12

Setting Product Strategy

Marketing Management, 13th ed

 What is a Product?

A product is anything that can be

offered to a market to satisfy a want or
need, including physical goods,
services, experiences, events, persons,
places, properties, organizations,
information, and ideas.

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 12-2

 Components of the Market Offering

Value-based prices

Attractiveness
of the market
offering

Product Services
features mix and
and quality quality
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 Five Product Levels
1. Core benefit: benefit the customer is really buying. A
hotel guest is buying "rest and sleep"
2. Basic product. A hotel room includes a bed, bathroom,
towels, desk, dresser, and closet.
3. Expected product: buyers normally expect when they
purchase this product. Hotel guests expect a clean bed,
fresh towels, working lamps, and quiet.
4. Augmented product: exceeds customer expectations;
brand positioning and competition.
5. Potential product: company search for new ways to
satisfy customers& distinguish their offering in the future

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 Product Classification Schemes
Durability Tangibility Use

Nondurable goods: tangible goods, consumed

in one or a few uses. Strategy: many locations,
small margin, and advertise heavily
Durable goods: tangible goods, survive many
uses. Strategy: personal selling, higher margin,
guarantees
Services: intangible, variable, perishable.
Strategy: quality control, credibility, adaptability
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 Consumer Goods Classification
Convenience goods: frequently, immediately
purchased (F&B)
Shopping goods: consumer compares on
bases as suitability, quality, price, and style
(furniture, clothing & home appliances)
Specialty goods have unique characteristics
(cars, photographic equipment)
Unsought goods: the consumer doesnt
normally think of buying (life insurance,
cemetery plots )

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 Industrial Goods Classification
Materials and parts: raw materials (farm,
natural); manufactured materials and parts
(materials, parts)
Capital items: installations (buildings, heavy
equipment) and equipment (portable factory&
tools, office equipment)
Supplies/business services: supplies
(maintenance&repair, operating supplies);
business services (maintenance and repair
services ; business advisory services)

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 Product Differentiation

Product form
Features
Customization
Performance
Conformance
Durability
Reliability
Repairability
Style

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 Service Differentiation

Ordering ease
Delivery
Installation
Customer training
Customer consulting
Maintenance and
repair
Returns

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 Product Mixes

Product mix: Depth, Length, Width, Consistency

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 Product Line Analysis
Sales and
Profits

Market Profile

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 Products Classification (gross margins)
Core products. High sales volume, heavily
promoted but with low margins (basic laptop).
Staples. Lower sales volume, no promotion,
higher margin (faster CPUs or bigger RAM)
Specialties. Lower sales volume but highly
promoted, generate income for services
(digital moviemaking equipment)
Convenience items. High volume but less
promotion, (accessories)

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 12-12

 A company lengthens its product line in two
ways: line stretching and line filling
1. Line Stretching: company lengthens its
product line beyond its current range
a. Down-Market Stretch
b. Up-Market Stretch
c. Two-Way Stretch
2. Line Filling: adding more items within the
present range

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 12-13

 Product-Mix Pricing

Product-line pricing (low, avg, hi)

Optional-feature pricing (MPV)
Captive-product pricing (HP)
Two-part pricing (PSTN)
By-product pricing (petroleum)
Product-bundling pricing (medical
equipment+installation+training)

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 Co-Branding& Ingredient Branding

Co-branding: two/more well-known brands are

combined into a joint product or marketed
(telkomsel-samsung, McD-coca cola)

Ingredient branding: creates brand equity for

components, or parts that are necessarily
contained within other branded products
(asus-intel)

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 12-15

 Packaging

Packaging is all the activities of designing and

producing the container for a product.

Factors Contributing to the Packaging:

1.Self-service
2.Consumer affluence
3.Company/brand image
4.Innovation opportunity

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 Packaging Objectives

Identify the brand

Convey descriptive and persuasive
information
Facilitate product transportation and
protection
Assist at-home storage
Aid product consumption

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 Functions of Labels

Identifies

Grades

Describes

Promotes

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 Warranties and Guarantees

Warranties: formal statements of expected

product performance by the manufacturer.
Products under warranty can be returned or
designated repair center

Guarantees reduce the buyer's perceived

risk. They suggest that the product is of high
quality and that the company and its service
performance are dependable

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 12-19

 14
Developing Pricing
Strategies and Programs

Marketing Management, 13th ed

 A Changing Pricing Environment

Get instant price comparisons from

thousands of vendors www.mysimon.com
Name their price and have it met,
www.priceline.com , www.lazada.co.id,
Get products free (open source)

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-21

 I. Consumer Psychology
and Pricing

Reference Prices

Price-quality inferences

Price endings ($299 vs $300)

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 Possible Consumer Reference Prices

Fair price (CoGS) Lower-bound price

Typical price Competitor prices
Last price paid Expected future
Upper-bound price price
Usual discounted
price

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 When to Use Price Ending
Customers
purchase item
infrequently
Customers are new
Product designs
vary over time
Prices vary
seasonally
Quality or sizes vary
across stores
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 II. Steps in Setting Price
Select the price objective

Determine demand

Estimate costs

Analyze competitor price mix

Select pricing method

Select final price

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 Step 1: Selecting the Pricing Objective

Survival
Maximum current
profit
Maximum market
share
Maximum market
skimming
Product-quality
leadership

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 Step 2: Determining Demand

Price Sensitivity

Estimating
Demand Curves

Price Elasticity
of Demand
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 Inelastic and Elastic Demand

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 Step 3: Estimating Costs

Types of Costs

Accumulated
Production

Target Costing

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 Cost Terms and
Production

Fixed costs
Variable costs
Total costs
Average cost
Cost at different
levels of
production

14-30
 Cost per Unit as a Function of
Accumulated Production

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 Target costing
The firm must examine
each cost element
(design, engineering,
manufacturing, sales) and
bring down costs so the
final cost projections are
in the target range.

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-32

 Step 4: Analyzing Competitors
Costs, Prices, and Offers
If the firms offer contains features not
offered by the competitor, it should
evaluate their worth to the customer
If the competitors offer contains some
features not offered by the firm, the firm
should subtract their value from its own
price.

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-33

Step 5: Selecting a Pricing Method
Markup pricing

Target-return pricing (ROI)

Value pricing: everyday low pricing without

price promotions and special sales
14-34
Step 5: Selecting a Pricing Method
Perceived-value pricing

Going-rate pricing, bases its price largely on

competitors prices (fertilizer, cement, steel)
Auction-type pricing: ascending bids,
descending bids, sealed-bid

14-35
 Step 6: Selecting the Final Price

Impact of other marketing activities

o It must take into account the brands quality and
advertising relative to the competition.
Company pricing policies
o Airline discount tickets
Gain-and-risk sharing pricing
Impact of price on other parties

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-36

 Relationships among relative price,
relative quality, and relative advertising
Brands with average relative quality but high
relative advertising budgets could charge premium
prices. Consumers were willing to pay higher prices
for known rather than for unknown products.
Brands with high relative quality and high relative
advertising obtained the highest prices. Conversely,
brands with low quality and low advertising charged
the lowest prices.
For market leaders, the positive relationship
between high prices and high advertising held most
strongly in the later stages of the product life cycle.

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-37

 Price-Adaptation Strategies

Geographical Pricing

Discounts/Allowances

Promotional Pricing

Differentiated Pricing

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 Geographical pricing
Barter: buyer and seller directly exchange
goods, with no money and no third party
Compensation deal: the seller receives some
percentage of the payment in cash and the rest
in products
Buyback arrangement: seller sells a equipment,
or technology to another country and agrees to
accept as partial payment products
manufactured with the supplied equipment
Offset: The seller receives full payment in cash
but agrees to spend a substantial amount of the
money in that country
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-39
 Discounts/ Allowances
Cash discount: a price reduction to buyers who
pay bills promptly
Quantity discount: a price reduction to those who
buy large volumes
Functional discount: offered by a manufacturer to
trade channel members if they will perform certain
functions (selling & storing)
Seasonal discount: a price reduction to those who
buy products out of season
Allowance: an extra payment designed to gain
reseller participation in special programs
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-40
 Promotional Pricing Tactics
Loss-leader pricing: increase store traffic
Special-event pricing
Cash rebates: reduces inventory
Low-interest financing: 0%
Longer payment terms
Warranties and service contracts
Psychological discounting: sets an
artificially high price and then offers the
product at substantial savings

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-41

 Differentiated Pricing

Customer-segment pricing: adult, infant

Product-form pricing: volume
Image pricing: different packaging
Channel pricing: fast food vs vending machine
Location pricing: theater ticket
Time pricing: week end
Yield pricing: airline (early-low price)

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-42

 Brand Leader Responses to
Competitive Price Cuts

Maintain price
Maintain price and add value
Reduce price
Increase price and improve quality
Launch a low-price fighter line

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-43