introduction to business chapter 12 creating and pricing products
Post on 19-Dec-2015
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INTRODUCTION TO BUSINESS
CHAPTER 12
Creating and Pricing Products
Background on Products
Product: a physical good or service that can satisfy consumer needs.
Convenience products: products that are widely available to consumers, are purchased frequently, and are easily accessible.
Specialty products: products that are not purchased frequently.
Background on Products
Product line: a set of related products or services offered by a single firm.
Product mix: the assortment of products offered by a firm. Diversifying the Product Mix
Improving the Convenience of the Product
Product Life Cycle Phases
Identifying a Target Market
Target market: a group of individuals or organizations with similar traits who may purchase a particular product.
Consumer markets
Industrial markets
Identifying a Target Market
Factors That Affect the Size of a Target Market Demographics: characteristics of the human
population or specific segments of the population.
Geography Economic Factors Social Values
The Use of E-Marketing to Expand the Target Market
Changes in Consumer Characteristics
Your Business Plan
GenderEthnicity (optional)Income level (10K range)Geographic RangeSocial Values (lifestyle)Other
Creating New Products
Obsolete: less useful than in the past. Fashion obsolescence: no longer being in
fashion. Technological obsolescence: being inferior to
new products.
Steps Involved in Creating or Revising a Product
Product Differentiation
Some products are primarily differentiated from others by their packaging, like the perfume in this photo. The packaging is intended to attract a particular target market.
Product Differentiation
Unique Branding Branding: a method of identifying products
and differentiating them from competing products.
Trademark: a brand’s form of identification that is legally protected from use by other firms.
Product DifferentiationMethods Used to Differentiate Products
Pricing Strategies
Pricing According to the Cost of Production Cost-based pricing: estimating the per-unit
cost of producing a product and then adding a markup.
Economies of Scale Pricing According to the Supply of Inventory
Pricing Strategies
Pricing According to Competitors’ Prices Penetration pricing: the strategy of setting a lower
price than those of competing products to penetrate a market.
(Price-elastic: the demand for a product is highly responsive to price changes. Price-inelastic: the demand for a product is not very responsive to price changes.)
Defensive pricing: the strategy of reducing a product’s price to defend (retain) market share.
Predatory pricing: the strategy of lowering a product’s price to drive out new competitors.
Prestige pricing: the strategy of using a higher price for a product that is intended to have a top-of-the-line image.
Pricing Strategies -REQUIRED
Competition Defensive Predatory Prestige Skimming Penetration
SupplyCost
Pricing Strategies
Boutique clothing shops, such as the one shown here, commonly charge relatively high prices to denote prestige and attract customers who want special designer clothing.
Pricing Strategies
Example of Setting a Product’s Price Fixed costs: operating expenses that do not
change in response to the number of products produced.
Variable costs: operating expenses that vary directly with the number of products produced.
Pricing Strategies
Break-Even Point: the quantity of units at which total revenue equals total cost. Contribution margin: the difference between
price and variable cost per unit. www.javacalc.com (let’s go there!)
Pricing Technology-Based Products
Pricing StrategiesEstimation of Costs and Revenue at Various Quantities Produced
Pricing StrategiesEstimation of Costs and Revenue at Various Quantities Produced
Additional Pricing Decisions
Discounting Sales Prices Credit Terms