Developing and Pricing Products Ch: 2 for MBA


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Developing and Pricing Products

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Developing and Pricing Products Ch: 2 for MBA

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