Entrep - Price and Promotions

Price

• how much a consumer pays for in a product/service

  • based on value

    • extent to which a good or service is perceived by a customer to meet their needs or wants

    • measures by a customer’s willingness to pay for it

    • depends more on customer’s perception of the worth rather than intrinsic value

• things to consider

  1. new to the market

     • customers may be unwilling to pay a high amount when it’s so new, not established

  2. perception of product

     • low price is seen as low quality

     • high prices will make costs outweigh the benefits

       • “yeah it makes life easier, but it’s too expensive”

• pricing factors

  1. Fixed and variable costs

  2. competition

  3. company objectives

  4. proposed positioning strategies

  5. target group and willingness to pay

• customer demand

  • customers are sensitive to price levels

  • two types of demand

    1. Elastic Demand

       • an increase in price lowers demand

         • gas from a specific station

           • ex: Petron v. Uno

         • black coffee

         • airline tickets

           • peak season = higher prices = less people are willing to pay

         • soft drinks

           • additional taxes on this means less demand

    2. Inelastic Demand

       • when you’re not affected by this

• Pricing strats

  1. Price skimming or skimming pricing

     • price skimming sees a company charge a higher price because it has a substantial competitive advantage

       • ex: Apple' releasing new phones while decreasing the price of previous models

     • assumes that customers will pay due to POV of it as a status symbol

  2. Penetration pricing

     • where the price of a product is initially set low to generate hype

     • when the market is saturated

     • assumes customers will go to it because it’s cheaper

       • ex: Netflix subscription starting low but gradually increased as hype grew

  3. Economy Pricing

     • useful for companies keeping their overhead low

       • ex: generic grocery store brands of products have a lower price point than name-brand items due to a lack of advertising

         • ex: SM Bonus v. Joy

     • because companies save on aspects like promotions, they can keep pricing low

     • lower prices compared to name-brands on the shelf increase number of sales

     • times of economic recession

  4. Premium Pricing

     • used for products that clearly have a higher luxury value than others

     • 5 star hotels, first-class airline tickets, and other products that give the customer the perception of being the highest quality

     • not for commodity goods; makes your product look desirable and buzz-worthy

       • tap into the social climber mind

• Others

  1. Follow-the-leader pricing

     • uses particular competitor as a model

  2. Variable Pricing

     • prices have two levels

       1. standard list price

       2. price concession for customers who have knowledge and bargaining strength or purchase large qualities

          • ex: Divisoria

  3. Product line pricing

     • establishes distinct price categories at which similar items of retail merchandise are offered for sale

       • ex: spotify free and premium

       • ex: suits at $250, $400, and $800

     • amount of inventory stocked at different quality levels depend on the demand and income levels of customers

       • if customers are richer = more stock of higher-end goods

  4. Product bundle pricing

     • combining several products in the same package

       • move old stock

     • blu-ray and video games

     • sale of items at auctions

     • move slow selling products

       • ex: christmas and valentines gift baskets

  5. Psychological pricing

     • idea that certain prices have a psychological impact on the consumer

     • consumer’s emotional response

     • odd pricing conventions may make it more attractive and cheaper than they are

     • psychological over rational

       • ex: uniqlo pricing

Promotions

• communications strategy to elicit patronage and loyalty from customers and stakeholders

• dissem information about a product or company

• generate sales and profit by communicating the benefits of the product

• objectives:

  1. build awareness

  2. create interest

  3. provide information

  4. stimulate demand

  5. reinforce the brand

• Promotion Mix

  • specific combination of promotional methods

  • factors that guide entrepreneurs

    1. nature of the product

    2. overall marketing strategy

    3. buyer readiness stage

    4. product life cycle stage

  • the mix:

    1. Advertising

       • paid form of non-personal presentation and promotion of ideas, goods, and services through mass media such as newspapers, magazines, television, or radio by an unidentified sponsor

       • focuses on INFORMING

    2. Sales Promotions

       • activity designed to boost the sales of a product or service

       • advertising campaign, PR activity, free-sale campaign, free gifts, trading stamps, exhibits, competitions, temporary price reductions, door-to-door, telemarketing, etc

         • ex: SM advantage, “get 50% off on 3rd purchase”, Piso fare

       • ACTION

         • stimulate customers to by a product

         • NOT informative

    3. Public Relations

       • press releases, company literature, videos, websites, reports

    4. Personal selling

       • oral communication with the intention of making a sale

       • develop a relationship —> close the sale

    5. Publicity

       • sponsorships

       • news stories, editorials, or announcements

       • news releases, press conference, features, films, etc.

         • ex: Nissan Navarra feature on TopGear

    6. Direct Marketing

       • covers promotional activities like

         • direct-response adverts on TV and radio

         • mail order catalogues

         • e-commerce

         • magazine inserts

         • direct mail

         • telemarketing