Introduction to Business 3e 12 Part V: Marketing Copyright © 2004 South-Western. All rights...
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Transcript of Introduction to Business 3e 12 Part V: Marketing Copyright © 2004 South-Western. All rights...
Copyright © 2004 South-Western. All rights reserved.
Jeff MaduraIntroduction to
Business 3e
Introduction to Business 3e
1212Part V: MarketingPart V: Marketing
Creating and Pricing Creating and Pricing ProductsProducts
Creating and Pricing Creating and Pricing ProductsProducts
Copyright © 2004 South-Western. All rights reserved. 12–2
Learning GoalsLearning Goals• Identify the main factors that affect a product’s target market
• Identify the steps involved in creating a new product
• Explain the common methods used to differentiate a product
• Identify the main phases of a product life cycle
• Identify the factors that influence the pricing decision
Copyright © 2004 South-Western. All rights reserved. 12–3
MarketingMarketing
Copyright © 2004 South-Western. All rights reserved. 12–4
Creating and Pricing Creating and Pricing ProductsProducts
Copyright © 2004 South-Western. All rights reserved. 12–5
Background on ProductsBackground on Products•Products include physical goods and services that satisfy customer needs– Convenience products
Widely available Purchased frequently Easily accessible
– Shopping products Not purchased frequently Consumers shop around to compare quality and price
– Specialty Consumers must make a special effort to purchase
Copyright © 2004 South-Western. All rights reserved. 12–6
Background on ProductsBackground on Products•Product line
– A set of related products or services offered by a single firm–expands over time to meet consumer needs Coke, Diet Coke, Caffeine-free Diet Coke, Sprite Pepsi, Diet Pepsi, Mountain Dew, All-Sport
•Product mix– Assortment of products offered by a firm
Quaker State: motor oil, windshield washer fluid, brake fluid, and other automotive products
Amazon.com: books, electronics, toys, music, kitchen items, drugs, health and beauty products
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Product of IBMProduct of IBM
Exhibit 12.1
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Diversifying the Product Diversifying the Product MixMix
•When the primary product is subject to wide swings in demand, firms diversify their product mix so they are not dependent on one product– Diversify within existing production
capabilities (related product diversification)– Example firms - Walt Disney Company,
Donna Karan, Amazon.com, IBM
Copyright © 2004 South-Western. All rights reserved. 12–9
Identifying a Target Identifying a Target MarketMarket
•Consumers who buy a particular product may have specific traits in common and similar needs
•Firms try to identify these traits and target marketing towards people with those traits (target market)– Consumer markets - products purchased by
individuals– Industrial markets - products purchased by
firms
Copyright © 2004 South-Western. All rights reserved. 12–10
Size of Target MarketSize of Target Market•As consumer preferences change, the size of a particular target market can also change.
•Size of target market depends on:– Demographics– Geography– Economic factors– Social values
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business onlinebusiness online ee -- businessbusiness
Copyright © 2004 South-Western. All rights reserved. 12–12
E-MarketingE-Marketing• Use of the Internet to design, price, distribute, and promote products
– Amazon.com uses e-marketing to differentiate from other book retailers
– Some firms use e-marketing to complement brick and mortar stores
– Firms can use e-marketing to target foreign markets
– Firms can receive orders online at lower costs, and use the Internet to expand distribution efforts
Copyright © 2004 South-Western. All rights reserved. 12–13
Changes in Consumer Changes in Consumer Characteristics in Last 20 Years Characteristics in Last 20 Years
(from 1982 to 2002)(from 1982 to 2002)
•U.S. population has increased with higher proportions of:– People age 65 or older– Households with income over $60,000– Minority households with income over
$60,000– High school students who enter college– Minority high school students who enter
college
Exhibit 12.2
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Creating New ProductsCreating New Products•Most new products are improvements of existing products and not new inventions
•Existing products may become obsolete or less useful than in the past– No longer in fashion (fashion obsolescence)– More advanced technology replaces product
(technological obsolescence)
Copyright © 2004 South-Western. All rights reserved. 12–15
Marketing ResearchMarketing Research• Accumulation and analysis of data in order to make a particular marketing decision
– Useful for making product decisions
– Identify products that consumers want
– Identify deficiencies in current products and make improvements
– Test new and revised products for consumer reaction
– One limitation of marketing research is that tastes might change too rapidly to capture in surveys
Copyright © 2004 South-Western. All rights reserved. 12–16
E-Marketing and Marketing E-Marketing and Marketing ResearchResearch
• Use Internet and/or customer service email system to get customer feedback
– Companies can get information quickly
– Use feedback to improve products and services
– Contact customers directly
– Send out samples and request email feedback
– Use of online surveys reduces costs and time involved in getting customer feedback
Copyright © 2004 South-Western. All rights reserved. 12–17
Research and Development Research and Development (R&D)(R&D)
•Firms invest funds in R&D activities in order to design new products or improve existing products– Expect the benefits of R&D expenditures to
outweigh the costs– Technological development can give firm an
advantage over its competitors– Some firms use alliances to share costs of
R&D
Copyright © 2004 South-Western. All rights reserved. 12–18
Small Business SurveySmall Business SurveyWhat Are the Keys to Creating Successful Products?
Copyright © 2004 South-Western. All rights reserved. 12–19
Patent ProtectionPatent Protection• A firm that creates a new product may not always be able to prevent competitors from copying the idea
• To protect their ideas, firms apply for patents
– Allow exclusive rights to the production and sale of a specific product
– Patent applications are tedious, and may require 20-40 page description of the product
– Approval process can take several months and is quite expensive - especially internationally
Copyright © 2004 South-Western. All rights reserved. 12–20
Creating New ProductsCreating New Products• Develop a product idea
– Identify customer needs that are not being satisfied by existing products
– Monitor consumer behavior or survey people about their behavior
• Assess the feasibility of the product idea– Estimate costs and benefits
• Design and test the product• Distribute and promote the product• Post-audit the product
– Compare actual costs and benefits with estimates
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Steps Involved in Creating or Steps Involved in Creating or Revising a ProductRevising a Product
Exhibit 12.3
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Product DifferentiationProduct Differentiation• Effort a firm makes to distinguish its product and services from competitors and make it more desirable by customers– Quality– Selection– Unique product or service design– Unique packaging– Unique branding
Family versus individual branding Producer versus store brands versus generic brands
– Co-branding - recent trend
Copyright © 2004 South-Western. All rights reserved. 12–23
Benefits of BrandingBenefits of Branding• Exposes a company’s name to the public
• If company is respected, new products might be trusted because of the brand name
• Assist in entering new product and geographic markets
• Helps to differentiate when there are only a few brands available
• Helps gain access to shelf space
Copyright © 2004 South-Western. All rights reserved. 12–24
Methods Used to Methods Used to Differentiate ProductsDifferentiate Products
Exhibit 12.4
Method Achieve Superiority by:
Unique design Higher level of product safety, reliability, or ease of use.
Unique packaging Packaging to get consumers’ attention or to improve convenience.
Unique branding Using the firm’s image to gain credibility, or using a unique brand name to imply prestige.
Copyright © 2004 South-Western. All rights reserved. 12–25
Product Life CycleProduct Life Cycle•Typical phases over the lifetime of products– Introduction - create awareness of product– Growth - reinforce product features– Maturity - competition increases– Decline - reduced demand
•Marketing decisions may be influenced by the stage in the product life cycle
Copyright © 2004 South-Western. All rights reserved. 12–26
Product Life Cycle PhasesProduct Life Cycle Phases
Exhibit 12.5
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Pricing StrategiesPricing Strategies•Attempt to set prices that will maximize the firm’s value– Price charged impacts revenues and
profitability
•Pricing considerations– Production costs per unit + mark-up (cost-
based pricing)– Supply of inventory– Competitors’ prices
Copyright © 2004 South-Western. All rights reserved. 12–28
Pricing StrategiesPricing Strategies•Consider competitors’ prices
– Penetration pricing Lower price than competitors to penetrate the
market Most effective when demand is price elastic
– Defensive pricing Reduce price to defend or retain market share
– Predatory pricing Lower price to drive out competitors
– Prestige pricing Use high price to signal top-of-the-line product
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Pricing ExamplePricing Example• Hot dog vendor in New Orleans
– Rent hot dog cooker for $4000 a year (a fixed cost that doesn’t depend on volume of hot dogs sold)
– Cost for hot dogs, buns, ketchup, etc. are $.60 per hot dog (variable costs that depend on volume of hot dogs)
– Other vendors charge $2.00 each, you charge $1.80
– Forecast that you can sell 20,000 hot dogs if you have a competitive price
– Identify the break-even quantity
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Estimation of Costs and Revenue Estimation of Costs and Revenue at Various Quantities Producedat Various Quantities Produced
Exhibit 12.6a
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Estimation of Costs and Revenue at Estimation of Costs and Revenue at
Various Quantities Produced Various Quantities Produced (cont’d)(cont’d)
Exhibit 12.6b
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Breakeven Quantity Breakeven Quantity ExampleExample
Per Unit Costs Variable-Price
Costs FixedBEQ
.60-$1.80
$4,000BEQ
dogshot 3,334BEQ
Copyright © 2004 South-Western. All rights reserved. 12–33
Other Pricing DecisionsOther Pricing Decisions•Offering special discounts
– Senior citizens, students, online buyers
•Periodic sale prices– Some customers will only buy products if
they are on sale
•Credit terms for specific customers– Business customers (2/10 net 30)– Credit card payments– Retailer credit card
Copyright © 2004 South-Western. All rights reserved. 12–34
Chapter SummaryChapter Summary• Demographic trends, geography, economic factors, and changes in social value impact size of target market
• Creation of new products involves a number of steps from developing the idea to a post-audit
• Companies use unique product design, packaging, and branding to differentiate
• Cost of production, inventory supply, and competitors’ prices influence pricing decisions