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Product Development and Pricing Strategies Better Business 1st Edition Poatsy · Martin © 2010 Pearson Education, Inc.1 chapter 13 Slide presentation prepared.

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Presentation on theme: "Product Development and Pricing Strategies Better Business 1st Edition Poatsy · Martin © 2010 Pearson Education, Inc.1 chapter 13 Slide presentation prepared."— Presentation transcript:

1 Product Development and Pricing Strategies Better Business 1st Edition Poatsy · Martin © 2010 Pearson Education, Inc.1 chapter 13 Slide presentation prepared by Pam Janson Stark State College of Technology

2 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. © 2010 Pearson Education, Inc.2

3 Learning Objectives 1.What are the definitions of a product and a total product offer? 2.What is product differentiation, and what role does it play in product development? 3.What are the different classifications of consumer products and business-to-business products? 4. Why is branding beneficial to both buyers and sellers, and what are some different types of brands? 5. What steps take place during new product development, and what is the product life cycle? 6. What are some pricing objectives, and how do they relate to the marketing mix? 7. What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions? © 2010 Pearson Education, Inc. Publishing as Prentice Hall 3

4 Total Product Offer Product levels oCore: basic oActual: tangible oAugmented core + actual + all real and perceived benefits © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4

5 Product Differentiation The process of distinguishing a product from its competition oWith physical or intangible differences Critical for a product’s success oHelps motivate customers to buy Companies define a target market and create total product offerings oConsumer input helps © 2010 Pearson Education, Inc.5

6 Product Lines and Product Mix A product line is a group of similar products marketed to one general market oProduct line length is the number of products in a product line A product mix is the combination of all product lines offered for sale by a company oProduct mix width refers to the number of different product lines a company offers © 2010 Pearson Education, Inc. Publishing as Prentice Hall 6

7 Consumer and B2B Products Consumer Purchased by households for personal consumption Traded in consumer markets Purchased by households for personal consumption Traded in consumer markets Business to Business Sometimes called industrial products Purchased by businesses for further processing, resale, or as supplies Traded in B2B markets Sometimes called industrial products Purchased by businesses for further processing, resale, or as supplies Traded in B2B markets © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7 Can an item be a consumer product and a B2B product too?

8 Shopping goods Unsought goods Specialty goods Convenience goods Consumer Product Classifications © 2010 Pearson Education, Inc.8

9 Consumer Product Classifications Convenience goods Purchased frequently and habitually Nondurable goods Relatively low-priced Bought based on location and brand-name image © 2010 Pearson Education, Inc.9

10 Consumer Product Classifications Shopping goods Purchased less frequently than comparison shopping Durable goods Moderate expense Bought based on price, quality, and brand-name image © 2010 Pearson Education, Inc.10

11 Consumer Product Classifications Specialty goods Purchased very infrequently with great time and effort Durable goods No substitutes Expensive Bought on brand image © 2010 Pearson Education, Inc.11

12 Consumer Product Classifications Unsought goods Unplanned purchase Purchased when needed Requires personal or promotional selling Price may not be an important consideration © 2010 Pearson Education, Inc.12

13 Component Parts Maintenance, Repair, Operating Raw and Processed Materials Equipment Business-to-Business Product Classifications Specialized Professional Services © 2010 Pearson Education, Inc.13

14 Business-to-Business Product Classifications Equipment Also called capital items Includes all physical facilities Expensive and long-lasting Purchase is negotiated Suppliers offer financing, and maintenance after the sale © 2010 Pearson Education, Inc.14

15 Business-to-Business Product Classifications Maintenance, Repair, Operating “MRO” products Facilitate production, but not part of finished good Marketed on convenience © 2010 Pearson Education, Inc.15

16 Business-to-Business Product Classifications Raw and Processed Materials Basic inputs for finished goods Often purchased in large quantities Price is a major factor © 2010 Pearson Education, Inc.16

17 Business-to-Business Product Classifications Component Parts Assembled portions of the finished product Purchase based on quality and brand- name recognition © 2010 Pearson Education, Inc.17

18 Business-to-Business Product Classifications Specialized Professional Services Help with a firm’s operations Companies compare costs and quality of completing inhouse or outsourcing © 2010 Pearson Education, Inc.18

19 Brands Brand oIs a name, term, symbol, or design that distinguishes a company and its products from all others oIs an important product differentiation tool Brand extension Trademark oKnockoff brands © 2010 Pearson Education, Inc.19

20 Branding Brand loyalty oBrand recognition oBrand preference oBrand insistence Brand equity Brand awareness Brand association © 2010 Pearson Education, Inc. Publishing as Prentice Hall 20

21 Branding Strategies Generic brand Manufacturer’s (or national) brand Private brand Family brand oBrand extension Individual brand Co-brand Brand licensing © 2010 Pearson Education, Inc. Publishing as Prentice Hall 21

22 Packaging Crucial to success of product, because customers typically see the packaging before they see the product Packaging oContains/protects product oFacilitates use/convenience oPromotes product oMore emphasis on being environmentally friendly © 2010 Pearson Education, Inc. Publishing as Prentice Hall 22

23 The Importance of Labels Labeling serves two functions: to inform and to persuade Fair Packaging and Labeling Act of 1966 requires oThe product identity oName and place of business oNet quantity Nutrition Labeling and Education Act of 1990 requires consistent nutrition and health claims Labels promote the product’s features, benefits, and brand © 2010 Pearson Education, Inc.23

24 New Product Development © 2010 Pearson Education, Inc.24

25 The Product Development Life Cycle © 2010 Pearson Education, Inc. Publishing as Prentice Hall 25

26 Marketing Decisions Affect a Product’s Life Cycle Marketing DecisionExample Extend life of an existing product Automobile discounts, rebates, and low-interest loans Create new usesArm & Hammer baking soda as a refrigerator deodorizer Create new marketsHome Depot and Lowe’s do-it-yourself training Extend technologyJell-O gelatin to puddings and other snacks RepackageCoca-Cola 6-oz bottles to 8-oz cans Reposition“This isn’t your father’s Oldsmobile” campaign © 2010 Pearson Education, Inc. Publishing as Prentice Hall 26

27 Pricing Objectives 1.Maximizing profits 2.Achieving greater market share 3.Maximizing sales 4.Building traffic 5.Status quo pricing 6.Survival 7.Creating an image 8.Achieving social objectives © 2010 Pearson Education, Inc. Publishing as Prentice Hall 27

28 Pricing Strategies: Cost-Based Pricing Charging a price in relation to the costs of providing a good or service Simple and popular pricing strategy Advantages oEasy to calculate and administer oRequires minimum information Disadvantages oIgnores consumer price expectations and competitors’ prices oProvides little incentive to keep costs low © 2010 Pearson Education, Inc. Publishing as Prentice Hall 28

29 Cost-Based Pricing Example You make 100 units of a product at a total cost of $2,000 Per unit cost is $2,000 / 100 = $20 To make a unit profit margin, or markup, of 20%:.20 x $20 = $4 You need to charge: $20 + $4 = $24 Total revenue = 100 x $24 = $2,400 Profit = $2,400 – $2,000 = $400 © 2010 Pearson Education, Inc. Publishing as Prentice Hall 29

30 Cost-Based Pricing: Break–Even Analysis Total costs = Total fixed costs + total variable costs Break-even volume of production = Total fixed costs / (Price – Average variable costs) Example Total fixed costs = $600, selling price = $24, and average variable costs = $14 Break-even volume = $600 / ($24 - $14) = 60 units © 2010 Pearson Education, Inc. Publishing as Prentice Hall 30

31 Demand-Based Pricing Sometimes called value-based pricing Pricing a good or service based on the demand for the product or its perceived value Target costing: estimates value Price discrimination: Charging different prices for different customers © 2010 Pearson Education, Inc. Publishing as Prentice Hall 31

32 Competition-Based Pricing Prices based on what the competition charges © 2010 Pearson Education, Inc. Publishing as Prentice Hall 32 Type of CompetitionPricing Strategy Monopolistically competitive markets Firms with successful product differentiation strategies charge higher prices Some firms may charge lower prices to get an edge on the competition. Oligopolies Do not compete on price to avoid price wars, competing on product differentiation instead Periodically, a price leader may emerge and others will drop their prices Monopoly No competition, so has greatest price-setting ability May see predatory pricing, the practice of charging very low prices with the intent to destroy the competition

33 Pricing Strategies When launching a new product oPrice skimming oPenetration pricing Everyday low pricing (EDLP) Strategies to impact price perceptions oPrestige (premium) pricing oPsychological pricing oLoss leader pricing oReference pricing © 2010 Pearson Education, Inc. Publishing as Prentice Hall 33

34 Adjusting Prices Discounts oQuantity oCash oSeasonal oAllowances (trade-in) Rebates Bundling Dynamic pricing © 2010 Pearson Education, Inc. Publishing as Prentice Hall 34

35 Chapter Summary 1.What are the definitions of a product and a total product offer? 2.What is product differentiation, and what role does it play in product development? 3.What are the different classifications of consumer products and business-to-business products? 4.Why is branding beneficial to both buyers and sellers, and what are some different types of brands? 5.What steps take place during new product development, and what is the product life cycle? 6.What are some pricing objectives, and how do they relate to the marketing mix? 7.What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions? © 2010 Pearson Education, Inc. Publishing as Prentice Hall 35

36 Beyond the Book © 2010 Pearson Education, Inc. Publishing as Prentice Hall 36

37 Simple Brand Success Stories © 2010 Pearson Education, Inc. Publishing as Prentice Hall 37 Product / CompanyBrand Message HBO“It’s not TV, it’s HBO.” Titleist“We want every consumer, regardless of their skill level, to think of Titleist, first and foremost, as the number-one ball in golf.” Forbes magazine“Capitalist tool.” Advil“Advanced medicine for pain.” Visa“Everywhere you want to be.” Staples“Easy” button NetflixConvenience

38 Collaborative Product Design: Next Generation Car Society for Sustainable Mobility oOpen Source Green Vehicle Project o$30,000 seven-passenger SUV with 100 mpg o150 engineers designing MIT Design Summit oInternational open source student project oBuilding a 200-mpg, four-seater hybrid for India Sabic Innovative Plastics oC,mm,n (pronounced “common”) open source car project oManaged by three technical universities in the Netherlands © 2010 Pearson Education, Inc. Publishing as Prentice Hall 38

39 The Olympics and Product Innovation Basketball uniforms with zoned temperature venting Nike’s Zoom Victory running shoes weigh 93 grams (3.28 ounces) Adidas’ Lone Star’s racing spikes lean to the left (on a track there are no right turns) Speedo’s LZR Racer swimsuit compresses the body at key points and the panels shed water and are welded, not stitched together Nike’s tae kwon do boot is made of the loudest leather possible to ensure judges hear strikes © 2010 Pearson Education, Inc. Publishing as Prentice Hall 39

40 Pricing and the Apple iPhone 3G Feature-wise, the new iPhone mostly addresses the shortcomings of the old one It is much cheaper, starting at $199 oJust below what the industry sees as the pain threshold for the mass market oMobile operators, such as AT&T, subsidize the new handsets to make the low price possible, but will increase monthly usage fees Apple’s goal is to sell 10 million iPhones by the end of 2008 o6 million were sold as of mid-June 2008 © 2010 Pearson Education, Inc. Publishing as Prentice Hall 40


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