Download - 1 Marketing 100 October 2009 Product, branding packaging & pricing & pricing Lecturer - Ms Jodie Hanson Welcome Day 3.

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Marketing 100Marketing 100October 2009October 2009

Product, branding packagingProduct, branding packaging & pricing& pricing

Lecturer - Ms Jodie Hanson Lecturer - Ms Jodie Hanson

Welcome Day 3Welcome Day 3

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ReviewReview

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Lecture 7 – Product branding, Lecture 7 – Product branding, packaging packaging

1.1. What is brand?What is brand?

2.2. Elements of branding Elements of branding

3.3. Value of branding Value of branding

4.4. Protecting your brand Protecting your brand

5.5. Brand loyaltyBrand loyalty

6.6. Brand EquityBrand Equity

7.7. Brand strategy Brand strategy

8.8. Packaging Packaging

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1. What is Brand?1. What is Brand?

• A key driver in building client A key driver in building client relationships and is inseparable from the relationships and is inseparable from the business strategy. When brands are business strategy. When brands are managed properly they become managed properly they become “trustmarks”. When clients trust a “trustmarks”. When clients trust a brand, they’ll be more likely to choose brand, they’ll be more likely to choose that brand over competitors.that brand over competitors.

• Brand awareness & familiarity can move Brand awareness & familiarity can move you ahead in the buying cycle or buyer you ahead in the buying cycle or buyer decision process. decision process.

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Buyer Decision Process Buyer Decision Process

5 PostpurchaseBehavior

4 PurchaseDecision

2 InformationSearch1 Need

Recognition

3 Evaluationof Alternatives

Actual state vs. desired stateTriggered by internal or external stimuli

Client Journey

Marketers Journey

Build awareness

Demonstrate differentiation

Promote product attributes to solve

need

Easy access, sales

support

After sale service/product

guarantee

BRAND AWARENES

S

BRAND REPUTATIO

N

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2. Elements of Brands 2. Elements of Brands

Functional components –Functional components –

• What the product actually does, the What the product actually does, the physical aspectsphysical aspects

• Brand name, term, brand mark or symbol, Brand name, term, brand mark or symbol, brand collateral – signage, letterhead etcbrand collateral – signage, letterhead etc

Economic components Economic components

• What the brand means in terms of time What the brand means in terms of time savings and costsavings and cost

Emotional componentsEmotional components

• How the brand makes you feel How the brand makes you feel

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Spot the functional Spot the functional difference…difference…

made in China

$2.99

$178.00

$220 $80

$2.99$178.00

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Does brand add value?Does brand add value?

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ChocolateChocolate100 gms chocolate

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>196%

ChocolateChocolate

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Home BrandBranded

SaltSalt

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Branded >98% Home Brand

SaltSalt

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BickfordsEvian

Bottled WaterBottled Water

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>246% BickfordsEvian

Bottled WaterBottled Water

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3.3. Value of BrandingValue of Branding

• Brands help buyers identify specific Brands help buyers identify specific products that they do and do not likeproducts that they do and do not like

• Without brands product selection would Without brands product selection would be random as buyers have no assurance be random as buyers have no assurance that they were purchasing what they that they were purchasing what they preferred.preferred.

• Branding benefits both buyers and Branding benefits both buyers and sellerssellers

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Value of Branding - BuyersValue of Branding - Buyers

• Indicator of quality, assurance of consistent Indicator of quality, assurance of consistent qualityquality: - Where the product’s physical : - Where the product’s physical attributes/qualities are difficult to determine, attributes/qualities are difficult to determine, buyers rely on the brand name as an indicator buyers rely on the brand name as an indicator of quality ie Sony, Ray-Ban, Speedo etc.of quality ie Sony, Ray-Ban, Speedo etc.

• Psychological reward (status symbol?):Psychological reward (status symbol?): - - Often prestigious brands communicate the Often prestigious brands communicate the buyer’s status or personality ie Calvin Klein, buyer’s status or personality ie Calvin Klein, Rolex, BMW etcRolex, BMW etc

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Value of Branding - SellerValue of Branding - Seller

• Stronger demand and loyaltyStronger demand and loyalty

• Product differentiation:Product differentiation: - in some cases the - in some cases the brand is the only means of differentiationbrand is the only means of differentiation

• Multiple products – brand extension (Family Multiple products – brand extension (Family branding):branding): - in addition to sportswear/shoes, - in addition to sportswear/shoes, Adidas markets toiletries, wristwatches etc all Adidas markets toiletries, wristwatches etc all under the same brandname, Virgin airlines, under the same brandname, Virgin airlines, credit, mobile phones. credit, mobile phones.

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Class ActivityClass Activity

• List a number of List a number of products that sell products that sell brands that are brands that are popular with you.popular with you.

• What is it about What is it about these products that these products that make you want to make you want to have them?have them?

What makes

you buy?

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4.4. Protecting your BrandProtecting your Brand

• Trademark: Trademark: A legal designation of A legal designation of exclusive use of a brand. Protected indefinitelyexclusive use of a brand. Protected indefinitely

• Trade Name:Trade Name: Full legal name of an organisation Full legal name of an organisation

• Copyright:Copyright: Proprietary intellectual or Proprietary intellectual or artistic work. Protected up to 50 years after the artistic work. Protected up to 50 years after the death of the ownerdeath of the owner

• Patents and Designs:Patents and Designs: Proprietary design, Proprietary design, production process, invention etc. Protected up to production process, invention etc. Protected up to a maximum of 20 years and 16 years a maximum of 20 years and 16 years respectively.respectively.

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5.5. Brand LoyaltyBrand Loyalty

Three types of brand loyalty:Three types of brand loyalty:– Recognition:-Recognition:- A customer’s awareness that a A customer’s awareness that a

brand exists and is an alternative to brand exists and is an alternative to purchasepurchase

– Preference:-Preference:- the degree of brand loyalty in the degree of brand loyalty in which a customer prefers one brand over which a customer prefers one brand over competitive offeringscompetitive offerings

– Insistence:Insistence: - The degree of brand loyalty in - The degree of brand loyalty in which a customer strongly prefers a specific which a customer strongly prefers a specific brand and will accept no substitutes.brand and will accept no substitutes.

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6.6. Brand Equity Brand Equity

• The marketing and The marketing and financial value financial value associated with a associated with a brand’s strength in a brand’s strength in a market.market.

• Brand components Brand components that build equity that build equity

Brand Brand AttributeAttribute

ObjectiveObjective

Awareness Awareness Brand is know & Brand is know & understoodunderstood

EsteemEsteem Brand is well Brand is well thought of and thought of and valuedvalued

RelevanceRelevance Brand is relevant Brand is relevant & meaningful& meaningful

PersonalityPersonality Associations that Associations that are linked to your are linked to your brandbrand

DifferentiatiDifferentiationon

Brand has a point Brand has a point of difference & is of difference & is easily easily recognisable & recognisable & understoodunderstood

ExperienceExperience Feelings clients Feelings clients have when dealing have when dealing with your with your brand/productsbrand/products

LoyaltyLoyalty Ongoing Ongoing relationshiprelationship

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Brand PositioningBrand PositioningAttributes, Benefits, Beliefs & Values

Brand PositioningBrand PositioningAttributes, Benefits, Beliefs & Values

Brand NameBrand NameSelection, ProtectionBrand NameBrand Name

Selection, Protection

7.7. Major Brand Strategy DecisionsMajor Brand Strategy Decisions

Brand SponsorshipBrand SponsorshipManufacturer’s Brand, Private Brand

Licensing, Co-branding

Brand SponsorshipBrand SponsorshipManufacturer’s Brand, Private Brand

Licensing, Co-branding

Brand DevelopmentBrand DevelopmentNew Brands, Multibrands

Line Extensions, Brand Extensions

Brand DevelopmentBrand DevelopmentNew Brands, Multibrands

Line Extensions, Brand Extensions

Must avoid

short-term actions that erode

positioning and brand equity

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Brand positioningBrand positioning

• Must match values of target market Must match values of target market

• Includes brand personality, esteem, Includes brand personality, esteem, relevance, experience relevance, experience

• Selected associations and value Selected associations and value

• Can be built up through promotional Can be built up through promotional strategy strategy

• Key example is when a brand partners Key example is when a brand partners with another brand through sponsorship with another brand through sponsorship – must have alignment of brand values– must have alignment of brand values

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Brand Name SelectionBrand Name Selection

Suggest product benefits and qualitiesSuggest product benefits and qualitiesMr. CleanMr. Clean In-N-Out In-N-Out Healthy ChoiceHealthy Choice Business Business WeekWeekU-HaulU-Haul Energizer Energizer I Can’t Believe It’s Not ButterI Can’t Believe It’s Not Butter

Easy to pronounce, recognize, rememberEasy to pronounce, recognize, rememberTideTide Crest Crest Jeep Jeep Jack-in-the-BoxJack-in-the-Box

Distinctive – not too similar to competitors’ namesDistinctive – not too similar to competitors’ namesKodakKodak Xerox Xerox Pepsi Pepsi Cheerios Cheerios

ExtendableExtendable

amazon.comamazon.com Translates into other languagesTranslates into other languages

Enco Enco Exxon Nova Exxon Nova CaribeCaribe

Suggest product benefits and qualitiesSuggest product benefits and qualitiesMr. CleanMr. Clean In-N-Out In-N-Out Healthy ChoiceHealthy Choice Business Business WeekWeekU-HaulU-Haul Energizer Energizer I Can’t Believe It’s Not ButterI Can’t Believe It’s Not Butter

Easy to pronounce, recognize, rememberEasy to pronounce, recognize, rememberTideTide Crest Crest Jeep Jeep Jack-in-the-BoxJack-in-the-Box

Distinctive – not too similar to competitors’ namesDistinctive – not too similar to competitors’ namesKodakKodak Xerox Xerox Pepsi Pepsi Cheerios Cheerios

ExtendableExtendable

amazon.comamazon.com Translates into other languagesTranslates into other languages

Enco Enco Exxon Nova Exxon Nova CaribeCaribe

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Selecting a Brand nameSelecting a Brand name

• Can be protected through the use of a Trade Can be protected through the use of a Trade MarkMark

• Choice of names will have an impact on the Choice of names will have an impact on the level of promotion requiredlevel of promotion required

• Ie is the name descriptive or suggestive of Ie is the name descriptive or suggestive of product benefits or completely unrelatedproduct benefits or completely unrelated

• Examples – Weight Watchers, Crispbread, Examples – Weight Watchers, Crispbread, Hillross Financial Services Hillross Financial Services

• Unrelated – Bannana Boat (sunscreen), Life Unrelated – Bannana Boat (sunscreen), Life Savers (sweets), Clear view (financial products). Savers (sweets), Clear view (financial products).

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Brand Name ProtectionBrand Name Protection

• Capable of trademark protectionCapable of trademark protection (www.uspto.com)(www.uspto.com)

no infringementno infringement not too generic (e.g., Lite not too generic (e.g., Lite Miller Lite; Healthy) Miller Lite; Healthy)

IMPORTANT: Protect from becoming genericIMPORTANT: Protect from becoming generic

(aspirin, nylon, linoleum, thermos, escalator, shredded wheat(aspirin, nylon, linoleum, thermos, escalator, shredded wheat kerosene, cellophane, yo-yo, trampoline)kerosene, cellophane, yo-yo, trampoline)

Scotch Tape Jell-O CokeScotch Tape Jell-O Coke Rollerblade Ziploc Rollerblade ZiplocKleenexKleenex Post-It Xerox Post-It Xerox FedEx FedEx Razor Razor

• Capable of trademark protectionCapable of trademark protection (www.uspto.com)(www.uspto.com)

no infringementno infringement not too generic (e.g., Lite not too generic (e.g., Lite Miller Lite; Healthy) Miller Lite; Healthy)

IMPORTANT: Protect from becoming genericIMPORTANT: Protect from becoming generic

(aspirin, nylon, linoleum, thermos, escalator, shredded wheat(aspirin, nylon, linoleum, thermos, escalator, shredded wheat kerosene, cellophane, yo-yo, trampoline)kerosene, cellophane, yo-yo, trampoline)

Scotch Tape Jell-O CokeScotch Tape Jell-O Coke Rollerblade Ziploc Rollerblade ZiplocKleenexKleenex Post-It Xerox Post-It Xerox FedEx FedEx Razor Razor

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+ instant awareness, faster acceptance, less $ to introduce‾ failure of new product reflects on original‾ name may be inappropriate‾ line extensions cannibalize (little overall sales , even )‾ dilutes positioning - loses specific meaning & brand equity

Brand Development StrategiesBrand Development Strategies

Line ExtensionLine ExtensionMost “new” products

(new flavors, forms, colors, Ingredients, etc.)

MultibrandsMultibrands(e.g., P & G, Estee Lauder)

MultibrandsMultibrands(e.g., P & G, Estee Lauder)

Brand ExtensionBrand Extension(e.g.,

Virgin airlines Virgin mobiles)

Brand ExtensionBrand Extension(e.g.,

Virgin airlines Virgin mobiles)

New BrandsNew BrandsNew BrandsNew Brands

ExistinExistingg

NewNewProduct CategoryProduct Category

ExistingExisting

NewNew

NameName

New Brands & Multibrands: + unique positioning, brand equity Extensions: widely used but most fail ! Many risks

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Brand Sponsorship – different Brand Sponsorship – different types types

Manufacturer’s brandsManufacturer’s brands – “national brands” – “national brands”

Private brandsPrivate brands – “retailer / store brands” – “retailer / store brands”• Growth ! “Battle of the brands,” challenges national brandsGrowth ! “Battle of the brands,” challenges national brands• Major source of advantage to retailersMajor source of advantage to retailers• Source of advantage to manufacturers of private brandsSource of advantage to manufacturers of private brands (even many who also make/market national brands)(even many who also make/market national brands)

Licensed brandsLicensed brands – fees and royalties to owner of name – fees and royalties to owner of name• Celebrities, fictional characters, designersCelebrities, fictional characters, designers• Corporate brand licensingCorporate brand licensing• Very profitable in short-term, but risksVery profitable in short-term, but risks

Co-BrandingCo-Branding – joint venture or licensing – joint venture or licensing• Broader consumer appeal, can ease entry into category Broader consumer appeal, can ease entry into category • Risks of partnership, risks to brand equityRisks of partnership, risks to brand equity

Manufacturer’s brandsManufacturer’s brands – “national brands” – “national brands”

Private brandsPrivate brands – “retailer / store brands” – “retailer / store brands”• Growth ! “Battle of the brands,” challenges national brandsGrowth ! “Battle of the brands,” challenges national brands• Major source of advantage to retailersMajor source of advantage to retailers• Source of advantage to manufacturers of private brandsSource of advantage to manufacturers of private brands (even many who also make/market national brands)(even many who also make/market national brands)

Licensed brandsLicensed brands – fees and royalties to owner of name – fees and royalties to owner of name• Celebrities, fictional characters, designersCelebrities, fictional characters, designers• Corporate brand licensingCorporate brand licensing• Very profitable in short-term, but risksVery profitable in short-term, but risks

Co-BrandingCo-Branding – joint venture or licensing – joint venture or licensing• Broader consumer appeal, can ease entry into category Broader consumer appeal, can ease entry into category • Risks of partnership, risks to brand equityRisks of partnership, risks to brand equity

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Battle of the Brands – brand Battle of the Brands – brand

sponsorshipsponsorship Why battle?? Why battle??

for shelf space!!for shelf space!!

… … your dollars!!your dollars!!

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Battle of the BrandsBattle of the Brands

Manufacturer or national brands:Manufacturer or national brands: Owned by Owned by the manufacturer and sold through the manufacturer and sold through manymany retailersretailers

1.1. Variety, prestige, and pre-soldVariety, prestige, and pre-sold

2.2. Strong demand but not exclusive to a Strong demand but not exclusive to a retailer. Possible price competition among retailer. Possible price competition among retailers…..retailers…..

3.3. …….. Often resulting in poor margin (mark up).. Often resulting in poor margin (mark up)

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Store-Brands (also private labels, house-Store-Brands (also private labels, house-brands):brands): Reputable retailers fight back with Reputable retailers fight back with their own brandstheir own brands

1.1. Exclusive to the retailerExclusive to the retailer2.2. A good “fit” between the pricey A good “fit” between the pricey

manufacturer brands and the cheaper manufacturer brands and the cheaper generics. generics. Good quality and often made by major Good quality and often made by major manufacturers. Makers of Heinz, Kleenex, etc all produce manufacturers. Makers of Heinz, Kleenex, etc all produce house-brands for major retailers to use up excess capacity for house-brands for major retailers to use up excess capacity for more income. If they don’t others will anyway, and these more income. If they don’t others will anyway, and these brands generally satisfy different target markets than their brands generally satisfy different target markets than their own.own.

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Store-Brands (also private labels, Store-Brands (also private labels, house-brands)house-brands)

3.3. Low marketing costs. Usually no Low marketing costs. Usually no advertising. Hence, good marginadvertising. Hence, good margin

– Coles has Farmland and EmbassyColes has Farmland and Embassy– Myer has Miss Shop, Esse, ReserveMyer has Miss Shop, Esse, Reserve

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Generic Brands/ “Off Brands”Generic Brands/ “Off Brands”

These include “brandless” products and These include “brandless” products and “cheap” brands. Some are also store-“cheap” brands. Some are also store-brands such as Black and Gold, Savings brands such as Black and Gold, Savings (Coles) Homebrand (Woolworths). (Coles) Homebrand (Woolworths).

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• List 4 Chinese brands for List 4 Chinese brands for each category of:each category of:

– Manufacturer or national Manufacturer or national brandsbrands

– Store brandsStore brands– Generic brandsGeneric brands Who are

your Local

Brands?

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8.8. Packaging & LabelingPackaging & Labeling

• Packaging is not just a containerPackaging is not just a container

• Packaging and labeling:Packaging and labeling:– Create instant recognitionCreate instant recognition– Sell the product – “silent salesperson” in self-Sell the product – “silent salesperson” in self-

service environmentservice environmentIdentifies, describes, promotesIdentifies, describes, promotes

– Offer customer benefits & competitive Offer customer benefits & competitive advantageadvantageE.g., convenience, aesthetic valueE.g., convenience, aesthetic value

– Safety issuesSafety issues

• Packaging is not just a containerPackaging is not just a container

• Packaging and labeling:Packaging and labeling:– Create instant recognitionCreate instant recognition– Sell the product – “silent salesperson” in self-Sell the product – “silent salesperson” in self-

service environmentservice environmentIdentifies, describes, promotesIdentifies, describes, promotes

– Offer customer benefits & competitive Offer customer benefits & competitive advantageadvantageE.g., convenience, aesthetic valueE.g., convenience, aesthetic value

– Safety issuesSafety issues

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Packaging FunctionsPackaging Functions

• Protection Function:Protection Function: - ie vacuum packaging - ie vacuum packaging eg peanuts, chips;eg peanuts, chips; tamper proof tamper proof eg baby foods, medicineeg baby foods, medicine

• Promotional Function:Promotional Function: – Indicator of perceived qualityIndicator of perceived quality eg chocolates, perfume eg chocolates, perfume

– Recognition-visibility:Recognition-visibility: through familiarity (Kodak film) through through familiarity (Kodak film) through novelty (Toilet Duck)novelty (Toilet Duck)

– ‘‘Buy me’ message – impulse:Buy me’ message – impulse: eg children’s packaged foods, toys eg children’s packaged foods, toys

– Labelling:Labelling: of product features/benefits, nutritional information etc of product features/benefits, nutritional information etc

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Packaging FunctionsPackaging Functions

• Differentiation FunctionDifferentiation Function

• Value-Added Convenience:Value-Added Convenience: – Aerosol/Spray-on: Aerosol/Spray-on: - Pure and Simple cooking oil, sunscreen- Pure and Simple cooking oil, sunscreen

– Squeeze Bottles: Squeeze Bottles: - Tomato sauce, honey- Tomato sauce, honey

– Re-usable Jars: Re-usable Jars: - Moccona coffee- Moccona coffee

– Pump Dispensers: Pump Dispensers: - liquid soap, moisturisers, toothpaste- liquid soap, moisturisers, toothpaste

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LabellingLabelling

• Provides identifying-promotional, or Provides identifying-promotional, or other information on package labelsother information on package labels– IngredientsIngredients– Use-by dateUse-by date– Universal Product Code (UPC): - a series of Universal Product Code (UPC): - a series of

lines identifying a product and containing lines identifying a product and containing inventory and pricing informationinventory and pricing information

– Health messagesHealth messages

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Optional ReviewOptional Review

• Discuss the importance of product branding and brand Discuss the importance of product branding and brand equityequity

• Discuss issues of brand name selection and protectionDiscuss issues of brand name selection and protection

• Describe brand strategy alternatives -- new brands, Describe brand strategy alternatives -- new brands, multibranding, line extensions and brand extensions. multibranding, line extensions and brand extensions. Discuss their advantages and risks. Discuss their advantages and risks.

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Lecture 8 – Product managementLecture 8 – Product management

1.1. Product lifecycle & product mixProduct lifecycle & product mix

2.2. Managing existing brandsManaging existing brands

3.3. Developing new productsDeveloping new products– new product failurenew product failure– improving new product successimproving new product success– new product development processnew product development process– test marketingtest marketing

4.4. Product positioningProduct positioning

5.5. Product & brand manager roles Product & brand manager roles explained explained

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Growth Maturity Decline

Product Life CycleProduct Life Cycle

• Slow growth ProfitsProfits

TimTimee

SalesSales

Introduction

$0

• Growth slows• Longest stage• Most marketing management activity

• Rapid growth• Competition

• Not inevitable Revive? Reposition?

Sales and profits ($)(or losses/investment)

ProductDevelopmen

t

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Build awareness among early adopters, Build awareness among early adopters, secure distribution, entice trialsecure distribution, entice trial

Advertising and Advertising and Sales PromotionSales Promotion

Built selective distribution, high costBuilt selective distribution, high costDistributionDistribution

Usually is highUsually is highPricePrice

Offer a basic productOffer a basic productProductProduct

Build product awareness and Build product awareness and stimulate trialstimulate trial

Marketing Marketing ObjectivesObjectives

NegativeNegativeProfitsProfits

High cost per customerHigh cost per customerCostsCosts

Low salesLow salesSalesSales

Summary of Characteristics, Objectives, & Summary of Characteristics, Objectives, & StrategiesStrategies

Introduction Stage of the PLCIntroduction Stage of the PLC

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Build awareness and interest in the Build awareness and interest in the mass market, reduce sales promotionmass market, reduce sales promotion


Increase number of distribution outletsIncrease number of distribution outletsDistributionDistribution

Price to penetrate marketPrice to penetrate marketPricePrice

Maximize market shareMaximize market shareMarketing ObjectivesMarketing Objectives

Offer product extensions, new Offer product extensions, new services, new featuresservices, new features

ProductProduct

Rising profitsRising profitsProfitsProfits

Average cost per customerAverage cost per customerCostsCosts

Rapidly rising salesRapidly rising salesSalesSales


Growth Stage of the PLCGrowth Stage of the PLC

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Emphasize brand differences, Emphasize brand differences, encourage brand switchingencourage brand switching


Build more intensive distributionBuild more intensive distributionDistributionDistribution

Price to match or beat competitorsPrice to match or beat competitorsPricePrice

Diversify brand (many line extensions)Diversify brand (many line extensions)ProductProduct

Maximize profit while defending Maximize profit while defending market sharemarket share


High profits, then lower profitsHigh profits, then lower profitsProfitsProfits

Low cost per customerLow cost per customerCostsCosts

Peak sales (growth slows, levels off)Peak sales (growth slows, levels off)SalesSales


Maturity Stage of the PLCMaturity Stage of the PLC

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Reduce to level needed to retain loyal Reduce to level needed to retain loyal customers and distributioncustomers and distribution

PromotionPromotion

Selective (phase out weak outlets)Selective (phase out weak outlets)DistributionDistribution

Cut priceCut pricePricePrice

Phase out weak items (back to basics)Phase out weak items (back to basics)ProductProduct

Reduce spending; maintain, harvest, or Reduce spending; maintain, harvest, or drop the product (or reposition/revive)drop the product (or reposition/revive)


Declining profits (or profitable niche)Declining profits (or profitable niche)ProfitsProfits

Low cost per customerLow cost per customerCostsCosts

Declining salesDeclining salesSalesSales


Decline Stage of the PLCDecline Stage of the PLC

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Product LifecycleProduct Lifecycle

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Product lines & mixProduct lines & mix• Product Line: Product Line: A group of products, intended for A group of products, intended for

essentially similar uses and possessing reasonably essentially similar uses and possessing reasonably similar physical characteristics. Examples – men’s similar physical characteristics. Examples – men’s clothing vs women’s clothing 2 separate linesclothing vs women’s clothing 2 separate lines

• Product MixProduct Mix – full list of products offered by the – full list of products offered by the company. company.

• Product mix breadthProduct mix breadth – number of product lines – number of product lines carried carried

• Product mix depthProduct mix depth - Assortment of colours, styles - Assortment of colours, styles models offered within each product line. (hats, models offered within each product line. (hats, jackets, pants etc.)jackets, pants etc.)

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2.2. Managing Existing ProductsManaging Existing Products

• An organisation can benefit by capitalizing on An organisation can benefit by capitalizing on its existing productsits existing products

• By assessing the composition of the current By assessing the composition of the current product mix (combination of products offered), product mix (combination of products offered), a marketer can identify weaknesses and gaps.a marketer can identify weaknesses and gaps.

• Choose to expand by increasing the number of Choose to expand by increasing the number of lines (breadth), or the depth of products within lines (breadth), or the depth of products within a lines. a lines.

• Conversly a marketer can choose to contract Conversly a marketer can choose to contract by removing the number of lines, or the depth by removing the number of lines, or the depth of a line. of a line.

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• Line Extension:Line Extension: A product that is closely A product that is closely related to existing products in the line, related to existing products in the line, but meets different customer needs. Ie but meets different customer needs. Ie toothpaste, toothbrush – dental hygeine toothpaste, toothbrush – dental hygeine lineline

• Product Modifications:Product Modifications: Changing one or Changing one or more characteristics of a product can more characteristics of a product can extend the life of a product and make it extend the life of a product and make it more competitive. more competitive.

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Managing Existing ProductsManaging Existing Products

These include:These include:

• Quality Modifications:Quality Modifications: Changes relating to a Changes relating to a product’s dependability and durability. product’s dependability and durability.

• Functional Modifications:Functional Modifications: Changes affecting a Changes affecting a product’s versatility, effectiveness, product’s versatility, effectiveness, convenience, or safetyconvenience, or safety

• Aesthetic Modifications:Aesthetic Modifications: Changes to the Changes to the sensory appeal of a product – the way it looks sensory appeal of a product – the way it looks or feels. or feels.

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3. Developing new products 3. Developing new products

• ~ 80%~ 80% of new consumer packaged goods fail of new consumer packaged goods fail (most are line extensions)(most are line extensions)

• Only about Only about 40% of new consumer products40% of new consumer products and and 30% of30% of new industrial productsnew industrial products are around five are around five years after introductionyears after introduction

• Why?Why?– Overestimated market sizeOverestimated market size– Product design problemsProduct design problems– Product incorrectly positioned, priced, or promotedProduct incorrectly positioned, priced, or promoted– Product pushed despite poor marketing research Product pushed despite poor marketing research

findingsfindings– Higher than expected product development costsHigher than expected product development costs– Competitive actionsCompetitive actions

• ~ 80%~ 80% of new consumer packaged goods fail of new consumer packaged goods fail (most are line extensions)(most are line extensions)

• Only about Only about 40% of new consumer products40% of new consumer products and and 30% of30% of new industrial productsnew industrial products are around five are around five years after introductionyears after introduction

• Why?Why?– Overestimated market sizeOverestimated market size– Product design problemsProduct design problems– Product incorrectly positioned, priced, or promotedProduct incorrectly positioned, priced, or promoted– Product pushed despite poor marketing research Product pushed despite poor marketing research

findingsfindings– Higher than expected product development costsHigher than expected product development costs– Competitive actionsCompetitive actions

New Product FailureNew Product Failure

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Improving New-Product Improving New-Product SuccessSuccess

• New product success depends upon having a:New product success depends upon having a:

– Unique superior product (one with higher quality, Unique superior product (one with higher quality, and higher value in use as defined by customers)and higher value in use as defined by customers)

– Well-defined product concept (i.e., well-defined Well-defined product concept (i.e., well-defined target market, product requirements, and benefits)target market, product requirements, and benefits)

• Companies mustCompanies must– understand its customers, markets, and understand its customers, markets, and

competitorscompetitors– develop products that deliver superior value to develop products that deliver superior value to

customerscustomers

• New product success depends upon having a:New product success depends upon having a:

– Unique superior product (one with higher quality, Unique superior product (one with higher quality, and higher value in use as defined by customers)and higher value in use as defined by customers)

– Well-defined product concept (i.e., well-defined Well-defined product concept (i.e., well-defined target market, product requirements, and benefits)target market, product requirements, and benefits)

• Companies mustCompanies must– understand its customers, markets, and understand its customers, markets, and

competitorscompetitors– develop products that deliver superior value to develop products that deliver superior value to

customerscustomers

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1. Idea1. IdeaGenerationGeneration

2. Idea2. IdeaScreeningScreening

3. Concept Development 3. Concept Development and Testingand Testing

4. Marketing4. MarketingStrategyStrategy

5. Business5. BusinessAnalysisAnalysis

6. Product6. ProductDevelopmentDevelopment

7. Test7. TestMarketingMarketing

8. Commercialization8. Commercialization

Major Stages in New-Product Major Stages in New-Product DevelopmentDevelopment

Many – employees, customers, suppliers, distributors, competitors

Reduce # quickly

Alternative versions,describe in consumer terms

Physical product, $$$

To speed up – simultaneous (team-based) vs. sequential

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AdvertisingAdvertising

PositioningPositioning

PackagingPackagingProductProduct

DistributionDistribution

Budget LevelsBudget LevelsPricingPricing

BrandingBranding

Elements that may be test marketed

Product (& marketing program) tested in realistic market settings

Reduces riskReduces risk – tests customer interest & acceptance

company can find and correct problems early

Has some risksHas some risks – costly and time consuming

exposes to competition (copy, sabotage)

Step 7 - Step 7 - Test MarketingTest Marketing

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Step 7– Test MarketingTest Marketing

Standard Test MarketStandard Test Market – – full marketing effort in a small number of representative markets+ most realistic, tests entire marketing strategy- time consuming, costly, exposes to competition

Standard Test MarketStandard Test Market – – full marketing effort in a small number of representative markets+ most realistic, tests entire marketing strategy- time consuming, costly, exposes to competition

Controlled Test MarketControlled Test Market – – test in panel of cooperating stores with cooperating consumer panel (IRI, Nielson)+ faster, less costly - less realistic (fewer cities, small sample, no test of distribution channel acceptance, exposes to competition

Controlled Test MarketControlled Test Market – – test in panel of cooperating stores with cooperating consumer panel (IRI, Nielson)+ faster, less costly - less realistic (fewer cities, small sample, no test of distribution channel acceptance, exposes to competition

Simulated Test MarketSimulated Test Market – – test in simulated shopping environment (e.g., laboratory store)+ fastest, less costly, no exposure to competition - least realistic, no test of repeat purchasing

(Good as a pre-test)

Simulated Test MarketSimulated Test Market – – test in simulated shopping environment (e.g., laboratory store)+ fastest, less costly, no exposure to competition - least realistic, no test of repeat purchasing

(Good as a pre-test)

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4. Product Positioning4. Product Positioning

• The decisions and activities that create The decisions and activities that create and maintain a certain concept of the and maintain a certain concept of the firm’s product in customers’ minds.firm’s product in customers’ minds.

• Product position is customers’ Product position is customers’ perceptions of a product’s attributes perceptions of a product’s attributes relative to those of competitive brands.relative to those of competitive brands.

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Product PositionProduct Position

Perception is Perception is

Consumer’s RealityConsumer’s Reality

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Product Positioning strategiesProduct Positioning strategies

• In relation to the Leading Brand: In relation to the Leading Brand: eg Pepsi eg Pepsi vs Coke, Hungry Jacks vs McDonaldsvs Coke, Hungry Jacks vs McDonalds

• Distinct Product Features: Distinct Product Features: eg Kellogg’s Just eg Kellogg’s Just Right cereal, Volvo’s safety featuresRight cereal, Volvo’s safety features

• Price Emphasis: Price Emphasis: eg Korea’s Hyundai, Daewoo eg Korea’s Hyundai, Daewoo and Kia carsand Kia cars

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Cont.Cont.

• Innovation: Innovation: eg Personal stereo (Walkman), eg Personal stereo (Walkman), Colourful plastic watch (Swatch)Colourful plastic watch (Swatch)

• Against the Trend: Against the Trend: eg Apple vs IBM eg Apple vs IBM Compatible, Harley Davidson classical styleCompatible, Harley Davidson classical style

• Repositioning: Repositioning: eg Reebok (fashion to function), eg Reebok (fashion to function), Marlboro was a ladies’ cigarette brandMarlboro was a ladies’ cigarette brand

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5.5. Product Mgr vs Brand MgrProduct Mgr vs Brand Mgr

• Can be confusing – depends on the size Can be confusing – depends on the size & type of company & type of company

• Product managers are usually Product managers are usually responsible for the technical and responsible for the technical and manufacturing elements of the product manufacturing elements of the product development. Usually inward facing.development. Usually inward facing.

• Brand/marketing managers are usually Brand/marketing managers are usually responsible for the external presentation responsible for the external presentation of the products to market. However, of the products to market. However, they can be involved in all elements of they can be involved in all elements of the marketing mix.the marketing mix.

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Optional ReviewOptional Review

• Describe the stages of the product life-Describe the stages of the product life-cyclecycle

• Describe how marketing strategies Describe how marketing strategies change during a product’s life-cyclechange during a product’s life-cycle

• List and define the steps in the new-List and define the steps in the new-product development processproduct development process

• Describe test markets, and the three Describe test markets, and the three typestypes

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Lecture 9 – Pricing strategy Lecture 9 – Pricing strategy

1.1.What is Price?What is Price?

2.2.Factors affecting pricing decisionsFactors affecting pricing decisions

3.3.Price vs non price competitionPrice vs non price competition

4.4.Approach to pricing strategies Approach to pricing strategies

5.5.Pricing methods Pricing methods

6.6.Pricing adjustment methodsPricing adjustment methods

7.7.Legal aspects to pricing Legal aspects to pricing

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1.1. What is Price?What is Price?

• The amount of money charged, but more broadly the The amount of money charged, but more broadly the sum of all the values consumers exchangesum of all the values consumers exchange for the for the benefits of having or using a product or service (not benefits of having or using a product or service (not just price, but cost)just price, but cost)

• Historically the major factor affecting buyer choice; Historically the major factor affecting buyer choice; but but non-price factorsnon-price factors have become increasingly have become increasingly importantimportant

• The only element in the marketing mix that The only element in the marketing mix that produces produces revenuesrevenues; all others represent costs; all others represent costs

• Flexible tool, but often handled poorly – Flexible tool, but often handled poorly – too cost-too cost-orientedoriented and tacticaland tactical (vs. customer-value oriented and (vs. customer-value oriented and strategic) – strategic) – should “sell value” not priceshould “sell value” not price

• The amount of money charged, but more broadly the The amount of money charged, but more broadly the sum of all the values consumers exchangesum of all the values consumers exchange for the for the benefits of having or using a product or service (not benefits of having or using a product or service (not just price, but cost)just price, but cost)

• Historically the major factor affecting buyer choice; Historically the major factor affecting buyer choice; but but non-price factorsnon-price factors have become increasingly have become increasingly importantimportant

• The only element in the marketing mix that The only element in the marketing mix that produces produces revenuesrevenues; all others represent costs; all others represent costs

• Flexible tool, but often handled poorly – Flexible tool, but often handled poorly – too cost-too cost-orientedoriented and tacticaland tactical (vs. customer-value oriented and (vs. customer-value oriented and strategic) – strategic) – should “sell value” not priceshould “sell value” not price

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Pricing is Pricing is

• Revenue GeneratingRevenue Generating Selling Price x Units SoldSelling Price x Units Sold

– The other 3Ps are expenses (costs)The other 3Ps are expenses (costs)• Product Product (R&D, product development, cost-of-goods-sold, (R&D, product development, cost-of-goods-sold,

warranty costs etc)warranty costs etc)

• Place Place (distribution expenses)(distribution expenses)

• Promotion Promotion (advertising etc., expenses)(advertising etc., expenses)

• Indicator of Real or Perceived QualityIndicator of Real or Perceived Quality– In the absence of sufficient product/brand knowledge. In the absence of sufficient product/brand knowledge. Where Where

a product’s quality is difficult to objectively or tangibly evaluate, its a product’s quality is difficult to objectively or tangibly evaluate, its 4Ps (brand name, packaging, place of availability, promotion, and 4Ps (brand name, packaging, place of availability, promotion, and especially price, etc.) and country of origin are often used instead as especially price, etc.) and country of origin are often used instead as indicators of qualityindicators of quality

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Pricing isPricing is

• Most Flexible Marketing Mix (4Ps) ElementMost Flexible Marketing Mix (4Ps) Element

Most FlexibleMost Flexible Least FlexibleLeast Flexible

Pricing*Pricing* Promotion*Promotion* Product**Product** Place**Place**

*Easy to change, but also easy for competitors to match *Easy to change, but also easy for competitors to match (copy). Hence, only short-term benefits.(copy). Hence, only short-term benefits.

**Harder to change, but equally hard for competitors to **Harder to change, but equally hard for competitors to match. Hence, longer-term advantagematch. Hence, longer-term advantage

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2.2. Factors to Consider When Setting Factors to Consider When Setting PricesPrices

Internal FactorsInternal Factors

•Costs - the “floor” variable and fixed “experience curve” or“learning curve”

•Marketing objectives

•Marketing mix

Internal FactorsInternal Factors

•Costs - the “floor” variable and fixed “experience curve” or“learning curve”

•Marketing objectives

•Marketing mix

External FactorsExternal Factors

•The market and demand “the ceiling”

•Competition

•Other environmentalfactors resellers the economy etc.

External FactorsExternal Factors

•The market and demand “the ceiling”

•Competition

•Other environmentalfactors resellers the economy etc.

Pricing Pricing DecisionsDecisions

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Internal Factors affecting pricing Internal Factors affecting pricing decisionsdecisions

• CostsCosts• Often the first place someone starts when Often the first place someone starts when

setting price is to look at their cost of goods setting price is to look at their cost of goods sold, production costs, promotional costs etcsold, production costs, promotional costs etc

• This is an important aspect to pricing to ensure This is an important aspect to pricing to ensure you at least recover your cost, however, you will you at least recover your cost, however, you will see that this is dependant on your overall see that this is dependant on your overall marketing strategy.marketing strategy.

• Sometimes if production is not efficient, you Sometimes if production is not efficient, you may price yourself out of the marketmay price yourself out of the market

• It may help to start at what the market and It may help to start at what the market and competition will bear and then adjusts your competition will bear and then adjusts your costs to suit where possible. costs to suit where possible.

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Internal Factors affecting pricing Internal Factors affecting pricing decisionsdecisions

• Marketing & Pricing ObjectivesMarketing & Pricing Objectives– Revenue-based (sales and market share): Revenue-based (sales and market share): The The

pursuit of sales or market share growth often comes at the pursuit of sales or market share growth often comes at the expense of short-term profit because of lower prices and expense of short-term profit because of lower prices and increased marketing expenses.increased marketing expenses.

– Profit-based (profits and return-on-investment): Profit-based (profits and return-on-investment): Profitability can be based on two opposing strategies: Profitability can be based on two opposing strategies:

high price – low volumehigh price – low volume (specialty stores, Rolex, BMWs etc) and (specialty stores, Rolex, BMWs etc) and

low price – high volumelow price – high volume (discount store and supermarkets ie (discount store and supermarkets ie Hyundai, Casio calculators etc)Hyundai, Casio calculators etc)

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Internal Factors affecting Pricing Internal Factors affecting Pricing DecisionsDecisions

• Marketing Mix Marketing Mix Target Market and the Other 3PsTarget Market and the Other 3Ps

– Target market: Target market: characteristics of the customers etccharacteristics of the customers etc

– Product: Product: brandname, product quality, cost of product etcbrandname, product quality, cost of product etc

– Place: Place: where the product is sold, retail support given, etcwhere the product is sold, retail support given, etc

– Promotion: Promotion: nature and amount of promotional supportnature and amount of promotional support

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Factors affecting Pricing DecisionsFactors affecting Pricing DecisionsExternal FactorsExternal Factors

• Market demandMarket demand• Trade Demands:Trade Demands: Wholesalers and retailers can Wholesalers and retailers can

influence the final (retail) price of the product. They influence the final (retail) price of the product. They often do so through mark-ups or simply pressuring the often do so through mark-ups or simply pressuring the manufacturersmanufacturers

• Buyer Behaviour:Buyer Behaviour: The price of the product can The price of the product can be influenced by how be influenced by how price sensitiveprice sensitive the buyers are or the buyers are or how how loyalloyal they are to the brand or other brands, etc. they are to the brand or other brands, etc. The long running beer war (more brands, lower prices) The long running beer war (more brands, lower prices) has led to many drinkers (home consumption) has led to many drinkers (home consumption) becoming more price conscious and less brand loyal.becoming more price conscious and less brand loyal.

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External Factors: External Factors: Consumer Consumer Perceptions and Price-Demand Perceptions and Price-Demand relationshiprelationship

• Demand curveDemand curve represents the number of units a market will buy

in a given time period under different (changing) prices

““normal demand”normal demand” – price & quantity are inversely related (demand curve slopes downwardslopes downward)

• Price elasticityPrice elasticity of demandof demand refers to how responsivehow responsive demand will

be to a change in price

Price Elasticity of DemandPrice Elasticity of Demand = % Change in Quantity Demanded % Change in Price

• Demand curveDemand curve represents the number of units a market will buy

in a given time period under different (changing) prices

““normal demand”normal demand” – price & quantity are inversely related (demand curve slopes downwardslopes downward)

• Price elasticityPrice elasticity of demandof demand refers to how responsivehow responsive demand will

be to a change in price

Price Elasticity of DemandPrice Elasticity of Demand = % Change in Quantity Demanded % Change in Price

Consumer perceptionsConsumer perceptions – consumers decide if the price is right – does the price fit the perceived value?Consumer perceptionsConsumer perceptions – consumers decide if the price is right – does the price fit the perceived value?

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Price Competition and Price Competition and MovementMovement Along Demand Curve Along Demand Curve (and Elastic (and Elastic Demand)Demand)

• Note:Note: Price-competition:Price-competition: movement along the same demand curve D1. This movement along the same demand curve D1. This ““ordinaryordinary” pub decreases its beer prices to attract additional drinkers” pub decreases its beer prices to attract additional drinkers

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Non-Price Competition and Non-Price Competition and ShiftmentShiftment of Demand Curve of Demand Curve (and inelastic Demand)(and inelastic Demand)

Note:Note: Non-price competition: the demand curve shifts to the right, from D1 to D2. Non-price competition: the demand curve shifts to the right, from D1 to D2. This “This “specialspecial” pub maintains its beer prices but improves its ” pub maintains its beer prices but improves its non-price featuresnon-price features* * to attract additional drinkers. This is basically to attract additional drinkers. This is basically product differentiationproduct differentiation..

**The “**The “other 3Psother 3Ps” such as reputation, location, opening hours, atmosphere, special & ” such as reputation, location, opening hours, atmosphere, special & wide range of beers, regular promotion etc.wide range of beers, regular promotion etc.

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• Inelastic DemandInelastic Demand – demand hardly changes with a small change in price (market not price sensitive)

• Elastic DemandElastic Demand – demand changes greatly with a small change in price (market is price sensitive)

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Factors affecting Pricing DecisionsFactors affecting Pricing DecisionsExternal FactorsExternal Factors

• Competition:Competition: Price is influenced by the Price is influenced by the nature and intensity of competition (oligopoly, nature and intensity of competition (oligopoly, etc). Also, it is difficult to predict competitors’ etc). Also, it is difficult to predict competitors’ reaction to a pricing strategyreaction to a pricing strategy

• Legal & Environmental Consideration:Legal & Environmental Consideration:Pro-competitive laws governing price fixing, Pro-competitive laws governing price fixing,

resale price fixing, resale price resale price fixing, resale price maintenance, etc, would have a bearing on maintenance, etc, would have a bearing on the company’s pricing decisionthe company’s pricing decision

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3.3. Price vs Non-Price Price vs Non-Price CompetitionCompetition

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4.4. General Pricing ApproachesGeneral Pricing Approaches

• Cost-based pricingCost-based pricing – add aadd a standard markupstandard markup to the product cost

• Very popular simplest perceived as “fair” if all use it, minimizes price competition (becomes going rate)

• But rarely makes sense– must be certain of costs– ignores competition– ignores consumer perceptions

Only works if competitors have the same cost structure,and all use ~same markup

• Cost-based pricingCost-based pricing – add aadd a standard markupstandard markup to the product cost

• Very popular simplest perceived as “fair” if all use it, minimizes price competition (becomes going rate)

• But rarely makes sense– must be certain of costs– ignores competition– ignores consumer perceptions

Only works if competitors have the same cost structure,and all use ~same markup

• Competition-based pricing Competition-based pricing – going rategoing rate “collective wisdom” avoids price wars in oligopoly– little control over price

• Competition-based pricing Competition-based pricing – going rategoing rate “collective wisdom” avoids price wars in oligopoly– little control over price

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ProductProduct

CostCost

PricePrice

ValueValue

CustomersCustomers

CustomersCustomers

ValueValue

PricePrice

CostCost

ProductProduct

Cost-Based PricingCost-Based Pricing Value-Based Value-Based PricingPricing

General Pricing ApproachesGeneral Pricing Approaches

• Value-based pricingValue-based pricing – uses buyers’ perceptions of price (not seller’s costs), as the key to pricing “Right combination of value and price” (e.g., value-pricing, EDLP)

• Value-based pricingValue-based pricing – uses buyers’ perceptions of price (not seller’s costs), as the key to pricing “Right combination of value and price” (e.g., value-pricing, EDLP)

Product-driven – Starts with product and must convince customers it’s worth the price

Product-driven – Starts with product and must convince customers it’s worth the price

Customer-driven – Starts with customer needs/wants, designs the product to price; target costing (p. 348)

Customer-driven – Starts with customer needs/wants, designs the product to price; target costing (p. 348)

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Break-Even AnalysisBreak-Even Analysis

• Used to determine the Used to determine the sales volume neededsales volume needed just just toto break evenbreak even if the product is sold at a certain price if the product is sold at a certain price

Break-even volume = fixed costsBreak-even volume = fixed costs price - variable costsprice - variable costs

• Suppose:Suppose: Fixed Costs = $300,000 Fixed Costs = $300,000

• Variable Costs = $10 per unitVariable Costs = $10 per unit

If price is set at $20If price is set at $20Break-even volume is: Break-even volume is: 300,000300,000 = 30,000 units = 30,000 units

$20-$10$20-$10

If price is set at $30If price is set at $30Break-even volume is:Break-even volume is: 300,000300,000 = 15,000 units = 15,000 units

$30-$10$30-$10

• Used to determine the Used to determine the sales volume neededsales volume needed just just toto break evenbreak even if the product is sold at a certain price if the product is sold at a certain price

Break-even volume = fixed costsBreak-even volume = fixed costs price - variable costsprice - variable costs

• Suppose:Suppose: Fixed Costs = $300,000 Fixed Costs = $300,000

• Variable Costs = $10 per unitVariable Costs = $10 per unit

If price is set at $20If price is set at $20Break-even volume is: Break-even volume is: 300,000300,000 = 30,000 units = 30,000 units

$20-$10$20-$10

If price is set at $30If price is set at $30Break-even volume is:Break-even volume is: 300,000300,000 = 15,000 units = 15,000 units

$30-$10$30-$10

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5.5. Pricing methodsPricing methods

1.1. Recommended Retail Pricing (RRP)Recommended Retail Pricing (RRP)

– Also known as the Also known as the listlist price or price or stickersticker price price– Set by the supplier (manufacturer, Set by the supplier (manufacturer,

importer, etc) importer, etc) who will then encourage the who will then encourage the retailers to followretailers to follow

– Discounts and allowance (off the RRP) Discounts and allowance (off the RRP) are are given to retailers as incentives. given to retailers as incentives.

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Pricing MethodsPricing Methods

BUT some retailers disregard the RRP and use mark-ups instead

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2.2. Mark-up or Cost-Based PricingMark-up or Cost-Based Pricing

– The retail price is based on the retailer’s The retail price is based on the retailer’s ownown mark-up on the cost of the product. mark-up on the cost of the product. Supermarkets Supermarkets generally set a lower price than pharmacies for the same generally set a lower price than pharmacies for the same product because of their lower mark-upproduct because of their lower mark-up

– Simple and popular (traditional) methodSimple and popular (traditional) method– Manufacturer has less control over final price** - Manufacturer has less control over final price** -

its products will be sold at different prices by different its products will be sold at different prices by different retailersretailers

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** Manufacturer can encourage RRP pricing by fostering ** Manufacturer can encourage RRP pricing by fostering relationship with retailers (personal selling, incentives) and relationship with retailers (personal selling, incentives) and advertising the RRP to consumersadvertising the RRP to consumers

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6.6. Price-Adjustment Strategies:Price-Adjustment Strategies:Discounts and AllowancesDiscounts and Allowances

Cash discountCash discount

(pay early, e.g., 2/10 net 30)

Functional discountFunctional discount

(price to channel members)

Functional discountFunctional discount

(price to channel members)

Quantity discountQuantity discount

(buy more from one seller)

Quantity discountQuantity discount

(buy more from one seller)

Seasonal discountSeasonal discount

(buy early or out of season)

Promotional allowancePromotional allowance

(for channel members to promote product)

Promotional allowancePromotional allowance

(for channel members to promote product)

Adjusting the basic price to reward customers or to provide incentives for desired responses(most are for channel members and business buyers)

Adjusting the basic price to reward customers or to provide incentives for desired responses(most are for channel members and business buyers)

Trade-in allowanceTrade-in allowance Trade-in allowanceTrade-in allowance

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Example of Functional DiscountExample of Functional Discount

Functional discountsFunctional discounts represent product prices represent product prices charged to charged to channel intermediarieschannel intermediaries – compensates – compensates channel members (wholesalers and retailers) for channel members (wholesalers and retailers) for stocking and selling the productstocking and selling the product

e.g., pricing a book – manufacturing cost e.g., pricing a book – manufacturing cost ~$2.00~$2.00

– publisher’s suggested retail price $20.00publisher’s suggested retail price $20.00 (price a consumer pays at a bookstore)(price a consumer pays at a bookstore)

– bookstore (40% discount)bookstore (40% discount) 12.00 12.00– wholesaler (55% discount)wholesaler (55% discount) 9.00 9.00– distributor (65% discount)distributor (65% discount) 7.00 7.00

Functional discountsFunctional discounts represent product prices represent product prices charged to charged to channel intermediarieschannel intermediaries – compensates – compensates channel members (wholesalers and retailers) for channel members (wholesalers and retailers) for stocking and selling the productstocking and selling the product

e.g., pricing a book – manufacturing cost e.g., pricing a book – manufacturing cost ~$2.00~$2.00

– publisher’s suggested retail price $20.00publisher’s suggested retail price $20.00 (price a consumer pays at a bookstore)(price a consumer pays at a bookstore)

– bookstore (40% discount)bookstore (40% discount) 12.00 12.00– wholesaler (55% discount)wholesaler (55% discount) 9.00 9.00– distributor (65% discount)distributor (65% discount) 7.00 7.00

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Price-Adjustment Strategies:Price-Adjustment Strategies:Segmented PricingSegmented Pricing

Customer segmentCustomer segmentpricingpricing Location pricingLocation pricing

Product - Form Time pricingTime pricing

Selling products at different pricesbased on differences indifferences in demanddemand

(not on differences in cost)(not on differences in cost)

Product form Product form pricingpricing

Product form Product form pricingpricing

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Price-Adjustment Strategies:Price-Adjustment Strategies:Psychological PricingPsychological Pricing

Considers the Considers the psychologypsychology of prices, of prices, not just the economicsnot just the economics

Price is an important Price is an important quality signalquality signal when customers can’t otherwise when customers can’t otherwise judge quality; price is used to judge quality; price is used to “say “say something” something” about a product.about a product.

Reference pricesReference prices Show price comparisonsShow price comparisons Display with more/less expensive Display with more/less expensive

alternativesalternatives Odd-pricing, even-pricingOdd-pricing, even-pricing

E.g., $49.99 versus $50.00E.g., $49.99 versus $50.00

Considers the Considers the psychologypsychology of prices, of prices, not just the economicsnot just the economics

Price is an important Price is an important quality signalquality signal when customers can’t otherwise when customers can’t otherwise judge quality; price is used to judge quality; price is used to “say “say something” something” about a product.about a product.

Reference pricesReference prices Show price comparisonsShow price comparisons Display with more/less expensive Display with more/less expensive

alternativesalternatives Odd-pricing, even-pricingOdd-pricing, even-pricing

E.g., $49.99 versus $50.00E.g., $49.99 versus $50.00

Was $22.00 Sale $14.99

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.

Temporarily Temporarily pricing productspricing products

below the regularbelow the regularprice to increaseprice to increaseshort-term salesshort-term sales

.

Temporarily Temporarily pricing productspricing products

below the regularbelow the regularprice to increaseprice to increaseshort-term salesshort-term sales

Price-Adjustment Strategies:Price-Adjustment Strategies:Promotional PricingPromotional Pricing

Danger – Addictiveover-reliance can

• erode brand equity • train consumers to be

“deal prone”• lead to price wars

Loss leadersSpecial-event pricingCash rebatesLow interest financingLonger warrantiesFree merchandise

Loss leadersSpecial-event pricingCash rebatesLow interest financingLonger warrantiesFree merchandise

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Within channel levelsWithin channel levels– Price fixingPrice fixing – cannot talk to each other when setting prices – cannot talk to each other when setting prices

(petrol companies)(petrol companies)– Predatory pricingPredatory pricing – cannot set low prices for purposes of – cannot set low prices for purposes of

driving competitors out of marketdriving competitors out of market

Across channel levelsAcross channel levels– Retail price maintenanceRetail price maintenance – – manufacturer cannot dictate the manufacturer cannot dictate the

price charged by retailersprice charged by retailers– Discriminatory pricingDiscriminatory pricing – – cannot charge different prices to cannot charge different prices to

different intermediaries (except based on actual costs)different intermediaries (except based on actual costs)– Deceptive pricingDeceptive pricing – cannot deceive consumers (e.g., through – cannot deceive consumers (e.g., through

bogus reference prices, bait and switch, creating price confusionbogus reference prices, bait and switch, creating price confusion

Within channel levelsWithin channel levels– Price fixingPrice fixing – cannot talk to each other when setting prices – cannot talk to each other when setting prices

(petrol companies)(petrol companies)– Predatory pricingPredatory pricing – cannot set low prices for purposes of – cannot set low prices for purposes of

driving competitors out of marketdriving competitors out of market

Across channel levelsAcross channel levels– Retail price maintenanceRetail price maintenance – – manufacturer cannot dictate the manufacturer cannot dictate the

price charged by retailersprice charged by retailers– Discriminatory pricingDiscriminatory pricing – – cannot charge different prices to cannot charge different prices to

different intermediaries (except based on actual costs)different intermediaries (except based on actual costs)– Deceptive pricingDeceptive pricing – cannot deceive consumers (e.g., through – cannot deceive consumers (e.g., through

bogus reference prices, bait and switch, creating price confusionbogus reference prices, bait and switch, creating price confusion

7. Prohibited Pricing Practices7. Prohibited Pricing Practices

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• Consider the products Consider the products you know and you know and nominate a product nominate a product that you think is that you think is pricing itself out of the pricing itself out of the market.market.

• Give an example of a Give an example of a product that competes product that competes purely on price. purely on price. Discuss this products Discuss this products future and that of its future and that of its competitors.competitors.

How would

you do it?

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Optional reviewOptional review

• Identify and define the internal factors Identify and define the internal factors affecting a firm's pricing decisions (e.g., affecting a firm's pricing decisions (e.g., costs, marketing objectives)costs, marketing objectives)

• Identify and define the external factors Identify and define the external factors affecting pricing (e.g., types of markets, affecting pricing (e.g., types of markets, consumer perceptions, price elasticity of consumer perceptions, price elasticity of demand)demand)

• Contrast the three general approaches Contrast the three general approaches to setting pricesto setting prices