Advertising and Sales Promotion

Advertising is only one element of the promotion mix, but it often considered prominent in the overall marketing mix design. Its high visibility and pervasiveness made it as an important social and encomia topic in Indian society. Promotion may be defined as “the co-ordination of all seller initiated efforts to set up channels of information and persuasion to facilitate the scale of a good or service. Promotion is most often intended to be a supporting component in a marketing mix. Promotion decision must be integrated and co-ordinated with the rest of the marketing mix, particularly product/brand decisions, so that it may effectively support an entire marketing mix strategy. The promotion mix consists of four basic elements. They are:-

1. Advertising

2. Personal Selling

3. Sales Promotion, and

4. Publicit

1. Advertising is the dissemination of information by non-personal means through paid media where the source is the sponsoring organization.
2. Personal selling is the dissemination of information by non-personal methods, like face-to-face, contacts between audience and employees of the  sponsoring organization. The source of information is the sponsoring organization. 
3. Sales promotion is the dissemination of information through a wide variety  of activities other than personal selling, advertising and publicity which       stimulate consumer purchasing and dealer effectiveness. 
4. Publicity is the disseminating of information by personal or non-personal  means and is not directly paid by the organization and the organization is   not the source.

 DEFINITION OF ADVERTISISNG

  The American Marketing Association,  Chicago, has defined advertising as “any form of non-personal presentation or promotion of ideas, goods or services, by an dentified sponsor.”

 FROM THE ABOVE DEFINITIONS:

·         Advertisement is a MESSAGE to large groups.

·         It is in the form of NON_PERSONAL COMMUNICATION.

·         It persuade the GENERAL PUBLICS to purchase  the goods or services, advertised.

·         It is PAID FOR by advertiser to publisher.

·         Advertising messages are IDENTIFIED with the advertiser.

  Advertising includes the following forms of messages:

       The messages carried in-

·         Newspapers and magazines;

·         On radio and television broadcasts;

·         Circular of all kinds, (whether distributed by mail, by person, thorough tradesmen, or by inserts in packages);

·         Dealer help materials,

·         Window display and counter – display materials and efforts;

·         Store signs, motion pictures used for advertising,

·         Novelties bearing advertising messages and Signature of the advertiser.

Advertising Objectives

 Each advertisement is a specific communication that must be effective, not just for one customer, but for many target buyers. This means that specific objectives should be set for each particular advertisement campaign. Advertising is a form of promotion and like a promotion; the objectives of advertising should be specific. This requires that the target consumers should be specifically identified and that the effect which advertising is intended to have upon the consumer should be clearly indicated. The objectives of advertising were traditionally stated in terms of direct sales. Now, it is to view advertising as having communication objectives that seek to inform persuade and remind potential customers of the worth of the product. Advertising seeks to condition the consumer so that he/she may have a favorable reaction to the promotional message. Advertising objectives serve as guidelines for the planning and implementation of the entire advertising programme.

Advantages  of  advertising

·         Advertising is considered multi dimensional.

·         It helps number of marketing activities.

·         It is a technique of sales promotion.

·         Sales volume is increased by advertising.

·         It helps and supports the salesman in selling the products.

·         Consumer knowledge about the product is increase by advertising.

·         It helps the consumer to save their time in purchases.

·         It helps the manufacturer sell their products.

·         It helps quick selling is possible which leads to more production at less cast.

·         The relation between wholesalers and retailers is improved through advertising.

·         Advertising introduces new products, stimulates markets regarding the existing    Product and repeated sales

BENEFITS TO MANUFACTURERS:

 1It increase sales volume. On the one hand, it reduces the cost of production and,on the      other increases profits.

1.     It helps easy introduction of products into the markets.

2.     It helps to create an image and reputation not only of the product  but also of the advertiser.

3.     Retail price maintance is possible.

4.     It helps to establish a direct contact between manufacturers and consumers.

                       

BENEFITS TO WHOLESALERS RETAILERS :

1.     Easy sale of the products is possible since consumers are aware of rhe product

and its quality.

1.     It increases the rate of the turnover of stock.

2.     It supplements the selling activities.

3.     The reputation credited is shared by the wholesalers and retailers and alike.

4.     It enables them to have product information.

BENEFITS TO CONSUMERS

1.     Advertising stresses quality and very often prices. This forms an indirect guarantee to     the consumers. Further more, large scale production assured by advertising enables the seller to sell the product at a lower cast.

2.     It provides an opportunity to the customers to compare the merits and demerits of various substitute products.

3.     This is perhaps the only medium through which consumers could know the varied and new uses of a product.

4.     Modern advertisements are highly informative.

BENEFITS TO SALESMEN

1.     Introducing the product is made easy.

2.     Advertising prepares necessary ground for a salesman to begin his work. Hence sales efforts are reduced.

3.     The contact established with the customer by a salesman is made permanent through advertising.

4.     The salesman can weigh the effectiveness of advertising when he makes a direct contact with the customer.

BENEFITS TO COMMUNITY

1.     Advertising in general is educative in nature. In the words of the late president Roosevelt of the USA, ‘Advertising brings to the greatest number of people actual knowledge concerning useful things; it is essentially a form of education and the progress of civilization depends on education’.

2.     Advertising leads to large scale production creating more employment opportunities.

3.     Advertising has made more popular and universal the uses of such inventions as the auto mobiles, radios, various household appliances. “Advertising nourishes the consuming power of man. Its creates wants for a better standing of living.. It spurs individual exertion and greater production”.

CONCEPT OF SALES PROMOTION

 Sales promotion consists of diverse collection of incentive tools, mostly short-term designed to stimulate quicker and / or greater purchase of a particular product by consumers or the trade.. Sales promotion includes tools for consumer promotion (for example samples, coupons, prizes, cash refund, warranties, demonstrations, contest); trade promotion (for example buying allowances, free goods, merchandise allowances, co-operative advertising, advertising and display allowances, dealer sales contests); and sales-force promotion (for example bonuses, contests, sales rallies).Sales promotion efforts are directed at final consumers and designed to motivate, persuade and remind them of the goods and receives that are offered. Sales persons adopt several techniques for sales promotion.

Definitions of Sales Promotion

 W.J. Stanton defines sales promotion as all those activities other than advertising, personal selling, public relations and publicity that are intended to stimulate customer demand and improve the marketing performance of sellers.

 Purpose of sales Promotion

 Sales promotion tools vary in their specific objectives. A free sample stimulates consumer trial, while a free management advisory service comments along-term relationship with a retailer. From the marketer’s perspective, sales promotion serves three essential rolesit informs, persuades and reminds prospective and current customers and otherselected audiences about a company and its products.  Because distribution channels are often long, a product may pass through many lands between a producer and consumers. Therefore, a producer must inform middlemen as well as the ultimate consumers or business users about the product. Wholesalers, in turn must inform retailers and retailers must inform consumers. As the number of potential customers grows and the geographic dimensions of a market expand, the problems and costs of informing the market increase.

Objectives of Sales Promotion

 The basic objectives of sales promotion are:

 i) To introduce new products

 To induce buyers to purchase a new product, free samples may be distributed or money and merchandise allowance may be offered to business to stock and sell the product.

 ii) To attract new customers

 New customers may be attracted through issue of free samples, premiums, contests and similar devices.

iii) To induce present customers to buy more

Present customers may be induced to buy more by knowing more about a product, its ingredients and uses.

iv) To help firm remain competitive

 Sales promotions may be undertaken to meet competition from a firm.

 v) To increase sales in off season

 Buyers may be encouraged to use the product in off seasons by showing them the variety of uses of the product.

 vi) To increase the inventories of business buyers

 Retailers may be induced to keep in stock more units of a product so that more sales can be effected.

RATIONALE OF SALES PROMOTION

 Rationale of sales promotion may be analyzed under the following points.

 ??Short-term results

 Sales promotion such as coupons and trade allowances produce quicker, more measurable sales results. However critics of this strategy argue that these immediate benefits come at the expense of building brand equity. They believe that an over emphasize on sales promotion may under mine a brand’s future.

 ??Competitive Pressure

 If competitors offer buyers price reductions, contest or other incentives, a firm may feel forced to retaliate with its own sales promotions.

 ??Buyers’ expectations

 Once they are offered purchase incentives, consumers and channel members get used to them and soon begin expecting them.

 ??Low quality of retail selling

 Many retailers use inadequately trained sales clerks or have switched to self service. For these outlets, sales promotion devices such as product displays and samples often are the only effective promotional tools available at the point of purchase.

 SALES PROMOTION PLAN PREPARATION

There is wide acceptance that sales promotion is one of the most mismanaged of all marketing functions. This can be attributed to the confusion as to what sales promotion really is - which often results in expenditures not being properly accounted for. Some companies record it as advertising expenditure, others as sales force expenditure and others as general marketing expenditure - while the loss of revenue from special price reductions is not recorded at all.

The companies can no longer afford not to set objectives or to evaluate results after the event, or to fail to have some company guidelines. For example, a 1 Euro case allowance on a product with a contribution rate of 3 Euro per case has to increase sales by 50% just to maintain the same level of contribution.

In order to manage a company's sales promotion expenditure more effectively, there is one essential step that must be taken. First, an objective for sales promotion must be established in the same way that an objective is developed for advertising, pricing, or distribution.

 Advertising, Promotion And The Brand

 By now it is clearly understood that The role of Advertising and promotion In fast moving consumer Good Markets. Advertising has been seen as one of the primary tools of Brand Building. The high cost and difficulties of mass advertising are seen as one of the major challenges to fast moving consumer good brands.

Post and Pre changes of Pricing Decisions

Price can be defined as the sum of the values that customers exchange for the benefits of having or using the product or service. It is the only marketing mix item that produces revenue; all other elements represent costs. Even so, many companies are not good at handling pricing. Pricing decisions are subject to an incredibly complex array of environmental and competitive forces.

Factors that affect pricing decisions

External factors that influence pricing decisions include the nature of the market and demand; competitors costs, prices, and offers; such as the economy, reseller needs, and government actions. The sellers pricing freedom varies with different types of markets. Ultimately, the consumer desides whether the company has set the right price. The consumer weighs the price against the perceived values of using the product -- if the price exceeds the sum of the values, consumers will not buy. Therefore, demand and consumer value perceptions set the ceiling for prices. Consumers also compare a product price to the prices of competitors product. As a result, a company must learn the price and quality of competitors offers.

Many internal factors influence the companies pricing decisions, including the firm's marketing objectives, marketing mix strategy, costs, an organization for pricing. Common pricing objectives include survival, current profit maximization, marketshare leadership, and product quality leadership. The pricing strategy is largely determined by the company's target market and positioning objectives. Pricing decisions affect and are affected by product design, distribution, and promotion decisions and must be carefully coordinated with these other marketing mix variables. Costs set the floor for the companies price -- the price must cover all of the costs of marketing and selling the product, plus a fair rate of return. Finally, in order to coordinate pricing goals and decisions, management must decide who within the organization is responsible for setting price.

Initiating and responding to price changes

When a firm considers initiating a price change, it must consider customers and competitors reactions. There are different implications in initiating price cuts and initiating price increases. Buyer reactions to price changes are influenced by the meaning customers see in the price change. And competitors reactions flow from a set reaction policy or a fresh analysis of each situation. There are also many factors to consider when responding to a competitors price changes. The company that faces a price change initiated by a competitor must try to understand the competitors intend as well as the likely duration and impact of the change. If a swift reaction is desirable, the firm should preplan its reactions to different possible price actions by the competitors. When facing a competitors price change, the company might sit tight, reduce its own price, raise perceived quality, improve quality and raise price, or launch a fighting brand.

Companies are not usually free to charge whatever prices they wish. Many federal, state, and even local laws governing the rules of fair play in pricing. The major public policy issues in pricing include potentially damaging pricing practices within a given level of the channel (price-fixing and predatory pricing) and across levels of the channel (retail price maintenance, discriminatory pricing, and deceptive pricing).

Objectives of Pricing and Stratagies

Pricing Objectives:

You can't just say "we want a low price to sell a lot" - if your price is too low you will not cover your costs and you will go out of business. There are several different "Objectives" a company may orient themselves towards in order to obtain a profitable business situation.

Profit Oriented: Target Return - sometimes the vendor specifies a specific dollar amount or percentage amount that the price will be offered at in order to make a profit which has been calculated for a specific purpose. Usually this amount is part of a larger plan involving several product units in a product line

Profit Oriented: Maximize Profits - if the Competitive Market is not intense you may charge the highest price the market will bear because sometimes you may have an advantage for reasons based on  your geographic advantage
special features not available on other competitors' products very famous brand. etc.. 

Sales / Marketing Oriented: Increase Sales Volume 

Sales / Marketing Oriented: Increase Market Share 

Status Quo Goals: Just Meet the Competition - if the customer has many choices, and you barely have the resources to stay in the market, then just charge the same price. You don't have the resouces to survive a price war, and you don't have the ability to claim better quality to charge a higher price

Prof. Allen says
"Volume objectives include sales maximization and market-share goals, which are specified as a percentage of certain markets. In sales maximization, management sets an acceptable level of profitability and then tries to maximize sales.  This objective can lead to discounting or some other aggressive pricing strategy, such as rebates and sales. " 

 

Pricing Strategies.

There are many ways to price a product. Let's have a look at some of them and try to understand the best policy/strategy in various situations. See also eMarketing Price.

Competition-based pricing

Setting the price based upon prices of the similar competitor products.

Competitive pricing is based on three types of competitive product:

§  Products have lasting distinctiveness from competitor's product. Here we can assume

§  The product has low price elasticity.

§  The product has low cross elasticity.

§  The demand of the product will rise.

§  Products have perishable distinctiveness from competitor's product, assuming the product features are medium distinctiveness.

§  Products have little distinctiveness from competitor's product. assuming that:

§  The product has high price elasticity.

§  The product has some cross elasticity.

§  No expectation that demand of the product will rise.

Cost-plus pricing

Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.

This appears in 2 forms, Full cost pricing which takes into consideration both variable and fixed costs and adds a % markup. The other is Direct cost pricing which is variable costs plus a % markup, the latter is only used in periods of high competition as this method usually leads to a loss in the long run.

Limited Pricing

A limit price is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon entering as long as the incumbent firm did not decrease output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. The quantity produced by the incumbent firm to act as a deterrent to entry is usually larger than would be optimal for a monopolist, but might still produce higher economic profits than would be earned under perfect competition. The problem with limit pricing as strategic behavior is that once the entrant has entered the market, the quantity used as a threat to deter entry is no longer the incumbent firm's best response. This means that for limit pricing to be an effective deterrent to entry, the threat must in some way be made credible. A way to achieve this is for the incumbent firm to constrain itself to produce a certain quantity whether entry occurs or not. An example of this would be if the firm signed a union contract to employ a certain (high) level of labor for a long period of time.

Loss leader

Basic Concept In the majority of cases, this pricing strategy is illegal under EU and US Competition rules. No market leader would wish to sell below cost unless this is part of its overall strategy. The idea of selling at a loss may appear to be in the public interest and therefore not often challenged. Only when the leader pushes up prices, it then becomes suspicious. Loss leadership can be similar to predatory pricing or cross subsidization; both seen as anti-competitive practices.

Premium Pricing.

Use a high price where there is a uniqueness about the product or service. This approach is used where a a substantial competitive advantage exists. Such high prices are charge for luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde flights.

Penetration Pricing.

The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom and Sky TV.

Economy Pricing.

This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.

Price Skimming.

Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.

Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. They form the bases for the exercise. However there are other important approaches to pricing.

Psychological Pricing.

This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents not one dollar.

Product Line Pricing.

Where there is a range of product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.

Optional Product Pricing.

Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other.

Captive Product Pricing

Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.

Product Bundle Pricing.

Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach.

Promotional Pricing.

Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).

Geographical Pricing.

Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.

Value Pricing.

This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds.

Dynamic pricing

A flexible pricing mechanism made possible by advances in information technology, and employed mostly by Internet based companies. By responding to market fluctuations or large amounts of data gathered from customers - ranging from where they live to what they buy to how much they have spent on past purchases - dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a customer’s willingness to pay. The airline industry is often cited as a dynamic pricing success story. In fact, it employs the technique so artfully that most of the passengers on any given airplane have paid different ticket prices for the same flight.

Target pricing

Pricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production. The target pricing method is used most often by public utilities, like electric and gas companies, and companies whose capital investment is high, like automobile manufacturers.

Target pricing is not useful for companies whose capital investment is low because, according to this formula, the selling price will be understated. Also the target pricing method is not keyed to the demand for the product, and if the entire volume is not sold, a company might sustain an overall budgetary loss on the product.

Marginal Cost Pricing

In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labor. Businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price is $2.00, the firm selling the item might wish to lower the price to $1.10 if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.

New Product Development Process

Because introducing new products on a consistent basis is important to the future success of many organizations, marketers in charge of product decisions often follow set procedures for bringing products to market. In the scientific area that may mean the establishment of ongoing laboratory research programs for discovering new products (e.g., medicines) while less scientific companies may pull together resources for product development on a less structured timetable.

In this section we present a 7-step process comprising the key elements of new product development. While some companies may not follow a deliberate step-by-step approach, the steps are useful in showing the information input and decision making that must be done in order to successfully develop new products. The process also shows the importance market research plays in developing products.

We should note that while the 7-step process works for most industries, it is less effective in developing radically new products. The main reason lies in the inability of the target market to provide sufficient feedback on advanced product concepts since they often find it difficult to understand radically different ideas. So while many of these steps are used to research breakthrough ideas, the marketer should exercise caution when interpreting the results.

Step 1.IDEA 

GENERATION

The first step of new product development requires gathering ideas to be evaluated as potential product options. For many companies idea generation is an ongoing process with contributions from inside and outside the organization. Many market research techniques are used to encourage ideas including: running focus groups with consumers, channel members, and the company’s sales force; encouraging customer comments and suggestions via toll-free telephone numbers and website forms; and gaining insight on competitive product developments through secondary data sources. One important research technique used to generate ideas is brainstorming where open-minded, creative thinkers from inside and outside the company gather and share ideas. The dynamic nature of group members floating ideas, where one idea often sparks another idea, can yield a wide range of possible products that can be further pursued.

Step 2. SCREENING

In Step 2 the ideas generated in Step 1 are critically evaluated by company personnel to isolate the most attractive options. Depending on the number of ideas, screening may be done in rounds with the first round involving company executives judging the feasibility of ideas while successive rounds may utilize more advanced research techniques. As the ideas are whittled down to a few attractive options, rough estimates are made of an idea’s potential in terms of sales, production costs, profit potential, and competitors’ response if the product is introduced. Acceptable ideas move on to the next step.

Step 3. CONCEPT DEVELOPMENT AND TESTING

With a few ideas in hand the marketer now attempts to obtain initial feedback from customers, distributors and its own employees. Generally, focus groups are convened where the ideas are presented to a group, often in the form of concept board presentations (i.e., storyboards) and not in actual working form. For instance, customers may be shown a concept board displaying drawings of a product idea or even an advertisement featuring the product. In some cases focus groups are exposed to a mock-up of the ideas, which is a physical but generally non-functional version of product idea. During focus groups with customers the marketer seeks information that may include: likes and dislike of the concept; level of interest in purchasing the product; frequency of purchase (used to help forecast demand); and price points to determine how much customers are willing to spend to acquire the product.

Step 4.BUSINESS ANALYSIS

At this point in the new product development process the marketer has reduced a potentially large number of ideas down to one or two options. Now in Step 4 the process becomes very dependent on market research as efforts are made to analyze the viability of the product ideas. (Note, in many cases the product has not been produced and still remains only an idea.) The key objective at this stage is to obtain useful forecasts of market size (e.g., overall demand), operational costs (e.g., production costs) and financial projections (e.g., sales and profits). Additionally, the organization must determine if the product will fit within the company’s overall mission and strategy. Much effort is directed at both internal research, such as discussions with production and purchasing personnel, and external marketing research, such as customer and distributor surveys, secondary research, and competitor analysis.

Step 5. PRODUCT AND MARKETING MIX DEVELOPMENT

Ideas passing through business analysis are given serious consideration for development. Companies direct their research and development teams to construct an initial design or prototype of the idea. Marketers also begin to construct a marketing plan for the product. Once the prototype is ready the marketer seeks customer input. However, unlike the concept testing stage where customers were only exposed to the idea, in this step the customer gets to experience the real product as well as other aspects of the marketing mix, such as advertising, pricing, and distribution options (e.g., retail store, direct from company, etc.). Favorable customer reaction helps solidify the marketer’s decision to introduce the product and also provides other valuable information such as estimated purchase rates and understanding how the product will be used by the customer. Reaction that is less favorable may suggest the need for adjustments to elements of the marketing mix. Once these are made the marketer may again have the customer test the product. In addition to gaining customer feedback, this step is used to gauge the feasibility of large-scale, cost effective production for manufactured products.

Step 6. MARKET TESTING

Products surviving to Step 6 are ready to be tested as real products. In some cases the marketer accepts what was learned from concept testing and skips over market testing to launch the idea as a fully marketed product. But other companies may seek more input from a larger group before moving to commercialization. The most common type of market testing makes the product available to a selective small segment of the target market (e.g., one city), which is exposed to the full marketing effort as they would be to any product they could purchase. In some cases, especially with consumer products sold at retail stores, the marketer must work hard to get the product into the test market by convincing distributors to agree to purchase and place the product on their store shelves. In more controlled test markets distributors may be paid a fee if they agree to place the product on their shelves to allow for testing. Another form of market testing found with consumer products is even more controlled with customers recruited to a “laboratory” store where they are given shopping instructions. Product interest can then be measured based on customer’s shopping response. Finally, there are several high-tech approaches to market testing including virtual reality and computer simulations. With virtual reality testing customers are exposed to a computer-projected environment, such as a store, and are asked to locate and select products. With computer simulations customers may not be directly involved at all. Instead certain variables are entered into a sophisticated computer program and estimates of a target market’s response are calculated.

Step 7. COMMERCIALIZATION

If market testing displays promising results the product is ready to be introduced to a wider market. Some firms introduce or roll-out the product in waves with parts of the market receiving the product on different schedules. This allows the company to ramp up production in a more controlled way and to fine tune the marketing mix as the product is distributed to new areas.