Creating and Pricing Products that Satisfy Customers Chapter Ten Creating and Pricing Products that Satisfy Customers

Learning Objectives Explain what a product is and how products are classified. Discuss the product life cycle and how it leads to new product development. Define product line and product mix and distinguish between the two. Identify the methods available for changing a product mix. Explain the uses and importance of branding, packaging, and labeling. Copyright © Cengage Learning. All rights reserved.

Learning Objectives (cont’d) Describe the economic basis of pricing and the means by which sellers can control prices and buyers’ perceptions of prices. Identify the major pricing objectives used by businesses. Examine the three major pricing methods that firms employ. Explain the different strategies available to companies for setting prices. Describe three major types of pricing associated with business products. Copyright © Cengage Learning. All rights reserved.

Chapter 10 Outline Classification of Products The Product Life Cycle Consumer Products Business Products The Product Life Cycle Stages of the Product Life Cycle Using the Product Life Cycle Product Line and Product Mix Managing the Product Mix Managing Existing Products Deleting Products Developing New Products Copyright © Cengage Learning. All rights reserved. 13 | 4

Chapter 10 Outline (cont’d) Branding, Packaging, and Labeling What Is a Brand? Types of Brands Benefits of Branding Choosing and Protecting a Brand Branding Strategies Packaging Labeling Pricing Products The Meaning and Use of Price Supply and Demand Affects Prices Price and Nonprice Competition Buyers’ Perceptions of Price Copyright © Cengage Learning. All rights reserved. 13 | 5

Chapter 10 Outline (cont’d) Pricing Objectives Survival Profit Maximization Target Return on Investment Market-Share Goals Status Quo Pricing Pricing Methods Cost-Based Pricing Demand-Based Pricing Competition-Based Pricing Copyright © Cengage Learning. All rights reserved. 13 | 6

Chapter 10 Outline (cont’d) Pricing Strategies New Product Pricing Differential Pricing Psychological Pricing Product-Line Pricing Promotional Pricing Pricing Business Products Geographic Pricing Transfer Pricing Discounting Copyright © Cengage Learning. All rights reserved. 13 | 7

Classification of Products Consumer product Business (industrial) product Copyright © Cengage Learning. All rights reserved.

Consumer Product Classifications Convenience product Shopping product Specialty product Copyright © Cengage Learning. All rights reserved.

Business Product Classifications Raw material Major equipment Accessory equipment Component part Copyright © Cengage Learning. All rights reserved.

Business Product Classifications (cont’d) Process material Supply Business service Copyright © Cengage Learning. All rights reserved.

The Product Life Cycle A series of stages in which a product’s sales revenues and profits increase, reach a peak, then decline Introduction Growth Maturity Decline stage Copyright © Cengage Learning. All rights reserved.

Using the Product Life Cycle Marketers should be aware of the life-cycle stage of each product for which they are responsible and should try to estimate how long the product is expected to remain in that stage Both must be taken into account in making decisions about the marketing strategy for a product Copyright © Cengage Learning. All rights reserved.

Product Line and Product Mix All of the products that a firm offers for sale Width of the mix Depth of the mix Copyright © Cengage Learning. All rights reserved.

Managing the Product Mix Managing existing product Product modification Line extensions Deleting products Developing new products Copyright © Cengage Learning. All rights reserved.

Why Do Products Fail? The product and its marketing program are not planned and tested as completely as they should be For example, a firm tries to save product development costs and only market-tests a product and not its entire marketing mix The firm markets a new product before all the “bugs” are worked out When problems show up in testing, a firm tries to recover its costs by pushing ahead anyway A firm tries to market a product with inadequate financing Copyright © Cengage Learning. All rights reserved.

Branding What is a brand? Brand name Brand mark Trademark Trade name Copyright © Cengage Learning. All rights reserved.

Branding (cont’d) Types of Brands Manufacturer (producer) brand Store (private) brand Generic brand Copyright © Cengage Learning. All rights reserved.

Branding (cont’d) Benefits of branding Because brands are easily recognizable, they reduce the amount of time buyers must spend shopping Brands help consumers judge quality Branding helps a firm introduce a new product with the same brand name Branding aids in promotional efforts because promotion of each branded product indirectly promotes others with the same brand Copyright © Cengage Learning. All rights reserved.

Branding (cont’d) Benefits of branding (cont’d) Brand loyalty Brand equity Copyright © Cengage Learning. All rights reserved.

Branding (cont’d) Choosing a brand Protecting a brand It should be easy to say, spell, and recall It should suggest, in a positive way, the product’s uses, special characteristics, and major benefits It should be distinctive enough to set it apart from competing brands Protecting a brand Should be protected through registration Guard against a brand name’s becoming a generic term Copyright © Cengage Learning. All rights reserved.

Branding (cont’d) Branding strategies Individual branding Family branding Copyright © Cengage Learning. All rights reserved.

Packaging All of the activities involved in developing and providing a container with graphics for a product Functions of packaging Design considerations Copyright © Cengage Learning. All rights reserved.

Labeling The presentation of information on a product or its package May include Brand name and mark Trademark symbol Package size and contents Product claims Directions Safety precautions Ingredients Name and address of manufacturer Universal Product Code (UPC) symbol for automated checkout and inventory control Copyright © Cengage Learning. All rights reserved.

Labeling (cont’d) Must include For garments, name of manufacturer, country of manufacture, fabric content, cleaning instructions Nutrition labeling in standard format for any food product for which a nutritional claim is made For food, number of servings, serving size, calories per serving, calories derived from fat, and amounts of specific nutrients For nonedible items such as shampoo and detergent, safety precautions and instructions Express warranty A written explanation of the producer responsibilities in the product is found to be defective or otherwise unsatisfactory Copyright © Cengage Learning. All rights reserved.

Pricing Products Meaning and use of price The amount of money a seller is willing to accept in exchange for a product at a given time and under certain circumstances Price allocates goods and services among those who are willing and able to buy them Price allocates financial resources (sales revenue) among producers according to how well they satisfy customers’ needs Price helps customers allocate their own financial resources among various want-satisfying products Copyright © Cengage Learning. All rights reserved.

Pricing Products (cont’d) Supply and demand affects prices Supply Demand Equilibrium Copyright © Cengage Learning. All rights reserved.

Pricing Products (cont’d) Price and nonprice competition Price competition Nonprice competition Buyers’ perceptions of price Buyers will accept different ranges of prices for different products A premium price may be appropriate if a product is considered superior or has inspired strong brand loyalty Copyright © Cengage Learning. All rights reserved.

Pricing Objectives Survival Profit maximization Target return on investment (ROI) Market share goals Status quo pricing Copyright © Cengage Learning. All rights reserved.

Pricing Methods Cost-based pricing The seller determines the total cost of producing one unit of the product then adds an amount to cover additional costs and profit (markup) Markup may be calculated as a percentage of total costs Flaws Copyright © Cengage Learning. All rights reserved.

Pricing Methods Breakeven analysis Breakeven quantity Total revenue Fixed cost Variable cost Total cost Copyright © Cengage Learning. All rights reserved.

Pricing Methods (cont’d) Demand-based pricing Based on the level of customer demand for the product Product prices are high when demand is high and low when demand is weak Price differentiation Competition-based pricing Based on meeting the challenge of competitors’ prices in markets where products are quite similar or price is an important customer consideration Copyright © Cengage Learning. All rights reserved.

Pricing Strategies 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 Copyright © Cengage Learning. All rights reserved.

Pricing Strategies (cont’d) Differential pricing Charging different prices to different buyers for the same quality and quantity of product The market must consist of multiple segments with different price sensitivities Negotiated pricing Secondary-market pricing Periodic discounting Random discounting Copyright © Cengage Learning. All rights reserved.

Pricing Strategies (cont’d) Psychological pricing Odd-number pricing Multiple-unit pricing Reference pricing Bundle pricing Everyday low prices (EDLPs) Customary pricing Copyright © Cengage Learning. All rights reserved.

Pricing Strategies (cont’d) Product-line pricing Establishing and adjusting the prices of multiple products within a product line Captive pricing Premium pricing Price lining Copyright © Cengage Learning. All rights reserved.

Pricing Strategies (cont’d) Promotional pricing Price leaders Special-event pricing Comparison discounting Copyright © Cengage Learning. All rights reserved.

Pricing Business Products Geographic pricing Deals with delivery costs FOB (free-on-board) origin pricing FOB destination pricing Transfer pricing Prices charged in sales between an organization’s units Copyright © Cengage Learning. All rights reserved.

Pricing Business Products (cont’d) Discounting Trade discounts Quantity discounts Cash discounts Seasonal discounts Allowances Copyright © Cengage Learning. All rights reserved.