BA 390 week 4
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This 9 page Class Notes was uploaded by Samantha Tucker on Thursday January 28, 2016. The Class Notes belongs to BA 390 at Oregon State University taught by Toombs in Winter 2016. Since its upload, it has received 27 views. For similar materials see Marketing in Business at Oregon State University.
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Date Created: 01/28/16
BA 390 Week 4 Chapter Nine New-Product Development and Product Life- Cycle Strategies New-Product Development Strategy Two ways to obtain new products o Acquisition: refers to the buying of a whole company, a patent, or a license to product someone else’s product. o New product development: refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development. Major States in New-Product Development o Idea Generation Idea generation: the systematic search for new-product ides Sources of new-product ideas Internal: the company’s own formal research and development, management and staff, and intrapreneurial programs External: sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms Crowdsourcing: inviting broad communities of people—customers, employees, independent scientists and researchers, and even the public at large—into the new-product innovation process. o Idea Screening Identify good ideas and drop poor ideas R-W-W screening framework Is it real? Can we win? Is it worth doing? o Concept Development and Testing Product idea: an idea for a possible product that the company can see itself offering to the market Product concept: detailed version of the ideas started in meaningful consumer terms. Product image: the way consumers perceive an actual or potential product Concept testing refers to testing new-product concepts with groups of target consumers. o Marketing Strategy Development Marketing strategy development refers to the initial marketing strategy for introducing the product to the market Marketing strategy statement includes Description of the target market Value proposition Sales and profit goals o Business analysis: involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives o Product development Involves the creation and testing of one or more physical versions by the R&D or engineering departments Requires an increase in investment Shows whether the product idea can be turned into a workable product o Test marketing: the stage at which the product and marketing program are introduced into more realistic marketing settings Provides the marketer with experience in testing the product and entire marketing program before full introduction When firms test market New product with large investment Uncertainty about product or marketing program When firms may not test market Simple line extension Copy of competitor product Low costs Management confidence Types of Test Markets Standard Controlled Simulated o Advantages Less expensive than other test methods Faster Restricts access by competitors o Disadvantages Not considered as reliable and accurate due to the controlled setting o Commercialization is the introduction of the new product When to launch Where to launch Planned market rollout Managing New-Product Development Successful new-product development should be: o Customer centered o Team-based o Systematic New-product development strategies o Customer-centered new product development: new ways to solve customer problems and create more customer satisfying experiences o Team-based new-product development: company departments work closely together in cross-functional teams, overlapping in the product-development process to save time and increase effectiveness o Systematic new-product development: innovative development approach that collects, reviews, evaluates, and manages new-product ideas Creates an innovation-oriented culture Yields a large number of new-product ideas Product Life-Cycle Strategies Product life cycle o Product development Sales are zero and investment costs mount o Introduction Slow sales growth and profits are nearly nonexistent High distribution and promotion expense o Growth Rapid market acceptance and increasing profits Sales increase New Competitors enter the market Price stability or decline to increase volume Consumer education Promotion and manufacturing costs gain economies of scale o Maturity Slowdown in sales growth and profits level off or decline Many suppliers Substitute products Overcapacity leads to competition Increased promotion and R&D to support sales and profits Modifying strategies Market modifying Product modifying Marketing mix modifying o Decline Sales fall off and profits drop Maintain the product Harvest the product Drop the product Chapter Ten Pricing: Understanding and Capturing Customer Value What is a price? Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service Price is the only element in the marketing mix that produces revenue; all other element represent costs. What is the price of a Pencil? Convenience Transaction Cost o Cost to drive ($0.57 per mile) o Time ($9.25/hour Oregon minimum wage) o Cost to wait (missed midterm) Major Pricing Strategies Customer Value-Based pricing o Value-based pricing uses the buyers’ perceptions of value, not the sellers cost, as the key to pricing Value-based pricing is customer driven Cost-based pricing is product driven Cost-based pricing is product driven Price is considered before the marketing program is set COST BASED V. Value-based pricing o Good-value pricing: offers the right combination of quality and good service at a fair price o Everyday low pricing (EDLP): charging a constant everyday low price with few or no temporary price discounts Ex: Aldi o High-low pricing: charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items Ex: Sears o Value-added pricing: attaches value-added features and services to differentiate offers, support higher prices, and build pricing power Ex: Nordstrom and Ritz Carlton Cost-based pricing o 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 Cost-based pricing adds a standard markup to the cost of the product. o Fixed costs are the costs that do not vary with production or sales level Rent, heat, interest, executive salaries o Variable costs are the costs that vary with the level of production Ex: packaging and raw materials o Total costs are the sum of the fixed and variable costs for any given level of production Costs as a function of production experience o Experience or learning curve is when average cost falls as production increases because fixed costs are spread over more units Cost-plus pricing o Cost-plus pricing adds a standard markup to the cost of the product Benefits Sellers are certain about costs Prices are similar in industry and price competition is minimized Buyers feel it is fair Disadvantages Ignores demand and competitor prices Break-even analysis and Target Profit Pricing o Break-even pricing: the price at which total costs are equal to total revenue and there is no profit o Target return pricing: the price at which the firm will break even or make the profit it’s seeking. Competition-based pricing o Setting prices based on competitors’ strategies, costs, prices, and market offerings. o Consumers will base their judgments of a product’s value on the prices that competitors charge for similar products. Other internal and external considerations affecting price decisions Target costing: starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met. Organizational considerations include: o Who should set the price o Who can influence the prices The Market and Demand o Before setting prices, the marketer must understand the relationship between price and demand for its products. o The demand curve shows the number of units the market will buy in a given period at different prices Normally, demand and price are inversely related (price goes up, demand goes down) For luxury goods, higher price can equal higher demand when consumers perceive higher prices as higher quality. o Price elasticity of demand illustrates the response of demand to a change in price Inelastic demand => when demand hardly changes with a small change in price Elastic demand => demand changes greatly with a small price change Price elasticity of demand = % change quality demanded / % change in price Competition o Pure competition o Monopolistic competition o Oligopolistic competition o Pure monopoly Miscellaneous o Economic conditions o Reseller’s response to price o Government o Social concerns BA 390 week 4 session 2 Chapter Eleven Pricing Strategies New-Product Pricing Strategies Market-skimming pricing: a strategy with high initial prices to “skim” revenue layers from the market o Monopoly price o Product quality and image must support the price o Buyers must want the product at the price o Costs of producing the product in small volume should not cancel the advantage of higher prices o Competitors should not be able to enter the market easily Market-penetration pricing: sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share o Price sensitive market o Low prices must keep competition out of the market Product Mix Pricing Strategies Product line pricing: takes into account the cost differences between products in the line, customer evaluation of their features and competitors’ prices Optional-product pricing: takes into account optional or accessory products along with the main product. Captive-product pricing: involves products that must be used along with the main product. o Ex: Cruises all you can drink passes o Ex: Pepsi at Oregon State Captive-product pricing: involves products that must be used along with the main product o Ex: Disney Land; restaurants and merchandise Product bundle pricing: combines several products at a reduced price o Ex: Tool sets Price-adjustment strategies Discount and allowance pricing: reduces prices to reward customer responses such as paying early or promoting the product o Ex: Airlines Segmented pricing: used when a company sells a product at two or more prices even though the difference is not based on cost o Ex: Evian o Customer-segment pricing o Product-form pricing o Location-based pricing o Time0based pricing Segmented Pricing To be effective: Market must be segmentable Segments must show different degrees of demand Costs of segmenting and reaching the market cannot exceed the extra revenue obtained from the price difference Must be legal Psychological pricing: occurs when sellers consider the psychology of prices and not simply the economics. Reference prices: prices that buyers carry in their minds and refer to when looking at a given product o Noting current prices o Remembering past prices (ex: Gas (car) consumption simply drops off after $4/gallon) o Assessing the buying situations Promotional pricing: when prices are temporarily priced below list price or cost to increase demand o Loss leaders o Special event pricing o Cash rebates o Low-interest financing o Longer warranties o Free maintenance o Risks of promotional pricing Used too frequently, and copied by competitors, can create “deal-prone” customers who will wait for promotions and avoid buying at regular price Can erode brand value in eyes of customers Creates price wars Geographical pricing: used for customers in different parts of the country or the world o FOB-origin pricing “Free on board” means that the goods are delivered to the carrier and the title and responsibility passes to the customer o Uniform-delivered pricing Means the company charges the same price plus freight to all customers, regardless of location o Zone pricing Means that the company set up two or more zones where customers within a given zone pay a single total price o Basing-point pricing Means that a seller selects a given city as a “basing point” and charges all customers the freight cost associated from that city to the customer location, regardless of the city from which the goods are actually shipped o Freight-absorption pricing Means the seller absorbs all or part of the actual freight charge as an incentive to attract business in competitive markets. Dynamic pricing: when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations o Ex: airlines and price wars Internet pricing: when prices are set in a specific country based on country-specific factors o Economic conditions o Competitive conditions o Laws and regulations o Infrastructure o Company marketing objective Price Changes Initiating pricing changes o Price cuts occur due to Excess capacity Increased market share o Price increase from Cost inflation Increased demand Lack of supply Buyer reactions to pricing changes o Price increases Product is “hot” Company greed o Price cuts New models will be available Models are not selling well Quality issues o Questions Why did the competitor change the price? Is the price cut permanent or temporary? What is the effect on market share and profits? Will competitors respond? o Solutions Reduce price to match competition Maintain price but raise the perceived value through communications Improve quality and increase price Launch a lower-price “fighting” brand Public Policy and Pricing Pricing within channel levels o Price fixing: sellers must set prices without talking to competitors o Predatory pricing: selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business o Robinson-Patman Act: Prevents unfair price discrimination by ensuring that the seller offer the same price terms to customers at a given level of trade Price discrimination is allowed: If the seller can prove that costs differ when selling to different retailers If the seller manufactures different qualities of the same product for different retailers o Retail (or resale) price maintenance: when a manufacturer requires a dealer to charge a specific retail price for its products. Laws prohibit this. o Deceptive pricing; occurs when a seller states prices or price savings that misled consumers or are not actually available to consumers. Scanner fraud failure of the seller to enter current or sale prices into the computer system Price confusion results when firms employ pricing methods that make it difficult for consumers to understand what price they are really paying
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