S20 Sales Promotion

Sales Promotion Session 20 MM2 Prof. Avinash Mulky

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Marketing in Action l

Something is in short supply or not available l

l

Existing product or service is not providing satisfaction to consumers l l

l

Make it available

Provide a better or cheaper product Provide it in a more convenient way

Introduce a new product or service

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The scope of Marketing

Creating

Market Segmentation

Target market selection

Positioning

Value Product Capturing

Place / Channel

Promotion

Pricing

value Sustaining

Customer acquisition

Customer retention

value Profits

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Mix

Value

Value =

Benefits obtained by customers Costs incurred by customers

= Functional + Emotional Benefits Money+ Time + Energy + Other costs

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Appealing to customers l l l

l

Increase benefits obtained by customers Reduce costs incurred by customers Increase benefits by more than increase in costs Reduce benefits by less than reduction in costs

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The Role of Price

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The Pricing Range Value Perceived Downward pressure from substitutes

Feasible Price Price

Upward pressure through marketing efforts

Premium Marginal Cost 0

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range

Comparison of Profit drivers

Price

Profit Driver

Profit

Old

New

Old

New

100

110

10 L

20 L

100 % Variable unit Cost

60

54

10 L

16 L

60% Sales Volume

1L

1.1 L

10 L

14 L

Fixed Costs

30 L

27 L

10 L

13 L

40% 30%

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Price and the customer Sales volume in lakh units

1.4 Price response curve 1

0.6

20

40

60

80

100

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140

Price in Rs.

Price and the customer Sales volume in lakh units Price response curve 1.4

1

Current Sale Optimal sales

0.6

20

40

Price in Rs. 60 80 100 140 (105) Optimal price Current Price

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Price customization: Coca Cola (330 ml can) price in Germany Point of sale

Price ( DM)

Index

Supermarket

0.64

100

Bakery

0.80

125

University ( Vending)

0.9

141

Petrol pump

1.20

188

Vending – Main Road

1.50

243

Airport

2.00

312

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Price customization: ATM usage charges Location of ATM

$ per transaction

Casino

2.33

Highway petrol pumps

1.50

Shopping malls

1.05

Convenience stores

0.88

Supermarkets

0.88

Universities

0.86

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The Role of multiple “ products”

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Airline: Mumbai to Delhi l l

200 seater aircraft Variable cost per passenger = Rs. 4000

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Airline Sales response curve Sales Volume Profit Potential ½ X 200 X 6000= 6 L

B 200

C

A 10000

4000 Price

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Pricing with a single price Sales Volume

200 Maximum Profit rectangle for a single price 100

Contribution = 100 X 3000= 3 L

4000

7000 Price

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10000

Pricing for Business and Economy classes Sales Volume Economy=2000 X 140= 2.8 L Business= 2500 X 40= 1.0 L TOTAL CONTRIBUTION= 3.8 L 200

( 26.7 % more than for a single price)

140

40

4000

6000

8500

Price

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10000

Pricing for new products Skimming l High short-term prices l To recover R&D and promotional expenses l Profits before obsolescence l Prestige connotation l Lower volume- less demands on capacity

Penetration l l l l l l

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High profit through fast sales growth Quick induction of trials Better utilization of capacity Deter new entrants Reduction of short term costs through volume Reduction of long term costs through scale