Post on 15-Nov-2014
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Chapter 09
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Small Business Marketing
Product and Pricing Strategies
Learning Objectives
LO1 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 pricing
LO7 Understand different pricing strategies
9-2
4 Ps of Marketing
4 Ps of Marketing– The four major components of a
marketing effort—product, price, promotion, and placement.
9-3
Goods-Services Mix
9-4
Figure 9.1
Product
Product– anything that is offered to the market to
satisfy consumer wants, needs, and demands
– goods, services, people, ideas
9-5
Product
Tangibility– capability to be
touched, seen, tasted, or felt
Inseparability– service cannot be
disconnected from the provider
9-6
Product
Heterogeneity– each time the
service is provided, it will be slightly different
Perishability– cannot be saved
for later use
9-7
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
The Total Product Approach
Augmented product– core product, plus
features that tend to differentiate it from the competition
– brand names, quality levels, packaging
Core product– basic description
of what a product is
9-9
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
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
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
Stages of New ProductDevelopment
9-13
Figure 9.2
The Product Life Cycle
9-14
Figure 9.3
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
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
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
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
Service Life Cycle
9-19Figure 9.4
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
Why Price Is Important
1. Price is a major factor in determining customers’ perceptions of quality and desirability
2. Because of this, price is central to competitive strategy
3. Price is directly related to your company’s gross revenue and sales volume
9-21
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
Optimum Price
Optimum 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
Question
A product for which there are any number of substitutes and for which a change in price makes a difference in quantity purchased is called
A.Inelastic ProductsB.Elastic ProductsC.AcceptabilityD.External reference price
9-24
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
Pricing Elasticity
9-26
Figure 9.5
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
Price Setting
Decide what is the right price Examine existing market prices for
similar products and services Consider your business costs
9-28
Price Setting
Considerations for pricing– Company objectives– Marketing strategy– Channels of distribution– Competition– Legal and regulatory issues
9-29
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
Question
What 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
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
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
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
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
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
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