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Chapter 14: Promotion — Introduction to Integrated Marketing Communications

Chapter 14: Promotion — Introduction to Integrated Marketing Communications. Price. D 1. D 2. 0. Quantity. A. To be more inelastic. Promotion and the Demand Curve.

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Chapter 14: Promotion — Introduction to Integrated Marketing Communications

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  1. Chapter 14: Promotion — Introduction to Integrated Marketing Communications

  2. Price D1 D2 0 Quantity A. To be more inelastic Promotion and the Demand Curve Promotion efforts may be targeted to make demand for the firm’s products more inelastic and so more resistant to counter-moves by the competition. Exhibit 14-3A 14-5

  3. Price D D 0 Quantity B. to the right Promotion and the Demand Curve Promotion efforts may be targeted to increase the demand for the firm’s products. Exhibit 14-3B 14-6

  4. Price D D 0 Quantity C. Both to the right and more inelastic Promotion and the Demand Curve Promotion efforts may be targeted to both increase demand for the firm’s products and to make demand more inelastic Exhibit 14-3C 14-7

  5. Basic Promotion Methods Target Market Product Place Promotion Price Personal Selling Mass Selling Sales Promotion Advertising Publicity Exhibit 14-1 14-3

  6. Publicity • Is any unpaid form of nonpersonal presentation of ideas, goods or services (370) • Tries to communicate without paying media costs - IT IS NOT FREE! • Can have major impact on target if favorable reviews are given. • Sometimes publicity campaigns are costly • “News” to the media vehicle in question?

  7. Publicity • Planned or Unplanned • Favorable or Unfavorable

  8. Disadvantage of Publicity vs Ads • With ads – if you buy advertising you know the ad will run • With publicity, you may spend considerable $’s in advance and gain little or no favorable exposure

  9. Cost-Effectiveness of Publicity • After the fact the cost effectiveness of publicity can be determined by: • Monitoring media coverage • Comparing publicity cost to the cost of an equivalent amount of advertising • Value of Publicity = ($ value of media coverage) – publicity cost.

  10. Publicity Value Example • Company spends $25,000 on a publicity package aimed at gaining favorable product mentions and reviews in 5 magazines

  11. Before Publicity Campaign • MagazineCost of 1 AdPublicity Ran • A $30,000 ? • B $9,000 ? • C $10,000 ? • D $12,000 ? • E $5,000 ?

  12. After Publicity Campaign • MagazineCost of 1 AdPublicity Ran • A $30,000 No • B $9,000 Yes • C $10,000 No • D $12,000 Yes • E $5,000 Yes

  13. Publicity Value • Cost of Publicity = $25,000 • Dollar value of media coverage in the 5 magazines was $9,000 + $12,000 + $5,000 = $26,000 • Value of publicity = $26,000 - $25,000 = $1,000 • Publicity value can be negative • Never know value of publicity until AFTER you have run the campaign

  14. Sales Promotion Activities Aimed at final consumers or users Aimed at middlemen Aimed at company’s own sales force Contests Coupons Aisle displays Samples Trade shows Point-of-purchase materials Banners and streamers Trading stamps Sponsored events Price deals Promotion allowances Sales contests Calendars Gifts Trade Shows Meetings Catalogs Merchandising aids Contests Bonuses Meetings Portfolios Displays Sales aids Training materials Exhibit 14-2 14-4

  15. Producer’s Promotion Blend Personal Selling, Sales Promotion, Advertising, Publicity Wholesaler Promotion Push Wholesaler Promotion Push Promotion to Channel Members Retailer Promotion Push Promotion to Business Customers Promotion to Final Customers Business Customer Pull Final Consumer Pull Push-Pull Strategies Exhibit 14-8 14-13

  16. Promotion Objectives Adoption Process AIDA Model Attention Interest Desire Action Informing Persuading Reminding Awareness Interest Evaluation Trial Decision Confirmation { } } Promotion and the AIDA Model Exhibit 14-4 14-9

  17. Innovators (3-5%) Early Adopters (10-15%) Early Majority (34%) Late Majority (34%) Laggards/ Nonadopters (5-16%) 90 Percent Adoption 50 20 5 0 The Adoption Curve Exhibit 14-9 Time 14-14

  18. Source Encoding Message channel Decoding Receiver Noise Feedback The Traditional Communication Model Exhibit 14-5 14-10

  19. Direct Response Promotion • Def - direct communication between a seller and an individual customer using a promotion method other than face-to-face personal selling. • Started with catalogue & direct mail • You can directly measure short run sales effects. The techniques have been around for a long time. The big difference is the lower cost to use D.R. in a widespread manner to the final consumer.

  20. Direct response marketing • It is critical to relate the effects of promotion to: • a] measure the impact of your spending • b] weed out the “information hogs” • Retailers have used variations of this: • Product “Fan Clubs” recipe groups, Harley Clubs • Paid membership groups (book clubs, heavy user groups)

  21. Direct Response in mass marketing • Use mass media ads with a direct response component to get a data base of users or interested members of the target audience. • Examples: 1-800, fax, address, phone number, email, etc… • The mass media ads are used as a screen to identify: a] heavy users b] people ready to buy. • By using the better targeting, you can use more effective (and expensive) selling tools such as: phone calls, direct mail, videotapes, catalogues or personal sales calls

  22. Direct Marketing Example • It costs a spammer $70 to send 1,200,000 emails. Spammer sends out email promoting “Spam Blocker” software. For every order placed, the spammer makes $3.50. • If a 0.1% response rate is obtained, what is the profit/loss?

  23. Direct Response Example • [((.001)(1,200,000) x $3.5)] - $70 = • = $4,130

  24. Direct Response Example 2 • You sell “The Amazing Spud Whacker” (ASW) using late night TV infomercials. The ASW sells for $19.99 +$9 shipping and handling. The unit variable cost for ASW (including shipping and handling) is $5.00. You run the infomercial on 2 TV stations • Cost to run the infomercial is $9,000 on Station 1 and $12,000 on station 2

  25. Direct Response Example • Sales from Station 1 is 400 ASWs • Sales from Station 2 is 500 ASWs • What is the profit/loss for the direct marketing run on Station 1, Station 2, and for the overall company?

  26. Station 1 • Profit Station 1 = • (price – unit costs)(units sold station 1) – direct fixed costs of station 1 • = [(19.99 + 9.00) – ($5.00)]400 - $9,000 • = ($23.99 x 400) - $12,000 • = $596

  27. Station 2 • Profit Station 2 = [$23.99]500 - $12,000 • = -$5 • Overall Company • = [$23.99 x 900] - $9,000 - $12,000 • = $591

  28. Heavy User Club • Suppose a bookstore normally has a 20% gross margin on books. They start a “Romance Book Club” that costs a member $20 to join but provides: • A quarterly mailing • 10% discount on romance books • Cost to the firm is: • Cost of the data base (fixed cost with a small upkeep cost • Cost of the quarterly mailing (say $5 a year) • Cost of the discount

  29. Heavy User Club - 2 • For customer’s who buy very little, the firm profits! • $20 fee - $5 mailing = $15 gross margin • Customers who buy a lot, you may “lose” money • Say a customer buys $50 a month ($600 a year) • This is a gross margin with no club of • $600 x .20 = $120 • With club: • $600 x .1 = $60 + $15 (fee - mailing cost) = $75 • This is 62.5% of $120

  30. Direct Marketing Advantages • Heavy Users May Be Attracted & Retained • Promotion Efforts Can Be Better Targeted • Heavy Users Are Often Opinion Leaders • Profit of Direct Marketing Efforts Can Be Calculated: • Overall • By Individual Customer • Hard To Calculate Profitability of Mass Advertising Campaigns

  31. Percentage of Sales ???? ???? ???? ???? ???? Match Competitors Per Unit Uncommitted Resources Task Method Setting the Promotion Budget 14-15

  32. Ad Budgeting by % of Sales • Commonly Used Method • Ex: Your firm had $15 million in sales last year. You use 6% of sales as your budget. What is your ad budget next year?

  33. % of Sales Example • $15 million x 6% = $900,000. • Problems with % of Sales • a] Does not relate to actual budget needs • b] Tend to overspend in good times and underspend in bad economic times • Note, method gives total budget, not an allocation to specific media.

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