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CHAPTER 7 Price-oriented promotions - increase price sensitivity.

Price Promotion - a broader sense, coupons, trial Managing Vagueness


offers trade deals, promotions sales, promotional
discounts, promotional bundles, rebates, and specially Price Promotions - Improve Profits but excessiveness
marked packages can all be treated as price promotions can have negative impact on profits.

Positive Effects of Price Promotions Price Promotion Design

-Can enable price segmentation effectively, thus both Targeted - Price Promotion are better at price
increasing the reachable market and potentially enabling segmentation than more-diffuse price segmentations.
an overall increase of the list price to capture higher
Temporary - Price promotions should be temporary and
prices from those with a higher willingness to pay
time dependent.
Price Segmentation - we have that price segmentation
Special - When possible, price promotions should e
can improve profitability by enabling the firm to charge a
positioned as special, such as related to a unique event
higher price to those with a higher willingness to pay,
or a reward to a specific customer group
and increase volume of product sold by charging a lower
price to those with a lower willingness to pay Irregular - In keeping the desire to avoid resetting price
expectations, some manufacturers have turned to using
Market Size and Share - Market size increase and
irregular price promotions and it is found in timing.
brand switching. For the retailers, increase sales come
not only from those related to the promoted product, but Examination of Popular Forms of Price Promotion
also from other products at the store, specially
complementary products. Coupon - Manufacturer coupons can appear on product
packages, in direct mail, in newspaper cut-outs on
Negative Effect of Price Promotions websites and within email
-In the long run, sales promotions could negatively Trial Offers - Trial offers are simple price promotions
influence the perceived brand quality because lower that the seller uses to induce trial of its product. It is
priced products are associated with having less quality. made in the form of free samples, small packages priced
significantly lower price point or leased services
Imperfect Segmentation Hedge
Rebates - Rebates provide a monetary incentive to
Promotional design has a significant impact on the
purchase, like others forms of price promotion. They
ability of a price promotion to discriminate between
provide advantages in their ability to be highly targeted
those with a higher willingness to pay and those with
in the type of customers who redeem rebates.
lower willingness to pay, as we will see in future
sections. Promotional Bundles - Firms can use promotional
bundles to disguise price promotions. Like bundling in
Customer Churn - Encouraging brand trial will improve
general, is the sale of two or more distinct products in a
sales during the price promotion, one of the key metrics
single transaction at a single price
of the long term success of a price promotion is the
ability of the product to capture brand- loyal customers Tradeoffs between Popular Price Promotions
during regular price times.
Newspaper versus In-store Coupons
Reference Price Effect - At this regular price, customer
may perceive the price to be too high because it is -Many marketing managers may be led to believe that
above what they last paid. in-store coupons are more efficient than those
distributed by newspaper.
Loss of Price Credibility - When the price fluctuates
wildly between promotional levels and regular levels, Main-in versus Instant Rebates
and customers begin to notice the wide differential, they
may simple stop at buying at full price. -Similar to direct mail versus in-store coupons, mail-in
versus instant rebates differ widely on their redemption
Increase of Price Sensitivity - Perhaps the long-term rates and targeting efficiency.
challenge of price promotions derives from their focus
on price itself. CHAPTER 8

Benefit-focused promotions - improve the perceived Hi-Lo formats - where coupons and price promotion are
value of the product. used frequently to drive sales, tend to cycle prices on
specific products between high “regular” levels and low Relationship between net prices captured and
“sales” levels. market variable enables executives to uncover
potential drivers to discounting, some which of may
reflect competitive pressures while others may reflect
opportunities for improved management.
EDLP formats eschew price promotion in favour of
holding prices at a consistently low level. Price waterfall enables executives to identify the
magnitude of the impact of specific types of discount
Challenges In Discount Management Policy
and potentially uncover a means of reshaping discount
-Disparity in incentives and knowledge between field to improve their profit impact.
and centralized executives.
Combined, these three discount-monitoring tools provide
Field Executives Push For More Discounts a high level aggregated picture of the firm’s discounting
practices that enables a quick executive review of price
 Achieve volume of targets discounting and the potential for improving profitability.

 To meet lofty sales goals NET PRICE

Salesperson bear more risk borne than the firms with -One of the most basic analytic tool for developing a
respect to a specific sales opportunity. high-level understanding of discount is identifying the
net price and plotting the net price band. The net price is
Centralized Executives Push For Higher Prices the actual price paid by customers after accounting for
all forms of discounts, including on-voice and off-invoice
Focus on capturing the highest price possible while
discount.
expecting the volume to simply be delivered.
The two branches of Net Price
Higher prices and larger market projection are strategies
that senior executives and investors are very likely to  On-Voice
support.  Off-Invoice
Marketing high-value products while holding Net Price by Market Variable
expectations for field executives to extract high prices
from their customers. If the net price brand is wide and executives conclude
that there is sufficient room for improvement, their next
Centralized executives often lack of necessary tacit step is typically to examine the net price paid by certain
knowledge of the market required to make proper market segments.
discounting decisions.
Price Waterfall - Price waterfalls identify the discounts
Disparity Abounds - Knowledge between field and provided and their effects on the differences between
centralized executives can lead to a natural conflict the internal reference price and the net price.
between them regarding discount.
Discount Decision Management
Neither the decision is optimal in all situations.
Discount decisions organizations have come to rely on
EXECUTIVES REACT - To halt the potential downward two key approaches to ensure that decisions are made
spiral in prices through discounting , some executives with the best interests of the firm at heart. These are
take knee-jerk response and halt all discount. limitations decision-making authority and the alignment
of incentives.

Decision Rights - Organizations will limit decision-


IDENTIFYING DISCOUNTING MANAGEMENT
making rights within the organizations. Individual
OPPORTUNITIES
salespeople maybe granted limited discretion over
DISCOUNT-MONITORING TOOLS discounting.

- Have been developed mostly within industrial markets Decision Incentives


due to the unique nature of customer transactions and
-A supplementary means of improving decision making
the magnitude of discounting within these industries.
within the organization is through improving the
Net price band enables executives to grasp the level of alignment of the incentives facing decision makers and
discounting within the firm. the goals of the organization.