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Busn 101 Chapter 14
Developing & Pricing
Products and Services
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Goals
• Total Product Offer
• Consumer And Industrial Goods
• Functions Of Packaging
• Describe The Differences Between:
▫ Brand
▫ Brand Name
▫ Trademark
▫ Brand Equity
▫ Brand Loyalty
▫ Brand Manager
• New Product Development Process
• Product Life Cycle
• Pricing Objectives And Strategies
• Nonpricing Strategies
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Value
• Good quality at a fair price
• When customers calculate the value of a product,
they look at the benefit and then subtract the cost
to see if the benefits exceed the cost
• Value = Benefits – Costs
• If Benefits > Costs, Then: Value, Otherwise: Not
Value
• Why would someone buy Milk at 7-11 that
cost $3.99 when it is $2.50 at Safeway?
• Best value includes factors such as price, benefits
sought, service they receive, and more
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Better Products and Services
• With global competition, companies try to avoid
market share loss by continuing to design and
promote better products
• To satisfy customers, marketers must:
▫ Learn to listen to customers better than they do now
▫ Adapt to constantly changing market demands
• This means: listen to customers, make what they want
• Example of listening:
▫ Product: Fast food restaurants offer salads
▫ Service: Fast food restaurants accept credit cards
• Continually developing new products is a key activity
for businesses around the globe
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Better Products and Services (Economist meg, Oct 11, 2007)
• Lego listened to customers (and others) when they
designed Lego-Mindstorms
• GM launched OnStar, a mobile-information system
meant only to provide safety and emergency
services for drivers
▫ But customers wanted it to do more:
See if car is working properly
Open the doors for a driver who accidentally locks the
keys inside
Locate the nearest pizza place
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Total Product Offer or Value Package
• Everything that consumers evaluate when deciding
whether to buy something
▫ From a strategic marketing point of view, total
product offer is more than just the product or service
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Total Product Offer:
Milk at 7-11 = $3.99 or Milk at Safeway = $2.50
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Products at a Business
• Product Mix
▫ The combination of product lines offered by a
manufacturer
• Product Line
▫ A group of products that are physically similar or are
intended for a similar market
• More on Products:
http://pgdba.blogspot.com/2008/05/product-mix-
product-line.html
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University Products (http://www.enotes.com/business-finance-encyclopedia/product-mix)
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Procter & Gamble Products
• http://www.pg.com/common/product_sitemap.sht
ml
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Product Differentiation
• The creation of real or perceived product
differences
• Actual product differences can be quite small, so
marketers must use a creative mix of value
enhancers:
▫ Price
▫ Advertising
▫ Packaging
▫ Image
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Product Differentiation
• How much difference is there between: Bounce,
Cheer, Downy, Dreft, Era, Febreze Air
Fresheners, Gain, Ivory and Tide?
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Groups of Consumer Goods
• Convenience Goods and Services
• Shopping Goods and Services
• Specialty Goods and Services
• Unsought Goods and Services
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Convenience Goods and Services
• Products that the customer wants to purchase frequently and
with a minimum of effort
• Examples:
▫ Milk
▫ Gum
▫ Gas
▫ ATM
• Important marketing considerations:
▫ Location
▫ Brand awareness
▫ Image
• Some convenience items are available on the internet: Banking
services, Books
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Shopping Goods and Services
• Those products that the consumer buys only after
comparing value, quality, price, and style from a
variety of sellers
• Examples:
▫ Appliances
▫ Repair Services
▫ Shoes and Clothes
• Important marketing considerations:
▫ Price differences
▫ Quality differences
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Specialty Goods and Services
• Consumer products with unique characteristics and brand
identity
• Because these products are perceived as having no
substitute, the consumer puts forth a special effort to
purchase them
• Examples:
▫ Medical specialists
▫ Expensive cars
▫ Fancy foods
• Important marketing considerations:
▫ High quality, Image, Service, Brand Name
• Sold through:
▫ Internet, specialty goods retailer or specialty magazines
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Unsought Goods and Services
• Products that consumers are unaware of, haven’t
necessarily thought of buying, or find that they
need to solve an unexpected problem
• Examples:
▫ Emergency car-towing
▫ Burial services
▫ Insurance
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Industrial Goods or Business Goods or B2B Goods
• Products used in the production of other products
• Examples:
▫ Rubber for a tire factory
▫ Microsoft Office can be both a B2B Good and a
Consumer Good
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Goods/Servic
es
Consumer G Industrial G
&S &S
Production Support
Convenience Shopping Specialty Unsought goods goods
Raw Component Production
Materials parts materials
(Wood, (Compressor, (Nuts & bolts,
Paint) Filter) Sandpaper)
Capital Accessory Supplies Service
(Buildings, Equipment (Paper, (Repair,
Equipment) (Tools, Office Folders) Audit)
Furniture
Importance Of Packaging
14-20
1. Protection
2. Attraction
3. Description
4. Explain Benefits
5. Information on
warranties, warnings,
etc.
6. Indication of price,
value, and uses
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Packaging is important and can change the
product
• Morton’s
▫ When it rains, it pours
• Squeeze bottles
• UPCs (Universal Product Code) makes check out
and inventory control much easier
• RFID (Radio frequency identification chip)
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Brand
• A name, symbol, or design that
identifies the goods or services
and distinguishes them from
the goods and services of
competitors
• Examples of Brand Names:
▫ Campbell
▫ Coca Cola
▫ WholeFoods
▫ Toyota
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Trademark
• A Brand that has been given exclusive legal
protection for both the brand name and the
pictorial design
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Brands
• Brand name assures quality
• Reduces search time
• Adds prestige to purchase
• Generic Name
▫ Name for product category
• Companies are afraid to have brand name become a
generic name
• Examples:
▫ Aspirin, Linoleum, Kleenex, Styrofoam, Rollerblade
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Manufacturers’ Brand Name
• The brand name of manufacturers that distribute
products nationally and internationally
• Examples:
▫ Sony
▫ Honda
▫ Kodak
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Dealer (Private Label) Brands or House
Brands or Distributor Brands
• Products that do not carry the manufacturer’s name
but carry a distributor or retailer's name
• Examples:
▫ 365 Everyday Value
http://www.wholefoodsmarket.com/products/private-label.php
▫ Kenmore at Sears
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Generic Goods
• Nonbranded
products that usually
sell at a sizable
discount compared
to national or private
label brands
• Examples:
▫ Lucky Foods Yellow
Brand
▫ Generic cigarettes
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Knockoff Brands
• Illegal Copies of national brand name goods
• Examples:
▫ Is you expensive watch or dress a knockoff?
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Brands
• Brand Equity
▫ The combination of factors – such as loyalty,
perceived quality, images, and emotions – that
people associate with a given brand name
Examples: Ziploc, GE
• Brand Loyalty
▫ The degree to which customers are satisfied, like the
brand, and are committed to further purchases
• Brand Awareness
▫ How quickly or easily a given brand name comes to
mind when a product category is mentioned
• Brand insistence Specialty Good
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Brands
• Brand Association
▫ The linking of a brand to other favorable images
▫ Think of Michael Jordon, Tiger Woods
• Brand Manager or Product Manager
▫ A manager who has direct responsibility for one
brand or one product line
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*
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
14-31
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* Best/Worst/Weirdest
* Car Brand Names
Best Worst Weirdest
Lamborghini Diablo Volkswagon Thing FSR Tarpan Honker
Ford Mustang Honda That’s 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
14-32
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* 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
14-33
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* 10 Most Valuable Brands
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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
14-34
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* 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
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Developing New Products
• 86% of new products fail to reach the business
objectives within one year of release
▫ Reasons:
Poor positioning
Little differentiation from other products
Poor packaging
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* New-Product
* Development Process
1. Idea Generation 4. Development
2. Screening 5. Testing
3. Analysis 6. Commercialize
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New Products
• Product Screening
▫ A process designed to reduce the number of new
product ideas being worked on at any one time
Does product fit well with present products?
Is it profitable?
Is it marketable?
Do we have the equipment and personnel?
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New Products
• Product Analysis
▫ Making costs estimates and sales forecasts to get a
feeling for profitability of a new product idea
• Concept Testing
▫ Taking a product idea to consumers to test their
reactions
Are there benefits?
How frequently would you buy it?
What price would you pay?
Try different packaging, branding, ingredients
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Commercialization
• Promoting a product to distributors and retailers to
get wide distribution, and develop strong
advertising and sales campaigns to generate and
maintain interest in the product among distributors
and consumers
• Commercialization:
1. Promoting to get wide distribution (distributors & retailers)
2. Advertising and sales efforts to generate & maintain
interest (distributors & retailers & consumers)
3. Internet can speed this process up
First Products Produced
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*
* by Five Major Companies
• Hershey - Caramels
• Amway - No-rinse car wash
• Heinz - Horseradish
• Avon - Little Dot perfume set
• 3M - Sandpaper
Source: World Features Syndicate
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* 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
14-42
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* Best Product
* Innovation of ALL Time
% of Consumers’ Choice
Source: American Demographics
14-43
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* Consumers Attitudes
* about New Products
Source: USA Today
14-44
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* Why People Purchase
* New Products
Source: USA Today
14-45
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Product Life Cycle
• The theoretical model of what happens to sales and
profits for a product class over time (not all
products follow this model, especially brands and
classics)
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Product Life Cycle
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Product Life Cycle: Different Stages
Require Different Marketing Strategies
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Product Life Cycle: Different Stages
Require Different Marketing Strategies
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Pricing
• Pricing is important because it is a CRITICAL
ingredient in consumer evaluation of product
• Objectives of Pricing
• ROI: gain a profit (long-run)
• Traffic: get people into your store (short-run)
• Market Share: gain market share (short-run)
• Image: Price high to give status (long-run)
• Social: Lower price to help people with little
money
• No matter what a business does, ultimately,
prices are set in the market
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Pricing
• Cost-Based Pricing
▫ Cost + Profit = Price
▫ Price is based on what it cost to produce
▫ Cost accounting is very important to firms
▫ Price is not necessarily an input into the product
development process
• Demand-Based Pricing
▫ Price – Profit = Cost
▫ Final price is an input into the product development
process
▫ Target Cost
Designing a product so that it satisfies customers and meets the
profit margins desired by the firm
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Pricing
• Competition-based pricing
▫ A pricing strategy based on what all the other
competitors are doing: Below, At, Above competitors,
prices
• Price leadership
▫ The procedure by which one or more dominant firms
set the price practices that all competitors in an
industry follow
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Break-Even Analysis
• Break-Even Analysis
▫ The process used to determine profitability and
various levels of sales
• Total Fixed Costs (FC)
▫ All the expenses that remain the same no matter how
many units are made or sold
• Variable Costs (V)
▫ Costs that change as the number of units made
changes
• Price = Price Changed to Consumer (P)
• Break Even Point = FC/(P-VC)
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Pricing
• Skimming Price Strategy
▫ Strategy in which a new product is priced high to make
optimum profit while there is little competition (iPhone,
iPod)
• Penetration Strategy
▫ Strategy in which a product is priced low to attract many
customers and discourage competition (VCR recorders)
• EDLP
▫ Setting prices lower than competitors and then not
having any sales
• High-Low Price Strategy
▫ Setting prices that are higher than EDLP stores, but
having many special sales where the prices are lower than
competitors
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Pricing
• Bundling
▫ Grouping two or more products together and pricing them as
a unit (Microsoft)
• Psychological Pricing
▫ Pricing goods and services at price points that make the
product appear less expensive then it is
▫ Instead of $23.00, charge $22.99
▫ Gas = $2.99 9/10
• Demand-orientated pricing
▫ Gas prices go up during summer when everyone drives
▫ Low rates for children at movie theaters
• Internet Influence on Prices?
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Nonprice Competition
• Product image
• Consumer benefits such as:
▫ Comfort
▫ Durability
▫ Convenience
▫ Style
▫ Service
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Explain The Concept Of Total Product Offer
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Describe The Various Kinds Of Consumer
And Industrial Goods
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List And Describe The Functions Of
Packaging
1. Protection
2. Attraction
3. Description
4. Explain Benefits
5. Information on warranties,
warnings, etc.
6. Indication of price, value, and uses
61
Describe The Differences Between:
• Brand
▫ A name, symbol, or design (or combination thereof) that
distinguishes them from the goods and services of
competitors
• Trademark
▫ Brand that is legally protected
• Brand Equity
▫ The combination of factors – such as loyalty,
perceived quality, images, and emotions – that
people associate with a given brand name
• Brand Loyalty
▫ The degree to which customers are satisfied, like
the brand, and are committed to further
purchases
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New Product Development Process
1. Idea Generation
2. Screening
3. Analysis
4. Development
5. Testing
6. Commercialize
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Product Life Cycle (Stages & Strategies At
Each Stage)
Pricing Objectives And Strategies
14-64
• Objectives • Break-Even
▫ ROI ▫ Fixed Cost
▫ Traffic ▫ Variable Cost
▫ Market Share • Strategies
▫ Image ▫ Skimming
▫ Social ▫ Penetration
• Cost-Based ▫ EDLP
▫ High-Low
• Demand-Based ▫ Bundling
• Competition- ▫ Psychological
Based • Market Forces
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Nonpricing Strategies (Why They Are
Becoming More Important)
• Because Prices are often similar
• Internet makes it easy to find the best price