This document provides an overview of key concepts in product development, pricing, branding, and the product life cycle. It defines terms like total product offer, product differentiation, the four classes of consumer goods, packaging functions, brand equity, the new product development process, and the product life cycle stages. Case studies and examples are provided to illustrate various strategies and concepts.

1. * * Chapter Fourteen Developing and Pricing Goods and Services Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. DEVELOPING VALUE * * 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. LG1 14-

3. PRODUCTS “UNTOUCHABLE” by SPENDING CUTS * * Internet service Cell phone service Cable television Discount apparel Haircuts and coloring Fast-food LG1 Product Development and the Total Product Offer Source: www.bigresearch.com . 14-

4. PRODUCTS “EXPENDABLE” by SPENDING CUTS * * Luxury handbags Satellite radio Specialty apparel High-end cosmetics Facials LG1 Product Development and the Total Product Offer Source: www.bigresearch.com . 14-

5. HOME COOKING in HALF the TIME Spotlight on Small Business * * Let’s Dish and Dream Dinners provides a service where customers prepare meals then bring them home. The companies provide a place to meet, has supplies and relieves the stress and mess for its customers. 14-

6. DEVELOPING a TOTAL PRODUCT * * Developing a Total Product Offer Total Product Offer -- Everything consumers evaluate when deciding whether to buy something. LG1 Products are evaluated on many different dimensions, both tangible and intangible. Marketers must think like and talk to consumers to find out what’s important. 14-

7. POTENTIAL COMPONENTS of a TOTAL PRODUCT OFFER * * LG1 Developing a Total Product Offer 14-

8. UNDERSTANDING PRODUCT LINES * * 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 LG1 14-

9. The PRODUCT MIX * * 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 LG1 14-

10. DIFFERENTIATING PRODUCTS * * 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 LG2 14-

11. CLASSIFYING CONSUMER GOODS and SERVICES * * 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 LG2 14-

12. CLASSIFYING SHOPPING GOODS and SERVICES * * 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 LG2 14-

13. CLASSIFYING SPECIALTY GOODS and SERVICES * * 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 LG2 14-

14. CLASSIFYING UNSOUGHT GOODS and SERVICES * * 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 LG2 14-

15. IDENTIFYING CONSUMER GOODS CLASSIFICATIONS * * How would you classify these consumer products? Beautyrest mattress Honda Accord McDonald’s Big Mac Rolls Royce automobiles Oreo Cookies Harvard University degree LG2 Marketing Different Classes of Consumer Goods and Services 14-

16. ODD PRODUCT IDEAS that WERE SUCCESSFUL * * Pet Rock - For $3.95 you could buy a gift-wrapped rock with eyes and a training manual. Garbage Pail Kids - Perhaps the grossest trading cards ever produced. Mood Rings - Wildly popular as the changing colors of the ring supposedly measured your mood. Chia Pets - Animal shaped clay figures that grew sprouts. LG2 Marketing Different Classes of Consumer Goods and Services 14-

17. CLASSIFYING INDUSTRIAL GOODS and SERVICES * * 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 LG2 14-

18. COMPANY USES of PACKAGING * * 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 LG3 Good packaging can also make a product more attractive to retailers. 14-

19. SOME KEY FUNCTIONS of PACKAGING * * 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 LG3 14-

20. UNDERSTANDING BRANDING * * Branding and Brand Equity Brand -- Name, symbol, or design that identifies the goods or services and distinguishes them from competitors’ offerings. LG4 Trademark -- A brand that has exclusive legal protection for both its brand name and design. 14-

21. KEY BRAND CATEGORIES * * 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. LG4 14-

22. KEY BRAND CATEGORIES * * 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. LG4 14-

23. ESTABLISHING BRAND EQUITY and LOYALTY * * 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. LG4 14-

24. ORIGINS of AUTOMOBILE SYMBOLS * * Volvo - Symbol for iron Lamborghini - Company founder’s was a Taurus Volkswagen - Product of an office contest Porsche - Coat of arms for city and state headquarters LG4 Generating Brand Equity and Loyalty Source: World Features Syndicate. 14-

25. BUILDING BRAND AWARENESS * * 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. LG4 14-

26. BUILDING BRAND ASSOCIATIONS * * 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. LG4 14-

27. 10 Most Valuable Brands 14- Source: Business Week, August 7, 2006 Rank Product Brand Value (Billions) 1 Coca-Cola $67.00 2 Microsoft 56.93 3 IBM 56.20 4 GE 48.91 5 Intel 32.32 6 Nokia 30.13 7 Toyota 27.94 8 Disney 27.85 9 McDonald’s 27.50 10 Mercedes-Benz 21.80

28. Best/Worst/Weirdest Car Brand Names 14- Source: FT Weekend, November, 2005 Best Worst Weirdest Lamborghini Diablo Volkswagon Thing FSR Tarpan Honker Ford Mustang Honda That’s Mazda Bongo Friendee/ Brawny Mitsubishi Colt Nissan Cedric Isuzu Tractor Pontiac Firebird Toyota Toyopet Mitsubishi Delica Space Gear Rolls-Royce Silver Shadow Corbin Sparrow Suzuki Joy Pop Dodge Coronet Super Bee

29. Viral Ads Business Week Viral Ads 14-

30. The NEW PRODUCT DEVELOPMENT PROCESS * * The New Product Development Process LG5 14-

31. BRINGING NEW PRODUCTS to the MARKET * * 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. LG5 The New Product Development Process 14-

32. BRINGING NEW PRODUCTS to the MARKET * * Concept Testing -- Takes a product idea to consumers to test reactions. LG5 The New Product Development Process Commercialization -- Promoting the product to distributors and retailers and developing the promotional campaign. 14-

33. Product Life Cycle (PLC) 14-

34. SALES and PROFITS DURING the PRODUCT LIFE CYCLE * * The Product Life Cycle LG6 14-

35. PROFITS BEYOND the GRAVE Top Earning Deceased Celebrities * * LG6 The Product Life Cycle Source: Forbes, www.forbes.com/deadcelebs . 14- Celebrity Earnings Year of Death Elvis Presley $52 Million 1977 Charles Schultz $33 Million 2000 Heath Ledger $20 Million 2008 Albert Einstein $18 Million 1955 Aaron Spelling $15 Million 2006 Dr. Seuss $12 Million 1991 John Lennon $9 Million 1980

36. PRICING OBJECTIVES * * 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 LG7 14-

37. PRICING STRATEGIES * * 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. LG7 14-

38. WHEN SELLING SWEETS GOES SOUR (Reaching Beyond Our Borders) * * Choco-Logo saw its costs increase dramatically in one year. The company cut back by using less expensive packaging and reducing the size of a box of chocolates. Pricing is a process that’s never simple. You need to maintain high quality while cutting costs. 14-

39. USING BREAK-EVEN ANALYSIS * * 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. LG7 14-

40. Breakeven Chart 14- Total Revenue or Total Cost Number of Units

41. Pricing Using Breakeven Analysis 14- Problem Should we charge $2 or $3 per unit? Costs Total Fixed Costs $400,000 Variable Cost $ 1 per unit Market Research Forecast Company can sell: 290,000 boxes at $2 / unit 210,000 boxes at $3 / unit Breakeven point = total fixed cost price - variable cost (per unit) (per unit) $2 price = $400,000 = 400,000 units to breakeven $2 - $1 $3 price = $400,000 = 200,000 units to breakeven $3 - $1 Breakeven Analysis

42. PRICING ALTERNATIVES * * 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. LG7 14-

43. PRICING STRATEGIES of RETAILERS * * 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. LG7 14-

44. People Behind Product Innovation Liquid Paper – an American Secretary Liquid Paper History Paper Clip – a Norwegian Patent Clerk Fax Machine – a Scottish Clock Maker Pencil Sharpener – French Mathematician? John Lee Love Ballpoint pen – a Hungarian Journalist Ballpoint pen Eraser Head – English Chemist 14- Source: World Features Syndicate

45. Review Only

46. RATAN TATA The Tata Group * * Profile Ratan Tata introduced the $2,500 “People’s Car” in 2008. Tata Motors is part of the growing auto market in India - possibly the future’s largest market. Tata expanded in 2008 by purchasing Jaguar and Range Rover from Ford . 14-

47. PRODUCT INNOVATION DURING the GREAT DEPRESSION * * LG1 Developing a Total Product Offer Source: BusinessWeek Small Biz. 14- Year Product 1929 Electric Razors 1930 Car Radios 1930 Supermarkets 1933 Chocolate Chip Cookies 1933 Laundromats

48. COULDN’T YOU MAKE a SMALLER FOOTPRINT? (Thinking Green) * * Timberland (U.S.A.) is putting a carbon label on its products. Tesco (U.K.) puts carbon labels on all products - including grocery bags. China and India, though, are building coal-powered plants and expanding car-use. The focus on climate change varies from country to country. 14-

49. PROGRESS ASSESSMENT * * Progress Assessment List two short-term and two long-term pricing objectives. Can the two be compatible? What are the limitations of a cost-based pricing system? What’s psychological pricing? 14-

50. PROGRESS ASSESSMENT * * Progress Assessment What value enhancers may be included in a total product offer? What’s the difference between a product line and a product mix? Name the four classes of consumer goods and services and give examples of each. Describe three different types of industrial goods. 14-

51. PROGRESS ASSESSMENT * * Progress Assessment What six functions does packaging now perform? What’s the difference between a brand name and a trademark? Explain the difference between a manufacturers’ brand, a dealer brand, and a generic brand. What are the key elements of brand equity? 14-

52. PROGRESS ASSESSMENT * * Progress Assessment What are the six steps in the new-product development process? What’s the difference between product screening and product analysis? What are the two steps in commercialization? What’s the theory of the product life cycle? 14-