CH.13 PRICING/PROMO

~13.1 determining prices~

• Price: process that determines what customer pays and seller receives in exchange for product

~pricing to meet business objectives~

• pricing objectives: goals that sellers hope to achieve in pricing products for sale

• pricing decisions are influenced by need to compete in market, by social/ethical concerns and by corporate image

~profit-maximizing objectives~

• REVENUE = SELLING PRICE X UNITS SOLD

• in calculating profits, managers weigh sales revenues against costs for material and labour + capital resources (equipment) + marketing costs (big sales staff)

  • to use resources efficiently, firms set prices to cover costs and achieve the targeted level of return for owners

~market share (penetration) objectives~

• market share: company’s percentage of the total industry sales for a specific product type

  • companies set low prices for new products to establish market share

~pricing for e-business objectives~

• pricing is much lower as there are no added costs like wholesalers and retailers

• e-biz is more convenient as it is one click away rather then driving around, etc.

~Price-setting tools~

• two tools are used to measure impact of price → COST-ORIENTED PRICING + BREAKEVEN ANALYSIS

  • are often used together to help company determine what prices will help them reach their objectives

~cost-oriented pricing~

• considers a firm’s desire to make a profit and its need to cover production costs

• SELLING PRICE = SELLER’S COSTS + PROFIT

• markup: amount added to an item’s purchase cost to sell a profit

  • costs must be added to good that your selling to make a profit

  • MARKUP PERCENTAGE = MARKUP/SALES PRICE

~breakeven analysis: cost-volume-profit relationships~

• variable costs: costs that change with the number of units of a product produced and sold (raw materials, sales commissions, shipping) → firm will cover these thru cost-oriented pricing

• fixed costs: costs that must be paid regardless of the number of units produced and sold (rent, insurance, utilities)

• breakeven analysis: assess costs versus revenues for various sales volumes and shows the amount of loss/profit for each possible volume of sales (at any selling price)

• breakeven point: sales volume where seller’s total revenue from sales equals total costs (variable/fixed) with neither profit nor loss

  • BREAKEVEN POINT = TOTAL FIXED COST/PRICE -- VARIABLE COST

• PROFIT = TOTAL REVENUE (breakeven point x sales price) - FIXED COST + TOTAL VARIABLE COST(breakeven point x variable cost)

~13.2 pricing strategies + tactics~

~pricing strategies~

• three options for pricing existing products

  1. price above prevailing market prices for similar products to take advantage of the common assumption that higher price means higher quality

  2. pricing below market prices while offering a product of comparable quality to higher-priced competitors

  3. pricing at or near market prices

~pricing new products~

• price skimming: setting an initial high price to cover development and intro costs and generate large profit on each item sold

  • will work only if marketers are able to convince customers that product is very unique and there’s no competition in sight

• penetration pricing: setting an initial low price to establish a new product in market

  • seeks to create customer interest and stimulate trial purchases

  • is the best strategy when they’re already competitors

~fixed versus dynamic pricing for online business~

• fixed pricing is for consumer and biz-to-biz (B2B)

• dynamic pricing is for ebay and auction-like sales

~pricing tactics~

• price lining: offering items in certain categories at a limited number of prices (in the same price range)

  • usually happens when selling multiple items

  • example: men’s suits will all be price at either $299, $399, $499

• psychological pricing: takes advantage of the fact that customers are not completely rational when making buying decisions

  • odd-even pricing: based on theory that customers prefer prices that aren’t stated in $$ amounts (decimals are cheaper prices)

  • discounts: price reductions stimulate sales

~13.3 promoting products and services~

• promotion: techniques for spreading info about products + part of the communication mix → total message any company sends to customers about products

• promotional techniques must talk about product’s uses, features, & benefits

• main objective: INCREASE SALES

promo can also be used to create customer awareness, make consumers knowledgeable about features, and persuade them to pick us over competitors

~promotional strategies~

• promo strategies includes push or pull variety

• company with push strategy will “push” products to wholesalers and retailers, who persuade consumers to buy it

• pull strategy: firm appeals directly to customers, who demand good from retailers, who then demand good from wholesalers, who then demand good from manufacturer

• advertising pulls; personal selling pushes

• makers of industrial products use push vs makers of consumer products use pull

~the promotional mix~

• combination of tools used to promote product

• most powerful promo tools = advertising, personal selling, sales promotion, direct or interactive marketing, and publicity/public relations

• five important stages:

  1. consumer realizes need to make a purchase, so we must make customers aware of the products so marketers use advertising and publicity

  2. consumer searches for more info, so we must educate them, we use advertising and personal selling

  3. personal selling is important since consumers compare competing products → sales rep can demonstrate product quality, features, benefits, and performance in comparison to competing good

  4. when buyers are ready to make purchase, sales promo can give consumers an incentive to buy. Personal selling can help by bringing products to convenient locations

  5. after purchases have been made, consumers evaluate products and remember their strengths/weaknesses. At this stage, advertising and personal selling can remind customers that they made wise purchases

~13.4 advertising promotions and media~

• advertising” paid, nonpersonal communication where an identified sponsor informs audience about a product

~advertising media~

• definition: specific communication devices for carrying a seller’s message to potential customers

• media mix: combination of media that company advertises thru

  1. online: email/video/etc.

     • S: targeted audience + measurable success

     • W: can be annoying + easy to ignore

  2. mobile

     • S: accessibility, relative cost, can personalize, and growing importance

     • W: difficult to read, lack of standardization

  3. television

     • S: customized ads, large audience, and combines, sight, sound, motion

     • W: most expensive, can now be skipped, nobody watches regular tv anymore (netflix)

  4. radio:

     • S: cost = cheap, large audience, fairly easy to identify segments

     • W: message disappears quickly, easy to ignore

  5. newspaper:

     • S: broad coverage, ads can be changed daily, larger percentage of readers have high income and are educated

     • W: quickly discarded, quality of ad images is limited

  6. outdoors:

     • S: inexpensive, difficult to ignore, repeat exposure

     • W: presents limited info, little control over audience

  7. magazines:

     • S: often reread + shared, easy-to-identify segments

     • W: require advanced planning, little control over ad placement

~traditional media: changing times~

• since people are moving towards every online-based thing, types of advertisements are changing too

• newspapers are now taking the digital-first approach

• tv is under major pressure as many people are resorting to subscriptions like Netflix, Disney+, etc. for binge-watching and no ads

• some ads that still exist are catalogues, sidewalk handouts, yellow pages (YP.ca), special events, skywriting, and d2d communications

~online: the power of consumer engagement~

• advantages to online ads: flexibility, feedback (sellers can see the success of messages by keeping track of the engagement), reach, and a capability for relationship building (with customers on interactive websites)

• advertisers are measuring consumer media behaviour, which has much more consumer engagement, and as a result had made them shift to spending more on online/mobile marketing

• another tactic: companies asking consumers to get involved with brand and influence marketing decisions

~13.7 role of intermediaries~

~wholesaling~

• wholesalers: are independent operations that buy products from manufacturers and sell them to various consumers or other businesses

• usually provide storage, delivery, and additional value-adding services, including credit, marketing advice, and merchandising services (marking prices and setting up displays)

• merchant wholesalers: buy and own the goods they resell to other businesses

• agents and brokers: do not own their merchandise

  • serve as sales and merchandising arms for producers and sellers that do not have their own sales forces

  • value lies in their knowledge of markets and merchandising expertise

  • show sale items to potential buyers + provide services to retail stores (shelves, display merchandising and advertising layout)

  • remove open, torn, or dirty packages; arrange products neatly and keep goods displayed in a attractive manner

~retailing~

• retailers: small operations that consist of just owners and part-time help

  • can also be big operations like Walmart or Canadian tire

  • however physical brick-and-mortar stores are feeling pressure from amazon and wayfair as they’re only online based and convenient for many consumers

• three types of retail stores → product-line retailers, bargain retailers, and convenience stores

  1. Product-line retailers:

     • department stores (the bay)

     • supermarkets (Chalo FreshCo)

     • specialty stores (aldo shoes)

     • category killers (best buy, staples)

  2. bargain retailers:

     • discount stores (walmart)

     • factory outlets (nike outlet)

     • wholesale clubs (costco)

  3. convenience stores:

     • convenience stores (circle k)

~nonstore retailing~

• some of the biggest retailers sell all or most of the products without brick-or-mortar stores

• includes direct-response retailing: firms contact customers directly to inform them about products and to receive sales orders

• four types of direct-response retailing

  1. catalogue marketing: customers place orders for merchandise in catalogues and receive orders by mail

  2. telemarketing: phone calls to sell directly to consumers

     • includes inbound toll-free calls, which is made available by most retail and catalogue stores

  3. direct selling: door-to-door sales or home-selling parties

  4. video/tv: allows views to shop from home though special channels on TVs (infomercials)

~e-intermediaries~

• internet-based channel members that perform one or both of two functions

  1. collect information about sellers and present it to consumers

  2. help deliver products to buyers

• online-retailing: lets sellers inform, sell to, and distribute to consumers using online technology

~13.8 physical distribution~

• physical distribution: refers to activities needed to move products from manufacturer to customer and includes warehousing and transportation operations

• purpose is to make goods available when and where customers want them, keep costs low, and provide services to satisfy customers

• has been made a core marketing strategy for many companies as it ties in with customer satisfaction

~warehousing operations~

• definition: physical distribution operation concerned with storing goods

• managers must keep in mind both different characteristics and cost of warehousing operations

• warehouses may be owned by a single manufacturer, wholesaler, or retailer that deals in mass quantities and needs regular storage (The Brick)

• other warehouses are independently owned and rent space to companies as required

~transportation operations~

• physically moving products can become the highest cost for companies

• firms must consider nature of product, distance it must travel, speed at which it must be received, and customer wants and needs

• differences in cost of transportation modes (trucks, railroads, planes, digital transmission, water carrier, pipelines, etc,) are usually related to delivery speed

• PROS & CONS

  1. trucks → flexibility/fast service/dependibility vs increased truck traffic raising safety concerns

  2. planes → fastest traditional method/reduces need to store items that might spoil/ potential lower-inventor costs vs most expensive

  3. digital transmission → newest/fastest/least expensive vs restricted to certain products (music/movies/software)

  4. water carriers → least expensive vs slowest mode

  5. railroads → economically transport high-volume, heavy, bulky items (cars/steel) vs delivery routes are limited to fixed traintracks

  6. pipelines → good for specialized products (liquids/gases), economical and reliable vs slow, lack of flexibility

~distribution through supply chains as marketing strategy~

• many firms have turned to supply chains that depend on distribution as a business strategy instead of offering advantages on product features, quality, price, etc.

• this approach entails assessing, improving, and integrating the entire stream of activities (upstream suppliers, wholesaling, warehousing, transportation, delivery, and follow-up services) in getting products to customers

• whenever walmart products are bought, the brand of the product is notified that their products need to be restocked whenever the automatic trigger number goes off so packages with that product are sent

  • this is helpful because it lowers the levels of inventory, meets customer demand, and keeps lowest prices in retail industry

  • also means, low inventory costs