Marketing with mon
As we already know, PRICE is a huge part of a product. It's one of the first things consumers look at when considering a product as they want to make sure that they're going to be spending their hard earned dollars well. Companies spend a significant amount of time trying to price their product correctly keeping in mind that they also need to make a profit. There are 6 major steps in determining a price.
1. Identifying Pricing Objectives and Constraints:
2. Estimate Demand and Revenue: Based on research, companies will need to estimate who will buy their product and what they think revenue could be if they set it at specific prices. They quite often use demand curves to help in their estimations and these are graphs relating price per units and quantities sold. They base these numbers off of three important factors:
3. Determine Cost, Volume, and Profit Relationships: When pricing a product, it's important for companies to determine how much they are paying in fixed costs, variable costs, unit variable costs and marginal costs (totaling up to total costs). This will set at least a Break even point, which is a certain amount of money they should make to cover the expenses they used to produce the product, so they can keep themselves from going bankrupt. 4. Select an Approximate Price Level: At this point, companies can begin to approximate what their price should be. They've done enough research to (probably) accurately determine what consumers would pay for the product, keeping them happy as well as keeping the company in good financial standings. This price might be debated a little to ensure that the company is making the largest profit possible. 5. Set list or Quoted Price: Now it's time to actually set the price and make it aware to the customer. They'll either react well to the price and they'll know this because there will be a high demand and high sales or sales will be lower than predicted and they'll have to change the price accordingly. 6. Make special adjustments to list or quoted price: Most times if a consumer is reacting well to a price, companies won't change the price. Some products are expected to have some fluctuation, especially natural resources like oil. However, rarely will we see a price go up if it's doing well but if a product isn't selling, a company will lower the price, offer discounts or sales, to get their product out into the public. Companies usually offer the product at the highest price to yield the highest profit in order to leave room for error.
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All products go through the product life cycle which describes the 4 stages all new products go through in the market: introduction, growth, maturity, and decline. (I apologize in advance for the lack of photos, there's some sort of glitch with the website I use and it's not working.)
Introduction: The product is introduced to it's target market, sales are typically slow and profit is minimal. The point of this stage is to begin marketing the product and spreading the word and create an awareness strong enough to entice the consumer to buy the product. Companies take the risk and will spend most of their money on advertisement and promotional tools. An example of a product currently in the introduction stage is Apple's iWatch. At this point, consumers know the product, a watch that connects with our phones and has apps similar to those found on other apple products. All money right now is being directed towards advertising the watch and building a customer base, most likely consumers loyal to Apple. The product won't be sold until April 24th, so as you can imagine, sales are at zero. Growth: This is when a product shows a rapid increase in sales and competitors begin to show. We find out who are the Big dogs in the market and who might be able to offer a similar product at a lower price. Often for companies to differentiate themselves with their competitors they'll offer a new and improved version. They might also broaden and/or change their distribution channels. The introduction stage can be seen as a "trial" stage and companies make changes based on their results and profits from the intro stage. An example of a product that's growing is alternative energy. More and more people are becoming aware of how much energy they use and seeking ways to reduce it to minimize their carbon footprint. Solar panels are going up everywhere, windmills are being constructed across the nation, more and more electric car charging stations are available. Maturity: When a product is in the maturity stage, industry sales slow and smaller competitors leave the market, which makes the competition between the bigger competitors more fierce. Profits decline but the cost of trying to gain new buyers is rising. An example of a product that's mature are smartphones. For the most part, people that are going to want to buy them already have them. Apple, Samsung, LG and Blackberry are the four competitors and easily dominate the industry. These companies also rely on the sales of other products, like computers and tablets. Decline: In this stage, products are pretty much beginning to be forgotten. Sales drop drastically and there is no longer a need for them. Usually products decline due to environmental and technological changes. Sometimes the products are completely deleted from the market. As examples, we've been looking at technological examples so to continue, an example of a product that's declined: CD portable music players. This product is nearly impossible to find on the internet unless somebody is selling their old one. Companies have stopped production in light of iPods and other other MP3 players that have proven to be more practical. There are several types of products which differ in purchasing behaviors, price and function. Two of the most common types of products are consumer products & business products. In itself, there are four types of consumer products. 1. Convenience Products: bought frequently, conveniently and with minimal effort. Often located at or near the check out. 2. Shopping products: A consumer might compare alternatives based on price, quality and/or style. EX: Organic vs. Nonorganic foods 3. Specialty Products: A consumer makes a special effort to seek information on these types of products. EX: Cars, Houses, basically any large purchase 4. Unsought Products: These are products that we know are there but don't have any need for them and/or we can't afford them. EX: There is a small consumer market for personal helicopters. How somebody classifies a certain product may be different to the person behind them in line. Some people might find a camera to be a quick, effortless buy, depending on their intended usage and income. Another person might spend time doing research, finding the best price in the area and might be loyal to only one brand. Business Products are usually products that are the result of derived demand, meaning that they usually sell from a manufacturer based on what the consumer is buying from the middleman. An example of that is oil. Drillers and companies in the Middle East sell gas based on consumption world wide. The higher the demand They can be categorized into Components which are items that become part of the final product (ex: lumber, metal, grain, car parts). They can also be Support Products, which are used to assist in producing other goods & services like:
Services include anything from cleaning, maintenance, repair, customer service, restaurant business, salons & spa's. Anything that aids the consumer in past purchases or making a purchase, is considered a service. Works Cited:
N.d. Irving Weber Associates, Inc. Business Products. Web. Lumber: A Business Product. N.d. Business Products. Web. 1 Mar. 2015. N.d. The Hershey Company. Hershey's Variety Helps Drive Sales across Your Entire Candy Set! Web. 1 Mar. 2015. N.d. Types of Consumer Offerings. Web. 1 Mar. 2015. We've already talked about target markets, something that is extremely necessary to make a product successful. However, there's more to target markets than we think. There are sub-groups to the groups and we can narrow a market down pretty accurately. This is called market segmentation. We separate these larger groups into groups that 1, have common needs and 2, will respond similarly to a marketing action. EX: Young Adults -->College Students --> College Students in the Northeast --> College Students in Burlington, VT (where it's cold and snowy and isn't Spring supposed to be only weeks away?) Anyway, we're all in the market for a winter coat that's fashionable and probably needs to double as a ski jacket, so it should probably be pretty warm. There are 5 steps to creating a successful segmented target group. Step 1: Group Potential Buyers into Segments. Sometimes it's not always best to segment markets so marketing managers have to look at two questions: 1) Would it be worth it? and 2) Is it possible? If the answer is yes to both, they must find variables within a group and segment based on those variables. Step 2: Group Products to Be Sold into Categories An efficient way to appeal to more customers is to group products together. Based on segmented groups made in step 1, a marketing team might find it productive to bundle products that are similar and could be used together. EX: Buy a new Burton winter jacket and get a free matching hat. Step 3: Develop a Market-Product Grid and Estimate the Size of Matters This type of grid is a framework to relate the segments to products offered or potential marketing actions of a company. If the grid is done completely and correctly, it can show a rough market size for each product and marketing strategy. Step 4: Select Target Markets As a result of the grid, managers should decide which segments they're actually going to pursue. At some point Burton's marketing team went through the process and narrowed their market from young adults to young adults who ski and snowboard in locations with lots of snow and frigid temperatures. They had to cut out all the young adults in the "fly-over states" and the south. It just wouldn't make a lot of sense to spend money and energy trying to sell them a warm, winter jacket when they have no mountains, very little snow, and mild temperatures. Step 5: Take Marketing Actions to Reach Target Markets This is where managers make a decision of where, how and when they're going to market their product. In the case of winter jackets, seasons matter, location matters and even the mean in which their target market is most likely to see an ad. It's unlikely for a young adult to be paying attention to commercials on news channels, weather channels, and the History channel, just to name a few. It is likely that they'll see it on almost every mean of social media, which creates an easy way to go through with a purchase (3 cheers for online shopping). It's important to do research and figure out what would be the most productive way to reach an audience. All of these steps are extremely important in marketing as it would be a waste of time and money if a company did little research on potential consumers for their product. It would be out of pure luck if a marketing strategy was put together randomly and was successful. Works Cited: Randy from A Christmas Story Movie. N.d. Can Staying Warm Keep Your Kids Healthy? Web. 26 Feb. 2015. "Market Segmentation, Targeting & Positioning." Marketing. 11th ed. New York: McGraw-Hill/Irwin, 2013. 224-33. Print. |
Monica AndreaniJunior at Saint Michael's College, MJD major, Business minor. Here to teach you the basics of Marketing. Archives
April 2015
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