MKTG 431

4 Needs for New Product Development

Meeting changes in consumer demand, handling the environmental threats, making new profits, other necessities

Creating New Products Requires

understanding consumers, markets and competitors, and developing products that deliver superior value to customers

Stages of New Product Development

1. Idea generation

2. Idea screening

3. Concept development and testing

4. Marketing strategy development

5. Business analysis

6. Product development

7. Test marketing

8. Commercialization

Idea Screening

screening new product ideas to spot good ones and drop poor ones as soon as possible

Product Idea

an idea for a possible product that the company can see itself offering to the market

product concept

a detailed version of the new product idea stated in meaningful consumer terms

product image

the way consumers perceive an actual or potential product

concept testing

testing new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal

methods of concept testing

-presenting the concepts to consumers symbolically or physically

-asking customers to respond by answering questions about their reactions to the concepts

3 parts of marketing strategy statement

- Describes the target market, planned value proposition, sales, market-share, and profit goals

- Determines product's planned price, distribution, and marketing budget

- Develops long-run sales, profit goals, and marketing mix strategy

Business Analysis

a review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the company's objectives

Product Development

Developing the product concept into a physical product

test marketing

Introduces the product and its proposed marketing program into realistic market settings

Commercialization

introducing a new product into the market

Stages of Product Life Cycle

- Product Development

-Introduction Stage

- Growth Stage

- Maturity Stage

- Decline Stage

price

Determines a firm's market share and profitability

Customer value-based pricing

Based on buyers' perceptions of value rather than on the seller's cost

2 types of value-based pricing

- Good value pricing

- Value added pricing

Good-value pricing

offers just the right combination of quality and good service at a fair price

Value-added pricing

involves attaching value-added features and services to differentiate a company's offers and then charging higher prices

Cost based pricing path

Design a good product -\> Determine product costs -\> Set price based on cost -\> Convince buyers of product's value

Value- Based pricing path

Assess customer needs and value perceptions -\> Set target price to match customer- perceived value -\> Dertermine costs that can be incurred -\> Design product to delivery desired value at target price

Types of Cost-Based Pricing

- Fixed costs (overhead)

- Variable costs

- Total Costs

Cost-plus pricing (markup pricing)

adding a standard markup to the cost of the product

Break-even pricing

setting price to break even on the costs of making and marketing a product, or setting price to make a target return

competition-based pricing

setting prices based on competitors' strategies, prices, costs, and market offerings

3 major pricing strategies

- customer value-based

- cost-based

- competition-based

Internal factors affecting price decisions

-Overall marketing strategy, objectives, and the marketing mix

-Organizational considerations

External factors affecting price decisions

-Market and demand

-Economy

-Impact on other parties in its environment

target costing

pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met

nonprice positions

deemphasize price and use other marketing mix tools

who decides who should set prices?

management

pure competition

the market consists of many buyers and sellers trading in a uniform commodity

monopolistic competition

consists of many buyers and sellers trading over a range of prices rather than a single market price

oligopolistic competition

consists of only a few large sellers. Because there are few sellers, each seller is alert and responsive to competitors' pricing strategies and marketing moves

pure monopoly

the market is dominated by one seller. The seller may be a government monopoly, a private regulated monopoly, or a private unregulated monopoly.

demand curve

a graph of the relationship between the price of a good and the quantity demanded

price elasticity of demand

Measure of the sensitivity of demand to changes in price

Inelastic Demand

Demand hardly changes with a small change in time

Elastic Demand

Demand changes greatly with a small change in price

Factors impacting pricing strategies

- Boom or recession

- Inflation

- Interest rates

Responses to the grugality of post recession consumers

- Cut prices and offer discounts

- Develop more affordable items

- Redefine value propositions

Market-skimming pricing

setting a high price to skim maximum revenues from the segments willing to pay the high price

market penetration pricing

Setting a low price to attract a large number of buyers and a large market share

customer-segment pricing

different customers pay different prices for the same product or service

product form pricing

different versions of the product are priced differently but not according to differences in their costs

location based pricing

involves a company charging different prices for different locations, even though the cost of offering each location is the same.

time based pricing

occurs when a firm varies its price by the season, the month, the day, and even the hour. For example, movie theaters charge matinee pricing during the daytime, and resorts give weekend and seasonal discounts.

FOB origin pricing

free on board carrier; at that point the title and responsibility pass to the customer

uniform delivered pricing

charges the same price plus greight to all customers, regardless of their location

zone pricing

Sets up 2 or more zones. All Customers within a given zone pay a single total price

Basing point pricing

the seller selects a given city as a "basing point" and charges all customers the freight cost from that city to the customer location, regardless of the city from which the goods are actually shipped

freight absorption pricing

The seller absorbs all or part of the actul freight charges to get the desired business; used for market penetration

dynamic pricing

adjusting prices continually to meet the characteristics and needs of individual customers and situations

Reasons for price cuts

- Excess capacity

- Falling demand

- Attempt to dominate the market

Reasons for price increases

- Cost inflation

- Over-demand

value delivery network

a network composed of the company, suppliers, distributors, and, ultimately, customers who partner with each other to improve the performance of the entire system in delivering customer value

marketing channels

Interdependent organizations involved in making a product or service available for use

Channel level

a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer

Direct marketing channel

no intermediary levels

Indirect Marketing channels

one or more intermediary levels

Types of flows that connect the institutions in the channel:

- physical flow of products

- flow of ownership

- payment flow

- Information flow

- promotion flow

channel conflict

disagreements among marketing channel members on goals, roles, and rewards - who should do what and for what rewards

vertical marketing system

consists of producers, wholesalers, and retailers acting as a unified system

3 Types of VMSs

- Corporate (under single ownership)

- Contractual (e.g. franchise)

- Administered (Through the size and power of one of the parties)