product and price-The 4 P's of marketing

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Copyright Angela Lee, 2012 0

Consumer Behavior

Week 4: The 4 P’s

NYU

Fall 2012

Angela Lee

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Copyright Angela Lee, 2012

Co

nsu

mer

Pu

rch

asin

g P

rocess

Last week, we learned about Consumer Segmentation

1

Understand

consumer purchasing

process

Identify your

consumers and their

needs

Reach and influence

your consumers

1) Recognize problem

2) Seek information

3) Understand options

4) Decide / purchase

5) Evaluate purchase

Conduct

market

research to

understand

your

consumer

segments

and their

needs

Create a need

Make info available

Make product desirable

Make product accessible

Encourage re-purchase

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Co

nsu

mer

Pu

rch

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g P

rocess

This week, we’ll learn about the 4 P’s and how they can be used to reach

and influence your consumers

2

Understand

consumer purchasing

process

Identify your

consumers and their

needs

Reach and influence

your consumers

1) Recognize problem

2) Seek information

3) Understand options

4) Decide / purchase

5) Evaluate purchase

Conduct

market

research to

understand

your

consumer

segments

and their

needs

Create a need

Make info available

Make product desirable

Make product accessible

Encourage re-purchase

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Promotion

Product Price

Place

As a marketer, you have to think about 4 Ps as they relate to your

consumers

3

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Product: The

good or service

that fulfills the

consumer’s need

The 4 P’s – Product

4

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The 4 P’s – Product Attributes

5

Product: The

product or service

that fulfills the

consumer’s need

Need

Features

Variations

Quality

Packaging

Design

Experience

Competitors

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6

• What need is the customer is trying to satisfy?

• Is this need known? (“I need to get a mortgage”)

• Or is this need unknown (latent)? (“I came to the grocery store for

produce, but those Doritos sure look good”)

Questions

to ask

Example(s)

Need

In 2006, Nike and Apple created the first shoe

that synced with your iPod

• Receiver in shoe tracked distance ran

• Allowed consumers to share running data

• Allowed people to challenge other runners.

The result? A new market was born that

integrated social media with technology in the

realm of fitness – a latent need was discovered

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7

Famous quote about latent needs:

"If I had asked my customers what they had wanted,

they would have said a faster horse.“

- Henry Ford

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8

Focusing on consumer needs enabled these products

to be created:

Did you know that Rogaine was originally developed

as a blood pressure drug when patients started

noticing thicker hair?

Did you know that Latisse (eyelash growth serum) was

originally created as a glaucoma drug? It got re-

marketed as a eyelash growth serum after patients

began noticing the side effect of longer, fuller lashes

Did you know that Viagra was originally created to

treat heart problems? Again, unintended side affect

turned main product!

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9

• What features do you need to satisfy your consumers’ needs?

• Are you including so many that the product is getting muddled?

(Common problem in product design)

• Are you including so many that your product is too expensive to

produce or purchase?

Features

In the mid-2000’s, a site was created called www.hotornot.com. When

launched, it had one feature – to rate attractiveness of uploaded photos.

It was acquired for $20M and today is a dating site with 160M users

Questions

to ask

Example(s)

http://www.hotornot.com/

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10

• Do I want one product or a variety of products with different features?

• What are the different features to include in each model/variation?

• What are the different consumer segments for each model/variation?

Variations

Questions

to ask

Example(s)

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11

The retail space is filled

with examples of

companies that

differentiate between

different product lines

(For Target)

What do you

think are the

impacts on this

to the overall

brand?

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12

• Is your product a premium product or a budget product (note that this

doesn’t always mean low quality)?

• How do you want to be perceived compared to your competitors?

• How do you want to be priced in the market?

Quality

Jetblue has made a name for

themselves by targeting the

budget traveler

Alternatively, Singapore Airlines is

known for their high-touch

customer service and is a premium

airline with premium pricing

Questions

to ask

Example(s)

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13

• How do you want people to use/interact with the product?

• What user experience do you want the consumer to have with the

product?

Design

Winner of Red Dot

Design Award in 2011,

Tapi was a simple way

to turn any faucet into

a water fountain

Questions

to ask

Example(s)

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14

• What do you want your packaging to say about your product or target

consumer segment?

• Is your packaging part of the product itself, or simply a delivery

mechanism?

Packaging

Absolut Vodka is known as

much for their packaging as

for the product itself

Contrast that with Grey

Goose, who markets the

quality/taste of their product

(features)

Questions

to ask

Example(s)

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15

• Remember that the product includes the entire experience from

beginning to end. What do you want the user experience to be?

• How will you choose your shipping carrier, packaging you ship in, return

policies, and customer service policies?

Experience

Nordstrom became famous in

the 90’s for their amazing

customer service

• Lenient return policies

• Staff that went above and

beyond

Questions

to ask

Example(s)

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16

Experience

The Zappos customer

experience has been so much a

part of the company’s success

that the company holds training

sessions for other companies on

how to improve customer service

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17

• What products exist in the market today that meet the same needs?

What products will be used in association with my product that I need to

think about?

Competitors

Adidas and Polar Electro

created Project Fusion, which

integrates heart rate and speed

and distance monitoring

equipment into sports apparel

Pottery Barn and Benjamin

Moore Paints joined forces to

create a new line of paint

Questions

to ask

Example(s)

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18

Sometimes co-

branding with

competitors creates

delicious results!

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Sometimes, it is hard to know where one Product attribute

ends and another begins

19

Product: The

product or service

that fulfills the

consumer’s need

Need

Features

Variations

Quality

Packaging

Design

Experience

Competitors

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20

Are Pringles:

The result of meeting a latent

customer need (wanting whole

chips)?

An evolution in Product design?

Simply innovative Product

packaging?

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21

Is this product:

Calling out a latent

need to the consumer?

Innovative Product

packaging?

Creative Promotions

(we’ll get to this later)?

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22

The answer is – All of the

above! Focus less on

categorizing what belongs

where and focus more on

thinking about these

attributes holistically

when you are developing

or managing a product

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Price: The

amount of money

the consumer

pays for the

product

The 4 P’s – Price

23

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There are four common methods to price a product

Cost Plus Value Based Competition

Based Going Rate


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Cost Plus

Based on what it

costs to produce

the product plus a

margin (markup)

on top of that cost

Value Based Competition

Based Going Rate


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Cost Plus

Based on what it

costs to produce

the product plus a

margin (markup)

on top of that cost


Based Going Rate


So if an item costs $100 to produce

And the company wants to make a 50% markup

Then the Price = $150

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Cost Plus

Based on what it

costs to produce

the product plus a

margin (markup)

on top of that cost


Based Going Rate


So if an item costs $100 to produce

And the company wants to make a 50% markup

Then the Price = $150

Margin = Price – Cost

Price

33% in our example

Markup = Price – Cost

Cost

50% in our example

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Cost Plus

This type of pricing is common in:

• Clothing retailers: typically

around 100% markup

• Grocery stores: between 5-30%

markup depending up on the

product category (e.g., produce vs.

junk food)


Based Going Rate


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Based Going Rate


Based upon what

the consumer

values the

product at and

what they are

willing to pay

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Based Going Rate


Very common in luxury goods

market where perceived value

often has nothing to do with

tangible costs or product

differentiation

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Based Going Rate


The cosmetics industry is

famous for this – often times a $10

and $30 item are manufactured in

the same factory with simply

different labels Lancome Juicy

Tubes: $18

L’Oreal Juice

Gloss: $8

Lancome and Loreal are owned by the same

company and the products are almost identical

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Based Going Rate


The pharmaceutical

industry is also well

known for value based

pricing – the same

chemical compounds

will sell for significantly

more simply for the

brand name

Generics are starting to fight back

with promotions educating consumers

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Based Going Rate


Based upon what

your competitors

are charging and

where you want

to be priced

relative to them

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Based Going Rate


Airlines and hotels

are industries that

commonly use

competition based

pricing

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Based Going Rate


Companies are getting

increasingly savvy about

pricing, using dynamic

pricing models to see real

time how competitors are

pricing and changing prices

by the second

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Based Going Rate


Some companies are

even more explicit,

saying they will beat

the competition’s

pricing

Walmart

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Based Going Rate


The danger of competition

based pricing is if two

competitor’s start a price war,

both companies could erode

their margins

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Based Going Rate


Based upon the

going rate in the

market –

companies have

little control over

that price

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Based Going Rate


Going rate is most

common in

commodities

industries (products

were there is little

differentiation

between companies)

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Based Going Rate


The way pricing

works in this case is

that a price is set by

the market and

sellers simply have to

follow suit (which is

why farmers are so

sensitive to price

fluctuations)

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Based

Companies will often use more than one method to price

1. For example, Singapore Airlines will see what other

airlines are charging for a flight between NY and Hong

Kong (competition based)

2. They will then add on a premium for better service and

brand (value based)

3. They will then check that against labor and fuel costs

to ensure they are meeting their margins (cost plus)

Going Rate


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In summary….

42

Reach Identify Understand

There are a number of attributes you have to think of when you are creating a Product

Product: The

product or service

that fulfills the

consumer’s need

Need

Features

Variations

Quality

Packaging

Design

Experience

Competitors

There are four common methods to Price a product


Based Going Rate

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Case Write-Up Questions

43

There is no case to read this week. Rather, I’d like for you

to draw upon a real market example.

Think of one product (or one company with a family of

products)

1. Product – Describe what they are doing for 3-4 of the

product attributes we covered. Don’t worry too much if you

have a hard time categorizing which product attribute –

many times the things a company will do in product

development will span a couple of attributes

2. Price – how do you think this product is being priced? I

realized you don’t work in the pricing department of that

company, but what is a reasonable assumption? Again, it is

okay if the company is pricing using more than one method

– this is common.

Reach Identify Understand

Career

product and price-The 4 P's of marketing