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CHAPTER 13Promotion and Pricing StrategiesChapter Summary: Key ConceptsIntegrated Marketing CommunicationsPromotionIntegrated MarketingCommunications (IMC)The function of informing, persuading, and influencing apurchase decision.The coordination of all promotional activities—mediaadvertising, direct mail, personal selling, salespromotion, and public relations—to produce a unified,customer-focused promotional strategy.Promotional mixCombination of personal and nonpersonal sellingcomponents designed to meet the needs of a firm’s targetcustomers and effectively and efficiently communicateits message to them.Personal sellingThe most basic form of promotion: a direct person-toperson promotional presentation to a potential buyer.Nonpersonal sellingConsists of advertising, sales promotion, directmarketing, and public relations.Objectives of promotional strategyCommon objectives include providing information,differentiating a product, increasing sales, stabilizingsales, and accentuating a product’s value.Promotional planningMarketers identify the right blend of promotional mixelements for the situation. Some marketers also usenontraditional techniques, such as product placementsand guerrilla marketing.AdvertisingAdvertisingPaid nonpersonal communication usually targeted atlarge numbers of potential buyers.Types of advertisingThere are two basic types of advertising. Productadvertising consists of messages designed to sell aparticular good or service. Institutional advertisinginvolves messages that promote concepts, ideas,philosophies, or goodwill for industries, companies,organizations, or government entities.
13-2 Part IV Marketing ManagementAdvertising and the productlife cycleAdvertising mediaInformative advertising is used primarily to build initialdemand for a product in the introductory stage of the lifecycle. Persuasive advertising is more commonly usedduring the growth and maturity stages. In the latematurity and decline stages, reminder-orientedadvertising may appear.Marketers must choose how to allocate their advertisingbudgets among the various media available, includingtelevision, newspapers, direct mail, radio, magazines,outdoor, Internet, sponsorships, and other miscellaneousmedia such as infomercials.Sales PromotionSales promotionConsists of forms of promotion such as coupons, productsamples, and rebates that support advertising andpersonal selling.Consumer-oriented promotionsForms of promotion used to enhance and supplement thesales and advertising effort aimed at consumers. Includespremiums, coupons, rebates, samples, games, contests,sweepstakes, and specialty advertising.Trade-oriented promotionsSales promotion techniques that contribute to campaignsdirected to retailers and wholesalers. Common methodsinclude point-of-purchase advertising and trade shows.Personal SellingPersonal sellingA promotional presentation made on a person-to- personbasis with a potential buyer.Sales tasksThe three areas of sales tasks include order processing,creative selling, and missionary selling.The sales processThere are seven steps: prospecting and qualifying,approach, presentation, demonstration, handlingobjections, closing, and follow up.Public RelationsPublic relationsAn organization’s communications and relationshipswith its various public audiences, such as customers,vendors, news media, employees, stockholders, thegovernment, and the general public.PublicityNonpersonal stimulation of demand for a good, service,place, idea, event, person, or organization by unpaidplacement of information in print or broadcast media.
Chapter 13 Promotion and Pricing Strategies 13-3Pushing and Pulling StrategiesPushing strategiesA pushing strategy relies on personal selling to marketan item to wholesalers and retailers in a company’sdistribution channels.Pulling strategiesPulling strategy promotes a product by generatingconsumer demand for it, primarily through advertisingand sales promotion appeals.Cooperative advertisingAllowances in which marketers share the cost of localadvertising of their firm’s product with channel partners.Pricing Objectives in the Marketing MixPriceThe exchange value of a good or service; becomes amajor factor in consumer buying decisions.Profitability objectivesCommon objectives included in the strategic plans ofmost firms.Volume objectivesBases pricing decisions on market share, the percentageof a market controlled by a certain company or product.Pricing to meet competitionMeeting competitors’ prices so that price essentiallybecomes a nonissue.Prestige objectivesPrestige pricing establishes a relatively high price todevelop and maintain an image of quality andexclusiveness.Pricing StrategiesPrice determination in practiceMost businesses adopt cost-based pricing formulas.These formulas calculate total costs per unit and thenadd markups to cover overhead costs and generateprofits.Breakeven analysisPricing-related technique used to determine theminimum sales volume a product must generate at acertain price level to cover all costs.Alternative pricing strategiesFirms can choose from four alternative pricingstrategies: skimming, penetration, discount or everydaylow pricing, and competitive pricing.Consumer Perceptions of PricesPrice–Quality RelationshipsResearch shows that a consumer’s perception of productquality is closely related to an item’s price. Most
13-4 Part IV Marketing Managementmarketers believe that this perceived price–qualityrelationship remains steady over a relatively wide rangeof prices.Odd pricingPricing method using uneven amounts that appear lessthan they really are to consumersBusiness Vocabularyadvertisingbreakeven analysiscause advertisingcompetitive pricingcooperative advertisingcost-based pricingcreative sellingeveryday low pricing (EDLP)guerrilla marketinginfomercialinstitutional advertisingintegrated marketing communications (IMC)missionary sellingnonpersonal sellingodd pricingorder processingpenetration pricingpersonal sellingpoint-of-purchase (POP) advertisingpositioningprestige pricingpriceproduct advertisingproduct placementprofitability objectivespromotionpromotional mixpublic relationspublicitypulling strategypushing strategysales promotionskimming pricingspecialty advertisingsponsorshiptelemarketingtrade promotionvolume objectivesApplication of VocabularySelect the term from the list above that best completes the statements below. Write that term inthe space provided.1.Nonpersonal marketing activities such as trade shows, coupon offers, samples, premiums,and point-of-purchase displays that stimulate consumer purchasing and dealereffectiveness are known as .2.is the nonpersonal promotional technique where firms payfor media messages that inform and persuade members of particular audience.3.When the promotional strategy is designed to get middlemen to aggressively promote aproduct, a is in use.
Chapter 13 Promotion and Pricing Strategies 13-54.The is the combination of personal salesand nonpersonal selling appeals such as advertising, sales promotion, and publicrelations.5.is the promotional strategy used to differentiate a good orservice from those of competitors in the mind of a prospective buyer.6.The promotional strategy that is aimed at customers to create a demand for a product,thus encouraging middlemen to stock that product, is called a.7.involves all the activities necessary to inform,persuade, and influence a purchase decision.8.When personal selling is conducted entirely by telephone,is in use.9.The sales task performed when orders are received and handled is.10.is a sales promotion technique that placesa display or demonstration at the location where the potential customer will make thepurchase decision.11.A form of institutional advertising that promotes a specific viewpoint on a public issue asa way to influence public opinion and the legislative process is known as.12.establishes a relatively high price to developand maintain an image of quality and exclusiveness.13.involves making a promotional presentation on aperson-to-person basis with a potential buyer.14.When salespersons market the goodwill of a company and/or provide technical oroperational assistance, they are engaged in.15.is a persuasive promotional presentation topotential customers needed when the benefits of a good or service are not readilyapparent, or when the purchase is based on a careful analysis of alternatives.16.Efforts designed to promote goods or services to retailers, wholesalers, internationalbuyers, and other resellers in the distribution channel are called .17.is the nonpersonal selling technique aimedat promoting a particular good or service.18.Advertising aimed at promoting an idea, concept, philosophy, or the goodwill of anindustry, company, organization, or government entity is called.
13-6 Part IV Marketing Management19.When organizations communicate with their various publics, they are engaged in.20.involves sharing of local advertisingcosts between the manufacturer and the marketing intermediary.21.involves providing cash or other resources toan event or activity in exchange for a direct association with it.22.Coordination of all promotional activities to produce a unified customer-focused messageconstitutes .23.The unpaid placement of significant news in print or broadcast media to stimulatedemand is known as .24.Pens, T-shirts, or refrigerator magnets imprinted with a business name are examples of.25.A commercial for a single product that resembles a regular television program running 30minutes or longer is called a(n) .26.Advertising, sales promotion, direct marketing, and public relations are the various formsof .27.Marketers sometimes pay a fee to have their products showcased in movies and televisionshows, a promotional practice known as.28.The exchange value of a good or service is known as its .29.In pricing strategy, using means thatmanagement sets the price and/or reduces the costs of a product or service with certainnet gain objectives in mind.30.If market share goals are the key focus in pricing decisions, the firm is followingto set prices.31.adds a markup to the base cost of a product tocover unassigned costs and provide a profit.32.is a method of determining the minimumsales volume needed at a certain price level to cover all costs.33.is an innovative, low-cost marketing effortdesigned to get consumers’ attention in unusual ways.34.A(n) maximizes profit per unit andestablishes product prestige by setting a high price relative to competing offerings.
Chapter 13 Promotion and Pricing Strategies 13-735.A(n) sets a relatively low price comparedwith competing offerings to promote initial market acceptance and maximize salesvolume.36.de-emphasizes price as a competitive variableby pricing a good or service at the same general level as competitive offerings.37.is a strategy devoted to maintaining continuouslow prices rather than relying on short-term price-cutting techniques.38.When uneven prices are used to make the product seem less expensive,is in use.Analysis of Learning ObjectivesLearning Objective 13.1: Discuss how integrated marketing communications relates to afirm’s overall promotional strategy and explain the concept of a promotional mix along withoutlining the objectives of promotion.Short Answer1.What is integrated marketing communications (IMC)?2.What are the key components in an IMC plan?
13-8 Part IV Marketing ManagementLearning Objective 13.2: Summarize the different types of advertising and advertising media.True or False1. Informative advertising is primarily used to attract stockholders.2. Comparative advertising can be considered a type of persuasive advertising.3. Institutional advertising promotes the ideas, philosophies, and goodwill of anorganization.4. Reminder-oriented advertising is used in the late-maturity and decline stages of theproduct life cycle.5. Persuasive advertising is generally most useful in the introductory stage of theproduct life cycle.6. Internet advertising receives the largest dollar amount of advertising revenue.7. Magazines can target audiences for advertising better than most other media.8. E-mail is a cheaper form of direct-mail advertising since it eliminates printing andpostage costs.9. Interactive media advertising is the fastest-growing media segment.10. Sponsorships of sports or cultural events may be good advertising, but they do littleto enhance relationship marketing.11. About 20 percent of advertising expenditures go for advertising in Yellow Pagesand other miscellaneous publications.Learning Objective 13.3: Describe the role of sales promotion, personal selling, and publicrelations in promotional strategy.True or False1. The term “promotional products” refers to giveaway items that are imprinted withthe donor’s company name and/or logo.2. Sales promotion is a promotional technique that includes personal selling andadvertising.3. While customer-oriented sales promotion aims to increase sales to consumers, tradepromotion encourages marketing intermediaries to aggressively promote a product.4. Personal selling involves creative selling, order processing, and missionary sellingtasks.
Chapter 13 Promotion and Pricing Strategies 13-95. Creative selling uses prospecting, qualifying, and the approach to develop bettersales techniques aimed at the specific needs of potential customers.6. Public relations often works to generate positive publicity for a company throughmedia releases, news conferences, article placements, and story ideas in the media.7. Firms have to pay for any publicity they generate in the media.Learning Objective 13.4: Describe pushing and pulling promotional strategies.CategorizePlace an X in the appropriate column.1. Advertising to consumer2. Advertising to doctors3. Personal selling to retailer4. Personal selling to wholesalers5. Creating consumer demand6. Marketing to the distribution channel7. Sales promotion8. Typically used in prescription medicine marketing9. Typically used in automobile marketing10. Typically used in consumer productsPullingPushingLearning Objective 13.5: Outline the different types of pricing objectives.Multiple Choice1.If marketers attempt to increase the percent of industry sales their product will attract,they are using:a. breakeven analysis.b. profit maximization objectives.c. market share objectives.2.Competitive pricing:a.b.c.d.3.d. return-on-sales objectives.e. cost-benefit analysis.seeks to undercut the competitor’s price.seeks to enhance the product’s prestige.matches the prices of a firm’s offerings to that of the competition.focuses competitive efforts primarily on pricing variables.Pricing an item high relative to competing products to achieve an image of qualitymakes use of:a. breakeven analysis.b. prestige objectives.c. profit objectives.d. volume objective.
13-10 Part IV Marketing Management4.In cost-based pricing:a.b.c.d.5.In breakeven analysis, the breakeven point in units is found by:a.b.c.d.6.a markup over costs is used to determine price.the markup includes some amount to help cover overhead.the markup includes some amount to generate a profit.all of the above.dividing total costs by the number of units sold.dividing fixed costs by the unit contribution to fixed costs.dividing sales revenue by variable cost per unit.dividing sales price by variable costs.If a company has fixed costs of 50,000, a selling price of 10 per unit, and variablecosts per unit of 5, how many units must be sold to breakeven?a. 5,000b. 10,0007.Using the figures in #6 above, suppose the company makes and sells 5,000 units. It willrealize a:a. loss of 10,000.b. loss of 25,000.8.c. profit of 10,000.d. profit of 25,000.Again using the figures in #6 above, now suppose the company makes and sells 20,000units. It will realize a:a. loss of 25,000.b. loss of 50,000.9.c. 15,000d. 20,000c. profit of 25,000.d. profit of 50,000.In modified breakeven analysis:a. breakeven points at several possible prices are calculated.b. sales estimates at different prices are considered.c. customer demand, not just costs, are used in setting the price.d. all of the above.Learning Objective 13.6: Discuss how firms set prices in the marketplace, and describe thefour alternative pricing strategies.True or False1. A penetration price policy is used by firms attempting to earn the largest possibleprofit upon introduction of the product.2. The skimming price strategy involves starting out at a high price.
Chapter 13 Promotion and Pricing Strategies 13-113. A skimming strategy allows the firm to recover its costs rapidly by maximizing therevenue earned early in the product life cycle.4. In competitive pricing, price becomes the most important competitive factor.5. EDLP relies on short-term price reductions.6. A cost-based pricing formula calculates the total costs per unit and then addsmarkups to cover overhead costs and generate profits.7. Companies use competitive pricing strategies to increase the emphasis on pricecompetition.8. Economic theory determines prices by the law of demand and supply.Learning Objective 13.7: Discuss consumer perceptions of price.Short Answer1.How are price and perceived quality related?2.What is odd pricing, and why is it employed?Self ReviewTrue or False1. Informative advertising is most effective during the decline stage of the product lifecycle.2. Advertising is used in a pushing strategy.3. Television receives the largest total dollar amount of advertising revenue in theUnited States.4. In most cases, promoting a product to vast numbers of people requires the use ofnonpersonal selling.
13-12 Part IV Marketing Management5. An example of a point-of-purchase sales promotion is the magazine rack at thecheckout counters in a supermarket.6. Rather than aiming at increased sales, some advertisements are aimed at increasingthe sponsor’s image.7. The pulling strategy uses advertising and sales promotion techniques.8. The only major objective of promotion is to increase sales.9. Because modern promotion uses so many different methods and media, integratedmarketing communications (IMC) is employed so customers don’t get mixedmessages.10. Companies that sell highly technical products will typically do a lot of missionaryselling.11. In sales, prospecting means finding potential customers.12. Samples are particularly useful in promoting new products.13. A good creative salesperson avoids allowing customers to raise objections.14. Sales promotion includes both activities directed at consumers and tradepromotions aimed at marketing intermediaries.15. Public relations is usually aimed at customers, but not at vendors, news media,employees, stockholders, government, or the general public.16. In cost-based pricing, marketers total all costs associated with offering a productand add an amount to cover overhead, unexpected expenses, and profit.17. The amount added to total cost to arrive at selling price is called markup.18. When promotional strategies aim to develop consumer desire for a general productcategory, such as milk, the goal is to stimulate primary demand.Multiple Choice1.Which type of advertising promotes the ideas, philosophies, and goodwill of a firm?a. product advertisingb. institutional advertisingc. selective demand advertising2.d. restrictive advertisinge. specialty advertisingThe promotional strategy designed to generate customer demand is called:a. a pushing strategy.b. a pulling strategy.c. a specialty strategy.d. an institutional strategy.
Chapter 13 Promotion and Pricing Strategies 13-133.The most critical point in the sales process is:a. the approach.b. the presentation.4.A car salesperson invites the customer to take a test drive. This would be an example ofwhich stage of the sales process?a. the approachb. the presentationc. the demonstration5.c. premium.d. sample.Mugs, hats, and pens with the name or logo of a firm are examples of:a.b.c.d.10.d. accentuate the value of the product.e. improve the firm’s image.If a bank offers its customers a calendar with the bank’s name imprinted on it, this giftis called a:a. promotional product.b. trade item.9.d. accentuating the value of the product.e. all of the above.A company that launches a promotion in the normal slack period for its product isattempting to:a. provide information.b. differentiate the product.c. stabilize sales.8.d. demonstration.e. close.The objectives of promotion include:a. providing information.b. differentiating the product.c. stabilizing or increasing sales.7.d. qualifying prospectse. the closeThe sales step that reassures the customer about the purchase decision and checkssatisfaction is the:a. follow-up.b. prospecting.c. approach.6.c. qualifying prospects.d. the close.personal selling.primary demand.reminder-oriented advertising.specialty advertising.Contests and premiums are sales promotional efforts designed to:a. build positive public relations.b. build patronage loyalty.c. serve as institutional advertisements.
13-14 Part IV Marketing Managementd. all of the above.11.Infomercials:a.b.c.d.12.are 30-minute programs that sell goods or services.are a form of broadcast direct marketing.often allow immediate response by featuring toll-free numbers.all of the above.Expenses that do not vary with volume are called:a. marginal costs.b. variable costs.c. fixed costs.13.When a new product is priced low as compared with a substitute item as a means ofgaining market acceptance and discouraging competition, the firm is following thepricing strategy of .a. prestige pricingb. marked-up pricingc. competitive pricing14.d. skimming the cream pricinge. competitive pricingTotal revenue for a product is found by:a.b.c.d.16.d. skimming the cream pricinge. penetration pricingA pricing strategy used by discounters to make products appear less expensive is.a. odd pricingb. penetration pricingc. marginal pricing15.d per unit costs.e. cyclical costs.deducting expenses from sales revenue.multiplying the price by the quantity sold.adding fixed and variable costs together.subtracting the breakeven point from total units sold.When comparative advertising is used to promote brand preference, the marketers areattempting to stimulate:a primary demand.b. price consciousness.c. selective demand.d. publicity.
Chapter 13 Promotion and Pricing Strategies 13-15Application ExercisesThe promotional mix includes advertising, personal sales, sales promotional activities, andpublic relations. Most organizations utilize a combination of these strategies, though a smallerbusiness might focus on one or two. Consider each of the following businesses, and recommendwhich promotional techniques you feel should be the focus of promotion. Explain yourselection.1.A chewing gum manufacturer that distributes its products nationally.2.A small local beauty supply store.3.A grocery shopping service for people who have neither the time nor the desire to dotheir own shopping.4.A soft-drink maker who distributes its products globally.5.An aircraft manufacturer.6.An oil refinery owned by a large oil company.
13-16 Part IV Marketing ManagementShort Essay Questions1.What is the promotional mix? Define and distinguish the main elements.2.What are the objectives that can be achieved through pricing policy?
Pricing to meet competition Meeting competitors' prices so that price essentially becomes a nonissue. Prestige objectives Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness. Pricing Strategies Price determination in practice Most businesses adopt cost-based pricing formulas.
