©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Pricing and Promotion The Business Buying Decision Pricing and Costs Promotion CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e The Business Buying Decision GOALS ● Discuss how businesses make their buying decisions. ● Describe the steps in the business buying process. 2 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Planning a Business Purchase ● What to purchase ● Wholesale or resale businesses purchase products for resale or use in operation of business ● Customers compare price and quality to make decisions ● Businesses listen to customers to meet customer needs ● Review company sales records and study what products sell well for competitors 3 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Planning a Business Purchase ● When to purchase ● Trends ● Supply of products ● Seasons ● From whom to purchase ● Right suppliers—use one supplier or variety of suppliers ● Prices, credit terms, services 4 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Planning a Business Purchase ● How much to purchase ● Meet customer demands ● Large inventory requires extra storage space ● Small quantities less risk of spoilage, changes in design, or change in demand of products 5 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Business Buying Processes ● New task purchase ● Purchasing a product, inventory item, or supply for first time ● Modified rebuy ● Purchase new or modified product from suppliers ● Straight rebuy ● Purchase decisions are low risk ● Example: a business needs more paper for copiers or printers, it often repurchases from suppliers it used before 6 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Pricing and Costs GOALS ● Distinguish between various types of discounts and price components. ● Describe factors involved in establishing product prices and common pricing strategies. ● Discuss ways that companies try to control costs that can lead to higher prices. 7 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Payment Terms and Discounts ● List price ● The original price that a seller posts on a product ● Payment terms ● Invoices state credit terms ● Example: net 30 days (buyer must pay in full within 30 days) 8 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Payment Terms and Discounts ● Discounts ● Reductions from a product’s list price to encourage customers to buy ● Trade discount ● Price reduction that manufacturers give to their channel partners, such as a wholesaler or retailer, in exchange for additional service ● Examples: manufacturer gives retailers a 30 % discount but wholesalers a 45 % discount 9 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Payment Terms and Discounts ● Quantity discount ● Price reduction for customers buying in large quantities ● Seasonal discount ● A way manufactures attempts to balance production and inventory levels ● Examples: Boats, Snowmobiles ● Cash discount ● Price reduction given for paying by a certain date ● Example: 2/10, n30 (2% discount paid in 10 days, full amount due in 30 days) 10 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Components of Price ● Selling price ● The actual price customers pay for the product. The selling price is determined by subtracting any discounts from list price 11 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e ©2013 Cengage Learning. All Rights Reserved. Components of Selling Price 12 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Components of Price ● Cost of goods sold ● The cost to produce the product or buy it for resale ● The total cost of materials, operations, and personnel used to make the product ● Operating expenses ● Costs of operating a business ● Margin or gross profit ● The difference between the selling price and the cost of goods sold 13 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Components of Price ● Net profit ● The difference between the selling price and all costs and expenses of the business ● Net profit = selling price - cost of goods sold - operating expenses ● Markup ● The amount added to the costs of goods sold to determine the selling price ● Markdown ● Any amount by which the original selling price is reduced before the item is sold 14 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Pricing Strategies ● Pricing to meet competition ● Amount of competition handling a similar product ● Internet ● Businesses may have some merchandise that does not allow a profit due to competitions low price ● Pricing to earn a specific profit ● Determine price of producing and marketing the product as well as operating expenses 15 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Pricing Strategies ● Profit based on consumer demand ● Manufacturer of a product that suddenly becomes popular may want to sell at a high price while the demand is great ● Pricing to sell more products ● Lower sell more product ● Higher price larger profit ● Pricing to provide customer services ● Credit, free delivery, 24 hour emergency service 16 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Controlling Costs ● Careful purchasing and operating decisions ● Factors that can affect costs ● Markdowns ● Damaged or stolen merchandise ● Returned merchandise 17 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Promotion GOALS ● Discuss the purpose of promotion in meeting business and consumer needs. ● Discuss how businesses use advertising to promote their products. ● Explain the parts of the selling process and how each is used to help customers make buying decisions that meet their needs. ● Describe the different types of sales promotions. 18 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Promotion as Marketing Communication ● Effective communication is the basis for successful promotion ● Promotional mix ● Consumer decision-making process ● Problem recognition ● Information search ● Alternative evaluation ● Purchase ● Post-purchase evaluation 19 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Advertising ● Advertising—any form of promotion that delivers a message to many people at the same time ● Advertising purposes and media choices ● Methods of delivering the promotional message to the intended audience ● Mass media advertising examples: radio, network and local television, cable television 20 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Advertising ● Planning and managing advertising ● Advertising budget ● Most plan the budget for one year or less ● Separate budget created for new products, product lines, customer groups, or market regions ● Timing of advertising ● Companies determine the times when customers are willing and able to buy ● Advertising evaluation ● Research measures which advertisements a market sees ● Companies specialize in advertising evaluations 21 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Advertising Purposes ● To inform and educate consumers ● To introduce a product or business ● To announce improvement or product change ● To reinforce features and benefits ● To increase frequency of use ● To increase variety of uses ● To convince people to enter a store ● To develop a list of prospects ● To make a brand, trademark, or slogan familiar ● To improve the image of a company or product ● To gain support for ideas or causes 22 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Types of Advertising Media ● Publication advertising ● Mass media advertising ● Outdoor advertising ● Direct advertising ● Display advertising ● Internet advertising 23 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Truth in Advertising and Selling ● Federal Trade Commission (FTC) and Federal Communications Commission (FCC) ● Responsible for regulating promotion ● False advertising ● Violation of the law ● “misleading in a material respect” or in any way that could influence the customer’s purchase or use of the product ● Full disclosure ● Providing all information necessary for consumers to make an informed decision 24 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Truth in Advertising and Selling ● Substantiation ● Able to prove all claims they make about their product and services in promotion ● Penalties for violations ● Case-and-desist order ● Requires company to stop using specific advertisements ● Corrective advertising ● Designed to change the false impression left by the misleading information ● Fines 25 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Personal Selling ● Studying the wants of customers (buying motives— the reason people buy) ● Presenting and demonstrating the product ● Salespeople must have knowledge of the product to provide accurate information ● Answering customer questions ● Objections—concerns or complaints expressed by the customer ● Salespeople should listen to the objection, then help customer make the best decision 26 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Personal Selling ● Closing the sale ● For many salespeople, this is the most difficult part of the selling process ● Follow-up ● Selling is only successful when the customer is satisfied 27 CHAPTER 22

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Sales Promotions ● Coupons ● Type of sales promotion used extensively to promote consumer products ● Promotional material ● Window displays, layouts for newspapers, direct-mail inserts, ● Samples ● When introducing a new product, they may distributed samples through the mail ● Demonstration ● Displays ● Self-service merchandising ● Labels of the merchandise provide adequate information about the merchandise for the shopper to make a decision 28 CHAPTER 22