Product Design. Pricing and Strategies

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2 Product Design Pricing and Strategies 2

3 Chapter 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. Define price and the role it plays in determining profit. Describe the factors that affect pricing decisions. Identify pricing strategies. 3

4 Product Defined A specific model of athletic shoe would be called a product item. product item specific model or size of a product The entire group of a manufacturer s athletic shoes would be called a product line. 4

5 Product Defined Products can be classified as consumer goods or business goods. Products need to have a point of difference. consumer goods goods purchased and used by the ultimate consumer for personal use business goods goods purchased by organizations for use in their operations point of difference a unique product characteristic or benefit that sets it apart from a competitor 5

6 In SWOT, strengths and weaknesses are internal factors. For example: A strength could be: Your specialist marketing expertise. A new, innovative product or service. Location of your business. Quality processes and procedures. Any other aspect of your business that adds value to your product or service. A weakness could be: Lack of marketing expertise. Undifferentiated products or services (i.e. in relation to your competitors). Location of your business. Poor quality goods or services. Damaged reputation. SWOT Analysis In SWOT, opportunities and threats are external factors. For example: An opportunity could be: A developing market such as the Internet. Mergers, joint ventures or strategic alliances. Moving into new market segments that offer improved profits. A new international market. A market vacated by an ineffective competitor. A threat could be: A new competitor in your home market. Price wars with competitors. A competitor has a new, innovative product or service. Competitors have superior access to channels of distribution. Taxation is introduced on your product or service. Nike SWOT Analysis

7 Steps in New Product Development The seven steps in new product development are: 1. SWOT analysis (strengths, weaknesses, opportunities, and threats) focus group a panel of six to ten consumers who discuss opinions about a topic under the guidance of a moderator 2. Idea generation 3. Screening and evaluation Focus group continued 7

8 continued 4. Business analysis 5. Development 6. Test marketing 7. Commercialization Steps in New Product Development commercialization process that involves producing and marketing a new product 8

9 Product Life Cycle The four stages in the product life cycle are: Growth Maturity Introduction Product Life Cycle Decline Not all products fit the life-cycle pattern. 9

10 Management of the Product Life Cycle The three ways to manage the product life cycle are: Modifying the product. Marketing the product. Repositioning the product. repositioning changing a product s image in relation to a competitor s image 10

11 Gatorade Tiger

12 E-Trading Collectibles A box of baseball cards may not be Operating an e-tail business worth the on price an electronic of college channel the tuition Web can be costly, anymore, due to design, because delivery, the so-called returns, bull and operating expenses. market for sports collectibles peaked in the 1990s. Lower demand has Though Many larger dot-com companies crashed in the caused 1990 s, lower small prices. stores However, like Harris the Cyclery latest hot of West items Newton, are autographs Massachusetts, from Hall actually of Famers and increase sales top using players a basic who don t Web often site. sign Today, baseballs, a third of photographs, Harris s bicycle jerseys, business or bats. rides You in can on find the and Web bid to on get these hard-to-find curios at parts collectibles and personal Web sites, service. including ebay but be sure to get authentication when you score Describe that vintage an e-business s ball signed home by Mickey page to Mantle. your class after For viewing more information one through on marketingseries.glencoe.com. sports and entertainment marketing, go to marketingseries.glencoe.com. 12

13 SECTION 5.1 REVIEW 1. Explain the seven steps involved in developing a new product. 2. Name the four stages in the product life cycle. 3. What three things can be done to manage a product through its life cycle? 13

14 Pricing Price is important in a business because it helps determine a company s profit or loss. price the value placed on goods or services being exchanged Price plays a significant role in the marketing mix. Price Video 14

15 Determining Profit Subtract the cost of goods sold and the company s expenses from the money it generated in sales revenue. 1,000 baseball bats sold $175,000 = revenue - $90,000 to purchase the bats - $60,000 in business expenses = $25,000 Profit $175 each $90 each 15

16 Three types of pricing strategies are: Pricing Considerations and Strategies prestige pricing pricing based on consumer perception Prestige pricing Odd-even pricing Target pricing odd-even pricing pricing goods with either an odd number or even number to match a product s image target pricing pricing goods according to what the customer is willing to pay 16

17 Other pricing considerations include: Demand Cost Markup Cost-plus pricing Newness of the product Competition Non-price competition Pricing Considerations and Strategies markup difference between the retail or wholesale price and the cost of an item cost-plus pricing pricing products by calculating all costs and expenses and adding desired profit non-price competition competition between businesses based on quality, service, and relationships 17

18 Pricing objectives and strategies include: Profit objective Market share objective Special pricing Price lining Bundle pricing Loss-leader pricing Yield-management pricing Tiered pricing Pricing Objectives and Strategies market share the percentage of the total sales of all companies that sell the same type of product price lining selling all goods in a product line at specific price points bundle pricing selling several items as a package for a set price loss-leader pricing pricing an item at cost or below cost to draw customers into the store yield-management pricing pricing items at different prices to maximize revenue when limited capacity is involved 18

19 Price Adjustments and Regulations Manufacturers will offer discounts in the following situations: Buying in large quantities Buying prior to the buying season Allowances are reductions taken from the quoted price. One type of allowance is a trade-in. 19

20 The Sherman Anti-Trust Act prohibits price fixing and predatory pricing. Price discrimination was originally prohibited by the Clayton Act and later by the Robinson-Patman Act. Price Adjustments and Regulations price fixing an illegal practice whereby competitors conspire to set the same price 20

21 SECTION 5.2 REVIEW 1. How is pricing related to profit and the marketing mix? 2. List five factors that affect price decisions. 3. What are two common pricing objectives and special pricing strategies? 21

22 Checking Concepts Explain the difference between product item and product line. Name the ways products can be defined and classified. Explain the seven steps used in developing a new product. continued A Products SWOT product analysis, can item be a specific classified idea generation, model as or size consumer screening of a product; goods and or a product business evaluation, line goods. is a group Products business of closely are analysis, related goods, development, services, products test or that ideas marketing, are that sold satisfy and by a company. consumer commercialization needs; products are the seven can be tangible steps. (goods) or intangible (services). 22

23 Checking Concepts Identify the four stages in a product s life cycle. Define price. Explain how price determines a company s profit. Identify the factors that may influence pricing strategies. continued The Price Every Pricing stages is item strategies defined sold are as the carries are introduction, value influenced a price. placed by The on goods number consumer growth, or maturity, of services items being sold perception, and decline. times exchanged. the price equals demand, sales cost, revenue. product life The cycle amount stage, and of profit equals competition. costs subtracted from price. 23

24 Critical Thinking 8. Define and compare markup and cost-plus pricing. Checking Concepts 8. Markup is the difference between the retail or wholesale price and the cost of an item. Cost-plus pricing involves calculating all costs and expenses and adding desired profit to arrive at a price. In a sense, markup is the profit component in cost-plus pricing. 24

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