Chapter 14: Promoting Products

Outline

Introduction

A. The Learning Goals of this chapter are to:

1. Explain how promotion can benefit firms.

2. Describe how advertising is used.

3. Describe the steps involved in personal selling.

4. Describe the sales promotion methods that are used.

5. Describe how firms can use public relations to promote products.

6. Explain how firms select the optimal mix of promotions to use.

B. This chapter provides a background on promotional strategies businesses use to increase the value of the firm.

I. Background on Promotion

A. Promotion is the act of informing or reminding consumers about a specific good or service.

B. Promotion Mix: the promotion mix is the combination of methods that a firm uses to increase the acceptance of its products in the marketplace. The four methods of promotion are (1) advertising, (2) personal selling, (3) sales promotion, and (4) public relations.

II. Advertising

A. Advertising is a paid, nonpersonal sales presentation communicated through various media or nonmedia forms to influence a large number of consumers. Exhibit 14.1 illustrates the allocation of advertising expenditures by media and nonmedia components.

B. Reasons for Advertising

1. The purpose of brand advertising is to enhance the image of a specific brand.

2. Comparative advertising is intended to demonstrate a brand’s superiority by comparison to other competing brands.

3. During the maturity stage of the product life cycle, firms employ reminder advertising to help consumers remember the product’s existence.

4. Institutional advertising is intended to enhance the image of a specific institution. Utility firms often employ this type of advertising.

1

5. Industry advertising is designed to enhance the image of a specific industry. Industry associations advertise their respective products in an effort to increase the demand for these products.

C. Forms of advertising are summarized in Exhibit 14.2.

1. Newspapers account for 23 percent of advertising expenditures.

2. Magazines can reach large national markets or selected special interest groups.

3. Radio lacks a visual effect, but it can be used effectively to reach a particular target market.

4. Television accounts for 22 percent of advertising expenditures. One of the faster-growing forms of television advertising is the use of infomercials. An infomercial is a TV program that is devoted exclusively to the promotion of the goods and services of a specific firm.

5. The Internet has become a popular means of advertising. Well over $1 billion is now spent on Internet advertising each year. Banner ads appear at the top of a web page. Button ads take the viewer to the website of the firm that placed the ad if the viewer clicks on the ad.

6. Many firms now send promotional e-mail messages to their customers; some e-mail promotions are personalized to fit customer interests whereas others are general and apply to all customers on a firm’s e-mail list.

7. Direct mail is the best advertising medium to reach a specific target market. Recent increases in the price of paper and postage have caused direct mail to become more expensive.

8. Telemarketing utilizes the telephone for promoting and selling products and services.

9. Outdoor ads have high visibility for those driving by the billboards and signs. The ad message, however, is limited and there is very little selectivity of the audience.

10. Transportation ads are similar to outdoor ads, but these are mobile as they are mounted on buses and taxi cabs.

11. Specialty ads include other forms of nonmedia advertising such as T-shirts, hats, and bumper stickers. Ask your students to look at their classmates’ wardrobes for examples of this type of advertising.

III. Personal Selling

A. Personal selling is a personal sales presentation that is used to influence one or more consumers. The steps involved in personal selling are summarized in Exhibit 14.3.

B. An efficient salesperson will first identify the target market by determining the type of consumers who may be interested in the product.

2

C. Once the target audience has been identified, the next step is to contact potential customers.

D. When meeting with the potential customer, the salesperson will make a sales presentation. This presentation will focus on how the product or service can satisfy customer needs.

E. During and after the sales presentation, the salesperson should be prepared to answer questions.

F. The desired wrap-up to a sales presentation is to close the sale while the product’s advantages are fresh in the minds of potential customers.

G. A key to long-term success in sales is to follow up with purchasers after the sale is made. This effort increases the credibility of the salespeople and opens the door for additional business.

H. For many salespeople, the goal is to manage others and to become a sales manager.

IV. Sales Promotion

A. Sales promotion is the set of activities that is intended to influence consumers to buy a particular good or service. A summary of sales promotion strategies is provided in Exhibit 14.4.

B. A rebate is a potential refund by the manufacturer directly to the consumer.

C. Coupons are used in newspapers, magazines, and ads to encourage the purchase of a product. Coupons are often used to strengthen consumers’ inclination to repeat the purchase of a particular brand.

D. Sampling is the act of offering free samples to entice consumers to try a new brand or product. This is often done with the intent of luring customers away from competing products. Once the consumer has sampled the product, it is hoped a brand loyalty will develop, a situation where consumers faithfully purchase a specific brand over time.

E. Many stores create special point-of-purchase displays to promote particular products.

F. A premium is a gift or prize provided free to consumers who purchase a specific product. Premiums offer an extra incentive to purchase a product.

V. Public Relations

A. Public relations are actions taken to evaluate public attitudes and develop a strategy to create or maintain a favorable public image. The most common types of public relations strategies are special events, news releases, and press conferences.

B. Firms may sponsor special events to develop community good-will and increase brand name awareness.

C. News releases are brief written announcements provided by the firm to the media.

3

D. Press conferences, like news releases, provide information to the media regarding the firm. A press conference, however, is an oral announcement that can be used to enhance the firm’s image or to minimize the adverse effects of damaging rumors.

VI. Determining the Optimal Promotion Mix

A. Exhibit 14.5 provides a brief summary of the methods of the promotion mix. Firms need to consider the characteristics of their target market when determining the most effective promotion mix. Marketing research can enhance the promotion decisions by determining the types of promotions that are favorably received by the target market.

1. One promotional technique is a pull strategy that directs a firm’s promotional efforts specifically at the target market. The intended target market then may request the product from the retailers, who likewise may order the product from their wholesalers. The product is pulled, by consumer demand, through the distribution channel.

2. Some producers, however, will utilize a push strategy in which they direct their promotion at the wholesale or retail level, rather than the target consumer. The wholesalers and retailers will then promote the product to the target consumer. In this strategy, the product is pushed through the channel of distribution by the wholesalers to the target consumer. Exhibit 14.6 summarizes the differences between a push strategy and a pull strategy.

B. Another factor that influences the optimal promotion mix is the size of the promotion budget. This budget represents the amount of funds that have been set aside to pay for all the promotion efforts over a specified period of time. The size of the promotion budget is influenced by the following:

1. The phase of the product life cycle affects the amount of promotion dollars a firm will spend. Exhibit 14.7 shows how the budget varies over the product life cycle.

2. The level of advertising used by the competition will influence how much a firm will spend on advertising in an effort to retain existing market share.

3. Different firms will respond in different ways to changes in economic conditions. The nature of the product and the target market will determine what the appropriate promotional strategy will be during the different phases of the business cycle.

C. Evaluating the Effects of Promotion: While the costs of a proposed promotion can be accurately estimated, the benefits are somewhat uncertain. Promotional programs should establish goals, which then can be used to measure the success of the promotional efforts.

4

Solutions to End-of-Chapter Materials

Answers to Review & Critical Thinking Questions

(1) How can promotion be used when introducing a new product?

The purpose of promotion is to increase the demand for a good or service. Promotion is used to inform potential consumers of the benefits of a newly available product. Customers must be made aware of the product and its benefits. Later in the introductory stage, promotion can also remind reluctant consumers that the product exists. Consumers who are slow to purchase the product can be reminded about the product’s qualities and advantages over competing products. Promotion can also offer special incentives for consumers to purchase a specific product. Finally, promotion can also be used on a long-term basis in order to protect a product’s image and retain its market share.

(2) What is the promotion mix? List and briefly describe the four methods of promotion.

The promotion mix is the combination of promotion methods that a firm uses to increase the acceptance of its products. The four methods of promotion are (1) advertising, (2) personal selling, (3) sales promotion, and (4) public relations. Advertising is a nonpersonal sales presentation communicated through one or more forms of media to influence a large number of consumers. Personal selling is a personal sales presentation used to influence one or more consumers. Sales promotion is a set of short-term activities, such as displays, that are intended to influence consumers. Public relations is the relationship with the public, which can be used to influence consumers. This is a nonpaid form of advertising.

(3) You are planning to start a florist business in your hometown. Would you use media advertising, nonmedia advertising or both? Why?

Both types can be effective. Media advertising includes newspapers, magazines, radio, and television. Since this is a hometown business, you need to advertise locally to reach your target customer base. Localized advertising can be accomplished with newspapers, local radio stations, and local television stations. Newspaper ads offer a relatively quick and low-cost way to reach the market with the florist’s promotional message. Nonmedia advertising would include direct mail, telemarketing, computer online services, outdoor advertising, transportation advertising, and specialty advertising. Any of the nonmedia services would be suitable to use in this situation.

Probably the most important promotion mix component would be word-of-mouth advertising. With word-of-mouth advertising, the reputation of the florist is circulated in the market by satisfied (hopefully) customers.

5

(2) Why do you think newspaper publishers use telemarketing to develop a customer base?

Telemarketing is often performed on a local level where the telephone is utilized to promote and sell goods and services to businesses in the market. Newspaper publishers have used telemarketing to attract new subscribers. Newspaper publishers use telemarketing because it is an efficient and effective method of attracting new subscribers.

(3) Briefly summarize the steps involved in personal selling.

The steps involved in personal selling are:Identify the target market – an efficient salesperson will first determine the type of consumers interested in the product. Contact potential customers – this can be accomplished by phone, mail, or in person. Customers should be provided with a brief summary of what the firm can offer them.Makes sales presentation – this can range from demonstrating how a printing press is used to explaining the benefits of an insurance policy.Answer questions – salespeople should anticipate common questions and prepare responses to them.Close the sale – salespeople may offer some incentive to purchase immediately, such as a discounted price, since the product’s advantages are in the minds of potential customers at that point.Follow up – this increases the credibility of salespeople and encourages existing customers to call again when they need additional products.

(4) Discuss the types of sales promotion strategies that a donut shop would most likely utilize.

A donut shop could use rebates, coupons, sampling, displays, and premiums in its sales promotion strategies. Coupons are used in newspapers, magazines, or ads to encourage the purchase of a product. Free samples could encourage consumers to try a new type of donut. Special displays could be created to promote particular products. The displays may be used to attract consumers who are in the store for other reasons. A premium (gift) could be provided to frequent customers or consumers who purchase a large amount of donuts.

(5) Define public relations and explain the role it would play in the law enforcement department of a major city.

Public relations is an inexpensive method of enhancing the image of a firm or its products. It may also be used to clarify information in response to adverse publicity. Public relations departments can provide information about the efforts of the law enforcement department in providing services to the public. Police departments typically use the media to relay information to the public and solicit public support. The most common types of public relations strategies are special events, new releases, and press conferences.

6

Public relations can play an important role in the law enforcement department. The public relations department is responsible for informing the public of special events that may be sponsored by the law enforcement department, such as bike-a-thons or walk-a-thons, but most of all of its role is to promote the law enforcement department in a positive light.

(6) Compare the pull strategy with the push strategy associated with promotion.

The pull strategy is used when firms direct their promotion directly at the target market and provide information to the consumers who would most likely purchase the products. Consumers then become aware of the product without hearing about it from the retailer. They then request the product from the retailers, who in turn request it from wholesalers or producers. It is called the pull strategy because the product was pulled through the distribution channel as a result of consumer demand.

The push strategy differs in that producers direct their promotion messages at wholesalers or retailers instead of their target market consumer. Wholesalers then promote the product to retailers, who in turn promote it to consumers. It is called the push strategy because the product is pushed through the channel distribution.

(7) Discuss the different types of promotion that would be utilized throughout the product life cycle for a product or service.

Products that are just being introduced to the market will require more promotions to inform customers of the benefits of the product or service. Products or services in the growth phase are promoted to inform, persuade, and remind customers. A moderate amount of promotion is used to penetrate the market. When products or services are in the maturity or decline phases of the life cycle, they may not require as much promotion; however, they may still need some promotion to remind customers and retain their market share.

(8) How do economic conditions affect a firm’s promotion budget?

A promotion budget is the amount of funds that have been set aside to pay for all promotion methods over a specified period. The budget may be large if the firm believes that promotion will have a major effect on sales, or is necessary to prevent a substantial decline in sales. If the promotion budget is small, advertising on television or in widely distributed magazines may not be possible. The firm may then have to rely on inexpensive advertising (such as local newspapers) and inexpensive sales promotions (such as displays). The size and message of the promotional budget are dependent on macroeconomic conditions. If the economy is expanding, consumer incomes and spending will increase. Promotional messages will inform and remind relatively prosperous consumers of the firm’s products. A potential downside of this expanding economy is rising inflation rates and possibly increasing interest rates. On the other hand, when the economy enters a contraction, unemployment will increase. Promotional budgets and messages will be changed to reflect the uncertainty prevalent in many households regarding jobs and income. One benefit of a slowing economy is a potential

7

decrease in interest rates. Promotional messages will focus on the value of the product to consumers with relatively less disposable income.

(9) What are the skills a good sales manager should possess?

A sales manager should have knowledge of the product and the competition. In addition, they must be able to motivate their representatives to sell. They must also be able to resolve customer complaints on the service provided by representatives and reprimand representatives when necessary.

(12) Consider a television ad for toothpaste that claims that a particular brand outperforms rival toothpastes in preventing cavities. What kind of advertising is being used?

Comparative advertising, because the brand’s superiority over other products is being used to convince consumers to buy the products. (13) Assume that you are the sales manager of a neighborhood grocery store. What

form of advertising would likely work best for your store?A newspaper ad in a local newspaper.

(14) Why might an advertising strategy that uses e-mail to reach customers fail?People are likely to view the e-mail as spam and delete it.

(15) Assume that you are the sales representative for a candy company. How might you use sampling as a promotional strategy?

You could distribute samples of the candy to customers by setting up a table in a local grocery store, allowing people to try the product and decide to purchase it even if they were not planning to buy it before sampling it.

(16) McDonald’s provides a free toy for children with every Happy Meal purchase. What kind of sales promotion strategy is McDonald’s using?

Giving away a gift free to customers is an example of a premium.

(17) The sales manager of a firm decides to contribute to a walk to raise money for breast cancer research. What kind of public relations effort is the firm using?

The firm is using a special events strategy to market its corporate image.

(18) Why might infomercials be effective? Why might they not be effective?Infomercials might be effective if they inform the customer about the product and increase demand for the product in doing so. They might not be effective if the infomercial is too long to hold the customer’s attention. (19) Why might firms review the promotion budget after a particular promotion

strategy has been put in place?They want to make sure their promotion efforts are worth the cost.

8

(20) Why might telemarketing fail as a marketing strategy?Potential customers may be irritated by unsolicited phone calls.

Answers to Discussion Questions

(1) As a sales manager in a new automobile dealership, what role would you play in the company and what would your responsibilities be?

The normal role of the sales manager would be to manage a group of salespeople in the auto dealership. Sales managers require some of the same skills as salespeople. They need to have knowledge of the product and the competition. They must be able to motivate their staff to sell. They must be able to resolve customer complaints on the service provided by the salespeople and reprimand the staff when necessary.

They must be able to establish objectives for the sales force to strive to achieve. An effective sales manager must be able to plan and set forth work schedules, conduct meetings, and coordinate activities throughout their department.

(2) You are the owner of a minimart convenience store. What process could you utilize to identify your target market?

The owner should use marketing research to identify the market. Methods to employ include surveys to potential customers, interviews of potential customers, and brochures sent to various residents.

This information will indicate what type of customers will be attracted to the operation. The owner could develop core markets the store could serve. The final step would be the development of a marketing plan to generate a maximum sales effort by the owner.

(3) You are a salesperson in an office supply business. Why is it important to be persistent and utilize follow-up visits with your customers?

The use of follow-up visits in personal selling is intended to increase the credibility of salespeople and strengthen the relationships with existing customers. The intended result is to increase sales to existing customers and create initial sales with new customers. Salespeople will follow up on potential customers who did not purchase the product after an initial sales presentation. These potential customers may experience budget changes or new needs and become more interested in purchasing the salespersons’ product over time.

(4) Identify and explain the different types of promotion methods in the following examples:

a. Tiger Woods plays golf wearing Nike apparel. The promotional method is advertising. This golf star is personally endorsing this brand name while playing the sport. This is a strong method of promotion because Tiger is a leader in this type of environment.

b. A local supermarket introduces a scratch-and-win ticket.

9

The promotional method is sales promotion. This form of promotion is to attract customers to the store. The objective of the ticket is for everyone to participate and keep customers coming back to the store.

c. Assume that you are a college graduate. Your local college telephones, asking you to make a donation for its capital funding program. This promotional method is one of personal selling. The sales presentation should emphasize how the money will be used in this drive. The promotion asks for your participation to permit your college to grow.

(5) How can a firm use the Internet to identify its target market? How can it use the Internet to promote its products?

Answers to this question may vary. Nevertheless, a firm could use the Internet to identify its target market by visiting its competitors’ websites and determining to whom its competitors sell on the Internet. It could also use the Internet to gather information about its industry and thereby identify the likely target market. It could use the Internet to promote its products by directly selling its products via its website. Furthermore, it could provide information, in the form of pictures and text, about the products it sells. A firm could also allow rebates for customers purchasing items through its website. (6) Discuss the promotion strategies that would be utilized by a

manufacturer in promoting the following brands. Indicate whether the strategy focuses on product position or image building.

a. Corvette convertible.Corvette uses image building in promoting this automobile as high performance with style to the upwardly mobile individual. Professionals who want to maintain some of the vitality of their youth own this product, and they appreciate the fact that it is American made. Corvettes are world-class cars that maintain their value. Many perceive this car as an investment. Ads generally emphasize product quality and performance.

b. Dove facial soap.Dove positions its product as a superior brand that is soft and promoted to be one-quarter cleansing cream. Advertising depicts this soap as gentle enough to cleanse the face. Most people perceive white doves as gentle birds and connect them with the brand itself. The product features a fresh fragrance, and the pricing strategy is one of skimming (premium pricing) to position this product away from the competition.

c. Craftsman tools.Craftsman tools would develop a product position strategy. This product offers good value, denoting quality of products at a satisfactory price. This product offers a lifetime guarantee. The advertising features a middle-income person relying upon a quality tool for a do-it-yourself-type project within the home.

d. Mountain Dew soft drink.This product is using image building because its ads feature people having fun, doing exciting things, and being daring. People that consume this product are outgoing, aggressive and seek outdoor fun type activities.

10

(7) Think of a recent television ad that you recently saw. Which ad comes to mind first? Was the ad effective? Did it make you want to buy the product being advertised?

Answer will vary by person.

(8) Assume that you are the manger of a company that sells books that can be downloaded from the Internet. Why is it important for your company to have a high ranking in search engines? What impact will higher visibility have on the firm? Would it be difficult to get a high search engine ranking for a company that sells e-books?

You must get a high ranking in search engines so that potential customers can find your goods or services. If you have a low ranking, customers will not be able to locate your website. It may be difficult to get a high search engine ranking for e-books if there is a great deal of competition for e-books or published books for the subject of the e-book, because they might show up higher in the search engine ranking. (9) What are some ways for companies to use public relations to promote their stock

to investors? How can firms use the Internet and television ads to reach people who might be potential investors?

Public relations can be used by sponsoring events or educating the public about information tied to the product. Firms can target web sites or television shows that fit the profile of their customers when advertising.

(10) Assume you are the marketing manager of a chewing gum producer. How can you use marketing research to identify the most effective advertising strategy? How can you use surveys to generate information on customer perception of the product?

One way for managers to identify the most effective advertising strategy is to try several marketing strategies such as distributing gum on college campuses, improving placement in stores, and commercials. Surveys could also be taken at the time that the gum is distributed for free.

It’s Your Decision: Promotion Decisions at CHC

(1) How could Sue Kramer, the president of CHC, use direct-mail advertising to focus specifically on CHC’s target market?

Sue could obtain a mailing list of students from the college student directory and mail a brochure to each student.

(2) How could Sue use personal selling to promote CHC?She could make a special presentation to students on campus or at the health club.

(3) How could Sue use premiums to promote CHC? She could offer a small gift to students who become members of the health club, such as a free jar of vitamin supplements.

11

(4) If Sue is planning a major promotion strategy that would attract additional members, why must she first consider the size of CHC’s facilities?She must ensure that CHC has enough capacity to accommodate many more members if it decides on a new promotion strategy.

(5) Recall that Sue expects total expenses of $142,000 in CHC’s first year. She will set the membership fee at $500 and expects to attract 300 members in the first year. Sue is considering a promotion involving coupons inserted in the school newspaper. Determine CHC’s earnings based on the following coupon strategies over the first year:

If CHC provides a membership discount coupon of:

The expected number of memberships would be:

CHC’s earnings before taxes in the first year would be:

$5 302$10 303$20 310$30 320

Which discount coupon strategy would you use? Explain.

If CHC provides a membership discount coupon of:

The expected number of memberships would be:

CHC’s earnings before taxes in the first year would be:

$5 302 $7,490$10 303 $6,470$20 310 $6,800$30 320 $8,400

The discount coupon of $30 results in the highest revenue and the highest earnings for CHC.

(6) A health club differs from manufacturing firms in that it produces a service rather than products. Explain why the promotion policy of a service firm (such as CHC) is different from that of a manufacturing firm.

A service firm focuses on providing services directly to customers near or at its facilities. Therefore, its promotions are local. A manufacturing firm may have a target market that is far from its facilities, or even throughout the U.S. or in foreign countries. Therefore, it may consider promotions such as national television ads that reach the entire U.S. market or foreign markets.

12

Case: Promoting Products on the Internet

(1) What types of websites should Ken use to advertise his tennis DVD?He should consider websites focused on tennis or sports in general.

(2) Ken plans to advertise initially on five different websites. He may continue ads on those websites that generate the most sales of his DVDs. How can Ken determine which of his ads on the Internet are receiving the most attention?

The order form can ask the customers where they learned about his DVD. The websites may also be able to tell how many hits each ad received (how many times a viewer of the website clicked on the ad to get more information).

(3) Ken is trying to decide whether the promotion on the website should provide an order form for customers to send in. This method would be relatively inexpensive. Alternatively, he could allow customers to order the DVD over the Internet. This method is more expensive. Is there any benefit to allowing customers to order the DVD over the Internet using a credit card?

Ordering over the Internet is more convenient than sending an order form by mail. Some extra sales might occur because of the extra convenience. The potential increase in revenue from this method must be compared with the extra cost of providing such a system for customers.

Video Case: Distribution Promotion Decisions at Oxygen

(1) Why does Oxygen’s management argue that the company has to make sure it is communicating consistently across divisions?

Management needs to have a consistent message regarding its brand identity so that the company could more effectively market its products. It focuses on a hardcore feminist brand but is man friendly.

(2) How did Oxygen determine the market of women?Oxygen surveyed women to find out what their interests were and what was going on in their lives.

(3) How does Oxygen relate to women?Oxygen holds community and advocacy events and surveys women about what kinds of television they are most interested in. The objective is to establish a personality for the brand. Oxygen also gave away donated Proctor and Gamble products to women in local markets, to generate interest in Oxygen, and so the consumers would pressure cable companies to add Oxygen programming.

(4) How does Oxygen use the Internet to promote its brand? Oxygen is an internetwork. Its DNA is TV, and it has to be multimedia.

(5) Why did women respond positively to the Superbowl ad campaign?

13

Most ads focus on male viewers, and Oxygen was the only one that focused on women, so the focus on women was very well received.

(6) How did Oxygen’s strategy to get cable coverage differ from the strategy used by other networks?

Most companies pay to get on cable operator’s radar screens and to carry the network, which is critical. Oxygen utilized a push strategy, which pursued consumers in order to ask cable operators to carry the Oxygen brand.

Dell’s Secret to Success

(1) Search for any comments that Dell makes about the promotion of its products. Describe Dell’s marketing.

Dell can maintain its costs at a low level by limiting its marketing expenses.

(2) Notice that Dell normally does not focus its annual report on marketing. Dell does not advertise its products excessively. Dell appears to be focused on demonstrating quality rather than promoting itself. Does this strategy make sense?

Yes. Also, if it uses more funds in the production and service, it can achieve high quality and the products will sell themselves.

(3) Would Dell’s marketing strategy be effective for a new firm?A new firm may have to rely more on marketing just to attract customers, at least until it establishes name recognition.

Answers to End of Part V

DEVELOPING THE MARKETING PLAN FOR CAMPUS.COM

Product Line and Target Market (related to Chapter 12)

In your business plan for Campus.com, suggest how the firm could expand its product line. That is, what other services could it offer to its customers while still continuing its main type of business? How could it expand its target market? Campus.com could also target junior college students who may be considering a transfer to four-year colleges. It could also consider targeting existing college students who plan to pursue a master’s degree at another college. However, the type of information about college lifestyles may differ for these customers, because they are older and may be interested in different information than high school students who are about to start college.

14

Pricing (related to Chapter 12)

Campus.com will charge a price per standard service offered (information on one college). What factors should be considered when determining the price to be charged? The initial idea was to charge $1 per request (for information about one college provided to one customer). In your business plan for Campus.com, state your plans for pricing the service. You do not need to use the pricing of $1 per request if you think you have a better pricing policy. If you plan to offer some type of quantity discount, specify that within your business plan. Factors that affect pricing include the amount that high school students and their parents would be willing to pay and the cost of providing the service. At relatively high prices, the revenue per unit is high. However, at a low price, the demand may be very strong, which allows more total revenue. In addition, the expenses do not change much because most of them are fixed. Thus, a low price may be appropriate here.

A quantity discount may be worth considering, since some customers may be more willing to purchase information about several colleges if there is a quantity discount. For example, you could allow one free request for customers who pay for information on five colleges.

Distribution (related to Chapter 13)

In your business plan, explain how Campus.com distributes its service. If some customers cannot obtain a hard copy of the information (if their printer is not working), how will Campus.com distribute its services to them?Campus.com can distribute its service directly to the customer’s computer screen. Customers can print out a copy from their own computer.

Campus.com can send the information requested by mail if the customers cannot print the information.

Promotion (related to Chapter 14)

In your business plan for Campus.com, explain how the firm should advertise its services. Should it focus on high school students, on the parents of the high school students, or on both target markets? Explain. Where should Campus.com advertise its services, assuming it wants to limit its advertising expenditures?It should advertise to both markets. The parents are interested in the lifestyle of a college campus because they are concerned about the environment in which their children may live.

Campus.com could advertise on the websites that appeal to high school students and on the websites that appeal to the parents of those students. Examples of popular websites for high school students are information websites that they use for their high school homework.

15

Integrative Video Strategy: Pricing Strategy at World Gym

(1) How did World Gym originally market its products to potential gym customers?World Gym originally used pricing strategy to attract the common person who would be attracted to a medium-priced fitness facility.

(2) How has World Gym used its pricing strategy to lure customers from competing fitness facilities?

World Gym lowered prices in response to competition by Gold’s Gym and other competitors.

(3) How has World Gym responded to competition and changes in the market environment?

Worlds Gym uses pricing strategy to respond to competition and changes in the market environment. It also has expanded into new geographic markets in foreign countries.

(4) How does World Gym use the Internet to promote its services?Worlds Gym has a website that explains in detail what the fitness facilities contain, as well as a gym locator and other information about membership.

Integrative Video Case: Product and Distribution Strategies (NoUVIR)

(1) Explain how the number of NoUVIR’s patents can affect its production decisions.Patents dictate the type and amount of production. Patents specifically protect a production process of product. Consequently, only the patented products or processes are protected. Furthermore, a large number of patents on a product or process limits the competition. Therefore, NoUVIR could manufacture a large quantity of its products (such as the projector) and maintain a large inventory without fear of a competing product which may reduce their sales.

(2) What do you think is NoUVIR’s key marketing decision? Does it involve the creation of a product, the distribution of a product, the promotion of a product, or all of the above? Explain.

Student answers may vary. However, NoUVIR’s key marketing decision is about the creation of a product. The company saw a consumer need in gentler lightning and developed the product as a result. The time to develop the product from the idea was three and a half years. One of the reasons the product took so long to develop was to circumvent old theories about how light works. Now, however, NoUVIR must also consider their sales cycle, which may take about a year from conducting a seminar until a resulting sale is made; this aspect of NoUVIR relates to product distribution.

(3) Discuss NoUVIR’s patents. Why does it have multiple patents? How do you think these patents affect the company’s profitability?

16

NoUVIR has sixteen patents on its products. One patent on a product or process may not be sufficient because of patent infringement. If there is only one patent, the chances are increased that a court will not uphold a patent. Furthermore, a company may not have sufficient funds to defend a patent. If there are multiple patents, the chances that someone will try to infringe on the patent are minimized.

 Patents protect NoUVIR’s unique product. Consequently, the company has a time-limited monopoly on the production of that particular product. Since NoUVIR is the only company that can sell this product, its profitability will be favorably affected.

17