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 Pricing 2 Copyright 2002 Prentice Hall Publishing Company Developing an Advertising Plan n Step 1: Create specific, measurable objectives. n Step 2: Identify and analyze the target audience. n Step 3: Design an advertising message and choose the media for transmitting it.

Chapter 7: Advertising and Pricing 3 Copyright 2002 Prentice Hall Publishing Company Build Ads Around a Unique Selling Proposition (USP) n USP – A key customer benefit of a product or service that answers the critical question that every customer asks: “What's in it for me?” n Identify your product or service’s USP by describing the primary benefit it offers customers and then list other secondary benefits it provides. n Briefly list a few facts that support this USP. n Then, focus your ads to stress these top benefits and the facts supporting them!

Chapter 7: Advertising and Pricing 4 Copyright 2002 Prentice Hall Publishing Company A Six-Sentence Advertising Strategy n What is the purpose of this ad? n What USP can you offer customers? n What other key benefits support your USP? n At whom are you aiming the ad? n What response do you want from your target audience? n What image do you want to convey in our ads?

Chapter 7: Advertising and Pricing 5 Copyright 2002 Prentice Hall Publishing Company Five Fundamentals of a Successful Advertisement It should attract attention. It should emphasize a key benefit of the product or service to the customer. It should communicate the company’s Unique Selling Proposition (USP). It should prove the USP and benefits to the customer with facts, statistics, or testimonials. It should motivate customers to take action immediately. Source: Adapted from Jerry Fisher, “Fine Print,” Entrepreneur, November 1994, pp

Chapter 7: Advertising and Pricing 6 Copyright 2002 Prentice Hall Publishing Company Can Your Ad Pass These 7 Tests? n Scan test n Comprehension test n Differentiation test n Puffery test n Believability test n Immediate clarity test n USP test

Chapter 7: Advertising and Pricing 7 Copyright 2002 Prentice Hall Publishing Company Promotion Includes... n Publicity – any commercial news covered by the media that boosts sales but for which the small business does not pay. n Personal selling – the personal contact between sales personnel and potential customers resulting from sales efforts. n Advertising – any sales presentation that is nonpersonal in nature and is paid for by an identified sponsor.

Chapter 7: Advertising and Pricing 8 Copyright 2002 Prentice Hall Publishing Company Tips for Stimulating Publicity n Write an article of interest to customers. n Sponsor an off-beat event n Involve celebrities “on the cheap.” n Offer to be interviewed on TV and radio stations. n Publish a newsletter. n Speak to local organizations. n Sponsor a seminar. n Write news releases and fax or them to the media. n Serve on community and industry boards and committees. n Sponsor a community project or support a nonprofit organization. n Promote a cause.

Chapter 7: Advertising and Pricing 9 Copyright 2002 Prentice Hall Publishing Company Top Salespeople… n Are enthusiastic and alert to new opportunities. n Are experts in the products and services they sell. n Concentrate on select accounts. n Plan thoroughly. n Use a direct approach.

Chapter 7: Advertising and Pricing 10 Copyright 2002 Prentice Hall Publishing Company Top Salespeople… n Work from the customer’s perspective. n Use past success stories. n Leave sales material with clients. n See themselves as problem solvers, not just vendors. n Measure their success not just by sales volume but by customer satisfaction. (continued)

Chapter 7: Advertising and Pricing 11 Copyright 2002 Prentice Hall Publishing Company Successful Personal Selling Requires a Selling System n Approach - Establish rapport with prospect. n Interview - Let the prospect talk. n Demonstrate, explain, and show – Make clear the benefits of your product or service. n Validate - Prove the claims about your product or service. n Negotiate - Listen for objections and try to overcome them. n Close - Stop talking and ask for the order.

Chapter 7: Advertising and Pricing 12 Copyright 2002 Prentice Hall Publishing Company Selecting Advertising Media: Key Questions n How large is my firm’s trading area? n Who are my customers and what are their characteristics? n Which media are my target customers most likely to watch, listen to, or read?

Chapter 7: Advertising and Pricing 13 Copyright 2002 Prentice Hall Publishing Company Selecting Advertising Media: Key Questions n What budget limitations do I face? n Which media do my competitors use? n How important are repetition and continuity of my advertising message? n What does the advertising medium cost? (continued)

Chapter 7: Advertising and Pricing 14 Copyright 2002 Prentice Hall Publishing Company Advertising Media Options n Outdoor ads n Transit advertising n Directories n Trade shows n Sponsorships and special events n Point-of-purchase ads n Word-of-Mouth n Newspapers n Radio n Television n Magazines n Direct mail n World Wide Web

Chapter 7: Advertising and Pricing 15 Copyright 2002 Prentice Hall Publishing Company Snappy Radio Copy Should.... n Stress benefits to the listener. n Use attention-grabbers. n Zero in on a particular audience. n Be simple and to the point. n Sell early and often. n Be written for the ear. n Be rehearsed before presentation. n Use positive action words. n Put the listener in the picture. n Mention the advertiser often. n Focus on getting a response.

Chapter 7: Advertising and Pricing 16 Copyright 2002 Prentice Hall Publishing Company Creating Direct Mail Ads That Really Work n Promise benefits in the headline. n Use short “action” words. n Leave lots of white space. n Use eye-catching words. n Forget grammatical rules. n Repeat the offer at least three times. n Offer proof of claims and endorsements. n Ask for the order.

Chapter 7: Advertising and Pricing 17 Copyright 2002 Prentice Hall Publishing Company Creating Direct Mail Ads That Really Work n Ask the reader questions in the copy. n Use high-quality paper and envelopes. n People usually open envelopes that resemble bills. n Address envelopes to a particular person. n Use stamps if possible. n Use a “P.S.” because recipients almost always read them. n Make the order form easy to fill out. (continued)

Chapter 7: Advertising and Pricing 18 Copyright 2002 Prentice Hall Publishing Company Advertising on the Web n Banner ads n Cookies n Full-page ads n Push technology ads n ads

Chapter 7: Advertising and Pricing 19 Copyright 2002 Prentice Hall Publishing Company Preparing An Advertising Budget n What is affordable n Matching competitor’s advertising expenditures n Percentage of Sales  Past Sales  Forecasted Sales n Objective-and-Task

Chapter 7: Advertising and Pricing 20 Copyright 2002 Prentice Hall Publishing Company How To Advertise “Big” On A Small Budget n Hire “freelance” copywriters and artists. n Use cooperative advertising. n Participate in shared advertising. n Maximize publicity with techniques such as cause marketing.

Chapter 7: Advertising and Pricing 21 Copyright 2002 Prentice Hall Publishing Company What determines price? Price Ceiling (“What will the market bear?”) Price Floor (“What are the company's costs?”) Acceptable Price Price Range Range ? ? ? ? ? ? ? ? ? ? ? Final Price (What is the Company’s desired “image?”) Final Price (What is the Company’s desired “image?”) ?

Chapter 7: Advertising and Pricing 22 Copyright 2002 Prentice Hall Publishing Company Introducing A New Product 3 Basic Strategies: n Penetration n Skimming n Sliding-down-the-demand-curve 3 Goals: n Getting the product accepted n Maintaining market share as competition grows n Earning a profit

Chapter 7: Advertising and Pricing 23 Copyright 2002 Prentice Hall Publishing Company Pricing Techniques n Odd pricing n Price lining n Leader pricing n Geographical pricing n Opportunistic pricing n Discounts n Suggested retail prices

Chapter 7: Advertising and Pricing 24 Copyright 2002 Prentice Hall Publishing Company Pricing for Retailers: Markup Dollar Markup = Retail Price - Cost of Merchandise Percentage (of Retail Price) Markup = Dollar Markup Retail Price Percentage (of Cost) Markup = Dollar Markup Cost of Unit Example: Dollar Markup = $25 - $15 = $10 Percentage (of Retail Price) Markup = $10 $25 = 40% Percentage (of Cost) Markup = $10 $15 = 67%

Chapter 7: Advertising and Pricing 25 Copyright 2002 Prentice Hall Publishing Company Pricing for Manufacturers: Breakeven Selling Price Breakeve n SellingPrice Quantit y Example : = Profi t Variable cost per unit produce d Total fixed costs Total fixed costs + { { x } } + Quantity produced Breakeve n SellingPrice = $0$0$0$0 6.98/unit 50,000 units $110,000 $110,000 + {x } + 50,000 units = $9.18 per unit

Chapter 7: Advertising and Pricing 26 Copyright 2002 Prentice Hall Publishing Company Pricing for Service Firms: Price per Hour Price per Hour = Total cost per x 1 productive hour (1 - net profit target as productive hour (1 - net profit target as a % of sales) a % of sales) Example: Ned’s TV Repair Shop Price per Hour = $13.44 per x 1 hour (1 -.18) hour (1 -.18) = $16.38 per hour

Chapter 7: Advertising and Pricing 27 Copyright 2002 Prentice Hall Publishing Company Consumer Credit n Credit cards  National  Private n Installment credit n Trade credit