Download What is Price?

MT 219 Marketing
Unit Five
New Products and Pricing
Note: This seminar will be recorded
by the instructor.
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
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
New Product Development
Idea Generation
The first step of the new product development
process is called idea generation. Idea
generation is simply seeking product ideas to
achieve objectives. Pride and Ferrell. Some refer
to idea generation as the systematic search for
new-product ideas. Kotler
A company typically has to generate many ideas in
order to find a few good ones.
Screening
• Screening is choosing the most promising ideas for
further review. (Pride/Ferrell) Screening not only
includes spotting good ideas but dropping bad
ones as soon as possible so time is not wasted on
them. It’s similar to a human resources manager
screening applicants for a job.
Concept Planning
Seeking potential buyer’s response to a
product idea. (Pride and Ferrell)
Business Analysis
The business analysis phase is the fourth
phase of the new product development
process. This phase consist of assessing the
potential of a product idea for the firm’s sales,
costs, and profits. (Pride and Ferrell)
Product Development
The fifth phase of the new product development
process is known as product development. Product
development is determining if producing a product is
feasible and cost effective. (Pride and Ferrell)
In this phase, marketers are attempting to ensure that
the product idea can be turned into a workable
product. This is where the Research and
Development department steps in. Developing
successful prototypes could take days, months or
years. It depends on the product.
Test Marketing
The sixth phase of the new product
development process is called test marketing.
The test-marketing phase measures the
extent to which potential customers will
actually buy it.
Test marketing gives the marketer experience
with marketing the product before going to
the great expense of full introduction. All
aspects get tested such as advertising,
pricing, branding, and packaging to name a
few.
Commercialization
The final stage of the new product development
process is called commercialization.
Commercialization is deciding on full scale
manufacturing and marketing plans and preparing
budgets. Pride and Ferrell
Line extensions
• When a company introduced an additional item in a
given product category under the same brand name,
such as a new flavor, new color, new form, new
ingredient or package size, it is know as a line
extension which is a popular strategy for introducing a
new product to the market.
Product design
• Product design refers to how a product is conceived,
planned, and produced. Design is a very complex topic
because it involves the total sum of all the product’s
physical characteristics. Pride and Ferrell
Style
• Good product style and design can
attract attention to the product as
well as improve the products
performance.
Product features
• By product features, we are referring to the specific
design characteristics that allow a product to perform
certain tasks. Products can be sold stripped down to
the very basics or be sold at higher prices because the
products have more features. The question is, are
those features important and do they add value.
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
What is Price?
• Value exchanged for products
- Money
- Barter
• Only primary source of revenue
Price
Our textbook refers to price as
the value exchanged for
products in a marketing
transaction.
• Price is also the amount of
money charged for a product or
service, or the sum of the
values that consumers
exchange for the benefits of
having or using the product or
service. Kotler
Ebay.com
The term price goes by many names
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Education we pay tuition,
real estate agents charge a commission,
clubs charge dues,
credit cards charge interest.
“So how do you think marketers
determine the price for the product?”
Cost based pricing
Cost based pricing is adding a dollar amount or
percentage to the cost of the product. Pride and Ferrell
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
Demand Pricing
Demand based pricing is based on the level of demand
for a product. Pride and Ferrell
Competition Based Pricing
Competition based pricing by definition is pricing
influenced primarily by competitors prices. Pride and
Ferrell
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.
Value pricing
Value pricing is a pricing strategy that emphasizes
benefits derived from a product in comparison to
the price and quality levels of competing offerings
Pride and Ferrell
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
Target Market and Profit
• A set of buyers that share common needs or
characteristics that the company decides to serve. A
group of people toward whom the firm decides to direct
its marketing efforts, and ultimately its goods and
services. Boone and Kurtz
• Profit= Total revenue - Total expenses
• Other pricing strategies
Maximizing Volume
• Setting a minimum acceptable profit level and then seek
to maximize sales in the belief that the increased sales
are more important then immediate high profits to the
long-run competitive picture. Boone and Kurtz
Psychological Pricing
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Prestige
Reference
Bundle
Multiple unit
EDLP
Odd-Even
Customary
Other pricing strategies
• Skimming pricing strategy, penetration pricing strategy
and competitive pricing strategy.
Major Pricing Strategies
• Customer value-based pricing
• Cost-based pricing
• Competition-based pricing
Breakeven Pricing (chart from Kotler)
Other Considerations Impacting
Pricing
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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.