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*Chapter Fourteen

Developing and Pricing Goods and Services

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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*Product Development and the Total Product Offer

• According to the American Marketing Association, value is a foundation of marketing.

• Value -- Good quality at a fair price.

• Adapting products to new markets is an ongoing challenge.

• Product development is a key activity in any modern business.

DEVELOPING VALUELG1

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• Let’s Dish and Dream Dinners provides a service where customers prepare meals then bring them home.

HOME COOKING in HALF the TIMESpotlight on Small Business

• The companies provide a place to meet, has supplies and relieves the stress and mess for its customers.

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*POTENTIAL COMPONENTS

of a TOTAL PRODUCT OFFERLG1

Developing a Total Product Offer

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*Product Lines & Product Mix

• Product Line -- A group of products that are physically similar or intended for a similar market.

• Product lines often include competing brands like:

- M&Ms

- Peanut M&Ms

- Mint M&Ms

- Dark Chocolate M&Ms

UNDERSTANDING PRODUCT LINES

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*Product Lines & Product Mix

• Product Mix -- The combination of all product lines offered by a manufacturer or service provider.

• Product mixes like Proctor & Gamble’s can be extensive:

- Laundry detergent

- Cosmetics

- Diapers

- Potato chips

- Bar soap

The PRODUCT MIX

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*Product Differentiation

• Product Differentiation -- The creation of real or perceived product differences.

• Marketers use a mix of pricing, advertising and packaging to create different images. Examples include:

- Bottled water

- Aspirin

- Fast-food

- Laundry detergent

- Shampoo

DIFFERENTIATING PRODUCTS

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CATEGORIES OF CONSUMER GOODS AND SERVICES

• 1 CONVENIENCE GOODS AND SERVICES

• 2 SHOPPING GOODS AND SERVICES

• 3 SPECIALTY GOODS AND SERVICES

• 4 UNSOUGHT GOODS AND SERVICES

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*Marketing Different Classes of Consumer Goods and Services

• Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include:

- Candy and snacks

- Gas

- Milk and eggs

CLASSIFYING CONSUMER GOODS and SERVICES LG2

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*Marketing Different Classes of Consumer Goods and Services

• Shopping Goods and Services -- Products consumers buy only after comparing value, quality, price, and styles. These include:

- Clothes and shoes

- Appliances and furniture

- Childcare

- Home remodeling

CLASSIFYING SHOPPINGGOODS and SERVICES LG2

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*Marketing Different Classes of Consumer Goods and Services

• Specialty Goods and Services -- Products with unique characteristics and brand identity. These include:

- Tiffany jewelry

- Rolex watches

- Lamborghini automobiles

- Ritz Carlton Hotels

CLASSIFYING SPECIALTYGOODS and SERVICES LG2

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*Marketing Different Classes of Consumer Goods and Services

• Unsought Goods and Services -- Products consumers aren’t aware of or haven’t thought of buying until they need them. These include:

- Car-towing services

- Funeral services

- Renter’s insurance

CLASSIFYING UNSOUGHTGOODS and SERVICES LG2

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*Marketing Industrial Goods and Services

• Industrial Goods -- Products used in the production of other products and sold in the B2B market.

• Industrial goods include:

- Installations

- Capital items

- Accessory equipment

- Supplies

- Service

CLASSIFYING INDUSTRIAL GOODS and SERVICES

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*Packaging Changes the Product

• Companies often use packaging to change and improve their basic product. Examples include:

- Microwave popcorn

- Tuna pouches

- McDonald’s green packaging

COMPANY USES of PACKAGING

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• Good packaging can also make a product more attractive to retailers.

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*Packaging Changes the Product

• To attract buyers’ attention

• Protect the goods inside and be tamperproof

• Describe and provide information about the product

• Explain the product’s benefits

• Provide warranty information and warnings

• Give an indication of price, value, and uses

SOME KEY FUNCTIONS of PACKAGING

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*Branding and Brand Equity

• Brand -- Name, symbol, or design that identifies the goods or services and distinguishes them from competitors’ offerings.

UNDERSTANDING BRANDING

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• Trademark -- A brand that has exclusive legal protection for both its brand name and design.

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*Branding and Brand Equity

• Manufacturers’ Brands – Brand names of manufacturers that distribute products nationally.

• Dealer (Private-Label) Brands -- Products that carry a retailer’s or distributor’s brand name instead of a manufacturer’s.

KEY BRAND CATEGORIES

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*Branding and Brand Equity

• Generic Goods -- Non-branded products that sell at a discount compared to manufacturers’ or dealers’ brands.

• Knockoff Brands -- Illegal copies of national brands.

KEY BRAND CATEGORIES

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*Generating Brand Equity and Loyalty

• Brand Equity – The combination of factors (awareness, loyalty, perceived quality, images, and emotions) that people associate with a brand name.

• Brand Loyalty -- The degree to which consumers are satisfied and are committed to further purchases.

ESTABLISHING BRAND EQUITY and LOYALTY

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*Generating Brand Equity and Loyalty

• Brand Awareness -- How quickly or easily a given brand name comes to mind when someone mentions a product category.

• Consumers reach a point of brand preference when they prefer one brand over another.

• When consumers reach brand insistence, they will not accept substitute brands.

BUILDING BRAND AWARENESS

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*Generating Brand Equity and Loyalty

• Brand Association -- Linking a brand to other favorable images, like celebrities or a geographic area.

• Brand Manager -- Person responsible for a particular brand and handles all the elements of the brand’s marketing mix.

BUILDING BRAND ASSOCIATIONS

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*The New Product Development Process

The NEW PRODUCT DEVELOPMENT PROCESS

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• Product Screening -- Reduces the number of new products a firm is working on to focus on the most promising.

• Product Analysis -- Focuses on the cost estimates and sales forecasts to get an idea of potential profitability.

BRINGING NEW PRODUCTS to the MARKET

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The New Product Development Process

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• Concept Testing -- Takes a product idea to consumers to test reactions.

BRINGING NEW PRODUCTS to the MARKET

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The New Product Development Process

• Commercialization -- Promoting the product to distributors and retailers and developing the promotional campaign.

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*The Product Life Cycle

• Product Life Cycle -- A theoretical look at what happens to sales and profits for a product over time.

• Product Life Cycle Stages:

1. Introduction

2. Growth

3. Maturity

4. Decline

The FOUR STAGES of a PRODUCT LIFE CYCLE

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MARKETING EFFORTS IN PRODUCT LIFE CYCLE

• 1. introduction – keep prod mix small, use penetration pricing, use wholesalers, use dealer promotion

• 2. growth – improve prod, keep mix ltd, adjust price to meet competition, incr distrib, heavy competitive adv

• 3. maturity – differentiate prod, further reduce price, intensify distrib, emphasize brand name as well as product benefits & diff.

Marketing Efforts Cont.

• 4. Decline life cycle – cut product mix, consider raising price, limit distrib, reduce adv, focus on loyal customers

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*Competitive Pricing

• Achieving a target return on investment or profit

• Building traffic

• Achieving greater market share

• Creating an image

• Furthering social objectives both short-run and long-run

PRICING OBJECTIVES

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*Competitive Pricing

• Cost-based pricing measures cost of producing a product including materials, labor, and overhead.

• Target Costing -- Making the final price of a product an input in the product development process by estimating the selling price consumers will pay.

• Competition-Based Pricing -- A strategy based on what the competition is charging for its products.

PRICING STRATEGIES

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*Break-Even Analysis

• Break-Even Analysis -- The process used to determine profitability at various levels of sales. The break-even point is where revenues equals cost.

• Total Fixed Costs -- All costs that remain the same no matter how much is produced or sold.

• Variable Costs -- Costs that change according to the level of production.

USING BREAK-EVEN ANALYSIS

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*Other Pricing Strategies

• Skimming Price Strategy -- Pricing new products high to recover costs and make high profits while competition is limited.

• Penetration Price Strategy -- Pricing products low with the hope of attracting more buyers and discouraging other companies from competing in the market.

• Everyday Low Pricing (EDLP) -- Setting prices lower than competitors with no special sales.

PRICING ALTERNATIVES

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*Other Pricing Strategies

• High-Low Pricing -- Using regular prices that are higher than EDLP except during special sales when they are lower.

• Psychological Pricing -- Pricing products at price points that make a product seem less expensive than it is.

PRICING STRATEGIES of RETAILERS

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