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*Chapter Fourteen
Developing and Pricing Goods and Services
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
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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
14-2
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• Let’s Dish and Dream Dinners provides a service where customers prepare meals then bring them home.
HOME COOKING in HALF the TIMESpotlight on Small Business
• The companies provide a place to meet, has supplies and relieves the stress and mess for its customers.
14-3
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*POTENTIAL COMPONENTS
of a TOTAL PRODUCT OFFERLG1
Developing a Total Product Offer
14-4
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*Product Lines & Product Mix
• 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
UNDERSTANDING PRODUCT LINES
LG1
14-5
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*Product Lines & Product Mix
• Product Mix -- The combination of all product lines offered by a manufacturer or service provider.
• Product mixes like Proctor & Gamble’s can be extensive:
- Laundry detergent
- Cosmetics
- Diapers
- Potato chips
- Bar soap
The PRODUCT MIX
LG1
14-6
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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 PRODUCTS
LG2
14-7
CATEGORIES OF CONSUMER GOODS AND SERVICES
• 1 CONVENIENCE GOODS AND SERVICES
• 2 SHOPPING GOODS AND SERVICES
• 3 SPECIALTY GOODS AND SERVICES
• 4 UNSOUGHT GOODS AND SERVICES
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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 SERVICES LG2
14-9
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*Marketing Different Classes of Consumer 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
CLASSIFYING SHOPPINGGOODS and SERVICES LG2
14-10
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*Marketing Different Classes of Consumer Goods and Services
• 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 SERVICES LG2
14-11
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*Marketing Different Classes of Consumer Goods 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
CLASSIFYING UNSOUGHTGOODS and SERVICES LG2
14-12
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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.
• Industrial goods include:
- Installations
- Capital items
- Accessory equipment
- Supplies
- Service
CLASSIFYING INDUSTRIAL GOODS and SERVICES
LG2
14-13
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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
COMPANY USES of PACKAGING
LG3
• Good packaging can also make a product more attractive to retailers.
14-14
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*Packaging Changes the Product
• 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
SOME KEY FUNCTIONS of PACKAGING
LG3
14-15
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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
LG4
• Trademark -- A brand that has exclusive legal protection for both its brand name and design.
14-16
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*Branding and Brand Equity
• 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 CATEGORIES
LG4
14-17
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*Branding and Brand Equity
• Generic Goods -- Non-branded products that sell at a discount compared to manufacturers’ or dealers’ brands.
• Knockoff Brands -- Illegal copies of national brands.
KEY BRAND CATEGORIES
LG4
14-18
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*Generating Brand Equity and Loyalty
• Brand Equity – The combination of factors (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.
ESTABLISHING BRAND EQUITY and LOYALTY
LG4
14-19
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*Generating Brand Equity and Loyalty
• 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
14-20
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*Generating Brand Equity and Loyalty
• 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 ASSOCIATIONS
LG4
14-21
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*The New Product Development Process
The NEW PRODUCT DEVELOPMENT PROCESS
LG5
14-22
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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 MARKET
LG5
The New Product Development Process
14-23
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• Concept Testing -- Takes a product idea to consumers to test reactions.
BRINGING NEW PRODUCTS to the MARKET
LG5
The New Product Development Process
• Commercialization -- Promoting the product to distributors and retailers and developing the promotional campaign.
14-24
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*The Product Life Cycle
• 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
The FOUR STAGES of a PRODUCT LIFE CYCLE
LG6
14-25
MARKETING EFFORTS IN PRODUCT LIFE CYCLE
• 1. introduction – keep prod mix small, use penetration pricing, use wholesalers, use dealer promotion
• 2. growth – improve prod, keep mix ltd, adjust price to meet competition, incr distrib, heavy competitive adv
• 3. maturity – differentiate prod, further reduce price, intensify distrib, emphasize brand name as well as product benefits & diff.
Marketing Efforts Cont.
• 4. Decline life cycle – cut product mix, consider raising price, limit distrib, reduce adv, focus on loyal customers
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*Competitive Pricing
• 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
PRICING OBJECTIVES
LG7
14-28
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*Competitive Pricing
• 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.
PRICING STRATEGIES
LG7
14-29
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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 ANALYSIS
LG7
14-30
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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 ALTERNATIVES
LG7
14-31
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*Other Pricing Strategies
• 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.
PRICING STRATEGIES of RETAILERS
LG7
14-32