Last Lesson

Competitive Advantage - grows out of value a firm is able to

create for its buyers that exceeds the firm's cost of creating
it. Value is what buyers are willing to pay, and superior value stems
from offering lower prices than competitors for equivalent benefits
or providing unique benefits that more than offset a higher price.
How Many Differences?
- Many marketers think that companies should aggressively promote
only one benefit to the target market while others think that
companies should position themselves on more than one
differentiating factor.However, as companies increase the number of
claims for their brands, they risk disbelief and a loss of clear positions

Which differences?
Not all brand differences are meaningful or worthwhile. Not every
difference makes good differentiator. Each difference has the potential
to create company costs as well as customer benefits.Therefore ,
companies and even visitor destinations must carefully select the ways
in which it will distinguish itself from competitors

Product

Anything that can be offered to a market for attention, acquisition,

use, or consumption that might satisfy a want or need. It includes
physical objects, services, places, organizations, and ideas.
Branding
Name, term, sign, symbol or design, or a combination of them intended
to identify the goods and services of one seller or group of sellers and
to differentiate them from those of other sellers
The process involved in creating a unique name and image for a
product in the consumers' mind, mainly through advertising campaigns
with a consistent theme. Branding aims to establish a significant and
differentiated presence in the market that attracts and retains loyal
customers. The BRAND is more valuable than the totality of all the
assets
New Product Development

The product life cycle presents two major challenges: First, because
all products eventually decline, a firm must find new products to

replace aging ones (the problem of new product development).

Second, the firm must understand how its products age and then
change marketing strategies as products pass through life-cycle stages
A company has to be good at developing new products. It also has to
be good at managing them in the face of changing tastes,
technologies, and competition.
Every product seems to go through a life cycle: It is born, passes
through several phases, and eventually dies as younger products come
along that better serve consumer needs.

Product Idea
Envisions a possible product that a company managers might offer to
the market.

Product Concept
A detailed version of a product idea stated in a meaningful consumer
terms

Product Development

Developing the product concept into a physical product to ensure

that the product idea can be turned into a workable product

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New Product Development Process - STAGES

Idea Generation ideas are gained from internal sources, customers,
competitors, distributors, and suppliers
Idea Screening Spot good ideas and drop poor ones as soon as
possible
Concept Developing and Testing Surviving ideas must now be
developed into product concepts. These are tested with target customers
Marketing strategy development there are 3 parts to the marketing
strategy statement: 1st describes the target market, the planned product
positioning, and the sales, market share, and profit goals for the 1st two
years. The 2nd part outlines products planned price, distribution, and
marketing budget for the first year. The 3rd part describes the planned longrun sales, profit, and the market mix strategy over time
Business Analysis Involves a review of the sales, costs, and profit
projections to determine whether they satisfy the companys objectives
Product Development Turns the concept into a prototype of the
product
Market Testing Stage in which the product and marketing program
are introduced into more realistic market testing
Commercialization Brought into the marketplace

Stages in Product Life Cycle

Introductory Stage
Full scale launch
The firm seeks to build product awareness
Educate potential customers about the product
Develop a market for the product
High marketing cost and negative profits as sales increase
slowly
May use low penetration pricing
Limited distribution
2.
Growth Stage
Firm seeks to build brand preference and increase market share
Sales growing
Support features and services may be added
Key goal is gaining wider distribution
Pricing is maintained
Profits reach their peak
Promotion aimed at a broader audience
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Maturity Stage
The strong growth in sales diminishes
Competition may appear with similar products.
Primary objective at this point is to defend market share while
maximizing profit
Product features may be enhanced to differentiate the product
from that of competitors
Distribution becomes more intensive and incentives may be
offered to encourage preference over competing products
Heavy promotions to both the dealers and consumers are
required
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Decline Stage
Maintain the product, possibly rejuvenating it by adding new
features and finding new uses
Decline stage is signalled by an long-run drop in sales
Reduce costs and continue to offer it, possibly to a loyal niche
segment
Discontinue product and liquidating remaining inventory or
selling it to another firm that is willing to continue the product
PRICE

Amount of money charged for a good or service

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Sum of the values consumers, exchange for the benefits of having or

using the products or service
Price is the only marketing mix that produces revenue. All other
represent cost

(Product + Service + Location + Ambiance + Image)

/Price = VALUE
Charging too much chases away potential customer. Charging too
little can leave a company without enough revenue to maintain the
operation properly

Factors that Affects Pricing Decisions

Internal Factor
Marketing Objectives
Survival Used when the economy slumps or recession
going on
Current Profit Maximization choose the price that will
produce the maximum current profit, cash flow, ROI, seeking financial
outcomes rather than long-run performance
Product-quality Leadership charge high price for their
high-cost products to capture luxury market
Market-share leadership When company believe that a
company with the largest market share will eventually enjoy low-costs and
high-long-run profit, they set low opening rates & strive to be the marketshare leader
Other Objectives lowering price might prevent
competition from entering the market. Or temporarily reduce prices to
create excitement for a new product. Or you are into voluminous purchase
but this is working on a thin margin only.

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A. Marketing Mix Strategy Price must be coordinated with product
design, distribution, & promotion decision to form a consistent
marketing program
B. Cost
1. Fixed Costs cost that do not vary with production or sales level
2. Variable Costs cost that vary directly with the level of
production
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A. Organization Considerations Management must decide who
within then organization should set prices. In small companies,
this will be top management; large companies, pricing is typically
handled by corporate department or by regional or unit
managers. Putting up a Revenue Management Department
which is responsible for pricing and coordinating with other
department that influence price.

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External Factor

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a. Market and demand

b. Consumer perception of price and value It is the
consumer who decides whether a products price is right
c. Analyzing the price-demand relationship the higher the
price, the lower the demand
d. Price elasticity of demand if demand hardly varies with a
small change in price, demand is inelastic. If demand
changes greatly the demand is elastic. Buyers are less
price-sensitive when the product is unique, high
quality,prestige, exclusive
Unique value effect Creating the value that your offering is different
form those of your competitors avoid price competition
Substitute awareness effect Lack of the awareness of then
existence of alternatives reduces price sensitivity
Business expenditure effect when someone else pays the bill, the
customer is less price-sensitive
End-benefit effect Consumers are more price-sensitive when the
price of the product accounts for a large share of the total cost of the
end benefit
Total expenditure effect The more someone spends on a product,
the more sensitive he or she is to the products price
Sunk cost effect - Purchasers who have an investment in products
that they are currently using are less likely to change for price
reasons
Price quality effect consumers tend to equate price with quality
especially when they lack prior experience with the product
Competitors price and offers When a company is aware of its
competitors price and offers, it can use this information as a starting
point for deciding its own pricing
Other environmental factors includes inflation, boom or recession,
interest rates, government purchasing, and birth of new technology

General Pricing Approaches

Cost Based Pricing
Simplest pricing method is cost-plus pricing, adding a standard
mark-up to the cost of the product
Be sure not to ignore current demand and competition to lead to
best price
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Break-Even Analysis & Target Profit Pricing
Firm tries to determine the price at which it will break even then
targets its ROI
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Value-Based Pricing
Uses buyers perceptions of value, not the sellers cost as the
key to pricing. All the other tools in the marketing mix are use
simultaneously with the pricing
Competition Based Pricing
The strategy of going-rate pricing is the setting of price based
largely on following competitors prices rather than on company
costs or demand.
Pricing Strategies for New Product
Pricing Prestige
Firm seeking to position themselves as luxurious and elegant
enter the market with a high price to support this position
Market-Skimming Pricing
Setting high price when the market is price-insensitive. Price
skimming can make sense when lowering the price will create
less revenue (if no competitions, or more demands than rooms in
hotel
Market Penetration Pricing