PRICING AND PROMOTION Module 7

PRICING STRATEGY

OUTLINE H Pricing Objectives H Analyzing the Price Situation H Pricing Programs H Additional Considerations

PRICING OBJECTIVES H Primary Demand Objectives H Selective Demand Objectives H Product Based Objectives

PRIMARY DEMAND OBJECTIVES H Increase number of users –reduce economic risk of trial –offer better value H Increase rate of purchase –enhance frequency of consumption –enable use in wider situations

SELECTIVE DEMAND OBJECTIVES H Retention –Meet competition (establish price parity) H Acquisition –Undercut competition on price –Use price to signal premium quality

PRODUCT LINE BASED STRATEGIES H Substitutes –Trade up –Distinguish on the basis of features/benefits H Complements –Expand range purchased –Attract new customers

ANALYZING THE PRICE SITUATION H What will be market responsiveness to changes in price?

RESPONSE TO ALTERNATIVE PRICES H How large is the market? H What segments exist? H How sensitive is demand in segments of interest to changes in price? H How important are non-price factors? H What are estimated sales at price levels?

PRICE ELASTICITY H What is elasticity? H Price elasticity is the percentage change in the quantity demanded (when price changes) divided by the percentage change in price.

ESTIMATING PRICE SENSITIVITY H Test marketing H Analysis of historical price/sales data H Consumer panels H Executive (management) judgment

NON PRICE FACTORS H Quality H Uniqueness H Service H Availability H Warranty

FORECASTS H What are estimated sales at different price levels?

TYPES OF PRICING PROGRAMS H Skimming Pricing H Penetration Pricing H Parity Pricing H Premium Pricing H Flexible Pricing

PRICING FOR SUBSTITUTES H Anchoring

PRICING FOR COMPLEMENTS H Leader pricing H Price Bundling

OTHER PRICE ELEMENTS H Coupons H Cents-off-deals H Promotion allowances H Rebates H Quantity discounts H Cash discounts

OTHER PRICE ELEMENTS H Credit or financing assistance H Long term contracts H Negotiated pricing

ADDITIONAL CONSIDERATIONS H Political/Legal environment H International considerations

PROMOTION STRATEGY

OUTLINE H Introduction H Framework for developing an effective promotion mix H Budgeting H Other Strategies

PROMOTIONAL MIX H Promotion (Communication) tools consist of: –Advertising –Personal Selling –Sales Promotion –Public Relations

ADVERTISING H Nonpersonal communication transmitted through the mass media H Sponsor identified

PERSONAL SELLING H Face to face interaction with the client H More money is spent on the selling function than is advertising!

SALES PROMOTION H Activities which supplement personal selling and advertising H Trade shows, contests, samples, point of purchase displays, coupons

PUBLIC RELATIONS H Public information about a company, good, or service appearing in the mass media

CHOOSE A STRATEGIC OBJECTIVE H Think about the the buyer’s decision process! –Need Recognition –Gathering Information –Evaluation of Alternatives –Decision to Purchase –Product Use

FRAMEWORK FOR PROMOTION MIX H Characteristics of Target Market(s) H Business Strategies –Prospectors –Niche Defenders H Positioning H Internal Environment H External Environment

DETERMINING THE PROMOTION MIX H Product Factors –Industrial vs Consumer Goods –Perceived risk –Durable vs Nondurable –Frequency of Purchase H Market Factors –Stage of the PLC –Intensity of competition

DETERMINING THE PROMOTION MIX H Customer Factors –Ability to identify decision maker –Degree of self service H Marketing Mix Factors –Other elements of the Marketing Mix

BUDGETING H Percent of Sales H Comparative Parity H Objective and Task

MEDIA SELECTION STRATEGY H Choosing the appropriate media channel H Move customers from unawareness to buying action H Advertising objectives –Exposure, awareness, attitude change, sales

ADVERTISING COPY STRATEGY H Designing the content of an advertisement H Considerations? H Source credibility, message repetition, rational versus emotional appeals, comparative advertising

SELLING STRATEGY H Moving the customers to purchase through face-to-face contact H Issues –Sales force size –Organization –Motivating the salesforce –Compensation

SALES PROMOTION STRATEGY H Usually designed to raise awareness and trial H Coordinate with other promotional efforts