CHAPTER 12 Developing and Pricing Products Leonardo Matarrese @MyPlick

Outline What Is a Product? Developing New Products Identifying Products Determining Prices Pricing Strategies and Tactics Leonardo Matarrese @MyPlick

What Is a Product?

Developing New Products

Identifying Products

Determining Prices

Pricing Strategies and Tactics

What Is a Product? Ideas, Goods, or Services Customers buy products because they like what the products can do for them, either physically or emotionally--Utility A product must include the right features and offer the right benefits to succeed Feature Tangible quality that a company builds into a product What are some feature the company’s build in? Leonardo Matarrese @MyPlick

Ideas, Goods, or Services

Customers buy products because they like what the products can do for them, either physically or emotionally--Utility

A product must include the right features and offer the right benefits to succeed

Feature

Tangible quality that a company builds into a product

Classifying Goods & Services Convenience Good/Service Inexpensive product purchased and consumed rapidly and regularly Shopping Good/Service Moderately expensive, infrequently purchased product Specialty Good/Service Expensive, rarely purchased product CONSUMER PRODUCTS Leonardo Matarrese @MyPlick

Convenience Good/Service

Inexpensive product purchased and consumed rapidly and regularly

Shopping Good/Service

Moderately expensive, infrequently purchased product

Specialty Good/Service

Expensive, rarely purchased product

Classifying Goods & Services Expense Item Industrial product purchased and consumed rapidly and regularly for daily operations Capital Item Expensive, long-lasting, infrequently purchased industrial product such as a building INDUSTRIAL PRODUCTS Leonardo Matarrese @MyPlick

Expense Item

Industrial product purchased and consumed rapidly and regularly for daily operations

Capital Item

Expensive, long-lasting, infrequently purchased industrial product such as a building

The Product Mix Product Mix Group of products that a firm makes available for sale Product Line Group of similar products intended for a similar group of buyers who will use them in similar ways Leonardo Matarrese @MyPlick

Product Mix

Group of products that a firm makes available for sale

Product Line

Group of similar products intended for a similar group of buyers who will use them in similar ways

Developing New Products The New Product Development Process Product Mortality Rates Strategy of introducing new products to respond quickly to customer or market changes Leonardo Matarrese @MyPlick Speed to Market

The New Product Development Process

Product Mortality Rates

Strategy of introducing new products to respond quickly to customer or market changes

The Seven-Step Development Process Product Ideas Screening Concept Testing Business Analysis Prototype Development Testing & Test Marketing       Commercialization  Leonardo Matarrese @MyPlick

Variations for Services Service Ideas Defining the Service Package — identification of the tangible and intangible features that characterize the service Service Process Design Services require a three-part service process design instead of prototype development The Seven-Step Development Process Leonardo Matarrese @MyPlick

Variations for Services

Service Ideas

Defining the Service Package — identification of the tangible and intangible features that characterize the service

Service Process Design

Services require a three-part service process design instead of prototype development

The Product Life Cycle (PLC) Series of stages in a product’s profit-producing life Introduction Growth Maturity Decline Leonardo Matarrese @MyPlick

Series of stages in a product’s profit-producing life

Life Cycle Stages # - Leonardo Matarrese @MyPlick

Life Cycle Stages # - Leonardo Matarrese @MyPlick

Adjusting Marketing Strategy During the Life Cycle Extending Product Life: An Alternative to New Products Foreign Markets Offer Three Approaches to Longer Life Cycles Product Extension Existing product is marketed globally, instead of just domestically Product Adaptation Product modified to have greater appeal in foreign markets Reintroduction Process of reviving for new markets products that are obsolete in older ones Leonardo Matarrese @MyPlick

Extending Product Life: An Alternative to New Products

Foreign Markets Offer Three Approaches to Longer Life Cycles

Product Extension

Existing product is marketed globally, instead of just domestically

Product Adaptation

Product modified to have greater appeal in foreign markets

Reintroduction

Process of reviving for new markets products that are obsolete in older ones

Identifying Products Branding: process of using symbols to communicate the qualities of a product made by a particular producer Types of Brand Names National Brand: brand-name product produced by, widely distributed by, and carrying the name of a manufacturer Licensed Brand: brand-name product for whose name the seller has purchased the right from an organization or individual Private Brand (or Private Label ): brand-name product that a wholesaler or retailer has commissioned from a manufacturer Leonardo Matarrese @MyPlick

Branding: process of using symbols to communicate the qualities of a product made by a particular producer

Types of Brand Names

National Brand: brand-name product produced by, widely distributed by, and carrying the name of a manufacturer

Licensed Brand: brand-name product for whose name the seller has purchased the right from an organization or individual

Private Brand (or Private Label ): brand-name product that a wholesaler or retailer has commissioned from a manufacturer

Packaging Products Packaging Physical container in which a product is sold, advertised, or protected Leonardo Matarrese @MyPlick

Packaging

Physical container in which a product is sold, advertised, or protected

Packaging Products Labeling Can help market the product Nonaerosol Bio-Degradable Recyclable Ozone Friendly Fat Free Salt Free Sugar Free 30% More Free! Contents Under Pressure Do Not Puncture Address issues of consumer safety Flammable Do Not Use Near Open Flame Child Proof Cap Leonardo Matarrese @MyPlick

Labeling

Can help market the product

Nonaerosol

Bio-Degradable

Recyclable

Ozone Friendly

Fat Free

Salt Free

Sugar Free

30% More Free!

Address issues of consumer safety

Labeling Laws Food, Drug and Cosmetic Act of 1938 Empowers the Food and Drug Administration to check the accuracy of product ingredients as reported on labels Fair Packaging and Labeling Act of 1966 Requires labels to include the product name, the name and address of the manufacturer or distributor, and the net quantity of product contained in the package Child Safety Protection Act 1995 Requires labels to identify toys that are choking hazards Not For Children Under Three Years Old Leonardo Matarrese @MyPlick

Food, Drug and Cosmetic Act of 1938

Empowers the Food and Drug Administration to check the accuracy of product ingredients as reported on labels

Fair Packaging and Labeling Act of 1966

Requires labels to include the product name, the name and address of the manufacturer or distributor, and the net quantity of product contained in the package

Child Safety Protection Act 1995

Requires labels to identify toys that are choking hazards

Determining Prices Pricing Process of determining what a company will receive in exchange for its products Pricing Objectives Goals that producers hope to attain in pricing products for sale Market Share As a percentage, total of market sales for a specific company or product Leonardo Matarrese @MyPlick

Pricing

Process of determining what a company will receive in exchange for its products

Pricing Objectives

Goals that producers hope to attain in pricing products for sale

Market Share

As a percentage, total of market sales for a specific company or product

Price-Setting Tools Cost-Oriented Pricing Markup: Amount added to an item’s cost to sell it at a profit Breakeven Analysis: Cost-Volume-Profit Relationships Variable Cost: Cost that changes with the quantity of a product produced or sold Fixed Cost: Cost unaffected by the quantity of a product produced Breakeven Analysis: Assessment of the quantity of a product that must be sold before the seller makes a profit Leonardo Matarrese @MyPlick

Cost-Oriented Pricing

Markup: Amount added to an item’s cost to sell it at a profit

Breakeven Analysis: Cost-Volume-Profit Relationships

Variable Cost: Cost that changes with the quantity of a product produced or sold

Fixed Cost: Cost unaffected by the quantity of a product produced

Breakeven Analysis: Assessment of the quantity of a product that must be sold before the seller makes a profit

Markup Markup is usually stated as a percentage of selling price. # - Leonardo Matarrese @MyPlick

Markup is usually stated as a percentage of selling price.

Breakeven Point Quantity of a product that must be sold before the seller covers variable and fixed costs and makes a profit # - Leonardo Matarrese @MyPlick

Quantity of a product that must be sold before the seller covers variable and fixed costs and makes a profit

Breakeven Analysis # - Leonardo Matarrese @MyPlick

Pricing Strategies & Tactics Pricing above prevailing market prices for similar products Pricing below market prices Pricing at or near market prices (market pricing) Existing Products Price Leader Dominant firm that establishes product prices that other companies follow Price Fixing Occurs when producers illegally agree on prices among themselves Leonardo Matarrese @MyPlick

Pricing above prevailing market prices for similar products

Pricing below market prices

Pricing at or near market prices (market pricing)

Price Leader

Dominant firm that establishes product prices that other companies follow

Price Fixing

Occurs when producers illegally agree on prices among themselves

Pricing Strategies & Tactics Price Skimming Setting an initial high price to cover new product costs and generate a profit Dynamic Pricing for E-business Sellers can alter prices privately, on a one‑to‑one, customer-to customer basis Penetration Pricing Setting an initial low price to establish a new product in the market Price Lining Offering all items in certain categories at a limited number of prices New Products Leonardo Matarrese @MyPlick

Price Skimming

Setting an initial high price to cover new product costs and generate a profit

Dynamic Pricing for E-business

Sellers can alter prices privately, on a one‑to‑one, customer-to customer basis

Penetration Pricing

Setting an initial low price to establish a new product in the market

Price Lining

Offering all items in certain categories at a limited number of prices

Pricing Strategies & Tactics Psychological Pricing Pricing tactic that takes advantage of the fact that consumers do not always respond rationally to stated prices Odd-even Pricing Psychological pricing tactic based on the premise that customers prefer prices not stated in even dollar amounts Discount Price reduction offered as an incentive to purchase New Products Leonardo Matarrese @MyPlick

Psychological Pricing

Pricing tactic that takes advantage of the fact that consumers do not always respond rationally to stated prices

Odd-even Pricing

Psychological pricing tactic based on the premise that customers prefer prices not stated in even dollar amounts

Discount

Price reduction offered as an incentive to purchase

International Pricing Why is pricing products for sale in other countries so complicated? Leonardo Matarrese @MyPlick

Why is pricing products for sale in other countries so complicated?