Chapter 5 Product and Price Decisions: Sports

Objectives Differentiate between a product item and product line. Classify products as consumer goods or business goods. Explain the seven steps in developing a new product. Identify the stages of a product’s life cycle. Define price and the role it plays in determining profit. Describe the factors that affect pricing decisions. Identify pricing strategies.

Case Study Sports products can include goods, services, or ideas. A state-of-the-art arena such as Staples Center (home of the Los Angeles Lakers) is a product that provides sports services and sells goods such as memorabilia, souvenirs, t-shirts, etc.. Sales for jerseys exploded in 1998 when hip-hop artists began wearing vintage throw backs. Analyze and write. 1) Name 5 vintage (throwback) jerseys that are popular today. 2) Will throwback jerseys continue to sell and have a long life cycle? Why? 3) Why are certain players throwback jerseys more popular than others? 4) Which jerseys generate more sales and revenues, today’s current athlete or throwback jerseys?

Cross-Curriculum Assignment (100 Total Points) Research the internet and create your own jersey (current or throwback). Your jersey must include: 1) Team Logo, 2) Team Name, 3) Player Number, 4) Player Name, 5) Sponsoring Corporation (if you so choose).

Section 5.1 Product Design

Product Defined Products are one of the essential components of the marketing mix. Products can be tangible, such as a baseball bat, or intangible, such as watching a college football game.

Product Item and Line Product Item – a specific model or size of a product. Ex.: Nike’s Air Flight Lite basketball shoe. Product Line – the entire group of a specified product. Ex.: All Nike athletic shoes.

Product Classifications Consumer Goods – goods that are purchased and used by the ultimate consumer for personal use. Business Goods – purchased by organizations for use in their operation.

Point of Difference Point of Difference – a unique product characteristic or benefit that sets the product apart from a competitors product. Ex.: A baseball team that wins the World Series.

7 Steps in Product Development Step 1 – SWOT Analysis – analyzing the company’s (s)trengths, (w)eaknesses, (o)pportunities, and (t)hreats. Step 2 – Idea Generation – involves generating new product ideas. Studying the competition can generate new ideas. Step 3 – Screening and Evaluation – done so the company can see if it has the technology to make the product. “Focus groups” are a panel of six to ten consumers who discuss their opinions about a product. Step 4 – Business Analysis – financial aspects of making and marketing the product are reviewed. Step 5 – Development – if a product idea passes the business analysis, then a company can make a prototype. (What is a prototype)? Step 6 – Test Marketing – involves offering the product for sale in a small geographic area. Step 7 Commercialization – a process that involves producing and marketing a new product.

Product Life Cycle (4 Stages) Introduction Growth Maturity Decline

Product Life Cycle Introduction – when a product is first introduced into the marketplace. Ex.: (Gatorade – when first introduced). Growth – more competitors enter the marketplace because the product is successful. Ex.: Powerade & Sportsade entered the marketplace with Gatorade. Maturity – sales begin to slow down for the product category or the product. The company may have to make changes to keep the product alive. Decline – sales and profits begin to drop, a product or product category goes into the decline stage. Ex.: 8-tracks – cassettes – cd’s.

Management of the Product Life Cycle Modify the product. Market the product. Reposition the product.

Product Modification Modifying the product means changing a product’s characteristics. An example is _______________.

Market Modification Modifying the market is a strategy to find new customers or encourage current customers to use more. Ex.: Gatorade introduced a new version (Gatorade Frost) to target a new market (people that live in a hot climate), not just athletes (original Gatorade).

Repositioning Repositioning a product involves changing a product’s image in relation to its competitors image. Ex.: New Balance Shoes (repositioned to promote towards people with podiatry problems), not just versus Nike and Reebok.

Section 5.2 Pricing and Strategies

Pricing Price is defined as the value placed on goods or services being exchanged.

Pricing and Profit Price is important in a business because it helps determine a company’s profit or loss. Sales – Cost of Sales = Profit Example: (Sales) 1000 baseball bats X $175/per bat = $175,000 Revenue. (Cost) 1000 baseball bats X 90/per bat = $90,000 Cost of Sales. Profit: Sales ($175,000) – Cost of Sales ($90,000) = $85,000 Profit.

Pricing and the Marketing Mix What a person in the target market is willing to pay plays an important role in the marketing mix. Ex.: Rollerblades – lower priced models sold at Wal-mart; higher priced models sold at skate shops.

Pricing Considerations and Strategies Consumer perception, demand, cost, product life cycle stage, and competition affect price decisions.

Consumer Perception What is the relationship of price and quality? Many consumers believe that the higher the price, the better the quality. Marketers will price goods and services to attract these types of customers.

Consumer Perception Prestige Pricing – pricing based on consumer perception. Odd-even pricing – pricing goods with either an odd or even number. Ex.: $25.99 or $100. Target Pricing – pricing goods according to what the customer is willing to pay.

Demand Demand – the desire to purchase; the quantity of goods a buyer will purchase at a certain price. Limited supply may mean a product may be priced higher. Ex.: Tickets to the Super Bowl

Cost Markup – the difference between the retail or wholesale price and the cost of an item. A mathematical example of markup is ______________. Cost-plus pricing – pricing products by calculating all costs and expenses and adding desired profit.

Newness of the Product When introducing a product, marketers may decide to price the item very high to recover the costs of development, or low to create immediate demand for the product. An example of each is __________.

Competition Non-price competition is competition between businesses based on quality, service, and relationships.

Pricing Objectives and Strategies Pricing objectives are the goals that a company wants to achieve through pricing.

Profit Objective Some companies strive for high profits only. Ex.: Higher and higher ticket prices in a depressed economy.

Market Share Objective Market Share – the percentage of total sales of all companies that sell the same type of product. An example is ___________.

Special Pricing Strategies Price Lining – selling all goods in a product line at specific price points. Ex.: Basketball Shoes priced at $59.95, $89.95, $129.95. Bundle Pricing – selling several items as a package for a set price. An example is __________. Loss-Leader Pricing – pricing an item at cost or below cost to draw customers into the store. Yield-Management Pricing – pricing items at different prices to maximize revenue when limited capacity is involved. Ex.: New York Mets charging higher ticket prices when playing better opponents because that opponent may help draw more attendance.

Matching Assignment 7 Steps – Product Development A) Screening and Evaluation B) Commercialization C) Business Analysis D) SWOT Analysis E) Test Marketing F) Development G) Idea Generation _____ 1) Producing and Marketing _____ 2) Focus Group Sessions _____ 3) Looking at a company’s strengths, weaknesses, and external threats and opportunities _____ 4) Making the product _____ 5) Financial and legal factors reviewed _____ 6) Protocol written _____ 7) Trying the product in the marketplace

Exploring Sports Products Assignment (100 Total Points/25 points each) Brainstorm and list 10 of your favorite sports products. Choose three products from your list to research on the internet. Write the product name and web-site address for each. What did you learn about each product. Which product could lead you to a potential career? Explain why.

Checking Concepts/Critical Thinking/Cross-Curriculum Skills 1) Explain the difference between product item and product line. 2) Name the ways products can be defined and classified. 3) Explain the 7 steps used in developing a new product. 4) Identify the 4 stages of the product life cycle. 5) Define price. 6) Explain how price determines a company’s profit. 7) Identify the factors that may influence pricing strategy. 8) Define and compare markup and cost-plus pricing. 9) Calculate the quarterly profit if 10,000 soccer balls sold for $9 each. The balls cost the store $5 each. The expense of running the store was $25,000 during the quarter. 10) Your line of “Cool Wear” athletic T-shirts has reached the maturity stage. List three ways you can avoid the decline stage.