* * Chapter Fourteen Developing and Pricing Goods and Services Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

*

*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 TATAThe 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 VALUELG1

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 TIMESpotlight 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 DEPRESSIONLG1

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 OFFERLG1

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 SHOPPINGGOODS 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 SPECIALTYGOODS 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 UNSOUGHTGOODS 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 CycleSALES and PROFITS DURING

the PRODUCT LIFE CYCLELG6

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