product and price-The 4 P's of marketing
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Copyright Angela Lee, 2012 0
Consumer Behavior
Week 4: The 4 P’s
NYU
Fall 2012
Angela Lee
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Copyright Angela Lee, 2012
Co
nsu
mer
Pu
rch
asin
g P
rocess
Last week, we learned about Consumer Segmentation
1
Understand
consumer purchasing
process
Identify your
consumers and their
needs
Reach and influence
your consumers
1) Recognize problem
2) Seek information
3) Understand options
4) Decide / purchase
5) Evaluate purchase
Conduct
market
research to
understand
your
consumer
segments
and their
needs
Create a need
Make info available
Make product desirable
Make product accessible
Encourage re-purchase
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Copyright Angela Lee, 2012
Co
nsu
mer
Pu
rch
asin
g P
rocess
This week, we’ll learn about the 4 P’s and how they can be used to reach
and influence your consumers
2
Understand
consumer purchasing
process
Identify your
consumers and their
needs
Reach and influence
your consumers
1) Recognize problem
2) Seek information
3) Understand options
4) Decide / purchase
5) Evaluate purchase
Conduct
market
research to
understand
your
consumer
segments
and their
needs
Create a need
Make info available
Make product desirable
Make product accessible
Encourage re-purchase
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Copyright Angela Lee, 2012
Promotion
Product Price
Place
As a marketer, you have to think about 4 Ps as they relate to your
consumers
3
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Copyright Angela Lee, 2012
Product: The
good or service
that fulfills the
consumer’s need
The 4 P’s – Product
4
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The 4 P’s – Product Attributes
5
Product: The
product or service
that fulfills the
consumer’s need
Need
Features
Variations
Quality
Packaging
Design
Experience
Competitors
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The 4 P’s – Product Attributes
6
• What need is the customer is trying to satisfy?
• 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”)
Questions
to ask
Example(s)
Need
In 2006, Nike and Apple created the first shoe
that synced with your iPod
• Receiver in shoe tracked distance ran
• 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
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Copyright Angela Lee, 2012
The 4 P’s – Product Attributes
7
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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The 4 P’s – Product Attributes
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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
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!
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The 4 P’s – Product Attributes
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• What features do you need to satisfy your consumers’ needs?
• 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?
Features
In the mid-2000’s, a site was created called www.hotornot.com. When
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
Questions
to ask
Example(s)
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The 4 P’s – Product Attributes
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• Do I want one product or a variety of products with different features?
• What are the different features to include in each model/variation?
• What are the different consumer segments for each model/variation?
Variations
Questions
to ask
Example(s)
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The 4 P’s – Product Attributes
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The retail space is filled
with examples of
companies that
differentiate between
different product lines
(For Target)
What do you
think are the
impacts on this
to the overall
brand?
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The 4 P’s – Product Attributes
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• Is your product a premium product or a budget product (note that this
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?
Quality
Jetblue has made a name for
themselves by targeting the
budget traveler
Alternatively, Singapore Airlines is
known for their high-touch
customer service and is a premium
airline with premium pricing
Questions
to ask
Example(s)
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The 4 P’s – Product Attributes
13
• How do you want people to use/interact with the product?
• What user experience do you want the consumer to have with the
product?
Design
Winner of Red Dot
Design Award in 2011,
Tapi was a simple way
to turn any faucet into
a water fountain
Questions
to ask
Example(s)
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The 4 P’s – Product Attributes
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• What do you want your packaging to say about your product or target
consumer segment?
• Is your packaging part of the product itself, or simply a delivery
mechanism?
Packaging
Absolut Vodka is known as
much for their packaging as
for the product itself
Contrast that with Grey
Goose, who markets the
quality/taste of their product
(features)
Questions
to ask
Example(s)
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Copyright Angela Lee, 2012
The 4 P’s – Product Attributes
15
• Remember that the product includes the entire experience from
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?
Experience
Nordstrom became famous in
the 90’s for their amazing
customer service
• Lenient return policies
• Staff that went above and
beyond
Questions
to ask
Example(s)
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The 4 P’s – Product Attributes
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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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Copyright Angela Lee, 2012
The 4 P’s – Product Attributes
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• What products exist in the market today that meet the same needs?
What products will be used in association with my product that I need to
think about?
Competitors
Adidas and Polar Electro
created Project Fusion, which
integrates heart rate and speed
and distance monitoring
equipment into sports apparel
Pottery Barn and Benjamin
Moore Paints joined forces to
create a new line of paint
Questions
to ask
Example(s)
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Copyright Angela Lee, 2012
The 4 P’s – Product Attributes
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Sometimes co-
branding with
competitors creates
delicious results!
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Copyright Angela Lee, 2012
Sometimes, it is hard to know where one Product attribute
ends and another begins
19
Product: The
product or service
that fulfills the
consumer’s need
Need
Features
Variations
Quality
Packaging
Design
Experience
Competitors
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Copyright Angela Lee, 2012
Sometimes, it is hard to know where one Product attribute
ends and another begins
20
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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Copyright Angela Lee, 2012
Sometimes, it is hard to know where one Product attribute
ends and another begins
21
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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Copyright Angela Lee, 2012
Sometimes, it is hard to know where one Product attribute
ends and another begins
22
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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Copyright Angela Lee, 2012
Price: The
amount of money
the consumer
pays for the
product
The 4 P’s – Price
23
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Copyright Angela Lee, 2012 24
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
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Copyright Angela Lee, 2012 25
There are four common methods to price a product
Cost Plus
Based on what it
costs to produce
the product plus a
margin (markup)
on top of that cost
Value Based Competition
Based Going Rate
The 4 P’s – Price
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Copyright Angela Lee, 2012 26
There are four common methods to price a product
Cost Plus
Based on what it
costs to produce
the product plus a
margin (markup)
on top of that cost
Value Based Competition
Based Going Rate
The 4 P’s – Price
So if an item costs $100 to produce
And the company wants to make a 50% markup
Then the Price = $150
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Copyright Angela Lee, 2012 27
There are four common methods to price a product
Cost Plus
Based on what it
costs to produce
the product plus a
margin (markup)
on top of that cost
Value Based Competition
Based Going Rate
The 4 P’s – Price
So if an item costs $100 to produce
And the company wants to make a 50% markup
Then the Price = $150
Margin = Price – Cost
Price
33% in our example
Markup = Price – Cost
Cost
50% in our example
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Copyright Angela Lee, 2012 28
There are four common methods to price a product
Cost Plus
This type of pricing is common in:
• Clothing retailers: typically
around 100% markup
• Grocery stores: between 5-30%
markup depending up on the
product category (e.g., produce vs.
junk food)
Value Based Competition
Based Going Rate
The 4 P’s – Price
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Copyright Angela Lee, 2012 29
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
Based upon what
the consumer
values the
product at and
what they are
willing to pay
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Copyright Angela Lee, 2012 30
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
Very common in luxury goods
market where perceived value
often has nothing to do with
tangible costs or product
differentiation
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Copyright Angela Lee, 2012 31
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
The cosmetics industry is
famous for this – often times a $10
and $30 item are manufactured in
the same factory with simply
different labels Lancome Juicy
Tubes: $18
L’Oreal Juice
Gloss: $8
Lancome and Loreal are owned by the same
company and the products are almost identical
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Copyright Angela Lee, 2012 32
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
The pharmaceutical
industry is also well
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
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Copyright Angela Lee, 2012 33
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
Based upon what
your competitors
are charging and
where you want
to be priced
relative to them
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Copyright Angela Lee, 2012 34
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
Airlines and hotels
are industries that
commonly use
competition based
pricing
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Copyright Angela Lee, 2012 35
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
Companies are getting
increasingly savvy about
pricing, using dynamic
pricing models to see real
time how competitors are
pricing and changing prices
by the second
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Copyright Angela Lee, 2012 36
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
Some companies are
even more explicit,
saying they will beat
the competition’s
pricing
Walmart
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Copyright Angela Lee, 2012 37
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
The danger of competition
based pricing is if two
competitor’s start a price war,
both companies could erode
their margins
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Copyright Angela Lee, 2012 38
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
Based upon the
going rate in the
market –
companies have
little control over
that price
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Copyright Angela Lee, 2012 39
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
Going rate is most
common in
commodities
industries (products
were there is little
differentiation
between companies)
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Copyright Angela Lee, 2012 40
There are four common methods to price a product
Cost Plus Value Based Competition
Based Going Rate
The 4 P’s – Price
The way pricing
works in this case is
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)
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Copyright Angela Lee, 2012 41
There are four common methods to price a product
Cost Plus Value Based Competition
Based
Companies will often use more than one method to price
1. For example, Singapore Airlines will see what other
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)
Going Rate
The 4 P’s – Price
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Copyright Angela Lee, 2012
In summary….
42
Reach Identify Understand
There are a number of attributes you have to think of when you are creating a Product
Product: The
product or service
that fulfills the
consumer’s need
Need
Features
Variations
Quality
Packaging
Design
Experience
Competitors
There are four common methods to Price a product
Cost Plus Value Based Competition
Based Going Rate
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Copyright Angela Lee, 2012
Case Write-Up Questions
43
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
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.
Reach Identify Understand