Product Design Pricing and Strategies 2

Chapter 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 in 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. 3

Product Defined product item A specific model of athletic shoe would be called a product item. product item specific model or size of a product 4 The entire group of a manufacturer’s athletic shoes would be called a product line. VS.

Product Defined consumer goods business goods Products can be classified as consumer goods or business goods. consumer goods goods purchased and used by the ultimate consumer for personal use 5 business goods goods purchased by organizations for use in their operations point of difference point of difference Products need to have a point of difference. point of difference point of difference a unique product characteristic or benefit that sets it apart from a competitor

Steps in New Product Development The seven steps in new product development are: focus group a panel of six to ten consumers who discuss opinions about a topic under the guidance of a moderator 6 1.SWOT analysis (strengths, weaknesses, opportunities, and threats) 2.Idea generation 3.Screening and evaluation –Focus group Focus groupFocus group continued

Steps in New Product Development commercialization process that involves producing and marketing a new product 7 4. Business analysis 5. Development continued 6. Test marketing Commercialization 7. Commercialization

Product Life Cycle The four stages in the product life cycle are: 8 Introduction GrowthMaturity Decline Product Life Cycle Not all products fit the life-cycle pattern.

Management of the Product Life Cycle The three ways to manage the product life cycle are: repositioning changing a product’s image in relation to a competitor’s image 9 Modifying the product. Marketing the product. Repositioning Repositioning the product.

Operating an e-tail business on an electronic channel—the Web—can be costly, due to design, delivery, returns, and operating expenses. Though Many larger dot-com companies crashed in the 1990’s, small stores like Harris Cyclery of West Newton, Massachusetts, actually increase sales using a basic Web site. Today, a third of Harris’s bicycle business rides in on the Web to get hard-to-find parts and personal service. Describe an e-business’s home page to your class after viewing one through marketingseries.glencoe.com.marketingseries.glencoe.com E-Trading Collectibles 10 caused lower prices. However, the latest hot items are autographs from Hall of Famers—and top players who don’t often sign baseballs, photographs, jerseys, or bats. You can find and bid on these curios at collectibles Web sites, including eBay—but be sure to get authentication when you score that vintage ball signed by Mickey Mantle. For more information on sports and entertainment marketing, go to marketingseries.glencoe.com.marketingseries.glencoe.com A box of baseball cards may not be worth the price of college tuition anymore, because the so-called bull market for sports collectibles peaked in the 1990s. Lower demand has

Explain the seven steps involved in developing a new product. Name the four stages in the product life cycle. What three things can be done to manage a product through its life cycle?

Pricing Price Price is important in a business because it helps determine a company’s profit or loss. 12 price the value placed on goods or services being exchanged Price plays a significant role in the marketing mix.

Determining Profit 13 1,000 baseball bats sold $175 each $175,000 revenue = - $90,000 to purchase the bats $90 each - $60,000 in business expenses = $25,000 Profit Subtract the cost of goods sold and the company’s expenses from the money it generated in sales revenue.

Pricing Considerations and Strategies Three types of pricing strategies are: 14 prestige pricing pricing based on consumer perception Prestige pricing Odd-even pricing Target pricing odd-even pricing pricing goods with either an odd number or even number to match a product’s image target pricing pricing goods according to what the customer is willing to pay

Pricing Considerations and Strategies Other pricing considerations include: 15 markup difference between the retail or wholesale price and the cost of an item Demand Cost –Markup –Cost-plus pricing Newness of the product cost-plus pricing pricing products by calculating all costs and expenses and adding desired profit non-price competition competition between businesses based on quality, service, and relationships Competition –Non-price competition

Price Quantity QSQS QDQD

Pricing Objectives and Strategies Pricing objectives and strategies include: 17 market share the percentage of the total sales of all companies that sell the same type of product Profit objective Market share Market share objective Special pricing –Price lining –Bundle pricing –Loss-leader pricing –Yield-management pricing price lining selling all goods in a product line at specific price points bundle pricing selling several items as a package for a set price 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 –Tiered pricing

Price Adjustments and Regulations Manufacturers will offer discounts in the following situations: 18 Buying in large quantities Buying prior to the buying season Allowances are reductions taken from the quoted price. One type of allowance is a trade-in.

Price Adjustments and Regulations price fixing price fixing The Sherman Anti-Trust Act prohibits price fixing and predatory pricing.price fixing 19 price fixing an illegal practice whereby competitors conspire to set the same price Price discrimination was originally prohibited by the Clayton Act and later by the Robinson-Patman Act.

How is pricing related to profit and the marketing mix? List five factors that affect price decisions. What are two common pricing objectives and special pricing strategies?

Explain the difference between product item and product line. 21 Name the ways products can be defined and classified. A product item is a specific model or size of a product; a product line is a group of closely related products that are sold by a company. 1.Products can be classified as consumer goods or business goods. Products are goods, services, or ideas that satisfy consumer needs; products can be tangible (goods) or intangible (services). 2. Explain the seven steps used in developing a new product. SWOT analysis, idea generation, screening and evaluation, business analysis, development, test marketing, and commercialization are the seven steps. 3. Checking Concepts continued

Identify the four stages in a product’s life cycle. 22 Define price. Explain how price determines a company’s profit. The stages are introduction, growth, maturity, and decline. 4.Price is defined as the value placed on goods or services being exchanged. 5.Every item sold carries a price. The number of items sold times the price equals sales revenue. The amount of profit equals costs subtracted from price. 6. Identify the factors that may influence pricing strategies. Pricing strategies are influenced by consumer perception, demand, cost, product life cycle stage, and competition. 7. Checking Concepts continued

Markup is the difference between the retail or wholesale price and the cost of an item. Cost-plus pricing involves calculating all costs and expenses and adding desired profit to arrive at a price. In a sense, markup is the profit component in cost-plus pricing Define and compare markup and cost-plus pricing. 23 Critical Thinking Checking Concepts 8.

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