Chapter 23Pricing & Promotion

Promotion• Promotion as a Marketing tool

– An important responsibility of business is to provide appropriate information to help consumers make effective decisions.

– Promotions – is the primary marketing activity used to communicate with prospective consumers. The primary ways are:•Advertising•Personal Selling

Part I - Pricing

Pricing

• List Price – the original price that the seller posts on the product.

• Payment Terms – companies often extend credit to their customers. Invoices are used to tell the customer how much is owed and how long they have to pay. Usually either net 30, or net 60.

Discounts

• Discounts – are reductions from the price of the product to encourage customers to buy.– Trade Discount – manufacturers give

discounts to wholesalers, and retailers– Quantity Discount – when you purchase

items in bulk.– Seasonal Discount – discount offered

when taking delivery of products ahead of time.3

– Cash Discount - 2/10 net, 30

Components of Price

• Selling Price – the actual price customers pay for the product.

• Cost of Goods Sold – is the cost to produce the product (manufacturers), or buy the product (wholesalers & retailers)

• Operating Expenses – are the costs of operating a business.

• Margin or Gross Profit – is the difference between the selling price and the CGS

• Net Profit – is the difference between the selling price and all costs and expenses of the business

Selling Price $10.00

CGS: $4.50

Margin: $5.50

Selling Price $10.00

CGS & Operating Expenses: $7.85

Net Profit: $2.15

The amount added to the CGS to determine the selling price.

CGS is $4.50 and you markup 300%, the new price is ______

The amount the selling price is reduced before an item is sold.

Selling Price is $12.50 and a 25% markdown has been applied, therefore the new price is ______

Pricing Strategies

• Pricing to meet the competition• Pricing to earn a specific profit• Pricing based on Consumer Demand• Pricing to sell more products.

Part II - Promotion

The Communication Process

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Company that

developsPromotion

ReceiverSender Medium

T.V., Radio,Print, Outdoor

Direct Ads. Etc..

The Prospective Customer

Advertising

• Advertising includes all forms of paid promotion that delivers a message to many people at the same time.

• The cost of communicating with each person is very low.

• Each year more money s spent in the U.S. on advertising than on any other type of promotion. (over 100 billion)

• The average company spends less than 2% of total annual sales, while others spend over 20% of their sales.

Media Choices• Radio

– Very popular because of the large number of radios found in homes, businesses, and cars.

– Local and regional advertisers use radio as preferred advertising medium.

– Messages can be changed quickly, immediate impact.

– Appeal to a specific group of consumers (young), time is sold in 60, 30 , or 10 second spots.

– Most expensive time is called drive time because that is when the majority of the population is driving to and from work.

Television• Made available in the last 40 years• Today nearly 100% of homes in the U.S.

have television sets.• Television can communicate both sight

and sound• It is a very creative medium.• One minute of advertising can cost several

hundred thousand dollars, because it reaches an audience of millions of people.

• The cost per person is relatively low.– Cost of producing the advertisement– Air time costs (prime time is the most

expensive time to advertise.

Newspapers• Newspapers are read by over 75% of

all people over the age of 18.– Newspapers are read daily, the

frequency of seeing the advertisement increases.

– Cost of advertising is very inexpensive when compared other types.

– More advertising dollars are spent for newspaper advertising that for any other type of advertising.

Magazines

• Magazine advertising was the first kind of national advertising.– They are specialized publications

which target very specific markets.– Advertising nationally can be very

expensive.– Consumers use magazines as an

important source of information.– Magazines are read by an average

of 6 people. (reach)

Outdoor Advertising• Outdoor advertising is one of the oldest

forms of advertising.– Billboards allow simple, brief

messages to be presented to everyone who passes by.

– Location is very important in this type of medium.

– Thousands can see the message each time that they pass by the billboard each day to and from work.(FREQUENCY)

Direct Advertising

• Direct Advertising are advertisements that are sent directly to potential consumers.– Allows a company to direct it’s

message to specific people through the use of specially selected mailing lists or computer databases.

– Included are catalogs, flyers, “junk mail” etc…

Telemarketing

• Telemarketing is the use of the telephone as a sales and advertising medium. The person calling, reads from a script or outline to inform the person called upon about the product or the service.– Inbound telemarketing – using the 1-800

numbers that customers can use to call and find out about certain information or to place an order.

– Outbound telemarketing – is when the company calls prospective customers and informs them about products etc…

Types of Media

• Publication Advertising – newspapers, magazines, professional journals, and directories.

• Mass Media – radio, network, local, and cable television.

• Direct Advertising – sales letters, catalogs, brochures, inserts, telemarketing, fax messages.

• Display Advertising – window, counter, and aisle displays.

Local Advertisers

• Newspapers, radio, direct mail and outdoor advertising are used by local advertisers.

National Advertisers

• National advertisers spend most of their money on television.

• National Advertisers also use magazine as their primary forms of advertising.

Do it Yourself?

• In house Advertising Department – consists of employees within the company.

• Out Sourced Advertising – the marketing functions are “bought” from a full service agency.

• Timing– Seasonal – when the majority of sales

are concentrated in a few months of the year. (Valentine’s Day, Cruises, Ski Resorts)

Types of Advertising

• A single advertisement may produce temporary results but regular advertising is important for building a steady stream of customers.– Institutional – building the image

of the company (Nike)– Product Advertising –

advertising a specific product.

Personal Selling

• Personal Selling is the promotion through direct personal contact with a customer through a face-to-face meeting (most effective)

• The Four Elements include:– Customer– Business– Product/Service– Salesperson

Studying the Wants of Customers

• Buying Motives – are the reasons people buy.

• Personal Selling requires that the salesperson understand the wants and needs of the consumer knowledge of the products and services.

• Answering Customer Questions– Objections – are concerns or complaints

expressed by the customer. • Suggestion Selling – when salespeople calls

the customers attention to products that were not requested.

• Follow-up – satisfying the needs of the consumer is essential.

Other Promotional Methods

• Coupons – used extensively to promote consumer products. Increase sales for a short period of time. Usually appear in newspaper and magazine advertisements, distributed via direct mail.

• Store Displays – first impressions come from window displays. Stores have a 30-50% increase in the sale of effectively displayed merchandise.

• Self – Service Merchandising – requires that products need not be demonstrated or explained, have well known names and are packaged so that they can be easily handled.

Truth In Advertising• Council for the Better Business Bureau – established

standards to be followed in selling and advertising.– False Advertising – misleading in any material

respect– Full Disclosure – providing all information necessary

for consumers to make an informed decision.– Substantiation – ability to prove that all claims made about products and services in promotions.– Cease and Desist – requires a company to stop using the specific advertising.– Corrective Advertising – the company must use a

specific amount of its advertising budget to run new advertisements correcting the misleading information.