Profit Sensitivity to Price
o Small change in price has a large effect on quantity sold
o |e| > 1
o Large change in price has only a small effect on quantity sold
o |e| <1
Profit Sensitivity Analysis
Psychological Influences on Price Sensitivity
Shared Cost Effect
Price sensitivity is reduced when customers use other peoples money to pay for a product
For instance, business travelers often receive full reimbursement for travel expenses.
Why Sales Forecasting for New Products is Difficult
Target users dont know.
If they know they might not tell us.
Poor execution of market research.
Uncertainties about marketing support.
Biased internal attitudes.
What is Price Segmentation?
Pricing the same or similar products differently for different customer segments.
Different customers value products differently
This diversity is a form of market heterogeneity.
When we are describing di
Price promotions are a form of price segmentation in which prices are reduced for
those with a lower willingness to pay and regular prices are offered to those with a
higher willingness to pay.
Price promotions generate
New Product Development
What is a new Product
1. New-to-the-world (really-new) products
(10% of new products)
Inventions that create a whole new market. Ex.: Polaroid camera,
Sony Walkman, Palm Pilot, Rollerblade skates, P&G Febreze and Dryel.
Uses a high price, but gives a good product/service exchange
Premium Pricing involves setting a price to capture a product's economic value to
relatively price-insensitive customers.
It is a strategy designed to produc
Prisoners Dilemma & Price Wars
Consider two hypothetical competitors in the same industry, Alpha and Beta, and the pay-off
matrix they face by taking a price action.
There are four potential configurations that can take place in this industry.
Product Life Cycle Package
Product life cycle (PLC)
The course of a products sales and profits over its lifetime. It involves five distinct
stages: product development, introduction, growth, maturity, and decline.
Marketers can apply the product life-cycl
1. Identify the elements that make up the Product P in the marketing mix.
2. Discuss the characteristics that distinguish a good from a service.
3. Distinguish types of consumer products and types of business products.
4. Apply the follo
Service Quality Components
Because of the four unique characteristics of services (intangibility, inseparability, heterogeneity,
perishability) service quality is more difficult to define and measure than it is for goods.
The ability to perfor
Rate of Adoption
Influences on Rate of Adoption:
1. Relative advantage
Relative advantage: The degree to which it appears superior to existing products. The grater
the perceived relative adva
A name, term, symbol, design, or combination thereof that identifies a sellers product and
differentiates them from competitors products.
The value of company and brand names.
The practice of introducin
Boston Consulting Group (BCG) Growth-Share Matrix
A product portfolio is comprised of all the products which an organization has. A product portfolio may comprise of
different categories of products, different product lines, and finally the individual pro
The matrix was developed in 1957 by Ansoff and it helps form strategic direction through considering its productmarket options.
Increase sales of an existing product in an existing market.
Market penetration strategy, acc
Competitive advantage is the set of unique features of a company and its products that are perceived by the target
market as significant and superior to the competition. Preforming a SWOT allows companies to identify their
Contribution Margins & Volume Hurdles Example
Retail Price: $54
Retailer Pays: $29 (from
Manufacturer (Made for
Retailer (bought for $29)
You (Bought for $54)
Given in Case
1. What is the initial contribution margin?
Developing a specific marketing mix to influence potential customers overall perception of a
brand, product line, or organization in general.
The place a product, brand, or group of products occupies in c
Idea Generation and Selection Package
Sources of New Product Ideas
New Products Employees: Technical: R&D, engineering, design Marketing and
End Users: Lead Users (out in front), Resellers, Suppliers, Vendors,
Forecast Sales using ATAR
Awareness Trial Availability Repeat
x % aware of the new product
x % who would try product if they can get it
intent to purchase from concept / primary research
x % to whom product is available
Stop here for prod