SMALL BUSINESS

MARKETING: PRODUCT AND

PRICING STRATEGIES

Dr . Rania Sokrat
 Recognize the characteristics
of goods and services
► Marketing it the process of planning and executing the factors of product,
price, promotion and placement, commonly know as the 4 P’s of
marketing.

► A product is anything that is offered to the market to satisfy a consumer’s

wants, needs or demands.

►Products include goods, services

► While products are often divided into goods or services, most everything is
a combination of both goods and services.

►A product has more tangibility (things that can be touched,

seen, held, tasted and/or moved) than a service. A
purchased car is a good example.
• In addition to tangibility, goods can be
differentiated from services in several other ways:

►Services have perishability; they cannot be

stored for future usage.

►Services have inseparability; they are

produced and consumed at the same time.

► Facing Intangibility and Perishability

►Services have heterogeneity; each time it is

offered it will be slightly
►Branding is part of your total product.

►Sometimes your brand is the same as the company

name.

In any case, there are several considerations in picking

your brand.

►If you use your own name:

►Add descriptors so that we know what your company does or your
product is.

►If Consider whether your name is easy to spell/pronounce.

►For brand names in general:
►Consider whether you are too close to a trademark.

►Consider something that describes your firm or product

and is easy to remember and catchy.

►Creative spellings are okay, as long as they are not too

extreme.

►Beware of a name that is too narrow to allow your firm

to grow.
► Differentiate the stages of new product development.

► Before a product is introduced, it needs to go through a series

of steps known as the new product development process.

► These steps may take years or a few hours or days.

► More innovative product will take longer

► The first step is idea generation

► Often ideas for new products come from something the

entrepreneur wants and can’t find.

► Using the SCAMPER approach found in Chapter 4 is another approach.

►Step two is idea screening
►Product – innovativeness and uniqueness;

►Market – size, need;

►Whether you have the right people to make the idea

succeed;

►What resources will be required to bring the idea to

successful completion; and

►Profitability of the idea

► Understand why pricing is an important but difficult task for small
businesses.

► While changing a price is an easy task, determining what number

to use can be challenging.
►It has an impact on your personal earnings
►It determines how many sales you can make.

► It sets expectations about the quality of your product or

service.

►What your competition does.

►Computations to determine profit levels.
►Your strategy
►The costs of your business
►Your fundamental goal should be your optimum price.
Four factors help you determine this.

►The demand for your product or service

►The value.
►Prices set by competing firms.
►Your business strategy
Understand how elasticity, margin
and value impact price-setting.

► Price elasticity has to do with how essential a product is to

customers.
►Inelastic products are products that are essential and raising
prices will only drop sales slightly.

►Elastic products are less essential and lowering or raising prices

will have a larger impact on the quantity sold.

►The law of supply and demand is illustrated by elasticity.

► Price elasticity also means that if your competitor starts charging a

lower price, your sales could drop considerably.
 ▣ Price also signals different things to customers.

▣ Quality is often determined by price – a more

expensive item with no discernible differences
from a cheaper version must be better quality.

► Conversely, people will pay a higher price when they discern

that a product is a better value.
 ▣ Lower prices than competition.

▣ While tempting to have a lower price, the

competition will catch on and can react by
lowering their prices.

▣ Your revenue as a percentage of sales will decline

as well.

▣ Higher than competition: Sounds good, but will

only work if the customers see the value in the
higher prices.

► Examining your product/service against the values are ways

to determine if your product could bear higher prices
▣ The factors that influence setting the right price vary
from industry to industry, but there are some
underlying similarities:

▣ If you are operating profitably at or near capacity,

the price needs to be high enough not to leave any
money on the table.

▣ If the product is extremely popular or rare (e.g.,

patented), charging high prices is warranted.

▣ If you are operating below capacity, setting prices

low should bring in enough business to meet payroll
and keep operating.
 Examine the market

►See what prices your competition is getting.

►See what they are offering for the price.

►Look at your costs.

►Youwill want to cover costs and make
some profit.

►You also want to meet your goals.

 ► Marketing strategy:
►Price is only one part of the marketing strategy.
►Price must match the advertising, distribution and product
components as well

► Channels of distribution
►Price escalation happens because each person who handles the
product gets a profit.
►Price escalation can raise the price to your customers four times
or more.

► If price escalation puts your price too high compared to competition,

consider direct distribution
 ► Competition:
►Small businesses generally do NOT want to be the low price in the
market for reasons mentioned above.

►Deciding how to price in comparison with the competition means

comparing your “satisfactions” against your competition’s product.

► Legal and regulatory:

►There some product specific rules, especially in the form of taxes.
►Sometimes there are government mandated price maximums or
minimums.

► Some forms of price discriminations are allowed and others are illegal.
► Apply different pricing strategies

► After knowing your objectives, costs, competition and all the

other categories consider, you still need to think about your
customers.

► Pricing psychology; has to do with the customer’s perception

about the price and varies customer to customer and from time
to time. Some of the more frequently observed pricing
psychology phenomena are:

►Internal reference price: Customer’s have a mental

image of what a product should cost based on past
experiences, what he/she remembers reading or hearing
and the value the product has to the customer.
►External reference price: The customer’s
perception of what a product should cost is now
based on outside influences – what friends have said,
comparison shopping, ads, salesmen’s spiels, etc.

►Perception of value: Customer will pay more if they

perceive the value will get is higher. If it’s important
for me to have, I’ll pay more; if you don’t really care,
you’ll pay less.

►Expectations of future prices: If you think prices

are going to go up, you’ll pay more; if you think they
are going down, you’ll pay less.
 ►There are a number of pricing strategies that
small businesses can use:

▣ Price skimming is charging the highest price the

market will bear. This is used if you are the first one
in the market and is often used to recoup start-up
expenses before competition sets in.

▣ Prestige or premium pricing is setting prices high and

supporting it with the rest of your marketing strategy
in order to create the impression that your product
has high quality (premium) or is a status symbol to
own (prestige)
►While having low prices is not recommended for
small businesses, there are times and occasions
when it makes sense to temporarily reduce price, or
to give the impression of lower prices. These
reasons include:

►These reasons include:

►Attracting more business.
►Smoothing service cycles
►Building loyalty
►Moving excess inventories
►Improving temporary cash flow problems
►Some price lowering techniques include:

►Off-peak pricing works especially well

for seasonal products or for services
trying to reduce perishability. During
slack times, lower prices are charged in
order to get people to change their
buying patterns
►Bundling, multiple-packs or bonus-packs are methods to give the
customer more at a lower cost.

►Generally services use bundling – combining more than one service at a

price slightly less than each separately would be. For products, it’s
combining two (or more) different products and selling them at a lower
total price than the two (or more) separately.

►This is a good way, too, to get customers to try slower moving products
or services, or new products or services.

►Multiple-packs involve more than one of the same products (e.g., two
hamburgers for the price of one).

►Bonus packs are larger amounts of the product/service for free (e.g.,
shampoo with 25% more in the bottle than normal).
• There is a psychological bonus as well; the more people use of your products, the more
likely they are to internalize this brand as “their brand” and become more loyal
customers.
 ► Referral discounts are a great way to get
businesses established and an inexpensive method
of advertising. A customer recommends your
business to a friend and when that friend buys
something, the original customer gets a discount,
something for free or some other incentive.

►Setting prices too low is a big problem for small

businesses.