product in the introductory phase of the product life cycle
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AdvertisingAdvertising
Advertising and the Product CyclePersuasive Advertising—attempts to
improve the competitive status of a product, institution, or concept, usually in the growth and maturity stages of the product life cycle Comparative Advertising—form of
persuasive product advertising that compares products directly with their competitors
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AdvertisingAdvertising
Advertising and the Product CycleReminder-oriented advertising—often
appears in the late maturity or decline stages of the product life cycle to maintain awareness of the importance and usefulness of a product, concept, or institution
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AdvertisingAdvertising
Advertising MediaMust choose how to allocate advertising
budgetAll 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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AdvertisingAdvertising
Advertising MediaNewspaper
Continue to dominate local advertisingAds easily tailored for local tastes and
preferencesCan coordinate newspaper messages
with other promotional effortsDisadvantage: relatively short life span
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AdvertisingAdvertising
Advertising MediaTelevision
America’s leading national advertising medium
An expensive advertising mediumPrice for a 30-second ad during
weeknight prime time on network television generally ranges from $100,000 to more than $500,000
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AdvertisingAdvertising
Advertising MediaRadio
Average U.S. household owns five radios
Captive audience of listeners as they commute to and from work
In major markets, many stations serve different demographic groups with targeted programming
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AdvertisingAdvertising
Advertising MediaMagazines
Includes consumer publications and trade journals
Can often customize their publications and target advertising messages to different regions of the country
A natural choice for targeted advertising
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AdvertisingAdvertising
Advertising MediaDirect Mail
Average American household receives about 550 pieces of direct mail each year, including 100 catalogs
e-mail another optionMust overcome junk-mail and spam
classification
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AdvertisingAdvertising Advertising Media
Outdoor AdvertisingJust over 2 percent of total advertising
spendingShare is growingMajority of spending is for billboardsOther types include: signs in transit stations,
stores, airports, and sports stadiumsDisadvantages include:
Brief messages are requiredMounting concern for aesthetic and
environmental issues
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AdvertisingAdvertising
Advertising MediaOnline and Interactive Advertising
Range from Web sites and CDs to information kiosks
Currently commands only 3 percent of media spending, but is the fastest-growing media segment
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AdvertisingAdvertising
Advertising MediaSponsorship—involves providing funds
for a sporting or cultural event in exchange for a direct association with the event
Sports sponsorships attract two-thirds of total sponsorship dollars
Primary benefits: exposure to the event’s audience and association with the image of the activity
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AdvertisingAdvertising
Advertising MediaOther Media Options
Infomercials: 30-minute programs that resemble regular TV programs, but are devoted to selling goods or services
Other Media options include:Ads in movie theatersAds on airline movie screensPrinted programs, Subway ticketsTurnpike toll receiptsAutomated teller machines
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Sales PromotionSales Promotion
Sales promotion—nonpersonal marketing activities other than advertising, personal selling and public relations that stimulate consumer purchasing and dealer effectiveness.Potential advantages:
Short-term increased salesIncreased brand equityEnhanced customer relationships
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Sales PromotionSales Promotion
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 usersIncreasing sales of complementary
productsBoosting impulse purchases
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Spending on Consumer-Oriented Promotions
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Sales PromotionSales Promotion
Consumer-Oriented PromotionsPremiums—items given free or at a
reduced price with the purchase of another product.
Coupons offer small price discountsRebates offer cash back to consumersSample—a gift of a product distributed by
mail, door-to-door, in a demonstration, or inside packages of another product
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Sales PromotionSales Promotion
Consumer-Oriented PromotionsGames, Contests, and Sweepstakes
Offering cash, merchandise or travel as prizes to participating winners
Often used to introduce new goods and services and to attract additional customers
Court rulings and legal restrictions have limited the use of contests
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Sales PromotionSales Promotion
Consumer-Oriented PromotionsPromotional Products (Specialty advertising)
Because these specialty advertising products are useful, people tend to keep and use them
Gives advertisers repeated exposureOriginally designed to identify and create
goodwill for advertisersNow generates sales leads and develops
traffic for stores and trade show exhibitors.
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Sales PromotionSales Promotion
Trade-Oriented Promotions Trade promotion—sales promotion
geared to marketing intermediaries Used to encourage retailers to:
Stock new productsContinue carrying existing onesPromote products effectively to
consumers.
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Sales PromotionSales Promotion
Trade-Oriented Promotions Point-of-purchase (POP) advertising—
displays or demonstrations that promote products when and where consumers buy themTakes advantage of many shoppers’
tendencies to make purchase decisions in the store
Trade shows—promote goods or services to intermediaries
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Personal SellingPersonal Selling
Personal selling—interpersonal promotional process involving a seller’s face-to-face presentation to a prospective buyer. Used most often when:Customers are relatively few in number
and geographically concentratedProduct is technically complex, involves
trade-ins, and requires special handlingProduct is high in priceProduct moves through direct-distribution
channels
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Personal SellingPersonal Selling
Sales TasksOrder Processing—selling, mostly at the
wholesale and retail levels, that involves identifying customer needs, pointing them out to customers, and completing orders
Creative Selling—personal selling involving situations in which a considerable degree of analytical decision making on the buyer’s part results in the need for skillful proposals of solutions for the customer’s needs
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Personal SellingPersonal Selling
Sales TasksMissionary Selling—indirect form of
selling in which specialized salespeople promote goodwill among indirect customers, often by assisting customers in product use
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Personal SellingPersonal Selling
The Sales ProcessSeven Steps in
the Sales Process
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Personal SellingPersonal Selling
The Sales ProcessProspecting, Qualifying, and Approaching
Prospecting involves identifying potential customers
Qualifying involves identifying potential customers who have the financial ability and authority to buy.
Before making the initial contact:Careful preparations are madeAvailable data about a prospective
customer and other pertinent information is analyzed
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Personal SellingPersonal Selling
The Sales ProcessPresentation and Demonstration
Involves communicating promotional messages
Major features of the product, highlights of the advantages, and examples of satisfied consumers are typically presented
Involves the prospect in the sales presentation
Reinforces the message that the salesperson has been communicating
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Personal SellingPersonal Selling
The Sales ProcessHandling Objections
Allows sales personnel to remove obstacles and complete the sale
Can become a positive part of the sales process
Allows the salesperson to present additional information
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Personal SellingPersonal Selling
The Sales ProcessClosing
Critical point in a selling relationship— the time at which the salesperson actually asks the prospect to buy
If the presentation effectively matches product features to customer needs, the closing should be a natural conclusion.
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Personal SellingPersonal Selling The Sales Process
Follow-upSalesperson’s actions after the sale may well
determine whether the customer will make another purchase
Building a long-term relationship By calling soon after a purchase, the
salesperson provides psychological reinforcement for the customer’s decision to buy
Also gives the seller a chance to correct any problems
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Personal SellingPersonal Selling
Recent Trends in Personal SellingTelemarketing
Outbound telemarketing—when a sales representative calls you at your place of business
Inbound telemarketing—when the customer calls a toll-free phone number to get information or place an order.
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Personal SellingPersonal Selling
Recent Trends in Personal SellingRelationship Selling—when a
salesperson builds a mutually beneficial relationship with a customer through regular contacts over an extended period
Consultative selling—meeting customers’ needs by listening to them, understanding and caring about their problems, paying attention to details, suggesting solutions, and following through after the sale
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Personal SellingPersonal Selling
Recent Trends in Personal SellingTeam selling—joins salespeople with
specialists from other functional areas of the firm to complete the selling process
Sales force automation (SFA)— incorporates a broad range of tools, from e-mail, telecommunications devices like pagers and cell phones, and laptop computers to increasingly sophisticated software systems that automate the sales process
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Public RelationsPublic Relations
Public Relations—organization’s communication and relationships with its various audiences.
Publicity—stimulation of demand for a good, service, place, idea, person, or organization by disseminating news or obtaining favorable unpaid media presentations.
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Promotional StrategiesPromotional Strategies
Selecting a Promotional MixGuidelines for allocating promotional
efforts and expenditures among personal selling and advertising:What is your target market?What is the value of the product?What time frame is involved?
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Promotional StrategiesPromotional Strategies
Pushing and Pulling StrategiesPushing strategy—promotional effort by a
seller to members of the distribution channel intended to stimulate personal selling of the good or service, thereby pushing it through the channelCooperative advertising—allowances
in which firms share the cost of local advertising of their product or line with channel partners
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Promotional StrategiesPromotional Strategies
Pushing and Pulling StrategiesPulling strategy—promotional effort by a
seller to stimulate demand among final users, who will then exert pressure on the distribution channel to carry the good or service, pulling it through the distribution channel
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Ethics in PromotionEthics in Promotion
Puffery and DeceptionPuffery—exaggerated claims of a
product’s superiority or use of doubtful, subjective, or vague statements
Other promotional elements can also involve deceptionSalespeople have deceived customers
with misleading information
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Ethics in PromotionEthics in Promotion
Promotion to Children and TeensRisk of deception is especially great with
promotion targeted to children and teensChildren not sophisticated at analyzing
promotional messages
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Ethics in PromotionEthics in Promotion
Promotion in Public Schools and on College CampusesIncludes promotional book covers, posters,
and even curriculum materials provided to today’s schools
Some schools sign contracts that give certain brands exclusive access to their students
Can generate a backlash
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Price in the Marketing MixPrice in the Marketing Mix
Price—exchange value of a good or service.
Pricing Objectives
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Price in the Marketing MixPrice in the Marketing Mix
Profitability ObjectivesPerhaps the most commonly used
objective in firms’ pricing strategiesSome firms try to maximize profits by
reducing costs rather than through price changes
Volume ObjectivesBases pricing decisions on market shareMarket share: the percentage of a market
controlled by a certain company or product
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Price in the Marketing MixPrice in the Marketing Mix
Price to Meet CompetitionSeeks to meet competitors’ prices
Prestige ObjectivesPrestige pricing encompasses the effect of
price on prestigePrestige pricing establishes a relatively
high price to develop and maintain an image of quality and exclusiveness
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Pricing StrategiesPricing Strategies
Price Determination in PracticeDetermined in two basic ways—
By applying the theoretical concepts of supply and demand
By completing cost-oriented analyses
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Pricing StrategiesPricing Strategies
Price Determination in PracticeCost-based pricing—practice of adding a
percentage of specific amounts (mark-up) to the base cost of a product to cover overhead costs and generate profits.
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The Markup Chain for a Hardcover Book
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Pricing StrategiesPricing Strategies
Breakeven Analysis—pricing technique used to determine the minimum sales volume a product must generate at a certain price level to cover all costs.
Breakeven point Breakeven point Total Fixed Cost Total Fixed Cost (in units) (in units) Contribution to Fixed Costs Per Unit Contribution to Fixed Costs Per Unit
Breakeven point Breakeven point Total Fixed Cost Total Fixed Cost(in dollars)(in dollars) 1 – Variable Cost Per Unit/Price 1 – Variable Cost Per Unit/Price=
=
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Breakeven Analysis
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Pricing StrategiesPricing Strategies
Alternative Pricing StrategiesSkimming pricing strategy—sets an
intentionally high price relative to the prices of competing products
Penetration pricing strategy—sets a low price as a major marketing weapon
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Pricing StrategiesPricing Strategies
Alternative Pricing StrategiesEveryday Low Pricing and Discount
Pricing—Strategy devoted to maintaining continuous low prices rather than relying on short-term price-cutting tactics
Competitive Pricing—product 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 priceMost marketers believe that this perceived
price-quality relationship holds over a relatively wide range of prices
In other situations, marketers establish price-quality relationships with comparisons that demonstrate a product’s value at the established price
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Consumer Perceptions of PricesConsumer Perceptions of Prices
Odd PricingOdd pricing (charging $39.95 or $19.98
instead of $40 or 20) Commonly-used retail practice, as many
retailers believe that consumer favor uneven amounts
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