Transcript Slide 1

Product and Pricing
Strategies
Chapter 14
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Chapter 14 Objectives
After studying this chapter, you will be able to:
• Identify the main types of consumer and
organizational products and describe the four
stages in the product life cycle.
• Describe six stages in the product development
process.
• Define brand and explain the concepts of brand
equity and brand loyalty.
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Chapter 14 Objectives Cont.
• Identify four ways of expanding a product line
and discuss two risks that product-line
extensions pose.
• List factors that influence pricing decisions and
explain break-even analysis.
• Identify nine common pricing methods.
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The Product Continuum
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Augmenting the Basic Product
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Consumer Products
Convenience
Shopping
Specialty
Unsought
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Consumer Products
Convenience products are the goods and
services that people buy frequently, without much
conscious planning
Shopping products are fairly important goods
and services that people buy less frequently
Specialty products include particular brands
that the buyer especially wants and will seek out,
regardless of location or price
Unsought goods are products that people do
not normally think of buying
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Industrial and
Commercial Products
Expense items
Capital items
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Industrial and
Commercial Products
• Raw materials
• Components
• Supplies
• Installations
• Equipment
• Business services
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Industrial and Commercial
Products
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.
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Industrial and Commercial
Products
Installations such as factories, power plants,
airports, and production lines 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 services
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Product Life Cycle
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Introduction
• R&D through launch
• Careful planning
• Large investments
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Growth
• Rapid sales increase
• Increase market
share
• Large profits
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Maturity
• Longest cycle
• Market saturation
• Milking a cash cow
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Decline
• Inevitable
• Changing
demographics
• Product competition
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The New-Product
Development Process
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New Product Development
Idea generation: New product ideas can come
from a variety of sources, including customers,
sales people, research engineers, and even
competitors.
Idea screening: Many of these ideas need to be
explored further and expanded into viable product
concepts, then managers need to screen these
concepts to see which are compatible with the
company's overall strategy and resources.
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New Product Development
Business analysis: With a clearer idea of what
the product will be and who might buy it, financial
experts can then compare the cost of designing and
manufacturing the product with the price the
company hopes to charge for it.
Prototype development: At this stage the firm
actually develops the product concept into a
physical product. The firm creates and tests a few
samples, or prototypes, of the product.
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New Product Development
Test marketing: The firm introduces the product
in selected areas of the country and monitors
consumer reactions.
Commercialization: The large-scale production
and distribution of products that have survived the
testing process. This phase requires the
coordination of manufacturing, packaging,
distribution, pricing, and promotion.
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Product Identities
Brand Name
Brand
Sponsorship
Packaging
Labeling
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Brand Name Selection
Brand Names
Brand Mark
Logo
Trade Mark
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Brand Name Selection
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.
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.
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Product Identities
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Brand Sponsorship
National
Brand
Private
Brand
License
Cobranding
Generic
Product
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Brand Sponsorship
National Brands: Brands owned by
manufacturers and distributed nationally.
Private Brands: Brands that carry the
label of a retailer or a wholesaler rather than
a manufacturer.
Generic Pruducts which are packaged in
plain containers that bear only the name of
the product.
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Brand Sponsorship
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.
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Packaging and Labeling
Function
Strategy
The Product
Display
Information
Differentiation
Inventory Control
Appeal
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Product Line & Product Mix
Strategies
Product Line

Line filling
Product Mix

Width

Line extension

Length

Brand extension

Depth

Line stretching
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Product Expansion Strategies
Family
Branding
Brand
Extension
International
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International Marketing
Strategies
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Type of government
Market entry requirements
Tariffs and other trade barriers
Cultural and language differences
Consumer preferences
Foreign-exchange rates
Differing business customs
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Strategic Considerations in Pricing
Marketing
Objectives
Government
Regulations
Customer
Perceptions
Market
Demand
Competition
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Cost Structure
Fixed Costs:
Variable Costs:
Business costs that
remain constant
regardless of the
number of units
produced
Business costs that
increase with the
number of units
produced
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Cost-Based Pricing
• Fixed costs
Insert top graph from
exhibit 10.7
• Variable costs
• Break even
analysis
• Break even point
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Break - Even Analysis
Break-Even Analysis: A method of
calculating the minimum volume of sales
needed at a given price to cover all costs.
Break-Even Point: Sales volume at a given
price that will cover all of a company’s costs.
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Break-Even Point Haircuts at $20 Each
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Break-Even Point Haircuts at $30 Each
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Pricing Methods
• Cost based
• Loss leader
• Value based
• Auction
• Optimal
• Participative
• Skim
• Free
• Penetration
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Pricing Methods
Cost-Based Pricing: A method of setting
prices based on production and marketing costs,
rather than conditions in the marketplace.
Value-Based Pricing: A method of setting
prices based on customer perceptions of value.
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.
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Pricing Methods
Skim Pricing: Charging a high price for a new
product during the introductory stage and lowering
the price late.
Penetration Pricing: Introducing a new
product at a low price in hopes of building sales
volume quickly.
Loss-Leader Pricing: Selling one product at a
loss as a way to entice customers to consider
other products.
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Pricing Methods
Auction Pricing: The seller doesn’t set a firm
price but allows buyers to competitively bid on the
products being sold.
Participative Pricing: Allowing customers to
pay the amount they think a product is worth.
Free-mium Pricing: A hybrid 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.
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Price Adjustment Tactics
Discounts
Bundling
Dynamic
Pricing
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Applying What You’ve Learned
1. Identify the main types of consumer and
organizational products and describe the
four stages in the life cycle of a product
2. Describe six stages in the product
development process
3. Define brand and explain the concepts of
brand equity and brand loyalty
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Applying What You’ve Learned
4. Identify four ways of expanding a product
line and discuss two risks that productline extensions pose
5. List the factors that influence pricing
decisions and explain break-even
analysis
6. Identify nine common pricing methods
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