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The price range July 7, 2009

Posted by mariobarreiro in Marketing.
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Set the price is the fourth step in the determination of price range process. There are three main pricing methods: cost-volume-profit relationship, demand-based and competition-based (Brassington & Pettitt, 2003: 431-441). This essay will develop the demand-based pricing, focusing in psychological pricing (the demand and price elasticity were covered earlier) and following the Brassington & Pettit (2003) classification.

Prestige pricing

Prices are perceived by consumers as measurement of quality in products. High prices attract customers for whom price is no object. Examples are the Danish company Bang & Olufsen with its audio and video devices and clothing companies such as Ralph Lauren or Lacoste.

Odd-even pricing

This technique achieves that customers see the product price lower that it is. To do it, the product price simply needs to finish with a 9. For instance, a price of 4.99 is perceived closer to 4 than 5.

This is a spread technique used from grocery, clothing and technology to cars and houses, even when the prices for the last ones are above 10,000 pounds.

currys
Odd-even pricing
Source:
http://www.currys.co.uk/

Price lining

This method creates separation between different models of a product only using price, even when the cost is the same. For instance, the Celtic Football Club away shirt is half price than the home shirt (http://www.kitbag.com/stores/celtic/products/kit_selector.aspx?selector=217&nav=Replica, Accessed 11 April 2009). The reason could be that people is likely to buy the home shirt as is the main one and mostly used, and therefore they try to encourage sales of the away shirt.

Bundle pricing

It is a technique applied when manufacturers or retailers sale products in a single package. There are two reasons to use the bundle pricing method. Firstly, a bundle can help the consumer to start using a new product with all the features and accessories from the beginning, for instance when they buy a computer with a printer and a full software package. Secondly, it is also handled to sell surpluses. For example, in music/movies/games shops like HMV it is easy to find bundles including new releases and old non best sellers.

Promotional pricing

It is used to attract consumers’ attention. For instance, grocery and technology retailers like to create promotions even when they do not make any profit with the discounted product, because customers can spend the money saves in full prices items and it is also a tool to promote the company.

Time-specific markdowns

There is a level of psychological excitement created by limited number of available goods or deadlines, and customers feel that the opportunity will be never back. This is a spread method also in retailers, and also common used in business to business (B2B) situations. In my last experience as a sales person in an IT company, we used to highlight the deadline and that our offer was the best we could give, and it achieved better results than when we did not use these keywords.

Price differentiation

It occurs when the company uses different prices in different environments. For instance, the price of a soft drink (e.g. Coke) is not the same in Tesco, a restaurant, a vending machine or in a football stadium.

Dan Ariely (2008), professor or Behavioural Economics at Duke University, found two extra interesting points to complete the Brassington & Pettit (2003) classification related to consumer behaviour and price decision: the power of free and the role of choices managed influence to take a decision about price.

It’s free!

There was a web business that sold cheap gadgets which cost around five dollars including delivery. They gave the following options to customers:

free

Source: http://www.youtube.com/watch?v=LmJzQ3cVt88

Even when the financial situation was the same, people tend to choose the last one because the product was free (Ariely, 2008).

The third option which no one would take

There is an example with a subscription to The Economist.

economist

Source: http://www.youtube.com/watch?v=VZv–sm9XXU

The price of the print and the print & online subscription was the same while the online subscription was much cheaper. Ariely (2008) run an experiment giving these three options and most of people took the print & online one (of course, no one took the printed only). Then, they run the same experiment but without the printed only option. The percentages turned in favour to the web subscription. The conclusion is that the “no-one-would-take” option that is close to one of the others makes that one better.

Web Articles:

Books:

  • F. Brassington and S.Pettitt. 2000. Principles of Marketing. 2nd ed. Prentice Hall
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Pricing decision June 12, 2009

Posted by mariobarreiro in Marketing.
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When companies take decisions about pricing, there is always some uncertainty about the effect on customers, competitors and distribution channels. Thus, to reduce this uncertainty they have to analyse the effects of new prices in this communities (Brassington & Pettitt, 2003: 392). Authors do not share the whole list subjects included in these external influences on pricing. However, they agree that demand and price stability should be studied before define any price, and this reflective journal will focus on them.

Demand

The theories of demand explain how changes in prices affect the sales (demand by customers), and help marketers to estimate demand for new products. Brassington & Pettitt (2003: 393-397) find the following shapes in the demand curve: classic, boomerang and parallel.

classicdemandcurve
The classic demand curve
Brassington & Pettitt (2003: 393) Fig. 10.3

The classic demand curve shows what is logical for most of products: if prices go up the demand falls. For instance, with a weak pound, travel overseas for British is more expensive than ever.

britishpound
British Pound to Euro Exchange Rate
Source:
http://uk.ichart.yahoo.com/z?s=GBPEUR=X&t=1y (Accessed 10 April 2009)

At the end of December 2008 the number of British families travelling to Spain felt by 22 per cent, due to the falling value of the pound and the credit crunch (Mail Online, 2008). Therefore, the tourists willing for holydays are more likely to travel to other destinations.

However, the shape of the demand curve can be affected by other factors than price, such as substitute products or economic conditions. In the previous example, the demand of holydays in Spain felt also because of the credit crunch, so probably the changes are deeper than with only a decline in the value of the pound.

Not all products keep the classic demand curve. Some products have a deep psychological relationship with the customer, and as a result, there can be a reverse price-demand curve in which the higher the price, the higher the demand.

boomerangcurve
The boomerang demand curve
Brassington & Pettitt (2003: 394) Fig. 10.4

This phenomenon is found in products perceived as high status, where if everyone can have them the demand falls. Examples are products in the medium-high price range, such as fragrances or fashion restaurants, where the customer spends occasionally a large sum of money to feel closer to a world of luxury and sophistication.

The parallel demand curve shows how the demand curve can be shifted upwards or downwards.

paralleldemandcurve
The parallel demand curve
Source:
http://bp1.blogger.com/_b-jw0MlcPlg/RndGEYNH1_I/AAAAAAAAAhY/CaE3acj-HPQ/s1600-h/demand_curve_prius2.jpg

Khengsions (2007) found that the Toyota Prius, a fuel efficient hybrid vehicle, is more likely to be sold better when petrol price is higher, creating a new curve with the same shape but different position.


Price stability

The price elasticity of demand explains the relation between changes in price and quantity demanded. There are two possible forms of elasticity: elastic demand and inelastic demand. When there is not elasticity and changes in percentage are equal, the concept what Brassington & Pettitt (2003: 395-397) entitle is unitary demand.

Elastic demand happens when a small percentage variation in price produces a large variation in quantity demanded.

elasticdemand
Elastic demand
Brassington & Pettitt (2003: 395) Fig. 10.6

In this case, the market is very price sensitive. Normally, the customer has easy options to switch and the competition is high, such as in convenience foods.

On the other hand, when a large change in price leads only to a small variation on quantity demanded there is inelastic demand.

inelasticdemand
Inelastic demand
Brassington & Pettitt (2003: 395) Fig. 10.7

There are several examples of inelastic demand, such as petrol and electricity or fruits and vegetables, where the customer cannot find substitutes in the short term and the demand keeps stable.

Web Articles:

Books:

  • F. Brassington and S.Pettitt. 2000. Principles of Marketing. 2nd ed. Prentice Hall

Product Range June 2, 2009

Posted by mariobarreiro in Marketing.
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Organisations usually offer more than one product to the market. To understand any product fully, it is essential to be aware of its position within the company´s portfolio. There are three main concepts to explain how product range works out: product mix, product line and product item (Brassington & Pettitt, 2003: 272-274).

Argos is a UK retailer that sells general merchandise and products for the home and it will be used as an example for this piece of essay (http://www.argos.co.uk/).

 

Product Mix

The product mix is the sum of all the products offered by a company. In the case of Argos, the product mix reaches to 20,000.

 

Product Line

A product line is a group of products that are closely related to each other. The relation can be production orientated, when the company focuses on production requirements, or market orientated, where products satisfy similar needs to customers. Argos has chosen the last one.

Argos manages 13 different categories (Kitchen & Laundry, Home & Furniture, Garden & DIY, etc.). Compared with the number of products they sell, there is an average of 1,500 products per category. It does not make easy enough the managing of the product range. Therefore, each category has different sub-categories (within Kitchen & Laundry lies Fridges and freezers, Kitchenware, Kettles, etc.) which are the product lines in this example, making a total of 223 product lines in Argos.

The total number of product lines defines the product mix width. From the width of the product mix it can be inferred the interest of the company in different markets. In this case the width is wide. Argos handles a huge amount of product lines, so it is competing in many different markets.

 

Product Item

A product line consists of a number of product items. They are individual products or brands with their own features, benefits or prices. Taking the product line Fridges and freezers, there are 20 different brands creating therefore 20 product items.

The total number of items within the product line completes the product line length.

The concept product line depth is defined by the number of different variants of each item. Following with the example of fridges and freezers, there are a total of 368 products, giving an average of 18 variations per item.

While the product mix width shows the market that the company is competing on, the product line depth displays the market coverage strategy, were Argos is trying to fulfil the requirements of each customer.

Argos is a company with a wide product mix and a deep product line. There are companies that focus whether on width or depth. For instance, a narrow but deep company is Sportsshoes Unlimited (http://www.sportsshoes.com). It is a specialist on trainers and sport shoes with over 20,000 products in the catalogue. On the other hand, the grocery company Lidl (http://www.lidl.co.uk), covers most of the comestibles required by households but with only one article by product item.

 

Books:

  • F. Brassington and S.Pettitt. 2000. Principles of Marketing. 2nd ed. Prentice Hall

New Product Development May 21, 2009

Posted by mariobarreiro in Marketing.
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New products are original products, product improvements, product modifications and new brands that a company generates using its own research and development efforts (Brassington & Pettitt, 2003: 284). The development entails a process, and authors disagree in the number of steps included on it. For instance, Jobber & Fahy (2003: 146) define seven steps; Brassington & Pettitt (2003: 347) detail eight steps while Kotler et al (2002: 501) assign nine steps. However these authors agree in some points and this essay will focus on one of them: Idea generation.

Idea generation is one of the earlier steps of the process, and it can be defined as the systematic search for new product ideas. The sources of ideas are internal sources, customers, competitors and distributors/suppliers/others (Kotler et al, 2002: 503).

 

Internal sources:

Ideas are proposed by directors, employees and R&D departments. There are two possible ways of ideas flow: top-down, where ideas and new projects are created (and usually imposed) by owners, managers and directors; and bottom-up, with an opposite flow from employees to the top of the company (Morris, 2006). Examples of bottom-up innovator companies are Google, Amazon or Toyota.

Google allows its employees to spend 20% of working time to extend products, and 10% to do personal stuff. For instance, the Google News service has its roots in this policy (Weir, 2008). Amazon gives a price to encourage people to share ideas, furthermore, they think is important to do something with them. Moreover, Amazon says that those closest to the problem are in the best position to solve it. Finally, Toyota employees contribute with more than a hundred improvement ideas each year (Morris, 2006).

 

Customers:

Good new product ideas also come from watching and listening to customers.

In Amazon, developers has to spend some time with customer service, listening to customer service calls and answering e-mails to understand the impact of their jobs as technologists (Hoff, 2007).

In 1989 an employee from the United States Surgical met a surgeon who was using a jury-rigged clip to remove gallbladders laparoscopically. Then, she carried the word back to the U.S. Surgical Headquarters, and as a result, by early 90s the company had a basic laparoscopic stapler ready to go. In 1991 more than 60% of gallbladders were removed laparoscopically (Reese, 1992).


Competitors:

Companies can get good ideas from competitors, for instance, watching to ads and communications to get clues.

On the extreme, there is the case of new developments that were discarded by a company and lately used by other reaching a market success (Pang, 2002; Burke, 1999). In the early 80s Steve Jobs, CEO of Apple, visited Xerox’s Palo Alto Research Center (PARC). Xerox executives did not think that a “mouse” device could be useful, and they allowed Apple to see their researchers’ investigations. From that meeting, Apple took the mouse and the graphical user interface (GUI) ideas which they implemented into the Apple Lisa computer.

 

Distributors, suppliers and others:

Distributors are closer to the market than the manufacturer, thus they can pass along information about consumer problems and enquiries. On the other hand, suppliers have contact with many other similar companies, and it can drive to find new opportunities.

There are other sources of ideas in magazines, shows and seminars, and these have not to be necessary from the same industry. For instance, in 1993 Heineken needed a solution to beer contamination created by glass particles. They contact with PA Consulting, which developed a solution inspired by a method used in the pharmaceutical industry to inspect vials (Baxter, 2000).

 

Web Articles:

Films:

  • Pirates of Silicon Valley. 1999. Film. Directed by Martyn Burke.

Books:

  • F. Brassington and S.Pettitt. 2000. Principles of Marketing. 2nd ed. Prentice Hall 
  • D. Jobber and J.Fahy. 2003. Foundations of Marketing. McGraw-Hill Education
  • P. Kotler et al. 2002. Principles of Marketing. 3rd European Edition. Prentice Hall

Product life-cycle May 19, 2009

Posted by mariobarreiro in Marketing.
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The product life-cycle concept refers to the course that a product’s sales and profits take over its life time. It can describe a product class (e.g. laptops), a product form (e.g. designing) or a brand (e.g. Apple Mac Book) (Kotler et al, 2002: 518).

plc 
Brassington & Pettitt (2003: 304) Fig. 8.1

The cycle is divided in five different stages. The first one is the pre-launch stage, where the product is in the developing phase, and therefore there are not sales neither profits. This reflective journal will focus in the other four stages within the cycle: introduction, growth, maturity and decline (Brassington & Pettitt, 2003: 303-308).

 

Introduction

In the introduction stage the product is launched and the sales increase in a slow manner. Usually profits are negative where promotion expenses are high because the company needs to inform the customers about the product. If it is a new product or a new category, they will spend even more money to spread its benefits (Kotler et al, 2002: 520).

Currently, Blu-ray devices can fall under this statement.

The Playstation 3 carries a Blu-ray player and Microsoft is using it as a war tool against Apple, who as well as Toshiba, does not support Blu-ray (Ruby, 2009). By the moment, the sales of players and movies in this format have not increased dramatically.

 

Growth

In this stage sales climb quickly, and the company keeps educating customers and begins to introduce new features to the previous basic product. Competitors will appear due to the new profitable market (Kotler et al, 2002: 521).

Twitter, a micro blogging service, is in this stage right now.

UK Internet visits to Twitter have been increased six times in March 2009, and 32 in the last year (Goad, 2009).

hitwise
Source: http://weblogs.hitwise.com/robin-goad/2009/04/what_would_a_google_twitter_marriage_mean.html

 

Maturity

Once the sales growth slowdowns, the product enters a maturity stage. This stage is usually longer than previous stages but the competition is higher, with prices cuts and more sales promotions. To stay alive, companies need to increase consumption and attract new users. Therefore, they have to innovate in the market (repositioning the brand), modify the product and modify the marketing mix (Kotler et al, 2002: 521).

Innovate in the market

Aquarius was launched in Spain in 1991 as a sports drink and the next year it was the official drink for the Barcelona ’92 Olympics. However in 2005 it was repositioned to a refreshment drink for everyone (http://www.conocecocacola.com/default.cfm)

Modify the product

With games such as Brain Training, Nintendo reached the market of mature people who have never played video-games with its portable Nintendo DS.

Modify marketing mix

Mobile phone industry is an example of marketing mix modifications. Companies have created packages of minutes and texts adapted to the requirements of each user.


Decline

Finally, the sales dip because of customers and profits decrease, and eventually companies withdraw from the market. However, sales not always plunge to zero (Kotler et al, 2002: 523).

For instance, the Playstation 3 was launched at the end of 2006, and in January 2009 Sony has announced a price cut in Playsation 2, which is still making sales (Archer, 2009).

 

To sum up, the product life-cycle is a tool for marketers to try to understand which marketing policy the company should follow in each stage (Jobber & Fahy, 2003: 134).

As a result, there are tools like HammerTap (http://www.hammertap.com/) which helps ‘eBuyers’ and ‘eSellers’ (people that buy and sell through eBay) to know which products are hot or not (which stage in the cycle), allowing them to improve profits and save costs following the most suitable strategies to sell and buy.

 

hammertap
Source: http://www.hammertap.com/

Web Articles:

Books:

  • F. Brassington and S.Pettitt. 2000. Principles of Marketing. 2nd ed. Prentice Hall
  • D. Jobber and J.Fahy. 2003. Foundations of Marketing. McGraw-Hill Education
  • P. Kotler et al. 2002. Principles of Marketing. 3rd European Edition. Prentice Hall

Product Range Brand Policy May 16, 2009

Posted by mariobarreiro in Marketing.
4 comments

Within the Marketing Mix, a very important item that makes up the product is branding. A brand, with its name, design, style, words or symbols, emphasizes a product as a unique article, making it different to customers from other products in the same segment (Brassington & Pettitt, 2003: 275).

One of the concepts that branding strategy develops is the role of the company name and its relationship with the product range. Brassington & Pettitt (2003: 284) call this the “product range brand policy”. The strength of the association between the mother/family/company brand and the product brand has benefits and drawbacks. There are three approaches: discrete branding, monolithic branding and endorsed branding.

 

Discrete branding

In this case, each product receives and individual/independent name, which is not related to the company name. This strategy has the advantage that the firm can launch several brands to cover each segment of the market. However, it usually means higher marketing costs that can drive to less profitability. Jobber & Fahy (2003: 134) refer to discrete branding as “individual brand name”.

Examples of discrete branding can be found in Cif and Domestos (Procter and Gamble multi-purpose cleaners), Chevrolet, Pontiac or Cadillac (General Motors cars) and Kit-Kat (Nestle, launched by Rowntree in 1935).

 

Monolithic branding

At the opposite side, under the monolithic approach, the brand uses a family name, normally the company name, followed by a name that identifies the product range. The positive points are that the communication of the company is only one, and the attributes and values of the family brand benefit all brands. Nevertheless, in case of failure of one product, the whole brand will be affected. Monolithic branding is also known as “family brand name” or “umbrella branding” by Jobber & Fahy (2003: 134).

Several companies use this strategy. BMW precedes the model number of each car to build every name (BMW X3, BMW Z4, BMW M5). The Virgin Group companies have ‘Virgin’ at the beginning of every name (Virgin Atlantic, Virgin Balloon Flights, Virgin Megastore USA).

 

virgin

Virgin Companies.
Source
: http://www.virgin.co.uk/home.aspx

 

Moreover, many technology corporations nowadays follow this approach:

–          Microsoft: Microsoft Windows, Microsoft Office, Microsoft Encarta.

–          Google: Google Mail, Google Chrome, Google Earth.

–          Apple with its ‘i’: iTunes, iPod, iPhone, iBook.

 

Endorsed branding

This is suited between the monolithic and discrete branding. The endorsed approach uses the family name and the individual product name, which is the dominant. There are two different ways to apply it: fixed endorsed and flexible endorsed.

On one hand, in the fixed endorsed there is a rigid relationship between the company name and the product brand. For instance, Ford does it with models such as Mustang. It is referenced by people using either the model brand or the whole name (Mustang or Ford Mustang).

On the other hand, the flexible endorsed gives more freedom to the brand. For example, the Unilever division of Ice creams, Heartbrand, contains brands such as Magnum, Cornetto or Solero. All of them include the Heartbrand logo, but they have their own marketing campaigns and target markets. Furthermore, this could be understood as a third level. In the middle, there is the name of the local brand on each country, covered by the umbrella of the Heartbrand logo. Thus, what for the British customers is Wall’s, for the Spanish ones is Frigo, or Olá for the Portuguese.

 

Unilever –> Heartbrand logo with local brand name –> Final independent products

walls
Unilever Heartbrand logos.
Source:
http://www.cidadedoslogos.com/news/index.php/2008/04/02/o-heartbrand-da-unilever/

 

heartbrand Heartbrand independent Brands.
Source: http://www.walls.co.uk/uk_en/products/default.aspx

 

 

 

 

The main benefit of endorsed branding is the brand credibility, although as well as discrete branding, it uses to generate higher marketing costs.

Web Articles:

Books:

  • F. Brassington and S.Pettitt. 2000. Principles of Marketing. 2nd ed. Prentice Hall
  • D. Jobber and J.Fahy. 2003. Foundations of Marketing. McGraw-Hill Education