Creating and Pricing Products That Satisfy Customers

Learning Objectives 12-1 Explain what a product is and how products are classified. 12-3 Define product line and product mix and distinguish between the two. 12-4c Developing New Products 12-5 Explain the uses and importance of branding, packaging, and labeling.

Learning Objectives (continued) 12-6 Price and Perception 12-8 Examine the three major pricing methods that firms employ. 12-9 Explain the different strategies available to companies for setting prices.

Learning Objectives 12-1 Consumer vs. Business Products? Which one (or more) relate to us? 12-3 Define product line and product mix and distinguish between the two What will we have, and why? 12-4c Explain the process What parts apply to us? 12-5 Why is branding and packaging important? How can we use this in our business?

Learning Objectives (continued) 12-6 What are the three strategies explained in the book? How does price influence perception? 12-8 Examine the three major pricing methods that firms employ. Which one is best for us, and why? 12-9 Explain the 5 different strategies available to companies for setting prices. Which one/ones might we want to use?

Product Product: Everything one receives in an exchange, including all tangible and intangible attributes and expected benefits Can be a: Good Service Idea

Classification of Products Consumer product: Purchased to satisfy personal and family needs Business product: Bought for resale, making other products, or using in a firm’s operations

Consumer Product Classifications Convenience product: Inexpensive, frequently purchased Shopping product: Item for which buyers expend on planning and making the purchase Specialty product: Items that possess unique characteristics for which buyers are willing to expend purchasing effort

Examples of Consumer Products Goldfish, a convenience product, is an item you are likely to grab off the shelf without much thought as you walk through the snack aisle of a grocery store By contrast, people may spend a considerable amount of time and effort engaged in comparison shopping behavior when buying a product, like a handbag

Business Product Classifications Raw material: Basic material that becomes part of a physical product Major equipment: Large tools and machines used for production purposes Accessory equipment: Standardized equipment used in a firm’s production or office activities Component part: Item that becomes a part of a physical product Additional Resources North American Product Classification System http://www.census.gov/eos/www/napcs/

Business Product Classifications (continued) Process material: Material used directly in the production of another product but is not readily identifiable in the finished product Supply: Item that facilitates production and operations but does not become part of the finished product Business service: Intangible product that an organization uses in its operations

The Product Life-Cycle Introduction Growth Maturity Decline Stages in which a product’s sales revenue and profit increase, reach a peak, then decline Introduction Growth Maturity Decline Additional Resources Product Life Cycle Examples http://productlifecyclestages.com/product-life-cycle-examples/ Life cycle of Apple products http://manifestedmarketing.com/2012/03/29/apple-an-introduction-to-marketing-strateg/

Stages of the Product Life- Cycle

Class Exercise 1 For the products below, determine what stage of product life cycle the product is currently in and the marketing implications involved. Compact disc players Online computer services Aspirin Cigarettes Laptop computers Pay phones

Product Line and Product Mix Product line: A group of similar products that differ only in minor characteristics Product mix: All products that a firm offers for sale Width of the mix—Number of product lines Depth of the mix—Average number of individual products Additional Resources Product line of Procter&Gamble http://www.thestreet.com/story/10828657/1/procter-gamble-broadens-product-line.html Product mix of TATA http://www.tata.in/products/index.aspx?sectid=ghCu6vsg2vU=

Part of a Product Line What, according to you, are the advantages of having many products in a single product line? What are the possible disadvantages?

Managing Existing Products Product modifications: Changing one or more of a product’s characteristics Line extensions: Developing a product that is similar to the existing product line but serves different customer needs Product deletion: Eliminating products to maintain an effective product mix Additional Resources Examples of product modification http://crossculturalreviews.blogspot.in/2008/08/couple-examples-of-product-modification.html Building your brand with brand line extensions http://www.extension.iastate.edu/agdm/wholefarm/html/c5-52.html

Product Modifications Existing products can be altered in three primary ways: Quality modifications—changes that relate to a product’s dependability and durability and are usually achieved by alterations in the materials or production process Functional modifications—affect a product’s versatility, effectiveness, convenience, or safety Aesthetics modifications—change the sensory appeal of a product by altering its taste, texture, sound, smell, or visual characteristics

Line Extensions A line extension is the development of a product closely related to one or more products in the existing product line but designed specifically to meet somewhat different customer needs Line extensions help companies like Frito Lay to be more competitive and to maintain or increase their market shares.

Deleting Products To maintain an effective product mix, an organization often has to eliminate some products—this is called product deletion A weak and unprofitable product: Costs a company time, money, and resources Can negatively impact the customer perception and sales of other products sold by the firm Google had to withdraw Google Glass from the market due to technical issues.

Developing New Products Developing and introducing new products is: Time consuming Expensive Risky New products are generally grouped into three categories on the basis of their degree of similarity to existing products Imitations Adaptations Innovations

Phases of New Product Development Generally, marketers follow these seven steps to develop a new product Source: William M. Pride and O. C. Ferrell, Marketing, 18th ed. (Mason, OH: South- Western/Cengage Learning, 2016). Adapted with permission.

Why Do Products Fail? The product and its marketing program are not planned and tested completely The product is marketed before all the bugs are worked out Firms ignore problems in testing and push ahead anyway to recover costs Firms try to market a product with inadequate financing Additional Resources 25 biggest product flops of all time http://www.dailyfinance.com/photos/top-25-biggest-product-flops-of-all-time/

Examples of Product Failures

What Is a Brand? Brand: A name, term, symbol, design, or any combination of these that identifies a seller’s products as distinct from those of other sellers Brand name Brand mark Trademark Trade name

Types of Brands Manufacturer brand: Owned by a manufacturer Store brand: Owned by an individual wholesaler or retailer Generic brand: Product with no brand at all

Benefits of Branding Easily recognizable Help consumers judge quality Helps firms introduce new products with the same brand name Aids in promotional efforts

Brand Loyalty and Equity Brand loyalty: Extent to which a customer is favorable toward buying a specific brand There are three levels of brand loyalty: Recognition Preference Insistence Brand equity: Marketing and financial value associated with a brand’s strength in a market

Top Ten Most Valuable Brands

How does branding benefit consumers? Class Exercise 2 We know that branding helps businesses in a number of ways. How does branding benefit consumers?

Choosing and Protecting a Brand Choosing a brand Easy to say, spell, and recall Suggests product’s uses, characteristics, and major benefits Distinctive enough to set it apart Protecting a brand Protection through registration Protecting a brand name from becoming a generic term Additional Resource Protecting the brand you’ve built against online fraud http://www.fourthsource.com/general/protecting-brand-against-online-fraud-12050 News on brand protection http://www.independent.co.uk/news/uk/home-news/britain-flooded-with-brand-police-to-protect-sponsors-7945436.html

Branding Strategies Individual branding: Firm uses a different brand for each of its products Family branding: Firm uses the same brand for all or most of its products

Brand Extension Using an existing brand to brand a new product in a different product category Caution must be taken in extending Too many times Too far outside the original product category Additional Resources Best and worst brand extensions http://www.adweek.com/news/advertising-branding/vote-best-and-worst-brand-extensions-146124 Note: Be sure that students are clear on the distinction between a line extension and brand extension.

Packaging Developing and providing a container with graphics for a product Functions of packaging Protect the product Maintain its functional form Offer consumer convenience Promote the product

Package Design Considerations Cost Single or multiple units Consistency among package designs Promotional role Needs of intermediaries Environmental responsibility

Labeling Presentation of information on a product or its package Must include information specified by federal regulations Express warranty: Written explanation of the producer’s responsibilities in the event that a product is found to be defective or otherwise unsatisfactory Additional Resources: The U.S. government gateways to consumer information about products, safety, pricing, fraud, and many other issues of interest are available through a variety of online publications and links. http://www.pueblo.gsa.gov http://www.consumer.gov

The Meaning and Use of Price Price: Amount of money a seller is willing to accept in exchange for a product Price allocates: Goods and services Financial resources

Price and Non-Price Competition Price competition: Emphasis on setting a price equal to or lower than competitors’ prices Non-price competition: Competition based on factors other than price Product differentiation: Developing and promoting differences between one’s product and all similar products

Buyers’ Perceptions of Price Buyers accept different prices for different products Premium price may be appropriate Product is considered superior Has inspired strong brand loyalty

Pricing Objectives One objective of pricing is to make a profit, but one or more of the following factors may be just as important: Survival Profit maximization Target return on investment (ROI) Market-Share Goals Status-Quo Pricing

What Does Price Communicate to You? How buyers perceive a product is often determined by its price. High prices communicate quality and status—which is why the makers of luxury goods such as Rolex watches are often reluctant to sell them at a discount. The producers of these goods don’t want to “cheapen” their brands for a quick sales boost because it could hurt the image of these brands.

Cost-Based Pricing Markup: Amount a seller adds to the cost of a product to determine its basic selling price Flaws Difficulty of determining an effective markup percentage Separates pricing from other business functions that impact marketing decisions

Cost-Based Pricing: Breakeven Analysis Gives the lowest level of production and sales at which a company can break even on a particular product Breakeven quantity Total revenue Fixed cost Variable cost Total cost

Breakeven Analysis Example

Demand-Based Pricing Based on the level of customer demand for the product Price differentiation—Setting different prices in segmented markets based on segment characteristics Airlines use demand-based pricing because the number of passengers that can be put on a specific flight is limited.

Competition-Based Pricing Based on meeting the challenge of competitors’ prices in markets Products are quite similar Price is an important customer consideration

Pricing Strategies A pricing strategy is a course of action designed to achieve pricing objectives

New-Product Strategies Price skimming: Charging the highest possible price for a product during the introduction stage of its life cycle Penetration pricing: Setting a low price for a new product to quickly build market share and discourage competitors Additional Resources When to use pricing strategies http://www.meiss.com/blog/basic-pricing-strategies-and-when-to-use-them/

Differential Pricing Charging different prices to different buyers for the same product Negotiated pricing Secondary-market pricing Periodic discounting Random discounting

Psychological Pricing Encourage purchases based on emotional responses Odd-number pricing Multiple-unit pricing Reference pricing Bundle pricing Everyday low prices (EDLPs) Customary pricing

Product-Line Pricing Establishing and adjusting the prices of multiple products within a product line Captive pricing Premium pricing Price lining

Promotional Pricing Price coordinated with promotion Price leaders Special-event pricing Comparison discounting

Geographic and Transfer Pricing of Business Products Geographic pricing: Deals with delivery costs FOB origin pricing—Seller’s pricing is exclusive of delivery costs FOB destination pricing—Seller includes transportation costs in the product pricing Transfer pricing: Prices charged in sales between an organization’s units

Discounting of Business Products A deduction from the price of an item