week 5 Flashcards
what is a product
A product is the item offered for sale. A product can be an item or service there is
more to its physical shape or basic service function.
what is a product for MARKETERS
Product is anything that can be offered to a market to satisfy a need or want. For example,
physical goods, services, experiences, events, people, places, properties, information, and ideas.
what is boston consulting grp’s portfolio analysis?
high market growth rate, high relative market share: STARS
high market growth rate, low relative market share: QUESTION MARKS
low market growth rate, high relative market share: CASH COWS
low market growth rate, low relative market share: DOGS
ex apple:
- stars = apple watch
- question marks = ipad
- cash cows = iphone
- dogs = ipod
what is the ansoff product market matrix for growth strategies
existing markets and existing products -> market penetration
ex. pepsi steals coke market share
existing markets and new products -> product development
ex. toyota comes up with new car
new markets and existing products -> market development
ex. taco bell launches in india
new markets and new products -> diversification
ex. apple launches iphone
what is diffusion of innovation
innovators: 2.5%
early adopters: 13.5%
early majority: 34%
late majority: 34%
laggards: 16%
what is the product life cycle
- introduction
- low sales, negative/low profits, typical consumers are innovators, competitors are 1 or few - growth
- sales are rising, profits are rapidly rising, typical consumers are early adopters and early majority, competitors are few but incr - maturity
- sales are peak, profits are peak to declining, typical consuemrs are late majority, competitors are high and competitive products - decline
- sales are declining, profits are declining, typical consumers are laggards, competitors/products are low
what is a price
A complex issue
Requiring analytical and strategic thinking
Can be called tuition, rent, interest, a fee, dues, a fare … or a price
Generally money is exchanged
Sometimes not money (goods, services …)
Prices can be both too high and too low
Price too low may signal poor quality
Price set too high might signal low value
what is the classical econ approach to price
- Quantity demanded = f (Price)
- Profit = Quantity (Price) × [Price – Unit Cost]
- Find price to maximize profit (Find price where Marginal Cost =
Marginal Revenue).
Core Assumptions:
focus on short run profit;
focus on immediate customers;
price is independent of advertising, promotion, etc.;
demand and cost functions are known;
unit cost is constant;
firm has true control over price;
competitors are ignored, etc.
what is demand oriented pricing
When a company sets its prices as a function of demand, charging
higher prices when demand is high, and lower price when demand is low
what is cost oriented pricing?
When a company sets its prices as costs + markup percentage or fixed amount (cost
plus)
Very common, but ignores the current elasticity of demand when setting prices, and will
probably not lead, except by chance, to maximum profits
Markup pricing makes sense:
− If average unit costs are fairly constant for different points on the demand function
− If costs elasticity are constant over time
Common in retailing situations → used widely
(although probably not optimal)
what is competitive oriented pricing
When a company bases its prices chiefly on what its competitors are charging rather
than on cost or demand
Competitive-oriented pricing mostly characterizes markets with homogenous
commodities
− Oil, water, etc.
Creates a price-stagnant market
− If a firm increases prices, loses a lot of market shares
− If a firm decreases prices, other quickly follow suit
− Either downward spiral (price war) or stagnation
− A price war is a price nobody can win (even if you win, you loose)
− It is usually short-term myopia in action
what is gabor granger?
Customers are asked to indicate their buying intention for a product at a number of price levels
− 1 = Will never buy
− …
− 4 = Likely to buy
− 5 = Will absolutely buy
These answers are then transformed into probabilities
− E.g., 4=20%; 5=50%; anything else set at 0%.
− Ideally, these figures are calibrated on existing data
Price levels are presented randomly and in different order for each respondent (reduces
rationalization, bias)
Demand curve and price elasticity are estimated based on all responses
what are pros and cons to gabor granger?
pros:
− Simple design
− One measurement per price level
− Robust, proven method
Cons:
− No margins of error or confidence intervals for optimal price level
− Assumes data accuracy (purchase likelihood could be 0.3 instead of 0.5)
− Assumes optimal price is actually measured (what if out of range?)
what is revenue mgmt thru temporal price discrimination
Revenue management is the art and science of selling the right product to the right customer for the
right price at the right time.
High fixed cost industries
Service industry (here, we focus on hotels and airlines)
Alternative approaches (temporal price discrimination in the airline/hotel industry)
– Time-of-day pricing
– Time when purchased
– Day of the week pricing
– Seasonal pricing
how do you implement revenue management
Estimate demand for each class of service.
Demand arrives over time—so update demand function/remaining supply.
Allocate remaining space to:
– maximize expected profitability
– meet other criteria
subject to situation specific constraints.
