Chapter 14 Promotion and Pricing Strategies Copyright © 2005 by South-Western, a division of Thomson Learning, Inc.
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Chapter 14 Promotion and Pricing Strategies Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Promotion – communication to inform, persuade, and influence a purchase decision. Integrated Marketing Communications Coordination of all promotional activities (advertising, personal selling, sales promotion, and public relations) to produce a unified customer-focused message. 14-2 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 techniques designed to achieve promotional objectives. Personal Selling—interpersonal promotional process involving a seller’s face-to-face presentation to a prospective buyer. Nonpersonal selling—consists of advertising, sales promotion, direct marketing, and public relations 14-3 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Comparing the Components of the Promotional Mix 14-4 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Five Major Promotional Objectives 14-5 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Providing Information Major portion of U.S. advertising is informationoriented Differentiating a Product Positioning: communicate meaningful distinctions about the attributes, price, quality, or use of a good or service Increasing Sales Most common objective Stabilizing Sales Stimulate sales during slack periods Accentuating the Product’s Value explain often unrecognized ownership benefits 14-6 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. 14-7 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 14-8 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Advertising and the Product Cycle Informative Advertising - seeks to build initial demand for a product -Introductory stage Persuasive Advertising - seeks to improve the competitive status of a product, institution, or concept, Growth and Maturity stages Comparative Advertising - compares products directly with their competitors Reminder-oriented advertising - maintain awareness, importance, and usefulness of a product, concept, or institution Late maturity or Decline stages 14-9 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 14-10 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Media Newspaper Dominate local advertising Disadvantage: relatively short life span Television America’s leading national advertising medium An expensive advertising medium 14-11 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Media Radio Captive audience of listeners as they commute to and from work In major markets, many stations serve different demographic groups with targeted programming Magazines Includes consumer publications and trade journals Can often customize their publications and target advertising messages to different regions of the country 14-12 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Media Direct Mail Address lists are the heart of this media Benefit – can carefully target the mailing Catalogs, “junk mail”, email Online and Interactive Advertising Web sites, banner ads, pop-up ads Fastest-growing media segment Outdoor Advertising Very small part, but growing Billboards, buses, signs in transit stations, stores, airports, and stadiums Disadvantages: Brief messages required 14-13 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 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 14-14 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Advertising Media Sponsorship—involves providing funds for a sporting or cultural event in exchange for a direct association with the event Other Media Options Infomercials Ads in movie theaters Ads on airline movie screens Printed programs, Subway tickets Turnpike toll receipts Automated teller machines 14-15 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Sales Promotion Sales promotion—nonpersonal 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 14-16 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 14-17 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Spending on Consumer-Oriented Promotions 14-18 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Sales Promotion Consumer-Oriented Promotions Premiums - items given free with purchase. Coupons - offer small price discounts Rebates - offer cash back to consumers Sample - a gift of a product Games, Contests, and Sweepstakes - offering cash, merchandise, etc. as prizes Promotional Products - gift of useful merchandise that carries the name, logo, or slogan of organization. Ex: RVCC pen 14-19 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. 14-20 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 14-21 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Personal Selling Personal selling—direct person-to-person promotional presentation to a potential buyer. Including face-to-face, via telephone, videoconference, or interactive link. (Expensive) Used most often when: Customers are relatively few in number and geographically concentrated Product is technically complex, involves tradeins, and requires special handling Product is high in price Product moves through direct-distribution channels 14-22 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 14-23 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. 14-24 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? 14-25 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Pushing and Pulling Strategies Pushing strategy—Promote to members of the distribution channel, not to end users. Thereby pushing it through the channel Cooperative advertising—allowances in which firms share the cost of local advertising of their product or line with channel partners Pulling strategy— Generate consumer demand by promoting to final users who will then exert pressure on the distribution channel to carry the good or service, pulling it through the distribution channel 14-26 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 Promotion to Children and Teens Children not sophisticated at analyzing promotional messages Promotion in Public Schools and on College Campuses Some schools sign contracts that give certain brands exclusive access to their students 14-27 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 14-28 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 14-29 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 14-30 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. 14-31 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Breakeven Analysis—pricing technique used to determine the minimum sales volume a product must generate at a certain price level to cover all costs. 14-32 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Alternative Pricing Strategies Skimming pricing strategy - set an intentionally high price Penetration pricing strategy - set 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 pricecutting tactics Competitive Pricing - product priced at the general level of competing offerings Odd Pricing - Odd pricing (charging $39.95 or $19.98 instead of $40 or 20) 14-33 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.