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CHAPTER 6PRICING DECISIONS
Definition of a price and pricing
Importance of price
Pricing objectives Price determinants
Pricing methods
Pricing strategies and policies
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6.1 DEFINITION OF A PRICE ANDPRICING
Price is value expressed in monetaryterms
Pricing is the process of determining aprice for a product
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6.2 IMPORTANCE OF PRICE
Basic regulator of the economy
The variable which is most influenced bythe state
Major determinant of demand
Quality indicator
Determinant of revenue and profitability
A competitive tool
A promotional tool
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6.3 PRICING OBJECTIVES
Macro Pricing objectives: Attainment of certain level ofprice stability and managing income policy
Market oriented objectives: to increase market share, topenetrate the market and to skim the market
Competition oriented objectives : To meet or toovercome competition.
Finance oriented objectives: Profit maximization, ROIand Cash flow
Promotional and image building objectives: Status quoand product quality.
Survival pricing objectives
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Pricing objectives
SurvivalProfit
ROI
Market
share
Cash flow
Status quo
Entry barriers
Followcompetition
Emphasisequality/brand
OBJECTIVES
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6.4 PRICE DETERMINANTS
Pricing objectives Demand for the product Cost of the product
Level of competition Pricing Policies Other Parts of the Marketing Mix Supply environment
Characteristics of Buyer Macro environmental Factors
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1 What value is placed onproduct by customer?
In relation tocompetitive products
In relation to
perception of relativevalue provided bycustomer (safetyzone)
In relation toEconomic Valuemaximum priceconsumers will pay ifthey fully understandvalue/benefits of
Superior value iswhen the customerrecognizes that youare offering acombination ofquality, price andservice which issuperior to your
customersexpectations and yourcompetitorsproposition
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6 Are returns worth the cost?
80:20/225:20 rules
Manage for profits not sales
Price should not cannibalise other sales
Price
Cost
Low
High
High
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Marketing is about creating customer
value
Product benefits
Service benefitsRelational benefits
Image benefits
Monetary costs
Time costsEnergy costs
Psychological costs
Customervalue
Perceived
benefits
Perceived
sacrifice
Positive Negative
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Costs
Competitors prices
Customers assessment of value
Price too high no demand
Price too Low no profitFloor
Ceiling
Pricing: 3Cs
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Price and the Product Life Cycle
Introduction
Growth Maturity Decline(Time)
(Sales)
Pre-Launch:Establishpriceobjectives
Penetration/
Skim
Use price
to combatcompetition/improvevalue perceptions
Price to
protectposition
Price to
maximiseprofits
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6.5 PRICING METHODS
Cost Oriented Pricing Methods: Cost plus,total cost, full cost, mark up, variable costand Break even analysis pricing methods
Demand Oriented Pricing Methods:Perceived value and Differential Pricingtechniques.
Competition Oriented Pricing Methods:Going rate and Sealed bid pricing methods
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Pricing methods
Cost
Competition Marketing
Pricingmethods
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6.6 PRICING STRATEGIESAND POLICIES
Price Discounts and Allowances: Trade, Quantity, Cash and Seasonaldiscounts.
Geographic Pricing Policies: Ex factory, Uniform delivered and Zonal pricingpolicies.
Pioneer Pricing Policies: Market Skimming and Penetration pricing policies. Product Mix Pricing Policies: Product lining, Optional product and Captive
product Pricing policies. Promotional Pricing Policies: Leader, Special event and Superficial
discounting pricing policies. Psychological Pricing Policies: Odd pricing policy Re sale Price Maintenance Policy: Providing suggested prices to retailers Discrimination Pricing Policy: Different prices being charged to give group
of buyers a competitive advantage.
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TOPIC 7DISTRIBUTION DECISIONS
Distribution defined
Distribution channel defined
Types of distribution channels
Types of channel flows
Functions of Distribution Channels
Channel determinants
Channel integration
Channel Management
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7.1 DEFINITIONS
Distribution is the process of moving theproducts from their points of production totheir points of consumption.
Distribution channel is the route throughwhich products and their titles move fromproducers to consumers.
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7.2 TYPES OF DISTRIBUTIONCHANNELS
1. Zero level Channel
2. One level Channel
3. Two level Channel
4. Direct Channel
5. Indirect Channel
6. Short Channel
7. Long Channel
8. Intensive Channel
9. Selective Channel
10. Exclusive Channel
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How intermediaries can improve efficiency
P
P
P
P
P
P
C
C
C
C
C
C
I
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7.4 FUNCTIONS OFDISTRIBUTION CHANNELS
1. Research
2. Promotion
3. Contacting
Prospective Buyers
4. Matching
5. Grading
6. Assembling7. Packaging
8. Negotiation
9. Physical Distribution
10. Transportation11. Storage
12. Financing
13. Risk Taking14. Product Assortment
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7.5 CHANNELDETERMINANTS
1. Market Factors
2. Product Factors
3. Company Factors4. Middlemen Factors
5. Competitive Factors
6. Macro Environmental Factors
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7.6 CHANNEL INTEGRATION
Consists of networks comprised ofinterconnected units each of which in theoryparticipates in facilitating the channel flow. Thevarious links or stages of the channel may becombined under the management of a channelleader either horizontally or vertically.
Integration may stabilize supply, reduce costsand increase coordination of channel members
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7.6.1 VERTICALINTEGRATION
Vertical integration combines two or more stages of thechannel under one management. Vertical marketingintegration may be corporate, administered orcontractual.
Corporate VMS combines successive stages ofproduction and distribution under single ownership.
Administered VMS coordinates successive stages ofproduction and distribution under the powerful channelmember.
Contractual VMS consists of independent firms atdifferent levels of production and distribution integratingtheir programs on contractual basis.
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7.6.2 HORIZONTAL VERTICALINTEGRATION
Horizontal channel integration combinesinstitutions at the same level of operationunder one management. For instance two
or more companies may join together toexploit an emerging marketing opportunity.Each company lacks the capital, knowhow, production or marketing resources to
venture alone, or it is afraid of risk, or itsees a substantial synergy in joining withanother firm.
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7.7 CHANNEL MANAGEMENT
Channel management involves selection,motivation and evaluation of individual channelmembers as well as channel modification. The
factors to be considered in selection are: accessto intended market, ability to carry adequatestock, effectiveness of promotional program,services to customer, payment of bills on time,
number of years in business, other lines carried,growth and profit record, solvency,cooperativeness and reputation.
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TOPIC 8PROMOTION DECISIONS
1. Promotion Defined
2. The roles of Promotion
3. Communication Process or Model4. Steps in Developing Effective Promotion
Program
5. Elements of the promotion Mix6. Determinants of the Combination of the
Promotion Mix
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Terminology
PROMOTIONPro - forwardMovere - to move
PUSHING FORWARDProductService
ADVERTISINGAd - towards
Vertere - to turn
TURNING THE CONSUMERTowards the product
Towards the service
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Promotion process - aims
Consumer realises need for product
Consumer can identify/recognise/recall product
Consumer has positive attitude towards brand
Consumer has intention to purchase
Other mix elements facilitate purchase
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The communication process
ReceiverEncodedmessage
Decodedmessage
TransmissionSource
(Marketer)
Feedback
Noise
Noise
Third Party
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8.1 PROMOTION DEFINED
Promotion is the personal or impersonalprocess in which applied communication isused by marketers for assisting or
persuading prospective customers to buya product or a service or to act favourablyupon an idea that has a commercial
significance to the seller.
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8.2 ROLES OF PROMOTION
1. Building Awareness
2. Developing Conviction
3. Reminding4. Prevent or Meet Competition
5. Enhancing Company Image
6. Educating Consumers7. Increasing Sales
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How promotion works
Awareness
Interest
Evaluation
Trial
Adoption
Awareness
Interest
Desire
Action
Awareness
Trial
Reinforcement
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The five Ms of promotion
MISSIONSales goalsPromotional
objectives
MONEYStage in PLCMarket share
Customer baseCompetitionFrequency
MEDIAReach
FrequencyImpactTiming
MESSAGEGenerationEvaluationSelectionExecution
MEASUREMENTComms impactSales impact
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Reaching the consumerthe promotional mix
MARKET RESEARCHCONSUMER
PRODUCER
PRODUCTPRICEPROMOTION
DISTRIBUTIONPEOPLEPHYSICAL EVIDENCEPROCESS
ADVERTISING
DIRECT MARKETING
SALES PROMOTIONPUBLIC RELATIONS
PERSONAL SELLING
INTERNET
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Advertising
Any paid form of nonpersonal communication ofideas, products or services in
prime media such as
television, press,posters,radio or cinema
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Awareness building
Repetition/enforcement
Brand communications
Legitimisesproduct/company
Can provide postpurchase reassurance
Cost
Impersonal
Difficult to close sale
Increased fragmentation
ADVANTAGES DISADVANTAGES
Advertising: evaluation
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Direct Marketing
The distribution of information andpromotional benefits to targetconsumers through interactivecommunication in a way which allows
response to be measured
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Target
E Media
Door to Door
Coupons
Inserts
Catalogues
Telemarketing
Direct Mail
Direct Marketing methods
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Individual targeting
Personalisedcommunication
Long term relationship
Measurement and trackingvia database
Recognises + consumersophistication
Fast/direct
Variable response rates
Junk mail
Poorinformation/targetingreduces brand value
ADVANTAGES DISADVANTAGES
Direct Marketing: evaluation
S l P ti
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Sales Promotion
Incentives to consumers or thetrade that are designed tostimulate purchase
S l P ti l ti
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Quick sales boost
Speeds up launchprocess
Increases visibility
Combats competitorsmarketing efforts
Motivational medium
Short term
Can cannibalisemargins
Money off can = branddilution
Can lose brandrecognition
ADVANTAGES DISADVANTAGES
Sales Promotion: evaluation
P l lli
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Personal selling
Oral communication withprospective purchasers with theintention of making a sale
Th l l
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The personal sales process
SELLING FUNCTION
Order Takers Order Creators Order Getters
Inside
DeliveryOutside Missionary
SalesPeople
Frontline
Sales
Sales
Support
P l lli l ti
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Interactive/personal
Process adaptable
Builds relationships
Objections overcome
Can close a sale
Important B2B
Costly
Risky
Can reach relatively fewprospects
Needs demonstration
ADVANTAGES DISADVANTAGES
Personal selling: evaluation
Public relations
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Public relations
The planned and sustained effort to establish
and maintain goodwill and mutualunderstanding between an organisation andits public
Communication of a product or business byplacing information about it in the mediawithout paying for the time or space directly
Organisations publics / stakeholders
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Organisations publics / stakeholders
ORGANISATION
Finance
Government
Media
Public
Employees
Commercial
Public relations: evaluation
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Credible third partyendorsement
Higher readership than
adverts
Can be cost effective
Influences allstakeholders/publics
Can create goodwillamongst stakeholders
Can negate problems
Poor hit rate
No control over media
Media cynicism
Consumer cynicism -spin
ADVANTAGES DISADVANTAGES
Public relations: evaluation
The Internet
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The Internet
The distribution of information andpromotional benefits to consumersthrough electronic media
The Internet: evaluation
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Convenience
Information
Choice
Global Multi media
Instant market research
Lower prices
Lower costs Customised promotion
Rapid response
Promotional costs stillvery high
Poor sites = negativeoverall perception
Variable fulfilment rates
Not stand alone
ADVANTAGES DISADVANTAGES
The Internet: evaluation
The importance of the database
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The importance of the database
Marketingdatabase
Promotionalinformation
Productinformation
Customer &
prospectinformation
Transactionalinformation
Geo-demographicinformation
8 4 DEVELOPING AN EFFECTIVE
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8.4 DEVELOPING AN EFFECTIVEPROMOTION PROGRAM
1. Identifying the target audience
2. Determining the promotion objectives
3. Designing the Message4. Selecting the Communication Channels
5. Establishing the total promotion budget
6. Deciding on the promotion Mix7. Measuring Promotion Results
The Internet: evolution
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ElectronicDirectory
Electronic
Advertising
InteractiveAdvertising
InteractiveDistribution
IntegratedProcesses
The Internet: evolution
The Promotion Pyramid
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Media Advertising
Public Relations & Publicity
Direct Mail
Trade shows, Seminars & Training
The Promotion Pyramid
Catalog, lit. & manuals
Telemarketing
Sales
Cost perContact
High
Low
Coverage of Target Audience
Broad to Narrow
The real challenge is to integratethe various elements of the
promotional mix in orderto get the optimal
results at the
lowest cost!
Consumer / industrial
Use of promotion elements in sequence
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Use of promotion elements in sequence
Advertising
PoS Exhibitions
Promotions
Goods
Services
PersonalSelling
Advertising
(Broadcast TV &Radio)
Low information/high frequency
Head and Heart
PR
Word of Mouth
Trade Journals
Website
Direct Mail
Productusage
Loyalty
Third partysupport(distributors)
Advertising
Reducecognitivedissonance
Promotions
Money
Posters
Awareness Action
RepeatBehaviour
Reinforce-ment
The different elements of the Promotional Mix achieve effectivenessat the appropriate stage in the persuasion process e.g.
8.6 DETERMINANTS OF THE
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8.6 DETERMINANTS OF THECOMBINATION OF THE
PROMOTION MIX1. Promotional
Objectives
2. Promotion Policy
3. Promotion Budget
4. Nature of the Market
5. Nature of theProduct
6. The Stages of thePLC
7. Distribution Intensity
8. The Costs of thePromotional Methods
9. Availability of Media
10. Buyers Readiness
Stage.