Document14

Copyright © 2003 by South-Western. All Rights Reserved.

• Define Define productproduct and list the elements of a and list the elements of a product strategyproduct strategy

• Describe the classifications of consumer Describe the classifications of consumer goods, business goods, and servicesgoods, business goods, and services

• Distinguish between the product mix and Distinguish between the product mix and product linesproduct lines

• Describe the four stages of the product Describe the four stages of the product life cyclelife cycle

• List the stages of new-product List the stages of new-product developmentdevelopment

LEARNING GOALSLEARNING GOALSLEARNING GOALSLEARNING GOALS


• Explain how firms identify their productsExplain how firms identify their products• Outline the different types of pricing Outline the different types of pricing

objectives and discuss how firm set objectives and discuss how firm set prices in the marketplaceprices in the marketplace

• Explain how to use breakeven analysis in Explain how to use breakeven analysis in pricing strategypricing strategy

• Differentiate between scanning and Differentiate between scanning and penetration pricing strategiespenetration pricing strategies

LEARNING GOALSLEARNING GOALSLEARNING GOALSLEARNING GOALS


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CHAPTER OVERVIEWCHAPTER OVERVIEWCHAPTER OVERVIEWCHAPTER OVERVIEW• Describes the classifications of Describes the classifications of

goods and services, the product goods and services, the product mix, and the product life cyclemix, and the product life cycle

• Discusses how firms develop, Discusses how firms develop, identify, and package productsidentify, and package products

• Examines pricing strategies for Examines pricing strategies for those products and how firms those products and how firms determine the most appropriate determine the most appropriate prices for their goods and servicesprices for their goods and services

• Looks at consumer perceptions of Looks at consumer perceptions of pricesprices


WHAT IS A PRODUCT?WHAT IS A PRODUCT?WHAT IS A PRODUCT?WHAT IS A PRODUCT?

• Product:Product: bundle of physical, bundle of physical, service, and symbolic attributes service, and symbolic attributes designed to enhance buyers’ want designed to enhance buyers’ want satisfactionsatisfaction

• Included in this broad definition are Included in this broad definition are considerations of package design, considerations of package design, brand names, warranties, and brand names, warranties, and product imageproduct image

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Focusing on BenefitsFocusing on BenefitsFocusing on BenefitsFocusing on Benefits

• People don’t buy People don’t buy things things (e.g., ¼” (e.g., ¼” drill bits), they purchase what those drill bits), they purchase what those things will provide them with (e.g. things will provide them with (e.g. ¼” holes)¼” holes)

• Successful marketers recognize the Successful marketers recognize the need to focus on giving customers need to focus on giving customers the bundle of benefits they seek the bundle of benefits they seek from the productfrom the product

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Figure 14.1 Figure 14.1 Emphasizing Emphasizing Benefits for Benefits for Titanium Titanium BatteriesBatteries

Figure 14.1 Figure 14.1 Emphasizing Emphasizing Benefits for Benefits for Titanium Titanium BatteriesBatteries


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Services Are Products, Too Services Are Products, Too Services Are Products, Too Services Are Products, Too

• Service:Service: intangible task that satisfies intangible task that satisfies consumer or business user needsconsumer or business user needs

• Most products combine both tangible Most products combine both tangible goods and intangible servicesgoods and intangible services• Someone who purchases a new set of Someone who purchases a new set of

tires may receive services such as tires may receive services such as mounting, balancing, and periodic mounting, balancing, and periodic rotation as part of the packagerotation as part of the package


Customer Service as a ProductCustomer Service as a ProductCustomer Service as a ProductCustomer Service as a Product• Every organization must recognize the Every organization must recognize the

importance of customer service and importance of customer service and include it as a key ingredient in all include it as a key ingredient in all product offeringsproduct offerings

• Every employee must demonstrate a Every employee must demonstrate a commitment to making a customer commitment to making a customer happyhappy

• Paying attention to every detail in the Paying attention to every detail in the process of delivering satisfaction is process of delivering satisfaction is the key to success in contemporary the key to success in contemporary businessbusiness

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Warranties Are Important, TooWarranties Are Important, TooWarranties Are Important, TooWarranties Are Important, Too

• Warranty:Warranty: a legal guarantee that a a legal guarantee that a good or service will serve the good or service will serve the purpose for which is intendedpurpose for which is intended

• Warranties contribute to customer Warranties contribute to customer service by protecting consumers service by protecting consumers from dissatisfactionfrom dissatisfaction

• Even when a firm states no such Even when a firm states no such protection, certain rights are always protection, certain rights are always guaranteed to consumers by lawguaranteed to consumers by law

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CLASSIFYING CONSUMER AND CLASSIFYING CONSUMER AND BUSINESS PRODUCTSBUSINESS PRODUCTSCLASSIFYING CONSUMER AND CLASSIFYING CONSUMER AND BUSINESS PRODUCTSBUSINESS PRODUCTS

• Products can be broadly categorized Products can be broadly categorized as either consumer products or as either consumer products or business products depending on who business products depending on who purchases them for what reasonspurchases them for what reasons

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Categories of Consumer ProductsCategories of Consumer ProductsCategories of Consumer ProductsCategories of Consumer Products

• Marketers seeking to Marketers seeking to classify consumer classify consumer products ask several products ask several questions regarding questions regarding purchases: Who? purchases: Who? What? When? What? When? Where? How? Where? How?

• The answers place a The answers place a purchase in one of purchase in one of three consumer three consumer products categoriesproducts categories

ConvenienceConvenienceConvenienceConvenience

ShoppingShoppingShoppingShopping

SpecialtySpecialtySpecialtySpecialty



• Convenience Convenience products: products: items that items that consumers purchase consumers purchase frequently, frequently, immediately, and with immediately, and with little effortlittle effort

• Examples include Examples include newspapers, chewing newspapers, chewing gum, milk, and snack gum, milk, and snack foodsfoods

ConvenienceConvenienceConvenienceConvenience



• Shopping products: Shopping products: typically purchased typically purchased only after comparisons only after comparisons between products in between products in competing stores to competing stores to evaluate such evaluate such characteristics as price, characteristics as price, quality, style, and quality, style, and colorcolor

• Example: carpetingExample: carpeting

ConvenienceConvenience

ShoppingShoppingShoppingShopping



• Specialty products: Specialty products: items that purchasers items that purchasers are willing to make are willing to make special efforts to special efforts to obtainobtain

• Purchaser is already Purchaser is already familiar with the item familiar with the item and sees no reasonable and sees no reasonable substitute for itsubstitute for it


ShoppingShopping




• Often have a well-Often have a well-known brand names, known brand names, are expensive, and are expensive, and distributed through distributed through exclusive dealersexclusive dealers

• Examples: Louis Examples: Louis Vuitton luggage and Vuitton luggage and Porsche autosPorsche autos


ShoppingShopping



Figure 14.2 Figure 14.2 Advertising a Advertising a Specialty ProductSpecialty Product

Figure 14.2 Figure 14.2 Advertising a Advertising a Specialty ProductSpecialty Product

Interesting SiteInteresting Site


• Business (B2B) Business (B2B) products to fall into products to fall into five main categories five main categories

• They are classified They are classified based upon how based upon how customers use them as customers use them as well as their basic well as their basic characteristicscharacteristics

SuppliesSupplies

Raw MaterialsRaw Materials

Component Parts & Materials


Accessory EquipmentAccessory Equipment

InstallationsInstallations

Categories of Business Categories of Business Goods and ServicesGoods and ServicesCategories of Business Categories of Business Goods and ServicesGoods and Services



• Installations: Installations: pieces or pieces or collections of major collections of major capital equipment such as capital equipment such as new factory systems, new factory systems, heavy machinery, and heavy machinery, and custom-made equipmentcustom-made equipment

• B2B buyers use B2B buyers use installations in producing installations in producing goods and services for goods and services for sale to their customerssale to their customers

InstallationsInstallations



• Accessory equipment:Accessory equipment: capital items that are usually capital items that are usually less expensive and shorter-less expensive and shorter-lived than installationslived than installations

• Examples: hand tools, Examples: hand tools, scanners, and fax machinesscanners, and fax machines

• Some are used to produce Some are used to produce other goods and services, other goods and services, while others help to perform while others help to perform important administrative and important administrative and operating functionsoperating functions

Accessory EquipmentAccessory Equipment

Installations



• Component parts and Component parts and materials:materials: products are products are included as part of other included as part of other firms’ final productsfirms’ final products

• Some become visible in Some become visible in finished goods, such as finished goods, such as tires in autostires in autos

• Other parts, like Other parts, like microchips for digital microchips for digital equipment, are less visibleequipment, are less visible



Accessory Equipment

Installations



• Raw materials:Raw materials: similar similar to component parts and to component parts and materials, because they materials, because they become inputs in the become inputs in the production of other firms’ production of other firms’ final productfinal product

• Examples: farm products Examples: farm products such as cotton, wheat, and such as cotton, wheat, and milk -- and natural milk -- and natural materials like iron ore, materials like iron ore, lumber and coallumber and coal

Raw MaterialsRaw Materials


Accessory Equipment

Installations



• Supplies:Supplies: expense expense items that are used in a items that are used in a firm’s daily operations firm’s daily operations and do not become and do not become part of final productspart of final products

• Examples: paper, pens, Examples: paper, pens, paper clips, light bulbs, paper clips, light bulbs, and cleaning suppliesand cleaning supplies

SuppliesSupplies

Raw Materials


Accessory Equipment

Installations


Categories of ServicesCategories of ServicesCategories of ServicesCategories of Services

• Like tangible goods, services can be Like tangible goods, services can be distinguished on the basis of their distinguished on the basis of their buyers and the ways they use the buyers and the ways they use the productsproducts

• Services can also be convenience, Services can also be convenience, shopping, or specialty products shopping, or specialty products depending on the buying patterns of depending on the buying patterns of consumersconsumers

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Categories of ServicesCategories of ServicesCategories of ServicesCategories of Services

• Six characteristics distinguish services Six characteristics distinguish services from goods. Services are:from goods. Services are:• IntangibleIntangible• Inseparable from the service provider in Inseparable from the service provider in

the buyer’s mindthe buyer’s mind• PerishablePerishable• Difficult to standardizeDifficult to standardize• Widely variable in terms of qualityWidely variable in terms of quality• Finally, customers often play a major role Finally, customers often play a major role

in marketing, producing, and distributing in marketing, producing, and distributing a servicea service


Marketing Strategy Implications for Marketing Strategy Implications for Consumer and Business ProductsConsumer and Business ProductsMarketing Strategy Implications for Marketing Strategy Implications for Consumer and Business ProductsConsumer and Business Products• Classifying products is a useful tool Classifying products is a useful tool

in developing marketing strategiesin developing marketing strategies• After classifying an item as a After classifying an item as a

shopping product, marketers gain an shopping product, marketers gain an immediate idea of its promotion, immediate idea of its promotion, pricing, and distribution needspricing, and distribution needs

• Figure 14.3 details the impact of the Figure 14.3 details the impact of the consumer product classifications on consumer product classifications on various marketing strategy aspectsvarious marketing strategy aspects


Figure 14.3 Marketing Impacts of Consumer Product Classifications Figure 14.3 Marketing Impacts of Consumer Product Classifications


THE PRODUCT LIFE CYCLETHE PRODUCT LIFE CYCLETHE PRODUCT LIFE CYCLETHE PRODUCT LIFE CYCLE

• Product Life Cycle:Product Life Cycle: four basic four basic stages through which a successful stages through which a successful product progresses – introduction, product progresses – introduction, growth, maturity, and declinegrowth, maturity, and decline


Figure 14.4 Stages in the Product Life CycleFigure 14.4 Stages in the Product Life Cycle


The Product Life CycleThe Product Life CycleThe Product Life CycleThe Product Life Cycle

• Firm attempts to build demand for its new offering

• Promotional campaigns concentrate on features, uses, and benefits

• Financial losses are common due to low initial sales and heavy promotional costs

Introduction


Figure 14.5 Wireless Connections: A Product in Figure 14.5 Wireless Connections: A Product in the Introductory Stage of It’s Life Cycle the Introductory Stage of It’s Life Cycle Figure 14.5 Wireless Connections: A Product in Figure 14.5 Wireless Connections: A Product in the Introductory Stage of It’s Life Cycle the Introductory Stage of It’s Life Cycle



• Sales climb quickly• Firm usually begins to realize profits due to higher sales

volume• Marketing efforts continue to focus on establishing the

product in the market and building brand awareness• Later in the growth stage, the strategy shifts to building

loyalty• Additional spending on product adaptation, promotion

and distribution, along with lower prices may be necessary

Introduction Growth



• Industry sales continue to grow, but eventually reach a plateau

• Companies emphasize market segmentation – often resulting in an oversupply of the product

• Competition intensifies, and profits begin to decline

• Some firms reduce prices and/or spend heavily on promotion

Introduction Growth Maturity



• Innovations or shifts in consumer preferences cause an absolute decline in industry sales

• Industry as a whole does not generate profits, though some firms can prosper

• Prices tend to hold steady if a loyal market segment continues to buy the product

• If the firm is selling to consumers who are loyal, they can skip most of the usual advertising

Introduction Growth Maturity Decline


Marketing Strategies for Stages in Marketing Strategies for Stages in the Product Life Cyclethe Product Life CycleMarketing Strategies for Stages in Marketing Strategies for Stages in the Product Life Cyclethe Product Life Cycle

• Product life cycle concept is an Product life cycle concept is an invaluable management tool for invaluable management tool for designing a marketing strategy at designing a marketing strategy at different life-cycle stagesdifferent life-cycle stages

• Table 14.1 shows appropriate Table 14.1 shows appropriate adaptations to marketing strategies to adaptations to marketing strategies to match the characteristics of each stagematch the characteristics of each stage



PRODUCT LINES AND THE PRODUCT LINES AND THE PRODUCT MIXPRODUCT MIXPRODUCT LINES AND THE PRODUCT LINES AND THE PRODUCT MIXPRODUCT MIX• Product line:Product line: group of related group of related

products that are physically similar products that are physically similar or are intended for a similar marketor are intended for a similar market

• Product mix: Product mix: the assortment of the assortment of product lines and individual goods product lines and individual goods and services that a firm offers to and services that a firm offers to consumers and business usersconsumers and business users


Figure 14.6 Product Mix for Church and DwightFigure 14.6 Product Mix for Church and DwightFigure 14.6 Product Mix for Church and DwightFigure 14.6 Product Mix for Church and Dwight


NEW-PRODUCT DEVELOPMENTNEW-PRODUCT DEVELOPMENTNEW-PRODUCT DEVELOPMENTNEW-PRODUCT DEVELOPMENT

• New products are the New products are the lifeblood of any lifeblood of any organizationorganization

• Firms must Firms must periodically add new periodically add new products to assure products to assure continued prosperitycontinued prosperity

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Product Development StrategiesProduct Development StrategiesProduct Development StrategiesProduct Development Strategies• Firm’s product development strategy depends Firm’s product development strategy depends

on its existing product mix, the match between on its existing product mix, the match between current offerings and overall marketing current offerings and overall marketing objectives, and the current market positions of objectives, and the current market positions of products early in their life cyclesproducts early in their life cycles

• Alternative product development strategies Alternative product development strategies include:include:• Market developmentMarket development• Product developmentProduct development• Market penetrationMarket penetration• Product diversificationProduct diversification

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Figure 14.7 Figure 14.7 Levi Strauss Product Development Strategy Levi Strauss Product Development Strategy Figure 14.7 Figure 14.7 Levi Strauss Product Development Strategy Levi Strauss Product Development Strategy


• Getting a new product to market involves an orderly process of overlapping steps as outlined in the next set of slides

Stages in New Product Stages in New Product Development Development


Figure 14.8Process for Developing New Goods and Services

Figure 14.8Process for Developing New Goods and Services


Generating New-Product Ideas• New product ideas come from

many sources including:• Customers• Suppliers• Employees• Research scientists• Marketing researchers• Outside inventors• Competing products

Idea Idea generationgeneration

Stages in New Product Development Stages in New Product Development


Screening • Marketers evaluate ideas’

commercial potential • Checklists of development

standards can be helpful at this stage

• This stage often involves representatives of different functional areas


ScreeningScreening



Business Analysis• Evaluation of whether the idea fits

with the firm’s product, distribution, and promotional resources

• Marketers also assess potential sales, profits, growth rate, and competitive strengths


ScreeningScreening

Business Business analysisanalysis



Prototype or Service Process Development

• Converting an idea into a physical product

• Requires interaction between development engineers and marketers

• Prototypes may go through many modifications


ScreeningScreening


Process Process DevelopmentDevelopment



Test marketing: trial introduction of a new product, supported by a complete marketing campaign, to a selected area with a population typical of the total market

• Some firms skip this stage, moving directly to full-scale commercialization

Test Test marketingmarketing


ScreeningScreening





Commercialization• In this stage, the firm offers its new

product in the general marketplace• The firm establishes marketing

programs, production facilities, and acquaints its sales force, intermediaries, and potential customers with the new product

Test marketingTest marketing Commercial-Commercial-izationization


ScreeningScreening






PRODUCT IDENTIFICATIONPRODUCT IDENTIFICATIONPRODUCT IDENTIFICATIONPRODUCT IDENTIFICATION• Brand:Brand: name, term, sign, symbol, design, or some name, term, sign, symbol, design, or some

combination thereof that identifies the products of combination thereof that identifies the products of a firm a firm

• Brand name:Brand name: the part of a brand consisting of the part of a brand consisting of words or letters that form a name that identifies words or letters that form a name that identifies and distinguishes an offering from those of and distinguishes an offering from those of competitorscompetitors

• Trademark: Trademark: brand with legal protection against brand with legal protection against another company’s useanother company’s use (can include pictorial (can include pictorial designs, slogans, packaging elements, and product designs, slogans, packaging elements, and product features)features)

™™

™™

™™


• Some firms market their goods and Some firms market their goods and services without branding them. services without branding them. Such items are called Such items are called generic generic products products or or generic brands generic brands

• They are characterized by plain They are characterized by plain packaging, minimal labeling, and packaging, minimal labeling, and little or no advertisinglittle or no advertising

GenericGenericProductsProducts

Family BrandsFamily Brands Individual Individual BrandsBrands

Manufacturer's Manufacturer's BrandsBrands

Private BrandsPrivate Brands

Brands Brands CategoriesCategories


GenericGenericProductsProducts

Family Family BrandsBrands

Individual Individual BrandsBrands




• Family Brand: Family Brand: single brand name single brand name that identifies several related that identifies several related productsproducts

• When a firm that practices family When a firm that practices family branding introduces a new product, branding introduces a new product, the familiar brand name is recognized the familiar brand name is recognized by allby all


Figure 14.9 Figure 14.9 Promoting a Promoting a Family BrandFamily Brand

Figure 14.9 Figure 14.9 Promoting a Promoting a Family BrandFamily Brand


GenericGenericProductsProducts Family BrandsFamily Brands

Individual Individual BrandsBrands




• Individual brands: Individual brands: giving a giving a different brand name to each product different brand name to each product within a product linewithin a product line

• Individual branding builds Individual branding builds competition within a firm and enables competition within a firm and enables the company to increase overall sales the company to increase overall sales


GenericGenericProductsProducts Family BrandsFamily Brands Individual Individual

BrandsBrands




• Manufacturer’s (or national) Manufacturer’s (or national) brands: brands: brand offered and promoted brand offered and promoted by a manufacturer or producerby a manufacturer or producer

• Examples include Chanel, Swatch, Examples include Chanel, Swatch, Bic, Crest, and Dr. PepperBic, Crest, and Dr. Pepper


• Private (or store) brand: identifies a product that is not linked to the manufacturer, but instead carries the label of a retailer or wholesaler

• Retailers define their own brands to maintain control over the images, quality levels, and prices of products they sell

GenericGenericProductsProducts Family BrandsFamily Brands Individual Individual

BrandsBrands


Private Private BrandsBrands



Characteristics of an Effective Characteristics of an Effective Brand NameBrand NameCharacteristics of an Effective Characteristics of an Effective Brand NameBrand Name

• Should communicate Should communicate appropriate product imagesappropriate product images

• Must be easy to pronounce, Must be easy to pronounce, recognize, and rememberrecognize, and remember

• Best if ShortBest if Short• Should Attract AttentionShould Attract Attention

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BUILDING BRAND LOYALTY BUILDING BRAND LOYALTY AND BRAND EQUITYAND BRAND EQUITYBUILDING BRAND LOYALTY BUILDING BRAND LOYALTY AND BRAND EQUITYAND BRAND EQUITY

• Brand loyalty: Brand loyalty: measured in three measured in three stages– recognition, preference, and stages– recognition, preference, and insistenceinsistence

• Brand recognition: Brand recognition: brand brand acceptance strong enough that the acceptance strong enough that the consumer is aware of a brand, but consumer is aware of a brand, but not enough to cause a preference not enough to cause a preference over competing brandsover competing brands

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BUILDING BRAND LOYALTY BUILDING BRAND LOYALTY AND BRAND EQUITYAND BRAND EQUITYBUILDING BRAND LOYALTY BUILDING BRAND LOYALTY AND BRAND EQUITYAND BRAND EQUITY• Brand preference: Brand preference: occurs when a occurs when a

consumer chooses one firm’s brand, consumer chooses one firm’s brand, when it is available, over a when it is available, over a competitorscompetitors

• Brand insistence:Brand insistence: when the when the consumer will accept no substitute consumer will accept no substitute for a preferred brandfor a preferred brand• Product has achieved a monopoly Product has achieved a monopoly

position with its consumersposition with its consumers

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Brand EquityBrand EquityBrand EquityBrand Equity

• Brand Equity:Brand Equity: added value that a added value that a certain brand name gives to a productcertain brand name gives to a product

• High brand equity offers financial High brand equity offers financial advantages to a firmadvantages to a firm• Product commands a comparatively large Product commands a comparatively large

market sharemarket share• Often reduces price sensitivityOften reduces price sensitivity

• Most Valuable Brands include Coca-Cola, Most Valuable Brands include Coca-Cola, Microsoft Windows, IBM, Intel, Nokia, GE, Microsoft Windows, IBM, Intel, Nokia, GE, Ford, Disney, McDonald’s, and AT&TFord, Disney, McDonald’s, and AT&T

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Managing Managing Brand EquityBrand EquityManaging Managing Brand EquityBrand Equity

• Responsibility of aResponsibility of a brand managebrand manager r or or product managerproduct manager at at the typical large the typical large companycompany

• Requires planning and Requires planning and implementing the implementing the promotional, pricing, promotional, pricing, distribution, and distribution, and product arrangementsproduct arrangements


PACKAGES AND LABELSPACKAGES AND LABELSPACKAGES AND LABELSPACKAGES AND LABELS

• Packaging Packaging helps to achieve helps to achieve several goals:several goals:• Protects against damage, Protects against damage,

spoilage, and pilferagespoilage, and pilferage• Assists in marketing the productAssists in marketing the product• Cost-effectivenessCost-effectiveness

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Figure 14.10Figure 14.10Packaging to Packaging to Distinguish a Distinguish a ProductProduct

Figure 14.10Figure 14.10Packaging to Packaging to Distinguish a Distinguish a ProductProduct



• Label: Label: descriptive part of a product’s descriptive part of a product’s package that lists the brand name or package that lists the brand name or symbol, name and address of the symbol, name and address of the manufacturer or distributor, product manufacturer or distributor, product composition and size, nutritional composition and size, nutritional information for food products, and information for food products, and recommended usesrecommended uses

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• Effective labeling serves several Effective labeling serves several functions:functions:• Attracts buyer’s attentionAttracts buyer’s attention• Describes package contentsDescribes package contents• Conveys product benefitsConveys product benefits• Provides information on warranties, Provides information on warranties,

warnings, and other consumer matterswarnings, and other consumer matters• Gives and indication of price, value, and Gives and indication of price, value, and

usesuses

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PRICE IN THE MARKETING MIXPRICE IN THE MARKETING MIXPRICE IN THE MARKETING MIXPRICE IN THE MARKETING MIX

• Price:Price: exchange value of a exchange value of a good or servicegood or service

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Figure 14.11Alternative Pricing Objectives

Figure 14.11Alternative Pricing Objectives


Profitability ObjectivesProfitability ObjectivesProfitability ObjectivesProfitability Objectives

• Perhaps the most Perhaps the most commonly used objective commonly used objective in firms’ pricing strategiesin firms’ pricing strategies

• Some firms try to maximize Some firms try to maximize profits by reducing costs profits by reducing costs rather than through price rather than through price changeschanges

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Volume ObjectivesVolume ObjectivesVolume ObjectivesVolume Objectives• Bases pricing decisions on Bases pricing decisions on

market sharemarket share• Market share: Market share: the the

percentage of a market percentage of a market controlled by a certain controlled by a certain company or productcompany or product

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Pricing to Meet CompetitionPricing to Meet CompetitionPricing to Meet CompetitionPricing to Meet Competition

• Third set of pricing Third set of pricing objectivesobjectives

• Seeks to meet Seeks to meet competitors’ pricescompetitors’ prices

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Prestige ObjectivesPrestige ObjectivesPrestige ObjectivesPrestige Objectives

• Prestige pricing Prestige pricing encompasses the effect of encompasses the effect of price on prestigeprice on prestige

• Prestige pricing establishes a Prestige pricing establishes a relatively high price to relatively high price to develop and maintain an develop and maintain an image of quality and image of quality and exclusivenessexclusiveness

Interesting WWW Site Interesting WWW Site


Figure 14.12Figure 14.12

Product Priced Product Priced to Achieve to Achieve Prestige Prestige ObjectivesObjectives

Figure 14.12Figure 14.12

Product Priced Product Priced to Achieve to Achieve Prestige Prestige ObjectivesObjectives


HOW PRICES ARE DETERMINEDHOW PRICES ARE DETERMINEDHOW PRICES ARE DETERMINEDHOW PRICES ARE DETERMINED

• Determined in two basic ways:Determined in two basic ways:• By applying the theoretical concepts By applying the theoretical concepts

of supply and demandof supply and demand• By completing cost analysesBy completing cost analyses

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Price Determination in PracticePrice Determination in PracticePrice Determination in PracticePrice Determination in Practice

• Cost-based pricing formulas:Cost-based pricing formulas: formulas calculate base-cost figures formulas calculate base-cost figures per unit and then add markups to per unit and then add markups to cover overhead costs and generate cover overhead costs and generate profitsprofits

• Simpler and easier to use than Simpler and easier to use than economic theory-based pricingeconomic theory-based pricing

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Figure 14.13 The Markup Chain for a Hardcover BookFigure 14.13 The Markup Chain for a Hardcover Book


Breakeven AnalysisBreakeven AnalysisBreakeven AnalysisBreakeven Analysis• Breakeven analysis:Breakeven analysis: pricing pricing

technique that determines the sales technique that determines the sales volume that a firm must achieve at a volume that a firm must achieve at a specified price in order to generate specified price in order to generate enough revenue to cover its total costenough revenue to cover its total cost


Finding the Breakeven PointFinding the Breakeven PointFinding the Breakeven PointFinding the Breakeven Point

Breakeven point Breakeven point Total Fixed Cost Total Fixed Cost (in units) (in units) Contribution to Fixed Costs Per Unit Contribution to Fixed Costs Per Unit

Breakeven point Breakeven point Total Fixed Cost Total Fixed Cost(in dollars)(in dollars) 1 – Variable Cost Per Unit/Price 1 – Variable Cost Per Unit/Price=

=


Figure 14.14 Breakeven AnalysisFigure 14.14 Breakeven Analysis


• Skimming pricing strategy: sets an intentionally high price relative to the prices of competing products

• Often works for introduction of a distinctive good or service with little or no real competition

SkimmingSkimming

Alternative Pricing StrategiesAlternative Pricing StrategiesAlternative Pricing StrategiesAlternative Pricing Strategies

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• Penetration pricing strategy: sets a low price as a major marketing weapon

• Assumes that a below-market price will attract buyers and move a brand from an unknown newcomer to at least a brand recognition or even a brand preference stage

Skimming

PenetrationPenetration


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CompetitiveCompetitive

• Competitive pricing strategy: product priced at the general level of competing offerings

• Attempts to reduce the emphasis on price and concentrates marketing efforts on product, distribution, and promotion

Skimming

Penetration


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CONSUMER PERCEPTIONS CONSUMER PERCEPTIONS OF PRICESOF PRICESCONSUMER PERCEPTIONS CONSUMER PERCEPTIONS OF PRICESOF PRICES• Price-Quality RelationshipsPrice-Quality Relationships

• Consumers’ perceptions of Consumers’ perceptions of product quality is closely product quality is closely related to pricerelated to price

• Most marketers believe that this Most marketers believe that this perceived price-quality perceived price-quality relationship holds over a relationship holds over a relatively wide range of pricesrelatively wide range of prices

• In other situations, marketers In other situations, marketers establish price-quality establish price-quality relationships with comparisons relationships with comparisons that demonstrate a product’s that demonstrate a product’s value at the established pricevalue at the established price © PhotoDisc


Figure 14.15Figure 14.15 Establishing Price-Quality Relationships for PrintersEstablishing Price-Quality Relationships for PrintersFigure 14.15Figure 14.15 Establishing Price-Quality Relationships for PrintersEstablishing Price-Quality Relationships for Printers

.


CONSUMER PERCEPTIONS CONSUMER PERCEPTIONS OF PRICESOF PRICESCONSUMER PERCEPTIONS CONSUMER PERCEPTIONS OF PRICESOF PRICES

• Psychological PricingPsychological Pricing• Odd pricing Odd pricing (charging (charging

$39.95 or $19.98 instead $39.95 or $19.98 instead of $40 or 20) of $40 or 20)

• Commonly-used retail Commonly-used retail practice, as many retailers practice, as many retailers believe that consumer believe that consumer favor uneven amountsfavor uneven amounts

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WHAT’S AHEADWHAT’S AHEADWHAT’S AHEADWHAT’S AHEAD

• Next chapter focuses on Next chapter focuses on three major components three major components of an organization's of an organization's distribution strategy:distribution strategy:• Design of efficient Design of efficient

distribution channelsdistribution channels• Wholesalers and retailersWholesalers and retailers• Logistics and physical Logistics and physical

distributiondistribution

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