developing and pricing products ch: 2 for mba
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Developing and Pricing ProductsTRANSCRIPT
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Developing and Pricing Products
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What Is a Product?
Features are the qualities, tangible and intangible, that a company builds into its products
Benefits are what the consumer derives from the product: the want-satisfying value
Value package is a product marketed as a bundle of value-adding attributes
Features?Benefits?
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Types of Consumer Products
Convenience Goods: Commonly available, generally affordable, often prone to rapid consumption and re-buy, in which case these are referred to as Fast Moving Consumer Goods (FMCG’s)
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Types of Consumer Products
Shopping Goods: A category of consumer goods that are purchased after the buyer has spent some time and effort comparing the price, quality, style and other attributes of the product in several stores Types of Consumer Products
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Types of Consumer Products
Specialty Goods: A category of consumer goods for which the consumers have a strong brand preference and are willing to spend substantial time, effort and money for acquiring the desired brand
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Types of Consumer Products
Unsought Products: A category of products about which the consumers are generally not aware, or if they are aware, they would rather not buy them unless otherwise compelled
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Types of Business Products
Raw Material: Business goods that become part of another tangible product before being processed
Examples include natural resources, minerals, agriculture, dairy and poultry products etc.
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Types of Business Products
Fabricating Materials & Parts: Business goods that become part of another tangible product after being processed
Examples include sugar, flour, semi-conductor micro chips in computers, and zippers & buttons in clothing etc.
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Types of Business Products
Installations: Manufactured products that form an organization’s major, expensive and long-lived assets
Examples include machinery (heavy generators, blast furnaces, machinery used in production) and buildings
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Types of Business Products
Accessory Equipment: Goods that neither become a part of finished goods nor are directly involved in the manufacturing process, yet are essential in carrying out various processes of a firm
Examples include workstations, fork lifts, office furniture etc.
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Types of Business Products
Operating Supplies: Goods characterized by low price and short life span, contributing to an organization’s operations
Examples include stationery, fuel, telephone sets etc.
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The Product Mix
Product mix is a group of products that a firm makes available for sale (e.g. Nestle)
Product line is a group of similar products intended for a similar group of buyers who will use them in similar ways
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Procter & Gamble
Body Wash & Soap
Antiperspirants &
DeodorantsHair Care
Ivory Olay Old Spice
Safeguard
Camay Noxzema
Zest
Secret Pantene
Head & Shoulders
Herbal Essences
Infusium
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The Seven-Step Product Development Process
1. Product Ideas
2. Screening
3. Concept Testing
4. Business Analysis
5. Prototype Development
6. Product Testing and Test Marketing
7. Commercialization
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The Product Life Cycle
According to the PLC a product passes through many stages in it’s life
It is important for managers to understand and formulate appropriate strategies for each stage
The concept of product life applies to a generic category of products (not to brands)
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The PLC Stages
Introduction Growth Maturity Decline
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Introduction
Customers: Few Competition: Little or none Sales: Low, but rising Profits: None Cost per unit: High Pricing: High Distribution : Scattered Strategy: Product Awareness
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Growth
Customers: Mass Market Competition: Increasing Sales: Rapid Growth Profits: Peaking Cost per unit: Declining Pricing: Lower Distribution : Intensive Strategy: Differentiation
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Maturity
Customers: Mass Market Competition: Intense Sales: Slow Growth Profits: Declining Cost per unit: Stable Pricing: Lowest Distribution : Intensive Strategy: Retention
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Decline
Customers: Loyalists Competition: Decreasing Sales: Declining Profits: Low or none Cost per unit: Low Pricing: Increasing Distribution : Selective Strategy: Exit
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IntroductionGrowth
Maturity
DeclineSales
Volume
Time In Years
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Branding Products
Branding is the process of using symbols to communicate the qualities of a product made by a particular producer Adding Value through Brand Equity
Brand equity is the degree of consumers’ loyalty to and awareness of a brand and its resultant market share
Brand awareness is the extent to which a brand name comes to mind when the consumer considers a particular product category
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Types of Brand Names
National brand is a product produced by, widely distributed by, and carry the name of the manufacturer
Licensed brand is a product for whose name the seller has purchased the right from an organization or individual
Private brand (or Private label) is a product that a wholesaler or retailer has commissioned from a manufacturer
Costco-Kirkland
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Packaging and Labeling Products
Packaging is the physical container in which a product is sold, advertised or protected
Labeling can help market the product Label is the part of a product’s packaging
that identifies its name, manufacturer and contents
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What Is Pricing?
Process of determining what a company will receive in exchange for its products
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Pricing to Meet Business Objectives
Pricing objectives are goals that producers hope to attain in pricing products for sale Profit-Maximizing Objectives
Pricing for maximizing profits on each unit sold
Market Share Objectives Market share is a company’s
percentage of total market sales for a specific product type
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Cost-Oriented Pricing
Cost-oriented pricing considers the firm’s desire to make a profit and its need to cover production costs Markup is the amount added to an item’s
cost to sell it at a profit
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Breakeven Analysis
Breakeven analysis assesses costs versus revenues for various sales volumes Variable cost is a cost that changes with the
quantity of a product produced or sold Fixed cost is a cost unaffected by the quantity
of a product produced or sold Breakeven point is the sales volume at which
the seller’s total revenue from sales equals total costs with neither profit nor loss
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Break Even Analysis
Break even point is that quantity of output (sales) at which total revenue equals total cost, at a certain selling price
Break even point = Total Fixed Cost
Selling Price – Variable Cost (per unit)
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Breakeven Analysis
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Pricing Existing Products
Pricing above prevailing market prices for similar products
Pricing below market prices
Pricing at or near market prices
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Pricing New Products
Price skimming is setting an initial high price to cover new product costs and generate a profit
Penetration pricing is setting an initial low price to establish a new product in the market
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Fixed versus Flexible Pricing
Flexible Pricing works where the sellers can alter prices privately, on a one-to-one, customer-to-customer basis.
Fixed pricing leaves no room for bargaining
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Pricing Tactics
Price lining is setting a fixed price for certain categories of products
Psychological pricing or Odd Pricing takes advantage of the idea that consumers tend to see prices in round figures
Uniform Pricing is when a diverse range of goods are given the same price
Discount is a price reduction offered as an incentive to purchase