Unit 7: Promotion and Pricing
Product promotion, informing your target market of your products and services, is executed in several ways. The firm must decide on the appropriate mix of promotional messages to deliver to the customer, based upon the target market, combined with the resources of the firm. Pricing of the firm's offerings is determined by the firm's target segments and positioning strategy.
Completing this unit should take you approximately 3 hours.
Upon successful completion of this unit, you will be able to:
- explain the various means of product promotion, such as direct mail and TV advertising;
- determine the type of promotional methods that are best suited to the product, target markets, and positioning strategy of a firm;
- explain the various pricing methods, such as everyday low prices and penetration pricing, that firms can use for their products and services; and
- determine the pricing strategy, such as pricing for profit and increased sales, of various firms and industries.
7.1: Methods of Product and Service Promotion
Product and service promotion is key to effective marketing. Many people think that "marketing" is promotion. Informed students of marketing know differently. However, consider the impact of promotion on our daily lives. We wake up in the morning and listen to promotional messages on the radio and TV. We check our emails, use the internet, and receive promotional messages. We travel to work or school and see billboards along the way. We sometimes find ourselves humming tunes to promotional messages using music.
Marketers need to know that even though your offering (product or service) may be superior to all competing products, you cannot sell it if people do not know about it. Word of mouth referrals have worked for centuries and still work, but to a lesser extent than they did hundreds of years ago. Today we have a global economy with a hypercompetitive business environment. This requires the marketer to inform the consumer and prospective consumer about the product or service offering and the features, advantages, and benefits that the offering provides to the consumer.
Read this section for a brief overview of the types of promotion used by organizations.
7.1.1 Determining the Appropriate Promotion Strategy for the Firm's Offerings
There are several factors to consider when deciding on a promotional strategy for an offering. View some successful promotional messages throughout the past decades. Note the difference in push and pull promotional strategies and the difference between promotion to consumers compared to promotion to businesses.
7.1.2: Integrated Marketing Communications
Integrated marketing communications (IMC) came out of necessity a couple of decades ago. Large multinational firms that maintained many different advertising and sales departments found that their promotional messages were often lacking consistency and often disjointed in terms of conveying a message to their consumers. For example, a firm with separate departments for TV, radio, and print advertising could be faced with each department having their own agenda and creating messages that could potentially confuse the consumer. The term "integrated" became necessary for consistency of the promotional message across several media platforms.
Internet promotional marketing and the use of social media for promotion have become increasingly common in recent years. Remember that marketers must promote to consumers where their promotional messages will be received, read, and viewed. As consumers spend more time on their smartphones, tablets, and computers, marketers deliberately reach out to people where they are – on the internet.
This video shows an example of a plan for integrated marketing communications for a small business. Note that she discusses a promotional strategy, based upon objectives to be accomplished.
You read this article in Unit 3, but it might be helpful to review it in context of the impact on brand awareness using internet marketing tools.
7.2: Understand the Various Methods of Pricing
As consumers, we have observed various pricing methods while shopping for our own goods and services. As marketers we must develop a pricing strategy. The pricing strategy must address the objectives that we intend to accomplish. For example, are we interested in obtaining greater market share, or are we pricing for high profitability, or introducing a new product to attract consumers with an introductory low price?
Read these sections. You'll become familiar with the terminology used for different pricing methods as you read.
7.2.1: Explain and Calculate Break-Even Analysis
Break-even analysis, also referred to as cost, volume, profit analysis, is explained in the Principles of Marketing textbook in section 15.2, which you already read (feel free to go back and review!). This concept is important to marketing, but it is also important in understanding how a business works. All businesses have break-even points. It is useful to know that a break-even point is determined over a period, such as a year, quarter, a month, or a week. Marketing managers who stay on top of financials are better informed and can make better marketing decisions.
This video shows a break-even analysis graph and provides an explanation through an example.
This video explains break-even sensitivity analysis. This is useful because managers must adapt to changes in the real business world and consider what-if scenarios as they manage their business.
Most companies selling products and services sell more than one product or service. So, different prices, costs, and contribution margins apply to the products. These differences must be factored in to calculate a break-even point for a company selling multiple products, so a weighted average contribution margin must be calculated.
This video is a follow-up of the previous video, and it explains how to compute a breakeven point, using a weighted average contribution margin, for a company selling multiple products.
7.2.2: Explain and Calculate Demand Elasticity
Students who have taken a course in economics will understand the concepts of supply and demand. Furthermore, we know that the demand curve is an inverse curve that explains a consumer's demand (or willingness to pay, WTP) for a product or service. Therefore, the higher the price, the lower the willingness to pay, and vice versa.
Demand curves, although theoretical, hold for products and services. However, the slope or shape of the demand curve varies according to the product or service offered. We know, from economics, that the intersection of the demand and supply curves is called the equilibrium point. This is where the business is transacted.
Marketers generally do not talk about the equilibrium point or equilibrium price. Rather, marketers talk about the market price, or the price generally paid in the market for a good or service. The market price is like the equilibrium price, which can be observed by seeing what prices are actually paid for a good or service.
Review this brief video lecture from a professor on demand and supply. Understand that the market forces of consumer demand and suppliers of goods willing to supply goods and services are dynamic, not static. Therefore, the pricing of goods and services is subject to change when demand and supply conditions change.
Marketers face the challenge of determining what quantities of the offering would be demanded or purchased by lowering prices or increasing prices. This concerns the slope of the demand curve. A rather flat demand curve is called elastic, and a steep demand curve is called inelastic, which refers to the sensitivity or responsiveness of the quantity demanded by consumers due to price changes by the marketer. An elastic demand curve means that if the price is changed up or down, the demand or willingness to pay or buy would be greater than the price change. An inelastic demand curve means that consumers are more indifferent to changes in price; therefore, a change in price would not result in a significant change in the quantity demanded.
Marketers generally must make educated estimates or models of the demand elasticity for their goods and services. Changing prices up or down regularly would develop real data on demand elasticity, but it would create havoc with consumers and is therefore unrealistic.
This video lecture from the University of Massachusetts explains elasticity of demand. Note that marketers generally try to create inelastic demand curves by creating uniqueness in their offerings, where there are limited substitutes for their offerings.
Unit 7 Study Resources
This review video is an excellent way to review what you've learned so far and is presented by one of the professors who created the course.
Watch this as you work through the unit and prepare to take the final exam.
We also recommend that you review this Study Guide before taking the Unit 7 Assessment.
Unit 7 Assessment
- Receive a grade
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.