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Assistant Professor, MarketingPlease ensure all electronic devices are in “silent

mode”, “vibrate mode” or “turned off”

Anthony Francescucci

MKT 100-021WEEK 11 – PRICE MGMT &

PROMO PART 1

Welcome to

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AGENDA

Pricing Management

Promo Management

Part 1

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4 P’S…

Product Price

Promotion Place

MKT100

UNDERSTANDING PRICE - PRICE NEEDS TO;

achieve the financial goals

of the company – profitability

fit the environment – will customers

buy at that price?

support the products

positioning

be consistent with other

variables of the marketing mix

THE LAWS OF MARKET FORCESWhen demand increases more than supply increases prices rise.

When demand increases less than supply increases prices fall.

When demand decreases less than supply decreases prices rise.

When demand decreases more than supply decreases prices fall.

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PRICE SENSITIVITY

50% in PRICE

5% in VOLUME

43% in REVENUE

50% in PRICE

67% in VOLUME

50% in REVENUE

$5

5 unit

$5

100 unit

ELASTICITY OF DEMAND

PRICE ELASTICITY AND DEMAND• the more substitutes available, the greater the elasticityAvailability of

Substitutes

• Luxury products have higher elasticity than necessities. Habit forming products can become “necessities”.

Degree of Necessity or Luxury

• Products that represent a higher proportion of a consumers income will have greater elasticity.Proportion of Income

• a one day sale will have different results than a permanent price decrease for a longer period of time Timing

• decreasing from $2.00 to $1.99 will have more elasticity than from $1.98 to $1.97. Price Points

20% increase in rice means family cannot eat in developing country

Un-Developed DevelopedAverage Daily Income $2.00 $123.00Average Daily Food Cost $1.50 $30.00Food as a % of Income 75% 24%

Raw material as % of Food Cost 80% 20%Spend on Raw Materials per day $1.20 $6.00Raw materials Increase 20% $1.44 $7.20NEW Cost of Food per day $1.92 $9.60

Food as a % of income 128% 32%

Rice goes up 20%

PRICE SENSITIVITY IS HIGHERIn developing countries

Wal-Mart Flyer Loblaws Flyer

•Grocery •Electronics

PRICE SENSITIVITY IS HIGHWhen competitors feature price in advertising (price war)

Canada’s newest cell phone company

http://www.cbc.ca/news/background/tech/cellphones/economy.html

“SeaBoard Group found that heavy cellphone users in Canada pay about 56 per cent more than their U.S. counterparts, while average users shell out about 33 per cent more.” CBC Nov 20, 2007

PRICE SENSITIVITY IS HIGHWhen new seller enters the market at a low price

PRICE SENSITIVITY IS HIGHWhen there is a recession

MKT100

PRICE SENSITIVITY IS HIGHWhen cost of searching lower price decreases

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SETTING PRICE

Process

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STEPS IN SETTING PRICE

Select the price objective

Determine demand

Estimate costs

Analyze competitor price mix

Select pricing method

Select final price

Select the price objective

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SELECTING THE PRICING OBJECTIVESe

lect

the

pric

e ob

jecti

ve

• Pricing such that you cover variable costs and some fixed costs. Short-term objectiveSurvival

• Price your product to maximize current profitMaximum current profit

• Set lowest price to maximize volume / market share. Assumes market is price-sensitive

Maximum market share (Penetration)

• Sell base product at low margin, locking consumers into higher margin after-market consumables

Captive Pricing (Penetration)

• Prices start high and slowly lowered over time. Highly demanded product

Maximum market skimming

• Product with high quality, taste, status – priced just high enough not to be out of consumer’s reach

Product-quality leadership

• Priced so only the wealthy can afford itPrestige Pricing

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ESTIMATING DEMAND CURVESStatistical Analysis• past prices, qty sold

& other factors

Price Experiments

SurveysDet

erm

ine

dem

and

$0.00 $5.00 $10.00 $15.00 $20.00$0

$25$50$75

$100

Demand Curve

Price

Tota

l Sal

es (0

00's

)

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COST TERMS AND PRODUCTIONEs

timat

e Co

sts

1 14 27 40 53 66 79 92 105

118

131

144

157

170

183

196

209

222

235

248

261

274

287

300

313

326

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

Break-even Point

RevenueFixed CostsVariable Costs

Unit Produced / Sold

Sale

s or

Cos

ts

Revenues

Fixed Costs

Break-evenPoint

Profit

Loss

TotalCosts(VC Stacked onto FC = Total Costs)

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ANALYZE CLOSEST COMPETITOR

Our product

offer

Nearest competitor

product offer

Nearest competitor

product offerFewer features

Morefeatures

Anal

yze

com

petit

or p

rice

mix

Com

petit

or h

as…

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SELECTING A PRICING METHOD• Add a standard markup to the product’s cost.Markup pricing

• Determine price that would deliver company’s target rate of return on investment

Target-return pricing

• Price based on the value to the customer (i.e. if new product innovation saves money, then should charge more)

Perceived-value pricing

• Pricing to win loyal customer by charging fairly low price for high qualityValue pricing

• Price solely based on competitors pricesGoing-rate pricing

Sele

ct p

ricin

g m

etho

d

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Impact of other marketing activities

Company pricing policies

Impact of price on other parties

SELECTING THE FINAL PRICESe

lect

fina

l pric

e

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ADAPTING PRICE

One price doesn’t fit all

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PRICE-ADAPTATION STRATEGIES

Geographical Pricing

Discounts/Allowances

Differentiated Pricing

Promotional Pricing

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PRICE-ADAPTATION STRATEGIES

Discounts/ Allowances

• Cash / Early Pay discount• Quantity discount• Seasonal discount• Trade-in or Promotional Allowance

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Promotional Pricing Tactics

• Loss-leader pricing

• Cash rebates• Low-interest

financing

PRICE-ADAPTATION STRATEGIES

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PRICE-ADAPTATION STRATEGIES

Differentiated Pricing ( Price Discrimination)

• Customer-segment pricing• Product-form pricing• Channel pricing• Time pricing• Yield pricing

Used when you cannot inventory the product such as for airline flights, hotels and concerts.

Tickets.com adjusts concert seat prices day-to-day depending on supply and demand. This has enabled it to increase revenues as much as 45%.

YIELD MANAGEMENT PRICING

Saturday

MondayFriday

SundayAIRLINE YIELD PRICING EXAMPLE

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COMMON PRICING MISTAKES

Determine costs and take traditional industry margins

Failure to revise price to capitalize on market changes

Setting price independently of the rest of the marketing mix

Failure to vary price by product item, market segment, distribution channels, and purchase occasion

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PROMOTION MANAGEMENTPART 1

PersonalSelling

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4 P’S…

Product Price

Promotion Place

MarketingCommunications

PROMOTION STRATEGIES

Promotion Mix

Adverting

PublicRelations

DirectResponse

SocialMedia

Events &Sponsorships

PersonalSelling

SalesPromotion

TradeShows

INTEGRATED MARKETING COMMUNICATIONS

IMC recognizes the role of a variety of

promotion strategies that are combined to

provide clarity, consistency and

maximum impact through the seamless

integration of messages

COMPANY USING IMC

BECAUSE

OWNERS CARE

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PUSH VS. PULL PROMOTION STRATEGYPush

• Personal Selling• Sales Promotion• Trade Shows

Pull

• Advertising• Direct Mail• Public Relations• Events & Sponsorship• Social Media

Manufacturer uses promotion tactics to persuade the distribution channel

to carry, promote, and sell their product to end-users

Manufacturer uses promotion tactics to persuade the end-users to demand

the product from the distribution channel

Manufacturer Manufacturer

Wholesaler Wholesaler

Retailer Retailer

Consumer Consumer

Demand is pushed down the channel by sales effort.

Demand is pulled through the channel by advertising.

Manufacturer selling effort

Manufacturer Advertising

SELLING IS PUSH MARKETING

MARKETING IS A LOT OF SELLING

• to investors or senior executives • to production and the sales-force • to distributors, retailers • to their customers • to their customers’ bosses

A new product or service has to be sold

That’s lot of selling, a lot of empathy, a lot of miles walking in others’ shoes.

PERSONAL SELLING

Planned presentation to one or more prospective buyers for the purpose of making a sale.

Personal

SellingPersonal

Selling

PERSONAL SELLING OBJECTIVES

Sales Objectives

• To keep a current customer happy and loyal • To persuade a current customer to buy

more• To persuade a potential customer to buy• To feed back ideas and market intelligence

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TYPES OF SALESPEOPLE

Order Takers vs Makers

FITTING FUNCTION TO BUYER BEHAVIOR

• The order-taker, the salesperson processing the customer’s order, must ensure that the order is correct, handled efficiently, and delivered when promised.

• Even when order-taking is undertaken online, the salesperson must still pay attention to details.

Order Taking

FITTING FUNCTION TO BUYER BEHAVIOR

• By contrast, “order-getters” or “order-makers” are required to uncover customer needs and identify new buyers.

• They need to have higher process thinking skills than order-takers.

• Solving a customer’s problem is always the key to successful “order-making” selling.

Order Making

NATIONAL ACCOUNT MANAGEMENT

• often involves a sales team of product and distribution experts led by a senior manager.

• often maintains a trouble-shooting salesperson in residence with very large buyers.

• often involves automated just-in-time delivery and replenishment.

Relationship management of really big customers

INDEPENDENT MANUFACTURER SALES REPS

They sell ten to twelve complementary product lines manufactured and marked by several different producers.

Their typical sales commission is around 7 percent, but it varies by product line.

Some small companies use reps because they don’t have the start up resources or the breadth of products to build and support their

own field sales-force, particularly in distant markets.

Even large companies see cost advantages in employing a rep sales-force.

INDEPENDENT MANUFACTURER SALES REPS

Advantages to Using Independent Reps

• Low start-up investment costs • Lower average selling costs• Low risk: reps get paid for what they sell• Builds the consumer franchise: reps open new doors• Improved cash flow: you pay when you get paid• Good product design and marketing advice from reps • Use reps’ past proven performance instead of developing own • Halo effect: company benefits from other brands the rep sells.• Sales territories with fewer customers are covered more efficiently

INDEPENDENT MANUFACTURER SALES REPS

Disadvantages to Using Independent Reps

• Some customers prefer to deal directly with the company• Commission payments run high for major customers • More difficult to manage and control sales• Harder to train salespeople on product knowledge• Difficult to fire: may lead to loss of customers • Confidentiality issues: betrayal of confidences, trade secrets• Reps push highest commission or easiest to sell products• Selling time and effort is split among several companies

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ANY QUESTIONS

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REMINDERS FOR NEXT WEEK

• Covers Modules 4,5,6,7,10• Starts - Sunday April 3rd, 2011 at 11:59pm• Ends - Sunday April 10th, 2011 at 11:59pm• Don’t wait until the weekend

Top Gun starts this Sunday

• Read, Take Quizzes

For module 9 & 10

• Must complete quizzes for Modules 4-10• deadline is Friday April 15th, 2011 at 11:59pm

In-module Quizzes due in 2 weeks

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BEFORE YOU LEAVE TODAY

name cards

Front of the Class

Hand In:

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SEE YOU NEXT WEEK