Pricing & Product Decisions

1. Pricing & Product Decisions Mrs. Wilson Dayton High School

2. Q.O.D.11/18/11

3. Product Life Cycle

4. Product Life Cycle • Introduction- • Product is first being introduced into the market • Want customers to try the product • Spend millions on advertising & promotion • Have to “teach” the customer • Growth • More competitors enter the marketplace • Ex generic Uggs and Jordans • Price may be lowered to compete with others • May add more colors or flavors • Increases in amount of stores the product is sold

5. Product Life Cycle 3. Maturity- • sales begin to slow down • Repeat customers may stop buying • Company may make changes to the product to distinguish from its competitors (looking for new buyers) 4. Decline • newer and more improved models replace older ones • REMEMBER, not all products go through these stages

6. Q.O.D.11/21/11 • What are the phases of the product life cycle?

7. Managing Product Cycle • Product managers need to manage the product through its cycle 3 ways they can do this: • Modify the product- change features, appearance, quality • Market the product- find new customers by changing up advertising • Reposition the product- change a product’s image Ex. New Balance started appealing to older customer’s with wider feet. Created a new customer this way.

8. Pricing • Marketers say, “How much will someone pay for___________________?” • Price- the value placed on the goods/services being exchanged. • Pricing is important, it predicts how much a company will make: • Ex. company sells 1,000 baseball bats @ $175 each. REVENUE= $175,000 COST OF BATS= $90 each, total of $90,000 (Cost of Goods Sold) Expenses of running business= $60,000 BUSINESS’S PROFIT= $25,000 $175,000-$150,000

9. Pricing Strategies • What is the relationship between price & quality? • Do we always get what we pay for? • Marketers believe the more a customer pays, they think they are buying a better quality product • Prestige pricing pricing based on consumer perception • Very expensive sports watches and other equipment are priced above avg. price to attract customers who judge quality by its price

10. Pricing Strategies • Odd-Even Pricing pricing goods with either an odd number or an even number to match a product’s image • Ex. prices like $25.99 suggest a bargain • Ex.#2 even prices suggest something of quality and worth ($100 jeans) • Target Pricing pricing goods according to what the customer is willing to pay. • Manufacturers estimate the target price and then work backwards to determine how much to charge for that item.

11. Q.O.D.11/22/11 • What are the three major pricing strategies we discussed yesterday? Give an example of each.

12. Supply/Demand • If a product is in high demand, and there is a limited supply of that item, price will be high (UK tickets) • Ex. New York Yankees tickets (high demand) with a limited number of seats (supply) will be able to charge high prices for tickets • This could explain why playoff tickets of any sports are always more expensive.

13. Cost • Since companies want to make money, the price of an item must be higher than the cost they paid for it. • Markup diff. between retail price & cost of an item. • Ex. Finish Line purchases a pair of shoes for $25 from a wholesaler • To cover expenses, the retailer sells them for $49.99 ($24.99 markup) • This is usually expressed by percentages. In example above, that would be a 50% markup. (24.99/49.99)