Description
Price sometimes refers to the quantity of payment requested by a seller of goods or services, rather than the eventual payment amount. This requested amount is often called the asking price or selling price, while the actual payment may be called the transaction price or traded price. Likewise, the bid price or buying price is the quantity of payment offered by a buyer of goods or services, although this meaning is more common in asset or financial markets than in consumer markets.
New ProductDevelopment&Pricing “Launch ofNEWPRODUCT”
Table of Contents
Introduction……………………………………………………………… MajorStagesinNew-ProductDevelopment ? Ideageneration……………………………………………….….. ? Ideascreening………………………………………………..…... ? ConceptDevelopmentandTesting……………………………… ?ProductIdea……………………………………..….. ?ProductConcept…………………..……………..…. ?ProductImage………………………………….……. ? Marketingstrategydevelopment………………………………… ? Businessanalysis…………………………………………………. ? Testmarketing……………………………………………………. ? Commercialization………………………………………………... KeysuccessfactorsinNewProductDevelopment ? ? ? ? OperatingPhilosophy….……………………………………………. OrganizationStructure………………………………………………. TheExperienceEffect……………………………………………….. ManagementStyle…………………………………………………...
TheProductLifeCycle ? ? ? ? ? Productdevelopment……………………………………….………… Introduction……………………………………………………….….. Growth………………………………………………………………... Maturity…………………………………………………………….…. Decline…………………………………………….…………………..
New-ProductFailures 1. FaultyProductIdea……………………………………………... 2. DistributionRelatedproblems………………………………….. 3. PoorTimingof Launch……………………………………….... 4. ImproperPositioning…………………………………………… 5. Others………………………………….………………………..
PRICING
PricingObjective Profitorientedgoal……………………………………………….. Saleorientedgoal…………………………………………………. Maintain&increasemarketshare………………………………... StatusQuogoals…………………………………………………… PricingDecision Cost-orientated…………………………………………………….. Demand-orientated………………………………………………… Competitor-orientated……………………………………………… InfluencesonPricingDecisions CompanyObjective……………………………………………….. NewCompetitors………………………………………………….. Suppliers/ Distributers……………………………………………. Cost………………………………………………………………… ExistingCompetitor……………………………………………….. Customer…………………………………………………………… ManagementCulture……………………………………………….. CompanyMarketStance……………………………………………
PricingStrategies MarketSkimming…………………………………………………… PenetrationPricing………………………………………………….. ValuePricing………………………………………………………... GoingRate(Price Leadership)……………………………………..... CaptiveProductPricing……………………………………………... Product-bundlepricing……………………………………………… Promotionalpricing…………………………………………………. GeographicalPricing………………………………………………… ContributionPricing…………………………………………………. PricingVariations……………………………………………………... PremiumPricing……………………………………………………… Ten ways to „increase?prices without increasing price
CaseStudySelfMade
Introduction
Whatis anewproduct? • • • • • • Aproductthatopens anentirelynewmarket. Aproductthatadoptsorreplaces anexistingproduct. Aproductthatsignificantlybroadens themarketforanexistingproduct. Anoldproductintroducedinanewmarket. Anoldproductpackagedinadifferentway. Anoldproductmarketedinadifferentway.
Types ofnewproduct
• • • • • •
Innovativeproducts Newproductlines –toallowthefirmtoenter anexistingmarket Additiontoproductline–tosupplementthefirm?sexistingproductline Improvements andrevisions ofexistingproduct Repositionedproducts–existingproductstargets atnewmarket Costreductionnewproductthatprovidesimilarperformanceatlowercost
Examples ofnewproducts
• • •
Newtotheworld–highdefinitionTV,iPod,flatscreen TV,Probiotic IceCream Productimprovement&replacement:SPEEDbyBPCL Costreductionnewproduct: MoserBaer.
Newproductcanbe usedto……
• • • • • • •
Increase/defendmarketsharebyofferingmorechoiceorupdatingolderproducts Appealtonewsegments Diversifyintonewmarkets Improve relationshipwithdistributors Maintainthefirm?s reputationaleadingedgecompany Evenoutpeaks andtroughsindemand Makebetteruseoftheorganization's resources
WhydevelopNewProduct?
• • • • • • • •
Tocreatestars andcashcowsforthefuture Toreplacedecliningproduct Totakeadvantageofnewtechnology Todefeatrivals Tomaintain/increasemarketshare Tokeepupwithrivals Tomaintaincompetitiveadvantage Tofillgapinthemarket
Newproductdevelopment
Inbusinessandengineering,newproductdevelopment termused todescribethecomplete processofbringing servicetomarket.
(NPD)isthe anewproductor
Thereare twoparallelpathsinvolvedintheNPDprocess: Theideageneration,productdesign,anddetailengineering; Involvesmarketresearchandmarketinganalysis. Companiestypicallyseenewproductdevelopmentasthefirststagein generatingandcommercializing newproductswithintheoverallstrategic process ofproductlifecyclemanagementusedtomaintain orgrowtheir marketshare.
OR
Developmentoforiginalproducts Productimprovements Productmodifications Newbrandsthroughthefirm?sownR&D efforts
OR
Newproductdevelopment isaprocesswhichisdesigned todevelop, testandconsidertheviability ofproductswhicharenewtothemarketin ordertoensurethe Growthorsurvivalofthe organization.
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MajorStagesinNPD
Thereare 7StagesofNewProductDevelopment
“The"fuzzy frontend"oftheNewProduct Developmentprocess”
IDEA GENERATION
IdeaGenerationistheSystematicSearchforNewProductIdeasObtained InternallyFromEmployeesandAlsoFrom:
Ideasfornewproductscanbeobtainedfrom basicresearchusinga SWOT analysis (OPPORTUNITY ANALYSIS), Market and consumer trends,company'sR&Ddepartment, competitors,focusgroups, employees, salespeople,corporatespies.
“Processtospotgoodideas anddroppoorones”
IDEA SCREENING
Manycompanieshavesystems forratingandscreeningideaswhichestimate: MarketSize ProductPrice DevelopmentTime&Costs ManufacturingCosts RateofReturn
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OR
Thescreeners mustaskthese questions:
Willthe customerinthe target marketbenefitfromthe product? What isthe sizeandgrowthforecastsofthemarketsegment/targetmarket? What isthe currentorexpectedcompetitivepressureforthe productidea? Whatare theindustrysalesandmarkettrendsthe productideaisbasedon? Isittechnicallyfeasibletomanufacturetheproduct? Willthe productbe profitablewhen manufacturedanddeliveredto the customeratthe targetprice? Then,theideaisevaluatedagainsta setofgeneralcompanycriteria.
ConceptDevelopmentandTesting
“Developthemarketingandengineeringdetails”
ProductIdea:ideaforapossibleproductthatthe companycanseeitself offering. ProductConcept:detailedversionoftheideastated in meaningful consumerterms. ProductImage:the wayconsumersperceiveanactualorpotentialproduct.
PurposesofConceptTesting
Toidentifyverypoorconceptsso thattheycanbe eliminated. Toestimate(atleastcrudely)the salesortrialratethe productwouldenjoy (buyingintentions,earlyprojectionofmarketshare). Tohelpdeveloptheidea(e.g.maketradeoffsamongattributes).
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Procedurefora ConceptTest
Prepareconceptstatement Clarifyspecificpurposes Decideformat(s) Selectcommercialization Determineprice(s) Selectrespondenttype(s) Selectresponsesituation Definethe interview Conducttrialinterviews Interview,tabulate,analyze
“Essentiallyapatternor planthatintegratesyour organization'smajorgoals”
MarketingStrategyDevelopment
Includes developmentofthreepartstrategyplan
DescribesOverall
Describethemarket?ssize,structure,andbehavior,the planned productpositioning,andthe sales,marketshare,andprofitgoalsforfirstfew years.
DescribesShort-Term
Outlinesthe plannedprice,distributionstrategy,andmarketingbudget forthefirstyear
DescribesLong-Term
Describesthelong-runsalesandprofitgoalsandmarketing-mix strategyovertime
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“Estimatelikelysellingpricebaseduponcompetitionandcustomer feedback”
BusinessAnalysis
Businessanalysisisthe disciplineofidentifyingbusiness needsand determiningsolutionstobusiness problems. Solutionsoftenincludea systemsdevelopmentcomponent,butmay alsoconsistofprocessimprovementororganizationalchangeorstrategic planningandpolicydevelopment. Thepersonwhocarriesoutthis taskiscalledabusinessanalystorBA Thereare anumberoftechniquesthataBusinessAnalystwilluse whenfacilitatingbusinesschange &inNPDthereare twoimportant techniquesusednamesMOST& SWOT
MOST
Thisisusedtoperformaninternalenvironmentalanalysisbydefining theattributesofMOSTtoensurethatthe projectyouare workingonis alignedtoeachofthe 4 attributes. ThefourattributesofMOST Mission(wherethe businessintendstogo) Objectives(thekeygoalswhichwillhelpachievethemission) Strategies(options formovingforward) Tactics(howstrategiesare putintoaction)
SWOT
Thisisusedtohelpfocusactivitiesintoareasofstrengthandwhere thegreatestopportunitieslie. Thisisusedtoidentifythe dangersthattake theformofweaknessesandbothinternalandexternalthreats. ThefourattributesofSWOT Strengths-Whatare the advantages?What iscurrentlydonewell? Weaknesses-Whatcouldbe improved?What isdonebadly? Opportunities- Whatgoodopportunitiesfacethe organization? Threats-Whatobstaclesdoesthe organizationface?
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TherecometwoConditionsafterreviewingthis analysis IfNo, EliminateProductConcept IfYes,Moveto ProductDevelopment
Test Marketing
“Involvesplacinga product for sale inoneor moreselectedareas”
TestMarketingisthe StageWherethe ProductandMarketing Programare IntroducedintoMoreRealisticMarketSettings
Inthis we also Produceaphysicalprototypeormock-up Testthe product(anditspackaging)intypicalusagesituations Conductfocusgroupcustomerinterviewsorintroduceattradeshow Makeadjustmentswhere necessary Produceaninitialrunofthe productandsellitinatestmarketareato determinecustomeracceptance
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Commercialization
“Consideredpost-NewProductDevelopment”
Commercializationisthe Introductionofthe NewProductintothe Marketplace Mustdecideontiming(i.e.,whentointroducethe product). Mustdecideonwheretointroducethe product(e.g.,single location,state, region,nationally,internationally). Mustdevelopamarketrolloutplan. Eachsuccessivesetofconsumersbehavesdifferently NewProductAdoptionProcess isalsoknownasthe“DiffusionProcess”. TheConsumer-AdoptionProcess/Innovationdiffusionprocess
Adopters ofnewproducts move throughfivestages
Awareness?Interest?Evaluation?Trial?Adoption Commercializationinvolvesimplementingatotalmarketingplanandfull production Launchthe product Produceandplace advertisementsandotherpromotions Fillthedistributionpipelinewithproduct Criticalpathanalysisismostusefulatthis stage
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Key SuccessFactorsin NPD
• • • • OperatingPhilosophy OrganizationStructure TheExperienceEffect ManagementStyle
OperatingPhilosophy
Successfulcompaniesaremorecommittedtogrowththroughnew productsdevelopedinternally. Theyaremorelikelytohavehadaformalnewproductprocessin placeforalongerperiodoftimethanunsuccessfulcompanies.Theyare morelikelytohavea strategicplanthatincludesacertainportionof companygrowthfromnewproducts.
OrganizationStructure
Successfulcompaniesaremorelikelytohousethe newproduct organizationinR&Dorengineeringandaremorelikelyto allowthe marketingandR&Dfunctionstohavegreaterinfluenceonthenewproduct process
TheexperienceEffect
Experienceinintroducingnewproductsenablescompaniesto improvenewproductperformance. Newproductdevelopmentcostsconformtothe experiencecurve:The moreyoudosomething,themoreefficientyoubecomeatdoingit.This experienceadvantagestemsfromthe acquisitionofknowledgeofthemarket andofthe stepsrequiredtodevelopanewproduct.
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ManagementStyle
Successfulcompaniesappearnotonlytoselectamanagementstyle appropriatetoimmediate newproductdevelopmentneedsbutalsoto revise andtailorthatapproachtochangingnewproductopportunities
The Product Life Cycle
TherearefivemainStrategiesofPLC
Productdevelopment–DiscussedinDetailedPreviously Introduction Growth Maturity Decline Notallproductsfollowthis cycle Fads Styles Fashions
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Introduction
GrowthStageofPLC
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MaturityStageofPLC
DecliningStageofPLC
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NEW PRODUCT FAILURE
Inthis era oftightcompetitionfromdomesticandglobalfirmsthe firmwhodon'tcomeoutwithnewproductsare puttingthemselvesatgreat riskbecausetheirexistingproductsare pronetochangingcustomerneeds, shorterproductlifecycles,newtechnologiesandincreasedcompetition. Despiteyearsofresearchandhugecapitalbeingpumpedinto understandingtheconsumer,makingalaunchsuccessfulis stilladifficult task.Thenewproductlargelydependsonthe productqualityandthe marketingtacticsofthefirm,therearemanyoccasionswerethe product failedmiserablyevenafterusingthe besttechnologyandqualitythe reason isthatthenewproductisnotworthforthecustomers.Theprime factorfor thenewproductsuccessis-customer value.Valueis whatthe customer thinksisvalue. Themajorreasonsforproductfailureare:
Faulty productidea
The productoftenfailbecause faultyofproductidea.A goodideacan revolutionizethemarketbutabadideamayprovebittertothefirmorit maybackfire Eg
olarindustriesin1991launched"COOLCATS"fan-decorated withcartooncharactersmeantprimarilyforchildren.Thefanwas pricedat premium;the ideawas thatchildren'swereincreasinglybecoming influencersinpurchasedecisionsandtoattractthe kidswiththe cartoon creaturesandtopositiontheproductexclusivelyforkids. Theproductfailed miserablyinspiteofits hugeadvertisingbudgetbecausewhenthefanwas putonitdidn't haveanycoloreffectandthecustomerdidnotjustify its premiumprice.
Distributionrelatedproblems
Thenewproductfailsifthe productisunabletomeetthe channel requirements.Whiledevelopingthe productthe channelrequirementsmust be givenadequateconsideration.
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Eg:whenNESTLElauncheditsnewchocolatesthe productand promotionwas okbutthe productfailedinthedistributionsidebecausethe companystipulatedthe producttobe storedinrefrigerators. Theproductfacedtwoproblemsinthe distributionsidebecauseit meantexcludinganumberofretailoutlets astheydidn't havethisfacility andsecondlythe chocolatewas notpicked bythe customersasitwas not seenupfrontinthe retailshops.FinallyNestle hadtoreformulatethe product accordingtochannelrequirements.
Poortiming oflaunch
Tooearlyorlateentryintothemarketisacommoncauseoffailure. KineticMerlinwas launchedinpunein1991.Itwas a3in1setconsistingof acolortelevision,a stereowithdetachablespeakersandahomecomputer. Theproductwas targetedatthe Indianconsumerswhoare fondof sophisticatedgadgetstoimmediatelyadopt suchaninnovative ideabutin realitytheideawas tooadvancedforthe customerstodigestatthattime becausetheywerenotexposedtosuchtypeofproductsbefore.
ImproperPositioning
Positioningmeansputtingthe productintothe predeterminedorbit Improperpositioningmayaffectthe productsuccess. Eg:TitanTanishq introducedtheir18caratjewelleryandthe product was positionedatelitesegmentbuttherewas acontradictionastowhythese elitesegmentshould goinforalowcaratgoldbecausethe normsforgoldin Indiaatthattimewas 22carat.Theproductfailedmiserablyinretrospect Titanhadtointroduce22-caratjewellery Some“OtherReasons”forproductfailure are: Lackofdifferentialadvantage Poorplanning Technicalproblemsinthe product Competitorsfightingbackharderthanexpected Poor marketresearch Thewatchwordsfornewproductsuccess are
“RIGHTPRODUCTTOTHERIGHTCUSTOMERATRIGHTTIME”
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Pricing
Pricingobjectivesshould flowfromandbe consistentwithcorporate andmarketingobjectivesandthe overallcompanymissiontheseobjectives shouldbe startedexplicitlybecausetheydirectlyaffectpricingpolicesand themethods usedtobeset)
Objectives
ProfitOrientedprofitgoalsmaybe setforthe shortorlongterm .Accompanymayselectoneoftwoprofit–orientedgoalsforits pricing policy
Toachievea targetreturns
Thepricingobjectiveofmarkingasmuchasmoneyaspossibleis probablyfollowedmorethenanyothergoal.Thetroublewiththisgoalis thatsomepeopleprofit maximizationhas anuglyconnotationsuggesting profiteering,highpricesandmonopoly. E.g.Pizzahut
Tomaximizeprofit
Aprofitmaximizationobjectiveseekstoachieveasmuchprofitas possible. Itmightbe statedasdesiretoearnahighreturnaninvestmentormoresonlyto change“whatthemethodwillbear” E.g. Pizzaexpert Pizzahut Pizzanext McDonalds
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Sale Oriented
Insomecompaniesmanagement?spricingisfocusedonsalesvolume. Thepricinggoalmaybe toincreasesalesvolumeortomaintainorincrease thefirm'smarketshare
ToIncreaseSaleVolume
Thispricinggoalofincreasingsalesvolume.Thepricinggoalmaybe toincreasevolumeortomaintainorincreasethe firm'smarketshare.
Tomaintainor increase Mostindustriestodayarenotgrowingmuchift allandhaveexcess productioncapacity.Manyfirmsneedaddedandtoutilizetheirproduction capacitymorefullyand,inturn,gaineconomicsofscaleandbetterprofits
Marketshare
Manyorganizationseektogainsamespecificshare%ofamarket .Theadvantageofamarket-sharepriceobjectisthatitsforceamanagersto payattentiontothe performanceofthe competitions.Itisusuallyeasierto measureanargumentationmarketsharethantodetermineifprofitare buyingmaximizedsincemarketshareisarelationmeasureitisoftenthe preferredmeasurementofanargumentcompetitive E.g. McDonald, Coca-Cola Pepsi
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Statusquo oriented
Tostabilizeoriented Pricestabilizedoftenisthe goalinindustrieswhere Theproductishighlystandardized(suchas steelorbulkchemicals. Onelargefirm.SuchasPhelpsDogsinthecopperindustry. Historicallyhas actedasaleaderinsettingtheirprices. Tomeetcompetent: Firmthatadoptstatusquopricinggoalstoavoidpricecompetitionare notnecessarilypassiveintheirmarketing.Quitethe contrary!Typically thesecompaniescompeteaggressivelyusingothermarketing-mixelementsproduct.Distributionandespeciallyprotion.Thisapproachcalled nonprime competition PricingDecisions: Pricingpoliciescanbe establishedinthreeways: • Cost-orientated(thecostsinvolvedinmanufacturingthe productandthen addsonapercentageofthe costasamark-upinordertosetthe price) • Demand-orientated(Highdemandmeanshighprices–lowdemandmeans lowprices) • Competitor-orientated(pricingisusuallyfoundwhereagroupof organizationsis sellingthe sameproducti.e.petrol,finance,etc. Customersare happytopayandacceptedthe productasthe “ market price”. Individualfirmcannotincreasethe priceanddecrease,consequently,loss of customerandloss ofrevenue.)
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FactorstoConsiderWhenSetting Prices
InternalFactors AffectingPricingDecisions
MarketingObjectives Survival LowPricestoCoverVariableCostsandSomeFixedCoststo StayinBusiness CurrentProfitMaximization Choosethe PricethatProducesthe MaximumCurrentProfit,CashFloworROI MarketShareLeadership LowasPossiblePricestoBecomethe MarketShareLeader ProductQualityLeadership HighPricestoCoverHigherPerformanceQuality
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MarketingMixStrategy ProductDesign&Quality NonpriceFactor Promotion Distribution
TotalCost=Fixed Cost+VariableCost
Cost
TotalCosts
SumoftheFixedandVariableCostsforaGivenLevelofProduction
FixedCosts(Overhead)
Coststhatdon?tvarywithsalesor productionlevels. E.g. ExecutiveSalaries,Rent
VariableCosts
Coststhatdovarydirectlywiththelevelofproduction E.g.Rawmaterials CostsConsiderations
“CostPer UnitatDifferent LevelsofProductionperPeriod”
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ExternalFactors AffectingPricingDecision
Market&DemandFactor Competitor?sCost,Price&Offers OtherExternalFactors EconomicConditions ResellerNeeds Govt.Actions SocialActions
Market&DemandFactor
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Competition-BasedPricing
Andthe RestoftheFactorswhicharementionedbefore EconomicConditions ResellerNeeds Govt.Actions SocialActions
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Pricing Strategies
Settingthepricestepsbetweenvariousproductsinaproductline,basedoncost differences betweenthe products, customer evaluations of the different featuresandthe competitors?pricing ImportanceofSettingPrices ? Setting the proper price point is instrumental in attracting your target customer. ? Some customersarewillingtopaymoreforaproductaslongastheyfeel theyaregettingvaluefortheirMoney. ? Mostcustomershoweverareprice-sensitiveandarealwaysseekingthe lowestpossibleprice.
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PriceDeterminationProcess
Skimmingpricingstrategy
“Involvestheuseofahighpricerelativetocompetitiveofferings ”
? Highprice,Lowvolumes ? Skimthe profit fromthemarket ? Suitable for products that have short life cycles or which will face competitionatsomepoint inthefuture(e.g.afterapatentrunsout) Examplesincludelaystation,jewellery,digitaltechnology,newDVDs,etc. AdvantagesofMarketSkimming • Thepracticeof„priceskimming?involveschargingarelativelyhighprice forashorttimewhereanew,innovative,ormuch-improved productis launchedontoamarket
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• Theobjectivewithskimmingisto“skim”offcustomerswhoarewillingto paymoretohave theproduct sooner; pricesareloweredlaterwhendemand fromthe “earlyadopters”falls • The success of a price-skimming strategy is largely dependent on the inelasticityofdemandfortheproducteitherby themarketasawhole,orby certainmarketsegments
PenetrationPricing
“Pricesetto„penetratethemarket”
? Low?pricetosecure highvolumes ? Typicalinmassmarketproducts– chocolatebars,foodstuffs,household goods,etc. ? Suitableforproductswithlonganticipatedlifecycles ? Maybe usefuliflaunchingintoanewmarket Example:Telenor–ToattractNewCorporateClients AdvantagesofPenetrationPricing • Itcanresult infastdiffusionandadoption.Thiscanachievehighmarket penetrationratesquickly.Thiscantakethe competitionbysurprise,not givingthemtimeto react. • Itcancreate goodwillamongtheearlyadopterssegment.Thiscancreate moretradethroughwordofmouth. • Itcreatescostcontrolandcostreductionpressuresfromthe start,leadingto greaterefficiency. • Itdiscouragesthe entryofcompetitors.Lowpricesactasabarriertoentry (seeorter5forcesanalysis). • Itcanbe basedonmarginalcostpricing,which iseconomicallyefficient.
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“PriceBasedonConsumer Perception”
Value Pricing
• Valuebasedpricing,orValueoptimizedpricingisabusinessstrategy.Itsets sellingpricesonthe perceivedvaluetothecustomer,ratherthanonthe actualcostofthe product,themarketprice,competitorsprices,orthe historicalprice • Thegoalofvalue-basedpricingistoalignpricewithvaluedelivered.Price foranyindividualcustomercanbe customizedto reflectthe specificvalue delivered.Examplescouldincludemetricssuchasnumberofusers,number ofannualtransactions,sizeofrevenues,costsavings,orother measurements.Valuebasedpricingtypicallyenablescompaniestobecome morecompetitiveandmoreprofitablethanusingsimplerpricingmethods. ? Pricesetinaccordancewithcustomerperceptionsaboutthe valueofthe product/service ExamplesincludeValue menusatFastFoodRestaurants
GoingRate(PriceLeadership)
“Based onLimited Competition”
Incaseofpriceleader,rivalshavedifficultyincompetingonprice– toohighandtheylosemarketshare,toolowandthe priceleaderwouldmatchpriceandforcesmallerrivaloutofmarket Mayfollowpricingleadsofrivalsespeciallywherethoserivalshaveaclear dominanceofmarketshare Wherecompetitionislimited,„goingrate?pricingmaybe applicable– banks,petrol,supermarkets,electricalgoods–findverysimilarpricesinall outlets
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PsychologicalPricing
“Usedto playonconsumer perceptions”
Togetacustomerto respondonanemotional,ratherthanrationalbasis Linkswithvaluepricing–highvaluegoodspricedaccordingto what consumersTHINKshouldbe the price Example:Rs.99notRs.100„pricepointperspective
Captiveproductpricing
“Productsthat complementothers”
e.gGilletterazors(lowprice)andblades(highprice)
“Sellers combineseveralproductsatthesameprice ”
Product-bundlepricing
E.g.software,books,CDs.
Promotionalpricing
• BOGOFe.g. toothpaste,soups,etc
Geographicalpricing
“Differentpricesfor customersindifferentpartsoftheworld ”
E.g.includeshippingcosts
Pricingvariations
“off-peak?pricing,earlybookingdiscounts,etc”
E.g.cashback?incentiveforexpensivegoods
Premiumpricing
“Usesahighprice,butgivesagoodproduct/serviceexchange ”
E.g. 5StarHotels
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Tenwaysto„increase?priceswithout increasingprice “ByDrWinklerP” • • • • • • • • • • Revisethediscount structure Changetheminimumordersize Chargefordelivery andspecialservices Invoiceforrepairsonserviced equipment Chargeforengineering,installation Chargeforovertimeonrushedorders Collect interest onoverdue accounts Produceless ofthelowermarginmodelsintheline Writepenaltyclausesintocontracts Changethe physical characteristicsofthe product
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A.G - Detergent
Idea Generation
Newproductthatwearegoingtolaunchis anAntiGermdetergent. Theidea behindthis productis thatpeopleareverymuchhealthconscious andareawareofthe importanceofgermprevention.Recentlywewereconductinga researchonbrand preferencesinsoaps.Oursurveybasedresearchshowedthatmostpeopleprefer anti- bacterial soapoverothersoaps forhealthreasons.ManypeoplethinkthatGermKilling abilityis oneofthecorebenefits ofsoaps.
MarketResearch
This researchtriggeredtheideathatifmostpeopleprefertokeepskingermfree, thanitis theirlatentdemandtohaveaproductthatkeeps theretowels, clothes,bed- sheets etc.germfree.Thanweconductedanothersurveyaskingpeoplethatifwe introduceanantigermdetergentwhethertheywouldpurchaseit.80%peoplesaidthat theywill surelypurchaseit.Mostofthemwereenthusiasticabouttheideaofthis new product. This argumentconvincedthemthatanti-bacterial soapcannothelptoachieve thegoalofgermfree,healthyliving.Tobetrulygerm-freeyouhavetokeepyour immediatesurroundings hygienicallyclean. Mostofthegerms thatourbodycatches comefromourcontactwithclothes,bed sheets,curtains,pillows andmostimportantlytowels.Towels aremadeofmaterials that areespeciallyreceptivetogerms.Towels providesuitableplaceforgerms andtheir reproduction.Anti-bacterialsoaps cankillgermsfromourbodybutwhenweusetowels todryourbody,millions ofgermslivingonittransfers toourbodyandhandsmakingus again“Germy”.
MarketsegmentationandTargeting
“Dividingamarketintosmallergroupofbuyers distinctcharacteristics or behaviorwhomightrequireseparateproductsormarketingmix” Wearedividingthemarketgeographically,psychographicallyand demographically.
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Geographically
Wearedividingthemarketintomajorand smallcities.Initially,wearetargeting onlythebigcitieslike Karachi Lahore Islamabad Multan Faisalabad
Demographic Segmentation
Wearedividingconsumersinto3classes onthebasis oftheirIncome. UpperClass MiddleClass LowerClass Butwearetargetingtheonlytheupperandmiddleclass
Psychographic Segmentation
Wearedividingconsumersintothesegroups: Innovators Thinkers Achievers Theseallwillbuyourproduct.
MarketingMix
Nowwediscussinterms ofmarketingmix-----thesetofcontrollablemarketing toolsi.e.product,price,placeandpromotion,which areblendedtoproducethedesired responseinthetargetmarket.
Product
Brand Name Quality
“AntiGerm”Detergent.
Itis ofhighqualityincleaningwhiteandcoloredalike.
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Features
i. Superiorqualitydetergent ii. Itsalientfeatureis killingGerms,Bacteriaandvarious types viruses. iii. Itdoes notthefibers oftheclothes sotheygiveanewlookfora longertime.
Packaging
Theproductis availablein4 sizes ofdifferentweights. 80gm 200gm 500gm 1 Kg
Price
Wearethe 1stones tointroduceananti-bacterialdetergent. Soweareinapositionto charge relativelyhighpricethanordinarydetergents. Ifwechargeveryhighpriceas comparedtootherdetergentsthanchances arethatmostpeopleespeciallymiddleclass detergentusers, thoughconvincedabouttheimportanceofits GermKillingfeature,will notpurchaseit.Ifwechargelowpriceas comparedtoordinarydetergents thanpeople mayconsiderthatitis aninferiorproduct.Soweareintroducingitatprices whichare slightlyhigherthanArialandSurfExcel. Theprices areas follows: 80gm……………………Rs.20 200gm…………………..Rs.40 500gm…………………..Rs.85 !Kg …………………....Rs. 150
Place
Initially,wewillmakethis productavailableatalldepartmentalstores and superstores.Oncetheproductgetsofftoagoodstartavailabilitywillbeincreasedto othercities and smallshops.
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Promotion
Therewillbeextensivepromotionfortheproduct.Allourpromotionefforts will betopersuadepeopletobuyanti-bacterialdetergentpowder. Wewillnothavetospendmoneyoncreatingawareness oftheimportanceof germprevention,becausethegeneralawarenesshas beencreatedbyanti-bacterial soap industry. Wewillmainlyuse3mediatype. 1. ElectronicMedia 2. PrintMedia 3. Outdoormedia
ElectronicMedia
Wewillmakepersuasivecommercials andinfomercials aboutourproductin Doctors willbeshownexplainingimportanceofGerm-freetowels andclothingand hencetheimportanceof“AntiGerm”as ananti-bacterialdetergent. TheseAds willbe presentedonTV,RADIOandINTERNET.
PrintMedia
Ads wouldbeplacedespeciallyonwomendigests andweeklymagazinesin whichdetails ofthebenefits oftheproductforconsumers willbediscussedpersuasively.
Out-doorMedia
TheportraitsfromtheTVadwillbeplacedonbillboardsoncentralized locations.
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doc_593779625.docx
Price sometimes refers to the quantity of payment requested by a seller of goods or services, rather than the eventual payment amount. This requested amount is often called the asking price or selling price, while the actual payment may be called the transaction price or traded price. Likewise, the bid price or buying price is the quantity of payment offered by a buyer of goods or services, although this meaning is more common in asset or financial markets than in consumer markets.
New ProductDevelopment&Pricing “Launch ofNEWPRODUCT”
Table of Contents
Introduction……………………………………………………………… MajorStagesinNew-ProductDevelopment ? Ideageneration……………………………………………….….. ? Ideascreening………………………………………………..…... ? ConceptDevelopmentandTesting……………………………… ?ProductIdea……………………………………..….. ?ProductConcept…………………..……………..…. ?ProductImage………………………………….……. ? Marketingstrategydevelopment………………………………… ? Businessanalysis…………………………………………………. ? Testmarketing……………………………………………………. ? Commercialization………………………………………………... KeysuccessfactorsinNewProductDevelopment ? ? ? ? OperatingPhilosophy….……………………………………………. OrganizationStructure………………………………………………. TheExperienceEffect……………………………………………….. ManagementStyle…………………………………………………...
TheProductLifeCycle ? ? ? ? ? Productdevelopment……………………………………….………… Introduction……………………………………………………….….. Growth………………………………………………………………... Maturity…………………………………………………………….…. Decline…………………………………………….…………………..
New-ProductFailures 1. FaultyProductIdea……………………………………………... 2. DistributionRelatedproblems………………………………….. 3. PoorTimingof Launch……………………………………….... 4. ImproperPositioning…………………………………………… 5. Others………………………………….………………………..
PRICING
PricingObjective Profitorientedgoal……………………………………………….. Saleorientedgoal…………………………………………………. Maintain&increasemarketshare………………………………... StatusQuogoals…………………………………………………… PricingDecision Cost-orientated…………………………………………………….. Demand-orientated………………………………………………… Competitor-orientated……………………………………………… InfluencesonPricingDecisions CompanyObjective……………………………………………….. NewCompetitors………………………………………………….. Suppliers/ Distributers……………………………………………. Cost………………………………………………………………… ExistingCompetitor……………………………………………….. Customer…………………………………………………………… ManagementCulture……………………………………………….. CompanyMarketStance……………………………………………
PricingStrategies MarketSkimming…………………………………………………… PenetrationPricing………………………………………………….. ValuePricing………………………………………………………... GoingRate(Price Leadership)……………………………………..... CaptiveProductPricing……………………………………………... Product-bundlepricing……………………………………………… Promotionalpricing…………………………………………………. GeographicalPricing………………………………………………… ContributionPricing…………………………………………………. PricingVariations……………………………………………………... PremiumPricing……………………………………………………… Ten ways to „increase?prices without increasing price
CaseStudySelfMade
Introduction
Whatis anewproduct? • • • • • • Aproductthatopens anentirelynewmarket. Aproductthatadoptsorreplaces anexistingproduct. Aproductthatsignificantlybroadens themarketforanexistingproduct. Anoldproductintroducedinanewmarket. Anoldproductpackagedinadifferentway. Anoldproductmarketedinadifferentway.
Types ofnewproduct
• • • • • •
Innovativeproducts Newproductlines –toallowthefirmtoenter anexistingmarket Additiontoproductline–tosupplementthefirm?sexistingproductline Improvements andrevisions ofexistingproduct Repositionedproducts–existingproductstargets atnewmarket Costreductionnewproductthatprovidesimilarperformanceatlowercost
Examples ofnewproducts
• • •
Newtotheworld–highdefinitionTV,iPod,flatscreen TV,Probiotic IceCream Productimprovement&replacement:SPEEDbyBPCL Costreductionnewproduct: MoserBaer.
Newproductcanbe usedto……
• • • • • • •
Increase/defendmarketsharebyofferingmorechoiceorupdatingolderproducts Appealtonewsegments Diversifyintonewmarkets Improve relationshipwithdistributors Maintainthefirm?s reputationaleadingedgecompany Evenoutpeaks andtroughsindemand Makebetteruseoftheorganization's resources
WhydevelopNewProduct?
• • • • • • • •
Tocreatestars andcashcowsforthefuture Toreplacedecliningproduct Totakeadvantageofnewtechnology Todefeatrivals Tomaintain/increasemarketshare Tokeepupwithrivals Tomaintaincompetitiveadvantage Tofillgapinthemarket
Newproductdevelopment
Inbusinessandengineering,newproductdevelopment termused todescribethecomplete processofbringing servicetomarket.
(NPD)isthe anewproductor
Thereare twoparallelpathsinvolvedintheNPDprocess: Theideageneration,productdesign,anddetailengineering; Involvesmarketresearchandmarketinganalysis. Companiestypicallyseenewproductdevelopmentasthefirststagein generatingandcommercializing newproductswithintheoverallstrategic process ofproductlifecyclemanagementusedtomaintain orgrowtheir marketshare.
OR
Developmentoforiginalproducts Productimprovements Productmodifications Newbrandsthroughthefirm?sownR&D efforts
OR
Newproductdevelopment isaprocesswhichisdesigned todevelop, testandconsidertheviability ofproductswhicharenewtothemarketin ordertoensurethe Growthorsurvivalofthe organization.
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MajorStagesinNPD
Thereare 7StagesofNewProductDevelopment
“The"fuzzy frontend"oftheNewProduct Developmentprocess”
IDEA GENERATION
IdeaGenerationistheSystematicSearchforNewProductIdeasObtained InternallyFromEmployeesandAlsoFrom:
Ideasfornewproductscanbeobtainedfrom basicresearchusinga SWOT analysis (OPPORTUNITY ANALYSIS), Market and consumer trends,company'sR&Ddepartment, competitors,focusgroups, employees, salespeople,corporatespies.
“Processtospotgoodideas anddroppoorones”
IDEA SCREENING
Manycompanieshavesystems forratingandscreeningideaswhichestimate: MarketSize ProductPrice DevelopmentTime&Costs ManufacturingCosts RateofReturn
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OR
Thescreeners mustaskthese questions:
Willthe customerinthe target marketbenefitfromthe product? What isthe sizeandgrowthforecastsofthemarketsegment/targetmarket? What isthe currentorexpectedcompetitivepressureforthe productidea? Whatare theindustrysalesandmarkettrendsthe productideaisbasedon? Isittechnicallyfeasibletomanufacturetheproduct? Willthe productbe profitablewhen manufacturedanddeliveredto the customeratthe targetprice? Then,theideaisevaluatedagainsta setofgeneralcompanycriteria.
ConceptDevelopmentandTesting
“Developthemarketingandengineeringdetails”
ProductIdea:ideaforapossibleproductthatthe companycanseeitself offering. ProductConcept:detailedversionoftheideastated in meaningful consumerterms. ProductImage:the wayconsumersperceiveanactualorpotentialproduct.
PurposesofConceptTesting
Toidentifyverypoorconceptsso thattheycanbe eliminated. Toestimate(atleastcrudely)the salesortrialratethe productwouldenjoy (buyingintentions,earlyprojectionofmarketshare). Tohelpdeveloptheidea(e.g.maketradeoffsamongattributes).
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Procedurefora ConceptTest
Prepareconceptstatement Clarifyspecificpurposes Decideformat(s) Selectcommercialization Determineprice(s) Selectrespondenttype(s) Selectresponsesituation Definethe interview Conducttrialinterviews Interview,tabulate,analyze
“Essentiallyapatternor planthatintegratesyour organization'smajorgoals”
MarketingStrategyDevelopment
Includes developmentofthreepartstrategyplan
DescribesOverall
Describethemarket?ssize,structure,andbehavior,the planned productpositioning,andthe sales,marketshare,andprofitgoalsforfirstfew years.
DescribesShort-Term
Outlinesthe plannedprice,distributionstrategy,andmarketingbudget forthefirstyear
DescribesLong-Term
Describesthelong-runsalesandprofitgoalsandmarketing-mix strategyovertime
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“Estimatelikelysellingpricebaseduponcompetitionandcustomer feedback”
BusinessAnalysis
Businessanalysisisthe disciplineofidentifyingbusiness needsand determiningsolutionstobusiness problems. Solutionsoftenincludea systemsdevelopmentcomponent,butmay alsoconsistofprocessimprovementororganizationalchangeorstrategic planningandpolicydevelopment. Thepersonwhocarriesoutthis taskiscalledabusinessanalystorBA Thereare anumberoftechniquesthataBusinessAnalystwilluse whenfacilitatingbusinesschange &inNPDthereare twoimportant techniquesusednamesMOST& SWOT
MOST
Thisisusedtoperformaninternalenvironmentalanalysisbydefining theattributesofMOSTtoensurethatthe projectyouare workingonis alignedtoeachofthe 4 attributes. ThefourattributesofMOST Mission(wherethe businessintendstogo) Objectives(thekeygoalswhichwillhelpachievethemission) Strategies(options formovingforward) Tactics(howstrategiesare putintoaction)
SWOT
Thisisusedtohelpfocusactivitiesintoareasofstrengthandwhere thegreatestopportunitieslie. Thisisusedtoidentifythe dangersthattake theformofweaknessesandbothinternalandexternalthreats. ThefourattributesofSWOT Strengths-Whatare the advantages?What iscurrentlydonewell? Weaknesses-Whatcouldbe improved?What isdonebadly? Opportunities- Whatgoodopportunitiesfacethe organization? Threats-Whatobstaclesdoesthe organizationface?
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TherecometwoConditionsafterreviewingthis analysis IfNo, EliminateProductConcept IfYes,Moveto ProductDevelopment
Test Marketing
“Involvesplacinga product for sale inoneor moreselectedareas”
TestMarketingisthe StageWherethe ProductandMarketing Programare IntroducedintoMoreRealisticMarketSettings
Inthis we also Produceaphysicalprototypeormock-up Testthe product(anditspackaging)intypicalusagesituations Conductfocusgroupcustomerinterviewsorintroduceattradeshow Makeadjustmentswhere necessary Produceaninitialrunofthe productandsellitinatestmarketareato determinecustomeracceptance
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Commercialization
“Consideredpost-NewProductDevelopment”
Commercializationisthe Introductionofthe NewProductintothe Marketplace Mustdecideontiming(i.e.,whentointroducethe product). Mustdecideonwheretointroducethe product(e.g.,single location,state, region,nationally,internationally). Mustdevelopamarketrolloutplan. Eachsuccessivesetofconsumersbehavesdifferently NewProductAdoptionProcess isalsoknownasthe“DiffusionProcess”. TheConsumer-AdoptionProcess/Innovationdiffusionprocess
Adopters ofnewproducts move throughfivestages
Awareness?Interest?Evaluation?Trial?Adoption Commercializationinvolvesimplementingatotalmarketingplanandfull production Launchthe product Produceandplace advertisementsandotherpromotions Fillthedistributionpipelinewithproduct Criticalpathanalysisismostusefulatthis stage
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Key SuccessFactorsin NPD
• • • • OperatingPhilosophy OrganizationStructure TheExperienceEffect ManagementStyle
OperatingPhilosophy
Successfulcompaniesaremorecommittedtogrowththroughnew productsdevelopedinternally. Theyaremorelikelytohavehadaformalnewproductprocessin placeforalongerperiodoftimethanunsuccessfulcompanies.Theyare morelikelytohavea strategicplanthatincludesacertainportionof companygrowthfromnewproducts.
OrganizationStructure
Successfulcompaniesaremorelikelytohousethe newproduct organizationinR&Dorengineeringandaremorelikelyto allowthe marketingandR&Dfunctionstohavegreaterinfluenceonthenewproduct process
TheexperienceEffect
Experienceinintroducingnewproductsenablescompaniesto improvenewproductperformance. Newproductdevelopmentcostsconformtothe experiencecurve:The moreyoudosomething,themoreefficientyoubecomeatdoingit.This experienceadvantagestemsfromthe acquisitionofknowledgeofthemarket andofthe stepsrequiredtodevelopanewproduct.
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ManagementStyle
Successfulcompaniesappearnotonlytoselectamanagementstyle appropriatetoimmediate newproductdevelopmentneedsbutalsoto revise andtailorthatapproachtochangingnewproductopportunities
The Product Life Cycle
TherearefivemainStrategiesofPLC
Productdevelopment–DiscussedinDetailedPreviously Introduction Growth Maturity Decline Notallproductsfollowthis cycle Fads Styles Fashions
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Introduction
GrowthStageofPLC
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MaturityStageofPLC
DecliningStageofPLC
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NEW PRODUCT FAILURE
Inthis era oftightcompetitionfromdomesticandglobalfirmsthe firmwhodon'tcomeoutwithnewproductsare puttingthemselvesatgreat riskbecausetheirexistingproductsare pronetochangingcustomerneeds, shorterproductlifecycles,newtechnologiesandincreasedcompetition. Despiteyearsofresearchandhugecapitalbeingpumpedinto understandingtheconsumer,makingalaunchsuccessfulis stilladifficult task.Thenewproductlargelydependsonthe productqualityandthe marketingtacticsofthefirm,therearemanyoccasionswerethe product failedmiserablyevenafterusingthe besttechnologyandqualitythe reason isthatthenewproductisnotworthforthecustomers.Theprime factorfor thenewproductsuccessis-customer value.Valueis whatthe customer thinksisvalue. Themajorreasonsforproductfailureare:
Faulty productidea
The productoftenfailbecause faultyofproductidea.A goodideacan revolutionizethemarketbutabadideamayprovebittertothefirmorit maybackfire Eg
olarindustriesin1991launched"COOLCATS"fan-decorated withcartooncharactersmeantprimarilyforchildren.Thefanwas pricedat premium;the ideawas thatchildren'swereincreasinglybecoming influencersinpurchasedecisionsandtoattractthe kidswiththe cartoon creaturesandtopositiontheproductexclusivelyforkids. Theproductfailed miserablyinspiteofits hugeadvertisingbudgetbecausewhenthefanwas putonitdidn't haveanycoloreffectandthecustomerdidnotjustify its premiumprice.Distributionrelatedproblems
Thenewproductfailsifthe productisunabletomeetthe channel requirements.Whiledevelopingthe productthe channelrequirementsmust be givenadequateconsideration.
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Eg:whenNESTLElauncheditsnewchocolatesthe productand promotionwas okbutthe productfailedinthedistributionsidebecausethe companystipulatedthe producttobe storedinrefrigerators. Theproductfacedtwoproblemsinthe distributionsidebecauseit meantexcludinganumberofretailoutlets astheydidn't havethisfacility andsecondlythe chocolatewas notpicked bythe customersasitwas not seenupfrontinthe retailshops.FinallyNestle hadtoreformulatethe product accordingtochannelrequirements.
Poortiming oflaunch
Tooearlyorlateentryintothemarketisacommoncauseoffailure. KineticMerlinwas launchedinpunein1991.Itwas a3in1setconsistingof acolortelevision,a stereowithdetachablespeakersandahomecomputer. Theproductwas targetedatthe Indianconsumerswhoare fondof sophisticatedgadgetstoimmediatelyadopt suchaninnovative ideabutin realitytheideawas tooadvancedforthe customerstodigestatthattime becausetheywerenotexposedtosuchtypeofproductsbefore.
ImproperPositioning
Positioningmeansputtingthe productintothe predeterminedorbit Improperpositioningmayaffectthe productsuccess. Eg:TitanTanishq introducedtheir18caratjewelleryandthe product was positionedatelitesegmentbuttherewas acontradictionastowhythese elitesegmentshould goinforalowcaratgoldbecausethe normsforgoldin Indiaatthattimewas 22carat.Theproductfailedmiserablyinretrospect Titanhadtointroduce22-caratjewellery Some“OtherReasons”forproductfailure are: Lackofdifferentialadvantage Poorplanning Technicalproblemsinthe product Competitorsfightingbackharderthanexpected Poor marketresearch Thewatchwordsfornewproductsuccess are
“RIGHTPRODUCTTOTHERIGHTCUSTOMERATRIGHTTIME”
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Pricing
Pricingobjectivesshould flowfromandbe consistentwithcorporate andmarketingobjectivesandthe overallcompanymissiontheseobjectives shouldbe startedexplicitlybecausetheydirectlyaffectpricingpolicesand themethods usedtobeset)
Objectives
ProfitOrientedprofitgoalsmaybe setforthe shortorlongterm .Accompanymayselectoneoftwoprofit–orientedgoalsforits pricing policy
Toachievea targetreturns
Thepricingobjectiveofmarkingasmuchasmoneyaspossibleis probablyfollowedmorethenanyothergoal.Thetroublewiththisgoalis thatsomepeopleprofit maximizationhas anuglyconnotationsuggesting profiteering,highpricesandmonopoly. E.g.Pizzahut
Tomaximizeprofit
Aprofitmaximizationobjectiveseekstoachieveasmuchprofitas possible. Itmightbe statedasdesiretoearnahighreturnaninvestmentormoresonlyto change“whatthemethodwillbear” E.g. Pizzaexpert Pizzahut Pizzanext McDonalds
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Sale Oriented
Insomecompaniesmanagement?spricingisfocusedonsalesvolume. Thepricinggoalmaybe toincreasesalesvolumeortomaintainorincrease thefirm'smarketshare
ToIncreaseSaleVolume
Thispricinggoalofincreasingsalesvolume.Thepricinggoalmaybe toincreasevolumeortomaintainorincreasethe firm'smarketshare.
Tomaintainor increase Mostindustriestodayarenotgrowingmuchift allandhaveexcess productioncapacity.Manyfirmsneedaddedandtoutilizetheirproduction capacitymorefullyand,inturn,gaineconomicsofscaleandbetterprofits
Marketshare
Manyorganizationseektogainsamespecificshare%ofamarket .Theadvantageofamarket-sharepriceobjectisthatitsforceamanagersto payattentiontothe performanceofthe competitions.Itisusuallyeasierto measureanargumentationmarketsharethantodetermineifprofitare buyingmaximizedsincemarketshareisarelationmeasureitisoftenthe preferredmeasurementofanargumentcompetitive E.g. McDonald, Coca-Cola Pepsi
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Statusquo oriented
Tostabilizeoriented Pricestabilizedoftenisthe goalinindustrieswhere Theproductishighlystandardized(suchas steelorbulkchemicals. Onelargefirm.SuchasPhelpsDogsinthecopperindustry. Historicallyhas actedasaleaderinsettingtheirprices. Tomeetcompetent: Firmthatadoptstatusquopricinggoalstoavoidpricecompetitionare notnecessarilypassiveintheirmarketing.Quitethe contrary!Typically thesecompaniescompeteaggressivelyusingothermarketing-mixelementsproduct.Distributionandespeciallyprotion.Thisapproachcalled nonprime competition PricingDecisions: Pricingpoliciescanbe establishedinthreeways: • Cost-orientated(thecostsinvolvedinmanufacturingthe productandthen addsonapercentageofthe costasamark-upinordertosetthe price) • Demand-orientated(Highdemandmeanshighprices–lowdemandmeans lowprices) • Competitor-orientated(pricingisusuallyfoundwhereagroupof organizationsis sellingthe sameproducti.e.petrol,finance,etc. Customersare happytopayandacceptedthe productasthe “ market price”. Individualfirmcannotincreasethe priceanddecrease,consequently,loss of customerandloss ofrevenue.)
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FactorstoConsiderWhenSetting Prices
InternalFactors AffectingPricingDecisions
MarketingObjectives Survival LowPricestoCoverVariableCostsandSomeFixedCoststo StayinBusiness CurrentProfitMaximization Choosethe PricethatProducesthe MaximumCurrentProfit,CashFloworROI MarketShareLeadership LowasPossiblePricestoBecomethe MarketShareLeader ProductQualityLeadership HighPricestoCoverHigherPerformanceQuality
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MarketingMixStrategy ProductDesign&Quality NonpriceFactor Promotion Distribution
TotalCost=Fixed Cost+VariableCost
Cost
TotalCosts
SumoftheFixedandVariableCostsforaGivenLevelofProduction
FixedCosts(Overhead)
Coststhatdon?tvarywithsalesor productionlevels. E.g. ExecutiveSalaries,Rent
VariableCosts
Coststhatdovarydirectlywiththelevelofproduction E.g.Rawmaterials CostsConsiderations
“CostPer UnitatDifferent LevelsofProductionperPeriod”
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ExternalFactors AffectingPricingDecision
Market&DemandFactor Competitor?sCost,Price&Offers OtherExternalFactors EconomicConditions ResellerNeeds Govt.Actions SocialActions
Market&DemandFactor
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Competition-BasedPricing
Andthe RestoftheFactorswhicharementionedbefore EconomicConditions ResellerNeeds Govt.Actions SocialActions
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Pricing Strategies
Settingthepricestepsbetweenvariousproductsinaproductline,basedoncost differences betweenthe products, customer evaluations of the different featuresandthe competitors?pricing ImportanceofSettingPrices ? Setting the proper price point is instrumental in attracting your target customer. ? Some customersarewillingtopaymoreforaproductaslongastheyfeel theyaregettingvaluefortheirMoney. ? Mostcustomershoweverareprice-sensitiveandarealwaysseekingthe lowestpossibleprice.
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PriceDeterminationProcess
Skimmingpricingstrategy
“Involvestheuseofahighpricerelativetocompetitiveofferings ”
? Highprice,Lowvolumes ? Skimthe profit fromthemarket ? Suitable for products that have short life cycles or which will face competitionatsomepoint inthefuture(e.g.afterapatentrunsout) Examplesinclude
laystation,jewellery,digitaltechnology,newDVDs,etc. AdvantagesofMarketSkimming • Thepracticeof„priceskimming?involveschargingarelativelyhighprice forashorttimewhereanew,innovative,ormuch-improved productis launchedontoamarket3
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• Theobjectivewithskimmingisto“skim”offcustomerswhoarewillingto paymoretohave theproduct sooner; pricesareloweredlaterwhendemand fromthe “earlyadopters”falls • The success of a price-skimming strategy is largely dependent on the inelasticityofdemandfortheproducteitherby themarketasawhole,orby certainmarketsegments
PenetrationPricing
“Pricesetto„penetratethemarket”
? Low?pricetosecure highvolumes ? Typicalinmassmarketproducts– chocolatebars,foodstuffs,household goods,etc. ? Suitableforproductswithlonganticipatedlifecycles ? Maybe usefuliflaunchingintoanewmarket Example:Telenor–ToattractNewCorporateClients AdvantagesofPenetrationPricing • Itcanresult infastdiffusionandadoption.Thiscanachievehighmarket penetrationratesquickly.Thiscantakethe competitionbysurprise,not givingthemtimeto react. • Itcancreate goodwillamongtheearlyadopterssegment.Thiscancreate moretradethroughwordofmouth. • Itcreatescostcontrolandcostreductionpressuresfromthe start,leadingto greaterefficiency. • Itdiscouragesthe entryofcompetitors.Lowpricesactasabarriertoentry (see
orter5forcesanalysis). • Itcanbe basedonmarginalcostpricing,which iseconomicallyefficient.3
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“PriceBasedonConsumer Perception”
Value Pricing
• Valuebasedpricing,orValueoptimizedpricingisabusinessstrategy.Itsets sellingpricesonthe perceivedvaluetothecustomer,ratherthanonthe actualcostofthe product,themarketprice,competitorsprices,orthe historicalprice • Thegoalofvalue-basedpricingistoalignpricewithvaluedelivered.Price foranyindividualcustomercanbe customizedto reflectthe specificvalue delivered.Examplescouldincludemetricssuchasnumberofusers,number ofannualtransactions,sizeofrevenues,costsavings,orother measurements.Valuebasedpricingtypicallyenablescompaniestobecome morecompetitiveandmoreprofitablethanusingsimplerpricingmethods. ? Pricesetinaccordancewithcustomerperceptionsaboutthe valueofthe product/service ExamplesincludeValue menusatFastFoodRestaurants
GoingRate(PriceLeadership)
“Based onLimited Competition”
Incaseofpriceleader,rivalshavedifficultyincompetingonprice– toohighandtheylosemarketshare,toolowandthe priceleaderwouldmatchpriceandforcesmallerrivaloutofmarket Mayfollowpricingleadsofrivalsespeciallywherethoserivalshaveaclear dominanceofmarketshare Wherecompetitionislimited,„goingrate?pricingmaybe applicable– banks,petrol,supermarkets,electricalgoods–findverysimilarpricesinall outlets
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PsychologicalPricing
“Usedto playonconsumer perceptions”
Togetacustomerto respondonanemotional,ratherthanrationalbasis Linkswithvaluepricing–highvaluegoodspricedaccordingto what consumersTHINKshouldbe the price Example:Rs.99notRs.100„pricepointperspective
Captiveproductpricing
“Productsthat complementothers”
e.gGilletterazors(lowprice)andblades(highprice)
“Sellers combineseveralproductsatthesameprice ”
Product-bundlepricing
E.g.software,books,CDs.
Promotionalpricing
• BOGOFe.g. toothpaste,soups,etc
Geographicalpricing
“Differentpricesfor customersindifferentpartsoftheworld ”
E.g.includeshippingcosts
Pricingvariations
“off-peak?pricing,earlybookingdiscounts,etc”
E.g.cashback?incentiveforexpensivegoods
Premiumpricing
“Usesahighprice,butgivesagoodproduct/serviceexchange ”
E.g. 5StarHotels
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Tenwaysto„increase?priceswithout increasingprice “ByDrWinklerP” • • • • • • • • • • Revisethediscount structure Changetheminimumordersize Chargefordelivery andspecialservices Invoiceforrepairsonserviced equipment Chargeforengineering,installation Chargeforovertimeonrushedorders Collect interest onoverdue accounts Produceless ofthelowermarginmodelsintheline Writepenaltyclausesintocontracts Changethe physical characteristicsofthe product
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StudentsofBSA/F(HONS)Session(2007-2011) DepartmentofCommerce,BahauddinZakariyaUniversityMultan
www.techshristi.com
A.G - Detergent
Idea Generation
Newproductthatwearegoingtolaunchis anAntiGermdetergent. Theidea behindthis productis thatpeopleareverymuchhealthconscious andareawareofthe importanceofgermprevention.Recentlywewereconductinga researchonbrand preferencesinsoaps.Oursurveybasedresearchshowedthatmostpeopleprefer anti- bacterial soapoverothersoaps forhealthreasons.ManypeoplethinkthatGermKilling abilityis oneofthecorebenefits ofsoaps.
MarketResearch
This researchtriggeredtheideathatifmostpeopleprefertokeepskingermfree, thanitis theirlatentdemandtohaveaproductthatkeeps theretowels, clothes,bed- sheets etc.germfree.Thanweconductedanothersurveyaskingpeoplethatifwe introduceanantigermdetergentwhethertheywouldpurchaseit.80%peoplesaidthat theywill surelypurchaseit.Mostofthemwereenthusiasticabouttheideaofthis new product. This argumentconvincedthemthatanti-bacterial soapcannothelptoachieve thegoalofgermfree,healthyliving.Tobetrulygerm-freeyouhavetokeepyour immediatesurroundings hygienicallyclean. Mostofthegerms thatourbodycatches comefromourcontactwithclothes,bed sheets,curtains,pillows andmostimportantlytowels.Towels aremadeofmaterials that areespeciallyreceptivetogerms.Towels providesuitableplaceforgerms andtheir reproduction.Anti-bacterialsoaps cankillgermsfromourbodybutwhenweusetowels todryourbody,millions ofgermslivingonittransfers toourbodyandhandsmakingus again“Germy”.
MarketsegmentationandTargeting
“Dividingamarketintosmallergroupofbuyers distinctcharacteristics or behaviorwhomightrequireseparateproductsormarketingmix” Wearedividingthemarketgeographically,psychographicallyand demographically.
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StudentsofBSA/F(HONS)Session(2007-2011) DepartmentofCommerce,BahauddinZakariyaUniversityMultan
www.techshristi.com
Geographically
Wearedividingthemarketintomajorand smallcities.Initially,wearetargeting onlythebigcitieslike Karachi Lahore Islamabad Multan Faisalabad
Demographic Segmentation
Wearedividingconsumersinto3classes onthebasis oftheirIncome. UpperClass MiddleClass LowerClass Butwearetargetingtheonlytheupperandmiddleclass
Psychographic Segmentation
Wearedividingconsumersintothesegroups: Innovators Thinkers Achievers Theseallwillbuyourproduct.
MarketingMix
Nowwediscussinterms ofmarketingmix-----thesetofcontrollablemarketing toolsi.e.product,price,placeandpromotion,which areblendedtoproducethedesired responseinthetargetmarket.
Product
Brand Name Quality
“AntiGerm”Detergent.
Itis ofhighqualityincleaningwhiteandcoloredalike.
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StudentsofBSA/F(HONS)Session(2007-2011) DepartmentofCommerce,BahauddinZakariyaUniversityMultan
www.techshristi.com
Features
i. Superiorqualitydetergent ii. Itsalientfeatureis killingGerms,Bacteriaandvarious types viruses. iii. Itdoes notthefibers oftheclothes sotheygiveanewlookfora longertime.
Packaging
Theproductis availablein4 sizes ofdifferentweights. 80gm 200gm 500gm 1 Kg
Price
Wearethe 1stones tointroduceananti-bacterialdetergent. Soweareinapositionto charge relativelyhighpricethanordinarydetergents. Ifwechargeveryhighpriceas comparedtootherdetergentsthanchances arethatmostpeopleespeciallymiddleclass detergentusers, thoughconvincedabouttheimportanceofits GermKillingfeature,will notpurchaseit.Ifwechargelowpriceas comparedtoordinarydetergents thanpeople mayconsiderthatitis aninferiorproduct.Soweareintroducingitatprices whichare slightlyhigherthanArialandSurfExcel. Theprices areas follows: 80gm……………………Rs.20 200gm…………………..Rs.40 500gm…………………..Rs.85 !Kg …………………....Rs. 150
Place
Initially,wewillmakethis productavailableatalldepartmentalstores and superstores.Oncetheproductgetsofftoagoodstartavailabilitywillbeincreasedto othercities and smallshops.
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StudentsofBSA/F(HONS)Session(2007-2011) DepartmentofCommerce,BahauddinZakariyaUniversityMultan
www.techshristi.com
Promotion
Therewillbeextensivepromotionfortheproduct.Allourpromotionefforts will betopersuadepeopletobuyanti-bacterialdetergentpowder. Wewillnothavetospendmoneyoncreatingawareness oftheimportanceof germprevention,becausethegeneralawarenesshas beencreatedbyanti-bacterial soap industry. Wewillmainlyuse3mediatype. 1. ElectronicMedia 2. PrintMedia 3. Outdoormedia
ElectronicMedia
Wewillmakepersuasivecommercials andinfomercials aboutourproductin Doctors willbeshownexplainingimportanceofGerm-freetowels andclothingand hencetheimportanceof“AntiGerm”as ananti-bacterialdetergent. TheseAds willbe presentedonTV,RADIOandINTERNET.
PrintMedia
Ads wouldbeplacedespeciallyonwomendigests andweeklymagazinesin whichdetails ofthebenefits oftheproductforconsumers willbediscussedpersuasively.
Out-doorMedia
TheportraitsfromtheTVadwillbeplacedonbillboardsoncentralized locations.
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StudentsofBSA/F(HONS)Session(2007-2011) DepartmentofCommerce,BahauddinZakariyaUniversityMultan
www.techshristi.com
doc_593779625.docx