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  • Most people think in terms of product or service. But few offering fall into those black and white categories. Examples: Pure good: Shampoo Good dominated: A car (comes with warranties and service) Hybrid: A restaurant– Which is more important, the food or the atmosphere and service? Service Dominated: Your taxes. You get the service of having them done, but also the papers to send in and a copy to keep. Pure service: Having your car washed.
  • Goods are: Tangible: you can count them, inventory them, demonstrate them, see them before you buy Separable: It doesn’t matter who you buy it from, the product is the same Homogenous: In theory, every bottle of Suave shampoo is the same, regardless of where you buy it Non-perishable: If you don’t sell it today you can sell it tomorrow. Services are just the opposite.
  • The core is the automobile. You are buying transportation from point A to point B. The augmented product is a Honda Accord. The Accord is different from a Toyota Camry and even within the Accord you can choose package levels with different features.
  • The total product includes things like: Roadside assistance on your car Delivery of furniture and appliances Training on your new computer The more expensive and complex the product, the more it will need to include.
  • There are always caveats: If your name is Maine Street Accounting– what happens if you move? A patent attorney can look up trademarks and make sure you are not infringing on another company.
  • In idea generation it is important to get ideas from those who know best. Customers and salespeople who deal with them on a frequent basis often have great ideas for new products or modifications Ides screening Not all ideas are good ones, and some that are don’t fit the goals of your company Other ideas might be great but not have many potential customers Idea evaluation A Feasibility study helps you decide which ideas you should pursue Costs and profitability have to be address Concept testing, running the refined idea past the experts happens at this stage Product Development Reaching this stage means you have a viable, profitable idea Prototypes are made and tested, focus groups are used Once the prototype is well received test marketing can begin Successful test marketing leads to commercialization Commercialization Taking your product “live” to market This involves full production levels A complete marketing plan must be made which will reach your intended target market
  • The PLC can be used for either an industry or particular product. Characterizations of each stage are on the following slides.
  • If you have an elastic product a small price increase can dramatically cut back sales. Conversely, a small price cut can substantially increase sales unit and possibly profitability.
  • Customers gather pricing knowledge from a variety of places. The internet has expanded the ability to comparison shop and thus consumers are becoming more price savvy.
  • If your goal is to undercut the competition you’ll need low prices. An image of quality supports higher pricing. If you are reselling products some manufacturers have MAP (Minimum Advertised Pricing). MAP requires you not advertise below a certain price but does not regulate what the product actually sells for. This is an effort to improve profitability at all levels in some industries.
  • In skimming, you sell as high as you can, and when that market is done, you bring your price down to the next level. This method ‘skims’ as much profit off the top as is possible.
  • Is it $20.00 or $19.95? Studies have shown that the nickel difference psychologically makes a bid difference in consumers minds. The don’t want over $20, the want under $20.
  • Getting in a cycle of sales is a dangerous way to hurt your profitability and train customers only to but during a sale. Nordstroms has a well publicized policy of two sales per year, one for men and one for women.
  • Bundling could be selling shampoo and conditioner in a set for a lower price. Or a bundle of accessories for the main product.
  • The great thing about these programs is the psychology. People will buy the product with the coupon, rebate, or program in mind, but forget to use it. Coupons expire, but since they are up at the cash register the buy the product anyway. Many people forget to send in the rebate forms due to the time it takes to fill out the information. And collecting Stamps, stickers, or whatever on a small card is easy to lose.
  • Chap009bus230

    1. 1. 9 Small Business Marketing: Product and Pricing Strategies McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
    2. 2. <ul><li>Product </li></ul><ul><li>Goods versus services: differentiated in several ways </li></ul>Chapter 9 9-
    3. 3. <ul><li>Differentiations : </li></ul><ul><ul><li>Tangibility : capability to be touched, seen, tasted, or felt </li></ul></ul><ul><ul><li>Inseparability : service cannot be disconnected from the provider </li></ul></ul><ul><ul><li>Heterogeneity : each time the service is provided, it will be slightly different </li></ul></ul><ul><ul><li>Perishability : cannot be saved for later use </li></ul></ul>Chapter 9 9-
    4. 4. <ul><li>Total product approach : </li></ul><ul><ul><li>Core product : basic description of what a product is </li></ul></ul><ul><ul><li>Augmented product : core product, plus features that tend to differentiate it from the competition </li></ul></ul><ul><ul><ul><li>Includes: brand names, quality levels, packaging, and specific features of your product </li></ul></ul></ul>Chapter 9 9-
    5. 5. Chapter 9 Total Product Approach 9-
    6. 6. <ul><li>Total product : entire bundle of products and services that you offer </li></ul><ul><ul><li>There are often components that you are not aware of, or that change over time </li></ul></ul><ul><ul><li>Delivery, installation, warranty, repair, spare parts, instruction, and training </li></ul></ul><ul><ul><li>Legal, cultural, and economic environment may force changes </li></ul></ul>Chapter 9 9-
    7. 7. <ul><li>Why is this important ? </li></ul><ul><ul><li>Your product means more to the consumer than just the core product </li></ul></ul><ul><ul><li>Don’t waste time and money designing features for your product or service that your target market doesn’t want </li></ul></ul><ul><ul><li>Knowing what your product “means” to consumers will help you set an appropriate price </li></ul></ul>Chapter 9 9-
    8. 8. <ul><li>Branding </li></ul><ul><ul><li>Guidelines for naming a business : </li></ul></ul><ul><ul><ul><li>Entrepreneur’s name: </li></ul></ul></ul><ul><ul><ul><ul><li>Not very clear to customers what you do </li></ul></ul></ul></ul><ul><ul><ul><ul><li>How to handle name if you sell the company </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Is your name appropriate: i.e. Payne for a dentist </li></ul></ul></ul></ul>Chapter 9 9-
    9. 9. <ul><li>Branding : (con’t.) </li></ul><ul><ul><li>Guidelines for naming a business : </li></ul></ul><ul><ul><ul><li>Be careful about infringing on trademarks </li></ul></ul></ul><ul><ul><ul><li>Describes firm or product and is easy to remember: “Discount Furniture” </li></ul></ul></ul><ul><ul><ul><li>Creative spellings are eye-catching; don’t go overboard </li></ul></ul></ul><ul><ul><ul><li>Beware of selecting a name too narrow to allow the firm to grow </li></ul></ul></ul>Chapter 9 9-
    10. 10. Chapter 9 New Product Development Process 9-
    11. 11. Chapter 9 Product Life Cycle 9-
    12. 12. <ul><li>Product Life Cycle </li></ul><ul><li>Stage 1 : Introduction </li></ul><ul><ul><li>Sales slowly take off and then begin to grow </li></ul></ul><ul><ul><li>Very important to build brand awareness </li></ul></ul><ul><ul><li>Speak to the relative advantage your product has </li></ul></ul><ul><ul><li>Also need to market to any middlemen </li></ul></ul><ul><ul><li>Heavy introductory marketing expenses will suppress profits </li></ul></ul><ul><ul><li>Competition is generally low </li></ul></ul>Chapter 9 9-
    13. 13. <ul><li>Stage 2 : Growth </li></ul><ul><ul><li>Acceptance of the product increases rapidly </li></ul></ul><ul><ul><li>Advertising and promotion are much less critical </li></ul></ul><ul><ul><li>Goal in this time is to maximize market share </li></ul></ul><ul><ul><li>Prices tend to drop as production becomes more efficient </li></ul></ul>Chapter 9 9-
    14. 14. <ul><li>Stage 3 : Maturity </li></ul><ul><ul><li>Sales will level off and start to decline </li></ul></ul><ul><ul><li>Profits follow suit </li></ul></ul><ul><ul><li>Competition becomes fierce; price competition begins to rise </li></ul></ul><ul><ul><li>Advertising will suggest new uses for the product </li></ul></ul><ul><ul><li>Product can stay in the maturity stage for a long period of time (i.e. Murphy’s Oil soap) </li></ul></ul>Chapter 9 9-
    15. 15. <ul><li>Stage 4 : Decline </li></ul><ul><ul><li>Decline can be slow or fast, steady or unsteady </li></ul></ul><ul><ul><li>May come from introduction of new technology </li></ul></ul><ul><ul><li>May also be caused by a shift in consumer preferences </li></ul></ul><ul><ul><li>Sales and profits fall during this stage </li></ul></ul><ul><ul><li>Advertising and promotion expenses are usually nearly eliminated at this point </li></ul></ul>Chapter 9 9-
    16. 16. <ul><li>Service Life Cycle </li></ul><ul><li>Services go through same four stages: </li></ul><ul><ul><li>Easier to extend life cycle, and virtually eliminate the decline stage of a service </li></ul></ul><ul><ul><li>Services are often much easier to change “on the run” </li></ul></ul><ul><li>Services, in effect, begin new life cycles with each tweaking </li></ul>Chapter 9 9-
    17. 17. <ul><li>Service Life Cycle </li></ul>Chapter 9 9-
    18. 18. <ul><li>Pricing </li></ul><ul><li>Pricing Basics: </li></ul><ul><ul><li>4 main reasons why owners of small businesses pay so much attention to pricing </li></ul></ul><ul><ul><ul><li>Major factor in determining perceptions of quality and desirability </li></ul></ul></ul><ul><ul><ul><li>Price is directly related to gross revenue and to volume you can attain </li></ul></ul></ul><ul><ul><ul><li>Easiest of all marketing variables for a business owner to change </li></ul></ul></ul><ul><ul><ul><li>Essential part of competitive strategy </li></ul></ul></ul>Chapter 9 9-
    19. 19. <ul><li>Pricing from the Seller’s Point of View </li></ul><ul><ul><li>Seller’s wish to obtain highest price possible for whatever they are selling </li></ul></ul><ul><ul><li>Rather than highest price, try to determine optimum price </li></ul></ul><ul><ul><li>Optimum price is a function of 4 things: </li></ul></ul><ul><ul><ul><li>Demand for the product or service </li></ul></ul></ul><ul><ul><ul><li>Value delivered to the customer </li></ul></ul></ul><ul><ul><ul><li>Prices set by competing firms </li></ul></ul></ul><ul><ul><ul><li>Your business strategy and product placement </li></ul></ul></ul>Chapter 9 9-
    20. 20. <ul><li>Price elasticity : </li></ul><ul><ul><li>Inelastic product : product for which there are few substitutes and for which a change in price makes very little difference in quantity purchased </li></ul></ul><ul><ul><li>Elastic product : product for which there are any number of substitutes and for which a change in price makes a difference in quantity purchased </li></ul></ul>Chapter 9 9-
    21. 21. <ul><li>Pricing psychology : </li></ul><ul><ul><li>Internal reference price : a consumer’s mental image of what a product’s price should be </li></ul></ul><ul><ul><li>External reference price : an estimation of what a price should be based on advice, advertisements, or comparison shopping </li></ul></ul><ul><ul><li>Consumers also have a price range of acceptability </li></ul></ul>Chapter 9 9-
    22. 22. <ul><li>Price setting : </li></ul><ul><ul><li>Decide what is the right price </li></ul></ul><ul><ul><li>Examine existing market prices for similar products and services </li></ul></ul><ul><ul><li>Consider your business costs </li></ul></ul>Chapter 9 9-
    23. 23. <ul><li>Considerations for pricing : </li></ul><ul><ul><li>Company objectives </li></ul></ul><ul><ul><li>Marketing strategy </li></ul></ul><ul><ul><li>Channels of distribution </li></ul></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><li>Legal and regulatory issues </li></ul></ul>Chapter 9 9-
    24. 24. <ul><li>Pricing strategies : </li></ul><ul><ul><li>Skimming : charging the highest price the market will bear </li></ul></ul><ul><ul><ul><li>First product or service of your type </li></ul></ul></ul><ul><ul><ul><li>Something people really want </li></ul></ul></ul><ul><ul><ul><li>Truly innovative </li></ul></ul></ul><ul><ul><ul><li>This method will attract competition </li></ul></ul></ul>Chapter 9 9-
    25. 25. <ul><li>Pricing strategies : (con’t.) </li></ul><ul><ul><li>Premium pricing : high price can signal great quality </li></ul></ul><ul><ul><ul><li>Impression that more expensive has to be better than less expensive </li></ul></ul></ul><ul><ul><ul><li>Item that could be considered a status symbol </li></ul></ul></ul><ul><ul><li>Odd-even pricing : price that ends with 9, 7, or 5, getting over the psychological hurdle of prices that are multiples of 10 </li></ul></ul>Chapter 9 9-
    26. 26. <ul><li>Pricing strategy : (con’t.) </li></ul><ul><ul><li>Partitioned pricing : setting the price for a base item and then charging extra for each additional component </li></ul></ul><ul><ul><ul><li>Computer for $999, printer for another $100, cables for $29.95, extended warranty for $79.95, et al </li></ul></ul></ul>Chapter 9 9-
    27. 27. <ul><li>Pricing strategy : (con’t.) </li></ul><ul><ul><li>Captive pricing : selling a base system at a relatively low price, but expendable items are relatively expensive </li></ul></ul><ul><ul><ul><li>Replacement ink cartridges for printers </li></ul></ul></ul><ul><ul><li>Price lining : practice of setting three price points – good quality, better quality, and best quality </li></ul></ul><ul><ul><ul><li>Appeals to customers with different budgets and needs </li></ul></ul></ul>Chapter 9 9-
    28. 28. <ul><li>Price-lowering techniques : </li></ul><ul><ul><li>Periodic discounting : sales that happen once a month, or year, etc. </li></ul></ul><ul><ul><ul><li>Back to school sales </li></ul></ul></ul><ul><ul><ul><li>After Christmas sales </li></ul></ul></ul><ul><ul><li>Random discounting : running a sale without a definite pattern </li></ul></ul><ul><ul><li>Sales shouldn’t be too often </li></ul></ul>Chapter 9 9-
    29. 29. <ul><li>Price-lowering techniques : (con’t.) </li></ul><ul><ul><li>Off-peak pricing : lower prices at certain times to encourage customers to come during slack times </li></ul></ul><ul><ul><ul><li>A business version of Happy Hour </li></ul></ul></ul><ul><ul><li>Bundling : combining two or more products in one unit and pricing less than if the units were sold separately </li></ul></ul><ul><ul><ul><li>Three for price of two, or complementary products </li></ul></ul></ul>Chapter 9 9-
    30. 30. <ul><li>Price-lowering techniques : (con’t.) </li></ul><ul><ul><li>Coupons, rebates, and loyalty programs : </li></ul></ul><ul><ul><ul><li>Coupons are usually delivered in newspapers </li></ul></ul></ul><ul><ul><ul><ul><li>Redemption is about 2% in the United States </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Great way to get people to try new products </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Serve an advertising purpose: subconscious remembers the product favorably </li></ul></ul></ul></ul>Chapter 9 9-
    31. 31. <ul><li>Price-lowering techniques : (con’t.) </li></ul><ul><ul><li>Coupons, rebates, and loyalty programs : </li></ul></ul><ul><ul><ul><li>Rebates are great tools for small business because the redemption rate is extremely low </li></ul></ul></ul><ul><ul><ul><ul><li>Think favorably about the product </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Incentive to buy something </li></ul></ul></ul></ul>Chapter 9 9-
    32. 32. <ul><li>Price-lowering techniques : (con’t.) </li></ul><ul><ul><li>Coupons, rebates, and loyalty programs : </li></ul></ul><ul><ul><ul><li>Loyalty programs are good for getting customers to return to your business </li></ul></ul></ul><ul><ul><ul><li>People may lose their cards </li></ul></ul></ul><ul><ul><ul><li>45% of customers spend more money in stores with loyalty programs </li></ul></ul></ul>Chapter 9 9-
    33. 33. <ul><li>Pricing strategy wrap-up : </li></ul><ul><ul><li>Temporary reduction in price won’t tarnish your product image </li></ul></ul><ul><ul><li>Consumers also feel smart about buying something at a better price </li></ul></ul><ul><ul><li>They will feel they got a great deal </li></ul></ul>Chapter 9 9-