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*ChapterFourteen

Developingand Pricing

Goods andServices

Copyri ght 2010 by the McGraw-Hil l Companies, Inc. All ri ghts reserved.McGraw-Hill/Irwin

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*Profile

Ratan Tata introduced the $2,500 Peoples Carin 2008.

Tata Motors is part of the growing auto market inIndia - possibly the futures largest market.

RATAN TATAThe Tata Group

Tata expanded in 2008

by purchasing Jaguarand Range Rover fromFord.

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*Product

Development and

the Total Product

Offer

According to the American MarketingAssociation, value is a foundation of marketing.

Value --Good quality at a fair price.

Adapting products to new markets is an ongoingchallenge.

Product development is a key activity in anymodern business.

DEVELOPING VALUE

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*

Internet service

Cell phone service

Cable television

Discount apparel

Haircuts and coloring Fast-food

PRODUCTS UNTOUCHABLE

by SPENDING CUTSLG1

Product

Development and

the Total Product

Offer

Source: www.bigresearch.com.

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*

Luxury handbags

Satellite radio

Specialty apparel

High-end cosmetics

Facials

PRODUCTS EXPENDABLE

by SPENDING CUTSLG1

Product

Development and

the Total Product

Offer

Source: www.bigresearch.com.

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*

Lets Dish and Dream Dinners provides a servicewhere customers prepare meals then bring them

home.

HOME COOKING inHALF the TIMESpotlight on Small Business

The companiesprovide a place to

meet, has suppliesand relieves thestress and messfor its customers.

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*Developing a

Total Product

Offer

Total Product Offer -- Everything consumersevaluate when deciding whether to buy something.

DEVELOPING aTOTAL PRODUCT

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Products are evaluated onmany different dimensions,both tangible and intangible.

Marketers must think like andtalk to consumers to find outwhats important.

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*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

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*POTENTIAL COMPONENTS

of a TOTAL PRODUCT OFFERLG1

Developing a

Total Product

Offer

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*Product Lines

& Product Mix

Product Line --A group of products that arephysically 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

UNDERSTANDINGPRODUCT LINES

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*Product Lines

& Product Mix

Product Mix -- The combination of all product linesoffered by a manufacturer or service provider.

Product mixes like Proctor & Gambles can beextensive:

- Laundry detergent

- Cosmetics- Diapers

- Potato chips

- Bar soap

The PRODUCT MIX

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*Product

Differentiation

Product Differentiation -- The creation of real orperceived product differences.

Marketers use a mix of pricing, advertising andpackaging to create different images. Examplesinclude:

- Bottled water

- Aspirin

- Fast-food

- Laundry detergent

- Shampoo

DIFFERENTIATING PRODUCTS

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*Marketing Different

Classes of

Consumer Goods

and Services

Convenience Goods and Services -- Productsconsumers purchase frequently with minimal effort.

These include:- Candy and snacks

- Gas

- Milk and eggs

CLASSIFYING CONSUMERGOODS and SERVICES

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*Marketing Different

Classes of

Consumer Goods

and Services

Shopping Goods and Services -- Productsconsumers buy only after comparing value, quality,

price, and styles. These include:- Clothes and shoes

- Appliances and furniture

- Childcare

- Home remodeling

CLASSIFYING SHOPPINGGOODS and SERVICES

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*Marketing Different

Classes of

Consumer Goods

and Services

Specialty Goods and Services -- Products withunique characteristics and brand identity. These

include:

- Tiffany jewelry

- Rolex watches

- Lamborghini automobiles- Ritz Carlton Hotels

CLASSIFYING SPECIALTYGOODS and SERVICES

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*Marketing Different

Classes of

Consumer Goods

and Services

Unsought Goods and Services -- Productsconsumers arent aware of or havent thought of

buying until they need them. These include:- Car-towing services

- Funeral services

- Renters insurance

CLASSIFYING UNSOUGHTGOODS and SERVICES

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How would you classify these consumerproducts?

- Beautyrest mattress

- Honda Accord

- McDonalds Big Mac

- Rolls Royce automobiles

- Oreo Cookies

- Harvard University degree

IDENTIFYING CONSUMERGOODS CLASSIFICATIONS

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Marketing Different

Classes of

Consumer Goods

and Services

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Pet Rock - For $3.95 you could buy a gift-wrappedrock with eyes and a training manual.

Garbage Pail Kids - Perhaps the grossest tradingcards ever produced.

Mood Rings - Wildly popular as the changing colorsof the ring supposedly measured your mood.

Chia Pets - Animal shaped clay figures that grewsprouts.

ODD PRODUCT IDEASthat WERE SUCCESSFUL

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Marketing Different

Classes of

Consumer Goods

and Services

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*Marketing

Industrial Goods

and Services

Industrial Goods -- Products used in theproduction of other products and sold in the B2B

market.

Industrial goods include:

- Installations

- Capital items

- Accessory equipment

- Supplies

- Service

CLASSIFYING INDUSTRIALGOODS and SERVICES

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*Progress

Assessment

What value enhancers may be included in a totalproduct offer?

Whats the difference between a product line anda 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

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*Packaging

Changes the

Product

Companies often use packaging to change andimprove their basic product. Examples include:

- Microwave popcorn- Tuna pouches

- McDonalds green packaging

COMPANY USES of PACKAGING

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Good packaging can also makea product more attractive toretailers.

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*Packaging

Changes the

Product

To attract buyers attention

Protect the goods inside and be tamperproof

Describe and provide information about theproduct

Explain the products benefits

Provide warranty information and warnings

Give an indication of price, value, and uses

SOME KEY FUNCTIONS ofPACKAGING

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*Branding and

Brand Equity

Brand --Name, symbol, or design that identifies thegoods or services and distinguishes them from

competitors offerings.

UNDERSTANDING BRANDING

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Trademark --A brand thathas exclusive legal protection

for both its brand name anddesign.

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*Branding and

Brand Equity

Manufacturers Brands Brand names ofmanufacturers that distribute products nationally.

Dealer (Private-Label) Brands --Products thatcarry a retailers or distributors brand name instead

of a manufacturers.

KEY BRAND CATEGORIES

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*Branding and

Brand Equity

Generic Goods -- Non-branded products that sellat a discount compared to manufacturers or dealers

brands.

Knockoff Brands -- Illegal copies of nationalbrands.

KEY BRAND CATEGORIES

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*Generating

Brand Equity

and Loyalty

Brand EquityThe combination of factors(awareness, loyalty, perceived quality, images, and

emotions) that people associate with a brand name.

Brand Loyalty -- The degree to which consumersare satisfied and are committed to further purchases.

ESTABLISHING BRAND EQUITYand LOYALTY

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*

Volvo - Symbol for iron

Lamborghini - Company founders was a

Taurus

Volkswagen - Product of an office

contest

Porsche - Coat of arms for city and stateheadquarters

ORIGINS ofAUTOMOBILE SYMBOLS

LG4

Generating

Brand Equity

and Loyalty

Source: World Features Syndicate.14-27

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Timberland (U.S.A.) is putting a carbon label onits 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 countryto country.

COULDNT YOU MAKE a

SMALLER FOOTPRINT?(Thinking Green)

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*Generating

Brand Equity

and Loyalty

Brand Awareness -- How quickly or easily a givenbrand name comes to mind when someone mentions

a product category.

Consumers reach a point of brand preferencewhen they prefer one brand over another.

When consumers reach brand insistence, theywill not accept substitute brands.

BUILDING BRAND AWARENESS

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*Generating

Brand Equity

and Loyalty

Brand Association -- Linking a brand to otherfavorable images, like celebrities or a geographic

area.

Brand Manager -- Person responsible for aparticular brand and handles all the elements of the

brands marketing mix.

BUILDING BRANDASSOCIATIONS

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*Progress

Assessment

What six functions does packaging now perform?

Whats the difference between a brand name anda 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

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*The NewProduct

Development

Process

The NEW PRODUCTDEVELOPMENT PROCESS

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Product Screening -- Reduces the number of newproducts a firm is working on to focus on the most

promising.

Product Analysis -- Focuses on the cost estimatesand sales forecasts to get an idea of potential

profitability.

BRINGING NEW PRODUCTSto the MARKET

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The New

Product

Development

Process

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Concept Testing --Takes a product idea toconsumers to test reactions.

BRINGING NEW PRODUCTSto the MARKET

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The New

Product

Development

Process

Commercialization --Promoting the product to

distributors and retailers and

developing the promotionalcampaign.

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*The Product

Life Cycle

Product Life Cycle --A theoretical look at whathappens to sales and profits for a product over time.

Product Life Cycle Stages:

1. Introduction

2. Growth3. Maturity

4. Decline

The FOUR STAGES of aPRODUCT LIFE CYCLE

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*The Product

Life CycleSALES and PROFITS DURINGthe PRODUCT LIFE CYCLE

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PROFITS BEYOND the GRAVETop 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.

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*Progress

Assessment

What are the six steps in the new-productdevelopment process?

Whats the difference between product screeningand product analysis?

What are the two steps in commercialization?

Whats the theory of the product life cycle?

PROGRESS ASSESSMENT

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*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 andlong-run

PRICING OBJECTIVES

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*Competitive

Pricing

Cost-based pricing measures cost of producing aproduct including materials, labor, and overhead.

Target Costing -- Making the final price of aproduct an input in the product development process

by estimating the selling price consumers will pay.

Competition-Based Pricing --A strategy basedon what the competition is charging for its products.

PRICING STRATEGIES

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Choco-Logo saw its costs increase dramaticallyin one year.

The company cut back by using less expensivepackaging and reducing the size of a box ofchocolates.

WHEN SELLING SWEETSGOES SOUR

(Reaching Beyond Our Borders)

Pricing is a process thatsnever simple. You need tomaintain high quality whilecutting costs.

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*Break-Even

Analysis

Break-Even Analysis -- The process used todetermine profitability at various levels of sales. The

break-even point is where revenues equals cost.

Total Fixed Costs --All costs that remain the sameno matter how much is produced or sold.

Variable Costs -- Costs that change according tothe level of production.

USING BREAK-EVEN ANALYSIS

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*Other Pricing

Strategies

Skimming Price Strategy -- Pricing new productshigh to recover costs and make high profits while

competition is limited.

Penetration Price Strategy -- Pricing products lowwith the hope of attracting more buyers and

discouraging other companies from competing in the

market.

Everyday Low Pricing (EDLP) -- Setting priceslower than competitors with no special sales.

PRICING ALTERNATIVES

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*Other Pricing

Strategies

High-Low Pricing -- Using regular prices that arehigher than EDLP except during special sales when

they are lower.

Psychological Pricing -- Pricing products at pricepoints that make a product seem less expensive than

it is.

PRICING STRATEGIESof RETAILERS

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Progress

Assessment

List two short-term and two long-term pricingobjectives. Can the two be compatible?

What are the limitations of a cost-based pricingsystem?

Whats psychological pricing?

PROGRESS ASSESSMENT