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Busn 101 Chapter 14
Developing & Pricing
Products and Services
                                        2

    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
                                                        3

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
                                                          4


  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
                                                                       5


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
                                                            6


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
                                                  7


Total Product Offer:
Milk at 7-11 = $3.99 or Milk at Safeway = $2.50
                                                            8

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
                                                                                          9


University Products   (http://www.enotes.com/business-finance-encyclopedia/product-mix)
                                            10


Procter & Gamble Products

• http://www.pg.com/common/product_sitemap.sht
  ml
                                                      11


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
                                                  12


Product Differentiation
• How much difference is there between: Bounce,
  Cheer, Downy, Dreft, Era, Febreze Air
  Fresheners, Gain, Ivory and Tide?
                                     13


Groups of Consumer Goods

•   Convenience Goods and Services
•   Shopping Goods and Services
•   Specialty Goods and Services
•   Unsought Goods and Services
                                                             14


  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
                                                      15


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
                                                                  16


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
                                                     17


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
                                                       18


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
                                                                                                              19


                         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
                                                  21


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)
                                     22

  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
                               
                                                23


Trademark

• A Brand that has been given exclusive legal
  protection for both the brand name and the
  pictorial design
                                                        24


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
                                                    25


Manufacturers’ Brand Name

• The brand name of manufacturers that distribute
  products nationally and internationally
• Examples:
 ▫ Sony
 ▫ Honda
 ▫ Kodak
                                                                  26

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
                           27


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
                                                 28


Knockoff Brands

• Illegal Copies of national brand name goods
• Examples:
 ▫ Is you expensive watch or dress a knockoff?
                                                      29

  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
                                                      30

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
*
*
                                  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
*
*                                    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
*
*                             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
*
*             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
                                                                          14-34
*
*                                      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
                                                            14-35
                                                   36


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
*
*            New-Product
*        Development Process

    1. Idea Generation 4. Development
    2. Screening       5. Testing
    3. Analysis        6. Commercialize




                                      14-37
                                                      38


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?
                                                         39


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
                                                               40


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
*
*
*                       by Five Major Companies
                   • Hershey - Caramels
                   • Amway - No-rinse car wash
                   • Heinz - Horseradish
                   • Avon - Little Dot perfume set
                   • 3M - Sandpaper

    Source: World Features Syndicate
                                                     14-41
*
*                                        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
*
*                                Best Product
*                           Innovation of ALL Time

                                         % of Consumers’ Choice




    Source: American Demographics
                                                                  14-43
*
*                       Consumers Attitudes
*                       about New Products




    Source: USA Today
                                              14-44
*
*                       Why People Purchase
*                          New Products




    Source: USA Today
                                              14-45
                                                   46


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)
47
     Product Life Cycle
                                         48

Product Life Cycle: Different Stages
Require Different Marketing Strategies
                                         49

Product Life Cycle: Different Stages
Require Different Marketing Strategies
                                                       50

        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
                                                                               51

    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
                                                     52

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
                                                     53


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)
                                                            54

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
                                                           55

  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?
                               56


Nonprice Competition

• Product image
• Consumer benefits such as:
 ▫   Comfort
 ▫   Durability
 ▫   Convenience
 ▫   Style
 ▫   Service
                                             57


Explain The Concept Of Total Product Offer
58
                                         59

Describe The Various Kinds Of Consumer
And Industrial Goods
                                          60

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
                                  62


New Product Development Process


1. Idea Generation
2. Screening
3. Analysis
4. Development
5. Testing
6. Commercialize
                                             63

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
                                                  65

Nonpricing Strategies (Why They Are
Becoming More Important)

• Because Prices are often similar
• Internet makes it easy to find the best price

				
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