14-1 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. NickelsMcHughMcHugh Nickels Cover

14-2 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 1414 Developing and Pricing Products and Services 14-2

14-3 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Best Product Innovation of ALL Time Source: American DemographicsAmerican Demographics % of Consumers’ Choice

14-4 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Product Development & Value Package Value- Total Product OfferValue- Total Product Offer Product LineProduct Line Product MixProduct Mix Product DifferentiationProduct Differentiation

14-5 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. How Six Products Were First Marketed ProductTechnique Corn Flakes Mail Order Only Ragu Spaghetti Sauce Door-to-Door Tea Wrapped in Silk Bags Perforated Toilet Paper On The Street Noxzema Skin Cream As Sunburn Remedy Tabasco Sauce In Used Cologne Bottles

14-6 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Mickey Mouse’s Product Mix  Theme parks & resorts  ABC Television Network  TV & radio stations  Film studios & production  Video programs & licensing  Consumer products  Publishing Disney Online - The Official Home Page of The Walt Disney Company!

14-7 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Marketing Classes of Goods & Services ConsumerConsumer -Convenience Convenience -Shopping Shopping -Specialty Specialty -Unsought Unsought IndustrialIndustrial

14-8 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Packaging 1)Protect 2)Attract 3)Describe 4)Explain 5)Warranties 6)Price, Value, Uses RFID Chips Privacy Issues

14-9 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Branding Brand & Trademark  Brand & Trademark  Categories Categories - Manufacturers’ - Knockoff Knockoff - Dealer/Private - Generic Equity Equity Loyalty Loyalty Awareness Awareness Association Association Brand—Name, symbol, or design that identifies the goods or services of one seller or group of sellers and distinguishes them from the goods and services of competitors.

14-10 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Market Value of A Brand Name Source: Source: Gerry Khermouch, “The Best Global Brands,” BusinessWeek, August 5, 2002, p.93. Billions of Dollars

14-11 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 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.

14-12 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Brands Consumers Consider Most Reliable CRAFTSMAN TOOLSCRAFTSMAN TOOLS WATERFORD CRYSTALWATERFORD CRYSTAL ROLL-ROYCE MOTOR CARSROLL-ROYCE MOTOR CARS DISCOVERY CHANNELDISCOVERY CHANNEL WD-40 LUBRICANTWD-40 LUBRICANT BOSE STEREO/SPEAKER SYSTEMSBOSE STEREO/SPEAKER SYSTEMS CRAYOLA CRAYONS/MARKERSCRAYOLA CRAYONS/MARKERS HERSHEY KISSESHERSHEY KISSES

14-13 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 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

14-14 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 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

14-15 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Renaming Brands OLD NAME NEW NAME BELL ATLANTICVERIZON BELL SOUTHCINGULAR AMERICAN BRANDSFORTUNE BRANDS CIBANOVARTIS VALUJETAIR TRON Source: Forbes Magazine, December 21, 2002

14-16 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 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

14-17 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 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

14-18 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. New-Product Development Idea Generation Screening Analysis Development Testing Commercialize

14-19 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Sales & Profits During the PLC

14-20 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Pricing ObjectivesObjectives $ROI $Traffic $Market Share $Sales $Image $Social Cost-BasedCost-Based Value- ServiceValue- Service Break-Even Break-Even $Fixed Cost $Variable Cost Strategies Strategies -Skim -Penetration -EDLP -High-Low Market Forces Market Forces

14-21 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 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

14-22 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Breakeven Chart Total Revenue or Total Cost Number of Units

14-23 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 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 price - variable cost (per unit) (per unit) (per unit) (per unit) $2 price = $400,000 = 400,000 units to breakeven $2 - $1 $2 - $1 $3 price = $400,000 = 200,000 units to breakeven $3 - $1 $3 - $1 Breakeven point = total fixed cost price - variable cost price - variable cost (per unit) (per unit) (per unit) (per unit) $2 price = $400,000 = 400,000 units to breakeven $2 - $1 $2 - $1 $3 price = $400,000 = 200,000 units to breakeven $3 - $1 $3 - $1 BreakevenAnalysis