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Page 1: Product Design Product Design Pricing and Strategies Pricing and Strategies 2
Page 2: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Product DesignProduct Design

Pricing and StrategiesPricing and Strategies

2

Page 3: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product Design - ObjectivesDesign - Objectives

Differentiate between a product item and product lineClassify products as consumer goods or business goodsExplain the seven steps in developing a new productIdentify the stages in a product’s life cycle

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Page 4: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Product DefinedProduct DefinedProducts are one the essential components in the marketing mixProducts can be tangible (sporting equipment)– Goods

Products can be intangible (sporting events) – Services

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Page 5: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Product Item and LineProduct Item and LineProduct Item – a specific model or size of a product– Nike’s Zoom Kobe is a product item

Product Line - Group of closely related products that are sold by a company

– Entire group of Nike athletic shoes would be their product line

– Nike has 3 product lines: athletic clothing, athletic footwear, sports equipment

– Makes up Nike’s product mix 5

Page 6: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Product ClassificationsProduct ClassificationsProducts can be classified as consumer goods or business goodsDifferent marketing approaches should be used to reach the different consumers– Consumer Goods are purchased and used by the ultimate

consumer for personal use• Sneakers bought by end consumer at Foot Locker• Promotion might be television commercial

– Business Goods are purchased by organizations for use in their operation

• Sneakers bought by Foot Locker to be sold to end consumer• Promotion might be discounts for volume purchases.

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Page 7: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Point of DifferencePoint of DifferenceProducts are designed to stand out in the marketplacePoint of Difference is a unique product characteristic or benefit that sets the product apart from a competitor’s product– Winning championships provide teams with

point of difference– Companies with certain product brands

work to communicate their products unique features and benefits to establish point of difference

– Product planning is crucial to success of a product 7

Page 8: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

1.1. SWOT AnalysisSWOT Analysis– Analysis of Company’s:

• Strengths• Weaknesses• External Opportunities• Threats in Marketplace

– Helps to develop a product that matches the company’s objectives

2.2. Idea GenerationIdea Generation– Generating new product ideas

• Consumers, Employees, R&D Developments, Competitors

– After getting a new idea from studying a competitor’s new product a company should write protocol

• A statement that identifies target market, customer’s needs and wants, and explains the new product & what makes it unique8

The seven steps in new product developmentNot all steps are followed each time

Page 9: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Nike Pump SneakersNike Pump Sneakers Reebok Pump SneakersReebok Pump Sneakers

Page 10: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

3.3. Screening and EvaluationScreening and Evaluation– Product idea is evaluated to see if

if company has technology needed to make product & meets company’s objectives

– Researchers work with focus groups to evaluate product idea

• Focus Group is a panel of six to 10 consumers who discuss their opinions about a topic under guidance of moderator

4.4. Business AnalysisBusiness Analysis– Financial aspects of making

and marketing the product are reviewed

– Must determine what is needed to take product idea to market

– Legal factors are analyzed to see if the product can be patented or copyrighted for protection against competitors

Page 11: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

5.5. DevelopmentDevelopment– Development of actual product– Prototype is the first model of the product – Company tests if product can be produced for reasonable cost– Technical problems and standards for quality and safety are evaluated

6.6. Test MarketingTest Marketing– Product tested in marketplace– Product is offered for sale in small geographic area– Marketers test all aspects of marketing mix (product, place, price, and

promotion)– Results can help project sales and market share– Some competitors may ruin test marketing by flooding test area with

special promotions or reducing its price

Page 12: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

7.7. CommercializationCommercialization– Commercialization is a process that involves producing and

marketing a new product– Product is offered in the marketplace for sale to final consumer– Full scale production during launch of new product– Regional roll-outs allow companies to launch product in

certain geographic areas over a set time period• Companies can build up production gradually and evaluate

marketing– Gatorade Commercial

Page 13: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Product Life CycleProduct Life CycleThe four stages in the product life cycle are:

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Introduction

Growth Maturity

DeclineProduct Life Cycle

Not all products fit the life-cycle pattern.

Page 14: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Product Life CycleProduct Life CycleIntroduction– Product is first introduced to the marketplace– Marketing focus is on promoting consumer awareness and getting

customers to try new product– Consumers are educated through advertising and promotion– Product Pricing:

• Skimming is pricing set high to cover costs of research & development

• Penetration is low pricing in order to quickly generated demand for product

– Distribution of product into marketplace is major task at this stage– Goal is to convince distributors to carry product

Page 15: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Product Life CycleProduct Life Cycle – cont.Growth– More competition in

marketplace if your product has success

– Stay competitive at this stage by improving product or adding new features or products to line

– Must increase distribution outlets at this stage

• Ex. From convenience stores to supermarkets

Page 16: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Product Life CycleProduct Life Cycle – cont.Maturity– Sales begin to slow down for the product category or just the

product• Repeat customers may stop buying the product• New buyers may be difficult to attract in this stage

– To keep product alive:• Company may make changes to the product to distinguish it

from competitors’ products• Marketers my focus on identifying new buyers

Page 17: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Product Life CycleProduct Life Cycle – cont.Decline– Sales and profits begin to drop– Products move into decline when newer and more improved

models replace the older ones• Ex. Technological advances

– Results of decline:• Product dropped from product line• Products in decline that are kept in product line get little or no

marketing support– Only keep product is to satisfy requests from loyal customers

Page 18: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Product Life CycleProduct Life Cycle – cont.Considerations– Not all products fit the life-cycle pattern– Consumer demand and continued sales

will allow products to stay in growth stage

– Fads have a short life cycle• Products that become popular quickly

and lose popularity quickly– Products requiring a lot of information

to educate consumers will stay in introduction stage for longer periods of time

Page 19: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.1 – Product Section 5.1 – Product DesignDesign

Management of the Product Life CycleManagement of the Product Life CycleProduct managers manage a produce through its lifecycle by:

– Modifying the product• Changing the product’s features, appearance, package, design or

quality in hopes to increase sales– Marketing the product

• Strategy to find new customers or to encourage current customers to use more of the product

– RepositioningRepositioning the product• Repositioning is changing a product’s image in relation to its

competitor’s image• A change in any of the four P’s of the marketing mix can be

enough to reposition a product

Page 20: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and Strategies - ObjectivesStrategies - Objectives

Define price and the role it plays in determining profit.Describe the factors that affect pricing decisions.Identify pricing strategies.

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Page 21: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

PricingPricing– Price is defined as the value placed on the goods or services

being exchanged• Price can be referred to as: Tuition, Fee, Toll, Fare, Rent,

Barter– Important in a business because it helps determine a

company’s profit or loss• To calculate Profit or Loss:

– Subtract the cost of goods sold and the company’s expenses from the money it generated

– Price plays a significant role in the marketing mix21

Page 22: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Determining Profit

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1,000baseballbats sold

($175x1,000)

$175,000revenue= -

$90,000 topurchasethe bats

($90x1,000)

-$60,000

in businessexpenses

= $25,000Profit

Subtract the cost of goods sold and the company’s expenses from the money it generated in sales revenue.

Page 23: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

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Consumer Perception, demand, cost, product, life-cycle stage, and competition influence the pricing strategies that businesses use

Consumer PerceptionConsumer PerceptionConsumers believe that higher prices suggest higher quality– Marketers use this perception to price goods and services

Image of a product is closely related to its priceHigh quality products priced low may not sell as much as it would at a higher price– Prestige pricing is pricing based on consumer perception

Page 24: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

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Consumer PerceptionConsumer Perception – cont.Odd-even pricing is another pricing strategy related to consumer perception– Odd-even pricing is pricing goods with either an odd number or an even

number to match a product’s image• Ex. An item priced with odd number, such as $25.99, suggests a

bargain• Ex. An item priced with even number, such as $26, suggests a quality

itemTarget pricing is another pricing strategy related to consumer perception– Target pricing is pricing goods according to what the customer is willing

to pay– Manufacturers estimate the target price to determine how much to

charge wholesalers and retailer for that item– Manufacturers figure the retailer expected markup in order to set the

price

Page 25: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

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DemandDemandRelated to price in many waysIf product is in high demand, and there is limited supply, its price will be high– Ex. Events with a limited number of seats will be able to charge a high

price for tickets– Ex. Companies can create demand for an item by only producing a

limited edition of an item so it can be priced high

If there is a large supply of an item and demand is not great, dealers may lower prices to increase demand– Ex. Retailers may do this near the end of a season when there is a supply

of merchandise that has not sold at the regular price

Page 26: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

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DemandDemand – cont.Elastic Demand– Supply and demand theory suggesting that a change in price will affect

demand– Ex. Demand will be lower for higher priced items because fewer people

can afford them

Inelastic Demand– Price has no effect on demand– Occurs when:

• A product is a necessity• There is no substitutes• Price increases is not significant relative to the customer’s income• There are time restraints

Page 27: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

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CostCostIn order to make a profit, businesses need to price an item higher than the cost they paid for itTwo pricing strategies related to cost:– Markup is the difference between the retail or wholesale price and the

cost of an item• Must be high enough to cover expenses and ensure profits• Product – line pricing is a markup strategy involving setting different

markup percentages for each product so that the average mark-up is achieved for the entire line of goods

– Cost-Plus Pricing is pricing products by calculating all costs and expenses and adding desired profit

• Cost of making item or providing the service is determined first and the amount of money to ensure a profit is tacked onto that amount

Page 28: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

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Newness of the ProductNewness of the ProductSkimming or Penetration pricing techniques are used when introducing a new product into a marketplace– Skimming – pricing high to recover costs– Penetration – Pricing low to create immediate demand for product

CompetitionCompetitionFind out what their competitors are charging for the same items they are selling before setting price– Lower prices to draw customers away from competitors– Non-price competition techniques can be used to draw customers away

from competitors through better quality, services, or relationships• Can charge higher prices if they provide these better than

competition

Page 29: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

Pricing Objectives and Pricing Objectives and StrategiesStrategiesPricing objectives are the goals that a company wants to achieve through pricingBusinesses often have additional goals that affect pricingTwo common pricing objectives involve increasing profit and improving market share

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Page 30: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Profit ObjectiveProfit ObjectiveMay have objectives to earn higher profitsCompany cannot charge more for its product even if costs and expenses increaseAlternatives to raising prices:– User Fees– Reduction of unneeded

features or size of product

Market Share ObjectiveMarket Share ObjectiveCompany may want a higher market share– Market share is the

percentage of the total shares of all companies that sell the same type of product

Company may lower the price of its product to increase its market share

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

Page 31: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

Special Pricing StrategiesSpecial Pricing StrategiesPrice LiningPrice Lining– Selling all goods in a product line at

specific points• $29.99• $39.99• $49.99

– Benefits:• Makes it easier for consumer to

make purchasing decisions• Easier to take markdowns• Inventory control simplified

Nike Elite Tournament 8-Panel Men’s Basketball - $45

Nike Elite Competition 8-Panel Men’s Basketball - $30

Men’s Dominate Basketball - $15

Page 32: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

Special Pricing StrategiesSpecial Pricing Strategies - cont - contBundle PricingBundle Pricing– Selling several items as a package

for a set price– Products purchased individually

would cost more than the package price

– Benefits• Customer benefit from lower price• Business benefits due to higher sales

and more products sold

$1.49 / bottle

$14.88 / 20 Pack($.74 / bottle)

Page 33: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

Special Pricing StrategiesSpecial Pricing Strategies - cont - contLoss-leader PricingLoss-leader Pricing– Pricing an item at cost or below

cost to draw customers into store– Benefits:

• Customers will buy other products while at the store

• Total purchases for the shopping visit will more than cover the money lost on the loss leader

$119.99(Regularly $144.99)

$14.99

$64.99

Page 34: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies

Special Pricing StrategiesSpecial Pricing Strategies - cont - contYield-Management PricingYield-Management Pricing– Pricing items at different prices to

maximize revenue when limited capacity is involved• Ex. Pricing tiers at sports arena or

stadium• Tiered Pricing is when teams charge

more for tickets to home games against more competitive opponents that might draw more attendance

Page 35: Product Design Product Design Pricing and Strategies Pricing and Strategies 2

Price Adjustments and RegulationsPrice Adjustments and RegulationsTo maintain integrity of published prices, marketers will make price adjustments

through discounts or allowancesWhen offering discounts or allowances must make sure not pricing regulations are

brokenDiscounts`Discounts`Discounts provided for volume purchasingOffer trade discounts to wholesalers & retailers

AllowancesAllowancesReductions taken from the quoted price– Ex. Reduction due to trade-in

allowance

Regulatory FactorsRegulatory FactorsPricing is subject to gov’t regulationsSherman Anti-Trust act prohibits price fixing and predatory pricing

– Price Fixing is when competitors conspire to set same price

– Predatory Pricing is setting prices low to drive competitors out of business

Robinson-Patman Act protects against price discrimination

– Price Discrimination is charging different prices to similar buyers

Section 5.2 – Pricing and Section 5.2 – Pricing and StrategiesStrategies