Review

1
Review
Please sit with your STC380 teammates
Cold Call 5 key learnings from last time
2
Marketing Concepts in Commercialization of High
Technology

• Session 7
• Marketing Mix Promotion/Communication Strategy

3
Participation

• High Quality Participation (In class/On line)
• Contributes to others learning
• Provides helpful feedback
• Brings in/links elements of reading or lecture
• Links reading/lecture to personal experience
  (limits)
• Stays on topic/task
• Self-monitoring
• If less than 1 time in-class, censor yourself
  less.
• If more than 2-3 times in-class, censor yourself
  more.
• If you havent done the reading, censor even more

4
Agenda

• Review
• Lecture/Discuss Setting a Price, cont.
• Exercise Pricing strategies for projects
• Lecture The Communications Process
• Lecture Introductory Price/Promotion Strategies
• Lecture Promotion Mix
• Exercise Video Case Study Discussion
• Lecture Word of Mouth
• Exercise Word of Mouth/Opinion Leaders
• MPD3

5
Review
? Kate Mackie, Ph.D. 2001, Center for Lifelong
Engineering Education, University of Texas at
Austin
6
Overriding Goal

• Achieve a commanding position in the market
  segment(s) served.

Not to compete in every market segment the
product might conceivably fit
Davidow, p. 116
7
Select the Pricing Objective

• Maximize current profit
• Maximize market skimming
• Maximize sales growth (penetration)
• Product/quality leadership

8
Session 7 Objectives

• Finish pricing strategy
• Describe the communications process and its
  implications for effective message design.
• Describe six types of communications objectives
  and their relationship to the elements of the
  promotion mix.
• Describe the elements of the promotion/
  communication mix
• Use a promotional calendar to assure the
  development of integrated marketing
  communications.

9
Customers are less price sensitive if
Pricing Sensitivity Factors

• the product is highly innovative
• the product is more distinctive than competition
• there are few substitutes
• product is used in conjunction with assets
  previously bought
• product is assumed to have high quality

10
3. Estimate Costs

• Variable Costs
• Fixed Costs
• Other Cost Concepts
• Target Costing
• Experience Curve

11

• Analyze Competitors Costs, Prices, Offers
  

12
Select a Pricing Method

• Mark-up Pricing - Cost Plus

13
Mark-Up or Cost-Plus Pricing

• Mark-up profit based on cost
• Selling Price - Cost
• Cost
• To set price based on a desired mark-up
• (also called Cost-Plus . . . Cost some )
• Cost 25 Desired mark-up 20
• 25 x 1.20 30.00

14
Demand Price/lawn

• 1) 10 lawns, weekly (200 lawns)
• 2) 10 lawns, every 2 wks (100 lawns)
• 3) 5 lawns, every 2 wks ( 50 lawns)
• 4) 10 lawns, 2 times/wk (400 lawns)
• 5) 20 lawns, 2 times/wk (800 lawns)

• 9.00
• 12.00
• 18.00
• 7.50
• 6.75

Example of The Cost-Plus Delusion

• Over priced in weak markets
• Under priced in strong markets

15
Select a Pricing Method

• Mark-up Pricing - Cost Plus
• Target Return Pricing

16
Target Return Pricing Gizmo mfg. invested 1MM
wants 20 ROI Fixed cost 300,000 variable
cost 10/unit Estimate 50,000 unit sales
(therefore, fixed cost/unit 6). What is the
price?
Target-return price unit cost desired return
X invested capital
unit sales
Target-return price 16 200,000 20
50,000
17
Select a Pricing Method

• Mark-up Pricing - Cost Plus
• Target Return Pricing
• Perceived Value Pricing

18
Determining Perceived Value

• What value is placed on the end result?
• The cost of alternative solutions to the
  customer.
• A function of
• Prices of comparable (though not identical)
  products
• The value (/-) of the products differences
  vs. the competitive offering
• The value of the Whole Product

19
Device Pricing vs. Whole Product Pricing

• Value of any product to its market is strongly
  influenced by prices of competitive products.
• Competitive devices are analyzed, but
  products are priced.
• Product features have different values
• Customer service
• Warranties
• Distribution channels (e.g., convenience)
• The sum of the features makes up the product

Moore, p. 110 Davidow, p. 106
20
Perceived Value Pricing in Chemicals
21
Perceived Value Pricing in Chemicals
Note The Device is the chemicals. The
Product includes the device plus. . . .
22

• The art of pricing depends on determining how
  much those differences are worth to a market
  segment.

23
Select a Pricing Method

• Mark-up Pricing - Cost Plus
• Target Return Pricing
• Perceived Value Pricing
• Value Pricing
• Going Rate Pricing (market price)
• Reference Pricing (comparison w/substitutes)

24
Select a Pricing Method

• Mark-up Pricing - Cost Plus
• Target Return Pricing
• Perceived Value Pricing
• Value Pricing
• Going Rate Pricing (market price)
• Reference Pricing (comparison w/substitutes)
• Sealed-Bid Pricing

25
Sealed Bid Pricing
Company Company Probability
Expected Bid Profit of Award
Profit 9,500 100 .81
81 10,000 600 .36
216 10,500 1,100
.09 99
11,000 1,600 .01
16
26
Exercise

• Think about your projects and one market
  segment.
• What will be your pricing objective?
• 5 min. alone/10 in teams
• You have already been examining
• Your costs
• Your competitors pricing/costs
• What pricing method are you going to use?
• 5 min. alone/10 in teams
• Discuss

27
Select the Final Price

• Desired/Required Distributor Margins
• Psychological pricing
• Influence of other marketing mix elements
• Company pricing policies
• Impact of price on others

10,000
375.00
2,000,000
28
BREAK
29
The Marketing Plan
I. Executive Summary
II. Marketing Situation Analysis
III. Opportunity and Issue Analysis
IV. Objectives
V. Marketing Strategy
Segmentation, Targeting
Differentiation, Positioning
Product
Marketing Mix
Price
Promotion
Positive Word-of-Mouth
Place
VI. Action Programs
VII. Projected Profit-and-Loss
VIII. Controls
30
Promotion

• Personal Selling
• Trade Shows
• Events
• Sales promotion
• Advertising
• Message
• Media
• Public relations and publicity

31
Communication/PromotionWhat Is Effective?
?

• To whom are you going to communicate?
• What do you want them to
• Learn?
• Feel?
• Do?
• What are you going to say?
• Through what vehicles?

?
?
?
32
Elements in the Communication Process
RECEIVER
SENDER
Message
33
Response Hierarchy Models
Hierarchy-of- Effects Model
Cognitive (Thinking)
Affective (Feeling)
Conative (Doing)
34
Exercises Coming

• What types of advertising or promotion could you
  use at each of these steps?
• How would you measure effectiveness for each of
  these steps?
• e.g., how would you determine if you had
  awareness in your target? liking? etc.?

35
Communication Effects Pyramid
5 Repurchase/ regular use
20 Trial
25 Preference
40 Liking
70 Knowledge/Comprehension
90 Awareness
Belch Belch, p. 208
36
Sample Objectives for a New Product

• Time Period Six Months.
• Objective 1 Create awareness among 90 of
  target audience.
• Use repetitive advertising in newspapers,
  magazines, TV and radio programs. Simple
  message.
• Objective 2 Create interest in the brand among
  70 of target audience.
• Communicate information about the features and
  benefits of the brand, i.e., the support
  information from the positioning statement.
• Objective 3 Create positive feelings about the
  brand among 40 and preference among 25 of the
  target audience.
• Create favorable attitudes by linking with
  positive elements, and conveying information,
  promotions, sampling, etc.
• Objective 4 Obtain trial among 20 of the
  target audience.
• Use action-stimulating advertising and promotion
  such as sampling and discounts.
• Objective 5 Develop and maintain regular use of
  product among 5 of target audience.
• Use continued reinforcement advertising, limited
  promotions.

37
Response Hierarchy Models
Innovation- Adoption Model
Cognitive (Thinking)
Affective (Feeling)
Conative (Doing)
38
Exercise

• What types of advertising or promotion could you
  use at each of these steps?

39
Exercise

• What types of advertising or promotion could you
  use at each of these steps?
• 2. How would you measure effectiveness for each
  of these steps?
• e.g., how would you determine if you had
  awareness in your target? liking? etc.?

40
Elements in the Communication Process
RECEIVER
Media
SENDER
Message
41
Strategies
Product Offer a basic product Offer product
extensions Diversify brands/models Phase out weak
items Price Try to understand price/ Price to
penetrate Price to match or best Cut price
value Cost-plus frequent market competitors s
kimming vs. penetration Distribution Build
selective Build intensive Build more intensive Go
selective phase distribution distribution dis
tribution out unprofitable channels Advertising
Build product awareness Build awareness
and Build preference stress Reduce to level
needed among early adopters interest in the
mass brand differences and to retain
hard-core and dealers market and
benefits loyals Sales Promotion Use heavy sales
promotion Reduce to take Increase to
encourage Reduce to minimal to entice
trial advantage of heavy brand switching level
consumer demand
Adapted from Kotler, Marketing Management, 9th
Edition, p. 363
42
Four IntroductoryPrice/Promotion Strategies
Promotion
High
Low
Rapid- skimming strategy
Slow- skimming strategy
Rapid- penetration strategy
Slow- penetration strategy
Source Kotler, Marketing Management, 10th
Edition, 1999, p. 307
43
The Marketing Communications Mix
44
Promotion Mix
Personal Selling Direct Marketing
Sales presentations Catalogs Sales
meetings Mailings Incentive programs Telemarketi
ng Samples Electronic shopping Fairs and trade
shows TV shopping Fax mail E-mail Voice
mail
Advertising Sales/Trade Promotion Public
Relations
Print and broadcast ads Contests, games,
sweepstakes, lotteries Press kits Packaging -
outer Tie-ins
Speeches Packaging inserts Premiums and
gifts Seminars Motion pictures
Sampling Annual reports Brochures and
booklets Fairs and trade shows
Charitable donations Posters and leaflets
Exhibits, demonstrations
Sponsorships Directories Coupons, rebates
Publications Reprints of ads
Low-interest financing Community
relations Billboards Entertainment
Lobbying Display signs Trade-in allowances
Events Point-of-purchase
displays Continuity programs Company
magazine/newsletter Audio-visual material
Trade Promotions Identity
media Symbols and logos Credit
Terms Videotapes
Also referred to as Merchandising
45
Relative Spending on Promotional Tools
46
Importance of Promotional Tools for High Tech
Firms
Very Important
Not Important

• Sales and sales mgmt
• Advertising in trade magazines
• Trade shows
• Technical seminars/presentations
• Sales promotional materials
• Direct mail advertising
• Packaging
• Newspaper advertising
• Television
• Radio

Viardot, 1998, p. 185.
47
Advertising

• Definition Informing and persuading through
  paid media (television, radio, magazine,
  newspaper, outdoor, and direct mail).
• Two components
• Media/Vehicle
• Message

48
Advertising Media Strategies
For example

• Use national trade publications across at least
  two top boat engine mfg. magazines to broaden
  reach potential.
• Develop brochures to distribute at trade shows.
• Schedule direct mail drops in the month prior to
  launch announcing that the product is about to
  launch.
• Schedule web page banners on major search
  engines during the month after the launch.

49
Comparing Media
Adapted from Kotler, 10th p. 588 www.infoseek.com
Medium Example of Cost Advantages Limitations
Newspapers 45,900-1 pg Flexibility timeliness
good local Short life poor reproduction
weekday market coverage broad
acceptance small pass-along audience Chicago
Tribune high believability Television 1,900
for 30 sec Combines sight, sound, motion High
absolute cost, high clutter prime
time-Chicago appealing to senses high
attention fleeting exposure less
audience high reach selectivity Direct
Mail 1,520 for a list of Audience selectivity
flexibility Relatively high cost junk
mail 40,000 veterinarians no ad competition
within the image medium personalization Rad
io 400 for one minute Mass use high geographic
and Audio presentation only lower commuting
drive time demographic selectivity low attention
than TV non-stndzd in Chicago cost rate
structures fleeting exposure. Magazines 126,755
- 1 pg, High geographic and demographic Long
ad purchase lead time some 4-color,
Newsweek selectivity credibility and
prestige waste circulation no guarantee
of high-quality reproduction
long position life good pass-along
readership Outdoor 25,500/mo. -
71 Flexibility high repeat exposure No
audience selectivity creative billboards metro
Chicago low cost low competition. limitations We
b 2,500 minimum/mo - Perpetually fresh
content Access to Creative limitations - space
70 CPM Banner in
info. visual/aural appeal of TV under
development security Altavista hyper-impulsivit
y concerns clutter
50
Media Decisions

• Reach - how many of your target audience is
  exposed once to the ad during the time period.
• Frequency - how many times they are exposed
  during the time period

51
Media Decisions

• GRP (Gross Rating Point) - 1 exposure to 1 of
  the target population
• Reach X Frequency GRP
• e.g., if a media schedule reaches 80 of targeted
  homes/businesses, with an average exposure
  frequency of 3, the media schedule has 240 GRPs.

52
Media Decisions

• Cost Per Thousand (CPM)
• Measure of efficiency/method of comparison
• Television
• If Cost55,000 and Reach10MM HH, CPM 5.50
• Trade Magazine
• If cost2,925 and Reach25M paid readers,
  CPM104.46
• Direct Mail
• If cost1,520 and Reach40M veterinarians,
  CPM38.00
• Web
• If cost2,500 and Reach100,000, CPM25.00
• Households
• Altavista advertising rate card provides
  estimates ranging from 8 CPM to 85 CPM

53
Determining Frequency Goals

• 1-3 Recognition Recalls advertising when
  Least difficult
• shown/mentioned product
• 3-6 Unaided Names product when asked
  Difficult
• Awareness about category
• 4-7 Recall Recalls advertising and More
  difficult
• identifies product
• 5-8 Learning Associates information about
  Very difficult
• the product with the name
• 6-10 Attitude Prefers the product,
  Extremely difficult
• positive attitude
• 10 Sales Purchases Most difficult

Hiebing Cooper, 1997, p. 321
54
Advertising

• Definition Informing and persuading through
  paid media (television, radio, magazine,
  newspaper, outdoor, and direct mail).
• Two components
• Media/Vehicle
• Message

55
How do Involved Customers Differ from Uninvolved
Customers?
Highly Involved Customers Uninvolved Customers

• Information processors
• Active audience
• Evaluate before buying
• Seek to maximize utility
• Purchase based on well-formed attitude
• Subject to reference group effects

• Random exposure
• Passive audience
• Evaluate after buying
• Seek to satisfy
• Purchase based on familiarity
• Few reference group effects

56
Strategic ImplicationsInvolved Customers

• If advertising, spend your on print ads, not
  TV
• Provide opportunities for customers to see the
  product/service in action
• Trade shows
• Seminars
• Supply detailed information
• Product differentiation
• Selective distribution
• Knowledgeable sales support

57
The Special Case of High Technology

• The High Tech Customer main purchasing criteria
• Cost of product
• Confidence in selling company
• Product performance
• Quality
• Requires communications that are
• Reassuring
• Instructive

Viardot, p. 182
58
Advertising Message Strategies

• Based on the benefit sought by the market segment
  being targeted
• Reassuring and Informative
• Aimed at particular communications objectives
• Awareness
• Knowledge
• Liking
• Preference
• Conviction
• Purchase

• - Awareness
• - Interest
• - Evaluation
• - Trial
• - Adoption

Glover, Hartley Patti reading
Adoption Process
59
Promotion

• Definition An activity offering incentive above
  and beyond the products inherent attributes and
  benefits to stimulate incremental purchase (or
  association with) the product in the short run.
• Four major areas
• Price incentives - some form of savings vs. full
  price
• Product - providing a sample of the product
• Merchandise or gifts - giving customers the
  opportunity to obtain merchandise w/purchase
• An experience - participation of individual/group
  in contests, sweepstakes, trips, etc.

60
Promotion vs. Advertising

• Advertising reason to buy
• Promotion incentive to buy

61
The Marketing Plan
I. Executive Summary
II. Marketing Situation Analysis
III. Opportunity and Issue Analysis
IV. Objectives
V. Marketing Strategy
Segmentation, Targeting
Differentiation, Positioning
Product
Marketing Mix
Price
Promotion
Positive Word-of-Mouth
Place
VI. Action Programs
VII. Projected Profit-and-Loss
VIII. Controls
62
BREAK
63
Positive Word-of-Mouth

• Opinion Leaders
• Methods

64
Exercise Coming

• Where might you find people who would be
  considered opinion leaders for the product or
  technology in your projects?
• Individually 5 minutes
• Teams 5 minutes
• Report out 10 minutes

65
Word-of-Mouth as Influence

• Twice as effective as radio advertising
• Four times as effective as personal selling
• Seven times as effective as newspapers and
  magazines

66
Developing a W-O-M Campaign

• Objective develop or change attitudes/opinions
• Decide on the message to spread
• Best in delivering messages with intangible
  qualities (commitment, credibility, appeal and
  support).
• Decide who should receive the message (target a
  specific audience)

McKenna, 1985
67
Targets for W-O-M Campaigns

• Financial Community
• Industry-watchers
• Customers
• The press
• The selling chain
• The community

McKenna, 1985
68
Opinion Leaders

• People whose opinions widely respected within
  social groups
• They
• are usually trend setters stay current with
  trends
• focus on specific product categories
• are either regular purchasers or watchers in
  the category
• get information from first hand experience
• read magazines, watch news reports, attend
  conventions
• may be perceived as mavericks by their own group
• think of themselves as giving information to
  others

69
Exercise

• Where might you find people who would be
  considered opinion leaders for the product or
  technology in your projects?
• Individually 5 minutes
• Teams 5 minutes
• Report out 10 minutes

70
How to Influence and Create Opinion Leaders

• Involve them in beta testing
• Provide them with sample of product/service
• Involve them in product and/or package design
• Offer incentives for referrals
• Use advertising designed to stimulate or simulate
  word-of-mouth, i.e., show one person telling
  another about your product/service.

71
Developing a W-O-M Campaign

• Objective develop or change attitudes/opinions
• Decide on the message to spread
• Best in delivering messages with intangible
  qualities (commitment, credibility, appeal and
  support).
• Decide who should receive the message (target a
  specific audience)
• Decide who should deliver it
• Develop relationships with key people in the
  industry infrastructure

McKenna, 1985
72
Presence and Credibility
The unofficial 6th P
73
Credibility is Paramount

• Start-ups the perception
• Strong scientific know-how weak business
  know-how
• New, unproven therefore possibly unreliable
• Customers need
• Confidence in company

74
How Credibility is Developed

• Inference
• people infer that the startup must be a credible
  competitor
• Reference
• when making complex decisions, people depend on
  references of others they trust
• Evidence
• success breeds success

McKenna, 1985
75
Strategies vs. Action Programs

• Strategies Broad statements with rationale
• Positioning
• 4 Ps
• Action Programs
• Execution details 4 Ps
• Specific description
• Timing
• Cost

76
Strategies (Examples)

• Product
• Design the product to include the X, Y, Z
  attributes (rationale)
• Use the brand name of XXX because (rationale)
• Pricing (policy)
• Price to (skim, penetrate, maximize ROI,
  higher/lower than competition, etc.) because
  (rationale)
• Promotion
• Promotion Objectives Stimulate awareness,
  knowledge, and liking in target audience.
• Advertising Media (see earlier Media Strategies
  slide)
• Advertise in (industry) trade journals
  (rationale)
• Use direct mail advertising to (people)
  (rationale)
• Advertising Message Convey (positioning) to
  (generate awareness/inform/ persuade)
• Sponsor seminars for (people) (rationale)
• Attend key industry trade shows (rationale)
• Use print collateral materials (brochures,
  flyers, etc.)

77
Action Programs (Examples)

• Send direct mail piece to 344 Gizmo-User CEOs
  during month 1 of launch. Cost list
  production 2,750.
• Place the following print ads in trade journals
• Appliance - 3 ads (May, June, Oct), ½ page,
  4-color 2925 each production
• Design News 6 ads (May 8, 22, June 12, July 10,
  Sept. 11, Oct. 16), ½ page, b/w 5815 each
  production
• Conduct customer seminars on (dates) cost
  3000 each
• See Programming Calendar

78
Programming Calendar See MSSTC web site
STC382 08 L3
79
(No Transcript)
80
Advertising/Promotional Timing

• Objective Increase effect/efficiency of
  advertising and customer/distributor promotion
• Public Relations Campaigns 7 to 30 days before
  launch
• Avoid dead seasons (Summer, November,
  December)
• Plan advertising exposures to maximize effect
• After initial filling of distribution channels
  (launch)
• Prior to customer/distributor promotions
• Prior to and during early-middle stages of
  seasonal purchasing cycles

Rossiter Percy, 1987, p. 331, 445 Kitchko,
1998
81
Review/Wrap-UpPromotion/Communication

• Communication/Promotion Objectives
• Types of promotion/communication most effective
  for high technology products.
• Advertising media
• Advertising message
• Communications process
• Objectives
• Word-of-Mouth
• Promotional calendars integrated marketing
  communications
• Great web sites at end

Remember to complete evaluations
82
References

• Best, Roger J., Market-Based Management
  Strategies for Growing Customer Value and
  Profitability, Prentice Hall, 1997.
• Best, R. (2000) Market Based Management, Upper
  Saddle River, N.J. Prentice Hall
• Cafferky, M.E. (1996). Let Your Customers do the
  Talking 301 Word-of-Mouth Marketing Tactics
  Guaranteed to Boost Profits. Upstart
  Publishing (Dearborn Publishing)
• Davidow, W.H. (1986). Marketing High Technology,
  New York The Free Press
• Dwyer, F.R. Tanner, J.F. (1999). Business
  Marketing, Boston Irwing/McGraw-Hill
• Funk, T.F. Phllips, W. (1990). Segmentation of
  the Market for Table Eggs in Ontario,
  Agribusiness, 6(4) (July), pp. 309-327.
• Kitchco, C (1998) High Tech Product Launch,
  Mountain View, CA Pele
• Lilien, G.L. Rangaswamy, A. (1998). Marketing
  Engineering, Reading, MA. Addison-Wesley
• MacMillan, I.C. McGrath, R.G. (1997).
  Discovering New Points of Differentiation,
  Harvard Business Review, July-August, 1997, pp.
  133-145.
• McKenna, R. (1985). Market Positioning in High
  Technology, California Management Review, 27(3),
  Spring, 1985, 82-108.
• Moore, G. (1999). Crossing the Chasm. New York
  HarperBusiness.
• Rossiter, J.R. Percy, L. (1987). Advertising
  and Promotion Management. NY McGraw-Hill
• Trout, J. (2000). Differentiate or Die. New
  York John Wiley Sons
• Viardot, E. (1998). Successful Marketing
  Strategy for High Tech Firms, Boston Artech
  House.

83
Additional WWW Sources

• Comprehensive Advertising/Marketing Site
  http//advertising.utexas.edu/world/
• Trade Shows http//www.tscentral.com/
• Media
• Standard Rate and Data Service (book in library)
  http//www.srds.com/
• Publications http//www.publist.com/ and
  http//www.mediafinder.com
• Mailing Lists www.infousa.com

84
Next Time

• Topics
• Reading
• Prepare/discuss study questions in Discussion
  Board Session 8
• Work on Final Marketing Plan (MPD3)

85
Marketing Plan Del. 3Due 9/15/02
Read the Instructions!

• Complete Marketing Plan.
• Be sure to use the Positioning Statement format
  presented in class/template/Crossing the Chasm.
• Presentation Guidelines
• 15 pages max
• Double-spaced 1 margins document sources
• p.s. 10 pt. font minimum