Pricing Strategies: Elasticity, Price Lining, Cost-Plus, Experience Curve, Profit Focus, Study notes of Marketing Management

Download Pricing Strategies: Elasticity, Price Lining, Cost-Plus, Experience Curve, Profit Focus and more Study notes Marketing Management in PDF only on Docsity! LECTURE OUTLINE FOR MKTG 25010 “Marketing” Lecture Packet Part 2 SPRING 2010 DR. MARKS Modified 1/13/2010 Chapter 13 --Building the Price Foundation I. NATURE AND IMPORTANCE OF PRICE a) ___________________________ -- the money or other considerations (including other goods and services) exchanged for the ownership or use of a good or service. b) ____________________________ -- the practice of exchanging goods and services for other goods and services rather than for money. i) Example: c) Price Equation _________________ = List Price – (Incentives + Allowances) + Extra Fees d) The “price” a buyer pays can take different names depending on what is purchased (Figure 13-2, text page 332). i) KSU Tuition Example: 125 IV. Six Steps in Setting Price a) STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS i) IDENTIFYING PRICING OBJECTIVES -- ________________ specify the role of price in an organization’s marketing and strategic plans. (1) ___________________________ (a) Managing for Long-Run Profits (b) Managing for Current Profit (c) Target Return (ROI) (2) ___________________________ (a) Sales Dollars (b) Market Share (Dollars or Units) (c) Unit Volume (d) Survival (e) Social Responsibility ii) Pricing Constraints -- factors that ____________________ the range of prices a firm may set. (1) Constraints caused by DEMAND for the: (a) Product Class (_______________________ ), (b) Product ( ____________________________ ), (c) and Brand ( ______________________________ ) (2) Constraints caused by Newness of the Product: Stage in the Product Life Cycle (3) Single Product vs. ___________________________________ (4) ___________ Producing and Marketing a Product (5) ___________ Changing Prices and Time Period They Apply (6) Constraints caused by the type of ________________________ 128 (a) Pure Competition (b) Monopolistic Competition (c) Oligopoly (d) Pure Monopoly (e) Competitors’ Prices b) STEP 2: ESTIMATE DEMAND AND REVENUE i) FUNDAMENTALS OF ESTIMATING DEMAND 129 (1) The _____________________________________ -- a graph relating the quantity sold and price, which shows the maximum number of units that will be sold at a given price. (a) Influenced by: (i) Consumer __________________________ (ii) _____________________ and ___________________ of Similar Products (iii) __________________________________________ (2) ____________________________ -- Factors that determine consumers’ willingness and ability to pay for goods and services. (3) Example (page 340 text) FIGURE 13-5A Demand curve for Newsweek showing the effect on annual sales by a change in price caused by a movement along the demand curve 130 (b) Inelastic Demand, occurs when a 1% change in price results in a LESS than a 1% change in sale (so, E<1) (i) So, a ___________ decrease in price results in ________ than a 1% increase in sales (SO, sales revenues ___________!) (ii) Note: The Reverse is also true. (c) Unitary Demand occurs when the percentage change in price is the ____________ as the percentage change in quantity (d) The Price Elasticity of Demand is Influenced by: (i) (ii) (iii) 1. Example (iv) The Price Elasticity of Demand is not _______________ c) Step 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS i) Controlling COSTS – The basic concepts: (1) __________________ (TC) is the total expense incurred by a firm in producing and marketing a product. (a) Total cost is the sum of fixed cost and variable cost, or TC = FC + VC (2) _______________(FC) is the sum of the expenses of the firm that are ________________________________ with the quantity of a product that is produced and sold. (a) Fixed costs include things like: (i) (ii) (iii) 133 (iv) These ____________________ as we sell more products. (3) _________________ (VC) is the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold. (a) Examples of variable costs include: (i) the _________ that is needed to make the product, (ii) the _________ that are needed to make the product, (iii) ______________ that are paid on each unit sold. (4) Unit variable cost (UVC) is __________ expressed on a per unit basis, so UVC = VC / Q (5) Marginal cost (MC) is the ___________________ that results from producing and marketing one additional unit of a product. (a) Marginal cost (MC) = Change in Total Cost 1 unit increase in Quantity = Change in TC Change in Q = the slope of the Total Cost curve (6) ____________________ is a continuing, concise trade-off of incremental costs against incremental revenues. ii) Break-Even Analysis – is a technique that analyzes the relationship between _________________ and _______________ to determine __________________ at various levels of output. (1) A Break-Even Point (BEP) is the quantity at which total revenue and total cost are equal, SO… Break Even Point (in units) = ______Fixed Costs__________ Unit Price – Unit Variable Cost = ______FC_______ P - UVC 134 (2) Example -- FIGURE 13-10 Calculating a break-even point for the picture frame store (textbook page 348). (3) Break-Even Chart -- a graphic presentation of the break-even analysis that shows when ______________ and _________________ intersect to identify profit or loss for a given quantity sold. (4) Example Break-even analysis 1350 0 200 400 600 800 1000 1200 20000 40000 60000 80000 100000 120000 140000 160000 Chapter 14 -- Arriving at the Final Price I. The Six Steps in Setting Price a) Identify Pricing Objectives and Constraints b) Estimate Demand and Revenue c) Determine cost, volume, and profit relationships d) Select a approximate price level e) Set the list or quoted price f) Make special adjustments to the list/quoted price II. STEP 4: How to Select an Approximate Price Level a) What is the possible “range” of prices? b) Demand-oriented Pricing Approaches i) __________________________________________ (1) involves setting the highest initial price that customers really desiring the product are willing to pay. (2) used when introducing a new or innovative product; so it is seen in the early stage of the PLC (3) (4) Used to rapidly recover investments in developing a new product (5) Works because: (a) consumers __________________________ the product, 138 (b) there are ____________________________________ (yet) (c) We have a protection on the product (copyright; patents; unique process) (6) And SO we have an _________________________ demand curve. (7) Advantages of Price Skimming (a) Allows us to recover development costs quickly (b) IF the price is perceived as “too high” by the market, we can easily lower it (RAISING a price is much harder to do) (i) Example: (8) Disadvantage of Price Skimming (a) The major disadvantage is that the large profit margins will ATTRACT competition ii) _________________________________ (1) involves setting a _________________ price on a new product (2) It is used to appeal immediately to the ________________ (3) And so to capture a large share of the market quickly (4) This is used when there are few barriers to competition entering the market, (5) When we expect the PLC to be long (6) When we expect demand to be ELASTIC (so there is a market response to our lower price). (7) 139 Price/Cost Price Cost Curve Time/Experience (8) Advantages of Penetration Pricing (a) The small margin is likely to __________________________ (b) Because we get a large share of the market quickly: (i) our volume is larger and our production costs (per unit) drop more quickly (ii) And with high volume we still generate good profit (9) Disadvantages of Penetration Pricing (a) A risky strategy (i) We must be able to do a good job of forecasting the demand, because we will need to gear up FAST for mass production and distribution/marketing. (ii) IF demand does not develop, our production costs stay high and we do not make a profit! iii) “________________________________________________” (1) Involves starting with a Price Skimming approach and then REDUCING price as our costs decline (a) This is done to appeal to a wider market once the “premium price” buyers are satisfied or (b) To react to an influx of competitors (2) Time/Experience Price/Cost Price Cost Curve (3) Advantages of “slide down the demand curve” (a) Allows us to recover __________________ early in the PLC (b) Helps to discourage competition as we drop price (note that OUR costs should be lower than those of the “late entrant” competitors). (c) assumes a reasonably ______________________ (4) Disadvantages of “slide down the demand curve” (a) It is very hard to know just when to begin dropping prices (i) Drop too soon, and ___________________________ 140 v) Yield Management Pricing (1) Involves charging a different price for the same good/service in different markets (2) to maximize revenue for a set amount of capacity at any given time (a) Examples: (i) (ii) (iii) (iv) (v) (3) Requires: (a) That there is a _______________________________of resources available for sale. (b) That the resources sold are _________________________. This means that there is a time limit to selling the resources, after which they cease to be of value. (c) That different customers are willing to pay a different price for using the same amount of resources. (4) Two Approaches: (a) Airlines … (b) The fashion industry … c) Cost-oriented Pricing Approaches i) Standard Markup Pricing (1) adding a ______________ to the cost of all items in a specific product class; USUALLY refers to setting retail prices (2) Sometimes is used to refer to the manufacturer setting the wholesale selling price (a) SO, Retail price = cost + markup (3) Calculating markup percentages: (a) Percent Markup on SELLING PRICE Markup on Selling Price (%) = Markup dollars X 100 Selling Price $ (b) Percent Markup on COST Markup on COST (%) = Markup dollars X 100 The Cost $ (c) Example (i) The cost to me is $36 each for the product I want to sell. 143 (ii) I want to get the industry markup of 122.2% of cost, and we know Markup on cost % = Markup dollars X 100 The Cost $ Markup on cost % = Markup dollars X 100 (divide both The Cost $ sides by 100) Markup on cost % = Markup Dollars 100 Cost 122.2% = Markup Dollars (Divide left by 100; eliminates %) 100 $36 1.222 = Markup Dollars / $36 (Multiply both sides by $36) 1.222 x $36 = Markup Dollars = $ __________ Selling price is $36 + $43.92 = $_________ (d) Example (i) The cost to me is $36 each for the product I want to sell. (ii) I am selling the product for $80, and I want to determine my markup on the selling price: Markup on Selling Price (%) = Markup dollars X 100 Selling Price $ • Selling Price is $80 • Cost to me is $36 • So, mark up is $80 - $36 = $44 (iii) Markup on Selling Price (%) = $44 X 100 OR _____% $80 ii) Cost Plus Pricing (1) Just as markup pricing arrives at price by adding a certain percentage to the product’s cost, cost-plus pricing also adds to the cost (a) by using a ______________ amount rather than percentage (cost-plus fixed-fee) OR (b) by adding a __________________ to the manufacturing cost. iii) Experience Curve Pricing (a) a pricing approach that we have already considered. (b) It is based on the “________________,” which says that the unit cost of many products and services declines by 10 percent to 30 144 percent each time a firm’s experience at producing and selling them doubles (c) This results in the possibility of rapid price reductions; and suggests advantages to market leaders (d) Example: Unit Costs drop by 15% with each doubling of Production Experience Curve 0 100 200 300 400 500 10 30 50 70 90 11 0 13 0 15 0 Units Produced (Experience) C os t/U ni t $ d) Profit-oriented Pricing Approaches i) Target Profit Pricing (1) Set an annual _____________ in dollars ii) Target return-on-sales Pricing (1) Set prices to achieve a profit that is a _____________ of the units sold iii) Target return-on-investment Pricing (1) Set prices to achieve a specific annual return-on-investment (ROI). e) Competition-Oriented Pricing i) Customary Pricing 145 (a) In that example 20/12/5 would be based on the manufacturer’s suggest retail price. (b) It indicates a 20% discount for the retailer, an additional 12% discount the wholesaler, and an 5% discount for the jobber (3) Cash Discounts (4) Allowances (a) Trade-In Allowances (b) Promotional Allowances (5) Geographic Adjustments (a) FOB origin (Free on Board origin) – (i) The shipping cost from the ________________is paid by the _____________; so different buyers will pay different shipping costs. (ii) _______________ of the goods is transferred to the buyer as soon as it leaves the point of origin. Either the buyer or seller arranges for the transportation. (b) Uniform Delivery Pricing – The shipping cost from the factory or warehouse is included in the selling price. Ownership of the goods is not transferred to the buyer until it is delivered. The seller arranges for the transportation. (i) Single Zone Pricing - The same price is charged to all buyers regardless of their location. (ii) Multiple Zone Pricing – 1. Prices increase as shipping distances increase. 2. This is sometimes done by drawing concentric circles on a map with the plant or warehouse at the center and each circle defining the boundary of a price zone. 3. Instead of using circles, irregularly shaped price boundaries can be drawn that reflect geography, population density, transportation infrastructure, and shipping cost. 4. Map Example of Multiple-zone Pricing 148 (iii) Basing point pricing - Certain cities are designated as basing points. All goods shipped from a given basis point are charged the same amount. 1. Map revisited: (iv) Freight-absorption pricing - The seller absorbs all (or part of the cost of transportation). This can be used as a promotional tactic. (6) How to get into LEGAL TROUBLE with your pricing: (a) ________________________ (i) Agree with competitor what price everyone will charge (ii) Enforce specific prices within the channel (b) _________________________ (i) Charge different prices to buyers when there are NO differences in the grade, quality, or cost of the goods, that results in substantial lessening of competition (c) ___________________________ (i) Bait and switch (ii) Bargains conditioned on purchased of overpriced products (iii) Fake “sales” off of prices never really offered (d) Engage in Predatory pricing = low prices to drive out competition and then raise prices. (7) Pricing practices affected by legal restrictions 149 Price discrimination Vertical price fixing Deceptive pricing Consumer Goods Pricing Act Sherman Act Federal Trade Commission Robinson- Patman Act Horizontal price fixing Predatory pricing Geographical pricing Chapter 15: Managing Marketing Channels and Wholesaling I. Introduction Example – Toys “R” Us a. Founded by Charles Lazarus i. Create the world’s largest toy chain! ii. Founded in 1978, it average a growth rate of ________________ b. And, as we might expect it then attracted i. Both ii. The result, Toys “R” Us Market share fell from 25% to 17% c. Wal-Mart over took Toys “R” Us to become the largest volume seller of toys in the U.S. d. Toys “R” Us reacted by renovating its stores, increasing it toy assortment, and changed its SUPPLY CHAIN arrangements to reduce inventory. i. For the toy manufacturers this meant ii. To boost their profits, they reacted in two ways 1. Some reduced the flow of “hot toys” to 2. Others gave Toys “R” Us exclusive II. The Nature and Importance of Marketing Channels a. ____________________________ i. Consists of Individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users. b. Middlemen (aka ______________________________________) i. Middlemen are ________________________ in a _____________________ that render services directly related to the sale/purchase of a product as it flows ________________________________________ 1. Distribution’s role within a marketing mix is getting the product to its target market. ii. Middlemen can promote the product, store it, ship it and assume some of the financial risk during the distribution process 1. Merchant Middlemen & Agent Middlemen 150 i. All of the institutions in the channel are connected by several types of flows, including the flow of: 1. ownership, 2. payment, 3. information and 4. promotion. ii. Channels MUST contain at least a __________ AND a __________. This would be a “direct channel” of distribution. 1. Consumer Marketing Example 2. Business Marketing Example iii. A channel of producer, final customer, and at least one _______________ is an indirect channel. iv. Customer Marketing Channels 1. Producer Consumer 2. Producer Retailer Consumer 1. Example 3. Producer Wholesaler Retailer Consumer 1. Small retailers and manufacturers find this channel the only economically feasible choice. v. Business Marketing Channels 1. Producer Business Customer 1. Accounts for a greater _______________ of business products than any other distribution structure i. large installations such as jet engines, helicopters and elevators, are usually sold directly to users. 2. Producer Business Distributor Business Customer 1. Producers of operating supplies and small accessory equipment (e.g., building materials and air-conditioning equipment) frequently use industrial distributors to reach their markets). 3. Producer Manufacturer’s Representative / Sales Branch Business Distributor Business Customer 153 1. Small manufacturers who cannot afford to call on customers directly may use this “more indirect” approach. vi. Multiple Distribution Channels 1. Used to reach two or more target markets or 2. avoid total dependence on a single arrangement. e. Conventional and Vertical Marketing Systems i. Historically, in conventional marketing channels, there was 1. __________________ for the individual channel members 2. with a focus on their ____________ needs and objectives ii. With Vertical Marketing Systems there is a _______________ of the members 1. The goal is to improve operating and marketing efficiencies. iii. Examples of Vertical Marketing Systems: 1. Corporate Ownership – 2. Contractual Vertical Marketing System – 3. Administered Vertical Marketing System – 154 f. Intensity of Distribution i. How MANY do we want? What is the “optimal intensity” for us? 1. And the answer is__________________________ 2. Because anything else simply __________________ ii. While the decision is sometimes seen as a single one, often 1. Examples iii. Reminders: 1. For convenience goods we want distribution ______ _______________________________________ Example 2. For shopping goods, distribution _______________ _________________________________ Example 3. And for specialty products, distribution ___________ _____________________________________ Example g. Conflicts in Channels i. Distribution SHOULD be based on __________________ and cooperative actions 1. BUT, conflicts and struggle for control of the channel DO occur ii. We need to understand issues related to conflict and control AND manage them. 155 iii. Historically, manufacturers were viewed as controlling channels 1. Manufacturers feel they should assume the channel leader’s role because they create the new products and need greater sales volume to benefit from economies of scale. 1. This point of view is one-sided and outdated. iv. Retailers argue THEY should control the channel 1. They are closest to the customer j. Channel as ______________________ i. For all to benefit, the channel needs to be viewed as a partnership aimed at satisfying end users’ needs rather than as something the members command or dominate. 1. Wal-Mart Example: 1. Advantages 2. Risks ii. ___________________________ (a type of partnering) 1. a retailer allows a large supplier to manage an entire product category. 1. Examples iii. _________________________________ 1. Firms work closely together to better understand and satisfy their needs and develop long-term, mutually beneficial business practices. iv. Pricing and the Relationship with Channel Members a. Recall that Gary Trinetti and his partner (graduates of KSU) set up a corporation, Garick, which markets a variety of lawn 158 care products, composting, top soil, mulch, bark, turf, stone and aggregate for home and recreational areas. i. Garick is doing line reviews with their retailers (Wal- Mart, Home Depot, and Lowe’s). ii. How do you price in advance these days? iii. Created a fuel surcharge for the first time iv. This creates a problem in planning for the retailer v. Gary recalls there being 4P’s (which has NOT changed!)…AND he remembers them!! vi. Price was viewed as being “easy,” cost-plus pricing. vii. But it is more complicated when you think about your relationship with a retailer. viii. Will it be used as a loss leader, for a promotion, part of a two for one deal. ix. SO, pricing IS a marketing decision. What is our “appropriate price” for our customer, given OUR costs. x. Then you need to consider YOUR strategy. xi. Do we want intensive and fast distribution? So we set a low price. xii. Do we have a competitive advantage, for a year or two or six months, so that we can set a high price and get a great profit margin until our competitors catch on? xiii. OR do we need to consider how our customer wants to price it? 159 Chapter 16 Customer Driven Supply Chain and Logistics Management I) The P&G-Wal-Mart Example a) Traditionally, the relationship between supplier and merchant has been “_____________________.” b) Wal-Mart recognized that the traditional relationship had become outmoded and was often hurting BOTH parties! c) Wal-Mart “invited” its major suppliers to jointly develop powerful supply chain partnerships i) to increase product flow efficiency and, consequently, profitability for both firms d) The Wal-Mart/Procter & Gamble alliance, incorporated vendor-managed inventory, category management, and other intercompany innovations e) P&G had a dedicated account team… f) The team members represented key P&G functions: i) sales/marketing, distribution/supply chain management, IT, and finance. ii) Wal-Mart's CFO became a “key customer” as P&G's objective became maximizing Wal-Mart's internal profitability. II) Logistics a) involves those activities that focus on getting the right amount of the right products to the right place at the right time at the lowest possible cost. III) Logistics Management a) is the practice of organizing the _________________ of i) raw materials, ii) in-process inventory, iii) finished goods, and iv) related information v) from the point of origin to point of consumption to satisfy customer requirements. IV) _______________________________ a) is a sequence of firms that perform activities required to create and deliver a good or service to consumers or industrial users. i) It includes suppliers that provide raw material inputs, the manufacturer, the wholesalers and retailers that deliver finished goods. 160 a) Relating logistics management and supply chain management (Figure 16- 1, text page 417). Consumers Producer Suppliers b) Here we see that: 163 VIII) Supply Chain Management and Marketing Strategy a) Aligning a Supply Chain with Marketing Strategy b) The PROBLEM: i) In “real life” our supply chain team may focus on__________________ 164 ii) This focus does not produce ___________________________ c) An Example of Non-Aligned SCM Objectives and Marketing Strategies Customer Needs Efficiency Asset Utilization d) An Example of Aligned SCM Objectives and Marketing Strategies Customer Needs Efficiency Asset Utilization 165 ii) Outsourcing RISKS: (1) Outsourcing “_______________” functions, instead of the ones that give you the greatest competitive advantage (2) Not having clear goals and objective for the outsourcing (3) Not having an ______________ to measure outsourcing against (4) Underestimating the _______________ (5) Inadequate planning for the Information Systems Interface • Source: The Supply Chain Handbook (Tompkins Press, 2004) edited by James A. Tompkins, Ph.D. and Dale Marmelink (www.tompkinsinc.com) b) The Major Modes of Transportation i) Rail ii) Water iii) Highway iv) Pipeline v) Air c) Intermodal Transportation i) Piggyback, Trailer on a Flatcar ii) Containers d) Freight Forwarders i) Less than ii) e) Package Delivery i) Due to f) Advantages and disadvantages of five modes of transportation (Figure 16- 5, text page 428 168 XI. Warehousing and Materials Handling a) Storage Warehouses b) Distribution Centers c) Materials Handling XII. Order Processing a) Backorders b) EDI/EFT XIII. Inventory Management a) Reasons for Inventory b) Inventory Costs i) Capital Costs ii) Inventory Service Costs iii) Storage Costs iv) Risk Costs 169 XIV. Supply Chain Inventory Strategies a) _______________________________________Concept i) an inventory supply system that operates with __________ inventories and requires ________, on-time delivery. b) ______________________________ (VMI) i) an inventory-management system in which the _____________ determines the product amount and assortment a customer (such as a retailer) needs and automatically delivers the appropriate items. (1) Talk about TRUST! c) AND what happens when the “_____________________________”! XV. Reverse Logistics a) a process of reclaiming recyclable and reusable materials, returns, and reworks from the point of consumption or use for repair, remanufacturing, redistribution, or disposal. i) You may remember that we said this was a virtual impossibility today in some areas of the world (e.g., Russia). 170 (3) An average net after tax profit for retailers would be __________ of sales. (4) Retail Pro: a retail point of sale software system (a) http://www.onestepretail.com/email/articles/article-09-13-07.php e) Four Factors Related to Physical Facilities: i) Location (1) Central Business District (2) Regional Shopping Centers (a) Anchor Stores (3) Community Shopping Center (4) Strip Location (5) Power Center ii) Size iii) Store Design iv) Product Layout f) Classification of Retailers i) Based on _________________________ and _____________________ (1) Sears Example: 173 g) The four positioning strategies for retailers (Figure 17-8, text page 451) h) Retailers Classified by Ownership i) Corporate Chains (1) organization of two or more centrally owned and centrally managed stores that generally handle the same lines of products. (2) Three factors differentiate a chain from an independent store and the contractual form of VMS: (a) Size (i) technically two or more stores constitute a chain (an independent retailer opening another store on the west side may think of themselves as owning a chain) but the US 174 Bureau of the Census considers ___________to be the minimum size for a chain. (b) A corporate chain has _________________, and (c) Because of centralized management, individual units in a chain typically have little _________________________. (i) Corporate chains are tremendously significant in retailing, accounting for about _________of the total retail trade. ii) Independent Stores (1) A single store that is not affiliated (2) Most retailers are ______________, and (3) Most are __________________ (4) May have higher prices than chain stores. (5) WHY? Their customers are willing to pay extra for __________________, such as (a) credit, (b) delivery, (c) alterations, (d) installation, (e) a liberal return policy, and (f) friendly, knowledgeable personal service. iii) Contractual Vertical Marketing Systems (1) __________________________ (a) Formed by a group of small ____________________ (b) Who agree to establish and operate a __________________ (c) May then purchase and advertise together to achieve ____________________________________ Examples: (2) __________________________ (a) sponsored by a wholesaler that enters into a contract with interested retailers (b) Retailer coops and voluntary chains differ in terms of who organizes them. 175 ii) Telemarketing (1) sometimes called telephone selling refers to a sales person initiating contact with a prospective customer and closing a sale over the phone • 1. Advantages: Some people like the convenience 2. Disadvantages: _________________________________________ iii) Automatic Vending (1) sale of products through a machine with no personal contact between buyer and seller • (2) Advantages: Convenient, Expand Reach, Efficiencies (machines report when stock is low) (3) Disadvantages: Expensive to service, stock, update (4) What’s NEW in Vending? • iv) Online retailing (1) Firm uses a website to offer products for sale. (2) Find many new enterprises using this form of retailing, but more than __________ of brick-and-mortars have adopted it! j) Direct Marketing i) All “other” types of non-store retailing (1) Direct Mail (a) letter, brochures and even product samples to consumers and ask them to purchase by mail or telephone. (2) Catalog Sales (a) expanded at a rate of 10% in 1980s, flattened out in 1990s and is now taking off again (3) Televised Shopping (a) From 1 minute spots to Informercials (30 minutes are longer) often found on dedicated TV channels (e.g., Home Shopping Network). (4) Direct Marketing Drawbacks 178 (a) Consumers must place orders without viewing or touching the actual product (can see picture of it though). (b) To offset this difficulty, Direct Marketers must offer liberal return policies. (c) Catalogs and some direct mail can be costly. (i) they have to be prepared long in advance of their use and (ii) any adjustments to price or new product additions can be announced only through supplementary catalogs or brochures. (5) Direct Marketing Advantages (a) can provide shopping convenience in addition to low prices k) The Wheel of Retailing (Figure 17-9, text page 456) III. Institutional Change in Retailing a) Shakeout from overbuilding (especially in THIS economic environment) b) Adapting to Consumer Trends c) “Bricks and Clicks” i) Website ii) Kiosks 179 IV. MALL OF AMERICA: SHOPPING AND A WHOLE LOT MORE (time permitting) a) Mall of America Facts i) Contributes more than $1.8 billion in economic impact activity annually to the state of Minnesota ii) Gross leasable space - 2.5 million square feet iii) Gross building area - 4.2 million square feet iv) Number of stores - More than 520 v) Sit-down restaurants - 20 vi) Fast food restaurants - 30 vii) Specialty food stores - 36 viii)Employees - 11,000 (year-round) 13,000 (holidays) ix) Parking spaces - 12,550 on-site x) Walking distance around one level - .57 miles xi) Total store front footage - 4.3 miles b) Questions: i) Why has Mall of America been such a marketing success so far? ii) What (a) retail and (b) consumer trends have occurred since Mall of America was opened in 1992 that it should consider when making future plans? iii) What criteria should Mall of America use in adding new facilities to its complex? (1) Evaluate: (a) retail stores, (b) entertainment offerings, and (c) hotels on these criteria. 180 V. _______________________________________________ (IMC) -- the concept of designing marketing communications programs that coordinate all promotional activities—advertising, personal selling, sales promotion, public relations, and direct marketing—to provide a consistent message across all audiences. a. The “need” for Integrated Marketing Communications i. Consumers are bombarded with _____________________ ii. To consumers, these become “one” message about the company iii. If not integrated, the various messages create a confusing and mixed image in the consumer’s mind • Sterling Jewlers, Inc example o Welcome to Sterling Jewelers o Dealing with an Economic Slowdown o Most Important Initiative o Focused on VI. Communication -- The process of conveying a message to others a. Key elements of communication i. The SOURCE of the communication 1. ______ ______ ________ with a meaning it intends to share with an audience. 2. Could be a __________ wanting to communicate with a customer, or 3. An ___________ wanting to communicate with thousands of people ii. The RECEIVER of the communication 1. The person, group, or organization which receives (and decodes) a communication. 2. It may be that the ____________ (audience) and the ____________one are not identical 183 3. That is, our message may NOT reach our ______________OR it may be received by our audience AND by others we _________________________! iii. ENCODING of the message 1. The coding of a message into ___________________that represent the ideas and concepts of the communication. 2. Uses sensory stimuli, including visual (words, symbols, images), sounds (spoken word, sound effects, music), and scents (e.g., fragrance) to convey the message. iv. THE MESSAGE 1. The message is what is sent (via a channel of communication) from a source to a receiver v. The CHANNEL OF COMMUNICATION 1. This is the _________ used to convey the message from the source to the audience. 2. Examples include internet, television, radio, print in magazines and newspapers, mail, billboards, salespeople. 3. The “wrong” channel will _______________________ vi. DECODING of the message 1. The decoding process is used by the _________________ the signs and symbols into concepts, ideas, and meaning. 2. Rarely does the audience _______________________ as the sender intended. vii. Field of Experience 1. Effective communication requires that the sender and the receiver have shared knowledge and understanding of words, symbols, culture, and their meaning 184 2. Without overlapping fields of experience, communication is likely to be ________________________________. b. Other Elements of Communication i. NOISE 1. Anything that reduces the clarity, accuracy, and effectiveness of the communication is considered noise. 2. There are MANY sources of noise: a. Problems with the medium include-- i. Radio static ii. Internet or website down iii. Faulty printing of the ad b. Problems with encoding i. occur when the concept is not well understood by the _____________ ii. when _______________________ are selected (wrong word, inappropriate music, poor choice of spokesperson, language that is too technical or too simple) c. Problems with the receiver i. occur if the message is _______________________ and so the receiver consciously or unconsciously blocks all or part of the message ii. RESPONSE 1. the impact the message has on the receiver’s a. _____________, b. ______________, or c. ______________ (e.g., _____________________!) iii. FEEDBACK 185 x. The down-side 1. since we don’t actually control the message, it may _______________________________ e. Promotional Tools -- Sales Promotion i. a short-term inducement of value offered to arouse interest in buying a good or service. ii. Can be used for 1. a. Discounts off of invoice, merchandise allowances, promotional allowances 2. 3. iii. Typical ____________ Sales Promotions include 1. Free Samples 2. Sweepstakes 3. Contests 4. Premiums 5. Coupons iv. Sales promotions can increase the effectiveness of other promotion mix tools v. Important because: 1. Powerful _____________ “demand” them 2. Consumers are quite ___________ 3. Price deals are very ______________ 4. Advertising clutter requires “different” ways of getting ____________________ 5. Pressure on businesses for short-term results vi. They are used on an occasional bases; otherwise consumers come to ___________________________ vii. They are often used in “off-peak” seasons to generate sales 1. Examples 2. 188 f. Promotional Tools -- Personal Selling i. A two-way flow of communication between a buyer and seller, often in a face-to-face encounter, designed to influence a person’s or group’s purchase decision. 1. “Customizable” ii. Because it is personal, customers get a high degree of ____________________ iii. The sales message can be _______________ to the customers needs iv. Questions and concerns can be __________________ and _________________ v. It is good for large amounts of information and for technical information vi. It is easy to demonstrate the product and its benefits to the consumer vii. It gives an opportunity to build long-term customer relations. viii. BUT 1. It is very _____________ a. Basic pay, b. Commission c. Equipment and money to engage in travel d. Can only reach one customer at a time (not very ____________________) g. Promotional Tools -- Direct Marketing i. a promotion alternative that uses direct communication with consumers to generate a response in the form of an order, a request for further information, or a visit to a retail outlet. ii. Direct marketing is 1. Non-public (directed to a _________________) 2. Immediate (can be prepared ______________) 3. Customized (____________ to a specific customer) 4. Interactive (allows a __________________) iii. Direct marketing is usually done through: 189 1. Telephone 2. Direct Mail (catalogs, flyers) 3. Direct response ads (TV or radio) 4. Online computer shopping iv. For Consumers: 1. Can be convenient 2. Can be done privately (e.g., via a computer) 3. Can allow for comparison shopping 4. Can allow for customization of the order 5. Can be immediate v. For Marketers 1. Builds customer relationship 2. Can gather information about customers a. To create valued new products and service 3. Can minimize other costs (e.g., retail space) VIII. Developing the Promotion Mix a. The _____________ you have will influence the promotional mix. i. A limited budget suggests ______________ 1. Easier to measure effectiveness 2. Less cost than a major ad campaign ii. A sizable budget means you need to decide which tools are “best” for your situation b. OBJECTIVES will influence the mix: i. Creating mass awareness for a breakfast cereal likely requires: 1. Advertising 2. Sales Promotions 3. Publicity ii. Educating consumers about a new mobile phone 1. Moderate advertising 2. Some sales promotion 3. Significant personal selling iii. Produce Immediate sales 1. Advertising 2. Sales Promotions 190 IX. Developing an Integrated Marketing Communications Program a. Identify the Target Audience b. Specify the Promotion Objectives i. The hierarchy of effects is the sequence of stages a prospective buyer goes through from initial awareness of a product to eventual action (either trial or adoption of the product). 1. The stages include awareness, interest, evaluation, trial, and adoption. c. Set The Promotion Budget i. Percentage of Sales Budgeting – allocate the budget as a percent of past sales or as a percent of forecasted sales ii. Competitive Parity Budgeting – allocate funds based on the competition. Either by matching their actual promotion dollars or by setting your budget to be the same proportion of market share. So, also called: 1. 2. iii. All-You-Can-Afford Budgeting – allocate as much as you can, once all other budget items are covered iv. Objective and Task Budgeting allocate funds to promotion by: 1. determining the promotion objectives; 2. deciding on the tasks to accomplish these objectives; and 3. determining the promotion cost of performing these tasks. 193 US Measured Advertising Spending by Media Jan-Dec 2007 vs. JanDec 2006" Percent Change in Measured Ad Spending: Jan-June 2008 vs. JanJune 2007 MEDIA SECTOR Jan-Dec 07] Jan-Dec 06 % + Media Type % CHANGE (Millions) (Millions) | CHANGE | |{Sectors and types listed in rank order of spending) TELEVISION MEDIA $64,427.0 $65,552.3 “AT% TELEVISION MEDIA 04% NETWORK TV2 $22,430,7 $22,887.8 =2.0% Network TV 2.4% CABLE TV $17,042.2 $16,746.1 65% cable T¥ 3.1% SPOTTV? $15,509.4 $i7,965.7 | -10.2% Se 48% SPANISH LANGUAGE TV4 $4,385 9 34,027.6 13% SEEN Se SYNDICATION - NATIONAL 94,1723 $4,235.1 “1.5% Syndication National 10.2% MAGAZINE MEDIA? $30,327.5 $28,742.5 5.5% 5 CONSUMER MAGAZINES $24,431.2 $22,830.0 70% PAONERE MEN: zed B-TO-B MAGAZINES $3,355.3 $3,501.0 4.2% Purine ores =e SUNDAY MAGAZINES: $18 BU $1,fo1y b2% B-to-B Magazines 5.9% LOCAL MAGAZINES $4355 $453.5 “4.0% Sunday Wagazines 48% SPANISH LANGUAGE MAG $2275 $206.1 10.4% Local Magazines “28% NEWSPAPER MEDIA $26,362.5 $27,918.7 56% SS 71% NEWSPAPERS (LOCAL) $22,660.68 $24,014.4 “5.8% NEWSPAPER MEDIA TA NATIONAL NEWSPAPERS $3,246 $3,640.0 “5.5% Scausweemersl 71% SPANISH LANGUAGE NEWSP $356.3 $364.2 -2.5% National Newspapers 9.5% INTERNET ® $11,309.4 $9,754.6 15.9% Spanish Language Newspapers “11.0% RADIO MEDIA $10,694.7 $11,084.6 35% 5 — LOCAL RADIO? $7,187.0 37,386.1 “2.7% SOTERA: NATIONAL SPOT RADIO $2,5026 $2,695.0 “7.1% BAO. MEDS: Sam NETWORK RADIO $1,002.2 $1,004.56 -0.2% Local Radio * ela OUTDOOR $4,0204 $3,831.2 49% National Spot Radio 74% FSis® $1,861 $1,828.6 1.8% Network Radio 34% TOTAL! $148,993.5 | $148,712.4 0.2% [OUTDOOR 10% Source: TNS media intelligence Pare aaa 1. Figures are based on the TNS media intelligence Stradegy (TM) multimedia ad exper diture database: across all “NS Ml meacured media, including: Network TY, Spot TV (101 CMAs), Cable TY (45 networks), TOTAL, 1.6% Syndication TY; Hispan c Network TY; Consumer Magazines (210 publications), Sunday Magazines ‘5 puibliratinns); | neal Magazines (8 ruiblicatians); Hispanin. Magazines (29 uiblicatinns); Pisiness-tn- Business Magazines (317 publicatons); Local Newspapers (144 publications); National Newspapers @ publications); Hispanic Newspapers (62 publications); Network Radio (5 networks); Spo: Radio; Local Radio (34 markets); Internet, and Outdoor. Figures do not include public service announcement (PSA) data, 2, Nelwurk TY figures include the W3, UPN, C¥V and MyTY rvebwurkss 3. Spot TV gures do not include Hgpanic Spot TV data, 4. SpanishLanguage TY figures include 4 national networks and 43 local stations. 5, Magazine media includes Publishars Information Bureau (PIB) data 6. Interetfigures are based on dispay advertising. They do nt include pad search or broadband video advertising. 7. Local Radia includes exnencitures for 34 markats in the U.S. as provided by Miller Kaplan Arase. 8. FSI data represents distribution costs only. 8. The sum ofthe individual media may difer from the sub-total or grand total due to rounding, Source: TNS Media Intelligence 1. Figures are based onthe TNS Media Inteligence Stradegy™ multimedia ad expenditure datahaze across all TMS Mil meacured media, including: Network TY (G networks); Spat TV (101 markets), Cable TV (62 networks); Syndication TW; Hispanic Network TV, Consumer (PIB) Magazines (215 publications); Sunday Magazines (8 publications, Local Magazines (23 publications), Hispanic Magazines (26 publications), Business-to-Business Magazines (317 publications), Local Newspapers (144 publications), National Newspapers (3 publications), Hispanic Mewspaners (51 publications}, Network Radia; Spot Radia; Local Radio; Internet; and Outdoor. Figures do not include public service announcement (PSA) data 2. Spat TV figures de nat incluce Hispanic Spot TV data. 3. Magazine media includes Publishers Information Bureau (PIB) data, 4. Internet figures are based on display advertising only 5. Local Radio includes expenditures for 32 markets in the U.S. 6. FSI data represents clstribution costs only. 194  8 9 4 2 3 5 1 d. How Much Should You Spend on IMC? i. The Promotion-to-sales Ratio Total Promotion Expenditures ($) Promotion-to-Sales Ratio (%) = x 100 Total Sales ($) 1. Compare your ratio result to ……. 2. The ___________ the ratio the _________ you are doing 3. X. Developing an Integrated Marketing Communications Program a. Select the appropriate mix of Advertising, Personal Selling, Sales Promotion, Public Relations, and Direct Marketing 195 i. The a key element of this approach is the call for a ___________(or a “_____________”) that is trackable and _____________. b. The Growth of Direct Marketing c. According to the Direct Marketing Association’s “The Power Of Direct Marketing,” in 2008 and in 2009 direct marketing expenditures will OUTPACE general advertising, representing about 53% of total U.S. advertising expenditures! i. 2007 actual expenditure on direct marketing was $171.7 Billion; ii. expected in 2008 is to be 176.9 Billion (+3%) d. Direct Marketing Response Rates Average Cost Revenue Cost Average Promo Response Per Per Per Order Cost Medium Rate Thousand Thousand Order Value Percent Direct Mail 2.15% $428 $ 4,157 $ 19.90 $ 256 10.3% Catalogs 2.24% $633 $ 2,358 $ 28.27 $ 105 26.8% Email 0.48% $19 $ 408 $ 3.88 $ 85 4.7% Telephone 2.53% $1,107 $ 5,742 $ 43.70 $ 244 19.3% Inserts 0.11% $29 $ 171 $ 26.62 $ 155 17.0% Newspaper/Magazine 0.13% $32 $ 586 $ 25.18 $ 462 5.5% source: http://www.opubco.com/direct/pdf/TheDMA_ResponseRateTrends2007.pdf i. Direct Marketing Response Rates –Take Aways 1. Direct Media’s Average Promotional Cost is less than 27% 2. Email marketing provides significant profits for many marketers, despite it low response rates. 198 ii. Direct Marketing can result in: 1. Actual Orders (“direct orders”) 2. Lead Generation a. Email is the “winner” for lead generation. It produces the highest response rate at a fraction of the cost. b. Inserts and direct mail have the lowest rate of conversion of leads to sales. 3. Traffic Generation a. Direct mail is best at generating traffic. Examples For those who want to know more: David Ogilvy, was born in England, and in 1948 founded an agency in New York that led the world of advertising with his scientific research on the market and consumers, says in a forceful way: “In the advertising community today, there are two worlds; the Direct Response Advertising (the Direct Marketing), and the world of General Advertising. These two worlds are on a collision course. The general advertisers and their agencies know almost nothing for sure. In Direct Response Advertising, I see knowledge and reality. In General Advertising, I see ignorance“. http://www.youtube.com/watch?v=Br2KSsaTzUc and The Direct Marketing Association http://www.the-dma.org/ 199 Chapter 19 Advertising, Sales Promotion, and Public Relations I. Advertising -- Recap a) Advertising is any paid form of nonpersonal communication about an organization, good, service, or idea by an identified sponsor. II. Product Advertisements a) used to promote a product or service’s uses, features, and/or benefits. b) ____________________ (or Informational) Advertising i) Used in the __________________of the PLC ii) “Informs” the target market about: (1) The existence of a new brand (2) What it is (3) What it does (4) Where it can be found iii) Examples c) __________________________________ i) Points out a brand’s special features, advantages, and benefits relative to competing brands (1) Example ii) ____________________ Advertising is a common form of competitive advertising. (1) The ad shows a brand’s strengths relative to another brand. (a) e.g., the MAC vs. PC ads (b) Or the Coke vs. Pepsi battle (c) Example 200 e) Create the Actual Message i) General Message Factors (1) Characteristics of the Target Audience (2) Type of Media Used (3) Product Factors (a) How complex? (b) How familiar to target audience? (4) Overall Promotion/Advertising Objectives (a) Inform? Persuade? Remind? ii) Message Structure (1) The Appeal –The underlying idea that captures the attention of a message receiver (a) Emotional, Fear, humorous, sexual (2) The Value Proposition (a) The reason for customers to be interested in the product (b) Often an emphasis on the benefits obtained V. Selecting the Right Media a) Television i) Advantages (1) Combines sight, sound, and motion (2) So, it appeals to multiple senses (3) It offers mass audience coverage (4) It has the potential of grabbing viewers’ attention ii) Disadvantages (1) It is not very selective (wasted coverage) (2) The impressions are fleeting 203 (3) It has a short life (viewed and then gone) (4) Its overall cost is high b) Radio i) Advantages (1) It is widely used (over 25 million radios are sold annually) (2) Low cost (per unit of time) (3) Geographic flexibility (4) There is audience selectivity via station format Station Format Gender Age Race Children Income Education WDOK 102.1 Adult Contemporary Female Older Caucasian No children Middle income No College WGAR 99.5 Country Female Middle Aged Caucasian No Children Middle Income College Graduates WKSU 89.7 KSU NPR Female Middle Aged Other Ethnicities No Children Less Affluent Grads & Post Grads WTAM 1100AM News Radio Male Older Caucasian No Children More Affluent No College WONE 97.5 Rock & Roll Male Young Adults Other Ethnicities No Children Middle Income College Grads WSTB 88.9 Alternative Female Middle Aged Asian Has Children Less Affluent No College WFHM 95.5 Christian Contemporary Female Middle Aged African American No Children Middle Income College Grads http://www.quantcast.com/ ii) Disadvantages (1) Audio only (2) Less attention than TV (3) Nonstandarized rate structure (4) Message has a short life c) Magazines i) Advantages 204 (1) High Geographic and Demographic Selectivity (2) Has the psychology of attention (3) Excellent quality of reproduction (4) Pass-along readership ii) Disadvantages (1) Long lead time (6 to 8 weeks before publication) (2) Some waste circulation (3) No guarantee of position in the magazine (unless a premium is paid) d) Newspapers i) Advantages (1) Flexible and Timely (2) Intense coverage of local markets (3) Broadly accepted and used (4) High believability (printed word) ii) Disadvantages (1) Short life (2) It is often read quickly (3) Not much “pass along” audience e) Yellow Pages i) Advantages (1) Excellent geographic coverage (2) Long use period (3) Always available ii) Disadvantages (1) Many other directories compete for attention (2) Hard to keep up to date f) Internet i) Advantages (1) Interactive (2) Low cost per exposure (3) Ads can be targeted to interest sections (4) Timely (5) High information content possible 205 VI. Pretesting the Advertising a. Pretests b. Before running an ad, it would be good to pretest it to understand: i. The ad’s _____________________________ ii. The _____________ obtained by the viewer of the brand and the product iii. The _______________________ associations triggered by viewing the ad iv. Whether the viewer understands the _________________ b. Pretest Techniques i. Textbook techniques (portfolio, jury, and theatre tests), ii. Other, such as Eye Tracking (e.g., http://www.konzept-und-markt.com/Docs/ad_score_EN.pdf) 1. Can provide: a. Recall analysis b. Spontaneous brand and product recall c. Recall for our ad (unprompted and prompted) d. Likes and dislikes for the ad e. Impact on the brand image 2. Comparisons to “ideal ad” on: a. Perceptions b. Emotional attachment c. Cognitive performance d. Persuasiveness 3. And allow us to _______________ the ad before it runs 208 c. Structures of advertising agencies used to Carry Out the Advertising Program VII. Post testing the Advertising a. Post testing measures how _____________________ i. Conditions of exposure and purchase are ii. This makes post testing more accurate, less difficult and less expensive than pretesting (which asks a narrower range of questions). b. Post testing is capable of answering a broad range of questions: i. "Does the advertising have attention getting power? Did people notice it or ignore it?" ii. "Will it get the name across?" (Most pretesting does not answer either of these.) iii. "Did the campaign as a whole work? Was there synergy between the elements?" iv. "What were the strong spots and the weak spots in the campaign?" v. "Was it cost efficient? How many were reached and affected per dollar invested?" vi. "What was the most cost efficient? TV, radio, print, web advertising, store displays?" vii. "What happened when the competition started their big campaign?" viii. "What approaches usually work best in this market?" ix. "In the future, what should we do more of? What should we avoid?" 209 VIII. Sales Promotions a. Sales promotions are short-term inducements of value, offered to arouse interest in buying a good or service. i. They are offered to both end users and intermediaries. b. Sales promotions can be used to achieve many objectives for both the ultimate consumer and for channel members c. Consumer-oriented Sales Promotions d. Trade-Oriented Sales Promotion i. Allowances and Discounts 1. Merchandise Allowance 2. Case Allowance 3. Finance Allowance ii. Cooperative Advertising iii. Training of the Distributor’s Salesforce IX. Public Relations a. Public Relations (recap) --a form of communication management that seeks to influence the feelings, opinions, or beliefs held by customers, prospective customers, stockholders, suppliers, employees, and other publics about a company and its products or services. 210 company information for their mutual benefit, and ultimately provide value for the customer. e. Major types of Sales Roles i. Order Takers 1. Primarily assist customers with a purchase 2. The greatest number of people engaged in selling 3. Compensation for order takers is generally lower a. Retail Clerks b. Industrial Distributor Clerks c. Some Customer Service ii. Order Getters 1. a position in which the salesperson is actively engaged in using skills to obtain orders from customers. 2. New Business Development a. Highly _____________ b. Potentially _____________ sales position c. Main objective is to find _____________. d. Sales jobs in this category are often in fields that are very competitive, but offer high rewards for those that are successful. 3. Business Equipment Sales a. Used in industries where a company’s main profits come from the sale of supplies and services that come after an initial equipment purchase b. The goal is to get buyers to purchase the main piece of equipment for which supplies and service are needed in order for the equipment to function. • Done right by Xerox 4. Outgoing Telemarketing – a. Product sales over the phone, either to businesses or consumers. b. US laws restrict unsolicited phone selling to consumers 213 c. The practice is still widely used in the business market. 5. Consumer Selling -- Some companies use salespeople to build new consumer business. These include: a. retailers selling certain high priced consumer products including furniture, electronics and clothing; b. housing products including real estate, security services, building replacement products (e.g., windows); c. and in-home product sellers including those selling door-to-door and products sold at “home party” events such as cosmetics, kitchenware and decorative products. 6. Account Management a. building customer relationships from initial sale to follow-up account servicing b. Business-to-Business Selling • These salespeople sell products for business use with an emphasis on follow-up sales • May have many different items available for sale (i.e., broad and/or deep product line) • After the initial sale, the potential exists for the buyer to purchase many other products as the buyer-seller relationship grows. c. Trade Selling (A “push” approach) • Sales professionals working for consumer products companies normally do not sell to the final consumer. • Their role is focused on first getting distributors, such wholesalers and retailers, to handle their products • Then they help distributors sell their product by offering ideas for product 214 advertising, in-store display and sales promotions. iii. Sales Support Personnel 1. Order Influencers (Missionary Sales) a. Do not engage in direct selling activities b. Concentrate on selling activity that targets those who influence purchases made by the final customer • Examples: • pharmaceuticals, where salespeople (known as product detailers) discuss products with doctors (influencers) who then write prescriptions for their patients (final customer) • higher education, where salespeople call on college professors (influencers) who make requirements to students (final customer) for specific textbooks. 2. Technical Specialists a. Used for sale of technical products, particularly in business markets b. Salespeople may need to draw on the expertise of others to assist with the process. c. This is particularly the case when the buying party consists of a buying center. 3. Office Support a. Salespeople receive assistance from their company’s office staff in the form of • creating promotional materials, • setting up sales appointments, • finding sales leads, • arranging meeting space • organizing trade shows exhibits. III. Trends in Personal Selling a. Controlled Word-of-Mouth Promotion i. A version of Buzz Marketing 215 ii. This is the point of the selling process where the sales professional meets and greets the prospect, provides an introduction, establishes rapport that sets the foundation of the relationship, and asks open-ended questions to learn more about the prospect and his or her needs. e. Presentation i. In the Presentation, the salesperson tells the product "story" in a way that speaks directly to the identified needs and wants of the prospect. ii. A highly customized presentation is the key component of this step. iii. At this point in the process, prospects are often allowed to hold and/or inspect the product. iv. The sales professional may also actually demonstrate the product. v. Audio visual presentations and/or slide presentations may be incorporated at this stage and this is usually when sales brochures or booklets are presented to the prospect. vi. Sales professionals should strive to let the prospect do most of the talking during the presentation and address the needs of the prospect as fully as possible by showing that he or she truly understands and cares about the needs of the prospect. vii. Handling Objections 1. Salespeople MUST seek out prospects' objections in order to try to address and overcome them. 2. When prospects offer objections, it often signals that they need and want to hear more in order to make a fully-informed decision. 3. If objections are not uncovered and identified, then sales professionals cannot effectively manage them. 4. Uncovering objections, asking clarifying questions, and overcoming objections is a critical part of training for professional sellers 5. It is a skill area that must be continually developed because there will always be objections. viii. Methods of Handling Objections 1. Acknowledge and Convert 2. Postpone 218 3. Agree and Neutralize 4. Acceptance 5. Denial 6. Ignore f. Close i. Closing is asking for the order and adequately addressing any final objections or obstacles. ii. There are many closing techniques as well as many ways to ask trial closing questions 1. Trial Close a. e.g., "Now that I've addressed your concerns, what other questions do you have that might impact your decision to purchase?" 2. Assumptive Close a. Closing does not always mean literally asking for the order. Using the assumptive close, ask the prospect how many they would like, what color they would prefer, when they would like to take delivery, etc. 3. Urgency Close 4. Final Close iii. NOTE: Sales professions can be either weak or too aggressive when it comes to closing. If you are closing a sale, be sure to ask for the order. If the prospect gives an answer other than "yes", it may be a good opportunity to identify new objections and continue selling. g. Follow-up i. After the sale, follow-up with the prospect to make sure: 1. the product was received in the proper condition, 2. at the right time, 3. installed properly, 4. proper training delivered, and 5. that the entire process was acceptable to the customer. ii. A critical step in creating customer satisfaction and building long-term relationships with customers. 219 iii. If the customer experienced any problems, the sales professional can intervene and become a customer advocate to ensure 100% satisfaction. iv. Diligent follow-up can also lead to uncovering new needs, additional purchases, and referrals and testimonials which can be used as sales tools. V. How to Sell in a Down Economy By Geoffrey James, November 20th, 2008; http://blogs.bnet.com/salesmachine/?p=616&tag=nl.e808 1. Go on the offensive. This isn’t the time to hunker down. If you get on the defensive you’re dead. Get aggressive, set aggressive goals. 2. Select better targets. Improve your methodology so that you don’t waste time on customers who aren’t going to buy. 3. Don’t lower prices. Find new and innovative ways to lower the risk of purchase. Make it an easy entry and a better customer experience. 4. Focus on the customer. If sales people get nervous, they’re cooked. Don’t go into high- pressure mode. Ask the customers how can we help YOU to win? 5. Send the CEO out to sell. If the CEO hasn’t spoken with ten customers in the past week, he isn’t doing his job. 6. Improve everything. You can’t sell the way you sold two month ago. You need to improve people, process, and technology. ….and a “real world” response: Excellent tips. We provide car sharing services to large corporations and councils. Although we are not lowering prices of existing products, we are about to launch a new entry level product to make our services easily feasible for smaller organizations, who we currently don't deal with directly. No barriers for them to upgrade in the future. Shall also be taking on board some of the other points. VI. What We Can Learn from “Sales Gods” By Geoffrey James http://blogs.bnet.com/salesmachine/?p=611&tag=nl.e808 a. They make other people feel important. b. They are all unbelievably upbeat. Talk about positive. c. They obviously love their customers. Not just like them. Love them. Think of them as friend and family. Cared if they were happy. Cared about their lives. Cared about how the product or service fit into their customer’s life goals. Really. d. They all have fabulous product knowledge. They know what they are selling up, down and sideways. They know everything there is to know about their products. And they aren’t afraid to point out what their product won’t do. No exaggeration or lying here. e. They KNOW they are changing the world. All of these “sales gods” felt they were in the business of making people happy. f. More than technique, more than skills, more than business acumen, more than brand, and more than anything else…it’s your 220