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PRICING AND PROMOTION
Module 7
PRICING STRATEGY
OUTLINE
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Pricing Objectives
Analyzing the Price Situation
Pricing Programs
Additional Considerations
PRICING OBJECTIVES
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Primary Demand Objectives
Selective Demand Objectives
Product Based Objectives
PRIMARY DEMAND
OBJECTIVES
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Increase number of users
– reduce economic risk of trial
– offer better value
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Increase rate of purchase
– enhance frequency of consumption
– enable use in wider situations
SELECTIVE DEMAND
OBJECTIVES
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Retention
– Meet competition (establish price parity)
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Acquisition
– Undercut competition on price
– Use price to signal premium quality
PRODUCT LINE BASED
STRATEGIES
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Substitutes
– Trade up
– Distinguish on the basis of features/benefits
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Complements
– Expand range purchased
– Attract new customers
ANALYZING THE PRICE
SITUATION
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What will be market responsiveness to
changes in price?
RESPONSE TO
ALTERNATIVE PRICES
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How large is the market?
What segments exist?
How sensitive is demand in segments of
interest to changes in price?
How important are non-price factors?
What are estimated sales at price levels?
PRICE ELASTICITY
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What is elasticity?
Price elasticity is the percentage change
in the quantity demanded (when price
changes) divided by the percentage
change in price.
ESTIMATING PRICE
SENSITIVITY
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Test marketing
Analysis of historical price/sales data
Consumer panels
Executive (management) judgment
NON PRICE FACTORS
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Quality
Uniqueness
Service
Availability
Warranty
FORECASTS
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What are estimated sales at different
price levels?
TYPES OF PRICING
PROGRAMS
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Skimming Pricing
Penetration Pricing
Parity Pricing
Premium Pricing
Flexible Pricing
PRICING FOR
SUBSTITUTES
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Anchoring
PRICING FOR
COMPLEMENTS
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Leader pricing
Price Bundling
OTHER PRICE ELEMENTS
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Coupons
Cents-off-deals
Promotion allowances
Rebates
Quantity discounts
Cash discounts
OTHER PRICE ELEMENTS
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Credit or financing assistance
Long term contracts
Negotiated pricing
ADDITIONAL
CONSIDERATIONS
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Political/Legal environment
International considerations
PROMOTION STRATEGY
OUTLINE
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Introduction
Framework for developing an effective
promotion mix
Budgeting
Other Strategies
PROMOTIONAL MIX
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Promotion (Communication) tools consist
of:
– Advertising
– Personal Selling
– Sales Promotion
– Public Relations
ADVERTISING
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Nonpersonal communication transmitted
through the mass media
Sponsor identified
PERSONAL SELLING
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Face to face interaction with the client
More money is spent on the selling
function than is advertising!
SALES PROMOTION
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Activities which supplement personal
selling and advertising
Trade shows, contests, samples, point of
purchase displays, coupons
PUBLIC RELATIONS
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Public information about a company,
good, or service appearing in the mass
media
CHOOSE A STRATEGIC
OBJECTIVE
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Think about the the buyer’s decision
process!
– Need Recognition
– Gathering Information
– Evaluation of Alternatives
– Decision to Purchase
– Product Use
FRAMEWORK FOR
PROMOTION MIX
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Characteristics of Target Market(s)
Business Strategies
– Prospectors
– Niche Defenders
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Positioning
Internal Environment
External Environment
DETERMINING THE
PROMOTION MIX
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Product Factors
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Industrial vs Consumer Goods
Perceived risk
Durable vs Nondurable
Frequency of Purchase
Market Factors
– Stage of the PLC
– Intensity of competition
DETERMINING THE
PROMOTION MIX
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Customer Factors
– Ability to identify decision maker
– Degree of self service
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Marketing Mix Factors
– Other elements of the Marketing Mix
BUDGETING
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Percent of Sales
Comparative Parity
Objective and Task
MEDIA SELECTION
STRATEGY
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Choosing the appropriate media channel
Move customers from unawareness to
buying action
Advertising objectives
– Exposure, awareness, attitude change, sales
ADVERTISING COPY
STRATEGY
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Designing the content of an
advertisement
Considerations?
Source credibility, message repetition,
rational versus emotional appeals,
comparative advertising
SELLING STRATEGY
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Moving the customers to purchase
through face-to-face contact
Issues
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Sales force size
Organization
Motivating the salesforce
Compensation
SALES PROMOTION
STRATEGY
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Usually designed to raise awareness and
trial
Coordinate with other promotional
efforts