1. Creating and Pricing Products that Satisfy Customers
Chapter Ten
Creating and Pricing Products that Satisfy Customers

2. Learning Objectives
Explain what a product is and how products are classified.
Discuss the product life cycle and how it leads to new product development.
Define product line and product mix and distinguish between the two.
Identify the methods available for changing a product mix.
Explain the uses and importance of branding, packaging, and labeling.
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3. Learning Objectives (cont’d)
Describe the economic basis of pricing and the means by which sellers can control prices and buyers’ perceptions of prices.
Identify the major pricing objectives used by businesses.
Examine the three major pricing methods that firms employ.
Explain the different strategies available to companies for setting prices.
Describe three major types of pricing associated with business products.
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4. Chapter 10 Outline Classification of Products The Product Life Cycle
Consumer Products
Business Products
The Product Life Cycle
Stages of the Product Life Cycle
Using the Product Life Cycle
Product Line and Product Mix
Managing the Product Mix
Managing Existing Products
Deleting Products
Developing New Products
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5. Chapter 10 Outline (cont’d)
Branding, Packaging, and Labeling
What Is a Brand?
Types of Brands
Benefits of Branding
Choosing and Protecting a Brand
Branding Strategies
Packaging
Labeling
Pricing Products
The Meaning and Use of Price
Supply and Demand Affects Prices
Price and Nonprice Competition
Buyers’ Perceptions of Price
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6. Chapter 10 Outline (cont’d)
Pricing Objectives
Survival
Profit Maximization
Target Return on Investment
Market-Share Goals
Status Quo Pricing
Pricing Methods
Cost-Based Pricing
Demand-Based Pricing
Competition-Based Pricing
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7. Chapter 10 Outline (cont’d)
Pricing Strategies
New Product Pricing
Differential Pricing
Psychological Pricing
Product-Line Pricing
Promotional Pricing
Pricing Business Products
Geographic Pricing
Transfer Pricing
Discounting
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8. Classification of Products
Consumer product
Business (industrial) product
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9. Consumer Product Classifications
Convenience product
Shopping product
Specialty product
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10. Business Product Classifications
Raw material
Major equipment
Accessory equipment
Component part
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11. Business Product Classifications (cont’d)
Process material
Supply
Business service
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12. The Product Life Cycle
A series of stages in which a product’s sales revenues and profits increase, reach a peak, then decline
Introduction
Growth
Maturity
Decline stage
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13. Using the Product Life Cycle
Marketers should be aware of the life-cycle stage of each product for which they are responsible and should try to estimate how long the product is expected to remain in that stage
Both must be taken into account in making decisions about the marketing strategy for a product
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14. Product Line and Product Mix
All of the products that a firm offers for sale
Width of the mix
Depth of the mix
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15. Managing the Product Mix
Managing existing product
Product modification
Line extensions
Deleting products
Developing new products
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16. Why Do Products Fail?
The product and its marketing program are not planned and tested as completely as they should be
For example, a firm tries to save product development costs and only market-tests a product and not its entire marketing mix
The firm markets a new product before all the “bugs” are worked out
When problems show up in testing, a firm tries to recover its costs by pushing ahead anyway
A firm tries to market a product with inadequate financing
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17. Branding What is a brand? Brand name Brand mark Trademark Trade name
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18. Branding (cont’d) Types of Brands Manufacturer (producer) brand
Store (private) brand
Generic brand
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19. Branding (cont’d) Benefits of branding
Because brands are easily recognizable, they reduce the amount of time buyers must spend shopping
Brands help consumers judge quality
Branding helps a firm introduce a new product with the same brand name
Branding aids in promotional efforts because promotion of each branded product indirectly promotes others with the same brand
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20. Branding (cont’d) Benefits of branding (cont’d) Brand loyalty
Brand equity
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21. Branding (cont’d) Choosing a brand Protecting a brand
It should be easy to say, spell, and recall
It should suggest, in a positive way, the product’s uses, special characteristics, and major benefits
It should be distinctive enough to set it apart from competing brands
Protecting a brand
Should be protected through registration
Guard against a brand name’s becoming a generic term
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22. Branding (cont’d) Branding strategies Individual branding
Family branding
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23. Packaging
All of the activities involved in developing and providing a container with graphics for a product
Functions of packaging
Design considerations
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24. Labeling The presentation of information on a product or its package
May include
Brand name and mark
Trademark symbol
Package size and contents
Product claims
Directions
Safety precautions
Ingredients
Name and address of manufacturer
Universal Product Code (UPC) symbol for automated checkout and inventory control
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25. Labeling (cont’d) Must include
For garments, name of manufacturer, country of manufacture, fabric content, cleaning instructions
Nutrition labeling in standard format for any food product for which a nutritional claim is made
For food, number of servings, serving size, calories per serving, calories derived from fat, and amounts of specific nutrients
For nonedible items such as shampoo and detergent, safety precautions and instructions
Express warranty
A written explanation of the producer responsibilities in the product is found to be defective or otherwise unsatisfactory
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26. Pricing Products Meaning and use of 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 allocates goods and services among those who are willing and able to buy them
Price allocates financial resources (sales revenue) among producers according to how well they satisfy customers’ needs
Price helps customers allocate their own financial resources among various want-satisfying products
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27. Pricing Products (cont’d)
Supply and demand affects prices
Supply
Demand
Equilibrium
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28. Pricing Products (cont’d)
Price and nonprice competition
Price competition
Nonprice competition
Buyers’ perceptions of price
Buyers will accept different ranges of prices for different products
A premium price may be appropriate if a product is considered superior or has inspired strong brand loyalty
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29. Pricing Objectives Survival Profit maximization
Target return on investment (ROI)
Market share goals
Status quo pricing
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30. Pricing Methods Cost-based pricing
The seller determines the total cost of producing one unit of the product then adds an amount to cover additional costs and profit (markup)
Markup may be calculated as a percentage of total costs
Flaws
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31. Pricing Methods Breakeven analysis Breakeven quantity Total revenue
Fixed cost
Variable cost
Total cost
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32. Pricing Methods (cont’d)
Demand-based pricing
Based on the level of customer demand for the product
Product prices are high when demand is high and low when demand is weak
Price differentiation
Competition-based pricing
Based on meeting the challenge of competitors’ prices in markets where products are quite similar or price is an important customer consideration
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33. Pricing Strategies 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
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34. Pricing Strategies (cont’d)
Differential pricing
Charging different prices to different buyers for the same quality and quantity of product
The market must consist of multiple segments with different price sensitivities
Negotiated pricing
Secondary-market pricing
Periodic discounting
Random discounting
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35. Pricing Strategies (cont’d)
Psychological pricing
Odd-number pricing
Multiple-unit pricing
Reference pricing
Bundle pricing
Everyday low prices (EDLPs)
Customary pricing
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36. Pricing Strategies (cont’d)
Product-line pricing
Establishing and adjusting the prices of multiple products within a product line
Captive pricing
Premium pricing
Price lining
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37. Pricing Strategies (cont’d)
Promotional pricing
Price leaders
Special-event pricing
Comparison discounting
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38. Pricing Business Products
Geographic pricing
Deals with delivery costs
FOB (free-on-board) origin pricing
FOB destination pricing
Transfer pricing
Prices charged in sales between an organization’s units
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39. Pricing Business Products (cont’d)
Discounting
Trade discounts
Quantity discounts
Cash discounts
Seasonal discounts
Allowances
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