1. Review of Promotion & Pricing Dr. Dawne Martin MKTG 241 March 8, 2012

2. Plans & Learning Objectives For Next Week ◦Quiz 3 -- Chapters 8,9 & 11(?) ◦Skim Chapters 12 & 13 Learning Objectives ◦Review Promotional Options ◦Investigate the components of setting prices ◦Review and apply entrepreneurial pricing concepts ◦Develop your pricing objectives & strategies

3. Promotional Mix TechniqueStrengthWeakness AdvertisingQuick, broad reach and attention getting High cost, difficult to measure, credibility Public RelationsCredibility, more information provided Difficult to obtain, needs media cooperation Sales PromotionStimulate sales in short run, control audience selection May be abused by customer, can cheapen product if used too often Personal SellingDirect feedback, customized message, select audience May be expensive per exposure, message may be inconsistent Direct MarketingProvide direct, measureable results, precision targeting, customization Credibility, database management expensive

4. Sales Promotion Coupons Deals Premiums Contests Sweepstakes Samples Loyalty programs Point of purchase displays Rebates Product Placements Collateral Materials

5. Must for Entrepreneurs Yellow Pages Networking Publicity Bring customers into business Collateral Materials ◦Brochures and sales sheets ◦Cups, tee shirts and other brand reminders Trade shows and other exhibitions Direct mail Online and social marketingpresence

6. What is a price? ◦Ultimately a number  Captures the costs involved in providing a product or service  Determination of average unit cost can also be a bit arbitrary  What the firm must charge to achieve breakeven  But price is much more than this! Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 6

7. Accounting Wisdom If you lose a little on every sale, you can’t make it up with volume

8. Cost Estimates Fixed Costs Mortgage or rent Leases (cars & equipment) Salary Commissions (projected) Benefits Licenses & permits Computers/software technology Fixtures & furniture Loan Repayments Start up costs/ R & D Internet services Other Variable Costs Office supplies Telephones Expense reimbursements Taxes Postage Shipping and fulfillment services Training and development Advertising and promotion Market research

9. Pricing Considerations Operating costs ◦Rent ◦Labor costs ◦Utilities ◦Marketing ◦Financing – loan payments, interest, etc. Product cost ◦Purchase or production  Raw materials  Labor costs  Shipping ◦Insurance ◦Inventory stocking Alignment with strategy (and channel of distribution) Customer expectations Competitor pricing Other Issues – production capacity, need to recoup start up costs

10. Margins & Markups Mark up = Price – Variable Costs per unit Price = Product Costs + Markup Margin % = Price – variable costs/price x 100

11. Calculations for Cost-based Pricing Target profit price = (Fixed costs + Target Profit) + Variable costs/unit Sales Volume Units Breakeven Point Quantity = Fixed Costs – Unit variable costs Unit selling price

12. Applying an Entrepreneurial Orientation to the Firm’s Pricing Program Key components of a firm’s pricing orientation can be applied to the formulation of  Objectives  Strategies  Structure  Levels and tactics  Tactics and price promotions Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 12

13. Pricing Objectives Price can be used for much more than generating a rate of return Entrepreneurial perspective moves the marketer to use price to accomplish other objectives ◦Encourage a particular behavior on the part of buyers ◦Establish foothold in a new market ◦Speed the exit of marginal competitors ◦Take advantage of the learning curve ◦Disincentive for certain groups of customers ◦Use one product line in the firm’s portfolio to generate sales of another line Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 13

14. Pricing Strategies Value-based, capturing the total value proposition as perceived by ◦Individual segments ◦Customers May need to develop multiple strategies, depending on the market context Firm operating in different markets ◦Premium pricing strategies ◦Parity pricing strategies Depending on product context firm may be a ◦Price leader ◦Price taker Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 14

15. Price Structure Which aspects of each product or service have a price attached? ◦Sample pricing approaches  Bundling ◦ Example: a bank charges one price for which a customer receives multiple services  Unbundling ◦ Example: a bank charges a fee for each individual service ◦Value-added services that are provided to the customer without raising price ◦Marketer could sell ◦ Basic offering at a very low price ◦ Make money on higher margin consumables or add-ons Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 15

16. Sell the same product under different brand names for different prices Unlimited use of a given product or service for a set fee ◦Time-period pricing, where the product (or aspects of it) is priced differently at particular times, such as ◦Peak capacity utilization periods ◦Low capacity utilization periods Initial base price followed by a variable charge once usage exceeds some threshold Tied to the performance of the product or service Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 16

17. How will prices vary for different customers and usage situations? ◦Principal focus is charging price differentials based on market segment or individual account ◦Tying price to some variable aspect of customers  The size of their feet if operating a shoe store  The size of their car if operating a car wash ◦Current technology allows firms to take price differentials even further  Making one-to-one pricing a practical reality Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 17

18. ◦Price structure is also concerned with the  Conditions of payment  Time of payment  Form of payment ◦This includes the formal discount structure  Cash or early payment discounts  Volume discounts (cumulative or non- cumulative)  Functional or trade discounts  Various time payment schemes  Trade-in allowances Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 18

19. Price levels and tactics Require creativity in deciding on such issues as the use of odd prices ◦Actual amounts charged for each product or service ◦Actual level of any discounts given Use of price to convey a level of quality in a product Amount of a gap to allow between items in a given line (e.g., the low end, middle of the road, and high-end version of the same product) Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 19

20. Use of short-term tactics and promotions ◦Rebates ◦Coupons ◦Cents-off deals ◦Price promotions ◦Represent an ongoing means for achieving  Market-oriented flexibility  Proactiveness in pricing ◦Tactics can be  Quick  Precisely targeted  Relatively inexpensive Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 20

21. Use of short-term tactics and promotions —cont. ◦“Guerrilla” tactics can be employed in the pricing arena ◦ A jewelry store offers diamonds at 75% off if it snows on Ground Hog Day ◦ A copying company invents a reusable coupon that increases in value with each use ◦ A price promotion is done jointly between a movie theater and a restaurant ◦There is ample room for experimentation in each of these areas Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 21

22. Entrepreneurial Pricing Conventional rules need not apply ◦A restaurant might charge different amounts for a meal depending on the table at which one is seated ◦A college might charge higher prices depending on how many credit hours a student has completed ◦An industrial manufacturer may price today based on the accuracy of the industrial buyer’s demand forecasts over the past eighteen months Challenge is to identify and find inventive ways to capitalize on the creative variables ◦Have important profit impact over time ◦That contribute to the customer value equation Answering this challenge requires ◦An intimate understanding of the customer ◦Willingness to lead customers  Rather than simply follow them  Take them for granted Prentice Hall © 2009 Rethinking Marketing, 1st Edition 11- 22