introduction to business chapter 12 creating and pricing products
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INTRODUCTION TO BUSINESS
CHAPTER 12
Creating and Pricing Products
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Background on Products
Product: a physical good or service that can satisfy consumer needs.
Convenience products: products that are widely available to consumers, are purchased frequently, and are easily accessible.
Specialty products: products that are not purchased frequently.
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Background on Products
Product line: a set of related products or services offered by a single firm.
Product mix: the assortment of products offered by a firm. Diversifying the Product Mix
Improving the Convenience of the Product
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Product Life Cycle Phases
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Identifying a Target Market
Target market: a group of individuals or organizations with similar traits who may purchase a particular product.
Consumer markets
Industrial markets
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Identifying a Target Market
Factors That Affect the Size of a Target Market Demographics: characteristics of the human
population or specific segments of the population.
Geography Economic Factors Social Values
The Use of E-Marketing to Expand the Target Market
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Changes in Consumer Characteristics
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Your Business Plan
GenderEthnicity (optional)Income level (10K range)Geographic RangeSocial Values (lifestyle)Other
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Creating New Products
Obsolete: less useful than in the past. Fashion obsolescence: no longer being in
fashion. Technological obsolescence: being inferior to
new products.
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Steps Involved in Creating or Revising a Product
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Product Differentiation
Some products are primarily differentiated from others by their packaging, like the perfume in this photo. The packaging is intended to attract a particular target market.
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Product Differentiation
Unique Branding Branding: a method of identifying products
and differentiating them from competing products.
Trademark: a brand’s form of identification that is legally protected from use by other firms.
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Product DifferentiationMethods Used to Differentiate Products
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Pricing Strategies
Pricing According to the Cost of Production Cost-based pricing: estimating the per-unit
cost of producing a product and then adding a markup.
Economies of Scale Pricing According to the Supply of Inventory
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Pricing Strategies
Pricing According to Competitors’ Prices Penetration pricing: the strategy of setting a lower
price than those of competing products to penetrate a market.
(Price-elastic: the demand for a product is highly responsive to price changes. Price-inelastic: the demand for a product is not very responsive to price changes.)
Defensive pricing: the strategy of reducing a product’s price to defend (retain) market share.
Predatory pricing: the strategy of lowering a product’s price to drive out new competitors.
Prestige pricing: the strategy of using a higher price for a product that is intended to have a top-of-the-line image.
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Pricing Strategies -REQUIRED
Competition Defensive Predatory Prestige Skimming Penetration
SupplyCost
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Pricing Strategies
Boutique clothing shops, such as the one shown here, commonly charge relatively high prices to denote prestige and attract customers who want special designer clothing.
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Pricing Strategies
Example of Setting a Product’s Price Fixed costs: operating expenses that do not
change in response to the number of products produced.
Variable costs: operating expenses that vary directly with the number of products produced.
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Pricing Strategies
Break-Even Point: the quantity of units at which total revenue equals total cost. Contribution margin: the difference between
price and variable cost per unit. www.javacalc.com (let’s go there!)
Pricing Technology-Based Products
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Pricing StrategiesEstimation of Costs and Revenue at Various Quantities Produced
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Pricing StrategiesEstimation of Costs and Revenue at Various Quantities Produced
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Additional Pricing Decisions
Discounting Sales Prices Credit Terms