Copyright © 2003 by South-Western. All Rights Reserved. Define product and list the elements of a product strategy Define product and list the elements of a product strategy Describe the classifications of consumer goods, business goods, and services Describe the classifications of consumer goods, business goods, and services Distinguish between the product mix and product lines Distinguish between the product mix and product lines Describe the four stages of the product life cycle Describe the four stages of the product life cycle List the stages of new-product development List the stages of new-product development LEARNING GOALS
Copyright © 2003 by South-Western. All Rights Reserved. Explain how firms identify their products Explain how firms identify their products Outline the different types of pricing objectives and discuss how firm set prices in the marketplace Outline the different types of pricing objectives and discuss how firm set prices in the marketplace Explain how to use breakeven analysis in pricing strategy Explain how to use breakeven analysis in pricing strategy Differentiate between scanning and penetration pricing strategies Differentiate between scanning and penetration pricing strategies LEARNING GOALS
Copyright © 2003 by South-Western. All Rights Reserved. © PhotoDisc CHAPTER OVERVIEW Describes the classifications of goods and services, the product mix, and the product life cycle Describes the classifications of goods and services, the product mix, and the product life cycle Discusses how firms develop, identify, and package products Discusses how firms develop, identify, and package products Examines pricing strategies for those products and how firms determine the most appropriate prices for their goods and services Examines pricing strategies for those products and how firms determine the most appropriate prices for their goods and services Looks at consumer perceptions of prices Looks at consumer perceptions of prices
Copyright © 2003 by South-Western. All Rights Reserved. WHAT IS A PRODUCT? Product: bundle of physical, service, and symbolic attributes designed to enhance buyers’ want satisfaction Product: bundle of physical, service, and symbolic attributes designed to enhance buyers’ want satisfaction Included in this broad definition are considerations of package design, brand names, warranties, and product image Included in this broad definition are considerations of package design, brand names, warranties, and product image © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Focusing on Benefits People don’t buy things (e.g., ¼” drill bits), they purchase what those things will provide them with (e.g. ¼” holes) People don’t buy things (e.g., ¼” drill bits), they purchase what those things will provide them with (e.g. ¼” holes) Successful marketers recognize the need to focus on giving customers the bundle of benefits they seek from the product Successful marketers recognize the need to focus on giving customers the bundle of benefits they seek from the product © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Figure 14.1 Emphasizing Benefits for Titanium Batteries
Copyright © 2003 by South-Western. All Rights Reserved. © PhotoDisc Services Are Products, Too Service: intangible task that satisfies consumer or business user needs Service: intangible task that satisfies consumer or business user needs Most products combine both tangible goods and intangible services Most products combine both tangible goods and intangible services Someone who purchases a new set of tires may receive services such as mounting, balancing, and periodic rotation as part of the package Someone who purchases a new set of tires may receive services such as mounting, balancing, and periodic rotation as part of the package
Copyright © 2003 by South-Western. All Rights Reserved. Customer Service as a Product Every organization must recognize the importance of customer service and include it as a key ingredient in all product offerings Every organization must recognize the importance of customer service and include it as a key ingredient in all product offerings Every employee must demonstrate a commitment to making a customer happy Every employee must demonstrate a commitment to making a customer happy Paying attention to every detail in the process of delivering satisfaction is the key to success in contemporary business Paying attention to every detail in the process of delivering satisfaction is the key to success in contemporary business © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Warranties Are Important, Too Warranty: a legal guarantee that a good or service will serve the purpose for which is intended Warranty: a legal guarantee that a good or service will serve the purpose for which is intended Warranties contribute to customer service by protecting consumers from dissatisfaction Warranties contribute to customer service by protecting consumers from dissatisfaction Even when a firm states no such protection, certain rights are always guaranteed to consumers by law Even when a firm states no such protection, certain rights are always guaranteed to consumers by law © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. CLASSIFYING CONSUMER AND BUSINESS PRODUCTS Products can be broadly categorized as either consumer products or business products depending on who purchases them for what reasons Products can be broadly categorized as either consumer products or business products depending on who purchases them for what reasons © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Consumer Products Marketers seeking to classify consumer products ask several questions regarding purchases: Who? What? When? Where? How? Marketers seeking to classify consumer products ask several questions regarding purchases: Who? What? When? Where? How? The answers place a purchase in one of three consumer products categories The answers place a purchase in one of three consumer products categories ConvenienceConvenience ShoppingShopping SpecialtySpecialty
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Consumer Products Convenience products: items that consumers purchase frequently, immediately, and with little effort Convenience products: items that consumers purchase frequently, immediately, and with little effort Examples include newspapers, chewing gum, milk, and snack foods Examples include newspapers, chewing gum, milk, and snack foods ConvenienceConvenience
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Consumer Products Shopping products: typically purchased only after comparisons between products in competing stores to evaluate such characteristics as price, quality, style, and color Shopping products: typically purchased only after comparisons between products in competing stores to evaluate such characteristics as price, quality, style, and color Example: carpeting Example: carpeting Convenience ShoppingShopping
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Consumer Products Specialty products: items that purchasers are willing to make special efforts to obtain Specialty products: items that purchasers are willing to make special efforts to obtain Purchaser is already familiar with the item and sees no reasonable substitute for it Purchaser is already familiar with the item and sees no reasonable substitute for it Convenience Shopping SpecialtySpecialty
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Consumer Products Often have a well- known brand names, are expensive, and distributed through exclusive dealers Often have a well- known brand names, are expensive, and distributed through exclusive dealers Examples: Louis Vuitton luggage and Porsche autos Examples: Louis Vuitton luggage and Porsche autos Convenience Shopping SpecialtySpecialty
Copyright © 2003 by South-Western. All Rights Reserved. Figure 14.2 Advertising a Specialty Product Interesting Site
Copyright © 2003 by South-Western. All Rights Reserved. Business (B2B) products to fall into five main categories Business (B2B) products to fall into five main categories They are classified based upon how customers use them as well as their basic characteristics They are classified based upon how customers use them as well as their basic characteristics Supplies Raw Materials Component Parts & Materials Accessory Equipment Installations Categories of Business Goods and Services
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Business Goods and Services Installations: pieces or collections of major capital equipment such as new factory systems, heavy machinery, and custom-made equipment Installations: pieces or collections of major capital equipment such as new factory systems, heavy machinery, and custom-made equipment B2B buyers use installations in producing goods and services for sale to their customers B2B buyers use installations in producing goods and services for sale to their customers Installations
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Business Goods and Services Accessory equipment: capital items that are usually less expensive and shorter- lived than installations Accessory equipment: capital items that are usually less expensive and shorter- lived than installations Examples: hand tools, scanners, and fax machines Examples: hand tools, scanners, and fax machines Some are used to produce other goods and services, while others help to perform important administrative and operating functions Some are used to produce other goods and services, while others help to perform important administrative and operating functions Accessory Equipment Installations
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Business Goods and Services Component parts and materials: products are included as part of other firms’ final products Component parts and materials: products are included as part of other firms’ final products Some become visible in finished goods, such as tires in autos Some become visible in finished goods, such as tires in autos Other parts, like microchips for digital equipment, are less visible Other parts, like microchips for digital equipment, are less visible Component Parts & Materials Accessory Equipment Installations
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Business Goods and Services Raw materials: similar to component parts and materials, because they become inputs in the production of other firms’ final product Raw materials: similar to component parts and materials, because they become inputs in the production of other firms’ final product Examples: farm products such as cotton, wheat, and milk -- and natural materials like iron ore, lumber and coal Examples: farm products such as cotton, wheat, and milk -- and natural materials like iron ore, lumber and coal Raw Materials Component Parts & Materials Accessory Equipment Installations
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Business Goods and Services Supplies: expense items that are used in a firm’s daily operations and do not become part of final products Supplies: expense items that are used in a firm’s daily operations and do not become part of final products Examples: paper, pens, paper clips, light bulbs, and cleaning supplies Examples: paper, pens, paper clips, light bulbs, and cleaning supplies Supplies Raw Materials Component Parts & Materials Accessory Equipment Installations
Copyright © 2003 by South-Western. All Rights Reserved. Categories of Services Like tangible goods, services can be distinguished on the basis of their buyers and the ways they use the products Like tangible goods, services can be distinguished on the basis of their buyers and the ways they use the products Services can also be convenience, shopping, or specialty products depending on the buying patterns of consumers Services can also be convenience, shopping, or specialty products depending on the buying patterns of consumers © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. © PhotoDisc Categories of Services Six characteristics distinguish services from goods. Services are: Six characteristics distinguish services from goods. Services are: Intangible Intangible Inseparable from the service provider in the buyer’s mind Inseparable from the service provider in the buyer’s mind Perishable Perishable Difficult to standardize Difficult to standardize Widely variable in terms of quality Widely variable in terms of quality Finally, customers often play a major role in marketing, producing, and distributing a service Finally, customers often play a major role in marketing, producing, and distributing a service
Copyright © 2003 by South-Western. All Rights Reserved. Marketing Strategy Implications for Consumer and Business Products Classifying products is a useful tool in developing marketing strategies Classifying products is a useful tool in developing marketing strategies After classifying an item as a shopping product, marketers gain an immediate idea of its promotion, pricing, and distribution needs After classifying an item as a shopping product, marketers gain an immediate idea of its promotion, pricing, and distribution needs Figure 14.3 details the impact of the consumer product classifications on various marketing strategy aspects Figure 14.3 details the impact of the consumer product classifications on various marketing strategy aspects
Copyright © 2003 by South-Western. All Rights Reserved. Figure 14.3 Marketing Impacts of Consumer Product Classifications
Copyright © 2003 by South-Western. All Rights Reserved. THE PRODUCT LIFE CYCLE Product Life Cycle: four basic stages through which a successful product progresses – introduction, growth, maturity, and decline Product Life Cycle: four basic stages through which a successful product progresses – introduction, growth, maturity, and decline
Copyright © 2003 by South-Western. All Rights Reserved. Figure 14.4 Stages in the Product Life Cycle
Copyright © 2003 by South-Western. All Rights Reserved. The Product Life Cycle Firm attempts to build demand for its new offering Promotional campaigns concentrate on features, uses, and benefits Financial losses are common due to low initial sales and heavy promotional costs Introduction
Copyright © 2003 by South-Western. All Rights Reserved. Figure 14.5 Wireless Connections: A Product in the Introductory Stage of It’s Life Cycle
Copyright © 2003 by South-Western. All Rights Reserved. The Product Life Cycle Sales climb quickly Firm usually begins to realize profits due to higher sales volume Marketing efforts continue to focus on establishing the product in the market and building brand awareness Later in the growth stage, the strategy shifts to building loyalty Additional spending on product adaptation, promotion and distribution, along with lower prices may be necessary Introduction Growth
Copyright © 2003 by South-Western. All Rights Reserved. The Product Life Cycle Industry sales continue to grow, but eventually reach a plateau Companies emphasize market segmentation – often resulting in an oversupply of the product Competition intensifies, and profits begin to decline Some firms reduce prices and/or spend heavily on promotion Introduction GrowthMaturity
Copyright © 2003 by South-Western. All Rights Reserved. The Product Life Cycle Innovations or shifts in consumer preferences cause an absolute decline in industry sales Industry as a whole does not generate profits, though some firms can prosper Prices tend to hold steady if a loyal market segment continues to buy the product If the firm is selling to consumers who are loyal, they can skip most of the usual advertising Introduction GrowthMaturityDecline
Copyright © 2003 by South-Western. All Rights Reserved. Marketing Strategies for Stages in the Product Life Cycle Product life cycle concept is an invaluable management tool for designing a marketing strategy at different life-cycle stages Product life cycle concept is an invaluable management tool for designing a marketing strategy at different life-cycle stages Table 14.1 shows appropriate adaptations to marketing strategies to match the characteristics of each stage Table 14.1 shows appropriate adaptations to marketing strategies to match the characteristics of each stage
Copyright © 2003 by South-Western. All Rights Reserved.
PRODUCT LINES AND THE PRODUCT MIX Product line: group of related products that are physically similar or are intended for a similar market Product line: group of related products that are physically similar or are intended for a similar market Product mix: the assortment of product lines and individual goods and services that a firm offers to consumers and business users Product mix: the assortment of product lines and individual goods and services that a firm offers to consumers and business users
Copyright © 2003 by South-Western. All Rights Reserved. Figure 14.6 Product Mix for Church and Dwight
Copyright © 2003 by South-Western. All Rights Reserved. NEW-PRODUCT DEVELOPMENT New products are the lifeblood of any organization New products are the lifeblood of any organization Firms must periodically add new products to assure continued prosperity Firms must periodically add new products to assure continued prosperity © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Product Development Strategies Firm’s product development strategy depends on its existing product mix, the match between current offerings and overall marketing objectives, and the current market positions of products early in their life cycles Firm’s product development strategy depends on its existing product mix, the match between current offerings and overall marketing objectives, and the current market positions of products early in their life cycles Alternative product development strategies include: Alternative product development strategies include: Market development Market development Product development Product development Market penetration Market penetration Product diversification Product diversification © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Figure 14.7 Levi Strauss Product Development Strategy
Copyright © 2003 by South-Western. All Rights Reserved. Getting a new product to market involves an orderly process of overlapping steps as outlined in the next set of slides Stages in New Product Development
Copyright © 2003 by South-Western. All Rights Reserved. Figure 14.8 Process for Developing New Goods and Services
Copyright © 2003 by South-Western. All Rights Reserved. Generating New-Product Ideas New product ideas come from many sources including: Customers Suppliers Employees Research scientists Marketing researchers Outside inventors Competing products Idea generation Stages in New Product Development
Copyright © 2003 by South-Western. All Rights Reserved. Screening Marketers evaluate ideas’ commercial potential Checklists of development standards can be helpful at this stage This stage often involves representatives of different functional areas Idea generation Screening Stages in New Product Development
Copyright © 2003 by South-Western. All Rights Reserved. Business Analysis Evaluation of whether the idea fits with the firm’s product, distribution, and promotional resources Marketers also assess potential sales, profits, growth rate, and competitive strengths Idea generation Screening Business analysis Stages in New Product Development
Copyright © 2003 by South-Western. All Rights Reserved. Prototype or Service Process Development Converting an idea into a physical product Requires interaction between development engineers and marketers Prototypes may go through many modifications Idea generation Screening Business analysis Process Development Stages in New Product Development
Copyright © 2003 by South-Western. All Rights Reserved. Test marketing: trial introduction of a new product, supported by a complete marketing campaign, to a selected area with a population typical of the total market Some firms skip this stage, moving directly to full-scale commercialization Test marketing Idea generation Screening Business analysis Process Development Stages in New Product Development
Copyright © 2003 by South-Western. All Rights Reserved. Commercialization In this stage, the firm offers its new product in the general marketplace The firm establishes marketing programs, production facilities, and acquaints its sales force, intermediaries, and potential customers with the new product Test marketing Commercial- ization Idea generation Screening Business analysis Process Development Stages in New Product Development
Copyright © 2003 by South-Western. All Rights Reserved.
PRODUCT IDENTIFICATION Brand: name, term, sign, symbol, design, or some combination thereof that identifies the products of a firm Brand: name, term, sign, symbol, design, or some combination thereof that identifies the products of a firm Brand name: the part of a brand consisting of words or letters that form a name that identifies and distinguishes an offering from those of competitors Brand name: the part of a brand consisting of words or letters that form a name that identifies and distinguishes an offering from those of competitors Trademark: brand with legal protection against another company’s use (can include pictorial designs, slogans, packaging elements, and product features) Trademark: brand with legal protection against another company’s use (can include pictorial designs, slogans, packaging elements, and product features) ™ ™ ™
Copyright © 2003 by South-Western. All Rights Reserved. Some firms market their goods and services without branding them. Such items are called generic products or generic brands Some firms market their goods and services without branding them. Such items are called generic products or generic brands They are characterized by plain packaging, minimal labeling, and little or no advertising They are characterized by plain packaging, minimal labeling, and little or no advertising Generic Products Family Brands Individual Brands Manufacturer's Brands Private Brands Brands Categories
Copyright © 2003 by South-Western. All Rights Reserved. Generic Products Family Brands Individual Brands Manufacturer's Brands Private Brands Brands Categories Family Brand: single brand name that identifies several related products Family Brand: single brand name that identifies several related products When a firm that practices family branding introduces a new product, the familiar brand name is recognized by all When a firm that practices family branding introduces a new product, the familiar brand name is recognized by all
Copyright © 2003 by South-Western. All Rights Reserved. Figure 14.9 Promoting a Family Brand
Copyright © 2003 by South-Western. All Rights Reserved. Generic Products Family Brands Individual Brands Manufacturer's Brands Private Brands Brands Categories Individual brands: giving a different brand name to each product within a product line Individual brands: giving a different brand name to each product within a product line Individual branding builds competition within a firm and enables the company to increase overall sales Individual branding builds competition within a firm and enables the company to increase overall sales
Copyright © 2003 by South-Western. All Rights Reserved. Generic Products Family Brands Individual Brands Manufacturer's Brands Private Brands Brands Categories Manufacturer’s (or national) brands: brand offered and promoted by a manufacturer or producer Manufacturer’s (or national) brands: brand offered and promoted by a manufacturer or producer Examples include Chanel, Swatch, Bic, Crest, and Dr. Pepper Examples include Chanel, Swatch, Bic, Crest, and Dr. Pepper
Copyright © 2003 by South-Western. All Rights Reserved. Private (or store) brand: identifies a product that is not linked to the manufacturer, but instead carries the label of a retailer or wholesaler Retailers define their own brands to maintain control over the images, quality levels, and prices of products they sell Generic Products Family Brands Individual Brands Manufacturer's Brands Private Brands Brands Categories
Copyright © 2003 by South-Western. All Rights Reserved. Characteristics of an Effective Brand Name Should communicate appropriate product images Should communicate appropriate product images Must be easy to pronounce, recognize, and remember Must be easy to pronounce, recognize, and remember Best if Short Best if Short Should Attract Attention Should Attract Attention © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. BUILDING BRAND LOYALTY AND BRAND EQUITY Brand loyalty: measured in three stages– recognition, preference, and insistence Brand loyalty: measured in three stages– recognition, preference, and insistence Brand recognition: brand acceptance strong enough that the consumer is aware of a brand, but not enough to cause a preference over competing brands Brand recognition: brand acceptance strong enough that the consumer is aware of a brand, but not enough to cause a preference over competing brands © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. BUILDING BRAND LOYALTY AND BRAND EQUITY Brand preference: occurs when a consumer chooses one firm’s brand, when it is available, over a competitors Brand preference: occurs when a consumer chooses one firm’s brand, when it is available, over a competitors Brand insistence: when the consumer will accept no substitute for a preferred brand Brand insistence: when the consumer will accept no substitute for a preferred brand Product has achieved a monopoly position with its consumers Product has achieved a monopoly position with its consumers © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Brand Equity Brand Equity: added value that a certain brand name gives to a product Brand Equity: added value that a certain brand name gives to a product High brand equity offers financial advantages to a firm High brand equity offers financial advantages to a firm Product commands a comparatively large market share Product commands a comparatively large market share Often reduces price sensitivity Often reduces price sensitivity Most Valuable Brands include Coca-Cola, Microsoft Windows, IBM, Intel, Nokia, GE, Ford, Disney, McDonald’s, and AT&T Most Valuable Brands include Coca-Cola, Microsoft Windows, IBM, Intel, Nokia, GE, Ford, Disney, McDonald’s, and AT&T © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Managing Brand Equity Responsibility of a brand manager or product manager at the typical large company Responsibility of a brand manager or product manager at the typical large company Requires planning and implementing the promotional, pricing, distribution, and product arrangements Requires planning and implementing the promotional, pricing, distribution, and product arrangements
Copyright © 2003 by South-Western. All Rights Reserved. PACKAGES AND LABELS Packaging helps to achieve several goals: Packaging helps to achieve several goals: Protects against damage, spoilage, and pilferage Protects against damage, spoilage, and pilferage Assists in marketing the product Assists in marketing the product Cost-effectiveness Cost-effectiveness © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Figure Packaging to Distinguish a Product
Copyright © 2003 by South-Western. All Rights Reserved. PACKAGES AND LABELS Label: descriptive part of a product’s package that lists the brand name or symbol, name and address of the manufacturer or distributor, product composition and size, nutritional information for food products, and recommended uses Label: descriptive part of a product’s package that lists the brand name or symbol, name and address of the manufacturer or distributor, product composition and size, nutritional information for food products, and recommended uses © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. PACKAGES AND LABELS Effective labeling serves several functions: Effective labeling serves several functions: Attracts buyer’s attention Attracts buyer’s attention Describes package contents Describes package contents Conveys product benefits Conveys product benefits Provides information on warranties, warnings, and other consumer matters Provides information on warranties, warnings, and other consumer matters Gives and indication of price, value, and uses Gives and indication of price, value, and uses © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. PRICE IN THE MARKETING MIX Price: exchange value of a good or service Price: exchange value of a good or service © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Figure Alternative Pricing Objectives
Copyright © 2003 by South-Western. All Rights Reserved. Profitability Objectives Perhaps the most commonly used objective in firms’ pricing strategies Perhaps the most commonly used objective in firms’ pricing strategies Some firms try to maximize profits by reducing costs rather than through price changes Some firms try to maximize profits by reducing costs rather than through price changes © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Volume Objectives Bases pricing decisions on market share Bases pricing decisions on market share Market share: the percentage of a market controlled by a certain company or product Market share: the percentage of a market controlled by a certain company or product © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Pricing to Meet Competition Third set of pricing objectives Third set of pricing objectives Seeks to meet competitors’ prices Seeks to meet competitors’ prices © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Prestige Objectives Prestige pricing encompasses the effect of price on prestige Prestige pricing encompasses the effect of price on prestige Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness Interesting WWW Site
Copyright © 2003 by South-Western. All Rights Reserved. Figure Product Priced to Achieve Prestige Objectives
Copyright © 2003 by South-Western. All Rights Reserved. HOW PRICES ARE DETERMINED Determined in two basic ways: Determined in two basic ways: By applying the theoretical concepts of supply and demand By applying the theoretical concepts of supply and demand By completing cost analyses By completing cost analyses © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Price Determination in Practice Cost-based pricing formulas: formulas calculate base-cost figures per unit and then add markups to cover overhead costs and generate profits Cost-based pricing formulas: formulas calculate base-cost figures per unit and then add markups to cover overhead costs and generate profits Simpler and easier to use than economic theory-based pricing Simpler and easier to use than economic theory-based pricing © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Figure The Markup Chain for a Hardcover Book
Copyright © 2003 by South-Western. All Rights Reserved. Breakeven Analysis Breakeven analysis: pricing technique that determines the sales volume that a firm must achieve at a specified price in order to generate enough revenue to cover its total cost Breakeven analysis: pricing technique that determines the sales volume that a firm must achieve at a specified price in order to generate enough revenue to cover its total cost
Copyright © 2003 by South-Western. All Rights Reserved. Finding the Breakeven Point Breakeven point Total Fixed Cost (in units) Contribution to Fixed Costs Per Unit Breakeven point Total Fixed Cost (in dollars) 1 – Variable Cost Per Unit/Price = =
Copyright © 2003 by South-Western. All Rights Reserved. Figure Breakeven Analysis
Copyright © 2003 by South-Western. All Rights Reserved. Skimming pricing strategy: sets an intentionally high price relative to the prices of competing products Often works for introduction of a distinctive good or service with little or no real competition Skimming Alternative Pricing Strategies © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Penetration pricing strategy: sets a low price as a major marketing weapon Assumes that a below-market price will attract buyers and move a brand from an unknown newcomer to at least a brand recognition or even a brand preference stage Skimming Penetration Alternative Pricing Strategies © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Competitive Competitive pricing strategy: product priced at the general level of competing offerings Attempts to reduce the emphasis on price and concentrates marketing efforts on product, distribution, and promotion Skimming Penetration Alternative Pricing Strategies © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. CONSUMER PERCEPTIONS OF PRICES Price-Quality Relationships Price-Quality Relationships Consumers’ perceptions of product quality is closely related to price Consumers’ perceptions of product quality is closely related to price Most marketers believe that this perceived price-quality relationship holds over a relatively wide range of prices Most marketers believe that this perceived price-quality relationship holds over a relatively wide range of prices In other situations, marketers establish price-quality relationships with comparisons that demonstrate a product’s value at the established price In other situations, marketers establish price-quality relationships with comparisons that demonstrate a product’s value at the established price © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Figure Establishing Price-Quality Relationships for Printers.
Copyright © 2003 by South-Western. All Rights Reserved. CONSUMER PERCEPTIONS OF PRICES Psychological Pricing Psychological Pricing Odd pricing (charging $39.95 or $19.98 instead of $40 or 20) Odd pricing (charging $39.95 or $19.98 instead of $40 or 20) Commonly-used retail practice, as many retailers believe that consumer favor uneven amounts Commonly-used retail practice, as many retailers believe that consumer favor uneven amounts © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. WHAT’S AHEAD Next chapter focuses on three major components of an organization's distribution strategy: Next chapter focuses on three major components of an organization's distribution strategy: Design of efficient distribution channels Design of efficient distribution channels Wholesalers and retailers Wholesalers and retailers Logistics and physical distribution Logistics and physical distribution © PhotoDisc