Small Business

Marketing
Product and Pricing Strategies

Chapter 09

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives

LO1 Know the characteristics of goods and services

LO2 Define the total product
LO3 Learn the stages of new product development
LO4 Learn the product life cycle
LO5 Understand why pricing is an important but
difficult task for small business
LO6 Understand price elasticities, pricing
psychology, and other price influencers and
their impact on pricing
LO7 Understand different pricing strategies

9-2
 4 Ps of Marketing

 4 Ps of Marketing
– The four major components of a
marketing effort—product, price,
promotion, and placement.

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Goods-Services Mix

Figure 9.1

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 Product

 Product
– anything that is offered to the market to
satisfy consumer wants, needs, and
demands
– goods, services, people, ideas

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 Product

 Tangibility  Inseparability
– capability to be – service cannot be
touched, seen, disconnected from
tasted, or felt the provider

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 Product

 Heterogeneity  Perishability
– each time the – cannot be saved
service is for later use
provided, it will be
slightly different

9-7
 The Total Product Approach

 Total product
– The entire bundle of products, services,
and meanings of your offering; includes
extras like service, warranty, or delivery,
as well as what the product means to
the customer.

9-8
 The Total Product Approach

 Augmented  Core product

product – basic description
– core product, plus of what a product
features that tend is
to differentiate it
from the
competition
– brand names,
quality levels,
packaging

9-9
 The Total Product Approach

 Your product means more to the consumer

than just the core product
 Don’t waste time and money designing
features for your product or service that
your target market doesn’t want
 Knowing what your product “means” to
consumers will help you set an appropriate
price

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 Branding

 Guidelines for naming a business

– Entrepreneur’s name
• Not very clear to customers what you do
• How to handle name if you sell the company
• Is your name appropriate: i.e. Payne for a
dentist

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 Branding

 Guidelines for naming a business

– Be careful about infringing on trademarks
– Describes firm or product and is easy to
remember: “Discount Furniture”
– Creative spellings are eye-catching; don’t
go overboard
– Beware of selecting a name too narrow to
allow the firm to grow

9-12
Stages of New Product
Development

Figure 9.2

9-13
The Product Life Cycle

Figure 9.3
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 The Product Life Cycle

 Stage 1: Introduction
– Sales slowly take off and then begin to
grow
– Very important to build brand awareness
– Heavy introductory marketing expenses
will suppress profits
– Competition is generally low

9-15
 The Product Life Cycle

 Stage 2: Growth
– Acceptance of the product increases rapidly
– Advertising and promotion are much less
critical
– Goal in this time is to maximize market
share
– Prices tend to drop as production becomes
more efficient

9-16
 The Product Life Cycle

 Stage 3: Maturity
– Sales will level off and start to decline
– Profits follow suit
– Competition becomes fierce; price
competition begins to rise
– Advertising will suggest new uses for the
product

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 The Product Life Cycle

 Stage 4: Decline
– Decline can be slow or fast, steady or
unsteady
– May come from introduction of new
technology
– May also be caused by a shift in
consumer preferences
– Sales and profits fall during this stage

9-18
Service Life Cycle

Figure 9.4
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 Service Life Cycle

 Services go through same four

stages:
– Easier to extend life cycle, and virtually
eliminate the decline stage of a service
– Services are often much easier to
change “on the run”
 Services, in effect, begin new life
cycles with each tweaking

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 Why Price Is Important

1. Price is a major factor in determining

customers’ perceptions of quality and
desirability
2. Because of this, price is central to
competitive strategy
3. Price is directly related to your company’s
gross revenue and sales volume

9-21
 Pricing from the Seller’s
Point of View
 Seller’s wish to obtain highest price
possible for whatever they are selling
 Optimum price
– refers to the highest price that would
produce your desired level of sales (or
revenues) in your target market.

9-22
 Optimum Price

Optimum price is based on:

 Demand for the product or service
 Value delivered to the customer
 Prices set by competing firms
 Your business strategy and product
placement

9-23
 Question

A product for which there are any

number of substitutes and for which
a change in price makes a difference
in quantity purchased is called
A.Inelastic Products
B.Elastic Products
C.Acceptability
D.External reference price

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 Price Elasticity

 Inelastic product
– product for which there are few substitutes
and for which a change in price makes very
little difference in quantity purchased
 Elastic product
– product for which there are any number of
substitutes and for which a change in price
makes a difference in quantity purchased

9-25
 Pricing Elasticity

Figure 9.5

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 Pricing Psychology

 Internal reference price

– a consumer’s mental image of what a
product’s price should be
 External reference price
– an estimation of what a price should be
based on advice, advertisements, or
comparison shopping

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 Price Setting

 Decide what is the right price

 Examine existing market prices for
similar products and services
 Consider your business costs

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 Price Setting

 Considerations for pricing

– Company objectives
– Marketing strategy
– Channels of distribution
– Competition
– Legal and regulatory issues

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 Pricing Strategies

 Skimming
– Setting a price at the highest level the
market will bear, usually because there is
no competition at the time.
 Prestige or premium pricing
– Setting a price above that of the
competition so as to indicate a higher
quality or that a product is a status
symbol.

9-30
 Question

What is the strategy called when a

price ends with 9, 7, or 5?
A.Price Lining
B.Partitioned Pricing
C.Premium Pricing
D.Odd-even Pricing

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 Pricing Strategies

 Odd-even pricing
– Setting a price that ends in the number
5, 7, or 9.
 Partitioned pricing
– Setting the price for a base item and
then charging extra for each additional
component.

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 Pricing Strategies

 Captive pricing
– Setting the price for an item relatively
low and then charging much higher
prices for the expendables it uses.
 Price lining
– The practice of setting (usually) three
price points: good quality, better quality,
best quality.

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 Price-Lowering Techniques

 Periodic or random discounting

– Sales conducted at either predictable or
non-predictable intervals.
 Off-peak pricing
– Charging lower prices at certain times to
encourage customers to come during
slack periods

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 Price-Lowering Techniques

 Bundling
– Combining two or more products in one
unit and pricing it less than if the units
were sold separately.
 Multiple or bonus pack
– Combining more than one unit of the
same product and pricing it lower than if
each unit were sold separately.

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 Price-Lowering Techniques

 Coupons, Rebates, Loyalty and

Referral Programs
 Referral discount
– A discount given to a customer who
refers a friend to the business

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 Pricing Strategy Wrap-up

 Temporary reduction in price won’t

tarnish your product image
 Consumers also feel smart about
buying something at a better price
 They will feel they got a great deal

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