*

* Chapter

Fourteen

Developing

and Pricing

Goods and

Services

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

*

* Profile

• Ratan Tata introduced the $2,500 “People’s Car”

in 2008.

• Tata Motors is part of the growing auto market in

India - possibly the future’s largest market.

RATAN TATA The Tata Group

• Tata expanded in 2008

by purchasing Jaguar

and Range Rover from

Ford.

14-2

*

* Product

Development and

the Total Product

Offer

• According to the American Marketing

Association, value is a foundation of marketing.

• Value -- Good quality at a fair price.

• Adapting products to new markets is an ongoing

challenge.

• Product development is a key activity in any

modern business.

DEVELOPING VALUE

LG1

14-3

*

*

• Internet service

• Cell phone service

• Cable television

• Discount apparel

• Haircuts and coloring

• Fast-food

PRODUCTS “UNTOUCHABLE”

by SPENDING CUTS LG1

Product

Development and

the Total Product

Offer

Source: www.bigresearch.com.

14-4

*

*

• Luxury handbags

• Satellite radio

• Specialty apparel

• High-end cosmetics

• Facials

PRODUCTS “EXPENDABLE”

by SPENDING CUTS LG1

Product

Development and

the Total Product

Offer

Source: www.bigresearch.com.

14-5

*

*

• Let’s Dish and Dream Dinners provides a service

where customers prepare meals then bring them

home.

HOME COOKING in

HALF the TIME Spotlight on Small Business

• The companies

provide a place to

meet, has supplies

and relieves the

stress and mess

for its customers.

14-6

*

* Developing a

Total Product

Offer

• Total Product Offer -- Everything consumers

evaluate when deciding whether to buy something.

DEVELOPING a

TOTAL PRODUCT LG1

• Products are evaluated on

many different dimensions,

both tangible and intangible.

• Marketers must think like and

talk to consumers to find out

what’s important.

14-7

*

* PRODUCT INNOVATION DURING

the GREAT DEPRESSION LG1

Developing a

Total Product

Offer

Source: BusinessWeek Small Biz.

Year Product

1929 Electric Razors

1930 Car Radios

1930 Supermarkets

1933 Chocolate Chip Cookies

1933 Laundromats

14-8

*

* POTENTIAL COMPONENTS

of a TOTAL PRODUCT OFFER LG1

Developing a

Total Product

Offer

14-9

*

* Product Lines

& Product Mix

• Product Line -- A group of products that are

physically similar or intended for a similar market.

• Product lines often include competing brands like:

- M&Ms

- Peanut M&Ms

- Mint M&Ms

- Dark Chocolate M&Ms

UNDERSTANDING

PRODUCT LINES LG1

14-10

*

* Product Lines

& Product Mix

• Product Mix -- The combination of all product lines

offered by a manufacturer or service provider.

• Product mixes like Proctor & Gamble’s can be

extensive:

- Laundry detergent

- Cosmetics

- Diapers

- Potato chips

- Bar soap

The PRODUCT MIX

LG1

14-11

*

* Product

Differentiation

• 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

DIFFERENTIATING PRODUCTS

LG2

14-12

*

* Marketing Different

Classes of

Consumer Goods

and Services

• Convenience Goods and Services -- Products

consumers purchase frequently with minimal effort.

These include:

- Candy and snacks

- Gas

- Milk and eggs

CLASSIFYING CONSUMER

GOODS and SERVICES LG2

14-13

*

* Marketing Different

Classes of

Consumer Goods

and Services

• 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

CLASSIFYING SHOPPING

GOODS and SERVICES LG2

14-14

*

* Marketing Different

Classes of

Consumer Goods

and Services

• Specialty Goods and Services -- Products with

unique characteristics and brand identity. These

include:

- Tiffany jewelry

- Rolex watches

- Lamborghini automobiles

- Ritz Carlton Hotels

CLASSIFYING SPECIALTY

GOODS and SERVICES LG2

14-15

*

* Marketing Different

Classes of

Consumer Goods

and Services

• 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

CLASSIFYING UNSOUGHT

GOODS and SERVICES LG2

14-16

*

*

• How would you classify these consumer

products?

- Beautyrest mattress

- Honda Accord

- McDonald’s Big Mac

- Rolls Royce automobiles

- Oreo Cookies

- Harvard University degree

IDENTIFYING CONSUMER

GOODS CLASSIFICATIONS LG2

Marketing Different

Classes of

Consumer Goods

and Services

14-17

*

*

• 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.

ODD PRODUCT IDEAS

that WERE SUCCESSFUL LG2

Marketing Different

Classes of

Consumer Goods

and Services

14-18

*

* Marketing

Industrial Goods

and Services

• 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

CLASSIFYING INDUSTRIAL

GOODS and SERVICES LG2

14-19

*

* Progress

Assessment

• What value enhancers may be included in a total

product offer?

• What’s the difference between a product line and

a product mix?

• Name the four classes of consumer goods and

services and give examples of each.

• Describe three different types of industrial goods.

PROGRESS ASSESSMENT

14-20

*

* Packaging

Changes the

Product

• Companies often use packaging to change and

improve their basic product. Examples include:

- Microwave popcorn

- Tuna pouches

- McDonald’s green packaging

COMPANY USES of PACKAGING

LG3

• Good packaging can also make

a product more attractive to

retailers.

14-21

*

* Packaging

Changes the

Product

• To attract buyers’ attention

• Protect the goods inside and be tamperproof

• Describe and provide information about the

product

• Explain the product’s benefits

• Provide warranty information and warnings

• Give an indication of price, value, and uses

SOME KEY FUNCTIONS of

PACKAGING LG3

14-22

*

* Branding and

Brand Equity

• Brand -- Name, symbol, or design that identifies the

goods or services and distinguishes them from

competitors’ offerings.

UNDERSTANDING BRANDING

LG4

• Trademark -- A brand that

has exclusive legal protection

for both its brand name and

design.

14-23

*

* Branding and

Brand Equity

• Manufacturers’ Brands – Brand names of

manufacturers that distribute products nationally.

• Dealer (Private-Label) Brands -- Products that

carry a retailer’s or distributor’s brand name instead

of a manufacturer’s.

KEY BRAND CATEGORIES

LG4

14-24

*

* Branding and

Brand Equity

• Generic Goods -- Non-branded products that sell

at a discount compared to manufacturers’ or dealers’

brands.

• Knockoff Brands -- Illegal copies of national

brands.

KEY BRAND CATEGORIES

LG4

14-25

*

* Generating

Brand Equity

and Loyalty

• 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.

ESTABLISHING BRAND EQUITY

and LOYALTY LG4

14-26

*

*

• Volvo - Symbol for iron

• Lamborghini - Company founder’s was a

Taurus

• Volkswagen - Product of an office

contest

• Porsche - Coat of arms for city and state

headquarters

ORIGINS of

AUTOMOBILE SYMBOLS LG4

Generating

Brand Equity

and Loyalty

Source: World Features Syndicate. 14-27

*

*

• Timberland (U.S.A.) is putting a carbon label on

its products.

• Tesco (U.K.) puts carbon labels on all products -

including grocery bags.

• China and India, though, are building coal-

powered plants and expanding car-use.

• The focus on climate change varies from country

to country.

COULDN’T YOU MAKE a

SMALLER FOOTPRINT? (Thinking Green)

14-28

*

* Generating

Brand Equity

and Loyalty

• 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.

BUILDING BRAND AWARENESS

LG4

14-29

*

* Generating

Brand Equity

and Loyalty

• 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

brand’s marketing mix.

BUILDING BRAND

ASSOCIATIONS LG4

14-30

*

* Progress

Assessment

• What six functions does packaging now perform?

• What’s the difference between a brand name and

a trademark?

• Explain the difference between a manufacturers’

brand, a dealer brand, and a generic brand.

• What are the key elements of brand equity?

PROGRESS ASSESSMENT

14-31

*

* The New

Product

Development

Process

The NEW PRODUCT

DEVELOPMENT PROCESS LG5

14-32

*

*

• 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.

BRINGING NEW PRODUCTS

to the MARKET LG5

The New

Product

Development

Process

14-33

*

*

• Concept Testing -- Takes a product idea to

consumers to test reactions.

BRINGING NEW PRODUCTS

to the MARKET LG5

The New

Product

Development

Process

• Commercialization -- Promoting the product to

distributors and retailers and

developing the promotional

campaign.

14-34

*

* The Product

Life Cycle

• Product Life Cycle -- A theoretical look at what

happens to sales and profits for a product over time.

• Product Life Cycle Stages:

1. Introduction

2. Growth

3. Maturity

4. Decline

The FOUR STAGES of a

PRODUCT LIFE CYCLE LG6

14-35

*

* The Product

Life Cycle SALES and PROFITS DURING

the PRODUCT LIFE CYCLE LG6

14-36

*

* PROFITS BEYOND the GRAVE

Top Earning Deceased Celebrities LG6

Celebrity Earnings Year of Death

Elvis Presley $52 Million 1977

Charles Schultz $33 Million 2000

Heath Ledger $20 Million 2008

Albert Einstein $18 Million 1955

Aaron Spelling $15 Million 2006

Dr. Seuss $12 Million 1991

John Lennon $9 Million 1980

The Product

Life Cycle

Source: Forbes, www.forbes.com/deadcelebs.

14-37

*

* Progress

Assessment

• What are the six steps in the new-product

development process?

• What’s the difference between product screening

and product analysis?

• What are the two steps in commercialization?

• What’s the theory of the product life cycle?

PROGRESS ASSESSMENT

14-38

*

* Competitive

Pricing

• Achieving a target return on investment or profit

• Building traffic

• Achieving greater market share

• Creating an image

• Furthering social objectives both short-run and

long-run

PRICING OBJECTIVES

LG7

14-39

*

* Competitive

Pricing

• 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.

PRICING STRATEGIES

LG7

14-40

*

*

• Choco-Logo saw its costs increase dramatically

in one year.

• The company cut back by using less expensive

packaging and reducing the size of a box of

chocolates.

WHEN SELLING SWEETS

GOES SOUR (Reaching Beyond Our Borders)

• Pricing is a process that’s

never simple. You need to

maintain high quality while

cutting costs.

14-41

*

* Break-Even

Analysis

• 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.

USING BREAK-EVEN ANALYSIS

LG7

14-42

*

* Other Pricing

Strategies

• 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.

PRICING ALTERNATIVES

LG7

14-43

*

* Other Pricing

Strategies

• 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.

PRICING STRATEGIES

of RETAILERS LG7

14-44

*

* Progress

Assessment

• List two short-term and two long-term pricing

objectives. Can the two be compatible?

• What are the limitations of a cost-based pricing

system?

• What’s psychological pricing?

PROGRESS ASSESSMENT

14-45