Pricing and Discount Fundamentals

Pricing and Discount Fundamentals


Most often we get asked,  “What kind of offer should I do?”

Well, that is a big question. First, Understand the role of price. Price is the value exchanged for products in marketing transactions. Price is a key element in the marketing mix because it relates directly to the generation of total revenue. The profit factor can be determined mathematically by multiplying price by quantity sold to get total revenue and then subtracting total costs. Price is the marketing mix variable that usually can be adjusted quickly and easily to respond to changes in the external environment.

Identify the characteristics of price and non-price competition.

Price competition emphasizes price as the major product differential. Prices fluctuate frequently, and price competition among sellers is aggressive. Non-price competition emphasizes product differentiation through distinctive features, services, product quality, or other factors. Establish brand loyalty by using non-price competition.

Coupons and Cents-Off Offers.

Coupons reduce a product’s price and are used to prompt customers to try new or established products, increase sales volume quickly, attract repeat purchasers, or introduce new package sizes or features. Savings may be deducted from the purchase price or offered as cash. Research indicates that coupons are most effective when a small face-value coupon is used in conjunction with a lower product price available for all consumers. Coupons are the most widely used consumer sales promotion technique.

Refunds and Rebates.

With money refunds, consumers submit proof of purchase and are mailed a specific amount of money. Usually manufacturers demand multiple product purchases before consumers qualify for refunds. With rebates, the customer is sent a specified amount of money for making a single purchase. Money refunds, used primarily to promote trial use of a product, are relatively low in cost, they sometimes generate a low response rate and have limited impact on sales.

Frequent-User Incentives.

Do you have a “Sub Club Card” from Subway? Many businesses develop incentive programs to reward customers who engage in repeat business. Major airlines offer frequent-flier programs, coffee shops offer punch cards. Frequent-user incentives foster customer loyalty to a specific company or group of cooperating companies.

Point-of-Purchase Materials and Demonstrations.

Include outdoor signs, window displays, counter pieces, display racks, and self-service cartons. Innovations in P-O-P displays include sniff-teasers, samples, and may even play music! P-O-P displays give off a product’s aroma in the store as consumers walk within a radius of four feet, and computerized interactive displays.

Personal Selling and Sales Promotion.

Titleist provides logoed golf balls for firms that want to provide loyalty to a brand name. Items with company logos on them is a continual billboard of self advertising.

Free Samples and Premiums.

Marketers use free samples to stimulate trial of a product, increase sales volume in the early stages of a product’s life cycle, and obtain desirable distribution. Sampling is the most expensive sales promotion method because production and distribution—at local events, by mail or door-to-door delivery, on-line, in stores, and on packages—entail high costs.

Consumer Games, Contests, and Sweepstakes.

In consumer contests and games, individuals compete for prizes based on analytical or creative skills. Entrants in a consumer sweepstakes submit their names for inclusion in a drawing for prizes.

Trade Sales Promotion Methods.

To encourage resellers, especially retailers, to carry their products and to promote them effectively, producers use sales promotion methods. Trade sales promotion methods stimulate wholesalers and retailers to carry a producer’s products and market those products more aggressively.

Trade Allowances.

Many manufacturers offer trade allowances to encourage resellers to carry a product or stock more of it. One such trade allowance is a buying allowance, which is a temporary price reduction offered to resellers for purchasing specified quantities of a product.

Cooperative Advertising and Dealer Listings.

Cooperative advertising is an arrangement whereby a manufacturer agrees to pay a certain amount of a retailer’s media costs for advertising the manufacturer’s products.

Sales Contests.

A sales contest is designed to motivate distributors, retailers, and sales personnel by recognizing outstanding achievements.

Free Merchandise and Gifts.

Manufacturers sometimes offer free merchandise to resellers that purchase a stated quantity of products. Occasionally, free merchandise is used as payment for allowances provided through other sales promotion methods.

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