Product and Pricing Strategies. Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-1

Transcription

1 Product and Pricing Strategies Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-1

2 Product Characteristics Types of Products Stages of Products Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-2

3 The Product Continuum Goods Products Ideas Services Salt Shoes VCR Auto Fast Food Cruise Consulting Insurance Education Tangible Dominant Intangible Dominant Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-3

4 Augmenting the Basic Product Delivery and Credit Brand Name Augmented Product Actual Product Features After-Sale Service Upgrades Core Benefits Accessories Quality Level Packaging Design Installation Warranty Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-4

5 Characteristics of Service Products Intangible Quality Perishable Nature Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-5

6 Consumer Products Convenience Products Shopping Products Specialty Products Unsought Products Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-6

7 Convenience Goods: are inexpensive frequent purchases, there is little effort needed to purchase them. Examples may include fast food and confectionery products. Shopping goods: are usually high risk products where consumers like to shop around to find the best features and price for that product.. Examples include buying fridges, freezers or washing machines. Specialty Goods: products that are purchased infrequently. The consumers will conduct extensive research to make sure that their purchase decision is right, because specialty goods are expensive and infrequent purchases. Examples include watches and diamonds. There are usually little or no substitutes for these products. Unsought Goods: a category of goods and services which the buyer (a) is unaware of, or (b) would prefer not to think about buying; commonly quoted examples include cemetery plots, encyclopedias and life insurance. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-7

8 Industrial Products Expense Items Capital Items Short-Term Long-Term Pencils Printer Cartridges Copy Machines Computers Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-8

9 Products and Their Uses Raw materials Components Supplies Installations Equipment Business services Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-9

10 Raw materials such as iron ore, crude petroleum, lumber, and chemicals are used in the production of final products. Components such as spark plugs and printer cartridges are similar to raw materials; they 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, airports, production lines, and semiconductor fabrication machinery are major capital projects. Equipment includes less-expensive capital items such as desks, telephones, and fax machines that are shorter lived than installations. Business services range from simple and fairly risk-free services such as landscaping and cleaning to complex Prentice Hall, 2005 Excellence in Business, Chapter services such as management Revised Edition consulting and auditing.

11 Sales Volume (units) The Product Life Cycle Introduction Growth Maturity Decline In-Flight Internet Service Digital Music Players DVD Players VCRs Sales + 0 Profits Time Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-11

12 Product life cycle: four distinct stages 1. Introduction a. Producers launch a new product b. Typically spend heavily on research and development efforts c. Develop promotions to build awareness of the product d. Establish distribution systems to get the product into the marketplace 2. Growth a. Rapid jump in sales b. Increase in the number of competitors c. Marketing is expensive at this stage 3. Maturity a. Usually the longest stage in the product life cycle b. Sales begin to level off or show a slight decline c. Competition increases d. Market share is maximized 4. Decline a. Sales and profits slip and fade away b. Declines occur for several reasons Changing demographics Shifts in popular taste Product completion Advances in technology c. Companies must decide whether to: Keep selling product as is Discontinue selling product Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-12

13 Marketing Strategies: Introduction Stage Low sales High cost per customer acquired Negative profits Innovators are targeted Little competition Strategies Product: Offer a basic product Price: Charge cost-plus Distribution: Build selective distribution Advertising: Build product awareness among early adopters and dealers Sales promotion: Use heavy sales promotion to enhance trial

14 Product Life-Cycle Marketing Strategies Marketing Strategies: Growth Stage Improve product quality and add new product features and improved styling Add new models and flanker products Enter new market segments Increase distribution coverage and enter new distribution channels Shift from product-awareness advertising to product-preference advertising Lower prices to attract next layer of pricesensitive buyers

15 Product Life-Cycle Marketing Strategies Marketing Strategies: Maturity Stage Market Modification Expand number of brand users by: 1. Converting nonusers 2. Entering new market segments 3. Winning competitors customers Convince current users to increase usage by: 1. Using the product on more occasions 2. Using more of the product on each occasion 3. Using the product in new ways 11-15

16 Product Life-Cycle Marketing Strategies Product modification Quality improvement Feature improvement Marketing-Mix Modification Prices Distribution Advertising Sales promotion Personal selling Services 11-16

17 Product Life-Cycle Marketing Strategies Marketing Strategies: Decline Stage 1. Increase firm s investment (to dominate the market and strengthen its competitive position) 2. Maintain the firm s investment level until the uncertainties about the industry are resolved. 3. Decrease the firm s investment level selectively by dropping unprofitable customer groups, while simultaneously strengthening the firm s investment in lucrative niches 4. Harvesting ( milking ) the firm s investment to recover cash quickly 5. Divesting the business quickly by disposing of its assets as advantageously as possible

18 The first stage in the product life cycle is the introductory stage, during which producers launch a new product and stimulate demand. In this stage, companies typically spend heavily on conducting research-and-development efforts to create the new product, on developing promotions to build awareness of the product, and on establishing the distribution system to get the product into the marketplace. Every product from personal computers to digital cameras gets its start in this stage. The producer makes little profit during the introduction; however, these start-up costs are a necessary investment if the new product is to succeed. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-18

19 After the introductory stage comes the growth stage, marked by a rapid jump in sales and, usually, an increase in the number of competitors and distribution outlets. As competition increases, so does the struggle for market share. This situation creates pressure to introduce new product features and to maintain large promotional budgets and competitive prices. In fact, marketing in this stage is so expensive that it can drive out smaller, weaker firms. With enough growth, however, a firm can often produce and deliver its products more economically than in the introduction phase. Thus, the growth stage can reap handsome profits for those who survive. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-19

20 During the maturity stage, the longest in the product life cycle, sales begin to level off or show a slight decline. Most products are in the maturity stage of the life cycle where competition increases and market share is maximized making further expansion difficult. Because the costs of introduction and growth have diminished in this stage, most companies try to keep mature products alive so they can use the resulting profits to fund the development of new products. Some companies extend the life of a mature product by modifying the product s characteristics to improve the product s quality and performance. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-20

21 Although maturity can be extended for many years, most products eventually enter the decline stage, when sales and profits slip and then fade away. Declines occur for several reasons: changing demographics, shifts in popular taste, product competition, and advances in technology. When a product reaches this point in the life cycle, the company must decide whether to keep it and reduce the product s costs to compensate for declining sales or discontinue it and focus on developing newer products. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-21

22 Product Makeovers Reinvigorated Designs Refreshed Marketing Efforts Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-22

23 New Product Development 1. Screening of ideas 2. Business analysis 3. Prototype development 4. Test marketing 5. Commercialization Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-23

24 Idea Generation may be thought of as coming up with ideas that satisfy unmet needs. Customers, competitors, and employees are often the best source of new-product ideas Idea Screening new ideas against some broad criteria, such as whether existing facilities can be used and the amount of risk involved, to see if they are worthy of further study Business Analysis performed on those ideas that survive the initial screening Prototype Development actually develops the product concept into a physical product. A few samples are made, which may include packaging and other elements of the marketing mix Test Marketing the stage in which a product is sold on a limited basis a trial introduction Commercialization or product launch the production and distribution on a large scale of products that have survived the testing process Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-24

25 Idea Generation Customers Competitors Employees Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-25

26 Idea Screening Industrial Products Feasibility Study Consumer Products Concept Testing Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-26

27 Business Analysis Forecast Sales Estimate Costs Project Profits Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-27

28 Prototype Development Packaging Marketing Mix Production Resources Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-28

29 Test Marketing Introduce the Product Monitor Customer Reactions Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-29

30 Commercialization Production Distribution Manufacturing Packaging Distribution Pricing Promotion Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-30

31 Product Identities Recognizing Products Specifying Products The Product Brand Marketing Products Valuing Products Unique Name, Symbol or Design Legal Protections Company or Organization Brand Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-31

32 Branding of Products Equity Name Selection Sponsorship Brand Loyalty Brand Names National Brands Brand Awareness Brand Marks Private Brands Brand Preference Trademarks Generic Products Brand Insistence Public Domain Co-Branding and Licensing Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-32

33 BRAND: A name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers. The legal term for brand is trademark. A brand may identify one item, a family of items, or all items of that seller. If used for the firm as a whole, the preferred term is trade name. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-33

34 Product Identities companies want to create a brand identity by using a unique name or design that sets a product apart A. Brand equity 1. Brand loyalty: commitment to a particular brand. 2. Brand awareness: that people are likely to buy a product because they are familiar with it 3. Brand preference: people will purchase the product if it is available, although they may still be willing to experiment with alternatives if they cannot find the preferred brand 4. Brand insistence: buyers will accept no substitute B. Brand name selection 1. Brand names: the portion of the brand that can be spoken 2. Brand mark: portion of a brand that cannot be expressed verbally 3. Trademark: a brand that has been given legal protection so that its owner has exclusive rights to its use C. Brand sponsorship 1. National brands: Brands offered and promoted by a national manufacturer, such as Procter & Gamble's Tide detergent 2. Private brands: are not linked to a manufacturer but instead carry a wholesaler's or a retailer's brand 3. Generic brands: which are packaged in plain containers that bear only the name of the product 4. Co-branding occurs when two or more companies team up to closely link their names in a single product Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-34

35 Packaging and Labeling Function Strategy The Product Display Information Differentiation Inventory Control Appeal Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-35

36 D. Packaging 1. Most products need packaging a. To protect the product from damage or tampering b. To make it convenient for customers to purchase c. To make products easier to display and facilitate sales of smaller products E. Labeling 1. Identifies brand 2. Gives grading information (about product, ingredients) 3. Gives operating procedures 4. Increases shelf life 5. Risks a. Labeling of foods, drugs, cosmetics, health products is regulated b. Disclosures about potential dangers 6. Universal product codes a. Give companies a way to track the movement of goods b. Helps retailers and manufacturers measure the effectiveness of promotions such as coupons c. Helpful for inventory control Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-36

37 Product Strategies Product Line Product Mix Product Expansion International Markets Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-37

38 Product Line and Product Mix Goods or Services Width Length Depth Risks or Rewards Long-Term Strategy Strengths and Weaknesses Managerial Depth Financial Resources Retail Channel Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-38

39 An organization with several product lines has a product mix a collection of goods or services offered for sale. Three important dimensions of a company s product mix are width, length, and depth. A company s product mix is wide if it has several different product lines. A company s product mix is long if it carries several items in its product lines. A product mix is deep if it has a number of versions of each product in a product line. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-39

40 Line Filling: Developing items to fill gaps in the market that have been overlooked by competitors or have emerged as consumers tastes and needs shift. Line extension: Creating a new variation of a basic product. Brand Extension: Putting the brand for an existing product category into a new category. Line stretching: Adding higher- or lower-priced items at either end of the product line to extend its appeal to new economic groups. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-40

41 Product Expansion Add Items in a Product Category Under the Same Brand Name Add New Products with the Same Product Name Apply a Successful Brand Name to a New Category Translate a Successful Brand in a Different Product Format Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-41

42 International Markets Government Standardization Exchange Rates Entry Requirements Language Tariffs and Trade Barriers Consumer Preferences Culture Customization Business Customs Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-42

43 Product Positioning Features Services Image Price Category Size, ease of use, style Convenience, customer support Reliability, sophistication Low cost or premium Leading online seller Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-43

44 Product Positioning Errors Under Positioning Eksik Konumlandırma Over Positioning Aşırı Konumlandırma Confused Positioning Karmaşık Konumlandırma Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-44

45 Developing Pricing Strategies Marketing Objectives Government Regulations Quality Perceptions Consumer Demand Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-45

46 Cost-Based Pricing Break-Even Analysis Less Than $$ Losses $$ Break-Even More Than Point $$ Profits $$ Fixed costs Selling price per unit-variable costs per unit Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-46

47 Break-Even Point Haircuts at $20 Each Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-47

48 Break-Even Point Haircuts at $30 Each Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-48

49 Other Pricing Strategies Price-Based Optimization Skimming Penetration Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-49

50 Companies that use priced-based pricing can maximize their profit by first establishing an optimal price for a product or service. The product s price is based on an analysis of a product s competitive advantages, the users perception of the item, and the market being targeted. Once the desired price has been established, the firm focuses its energies on keeping costs at a level that will allow a healthy profit. Optimal pricing uses computer software to generate the ideal price for every item, at each individual store, at any given time. Research shows that many retailers routinely underprice or overprice the merchandise on their shelves. They generally set a price by marking up from cost, by benchmarking against the competition s prices, or simply by hunch. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-50

51 A product s price seldom remains constant and will vary depending on the product s stage in its life cycle. During the introductory phase, for example, the objective might be to recover product development costs as quickly as possible. To achieve this goal, the manufacturer might charge a high initial price a practice known as skimming and then drop the price later, when the product is no longer a novelty and competition heats up. Products such as HDTV and flat-screen monitors are perfect examples of this practice. Price skimming makes sense under two conditions: if the product s quality and image support a higher price; and if competitors cannot easily enter the market with competing products and undercut the price. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-51

52 Rather than setting a high initial price to skim off a small but profitable market segment, a company might try to build sales volume by charging a low initial price, a practice known as penetration pricing. This approach has the added advantage of discouraging competition, because the low price (which competitors would be pressured to match) limits the profit potential for everyone. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-52

53 Price Adjustment Strategies Discount Pricing Bundling Dynamic Pricing Prentice Hall, 2007 Excellence in Business, 3e Chapter 13-53

54 When you use discount pricing, you offer various types of temporary price reductions, depending on the type of customer being targeted and the type of item being offered. You may decide to offer a trade discount to wholesalers or retailers as a way of encouraging orders, or you may offer cash discounts to reward customers who pay cash or pay promptly. You may offer a quantity discount to buyers who buy large volumes, or you may offer a seasonal discount to buyers who buy merchandise or services out of season. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-54

55 Sometimes sellers combine several of their products and sell them at one reduced price. This practice, called bundling, can promote sales of products consumers might not otherwise buy especially when the combined price is low enough to entice them to purchase the bundle. Examples of bundled products are season tickets, vacation packages, sales of computer software with hardware, and wrapped packages of shampoo and conditioner. Bundling products and services can make it harder for consumers to make price comparisons. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-55

56 Sometimes sellers combine several of their products and sell them at one reduced price. This practice, called bundling, can promote sales of products consumers might not otherwise buy especially when the combined price is low enough to entice them to purchase the bundle. Examples of bundled products are season tickets, vacation packages, sales of computer software with hardware, and wrapped packages of shampoo and conditioner. Bundling products and services can make it harder for consumers to make price comparisons. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-56

57 Dynamic pricing is the opposite of fixed pricing. Using Internet technology, companies continually reprice their products and services to meet supply and demand. Dynamic pricing not only enables companies to move slow-selling merchandise instantly but also allows companies to experiment with different pricing levels. Because price changes are immediately posted to electronic catalogs or websites, customers always have the most current price information. Airlines and hotels are notorious for this type of continually adjusted pricing. In addition to posting current prices on their homepages and many travel websites, many major airlines and hotels send customers weekly notifications listing special discount fares. auction pricing, in which buyers bid against each other and the highest bid buys the product; Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-57

58 auction pricing, in which buyers bid against each other and the highest bid buys the product; group buying, in which buyers obtain volume discount prices by joining buying groups; name-your-price, in which buyers specify how much they are willing to pay for a product and sellers can choose whether to sell at that price. Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 13-58