understanding the decisions marketers make about the product and price components of the marketing mix

understanding the decisions marketers make about the product and price components of the marketing mix

Overview
In this module, our focus is on understanding the decisions marketers make about the product and price components of the marketing mix. Remember, there are four components of the marketing mix (4 Ps): product, price, place, and promotion (marketing communication).
The challenge is to ensure your product selected for your target audience is right for them and better than its direct competitors’ product. To do this marketers draw on target market segmentation, positioning, market research, and customer and consumer analysis concepts to make product decisions that will deliver superior value for their target audience and better achieve the goals of their organization.
There are three main sets of decisions marketers must make about products. These relate to product objectives and the strategies and tactics involved in achieving those objectives, including the product concept, the product mix and lines, and branding. Some marketers might discuss labelling and packaging separately, but these can also be discussed with the product concept.
In this module you will also learn that price is much more than a number printed on a price ticket. It is a function of producer/manufacturer costs, customer demand, sales, and the internal and external environments.
As with the product, there are three main sets of decisions marketers must make about prices. These relate to price objectives and the strategies and tactics involved in achieving those objectives, including selecting price strategies, setting price points, and understanding the good and the bad of online pricing. We will also study some of the legal and ethical aspects of pricing practices.
This module covers three areas:
•    Topic 3.1: Create the Product
•    Topic 3.2: Manage the Product
•    Topic 3.3: Price the Product

Topic 3.1: Create the Product
Introduction
Marketers need to try to manage all of the interactions and experiences customers have with the products they are promoting. Jan Carlzon, former president of SAS (the Scandinavian Airlines System), describes this as “the million moments of truth,” meaning that every time a customer comes into contact with a product and the people who create or deliver it—directly or indirectly through observation, advertising, or other marketing communications—that customer evaluates whether or not the product meets or even exceeds his or her expectations.
What is a product? It is a tangible product, intangible service, idea, or some combination of these through which an exchange process satisfies consumer and business customer needs and wants through a bundle of features, attributes, and benefits (FABs).
Product
Keep in mind, a product can refer to a product (tangible item), a service (intangible item), an idea, a person, or a place.
Product decisions are particularly important because much of the value created for customers by marketing organizations is delivered through the use of a product, service, place, or idea. Creation of a product, and the customer or consumer value associated with it, is the reason an organization exists.
In this topic, you will learn how marketers make product decisions in each of the following areas:
1.    Layers of the Product
2.    Services: Marketing What Is Not There
3.    Process of Innovation
4.    New Product Development
5.    Adoption and Diffusion of New Products
Layers of the Product
When considering ways in which a product can meet and exceed expectations and add value, marketers need a concept of what the product is going to be. They often find it useful to describe this “product concept” in terms of elements or layers. The description of “layers of the product concept” in Figure 7.1, Layers of the Product, in Chapter 7, on page 223 of your textbook is consistent with the original thinking on the concept, but many marketers have adopted a four-layer model that is easier to understand and apply: the core product, the actual product, the augmented product, and the potential product.
The core product is the main benefit or value customers realize in the purchase and consumption process. This emanates from the product features or attributes and is what the customers are really buying the product for. For example, it is a cosmetics industry adage that what cosmetic customers are really buying is “hope.” Hope (the benefit) is the core product.
The actual product is what the customer physically buys or receives. The actual product consists of the main features (attributes or characteristics) of the product or service (and its functions, or what it does) which deliver the main (core) benefits to the customer. For eye shadow, the actual product is the coloured base material that gets applied to eyelids. For a home theatre system, the actual product consists of the DVD/tuner console and its key features, the speakers and subwoofer, and the remote control, which allow customers to watch movies and listen to music in surround sound.
The augmented product is all of the other features, attributes, or characteristics associated with the product or service that add value to the product and help differentiate it from its competitors, but are not the main reasons why customers buy the product. (They do not deliver much of the core benefit.) For eye shadow, the augmented product would probably include the packaging, the container, the applicator brush, and any instructions there may be for applying the product. For the home theatre system, the instruction booklet, the warranty, and in-home servicing would be considered augmented product attributes, as might any discounts for music downloads or DVD rentals.
The potential product is the true solution the customer gets from the product or service. For eye shadow, the consumer looks younger. This is not covered in your textbook but is a consideration for marketers in the ‘real world’ working in the marketing industry.
Whether a particular feature or attribute should be considered the actual product or the augmented product is not always easily distinguishable, but it does not really matter. The eye shadow applicator brush could be part of the actual product if it was really one of the main reasons why a customer would choose that particular brand. Similarly, the colour of the home theatre system could be part of the actual product, but for most buyers it would probably be part of the augmented product. (The colour has some importance, but it probably would not be the main reason someone buys or does not buy the product.) A brand name could be part of the actual product if the brand name was a main purchase consideration (like when buying a Rolex watch), or it could be part of the augmented product if the brand name was a secondary consideration for most customers in your target audience. Usually, packaging is part of the augmented product—but sometimes the package can be the main reason why consumers buy a particular brand. People, for example, often buy particular brands of cookies or popcorn at Christmas time because the tins have holiday images on them, and they can use the packaging as storage containers or to hold homemade gifts for others.
Services: Marketing What Is Not There
Services are experience-based products that cannot be touched, but they can be exchanged directly from producer to customer. As services typically provide information, pleasure, and/or convenience, organizations can manage each aspect of the service to maximize service quality.
Is it important for marketers to identify and meet customer needs and wants? It is. If marketers do not do so they will end up with services that no one wants to purchase.
Branding is as important when marketing intangibles as it is when marketing tangibles. You still need to communicate your services to your customers, differentiate them from your direct competitor’s services, and develop a positive reputation for them. Your service brand also needs to offer a promise regarding what makes the service unique in the marketplace.
Services have four distinctive characteristics:
•    Intangibility: They cannot be seen, touched, or smelled.
•    Perishability: They cannot be stored.
•    Variability: They are not the same.
•    Inseparability: They are produced, sold, and consumed at same time.
The key implication of intangibility is that marketers need to show prospective customers what the experience will be like and manage the cues or signs that customers use to infer the quality of the experience. For example, what is your dentist’s reception area like? Did she or he make choices about furniture, fixtures, lighting, and other décor that provide cues to help you assess whether she or he is professional, competent, and trustworthy? Television is an important medium for services as it allows customers to see, through the experiences of others, what the service experience might be like for them. Not every organization can afford television advertising, but Internet technologies enable short video clips to be emailed or presented inexpensively on a website so customers can see what the service offers.
The key implication of perishability is capacity management—modifying the product, its price, or other marketing mix elements in an attempt to match demand and supply. Price is often the mechanism used to do this. Airlines, hotels, and other service organizations offer seat sales or last-minute deals to generate profit from products that would otherwise perish. The problem with doing this is that consumer behaviour shifts to last-minute bargain hunting, which leads airlines and other service providers to limit the number of seats available at a discount fare, provide incentives for booking early, and/or restrict the discount offers to market segments that would not have otherwise flown.
The key implication of variability is that marketers need interventions that will make the service experience more consistent. Attention is typically given to recruitment and training of employees, service quality procedures and practices, and monitoring systems (like the use of mystery shoppers––researchers who pretend to be customers to test the service experience). Can you think of a service organization that provides really consistent, high-quality service? What do you think they do to achieve that result?
The key issue of inseparability is that customers help determine the service experience for themselves and for other customers. Marketers try to set realistic expectations to help manage that one part of the customer input to the service encounter, which is why recorded messages tell you how long you can expect to be on hold when a business cannot take your call immediately. Service workers are also trained to help put customers in a friendly, positive mood by smiling, maintaining eye contact (where culturally appropriate), being courteous, addressing customers by name, and being very positive in body language and speech. Segmentation is also critical for dealing with inseparability, which is why there are different cruise ships for young singles, families, and seniors, or separate areas on the same cruise ship to help keep apart groups that may compromise the desired experience sought by each group.
You want to understand the implications of these differences for service marketing objectives (what you want to achieve), marketing strategy (what to do to achieve your objectives), and tactics (how to do it).
Learning Activity 3.1: Product Concepts
Part A: Reading
Read Chapter 7, pages 220–243 in your textbook.
Part B: Journaling
To help you better understand the differences between products and services, consider your own experience as a consumer for a) your last product purchase and b) your last service purchase.
In your Journal, make a note of how your purchase decisions were different in these two contexts. What differences were there in the marketing strategies or tactics of the product or service providers?
Part C: Things to Think About
To help you understand and apply marketing concepts and terms, think about the following question. Give it some thought. You will not learn as much by just reading the answer provided.
What are the marketing implications of the four main differences between products and services?
Show Answer
Product Newness and Innovation
From a marketing perspective, a new product or product innovation is anything customers perceive as new and different. An innovation may be a completely new product that provides benefits never available before, or it may simply be an existing product with a new style, in a different colour, or with some new feature.
Marketers classify innovations based on their degree of newness and on the amount of disruption or change they bring to people’s lives. These classifications include:
•    Continuous innovations provide a modification to an existing product.
•    Dynamically continuous innovations provide greater change to a product.
•    Discontinuous innovations create a new product that changes people’s lives.
New product development often comes about because someone has a product idea. Ideally, the idea will be compatible with the organization’s vision and mission and will meet its target audience’s needs and wants. If the idea meets these criteria then the organization will estimate the potential commercial and technical success of the product idea as well as the profit potential.
If these criteria are not met, the organization usually makes a decision to drop the vision/idea; if they are met, then the organization typically proceeds with planning and development of the product. This phase involves the design of the product and its manufacturing and production process, as well as a high-level organization marketing plan.
From here the organization moves to test and improve the product. The various marketing mix elements are adjusted with the target audience and the direct competition in mind. A detailed marketing plan is developed and executed with the launch of the product.
New Product Adoption and Diffusion
Once the new product or innovation is introduced into the marketplace, the consumer or organization decides to buy (hopefully!) and use a new product. Marketers refer to this process as product adoption.
Not everyone progresses through this decision process at the same time. Some people (innovators) make the decision quickly and adopt the innovation earlier than others. Other people (laggards) take much more time than others and may never adopt the innovation. In between the innovators and the laggards there are early adopters, early majority adopters, and late majority adopters.
The rate at which the new product or innovation is spread (bought and/or used) throughout a society by consumers is referred to as diffusion of innovation.
The diffusion/adoption concept has implications for marketing communication strategy. As we will discuss later in the course, marketers typically organize marketing communications efforts into campaigns. The various aspects of a campaign are designed to achieve specific marketing objectives, taking into account that consumers are at different stages of their purchase decision (adoption) process.
The concept of diffusion of innovation is a particularly useful tool for marketers in that it provides justification for sales forecasts. The rate at which consumers in a society adopt a product or technology is influenced by factors relating to the product itself, such as its complexity or relative advantage. It is also influenced by non-product factors relating to:
•    Adopters (buyers) of the products (such as consumer beliefs, preferences, and values, or organizational strategy and culture)
•    Market or industry factors (such as pricing, intensity of distribution, and the availability of resources, parts, and labour)
•    Societal factors (such as standard of living, political stability, infrastructure such as roads and telephones, and level of property rights (being able to freely buy and sell, with legal protection)
The adoption of high definition televisions, for example, was slowed significantly by the lack, for many years, of HDTV programming—an industry factor.
The way marketers actually use this concept to forecast sales is to: 1) select one or more established products or technologies that have similar adoption (diffusion) factors to the new product or technology they are trying to forecast (such as DVD if you are trying to forecast PVR recorder sales); 2) determine through secondary or primary research the actual rate of diffusion for the established comparative product(s); and then 3) use the historic rate of adoption (diffusion) of the comparative product(s) to estimate the rate of adoption (diffusion) of the new product.
The concept is also helpful for understanding the barriers or challenges for introducing a new product and for recognizing the repercussions of these challenges for marketing strategy. The product characteristics that may affect how quickly a new product will be adopted by consumers are:
•    Relative advantage: the degree to which a new product is able to provide significant benefits
•    Compatibility: the degree to which a new product is compatible with the consumer’s typical way of doing things
•    Complexity: the degree to which a new product is complex and/or technical
•    Trialability: the degree to which a consumer has the ability to sample or try out a new product and its benefits
•    Observability: the degree to which a new product and its benefits are exposed to consumers who might use it
Learning Activity 3.2: Adoption and Diffusion of Innovation
Part A: Reading
Read Chapter 7, pages 244–258 in your textbook.
Part B: Journaling
To help you understand the categories of adopters illustrated in Figure 7.10 in Chapter 7, page 255 of your textbook, consider your own buying behaviour. Identify product classes or technologies where you are an innovator, an early adopter, in the early majority, in the late majority, or a laggard. Why do you think you find yourself in different categories of adopters for different product classes and/or technologies?
Part C: Things to Think About
Answer the following questions before reading the answers provided.
Consider the stages of adoption in Figure 7.9, Six Stages in Consumers’ Adoption of a New Product in Chapter 7, page 253 of your textbook. How do these stages in a customer’s adoption of a new product relate to the consumer decision processes discussed in Chapter 4 (such as Figure 4.1 on page 122)?
Show Answer
This topic identifies some non-product factors that might influence the rate of diffusion of innovation. What are some other non-product factors?
Show Answer
Looking Ahead

As part of the Assignment 3 (due after Module 3), you will be exploring product decisions, based on the material you have just learned. For more information about this assignment, click the Assignments link under Course Content on the left-hand navigation bar of your course home page.

Topic 3.2: Manage the Product
Introduction
Product management involves developing product objectives (for individual products and/or for product lines and/or product mixes), designing product strategies and making tactical product designs (brand decisions).
In this topic, you will learn how marketers manage the product:
1.    Product Objectives
2.    Product Strategies
3.    Life Cycle
4.    Product Branding
5.    Product Identity
6.    Product Tactics
Product Objectives
Product objectives support an organization’s broader marketing objectives and should focus on meeting the customers’ needs and/or wants. You may want to achieve increased penetration in a current market or expand into a new market with a product. You may want to introduce a new product for current customers or a new product for new customers or you may want to rejuvenate a product.
Product Strategies
Product strategies identify the way we are going to achieve our product objectives. These may involve product line strategies (number of product variations) and/or product mix strategies (product length, width). They will also involve the product life cycle, branding, and packaging and labeling. These are product strategies marketers utilize to achieve their product objectives.
Product Strategies: Product Life Cycle
Take the time to thoroughly understand the product life cycle, a useful tool for understanding the dynamics of an industry or market, along with the expected life of a particular product or technology: introduction, growth, maturity, and decline. It is important to understand the product life cycle does not suggest strategies for specific brands. It is concerned with the industry or market and general strategies, and is thus useful for understanding the framework in which to make product decisions.
As indicated in Exhibit 6.1 (below) and in Figure 8.5 in Chapter 8, page 273 of your textbook, each stage typically has different dynamics or characteristics related to source of demand, market fragmentation, industry profitability, level of competition, and industry expenditures. All of these have implications for marketing mix decisions. Sometimes marketers divide the growth stage into early and late growth stages; there is greater competition, greater market fragmentation, and lower industry profitability in the late growth stage.
The main point to recognize here, however, is that the product life cycle describes what typically goes on in an industry or product category over time—not necessarily what is experienced by a particular brand. To complicate matters, the length of each of the stages cannot be predicted, and it is sometimes hard to know what stage you are in while you are in it. Nonetheless, the marketing implications do provide some guidance for developing marketing strategy. For example, if you had a product in the introductory stage of the product life cycle, it would probably make a lot of sense to spend your marketing communications dollars on educating consumers about the benefits of the product category.
Characteristics
Introduction    Growth    Maturity    Decline
Demand    Innovators & early adopters    Early majority     Late majority & repeat buying    Laggards & loyal customers
Markets    Homogeneous    Fragmented    Micro niches    Stable niches
Industry Profits    Low or Negative    High and Peak    Medium, on Decline    Low
Competition    Little    Higher    Intense oligopolistic    Declining
Industry Expenditure    High—R&D and marketing    High—marketing and new product development    Lower    Lowest
Marketing Implications
Introduction    Growth    Maturity    Decline
Product    Un-differentiated    Highly differentiated    Less differentiated    Commodity or undifferentiated
Price    Skimming or penetration    Highest margins    Eroding margins    Low margins
Distribution    Typically exclusive    Selective    Intensive where appropriate    Selective
Communication    Category and product awareness    Brand identity and preference    Less support, reminder focused, promotion emphasis    Little support
Exhibit 6.1: Stages of the Product Life Cycle; Solomon, M. R. (20082009). Marketing: real people, real decisions (3rd Canadian ed.). Toronto: Pearson Prentice Hall.
Learning Activity 3.3: Product Strategies
Part A: Reading
Read Chapter 8, pages 264–276 in your textbook.
Part B: Learning by Doing
Question
1.    Consider the marketing implications of the product life cycle summarized above in Figure 8.5, in Chapter 8, page 273 in your textbook.
2.    Choose two industries that are at different stages of the product life cycle.
3.    Based on your own knowledge of these two industries (or research you conduct on the Internet), assess the extent to which the generic marketing strategies suggested in Table 8.6, in Chapter 8, page 274 in your textbook are evident in those two industries. If they are not evident, what might be some reasons why this industry is atypical?
Part C: Things to Think About
Answer the following questions before reading the answers provided. You will not learn as much by just reading the answers provided.
Explain what is meant by a full-line strategy and a limited-line strategy. How might an organization stretch or expand its product line?
Show Answer
Mercedes introduced a series of M-Class and GLK vehicles priced in the $35,000 to $45,000 range. What kind of a product line strategy does this represent, and what are the advantages and disadvantages of Mercedes following this strategy?
Show Answer
Product Strategies: Branding
The final consideration is branding. Why are brands are so important in today’s competitive global environment? They help marketers develop and maintain customer loyalty and create value for the consumer. A struggle goes on between manufacturers who want to create strong brand names to achieve benefits such as higher margins, customer loyalty, competitive advantages, and higher brand equity and retailers who want the same benefits for their own store brand names (like SuperStore) or private label brands (like President’s Choice). In the balance, the question is who gets the higher margins and profitability?

Buying jeans more stressful than moving house! ….really!?. (2011). 50butnifty.com. Retreived from http://www.50butnifty.com/fashion-and-beauty/over-50s-fashion-565
Figure 3.1: Blue Jeans on a Rack
Consider retail clothing. When making a purchase decision, do you pick the store first (like Le Château or The Bay) and then choose among competing brands available at that store, or do you pick the clothing brand first (like Calvin Klein or Levi’s) and then choose among retail outlets that carry that brand? Would your approach differ if you were considering grocery stores and food brands?
What marketers are really trying to do with a brand name is to help customers create a complex, positive, enduring attitude toward that brand. Consider a colour photograph or print. It is made up of innumerable small dots of colour that are collectively perceived by people as a clear, rich, detailed image. The analogy to branding is that each dot on the picture represents a consumer interaction or experience with a brand—either direct experience or indirect experience through advertising, word-of-mouth, or association. Each successive interaction builds the image of that brand in the mind of consumers. To create a strong brand, we need to manage these interactions through our marketing mix strategies to support the intended positioning of the brand.
Coming up with the actual name of a brand can be a fun process, but it needs to be done within specific guidelines. A brand name should be memorable, recognizable, easy to reproduce, and have a positive association. As well as the brand name, marketers usually develop a symbol and/or other distinctive aspects for the brand. All the brand elements should receive legal trademark protection.
Many marketing organizations have got into trouble by not thinking about the international implications of brand names. For example, the Ford Fiera means “ugly old woman” in colloquial Spanish. The Coors beer slogan “get loose with Coors” was translated in some Asian markets to mean “get the runs with Coors.” The Coke slogan “Coke Adds Life” was translated into Japanese to mean “Coke brings your ancestors back from the dead.”
Brand managers—a specialized group of marketers—are responsible for making decisions about products. In addition to making decisions about the product concept, brand managers make decisions about their product mix (what product lines and what brands to sell), starting with their objectives for each product line and then determining the product line strategy and tactics.
Decisions about product mix and product lines can be important strategically for an organization. Brand managers establish objectives for each of their product lines and for each brand within each line. Some brand managers may even specify objectives for each variant of a brand. These product objectives typically relate to product introductions or deletions, product enhancements, product quality or service quality, or financial outcomes (such as sales, market share, and/or profit objectives). Typically, marketing objectives for the whole organization are set by marketing executives, in consultation with brand managers and sales managers. Although these organizational objectives are also clear, specific, measurable, and feasible in a specified time frame, the product financial objectives are more specific, in the sense of relating to specific product lines or brands, as opposed to the organization as a whole (e.g., increase sales of Brand X from 200,000 units to 300,000 units within one year).
Product Strategies: Package and Label
Package Functions and Design
An obvious function of a package is to enclose and protect the product. The package also identifies the product, provides printed information about it and enables handling and storage of the product.
For a marketer, a package is a very important aspect of branding as it represents the brand’s identity and personality. Many marketers believe the package is the last and best chance to make a sale.
Labeling Regulations
It is important for marketers to understand labelling regulations to ensure products can be sold legally in Canada. The regulations are provided in the Consumer Packaging and Labelling Act (http://laws-lois.justice.gc.ca/eng/acts/C-38/). The use of terminology like “light,” “calorie-reduced,” and “fat-free” on food product labels presents some interesting issues. Initially, the use of these terms was not regulated. Regulation is in place now, however, so consumers are not misled. The term “light,” for example, has to be qualified—light in calories, light in fat, light in texture—so consumers know what is meant by the term. To use “light in calories” or “light in fat,” the label has to indicate the product is for special dietary use, the product has to be at least fifty per cent lower in calories than the regular version of the brand, and the product has to provide not more than fifteen calories per average serving.

Retrieved from: http://torontopubliclibrary.typepad.com/north-york-central-blog/2013/03/understanding-food-labels.html
Figure 3.2: A Product Label
There are also new laws which address the nutritional factors in processed food products. New labels reflecting these Canadian laws are now found on most products in your local supermarkets and convenience stores.
Learning Activity 3.4: Web Discussion—Product Labelling
Learners are to submit required Web Discussion Learning Activities by posting their answers to the Discussions area in Blackboard, under the title of each learning activity. If you are the first to post to the discussion, return at a later time to read and respond to other postings.
Part A: Reading
Read Chapter 8, pages 284–287 in your textbook.
Part B: Web Discussion
To help you understand and apply marketing concepts and terms, consider the following questions.
The Canadian Federal Government changed the Consumer Packaging and Labelling Act to require manufacturers to specify the nutritional content of food products on the package label according to fourteen key nutritional elements. Have a look at some of these in your own kitchen.
1.    Do you think this is a good idea? Why or why not? Why might some manufacturers be concerned about this?
2.    Based on your own experience as a consumer, what packaging or labelling practices do you find misleading or inappropriate? What might be done to change these practices?
Reminder
Discussions are an important part of the course. Your Final Project includes a summary of your involvement in and learning from the discussion activities, which contributes five per cent to your final mark.
Part C: Things to Think About
Consider the following question before reading the answer provided.
Would the packaging at Birks, the high-end jewellery store, normally be considered part of the actual product or part of the augmented product?
Show Answer
Product Tactics
Product tactics are the ‘who, what, where, and when’ of executing our product strategies. Product strategies are linked to the brand, as its perception results from our experiences with and information about an organization and/or its products. They are also linked to brand equity: an intangible asset of added value an organization has beyond its physical assets. Product tactics also link to brand strategies such as family brand, individual brand, national or manufacturer brand, private label or store brand, a licensed brand, and/or a co-brand.
Product and the Internet
While consumers have always sought the opinions of others prior to making a purchase decision, they can do so today quickly and easily. All they need to do is go onto the Internet and read the product reviews of other consumers through websites, blogs, and/or forums. They will find they either praise the products’ quality or slam them!
Although consumers regularly look for other opinions before they make a purchase, it is much less common for consumers to share their own opinions online. As a result, the opinions potential buyers see come from only a small percentage of all customers. While marketers have used samples to survey customer opinions, these are selected with considerable care to ensure they are representative of the target audience as a whole. Since the decision to post a rating or review online is up to the customer, the representativeness of the opinions posted online is outside of the researcher’s control.
There is a rule of thumb in marketing that ‘for every one person who slams a product there are ten other people who think the same way but do not voice their opinion’. Therefore, marketers need to take these reviews seriously as they influence consumer buying behaviour. The reviews may also be an indicator of the intensity of word-of-mouth effect and increased product awareness, whether it is positive or negative, but particularly if it is negative. To offset the possibility of negative reviews some organizations, such as Best Buy and Walmart, mention online reviews in their advertising and on the back of their sales receipts.
Do you look at customer reviews online before you make a purchase? If you do you are not alone. These pre-purchase reviews are great if you can trust the source, but often you cannot. In fact, many customer reviews are just another form of marketing controlled by the organizations whose products you are trying to assess. These deceptive product review websites pretend to contain legitimate opinions but are simply endorsements written by marketers and/or retailers, not real consumers. The estimates are that 5% to 33% of all product reviews are deceptive.
Some legitimate companies are making a concentrated effort to eliminate outsiders’ attempts to abuse the customer review systems. For example, facebook (http://www.facebook.com) announced it was working on a way to identify and eliminate “likes” that were “gained by malware, compromised accounts, deceived users and/or purchased bulk likes.” TripAdvisor (http://www.tripadvisor.com) has also warned customers that some of its online reviews may be fraudulent and is exploring methods for detect and eliminating fake reviews.
In addition to warning customers, these companies are recruiting the assistance of data-mining experts to help them create systems that can help them in identifying and eliminating false reviews. This will assist legitimate consumers by, for example, using technology to identify inconsistencies between reviews from the same user name or how frequently a user evaluates products.
Visit any number of “slam” websites to see what people are saying about products and organizations. Try http://www.homedepotsucks.com, an interesting website from an irritated Home Depot customer.
Looking Ahead

As part of the Assignment 3 (due after Module 3), you will be exploring product management decisions based on the material you have just learned. For more information about this assignment, click the Assignments link under Course Content on the left-hand navigation bar of your course home page.

Topic 3.3: Price the Product
Introduction
Pricing is the easiest marketing mix element to change, but the most difficult to do well. It has an enormous strategic implication as an arbiter between the value retained by the organization as profit and the value perceived by the customer and consumer. Yet smaller organizations often end up setting prices by trial and error, which, though effective in some retail contexts, is often an expensive way to learn.
In this topic you will learn how marketers make decisions about price:
1.    What is Price?
2.    Price Planning
3.    Pricing the Product: Deciding on Objectives
4.    Pricing the Product: Establishing Strategies
5.    Pricing the Product: Pricing Tactics and Setting Price Points
6.    Pricing and e-Commerce
7.    Legal and Ethical Aspects of Pricing
You will study how marketers make decisions about pricing objectives which lead to specific pricing strategies and tactics. You will also study the psychological aspects of pricing and its legal and ethical aspects. To help make all these decisions, marketers apply “marketing math,” and, in particular, the concept of break-even analysis.
What is Price?
As we discussed in Module 1, price is important to customers because they assess value in terms of the benefits and outcomes they receive relative to the costs and sacrifices they incur. Because it can create profits, influence customers’ purchase decisions, and provide a competitive advantage, price is important to organizations.
Price is often equated to value: what the consumer sacrifices and pays for the product. Some organizations—like Walmart, SouthWest Airlines, and WestJet—compete primarily by focusing on the costs and sacrifices side of the equation. They make themselves attractive to consumers by being the low-cost supplier, being tenacious about reducing the costs of bringing products and customers together, and making it easier for customers to do business with them.
On the other hand, price may not have anything to do with consumer value. It may be a perceived value based on the consumer needs and wants, an association with a brand, a celebrity, a social cause, a brand image, etc.
Marketing Mix Aspects of Pricing
How are pricing decisions related to other elements of the marketing mix?
In terms of the product, the price needs to reflect information about the quality, status, and image of the product, and it must change as the product life cycle changes. In order to generate profit, it also must cover the costs of production and doing business.
In terms of place or distribution, the pricing plan of each channel partner must allow for all of the parties to be successful.
In terms of promotion (marketing communication), the retail price needs to justify the value (product versus cost) price to the consumer. It also needs to cover the promotional costs.
External Environmental Aspect of Pricing
Earlier in the course you learned about the social, cultural, economic, technological, political, legal, and competitive elements of the external environment. If you recall, marketers cannot control these external environmental factors, but they must analyze changes to the external environment and the degree to which they impact their target audience. With this understanding, marketers can plan a marketing mix to successfully meet the needs and/or wants of their target audience.
There are many ways changes in the external environment affect pricing. During times of recession and inflation, organizations may need to adjust prices to counter the effects of the economy and their costs. Competition, particularly direct competition, can influence prices of other competing organizations. Consumers’ attitudes and behaviours are constantly changing. This will affect how they react to price changes. Currency exchange rates and government price-related legislation domestically and internationally will affect prices.
Price Planning
Price planning consists of structuring an appropriate mix of price objectives, price strategies, and price tactics designed to meet your organization’s objectives.
Price objectives are what you want to achieve. With a price we may want to achieve increased sales, market share, profit, competitive effect, customer satisfaction, and/or image enhancement.
Price strategies identify the way you are going to accomplish your price objectives. These may involve price line strategies and/or price mix strategies.
Price tactics are the ‘who, what, where, and when’ of executing our price strategies. Price tactics include price discounts, terms, and conditions.
Pricing Objectives
The most critical step in price planning is to develop price objectives. With a price you may want to achieve increased sales, market share, profit, competitive effect, customer satisfaction, and/or image enhancement. Since pricing objectives have a major strategic impact on the organization, it is important the objectives support the broader objectives of the organization and generate a profit. Remember that if customers are not willing to pay the price for the product, the organization will not achieve or maximize its profit objectives.
Because of the different strategic implications, pricing decisions can be made to accomplish different objectives, each of which has a set of associated pricing strategies that we will be reviewing in next. In this topic, you should become familiar with the different objectives and the circumstances in which each price objective might be appropriate.
It is often useful to think about price in terms of four types of costs:
1.    Economic costs are concerned with the monetary or barter value that the customer pays up front and the costs that the customer pays to use the product, such as operating and switching costs.
2.    Physiological costs are concerned with the time, effort, energy, and other personal investments that are required to buy and use a product.
3.    Psychological costs are concerned with the stress, frustration, and mental effort involved in buying and using a product.
4.    Risk is concerned with personal safety, operational risk (will it perform as promised?), and strategic risk (will it produce the desired outcome?).
Of these, psychological costs are the most difficult to deal with from a marketing perspective. Think about a large company with whom customers find it difficult to do business: the ordering process may be too complex for customers’ comfort and/or internal inefficiencies in the company may affect the effectiveness of sales representatives. Customers may go elsewhere for their purchases until the company develops a more customer-oriented culture.
To consider another example, over the last few years, Air Canada has tried to match WestJet’s prices on domestic routes. They launched Air Canada Tango in 2001 and Zip in 2002 as a discount airlines and disbanded both of them in 2004. In 2013, they will begin service with Air Canada Rouge (http://www.aircanada.com/en/about/rouge.html) as a ‘no-frills’ service on international flights to leisure destinations.
Will Air Canada be successful with its latest foray into the discount/no-frills marketplace? Only time will tell. However, in the past they have not been able to match the lower operating costs and corporate culture of WestJet. WestJet employees develop a friendly, light-hearted rapport with customers with the goal of making it more fun and less stressful to fly with WestJet.
Learning Activity 3.5: Price Objectives
Part A: Reading
Read Chapter 9, pages 294–302 in your textbook.
Part B: Learning by Doing
1.    For each of the five pricing objectives below (described in Table 9.3, Pricing Objectives in Chapter 9, page 300 of your textbook), identify (match) the situational factors where each objective would be particularly appropriate.
2.    When describing pricing objectives do so within the perspective of the marketing mix (4 Ps) situational factors not the financial factors.
3.    For example, a sales or market share objective would be particularly appropriate for high-fixed-cost organizations that need to amortize their fixed costs over a high number of units sold to keep prices competitive. Completion of this task will help you be able to provide a rationale for your pricing objective decisions.
Pricing Objective    Situational Factor
1. Sales or market share    a. High-fixed-cost business
2. Profit    b. Decline stage of product life cycle (PLC)
3. Competitive effect    c. A fad product
4. Customer satisfaction    d. Mature stage of PLC
5. Image enhancement    e. A prestige product
f. Low switching costs
g. A new venture seeking share capital
To better appreciate what marketers can do to reduce the costs (and sacrifices) involved in buying and using a product, consider all of the costs (economic, physiological, psychological, and risk) involved in buying and using a personal computer system. Describe these costs and what marketers might do to reduce, alleviate, or otherwise lower them for customers. Completing this activity will help you develop pricing strategies that enhance the value proposition for customers.
Part C: Things to Think About
Answer the following question before reading the answer provided.
There are many pricing objectives from which to choose. How do marketers decide which one(s) is (are) most appropriate?
Show Answer
Pricing Strategies
Once brand managers have decided on the objectives they want to achieve with their pricing decisions, they have to decide on appropriate strategies (what to do) and tactics (how to do it) to accomplish those objectives.
Now you will learn about the most frequently used strategies associated with each of the major price objectives. Try also to identify when each strategy should be considered. Also, keep in mind you are likely to make more than one price decision about a product over time. Therefore, it is important when making pricing decisions that you think about possible pricing changes and the repercussions of them on your overall marketing strategy.
Pricing decisions are strategic because:
•    Price determines the value retained by the organization and customer.
•    Price is at the top of customers’ and organizations’ decision criteria.
•    Price can be a signal of quality or a prestigious image.
•    Price often has a significant and immediate impact on demand.
Pricing Strategies: E-commerce
How are pricing strategies changing as a result of e-commerce on the Internet, and how do these changes benefit both customers and sellers?
E-commerce is making the connection between buyers and sellers more global. This wired economy allows customers and consumers to connect around the globe and easily compare products and prices. It also enables sellers to trace and collect data about customers’ buying habits and monitor their competitors, quickly changing their own price strategies (assuming these changes will still allow them to achieve their pricing objectives).
The pricing implications of the Internet are creating a pricing revolution. Prices are more dynamic and can easily be adjusted to meet changes in the marketplace. Because the cost of changing prices online is practically zero, dynamic pricing is increasing dramatically. Organizations are able to respond quickly to changing costs, supply and/or demand and, if needed, adjust their prices accordingly. Customers have become more price sensitive as they can quickly and easily compare prices online.
As an example, airline companies will price dynamically based on time and availability of their flights. An increasing number of online retailers are offering the same product at different prices to different consumers based on the consumer’s interest in the product. “Cookies” record the consumer’s interaction/interest with the retailer and its products. Using this information, online retailers can tailor their price offering based on the consumer’s interest (i.e., past viewing).
Pricing Tactics
Pricing tactics are concerned with how pricing strategies are actually executed and what marketers can do, through pricing, to make their product offerings more appealing to customers and consumers. There are many pricing tactics marketers can use to make their product offers more attractive to customers and consumers: two-part pricing, payment pricing, price bundling, captive pricing, geographic pricing, and various forms of discounts. As a consumer you have seen some of these tactics at work. Which tactics have you responded to or do you find motivating?
Pricing tactics are dependent on many variables, including single or multiple products, geographical differences in pricing products, incentives to customers through trade discounts, and/or psychological pricing to take into account consumer behaviour.
Pricing Tactic: Psychology of Pricing
The psychological tactics of pricing can be quite important, depending on the behaviour of target audiences. One of the disadvantages of frequent discounting is it changes the internal reference price consumers use to assess value. What, for example, do you think is the “regular” price for a two-litre bottle of Coke? Coca-Cola occasionally tries to sell the product for $2.99, but it is on sale so often that for most Canadian consumers, the internal reference price is about $1.49, and it is really on sale when it is 98 cents! Some Canadian retailers are also known for frequent discounting (is there ever a time when there is not a sale at Best Buy or Staples?), which often conditions their customers to wait until the sale before going to the store.
This is even more difficult to account for when dealing with services. Because services are intangible, they are hard to evaluate before the service is tried, and many consumers use price as a cue to infer quality. When you get your hair cut, how willing are you to try a new place that advertises the lowest prices?
We are all quite familiar with odd prices like $1.99 or $1.98—compared to even dollar prices like $2.00 or $5.00—and they do seem perceptually lower. Consumers, however, are getting so used to these regular odd prices that many marketers, such as Walmart, are turning to unique or uncommon prices like $2.97 or $4.23 to get consumers’ attention. Because they are uncommon numbers, they stand out, get noticed (e.g., price rollbacks in their ads), and give consumers the perception that these really are the lowest prices.
Pricing Tactic: Geographic Pricing
Currently, there are no geographic pricing considerations for gasoline. Should there be? Why might zone pricing or uniform pricing be perceived by customers as being more “fair”?
Currently, gasoline prices are set by each station or retailing company independently, based on the cost structure, level of demand, level of competition, and other factors such as government taxes. This leads to great variation in the price of gasoline across the country and even within regions.
Under zone pricing, gasoline prices would be set regionally, and differences across regions would reflect differences in the cost of transporting the gasoline to the region. Under uniform delivered pricing, everyone would pay the same, average price. Either of these approaches might be perceived by customers as more “fair”, as they would eliminate situations where some consumers pay significantly more for gasoline than others do. Would the gasoline producers and retailers think this was “fair”?
Have a look at the website http://www.gasbuddy.com and review the differences in gas prices in various regions and cities across Canada. These prices are reported daily by volunteer reporters for the company.
Learning Activity 3.6: Pricing Tactics
Part A: Reading
Read Chapter 9, pages 325–332 in your textbook.
Part B: Things to Think About
Answer the following questions before reading the answers provided. You will not learn as much by just reading the answers provided.
A couple recently bought a baby stroller. The suggested list price was $360. The night they bought it there was a 30% manufacturer’s rebate, a 15% “scratch and save” discount, and a 10% discount on everything purchased that night for signing up for that store’s credit card. The cashier charged them $162 before tax. What should the price of the stroller have been after all of the discounts had been applied?
Show Answer
What does a cash discount (tactic) of 5% (15) net 45 mean?
Show Answer
What are the advantages and disadvantages of price bundling?
Show Answer
Marketing Math
In marketing, as in other disciplines in the world of business, there is a certain amount of math that needs to be taken into consideration when making critical decisions. If you have taken an accounting course, you are probably familiar with the calculation for net income. In a typical accounting calculation, the sales revenue less the cost of products sold (the total cost to make and sell the products that have been sold by an organization in a particular period, with average cost being the cost of products sold per unit sold) equals the gross margin (the amount of money retained by the organization from the sale of the products).
Marketers look at the financial world a bit differently. In marketing math, the cost of products sold is split into two components: fixed and variable costs. The costs incurred to make and sell the first unit of any product are called fixed costs (FC). These typically include the plant and equipment, salaries, rent, interest, other overhead (heat, lighting, etc.), advertising expenditures, and anything else that has to be paid or prepaid even if you do not sell anything. The costs incurred to produce and sell additional units of the product beyond the first are called variable costs (VC). These typically include raw materials, operating costs that are related to the production of incremental units, labour paid for each unit produced, packaging, shipping, and sales commission.
The selling price per unit minus unit variable cost equals the contribution margin (CM). This is the money the organization gets to put in its coffers after paying for the variable costs, and these funds contribute to the paying of the fixed costs. The contribution margin for each unit sold times the number of units sold is the total contribution received by the organization.
Accountant
Sales Revenue – Cost of Goods Sold = Gross Margin
Gross Margin – Operating Expenses = Net Income Before Tax (Operating Income)
Marketer
Selling Price – Variable Costs = Contribution Margin per Unit
Contribution Margin x Units Sold = Total Contribution Margin
Total Contribution Margin – Fixed Costs = Net Income Before Tax (Operating Income)
Exhibit 3.1: Calculating Net Income Before Tax (Operating Income)
Beyond determining net income, marketing math also includes a calculation called break-even analysis. This calculation answers the question: how many units of a product do you need to sell to cover all the fixed costs? That is, how many units of a product do you need to sell so that your total contribution margin is equal to your fixed costs and your profit is zero? To calculate this number of break-even units (B/E), the total fixed costs (FC) are divided by the selling price (P) less the variable costs (V) (the contribution margin per unit):
B/E = FC / (P – VC)
Remember, the selling price is what the focal organization (typically the manufacturer) receives for the product, not necessarily what the customer pays for it.
For example, how many units of a product would a company need to sell to break even if its fixed costs were $50,000, its selling price was $10, and its variable costs were $5?
B/E = $50,000 / ($10 – $5) = 10,000 units.
Break-even is especially useful if you are launching a new product or a new organization. You may not expect to reach the break-even point in the first year, but most entrepreneurs would want to break even by at least the second year. Sometimes, marketers want to know how many units they need to sell to make a particular profit target. Here profit can be treated like a fixed cost, as we need to figure out how many units need to be sold at a particular contribution margin to cover both the fixed costs and desired profit:
B/E = (FC + Profit) / (P – VC)
Marketers usually look at the break-even sales volume in terms of market share required and assess whether it is likely to be attainable given the stage of the product life cycle, the factors that influence the rate of diffusion of innovation, the level of competition, and what they know about consumer preferences. For example, it might not be reasonable to achieve break-even sales if those sales represent a 30 per cent market share and you are entering a new market with a product that is complex, hard to try, hard to talk about, or does not have a strong relative advantage.
Break-even analysis is also useful for answering the question of how many more units of a product would need to be sold to cover the fixed costs associated with a change in marketing strategy. You may, for example, recommend that the organization incur expenses related to an increased marketing communications budget, increased sales force, more extensive distribution, or other recommended courses of action. It would be useful to know how much more of its product it would need to sell to recover those investments, which can be achieved by putting the change in fixed costs into the break-even equation:
B/E = change in FC / (P – VC)
Finally, break-even analysis can be helpful in determining prices. If you know how many units of a product you can expect to sell, you can solve the break-even equation for the price that is required to break even by rearranging the same formula into:
P = (FC / unit sales) + VC
This is often used when marketers want to know how low they can set price and still not lose money—or how low their competitors can go and not lose money. If you find that the competitor could make money at a price below your variable cost, that’s a big strategic problem!
Pay attention to the discussion of mark-ups and how discounts are applied. You will have a chance to practice some of these “marketing math” calculations in the learning activities. In particular, concentrate on the break-even analysis overview in Chapter 9, pages 308–310 in your textbook. You will be asked to do break-even analysis in the Final Project at the end of Module 5.
Learning Activity 3.7: Marketing Math
Part A: Reading
Read Chapter 9, pages 302–316 and Appendix 9A 342–349 in your textbook.
Part B: Learning by Doing
1.    Assume you and your friend have decided to go into business together manufacturing wrought-iron birdcages. You know that your fixed costs (rent on a building, equipment, and overhead) will be $60,000 per year. You expect your variable costs to be $12 per birdcage.
2.    If you plan on selling the birdcages to retail stores for $18, how many units must you sell to break even?
3.    Assume that you and your partner feel that you must set a goal of achieving $10,000 profit with your business this year. How many units would you have to sell to make that amount of profit?
4.    What if you feel that you will be able to sell no more than 5,000 birdcages? What price will you have to charge to break even?
5.    With sales of 5,000 birdcages, what price will you have to charge to make a profit of $10,000?
Show Answer
As product manager for electric can openers, you are developing an understanding of the financial situation of your product. Your assistant has given you the following information:
Show Answer
Calculate the following:
1.    Contribution per unit for your opener (you are the manufacturer)
2.    Break-even volume in units
3.    Current total contribution
4.    Current before-tax profit
5.    Market share to contribute before-tax profit of $3 million
Show Answer
Part C: Things to Think About
To help you understand and apply marketing concepts and terms, think about the following questions. Give them some thought. You will not learn as much by just reading the answers provided.
Why is it important for marketers to understand “marketing math”?
Show Answer
In “marketing math,” what is the difference between fixed costs and variable costs? Is sales commission a fixed cost or a variable cost?
Show Answer
Legal and Ethical Aspects of Pricing
When determining price, marketers need to be very aware of the environment within which they make that decision. There are several key factors to take into consideration, including the actions of competitors and the global market.
As marketers, we need to try to get inside the heads of our competitors’ managers—to figure out how they are going to make their pricing decisions and how they would react to a change in our own pricing. It is very easy for a competitor to change its price in response to a price change made by your own organization. Consequently, there may be no sustainable advantage in cutting prices—all you end up doing is lowering the profitability of the entire industry.
International considerations are also important for multinational organizations. It is quite difficult to price products in international markets because consumers in different countries have different abilities to pay.
Legal Aspects of Pricing
The Competition Bureau, a unit of Industry Canada, is responsible for many of the acts of Parliament that define the law regarding pricing. For the most part, these acts indicate the pricing practices that society expects organizations to follow, and most organizations adhere to them. There have been relatively few convictions under these acts, however, because it is very difficult to prove intention—which is required in illegal bait-and-switch pricing, illegal predatory pricing, price discrimination, price maintenance, and bid rigging. For those of you particularly interested in these issues, the Competition Bureau website is easily found on the internet at http://www.competitionbureau.gc.ca
In addition to legal requirements, marketers also need to give some thought to the ethics of their pricing decisions. Ethics is the discipline of dealing with appropriateness of behaviour and with moral duty and obligation—it is not about what is right or wrong, but how to decide what behaviour is appropriate or inappropriate. Three common perspectives are the utilitarian perspective, the social justice perspective and the human rights perspective:
•    The utilitarian perspective examines the alternatives being considered and looks at the advantages and disadvantages of each alternative for each stakeholder involved in the decision. From this perspective, the appropriate course of action is the one where the advantages outweigh the disadvantages for the most stakeholders.
•    The social justice perspective is about fairness. Each alternative course of action is evaluated in terms of who assumes the risks or burdens versus who receives the benefits. The appropriate course of action from this perspective is the one in which the stakeholders assuming the most risk or burden are the ones receiving the most benefit.
•    The human rights perspective suggests that there are basic human rights that cannot be violated. These would include freedom of expression (speech), free and informed consent, freedom of conscience (self-determination), the right to personal safety, and the right of organizations to expect performance for reasonable pay. The appropriate course of action from this perspective is one that does not violate any basic rights of the stakeholders.
Ethical Aspects of Pricing
Marketers need to be careful not to cross the line between presenting their offer in the best possible manner and being perceived by customers and consumers as being deceptive. For example, some local grocery stores and drug stores make extensive use of shelf talkers—those little signs you find beside products on grocery shelves that typically point out what items are on sale or being discounted. Some grocery stores make extensive use of a sign that says “manager’s special,” with the price of the product in large numbers—implying a special price. If consumers chose to look under the manager’s special sign, they could find that the special price is the everyday price and that no discount has been offered. The manager’s special is just a way to draw consumer attention to products that the manager wants to sell more of (perhaps higher margin items or items that are not selling well). This can be considered a deceptive pricing practice, and many people will go out of their way not to shop at these stores very often.
Other terms marketers use to draw attention to products include feature, clearout, manager’s choice, and even as advertised. These terms have different meanings to different people, and their use is not subject to any regulations.
Learning Activity 3.8: Other Pricing Considerations
Part A: Reading
Read Chapter 9, pages 332–335 in your textbook.
Part B: Learning by Doing
To help you understand the ethical perspectives discussed in the topic introduction, consider the following scenario. Frank, a business student, works at a local camera store that has no “satisfaction guaranteed” or price protection policy. A customer who has come into the store a number of times approaches Frank and indicates that he would like to buy a particular $1,400 digital camera. Frank had learned in that morning’s sales meeting that this camera is being replaced in three weeks with a model that has more features and is less expensive. Frank asks his boss what he should do and is told to sell the current camera—“We will not even be able to give it away in three weeks!”
What alternatives are available to Frank? Apply the utilitarian, social justice, and human rights perspectives to these alternatives. Then decide the course of action you would recommend for Frank and write down your rationale. Having a better appreciation for ethical perspectives will help you make well-thought-out ethical decisions.
Part C: Things to Think About
Answer the following questions before reading the answers provided.
How might marketers determine whether demand is elastic or inelastic?
Show Answer
Movie theatres give discounts to students, seniors, and children. Dry-cleaning stores charge different amounts to clean a woman’s blouse than a man’s shirt, even if they are the same size and made of the same material. Hair salons typically charge more to cut women’s hair than men’s hair even if it takes the same amount of time. Why are not these practices illegal price discrimination?
Show Answer
Learning Activity 3.9: Web Discussion—Dynamic Product Pricing
Post your answers to the Discussions area in Blackboard, under the title of each discussion. If you are the first to post to the discussion, return later to read and respond to other postings.
Earlier in the module you learned about dynamic pricing. This is where prices are increased and decreased quickly, charging similar customers different prices for the same product. Consider this pricing strategy and respond to these questions in your discussion.
1.    Why do you think retailers are adopting dynamic pricing?
2.    Do you think this is a good pricing strategy for retailers? Why or why not?
3.    What do you think a retailer’s use of dynamic pricing will have on its brand? target audience? profit?
Reminder
Discussions are an important part of the course. Your Final Project includes a summary of your involvement in and learning from the discussion activities, which contributes five per cent to your final mark.
Assignment Reminder
Complete Assignment 3 now. Access Assignment 3 under the Assignments link on the left-side navigation bar on this screen. Then submit Assignment 3 to your Open Learning Faculty Member for assessment, and proceed to the next module.

Assignment 3: Create the Value
Introduction
This assignment has been designed to help you integrate and apply the marketing concepts, terms, and information you have learned up to this point. These concepts provide a foundation on which other course concepts are built. Assessing your comprehension will help ensure that you are on track to successfully complete the course. This assignment is worth 10% of your final grade in the course.
3.1: Diffusion of Innovation and Product Concepts (25 marks)
Suggested time: 1 to 2 hours
Length: Please write your response in point form and limit your response to 2 to 3 pages using 1.5 line-spacing.
Assessment: This part of the assignment will be assessed using the following criteria:
•    Understanding of the factors that influence the adoption and diffusion of innovation.
•    Identification and description of the marketing mix implications of each factor in this context.
As a member of Microsoft’s a new product team you participated in the development and marketing of “Surface” the company’s entry into the tablet world.
Go to Microsoft’s website at http://www.microsoft.com/Surface/en-CA. Review the product information about their tablet, the Surface.
1.    Consider the product factors that influence the rate of adoption and diffusion of innovation. For each of the five factors, explain how that factor might affect the speed of the adoption of the new tablet, the Surface. Will each factor increase or decrease the rate of adoption? (10 points)
2.    Identify five other non-product-related factors that might influence the rate of diffusion of innovation. Draw from your own experience on what influenced you to buy or not to buy a new product. (5 points)
3.    Then make five marketing recommendations to the Microsoft’s team manager that will speed the adoption of the new product now that it has been introduced. These might relate to personal factors, sociocultural factors, organizational factors, or other factors outside of the control of marketers. (10 points)
3.2: Product Management Concepts (50 marks)
Suggested time: 2 to 4 hours
Length: Please write your response in essay format and/or point form as appropriate and limit your response to 4 pages using 1.5 line-spacing.
Assessment: This part of the assignment will be assessed using the following criteria:
•    Comprehensiveness
•    Depth of insight and analysis
•    Rationale/support for the conclusions drawn
Go to the Internet and log onto Starbucks’ website at http://www.starbucks.ca. At the bottom of the home page under “About Us” read about the company’s heritage, company, and investor relations (overview). Go back to the top of the home page and review the products, menu offerings, and the responsibilities of the company. If you have an opportunity visit a Starbucks store. (This is not necessary to successfully complete this part of the assignment.)
Now answer the following five questions:
1.    In spite of heavy competition from other coffee retailers in the marketplace, Starbucks secured the largest market share. What five factors do you think accounted for Starbucks’ success in securing its market share? (10 points)
2.    Using marketing concepts, terms, and information from this module, describe Starbucks’ product strategy of in terms of:
o    Product concept: core, actual, augmented, and potential product. (8 points)
o    Product line: width, length, depth, and product line strategy. (12 points)
3.    Describe and evaluate the branding strategy for Starbucks. What are the main advantages and disadvantages of this strategy? (5 points)
4.    Given Starbucks’ growth all over the world, how would you recommend they organize their marketing effort (the structure of the people) for managing existing products and developing new products? (5 points)
5.    In your opinion, what stage of the product life cycle are Starbucks’ products? What makes you think so? What are the marketing mix implications of being in this stage? Discuss product strategy, pricing strategy, distribution strategy, and communication strategy implications. (10 points)
3.3: Pricing Strategy (20 Marks)
Suggested time: 1 to 2 hours
Length: Please write your response in point form and limit your response to one to 2 pages using 1.5 line-spacing.
Assessment: This part of the assignment will be assessed using the following criteria:
•    Comprehensiveness
•    Depth of insight and analysis
•    Rationale/support for the conclusions drawn
When pricing a new product, a marketer will select a strategy from several different price strategy options. The most common strategies used are skimming price and penetration price.
1.    What are the advantages and disadvantages of each of these two price strategies for the organization? (10 points)
2.    What are the advantages and disadvantages of each of these two price strategies for the customer? (10 points)
3.4: Report Structure and Presentation (5 Marks)
Remember, you will be judged by the structure, clarity, presentation, and quality of your work. Prepare and present your assignment in a formal manner suitable for business.
To ensure the quality of your written work, refer to the Assignment and Final Project Structure under the Course Overview on the course home page in Blackboard.
Assessment Criteria
The assignment will be evaluated using the following performance criteria:
Content—Address all points of information as outlined in the criteria and content for the assignments and Final Project. Incorporate specific references to readings, theories, ideas, and feedback that assisted you in rethinking your experiences and increasing your awareness of your marketing skills.
Knowledge—Demonstrate your knowledge, understanding, skills and perspectives on the course’s learning materials by applying them in the assignments and Final Project. Link theory and practice by applying what you learned from the readings, reflections, and practical application of your new marketing skills and from discussions with your fellow students.
Theory & Practice—Demonstrate the connections between the work of others (course materials, readings, activities, and discussions) and actual organizational principles, practices, and processes. Go beyond general descriptions. Be thoughtful and critical in your analyses, conclusions, and recommendations.
Critical Thinking—Use reflective, logical, and rational thinking to gather, combine, process, interpret, and analyze the information to develop a reasonable conclusion. Provide examples to support your comments and observations. Be specific and concrete. Tell a complete story. Avoid generalizations. Support a statement with a specific example that demonstrates your understanding and skill.
Completion Guidelines
Submit your Assignment using the Assignment link located on the left-hand navigation bar. Be sure to save your assignment as a Word document and name it: BBUS3431_Lastname_Firstname_Assign3_CourseCompletionDate
Reminders before submitting assignment:
•    Did you put your name, student number, assignment number, and course completion date on the cover page of the document?
•    Did you submit all parts of the assignment in one Word document to your Open Learning Faculty Member?
•    Did you complete all the required elements?
•    Did you use concepts, information, and terminology learned in this course?
•    Did you support your statements with specific examples?
•    Did you cite references, using correct referencing format?
•    Did you ensure that there are no spelling mistakes?
•    Is your report grammatically correct, clear, and well organized?
Note
Reference all quotations appropriately using the APA style (author, date, title, publisher, page number) and when needed provide website URLs or references. Visit the TRU Library at http://www.tru.ca/library/distance.html and access “How do I…?” for further information about how to cite resources.
Describe and evaluate the branding strategy for Starbucks. What are the main advantages and disadvantages of this strategy? (5 points)

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