Product Development and Pricing Strategies Better Business 1st Edition Poatsy · Martin © 2010...

Product Development and Pricing Strategies

Better Business1st EditionPoatsy · Martin

© 2010 Pearson Education, Inc. 1

chap

ter

13

Slide presentation prepared by Pam JansonStark State College of Technology

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.


Learning Objectives

1. What are the definitions of a product and a total product offer?

2. What is product differentiation, and what role does it play in product development?

3. What are the different classifications of consumer products and business-to-business products?

4. Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

5. What steps take place during new product development, and what is the product life cycle?

6. What are some pricing objectives, and how do they relate to the marketing mix?

7. What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

© 2010 Pearson Education, Inc. Publishing as Prentice Hall 3

Total Product Offer

Product levelso Core: basico Actual: tangibleo Augmented• core + actual + all

real and perceived benefits


Product Differentiation

• The process of distinguishing a product from its competitiono With physical or intangible differences

• Critical for a product’s successo Helps motivate customers to buy

• Companies define a target market and create total product offeringso Consumer input helps


Product Lines and Product Mix

• A product line is a group of similar products marketed to one general marketo Product line length is the number of

products in a product line

• A product mix is the combination of all product lines offered for sale by a companyo Product mix width refers to the number of

different product lines a company offers© 2010 Pearson Education, Inc.

Publishing as Prentice Hall 6

Consumer and B2B Products

ConsumerConsumer

• Purchased by households for personal consumption

• Traded in consumer markets

• Purchased by households for personal consumption

• Traded in consumer markets

Business to BusinessBusiness to Business

• Sometimes called industrial products

• Purchased by businesses for further processing, resale, or as supplies

• Traded in B2B markets

• Sometimes called industrial products

• Purchased by businesses for further processing, resale, or as supplies

• Traded in B2B markets


Can an item be a consumer product and a B2B product too?

Shopping goodsShopping goods Unsought goodsUnsought goods

Specialty goodsSpecialty goodsConvenience goodsConvenience goods

Consumer Product Classifications



Convenience goods• Purchased frequently and habitually• Nondurable goods• Relatively low-priced• Bought based on location and

brand-name image



Shopping goods• Purchased less frequently than

comparison shopping• Durable goods• Moderate expense• Bought based on price, quality, and

brand-name image



Specialty goods• Purchased very infrequently with

great time and effort• Durable goods• No substitutes• Expensive• Bought on brand image



Unsought goods• Unplanned purchase• Purchased when needed• Requires personal or promotional

selling• Price may not be an important

consideration


Component PartsComponent PartsMaintenance, Maintenance,

Repair, OperatingRepair, Operating

Raw and Processed Raw and Processed MaterialsMaterials

EquipmentEquipment

Business-to-Business Product Classifications

SpecializedSpecializedProfessional Professional

ServicesServices



Equipment• Also called capital items• Includes all physical facilities• Expensive and long-lasting• Purchase is negotiated• Suppliers offer financing, and

maintenance after the sale



Maintenance, Repair, Operating• “MRO” products• Facilitate production, but not part of

finished good• Marketed on convenience



Raw and Processed Materials• Basic inputs for finished goods• Often purchased in large quantities• Price is a major factor



Component Parts• Assembled portions of the finished

product• Purchase based on quality and

brand-name recognition



Specialized Professional Services• Help with a firm’s operations• Companies compare costs and

quality of completing inhouse or outsourcing


Brands• Brand

o Is a name, term, symbol, or design that distinguishes a company and its products from all others

o Is an important product differentiation tool

• Brand extension• Trademark

o Knockoff brands


Branding• Brand loyalty

o Brand recognitiono Brand preferenceo Brand insistence

• Brand equity• Brand awareness• Brand association


Branding Strategies

• Generic brand• Manufacturer’s (or national) brand• Private brand• Family brand

o Brand extension• Individual brand• Co-brand• Brand licensing


Packaging• Crucial to success of

product, because customers typically see the packaging before they see the product

• Packagingo Contains/protects producto Facilitates use/convenienceo Promotes producto More emphasis on being

environmentally friendly


The Importance of Labels

• Labeling serves two functions: to inform and to persuade

• Fair Packaging and Labeling Act of 1966 requires o The product identityo Name and place of businesso Net quantity

• Nutrition Labeling and Education Act of 1990 requires consistent nutrition and health claims

• Labels promote the product’s features, benefits, and brand


New Product Development


The Product Development Life Cycle


Marketing Decisions Affect a Product’s Life Cycle

Marketing Decision Example

Extend life of an existing product

Automobile discounts, rebates, and low-interest loans

Create new uses Arm & Hammer baking soda as a refrigerator deodorizer

Create new markets Home Depot and Lowe’s do-it-yourself training

Extend technology Jell-O gelatin to puddings and other snacks

Repackage Coca-Cola 6-oz bottles to 8-oz cans

Reposition “This isn’t your father’s Oldsmobile” campaign

© 2010 Pearson Education, Inc. Publishing as Prentice Hall

26

Pricing Objectives

1. Maximizing profits2. Achieving greater market share 3. Maximizing sales4. Building traffic5. Status quo pricing6. Survival7. Creating an image8. Achieving social objectives


Pricing Strategies: Cost-Based Pricing

• Charging a price in relation to the costs of providing a good or service

• Simple and popular pricing strategy• Advantages

o Easy to calculate and administero Requires minimum information

• Disadvantageso Ignores consumer price expectations and

competitors’ priceso Provides little incentive to keep costs low


Cost-Based Pricing Example

You make 100 units of a product at a total cost of $2,000

Per unit cost is $2,000 / 100 = $20

To make a unit profit margin, or markup, of 20%:.20 x $20 = $4

You need to charge:$20 + $4 = $24

Total revenue = 100 x $24 = $2,400 Profit = $2,400 – $2,000 = $400


Cost-Based Pricing: Break–Even Analysis

• Total costs = Total fixed costs + total variable costs

• Break-even volume of production= Total fixed costs / (Price – Average variable

costs)

• ExampleTotal fixed costs = $600, selling price = $24,

and average variable costs = $14

Break-even volume = $600 / ($24 - $14) = 60 units


Demand-Based Pricing

• Sometimes called value-based pricing• Pricing a good or service based on the

demand for the product or its perceived value

• Target costing: estimates value• Price discrimination: Charging

different prices for different customers


Competition-Based Pricing

• Prices based on what the competition charges


Type of Competition Pricing Strategy

Monopolistically competitive markets

• Firms with successful product differentiation strategies charge higher prices• Some firms may charge lower prices to get an edge on the competition.

Oligopolies • Do not compete on price to avoid price wars, competing on product differentiation instead• Periodically, a price leader may emerge and others will drop their prices

Monopoly • No competition, so has greatest price-setting ability•May see predatory pricing, the practice of charging very low prices with the intent to destroy the competition

Pricing Strategies

• When launching a new producto Price skimmingo Penetration pricing

• Everyday low pricing (EDLP)• Strategies to impact price perceptions

o Prestige (premium) pricingo Psychological pricingo Loss leader pricingo Reference pricing


Adjusting Prices

• Discountso Quantityo Casho Seasonalo Allowances (trade-in)

• Rebates• Bundling• Dynamic pricing


Chapter Summary1. What are the definitions of a product and a total

product offer?2. What is product differentiation, and what role does

it play in product development? 3. What are the different classifications of consumer

products and business-to-business products?4. Why is branding beneficial to both buyers and

sellers, and what are some different types of brands?5. What steps take place during new product

development, and what is the product life cycle?6. What are some pricing objectives, and how do they

relate to the marketing mix? 7. What are the three major approaches to pricing

strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?


Beyond the Book


Simple Brand Success Stories


Product / Company Brand MessageHBO “It’s not TV, it’s HBO.”

Titleist “We want every consumer, regardless of their skill level, to think of Titleist, first and foremost, as the number-one ball in golf.”

Forbes magazine “Capitalist tool.”

Advil “Advanced medicine for pain.”

Visa “Everywhere you want to be.”

Staples “Easy” button

Netflix Convenience

Collaborative Product Design:Next Generation Car

• Society for Sustainable Mobilityo Open Source Green Vehicle Projecto $30,000 seven-passenger SUV with 100 mpgo 150 engineers designing

• MIT Design Summito International open source student projecto Building a 200-mpg, four-seater hybrid for India

• Sabic Innovative Plasticso C,mm,n (pronounced “common”) open source car

projecto Managed by three technical universities in the

Netherlands


The Olympics and Product Innovation

• Basketball uniforms with zoned temperature venting

• Nike’s Zoom Victory running shoes weigh 93 grams (3.28 ounces)

• Adidas’ Lone Star’s racing spikes lean to the left (on a track there are no right turns)

• Speedo’s LZR Racer swimsuit compresses the body at key points and the panels shed water and are welded, not stitched together

• Nike’s tae kwon do boot is made of the loudest leather possible to ensure judges hear strikes


Pricing and the Apple iPhone 3G

• Feature-wise, the new iPhone mostly addresses the shortcomings of the old one

• It is much cheaper, starting at $199o Just below what the industry sees as the pain

threshold for the mass marketo Mobile operators, such as AT&T, subsidize the

new handsets to make the low price possible, but will increase monthly usage fees

• Apple’s goal is to sell 10 million iPhones by the end of 2008 o 6 million were sold as of mid-June 2008


Product Development and Pricing Strategies Better Business 1st Edition Poatsy · Martin © 2010...

Documents

Transcript of Product Development and Pricing Strategies Better Business 1st Edition Poatsy · Martin © 2010...