Marketing_Strategy_Session_III

DAY 3Pricing & Promotional

Strategies And Marketing Warfare

BUSINESS STRATEGIES AND THEIR MARKETING

IMPLICATIONS

Pricing Strategies

Learning Goals

1. Identify and define the internal factors affecting a firm’s pricing decisions

2. Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value

3. 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.

RentFeeRateCommissionAssessment

TuitionFareTollPremiumRetainer

• Bribe• Salary• Wage• Interest• Tax

Factors in Setting Price

Factors to Consider When Setting Price

Marketing objectivesMarketing mix

strategiesCostsOrganizational

considerations

Market positioning influences pricing strategy

Other pricing objectives: Survival Current profit

maximization Market share leadership Product quality

leadership

Internal Factors




considerations

Pricing must be carefully coordinated with the other marketing mix elements

Target costing is often used to support product positioning strategies based on price

Non-price positioning can also be used

Internal Factors




considerations

Types of costs: Variable Fixed Total costs

How costs vary at different production levels will influence price setting

Experience (learning) curve affects price

Internal Factors




considerations

Who sets the price? Small companies: CEO

or top management Large companies:

Divisional or product line managers

Price negotiation is common in industrial settings where pricing departments may be created

Internal Factors


Nature of market and demand

Competitors’ costs, prices, and offers

Other environmental elements

Types of markets Pure competition Monopolistic competition Oligopolistic competition Pure monopoly

Consumer perceptions of price and value

Price-demand relationship Demand curve Price elasticity of demand

External Factors





Consider competitors’ costs, prices, and possible reactions

Pricing strategy influences the nature of competition Low-price low-margin

strategies inhibit competition

High-price high-margin strategies attract competition

Benchmarking costs against the competition is recommended

External Factors





Economic conditions Affect production costs Affect buyer perceptions

of price and value Reseller reactions to

prices must be considered Government may restrict

or limit pricing options Social considerations may

be taken into account

External Factors

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

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 CostRs.20 + Rs.500,000/100,000 = Rs.25 per unit

Unit Cost/(1 – Desired Return on Sales) = Markup PriceRs.25 / (1 - .20) = Rs.31.25



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 Analysis

Breakeven analysis Pricing technique used to determine the minimum sales volume a product must generate at a certain price level to cover all costs.

Finding the Breakeven Point


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


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

Number of flash drives/memory sticks demanded

Price p

er flash d

rive/mem

ory stick

Equilibrium Price: Supply = Demand

measure of the sensitivity of demand to changes in prices

not price sensitive

no real change in demand

Inelastic Demand

Q2 Q1 Quantity

P1

P2

ElectricityPri

ce

price sensitive - changes in demand

Elastic Demand

Q2 Quantity

P1

P2

Recreational Vehicles

Q1P

rice

Elasticity of Demand

INTRODUCTION GROWTH MATURITY DECLINEMarketing strategy Market development Increase market Defend market Maintain efficiency inemphasis share share exploiting product

Pricing High price, unique Lower price Price at or below Set price to remain

strategy product / cover over time competition profitable or reduceproduction costs to liquidate

Promotion Mount sales Appeal to Emphasize Reinforce loyal Strategy promotion for mass market brand differences, customers; reduce

product awareness benefits & loyalty promotion costs

Place strategy Distribute through Build intensive Enlarge Be selective in selective outlets network of distribution distribution, trim

outlets network unprofitable outlets

Marketing Strategy Over the Product Life Cycle

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 Low price establish

product in the market Elastic demand;

Predatory pricing Skimming

High price; unique product; appeal to early adopters; Prestige pricing

Recovering high R&D costs

Combination Move inventory; stimulate

D; extend product life

PRICE

PRICE

PRICE

Skimming > Penetration

Penetration Price Strategy

Skimming Price Strategy

Alternative Pricing Strategies

Applies to large markets with elastic demand, economies of scale, intense competition

Penetration Pricing

Pricing of iPhones

Market Skimming

Applies to new, distinctive products, 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 Razorwith cartridges

Discount / allowance SegmentedPsychologicalPromotionalInternational

Types of discounts Cash discount Quantity discount Seasonal discount

Allowances Trade-in allowances Promotional allowances

Strategies

29

Price Adjustment Strategies

30

Seasonal Discounts

Bundling

32

(Mixed) Bundling


Types of segmented pricing strategies: Product-line pricing Location pricing Time pricing

Also called revenue or yield management

Certain conditions must exist for segmented pricing to be effective

Strategies


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

Segmented Pricing Effectiveness

35

High Quality

Low Quality

Toyota Corolla Altis

Toyota Camry W1

Pricing a Product Line

Time Pricing


The price is used to say something about the product. Price-quality relationship Reference prices Differences as small as

Re.1 can be important Numeric digits may have

symbolic and visual qualities that psychologically influence the buyer

Strategies


Psychological

Pricing

Mercs can actually be more important

to many people than their spouses. That is a price they are willing to pay.

Luxury Car!

Psychological Pricing


Temporarily pricing products below the list price or even below cost Contracts, Special-

event pricing Cash rebates Low-interest financing,

warranties Loss leaders

Strategies


41

Promotional Cellphone Pricing

PROMOTIONAL

PRICING

No Promotional Pricing


Prices charged in a specific country depend on many factors Economic conditions Competitive situation Laws / regulations Distribution system Consumer perceptions Corporate marketing

objectives Cost considerations

Strategies

43


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.


Attract Attention

Convince

EntertainRemind

Brand Risk

Invo

lvem

ent

High

Hig

hLo

w

Low

• Only few brands available in its space

• Promiscuous users• The job of Advertising is to

‘ENTERTAIN’• Marketing Paradigm: FEEL /

DO / FEEL

• High involvement / High Risk• Can’t afford to make mistakes• Includes existing users also• Ex: Durables / Hospitals• The job of Advertising is to

‘CONVINCE’• Marketing Paradigm: LEARN /

FEEL / DO

• Commoditised Brands• Predominantly speaking to ‘Own

Past Users• The job of Advertising is to ‘REMIND’• Marketing Paradigm: DO / FEEL /

DO

• Commoditised Brands• Experienced by ‘New Brands’

entering an existing market• Talks predominantly to ‘New users’

only• The job of Advertising is to

‘ATTRACT ATTENTION’• Marketing Paradigm: LEARN / DO /

FEEL


Vehicles

Television Largest reach Large variety of channels with

varied interests Expensive

Newspapers Short life span Possibility to localize Easy to coordinate with other

promotional efforts. Radio

Latest entrant (after a hiatus) Car commuters – captive

audience Magazines

Including Consumer publications and trade journals.

Direct Mail High per person cost, but

can be carefully targeted and highly effective.

Outdoor Advertising Requires brief messages.

Online and Interactive Advertising Experts predict sales from

online advertising will double in 2012.

Virals – Kolaveridi? Low cost Sometimes Intrusive

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 itGames, 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 of will, perhaps not one will combine in himself all those qualities which are required to raise a man above mediocrity in the career of a general!”Karl Von Clausewitz

The Four Types of Marketing ‘Warfare’

Defensive: Only for the leader. Attack yourself is the

best way. Block strong

competitor movesOffensive

Only for No.2 or even 3

Find a weakness in the leader’s strength.

E.g.: Long queue.

Flanking: Uncontested area Must have an element of

surprise Must have a follow-

throughGuerilla:

Find a segment in the market small enough to defend.

Never act like the leader. Develop Allies. Be prepared to enter or

exit 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!

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.

Marketing Wisdom

“The statesman who, seeing war inevitable, hesitates to strike first is guilty 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!


At any given point in time, ONE objective should dominate a company’s strategic plans.


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 TzuEthical 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 Wisdom

Hard work

=Victory

Pearls of Wisdom

Battle 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

Date post:	27-Jan-2015
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