Promotional pricing is one of the most widely used marketing techniques employed by retailers to generate customer traffic. In many cases in which promotional pricing is utilized, the technique involves an attractive price reduction on a well-known product. As we discuss in our Setting Price: Part 2 tutorial, the most common form of promotional pricing include temporary markdown, where a product is offered at a lower price for a short period, and loss leader pricing, where a product is offered at a price that is so low that the marketer is often losing money on each item sold.
Yet, while promotional pricing is an attractive marketing option, designing these campaigns are not easy. The key challenge is to figure out what the ultimate goal will be. If executed correctly, promotional pricing will not only result in increased sales of the product with a reduced price, but will also lead to increased sales of other products that are often sold a full price. That is, customers do not just cherry-pick the low-price product and then leave the store; they purchase more.
However, sometimes a promotional pricing approach just seems too inviting for customers. They are so drawn to what they view as a great deal that they buy large quantities of the low-price product and leave without generating significant demand for other products.
For instance, mid-level restaurant chain TGI Fridays has just announced a promotion that makes you wonder if customers will only be interested in the promoted product. As discussed in this NBC News story, TGI Fridays is offering an all-you-can-eat appetizer promotion for only $10. That means anyone can eat as many Buffalo wings as he or she wants for just $10. Now, as one might guess, there are restrictions on this promotion. One restriction is that the deal only applies to one appetizer item per person. So if a customer orders wings they cannot switch to mozzarella sticks. The second restriction is that appetizers cannot be shared. Of course, almost anyone reading this post will have the same thought – this restriction will be impossible to enforce. So it would be expected that a table full of customers will each order a different appetizer and then sharing will take place.
On the surface there is little doubt the promotion will increase appetizer sales, especially at outlets in communities populated by a large number of millennial, such as college towns. However, it is not the number of diners ordering appetizers that will determine whether the promotion is a success or not. It is the additional purchases made to go along with the appetizers. Certainly, TGI Fridays is betting big on the promotion attracting many customers but also having these customers purchase full meals and desserts. Given the promotion, it will interesting to see how many will decide to stick around for burgers and cheesecake.
In our blog posts, we have often discussed how necessary it be for companies to continual develop new products. This is particularly true in highly competitive markets where the life cycle of products is often very short. For marketers who rely on new products to keep their business viable, it is imperative they regularly set aside time to discuss potential product ideas.
As we discuss in our Managing Products tutorial, new product ideas come from several sources. The usual starting point is through internal research methods, such as asking customers what products they would like to see or using brainstorming techniques to stimulate ideas among company personnel. Additionally, ideas can come by looking outside the company such as researching products offered by other companies.
Well, it looks like we can add another option to the list of ways to generate product ideas – solicit these over the Internet for everyone to see. That is, ask people to offer their own suggestions for products and let others offer comments. According to this Wall Street Journal story, one company Quirky.com is taking this approach and is building its product offerings from ideas that are freely suggested by visitors on the company's website. The company then takes these ideas and evaluates possible products using the advice from an online community. For the products chosen, the originator of the idea receives a small percentage of the revenue, while some in the online community can also see funds for the support they offer.
For marketers considering this process, a great advantage is the vast amount of innovative concepts that can be suggested that likely no marketer can generate on their own. However, on the downside a significant barrier for adopting this type of approach for generating ideas is the openness. Everyone in the world can see what the ideas are, and most marketers are not accustomed to publicly sharing their product ideas before a product is marketed. So while this approach works well for this company, it remains to be seen whether this idea generation method will be adopted by many other marketers.
What exactly do marketers do? This is a question that is almost always the first thing addressed in any introductory book, class or tutorial on marketing. What is most interesting about answering this question is that while academics, consultants and, yes, even websites like KnowThis.com, generally provide a similar explanation of the tasks marketers perform, things are often a bit fuzzy when it comes to what falls under the marketing discipline within the business world.
A good example of this occurs in organizations where there are separate responsibilities for those involved in marketing and those involved in sales. This is despite the general textbook definition in which sales is almost always considered to be a part of marketing and should not be separate. Of course, this is not the only example. For instance, product development, while considered the responsibility of marketers, is frequently not viewed as a marketing function, instead designers and engineers may take on this role. The same holds for public relations that is often a standalone department that not only handles product issues but also takes care of corporate PR.
There are even organizations where marketing is not even used to explain what people do, even though they do it. For example, beginning July 1, Procter & Gamble will no longer use the word "marketing" in job titles. Instead, the focus will be on "brand" management which, according to this Advertising Age story, will have these folks focusing on key issues related to individual brands. Before the change, P&G marketers were somewhat focused on more limited marketing issues, which likely included an active focus on promotion and pricing. However, as discussed in this story, the new functions, which seem to now include marketing research, public relations and product design, are functions that we define as being part of marketing.
Curiously, while job titles at P&G may change, the basic responsibilities appear to actually cover more marketing than what these executives used to cover.
A tough sell for any marketer occurs when their target market has preconceived notions of a product that leads potential buyers to feel a product is not right for them. The objections for believing a product is not right can cover many reasons, such as customers not believing they have a need for it or not understanding the benefits offered or presuming a product is just too expensive.
To address this, marketers must fully understand why tough-to-sell-to customers are resistant by conducting marketing research. Only then can a marketing plan be laid out to overcome customers' objections.
A good example can be found in this Advertising Age story that discusses what Chinese customers think about dishwashers. According to the story, only 1% of Chinese households have dishwashers. Research suggests low adoption of dishwashers is due to cultural issues, such as kitchen products not being viewed as a status symbol. Research also discovered that customers' believe dishwashers often create problems, and the cost of using them can be significant.
To address this, dishwasher manufacturer Siemens and detergent marketer Reckitt Benckiser have created a test apartment where potential customers, recruited via social media and word-of-mouth promotion, can hold parties. As part of the time they spend at the apartment, party guests receive a product demonstration and get to experience the products. So far the strategy appears to be working, at least in terms of attracting people to visit the party apartment. Although it is unclear whether this promotion is yet to positively impact sales.
There is an excellent story in the New York Times reporting on the success rate of new consumer products introduced in the last few years. The information, produced by marketing research firm Nielsen, shows that out of nearly 17,000 new products introduced since 2008 only 62 achieved modest sales of at least $50 million in the first year on the market and then followed this by experiencing a sales increase in the second year. These results point up the challenges marketers face with introducing new products in a cluttered competitive market.
To address the risks surrounding new products, another story in Advertising Age discusses how more marketers are turning to a co-branding strategy. As we discuss in our Managing Products tutorial, a co-branding strategy occurs when two or more known brands share a product label. In some cases both brands are owned by the marketer, such Crest Toothpaste with Scope both owned by Procter & Gamble, while in other cases the brands are from two different companies, such as Betty Crocker teaming with Hershey to market a cupcake mix. The principal advantage sought by a co-branding arrangement is the expectation that the power of two brands will lead to faster customers' acceptance, especially if each brand appeals to a different target market. Additionally, depending on the co-branding relationship, the cost of introducing the product may be spread over each brand.
The Advertising Age co-branding story presents examples of six recently introduced co-branded products. Sometimes the joining of brands makes sense, such as Kellogg's Peanut Butter Cereal that features Jif brand peanut butter. Other times, you have to take a step back and question how the brands can work together. For instance, the combination of Dial Body Wash and Froyo Frozen Yogurt may seem a bit odd.