Developing and Pricing Products: Understanding Product Lines and the Product Mix

1. Chapter Developing and Pricing Products (Goods and Services) 14 14-1

2. Developing and Pricing Products • This chapter explores two elements of the Marketing Mix • Product • Price

3. Product

4. Product Lines& The Product Mix

5. Product Line -- A group of products that are physically similar or intended for a similar market. UNDERSTANDING PRODUCT LINES Product lines often include competing brands like: Coca-Cola Diet Coke Coke Zero Cherry Coke Photo Courtesy of: Coca-Cola Art Gallery 14-6

6. The PRODUCT MIX 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 14-7

7. Theme parks & resorts ABC Television Network TV & radio stations Film studios & production Video programs & licensing Consumer products Publishing Mickey Mouse’s Product Mix

8. 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. Examples include: • Bottled water • Aspirin • Fast-food • Laundry detergent • Shampoo

9. Classifying Classesof Goods & Services • Consumer • Purchased for personal consumption or use • Sometimes called B2C Goods • Industrial (Business) • Purchased for use in production of other products • Sometimes called B2B Goods • Commercial goods

10. Classifying Convenience Goods and Services • Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include: • Candy and snacks • Gas • Milk and eggs

11. Classifying Shopping Goods and Services • 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

12. Classifying SpecialtyGoods and Services • Specialty Goods and Services -- Products with unique characteristics and brand identity. These include: • Tiffany jewelry • Rolex watches • Lamborghini automobiles • Ritz Carlton Hotels

13. CLASSIFYING UNSOUGHTGOODS and SERVICES 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 Photo Credit: Paul Chenoweth 14-14

14. Classifying Classes of Industrial Goods & Services • Industrial Goods -- Products used in the production of other products and sold in the B2B market. • Industrial goods include: • Capital items • Installations • Accessory equipment • Supplies • Service

15. Packaging

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

17. SOME KEY FUNCTIONS of PACKAGING To attract buyers’ attention Protect the goods inside and be tamperproof Be easy to open Describe and give information about the product Explain the product’s benefits Provide warranty information and warnings Give an indication of price, value, and uses 14-19

18. USES of PACKAGING Companies often use packaging to change and improve their basic product. Examples include: Microwave popcorn Tuna pouches McDonald’s green packaging • Good packaging can also make a product more attractive to retailers. 14-20

19. Labeling Regulations • Federal Fair Packaging and Labeling Act of 1966 aims at making labels more helpful to consumers by providing useful information. • Food and Drug Administration requires food labels to tell how much fat, saturated fat, cholesterol, calories, carbohydrates, protein, trans fats, and vitamins are in each product serving.

20. Branding

21. 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. 14-23

22. Brand Categories • 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.

23. Brand Categories • Generic Goods -- Non-branded products that sell at a discount compared to manufacturers’ or dealers’ brands. • Knockoff Brands -- Illegal copies of national brands.

24. Knock-Off Brands • Original Swiss made Rolex replicas are as close to the real thing as a replica watch can be.Sometimes even the professional experts are unable to tell the difference from the original Rolex watch. • All real Swiss Rolex Replicas should have the following: • Full 1-year Warranty • Solid 14k or 18k Gold on two-toned models• Guaranteed triple-wrapped gold on all-gold models • Genuine sapphire crystal - a type of glass that is many times better at resisting scratches than regular glass.• The color of the gold looks exactly like a genuine Rolex watch • If the retail dealer does not offer this, do not purchase from them! • REPLICA \/\/atches BAZAAR!

25. Product Life Cycle

26. Product Life Cycle • Theoretical model of what happens to sales and profits for a product class over time • Four Stages: • Introduction • Growth • Maturity • Decline

27. The Product Life Cycle

28. Pricing

29. Objectives ROI Building Traffic Market Share Sales Creating Image Social Objectives Cost-Based Demand-Based Target Costing (Price-led costing) Cost is input to development – not outcome Competition-Based Price Leadership Price Following Pricing in the Service Sector Pricing

30. Break-Even Analysis

31. Using Break-Even Analysis • Break-Even Analysis -- The process used to determine profitability at various levels of sales. • The Break-Even Point (BEP) is where Total Revenue equals Total Costs.

32. The Product Life Cycle X

33. Break-Even Point Definitions Fixed Costs Variable Costs Total Cost Break-Even Analysis

34. Using Break-Even Analysis • 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 • Total Costs – Sum of Total Fixed Costs and Variable Costs

35. Break-Even Analysis • The Break-Even Point (BEP) equals the total fixed costs (FC) divided by the price of one unit (P) minus the variable cost of one unit (VC). • Break-Even Point (units) = Total Fixed Cost (FC) • Price (P) – Variable Cost (VC)

36. Breakeven Chart Total Revenue or Total Cost Number of Units

37. Break-Even Point (units) = Total Fixed Cost (FC) Price (P) – Variable Cost (VC) (per unit) (per unit) Break-Even Analysis

38. Breakeven Analysis Total Revenue or Total Cost Price = $25.00 VC/Unit = $15.00 Number of Units

39. Break-Even Point = $200,000__________ $25.00 – $15.00 = 20,000 Units Break-Even Analysis

40. Applying Break-Even Analysis

41. Pricing UsingBreakeven Analysis Problem Should we charge $2 or $3 per box? Costs Total Fixed Costs $400,000 Variable Cost $1 per box Market Research Forecast Company can sell: 290,000 boxes at $2 @ 210,000 boxes at $3 @ Breakeven point = total fixed cost price - variable cost (per unit) (per unit) $2 price: $400,000 = 400,000 units to breakeven $2 - $1 $3 price: $400,000 = 200,000 units to breakeven $3 - $1 Breakeven Analysis

42. Strategies Skimming Penetration EDLP High-Low Bundling Psychological Pricing

43. Market Forces Affect Pricing Ultimately price is determined by: Supply And Demand In The Marketplace Market Price Pricing