Developing and Pricing Shoes
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Nickels_12e_UB_PPT_Student_Ch14.pptxChapter 14
Developing and Pricing Goods and Services
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Learning Objectives
LO 14-1 Describe a total product offer.
LO 14-2 Identify the various kinds of consumer and industrial goods.
LO 14-3 Summarize the functions of packaging.
LO 14-4 Contrast brand, brand name, and trademark, and show the value of brand equity.
LO 14-5 Explain the steps in the new-product development process.
LO 14-6 Describe the product life cycle.
LO 14-7 Identify various pricing objectives and strategies.
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Product Development and the Total Product Offer 1 of 5
LO 14-1
Developing Value
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.
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Product Development and the Total Product Offer 2 of 5
LO 14-1
Distributed Product Development
Distributed product development — Handing off of various parts of your innovation process—often to companies overseas.
The increase in outsourcing has resulted in using multiple organizations separated by cultural, geographic, and legal boundaries.
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Product Development and the Total Product Offer 3 of 5
LO 14-1
Distributed Product Development continued
Developing a total product offer
Total product offer — Everything that consumers evaluate when deciding whether to buy something.
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.
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Figure 14.1 Potential Components of a Total Product Offer
LO 14-1
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Product Development and the Total Product Offer 4 of 5
LO 14-1
Product Lines and the 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:
Coca-Cola
Diet Coke
Coke Zero
Cherry Coke
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Product Development and the Total Product Offer 5 of 5
LO 14-1
Product Lines and the Product Mix continued
Product mix — The combination of product lines offered by a manufacturer.
Product mixes like Procter & Gamble’s can be extensive:
Toothpaste
Cosmetics
Diapers
Batteries
Bar soap
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Product Differentiation 1 of 5
LO 14-2
Product differentiation — The creation of real or perceived product differences.
Marketers use a mix of branding, pricing, advertising, and packaging to create different images.
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Product Differentiation 2 of 5
LO 14-2
Marketing Different Classes of Consumer Goods and Services
Convenience goods and services — Products that the consumer wants to purchase frequently and with a minimum of effort.
These include:
Candy and snacks
Gas
Milk
Shopping goods and services — Those products that the consumer buys only after comparing value, quality, price, and style from a variety of sellers.
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Product Differentiation 3 of 5
LO 14-2
Marketing Different Classes of Consumer Goods and Services continued
Specialty goods and services — Consumer products with unique characteristics and brand identity. Because these products are perceived as having no reasonable substitute, the consumer puts forth a special effort to purchase them.
These include:
Fine watches
Expensive wine
Designer clothes
Jewelry
Services provided by medical specialists
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Product Differentiation 4 of 5
LO 14-2
Marketing Different Classes of Consumer Goods and Services continued
Unsought goods and services — Products that consumers are unaware of, haven’t necessarily thought of buying, or find that they need to solve an unexpected problem.
These include:
Car-towing services
Burial services
Insurance
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Product Differentiation 5 of 5
LO 14-2
Marketing Industrial Goods and Services
Industrial goods — Products used in the production of other products; sometimes called B2B goods.
Industrial goods include:
Installations
Capital items
Accessory equipment
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Figure 14.2 Various Categories of Consumer and Industrial Goods and Services
LO 14-2
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Packaging Changes the Product 1 of 3
LO 14-3
Companies often use packaging to change and improve their basic product.
Examples include:
Squeezable ketchup bottles
Square paint cans with screw tops
Single-use spice packets
Good packaging can also make a product more attractive to retailers.
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Packaging Changes the Product 2 of 3
LO 14-3
Key Functions of Packaging
Attract buyers’ attention
Protect the goods inside and be tamperproof
Be easy to open
Describe and give information about the product
Explain the product’s benefits
Provide warranty information and warnings
Give an indication of price, value, and uses
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Packaging Changes the Product 3 of 3
LO 14-3
The Growing Importance of Packaging
Bundling — Grouping two or more products together and pricing them as a unit.
IcelandAir bundled layover tours with an IcelandAir employee “stopover buddy.”
Financial institutions bundle advice with purchases.
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Branding and Brand Equity 1 of 4
LO 14-4
Brand — A name, symbol, or design that identifies the goods or services of one seller or group of sellers and distinguishes them from the goods and services of competitors.
Trademark — A brand that has exclusive legal protection for both its brand name and its design.
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Branding and Brand Equity 2 of 4
LO 14-4
Brand Categories
Manufacturers’ brands — The brand names of manufacturers that distribute products nationally.
Dealer (private-label) brands — Products that don’t carry the manufacturer’s name but carry a distributor’s or retailer’s name instead.
Generic goods — Nonbranded products that usually sell at a sizable discount compared to national or private-label brands.
Knockoff brands — Illegal copies of national brand-name goods.
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Branding and Brand Equity 3 of 4
LO 14-4
Generating Brand Equity and Loyalty
Brand equity — The value of the brand name and associated symbols.
Brand loyalty — The degree to which customers are satisfied, like the brand, and are committed to further purchases.
Brand awareness — How quickly or easily a given brand name comes to mind when a product category is mentioned.
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.
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Branding and Brand Equity 4 of 4
LO 14-4
Creating Brand Associations
Brand association — The linking a brand to other favorable images.
Brand Management
Brand manager — A manager who has direct responsibility for one brand or one product line.
The brand manager handles all the elements of the brand’s marketing mix.
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The New-Product Development Process 1 of 2
LO 14-5
Product screening — A process designed to reduce the number of new-product ideas being worked on at any one time.
Product analysis — Making cost estimates and sales forecasts to get a feeling for profitability of new-product ideas.
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Figure 14.3 The New-Product Development Process
LO 14-5
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The New-Product Development Process 2 of 2
LO 14-5
Product Development and Testing
Concept testing takes a product idea to consumers to test reactions.
Crowdsourcing platforms allow the public to give their opinions of potential products.
Commercialization
Commercialization — Promoting a product to distributors and retailers to get wide distribution, and developing strong advertising and sales campaigns to generate and maintain interest in the product among distributors and consumers.
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The Product Life Cycle
LO 14-6
Product Life Cycle — A theoretical model of what happens to sales and profits for a product class over time.
Product Life Cycle Stages:
Introduction
Growth
Maturity
Decline
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Figure 14.4 Sales and Profits during the Product Life Cycle
LO 14-6
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Figure 14.5 Sample Strategies Followed during the Product Life Cycle
LO 14-6
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Figure 14.6 How Sales, Profits, and Competition Vary over the Product Life Cycle
LO 14-6
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Competitive Pricing 1 of 5
LO 14-7
Pricing Objectives
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
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Competitive Pricing 2 of 5
LO 14-7
Cost-Based Pricing
Cost-based pricing measures cost of producing a product including materials, labor, and overhead.
Demand-Based Pricing
Target costing — Designing a product so that it satisfies customers and meets the profit margins desired by the firm.
Competition-Based Pricing
Competition-based pricing — A pricing strategy based on what all the other competitors are doing.
Price leadership — The strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow.
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Competitive Pricing 3 of 5
LO 14-7
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 the expenses that remain the same no matter how many products are made or sold.
Variable costs — Costs that change according to the level of production.
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Competitive Pricing 4 of 5
LO 14-7
Break-Even Analysis continued
If you have a fixed cost of $200,000, a variable cost of $2 per item, and you sell your product for $4 each, what would be your BEP?
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Competitive Pricing 5 of 5
LO 14-7
Other Pricing Strategies
Skimming price strategy — Strategy in which a new product is priced high to make optimum profit while there’s little competition.
Penetration strategy — Strategy in which a product is priced low to attract many customers and discourage competition.
Everyday low pricing (EDLP) — Setting prices lower than competitors and then not having any special sales.
High–low pricing strategy — Setting prices that are higher than EDLP stores, but having many special sales where the prices are lower than competitors.
Psychological pricing — Pricing goods and services at price points that make the product appear less expensive than it is.
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Nonprice Competition
LO 14-7
Competition on Attributes Other than Price
Product images
Comfort
Style
Convenience
Durability
Accompanying services
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Appendix of Long Image Descriptions
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Appendix 1 Figure 14.1 Potential Components of a Total Product Offer
The outermost level: brand name, convenience, package, and price
The middle level: service, internet access, buyer’s past experience, and store surroundings
The innermost level: speed of delivery, image created by advertising, reputation of producer, and guarantee
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Appendix 2 Figure 14.2 Various Categories of Consumer and Industrial Goods and Services
Goods and services are of two types: consumer goods and services and industrial goods and services.
Consumer goods and services consist of the following types: convenience, shopping, specialty, and unsought.
Industrial goods and services consist of production goods and support goods.
Production goods are made up of raw materials, component parts (engines), and production materials (nuts and bolts)
Support goods are made up of installations (buildings, equipment, and capital rentals), accessory equipment (tools and office equipment), supplies (paper clips, stationery, and other office supplies), and service (maintenance and repair).
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Appendix 3 Figure 14.3 The New-Product Development Process
Stage 1: Idea generation (based on consumer wants and needs)
Stage 2: Product screening
Stage 3: Product analysis
Stage 4: Development (including building prototypes)
Stage 5: Testing
Stage 6: Commercialization (bringing the product to market)
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Appendix 4 Figure 14.4 Sales and Profits during the Product Life Cycle
The horizontal axis illustrates the four stages of the product life cycle: introduction, growth, maturity, and decline. The vertical axis represents sales. The sales line illustrates that all-electric cars are in the introduction stage of the product life cycle, hybrid cars are in the growth stage of the product life cycle, smartphones are in the maturity stage, and videocassette recorders are in the decline stage of the product life cycle.
During the introduction stage, sales and profit are increasing and closely correlated. During the growth stage, the profit is still on the rise, but its distance from the sales line begins to increase. Sales are still increasing during the maturity stage, but profits are decreasing. At the beginning of the decline stage, both sales and profits are decreasing, and the profit line is no longer closely correlated with the sales line.
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Appendix 5 Figure 14.5 Sample Strategies Followed during the Product Life Cycle
Introduction Stage:
Product characteristics: offer market tested product; keep mix small
Price characteristics: go after innovators with high introductory price (skimming strategy) or use penetration pricing
Place characteristics: use wholesalers, selective distribution
Promotion characteristics: Dealer promotion and heavy investment in primary demand advertising and sales promotion to get stores to carry the product and consumers to try it
Growth Stage:
Product characteristics: improve product; keep product mix limited
Price characteristics: adjust price to meet competition
Place characteristics: increase distribution
Promotion characteristics: heavy competitive advertising
Maturity Stage:
Product characteristics: differentiate product to satisfy different market segments
Price characteristics: further reduce price
Place characteristics: take over wholesaling function and intensify distribution
Promotion characteristics: emphasize brand name as well as product benefits and differences
Decline Stage:
Product characteristics: cut product mix; develop new product ideas
Price characteristics: consider price increase
Place characteristics: consolidate distribution; drop some outlets
Promotion characteristics: reduce advertising to only loyal customers
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Appendix 6 Figure 14.6 How Sales, Profits, and Competition Vary over the Product Life Cycle
Introduction Stage:
Low sales
Losses may occur
Few competitors
Growth Stage:
Rapidly rising sales
Very high profits
Growing number of competitors
Maturity Stage:
Sales reach maturity
Declining profits
Competitors reach a stable number then begin to decline
Decline Stage:
Falling sales
Profits may fall to become losses
Declining number of competitors
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