1. INTRODUCTION TO BUSINESS CHAPTER 12 Creating and Pricing Products

2. Background on Products Product: a physical good or service that can satisfy consumer needs. Convenience products: products that are widely available to consumers, are purchased frequently, and are easily accessible. Specialty products: products that are not purchased frequently.

3. Background on Products Product line: a set of related products or services offered by a single firm. Product mix: the assortment of products offered by a firm. Diversifying the Product Mix Improving the Convenience of the Product

4. Product Life Cycle Phases

5. Identifying a Target Market Target market: a group of individuals or organizations with similar traits who may purchase a particular product. Consumer markets Industrial markets

6. Identifying a Target Market Factors That Affect the Size of a Target Market Demographics: characteristics of the human population or specific segments of the population. Geography Economic Factors Social Values The Use of E-Marketing to Expand the Target Market

7. Changes in Consumer Characteristics

8. Your Business Plan  Gender  Ethnicity (optional)  Income level (10K range)  Geographic Range  Social Values (lifestyle)  Other

9. Creating New Products Obsolete: less useful than in the past. Fashion obsolescence: no longer being in fashion. Technological obsolescence: being inferior to new products.

10. Steps Involved in Creating or Revising a Product

11. Product Differentiation Some products are primarily differentiated from others by their packaging, like the perfume in this photo. The packaging is intended to attract a particular target market.

12. Product Differentiation Unique Branding Branding: a method of identifying products and differentiating them from competing products. Trademark: a brand’s form of identification that is legally protected from use by other firms.

13. Product Differentiation Methods Used to Differentiate Products

14. Pricing Strategies Pricing According to the Cost of Production Cost-based pricing: estimating the per-unit cost of producing a product and then adding a markup. Economies of Scale Pricing According to the Supply of Inventory

15. Pricing Strategies Pricing According to Competitors’ Prices Penetration pricing: the strategy of setting a lower price than those of competing products to penetrate a market. (Price-elastic: the demand for a product is highly responsive to price changes. Price-inelastic: the demand for a product is not very responsive to price changes.) Defensive pricing: the strategy of reducing a product’s price to defend (retain) market share. Predatory pricing: the strategy of lowering a product’s price to drive out new competitors. Prestige pricing: the strategy of using a higher price for a product that is intended to have a top-of-the-line image.

16. Pricing Strategies -REQUIRED Supply Cost Competition Defensive Predatory Prestige Skimming Penetration

17. Pricing Strategies Boutique clothing shops, such as the one shown here, commonly charge relatively high prices to denote prestige and attract customers who want special designer clothing.

18. Pricing Strategies Example of Setting a Product’s Price Fixed costs: operating expenses that do not change in response to the number of products produced. Variable costs: operating expenses that vary directly with the number of products produced.

19. Pricing Strategies Break-Even Point: the quantity of units at which total revenue equals total cost. Contribution margin: the difference between price and variable cost per unit. www.javacalc.com (let’s go there!) www.javacalc.com Pricing Technology-Based Products

20. Pricing Strategies Estimation of Costs and Revenue at Various Quantities Produced

22. Additional Pricing Decisions Discounting Sales Prices Credit Terms