Marketing Principles

Product, Price, Promotion & Place

Oct 16th, 2009

7 Ps of The Marketing Mix Product Decisions Designing Pricing programmes IMC(Integrated Marketing Communications) + Promotion Decisions Place – Phys. Dist + Marketing Channel

(2 aspects to mkt. channel – phys. Distribution structure and marketing programmes)

Direct + Online Marketing

Learning Outcomes – Be aware of the following(over 2 to 3 lectures)

What is a Product?

Product – The goods and service combination offered by a company to its target market. It includes tangible and intangible attributes.

Pg 235, Chap 8 of book

Managing the Product Portfolio

o All of the products a company markets can be thought of as its product mix – the full range of products on offer

o A group of related items in a company’s product portfolio constitutes a product line.

o Product mix width- the number of different product lines a company offers.

o Product mix depth- the number of brands within each product line.

Source: Marketing Principles and Best Practices (2005) K. Douglas Hoffman, Michael R. Czinkota, Peter R. Dickson, Patrick Dunne, Abbie Griffin, Michael D. Hutt, Balaji C. Krishnan, , Robert F. Lusch, Illka A. Ronkainen3rd Edition

Product Mix: GlaxoSmithKline

Source: http://www.gsk.com/products/consumer_healthcare\trademarks.htm, copyright © 2005 GlaxoSmithKline.

Product Line Product Line

ExtensionExtension

Adding additional products to an existing product line in order to compete more broadly in the industry.

Symptoms of Over- Symptoms of Over- extensionextension

Low Sales in some products

Cannibalisation Items have become

obsolete because of new product entries

o Resources are disproportionately allocated to slow-moving products

Companies that offer multiple product lines enjoy numerous benefits:

Protection against competition Increase growth and profits Offset sales fluctuations Achieve greater impact Enable economical resource usage Avoid obsolescence

Multiple Product Lines

New Product Development

Types of New Products

1. “New-to-the-World” products- products that create an entirely new market –Rubix Cube, Quorn

These products are the riskiest of all but present enormous profit potential because they represent monopoly opportunities.

Most New Products tend to be:

2. Product improvements: PS3 & Xbox – wireless & graphics

3. Line Extensions (additions to existing lines) – Big Al’s BBQ Grill

4. New product lines (new to the company but not to the market) – Nestle Cereal Bars (too late?), Caterpillar Clothing – Jeep Mountain Bikes!

New Product Development

Developing new products is time- and resource-consuming,

Must be careful – Failure is common even for Giants – Mach Razors, Levis Suits, New Coke

Make best decisions before the product reaches channel members and final consumers.

The silver bullet - the perfect product development project that achieves high levels of success on all three dimensions – Diet Coke.

New Product Development

The New Product Development Process

Idea generation

Idea screening

Concept testing

Business analysis

Product development

Test marketing

Commercialisation

Monitoring and evaluation

Reasons for product failure:

1. Failure to provide an advantage or performance improvement to customers over products already available in the market –Pepsi AM, Maxwell Ready to Drink Coffee (couldn’t use container).

2. Marketing effort lacks necessary distribution channels (virgin Cola), promotion and selling practices, or pricing policies and the product may be targeting a group the firm has never marketed to before.

Packaging (1 slide)

Packaging performs a number of essential functions:

Protection Identification Information Packaging to enhance usage Packaging to enhance disposal Packaging to enhance channel acceptance

Managing Products through their Life Cycles

Introductory strategies Rapid Skimming. Slow Skimming. Rapid Penetration. Slow Penetration.

Introductory Stage

Competitive and market conditions in the introductory stage

Sales – low. Costs- substantial Profits – negligible – even negative. Cash flow – negative. Customers – innovative – early adopters. Competitors – few or non-existent.

Introductory Stage

Growth

Characterised by rapidly increasing product demand, new market entrants rapidly increasing profits Early adopters & additional customers are

purchasing Price stabilises or falls Promotional expenditure remains

constant with eventual decline due to offset against increased sales

Maturity Sales initially increase but at a slower rate

as market becomes saturated and as competitive pressures reach their peak.

Sales and profits typically decline in the latter half of the maturity stage.

Even if new users are found and usage rates are increased, product sales may eventually start a long-term decline, as when a substitute product that offers a superior set of benefits displaces the “old” product.

Competitive and Market Conditions in Maturity Stage:

Sales slows. There are 3 phases of maturity: growth,

stable and decline. Sales possible only by population growth The longest stage of the life cycle. Majority of products are in this stage. Greatest numbers of competitors. Intense rivalry and overcapacity. Marketing effort - focused on early

majority and late majority customers.

Maturity

Decline

Sales decline happens due to: Technological advances (word processor,

Polaroid) Shifts in consumer tastes (Ovaltine,

Yardley Cosmetics) Increased competition These factors = increased price cuts and

profit erosion Decline can be slow (sewing machines) or

fast (floppy disks)

Decline can be reversed – VW Beetle, Lucozade (Medicinal to Sport)

Kodak are currently trying to boost sales – filming processing business is losing sales due to digital cameras – will Kodak survive!

Decline

Product Life Cycle Variations Slide 23 of 39

Price

What determines base price?

Ref: Chap 14 of book

The Nature of Price

What’s Price: Price is the amount of money charged for a product or service.

Price can be covered by many different terms:rate of interest, fee, rent, fare, commission and benefit-in-kind

How much is a new Ford Focus, a hair-cut, a super sized double fridge, a digital camera

It’s obvious from range of terms that price can be complex….may depend on buyer group, purchasing situation and timing of purchase

Price within the marketing mix

Price is the only revenue-generating element in the marketing mix

Pricing decisions affect the long term survival, market share, profit and prestige of the company.

Price is also one of the most adjustable elements of the marketing mix. It can be adjusted immediately, in case of price war. Price Wars?

Price wars Ads that promote to match or beat any price are

a message not only to consumers but to competitors as well.

Harvey Norman? Others?

Consumers view these promotions as the advertiser’s guarantee to deliver the lowest price in town. Competitors heed the ads as warnings not to undercut.

Beware these strategies…they can completely destroy value in the market…supermarkets?

Covering Costs To stay in business you have to cover your costs –

Smart Telecom??

Two different types of costs: Fixed costs, are the same (in the short term) no matter how many units you sell….if your fixed costs account for a high proportion of your total costs…you’ll find it difficult to cut your costs to match a declining income.

In declining income case, you may offer lower prices in periods of lower demand to cover high fixed costs

Factors Affecting Pricing Your Company – your company’s objectives,

including covering costs, profit objectives, marketing objectives etc

Your competitors – can influence your price in two ways: - if you charge a higher price you may lose customers to your competitors - Thos competitors may be able to undercut you

It is important to know the power of your competitors

3 Methods for Setting Price1. Cost-Plus pricing: ads a percentage or

monetary unit to the cost of production in order to ensure costs are adequately covered. Good to use because sellers are more certain about fixed costs than about market demand

- it’s very simple and as along as your competitors do the same, then price competition is minimized.

But – it ignores market demand or customers’ perception of value. Over 80% of retail sector is based on cost-plus.

3 Methods for Setting Price2. Value-Based Pricing: here marketers look at

buyers’ perception of value rather than their own costs. VB pricing hinges on creating a product which offers a combination of quality and price that is extremely attractive to consumers.

- You may have to sacrifice a lot of quality

Cheap headphones for mp3 player are great value but………..

3 Methods for Setting Price3. Competition-Based Pricing: As it

sounds; pitch your product at price equaling or beating the competition. Especially, if you are a small company you cannot find an effective way to differentiate your product so you can’t charge higher prices

New Product Pricing StrategiesProduct is viewed differently by the

market as it goes through the PLC.

Genuine innovation can receive a high price at its launch..but it’s only an innovation for a short time and price must be adjusted

What are the pricing strategies at New Product stage of PLC

New Product Pricing Strategies

Price Skimming: means charging a high or premium price for a new product effectively skimming the profits liberally off the top.

How much was first mobile phone? First flat screen TV? First of a “One-Of-A-Kind” fashion item?

This strategy allows a company to break even earlier during PLC

New Product Pricing Strategies

Penetration Pricing

is used to gain market share rapidly by pitching a price below the competitions in order to build up a larger unit sales volume (Economies of Scale)

Japanese are/were famous for this 1980s/1990s

New Product Pricing Strategies

Differential PricingUsed for most service industries (sometimes

called demand-oriented pricing) it involves matching your prices to demand for your product rather than to the cost of your product….mid week breaks?

Can see everywhere in Ireland. high demand for services..example? Sometimes used for products as well

Finally – Price Adjustment Strategies

Price is highly flexible and can be adjusted rapidly. In retail sector this is common – price wars

Discounting: used to boost sales I short term..use to shift excess stock/end of season

Psychological Pricing is based on emotions, rather than rational response of consumers. €9.99 instead of €10…used to influence buyers perception of price

Price Adjustment Strategies

Prestige pricing is where consumers associate higher prices with better quality or exclusivity. Gym membership, club membership, perfume prices, designer clothing

Promotion pricing: includes loss leaders and special event pricing. Beer/Spirits at Christmas,. Used to entice shoppers into the store. Used on a temporary basis to increase short-run sales.

PriceRead chap 14 of book

Different Pricing Strategies:

Cost Plus Pricing Standard Markup Target Return Pricing