Chapter 5: Product & Price
Decisions—Sports
Marketing Principles
Mrs. Ingram
2014-2015
Section 1: Product Design
Product
• Product Defined
– Products are one of the MOST essential
components in the marketing mix.
• Tangible Products- goods
• Intangible Products- services
Product Item and Line
• Product Item
– A specific model or size of a product.
• Nike Air Basketball Shoe
• Product Line
– A group of closely related products that are sold by
a company.
• 3 product lines- athletic clothing, athletic footwear,
sports equipment.
Product Classification
• Consumer Goods
– purchased and used by the ultimate consumer for
personal use.
• Business Goods
– purchased by organizations for the use in their
operation.
Point of Difference
• Unique product characteristics or benefits that
set the product apart from a competitor's
product.
Steps in New Product Development
• Step 1- SWOT Analysis
– In the marketplace:
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Strengths
Weaknesses
Opportunities
Threats
Steps in New Product Development
• Step 2—Idea Generation
– New product ideas
• Sources:
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Consumers
Employees
Research & Development Department
Competitiors
Steps in New Product Development
• Step 3—Screening and Evaluation
– Screen and evaluate new product idea.
– Technology needed to meet objectives.
– Focus Group (group feedback): panel of six to ten
consumers who discuss their opinions about a
topic. (moderator)
Steps in New Product Development
• Step 4—Business Analysis
– Financial aspects of making and marketing the
product reviewed.
Steps in New Product Development
• Step 5—Development
– Prototype- the first model of the product.
• Test production capabilities (produced at a reasonable
cost)
• Complex technical problems
• Standards for quality and safety
Steps in New Product Development
• Step 6—Test Marketing
– Tested in the marketplace
– Offer product for sale in small geographical area
– Test all aspects of the marketing mix
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Product
Price
Place
Promotion
– (helps project sales and market share)
– Competitors- run test market by flooding
geographical area with promotions.
Steps in New Product Development
• Step 7—Commercialization
– Process that involves producing and marketing a
new product.
• Product offered in the marketplace.
Product Life Cycle
Introduction
Decline
Growth
Maturity
Product Life Cycle
• Introduction
– Product first introduced into the marketplace.
– Promote customer awareness.
– Advertising & promotion.
– Skimming pricing
• product price is high to cover research and
development.
– Penetration pricing
• price is low in comparison to a competitor product to
quickly generate demand.
Product Life Cycle
• Growth
– More competitors enter the marketplace if they see
new products succeed.
– Add new features or products to a line.
– Add distribution outlets.
Product Life Cycle
• Maturity
– Sales begin to slow down for the product category
or just the product.
– Keep the product alive.
• Make change to the product.
• Identify new layers.
Product Life Cycle
• Decline
– When sales and profits drop.
– What happens
• Drop product from the line.
• Keep and get little or no support (only kept to satisfy
loyal customers)
Product Life Cycle Considerations
• Fads
– Products that become popular quickly and lose
popularity just as quickly.
• Examples????
Management of the Product Life Cycle
1. Modify the product.
2. Market the product.
3. Reposition the product.
Product Modification
• Changing the products characteristics.
– Features
– Appearance
– Package
– Design
– Quality
• Examples of products that have been modified?
Market Modification
• Find new customers or encourage current
customers to use more of the product.
– Gatorade introduced a new version of its product
(Gatorade Frost) to target a new market.
• Gatorade Frost Target- people in a hot environment.
• Regular Gatorade Target- athletes specifically
Repositioning
• Changing a product’s image in relation to it’s
competitor's image.
– Changing any of the 4 P’s.
• New Balance redesigning its athletic shoes for older
people who have wider feet and often have foot
problems.
Section 2: Pricing & Strategies
Pricing
• Price- the value placed on the goods or
services being exchanged.
Pricing & Profit
• Price determines a company’s profit or loss.
• Number of items x sales price = profit or loss
– 1,000 bates sold @ $175 each = $175,000.
– The company purchased each baseball bat @ $90 each.
Cost of goods sold would be $90,000. Expenses for
running the business is $60,000. Business earned a
profit of $25,000. ($175,000-$150,000= $25,000)
Pricing & The Marketing Mix
• All of the 4 P’s must be directed towards the
target market.
– What is the customer in the target market willing
to pay?
– Market must price the product correctly to fit the
target market’s pocketbook.
• Ex: Roller Skates- Lower Price (Target & Wal-Mart)
High Price (specialty shops)
Pricing Considerations & Strategies
• Consumer Perception
– Higher the price, the better quality of item.
• Marketers price high to attract customer with this perception.
– Prestige pricing- pricing based on consumer perception.
– Odd-even pricing- pricing goods with either an odd or even
number to match a product’s image.
• Odd- $25.99
• Even- $100 (more expensive)
– Target Pricing- pricing goods according to what the
customer is willing to pay.
Demand
• Product with high demand and limited supply the
price is high.
– Ex: Concert Tickets
• High supply of a product and low demand the
price is low.
• Elastic demand- change in price will affect
demand.
Demand
• 4 situations when price has no effect on
demand:
– Product is a necessity
– There are no substitutions
– Price increase is not significant to the customer's
income
– Time restraints
Cost
• Price must be higher than the cost a business paid
for it.
• 2 pricing strategies related to cost:
1. Markup- difference between the retail or wholesale
price and the cost of an item. *must be high enough
to cover expenses and ensure profit. (see pg. 110)
2. Cost-plus pricing- pricing products by calculating all
costs and expenses and adding desired profit. (see pg.
110)
Newness of the Product
• 2 Options from Marketers:
1. Price item high to recover the costs of
development.
2. Price lower to create immediate demand for the
product. (penetration pricing)
• What are the risks of each???
Competition
• Non-price competition- competition between
businesses based on quality, service, and
relationships.
– Better quality than competitors’ products- higher
price
– Offer special services- higher price.
– Customer Loyalty- higher price
Pricing Objectives and Strategies
• Profit Objective:
– Earn Higher Profit
• Market Share Objective:
– Market Share- the % of the total sales of all
companies that sell the same type of product.
Pricing Objectives and Strategies
• Special Pricing Strategies:
1. Price Lining- selling a good in a product line at a specific
price point.
2. Bundle Pricing- selling several items as a package for a
set price.
3. Loss-Leader Pricing- pricing an item at cost or below
cost to draw customers into the store.
4. Yield-Management Pricing- pricing items at different
prices to maximize revenue when limited capacity is
involved.
Price Adjustments & Regulations
• Discounts & Allowances
– Used to change a published price.
– Discount for large quantities or prior to buying
season.
– Allowances- reductions taken from the quoted
price. (trade-in car)
Regulatory Factors
• The Sherman Anti-Trust Act:
– Prohibits price fixing and predatory pricing.
• Price-Fixing:
– Illegal practice whereby competitors conspire to set the
same prices.
• Predatory Pricing:
– Setting a very low price to drive competitors out of
business.
• **Both restrict competition and are illegal**
Regulatory Factors
• Clayton Act/Robinson-Patman Act
– Prohibits price discrimination.
• Price Discrimination
– The practice of charging different prices to similar
buyers.