Skimming Pricing Skimming Pricing Is the Strategy of Establishing a High Initial Price for a Product with a View to “Skimming the Cream Off the Market” at the Upper End of the Demand Curve. It Is Accompanied by Heavy

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Vladimir V. Bulatov.
We, Fr 8:30

Reading: Ch. 11, 12, addendum sent onto your e-mails.

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...
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