Chapter Fourteen

Small Business Marketing: Price and Promotion

Learning Objectives
‡ Identify the three main considerations in setting a price for a product ‡ Define breakeven analysis and explain why it is important for pricing in a small business ‡ Present examples of customer-oriented and internal-oriented pricing ‡ Describe why and how small businesses extend credit ‡ Describe the advertising, personal selling, public relations, and sales promotions tools that a small business owner uses to compile a promotional mix
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The Economics of Pricing
‡ Price represents what the consumer considers the value of a product
± Value depends on the benefits received compared with the monetary cost

‡ Typically consumers do not what the cheapest product available ± they want the best product for the most reasonable price ‡ The ³right´ price is between what the market will bear and what the product costs
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Economic Factors That Impact Product Price

Competition

Customer Demand

Costs

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Demand Curves

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Factors Influencing Price Elasticity
Product Substitutes
Significance of the Purchase to Consumer¶s Total Budget

Necessity of the Product

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Costs: Two General Categories

Fixed Costs

Variable Costs

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Breakeven Analysis

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Price Changes Affect Breakeven Point

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Customer Oriented ri ing Strategies
restige ri ing

enetration ri ing

sy hologi al ri ing

ri e Skimming

ri e ining

Odd ri ing

Referen e ri ing

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Internal-Oriented Pricing Strategies

Cost-Plus Pricing

Target-Return Pricing

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Creative Pricing Strategies
1. 2. 3. 4. 5. 6. Bundling or unbundling Time-period pricing Trial pricing Image pricing Account-systems pricing Value-added price packages 7. Pay-one-price 8. Constant promotional 9. Price = Performance 10. Change the Standard 11. Shift costs to your customer 12. Variable pricing tied to a creative variable 13. Different names for different price segments 14. Captive pricing 15. Product-line pricing 16. Differential pricing 17. Quality discount 18. Fixed, then variable 19. ³Don¶t break that price point
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Payment Methods

Cash

Credit

Check

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Credit Policies ± Types of Credit
‡ Two basic categories of credit are: ‡ Consumer Credit
± Credit extended to customers for the purchase of goods or services

‡ Trade Credit
± Credit extended from one business to another for purchasing goods

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How Do Consumers Pay?

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Online Credit Checks
‡ Databases are available to help you look into a customer¶s financial past to determine the would-be customers who might have trouble paying you ‡ You can find out about tax liens, bankruptcies, court judgments, payment history, financial data and analysis, company background, public filings, and other information ‡ Data are available for each geographic zone in the country (USA)
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Percent Chance of Collecting Delinquent Commercial Debt

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Tools Used in Developing Promotional Mix

Advertising

Personal Selling

Public Relations

Sales Promotions

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Advertising ± Choices of Media

Print Media

Broadcast Media

Outdoor Media

Newspapers Magazines Direct Mail Yellow Pages

Radio Television ComputerBillboards

Billboards Posters placed on public and other Transportation

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Advertising Media: Which Should You Use?
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Medium Newspaper Television Direct Mail Radio Magazine Outdoor Yellow Pages Internet Miscellaneous Percent 20.1 24.3 18.3 07.9 05.1 00.7 05.4 01.8 14.4
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Advertising - Downsides
‡ ‡ ‡ ‡ Slow feedback Expensive Difficult cutting through clutter Difficulty creating a personalized message

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Advertising Objectives
Inform

Persuade

Objective

Remind

Change the Perception

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Advertising trategies

estimonials
ensual or e ual Message

Humor

li e-of- ife Message
Comparative Message

antasy Message

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Techniques for Measuring Effectiveness of Advertising

Response Tracking

Split Ads

In-Store Opinions

Telephone Surveys

Statement Questionnaires

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Advertising Development
‡ Most small business owners plan their own advertising programs, which is usually more appropriate for them than hiring a professional producer ‡ Common problem among self-produced advertisements is that business owners try to cram too much into them ‡ Small businesses owners should investigate options and promotions that outside professional advertising services make available
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Professional Advertising Services
Advertising Agencies

Media Agencies

Art and Graphic Design Services

Radio & TV Studios, Newspaper & Magazine
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Personal Selling
‡ Involves a personal presentation by a salesperson for the purpose of making sales and building relationships with customers ‡ You are tying to accomplish three things:
± Identify customer needs ± Match those needs with your products ± Show the customers the match between their need and your product
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Personal Selling - Drawback
‡ Cost is the biggest drawback of personal selling ‡ Average cost of a sales call is over $225 ‡ Salespeople have gained a poor reputation because of high-pressure tactics and questionable ethics of a few of them

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Personal Selling - Advantage
‡ Flexibility of the presentation that is possible ‡ A trained salesperson can tailor a presentation to the prospect around:
Features Advantages Benefits

± What the product is

± Why the product is better than alternatives

± What the product will do for the customer

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Customer¶s Expectations
‡ Customers expectations are rising ‡ Good product at a fair price, offered by a well-trained sales staff, backed by a responsive customer service department, is just the starting point in a competitive marketplace ‡ For your business to stand out, its products need to be tailored to the particular needs of your customers
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Steps in Personal Selling

Preapproa h

Approa h

uestioning

emonstration

Handling je tions

Closing the eal

Suggestion Selling ollo -up

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Steps in Personal Selling
‡ Preapproach ±
± Before meeting with the prospective customer, a salesperson must acquire knowledge about the product and perhaps about the customer and his/her business

‡ Approach ±
± Upon first meeting the customer, the salesperson tries to establish a rapport with him/her

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Steps in Personal Selling
‡ Questioning ±
± To find out what is important to the customer, the salesperson will try to define his or her needs as early in the process as possible

‡ Demonstration ±
± The salesperson shows how the product will solve the customer¶s problem and need his or her needs

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Steps in Personal Selling
‡ Handling Objections ±
± An effective salesperson will listen to what the customer is really saying. An objection shows that the customer is interested but needs more information

‡ Closing the Deal ±
± When he/she senses that the customer is ready to buy, the salesperson should ask for the sale. Many sales are lost when a customer is ready to buy, the the salesperson continues to sell

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Steps in Personal Selling
‡ Suggestion selling and follow-up ±
± Suggestion selling means recommending products that are complementary to those just sold ± Following up with a phone call after the sale builds on the rapport established in the approach and works toward a longterm relationship between the customer and the business

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Public Relations (PR)
‡ Public relations involves promotional activities designed to build and sustain goodwill between a business and its customers, employees, suppliers, investors, government agencies, and the general public ‡ Publicity is an aspect of public relations consisting of any message about your company communicated through the mass media that you do not pay for

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Sales Promotions
‡ Sales promotion ± activity that stimulates sales and is not strictly advertising or personal selling ‡ Sales promotion activities enhance but do not replace your advertising or personal selling efforts ‡ Sales promotions are most effective when used in intervals, because customer response decreases over time as customers become familiar with the promotions

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Sales Promotions ± Examples
‡ ‡ ‡ ‡ ‡ In-store displays Free samples Contests Trade show booths Distribution of coupons, premiums, and rebates

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Sales Promotions
‡ Advertising and personal selling are used on a continuous basis, whereas sales promotions are intermittent ‡ A strategy that combines all three can produce a ratchet effect on sales ‡ Advertising is used to increase customer interest, whereas personal selling is used to increase sales over a short period of time

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Short-Term Ratchet Effect of Sales Promotion

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The Promotional Mix
‡ Advertising ± reaches so many people that it is good for creating awareness, but its power to stimulate action decreases quickly ‡ Personnel Selling ± most effective tool for building customer desire for the product and prompting customers to take action. But because it requires one-on-one contact, it is less useful in creating awareness

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The Promotional Mix
‡ Sales promotions ± most effective with customers who are already interested in the product, but who may need prompting to make the purchase ‡ Public relations ± builds awareness, although it results in few immediate sales

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