product development and pricing strategies better business 1st edition poatsy · martin © 2010...
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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.
© 2010 Pearson Education, Inc. 2
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
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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
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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
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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
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Consumer Product Classifications
Convenience goods• Purchased frequently and habitually• Nondurable goods• Relatively low-priced• Bought based on location and
brand-name image
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Consumer Product Classifications
Shopping goods• Purchased less frequently than
comparison shopping• Durable goods• Moderate expense• Bought based on price, quality, and
brand-name image
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Consumer Product Classifications
Specialty goods• Purchased very infrequently with
great time and effort• Durable goods• No substitutes• Expensive• Bought on brand image
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Consumer Product Classifications
Unsought goods• Unplanned purchase• Purchased when needed• Requires personal or promotional
selling• Price may not be an important
consideration
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Component PartsComponent PartsMaintenance, Maintenance,
Repair, OperatingRepair, Operating
Raw and Processed Raw and Processed MaterialsMaterials
EquipmentEquipment
Business-to-Business Product Classifications
SpecializedSpecializedProfessional Professional
ServicesServices
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Business-to-Business Product Classifications
Equipment• Also called capital items• Includes all physical facilities• Expensive and long-lasting• Purchase is negotiated• Suppliers offer financing, and
maintenance after the sale
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Business-to-Business Product Classifications
Maintenance, Repair, Operating• “MRO” products• Facilitate production, but not part of
finished good• Marketed on convenience
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Business-to-Business Product Classifications
Raw and Processed Materials• Basic inputs for finished goods• Often purchased in large quantities• Price is a major factor
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Business-to-Business Product Classifications
Component Parts• Assembled portions of the finished
product• Purchase based on quality and
brand-name recognition
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Business-to-Business Product Classifications
Specialized Professional Services• Help with a firm’s operations• Companies compare costs and
quality of completing inhouse or outsourcing
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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
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Branding• Brand loyalty
o Brand recognitiono Brand preferenceo Brand insistence
• Brand equity• Brand awareness• Brand association
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Branding Strategies
• Generic brand• Manufacturer’s (or national) brand• Private brand• Family brand
o Brand extension• Individual brand• Co-brand• Brand licensing
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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
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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
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New Product Development
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The Product Development Life Cycle
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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
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Pricing Objectives
1. Maximizing profits2. Achieving greater market share 3. Maximizing sales4. Building traffic5. Status quo pricing6. Survival7. Creating an image8. Achieving social objectives
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 27
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
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 28
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
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 29
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
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 30
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
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 31
Competition-Based Pricing
• Prices based on what the competition charges
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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
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 33
Adjusting Prices
• Discountso Quantityo Casho Seasonalo Allowances (trade-in)
• Rebates• Bundling• Dynamic pricing
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 34
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?
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 35
Beyond the Book
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Simple Brand Success Stories
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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
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 38
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
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 39
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
© 2010 Pearson Education, Inc. Publishing as Prentice Hall 40