product and price-The 4 P's of marketing

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Consumer Behavior

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Week 4: The 4 P’s

NYU
Fall 2012
Angela Lee

Copyright Angela Lee, 2012 | 0

Last week, we learned about Consumer Segmentation

Understand Identify your
Reach and influence
consumer purchasing consumers and their
your consumers
process needs

1) Recognize problem Create a need
Consumer Purchasing Process

Conduct
2) Seek information market Make info available
research to
understand

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3) Understand options your Make product desirable
consumer
segments
4) Decide / purchase and their Make product accessible
needs

5) Evaluate purchase Encourage re-purchase


This week, we’ll learn about the 4 P’s and how they can be used to reach
and influence your consumers

Understand Identify your
Reach and influence
consumer purchasing consumers and their
your consumers
process needs

1) Recognize problem Create a need
Consumer Purchasing Process

Conduct
2) Seek information market Make info available
research to
understand

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3) Understand options your Make product desirable
consumer
segments
4) Decide / purchase and their Make product accessible
needs

5) Evaluate purchase Encourage re-purchase


As a marketer, you have to think about 4 Ps as they relate to your
consumers

Product Price

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Promotion Place


The 4 P’s – Product

Product: The

good or service
that fulfills the
consumer’s need

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The 4 P’s – Product Attributes

Features

Need Variations

Product: The
product or service
Experience Packaging
that fulfills the
consumer’s need

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Quality Competitors

Design



Need

Questions • What need is the customer is trying to satisfy?

to ask • Is this need known? (“I need to get a mortgage”)
• Or is this need unknown (latent)? (“I came to the grocery store for
produce, but those Doritos sure look good”)

Example(s)
In 2006, Nike and Apple created the first shoe
that synced with your iPod
• Receiver in shoe tracked distance ran

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• Allowed consumers to share running data
• Allowed people to challenge other runners.

The result? A new market was born that
integrated social media with technology in the
realm of fitness – a latent need was discovered



Famous quote about latent needs:
"If I had asked my customers what they had wanted,
they would have said a faster horse.“

- Henry Ford

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Focusing on consumer needs enabled these products
to be created:

 Did you know that Rogaine was originally developed

as a blood pressure drug when patients started
noticing thicker hair?

 Did you know that Latisse (eyelash growth serum) was
originally created as a glaucoma drug? It got re-
marketed as a eyelash growth serum after patients

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began noticing the side effect of longer, fuller lashes

 Did you know that Viagra was originally created to
treat heart problems? Again, unintended side affect
turned main product!



Features

Questions • What features do you need to satisfy your consumers’ needs?

to ask • Are you including so many that the product is getting muddled?
(Common problem in product design)
• Are you including so many that your product is too expensive to
produce or purchase?

In the mid-2000’s, a site was created called www.hotornot.com. When
Example(s) launched, it had one feature – to rate attractiveness of uploaded photos.
It was acquired for $20M and today is a dating site with 160M users

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Variations

Questions • Do I want one product or a variety of products with different features?

to ask • What are the different features to include in each model/variation?
• What are the different consumer segments for each model/variation?

Example(s)

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The retail space is filled
with examples of
companies that

differentiate between
different product lines

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What do you
think are the
(For Target)
impacts on this
to the overall
brand?



Quality

Questions • Is your product a premium product or a budget product (note that this

to ask doesn’t always mean low quality)?
• How do you want to be perceived compared to your competitors?
• How do you want to be priced in the market?

Jetblue has made a name for
Example(s) themselves by targeting the
budget traveler

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Alternatively, Singapore Airlines is
known for their high-touch
customer service and is a premium
airline with premium pricing



Design

Questions • How do you want people to use/interact with the product?

to ask • What user experience do you want the consumer to have with the
product?

Example(s)

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Winner of Red Dot
Design Award in 2011,
Tapi was a simple way
to turn any faucet into
a water fountain



Packaging

Questions • What do you want your packaging to say about your product or target

to ask consumer segment?
• Is your packaging part of the product itself, or simply a delivery
mechanism?

Example(s) Absolut Vodka is known as
much for their packaging as
for the product itself

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Contrast that with Grey
Goose, who markets the
quality/taste of their product
(features)



Experience

Questions • Remember that the product includes the entire experience from

to ask beginning to end. What do you want the user experience to be?
• How will you choose your shipping carrier, packaging you ship in, return
policies, and customer service policies?

Example(s)

Nordstrom became famous in

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the 90’s for their amazing
customer service
• Lenient return policies
• Staff that went above and
beyond



Experience

The Zappos customer

experience has been so much a
part of the company’s success
that the company holds training
sessions for other companies on
how to improve customer service

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Competitors

Questions • What products exist in the market today that meet the same needs?

to ask What products will be used in association with my product that I need to
think about?

Adidas and Polar Electro
Example(s)
created Project Fusion, which
integrates heart rate and speed
and distance monitoring

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equipment into sports apparel

Pottery Barn and Benjamin
Moore Paints joined forces to
create a new line of paint



Sometimes co-
branding with

competitors creates
delicious results!

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Sometimes, it is hard to know where one Product attribute
ends and another begins

Features

Need Variations

Product: The
product or service
that fulfills the
consumer’s need

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Quality Competitors

Design



Are Pringles:
 The result of meeting a latent
customer need (wanting whole
chips)?
 An evolution in Product design?
 Simply innovative Product
packaging?

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Is this product:
 Calling out a latent
need to the consumer?
 Innovative Product
packaging?
 Creative Promotions
(we’ll get to this later)?

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The answer is – All of the

above! Focus less on
categorizing what belongs
where and focus more on
thinking about these
attributes holistically
when you are developing
or managing a product

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The 4 P’s – Price

Price: The

amount of money
the consumer
pays for the
product

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There are four common methods to price a product

Competition
Cost Plus Value Based Going Rate
Based

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Competition
Based

Based on what it
costs to produce
the product plus a
margin (markup)

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on top of that cost




Competition
Based

Based on what it
costs to produce
So if an item costs $100 to produce
the product plus a
And the company wants to make a 50% markup
margin (markup)

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Then the Price = $150
on top of that cost




Competition
Based

Based on what it
costs to produce
So if an item costs $100 to produce
the product plus a
And the company wants to make a 50% markup
margin (markup)

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Then the Price = $150
on top of that cost

Margin = Price – Cost Markup = Price – Cost
Price Cost

33% in our example 50% in our example




Competition
Based

This type of pricing is common in:

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• Clothing retailers: typically
around 100% markup
• Grocery stores: between 5-30%
markup depending up on the
product category (e.g., produce vs.
junk food)




Competition
Based

Based upon what
the consumer
values the
product at and

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what they are
willing to pay




Competition
Based

Very common in luxury goods

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market where perceived value
often has nothing to do with
tangible costs or product
differentiation




Competition
Based

The cosmetics industry is

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famous for this – often times a $10
and $30 item are manufactured in
the same factory with simply
different labels Lancome Juicy L’Oreal Juice
Tubes: $18 Gloss: $8

Lancome and Loreal are owned by the same
company and the products are almost identical




Competition
Based

The pharmaceutical
industry is also well

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known for value based
pricing – the same
chemical compounds
will sell for significantly
more simply for the
brand name
Generics are starting to fight back
with promotions educating consumers




Competition
Based

Based upon what
your competitors
are charging and
where you want

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to be priced
relative to them




Competition
Based

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Airlines and hotels
are industries that
commonly use
competition based
pricing




Competition
Based

Companies are getting
increasingly savvy about

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pricing, using dynamic
pricing models to see real
time how competitors are
pricing and changing prices
by the second




Competition
Based

Some companies are
even more explicit,
saying they will beat

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the competition’s
pricing

Walmart




Competition
Based

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The danger of competition
based pricing is if two
competitor’s start a price war,
both companies could erode
their margins




Competition
Based

Based upon the
going rate in the
market –
companies have

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little control over
that price




Competition
Based

Going rate is most
common in

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commodities
industries (products
were there is little
differentiation
between companies)




Competition
Based

The way pricing
works in this case is

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that a price is set by
the market and
sellers simply have to
follow suit (which is
why farmers are so
sensitive to price
fluctuations)




Competition
Based

Companies will often use more than one method to price

1. For example, Singapore Airlines will see what other

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airlines are charging for a flight between NY and Hong
Kong (competition based)
2. They will then add on a premium for better service and
brand (value based)
3. They will then check that against labor and fuel costs
to ensure they are meeting their margins (cost plus)


In summary…. Understand Identify Reach

There are a number of attributes you have to think of when you are creating a Product

Features

Need Variations

Product: The
product or service
that fulfills the
consumer’s need

Quality Competitors

Design

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There are four common methods to Price a product

Competition
Based


Understand Identify Reach
Case Write-Up Questions

There is no case to read this week. Rather, I’d like for you
to draw upon a real market example.

Think of one product (or one company with a family of
products)

1. Product – Describe what they are doing for 3-4 of the
product attributes we covered. Don’t worry too much if you
have a hard time categorizing which product attribute –
many times the things a company will do in product

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development will span a couple of attributes

2. Price – how do you think this product is being priced? I
realized you don’t work in the pricing department of that
company, but what is a reasonable assumption? Again, it is
okay if the company is pricing using more than one method
– this is common.


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