JUN JUHAIZI BINTI JUHARI 101
JUN JUHAIZI BINTI JUHARI 102 CHAPTER 7: Pricing LEARNING OBJECTIVES: 1. Define pricing. 2. Describe the major pricing policies. 3. Explain New product pricing strategies. 4. Explain the product mix pricing strategies. 5. Explain the price adjustment strategies. DEFINITION OF PRICING Price is the amount of money charged for a product or service or the sum of the values that consumers exchange for the benefits of having or using the product or service. Price has been the major factor affecting buyer choice Price is the only element in the marketing mix that produces revenues Price is one of the most flexible elements of the marketing mix ( it can be changed quickly) PRICING POLICIES Companies must set prices by selecting a general pricing approach that include one or more of these three sets of factors. There are 3 approaches: 1) Cost-Based Pricing (Cost-Plus Pricing and Target Profit Pricing & Break- Even Analysis) 2) Buyer-Based Pricing (Good-Value Pricing and Value-Added Pricing) 3) Competition-Based Pricing (Going-Rate Pricing and Sealed-Bid Pricing)
JUN JUHAIZI BINTI JUHARI 103 1) COST-BASED PRICING ▪ It is the simplest pricing method ▪ adding a standard markup to the cost of the product ▪ For example: Construction companies submit job bids by estimating the total project cost and adding a standard markup for profit. It similar to Lawyers, accountants and other professional typically price by adding a standard markup to their costs. ▪ There two types of cost-based pricing: a. Mark-up Pricing ▪ The manager calculated all the costs involved in manufacturing the product and then add a certain percentage of mark-up in order to set the price. Mark-up pricing Calculation: Price = FC/U + VC/U 1 – mark up b. Break-even pricing ▪ Break-even quantity is the sales quantity when the company’s total revenue just covers the costs. Profits are not made at this point. ▪ At break-even point, price is not added with any mark up/profit, so you have to calculate the breakeven point) Break-even pricing Calculation: Price = FC/U + VC/U
JUN JUHAIZI BINTI JUHARI 104 2) VALUE-BASED APPROACH • setting price based on buyers’ perceptions of value rather than on the seller’s cost. • Good pricing begins with a complete understanding of the value that a product or service creates for customers. • Value-based pricing uses buyers’ perception of value, not the seller’s cost. • Price is considered along with the other marketing mix variables before the marketing program is set. • There are two types of value-based pricing: a) Good-value pricing ▪ offering just the right combination of quality and good service at a fair price. E.g. Smart Car,Armani Exchange b) Value-added pricing ▪ attach value added features to differentiate their offers and thus support higher prices.
JUN JUHAIZI BINTI JUHARI 105 3) COMPETITION-BASED PRICING • setting prices based on the prices that competitors charge for similar products. • This type of pricing is usually found where a group of organisation is selling the same product. • Normally, it is safe for the company to charge the price at the same level or near to the one being charged by the competitors. • there are 2 major variations: (i) in going rate pricing • the firm set prices based on what competitors are charging. • Going-rate pricing refers to a pricing strategy wherein a firm prices its products or services on par with the competitor’s product prices. • Most new companies, who are clueless about pricing their products when setting foot for the very first time, adopt the going-rate pricing tactic. (ii) sealed-bid pricing • forces the company to set prices based on what they think the competition will charge. • Price quotes solicited by governmental and other public agencies to ensure objective consideration of competitive bid. Interested vendors are formally notified in advance of the request for a bid and must meet a bidding deadline as well as stringent bid format requirements. Sealed bids are sometimes opened publicly in the presence of all bidders. The lowest bid is awarded the order. • A type of auction process in which all bidders simultaneously submit sealed bids to the auctioneer, so that no bidder knows how much the other auction participants have bid. The highest bidder is usually declared the winner of the bidding process.
JUN JUHAIZI BINTI JUHARI 106 PRICING STRATEGIES A) NEW PRODUCT PRICING STRATEGIES This strategy can be used for the introductory of a new product. There are 2 strategies: - a) Market-skimming pricing b) Market-penetration pricing 1) MARKET-SKIMMING PRICING ▪ setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price: the company makes fewer but more profitable sales. ▪ Selling a product at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’ the market. ▪ Usually employed to reimburse the cost of investment of the original research into the product - commonly used in electronic markets when a new range, such as DVD players, are firstly dispatched into the market at a high price. ▪ This strategy is often used to target "early adopters" of a product/service. ▪ These early adopters are relatively less price sensitive because either their need for the product is more than others or they understand the value of the product better than others. ▪ This strategy is employed only for a limited duration to recover most of investment made to build the product.
JUN JUHAIZI BINTI JUHARI 107 Conditions for Market Skimming : a) The quality and image must support its higher price b) Enough buyers must want the product at that price. c) Competitors should not be able to enter the market easily and undercut the high price. d) The new product represents a technological breakthrough and legally protected. 2) MARKET-PENETRATION PRICING • setting a low price for a new product in order to attract a large number of buyers and a large market share • The price is deliberately set at low level to gain customer's interest and establishing a foot-hold in the market. • Penetration pricing is a strategy employed by businesses introducing new goods or services into the marketplace. • With this policy, the initial price of the good or service is set relatively low in hopes of "penetrating" into the marketplace quickly and securing significant market share. Conditions for Market Penetration Pricing: a) The market must be highly price sensitive so that a low price produces more market growth. b) Production and distribution costs must fall as sales volumes increase. c) The low price must help keep out the competition, and the penetration price must maintain its low price position (otherwise the price advantage may be only temporary).
JUN JUHAIZI BINTI JUHARI 108 B) PRODUCT MIX PRICING STRATEGIES Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices. There are five (5) product mix pricing strategies: a) Product line pricing b) Optional-product pricing c) Captive-product pricing d) By-Product pricing e) Product-Bundle pricing 1) PRODUCT LINE PRICING • setting the price steps between various product in a product line based on cost differences between the products, customer evaluations of different features and competitor’s prices. • Let’s look at ASOS’ online store for an example. We can see here that one product line comprises leather boots, faux leather boots, and canvas boots from the same collection. They all have price points that are sufficiently differentiated to make the quality differentials obvious - but there’s still something for all types of customers here.
JUN JUHAIZI BINTI JUHARI 109 2) OPTIONAL PRODUCT PRICING • the pricing of optional or accessory products along with a main product • For example, Refrigerators come with optional ice makers • Another example is the airline industry will charge for some options like guaranteeing a window seat or keeping a row of seats next to each other. Yet again, these budget airlines are key users of this optional pricing approach where the airlines charge you extra for every additional luggage or extra legroom. 3) CAPTIVE PRODUCT PRICING • setting price for products that must be used along with a main product, such as blades for a razor and film for a camera • Most of the times, the captive product pricing is higher than the core product. Companies tend to provide a lower price for the core product in order to attract the customers. At the same time, they provide a higher captive product pricing in order to increase their profits. • The best captive product pricing example is Gilette. Where in the Razor Mach 3 or Mach 4 cost almost equivalent to the captive items. The razor might be bought once a year but the blades have to be bought every quarter at the least.
JUN JUHAIZI BINTI JUHARI 110 4) BY-PRODUCT PRICING • setting a price for by products in order to make the main product’s price more competitive. • Many times, a production process results in the creation of Leftover products. These leftover products may not be as valuable as the main product, but they too have some economic value. Thus, these leftover products, known as by-products, can be sold off as independent products in the market. • For example, Sugar beet molasses after sugar refining – can be used as a fodder for animals, while sugarcane molasses is also used as flavoring and coloring agent in some foods. 5) PRODUCT BUNDLE PRICING • combining several products and offering the bundle at a reduced price • In a bundle pricing, companies sell a package or set of goods or services for a lower price than they would charge if the customer bought all of them separately. Common examples include option packages on new cars, value meals at restaurants and cable TV channel plans. Pursuing a bundle pricing strategy allows you to increase your profit by giving customers a discount. • For example, hotels sell specially priced packages that include room, meals and entertainment.
JUN JUHAIZI BINTI JUHARI 111 C) PRICE ADJUSTMENT STRATEGIES Companies must adjust their basic prices to account for differences in customers and situations. There are three price adjustment strategies: 1. Loss Leader pricing 2. segmented pricing, 3. psychological pricing, 1. Loss leader pricing ❖ Retail merchandise that is advertised and sold at a price representing a loss of profit for the retailer, but is used to draw (lead) customers into the store in the hope that they will make additional purchases. ❖ Loss leader pricing is a marketing strategy that prices products lower than the cost to produce them in order to attract new customers or to sell additional products to customers. ❖ Companies typically use loss leader pricing when they are entering new markets or attempting to increase market share. ❖ A loss leader strategy involves selling a product or service at a price that is not profitable but is sold to attract new customers or to sell additional products and services to those
JUN JUHAIZI BINTI JUHARI 112 customers. Loss leading is a common practice when a business first enters a market. A loss leader introduces new customers to a service or product in the hopes of building a customer base and securing future recurring revenue. 2. Segmented Pricing ▪ Often, companies adjust their basic prices to allow for differences in customers, products and locations. In short, adjusting prices to account for different segments. ▪ In segmented pricing, the company thus sells a product or service at different prices in different segments, even though the price-difference is not based on differences in costs. ▪ Under customer-segment pricing, different customers pay different prices for the same product or service. For instance, museums and theatres may charge a lower admission for students and senior citizens. Under product-form pricing, different versions of the product are priced differently, although the difference is not due to cost differences. ▪ Under location-based pricing, a firm charges different prices for different locations, although the cost of offering each location is the same. For instance, in the USA, state universities charge higher tuition fees for out-of-state students, and theatres vary their seat prices because of audience preferences for certain locations. Finally, under time-based pricing, the firm varies its price by the season, the month, the day or even the hour. This is commonly applied in the hotel business. ▪ Of course, several conditions must be met for this price adjustment strategy to work. The market must be segmentable, and segments must show different degrees of demand. In addition, the cost of segmenting and reaching the single parts of the market cannot exceed the extra revenue obtained from the price differences created. ▪ It is most important that segmented prices reflect real differences in customers’ perceived value.
JUN JUHAIZI BINTI JUHARI 113 3. Psychological Pricing ▪ It refers to pricing that considers the psychology of prices, not simply the economics. Indeed, the price says something about the product. ▪ For instance, many consumers use price to judge quality. A RM100 bottle of perfume may contain only RM3 worth of scent, but people will be willing to pay the RM100 because the high price indicates that the product is something special. ▪ However, this does not work forever. When consumers can judge the quality of a product by examining it or by calling on past experience with it, price is less used to judge quality. But when they cannot judge quality, price becomes an important signal. Just to give an example: who is the better lawyer? One who charges RM50 per hour or one who charges RM500? It would need a lot of research and experience to answer this question objectively. Most of us would simply assume that the higher-priced lawyer is the better one.
JUN JUHAIZI BINTI JUHARI 114 ▪ In fact, for most purchases, consumers simply do not have all the skill or information they need to work out whether they are paying a good price. Often, time, ability or inclination to research different brands or stores, compare prices and get the best deals is lacking. Therefore, psychological pricing may be the most powerful one of the price adjustment strategies.
JUN JUHAIZI BINTI JUHARI 115 CHAPTER 8: Place LEARNING OBJECTIVES: 1. Define Place (Channel of Distribution) 2. Describe the Marketing Channels for consumer goods. 3. Explain the roles and types of Wholesaling. 4. Explain the roles and types of Retailing DEFINITION OF PLACE (CHANNEL OF DISTRIBUTION) Another element of Marketing Mix is Place. Place is also known as channel, distribution, or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer. “A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumption”. (Bucklin - Theory of Distribution Channel Structure (1966). MARKETING CHANNELS FOR CONSUMER GOODS
JUN JUHAIZI BINTI JUHARI 116 Channel 1 is called a "direct-marketing" channel, since it has no intermediary levels. In this case the manufacturer sells directly to customers. An example of a direct marketing channel would be a factory outlet store. Many holiday companies also market direct to consumers, bypassing a traditional retail intermediary - the travel agent. Direct selling between producer and consumer has been a feature of the marketing of Avon Cosmetics and Dell Computers. The remaining channels are "indirect-marketing channels". Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. The consumer electrical goods market in the UK is typical of this arrangement whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet, Dixons and Currys which then sell the goods to the final consumers. Supermarket chains exercise considerable power over manufacturers because of their enormous buying capabilities. E.g. Tesco, Wal-Mart and Econsave. Channel 3 contains two intermediary levels - a wholesaler and a retailer. A wholesaler typically buys and stores large quantities of several producers’ goods and then breaks into the bulk deliveries to supply retailers with smaller quantities. For small retailers with limited order quantities, the use of wholesalers makes economic sense. This arrangement tends to work best where the retail channel is fragmented - i.e. not dominated by a small number of large, powerful retailers who have an incentive to cut out the wholesaler. A good example of this channel arrangement in the UK is the distribution of drugs. Channel 4 is a long channel which is sometimes used by companies entering the foreign market. They may delegate the task of selling the product to an agent /jobber (who does not take title to the goods). The agent contacts wholesalers or retailers and receive commission on sales. Overseas sales of books are sometimes generated this way.
JUN JUHAIZI BINTI JUHARI 117 Distribution Strategy There are three broad options - intensive, selective and exclusive distribution: 1) Intensive distribution aims to provide saturation coverage of the market by using all available outlets. For many products, total sales are directly linked to the number of outlets used (e.g. cigarettes, beer). Intensive distribution is usually required where customers have a range of acceptable brands to chose from. In other words, if one brand is not available, a customer will simply choose another. 2) Selective distribution involves a producer using a limited number of outlets in a geographical area to sell products. An advantage of this approach is that the producer can choose the most appropriate or best-performing outlets and focus effort (e.g. training) on them. Selective distribution works best when consumers are prepared to "shop around" - in other words - they have a preference for a particular brand or price and will search out the outlets that supply. 3) Exclusive distribution is an extreme form of selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area.
JUN JUHAIZI BINTI JUHARI 118 Types Of Intermediaries There are four generally recognized broad groups of intermediaries: agents, wholesalers, distributors, and retailers. 1) Agents/Brokers Agents or brokers are individuals or companies that act as an extension of the manufacturing company. Their main job is to represent the producer to the final user in selling a product. Thus, while they do not own the product directly, they take possession of the product in the distribution process. They make their profits through fees or commissions. 2) Wholesalers Unlike agents, wholesalers take title to the goods and services that they are intermediaries for. They are independently owned, and they own the products that they sell. Wholesalers do not work with small numbers of product: they buy in bulk, and store the products in their own warehouses and storage places until it is time to resell them. Wholesalers rarely sell to the final user; rather, they sell the products to other intermediaries such as retailers, for a higher price than they paid. Thus, they do not operate on a commission system, as agents do. 3) Distributors Distributors function similarly to wholesalers in that they take ownership of the product, store it, and sell it off at a profit to retailers or other intermediaries. However, the key difference is that distributors ally themselves to complementary products. For example, distributors of Coca Cola will not distribute Pepsi products, and vice versa. In this way, they can maintain a closer relationship with their suppliers than wholesalers do.
JUN JUHAIZI BINTI JUHARI 119 4) Retailers Retailers come in a variety of shapes and sizes: from the corner grocery store, to large chains like Wal-Mart and Target. Whatever their size, retailers purchase products from market intermediaries and sell them directly to the end user for a profit. WHOLESALING DEFINITION Business that buys goods from manufacturers and that sells goods, usually in large quantities to retailers, who in turn sell them to the end user. Unlike agents and brokers, wholesaler take ownership of the products. Functions Of Wholesalers 1. Bulk buying ▪ Wholesalers buy bulk quantity goods of certain product lines from producers. They work as buying agents for customers. Besides identifying customers and their needs, wholesalers also become well informed of market and sources of supply. The customers know wholesalers as the representative of some limited producers of certain product lines. 2. Mass Selling ▪ Another function of wholesalers is mass selling. Wholesalers work as sales-force for the producers. They deliver goods to retailers and industrial users at lower cost than the cost the producer would need if they directly delivered or supplied. Wholesalers help in mass selling of goods by supplying to several retailers living scattered in different places. 3. Dividing or bulk breaking ▪ Wholesalers buy goods in bulk quantity from producers and resell in small quantity
JUN JUHAIZI BINTI JUHARI 120 to retailers or industrial users. In the absence of wholesalers, the producers cannot sell their products to the retailers in bulk quantity on the one and the retailers cannot buy in bulk quantity to sell to the final consumers on the other. As a result, marketing gets paralyzed. So, the wholesalers serve both producers and retailers. 4. Transportation ▪ As wholesalers buy goods in bulk quantity, they help producers and retailers minimize transportation cost. They provide fast delivery services to customers by which investment in overstock and risk is minimized. Wholesalers create place utility of goods by transporting them from one place to another with fast speed and skill. 5. Warehousing ▪ Wholesalers perform an important job relating to physical distribution by warehousing and keeping store of goods. Along with this, they also create and increase time utility of goods by storing them and maintain proper balance between production and demand. 6. Financing ▪ Financing is the other important function of wholesalers. They provide credit facility to retailers or they sell goods to retailers on credit. Doing so, they lessen the burden of the necessity of capital on the retailers. Generally, producers cannot provide credit facility to retailers.Wholesalers help producers by buying goods before peak season and making payment in time. In fact, wholesalers make arrangement of finance for the producers in the process of sales and distribution of goods. 7. Risk bearing ▪ In the process of sales and distribution. wholesalers bear the risk caused by decline in demand, fluctuation in prices, consumers' interest, change in fashion and other factors, If wholesalers' services were not available, the producers themselves would have to store their goods. As a result, they would have to bear all the risks. 8. Market information ▪ Wholesalers also provide information about market situation, competitors' strategy and their market position, information about different goods in markets, customers and their needs and interest etc. They also provide information about new
JUN JUHAIZI BINTI JUHARI 121 products , competitive activities, special sales programs of producers, price, market situation etc. TYPES OF WHOLESALERS 1) Merchant Wholesalers ▪ Merchant wholesalers are the ones who buy directly from the manufacturer, store the product and then sell it to the customer. They might sell in any channel and they are not restricted to selling to retail only or to online only. ▪ If there is any loss between the buying and selling of the product, it must be borne by the merchant wholesaler. ▪ Example – A vegetable wholesaler buys produce directly from the farm and stocks it at his own warehouse. He then sells these products to the local retail outlets or even to end customers. 2) Full-service Wholesalers – Retail Wholesalers ▪ The full-service type of wholesalers is, as the name suggests, giving full service to the end retailer. These wholesalers mainly operate in the retail market and sell products to a reseller. ▪ Example – Samsung wants to expand its operation in region A but it does not have a sales office in that region. So it appoints a distributor in region A. This distributor is solely responsible for order picking, delivery, training sales associates, promotions and everything for the Samsung brand. He is now a full-service wholesaler. However, for service of the product, there is a different service franchise opened in the same region. 3) Limited Service Wholesalers ▪ A limited service wholesaler is someone who stocks the products of the company and sells it in a limited channel. He does not have a large turnover or does not cover all channels of the company. ▪ Example – Company X wants to sell its products online but it knows that if it allows local distributors to sell online, there will be a huge price war. As a result, Company X appoints an exclusive online wholesaler. This online wholesaler has only one job – To purchase the product and stock it and sell it online. So whenever an order
JUN JUHAIZI BINTI JUHARI 122 comes from Amazon or eBay, this wholesaler gives the machine to Amazon or eBay. That’s his only job. 4) Brokers and Agents ▪ Most commonly observed in the real estate industry or in the chemical markets. A broker assumes no risk. He has the producer or the manufacturer on one side and he has the buyer on the other side. The work of the broker is to get the deal done and he gets a commission on the deal. ▪ Example – A small lab has regular requirement of litmus paper. There is a litmus paper wholesaler in their area who is a broker for several companies and who arranges any lab material in bulk. The lab approaches the broker and wants to purchase huge quantity. The broker then talks to multiple manufacturers and finally, a deal is struck with one manufacturer. The manufacturer pays 2% commission to the broker for his work and for bringing the enquiry. Similarly, this broker can pick an order of Beakers, Petri dishes or any other equipment. He will keep arranging meetings with the right supplier and keep earning commissions. 5) Branches and mini offices ▪ Although branches and mini offices do not come in the various types of wholesalers, these are common ways for companies to start selling their products in a region they are targeting. A branch can also be called a type of wholesaling wherein the branch directly picks the orders from the end customers in bulk and ensures the supply and reorders from the customer. ▪ Example – Paper company like B2B or 3M knows that large companies require a lot of print paper across the month. These companies then establish branch offices which also act as the sales office. They pick a bulk order of paper and the company might transport the complete order from their warehouse to the company. 6) Specialized wholesalers ▪ These are wholesalers who do wholesale of specialized items only. Example – A used car wholesaler who sells directly to customers or to other used car dealers. He is specialized in used cars and knows the ins and outs of selling a used car to consumers or refurbishing the used cars.
JUN JUHAIZI BINTI JUHARI 123 RETAILING Definition A retail marketing includes set of activities where a retailer buys products from a wholesaler or manufacturer to sells them to ends users (consumers). In simple words, a retailer is an intermediary which makes products available to consumers using different channels, for example, brick-and-mortar retail store, shopping malls, shopping website, automatic vending machines, kiosks etc. Level of Service Provided 1) Self-service: The whole shopping experience except for payment will be done by customers. 2) Full-service: Customer will be served the moment they enter the store and at times even after leaving the store. 3) Limited service: The store offers some of the services provided by the full-service stores. STORE RETAILING A retail store means a place where the business is operated, usually by the owner; however, sometimes operated and owned by the manufacturer or by anyone other than a retailer within which the merchandise is primarily sold to end users Types of retail stores 1) Department Stores: These sell a wide range of merchandise that is arranged by category into different sections of the physical retail space. Some department store categories include shoes, clothing, beauty products, jewelry, housewares, and more. Examples of department store retailers include Macy's, Nordstrom, and JCPenney, to name just a few.
JUN JUHAIZI BINTI JUHARI 124 2) Grocery Stores and Supermarkets: These sell all types of food and beverage products, and sometimes also home products, clothing, and consumer electronics as well. 3) Warehouse Retailers: These are large no-frills warehouse-type facilities stocked with a large variety of products packaged in large quantities and sold at lower-than-retail prices. 4) Specialty Retailers: These specialize in a specific category of products. Toys ‘R’ Us, Victoria's Secret, and Nike are examples of specialty retailers. 5) Convenience Retailer: These are usually part of a retail location which sells gasoline primarily, but also sells a limited range of grocery merchandise and auto care products at a premium "convenience" price from a brick-and-mortar store. 6) Discount Retailer: These sell a wide variety of products that are often privately labeled or generic brands at below-retail prices. Discount retailers like Family Dollar, Dollar General, and Big Lots will often source closeout and discontinued merchandise at lower-than-wholesale prices and pass the savings onto their customers.
JUN JUHAIZI BINTI JUHARI 125 7) Mobile Retailer: These use a smartphone platform to process retail transactions and then ship the products directly to the customer. 8) Internet Retailer: These sell from an Internet shopping website and ship the purchases directly to customers at their homes or workplaces and without all the expenses of a traditional brick-and-mortar retailer. They usually sell merchandise for a lower-than-retail price. NON-STORE RETAILING ▪ On the other side, non-store retailing involves selling merchandise outside the boundaries of a retail facility. The retailing takes place through television, internet, video, automatic vending machines direct marketing and direct selling. ▪ Any sale happening to the end customer which is not happening through a traditional retail channel or through a physical retail space is known as Non-store retailing. ▪ Amazon is a perfect example of Non-store retailing. Amazon does not have its own retail space from where it sells the goods to customers. It directly sells from its website and does not sell via a retail space. Hence, it is known as a Non-Store Retailer. Types of Non-store Retailing 1) Direct Sales / Direct Retailing ▪ One of the oldest forms of non-store retailing is the Direct sales type. The best way to describe this would be Door to Door salesmen who do cold calls to homes and offices to sell their products. ▪ This type of non-store retailing involves manual involvement and might involve usage of good selling techniques and personal selling skills. ▪ Amway, Tupperware and several other multi-level marketing firms actually use
JUN JUHAIZI BINTI JUHARI 126 direct selling to good effect. They have chains of distributors and end sellers who sell to the end customers. Because the end seller generally knows the end buyer very well, the sale is high and these companies are case studies in the world of direct selling or non-store retailing. 2) Direct Marketing ▪ Unlike Direct selling, Direct marketing is on the rise especially since the adoption of the internet. It was initially used in the form of direct mail services where letters and coupons were sent to the end customer. Later on, once internet started, Email marketing was very successfully used where companies spent a huge amount of designing and sending emails to a large number of customers. ▪ After emails, it went to websites and we could see Amazon, eBay, Alibaba and other websites grow and sell products by the truckloads. None of these sellers had a single store. All of it was online. Finally today, we can see that even small businessmen have their online store and a website and they sell their products not only through a physical presence but regularly take part in non-store retailing via social media or via their own websites. A form of electronic commerce that enables consumers to shop from anywhere using web based applications. 3) Automatic Vending ▪ Automatic vending machines are being used very smartly in the FMCG segment. ▪ Cold Drink, Newspaper, Beer, Chewing gums, chocolates and even pizza is nowadays sold through an automatic vending machine. ▪ These are just straightforward examples of nonstore retailing where you don’t need a store of 200 square feet to sell a pizza or cold drinks.
JUN JUHAIZI BINTI JUHARI 127 CHAPTER 9: Promotion LEARNING OBJECTIVES: 1. Define promotion and its roles. 2. Explain the marketing communication process. 3. Describe the promotion mix. DEFINITION OF MARKETING PROMOTION MIX ▪ Promotions is the marketing process ‘that informs, persuades and reminds buyers on a product. ▪ A promotion mix is the particular combination of promotional methods that a firm uses in its promotional campaign to reach a target market. ▪ It is refer to the specific mix of advertising, personal selling, sales promotion and public relations a company uses to pursue its advertising and marketing objectives. ▪ This chapter will examines the promotional methods of advertising, personal selling, sales promotion, and public relations. THE MARKETING COMMUNICATION PROCESS The communication process itself consists of nine elements – sender, receiver, encoding, decoding, message, media, response, feedback, and noise.
JUN JUHAIZI BINTI JUHARI 128 Each of these is discussed one by one. Sender: The party or person who is sending the message to the other party or person is the sender. For example Tata Motors Ltd. is the sender of message. Encoding: The conversion of thought into the meaningful symbols is called encoding. For example Tata has got the advertisement designed by blending video, sound, graphics, jingle etc. to give the advertisement a deliverable form. Message: The group of symbols transmitted by the sender is called a message. Media: The channel of communication through which transfers the message from sender to receiver is called media. Tata has used electronic medium to disseminate the message by booking air time on selected T.V. channels. Decoding: The conversion of symbols into meaning by the receiver is called decoding. In this example it is interpretation and meaning that consumer associate while going through the advertisement of Nano and its contents. The jingle ‘Khushiyon Ki Chaabi” may be interpreted by receivers as harbinger of good time and prosperity. Receiver: The sent message received by another person or party is called the receiver. In this case all people who are prospects of Tata Nano and watch the advertisement are receiver.
JUN JUHAIZI BINTI JUHARI 129 Response: The reaction shown by the receiver before the message is called response. Different receivers could behave differently; few may go to the Tata Motors showroom and enquire about the Nano, some others may check the Nano through internet while others may call for a test drive. It is quite possible some of them do not react at all. Feedback: The portion of the response of the receiver that is sent back to the sender is called feedback. What viewers of Nano advertisement feel and speak to dealers, to others consumers about the car, the media reports all goes back to the company as valuable input and helps the company to improve and connect in a better manner to market. Noise: The unplanned distortion during the process of communication due to which the receiver understands the wrong meaning of the original message is called noise. Noise is disturbance that naturally occurs in the process resulting in receiver getting different message then that originally intended by the company. For example, showing village backdrop in Nano advertisement could distract consumers making them feel Nano as low quality car having no buyers in cities. The effective message is that where the process of encoding is matched with the decoding of messages. Moreover the message sent should consist of words and symbols that are known to the receiver.
JUN JUHAIZI BINTI JUHARI 130 THE PROMOTION MIX A promotion mix is a set of different marketing approaches that marketer develop to optimize promotional efforts and reach a broader audience. The marketer’s task is to find the right promotion mix for a particular brand. The elements of promotion mix as follows: 1) Advertising ▪ Advertising is any paid form of nonpersonal presentation and promotion of ideas, goods or services by an identified sponsor. ▪ Advertising is any paid form of non-personal communication sent through a mass medium by an organization about its products or services. media such as television, radio, the internet, direct mail, outdoor advertising, transit (vehicle) advertising, newspapers, magazines. Setting Advertising Objectives An advertising objective is a specific communication task to be achieved with a specific target audience during a specified period of time. Advertising objectives fall into four main categories: (a) To inform e.g. tell customers about a new product . Informative advertising is the delivery of advertising messages through mass media with the intent of informing a target market about the benefits offered by a product or innovation.
JUN JUHAIZI BINTI JUHARI 131 (b) To persuade e.g. encourage customers to switch to a different brand. Persuasive advertising is a component in an overall advertising strategy that seeks to entice consumers into purchasing specific goods or services, often by appealing to their emotions and general sensibilities (c) To remind e.g. remind buyers where to find a product. Brief messages designed chiefly to keep a product in the mind of the consumer once the product is already familiar. (d) To compare The purpose of this objective is to point out a brand’s unique benefits compared to the competition. Types of Advertising 1) Online Advertising ❖ Online advertising or digital advertising as a form in which the message is conveyed via the internet. For every website ads are a major source of revenue. Advertising online has become very popular in the last decade and has surpassed the expectations of most of the advertising experts. 60% revenue of Google is generated from ads and the same goes for Facebook. ❖ Online advertising has become so effective that a particular ad can be targeted to a specific person of specific age of a specific location on a specific time. In terms of pricing advertising online is very cheap compared to all other forms of advertising. ❖ The major disadvantage of online advertising is at times people do not click on the ads and the message does not reach the targeted audience. Also setting up online and requires technical expertise which may not be possible for everyone. Digital Advertising and Online Advertising is one of the fastest growing Types of Advertising. 2) SMS advertising ❖ SMS marketing is the major source of mobile advertising. Users are informed about the product or service in 160 or fewer characters. This was when the internet was not available on mobile phones. Once mobile phones got access to internet all internet
JUN JUHAIZI BINTI JUHARI 132 advertising flowed to mobile and experts suggest that mobile advertising will be the only major advertising strategy for almost every company in near future. ❖ The reach from mobile advertising is fast personalized and effective and just like online advertising it comes for a very little cost. The difference between online ads and mobile advertising is that online ads can be accessed from any device like computer or laptops, mobile advertising is only via mobile. 3) Television Ads ❖ About a decade ago television was the most popular form of advertising. Events like the super bowl, international cricket games, Olympics where the top attractions for advertisers to advertise about their products. To some extent, it still is effective for most advertisers but with the advent of online streaming of television on mobiles, marketers have now moved from television to online as their preferred advertising medium. ❖ Another form of television and infomercial. An infomercial is a specially designed advertisement for information and awareness of the public. The term information comes from the combination of words information and commercial. Ads of almost all products are shown on television. Although it is costly, Television Ads are till date one of the best types of advertising and have the most fantastic reach for a large audience. 4) Ads in Theatres ❖ The advertisements in movie theatres before all the movies start or during the intimation are called movie ads. These are one of the costliest forms of advertising since people cannot skip it change the channel or move away. Many of the companies have started opting for movie ads since it ensures that the entire message reaches the audience and unlike online advertising, the audience cannot interfere till the advertisement is over. Movie ads are different from placement ads.
JUN JUHAIZI BINTI JUHARI 133 5) Product Placement ❖ Product placement is called covert advertising wherein a product is quietly embedded in the entertainment media. Most of the times there is no mention of the product although the audience sees the product. Movies are the major places where product placement is done. ❖ They could be a few TV shows where product placement has been used but the effectiveness is observed more in movies than TV shows. ❖ Will Smith is seen playing with his Converse shoes in the movie I Robot. Several brands of beer are advertised in How I met your Mother. In popular shows like Family Guy, humorous advertisements are placed all over the TV show like Red Bull, Sony, Apple, Microsoft, Samsung and many more. ❖ With so many people subscribing to Netflix and Amazon prime, Product placement is increasingly being used and is one of the popular Types of Advertising. 6) Radio ❖ Radio advertisements are the ones that are broadcast it through radio waves and heard on radios all over the place. These mostly consist of audible advertisements or jingles. While some consider this to be an ineffective form of advertising there are still many followers listen to the radio every morning. ❖ Advertisement for almost every product can be found on the radio. Every single feature and benefit of the product have to be explained on the radio, unlike other sources where the customer can see the product for inside. 7) Print Advertising ❖ Printing is the slowly decreasing form of advertising. There were days before the evolution of television when printing was a major source of advertising and considered to be one of the most effective media. But since the explosion of television usage, print advertisements have taken a backseat.
JUN JUHAIZI BINTI JUHARI 134 8) Magazine advertising ❖ These are also known as periodical advertisements in which a weekly fortnightly or monthly magazine are used for advertising. Ads are printed in the corners or on the entire page of the magazine and sometimes even an extra page might be inserted simply for advertising. ❖ Ads are categorized and segregated according to the magazine category for example business magazines will feature ads from Rolex watches, while entertainment magazines will feature ads from high branded apparels. 9) Brochures or handouts ❖ Brochures are specific advertising materials used to promote a particular product usually given at a point of sale are handed out at different locations. Brochure advertisings do not use any base like magazine advertising and are independent. 10) Newspaper advertising ❖ Newspapers display a huge number of ads in them, right from matrimonial services to job hunt, to the notifications and circulars from the Governments. Newspapers were the extremely popular form of advertising in the early 20th century and to some extent it still is. But with the advent of the Internet and digital advertising newspapers have moved to tablet pcs and that is where the advertisements are now being displayed. 11) Outdoor advertising ❖ Outdoor advertising consists of displaying large posters banners or hoardings with the advertisement. These are displayed on the side of the road, on the glass of large buildings, or on specifically targeted places that have huge inflow from the public. While earlier printed ads were used for outdoor advertising recently, they have been replaced by digital boards. These boards display the advertising without the hassle of getting ads printed.
JUN JUHAIZI BINTI JUHARI 135 12) Outdoor Blank Space Advertising ❖ It is a newer form of advertising which ensures a large reach of audience. Occupying the empty spaces for advertisements is known as space advertising. Examples include the spaces of metros, buses, cabs, flight seats & movie theatre seats (where advertising is done on the removable seat covers) etc. Since a huge number of people use these facilities and they have a long shelf life, they have proved very effective. Advantages of Advertising Advertisement has a lot of advantages. It provides information about products and services to companies, people, and consumers. It’s often used to promote sales or even public service announcements that can help the community. Other advantages of advertising are as follows: 1) Useful when introducing a new product/ service in the market – When introducing a new product to the market, advertisements are helpful in getting the word out. These ads can be useful for finding an audience and promoting the product. Advertisements can also help to boost market share for products that are on the market. It also helps to advertise the manufacturer’s brand. Therefore, advertising can be considered a vital tool for businesses and marketers to use in their marketing strategy. 2) Beneficial for market expansion – Expanding the market is one of the many advantages of advertising. Even though the economy has been slow for some time now, advertising can help to expand its market and bring new customers into a company’s business. Advertising also allows companies to give their products or services more exposure than they could otherwise afford to do so. 3) Helps to increase sales – In order to stay in business, companies must be able to grow their sales. Advertising is the best way for a business to increase sales. Many businesses rely on advertising in order to grow their market share and stay afloat financially. 4) Fights competition – Advertising is important for companies, but it also helps to fight competitors. Advertising brings people in and gives them a way to interact with your company. If you market your company well, then people will buy from you because they like what you are offering. When your competitors start advertising, it can put
JUN JUHAIZI BINTI JUHARI 136 more pressure on the market that makes customers want to switch over to a different brand. 5) Builds good-will – Advertising builds good-will in the minds of the people. When a company advertises with a positive message, it spreads hope and confidence to its target audience. People are willing to buy what they see advertised because they believe that if the product is so great, then other people must feel the same way. 6) Educates the customer – Advertising educates the customer about different products on the market. It helps them make a decision about what is best for them. For example, if an advertisement for a product says that it’s great for people with dry skin, then it may be something to consider purchasing. 7) Promotes salesmanship – One of the main benefits of advertising is that it promotes salesmanship. To make a sale, people will have to be persuaded to purchase the product or service. Advertising helps sellers convince potential customers that their product or service is worth purchasing. This is especially important for companies with higher prices because they must persuade buyers to purchase their products or services instead of cheaper products and services from competitors. 8) Can generate employment opportunities – Advertising is a way for companies to create awareness about their products and services through word of mouth. It also stimulates economic activity through the creation of new jobs that may not otherwise exist. Disadvantages of Advertising Advertising has a lot of disadvantages such as invading people’s privacy, stealing information and creating addiction. Other disadvantages of advertising are as follows 1) Advertising does not promise sales – While advertising serves as a great way to get the word out about your product, it is not a guarantee of sales. It can create a positive buzz around your company but will not necessarily lead to any sales unless you put in the work. 2) Risk of misrepresenting facts – Ads are a risk for companies because they must sometimes misrepresent facts to make their product seem more appealing. This can
JUN JUHAIZI BINTI JUHARI 137 lead to the company being sued. For example, in 2013, Volkswagen paid billions of dollars to settle claims that it had knowingly emitted illegal pollutants with its diesel cars and deceived consumers. 3) Can create negative brand awareness – Advertising can create a negative brand awareness. For example, if you have a product with a design that is too similar to other competitors, then potential customers may think the product is pointless because it does not offer anything different from the others. 4) Increased Cost for company – As a business, advertising is an important way to promote your brand. However, it could also be expensive if the company doesn’t know how to measure its return on investment and manage its costs. 5) Compels people to buy products or services they do not need – The internet has made buying goods and services easy, but it also can be bad for people. For example, advertisers know that if they successfully introduce an item to consumers, they will likely buy it. In other words, advertising encourages mindless spending. People are bombarded with ads on a daily basis and the more they see them, the less likely they are to think before purchasing a product. 6) Adds to the Cost of Product or service – Advertising can be a good thing for a company that’s trying to sell something. It can help spread the word about a product or service and make it more popular overall. However, the cost associated with the advertising can add up to the cost of the product or service in the end. 7) Advertising can get deceptive – One of the biggest downsides to advertising is that it can be deceptive. Companies are able to put out ads that make products seem like they are the best value when, in fact, they may not be. 8) May create a Monopoly – Advertising has the potential to create a monopoly. This means advertising can price consumers out of the market and limit their choices. Even worse, advertisers can use their power to make low-quality products seem like valid options, and this is why people should be wary about advertising. (https://www.aplustopper.com/advertising-advantages-and-disadvantages/)
JUN JUHAIZI BINTI JUHARI 138 2) Public Relations and Publicity ❖ Public relations is defined as “building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories, and events” ❖ Publicity is also a way of mass communication. It is not a paid form of mass communication that involves getting favourable response of buyers by placing commercially significant news in mass media. Publicity is not paid for by the organisation. Publicity comes from reporters, columnists, and journalists. It can be considered as a part of public relations. Publicity is a part of broad public relations efforts and activities. Functions of Public Relations 1. Build and maintain a positive image 2. Inform target audiences about positive associations with a product, service, brand, or organization 3. Maintain good relationships with influencers—the people who strongly influence the opinions of target audiences 4. Generate goodwill among consumers, the media, and other target audiences by raising the organization’s profile 5. Stimulate demand for a product, service, idea, or organization 6. Head off critical or unfavorable media coverage
JUN JUHAIZI BINTI JUHARI 139 Public Relation Tools Public Relations Technique Role and Description Examples Media Relations Generate positive news coverage about the organization, its products, services, people, and activities Press release, press kit, and interview leading to a news article about a new product launch; press conference Influencer/Analyst Relations Maintain strong, beneficial relationships with individuals who are thought leaders for a market or segment Product review published by a renowned blogger; company profile by an industry analyst; celebrity endorsement Publications and Thought Leadership Provide information about the organization, showcase its expertise and competitive advantages Organization’s annual report; newsletters; white papers focused on research and development; video case study about a successful customer Events Engage with a community to present information and an interactive “live” experience with a product, service, organization or brand User conference; presentation of a keynote address; day-ofcommunity-service event
JUN JUHAIZI BINTI JUHARI 140 Public Relations Technique Role and Description Examples Sponsorships Raise the profile of an organization by affiliating it with specific causes or activities Co-sponsoring an industry conference; sponsoring a sports team; sponsoring a race to benefit a charity Award Programs Generate recognition for excellence within the organization and/or among customers Winning an industry “product of the year” award; nominating customer for an outstanding achievement award Crisis Management Manage perceptions and contain concerns in the face of an emergency situation Oversee customer communication during a service outage or a product recall; execute action plan associated with an environmental disaster Advantages Of Public Relations 1) Building and maintaining a positive reputation: A well-executed public relations strategy can help organizations to build and maintain a positive reputation by controlling the flow of information to the public and managing any negative perceptions. This can lead to increased trust and loyalty from customers and other stakeholders. 2) Cost-effectiveness compared to advertising: One of the benefits of public relations is that it is often considered a more cost-effective option compared to advertising, as it utilizes third-party endorsements, such as media coverage, to spread information about the organization. 3) Building and maintaining relationships with key stakeholders: Public relations can
JUN JUHAIZI BINTI JUHARI 141 help organizations to build and maintain relationships with key stakeholders, such as customers, employees, investors, and the community. This can lead to increased loyalty and support for the organization. 4) Crisis management: Public relations plays a crucial role in crisis management, as it helps organizations to communicate effectively and manage their reputation during a crisis situation. A well-executed PR strategy can help organizations to mitigate the impact of a crisis and protect their reputation. Disadvantages Of Public Relations 1) Limited control over message and media coverage: One of the main disadvantages of public relations is that organizations have limited control over the message and media coverage. The media can choose to cover or not cover a story, and they can also choose to present it in a positive or negative light. This can make it difficult for organizations to control their image and reputation. 2) Time-consuming and labor-intensive: Developing and executing a public relations strategy can be time-consuming and labor-intensive. It requires a significant amount of research, planning, and coordination to effectively communicate with target audiences and manage relationships with key stakeholders. 3) Dependence on third-party relationships: Public relations often relies on third-party relationships, such as media coverage and endorsements from influencers or industry leaders. This dependence on external relationships can make it difficult for organizations to control their image and reputation. 4) Potential for negative or false information to spread: The rapid spread of information through social media and the internet has made it easier for negative or false information to spread quickly. This can harm an organization's reputation and make it difficult to control the narrative.
JUN JUHAIZI BINTI JUHARI 142 3) Sales Promotion ❖ Sales promotion tend to be thought of as being all promotions apart from advertising, personal selling, and public relations. For example the BOGOF promotion, or Buy One Get One Free. Others include couponing, money-off promotions, competitions, free accessories (such as free blades with a new razor), introductory offers (such as buy digital TV and get free installation), and so on. Each sales promotion should be carefully costed and compared with the next best alternative. ❖ Activities or materials that offer consumers a direct incentive to buy a good or service. Example include coupons, sweepstakes, contests, free samples and rebates. Another variant of sales promotions is visual merchandising refers to point of sale displays, the promotional aspects of packaging, an other means of drawing attention to a product. Sales Promotion Tools 1. Samples ▪ Samples are one of the most important tools of sales promotion. Samples are defined as offers to consumers of a small amount of a product for trial. Free samples are given to consumers to generate their interest in the product. Samples help consumers verify the quality of the product. ▪ Samples are delivered at the doors of consumers. They are also sent by mail or given to customers in the retail store itself. Sometimes, samples are attached to another product. ▪ Although sampling is effective, producing numerous samples of a product is quite expensive. Moreover, distributing samples to customers also involves expenditure.
JUN JUHAIZI BINTI JUHARI 143 2. Coupons ▪ A coupon is a certificate that fetches buyers a saving when they purchase a specified product. Coupons are generally issued along with the product. They entitle the holder to either a specified saving on a product or a cash refund. ▪ Coupons are designed to: i. introduce a new product ii. to promote the sale of an established product iii. to sell a product in large sizes iv. to stimulate customers to switch brands; and v. to encourage repeat sales. ▪ Coupons are used for consumer convenience goods. They may be distributed door to door, by mail or they may be inserted in packages. Sometimes, coupons may be part of magazine or newspaper advertisements. 3. Demonstration ▪ Demonstration is required when products are complex and of a technical nature. ▪ Customers are educated as to how to make proper use of the product. ▪ Demonstration of products induces customers to buy. Demonstrations are provided free of cost.
JUN JUHAIZI BINTI JUHARI 144 4. Contests ▪ Contests are the promotion events that give consumers the chance to win something such as cash, trips or goods. Contests are conducted to attract new customers. They introduce new product by asking the prospects to state the reasons for the purchase of the product. ▪ The buyer purchases the product and submits the evidence of purchase with entry form for contest. Entry forms are duly filled by the buyers. A panel of judges selects the best and buyers are given prizes. 5. Cash refund offer ▪ Cash refund offers are rebates allowed from the price of the product. It is an offer to refund part of the purchase price of a product to consumers who send a proof of purchase to the manufacturer. ▪ Moreover, if the purchaser is not satisfied with the product, the whole price or part of it will be refunded. Cash refunded offer is stated on the package. 6. Premium ▪ Premium refers to goods offered either free or at low cost as an incentive to buy a product. A premium may be inside the package, outside it or received through mail. The reusable package itself serves as a premium. ▪ Premium is generally offered for consumer goods such as soap, toothpaste, etc. Premium may be of several kinds — direct premium, reusable container free in mail premium, a self liquidating
JUN JUHAIZI BINTI JUHARI 145 premium, trading stamps, etc. ▪ Direct premium can be inside the pack or outside it. A reusable container can be reused after the product is reused. Free in mail premium means a premium item will be sent by mail to consumers who present proof of purchase to the manufacturer. ▪ A self liquidating premium is the extra quantity offered at the normal price. Trading stamps are given by the seller to consumers. These are redeemable at the stamp redemption centres. 7. ‘Price off’ offer ▪ Goods are sold at reduced prices during slump season. Reduction in prices stimulates sale of goods. 8. Consumer sweepstakes ▪ A sweepstakes calls for consumers to submit their names for a draw. Names of consumers are included in a list of prize winning contest. The lots are drawn and the winners get prizes. 9. Buy back allowances ▪ Allowances are granted to buyers on the basis of their previous purchases. In other words, buy back allowances are given for new purchases, based on the quantity of goods bought previously.
JUN JUHAIZI BINTI JUHARI 146 Advantages of Sales Promotion Following are a few advantages of Sales Promotion: 1) Helps to Differentiate: One of the most important aspects of a sales promotion is creating differentiation. If it’s not different, it won’t get noticed. Even though you may be marketing to the same audience, you can still make your promotion more appealing to them by highlighting features they don’t already have or aren’t offered with what they’re already buying. 2) Creates opportunity for communication: Every company should have a plan for sales promotion. Whether you sell products or services, you need to create communication opportunities with your customers. This involves advertising, promotions, sweepstakes and social media marketing. Moreover, it can also improve the company’s ROI by increasing customer retention, customer engagement, and customer satisfaction. 3) Promotes word-of-mouth: The most important feature of sales promotion is word of mouth. Most people trust the claims and recommendations of people that they know, particularly when it comes to something like a product or service. Sales promotion has many benefits such as building customer loyalty and increasing sales volume, but it can also be used by businesses to establish their brand identity. As a result, this type of marketing is often more cost-effective than other forms. 4) Ideal for cross-selling and upselling: One of the most important tools that marketers have is the ability to create cross-selling and up-selling opportunities. When they do this, they are able to maximise their sales without having to go through a lot of extra work. They can also create promotions and incentives for customers who buy products as well as create discounts for those who already own certain products. 5) Gives a reason to buy: Another advantage of sales promotion is the creation of a reason to buy. It sparks interest in the recipient’s mind so that they believe that there is a good reason to purchase the product. This can be done through various methods such as AIDA (Attention, Interest, Desire, and Action) or the PAS model (pain-agitatesolution)
JUN JUHAIZI BINTI JUHARI 147 6) Promotes focused marketing: When it comes to marketing, everyone is looking for that one magic bullet. The answer most people are searching for is that one tool that will help them get more sales or better results with less effort. Unfortunately, there’s no such thing as a “one size fits all” solution and each company has to find the unique approach that works best for their particular industry and product. 7) Probability for higher revenue: Creating a sales promotion is the best way to increase your revenue. Offer discounts, coupons, and other incentives to encourage people to buy more items. It is important that you create a promotional strategy so that you can reach as many people as possible with this marketing tool. 8) Provides information for your customers: The main advantage of using online sales promotion is that you can create a source of information for your customers. It’s easy to post pictures, videos and descriptions of your products on social media sites like YouTube, Instagram, Twitter, Facebook, etc. This will help increase the number of visitors to your website and make it more visible to people in the search engines. These features also help you promote your brand as well as attracting new customers. Disadvantages of Sales Promotion Following are a few disadvantages of Sales Promotion: 1) Increased sensitivity to price change: A common disadvantage of this strategy is that the customer becomes more price sensitive and will look for a way to save money, even if it doesn’t affect their quality of life. 2) Might cause a negative brand image: Sometimes sales promotions have a negative impact on the quality of the company’s image. For example, if people see a sale on an unhealthy product like potato chips or a soup, they may gossip about it to friends and colleagues. Customers might also think that the company is offering low-quality products if the discount on the product is very high. 3) Short term strategy: Sales promotion is not a long-term solution. It should be used to ensure immediate success, but it shouldn’t be the only focus of your marketing strategy. In fact, companies that heavily rely on sales promotion are more likely to see their profits fall. Sales promotion is too short-term in nature and doesn’t address long-
JUN JUHAIZI BINTI JUHARI 148 term issues for the company such as customer relations, product pricing, innovation, etc. 4) Sales promotion might not be able to change customer perception: One of the biggest mistakes that companies make is to think that presenting a promotion will transform a customer’s opinion about their product. If people don’t believe in your product, then your product or even the company may perish. For instance, the popular Note series mobiles from Samsung were found to be a fire and an explosion hazard. This dented the company’s image for a few years. 5) Sales promotion cannot save a bad product: Sales promotion cannot overcome product problems. For example, a lack of distribution channels or poor product quality will affect the effectiveness of sales promotion. 6) Sales promotion cannot compensate for a poorly trained sales force: There are many reasons why sales promotion is not the perfect solution for all businesses. For one, it can’t compensate for a poorly trained sales force. If a company’s salespeople aren’t properly prepared for their roles, selling with promotions can actually be counterproductive. 7) Extra stock could accumulate Sales promotion may affect your company negatively because it could cause the extra stock to stay out in the market for too long or it could cause other companies to make unauthorised sales of your product. (https://www.aplustopper.com/advantages-and-disadvantages-of-sales-promotion/)
JUN JUHAIZI BINTI JUHARI 149 4) Personal Selling ❖ Personal Selling is an effective way to manage personal customer relationships. The sales person acts on behalf of the organization. They tend to be well trained in the approaches and techniques of personal selling. However sales people are very expensive and should only be used where there is a genuine return on investment. For example salesmen are often used to sell cars or home improvements where the margin is high. ❖ It refers to Person to person communication with potential customers in an effort to inform, persuade, or remind them to purchase an organization’s products or services. ❖ Commonly used in industry where vendors meet with clients to inform them of potential products or services.. This type of selling, professional selling usually requires a large amount of information about the product or services and the customer’s needs. It also requires a lot of follow up after a sale to insure the client is satisfied and
JUN JUHAIZI BINTI JUHARI 150 will reorder. Example: as you walk into a furniture store, you are approached by a salesperson to assist you with your purchase. Steps in the Selling Process There are many steps involved in the process of personal selling: prospecting, pre-approach, approach, sales presentation, handling objectives, and follow up. Prospecting The first step of the personal selling process is called ‘prospecting’. Prospecting refers to locating potential customers. There are many sources from which potential customers can be found: observation, social contacts, trade shows, commercially-available databases, commercially-available mail list and cold calling. Pre-Approach The nest step in the personal selling process is called the ‘pre-approach’. The pre-approach involves preparation for the sales presentation. This preparation involves research about the potential customers, such as market research. Research is useful in planning the right sales presentation. During the pre-approach the salesperson may also plan and practice their sales presentation. The Approach The next step in the personal selling process is called the ‘approach’. The approach refers to the initial contact between the salesperson and the prospective customer. During this stage the sales person takes a few minutes for “small talk” and get to know the potential customer. The goal of the approach is to determine the specific needs and wants of the individual customer, as well as allowing the potential customer to relax and open up.