Notesale: Turn your study into money

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MARKETING

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PRICE
I
...

A
...

• Barter is the practice of exchanging goods and services for other goods and services rather
than for money, and accounts for billions of dollars annually in domestic and international
trade
...

• Buyers are more willing to pay extra fees (surcharges and special fees) than a higher list
price, so sellers use add on charges as a way of having the consumer pay more without
raising the list price
...
Price and the Global Marketplace
• To generate profits in today’s global marketplace, international firms…
a
...
Suppliers whose efficiencies and lower hourly wages can reduce the prices the buying
firms must pay
...
Is opening new stores
...
Is contracting with furniture manufacturers around the world
...
Has slashed prices in China to appeal to the country’s growing middle class
...
Price as an Indicator of Value
• Price is often used to indicate value when it is compared with the perceived benefits of a
product or service
...
For a given price, as perceived benefits increase, value increases
...
Conversely, for a given price, as value decreases, perceived benefits decrease
...

a
...
”
b
...

c
...

d
...

D
...
Identify pricing constraints and objectives
...
Estimate demand and revenue
...
Determine cost, volume, and profit relationships
...
Select an approximate price level
...
Set list or quoted price
...
Make special adjustments to list or quoted price
...
The six steps in setting price
...
STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS
A marketing manager must consider the pricing objectives and constraints that will narrow the range
of choices
...

A
...

• Pricing objectives are carried to lower levels in the organization, such as in setting
objectives for marketing managers responsible for an individual brand
...

• An organization may pursue six broad objectives, which tie in directly to the
organization’s pricing policies
...
Profit
...
Managing for long-run profits objective
...

• Products are priced relatively low compared to their cost to develop, but the firm
expects to make greater profits later due to its high market share
...
Maximizing current profit objective, such as for a quarter or year, is common in many
firms because the targets can be set and performance measured quickly
...

c
...


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d
...

2
...

a
...

b
...

c
...

3
...

a
...

b
...

4
...

a
...

b
...

5
...
At times, profits, sales, and market share are less important objectives than mere
survival
...

6
...
A firm may forgo higher profit on sales and follow a pricing objective that
recognizes its obligations to customers and society in general
...
Identifying Pricing Constraints
• Pricing constraints are factors that limit the range of prices a firm may set
...

1
...

a
...

b
...

2
...

a
...

b
...

c
...
But these items can take a nosedive too
...
Publishing competitive prices on the Internet for the same or similar brands of products
has revolutionized access to price comparisons for both collectors and buyers of more
traditional products
...
Single Product versus a Product Line
...
A firm has great latitude in setting a price for a lone, introductory product
...
With a wide range of products, the price of individual items must be consistent with the
others based on features provided, and meaningful price differentials must communicate
value to consumers
...
Cost of Producing and Marketing the Product
...
If theprice doesn’t cover these costs, the firm will fail;
therefore, a firm’s costs set a floor under its price
...
Cost of Changing Prices and Time Period They Apply
...
Some firms can change prices for their products to reflect its latest information because
only one buyer has to be informed
...
For catalog firms, if it decides that its product prices are too low after they have been
mailed to customers, it must consider the cost of changing prices and the time period for
which they apply in developing the catalog’s price list
...
Changing prices can be costly, affecting both revenues and net margins
...
However,
prices on a website can change from minute to minute
...
Type of Competitive Markets
...
The seller’s price is constrained by the type of market in which it competes, which
dramatically influences the range of price competition and, in turn, the nature of product
differentiation and extent of advertising it uses
...
Economists delineate four types of competitive markets:
• Pure monopoly
...
There is no price competition
...

• Oligopoly
...
Firms stay aware of a competitor’s price cuts or increases
and may follow suit
...

• Monopolistic competition
...

• Pure competition
...

Advertising only informs buyers that the seller’s product is available
...
Competitors’ Prices
...


III
...

A
...
Conversely, if the price kept going down, they would buy
more
...

1
...

a
...


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b
...
Note that as price falls, more people decide to buy and unit sales increase
...
Demand curves for Newsweek showing the effect on annual sales
(quantity demanded per year) by a change in price caused by (A) a movement
along and (B) a shift of the demand curve
c
...

• Consumer tastes
...

• Price and availability of similar products
...

• Consumer income
...

• The first two factors influences what consumers want to buy, and the third affects
what they can buy
...
Along with price, these are called demand factors, or those that determine consumers’
willingness and ability to pay for goods and services
...
It is difficult to estimate demand for new products because consumer likes and dislikes are
difficult to read clearly
...
Movement Along versus Shift of a Demand Curve
...
Movement along a demand curve occurs when the price is lowered and quantity demanded
increases, assuming that other demand factors (consumer tastes, price and availability of
substitutes, and consumer income) remain unchanged
...
If some of these factors do change (such as an increase of advertising or more extensive
distribution, or if consumer incomes rise), a shift in the demand curve results
...

B
...

• Three revenue concepts lead to pricing decisions:

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a
...

Total revenue (TR) equals the unit price (P) times the quantity sold (Q) or
TR = P × Q
...
Average revenue (AR) is the average amount of money received for selling one unit of a
product, or simply the price of that unit
...

c
...
Marginal revenue (MR) equals the change in total revenue
divided by a 1 unit increase in quantity or
MR = ΔTR ÷ ΔQ, which equals the slope of the TR curve
...
Demand Curves and Revenue
...
Figure 13–7A shows the demand curve for Newsweek, but it is now extended to intersect both the
price and quantity axes
...
The demand curve shows that as price is changed (higher or lower), the quantity of Newsweek sold
throughout the U
...
changes (less or more)
...
Two important points about demand curves:
• It can be dangerous to extend a demand curve beyond the range of prices for which it
really applies
...

d
...
The total revenue curve is developed by simply multiplying the unit price
times the quantity for each
of the points on the demand curve
...

• This shows that as price is reduced in the A-to-D segment of the curve, total revenue is
increased
...

e
...
00 to above US$1
...
Below US$1
...

f
...

• In Figure 13–7A, the marginal revenue becomes US$0 per unit at a quantity sold of 4
...

• Marketers would never operate in the region of the demand curve in which marginal
revenue is negative
...

• When market share falls, the easy answer is to cut price, often with devastating results,
since a 1 percent decline in prices could lead to a significant decline in profits, other factors
being equal
...
Ultimately, Newsweek kept the price at US$2
...
However, through expanded newsstand
distribution and more aggressive advertising, Newsweek was later able to shift its demand curve to
the right and charge a price of $2
...


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2
...

a
...

b
...

E = Percentage change in quantity demanded
Percentage change in price
c
...
However, for simplicity and by convention, elasticity figures are shown
as positive numbers
...
Price elasticity of demand assumes three forms: elastic demand, inelastic
demand, and unitary demand:
• Elastic demand exists when a 1 percent decrease in price produces more than a 1 percent
increase in quantity demanded, thereby actually increasing sales revenue
...
Marketers may cut price to increase consumer demand,
the units sold, and total revenue for one of these products, depending on what competitors’
prices are
...
This results in a price
elasticity that is less than 1
...

– The concern for marketers is that while lowering price will increase the quantity
sold, revenues will actually fall
...
In this instance, price
elasticity is equal to 1
...
The more substitutes a product or service has, the more elastic it is
...
Products and services considered necessities are priced inelastic
...
Items that require a large cash outlay compared with a person’s disposable income are
price elastic
...
Because 12- to 17-year-olds often have limited “spending money,” this group is very
price elastic in its demand for cigarettes
...

• Thus, price elasticity is also important for public policy
...
Step 3
...

• Marketers often use marginal analysis and break-even analysis to relate revenues and costs
...
The Importance of Controlling Costs
Five cost concepts are important in pricing decisions:
• Total cost (TC) is the total expense incurred by a firm in producing and marketing a
product
...


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• Fixed cost (FC) is the sum of the expenses of the firm that are stable and do not change
with the quantity of a product that is produced and sold
...

• Variable cost (VC) is the sum of the expenses of the firm that vary directly with the
quantity of a product that is produced and sold
...
TC = FC + VC
...

• Marginal cost (MC) is the change in total cost that results from producing and marketing
one additional unit of a product
...

• Many firms go bankrupt because their costs get out of control, causing their total costs to
exceed their total revenues over an extended period of time
...

B
...

• For marketers, as long as revenue received from the sale of an additional
product (marginal revenue) is greater than the additional cost of producing and
selling it (marginal cost), a firm will expand its output of that product
...
Break-Even Analysis
Marketing managers often employ an approach that considers cost, volume, and
profit relationships based on the profit equation
...

• The break-even point (BEP) is the quantity at which total revenue and total
cost are equal
...

• In terms of definitions in Figure 13-8, the break-even point (BEP) is calculated
as:

BEPQuantity = Fixed Cost
Unit Price - Unit Variable Cost=FC
P - UVC
1
...

a
...
If FC = Php 28,000, P =
Php100, and UVC = Php30, the BEP is:

BEPQuantity = Fixed Cost
Unit Price - Unit Variable Cost =FC
P - UVC
=

Php 28,000
Php100 – Php 30
= 400 pictures

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2
...
Examples
ITEMS
PURCHASED
a
...
Airline ticket

c
...
STEP 4: SELECT AN APPROXIMATE PRICE LEVEL
A key to a marketer’s setting a final price for a product is to find an approximate price level to use as
a reasonable starting point
...


FIGURE 14-2 Four approaches for selecting an approximate price level
A
...

1
...

a
...

• These customers are not very price sensitive
...

• As consumer demand is satisfied, the firm lowers the price to attract another, more
price-sensitive segment
...

b
...

• The high initial price will not attract competitors
...

• Customers interpret the high price as high quality
...

2
...

a
...

b
...

• A low initial price discourages competitors from entering the market
...

c
...

• Lower the price further, counting on the new volume to generate the necessary
profit
...
Penetration pricing may follow skimming pricing:
• A firm might initially price a product high to attract price-insensitive consumers as
well as recoup initial R&D costs and introductory promotional expenses
...

3
...

a
...


FIGURE 14-3
...
In Figure 14-3A:

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• The demand curve slopes downward and to the right between points A and B but turns
to the left between points B and C because demand is actually reduced between points B and
C
...

• A marketing manager’s pricing strategy here is to stay above price Po (the initial price)
...
Products with an element of prestige pricing in them may sell worse at lower prices than at
higher ones because buyers tend to associate a lower price with lower quality
...
Price Lining
...
Price lining is setting the price of a line of products at a number of different specific
pricing points
...
In Figure 14-3B:
• Price lining assumes that demand is elastic at each of these price points (e
...
$59, $79, and
$99) but inelastic between them
...

• In other instances, manufacturers design products for different price points, and retailers
apply the same markup percentages to achieve the different price points
...

5
...

a
...
99
vs
...
00)
...
There is some evidence to suggest that demand increases if the price drops from $500 to
$499
...

c
...

6
...
Consists of:
a
...
Working backward through markups taken by retailers and wholesalers to determine what
price to charge wholesalers, and then; and then
c
...

7
...

a
...

b
...

c
...

8
...

a
...

b
...

B
...

1
...

a
...

b
...

c
...

2
...

a
...

b
...

c
...

3
...

a
...

b
...
Consumers will benefit because prices will decline as cumulative sales volume
grows
...
This approach complements the demand-based pricing strategy of skimming followed by
penetration pricing
...
Profit-Oriented Pricing Approaches
A marketer may choose to balance both revenues and costs to set price by either setting a target of a
specific dollar volume of profit or expressing this target profit as a percentage of sales or investment
1
...

a
...

b
...

Profit = Total Revenue – Total Cost
= (P × Q) – [FC + (UVC × Q)]
$7,000 = (P × 1,000) – [$26,000 + ($22 × 1,000)]
$7,000 = 1,000P – $48,000
1,000P = $55,000
P = $55
2
...

a
...


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a
...

b
...

c
...


Target Return on Sales = Target Profit
Total Revenue
20% = TR – TC
TR
0
...
20 = (P × 1,250) – [ $26,000 + ($22 × 1,250)]
P × 1,250
P = $53
...
50 per unit and an annual quantity of 1,250 frames:
TR = P × Q = $53
...
Target Return-on-Investment Pricing
...
Target return-on-investment pricing involves setting a price to achieve an annual target
return-on-investment (ROI)
...
Some firms and public utilities use this method
...
To handle this wide variety of assumptions for this method, marketers use computerized
spreadsheets such as Microsoft Excel to project operating statements based on a diverse set of
assumptions
...
In choosing a price or another action using spreadsheet results, the manager must:
• Study the results of the computer simulation projections
...

D
...

1
...
A significant departure from this price may result in a loss
of sales for the manufacturer
...
Above-, at-, or below-market pricing involves setting a market price for a product or product
class based on a subjective feel for the competitors’ price or market price as the benchmark
...
Above-market pricing sets a premium price for a product
...
At-market pricing establishes the going market price in the minds of their competitors and
provides a reference price for competitors that use above and below-market pricing
...
Below-market pricing sets a market price below the prices of nationally branded
competitive products to promote a value image among buyers
...
Loss-leader pricing involves deliberately selling a product below its customary price, not to
increase sales, but to attract customers’ attention in hopes that they will buy other products as well,
such as discretionary items with large markups
...
STEP 5: SET THE LIST OR QUOTED PRICE
Other factors influence the setting of a specific list or quoted price
...
Choosing a Price Policy
Choosing a price policy is important insetting a list or quoted price
...
One-Price Policy
...
A one-price policy, also called fixed pricing, is setting one price for all buyers of a product
or service
...
Some firms, such as car dealers, feature a “no haggle, one price” approach in its stores
...
Some retailers have married this policy with a below-market approach and sell everything
in their stores for $1 or less
...
Flexible-Price Policy
...
A flexible-price policy, also called dynamic pricing, involves setting different prices for
products and services depending on individual buyers and purchase situations
...
A flexible-price policy gives sellers considerable discretion in setting the final price in
light of demand, cost, and competitive factors
...
Yield management pricing is a form of flexible pricing because prices vary by a buyer’s
purchase situation, company cost considerations, and competitive conditions
...
Most companies use a one-price policy
...

e
...

f
...

• Online marketers have the ability to adjust prices in response to purchase situations
and past purchase behaviors of online buyers
...
If the visitor behaves like a price-sensitive
shopper, that person may be offered a lower price
...
There are also legal issues associated with flexible pricing as a flexible price policy may
lead to price discrimination, which may violate business laws in some Asian countries
...
Company, Customer, and Competitive Effects on Pricing
Three other factors affect the final list or quoted price
...
Company Effects
...
For a firm with multiple products, the price decision for a single product must consider the
price of other items in its product line or lines in its product mix because there are usually
some products that are substitutes for one another and some that complement each other
...
A marketer’s challenge when marketing multiple products is product-line pricing, setting
of prices for all items in a product line to cover the total cost and produce a profit for the
complete line, not necessarily for each item
...
Product-line pricing involves determining:

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•
•
•

P a g e | 16

The lowest-priced product and its price
...

Calculating the price differentials for all other products in the line
...

• The highest-priced item is typically positioned as the premium item in quality and
features
...

2
...

a
...

b
...

c
...

3
...

a
...

b
...

• Regardless of whether a firm is a price leader or follower, it usually wants to avoid
cutthroat price wars in which no firm in the industry makes a satisfactory profit
...

• However, if competitors match the lower price, other things being equal, the
expected market share, sales, and intended profit gain are lost
...
A recent analysis found that a 1 percent price cut—assuming no change in unit volume or
costs—lowers a company’s net profit by an average of 8 percent
...
Marketers are advised to consider price cutting only when one or more conditions exist:
• The company has a cost or technological advantage over its competitors
...

• The price cut is confined to specific products or customers, and not across-theboard
...
Balancing Incremental Costs and Revenues
• When price is changed or new advertising or selling programs are planned, their effect on
the quantity sold must be considered
...

• Marketers use marginal analysis to assess advertising, equipment purchase, and human
resource (i
...
salespeople) decisions
...

• Expected incremental revenues from pricing and other marketing actions must more than
offset incremental costs
...


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• Expected incremental revenues from pricing and other marketing actions mustmore than
offset incremental costs
...
STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED
PRICE
Marketers make three special adjustments to the list or quoted price for both wholesalers and retailers
in the channel of distribution
...
Discounts
Discounts are reductions from the list price that a seller gives a buyer as a reward for some activity of
the buyer that is favorable to the seller
...
Quantity Discounts
...
To encourage customers to buy larger quantities of a product, firms in the distribution
channel are offered quantity discounts, which are reductions in unit costs for a larger order
...
Since larger purchases may make more efficient of production equipment and/or reduce
order-handling costs, firms may be willing to pass on some of the cost savings in the form of
quantity discounts
...
Quantity discounts are of two general kinds:
• Noncumulative quantity discounts encourage large individual purchase orders, not
a
series of orders
...
Cumulative quantity discounts encourage
repeat buying by a single customer
...
Seasonal Discounts
...
Marketers use seasonal discounts to encourage buyers to stock inventory earlier than their
normal demand would require
...
This allows marketers to smooth out seasonal manufacturing peaks and troughs for more
efficient production
...
It also rewards wholesalers and retailers for the risk of assuming increased inventory
carrying costs and having supplies in stock when customers want
...
Trade (Functional) Discounts
...
To reward wholesalers and retailers for marketing functions they will perform in the
future, a manufacturer often gives trade, or functional,discounts
...
Trade, or functional, discounts are reductions off the list or base price
offered to wholesalers and retailers on the basis of (1) where they are in the channel and (2)
the marketing activities they are expected to perform in the future
...
Suppose a manufacturer quotes a price in the following form: List price = $100 less
30/10/5
...

• The first number always refers to the retailer, which receives 30 percent of the
MSRP to cover costs and provide a profit of $30 ($100 × 0
...

• The middle number refers to the wholesaler closest to the retailer in the channel,
which gets 10 percent of its selling price ($70 × 0
...

• The last number always refers to the wholesaler or jobber closest to the
manufacturer in the channel, which gets 5 percent of its selling price ($63 × 0
...
15)
...
85
...

4
...

a
...

b
...

• The bill for the product is $1,000
...
02 = $20) if payment is made
within 10 days and sends a check for $980
...
Interest will be added after the “net 30” day period
...
The 2 percent discount offered is substantial
...

• In a 360-day business year, this is an effective annual interest rate of 36 percent
[(2% × (360 ÷ 20)) = 36%)]
...

• Retailers provide cash discounts to consumers, in some cases to eliminate the cost
of credit—a discount for cash payment policy
...
Allowances
Allowances, like discounts, are reductions from list or quoted prices to buyers for
performing some activity
...
Trade-in Allowances
...
A trade-in allowance is a price reduction given when a used product is partof the payment
on a new product
...
Trade-ins are an effective way to lower the price a buyer has to pay without formally
reducing the list price
...
Promotional Allowances
...
Promotional allowances are cash payments or extra amount of “free
goods” awarded sellers in the channel of distribution for undertaking
certain advertising or selling activities to promote a product
...

b
...

• EDLP reduces the average price to consumers while minimizing
promotional allowances that cost marketers billions of dollars every
year
...

C
...


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1
...

a
...

b
...

• The seller names the location (warehouse or factory) where the loadingis to occur
...

c
...

d
...

2
...

a
...

b
...
” The seller selects the mode of transportation, pays
the freight charges, and is responsible for any damage that may occur because the seller
retains title to the goods until delivered to the buyer
...
There are four kinds of delivered pricing methods:
• In single-zone pricing, all buyers pay the same delivered price for the products, regardless
of their distance from the seller
...

The delivered price to all buyers within any one zone is the same, but prices across zones
vary depending on the transportation cost to the zone and the level of competition and
demand within the zone
...
” The buyer is allowed to deduct freight
expenses from the listprice of the goods, so the seller agrees to pay, or “absorb,” the
transportation costs
...

D
...

1
...

a
...

b
...

c
...
This practice, called resale price maintenance, may be illegal under
anti-competition wars in many Asian countries
...
A “manufacturer’s suggested retail price,” or MSRP, is not illegal per se
...

e
...


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2
...

a
...

• Only those price differences that substantially lessen competition or create a monopoly are
deemed unlawful
...

b
...
When price differences charged to different customers do not
exceed the differences in the cost of manufacture, sale, or delivery resulting from differing
methods or quantities in which such goods are sold or delivered to buyers
...

• Meet-the-competition defense
...

• To legally offer promotional allowances to buyers, the seller must do so on a
proportionally equal basis to all buyers distributing the seller’s product
...
Deceptive Pricing
...
Deceptive pricing involves price deals that mislead consumers and is outlawed by the
Trade Commission Act
...
The TC monitors such practices and has published a regulation titled “Guides against
Deceptive Pricing” designed to help businesspeople avoid a charge of deception
...
A frequently used pricing practice is to offer products and services for free—a great price!
But this can be deceptive
...
Geographical Pricing
...
FOB origin and FOB freight-allowed pricing practices are legal, providing no conspiracy
to set prices exists
...
Basing-point pricing may be viewed as illegal under anti-competitive regulations if there is
clear-cut evidence of a conspiracy to set prices
...
In general, geographical pricing practices have been immune from legal and regulatory
restrictions, unless there is a conspiracy to lessen competition exists
...
Predatory Pricing
...
Predatory pricing is the practice of charging a very low price for a product with the intent
of driving competitors out of business
...
This practice is illegal under anti-competition law if it is shown that the predator explicitly
attempted to destroy a competitor and the predatory price was below the defendant’s average
cost
...
NATURE AND IMPORTANCE OF MARKETING CHANNELS
Reaching prospective buyers, either directly or indirectly, is a prerequisite for successful marketing
...
What Is a Marketing Channel of Distribution?
• A marketing channel consists of individuals and firms involved in the process of making a
product or service available for use or consumption by consumers or industrial users
...


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a
...

b
...

B
...

1
...

a
...
Involves buying, selling, and risk taking because they stock
merchandise in anticipation of sales
...
Involves gathering, storing, and dispersing of products to buyers
...
Assists producers in making the transactions of goods and services
more attractive for buyers
...
All three functions must be performed in a marketing channel, even though each channel
member may not participate in all three
...
Channel members often negotiate about which specific functions they will perform
...
Marketing functions performed by intermediaries
...
Consumers Also Benefit from Intermediaries
...


FIGURE 15-2
...
CHANNEL STRUCTURE AND ORGANIZATION
A product can take many routes from a producer to buyers and there are differences
between marketing channels for consumer goods and those for industrial goods
...
Marketing Channels for Consumer Goods and Services
• Figure 15-3 shows the four most common marketing channels for consumer goods and
services and the number of levels in each channel based on the number of intermediaries
between a producer and ultimate buyers
...
For example, the producer→wholesaler→retailer→consumer channel is
longer than the producer→consumer channel
...
Common marketing channels for consumer offerings by the kind and
number of intermediaries

1
...

a
...

b
...

Channel A (producer→consumer)
...
Indirect Channel
...
Indirect channels are marketing channels where intermediaries are inserted between the
producer and consumers and perform numerous channel functions
...
The producer→retailer→consumer channel (Channel B) is the most common if the retailer
can buy large quantities from a producer or when the cost of inventory makes it too
expensive to use a wholesaler
...

• The cost of maintaining an inventory would be too high
...


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c
...

d
...

B
...

• Business channels are shorter and rely on one intermediary or none at all because business
users are fewer in number, are more concentrated geographically, and buy in larger
quantities
...
Direct Channel
...
Channel A is a direct channel where a producer and industrial user deal directly with each
other (producer→industrial user)
...
Firms using this channel maintain their own sales force and perform all channel functions
...
A direct channel is used when buyers are large and well defined, the sales effort requires
extensive negotiations, and the products are of high unit value and require hands-on expertise
in terms of installation or use
...
Indirect Channel
...
Channels B-D are indirect channels where one or more intermediaries are inserted between
the producer and industrial users to perform numerous channel functions
...
In Channel B (producer→industrial distributor→industrial user):
• An industrial distributor performs a variety of marketing channel functions, including
selling, stocking, delivering a full product assortment, and financing
...

c
...

d
...

C
...

• Electronic marketing channels combine electronic and traditional intermediaries to create
time, place, form, and possession utility for buyers
...

• Electronic intermediaries are incapable of performing elements of the logistical function,
which remains with traditional intermediaries or with the producer
...

D
...


MARKETING

P a g e | 24

a
...

b
...

• Multichannel marketing is the blending of different communication and delivery channels that
are mutually reinforcing in attracting, retaining, and building relationships with consumers who shop
and buy in traditional intermediaries and online
...
Multichannel marketing seeks to integrate a firm’s electronic and delivery channels
...
Multichannel marketing also can leverage the value-adding capabilities of different
channels
...

• Catalogs can serve as shopping tools for online purchasing, as they do for store purchasing
...

E
...

a
...

b
...

• Strategic channel alliance is a practice whereby one firm’s marketing channel is used to sell
another firm’s products
...
Is a recent development in marketing channels
...
Are popular in global marketing, where the creation of marketing channel relationships is
expensive and time consuming
...
Are professionally managed and centrally coordinated marketing channels
...
Achieve channel economies and maximum marketing impact
...


FIGURE 15-6 Types of Vertical Marketing Systems

MARKETING

P a g e | 25

1
...

a
...

b
...

• Forward integration
...

– Examples: Ralph Lauren, Apple
...

– Occurs when a retailer owns a manufacturing operation
...

• Both types of integration increase a company’s capital investment and fixed costs
...

2
...

a
...

• Is the most popular of the three types of vertical marketing systems
...
Three variations of contractual systems exist:
• Wholesaler-sponsored voluntary chains
...

– Standardize and coordinate buying practices, merchandising programs, and
inventory management efforts
...

– Examples: IGA and Ben Franklin
...

– Consist of small, independent retailers
...

– Plan collaborative promotional and pricing activities
...

• Franchising
...

– Allows the franchisee to operate a certain type of business:
* Under an established name
...


MARKETING

P a g e | 26

c
...

– Is where a manufacturer:
* Licenses dealers to sell its products…
* Subject to various sales and service conditions
...

• Manufacturer-sponsored wholesale franchise systems
...

* Licenses wholesalers that purchase the product…
* Then distributes to retailers
...

• Service-sponsored retail franchise systems
...

– Example: McDonalds, Shangri-la
...

– Is where a franchiser to
...

– Example: Panasonic and LG Company
...
Administered Systems
...
Administered vertical market systems:
• Achieve coordination at successive stages of production and distribution…
• By the size and influence of one channel member rather than through ownership
...
Procter & Gamble (P&G):
• Is able to obtain cooperation from supermarkets to display, promote, and price its
products…
• Because of its broad product line assortment ranging from disposable diapers to detergents
...
Walmart:
• Given its position as the world’s largest retailer…
• It can obtain cooperation from manufacturers in terms of product specifications, price
levels, and promotional support
...
CHANNEL CHOICE AND MANAGEMENT
Marketing channels not only link a producer to its buyers but also provide the means
through which a firm executes its marketing strategy
...
Channel Choice Considerations
Marketing executives typically consider three questions when choosing a marketing channel and
intermediaries:
• Which will provide the best coverage of the target market?
• Which will best satisfy the buying requirements of the target market?
• Which will be the most profitable?
1
...

Achieving the best target market coverage requires attention to the density— the number of stores in
a given geographical area—and type of intermediaries to be used at the retail level of distribution
...
Intensive distribution means that a firm tries to place its products and services in as many
outlets as possible
...

b
...
It is typically chosen
for specialty products or services
...
Selective distribution lies between these two extremes and means that a firm selects a few
retail outlets in a specific geographical area to carry its products
...

• Selective distribution weds some of the market coverage benefits of intensive
distribution to the control over resale evident with exclusive distribution
...

2
...

A second consideration in channel design is gaining access to channels and intermediaries that satisfy
at least some of the interests buyers might want fulfilled when they purchase a firm’s products or
services
...
Information is an important requirement when buyers have limited knowledge or desire
specific data about a product or service
...

chosen intermediaries communicate with buyers through in-store displays, demonstrations,
and personal selling
...
Convenience has multiple meanings for buyers, such as proximity or driving time to a
retail outlet or hours of operation
...
Variety reflects buyers’ interest in having numerous competing and complementary items
from which to choose and is evident in both the breadth and depth of products and brands
carried by intermediaries
...
Pre- or post-sale services provided by intermediaries are an important buying requirement
for products that require delivery, installation, and credit
...
Profitability
...
Is determined by the margins earned (revenue minus cost) for each channel member and
for the channel as a whole
...
Channel costs include distribution, advertising, and selling expenses
...
The extent to which channel members share these costs determines the profitability of each
member and of the channel as a whole
...
Managing Channel Relationships: Conflict, Cooperation, and Law
Because channels consist of independent individuals and firms, there is always potential for
disagreements concerning who performs channel functions, how profits are distributed, who will
provide what products and services, and who makes critical channel-related decisions
...
Sources of Conflict in Marketing Channels
...
Channel conflict arises when one channel member believes another channel member is
engaged in behavior that prevents it from achieving its goals
...
Vertical conflict occurs between different levels in a marketing channel, such as a
manufacturer and a retailer
...

• Conflict over how profits are distributed among channel members
...


MARKETING

P a g e | 28

c
...
Two sources are:
• Conflict when a manufacturer increases its distribution coverage in a geographical area
...

2
...
Conflict can have destructive effects on the
workings of a marketing channel so it is necessary to secure cooperation among channel member
...
Channel Captain
...

4
...
A firm (a producer, wholesaler, or retailer) becomes a channel captain
because it is the channel member with the ability to influence the behavior of other members
...
Economic, which arises from the firm’s ability to reward other members, given its strong
financial position
...
Expertise, in the form of inventory management, order processing, etc
...
Identification, or the desire to be associated with a channel member gives that firm
influence over others
...
The legitimate right of one channel member to direct the behavior of other members, such
as under contractual vertical marketing systems where a franchisor can legitimately direct
how a franchisee behaves
...
Channel influence can be used to gain concessions from other channel members
...
Legal Considerations
...
Conflict in marketing channels is typically resolved through negotiation or the exercise of
influence by channel members
...

b
...

c
...

d
...

• Vertical integration is viewed in a similar light
...

• Exclusive dealing exists when a supplier requires channel members to sell only its products
or restricts distributors from selling directly competitive products
...

• Tying arrangements occur when a supplier requires a distributor purchasing some products
to buy others from the supplier
...

• A refusal to deal with existing channel members may be illegal under the Clayton Act even
though a supplier has a legal right to choose intermediaries
...
These practices have been prosecuted under the Sherman Act
...
”

IV
...

• Logistics management is the practice of organizing the cost-effective flow of raw materials, inprocess inventory, finished goods, and related information from point of origin to point of
consumption to satisfy customer requirements
...
Logistics deals with decisions to move a product from the source of raw materials to
consumption—the flow of the product
...
The logistics decisions made have to be cost-effective
...
A firm needs to reduce logistics costs as long as it delivers expected customer service to
satisfy customer requirements
...

A
...

a
...

b
...

• Supply chain management
...
Is the integration and organization of information and logistic activities across firms in a
supply chain for the purpose of creating and delivering products and services that provide
value to ultimate consumers
...
The application of information technology allows companies to share and operate systems
for:
• Order processing
...

• Inventory and facility management
...
[Figure 15-8] shows the relationships among marketing channels, logistics management,
and supply chain management
...
Sourcing, Assembling, and Delivering a New Car: The Automotive Supply
Chain
• A supply chain:
a
...

b
...

• [Figure 15-9] A carmaker’s supplier network includes thousands of firms that provide 2,000
functional components, 30,000 parts, and 10 million lines of software code in a typical car
...
The supplier network provides items ranging from raw materials to components to
complex subassemblies and assemblies
...
Carmakers must coordinate the scheduling of material and component flows to assemble
their automobiles
...
This is dependent on logistical activities, including transportation, order processing,
inventory control, materials handling, and information technology
...
The automative supply chain includes thousands of firms that provide the
functional components, software codes, and parts in a typical car

C
...

• Each firm designs its supply chain differently based on its goals, whether it needs to be either more
responsive or efficient in meeting customer requirements
...
Aligning a Supply Chain with Marketing Strategy
The choice of a supply chain is based on a clearly defined marketing strategy
and involves three steps:
a
...

• Must identify the needs of the customer segment
...

b
...

• A company must understand what a supply chain does well
...

– Emphasize efficiency by supplying products at the lowest possible
delivered cost
...
Harmonize the supply chain with the marketing strategy
...


MARKETING

P a g e | 31

V
...

A
...

• It is important to study the impact of all logistics decisions when considering a change
since these costs are interrelated
...
If a firm attempts to minimize its transportation costs by shipping in large
quantities, it will experience an increase in inventory levels
...
Larger inventory levels will increase inventory costs but will also reduce
stockouts
...
Customer Service Concept
• If a supply chain is a flow, the end of it—output—is the service delivered to customers,
which can be expensive
...

• [Figure 15-10] A supply chain manager’s key task is to balance these four customer
service factors against five total logistics cost factors
...
Supply chain managers balance total logistics cost factors against
customer service factors
1
...

a
...

• Means that it is the time between the ordering of an item and when it is received and ready
for use or sale
...
– Documentation
...
– Transportation
...

• A current emphasis in supply chain management is to reduce order cycle times to minimize
customer inventory levels
...
Quick response or efficient consumer response involves inventory management systems
that make the process of reordering and receivingproducts as simple as possible
...
Dependability
...
Is the consistency of replenishment
...
Can be broken into three elements:
• Consistent lead time
...

• Complete delivery
...
Consistent service allows planning whereas inconsistencies create surprises
...
Intermediaries may be willing to accept longer lead times if they know about them in
advance and can thus make plans
...
Communication
...
Is a two-way link between buyer and seller that helps in monitoring service and
anticipating future needs
...
Status reports on orders are a communication between buyer and seller
...
Convenience means that there should be a minimum of effort on the part of the buyer in doing
business with the seller, who must remove unnecessary barriers
...
Vendor-managed inventory (VMI)…
b
...
Automatically delivers the appropriate items
...
THE COMMUNICATION PROCESS
• Communication is the process of conveying a message to others and requires six elements: a
source, a message, a channel of communication, a receiver, and the processes of encoding and
decoding
...

• A source is a company or person who has information to convey
...

• A channel of communication is the means (e
...
, a salesperson, advertising media, or public
relations tools) of conveying a message to a receiver
...


FIGURE 17-1
...
The Communication Process:Encoding, Decoding, Feedback & Noise

A
...

• Decoding is the reverse, or the process of having the receiver take a set of symbols, the message,
and transform them back to an idea
...

• Errors during the communication process occur in several ways:
a
...

b
...

c
...

d
...

• A field of experience is a mutually shared understanding and knowledge that a sender and
receiver apply to a message so that it can be communicated effectively
...

B
...

• A response is the impact the message had on the receiver’s knowledge, attitudes, or behaviors
...

• Pretesting consists of approaches to ensure that messages are decoded properly
...
Noise
• Noise consists of extraneous factors that can work against effective communication by distorting a
message or the feedback received
...
A printing mistake affects the meaning of a newspaper ad
...
Words or pictures are used that fail to communicate the message clearly
...
A salesperson’s message is misunderstood by a prospective buyer, such as when a
salesperson’s accent, use of slang terms, or communication style make hearing and
understanding the message difficult
...
THE PROMOTIONAL ELEMENTS
Firms use one or more of five promotional alternatives to communicate with
consumers:
• Advertising, sales promotion, and public relations use mass selling because they are used
with groups of prospective buyers
...

• Direct marketing also uses messages customized for specific customers
...
Advertising
• Advertising is any paid form of non-personal communication about an organization, good,
service, or idea by an identified sponsor
...
The paid aspect of advertising is important because the space for the advertising message
normally must be bought
...
The nonpersonal component of advertising involves mass media, which are non-personal
and do not have an immediate feedback loop as does personal selling
...
It is attention-getting
...
It communicates specific product
...
By paying for ad space to communicate a message, a firm controls what is said, to
whom it is sent, and when to send it
...
Once the pictorial, text, and brand elements of the message are created and
properly tested, an advertiser can that the advertisement’s ability to capture the
attention of and be decoded by all receivers in a market segment
...
The costs to produce and place a message are expensive
...
The lack of direct feedback makes it difficult to know how well the message was
received
...
Personal Selling
• Personal selling is the two-way flow of communication between a buyer and seller, often in a
face-to-face encounter, designed to influence a person’s or group’s purchase decision
...

• The advantages of using personal selling are:
a
...

b
...

c
...

• The disadvantages of using personal selling are:
a
...

b
...


MARKETING

P a g e | 35

C
...

• A public relations department’s tools include special events, lobbying efforts, annual reports, press
conferences, and image management, although publicity is often most important
...

Publicity is a nonpersonal, indirectly paid presentation of an organization, good, or service and can
take the form of a news story, editorial, or product announcement
...
A difference between publicity and both advertising and personal selling is the “indirectly
paid” dimension
...

b
...

c
...

• Social media, such as blogs, have grown dramatically and allow uncontrollable public discussions
of almost any company activity
...

• According to research, publicity followed by advertising with the same message increases the
positive response to the message
...
Sales Promotion
• Sales promotion is a short-term inducement of value offered to arouse interest in buying a good or
service
...

• Sales promotion, used with advertising or personal selling, sales promotions
are offered to intermediaries as well as to ultimate consumers
...
The short-term nature of these programs, such as a coupon or sweepstakes with an
expiration date, often increases sales for their duration
...
Offering value to the consumer in terms of a cents-off coupon or rebate may increase store
traffic from consumers who are not store-loyal
...

a
...

b
...

c
...
Customers begin to delay
purchase until a coupon is offered
...
The federal government regulates some aspects of sales promotions
...
Direct Marketing
• Direct marketing promotion alternative that uses direct communication with consumers to
generate a response in the form of an order, a request for further information, or a visit to a retail
outlet
...

• The advantages of using direct marketing are:
a
...


MARKETING

P a g e | 36

b
...

• The disadvantages of using direct marketing are:
a
...

b
...


III
...

• Coordinate a consistent promotional effort since the elements are often the
responsibility of different departments, which is the essence of an integrated marketing
communications approach
...
The Target Audience
• Promotional programs are directed to the ultimate consumer, an intermediary
(retailer, wholesaler, or distributor), or both
...
Mass media to reach large numbers of potential buyers
...
Personal selling at the place of purchase
...
Direct marketing to encourage first-time or repeat purchases
...
Combinations to reach some target audiences
...
Advertising is used selectively in trade magazines
...
Personal selling is used because business buyers often have specialized needs or technical
questions
...

• Personal selling is also the major promotional ingredient for intermediaries
...
Assist intermediaries in coordinating promotional campaigns sponsored by the
manufacturer
...
Provide marketing advice and expertise
...
The Product Life Cycle
Figure 18-3 shows how the composition of the promotional mix for Purina Dog
Chow changes over the four stages of its product life cycle
...

Promotional tools used over the product life cycle of Purina Dog Chow

MARKETING

P a g e | 37

1
...
The objective is to inform and generate awareness
...
All the promotional mix elements are used at this time, although the use of specific mix
depends on the product
...
Advertising is used to reach target consumers to build up awareness and interest in the
product
...
Publicity may even begin slightly before the product is commercially available
...
Growth Stage
...

a
...

b
...

c
...
To solidify the channel of distribution, the salesforce calls on
wholesalers to increase inventory levels and retailers to gain shelf space
...
The salesforce tries to obtain contracts to be the sole source of
supply for the buyer
...
Maturity Stage
...

a
...

b
...

c
...

d
...

e
...

4
...
Because the objective is to phase out the product, little money is spent on
promotion
...
Product Characteristics
The proper blend of elements in the promotional mix depends on the type of product
...
Refers to the technical sophistication of the product and hence the amount of
understanding required to use it
...

• Risk to the buyer (financial, social, and physical)
...

• Ancillary services
...

a
...

b
...

c
...

D
...

1
...

a
...

b
...

c
...


MARKETING

P a g e | 38

2
...

a
...

b
...

c
...

d
...

3
...

a
...

b
...

c
...

d
...

E
...

1
...

a
...

b
...

c
...

d
...

2
...

a
...

b
...

c
...

d
...
The strategy is designed to encourage consumers to ask their retailer
for the product—pulling it through the channel
...
DEVELOPING AN IMC PROGRAM
Due to high media costs, promotion decisions must be made carefully using a systematic approach
like the strategic marketing process
...

• Development of the promotion program focuses on the four Ws:
a
...
What (1) are the promotion objectives, (2) is the budget for the promotion program, and
(3) kinds of promotion should be used?
c
...
When should the promotion be run?

MARKETING

P a g e | 39

A
...

• Market segmentation studies help identify a firm’s target audience
...

B
...

• Consumers respond in terms of a hierarchy of effects, which is the sequence of stages a
prospective buyer goes through from initial awareness of a product to eventual action—either trial or
adoption of the product
...
Awareness
...

b
...
An increase in the consumer’s desire to learn about some of the features of the
product or brand
...
Evaluation
...

d
...
The consumer’s actual first purchase and use of the product or brand
...
Adoption
...

• For a totally new product, the sequence applies to the entire product category
...

• Promotion objectives should: (1) be designed for a well-defined target audience, (2) be
measurable, and (3) cover a specified time period
...
Setting the Promotion Budget
• After setting the promotion objectives, a company must decide on how much to spend, using one
of several budgeting methods
...

1
...

a
...

b
...

c
...
” By using this method, a firm may reduce its
promotion budget because of downturns in actual past or projected future sales—situations when
promotion may be needed the most
...
Competitive Parity
...
Competitive parity budgeting funds to promotion by matching the competitor’s absolute
level of spending or the proportion per point of market share
...

b
...

c
...

3
...

a
...

b
...


MARKETING

P a g e | 40

4
...

a
...

• Outlines the tasks to accomplish these objectives
...

b
...

• Integrates the strengths of the other budgeting approaches
...
The disadvantage of this method is the judgment required to determine the tasks needed to
accomplish objectives
...
Selecting the Right Promotional Tools
• Once a budget has been set, the relative importance of the five basic IMC tools is analyzed based
on the objectives specified
...

• Therefore, marketers use an analytical approach and their experience in selecting the appropriate
tools for each promotional objective
...

E
...
Advertising consists of advertising copy and the artwork that the target audience is
intended to see or hear
...
Personal selling depends on the characteristics and skills of the salesperson
...
Sales promotion activities consist of the specific details of inducements
...
Public relations efforts are seen in tangible elements such as news releases
...
Direct marketing depends on written, verbal, and electronic forms of delivery
...
Successful designs are the result of insights into consumers’
interests and behavior
...

F
...

• The promotion schedule describes the order in which each promotional tool is introduced and the
frequency of its use during the campaign
...


VI
...

A
...


MARKETING

P a g e | 41

• The ability to customize communication efforts and create one-to-one interactions is appealing to
most marketers, particularly those with IMC programs due to the availability of databases
...

B
...

• Direct marketing has several benefits
...

• Toll-free telephone numbers, representatives with access to purchase preference information,
overnight delivery, and unconditional guarantees all help create customer value
...
Direct orders are the result of direct marketing offers that contain all the information
necessary for a prospective buyer to make a decision to purchase and complete the
transaction
...
Lead generation is the result of a direct marketing offer designed to generate interest in a
product or service and a request for additional information
...
Traffic generation is the outcome of a direct marketing offer designed to motivate people
to visit a business
...
Technological, Global, and Ethical Issues in Direct Marketing
• Databases are the result of organizations’ efforts to collect demographic, media, and consumption
profiles of customers so that direct marketing tools can be directed at specific customers
...

• Consumer data collected as follows:
a
...

b
...

c
...

d
...

• Technology, deregulation, and improved payment systems may help the global growth of direct
marketing
...
Some of these issues include telephone solicitations, privacy of personal data,
and the proliferation of e-mail advertising, also known as spam
...
TYPES OF ADVERTISEMENTS
• Advertising is any paid form of nonpersonal communication about an organization, good, service,
or idea by an identified sponsor
...

A
...

a
...

• Used in the introductory stage of the product life cycle
...

• Informative ads have been found to be interesting, convincing, and effective
...
Competitive advertisements promote a specific brand’s features and benefits
...

• An increasingly form of competitive advertising is comparative advertising, which shows
one brand’s strengths relative to those ofcompetitors
...

– Firms that use comparative advertising need market research to provide legal
support for their claims
...
Reminder advertising:
• Is used to reinforce previous knowledge of a product
...

• Reinforcement advertising, another type of reminder ad, is used to assure current users they
made the right choice
...
Institutional Advertisements
• Institutional advertisements are designed to build goodwill or an image for
an organization rather than promote a specific good or service
...

• Four alternative forms of institutional advertisements are used:
a
...

b
...

c
...

d
...

C
...


MARKETING

P a g e | 43

• The media selection decision is related to the target audience, type of product,nature of the
message, campaign objectives, available budget, and the costs of the alternative media
...
Different Media Alternatives
Figure 18-2 summarizes advantages and disadvantages of the major advertising media
...
Television
...
Television is a valuable medium because it communicates with sight,sound, and motion
...
Network television can reach out to a large number of households in many Asian
countries
...
Out-of-home TV reaches millions more viewers in bars, hotels, offices, and college
campuses each week
...
Because of TV’s high cost(Php 128,00 for a 30-second prime-time ad):
• Many advertisers choose less expensive “spot” ads, which run between programs in 10-,
15-, 30-, or 60-second lengths
...

• Two different versions of a 15-second commercial, run back-to-back, will increase recall
over long intervals
...
Wasted coverage is having people outside the market for the product see the advertisement
...
The cost and wasted coverage of TV advertising can be reduced through the specialized
cable and direct broadcast (satellite) channels
...

• Many cable and satellite TV services now offer boxes with built-in digital video recorders
(DVRs) and remotes with “30-second skip”buttons for ad-zapping
...
Infomercials are program-length (30-minute) advertisements that take an educational
approach to communication with potential customers
...

• More than 25 percent of all consumers have purchased a product as a result of seeing an
infomercial
...
Radio
...
There are many times more radio stations than TV stations in Asian countries
...
The advantage of using radio is that it is a segmented medium; different market segments
listen to a different format, such as all-talk, hard rock, etc
...
The disadvantages of using radio are:
• Has limited use for products that must be seen
...

d
...

g
...

3
...

a
...
5 million
...
The advantages of using magazines are:
• Special-interest publications appeal to narrowly defined segments
...

c
...
However, many magazines publish regional editions, which reduce
absolute cost and wasted coverage
...
They are printed on a weekly basis, with many specialized publications
only monthly or less
...
There have been hundreds of
magazine failures during the past decade because they have all failed to attract and keep a
substantial number of readers or advertisers
...
Newspapers
...
Newspapers have excellent reach potential because they are published daily and therefore
allow ads to focus the “24-hour sale
...
Local retailers often use newspapers as their sole advertising medium
...
Consumers rarely save newspapers, although some will clip and save ads
...

d
...

e
...

• In these instances, both parties often share the advertising costs using a cooperative
advertising program
...

f
...

• Printing and paper costs have increased dramatically, which increase the cost of production
and distribution
...

• In many large cities free tabloid newspapers are targeting commuters and creating new
competition for traditional paid-for newspapers
...
Yellow Pages
...
Yellow pages represent an advertising media alternative comparable to radio and
magazines in terms of expenditures
...
Consumers use more this resource than 15 billion times annually and online yellow pages
an additional 1
...

c
...

• Are available 24 hours a day and 365 days a year
...

• Provide advertisers with many ad size options
...
The disadvantages of using Yellow pages:
• The proliferation of directories
...

• The difficulty of coordinating a nationwide campaign
...
Internet
...
The advantages of using online advertising:
• Online advertising is similar to print advertising in that it offers a visual message
...

• Rich media are interactive ads that use drop-down menus, games, or search engines to
engage viewers
...

b
...
3 percent
...

• Many advertisers are also adding entertainment elements
...
The disadvantages of using online advertising:
• The technical and administrative standards for the various formats are still evolving, which
makes it difficult for advertisers to run national online campaigns across multiple websites
...

d
...

• Nielsen Online Ratings is a rating service that measures actual click-by- click behavior
through meters installed on peoples’ computers at home and work
...

7
...

a
...

b
...

c
...


MARKETING

P a g e | 46

• Has been shown to increase purchase rates
...

• Is a relatively low-cost, flexible alternative
...
The disadvantages of using billboards are:
• No opportunity exists for lengthy advertising copy
...

• In many areas, environmental laws have limited or banned the use of this medium
...
Transit advertising is common in metropolitan areas and includes messages on the interior
and exterior of buses, subway cars, and taxis
...

– Selectivity is available to advertisers, who can buy space by neighborhood or route
...

f
...
Lower costs, faster
technology, and creativity have attracted large, national advertisers
...
Other Media
...
As traditional media have become more expensive and cluttered, advertisers are now using
a variety of nontraditional advertising options called place-based media
...
Messages are placed in locations that attract a specific target audience, such as airports,
doctors’ offices, health clubs, theaters, gas pumps, elevators, and other locations
...
Selection Criteria
...
Knowing the media habits of the target audience is essential to deciding among the
alternatives
...
Occasionally, product attributes determine the media used
...

• Newspapers allow advertising for quick actions to confront competitors
...

c
...


II
...

• The allocation of marketing expenditures reflects the trend toward integrated programs that
include a variety of promotion elements
...
Consumer-Oriented Sales Promotions
Consumer-oriented sales promotions, or simply consumer promotions, are sales tools used to
support a company’s advertising and personal selling directed to ultimate consumers
...
Coupons
...
Coupons are sales promotions that usually offer a discounted price to the consumer, which
encourages trial
...
Some firms have actually increased their use of coupons
...
Coupons generated at Internet sites and over cell phones are increasing
...
Coupons help increase sales and market share during the period immediately after coupons
are distributed
...
However, coupons can reduce gross revenues by lowering the price paid by already-loyal
consumers
...
Marketers are interested in coupon programs directed at potential first-time buyers that use
in-store coupon machines to match coupons to their most recent purchases since most
Americans use coupons when grocery shopping
...
Coupons are often far more expensive than their face value
...

• Mis-redemption, or paying the face value of the coupon even though the product was not
purchased, should be added to the cost of the coupon
...
Deals
...
Are short-term price reductions, such as a “2 for 1” deal, which are used to increase trial
among potential or to retaliate against a competitor’s actions
...
Can reduce the perceived value of the product
...
Premiums
...
A premium consists of either merchandise offered free or offered at a significant savings
over its retail price
...
With a self-liquidating premium, the cost charged to the consumer covers the cost of the
item
...
Premiums encourage customers to return or use more of the product
...
Contests
...

5
...

a
...

b
...

c
...

6
...

a
...

b
...

7
...

a
...

b
...
to reward
loyal customers
...
Are becoming popular in other product categories
...
Point-of-Purchase Displays
...
A point-of-purchase display takes the form of advertising signs, which sometimes actually
hold or display the product
...
They are often located in high-traffic areas near the cash register or the end of an aisle
...
The advantage of these methods of promotion is that they do not rely on
the consumers’ ability to remember the message for long periods of time
...
Interactive kiosks are also becoming popular
...
Rebates
...
The cash rebate offers money based on proof of purchase
...
On lower-priced items, many buyers never mail in proof of purchase to take advantage of
it due to the time and trouble
...
Online consumers are more likely to use rebates
...
Product Placement
...
Product placement involves the use of brand-name products in a movie, television show,
video, or commercial for another product
...
Companies are usually eager to gain exposure for their products
...
Studios believe that product placements add authenticity to the film or program and
typically receive fees in exchange for the in-program exposure
...
Trade-oriented sales promotions, or simply trade promotions, are sales tools used to
support a company’s advertising and personal selling directed to wholesalers, distributors, or
retailers
...
Allowances and Discounts
...
Trade promotions often focus on maintaining or increasing inventory levels in the channel
of distribution
...
Allowances and discounts are effective methods, but overuse can lead to changes in
ordering patterns
...
Merchandise allowances reimburse a retailer for extra in-store support or special featuring
of the brand
...

• Manufacturers do not pay for allowances until they see proof of performance
...
A case allowance is a discount on each case ordered during a specific time period and is
deducted from the invoice
...

• A variation of the case allowance is the “free goods” approach, whereby retailers receive
some amount of the product free based on the amount ordered
...
A finance allowance pays retailers for financing costs or financial losses associated with
consumer sales promotions
...

• Freight allowances, which compensate retailers that transport orders from the
manufacturer’s warehouse
...
Cooperative Advertising
...
Cooperative advertising occurs when a manufacturer pays a percentage of the retailer’s
local advertising expense for advertising the manufacturer’s products
...
The manufacturer pays a percentage, often 50 percent, of the cost of advertising up to a
certain dollar limit based on the purchases the retailer makes of the manufacturer’s products
...
The manufacturer also furnishes the retailer with a selection of different print or broadcast
ads for the retailer to adapt and use
...
Training of Distributors’ Salesforces
...
A manufacturer often spends time and money helping to train the reseller’s salesforce
about the manufacturer’s products to increase sales performance
...
Methods include providing manuals and brochures to educate the reseller’s salesforce,
which then uses them in selling situations
...
To inform and motivate reseller’s salesperson to sell their products, manufacturers will:
• Sponsor national sales meetings
...


III
...

• Public relations personnel usually focus on communicating positive aspects of the
business, but they may also be called on to minimize the negative impact of a
problem or crisis
...
Publicity Tools
Publicity tools are methods of obtaining nonpersonal presentation of an organization, good, or
service without direct cost
...

a
...

b
...

• A news conference is where representatives of the media are all invited to an informational
meeting, and advance materials regarding the content are sent
...

• Nonprofit organizations rely heavily on public service announcements (PSAs), which are
free space or time donated by the media
...


IV
...

A
...

• New media such as the Internet have provided immediate opportunities for personalized promotion
activities
...
”
• Diverse and global audiences necessitate multimedia approaches and sensitivity communication
techniques
...

B
...
Examples
include sweepstakes in which the gifts were not awarded, rebate offers that were a hassle, and
advertisements whose promises were overstated
...


MARKETING

P a g e | 50

• Some believe government regulation is necessary to protect consumers andspecial groups from
misleading promotions
...

• Advertising agencies, trade associations, and marketing organizations are using self-regulation to
reflect the values of society on their promotional activities in order to:
a
...

b
...

c
...




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