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WEEK 8 - 9: PRODUCT AND PRICING STRATEGIES BUSN 102 – Özge Can The Marketing Mix: 13-2 The Product Continuum 14-3 Augmenting the Basic Product 14-4 Types of Products 14-5 Consumer Products 14-6 Convenience Products Everyday goods and services that people buy frequently, usually without much conscious planning Shopping Products Fairly important goods and services that people buy less frequently with more planning and comparison Consumer Products 14-7 Specialty Products Particular brands that the buyer especially wants and will seek out, regardless of location or price Unsought Products Consumer aren’t looking for the product in question Industrial & Commercial Products 14-8 Expense Items Inexpensive products that organizations generally use within a year of purchase Capital Items More expensive organizational products with a longer useful life, ranging from office and plant equipment to entire factories Industrial and Commercial Products 14-9 Raw materials Installations Components Supplies Equipment Business services The Product Life Cycle 14-10 Product Life Cycle Four stages through which a product progresses: introduction, growth, maturity, and decline The Product Life Cycle 14-11 12 Product Development Process 14-13 Product Development Process A formal process of generating, selecting, developing, and commercializing product ideas Idea generation Idea screening Business analysis Prototype development Test marketing Commercialization Product Development Process 14-14 Product Development Process Idea Generation Producing new product ideas that will satisfy unmet needs 14-15 Product Development Process Idea Screening Selecting a few ideas that appear to be worthy of further development Feasibility studies 14-16 Product Development Process Business Analysis Reviewing the sales, costs and profit projections to determine whether they meet the company’s objectives 14-17 Product Development Process 14-18 Prototypes Pre-production samples of products used for testing and evaluation Product Development Process 14-19 Test Marketing The stage of product development in which a product is sold on a limited basis to gauge its market appeal Product Development Process 14-20 Commercialization (Product Launch) Large-scale production and distribution of a product Product Identities 14-21 Brand A name, term, sign, symbol, design, or combination of those used to identify the products of a firm and to differentiate them from competing products Product Identities 14-22 Brand Equity The value that a company has built up in a brand Brand Loyalty The degree to which customers continue to purchase a specific brand Level 1: brand awareness Level 2: brand preference Level 3: brand insistence Brand Name Selection 14-23 Brand Names The portion of brands that can be expressed orally, including letters, words, or numbers Brand Marks The portion of brands that cannot be expressed verbally Brand Name Selection 14-24 Logo A graphical and/or textual representation of a brand Trademarks Brands that have been given legal protection so that their owners have exclusive rights to their use Brand Ownership 14-26 National Brands Brands owned by manufacturers and distributed nationally Coca-Cola, Pepsi Ariel Private Brands Brands that carry the label of a retailer or a wholesaler rather than a manufacturer Tansaş Cola Migros deterjan Brand Ownership 14-27 Co-branding: A partnership between two or more companies to closely link their brand names together for a single product License: An agreement to produce and market another company’s product in exchange for a royalty or fee Co-Branding Examples: 28 Packaging: 14-29 xxx Lice Labeling: Product-Line and Product-Mix Strategies 14-30 Product-Line and Product-Mix Strategies 14-31 Brand Managers Managers who develop and implement the marketing strategies and programs for specific products or brands Product-Line and Product-Mix Strategies 14-32 Product Line A series of related products (in terms of their use or characteristics) offered by a firm Product Mix The complete portfolio of products that a company offers for sale Example: http://www.generalmills.com/ Product mix: 33 Product mix: 34 Product mix vs. Product line 35 Product-Line and Product-Mix Strategies 14-36 A product mix is: Wide if it has several different product lines Long if it carries several items in its product lines Deep if it has a number of versions of each product in a product line 37 Product Expansion Strategies 14-38 Family Branding Using a brand name on a variety of related products Brand Extension Applying a successful brand name to a new product category New products should not cannibalize the existing ones under the same brand name Product Strategies for International Markets: 14-39 Which products and services to introduce in which countries? Type of government, market entry requirements, tariffs and other trade barriers, cultural and language differences, consumer preferences, foreign exchange rates, business customs Whether to standardize the product or customize it for local markets? Strategic Considerations in Pricing: 14-40 Marketing objectives Government regulations Customer perceptions Market demand Competition Strategic Considerations in Pricing: 14-41 Marketing Objectives: Is your goal to increase market share, increase sales, improve profits, project a particular image or fight competition? Government Regulations: Three areas of prohibited behavior: Price fixing, Price discrimination, Deceptive pricing Strategic Considerations in Pricing: 14-42 Customer Perception: Avoiding “9 too low or too high prices effect” Market Demand: Demand and supply – at market equilibrium, prices stabilize. Price elasticity: How sensitive demand will be to a change in price Cost Structure 14-43 Fixed Costs costs that remain constant regardless of the number of units produced Variable Costs Business Business Ex: Ex: rent, mortgage payments, insurance premiums,real estate taxes, salaries costs that increase with the number of units produced raw materials, supplies, shipping, sales commissions Break-Even Analysis 14-44 Break-Even Analysis A method of calculating the minimum volume of sales needed at a given price to cover all costs Break-Even Point: Minimum sales volume at a given price that will cover all of a company’s costs Break-Even Analysis: Example (1) 14-45 Break-Even Analysis: Example (2) 14-46 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Pricing Methods 14-47 Cost-Based Pricing (Cost-plus pricing) A method of setting prices based on production and marketing costs, rather than conditions in the marketplace Cost of production + Markup = Price Value-Based Pricing A method of setting prices based on customer perceptions of value Starts with a target price Pricing Methods 14-48 Optimal Pricing A computer-based pricing method that creates a demand curve for every product to help managers select a price that meets specific marketing objectives Profit, revenue or market share calculations “What-if” scenario analyses Pricing Methods 14-49 Skim Pricing Charging a high price for a new product during the introductory stage and lowering the price late Take advantage of the strong demand from early adopters Penetration Pricing Introducing a new product at a low price in hopes of building sales volume quickly Important: whether the customers are pricesensitive Pricing Methods 14-50 Loss-Leader Pricing Selling one product at a loss as a way to entice customers to consider other products Auction Pricing The seller doesn’t set a firm price but allows buyers to competitively bid on the products being sold Example: eBay, fine art, government bonds Pricing Methods 14-51 Participative Pricing Allowing customers to pay the amount they think a product is worth “Pay what you want”: Radiohead Free Pricing A pricing strategy of offering some products for free while charging for others, or offering a product for free to some customers while charging others for it Price Adjustment Tactics: 52 Discounts – temporary price reductions to stimulate sales or to encourage certain behaviors such as paying with cash Bundling – Offering several products for a single price that is presumably lower than the total of the products’ individual prices Dynamic pricing – Continually adjusting prices to reflect changes in supply and demand Airlines and hotels (yield management) Assignment #1 (Due next week): 53 Building Your Team Skills (Chapter 14, p.327) Select a high-profile product with which you and your teammates are familiar. Do some online research to learn more about that brand. Then answer these questions and prepare a 1-2 page written paper summarizing your findings. Group Assignment (3-5 persons) Use the assignment format I uploaded to the website. Assignment #1: 54 1. Is the product a consumer product, industrial product, or both? 2. At what stage in its life cycle is this product? 3. How appealing its packaging and labeling are to the consumers? How is this product promoted by the company? 4. Is the product mix to which this product belongs: a) wide? b) long? c) deep? 5. Is the product sold in international markets? If so, does the company use a standardized or a customized strategy? 6. How is the product priced in relation to competing products? Next Topic (Week 10): 55 Distribution and Logistics (Chapter 15)