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

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-2 Five Major Promotional Objectives

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-3 The Promotional Mix ●Promotional Planning –Increasing complexity and sophistication of marketing communications requires careful planning to coordinate strategies –Product Placement –Guerrilla Marketing

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-4 Advertising ●Advertising Media –Newspaper –Television –Radio –Magazines –Direct Mail –Outdoor Advertising –Online and Interactive Advertising –Sponsorship ●Advantages/disadvantages, examples

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-5 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 –Naming stadiums and arenas –Naming statistics on sports shows –Naming trivia questions on sports shows

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-6 Sales Promotion ●Sales promotion — non-personal marketing activities other than advertising, personal selling and public relations that stimulate consumer purchasing and dealer effectiveness. –Potential advantages:  Short-term increased sales  Increased brand equity  Enhanced customer relationships

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-7 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 –Games, Contests, and Sweepstakes –Promotional Products (Specialty advertising)

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-8 Personal Selling ●Personal selling—interpersonal promotional process involving a seller’s face-to-face presentation to a prospective buyer. ●Sales Tasks –Order Processing—involves identifying customer needs, pointing them out to customers, and completing orders –Creative Selling— skillful proposals of solutions for the customer’s needs ●Missionary Selling— specialized salespeople promote goodwill among indirect customers, often by assisting customers in product use

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-9 Personal Selling ●The Sales Process –Seven Steps in the Sales Process

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Discussion ●In small groups –pick a product –develop 3 promotional schemes for it  who are you targeting  why do you think it will be effective ●Pick a product that needs to be sold face-to- face –what approach would you use? –what would you do at each step of the sales process?

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 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

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

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

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

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

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved ●The Markup Chain for a Hardcover Book

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 ●Breakeven Analysis

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

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 ●Price is a proxy for quality

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 –Items on sale may end in a different number, e.g. 7: $17.97, $13.87.

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved 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 color flyers –Personal promoters - $20 per hour –Celebrity appearance - $10K –Premiums – T-shirt $10 each ●Create a promotional campaign