smb300_Chap009 wk5


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Discussion topic Week 5

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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.
  • 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.
  • Answer: b
  • 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.
  • Answer: d
  • smb300_Chap009 wk5

    1. 1. Small Business Marketing Product and Pricing Strategies Chapter 09McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
    2. 2. Learning ObjectivesLO1 Know the characteristics of goods and servicesLO2 Define the total productLO3 Learn the stages of new product developmentLO4 Learn the product life cycleLO5 Understand why pricing is an important but difficult task for small businessLO6 Understand price elasticities, pricing psychology, and other price influencers and their impact on pricingLO7 Understand different pricing strategies 9-2
    3. 3. 4 Ps of Marketing 4 Ps of Marketing – The four major components of a marketing effort—product, price, promotion, and placement. 9-3
    4. 4. Goods-Services Mix Figure 9.1 9-4
    5. 5. Product Product – anything that is offered to the market to satisfy consumer wants, needs, and demands – goods, services, people, ideas 9-5
    6. 6. Product Tangibility  Inseparability – capability to be – service cannot be touched, seen, disconnected from tasted, or felt the provider 9-6
    7. 7. Product Heterogeneity  Perishability – each time the – cannot be saved service is provided, for later use it will be slightly different 9-7
    8. 8. The Total Product Approach Total product – The entire bundle of products, services, and meanings of your offering; includes extras like service, warranty, or delivery, as well as what the product means to the customer. 9-8
    9. 9. The Total Product Approach Augmented  Core product product – basic description – core product, plus of what a product features that tend is to differentiate it from the competition – brand names, quality levels, packaging 9-9
    10. 10. The Total Product Approach Your product means more to the consumer than just the core product Don’t waste time and money designing features for your product or service that your target market doesn’t want Knowing what your product “means” to consumers will help you set an appropriate price 9-10
    11. 11. Branding Guidelines for naming a business – Entrepreneur’s name • Not very clear to customers what you do • How to handle name if you sell the company • Is your name appropriate: i.e. Payne for a dentist 9-11
    12. 12. Branding Guidelines for naming a business – Be careful about infringing on trademarks – Describes firm or product and is easy to remember: “Discount Furniture” – Creative spellings are eye-catching; don’t go overboard – Beware of selecting a name too narrow to allow the firm to grow 9-12
    13. 13. Stages of New Product Development Figure 9.2 9-13
    14. 14. The Product Life Cycle Figure 9.3 9-14
    15. 15. The Product Life Cycle Stage 1: Introduction – Sales slowly take off and then begin to grow – Very important to build brand awareness – Heavy introductory marketing expenses will suppress profits – Competition is generally low 9-15
    16. 16. The Product Life Cycle Stage 2: Growth – Acceptance of the product increases rapidly – Advertising and promotion are much less critical – Goal in this time is to maximize market share – Prices tend to drop as production becomes more efficient 9-16
    17. 17. The Product Life Cycle Stage 3: Maturity – Sales will level off and start to decline – Profits follow suit – Competition becomes fierce; price competition begins to rise – Advertising will suggest new uses for the product 9-17
    18. 18. The Product Life Cycle Stage 4: Decline – Decline can be slow or fast, steady or unsteady – May come from introduction of new technology – May also be caused by a shift in consumer preferences – Sales and profits fall during this stage 9-18
    19. 19. Service Life Cycle Figure 9.4 9-19
    20. 20. Service Life Cycle Services go through same four stages: – Easier to extend life cycle, and virtually eliminate the decline stage of a service – Services are often much easier to change “on the run” Services, in effect, begin new life cycles with each tweaking 9-20
    21. 21. Why Price Is Important1. Price is a major factor in determining customers’ perceptions of quality and desirability2. Because of this, price is central to competitive strategy3. Price is directly related to your company’s gross revenue and sales volume 9-21
    22. 22. Pricing from the Seller’s Point of View Seller’s wish to obtain highest price possible for whatever they are selling Optimum price – refers to the highest price that would produce your desired level of sales (or revenues) in your target market. 9-22
    23. 23. Optimum PriceOptimum price is based on: Demand for the product or service Value delivered to the customer Prices set by competing firms Your business strategy and product placement 9-23
    24. 24. QuestionA product for which there are any number of substitutes and for which a change in price makes a difference in quantity purchased is calledA.Inelastic ProductsB. Elastic ProductsC.AcceptabilityD.External reference price 9-24
    25. 25. Price Elasticity Inelastic product – product for which there are few substitutes and for which a change in price makes very little difference in quantity purchased Elastic product – product for which there are any number of substitutes and for which a change in price makes a difference in quantity purchased 9-25
    26. 26. Pricing ElasticityFigure 9.5 9-26
    27. 27. Pricing Psychology Internal reference price – a consumer’s mental image of what a product’s price should be External reference price – an estimation of what a price should be based on advice, advertisements, or comparison shopping 9-27
    28. 28. Price Setting Decide what is the right price Examine existing market prices for similar products and services Consider your business costs 9-28
    29. 29. Price Setting Considerations for pricing – Company objectives – Marketing strategy – Channels of distribution – Competition – Legal and regulatory issues 9-29
    30. 30. Pricing Strategies Skimming – Setting a price at the highest level the market will bear, usually because there is no competition at the time. Prestige or premium pricing – Setting a price above that of the competition so as to indicate a higher quality or that a product is a status symbol. 9-30
    31. 31. QuestionWhat is the strategy called when a price ends with 9, 7, or 5?A.Price LiningB.Partitioned PricingC.Premium PricingD.Odd-even Pricing 9-31
    32. 32. Pricing Strategies Odd-even pricing – Setting a price that ends in the number 5, 7, or 9. Partitioned pricing – Setting the price for a base item and then charging extra for each additional component. 9-32
    33. 33. Pricing Strategies Captive pricing – Setting the price for an item relatively low and then charging much higher prices for the expendables it uses. Price lining – The practice of setting (usually) three price points: good quality, better quality, best quality. 9-33
    34. 34. Price-Lowering Techniques Periodic or random discounting – Sales conducted at either predictable or non-predictable intervals. Off-peak pricing – Charging lower prices at certain times to encourage customers to come during slack periods 9-34
    35. 35. Price-Lowering Techniques Bundling – Combining two or more products in one unit and pricing it less than if the units were sold separately. Multiple or bonus pack – Combining more than one unit of the same product and pricing it lower than if each unit were sold separately. 9-35
    36. 36. Price-Lowering Techniques Coupons, Rebates, Loyalty and Referral Programs Referral discount – A discount given to a customer who refers a friend to the business 9-36
    37. 37. Pricing Strategy Wrap-up Temporary reduction in price won’t tarnish your product image Consumers also feel smart about buying something at a better price They will feel they got a great deal 9-37