Chapter 14
Developing
and Pricing
Goods and
Services
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
Fourteen
LEARNING GOALS
1.
Describe a total product offer.
2.
Identify the various kinds of consumer and industrial goods.
3.
Summarize the functions of packaging.
4.
Contrast brand, brand name, and trademark, and show the value of brand
equity.
5.
Explain the steps in the new-product development process.
6.
Describe the product life cycle.
7.
Identify various pricing objectives and strategies
14-2
Product
Development and
the Total Product
Offer
DEVELOPING VALUE
LG1
• 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.
14-3
Product
Development and
the Total Product
Offer
LG1
PRODUCTS CONSUMERS
WON’T GIVE UP
• Internet service
• Cell phone service
• Cable television
• Discount apparel
• Haircuts and coloring
• Fast-food
Source: www.bigresearch.com.
14-4
Product
Development and
the Total Product
Offer
LG1
PRODUCTS “EXPENDABLE”
by SPENDING CUTS
• Luxury handbags
• Satellite radio
• Specialty apparel
• High-end cosmetics
• Facials
Source: www.bigresearch.com.
14-5
Distributed
Product
Development
LG1
DISTRIBUTED PRODUCT
DEVELOPMENT
• Distributed Product Development -- The
handing off of various parts of your innovation
process - often overseas.
• The increase in outsourcing has
resulted in using multiple
organizations separated by
cultural, geographic and legal
boundaries.
14-6
Developing a
Total Product
Offer
LG1
DEVELOPING a
TOTAL PRODUCT
• Total Product Offer -- Everything consumers
evaluate when deciding whether to buy something.
• Products are evaluated on
many different dimensions,
both tangible and intangible.
• Marketers must think like and
talk to consumers to find out
what’s important.
14-7
Developing a
Total Product
Offer
LG1
POTENTIAL COMPONENTS
of a TOTAL PRODUCT OFFER
14-8
Product Lines
& Product Mix
LG1
UNDERSTANDING
PRODUCT LINES
• Product Line -- A group of products that are
physically similar or intended for a similar market.
• Product lines often include
competing brands like:
- Coca-Cola
- Diet Coke
- Coke Zero
- Cherry Coke
Photo Courtesy of: Coca-Cola Art Gallery
14-9
Product Lines
& Product Mix
The PRODUCT MIX
LG1
• Product Mix -- The combination of all product lines
offered by a manufacturer or service provider.
• Product mixes like Procter & Gamble’s can be
extensive:
- Toothpaste
- Cosmetics
- Diapers
- Batteries
- Bar soap
14-10
Product
Differentiation
DIFFERENTIATING PRODUCTS
LG2
• 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
14-11
Marketing Different
Classes of
Consumer Goods
and Services
LG2
CLASSIFYING CONSUMER
GOODS and SERVICES
• Convenience Goods and
Services -- Products
consumers purchase frequently
with minimal effort. These
include:
- Candy and snacks
- Gas
- Milk and eggs
14-12
Marketing Different
Classes of
Consumer Goods
and Services
LG2
CLASSIFYING SHOPPING
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
14-13
Marketing Different
Classes of
Consumer Goods
and Services
CLASSIFYING GOODS and SERVICES
LG2
• Specialty Goods and Services -- Products with unique
characteristics and brand identity. These include:
- Tiffany jewelry
- Rolex watches
- Lamborghini automobiles
- Ritz Carlton Hotels
• 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
14-14
Marketing Different
Classes of
Consumer Goods
and Services
LG2
IDENTIFYING CONSUMER
GOODS CLASSIFICATIONS
• How would you classify these consumer
products?
- Beautyrest mattress
- Honda Accord
- McDonald’s Big Mac
- Rolls Royce automobiles
- Oreo Cookies
- Harvard University degree
14-15
Marketing
Industrial Goods
and Services
LG2
CLASSIFYING 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
14-16
Packaging
Changes the
Product
USES of PACKAGING
LG3
• Companies often use packaging to change and
improve their basic product. Examples include:
- Microwave popcorn
- Tuna pouches
- McDonald’s green packaging
• Good packaging can also make
a product more attractive to
retailers.
14-17
Packaging
Changes the
Product
LG3
SOME KEY FUNCTIONS of
PACKAGING
1) To attract buyers’ attention
2) Protect the goods inside and be tamperproof
3) Be easy to open
4) Describe and give information about the product
5) Explain the product’s benefits
6) Provide warranty information and warnings
7) Give an indication of price, value, and uses
14-18
The Growing
Importance of
Packaging
BUNDLING
LG3
• Bundling -- Grouping two or more products together
and pricing them as a unit.
• Virgin Airlines bundles
door-to-door limo
service and inflight
massage with some
tickets.
• Financial institutions
bundle advice with
purchases.
Photo Courtesy of: Joey Day
14-19
Branding and
Brand Equity
UNDERSTANDING BRANDING
LG4
• Brand -- Name, symbol, or design that identifies the
goods or services and distinguishes them from
competitors’ offerings.
• Trademark -- A brand
that has exclusive legal
protection for both its
brand name and design.
14-20
Branding and
Brand Equity
KEY BRAND CATEGORIES
LG4
• 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.
• Generic Goods – Non-branded products
that sell at a discount compared to
manufacturers’ or dealers’ brands.
• Knockoff Brands -- Illegal copies of
national brands.
Photo Courtesy of: Joe Mudd
14-21
Generating
Brand Equity
and Loyalty
LG4
ESTABLISHING BRAND EQUITY
and LOYALTY
• Brand Equity – The value of the brand name and
associated symbols.
• Brand Loyalty -- The degree to which consumers
are satisfied and are committed to further purchases.
14-22
Generating
Brand Equity
and Loyalty
MOST VALUABLE BRANDS
LG4
Brand
Value
Apple
$57.4 billion
Microsoft
$56.6 billion
Coca-Cola
$55.4 billion
IBM
$43 billion
Google
$39.7 billion
McDonald’s
$35.9 billion
GE
$33.7 billion
Marlboro
$29.1 billion
Intel
$28.6 billion
Nokia
$27.4 billion
Source: Forbes, August 30, 2010.
14-23
Generating
Brand Equity
and Loyalty
LG4
ORIGINS of
AUTOMOBILE SYMBOLS
• Volvo - Symbol for iron
• Lamborghini - Company founder’s
zodiac sign was Taurus
• Volkswagen - Product of an office
contest
• Porsche - Coat of arms for city and state
headquarters
Source: World Features Syndicate.
14-24
Generating
Brand Equity
and Loyalty
BUILDING BRAND AWARENESS
LG4
• 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.
• 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.
14-25
The New
Product
Development
Process
LG5
The NEW PRODUCT
DEVELOPMENT PROCESS
14-26
Product
Screening &
Analysis
LG5
BRINGING NEW PRODUCTS
to the MARKET
• 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.
14-27
Product
Development
and Testing
LG5
BRINGING NEW PRODUCTS
to the MARKET
• Concept Testing -- Takes a product idea to
consumers to test reactions.
• Commercialization -Promoting the product to
distributors and retailers
and developing the
promotional campaign.
14-28
The Product
Life Cycle
LG6
The FOUR STAGES of a
PRODUCT LIFE CYCLE
• Product Life Cycle -- A theoretical model of what
happens to sales and profits for a product over time.
• Product Life Cycle Stages:
1. Introduction
2. Growth
3. Maturity
4. Decline
14-29
The Product
Life Cycle
LG6
SALES and PROFITS DURING
the PRODUCT LIFE CYCLE
14-30
Competitive
Pricing
PRICING OBJECTIVES
LG7
1) Achieving a target return on
investment or profit
2) Building traffic
3) Achieving greater market
share
4) Creating an image
5) Furthering social objectives
both short-run and long-run
14-31
Competitive
Pricing
PRICING STRATEGIES
LG7
• Cost-based pricing measures cost of producing a
product including materials, labor, and overhead.
• Target Costing – Designing a product that satisfies
customers and meets the firm’s targeted profit
margins.
• Competition-Based Pricing -- A strategy based
on what the competition is charging for its products.
14-32
Break-Even
Analysis
USING BREAK-EVEN ANALYSIS
LG7
• 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.
14-33
Other Pricing
Strategies
PRICING ALTERNATIVES
LG7
• 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.
14-34
Other Pricing
Strategies
LG7
PRICING STRATEGIES
of RETAILERS
• High-Low Pricing -- Using regular prices that are
higher than EDLP stores 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.
14-35