Tools of Sales PromotionTo increase the sale of any product manufactures or producers adopt different measures like sample, gift, bonus, and many more. These are known as tools or techniques or methods of sales promotion. Let us know more about some of the commonly used tools of sales promotion. (i) Free samples: You might have received free samples of shampoo, washing powder, coffee powder, etc. while purchasing various items from the market. Sometimes these free samples are also distributed by the shopkeeper even without purchasing any item from his shop. These are distributed to attract consumers to try out a new product and thereby create new customers. For example, in the case of medicine free samples are distributed among physicians, in the case of textbooks, specimen copies are distributed among teachers.(ii) Premium or Bonus offer: A milk shaker along with Nescafe, mug with Bournvita, toothbrush with 500 grams of toothpaste, 30% extra in a pack of one kg. are the examples of premium or bonus given free with the purchase of a product. They are effective in inducing consumers to buy a particular product. This is also useful for encouraging and rewarding existing customers.(iii) Exchange schemes: It refers to offering exchange of old product for a new product at a price less than the original price of the product. This is useful for drawing attention to product improvement. ‘Bring your old mixer-cum-juicer and exchange it for a new one just by paying Rs.500’ or ‘exchange your black and white television with a colour television’ are various popular examples of exchange scheme. (iv) Price-off offer: Under this offer, products are sold at a price lower than the original price. ‘Rs. 2 off on purchase of a lifebouy soap, Rs. 15 off on a pack of 250 grams of Taj Mahal tea, Rs. 1000 off on cooler’ etc. are some of the common schemes. This type of scheme is designed to boost up sales in off-season and sometimes while introducing a new product in the market.(v) Coupons: Sometimes, coupons are issued by manufacturers either in the packet of a product or through an advertisement printed in the newspaper or magazine or through mail. These coupons can be presented to the retailer while buying the product. The holder of the coupon gets the product at a discount. For example, you might have come across coupons like, ‘show this and get Rs. 15 off on purchase of 5 kg. of Annapurna Atta’. The reduced price under this scheme attracts the attention of the prospective customers towards new or improved products.(vi) Fairs and Exhibitions: Fairs and exhibitions may be organised at local, regional, national or international level to introduce new products, demonstrate the products and to explain special features and usefulness of the products. Goods are displayed and demonstrated and their sale is also conducted at a reasonable discount.(vii) Trading stamps: In case of some specific products trading stamps are distributed among the customers according to the value of their purchase. The customers are required to collect these stamps of sufficient value within a particular period in order to avail of some benefits. This tool induces customers to buy that product more frequently to collect the stamps of required value.(viii) Scratch and win offer: To induce the customer to buy a particular product ‘scratch and win’ scheme is also offered. Under this scheme a customer scratch a specific marked area on the package of the product and gets the benefit according to the message written there. In this way customers may get some item free as mentioned on the marked area or may avail of price-off, or sometimes visit different places on special tour arranged by the manufacturers.(ix) Money Back offer: Under this scheme customers are given assurance that full value of the product will be returned to them if they are not satisfied after using the product. This creates confidence among the customers with regard to the quality of the product. This technique is particularly useful while introducing new products in the market.

Importance of Sales PromotionFrom the point of view of manufacturers Sales promotion is important for manufacturers because i. it helps to increase sales in a competitive market and thus, increases profits; ii. it helps to introduce new products in the market by drawing the attention of potential customers; iii. when a new product is introduced or there is a change of fashion or taste of consumers, existing stocks can be quickly disposed off.From the point of view of consumers Sales promotion is important for consumers because i. the consumer gets the product at a cheaper rate; ii. it gives financial benefit to the customers by way of providing prizes and sending them to visit different places.iii. the consumer gets all information about the quality, features and uses of different products.

Pricing strategies in the Product Life Cycle (PLC)Pricing in the introductory stage of the life cycleWith an innovatory product its developers can expect to have a competitive edge, at least for a period of time. With innovatory new products, a company can elect to choose between two extreme pricing strategies

Price skimming: introducing new products at a high price level. The setting of a high initial price can be interpreted as an assumption by management that eventually competition will enter the market and erodeprofit margins. The company therefore sets the high price so as to “milk” the market and achieve the maximum profits available in the shortest period of time. This “market skimming” strategy involves the company estimating the highest price the customer is willing or able to pay, which will involve assessing the benefits of the product to the potential customer When a company adopts this kind of strategy the following variables are usually present:

The demand for the product is high The high price will not attract early competition The high price gives the impression to the buyer of purchasing a high quality product from a

superior firm Price penetration: Introducing new products at a low price level. The setting of a low price

strategy or “market penetration strategy” is carried out by companies whose prime objective is to capture a large market share in the quickest time period possible. The conditions which usually prevail for penetrating pricing to be effective include: The demand for the product is price sensitive A low price will tend to discourage competitors from entering the market Potential economies of scale and/or significant experience curve effects

SETTING THE PRICEStep 1: Selecting the Pricing ObjectiveA company can pursue any of five major objectives through pricing:➤ Survival. This is a short-term objective that is appropriate only for companies that are plagued with overcapacity, intense competition, or changing consumer wants. As long as prices cover variable costs and some fixed costs, the company will be able toremain in business.➤ Maximum current profit. To maximize current profits, companies estimate the demand and costs associated with alternative prices and then choose the price that produces maximum current profit, cash flow, or return on investment. However, by emphasizing current profits, the company may

sacrifice long-run performance by ignoring the effects of other marketing-mix variables, competitors’ reactions, and legal restraints on price.➤ Maximum market share. Firms such as Texas Instruments choose this objective because they believe that higher sales volume will lead to lower unit costs and higher long-run profit. With this market-penetration pricing, the firms set the lowest price, assuming the market is price sensitive. This is appropriate when (1) the market is highly price sensitive, so a low price stimulates market growth;(2) production and distribution costs fall with accumulated production experience; (3) a low price discourages competition.➤ Maximum market skimming. Many companies favor setting high prices to “skim” the market. This objective makes sense under the following conditions: (1) A sufficient number of buyers have a high current demand; (2) the unit costs of producing a small volume are not so high that they cancel the advantage of charging what the traffic will bear.(3) the high initial price does not attract more competitors to the Market.(4) the high price communicates the image of a superior product.➤ Product-quality leadership. Companies such as Maytag that aim to be product-quality leaders will offer premium products at premium prices. Because they offer top quality plus innovativefeatures that deliver wanted benefits, these firms can charge more.Step 2: Determining DemandEach price will lead to a different level of demand and, therefore, will have a different impact on a company’s marketing objectives. The relationship between alternative prices and the resulting current demand is captured in a demand curve. Normally, demand and price are inversely related: The higher the price, the lower the demand. In the case of prestige goods, however, the demand curve sometimes slopes upward because some consumers take the higher price to signify a better product. Still, if the price is too high, the level of demand may fall.Step 3: Estimating CostsWhile demand sets a ceiling on the price the company can charge for its product, costs set the floor. Every company should charge a price that covers its cost of producing, distributing, and selling the product and provides a fair return for its effort and risk.Step 4: Analyzing Competitors’ Costs, Prices, and OffersWithin the range of possible prices determined by market demand and company costs, the firm must take into account its competitors’ costs, prices, and possible price reactions. If the firm’s offer is similar to a major competitor’s offer, then the firm will have to price close to the competitor or lose sales. If the firm’s offer is inferior, it will not be able to charge more than the competitor charges. If the firm’s offer is superior, it can charge more than does the competitor—remembering, however, that competitors might change their prices in response at any time.Step 5: Selecting a Pricing MethodThe three Cs—the customers’ demand schedule, the cost function, and competitors’ prices—are major considerations in setting price. First, costs set a floor to the price. Second, competitors’ prices and the price of substitutes provide anorienting point. Third, customers’ assessment of unique product features establishes the ceiling price. Companies must therefore select a pricing method that includes one or more of these considerations. We will examine six price-setting methods: markup pricing, target-return pricing, perceived-value pricing, value pricing, going-rate pricing,and sealed-bid pricing.Step 6: Selecting the Final PriceThe previous pricing methods narrow the range from which the company selects its final price. In selecting that price, the company must consider additional factors: psychological pricing, the influence of other marketing-mix elements on price, company pricing policies, and the impact of price on other parties.

ADAPTING THE PRICECompanies usually do not set a single price, but rather a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, order levels, delivery frequency, guarantees, service contracts, and other factors. As a result of discounts,

allowances, and promotional support, a company rarely realizes the same profit from each unit of a product that it sells.Geographical PricingIn geographical pricing, the company decides how to price its products to different customers in different locations and countries. For example, should the company charge distant customers more to cover higher shipping costs, or set a lower price to win additional business? Another issue is how to get paid.➤ Barter: The direct exchange of goods, with no money and no third party involved.➤ Compensation deal: The seller is paid partly in cash and partly in products.➤ Buyback arrangement: The seller sells a plant, equipment, or technology to another country and agrees to accept as partial payment products manufactured with the supplied equipment.➤ Offset: The seller receives full payment in cash but agrees to spend a substantial amount of that money in that country within a stated time period.

Price Discounts and AllowancesCash Discounts: A cash discount is a price reduction to buyers who pay their bills promptly.Quantity Discounts: A quantity discount is a price reduction to those buyers who buy large volumes.Functional Discounts: Functional discounts (also called trade discounts) are offered by a manufacturer to trade-channel members if they will perform certain functions, such as selling, storing, and record keeping. Manufacturers may offer different functional discounts to different trade channels but must offer the same functional discounts within each channel.Seasonal Discounts: A seasonal discount is a price reduction to buyers who buy merchandise or services out of season.Allowances: Allowances are extra payments designed to gain reseller participation in special programs. Trade-in allowances are price reductions granted for turning in an old item when buying a new one.

Promotional PricingCompanies can use any of seven promotional pricing techniques to stimulate early Purchase. However, smart marketers recognize that promotional-pricing strategies are often a zero-sum game. If they work, competitors copy them and they lose their effectiveness. If they do not work, they waste company money that could have been put into longer impact marketing tools, such as building up product quality and service or strengthening product image through advertising.

Discriminatory PricingDiscriminatory pricing occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs. Discriminatory pricing takes several forms:

Customer-segment pricing: Different customer groups pay different prices for the same good or service.

Product-form pricing: Different versions of the product are priced differently but not proportionately to their respective costs.

Image pricing: Some companies price the same product at two different levels based on image differences.

Location pricing: The same product is priced differently at different locations even though the costs are the same.