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

PRODUCT: IT’S PROBABLY MORE THAN JUST WHAT YOU THOUGHT 14-2 LO 14-1  Product Products are any Good, Service and/or Idea that might satisfy a want or need Everything one receives in an exchange, including all tangible and intangible attributes and expected benefits – TOTAL PRODUCT OFFER Good – real, physical thing we can touch (football, washing machine, book) Service – result of applying human or mechanical effort to a person or thing (tax preparation, hair cuts) Idea – philosophies, lessons, concepts or advice (Campbell’s Soup recipes)  Bundle of Expected Benefits Products are nothing more than expected benefits that should satisfy consumer needs/wants  Consumer product A product purchased to satisfy personal needs  Business (industrial) product A product bought for resale, for making other products, or for use in a firm’s operations

TOTAL PRODUCT OFFER: PEELING BACK THE LAYERS OF THE PRODUCT 14-3 LO 14-1 Core product – the primary benefit that satisfies the consumers need (ex. Soft drink->thirst quench) The actual product – the physical good or tangible aspect of the purchase that you can touch, see, hear, smell, or taste (ex. Soft drink- >soft drink can or soda flavor) Augmented product – consists of the core product and the actual product PLUS other real or perceived benefits that provided add’l value to a customer’s purchase (Ex. warrantees, free service, instruction manuals, help lines, product image)

DEVELOPING VALUE 14-4 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.

PRODUCT PLANNING AND DIFFERENTION 14-5 Photo Courtesy of: Coca-Cola Art Gallery LO Ways to Compete: 1.Price 2.Product Differentiation – Creating real or perceived product differences; the attributes that make a good or service different from other products that compete to meet the same or similar customer needs How to Plan/Differentiate? a)Product Mix and Line Management b)Product Classifications (we’ll focus on Consumer Products) c)Product Branding d)Packaging and Labeling

UNDERSTANDING PRODUCT MIX and LINES 14-6 Photo Courtesy of: Coca-Cola Art Gallery LO 14-1 Product Mix – the total number of product lines by a single firm Product Line – products that are closely related or similar and only differ in minor characteristics Width of the mix The number of product lines the mix contains Length of the mix The number of different products within an individual product line Depth of the mix The average number of individual products within each line

PRODUCT MIX STRATEGIES 14-7 LO 14-1 Modifying Products Product modification: the process of changing one or more of a product’s characteristics 1.Quality Modification: dependability and durability (ex. Chevy’s 10-yr warranty) 2.Functional Modification: versatility, effectiveness, convenience or safety (ex. Larger grill surface, new speed on blender) 3.Aesthetic Modification: sensory appeal of product – taste, appearance, sound, smell (ex. Small “bottle” Cokes) Deleting products Developing new products Imitations Adaptations Innovations How to Make Product Modification Effective?  Product must be modifiable  Existing customers must perceive modification made  Modification makes product more consistent with customers’ desires

DEVELOPING NEW PRODUCTS 14-8 Imitations: similar to and competitive with existing products of other firms Adaptations: variations of existing products intended for an established market Innovations: entirely new products

PRODUCT CLASSIFICATIONS (i.e. Types of Products) 14-9 LO 14-1 Consumer Products Purchased by households for personal consumption Traded in consumer markets Purchased by households for personal consumption Traded in consumer markets Business to Business (B2B) Products (INDUSTRIAL GOODS) Sometimes called industrial products Purchased by businesses for further processing, resale, or as supplies Traded in B2B markets Sometimes called industrial products Purchased by businesses for further processing, resale, or as supplies Traded in B2B markets

CONSUMER PRODUCT CATEGORIES LO 14-1

B2B PRODUCT CATEGORIES LO 14-1

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. Brand Name – a catchy, memorable name is a powerful part of strong brand Brand Mark – the part of the brand that is a distinctive symbol or 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. 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 and AWARENESS 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. Brand Awareness -- How quickly or easily a given brand name comes to mind when someone mentions a product category. 3 levels of Brand Awareness: 1. Brand Recognition (aware brand exists) 2. Brand Preference (prefer the brand but will purchase competing brand is preferred brand is unavailable) 3. Brand Insistence (prefer the brand and will NOT purchase comparable substitute)

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.

The NAME GAME Source: Bloomberg Businessweek, accessed November

MOST VALUABLE BRANDS Source: Forbes, accessed November LO 14-4

ORIGINS of AUTOMOBILE SYMBOLS Source: World Features Syndicate LO 14-4 Volvo - Symbol for iron Lamborghini - Company founder’s zodiac sign was Taurus Volkswagen - Product of an office contest Porsche - Coat of arms for city and state headquarters

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

PRODUCT PACKAGING and LABELING 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.

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

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

The PRODUCT LIFE CYCLE and the MARKETING MIX LO 14-6

PRODUCT LIFE CYCLE STAGES & SALES, PROFIT, and COMPETITION LO 14-6

PRODUCT PRICING & OBJECTIVES LO 14-7  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 Objectives –Increase sales, profit, and/or market share –Increase store traffic –Create image/quality –Combat competition How do you determine price? –Cost-Based Mark-Up on Cost Break-Even Analysis –Demand Based ↑D, ↑P ↓D, ↓P –Competition Based Set a price based on what your competition is doing

PRICING ALTERNATIVES LO 14-7 New Product Pricing  Price Skimming: Charge highest possible price during introduction stage  Penetration Pricing: Setting low price for new product to build market share Differential Pricing - Charging different prices to different buyers for same quality and quantity  Negotiated: Final price comes from bargaining  Periodic Discounting: Temporary price reduction on patterned/systematic basis  Random Discounting: Temporary price reduction on unsystematic basis Psychological Pricing  Odd-Number: use odd numbers just below whole-dollar amounts  Multiple-Unit: single price for 2+ units (aka BOGO)  Reference: price at moderate level and positioning it near a more expensive model  Bundle: package 2+ products and selling for single price  EDLP: consistently low price