1. Developing and Pricing Products (Goods and Services)
Chapter
Developing and Pricing Products (Goods and Services) 14
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2. Developing and Pricing Products
This chapter explores two elements of the Marketing Mix
Product
Price

3. Product

4. How Six Products Were First Marketed
Technique
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

5. PRODUCT INNOVATION DURING the GREAT DEPRESSION
Year
Product
1929
Electric Razors
1930
Car Radios
Supermarkets
1933
Chocolate Chip Cookies
Laundromats

6. Product Lines & The Product Mix

7. Product Lines
Product Line -- A group of products that are physically similar or intended for a similar market.
Product lines often include competing brands like:
M&Ms
Peanut M&Ms
Mint M&Ms
Dark Chocolate M&Ms

8. The Product Mix
Product Mix -- The combination of all product lines offered by a manufacturer or service provider.
Product mixes like Proctor & Gamble’s can be extensive:
Laundry detergent
Cosmetics
Diapers
Potato chips
Bar soap

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

10. DIFFERENTIATING PRODUCTS
Product Differentiation -- The creation of real or perceived product differences.
Marketers use a mix of pricing, advertising and packaging to create different images. Examples include:
Bottled water
Aspirin
Fast-food
Laundry detergent
Shampoo

11. Classifying Classes of Goods & Services
Consumer
Purchased for personal consumption or use
Sometimes called B2C Goods
Industrial (Business)
Purchased for use in production of other products
Sometimes called B2B Goods
Commercial goods

12. Classifying Classes of Consumer Goods & Services
Convenience
Shopping
Specialty
Unsought

13. Classifying Convenience Goods and Services
Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include:
Candy and snacks
Gas
Milk and eggs

14. Classifying Shopping Goods and Services
Shopping Goods and Services -- Products consumers buy only after comparing value, quality, price, and styles. These include:
Clothes and shoes
Appliances and furniture
Childcare
Home remodeling

15. Classifying Specialty Goods and Services
Specialty Goods and Services -- Products with unique characteristics and brand identity. These include:
Tiffany jewelry
Rolex watches
Lamborghini automobiles
Ritz Carlton Hotels

16. Classifying Unsought Goods and Services
Unsought Goods and Services -- Products consumers aren’t aware of or haven’t thought of buying until they need them. These include:
Car-towing services
Funeral services

17. Classifying Classes of Industrial Goods & Services
Industrial Goods -- Products used in the production of other products and sold in the B2B market.
Industrial goods include:
Capital items
Installations
Accessory equipment
Supplies
Service

18. Packaging

19. Some Key Functions of Packaging
To attract buyers’ attention
Protect the goods inside and be tamperproof
Describe and provide information about the product
Explain the product’s benefits
Provide warranty information and warnings
Give an indication of price, value, and uses

20. Uses of Packaging
Companies often use packaging to change and improve their basic product. Examples include:
Milk Cartons
Salt
Good packaging can also make a product more attractive to retailers.

21. Labeling Regulations
Federal Fair Packaging and Labeling Act of 1966 aims at making labels more helpful to consumers by providing useful information.
Food and Drug Administration requires food labels to tell how much fat, saturated fat, cholesterol, calories, carbohydrates, protein, trans fats, and vitamins are in each product serving.

22. Photo Courtesy of: Joey Day
BUNDLING
Bundling -- Grouping two or more products together and pricing them as a unit.
Virgin Airlines bundles door-to-door limo service and inflight massage with some tickets.
Financial institutions bundle advice with purchases.
See Learning Goal 3: Summarize the functions of packaging.
Photo Courtesy of: Joey Day
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23. Branding

24. Understanding Branding
Name, symbol, or design (or combination) that identifies goods or services of one seller or group of sellers and distinguishes them from the goods and services of competitors

25. Understanding Branding
Trademark
Brand that has been given exclusive legal protection for both the brand name and pictorial design
Apple vs. Cisco Systems
“iPhone”

26. Brand Categories
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.

27. Brand Categories
Generic Goods -- Non-branded products that sell at a discount compared to manufacturers’ or dealers’ brands.
Knockoff Brands -- Illegal copies of national brands.

28. Knock-Off Brands
Original Swiss made Rolex replicas are as close to the real thing as a replica watch can be. Sometimes even the professional experts are unable to tell the difference from the original Rolex watch.
All real Swiss Rolex Replicas should have the following:
• Full 1-year Warranty • Solid 14k or 18k Gold on two-toned models • Guaranteed triple-wrapped gold on all-gold models • Genuine sapphire crystal - a type of glass that is many times better at resisting scratches than regular glass. • The color of the gold looks exactly like a genuine Rolex watch
If the retail dealer does not offer this, do not purchase from them!
REPLICA \/\/atches BAZAAR!

29. Brand Management Brand Manager / Product Manager
Person responsible for building a particular brand and handles all the elements of the brand’s marketing mix
Has direct responsibility for one brand or one product line

30. MOST VALUABLE BRANDS Brand Value Apple $57.4 billion Microsoft
Coca-Cola
$55.4 billion
IBM
$43 billion
Google
$39.7 billion
McDonald’s
$35.9 billion GE
$33.7 billion
Marlboro
$29.1 billion
Intel
$28.6 billion
Nokia
$27.4 billion
See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.
Most Valuable Brands
This slide lists the 10 most valuable brands according to Forbes.
As you can see, six of the most valuable brands are tech companies.
Source: Forbes, August 30, 2010.
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31. Top 10 Favorite Mascots of America
M&Ms figures / Mars
Doughboy / General Mills, Smucker’s
Duck / Aflac
Tony the Tiger / Kellogg
Gecko / Berkshire Hathaway’s Geico
Chester the Cheetah / Pepsi’s Frito-Lay
Energizer Bunny / Energizer Holdings
Kool-Aid Man / Kraft Foods
Trix Rabbit / General Mills
Snap, Crackle and Pop / Kellogg
See Learning Goal 4: Describe the differences among a brand, a brand name, and a trademark, and explain the concepts of brand equity and brand loyalty.
Favorite Mascots of America
This slide presents America’s favorite mascots.
In a survey of 1,800 consumers, M&M Mars topped the list in likeability.
The least liked character was Stouffer’s Max-A-Roni.
Ask the students: How many of these do you know and how would you rank these mascots on likability?
(Source: Forbes, January 9, 2006)
Source: Forbes, January 9, 2006

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

33. Classic Product Failures
Company
Loss
Edsel
Corfam
VideoDisc
PCjr
New Coke
Premier
Ford Motor Co.
DuPont
RCA
IBM
Coca-Cola
R. J. Reynolds
$250 M
$100 M
$500 M
$ 40 M
No $ Number

34. Product Life Cycle

35. Product Life Cycle
Theoretical model of what happens to sales and profits for a product class over time
Four Stages:
Introduction
Growth
Maturity
Decline

36. The Product Life Cycle

37. The Product Life Cycle

38. Pricing

39. Pricing Objectives Cost-Based Demand-Based Competition-Based
ROI
Building Traffic
Market Share
Sales
Creating Image
Social Objectives
Cost-Based
Demand-Based
Target Costing (Price-led costing)
Cost is input to development – not outcome
Competition-Based
Price Leadership
Price Following
Pricing in the Service Sector

40. Break-Even Analysis

41. The Product Life Cycle

42. Using Break-Even Analysis
Break-Even Analysis -- The process used to determine profitability at various levels of sales.
The break-even point is where revenues equals costs.

43. Break-Even Analysis Break-Even Point Definitions Fixed Costs
Variable Costs
Total Cost

44. Using Break-Even Analysis
Total Fixed Costs – All costs that remain the same no matter how much is produced or sold
Variable Costs – Costs that change according to the level of production
Total Costs – Sum of Total Fixed Costs and Variable Costs

45. Break-Even Analysis Break-Even Point (units) = Total Fixed Cost (FC)
Price (P) – Variable Cost (VC)
Break-Even Point ($) = Total Fixed Cost (FC)
1 – Variable Cost (VC)
Price (P)

46. Total Revenue or Total Cost
Breakeven Chart
Figure 14.9 Breakeven Chart
Total Revenue or Total Cost
Number of Units

47. Break-Even Analysis Break-Even Point (units) = Total Fixed Cost (FC)
Price (P) – Variable Cost (VC)
(per unit) (per unit)

48. Total Revenue or Total Cost
Breakeven Analysis
Figure 14.9 Breakeven Chart
Total Revenue or Total Cost
Price = $25.00
VC/Unit = $15.00
Number of Units

49. Break-Even Analysis Break-Even Point = $200,000__________
$25.00 – $15.00
= 20,000 Units

50. Total Revenue or Total Cost
Breakeven Chart
Figure 14.9 Breakeven Chart
Total Revenue or Total Cost
Number of Units

51. Applying Break-Even Analysis

52. Pricing Using Breakeven Analysis
Problem Should we charge $2 or $3 per box?
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
Breakeven point = total fixed cost
price - variable cost
(per unit) (per unit)
$2 price: $400,000 = 400,000 units to breakeven
$2 - $1
$3 price: $400,000 = 200,000 units to breakeven
$3 - $1
Breakeven
Analysis

53. Pricing Strategies Skimming Penetration EDLP High-Low Bundling
Psychological

54. Pricing Non-Price Establish relationships with customers
Emphasize non-price differences
Value package

55. What They Cost When First Introduced
1927 Transatlantic Call $ 75/3 min.
1947 Microwave Oven $ 3,000
1964 FAX unit rental $ 850/month
1970 Pocket Calculator $ 150
1974 VCR Tape $
Source: World Features Syndicate

56. Pricing Market Forces Affect Pricing
Ultimately price is determined by: Supply And Demand In The Marketplace
Market Price