4Ps - Price - PDF

4Ps - PRICE Lesson 3 Price - The amount that a customer pays for products and services. - It is the value placed on something that is measured in monetary terms. Key Factors Affecting Price 1...

4Ps - PRICE Lesson 3 Price - The amount that a customer pays for products and services. - It is the value placed on something that is measured in monetary terms. Key Factors Affecting Price 1. Cost - The setting of price should incorporate a calculation of how much it costs the organization to produce the product or service (Hudson, 2008) 2. Organizational and Marketing Objectives - Companies get into business for survival, profit maximization, high rate of return of investment, brand equity growth 3. Other Marketing Mix Variables - Price is affected by the interplay of the other variables in the marketing mix. 4. Buyer Perception of Value and Price - Buyers have different perception of product quality and value based on branding and image. 5. Competition - Knowing what competition offers is an important factor in the success of business. 6. Government Regulations and Taxes - Some government regulations and taxes can either cause a company to maintain its low or increase price. 7. Nature of the Market and Demand - Tourism and Hospitality Industry caters to a highly segmented marketplace. - Pricing need to address the differences in the nature of such markets as the differences in the demand of each market segment. 8. Pricing in Different Market - Different markets have different levels of price sensitivity. 9. Price Elasticity of Demand - Price increases or decreases normally have an effect on the level of sales of the product. - If demand increases when price decreases, then the product is elastic. If demand stays the same even if there’s price cut, the product is inelastic. 10. Other Environmental Factors - Other environmental factors that may be beyond of company’s control affects the pricing.  General Pricing Approaches 1. Cost-Based Pricing - Aims to cover the cost and make a profit. Cost-Based Pricing Price = Unit Cost + Expected Percentage of Return on Cost Unit Cost = Variable Cost + Fixed Costs Selling Price = Total Cost of Product + Profit Margin 2. Break-Even Analysis and Target Profit Pricing - Price is determined using break-even price and projecting a target profit. - Total Revenue = Total Cost Break-Even Price Formula Break-Even Price = Fixed Costs Production Volume + Variable Cost 3. Buyer-Based Pricing (Value-Based) - Perceived-value pricing uses the buyer’s perceptions of value and not the seller’s cost as the key to pricing. - “At what price are buyers willing to buy my product?” 4. Competition-Based Pricing - Looks at what price competitors are putting on their products and services. “Having a right price means that the price is acceptable to the buyers, captures the projected market share, covers all fixed and variable costs, and provides an acceptable margin of profit.” Pricing Strategies 1. Prestige Pricing - This is positioned to be luxurious and elegant and targets the elite and Class A market. - 2. Market Skimming Pricing - Companies employ the market skimming pricing strategy when the market is price insensitive. -  3. Market Penetration Pricing - Market penetration pricing is used when setting a low initial selling price to penetrate the market quickly and to attract many buyers for large market share. - 4. Product Bundling Pricing - A strategy used to attract buyers to purchase because of the reduced rate of the bundle compared to the total cost of the items. - E.g Jollibee Family Super Meals 5. Volume Discounts - Are rates given to frequent or high volume users to attract them to purchase the products. - 6. Discounts Based on Time or Purchase - This addresses the seasonality aspect of the tourism and hospitality products. - E.g Valentines Day Ultimate Room Package 7. Discriminatory Pricing - The company sells a product or service at two or more prices, although the difference in price is not based on differences in cost but tries to maximize the amount that each customer pays. 8. Psychological Pricing - Psychological aspects like prestige, reference prices, round figures, and ignoring end figures. - This plays on the psychology of consumer. The 7 Psychological Pricing Strategies 1. Charm Pricing 2. Odd/Even Pricing 3. Decoy Pricing  4. Price Appearance 5. Price Anchoring 6. Center Stage 7. Innumeracy Promotional Pricing - Offers discounts and short-term incentives especially during special events. - E.g 50% off  4Ps - Promotion Lesson 4 Promotion - Coordination of all seller-initiated efforts to set up channels of information and persuasion to sell good and services or promote an idea (Belch and Belch, 2008). - Persuade people to buy the product and close the sale. Modes of Marketing Communications - Advertising - Sales promotion - Events and experiences - Public relations and publicity - Direct marketing/ Interactive marketing - Word-of-mouth marketing - Personal selling Communication Platforms 1. Advertising - Advertising is about promoting a product or service to a broad audience through paid channels. It builds awareness and drives interest. Print ads: Newspaper or magazine ads for a new car. Broadcast ads: TV commercials for fast food chains like McDonald's. Packaging inserts: Flyers included inside product boxes. Motion pictures: A brand placement in movies (e.g., Coca-Cola cans in a film). Brochures/booklets: Travel guides for holiday packages. Posters/Billboards: A giant Coca-Cola billboard in Times Square. POP displays (Point-of-Purchase): A custom stand at the checkout counter featuring new snacks. Logos: Nike’s swoosh symbol displayed everywhere. Videotapes: Instructional or promotional videos sent to clients. 2. Sales Promotion - Sales promotions are short-term incentives designed to boost sales or attract attention. Contests/Games: A “spin-the-wheel” game at a mall offering free products. Premiums: Free gifts like toys with Happy Meals. Sampling: Offering free samples of new ice cream flavors in supermarkets. Trade shows/exhibits: A booth at a tech expo showcasing the latest gadgets. Coupons: "20% off" vouchers sent through email or physical mail. Rebates: Money back when purchasing a product, like cashback on smartphones. Entertainment: In-store music events to attract customers. Continuity programs: Loyalty cards (e.g., “Buy 10 coffees, get 1 free”).  3. Events/ Experiences - This focuses on engaging customers through memorable experiences or sponsored events. Sports: Sponsoring major events like FIFA or the NBA. Entertainment: A concert hosted by a clothing brand. Festivals: Coca-Cola sponsoring a local music or cultural festival. Arts: Galleries showcasing art sponsored by luxury brands like Louis Vuitton. Causes: Charity runs funded by Nike for health awareness. Factory tours: A guided tour of a chocolate factory like Hershey’s. Company museums: A visit to the LEGO Museum in Denmark. Street activities: Flash mobs or product sampling in busy urban areas. 4. Public Relations - PR focuses on managing a brand's reputation and creating a positive public image. Press kits: A media package sent to journalists about a product launch. Speeches: A CEO speaking at a global conference. Seminars: Educational workshops hosted by a tech company. Annual reports: A company’s yearly business performance report sent to stakeholders. Charitable donations: A company donating to disaster relief efforts. Publications: Informational leaflets about environmental efforts by a business. Community relations: Partnering with local schools for tree-planting campaigns. Lobbying: Advocating for favorable industry policies to the government. Identity media: Creating branded merchandise like shirts or mugs with the company logo. Company magazine: Newsletters or in-house magazines shared with employees and stakeholders. 5. Personal Selling - This involves direct interaction with customers to close a sale, often requiring persuasive skills. Sales presentations: A salesperson demonstrating a vacuum cleaner at a customer’s home. Sales meetings: Negotiating deals in a business meeting. Incentive programs: Offering bonuses to employees for meeting sales targets. Samples: Giving free skincare product samples to clients during a meeting. Fairs and trade shows: Live product demos at an international trade show. 6. Direct Marketing - Direct marketing delivers personalized messages to specific customers without intermediaries. Catalogs: IKEA sending furniture catalogs to homes. Mailings: Personalized letters offering a discount on banking services. Telemarketing: A call offering broadband services to customers. Electronic shopping: Shopping platforms like Amazon. TV shopping: Home Shopping Network (HSN) programs. Fax mail: Sending promotional messages through fax (used less nowadays). E-mail: Newsletters from an online store about upcoming sales. Voice mail: Voice promotions for loyalty members of a hotel chain. Blogs: Fashion brands using blogs to showcase trends and products. Websites: A brand’s e-commerce website for direct purchases. Word-of-Mouth - This is the sharing of information about a product or service between people, which can be organic or incentivized. Person-to-person: Recommending a restaurant to a friend. Chat rooms: Discussion forums where people share experiences about tech gadgets. Blogs: Positive product reviews from influential bloggers. Advertising - As any paid form of non-personal communication about an organization, product, service, or idea by an identified sponsor (Belch and Belch 2008) Objectives of Advertising - Informative advertising is used when introducing a new product - Persuasive advertising is used when competition is stiff - Reminder advertising is very important for products that have reached the maturity. The Use of Celebrity Endorsers Would celebrity endorsers be useful in promoting a business? - Lends his/her credibility to the product - Helps attract attention - Provides a persuasive message - Targets the audience based on the celebrity’s demographic profile Direct Marketing - An interactive system of marketing that uses one or more advertising media to effect a measurable response. Advantages of Direct Marketing Precision Targeting: Reaches specific audiences (e.g., local gym emailing fitness enthusiasts). Personalized Messages: Tailored communication (e.g., birthday discounts). Privacy: Messages sent privately (e.g., exclusive offers via email). Faster Sales: Prompts quick action (e.g., flash sales via SMS). Less Competition: Directly reaches customers without noise (e.g., personalized mail). Immediate Results: Quick responses (e.g., redeeming a text offer instantly). Measurability: Easy to track success (e.g., email click rates). Elements of Direct Marketing Campaign List – contains all the names and contact information of your target market. Message – customized and personalized. Offer – it should be interesting and worthy for the prospective customer to consider making a purchase. Personal Selling - A person-to-person communication between a salesperson and a prospective customer in which the needs are met in exchange for money or resource.  Steps of the Sales Process Prospecting and Qualifying Prospects - The sales process begins with identifying prospective customers using a variety of sources. Pre-Approach - This phase is the stage wherein the salesperson seeks to understand the personal or business needs. Approach - This is when the salesperson starts to communicate with the prospect. Presentation and Demonstration - Knowing the prospect’s need and how to address his problems through product presentation. A product presentation should include features, benefits and advantages of availing the products/services. Negotiation and Overcoming Objects - Is a very challenging phase in the sales process. Closing the Sale - This is done through a signed contract. Follow-Up/Maintenance - Once the sale has been made and the service has been delivered, the salesperson must keep the relationship going by follow-up activities. Public Relations - A process of creating a positive image and customer preference through the third party endorsement. - Can be done using various activities all aimed to generate a positive image through what others say about one’s establishment. Major Public Relations Activities Press/Media Release – Sharing news or updates with media outlets to gain public attention (e.g., announcing a new product launch). Product Publicity – Creating buzz around a product through events or media coverage (e.g., Apple unveiling a new iPhone). Corporate Communication – Managing the company’s overall image and communication (e.g., publishing annual reports or internal newsletters). Lobbying – Influencing government policies or decisions to benefit the organization (e.g., advocating for industry-friendly regulations). Counseling – Advising management on public perception and communication strategies (e.g., crisis management during a product recall). Public Relations Process Understanding the Firm’s Mission, Culture, and Target Market – Know the organization’s goals and audience (e.g., a green energy company targeting eco-conscious consumers). Setting Objectives – Define what the PR efforts should achieve (e.g., increase brand awareness by 20%). Defining Target Market – Identify the audience for the PR message (e.g., millennials interested in tech). Designing PR Message – Craft a clear and engaging message (e.g., “Our product helps save energy and costs”). Implementing the PR Plan – Execute activities like press releases, events, or campaigns. Evaluating PR Results – Measure success using media coverage, customer feedback, or sales data. Sales Promotions - Direct inducement that offers an extra value or incentive for the product to the sales force, distributors, or ultimate consumer, with primary objective of creating an immediate sale.