marketing chapter 8-11

Product
Anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need
Service
Any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything
Consumer product
Product bought by final consumer for personal consumption
Convenience product
Consumer product that the customer usually buys frequently, immediately, and with a minimum of comparison and buying effort
Shopping product
Consumer good that the customer, in the process of selection and purchase, characteristically compares on such bases as suitability, quality, price, and style
Specialty product
Consumer product with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort
Unsought product
Consumer product that the consumer either does not know about or knows about but does not normally think of buying
Industrial product
Product bought by individuals and organizations for further processing or for use in conducting a business
Social marketing
The design, implementation, and control of programs seeking to increase the acceptability of a social idea, cause, or practice among a target group
Product quality
The ability of a product to perform its functions—it includes the product’s overall durability, reliability, precision, ease of operation and repair, and other valued attributes
Brand
A name, term, sign, symbol, or design, or a combination of these intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors
Packaging
The activities of designing and producing the container or wrapper for a product
Product line
A group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges
Product mix (or product assortment)
The set of all product lines and items that a particular seller offers for sale
Brand equity
The positive differential effect that knowing the brand name has on customer response to the product or service
Private brand (or store brand)
A brand created and owned by a reseller of a product or service
Co-branding
The practice of using the established brand names of two different companies on the same product
Line extension
Using a successful brand name to introduce additional items in a given product category under the same brand name, such as new flavors, forms, colors, added ingredients, or packaging sizes
Brand extension
Using a successful brand name to launch a new or modified product in a new category
Service intangibility
A major characteristic of services—they cannot be seen, tasted, felt, heard, or smelled before they are bought
Service inseparability
A major characteristic of services—they are produced and consumed at the same time and cannot be separated from their providers
Service variability
A major characteristic of services—their quality may vary greatly, depending on who provides them and when, where, and how
Service perishability
A major characteristic of services—they cannot be stored for later sale or use
Service-profit chain
The chain that links service firm profits with employee and customer satisfaction
Internal marketing
Marketing by a service firm to train and effectively motivate its customer-contact employees and all the supporting service people to work as a team to provide customer satisfaction
Interactive marketing
Marketing by a service firm that recognizes that perceived service quality depends heavily on the quality of buyer-seller interaction
Market Offering
basis upon which the company builds profitable customer relationships
pure tangible good
such as soap, toothpaste, or salt – no services accompany the product
pure services
doctor’s exam, financial services – offer consists primarily of a service
core customer value
What is the customer really buying? What consumers seek from the product
actual product
product and service features, design, a quality level, a brand name, and packaging
augmented product
additional consumer services and benefits
materials and parts
raw materials and manufactured materials and parts. Raw materials consist of farm or natural products
capital items
industrial products that aid in the buyer’s production or operations, including installations and accessory equipment
supplies and services
operating supplies, and repair and maintenance items; purchased with minimum effort or comparison
organization marketing
activities undertaken to create, maintain, or change the attitudes and behavior of target consumers toward an organization
corporate image advertising
polishing your image
person marketing
activities undertaken to create, maintain, or change attitudes or behavior toward particular people
place marketing
activities undertaken to create, maintain, or change attitudes or behavior toward particular places
Total Quality Management
the company’s people are involved in constantly improving the quality of products, services, and business processes
product line length
the number of items in the product line
product mix width
the number of different product lines the company carries
mix length
total number of items the company carries within its product lines
product mix depth
number of versions offered of each product in the line
Price
The amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service.
Value-based pricing
Setting price based or buyers’ perceptions of value rather than on the seller’s cost.
Good-value pricing
Offering just the right combination of quality and good service at a fair price.
Value-added pricing
Attaching value-added features and services to differentiate a company’s offers and charging higher prices.
Cost-based pricing
Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.
Fixed costs
Costs that do not vary with production or sales level.
Variable costs
Costs that vary directly with the level of production.
Total costs
The sum of the fixed and variable costs for any given level of production.
Experience curve (learning curve)
The drop in the average per-unit production cost that comes 4jth accumulated production experience.
Cost-plus pricing
Adding a standard markup to the cost of the product.
Break-even pricing (target profit pricing)
Setting price to break ever’ on the costs of making and marketing a products or setting price to make a target profit.
Target costing
Pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met.
Demand curve
A curve that shows the number of units the market will buy in a given time period, at different prices that might be charged.
Price elasticity
A measure of the sensitivity of demand to changes in price.
Market-skimming pricing
Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales.
Market-penetration pricing
Setting a low price for a new product in order to attract a large number of buyers and a large market share.
Product line pricing
Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices.
Optional-product pricing
The pricing of optional or accessory products along with a main product.
Captive-product pricing
Setting a price for products that must be used along with a main product, such as blades for a razor and film for a camera.
By-product pricing
Setting a price for by-products in order to make the main-product’s price more competitive.
Product bundle pricing
Combining several products and offering the bundle at a reduced price.
Discount
A straight reduction in price on purchases during a stated period of time.
Allowance
Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacture products in some way.
Segmented pricing
Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.
Psychological pricing
A pricing approach that considers the psychology of prices and not simply the economics; the price is used to say something about the product.
Reference prices
Prices that buyers carry in their minds and refer to when they look at a given product.
Promotional pricing
Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.
Geographical pricing
Setting prices for customers located in different parts of the country or world.
FOB-origin pricing
A geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination.
Uniform-delivered pricing
A geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location.
Zone pricing
A geographical pricing strategy in which the company sets up two or more zones. All customers within a zone pay the same total price; the more distant the zone, the higher the price.
Basing-point pricing
A geographical pricing strategy in which the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer.
Freight-absorption pricing
A geographical pricing strategy in which the seller absorbs all or part of the freight charges in order to get the desired business.
Dynamic pricing
Adjusting prices continually to meet the characteristics and needs of individual customers and situations.
Price: Internal Factors
Pricing Objectives;
Marketing Mix strategies;
Other products;
Costs
Pricing Objectives
What does the company want to achieve?

Profit maximization; Sales; Market share leadership (common); Unit volume; Survival (keep in business); Decrease demand (peak/off-season); Social responsibility (rare drugs)

Marketing Mix strategies
Price must match quality, customer expectation
Other products
differentiate from other products on the market
Costs
Costs of producing;

Cost of changing price (stamps, catalogue);
Learning curve (where in product life cycle);
Economies of scale;

Total Revenue =P*Q Total Cost (TC = (VC*Q) + FC Fixed cost (FC) Variable Cost (VC); Profit = Total Revenue-Total Cost;

External Factors
Competitive market;

Consumers perceptions;

Stage in PLC;

Competitors’ prices;

Demand

Competitive market
pure monopoly;

oligopoly;

monopolistic competition;

pure competition

pure monopoly
regulated: utilities, price set by government;

non-regulated: baseball, price limited by consumer

oligopoly
few companies control majority of market; tobacco, beer
monopolistic competition
company captures niche market and acts like mini-monopoly;

prices based on prestige

pure competition
no differentiation between products (commodities);

price set by supply and demand

Consumers perceptions
prices are high if customers really like product;

balance based on quality and value

Stage in Product Life Cycle
brand new products are expensive;

mature products are cheaper

Competitors’ prices
prices limited by prices of similar products
Estimating Demand and Revenue
curve plotted with intent of showing demand at different price points
Demand (shifts in demand curve)
seek to shift curve allow increased prices and sales;

based on
Consumer tastes;
Substitute products;
Consumer income

Consumer tastes
shifts demand curve if great product or trendy
Substitute products
alternatives limit ability to shift curve, may even lower it
Consumer income
convince higher income groups to buy
Price Demand Relationship
Demand curves; Price elasticity
Demand curves
most goods – straight line, higher price, lower quantity;

prestige goods – curved line, low quantity at high & low prices, highest quantity and middle price

Price elasticity
inelastic – price doesn’t effect demand (prestige)

elastic – demand drops as price increases

Select an Appropriate Price Level
Cost-based methods;

Break-even Analysis;

Value-Based Pricing;

Competition-based methods

Cost-based methods
standard markup;

markup chain

standard markup
markup = price – cost;

% = markup/price;

price = cost/1-%;

might round price up to make it more acceptable to consumer

markup chain
manufacturer – wholesaler – retailer – customer;

manufacturer price is wholesaler cost;
wholesaler price is retailer cost;

Break-even Analysis
profit = 0;

Q = FC / P-VC

Value-Based Pricing
price and quality must satisfy customer;

B2B – sell products that reduce costs

Competition-based methods
Going rate – competitors;

Loss-leader — designed to get customers into store;

Sealed-bid — don’t know competition price

New Product Pricing Strategies
Market Skimming pricing – price high to get rich/innovators, slowly lower to maximize each stage;

Market Penetration pricing – price low to generate sales in order to benefit from economies of scale (must be elastic product)

Product Mix Pricing Strategies
Product Line pricing;

Optional-Product Pricing;

Captive Product Pricing;

Product bundle Pricing

Product Line pricing
price must be enough different to get customer to notice otherwise won’t buy cheaper line
Optional-Product Pricing
negotiate price
Captive Product Pricing
sales to customers that don’t have choice:

theater, amusement park

Product bundle Pricing
group products, may not be cheaper
Price Adjustment Strategies
Discount / Allowance;

Segmented;

Psychological;

Promotional;

Geographic;

International

Discount / Allowance
discount (cash, student, ladies-night);

allowance (trade-in)

Segmented
different customer segments
Psychological
price at 99 cents;

prestige pricing

Promotional
put on sale below normal price
Geographic
shipping, tax
International
transportation, tariffs, median income
Legal aspects
Price-fixing;

Price discrimination;

Deceptive;

Predatory

Price-fixing
must prove collusion
Price discrimination
Customer – student, seasonal;

Product form – change image/packaging, package with other desirable items;

Location – seat in stadium, hotel rooms with view;

Time – parking pre-sale, matinee

Deceptive
bait & switch;

inflating price before 2for1;

comparable value must be legit

Predatory
lower prices to drive competition out of business, then raise prices.
New-product development
The development of original products, product improvements, product modifications, and new brands through the firms own R&D efforts.
Idea generation
The systematic search for new-product ideas.
Idea screening
Screening new-product ideas in order to spot good ideas and drop poor ones as soon as possible
Product concept
A detailed version of the new-product idea stated in meaningful consumer terms.
Concept testing
Testing new-product concepts with a group of target consumers to find out if the concepts have strong consumer appeal.
Marketing strategy development
Designing an initial marketing strategy for a new product based on the product concept.
Business analysis
A review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the company’s objectives.
Product development
Developing the product concept into a physical product in order to ensure that the product idea can be turned into a workable product.
Test marketing
The stage of new-product development in which the product and marketing program are tested in more realistic market settings.
Commercialization
Introducing a new product into the market.
Sequential product development
A new-product development approach in which one company department works to complete its stage of the process before passing the new product along to the next department and stage.
Simultaneous (or team-based) product development
An approach to developing new products in which various company departments work closely together, overlapping the steps in the product-development process to save time and increase effectiveness.
Product life cycle (PLC)
The course of a product’s sales and profits over its lifetime. It involves 5 different stages: product development, introduction, growth, maturity, and decline.
Style
A basic and distinctive mode of expression
Fashion
A currently accepted or popular style in a given field
Fad
A temporary period of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity
Introduction stage
The product life-cycle stage in which the new product is first distributed and made available for purchase.
Growth stage
The product life-cycle stage in which a product’s sales start climbing quickly
Maturity stage
The stage in the product life cycle in which sales growth slows or levels off
Decline stage
The product life-cycle stage in which a product’s sales decline
Distributors
close to the market and can pass along information about consumer problems and new-product possibilities.
Suppliers
tell the company about new concepts, techniques, and materials that can be used to develop new products.
Competitors
buy competing new products, take them apart to see how they work, analyze their sales, and decide whether they should bring out a new product of their own
R-W-W
real, win, worth it; is it real? can we win? is it worth doing?
product idea
idea for a possible product that a company can see itself offering to the market
product concept
detailed version of the idea stated in meaningful consumer terms
product image
the way consumers perceive an actual or potential product
marketing strategy statement
3 parts: 1) target market, planned value proposition, sales and market share.; 2) product’s planned price for distribution and marketing budget.; 3) planned long-run sales, profit goals, and marketing mix strategy