1. Welcome Day 3 Marketing 100 October 2009 Product, branding packaging
Marketing 100 – Day 3
Welcome Day 3
Marketing 100
October 2009
Product, branding packaging
& pricing
Lecturer - Ms Jodie Hanson
October, 2009

2. Marketing 100 – Day 3
Review
October, 2009

3. Lecture 7 – Product branding, packaging
Marketing 100 – Day 3
Lecture 7 – Product branding, packaging
What is brand?
Elements of branding
Value of branding
Protecting your brand
Brand loyalty
Brand Equity
Brand strategy
Packaging
October, 2009

4. Marketing 100 – Day 3
1. What is Brand?
A key driver in building client relationships and is inseparable from the business strategy. When brands are managed properly they become “trustmarks”. When clients trust a brand, they’ll be more likely to choose that brand over competitors.
Brand awareness & familiarity can move you ahead in the buying cycle or buyer decision process.
October, 2009

5. Buyer Decision Process
Marketing 100 – Day 3
Buyer Decision Process
Client Journey
1 Need Recognition
2 Information
Search
4 Purchase
Decision
5 Postpurchase
Behavior
3 Evaluation
of Alternatives
Actual state vs. desired state
Triggered by internal or external stimuli
BRAND REPUTATION
Marketers Journey
Demonstrate differentiation
Easy access, sales support
After sale service/product guarantee
Need Recognition: - buyer becomes aware of a difference between a desired state and an actual condition
The need may be real or may have been created by marketing
Need for the next best thing…….
Information Search: - internal or external. Buyers search for product information that helps resolve the problem or satisfy the need
The become aware of products in the product category. Ie once you decide on a model car to purchase you will begin to notice the number of those cars on the road.
There is also a lot of clutter and marketers must create messages and brand that can “cut through” to grab consumers attention.
Evaluation of Alternative: - To assess the products that they have selected as possible alternatives, the buyer uses evaluative criteria which are objective and subjective characteristics that are important to the buyer (See next slide)
Purchase: - the consumer chooses the product or brand to be bought
Build awareness
Promote product attributes to solve need
BRAND AWARENESS
October, 2009

6. 2. Elements of Brands Functional components –
Marketing 100 – Day 3
2. Elements of Brands
Functional components –
What the product actually does, the physical aspects
Brand name, term, brand mark or symbol, brand collateral – signage, letterhead etc
Economic components
What the brand means in terms of time savings and cost
Emotional components
How the brand makes you feel
Brands that deliver beyond the functional and economic levels with emotional benefits command an incremental price premium and create strong competitive advantage and customer loyalty.
Mohanbir Sawhney Prof, Northwestern’s Kellogg School of Management
October, 2009

7. Spot the functional difference…
Marketing 100 – Day 3
Spot the functional difference…
$2.99
$178.00
$220
October, 2009

8. Marketing 100 – Day 3
Does brand add value?
October, 2009

9. Marketing 100 – Day 3
October, 2009

10. Chocolate 100 gms chocolate Marketing 100 – Day 3 AB
We’ll start with chocolate How much more are people willing to pay for the brand.
Lindt
3.88
100gm
Premium
Coles
3.29
250gm
Who thinks 20%, 50%, 100% more than 100%
October, 2009

11. Chocolate >196% Marketing 100 – Day 3 AB The question is this..
How much more in % terms do people pay for the apple on the left compared to the right.
Now something really generic
October, 2009

12. Salt Branded Home Brand Marketing 100 – Day 3 AB
The question is this..
How much more in % terms do people pay for the apple on the left compared to the right.
Who thinks ,
<30%
30-60%
>60%
October, 2009

13. Salt >98% Branded Home Brand Marketing 100 – Day 3 AB
The question is this..
How much more in % terms do people pay for the apple on the left compared to the right.
Who thinks ,
<30%
30-60%
>60%
Another generic
October, 2009

14. Bottled Water Evian Bickfords Marketing 100 – Day 3 AB
What could be more generic?
Different ingredients
Filtered through hair of an French goddess
Surprised if taste diff
Who thinks ,
<30%
30-60%
>60%
Evian
Bickfords
October, 2009

15. Bottled Water >246% Evian Bickfords Marketing 100 – Day 3
October, 2009

16. Marketing 100 – Day 3
3. Value of Branding
Brands help buyers identify specific products that they do and do not like
Without brands product selection would be random as buyers have no assurance that they were purchasing what they preferred.
Branding benefits both buyers and sellers
October, 2009

17. Value of Branding - Buyers
Marketing 100 – Day 3
Value of Branding - Buyers
Indicator of quality, assurance of consistent quality: - Where the product’s physical attributes/qualities are difficult to determine, buyers rely on the brand name as an indicator of quality ie Sony, Ray-Ban, Speedo etc.
Psychological reward (status symbol?): - Often prestigious brands communicate the buyer’s status or personality ie Calvin Klein, Rolex, BMW etc
October, 2009

18. Value of Branding - Seller
Marketing 100 – Day 3
Value of Branding - Seller
Stronger demand and loyalty
Product differentiation: - in some cases the brand is the only means of differentiation
Multiple products – brand extension (Family branding): - in addition to sportswear/shoes, Adidas markets toiletries, wristwatches etc all under the same brandname, Virgin airlines, credit, mobile phones.
October, 2009

19. Marketing 100 – Day 3
Class Activity
List a number of products that sell brands that are popular with you.
What is it about these products that make you want to have them?
What makes you buy?
October, 2009

20. Marketing 100 – Day 3
4. Protecting your Brand
Trademark: A legal designation of exclusive use of a brand. Protected indefinitely
Trade Name: Full legal name of an organisation
Copyright: Proprietary intellectual or artistic work. Protected up to 50 years after the death of the owner
Patents and Designs: Proprietary design, production process, invention etc. Protected up to a maximum of 20 years and 16 years respectively.
October, 2009

21. 5. Brand Loyalty Three types of brand loyalty:
Marketing 100 – Day 3
5. Brand Loyalty
Three types of brand loyalty:
Recognition:- A customer’s awareness that a brand exists and is an alternative to purchase
Preference:- the degree of brand loyalty in which a customer prefers one brand over competitive offerings
Insistence: - The degree of brand loyalty in which a customer strongly prefers a specific brand and will accept no substitutes.
Recognition: This is the mildest form of brand loyalty. The term loyalty clearly is being used very loosely here. One of the initial objectives of a marketer introducing a new brand is to create widespread awareness of the brand in order to generate brand recognition
Brand preference is a stronger degree of brand loyalty in which a customer definatiely prefers one brand over competitive offerings and will purchase this brand if available. However if the brand is not available, the customer will accept a substitute brand rather than expend additional effort finding and purchasing the preferred brand. A marketer is likely to be able to compete effectively in a market when a number of customers have developed brand preference for its specific brand.
Brand insistence: If a brand-insistent customer goes to a store and finds the brand unavailable, rather than purchasing a substitute brand the customer will seek the brand elsewhere. Brand insistence is the strongest degree of brand loyalty. It is a brander’s dream. However, it is the least common type of brand loyalty. Customers vary considerably regarding the product categories for which they may be brand insistent. Brand loyalty in general seems to be declining, partly because of marketer’s increased reliance on sales, coupons, and other short-term promotions, and partly because of the sometimes overwhelming array of similar new products from which customers can choose. Building rand loyalty is a major challenge for many marketers. The creation of brand loyalty significantly contributes to an organisation’s ability to achieve a sustainable competitive advantage.
October, 2009

22. 6. Brand Equity Awareness Esteem Relevance
Marketing 100 – Day 3
6. Brand Equity
Brand Attribute
Objective
Awareness
Brand is know & understood
Esteem
Brand is well thought of and valued
Relevance
Brand is relevant & meaningful
Personality
Associations that are linked to your brand
Differentiation
Brand has a point of difference & is easily recognisable & understood
Experience
Feelings clients have when dealing with your brand/products
Loyalty
Ongoing relationship
The marketing and financial value associated with a brand’s strength in a market.
Brand components that build equity
Although difficult to measure, brand equity represents the value of a brand to an organisation. An organisation may buy a brand from another company at a premium price because outright brand purchase may be less expensive and less risky than creating and developing a brand from scratch. Brand equity helps to give a brand the power to capture and maintain a consistent market share, which provides stability to an organisation's sales volume.
A brand’s overall economic value rises and falls with the brand’s profitability, brand awareness, brand loyalty, perceived brand quality and the strength of positive brand associations.
October, 2009

23. 7. Major Brand Strategy Decisions
Brand Positioning
Attributes, Benefits, Beliefs & Values
Marketing 100 – Day 3
7. Major Brand Strategy Decisions
Brand Name
Selection, Protection
Brand Sponsorship
Manufacturer’s Brand, Private Brand
Licensing, Co-branding
Must avoid
short-term actions that erode
positioning and brand equity
Brand Development
New Brands, Multibrands
Line Extensions, Brand Extensions
Short term initiative is a price reduction to improve sales – lambogini, or rolex. This would be detrimental to the brand position as price is part of the positioning. High price, High value – prestige purchaser.
October, 2009

24. Brand positioning Must match values of target market
Marketing 100 – Day 3
Brand positioning
Must match values of target market
Includes brand personality, esteem, relevance, experience
Selected associations and value
Can be built up through promotional strategy
Key example is when a brand partners with another brand through sponsorship – must have alignment of brand values
October, 2009

25. Brand Name Selection Suggest product benefits and qualities
Marketing 100 – Day 3
Brand Name Selection
Suggest product benefits and qualities
Mr. Clean In-N-Out Healthy Choice Business Week
U-Haul Energizer I Can’t Believe It’s Not Butter
Easy to pronounce, recognize, remember
Tide Crest Jeep Jack-in-the-Box
Distinctive – not too similar to competitors’ names
Kodak Xerox Pepsi Cheerios
Extendable
amazon.com
Translates into other languages
Enco g Exxon Nova g Caribe
Mr Clean – cleaning spray
U-haul – trailer hire
Energizer – batteries
Health Choice – healthy frozen dinners
Business Week – business magazine/program
I can’t believe its not butter – butter substitute
October, 2009

26. Marketing 100 – Day 3
Selecting a Brand name
Can be protected through the use of a Trade Mark
Choice of names will have an impact on the level of promotion required
Ie is the name descriptive or suggestive of product benefits or completely unrelated
Examples – Weight Watchers, Crispbread, Hillross Financial Services
Unrelated – Bannana Boat (sunscreen), Life Savers (sweets), Clear view (financial products).
October, 2009

27. Brand Name Protection Capable of trademark protection (www.uspto.com)
Marketing 100 – Day 3
Brand Name Protection
Capable of trademark protection (
no infringement
not too generic (e.g., Lite g Miller Lite; Healthy)
IMPORTANT: Protect from becoming generic
(aspirin, nylon, linoleum, thermos, escalator, shredded wheat
kerosene, cellophane, yo-yo, trampoline)
Scotch Tape Jell-O Coke Rollerblade Ziploc
Kleenex Post-It Xerox FedEx Razor
October, 2009

28. Brand Development Strategies
Marketing 100 – Day 3
Brand Development Strategies
Line Extension
Most “new” products
(new flavors, forms, colors,
Ingredients, etc.)
Multibrands
(e.g., P & G, Estee Lauder)
Brand Extension
(e.g.,
Virgin airlines g Virgin mobiles)
New Brands
Existing
New
Product Category
Name
New Brands & Multibrands: + unique positioning, brand equity
Extensions: widely used but most fail ! Many risks
Extending a successful brand identity (association) to other related (even unrelated) products
Ie Lux laundry detergent …… bath soap
Ie Yamaha motorbikes ….. Outboard motors, pianos, hifi
Virgin – airlines, credit cards, mobile phones
Some just don’t work!!
IBM brand of photocopiers, Xerox brand of computers, Levi’s brand of casual pants and suite
Multi-Branding: Separate brandname for each product range usually aimed at different target markets.
Toyota: -Toyota and Lexus
Levi’s: -Levi’s (jeans), Dockers (casual wear)
Seiko: -Lorus, pulsar, Seiko, Lassale
+ instant awareness, faster acceptance, less $ to introduce
failure of new product reflects on original
name may be inappropriate
line extensions cannibalize (little overall sales h, even i)
dilutes positioning - loses specific meaning & brand equity
October, 2009

29. Brand Sponsorship – different types
Marketing 100 – Day 3
Brand Sponsorship – different types
Manufacturer’s brands – “national brands”
Private brands – “retailer / store brands”
Growth ! “Battle of the brands,” challenges national brands
Major source of advantage to retailers
Source of advantage to manufacturers of private brands
(even many who also make/market national brands)
Licensed brands – fees and royalties to owner of name
Celebrities, fictional characters, designers
Corporate brand licensing
Very profitable in short-term, but risks
Co-Branding – joint venture or licensing
Broader consumer appeal, can ease entry into category
Risks of partnership, risks to brand equity
October, 2009

30. Battle of the Brands – brand sponsorship
Marketing 100 – Day 3
Battle of the Brands – brand sponsorship
Why battle??
for shelf space!!
… your dollars!!
October, 2009

31. Marketing 100 – Day 3
Battle of the Brands
Manufacturer or national brands: Owned by the manufacturer and sold through many retailers
Variety, prestige, and pre-sold
Strong demand but not exclusive to a retailer. Possible price competition among retailers…..
….. Often resulting in poor margin (mark up)
October, 2009

32. Marketing 100 – Day 3
Battle of the Brands
Store-Brands (also private labels, house-brands): Reputable retailers fight back with their own brands
Exclusive to the retailer
A good “fit” between the pricey manufacturer brands and the cheaper generics. Good quality and often made by major manufacturers. Makers of Heinz, Kleenex, etc all produce house-brands for major retailers to use up excess capacity for more income. If they don’t others will anyway, and these brands generally satisfy different target markets than their own.
October, 2009

33. Battle of the Brands Store-Brands (also private labels, house-brands)
Marketing 100 – Day 3
Battle of the Brands
Store-Brands (also private labels, house-brands)
Low marketing costs. Usually no advertising. Hence, good margin
Coles has Farmland and Embassy
Myer has Miss Shop, Esse, Reserve
October, 2009

34. Battle of the Brands Generic Brands/ “Off Brands”
Marketing 100 – Day 3
Battle of the Brands
Generic Brands/ “Off Brands”
These include “brandless” products and “cheap” brands. Some are also store-brands such as Black and Gold, Savings (Coles) Homebrand (Woolworths).
October, 2009

35. Who are your Local Brands?
Marketing 100 – Day 3
Class Activity
List 4 Chinese brands for each category of:
Manufacturer or national brands
Store brands
Generic brands
Who are your Local Brands?
October, 2009

36. 8. Packaging & Labeling Packaging is not just a container
Marketing 100 – Day 3
8. Packaging & Labeling
Packaging is not just a container
Packaging and labeling:
Create instant recognition
Sell the product – “silent salesperson” in self-service environment
Identifies, describes, promotes
Offer customer benefits & competitive advantage
E.g., convenience, aesthetic value
Safety issues
October, 2009

37. Marketing 100 – Day 3
Packaging Functions
Protection Function: - ie vacuum packaging eg peanuts, chips; tamper proof eg baby foods, medicine
Promotional Function:
Indicator of perceived quality eg chocolates, perfume
Recognition-visibility: through familiarity (Kodak film) through novelty (Toilet Duck)
‘Buy me’ message – impulse: eg children’s packaged foods, toys
Labelling: of product features/benefits, nutritional information etc
October, 2009

38. Packaging Functions Differentiation Function Value-Added Convenience:
Marketing 100 – Day 3
Packaging Functions
Differentiation Function
Value-Added Convenience:
Aerosol/Spray-on: - Pure and Simple cooking oil, sunscreen
Squeeze Bottles: - Tomato sauce, honey
Re-usable Jars: - Moccona coffee
Pump Dispensers: - liquid soap, moisturisers, toothpaste
October, 2009

39. Marketing 100 – Day 3
Labelling
Provides identifying-promotional, or other information on package labels
Ingredients
Use-by date
Universal Product Code (UPC): - a series of lines identifying a product and containing inventory and pricing information
Health messages
October, 2009

40. Marketing 100 – Day 3
Optional Review
Discuss the importance of product branding and brand equity
Discuss issues of brand name selection and protection
Describe brand strategy alternatives -- new brands, multibranding, line extensions and brand extensions. Discuss their advantages and risks.
October, 2009

41. Marketing 100 – Day 3
October, 2009

42. Lecture 8 – Product management
Marketing 100 – Day 3
Lecture 8 – Product management
Product lifecycle & product mix
Managing existing brands
Developing new products
new product failure
improving new product success
new product development process
test marketing
Product positioning
Product & brand manager roles explained
October, 2009

43. Product Life Cycle $0 Sales and profits ($) (or losses/investment)
Marketing 100 – Day 3
Product Life Cycle
Sales and profits ($)
(or losses/investment)
Growth slows
Longest stage
Most marketing
management
activity
Rapid growth
Competition
Not inevitable
Revive?
Reposition?
Sales
Slow growth
Profits $0
Time
Examples of new products (iphone)
Examples of mature products
Examples of products in decline (home phones)
Product
Development
Introduction
Growth
Maturity
Decline
October, 2009

44. Introduction Stage of the PLC
Marketing 100 – Day 3
Introduction Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Build awareness among early adopters, secure distribution, entice trial
Advertising and Sales Promotion
Built selective distribution, high cost
Distribution
Usually is high
Price
Offer a basic product
Product
Build product awareness and stimulate trial
Marketing Objectives
Negative
Profits
High cost per customer
Costs
Low sales
Sales
October, 2009

45. Marketing 100 – Day 3
Growth Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Rapidly rising sales
Costs
Average cost per customer
Profits
Rising profits
Marketing Objectives
Maximize market share
Product
Offer product extensions, new services, new features
Price
Price to penetrate market
Distribution
Increase number of distribution outlets
Advertising and Sales Promotion
Build awareness and interest in the mass market, reduce sales promotion
October, 2009

46. Maturity Stage of the PLC
Marketing 100 – Day 3
Maturity Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Peak sales (growth slows, levels off)
Costs
Low cost per customer
Profits
High profits, then lower profits
Marketing Objectives
Maximize profit while defending market share
Product
Diversify brand (many line extensions)
Price
Price to match or beat competitors
Distribution
Build more intensive distribution
Advertising and Sales Promotion
Emphasize brand differences, encourage brand switching
October, 2009

47. Decline Stage of the PLC
Marketing 100 – Day 3
Decline Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Declining sales
Costs
Low cost per customer
Profits
Declining profits (or profitable niche)
Marketing Objectives
Reduce spending; maintain, harvest, or drop the product (or reposition/revive)
Product
Phase out weak items (back to basics)
Price
Cut price
Distribution
Selective (phase out weak outlets)
Promotion
Reduce to level needed to retain loyal customers and distribution
October, 2009

48. Marketing 100 – Day 3
Product Lifecycle
October, 2009

49. Marketing 100 – Day 3
Product lines & mix
Product Line: A group of products, intended for essentially similar uses and possessing reasonably similar physical characteristics. Examples – men’s clothing vs women’s clothing 2 separate lines
Product Mix – full list of products offered by the company.
Product mix breadth – number of product lines carried
Product mix depth - Assortment of colours, styles models offered within each product line. (hats, jackets, pants etc.)
A line extension may focus on a different market segment or may be an attempt to increase sales within the same market segment by more precisely satisfying the needs of people in that segment. Line extensions are more common than new products because they are a less expensive, lower risk alternative for increasing sales.
Product modification can indeed improve a firm's product mix, but only under the following conditions. First, the product must be modifiable. Second, customers must be able to perceive that modification has been made. Third, the modification should make the product more consistent with customers’ desires so that it provides greater satisfaction.
Reducing a product’s quality may allow an organisation to lower its price and direct the item at a different target marekt. In contrast, increasing the quality of a product may give a firm an advantage over completing brands. However, higher quality may require the use of more expensive components and processes, thus forcing the organisation to cut costs in other areas.
October, 2009

50. 2. Managing Existing Products
Marketing 100 – Day 3
2. Managing Existing Products
An organisation can benefit by capitalizing on its existing products
By assessing the composition of the current product mix (combination of products offered), a marketer can identify weaknesses and gaps.
Choose to expand by increasing the number of lines (breadth), or the depth of products within a lines.
Conversly a marketer can choose to contract by removing the number of lines, or the depth of a line.
October, 2009

51. Marketing 100 – Day 3
Line Extension: A product that is closely related to existing products in the line, but meets different customer needs. Ie toothpaste, toothbrush – dental hygeine line
Product Modifications: Changing one or more characteristics of a product can extend the life of a product and make it more competitive.
October, 2009

52. Managing Existing Products
Marketing 100 – Day 3
Managing Existing Products
These include:
Quality Modifications: Changes relating to a product’s dependability and durability.
Functional Modifications: Changes affecting a product’s versatility, effectiveness, convenience, or safety
Aesthetic Modifications: Changes to the sensory appeal of a product – the way it looks or feels.
A line extension may focus on a different market segment or may be an attempt to increase sales within the same market segment by more precisely satisfying the needs of people in that segment. Line extensions are more common than new products because they are a less expensive, lower risk alternative for increasing sales.
Product modification can indeed improve a firm's product mix, but only under the following conditions. First, the product must be modifiable. Second, customers must be able to perceive that modification has been made. Third, the modification should make the product more consistent with customers’ desires so that it provides greater satisfaction.
Reducing a product’s quality may allow an organisation to lower its price and direct the item at a different target marekt. In contrast, increasing the quality of a product may give a firm an advantage over completing brands. However, higher quality may require the use of more expensive components and processes, thus forcing the organisation to cut costs in other areas.
Functional modifications usually require that the product be redesigned. This type of change can palace a product in a favourable competitive position by providing benefits that competing brands do not offer. Functional modifications can also help an organisation achieve and maintain a progressive image. Sometimes functional modifications are made to reduce the possibility of product liability lawsuits
A buyer making a purchase decision is swayed by how a product looks, smells, tastes, feels, or sounds. Thus an aesthetic modification may strongly affect purchases. Through aesthetic modifications, a firm can differentiate its products from competing brands and thus gain a sizable market share. The major drawback in using aesthetic modifications is that their value si determined subjectively. Although a firm may strive to improve the product's sensory appeal, customers may actually find the modified product to be less attractive.
October, 2009

53. 3. Developing new products
Marketing 100 – Day 3
3. Developing new products
New Product Failure
~ 80% of new consumer packaged goods fail (most are line extensions)
Only about 40% of new consumer products and 30% of new industrial products are around five years after introduction
Why?
Overestimated market size
Product design problems
Product incorrectly positioned, priced, or promoted
Product pushed despite poor marketing research findings
Higher than expected product development costs
Competitive actions
October, 2009

54. Improving New-Product Success
Marketing 100 – Day 3
Improving New-Product Success
New product success depends upon having a:
Unique superior product (one with higher quality, and higher value in use as defined by customers)
Well-defined product concept (i.e., well-defined target market, product requirements, and benefits)
Companies must
understand its customers, markets, and competitors
develop products that deliver superior value to customers
October, 2009

55. Major Stages in New-Product Development
Marketing 100 – Day 3
Major Stages in New-Product Development
To speed up – simultaneous (team-based) vs. sequential
4. Marketing
Strategy
5. Business
Analysis
3. Concept Development
and Testing
6. Product
Development
Alternative versions,
describe in consumer terms
Physical product, $$$
2. Idea
Screening
7. Test
Marketing
Reduce # quickly
1. Idea
Generation
8. Commercialization
Many – employees, customers, suppliers, distributors, competitors
October, 2009

56. Elements that may be test marketed
Marketing 100 – Day 3
Step 7 - Test Marketing
Product (& marketing program) tested in realistic market settings
Reduces risk – tests customer interest & acceptance
company can find and correct problems early
Has some risks – costly and time consuming
exposes to competition (copy, sabotage)
Advertising
Positioning
Packaging
Product
Distribution
Budget Levels
Pricing
Branding
Elements that may be test marketed
October, 2009

57. Marketing 100 – Day 3
Step 7– Test Marketing
Standard Test Market – full marketing effort in a small number of representative markets
+ most realistic, tests entire marketing strategy
time consuming, costly, exposes to competition
Controlled Test Market – test in panel of cooperating stores with cooperating consumer panel (IRI, Nielson)
+ faster, less costly
- less realistic (fewer cities, small sample, no test of
distribution channel acceptance, exposes to competition
Simulated Test Market – test in simulated shopping environment (e.g., laboratory store)
+ fastest, less costly, no exposure to competition
- least realistic, no test of repeat purchasing
(Good as a pre-test)
October, 2009

58. Marketing 100 – Day 3
4. Product Positioning
The decisions and activities that create and maintain a certain concept of the firm’s product in customers’ minds.
Product position is customers’ perceptions of a product’s attributes relative to those of competitive brands.
Buyers make a large number of purchase decisions on a regular basis. To avoid a continuous re-evaluation of numerous products, buyers tend to group or “position”, products in their minds to simplify buying decisions. Rather than allowing customers to position products independently, marketers often try to influence and shape consumers’ concepts or perceptions of products through advertising.
Positioning decisions are not just for new products. Evaluating the positions of existing products is important because a brand’s market share and profitability may be strengthened by product repositioning.
When introducing a new product into a product line, one or more existing brands may have to be repositioned to minimize cannibalisation of established brands and to assure a variable position for the new brand.
Repositioning can be accomplished by physically changing the product, its price, or its distribution. Rather than making any of these changes, marketers sometimes reposition a product by changing its image through promotional efforts directed at customers. Of course products can be repositioned through both physical and image changes.
October, 2009

59. Product Position Perception is Consumer’s Reality
Marketing 100 – Day 3
Product Position
Perception is
Consumer’s Reality
October, 2009

60. Product Positioning strategies
Marketing 100 – Day 3
Product Positioning strategies
In relation to the Leading Brand: eg Pepsi vs Coke, Hungry Jacks vs McDonalds
Distinct Product Features: eg Kellogg’s Just Right cereal, Volvo’s safety features
Price Emphasis: eg Korea’s Hyundai, Daewoo and Kia cars
October, 2009

61. Marketing 100 – Day 3
Cont.
Innovation: eg Personal stereo (Walkman), Colourful plastic watch (Swatch)
Against the Trend: eg Apple vs IBM Compatible, Harley Davidson classical style
Repositioning: eg Reebok (fashion to function), Marlboro was a ladies’ cigarette brand
October, 2009

62. 5. Product Mgr vs Brand Mgr
Marketing 100 – Day 3
5. Product Mgr vs Brand Mgr
Can be confusing – depends on the size & type of company
Product managers are usually responsible for the technical and manufacturing elements of the product development. Usually inward facing.
Brand/marketing managers are usually responsible for the external presentation of the products to market. However, they can be involved in all elements of the marketing mix.
October, 2009

63. Marketing 100 – Day 3
Class Activity
October, 2009

64. Optional Review Describe the stages of the product life-cycle
Marketing 100 – Day 3
Optional Review
Describe the stages of the product life-cycle
Describe how marketing strategies change during a product’s life-cycle
List and define the steps in the new-product development process
Describe test markets, and the three types
October, 2009

65. Lecture 9 – Pricing strategy
Marketing 100 – Day 3
Lecture 9 – Pricing strategy
What is Price?
Factors affecting pricing decisions
Price vs non price competition
Approach to pricing strategies
Pricing methods
Pricing adjustment methods
Legal aspects to pricing
October, 2009

66. Marketing 100 – Day 3
1. What is Price?
The amount of money charged, but more broadly the sum of all the values consumers exchange for the benefits of having or using a product or service (not just price, but cost)
Historically the major factor affecting buyer choice; but non-price factors have become increasingly important
The only element in the marketing mix that produces revenues; all others represent costs
Flexible tool, but often handled poorly – too cost-oriented and tactical (vs. customer-value oriented and strategic) – should “sell value” not price
Consider this to be about the “cost to the consumer” in time, money, effort.
We will primarily look at the financial costs when talking price but the importance of non cost factors cannot be overlooked.
October, 2009

67. Pricing is Revenue Generating Selling Price x Units Sold
Marketing 100 – Day 3
Pricing is
Revenue Generating Selling Price x Units Sold
The other 3Ps are expenses (costs)
Product (R&D, product development, cost-of-goods-sold, warranty costs etc)
Place (distribution expenses)
Promotion (advertising etc., expenses)
Indicator of Real or Perceived Quality
In the absence of sufficient product/brand knowledge. Where a product’s quality is difficult to objectively or tangibly evaluate, its 4Ps (brand name, packaging, place of availability, promotion, and especially price, etc.) and country of origin are often used instead as indicators of quality
October, 2009

68. Pricing is Most Flexible Marketing Mix (4Ps) Element
Marketing 100 – Day 3
Pricing is
Most Flexible Marketing Mix (4Ps) Element
Most Flexible Least Flexible
Pricing* Promotion* Product** Place**
*Easy to change, but also easy for competitors to match (copy). Hence, only short-term benefits.
**Harder to change, but equally hard for competitors to match. Hence, longer-term advantage
October, 2009

69. 2. Factors to Consider When Setting Prices
Marketing 100 – Day 3
2. Factors to Consider When Setting Prices
Internal Factors
Costs - the “floor”
variable and fixed
“experience curve”
or“learning curve”
Marketing objectives
Marketing mix
External Factors
The market and demand “the ceiling”
Competition
Other environmental
factors
resellers
the economy etc.
Pricing
Decisions
October, 2009

70. Internal Factors affecting pricing decisions
Marketing 100 – Day 3
Internal Factors affecting pricing decisions
Costs
Often the first place someone starts when setting price is to look at their cost of goods sold, production costs, promotional costs etc
This is an important aspect to pricing to ensure you at least recover your cost, however, you will see that this is dependant on your overall marketing strategy.
Sometimes if production is not efficient, you may price yourself out of the market
It may help to start at what the market and competition will bear and then adjusts your costs to suit where possible.
October, 2009

71. Internal Factors affecting pricing decisions
Marketing 100 – Day 3
Internal Factors affecting pricing decisions
Marketing & Pricing Objectives
Revenue-based (sales and market share): The pursuit of sales or market share growth often comes at the expense of short-term profit because of lower prices and increased marketing expenses.
Profit-based (profits and return-on-investment): Profitability can be based on two opposing strategies:
high price – low volume (specialty stores, Rolex, BMWs etc) and
low price – high volume (discount store and supermarkets ie Hyundai, Casio calculators etc)
October, 2009

72. Internal Factors affecting Pricing Decisions
Marketing 100 – Day 3
Internal Factors affecting Pricing Decisions
Marketing Mix
Target Market and the Other 3Ps
Target market: characteristics of the customers etc
Product: brandname, product quality, cost of product etc
Place: where the product is sold, retail support given, etc
Promotion: nature and amount of promotional support
October, 2009

73. Factors affecting Pricing Decisions External Factors
Marketing 100 – Day 3
Factors affecting Pricing Decisions External Factors
Market demand
Trade Demands: Wholesalers and retailers can influence the final (retail) price of the product. They often do so through mark-ups or simply pressuring the manufacturers
Buyer Behaviour: The price of the product can be influenced by how price sensitive the buyers are or how loyal they are to the brand or other brands, etc. The long running beer war (more brands, lower prices) has led to many drinkers (home consumption) becoming more price conscious and less brand loyal.
October, 2009

74. External Factors: Consumer Perceptions and Price-Demand relationship
Marketing 100 – Day 3
External Factors: Consumer Perceptions and Price-Demand relationship
Consumer perceptions – consumers decide if the price is right – does the price fit the perceived value?
Demand curve represents the number of units a market will buy
in a given time period under different (changing) prices
“normal demand” – price & quantity are inversely related (demand curve slopes downward)
Price elasticity of demand refers to how responsive demand will
be to a change in price
Price Elasticity of Demand = % Change in Quantity Demanded
% Change in Price
October, 2009

75. Price Competition and Movement Along Demand Curve (and Elastic Demand)
Marketing 100 – Day 3
Price Competition and Movement Along Demand Curve (and Elastic Demand)
A demand cure is a graph of the relationship between price and quantity demanded by a market.
It shows the level of consumer demand at various price points.
In this example, the high the price the lower the level of demand shown by few customers ie $2.50 whereas more than 300 customers would purchase the product if the price dropped to less than $1.80.
This example shows a market that is price sensitive in relation to this product.
Elastic Demand – demand changes greatly with a small change in price (market is price sensitive)
Refer to your books in the appendix for further information on this Economics Fundamentasl pg 655
Note: Price-competition: movement along the same demand curve D1. This “ordinary” pub decreases its beer prices to attract additional drinkers
October, 2009

76. Marketing 100 – Day 3
Non-Price Competition and Shiftment of Demand Curve (and inelastic Demand)
Note: Non-price competition: the demand curve shifts to the right, from D1 to D2. This “special” pub maintains its beer prices but improves its non-price features* to attract additional drinkers. This is basically product differentiation.
**The “other 3Ps” such as reputation, location, opening hours, atmosphere, special & wide range of beers, regular promotion etc.
Inelastic Demand – demand hardly changes with a small change in price (market not price sensitive)
October, 2009

77. Marketing 100 – Day 3
Inelastic Demand – demand hardly changes with a small change in price (market not price sensitive)
Elastic Demand – demand changes greatly with a small change in price (market is price sensitive)
October, 2009

78. Factors affecting Pricing Decisions External Factors
Marketing 100 – Day 3
Factors affecting Pricing Decisions External Factors
Competition: Price is influenced by the nature and intensity of competition (oligopoly, etc). Also, it is difficult to predict competitors’ reaction to a pricing strategy
Legal & Environmental Consideration:
Pro-competitive laws governing price fixing, resale price fixing, resale price maintenance, etc, would have a bearing on the company’s pricing decision
October, 2009

79. 3. Price vs Non-Price Competition
Marketing 100 – Day 3
3. Price vs Non-Price Competition
October, 2009

80. 4. General Pricing Approaches
Marketing 100 – Day 3
4. General Pricing Approaches
Cost-based pricing – add a standard markup to the product cost
Very popular
simplest
perceived as “fair”
if all use it, minimizes price competition (becomes going rate)
But rarely makes sense
must be certain of costs
ignores competition
ignores consumer perceptions
Only works if competitors have the same cost structure,
and all use ~same markup
Competition-based pricing – going rate
“collective wisdom”
avoids price wars in oligopoly
little control over price
October, 2009

81. General Pricing Approaches
Marketing 100 – Day 3
General Pricing Approaches
Value-based pricing – uses buyers’ perceptions of price (not seller’s
costs), as the key to pricing
“Right combination of value and price” (e.g., value-pricing, EDLP)
Product
Customers
Cost
Value
Price
Price
Cost-Based Pricing
Value-Based Pricing
Value
Cost
Customers
Product
Product-driven – Starts with product and must convince customers it’s worth the price
Customer-driven – Starts with customer needs/wants, designs the product to price; target costing (p. 348)
October, 2009

82. Marketing 100 – Day 3
Break-Even Analysis
Used to determine the sales volume needed just to break even if the product is sold at a certain price
Break-even volume = fixed costs
price - variable costs
Suppose: Fixed Costs = $300,000
Variable Costs = $10 per unit
If price is set at $20
Break-even volume is: 300,000 = 30,000 units
$20-$10
If price is set at $30
Break-even volume is: 300,000 = 15,000 units
$30-$10
October, 2009

83. 5. Pricing methods Recommended Retail Pricing (RRP)
Marketing 100 – Day 3
5. Pricing methods
Recommended Retail Pricing (RRP)
Also known as the list price or sticker price
Set by the supplier (manufacturer, importer, etc) who will then encourage the retailers to follow
Discounts and allowance (off the RRP) are given to retailers as incentives.
October, 2009

84. Marketing 100 – Day 3
Pricing Methods
BUT some retailers disregard the RRP and use mark-ups instead
October, 2009

85. Pricing Methods Mark-up or Cost-Based Pricing
Marketing 100 – Day 3
Pricing Methods
Mark-up or Cost-Based Pricing
The retail price is based on the retailer’s own mark-up on the cost of the product. Supermarkets generally set a lower price than pharmacies for the same product because of their lower mark-up
Simple and popular (traditional) method
Manufacturer has less control over final price** - its products will be sold at different prices by different retailers
October, 2009

86. Marketing 100 – Day 3
Pricing Methods
** Manufacturer can encourage RRP pricing by fostering relationship with retailers (personal selling, incentives) and advertising the RRP to consumers
October, 2009

87. 6. Price-Adjustment Strategies: Discounts and Allowances
Marketing 100 – Day 3
6. Price-Adjustment Strategies: Discounts and Allowances
Adjusting the basic price to reward customers or to provide incentives for desired responses
(most are for channel members and business buyers)
Cash discount
(pay early, e.g., 2/10 net 30)
Functional discount
(price to channel members)
Quantity discount
(buy more from one seller)
Trade-in allowance
Promotional allowance
(for channel members to
promote product)
Seasonal discount
(buy early or out of season)
October, 2009

88. Example of Functional Discount
Marketing 100 – Day 3
Example of Functional Discount
Functional discounts represent product prices charged to channel intermediaries – compensates channel members (wholesalers and retailers) for stocking and selling the product
e.g., pricing a book – manufacturing cost ~$2.00
publisher’s suggested retail price $20.00
(price a consumer pays at a bookstore)
bookstore (40% discount)
wholesaler (55% discount)
distributor (65% discount)
October, 2009

89. Price-Adjustment Strategies: Segmented Pricing
Marketing 100 – Day 3
Price-Adjustment Strategies: Segmented Pricing
Selling products at different prices
based on differences in demand
(not on differences in cost)
Location pricing
Customer segment
pricing
Product form pricing
Time pricing
Product - Form
October, 2009

90. Price-Adjustment Strategies: Psychological Pricing
Marketing 100 – Day 3
Price-Adjustment Strategies: Psychological Pricing
Considers the psychology of prices, not just the economics
Price is an important quality signal when customers can’t otherwise judge quality; price is used to “say something” about a product.
Reference prices
Show price comparisons
Display with more/less expensive alternatives
Odd-pricing, even-pricing
E.g., $49.99 versus $50.00
Was $22.00
Sale $14.99
October, 2009

91. Price-Adjustment Strategies: Promotional Pricing
Marketing 100 – Day 3
Price-Adjustment Strategies: Promotional Pricing .
Temporarily
pricing products
below the regular
price to increase
short-term sales
Loss leaders
Special-event pricing
Cash rebates
Low interest financing
Longer warranties
Free merchandise
Danger – Addictive
over-reliance can
erode brand equity
train consumers to be “deal prone”
lead to price wars
October, 2009

92. 7. Prohibited Pricing Practices
Marketing 100 – Day 3
7. Prohibited Pricing Practices
Within channel levels
Price fixing – cannot talk to each other when setting prices (petrol companies)
Predatory pricing – cannot set low prices for purposes of driving competitors out of market
Across channel levels
Retail price maintenance – manufacturer cannot dictate the price charged by retailers
Discriminatory pricing – cannot charge different prices to different intermediaries (except based on actual costs)
Deceptive pricing – cannot deceive consumers (e.g., through bogus reference prices, bait and switch, creating price confusion
October, 2009

93. Marketing 100 – Day 3
Class Activity
Consider the products you know and nominate a product that you think is pricing itself out of the market.
Give an example of a product that competes purely on price. Discuss this products future and that of its competitors.
How would you do
it?
October, 2009

94. Marketing 100 – Day 3
Optional review
Identify and define the internal factors affecting a firm's pricing decisions (e.g., costs, marketing objectives)
Identify and define the external factors affecting pricing (e.g., types of markets, consumer perceptions, price elasticity of demand)
Contrast the three general approaches to setting prices
October, 2009