Pricing and Sales Strategies

Pricing and Sales

• Pricing and sales are key components of marketing management.
• Understanding how pricing works, pricing frameworks, and different pricing approaches are essential.

Pricing Framework

• Setting pricing objectives involves determining what the organization hopes to achieve with its pricing strategy.
• Estimating demand helps understand how much customers are willing to buy at different price points.
• Determining costs involves identifying both fixed and variable costs associated with the product or service.
• Analyzing factors affecting pricing decisions involves considering internal and external factors.
• Determining pricing strategies and policies for making price adjustments includes choosing the right approach to adjust prices.
• Setting initial prices involves setting a base price for the product or service.
• Offering and making price adjustments as needed involves refining the price based on market conditions and customer feedback.

Various Pricing Objectives

• Targeted Return on Investment (ROI) is the profit an organization hopes to make given the amount of assets or money tied up in a product.
• Maximizing profits involves setting prices to increase revenues as much as possible, relative to costs.
• Maximizing sales involves pricing products to generate as much revenue as possible.
• Maximizing market share involves setting prices to capture a larger share of sales.
• Maintaining the status quo involves meeting or equaling competitors' prices.

Pricing Factors

• Will buyers perceive that the product offers value?
• How many buyers are there (size of the market)?
• How sensitive are customers to changes in price (price elasticity)?

Price Elasticity

• Refers to people's sensitivity to price changes, which affects the demand for a product.
• Price elastic: Consumers are very sensitive to price changes and buy more at low prices and less at high prices.
• Price inelastic: Buyers are not sensitive to price changes and demand is relatively unchanged.
• Price elasticity of demand is equal to percentage change in quantity demanded divided by percentage change in price.

Factors Affecting Pricing Decisions

• A firm's pricing decisions are affected by how competitors price and sell their products.
• The availability of substitute products affects pricing decisions.
• Weak economies and high unemployment call for lower prices.
• Currency exchange rates affect pricing decisions in international markets.
• Pricing decisions are affected by federal and state regulations.
• Price fixing, or firms agreeing to charge the same (usually high) price, is illegal.
• Unfair trade laws protect smaller businesses by preventing larger businesses from selling products below cost.
• Predatory pricing involves setting low prices to drive competitors out of business.
• Bait and switch pricing involves luring customers with low prices and then trying to switch them to higher-priced products.

Product Costs

• When making pricing decisions, costs to consider include expenditures on product development, testing, and packaging.
• Costs related to promotion and distribution should also be included.
• The offering's stage in the product life cycle can affect its price.
• If a company has to open brick-and-mortar storefronts to distribute and sell the offering, this must be reflected in the price.

Breakeven Point

• The point where total costs equal total revenue.
• Total costs include both fixed and variable costs.
• Fixed costs are costs that must be paid regardless of production or sales level.
• Variable costs are costs that change with a company's level of production and sales.
• Break-even point (BEP) equals total fixed costs divided by contribution per unit.
• Contribution equals selling price minus variable costs.
• Example: Copyright and distribution charges for books = $150,000. Cover design and illustrations = $10,000.
• Advertising and promotion costs = $40,000. Printing of books = $5 per unit. Total Fixed Cost amounts to $200,000.
• If MSP = $15, then ВЕР = $200,000 / ($15-$7) = $200,000 / $8 = $25,000 units needed to break even.

Introductory Pricing Strategies

• Skimming Price Strategy: High initial price for a product aimed at consumers who are willing to pay a high price and buy products early.
• Over time, the price of the product goes down as competitors enter the market and more consumers are willing to purchase the offering.
• Penetration Pricing Strategy: Low initial price is set to get as much of the market as possible.
• Often, many competitive products are already in the market.
• Everyday low prices (EDLP): The price the seller expects to charge throughout the product life cycle.

Pricing Approaches

• Cost-plus pricing uses the cost of the product and then adds a profit to determine the price.
• Markup uses the cost of the product and adds a profit to determine the price.
• Markdown is the amount taken off of the price in a price reduction.
• Odd-even pricing involves pricing a product a few cents below the next dollar amount or a few dollars below the next hundred or thousand-dollar value.
• Prestige pricing utilizes a higher price to create an image of a high-quality offering.
• Price lining involves pricing a group of similar products at different price levels.
• Leader pricing involves pricing one or more items unusually low to get people into a store.
• Loss leaders are items priced below cost to bring people into stores, which is illegal in many states.
• Sealed bid pricing is the process of offering to buy or sell products at prices designated in sealed bids.
• Online auctions, such as eBay, give customers the chance to bid and negotiate prices with sellers until an acceptable price is agreed upon.
• Forward auction: Buyer lists an item to buy, sellers submit bids.
• Reverse auction: States how much one is willing to pay for it.
• Going rate pricing occurs when buyers pay the same price regardless of where or for whom they buy the product.
• Price bundling involves selling different products or services together, typically at a lower price than if each product or service is sold separately.
• Captive pricing is the pricing of products when firms know customers must buy specific replacement parts because there are no alternatives.
• Product mix pricing involves deciding on how to price a firm's products and services that go together.
• Two-part pricing involves a strategy in which providers have two different charges for a product.
• Payment pricing is a strategy in which customers are allowed to break down product payments into smaller amounts they pay incrementally.
• Promotional pricing is a short-term tactic to get people to purchase a product or more of it.

Key Takeaways - Pricing

• In addition to setting a pricing objective, a firm has to look at a number of factors before setting its prices, including:

  • The customers who need it is designed to meet
  • Demand
  • The external environment which includes the competition, the economy, and government regulations
  • The offering's cost
  • Other aspects of the marketing mix, including the nature of the offering, its stage of its product life cycle, promotion, and distribution

• Price is the only marketing variable that generates money for a company.

• All the other variables (product, communication, distribution) cost organizations money.

• A product's price is the easiest marketing variable to change and also the easiest to copy.

• Price by itself does not provide a sustainable competitive advantage.

• Before pricing a product, an organization must determine its pricing objective(s).

• A company can choose from pricing objectives such as:

  • Maximizing profits
  • Maximizing sales
  • Capturing market share
  • Achieving a target return on investment (ROI) from a product
  • Maintaining the status quo in terms of the price of a product relative to competing products

What Salespeople Do

• Salespeople create value for their firm's customers.
• Manage relationships.
• Act on behalf of their customers.
• Relay customer and market information back to their organizations.

Salespeople's Responsibilities

• A salesperson has a fiduciary responsibility to the company and an ethical responsibility to the buyer.
• At times, the two responsibilities conflict with one another.

Creating Value

• Salespeople sell—that's the bulk of the value they deliver to their employers.
• Salespeople aren't appropriate channels for companies in all situations.
• Salespeople can be the best channel to reach customers in situations requiring adaptation and customer education.
• Adaptation is not easily accomplished with other types of marketing communication.

Managing Relationships

• Sales representatives have to decide which accounts they have the best shot at winning and which are the most lucrative.
• Salespeople recognize that business is not about making friends, but about making and retaining customers.

Getting Information

• Salespeople are boundary spanners: they operate outside the boundaries of the firm and in the field.
• They are the first to learn about what competitors are doing and then report back to headquarters.
• Salespeople interact directly with customers and, in so doing, gather a great deal of useful information about their needs.
• Companies use customer relationship management (CRM) software for customer data entry and retrieval.

Salespeople Acting on Behalf of Customers

• Salespeople are the voice of the customer inside the supplier's organization.

Types of Sales Positions

• Four basic types of salespeople, based on activities include:
  • Missionary salespeople
  • Trade salespeople
  • Prospectors
  • Account managers
• Three "order getters" includes:
  • Actively solicits purchases from customers
  • Order takers are people who field requests from customers
  • Sales support helps sales staff by pricing and preparing proposals and other pre-sale and post-sale activities
• These four types are actively seeking to make sales by calling on customers

Missionary Salespeople

• Calls on people who make decisions about products but do not actually buy them.
• While they call on individuals, the relationship is business-to-business (B2B). -For example, a salesperson meets with a doctor (B2B) to discuss a medication their company sells and wants the doctor to prescribe.
• Patients actually purchase the medication.

Trade Salespeople

• Calls on retailers and helps them display, advertise, and sell products to consumers.

Prospectors

• The primary function is to find prospects, or potential customers.
• Often knock on doors and call called cold calling.
• May be responsible for closing sales or turning over prospects.

Account Managers

• Responsible for ongoing business with a customer who uses a product.
• Need to identify lead users and work closely with these lead users and build relationships to innovate together.

Other Types

• Order takers and sales support do not actively solicit business.
• Order takers include
  • Retail sales clerks.
  • Salespeople who sell for distributors of products like plumbing supplies or electrical products who sell to plumbers and electricians.
• Sales support works with salespeople to help make a sale and to take care of the customer after the sale.

Selling Strategies

• Script-based or "Canned" Selling: Salespeople memorize and deliver sales pitches verbatim.
• Needs-satisfaction Selling: Asking questions to identify a buyer's problems and needs, and then tailoring a sales pitch to satisfy those needs.
• Consultative Selling: The seller uses special expertise to solve a complex problem in order to create a somewhat customized solution.
• Strategic-partner Selling: Both parties invest resources and share their expertise with each other to create solutions that jointly grow one another's businesses.

Choosing the Right Sales Strategies

• The sales-strategy types and relationship types discussed do not always perfectly match up.
• Different strategies might be more appropriate at different times.
• The appropriateness of each method depends on how the buyer wants to buy, and what information the buyer needs to make a good decision.

Typical Sales Process

• Approach
• Needs Identification
• Presentation
• Objection Handling
• Close
• Implement and Provide Customer Service

Pre-Approach and Planning

• A salesperson may use a variety of resources to find the right person to call, including:

  • LinkedIn
  • Google
  • Financial Databases (Standard & Poor's)
  • Internal Data

• Much pre-call planning happens, although a lot can be accomplished through the judicious use of web-based resources.

• Attempting to convince the buyer to spend time exploring the possibility of a purchase.

Needs Identification

• In complex situations, a lot of questions are asked and these questions will follow the SPIN outline:

  • Situation Questions
  • Problem Questions
  • Implications
  • Needs-payoff

• SPIN questions are designed to fully understand how a problem is creating a need.

• Highly complex situations may require that questions be asked of many people in the buying organization.

• In simpler situations, needs may not vary so a canned presentation can be used.

• Instead of identifying needs, needs are simply listed as solutions are described.

Presentation

• It describes how the offering satisfies the needs identified earlier.
• One approach to presenting solutions uses statements called FEBAs
  • Feature
  • Evidence
  • Benefit
  • Agreement

Objections

• Concerns or reasons not to buy are raised by the prospect and can occur at any time.
• Salespeople should probe to find out if the objection represents a misunderstanding or a hidden need.
• When all the objections are resolved to the buyer's satisfaction, the salesperson should ask for the sale (close).

Closing

• A request for a decision or commitment from the buyer.
• Different types of closes:
• Direct Request: "Would you like to order now?"
• Minor point: "Would you prefer red or blue?"
• Summary: "You said you liked the color and the style. Is there anything else you'd like to consider before we complete the paperwork?"

Sales Cycle

• The sales cycle is depicted as a funnel

• The sales cycle can be broken down into the following stages:

• Leads start at the top

• Suspects are second from top

• Prospects are next

• sales are at the bottom

• Leads

  • Identifying and obtaining Contact information about someone who might be interested

• Suspects

  • A person or organization that has an interest in an offering, but it is too early to tell what or if they are going to buy

• Prospects

  • Someone with the budget, authority, need and time (BANT) to make a purchase and will buy such a product of the type the salesperson is selling soon

• Sales

  • The person decided to buy the saleperson's product and became a customer

Key Takeaways - Sales

• Salespeople act as representatives for other people, including employees who work in other parts of their companies.
• Salespeople create value for their customers, manage relationships, and gather information for their firms.
• There are four types of salespeople: missionary salespeople, trade salespeople, prospectors, and account managers.
• Some buyers and sellers are more interested in building strong relationships with one another than others.
• The four types of relationships between buyers and sellers are transactional, functional, affiliative, and strategic. 
• The four basic sales strategies salespeople use are script-based selling, needs-satisfaction selling, consultative selling, and strategic-partner selling.
• Different strategies can be used in different types of relationships.
• The same questioning techniques used in needs-satisfaction selling might be used in relationships characterized by consultative selling and strategic-partner selling.
• The sales process used to sell products is generally the same regardless of the selling strategy used.
• However, the strategy chosen will depend on the stage the seller is focusing on.
• For example, if the problem is a new one that requires a customized solution, the salesperson and buyer are likely to spend more time in the needs identification stage.
• Consequently, a needs-satisfaction strategy or consultation strategy is likely to be used.

This Week's Lab

• Explore pricing and how pricing impacts profitability.
• Look at pricing marketplace peculiarities for different goods and services.
• Lab Prep: look to external environment to find branding and pricing examples.
• Discuss if time.

Next Week's Lecture

• The title of next week's session is Distribution
• Read: Textbook: Principles of Marketing by Jeff Tanner and Mary Raymond V 5.0, Chapter 8 & 9