Chapter 14 – Developing and pricing Goods and Services

1. Chapter 14 – Developing and pricing Goods and Services

2. Developing Value • Value is one of the foundations 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

3. Some products are “untouchable” • This means that during a recession, people are not willing to give them up • Different people have different ideas of what is “untouchable”

4. Other products are “Expendable” • This means that people are willing to give up these products during a recession or other bad economic time

5. Developing a Total Product • Total Product Offer = everything consumers evaluate when deciding whether to buy something • Evaluated on many different dimensions, tangible and intangible • Marketers must think like and talk to consumers to find out what’s important

6. Components of a Total Product Offer

7. Understanding Product Lines • Product Line = a group of products that are physically similar or intended for a similar market

8. Product Mix • Product Mix = the combination of all product lines offered by a manufacturer or service provider

9. Examples • Product Line • Product Mix

10. Differentiating Products • Product Differentiation = the creation of real or perceived product differences • Marketers use a mix of pricing, advertising, and packaging to create different images. • Example: Starbucks vs Dunkin Donuts coffee

11. Classifying Consumer Goods and Services • Convenience Goods & Services: products consumers purchase frequently with minimal effort (candy and snacks, gas, milk, eggs) • Shopping Goods & Services: Products consumers buy only after comparing value, quality, price, and styles (clothes, shoes, appliances, home remodeling)

12. Classifying Consumer Goods and Services (contd) • Specialty Goods & Services: Products with unique characteristics and brand identity (Tiffany jewelry, Rolex watches, Lamborghini automobiles) • Unsought Goods & Services: Products consumers aren’t aware of or haven’t thought of buying until they need them (car towing service, funeral service)

13. Not all successful products make sense • Pet Rocks - $3.95, a gift-wrapped rock with eyes and a training manual • Mood Rings – colors of the ring changed, supposedly with your mood • Chia Pets – animal-shaped clay figures that grew sprouts

14. Classifying Industrial Goods and Services • Industrial Goods: Products used in the production of other products and sold in the B2B market (capital items, supplies, accessory equipment)

15. Company Uses of Packaging • Use to change and improve the basic product (microwave popcorn, McDonald’s green packaging) • Good packaging can also make a product more attractive to retailers

16. Key Functions of Packaging • Attract buyers’ attention • Protect the goods inside and be tamper proof • Describe and provide information about the product • Explain the product’s benefits • Provide warranty information and warnings • Give an indication of price, value, uses

17. Branding • 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 (Nike swoosh, Pillsbury doughboy)

18. Key Brand Categories • Manufacturers’ Brands: Brand names of manufacturers that distribute products nationally (Ford, Microsoft, Xerox) • Dealer (Private-Label) Brands: Products that carry a retailer’s or distributor’s brand name instead of a manufacturer’s (Kenmore from Sears) • Generic Goods: non-branded products that sell at a discount compared to manufacturers’ or dealers’ brands • Knockoff Brands: illegal copies of national brands

19. Establishing Brand Equity and Loyalty • Brand equity; combination of factors that people associate with a brand name (awareness, loyalty, perceived quality, images, emotions) • Brand loyalty: the degree to which consumers are satisfied and are committed to further purchases

20. Building Brand Awareness • Brand awareness: how quickly or easily a given brand name comes to mind when someone mentions a product category • Consumers reach brand preference when they prefer one brand over another • They will not accept substitute brands

21. Building Brand Associations • Brand Awareness: linking a brand to other favorable images, like celebrities or a geographic area • Brand Manager: person responsible for a particular brand and handles all of the elements of the brand’s marketing mix

22. New Product Development Process Idea Generation (based on consumer wants and needs) Product Screening Product Analysis Development (including prototypes) Testing Commercialization (bring to market)

23. Product screening: reduces the number of new products a firm is working on to focus on the most promising ones • Product analysis: focuses on the cost estimates and sales forecasts to get an idea of potential profitability • Concept testing: takes a product idea to consumers to test reactions • Commercialization: promoting the product to distributors and retailers and developing the promotional campaign

24. Four Stages of Product Life Cycle • Introduction • Growth • Maturity • Decline

25. Sales and Profits in PLC

26. Profits after death? Yes… • Elvis Presley – died 1977; profits after death $52 million • Dr. Seuss – died 1991; profits after death $12 million • Michael Jackson – died 2009; profits after death ?????

27. Pricing Objectives • Achieve target return on investment or profit • Build traffic (bring consumers into store) • Achieve greater market share • Create an image • Further social objectives in short and long term

28. Pricing Strategies • Cost-based pricing measures cost of producing a product including materials, labor, 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: based on what the competition is charging for its products

29. Using Break-Even Analysis • Break-Even Analysis: process used to determine profitability at various levels of sales. 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

30. Break Even Formula BEP= Total Fixed Costs (FC) Price of one unit – Variable costs of one unit It’s usually abbreviated like this: BEP = FC P - VC

31. Pricing Alternatives • Skimming strategy: price new products high to recover costs and make high profits while competition is limited • Penetration strategy: price products low with the hope of attracting more buyers and discouraging other companies from competing in the market • Everyday Low Pricing (EDLP): set prices lower than competitors, no special sales

32. Pricing Strategies of Retailers • High-Low Pricing: use regular prices that are higher than EDLP except during special sales when they are lower • Psychological pricing: price products at price points that make a product seem less expensive than it is ($2.99, $3.99, $19.99)