Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Promotion and Pricing Strategies 14-1

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Promotion Promotion— communication link between buyer and seller that performs the function of informing, persuading, and influencing a purchase decision. Focusing on Primary Demand Focusing on Selective Demand 14-2

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Integrated Marketing Communications (IMC) 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 message Firms need a broad view of promotion to implement IMC 14-3

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. The Promotional Mix Promotional Mix— combination of personal and nonpersonal selling components designed to meet the needs of a firm’s target customers and effectively and efficiently communicate its message to them. Personal Selling— the most basic form of promotion: a direct person-to-person promotional presentation to a potential buyer. Nonpersonal selling—consists of advertising, sales promotion, direct marketing, and public relations 14-4

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Comparing the Components of the Promotional Mix 14-5

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. The Promotional Mix Objectives of Promotional Strategy Providing Information Differentiating a Product Increasing Sales Stabilizing Sales Accentuating the Product’s Value 14-6

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Five Major Promotional Objectives 14-7

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. The Promotional Mix Objectives of Promotional Strategy Providing Information Major portion of U.S. advertising is information-oriented Differentiating a Product Positioning: establishing a place in the minds of customers by communicating meaningful distinctions about the attributes, price, quality, or use of a good or service 14-8

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. The Promotional Mix Objectives of Promotional Strategy Increasing Sales Most common objective of a promotional strategy Stabilizing Sales Sales contests often used during slack periods Sales promotion materials often distributed to customers to stimulate sales during off-seasons 14-9

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. The Promotional Mix Objectives of Promotional Strategy Accentuating the Product’s Value Promotional strategies can enhance product values by explaining often unrecognized ownership benefits 14-10

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. The Promotional Mix Promotional Planning Increasing complexity and sophistication of marketing communications requires careful planning to coordinate IMC strategies Product Placement Guerrilla Marketing 14-11

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising—paid nonpersonal communication delivered through various media and designed to inform, persuade, or remind members of a particular audience

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Advertising Types of Advertising Product 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 14-14

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advocacy Advertising (Cause Advertising): promotes a specific viewpoint on a public issue as a way to influence public opinion and the legislative process 14-15

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising and the Product Cycle Product 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 14-16

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising and the Product Cycle Persuasive 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 14-17

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising and the Product Cycle Reminder-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 14-18

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising Media Must choose how to allocate advertising budget All media offer advantages and disadvantages Must consider cost and which media is best suited for communication 14-19

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Media 14-20

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising Media Television America’s leading national advertising medium An expensive advertising medium Price for a 30-second ad during weeknight prime time on network television generally ranges from $100,000 to more than $500,

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising Media Internet Online and interactive media have already changed the nature of advertising. Starting with simple banner ads, Internet advertising has become much more complex and sophisticated The rising number of smart phones and tablets is affecting this increase, as is the rapid multiplication of social media An expensive advertising medium Viral Advertising 14-22

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising Media Newspaper Continue to dominate local advertising Ads easily tailored for local tastes and preferences Can coordinate newspaper messages with other promotional efforts Disadvantage: relatively short life span 14-23

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising Media Radio 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 14-24

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising Media Magazines 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 Direct Mail Average American household receives about 550 pieces of direct mail each year, including 100 catalogs another option Must overcome junk-mail and spam classification 14-25

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising Media Outdoor Advertising Just over 2 percent of total advertising spending Share is growing Majority of spending is for billboards Other types include: signs in transit stations, stores, airports, and sports stadiums Disadvantages include: Brief messages are required Mounting concern for aesthetic and environmental issues Online 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

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising Media Sponsorship—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 14-27

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising Media Other 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 theaters Ads on airline movie screens Printed programs, Subway tickets Turnpike toll receipts Automated teller machines 14-28

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Sales Promotion Sales promotion— consists of forms of promotion such as coupons, product samples, and rebates that support advertising and personal selling. Potential advantages: Short-term increased sales Increased brand equity Enhanced customer relationships 14-29

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Sales Promotion Consumer-Oriented Promotions Goals of a consumer-oriented sales promotion include: Getting new and existing customers to try or buy products Encouraging repeat purchases by rewarding current users Increasing sales of complementary products Boosting impulse purchases 14-30

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Spending on Consumer-Oriented Promotions 14-31

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Sales Promotion Consumer-Oriented Promotions Premiums—items given free or at a reduced price with the purchase of another product. Coupons offer small price discounts Rebates offer cash back to consumers Sample—a gift of a product distributed by mail, door-to-door, in a demonstration, or inside packages of another product 14-32

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Sales Promotion Consumer-Oriented Promotions Games, 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 14-33

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Sales Promotion Consumer-Oriented Promotions Promotional Products (Specialty advertising) Because these specialty advertising products are useful, people tend to keep and use them Gives advertisers repeated exposure Originally designed to identify and create goodwill for advertisers Now generates sales leads and develops traffic for stores and trade show exhibitors.

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Sales Promotion Trade-Oriented Promotions Trade promotion—sales promotion geared to marketing intermediaries Used to encourage retailers to: Stock new products Continue carrying existing ones Promote products effectively to consumers

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Sales Promotion Trade-Oriented Promotions Point-of-purchase (POP) advertising— displays or demonstrations that promote products when and where consumers buy them Takes advantage of many shoppers’ tendencies to make purchase decisions in the store Trade shows—promote goods or services to intermediaries 14-36

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Personal 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 concentrated Product is technically complex, involves trade-ins, and requires special handling Product is high in price Product moves through direct-distribution channels 14-37

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Personal Selling Sales Tasks Order 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

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Personal Selling Sales Tasks Missionary Selling—indirect form of selling in which specialized salespeople promote goodwill among indirect customers, often by assisting customers in product use. Telemarketing- personal selling conducted entirely by telephone, which provides a firm’s marketers with a high return on their expenditures, an immediate response, and an opportunity for personalized two way conversation

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Personal Selling The Sales Process Seven Steps in the Sales Process 14-40

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Personal Selling Recent Trends in Personal Selling Telemarketing 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

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Personal Selling Recent Trends in Personal Selling Relationship 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 14-42

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 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

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Pushing and Pulling Strategies Pushing strategy- personal selling to market an item to wholesalers and retailers in a company’s distribution channels. Pulling strategy promoting a product by generating consumer demand for it, primarily through advertising and sales promotion appeals

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 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? 14-45

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 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 14-46

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 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 14-47

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Price in the Marketing Mix Price—exchange value of a good or service. Pricing Objectives 14-48

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Price in the Marketing Mix Profitability Objectives Perhaps the most commonly used objective in firms’ pricing strategies Some firms try to maximize profits by reducing costs rather than through price changes Volume Objectives Bases pricing decisions on market share Market share: the percentage of a market controlled by a certain company or product

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Price in the Marketing Mix Price to Meet Competition Seeks to meet competitors’ prices Prestige Objectives Prestige pricing encompasses the effect of price on prestige Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 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 = =

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Alternative Pricing Strategies Skimming pricing strategy that sets an intentionally high price relative to the prices of competing products. Penetration pricing strategy that sets a low price as a major marketing weapon

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Alternative Pricing Strategies Everyday low pricing (EDLP)- is a strategy devoted to maintaining continuous low prices rather than relying on short-term price-cutting tactics such as cents-off coupons, rebates, and special sales. Competitive pricing- strategy that tries to reduce the emphasis on price competition by matching other firms’ prices and concentrating their own marketing efforts on the product, distribution, and promotional elements of the marketing mix

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 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

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 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 14-55