1. 14-1 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. NickelsMcHughMcHugh Nickels Cover

2. 14-2 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 1414 Developing and Pricing Products and Services 14-2

3. 14-3 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Product Development & Value Package Value- Total Product OfferValue- Total Product Offer Product LineProduct Line Product MixProduct Mix Product DifferentiationProduct Differentiation

4. 14-4 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Mickey Mouse’s Product Mix  Theme parks & resorts  ABC Television Network  TV & radio stations  Film studios & production  Video programs & licensing  Consumer products  Publishing

5. 14-5 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Marketing Classes of Goods & Services ConsumerConsumer -Convenience -Shopping -Specialty -Unsought IndustrialIndustrial

6. 14-6 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Packaging 1)Protect 2)Attract 3)Describe 4)Explain 5)Warranties 6)Price, Value, Uses

7. 14-7 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Branding Brand & Trademark  Brand & Trademark  Categories Categories - Manufacturers’ - Knockoff - Dealer/Private - Generic Equity Equity Loyalty Loyalty Awareness Awareness Association Association

8. 14-8 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Market Value of A Brand Name Source: Source: Gerry Khermouch, “The Best Global Brands,” BusinessWeek, August 5, 2002, p.93. Billions of Dollars

9. 14-9 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. A Good Brand Name...   Speaks directly to product’s target customers   Attracts/motivates consumers to try it   Is memorable/sticks in customers’ minds   Is distinctive enough to protect it legally   Speaks directly to product’s target customers   Attracts/motivates consumers to try it   Is memorable/sticks in customers’ minds   Is distinctive enough to protect it legally

10. 14-10 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. New-Product Development Idea Generation Screening Analysis Development Testing Commercialize

11. 14-11 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Sales & Profits During the PLC

12. 14-12 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Pricing ObjectivesObjectives $ROI $Traffic $Market Share $Sales $Image $Social Cost-BasedCost-Based Value- ServiceValue- Service Break-Even Break-Even $Fixed Cost $Variable Cost Strategies Strategies -Skim -Penetration -EDLP -High-Low Market Forces Market Forces

13. 14-13 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Breakeven Chart Total Revenue or Total Cost Number of Units

14. 14-14 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Pricing Using Breakeven Analysis Problem Should we charge $2 or $3 per box? Costs Total Fixed Costs$400,000 Costs Total Fixed Costs$400,000 Variable Cost$ 1 per box Market Research Forecast Company can sell: 290,000 boxes at $2 @ 210,000 boxes at $3 @ 210,000 boxes at $3 @ Breakeven point = total fixed cost price - variable cost price - variable cost (per unit) (per unit) (per unit) (per unit) $2 price = $400,000 = 400,000 units to breakeven $2 - $1 $2 - $1 $3 price = $400,000 = 200,000 units to breakeven $3 - $1 $3 - $1 Breakeven point = total fixed cost price - variable cost price - variable cost (per unit) (per unit) (per unit) (per unit) $2 price = $400,000 = 400,000 units to breakeven $2 - $1 $2 - $1 $3 price = $400,000 = 200,000 units to breakeven $3 - $1 $3 - $1 BreakevenAnalysis