ChapterFourteen Developing and Pricing Products and Services

Consumer Choices of Best Product Innovation of ALL Time Source: American Demographics 0%10%20%30%40%50%60%70% Automobile Light Bulb Telephone Television Aspirin

Product Development & Value Package  Value- Total Product Offer Price Package Store surroundings Image created by advertising Guarantee Service Reputation of producer Speed of delivery Brand name Convenience Buyer’s past experience Everything consumers consider when making a purchase Internet access

Product Development & Value Package Product Line  Product Mix  Product Differentiation A company’s similar goods or services Perceived differences in goods or services

Classic Product Failures Failure CompanyLoss EdselCorfamVideoDiscPCjr New Coke Premier Ford Motor Co. DuPontRCAIBMCoca-Cola R. J. Reynolds $250 M $100 M $500 M $ 40 M No $ Number

First Products Produced by Five Major Companies Hershey Caramels Amway No-rinse car wash Heinz Horseradish Avon Little Dot perfume set 3M Sandpaper Source: World Features Syndicate

Mickey Mouse’s Product Mix  Theme parks & resorts  ABC Television Network  TV & radio stations  Film studios & production  Video programs & licensing  Consumer products  Publishing

Marketing Classes of Goods & Services  Consumer Goods -Convenience -Shopping -Specialty -Unsought  Industrial for frequent purchases (7-11) for comparing value (mall) for small market segment unexpected purchases for production of other goods for final use

Importance of Packaging 1)Protect 2)Attract 3)Describe 4)Explain 5)Warranties 6)Price, Value, Uses

Branding Mary’s Fresh Fruit Jams Fresh Daily Straight from the Garden  Brand & Trademark   Categories -Manufacturers’ -Knockoff -Dealer/Private -Generic  name, symbol or design  exclusive use  for national distribution  illegal copies  carry distributors name like Sears  non-branded aspirin, zipper, linoleum, nylon, kerosene, escalator Xerox, rollerblade, kleenex, Coke,??

Branding Mary’s Fresh Fruit Jams Fresh Daily Straight from the Garden  Equity  Loyalty  Awareness  Association  awareness, images quality, loyalty  commitment to purchases  name represents category  linking to favorable images

Market Value of A Brand Name Source: Source: Interbrand Group Billions of Dollars

A Good Brand Name...  Speaks directly to product’s target customers  Attracts/motivates consumers to try it  Is memorable/sticks in customers’ minds  Is distinctive enough to protect it legally  Speaks directly to product’s target customers  Attracts/motivates consumers to try it  Is memorable/sticks in customers’ minds  Is distinctive enough to protect it legally

Most Powerful Internet Brands CategoryBrand Books & Music Amazon.comBuy.com Brokerage Charles Schwab, Ameritrade, E*Trade Search Engine Google, Yahoo, MSN, AOL Travel Expedia, Travelocity, Fodors, Priceline Source: Business 2.0, July 2002, p. 86.

Brands Consumers Consider Most Reliable  CRAFTSMAN TOOLS  WATERFORD CRYSTAL  ROLL-ROYCE MOTOR CARS  DISCOVERY CHANNEL  WD-40 LUBRICANT  BOSE STEREO/SPEAKER SYSTEMS  CRAYOLA CRAYONS/MARKERS  HERSHEY KISSES

New-Product Development Idea Generation Screening Analysis Development Testing Commercialize

Soft Drink Brands That Didn’t Make It Juicy Fruit with Lemon Lime Lemon Merengue Cream Wizard Wintergreen Crow Clove Kentucky No Nip Cherry Julep Satan’s Punch Green Tangerine Sourer Key Lime Cream Source: St. Louis Post-Dispatch

Renaming Brands OLD NAME NEW NAME BELL ATLANTICVERIZON BELL SOUTHCINGULAR AMERICAN BRANDSFORTUNE BRANDS CIBANOVARTIS VALUJETAIR TRON Source: Forbes Magazine, December 21, 2002

Sales and Profits During the PLC Life Cycle Stage SalesProfitsCompetitors Introduction low sales losses may occur few Growth rapidly rising slaes very high profits growing number Maturity peak sales declining profits stable, then declining Decline falling sales profits may become losses declining number

What They Cost When First Introduced 1927 Transatlantic Call$ 75/3 min. 1947Microwave Oven$ 3, FAX unit rental$ 850/month 1970Pocket Calculator$ VCR Tape$ 50 Source: World Features Syndicate

Pricing  Objectives $ROI (profit) $Building Traffic $Greater Market Share $Increasing Sales $Creating an Image $Social Objectives  Cost-Based  Value- Service  Break-Even -Fixed Cost -Variable Cost  Other Strategies -Skim – high price -Penetration - low -EDLP – no sales -High-Low -Psychological - $9.99 -Bundling – washer/dryer  Leadership

Breakeven Chart (Figure 14.9) Total Revenue or Total Cost Number of Units

Pricing Using Breakeven Analysis Problem Should we charge $2 or $3 per box? Costs Total Fixed Costs$400,000 Costs Total Fixed Costs$400,000 Variable Cost$1 per box Market Research Forecast Company can sell: 290,000 boxes at 210,000 boxes at 210,000 boxes at Breakeven point = total fixed cost price - variable cost (per unit) (per unit) price - variable cost (per unit) (per unit) $2 price = $400, ,000 units to breakeven $2 - $1 $2 - $1 $3 price = $400, ,000 units to breakeven 3 - $1 3 - $1 BreakevenAnalysis

Market Share-Cable Source: Source: Wall Street Journal 1/12/2000

Movies- Domestic Box Office Market Share Source: Source: Wall Street Journal, 1/12/2000

Market Share of Video Sales Source: Source: Wall Street Journal, 1/12/2000