mkt 100 021 - week 11 - price & promo management
TRANSCRIPT
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Assistant Professor, MarketingPlease ensure all electronic devices are in “silent
mode”, “vibrate mode” or “turned off”
Anthony Francescucci
MKT 100-021WEEK 11 – PRICE MGMT &
PROMO PART 1
Welcome to
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AGENDA
Pricing Management
Promo Management
Part 1
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4 P’S…
Product Price
Promotion Place
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MKT100
UNDERSTANDING PRICE - PRICE NEEDS TO;
achieve the financial goals
of the company – profitability
fit the environment – will customers
buy at that price?
support the products
positioning
be consistent with other
variables of the marketing mix
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THE LAWS OF MARKET FORCESWhen demand increases more than supply increases prices rise.
When demand increases less than supply increases prices fall.
When demand decreases less than supply decreases prices rise.
When demand decreases more than supply decreases prices fall.
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PRICE SENSITIVITY
50% in PRICE
5% in VOLUME
43% in REVENUE
50% in PRICE
67% in VOLUME
50% in REVENUE
$5
5 unit
$5
100 unit
ELASTICITY OF DEMAND
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PRICE ELASTICITY AND DEMAND• the more substitutes available, the greater the elasticityAvailability of
Substitutes
• Luxury products have higher elasticity than necessities. Habit forming products can become “necessities”.
Degree of Necessity or Luxury
• Products that represent a higher proportion of a consumers income will have greater elasticity.Proportion of Income
• a one day sale will have different results than a permanent price decrease for a longer period of time Timing
• decreasing from $2.00 to $1.99 will have more elasticity than from $1.98 to $1.97. Price Points
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20% increase in rice means family cannot eat in developing country
Un-Developed DevelopedAverage Daily Income $2.00 $123.00Average Daily Food Cost $1.50 $30.00Food as a % of Income 75% 24%
Raw material as % of Food Cost 80% 20%Spend on Raw Materials per day $1.20 $6.00Raw materials Increase 20% $1.44 $7.20NEW Cost of Food per day $1.92 $9.60
Food as a % of income 128% 32%
Rice goes up 20%
PRICE SENSITIVITY IS HIGHERIn developing countries
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Wal-Mart Flyer Loblaws Flyer
•Grocery •Electronics
PRICE SENSITIVITY IS HIGHWhen competitors feature price in advertising (price war)
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Canada’s newest cell phone company
http://www.cbc.ca/news/background/tech/cellphones/economy.html
“SeaBoard Group found that heavy cellphone users in Canada pay about 56 per cent more than their U.S. counterparts, while average users shell out about 33 per cent more.” CBC Nov 20, 2007
PRICE SENSITIVITY IS HIGHWhen new seller enters the market at a low price
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PRICE SENSITIVITY IS HIGHWhen there is a recession
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MKT100
PRICE SENSITIVITY IS HIGHWhen cost of searching lower price decreases
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SETTING PRICE
Process
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STEPS IN SETTING PRICE
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
Select the price objective
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SELECTING THE PRICING OBJECTIVESe
lect
the
pric
e ob
jecti
ve
• Pricing such that you cover variable costs and some fixed costs. Short-term objectiveSurvival
• Price your product to maximize current profitMaximum current profit
• Set lowest price to maximize volume / market share. Assumes market is price-sensitive
Maximum market share (Penetration)
• Sell base product at low margin, locking consumers into higher margin after-market consumables
Captive Pricing (Penetration)
• Prices start high and slowly lowered over time. Highly demanded product
Maximum market skimming
• Product with high quality, taste, status – priced just high enough not to be out of consumer’s reach
Product-quality leadership
• Priced so only the wealthy can afford itPrestige Pricing
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ESTIMATING DEMAND CURVESStatistical Analysis• past prices, qty sold
& other factors
Price Experiments
SurveysDet
erm
ine
dem
and
$0.00 $5.00 $10.00 $15.00 $20.00$0
$25$50$75
$100
Demand Curve
Price
Tota
l Sal
es (0
00's
)
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COST TERMS AND PRODUCTIONEs
timat
e Co
sts
1 14 27 40 53 66 79 92 105
118
131
144
157
170
183
196
209
222
235
248
261
274
287
300
313
326
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
Break-even Point
RevenueFixed CostsVariable Costs
Unit Produced / Sold
Sale
s or
Cos
ts
Revenues
Fixed Costs
Break-evenPoint
Profit
Loss
TotalCosts(VC Stacked onto FC = Total Costs)
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ANALYZE CLOSEST COMPETITOR
Our product
offer
Nearest competitor
product offer
Nearest competitor
product offerFewer features
Morefeatures
Anal
yze
com
petit
or p
rice
mix
Com
petit
or h
as…
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SELECTING A PRICING METHOD• Add a standard markup to the product’s cost.Markup pricing
• Determine price that would deliver company’s target rate of return on investment
Target-return pricing
• Price based on the value to the customer (i.e. if new product innovation saves money, then should charge more)
Perceived-value pricing
• Pricing to win loyal customer by charging fairly low price for high qualityValue pricing
• Price solely based on competitors pricesGoing-rate pricing
Sele
ct p
ricin
g m
etho
d
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Impact of other marketing activities
Company pricing policies
Impact of price on other parties
SELECTING THE FINAL PRICESe
lect
fina
l pric
e
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ADAPTING PRICE
One price doesn’t fit all
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PRICE-ADAPTATION STRATEGIES
Geographical Pricing
Discounts/Allowances
Differentiated Pricing
Promotional Pricing
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PRICE-ADAPTATION STRATEGIES
Discounts/ Allowances
• Cash / Early Pay discount• Quantity discount• Seasonal discount• Trade-in or Promotional Allowance
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Promotional Pricing Tactics
• Loss-leader pricing
• Cash rebates• Low-interest
financing
PRICE-ADAPTATION STRATEGIES
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PRICE-ADAPTATION STRATEGIES
Differentiated Pricing ( Price Discrimination)
• Customer-segment pricing• Product-form pricing• Channel pricing• Time pricing• Yield pricing
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Used when you cannot inventory the product such as for airline flights, hotels and concerts.
Tickets.com adjusts concert seat prices day-to-day depending on supply and demand. This has enabled it to increase revenues as much as 45%.
YIELD MANAGEMENT PRICING
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Saturday
MondayFriday
SundayAIRLINE YIELD PRICING EXAMPLE
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COMMON PRICING MISTAKES
Determine costs and take traditional industry margins
Failure to revise price to capitalize on market changes
Setting price independently of the rest of the marketing mix
Failure to vary price by product item, market segment, distribution channels, and purchase occasion
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PROMOTION MANAGEMENTPART 1
PersonalSelling
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4 P’S…
Product Price
Promotion Place
MarketingCommunications
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PROMOTION STRATEGIES
Promotion Mix
Adverting
PublicRelations
DirectResponse
SocialMedia
Events &Sponsorships
PersonalSelling
SalesPromotion
TradeShows
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INTEGRATED MARKETING COMMUNICATIONS
IMC recognizes the role of a variety of
promotion strategies that are combined to
provide clarity, consistency and
maximum impact through the seamless
integration of messages
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COMPANY USING IMC
BECAUSE
OWNERS CARE
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PUSH VS. PULL PROMOTION STRATEGYPush
• Personal Selling• Sales Promotion• Trade Shows
Pull
• Advertising• Direct Mail• Public Relations• Events & Sponsorship• Social Media
Manufacturer uses promotion tactics to persuade the distribution channel
to carry, promote, and sell their product to end-users
Manufacturer uses promotion tactics to persuade the end-users to demand
the product from the distribution channel
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Manufacturer Manufacturer
Wholesaler Wholesaler
Retailer Retailer
Consumer Consumer
Demand is pushed down the channel by sales effort.
Demand is pulled through the channel by advertising.
Manufacturer selling effort
Manufacturer Advertising
SELLING IS PUSH MARKETING
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MARKETING IS A LOT OF SELLING
• to investors or senior executives • to production and the sales-force • to distributors, retailers • to their customers • to their customers’ bosses
A new product or service has to be sold
That’s lot of selling, a lot of empathy, a lot of miles walking in others’ shoes.
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PERSONAL SELLING
Planned presentation to one or more prospective buyers for the purpose of making a sale.
Personal
SellingPersonal
Selling
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PERSONAL SELLING OBJECTIVES
Sales Objectives
• To keep a current customer happy and loyal • To persuade a current customer to buy
more• To persuade a potential customer to buy• To feed back ideas and market intelligence
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TYPES OF SALESPEOPLE
Order Takers vs Makers
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FITTING FUNCTION TO BUYER BEHAVIOR
• The order-taker, the salesperson processing the customer’s order, must ensure that the order is correct, handled efficiently, and delivered when promised.
• Even when order-taking is undertaken online, the salesperson must still pay attention to details.
Order Taking
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FITTING FUNCTION TO BUYER BEHAVIOR
• By contrast, “order-getters” or “order-makers” are required to uncover customer needs and identify new buyers.
• They need to have higher process thinking skills than order-takers.
• Solving a customer’s problem is always the key to successful “order-making” selling.
Order Making
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NATIONAL ACCOUNT MANAGEMENT
• often involves a sales team of product and distribution experts led by a senior manager.
• often maintains a trouble-shooting salesperson in residence with very large buyers.
• often involves automated just-in-time delivery and replenishment.
Relationship management of really big customers
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INDEPENDENT MANUFACTURER SALES REPS
They sell ten to twelve complementary product lines manufactured and marked by several different producers.
Their typical sales commission is around 7 percent, but it varies by product line.
Some small companies use reps because they don’t have the start up resources or the breadth of products to build and support their
own field sales-force, particularly in distant markets.
Even large companies see cost advantages in employing a rep sales-force.
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INDEPENDENT MANUFACTURER SALES REPS
Advantages to Using Independent Reps
• Low start-up investment costs • Lower average selling costs• Low risk: reps get paid for what they sell• Builds the consumer franchise: reps open new doors• Improved cash flow: you pay when you get paid• Good product design and marketing advice from reps • Use reps’ past proven performance instead of developing own • Halo effect: company benefits from other brands the rep sells.• Sales territories with fewer customers are covered more efficiently
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INDEPENDENT MANUFACTURER SALES REPS
Disadvantages to Using Independent Reps
• Some customers prefer to deal directly with the company• Commission payments run high for major customers • More difficult to manage and control sales• Harder to train salespeople on product knowledge• Difficult to fire: may lead to loss of customers • Confidentiality issues: betrayal of confidences, trade secrets• Reps push highest commission or easiest to sell products• Selling time and effort is split among several companies
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ANY QUESTIONS
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REMINDERS FOR NEXT WEEK
• Covers Modules 4,5,6,7,10• Starts - Sunday April 3rd, 2011 at 11:59pm• Ends - Sunday April 10th, 2011 at 11:59pm• Don’t wait until the weekend
Top Gun starts this Sunday
• Read, Take Quizzes
For module 9 & 10
• Must complete quizzes for Modules 4-10• deadline is Friday April 15th, 2011 at 11:59pm
In-module Quizzes due in 2 weeks
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BEFORE YOU LEAVE TODAY
name cards
Front of the Class
Hand In:
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SEE YOU NEXT WEEK