Download Marketing mix

Element 3
Promotion
Strategy
The role of promotion in the
marketing mix
Few goods or services, no matter
how well developed, priced, or
distributed, can survive in the
marketplace without effective
promotion. Promotion is
communication by marketers that
inform, persuade, and reminds
potential buyers of a product in order
to influence their opinion or elicit a
response.
Promotional mix
Combination of promotion tools –
including advertising, public
relations, personal selling, and
sales promotion – used to reach
the target market and fulfill the
organization’s overall goals.
Role of Promotion in the
Marketing Mix
Overall marketing
objectives
Marketing mix:
•
Product
•
Distribution
•
Promotion
•
Price
Target market
Promotional mix:
Advertising
Public relations
Personal selling
Sales promotion
Promotion plan
Promotion strategies
Promotion strategies include personal
selling, advertising, sales promotion, and
public relations. Its role is to bring about
mutually satisfying exchanges with target
markets by informing, educating,
persuading, and reminding customers
about the benefits of an organization or a
product.
Communication
process
Communication process
Noise
Other advertisements
News articles
Other store displays
sender
Marketing
manager
Advertising
Manager
Advertising
agency
Encoding the
message
Message
channel
Advertisement
Media
Sales presentation
Salesperson
Store display
Retail store
Coupon
Local news
show
Press release
Message
channel
Decoding
the message
Receiver
interpretation
of message
Receiver
Customers
Viewers/listeners
News media
Clients
Market research
Sales results
Change in market share
Promotion tasks and
examples
Product life cycle and promotional mix
Maturity
Decline
Growth
Introduction
Heavy advertising
Heavy advertising
and public relations
and public relations to build brand
to build awareness; loyalty;
Small amounts of
advertising near Sales promotion to Decreasing use of
introduction
introduce trial;
sales promotion;
Pre-introduction
publicity
Personal selling to
obtain distribution
Personal selling to
maintain
distribution
Advertising slightly
decreased – more
persuasive and
reminder in nature;
Increased use of
sales promotion to
build market share;
Personal selling to
maintain
distribution
Advertising
and public
relations
drastically
decreased;
Sales
promotion
and personal
selling
maintained
at low levels
Informative promotion
Informative promotion may seek to
convert an existing need into a want or to
stimulate interest in a new product. It is
generally more prevalent during the
early stages of the product life cycle.
Informative promotion:
tasks & examples








Increasing the awareness of a new brand or
product class
Informing the market of new product attributes
Suggesting new uses for a product
Telling the market of a price change
Describing available services
Correcting false impressions
Explaining how the product works
Building a company image
Persuasive promotion
Persuasive promotion is designed to
stimulate a purchase or an action: for
example, to drink more Coca-Cola or to
use AAA Service. Persuasion normally
becomes the main promotion goal when
the product enters the growth stage of its
life cycle.
Persuasive promotion:
tasks & examples





Building brand preference
Encouraging brand switching
Changing customers’ perceptions of
product attributes
Influencing customers to buy now
Persuading customers to receive a call
Reminder promotion
Reminder promotion is used to keep
the product and brand name in the
public’s mind. This type of
promotion prevails during the
maturity stage of the life cycle.
Reminder promotion




Reminding consumers that a product may
be needed in the near future
Reminding consumers where to buy the
product
Keeping the product in consumers’ minds
during off times
Maintaining consumer awareness
Aida and the
Hierarchy of effects
AIDA and the
Hierarchy of Effects
Purchase
Conviction
Preference
liking
Action
Desire
Knowledge
Interest
Attention
Cognitive
Affective
Conative
(“thinking”)
(“liking”)
(“doing”)
Element 4
Pricing
Strategy
Pricing strategies
Price is what a buyer must give up to
obtain a product. It is one of the most
flexible of the 4 marketing mix
elements. Marketers can raise or lower
prices more frequently and easily than
they can change other marketing mix
variables.
The importance of price
Price means one thing to the consumer and
something else to the seller. To the
consumer, it is the cost of something. To the
seller, price is revenue, the primary source
of profits.
Trying to set the right price is one of the
most stressful and pressure-filled tasks of
the marketing manager.
Pricing objectives
To survive in today’s highly competitive
marketplace, companies need pricing
objectives that are specific, attainable, and
measurable. Realistic pricing goals then
require periodic monitoring to determine the
effectiveness of the company’s strategy. In
general, pricing objectives can be divided into
three categories: profit-oriented, salesoriented, and status quo.
Profit-oriented
pricing objectives
Profit-oriented pricing objectives
Profit-oriented objectives include:



profit maximization
satisfactory profits
target return on investment.
(1) Profit maximization
Profit maximization means setting prices
so that total revenue is as large as possible
relative to total costs. Profit maximization
does not always signify unreasonably high
prices, however. Both price and profits
depend on the type of competitive
environment a firm faces, such as in
monopoly position.
(2) Satisfactory Profits
Satisfactory profits are a reasonable level
of profits. Rather than maximizing profits,
many organizations strive for profits that
are satisfactory to the stockholders and
management: a level of profits consistent
with the level of risk an organization faces.
In a risky industry, a satisfactory profit
may be 35%. In a low-risk industry, it
might be 7%.
(3) Target return on investment (1)
The most common profit objective is
target return on investment (ROI).
ROI measures the overall
effectiveness of management in
generating profits with its available
assets. The higher the firm’s return
on investment, the better off the firm
is.
(3) Target return on investment (2)
Assume that in 1996 Johnson Controls had
assets of $4.5 million, net profits of $550,000,
and a target ROI of 10%.
Return on investment=Net profits after
taxes/total assets
ROI = 550,000/4,500,000=12.2%
(3) Target return on investment (3)
Generally speaking, firms seek ROIs in the
10-30 percent range. For example, GE seeks
a 25% ROI, whereas Alcoa, Rubbermaid,
and most pharmaceutical companies strive
for a 20% ROI. In some industries, such as
grocery industry, a return under 5% is
common and acceptable.
Sales-oriented
pricing objectives
Sales-oriented pricing objectives
Sales-oriented pricing objectives are based
either on market share or on dollar or unit
sales. Market share is a company’s product
sales as a percentage of total sales for that
industry. Sales can be reported in dollars
or in units of product. However, usually
market share is expressed in terms of
revenue and not units.
Sales-oriented pricing objectives
Sales-oriented pricing objectives are based
either on market share or on dollar or unit
sales. Market share is a company’s product
sales as a percentage of total sales for that
industry. Sales can be reported in dollars
or in units of product. However, usually
market share is expressed in terms of
revenue and not units.
Two ways to measure market share:
Units and Revenue
Company
Units sold
Unit price
Total
revenue
Unit M
share
Revenue
M share
A
1,000,000
$1.00
1,00,000
50%
25%
B
200,000
4.00
800,000
10%
20%
C
500,000
2.00
1,000,000
25%
25%
D
300,000
4.00
1,200,000
15%
30%
Total
2,000,000
$4,000,000
Status Quo
pricing objectives
Status quo pricing objectives
Status quo pricing objectives seek to maintain
existing prices or to meet the competition’s prices.
This category of pricing objectives has the major
advantage of requiring little planning. It is
essentially a passive pricing policy. Companies
competing in an industry with an established
price leader simply meet competition’s prices.
These industries typically have fewer price wars
than those with direct price competition.
The appropriate
marketing mix
The appropriate marketing mix
The appropriate marketing mix for a product or
service depends on the success requirements of
the markets at which it is directed. The
“rightness” of a product, communication,
channel, or price strategy can be interpreted
only in the context of markets served.
Recognition of this fact has prompted the use of
regional marketing, whereby different
marketing mixes are employed to accommodate
unique consumer preferences and competitive
conditions in different geographical areas.
In addition to being consistent
In addition to being consistent with
the needs of markets served, a
marketing mix must be consistent
with the organization’s capacity, and
the individual activities must
complement one another. Several
questions offer direction in evaluating
an organization’s marketing mix.
Question 1
 Is the marketing mix internally consistent?
 Do the individual activities compliment one
another to form a whole, as opposed to
fragmented pieces?
 Does the mix fit the organization, the
market, and the environment into which it
will be introduced?
Question 2
Are buyers more sensitive to some
marketing mix activities than to
others? For example, are they
more likely to respond favorably
to a decrease in price or an
increase in advertising?
Question 3
 What are the costs of performing marketing
mix activities and the costs of attracting and
retaining buyers?
 Do these costs exceed their benefits?
 Can the organization afford the marketing
mix expenditures?
Question 4
 Is the marketing mix properly timed? For
example, are communications scheduled to
coincide with product availability?
 Is the entire marketing mix timely with respect
to the buying cycle of consumers, competitor
actions, and the ebb and flow of environmental
forces?
Art & Science
Implementation of the marketing mix is as
much an art as a science. Successful
implementation requires an understanding
of markets, environmental forces,
organizational capacity, and marketing
mix activities with a healthy respect for
competitor reactions.
An example of WEO…
An example of an implementation with less
than successful results is that of A&P’s WEO
(Where Economy Originates) program. Prior
to implementing the program, A&P had
watched its sales volume plateau with
shrinking profits, while other supermarket
chains continued to increase sales volume and
profits.
An example of WEO …
When the WEO program was initiated, it
emphasized discount pricing (price strategy)
with heavy promotional expenditures
(communication strategy). The program
increased sales volume by $800 million but
produced a profit loss of over $50 million. In
the words of one industry observer at the time.
A lesson of WEO…
Its competitors are convinced that A&P’s
assault with WEO was doomed from the start.
Too many of its stores are relics of a bygone
era. Many are in poor locations [distribution
strategy]…They are just not big enough to
support the tremendous volume that is
necessary to make a discounting operation
profitable [capacity]…stores lack shelf space
for stocking general merchandise items, such
as house wares and children’s clothing
[product strategy].
A lesson of WEO…
The product-market strategy employed by
A&P could be classified as a marketpenetration strategy. Its implementation,
however, could be questioned in terms of
internal consistency, costs of the marketing
mix activities, and fit with organizational
capacity. Moreover, the retail grocery
industry was plagued at the time by rising
food costs, an environmental force that had a
destructive effect on strategy success.