Transcript What is Price?

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
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
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
What is Price?
• Value exchanged for products
- Money
- Barter
• Only primary source of revenue
Major Pricing Strategies
• Customer value-based pricing
• Cost-based pricing
• Competition-based pricing
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
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
Breakeven Pricing (chart from Kotler)
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.
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.