Market and Price
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The Marketing Budget Resource allocation is a critical part of any marketing plan. To simplify budget preparation, it is recommended that investments in labor, material and services be broken down into the five Ps of marketing:
Marketing Budget in terms of
dollars available for investment *Acceptance *Strategy *Transporta- *Advertising *Personal tion selling *Basic need *Comparison *Storage *Publicity *Direct *Discretion- *Deals *Retail *Signs *Telemmar- ary Store keting *Convenience *Coupons *Wholesale *Point-of- *Endorse- purchase ments *Fad *Credit *Repair *Special *Door-to- parts events door *Luxury *Layaway *Service *Word-of-mouth *Party plan *Packaging *Delivery *Repeat sales *Value *Installation *Selection *Warranty *Amount (size) When consumers think about using a product or service, they consider its advantages and disadvantages. In other words, they ask, What's in it for me? Therefore, it is not enough to define your product and its features; other questions must be answered. Think first of your perception of your product or service and then find out how your customers see it. Ask yourself questions such as:
This refers to the practice of charging high prices for the purpose of maximizing profit in the short run. It works best when
The real disadvantage of skimming is that it attracts competition. Your competitors will soon figure out what you are up to, and the high profit potential will encourage them to copy you. They may produce cheaper versions of your product or style, referred to as knockoffs in the market. Once you have meaningful competition on price, your skimming days are over and you run the risk of ending up with a warehouse full of products that cannot be sold at any price. The opposite of skimming is to introduce your product at such a low price that you will quickly gain a large share of the market. The purpose is to discourage competition. However, eventually you will have to raise your prices to start making some profit and, when you do, you will learn much about customer loyalty. A variation of penetration pricing is to buy your way into the market with free samples or heavy coupons, for example, 50 cents off on a 69-cent purchase. This tactic is usually used by big companies because it takes considerable financial backing and it may be six months or more before it starts to pay off. Small marketers can use it to the degree they know what they are doing and can control the process. Frequent follow-up is important to ensure samples are not going to professional collectors but are reaching potentially strong customers. This refers to promoting a few items at a sizable reduction to attract customers. The idea is that the increased traffic will result in greater sales of your regular-priced merchandise. The reductions have to be on recognized brands and items purchased frequently enough so customers know the prices and can recognize the savings. You must keep switching leader items -- people are not going to buy catsup four weeks in a row regardless of its price. The danger is that you may develop a following of cherry pickers who will breeze into your store, scoop up the specials and buy nothing else. You can increase the size of your individual sales by offering a meaningful discount for larger purchases. A liquor store usually will offer a discount or throw in a free bottle of wine when you buy a case. The same idea applies to the baker's dozen, a discount on a set of tires or selling beer and soft drinks by the pitcher. This is a good technique for building customer goodwill, but you will not see your customers as often. The trade-off, of course, is that you save time and money on containers and packaging, save time by writing up fewer sales and, perhaps, can make your delivery service more efficient by selling by the truckload. Variations are two-fors, six-packs, cheaper by the carton and bulk price. This is the practice of selling at prices set by your suppliers. It is convenient because many product lines are available prepackaged and prepriced. However, you lose flexibility and must live with a set percentage markup. (To combat this disadvantage, some suppliers offer two-for-three options using the retail price). Because suggested-retail or retail-price-maintenance plans are illegal in some states, the practice usually is a loser. Using a slightly different strategy, Panasonic published a minimum retail price list showing a higher average retail; some stores use such gimmicks as compare at or nationally advertised at to imply that the official price is at a certain point. The discount store usually offers lower prices as a trade-off for spartan interiors, lack of sales help and the efficiency of central checkouts. These stores typically work on a 35 to 38 percent markup compared to 42.5 to 45 percent for a department store. Since discount stores depend on the efficiency of greater volume to cover operating costs, they must maintain, or at least promote, good prices. This pricing is calculated by adding the costs of the product or service plus a flat fee or percentage as the margin of profit. During inflation, you must keep track of your costs to make sure that you are charging enough. In many business lines, owners have come to realize that when they replace their stock, the wholesale price has often risen above their retail price. If they do not raise prices rapidly enough, they are faced with diminishing inventories at a constant dollar investment or with having to invest more money to restock their shelves at the constant level. This refers to the practice of setting the retail price at double the cost figure, or a 100 percent markup. It is most common with jewelry items and in specialty shops, high-ticket fashion shops and department stores. Typically, the merchandise is subject to drastic clearance markdowns on items that are slow sellers or held past the season. This is the technique used by most retail stores of stocking merchandise in several different price ranges. A hardware store, for example, may carry hammers in good, better, and best categories at $3.49, $6.49 and $9.98, respectively, and a professional model at $17.95. The theory is that people buy products with different uses in mind and with different expectations for quality and length of useful life. If you do not carry a range of prices, you may lose the customers who cannot find the product at the right price. Price lining simplifies buying and inventory control because you buy only for the price levels that you know your customers will accept and eliminate those goods that fall outside the levels you want to carry. Here is where you copy or follow the prices set by your competition. Based on your service image, you can set your prices equal to, above or below those of your competition. This strategy requires constant vigilance by reading the ads and shopping your competition. It is a more passive technique because you're always following your competitors. Chances are your more aggressive competitor can make better purchases than you. A variation of this is the we-won't-be-undersold routine, where you offer to meet or beat the prices of all your competitors. Many manufacturers offer price discounts or dated billing as incentives to buy early. This is important to manufacturers because of production planning and the lead time necessary for ordering raw materials. For the retailer, the same principles apply; also, off-season specials may be a way to profit in business on a year-round basis. When you sell at a lower price to get the early sales, you may be borrowing from later full price sales. On the other hand, anyone who has tried to buy snow tires during the year's first snowstorm knows the extent of delivery problems. In this case, early sales at a lower price would have allowed the merchant to serve the customers better and to capture sales that may be lost due to limited service facilities. This refers to certain marketing situations in which the quality of the product or service is far more important than the price. If you need a kidney transplant, for example, you are not going to shop around and haggle over price. And even if you do press the doctor, he probably will quote you a range with a $5,000 spread rather than giving a specific number. The same is often true with high-ticket fashions and jewelry. Using the same psychology, expensive automobiles and boats are not sold on price. They may use a starting at or base price to get people interested, but the prices of the options are usually in very small print. The extreme of this attitude is that if you have to ask the price you probably cannot afford the item anyway. Where the product is located when the potential customer is exposed to a buying opportunity can often mean the difference between success or failure. The distribution plan for a given product may be determined by several of the factors listed below. Perishability -- Refrigeration or frozen storage requirements can severely restrict place options and raise operating expenses. Bulk -- A product requiring large display space, or one that is heavy, may restrict transportation options as well as display opportunities. Displayability -- Package design that prevents stacking on store shelves can severely restrict customer exposure. (Log Cabin syrup was originally packaged in slanted-roof metal containers. As supermarkets placed increased value on shelf space for customer selection, the inability to stack the log cabins forced a change in package design.)
Buying requirements -- If the item must be tried on to determine fit or if it must be demonstrated before the sale can be made, the place element is more restrictive than for a product that requires no package opening at the time of purchase. Impulse versus planned purchase -- Items displayed in a high-traffic area can increase unplanned purchases. Frequency of purchase -- Items purchased once a week usually require more outlets than those purchased once a year. Grocery stores, for example, always outnumber retail furniture outlets. Distance -- How far is the customer willing to travel to purchase your goods or services?
How the customer uses the product after purchase also can determine place characteristics. Do you need to train the customer to use your product or supply instructions or a repair parts list? Can you make more sales for service contracts, accessory items, consumable supplies, repair parts or companion items? For most small businesses, especially those involved in retail, finding the best location at the lowest price becomes an important consideration. You can draw customers to a poor location but the cost of advertising is often prohibitive. You should learn how much money you have to pay for the better location and see how that compares to the cost of drawing the same number of customers to the poorer location. Do not overlook parking, public transportation, quality of the neighborhood, sign restrictions, lighting, traffic flow and other factors that determine your store's convenience and safety. Perhaps the most versatile of the five marketing Ps is promotion. It covers all phases of communication between the seller and the potential customer. It is versatile because a change in budget, media or target audience can be made quickly. Promotions also can be effectively changed for specific market segment efforts. Major promotional concerns include the following. Because promotional costs can originate from several sources, it is vital to establish a written budget and closely monitor actual costs. The budgeting procedure is simplified if separate budgets are prepared for advertising and promotional activities. Sales goals in dollars, units or both are usually the basis for promotional budgets. Selling when the consumer wants to buy is a fundamental factor in the marketing concept. Promotional efforts, whether in-store or through mass media advertising, should be timed to coincide with maximum seasonal or cyclical demand.
All advertising and other promotional activities should be in tune with the firm's stated position in the marketplace. This suggests that not only advertising themes but also media selection must be based on building and strengthening that position. Product point -- Those features built into the product or service. Product points are usually highly touted in advertising messages, but they are relatively ineffective unless they are integrated with the second ingredient. Benefit -- The advantage a customer receives after purchasing the product. Your advertising should promise benefits and make those promises believable by naming the product points that will produce the benefits. For example, "You'll feel better about your family's safety (benefit) when they are riding on the new steel-belted radials from Armstrong -- thanks to the interwoven blankets of steel embedded deep in the tread (product point)." - Media -- Consider many types of media in your promotional campaigns. -- Newspapers -- Shoppers -- Television -- Radio -- Billboards -- Direct Mail -- Magazines Your business's success will depend on your ability to persuade others to take actions that will help them while also helping you. This is referred to as a win-win situation. Both parties in the transaction must receive a benefit in value or in satisfaction. There are many buying motives that may bring a customer to your business:
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