MT 219 Marketing Unit Five New Products and Pricing Note: This seminar will be recorded by the instructor.

Review of Unit 4 How did Unit 4 go? Questions or concerns? Instructor suggestions for Unit -Research for your Unit 6 research Project Questions?

New Product Development Process Idea Generation – ideas come from many sources Idea Screening – need to avoid “go” or “no go” error Concept Development and Testing – iterative process of consumer feedback Marketing Strategy Development- initial marketing strategy for the new product Business Analysis – what is the potential for sales, costs, and profits? Product Development – lengthy and expensive Test Marketing – realistic settings Commercialization – when, where, and how

Product Life Cycle Characteristics Product development – sales are zero and expense outlays are significant Introduction- sales begin at zero, profits negative Growth – sales rise rapidly, profits peak Maturity – sales peak and start to decline as profits fall Decline – sales fall rapidly See figure 8.2 in text

Marketing Objectives at each stage Introduction – create awareness and trial Growth – establish unique selling proposition; differentiate, build mass market awareness Maturity – hold share, consumer loyalty, diversify product, increase distribution points Decline – decrease expenditures, milk the brand and discontinue if necessary

What is Price? Value exchanged for products -Money -Barter Only primary source of revenue

Major Pricing Strategies Customer value-based pricing Cost-based pricing Competition-based pricing

Customer Value-Based Pricing Assesses prices based on customer perceptions of value Good-value pricing- The correct amount of quality and service at a fair price Value-added pricing- Differentiates the product by attaching value-added features and services and charges higher prices for them

Cost-Based Pricing Assesses price based on costs Cost-plus pricing- adds a markup to the cost of the product Breakeven pricing- sets prices to ensure that costs are covered and there is a certain rate of return

Breakeven Pricing (chart from Kotler)

Competition-Based Pricing Sets prices based upon what the competition’s strategies, market offerings, costs and prices are. Consumers will look at value in the product compare it to the competition and make a purchase decision based on what they see.

Other Considerations Impacting Pricing Can be internal or external to the firm Marketing strategies and objectives Organizational considerations such as internal costs The economy Government requirements Social considerations Demand and the marketplace

Price Elasticity Measures the sensitivity of demand to price changes If acceptable substitutes are available, markets tend to be elastic If not, they tend to be inelastic Examples of inelastic products?

New Product Pricing Skimming – set initial price high. Useful for unique products when competition cannot follow quickly. Where does the term come from? Examples? Penetration – set initial price low to capture as much of the market as possible before competition enters. Examples?

Product Mix Pricing Attempts to maximize profits across the total product mix of the product line. Product line pricing- Sets prices across an entire product line Optional-product pricing- provides optional accessories available with the primary product

Product Mix Pricing- continued Captive-product pricing- Prices products that must be bought with the main product By-product pricing- Pricing low-value by products to clear inventory Product-bundle pricing- Pricing products that are sold in bundles

Price Adjustments Adjusts prices based on situational, product and customer differences Discount and allowance pricing- price reductions are provided based on customer behavior such as frequent purchases and paying early Psychological pricing- prices that impact the customer psychologically such as pricing products at $1.99 or reference pricing

Price Adjustments- continued Promotional pricing- temporary reductions in prices to increase sales,. Examples: white sales and rebates Geographical pricing- Pricing based on where customers are located. Examples: delivery based on zones or a uniform delivered price

Price Adjustments- continued Dynamic pricing- prices are continually changed and adjusted depending on individual characteristics and needs of customers. Examples: negotiated prices and pop machines that charge based on temperature outside. International pricing- Price adjustments made in marketing products internationally. Examples: Pharmaceuticals and McDonalds are priced differently in different countries.

Any Questions? Thank you for attending! See you next week! Instructor will post the link to the recording of tonight’s seminar in the course Announcements.