CHP 14 Promotion and Pricing3122

Part 4
Marketing
Management
Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter 14
Promotion and
Pricing Strategies
Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
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.
14-3 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
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
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
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
 Comparing the Components of the
Promotional Mix
The Promotional Mix
 Objectives of Promotional Strategy

Providing Information
Differentiating a Product
Increasing Sales
Stabilizing Sales
Accentuating the Product’s Value
 Five Major Promotional Objectives
The Promotional Mix
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
The Promotional Mix
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
The Promotional Mix
Accentuating the Product’s Value
 Promotional strategies can enhance
product values by explaining often
unrecognized ownership benefits
The Promotional Mix
 Promotional Planning
Increasing complexity and sophistication of
marketing communications requires careful
planning to coordinate IMC strategies
Product Placement
Guerrilla Marketing
Advertising
 Advertising—paid nonpersonal
communication delivered through various
media and designed to inform, persuade, or
remind members of a particular audience.
 The 15 Largest Advertisers in the United States
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
Advertising
 Advocacy Advertising (Cause Advertising):
promotes a specific viewpoint on a public
issue as a way to influence public opinion and
the legislative process
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
Advertising
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
Advertising
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
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
Advertising
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
Advertising
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
Advertising
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
Advertising
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
Advertising
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
Advertising
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
Advertising
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
Advertising
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
Advertising
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
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
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
 Spending on Consumer-Oriented Promotions
Sales Promotion
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
Sales Promotion
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
Sales Promotion
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.
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.
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
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
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
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
Personal Selling
 The Sales Process

Seven Steps in
the Sales
Process
Personal Selling
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
Personal Selling
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
Personal Selling
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
Personal Selling
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.
Personal Selling
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
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.
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
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
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.
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?
 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
 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
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
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
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
Price in the Marketing Mix
 Price—
exchange
value of a good
or service.
 Pricing
Objectives
 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
 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
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
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.
 The Markup Chain for a Hardcover Book
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
 Breakeven Analysis
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
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
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
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

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Part 4

 Promotion—communication link between

 Coordination of all promotional activities –

 Promotional Mix—combination of personal

 Objectives of Promotional Strategy

 Advertising and the Product Cycle

 Sales promotion—nonpersonal marketing

 Personal selling—interpersonal promotional

 The Sales Process

 Recent Trends in Personal Selling

 Publicity—stimulation of demand for a good,

 Selecting a Promotional Mix

 Price Determination in Practice

 Price Determination in Practice

 Breakeven Analysis—pricing technique

Breakeven point Total Fixed Cost

Breakeven point Total Fixed Cost

Penetration pricing strategy—sets a low

 Alternative Pricing Strategies

Competitive Pricing—product priced at

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