MKT 2101 Test 2 Study Guide Chapter 8 The product life cycle o Product Development Customer centered approach not product centered Team based approach various departments work closely together Systematic approach not trial and error o Introduction Offer a basic product Use cost plus pricing Build selective distribution Build product awareness among early adopters and dealers Use heavy promotion to entice product trial Offer product extensions service warranty Price to penetrate the market Build intensive wide distribution Build awareness and interest in the mass market Reduce to take advantage of heavy consumer demand o Growth o Maturity o Decline Diversify brand and models Match or beat competitors Widen distribution Stress brand differences and benefits Increase to encourage brand switching Maintain maturity stage by modifying the market product promotion and price Phase out weak products Lower prices Phase out unprofitable outlets Reduce advertising just to level needed to retain hard core loyals Minimize promotion Sales Cost per customer Profits Customers Competitors Marketing Objective Product Development Introduction Growth Maturity Decline Low High Rapidly rising Average Peak Low Declining Low Negative or Low Innovators Few Create product awareness and trial Rising Early adopters Growing number Maximize market share High Majority Stable beginning to decline Maximize profits while defending market share Declining Laggards Declining number Reduce expenditures and milk the brand o An understanding of the 5 stages of the PLC o Applying the PLC Stages of new product development o Idea generation Systematic search for new product ideas Using internal sources all company employees Using external sources customers competitors supplies distributors o Idea Screening Process used to spot good ideas and drop poor ones Evaluated using a criteria to determine if There is a need for the product The product offers a competitive advantage It offers sufficient profit potential o Concept development testing consumer terms Product concept detailed version of the new product idea stated in meaningful Concept development develop alternate product concepts for testing Concept testing testing new product concepts with groups of target customers to find out if the concepts have strong customer appeal o Marketing strategy development Part One short term describes the target market planned value proposition and Part Two pricing distribution outlines the product s planned price distribution Part Three long term describes the planned long run sales and profit goals short term profit goals and marketing budgets marketing mix strategy o Business analysis Review of the sales costs and profit projections in relation to company goals Positive results move into product development phase o Product development Concept idea becomes a physical product Requires large investment Prototypes are made for testing o Test marking Must have correct physical features and convey psychological characteristics Product marketing program are introduced in a more realistic market setting Only appropriate when a large investment is required risk is high or when management is unsure of the product or marketing program Potentially expensive and time consuming but saves company from making a major marketing mistake o Commercialization Must decide on timing when to introduce the product Must decide on where to produce the product single location state region nationally Must develop a market rollout plan where to begin where to expand to Chapter 9 Price floor no profits below this price o Lowest o Examples Minimum wage Price ceiling no demand above this price price that a government allows a good to be sold for o The maximum price a seller is allowed to charge for a product or service to ensure fair and reasonable business practices o Example rent in New York Three main types of pricing strategies o Cost based Setting prices based on the cost of producing distributing and selling product at a fair rate of return start at price floor Cost plus markup pricing Adding a standard markup to the cost of the product Break even pricing target return First set price to break even on the costs of making and marketing the product revenues expenses Second target return may be set on top of break even price Setting prices based on buyers perceptions of value rather than the seller s cost o Customer value start at price ceiling Steps 1 Customer needs value perceptions are assessed 2 Target price is based on value perception 3 Vendor considers value based pricing strategy either Good value pricing Value added pricing Offers just the right combination of quality and good service as fair price No add ons Attaching value added features and services to differentiate a company s offers and charging higher prices Add ons included o Competition based Setting prices based on competitors strategies costs prices and market offerings Assumers consumers base their judgments of a product s value on the prices charged less focus on price floor or ceiling by competitors for similar products Focuses on internal factors marketing strategy marketing mix and external factors the market demand Types of costs o Fixed costs do not vary with production or sales level o Variable costs vary directly with the level of production The four types of markets o Pure competition Very large number of firms Sell a standardized product Entry is very easy Individual seller has no control over product price No non price competition Example commodities corn milk copper o Monopolistic competition Many firms Sell a differentiated product Entry is relatively easy Firm has some control over product price Considerable non price competition Example shoes o Oligopoly Few firms Standardized or differentiated product Entry is difficult Firm has limited control over product price Typically some non price competition Example cell phone company movie studios o Pure Monopoly One firm Unique product Entry is blocked Single firm has considerable control over product price Indirect non price competition may or may not be found Example U S Post office Price elasticity of demand o Refers to how responsive changes in demand will be to a change in price o Small demand change inelastic demand Example caffeine there are no substitutes o Large demand change elastic demand Example pizza many substitutes Market skimming pricing to pay the high price o Setting a high price for a new product to skim revenues