understanding business

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Main

Developing and Pricing Goods and Services
McGraw-Hill/Irwin
Copyright 2010 by the McGraw-Hill Companies,
Inc. All rights reserved.
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DEVELOPING VALUE

Product Development and the Total Product Offer

LG1

• According to the American Marketing Association,
  value is a foundation of marketing.
• Value -- Good quality at a fair price.
• Product development is a key activity in any
  modern business.

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PRODUCTS UNTOUCHABLE by SPENDING CUTS

Product Development and the Total Product Offer

LG1

• Internet service
• Cell phone service
• Cable television
• Discount apparel
• Haircuts and coloring
• Fast-food

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PRODUCTS EXPENDABLE by SPENDING CUTS

Product Development and the Total Product Offer

LG1

• Luxury handbags
• Satellite radio
• Specialty apparel
• High-end cosmetics
• Facials

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DEVELOPING a TOTAL PRODUCT

Developing a Total Product Offer

LG1

• 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 find out whats important to
  consumers.

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UNDERSTANDING PRODUCT LINES

Product Lines Product Mix

LG1

• Product Line -- A group of products that are
  physically similar or intended for a similar
  market.
• Product lines often include competing brands
  like
• MMs
• Peanut MMs
• Mint MMs
• Dark Chocolate MMs

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The PRODUCT MIX

Product Lines Product Mix

LG1

• Product Mix -- The combination of all product
  lines offered by a manufacturer or service
  provider.
• Product mixes like Proctor Gambles can be
  extensive
• Laundry detergent
• Cosmetics
• Diapers
• Potato chips
• Bar soap

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DIFFERENTIATING PRODUCTS

Product Differentiation

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

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CLASSIFYING CONSUMER GOODS and SERVICES

Marketing Different Classes of Consumer Goods and
Services

LG2

• 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 SHOPPINGGOODS and SERVICES

Marketing Different Classes of Consumer Goods and
Services

LG2

• 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 SPECIALTYGOODS and SERVICES

Marketing Different Classes of Consumer 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

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CLASSIFYING UNSOUGHTGOODS and SERVICES

Marketing Different Classes of Consumer Goods and
Services

LG2

• Unsought Goods and Services -- Products consumers
  arent aware of or havent thought of buying
  until they need them. These include
• Car-towing services
• Funeral services
• Plumbing services

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IDENTIFYING CONSUMER GOODS CLASSIFICATIONS

Marketing Different Classes of Consumer Goods and
Services

LG2

• How would you classify these consumer products?
• Beautyrest mattress
• Honda Accord
• McDonalds Big Mac
• Rolls Royce automobiles
• Oreo Cookies
• Harvard University degree

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ODD PRODUCT IDEAS that WERE SUCCESSFUL

Marketing Different Classes of Consumer Goods and
Services

LG2

• Pet Rock - For 3.95 you could buy a gift-wrapped
  rock with eyes and a training manual.
• Garbage Pail Kids - Perhaps the grossest trading
  cards ever produced.
• Mood Rings - Wildly popular as the changing
  colors of the ring supposedly measured your mood.
• Chia Pets - Animal shaped clay figures that grew
  sprouts.

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CLASSIFYING INDUSTRIAL GOODS and SERVICES

Marketing Industrial Goods and Services

LG2

• 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

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COMPANY USES of PACKAGING

Packaging Changes the Product

LG3

• Companies often use packaging to change and
  improve their basic product. Examples include
• Microwave popcorn
• Tuna pouches
• McDonalds green packaging

• Packaging can make a product more attractive to
  retailers.

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SOME KEY FUNCTIONS of PACKAGING

Packaging Changes the Product

LG3

• To attract buyers attention
• Protect the goods inside and be tamperproof
• Describe and provide information about the
  product
• Explain the products benefits
• Provide warranty information and warnings
• Give an indication of price, value, and uses

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UNDERSTANDING BRANDING

Branding and Brand Equity

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.

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ORIGINS of AUTOMOBILE SYMBOLS

Generating Brand Equity and Loyalty

LG4

• Volvo - Symbol for iron
• Lamborghini - Company founders was a Taurus
• Volkswagen - Product of an office contest
• Porsche - Coat of arms for city and state
  headquarters

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KEY BRAND CATEGORIES

Branding and Brand Equity

LG4

• Manufacturers Brands Brand names of
  manufacturers that distribute products
  nationally.
• Dealer (Private-Label) Brands -- Products that
  carry a retailers or distributors brand name
  instead of a manufacturers.

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KEY BRAND CATEGORIES

Branding and Brand Equity

LG4

• 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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ESTABLISHING BRAND EQUITY and LOYALTY

Generating Brand Equity and Loyalty

LG4

• 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.

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BUILDING BRAND AWARENESS

Generating Brand Equity and Loyalty

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.

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BUILDING BRAND ASSOCIATIONS

Generating Brand Equity and Loyalty

LG4

• 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 brands marketing mix.

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The NEW PRODUCT DEVELOPMENT PROCESS

The New Product Development Process

LG5
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BRINGING NEW PRODUCTS to the MARKET

The New Product Development Process

LG5

• 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.

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BRINGING NEW PRODUCTS to the MARKET

The New Product Development Process

LG5

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

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

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The FOUR STAGES of a PRODUCT LIFE CYCLE

The Product Life Cycle

LG6

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

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SALES and PROFITS DURING the PRODUCT LIFE CYCLE

The Product Life Cycle

LG6
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PRICING STRATEGIES

Competitive Pricing

LG7

• 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.

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USING BREAK-EVEN ANALYSIS

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.

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PRICING ALTERNATIVES

Other Pricing Strategies

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.

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PRICING STRATEGIES of RETAILERS

Other Pricing Strategies

LG7

• 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.

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