Product and Price - AS Level Business PDF

PRODUCT & PRICE BY - PRIYANI - NIRAV- AMARIN AS LEVEL BUSINESS Table of contents 01 Introduction 02 Product development 03 Pricing Strategies 04 Pricing Tactics 05 Market Influences on Product and Price BEW...

PRODUCT & PRICE BY - PRIYANI - NIRAV- AMARIN AS LEVEL BUSINESS Table of contents 01 Introduction 02 Product development 03 Pricing Strategies 04 Pricing Tactics 05 Market Influences on Product and Price BEWARE OF RANDOM QUESTIONS - Pay attention to the presentation PRODUCT  Understanding Product Product Types of Products Product Life Cycle A product is anything Consumer products: for that can be offered to a personal use market to satisfy a want e.g.clothing or need. Industrial products: used Products can be tangible in the production of other or intangible. goods e.g. machinery Services: intangible products that provide value e.g. consulting PRICE  Understanding Price Price Factors Influencing Price Elasticity of Price Demand It represents the value Cost of production Measures how demand exchanged for the benefits of changes with a price change. owning or using a product or Market demand: Customer service. willingness to pay and Elastic demand perceived. Inelastic demand Pricing helps cover costs, determines profitability, and Regulatory and legal Factors influencing elasticity: influences consumer requirements: Government Availability of substitutes, decisions. regulations and taxes. necessity, and proportion of income.  TANGIBLE AND INTANGIBLE ATTRIBUTES TANGIBLE ATTRIBUTES INTANGIBLE ATTRIBUTES Shape & Size - attractive or fit for purpose? Brand - is image suitable for customer/market? Colour - does the product look aesthetically appealing? Perception - does the product make the owner feel powerful / attractive / wealthy? Quality - are the materials suitable for the product and price? Fashion - is the product a fashionable item and trendy Packaging - is it suitable for the product and the intended customer  QUESTION (1) WHAT ARE THE FACTORS INFLUENCING PRICE CHANGES? The importance of product development Changing consumer tastes and preferences Increasing competition Technological advancement. New opportunities for growth Risk diversification Improved brand image Use of excess capacity New product development (NPD) - the design, creation and marketing of new goods and services. FOR NEW PRODUCT TO SUCCEED IT MUST… Have desirable features that consumers are prepared to pay for Have unique selling point Be marketed effectively  QUESTION (2) LIST AND EXPLAIN THE TANGIBLE AND INTANGIBLE ATTRIBUTES OF A PRODUCT?  Product differentiation and unique selling point (USP) Unique selling point: an aspect of what makes your product or service different and better than your competitors. This means making the product different from its competitors. Effective product differentiation creates a USP. Benefits of an effective USP Makes you stand out in the market. Free Publicity from media reporting on USP of the product. Making your product or service more attractive to the consumers Increases sales of your product. Creates or attracts loyal customer base to your business. Invites investment to your business.  Brand and Product What’s the difference ? The product is the general term used to describe the nature of what is being sold. The brand is the distinguishing name or symbol that is used to differentiate one manufacturer’s products from another. Product: Brand: Tangible Item Identity Association Physical Appearance Abstract concept Features and Functions Emotional Connection Individual Preference Overall allegiance  QUESTION (3) WHAT ARE THE BENEFITS OF HAVING EFFECTIVE USP?  PRODUCT PORTFOLIO ANALYSIS TWO PRODUCT PORTFOLIO ANALYSIS TECHNIQUES: 1 2 PRODUCT LIFE BOSTON MATRIX CYCLE ANALYSIS PRODUCT LIFE CYCLE The pattern of sales for a product from launch to withdrawal from the market. Stages of the Product Life Cycle: Introduction, Growth, Maturity/Saturation, and Decline.  QUESTION (4) WHAT ARE THE 4 STEPS OF PRODUCT LIFE CYCLE? INTRODUCTION: GROWTH: When product is launched Product is effectively after development and promoted testing Therefore, higher sales Sales are low Eventually, sales growth slows down SIGNIFICANCE OF THE 4 STAGES IN PLC MATURITY: DECLINE: Sales don’t grow but don’t Sales decline steadily fall by a lot Extension strategies failed Product may be consumer or were not used durable Product becomes unprofitable EXTENSION STRATEGIES These strategies aim to lengthen the life of an existing product before the market demands a completely new product. E.g., selling in new markets, new packaging. PLC Stage Price Promotion Place Product Introduction May be high or low Informative Limited outlets Basic models with depending on advertising to make may also depend few variations competitors prices consumers aware of on pricing strategy product Growth Prices may increase Persuasive marketing Increase in outlets Improvements & due to increase in is used to increase in areas of high developments to demand repeat purchases and consumer demand maintain customer create brand loyalty appeals Maturity Competitive pricing Advertising compares Highest amount of New models, colours as more the positive outlets and new and accessories as competitors may differences compared distribution part of extension enter the market to competitors’ channels strategies product Decline Lower prices to sell Limited promotion Unprofitable Slowly withdraw leftover inventory just to inform about outlets are product from certain lower prices eliminated markets and launch new products  QUESTION (5) HOW WOULD THE - ❖ PRICE BE IN INTRODUCTION STAGE ❖ PROMOTION IN MATURITY ❖ PLACES IN DECLINE ❖ PRODUCT IN GROWTH ? BALANCED PRODUCT PORTFOLIO An ideal product portfolio would be when one product declines, so other products are developed and introduced to replace it, keeping cash flow balanced. PRODUCT LIFE CYCLE ACTIVITY BOSTON MATRIX ANALYSIS  QUESTION (6) WHAT HAPPENS IN A BALANCED PRODUCT PORTFOLIO?  WHAT IS IT? The Boston Matrix is a tool used by businesses to analyse their product portfolio and make strategic decisions about each product The matrix classifies products into four categories based on their market share and the market growth rate Cash Cow Problem Child/Question Mark Star Dog This categorises the products into one of four different areas, based on: Market share – does the product being sold have a low or high market share? Market growth – are the numbers of potential customers in the market growing or not By categorising products into these categories, businesses can allocate resources more effectively, improve their cash flow and develop marketing strategies that align with the product's potential  CASH COWS Cash cows are products with a high market share in a mature market BUT the entire market is no longer growing They generate significant positive cash flow but have low growth potential They need minimal investment as they are seen as stable sources of income Marketing efforts focus on maintaining their market share and profitability Cash cows are valuable assets and can be used to fund the development of new products  STAR Star products have a high market share in a high-growth market The company typically invests in stars to maintain or increase their market share They generate significant positive cash flow and have the potential for continued growth Marketing efforts focus on building brand recognition and increasing market share Stars are valuable assets and the business should focus on maximising their potential  QUESTION MARK products have a low market share in a high-growth market These have the potential to become stars if the company invests in their development There is often a negative cash flow as businesses usually invest in problem child products to increase their market share and turn them into stars Marketing efforts focus on increasing their market share and brand recognition  QUESTION (7) WHAT ARE EXTENSION STRATEGIES?  DOG Dog products have a low market share in a low-growth market They generate little revenue for the company and have no growth potential Businesses often move away (divest) from these to focus on more profitable products Marketing efforts for dog products are minimal or zero  IMPACT OF BOSTON MATRIX ON DECISION It is relevant when :- Analysing the performance and current position of existing product portfolios Planning action to be taken with existing products Planning the introduction of new products  POSSIBLE DECISIONS 1. Building Invest heavily in marketing like advertising and product development to grow market share, typically for Stars or promising Question Marks. 2. Holding Focus on keeping successful products, like star, stable by maintaining demand with efficient marketing and cost management. 3. Milking Talking positive cash flow from established products and investing in other products 4. Divesting Stop or sell unprofitable products (Dogs) to reallocate resources to higher-potential products or markets.  LIMITATIONS OF USING BMA It simplifies reality as it only considers two dimensions - market share and market growth. It assumes that high market share results in high profitability, which may not always be the case. Furthermore, it does not consider other factors that might affect product success such as competitive action, changes in consumer behaviour or technological advancements.  QUESTION (8) HOW IS THE MARKET SHARE AND MARKET GROWTH IN - CASH COW AND STAR? SUMMARY BOSTON MATRIX ACTIVITY  Pricing methods There are several pricing methods that can be used but they can be broadly classified into 2 categories and those are: Cost-based methods of pricing Competition-based methods of pricing Mark-up pricing Price discrimination Cost-plus pricing Dynamic pricing Contribution-cost pricing (or marginal-cost) Competitive-based methods of pricing: Methods where the pricing decision of a business is based on the price set by Loss leaders competitors. Cost-based methods of pricing: Methods where companies add an amount for profit to the calculated cost of producing or supplying of each unit.  QUESTION (9) USING YOUR IGCSE KNOWLEDGE- TELL US ABOUT ANY TWO PRICING STRATEGY  Mark-up pricing methods Definition This involves adding a percentage of the cost price as a mark-up to calculate the selling price. This method is often used by retailers. Formula ( )  Cost-plus pricing method Definition This method involves calculating the total cost of producing a product and adding a fixed percentage or amount (the profit margin) to determine the selling price. Often used by manufacturers. Formula  Contribution-cost (or marginal-cost) pricing Definition Is a pricing strategy where a business sets the price of its product or service based on its marginal cost—the additional cost incurred to produce one more unit of the product. 8 minute video that will informing you more about contribution-cost https://youtu.be/qRgRqYVGF_M?si=5BFKVZx-FzLWq-CF  QUESTION (10) A store buys a pair of shoes for $50 from the supplier. They want to apply a markup of 40% on the cost of the shoes to determine the selling price. What will be the selling price of the shoes?  Loss Leaders is a pricing strategy where a business sells a product or service at a price below its cost (incurring a "loss") to attract customers to the store or website. The goal is to stimulate the purchase of additional items or services that are sold at regular or higher margins, offsetting the initial loss. Benefits Risks ❏ Increased Customer Traffic: Brings more ❏ Eroded Margins: If customers only purchase customers to the store. the loss leader and not other items, the business risks financial losses. ❏ Higher Sales Volume: Encourages customers to ❏ Competitor Response: Competitors might purchase complementary or high-margin products. match or undercut the loss leader price, ❏ Customer Loyalty: Can help establish brand negating the advantage. loyalty if customers associate the business with good❏ Attracting Bargain Hunters : Some customers may exploit the low prices without value. making additional purchases.  Competitive Pricing When the product is priced in line with or just below the competitor's price to try to capture more of the market. Disadvantages Advantages If the cost of production for a business are Attracts more customers higher than those of competitive price could lead to losses being made. Increase sales A higher quality product might need to be sold at a prices above competitors. Competitor MY PRICE Competitor  Price Discrimination Price discrimination is a business strategy where a seller charges different prices to different customers for the same product or service based on Age, Income, Gender, Location, Quantity, Season and etc… Dynamic pricing Dynamic pricing is a pricing strategy where businesses set flexible prices for products or services based on current market demands, competition, and other factors. It means prices can change in real-time, often in response to the change in supply and demand.  QUESTION (11 and 12) EXPLAIN LOSS LEADERS AND ITS BENEFITS AND RISK EXPLAIN THE DIFFERENCE BETWEEN PRICE DISCRIMINATION AND DYNAMIC PRICING  PRICING METHODS ACTIVITY  THANK YOU CREDITS: This presentation template was created by Slidesgo, BYincluding - PRIYANI - AMARIN icons - NIRAV by Flaticon, and infographics & images by Freepik