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Ch 05

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SEM Chapter 5

SEM Chapter 5

Published in: Business, Technology
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  • Nike’s Air Flight Lite basketball shoe is a product item; all Nike shoes would be called a product line.
  • Goods can be used for both consumer and business goods. If shoe is purchased at Foot Locker; it is considered a consumer good. (promoting on TV & sporting events) However, if Foot Locker purchases shoes from Nike it is considered a business good. (discounts for volume purchases) Example a new body Speedo suit worn by Michael Phelps in setting Olympic milestones.
  • Idea generation: feedback from consumers, employees, research/development, competitors—New Balance/Nike child shoe. Screening/Evaluation: Focus groups. How to get consumer acceptance of an unproven product.
  • Business analysis: Financial aspects, marketing. What is needed to take product to market. Legal factors, copyright, patent. Development: Prototype (first model) development. Testing. Can it be produced at a reasonable cost? Standards of quality and safety. Test marketing: Sell in small geographic area. All aspects tested of marketing mix (produce, place, price, promotion) Commercialization: Full scale promotion. Regional rollout.
  • Gatorade example
  • Gatorade, then Powerade.
  • Product modification: Changing characteristics. Features, appearance, packaging, design, quality. Different Gatorade ex. Market modification: Find new customers. Repositioning: Ex. New Balance redesigned shoe for older people with wider feet and foot problems. Promoted to Podiatrists.
  • Quick Check Answers The steps are 1) SWOT analysis, 2) idea generation, 3) screening and evaluation, 4) business analysis, 5) development, 6) test marketing, and 7) commercialization. introduction, growth, maturity, and decline Modify the product; market the product; and reposition the product.
  • Barter: trading goods or services for someone else’s goods.
  • Prestige pricing: based on consumer perception. Expensive items priced above average market price to attract customers who judge a product’s quality by the price. Odd-even pricing: related to consumer perception. Ex. $25.99 reflects a bargain. $100 reflect quality. Expensive goods are often priced with even amounts. Target pricing: based on what consumer is willing to pay. Manufactures estimate a target price and then work backwards at determining wholesalers and retailers.
  • Demand: Granite countertop example. Yearbook example. Elastic demand: a change in price will effect demand. Inelastic demand: product is a necessity. No substitutes. OJ example, gas. Newness of product: pricing a new item high is called skimming. Pricing below competition is called penetration pricing.
  • Profit objective. Surcharge example.
  • Country Ski example.
  • Price discrimination: the practice of charging different prices to similar buyers.
  • Quick Check Answers Price helps determine a company’s profit or loss; it’s related to the marketing mix because it must be directed to the target market. Price is one of the Four Ps of the marketing mix. consumer perception, demand, cost, product life cycle stage, and competition Answers may include profit objectives and market share objectives; price lining, bundle pricing, loss-leader pricing, and yield-management pricing.
  • Checking Concepts Answers A product item is a specific model or size of a product; a product line is a group of closely related products that are sold by a company. Products can be classified as consumer goods or business goods. Products are goods, services, or ideas that satisfy consumer needs; products can be tangible (goods) or intangible (services).  SWOT analysis, idea generation, screening and evaluation, business analysis, development, test marketing, and commercialization are the seven steps.
  • Checking Concepts Answers The stages are introduction, growth, maturity, and decline. Price is defined as the value placed on goods or services being exchanged. Every item sold carries a price.  The number of items sold times the price equals sales revenue. The amount of profit equals costs subtracted from price. Pricing strategies are influenced by consumer perception, demand, cost, product life cycle stage, and competition.
  • Checking Concepts Answers Markup is the difference between the retail or wholesale price and the cost of an item.  Cost-plus pricing involves calculating all costs and expenses and adding desired profit to arrive at a price.  In a sense, markup is the profit component in cost-plus pricing.
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    • 1.  
    • 2. Product Design Pricing and Strategies
    • 3. Chapter Objectives
      • Differentiate between a product item and product line.
      • Classify products as consumer goods or business goods.
      • Explain the seven steps in developing a new product.
      • Identify the stages in a product’s life cycle.
      • Define price and the role it plays in determining profit.
      • Describe the factors that affect pricing decisions.
      • Identify pricing strategies.
    • 4. Product Defined
      • A specific model of athletic shoe would be called a product item .
      product item specific model or size of a product The entire group of a manufacturer’s athletic shoes would be called a product line.
    • 5. Product Defined
      • Products can be classified as consumer goods or business goods .
      consumer goods goods purchased and used by the ultimate consumer for personal use business goods goods purchased by organizations for use in their operations Products need to have a point of difference . point of difference a unique product characteristic or benefit that sets it apart from a competitor
    • 6. Steps in New Product Development
      • The seven steps in new product development are:
      focus group a panel of six to ten consumers who discuss opinions about a topic under the guidance of a moderator
      • SWOT analysis (strengths, weaknesses, opportunities, and threats)
      • Idea generation
      • Screening and evaluation
        • Focus group
      continued
    • 7. Steps in New Product Development commercialization process that involves producing and marketing a new product
      • Business analysis
      • Development
      continued
      • Test marketing
      • Commercialization
    • 8. Product Life Cycle
      • The four stages in the product life cycle are:
      Introduction Product Life Cycle Not all products fit the life-cycle pattern. Growth Maturity Decline
    • 9. Product Life Cycle--Introduction
      • Focus on promoting consumer awareness
      • Millions of dollars spent on educating through consumer through advertising and promotion
      • Skimming pricing: cover research and development
      • Penetration pricing: Most preferred method. Price lower than competition.
      • Distribution in marketplace important.
      • Convince retailers to carry product
    • 10. Product Life Cycle—Growth
      • More competitors may enter market if product is successful (Gatorade then Powerade)
      • New features may be added to product (more flavors)
      • Add distribution outlets
        • From convenience and supermarket stores
        • To vending machines, fountain service, snack bars
    • 11. Product Life Cycle—Maturity
      • When sales begin to slow down
      • Repeat customers may stop buying
      • Changes may be made to product to keep alive
      • New target market may be identified
    • 12. Product Life Cycle—Decline
      • Sales/profits drop
      • Technological advances can cause an entire category of products to decline
      • Replaced by newer and improved models
      • Company may stop production
      • May keep to satisfy loyal customers, limit production
    • 13. Product Life Cycle Considerations
      • Fads have a very short life cycle.
        • Koosh balls
        • Boom boxes
      • New sports drink may not stay in introduction stage
    • 14. Management of the Product Life Cycle
      • The three ways to manage the product life cycle are:
      repositioning changing a product’s image in relation to a competitor’s image
      • Modifying the product.
      • Marketing the product.
      • Repositioning the product.
    • 15.
      • Explain the seven steps involved in developing a new product.
      • Name the four stages in the product life cycle.
      • What three things can be done to manage a product through its life cycle?
      1. 2. 3.
    • 16. Pricing
      • Price is important in a business because it helps determine a company’s profit or loss.
      price the value placed on goods or services being exchanged Price plays a significant role in the marketing mix.
    • 17. Determining Profit 1,000 baseball bats sold $175 each Subtract the cost of goods sold and the company’s expenses from the money it generated in sales revenue. $175,000 revenue = - $90,000 to purchase the bats $90 each - $60,000 in business expenses = $25,000 Profit
    • 18. Pricing & Marketing Mix
      • The product must be priced correctly to fit the target market’s pocketbook.
      • Rollerblade inline skate company carries a wide range of inline skates.
      • Lower priced skates are sold at WalMart & Target for value oriented customers.
      • Higher priced, more advanced skates are sold in specialty shops to cater to serious skaters.
    • 19. What affects price decisions?
      • Consumer perception
      • Demand
      • Cost
      • Product life cycle stage
      • Competition
    • 20. Consumer Perception
      • What is the relationship of price and quality in a consumer’s mind?
      • Many consumers believe that the higher the price, the better the quality.
      • Markets will price goods/services to attract customers who have that perception.
      • Image of a product is closely related to the price.
      • A very good quality product may sell better at a higher price.
    • 21. Pricing Considerations and Strategies
      • Three types of pricing strategies are:
      prestige pricing pricing based on consumer perception
      • Prestige pricing
      • Odd-even pricing
      • Target pricing
      odd-even pricing pricing goods with either an odd number or even number to match a product’s image target pricing pricing goods according to what the customer is willing to pay
    • 22. Pricing Considerations and Strategies
      • Other pricing considerations include:
      markup difference between the retail or wholesale price and the cost of an item
      • Demand
      • Cost
        • Markup
        • Cost-plus pricing
      • Newness of the product
      cost-plus pricing pricing products by calculating all costs and expenses and adding desired profit non-price competition competition between businesses based on quality, service, and relationships
      • Competition
        • Non-price competition
    • 23. Pricing Objectives and Strategies
      • Pricing objectives and strategies include:
      market share the percentage of the total sales of all companies that sell the same type of product
      • Profit objective
      • Market share objective
      • Special pricing
        • Price lining
        • Bundle pricing
        • Loss-leader pricing
        • Yield-management pricing
      price lining selling all goods in a product line at specific price points 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
        • Tiered pricing
    • 24. Price Adjustments and Regulations
      • Manufacturers will offer discounts in the following situations:
      • Buying in large quantities
      • Buying prior to the buying season
      Allowances are reductions taken from the quoted price. One type of allowance is a trade-in.
    • 25. Price Adjustments and Regulations
      • The Sherman Anti-Trust Act prohibits price fixing and predatory pricing.
      price fixing an illegal practice whereby competitors conspire to set the same price Price discrimination was originally prohibited by the Clayton Act and later by the Robinson-Patman Act.
    • 26.
      • How is pricing related to profit and the marketing mix?
      • List five factors that affect price decisions.
      • What are two common pricing objectives and special pricing strategies?
      1. 2. 3.
    • 27.
      • Explain the difference between product item and product line.
      Checking Concepts Name the ways products can be defined and classified. Explain the seven steps used in developing a new product. continued 1. 2. 3. A product item is a specific model or size of a product; a product line is a group of closely related products that are sold by a company. 1. Products can be classified as consumer goods or business goods. Products are goods, services, or ideas that satisfy consumer needs; products can be tangible (goods) or intangible (services).  2. SWOT analysis, idea generation, screening and evaluation, business analysis, development, test marketing, and commercialization are the seven steps. 3.
    • 28.
      • Identify the four stages in a product’s life cycle.
      Checking Concepts Define price. Explain how price determines a company’s profit. Identify the factors that may influence pricing strategies. continued 4. 5. 6. 7. The stages are introduction, growth, maturity, and decline. 4. Price is defined as the value placed on goods or services being exchanged. 5. Every item sold carries a price. The number of items sold times the price equals sales revenue. The amount of profit equals costs subtracted from price. 6. Pricing strategies are influenced by consumer perception, demand, cost, product life cycle stage, and competition. 7.
    • 29.
      • Define and compare markup and cost-plus pricing.
      Checking Concepts Critical Thinking 8. Markup is the difference between the retail or wholesale price and the cost of an item. Cost-plus pricing involves calculating all costs and expenses and adding desired profit to arrive at a price. In a sense, markup is the profit component in cost-plus pricing. 8.
    • 30.
    • 31. End of

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