Please sit with your STC380 teammates Review Cold Call: 5 key learnings from last time
Marketing Concepts in Commercialization of High Technology Session 7 Marketing Mix: Promotion/Communication Strategy
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 haven’t done the reading, censor even more
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 • MPD#3
Review Kate Mackie, Ph.D. 2001, Center for Lifelong Engineering Education, University of Texas at Austin
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
Select the Pricing Objective • Maximize current profit • Maximize market skimming • Maximize sales growth (penetration) • Product/quality leadership
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.
Pricing Sensitivity Factors Customers are less price sensitive if: • 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
3. Estimate Costs • Variable Costs • Fixed Costs • Other Cost Concepts • Target Costing • Experience Curve
Select a Pricing Method • Mark-up Pricing - “Cost Plus”
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
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 Demand Price/lawn Example of The “Cost-Plus” Delusion • Over priced in weak markets • Under priced in strong markets
Select a Pricing Method • Mark-up Pricing - “Cost Plus” • Target Return Pricing
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
Select a Pricing Method • Mark-up Pricing - “Cost Plus” • Target Return Pricing • Perceived Value Pricing
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 product’s differences vs. the competitive offering • The value of the “Whole Product”
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
Attribute Standard Premium Added Offer Offer Value Quality Impurities<10ppm Impurities<1ppm $1.40 Delivery W/in 2 wks W/in 1 wk .15 System Supply chem. Supply total system .80 Innov. Little R&D sup. High R&D sup. 2.00 Retraining Train initially Retrain on req. .40 Service Through home Locally avail. .25 office Price $100/lb $105/lb 5.00 Perceived Value Pricing in Chemicals
Attribute Standard Premium Added Offer Offer Value Quality Impurities<10ppm Impurities<1ppm $1.40 Delivery W/in 2 wks W/in 1 wk .15 System Supply chem. Supply total system .80 Innov. Little R&D sup. High R&D sup. 2.00 Retraining Train initially Retrain on req. .40 Service Through home Locally avail. .25 office Price $100/lb $105/lb 5.00 Perceived Value Pricing in Chemicals Note: The “Device” is the chemicals. The “Product” includes the device plus. . . .
The art of pricing depends on determining how much those differences are worth to a market segment.
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)
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
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
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
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
I. Executive Summary The Marketing Plan 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
Promotion • Personal Selling • Trade Shows • Events • Sales promotion • Advertising • Message • Media • Public relations and publicity
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? ? ? ?
Response Elements in the Communication Process SENDER RECEIVER Message
Awareness Knowledge Liking Preference Conviction Purchase Response Hierarchy Models Hierarchy-of- Effects Model Cognitive (Thinking) Affective (Feeling) Conative (Doing)
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.?
Communication Effects Pyramid 5% Repurchase/ regular use 20% Trial 25% Preference 40% Liking 70% Knowledge/Comprehension 90% Awareness Belch & Belch, p. 208
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.
Hierarchy-of- Effects Model Awareness Knowledge Awareness Liking Preference Conviction Interest Evaluation Purchase Trial Adoption Response Hierarchy Models Innovation- Adoption Model Cognitive (Thinking) Affective (Feeling) Conative (Doing)
Exercise • What types of advertising or promotion could you use at each of these steps?
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.?
Encoding Decoding Noise Feedback Response Elements in the Communication Process SENDER Media RECEIVER Message
Decline Maturity Growth Introduction 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 skimming vs. penetration Distribution Build selective Build intensive Build more intensive Go selective: phase distribution distribution distribution 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
High Price Low 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
Personal Selling Advertising Any paid form of non-personal presentation by an identified sponsor. Sales Promotion Short-term incentives to encourage trial or purchase. Public Relations Protect and/or promote company’s image/products. Usually un-paid media . Personal Presentations. Direct Communications With Individuals to Obtain an Immediate Response. Direct Marketing The Marketing Communications Mix
Promotion Mix Personal Selling Direct Marketing Sales presentations Catalogs Sales meetings Mailings Incentive programs Telemarketing 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
Consumer Goods Industrial Goods Personal Selling Sales Promotion Advertising Sales Promotion Advertising Personal Selling Public Relations Public Relations High Tech/Industrial Goods Services Personal Selling Word of Mouth Advertising - Trade mag’s Personal Selling Trade Shows Public Relations Technical seminars Advertising Technical publications Sales Promotion Adv. - Direct mail Relative Spending on Promotional Tools
Very Important Not Important Importance of Promotional Tools for High Tech Firms • 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.
Advertising • Definition: Informing and persuading through paid media (television, radio, magazine, newspaper, outdoor, and direct mail). • Two components: • Media/Vehicle • Message
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.”
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 Radio $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 Web $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-impulsivity concerns; clutter Comparing Media
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