Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Developing and Pricing Goods and Services CHAPTER 14

DEVELOPING VALUE 14-2 LO 14-1 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.

PRODUCTS CONSUMERS WON’T GIVE UP 14-3 LO 14-1 Internet service Cell phone service Cable television Discount apparel Haircuts and coloring Fast-food

PRODUCTS “EXPENDABLE” by SPENDING CUTS 14-4 LO 14-1 Luxury handbags Satellite radio Specialty apparel High-end cosmetics Facials

BELLYING UP to SOCIAL MEDIA 14-5 Bocktown Beer and Grill is at the front of mobile media marketing.Bocktown Beer and Grill It holds polls on Facebook and Twitter that let customers pick the beers on tap.Facebook Twitter It also uses Tabbedout, a mobile app that allows customers to pay their bill without returning to the bar or giving their card to a server.Tabbedout

Distributed Product Development -- The handing off of various parts of your innovation process - often overseas. DISTRIBUTED PRODUCT DEVELOPMENT 14-6 LO 14-1 The increase in outsourcing has resulted in using multiple organizations separated by cultural, geographic and legal boundaries.

Total Product Offer -- Everything consumers evaluate when deciding whether to buy something. DEVELOPING a TOTAL PRODUCT 14-7 LO 14-1 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.

PRODUCT INNOVATION DURING the GREAT DEPRESSION Source: BusinessWeek Small Biz LO 14-1

ANYTHING YOU CAN DO… Products Replacing Products 14-9 LO 14-1

Product Line -- A group of products that are physically similar or intended for a similar market. UNDERSTANDING PRODUCT LINES Photo Courtesy of: Coca-Cola Art Gallery LO 14-1 Product lines often include competing brands like:  Coca-Cola  Diet Coke  Coke Zero  Cherry Coke

The PRODUCT MIX LO 14-1 Product Mix -- The combination of all product lines offered by a manufacturer or service provider. Product mixes like Procter & Gamble’s can be extensive:Procter & Gamble  Toothpaste  Cosmetics  Diapers  Batteries  Bar soap

DIFFERENTIATING PRODUCTS LO 14-2 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

CLASSIFYING CONSUMER GOODS and SERVICES LO 14-2 Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include:  Candy and snacks  Gas  Milk and eggs

CLASSIFYING SHOPPING GOODS and SERVICES LO 14-2 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 SPECIALTY GOODS and SERVICES LO 14-2 Specialty Goods and Services -- Products with unique characteristics and brand identity. These include:  Tiffany jewelry  Rolex watches  Lamborghini automobiles  Ritz Carlton Hotels

CLASSIFYING UNSOUGHT GOODS and SERVICES Photo Credit: Paul Chenoweth LO 14-2 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

ODD PRODUCT IDEAS that WERE SUCCESSFUL LO 14-2 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 (even President shaped) clay figures that grew sprouts.Chia Pets

USES of PACKAGING Good packaging can also make a product more attractive to retailers LO 14-3 Companies often use packaging to change and improve their basic product. Examples include:  Microwave popcorn  Tuna pouches  McDonald’s green packaging

SOME KEY FUNCTIONS of PACKAGING LO ) To attract buyers’ attention 2) Protect the goods inside and be tamperproof 3) Be easy to open 4) Describe and give information about the product 5) Explain the product’s benefits 6) Provide warranty information and warnings 7) Give an indication of price, value, and uses

Bundling -- Grouping two or more products together and pricing them as a unit. BUNDLING Photo Credit: Joey Day LO 14-3 Virgin Airlines bundles door-to-door limo service and inflight massage with some tickets. Financial institutions bundle advice with purchases.

Brand -- Name, symbol, or design that identifies the goods or services and distinguishes them from competitors’ offerings. UNDERSTANDING BRANDING LO 14-4 Trademark -- A brand that has exclusive legal protection for both its brand name and design.

KEY BRAND CATEGORIES Photo Credit: Joe Mudd LO 14-4 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 LO 14-4 Generic Goods -- Nonbranded products that sell at a discount compared to manufacturers’ or dealers’ brands. Knockoff Brands -- Illegal copies of national brands.

ESTABLISHING BRAND EQUITY and LOYALTY LO 14-4 Brand Equity – The value of the brand name and associated symbols. Brand Loyalty -- The degree to which consumers are satisfied and are committed to further purchases.

BUILDING BRAND ASSOCIATIONS LO 14-4 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.

MADE in AMERICA? Home Countries of America’s Favorite Brands LO 14-4

BRINGING NEW PRODUCTS to the MARKET LO 14-5 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.

HOW to BRING NEW PRODUCTS to MARKET Source: Fast Company, accessed November LO Build up slowly - When starting up, don’t go too fast. 2. Design for a single function - Pick one function and make it the best you can. 3. Package it perfectly - “Unboxing” your new buy is the best part. Make it exciting to open. 4. Become a status symbol - Make it something to show off.

Concept Testing -- Takes a product idea to consumers to test reactions. BRINGING NEW PRODUCTS to the MARKET LO 14-5 Commercialization -- Promoting the product to distributors and retailers and developing the promotional campaign.

The FOUR STAGES of a PRODUCT LIFE CYCLE LO 14-6 Product Life Cycle -- A theoretical model of what happens to sales and profits for a product over time. Product Life Cycle Stages: 1. Introduction 2. Growth 3. Maturity 4. Decline

SALES and PROFITS DURING the PRODUCT LIFE CYCLE LO 14-6

PROFITS BEYOND the GRAVE Top Earning Deceased Celebrities in 2014 Source: Forbes, accessed November LO 14-6

PRICING OBJECTIVES LO ) Achieving a target return on investment or profit 2) Building traffic 3) Achieving greater market share 4) Creating an image 5) Furthering social objectives both short-run and long-run

PRICING STRATEGIES LO 14-7 Cost-based pricing measures cost of producing a product including materials, labor, and overhead. Target Costing – Designing a product that satisfies customers and meets the firm’s targeted profit margins. Competition-Based Pricing -- A strategy based on what the competition is charging for its products.

USING BREAK-EVEN ANALYSIS LO 14-7 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.

PRICING ALTERNATIVES LO 14-7 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 STRATEGIES of RETAILERS LO 14-7 High-Low Pricing -- Using regular prices that are higher than EDLP stores 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.