Skimming Pricing

Three product levels in marketing:
1.Core product: “what the buyer is really buying?” (E.g. Charels Revson [Revlon] recognizes that: “In the factory we make cosmetics; in the store – we sell hope”). Product concept is the idea about benefits, not features. 2.Tangible product – a ready-to-use product that has certain level of quality, features, styling, brand name, and a package. 3.Augment product additionally possesses such benefits as installation, delivery, credit, warranty, after-sale servicing, etc.

Warranty – a statement about manufacturer’s liability for product deficiencies. Guarantee – basically, a money-back promise.
Packaging – a container in which a product is offered for sale. Exist 3 basic benefits of using packaging:
- communication (technical and legal info must be put on a package), - functional (convenience, protection, storage), and
- perceptional (extremely important for final consumer goods because package makes the first [and sometimes the final] impression about a product).

Product Life Cycle: a concept, that describes the stages a new product goes through on a marketplace: development, introduction, growth, maturity, and decline.


4 Stages of Product Life Cycle
I.Introduction phase (Development Stage is Stage #0)
2 strategies are usually practiced:
a. skimming pricing – strategy to cover the costs of development quickly;
(3M: “We hit fast, price high, and get the heck out when “me-too” products pour in”) b. penetration strategy – low prices to discourage competitive entry.

II.Growth Stage (Characterized by appearance of repeat purchases). (If a product fails to achieve substantial repeat purchases – it usually fails completely). At this stage product proliferation occurs (appearance of a significant number of model variations). Also, at this stage it is very important to reach as much distribution or shelf space as possible. e.g. From 1986 till 1990 coverage of distribution network by fax machines expanded from 11% to 60%.

III.Maturity Stage (Marginal competitors leave the market, sales increase at decreasing rate). Major factor in building company’s strategy at this stage is to reduce overall marketing costs by improving its promotional and distribution efficiency.

IV.Decline Stage (occurs when sales and profits begin to drop). Happens not only because of a wrong organizational strategy, but also because of market changes.

Strategies of further product maintenance:
deletion (the most drastic approach because a residual part of consumers may express protest against elimination of a product; e.g. beers “86,” “Amsterdam Navigator” on Ukrainian market). harvesting (retaining a product, while reducing marketing costs to zero; e.g. selling typewriters by IBM in the “era of word-processing equipment). contracting (decreasing production volume amounts and transferring manufacturing process to smaller companies, for which low volumes may still be profitable. Otherwise, original company may continue manufacturing low volumes of a product, but contracting its sales to another firm).

About length of a product life cycle: there are no standards, but exist general notions that: final consumer product life cycles have shorter life cycles than industrial products (except beverages, which, if marketed
correctly, may live almost forever); there is a general tendency of shrinking product life cycles (e.g. it took 15 years for TV sets to reach maturity stage, but it took only 3 years for VCR to do the same).

Types of PLCs:
1.Normal good.
2.High learning and low learning products.
3.Fad goods (e.g. fad = прихоть, причуда).
4.Seasonal, fashion goods (sinusoidal curve).
5.Updating products (e.g. CPUs).
6.Failed product.

PLC is partially affected by Typical Categories of customers depending on time of purchase: 1.Innovator (2,5%)
2.Early followers (13,5%)
3.Early majority (34%)
4.Late majority (34%)
5.Laggards (16%). 
These groups actually exist due to different types of barriers as incompatibility with existing habits, value barriers, risk barriers (physical, economical, social, etc.), product’s image, etc. Companies attempt to overcome these barriers in numerous ways to increase the amount of initial sales and shorten the learning (introduction) period of a product.

Strategies to manage a product during its life.
Modifying a product – altering its characteristics to postpone the beginning of a decline stage or to get greater market coverage by new segments. Modifying a market.
a.Increasing use of a product (e.g. stimulating purchase of a product during stagnation periods [like fertilizers during winter or promotion of Cambell soup during hot periods, when soup consumption usually declines]). b.Creating new use situations (M&M’s being promoted as a new fill for bakery). c.Finding new users. (e.g. shifting from industrial consumers to final [if possible] – like Nautilus, which originally made sales only to gyms, but later made offers to individuals). Repositioning a product.

a.Reacting to competitor’s position.
b.Reaching new market. (e.g. changing the image of liquid yogurt into a soft-drink for health-conscious users). c.Catching the rising trend. (a trend to consume fat-free products lead to changing images of many products). d.Changing the value offered:

trading up (Toyota  Lexus);
trading down (cheap airtrips on airplanes with seats having very small space for legs).

(a company’s decision to use a name, phrase, design, symbols, or combination of these to identify its products and distinguish them from those of competitors). Brand Name – any word, sound, shape or color (or its combination) used to distinguish seller’s goods or services (Technics, Apple Computer). Logotype (logo) is a non-vocable (graphic) part of a Brand Name. Brand character(s) – usually, images/objects/creatures, that are associated with a product and are used in Ads for distinction purposes and attracting attention. Trade Name – legal name of an organization (e.g. Apple Computer is a trade name, but Apple Macintosh is a brand name). Trade Mark – identification that the Brand or Trade Name is legally registered, and its usage is restricted to the owner and is legally protected. Brand equity is the added value a chosen brand name gives to the product/company beyond the functional benefit provided. Licensing is a contractual agreement whereby a company allows another firm to use its brand name, patent, trade secret, or other property for a royalty or fee.

Patent – document, witnessing about a technological discovery. (GATT/WTO on 8th of July 1995 stated that validity period of a patent is 20 years from the moment of presenting a claim for registration). Copyright – exclusive right on copying and making editions of such items as literature, software, audio tracks, video footage, etc. (Copyright is considered to be valid during author’s life plus 50 years). Commercial secret – receives legal protection if declared, and becomes public knowledge after other parties
invent it by their own means.

Branding Strategies (read attentively about advantages and disadvantages of each strategy in your book: pp. 334 and further). Manufacturer Branding:
multiproduct branding (when a company uses one name for all its products; e.g. Tylenol, Tylenol Cold and Flu, Tylenol PM, etc.; some detergent manufacturers); multibrand approach (involves giving each product a distinct name; or even giving different brand names for the same product on an international arena. E.g.: P&G’s Camay and Lava). Private Branding (or private labeling or reseller’s labeling). Happens when a company manufactures products and sells them under the brand of wholesaler or retailer (e.g. Sears, Kmart, etc. brands in US. In Ukraine it is not yet practiced). Mixed branding (a compromise b/w manufacturer and private branding: that is when a company markets part of products under its own name, and part – under the name of reseller [because the segment, attracted to the reseller is different from their own market]). Generic branding (using no brand name at all: e.g. peanut butter, dog food, etc. Main advantage is that no-brand product usually costs 30% less than branded, but, however, still remains popular on certain market segments).