Product Design

Pricing and Strategies

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Chapter Objectives

Differentiate between a product item and

product line.

Classify products as consumer goods or business

goods.

Explain the seven steps in developing a new product.

Identify the stages in a product’s life cycle.

Define price and the role it plays in determining profit.

Describe the factors that affect pricing decisions.

Identify pricing strategies.

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Product Defined

A specific model of athletic

shoe would be called a

product item.

product item specific

model or size of a

product

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The entire group of a

manufacturer’s athletic

shoes would be called a

product line.

Product Defined

Products can be classified

as consumer goods or

business goods.

consumer goods goods

purchased and used by

the ultimate consumer for

personal use

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business goods goods

purchased by

organizations for use in

their operations

Products need to have a

point of difference.

point of difference a

unique product

characteristic or benefit

that sets it apart from a

competitor

Steps in New Product

Development

The seven steps in new

product development are:

focus group a panel of

six to ten consumers who

discuss opinions about a

topic under the guidance

of a moderator

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1. SWOT analysis (strengths,

weaknesses, opportunities,

and threats)

2. Idea generation

3. Screening and evaluation

– Focus group continued

Steps in New Product

Development

commercialization

process that involves

producing and marketing

a new product

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4. Business analysis

5. Development

continued

6. Test marketing

7. Commercialization

Product Life Cycle

The four stages in the product life cycle are:

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Introduction

Growth Maturity

Decline

Product Life Cycle

Not all products fit the life-cycle pattern.

Management of the

Product Life Cycle

The three ways to manage

the product life cycle are:

repositioning changing

a product’s image in

relation to a competitor’s

image

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Modifying the product.

Marketing the product.

Repositioning the

product.

Operating an e-tail business on an electronic channel—the Web—can be costly, due to design, delivery, returns, and operating expenses. Though Many larger dot-com companies crashed in the 1990’s, small stores like Harris Cyclery of West Newton, Massachusetts, actually increase sales using a basic Web site. Today, a third of Harris’s bicycle business rides in on the Web to get hard-to-find parts and personal service. Describe an e-business’s home page to your class after viewing one through marketingseries.glencoe.com.

E-Trading Collectibles

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caused lower prices. However, the latest hot items are

autographs from Hall of Famers—and top players who don’t

often sign baseballs, photographs, jerseys, or bats. You can

find and bid on these curios at collectibles Web sites,

including eBay—but be sure to get authentication when you

score that vintage ball signed by Mickey Mantle.

For more information on sports and entertainment marketing,

go to marketingseries.glencoe.com.

A box of baseball cards may not be

worth the price of college tuition

anymore, because the so-called bull

market for sports collectibles peaked

in the 1990s. Lower demand has

Explain the seven steps involved in

developing a new product.

Name the four stages in the product

life cycle.

What three things can be done to manage a

product through its life cycle?

1.

2.

3.

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Pricing

Price is important in a

business because it helps

determine a company’s

profit or loss.

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price the value placed

on goods or services

being exchanged

Price plays a significant role

in the marketing mix.

Determining Profit

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1,000

baseball

bats sold

$175 each

$175,000

revenue = - $90,000 to

purchase

the bats

$90 each

- $60,000

in business

expenses =

$25,000

Profit

Subtract the cost of goods sold and the company’s

expenses from the money it generated in sales revenue.

Pricing Considerations

and Strategies

Three types of pricing

strategies are:

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prestige pricing pricing

based on consumer

perception

Prestige pricing

Odd-even pricing

Target pricing

odd-even pricing

pricing goods with either

an odd number or even

number to match a

product’s image

target pricing pricing

goods according to what

the customer is willing

to pay

Pricing Considerations

and Strategies

Other pricing considerations

include:

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markup difference

between the retail or

wholesale price and the

cost of an item Demand

Cost

– Markup

– Cost-plus pricing

Newness of the product

cost-plus pricing

pricing products by

calculating all costs and

expenses and adding

desired profit

non-price competition

competition between

businesses based on

quality, service, and

relationships

Competition

– Non-price competition

Pricing Objectives and

Strategies

Pricing objectives and

strategies include:

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market share the percentage of

the total sales of all companies

that sell the same type of product

Profit objective

Market share objective

Special pricing

– Price lining

– Bundle pricing

– Loss-leader pricing

– Yield-management pricing

price lining selling all goods in

a product line at specific price

points

bundle pricing selling several

items as a package for a set price

loss-leader pricing pricing an

item at cost or below cost to draw

customers into the store

yield-management pricing

pricing items at different prices to

maximize revenue when limited

capacity is involved – Tiered pricing

Price Adjustments and

Regulations

Manufacturers will offer discounts in the following

situations:

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Buying in large quantities

Buying prior to the buying season

Allowances are reductions taken from the quoted

price. One type of allowance is a trade-in.

Price Adjustments and

Regulations

The Sherman Anti-Trust Act

prohibits price fixing and

predatory pricing.

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price fixing an illegal

practice whereby

competitors conspire to

set the same price

Price discrimination was

originally prohibited by the

Clayton Act and later by the

Robinson-Patman Act.

How is pricing related to profit and the

marketing mix?

List five factors that affect price decisions.

What are two common pricing objectives

and special pricing strategies?

1.

2.

3.

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