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Product Life Cycle

PLC: concept that explains how products


go through four distinct stages from birth
to death: introduction, growth, maturity,
and decline
Introduction
The introduction stage: the first stage of the product li
fe cycle in which slow growth follows the introduction
of a new product in the marketplace.
Product: single company produces single product
Goals: get the first-time buyers to try the prodcut
Sales: increase at a steady but low pace
Profits: negative
Pricing: High to recover R&D cost; Low to attract larg
e number of customers
Promotion: informing customers
Growth
The growth stage: the second stage in the product lif
e cycle during which the product is accepted and sal
es rapidly increase.
Product: new competitors enter the arket creating ne
w variations of the product
Goals: encourage brand loyalty
Sales: rapid increase
Profits: increase and peak
Pricing: may need to reduce because of increased c
ompetition
Promotion: heavy advertising to counter new compet
ition
Maturity
The growth stage: the third and longest stage in the
product life cycle in which sales peak and profit ma
rgins narrow
Product: new features added; sales are mostly repl
acement products
Goals: attract new users
Sales: peak, then level off, often decline
Profits: profit margins narrow
Pricing: price to maintain market share
Promotion: reminder advertising
Decline
The decline stage: the final stage in the product life
cycle in which sales decrease as customer needs c
hange
Product: number of variations reduced
Goals: remain profitable; decide whether to keep or
phase product out
Sales: continue to decline
Profits: declining
Pricing: may reduce if can remain profitable
Promotion: decreased to maintain profitability
Branding
Brand: a name, a term, a symbol, or any other uniqu
e element of a product that identifies one firms prod
uct(s) and sets them apart from the competition
Brand equity: the value of a brand to an organization
Brand extension: a new product sold with the same
brand name as a strong existing brand
How to select a good brand name: easy to say, easy
to spell, easy to read, easy to remember
Trademark: the legal term for a brand name, brand
mark, or trade character; trademarks legally register
ed by a government obtain protection for exclusive u
se in that country.
Characteristics of the Worlds Top
Brands
The brand excels at delivering the benefits customer truly
desire.
The brand stays relevant.
The pricing strategy is based on consumers perception of
value.
The brand is properly positioned.
The brand is consistent
The brand portfolio and hierarchy make sense
The brand makes use of and coordinates a full repertoire of
marketing activities to build equity.
The brands managers understand what the brand means to
consumers.
The brand is given proper support, and that sup0port is
sustained over the long run.
The company monitors sources of brand equity.
Branding Strategies
1.Individual brands v. family brands
Family brand (umbrella brand): a brand that
a group of individual products or individual
brands share
2.National brands v. store brands
National or manufacturer brands: brands that
the manufacturer of the product owns
Private-label brands or store brands: brands
that are owned and sold by a certain retailer
or distributor
Branding Strategies
3. Licensing (of a name): agreement in
which one firm sells another firm the right
to use a brand name for a specific
purpose and for a specific period of time.

4. Co-branding: an agreement between two


brands to work together in marketing a
new product
Packaging
Package: the covering or container for a
product that provides product protection,
facilitates product use and storage, and
supplies important marketing communication
Pricing
Price: the value that customers give up or
exchange to obtain a desired product
Price planning:
Step 1: develop pricing objectives
Step 2: estimate demand
Step 3: determine cost
Step 4: evaluate the pricing environment
Step 5: choose a pricing strategy
Step 6: develop pricing tactics
Pricing Objectives
Sales or market share objectives
Profit objectives
Competitive effect objectives
Customer satisfaction objectives
Image enhancement
Pricing Strategies
1. Pricing strategies based on cost
Cost-plus pricing: a method of setting prices in
which the seller totals all the costs for the
product and then adds an amount to arrive at
selling price.
Price-floor pricing: a method for calculating
price in which, to maintain full plant operating
capacity, a portion of firms output many be
sold at a price that covers only marginal costs
of production
Pricing Strategies
2. Pricing strategies based on demand
Demand-based pricing: a price-setting method based
on estimates of demand at different prices.
Target costing: a process in which firms identify the
quality and functionality needed to satisfy customers
and what price they are willing to pay before the
products is designed; the product is manufactured
only if the firm can control costs to meet the required
price.
Yield-management pricing: a practice of charging
different prices to different customers in order to
manage capacity while maximizing revenues.
Pricing Strategies
3. Pricing strategies based on the competition
Price leadership: a pricing strategy in which
one form first sets its price and other firms
in the industry follow with the same or very
similar prices.
Pricing Strategies
4. Pricing strategies based on customers needs

Value pricing or Everyday low pricing (EDLP) :


a pricing strategy in which a firm sets prices
that provide ultimate value to customers.
New-product Pricing
Skimming price: a very high, premium price that
a firm charges for its new, highly desirable
product

Penetration pricing: a pricing strategy in which a


firm introduces a new product at a very low price
to encourage more customers to purchase it.

Trial pricing: pricing a new product low for a


limited period of time in order to lower the risk for
a customer
Pricing Tactics
Two-part pricing: two separate types of
payments are required to purchase the
product, e.g. tennis club, cellular phone
service
Payment pricing: seeks to make the
consumer think the price is doable by
breaking up the total price into smaller
amounts payable over time, e.g. car
leasing market.
Price bundling: selling two or more goods
or services as a single package for one
price.
Pricing Tactics
Captive pricing: a pricing tactic for two
items that must be used together; one
item is priced very low and the firm makes
its profit on another, high-margin item
essential to the operation of the first item.
(razors and blazes)
Pricing Tactics
Geographic pricing:
F.O.B pricing: a pricing tactic in which the cost of
transporting the product from the factory to the
customers location is the responsibility of the
customer.
Zone pricing: a pricing tactic in which customers in
different geographic zones pay different
transportation rates.
Uniform delivered pricing: a pricing tactic in which a
firm adds a standard shipping charge to the price for
all customers regardless of location.
Freight absorption pricing: a pricing tactic in which
the seller absorbs the total cost of transportation.
Pricing Tactics
Discounting for members of the channel:
List price: the price the end customer is expected to
pay as determined by the manufacturer; also
referred to as the suggested retail price.
Trade or functional discount: discount off list price
of products to members of the channel of
distribution that perform various marketing
functions.
Quantity discounts
Cash discounts
Seasonal discounts
Psychological Pricing Strategies
Odd-even pricing
Price lining: the practice of setting a limite
d number of different specific prices, calle
d price points, for items in a product line.

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