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Target profit pricing A pricing strategy implemented by firms when they have a particular profit goal as their overriding concern. Uses price to stimulate a certain level of sales at a certain profit per unit How do you set a pricing policy? Select the pricing objective, determine demand, estimate costs, analyze competition, select a pricing method, select final price Penetration pricing Set price low to gain immediate sales/market share, scare off competitive entry. Negative impact --> slow recovery of investment/profits (ex: new airline route fares, internet browsers). Favorable when price elasticity exists or if it's a standards issue. Price skimming Set price high to achieve quick/large profits (ex: Intel/s newest Pentium innovations always priced high, Apple and new iPhones). Favorable when talking about technological change, or when entry barriers exist What are strategies used for existing products? Depends on characteristics of product. Perishables (food, services (events, concerts, sports games, airline flights) short time demand) need a flexible pricing strategy. Distinctive products: higher price for high-quality, varies on product class (gas vs watches) and depends on consumer perception (Perrier vs Ozarka). Nature of competition: generally if competition is high, prices are lower. In general, price decreases as product moves from growth -> Maturity -> Decline Perceived value pricing Basing price on perceived value to customers, often used in conjunction with heavy promotion Going rate/competitive pricing Pricing according to what competition is doing. Used for commodities (gas prices, fruits and veggies) Break even point Quantity of output at which total revenue equals total cost, assuming a certain selling price. Total fixed costs/(price - unit variable cost) Promotional Pricing Loss-leader pricing, special-event pricing, cash rebates, low-interest financing, longer payment terms, warranties and service contracts, psychological discounting (deceptive reference prices) Discriminatory pricing to consumers Legal as long as it doesnt substantially hinder competition. Ex: Victoria Secret charges more in Orange County, CA than in Boone County, MO. Beef prices are higher on west coast than in Mid-MO What does it take for Discriminatory Pricing to work? Market must be segmentable and segments must have different intensities of demand, members in low-priced segment must not be able to sell product to high-priced segment (ex: student tickets), cost of servicing different segments must not exceed profit generated by discrimination, must not breed resentment or ill will, must be legal Intensive distribution strategy Provide offering in as many outlets as possible, the objective: maximize exposure in geographical area (Ex: gum, cigarettes), get maximum coverage and no sales effort at point of purchase (rely on consumers seeing product and easy buying opportunity) but usually lower priced items (Ex: Hershey's bar, not Godiva chocolates) Selective distribution strategy Provide offering in selective (only some) outlets, the objective: restrict distribution in geographical area to intermediaries based on performance capability (Ex: Compaq computers, Swatch watches), used when there is some need for coverage and sales effort (Ex: Compaq's at Fry's Computerland, but not Sears) Exclusive distribution strategy Using only on outlet in a geographic area, the objective: maximize "push" of a distributer (Ex: Ferraris, Rolex watches, Steinway pianos), used with maximum sales effort and minimum coverage, exclusive distributor may only carry one product line (Ex: Lazy-Boy furniture) and product exclusivity provides added motivation if carrying multiple products Contractual Vertical Marketing system Contract specifies how members will operate. Retailer cooperative: small retailers establish and operate a wholesale warehouse. Voluntary chain: wholesalers contract with interested retailers to provide services to them. Franchising: franchisor provides trademark and assistance in return of payments to franchise. Types of nonstore retailing Direct selling, telemarketing, automatic vending, direct marketing. Direct selling Personal contact between a salesperson and a consumer away from a retail store. Door-to-door involves occurs after other initial contact. Party plan is where host or hostess invites people to "party" with a sales presentation Direct marketing Use of advertising to contact consumers who, in turn, purchase products without visiting a retail store. (Direct mail, catalog retailing, televised shopping, online retailing) Pros of internet retailing Standardized and uniquely branded products are easier to buy, consumers can conveniently browse the entire assortment of get product information, consumers can access the e-retailer from anywhere with internet service, and its open 24/7/365 Cons of internet retailing Lack of trial, lack of interpersonal trust, lack of instant gratification, loss of privacy and security, lack of in-store shopping experience, high shipping and handling costs Integrated Marketing Communications Concept of designing marketing activities - advertising, personal selling (in-person and telemarketing), sales promotion (coupons, samples, contests), and public relations (publicity, lobbying, etc.)- to provide a consistent message across all audiences Promotional Mix Combo of one or more promotional elements to integrate marketing communications. Factors affecting it: target audience (stakeholders other than consumers, channel members, consumers), stage of product life cycle (if introduction: to inform potential customers, fuel primary demand and personal selling to channel members. growth: to persuade and differentiate the brand. maturity: to remind customers. decline: limited sales promo, not much money spent on it), product characteristics (high complexity and purchase risk means personal selling is needed instead of advertising), buyer decision stage, distribution channel strategy Advertising in stages of buying decision Prepurchase: advertising to inform, promotion to induce trial (ex: food samples). Purchase: personal selling to close a sale, use coupons, p.o.p. displays Postpurchase: personal selling and advertising to reduce anxiety Channel strategies Push strategy (target channel members): personal selling (to inform/gain support), sales promotion (contests to motivate, discount allowances to support channel effort) Pull strategy (target consumers/end users): advertising, examples in conjunction with push strategy (ex: Nicoderm's "Ask your doctor...") AIDA - Attention Get the attention of the target market. Break through clutter by: reaching and focusing on target market, use right choice of media and message, and a distinctive and relevant message AIDA - Interest Generate interest in what your selling. Focus on benefits, not features (Ex: Zip past cars and gas stations with the Mustang's powerful, yet fuel efficient engine). Talk directly to the needs of target market. (Gatorade's "thirst quenching" need, Folger's "reason to wake up" need, Got Milk?'s having it available need) AIDA - Desire Build desire by: using logic to show benefits and uses of product/service (Ex: *69 call service), use emotion (Humor in MIller Lite ads build desire to have fun. Sex in Calvin Klein ads, Fear in Head and Shoulders, Rogain, other personal care products) AIDA - Action Get target market to act either directly (buy/try the product, send for free info kit, etc.) or indirectly (encode a thought/image so people remember product, have positive image, and associate product with benefit). Always call for action ("Can I wrap this up for you?" "Would you like the blue or green one?" "Next time you call long distance, remember to dial ...") Consumer sales promotion tools Coupons, rebates (rarely used), premiums, contests and sweepstakes, point-of-purchase, sampling (growing use due to effectiveness) Alternative vehicles for promotion Product placement and "drop-ins" (the Hot pitch of the day brought to you by...) Types of advertising Informative (build primary demand), Persuasive (build selective demand), Comparison (compares one brand to another), Reminder (keeps consumers thinking about a product) The Five M's of Advertising Mission (sales goals, advertising objectives), Money (factors to consider: stage in PLC, market share and consumer base, competition and clutter, advertising frequency, product sustainability), Message (Message generation, message evaluation and selection, message execution, social responsibility review), Media (Reach, frequency, impact, major media types, specific media vehicles, media timing, geographical media allocation), Measurement (communication impact, sales impact) What makes a strong brand? Vision of the mass market (constant monitoring, MR of changing tastes --> Ex: Pampers), managerial persistence (committing effort over long time periods), financial commitment (strong brands require high marketing costs b/c of new product development, marketing research and advertising), relentless innovation(products must be updated constantly --> Gillette) and asset leverage (using strong position in one category to establish leadership in another related category --> Coca Cola) Brand Management challenges Brand proliferation (growth in new competitors and line extensions), media fragmentation/decreased ad efficiency (growth in # of stations and ad clutter, plus technologies to avoid advertising (remotes, TiVO)), smarter/variety-seeking consumers (more information available (Consumer reports, websites), successful new product development (consumers more trusting of new brands and line extensions --> Tide) Establish brand identity Create brand salience: brand awareness through linking brand elements to product categories (usage situations), important to have brand awareness in variety of conditions, depth of brand awareness (the likelihood and ease that your brand comes to mind), breadth of brand awareness (range of purchase and usage situations where brand comes to mind) Design brand meaning Link desired tangible/intangible brand associations with product characteristics, defining brand performance is paramount (primary ingredients and supplementary features, product reliability, durability and serviceability, service effectiveness, efficiency and empathy, style and design, price) Elicit proper brand imagery Abstract associations with brand intangibles, brand meeting customer's social or psychological needs, personality, values of brand Create active, loyal relationship with customers Brand resonance: psychological bond between customer and brand, behavioral loyalty (how much/often is brand purchased), attitudinal attachment (strong, personal attachment), sense of community (desire to affiliate with others associated with brand), active engagement (willingness to invest resources outside of purchase) Trading up (Upmarket) Adding a higher priced product to a line to attract a higher-income market and improve the sales of existing lower-priced products Trading down (Downmarket) Adding a lower priced item to a line of prestige products to encourage purchases from people who cannot afford the higher-priced product, but want the status Retail selling A retail salesperson sells goods or services to consumers for their personal, non-business use Direct selling Face to face sales to consumers, typically in their homes, who use the products for their non-business personal use Selling for a wholesaler For resale, for use in producing other goods, for use within an organization Selling for a manufacturer Working for the firm who manufactures the product, usually one of the most prestigious jobs to hold Three levels of relationship marketing Transaction selling: customers are sold to and not contacted again Relationship selling: the seller contacts customers after the purchase to determine if they are satisfied and have future needs Partnering: the seller works continually to improve its customers' operations, sales, and profits Consultative selling Process of helping the customer achieve strategic short and long-term goals through the use of the sellers goods and/or services. Highly interactive dialogue between a salesperson and a customer, a balanced exchange of information What are the three roles of consultative selling? Team leader, business consultant, long-term ally Advertising A paid form of communication from an identifiable source, delivered through a communication channel, and designed to persuade the receiver to take some action, now or in the future Personal selling The two way flow of communication between a buyer and a seller that is designed to influence the buyer's purchase decision Sales promotions Special incentives or excitement-building programs that encourage the purchase of a product or service, such as coupons, rebate, contests, free samples, and point of purchase displays Direct marketing Sales and promotional techniques that deliver promotional materials individually to potential customers Public relations The organizational function that manages the firm's communications to achieve a variety of objectives, including building and maintaining a positive image, handling or heading off unfavorable stories or events, and maintaining positive relationships with the media Objective-and-task method An IMC budgeting method that determines the cost required to undertake specific tasks to accomplish communication objectives; process entails setting objectives, choosing media, and determining costs Integrated Marketing Communications program elements Advertising, personal selling, sales promotion, public relations, direct marketing, electronic media Rule-of-thumb methods Budgeting methods that base the IMC budget on either the firm's share of the market in relation to competition, a fixed percentage of forecasted sales, or what is left after other operating costs and forecasted sales have been budgeted Competitive parity A firm's strategy of setting prices that are similar to those of major competitors Percentage of sales A method of setting an IMC budget based on a fixed percentage of forecasted sales Affordable budgeting A method of setting an IMC budget in which the firm first forecasts their sales and expenses, excluding IMC. The difference between the forecast sales and expenses plus desired profit is reserved for the IMC budget Frequency Measure of how often the audience is exposed to a communication within a specified period of time Reach Measure of consumers' exposure to marketing communications; the percentage of the target population exposed to a specific marketing communication at least once Gross Rating Points (GRP) Measure used for various media advertising (print, radio or television): GRP = reach x advertising. When comparing GRP's, the must refer to the same medium Web tracking software Used to assess how much time viewers spend on particular web pages and the number of pages they view Click-through tracking A way to measure how many times users click on banner advertising on web sites Online couponing A promotional web technique in which consumers print a coupon directly from a site and then redeem the coupon in a store Online referring A promotional web technique in which consumers fill out an interest or order form and are referred to an offline dealer or firm that offers the product or service of interest Search Engine Marketing (SEM) A tool that allows firms to show up in searches based on the keywords potential customers use Click-Through Rate (CTR) An online measure of reach, CTR equals the number of times a potential customer clicks on an ad divided by the number of impressions Impressions The number of times an online ad appears in front of a user Relevance Describes how useful an ad message is to a consumer doing an Internet search Media planning The process of evaluating and selecting the media mix that will deliver a clear, consistent, compelling message to the intended audience Media mix The combination of the media used and the frequency of advertising in each medium Media buy The actual purchase of airtime or print pages Mass media Channels that are ideal for reaching large numbers of anonymous audience members, include national newspapers, magazines, radio and television Niche media Channels that are focused and generally used to reach narrow segments, often with unique demographic characteristics or interests Television ads Has wide reach, incorporates sound and video. Has high cost, cluttered airways, more potential spillover. Radio ads Relatively inexpensive, can be selectively targeted, has wide range. No video limits presentation, consumers give less focused attention than TV, exposure periods are short Magazines ads Are very targeted, subscribers pass along to others. Are relatively inflexible, have long read times Newspapers ads Are flexible, timely, and you can localize your advertisements. Can be expensive in some markets, involve potential loss of control over placement, advertisements have short life spans Internet ads Can be linked to detailed content, highly flexible and interactive, allows for specific targeting. Costs not easily comparable to other media, is becoming cluttered, blocking software prohibits delivery Outdoor ads Relatively inexpensive, offers opportunities for repeat exposure, is flexible. Not easily targeted, has placement problems in some markets, and exposure time is very short Direct mail ads Highly targeted, flexible, and allows for personalization. Is relatively expensive, is a cluttered environment, and is often considered junk mail Advertising schedule The specification of the timing and duration of advertising Continuous advertising schedule Runs steadily throughout the year and therefore is suited to products and services that are consumed at relatively steady rates and that require a steady level of persuasive or reminder advertising (Ex: Proctor & Gamble continuously advertise Tide) Flighting advertising schedule An advertising schedule implemented in spurts, with periods of heavy advertising followed by periods of no advertising (Ex: tennis racquets, which are usually heavily advertised just before summer) Pulsing advertising schedule Combines the continuous and flighting schedules by maintaining a base level of advertising but increasing advertising intensity during certain periods (Ex: IKEA advertises furniture throughout the year, but spikes its expenses to promote school supplies in August) Pretesting Assessments performed before an ad campaign, is implemented to ensure that the various elements are working in an integrated fashion and doing what they are intended to do Tracking Includes monitoring key indicators, such as daily or weekly sales volume, while the advertisement is running to shed light on any problems with the message or the medium Posttesting The evaluation of an IMC campaign's impact after it has been implemented How can measuring sales impact be challenging? There are many influences other than advertising on consumers' choices, purchase behavior, and attitudes. They include the level of competitors' advertising, economic conditions in the target market, sociocultural changes, and even the weather Cause-related marketing Commercial activity in which businesses and charities form a partnership to market an image, a product, or a service for their mutual benefit; a type of promotional campaign (Ex: TOMS shoes) Event sponsorship Popular PR tool, occurs when corporations support various activities (financially or otherwise), usually in the cultural or sports and entertainment sector Sales management Involves the planning, direction, and control of personal selling activities, including recruiting, selecting, training, motivating, compensating, and evaluating, as they apply to the sales force Company sales force Comprised of people who are employees of the selling company and are engaged in the selling process Independent agents Sales people who sell a manufacturer's products on an extended contract basis but are not employees of the manufacturer; also known as manufacturer's representatives or rep's Order getter A sales person whose primary responsibilities are identifying potential customers and engaging those customers in discussions to attempt to make a sale Order taker A sales person whose primary responsibility is to process routine orders or reorders or rebuys for products Sales support personnel Employees who enhance and help with a firm's overall selling effort, such as by responding to the customer's technical questions or facilitating repairs Selling teams Combinations of sales specialists whose primary duties are order getting, order taking, or sales support but who work together to service important accounts Six price adjustment strategies Cash discount, quantity discount, functional discount, seasonal discount, trade-in allowances, promotional allowances Cash discount A price reduction to buyers who pay their bills promptly Quantity discount Price reduction to buyers who buy large volumes Functional discount (trade discount) Price reductions given for turning in an old item when buying a new one Promotional allowances Payments or price reductions to reward dealers for participating in advertising and sales support programs Customer-segment pricing Different customers pay different prices for the same product or service Product form pricing Different versions of the product are priced differently, but not according to differences in their costs Location pricing A company charges different prices for different locations, even though the cost of offering each location is the same Time pricing A firm varies its prices by the season, the month, the day, and even the hour FOB-origin pricing A practice that means the goods are placed free on board a carrier, meaning the title and responsibility to pay for shipping passes onto the customer Basing point pricing Seller selects a given city as a "basing point" and charges all customers the freight cost from that city to the customer location, regardless of the city where the goods are actually shipped Uniform delivered pricing Company charges the same price plus freight to all customers, regardless of their location, and the freight cost is the average Zone pricing Company sets up two or more zones, all customers within a zone pay the same total price, the farther away the zone, the more expensive the price Freight absorption pricing Seller absorbs all or part of the actual freight charges in order to get the desired business Co-Branding Occurs when two established brand names of different companies are used on the same product