Promotion and Pricing Strategies Marketing Management Chapter 14 - 2 Promotion and Pricing Strategies

Personal Selling Recent Trends in Personal Selling Telemarketing Outbound telemarketing— calls you at your place of business Inbound telemarketing— customer calls a toll-free phone number Relationship Selling—when a salesperson builds a mutually beneficial relationship with a customer 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 Team selling—joins salespeople with specialists from other functional areas of the firm to complete the selling process Sales force automation (SFA)— uses a broad range of tools, from e-mail, telecommunications devices like pagers and cell phones, and laptop computers that automate the sales process a. personal selling conducted entirely by telephone b. provides a firm’s marketers with a high return on their expenditures c. provides a firm’s marketers with an immediate response d. provides a firm’s marketers an opportunity for personalized, two-way conversation

Public 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. 1. Refers to an organization’s non-paid communications with its various public audiences, including: customers, vendors, news media, employees, stockholders, the government, the general public 2. Public Relations is an efficient, indirect communications channel for promoting products 3. The PR department links a firm with the media by providing the media with news releases and video and audio clips, as well as holding news conferences to announce new products, formation of strategic alliances, management changes, financial results, and similar developments.

Promotional Strategies Selecting a Promotional Mix Guidelines 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?

Promotional Strategies Pushing and Pulling Strategies Push strategy—intended to stimulate personal selling of the good or service, thereby pushing it through the channel Cooperative advertising Pull strategy—stimulate demand among final users, who will then exert pressure on the distribution channel to carry the good or service

Ethics in Promotion Puffery and Deception Puffery—exaggerated claims of a product’s superiority or use of doubtful, subjective, or vague statements Other promotional elements can also involve deception Salespeople have deceived customers with misleading information Many people view advertising negatively, labeling it as propaganda rather than information, and criticizing its influence on customers, its potential for creating unnecessary needs and wants, its overemphasis on sex and beauty, and its delivery of inappropriate messages to children.

Ethics in Promotion Promotion to Children and Teens Risk of deception is especially great with promotion targeted to children and teens Children not sophisticated at analyzing promotional messages To woo young customers, advertisers often make ads as un-ad-like as possible-- designing messages that resemble entertainment.

Ethics in Promotion Promotion in Public Schools and on College Campuses Includes 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 The idea of school as a safe haven where kids and young adults are exposed only to messages tailored to their mental development seems quaint in light of the promotional book covers, posters, and even curriculum materials provided to today’s schools.

Price in the Marketing Mix Price—exchange value of a good or service. Pricing Objectives A. Marketers attempt to accomplish certain objectives through their pricing decisions. B. Pricing objectives vary from firm to firm, and many companies pursue multiple pricing objectives.

Pricing Strategies Price Determination in Practice Determined in two basic ways— By applying the theoretical concepts of supply and demand By completing cost-oriented analyses In reality, you price what the market will bear Pricing requires considerable input from many functional areas, such as accounting, finance, marketing and production. By applying theoretical concepts of supply and demand a. assumes that a market price will be set at the point where the amount demanded and the amount supplied are in equilibrium b. a popular demand-and-supply exchange is Internet auctions

Pricing Strategies Price Determination in Practice Cost-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. 1. Since determining how much of a product will sell at a certain price requires difficult analysis, economic theory is of limited practical value. 2. Therefore, cost-based analyses are used more frequently. 3. Includes all costs associated with offering a product in the market, including: production, transportation, marketing expenses, the markup B covers any unexpected or overlooked expenses and provides a profit

The Markup Chain for a Hardcover Book

Pricing 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 Total Fixed Cost (in units) Contribution to Fixed Costs Per Unit Breakeven point Total Fixed Cost (in dollars) 1 – Variable Cost Per Unit/Price = 1. Involves a consideration of two types of costs, including: a. variable costs B change with the level of production, such as raw materials and labor b. fixed costs B remain stable regardless of the production level 2. The breakeven point is the level of sales that will generate enough revenue to cover all of the company’s fixed and variable costs. 3. Sales beyond the breakeven point generate profits. 4. Marketers determine the profits or loses that would result from several different proposed prices. 5. This comparison at different prices helps to determine the best price, one that would attract enough customers to exceed the breakeven point and earn profits. 6. Many firms determine demand by developing estimates through consumer surveys, interviews and assessments of prices charged by competitors, which results in the determination of a modified breakeven analysis.

Breakeven Analysis

Pricing Strategies Skimming 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 Everyday 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 Skimming Pricing Strategy a. sets an intentionally high price relative to the prices of competing products b. often works for introduction of a distinctive good or service with little or no competition c. helps establish high-end products d. Has several advantages, including: allows a manufacturer to recover its development costs quickly lets a firm maximize revenue from a new product before competitors enter the market permits marketers to control demand in the introductory stage and then adjust production to match demand e. Disadvantages include attracting competition. Penetration Pricing a. sets a low price as a major marketing weapon b. often utilized when there is lots of competition c. Prices may be increased after consumers have developed some recognition of and preference for the product. d. assumes the below-market price will aid in market growth e. success depends on generating large numbers of consumer trial purchases

Consumer Perceptions of Prices Price-Quality Relationships Consumers’ perceptions of product quality is closely related to price Most 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 Price is a proxy for quality

Consumer Perceptions of Prices Odd Pricing Odd 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 Items on sale may end in a different number, e.g. 7: $17.97, $13.87.

Discussion You are to promote a new nightclub, opening in 3 months Objective – create a full house on opening and for two weeks thereafter You have $100,000 to spend Newspaper ad - $10K per ad Radio - $50K for 3 weeks Flyers - $500 per 1000 4 color flyers Personal promoters - $20 per hour Celebrity appearance - $10K Premiums – T-shirt $10 each Create a promotional campaign