Chapter 7: Advertising and Pricing 1 Copyright 2002 Prentice Hall Publishing Company Advertising and Pricing for Profit It Pays to Advertise!

Chapter 7: Advertising and PricingChapter 7: Advertising and Pricing 11Copyright 2002 Prentice Hall Publishing CompanyCopyright 2002 Prentice Hall Publishing Company

Advertising and Pricing for ProfitAdvertising and

Pricing for Profit

It Pays to Advertise!


Developing an Advertising PlanDeveloping an Advertising Plan

Step 1: Create specific, Step 1: Create specific, measurable objectives.measurable objectives.

Step 2: Identify and analyze Step 2: Identify and analyze the target audience.the target audience.

Step 3: Design an Step 3: Design an advertising message and advertising message and choose the media for choose the media for transmitting it. transmitting it.


Build Ads Around a UniqueBuild Ads Around a UniqueSelling Proposition (USP)Selling Proposition (USP)

USP USP –– A key customer benefit of a product or A key customer benefit of a product or service that answers the critical question that service that answers the critical question that everyevery customer asks: “ customer asks: “What's in it for meWhat's in it for me?”?”

Identify your product or service’s USP by Identify your product or service’s USP by describing the primary benefit it offers describing the primary benefit it offers customers and then list other secondary customers and then list other secondary benefits it provides.benefits it provides.

Briefly list a few facts that support this USP.Briefly list a few facts that support this USP. Then, focus your ads to stress these top Then, focus your ads to stress these top

benefits and the facts supporting them!benefits and the facts supporting them!


A Six-Sentence Advertising A Six-Sentence Advertising StrategyStrategy

What is the purpose of this ad?What is the purpose of this ad? What USP can you offer customers?What USP can you offer customers? What other key benefits support your USP?What other key benefits support your USP? At whom are you aiming the ad?At whom are you aiming the ad? What response do you want from your target What response do you want from your target

audience?audience? What image do you want to convey in our ads?What image do you want to convey in our ads?


Five Fundamentals of a Successful AdvertisementFive Fundamentals of a Successful Advertisement

It should attract attention.It should emphasize a keybenefit of the product orservice to the customer.

It should communicate the company’s UniqueSelling Proposition (USP).

It should prove the USPand benefits to the customerwith facts, statistics, or testimonials.

It should motivate customersto take action immediately.

Source: Adapted from Jerry Fisher, “Fine Print,” Entrepreneur, November 1994, pp. 145-147.


Can Your Ad Pass These 7 Tests?Can Your Ad Pass These 7 Tests?

Scan testScan test Comprehension testComprehension test Differentiation testDifferentiation test Puffery testPuffery test Believability testBelievability test Immediate clarity testImmediate clarity test USP test USP test


Promotion Includes...Promotion Includes...

PublicityPublicity –– any commercial news covered by any commercial news covered by the media that boosts sales but for which the the media that boosts sales but for which the small business does not pay.small business does not pay.

Personal sellingPersonal selling –– the personal contact between the personal contact between sales personnel and potential customers sales personnel and potential customers resulting from sales efforts.resulting from sales efforts.

AdvertisingAdvertising –– any sales presentation that is any sales presentation that is nonpersonal in nature and is paid for by an nonpersonal in nature and is paid for by an identified sponsor.identified sponsor.


Tips for Stimulating PublicityTips for Stimulating Publicity

Write an article of interest Write an article of interest to customers.to customers.

Sponsor an off-beat eventSponsor an off-beat event Involve celebrities “on the Involve celebrities “on the

cheap.” cheap.” Offer to be interviewed on Offer to be interviewed on

TV and radio stations.TV and radio stations. Publish a newsletter.Publish a newsletter. Speak to local Speak to local

organizations.organizations.

Sponsor a seminar.Sponsor a seminar. Write news releases and fax Write news releases and fax

or e-mail them to the or e-mail them to the media.media.

Serve on community and Serve on community and industry boards and industry boards and committees.committees.

Sponsor a community Sponsor a community project or support a project or support a nonprofit organization.nonprofit organization.

Promote a cause.Promote a cause.


Top Salespeople…Top Salespeople…

Are enthusiastic and alert to new opportunities.Are enthusiastic and alert to new opportunities. Are experts in the products and services they Are experts in the products and services they

sell.sell. Concentrate on select accounts.Concentrate on select accounts. Plan thoroughly.Plan thoroughly. Use a direct approach.Use a direct approach.


Top Salespeople…Top Salespeople…

Work from the customer’s perspective.Work from the customer’s perspective. Use past success stories.Use past success stories. Leave sales material with clients.Leave sales material with clients. See themselves as problem solvers, not just See themselves as problem solvers, not just

vendors.vendors. Measure their success not just by sales volume Measure their success not just by sales volume

but by customer satisfaction. but by customer satisfaction.

(continued)(continued)


Successful Personal SellingSuccessful Personal SellingRequires a Selling System Requires a Selling System

ApproachApproach - Establish rapport with prospect. - Establish rapport with prospect. InterviewInterview - Let the prospect talk. - Let the prospect talk. Demonstrate, explain, and showDemonstrate, explain, and show – Make clear the – Make clear the

benefits of your product or service.benefits of your product or service. ValidateValidate - Prove the claims about your product or - Prove the claims about your product or

service.service. NegotiateNegotiate - Listen for objections and try to - Listen for objections and try to

overcome them.overcome them. CloseClose - Stop talking and ask for the order. - Stop talking and ask for the order.


Selecting Advertising Media:Selecting Advertising Media:Key QuestionsKey Questions

How large is my firm’s trading How large is my firm’s trading area?area?

Who are my customers and what Who are my customers and what are their characteristics?are their characteristics?

Which media are my target Which media are my target customers most likely to watch, customers most likely to watch, listen to, or read?listen to, or read?


Selecting Advertising Media:Selecting Advertising Media:Key QuestionsKey Questions

What budget limitations do I face?What budget limitations do I face? Which media do my competitors Which media do my competitors

use?use? How important are repetition and How important are repetition and

continuity of my advertising continuity of my advertising message?message?

What does the advertising medium What does the advertising medium cost?cost?



Advertising Media OptionsAdvertising Media Options

Outdoor adsOutdoor ads Transit advertisingTransit advertising DirectoriesDirectories Trade showsTrade shows Sponsorships and Sponsorships and

special eventsspecial events Point-of-purchase adsPoint-of-purchase ads

Word-of-MouthWord-of-Mouth NewspapersNewspapers RadioRadio TelevisionTelevision MagazinesMagazines Direct mailDirect mail World Wide WebWorld Wide Web


Snappy Radio Copy Should....Snappy Radio Copy Should....

Stress benefits to the Stress benefits to the listener.listener.

Use attention-grabbers.Use attention-grabbers. Zero in on a particular Zero in on a particular

audience.audience. Be simple and to the Be simple and to the

point.point. Sell early and often.Sell early and often. Be written for the ear.Be written for the ear.

Be rehearsed before Be rehearsed before presentation.presentation.

Use positive action Use positive action words.words.

Put the listener in the Put the listener in the picture.picture.

Mention the advertiser Mention the advertiser often.often.

Focus on getting a Focus on getting a response.response.


Creating Direct Mail Ads That Creating Direct Mail Ads That Really WorkReally Work

Promise benefits in the headline.Promise benefits in the headline. Use short “action” words.Use short “action” words. Leave lots of white space.Leave lots of white space. Use eye-catching words.Use eye-catching words. Forget grammatical rules.Forget grammatical rules. Repeat the offer at least three times.Repeat the offer at least three times. Offer proof of claims and endorsements.Offer proof of claims and endorsements. Ask for the order.Ask for the order.


Creating Direct Mail Ads That Creating Direct Mail Ads That Really WorkReally Work

Ask the reader questions in the copy.Ask the reader questions in the copy. Use high-quality paper and envelopes.Use high-quality paper and envelopes. People usually open envelopes that resemble People usually open envelopes that resemble

bills.bills. Address envelopes to a particular person.Address envelopes to a particular person. Use stamps if possible.Use stamps if possible. Use a “P.S.” because recipients almost always Use a “P.S.” because recipients almost always

read them.read them. Make the order form easy to fill out. Make the order form easy to fill out.



Advertising on the WebAdvertising on the Web

Banner adsBanner ads CookiesCookies Full-page adsFull-page ads Push technology adsPush technology ads E-mail adsE-mail ads


Preparing An Advertising BudgetPreparing An Advertising Budget

What is affordableWhat is affordable Matching competitor’s advertising Matching competitor’s advertising

expendituresexpenditures Percentage of Sales Percentage of Sales

Past SalesPast Sales Forecasted SalesForecasted Sales

Objective-and-TaskObjective-and-Task


How To Advertise “Big”How To Advertise “Big”On A Small BudgetOn A Small Budget

Hire “freelance” copywriters and artists.Hire “freelance” copywriters and artists. Use cooperative advertising.Use cooperative advertising. Participate in shared advertising.Participate in shared advertising. Maximize publicity with techniques such Maximize publicity with techniques such

as cause marketing.as cause marketing.


What determines price?What determines price?

Price CeilingPrice Ceiling (“What will the market bear?”) (“What will the market bear?”)

Price FloorPrice Floor (“What are the company's costs?”) (“What are the company's costs?”)

AcceptableAcceptable PricePrice RangeRange

??

??

??

??

??

????

??

??

??

??

Final PriceFinal Price (What is the (What is theCompany’s desired “image?”)Company’s desired “image?”)

Final PriceFinal Price (What is the (What is theCompany’s desired “image?”)Company’s desired “image?”)

??


Introducing A New ProductIntroducing A New Product

3 Basic Strategies:3 Basic Strategies: PenetrationPenetration SkimmingSkimming Sliding-down-the-demand-curveSliding-down-the-demand-curve

3 Goals:3 Goals: Getting the product acceptedGetting the product accepted Maintaining market share as competition Maintaining market share as competition

growsgrows Earning a profitEarning a profit


Pricing TechniquesPricing Techniques

Odd pricingOdd pricing Price liningPrice lining Leader pricingLeader pricing Geographical pricingGeographical pricing Opportunistic pricingOpportunistic pricing DiscountsDiscounts Suggested retail pricesSuggested retail prices


Pricing for Retailers: Pricing for Retailers: MarkupMarkup

Dollar Markup = Retail Price - Cost of MerchandiseDollar Markup = Retail Price - Cost of Merchandise

Percentage (of Retail Price) Markup = Percentage (of Retail Price) Markup = Dollar MarkupDollar MarkupRetail PriceRetail Price

Percentage (of Cost) Markup = Percentage (of Cost) Markup = Dollar MarkupDollar MarkupCost of UnitCost of Unit

ExampleExample::

Dollar Markup = $25 - $15 = $10Dollar Markup = $25 - $15 = $10

Percentage (of Retail Price) Markup = Percentage (of Retail Price) Markup =

$10$10

$25$25= 40%= 40%

Percentage (of Cost) Markup = Percentage (of Cost) Markup = $10$10

$15$15= 67%= 67%


Pricing for Manufacturers: Pricing for Manufacturers: Breakeven Selling PriceBreakeven Selling Price

BreakevBreakeven en

SellingSelling

Price Price

QuantiQuantityty

ExamplExample:e:

= ProfProfitit

Variable Variable cost per cost per unitunit

producproduceded

Total Total fixed fixed costscosts++

{{ xx

}} ++

Quantity Quantity producedproduced

BreakevBreakeven en

SellingSelling

Price Price

= $$00

6.98/6.98/unitunit

50,000 50,000 units units

$110,00$110,0000

+ { xx }+

50,000 50,000 unitsunits

= $9.18 per = $9.18 per unitunit


Pricing for Service Firms: Pricing for Service Firms: Price per HourPrice per Hour

Price per Hour = Total cost per x 1Price per Hour = Total cost per x 1 productive hour (1 - net profit target productive hour (1 - net profit target

asas a % of sales)a % of sales)

Example: Ned’s TV Repair ShopExample: Ned’s TV Repair Shop

Price per Hour = $13.44 per x 1 Price per Hour = $13.44 per x 1 hour (1 -.18)hour (1 -.18)

= $16.38 per hour= $16.38 per hour


Consumer CreditConsumer Credit

Credit cardsCredit cardsNationalNational PrivatePrivate

Installment creditInstallment credit Trade creditTrade credit

Documents

Chapter 7: Advertising and Pricing 1 Copyright 2002 Prentice Hall Publishing Company Advertising and Pricing for Profit It Pays to Advertise!