Product decisions Pricing decisions
What is a Product?
A Product is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. Includes:
Physical Objects Services Events Persons Places Organizations Ideas Combinations of the above
Identifying a product from its competitors product is called product differentiation. A company differentiate the Product by features, performance, style and design. Generally companies can differentiate their products on such attributes as Consistency Durability Reliability Repairability
What is Branding?
A Brand is a name, term, sign, symbol or design, or a combination of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors Helps:
To identify products that might benefit them Tell the buyer something about product quality, features and benefits Provide legal protection for unique product features Helps the seller to segment markets.
This Land-O-Lakes ad shows the depth of the brand.
Consistency Consistency Quality & Value Quality & Value
Advantages Advantages of of Brand Names Brand Names Brand Brand Equity Equity
High Brand High Brand Loyalty Loyalty Name Awareness Name Awareness
Strong Brand Strong Brand Association Association
Perceived Quality Perceived Quality
Major Branding Decisions
Brand Name Selection Brand Name Selection
Selection Selection Protection Protection
Manufacturer’s Brand Manufacturer’s Brand Private Brand Private Brand Licensed Brand Licensed Brand Co-branding Co-branding
Brand Sponsor Brand Sponsor
Brand Strategy Brand Strategy
Line Extensions Line Extensions Brand Extensions Brand Extensions Multibrands Multibrands New Brands New Brands
Four Brand Strategies
Product Category Existing Existin g New
Line Extension Dannon Yogurt Flavors
Brand Extension Barbie Electronics
Multibrands New Brands Seiko Lasalle & Pulsar Windex (by acquisition)
New brand names in new product categories. and flavors of an existing product category.Brand Strategy
Existing brand names extended to new forms. Existing brand names extended to new or modified product categories. New brand names introduced in the same product category. sizes.
New Product Decisions
Product Quality Product Features
Product style and Design
Branding & Packaging
Labeling & Product Support Services
or the sum of the values that consumers exchange for the benefits of having or using the product or service.setting one price for all buyers Dynamic price-charging different prices depending on individuals customers and situations.What is a Price?
The amount of money charged for a product or service.
. Fixed price.
Price has been the major factor affecting buyer choice. nonprice factors have become increasingly important in buyer-choice behavior.Price
Price is the sum of all the values that consumers exchange for the benefits of having or using the product or service.
. all others represent costs. Price is the only element in the marketing mix that produces revenues.
government) resellers. resellers. government)
.Factors Affecting Price Decisions
Internal Factors Internal Factors
Marketing Objectives Marketing Objectives Marketing Mix Strategy Marketing Mix Strategy Costs Costs Organizational Organizational considerations considerations
External Factors External Factors Pricing Pricing Decisions Decisions
Nature of the market Nature of the market and demand and demand Competition Competition Other environmental Other environmental factors (economy. factors (economy.
. Product Quality Leadership High Prices to Cover Higher Performance Quality and R & D.Internal Factors Affecting Pricing Decisions: Marketing Objectives
Survival Low Prices to Cover Variable Costs and Some Fixed Maximization Current Profit Costs to Stay in Business.
Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Choose the Price that Produces the Maximum Current Profit.
Internal Factors Affecting Pricing Decisions: Marketing Objectives
Other specific objectives include:
Set prices low to prevent competition from entering the market. 14
Nonprofit and public organization may have other pricing objectives such as:
University aims for partial cost recovery. Prices might be reduced temporarily to create excitement or draw more customers. Theater may price to fill maximum number of seats. Hospital may aim for full cost recovery.
Internal Factors Affecting Pricing Decisions: Marketing Mix
Types of Cost Factors that Affect Pricing Decisions
Costs that don’t vary with sales or production levels. Rent
Fixed Costs (Overhead)
Costs that do vary directly with the level of production. Raw materials
Total Costs Total Costs Sum of the Fixed and Variable Costs for a Given Sum of the Fixed and Variable Costs for a Given Level of Production Level of Production
. Executive Salaries.
distributing and selling the product and delivers a fair rate of return for its effort and risk.Cost
The company wants to charge a price that both covers all its costs for producing.
sales people may be allowed to negotiate with customers within certain price ranges. Some times top management sets pricing objectives and policies which has to approved by lower level/sales people
In small companies.top management decides pricing In large companies.pricing is handled by divisional or product line managers In industrial markets.
Why is LCI focusing on this practice? Hidden fees. hiding fees incurred by rounding up. Prices. are the number one source of billing complaints among long-distance customers.
Economic Conditions Reseller Needs Government Actions Social Concerns
. and Offers Other External Factors
This ad by LCI International accuses its competitors of using unfair practices in pricing.External Factors Affecting Pricing Decisions
Market and Demand Competitors’ Costs. defined as “cramming” by the FCC.
Market and Demand Factors Affecting Pricing Decisions
Pricing in Different Types of Markets
Many Buyers and Sellers Many Buyers and Sellers Who Have Little Who Have Little Effect on the Price Effect on the Price
Pure Competition Pure Competition
Pure Monopoly Pure Monopoly
Single Seller Single Seller
Many Buyers and Sellers Few Sellers Who Are Many Buyers and Sellers Few Sellers Who Are Who Trade Over a Sensitive to Each Other’s Who Trade Over a Sensitive to Each Other’s Pricing/ Marketing Pricing/ Marketing Range of Prices Range of Prices Strategies
Monopolistic Monopolistic Competition Competition
Oligopolistic Oligopolistic Competition Competition
Price Elasticity Refers to How Responsive Demand Will be to a Change in Price.
Price Elasticity of Demand = % Change in Quantity Demanded % Change in Price
.Demand Curves and Price Elasticity of Demand
A Demand Curve is a Curve that Shows the Number of Units the Market Will Buy in a Given Time Period at Different Prices that Might be Charged.
Elastic Demand Demand Changes Greatly With a Small Change in Price.
Quantity Demanded per Period B. P’
P’1 Q2 Q1
Quantity Demanded per
.Price Elasticity of Demand
P2 P1 Q2 Q1
A. Inelastic Demand Demand Hardly Changes With a Small Change in Price.
Major Considerations in Setting Price
o t c a F s r
Simples t Pricing Method
Ignores Current Demand & Competitio n
Certainty About Costs
Price Competition Is Minimized Much Fairer to Buyers & Sellers
p x e n U e t c e d t a u t i S l a n o i
Pricing is Simplified
Cost-Plus Ethical Pricing is an Approach That Adds a Standard Markup to the Attitudes Costof the of Others Product.
Sales Volume in Units (thousands)
.Breakeven Analysis or Target Profit Pricing
Tries to Determine the Price at Which a Firm Will Break Even or Make a Certain Target Profit.
Cost in Dollars (millions)
12 10 8 6 4 2 Total Revenue
Target Profit ($2 million)
Total Cost Fixed Cost
Cost-Based Versus ValueBased Pricing
(Adding a std markup to the cost of the product)
Cost-Based Pricing Product Product Cost Cost Price Price Value Value Customers Customers
(Setting price based on buyers perception of value rather than on the sellers’ cost)
Value-Based Pricing Customer Customer Value Value Price Price Cost Cost Product Product
Company Sets Prices Based on What Competitors Are Charging.
? Company Sets Prices Based on ? What They Think Competitors Will Charge
But Results in Fewer. More Profitable Sales. Competitors Shouldn’t be Able to Enter Market Easily and Undercut the High Price. Results in Fewer. Costs Can’t be so High that They Cancel the Advantage of Charging More.
. Target Market.
Use Under These Conditions:
Product’s Quality and Image Must Support Its Higher Price.New Product Pricing Strategies
Market Skimming Market Skimming
Setting a High Price for Setting a High Price for a New Product to a New Product to “Skim” Maximum “Skim” Maximum Revenues from the Revenues from the Target Market. But More Profitable Sales.
Must Keep Out Competition & Maintain Its Low Price Position or Benefits May Only be Temporary.
. Production/ Distribution Costs Must Fall as Sales Volume Increases. Larger Market Share. Attract a Large Number Attract a Large Number of Buyers and Win a of Buyers and Win a Larger Market Share. Deeply.
Setting a Low Price for Setting a Low Price for a New Product in Order a New Product in Order to “Penetrate” the to “Penetrate” the Market Quickly and Market Quickly and Deeply.New Product Pricing Strategies
Use Under These Conditions:
Market Penetration Market Penetration
Market Must be Highly Price-Sensitive so a Low Price Produces More Market Growth.
.Product Mix-Pricing Strategies:
Product Line Pricing
Involves setting price steps between various products in a product line based on:
Cost differences between products. Customer evaluations of different features. and competitors’ prices.
film. Pricing products that must be used with the main product.Product Mix. i.Pricing Strategies
Pricing optional or accessory products sold with the main product. i.e.
.e camera bag.
Combining several products and offering the bundle at a reduced price.e. theater season tickets.e. i. i.Product Mix.
Pricing low-value by-products to get rid of them and make the main product’s price more competitive. sawdust.
Discount and Allowance Pricing
A d j u F
C Q F u u n a s h a n
t i n g B a s i c P r i o r C e r t a i n R e s
D t i t y n i s cS o eu ans to n a l A D l l
D T i sr ac do eu .n I n t
c t i o
a P l r D o i ms c o o t ui o n n t a l
C P u
l l i n h o u
s r o t o d u m
e c t rL
r o d u c T h e r e
ae t g i om n re m P
.T F i mo
. price is used to say something about a product. 00 Sale $14 . Price becomes an important quality signal when customers can’t judge quality. Customers use price less when they can judge quality of a product.Psychological Pricing
Considers the psychology of prices and not simply the economics.
Loss Leaders Loss Leaders Special-Event Pricing Special-Event Pricing Cash Rebates Cash Rebates Low-Interest Financing Low-Interest Financing Temporarily Pricing Products Below List Price to Increase Short-Term Sales Through:
Longer Warranties Longer Warranties Free Merchandise Free Merchandise Discounts Discounts
Other Price Adjustment Strategies
Adjusting Prices to Account
for the Geographical Location of Customers. • Adjusting Prices for International Markets. Zone Pricing.e. • Price Depends on Costs. Consumers. & Freight-Absorption. Economic Conditions. FOB-Origin. UniformDelivery. Basing Point. • i. Competitive
Initiating Price Changes
Why? Excess Capacity Falling Market Share Dominate Market Through Lower Costs
Why? Cost Inflation Overdemand: Company Can’t Supply All Customer’s Needs
Reactions to Price Changes
Price Cuts Are Seen by Buyers Competitors Reactions When: As: Number of Firms is Number of Firms is Being Replaced by Being Replaced by Small Small Newer Models Newer Models Current Models Are Current Models Are Not Selling Well Not Selling Well Company is in Company is in Financial Trouble Financial Trouble Quality Has Been Quality Has Been Reduced Reduced Price Comes Down Price Comes Down Further Further
Product is Uniform Product is Uniform Buyers are Well Buyers are Well Informed Informed
Assessing/Responding to Competitor’s Price Changes
Discriminatory Price-fixing Price-fixing Pricing Predatory Pricing Deceptive Pricing
Price-fixing Price-fixing Predatory pricing Predatory pricing
Manufacturer B Manufacturer B
Retailer 2 Retailer 2
.Public Policy Issues in Pricing
Manufacturer A Manufacturer A
Retailer 1 Retailer 1
Retail price maintenance.
Public Policy Issues in Pricing
Pricing Within Channel Levels Pricing Within Channel Levels
Price Price Fixing Fixing
Predatory Predatory Pricing Pricing
Pricing Across Channel Levels
Price Price Discrimination Discrimination Ensure Sellers Ensure Sellers Offers the Offers the Same Price Same Price Terms to a Terms to a Given Level Given Level Of Trade Of Trade Resale Price Resale Price Maintenance Maintenance Manufacturer Manufacturer Can’t Require Can’t Require Dealers to Dealers to Charge a Charge a Specified Retail Specified Retail Price for Its Price for Its Product Product Deceptive Deceptive Pricing Pricing Occurs When a Occurs When a Seller States Seller States Prices or Prices Prices or Prices Savings that Savings that Available Available To Consumers To Consumers