Chapter
Developing
and Pricing
Products
(Goods and
Services)
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Developing and Pricing Products
• This chapter explores two
elements of the Marketing Mix
1. Product
2. Price
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Product
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Product Lines
&
The Product Mix
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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
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The PRODUCT MIX
• 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
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Mickey Mouse’s Product Mix
Theme parks
& resorts
ABC
Television
Network
TV & radio
stations
Film studios
& production
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Consumer
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DIFFERENTIATING PRODUCTS
• 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
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Classifying Classes
of Goods & Services
• Consumer
– Purchased for personal
consumption or use
– Sometimes called B2C Goods
• Industrial (Business)
– Purchased for use in production
of other products
– Sometimes called B2B Goods
– Commercial goods
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Classifying Convenience
Goods and Services
• Convenience Goods and Services -- Products
consumers purchase frequently with minimal
effort. These include:
- Candy and snacks
- Gas
- Milk and eggs
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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
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Classifying Specialty
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
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CLASSIFYING UNSOUGHT
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
Photo Credit: Paul Chenoweth
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Classifying Classes of
Industrial Goods & Services
• Industrial Goods -- Products used in the
production of other products and sold in the B2B
market.
• Industrial goods include:
- Capital items
- Installations
- Accessory equipment
- Supplies
- Service
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Packaging
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Some Key Functions
of Packaging
• 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
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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
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USES of PACKAGING
• 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.
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Labeling Regulations
• Federal Fair Packaging and Labeling
Act of 1966 aims at making labels more
helpful to consumers by providing
useful information.
• Food and Drug Administration requires
food labels to tell how much fat,
saturated fat, cholesterol, calories,
carbohydrates, protein, trans fats, and
vitamins are in each product serving.
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Branding
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UNDERSTANDING BRANDING
• 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.
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Brand Categories
• 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.
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Brand Categories
• Generic Goods -- Non-branded products
that sell at a discount compared to
manufacturers’ or dealers’ brands.
• Knockoff Brands -- Illegal copies of
national brands.
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Knock-Off Brands
• Original Swiss made Rolex replicas are as close to the real
thing as a replica watch can be.
Sometimes even the professional experts are unable to tell the
difference from the original Rolex watch.
• All real Swiss Rolex Replicas should have the following:
• Full 1-year Warranty
• Solid 14k or 18k Gold on two-toned models
• Guaranteed triple-wrapped gold on all-gold models
• Genuine sapphire crystal - a type of glass that is many times
better at resisting scratches than regular glass.
• The color of the gold looks exactly like a genuine Rolex watch
• If the retail dealer does not offer this, do not purchase from
them!
• REPLICA \/\/atches BAZAAR!
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Product Life Cycle
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Product Life Cycle
• Theoretical model of what happens to
sales and profits for a product class
over time
• Four Stages:
– Introduction
– Growth
– Maturity
– Decline
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The Product Life Cycle
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Pricing
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Pricing
•
Objectives
$
$
$
$
$
$
•
ROI
Building Traffic
Market Share
Sales
Creating Image
Social Objectives
Cost-Based
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•
Demand-Based
$
Target Costing (Price-led
costing)
$
Cost is input to development
– not outcome
• Competition-Based
– Price Leadership
– Price Following
• Pricing in the Service Sector
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Break-Even Analysis
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Using Break-Even Analysis
• Break-Even Analysis -- The process
used to determine profitability at
various levels of sales.
• The Break-Even Point (BEP) is where
Total Revenue equals Total Costs.
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The Product Life Cycle
X
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Break-Even Analysis
Break-Even Point
• Definitions
$ Fixed Costs
$ Variable Costs
$ Total Cost
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Using Break-Even Analysis
• 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
• Total Costs – Sum of Total Fixed Costs and
Variable Costs
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Break-Even Analysis
The Break-Even Point (BEP) equals the total fixed
costs (FC) divided by the price of one unit (P) minus
the variable cost of one unit (VC).
Break-Even Point (units) = Total Fixed Cost (FC)
Price (P) – Variable Cost (VC)
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Breakeven Chart
$1,000,000
$800,000
Fixed Cost
Total Cost
Total Revenue
$600,000
$400,000
$200,000
50,000
40,000
30,000
20,000
10,000
$0
0
Total Revenue or Total Cost
$1,200,000
Number of Units
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Break-Even Analysis
Break-Even Point (units) = Total Fixed Cost (FC)
Price (P) – Variable Cost (VC)
(per unit)
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Total Revenue or Total Cost
Breakeven Analysis
Price = $25.00
VC/Unit = $15.00
Number of Units
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Break-Even Analysis
Break-Even Point =
$200,000__________
$25.00 – $15.00
= 20,000 Units
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Applying Break-Even
Analysis
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Pricing Using
Breakeven Analysis
Problem
Costs
Should we charge $2 or $3 per box?
Total Fixed Costs $400,000
Variable Cost
Market
Research
Forecast
Company can sell: 290,000 boxes at $2 @
210,000 boxes at $3 @
Breakeven point =
Breakeven
Analysis
$1 per box
total fixed cost
price - variable cost
(per unit)
(per unit)
$2 price: $400,000 = 400,000 units to breakeven
$2 - $1
$3 price: $400,000 = 200,000 units to breakeven
$3 - $1
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Pricing
• Strategies
$ Skimming
$ Penetration
$ EDLP
$ High-Low
$ Bundling
$ Psychological
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Pricing
• Market Forces Affect Pricing
$ Ultimately price is determined by:
Supply And Demand In The Marketplace
$ Market Price
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