1. Product & Price Decisions
Chp. 5-1 and 5-2

2. Sec. 5-1
PRODUCT DECISIONS

3. Product Design
Products are one of the essential components in the marketing mix!
Can be:
Goods – tangible (e.g. baseball bat)
Services – intangible (e.g. baseball game)
Ideas – e.g. demonstrating good sportmanship

4. 3 Parts in Defining a Product
Difference btwn product item and line.
How is the product classified?
What is the product’s point of difference (POD)?

5. Product Item and Line
Product Item – specific model or size of a product
Product Line – group of closely related products that are sold by a company
e.g. Entire Group of Nike athletic shoes would be called a product line. Nike has 3 product lines: athletic clothing, athletic footwear, and sports equipment. These product lines make up Nike’s product mix.
LeBron 12 SE “What The”
$250

6. Product Classifications
Products can either be classified as consumer goods or business goods.
Consumer goods – purchased and used by the ultimate consumer for personal use
Business goods – purchased by organizations for use in their operation
Same product could be both a consumer good and a business good.

7. Product Classifications (cont.)
What would a marketing approach look like for consumer goods and business goods?
Are they the same?
If not, how are they different?
Pair up and come up with simple marketing approach for Nike sneakers as a consumer good and then as a business good. Share results.

8. Point of Difference
Organizations design their products to make them stand out in the marketplace.
Point of difference – unique product characteristic or benefit that sets the product apart from a competitor’s product.
Take a moment and think of 1 sports product/service and 1 entertainment product/service and identify the POD. Share with class.
Examples:
One of the reasons for new product failures is the lack of a point of difference.
Product planning is crucial to the success of a product!

9. Steps in New Product Development
There are typically 7 steps in new product development.
However, not all steps are followed each time.

10. Step #1 - SWOT Analysis
Analysis of the company’s strengths (S) and weaknesses (W), as well as external opportunities (O) and threats (T) in the marketplace (SWOT).
Create a SWOT chart now and list at least 1 thing for each of the following categories for the company Apple.

11. Step #2 – Idea Generation
Involves generating new product ideas from:
Consumers (e.g. customer complaints and/or merchandise returns)
Employees (e.g. can provide ideas in special sessions)
Research and development departments (e.g. use info. to create new ideas)
Competitors (e.g. look to other similar businesses to see what new products they are launching)

12. Step #2 – Idea Generation (cont.)
If creating product based on competition a company should write a protocol.
Protocol – statement that:
identifies a target market
specifies customers’ needs and wants
explains the product and its POD
Example: Nike decides to create a new golf shoe after learning that New Balance (a competitor) has just created a specially designed shoe for child golfers.
Protocol: The target market for Nike would be children who need a reasonably priced, quality golf shoe. Nike’s POD could be bright colors in its shoe design and Tiger Woods’ endorsement of the new shoe.

13. Step #2 – Idea Generation (cont.)
Find a partner and read the following info. and then write a protocol statement as a competitor would when creating a similar product. Don’t forget the 3 key parts. Under Armour decides to create a line of clothing catered to the cross fit athlete in response to a new similar clothing line by Reebok.

14. Step #3 – Screening and Evaluation
Product idea is evaluated to see if the company has the technology needed to make the product and to see if it meets the company’s objectives.
Researchers can also evaluate the product idea with consumers.
Focus group – panel of 6 to 10 consumers who discuss their opinions about a topic under the guidance of a moderator.
Focus group sessions provide feedback on the proposed product design.

15. Step #4 – Business Analysis
Financial aspects of making and marketing the product are reviewed.
Company must determine what is needed to take this product idea to market.
Product researchers analyze legal factors to see if the product can be patented or copyrighted for protection against competitors.

16. Step #5 - Development
If product idea passes the business analysis, then the company can develop a prototype for the product.
Prototype – first model of the product
The company tests its production capabilities to see if the product can be produced at a reasonable cost.
Complex technical problems, as well as standards for quality and safety, are also addressed.

17. Step #6 – Test Marketing
Involves offering the product for sale in a small geographic area.
Marketers test the marketing mix (4 P’s)
Results can help in projecting sales and market share
Competitors can actually ruin a test market by flooding the geographical area with special promotions or by reducing its prices during this phase.
Do you think this is ethical? Why or why not?

18. Step #7 - Commercialization
Commercialization – process that involves producing and marketing a new product.
Company offers the product in the marketplace for sale to the final consumer.
Full-scale production during the launch
Some use regional roll-outs (launching product in certain geographic areas over a specific time period allows production to build up gradually and company to evaluate its marketing activities

19. Product Life Cycle
Represents the stages that a product goes through during its life in the marketplace.
There are 4 stages.

20. Stage #1 - Introduction
Occurs when a product is first introduced into the marketplace.
MARKETERS focus on:
Promoting consumer awareness
Getting customers to try the new product
Spend millions to educate the consumer through advertising and promotion
Convincing retailers to carry the new product (distribution)
Use your phone and research Gatorade. When and where was it first introduced? Were consumers familiar with this product and what it could do? How do you think they educated consumers and who was their initial market? What type of product was its competition at first? What was its first and only flavor at the time?

21. Stage #1 – Introduction (cont.)
PRICING in Introduction stage:
2 strategies are usually employed:
Skimming Pricing – Pricing a new product high to cover research and development costs
Penetration Pricing – Pricing a new product low in comparison to a competitor’s product in order to quickly generate demand for product

22. Stage #2 - Growth
More competitors enter the marketplace if they see that a new product is successful.
MARKETERS focus on:
Improving the product by adding new features or new products in a line
Adding distribution outlets
Who joined the race for the sports-drink market as Gatorade became popular? What new flavors, package sizes, and types of containers did Gatorade add? What new distribution outlets did Gatorade include?

23. What does the maturity stage look like for Gatorade?
Stage #3 - Maturity
Stage when sales begin to slow down for the product category or just the product.
MARKETERS must focus on:
Making changes to the product to distinguish it from competitors’ products
Focusing on identifying new buyers
What does the maturity stage look like for Gatorade?

24. Name a product that hit the decline stage? What was the reason?
Stage #4 - Decline
When sales and profits begin to drop.
One main reason can be a product not keeping up with technological advances.
MARKETERS must focus on:
Dropping a product from its product line
Keeping a product but in limited production if there are loyal customers who will still buy it
Name a product that hit the decline stage? What was the reason?

25. Product Life-Cycle Considerations
Not all products fit the life-cycle pattern.
Fads – have a very short life cycle and lose popularity as quickly as it gained it.
Gatorade – Pepsi purchased Quaker Oats (owner of the Gatorade brand) in 2001, Gatorade sales have continued to increase from $85 million in 1983 to over $2 billion in What have they grown to today? What stage would you say Gatorade is in?

26. Management of the Product Life Cycle
3 ways managers need to manage a product through its life cycle:
Modify the product
Modify the market
Reposition the product

27. #1 – Product Modification
Requires changing a product’s characteristics.
Changes can be made to the product’s features, appearance, package design, or quality in hopes of increasing sales.
How did Gatorade “modify” their product over the years?

28. #2 – Market Modification
Strategy to find new customers or to encourage current customers to use more of the product.
How did Gatorade “modify” their market over the years?

29. #3 - Repositioning
Involves changing a product’s image in relation to its competitor’s image.
A change in any of the 4 P’s of the marketing mix can be enough to reposition a product.
Example: New Balance decided to redesign its athletic shoes for older people who have wider feet and often have foot problems. By repositioning its athletic shoes for this “niche” market, NB no longer had to compete directly with Nike and Reebok. They now promoted to podiatrists to in hopes they would recommend the shoe to their patients.

30. Sec. 5-2
PRICING DECISIONS

31. Pricing and Strategies
Businesses use price in the exchange process for their goods and services.
They go by different names. Fill in the blanks:
You pay ___________ for college.
You pay ___________ on a loan.
Professionals such as doctors and lawyers charge a ____.
Bridges and roads charge a ______.
When you take a bus or a train you pay a _______.
You pay ______ for an apartment.
Price is defined as the value placed on the goods or services being exchanged.

32. revenue – cogs-expenses = profit or loss
Pricing and Profit
Price is important in a business b/c it helps determine a company’s profit or loss.
By multiplying (x) the number of items sold by it sales price ($), you get sales revenue –
items x price = revenue
To determine if a profit or loss is earned, subtract (-) the cost of goods sold and expenses from the revenue
revenue – cogs-expenses = profit or loss
Let’s try one: Louisville Slugger sells 1,000 baseball bats at $175 each. What is the revenue? They purchased the bats for $90 each. What is the cogs? They also have additional expenses of $60,000. Did they make a profit or suffer a loss?

33. Pricing and Marketing Mix
Price plays a significant role in the marketing mix.
Major question – What is a person willing to pay for the product or service?
Therefore, marketing efforts must price the product correctly to fit target market’s pocketbook.
Find a partner and think of a company that carries a wide range of a certain product in their product line. Explain how they customize their prices to fit different consumers’ needs and possibly offer the products at different places.

34. Pricing Considerations and Strategies in the Sports Industry
There are 5 main things that affect the price of a product or service:
Consumer perception
Demand
Cost
Product life-cycle stage
Competition

35. Consumer Perception
Knowing the relationship between price and quality in a consumer’s mind.
Many consumers believe the higher the price, the better the quality of an item – so some products are priced higher on purpose to attract those consumers.
Can you name a product where this occurs?
Pricing strategies used:
Prestige pricing is pricing based on consumer perception
Odd-even pricing is pricing goods with either an odd number or an even number to match a product’s image
Which one do you think suggests a bargain? – Odd or Even
Which one do you think suggests higher quality? – Odd or Even
Target pricing is pricing goods according to what the customer is willing to pay (manufacturers work backwards)

36. Demand
If a product is in high demand, and there is a limited supply, its price will be high.
Companies may even create this exact situation by producing a limited edition of an item so they can price it high on purpose (e.g. a limited edition of baseball cards for a popular player or special occasion may be priced higher than one that is produced in very large quantities)
What is considered the most valuable baseball card? Why is this card so valuable?

37. Demand (cont.)
If there is a large supply of an item and demand is not high, businesses may lower prices to increase demand for that item (e.g. when retailers slash prices for seasonal items if they haven’t sold by end of that season).
General rule – demand will be lower for a higher-priced item. If that same product were priced lower, more people would be able to afford it and demand might increase.

38. With a partner, complete the worksheet on supply and demand.
Demand (cont.)
Supply-and-demand theory is based on elastic demand, which means that a change in price will affect demand.
With a partner, complete the worksheet on supply and demand.

39. With a partner, come up with an example of each of these situations.
Demand (cont.)
There are 4 situations when price will have NO effect on demand:
When a product is a necessity
When there are no substitutes for a product
When the price increase is not significant relative to the customer’s income
When there are time restraints
When any of these 4 situations occur, this becomes inelastic demand.
With a partner, come up with an example of each of these situations.

40. Cost
The price of an item must be higher than the cost a business paid for it. In addition, businesses have to forecast the amount of profit desired.
Pricing strategies used:
Markup Pricing – used by wholesalers and retailers who buy goods for resale
Markup – difference between the retail or wholesale price and the cost of an item
Sports retailer buys sneakers for $25 (cost). They then sell those shoes for $49.99 per pair. The dollar markup is $24.99 ($49.99 retail price - $25 cost = $24.99 markup. Can also be shown as a %. Markup on retail is 50% ($24.99 markup/$49.99 retail price). Finally markup can be calculated based on cost which would be 100% ($24.99 markup/$25 cost).

41. Cost (cont.)
Let’s try this on our own. Footlocker purchased a pair of Nike sneakers for $30. They turn around and sell those same sneakers for $110. What is the dollar markup? What is the markup % based on retail price? What is the markup % based on cost?

42. Cost (cont.) Pricing strategies used (cont).:
Product-line Pricing – used when marking up the entire line of products where you set different markup %’s for each product so that the average markup is achieved for the entire line of goods (e.g. markup for 1 item in line may only be 20% but for another model may be 75% so when averaged, total markup may be 50%)
Cost-plus Pricing – used by manufacturers and service providers by calculating all costs and expenses and then adding desired profit (e.g. food service vendors at stadiums – calculate salaries, cost of food supplies, rent, etc. and then add intended profit to come up with price)

43. Product Life-Cycle Stage
The objectives of the business and newness of the product determines strategy used.
Pricing strategies used:
Skimming Pricing – pricing item very high to recover the costs of development
Penetration Pricing – pricing below the competition to create immediate demand for the product

44. Competition 2 ways to compete – price or non-price:
Price – lowering prices to draw customers away from competitors
Non-price competition – competition based on 3 non-price factors 1) quality, 2) service, 3) relationships
With a partner, come up with 3 products or services for each of the non-price scenarios. Explain why they can get away with charging a higher price than their competition for each scenario.

45. Price Leaders and Takers
Price leader – businesses that dominate the market can often dictate the price charged for a product. Other businesses follow this lead. Price taker – businesses have to charge the market price. This is often the case where there are many small firms competing against each other.

46. Pricing Objectives
Pricing objectives are the goals that a company wants to achieve through pricing.
2 common pricing objectives involve increasing profit and improving market share.

47. Profit Objective
A company may have an objective to earn a higher profit.
Even though costs and expenses go up, businesses can’t always raise the price of the product so to get around this they sometimes add a surcharge (eg. ticket prices for sports or concerts) or they reduce some of the unneeded features or size of a product.

48. Market Share Objective
A company may have an objective to gain a higher market share.
Market share – the percentage of the total sales of all companies that sell the same type of product.
For example, Gatorade may have an 80% market share which means that its sales represent 80% of all sports drinks sold by all sports-drink companies.
How could a company increase their
market share?

49. Special Pricing Strategies
There are 4 more additional pricing strategies that businesses can employ to bring in more money.
Pricing Lining
Bundle Pricing
Loss-leader Pricing
Differential Pricing

50. Price Lining
Price Lining – selling all goods in a product line at specific price points.
Benefit to both customer & business b/c:
It’s easier for customers to make purchasing decisions
It’s easier to take later markdowns and inventory control is simplified
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$19.99
$9.99
$29.99

51. Bundle Pricing
Bundle Pricing – selling several items as a package for a set price.
Products individually would cost more than the package price so cheaper to buy bundle.
Benefit to both customer & business b/c:
Lower price
Sales are generally higher and more product is sold

52. Loss-leader Pricing
Loss-leader Pricing – pricing an item at cost or below cost to draw customers into the store.
Even though store breaks even or takes a loss on this product, customers are more likely to purchase other items while they are there and this amount will likely cover money lost on loss-leader item.
$25.99
(regularly $69.99)

53. Differential Pricing
Yield-management pricing – pricing items at different prices to maximize revenue when limited capacity is involved.
For example, teams may price its seats differently to maximize revenue:
Priced higher due to location of seats or time they are purchased.
Tiered-pricing – providing your service or product at different price points

54. Price Adjustments
To maintain the integrity of a published price, marketers will often make price adjustments by offering discounts or allowances.
Types of discounts:
Buying in large quantities
Buying prior to the buying season
Functional or trade discounts to wholesalers and retailers
Cash discounts for paying invoices early
Types of allowances (reductions taken from quoted price):
Trade-ins
Reductions for damaged items

55. Pricing Regulations Pricing is subject to some government regulations.
One law in particular, The Sherman Anti-Trust Act prohibits the illegal practices of price fixing and predatory pricing.
Price fixing – an illegal practice whereby competitors conspire to set the same prices.
Predatory pricing – setting a very low price in order to drive competitors out of business.
Two laws, The Clayton Act and The Robinson-Patman Act prohibits price discrimination.
Price discrimination – the practice of charging different prices to similar buyers.
This is legal as long as it does not lessen competition.