1. Creating and Pricing Products That Satisfy Customers

2. Learning Objectives
12-1 Explain what a product is and how products are classified Define product line and product mix and distinguish between the two. 12-4c Developing New Products 12-5 Explain the uses and importance of branding, packaging, and labeling.

3. Learning Objectives (continued)
12-6 Price and Perception 12-8 Examine the three major pricing methods that firms employ Explain the different strategies available to companies for setting prices.

4. Learning Objectives
12-1 Consumer vs. Business Products? Which one (or more) relate to us? 12-3 Define product line and product mix and distinguish between the two What will we have, and why? 12-4c Explain the process What parts apply to us? 12-5 Why is branding and packaging important? How can we use this in our business?

5. Learning Objectives (continued)
12-6 What are the three strategies explained in the book? How does price influence perception? 12-8 Examine the three major pricing methods that firms employ. Which one is best for us, and why? 12-9 Explain the 5 different strategies available to companies for setting prices. Which one/ones might we want to use?

6. Product
Product: Everything one receives in an exchange, including all tangible and intangible attributes and expected benefits
Can be a:
Good
Service
Idea

7. Classification of Products
Consumer product: Purchased to satisfy personal and family needs
Business product: Bought for resale, making other products, or using in a firm’s operations

8. Consumer Product Classifications
Convenience product: Inexpensive, frequently purchased
Shopping product: Item for which buyers expend on planning and making the purchase
Specialty product: Items that possess unique characteristics for which buyers are willing to expend purchasing effort

9. Examples of Consumer Products
Goldfish, a convenience product, is an item you are likely to grab off the shelf without much thought as you walk through the snack aisle of a grocery store
By contrast, people may spend a considerable amount of time and effort engaged in comparison shopping behavior when buying a product, like a handbag

10. Business Product Classifications
Raw material: Basic material that becomes part of a physical product
Major equipment: Large tools and machines used for production purposes
Accessory equipment: Standardized equipment used in a firm’s production or office activities
Component part: Item that becomes a part of a physical product
Additional Resources
North American Product Classification System

11. Business Product Classifications (continued)
Process material: Material used directly in the production of another product but is not readily identifiable in the finished product
Supply: Item that facilitates production and operations but does not become part of the finished product
Business service: Intangible product that an organization uses in its operations

12. The Product Life-Cycle
Introduction
Growth
Maturity
Decline
Stages in which a product’s sales revenue and profit increase, reach a peak, then decline
Introduction
Growth
Maturity
Decline
Additional Resources
Product Life Cycle Examples
Life cycle of Apple products

13. Stages of the Product Life- Cycle

14. Class Exercise 1
For the products below, determine what stage of product life cycle the product is currently in and the marketing implications involved.
Compact disc players
Online computer services
Aspirin
Cigarettes
Laptop computers
Pay phones

15. Product Line and Product Mix
Product line: A group of similar products that differ only in minor characteristics
Product mix: All products that a firm offers for sale
Width of the mix—Number of product lines
Depth of the mix—Average number of individual products
Additional Resources
Product line of Procter&Gamble
Product mix of TATA

16. Part of a Product Line
What, according to you, are the advantages of having many products in a single product line? What are the possible disadvantages?

17. Managing Existing Products
Product modifications: Changing one or more of a product’s characteristics
Line extensions: Developing a product that is similar to the existing product line but serves different customer needs
Product deletion: Eliminating products to maintain an effective product mix
Additional Resources
Examples of product modification
Building your brand with brand line extensions

18. Product Modifications
Existing products can be altered in three primary ways:
Quality modifications—changes that relate to a product’s dependability and durability and are usually achieved by alterations in the materials or production process
Functional modifications—affect a product’s versatility, effectiveness, convenience, or safety
Aesthetics modifications—change the sensory appeal of a product by altering its taste, texture, sound, smell, or visual characteristics

19. Line Extensions
A line extension is the development of a product closely related to one or more products in the existing product line but designed specifically to meet somewhat different customer needs
Line extensions help companies like Frito Lay to be more competitive and to maintain or increase their market shares.

20. Deleting Products
To maintain an effective product mix, an organization often has to eliminate some products—this is called product deletion
A weak and unprofitable product:
Costs a company time, money, and resources
Can negatively impact the customer perception and sales of other products sold by the firm
Google had to withdraw Google Glass from the market due to technical issues.

21. Developing New Products
Developing and introducing new products is:
Time consuming
Expensive
Risky
New products are generally grouped into three categories on the basis of their degree of similarity to existing products
Imitations
Adaptations
Innovations

22. Phases of New Product Development
Generally, marketers follow these seven steps to develop a new product
Source: William M. Pride and O. C. Ferrell, Marketing, 18th ed. (Mason, OH: South-
Western/Cengage Learning, 2016). Adapted with permission.

23. Why Do Products Fail?
The product and its marketing program are not planned and tested completely
The product is marketed before all the bugs are worked out
Firms ignore problems in testing and push ahead anyway to recover costs
Firms try to market a product with inadequate financing
Additional Resources
25 biggest product flops of all time

24. Examples of Product Failures

25. What Is a Brand?
Brand: A name, term, symbol, design, or any combination of these that identifies a seller’s products as distinct from those of other sellers
Brand name
Brand mark
Trademark
Trade name

26. Types of Brands Manufacturer brand: Owned by a manufacturer
Store brand: Owned by an individual wholesaler or retailer
Generic brand: Product with no brand at all

27. Benefits of Branding Easily recognizable Help consumers judge quality
Helps firms introduce new products with the same brand name
Aids in promotional efforts

28. Brand Loyalty and Equity
Brand loyalty: Extent to which a customer is favorable toward buying a specific brand
There are three levels of brand loyalty:
Recognition
Preference
Insistence
Brand equity: Marketing and financial value associated with a brand’s strength in a market

29. Top Ten Most Valuable Brands

30. How does branding benefit consumers?
Class Exercise 2
We know that branding helps businesses in a number of ways.
How does branding benefit consumers?

31. Choosing and Protecting a Brand
Choosing a brand
Easy to say, spell, and recall
Suggests product’s uses, characteristics, and major benefits
Distinctive enough to set it apart
Protecting a brand
Protection through registration
Protecting a brand name from becoming a generic term
Additional Resource
Protecting the brand you’ve built against online fraud
News on brand protection

32. Branding Strategies
Individual branding: Firm uses a different brand for each of its products
Family branding: Firm uses the same brand for all or most of its products

33. Brand Extension
Using an existing brand to brand a new product in a different product category
Caution must be taken in extending
Too many times
Too far outside the original product category
Additional Resources
Best and worst brand extensions
Note: Be sure that students are clear on the distinction between a line extension and brand extension.

34. Packaging
Developing and providing a container with graphics for a product
Functions of packaging
Protect the product
Maintain its functional form
Offer consumer convenience
Promote the product

35. Package Design Considerations
Cost
Single or multiple units
Consistency among package designs
Promotional role
Needs of intermediaries
Environmental responsibility

36. Labeling Presentation of information on a product or its package
Must include information specified by federal regulations
Express warranty: Written explanation of the producer’s responsibilities in the event that a product is found to be defective or otherwise unsatisfactory
Additional Resources:
The U.S. government gateways to consumer information about products, safety, pricing, fraud, and many other issues of interest are available through a variety of online publications and links.

37. The Meaning and Use of Price
Price: Amount of money a seller is willing to accept in exchange for a product
Price allocates:
Goods and services
Financial resources

38. Price and Non-Price Competition
Price competition: Emphasis on setting a price equal to or lower than competitors’ prices
Non-price competition: Competition based on factors other than price
Product differentiation: Developing and promoting differences between one’s product and all similar products

39. Buyers’ Perceptions of Price
Buyers accept different prices for different products
Premium price may be appropriate
Product is considered superior
Has inspired strong brand loyalty

40. Pricing Objectives
One objective of pricing is to make a profit, but one or more of the following factors may be just as important:
Survival
Profit maximization
Target return on investment (ROI)
Market-Share Goals
Status-Quo Pricing

41. What Does Price Communicate to You?
How buyers perceive a product is often determined by its price. High prices communicate quality and status—which is why the makers of luxury goods such as Rolex watches are often reluctant to sell them at a discount. The producers of these goods don’t want to “cheapen” their brands for a quick sales boost because it could hurt the image of these brands.

42. Cost-Based Pricing
Markup: Amount a seller adds to the cost of a product to determine its basic selling price
Flaws
Difficulty of determining an effective markup percentage
Separates pricing from other business functions that impact marketing decisions

43. Cost-Based Pricing: Breakeven Analysis
Gives the lowest level of production and sales at which a company can break even on a particular product
Breakeven quantity
Total revenue
Fixed cost
Variable cost
Total cost

44. Breakeven Analysis Example

45. Demand-Based Pricing
Based on the level of customer demand for the product
Price differentiation—Setting different prices in segmented markets based on segment characteristics
Airlines use demand-based pricing because the number of passengers that can be put on a specific flight is limited.

46. Competition-Based Pricing
Based on meeting the challenge of competitors’ prices in markets
Products are quite similar
Price is an important customer consideration

47. Pricing Strategies
A pricing strategy is a course of action designed to achieve pricing objectives

48. 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
Additional Resources
When to use pricing strategies

49. Differential Pricing
Charging different prices to different buyers for the same product
Negotiated pricing
Secondary-market pricing
Periodic discounting
Random discounting

50. Psychological Pricing
Encourage purchases based on emotional responses
Odd-number pricing
Multiple-unit pricing
Reference pricing
Bundle pricing
Everyday low prices (EDLPs)
Customary pricing

51. Product-Line Pricing
Establishing and adjusting the prices of multiple products within a product line
Captive pricing
Premium pricing
Price lining

52. Promotional Pricing Price coordinated with promotion Price leaders
Special-event pricing
Comparison discounting

53. Geographic and Transfer Pricing of Business Products
Geographic pricing: Deals with delivery costs
FOB origin pricing—Seller’s pricing is exclusive of delivery costs
FOB destination pricing—Seller includes transportation costs in the product pricing
Transfer pricing: Prices charged in sales between an organization’s units

54. Discounting of Business Products
A deduction from the price of an item