Promotion, Pricing and Distribution

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Promotion, Pricing and Distribution

• February 26, 2004

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I know half the money I spend on advertising is
wasted, but I can never find out which half.
-- John Wanamaker
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Agenda

• Promotion
• How much to spend?
• Personal selling
• Advertising
• Sales promotion
• Pricing
• Distribution channels

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Promotion and the Communication Process

• Promotion consists of marketing communications
  that inform, persuade, and remind consumers of a
  firms product offering
• Communication Process Components
• Sourcethe message sender
• Channelthe path the message travels
• Receiverthe recipient of the message

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Promotional Communications

• Forms of Promotional Communication
• Personalpersonal selling
• Nonpersonaladvertising
• Special formssales promotion
• Promotional Mix
• A blend of personal and nonpersonal promotional
  methods aimed at a target market.
• Makeup of the mix is determined by
• Geographical nature of target market
• Customer profile
• Products characteristics
• Size of promotional budget

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4-Step Method for Determining a Promotional
Budget
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Personal Selling

• Personal Selling
• A sales presentation (promotion) delivered in a
  one-on-one manner.
• Requires
• Product knowledge
• Well-prepared sales presentation
• Ability to build good will
• Salespersons use product knowledge to
• Successfully educate customers about the
  products advantages, uses, and limitations.
• Answer customer questions and counter customer
  objections.
• Personal selling becomes order-taking when a
  salesperson lacks product knowledge.

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Prospecting

• A systematic process of continually looking for
  new customers
• Prospecting Techniques
• Personal referrals
• Impersonal referrals
• Marketer-initiated contacts
• Customer-initiated contacts

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The Sales Presentation

• Practice improves success rates and prepares the
  salesperson to deal with objections.
• Adapting the sales approach to the customers
  needs
• Avoid a canned sales talk.
• Speak the customers language.
• Answer every objection explicitly and adequately.
• Be enthusiastic, friendly, and persistent.
• Be personally supportive of the customer
• Relationship selling
• Building customer goodwill for future sales to
  satisfied customers

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Dealing with Objections

• LISTEN!!!!!
• Convert the objection into the form of a
  question.
• Admitting and counterbalancing
• Use third party testimonials or experiences.
• Use the boomerang or positive conversion
  technique.
• Use comparisons
• Give guarantees
• Demonstrate the product
• Show what delaying purchase might cost

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Overcoming Objections
I had problems with a similar product before and
dont want to go through that again!
Yes, I understand your attitude, but have you
considered . . . ?
Im too busy.
Thats why I want to explain how I can save you
time by . . .
I like what you have said, but I need to wait.
Lets figure how much you can save by acting now.
Your product sounds just like your competitors.
There are similarities, but we have . . . at a
better price.
Im not sure I can risk a changeover to your
product.
Let me tell you how one of yourcompetitors
decided to buy from me.
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Compensating Salespeople

• Nonfinancial Rewards
• Personal recognition of employees by the firm
• Personal satisfaction drawn by salespersons from
  doing their work well.
• Financial Rewards
• Commissions
• Straight Salary
• Combination of Commissions and Salary

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Advertising Practices for Small Firms

• Advertising
• The impersonal presentation of a business idea
  through mass media.
• Advertising Objectives
• To sell by informing, persuading, and reminding.
• To serve as a complement to product quality and
  efficient service.
• To properly reflect changes in customer needs and
  preferences.

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Types of Advertising

• Product Advertising
• The presentation of a business idea designed to
  make potential customers aware of a specific
  product or service and create a desire for it.
• Institutional Advertising
• The presentation of information about a
  particular firm, designed to enhance the firms
  image.

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Advertising Decision Factors

• Frequency of Advertising
• With regularity for effectiveness and continuity
• Introduction of new uses for established products
• Introduction of new products and services
• Where to Advertise
• Appropriate media mix is determined by
• Geographical area for target market coverage
• Customer type targeted by advertising campaign
• Advertising media customarily used by industry
• By type of business

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Advantages and Disadvantages of Traditional
Advertising
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Sales Promotion

• Sales Promotion
• An inclusive term for any promotional techniques
  that are neither personal selling or advertising
• Specialties
• Tangible and enduring functional items of worth
  distributed personally to recipients that serve
  as reminders of the firm.
• Trade Show Exhibits
• Provide hands-on experience with products.
• Are less costly than personal selling.
• Publicity
• Information about a firm and its products or
  services that appears as a news item, usually
  free of charge.

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Agenda

• Promotion
• Pricing
• Setting a price
• Explaining costs and revenues
• Selecting a pricing strategy
• Offering credit
• Managing the credit process
• Distribution channels

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Setting a Price

• Price
• A specification of what a seller requires in
  exchange for transferring ownership or use of a
  product or service.
• Prices set too low, loss in revenue
• Price set too high, loss in revenue
• Credit
• An agreement between a buyer and a seller that
  provides for delayed payment for a product or
  service.

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Cost Determination for Pricing

• Total Cost
• The sum of cost of goods sold, selling expenses,
  and overhead costs.
• Total Variable Costs
• Costs that vary with the quantity produced or
  sold.
• Total Fixed Costs
• Costs that remain constant as the quantity
  product or sold varies

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Cost Structure for a Hypothetical Firm, 2003

• Sales revenue (25,000 units _at_ 8.00) 200,000
• Total costs Fixed costs 75,000 Variable
  costs (2.00 per unit) 50,000
• 125,000Gross margin 75,000
• Average cost 125,000 5.00 25,000

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Cost Structure for a Hypothetical Firm, 2002
Sales revenue (10,000 units _at_ 8.00) 80,000 Tota
l costs Fixed costs 75,000 Variable costs
(2.00 per unit) 20,000 95,000Gross
margin (15,000) Average cost 95,000
9.50 10,000
Average pricing overlooks the reality of higher
average costs at lower sales levels
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Demand Factors

• The Elasticity of Demand
• The degree to which a change in price affects the
  quantity demanded.
• Elastic Demand
• Demand that changes significantly when there is
  a change in the price of the product.
• Inelastic Demand
• Demand that does not change significantly when
  there is a change in the price of the product.

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Pricing and a FirmsCompetitive Advantage

• Customers will demand and pay more for a product
  or service that they perceive as important to
  their needs.
• Prestige Pricing
• Setting a high price to convey an image of high
  quality or uniqueness (competitive advantage).
• Customers associate price with quality.
• Markets with low levels of product knowledge are
  candidates for prestige pricing.

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Applying a Pricing System

• Break-Even Analysis
• A comparison of alternative cost and revenue
  estimates in order to determine the acceptability
  of each price.
• Steps in the analysis
• Examining revenue-cost relationships the
  quantity at which the product will generate
  enough revenue to start earning a profit.
• Incorporating actual sales forecasts into the
  analysis.

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Break-Even Graphs for Pricing
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Applying a Pricing System

• Examining Cost and Revenue Relationships
• Breakeven Point
• The sales volume at which total sales revenue
  equals total costs (fixed and variable).
• The point at which profitability starts and
  losses cease.
• Incorporating Sales Forecasts
• Adjusted Break-Even Analysis
• Price has a variable impact and influence on
  demand.
• Adjusting for the indirect effect of price allows
  for a more realistic profit area to be identified.

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A Break-Even Graph Adjustedfor Estimated Demand
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The 5 Cs of Pricing

• Cost
• Direct and full, by item
• Customer
• The judge of price/quality/value
• Expected/acceptable range
• Channels
• Margin to motivate
• End price impact
• Competition
• What are the alternatives/comparisons?
• Compatibility/Consistency
• With marketing, image, sales objectives

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Pricing Strategies

• Markup Pricing
• Cost plus pricing system that adds a markup
  percentage to cover
• Operating expenses
• Subsequent price reductions
• Desired profit

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Pricing Strategies

• Penetration Pricing
• Setting lower than normal prices to hasten market
  acceptance of a product or service or to increase
  market share.
• Skimming Pricing
• Setting very high prices for a limited period
  before reducing them to more competitive levels.
• Follow-the-Leader Pricing
• Using a particular competitor as a model in
  setting prices.

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Pricing Strategies

• Variable Pricing
• Setting more than one price for a good or service
  in order to offer price concessions to certain
  customers.
• Dynamic Pricing
• Charging more than the standard price when the
  customers profile suggests that the higher price
  will be accepted.
• Price Lining
• Setting a range of several distinct merchandise
  levels.

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Pricing Strategies

• What the Market Will Bear
• A strategy of charging the highest prices that
  customers will pay can be used only when the
  seller has little or no competition.
• Pricing Situations and Controls
• The effect of the introduction of new products
  into an established product line.
• Offering discounts to match the needs of
  customers.
• Antitrust laws prohibit competitors from
  conspiring to fix prices.

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Offering Credit

• Benefits of Credit to Borrowers
• Provides working capital
• Ability to satisfy immediate needs and pay later
• Better records of purchases on credit billing
• Better service when exchanging purchased items
• Establishment of credit history
• Benefits of Credit to Sellers
• Facilitates increased sales volume.
• Brings a closer association with customers.
• Foster, easier selling through phone, mail and
  web
• Smoother sales peaks and valleys
• Tool to stay competitive.

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Offering Credit

• Factors That Affect Selling on Credit
• Type of business
• Durable goods retailers offer more credit.
• Credit policies of competitors
• Competitors are expected to match other
  competitors credit offerings.
• Income level of customers
• Availability of working capital
• Credit sales increase the amount of working
  capital needed.

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Types of Credit

• Consumer Credit
• Open Charge Account
• Installment Account
• Revolving Charge Account
• Trade Credit
• Financing provided by a supplier of inventory to
  a given company which sets up an account payable
  for the amount e.g.
• 2/10 net 30
• COD
• EOM
• ROG

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Managing the Credit Process

• Evaluation of Credit Applicants
• Can the buyer pay as promised?
• Will the buyer pay?
• If so, when will the buyer pay?
• If not, can the buyer be forced to pay?
• The Traditional Five Cs of Credit
• Character
• Capital
• Capacity
• Conditions
• Collateral

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Hypothetical Aging Schedule for Accounts
Receivable

• Aging Schedule
• A categorization of accounts receivable based on
  the length of time they have been outstanding.

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Agenda

• Promotion
• Pricing
• Distribution channels
• Role of distribution activities in marketing
• Structuring a distribution system
• Global marketing challenges
• Researching a foreign market
• Sales and distribution channels
• Sources of trade and financing assistance

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Role of Distribution Activities in Marketing

• Distribution
• Physically moving products and establishing
  intermediary relationships to support such
  movement.
• Physical Distribution (Logistics)
• The activities of distribution involved in the
  physical relocation of products.
• Channel of Distribution
• The system of relationships established to guide
  the movement of a product.

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Functions of Intermediaries

• Perform the marketing function better
• Breaking bulk
• Assorting
• Providing information
• Shifting risks
• Merchant middlemen (Intermediaries that take
  title to the goods they distribute)
• Agents/brokers do not take title to the goods
  they distribute

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Types of Distribution Channels

• Direct channel
• A distribution system without intermediaries
• Indirect channel
• A distribution system with one or more
  intermediaries.
• Dual distribution
• A distribution system with more than one channel.

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Alternative Channels of Distribution
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Structuring a Distribution Channel

• Important Factors in Building a Distribution
  Channel (3 Cs)
• Costs associated with establishing a direct
  channel distribution
• Coverage is increased through the use of indirect
  channels of distribution.
• Control is enhanced using a direct distribution
  channel.

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Global Marketing Challenges

• Globalization The expansion of international
  business, promoted by converging market
  preferences, falling trade barriers, and the
  integration of national economies
• Foreign markets cannot be ignored by small firms
• Beware of cultural differences, political,
  economic risk, exchange rate fluctuations

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Trade Agreements
GATT
EUROPEAN UNION
NAFTA
FTA
ANDEAN PACT COUNTRIES
MERCOSUR
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Researching a Foreign Market

• Secondary sources
• Banks, universities, magazines, natives
• Government agencies
• DFAIT
• CCC
• CIDA
• EDC
• BDC
• Trade fairs
• Team Canada trade missions

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International Sales and Distribution Channels

• Exporting
• Licensing
• Wholly-owned subsidiaries
• Joint Ventures / Strategic Alliances
• Foreign distributors
• Foreign retailers
• Direct selling
• State-controlled trading companies
• World Information Network for Exports (WINS)
• Sales / Export agents

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Sources of Trade and Financing Assistance

• Private banks
• Letters of credit
• Factoring houses
• Export Development Corporation (EDC)
• Export credit insurance
• Bonding facilities
• Export financing
• Foreign investment insurance