1. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Part 4 Marketing Management

2. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Chapter 14 Promotion and Pricing Strategies

3. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-3 Chapter Objectives 1.Discuss how integrated marketing communications relates to a firm’s promotional strategy. 2.Explain the concept of a promotional mix and outline the objectives of promotion. 3.Summarize the different types of advertising and advertising media. 4.Describe the role of sales promotion, personal selling, and public relations in promotional strategy. 5.Identify the Profitabilitynfluence the selection of a promotional mix. 6.Discuss the major ethical issues involved in promotion. 7.Outline the different types of pricing objectives and discuss how firms set prices in the marketplace. 8.Summarize the four alternative pricing strategies. 9.Discuss consumer perceptions of price.

4. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-4 Integrated Marketing Communications Promotion—communication link between buyer and seller that performs the function of informing, persuading, and influencing a purchase decision. Focusing on Primary Demand Focusing on Selective Demand

5. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-5 Integrated Marketing Communications Coordination of all promotional activities – media advertising, direct mail, personal selling, sales promotion, and public relations – to produce a unified customer-focused message. Focuses on customer needs to create a unified promotional message Firms need a broad view of promotion to implement IMC

6. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-6 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

7. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-7 Comparing the Components of the Promotional Mix

8. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-8 The Promotional Mix Objectives of Promotional Strategy Providing Information Differentiating a Product Increasing Sales Stabilizing Sales Accentuating the Product’s Value

9. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-9 Five Major Promotional Objectives

10. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-10 The Promotional Mix Objectives of Promotional Strategy Providing Information  Major portion of U.S. advertising is information-oriented Differentiating a Product  Positioning: establishing a place in the minds of customers by communicating meaningful distinctions about the attributes, price, quality, or use of a good or service

11. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-11 The Promotional Mix Objectives of Promotional Strategy Increasing Sales  Most common objective of a promotional strategy Stabilizing Sales  Sales contests often used during slack periods  Sales promotion materials often distributed to customers to stimulate sales during off-seasons

12. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-12 The Promotional Mix Objectives of Promotional Strategy Accentuating the Product’s Value  Promotional strategies can enhance product values by explaining often unrecognized ownership benefits

13. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-13 The Promotional Mix Promotional Planning Increasing complexity and sophistication of marketing communications requires careful planning to coordinate IMC strategies Product Placement Guerrilla Marketing

14. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-14 Advertising Advertising—paid nonpersonal communication delivered through various media and designed to inform, persuade, or remind members of a particular audience.

15. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-15 The 15 Largest Advertisers in the United States

16. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-16 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

17. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-17 Advertising Advocacy Advertising (Cause Advertising): promotes a specific viewpoint on a public issue as a way to influence public opinion and the legislative process

18. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-18 Advertising Advertising and the Product Cycle Product and Institutional Advertising fall into one of three categories, based on whether the ads intend to inform, persuade, or remind Informative Advertising—used to build initial demand for a product in the introductory phase of the product life cycle

19. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-19 Advertising Advertising and the Product Cycle Persuasive Advertising—attempts to improve the competitive status of a product, institution, or concept, usually in the growth and maturity stages of the product life cycle  Comparative Advertising—form of persuasive product advertising that compares products directly with their competitors

20. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-20 Advertising Advertising and the Product Cycle Reminder-oriented advertising—often appears in the late maturity or decline stages of the product life cycle to maintain awareness of the importance and usefulness of a product, concept, or institution

21. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-21 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

22. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-22 Advertising Media

23. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-23 Advertising Advertising Media Newspaper  Continue to dominate local advertising  Ads easily tailored for local tastes and preferences  Can coordinate newspaper messages with other promotional efforts  Disadvantage: relatively short life span

24. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-24 Advertising Advertising Media Television  America’s leading national advertising medium  An expensive advertising medium  Price for a 30-second ad during weeknight prime time on network television generally ranges from $100,000 to more than $500,000

25. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-25 Advertising Advertising Media Radio  Average U.S. household owns five radios  Captive audience of listeners as they commute to and from work  In major markets, many stations serve different demographic groups with targeted programming

26. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-26 Advertising Advertising Media Magazines  Includes consumer publications and trade journals  Can often customize their publications and target advertising messages to different regions of the country  A natural choice for targeted advertising

27. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-27 Advertising Advertising Media Direct Mail  Average American household receives about 550 pieces of direct mail each year, including 100 catalogs  e-mail another option  Must overcome junk-mail and spam classification

28. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-28 Advertising Advertising Media Outdoor Advertising  Just over 2 percent of total advertising spending  Share is growing  Majority of spending is for billboards  Other types include: signs in transit stations, stores, airports, and sports stadiums  Disadvantages include: Brief messages are required Mounting concern for aesthetic and environmental issues

29. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-29 Advertising Advertising Media Online and Interactive Advertising  Range from Web sites and CDs to information kiosks  Currently commands only 3 percent of media spending, but is the fastest- growing media segment

30. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-30 Advertising 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

31. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-31 Advertising Advertising Media Other Media Options  Infomercials: 30-minute programs that resemble regular TV programs, but are devoted to selling goods or services  Other Media options include: Ads in movie theaters Ads on airline movie screens Printed programs, Subway tickets Turnpike toll receipts Automated teller machines

32. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-32 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

33. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-33 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

34. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-34 Spending on Consumer-Oriented Promotions

35. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-35 Sales Promotion Consumer-Oriented Promotions Premiums—items given free or at a reduced price with the purchase of another product. Coupons offer small price discounts Rebates offer cash back to consumers Sample—a gift of a product distributed by mail, door-to-door, in a demonstration, or inside packages of another product

36. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-36 Sales Promotion Consumer-Oriented Promotions Games, Contests, and Sweepstakes  Offering cash, merchandise or travel as prizes to participating winners  Often used to introduce new goods and services and to attract additional customers  Court rulings and legal restrictions have limited the use of contests

37. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-37 Sales Promotion Consumer-Oriented Promotions Promotional Products (Specialty advertising)  Because these specialty advertising products are useful, people tend to keep and use them  Gives advertisers repeated exposure  Originally designed to identify and create goodwill for advertisers  Now generates sales leads and develops traffic for stores and trade show exhibitors.

38. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-38 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.

39. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-39 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

40. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-40 Personal Selling Personal selling—interpersonal promotional process involving a seller’s face-to-face presentation to a prospective buyer. Used most often when: Customers are relatively few in number and geographically concentrated Product is technically complex, involves trade-ins, and requires special handling Product is high in price Product moves through direct-distribution channels

41. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-41 Personal Selling Sales Tasks Order Processing—selling, mostly at the wholesale and retail levels, that involves identifying customer needs, pointing them out to customers, and completing orders Creative Selling—personal selling involving situations in which a considerable degree of analytical decision making on the buyer’s part results in the need for skillful proposals of solutions for the customer’s needs

42. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-42 Personal Selling Sales Tasks Missionary Selling—indirect form of selling in which specialized salespeople promote goodwill among indirect customers, often by assisting customers in product use

43. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-43 Personal Selling The Sales Process Seven Steps in the Sales Process

44. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-44 Personal Selling The Sales Process Prospecting, Qualifying, and Approaching  Prospecting involves identifying potential customers  Qualifying involves identifying potential customers who have the financial ability and authority to buy.  Before making the initial contact: Careful preparations are made Available data about a prospective customer and other pertinent information is analyzed

45. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-45 Personal Selling The Sales Process Presentation and Demonstration  Involves communicating promotional messages  Major features of the product, highlights of the advantages, and examples of satisfied consumers are typically presented  Involves the prospect in the sales presentation  Reinforces the message that the salesperson has been communicating

46. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-46 Personal Selling The Sales Process Handling Objections  Allows sales personnel to remove obstacles and complete the sale  Can become a positive part of the sales process  Allows the salesperson to present additional information

47. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-47 Personal Selling The Sales Process Closing  Critical point in a selling relationship— the time at which the salesperson actually asks the prospect to buy  If the presentation effectively matches product features to customer needs, the closing should be a natural conclusion.

48. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-48 Personal Selling The Sales Process Follow-up  Salesperson’s actions after the sale may well determine whether the customer will make another purchase  Building a long-term relationship  By calling soon after a purchase, the salesperson provides psychological reinforcement for the customer’s decision to buy  Also gives the seller a chance to correct any problems

49. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-49 Personal Selling Recent Trends in Personal Selling Telemarketing  Outbound telemarketing—when a sales representative calls you at your place of business  Inbound telemarketing—when the customer calls a toll-free phone number to get information or place an order.

50. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-50 Personal Selling Recent Trends in Personal Selling Relationship Selling—when a salesperson builds a mutually beneficial relationship with a customer through regular contacts over an extended period Consultative selling—meeting customers’ needs by listening to them, understanding and caring about their problems, paying attention to details, suggesting solutions, and following through after the sale

51. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-51 Personal Selling Recent Trends in Personal Selling Team selling—joins salespeople with specialists from other functional areas of the firm to complete the selling process Sales force automation (SFA)— incorporates a broad range of tools, from e-mail, telecommunications devices like pagers and cell phones, and laptop computers to increasingly sophisticated software systems that automate the sales process

52. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-52 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.

53. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-53 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?

54. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-54 Promotional Strategies Pushing and Pulling Strategies Pushing strategy—promotional effort by a seller to members of the distribution channel intended to stimulate personal selling of the good or service, 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

55. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-55 Promotional Strategies Pushing and Pulling Strategies Pulling strategy—promotional effort by a seller to stimulate demand among final users, who will then exert pressure on the distribution channel to carry the good or service, pulling it through the distribution channel

56. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-56 Ethics in Promotion Puffery and Deception Puffery—exaggerated claims of a product’s superiority or use of doubtful, subjective, or vague statements Other promotional elements can also involve deception  Salespeople have deceived customers with misleading information

57. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-57 Ethics in Promotion Promotion to Children and Teens Risk of deception is especially great with promotion targeted to children and teens Children not sophisticated at analyzing promotional messages

58. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-58 Ethics in Promotion Promotion in Public Schools and on College Campuses Includes promotional book covers, posters, and even curriculum materials provided to today’s schools Some schools sign contracts that give certain brands exclusive access to their students Can generate a backlash

59. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-59 Price in the Marketing Mix Price— exchange value of a good or service. Pricing Objectives

60. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-60 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

61. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-61 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

62. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-62 Pricing Strategies Price Determination in Practice Determined in two basic ways—  By applying the theoretical concepts of supply and demand  By completing cost-oriented analyses

63. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-63 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.

64. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-64 The Markup Chain for a Hardcover Book

65. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-65 Pricing Strategies Breakeven Analysis—pricing technique used to determine the minimum sales volume a product must generate at a certain price level to cover all costs. Breakeven point Total Fixed Cost (in units) Contribution to Fixed Costs Per Unit Breakeven point Total Fixed Cost (in dollars) 1 – Variable Cost Per Unit/Price = =

66. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-66 Breakeven Analysis

67. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-67 Pricing Strategies Alternative Pricing Strategies Skimming pricing strategy—sets an intentionally high price relative to the prices of competing products Penetration pricing strategy—sets a low price as a major marketing weapon

68. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-68 Pricing Strategies Alternative Pricing Strategies Everyday Low Pricing and Discount Pricing—Strategy devoted to maintaining continuous low prices rather than relying on short-term price-cutting tactics Competitive Pricing—product priced at the general level of competing offerings

69. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-69 Consumer Perceptions of Prices Price-Quality Relationships Consumers’ perceptions of product quality is closely related to price Most marketers believe that this perceived price-quality relationship holds over a relatively wide range of prices In other situations, marketers establish price-quality relationships with comparisons that demonstrate a product’s value at the established price

70. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-70 Consumer Perceptions of Prices Odd Pricing Odd pricing (charging $39.95 or $19.98 instead of $40 or 20) Commonly-used retail practice, as many retailers believe that consumer favor uneven amounts