1. Week 8 - 9: PRODUCT and prICING STRATEGIES
BUSN 102 – Özge Can

2. The Marketing Mix:

3. The Product Continuum

4. Augmenting the Basic Product

5. Types of
Products
Classifying products on the basis of tangibility and application can provide useful insights into the best ways to market them. Some products are predominantly tangible; others are mostly intangible. Most products, however, fall somewhere between those two extremes. The product continuum indicates the relative amounts of tangible and intangible components in a product.
To provide a more complete solution to customer needs, many companies find success by augmenting a core product with accessories, services, and other elements.
Products that are primarily sold to individuals for personal consumption are known as consumer products.
Organizational products, or industrial and commercial products, are generally purchased by organizations in large quantities and are used to create other products or to operate the organization.

6. Consumer Products Convenience Products Shopping Products
Everyday goods and services that people buy frequently, usually without much conscious planning
Shopping Products
Fairly important goods and services that people buy less frequently with more planning and comparison

7. Consumer Products Specialty Products Unsought Products
Particular brands that the buyer especially wants and will seek out, regardless of location or price
Unsought Products
Consumer aren’t looking for the product in question

8. Industrial & Commercial Products
Expense Items
Inexpensive products that organizations generally use within a year of purchase
Capital Items
More expensive organizational products with a longer useful life, ranging from office and plant equipment to entire factories

9. Industrial and Commercial Products
Raw materials
Components
Supplies
Installations
Equipment
Business services
Aside from dividing products into expense and capital items, industrial buyers and
sellers often classify products according to their intended use:
• Raw materials such as iron ore, crude petroleum, lumber, and chemicals are used in the
production of final products.
• Components such as semiconductors and fasteners also become part of the manufacturers’
final products.
• Supplies such as pencils, nails, and light-bulbs that are used in a firm’s daily operations
are considered expense items.
• Installations such as factories, power plants, and airports are major capital projects.
• Equipment includes items such as desks, computers, and factory robots.
• Business services range from landscaping and cleaning to complex services such as management
consulting and auditing.

10. The Product Life Cycle Product Life Cycle
Four stages through which a product progresses: introduction, growth, maturity, and decline

11. The Product Life Cycle

13. Product Development Process
A formal process of generating, selecting, developing, and commercializing product ideas
Idea generation
Idea screening
Business analysis
Prototype development
Test marketing
Commercialization

14. Product Development Process

15. Product Development Process
Idea Generation
Producing new product ideas that will satisfy unmet needs
The first step in the new-product development process is to come up with some ideas that will satisfy unmet needs. Customers, competitors, and employees are often the best source of new-product ideas. Companies can also hire trend watchers, can monitor social media to spot shifts in consumer tastes, or can use crowdsourcing to invite the public to submit ideas or product designs.

16. Product Development Process
Idea Screening
Selecting a few ideas that appear to be worthy of further development
Feasibility studies
From all the ideas under consideration, the company selects those that appear to be worthy of further development, applying broad criteria such as whether the product can use existing production facilities and how much technical and marketing risk is involved. Research suggests that sharply narrowing the possibilities at this stage is better than keeping a large number of ideas alive, since each idea competes for attention or resources until it is abandoned or implemented as a real product.

17. Product Development Process
Business Analysis
Reviewing the sales, costs and profit projections to determine whether they meet the company’s objectives
A product idea that survives the screening stage is subjected to a business analysis. During this stage, the company reviews the sales, costs, and profit projections to determine whether they meet the company’s objectives. In addition, it estimates the costs associated with various levels of production. Given these projections, analysts calculate the potential profit that will be achieved if the product is introduced. If the product meets the company’s objectives, it can then move to the prototype development stage.

18. Product Development Process
Prototypes
Pre-production samples of products used for testing and evaluation

19. Product Development Process
Test Marketing
The stage of product development in which a product is sold on a limited basis to gauge its market appeal

20. Product Development Process
Commercialization (Product Launch)
Large-scale production and distribution of a product

21. Product Identities Brand
A name, term, sign, symbol, design, or combination of those used to identify the products of a firm and to differentiate them from competing products

22. Product Identities Brand Loyalty Brand Equity
The degree to which customers continue to purchase a specific brand
Level 1: brand awareness
Level 2: brand preference
Level 3: brand insistence
Brand Equity
The value that a company has built up in a brand

23. Brand Name Selection Brand Names Brand Marks
The portion of brands that can be expressed orally, including letters, words, or numbers
Brand Marks
The portion of brands that cannot be expressed verbally

24. Brand Name Selection Logo Trademarks
A graphical and/or textual representation of a brand
Trademarks
Brands that have been given legal protection so that their owners have exclusive rights to their use

26. Brand Ownership National Brands Private Brands
Brands owned by manufacturers and distributed nationally
Coca-Cola, Pepsi
Ariel
Private Brands
Brands that carry the label of a retailer or a wholesaler rather than a manufacturer
Tansaş Cola
Migros deterjan

27. Brand Ownership Co-branding: License:
A partnership between two or more companies to closely link their brand names together for a single product
License:
An agreement to produce and market another company’s product in exchange for a royalty or fee

28. Co-Branding Examples:

29. Packaging: Labeling:
xxx
Lice

30. Product-Line and Product-Mix Strategies
In addition to developing product identities, a company must continually evaluate what kinds of products it will offer. To stay competitive, most companies continually add and drop products to ensure that declining items will be replaced by growth products. Companies that offer more than one product also need to pay close attention to how those products are positioned in the marketplace relative to one another. The responsibility for managing individual products, product lines, and product mixes is usually assigned to one or more managers in the marketing department. In a smaller company, the marketing manager tackles this effort; in larger companies with more products to manage, individual products or groups of products are usually assigned to brand managers, known in some companies as product managers or product line managers.

31. Product-Line and Product-Mix Strategies
Brand Managers
Managers who develop and implement the marketing strategies and programs for specific products or brands

32. Product-Line and Product-Mix Strategies
A series of related products (in terms of their use or characteristics) offered by a firm
Product Mix
The complete portfolio of products that a company offers for sale
Example:

33. Product mix:

34. Product mix:

35. Product mix vs. Product line

36. Product-Line and Product-Mix Strategies
A product mix is:
Wide if it has several different product lines
Long if it carries several items in its product lines
Deep if it has a number of versions of each product in a product line

38. Product Expansion Strategies
Family Branding
Using a brand name on a variety of related products
Brand Extension
Applying a successful brand name to a new product category
New products should not cannibalize the existing ones under the same brand name

39. Product Strategies for International Markets:
Which products and services to introduce in which countries?
Type of government, market entry requirements, tariffs and other trade barriers, cultural and language differences, consumer preferences, foreign exchange rates, business customs
Whether to standardize the product or customize it for local markets?

40. Strategic Considerations in Pricing:
Marketing objectives
Government regulations
Customer perceptions
Market demand
Competition

41. Strategic Considerations in Pricing:
Marketing Objectives:
Is your goal to increase market share, increase sales, improve profits, project a particular image or fight competition?
Government Regulations:
Three areas of prohibited behavior:
Price fixing, Price discrimination, Deceptive pricing

42. Strategic Considerations in Pricing:
Customer Perception:
Avoiding too low or too high prices
“9 effect”
Market Demand:
Demand and supply – at market equilibrium, prices stabilize.
Price elasticity: How sensitive demand will be to a change in price

43. Cost Structure Fixed Costs Variable Costs
Business costs that remain constant regardless of the number of units produced
Ex: rent, mortgage payments, insurance premiums,real estate taxes, salaries
Variable Costs
Business costs that increase with the number of units produced
Ex: raw materials, supplies, shipping, sales commissions

44. Break-Even Analysis Break-Even Analysis Break-Even Point:
A method of calculating the minimum volume of sales needed at a given price to cover all costs
Break-Even Point:
Minimum sales volume at a given price that will cover all of a company’s costs

45. Break-Even Analysis: Example (1)

46. Break-Even Analysis: Example (2)
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

47. Pricing Methods Cost-Based Pricing (Cost-plus pricing)
A method of setting prices based on production and marketing costs, rather than conditions in the marketplace
Cost of production + Markup = Price
Value-Based Pricing
A method of setting prices based on customer perceptions of value
Starts with a target price

48. Pricing Methods Optimal Pricing
A computer-based pricing method that creates a demand curve for every product to help managers select a price that meets specific marketing objectives
Profit, revenue or market share calculations
“What-if” scenario analyses

49. Pricing Methods Skim Pricing Penetration Pricing
Charging a high price for a new product during the introductory stage and lowering the price late
Take advantage of the strong demand from early adopters
Penetration Pricing
Introducing a new product at a low price in hopes of building sales volume quickly
Important: whether the customers are price- sensitive

50. Pricing Methods Loss-Leader Pricing Auction Pricing
Selling one product at a loss as a way to entice customers to consider other products
Auction Pricing
The seller doesn’t set a firm price but allows buyers to competitively bid on the products being sold
Example: eBay, fine art, government bonds

51. Pricing Methods Participative Pricing Free Pricing
Allowing customers to pay the amount they think a product is worth
“Pay what you want”: Radiohead
Free Pricing
A pricing strategy of offering some products for free while charging for others, or offering a product for free to some customers while charging others for it

52. Price Adjustment Tactics:
Discounts – temporary price reductions to stimulate sales or to encourage certain behaviors such as paying with cash
Bundling – Offering several products for a single price that is presumably lower than the total of the products’ individual prices
Dynamic pricing – Continually adjusting prices to reflect changes in supply and demand
Airlines and hotels (yield management)

53. Assignment #1 (Due next week):
Building Your Team Skills (Chapter 14, p.327)
Select a high-profile product with which you and your teammates are familiar. Do some online research to learn more about that brand. Then answer these questions and prepare a 1-2 page written paper summarizing your findings.
Group Assignment (3-5 persons)
Use the assignment format I uploaded to the website.

54. Assignment #1:
1. Is the product a consumer product, industrial product, or both?
2. At what stage in its life cycle is this product?
3. How appealing its packaging and labeling are to the consumers? How is this product promoted by the company?
4. Is the product mix to which this product belongs: a) wide? b) long? c) deep?
5. Is the product sold in international markets? If so, does the company use a standardized or a customized strategy?
6. How is the product priced in relation to competing products?

55. Next Topic (Week 10):
Distribution and Logistics (Chapter 15)