marketing: price and promotion
TRANSCRIPT
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CHAPTER 14
Small Business Marketing: Price and Promotion
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Learning Objectives
• Identify the three main considerations in setting a price for a product
• Explain what breakeven analysis is and why it is important for pricing in a small business
• Present examples of customer-oriented and internal-oriented pricing
• Explain factors affecting small businesses getting paid
• Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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LO - 14.1Identify the three main considerations in setting a price for a product
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Economics of Pricing
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Economics of Pricing
Competition Costs
Economic factors that impact product pricing
Customer demand
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Competition
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Customer Demand
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Figure 14.1 - Demand Curves
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Customer Demand
Availability of product
substitutes
Share of the purchase to the
consumer’s total budget
Factors influencing price elasticity
Necessity of the product
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Costs
Fixed costs Variable costs
Categories of cost
• Costs that do not change with the number of sales
made
• Rent, property taxes
• Costs that change in direct proportion to sales
• Sales commissions, labor
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LO - 14.2Explain what breakeven analysis is and why it is important for pricing in a small business
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Breakeven Analysis
• Breakeven point (BEP): Point at which total costs equal total revenue and the business neither makes nor loses money
• BEP (units) = Total fixed costs Unit price - Average variable cost • Average variable cost equals total variable cost
divided by quantity
• BEP (dollars) = Total fixed costs 1 - Average variable costs Unit price
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Figure 14.2 - Breakeven Analysis
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Figure 14.3 - How Price Changes Affect the Breakeven Point
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LO - 14.3Present examples of customer-oriented and internal-oriented pricing
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Customer-Oriented Pricing Strategies
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Types of Psychological Pricing
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Internal-Oriented Pricing Strategies
• Cost-plus pricing • Markup: Amount added to the cost of a product in
setting the final price • Formulas to calculate markup
• Selling price = Cost + markup • Markup = Selling price - cost • Cost = Selling price - markup
• Target-return pricing • Setting price to produce a given rate of return • Target return price = [(Fixed costs + target return) ÷
unit sales] + variable cost
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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LO - 14.4Explain factors affecting small businesses getting paid
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Payment Methods
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Credit Policies
Consumer credit Trade credit
Types of credit
Credit extended to customers for the purchase of goods or
services
Credit extended from one business to another for
purchasing goods
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Trade Credit
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Consumer Credit
Carry the debt on
account
Accept credit cards
Extending consumer credit
Arrange bank loan
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Credit Policies
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Figure 14.4 - Show Me the Money
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LO - 14.5
Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Promotion
Advertising
Personal selling
Public relations
Sales promotions
Tools used in developing a
promotional mix
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Advertising
Print media
Outdoor media
Choices of media
Broadcast media
• Newspapers • Magazines • Direct mail • Yellow pages
• Billboards or posters placed
on public and other
transportation
• Radio • Television • Computer
billboards
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Advertising
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Table 14.1 - Advertising Costs by Different Types of Businesses
Source: Almanac of Business and Industrial Financial Ratios (2013) by Leo Troy. Published in 2013 by Aspen Publishers, Inc.
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Advertising
Comparative messages
Slice-of-life messages
Fantasy messages
Common advertising strategies
Testimonials
Humor
Sensual or sexual messages
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Advertising
Response tracking
Split ads
Telephone surveys
Statement questionnaires
Measuring the effectiveness of
advertisingIn-store opinions
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Advertising
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Advertising
Advertising agencies
Radio and TV studios,
newspapers and, magazines
Media agencies Art and graphic design services
Professional advertising services
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Personal Selling
• Personal presentation by a salesperson for the purpose of making sales and building relationships with customers
• Objectives • Identify customer needs • Match needs with products • Illustrate the match between customers’ need and
the product
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Personal Selling
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Pre-approach
Approach
Questioning
Demonstration
Handling objections
Closing the deal
Suggestion selling and follow-up
Personal Selling
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Public Relations (PR)
• Involves promotional activities that build and sustain goodwill between a business and its stakeholders
• Publicity: Aspect of PR consisting of a message about the company communicated through the mass media
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Table 14.2 - Relationship between Marketing and Public Relations
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Promotion
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Sales Promotions
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Figure 14.5 - Short-Term Ratchet Effect of Sales Promotion
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Promotional Mix