Product Design
Pricing and Strategies
2
Chapter Objectives
Differentiate between a product item and
product line.
Classify products as consumer goods or business
goods.
Explain the seven steps in developing a new product.
Identify the stages in a product’s life cycle.
Define price and the role it plays in determining profit.
Describe the factors that affect pricing decisions.
Identify pricing strategies.
3
Product Defined
A specific model of athletic
shoe would be called a
product item.
The entire group of a
manufacturer’s athletic
shoes would be called a
product line.
product item specific
model or size of a
product
VS.
4
Product Defined
Products can be classified
as consumer goods or
business goods.
consumer goods goods
purchased and used by
the ultimate consumer for
personal use
Products need to have a
point of difference.
business goods goods
purchased by
organizations for use in
their operations
point of difference a
unique product
characteristic or benefit
that sets it apart from a
competitor
5
Steps in New Product
Development
The seven steps in new
product development are:
1. SWOT analysis (strengths,
focus group a panel of
six to ten consumers who
discuss opinions about a
topic under the guidance
of a moderator
weaknesses, opportunities,
and threats)
2. Idea generation
3. Screening and evaluation
– Focus group
continued
6
continued
Steps in New Product
Development
4. Business analysis
5. Development
commercialization
process that involves
producing and marketing
a new product
6. Test marketing
7. Commercialization
7
Product Life Cycle
The four stages in the product life cycle are:
Growth
Maturity
Product Life Cycle
Introduction
Decline
Not all products fit the life-cycle pattern.
8
Management of the
Product Life Cycle
The three ways to manage
the product life cycle are:
Modifying the product.
Marketing the product.
Repositioning the
product.
repositioning changing
a product’s image in
relation to a competitor’s
image
9
E-Trading Collectibles
A box of baseball cards may not be
Operating an e-tail business
an electronic
worth theon
price
of college channel—the
tuition
Web—can be costly,anymore,
due to design,
delivery,
returns, bull
and
because
the so-called
operating expenses.market for sports collectibles peaked
in the 1990s. Lower demand has
Though Many larger dot-com companies crashed in the
caused
lower
prices.
the
latest hot
itemsNewton,
are
1990’s,
small
storesHowever,
like Harris
Cyclery
of West
autographs
from Hall
of Famers—and
top using
players
who don’t
Massachusetts,
actually
increase sales
a basic
Web
often
baseballs,
photographs,
jerseys,
or bats.
You
site.sign
Today,
a third of
Harris’s bicycle
business
rides
in can
on
find
bidtoon
these
curios atparts
collectibles
Web sites,
theand
Web
get
hard-to-find
and personal
service.
including eBay—but be sure to get authentication when you
Describe
an e-business’s
home
page toMantle.
your class after
score
that vintage
ball signed
by Mickey
viewing
one throughon
marketingseries.glencoe.com.
For
more information
sports and entertainment marketing,
go to marketingseries.glencoe.com.
10
1.
Explain the seven steps involved in
developing a new product.
2.
Name the four stages in the product
life cycle.
3.
What three things can be done to manage a
product through its life cycle?
11
Pricing
Price is important in a
business because it helps
determine a company’s
profit or loss.
price the value placed
on goods or services
being exchanged
Price plays a significant role
in the marketing mix.
12
Determining Profit
Subtract the cost of goods sold and the company’s
expenses from the money it generated in sales revenue.
1,000
baseball
bats sold
$175 each
=
$175,000
revenue
-
$90,000 to
purchase
the bats
-
$60,000
in business
expenses
=
$25,000
Profit
$90 each
13
Pricing Considerations
and Strategies
Three types of pricing
strategies are:
Prestige pricing
Odd-even pricing
Target pricing
prestige pricing pricing
based on consumer
perception
odd-even pricing
pricing goods with either
an odd number or even
number to match a
product’s image
target pricing pricing
goods according to what
the customer is willing
to pay
14
Pricing Considerations
and Strategies
Other pricing considerations
include:
Demand
Cost
– Markup
– Cost-plus pricing
Newness of the product
Competition
– Non-price competition
markup difference
between the retail or
wholesale price and the
cost of an item
cost-plus pricing
pricing products by
calculating all costs and
expenses and adding
desired profit
non-price competition
competition between
businesses based on
quality, service, and
relationships
15
QS
Price
QD
Quantity
Pricing Objectives and
Strategies
Pricing objectives and
strategies include:
Profit objective
Market share objective
Special pricing
–
–
–
–
Price lining
Bundle pricing
Loss-leader pricing
Yield-management pricing
– Tiered pricing
market share the percentage of
the total sales of all companies
that sell the same type of product
price lining selling all goods in
a product line at specific price
points
bundle pricing selling several
items as a package for a set price
loss-leader pricing pricing an
item at cost or below cost to draw
customers into the store
yield-management pricing
pricing items at different prices to
maximize revenue when limited
capacity is involved
17
Price Adjustments and
Regulations
Manufacturers will offer discounts in the following
situations:
Buying in large quantities
Buying prior to the buying season
Allowances are reductions taken from the quoted
price. One type of allowance is a trade-in.
18
Price Adjustments and
Regulations
The Sherman Anti-Trust Act
prohibits price fixing and
predatory pricing.
price fixing an illegal
practice whereby
competitors conspire to
set the same price
Price discrimination was
originally prohibited by the
Clayton Act and later by the
Robinson-Patman Act.
19
1.
How is pricing related to profit and the
marketing mix?
2.
List five factors that affect price decisions.
3.
What are two common pricing objectives
and special pricing strategies?
20
Checking Concepts
1. Explain the difference
between product item
and product line.
2. Name the ways products
can be defined and
classified.
3. Explain the seven steps
used in developing a new
product.
continued
1. Products
2.
3.
SWOT
A
product
analysis,
can
itembe
is a
specific
classified
idea generation,
model
as or
size
consumer
screening
of a product;
goods
and or
a
product
business
evaluation,
line
goods.
is a
group
Products
business
of closely
are
analysis,
related
goods,
development,
services,
products
test
or
that
ideas
marketing,
are
that
sold
satisfy
and
by a
company.
consumer
commercialization
needs;
products
are the seven
can be
tangible
steps. (goods) or
intangible
(services).
21
Checking Concepts
4. Identify the four stages
in a product’s life cycle.
5. Define price.
6. Explain how price
determines a company’s
profit.
7. Identify the factors that
may influence pricing
strategies.
continued
4. Every
5.
6.
7.
Pricing
The
Price
stages
isitem
strategies
defined
sold
are as
the
carries
are
introduction,
value
influenced
a price.
placed
by
The
on
goods
number
consumer
growth,ormaturity,
ofservices
items
being
sold
perception,
and decline.
times
exchanged.
the price
equals sales
demand,
cost,
revenue.life
product
The
cycle
amountand
stage,
of profit
equals costs
competition.
subtracted from
price.
22
Checking Concepts
Critical Thinking
8. Define and compare
markup and cost-plus
pricing.
8. Markup is the
difference between the
retail or wholesale
price and the cost of an
item. Cost-plus pricing
involves calculating all
costs and expenses
and adding desired
profit to arrive at a
price. In a sense,
markup is the profit
component in cost-plus
pricing.
23
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