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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.