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Principles of Marketing
Terms in this set (290)
2. Sales Promotion
3. Personal Selling (door-to-door or tupperware party/avon party)
- highly effective
- alive and healthy even in internet age
4. Publicity (a 3rd party writing their opinion about something)
- highly effective
What does the promotion function include?
- Marketers love promotion (advertising) so lots of money is spent on advertising
- Marketers think the more we spend the better
- Advertising is believed to be a vital function to the discipline
What are the traditional views held by marketing managers?
1. 57% said Increase Sales Volume
2. 26% said Increase Market Share
3. 35% said Higher Awareness Levels
4. 11% Increase Brand Image
No marketer/advertiser mentioned shareholder value by increasing cash flow. The factors above have no causal relationship with a firms ability to generate lots of cash. This is why finance/accounts look at marketers with great suspicion. Aiming for these factors without the cash flow side is doing a disservice to the firm.
When you ask marketers what they are trying to achieve they say the objectives are....(as a study found). What objective is missing here/why is this view shortsighted?
increase cash flow!
Real promotion function should be to...
1. Accountants are SUSPICIOUS
They have the greatest suspicion of promotion of all the Ps because it is the most expensive and the most difficult to link to cash flow. How can I prove that an ad will generate a certain amount of money? I can't. I can only say brand awareness has gone up.
Accounts have the following view:
Promotion = COST
Promotion ≠ INVESTMENT
This is because while you can get finance/accounting people to estimate financial implications of promotion, this remains an estimate. However we have to accept that without advertising nobody would know about my brand and I wouldn't make any sales. So it needs to be accepted that if i don't invest in advertising, my business won't make any money even if advertising is not directly attributable to cash flow other than an estimate made by finance people.
What are the traditional views of promotions held by accountants and why? (2)
Need to find the likely financial implications of a campaign by drawing upon the firms finance and accounting people, as it is their role to provide this service.
What is a way we can remove the suspicion of promotions?
1. It ignores the long term effects of marketing spending. A strong brand has taken many years to build and needs many campaigns. To suggest that a campaign is a cost is also to suggest the brand outcome is a cost. However this logic doesn't work because a brand is the biggest asset a firm has...it ignores the brand position of a firm in a market.
2. It would assume that if promotion is a cost, I would be better off eliminating all promotion (because implicit in the definition of costs is that costs are unwanted). It is assumed that if advertising is stopped, sales will stay at a certain level. However it is a fact that if I stop advertising, my sales won't stay...they will decline. (even with an established firm like Nike)
What are two principle weaknesses associated with this "promotions are costs" view held by accountants?
Promotion should be evaluated in terms of its effects on shareholder value- its impact on the net present value of future cash flow (NPV).
So what is a responsible view of promotion?
3. Timing (bring forward payments because a dollar today is more valuable than a dollar tomorrow)
4. Reduce Risk
How can NPV of cash flow be increased? (4 drivers of cash flow again)
Consider the effect of promotion on the 4 drivers of cash flow
How can we talk about how promotion affects cash flow?
- Creates the ability for a firm to charge price premium
- Stimulate interest and thus get more sales
How does promotion affect the level of cash flow?
- Creating higher levels of awareness which in turn creates higher and quicker market penetration which results in more people starting to buy today rather than tomorrow.
How does promotion affect the timing of cash flow?
- Advertising can create loyalty
How does promotion affect the durability/sustainability of cash flow?
- Building barriers to entry, if I have huge advertising campaigns then that builds barriers for new enters - puts competitors off. Don't want to enter a market that is owned. This means I am more secure in my position and have less risk which will reduce cost of capital from bank.
How does promotion reduce risk of cash flow?
1. Rational Model
2. Image Model
Two basic approaches to all good advertisements?
Recommended textbook explanations
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Principles of Economics
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