2. Pricing and Strategies
Product Design
Pricing and Strategies 2

3. Section 5.1 – Product Design - 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
Growth
Maturity
Decline
Introduction 3

4. Section 5.1 – Product Design
Product Defined
Products are one the essential components in the marketing mix
Products can be tangible (sporting equipment)
Goods
Products can be intangible (sporting events)
Services 4

5. Section 5.1 – Product Design
Product Item and Line
Product Item – a specific model or size of a product
Nike’s Zoom Kobe is a product item
Product Line - Group of closely related products that are sold by a company
Entire group of Nike athletic shoes would be their product line
Nike has 3 product lines: athletic clothing, athletic footwear, sports equipment
Makes up Nike’s product mix 5

6. Section 5.1 – Product Design
Product Classifications
Products can be classified as consumer goods or business goods
Different marketing approaches should be used to reach the different consumers
Consumer Goods are purchased and used by the ultimate consumer for personal use
Sneakers bought by end consumer at Foot Locker
Promotion might be television commercial
Business Goods are purchased by organizations for use in their operation
Sneakers bought by Foot Locker to be sold to end consumer
Promotion might be discounts for volume purchases. 6

7. Section 5.1 – Product Design
Point of Difference
Products are designed to stand out in the marketplace
Point of Difference is a unique product characteristic or benefit that sets the product apart from a competitor’s product
Winning championships provide teams with point of difference
Companies with certain product brands work to communicate their products unique features and benefits to establish point of difference
Product planning is crucial to success of a product 7

8. Section 5.1 – Product Design
The seven steps in new product development
Not all steps are followed each time
SWOT Analysis
Analysis of Company’s:
Strengths
Weaknesses
External Opportunities
Threats in Marketplace
Helps to develop a product that matches the company’s objectives
Idea Generation
Generating new product ideas
Consumers, Employees, R&D Developments, Competitors
After getting a new idea from studying a competitor’s new product a company should write protocol
A statement that identifies target market, customer’s needs and wants, and explains the new product & what makes it unique 8

9. Section 5.1 – Product Design
Nike Pump Sneakers
Reebok Pump Sneakers

10. Section 5.1 – Product Design
Screening and Evaluation
Product idea is evaluated to see if if company has technology needed to make product & meets company’s objectives
Researchers work with focus groups to evaluate product idea
Focus Group is a panel of six to 10 consumers who discuss their opinions about a topic under guidance of moderator
Business Analysis
Financial aspects of making and marketing the product are reviewed
Must determine what is needed to take product idea to market
Legal factors are analyzed to see if the product can be patented or copyrighted for protection against competitors

11. Section 5.1 – Product Design
Development
Development of actual product
Prototype is the first model of the product
Company tests if product can be produced for reasonable cost
Technical problems and standards for quality and safety are evaluated
Test Marketing
Product tested in marketplace
Product is offered for sale in small geographic area
Marketers test all aspects of marketing mix (product, place, price, and promotion)
Results can help project sales and market share
Some competitors may ruin test marketing by flooding test area with special promotions or reducing its price

12. Section 5.1 – Product Design
Commercialization
Commercialization is a process that involves producing and marketing a new product
Product is offered in the marketplace for sale to final consumer
Full scale production during launch of new product
Regional roll-outs allow companies to launch product in certain geographic areas over a set time period
Companies can build up production gradually and evaluate marketing
Gatorade Commercial

13. Section 5.1 – Product Design
Product Life Cycle
The four stages in the product life cycle are:
Growth
Maturity
Product Life Cycle
Decline
Introduction
Not all products fit the life-cycle pattern. 13

14. Section 5.1 – Product Design
Product Life Cycle
Introduction
Product is first introduced to the marketplace
Marketing focus is on promoting consumer awareness and getting customers to try new product
Consumers are educated through advertising and promotion
Product Pricing:
Skimming is pricing set high to cover costs of research & development
Penetration is low pricing in order to quickly generated demand for product
Distribution of product into marketplace is major task at this stage
Goal is to convince distributors to carry product

15. Section 5.1 – Product Design
Product Life Cycle – cont.
Growth
More competition in marketplace if your product has success
Stay competitive at this stage by improving product or adding new features or products to line
Must increase distribution outlets at this stage
Ex. From convenience stores to supermarkets

16. Section 5.1 – Product Design
Product Life Cycle – cont.
Maturity
Sales begin to slow down for the product category or just the product
Repeat customers may stop buying the product
New buyers may be difficult to attract in this stage
To keep product alive:
Company may make changes to the product to distinguish it from competitors’ products
Marketers my focus on identifying new buyers

17. Section 5.1 – Product Design
Product Life Cycle – cont.
Decline
Sales and profits begin to drop
Products move into decline when newer and more improved models replace the older ones
Ex. Technological advances
Results of decline:
Product dropped from product line
Products in decline that are kept in product line get little or no marketing support
Only keep product is to satisfy requests from loyal customers

18. Section 5.1 – Product Design
Product Life Cycle – cont.
Considerations
Not all products fit the life-cycle pattern
Consumer demand and continued sales will allow products to stay in growth stage
Fads have a short life cycle
Products that become popular quickly and lose popularity quickly
Products requiring a lot of information to educate consumers will stay in introduction stage for longer periods of time

19. Section 5.1 – Product Design
Management of the Product Life Cycle
Product managers manage a produce through its lifecycle by:
Modifying the product
Changing the product’s features, appearance, package, design or quality in hopes to increase sales
Marketing the product
Strategy to find new customers or to encourage current customers to use more of the product
Repositioning the product
Repositioning is changing a product’s image in relation to its competitor’s image
A change in any of the four P’s of the marketing mix can be enough to reposition a product

20. Section 5.2 – Pricing and Strategies - Objectives
Define price and the role it plays in determining profit.
Describe the factors that affect pricing decisions.
Identify pricing strategies.
Demand 20

21. Section 5.2 – Pricing and Strategies
Price is defined as the value placed on the goods or services being exchanged
Price can be referred to as: Tuition, Fee, Toll, Fare, Rent, Barter
Important in a business because it helps determine a company’s profit or loss
To calculate Profit or Loss:
Subtract the cost of goods sold and the company’s expenses from the money it generated
Price plays a significant role in the marketing mix 21

22. Determining Profit = = - -
Subtract the cost of goods sold and the company’s expenses from the money it generated in sales revenue. =
$25,000
Profit
1,000
baseball
bats sold
($175x1,000)
$175,000
revenue = -
$90,000 to purchase the bats
($90x1,000) -
$60,000 in business expenses 22

23. Section 5.2 – Pricing and Strategies
Consumer Perception, demand, cost, product, life-cycle stage, and competition influence the pricing strategies that businesses use
Consumer Perception
Consumers believe that higher prices suggest higher quality
Marketers use this perception to price goods and services
Image of a product is closely related to its price
High quality products priced low may not sell as much as it would at a higher price
Prestige pricing is pricing based on consumer perception 23

24. Section 5.2 – Pricing and Strategies
Consumer Perception – cont.
Odd-even pricing is another pricing strategy related to consumer perception
Odd-even pricing is pricing goods with either an odd number or an even number to match a product’s image
Ex. An item priced with odd number, such as $25.99, suggests a bargain
Ex. An item priced with even number, such as $26, suggests a quality item
Target pricing is another pricing strategy related to consumer perception
Target pricing is pricing goods according to what the customer is willing to pay
Manufacturers estimate the target price to determine how much to charge wholesalers and retailer for that item
Manufacturers figure the retailer expected markup in order to set the price 24

25. Section 5.2 – Pricing and Strategies
Demand
Related to price in many ways
If product is in high demand, and there is limited supply, its price will be high
Ex. Events with a limited number of seats will be able to charge a high price for tickets
Ex. Companies can create demand for an item by only producing a limited edition of an item so it can be priced high
If there is a large supply of an item and demand is not great, dealers may lower prices to increase demand
Ex. Retailers may do this near the end of a season when there is a supply of merchandise that has not sold at the regular price 25

26. Section 5.2 – Pricing and Strategies
Demand – cont.
Elastic Demand
Supply and demand theory suggesting that a change in price will affect demand
Ex. Demand will be lower for higher priced items because fewer people can afford them
Inelastic Demand
Price has no effect on demand
Occurs when:
A product is a necessity
There is no substitutes
Price increases is not significant relative to the customer’s income
There are time restraints 26

27. Section 5.2 – Pricing and Strategies
Cost
In order to make a profit, businesses need to price an item higher than the cost they paid for it
Two pricing strategies related to cost:
Markup is the difference between the retail or wholesale price and the cost of an item
Must be high enough to cover expenses and ensure profits
Product – line pricing is a markup strategy involving setting different markup percentages for each product so that the average mark-up is achieved for the entire line of goods
Cost-Plus Pricing is pricing products by calculating all costs and expenses and adding desired profit
Cost of making item or providing the service is determined first and the amount of money to ensure a profit is tacked onto that amount 27

28. Section 5.2 – Pricing and Strategies
Newness of the Product
Skimming or Penetration pricing techniques are used when introducing a new product into a marketplace
Skimming – pricing high to recover costs
Penetration – Pricing low to create immediate demand for product
Competition
Find out what their competitors are charging for the same items they are selling before setting price
Lower prices to draw customers away from competitors
Non-price competition techniques can be used to draw customers away from competitors through better quality, services, or relationships
Can charge higher prices if they provide these better than competition 28

29. Section 5.2 – Pricing and Strategies
Pricing Objectives and Strategies
Pricing objectives are the goals that a company wants to achieve through pricing
Businesses often have additional goals that affect pricing
Two common pricing objectives involve increasing profit and improving market share 29

30. Section 5.2 – Pricing and Strategies
Profit Objective
Market Share Objective
May have objectives to earn higher profits
Company cannot charge more for its product even if costs and expenses increase
Alternatives to raising prices:
User Fees
Reduction of unneeded features or size of product
Company may want a higher market share
Market share is the percentage of the total shares of all companies that sell the same type of product
Company may lower the price of its product to increase its market share

31. Section 5.2 – Pricing and Strategies
Nike Elite Tournament 8-Panel Men’s Basketball - $45
Special Pricing Strategies
Price Lining
Selling all goods in a product line at specific points
$29.99
$39.99
$49.99
Benefits:
Makes it easier for consumer to make purchasing decisions
Easier to take markdowns
Inventory control simplified
Nike Elite Competition 8-Panel Men’s Basketball - $30
Men’s Dominate Basketball - $15

32. Section 5.2 – Pricing and Strategies
Special Pricing Strategies - cont
Bundle Pricing
Selling several items as a package for a set price
Products purchased individually would cost more than the package price
Benefits
Customer benefit from lower price
Business benefits due to higher sales and more products sold
$1.49 / bottle
$14.88 / 20 Pack
($.74 / bottle)

33. Section 5.2 – Pricing and Strategies
$119.99
(Regularly $144.99)
Special Pricing Strategies - cont
Loss-leader Pricing
Pricing an item at cost or below cost to draw customers into store
Benefits:
Customers will buy other products while at the store
Total purchases for the shopping visit will more than cover the money lost on the loss leader
$14.99
$64.99

34. Section 5.2 – Pricing and Strategies
Special Pricing Strategies - cont
Yield-Management Pricing
Pricing items at different prices to maximize revenue when limited capacity is involved
Ex. Pricing tiers at sports arena or stadium
Tiered Pricing is when teams charge more for tickets to home games against more competitive opponents that might draw more attendance

35. Section 5.2 – Pricing and Strategies
Price Adjustments and Regulations
To maintain integrity of published prices, marketers will make price adjustments through discounts or allowances
When offering discounts or allowances must make sure not pricing regulations are broken
Discounts`
Discounts provided for volume purchasing
Offer trade discounts to wholesalers & retailers
Allowances
Reductions taken from the quoted price
Ex. Reduction due to trade-in allowance
Regulatory Factors
Pricing is subject to gov’t regulations
Sherman Anti-Trust act prohibits price fixing and predatory pricing
Price Fixing is when competitors conspire to set same price
Predatory Pricing is setting prices low to drive competitors out of business
Robinson-Patman Act protects against price discrimination
Price Discrimination is charging different prices to similar buyers