Chapter Fourteen

Small Business
Marketing: Price and
Promotion
 Learning Objectives
• Identify the three main considerations in setting a
price for a product
• Define breakeven analysis and explain why it is
important for pricing in a small business
• Present examples of customer-oriented and internal-
oriented pricing
• Describe why and how small businesses extend
credit
• Describe the advertising, personal selling, public
relations, and sales promotions tools that a small
business owner uses to compile a promotional mix

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 The Economics of Pricing

• Price represents what the consumer

considers the value of a product
– Value depends on the benefits received
compared with the monetary cost
• Typically consumers do not what the
cheapest product available – they want the
best product for the most reasonable price
• The “right” price is between what the market
will bear and what the product costs

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Economic Factors That Impact Product
Price

Competition

Customer Demand

Costs

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 Demand Curves

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 Factors Influencing
Price Elasticity

Product
Substitutes
Necessity of the
Product
Significance of the
Purchase to
Consumer’s Total
Budget

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 Costs: Two General Categories

Fixed Costs Variable Costs

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 Breakeven Analysis

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Price Changes Affect Breakeven Point

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Customer
Oriented Penetration Psychological
Pricing Pricing Pricing

Strategies

Prestige Price Price

Pricing Skimming Lining

Odd Reference
Pricing Pricing

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 Internal-Oriented
Pricing Strategies

Cost-Plus
Pricing
Target-Return
Pricing

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 Creative Pricing Strategies
1. Bundling or unbundling 11. Shift costs to your customer
2. Time-period pricing 12. Variable pricing tied to a
3. Trial pricing creative variable
4. Image pricing 13. Different names for different
5. Account-systems pricing price segments
6. Value-added price 14. Captive pricing
packages 15. Product-line pricing
7. Pay-one-price 16. Differential pricing
8. Constant promotional 17. Quality discount
9. Price = Performance 18. Fixed, then variable
10. Change the Standard 19. “Don’t break that price point

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 Payment Methods

Cash Credit

Check

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 Credit Policies – Types of Credit

• Two basic categories of credit are:

• 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

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 How Do Consumers Pay?

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 Online Credit Checks

• Databases are available to help you look into

a customer’s financial past to determine the
would-be customers who might have trouble
paying you
• You can find out about tax liens, bankruptcies,
court judgments, payment history, financial
data and analysis, company background,
public filings, and other information
• Data are available for each geographic zone
in the country (USA)

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 Percent Chance of Collecting
Delinquent Commercial Debt

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 Tools Used in Developing
Promotional Mix

Advertising Personal Selling

Public Relations Sales Promotions

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 Advertising – Choices of Media

Print Broadcast Outdoor

Media Media Media

Newspapers Radio Billboards

Magazines Television Posters placed on
Direct Mail Computer- public and other
Yellow Pages Billboards Transportation

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 Advertising Media:
Which Should You Use?
Medium Percent
• Newspaper 20.1
• Television 24.3
• Direct Mail 18.3
• Radio 07.9
• Magazine 05.1
• Outdoor 00.7
• Yellow Pages 05.4
• Internet 01.8
• Miscellaneous 14.4

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 Advertising - Downsides

• Slow feedback
• Expensive
• Difficult cutting through clutter
• Difficulty creating a personalized
message

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 Advertising Objectives

Inform

Persuade
Objective

Remind

Change the Perception

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 Advertising Strategies

Testimonials

Sensual or Slice-of-Life Fantasy

Humor
Sexual Message Message Message

Comparative
Message

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 Techniques for Measuring
Effectiveness of Advertising

Response Split In-Store

Tracking Ads Opinions

Telephone Statement
Surveys Questionnaires

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 Advertising Development

• Most small business owners plan their own

advertising programs, which is usually more
appropriate for them than hiring a professional
producer
• Common problem among self-produced
advertisements is that business owners try to
cram too much into them
• Small businesses owners should investigate
options and promotions that outside professional
advertising services make available

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 Professional Advertising Services

Advertising
Agencies

Art and Graphic

Media Agencies Design Services

Radio & TV
Studios,
Newspaper &
Magazine

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 Personal Selling

• Involves a personal presentation by a

salesperson for the purpose of making
sales and building relationships with
customers
• You are tying to accomplish three things:
– Identify customer needs
– Match those needs with your products
– Show the customers the match between
their need and your product

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 Personal Selling - Drawback

• Cost is the biggest drawback of

personal selling
• Average cost of a sales call is over
$225
• Salespeople have gained a poor
reputation because of high-pressure
tactics and questionable ethics of a few
of them

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 Personal Selling - Advantage

• Flexibility of the presentation that is possible

• A trained salesperson can tailor a
presentation to the prospect around:

Features Advantages Benefits

– What the – Why the product – What the

product is is better than product will do
alternatives for the customer

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 Customer’s Expectations

• Customers expectations are rising

• Good product at a fair price, offered by a
well-trained sales staff, backed by a
responsive customer service department,
is just the starting point in a competitive
marketplace
• For your business to stand out, its
products need to be tailored to the
particular needs of your customers

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 Steps in Personal Selling

Preapproach Approach Questioning

Demonstration

Handling Closing the Suggestion Selling

Objections Deal & Follow-up

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 Steps in Personal Selling

• Preapproach –
– Before meeting with the prospective
customer, a salesperson must acquire
knowledge about the product and perhaps
about the customer and his/her business
• Approach –
– Upon first meeting the customer, the
salesperson tries to establish a rapport
with him/her

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 Steps in Personal Selling

• Questioning –
– To find out what is important to the
customer, the salesperson will try to define
his or her needs as early in the process as
possible
• Demonstration –
– The salesperson shows how the product
will solve the customer’s problem and need
his or her needs

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 Steps in Personal Selling

• Handling Objections –
– An effective salesperson will listen to what the
customer is really saying. An objection shows that
the customer is interested but needs more
information
• Closing the Deal –
– When he/she senses that the customer is ready to
buy, the salesperson should ask for the sale.
Many sales are lost when a customer is ready to
buy, the the salesperson continues to sell

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 Steps in Personal Selling

• Suggestion selling and follow-up –

– Suggestion selling means recommending
products that are complementary to those
just sold
– Following up with a phone call after the
sale builds on the rapport established in
the approach and works toward a long-
term relationship between the customer
and the business

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 Public Relations (PR)

• Public relations involves promotional activities

designed to build and sustain goodwill
between a business and its customers,
employees, suppliers, investors, government
agencies, and the general public
• Publicity is an aspect of public relations
consisting of any message about your
company communicated through the mass
media that you do not pay for

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 Sales Promotions

• Sales promotion – activity that stimulates

sales and is not strictly advertising or
personal selling
• Sales promotion activities enhance but do not
replace your advertising or personal selling
efforts
• Sales promotions are most effective when
used in intervals, because customer response
decreases over time as customers become
familiar with the promotions

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 Sales Promotions – Examples

• In-store displays
• Free samples
• Contests
• Trade show booths
• Distribution of coupons, premiums, and
rebates

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 Sales Promotions

• Advertising and personal selling are used on

a continuous basis, whereas sales
promotions are intermittent
• A strategy that combines all three can
produce a ratchet effect on sales
• Advertising is used to increase customer
interest, whereas personal selling is used to
increase sales over a short period of time

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 Short-Term Ratchet Effect of Sales
Promotion

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 The Promotional Mix

• Advertising – reaches so many people that it

is good for creating awareness, but its power
to stimulate action decreases quickly
• Personnel Selling – most effective tool for
building customer desire for the product and
prompting customers to take action. But
because it requires one-on-one contact, it is
less useful in creating awareness

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 The Promotional Mix

• Sales promotions – most effective with

customers who are already interested in
the product, but who may need
prompting to make the purchase
• Public relations – builds awareness,
although it results in few immediate
sales

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