Chp 14 Promotion and Pricing

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

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 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.


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


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


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


Comparing the Components of the Promotional Mix



Objectives of Promotional StrategyProviding InformationDifferentiating a ProductIncreasing SalesStabilizing SalesAccentuating the Product’s Value


Five Major Promotional Objectives



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



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



Objectives of Promotional StrategyAccentuating the Product’s Value

Promotional strategies can enhance product values by explaining often unrecognized ownership benefits



Promotional PlanningIncreasing complexity and sophistication of

marketing communications requires careful planning to coordinate IMC strategies

Product PlacementGuerrilla Marketing


AdvertisingAdvertising

Advertising—paid nonpersonal communication delivered through various media and designed to inform, persuade, or remind members of a particular audience.


The 15 Largest Advertisers in the United States



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



Advocacy Advertising (Cause Advertising): promotes a specific viewpoint on a public issue as a way to influence public opinion and the legislative process



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



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



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



Advertising MediaMust choose how to allocate advertising

budgetAll media offer advantages and

disadvantagesMust consider cost and which media is

best suited for communication


Advertising Media



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



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



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



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



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


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



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



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



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


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



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


Spending on Consumer-Oriented Promotions



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



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



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.



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.



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


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



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



Sales TasksMissionary Selling—indirect form of

selling in which specialized salespeople promote goodwill among indirect customers, often by assisting customers in product use



The Sales ProcessSeven Steps in

the Sales Process



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



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



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



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.


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



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.



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



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


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.


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?



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



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


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



Promotion to Children and TeensRisk of deception is especially great with

promotion targeted to children and teensChildren not sophisticated at analyzing

promotional messages



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


Price in the Marketing MixPrice in the Marketing Mix

Price—exchange value of a good or service.

Pricing Objectives



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



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


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



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.


The Markup Chain for a Hardcover Book



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=

=


Breakeven Analysis



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



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


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


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

Documents

Chp 14 Promotion and Pricing