Bad commercials: Part Dos!

4 Ps of Marketing: Price

Price  Price refers to the money customers pay or give up for having or using a good or service  It is the only P in the marketing mix that generates revenue

Cost-Plus Pricing (Mark-Up Pricing)  Refers to adding a mark-up to the average cost of producing a product  The mark-up is a percentage of the profit a company wishes to gain for every product that it sells  For example, say the total cost of producing 10,000 packets of biscuits is $20,000 and the business wants to calculate how much it would sell each packet for and get a 50% mark-up.  Advantages: Simple and quick method; good way to ensure that a business covers cost and makes a profit  Disadvantage: Fails to consider market needs or customer value; competitors’ prices are not considered

Penetration Pricing  Setting a low initial price to attract a large customer base and gaining a high market share  As a firm gains market share, it can start to raise its prices slowly  For example, IKEA in China  Advantage: customers are encouraged to buy the products and this leads to high sales and market share; large sales can lead to economies of scale and lower costs of production  Disadvantage: Might not achieve high profits; customers may perceive the product to be low quality; as businesses increase prices, they might lose customers

Price Skimming  When firms set high prices when introducing new products to the market  Used for a limited period for high profits to recoup some research and development costs  Example, Apple and other tech companies  Advantages: Customers associate high price with high quality; companies are able to obtain high revenues  Disadvantages: High prices may discourage consumers from buying the products

Psychological Pricing  When firms consider how pricing affects consumers’ perception of the value of their products  Consumers may associate high price with high quality  For example, designer clothes  OR companies may reduce their prices to persuade customers to buy  For example, charging $9.95 instead of $10  Advantages: Large revenues; can be applied in many market segments  Disadvantages: Using $199 or $9.99, for example, may be inconvenient for accounting purposes

The Loss Leader  Charging a low price for a product, usually below the average cost, to attract customers to buy other higher-priced products  For example, large supermarkets sell some products at a loss so that customers buy higher priced products to compensate for any losses  Advantages: Attract many customers helps profits; can help customers switch brands  Disadvantages: May be accused by competitors of undercutting them by using unfair business practices

Price Discrimination  Charging different prices to different groups of consumers for the same product  For example, prices for children and adults at the movies are different; in-season items are more expensive than when off-season  Advantages: High profits  Disadvantages: Could lead to lower sales

Competitive Pricing  Charging a price that is in line with or just below the competitors’ prices  Predatory pricing or destroyer pricing is when the aim is to drive competitors out of the market  Advantages: Customers benefit from low prices; remaining dominant companies can gain higher sales revenue  Disadvantages: Form of anti-competitive behavior and is illegal in many countries because it restricts competition

Paolo’s Pasta Paolo Cabrini runs a small pasta-making business, called Paolo’s Pasta. He has borrowed funds to purchase a property, leased machines and employed two staff. His main competitor is called Fasta Pasta but there are also a number of general food shops selling fresh pasta as a small part of their product range. Paolo sells his pasta for a premium price of $7 per kilogram. Full capacity is kilograms of pasta per year. He incurred the following expenses in Lease costs$200 per week Mortgage payment$500 per month Paolo’s salary$300 per week Raw materials$1.25 per kilogram (kg) of pasta produced Wages$1.60 per kilogram (kg) of pasta produced Electricity/gas/water$0.15 per kilogram (kg) of pasta produced Paolo’s Pasta is currently producing an output of kilogram per year. A large hotel chain has approached Paolo and offered to purchase 4000 kilograms per year of pasta at a price of $4.50 per kilogram. Paolo is considering the offer and believes that it may be worthwhile as he is concerned about sales falling in the future.  Paolo is considering changing the price of his pasta. Describe two possible pricing strategies and advise Paolo on the most appropriate to adopt.

4 P’s of Marketing: Promotion

Promotion  Promotion is concerned with communicating information about a firm’s products to consumers  The main aim is to obtain new customers or retain existing ones  Two forms of promotion:  Above-the-line  Below-the-line

Above-the-line promotion  A paid form of communication that uses independent mass media to promote a company’s products  Includes advertising through the television, radio, or newspapers  Advertising can be categorized into:  Informative advertising  Persuasive advertising  Reassuring advertising

Informative Ads

Persuasive Ads

Reassuring Ads

Below-the-line promotion  A form of communication that gives a business direct control over its promotional activities so that it is not dependent on the use of independent media  Forms of below-the-line promotions:  Direct marketing (direct mail, )  Personal selling (sales representatives)  Public relations (publicity or sponsorships)  Sales promotions (coupons, offers, competitions)

Impact of Technology on Promotion  Benefits:  Wide reach  Engagement  Market information  Cost savings  Brand recognition  Speed  Limitations:  Accessibility Problems  Distraction  Lurkers

Promotional Mix  Successful promotional mixes use both above the line and below the line promotions  Other factors include:  Cost  Legal framework  Target market  Stage in the product life cycle  Type of product

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