What is a Product?  The starting point of the “4 Ps”  Includes:  Physical unit  Package  Warranty  Service  Brand  Image  Value  Products can be…  Tangible goods  Ideas  Services

New Product A product new to the world, the market, the producer, the seller, or some combination of these.

New-Product Development Process New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product

Idea Screening The first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new-product strategy or are inappropriate for some other reason. Concept Test A test to evaluate a new-product idea, usually before any prototype has been created. (Typically, researchers get consumer reactions to descriptions and visual representations of a proposed product)

Business Analysis 5 Considerations in Business Analysis Stage Demand Cost Sales Profitability

Development  Creation of prototype  Marketing strategy  Packaging, branding, labeling  Promotion, price, and distribution strategy  Manufacturing feasibility  Final government approvals if needed

Test Marketing The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

Commercialization Production Inventory Buildup Distribution Shipments Sales Training Trade Announcements Customer Advertising

Product Life Cycle A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

Product Life Cycle Time Dollars Profits SalesIntroductoryStageGrowthStageMaturityStageDeclineStage 0

Product Life Cycles Time INTRODUCTIONGROWTHMATURITYDECLINE Product Strategy Distribution Strategy Promotion Strategy Pricing Strategy Limited models Frequent changes More models Frequent changes. Large number of models. Eliminate unprofitable models Limited Wholesale/ retail distributors Expanded dealers. Long- term relations Extensive. Margins drop. Shelf space Phase out unprofitable outlets Awareness. Stimulate demand.Sampling Aggressive ads. Stimulate demand Advertise. Promote heavily Phase out promotion High to recoup development costs Fall as result of competition & efficient produc- tion. Prices fall (usually). Prices stabilize at low level. Sales

Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service. Marketing Mix: The “Four Ps” Price

Copyright ©2009, Cengage Learning. All rights reserved Chapter 1 13 Pricing Internal Factors Positioning 4P Cost External Factors Competition Consumer Perception Economic situation Government

Copyright ©2009, Cengage Learning. All rights reserved Chapter 1 14 Major Pricing Strategies Customer Value-Based Pricing

Copyright ©2009, Cengage Learning. All rights reserved Chapter 1 15

Copyright ©2009, Cengage Learning. All rights reserved Chapter 1 16 Major Pricing Strategies Customer Value-Based Pricing

Copyright ©2009, Cengage Learning. All rights reserved Chapter 1 17 Major Pricing Strategies Understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value Customer Value-Based Pricing

Choose a Price Strategy Status Quo Pricing Price Skimming Penetration Pricing Charging a price identical to or very close to the competition’s price. A firm charges a high introductory price, often coupled with heavy promotion. A firm charges a relatively low price for a product initially as a way to reach the mass market.

Price Skimming Situations When Price Skimming Is Successful Situations When Price Skimming Is Successful Unique Advantages/Superior Legal Protection of Product Blocked Entry to Competitors Technological Breakthrough Inelastic Demand

Penetration Pricing  Discourages or blocks competition from market entry  Boosts sales and provides large profit increases  Can justify production expansion  Requires gear up for mass production  Selling large volumes at low prices  Strategy to gain market share may failAdvantagesDisadvantages

Status Quo PricingAdvantagesDisadvantages  Simplicity  Safest route to long- term survival for small firms  Strategy may ignore demand and/or cost

Consumer Psychology and Pricing Reference prices Price-quality inferences Price cues

Price Cues “Left to right” pricing ($299 vs. $300) Odd number discount perceptions Even number value perceptions Ending prices with 0 or 5 “Sale” written next to price p.423

Possible Consumer Reference Prices “Fair price” Typical price Last price paid Upper-bound price Lower-bound price Competitor prices Usual discounted price

Brand Leader Responses to Competitive Price Cuts Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line