review of promotion & pricing dr. dawne martin mktg 241 march 8, 2012
TRANSCRIPT
Plans & Learning Objectives
For Next Week◦Quiz 3 -- Chapters 8,9 & 11(?)◦Skim Chapters 12 & 13
Learning Objectives◦Review Promotional Options◦Investigate the components of setting prices◦Review and apply entrepreneurial pricing
concepts◦Develop your pricing objectives & strategies
Promotional Mix
Technique Strength Weakness
Advertising Quick, broad reach and attention getting
High cost, difficult to measure, credibility
Public Relations Credibility, more information provided
Difficult to obtain, needs media cooperation
Sales Promotion Stimulate sales in short run, control audience selection
May be abused by customer, can cheapen product if used too often
Personal Selling Direct feedback, customized message, select audience
May be expensive per exposure, message may be inconsistent
Direct Marketing Provide direct, measureable results, precision targeting, customization
Credibility, database management expensive
Sales Promotion
CouponsDealsPremiumsContestsSweepstakesSamplesLoyalty programsPoint of purchase displaysRebatesProduct PlacementsCollateral Materials
Must for Entrepreneurs
Yellow PagesNetworkingPublicityBring customers into businessCollateral Materials
◦Brochures and sales sheets◦Cups, tee shirts and other brand reminders
Trade shows and other exhibitionsDirect mailOnline and social marketingpresence
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What is a price?
◦ Ultimately a number Captures the costs involved in
providing a product or service Determination of average unit cost
can also be a bit arbitrary What the firm must charge to
achieve breakeven But price is much more than this!
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Cost EstimatesFixed Costs Mortgage or rent Leases (cars & equipment) Salary Commissions (projected) Benefits Licenses & permits Computers/software
technology Fixtures & furniture Loan Repayments Start up costs/ R & D Internet services Other
Variable Costs Office supplies Telephones Expense reimbursements Taxes Postage Shipping and fulfillment
services Training and
development Advertising and
promotion Market research
Pricing Considerations
Operating costs◦ Rent◦ Labor costs◦ Utilities◦ Marketing◦ Financing – loan payments, interest, etc.
Product cost◦ Purchase or production
Raw materials Labor costs Shipping
◦ Insurance◦ Inventory stocking
Alignment with strategy (and channel of distribution) Customer expectations Competitor pricing Other Issues – production capacity, need to recoup start up
costs
Margins & Markups
Mark up = Price – Variable Costs per unitPrice = Product Costs + MarkupMargin % = Price – variable costs/price x
100
Calculations for Cost-based Pricing
Target profit price = (Fixed costs + Target Profit) + Variable
costs/unitSales Volume Units
Breakeven Point Quantity = Fixed Costs – Unit variable costsUnit selling price
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Applying an Entrepreneurial Orientation to the Firm’s Pricing Program
Key components of a firm’s pricing orientation can be applied to the formulation of
Objectives Strategies Structure Levels and tactics Tactics and price promotions
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Pricing Objectives
Price can be used for much more than generating a rate of return
Entrepreneurial perspective moves the marketer to use price to accomplish other objectives◦ Encourage a particular behavior on the part of buyers◦ Establish foothold in a new market◦ Speed the exit of marginal competitors◦ Take advantage of the learning curve◦ Disincentive for certain groups of customers◦ Use one product line in the firm’s portfolio to
generate sales of another line
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Pricing Strategies
Value-based, capturing the total value proposition as perceived by◦ Individual segments◦ Customers
May need to develop multiple strategies, depending on the market context
Firm operating in different markets◦ Premium pricing strategies◦ Parity pricing strategies
Depending on product context firm may be a ◦ Price leader◦ Price taker
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Price Structure
Which aspects of each product or service have a price attached?
◦ Sample pricing approaches Bundling
◦ Example: a bank charges one price for which a customer receives multiple services
Unbundling◦ Example: a bank charges a fee for each individual
service
◦ Value-added services that are provided to the customer without raising price
◦ Marketer could sell ◦ Basic offering at a very low price ◦ Make money on higher margin consumables
or add-ons
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Sell the same product under different brand names for different prices
Unlimited use of a given product or service for a set fee
◦ Time-period pricing, where the product (or aspects of it) is priced differently at particular times, such as
◦ Peak capacity utilization periods◦ Low capacity utilization periods
Initial base price followed by a variable charge once usage exceeds some threshold
Tied to the performance of the product or service
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How will prices vary for different customers and usage situations?
◦ Principal focus is charging price differentials based on market segment or individual account
◦ Tying price to some variable aspect of customers The size of their feet if operating a shoe
store The size of their car if operating a car wash
◦ Current technology allows firms to take price differentials even further Making one-to-one pricing a practical reality
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◦ Price structure is also concerned with the Conditions of payment Time of payment Form of payment
◦ This includes the formal discount structure Cash or early payment discounts Volume discounts (cumulative or non-
cumulative) Functional or trade discounts Various time payment schemes Trade-in allowances
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Price levels and tactics
Require creativity in deciding on such issues as the use of odd prices◦ Actual amounts charged for each product or
service◦ Actual level of any discounts given
Use of price to convey a level of quality in a product
Amount of a gap to allow between items in a given line (e.g., the low end, middle of the road, and high-end version of the same product)
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Use of short-term tactics and promotions
◦ Rebates◦ Coupons◦ Cents-off deals◦ Price promotions◦ Represent an ongoing means for achieving
Market-oriented flexibility Proactiveness in pricing
◦ Tactics can be Quick Precisely targeted Relatively inexpensive
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Use of short-term tactics and promotions—cont.
◦ “Guerrilla” tactics can be employed in the pricing arena
◦ A jewelry store offers diamonds at 75% off if it snows on Ground Hog Day
◦ A copying company invents a reusable coupon that increases in value with each use
◦ A price promotion is done jointly between a movie theater and a restaurant
◦ There is ample room for experimentation in each of these areas
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Entrepreneurial Pricing Conventional rules need not apply
◦ A restaurant might charge different amounts for a meal depending on the table at which one is seated
◦ A college might charge higher prices depending on how many credit hours a student has completed
◦ An industrial manufacturer may price today based on the accuracy of the industrial buyer’s demand forecasts over the past eighteen months
Challenge is to identify and find inventive ways to capitalize on the creative variables
◦ Have important profit impact over time◦ That contribute to the customer value equation
Answering this challenge requires◦ An intimate understanding of the customer◦ Willingness to lead customers
Rather than simply follow them Take them for granted
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