1 CHAPTERS 11 & 12 PRICING & PROMOTION

2 Pricing Objectives 1. Obtaining a Target Return on Investment return on investment (ROI)- amount earned as a result of that investment return on investment (ROI)- amount earned as a result of that investment Setting a price to achieve a specified return Setting a price to achieve a specified return

3 Setting a Price 1. Cost-Based Pricing- Based on how much to the product is going to cost you to make. Markup- amount added to your cost to cover expenses and ensure profit

4 2. Demand-Based Pricing- find out what customers are willing to pay for your product, then set the price accordingly used often with inelastic demand. used often with inelastic demand. 3. Competition Based Pricing – Analyze the prices of your competitors and set your prices accordingly.

5 Pricing Policies Flexible-Price Policy- customers pay different prices for the same type or amount of merchandise Flexible-Price Policy- customers pay different prices for the same type or amount of merchandise allows customers to haggle over price allows customers to haggle over price One-Price Policy- all customers are charged the same price for the goods or services offered One-Price Policy- all customers are charged the same price for the goods or services offered treats everyone equally treats everyone equally

6 Pricing Techniques 1. Psychological pricing- based on the belief that customers’ perceptions of a product are strongly influenced by price Most often used by retail businesses Most often used by retail businesses 6 types: 6 types: 1. Prestige- higher-than-average prices 2. Odd/even- odd numbers to suggest bargains, even suggest higher quality 3. Price lining- items in a certain category are priced similar 4. Promotional- lower prices offered for a limited period 5. Multiple-unit- items are priced in multiples 6. Bundle- several complementary products are sold at a single price

7 2. Discount pricing- offers customers reductions from regular price Specialized discounts: Specialized discounts: 1. Cash- given for prompt payment 2/10, n/30 2/10, n/30 2. Quantity- encourages buyers to order larger quantities than they would ordinarily 3. Promotional- when manufacturers want to pay wholesalers/retailers for carrying out promo. activities 4. Seasonal- used for products that have a high seasonal demand

8 The Role of Promotion Strategy Promotion is communication intended to persuade, inform, or remind a target market about a business or its products Promotion is communication intended to persuade, inform, or remind a target market about a business or its products

9 Selecting a Promotional Mix Promotional mix- combination of different promotional elements that a company uses to reach & influence potential customers Promotional mix- combination of different promotional elements that a company uses to reach & influence potential customers

10 The Elements of the Promotional Mix 1. Advertising- the paid non-personal presentation of ideas, goods, or services Directed to the mass audience by an identified sponsor Directed to the mass audience by an identified sponsor Two types: Two types: 1. Print: includes newspapers, magazines, direct mail, outdoor advertising, directories, & transit advertising 2. Broadcast: includes television, radio, & Internet

11 2. Publicity- placement in the media of newsworthy items about a company or product Includes: Includes: News release- also called press release, is a brief newsworthy story that is sent to the media News release- also called press release, is a brief newsworthy story that is sent to the media Figure 12.2, p. 261 Figure 12.2, p. 261 Write feature articles Write feature articles Submit captioned photos Submit captioned photos Call a press conference Call a press conference Seek interviews Seek interviews Public relations- activities designed to create goodwill toward a business- this is unsolicited Public relations- activities designed to create goodwill toward a business- this is unsolicited

12 3. Sales Promotion- involves the use of incentives or interest-building activities to stimulate traffic or sales 1. Displays- window, showroom, point-of-purchase, and exterior displays all increase buyer awareness 2. Premium- anything of value that a customer receives in addition to the good or service purchased Includes coupons & gifts Includes coupons & gifts 3. Rebates- return of part of the purchase price 4. Samples- free trial-size & travel-size used to introduce new products 5. Sweepstakes & contests- games used to get customers thinking & talking about the company

13 4. Personal selling- consists of oral presentations given to one or more potential buyers Most adaptable because it can be modified to suit the individual buyer Most adaptable because it can be modified to suit the individual buyer Most expensive Most expensive Variations of this: Variations of this: 1. Telemarketing 2. Network or multilevel marketing