1. 当代商业概论 Fundamentals of Business
Lecture 3:
Products and Pricing

2. What to cover today： Types of products Product life circle
New product development
Product line and product mix
Product differentiation
Pricing strategies
Exercises

3. 1. Types of products convenience goods shopping consumer goods
ultimate/end
consumers
goods and services that are purchased for consumers’ own use
shopping
goods
consumer
products
products
specialty
goods
industrial
products
goods and services that are purchased to produce other goods and services
industrial
buyers

4. 1.1 Consumer products 1.1.1 Three types of consumer products
-- criteria for classification: the individual consumer’s buying attitude and behavior, i.e. how often it is purchased, how significant it is to the consumer, whether it is considered as high or low in value, how loyal the consumer is to a specific brand
e.g. organic vegetables, Siemens washing machine, Evian mineral water, Christian Louboutin shoes

5. Convenience goods 便利商品: usually low-priced, frequently bought, demanded on short notice, often purchased by habit without much time thinking about
Shopping goods 购物商品: usually high-priced, less frequently bought, requires comparison and study before buying
Specialty goods 特色商品: consumer’s strong conviction about certain brand, style or type and willingness to make a special effort to purchase, usually high in value, less frequently bought
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6. From product to place:
Convenience goods: to be sold in as many places as possible, such as supermarkets, convenience stores, neighborhood drugstores, vending machines (e.g. Pepsi, Wrigley’s gum, Kangshifu instant noodle)
Shopping goods: to be sold in stores that are grouped together in planned shopping centers to facilitate consumer’s comparison (e.g. TV sets, SUV, furniture)
Specialty goods: to be sold in any place whatsoever, requires less worries about distribution and retail location (e.g. Roll-Royce limousines)

7. 1.1.2 Income patterns and buying patterns
multi-earner families 多收入家庭 vs. single-earner families 单收入家庭
the more income a family or an individual has, the smaller is the proportion of income required for absolute necessities
discretionary/disposable income 可支配收入:
-- what a consumer has to spend on things other than necessities
the greater one’s discretionary income is, the higher the quality and price of consumer products one can afford
the greater one’s discretionary income is, the greater one’s ability is to shift buying pattern

8. 1.2 Industrial products 1.2.1 Types of industrial products
installations: e.g. land, plants, office buildings, expensive assets such as cranes
raw materials: e.g. cotton, iron ore, lumber, petroleum, gas
accessory equipment: e.g. typewriters, photocopiers, accounting machines, small forklift trucks
supplies: e.g. maintenance items (brooms and light bulbs), repair items (nuts and bolts), operating supplies (lubricating oil and printer paper)
component parts and materials: e.g. tires, batteries, steel beams
business services: e.g. uniform rental, wedding photography, security services, cargo transportation, marketing proposal, advertising package

9. 1.2.2 Features of the industrial market
more formal systems for buying: purchasing departments; negotiations, lobbying, debate, public bidding; esp. governments and nonprofit institutions (schools, hospitals), the General Services Administration (美国总务管理局), the Defense Supply Agency (美国国防供应局)
more clearly defined motives(动机) for buying: profit-driven, strict budget, demand for purchasing is derived from demand for production
smaller (potential) customer base: McDonald’s vs. Boeing Company (airlines and the military only)
less public exposure, more personal connecting

10. 2. Product life cycle
-- the typical sequence of changes in demand for a product that occur over time
Introduction/Embryonic Phase(阶段): fast/slow price skimming, fast/slow penetration
Growth Phase: more products and segments, more distribution channels, brand awareness, lower price
Maturity Phase: price war, product revision
Decline Phase: concentration, new product development
The average product life cycle has been dramatically shortened due to the accelerated pace of technological innovation since the Industrial Revolution in the 18th century.
e.g. vacuum tubes 真空管 (in radios, record players, early computers) transistors 晶体管

11. The demand curve of a product life circle

12. 产品生命周期不同阶段特征

13. Case study: The End of Life?

14. 3. New product development
Idea generation Phase
Screening Phase
Development Phase
Testing Phase
Commercialization Phase
Post-audit Phase: the actual costs and benefits are measured and compared with those that were forecasted earlier, to determine whether the previous cost-benefit analysis 成本效益分析 was reasonably accurate
For every 7 new product ideas, about 4 enter development, 1.5 are actually launched, and only 1 succeeds.
ideas
products

15. Examples of successful new products
Du Pont: cellophane 玻璃纸, nylon, Freon 氟利昂/甲烷, Teflon (non-stick pans) 特富龙
Sony: Walkman, compact disc, PlayStation
Pfizer: Viagra
3M: waterproof sandpaper, Post-It Notes
Intel: PC microprocessors

16. 4. Product line and product mix
-- a set of related products or services offered by a single firm
e.g.
Coca-Cola: Coke, Diet Coke, Caffeine-Free Coke, Sprite
PepsiCo: Pepsi, Diet Pepsi, Mountain Dew, All-Sport
Product mix 产品组合
-- the assortment of all lines of products offered by a firm
Christian Dior: women’s clothing, men’s clothing, children’s clothing, jewelry, shoes, fashion accessories, cosmetics
ICBC: deposits, checking services, credit card services, personal loans, business loans, insurance products, stock and bond products, fund products, financial consulting

17. Product mix of Toyota

18. Diversifying the product line or mix
A product line or mix tends to expand over time as a firm identifies other customer needs and market segments.
e.g.
P&G: from Tide to Tide with Bleach
Amazon, 当当: from books only to home appliances, drugs, toys, health and beauty products
京东商城: from IT products to books
Before firms add more products to their product line or mix, they should weigh:
-- whether a demand for new products really exists
-- whether they are capable of efficiently providing those products
-- whether they can sell new products at a profit

19. Case study: Amazon.com’s diversified product mix
Amazon.com initially focused on filling book orders requested over the Internet. First, it began to offer CDs as well, recognizing that if customers are willing to order books online, they may also order other products. Second, it had already proved that it could provide reliable service, so customers trusted that the additional services would be reliable as well. Third, it could use its existing technology to fill CD orders, which increased efficiency. Amazon.com also acquired a stake in Drugstore.com because it believed that it could fill drug orders requested over the Internet.
How would you interpret Amazon.com’s diversification practice?

20. Possible comments:
The growth of Amazon.com demonstrates how a firm can benefit from expanding its product mix.
Diversification of product mix should be done in a very cautious way, and careful consideration should be taken before making the decision, including customer needs, efficiency and profitability.
It is a more reliable strategy to build additional product by using the resources that initially made the firm successful.

21. 5. Products differentiation
-- the efforts of a firm to distinguish its products from competitors’ in a manner that makes the product more desirable; a product strategy to gain competitive advantage/edge 竞争优势
e.g.
Starbucks coffee vs. local street corner café
Kay-Bee toys vs. Wal-Mart
IKEA vs. 吉盛伟邦，红星美凯龙
《瑞丽》vs. 《家庭》, 《知音》

22. PRODUCT PRICE PLACE PROMOTION Product differentiation can be achieved
through
the marketing mix
PRICE
PROMOTION
PLACE

23. Oft-employed methods of product differentiation through product strategies
Achieve competitive advantage by:
Examples
Unique product design
providing higher level of physical appeal, quality, function choice, safety, reliability, or ease of use
Southwest Airlines’ short routes, Nissan Teana’s superb interior decoration
Unique packaging
providing advertising to get consumers’ attention, or improving convenience
canned food with pull-tabs, honey in squeeze bottles
Unique customer service
providing superior customer service excellence, including payment choice, delivery service, warranties, technical support, after-sales service
京东商城的信用卡付款服务, WoolWorth’s online purchase and home delivery, Wal-Mart’s refunding policy
Unique branding
using the firm’s established reputation to gain credibility for its whole product mix, can thus create “perceived differences”
Coco-Cola’s 果粒橙, 美的紫砂煲

24. Branding 品牌推广
-- a method to identifying products and differentiating them from competing products by using a unique name, symbol or other elements
trademark 商标: a legally protected brand
brand loyalty 品牌忠诚度: the tendency of customers to consistently purchase products of a particular brand
family branding vs. individual branding
producer brands vs. store brands
co-branding: 中信信用卡+南航免费里程，金本涮涮锅+天河电影城折扣

25. “Consumers have to trust that a brand will meet all their needs all the time. That requires superior product technology. And it also requires sufficient breadth of product choices. We should never give consumers a … reason to switch away from one of our brands.”
-- P&G annual report
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26. 6. Pricing strategies 6.1 Pricing objectives
Profit-oriented objectives 利润导向型目标
Sales-oriented objectives 销售额导向型目标
Follow-the-leader objectives 跟进型目标
Inventory-oriented objectives 库存导向型目标: most manufacturers and retailers tend to reduce prices if they need to reduce their inventory, e.g. computer firms, automobile firms, and housing firms typically reduce prices on existing products to make room for new items that will soon be marketed

27. 6.2 Price setting theories
Supply-demand theory 供求关系理论: equilibrium price 均衡点价格
Break-even analysis 盈亏平衡点分析:
break-even point＝fixed costs/(unit price－per-unit variable cost)
Economies of Scale 规模效益: the higher the production volume, the lower the average per-unit cost of production (per-unit variable cost)
Target price 目标价格:
-- the price a typical customer will be willing to pay for a product with a particular set of qualities and features, e.g. an entry-level car or a top-of-the-line luxury sedan
discover target price develop a budget for the 4P’s

28. 6.3 Pricing strategies
Skimming Strategy 撇脂战略: workable at the introduction phase
Penetration Strategy 穿透战略: workable when demand for a product is price-elastic 具有价格弹性的 (customers are highly responsive to price changes, e.g. napkins, housewares)
Loss Leader Pricing Strategy 引诱战略
Odd Pricing/Psychological Strategy 心理定价战略
Pricing Lining Strategy 分类定价战略

29. Defensive Strategy 防御战略: workable when demand for a product is price-elastic
-- the strategy of reducing a product’s price to defend or retain market share, often leading to price war
Predatory Strategy 掠夺战略: workable when demand for a product is price-elastic
-- the strategy of reducing a product’s price to drive out new competitors
Prestige Strategy 尊贵战略: workable when demand for a product is price-inelastic 不具有价格弹性的(customers are not responsive to price changes, e.g. high-end autos, tailor-made garments, dentists, hairstylists, stockbrokers)
-- the strategy of using a higher price for a product that is intended to have a top-of-the-line image

30. Additional pricing decisions
Special discounts 折扣: for kids, senior citizens, students, subscription of magazines
Periodic sales prices 季节性促销: Boxing Day
Credit terms 延期付款: vs. cash sales, may lead to bad debts or cash flow problems, credit cards issued by retailers

31. Exercises Translation 消费者产品 (2) 撇脂战略 价格战 (4) 规模效益 竞争优势 (6) 产品线
消费者产品 (2) 撇脂战略
价格战 (4) 规模效益
竞争优势 (6) 产品线
(7) 可支配收入 (8) 购买力
品牌认知度 (10) 品牌忠诚度
(11) 利润最大化 (12) 盈亏平衡点

32. 2. Find terms that suit the following definitions
Products that are taken seriously enough to require comparison and study before purchasing selection
That group of present and potential customers that a firm aims to please with its goods and services
Goods or services that will be used by a firm or an institution to produce other goods and services
The pricing strategy of setting a lower price than those of competing products to penetrate a market

33. A brand’s form of identification that is legally protected from use by other firms
Products bought frequently, demanded on short notice and often purchased by habit
Products for which strong brand royalty exists in the consumer’s mind and the consumer will make a great effort to locate and purchase
A firm’s efforts to distinguish its products from competitors’ products in a manner that makes the product more desirable

34. 3. Group project:
Step 1: Employ one or more approaches of marketing research to uncover campus-wide brand awareness and brand loyalty of shampoos and bodywash products
Step 2: Investigate the product differentiation methods used by the firms on question

35. 4. Supplementary reading
Creating New Products at 3M
Branding
Example of Setting a Product’s Price
Additional Pricing Strategies
Don’t forget your marketing plan!