-1-

Role of College
1. To teach You to think-to understand and solve problems
2. To teach you to communicate better:
to speak effectively and convincingly;
to write coherently and concisely.

Product
A. Product defined: a bundle of benefits (needs and wants)
B. Classes of goods:
1. Convenience goods
- intensively distributed
- promoted through branding
- entail high sales volume
- low unit profit ascribable to above
2. Shopping goods
- buyer makes a comparison
3. Specialty goods
- defined in the mind of the buyer
- sold in specialty shops, sites, and catalogs

-2-

-3-

Product (continued)
C. Branding
1. Brand defined:
2. brand name, trade mark
3. Brand Strategies: (4)
a). individual brands
b). manufacturers brands
- goodwill or consumer franchise
c). middleman or reseller brands
(e.g., Jegs)
d). generics, non-brands

-4-

Brand defined:
name, term, sign, symbol, slogan
used to identify products of a manufacturer
and differentiate them from competing items.

Just do it
Coke

GM Performance Products

-5-

Branding and promotion are used to

differentiate homogenous goods from those
of competitors.

-6-

Product, continued
D. Product Life Cycle
1. Purpose:
- means to view and assess
development of a product or brand
- a tool for planning
2. Stages: (4)
- introduction,
- growth,
- maturity,
- decline

-7-

D. Product Life Cycle

Succes
sive
period
s or
dr ops
in rev.

d
e
t
a
r
u
Sa t

e
u
n
e
v
e
R
Profit
Introduction

Growth

Maturity

Decline

-8-

Product Life Cycle

Intro

Growth

Maturity

Decline

Product : New

Same

Small change

Crash

Prmtn. :

Inform

Build loyalty Sway

Price :

High

Stable

Drops

Dist. :

Limited

Expands

Level

Comp. :

None

Influx

Shake out

Find a new
use or a new
market for the
product

-9-

Shapes of the Product Life Cycle

Brand

- Ford Mustang Convertible

Product item - Convertible

Product class - Internal combust. engine

-10-

E. Product Adoption Process

risk
prone

Pretty risk
prone

Innovator

Early adopter

.5%

5%

h
t
w
gro

risk averse

Early mjty.

35%
Need to get here

Late majority

laggards

40%

balance
10%

-11-

New Product Development

I.

Why develop new products? 3 reasons:

-to satisfy a need,
-to compete with an existing product,
- to close the planning gap

II. What is a new product?

III. Why is it hard for firms to develop truly new products?
IV. Before developing new product: strategic direction
a. growth plan
b. budgeting schema
c. organization structure

-12-

Organizations
1. New product department r
matrix mgmt.
new prod.

prod. A

prod. B

mkt. rsch.
engineering
prodctn.
*2. New product committee subotimize
3. Project team or venture team

-13-

Budgeting for New Products

1. $ NP spending = X% Sales revenue
2. Proportionate to what our competitors spend
3. Whatever it takes (e.g., pharmaceutical industry):

D
0

6 yrs.

5 yrs .

3 yrs.

1 yr.
17 yrs.

-14-

Brainstorming Recipe:
Ingredients:
Specific problem to solve
Short period 45 - 1 hr.
No criticism
None of people are experts
generate as many
ideas as possible

Attribute listing:
Take an existing product;
List its attributes;
Think up new features that may enhance the product.

-15-

New Product Development Process (9 steps)

Consumers

Employees

Consultants/inventors

Retailers

1IDEAS
No

2 SCREENING
Does idea meet objectives & optimally utilize resources of firm?

Yes

3 CONCEPT DEVELOPMENT
1. Who will use the product?
2. What will product be used for?
3. How often will it be used?
4. What benefits will it provide?

Distributors

Results of concept development: Several product variants:

-16-

4 CONCEPT TESTING
Which, if any, of these concepts is viable?
none

one

5 STRATEGY DEVELOPMENT
1. Target market description
2. Product positioning
3. Projections: initial sales, ROI, mkt. share
4. Suggested price, distribution, promotion
5. Long-run sales projection, and mktg, mix strategy

Cycle
e
f
i
L
.
Prod

-17-

6 BUSINESS ANALYSIS

1. sales - initial, repeat, frequency of

2. cost, break-even
3. Is our product viable at chosen price (based on above cost
analysis)?

No

yes

tangible product

Idea champion

PRODUCT DEVELOPMENT (prototype)

1. physical cues (how does consumer perceive: color, size, ...)

2. functional test (will it work? how well?)
3. consumer testing of prototype (Edsel versus Camaro)
4. Does product live up to initial concept?

No
yes

-18-

MARKET TESTING

Will objectives be met?

No
yes

(Next step is point no return.)

9 COMMERCIALIZATION (implementing)
1. When (seasonal product or new entrant?)
2. Where (planned rollout or new issue?)
3. How (new version or upgrade?)
4. By whom (distribution strategy)

-19-

Rollout
Mar

May

Sep

-20Manufacturer
Corporate sales team

Chain buying offices

District sales teams

Retail unit
managers
Direct marketing or advertising

Consumers

-21-

Pricing
1). Review of Economics
2). Pricing Strategies
3). Pricing Mechanics

I.

Review of Economics
A. Demand Curves
1. Why discuss?
2. What determines?
3. Law of diminishing demand
4. Moving along the demand curve
5. Shifting the demand curve

-22-

P1
P2
P3

Q 1000 Q2000 Q 6000

PRICE
$5
$4
$3

QUANTITY
1000
2000
6000

-23-

Ps

D
1K 1.5K 2K
PRICE
$6
$5
$4

QUANTITY
1,000
1,500
2,000

TR
6K
7. 5K
8K

-24Major Change
in

Price

P1
P2

Pricing Strategy
Product
Promotion
Place

P3
D1
Q1

$6 - 1k
$5 - 3k
$2 - 10k

Q2

Q3

D2
Quantity

Q10

4Ps

-25-

B. Elasticity (elasticity of dmd.,

price elasticity)
1. Defined:
sensitivity of demand to changes in price (a ratio)
2. %Qd
- 25
10 = 2 . 5 %P

- 10
+ 25%
= .4

3. Elastic
E>1
Inelastic
E<1
Unit elastic
E=1
Perfectly inelastic E = 0
4. Ideally, want demand for product
relatively inelastic

EXAMPLE:

-26-

% Qd
% P

% Qd
% P

- 1%
+ 5%

= .20

% Qd
% P

- 2%
+ 5%

= .40

-27-

Want your own demand curve

Product
differentiation
Us
Them

-28-

II. Pricing Strategies

A. When do firms look at price?
B. Pricing Strategies
1. Profit Maximization
2. Penetration Pricing
3. Mkt. Skimming
4. Current Revenue Pricing
5. Promotional Pricing tactics
- loss leader

-29-

MC = MR
ATR
P1

ATR

D1
Q1

All else held constant.

-30-

Penetration Pricing
1. Introduce a quality product
@ / below competitors price
2. cut price
3. harvest profit over long run
Conditions of use:
1. buyer are price sensitive (elastic)
2. economics of scale in production exist
3. barriers to entry exist for competitors

-31-

III. Pricing Mechanics

A. Markup
1. reason for
2. calculation
3. markup chain
B. Break even
1. utility
2. calculation
C. Discounts
1. defined
2. types

-32-

Markup Calculation

Selling price = cost / (1- markup percentage)

Or: My cost is what percent of my total price?

X = $100 / (1- .20)

$100 is eighty percent of what amount?
$125

-33-

Break even:
How many units of a product do we have
to sell @ a given price to cover our fixed costs?

Selling price

100,000
7.5 - 5.0

$2.5

Variable cost

Contribution margin

Fixed cost
Break even point in units =

$1,000,000
Selling price

Variable cost per unit

per unit

$60 - $40
Contribution margin = $20
Break even : we cover our fixed costs

-34-

-35-

Discount:
A reduction in list price granted to a buyer for performing
some function.

Function =
a). purchasing a larger quantity of a product,
b). handling shipping,
c). paying in cash or within a designated period,
d). buying in a specific season.

-36-

Gross revenue
less returns and allowances
yields net sales
less cost of goods sold
yields gross margin
less marketing expenses
yields net profit before taxes

-37-

%
Gross Sales
(rtns & allow)

$540k
40k

- Net Sales
* (COGS)

500k
300k

100
(60)

* Gross Mgn
(expenses)

200k
160k

40
(35)

* Net Profit

$40k