Module 4 course 1


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Module 4 course 1

  1. 1. REFER NOTES PDF The Product Life Cycle (PLC) is based upon the biological life cycle. CHARACTERISTICS OF PLC Products have a limited life, Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller, Products require different marketing, financing, manufacturing, purchasing, and human resource strategies in each life cycle stage. Strategies for the differing stages of the Product Life Cycle.  Introduction.  The need for immediate profit is not a pressure. The product is promoted to create awareness. If the product has no or few competitors, a skimming price strategy is employed. Limited numbers of product are available in few channels of distribution.  Growth.  Competitors are attracted into the market with very similar offerings. Products become more profitable and companies form alliances, joint ventures and take each other over. Advertising spend is high and focuses upon building brand. Market share tends to stabilise.  Maturity.  Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilise. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and use a greater variety of media.  Decline.  At this point there is a downturn in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing
  2. 2. marketing spend and cost cutting.The four main stages of a products life cycle and the accompanying characteristics are: Stage Characteristics 1. costs are very high 2. slow sales volumes to start1. Market 3. little or no competitionintroduction stage 4. demand has to be created 5. customers have to be prompted to try the product 6. makes no money at this stage 1. costs reduced due to economies of scale 2. sales volume increases significantly 3. profitability begins to rise2. Growth stage 4. public awareness increases 5. competition begins to increase with a few new players in establishing market 6. increased competition leads to price decreases 1. costs are lowered as a result of production volumes increasing and experience curve effects3. Maturity stage 2. sales volume peaks and market saturation is reached 3. increase in competitors entering the market 4. prices tend to drop due to the proliferation of competing
  3. 3. products 5. brand differentiation and feature diversification is emphasized to maintain or increase market share 6. Industrial profits go down 1. costs become counter-optimal 2. sales volume decline4. Saturation anddecline stage 3. prices, profitability diminish 4. profit becomes more a challenge of production/distribution efficiency than increased salesLimitations1The PLC model offers some degree of usefulness to marketing managers, in that it is based on factualassumptions. Nevertheless, it is difficult for marketing management to gauge accurately where a productis on its PLC graph. A rise in sales per se is not necessarily evidence of growth. A fall in sales per se doesnot typify decline. Furthermore, some products do not (or to date, at the least, have not) experience adecline. Coca Cola and Pepsi are examples of two products that have existed for many decades, but arestill popular products all over the world. Both modes of cola have been in maturity for some years.Another factor is that differing products would possess different PLC "shapes". A fad product would holda steep sloped growth stage, a short maturity stage, and a steep sloped decline stage. A product such asCoca Cola and Pepsi would experience growth, but also a constant level of sales over a number ofdecades. It can probably be said that a given product (or products collectively within an industry) mayhold a unique PLC shape, and the typical PLC model can only be used as a rough guide for marketingmanagement. This is why its called the product life cycle. The duration of PLC stages is unpredictable. Itis not possible to predict when maturity or decline will begin. Strict adherence to PLC can lead acompany to misleading objectives and strategy prescriptions.OR Problems with Product Life Cycle. In reality very few products follow such a prescriptive cycle. The length of each stage varies enormously. The decisions of marketers can change the stage, for example from maturity to decline by price-cutting. Not all products go through each stage. Some go from introduction to decline. It is not easy to tell which stage the product is in. Remember that PLC is like all other tools. Use it to inform your gut feeling.
  4. 4. product mixA range of associated products that yields larger sales revenue when marketed together than ifthey were marketed individually or in isolation from others. Product mix is a combination ofproducts manufactured or traded by the same business house to reinforce their presence in themarket, increase market share and increase the turnover for more profitability. Normally theproduct mix is within the synergy of other products for a medium size organization. Howeverlarge groups of Industries may have diversified products within core competency. Larsen &Toubro Ltd, Godrej, Reliance in India are some of the examples. New product developmentnew product development (NPD) is the term used to describe the complete process of bringinga new product to market. A product is a set of benefits offered for exchange and can be tangible(that is, something physical you can touch) or intangible (like a service, experience, or belief).There are two parallel paths involved in the NPD process: one involves the ideageneration, product design and detail engineering; the other involves market researchand marketing analysis. Companies typically see new product development as the first stage ingenerating and commercializing new products within the overall strategic process of product lifecycle management used to maintain or grow their market share.The processStage 1: Idea generationNew product ideas have to come from somewhere. But where do organisations get their ideas forNPD? Some sources include:• Within the company i.e. employees• Competitors.• Customers• Distributors, Supplies and others.Stage 2: Idea ScreeningThis process involves shifting through the ideas generated above and selecting ones which arefeasible and workable to develop. Pursing non feasible ideas can clearly be costly for thecompany.
  5. 5. Stage 3: Concept Development and TestingThe organisation may have come across what they believe to be a feasible idea, however, theidea needs to be taken to the target audience. What do they think about the idea? Will it bepractical and feasible? Will it offer the benefit that the organisation hopes it will? or have theyoverlooked certain issues? Note the idea and concept is taken to the target audience not aworking prototype at this stage.Stage 4: Marketing Strategy and DevelopmentHow will the product/service idea be launched within the market? A proposed marketing strategywill be written laying out the marketing mix strategy of the product, the segmentation, targetingand positioning strategy sales and profits that are expected.Stage 5: Business AnalysisThe company has a great idea, the marketing strategy seems feasible, but will the product befinancially worth while in the long run? The business analysis stage looks more deeply into thecashflow the product could generate, what the cost will be, how much market shares the productmay achieve and the expected life of the product.Stage 6: Product DevelopmentFinally it is at this stage that a prototype is finally produced. The prototype will clearly runthrough all the desired tests, and be presented to the target audience to see if changes need to bemade.Stage 7: Test MarketingTest marketing means testing the product within a specific area. The product will be launchedwithin a particular region so the marketing mix strategy can be monitored and if needed, bemodified before national launch.Stage 8: CommercializationIf the test marketing stage has been successful then the product will go for national launch. Thereare certain factors that need to be taken into consideration before a product is launchednationally. These are timing, how the product will be launched, where the product will belaunched, will there be a national roll out or will it be region by region?ORThere are several stages in the new product development process(1) Idea Generation: Ideas for new products can be obtained from customers (employing userinnovation), the companys R&D department, competitors, focus groups, employees, salespeople,corporate spies, trade shows, or through a policy of Open Innovation.(2) Idea Screening: The object is to eliminate unsound concepts prior to devoting resources tothem. The screeners must ask at least three questions: Will the customer in the target market
  6. 6. benefit from the product?, Is it technically feasible to manufacture the product?, Will the productbe profitable when manufactured and delivered to the customer at the target price?(3) Concept Development and Testing: Develop the marketing and engineering details and test theconcept by asking a sample of prospective customers what they think of the idea(4) Business Analysis: Estimate likely selling price based upon competition and customer feedback,estimate sales volume based upon size of market and estimate profitability and breakeven point.(5) Beta Testing and Market Testing: Produce a physical prototype or mock-up. Test the product(and its packaging) in typical usage situations. Conduct focus group customer interviews orintroduce at trade show. Make adjustments where necessary. Produce an initial run of the productand sell it in a test market area to determine customer acceptance(6) Technical Implementation: Involves managerial planning and focusing on feedback. Makenecessary adjustments to ensure product is ready for launch.(7) Commercialization: Launch the product. Produce and place advertisements and otherpromotions. Fill the distribution pipeline with product. Critical path analysis is most useful at thisstagePricingPricing is the process of determining what a company will receive in exchange for its products. Pricingfactors are manufacturing cost, market place, competition, market condition, and quality of product.Pricing is also a key variable in microeconomic price allocation theory. Pricing is a fundamental aspectof financial modeling and is one of the four Ps of the marketing mix. The other three aspects are product,promotion, andplace. Price is the only revenue generating element amongst the four Ps, the rest being costcenters.Pricing is the manual or automatic process of applying prices to purchase and sales orders, based onfactors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, priceprevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others.Automated systems require more setup and maintenance but may prevent pricing errors. The needs of theconsumer can be converted into demand only if the consumer has the willingness and capacity to buy theproduct. Thus pricing is very important in marketing.Pricing StrategiesThere are many ways to price a productPremium Pricing.Use a high price where there is a uniqueness about the product or service. This approach is used where a asubstantial competitive advantage exists. Such high prices are charge for luxuries such as Cunard Cruises,Savoy Hotel rooms, and Concorde flights.Penetration Pricing.The price charged for products and services is set artificially low in order to gain market share. Once thisis achieved, the price is increased. This approach was used by France Telecom and Sky TV.Economy Pricing.
  7. 7. This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarketsoften have economy brands for soups, spaghetti, etc.Price Skimming.Charge a high price because you have a substantial competitive advantage. However, the advantage is notsustainable. The high price tends to attract new competitors into the market, and the price inevitably fallsdue to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Onceother manufacturers were tempted into the market and the watches were produced at a lower unit cost,other marketing strategies and pricing approaches are implemented.Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricingpolicies/strategies. They form the bases for the exercise. However there are other important approachesto pricing.Psychological Pricing.This approach is used when the marketer wants the consumer to respond on an emotional, rather thanrational basis. For example price point perspective 99 cents not one dollar.Product Line Pricing.Where there is a range of product or services the pricing reflect the benefits of parts of the range. Forexample car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.Optional Product Pricing.Companies will attempt to increase the amount customer spend once they start to buy. Optional extrasincrease the overall price of the product or service. For example airlines will charge for optional extrassuch as guaranteeing a window seat or reserving a row of seats next to each other.Captive Product PricingWhere products have complements, companies will charge a premium price where the consumer iscaptured. For example a razor manufacturer will charge a low price and recoup its margin (and more)from the sale of the only design of blades which fit the razor.Product Bundle Pricing.
  8. 8. Here sellers combine several products in the same package. This also serves to move old stock. Videosand CDs are often sold using the bundle approach.Promotional Pricing.Pricing to promote a product is a very common application. There are many examples of promotionalpricing including approaches such as BOGOF (Buy One Get One Free).Geographical Pricing.Geographical pricing is evident where there are variations in price in different parts of the world. Forexample rarity value, or where shipping costs increase price.Value Pricing.This approach is used where external factors such as recession or increased competition force companiesto provide value products and services to retain sales e.g. value meals at McDonalds.Pricing strategiesCompetition-based pricingSetting the price based upon prices of the similar competitor products.Competitive pricing is based on three types of competitive product:Products have lasting distinctiveness from competitors product. Here we can assumeThe product has low price elasticity.The product has low cross elasticity.The demand of the product will rise.
  9. 9. Products have perishable distinctiveness from competitors product, assuming the productfeatures are medium distinctiveness.Products have little distinctiveness from competitors product. assuming that:The product has high price elasticity.The product has some cross elasticity.No expectation that demand of the product will rise.Cost-plus pricingCost-plus pricing is the simplest pricing method. The firm calculates the cost of producing theproduct and adds on a percentage (profit) to that price to give the selling price. This methodalthough simple has two flaws; it takes no account of demand and there is no way of determiningif potential customers will purchase the product at the calculated price.This appears in 2 forms, Full cost pricing which takes into consideration both variable and fixedcosts and adds a % markup. The other is Direct cost pricing which is variable costs plus a %markup, the latter is only used in periods of high competition as this method usually leads to aloss in the long run.Creaming or skimmingSelling a product at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’the market. Usually employed to reimburse the cost of investment of the original research intothe product: commonly used in electronic markets when a new range, such as DVD players, arefirstly dispatched into the market at a high price. This strategy is often used to target "earlyadopters" of a product or service. These early adopters are relatively less price-sensitive becauseeither their need for the product is more than others or they understand the value of the productbetter than others. In market skimming goods are sold at higher prices so that fewer sales areneeded to break even.This strategy is employed only for a limited duration to recover most of investment made tobuild the product. To gain further market share, a seller must use other pricing tactics such aseconomy or penetration. This method can come with some setbacks as it could leave the productat a high price to competitorsLimit priceA limit price is the price set by a monopolist to discourage economic entry into a market, and isillegal in many countries. The limit price is the price that the entrant would face upon entering aslong as the incumbent firm did not decrease output. The limit price is often lower than theaverage cost of production or just low enough to make entering not profitable. The quantityproduced by the incumbent firm to act as a deterrent to entry is usually larger than would be
  10. 10. optimal for a monopolist, but might still produce higher economic profits than would be earnedunder perfect competition.The problem with limit pricing as strategic behavior is that once the entrant has entered themarket, the quantity used as a threat to deter entry is no longer the incumbent firms bestresponse. This means that for limit pricing to be an effective deterrent to entry, the threat must insome way be made credible. A way to achieve this is for the incumbent firm to constrain itself toproduce a certain quantity whether entry occurs or not. An example of this would be if the firmsigned a union contract to employ a certain (high) level of labor for a long period of time.Loss leaderA loss leader or leader is a product sold at a low price (at cost or below cost) to stimulate otherprofitable sales.Market-oriented pricingSetting a price based upon analysis and research compiled from the targeted market. This meansthat marketers will set prices depending on the results from the research. For instance if thecompetitors are pricing their products at a lower price, then its up to them to either price theirgoods at an above price or below, depending on what the company wants to achievePenetration pricingSetting the price low in order to attract customers and gain market share. The price will be raisedlater once this market share is gained.[2]Price discriminationsame product in different segments to the market. For example, this can be for different ages orfor different opening times, such as cinema tickets.Premium pricingPremium pricing is the practice of keeping the price of a product or service artificially high inorder to encourage favorable perceptions among buyers, based solely on the price. The practiceis intended to exploit the (not necessarily justifiable) tendency for buyers to assume thatexpensive items enjoy an exceptional reputation or represent exceptional quality and distinction.Predatory pricingAggressive pricing intended to drive out competitors from a market. It is illegal in some places.Contribution margin-based pricing
  11. 11. Contribution margin-based pricing maximizes the profit derived from an individual product,based on the difference between the products price and variable costs (the products contributionmargin per unit), and on one’s assumptions regarding the relationship between the product’sprice and the number of units that can be sold at that price. The products contribution to totalfirm profit (i.e., to operating income) is maximized when a price is chosen that maximizes thefollowing: (contribution margin per unit) X (number of units sold)..Psychological pricingPricing designed to have a positive psychological impact. For example, selling a product at $3.95or $3.99, rather than $4.00.Dynamic pricingA flexible pricing mechanism made possible by advances in information technology, andemployed mostly by Internet based companies. By responding to market fluctuations or largeamounts of data gathered from customers - ranging from where they live to what they buy tohow much they have spent on past purchases - dynamic pricing allows online companies toadjust the prices of identical goods to correspond to a customer’s willingness to pay. The airlineindustry is often cited as a dynamic pricing success story. In fact, it employs the technique soartfully that most of the passengers on any given airplane have paid different ticket prices for thesame flight.Price leadershipAn observation made of oligopic business behavior in which one company, usually the dominantcompetitor among several, leads the way in determining prices, the others soon following.Target pricingPricing method whereby the selling price of a product is calculated to produce a particular rate ofreturn on investment for a specific volume of production. The target pricing method is used mostoften by public utilities, like electric and gas companies, and companies whose capitalinvestment is high, like automobile manufacturers.Target pricing is not useful for companies whose capital investment is low because, according tothis formula, the selling price will be understated. Also the target pricing method is not keyed tothe demand for the product, and if the entire volume is not sold, a company might sustain anoverall budgetary loss on the product.Absorption pricingMethod of pricing in which all costs are recovered. The price of the product includes the variablecost of each item plus a proportionate amount of the fixed costs. A form of cost plus pricingHigh-low pricing
  12. 12. Method of pricing for an organization where the goods or services offered by the organizationare regularly priced higher than competitors, but through promotions, advertisements, and orcoupons, lower prices are offered on key items. The lower promotional prices are targeted tobring customers to the organization where the customer is offered the promotional product aswell as the regular higher priced products.[3]Premium Decoy pricingMethod of pricing where an organization artificially sets one product price high, in order to boostsales of a lower priced product.Marginal-cost pricingIn business, the practice of setting the price of a product to equal the extra cost of producing anextra unit of output. By this policy, a producer charges, for each product unit sold, only theaddition to total cost resulting from materials and direct labor. Businesses often set prices closeto marginal cost during periods of poor sales. If, for example, an item has a marginal cost of$1.00 and a normal selling price is $2.00, the firm selling the item might wish to lower the priceto $1.10 if demand has waned. The business would choose this approach because the incrementalprofit of 10 cents from the transaction is better than no sale at all.Value Based pricingPricing a product based on the perceived value and not on any other factor. Pricing based on thedemand for a specific product would have a likely change in the market place.Pay what you want pricingPay what you want is a pricing system where buyers pay any desired amount for a givencommodity, sometimes including zero. In some cases, a minimum (floor) price may be set,and/or a suggested price may be indicated as guidance for the buyer. The buyer can also select anamount higher than the standard price for the commodity.Giving buyers the freedom to pay what you want may seem to not make much sense for a seller,but in some situations it can be very successful. While most uses of pay what you want havebeen at the margins of the economy, or for special promotions, there are emerging efforts toexpand its utility to broader and more regular use.Freemium pricingFreemium is a business model that works by offering a product or service free of charge(typically digital offerings such as software, content, games, web services or other) whilecharging a premium for advanced features, functionality, or related products and services. Theword "freemium" is a portmanteau combining the two aspects of the business model: "free" and"premium". It has become a highly popular model, with notable success.
  13. 13. Marketing - Pricing approaches and strategiesThere are three main approaches a business takes to setting price:Cost-based pricing: price is determined by adding a profit element on top of the cost of making theproduct.Customer-based pricing: where prices are determined by what a firm believes customers will beprepared to payCompetitor-based pricing: where competitor prices are the main influence on the price setLet’s take a brief look at each of these approaches;Cost based pricingThis involves setting a price by adding a fixed amount or percentage to the cost of making or buyingthe product. In some ways this is quite an old-fashioned and somewhat discredited pricing strategy,although it is still widely used.After all, customers are not too bothered what it cost to make the product – they are interested inwhat valuethe product provides them.Cost-plus (or “mark-up”) pricing is widely used in retailing, where the retailer wants to know with somecertainty what the gross profit margin of each sale will be. An advantage of this approach is that thebusiness will know that its costs are being covered. The main disadvantage is that cost-plus pricing maylead to products that are priced un-competitively.Here is an example of cost-plus pricing, where a business wishes to ensure that it makes an additional£50 of profit on top of the unit cost of production.Unit cost £100Mark-up 50%Selling price £150How high should the mark-up percentage be? That largely depends on the normal competitive practice ina market and also whether the resulting price is acceptable to customers.In the UK a standard retail mark-up is 2.4 times the cost the retailer pays to its supplier (normally awholesaler). So, if the wholesale cost of a product is £10 per unit, the retailer will look to sell it for 2.4x£10 = £24. This is equal to a total mark-up of £14 (i.e. the selling price of £24 less the bought cost of£10).The main advantage of cost-based pricing is that selling prices are relatively easy to calculate. If themark-up percentage is applied consistently across product ranges, then the business can also predictmore reliably what the overall profit margin will be.
  14. 14. Customer-based pricingPenetration pricingYou often see the tagline “special introductory offer” – the classic sign of penetration pricing. The aimofpenetration pricing is usually to increase market share of a product, providing the opportunity toincrease price once this objective has been achieved.Penetration pricing is the pricing technique of setting a relatively low initial entry price, usually lowerthan the intended established price, to attract new customers. The strategy aims to encouragecustomers to switch to the new product because of the lower price.Penetration pricing is most commonly associated with a marketing objective of increasing market shareor sales volume. In the short term, penetration pricing is likely to result in lower profits than would be thecase if price were set higher. However, there are some significant benefits to long-term profitability ofhaving a higher market share, so the pricing strategy can often be justified.Penetration pricing is often used to support the launch of a new product, and works best when a productenters a market with relatively little product differentiation and where demand is price elastic – so a lowerprice than rival products is a competitive weapon.Price skimmingSkimming involves setting a high price before other competitors come into the market. This is oftenused for the launch of a new product which faces little or no competition – usually due to sometechnological features. Such products are often bought by “early adopters” who are prepared to pay ahigher price to have the latest or best product in the market.Good examples of price skimming include innovative electronic products, such as the Apple iPad andSony PlayStation 3.There are some other problems and challenges with this approach:Price skimming as a strategy cannot last for long, as competitors soon launch rival products which putpressure on the price (e.g. the launch of rival products to the iPhone or iPod).Distribution (place) can also be a challenge for an innovative new product. It may be necessary to giveretailers higher margins to convince them to stock the product, reducing the improved margins that canbe delivered by price skimming.A final problem is that by price skimming, a firm may slow down the volume growth of demand for theproduct. This can give competitors more time to develop alternative products ready for the time whenmarket demand (measured in volume) is strongest.Loss leadersThe use of loss leaders is a method of sales promotion. A loss leader is a product priced below cost-price in order to attract consumers into a shop or online store. The purpose of making a product a lossleader is to encourage customers to make further purchases of profitable goods while they are in theshop. But does this strategy work?Pricing is a key competitive weapon and a very flexible part of the marketing mix.If a business undercuts its competitors on price, new customers may be attracted and existing customersmay become more loyal. So, using a loss leader can help drive customer loyalty.
  15. 15. One risk of using a loss leader is that customers may take the opportunity to “bulk-buy”. If the pricediscount is sufficiently deep, then it makes sense for customers to buy as much as they can (assumingthe product is not perishable).Using a loss leader is essentially a short-term pricing tactic for any one product. Customers will soon getused to the tactic, so it makes sense to change the loss leader or its merchandising every so often.Predatory pricing (note: this is illegal)With predatory pricing, prices are deliberately set very low by a dominant competitor in the market inorder torestrict or prevent competition. The price set might even be free, or lead to losses by thepredator. Whatever the approach, predatory pricing is illegal under competition law.Psychological pricingSometimes prices are set at what seem to be unusual price points. For example, why are DVD’s pricedat £12.99 or £14.99? The answer is the perceived price barriers that customers may have. They willbuy something for £9.99, but think that £10 is a little too much. So a price that is one pence lower canmake the difference between closing the sale, or not!The aim of psychological pricing is to make the customer believe the product is cheaper than it reallyis. Pricing in this way is intended to attract customers who are looking for “value”.Competitor-based pricingIf there is strong competition in a market, customers are faced with a wide choice of who to buy from.They may buy from the cheapest provider or perhaps from the one which offers the best customerservice. But customers will certainly be mindful of what is a reasonable or normal price in the market.Most firms in a competitive market do not have sufficient power to be able to set prices above theircompetitors. They tend to use “going-rate” pricing – i.e. setting a price that is in line with the pricescharged by direct competitors. In effect such businesses are “price-takers” – they must accept thegoing market price as determined by the forces of demand and supply.An advantage of using competitive pricing is that selling prices should be line with rivals, so price shouldnot be a competitive disadvantage.The main problem is that the business needs some other way to attract customers. It has to use non-price methods to compete – e.g. providing distinct customer service or better availability.PromotionAnother one of the 4Ps is promotion. This includes all of the tools available to the marketer formarketing communication. As with Neil H.Bordens marketing mix, marketing communications has itsown promotions mix. Think of it like a cake mix, the basic ingredients are always the same. Howeverif you vary the amounts of one of the ingredients, the final outcome is different. It is the same withpromotions. You can integrate different aspects of the promotions mix to deliver a unique campaign.The elements of the promotions mix are:Personal Selling.Sales Promotion.Public Relations.
  16. 16. Direct Mail.Trade Fairs and Exhibitions.Advertising.Sponsorship.The elements of the promotions mix are integrated to form a coherent campaign. As with all forms ofcommunication. The message from the marketer follows the communications process as illustratedabove. For example, a radio advert is made for a car manufacturer. The car manufacturer (sender)pays for a specific advert with contains a message specific to a target audience (encoding). It istransmitted during a set of commercials from a radio station (Message / media).The message is decoded by a car radio (decoding) and the target consumer interprets the message(receiver). He or she might visit a dealership or seek further information from a web site (Response).The consumer might buy a car or express an interest or dislike (feedback). This information will informfuture elements of an integrated promotional campaign. Perhaps a direct mail campaign would pushthe consumer to the point of purchase. Noise represent the thousand of marketing communicationsthat a consumer is exposed to everyday, all competing for attention.The Promotions Mix.Let us look at the individual components of the promotions mix in more detail. Remember all of theelements are integrated to form a specific communications campaign.1. Personal Selling.Personal Selling is an effective way to manage personal customer relationships. The sales person actson behalf of the organization. They tend to be well trained in the approaches and techniques ofpersonal selling. However sales people are very expensive and should only be used where there is agenuine return on investment. For example salesmen are often used to sell cars or homeimprovements where the margin is high.
  17. 17. 2. Sales Promotion.Sales promotion tend to be thought of as being all promotions apart from advertising, personal selling,and public relations. For example the BOGOF promotion, or Buy One Get One Free. Others includecouponing, money-off promotions, competitions, free accessories (such as free blades with a newrazor), introductory offers (such as buy digital TV and get free installation), and so on. Each salespromotion should be carefully costed and compared with the next best alternative.3. Public Relations (PR).Public Relations is defined as the deliberate, planned and sustained effort to establish and maintainmutual understanding between an organization and its publics (Institute of Public Relations). It isrelatively cheap, but certainly not cheap. Successful strategies tend to be long-term and plan for alleventualities. All airlines exploit PR; just watch what happens when there is a disaster. The pre-planned PR machine clicks in very quickly with a very effective rehearsed plan.4. Direct Mail.Direct mail is very highly focussed upon targeting consumers based upon a database. As with allmarketing, the potential consumer is defined based upon a series of attributes and similarities.Creative agencies work with marketers to design a highly focussed communication in the form of amailing. The mail is sent out to the potential consumers and responses are carefully monitored. Forexample, if you are marketing medical text books, you would use a database of doctors surgeries asthe basis of your mail shot.5. Trade Fairs and Exhibitions.Such approaches are very good for making new contacts and renewing old ones. Companies willseldom sell much at such events. The purpose is to increase awareness and to encourage trial. Theyoffer the opportunity for companies to meet with both the trade and the consumer. Expo has recentlyfinish in Germany with the next one planned for Japan in 2005, despite a recent decline in interest insuch events.6. Advertising.Advertising is a paid for communication. It is used to develop attitudes, create awareness, andtransmit information in order to gain a response from the target market. There are many advertisingmedia such as newspapers (local, national, free, trade), magazines and journals, television (local,national, terrestrial, satellite) cinema, outdoor advertising (such as posters, bus sides).7. Sponsorship.Sponsorship is where an organization pays to be associated with a particular event, cause or image.Companies will sponsor sports events such as the Olympics or Formula One. The attributes of theevent are then associated with the sponsoring organization.The elements of the promotional mix are then integrated to form a unique, but coherent campaign.
  18. 18. It is not enough for a business to have good products sold at attractive prices. To generate sales andprofits, the benefits of products have to be communicated to customers. In marketing, this iscommonly known as "promotion"A business total marketing communications programme is called the "promotional mix" and consists ofa blend of advertising, personal selling, sales promotion and public relations tools. In this revision note,we describe the four key elements of the promotional mix in more detail.It is helpful to define the four main elements of the promotional mix before considering their strengthsand limitations.(1) AdvertisingAny paid form of non-personal communication of ideas or products in the "prime media": i.e. television,newspapers, magazines, billboard posters, radio, cinema etc. Advertising is intended to persuade andto inform. The two basic aspects of advertising are the message (what you want your communication tosay) and the medium (how you get your message across)(2) Personal SellingOral communication with potential buyers of a product with the intention of making a sale. Thepersonal selling may focus initially on developing a relationship with the potential buyer, but willalways ultimately end with an attempt to "close the sale".(3) Sales PromotionProviding incentives to customers or to the distribution channel to stimulate demand for a product.(4) PublicityThe communication of a product, brand or business by placing information about it in the mediawithout paying for the time or media space directly. otherwise known as "public relations" or PR.Advantages and Disadvantages of Each Element of the Promotional MixMix Element Advantages DisadvantagesAdvertising Good for building awareness Impersonal - cannot answer all a customers questions Effective at reaching a wide audience Not good at getting customers to make Repetition of main brand and product a final purchasing decision positioning helps build customer trustPersonal Selling Highly interactive - lots of communication Costly - employing a sales force has between the buyer and seller many hidden costs in addition to wages Excellent for communicating complex / Not suitable if there are thousands of detailed product information and features important buyers Relationships can be built up - important if closing the sale make take a long timeSales Promotion Can stimulate quick increases in sales by If used over the long-term, customers
  19. 19. targeting promotional incentives on may get used to the effect particular products Too much promotion may damage the Good short term tactical tool brand imagePublic Relations Often seen as more "credible" - since the Risk of losing control - cannot always message seems to be coming from a third control what other people write or say party (e.g. magazine, newspaper) about your product Cheap way of reaching many customers - if the publicity is achieved through the right media