CREATING AND

PRICING
PRODUCTS
GROUP 6:
Alexandra Helen
Cindy Wang
Dheva Delaviansyah
Muhammad Taufiq
 1
CREATING AND PRICING PRODUCTS

Creating and Pricing Products

 BACKGROUND ON PRODUCTS
Product include both physical goods and services that satisfy consumer needs.
Products can be classified as:
(1) convenience products
- widely available to consumers
- purchased frequently
- easily accessible
(2) shopping products
- not purchased frequently
- consumers typically shop around
(3) specialty products
- consider to be special
- consumers make a special effort to purchase
Creating and Pricing Products
 BACKGROUND ON PRODUCTS
 Product Line - a set of related products or services offered by a single firm.

Example: - Coke, Diet Coke, Caffeine-Free Diet Coke, and Sprite (The Coca
Cola Company)
- Pepsi, Diet Pepsi, Mountain Dew, and All-Sport (PepsiCo)
 Product Mix - The assortment of products offered by a firm.

Example: - Quaker State originally focused on motor oil but added windshield
washer fluid, brake fluid, and many other automobile products to its product mix.
- Amazon.com originally focused on selling books, but has added
electronics, toys, music, kitchen products, drugs, and health and beauty products.

Creating and Pricing Products

 DIVERSIFYING THE PRODUCT MIX

 Firms tend to diversify their product mix so that they will not be
completely dependent on one market
 A common diversification strategy is for a firm to diversify
products within its existing production capabilities.
 Example firms: Amazon.com, Ford Motor Company, Apple, IKEA

Creating and Pricing Products

 IMPROVING THE CONVENIENCE OF THE
PRODUCT
 A firm may also
extend its product by
making the product
more accessible and
more convenient to
use or acquire.
 Advances in
technology have
enabled firms to
improve the
convenience of their
products.
Creating and Pricing Products
 PRODUCT LIFE CYCLE

 Introduction
 Growth
 Maturity
 Decline

Creating and Pricing Products

2
IDENTIFYING A
TARGET MARKET

Creating and Pricing Products

 WHAT IS TARGET MARKET?

A group of individuals or organizations with similar traits who

may purchase a particular product.

Creating and Pricing Products

 Consumer Exist for various consumer products and services
(such as cameras, clothes, household item and etc).

markets
Target
Markets Industrial Exist for industrial products that are purchased by
firms (such as plastic and steel).
markets
Creating and Pricing Products
 FACTORS THAT AFFECT THE SIZE OF
A TARGET MARKET
 As time passes, the demand for product changes.
 The following are key factors that affect consumer preferences and therefore
affect the size of the target market:
Demographics
Geography
Economic Factory
Social Values

Creating and Pricing Products

 DEMOGRAPHICS
 The total demand of particular products or services is dependent on the demograpgics, or
characteristic of the human population or specific segments of the population.
 The most relevant is AGE.
 Example : as the population is growing older, consequently, the popularity of sports cars has
declined as customers look for cars that are dependable and safe.

Creating and Pricing Products

 GEOGRAPHY

Example:
 Firms target snow tires to the northern states and surfboards to the east and
west coast of the United States.
Taste are also influenced by geography , example:
 The demand for spicy foods is higher in the southwestern states than in the
other states.

Creating and Pricing Products

 ECONOMIC FACTORS

 As economics condition change, so do consumer preferences.

 During recession, firms may promote necessities rather than speciality
products. in addition, their pricing may be more competitive.
 Interest rates can also have a major impact on consumer demand.
 When the interest rates low, consumer are more willing to purchase goods with
borrowed money.

Creating and Pricing Products

 SOCIAL VALUES

As the social values of consumers change, so do their preferences .

 Example:
The demand of cigarettes and whiskey has declined as consumer have become
more aware of the dangers to health from using these products.

Creating and Pricing Products

 THE USE OF E-MARKETING TO
EXPAND THE TARGET MARKET
 The term e-marketing refers to the use of the internet to execute the design, pricing,
distribution, and promotion of products.
 E-marketing is part of e-commerce
 It offers customers convenience because they can purchase something without going to a store.

Creating and Pricing Products

 3
CREATING NEW PRODUCT
 A new product does not have to represent a famous invention. Most
new products are simply improvements of existing products.
 Some products are created as an addition to the existing product
line, rather than as a replacement for existing products.

Creating and Pricing Products

 USE OF MARKETING RESEARCH TO
CREATE NEW PRODUCTS
 To obtain more insight on what consumers want, firms use
marketing research, which is the accumulation and analysis of data
in order to make a particular marketing decision.
 Marketing research is useful for making product decisions.

Creating and Pricing Products

HOW E-MARKETING COMPLEMENTS
MARKETING RESEARCH
Firms can use the Internet for marketing research in several ways :
 A customer service e-mail system
 Request feedback about a particular product
 Send out samples of product

Creating and Pricing Products

STEPS NECESSARY TO
CREATE A NEW PRODUCT
Assess the Distribute and
Design and test Post-audit the
Develop a product idea feasibility of a promote the
the product product
product idea product

Creating and Pricing Products

 1. DEVELOP A PRODUCT IDEA

 If the focus is on improving an existing product, the idea already exists, and
the firm simply attempts to make it better
 If developing an entirely new product, a common method is to identify
consumer needs or preferences that are not being satisfied by existing products
 Identifying consumer preferences so as to improve a product or create a new
product may involve monitoring consumer behavior

Creating and Pricing Products

 2. ASSESS THE FEASIBILITY OF A
PRODUCT IDEA
 Any idea for a new or improved product should be assessed by estimating the
costs and benefits
 Example : American Airlines removed some seats to better satisfy customers
by providing more leg room.

Creating and Pricing Products

 3. DESIGN AND TEST THE PRODUCT
 The new product may be tested before being fully implemented
 Example : an airline such as American Airlines may first revise its seating
structure in a few planes to determine consumer reaction

Creating and Pricing Products

 4. DISTRIBUTE AND PROMOTE THE
PRODUCT
 New or improved products are introduced to consumers through
various marketing techniques
 Example : an airline that widens its seats may advertise this feature
in the media.

Creating and Pricing Products

 5. POST-AUDIT THE PRODUCT

 The actual costs and benefits should be measured and compared with the costs
and benefits that were forecasted earlier whether the cost-benefit analysis was
reasonably accurate
 The post-audit of costs and benefits can be used for future development of the
same product
 Example : if the actual costs of improving the airplanes outweigh the benefits,
the airline may revert to its original product design when new airplanes are
needed.

Creating and Pricing Products

 4
PRODUCT DIFFERENTIATION
Effort a firm makes to distinguish its product and services from competitors and make it
more desirable by customers
 Quality
 Selection
 Unique product or service design
 Unique packaging
 Unique branding
 Family versus individual branding
 Producer versus store brands versus generic brands
 Co-branding - recent trend

Creating and Pricing Products 12–26

UNIQUE PRODUCT DESIGN
In which the product produced is safer, more reliable,
easier to use, or has some other advantages

Creating and Pricing Products

DIFFERENTIATING THE
DESIGN OF A SERVICE
Most services can be
differentiated by timing and
efficiency

Creating and Pricing Products

UNIQUE PACKAGING
Packaging to get consumers’ attention or to
improve convenience.

Creating and Pricing Products

 UNIQUE
BRANDING
Using the firm’s image to gain
credibility, or using a unique
brand name to imply prestige.

Producer versus Family versus

Store Brands Individual
Branding

Creating and Pricing Products

PRODUCER BRAND VS. STORE BRANDS

Producer brands reflect the Store brands reflect the

manufacturer of the products. retail store where the

products are sold.

Creating and Pricing Products

FAMILY Family branding is the Individual branding assign

BRANDI branding of all or most

products produced by a
a unique brand name to

NG
different products or groups
company.
of products.

VS.
INDIVI
DUAL
BRANDI
NG Creating and Pricing Products
 BENEFITS OF BRANDING

 Exposes a company’s name to the public

 If company is respected, new products might be trusted because of the brand
name
 Assist in entering new product and geographic markets
 Helps to differentiate when there are only a few brands available
 Helps gain access to shelf space

Creating and Pricing Products 12–33

 5
PRICING STRATEGIES
 Attempt to set prices that will maximize the firm’s value - Prices charged
impacts revenues and profitability
 Pricing considerations – Productions costs per unit + mark-up (cost-based
pricing), supply of inventory, competitors’ prices

Creating and Pricing Products

 PRICING STRATEGIES
 Consider competitors’ prices
 Penetration pricing
 Lower price than competitors to penetrate the market
 Most effective when demand is price elastic
 Defensive pricing
 Reduce price to defend or retain market share
 Predatory pricing
 Lower price to drive out competitors
 Prestige pricing
 Use high price to signal top-of-the-line product

Creating and Pricing Products

 PRICING EXAMPLE

 Hot dog vendor in New Orleans

 Rent hot dog cooker for $4000 a year (a fixed cost that doesn’t depend on volume of hot dogs sold)
 Cost for hot dogs, buns, ketchup, etc. are $.60 per hot dog (variable costs that depend on volume of
hot dogs)
 Other vendors charge $2.00 each, you charge $1.80
 Forecast that you can sell 20,000 hot dogs if you have a competitive price
 Identify the break-even quantity

Creating and Pricing Products

ESTIMATION OF COSTS AND REVENUE
AT VARIOUS QUANTITIES PRODUCED

Creating and Pricing Products

 ESTIMATION OF COSTS AND REVENUE AT
VARIOUS QUANTITIES PRODUCED (CONT’D)

Creating and Pricing Products

BREAKEVEN QUANTITY EXAMPLE

Fixed Costs
BEQ 
Price - Variable Costs Per Unit

$4,000
BEQ 
$1.80 - .60

BEQ  3,334 hot dogs

Creating and Pricing Products

 OTHER PRICING DECISIONS

 Offering special discounts

 Senior citizens, students, online buyers
 Periodic sale prices
 Some customers will only buy products if they are on sale
 Credit terms for specific customers
 Business customers (2/10 net 30)
 Credit card payments
 Retailer credit card

Creating and Pricing Products

 ADDITIONAL PRICING DECISIONS

In addition to setting a price for each product, firms need to make these
other pricing decisions:

1. Discounting
 Which involves deciding whether to give discounts to specific
customers.
 Example : restaurants and hotels often offer discounts for senior
citizens, magazines offer student discounts on subscriptions, etc.

Creating and Pricing Products

2. Sales Prices

Which entails deciding whether to put some products on sale for all customers
periodically, and what the sales price should be.

Stores normally put high prices on many products, such as televisions and
shoes, to allow for a major reduction in the prices when the products are on
sale. Since most consumers recognize that these products may soon be priced
at a 20 to 40 percent discount, they tend to purchase these products only when
they are on sale.

Creating and Pricing Products

3. Credit Terms
 Which involves deciding whether to provide credit to large customers that buy

the product in bulk, and what the credit terms should be.

 Firms can encourage their customers to pay off their credit by offering a

discount.

 Example : the terms “2/10 net 30” indicate that a 2 percent discount can be

taken if the bill is paid within 10 days and that the bill must be paid in full
within 30 days.

Creating and Pricing Products

Creating and Pricing Products