CHAPTER 14. Small Business Marketing: Price and Promotion

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CHAPTER 14 Small Business Marketing: Price and Promotion 2016 Cengage Learning.

2 Learning Objectives Identify the three main considerations in setting a price for a product Explain what breakeven analysis is and why it is important for pricing in a small business Present examples of customer-oriented and internal-oriented pricing Explain factors affecting small businesses getting paid Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 2

Figure 14.1 - Demand Curves 2016 Cengage Learning.

9 Customer Demand Factors influencing price elasticity Availability of product substitutes Necessity of the product Share of the purchase to the consumer s total budget 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 9

10 Costs Categories of cost Fixed costs Costs that do not change with the number of sales made Rent, property taxes Variable costs Costs that change in direct proportion to sales Sales commissions, labor 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 10

12 Breakeven Analysis Breakeven point (BEP): Point at which total costs equal total revenue and the business neither makes nor loses money BEP (units) = Total fixed costs Unit price - Average variable cost Average variable cost equals total variable cost divided by quantity BEP (dollars) = Total fixed costs 1 - Average variable costs Unit price 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 12

Figure 14.2 - Breakeven Analysis 2016 Cengage Learning.

Customer-Oriented Pricing Strategies 2016 Cengage

Types of Psychological Pricing 2016 Cengage Learning.

18 Internal-Oriented Pricing Strategies Cost-plus pricing Markup: Amount added to the cost of a product in setting the final price Formulas to calculate markup Selling price = Cost + markup Markup = Selling price - cost Cost = Selling price - markup Target-return pricing Setting price to produce a given rate of return Target return price = [(Fixed costs + target return) unit sales] + variable cost 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 18

21 Credit Policies Types of credit Consumer credit Credit extended to customers for the purchase of goods or services Trade credit Credit extended from one business to another for purchasing goods 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 21

Figure 14.4 - Show Me the Money 2016 Cengage Learning.

26 LO Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 26

28 Advertising Choices of media Print media Newspapers Magazines Direct mail Yellow pages Broadcast media Radio Television Computer billboards Outdoor media Billboards or posters placed on public and other transportation 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 28

30 Table Advertising Costs by Different Types of Businesses Source: Almanac of Business and Industrial Financial Ratios (2013) by Leo Troy. Published in 2013 by Aspen Publishers, Inc Cengage Learning. All Rights Reserved. May not be scanned, copied or 30

31 Advertising Testimonials Comparative messages Humor Common advertising strategies Slice-of-life messages Sensual or sexual messages Fantasy messages 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 31

32 Advertising Response tracking Split ads Measuring the effectiveness of advertising In-store opinions Telephone surveys Statement questionnaires 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 32

34 Advertising Professional advertising services Advertising agencies Media agencies Art and graphic design services Radio and TV studios, newspapers and, magazines 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 34

35 Personal Selling Personal presentation by a salesperson for the purpose of making sales and building relationships with customers Objectives Identify customer needs Match needs with products Illustrate the match between customers need and the product 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 35

37 Personal Selling Pre-approach Approach Questioning Demonstration Handling objections Closing the deal Suggestion selling and follow-up 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 37

Public Relations (PR) Involves promotional activities that build and sustain goodwill between a business and its stakeholders Publicity: Aspect of PR

38 Public Relations (PR) Involves promotional activities that build and sustain goodwill between a business and its stakeholders Publicity: Aspect of PR consisting of a message about the company communicated through the mass media 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or 38