Chapter 9 - Small Business Marketing (Product and Pricing Strategies)
Why maximising profits is much better options for small businesses than lowering prices to increase market share?
Maximising profits is a much better option for the small firm - Your price should be above the average priceAs a small business, you do not have the volume of sales that would allow profitable operation with low margins - Companies that compete on product innovation and high quality achieve higher growth than those that try to compete on price - Firms that compete on price even tend to experience negative growth
Discuss each of the following in detail: 1. Market segmentation 2. Goods, services and total product 3. Value proposition
1. The process of dividing the market into smaller portions of people who have certain common characteristics. 2. Goods: A physical product. Services: A nonphysical product. Total product: The entire bundle of products, services and meanings of your offering; includes extras like service, warranty or delivery as well as what the product means to the customer. The total product is how your consumers describe your good or service. 3. A value proposition refers to the value a company promises to deliver to customers should they choose to buy their product.
Briefly describe the stages in a new product development process
Idea generation - Behind every great product is a great idea The traditional first idea generator is something they need or want themselves and either can't find or can't find the way they want it Idea screening - This is the process of selecting the most promising ideas to be further evaluated for feasibility - From the Idea to Product (I2P) model the initial three areas are Product - innovativeness and uniqueness Market - customer need and market size Intellectual property Additional 3 areas include: - The people behind the idea - The additional resources needed to being the idea to market - The profitability of the idea - The smartest idea is to generate multiple ideas and compare them head-to- head to help clarify what characteristics are NB and which idea has the greatest potential Idea evaluation - This is an exhaustive process of specifying the details of each idea's technological feasibility, its cost, how it can be marketed, and its market potential - Additionally, you should consider how the idea fits with the mission and goals of your business - A basic tool for idea evaluation is the feasibility analysis - A typical outcome of a feasibility analysis is one of these three -The idea cannot be economically made into a product/serviceThe resulting product/service works, but does not appeal to a large enough market to make the effort profitableThe product/service works, has the market, and could be profitable, but you need to get additional people, funding, or other resources to make the idea into a successful business - Feasibility analysis is an essential step in the new product development process because it precedes a potentially large investment of your time and money into the creation of the key product/service of your business Product development - The first versions of products are called prototypes. Once the prototype is developed and tested, the product is ready for test marketing. Test marketing involves selling the prototype in either a real or a simulated market environment. Commercialisation - This is the process of making the new product available to consumers - Most businesses creating a new product will not face problems with this step o If a rapid prototyping model can be developed, the moulds for manufacturing can be made inexpensively by most modern manufacturers - If your product requires a truly innovative manufacturing process, you are looking at what is likely to be a multimillion dollar undertaking - When the technology underlying the product comes from a university or government funded research effort, the small business may be able to get government financial assistance for commercialisation - Even with support, commercialisation is risky Many weaker ideas have dropped out of consideration by the point of commercialisation - To play in this league, a small business may need to rent or purchase manufacturing space and equipment - If you are doing it all yourself, know that smaller firms generally introduce their products city by city or region by region in a gradual fashion until their potential market is covered - a limited rollout - Mistakes made in earlier markets can be addressed before rolling out to additional marketsLimited rollouts also have the problem of allowing competitors to anticipate your movement into their markets and to counterattack
Describe partitioned pricing, captive pricing and price lining
Partitioned Pricing - Is setting the price for a base item and then charging extra for each additional component - This works because once consumers make a decision that a certain product is the one they want, they are reluctant to change their mind Captive Pricing - Is setting the price for an item relatively low and then charging much higher prices for the expendables it uses Price Lining - Is an attempt to appeal to several different markets - You might have three models of your product/service price to appeal to high- , mid-, and low-end markets - This way you appeal to customers with different budgets and different needs - Even if it's a product without a lot of features to add or remove, price lining can work
Discuss any four price lowering techniques that a small business owner can adopt without starting price wars or reducing the quality perception of his or her products
Periodic or random discounting: Sales conducted at either predictable or non-predictable intervals. Off-peak pricing: Charging lower prices at certain times to encourage customers to come during slack periods. Bundling: Combining two or more products in one unit and pricing it less than if the units were sold separately. Multiple or bonus pack: Combining more than one unit of the same product and pricing it lower than if each unit were sold separately. Referral discount: A discount given to a customer who refers a friend to the business.
What are the various pricing strategies that are used in a business to signal great product quality to imply that the product is prestigious to own?
Skimming: Setting a price at the highest level the market will bear, usually because there is no competition. Prestige or premium pricing: Setting a price above that of the competition so as to indicate a higher quality or that a product is a status symbol. Odd-Even pricing: Setting a price that ends in the number 5,7 or 9. Partitioned pricing: Setting the price for a base item and then charging extra for each additional component. Captive pricing: Setting the price for an item relatively low and then charging much higher prices for the expendables it uses. Price lining: The practice of setting three price points: god quality, better quality, best quality.
What are the four key factors for determining an optimum price?
The key factors for determining optimum price: 1) Demand for the product or service 2) Value delivered to the customer 3) Prices set by competing firms 4) Your business strategy and product placement