1. Chapter 14 THE FUTURE OF BUSINESS Gitman & McDaniel 5 th Edition THE FUTURE OF BUSINESS Gitman & McDaniel 5 th Edition Chapter Developing Quality Products at the Right Price Prepared by Deborah Baker Texas Christian University Prepared by Deborah Baker Texas Christian University 14

2. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 2 1What is a product, and how is it classified? 2How does branding distinguish a product from its competitors? 3What are the functions of packaging? 4How do organizations create new products? 5What are the stages of the product life cycle? 6What is the role of pricing in marketing? 7How are product prices determined? 8What strategies are used for pricing products? 9What trends are occurring in products and pricing? Learning Goals

3. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 3 Learning Goal 1 What is a product, and how is it classified? 1

4. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 4 What is a Product? 1 Any good or service, along with its perceived attributes and benefits, that creates value for the customer. Any good or service, along with its perceived attributes and benefits, that creates value for the customer. Product

5. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 5 What is a Product? 1 Packaging Image of Retail Store Image of Retail Store Warranty Color Instructions Image of Brand Attachments Service after Sale Service after Sale Product

6. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 6 What is a Product? 1 Wrench Pepper All Goods Auto Repairing Restaurants Both Goods and Services Counseling TV Programs All Services

7. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 7 Classifying Consumer Products 1 Unsought Product Unsought Product Convenience Product Convenience Product Shopping Product Shopping Product Specialty Product Specialty Product Products that are either unknown to the potential buyer or are known, but the buyer does not actively seek them. Relatively inexpensive items that require little shopping effort and are purchased routinely without planning. Items that are bought after considerable planning, including brand-to-brand and store-to-store comparisons. Items for which consumers search long and hard for and for which they refuse to accept substitutes.

8. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 8 Classifying Consumer Products 1 Convenience Products Shopping Products Unsought Products Specialty Products Consumer Product Very little or minimum effort Considerable effort Considerable effort No effort Maximum effort Degree of Effort Required Soft drinks Bread, milk Coffee Automobiles Homes Vacations Life insurance Burial plots New products Expensive jewelry Gourmet dinners Limited-production autos Expensive jewelry Gourmet dinners Limited-production autos Examples

9. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 9 Classifying Business Products 1 Capital products Expense items Large, expensive items with a long life span that are purchased by businesses for use in making other products or providing a service. Items, purchased by businesses, that are smaller and less expensive than capital products and usually have a life span of less than one year.

10. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 10 Classifying Business Products 1 Categories of Business Products Component parts and materials Accessories Installations Raw materials Supplies Services

11. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 11 2 Learning Goal 2 How does branding distinguish a product from its competitors?

12. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 12 2 Benefits of Branding Product Identification Repeat Sales New-Product Sales

13. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 13 2 Benefits of Branding Brand Equity Master Brand The value of company and brand names. A brand so dominant that consumers think of it immediately when a product category, use, attribute, or customer benefit is mentioned.

14. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 14 2 America’s Master Brands Product Category Master Brand Adhesive bandages Antacids Baking soda Cellophane tape Fast food Gelatin Rum Salt Soft drinks Soup Band-Aid Alka-Seltzer Arm & Hammer Scotch Tape McDonald’s Jell-O Bacardi Morton Coca-Cola Campbell’s

15. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 15 2 Characteristics of Effective Brand Names  Easy to pronounce  Easy to recognize  Easy to remember  Short  Distinctive, unique  Describes the product  Describes the product’s use  Describes the product’s benefits  Has a positive connotation  Reinforces the desired product image  Is legally protectable in home and foreign markets

16. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 16 2 Levels of Brand Loyalty Brand preference Brand recognition Brand insistence

17. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 17 2 Types of Brands Dealer Brands Dealer Brands Generic Products Generic Products Brands that are owned by the wholesaler or retailer. Products that carry no brand name, come in plain containers, and sell for much less than name-brand products. Manufacturer Brands Manufacturer Brands Brands that are owned by national or regional manufacturers.

18. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 18 3 Learning Goal 3 What are the functions of packaging?

19. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 19 3 The Functions of a Package Help promote the product Protect the product

20. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 20 3 Labeling

21. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 21 3 Warranties Warranty Implied Warranty Implied Warranty Express Warranty Guarantees the quality of a good or service. Guarantees the quality of a good or service. An unwritten guarantee that the good or service is fit for the purpose for which it was sold. (UCC) An unwritten guarantee that the good or service is fit for the purpose for which it was sold. (UCC) A written guarantee. Full Warranty The manufacturer must meet certain minimum standards, including repair of defects, product replacement, or refunds.

22. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 22 4 How do organizations create new products? Learning Goal 4

23. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 23 4 Product Development Process 6. Introduce product to marketplace 5. Test-market the new product 4. Develop the concept 3. Screen ideas/concepts 2. Develop new-product ideas 1. Set new-product goals

24. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 24 What are the stages of the product life cycle? 5 Learning Goal 5

25. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 25 5 Time Sales and profits Total market profits Total market salesIntroductionGrowthMaturityDecline $0 _ + The Product Life Cycle

26. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 26 5  Little competition  Frequent product modifications  Limited distribution  Heavy promotion  High failure rate  High production and marketing costs  Low sales volume  Small or negative profits Introduction

27. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 27 5  Sales grow at an increasing rate  Healthy profits  Many competitors enter market  Large companies may acquire pioneering firms  Promotion emphasizes aggressive brand ads and the differences between brands  Adequate distribution is a major key to success  Prices normally fall at end of growth phase  Priority is increasing/retaining market share and enhancing profits Growth

28. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 28 5  Sales growth—but at a decreasing rate  Saturated markets  Product line extensions through product variations  Global introduction of products Maturity

29. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 29 5  Sales and profits fall  Trade allowances eliminated  Most advertising and sales promotions eliminated Rate of change in consumer tastes Rate at which new products are introduced The rate of decline is governed by: Decline

30. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 30 6 What is the role of pricing in marketing? Learning Goal 6

31. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 31 6 Value pricing Target return on investment Target return on investment Profit maximization Offering the target market a high quality product at a fair price and with good service. Offering the target market a high quality product at a fair price and with good service. The price of a product is set to give a company the desired profitability in terms of return on its money. Producing a product as long as revenue exceeds the cost of producing it Pricing Objectives

32. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 32 6 A value marketer:  Offers products that perform  Gives consumers more than they expect  Gives meaningful guarantees  Gives the buyers facts  Builds long-term relationships Value Pricing

33. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 33 7 How are product prices determined? Learning Goal 7

34. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 34 7 A certain percentage (the markup) is added to the product’s cost to arrive at the price. A certain percentage (the markup) is added to the product’s cost to arrive at the price. Markup Pricing The price at which a product’s costs are covered, so additional sales result in profit. The price at which a product’s costs are covered, so additional sales result in profit. Breakeven Point (Breakeven Analysis) Breakeven Point (Breakeven Analysis) How Managers Set Prices

35. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 35 7 Markup Pricing Markup Percentage = Markup Retail Price Breakeven Analysis Breakeven point = Markup (in Units)Fixed-cost contribution How Managers Set Prices

36. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 36 8 What strategies are used for pricing products? Learning Goal 8

37. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 37 8 Introducing a product with a high initial price and lowering the price over time Introducing a product with a high initial price and lowering the price over time Price Skimming Selling new products at low prices in the hope of achieving a large sales volume Selling new products at low prices in the hope of achieving a large sales volume Penetration Pricing Product Pricing

38. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 38 8 Bundling Grouping two or more related products together and pricing them as a single product Odd-Even Pricing Setting a price at an odd number to connote a bargain and at an even number to suggest quality Setting a price at an odd number to connote a bargain and at an even number to suggest quality Leader Pricing Pricing products below the normal markup or below cost to attract customers to a store where they would not otherwise shop Prestige Pricing Increasing the price of a product so that consumers will perceive it as being of higher quality, status, or value Product Pricing

39. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 39 9 What trends are occurring in products and pricing? Learning Goal 9

40. Chapter 14 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 40 9 Use of Yield Management Systems Importance of Color in Packaging and Product Design Use of the Internet for New-Product Development Trends in Developing Products & Pricing