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Understanding business

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Developing and Pricing Goods and Services

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Understanding business

  1. 1. * * Main Developing and Pricing Goods and Services Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
  2. 2. DEVELOPING VALUE * * Product Development and the Total Product Offer <ul><li>According to the American Marketing Association, value is a foundation of marketing. </li></ul><ul><li>Value -- Good quality at a fair price. </li></ul><ul><li>Product development is a key activity in any modern business. </li></ul>LG1 14-
  3. 3. PRODUCTS “UNTOUCHABLE” by SPENDING CUTS * * <ul><li>Internet service </li></ul><ul><li>Cell phone service </li></ul><ul><li>Cable television </li></ul><ul><li>Discount apparel </li></ul><ul><li>Haircuts and coloring </li></ul><ul><li>Fast-food </li></ul>LG1 Product Development and the Total Product Offer 14-
  4. 4. PRODUCTS “EXPENDABLE” by SPENDING CUTS * * <ul><li>Luxury handbags </li></ul><ul><li>Satellite radio </li></ul><ul><li>Specialty apparel </li></ul><ul><li>High-end cosmetics </li></ul><ul><li>Facials </li></ul>LG1 Product Development and the Total Product Offer 14-
  5. 5. DEVELOPING a TOTAL PRODUCT * * Developing a Total Product Offer <ul><ul><li>Total Product Offer -- Everything consumers evaluate when deciding whether to buy something. </li></ul></ul>LG1 <ul><ul><li>Products are evaluated on many different dimensions, both tangible and intangible. </li></ul></ul><ul><ul><li>Marketers must find out what’s important to consumers. </li></ul></ul>14-
  6. 6. UNDERSTANDING PRODUCT LINES * * Product Lines & Product Mix <ul><ul><li>Product Line -- A group of products that are physically similar or intended for a similar market. </li></ul></ul><ul><ul><li>Product lines often include competing brands like: </li></ul></ul><ul><ul><ul><li>M&Ms </li></ul></ul></ul><ul><ul><ul><li>Peanut M&Ms </li></ul></ul></ul><ul><ul><ul><li>Mint M&Ms </li></ul></ul></ul><ul><ul><ul><li>Dark Chocolate M&Ms </li></ul></ul></ul>LG1 14-
  7. 7. The PRODUCT MIX * * Product Lines & Product Mix <ul><ul><li>Product Mix -- The combination of all product lines offered by a manufacturer or service provider. </li></ul></ul><ul><ul><li>Product mixes like Proctor & Gamble’s can be extensive: </li></ul></ul><ul><ul><ul><li>Laundry detergent </li></ul></ul></ul><ul><ul><ul><li>Cosmetics </li></ul></ul></ul><ul><ul><ul><li>Diapers </li></ul></ul></ul><ul><ul><ul><li>Potato chips </li></ul></ul></ul><ul><ul><ul><li>Bar soap </li></ul></ul></ul>LG1 14-
  8. 8. DIFFERENTIATING PRODUCTS * * Product Differentiation <ul><ul><li>Product Differentiation -- The creation of real or perceived product differences. </li></ul></ul><ul><ul><li>Marketers use a mix of pricing, advertising and packaging to create different images. Examples include: </li></ul></ul><ul><ul><ul><li>Bottled water </li></ul></ul></ul><ul><ul><ul><li>Aspirin </li></ul></ul></ul><ul><ul><ul><li>Fast-food </li></ul></ul></ul><ul><ul><ul><li>Laundry detergent </li></ul></ul></ul><ul><ul><ul><li>Shampoo </li></ul></ul></ul>LG2 14-
  9. 9. CLASSIFYING CONSUMER GOODS and SERVICES * * Marketing Different Classes of Consumer Goods and Services <ul><ul><li>Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include: </li></ul></ul><ul><ul><ul><li>Candy and snacks </li></ul></ul></ul><ul><ul><ul><li>Gas </li></ul></ul></ul><ul><ul><ul><li>Milk and eggs </li></ul></ul></ul>LG2 14-
  10. 10. CLASSIFYING SHOPPING GOODS and SERVICES * * Marketing Different Classes of Consumer Goods and Services <ul><ul><li>Shopping Goods and Services -- Products consumers buy only after comparing value, quality, price, and styles. These include: </li></ul></ul><ul><ul><ul><li>Clothes and shoes </li></ul></ul></ul><ul><ul><ul><li>Appliances and furniture </li></ul></ul></ul><ul><ul><ul><li>Childcare </li></ul></ul></ul><ul><ul><ul><li>Home remodeling </li></ul></ul></ul>LG2 14-
  11. 11. CLASSIFYING SPECIALTY GOODS and SERVICES * * Marketing Different Classes of Consumer Goods and Services <ul><ul><li>Specialty Goods and Services -- Products with unique characteristics and brand identity. These include: </li></ul></ul><ul><ul><ul><li>Tiffany jewelry </li></ul></ul></ul><ul><ul><ul><li>Rolex watches </li></ul></ul></ul><ul><ul><ul><li>Lamborghini automobiles </li></ul></ul></ul><ul><ul><ul><li>Ritz Carlton Hotels </li></ul></ul></ul>LG2 14-
  12. 12. CLASSIFYING UNSOUGHT GOODS and SERVICES * * Marketing Different Classes of Consumer Goods and Services <ul><ul><li>Unsought Goods and Services -- Products consumers aren’t aware of or haven’t thought of buying until they need them. These include: </li></ul></ul><ul><ul><ul><li>Car-towing services </li></ul></ul></ul><ul><ul><ul><li>Funeral services </li></ul></ul></ul><ul><ul><ul><li>Plumbing services </li></ul></ul></ul>LG2 14-
  13. 13. IDENTIFYING CONSUMER GOODS CLASSIFICATIONS * * <ul><li>How would you classify these consumer products? </li></ul><ul><ul><li>Beautyrest mattress </li></ul></ul><ul><ul><li>Honda Accord </li></ul></ul><ul><ul><li>McDonald’s Big Mac </li></ul></ul><ul><ul><li>Rolls Royce automobiles </li></ul></ul><ul><ul><li>Oreo Cookies </li></ul></ul><ul><ul><li>Harvard University degree </li></ul></ul>LG2 Marketing Different Classes of Consumer Goods and Services 14-
  14. 14. ODD PRODUCT IDEAS that WERE SUCCESSFUL * * <ul><li>Pet Rock - For $3.95 you could buy a gift-wrapped rock with eyes and a training manual. </li></ul><ul><li>Garbage Pail Kids - Perhaps the grossest trading cards ever produced. </li></ul><ul><li>Mood Rings - Wildly popular as the changing colors of the ring supposedly measured your mood. </li></ul><ul><li>Chia Pets - Animal shaped clay figures that grew sprouts. </li></ul>LG2 Marketing Different Classes of Consumer Goods and Services 14-
  15. 15. CLASSIFYING INDUSTRIAL GOODS and SERVICES * * Marketing Industrial Goods and Services <ul><ul><li>Industrial Goods -- Products used in the production of other products and sold in the B2B market. </li></ul></ul><ul><ul><li>Industrial goods include: </li></ul></ul><ul><ul><ul><li>Installations </li></ul></ul></ul><ul><ul><ul><li>Capital items </li></ul></ul></ul><ul><ul><ul><li>Accessory equipment </li></ul></ul></ul><ul><ul><ul><li>Supplies </li></ul></ul></ul><ul><ul><ul><li>Service </li></ul></ul></ul>LG2 14-
  16. 16. COMPANY USES of PACKAGING * * Packaging Changes the Product <ul><ul><li>Companies often use packaging to change and improve their basic product. Examples include: </li></ul></ul><ul><ul><ul><li>Microwave popcorn </li></ul></ul></ul><ul><ul><ul><li>Tuna pouches </li></ul></ul></ul><ul><ul><ul><li>McDonald’s green packaging </li></ul></ul></ul>LG3 <ul><ul><ul><li>Packaging can make a product more attractive to retailers. </li></ul></ul></ul>14-
  17. 17. SOME KEY FUNCTIONS of PACKAGING * * Packaging Changes the Product <ul><ul><li>To attract buyers’ attention </li></ul></ul><ul><ul><li>Protect the goods inside and be tamperproof </li></ul></ul><ul><ul><li>Describe and provide information about the product </li></ul></ul><ul><ul><li>Explain the product’s benefits </li></ul></ul><ul><ul><li>Provide warranty information and warnings </li></ul></ul><ul><ul><li>Give an indication of price, value, and uses </li></ul></ul>LG3 14-
  18. 18. UNDERSTANDING BRANDING * * Branding and Brand Equity <ul><ul><li>Brand -- Name, symbol, or design that identifies the goods or services and distinguishes them from competitors’ offerings. </li></ul></ul>LG4 <ul><ul><li>Trademark -- A brand that has exclusive legal protection for both its brand name and design. </li></ul></ul>14-
  19. 19. ORIGINS of AUTOMOBILE SYMBOLS * * <ul><li>Volvo - Symbol for iron </li></ul><ul><li>Lamborghini - Company founder’s was a Taurus </li></ul><ul><li>Volkswagen - Product of an office contest </li></ul><ul><li>Porsche - Coat of arms for city and state headquarters </li></ul>LG4 Generating Brand Equity and Loyalty 14-
  20. 20. KEY BRAND CATEGORIES * * Branding and Brand Equity <ul><ul><li>Manufacturers’ Brands – Brand names of manufacturers that distribute products nationally. </li></ul></ul><ul><ul><li>Dealer (Private-Label) Brands -- Products that carry a retailer’s or distributor’s brand name instead of a manufacturer’s. </li></ul></ul>LG4 14-
  21. 21. KEY BRAND CATEGORIES * * Branding and Brand Equity <ul><ul><li>Generic Goods -- Non-branded products that sell at a discount compared to manufacturers’ or dealers’ brands. </li></ul></ul><ul><ul><li>Knockoff Brands -- Illegal copies of national brands. </li></ul></ul>LG4 14-
  22. 22. ESTABLISHING BRAND EQUITY and LOYALTY * * Generating Brand Equity and Loyalty <ul><ul><li>Brand Equity – The combination of factors (awareness, loyalty, perceived quality, images, and emotions) that people associate with a brand name. </li></ul></ul><ul><ul><li>Brand Loyalty -- The degree to which consumers are satisfied and are committed to further purchases. </li></ul></ul>LG4 14-
  23. 23. BUILDING BRAND AWARENESS * * Generating Brand Equity and Loyalty <ul><ul><li>Brand Awareness -- How quickly or easily a given brand name comes to mind when someone mentions a product category. </li></ul></ul><ul><ul><li>Consumers reach a point of brand preference when they prefer one brand over another. </li></ul></ul><ul><ul><li>When consumers reach brand insistence , they will not accept substitute brands. </li></ul></ul>LG4 14-
  24. 24. BUILDING BRAND ASSOCIATIONS * * Generating Brand Equity and Loyalty <ul><ul><li>Brand Association -- Linking a brand to other favorable images, like celebrities or a geographic area. </li></ul></ul><ul><ul><li>Brand Manager -- Person responsible for a particular brand and handles all the elements of the brand’s marketing mix. </li></ul></ul>LG4 14-
  25. 25. The NEW PRODUCT DEVELOPMENT PROCESS * * The New Product Development Process LG5 14-
  26. 26. BRINGING NEW PRODUCTS to the MARKET * * <ul><ul><li>Product Screening -- Reduces the number of new products a firm is working on to focus on the most promising. </li></ul></ul><ul><ul><li>Product Analysis -- Focuses on the cost estimates and sales forecasts to get an idea of potential profitability. </li></ul></ul>LG5 The New Product Development Process 14-
  27. 27. BRINGING NEW PRODUCTS to the MARKET * * <ul><ul><li>Concept Testing -- Takes a product idea to consumers to test reactions. </li></ul></ul>LG5 The New Product Development Process <ul><ul><li>Commercialization -- Promoting the product to distributors and retailers and developing the promotional campaign. </li></ul></ul>14-
  28. 28. The FOUR STAGES of a PRODUCT LIFE CYCLE * * The Product Life Cycle <ul><ul><li>Product Life Cycle -- A theoretical look at what happens to sales and profits for a product over time. </li></ul></ul><ul><ul><li>Product Life Cycle Stages: </li></ul></ul><ul><ul><ul><li>Introduction </li></ul></ul></ul><ul><ul><ul><li>Growth </li></ul></ul></ul><ul><ul><ul><li>Maturity </li></ul></ul></ul><ul><ul><ul><li>Decline </li></ul></ul></ul>LG6 14-
  29. 29. SALES and PROFITS DURING the PRODUCT LIFE CYCLE * * The Product Life Cycle LG6 14-
  30. 30. PRICING STRATEGIES * * Competitive Pricing <ul><ul><li>Cost-based pricing measures cost of producing a product including materials, labor, and overhead. </li></ul></ul><ul><ul><li>Target Costing -- Making the final price of a product an input in the product development process by estimating the selling price consumers will pay. </li></ul></ul><ul><ul><li>Competition-Based Pricing -- A strategy based on what the competition is charging for its products. </li></ul></ul>LG7 14-
  31. 31. USING BREAK-EVEN ANALYSIS * * Break-Even Analysis <ul><ul><li>Break-Even Analysis -- The process used to determine profitability at various levels of sales. The break-even point is where revenues equals cost. </li></ul></ul><ul><ul><li>Total Fixed Costs -- All costs that remain the same no matter how much is produced or sold. </li></ul></ul><ul><ul><li>Variable Costs -- Costs that change according to the level of production. </li></ul></ul>LG7 14-
  32. 32. PRICING ALTERNATIVES * * Other Pricing Strategies <ul><ul><li>Skimming Price Strategy -- Pricing new products high to recover costs and make high profits while competition is limited. </li></ul></ul><ul><ul><li>Penetration Price Strategy -- Pricing products low with the hope of attracting more buyers and discouraging other companies from competing in the market. </li></ul></ul><ul><ul><li>Everyday Low Pricing (EDLP) -- Setting prices lower than competitors with no special sales. </li></ul></ul>LG7 14-
  33. 33. PRICING STRATEGIES of RETAILERS * * Other Pricing Strategies <ul><ul><li>High-Low Pricing -- Using regular prices that are higher than EDLP except during special sales when they are lower. </li></ul></ul><ul><ul><li>Psychological Pricing -- Pricing products at price points that make a product seem less expensive than it is. </li></ul></ul>LG7 14-

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