WEEK 8 - 9:

PRODUCT AND PRICING STRATEGIES

BUSN 102 – Özge Can

The Marketing Mix:13-2

The Product Continuum14-3

Augmenting the Basic Product14-

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Typesof

Products

Consumer Products

Convenience Products Everyday goods and

services that people buy frequently, usually without much conscious planning

Shopping Products Fairly important

goods and services that people buy less frequently with more planning and comparison

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Consumer Products

Specialty Products Particular brands that

the buyer especially wants and will seek out, regardless of location or price

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Unsought Products Consumer aren’t

looking for the product in question

Industrial & Commercial Products Expense Items

Inexpensive products that organizations generally use within a year of purchase

Capital Items More expensive organizational products with a

longer useful life, ranging from office and plant equipment to entire factories

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Industrial and Commercial Products14-

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The Product Life Cycle

Product Life Cycle Four stages through which a product progresses:

introduction, growth, maturity, and decline

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The Product Life Cycle14-11

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Product Development Process Product Development Process

A formal process of generating, selecting, developing, and commercializing product ideas

Idea generation Idea screening Business analysis Prototype development Test marketing Commercialization

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Product Development Process

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14-15

Product Development Process

Idea Generation Producing new

product ideas that will satisfy unmet needs

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Product Development Process

Idea Screening Selecting a few ideas

that appear to be worthy of further development

Feasibility studies

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Product Development Process

Business Analysis Reviewing the sales,

costs and profit projections to determine whether they meet the company’s objectives

Product Development Process

Prototypes Pre-production samples

of products used for testing and evaluation

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Product Development Process

Test Marketing The stage of product

development in which a product is sold on a limited basis to gauge its market appeal

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Product Development Process Commercialization

(Product Launch) Large-scale production

and distribution of a product

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Product Identities

Brand A name, term, sign, symbol, design, or

combination of those used to identify the products of a firm and to differentiate them from competing products

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Product Identities

Brand Equity The value that a

company has built up in a brand

Brand Loyalty The degree to which

customers continue to purchase a specific brand

Level 1: brand awareness Level 2: brand preference Level 3: brand insistence

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Brand Name Selection

Brand Names The portion of

brands that can be expressed orally, including letters, words, or numbers

Brand Marks The portion of

brands that cannot be expressed verbally

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Brand Name Selection

Logo A graphical and/or

textual representation of a brand

Trademarks Brands that have

been given legal protection so that their owners have exclusive rights to their use

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Brand Ownership

National Brands Brands owned by

manufacturers and distributed nationally

Coca-Cola, Pepsi Ariel

Private Brands Brands that carry

the label of a retailer or a wholesaler rather than a manufacturer

Tansaş Cola Migros deterjan

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Brand Ownership

Co-branding: A partnership between two or more companies to

closely link their brand names together for a single product

License: An agreement to produce and market another

company’s product in exchange for a royalty or fee

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Co-Branding Examples:28

Packaging:Labeling: xxx Lice

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Product-Line and Product-Mix Strategies

Product-Line and Product-Mix Strategies

Brand Managers Managers who develop and implement the

marketing strategies and programs for specific products or brands

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Product-Line and Product-Mix Strategies

Product Line A series of related products (in terms of their use

or characteristics) offered by a firm

Product Mix The complete portfolio of products that a

company offers for sale

Example: http://www.generalmills.com/

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Product mix:33

Product mix:34

Product mix vs. Product line35

Product-Line and Product-Mix Strategies

A product mix is:

Wide if it has several different product lines Long if it carries several items in its product lines Deep if it has a number of versions of each

product in a product line

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Product Expansion Strategies Family Branding

Using a brand name on a variety of related products

Brand Extension Applying a successful brand name to a new

product category New products should not cannibalize the existing

ones under the same brand name

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Product Strategies for International Markets: Which products and services to

introduce in which countries? Type of government, market entry

requirements, tariffs and other trade barriers, cultural and language differences, consumer preferences, foreign exchange rates, business customs

Whether to standardize the product or customize it for local markets?

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Strategic Considerations in Pricing:

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Strategic Considerations in Pricing:

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Marketing Objectives: Is your goal to increase market share,

increase sales, improve profits, project a particular image or fight competition?

Government Regulations: Three areas of prohibited behavior: Price fixing, Price discrimination,

Deceptive pricing

Strategic Considerations in Pricing:

14-42

Customer Perception: Avoiding too low or too high prices “9 effect”

Market Demand: Demand and supply – at market

equilibrium, prices stabilize. Price elasticity: How sensitive demand

will be to a change in price

Cost Structure

Fixed Costs Business costs that

remain constant regardless of the number of units produced

Ex: rent, mortgage payments, insurance premiums,real estate taxes, salaries

Variable Costs Business costs that

increase with the number of units produced

Ex: raw materials, supplies, shipping, sales commissions

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Break-Even Analysis

Break-Even Analysis A method of calculating the minimum volume of

sales needed at a given price to cover all costs

Break-Even Point: Minimum sales volume at a given price that will

cover all of a company’s costs

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Break-Even Analysis: Example (1)

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Break-Even Analysis: Example (2)

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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Pricing Methods

Cost-Based Pricing (Cost-plus pricing) A method of setting prices based on production

and marketing costs, rather than conditions in the marketplace

Cost of production + Markup = Price

Value-Based Pricing A method of setting prices based on customer

perceptions of value Starts with a target price

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Pricing Methods

Optimal Pricing A computer-based pricing method that creates a

demand curve for every product to help managers select a price that meets specific marketing objectives

Profit, revenue or market share calculations “What-if” scenario analyses

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Pricing Methods

Skim Pricing Charging a high price for a new product during the

introductory stage and lowering the price late Take advantage of the strong demand from early

adopters

Penetration Pricing Introducing a new product at a low price in hopes of

building sales volume quickly Important: whether the customers are price-sensitive

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Pricing Methods

Loss-Leader Pricing Selling one product at a loss as a way to entice

customers to consider other products

Auction Pricing The seller doesn’t set a firm price but allows

buyers to competitively bid on the products being sold

Example: eBay, fine art, government bonds

14-50

Pricing Methods

Participative Pricing Allowing customers to pay the amount they think

a product is worth “Pay what you want”: Radiohead

Free Pricing A pricing strategy of offering some products for

free while charging for others, or offering a product for free to some customers while charging others for it

14-51

Price Adjustment Tactics:

Discounts – temporary price reductions to stimulate sales or to encourage certain behaviors such as paying with cash

Bundling – Offering several products for a single price that is presumably lower than the total of the products’ individual prices

Dynamic pricing – Continually adjusting prices to reflect changes in supply and demand Airlines and hotels (yield management)

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Assignment #1 (Due next week): Building Your Team Skills (Chapter 14, p.327) Select a high-profile product with which

you and your teammates are familiar. Do some online research to learn more about that brand. Then answer these questions and prepare a 1-2 page written paper summarizing your findings.

Group Assignment (3-5 persons) Use the assignment format I uploaded to the

website.

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Assignment #1:

1. Is the product a consumer product, industrial product, or both?

2. At what stage in its life cycle is this product?

3. How appealing its packaging and labeling are to the consumers? How is this product promoted by the company?

4. Is the product mix to which this product belongs: a) wide? b) long? c) deep?

5. Is the product sold in international markets? If so, does the company use a standardized or a customized strategy?

6. How is the product priced in relation to competing products?

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Next Topic (Week 10):

Distribution and Logistics (Chapter 15)

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