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