* Chapter

Fourteen

*
Developing and Pricing Goods and Services

McGraw-Hill/Irwin

Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

*
RATAN TATA
The Tata Group
Profile

Ratan Tata introduced the $2,500 Peoples Car in 2008. Tata Motors is part of the growing auto market in India - possibly the futures largest market. Tata expanded in 2008 by purchasing Jaguar and Range Rover from Ford.
14-2

*
DEVELOPING VALUE

Product Development and the Total Product Offer

LG1

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.

14-3

PRODUCTS UNTOUCHABLE by SPENDING CUTS

Internet service
Cell phone service Cable television

Product Development and the Total Product Offer

LG1

Discount apparel
Haircuts and coloring Fast-food
Source: www.bigresearch.com.

14-4

PRODUCTS EXPENDABLE by SPENDING CUTS

Luxury handbags
Satellite radio Specialty apparel

Product Development and the Total Product Offer

LG1

High-end cosmetics
Facials

Source: www.bigresearch.com.

14-5

HOME COOKING in HALF the TIME

Spotlight on Small Business

* *

Lets Dish and Dream Dinners provides a service where customers prepare meals then bring them home. The companies provide a place to meet, has supplies and relieves the stress and mess for its customers.
14-6

DEVELOPING a TOTAL PRODUCT

*Developing a
Total Product Offer LG1

Total Product Offer -- Everything consumers

evaluate when deciding whether to buy something.

Products are evaluated on many different dimensions, both tangible and intangible. Marketers must think like and talk to consumers to find out whats important.
14-7

PRODUCT INNOVATION DURING the GREAT DEPRESSION

Year 1929 1930 1930 1933 1933 Product Electric Razors Car Radios Supermarkets

*Developing a
Total Product Offer LG1

Chocolate Chip Cookies Laundromats

Source: BusinessWeek Small Biz.

14-8

POTENTIAL COMPONENTS of a TOTAL PRODUCT OFFER

*Developing a
Total Product Offer LG1

14-9

UNDERSTANDING PRODUCT LINES

*Product Lines
& Product Mix LG1

Product Line -- A group of products that are

physically similar or intended for a similar market.

Product lines often include competing brands like:

- M&Ms - Peanut M&Ms

- Mint M&Ms
- Dark Chocolate M&Ms

14-10

The PRODUCT MIX

*Product Lines
& Product Mix LG1

Product Mix -- The combination of all product lines

offered by a manufacturer or service provider.

Product mixes like Proctor & Gambles can be extensive:

- Laundry detergent - Cosmetics - Diapers - Potato chips - Bar soap
14-11

DIFFERENTIATING PRODUCTS

*Product
Differentiation LG2

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
14-12

*
CLASSIFYING CONSUMER GOODS and SERVICES

Marketing Different Classes of Consumer Goods and Services

LG2

Convenience Goods and Services -- Products

consumers purchase frequently with minimal effort. These include:
- Candy and snacks
- Gas - Milk and eggs

14-13

*
CLASSIFYING SHOPPING GOODS and SERVICES

Marketing Different Classes of Consumer Goods and Services

LG2

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

14-14

*
CLASSIFYING SPECIALTY GOODS and SERVICES

Marketing Different Classes of Consumer Goods and Services

LG2

Specialty Goods and Services -- Products with

unique characteristics and brand identity. These include:
- Tiffany jewelry
- Rolex watches - Lamborghini automobiles

- Ritz Carlton Hotels

14-15

*
CLASSIFYING UNSOUGHT GOODS and SERVICES

Marketing Different Classes of Consumer Goods and Services

LG2

Unsought Goods and Services -- Products

consumers arent aware of or havent thought of buying until they need them. These include:
- Car-towing services - Funeral services

- Renters insurance

14-16

IDENTIFYING CONSUMER GOODS CLASSIFICATIONS

How would you classify these consumer products?
- Beautyrest mattress - Honda Accord

Marketing Different Classes of Consumer Goods and Services

LG2

- McDonalds Big Mac

- Rolls Royce automobiles - Oreo Cookies - Harvard University degree
14-17

ODD PRODUCT IDEAS that WERE SUCCESSFUL

rock with eyes and a training manual.

Marketing Different Classes of Consumer Goods and Services

LG2

Pet Rock - For $3.95 you could buy a gift-wrapped 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 clay figures that grew

sprouts.
14-18

CLASSIFYING INDUSTRIAL GOODS and SERVICES

Industrial Goods -- Products used in the

Marketing Industrial Goods and Services

LG2

production of other products and sold in the B2B market.

Industrial goods include:

- Installations - Capital items - Accessory equipment - Supplies - Service
14-19

*
PROGRESS ASSESSMENT

Progress Assessment

*
What value enhancers may be included in a total product offer?
Whats 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.
14-20

COMPANY USES of PACKAGING

*Packaging
Changes the Product LG3

Companies often use packaging to change and improve their basic product. Examples include:
- Microwave popcorn

- Tuna pouches
- McDonalds green packaging

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

14-21

SOME KEY FUNCTIONS of PACKAGING

To attract buyers attention

*Packaging
Changes the Product LG3

Protect the goods inside and be tamperproof Describe and provide information about the product Explain the products benefits

Provide warranty information and warnings

Give an indication of price, value, and uses
14-22

UNDERSTANDING BRANDING

*Branding and
Brand Equity LG4

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.

14-23

KEY BRAND CATEGORIES

*Branding and
Brand Equity LG4

Manufacturers Brands Brand names of

manufacturers that distribute products nationally.

Dealer (Private-Label) Brands -- Products that

carry a retailers or distributors brand name instead of a manufacturers.

14-24

KEY BRAND CATEGORIES

*Branding and
Brand Equity LG4

Generic Goods -- Non-branded products that sell

at a discount compared to manufacturers or dealers brands.

Knockoff Brands -- Illegal copies of national

brands.

14-25

ESTABLISHING BRAND EQUITY and LOYALTY

Brand Equity The combination of factors

*Generating
Brand Equity and Loyalty LG4

(awareness, loyalty, perceived quality, images, and emotions) that people associate with a brand name.

Brand Loyalty -- The degree to which consumers

are satisfied and are committed to further purchases.

14-26

ORIGINS of AUTOMOBILE SYMBOLS

Volvo - Symbol for iron

*Generating
Brand Equity and Loyalty LG4

Lamborghini - Company founders was a Taurus Volkswagen - Product of an office contest Porsche - Coat of arms for city and state headquarters
Source: World Features Syndicate.

14-27

COULDNT YOU MAKE a SMALLER FOOTPRINT?

(Thinking Green)

* *

Timberland (U.S.A.) is putting a carbon label on its products. Tesco (U.K.) puts carbon labels on all products including grocery bags. China and India, though, are building coalpowered plants and expanding car-use. The focus on climate change varies from country to country.
14-28

BUILDING BRAND AWARENESS

*Generating
Brand Equity and Loyalty LG4

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.

14-29

BUILDING BRAND ASSOCIATIONS

*Generating
Brand Equity and Loyalty LG4

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 brands marketing mix.

14-30

*
PROGRESS ASSESSMENT

Progress Assessment

*
What six functions does packaging now perform? Whats 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?
14-31

The NEW PRODUCT DEVELOPMENT PROCESS

The New Product Development Process

LG5

14-32

BRINGING NEW PRODUCTS to the MARKET

The New Product Development Process

LG5

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.

14-33

BRINGING NEW PRODUCTS to the MARKET

The New Product Development Process

LG5

Concept Testing -- Takes a product idea to

consumers to test reactions.

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

14-34

The FOUR STAGES of a PRODUCT LIFE CYCLE

*The Product
Life Cycle LG6

Product Life Cycle -- A theoretical look at what

happens to sales and profits for a product over time.

Product Life Cycle Stages:

1. Introduction 2. Growth 3. Maturity 4. Decline
14-35

SALES and PROFITS DURING the PRODUCT LIFE CYCLE

*The Product
Life Cycle LG6

14-36

*The Product
PROFITS BEYOND the GRAVE
Top Earning Deceased Celebrities
Life Cycle LG6

Celebrity
Elvis Presley Charles Schultz Heath Ledger Albert Einstein

Earnings
$52 Million $33 Million $20 Million $18 Million

Year of Death
1977 2000 2008 1955

Aaron Spelling
Dr. Seuss John Lennon
Source: Forbes, www.forbes.com/deadcelebs.

$15 Million
$12 Million $9 Million

2006
1991 1980

14-37

*
PROGRESS ASSESSMENT

Progress Assessment

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

Whats the difference between product screening and product analysis?

What are the two steps in commercialization? Whats the theory of the product life cycle?
14-38

*
PRICING OBJECTIVES

Competitive Pricing
LG7

Achieving a target return on investment or profit Building traffic Achieving greater market share

Creating an image
Furthering social objectives both short-run and long-run
14-39

*
PRICING STRATEGIES

Competitive Pricing
LG7

Cost-based pricing measures cost of producing a product including materials, labor, and overhead.
Target Costing -- Making the final price of a
product an input in the product development process by estimating the selling price consumers will pay.

Competition-Based Pricing -- A strategy based

on what the competition is charging for its products.

14-40

WHEN SELLING SWEETS GOES SOUR

(Reaching Beyond Our Borders)

* *

Choco-Logo saw its costs increase dramatically in one year. The company cut back by using less expensive packaging and reducing the size of a box of chocolates. Pricing is a process thats never simple. You need to maintain high quality while cutting costs.
14-41

*
USING BREAK-EVEN ANALYSIS

Break-Even Analysis
LG7

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.

14-42

*
PRICING ALTERNATIVES

Other Pricing Strategies

LG7

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.
14-43

PRICING STRATEGIES of RETAILERS

Other Pricing Strategies

LG7

High-Low Pricing -- Using regular prices that are

higher than EDLP 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.

14-44

*
PROGRESS ASSESSMENT

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 system?

Whats psychological pricing?

14-45