Marketing_Strategy_Session_III

DAY 3Pricing & Promotional Strategies And Marketing Warfare BUSINESS STRATEGIES AND THEIR MARKETING IMPLICATIONS

Pricing Strategies

Learning Goals1. Identify and define the internal factors affecting a firm‘s pricing decisions2. Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value3. 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.  Rent  Tuition • Bribe  Fee  Fare • Salary  Rate  Toll • Wage  Commission  Premium • Interest  Assessment  Retainer • Tax

Factors in Setting Price

Factors to Consider When Setting Price  Market positioning influences Internal Factors pricing strategy  Other pricing objectives: Marketing objectives  Survival Marketing mix  Current profit maximization strategies  Market share leadership  Product quality leadership Costs Organizational considerations

Factors to Consider When Setting Price Internal Factors  Pricing must be carefully coordinated with the other Marketing objectives marketing mix elements  Target costing is often used to Marketing mix support product positioning strategies strategies based on price Costs  Non-price positioning can also be used Organizational considerations

Factors to Consider When Setting Price Internal Factors  Types of costs:  Variable Marketing objectives  Fixed Marketing mix  Total costs strategies  How costs vary at different production levels will influence Costs price setting Organizational  Experience (learning) curve considerations affects price

Factors to Consider When Setting Price  Who sets the price? Internal Factors  Small companies: CEO or top management Marketing objectives  Large companies: Divisional Marketing mix or product line managers strategies  Price negotiation is common in industrial settings where Costs pricing departments may be Organizational created considerations

Factors to Consider When Setting Price  Types of marketsExternal Factors  Pure competition  Monopolistic competition Nature of market and  Oligopolistic competition demand  Pure monopoly Competitors’ costs,  Consumer perceptions of price prices, and offers and value  Price-demand relationship Other environmental  Demand curve elements  Price elasticity of demand

Factors to Consider When Setting Price  Consider competitors‘ costs, prices, and possible reactionsExternal Factors  Pricing strategy influences the nature of competition  Low-price low-margin Nature of market and strategies inhibit competition demand  High-price high-margin Competitors’ costs, strategies attract competition prices, and offers  Benchmarking costs against the Other environmental competition is recommended elements

Factors to Consider When Setting PriceExternal Factors  Economic conditions  Affect production costs  Affect buyer perceptions of Nature of market and price and value demand  Reseller reactions to prices Competitors’ costs, must be considered prices, and offers  Government may restrict or Other environmental limit pricing options  Social considerations may be elements taken into account

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

General Pricing Approaches 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 Cost Rs.20 + Rs.500,000/100,000 = Rs.25 per unit Unit Cost/(1 – Desired Return on Sales) = Markup Price Rs.25 / (1 - .20) = Rs.31.25

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 AnalysisBreakeven analysis Pricing technique used to determine theminimum sales volume a product must generate at a certainprice 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

Equilibrium Price: Supply = Demand Price per flash drive/memory stick Number of flash drives/memory sticks demanded

Elasticity of Demand measure of the sensitivity of demand to changes in prices Inelastic Demand Elastic DemandPrice Price Electricity Recreational P2 P2 Vehicles P1 P1 Q2 Q1 Quantity Q2 Q1 Quantity not price sensitive no real change in demand price sensitive - changes in demand

Marketing Strategy Over the Product Life Cycle INTRODUCTION GROWTH MATURITY DECLINEMarketing strategy Market development Increase market Defend market Maintain efficiency inemphasis share share exploiting productPricing High price, unique Lower price Price at or below Set price to remainstrategy product / cover over time competition profitable or reduce production costs to liquidatePromotion Mount sales Appeal to Emphasize Reinforce loyalStrategy promotion for mass market brand differences, customers; reduce product awareness benefits & loyalty promotion costsPlace strategy Distribute through Build intensive Enlarge Be selective in selective outlets network of distribution distribution, trim outlets network unprofitable outlets

Alternative Pricing Strategies 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 Price Strategy  PenetrationPRICE  Low price  establish product in the market  Elastic demand; Predatory Skimming Price Strategy pricing  SkimmingPRICE  High price; unique product; appeal to early adopters; Prestige pricing  Recovering high R&D Skimming > Penetration costsPRICE  Combination  Move inventory; stimulate D; extend product life

Penetration PricingApplies to large markets with elasticdemand, economies of scale, intensecompetition

Pricing of iPhones

Market SkimmingApplies to new, distinctiveproducts, 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 Razor with cartridges

Price Adjustment Strategies 29 Strategies  Types of discounts  Cash discount  Quantity discount Discount / allowance  Seasonal discount Segmented  Allowances Psychological  Trade-in allowances Promotional  Promotional allowances International

Seasonal Discounts 30

Bundling

(Mixed) Bundling 32

Price Adjustment Strategies Strategies  Types of segmented pricing strategies:  Product-line pricing Discount / allowance  Location pricing Segmented  Time pricing  Also called revenue or yield Psychological management Promotional  Certain conditions must exist International for segmented pricing to be effective

Segmented Pricing Effectiveness 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

Pricing a Product LineHighQuality Toyota Camry W1Low Toyota CorollaQuality Altis 35

Time Pricing

Price Adjustment Strategies Strategies  The price is used to say something about the product.  Price-quality relationship Discount / allowance  Reference prices Segmented  Differences as small as Re.1 can be important Psychological  Numeric digits may have Promotional symbolic and visual qualities that psychologically influence International the buyer

PsychologicalPricing

Psychological PricingMercs can actually be more important to many people thantheir spouses. That is a price they are willing to pay. Luxury Car!

Price Adjustment Strategies Strategies  Temporarily pricing products below the list Discount / allowance price or even below cost  Contracts, Special-event Segmented pricing Psychological  Cash rebates Promotional  Low-interest financing, International warranties  Loss leaders

P Promotional CellphoneRO P Pricing 41M RO IT CI IO NN GAL

No Promotional Pricing

Price Adjustment Strategies 43 Strategies  Prices charged in a specific country depend on many factors Discount / allowance  Economic conditions Segmented  Competitive situation Psychological  Laws / regulations Distribution system Promotional   Consumer perceptions International  Corporate marketing objectives  Cost considerations

India USA

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.

Promotion Strategies

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 Entertain emind R Convince Attract Attention

Advertising and the Product Life Cycle •Only few brands available in its •High involvement / High Risk High space • Can‟t afford to make mistakes • Includes existing users also • Promiscuous users • Ex: Durables / Hospitals • The job of Advertising is to • The job of Advertising is toInvolvement „ENTERTAIN‟ „CONVINCE‟ • Marketing Paradigm: FEEL / DO / • Marketing Paradigm: LEARN / FEEL / FEEL DO •Commoditised Brands •Commoditised Brands • Predominantly speaking to „Own Past • Experienced by „New Brands‟ entering Users an existing market • The job of Advertising is to „REMIND‟ • Talks predominantly to „New users‟ • Marketing Paradigm: DO / FEEL / DO only • The job of Advertising is to „ATTRACT Low ATTENTION‟ • Marketing Paradigm: LEARN / DO / FEEL Low Brand Risk High

Vehicles Television  Direct Mail  Largest reach  High per person cost, but can be  Large variety of channels with carefully targeted and highly varied interests effective.  Expensive  Outdoor Advertising Newspapers  Requires brief messages.  Short life span  Online and Interactive  Possibility to localize Advertising  Easy to coordinate with other  Experts predict sales from online promotional efforts. advertising will double in 2012. Radio  Virals – Kolaveridi?  Latest entrant (after a hiatus)  Low cost  Car commuters – captive audience  Sometimes Intrusive Magazines  Including Consumer publications and trade journals.

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 it Games, 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.

ETHICS IN PROMOTION Puffery and Deception  Puffery – Exaggeration about the benefits or superiority of a product.  Legal because it doesn‘t guarantee anything but raises ethical questions.  May ultimately undermine the credibility of a firm‘s marketing messages.  Deception – Deliberately making promises that are untrue, such as guaranteed weight loss in five days, get-rich-quick schemes for would-be entrepreneurs, or promised return on investments Promotion to Children and Teens  Children and teens have enormous purchasing power.  Children cannot analyze advertising messages.  Can be socially responsible (e.g., healthy products) Promotion in Public Schools and on College Campuses  Schools earn income from in-school advertising, but it is generating backlash.

ETHICS IN PROMOTION

Marketing Warfare

“Out of a thousand men who are remarkable,some for mind, others for boldness or strength ofwill, perhaps not one will combine in himself allthose qualities which are required to raise a manabove mediocrity in the career of a general!”Karl Von Clausewitz

The Four Types of Marketing ‗Warfare‘ Defensive:  Flanking:  Only for the leader.  Uncontested area  Attack yourself is the best  Must have an element of surprise way.  Must have a follow-through  Block strong competitor moves  Guerilla:  Find a segment in the market Offensive small enough to defend.  Only for No.2 or even 3  Never act like the leader.  Find a weakness in the  Develop Allies. leader‘s strength.  Be prepared to enter or exit  E.g.: Long queue. in a short notice.

Marketing Wisdom There‘s no such thing as good marketing strategy in the abstract. Good strategy is bad. And bad strategy is good. It all depends on who is going to use it. The business world is evolving to being ―competitor- driven‖ rather than ―customer-driven‖. Ask yourself what position you occupy in the market place before you apply a strategy. The position is set by the customer: Customer-mind map! Unkept promises undermine morale. The truth will get out!

Marketing Wisdom Without pursuit, no victory can have a great effect: The ―pour-it-on‖ principle. Success breeds success. When you own the pie, you should try to enlarge the pie, rather than try to increase the size of your slice.

“The statesman who, seeing warinevitable, hesitates to strike first isguilty of a crime against his country”:Karl von Clausewitz.

Strategy Development Ways to develop strategy:  ―The ivory-tower think-tank approach‖  ―Get-away-from-the-phones, get-away-from-it-all approach‖  BOTH ARE WRONG! As form follows function, strategy should follow tactics. The use of advertising at the tactical level is CRUCIAL!

Strategy Development At any given point in time, ONE objective should dominate a company‘s strategic plans.

Strategy Development Attack and counterattack: For every action, states a law of physics, there is an equal and opposite reaction. Many marketing commanders draw up battle plans as if the enemy will make no response. NOTHING is FURTHER from the TRUTH! Expect the COUNTERATTACK!

Is Marketing Really War? Marketing is like a football match. You can‘t run straight to score the goal (make more sales!) ―War belongs to the province of business competition, which is also a conflict of human interests and activities‖: Karl von Clausewitz. War without bloodshed? – Sun Tzu Ethical Considerations in Marketing

Responsibilities of the Marketer Marketers must accept responsibility for the consequences of their activities and make every effort to ensure that that their decisions, recommendations and actions function to identify, serve and satisfy all relevant publics: Customers, organizations, and society. Marketers‘ Professional Conduct must be guided by:  The basic rule of professional ethics: Not knowingly to do harm;  The adherence to all applicable laws and regulations;  The accurate representation of their education, training, and experience; and  The active support, practice, and promotion of this Code of Ethics.

Pearls of WisdomHard work = Victory

Pearls of WisdomBattle is not fought at the market place.

Characteristics of a Marketing General Flexibility - to adjust the strategy to the situation. Courage - to make a decision and stand by it. Boldness - to act without hesitation when the time is right. Knowing the facts - in order to formulate strategy from the ground up. Knowing the rules - but internalizing them so they can be forgotten. Lucky - marketing warfare has an element of chance; a good strategy only makes the odds more favorable.

END OF DAY 3

Marketing_Strategy_Session_III

by Nanda Kishore Sethuraman on Dec 25, 2011

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Marketing_Strategy_Session_III — Presentation Transcript