price is the sum of all of the values that consumers give up in order to gain the benefits of having or using the product or service.`
Strong brand preference/loyalty, special purchasing effort, little comparison shopping
High price. Exclusive distribution in only one or a few outlets. Targeted promotion by both producer and reseller
New product development
The development of original products, product improvements, product modifications, and new brands through the firm’s own product development efforts.
Step 1: NPD Strategy Development
Defines the role for a new product in terms of the firm’s overall objectives. The firm uses both a SWOT analysis and environmental scanning
Step 2: Idea generation
Internal sources: employees
External sources: Customers, Competitors, Distributors, Suppliers, Outsourcing
Step 3: Idea screening & Evaluation
Process used to spot good ideas and drop poor ones.
A description of the product along with estimates of market size, product price, development time and costs, manufacturing costs, and rate of return. Evaluated against a set of company criteria for new products.
Step 4: Business analysis
Involves a review of the sales, costs, and profit projections to assess fit with company objectives
Demand Analysis (Sales Forecast)
Determine the expected demand schedule indicating the expected volume under different marketing mixes. Provide estimates of the expected sales volume to be derived from each mix as well as the breakeven quantity associated with each mix.
Profit = (P -V) * (QE -QB)
Step 5: Product development
Develops concept into a physical product.Prototypes are made, must have correct physical features, convey psychological characteristics, and are subjected to physical tests
Step 6: Testing marketing
Product and program are introduced in a more realistic market setting. decide whether to launch the new product. Not needed for all products
Step 7: Commercialization
Decide on timing (i.e., when to introduce the product) and on where to introduce the product (e.g., single location, state, region, nationally, internationally). Develop a market rollout plan
Includes both tangible goods and services. Pure good or service or combo
Core customer value
What the consumer is really buying
Additional services and benefits such as delivery and credit, instructions, installation, warranty, and service
Includes the brand name, features, design, packaging, and quality level
bought frequently/immediately with little comparison shopping. Low priced
Mass advertising and promotion
Bought less frequently, more planning and effort, brand comparisons on basis of price, quality, style
Higher price. Selective distribution. Ads by producer/reseller
Little product awareness of the brand, sometimes negative interest. Pricing & Distribution strategies vary. Aggressive advertising and personal selling by both producer and resellers
Pioneering products so new that no previous product performed an equivalent function. New consumption or usage patterns
Dynamically Continuous Innovation
Represent changes/improvements that do not strikingly change buying and usage patterns. They constitute the mid-range of the continuum of newness.
On-going, common place changes such as minor product alterations or imitative products.
New product development dilemma
Cost:Risky (and costly) to have new products
New-Product Development Process
Idea screening & Evaluation
are first to buy and typically described as venturesome, younger, well educated, financially stable, and willing to take risks.
are local opinion leaders who read magazines and who are integrate into the social system more than the average consumer.
solid, middle-class consumers who are more deliberate and cautious
described as older, more conservative, traditional, and skeptical of new products
resist change, conservative, like tradition often older & lower in socioeconomic status.
Product Characteristics That
Influence the Rate of Adoption
Relative advantage, Compatibility, Complexity, Divisibility, Communicability
A “name, term, sign, symbol or design or a combination of them intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competition.”
The element of the brand that can be vocalized.
Two (or more) brands join together (eg: credit card with sports team on it)
The element of the brand that
cannot be vocalized (symbolic part).
A brand or part of a brand this is registered with the US Patent and Trademark office.
The “trademark” for services.
Manufacturer or national brand: owned by a manufacturer
Distributor or private brand: owned by a retailer or wholesaler
Generic: no visible brand name – ownership cannot be determined
Family vs. Individual
Family: One name for a set of products
A variation is licensing the owner of a trademark permits others to use it on various products
Individual: Each product has its own name
Combination: Combine family and individual brands
The intangible value of a company beyond its physical net assets
Labeling refers to printed information appearing on or with the package.
Requirements for Effective Segmentation
Tailoring products and marketing programs to suit the tastes of specific individuals and locations.
brand's value proposition.
Developing a positioning statement
Format: “To (target segment and need) our (brand) is (a concept) that (point of difference).”
Based on Attributes, Price/Quality, USP, Application, Benefits, Competitors, Product User, Product Category
Marketing strategy to change the position of a product in consumers minds relative to the positions of competing products.
The Six Steps In Setting Price
Managing for Long-Run Profits
Target Return (ROI)
Market Share ($ or #)
Unit Volume (#)
Demand for the
Product Class (Cars),
Product (Sports Cars),
Brand (Bugatti Veyron)
Stage in the Product Life Cycle
Single Product vs. Product Line
Cost of Producing and Marketing a Product
Cost of Changing Prices and Time Period They Apply
Price Elasticity of Demand
how responsive demand will be to a change in price. Demand may be characterized as:
Inelastic: insensitive to price changes
Elastic: sensitive to price changes
Elasticity = Quantity Change/Price Change
Problems With Demand Based Approach To Pricing
Assumes all the figures are known – and that you have them – so that the graphs may be determined
Assumes that all other things remain constant – there are no changes in the rest of the marketing mix variables or in the marketplace
Cost Factors Affecting Pricing Decisions
Cost Plus Approach
Process is to accumulate a per unit cost and add to that a markup. Basic formula is:
P = Unit Cost + Markup
Pricing that starts with an ideal selling price, based on consumer value considerations, and then targets costs that will ensure that the price is met.
Target Profit Pricing
Use AVERAGE COST to calculate price. Procedure is to accumulate all costs, treating profit as another cost item. Then divide by the number of units involved.
Target Return Pricing
Use TARGET RETURN to calculate price. The same procedure as average costing is used: accumulate all costs, treating profit as another cost item.Then divide by the number of units involved.
Problems With The Cost Based
Approaches To Pricing
Demand is generally ignored
Competition is generally ignored
There is no guarantee that the price will actually yield a profit
The Preferred ROI Formula
Competition Based Pricing
The Marketing (Demand) Approach To Pricing
(The Correct One!)
RANGE OF DISCRETION
Ceiling – determined by demand (consumer value)
Floor – determined by full cost
Floor – determined by direct cost
The “Range of Discretion
the difference between cost
Pricing optional or accessory products sold with the main product (e.g., ice maker with the refrigerator).
Pricing products that must be used with the main product (e.g., replacement cartridges for Gillette razors)
Pricing low-value by-products to get rid of them (e.g., animal manure from zoo)
Product bundle pricing
Pricing bundles of products sold together (software, monitor, PC, and printer)
Setting prices at certain price points only
Yield Management pricing:
Adjusting prices continually to meet the characteristics and needs of individual customers and situations.
match service timing and pricing to customers' willingness to pay for service in relation to its timing.
shift the demand of those customers who are relatively price sensitive but time insensitive to off-peak times.
Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.
Types of segmented pricing
Set List or Quote Price
Choose a price policy
Price Adjustment Strategies
Discount and allowance pricing
Discounts: Cash, Quantity, Functional, Seasonal
Allowances: Trade-in, Promotional
2/10 net 30
Price cuts may be initiated due to
Falling demand in face of strong competitive price
Dominate market through lower costs
Retail price maintenance
Bait & Switch
Promoted price reductions
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