1. Product 9-2 GoodsServices TangibleIntangible
ImperishablePerishable Homogeneous - Same qualities Heterogeneous -
Slightly different
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Pure Good A Good Dominated Product Hybrid A Service- Dominated
Product Pure Service
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Product Approach Total Product Entire bundle of products,
services and meanings e.g. extras (service, warranty, or delivery,
brand - means to customer) E.g. Targus laptop bag 9-4
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Augmented Core product plus features to differentiate it from
competition 9-5 Core Product Very basic description of a
product
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2. Stages of New Product Development Before a product is
introduced go through a series of steps known - new product
development. Take years or a few hours or days. More innovative
product will take longer - me- too products may even skip steps of
the process.
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Product Life Cycle 9-7 Figure 9.3
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Stage 1: Introduction Sales slowly take off - begin to grow
Brand awareness Heavy expenditure on marketing expenses - suppress
profits Competition - low 9-8
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Stage 2: Growth Acceptance increases rapidly Advertising and
promotion - much less critical Goal - maximize market share Prices
tend to drop production becomes more efficient 9-9
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Stage 3: Maturity Competition becomes fierce e.g. price
competition begins to rise Sales will level off and start to
decline Profits follow suit Advertising will suggest new uses for
the product 9-10
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Stage 4: Decline Decline can be slow or fast, steady or
unsteady Caused by introduction of new technology A shift in
consumer preferences Sales and profits fall during this stage
9-11
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3. Why pricing is a difficult task Pricing isnt just COST +
PROFIT - based on the consumer psychology behind decision. Why are
prices so important? Major factor in determining perceptions -
quality and desirability. Central to competitive strategy. Directly
related to gross revenues and sales volumes. Easiest part of the
4Ps to change.
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Changing prices - however, is one of the most difficult tasks a
small business faces. If sales: Lower - worry about prices - too
high. Higher lower prices - customers think quality has dropped?
How will competition react to - changing prices? 9-13
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Two general ways of setting prices: Some arbitrary heuristics
(discretion) E.g. 40% above costs Contributes to business goals.
E.g. 10,000 (20% - Advanced Marketing Power) (20% - Platinum)
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Sellers - wish for highest price allowing emotions influencing
factor in pricing decisions. A better strategy - to use optimum
price: Other ways: a. Demand If people dont want - low prices are
the only way to encourage. If everyone wants - can charge
anything.
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b. Value delivered Willing to pay based on the value they
believe If perceived value is high - they will pay a lot. c. What
competition is charging If you charge more customer cannot perceive
a higher value he/she will buy competitive product, all else equal.
E.g. carbonated drink
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d. Business strategy. Prides itself on an environmental
conscious product would not choose cheaper components even if, it
helped profits.
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e. Determined by mark-up. Taking all costs and adding a
percentage for profit Totally ignores demand, value, competition
and business strategy.
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4. Price Elasticity A product has LOW elasticity - NO
substitutes OR where customers will not accept substitutes.
Inelastic products - protected from economic downturns. When prices
rise or fall - quantity sold varies little. E.g. Petrol,
electricity, and water.
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A product with HIGH elasticity - many substitutes OR not a
necessity. Elastic products - not protected from economic
downturns. When prices rise on elastic products - tend to buy fewer
and switch to substitute products. When prices fall - switch back
from the substitutes.
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PRICING psychology - pricing perception varies from customer
and time. Some of frequently observed pricing psychology phenomena
are: Internal reference price: Have a mental image of what a
product should cost based on past experiences - what he/she
remembers reading or hearing.
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External reference price: Perception of what a product should
cost - based on outside influences what friends have said,
comparison shopping, ads, salesmen, etc. Perception of quality: Pay
more if they perceive the quality is higher - may be manipulated by
packaging - other externalities.
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Motivation of the seller: If a customer perceives - Seller must
sell, hell want to pay less; if he perceives seller is reluctant to
sell, hell pay more. Expectations of future prices: If customers
think prices are going to go up, youll pay more; if you think they
are going down, youll pay less.
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Importance or value If its important to have, Ill pay more; if
I dont really care, Ill pay less. Price range of acceptability:
Consumers set a range of prices, below which they believe quality
is questionable think they are being taken advantage of.
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Things to consider: In setting up the price - two competitive
advantages: Product can be cheaper or better (quality, features,
distribution, etc.). Being better is sustainable - always going to
be someone who can beat your price. Customers attracted to low
prices, will not be loyal - will switch products just as soon as
something cheaper comes along.
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1. Price skimming - charging the highest price market will
bear. First one in the market - often used to recoup start- up
expenses before competition sets in. E.g. Plasma TV 5. Different
Pricing Strategies
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2.Prestige or premium pricing - setting prices high and
supporting it with the rest of marketing strategy - to create the
impression - product has high quality (premium) or a status symbol
to own (prestige). 3.Odd-even pricing means ending price with a 9,
7 or 5. RM 99.99 sounds much cheaper than RM 100.
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4.Partitioned pricing - setting a price for main component and
pricing others components - installation, delivery, etc.,
separately. E.g. Laptop software bag - mouse
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5. Captive pricing occurs when customer spend usually a low
price for a base system but locked into certain expendables he/she
must purchase. These expendables - makes most of their profits.
E.g. Lexmark low-cost printer
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6. Price lining - an attempt to please a wider target market by
setting multiple price points for closely related products often
good quality, better quality, and best quality. Can work on
products from shampoo to clothing to appliances. High, middle,
low-end
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While having low prices is not recommended - it makes sense to
temporarily reduce price, or to give the impression of lower
prices. Why? Attracting more business. Building loyalty Moving
excess inventories Alleviate temporary cash flow problems
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Some price lowering techniques include: Periodic or random
discounting - having a sale on a regular cycle (periodic) or not
(random)
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Off-peak pricing works especially well for seasonal products OR
for services trying to reduce perishability lower prices are
charged in order to get people to change their buying patterns.
(The alternative, peak pricing is used during periods of high
demand.) E.g. Golf booking
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Bundling, multiple-packs or bonus-packs - methods to give the
customer more at a lower cost. To get customers to try slower
moving products or services, or new products or services. A
psychological bonus - more people use of your products, more likely
they are to internalize this brand as their brand and become more
loyal customers.
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Coupons, rebates and loyalty programs reduce prices and promote
sales. Coupons encourage people to switch brands or try new
products. Rebates - great incentive to buy - rebate redemption
rates are extremely low. Even if not redeemed, customers think its
a good deal.
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Loyalty programs get the customers to return multiple times -
good at creating customer allegiance. When a customer has purchased
a certain number of products, he/she gets something for free feel -
made a good deal.
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Referral discounts - a great way to get businesses established
and an inexpensive method of advertising. A customer recommends
business to a friend - friend buys something, original customer
gets a discount, something for free or some other incentives.