Chapter 5: Product & Price Decisions—Sports Marketing Principles Mrs. Ingram 2014-2015

Section 1: Product Design

Product Product Defined Products are one of the MOST essential components in the marketing mix. Tangible Products- goods Intangible Products- services

Product Item and Line Product Item Product Line A specific model or size of a product. Nike Air Basketball Shoe Product Line A group of closely related products that are sold by a company. 3 product lines- athletic clothing, athletic footwear, sports equipment.

Product Classification Consumer Goods purchased and used by the ultimate consumer for personal use. Business Goods purchased by organizations for the use in their operation.

Point of Difference Unique product characteristics or benefits that set the product apart from a competitor's product.

Steps in New Product Development Step 1- SWOT Analysis In the marketplace: Strengths Weaknesses Opportunities Threats

Steps in New Product Development Step 2—Idea Generation New product ideas Sources: Consumers Employees Research & Development Department Competitiors

Steps in New Product Development Step 3—Screening and Evaluation Screen and evaluate new product idea. Technology needed to meet objectives. Focus Group (group feedback): panel of six to ten consumers who discuss their opinions about a topic. (moderator)

Steps in New Product Development Step 4—Business Analysis Financial aspects of making and marketing the product reviewed.

Steps in New Product Development Step 5—Development Prototype- the first model of the product. Test production capabilities (produced at a reasonable cost) Complex technical problems Standards for quality and safety

Steps in New Product Development Step 6—Test Marketing Tested in the marketplace Offer product for sale in small geographical area Test all aspects of the marketing mix Product Price Place Promotion (helps project sales and market share) Competitors- run test market by flooding geographical area with promotions.

Steps in New Product Development Step 7—Commercialization Process that involves producing and marketing a new product. Product offered in the marketplace.

Product Life Cycle Introduction Growth Maturity Decline Product

Product Life Cycle Introduction Product first introduced into the marketplace. Promote customer awareness. Advertising & promotion. Skimming pricing product price is high to cover research and development. Penetration pricing price is low in comparison to a competitor product to quickly generate demand.

Product Life Cycle Growth More competitors enter the marketplace if they see new products succeed. Add new features or products to a line. Add distribution outlets.

Product Life Cycle Maturity Sales begin to slow down for the product category or just the product. Keep the product alive. Make change to the product. Identify new layers.

Product Life Cycle Decline When sales and profits drop. What happens Drop product from the line. Keep and get little or no support (only kept to satisfy loyal customers)

Product Life Cycle Considerations Fads Products that become popular quickly and lose popularity just as quickly. Examples????

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

Product Modification Changing the products characteristics. Features Appearance Package Design Quality Examples of products that have been modified?

Market Modification Find new customers or encourage current customers to use more of the product. Gatorade introduced a new version of its product (Gatorade Frost) to target a new market. Gatorade Frost Target- people in a hot environment. Regular Gatorade Target- athletes specifically

Repositioning Changing a product’s image in relation to it’s competitor's image. Changing any of the 4 P’s. New Balance redesigning its athletic shoes for older people who have wider feet and often have foot problems.

Section 2: Pricing & Strategies

Pricing Price- the value placed on the goods or services being exchanged.

Pricing & Profit Price determines a company’s profit or loss. Number of items x sales price = profit or loss 1,000 bates sold @ $175 each = $175,000. The company purchased each baseball bat @ $90 each. Cost of goods sold would be $90,000. Expenses for running the business is $60,000. Business earned a profit of $25,000. ($175,000-$150,000= $25,000)

Pricing & The Marketing Mix All of the 4 P’s must be directed towards the target market. What is the customer in the target market willing to pay? Market must price the product correctly to fit the target market’s pocketbook. Ex: Roller Skates- Lower Price (Target & Wal-Mart) High Price (specialty shops)

Pricing Considerations & Strategies Consumer Perception Higher the price, the better quality of item. Marketers price high to attract customer with this perception. Prestige pricing- pricing based on consumer perception. Odd-even pricing- pricing goods with either an odd or even number to match a product’s image. Odd- $25.99 Even- $100 (more expensive) Target Pricing- pricing goods according to what the customer is willing to pay.

Demand Product with high demand and limited supply the price is high. Ex: Concert Tickets High supply of a product and low demand the price is low. Elastic demand- change in price will affect demand.

Demand 4 situations when price has no effect on demand: Product is a necessity There are no substitutions Price increase is not significant to the customer's income Time restraints

Cost Price must be higher than the cost a business paid for it. 2 pricing strategies related to cost: Markup- difference between the retail or wholesale price and the cost of an item. *must be high enough to cover expenses and ensure profit. (see pg. 110) Cost-plus pricing- pricing products by calculating all costs and expenses and adding desired profit. (see pg. 110)

Newness of the Product 2 Options from Marketers: Price item high to recover the costs of development. Price lower to create immediate demand for the product. (penetration pricing) What are the risks of each???

Competition Non-price competition- competition between businesses based on quality, service, and relationships. Better quality than competitors’ products- higher price Offer special services- higher price. Customer Loyalty- higher price

Pricing Objectives and Strategies Profit Objective: Earn Higher Profit Market Share Objective: Market Share- the % of the total sales of all companies that sell the same type of product.

Pricing Objectives and Strategies Special Pricing Strategies: Price Lining- selling a good in a product line at a specific price point. 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.

Price Adjustments & Regulations Discounts & Allowances Used to change a published price. Discount for large quantities or prior to buying season. Allowances- reductions taken from the quoted price. (trade-in car)

Regulatory Factors The Sherman Anti-Trust Act: Price-Fixing: Prohibits price fixing and predatory pricing. Price-Fixing: Illegal practice whereby competitors conspire to set the same prices. Predatory Pricing: Setting a very low price to drive competitors out of business. **Both restrict competition and are illegal**

Regulatory Factors Clayton Act/Robinson-Patman Act Prohibits price discrimination. Price Discrimination The practice of charging different prices to similar buyers.