Chapter 14
Developing
and Pricing
Goods and
Services
McGraw-Hill/Irwin
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
Connecting
with…
RANDY HETRICK
Fitness Anywhere
• During his time as a Navy Seal, Hetrick found
keeping his fitness levels up while in the field was
difficult.
• He created the TRX out of
parachute harnesses.
• While earning his MBA, he
raised capital to launch
Fitness Anywhere.
• By 2011, revenues hit $50
million!
14-4
Chapter
Fourteen
NAME that COMPANY
It’s no secret that the airline industry is
extremely competitive and many airlines have
cut basic services like free baggage and food.
In order to set itself apart from its competitors,
this company takes a different path by offering
door-to-door limousine service and in-flight
massages.
Name that company! Virgin Airlines
14-5
Product
Development and
the Total Product
Offer
LG1
•
•
•
•
•
•
PRODUCTS CONSUMERS
WON’T GIVE UP
Internet service
Cell phone service
Cable/Paid television
Discount apparel
Haircuts and coloring
Fast-food
What do you consider “untouchable”
” and why?
14-7
Product
Development and
the Total Product
Offer
LG1
PRODUCTS “EXPENDABLE”
”
by SPENDING CUTS
• Luxury handbags
• Satellite radio
• Specialty apparel
• High-end cosmetics
• Facials
14-8
Connecting
through Social
Media
SETTLING UP SIMPLY
through SOCIAL MEDIA
• Bocktown Beer and Grill uses
mobile media marketing
• It holds polls on Facebook
and Twitter that let customers
pick the beers on tap
• It also uses Tabbedout, a
mobile app that allows
customers to pay their bill
without returning to the bar or
giving their card to a server
Would you use this service?
14-9
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
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
both tangible and intangible
• Marketers must think like and
talk to consumers to find out
what’s important
What’s most important about your smart phone?
14-11
PRODUCT LINES
PRODUCT MIX
Product Lines
& Product Mix
LG1
Product Line -- A group of
Product Mix -- The
products that are physically
similar or intended for a
similar market.
combination of all product
lines offered
Product lines often include
competing brands like:
-
Coca-Cola
Diet Coke
Coke Zero
Cherry Coke
Product mixes like Procter &
Gamble’s can be extensive:
-
Toothpaste
Cosmetics
Diapers
Batteries
Bar soap
Photo Courtesy of: Coca-Cola Art Gallery
14-16
Marketing
Different Classes
of Consumer
Goods and
Services
CLASSIFYING GOODS and SERVICES
LG2
Convenience
Shopping
Specialty
Unsought
Convenience Goods and Services -- Products
consumers purchase frequently with minimal effort.
These include:
- Candy and snacks
- Gas
- Milk and eggs
14-20
Marketing
Different Classes
of Consumer
Goods and
Services
LG2
CLASSIFYING GOODS and SERVICES
Convenience
Shopping
Specialty
Unsought
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
14-21
Marketing
Different Classes
of Consumer
Goods and
Services
LG2
CLASSIFYING GOODS and SERVICES
Convenience
Shopping
Specialty
Unsought
Specialty Goods and Services -- Products with
unique characteristics and brand identity.
These include:
- Tiffany jewelry
- Rolex watches
- Lamborghini automobiles
- Ritz Carlton Hotels
14-22
Marketing
Different Classes
of Consumer
Goods and
Services
LG2
CLASSIFYING GOODS and SERVICES
Convenience
Shopping
Specialty
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 Courtesy of: Paul Chenoweth
Unsought
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
shopping good
shopping good
convenience good
specialty good
convenience good
specialty good
14-28
Packaging
Changes the
Product
LG3
SOME KEY FUNCTIONS of
PACKAGING
1) Warranty information/warnings
2) Give an indication of price,
value, and uses
3) Describe/give information
4) To attract buyer attention
5) Explain product benefits
6) Protect the goods inside
7) Tamperproof
8) Easy to open
14-33
The Growing
Importance of
Packaging
BUNDLING
LG3
Bundling -- Grouping two or more products together
and pricing them as a unit (e.g., Happy Meal)
Virgin Airlines bundles door-to-door limo service and
inflight massage with upper class tickets
14-34
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.
Connecting
Across Borders
Creating a Brand Name
Suggest a brand name for each:
Group Paper (write down those assigned you):
1. A cable TV network targeted at new parents with features on babies and toddlers
2. A chocolate-flavored vitamin drink
3. A sporty car targeted at middle-aged women
4. A glow-in-the-dark light switch
5. A breakthrough prescription drug to treat childhood diabetes
6. A restaurant serving Japanese and Chinese food
7. An easy-to-use handheld e-mail device targeted at tech-phobic senior citizens
8. An inexpensive line of cosmetics featuring vibrant colors
9. A magazine targeted on single career women
10. A high-end all-natural cat food
11. An exclusive line of children’s sports shoes
12. A banana-flavored breakfast cereal
Connecting
Across Borders
Creating a Brand Name
How to create a NAME
Step 1: Brainstorm
•
•
•
•
•
Who are my target customers?
What's my competitive advantage?
What adjectives would I apply to my
company?
Can I combine any of these words to form
a catchy new word or phrase?
Any metaphors/symbols that come to
mind? (eg., apple is symbol for education)
Step 2: Evaluate your names
•
•
•
•
•
•
•
Is it easy to say? Spell?
Positive connotation that'll appeal?
Is it legally available?
Available as a URL? (or some form of it)
interesting or unique?
Visualize as you read the name?
Is it descriptive?
Step 3: Potential customer feedback
•
•
Get feedback from similar gender/ age/
socioeconomic background, etc.
Gauge people's initial reaction
Step 4: Finalize your NAME
•
•
•
Base decision on your personal opinions
and the feedback of others
Try not to second-guess yourself.
When in doubt, go with your gut--that's
what customers do!
Source:
http://www.entrepreneur.com/article/159464
Connecting
Across Borders
Creating a Brand Name
Suggest a brand name for each:
Group Paper (write down those assigned you):
1. A cable TV network targeted at new parents with features on babies and toddlers
2. A chocolate-flavored vitamin drink
3. A sporty car targeted at middle-aged women
4. A glow-in-the-dark light switch
5. A breakthrough prescription drug to treat childhood diabetes
6. A restaurant serving Japanese and Chinese food
7. An easy-to-use handheld e-mail device targeted at tech-phobic senior citizens
8. An inexpensive line of cosmetics featuring vibrant colors
9. A magazine targeted on single career women
10. A high-end all-natural cat food
11. An exclusive line of children’s sports shoes
12. A banana-flavored breakfast cereal
Generating
Brand Equity
and Loyalty
MOST VALUABLE BRANDS
LG4
Which brands do you think
are the most valuable in the
world (2014)?
Generating
Brand Equity
and Loyalty
LG4
MADE in AMERICA?
Home Countries of America’s Favorite Brands
Company
Lucky Strike
Budweiser
Vaseline
Good Humor
Hellmann's
Purina
French's
Frigidaire
Popsicle
7-Eleven
http://www.usatoday.com/.
Founded
1871
1852
1876
1923
1913
1894
1876
1918
1923
1946
Current parent company
British American Tobacco
Anheuser-Busch Inbev
Unilever
Unilever
Unilever
Nestle
Reckitt Benckiser
AB Electrolux
Unilever
Seven & I Holdings
Currently
headquartered
England
Belgium
England
England
England
Switzerland
England
Sweden
England
Japan
14-48
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.
14-52
Connecting
with Small
Business
KEEP on FOOD TRUCKIN’
’
The popularity of food trucks has
risen, but it’s no longer just hot dogs
and hamburgers:
- Clover Food Truck in Boston/Cambridge
offers rotating menu of local organic
foods.
- Sugar Philly Truck in Philadelphia offers
crème brulee hot off the truck.
- Dim and Den Sum in Cleveland has
some of the best food truck art in U.S.
- Koi Fusion PDX in Portland is one of
the few mobile eateries in that town.
14-53
The Product
Life Cycle
LG6
SALES and PROFITS DURING
the PRODUCT LIFE CYCLE
14-55
Competitive
Pricing
PRICING OBJECTIVES
LG7
1) Achieving a target return on
investment (profit)
2) Building sales
traffic (loss leaders)
3) Achieving greater
market share (volume)
4) Creating a prestige
image (status)
5) Furthering social objectives
(make affordable to all)
14-58
Competitive
Pricing
PRICING STRATEGIES
LG7
• Cost-based pricing – measures cost of
producing a product including materials, labor,
and overhead, use cost as primary basis for price
• Demand-based pricing (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.
14-59
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.
14-60
Other Pricing
Strategies
PRICING ALTERNATIVES
LG7
• Skimming Price Strategy -- Pricing new products high
to recover costs and make high profits while competition is
limited. EXAMPLE?
• Penetration Price Strategy -- Pricing products low with
the hope of attracting more buyers and discouraging other
companies from competing in the market. EXAMPLE?
• Everyday Low Pricing (EDLP) -- Setting prices lower
than competitors with no special sales. EXAMPLE?
14-62
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 EXAMPLE?
• Psychological Pricing –
Pricing products at price points
that make a product seem less
expensive than it is. EXAMPLE?
14-63