review of promotion & pricing dr. dawne martin mktg 241 march 8, 2012

Review of Promotion & PricingDr. Dawne Martin

MKTG 241March 8, 2012

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

Rethinking Marketing, 1st Edition

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!

Prentice Hall © 200911-

6

Accounting Wisdom

If you lose a little on every sale, you can’t

make it up with volume

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


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

Prentice Hall © 200911-12


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



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



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



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



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



◦ 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



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)



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



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



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


review of promotion & pricing dr. dawne martin mktg 241 march 8, 2012

Documents

product costs markupmargin

breakevenbut price

pricing objectivesprice

price promotionsprentice

price variable costsprice

costs margins markupsmark

product costpurchase

rethinking marketing