a. 1. Product development begins when the company finds and develops a new-product idea. During product development, sales are zero and the companys investment costs mount.
2. Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.
3. Growth is a period of rapid market acceptance and increasing profits.
4. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition.
5. Decline is the period when sales fall off and profits drop.
b. 1. Introduction: Product- offer a basic product
Price- Use cost-plus formula
Distribution- build selective distribution
Growth: Product- Offer product extensions, service, warranty
Price- Price to penetrate market
Distribution- increase distribution outlets
Maturity: Product- diversify brand and models
Price- Price to match or best competitors
Distribution- build more intensive distribution
Decline: Product- phase out weak items
Distribution- go selective: Phase out unprofitable outlets
a. Cost-based- adding a standard markup to the cost of the product
Ex. An appliance retailer might pay a manufacturer $20 for a
Toaster and mark it up to sell at $30, a 50% markup on cost.
Value-based- uses buyers perceptions of value rather than on the sellers
Ex. People are looking for the right combination of quality
and good service at a fair price. This involves the
introduction of less expensive versions of established,
brand name products. Campbell introduced its Great
Starts Budget frozen-food line and Holiday Inn opened
several Holiday Express budget hotels.
Competition-based- setting prices based on the prices that competitors charge
for similar products.
Ex. A lesser-known gym such as City Gym in Downtown
Riverside may set prices to match market leaders,
Ballys and 24 Hour Fitness price moves.
b. (The diagram is OK too and 1 sentence for it) The fundamental differences between cost-based and value-based pricing is
that cost-based pricing is product driven. The company designs what it considers to be a good product, totals the costs of making the product, and sets a price that covers costs plus a target profit. Marketing must then convince buyers that the products value at that price justifies its purchase. Value-based pricing is customer driven. The company sets it target price based on customer perceptions of the product value. The targeted value and price then drive decisions about product design and what costs can be incurred. As a result, pricing begins with analyzing consumer needs and value perceptions, and price is set to match consumers perceived value.
a. discounts- a straight reduction in price on purchases during a stated period of
Ex. 2/10, net 30 means that although payment is due within 30
days, the buyer can deduct 2 percent if the bill is paid within
10 days. Discount must be given to people meeting these
Allowances- money paid by manufacturers to retailers in return
for an agreement to take on additional tasks.
Ex. Trade-in-allowances are price reductions given for turning in
an old item when buying a new one. Trade-in-allowances
are most common in the automobile industry.
Segmented pricing- selling a product or service at two or more prices, where
the difference in prices is not based on differences in
Ex. Museums will charge a lower admission for students
and senior citizens. This is a form of customer
b. High quality- the psychology of prices can be used to adjust prices by price
quality signals. This is to say that the price is used to say
something about a product.
Ex. BMW sells cars at a higher rate than Kia. The price of the
BMW goes to show the better quality and features of the
car. On the other hand, Kias cars are not as attractive and
do not prove to last as long as a BMW.
Price Leader- the psychology of prices can be used to adjust prices by
Reference prices. Reference prices are prices that buyers carry
In their minds and refer to when they look at a given product.
Ex. Ford can influence consumers reference prices by stating
higher manufacturers suggested prices, by indicating that
the product was originally priced much higher, or by
pointing to a competitors (Chevy) higher price.