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ntroduction to Marketing - Session 3 at ITM, Mumbai. Includes: Promotion and Advertising • Promotional activities o Trade shows, sponsorship, trade-fairs, contests, coupon programme, community projects • Advertising o TV, radio, trade magazines, direct mailing, billboards, packaging, internet • Public Relations o Relationships with media, customer’s community, public speaking, research • Personal Selling o B2B and B2C • Marketing Accessories Brochures, newsletters, fliers, give-aways Pricing and Distribution Price is unique among the 4 Ps in that it directly affects the company’s revenues and profits. Pricing is both a science and an art Pricing seems to be the one “P” that has been dramatically affected by the use of the Internet Pricing and Distribution • Cost based pricing • Value based pricing • Premium pricing • Discount / promotional pricing • Price Skimming • Psychological pricing • Geographic pricing • Product line pricing
Citation preview
NANDA KISHORE SETHURAMANITM SEPTEMBER 2012
Introduction to MarketingWeek 3
Agenda
Promotion and Advertising Promotional activities Trade shows, sponsorship,
trade-fairs, contests, coupon programme, community projects
Advertising TV, radio, trade magazines,
direct mailing, billboards, packaging, internet
Public Relations Relationships with media,
customer’s community, public speaking, research
Personal Selling B2B and B2C
Marketing Accessories Brochures, newsletters,
fliers, give-aways
Pricing and Distribution Cost based pricing Value based pricing Premium pricing Discount / promotional
pricing Price Skimming Psychological pricing Geographic pricing Product line pricing
Promotion & Advertising
Learning Goals
Discuss how integrated marketing communications relates to a firm’s overall promotion strategy.
Explain promotional mix and outline the objectives of promotion.
Summarize the different types of advertising and advertising media.
Outline the roles of sales promotion, personal selling, and public relations.
Describe pushing and pulling promotional strategies.Discuss the major ethical issues involved in
promotion.
Promotions – What is it?
Promotion is the function of informing, persuading, and influencing a purchase decision.
Integrated marketing communications (IMC) Coordination of all promotional activities—media advertising, direct mail, personal selling, sales promotion, and public relations—to produce a unified customer-focused message.
Integrated Marketing Communications
Must take a broad view and plan for all form of customer contact.
Create unified personality and message for the good, service, or brand.
Elements include personal selling, advertising, sales promotion, publicity, and public relations.
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 Advertising, sales promotion, direct marketing, and public relations.
Components of Promotional Mix
Objectives of Promotional Strategy
Objectives of Promotional Strategy
Providing Information Major portion of advertising provides information about a
product.Differentiating a Product
Communicate to buyers meaningful distinctions about the attributes, price, quality, or use of a good or service.
Increasing Sales Most common objective of a promotional strategy.
Stabilizing Sales Stable sales evens out the production cycle, reduces some
management and production costs, and simplifies financial, purchasing, and marketing planning.
Accentuating the Product’s Value Explaining hidden benefits of ownership.
Promotional Planning
Product placement Marketers pay placement fees to have their products showcased in various media, ranging from newspapers and magazines to television and movies.
Guerilla marketing Innovative, low-cost marketing efforts designed to get consumers’ attention in unusual ways.
Advertising
Advertising Paid nonpersonal communication delivered through various media and designed to inform, persuade, or remind members of a particular audience.
Consumers receive 3,500 to 5,000 marketing messages each day.
Types of Advertising Product advertising Messages designed to sell a particular good or
service. Institutional advertising – Messages that promote concepts, ideas,
philosophies, or goodwill for industries, companies, organizations, or government entities.
Cause advertising – Form of institutional messaging that promotes a specific viewpoint on a public issue as a way to influence public opinion and the legislative process
Advertising and the Product Life Cycle
Informative advertising – Used to build initial demand for a product in the introductory phase of the product life cycle.
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 – Compares products directly with their
competitors either by name or by inference.
Reminder-oriented advertising – Appears in the late maturity or decline stages of the product life cycle to maintain awareness of the importance and usefulness of a product.
Advertising and the Product Life Cycle
Attract Attention
Convince
EntertainRemind
Brand Risk
Invo
lvem
ent
High
Hig
hLo
w
Low
•Only few brands available in its space• Promiscuous users• The job of Advertising is to ‘ENTERTAIN’• Marketing Paradigm: FEEL / DO / FEEL
•High involvement / High Risk• Can’t afford to make mistakes• Includes existing users also• Ex: Durables / Hospitals• The job of Advertising is to ‘CONVINCE’• Marketing Paradigm: LEARN / FEEL / DO
•Commoditised Brands• Predominantly speaking to ‘Own Past Users• The job of Advertising is to ‘REMIND’• Marketing Paradigm: DO / FEEL / DO
•Commoditised Brands• Experienced by ‘New Brands’ entering an existing market• Talks predominantly to ‘New users’ only• The job of Advertising is to ‘ATTRACT ATTENTION’• Marketing Paradigm: LEARN / DO / FEEL
Advertising and the Product Life Cycle
Vehicles
Television Largest reach Large variety of channels
with varied interests Expensive
Newspapers Short life span Possibility to localize Easy to coordinate with other
promotional efforts. Radio
Latest entrant (after a hiatus) Car commuters – captive
audience Magazines
Including Consumer publications and trade journals.
Direct Mail High per person cost, but can
be carefully targeted and highly effective.
Outdoor Advertising Requires brief messages.
Online and Interactive Advertising Experts predict sales from
online advertising will double in 2012.
Virals – Kolaveridi? Low cost Sometimes Intrusive
More Vehicles…
Sponsorship Providing funds for a sporting or cultural event in
exchange for a direct association with the event. Benefits: Exposure to target audience and association
with image of the event.
Other Media Options Marketers look for novel ways to reach customers. Examples: infomercials, ATM receipts, directory
advertising
SALES PROMOTION
Sales promotion Nonpersonal marketing activities other than advertising, personal selling, and public relations that stimulate consumer purchasing and dealer effectiveness.
Consumer-Oriented Promotions
Premiums, Coupons, Rebates, Samples Two of every five promotion dollars are spent on premiums,
items given free or at reduced price with the purchase of another product.
Coupons attract new customers but focus on price rather than brand loyalty.
Rebates increase purchase rates, promote multiple purchases, and reward product users.
Three of every four consumers who receive a sample will try itGames, Contest, and Sweepstakes
Often used to introduce new goods and attract new customers.
Subject to legal restrictions.Specialty Advertising
Gift of useful merchandise carrying the name, logo, or slogan of an organization.
Trade-Oriented Promotions
Sales promotion geared to marketing intermediaries rather than to consumers. Encourage retailers in several ways:
To stock new products. To continue carrying existing ones. To promote both new and existing products effectively to
consumers. Point-of-purchase (POP) advertising Displays or
demonstrations that promote products when and where consumers buy them, such as in retail stores.
Promote goods and services at trade shows
PERSONAL SELLING
A person-to-person promotional presentation to a potential buyer.
Usually used under four conditions: Customers are relatively few in number and
geographically concentrated. The product is technically complex, involves trade-ins,
and requires special handling. The product carries a relatively high price. It moves through direct-distribution channels.
Example: Selling to the government or military.
The Sales Process
Public Relations
Public organization’s communications and relationships with its various audience. Helps a firm establish awareness of goods and
services and builds a positive image of them.
Publicity Publicity Stimulation of demand for a good, service,
place, idea, person, or organization by disseminating news or obtaining favorable unpaid media presentations.
Good publicity can promote a firm’s positive image Negative publicity can cause problems.
PROMOTIONAL STRATEGY
Pushing and Pulling Strategies Pushing strategy Relies on personal selling to market
an item to wholesalers and retailers in a company’s distribution channels. Companies promote the product to members of the
marketing channel, not to end users. Pulling strategy Promote a product by generating
consumer demand for it, primarily through advertising and sales promotion appeals. Potential buyers will request that their suppliers—
retailers or local distributors—carry the product, thereby pulling it through the distribution channel.
Most marketing situations require combinations of pushing and pulling strategies, although the primary emphasis can vary.
Pricing Strategies
Learning Goals
1. Identify and define the internal factors affecting a firm’s pricing decisions
2. Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value
3. Contrast the three general approaches to setting prices
Definition
Price The amount of money charged for a product or
service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.
RentFeeRateCommissionAssessment
TuitionFareTollPremiumRetainer
• BribeBribe
• SalarySalary
• WageWage
• InterestInterest
• TaxTax
Factors in Setting Price
Factors to Consider When Setting Price
Marketing objectivesMarketing mix
strategiesCostsOrganizational
considerations
Market positioning influences pricing strategy
Other pricing objectives: Survival Current profit
maximization Market share leadership Product quality
leadership
Internal Factors
Factors to Consider When Setting Price
Marketing objectivesMarketing mix
strategiesCostsOrganizational
considerations
Pricing must be carefully coordinated with the other marketing mix elements
Target costing is often used to support product positioning strategies based on price
Non-price positioning can also be used
Internal Factors
Factors to Consider When Setting Price
Marketing objectivesMarketing mix
strategiesCostsOrganizational
considerations
Types of costs: Variable Fixed Total costs
How costs vary at different production levels will influence price setting
Experience (learning) curve affects price
Internal Factors
Factors to Consider When Setting Price
Marketing objectivesMarketing mix
strategiesCostsOrganizational
considerations
Who sets the price? Small companies: CEO
or top management Large companies:
Divisional or product line managers
Price negotiation is common in industrial settings where pricing departments may be created
Internal Factors
Factors to Consider When Setting Price
Nature of market and demand
Competitors’ costs, prices, and offers
Other environmental elements
Types of markets Pure competition Monopolistic competition Oligopolistic competition Pure monopoly
Consumer perceptions of price and value
Price-demand relationship Demand curve Price elasticity of demand
External Factors
Factors to Consider When Setting Price
Nature of market and demand
Competitors’ costs, prices, and offers
Other environmental elements
Consider competitors’ costs, prices, and possible reactions
Pricing strategy influences the nature of competition Low-price low-margin
strategies inhibit competition
High-price high-margin strategies attract competition
Benchmarking costs against the competition is recommended
External Factors
Factors to Consider When Setting Price
Nature of market and demand
Competitors’ costs, prices, and offers
Other environmental elements
Economic conditions Affect production costs Affect buyer perceptions
of price and value Reseller reactions to
prices must be considered Government may restrict
or limit pricing options Social considerations may
be taken into account
External Factors
General Pricing Approaches
Cost-Based Pricing: Cost-Plus Pricing Adding a standard markup to cost Ignores demand and competition Popular pricing technique because:
It simplifies the pricing process Price competition may be minimized It is perceived as more fair to both buyers and sellers
Cost-Based Pricing Example
- Variable costs: Rs.20 - Fixed costs: Rs.500,000- Expected sales: 100,000 units - Desired Sales Markup:
20%
Variable Cost + Fixed Costs/Unit Sales = Unit CostRs.20 + Rs.500,000/100,000 = Rs.25 per unit
Unit Cost/(1 – Desired Return on Sales) = Markup PriceRs.25 / (1 - .20) = Rs.31.25
General Pricing Approaches
General Pricing Approaches
Cost-Based Pricing: Break-Even Analysis and Target Profit Pricing Break-even charts show total cost and total
revenues at different levels of unit volume. The intersection of the total revenue and total
cost curves is the break-even point. Companies wishing to make a profit must exceed
the break-even unit volume.
Breakeven Analysis
Breakeven analysis Pricing technique used to determine the minimum sales volume a product must generate at a certain price level to cover all costs.
Finding the Breakeven Point
General Pricing Approaches
Value-Based Pricing: Uses buyers’ perceptions of value rather than
seller’s costs to set price. Measuring perceived value can be difficult. Consumer attitudes toward price and quality
have shifted during the last decade. Value pricing at the retail level
Everyday low pricing (EDLP) vs. high-low pricing
General Pricing Approaches
Competition-Based Pricing: Also called going-rate pricing May price at the same level, above, or below the
competition Bidding for jobs is another variation of competition-
based pricing Sealed bid pricing
Number of flash drives/memory sticks demanded
Price p
er flash d
rive/mem
ory stick
Equilibrium Price: Supply = Demand
measure of the sensitivity of demand to changes in prices
not price sensitive
no real change in demand
Inelastic Demand
Q2 Q1 Quantity
PP11
PP22
ElectricityPri
ce
price sensitive - changes in demand
Elastic Demand
QQ22 Quantity
PP11
PP22
Recreational Vehicles
Q1P
rice
Elasticity of Demand
INTRODUCTION GROWTH MATURITY DECLINEMarketing strategy Market development Increase market Defend market Maintain efficiency inemphasis share share exploiting product
Pricing High price, unique Lower price Price at or below Set price to remain
strategy product / cover over time competition profitable or reduceproduction costs to liquidate
Promotion Mount sales Appeal to Emphasize Reinforce loyal Strategy promotion for mass market brand differences, customers; reduce
product awareness benefits & loyalty promotion costs
Place strategy Distribute through Build intensive Enlarge Be selective in selective outlets network of distribution distribution, trim
outlets network unprofitable outlets
Marketing Strategy Over the Product Life Cycle
Pricing Existing Products/Services - 3 options Pricing below market prices - Price wars
EX: airlines, store brand vs. manufacturer’s brand Dumping
Pricing above prevailing market prices for similar products EX: Sony – higher price = higher quality?
Pricing at or near market prices
Alternative Pricing Strategies
Penetration Low price establish
product in the market Elastic demand;
Predatory pricing Skimming
High price; unique product; appeal to early adopters; Prestige pricing
Recovering high R&D costs
Combination Move inventory; stimulate
D; extend product life
PRICE
PRICE
PRICE
Skimming > Penetration
Penetration Price Strategy
Skimming Price Strategy
Alternative Pricing Strategies
Applies to large markets with Applies to large markets with elastic demand, economies of elastic demand, economies of scale, intense competitionscale, intense competition
Penetration Pricing
Pricing of iPhones
Market Skimming
Applies to new, distinctive Applies to new, distinctive products, early in the PLCproducts, early in the PLC
Pricing Tactics
Price Lining Setting a limited number of prices for certain categories of
products
Psychological Pricing Pricing to take advantage of the fact that consumers do not
always respond rationally to stated prices
Discounting Price reductions offered as an incentive to purchase
High tech Pricing: giving it away!
Captive Product Pricing
Gillette Fusion Manual Razor
Gillette Fusion Manual Razorwith cartridges
Discount / allowance SegmentedPsychologicalPromotionalInternational
Types of discounts Cash discount Quantity discount Seasonal discount
Allowances Trade-in allowances Promotional allowances
StrategiesStrategies
52
Price Adjustment Strategies
53
Seasonal Discounts
Bundling
55
(Mixed) Bundling
Discount / allowance SegmentedPsychologicalPromotionalInternational
Types of segmented pricing strategies: Product-line pricing Location pricing Time pricing
Also called revenue or yield management
Certain conditions must exist for segmented pricing to be effective
StrategiesStrategies
Price Adjustment Strategies
Market must be “segmentable” Segments must show different demand Pricing must be legal Costs of segmentation cannot exceed revenues earned Segmented pricing must reflect real differences in
customers’ perceived value
Segmented Pricing Effectiveness
58
High Quality
Low Quality
Toyota Corolla Altis
Toyota Camry W1
Pricing a Product Line
TimeTime Pricing Pricing
Discount / allowance SegmentedPsychologicalPromotionalInternational
The price is used to say something about the product. Price-quality relationship Reference prices Differences as small as
Re.1 can be important Numeric digits may have
symbolic and visual qualities that psychologically influence the buyer
StrategiesStrategies
Price Adjustment Strategies
Psychological
PricingPricing
Mercs can actually be more important
to many people than their spouses. That is a price they are willing to pay.
Luxury Car!
Psychological Pricing
Discount / allowance SegmentedPsychologicalPromotionalInternational
Temporarily pricing products below the list price or even below cost Contracts, Special-
event pricing Cash rebates Low-interest financing,
warranties Loss leaders
StrategiesStrategies
Price Adjustment Strategies
64
Promotional Cellphone Promotional Cellphone PricingPricing
PPRROOMMOOTTIIOONNAALL
PPRRIICCIINNGG
No Promotional Pricing
Discount / allowance SegmentedPsychologicalPromotionalInternational
Prices charged in a specific country depend on many factors Economic conditions Competitive situation Laws / regulations Distribution system Consumer perceptions Corporate marketing
objectives Cost considerations
StrategiesStrategies
66
Price Adjustment Strategies
IndiaIndia USAUSA
Price Transparency
Select the appropriate pricing strategy. Explain your choice.
Wal-Mart launches a new range of own-label soups.
Cunard launches two new cruise ships.
A cable TV provider moves into a new area and needs to achieve a market share.
Holiday Inns try to fill hotels during winter weekends.
Burger King introduces a new range of value meals.
Nokia launches a new videophone.
What is the need for a Marketing Channel?
Many producers lack the financial resources to carry out direct marketing
In some cases direct marketing simply is not feasible
Producers who do establish their own channels can often earn a greater return by increasing their investment in their main business
Role of Intermediaries
Greater efficiency in making goods available to target markets.
Intermediaries provide Contacts Experience Specialization Scale of operation
Match supply and demand
What does a channel do?
Key functions include: Gather information about potential and current
customers, competitors, and others Develop and disseminate persuasive communications
to stimulate purchasing Reach agreements on price and other terms so that
transfer of ownership or possession can be effected Place orders with manufacturers Acquire funds to finance inventories at different levels in
the marketing channel Assume risk connected with carrying out channel work Provide for the successive storage and movement of
physical products Oversee actual transfer of ownership from one
organization or person to another
What does a channel do?
Breaking bulkReduce number of transactions and create
bulk for transportAccessibility to marketsProvide specialist support service
M
M
M C
C
C
M
M
M
C
C
C
I
Channel intermediaries - Wholesalers
Break down ‘bulk’ buys from producers and sell small quantities to
retailers
Provides storage facilities reduces contact cost between producer and
consumer
Wholesaler takes some of the marketing responsibility e.g sales force, promotions
Wholesaling
Selling and promotingBuying and assortment buildingBulk breakingWarehousingTransportationFinancingRisk bearingMarket informationManagement services and counseling
Wholesaler Marketing Decisions
Target MarketProduct Assortment and ServicesPrice DecisionPromotion DecisionPlace Decision
Channel intermediaries - Agents
Mainly used in international marketsCommission agent - does not take title of the
goods. Secures orders.Stockist agent - hold ‘consignment’ stockControl is difficult due to cultural differencesTraining, motivation, etc are expensive
Channel intermediaries - Retailer
Much stronger personal relationship with the consumer
Hold a variety of productsOffer consumers creditPromote and merchandise productsPrice the final productBuild retailer ‘brand’ in the high street
Types of Retailers
Specialty Store: Narrow product line with a deep assortment.
Department Store Several product lines with each line operated as a separate department
Supermarket Relatively large, low-cost, low-margin, high volume, selfservice operation
Convenience Store Relatively small store located near residential area
Nonstore retailing Categories of nonstore retailing
Direct selling Direct marketing
Telemarketing Television direct-response marketing Electronic shopping
Automatic vending Buying service
Corporate Retailing
Retailing
Marketing DecisionsTarget MarketProduct Assortment and Procurement
Breadth Depth
Product-differentiation Strategy Possibilities Feature exclusive national brands that are not available at
competing retailers Feature mostly private branded merchandise Feature blockbuster distinctive merchandise events Feature surprise or ever-changing merchandise Feature the latest or newest merchandise first Offer merchandise customizing services Offer a highly targeted assortment
Channel intermediaries - Internet
Sell to a geographically disperse marketAble to target and focus on specific
segmentsRelatively low set-up costsUse of e-commerce technology (for
payment, shopping software, etc)Paradigm shift in commerce and
consumption
Six basic channel decisions
Direct or indirect channelsSingle or multiple channelsLength of channelTypes of intermediariesNumber of intermediaries at each levelWhich intermediaries? Avoid intrachannel
conflict
Marketing Flows in the Channel
Channel-Design Decisions
Analyzing Consumer Service NeedsAnalyzing Consumer Service Needs
Setting Channel Objectives & Constraints Setting Channel Objectives & Constraints
ExclusiveDistributionExclusive
DistributionSelective
DistributionSelective
DistributionIntensive
DistributionIntensive
Distribution
Identifying Major AlternativesIdentifying Major Alternatives
Evaluating the Major AlternativesEvaluating the Major Alternatives
The Value-Adds versus Costs of Different Channels
Channel Strategy
•Market factors•Buyer behavior, geographical concentration of customers
•Producer factors•Available resources product mix offered
•Product factors•Product size, bulky or difficult to handle?
•Competitive factors•Competitor’s control over traditional distribution channels)
•Intensive distribution•use of all available markets (e.g. cigarettes)
•Selective distribution•use of a limited number of outlets in a geographical area (e.g. computers)
•Exclusive distribution•only one intermediary is used in a geographic area (e.g. cars sold by only one dealer in each town)
•Conventional channels•Independence of channel members, little or no control (e.g. pricing, brand image)
•Franchise operation•Legal contract in which producer and channel intermediaries agree each a member’s rights and obligations
•Channel ownership•By purchasing retail outlets, producers control their purchasing, production and marketing activities
CHANNEL MANAGEMENT
Channel Behavior and Conflict
The channel will be most effective when: Each member is assigned tasks it can do best. All members cooperate to attain overall channel goals
and satisfy the target market.
Focus on individual goals leads to conflict Horizontal Conflict occurs among firms at the same
level of the channel. Vertical Conflict occurs between different levels of the
same channel.
Channel Management Decisions
SelectingSelecting
MotivatingMotivating
EvaluatingEvaluating
FE
ED
BA
CK
Logistics
Involves entire supply chainIncreasing importance of logistics
Effective logistics is becoming a key to winning and keeping customers
Logistics is a major cost element for most companies The explosion in product variety has created a need
for improved logistics management Information technology has created opportunities for
major gains in distribution efficiency
Goals of Logistics system
Provide a Targeted Level of Customer Service at the Least Cost.
Maximize Profits, Not Sales.
Higher Distribution Costs/ Higher Customer Service Levels
Lower Distribution Costs/ Lower Customer Service Levels
Logistics Functions
Order ProcessingWarehousingInventory ManagementTransportationDesign system to minimize costs of attaining
objectives
Transportation Modes
RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback
RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback
TruckFlexible in routing & time schedules, efficient
for short-hauls of high value goods
TruckFlexible in routing & time schedules, efficient
for short-hauls of high value goods
WaterLow cost for shipping bulky, low-value
goods, slowest form
WaterLow cost for shipping bulky, low-value
goods, slowest form
PipelineShip petroleum, natural gas, and chemicals
from sources to markets
PipelineShip petroleum, natural gas, and chemicals
from sources to markets
AirHigh cost, ideal when speed is needed or to
ship high-value, low-bulk items
AirHigh cost, ideal when speed is needed or to
ship high-value, low-bulk items
Selection consideration
Market segment - must know the specific segment and target customer
Changes during plc - different channels are exploited at various stages of plc
Producer-distributor fit - their policies, strategies and image
Qualification assessment - experience and track record must be established
Distributor training and support
End of Day 3
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