2. Learning Objectives
LO1 Know the characteristics of goods and services
LO2 Define the total product
LO3 Learn the stages of new product development
LO4 Learn the product life cycle
LO5 Understand why pricing is an important but
difficult task for small business
LO6 Understand price elasticities, pricing psychology,
and other price influencers and their impact on
pricing
LO7 Understand different pricing strategies
9-2
3. 4 Ps of Marketing
4 Ps of Marketing
– The four major components of a
marketing effort—product, price,
promotion, and placement.
9-3
5. Product
Product
– anything that is offered to the market to
satisfy consumer wants, needs, and
demands
– goods, services, people, ideas
9-5
6. Product
Tangibility Inseparability
– capability to be – service cannot be
touched, seen, disconnected from
tasted, or felt the provider
9-6
7. Product
Heterogeneity Perishability
– each time the – cannot be saved
service is provided, for later use
it will be slightly
different
9-7
8. The Total Product Approach
Total product
– The entire bundle of products, services,
and meanings of your offering; includes
extras like service, warranty, or delivery, as
well as what the product means to the
customer.
9-8
9. The Total Product Approach
Augmented Core product
product – basic description
– core product, plus of what a product
features that tend is
to differentiate it
from the
competition
– brand names,
quality levels,
packaging
9-9
10. The Total Product Approach
Your product means more to the consumer
than just the core product
Don’t waste time and money designing
features for your product or service that your
target market doesn’t want
Knowing what your product “means” to
consumers will help you set an appropriate
price
9-10
11. Branding
Guidelines for naming a business
– Entrepreneur’s name
• Not very clear to customers what you do
• How to handle name if you sell the company
• Is your name appropriate: i.e. Payne for a
dentist
9-11
12. Branding
Guidelines for naming a business
– Be careful about infringing on trademarks
– Describes firm or product and is easy to
remember: “Discount Furniture”
– Creative spellings are eye-catching; don’t
go overboard
– Beware of selecting a name too narrow to
allow the firm to grow
9-12
15. The Product Life Cycle
Stage 1: Introduction
– Sales slowly take off and then begin to
grow
– Very important to build brand awareness
– Heavy introductory marketing expenses
will suppress profits
– Competition is generally low
9-15
16. The Product Life Cycle
Stage 2: Growth
– Acceptance of the product increases rapidly
– Advertising and promotion are much less
critical
– Goal in this time is to maximize market share
– Prices tend to drop as production becomes
more efficient
9-16
17. The Product Life Cycle
Stage 3: Maturity
– Sales will level off and start to decline
– Profits follow suit
– Competition becomes fierce; price
competition begins to rise
– Advertising will suggest new uses for the
product
9-17
18. The Product Life Cycle
Stage 4: Decline
– Decline can be slow or fast, steady or
unsteady
– May come from introduction of new
technology
– May also be caused by a shift in
consumer preferences
– Sales and profits fall during this stage
9-18
20. Service Life Cycle
Services go through same four stages:
– Easier to extend life cycle, and virtually
eliminate the decline stage of a service
– Services are often much easier to change
“on the run”
Services, in effect, begin new life
cycles with each tweaking
9-20
21. Why Price Is Important
1. Price is a major factor in determining
customers’ perceptions of quality and
desirability
2. Because of this, price is central to
competitive strategy
3. Price is directly related to your company’s
gross revenue and sales volume
9-21
22. Pricing from the Seller’s
Point of View
Seller’s wish to obtain highest price
possible for whatever they are selling
Optimum price
– refers to the highest price that would
produce your desired level of sales (or
revenues) in your target market.
9-22
23. Optimum Price
Optimum price is based on:
Demand for the product or service
Value delivered to the customer
Prices set by competing firms
Your business strategy and product
placement
9-23
24. Question
A product for which there are any
number of substitutes and for which a
change in price makes a difference in
quantity purchased is called
A.Inelastic Products
B. Elastic Products
C.Acceptability
D.External reference price
9-24
25. Price Elasticity
Inelastic product
– product for which there are few substitutes
and for which a change in price makes very
little difference in quantity purchased
Elastic product
– product for which there are any number of
substitutes and for which a change in price
makes a difference in quantity purchased
9-25
27. Pricing Psychology
Internal reference price
– a consumer’s mental image of what a
product’s price should be
External reference price
– an estimation of what a price should be
based on advice, advertisements, or
comparison shopping
9-27
28. Price Setting
Decide what is the right price
Examine existing market prices for
similar products and services
Consider your business costs
9-28
29. Price Setting
Considerations for pricing
– Company objectives
– Marketing strategy
– Channels of distribution
– Competition
– Legal and regulatory issues
9-29
30. Pricing Strategies
Skimming
– Setting a price at the highest level the
market will bear, usually because there is
no competition at the time.
Prestige or premium pricing
– Setting a price above that of the
competition so as to indicate a higher
quality or that a product is a status
symbol.
9-30
31. Question
What is the strategy called when a price
ends with 9, 7, or 5?
A.Price Lining
B.Partitioned Pricing
C.Premium Pricing
D.Odd-even Pricing
9-31
32. Pricing Strategies
Odd-even pricing
– Setting a price that ends in the number 5,
7, or 9.
Partitioned pricing
– Setting the price for a base item and then
charging extra for each additional
component.
9-32
33. Pricing Strategies
Captive pricing
– Setting the price for an item relatively low
and then charging much higher prices for
the expendables it uses.
Price lining
– The practice of setting (usually) three
price points: good quality, better quality,
best quality.
9-33
34. Price-Lowering Techniques
Periodic or random discounting
– Sales conducted at either predictable or
non-predictable intervals.
Off-peak pricing
– Charging lower prices at certain times to
encourage customers to come during
slack periods
9-34
35. Price-Lowering Techniques
Bundling
– Combining two or more products in one
unit and pricing it less than if the units
were sold separately.
Multiple or bonus pack
– Combining more than one unit of the
same product and pricing it lower than if
each unit were sold separately.
9-35
36. Price-Lowering Techniques
Coupons, Rebates, Loyalty and
Referral Programs
Referral discount
– A discount given to a customer who refers
a friend to the business
9-36
37. Pricing Strategy Wrap-up
Temporary reduction in price won’t
tarnish your product image
Consumers also feel smart about
buying something at a better price
They will feel they got a great deal
9-37
Editor's Notes
Most people think in terms of product or service. But few offering fall into those black and white categories. Examples: Pure good: Shampoo Good dominated: A car (comes with warranties and service) Hybrid: A restaurant– Which is more important, the food or the atmosphere and service? Service Dominated: Your taxes. You get the service of having them done, but also the papers to send in and a copy to keep. Pure service: Having your car washed.
Goods are: Tangible: you can count them, inventory them, demonstrate them, see them before you buy Separable: It doesn’t matter who you buy it from, the product is the same Homogenous: In theory, every bottle of Suave shampoo is the same, regardless of where you buy it Non-perishable: If you don’t sell it today you can sell it tomorrow. Services are just the opposite.
The core is the automobile. You are buying transportation from point A to point B. The augmented product is a Honda Accord. The Accord is different from a Toyota Camry and even within the Accord you can choose package levels with different features.
There are always caveats: If your name is Maine Street Accounting– what happens if you move? A patent attorney can look up trademarks and make sure you are not infringing on another company.
In idea generation it is important to get ideas from those who know best. Customers and salespeople who deal with them on a frequent basis often have great ideas for new products or modifications Ides screening Not all ideas are good ones, and some that are don’t fit the goals of your company Other ideas might be great but not have many potential customers Idea evaluation A Feasibility study helps you decide which ideas you should pursue Costs and profitability have to be address Concept testing, running the refined idea past the experts happens at this stage Product Development Reaching this stage means you have a viable, profitable idea Prototypes are made and tested, focus groups are used Once the prototype is well received test marketing can begin Successful test marketing leads to commercialization Commercialization Taking your product “live” to market This involves full production levels A complete marketing plan must be made which will reach your intended target market
The PLC can be used for either an industry or particular product. Characterizations of each stage are on the following slides.
Answer: b
If you have an elastic product a small price increase can dramatically cut back sales. Conversely, a small price cut can substantially increase sales unit and possibly profitability.
Customers gather pricing knowledge from a variety of places. The internet has expanded the ability to comparison shop and thus consumers are becoming more price savvy.
If your goal is to undercut the competition you’ll need low prices. An image of quality supports higher pricing. If you are reselling products some manufacturers have MAP (Minimum Advertised Pricing). MAP requires you not advertise below a certain price but does not regulate what the product actually sells for. This is an effort to improve profitability at all levels in some industries.