Lecture Notes 5 & 6 PDF

Module 5 Product Introduction Product is what marketer takes to market for consumers to buy or engage with Products change to suit new technology Gods, Services and Ideas Product is a good service or idea offered to market for exchange Goods; Physical, tangible offerings, capable of being delivered...

Module 5 Product Introduction Product is what marketer takes to market for consumers to buy or engage with Products change to suit new technology Gods, Services and Ideas Product is a good service or idea offered to market for exchange Goods; Physical, tangible offerings, capable of being delivered Services; Intangible offerings Idea; Concept, issue, philosophy Total Product Concept Total reduction concept is way of viewing product as the totality of value and benefits it provides to customers. Crucial for marketers too understand that when consumers choose a produce, they buy a solution to a problem - Core Product; Fundamental benefit that responds to the customer’s problem of an unsatisfied needs - Expected Product; Attributes that actually deliver the benefit that forms the core product - Augmented Product; A bundle of benefits consumer may not require as basic fulfilment of their needs. - Potential Product; All possibilities part of expected or augmented product. Fundamental Features - make calls Communication - Expected Features - Mobile Phone - - - Touch screen sounds/music charging Games form photo company can specifically differential features camera charging What offer APD access Potential Features to Add or Remove from phone editing Product differentiation takes place in the augmented layer as this is where the company wants to differentiate themselves from their competitors. Product Relationships Many orgs produce multiple products or products of different styles Relationship between brand products include; - Product Item; Just one item - Product Line; Different types of same item e.g. socks but different types for men and women, different colours - Product Mix; Everything bonds makes, e.g. undergarments for all genders, mix of clothing etc. Product Classification Consumer products are products purchased by households and individuals for their own private consumption Consumer products are classified into; - Shopping Products; - Moderate to high engagement in decision making process - Expected to last long time - Infrequent purchase - Small number of retail outlets - Low volumes - Large profit margins - E.g. Electrical appliances, furniture, cameras, clothing - Convenience Products (Staple, Impulse, Emergency); - Frequent purchase - Stocked up large number of retail outlets e.g. woolies - Sell in high volumes - Low profit margins - E.g. Groceries - Specialty Products; - Unique characteristics desired by buyers - Consumers know exactly what they want & is preselected - No close substitutes - Limited outlets - Infrequent - Low volumes - High profit - E.g. Tesla - Unsought Products; - Unknown or unconsidered - Challenge of making customers aware - Marketing is crucial - E.g. Coffins Business to Business Products are products purchased by individuals and orgs for use in production of daily business operations Business to business products classified into; - Parts and Materials - Raw Materials - Components - Equipment - Services and Supplies Product Life Cycle Products must be effectively managed to ensure ongoing profitability. Consider environmental changes; - Technological Changes - Changes in Fashion - Actions of Competitors Way product progresses through lifestyle varies with product and marketing environment Product Life Cycle Stages; 1 New Product Development - NPD has eight phases 1 Idea generation 2 Screening 3 Concept Evaluation 4 Marketing strategy 5 Business analysis 6 Product Development 7 Test Marketing 8 Commercialisation - Product Adoption Process - Marketers need to understand how consumer perceives a new product, learns about it and decides to adopt it - Typically entails 5 stages of product adoption 1 Awareness - Consumer becomes aware of product through promotion, word of mouth, incidental exposure - Consumers knows little about product, how it works and benefits. 2 Interest - Consumer experiences interest in product and seeks information to learn more 3 Evaluation - Consumer evaluates info and decides whether to try product 4 Trial - Consumer examines and tries product and decides whether product can satisfy need/want 5 Adoption - Consumer decides to purchase, evaluates and considers whether to repurchase. 2 Introduction - Considerable investment required - Goal to build awareness and self interest - Lag in building sales - Sales recoup research and development costs - Minor profits at end 3 Growth - Increase in popularity, sales profit - Dependent on welcomes by market - Competitors begin to enter market with similar products 4 Maturity - Novelty wears off - Competitors more established - Sales peak and profitability falls - Decision to determine future of product by changing mktg mix or leaving market and allowing decline 5 Decline - Sales and profits fall - New products entering - Little interest - Drop or change product Diffusion of Innovation Diffusion of innovation describes how innovations are adopted by market over time. Suggests influence of social groups on decision made by individual and how new products and ideas are adopted Speed and matter of market penetration is dependent on market type/segment Categories of product adopted are defined by adoption behaviour; - Innovators - Early Adopters - Early Majority - Late Majority - Laggards Product Differentiation Product differentiation is creation of products and product attribute that distinguish products from another (design/brand/image/quality) Mostly apart of augmented product layer Not a static concept Marketers usually modify, upgrade, reposition products during their life cycle, to maintain or improve competitive advantage. Branding Brand refers to collection of symbols creating image in customer’s mind that differentiates a product from competitors It comprises; - Name - Slogan - Logo - Design Brand Image is customer’s set beliefs of brand Customers make decision based on brand and brand image Brand Name is the component of brand that is spoken including words, letters, numbers. Brand Mark is part of brand not made up of words e.g. symbols, designs Trade Mark Can register as trade mark to protect brand through IP Australia Brand Equity is the added financial and non financial value of a brand A brand identifies to marketers; - Organisation’s products - Differentiates organisation’s products from competing products - Attracts consumers - Helps introduce new products - facilitates promotion for same brand products Brand Loyalty is when customer shows favourable attitude towards brands Brand Equity Metrics is measuring the value of brands. - High brand equity can be valuable asset and provide competitive advantage - Metrics used; - Brand assets (trade marks, patents) - Stock price analysis - Replacement cost - Brand attributes - Brand loyalty - Willingness to pay analysis Brand Strategies When developing brands in a product mix, can pursue the following strategies; - Individual Branding; Use a different brand on each product to give specific identity - Family Branding; Use same brand on several org’s products - Brand Extension; Gives existing brand name to new product in a different category. Brand Ownership Manufacturer Brands; Owned by producers and are most common Private Label Brands; Owned by resellers e.g. wholesalers, retailers, not identified with manufacturer. Generic Brands; Products that only indicate the product category Licensing Agreement; Uses names and symbols of other brands for a fee Franchising; Parallels with licensing Co-Branding; Use of two or more brand names on same product e.g. Oreo McFlurry - Capitalises brand equity of multiple brands - Improve product’s perceived value - Maintain existing branding after another org’s brands are acquired. Packaging Important for consumer identification, like a brand Effect of packaging includes, express a change in the product, update style to broaden customer appeal, emphasise elements to differentiate from competitors. Labelling - Forms part of packaging - Identifies product, brand name, provides useful product info - Some info is compulsory. Managing Products The product strategy is complex part of marketing mix Multiple decisions that need to be managed throughout the product life cycle Includes ongoing evaluation and responses to evolving marketing environment. Approaches to Management Requires coordination across different departments Product managers may be employed to manage products or product lines or brand managers to manage a particular brand within the org’s portfolio of brands. Managing Products Through the Life Cycle Marketers determine which life cycle product is in anf make appropriate.decisions in response. Line extensions are most common form of new product - derivatives of existing products added to product line, rather than superseding initial product May be need to change asepct of marketing mix to reposition the product Product obsolescence; May be planned or unplanned Module 6 Price Introduction Price is a measure of value for buyers and sellers - Buyers need prices that reflect product’s worth - Sellers need prices that reflect cost of production and provide profit margin to justify risk Price is directly related to profitability Profit = (Price x Sales Volume) - Total Costs If buyer and sellers dont agree on value expressed in the price, probably wont transact Price is visible expression of value Intricacies of Pricing Price shoppers/Price seekers will always be key market segment in all market Web has made price comparison shopping easier and efficient Price Aversion; Seeking lower prices for greater value Determining Price Objectives Pricing objectives tend to focus on issues including; - Profitability - Long Term Prosperity - Market Share - Positioning - What customer is prepared to pay Pricing objectives should be specific, measureable, actionable, reasonable and timetabled. Not for Profit Pricing NFP dont seek profits but seek return on activities. Many charge for their products Their pricing objectives may be dot generate enough funds to sustain their activities A NFP org may price products to make them more appealing to target market State governments may often subsidies loss making services as part of their service obligations The Legal Environment All orgs are subject to laws and regulations when establishing prices Number of gov regulations prevent activities aimed at controlling or manipulating prices Under Australian Consumer Law, there is clear intention and expectation that pricing to consumers should be explicit and transparent. Consumers should not be subject to deception or discrimination Consumers should clear know total price before purchasing. Selecting the Pricing Method Pricing based on an understanding of the customer Customer value of a product places a Price Ceiling on Prices Organisations costs places a Price Floor on Prices Pricing must be set so that the product remains competitive in the marketplace Fixing the price Pricing can be based upon 1) Demand Based Pricing: Prices are set according to the level of aggregate or individual consumer demand in the market. - Demand exists when consumers are willing and able to buy a product and when the product can fulfil a unsatisfied want/need. - Understanding the nature and extent of consumer demand is central to formulating a pricing strategy - Surge Pricing: is based on the immediate/current market demand - Demand schedule/curve: Graphing of quantity demanded at particular price -> It’s inversely related, negative slope - Prestige/luxury goods are an exception to negative slope - Price Elasticity of Demand: How quantity changes in response to a change in price. - PEoD varies form product to product and type of industry - Demand is said to be price elasticity or price sensitive if PEoD is greater than 1 - Demand is said to be inelastic or price insensitive if PEoD is less than 1 - Ethical Issues of Demand Based Pricing: High profits but unethical is cost is severely above intrinsic value. 2) Cost Based Pricing: Where the selling organisation adds a percentage or dollar amount to the cost of a product - Used when difficult or impossible to determine the costs of the product until it has been made - Markup Pricing: Used by wholesalers and retailers and involves adding a percentage of their purchase cost to determine the resale price. - Costs and Revenue Analysis: Price floor ca be introduced by the government. - If product is priced near the cost it’s known as a price leader - If the product is priced below cost, it’s known as a loss leader - Net Profit = Total Revenue - Total Costs - Break Even Analysis: Determines volume of units sold at which total costs equals total revenue. Where a loss is no longer made - Estimating break even is crucial for starting pricing, especially for new products - BEA can be conducted form a specific time period, project, or the life of the product - Price x Quantity - Total Fixed Cost + Total Variable Costs - BEP = (Fixed Cost) / Unit Price - Unit Variable Cost - FC / P - UVC - Marginal Analysis: Understanding the effect on costs and revenue when a company produces and sells one more unit of a product. - Useful for pricing individual units of output or for individual buyers. - Profit is maximised by selling the quantity at which marginal cost equals marginal revenue - Marginal analysis requires detailed data on actual and estimated costs and revenues at all volumes and prices - Difficult to implement precisely. - Example; · SOLUTION #xed DStS = 500 + 388 + 208 variable cost Break Even = = = 1680 $15 $5 = · $1508 1200- 808 o LOSS 400 25 100 product Total cost of 108 profit 188 -$1808 unit price Total Revenue product $1880 = + 188(5) $1500 = 5075108175150 175 Total casts 3) Competition Pricing: Involves setting prices based on the prices charged by competitors - Ensures an organisation maintains it’s sales volumes and market share but it doesn’t guarantee profitability - Price Competition is a difficult strategy to sustain over the long term unless an organisation enjoys clear market or cost advs. - Understanding Competitor Pricing: In price sensitive industries, organisations monitor their competitor’s prices daily or more frequently. - Likely response of competitors to an organisation’s pricing change will be determined by the competitive structure of the industry; Monopoly, monopsony, oligopoly, monopolistic competition, pure competition. - Alternatives to Competing on Price: Focus on product attributes, uniqueness, quality, brand, image or service. - When feasible, non price competition is preferable as it gives the organisation greater power to decide on the profit margin per unit sold. - Non-Price Competition should form the bases of the competitive strategy. - Business to Business Pricing: B2B marketing relationships between suppliers and organisational buyers tends to be close, long term and formal in nature. - More formal pricing strategies - Pricing is more complex - Business purchases are more likely to consider lifetime costs involved with the purchase - Pricing for intermediaries: Organisations will only choose to deal with intermediaries who can add value to their offering. - Producers provide recommended pricing but intermediaries need to consider if this will enable profits - To ensure profitable operation of various partners involved in getting products from the producer to organisational buyer or consumer, various discounts apply to transactions in business markets. Price Management The Psychology of Pricing Consumer purchasing behaviour is based on rational evaluation of value Importance of price varies between individuals Important indicator of price for a consumer is the perceived uniqueness or differentiation of the product Pricing Throughout the Product Lifestyle Pricing New Products Penetration Pricing uses low launch price below market price to: - Gain maximum sales volume - Gain rapid market share - Gain turnover of a new product Price Skimming: involves charging highest price that customers who most desire the product are WTP Over time, price is lowered to bring in more buyers, maintaining the highest price that those consumers are WTP. Pricing Established Products Differential Pricing: charging different buyers different prices for the same product Special- Event Pricing: Links discounted prices across an organisation’s entire product range with special/seasonal event to increase total sales volumes. This pricing strategy must be combined with promotional AKA Promotional Pricing. Settling and Managing Final Price Once implemented, price must be monitored as external factors can evolve over time Pricing is most flexible element of marketing mix Pricing is most dynamic and volatile element of the marketing mix] Internet makes prices more visible, flexible and competitive.