chapter 14: promotion — introduction to integrated marketing communications
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Chapter 14: Promotion — Introduction to Integrated Marketing Communications. Price. D 1. D 2. 0. Quantity. A. To be more inelastic. Promotion and the Demand Curve. - PowerPoint PPT PresentationTRANSCRIPT
For use only with Perreault and McCarthy texts.© The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill
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
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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.