Product and Price
Product and Price
Product and Price
What is a product?
Classification of Products
• Product
– Everything one receives in an exchange, including all
tangible and intangible attributes and expected benefits
– A good, service, or idea
• Consumer product
– A product purchased to satisfy personal and family
needs
• Business (industrial) product
– A product bought for resale, for making other products,
or for use in a firm’s operations
Consumer Product Classifications
• Convenience product
– A relatively inexpensive, frequently purchased item for
which buyers want to exert only minimum effort
• Shopping product
– An item for which buyers are willing to expend
considerable effort on planning and making the purchase
• Specialty product
– An items that possesses one or more unique
characteristics for which a significant group of buyers is
willing to expend considerable purchasing effort
Business Product Classifications
• Raw material
– A basic material that becomes part of a physical product; usually
comes from mines, forests, oceans, or recycled solid wastes
• Major equipment
– Large tools and machines used for production purposes
• Accessory equipment
– Standardized equipment used in a firm’s production or office
activities
• Component part
– An item that becomes a part of a physical product and is either a
finished item ready for assembly or a product that needs little
processing before assembly
Business Product Classifications
(cont’d)
• Process material
– A material that is used directly in the production of
another product but is not readily identifiable in the
finished product
• Supply
– An item that facilitates production and operations but
does not become part of the finished product
• Business service
– An intangible product that an organization uses in its
operations
The Product Life Cycle
• A series of stages in which a product’s sales revenue and
profit increase, reach a peak, then decline
– Introduction
• Customer awareness and acceptance are low
– Growth
• Sales increase rapidly as the product becomes well known
– Maturity
• Sales are still increasing but at a slower rate; later in this stage, sales and
profits begin to slowly decline
– Decline stage
• Sales volume decreases sharply and profits continue to fall
Product Life Cycle
Using the Product Life Cycle
• Marketers should be aware of the life-cycle
stage of each product for which they are
responsible and should try to estimate how
long the product is expected to remain in that
stage
– Both must be taken into account in making
decisions about the marketing strategy for a
product
Product Line and Product Mix
• Product line
– A group of similar products that differs only in relatively minor
characteristics
• Product mix
– All of the products that a firm offers for sale
– Width of the mix
• The number of product lines the mix contains
– Depth of the mix
• The average number of individual products within each line
Example
Managing the Product Mix
• Managing existing products
– Product modification: the process of changing one or more of
a product’s characteristics such as quality, function, aesthetics
– Line extensions: development of a product closely related to
one or more products in the existing product line but designed
specifically to meet somewhat different customer needs
• Deleting products
• Developing new products
– Imitations, adaptations, or innovations
– Consists of seven phases
Why Do Products Fail?
• The product and its marketing program are not planned and
tested as completely as they should be
– For example, a firm tries to save product development
costs and only market-tests a product and not its entire marketing
mix
• The firm markets a new product before all the
“bugs” are worked out
• When problems show up in testing, a firm tries
to recover its costs by pushing ahead anyway
• A firm tries to market a product with
inadequate financing
Example of product failure
• Crystal Pepsi
caffeine-free Crystal Pepsi. The company promoted the product as a healthy and pure diet
beverage. Its $40 million advertising campaign included permission to use Van Halen’s hit song
Right Now in TV advertisements. Market tests at the time gave Crystal Pepsi such a positive outlook that
Coca-Cola released Tab Clear to compete with it. While sales over the first year were a strong $470 million,
many of the purchases were likely due to curiosity. Not only were consumers not convinced by Pepsi’s
health angle, but many cola-drinkers expected a darker beverage. Also hurting Crystal Pepsi’s
popularity: to many consumers it tasted just like original Pepsi.
Examples of Product Failures
Branding
• What is a brand?
– A name, term, symbol, design, or any combination
of these that identifies a seller’s products as distinct from those of
other sellers
– Brand name
• The part of a brand that can be spoken
– Brand mark
• The part of a brand that is a symbol or distinctive design
– Trademark
• A brand name or brand mark that is registered with the U.S. Patent and
Trademark Office and is legally protected from use by anyone else
– Trade name
• The complete and legal name of an organization
Branding (cont’d)
• Benefits of branding
– Because brands are easily recognizable, they reduce
the amount of time buyers must spend shopping
– Brands help consumers judge quality
– Branding helps a firm introduce a new product with
the same brand name
– Branding aids in promotional efforts because
promotion of each branded product indirectly
promotes others with the same brand
50 most valuable brands
Pricing Products
• Meaning and use of price
– The amount of money a seller is willing to accept in exchange
for a product at a given time and under certain circumstances
– Price allocates goods and services among those who are
willing and able to buy them
– Price allocates financial resources (sales revenue) among
producers according to how well they satisfy customers’
needs
– Price helps customers allocate their own financial resources
among various want-satisfying products
Pricing Products (cont’d)
• Price and non-price competition
– Price competition
• An emphasis on setting a price equal to or lower than competitors’
prices to gain sales or market share
– Non-price competition
• Competition based on factors other than price (such as quality,
customer service, packaging)
• Buyers’ perceptions of price
– Buyers will accept different ranges of prices for
different products
– A premium price may be appropriate if a product is considered
superior or has inspired strong brand loyalty
Pricing Objectives
• Survival
– Pricing the firm’s products (perhaps at a loss) in order to attract
customers to establish the firm in a market
• Profit maximization
– Pricing with the intent to reap profits as large as possible from a market
—usually an unattainable goal
• Target return on investment (ROI)
– Pricing that allows the firm to attain its profit goal, which is a
percentage of the investment the firm has made
Pricing Objectives (cont’d)
• Market-share goals
– Pricing that will increase a firm’s proportion of total industry sales
• Status quo pricing
– Pricing the firm’s products so as not to disturb the stability of prices in
the industry
Types of Pricing Strategies