Chapter 7: Advertising and
Pricing for Profit
Objectives |
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Upon completion of this chapter, you will be able to:
- Discuss the steps in developing an advertising plan.
- Explain the differences among promotion, publicity, personal selling, and
advertising.
- Describe the advantages and disadvantages of the various advertising media.
- Identify four basic methods for preparing an advertising budget.
- Explain practical methods for stretching a small business owner's
advertising budget.
- Describe effective pricing techniques for introducing new goods or services
and for existing ones.
- Explain the pricing methods and strategies for retailers, manufacturers, and
service firms.
- Describe the impact of credit on pricing.
Chapter 7: Advertising and
Pricing for Profit
Chapter Overview
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- Explain the differences among promotion, publicity, personal selling,
and advertising.
- Promotion is any form of persuasive communication designed to inform
consumers about a product or service and to influence them to purchase these
goods or services.
- Publicity is any commercial news covered by the media that boosts sales but
for which the small business does not pay.
- Personal selling is the personal contact between sales people and potential
customers resulting from sales efforts.
- Advertising is any sales presentation that is nonpersonal in nature and is
paid for by an identified sponsor.
- Present the steps in developing an advertising plan.
- The first step is to define the purpose of the company's advertising program
by creating specific, measurable objectives.
- The next step is to analyze the firm and its target audience.
- The next step involves deciding what to say and how to say it, making sure
to build the message around the company's unique selling proposition (USP).
- The final step involves evaluating the ad campaign's effectiveness.
- Describe the advantages and disadvantages of the various advertising
media.
- The medium used to transmit an advertising message influences the consumer's
perception - and reception - of it.
- Media options include: newspapers, radio, television, magazines, direct
mail, the World Wide Web, outdoor advertising, transit advertising, directories,
trade shows, special events and promotions and point-of-purchase ads.
- Identify four basic methods for preparing an advertising budget.
- Establishing an advertising budget presents a real challenge to the small
business owner.
- here are four basic methods: what is affordable; matching competitors;
percentage of sales; objective-and-task.
- Explain practical methods for stretching the small business owner's
advertising budget.
- Despite their limited advertising budgets, small businesses do not have to
take a second-class approach to advertising. Three techniques that can stretch a
small companies advertising dollars are cooperative advertising, shared
advertising, and publicity.
- Describe effective pricing techniques for introducing new goods or
services and for existing ones.
- Pricing a new product is often difficult for the small business manager, but
it should accomplish three objectives: getting the product accepted; maintaining
market share as the competition grows; and earning a profit. Generally, there
are three major pricing strategies used to introduce new products into the
market: penetration, skimming, and sliding-down-the-demand-curve.
- Pricing techniques for existing products and services include odd pricing,
price lining, leader pricing, geographical pricing, opportunistic pricing,
discounts, and suggested retail pricing.
- Explain the pricing methods and strategies for retailers,
manufacturers, and service firms.
- Pricing for the retailer means pricing to move merchandise. Markup is the
difference between the cost of a product or service and its selling price. Most
retailers compute their markup as a percentage of retail price, but some
retailers put a standard markup on all their merchandise; more frequently, they
use a flexible markup.
- A manufacturer's pricing decision depends on the support of accurate cost
accounting records. The most common technique is cost-plus pricing, in which the
manufacturer charges a price that covers the cost of producing a product plus a
reasonable profit. Every manufacturer should calculate a product's break-even
price, the price which produces neither a profit nor a loss.
- Service firms often suffer from the effects of vague, unfounded pricing
procedures, and frequently charge the going rate without any idea of their
costs. A service firm must set a price based on the cost of materials used,
labor involved, overhead, and a profit. The proper price reflects the total cost
of providing a unit of service.
- Describe the impact of credit on pricing.
- Offering consumer credit enhances a small company's reputation and increases
the probability, speed, and magnitude of customers' purchases. Small firms offer
three types of consumer credit: credit cards, installment credit, and trade
credit (charge accounts).
Chapter 7: The Foundations of
Entrepreneurship
Small Business
Assignments |
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Select 5 of the following questions:
1. What are the four elements of promotion? How do they support
one another?
2. Outline the steps in creating an advertising plan. What
principles should you follow when creating an effective advertisement?
3. What factors should you consider when selecting advertising media?
4. Create a table to summarize the advantages and disadvantages of the
following advertising media:
- Newspapers
- Radio
- Television
- Specialty advertising
- World Wide Web
- Direct Mail
- Outdoor advertising
- Transit advertising
- Trade shows
- Sponsorships and promotion
5. Describe the common methods of establishing an advertising budget.
Which method is most often used? Why
6. How does pricing affect your firms image?
7.. What competitive factors must you consider when establishing prices?
8. Define the following pricing techniques: odd pricing; price
lining; leader pricing; geographical pricing and discounts.
9. What benefits does a small business get by offering customers
credit? What costs does it incur?
Gather three different adds. Evaluate them on a scale of 1 (low) to 10
(high) using the following criteria: attention-getting, distinctive,
interesting, brevity, personal appeal, credibility, USP focused, convincing,
motivating, and effectiveness. How could you change the ads to make them
more effective?
Chapter 7: Advertising and
Pricing for Profit
Small Business Links
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Advertising
Personal Selling