1. McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Introduction to Business Dr. H. Ronald Moser Cumberland University

2. 14-2 Chapter 14 Developing and Pricing Goods and Services

3. 14-3 PROFILE MARY BARRA General Motors Senior vice president of global product development, Barra is GM’s highest- ranking woman. With a team of over 36,000 members, she manages global strategic product alliances. GM is working to gain market share in highly competitive segments like small fuel efficient cars.

4. Value -- Good quality at a fair price. DEVELOPING VALUE 14-4 PRODUCT DEVELOPMRNY AND THE TOTAL PRODUCT OFFER According to the American Marketing Association, value is a foundation of marketing. Adapting products to new markets is an ongoing challenge. Product development is a key activity in any modern business.

5. 14-5 PRODUCT DEVELOPMRNY AND THE TOTAL PRODUCT OFFER PRODUCTS “UNTOUCHABLE” by SPENDING CUTS Internet service. Cell phone service. Cable television. Discount apparel. Haircuts and coloring. Fast-food. Source: www.bigresearch.com.www.bigresearch.com

6. 14-6 PRODUCT DEVELOPMRNY AND THE TOTAL PRODUCT OFFER PRODUCTS “EXPENDABLE” by SPENDING CUTS Luxury handbags. Satellite radio. Specialty apparel. High-end cosmetics. Facials. Source: www.bigresearch.comwww.bigresearch.com

7. 14-7 PRODUCT DEVELOPMRNY AND THE TOTAL PRODUCT OFFER Distributed Product Development Distributed Product Development -- The handing off of various parts of your innovation process - often overseas. The increase in outsourcing has resulted in using multiple organizations separated by cultural, geographic and legal boundaries.

8. Developing a Total Product Offer Total Product Offer -- Everything consumers evaluate when deciding whether to buy something. DEVELOPING a TOTAL PRODUCT Products are evaluated on many different dimensions, both tangible and intangible. Marketers must think like and talk to consumers to find out what’s important. 14-8 PRODUCT DEVELOPMRNY AND THE TOTAL PRODUCT OFFER

9. Potential Components of a Total Product Offer 14-9 PRODUCT DEVELOPMRNY AND THE TOTAL PRODUCT OFFER Total Product offer – Everything that consumers evaluate when deciding whether to buy something: also called a value package.

10. Trident Seafoods assures fish sustainability by staying well within catch limits.Trident Seafoods One part of its sustainability practices is to use all of the fish. That results in fish oil and byproducts used in fertilizer and fishmeal. Quality and Sustainability (Thinking Green) Photo Courtesy of: Lisa Brunette 14-10 PRODUCT DEVELOPMRNY AND THE TOTAL PRODUCT OFFER

11. Product Line -- A group of products that are physically similar or intended for a similar market. 14-11 Product Lines and the Product Mix Product lines often include competing brands like:  Coca-Cola  Diet Coke  Coke Zero  Cherry Coke PRODUCT DEVELOPMRNY AND THE TOTAL PRODUCT OFFER

12. Product Lines & Product Mix Product Mix -- The combination of all product lines offered by a manufacturer or service provider. Product mixes like Procter & Gamble’s can be extensive:Procter & Gamble  Toothpaste  Cosmetics  Diapers  Batteries  Bar soap 14-12 PRODUCT DEVELOPMRNY AND THE TOTAL PRODUCT OFFER

13. 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. DIFFERENTIATING PRODUCTS 14-13 PRODUCT DIFFERENTOATION

14. Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include:  Candy and snacks  Gas  Milk and eggs CLASSIFYING CONSUMER GOODS and SERVICES 14-14 PRODUCT DIFFERENTOATION Marketing Different Classes of Consumer Goods and Services

15. 14-15 PRODUCT DIFFERENTOATION Marketing Different Classes of Consumer Goods and Services CLASSIFYING CONSUMER 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

16. Specialty Goods and Services -- Products with unique characteristics and brand identity. These include:  Tiffany jewelry  Rolex watches  Lamborghini automobiles  Ritz Carlton Hotels 14-16 PRODUCT DIFFERENTOATION Marketing Different Classes of Consumer Goods and Services CLASSIFYING CONSUMER GOODS and SERVICES

17. 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  Renter’s insurance 14-17 PRODUCT DIFFERENTOATION Marketing Different Classes of Consumer Goods and Services CLASSIFYING CONSUMER GOODS and SERVICES

18. . Marketing Industrial Goods and Services CLASSIFYING INDUSTRIAL GOODS AND SERVICES 14-18 PRODUCT DIFFERENTOATION Industrial Goods -- Products used in the production of other products and sold in the B2B market. Industrial goods include:  Installations  Capital items  Accessory equipment  Supplies  Service

19. Companies often use packaging to change and improve their basic product. Examples include:  Microwave popcorn  Tuna pouches  McDonald’s green packaging COMPANY USES of PACKAGING Good packaging can also make a product more attractive to retailers. 14-19 PACKAGING CHANGES THE PRPDUCT Changes in packaging can actually change the product itself and open up large new markets.

20. 1) 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. SOME KEY FUNCTIONS of PACKAGING 14-20 PACKAGING CHANGES THE PRPDUCT

21. 14-21 PACKAGING CHANGES THE PRPDUCT The Growing Importance of Packing BUNDLING Virgin Airlines bundles door-to-door limo service and inflight massage with some tickets. Financial institutions bundle advice with purchases. Bundling – Grouping two or more products together and pricing them as a unit.

22. UNDERSTANDING BRANDING 14-22 BRANDING AND BRAND EQUITY Brand -- Name, symbol, or design that identifies the goods or services and distinguishes them from competitors’ offerings. Trademark – A brand that has exclusive legal protection for both its brand name and design.

23. Brand Categories 14-23 BRANDING AND BRAND EQUITY KEY 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.

24. KEY BRAND CATEGORIES 14-24 BRANDING AND BRAND EQUITY Brand Categories Generic Goods -- Nonbranded products that sell at a discount compared to manufacturers’ or dealers’ brands. Knockoff Brands -- Illegal copies of national brands. If you see an expensive brand name item such as a Polo shirt or a Rolex watch for sale at a ridiculously low price, you can be pretty sure it’s a knockoff.

25. Generating Brand Equity and Loyalty 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. ESTABLISHING BRAND EQUITY and LOYALTY 14-25 BRANDING AND BRAND EQUITY

26. Generating Brand Equity and Loyalty Brand Awareness -- How quickly or easily a given brand name comes to mind when someone mentions a product category. Consumers reach a point of brand preference when they prefer one brand over another. When consumers reach brand insistence, they will not accept substitute brands. BUILDING BRAND AWARENESS 14-26 BRANDING AND BRAND EQUITY “Only Cumberland University for me.”

27. Creating Brand Association Brand Association -- Linking a brand to other favorable images, like celebrities or a geographic area. Brand Manager -- Person responsible for one brand and handles all the elements of the brand’s marketing mix. BUILDING BRAND ASSOCIATIONS 14-27 BRANDING AND BRAND EQUITY “The success of this product is on my shoulders.”

28. THE NEW PRODUCT DEVELOPMENT PROCESS 14-28 Product development is a six stage process. Which stage do you believe to be the most important.

29. Product Screening -- Reduces the number of new products a firm is working on to focus on the most promising. Product Analysis -- Focuses on the cost estimates and sales forecasts to get an idea of potential profitability. BRINGING NEW PRODUCTS to the MARKET 14-29 THE NEW PRODUCT DEVELOPMENT PROCESS Generating New-Product Ideas- Product Screening and Product Analysis

30. Concept Testing -- Takes a product idea to consumers to test reactions. BRINGING NEW PRODUCTS to the MARKET Commercialization -- T he stage of new product development that involves promoting the product to distributors and developing advertising and sales campaigns to generate and maintain consumer interest in the product. 14-30 THE NEW PRODUCT DEVELOPMENT PROCESS Product Development and Testing- Commercialization

31. The FOUR STAGES of a PRODUCT LIFE CYCLE 14-31 THE PRODUCT LIFE CYCLE Product Life Cycle – A theoretical look at what happens to sales and profits for a product over time. Product Life Cycle States: 1. Introduction 2. Growth 3. Maturity 4. Decline

32. SALES and PROFITS DURING the PRODUCT LIFE CYCLE 14-32 THE PRODUCT LIFE CYCLE

33. Introduction Stage Growth Stage Maturity Stage Decline Stage Sales dollars or profit TIME $0 +-+- WE ARE TRYING TO CREATE AWARENESS AND PRIMARY DEMAND. OUR CONCEPT IS INNOVATED. REALLY NO COMPETITION. HERE WE USE PERSUASIVE ADVERTISING AS SALES RISE. HERE WE HAVE A BROADER MARKET. SALES DROPPING COMPETITION IS INTENSIVE COMPETITION IS LIMITED. COMPETITION IS LIMITED. COMPETITION IS EXTENSIVE. COMPETITION IS EXTENSIVE. Product Life Cycle  Sales and profits may fall. We might close unprofitable stores or sell unprofitable divisions.  Here sales and then profits rise for the first retailers in this category.  We may expand our geographic bases.  The retail life cycles characterized by market saturation. Over storing may become a problem. Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

34. 14-34 THE PRODUCT LIFE CYCLE PROFITS BEYOND the GRAVE Top Earning Deceased Celebrities in 2010 Source: Forbes, www.forbes.com/deadcelebswww.forbes.com/deadcelebs

35. Achieving a target return on investment or profit. Building traffic. Achieving greater market share. Creating an image. PRICING OBJECTIVES 14-35 COMPETITIVE PRICING Pricing Objective -- A firm may have several objectives in mind when setting a pricing strategy Furthering social objectives both short-run and long-run. 

36. Cost-based pricing measures cost of producing a product including materials, labor, and overhead. Target Costing – Designing a product that satisfies customers and meets the firm’s targeted profit margin. Competition-Based Pricing -- A strategy based on what the competition is charging for its products. PRICING STRATEGIES 14-36 COMPETITIVE PRICING Price Leadership – Is the strategy by which one or more dominant firms set pricing practices all competitors in an industry follow.

37. Break-Even Analysis -- The process used to determine profitability at various levels of sales. The break-even point is number of units that must be sold for the total revenue to equal the total cost. 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. Included are the expenses for the materials used in making products and the direct costs of labor used in making those goods. USING BREAK-EVEN ANALYSIS 14-37 COMPETITIVE PRICING

38. Other Pricing Strategies Skimming Price Strategy -- Pricing new products high to recover costs and make high profits while competition is limited. Penetration Price Strategy -- Pricing products low with the hope of attracting more buyers and discouraging other companies from competing in the market. Everyday Low Pricing (EDLP) -- Setting prices lower than competitors with no special sales. PRICING ALTERNATIVES 14-38 COMPETITIVE PRICING

39. High-Low Pricing -- Using regular prices that are higher than EDLP stores except during special sales when they are lower. Psychological Pricing -- Pricing products at price points that make a product seem less expensive than it is. PRICING STRATEGIES of RETAILERS 14-39 COMPETITIVE PRICING Other Pricing Strategies

40. Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin NONPRICE COMPETITIVE Sometimes competition is based on attributes of the product itself rather than the price. To charge a higher price, Vegas has to offer and then provide superior services. Larger companies often do the same thing. Some airlines stress friendliness, large “sleeping” seats, promptness, abundant flights, and other such services. “What a great time in Vegas.”

41. 3-41 The End!