MARKETING
MANAGEMENT
MARKETING MIX
PRICING &
PROMOTION
V Srinivasa Rao, AUSIB
The Concept of Price
“Marketing consists of the full range of activities
involved in facilitating commercial exchanges and
having all of these activities be guided by a concern for
customer needs.”
A commercial exchange takes place when a seller
provides a product to a buyer in return for something in
exchange (usually an amount of money). The product
could be something tangible, which is referred to as a
good, or the product could be the result of human or
mechanical effort, which is referred to as a service.
Price is the monetary value of this exchange.
Price is essential for the exchange of
goods for money.
The Concept of Price
Pricing as a Marketing Activity
Price is part of the marketing-mix, and is related to the
other 3 elements as follows.
PRODUCT
PLACE
Create customer value
PROMOTION
PRICE
Harvests value
“Price is the marketing-mix element
that produces revenue; the others
produce costs.”
Framework for Pricing Strategy
A firm must set a price for the first time when it develops a new
product, when it introduces its regular product into a new
distribution channel or geographical area. The firm must decide
where to position its product on quality and price.
Most markets have three to five price points or tiers. Marriott
Hotels is good at developing different brands or variations of
brands for different price points: Marriott Vacation Club—Vacation
Villas (highest price), Marriott Marquis (high price), Marriott (highmedium price), Renaissance (medium-high price), Courtyard
(medium price), TownePlace Suites (medium-low price), and
Fairfield Inn (low price).
Having a range of price points allows
a firm to cover more of the market
and to give any one consumer more
choices.
Framework for Pricing Strategy
Toyota: Different Car Types and Price Points
Hatchback
Toyota Glanza
₹ 6.81 - 10.00 Lakh
Sedan
Toyota Camry
₹ 46.17 Lakh
SUV
Toyota Urban Cruiser Hyryder
₹ 10.86 - 19.99 Lakh
Toyota Fortuner
₹ 32.98 - 50.74 Lakh
Toyota Fortuner Legender
₹ 43.22 - 46.94 Lakh
Toyota Land Cruiser
₹ 2.10 Crore
Toyota Rumion
₹ 10.29 - 13.68 Lakh
Toyota Innova Crysta
₹ 19.38 - 26.05 Lakh
Toyota Innova Hycross
₹ 18.82 - 30.26 Lakh
Toyota Vellfire
₹ 1.20 - 1.30 Crore
Toyota Hilux
₹ 30.41 - 37.89 Lakh
MPV/MUV
Truck/Pickup
Framework/Factors for Pricing Strategy
The price the company charges is generally between one that is too low to produce a profit and one that
is too high to produce any demand.
Factors affecting pricing and pricing
decisions can be divided into two main
categories — internal, & external.
Internal Factors
1.
Pricing decisions are directed by Marketing
objectives of the firm which, in turn, are
governed by the organization’s overall
objectives. The Marketing objectives can again
be divided into three categories.
a)
b)
c)
Profitability objectives
Volume objectives
Other objectives, including social and
ethical considerations, status quo
objectives, and image goals.
a)
Profitability objectives





b)
Volume objectives


c)
Profit maximization
Profitability
RoI
Return on Sales
Cash flow
Sales maximization
Market share
Other objectives



Social and ethical considerations
Status quo objectives
Company image
2.
Cost structure of the firm




Fixed Costs
Variable Cost
Break-even Point
Promotion & Advertizing Costs
External Factors







Price elasticity of demand
Customer perceptions, expectations,
buying behaviour
Channel expectations
Competitors’ marketing strategies &
pricing
Pricing of substitutes / related products
Pricing of primary products, and
complementary products
Legal compliance
There are three basic pricing approaches:
1. Cost-based pricing — governed by
supply-side considerations
2. Customer / Value oriented pricing —
directed by demand-side factors]
3. Competitive / Market-based pricing —
based on the demand and supply
conditions in the market, and the
competition [structure, & strategies]
1. Cost-oriented pricing: Involves setting prices based
on the costs of producing, distributing, and selling
the product plus a fair rate of return for its effort
and risk.
a) Markup Pricing [Cost plus margin method]: The
simplest pricing method ─ adding a standard
markup to the cost of the product.
b) Manufacturers; distributors, retailers, and other
intermediaries; service establishments such as
restaurants, often find cost-plus pricing method
to be easy to administer and time-saving.
Let's say you started a retail clothing line. You have invested
$250,000 in plant & machinery that can produce 100,000
pairs of jeans per annum. You now need to calculate the
selling price for the jeans. Your cost structure is as follows.
Variable costs: Material costs: $10; & Labor costs: $30
Total overhead costs: $2,000,000
Unit cost:
= [AVC] + AFC + Average OHC
= $40 + [$250,000/100,000] + [$2,000,000/100,000] = $62.5
With a markup of 30%, the Selling Price would be,
= $62.50 (1 + 0.30) = $81.25
This gives you a Selling Price of $81.25 for each pair of
jeans.
b)
Target-Return Pricing: In this method, the price is set
at that level which will yield target rate of return on
investment made by the company.
c)
Target return pricing uses the concept of a break-even
chart, which shows the total cost and total revenue
expected at different sales volume levels.
d)
Example: Suppose a toaster manufacturer has invested
$1 million in the business, and has the following costs
and sales expectations:
Variable cost per unit $10
Fixed costs $300,000
Expected unit sales 50,000
e)
f)
g)
h)
Now, assume that the toaster manufacturer wants to set
a price to earn a 20 percent ROI, which is $200,000.
b)
c)
d)
e)
f)
The target-return price is given by the following
formula:
Target-return price = unit cost + [(desired return *
invested capital)/unit sales]
= $16 + [(0.20 * $1,000,000)/50,000]
= $20
Target return pricing uses the concept of a break-even
analysis, and the corresponding break-even chart, which
shows the total cost and total revenue expected at
different sales volume levels.
2. Value-based pricing methods:
a) Perceived-Value Pricing: This is one of the
contemporary pricing method where marketers
do not take into account their costs as key
consideration in setting their prices, rather
they base their price on the customer’s
perceived value of their product. Perceived
value is made up of a host of tangible and
intangible factors, such as the consumer’s
perception of the product performance, the
channel deliverables, the warranty quality,
customer support, the supplier’s image,
trustworthiness, and esteem.
[Source: Kotler]
Caterpillar uses perceived value to set prices on its construction
equipment. It might price its tractor at $100,000, though a similar
competitor’s tractor might be priced at $90,000.
Value perception of the customer:
$90,000 is the tractor’s price if it is only equivalent to the competitor’s
tractor [plus]
$7,000 is the price premium for Caterpillar’s superior durability [plus]
$6,000 is the price premium for Caterpillar’s superior reliability [plus]
$5,000 is the price premium for Caterpillar’s superior service [plus]
$2,000 is the price premium for Caterpillar’s longer warranty on parts
= $110,000 [perceived value]
– $10,000 [discount]
= $100,000 [final price]
As per customer’s perception, although he is paying a $10,000 premium,
he is actually getting $20,000 extra value.
b) Value Pricing: This is another modern method of
pricing where high quality products are priced
significantly low — offering a higher value to the
customers at a lower price.
Among the best practitioners of
value pricing are IKEA, Target,
and Southwest Airlines. FMCG
giant P&G also uses this method
for some of its product lines.
c) Value pricing is not just a matter of setting lower
prices compared to competitors, rather it is more
about re-engineering the company’s operations to
become the low-cost producer without sacrificing
quality, and lowering one’s prices significantly so that
large number of value-conscious customers are
attracted.
3. Market-based pricing: In this case, the pricing
methods are governed by the market forces ─ the
market structure & competitors’ strategies, costs,
prices, and market offerings.
a) Going-Rate Pricing. In going-rate pricing, the
firm bases its price largely on competitors’
prices. In oligopolistic industries that sell a
commodity such as steel, paper, or fertilizer, all
firms normally charge the same price.
a) Smaller firms “follow the leader,” changing their prices when the market
leader’s prices change rather than when their own demand or costs change.
b) Sealed-Bid Pricing. This type of pricing method is followed when a firm wishes
to win a contract or job. More weightage is given to the probability of winning
the contract that firm’s cost structure.
Firm’s pricing policies & strategies are
governed both by organizational objectives,
and market forces. Here’s a discussion on some
of these.
1. Market Skimming. In this case, the price charged is
intended to be high relative to the average price of
major competitors and what customers are
accustomed to paying. By following this strategy, the
marketer wants to project their product as a
premium/quality product to the consumer. Skim-thecream pricing involves selling at a high price to those
who are willing to pay before aiming at more pricesensitive consumers.
2. A Skimming price policy can theoretically maximize
the profit from each price-level. It is most suitable
for products that have short life cycles.
2. Penetration Pricing. Also known as Price Leadership,
this strategy involves charging a price that is low
relative to the average price of major competitors
and what customers are accustomed to paying. This
pricing strategy is followed generally in case of new
products and where the firm is initially targeting to
garner a large market share. While this strategy
might erode the margins, it helps firms maximize
sales volumes and turnover — thereby making good
profits.
3. This pricing strategy works best in case of the
convenience goods or other goods which are of dayto-day consumption and meant for the masses.
3. Product Line Pricing. Companies normally develop
product lines rather than single products, catering to
different price ranges. A men’s clothing store might
carry men’s suits at three price levels: $300, $600,
and $900, which customers associate with low,
average, and high quality respectively. The seller’s
task is to establish perceived quality differences that
justify the price differences.
4. This pricing strategy works best in case of the
convenience goods or other goods which are of dayto-day consumption and meant for the masses.
5. This pricing strategy helps the company maximize
turnover and profits — by catering to different
markets.
4. Product-Bundling Pricing. Company bundles a set of
products or services offers for sale at a lower single
price than would be the case if each item were sold
separately.
5. Pure bundling occurs when a firm offers its products
only as a bundle. Pure bundling occurs when a firm
offers its products only as a bundle. In mixed
bundling, the seller offers goods both individually
and in bundles
6. This strategy is very popular with supermarkets who
often adopt BOGO strategy to clear piling inventories
of slow-moving stock.
5. Psychological Pricing. In general, consumers
perceive high-price as an sign of premium/high
quality. Buyers carry in their mind a reference price
formed by noticing current prices, past prices, or the
buying context.
6. Sellers try to manipulate these reference pricepoints and play with the psyche of consumers by
resorting to psychological pricing. They believe that
the price should end in an odd number, such as Bata
Shoe Company pricing their shoes at Rs.699 rather
than Rs.700 or Rs.999 rather than Rs.1, 000.
6. Optional-Feature Pricing. Many companies offer
optional products [add-ons, or accessories],
features, and services with their main product.
7. This strategy is very popular with the automobile
industry. Also, many restaurants price their
beverages high and their food low. The food revenue
covers costs, and the beverages — especially liquor —
produce the profit.
7. Captive-Product Pricing. Some products require the
use of ancillary or captive products. Manufacturers
of razors often price them low and set high markups
on razor blades. Movie theaters and concert venues
often make more from food/drinks and merchandise
sales than from ticket receipts. This strategy is
known as Cross-benefit Pricing, and is used to as a
method of pricing complementary products.
8. Two-Part Pricing. Service firms engage in two-part
pricing, consisting of a fixed fee plus a variable
usage fee. An ISP can charge a base fee that covers
downloads upto a limit. Downloads above the limit
are chargeable.
9. Geographical Pricing. Refers to the practice of
determining the prices based on the geographic
location of the buyer. Various factors that influence
this decision include shipping costs, tariff structure,
purchase contract stipulations, and such.
Tariff, also called customs duty,
tax levied upon goods as they
cross national boundaries, usually
by the government of the
importing country. The words
tariff, duty, and customs can be
used interchangeably.
PROMOTION
Kotler uses the term Marketing Communications instead of
Promotion, to refer to the fourth marketing-mix element,
consisting of several methods of communicating with and
influencing customers. The major tools are Advertizing,
Sales Promotion, Personal Selling, Public Relations, and
Publicity.
“Marketing communications are the means by which
firms attempt to inform, persuade, and remind
consumers — directly or indirectly — about the products
and brands they sell.”
The elements of the Promotion-Mix
represent the voice of the company
and its brands; through which the
firm can establish a dialogue and
build relationships with consumers.
The Role of Promotion
Promotion helps the firm communicate with consumers.
In specific, Promotion plays a vital role in Marketing, as
follows.
 Communicates how and why a product is used, by whom,
where, and when.
 Who makes the product and what the company and brand
stand for,
 Can motivate consumers to try or use the product.
 Marketing communications allow companies to link their brands
to other people, places, events, brands, experiences, feelings,
and things.
 They can contribute to brand equity — by establishing the
brand in memory and creating a brand image — as well as drive
sales and even affect shareholder value.
Technology and other factors have
profoundly changed the way
consumers receive, and process
communications
Promotion Defined
“… is a form of communication used to
inform, convince or remind the public
about the goods, services, image, and
community involvement of a person or
organization, promotion often has a
decisive role in achieving the set goals.”
The main communication activity of the
company is the promotional mix – the
marketing communications program –
which consists of the “specific combination
of advertising tools, personal sales, sales
promotion and public relations used to fulfill
its marketing and advertising objectives”.
Consumers have more choices and control over what, when,
where, and how they consume media, thanks to the
proliferation of digital platforms, devices, and formats. This
means that marketers need to be more strategic and
creative in finding and engaging their audience across
multiple touchpoints, and delivering relevant and
personalized messages that resonate with their needs,
preferences, and behaviors.
The Promotion Mix
The Promotion Mix is the combination of the methods
and techniques used in promotion and coordination of
promotional activities in order to achieve the
proposed marketing objectives. According to Kotler,
The marketing communications mix consists of eight
major modes of communication.
1.
2.
3.
4.
5.
6.
7.
8.
Advertising
Sales promotion
Personal selling
Public relations and publicity
Events, Sponsorships and experiences
Direct and database marketing
Online and social media marketing
Mobile marketing
The Promotion Mix
1. Advertising — Any paid form of non-personal
presentation and promotion of ideas, goods, or
services by an identified sponsor via print media
(newspapers and magazines), broadcast media
(radio and television), network media (telephone,
cable, satellite, wireless), electronic media
(audiotape, videotape, videodisk, CD-ROM, Web
page), and display media (billboards, signs,
posters).
“… message paid by a sponsor, in most cases
mediated by means of mass communication and
has the function of convincing a certain
audience”
The Promotion Mix
2. Sales Promotion — A variety of short-term
incentives to encourage trial or purchase of a
product or service including consumer promotions
(such as samples, coupons, and premiums), trade
promotions (such as advertising and display
allowances), and business and sales
promotions (contests for sales reps).
force
Sales Promotion is usually used to attract new
customers, introduce new products, sell off
existing inventory, and temporarily create
demand for sales.
The Promotion Mix
3. Personal Selling — Face-to-face interaction with one or
more prospective purchasers for the purpose of making
presentations, answering questions, and procuring
orders.
Personal sales offer specific motivations which the
other elements of the marketing mix cannot offer
specifically. It is complementary to advertising, but
its relative importance depends on the nature of the
product and the behavior of the consumer.
The key advantages: a high level of persuasiveness, opportunities to customize the promotional
message, getting immediate feedback, the possibility of selecting the audience while delivering
complex information.
The Promotion Mix
4. (a) Public relations — Public relations represent a
set of activities used to create, maintain, and
influence a favorable attitude / behaviour towards
the organization, or its products and services. The
UK Institute of Public Relation defines PR as “a
deliberate, planned and sustained effort to establish
and maintain a mutual understanding between the
organization and its [various] publics.”
This form of promotion is informative, and is
actually a personalized tailored communication
with a unique and credible message. It carries
information
through:
spokespersons,
press
conferences, advertising materials, special events
associated
with
sponsorship
involvement,
donations.
The Promotion Mix
4. (b) Publicity — Publicity is a non-paid form of
promotion represented by a complex of activities
designed to make products or services known or
appreciated by consumers/ users, or to form
favorable attitudes towards an idea, action, or a
theory.
Publicity has a broader scope, compared to advertising, and includes free advertising that is
delivered through the dissemination of information that increases consumer confidence in the
product as well as the prestige of the company through: conferences, articles, reports,
posters, media briefings / media releases, senior executives public appearances and such.
The Promotion Mix
5. Events,
Sponsorships
and
Experiences
—
Company-sponsored activities and programs
designed to create daily or special brand-related
interactions with consumers, including sports, arts,
entertainment, and cause events as well as less
formal activities. These activities are aimed at
increasing the visibility of and generating goodwill
for the company.
These programs can also establish credibility
with a specific target market. The firms can also
sponsor events targeting the trade, or even the
local communities.
Sponsorships can either be
commercial, or non-commercial
in nature.
The Promotion Mix
6. Direct and database marketing — Use of mail,
telephone, fax, e-mail, or Internet to communicate
directly with or solicit response or dialogue from
specific customers and prospects.
7. Online and social media marketing — Online
activities and programs designed to engage
customers or prospects and directly or indirectly
raise awareness, improve image, or elicit sales of
products and services.
8. Mobile marketing — A special form of online
marketing
that
places
communications
on
consumer’s cell phones, smart phones, or tablets.
Additional promotional tools companies can
implement to promote their products or
services and themselves include: Trade
shows & Consumer Fairs, Newsletters, &
Product Brochures.
Factors in Setting the
Promotion Mix
Factors that influence the promotion mix
may be grouped into four categories as
follows:
1.
2.
3.
4.
Product-related,
Customer-related,
Organization-related, and
Situation-related.
Consumer marketers tend to spend
comparatively more on sales promotion and
advertising; business marketers tend to spend
comparatively more on personal selling.
1. Product-related factors:
a) Extent and complexity of the product
information,
b) Stage of the product in the product life
cycle, and
c) Product type and unit price.
b) Customer buying behaviour
H
a) Characteristics of the target market –
Generally, non-personal promotion
(advertising and publicity) are more
suitable for ultimate consumers, and
personal selling is relatively more
important for organizational buyers.
force’s chances of getting a favorable first
meeting and early adoption of the product.
Product Differentiation
2. Customer-related factors:
company’s reputation and improve the sales
L
Factors in Setting the
Promotion Mix
Corporate advertising can improve a
L
Variety
Seeking
Behaviour
Complex
Buying
Behaviour
Habitual
Buying
Behaviour
Dissonance
Reducing
Buying
Behaviour
Involvement
H
Factors in Setting the
Promotion Mix
3. Organization-related Factors:
a) Budget:
Budgetary constraints compel the marketers to
choose wisely among the alternatives available
within the promotion mix, while maximizing the
overall effectiveness of the promotion effort. In
general advertizing, and personal selling are
considered expensive relative to the other means
of promotion.
In the introduction stage of the product life
cycle, advertising, events and experiences, and
publicity have the highest cost-effectiveness,
followed by personal selling togain distribution
coverage and sales promotion and direct
marketing to induce trial.
b) Marketing channel and promotion
strategies [‘Push’, & ‘Pull’ Strategies]:
When marketers of packaged goods — such as food,
tobacco, beverages, toiletries, and health and
beauty aids — adopt a ‘Pull Strategy’, they build
and maintain their market share by generating sales
through ‘consumer pull’ created by strong productmarket
strategies
[brand
management]
implemented through mass-media advertising,
point-of-purchase promotion, and packaging.
On the contrary, in ‘Push Strategy’, marketers push
inventory into the supply pipeline and depend on
aggressive promotion of their products by the trade.
Factors in Setting the
Promotion Mix
4. Situational Factors:
a) Visibility of the firm and its political,
legal and social environment:
Some companies are better known to the public
because of their products, their relative
dominance in the industry and their impact on
physical, economic or social life of people.
Examples could include Amul, Asian Paints, HUL,
TATA, ITC, Reliance among others. To maintain
their high visibility in the public sphere, these
firms spend more money on public relations and
publicity, in addition to the money and effort
spent on promoting their products and services.
The advent of “Big Data” has given marketers
the opportunity to learn even more about
consumers and develop more personal and
relevant marketing communications.
b) Competitive pressures:
Firms very often have to match or counter the
promotional activities of their competitors to
maintain or increase their market shares. Hence the
promotional effort of such firms is affected and
influenced-by the activities of their rivals. While the
Cola Wars is an extreme example of this rivalry,
pitched battles fought on promotional turf are not
uncommon between competing firms is a common
phenomenon,
specially
in
consumer
goods
marketing.
INTEGRATED MARKETING
COMMUNICATIONS [IMC]
“A process of marketing communications [MarComs]
planning that recognizes the synergistic benefits of a
comprehensive plan that evaluates the strategic roles of
a variety of communication disciplines – general
advertising, direct response, sales promotion,
[marketing-oriented] public relations, sponsorship or
social media – and combines these disciplines to
provide
clarity,
consistency,
and
maximum
communication impact.”
IMC highlights the importance of
having one communications strategy
or plan as the unifying element and
the integrative factor of the various
tools or disciplines employed.
1. IMC is a planning process rather than a concept.
It aims to achieve a coordinated execution of a
MarComs program.
2. The communication disciplines chosen for an IMC
campaign – for example, advertising, direct
response, sales promotion, marketing-oriented
PR, sponsorship or social media – must
complement each other.
3. IMC must be supported by research, and not
guesswork. This means using diagnostics or other
forms of research to help increase the probability
of success.
4. IMC must take the target audience into
consideration. This means understanding their
decision process, motivations for buying (or not
buying) and their media usage habits.
Promotion and
communication is used
synonymously in
marketing literature.
5. IMC must be result-driven, which entails being
accountable and ensuring a fair return on
investment (ROI).
6. It must aim for clarity and consistency in the look,
feel and voice of the brand over time, so that
there is no confusion in people’s minds. This
demands clear and consistent brand positioning in
all communication, & collaterals.
7. Media and creative content must support each
other in this endeavour. This means that the
creative content must be appropriate for the
medium.
Objectives of MarComs:
Informing, Persuading, Reminding, &
Reinforcing.
As part of its IMC strategy, Nike integrated its app
and store communications. The company’s innovative
Nike Live stores were designed in tandem with its
app. These stores are customized according to data
on local customer preferences and behavior.
The IMC Process
Determining
the Promotion
Mix
Message
Strategy
Advertizing
Identifying the
target
audience
Establishing
the
Budget
Measure the
Effectiveness
of MarComs
Sales
Promotion
PR
Setting
Objectives
Personal
Selling
Social Media
Media
Strategy
Manage and
Coordinate
IMC Process
Distinctive Characteristics of the Promotion Mix Elements
Distinctive Characteristics of the Promotion Mix Elements
Let’s get in touch.
AUSIB
Andhra University, VISAKHAPATNAM
+ 91-9704-559-369
shrini.vempali@gmail.com