Marketing Principles
Product, Price, Promotion &
Place
Oct 16th, 2009
Learning Outcomes – Be aware of the following
(over 2 to 3 lectures)
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7 Ps of The Marketing Mix
Product Decisions
Designing Pricing programmes
IMC
+ Promotion
Decisions
Place – Phys. Dist + Marketing Channel
(2 aspects to mkt. channel – phys.
Distribution structure and marketing
programmes)
Direct + Online Marketing
(Integrated Marketing Communications)
What is a Product?
Pg 235, Chap 8 of book
Product – The goods and service combination offered by a
company to its target market. It includes tangible and intangible
attributes.
Managing the Product Portfolio
o All of the products a company markets can be
thought of as its product mix – the full
range of products on offer
o A group of related items in a company’s
product portfolio constitutes a product line.
o Product mix width- the number of different
product lines a company offers.
o Product mix depth- the number of brands
within each product line.
Source: Marketing Principles and Best Practices (2005) K. Douglas Hoffman, Michael R. Czinkota, Peter R. Dickson,
Patrick Dunne, Abbie Griffin, Michael D. Hutt, Balaji C. Krishnan, , Robert F. Lusch, Illka A. Ronkainen
3rd Edition
Product Mix: GlaxoSmithKline
Source: http://www.gsk.com/products/consumer_healthcare\trademarks.htm, copyright © 2005 GlaxoSmithKline.
Product Line
Extension
Adding
additional
products to an
existing product
line in order to
compete more
broadly in the
industry.
Symptoms of Overextension
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Low Sales in
some products
Cannibalisation
Items have
become obsolete
because of new
product entries
Resources are
disproportionately
allocated to slowmoving products
Multiple Product Lines
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Companies that offer multiple product
lines enjoy numerous benefits:
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Protection against competition
Increase growth and profits
Offset sales fluctuations
Achieve greater impact
Enable economical resource usage
Avoid obsolescence
New Product Development
Types of New Products
1. “New-to-the-World” products- products
that create an entirely new market –
Rubix Cube, Quorn
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These products are the riskiest of all
but present enormous profit potential
because they represent monopoly
opportunities.
New Product Development
Most New Products tend to be:
2.
3.
4.
Product improvements: PS3 & Xbox –
wireless & graphics
Line Extensions (additions to existing
lines) – Big Al’s BBQ Grill
New product lines (new to the company
but not to the market) – Nestle Cereal
Bars (too late?), Caterpillar Clothing –
Jeep Mountain Bikes!
New Product Development
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Developing new products is time- and
resource-consuming,
Must be careful – Failure is common even
for Giants – Mach Razors, Levis Suits, New
Coke
Make best decisions before the product
reaches channel members and final
consumers.
The silver bullet - the perfect product
development project that achieves high
levels of success on all three dimensions –
Diet Coke.
The New Product Development
Process
Idea generation
Product development
Idea screening
Test marketing
Concept testing
Commercialisation
Business analysis
Monitoring and
evaluation
Reasons for product failure:
1. Failure to provide an advantage or
performance
improvement to
customers over products
already available in the market –
Pepsi AM,
Maxwell Ready to
Drink Coffee (couldn’t use container).
2. Marketing effort lacks necessary
distribution channels (virgin Cola),
promotion and selling practices, or
pricing policies and the product may
be targeting a group the firm has
never marketed to before.
Packaging
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(1 slide)
Packaging performs a number of
essential functions:
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Protection
Identification
Information
Packaging to enhance usage
Packaging to enhance disposal
Packaging to enhance channel acceptance
Managing Products through their Life Cycles
Introductory Stage
Introductory strategies
 Rapid Skimming.
 Slow Skimming.
 Rapid Penetration.
 Slow Penetration.
Introductory Stage
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Competitive and market conditions in
the introductory stage
Sales – low.
Costs- substantial
Profits – negligible – even negative.
Cash flow – negative.
Customers – innovative – early
adopters.
Competitors – few or non-existent.
Growth
Characterised by
 rapidly increasing product demand,
 new market entrants
 rapidly increasing profits
 Early adopters & additional customers are
purchasing
 Price stabilises or falls
 Promotional expenditure remains constant
with eventual decline due to offset
against increased sales
Maturity
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Sales initially increase but at a slower rate
as market becomes saturated and as
competitive pressures reach their peak.
Sales and profits typically decline in the
latter half of the maturity stage.
Even if new users are found and usage
rates are increased, product sales may
eventually start a long-term decline, as
when a substitute product that offers a
superior set of benefits displaces the “old”
product.
Maturity
Competitive and Market Conditions in
Maturity Stage:
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Sales slows.
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There are 3 phases of maturity: growth,
stable and decline.
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Sales possible only by population growth
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The longest stage of the life cycle.
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Majority of products are in this stage.
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Greatest numbers of competitors.
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Intense rivalry and overcapacity.
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Marketing effort - focused on early
majority and late majority customers.
Decline
Sales decline happens due to:
 Technological advances (word processor,
Polaroid)
 Shifts in consumer tastes (Ovaltine,
Yardley Cosmetics)
 Increased competition
 These factors = increased price cuts and
profit erosion
 Decline can be slow (sewing machines) or
fast (floppy disks)
Decline
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Decline can be reversed – VW
Beetle, Lucozade (Medicinal to
Sport)
Kodak are currently trying to boost
sales – filming processing business
is losing sales due to digital
cameras – will Kodak survive!
Slide 23 of 39
Product Life Cycle Variations
Price
What determines base price?
Ref: Chap 14 of book
The Nature of Price
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What’s Price: Price is the amount of money
charged for a product or service.
Price can be covered by many different terms:
rate of interest, fee, rent, fare, commission and
benefit-in-kind
How much is a new Ford Focus, a hair-cut, a
super sized double fridge, a digital camera
It’s obvious from range of terms that price can be
complex….may depend on buyer group,
purchasing situation and timing of purchase
Price within the marketing mix
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Price is the only revenue-generating
element in the marketing mix
Pricing decisions affect the long term
survival, market share, profit and
prestige of the company.
Price is also one of the most adjustable
elements of the marketing mix. It can
be adjusted immediately, in case of
price war. Price Wars?
Price wars
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Ads that promote to match or beat any price
are a message not only to consumers but to
competitors as well.
Harvey Norman? Others?
Consumers view these promotions as the
advertiser’s guarantee to deliver the lowest
price in town. Competitors heed the ads as
warnings not to undercut.
Beware these strategies…they can completely
destroy value in the market…supermarkets?
Covering Costs
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To stay in business you have to cover your costs –
Smart Telecom??
Two different types of costs: Fixed costs, are the same
(in the short term) no matter how many units you
sell….if your fixed costs account for a high proportion of
your total costs…you’ll find it difficult to cut your costs
to match a declining income.
In declining income case, you may offer lower prices in
periods of lower demand to cover high fixed costs
Factors Affecting Pricing
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Your Company – your company’s
objectives, including covering costs,
profit objectives, marketing objectives
etc
Your competitors – can influence your
price in two ways:
- if you charge a higher price you may
lose customers to your competitors
- Thos competitors may be able to
undercut you
3 Methods for Setting Price
1.
Cost-Plus pricing: ads a percentage or
monetary unit to the cost of production in
order to ensure costs are adequately covered.
Good to use because sellers are more certain
about fixed costs than about market demand
- it’s very simple and as along as your
competitors do the same, then price
competition is minimized.
But – it ignores market demand or customers’
perception of value. Over 80% of retail sector
is based on cost-plus.
3 Methods for Setting Price
2. Value-Based Pricing: here marketers look at
buyers’ perception of value rather than their
own costs. VB pricing hinges on creating a
product which offers a combination of quality
and price that is extremely attractive to
consumers.
- You may have to sacrifice a lot of quality
Cheap headphones for mp3 player are great
value but………..
3 Methods for Setting Price
3. Competition-Based Pricing: As it
sounds; pitch your product at price
equaling or beating the competition.
Especially, if you are a small company
you cannot find an effective way to
differentiate your product so you can’t
charge higher prices
New Product Pricing Strategies
Product is viewed differently by the
market as it goes through the PLC.
Genuine innovation can receive a high
price at its launch..but it’s only an
innovation for a short time and price
must be adjusted
What are the pricing strategies at New
Product stage of PLC
New Product Pricing Strategies
Price Skimming: means charging a high
or premium price for a new product
effectively skimming the profits
liberally off the top.
How much was first mobile phone? First
flat screen TV? First of a “One-Of-AKind” fashion item?
This strategy allows a company to break
even earlier during PLC
New Product Pricing Strategies
Penetration Pricing
is used to gain market share rapidly by
pitching a price below the competitions
in order to build up a larger unit sales
volume (Economies of Scale)
Japanese are/were famous for this
1980s/1990s
New Product Pricing Strategies
Differential Pricing
Used for most service industries (sometimes
called demand-oriented pricing) it involves
matching your prices to demand for your
product rather than to the cost of your
product….mid week breaks?
Can see everywhere in Ireland. high demand for
services..example? Sometimes used for
products as well
Finally – Price Adjustment
Strategies
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Price is highly flexible and can be adjusted
rapidly. In retail sector this is common – price
wars
Discounting: used to boost sales I short
term..use to shift excess stock/end of season
Psychological Pricing is based on emotions,
rather than rational response of consumers.
€9.99 instead of €10…used to influence
buyers perception of price
Price Adjustment Strategies
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Prestige pricing is where consumers
associate higher prices with better
quality or exclusivity. Gym
membership, club membership,
perfume prices, designer clothing
Promotion pricing: includes loss leaders
and special event pricing. Beer/Spirits
at Christmas,. Used to entice shoppers
into the store. Used on a temporary
basis to increase short-run sales.
Price
Read chap 14 of book
Different Pricing Strategies:
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Cost Plus Pricing
Standard Markup
Target Return Pricing