Intro to Business Chapter 14

Business in Business in Action 8e Action 8e Bovée/ThillBovée/Thill

Developing a Business Mindset

Chapter 14Chapter 14Product and Product and

Pricing StrategiesPricing Strategies

Production Systems

Copyright © 2017 Pearson Education, Inc.

Learning Objectives

1. Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

2. Describe six stages in the product development process.

3. Define brand, and explain the concepts of brand equity and brand loyalty.

14-2


Learning Objectives (cont.)

4. Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

5. List the factors that influence pricing decisions, and explain break-even analysis.

6. Identify nine common pricing methods.

14-3


Exhibit 14.1 The Product Continuum

14-4


Exhibit 14.2 Augmenting the Basic Product

14-5

Consumer Products


• Convenience products Everyday goods

and services that people buy frequently, usually without much conscious planning

• Shopping products Fairly important

goods and services that people buy less frequently with more planning and comparison

14-6

Consumer Products (cont.)


• Specialty products Particular brands that the buyer especially

wants and will seek out, regardless of location or price

14-7

Industrial and Commercial Products


• Expense items Inexpensive goods generally used within a

year of purchase

• Capital items More expensive organizational products with

a longer useful life, ranging from office and plant equipment to entire factories

14-8

Industrial and Commercial Products (cont.)

Copyright © 2017 Pearson Education, Inc. 14-9


The Product Life Cycle

• Product life cycle Four stages through which a product

progresses: introduction, growth, maturity, and decline

14-10


Exhibit 14.3 The Product Life Cycle

14-11


The New-Product Development Process

• Product development process A formal process of generating, selecting,

developing, and commercializing product ideas

14-12


Exhibit 14.4The Product Development Process

14-13


• Prototypes Pre-production samples of products used for

testing and evaluation

• Test marketing The stage of product development in which a

product is sold on a limited basis to gauge its market appeal

The New-Product Development Process (cont.)

14-14


• Commercialization Large-scale production and distribution of a

product

The New-Product Development Process (cont.)

14-15

Product Identities


• Brand A name, term, sign, symbol, design, or

combination of those used to identify the products of a firm and to differentiate them from competing products

14-16

Product Identities (cont.)


• Brand equity The value that a

company has built up in a brand

• Brand loyalty The degree to

which customers continue to purchase a specific brand

14-17

Brand Name Selection


• Brand names The portion of

brands that can be expressed orally, including letters, words, or numbers

• Brand marks The portion of

brands that cannot be expressed verbally

14-18

Brand Name Selection (cont.)


• Logo A graphical and/or

textual representation of a brand

• Trademarks Brands that have

been given legal protection so that their owners have exclusive rights to their use

14-19


Exhibit 14.5 Product Identities

14-20

Brand Ownership


• National brands Brands owned by

manufacturers and distributed nationally

• Private brands Brands that carry

the label of a retailer or a wholesaler rather than a manufacturer

14-21

Brand Ownership (cont.)


• Co-branding A partnership between two or more

companies to closely link their brand names together for a single product

• License An agreement to produce and market another

company’s product in exchange for a royalty or fee

14-22

Product-Line andProduct-Mix Strategies


• Brand managers Managers who develop and implement the

marketing strategies and programs for specific products or brands

14-23


Product-Line andProduct-Mix Strategies (cont.)

• Product line A series of related

products offered by a firm

• Product mix The complete

portfolio of products that a company offers for sale

14-24


Exhibit 14.7 Expanding a Product Line

14-25

Strategic Considerations in Pricing


Cost Structure


• Fixed costs Business costs

that remain constant regardless of the number of units produced

• Variable costs Business costs

that increase with the number of units produced

14-27


Break-Even Analysis

• Break-even analysis A method of calculating the minimum volume

of sales needed at a given price to cover all costs

14-28

Break-Even Analysis (cont.)


• Break-even point Sales volume at a given price that will cover

all of a company’s costs

14-29


Exhibit 14.8 Break-Even Analysis

14-30


Exhibit 14.8 Break-Even Analysis (cont.)

14-31


Pricing Methods

• Cost-based pricing A method of setting prices based on

production and marketing costs, rather than conditions in the marketplace

• Value-based pricing A method of setting prices based on customer

perceptions of value

14-32


Pricing Methods (cont.)

• Optimal pricing A computer-based pricing method that creates

a demand curve for every product to help managers select a price that meets specific marketing objectives

14-33



• Skim pricing Charging a high price for a new product during

the introductory stage and lowering the price later

• Penetration pricing Introducing a new product at a low price in

hopes of building sales volume quickly

14-34


• Loss-leader pricing Selling one product at a loss as a way to entice

customers to consider other products

• Auction pricing The seller doesn’t set a firm price but allows

buyers to competitively bid on the products being sold


14-35


• Participative pricing Allowing customers to pay the amount they

think a product is worth

• Freemium pricing A hybrid pricing strategy (free+premium) of

offering some products for free while charging for others, or offering a product for free to some customers while charging others for it


14-36

Price Adjustment Tactics


• Discounts Temporary price reductions to stimulate sales

or lower prices to encourage certain behaviors such as paying with cash

• Bundling Offering several products for a single price that

is presumably lower than the total of the products’ individual prices

14-37

Price Adjustment Tactics (cont.)


• Dynamic pricing Continually adjusting prices to reflect changes

in supply and demand

14-38

Applying What You’ve Learned


1. Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

2. Describe six stages in the product development process.

3. Define brand, and explain the concepts of brand equity and brand loyalty.

14-39


Applying What You’ve Learned (cont.)

4. Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

5. List the factors that influence pricing decisions, and explain break-even analysis.

6. Identify nine common pricing methods.

14-40
