Product Pricing Concepts Strategies Product Price

Product & Pricing Concepts & Strategies Product Price Target & Position Place Promo

What is a Product? Basically Essentially Academically Commercially Good Products are the set of Consumer Products: Convenience, Service features, functions, and Products are nothing Specialty, Shopping, Unsought benefits that customers Business Products: Raw materials, Idea until they are a purchase: Maintenance, repair & operating Organization equipment, Component Parts… equipment, brand! “Bundle of Attributes” Person

THE ART OF MARKETING is BRANDING * If you are not a BRAND, You’re a COMMODITY. * Then PRICE is everything & the LOW-COST producer is the only winner!

üBranding: ØFunction & Components of Brands ØHistory & Types of Branding ØBrand Equity üBrand Management: ØLine & Mix Strategies ØNew Product Development ØPricing Strategies & Tactics ØProduct Life-Cycle

By Definition… v A BRAND is a name, term, symbol, design or combination thereofvthat identifies a seller’s product v& differentiates it from competitors’ products.

The Power of a Brand Identical cereals tasted by consumers: Vs. 59% Chose Kellogg’s 41% Chose No Brand Identical TV sets examined by consumers: Vs. Consumers willing to pay $75 more for Hitachi than GE

Branding l Brand name: --part of brand consisting of words or letters that “identify & distinguish” firm’s offering l Brand mark: --symbol or pictorial design that identifies product…. Logo: a brand or company name written/

BRAND TRADEMARKS l l registered ®; pending TM Trademark: confers the exclusive right to brand name, trade mark, &/or any slogan or abbreviation A registered trademark (10 year renewable periods; $~325 filing fee) gives a marketer proprietary rights to a symbol or name. l. Legal Trademarks date back to 1226 A. D. English Law: l. Bakers had to mark every loaf- so any Baker w/ “light” loaves could be ID’d

Multi-Million $ Logos: Words

Multi-Million $ Logos: Symbols Logos

Multi-Million $ Words w/ Symbols

Some of 1 st Major Brand Names l 1850 s Smith Brothers l 1877 Quaker Oats used image of William Penn who founded co. in 1681 to convey company image of honest, decency, hard work l 1869 Campbell’s Soup l 1873 Levi Strauss l 1879 Ivory Soap

Kleenex, Windex, Name… Off, An Effective Brand Timex, Close-up, Drano, Underalls, Wham-o, Gleem, True-Value, Ø Easy to pronounce Ø Easy to Beauty-Rest, Duz, Sleepeze, recognize & remember Ø Is short, distinctive- unique Allerest, Total, Cold. Spot… Ø Describes product- use- benefits Tide, Crest, Bic, Crest, Crisco, Ø Has positive connotation Wendy’s, Apple, Sony, Nike… Ø Reinforces product image

Types of Brands Dupont Brand Mgt. & Corporate Umbrella Manufacturers’ Brand: brand name owned by product’s producer – Family Brand Marketing entire mix under one name (Kraft, Heinz, Kellogg, Post) – Ingredient Brand is component-part w/in product purchased by consumer (Intel-chip, Dupont. Stainmaster; Teflon; Kevlar)

Master Brands: A brand so dominant that it comes to mind immediately when product category, use, attribute, or benefit is mentioned Tissue Kleenex Adhesive Bandages Rum Gelatin l rox e X Band-Aid Bacardi Jell-O ivo. K. T l Soup r- U Campbell’s ve Hoo Cream Cheese Philadelphia l Crayons Petroleum Jelly Crayola Vaseline

Retailers are creating their own brands Store Brands (a. k. a. house brand/ private label): A brand used exclusively by one chain of stores for a line of products made to a store’s specification • SELECT • SIGNATURE • Sam’s Choice • Ol’ Roy • Equate

Private/ Store Brands ~1 in 5 items sold in U. S. stores is store branded… and more retailers are getting in on the action. l They're selling better products and designing spiffier packaging” l

On-going move to House Brands : l Target ~ 50% of products are private brands l Kroger sells 4, 300 items it cranks out of 41 factories it owns l 7 -Eleven has own beer, Santiago, brewed in El Salvador - designed to steal market share from - Corona. l -Rite Aid adding ~ 250 privatelabel items. . some under its new brands Pure Spring and 411.

Advantages of House Brands l l Earn higher profits – Less overhead: Production outsourced & Less Promo$ Total control of distribution – Manufacturer may drop a brand or become a direct competitor to dealers via the W 3

Store Brand Impact Grows w/ Retail Consolidation 10 biggest Mega. Retailers: account for ~ 80% of mfgrs biz vs. ~ 30% decade ago Wal-Mart's share of the $3 trillion U. S. retail market has edged up to 11. 3%, compared with 10. 5% in 2008

Strong Brands Provide Value For Consumers l Simplify choice & reduce risk- l provide support & social cues for one’s For Business: Build Loyalty & enable higher margins l Facilitate entry into new markets l Basis of differentiation l

A Brand > its Components Consumer perceptions & associations l Name l Slogan l Colors Music Theme-lines Logo and typeface l l l • Dress code Sources of Brand • personality l. Founders l. Spokespersons l. Characters l. Objects l. Stories and mythologies • Offices • Trucks

Brand = Story

Market Power = Story Power

“We are in the twilight of a society based on data. As information and intelligence become the domain of computers, society will place more value on the one human ability that cannot be automated: emotion. Imagination, myth, ritual - the language of emotion - will affect everything from our purchasing decisions to how we work Companies will thrive on the basis of their stories and myths. Companies will need to with others. understand that their products are less important than their stories. ” Rolf Jensen, Copenhagen Institute for Future Studies

BRAND The better your brand-story & the longer you’ve told it… the more valuable your brand

http: //www. interbrand. com/best_global_brands. aspx

BRAND EQUITY The marketplace value of a brand based on: l Sum total of all the persons aware of the brand… l Plus-all their knowledge, feelings & perceptions toward the brand…

Communications + Experience = Brand Equity Marketer-controlled communications All Brand Promotion (Sales, Advertising, PR) Brand Awareness Uncontrolled brand communications Firm’s Brand Equity What Media, -Word-of-Mouth Say re: Brand Customer’s Experience with Brand Meaning/ Assoc.

Brand Associations ATTRIBUTES User Imagery Product Attributes Blue denim, shrink to fit, cotton fabric, button-fly, two horse patch, -small red pocket tag High Quality, Longlasting - durable Functional Benefits Western, American, blue collar, hardworking, traditional, strong, rugged, - masculine Levi’s 501 Usage Imagery Appropriate for outdoor work- casual social situations Brand Personality Honest, classic, contemporary, approachable, independent, - universal self-confidence - selfassurance Comfortable fitting - relaxing to wear Experiential Benefits BENEFITS Symbolic Benefits

The Branding Process

Brand Building 1 -Brand Identity WHO Are You? 2 - Brand Meaning WHAT Are You? 3 - Brand Respon se WHAT About You? 4 - Brand Relationsh ip WHAT About You & ME? ) Performance Consumer & Imagery Judgments & Consumer Salience Acceptance Feelings POSITIONING

1 Establish Presence & Purpose l Create l l Awareness l Id & demonstrate – Needs Satisfied – Benefits delivered l l l Advertising Sponsorships Web casts Info-tainment Distribution outlets Public Transit Sponsor Sports; Social causes Stealth Marketing- create. buzz User community building (e. g. , Harley-Davidson) Founder’s personality (e. g. , Colonel Saunders) Celebrity spokespersons Clubs Company visits Trade shows Traveling exhibits

2 Create Points of Difference Performance l Brand Characteristics & Secondary Features – Product Reliability, – Durability & Serviceability – Service Effectiveness, Efficiency & Empathy – Style and Design; – Price Imagery • User Profiles • Purchase & Usage Situations • Personality & Values • History, Heritage, & Experiences

3 Define Associations Judgments l Quality l Credibility Feelings l Considerati • Warmth, Fun • Excitement • Security • Social Approval • Self-Respect on l Superiority

4 Build Relationship l Loyalty l Attachment l Community l Engagement

Brand Management Basics l What do brand Managers Handle the P’s doâ products promotions place of distribution pricing …… positioning people processes Everybody l l â advertising market They Interact research HR R&D design with…………………. . operations finance sales promotions Everything! product development new positioning advertising campaign targeting to new consumers internet initiatives ethnic marketing promotions increasing margins …………………. exploring alternative channels international synergies etc They need to Know

Why Products fail…. üFailure to Meet Customer Needs üPoor Timing üIneffective or Inconsistent Branding üTechnical or Design Problems üOverestimation of Market Size

l l Brand Name? Marketing Mix? Packaging? Pricing? v. Should the product be modified? v. Should the product line be extended? v. Should the Brand be extended?

Product Mix Decisions l Product Mix Width - # Product Lines compete in l Product Mix Depth - # Brands w/in each line

Product Mix: Procter & Gamble Depth of Line Width of Product Mix Detergent Toothpaste Bar Soap Disposable Paper Tissue Diapers Ivory Snow Gleem Ivory Pampers Charmin Crest Kirk’s Luvs White Cloud Dreft Denquel Lava Puffs Tide Camay Banner Cheer Zest Oxydol Safeguard Dash Coast Bold Gain Era Solo

Product Mix: Gillette Depth = BRANDS Width =Categories Blades and razors Toiletries Mach 3 Sensor Trac II Atra Swivel Double-Edge Lady Gillette Super Speed Twin Injector Techmatic Series Adorn Toni Right Guard Silkience Soft and Dri Foamy Dry Look Dry Idea Brush Plus Writing instruments Lighters Paper Mate Flair Cricket S. T. Dupont

Brand Mgt - Lingo Existing Product Category Existing Brand New Product Category Line Extension Brand Extension Flanker Product New Product Line

Benefits Leverage Co. –Brand Equity Production Efficiencies Why Extend Product Lines or add to mix? Marketing Efficiencies Even out seasonal sales patterns Inc. sales w/ further market segmentation

Do Need to be careful w/ Brand Extensions (using existing brand name in new product category) l Kodak Crayons l Exxon Office Furniture Established l Gerber Life Insurance perceptions not l Life Savers Gum compatible across product classes l Xerox Computers l Kleenex Towels

Another BRAND Mgt. Concern: New-Product Development Idea Generation Ideas from: Customers and users Marketing research Competitors Other markets Company people Middlemen Screening Idea Development Commercial Evaluation -ization Strengths and Weaknesses Fit with objectives Market trends Rough ROI estimate Concept testing Customer reactions Rough estimates of cost, sales, profits R&D Develop model or service prototype Test marketing mix Revise plans as needed ROI estimate Finalize product and marketing plan Start production and marketing “Roll out” in select markets Final ROI estimate

Finding 1 Successful New Product (Starting w/ 64 New Ideas) Number of Ideas Pass Ratio Idea screening 2. Concept testing 3. Development 64 1: 4 $ 1, 000 16 1: 2 20, 000 320, 000 8 1: 2 200, 000 1, 600, 000 Test marketing 5. National 4 1: 2 500, 000 2, 000 2 1: 2 5, 000 10, 000 Stage 1. 4. Cost per Product Idea Total Cost $ 64, 000

New Product Development ad • C TS - S Clear & Direct ac ill Application of Sit. Analysis & Marketing Concept Consumer Centric… Customer-Driven & Directed R&D

Moving from top-down to bottom-up innovation Traditional innovation Source - inspiration Key drivers Customer involvement Process Corporate posture Tools Customer-driven innovation Executives Customers Existing assets, Products & Position Structured Deep observation of customer tastes needs & desires Spontaneous Linear, step by step Interactive Go out to customer Invite customer in storyboards Surveys, focus groups Search, email, blogs Web-text mining,

addition all Products- old or new- need to be l In priced appropriately l. . this too lies w/in the Brand Manager’s Domain of Responsibility

Art or Science?

Pricing Considerations 1. Your Costs 2. Your Objectives 3. Your Consumers Mind. Set 4. Stage in Product Life-Cycle 5. Legalities

1. Your Costs Types of Costs Variable Costs Fixed Costs Deviate with changes in level of output Do not deviate as level of output changes

Dollars Breakeven Analysis Total Fixed Costs Units of Production

Dollars Breakeven Analysis Total Costs Total Variable Costs Total Fixed Costs Units of Production

Breakeven Analysis Dollars Total Revenue Breakeven Point Total Costs Fixed Costs #Sales= FC/ price-VC

Breakeven Analysis Dollars Total Revenue Breakeven Point Losses Total Costs Fixed Costs Units of Production

Breakeven Analysis Dollars Total Revenue Breakeven Point Profits Fixed Costs Units of Production Total Costs

Pricing Considerations 1. Your Costs 2. Your Objectives 3. Your Consumers Mind. Set 4. Stage in Product Life-Cycle 5. Legalities

2 nd Consideration-Your Objective Profit Oriented Pricing Objectives Sales Oriented Status Quo Oriented T arg et R e tu r n C o s t-P l u s P ri ci n g S al es/ S h are G r o w th B e a t th e C o m p e ti ti o n Me e t th e C o m p e ti ti o n C u s to m a r y P ri ci n g

Pricing Considerations 1. Your Costs 2. Your Objectives 3. Your Consumers Mind. Set 4. Stage in Product Life-Cycle 5. Legalities

3 rd Consideration=Consumer Mind-Set Internal Reference Price §What expect/willing to pay Lower External Reference $ §What compare to Buyer Behavior §Price, Brand, Style. Consciousness Higher $

Slide 1 -3 Figure 1. 3 Style-Conscious Price-Conscious Time Brand-Conscious (All Benefits Received) – (All Costs Incurred) = Product’s Value to the Customer

Prestige Pricing at relatively high levels - to convey image of high quality

Value Pricing l Low- enticing opening price points l Bundling l Up-selling Lo. Opening Price point

Product Line Pricing Producin g& marketing multiple products at different price points

Loss-Leader Pricing Retail Tactic Pricing policy which offers products at prices below or near cost to “get consumers in the door”

Odd-Even Pricing l l Odd pricing = ending w/ odd number Even pricing = convey high quality

Elasticity of Demand How badly need product l Elastic –Discretionary goods Lower –Lots of competition/ Substitutes $ l Inelastic –Necessities –Few-if any- Substitutes Higher $

DEMAND PRICING l Higher prices- favored w/ inelastic – Price increases offset volume losses l Lower prices - favored w/ elastic – Volume increases offset price reductions

Formula to Determine Elasticity Price Elasticity = of Demand % Change in Price If PEo. D > 1 Demand is Price Elastic (sensitive) If PEo. D < 1 Demand is Price Inelastic (insensitive)

Demand Curves Price Elastic Demand Recreational Vehicles Hi$ Lo$ GREAT- change in Demand Q_HI Q-LOW Quantity

Demand Curves Price Inelastic Demand Electricity P-Hi P-LO Q Lo QHI little- change in Demand

Pricing Considerations 1. Your Costs 2. Your Objectives 3. Your Consumers Mind. Set 4. Stage in Product Life-Cycle 5. Legalities

Product Life Cycle Market Strategy Pricing Promotion Target Copy Profits Introduction Establish Distribution & Share Skimming or Penetration Create Awareness, induce Trial Innovators Switching Idea, Excitement, Immediacy Expected loses; Promo/sales ratio Hi Growth Maturity Decline

New Product Pricing Skimming Pricing Strategy Penetration Pricing Strategy Maturity Growth Introduction l High initial price for quick ROI Price insensitivity by the market. Innovative Consumer places hi premium on social & experiential benefits of owning product l Strategic Pricing Concerns Decline Declin

New Product Pricing Penetration Pricing Strategy Skimming Pricing Strategy Maturity Growth Introduction l Low initial price l Volume for lower production costs l Imminent competition Strategic Pricing Concerns Decline

Product Life Cycle- Growth Stage Marketing Inc. Market share & Penetration Price policy Maintain stable pricing policy Place Promotion Copy Profits Target Introduction solidify distribution channels generate Selective demand; establish Brand Pref. Stress Originality start of profits Early Adopters Growth Maturity Decline

Product Life Cycle: Maturity Marketing Price policy Place Promotion Copy Profits Target Introduction Maintain share Use Consumer & Trade Promotions increase distribution efforts New users- new segments-new uses New & Improved; New campaigns highest profits (peak) Early-Late Majority Growth Maturity Decline

PROMOTOOLS: Sales Promotions Seasonal Quantity Premiums, Contests Rebates Trade-in Allowances 50

Product Life Cycle- Decline Marketing Price policy Place Promotion Profits Target Introduction Prune Channels, reduce losses clear inventory w/ $- discounts & Promos limit distribution efforts cut-back on advertising reduced profits Laggards Growth Maturity Decline

Pricing Considerations 1. Your Costs 2. Your Objectives 3. Your Consumers Mind. Set 4. Stage in Product Life-Cycle 5. Legalities

Major Legal Concerns Exaggerated Compartives Price Fixing Issues That Impact Pricing Decisions Price Discrimination Predatory Pricing

Unfair Trade Practice Acts Laws that prohibit wholesalers & retailers from manipulating prices –to manipulate markets #1=Exaggerated Comparative Price Advertising l Using comparison prices of dubious validity -Product introduced at artificially high prices for short time then dropped to a new longterm price

#2=Price Fixing. . agreement betw. two or more firms on price they will charge for product.

#3=Price Discrimination The Robinson-Patman Act of 1936: Prohibits any firm from selling to two or more different buyers at different prices … if the result would lessen competition

#4=Predatory Pricing The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market…

Finally-A couple of things…

out trying to Forget ab right price calculate the

Don’t Strain your Brain… just install the latest software…

Oracle Retail Price Optimization l -provides targeted capabilities - allow you to sharpen your pricing policies & drive higher profits. l Consider key demand drivers such as price elasticity, seasonality, cross-elasticity, and targeted price elasticity models at the item and store level l Recommend the exact minimum relative price gap need to compete effectively for each store or keyitem l Predict the whole-store revenue and margin impact of a key item price change l Provide what-if decision support to simulation options prior to executing the strategy

Key- not get Right Price But- Get Price Right l Which price is right? Software-using algorithms to calibrate – how much need to buy – how to promote & merchandize – and how to price it

OR- don’t charge anything at all ! Wired's Editor In Chief Chris Anderson discusses why $0. 00 is the future of business

20 th Century: “Atoms Economy” • Things get more expensive • Free = direct subsidy “No such thing as a free lunch” 21 st Century: “Bits Economy” • Things get cheaper • Free = indirect subsidy “The best things in life are free”

Free’s hard: needs an upgrade path

Econ 101 “In a competitive market price falls to the marginal cost”

Cost to stream a movie: $0. 06

Round down! If the unitary cost of something is approaching zero, treat it as zero and sell something else.

Welcome to the Gift Economy

New- Cross. Subsidy: Old- Cross. Subsidy: FREE!

Old Marketing Tactic Give away a-little to sell a-lot

New Marketing Tactic Give away a-lot to sell a-little Basic/Free version, but a $19. 99 upgrade provided extra features such as supertagging and faster ripping and burning

Bundle/ Give it Free to Users License Server Operating System License Windows Server 2008 Standard Windows Server 2008 Enterprise U. S. Price* Description $999 Available in 32 -bit and 64 -bit versions. Includes 5 CALs (User or Device, chosen after purchase) $1, 199 Available in 32 -bit and 64 -bit versions. Includes 10 CALs (User or Device, chosen after purchase) $3, 999 Available in 32 -bit and 64 -bit versions. Includes 25 CALs (User or Device, chosen after purchase)

Freemium Models LIMITED: 1. TIME 2. FEATURES 3. SEATS 4. SEGMENTS

The “Dealer’s” Special

How to Make Money Around Free Content • CPM ads "cost per thousand views"; banner ads online and regular ads in print, TV and radio ( • CPC ads "cost per click"; think Google ads • CPT ads "cost per transaction“ • Lead generation) you pay for qualified names of potential customers • Autoresponder Membership people pay for email; • Subscription revenues • Affiliate revenues e. g. , Amazon Associates • Rental of subscriber lists Sale of information selling data about users— • Upgraded service/content) ed: aka "freemium(" • Alternate output) pdf; print/print-on-demand; customized Shared Book style; et • Licensing of brand people pay to use a media brand as implied endorsement

• Co-branded spinoff • Cost Per Install) popular with top Facebook apps who can help others get installs • E-commerce selling stuff directly on your website • Sponsorships) ads of some sort that are sold based on time, not on the number of impressions • Listings paying a time based amount to list something like a job or real estate on your website • Paid Inclusion a form of CPC advertising where an advertiser pays to be included in a search result • Streaming Audio Advertising like radio advertising delivered in the audio stream after a certain amount of audio content has been delivered • Streaming Video Advertising) like streaming audio but in video • API Fees) charging third parties to access your API Custom services/feeds • Live events; "Souvenirs"/"Merchandise

Factors in Successful Pricing Decisions