Product Development and Pricing Strategies 2014 Pearson
Education, Inc.13-1 chapter 13 Better Business 3rd Edition Solomon
(Contributing Editor) Poatsy Martin
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Product: Its Probably More Than You Thought 2014 Pearson
Education, Inc. 13-2 Product Products are any Good, Service and/or
Idea that might satisfy a want or need Everything one receives in
an exchange, including all tangible and intangible attributes and
expected benefits TOTAL PRODUCT OFFER Good real, physical thing we
can touch (football, washing machine, book) Service result of
applying human or mechanical effort to a person or thing (tax
preparation, hair cuts) Idea philosophies, lessons, concepts or
advice (Campbells Soup recipes) Bundle of Expected Benefits
Products are nothing more than expected benefits that should
satisfy consumer needs/wants Consumer product A product purchased
to satisfy personal needs Business (industrial) product A product
bought for resale, for making other products, or for use in a firms
operations
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Total Product Offer: Peeling Back The Layers of the Product
2014 Pearson Education, Inc. 13-3 Core product the primary benefit
that satisfies the consumers need (ex. Soft drink->thirst
quench) The actual product the physical good or tangible aspect of
the purchase that you can touch, see, hear, smell, or taste (ex.
Soft drink- >soft drink can or soda flavor) Augmented product
consists of the core product and the actual product PLUS other real
or perceived benefits that provided addl value to a customers
purchase (Ex. warrantees, free service, instruction manuals, help
lines, product image)
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Consumer and B2B Products Consumer Purchased by households for
personal consumption Traded in consumer markets Purchased by
households for personal consumption Traded in consumer markets
Business to Business Sometimes called industrial products Purchased
by businesses for further processing, resale, or as supplies Traded
in B2B markets Sometimes called industrial products Purchased by
businesses for further processing, resale, or as supplies Traded in
B2B markets 2014 Pearson Education, Inc. 13-4
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Consumer Product Classifications 2014 Pearson Education, Inc.
13-5
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B2B Classifications 2014 Pearson Education, Inc. 13-6
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Product Differentiation and Planning: A Meaningful Difference
2014 Pearson Education, Inc.13-7 2 Ways to Compete: 1.Price
2.Product Differentiation Creating real or perceived product
differences; the attributes that make a good or service different
from other products that compete to meet the same or similar
customer needs How to Plan/Differentiate? a)Product Quality
b)Features and Benefits c)Product Lines and Mix d)Branding
e)Packaging/Labeling
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Product Quality 2014 Pearson Education, Inc. 8 Quality Level
how well a product performs its core functions Product Consistency
how reliably a product delivers its promised level of quality
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Product Features and Customer Benefits ProductProduct Feature
Customer Benefit Subway sandwiches Lower fatLooser pants
GrouponGreat deals on valuable products and services More money for
other needs Whole Foods Market Organic produce A healthier planet
5-Hour EnergyCaffeine, caffeine, caffeine More time to study 2014
Pearson Education, Inc. 9 1.Product Features The specific
characteristics of a product 2.Customer Benefit The advantage that
a customer gains from specific product feature
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Product Lines and Product Mix 2014 Pearson Education, Inc.
13-10 Product Mix the total number of product lines by a single
firm Product Line products that are closely related or similar and
only differ in minor characteristics Width of the mix The number of
product lines the mix contains Length of the mix The number of
different products within an individual product line Depth of the
mix The average number of individual products within each line
Cannibalization A new product eats the sales of an existing
line
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Product Mix Strategies 2014 Pearson Education, Inc. 11
Modifying Products Product modification: the process of changing
one or more of a products characteristics 1.Quality Modification:
dependability and durability (ex. Chevys 10-yr warranty)
2.Functional Modification: versatility, effectiveness, convenience
or safety (ex. Larger grill surface, new speed on blender)
3.Aesthetic Modification: sensory appeal of product taste,
appearance, sound, smell (ex. Small bottle Cokes) Deleting products
Developing new products Imitations Adaptations Innovations How to
Make Product Modification Effective? Product must be modifiable
Existing customers must perceive modification made Modification
makes product more consistent with customers desires
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Developing New Products 2014 Pearson Education, Inc. 12
Imitations: similar to and competitive with existing products of
other firms Adaptations: variations of existing products intended
for an established market Innovations: entirely new products
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2014 Pearson Education, Inc. 13-13 Branding Brand - a products
identity that sets it apart from other players in the same category
Brand Equity the extra money that consumers will spend to buy that
brand Brand Name a catchy, memorable name is a powerful part of
strong brand Manufacturer (National) brands are brands that the
manufacturer produces and markets, while Private (Store) brands are
brands that retailers label and market. Brand Mark the part of the
brand that is a distinctive symbol or design
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Branding Strategies 2014 Pearson Education, Inc. 13-14
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Line Extensions and Brand Extensions 2014 Pearson Education,
Inc. 15 Line Extensions Similar products offered under the same
brand name Brand Extensions A product in a new category under an
existing brand name
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Cobranding 2014 Pearson Education, Inc. 16 Cobranding -
established brands from different companies join forces to market
the same product Ford Explorer markets and Eddie Bauer model Kohls
markets Vera Wang clothing Kmart markets Martha Stewart
housewares
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Benefits of Branding: Brand Loyalty 2014 Pearson Education,
Inc. 17 Benefits of branding Brand loyalty The extent to which a
customer is favorable toward buying a specific brand 3 Levels:
1.Brand Recognition (aware brand exists and recognizes it) 2.Brand
Preference (prefer the brand but will choose a competing brand is
preferred brand is unavailable) 3.Brand Insistence (prefer the
brand and will not choose a comparable substitute) Additional
Benefits Because brands are easily recognizable, they reduce the
amount of time buyers must spend shopping. Brands help consumers
judge quality. Branding helps a firm introduce a new product with
the same brand name. Branding aids in promotional efforts because
promotion of each branded product indirectly promotes others with
the same brand.
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Benefits of Branding: Brand Equity Brand equity: The overall
value of a brands strength in market place Brand awareness: The
extent to which a particular brand name is familiar within a
particular product category Brand association: Involves connecting
a brand with other positive attributes, including image, product
features, usage situations, organizational associations, brand
personality, and symbols 2014 Pearson Education, Inc. 13-18
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Benefits of Branding: How to Choose and Protect? 2014 Pearson
Education, Inc. 19 Choosing a brand It should be easy to say,
spell, and recall. It should suggest, in a positive way, the
products uses, special characteristics, and major benefits. It
should be distinctive enough to set it apart from competing brands.
Protecting a brand It should be protected through registration
(i.e. TRADEMARK) Guard against a brand names becoming a generic
term. Kleenex or tissue?
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Packaging 2014 Pearson Education, Inc. 13-20 Protect the
Product Provide Information Facilitate Storage Suggest Product Uses
Promote the Brand Attract Buyer Attention
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The Importance of Labels 2014 Pearson Education, Inc.13-21
Inform Persuade
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The Product Life Cycle 2014 Pearson Education, Inc. 13-22
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Marketing Decisions Affect a Products Life Cycle Marketing
DecisionExample Lower the priceAutomobile discounts, rebates, and
low-interest loans Create a new useArm & Hammer baking soda as
a refrigerator deodorizer Find a new marketHome Depot and Lowes
do-it-yourself training Use new labels or different container types
Coca-Cola 6-oz bottles to 8-oz cans Create a new visionThis isnt
your fathers Oldsmobile campaign 2014 Pearson Education, Inc.
13-23
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Product Pricing & Pricing Objectives 2014 Pearson
Education, Inc. 13-24 Price The amount of money a seller is willing
to accept in exchange for a product at a given time and under
certain circumstances Price Objectives Increase sales, profit,
and/or market share Increase store traffic Create image/quality
Combat competition How do you determine price? Cost-Based Mark-Up
on Cost Break-Even Analysis Demand Based D, P D, P Competition
Based Set a price based on what your competition is doing
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Pricing Strategies: Cost-Based Pricing Charging a price in
relation to the costs of providing a good or service. Advantages
Easy to calculate and administer Requires minimum information
Disadvantages Ignores consumer price expectations and competitors
prices Provides little incentive to keep costs low 2014 Pearson
Education, Inc. 13-25
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Cost-Based Pricing Example You make 100 units of a product at a
total cost of $2,000 Per unit cost is $2,000 / 100 = $20 To make a
unit profit margin, or markup, of 20%:.20 x $20 = $4 You need to
charge: $20 + $4 = $24 Total revenue = 100 x $24 = $2,400 Profit =
$2,400 $2,000 = $400 2014 Pearson Education, Inc. 13-26
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Demand-Based Pricing Pricing a good or service based on the
demand for the product or its perceived value Target costing:
estimates value Price discrimination: Charging different prices for
different customers 2014 Pearson Education, Inc. 13-27
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Competition-Based Pricing 2014 Pearson Education, Inc. 13-28
Type of CompetitionPricing Strategy Perfectly competitive markets
Firms charge prices equivalent to those of all other firms
Monopolistically competitive markets Firms with successful product
differentiation strategies charge higher prices Some firms may
charge lower prices to get an edge on the competition. Oligopolies
Do not compete on price to avoid price wars, competing on product
differentiation instead Periodically, a price leader may emerge and
others will drop their prices Monopoly No competition, so has
greatest price-setting ability May see predatory pricing, the
practice of charging very low prices with the intent to destroy the
competition
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Pricing Strategies When launching new products Price skimming
Penetration pricing Strategies to impact price perceptions Prestige
(premium) pricing Psychological pricing Loss leader pricing
Reference pricing 2014 Pearson Education, Inc. 13-29
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Cost-Based Pricing: BreakEven Analysis Example Total fixed
costs = $600, selling price = $24, and average variable costs = $14
Break-even volume = $600 / ($24 - $14) = 60 units 2014 Pearson
Education, Inc. 13-30 Total fixed costs (Price Average variable
costs)
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Adjusting Prices 2014 Pearson Education, Inc. 13-31
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Common Pricing Strategies 2014 Pearson Education, Inc. 32 New
Product Pricing Price Skimming: Charge highest possible price
during introduction stage Penetration Pricing: Setting low price
for new product to build market share Differential Pricing -
Charging different prices to different buyers for same quality and
quantity Negotiated: Final price comes from bargaining Periodic
Discounting: Temporary price reduction on patterned/systematic
basis Random Discounting: Temporary price reduction on unsystematic
basis Psychological Pricing Odd-Number: use odd numbers just below
whole-dollar amounts Multiple-Unit: single price for 2+ units (aka
BOGO) Reference: price at moderate level and positioning it near a
more expensive model Bundle: package 2+ products and selling for
single price EDLP: consistently low price
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Chapter Summary 1.How is a product distinguished from a total
product offer? 2.What is product differentiation, and what role
does it play in product development? 3.What are the different
classifications of consumer products and business-to-business
products? 4.Why is branding beneficial to both buyers and sellers,
and what are some different types of brands? 5.What steps take
place during new product development, and what is the product life
cycle? 6.What are some pricing objectives, and how do they relate
to the marketing mix? 7.What are the major pricing strategies? 2014
Pearson Education, Inc. 13-33