Chap014

Developing and Pricing Goods and Services

Chapter 14

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

1. Describe a total product offer.

2. Identify the various kinds of consumer and industrial goods.

3. Summarize the functions of packaging.

4. Contrast brand, brand name, and trademark, and show the value of brand equity.

LEARNING GOALSChapter Fourteen

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5. Explain the steps in the new-product development process.

6. Describe the product life cycle.

7. Identify various pricing objectives and strategies.

LEARNING GOALSChapter Fourteen

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Profile

• Senior vice president of global product development, Barra is GM’s highest-ranking woman.

MARY BARRAGeneral Motors

• 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.

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It’s no secret that the airline industry is extremely competitive and many airlines have cut basic services like free baggage and food. In order to set itself apart from its competitors, this company takes a different path by offering door-to-door limousine service and in-flight massages.

Name that company!

NAME that COMPANYChapter Fourteen

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Product Development and the Total Product Offer

• According to the American Marketing Association, value is a foundation of marketing.

• Value -- Good quality at a fair price.

• Adapting products to new markets is an ongoing challenge.

• Product development is a key activity in any modern business.

DEVELOPING VALUELG1

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• Internet service

• Cell phone service

• Cable television

• Discount apparel

• Haircuts and coloring

• Fast-food

PRODUCTS CONSUMERS WON’T GIVE UP

Source: www.bigresearch.com.

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• Luxury handbags

• Satellite radio

• Specialty apparel

• High-end cosmetics

• Facials

PRODUCTS “EXPENDABLE” by SPENDING CUTS

Source: www.bigresearch.com.

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Distributed Product Development

• Distributed Product Development -- The handing off of various parts of your innovation process - often overseas.

DISTRIBUTED PRODUCT DEVELOPMENT

• The increase in outsourcing has resulted in using multiple organizations separated by cultural, geographic and legal boundaries.

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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.

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PRODUCT INNOVATION DURING the GREAT DEPRESSION

Source: BusinessWeek Small Biz.

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ANYTHING YOU CAN DO…Products Replacing Products

Source: Newsweek, February 21, 2011.

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POTENTIAL COMPONENTS of a TOTAL PRODUCT OFFERLG1


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• Trident Seafoods assures fish sustainability by staying well within catch limits.

• 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

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Product Lines & Product Mix

• Product Line -- A group of products that are physically similar or intended for a similar market.

UNDERSTANDING PRODUCT LINESLG1

• Product lines often include competing brands like:

- Coca-Cola

- Diet Coke

- Coke Zero

- Cherry Coke

Photo Courtesy of: Coca-Cola Art Gallery

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• Product Mix -- The combination of all product lines offered by a manufacturer or service provider.

• Product mixes like Procter & Gamble’s can be extensive:

- Toothpaste

- Cosmetics

- Diapers

- Batteries

- Bar soap

The PRODUCT MIXLG1

Product Lines & Product Mix

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Product Differentiation

• 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 PRODUCTSLG2

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Marketing Different Classes of Consumer Goods and Services

• Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include:

- Candy and snacks

- Gas

- Milk and eggs

CLASSIFYING CONSUMER GOODS and SERVICESLG2

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• 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

CLASSIFYING SHOPPINGGOODS and SERVICESLG2


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• Specialty Goods and Services -- Products with unique characteristics and brand identity. These include:

- Tiffany jewelry

- Rolex watches

- Lamborghini automobiles

- Ritz Carlton Hotels

CLASSIFYING SPECIALTYGOODS and SERVICESLG2


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• Would you buy these for your dog?

- Wine with custom labels featuring Fido

- Doggy day camp and in-home pet care

- A bound journal of your pets exploits

- Luxury shampoos and hair-care products

- A sound system to eliminate pet-unfriendly frequencies

- A “dog beer” at the Pawbar

SPECIALTY GOODS AREN’T JUST for HUMANSLG2


Source: Entrepreneur, June 2010.

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• 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

CLASSIFYING UNSOUGHTGOODS and SERVICESLG2


Photo Courtesy of: Paul Chenoweth

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• How would you classify these consumer products?- Beautyrest mattress

- Honda Accord

- McDonald’s Big Mac

- Rolls Royce automobiles

- Oreo Cookies

- Harvard University degree

IDENTIFYING CONSUMER GOODS CLASSIFICATIONSLG2


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• Pet Rock - For $3.95 you could buy a gift-wrapped rock with eyes and a training manual.

• Garbage Pail Kids - Perhaps the grossest trading cards ever produced.

• Mood Rings - Wildly popular as the changing colors of the ring supposedly measured your mood.

• Chia Pets - Animal shaped (even President shaped) clay figures that grew sprouts.

ODD PRODUCT IDEAS that WERE SUCCESSFULLG2


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Marketing Industrial Goods and Services

• Industrial Goods -- Products used in the production of other products and sold in the B2B market.

CLASSIFYING INDUSTRIAL GOODS and SERVICES LG2

• Industrial goods include:

- Installations

- Capital items

- Accessory equipment

- Supplies

- Service 14-25

Progress Assessment

• What value enhancers may be included in a total product offer?

• What’s the difference between a product line and a product mix?

• Name the four classes of consumer goods and services and give examples of each.

• Describe three different types of industrial goods.

PROGRESS ASSESSMENT

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Packaging Changes the Product

• Companies often use packaging to change and improve their basic product. Examples include:

- Microwave popcorn

- Tuna pouches

- McDonald’s green packaging

USES of PACKAGING

• Good packaging can also make a product more attractive to retailers.

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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 PACKAGINGLG3

Packaging Changes the Product

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The Growing Importance of Packaging

• Bundling -- Grouping two or more products together and pricing them as a unit.

BUNDLING

• Virgin Airlines bundles door-to-door limo service and inflight massage with some tickets.

• Financial institutions bundle advice with purchases.

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Photo Courtesy of: Joey Day

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Branding and Brand Equity

• Brand -- Name, symbol, or design that identifies the goods or services and distinguishes them from competitors’ offerings.

UNDERSTANDING BRANDING

• Trademark -- A brand that has exclusive legal protection for both its brand name and design.

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• With a couple hundred countries on the cyber-platform, choosing the right name is a global issue.

• Every once in a while, a successful name is created by accident. Google was supposed to be called Googol.

• What would you rename Very Vegetarian if given the chance? Would you want to ask an expert?

The NAME GAME(Reaching Beyond Our Borders)

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WHAT’S in a NAME?

Source: Bloomberg Businessweek, October 21, 2010.

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• 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.

KEY BRAND CATEGORIESLG4


Photo Courtesy of: Joe Mudd

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• Generic Goods -- Nonbranded products that sell at a discount compared to manufacturers’ or dealers’ brands.

• Knockoff Brands -- Illegal copies of national brands.

KEY BRAND CATEGORIESLG4


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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 LOYALTYLG4

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MOST VALUABLE BRANDS

Source: Forbes, August 30, 2010.

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• Volvo - Symbol for iron

• Lamborghini - Company founder’s zodiac sign was Taurus

• Volkswagen - Product of an office contest

• Porsche - Coat of arms for city and state headquarters

ORIGINS of AUTOMOBILE SYMBOLS

Source: World Features Syndicate.

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• 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 LG4


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• Brand Association -- Linking a brand to other favorable images, like celebrities or a geographic area.

• Brand Manager -- Person responsible for a particular brand and handles all the elements of the brand’s marketing mix.

BUILDING BRAND ASSOCIATIONSLG4

Creating Brand Associations & Brand Management

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Progress Assessment

• What functions does packaging now perform?

• What’s the difference between a brand name and a trademark?

• Explain the difference between a manufacturers’ brand, a dealer brand, and a generic brand.

• What are the key elements of brand equity?

PROGRESS ASSESSMENT

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The New Product Development Process

The NEW PRODUCT DEVELOPMENT PROCESSLG5

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• 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 MARKETLG5

Product Screening & Analysis

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• Concept Testing -- Takes a product idea to consumers to test reactions.

BRINGING NEW PRODUCTS to the MARKET

• Commercialization -- Promoting the product to distributors and retailers and developing the promotional campaign.

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Product Development and Testing

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• The popularity of food trucks has risen, but it’s no longer just hot dogs and hamburgers:

- Clover Food Truck in Boston/Cambridge offers a rotating menu of local organic foods.

- Sugar Philly Truck in Philadelphia offers crème brulee hot off the truck.

- Dim and Den Sum in Cleveland has some of the best food truck art in America.

- Koi Fusion PDX in Portland is one of the few mobile eateries in that town.

DON’T COME to ME, I’LL COME to YOU

(Spotlight on Small Business)

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The Product Life Cycle

• Product Life Cycle -- A theoretical model of what happens to sales and profits for a product over time.

• Product Life Cycle Stages:

1. Introduction

2. Growth

3. Maturity

4. Decline

The FOUR STAGES of a PRODUCT LIFE CYCLELG6

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SALES and PROFITS DURING the PRODUCT LIFE CYCLELG6


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PROFITS BEYOND the GRAVETop Earning Deceased Celebrities in 2010

Source: Forbes, www.forbes.com, accessed July 2011.

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Progress Assessment

• What are the six steps in the new-product development process?

• What’s the difference between product screening and product analysis?

• What are the two steps in commercialization?

• What’s the theory of the product life cycle?

PROGRESS ASSESSMENT

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Competitive Pricing

1) Achieving a target return on investment or profit

2) Building traffic

3) Achieving greater market share

4) Creating an image

5) Furthering social objectives both short-run and long-run

PRICING OBJECTIVESLG7

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• 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 margins.

• Competition-Based Pricing -- A strategy based on what the competition is charging for its products.

PRICING STRATEGIESLG7

Competitive Pricing

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Break-Even Analysis

• Break-Even Analysis -- The process used to determine profitability at various levels of sales. The break-even point is where revenues equals 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.

USING BREAK-EVEN ANALYSISLG7

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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 ALTERNATIVESLG7

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• 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 RETAILERSLG7

Other Pricing Strategies

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Progress Assessment

• List two short-term and two long-term pricing objectives. Can the two be compatible?

• What are the limitations of a cost-based pricing strategy?

• What’s psychological pricing?

PROGRESS ASSESSMENT

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Chap014

Business

Transcript of Chap014