small business marketing: product and pricing strategies chapter 9 © 2014 by mcgraw-hill education....
TRANSCRIPT
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Small Business Marketing:
Product and Pricing Strategies
Chapter 9
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objectives
LO1 Recognize the characteristics of goods and services.LO2 Define the total product.LO3 Differentiate the stages of new product
development.LO4 Understand why pricing is an important but difficult
task for small business.LO5 Understand how elasticity, margin, and value
impact pricing setting.LO6 Apply different pricing strategies.
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4 Ps of Marketing
4 Ps of Marketing The four major components of a marketing effort
—product, price, promotion, and placement. Also called the marketing mix
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Goods-Services Mix
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Figure 9.1
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Product
Product anything that is offered to the market to satisfy
consumer wants, needs, and demands goods, services, people, ideas
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Product
Tangibility An item’s capability
of being touched, seen, tasted, or felt
Perishability service exhibits
perishability in that if it is not used when offered, it cannot be saved for later use.
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Product
Inseparability A quality of a
service in which the service being done cannot be disconnected from the provider of the service.
Heterogeneity A quality of a
service in which each time it is provided it will be slightly different from the previous time.
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The Total Product Approach
Total product The entire bundle of products, services, and
meanings of your offering; includes extras like service, warranty, or delivery, as well as what the product means to the customer.
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The Total Product Approach
Augmented product core product plus features that tend to
differentiate it from the competition brand names, quality levels, packaging
Core product basic description of what a product is
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The Total Product Approach
Your product means more to the consumer than just the core component
Can help you get inside your customers’ heads and figure out the most cost-effective “bundle” of value and cost benefits
Knowing what your product “means” to consumers will help you set an appropriate price
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Guidelines for Naming a Business
Entrepreneur’s name Not very clear to customers what you do How to handle name if you sell the company Is your name appropriate: i.e. Payne for a dentist
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Guidelines for Naming a Business
Be careful about infringing on trademarksSomething that describes firm or product and
is easy to remember: “Discount Furniture”Creative spellings are eye-catching; don’t go
overboardBeware of selecting a name too narrow to
allow the firm to grow
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Stages of New ProductDevelopment
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Figure 9.2
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New Product Development Process
Me-too products Products essentially
similar to something already on the mark
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Areas for Idea Screening
1. Product—innovativeness and uniqueness2. Market—customer need and market size, and 3. Intellectual property4. People behind the idea,5. Additional resources needed to bring the
idea to market6. Profitability of the idea
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Idea Screening Comparison
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Exhibit 9.1
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Idea Evaluation
Idea evaluation exhaustive process of specifying the details of
each idea’s technological feasibility, its cost, how it can be marketed, and its market potential
Basic evaluation tool is the feasibility analysis
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Commercialization
Commercialization the process of making the new product available
to consumers
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Pricing
Optimum price refers to the highest price that would produce
your desired level of sales (or revenues) in your target market.
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Key Factors for Determining Optimum Price
Demand for the product or serviceValue delivered to the customerPrices set by competing firmsYour business strategy and product placement
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The Fundamentals of Pricing: Margin Pricing and Elasticity
Markup pricing A price-setting
method where an amount is added to the cost of a product to set the retail price and provide a profit.
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The Fundamentals of Pricing: Margin Pricing and Elasticity
Margin The amount of
profit, usually stated as a percentage of the total price.
Markup The amount an
entrepreneur adds to costs to provide a profit
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Computing Margin and Markup
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Exhibit 9.2
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The Fundamentals of Pricing: Margin Pricing and Elasticity
Elasticity From economics, the idea that the market’s
demand for a product or service is sensitive to changes in its price.
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Price Elasticity
Inelastic product product for which there are few substitutes and
for which a change in price makes very little difference in quantity purchased
Elastic product product for which there are any number of
substitutes and for which a change in price makes a difference in quantity purchased
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Pricing Elasticity
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Figure 9.3
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The Fundamentals of Pricing: Value
The value delivered to the customer is second in order of importance to the pricing decision
In addition to demand and value provided, you must consider the prices set by your competition
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The Fundamentals of Pricing—Contextual Factors
Decide what is the right priceExamine existing market prices for similar
products and servicesConsider your business costs
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The Fundamentals of Pricing—Contextual Factors
Your Company Objectives
Marketing Strategy
Channels of Distribution
Competition
Legal and Regulatory Issues
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Pricing Psychology: How Customers Perceive Prices
Internal reference price a consumer’s mental image of what a product’s
price should beExternal reference price
an estimation of what a price should be based on advice, advertisements, or comparison shopping
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Pricing Strategies
Skimming Setting a price at the highest level the market will
bear, usually because there is no competition at the time.
Prestige or premium pricing Setting a price above that of the competition so
as to indicate a higher quality or that a product is a status symbol.
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Pricing Strategies
Odd-even pricing Setting a price that ends in the number 5, 7, or 9.
Partitioned pricing Setting the price for a base item and then
charging extra for each additional component.
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Pricing Strategies
Captive pricing Setting the price for an item relatively low and
then charging much higher prices for the expendables it uses.
Price lining The practice of setting (usually) three price
points: good quality, better quality, best quality.
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Price-Lowering Techniques
Periodic or random discounting Sales conducted at either predictable or non-
predictable intervals.Off-peak pricing
Charging lower prices at certain times to encourage customers to come during slack periods
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Price-Lowering Techniques
Bundling Combining two or more products in one unit and
pricing it less than if the units were sold separately.
Multiple or bonus pack Combining more than one unit of the same
product and pricing it lower than if each unit were sold separately.
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Price-Lowering Techniques
Coupons, Rebates, Loyalty and Referral Programs
Referral discount A discount given to a
customer who refers a friend to the business
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Pricing Strategy Wrap-up
Temporary reduction in price won’t tarnish your product image
Consumers also feel smart about buying something at a better price
They will feel they got a great deal
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