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Product & Pricing

Developing Product Strategies
 Product: Good or service used as a bases
of commerce
 Types of products
 Tangible & intangible products
 Consumer products
 Organizational products
Tangible & Intangible Products
 Product Continuum: relative amounts of tangible
& intangible components in a product
 How to market Service product?
By compensate intangibility:
 by using tangible symbols or
 by adding tangible components
 Services cannot be created in advance or kept in
storage, services are time sensitive
 To shift consumer demand on service during
slow periods, marketers offer discounts or




t Fo







Tangible Intangible
Dominant Dominant

The Product Continuum

Products contain both tangible & Intangible components; predominantly
tangible products are categorized as goods. Whereas predominantly intangible
products are categorized as service
Consumer Products Classification
 Convenience products:
bought frequently without much conscious thought)
 Shopping products:
important products bought less frequently, requires
more thought & comparison shopping to check
price, features, quality, & reputation
 Specialty products:
brands people buyer specialty wants & seek out
regardless of price or location & rarely accept
substitutes for
 Unsought products
Products people do not think of buying
Organizational Products Categories
 Expense Items: inexpensive goods &
services used within a year of purchase
 Capital items: more expensive & have
longer useful life
Organizational Products
 Raw materials (used in production final
 Components (part of manufacturer’s final
 Supplies (used in daily operations)
 Installations (major capital projects)
 Equipment (shorter lived than installations)
 Business services (risk free services complex
Product Life Cycle
 It’s a four basic stages through which a product
 Stages:
 Introduction
 Growth
 Maturity
 Decline
 Describes:
 Product class (longest life cycle)
 Product form (longest life cycle)
 Product brand (shorter life cycle)
Introduction Growth Maturity Decline

DVD Cassette
Internet VCR tapes

(Sales Volume (units




The Product Life Cycle

most products & product categories move through a life cycle similar to the one
represented by the curve in this diagram. However, the duration of each stage
varies widely from product to product
Product Life Cycle (cont.)
 Amount of time product remain in any
stage depend on:
 Customer needs
 Customer Preferences
 Economic conditions
 Nature of product
 Marketer strategy
Introduction Stage Characteristics
 Stage of products launch & demand
 Spend heavily on research & development
to create new product
 Developing promotion to build awareness
 Establish distribution system to get
product into marketplace
 Profits are little
Growth Stage Characteristics
 Rapid jump in sales
 Increase in number of competitors &
distribution outlets
 Struggle for market share
 Introduction of new features
 Maintain large promotional budgets
 Maintain competitive prices
 Reap handsome profits for who survive
Maturity Stage Characteristics
 Sales begin to level off or show slight decline
 Competition increases
 Market share is maximized (further expansion
 Mature Products kept alive to use profits in
funding new products development
 To extend the stage life products characteristics
modified to improve quality & performance
Decline Stage Characteristics
 Sales & profits slip then fade away
 Reasons: changing demographics, shifts in
taste, product competition, advances in
 Stage of decide whether keep product or
discontinue & focus on newer products
 Declining products could need innovation to
survive (e.g.new bottles, limited edition line,
deep discounts)
New Product Development Process
 Only 5% of new products are true innovation
 To develop new products from familiar ones:
 Change packaging
 Improve formula
 Modify form or flavor
 Product development process: series of stages through
which a product idea passes
 Prototyping: turning an idea into a working model
 Innovative companies prototype ideas in couple of days
 Reason of new products development: terrific new
concept, or following footsteps of competitors
Product Development Process
 Idea generation
 Idea screening
 Business analysis
 Prototype development
 Test marketing
 Commercialization
1 00 ideas 1 idea

Screening Business Analysis Prototype Test Marketing commercialization

of Ideas Development

Process Development Process

for every hundred ideas generated, only one or two salable products may
emerge from the lengthy & expensive process of product development
Idea generation
 Come up with ideas satisfy unmet needs
 Idea Sources: Customers, Competitors,
Idea screening
 Cull few ideas appear worthy of further
 Criteria:
 Ability to use existing production facilities
 Technical & marketing risk involved
 Industrial/technical products: feasibility study
phase (define features, test workability)
 Consumer products: evaluate new ideas (by
MKT consultants & Agencies)
 Concept testing: potential customers asked for
thinking about new product idea
Business Analysis
 Review sales, costs, profit projections to
match company’s objectives
 Investment worth?
 Forecast sales of product
 Assume various pricing strategies
 Estimate the costs with different production
 Calculate potential profits
 Decide if results meets company objectives
Prototype Development
 Develop product concept into physical
 Create & test prototype as a product & its
 Put marketing mix together
 Evaluate feasibility of large scale
 Specify resources to bring product to
Test Marketing
 Product-development stage in which a
product is sold on a limited basis – a trial
 Used if cost of marketing exceeds cost of
 Potential risks: chance for competitors to
find out newest ideas
Commercialization (Product
 Large-scale production & distribution of survived
developed product
 Coordination of manufacturing, packaging,
distribution, pricing, & promotion
 Classic mistake: promoting before adequate
quantities supply
 Roll-out new products gradually from one
geographic area to next (to spread launch cost
over longer period, to refine strategy while
rollout proceeds)
Brand Manager
 The person who develops & implements a
complete strategy & marketing program
for a specific product or brand
Product-Line & Product-Mix
 Product Line: a series of related products
offered by a firm
 Product mix: complete list of all products
that a company offers for sale
 Within each product line company
confronts decisions about number of
goods or services to offer
Dimension Of Product Mix

 Dimensions:
 Width: several product lines
 Length: product line carries several items
 Depth: products has number of versions
 To decide dimensions weigh the risks & reward
with various approaches
 Focus on few selected items strategy:
economical (low production costs, limited selling
expenses, single sales force)
 Full line strategy: protection against shifts in
technology, taste, & economic conditions
Product Line Expansion
 Introduce additional items in same product
category under same brand (new flavors, forms,
colors, ingredients, package size, products)
 Overextended brand name causes:
 lose specific meaning
 Sales of extension is expense of other items in the line
 Expansion works best when take sales from
competing brands & not when cannibilizes
company’s other items
Product Positioning
 Product positioning: Place it occupies in
consumer mind relative to competing products
 Consumers simplify the buying process by
organizing products into categories based on
perceived position of high-performance vehicles
 Products position is placed by customers or by
 Product position is defined & chosen before
developing marketing strategy
 Choose Position in selected markets that will
give the product greatest advantage
Product Positioning Strategies
 On specific Product features or attributes
(size or ease of use or styles)
 On service accompany product
(convenient delivery or lifetime customer
 On products image (reliability or
 On price (low cost or premium)
 On category leadership (leading business)
Major Positioning Errors
 Under positioning: fail to position the
 Over positioning: promoting too many
benefits so no one stand out
 Confused positioning: mixing benefits that
confuse buyer “such as sophisticated
image & low cost”
Product Strategies For International
 Consider following factors:
 Which product to introduce in which country
 Type of government
 Market entry requirements
 Tariffs & other trade barriers
 Cultural & language differences
 Consumer preferences
 Foreign exchange rates
 Differing business customs
 Decide whether to standardize or customize
Standardized Product
 Selling the same product everywhere
Customize product
 To accommodate lifestyles & habits of target
 Degree of customization vary:
 Change product name
 Change packaging
 Offer completely different product in different markets
 You can switch from standardized to customized
strategy by adjusting marketing mix, when
customers not all alike
Developing Brand & Packaging
Developing Brand & Packaging
 Brand: a name, term, sign, symbol, design, or
combination of those used to identify the
products of a firm & to differentiate them from
competing products
 Brand Names: portion of a brand that can be
expressed orally, including letters, words, or
 Brand Mark: portion of a brand that cannot be
expressed verbally
Developing Brand & Packaging
Strategies (cont.)
 Well known brand name, generates more
sales than unknown name
 Trademark: brand that has been given
legal protection so that its owner has
exclusive rights to its use
 Too widely using brand name, it no longer
qualified for production under trademark
 Sell rights to specific well-known names &
symbols & then manufactures use
licensed labels to help sell products
Winning At The Name Game
 Elements of good name:
 Speak directly to target customers
 Motivate consumers to buy
 Stick in consumer’s mind
 Be distinctive to prevent unauthorized use
 Be distinguishable from competition
Winning At The Name Game
 Tips for choosing names:
 Name selection (frustrating, time consuming, &
fraught with legal difficulties)
 Be sure to
 Find a flexible name for your company (describes what you
do now, in future, & allows to roll-out range of products)
 Check for potential cultural conflicts
 Keep it legible (easy to spell, pronounce, & read)
 Keep it meaningful, friendly, & personalized (creates
emotional bond between consumer & company
 Know the law (might to consult an attorney))
 Get professional help
Brand categories
 National brands: brands owned by the
manufacturers & distributed nationally
 Private brands: brands that carry the label of a
retailer or a wholesaler rather than a
 Generic products: Products characterized by a
plain label, with no advertising and no brand
 Generic products cost up to 40% less than
brand-name products (because uneven quality,
plain packaging, lack of promotion)
Brand Equity & Loyalty
 Brand equity: notion of value of a brand
 Brand loyalty: commitment to a particular
 Strong brands command premium price in
 Building on recognition of existing brand,
cuts costs & risks of introducing new
Degrees Of Brand Loyalty
 Brand awareness: level of brand loyalty at
which people are familiar with a product;
they recognize it
 Brand preference: level of brand loyalty at
which people habitually buy a product if it
is available
 Brand insistence: level of brand loyalty at
which people will accept no substitute for
a particular product
Approached To Build Brands
 Create brands for products targeting
different customer segments
 Operate under one brand everywhere in
 Put separate brand identities to each
business chain
Family Branding
 Using a brand name on a variety of
related products
Brand Name Stretching
 Limits of stretch to accommodate new
products & still fit perception depends on
what brand stands for
 Overextended brand:
 Alienate loyal customers
 Put it in danger of losing identity
 Partnership between two or more
companies to closely link their brand
names together for a single product
 Help companies reach new audiences &
tap equity of particularly strong brands
 Help in changing product image
Packaging & Labeling Your
 Packaging:
 Protect product from damage or tampering
 Make product convenient for customers to purchase
 Makes products easier to display
 Facilitates sale of smaller products
 Provide convenience (e.g. foods: ready to eat out of wrapper)
 Essential part of some products (e.g. toothpaste)
 Important role in Marketing strategy
 Package shape, composition & design:
 Attract consumers attention
 Promote product’s benefits
 Innovative packaging give product powerful marketing boost
while poorly designed packaging may drive customers away
 Labeling is integral part of packaging & serves to identify
a brand
 Label types:
 Separate element attached to package
 Printed part of container
 Label uses:
 Gives grading information about product, or about ingredients,
operating procedures, shelf life, or risks
 Labeling of foods, drugs, cosmetics & health products regulated
under federal laws which requires disclosure about benefits,
dangers & other issues consumers need
 Communicate with consumers
 Tool for monitoring performance & inventory of manufacturers &
Universal Product Codes (Upcs)
 A bar code on a product’s package that
provides information read by optical
Developing Pricing Strategies
Developing Pricing Strategies
 is only element in marketing mix produces
revenues, all other elements represent cost
 determines the amount of income
generated from sales of product
 differentiate product from competitors
 If too much generate fewer sales
 If too little sacrifice profits
Break-even Analysis
 Break-even analysis: method of calculating the
minimum volume of sales needed at a given
price to cover all costs
 Variable costs: business costs that increase with
the number of units produced
 Fixed Costs: business costs that remain
constant regardless of the number of units
 Break-even point: sales volume at a given price
that will cover all of a company costs
Break Even Analysis (cont.)
 Doesn’t dictate price to charge
 Provides some insight into number of units
to sell at a given price to make profit
 Useful when calculating the effect of
special pricing promotion
 Allows to try different prices & see results
by using spreadsheet software
Break-even Point
 Break-even point=
fixed costs
selling price per unit – variable costs per unit
Factors Affecting Pricing Decisions
Pricing determined by:
 Manufacturing
 Selling costs
 Competition
 Needs of distributers (wholesalers &
Pricing Influenced By:
 Marketing objectives
 Government regulations
 Consumer perceptions
 Consumer demand
Price & Marketing objectives
 Match price to objectives in strategic marketing plan
 Common objectives
 increase market share
 increase sales
 improve profits
 project a particular image
 combat competition
 Slashed prices boost sales & fend-off lower-priced rival
 Premium pricing with other marketing mix give luxury
Price & Government regulations
 To protect consumers & encourage fair
 Classes of pricing regulated:
 Price fixing (agreement among companies
supplying the same products as to prices they
will charge)
 Price discrimination (unfairly offering attractive
discounts to some customers not to others)
 Deceptive pricing (pricing schemes consider
Pricing & Consumer perceptions
 Customers will elicit perception of quality
from price
 Rough price range usually in customers
 Unexpectedly low price triggers fear the
item is low quality
 Unexpectedly high price make buyers
question is product worth
Pricing & Consumer demand
 Costs establish floor for price
 Demand establish ceiling for price
 Theoretically:
 if price too high demand fall & Producers reduce
prices to stimulate demand
 if price too low demand increases & producers
motivated to raise prices
 When prices climb & profits improve producers boost
output until supply & demand balance
Price elasticity
 Some products insensitive to changes in
price & Some products highly responsive
 Price elasticity: a measure of the
sensitivity of demand to changes in price
Pricing Methods
 Cost-based & Priced-based pricing
 Price skimming
 Penetration pricing
Cost-based Pricing
 Cost-based pricing (cost plus pricing):
 Starting with cost of production
 Then add markup to the cost of product
 Simple but little sense
 Ignores demand & competitors prices, & not
lead to best price
 Ensure certain profit but sacrifice profit
Priced-based Pricing
 Maximize profit by establishing optimal price for
 How to optimize the price?
 Based on analysis of product’s competitive advantage
 User’s perception of item
 Market targeted
 When price established, focus on keeping costs
at level allows healthy profit
 Few businesses fail from over pricing
 Many businesses fail from underpricing
Price Skimming
 Skimming: charging a high price for a new product
during the introductory stage & lowering the price later
 Price vary depending on stage in product life cycle
 During introductory phase objective to recover
development costs ASAP, so price is high & the drop
later when product no longer novelty & competition heats
 Makes sense under 2 conditions:
 Product quality & image support higher price
 Competitors cannot enter market with competing products &
undercut price
Penetration Pricing
 Penetration Pricing: introducing a new product at a low price
in hopes of building sales volume quickly
 Advantages:
 discouraging competition because the low price
 Limits profit for everyone
 Helps expanding entire product category by attracting
customers who don’t buy at higher, skim-pricing levels
 If you compete pioneers in category, this strategy helps in
taking customers away from pioneer
 Makes sense when market highly price sensitive, so low price
generates additional sales & company maintain low-price
position long to keep out competition
Price Adjustment Strategies
 Price discounts
 Bundling
 Dynamic Pricing
Price Discounts
 Discount Pricing: offering a reduction in price
 Depend on type of customer targeted & type of
item offered
 Discount boost sales but can touch off price
wars between competitors
 Price war encourage customers to focus only on
pricing not on value or benefits
 Price war can hurt entire industry for years
 To offset loss of revenue stock shelves with
more profitable items otherwise if you couldn't
compete you close up business
 Wholesaler or retailer Discount: to encourage
 Customer cash discount: to reward customers
who pay cash or pay promptly
 Quantity discount: to Large volumes buyer
 Seasonal discount: to who buy out of season
 Value pricing: charging affordable price for high
quality offering (for certain times or certain
customer segment)
 Definition: Combining several products &
offering the bundle at a reduced price
 Promote sales of products consumers
might not otherwise buy
 Make products harder for consumers to
make price comparison
Dynamic Pricing
 Definition: Charging different prices depending on
individual customers & situations
 By using internet technology
 Enables to move slow-selling merchandise instantly
 Allows to experiment with different pricing levels
 Tactics:
 Auction pricing (buyers bid against each other & the highest bid
 Group buying (buyers obtain volume discount by joining buying
 Name-your-price (buyers specify how much to pay & sellers
choose whether to sell)