*
*
*
Developing
and Pricing
Products and
Services
*
CHAPTER
**
14
Nickels
*
McGraw-Hill/Irwin
Understanding Business, 8e
McHugh
*
McHugh
1-1
14-1
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
*
*
*
Product Development
& Value Package
• Value/Total Product Offer
• Product Line
• Product Mix
• Product Differentiation
14-2
*
*
*
Marketing Different Classes
of Goods & Services
• Consumer
•
•
•
•
Convenience
Shopping
Specialty
Unsought
• Industrial
14-3
*
*
*
Importance Of Packaging
• Protection
• Attraction
• Description
• Explain Benefits
• Information on warranties, warnings, etc.
• Indication of price, value, and uses
14-4
*
*
*
Branding
• Brand &
•
Trademark
Categories
• Manufacturers’
• Dealer/Private
• Generic
• Knockoff
• Equity
• Loyalty
• Awareness
• Association
14-5
*
*
*
Characteristics of a
Good Brand Name
• Short, sweet, and easily pronounced, but
flexible and expandable, and does not lend
itself to abbreviation
• Unique within its industry and retain its age
• Legally available and defensible
• Good alliteration and linguistically clean
• Embraces company personality / brand
portfolio
Source: The Brand Name Awards 2005
14-6
*
*
*
Best/Worst/Weirdest
Car Brand Names
Best
Worst
Lamborghini Diablo Volkswagon Thing
Ford Mustang
Honda That’s
Weirdest
FSR Tarpan Honker
Mazda Bongo Friendee/
Brawny
Mitsubishi Colt
Nissan Cedric
Isuzu Tractor
Pontiac Firebird
Toyota Toyopet
Mitsubishi Delica Space
Gear
Rolls-Royce Silver
Corbin Sparrow
Suzuki Joy Pop
Shadow
Dodge Coronet Super Bee
Source: FT Weekend, November, 2005
14-7
*
*
*
Brand Characters:
Are They Real or Fake?
• Betty Crocker
Fake
• Chef Boyardee
Real
• Uncle Ben
Both
• Colonel Sanders
Real guy, fake rank
• Little Debbie
Real
Source: Fast Company, August 2004
14-8
*
*
*
10 Most Valuable Brands
Rank
Product
Brand Value
(Billions)
1
Coca-Cola
$67.00
2
Microsoft
56.93
3
IBM
56.20
4
GE
48.91
5
Intel
32.32
6
Nokia
30.13
7
Toyota
27.94
8
Disney
27.85
9
McDonald’s
27.50
10
Mercedes-Benz
21.80
Source: Business Week, August 7, 2006
14-9
*
*
*
Top 10 Favorite
Mascots of America
•
•
•
•
•
•
•
•
•
•
M&Ms figures / Mars
Doughboy / General Mills, Smucker’s
Duck / Aflac
Tony the Tiger / Kellogg
Gecko / Berkshire Hathaway’s Geico
Chester the Cheetah / Pepsi’s Frito-Lay
Energizer Bunny / Energizer Holdings
Kool-Aid Man / Kraft Foods
Trix Rabbit / General Mills
Snap, Crackle and Pop / Kellogg
Source: Forbes, January 9, 2006
14-10
*
*
*
New-Product
Development Process
1. Idea Generation 4. Development
2. Screening
5. Testing
3. Analysis
6. Commercialize
14-11
*
*
*
First Products Produced
by Five Major Companies
• Hershey - Caramels
• Amway - No-rinse car wash
• Heinz - Horseradish
• Avon - Little Dot perfume set
• 3M - Sandpaper
Source: World Features Syndicate
14-12
*
*
*
People Behind
Product Innovation
•
•
•
•
Liquid Paper – an American Secretary
Paper Clip – a Norwegian Patent Clerk
Fax Machine – a Scottish Clock Maker
Lewis Waterman Fountain Pen – an
American Insurance Salesman
• Pencil Sharpener – French Mathematician
• Ballpoint pen – a Hungarian Journalist
• Eraser Head – English Chemist
Source: World Features Syndicate
14-13
*
*
*
Best Product
Innovation of ALL Time
% of Consumers’ Choice
Aspirin
Television
Telephone
Light Bulb
Automobile
0%
10%
20%
30%
40%
50%
60%
70%
Source: American Demographics
14-14
*
*
*
Consumers Attitudes
about New Products
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Will buy as needed
Take a "wait and
See" approach
Will buy early
Source: USA Today
14-15
*
*
*
Why People Purchase
New Products
Fliers, newspaper coupons
Free sample
Store display
TV commercial
Recommendation
0%
10%
20%
30%
40%
50%
60%
Source: USA Today
14-16
*
*
*
Sales & Profits
During the PLC
14-17
*
*
*
Pricing
•
Objectives
•
•
•
•
•
•
•
•
ROI
Traffic
Market Share
Image
Social
Cost-Based
Demand-Based
CompetitionBased
• Break-Even
• Fixed Cost
• Variable Cost
• Strategies
•
•
•
•
•
•
Skimming
Penetration
EDLP
High-Low
Bundling
Psychological
• Market Forces
14-18
*
*
*
What They Cost
When First Introduced
1927
Transatlantic Call
$ 75/3 min.
1947
Microwave Oven
$ 3,000
1964
FAX unit rental
$ 850/month
1970
Pocket Calculator
$ 150
1974
VCR Tape
$
50
Source: World Features Syndicate
14-19
*
*
*
$1,200,000
$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
Breakeven Chart
Number of Units
14-20
Pricing Using
Breakeven Analysis
*
*
*
Problem
Costs
Should we charge $2 or $3 per unit?
Total Fixed Costs $400,000
Variable Cost
Market
Research
Forecast
Analysis
1 per unit
Company can sell: 290,000 boxes at $2 / unit
210,000 boxes at $3 / unit
Breakeven point =
Breakeven
$
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
14-21
*
*
*
Advanced
Breakeven Analysis
14-22
*
*
*
Example of a
UPC Barcode
12 34567 89012 8
Example only: not a valid UPC barcode
14-23