Blog 8: How customers get a product

When customers need a product they go to the store and find it on the shelf. Products are readily available to customers when they need them and where they need them. Having a product when you want it is called time utility and having a product available where you need it is called place utility. Form utility involves enhancing a product to make it more appealing to consumers and possession utility includes the efforts by intermediaries to help buyers get possession of the product. Together these four types of utility are vital for marketers to make products available to customers. If products aren’t available to customers, then they can’t purchase them. This would greatly impact a company’s sales in a negative way. As customers, we may not consider how these products get to the shelves our favorite stores and how they are always readily available to us. But from a marketing standpoint, there is a lot of consideration and steps that get products where they need to be.

A marketing channel consists of individuals and firms involved in the process of making a product available for use by consumers or industries. Marketers have to make a choice on what kind of marketing channel they are going to use to best implement their marketing strategies.  There are many different types of distribution and techniques that marketers can utilize to make their products available. Marketers consider how to achieve the best coverage of their target market through density, which is the number of stores in an area and the type of intermediaries that are going to be used to distribute. The three degrees of distribution density that marketers can adopt are inclusive, extensive, and selective.

Inclusive distribution is when companies sell their products in as many outlets as possible. Companies that utilize this technique are ones that sell convenience products. Common, everyday products can be found at a variety of locations. An example of such a company is Coke, which sells products in many different outlets. You can find a bottle of Coke at convenience stores, grocery stores, vending machines, restaurants, and many more places. It is always readily available to customers and seldom is there a time when you can’t find it at a convenient location.

Extensive distribution is the opposite of inclusive distribution. This is when only one retailer in a specific geographic area carries the firm’s products. This usually includes specialty products that are only available at specific, usually high-end stores. Products like this include expensive handbags and exclusive car brands.

Selective distribution is when firms choose a few retailers to carry their products. Products of this type include shopping products such as iPods, televisions, and other technology. You can find these products in most electronic or superstores, which sell a variety of products. Another shopping product sold under selective distribution are shoes, which can be found at shoe stores and department stores.

References:

http://www.dreamstime.com/illustration/distribution.html
http://www.turbosquid.com/3d-models/coca-cola-vending-machine-3d-model/551208

Blog 7: Final Price

In my last post, I talked about the importance of price and how marketers make pricing decisions by evaluating the value of the product in the minds of consumers. However, there are many more technical decisions that marketers make when deciding price. Marketing managers need to select an approximate price level by choosing one of the four approaches. These approaches are demand-oriented, cost-oriented, profit-oriented, and competition-oriented. Within each approach are even more options for setting the final price. Let’s analyze each of the approaches.

A demand oriented approach focuses of customer’s tastes and preferences rather than cost, profit, or competition. Among demand-oriented pricing there is skimming pricing, penetration pricing, prestige pricing, price lining, odd-even pricing, target pricing, bundle pricing, and yield-management pricing. Let’s particularly focus on odd-evening pricing, which is very common and definitely something us as consumers come face-to-face with every day. When I was little I never used to understand why things were priced at values such as $9.99. I would always wonder why they wouldn’t just make it $10 to make it easier on everyone. Odd-even pricing is setting the price a few dollars or cents under an even number. The presumption is that people will perceive the product as above $9 rather than about $10. While people may think they are unaffected by the one cent difference, there is evidence to show this pricing strategy can increase demand. Personally, in my head if I see something marked $9.99, I immediately translate it to $10. But if marketers say this strategy works, then why not continue using it. 

Next, we’ll talk about cost-oriented approaches, which are focused the production and marketing costs that it takes to make a product. Cost-oriented pricing approaches include standard markup pricing, cost-plus pricing, and experience curve pricing. Standard markup pricing is adding a fixed percentage to the cost of all items in a specific product class. The markups are designed to cover the expenses of the store and contribute to profits. In movie theaters, mark-ups on snacks and beverages are much higher than of that in a supermarket. If snacks and beverages weren’t marked up, the cost of a ticket would be much more expensive.

Profit oriented pricing approaches aim to balance revenues and costs to set price. This includes target profit pricing, target return on sales pricing, and target return on investment pricing. A target profit approach specifies a target profit for a specific year. Once marketers specify a target, they consider the variable and fixed costs to produce a product and factor in demand. The price is then calculated by figuring out how much each product will have to cost in order to reach the target profit.

Lastly, I will talk about competition-oriented pricing approaches, which focuses on what competitors or the market is doing. These approaches include customary pricing, above-, at-, or below- market pricing, and loss leader pricing. Loss leader pricing is when stores deliberately sell a product below its customary price in hope of attracting customers. Large retail stores often use this type of approach. Target may offer a product at a significantly lower price than competitors in order to attract people to their stores. Normally if people go to target they won’t just buy one thing when there are thousands of other products you are bound to need.

Marketers need to determine their pricing approach based on what they think is going to be the most beneficial to their company and their customers. It’s actually nice to know how much consideration goes into choosing what to price a product at. I would like to think marketers try to consider the customer (me) as much as possible.

References:
http://www.consumerschoiceaward.com/blog/post/2012/12/21/Psychological-Pricing-Why-Do-Most-Prices-End-in-95-cents.aspx
http://www.dburk.com/index2.asp

Blog 6: How much are you willing to pay?

Price is the most difficult to determine out of the Four P’s of marketing. Marketers need to assess and consider many different factors when setting the price for a product. Price has a huge impact on the product. It has to be just right so that consumers will be willing to buy the product and businesses will actually make a profit out of it. The price equation is composed of the list price minus incentives plus allowances plus extra fees.

Consumers use price to indicate the value of a product. Value is the ratio of perceived benefits over price. Every time I am purchasing a product, whether it is a new shampoo, new shirt, or a sandwich for lunch, I consider its value. Most people have prices in their head that they are willing to pay for certain products and when products are priced way higher than these prices, they don’t buy them. For me, as a college student, the prices I am willing to pay for most products are relatively low.

My friends and I love to eat out on the weekends but often try to find places where we can get food for no more than $10-$15. Our favorite place to go is actually a grocery store called Healthy Living where you can make your own wraps and sandwiches. They also have a hot bar with different dinner options. Some people might think their prices are a little high, but the value of the food is what keeps us coming back. They use high quality, fresh ingredients that are very tasty. (Their smoothies and desserts are amazing as well).

What I am explaining with the food at Healthy Living is the judgment that my friends and I as consumers make of the product’s worth relative to other products. We could easily go to Wendy’s or other fast food chains and probably get dinner much cheaper because of their product bundling techniques. Product bundling is grouping similar products together and selling them for a low price. A lot of fast food chains have combo meals where you get a sandwich, drink, and side for a low price. However, what is the sacrifice for the low-cost meal compared to the quality of the food? In this example, I would way rather pay a little bit more to get the food at Healthy Living that is healthy, filling, and satisfying.

As I mentioned, pricing and value is all based on the consumer’s perception of the benefits the product offers in relation to its price. Marketers use a strategy called value pricing where they increase product and service benefits while maintaining or decreasing price. Sometimes this can cause people’s perceptions to change and think that a lower price means lower quality. Personally, I would be fine paying a lower price for my wrap at Healthy Living. I would enjoy it that much more and probably go there more often. When demand changes as a result of a price change it is called elastic demand. In this case, the lowering of prices of wraps would cause an increase in wraps sold, which would increase revenues for Healthy Living. The inverse is inelastic demand, where price changes don’t impact or change the quantity demanded.

The amount people are willing to pay for various products and services vary greatly depending on a person’s income and perception of the value of a product. In my mind, if the prices of my favorite products and services drop, I will rush to buy them and not think twice about the value decreasing.

References:

http://www.mytotalretail.com/article/6-reasons-low-price-costs-long-run/

http://www.orionweb.net/blog/value-based-pricing-is-it-for-your-business/

Blog 5: Fad Products

All new products go through a product life cycle, which involves an introductory, growth, maturity, and decline stage. However, not all products follow this exact pattern. The length of the product life cycle and the amount of time a product spends in each stage differs from product to product. Some products skip some stages altogether. For example, a fad product is characterized by a quick rise in sales and popularity followed by a quick decline. Instead of following the traditional product life cycle, fad products normally have a quick introduction phase and enter directly into the growth phase where sales are increasing. This is followed by a quick maturity phase, which is usually the longest phase for products, and then a rapid decline. Basically, it’s popular, then it’s not. The graph shown compares a fad product, to a fashion product (style of the time), and a basic product. As you can see, a basic product has a much longer and gradual introduction, growth, and maturity phase compared to a fad product. 

When I think of fad products I often think of children’s toys or games that many people are interested in at first, but quickly grow tired of. One example of this is the product, silly bandz. I remember when these first came out I would see people of all ages from kindergarten to high school, with silly bandz covering a good portion of their arms. To keep the bandz popular, the company came out with different themes and categories of the bands. I remember there were sea creatures, farm animals, and a variety of other options. I actually don’t think I bought any of these myself, but definitely accumulated some from my friends. But as quickly as these silly bandz became popular, they quickly died out and you seldom see anyone wearing them anymore.

Fad products can also be in the form of apps. Most people can recall the very popular app called “Draw Something”. It was a very simple game where you got to play against your friends in a game similar to Pictionary. You drew a picture of something and your opponent had to guess what it was. It actually was pretty fun at the time because you got to challenge your friends and allowed you to interact with friends when you weren’t with them (or sometimes you could even be playing while sitting next to your opponent). But eventually people grew bored with this app and moved on to new games to play with friends. Other fad apps include Words with Friends and Angry Birds.

The interesting thing about Angry Birds is that it expanded to be much more than just an app game. Marketers took it to a whole new level by exploiting its popularity and expanding their product line. They created stuffed animals, clothing, notebooks, food products and more all using the Angry Birds theme. It was actually reported that 47% of its publisher’s revenue came from consumer products and not the actual game itself. Product line and brand extension can be a great way to keep a product from becoming just another fad. It keeps the product relevant and can lead to the development of brand loyalty.

I think it's interesting that people often follow what everyone else is doing and that’s why products become so popular. We see our friend wearing silly bandz or playing a fun app game and we want to join in too. But when everyone else stops wearing the bandz or moves on to another game, we also follow suit. I think fad products are really based on everyone wanting to stick with the in-crowd by following what everyone else is doing.

References:

http://www.consulgamer.com/strategy-2/video-game-brand-extension-done-right/1924/
https://courses.cit.cornell.edu/cuttingedge/lifeCycle/03.htm
http://tommytoy.typepad.com/.a/6a0133f3a4072c970b017d3e4270f3970c-popup
http://www.pe.com/articles/bands-617959-teachers-school.html