1. Promotion and Pricing Strategies13
Chapter
Promotion and Pricing Strategies

2. Learning Objectives
LO 13.1 Discuss how integrated marketing communications relates to a firm’s overall promotional strategy, explain the concept of a promotional mix, and outlining the objectives of promotion.
LO 13.2 Summarize the different types of advertising and advertising media.
LO 13.3 Outline the roles of sales promotion, personal selling, and public relations in promotional strategy.
LO 13.4 Describe pushing and pulling promotional strategies.
LO 13.5 Outline the different types of pricing objectives.
LO 13.6 Discuss how firms set prices in the marketplace, and describe the four alternative pricing strategies.
LO 13.7 Discuss consumer perceptions of price.

3. Promotion and Pricing Strategies
Promotion: The function of informing, persuading, and influencing a purchase decision.
Integrated marketing communications (IMC): The coordination of all promotional activities—media advertising, direct mail, personal selling, sales promotion, and public relations—to produce a unified, customer-focused promotional strategy
Promotion’s goal is to influence a purchasing decision. Some promotional strategies try to develop primary demand, or consumer desire, for a general product category. In contrast, most promotional strategies try to stimulate selective demand—desire for a specific brand.
IMC allows marketing managers to focus objectives and marketing goals.
Lecture Enhancer: What are some possible work-safe promotional ideas that would likely appeal to younger workers?

4. Integrated Marketing Communications
Must take a broad view and plan for all form of customer contact.
Create unified personality and message for the good, brand, or service.
Elements include personal selling, advertising, sales promotion, publicity, and public relations.
Media options continue to increase, and marketers cannot rely on traditional broadcast, print media, and direct mail. Packaging, store displays, sales promotions, sales presentations, and online and interactive media also communicate information about a brand or organization. Coordinated activities also increase the effectiveness of reaching and serving target markets.
Marketing managers set the goals and objectives for the firm’s promotional strategy, while keeping in mind the firm’s overall organizational objectives and marketing goals. Using these objectives, marketers weave the various elements of the strategy into an integrated communications plan.
Lecture Enhancer: What challenges do companies face in trying to reach consumers?

5. The Promotional Mix
Promotional mix: The combination of personal and nonpersonal selling that marketers use to meet the needs of a firm’s target customers and to 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: Forms of selling such as advertising, sales promotion, direct marketing, and public relations
Each organization also needs to blend the many types of promotion into a unified and organized plan. Marketers combine the elements of the promotional mix to meet the needs of the firm’s target customers.
The spending levels within the promotional mix vary by industry. Manufacturers of many business-to-business (B2B) products typically spend more on personal selling than on advertising because those products—such as a new telecommunications system—may require a significant investment. Consumer-goods marketers may focus more on advertising and sponsorships.
Lecture Enhancer: Choose a marketing mix element. Think of a product that has been marketed by using this strategy.
Class Activity: Lead a discussion on the personal qualities and skills needed to excel in personal selling.

6. Test Your Knowledge Promotion is the same as advertising. a. True
b. False

7. Test Your Knowledge Promotion is the same as advertising. a. True
b. False
Answer: B ?

8. Comparing the Elements of the Promotional Mix
Each component of the promotional mix offers its own advantages and disadvantages.

9. Promotional Strategies
Objectives of
Promotional Strategies
Every organization has its own promotional strategies. Marketers oft en pursue more than one promotional objective at the same time.
Promotion can also be used to differentiate a firm’s offerings from the competition by using positioning (marketers try to establish their products in the minds of customers by communicating to buyers the meaningful differences about the attributes, price, quality, or use of a good or service).
Lecture Enhancer: Provide an example of a company or product that uses as its primary promotional method the strategy of highlighting the product’s value.

10. Promotional Planning
Product placement: A form of promotion where marketers pay placement fees to have their products featured in various media, from newspapers and magazines to television and movies
Guerilla marketing: Innovative, low-cost marketing efforts designed to get consumers’ attention in unusual ways.
Today’s marketers can promote their products in many ways. Product Product and brand placements have seen huge increases as a result of two developments: the growing number of reality TV shows and new technology that allows viewers to fast-forward through conventional, stand-alone commercials. Guerrilla marketing is an increasingly popular tactic for marketers, especially those with limited promotional budgets.
Click on the guerilla marketing link to go to the website of Jay Conrad Levinson, the “father of guerilla marketing”.
Lecture Enhancer: Does this number of daily marketing messages surprise you? Why or why not? As a consumer, are you conscious of all these marketing messages?

11. Advertising
Advertising: Paid nonpersonal communication usually targeted at large numbers of potential buyers
Advertising expenditures are great; automotive, retail, and telecommunications firms spend the most on advertising in North America
Carmakers spend $20 billion on advertising yearly.
Consumers are bombarded with many messages.
Firms need to be more and more creative and efficient at attracting customers’ attention.
Consumers receive 4,000 to 5,000 marketing messages each day, many of them in the form of advertising. Advertising is the most visible form of nonpersonal promotion—and the most effective for many firms.Advertising expenditures are large in every industry; more than $10 billion is spent on advertising every year in Canada.

12. Types of Advertising
Product advertising: Messages designed to sell a particular good or service
Institutional advertising: Messages that promote concepts, ideas, or philosophies. It can also promote goodwill toward industries, companies, organizations, or government entities
Cause advertising: A form of institutional advertising that promotes a specific viewpoint on a public issue as a way to influence public opinion and the political process
Avon Foundation
Most advertising is product advertising. Institutional advertising includes fundraising events like Walk for the Cure. Cause advertising (also called advocacy advertising) is used by both not-for-profit organizations and businesses.
Click on the Avon Foundation link to access their YouTube channel, which contains videos on their domestic violence program and breast cancer crusade.

13. Advertising and the Product Life Cycle
Informative advertising is used to build initial demand for a product in its introductory phase.
Persuasive advertising attempts to improve the competitive status of a product, institution, or concept, usually in its growth and maturity stages.
Comparative advertising compares products directly with their competitors, either by name or by inference.
Reminder-oriented advertising maintains awareness of the importance and usefulness of a product in its late maturity or decline stages.
Firms use different types of advertising during the different phases of the product life cycle. The main goal of advertising is to inform, persuade, or remind, but this will differ in the various stages.
Lecture Enhancer: For each advertising category, think of a product or service that uses that method of advertising. Discuss why the advertisers chose each method.
Class Activity: Lead a discussion about which comparative advertising campaigns students have found to be the most memorable.

14. Advertising Media
Marketers must choose how to distriubte their advertising budgets among various media. All media offer advantages and disadvantages. Marketers must choose the media appropriate for their message and product.
Lecture Enhancer: Discuss the qualities that set TV ads apart from other media.

15. Types of Advertising Magazines Television Direct Mail Newspapers Radio
Consumer publications and trade journals
Can customize message for different areas of the country (local ads, wraparounds)
Direct Mail
Average North American receives 550 pieces annually
High per person cost, but can be carefully targeted and highly effective
Outdoor Advertising
Billions spent annually in North America
Requires brief messages
Television
Easiest way to reach a large number of consumers
Leading, but most expensive, advertising medium
Newspapers
Dominate local advertising
Relatively short life span
Radio
Commuters in cars are a captive audience
Internet radio offers new opportunities
Advertising executives agree that firms need to rethink traditional ad campaigns to incorporate new media as well as updated uses of traditional media.

16. Types of Advertising Online and interactive advertising
Widgets (or gadgets) are small television screen images carrying marketing messages; contain embedded links to home sites.
Viral advertising creates a message that is novel or entertaining enough for consumers to forward it to others
Sponsorship: Providing funds for a sporting or cultural event in exchange for a direct association with the event
Exposure to target audience
Association with image of the event
Other media options
Marketers look for novel ways to reach customers
Infomercials: A form of broadcast direct marketing; 30-minute programs resemble regular TV programs, but sell goods or services
ATM commercials/receipts
Directory advertising
Companies spend more than $120 billion on advertising in online and digital media. Online advertising and marketing includes search engine marketing, display ads, and classified ads. Not all online advertising is well-received, but spreading the word through social networking sites costs the advertiser nothing. An ethical issue is raised when ordinary consumers are recruited as “brand ambassadors” or “buzz agents” for pay (and are not required to disclose status to other consumers).

17. Sales Promotion
Sales promotion: Forms of promotion such as coupons, product samples, and rebates that support advertising and personal selling
Sales promotion was seen as a supplement to a firm’s advertising, but it has emerged as an integral part of the promotional mix. Promotion now accounts for more than half as many marketing dollars as are spent on advertising, and promotion spending is rising faster than ad spending. Both retailers and manufacturers use sales promotions to offer consumers extra incentives to buy. Sales promotions can lead to the short-term advantage of increased sales. But sales promotions can also help marketers build brand equity and improve their customer relationships. Examples of sales promotion include samples, coupons, contests, displays, trade shows, and dealer incentives.
Lecture Enhancer: Which is the most commonly used form of consumer-oriented promotion?

18. Consumer-Oriented Promotions
Premiums, coupons, rebates, samples
Marketers generally choose free/reduced price premiums likely to get consumers thinking and caring about a brand and product.
Coupons attract new customers, but focus on price rather than brand loyalty.
Rebates increase purchase rates, promote multiple purchases, and reward product users.
Three of every four consumers who receive a sample will try it.
Games, contests, sweepstakes
Introduction of new products.
Offer cash, merchandise, or travel as prizes to participating winners.
Subject to legal restrictions.
Specialty advertising
Promotional items that prominently display a firm’s name, logo, or business slogan.
The goal of consumer-oriented sales promotion is to get new and existing customers to try or buy products.
Lecture Enhancer:What are some possible downsides or risks of a company relying on samples as the primary method to promote a product?

19. Trade-Oriented Promotions
Sales promotion geared to marketing intermediaries, note to final consumers
Encourage retailers
To stock new products
To continue carrying existing ones
To promote both new and existing products effectively to consumers
Point-of-purchase (POP) advertising
Trade shows
Successful trade promotions offer financial incentives. They require careful timing, attention to costs, and should be easy for intermediaries to apply. These promotions should bring quick results and improve retail sales.
Point-of-purchase (POP) advertising consists of displays or demonstrations that promote products when and where consumers buy them, such as in retail stores. Manufacturers and other sellers often exhibit their products at trade shows to promote goods or services to members of their distribution channels.

20. Personal Selling
A person-to-person promotional presentation to a potential buyer
Many companies consider personal selling the key to marketing effectiveness.
A seller matches a firm’s goods or services to the needs of a particular client or customer.
Businesses often spend five to 10 times as much on personal selling as on advertising.
Firms focus on personal selling under four conditions:
Few, geographically concentrated customers
Product is technically complex, involves trade-ins, or requires special handling
Product carries a relatively high price
Product moves through direct-distribution channels
Today’s sales people are more concerned with establishing long-term relationships with and acting as consultants for their customers. Personal selling includes the significant costs of hiring, training, benefits, and salaries. Because of these costs, businesses are very concerned with the effectiveness of their sales personnel.
Personal selling can involve either business-to-business (B2B) or business-to-consumer (B2C) selling. Field selling refers to sales representatives
who make sales calls on prospective customers at their businesses. Over-the-counter selling describes sales activities in retailing and some wholesale locations, where customers visit the seller ’s facility to purchase items. Telemarketing sales representatives make their presentations over the phone.

21. Sales Tasks
Order processing: A form of selling used mostly at the wholesale and retail levels; involves identifying customer needs, pointing out products that meet those needs, and completing orders
Creative selling: A persuasive type of promotional presentation
Promotes a good or service whose benefits are not readily apparent or whose purchase decision requires a close analysis of alternatives
Missionary selling: An indirect form of selling in which the representative promotes goodwill for a company or provides technical or operational assistance to the customer
Telemarketing: Personal selling 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
All sales activities involve assisting customers. Regardless, sales people go through order processing, creative selling, and missionary selling tasks. Telemarketing has grown into an important part of all three tasks.
Lecture Enhancer: Think of some products or services that may benefit significantly from telemarketing.

22. The Sales Process
The sales process typically follows a seven-step process, depending on the product and the responses and needs of the customer. The process of selling to a potential customer who is unfamiliar with a company’s products differs from the process of serving a long-time customer.

23. Prospecting, Qualifying, and Approaching
A good salesperson varies the sales process based on customers’ needs and responses.
Prospecting is identifying potential customers.
Qualifying is identifying potential customers who have financial ability and buying authority.
Done through direct mail responses, personal visits from sales representatives, , electronic social media
Approaching is analyzing available data about a prospective customer’s product lines and other pertinent information.
Companies use different tactics to identify and qualify prospects. Successful salespeople make careful preparations by realizing the importance of first impressions.
Lecture Enhancer: Which step in the sequence do you feel is the most important? Why?

24. Presentation and Demonstration
Salespeople communicate promotional messages. They may describe the major features of their products, highlight the advantages, and cite examples of satisfied consumers.
Demonstration
Reinforces the message that the salesperson has been communicating.
Salespeople communicate the marketing messages during the presentation and demonstration stage, and they align the benefits to the potential customer and their specific needs. For products too large to transport or that require a special installation to demonstrate, sales representatives can demonstrate these by using laptop computers, multimedia presentations, Web conferences, podcasts, and graphic programs like
SmartDraw. Services which are intangible can be demonstrated in the same way.

25. Handling Objections and Closing
Use objections as an opportunity to answer questions and explain how the product will benefit the customer.
The closing is the critical point in the sales process; asking the customer to buy.
Even if the sale is not made, the salesperson should regard the interaction as the beginning of a potential relationship.
If the presentation has matched the product benefits to customer needs, the closing should be a natural conclusion. If there are some bumps in the process, the salesperson can try some different techniques, such as offering alternative products, offering a special incentive for purchase, or restating the product benefits.

26. Follow-Up An important part of building a long-lasting relationship.
May determine whether the customer will make another purchase.
The sales person should make the customer feel reassured about the purchase. After closing, the salesperson should process the order efficiently, call soon after a purchase to provide reassurance about the customer’s decision to buy, and create an opportunity to correct any problems.
Class Activity: Ask students how they might follow up after selling a car to a customer.

27. Public Relations
Public relations: An organization’s communications and relationships with its various public audiences
This is an efficient, indirect communications channel for promoting products. It can publicize products and help create and maintain a positive image of the company.
Publicity: The nonpersonal stimulation of demand for a good, service, place, idea, event, person, or organization by unpaid placement of information in print or broadcast media.
Good publicity can promote a firm’s positive image.
Negative publicity can cause problems.
Public relations helps achieve broader promotional goals. Public relations includes publicity and supports advertising, personal selling, and sales promotion. Companies can build their prestige and brand through publicity. Publicity includes news coverage and unpaid placements in the media. Press releases and news coverage generate publicity, as well as criticism. Publicity also benefits not-for-profit organizations when they receive coverage of events.

28. Pushing and Pulling Strategies
Pushing strategy: Personal selling to market an item to wholesalers and retailers in a company’s distribution channels
Companies promote the product to members of the marketing channel, not to end users.
Pulling strategy: Promote of a product by generating consumer demand for it, mainly through advertising and sales promotion appeals
Potential buyers will request that their suppliers—retailers or local distributors—carry the product, thereby pulling it through the distribution channel.
Most marketing situations require combinations of push and pull strategies
Cooperative advertising: Allowances that marketers provide to share with channel partners the cost of local advertising of their firm’s product or product line
Most marketing situations require combinations of pushing and pulling strategies, although the main emphasis can vary. Consumer products usually depend more heavily on pulling strategies; and B2B products usually favour pushing strategies. Marketers provide cooperative advertising allowances to retailers/partners where they share the cost of local advertising.

29. Test Your Knowledge
The _________ strategy attempts to promote a product by generating consumer demand for it primarily through advertising and sales promotion appeals.
a. pushing
b. pulling
c. direct
d. indirect

30. Test Your Knowledge Answer: B
The _________ strategy attempts to promote a product by generating consumer demand for it primarily through advertising and sales promotion appeals.
a. pushing
b. pulling
c. direct
d. indirect
Answer: B

31. Pricing Objectives in the Marketing Mix
All consumers have limited amounts of money and a variety of possible uses for it, so price becomes a major factor in consumer buying decisions. Businesspeople attempt to accomplish certain objectives through their pricing decisions. Pricing decisions vary from firm to firm as well as product to product. Some firms try to improve profits by setting high prices; others set low prices to attract new business.

32. Pricing Objectives in the Marketing Mix
Price: The exchange value of a good or service
Profitability objectives: Common goals that are included in the strategic plans of most firms
Maximize profits by reducing costs.
Maintain price while reducing package size.
Volume objectives: Pricing decisions that are based on market share, the percentage of a market controlled by a certain company or product
Pricing to meet competition
Meet competitors’ price.
Competitors cannot legally work together to set prices.
Competition can result in a price war.
Profitability objectives are the most common goals in firms’ strategic plans. Companies can maintain prices and increase profitability by operating more efficiently or by changing the product to make it less costly to produce. Volume objectives focus on market share. As a market becomes oversupplied, firms need to find ways to get consumers to upgrade or try new products. Setting a lower price can meet that objective, as long as the firm still makes a profit. Pricing to meet competition attempts to match competitors’ prices. Because some competitors can match a price cut, many marketers try to avoid price wars by using other strategies, such as adding value, improving quality, educating consumers, and building relationships.
Lecture Enhancer: When should a company cut the price of a new product?
Lecture Enhancer: Share a recent example of how consumers have benefited from a price war.

33. Prestige Objectives
Prestige pricing: Establishing a relatively high price to develop and maintain an image of quality and exclusiveness
Recognition of the role of price in communicating an overall image for the firm and its products.
Products that are limited in distribution or so popular that they become scarce generate their own prestige.
Scarcity can create prestige, and businesses can charge more for these products.

34. Price Determination in Practice
Cost-based pricing: Calculating total costs per unit and then adding markups to cover overhead costs and generate profits
Totals all costs associated with offering a product in the market, including research and development, production, transportation, and marketing expenses
Markup is added to cover any unexpected or overlooked expenses and provides a profit.
Total is the selling price.
Actual markup used varies by such factors as brand image and type of store.
Pricing Your Product
Cost-based pricing is very common in retail. Typical markup for clothing is determined by doubling the wholesale price (the cost to the merchant).
Click on the Pricing Your Product link to see an article on pricing guidelines from Entrepreneur.com.

35. Breakeven Analysis
Breakeven analysis: The pricing-related technique used to calculate the minimum sales volume a product must generate at a certain price level to cover all costs
Total cost is the sum of total variable costs and total fi xed costs.Variable costs change with the level of production, as labour and raw materials do. Fixed costs such as insurance premiums and utility rates charged by water, natural gas, and electric power suppliers remain stable regardless of the production level. Total revenue is calculated by multiplying price by the number of units sold.

36. Breakeven Analysis
Sales beyond the breakeven point will generate profits; sales volume below the breakeven point will result in losses.
Example: TFC = $42,000; Contribution to Fixed Costs/Unit = $6 ($20-$14); BE point = 7,000 units
Class Activity: Lead a discussion of how a company can lower a product’s breakeven point.

37. Test Your Knowledge
________ is the sum of total variable costs and total fixed costs.
Breakeven
Total revenue
c. Total costs
d. Cost-based pricing

38. Test Your Knowledge
________ is the sum of total variable costs and total fixed costs.
Breakeven
Total revenue
c. Total costs
d. Cost-based pricing
Answer: C
The preferred answer here is C, although there is an argument for A as well.

39. Alternative Pricing Strategies
Skimming pricing: A strategy that sets an intentionally high price relative to the prices of competing products
Helps marketers set a price that distinguishes a firm’s high-end product from those of competitors
Penetration pricing: A strategy that sets a low price as a major marketing tactic
Often used with new products
Everyday low pricing (EDLP): A strategy of maintaining continuous low prices instead of using short-term price-cutting tactics such as cents-off coupons, rebates, and special sales
Discount pricing is used to attract customers by dropping prices for a set period of time.
Competitive pricing: A strategy that tries to reduce the emphasis on price competition by matching other firms’ prices and by focusing their own marketing efforts on the product, distribution, and promotional elements of the marketing mix
The strategy a company uses to set its prices should grow out of the firm’s overall marketing strategy. Skimming pricing often works when introducing a distinctive good or service that has little or no competition, but it can also be used at other stages of the product life cycle. With penetration pricing, once the new product achieves some market success through purchases encouraged by its low price, marketers may increase the price to the level of competing products. Competitive pricing is necessary in industries with relatively similar products, where competitors must match each other’s price reductions to maintain market share and remain competitive.
Lecture Enhancer: Can you think of a recent product that used a skimming price strategy?
Lecture Enhancer: Identify retailers that mainly use EDLP and those that mainly use discount pricing. What are some differences between the two retail shopping environments?

40. Consumer Perceptions of Prices
Price–quality relationships
Consumers’ perceptions of quality closely tied to price
High price = prestige and higher quality
Low price = less prestige and lower quality
Odd pricing: A pricing method that uses uneven amounts to make prices appear to be less than they really are
Examples: $1.99; $9.95
Marketers must think about how customers perceive products. Research shows that a consumer’s perception of product quality is closely related to an item’s price. Most marketers believe that this perceived price–quality relationship remains steady over a relatively wide range of prices, although extremely high or low prices have less credibility. Odd pricing is commonly used today because many retailers believe that consumers prefer uneven amounts or amounts that sound less than they really are. Some retailers also use this method to identify items that have been marked down. The odd price lets people know the item is on sale.
Lecture Enhancer: Discuss some specific examples of products or services that rely on this price-quality relationship.
Lecture Enhancer: Do you think that odd pricing is an effective selling strategy? Why or why not?