Learning Objectives Chapter 12 Identify factors that affect a target market. Identify steps to create new products. Creating and Pricing Products Explain methods for product differentiation. Identify main phases of product life cycle. Identify factors influencing pricing decisions. Product and Pricing Strategy Classifications of Products Convenience products – Widely available, purchased frequently, easily Firm’s Pricing Revenue accessible Strategies Firm's Profits and Shopping products Value Product Firm’s Cost of – Consumers shop around to compare prices and Strategies Firm's Production Expenses quality, not purchased frequently Specialty products – Special effort to purchase, decision to purchase based on personal preference Product Line Product Mix A set of related products or services offered by a single firm. Product Mix COCA-COLA • 1886 COCA-COLA 1982 DIET COKE • 1960 FANTA 1992 "NEW" COKE, RENAMED COKE • The assortment of products • 1961 SPRITE II NESTEA offered by a firm. 1994 FRUITOPIA • 1963 TAB 1995 BARQ'S • 1966 FRESCA • 1972 MR. PIBB 1997 SURGE CITRA Not inclusive • 1974 SUGAR-FREE SPRITE Source: Coca-Cola Web Site march 2000 1 Target Markets Factors Affecting Target Markets • A group of individuals or organizations with • Demographics similar traits who may purchase a particular product. • Geography Two types of target markets: • Economic factors Consumer • Social values Industrial Marketing Research Research and Design Accumulation and analysis of data to make marketing decisions. Purpose : Purpose : • Identify consumer needs. • Develop and test new products. • Understand consumer perception. • Improve existing products. • Test new product ideas. • Patent : Allows exclusive rights to production and Investment : sale of specific product. • Firms invest funds in research and development (R&D). • Manufacturing firms tend to invest more money than service firms. Steps to Create a New Product Product Differentiation Develop product idea. • Efforts to distinguish a product from competitive products so that it is more desirable. Assess feasibility of idea. Products are differentiated by: Design and test product. • Unique design. • Unique packaging. Distribute and promote product. • Unique branding. Post-audit product. 2 Classification of Brands Product Life Cycle • Producer : represent the manufacture of products. Maturity Decline • Store : represents the retail store where the product is Growth being sold. Arizona Jean Co.® Sports Cap Sold at JC Penney • Generic : products are not branded and simply Introduction describe the product. Units/Sales Profits Time PRICE Pricing Example Value that is placed on a product. • Hot dog vendor in New York City Factors which determine price : • Cost of production. – Rent hot dog cooker for $4000 a year (a fixed cost that doesn’t depend on volume of hot dogs sold) • Supply of inventory. – Cost for hot dogs, buns, ketchup, etc. are $.60 per hot • Competitor’s prices. dog (variable costs that depend on volume of hot dogs) Strategies : – Other vendors charge $2.00 each, you charge $1.80 • Penetration – Forecast that you can sell 20,000 hot dogs if you have a competitive price • Defensive – Identify the break-even quantity • Predatory • Prestige Pricing Example Pricing Example Exhibit 12.6b 3 Breakeven Quantity Example Fixed Costs BEQ = Price - Variable Costs Per Unit $4,000 BEQ = $1.80 -.60 BEQ = 3,334 hot dogs 4.