Module 3 PRODUCT & PRICING DECISIONS.ppt
- 2. What is a Product? Anything that can be offered to a market for attention, acquisition, use or consumption. Satisfies a want or a need. Includes: Physical Products Services Persons Places Organizations Ideas Combinations of the above
- 3. Levels of Product Brand Name Quality Level Packaging Design Features Delivery & Credit Installation Warranty After- Sale Service Core Benefit or Service Actual Product Core Product Augmented Product
- 4. Product Classifications Consumer Products Shopping Products > Buy less frequently > Gather product information > Fewer purchase locations > Compare for: • Suitability & Quality • Price & Style Convenience Products > Buy frequently & immediately > Low priced > Many purchase locations > Includes: • Staple goods • Impulse goods • Emergency goods Specialty Products > Special purchase efforts > Unique characteristics > Brand identification > Few purchase locations Unsought Products > New innovations > Products consumers don’t want to think about > Require much advertising & personal selling
- 5. Product Classifications Industrial Products Supplies and Services Materials and Parts Capital Items
- 6. New-Product Development Strategy A firm can obtain new products through: • Acquisition refers to the buying of a whole company, a patent, or a license to produce someone else’s product. • New product development refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development.
- 7. New-Product Development Process 1. Idea generation 2. Idea screening 3. Concept development and testing 4. Marketing strategy development 5. Business analysis 6. Product development 7. Test marketing 8. Commercialization
- 8. New-Product Development Process Idea Generation New idea generation is the systematic search for new product ideas. Sources of new-product ideas – Internal sources refer to the company’s own formal research and development, management and staff, and intrapreneurial programs. – External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms.
- 9. New-Product Development Process Idea Screening Idea screening refers to reviewing new-product ideas in order to drop poor ones as soon as possible. Concept Development and Testing Product idea is an idea for a possible product that the company can see itself offering to the market. Product concept is a detailed version of the idea stated in meaningful consumer terms. Product image is the way consumers perceive an actual or potential product. Concept testing refers to testing new-product concepts with groups of target consumers. To find out how attractive each is to customers, and choose the best one.
- 10. New-Product Development Process Marketing Strategy Development Marketing strategy development refers to the initial marketing strategy for introducing the product to the market. Marketing strategy statement Part 1: Description of the target market The planning product positioning; sales, market share, and profit goals Part 2: Price distribution and budget Part 3: Long-term sales, profit goals, and marketing mix strategy
- 11. New-Product Development Process Business Analysis Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives. Product Development Product development involves the creation and testing of one or more physical versions by the R&D or engineering departments. - Requires an increase in investment
- 12. New-Product Development Process Test Marketing Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings. Test marketing provides the marketer with experience in testing the product and entire marketing program before full introduction. When firms test market: New product with large investment; Uncertainty about product or marketing program When firms may not test market: Simple line extension; Copy of competitor product; Low costs; Management confidence
- 13. New-Product Development Process Commercialization Commercialization is the introduction of the new product into the market When to launch Where to launch Planned market rollout (the widespread introduction of a new product )
- 14. Managing New-Product Development New-Product Development Strategies 1. Customer-centered new product development 2. Team-based new product development 3. Systematic new product development
- 15. Managing New-Product Development New-Product Development Strategies Customer-centered new-product development focuses on finding new ways to solve customer problems and create more customer satisfying experiences Begins and ends with solving customer problems The most successful new products are ones that are differentiated
- 16. Managing New-Product Development New-Product Development Strategies Sequential new product development is a development approach where company departments work individually to complete each stage of the process before passing along to the next department or stage: increased control in risky or complex projects; slow – not good! Team-based new-product development is a development approach where company departments work closely together in cross-functional teams, overlapping in the product-development process to save time and increase effectiveness. – increase tension and confusion – is faster and more flexible
- 17. Managing New-Product Development New-Product Development Strategies Systematic new product development is an innovative development approach that collects, reviews, evaluates, and manages product ideas. Creates an innovation-oriented culture Yields a large number of new-product ideas
- 18. Product Life-Cycle Product life-cycle (PLC) is the course that a product’s sales and profits take over its lifetime. Product development Introduction Growth Maturity Decline
- 19. Product Life-Cycle Sales and profits over the product’s life from inception to decline
- 20. Product Life-Cycle Strategies Introduction stage is when the new product is first launched. Takes time Slow sales growth Little or no profit High distribution and promotion expense
- 21. Product Life-Cycle Strategies Sales increase New competitors enter the market Price stability or decline to increase volume Consumer education Profits increase Promotion and manufacturing costs gain economies of scale Product quality increases New features New market segments and distribution channels are entered Growth stage is when the new product satisfies the market.
- 22. Product Life-Cycle Strategies Maturity stage is a long-lasting stage of a product that has gained consumer acceptance. Slowdown in sales Many suppliers Substitute products Overcapacity leads to competition Increased promotion and R&D to support sales and profits. Marketers consider modifying strategies at the maturity stage Market modifying Product modifying
- 23. Product Life-Cycle Strategies Market modifying is when a company tries to increase consumption of the current product (New users; Increase usage of existing users; New market segments) Product modifying is changing characteristics (quality, features, or style) to attract new users and to inspire more usage. Marketing mix modifying is when a company changes one or more of the marketing mix elements. Price Promotion
- 24. Product Life-Cycle Strategies Decline stage is when sales decline or level off for an extended time, creating a weak product. Maintain the product without change in the hope that competitors leave the industry Reposition or reformulate the product in hopes of moving back into the growth stage Harvest the product that means reducing various costs and hoping that sales hold up Drop the product by selling it to another firm or simply liquidate it at salvage value
- 25. Width - number of different product lines Length - total number of items within the lines Depth - number of versions of each product Product Mix - all the product lines offered Product Mix Decisions Consistency
- 26. Intangibility Inseparability Variability Perishability Can’t be seen, tasted, felt, heard, or smelled before purchase. Can’t be separated from service providers. Quality depends on who provides them and when, where and how. Can’t be stored for later sale or use. Characteristics of Services
- 27. PRICING DECISIONS “There are two fools in every market. One charges a very high price and another charges a very low price”
- 28. • Definition – The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service. (Kotler and Armstrong) • Different terms are used to refer to price depending on what's being paid for – rent, fare, fee, interest, tuition, premium, salary, bride price.
- 29. Factors to consider when setting price • INTERNAL and EXTERNAL factors • Internal factors • 1. Marketing objectives – The overall strategy for the product will affect price. The selected target market and positioning matters. Eg a product intended for an exclusive up market will be priced highly. Other objectives include:
- 30. - Survival - Current profit maximization - Market share objectives - Product quality leadership - Keep competitors from entering the market 2. Marketing mix strategy – Price decisions must be coordinated with other elements of the marketing mix. Eg The decision to position a product on high performance quality means that its price should be high.
- 31. • 3. Cost - This sets the floor for the price that a company can charge. Price charged should cover all costs and allow a fair return on investment. • 4. Organizational considerations – Who within the organization sets prices? • In small companies, prices are set by top management.
- 32. • In large companies, price is set by divisional or product line managers • In industrial markets, sales people negotiate with customers within certain price ranges. • Some companies have a pricing department that reports to the marketing dept or top management.
- 33. 5. Stage of the product in the PLC. External factors 1.The market and demand – These set the upper limit of prices. Before setting prices, marketers must understand the relationship between price and demand for its product.
- 34. • The type of market affects pricing. • - PERFECT COMPETITION : Many buyers and sellers. There is a going price for the product. • - MONOPOLISTIC COMPETION : Market has many buyers and sellers who trade over a range of prices. Products are differentiated, so customers are willing to pay different prices for similar products.
- 35. • - OLIGOPLISTIC COMPETITION : Market has few sellers who are sensitive to each other’s pricing. • - PURE MONOPLY : There is only one seller in the market. The non regulated monopoly is free to set price that the market will bear. A government monopoly may set price below cost to make the product affordable.
- 36. • Or it may price to cover cost or to earn good revenue. • Consumer perception of price and value – This also affects price. Consumers expect the price to conform to the value they attach to the product. • Price elasticity of demand – The sensitivity of demand to change in price.
- 37. • Demand may be elastic or inelastic . • 2. Competitors – Their costs, prices, and offers. How are they likely to react to the company’s pricing moves? • Use these as a starting point for pricing • 3. Economic conditions – inflation, interest rates, boom or recession. These affect the cost of producing a product and consumer perceptions of price and value.
- 38. • 4. Government regulations • 5. Social concerns
- 39. Pricing approaches • Cost based pricing: • a) Cost plus pricing – add a standard mark up to the cost of the product. • B) break even pricing – Set price to break even on the costs of making and marketing a product • Competition based pricing – Pricing that focuses on what competitors are doing.
- 40. • a) Going rate pricing - Base price largely on competitors prices with minimum attention to own costs or demand. Charge a price that is same, more, or less than major competitors. In Oligopoly markets, there is a price leader that others follow. • b) Sealed bid pricing – Price is based on what the firm thinks competitors are quoting.
- 41. • Value based pricing – Setting price based on buyers’ perceptions of value rather than on the seller’s cost. The company sets its target price based on customer perceptions of the product value. These drive decisions about product design and what costs can be incurred. Thus pricing begins with analyzing consumer needs and value perceptions, and price is set to march the perceived value.
- 42. Pricing strategies A look at pricing strategies available to address different situations. New product pricing strategies a) Pricing for a product that imitates existing products – The product has to be positioned against competing products in terms of quality and price. There are 4 positioning strategies:
- 43. • - Premium pricing strategy : High quality product with a high price. • - Good value strategy : High quality product sold at a lower price • - Overcharging strategy : Overcharge the product in relation to its quality • - Economy strategy : Producing a low quality product and charging a low price.
- 44. • b) Pricing for an innovative product – There are two options. • - Market skimming pricing • - Market penetration pricing
- 45. • Product mix pricing strategies – When a company has a wide range of products, the pricing of individual products is done taking into account other products in the mix. • a) Product line pricing – Setting the price steps between various products in a line, based on cost differences between products, customer evaluations of different features, and competitors prices.
- 46. • b) Optional product pricing – Pricing of optional or accessory products that are being sold along with a main product. A decision has to be made on which items to include in the base price and which ones to offer as options. • C) Captive product pricing – Setting a price for products that must be used along with a main product. A low price may be set for the main product and a high markup set for the supplies.
- 47. • For services, there is two part pricing. Price is broken into a fixed fee plus a variable usage rate. The fixed fee should be low enough to induce usage of the service and a profit can be made on the variable fee. • c) By product pricing – Setting price for by products in order to make the main product’s price more competitive
- 48. • Accept a price for the by product that covers more than the cost of storage and delivery. This allows you to reduce the main product’s price and make it more competitive. • e) product bundle pricing – Combining several products and offering the bundle at a reduced price. The bundling can promote the sales of products that consumers might not otherwise buy.
- 49. • Price adjustment strategies – Companies may adjust the basic price to take into account customer differences and changing situations • a) Discount and allowance pricing : Adjust price to reward customers for certain responses. Includes, cash discount, quantity discount, trade discount, seasonal discount, trade in allowance, promotional allowance.
- 50. • b) Segmented pricing – Also called price discrimination. Selling products or services at two or more prices, even though the difference in prices is not based on differences in costs • C) Psychological pricing – Setting prices to take advantage of non logical reactions of consumers to certain types of prices.
- 51. • Examples are odd pricing and prestige pricing. • d) Promotional pricing – Using price as promotion tool. Temporarily reduce price to increase sales. Examples include: • * Loss leader pricing • * Special event pricing • * Special season pricing
- 52. • e) Geographical pricing – Deciding how to price products for customers located in different locations