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Product Design
Pricing and Strategies
2
Chapter Objectives
Differentiate between a product item and
product line.
Classify products as consumer goods or business
goods.
Explain the seven steps in developing a new product.
Identify the stages in a product’s life cycle.
Define price and the role it plays in determining profit.
Describe the factors that affect pricing decisions.
Identify pricing strategies.
3
Product Defined
A specific model of athletic
shoe would be called a
product item.
product item specific
model or size of a
product
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The entire group of a
manufacturer’s athletic
shoes would be called a
product line.
Product Defined
Products can be classified
as consumer goods or
business goods.
consumer goods goods
purchased and used by
the ultimate consumer for
personal use
5
business goods goods
purchased by
organizations for use in
their operations
Products need to have a
point of difference.
point of difference a
unique product
characteristic or benefit
that sets it apart from a
competitor
SWOT Analysis In SWOT, strengths and weaknesses are internal factors. For example: A strength could be:
– Your specialist marketing expertise.
– A new, innovative product or service.
– Location of your business.
– Quality processes and procedures.
– Any other aspect of your business that adds value to your product or service.
A weakness could be: – Lack of marketing expertise.
– Undifferentiated products or services (i.e. in relation to your competitors).
– Location of your business.
– Poor quality goods or services.
– Damaged reputation.
In SWOT, opportunities and threats are external factors. For example: An opportunity could be:
– A developing market such as the Internet.
– Mergers, joint ventures or strategic alliances.
– Moving into new market segments that offer improved profits.
– A new international market.
– A market vacated by an ineffective competitor.
A threat could be: – A new competitor in your home market.
– Price wars with competitors.
– A competitor has a new, innovative product or service.
– Competitors have superior access to channels of distribution.
– Taxation is introduced on your product or service.
Nike SWOT Analysis
Steps in New Product
Development
The seven steps in new
product development are:
focus group a panel of
six to ten consumers who
discuss opinions about a
topic under the guidance
of a moderator
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1. SWOT analysis (strengths,
weaknesses, opportunities,
and threats)
2. Idea generation
3. Screening and evaluation
– Focus group continued
Steps in New Product
Development
commercialization
process that involves
producing and marketing
a new product
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4. Business analysis
5. Development
continued
6. Test marketing
7. Commercialization
Product Life Cycle
The four stages in the product life cycle are:
9
Introduction
Growth Maturity
Decline
Product Life Cycle
Not all products fit the life-cycle pattern.
Management of the
Product Life Cycle
The three ways to manage
the product life cycle are:
repositioning changing
a product’s image in
relation to a competitor’s
image
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Modifying the product.
Marketing the product.
Repositioning the
product.
Operating an e-tail business on an electronic channel—the Web—can be costly, due to design, delivery, returns, and operating expenses. Though Many larger dot-com companies crashed in the 1990’s, small stores like Harris Cyclery of West Newton, Massachusetts, actually increase sales using a basic Web site. Today, a third of Harris’s bicycle business rides in on the Web to get hard-to-find parts and personal service. Describe an e-business’s home page to your class after viewing one through marketingseries.glencoe.com.
E-Trading Collectibles
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caused lower prices. However, the latest hot items are
autographs from Hall of Famers—and top players who don’t
often sign baseballs, photographs, jerseys, or bats. You can
find and bid on these curios at collectibles Web sites,
including eBay—but be sure to get authentication when you
score that vintage ball signed by Mickey Mantle.
For more information on sports and entertainment marketing,
go to marketingseries.glencoe.com.
A box of baseball cards may not be
worth the price of college tuition
anymore, because the so-called bull
market for sports collectibles peaked
in the 1990s. Lower demand has
SECTION 5.1 REVIEW
Explain the seven steps involved in
developing a new product.
Name the four stages in the product
life cycle.
What three things can be done to manage a
product through its life cycle?
1.
2.
3.
13
Pricing
Price is important in a
business because it helps
determine a company’s
profit or loss.
14
price the value placed
on goods or services
being exchanged
Price plays a significant role
in the marketing mix.
Price Video
Determining Profit
15
1,000
baseball
bats sold
$175 each
$175,000
revenue = - $90,000 to
purchase
the bats
$90 each
- $60,000
in business
expenses =
$25,000
Profit
Subtract the cost of goods sold and the company’s
expenses from the money it generated in sales revenue.
Pricing Considerations
and Strategies
Three types of pricing
strategies are:
16
prestige pricing pricing
based on consumer
perception
Prestige pricing
Odd-even pricing
Target pricing
odd-even pricing
pricing goods with either
an odd number or even
number to match a
product’s image
target pricing pricing
goods according to what
the customer is willing
to pay
Pricing Considerations
and Strategies
Other pricing considerations
include:
17
markup difference
between the retail or
wholesale price and the
cost of an item Demand
Cost
– Markup
– Cost-plus pricing
Newness of the product
cost-plus pricing
pricing products by
calculating all costs and
expenses and adding
desired profit
non-price competition
competition between
businesses based on
quality, service, and
relationships
Competition
– Non-price competition
Pricing Objectives and
Strategies
Pricing objectives and
strategies include:
18
market share the percentage of
the total sales of all companies
that sell the same type of product
Profit objective
Market share objective
Special pricing
– Price lining
– Bundle pricing
– Loss-leader pricing
– Yield-management pricing
price lining selling all goods in
a product line at specific price
points
bundle pricing selling several
items as a package for a set price
loss-leader pricing pricing an
item at cost or below cost to draw
customers into the store
yield-management pricing
pricing items at different prices to
maximize revenue when limited
capacity is involved – Tiered pricing
Price Adjustments and
Regulations
Manufacturers will offer discounts in the following
situations:
19
Buying in large quantities
Buying prior to the buying season
Allowances are reductions taken from the quoted
price. One type of allowance is a trade-in.
Price Adjustments and
Regulations
The Sherman Anti-Trust Act
prohibits price fixing and
predatory pricing.
20
price fixing an illegal
practice whereby
competitors conspire to
set the same price
Price discrimination was
originally prohibited by the
Clayton Act and later by the
Robinson-Patman Act.
SECTION 5.2 REVIEW
How is pricing related to profit and the
marketing mix?
List five factors that affect price decisions.
What are two common pricing objectives
and special pricing strategies?
1.
2.
3.
21
Explain the difference
between product item
and product line.
22
Name the ways products
can be defined and
classified.
A product item is a
specific model or
size of a product; a
product line is a
group of closely
related products
that are sold by a
company.
1. Products can be
classified as
consumer goods or
business goods.
Products are
goods, services, or
ideas that satisfy
consumer needs;
products can be
tangible (goods) or
intangible
(services).
2.
Explain the seven steps
used in developing a new
product.
SWOT analysis,
idea generation,
screening and
evaluation,
business analysis,
development, test
marketing, and
commercialization
are the seven
steps.
3.
Checking Concepts
continued
1.
2.
3.
Identify the four stages
in a product’s life cycle.
23
Define price.
Explain how price
determines a company’s
profit.
The stages are
introduction,
growth, maturity,
and decline.
4. Price is defined as
the value placed on
goods or services
being exchanged.
5. Every item sold
carries a price. The
number of items
sold times the price
equals sales
revenue. The
amount of profit
equals costs
subtracted from
price.
6.
Identify the factors that
may influence pricing
strategies.
Pricing strategies
are influenced by
consumer
perception,
demand, cost,
product life cycle
stage, and
competition.
7.
Checking Concepts
continued
4.
5.
6.
7.
Markup is the
difference between the
retail or wholesale
price and the cost of an
item. Cost-plus pricing
involves calculating all
costs and expenses
and adding desired
profit to arrive at a
price. In a sense,
markup is the profit
component in cost-plus
pricing.
8.
8. Define and compare
markup and cost-plus
pricing.
24
Critical Thinking
Checking Concepts
8.
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