chapter 14: promotion — introduction to integrated marketing communications

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Chapter 14: Promotion —Introduction to Integrated Marketing Communications

For use only with Perreault and McCarthy texts.© The McGraw-Hill Companies, Inc., 1999

Irwin/McGraw-Hill

Exhibit 14-3A

0

Price

Quantity

D2

D1

A. To be more inelastic

Promotion efforts may be targeted to make demand

for the firm’s products more inelastic and so

more resistant to counter-moves by the

competition.

14-5

Promotion and the Demand Curve

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Exhibit 14-3B

0

Price

Quantity

D

D

B. to the right

14-6

Promotion efforts may be targeted to

increase the demand for the firm’s

products.

Promotion and the Demand Curve

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Exhibit 14-3C

0

Price

Quantity

D

D

C. Both to the right and more inelastic

Promotion efforts may be targeted to both

increase demand for the firm’s products and to make demand more

inelastic

14-7

Promotion and the Demand Curve

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Exhibit 14-114-3

Basic Promotion Methods

TargetMarketTargetMarket

PricePricePromotionPromotionPlacePlaceProductProduct

SalesPromotion

SalesPromotion

PersonalSelling

PersonalSelling

PublicityPublicityAdvertisingAdvertising

MassSellingMass

Selling

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Publicity

Is any unpaid form of nonpersonal presentation of ideas, goods or services (370)

Tries to communicate without paying media costs - IT IS NOT FREE!

Can have major impact on target if favorable reviews are given.

Sometimes publicity campaigns are costly“News” to the media vehicle in question?

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Publicity

Planned or UnplannedFavorable or Unfavorable

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Disadvantage of Publicity vs Ads

With ads – if you buy advertising you know the ad will run

With publicity, you may spend considerable $’s in advance and gain little or no favorable exposure

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Cost-Effectiveness of Publicity

After the fact the cost effectiveness of publicity can be determined by:Monitoring media coverageComparing publicity cost to the cost of an

equivalent amount of advertising

Value of Publicity = ($ value of media coverage) – publicity cost.

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Publicity Value Example

Company spends $25,000 on a publicity package aimed at gaining favorable product mentions and reviews in 5 magazines

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Before Publicity Campaign

Magazine Cost of 1 Ad Publicity Ran A $30,000 ? B $9,000 ? C $10,000 ? D $12,000 ? E $5,000 ?

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After Publicity Campaign

Magazine Cost of 1 Ad Publicity Ran A $30,000 No B $9,000 Yes C $10,000 No D $12,000 Yes E $5,000 Yes

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Publicity Value

Cost of Publicity = $25,000Dollar value of media coverage in the 5

magazines was $9,000 + $12,000 + $5,000 = $26,000

Value of publicity = $26,000 - $25,000 = $1,000

Publicity value can be negativeNever know value of publicity until

AFTER you have run the campaign

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Exhibit 14-2

Aimed at middlemen

Price dealsPromotion allowancesSales contestsCalendarsGiftsTrade ShowsMeetingsCatalogsMerchandising aids

Aimed at finalconsumers or users

ContestsCouponsAisle displaysSamplesTrade showsPoint-of-purchase materialsBanners and streamersTrading stampsSponsored events

Aimed at company’sown sales force

ContestsBonusesMeetingsPortfoliosDisplaysSales aidsTraining materials

14-4

Sales Promotion Activities

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Push-Pull Strategies

Exhibit 14-8

WholesalerPromotion

Push

WholesalerPromotion

Push

RetailerPromotion

Push

FinalConsumer

Pull

BusinessCustomer

Pull

Pro

mo

tio

n t

oB

us

ine

ss

Cu

sto

me

rsP

rom

otio

n to

Fin

al C

usto

mers

Promotion toChannel Members

Producer’s Promotion BlendPersonal Selling, Sales Promotion, Advertising, Publicity

14-13

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Promotion and the AIDA Model

Exhibit 14-4

Promotion Objectives Adoption Process AIDA Model

Informing

Persuading

Reminding

AttentionInterest

Desire

Action

AwarenessInterestEvaluationTrialDecisionConfirmation

}}

{

14-9

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Exhibit 14-9Time14-14

The Adoption CurveP

erce

nt

Ad

op

tio

n

Innovators(3-5%)

EarlyAdopters(10-15%)

EarlyMajority

(34%)

LateMajority

(34%)

Laggards/Nonadopters

(5-16%)

05

20

50

90

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Exhibit 14-5

Feedback

ReceiverDecodingMessagechannelEncodingSource

Noise

14-10

The Traditional Communication Model

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Direct Response Promotion

Def - direct communication between a seller and an individual customer using a promotion method other than face-to-face personal selling.

Started with catalogue & direct mailYou can directly measure short run sales

effects. The techniques have been around for a long time. The big difference is the lower cost to use D.R. in a widespread manner to the final consumer.

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Direct response marketing

It is critical to relate the effects of promotion to:a] measure the impact of your spendingb] weed out the “information hogs”

Retailers have used variations of this:Product “Fan Clubs” recipe groups, Harley

ClubsPaid membership groups (book clubs, heavy

user groups)

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Direct Response in mass marketing

Use mass media ads with a direct response component to get a data base of users or interested members of the target audience.

Examples: 1-800, fax, address, phone number, email, etc…

The mass media ads are used as a screen to identify: a] heavy users b] people ready to buy.

By using the better targeting, you can use more effective (and expensive) selling tools such as: phone calls, direct mail, videotapes, catalogues or personal sales calls

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Direct Marketing Example

It costs a spammer $70 to send 1,200,000 emails. Spammer sends out email promoting “Spam Blocker” software. For every order placed, the spammer makes $3.50.

If a 0.1% response rate is obtained, what is the profit/loss?

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Direct Response Example

[((.001)(1,200,000) x $3.5)] - $70 == $4,130

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Direct Response Example 2

You sell “The Amazing Spud Whacker” (ASW) using late night TV infomercials. The ASW sells for $19.99 +$9 shipping and handling. The unit variable cost for ASW (including shipping and handling) is $5.00. You run the infomercial on 2 TV stations

Cost to run the infomercial is $9,000 on Station 1 and $12,000 on station 2

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Direct Response Example

Sales from Station 1 is 400 ASWsSales from Station 2 is 500 ASWsWhat is the profit/loss for the direct

marketing run on Station 1, Station 2, and for the overall company?

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Station 1

Profit Station 1 = (price – unit costs)(units sold station 1) –

direct fixed costs of station 1= [(19.99 + 9.00) – ($5.00)]400 - $9,000= ($23.99 x 400) - $12,000= $596

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Station 2

Profit Station 2 = [$23.99]500 - $12,000 = -$5

Overall Company = [$23.99 x 900] - $9,000 - $12,000= $591

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Heavy User Club

Suppose a bookstore normally has a 20% gross margin on books. They start a “Romance Book Club” that costs a member $20 to join but provides:A quarterly mailing10% discount on romance books

Cost to the firm is:Cost of the data base (fixed cost with a small upkeep

costCost of the quarterly mailing (say $5 a year)Cost of the discount

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Heavy User Club - 2

For customer’s who buy very little, the firm profits!$20 fee - $5 mailing = $15 gross margin

Customers who buy a lot, you may “lose” moneySay a customer buys $50 a month ($600 a year)This is a gross margin with no club of

$600 x .20 = $120

With club:$600 x .1 = $60 + $15 (fee - mailing cost) = $75This is 62.5% of $120

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Direct Marketing Advantages

Heavy Users May Be Attracted & RetainedPromotion Efforts Can Be Better TargetedHeavy Users Are Often Opinion LeadersProfit of Direct Marketing Efforts Can Be

Calculated:OverallBy Individual Customer

Hard To Calculate Profitability of Mass Advertising Campaigns

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Setting the Promotion Budget

Task MethodTask Method

Uncommitted ResourcesUncommitted Resources

Per UnitPer Unit

Match CompetitorsMatch Competitors

Percentage of SalesPercentage of Sales

????????????????????????????????????????

14-15

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Ad Budgeting by % of Sales

Commonly Used MethodEx: Your firm had $15 million in sales last

year. You use 6% of sales as your budget. What is your ad budget next year?

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% of Sales Example

$15 million x 6% = $900,000.

Problems with % of Salesa] Does not relate to actual budget needsb] Tend to overspend in good times and

underspend in bad economic times

Note, method gives total budget, not an allocation to specific media.