Presentation is loading. Please wait.

Presentation is loading. Please wait.

Product Development and Pricing Strategies

Similar presentations


Presentation on theme: "Product Development and Pricing Strategies"— Presentation transcript:

1 Product Development and Pricing Strategies
13 Product Development and Pricing Strategies Better Business 1st Edition Poatsy · Martin chapter Slide presentation prepared by Pam Janson Stark State College of Technology © 2010 Pearson Education, Inc.

2 © 2010 Pearson Education, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. © 2010 Pearson Education, Inc.

3 Learning Objectives 1. What are the definitions of a product and 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 three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions? In this chapter, we will study: The definitions of a product and a total product offer. Product differentiation, and the role it plays in product development. The different classifications of consumer products and business-to-business products. Why branding is beneficial to both buyers and sellers, and some different types of brands. The steps that take place during new product development, and the product life cycle. Some pricing objectives, and how they relate to the marketing mix. The three major approaches to pricing strategy, and some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions. Teaching Tips Consider asking your students the following questions from the first page of the chapter to preview chapter content: What is a product? What is a total product offer? How important is product differentiation? What is branding? How does it affect your purchases? What steps are involved in the product development process? What are pricing objectives? © 2010 Pearson Education, Inc. Publishing as Prentice Hall

4 Total Product Offer Product levels Core: basic Actual: tangible
Augmented core + actual + all real and perceived benefits Learning Objective 1: What are the definitions of a product and a total product offer? A product is any good, service, or idea that might satisfy a want or a need. The total product offer consists of all the benefits associated with a good, service, or idea that impact a consumer’s purchasing decision. When you buy a car, you’re not just buying a mode of transportation; you’re also buying some intangible benefits, such as style or an image. The core product provides the benefit or service that satisfies the basic need or want that motivates the consumer’s purchase. For a car, that core benefit is the convenient transportation it provides. The actual product is the tangible aspect of the purchase that you can touch, see, hear, smell, or taste. It provides core benefits when it is used. Consumers often assess the tangible benefits of actual products by comparing brands, quality (often associated with a brand’s reputation), features, styling, or packaging. For a car, the actual product is the automobile itself. The augmented product consists of the core product and the actual product plus other real or perceived benefits that provide additional value to the customer’s purchase. These benefits might include customer service and support, delivery, installation, a warranty, or favorable credit terms. For a product like a car, augmented benefits might include a reasonable price, an easy payment plan, a 10-year warranty, or just the security of owning a brand-new car. These help provide a more satisfying customer experience. Teaching Tips The text uses the example of Diet Coke and Coke Zero in the introduction and first section, “Developing Goods and Services.” The text also uses an example of a Caribbean vacation. As another example, Le Meridien hotels (owned by the $9 billion Starwood Hotels and Resorts Worldwide) has as a core product hotel rooms for travelers. The actual product is the rooms themselves, plus the physical aspects of the hotel. For Le Meridien these include “LM100,” a rotating group of artists that provide music, architecture, food, and even a fragrance—a conceptual scent likened to an old weathered leather book. The objective is to stimulate the senses, arouse curiosity, and create a memorable hotel experience that guests want to repeat. Source: “Crème de la Curator: Le Meridien reinvents the art of the hotel experience,” Danielle Sacks, Fast Company, May 2008. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

5 Product Differentiation
The process of distinguishing a product from its competition With physical or intangible differences Critical for a product’s success Helps motivate customers to buy Companies define a target market and create total product offerings Consumer input helps Learning Objective 2: What is product differentiation, and what role does it play in product development? Product differentiation is the process of distinguishing a product from its competition in real or imaginary terms to attract customers. A company can distinguish a product from its competitors by establishing concrete or intangible differences between similar products. Product differentiation is critical for a product’s success. If a product doesn’t possess qualities that make it stand out, customers will not be motivated to buy that product instead of a competitor’s product. Companies rely on customer input and feedback to help shape their products. Listening to customers and incorporating their suggestions are effective ways to foster good customer relationships. You have to know what your customers want in order to tailor a product offering that best satisfies their needs. Consumer input often provides information that prompts companies to segment a large market and focus on narrowly defined targeted customers. Product differentiation is the result of carefully segmenting markets into clearly defined targeted customers and developing a variety of total product offerings that best meet these varying customer needs—and doing it better than the competition. Teaching Tips Ben & Jerry’s Homemade Ice Cream differentiated itself from other ice-cream makers by offering original and unique flavors and product names such as Chunky Monkey, Cherry Garcia, and Phish Food. Another example of successful product differentiation is GameStop. Only Wal-Mart has a bigger share of the $19 billion videogame industry (21.3% compared to GameStop’s 21.1%, so things may change). GameStops are staffed by gamers, located everywhere (4,061 in the U.S. and 1,203 abroad), and differentiated by their trade-in policy. The gamer staff and trade-in policy, along with a well-executed business plan, have made GameStop the preferred choice for customers. Source: “GameStop Racks Up the Points,” Devin Leonard, Fortune, June 9, 2008. © 2010 Pearson Education, Inc.

6 Product Lines and Product Mix
A product line is a group of similar products marketed to one general market Product line length is the number of products in a product line A product mix is the combination of all product lines offered for sale by a company Product mix width refers to the number of different product lines a company offers A product line is a group of similar products marketed to one general market. A product mix is the combination of all product lines offered for sale by a company. For example, Coca-Cola has many product lines, including its soft drinks, energy drinks, and sports drinks, which collectively make up its product mix. An important marketing decision involves product line length. Product line length is the number of items in any given product line. Product line length is determined by how the addition or removal of items from a product line affects profits. Coca-Cola has found it very profitable to pursue a long product line length given the huge variety of drinks it offers for sale. The company offers 450 different types of beverages in order to satisfy the specific tastes of the 1.5 billion customers it serves each day (Coca-Cola, Diet Coke, Caffeine-Free Diet Coke, etc.). Product mix width refers to the number of different product lines a company offers and is also based on profit. Teaching Tips The text uses GE as an example of product mix width. The product mix width is changing, as the company announced on July 25, 2008, that GE is moving from six segments to four: GE Technology Infrastructure (Healthcare, Aviation, Transportation and Enterprise Solutions). GE Energy Infrastructure (Energy, Oil & Gas and Water). GE Capital (Commercial Finance, GE Money, industry verticals and Corporate Treasury). NBC Universal. Source: “GE Aligns around Core Industries: Infrastructure, Finance, Media; Strong leaders in place to drive execution and connection to markets; John Krenicki named Vice Chairman of GE,” Business Wire, July 25, 2008. Continuing with the textbook example, what other Coca-Cola products can the students name? Plot out the company’s product lines and product mix on the board (or break the students into groups and have them do it). See for products. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

7 Consumer and B2B Products
Business to Business Purchased by households for personal consumption Traded in consumer markets Sometimes called industrial products Purchased by businesses for further processing, resale, or as supplies Traded in B2B markets Learning Objective 3: What are the different classifications of consumer products and business-to-business products? Consumer products are goods and services purchased by households for personal consumption. They are traded in consumer markets. Business-to-business (B2B) products, sometimes called industrial products, are goods and services that are purchased by businesses for further processing, resale, or are used in facilitating business operations. They are traded in B2B markets. Most products can be classified as either consumer products or B2B products. The distinction depends on their use. For example, if a homeowner purchases a lawn mower for personal use, then it would be a consumer product. If a landscaper purchases the same lawn mower but uses it to run his business, then it would be a B2B product. It’s convenient for marketers to classify various consumer and B2B products because the buying behavior associated is different between categories. This behavior impacts how the marketer prices, promotes, and distributes the product. Teaching Tips Continuing with the question posed on the slide: “Can an item be a consumer product and a B2B product too?”. Talk about these examples: A 10-pound bag of flour. A hammer. A 6-pack of socks. A package of 100 trash bags. A dump truck. Can you provide other examples? Can an item be a consumer product and a B2B product too? © 2010 Pearson Education, Inc. Publishing as Prentice Hall

8 Consumer Product Classifications
Convenience goods Specialty goods Shopping goods Unsought goods It is helpful to split consumer goods into different categories. Different marketing strategies can be used for different types of goods. The four categories are convenience goods, specialty goods, shopping goods, and unsought goods. Teaching Tips Ask students if they can logically predict what type of goods fall into each category listed. They will likely be able to deduce at least a few of the categories as the names (especially convenience and unsought) do fit the type of item. © 2010 Pearson Education, Inc.

9 Consumer Product Classifications
Convenience goods Purchased frequently and habitually Nondurable goods Relatively low-priced Bought based on location and brand-name image Convenience goods and services are those that the customer purchases frequently, immediately, and effortlessly. They are typically nondurable goods—goods that are normally used or consumed quickly. Examples include gum, soap, tobacco, newspapers, ketchup, milk, and a car wash. Purchases of a particular brand are usually based on habitual behavior. They are relatively low-priced items. They are usually promoted through brand awareness and image. They are widely distributed through convenience stores or local grocery stores. Purchasing decisions are based on the convenience of location and brand-name image. Teaching Tips Ask students what convenience items they have with them. They are likely to have coffee, pop, energy drinks, newspapers, gum, and similar items with them in class. © 2010 Pearson Education, Inc.

10 Consumer Product Classifications
Shopping goods Purchased less frequently than comparison shopping Durable goods Moderate expense Bought based on price, quality, and brand-name image Shopping goods and services are products that are purchased less frequently than convenience goods and services and typically require more effort and time for comparison. Comparison is made based on attributes such as suitability, quality, price, and style. They are typically durable goods—goods that can be used repeatedly over a long period of time. Examples include clothes, shoes, televisions, cameras, stereos, bicycles, lawn mowers, furniture, major appliances, hotel rooms, and airline services. These products are often sold at shopping centers that allow for easy comparison between stores, such as Best Buy, Circuit City, Sears, Home Depot, Kohl’s, and Lowe’s. Companies compete on the basis of price, quality, and brand-name image. Teaching Tips Again, students will be able to identify shopping goods they have with them, like purses, backpacks, cell phones, shoes, and many other items. Ask them if the bullet points on the slide hold true—do they buy these items less frequently? Do they last for a while? Are they moderately expensive? How do the students decide to buy the items they selected—did they shop around a bit, buy a known brand, or look for the best price? You may find some of the items may be crossing over into specialty goods, like if a student has an expensive designer purse or watch—or maybe an iPod or iPhone. Ask if these are shopping goods or perhaps something more. This could lead into the next classification. © 2010 Pearson Education, Inc.

11 Consumer Product Classifications
Specialty goods Purchased very infrequently with great time and effort Durable goods No substitutes Expensive Bought on brand image Specialty goods and services are unique to the point that buyers are willing to spend a considerable amount of time and effort searching for particular brands or styles. Customers know exactly what they want, and they will not accept substitutes. Examples include Ferrari sports cars, Rolex watches, high-fashion designer clothing, and the services of prestigious medical and legal experts. Because there are no substitutes, buyers of specialty products do not comparison shop. They already know the specific good or service they want, and they are willing to seek it out regardless of its price and location. Businesses that successfully differentiate their product can set a much higher price than similar products that are considered shopping goods or services. Teaching Tips Ask students how they think an item—a certain electronic (Bose radio), an article of clothing (Burberry coat), services at a certain hair salon or spa (in perhaps New York City or Los Angeles), etc.—gets elevated to specialty good instead of shopping good. © 2010 Pearson Education, Inc.

12 Consumer Product Classifications
Unsought goods Unplanned purchase Purchased when needed Requires personal or promotional selling Price may not be an important consideration Unsought goods and services are products buyers don’t usually think about buying, don’t know exist, or buy only when a specific problem arises. Examples include life insurance, cemetery plots, pharmaceutical drugs, emergency medical services, and automobile repairs. These goods and services require a lot of persuasive advertising and personal selling to encourage consumers to buy products that will help them prepare for life’s uncertainties. New and innovative products are also unsought. Sales of unsought products require personal selling or promotional advertising, and price may not be an important consideration if the good or service is urgently needed. Teaching Tips Ask students to classify the following products: towing service (unsought), bath towels (shopping), wedding dress (specialty), morning coffee or energy drink (convenience), textbook (shopping). You can also provide other examples. Talk about how different marketing strategies work best for different categories. For instance: Ask students how they pick their coffee, pop, or other beverage they brought to class. Brand is usually a factor. Also cost relative to other similar items. Sometimes flashy packaging helps sell convenience goods or on-the-spot promotions like a discount or a buy-one-get-one-free special. Ask students where towing services advertise. As this service isn’t something that is planned in advance, phone book listings are critical. Companies will even vie for the first spot in the phone book section on towing services, using names like AAAA Towing. © 2010 Pearson Education, Inc.

13 Business-to-Business Product Classifications
Raw and Processed Materials Equipment Component Parts Maintenance, Repair, Operating There are five classifications of items purchased by businesses: equipment; raw and processed materials; component parts; specialized professional services; and maintenance, repair, and operating products. Teaching Tips Companies are becoming more interested in “green” procurement plans—buying environmentally friendly products and services. The generally accepted term for this is environmentally preferable purchasing (EPP). Painting and cleaning products, for instance, offer the biggest variety of choices. Even products such as furniture, window treatments, and wall coverings have improved environmental quality. Carpeting has made huge strides in sustainability. Studies have shown that purchasing green products can increase employee morale and reduce absenteeism, worker’s comp claims, and allergy issues. Source: “Growing a Green Procurement Plan,” Renee L. Shroades, FacilitiesNet, Specialized Professional Services © 2010 Pearson Education, Inc.

14 Business-to-Business Product Classifications
Equipment Also called capital items Includes all physical facilities Expensive and long-lasting Purchase is negotiated Suppliers offer financing, and maintenance after the sale Equipment, also known as installations or capital items, includes all the physical facilities of a business, such as factories, warehouses, office buildings, heavy equipment, and other less costly equipment like computers, printers, and copiers. Many of these capital items are expensive, unique, and intended to last for a long time; therefore, they may require special negotiations involving top management that can stretch out over many months or even years. Marketers frequently offer a variety of services to help sell this type of equipment, including financial assistance with the purchase, maintenance, and repairs after the sale. Teaching Tips Often, reports on the status of the economy are tied to consumer spending. But economists are watching capital investment by businesses. Business investment is a leading indicator of the health of the economy. Source: “A pullback in businesses’ capital spending bodes ill,” Martin Zimmerman, Los Angeles Times, August 11, 2008. © 2010 Pearson Education, Inc.

15 Business-to-Business Product Classifications
Maintenance, Repair, Operating “MRO” products Facilitate production, but not part of finished good Marketed on convenience Maintenance, Repair, and Operating (MRO) products facilitate production and operations but do not become a part of the finished product. They include printing paper, pens, cleaning materials, tools, and lubricants for machines. They are often marketed based on convenience, just like consumer convenience goods and services. Teaching Tips While these seem like relatively trivial items, they add up. Per Freedonia Industry Research, U.S. demand for industrial fasteners alone will reach $12.9 billion in 2011, driven by growth in aerospace equipment and nonresidential construction, a rebound in motor vehicles, and rising production of many durable goods. Source: © 2010 Pearson Education, Inc.

16 Business-to-Business Product Classifications
Raw and Processed Materials Basic inputs for finished goods Often purchased in large quantities Price is a major factor Raw and processed materials are the basic inputs that become part of a finished good. Many raw products and some processed farm products, such as eggs or butter, go into the production of our grocery items. Raw materials like wood and processed materials like steel are used to make a variety of products, such as buildings or bridges. Raw and processed materials are usually purchased in large quantities at a price that is based on the quality of the materials. Teaching Tips Purchasing agents are typically responsible for buying the raw materials companies need. The Bureau of Labor Statistics, in its 2008–2009 report, estimates there were about 529,000 purchasing managers, buyers, and purchasing agents in the U.S. The following shows the distribution of employment by occupational specialty: Purchasing agents, except wholesale, retail, and farm products: 287,000. Wholesale and retail buyers, except farm products: 157,000. Purchasing managers: 70,000. Purchasing agents and buyers, farm products: 16,000. Source: Bureau of Labor Standards Occupational Outlook Handbook, 2008–2009 Edition: Purchasing Managers, Buyers, and Purchasing Agents, © 2010 Pearson Education, Inc.

17 Business-to-Business Product Classifications
Component Parts Assembled portions of the finished product Purchase based on quality and brand-name recognition Component parts are assembled portions of the finished product. Examples include brakes, engines, transmissions, and steering columns for a car, or lumber, cement, drywall, and electrical wire for a house. Businesses purchasing component parts make their decisions based on quality and brand-name recognition because, ultimately, the quality of a business’s product will be based on the quality of its component parts. Teaching Tips Many U.S. businesses look at companies in foreign countries for their component parts. China is one potential source that they consider. One of the challenges of using Chinese suppliers is that there is no registry or database of potential suppliers. Most companies find suppliers by going to the same companies their competitors have selected. This doesn’t work when the competitor already has a contract with that supplier. In that case, the U.S. company may find that it has to develop its own Chinese suppliers, helping them with product processes, quality issues, and adherence to industry regulations. Source: “The Importance of Procurement in Globalization,” David Lee, Partner, Boston Consulting Group, © 2010 Pearson Education, Inc.

18 Business-to-Business Product Classifications
Specialized Professional Services Help with a firm’s operations Companies compare costs and quality of completing inhouse or outsourcing Specialized professional services help support a firm’s operations. They include advertising, management consulting, legal, accounting, and information technology services. Managers compare the costs and the quality of these specialized services with their inhouse operations before deciding whether to outsource these activities. Teaching Tips The following lists represent all professional service categories as outlined by the Bureau of Labor Standards. There are many areas of professional services companies use. Professional, Scientific, and Technical Services Legal Services Accounting, Tax Preparation, Bookkeeping, and Payroll Services Architectural, Engineering, and Related Services Specialized Design Services Computer Systems Design and Related Services Management, Scientific, and Technical Consulting Services Scientific Research and Development Services Advertising and Related Services Management of Companies and Enterprises Administrative and Support Services Sector Office Administrative Services Facilities Support Services Employment Services Business Support Services Travel Arrangement and Reservation Services Investigation and Security Services Services to Buildings and Dwellings Waste Management Waste Collection Waste Treatment and Disposal Remediation and Other Waste Management Services Source: Bureau of Labor Standards Industries at a Glance, Professional and Business Services, © 2010 Pearson Education, Inc.

19 © 2010 Pearson Education, Inc.
Brands Brand Is a name, term, symbol, or design that distinguishes a company and its products from all others Is an important product differentiation tool Brand extension Trademark Knockoff brands Learning Objective 4: Why is branding beneficial to both buyers and sellers, and what are some different types of brands? A brand is a name, term, symbol, or design that distinguishes a company and its products from all others. Branding is one of the most important tools of product differentiation, and it benefits both buyers and sellers. We rely on established brand names to deliver an expected level of quality consistently. Consumers are also able to express themselves by buying brand names with which they wish to be identified. Branding also helps sellers define their product’s special qualities, thus promoting repeat purchases as well as new sales at higher prices. Because certain brands, like Coca-Cola, are associated with quality and value, these companies are able to introduce new products quickly and at a relatively low cost. In doing so, they add length to their product lines, widen their product mix (also known as brand extension), and enhance their profitability. Well-branded companies usually establish a trademark so their products are easily identifiable. A trademark, a legally protected brand, can also benefit sellers by distinguishing them from competitors’ knockoff brands, or illegal copies or cheap imitations of a product. Teaching Tips BusinessWeek has a section of its Web site dedicated to brand equity, For interesting visuals, see the slide show, “Evolution of a Logo,” with six examples of recent logo changes © 2010 Pearson Education, Inc.

20 Branding Brand loyalty Brand equity Brand awareness Brand association
Brand recognition Brand preference Brand insistence Brand equity Brand awareness Brand association A major benefit of branding for sellers is the creation of brand loyalty, the degree to which customers consistently prefer one brand over all others. Companies hope their brands are not just recognized (brand recognition) and then preferred (brand preference), but that customers will eventually insist on their brand name (brand insistence). Brand insistence is the highest degree of brand loyalty. Strong brand loyalty contributes to brand equity, the overall value of a brand’s strength in the market. Perceptions of quality contribute significantly to brand equity. For example, many of Toyota’s customers will purchase another Toyota vehicle because of the brand’s high quality and consistency. This adds significantly to Toyota’s brand equity. Perceptions of brand awareness and brand association also contribute to brand equity. Brand awareness refers to the extent to which a particular brand name is familiar within a particular product category. Companies participate in mass advertising as a way to help their product’s brand name become synonymous with the actual name of the product. Brand association involves connecting a brand with other positive attributes, including image, product features, usage situations, organizational associations, brand personality, and symbols. Hiring celebrities to endorse a product can be an effective tool for nurturing brand associations Teaching Tips Make sure to help students understand these terms that can sound very similar. If necessary, opt out of having them remember brand recognition, brand preference, and brand insistence as they are lesser terms. See an interesting brand association map for Nike at For some fun, try the band name generator at (Be forewarned, some generated names get a bit racy.) © 2010 Pearson Education, Inc. Publishing as Prentice Hall

21 Branding Strategies Generic brand Manufacturer’s (or national) brand
Private brand Family brand Brand extension Individual brand Co-brand Brand licensing A generic brand is a product that has no brand at all. The product’s contents are frequently identified by black stenciled lettering on white packages. A generic brand may mimic a branded product. Generic brands are typically lower in price and do not advertise. A manufacturer’s brand is a brand created by producers. Manufacturer’s brands are also known as national brands even though they may be distributed globally. Well-known brands such as Levi’s jeans, Dell computers, Ford, IBM, McDonald’s, and Bank of America are considered manufacturer’s brands. A private brand is a brand created by a distributor, or middleman. These middlemen can be wholesalers, dealers, or retail stores. As a result, private brands are also called distributor, wholesaler, dealer, store, or retail brands. The key characteristic of a private brand is that the manufacturer is not identified on the product. Examples include Sears’s line of DieHard batteries, Kenmore appliances, and Craftsman tools. The advantage of private branding is that the individual distributor has more control over the product’s price and promotion. A family brand is a brand that markets several different products under the same brand name. This is known as brand extension, marketing a product using the brand-name image in a different product category. Bic’s disposable ink pens extended its brand when it added Bic disposable razors and Bic lighters to its family brand. Family brands have the advantages of brand awareness and brand association. This can foster more brand loyalty. However, an unsuccessful extension can dilute an established brand name or create a negative brand image. An individual brand is a brand assigned to each product within a company’s product mix. For example, Sara Lee uses individual brands among its many food, beverage, household, and personal care products. Many of these brands may be familiar to you: Ball Park hot dogs, Hillshire Farm meat products, and, of course, Sara Lee’s frozen and packaged foods. A major advantage of individual branding is that if a new product fails, it won’t damage the image of the other products. A co-brand is the use of one or more brands affiliated with a single product. Examples include Intel and Dell, AT&T Universal MasterCard, Healthy Choice Cereal by Kellogg’s, and Gillette M3 Power shaving equipment with Duracell batteries. The objective is to combine the prestige of two brands to increase the price consumers are willing to pay. Brand licensing is an agreement between the owner of a brand and another company or individual who pays a royalty for the use of the brand in association with a new product. Brand owners use licensing to extend a trademark or character onto different products. The Walt Disney Company is a good example. Characters like Mickey Mouse appear on toys, books, and clothing that are not made by Disney. The NFL, NBA, NASCAR, and Major League Baseball are also big licensors and leading retail sellers of licensed products. Teaching Tips The chapter includes a Top 10 box on the Top 10 Slogans of the 20th Century The chapter discusses brand names that have become synonymous with the product category. “Q-tips” are discussed, and many other examples are provided. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

22 Packaging Crucial to success of product, because customers typically see the packaging before they see the product Packaging Contains/protects product Facilitates use/convenience Promotes product More emphasis on being environmentally friendly Packaging should preserve and protect the product. This is the most obvious purpose of packaging. Most products are handled several times as they are distributed from the manufacturing site to the final consumer. Packaging should facilitate use and convenience. Sellers want packages that are easy to ship, store, and stock on shelves. More importantly, consumers want products that handle easily, open and reseal, store conveniently, and have a long shelf life. Packages that are convenient to use and are also physically attractive sell better. Getting the consumer to notice a product and pick it up from crowded shelves is extremely important. The package design, shape, color, and texture all influence buyers’ perceptions and buying behavior. A growing concern among many consumers is whether a product and its package are environmentally sound. Consequently, many companies are going “green.” Increased effort is being placed on recycling and in developing new products that are eco-friendly. This is true even for companies that are selling services. For example, the Fairmont Hotels & Resorts luxury chain is advertising green luxury packages. Teaching Tips The text mentions that the Association for Dressings & Sauces named Hellman’s Easy Out! mayonnaise squeezable bottle the 2007 package of the year. The text also includes a picture of a Tiffany & Co. blue box. The Tiffany blue color is also used on Tiffany & Co. catalogues, shopping bags, brochures, and advertising to promote the idea of luxury and sophistication associated with the boxes. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

23 The Importance of Labels
Labeling serves two functions: to inform and to persuade Fair Packaging and Labeling Act of 1966 requires The product identity Name and place of business Net quantity Nutrition Labeling and Education Act of 1990 requires consistent nutrition and health claims Labels promote the product’s features, benefits, and brand Labeling serves two functions: to inform and to persuade. The Fair Packaging and Labeling Act of 1966 requires companies to identify: The product. The name and place of business of the manufacturer, packer, or distributor. The net quantity of the contents. Other government attempts to make labels more useful for consumers to evaluate products include the Nutrition Labeling and Education Act of 1990. This legislation requires all nutrient content claims, such as “high-fiber” or “low-fat,” and health claims to be consistent with agency regulations. Clearly, labels should inform consumers about the product, its uses, and any safety concerns. Businesses that wish to foster good customer relationships must be careful to label their products ethically. Labels are also used to promote the product and persuade customers to buy the product. Labels can educate consumers about the features and other benefits of the product. Many companies label their products with their brand logo to distinguish their product from their competitors’. If the label comes to represent consistent quality and dependability, then the label can perpetuate a positive brand-name image. Teaching Tips The FDA has a number of requirements for food packaging. See or specifically, for more information. © 2010 Pearson Education, Inc.

24 New Product Development
Learning Objective 5: What steps take place during new product development, and what is the product life cycle? The steps in new product development include: Idea Generation. Ideas for entirely new products or improved versions of existing products are often obtained by listening closely to customers or focus groups. Suppliers, employees, and salespeople also generate ideas by assessing the competition and through trade shows. Idea Screening. The objective of idea screening is to eliminate unsound concepts before devoting costly resources to their development. Screening involves estimating the level of consumer demand for the product, its profitability, and its production feasibility given the company’s current technical capabilities. Product Analysis. Product analysis estimates costs of production, selling price, sales volume, and profitability. Costs of production depend on the features of the product deemed necessary to meet the targeted customers’ needs. The selling price, sales volume, and profitability may depend on the degree of competition in the market. Product Development and Concept Testing. At this stage, product ideas that survive the screening and analysis steps are analyzed further. This often begins with a physical prototype of the good. In the testing phase of a new service offering, management determines the details concerning staffing needs and equipment requirements to ensure the service is delivered properly. Concept testing involves soliciting customer responses to a new product idea. Potential targeted customers are asked to evaluate different features, prices, packages, and a host of other factors surrounding the product. The idea is to come up with the best, most profitable total product offering. Commercialization. If a product makes it this far in the process, it is ready to be launched. Commercialization is the decision to market a product. Many companies introduce their new products in one region at a time—sometimes called rolling out the product. Teaching Tips Despite the scientific nature of new product development, a large proportion of new products still fail. One of the most interesting cases of a new product failure was Coca Cola’s “New Coke,” launched in In an attempt to revitalize its brand, the company toyed with the formula of its popular soda and almost destroyed it. People didn’t want their favorite soft drink to be modified, and New Coke was pulled from the shelves only three months after the product was introduced. Coca-Cola returned its product to its original formula and renamed the cola Coca-Cola Classic. In 2008, a Summer Olympics year, innovations in athletic gear were too numerous to count. See the “Beyond the Book” slide on product development for the Olympics for more information. © 2010 Pearson Education, Inc.

25 The Product Development Life Cycle
Once a product is developed, it begins the product life cycle. A product life cycle is a theoretical model describing a product’s sales and profits over the course of its lifetime. During this cycle, a product typically goes through four stages: an introductory stage, a growth stage, a maturity stage, and a declining stage. The product life cycle can be applied to a specific product or to an entire product category. The product life cycle is a simplified version of reality and should not be used prescriptively. This is because the duration of time associated with stages of a product’s life can be as short as a few months, as is often the case for fad items like Beanie Babies. The product’s life can also be as long as a century or more for some products like automobiles. In addition, not all products strictly follow these stages. Some products are introduced but never grow in sales, whereas others never seem to decline. For example, consider the life cycle of vinyl musical recordings. Vinyl records were first introduced in 1930 by RCA Victor, but became popular in the 1950s as a replacement for the brittle and easily broken 78-rpm records. This was their introductory stage. Sales grew rapidly in the 1950s and through the 1960s, representing the product’s growth stage. In the early 1970s, reel-to-reel tapes as well the more popular cassette tapes gave rise to a peak in vinyl records sales and a decline in profits, representing their maturity stage. Cassette tapes gained wide acceptance by the late 1970s and early 1980s and caused sales of vinyl records to drop drastically, representing their declining stage. After compact discs, or CDs, were introduced, the decline continued. Vinyl records are now sold mostly as collectors’ items or to hip-hop DJs who use them to create their unique sounds. Teaching Tips The text uses Crocs footwear as an example of a product that is still in its life cycle. Rapid product development is key to addressing changing consumer requirements. Take, for example, the escalating gas prices in As a result, smaller cars with high miles-per-gallon are in demand. Ford, along with other auto manufacturers, must develop and produce fuel-efficient small vehicles in record time if it is to remain competitive. Much additional information can be found on Ford’s Web site at © 2010 Pearson Education, Inc. Publishing as Prentice Hall

26 Marketing Decisions Affect a Product’s Life Cycle
Example Extend life of an existing product Automobile discounts, rebates, and low-interest loans Create new uses Arm & Hammer baking soda as a refrigerator deodorizer Create new markets Home Depot and Lowe’s do-it-yourself training Extend technology Jell-O gelatin to puddings and other snacks Repackage Coca-Cola 6-oz bottles to 8-oz cans Reposition “This isn’t your father’s Oldsmobile” campaign The product life cycle model may be useful as a general description of a product’s sales and profits over time, but it should be used with caution when forecasting or predicting future sales and profits. Marketing decisions can affect each of the phases of a product’s life cycle, while knowledge of a product’s life cycle stage also helps determine the appropriate marketing mix strategy for that stage.   Because most products eventually decline and may have to be withdrawn from the market, companies must continuously seek to develop new products to replace older ones. At the same time, marketers work hard to extend the life of existing products to milk as much profit from them as possible. Some auto companies have used discounted prices, rebates, and low-interest loans to extend the life of their models. Arm & Hammer, a company that produces baking soda, extended its product’s life by advertising and creating a new use for its product as a refrigerator deodorizer. Home Depot and Lowe’s tried to create new markets for their businesses by expanding into do-it-yourself training on home projects within their stores. Jell-O extended its knowledge (extended technology) of raw gelatin to create puddings and other snacks. Repackaging, or using new labels or different container types, is another popular method to extend a product’s life. For example, Coca-Cola switched from 6-ounce glass bottles to 8-ounce cans. A company can also reposition its product as Oldsmobile attempted with its “This isn’t your father’s Oldsmobile” campaign. These strategies are not always effective—the Oldsmobile, for example, has been discontinued. Developing a high-quality product is not so much an end in itself as it is a beginning. After a product is developed, the product life cycle begins, and appropriate marketing strategies must be conceived and implemented accordingly. Teaching Tips See for a case study about Cadbury and extending the product life cycle through repositioning. A good summary of the general marketing mix expectations for each phase of the product life cycle can be found at © 2010 Pearson Education, Inc. Publishing as Prentice Hall

27 Pricing Objectives Maximizing profits Achieving greater market share
Maximizing sales Building traffic Status quo pricing Survival Creating an image Achieving social objectives Learning Objective 6: What are some pricing objectives, and how do they relate to the marketing mix? Price is the only revenue-generating component of the marketing mix—product, promotion, and distribution strategies are all cost components. Marketers must develop their pricing strategies in coordination with their product branding, packaging, promotion, and distribution strategies as well. Trying to set the right price can be a real challenge for marketers. The price of a product has to be low enough to generate enough value to customers to motivate sales, yet high enough to enable the company to cover costs and earn a profit. Setting the right price is challenging because market conditions are always changing. As a result, companies must constantly tweak prices to remain competitive. Price may be determined in the market through the interaction of demand and supply. These companies may therefore be price-takers (not price-setters). For example, farmers have virtually no control over the prices of their product. Pricing objectives include: Maximizing profits. The price is set so that total revenue exceeds total cost by the greatest amount. Achieving greater market share. Unfortunately, achieving greater market share does not always translate into higher profits. Maximizing sales. This often means charging low prices that can result in losses. Maximizing sales may be an appropriate short-run objective to rid the company of excess inventory, such as last year’s models. Building traffic. Many retail stores, like grocery stores, pharmacies, hardware stores, and department stores, may advertise a sale price on a few goods to increase traffic in their stores and build a stronger customer base. Status quo pricing. The objective of status quo pricing is simply to match competitors’ prices. Surviving. If a company is struggling to build a customer base, it may choose to set prices to generate just enough revenues to cover costs. This is not a suitable long-term objective as profits are needed. Creating an image. Products are priced high because firms hope that consumers will associate high prices with high quality. Achieving social objectives. Some companies may charge low prices to enable the poor to afford their products. Teaching Tips Explain that home prices had their steepest drop ever in May 2008—15.8% when compared with one year prior. Ask: What pricing objective do you think most homeowners wishing to sell used in May and the months surrounding it? © 2010 Pearson Education, Inc. Publishing as Prentice Hall

28 Pricing Strategies: Cost-Based Pricing
Charging a price in relation to the costs of providing a good or service Simple and popular pricing strategy Advantages Easy to calculate and administer Requires minimum information Disadvantages Ignores consumer price expectations and competitors’ prices Provides little incentive to keep costs low Learning Objective 7: What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions? Cost-based pricing (also known as cost-plus pricing) is charging a price in relation to the costs of providing the good or service. It is the simplest and one of the more popular pricing strategies. There are many advantages of cost-plus pricing. Besides being easy to calculate and easy to administer, it requires a minimum amount of information. However, it has several disadvantages as well. It ignores whether the price is compatible with consumer demand or expectations and the prices charged by competitors. It also provides little incentive to be efficient and to hold costs down. Teaching Tips Cost-based pricing will be more accurate if you use a complete product cost subtotal. The key to accuracy is to ensure all cash and non-cash costs are included in the product cost subtotal. You need to set a value for your management expertise and labor. Using your land or capital equipment also must be valued along with depreciation on your machinery and buildings. These values are included in the product cost subtotal. Source: “Methods to Price Your Products,” Alberta Agriculture and Rural Development, www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/agdex1133. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

29 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 Suppose you manufacture 100 units of a product at a total cost of $2,000. The average (or per unit) total cost per unit would be $20. If you want to make a unit profit margin, or markup, of 20%, which is $4 (0.20 × $20), you would price the product at $24. Total revenue would equal $2,400 and profit would equal $400, or 20% above costs. Teaching Tips Practice these calculations with another example: If your per unit cost is $8 and you wish to have a markup of 25%, what do you need to charge? .25 x $8 = $2 markup $2 + $8 = $10 price © 2010 Pearson Education, Inc. Publishing as Prentice Hall

30 Cost-Based Pricing: Break–Even Analysis
Total costs = Total fixed costs + total variable costs Break-even volume of production = Total fixed costs / (Price – Average variable costs) Example Total fixed costs = $600, selling price = $24, and average variable costs = $14 Break-even volume = $600 / ($24 - $14) = 60 units Cost-based pricing can be facilitated by break-even analysis, which determines the production level for which total revenue is just enough to cover total costs. Total costs equal total fixed costs plus total variable costs. Fixed costs (sometimes called overhead costs) are any costs that do not vary with the production level. Total fixed costs typically include salaries, rent, insurance expenses, and loan repayments. Variable costs are costs that vary with the production level. Examples include wages, raw materials, and energy costs. Average variable costs (or per unit variable costs) equal total variable costs divided by the production level. A convenient formula for calculating the break-even production level is: Break-even volume of production = ______Total Fixed Costs_____ Price – Average Variable Costs For example, suppose that the total fixed costs equal $600, the selling price is $24, and average variable costs are $14. The break-even volume of production is therefore $600/($24 – $14), or 60 units. Any production level below the break-even volume will result in losses, and any production level above the break-even level will result in profits. Any changes in fixed or variable costs, as well as changes in the price, will affect the break-even volume of production. Teaching Tips Practice these calculations with another example. If total fixed costs are $1,000, average variable costs are $50 and the selling price is $45, what is the break-even volume of production? Break-even volume = $1,000 / ($50 - $45) = $1,000/ $5 = 200 units Ask what this number means. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

31 Demand-Based Pricing Sometimes called value-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 Demand-based pricing (sometimes called value-based pricing) is pricing a good or service based on the demand for the product or its perceived value. A high price will be charged when demand or the perceived value of the product is high, and a lower price will be charged when demand or perceived value is low. One of the specific demand-based pricing strategies that firms employ is target costing. Target costing estimates the value customers receive from a product and therefore the price they are willing to pay, and then subtracts an acceptable profit margin to obtain a desired cost. Firms then work to get costs down to this targeted level. Another demand-based pricing technique is price discrimination, charging different prices to different customers when these price differences are not a reflection of cost differences. Price discrimination requires firms to be able to successfully segment customers based on their differences in demand and price sensitivity, and it requires that the product cannot be easily resold among customers. Examples: hotels and resorts rates on different days of the week or seasonal variations, movie theater matinees, airlines that charge more as the flight gets closer, restaurants that have early bird specials, grocery stores that provide clip-out coupons, and salespeople who may charge some more for items like cars and furniture. Teaching Tips Ask how technology has affected demand-based pricing, especially price discrimination. (it is easier to manage data like market segments and target certain groups.) Can students think of other examples where different customers are charged differently? © 2010 Pearson Education, Inc. Publishing as Prentice Hall

32 Competition-Based Pricing
Prices based on what the competition charges Type of Competition Pricing Strategy 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 Competition-based pricing is a pricing strategy based on what the competition is charging. The degree of competition in markets affects a company’s price-setting ability. Monopolistically competitive markets, markets in which many firms compete on the basis of doing something unique, have some firms that charge higher prices if they are successful in their product differentiation strategies. Other companies may charge lower prices to get a competitive edge. Oligopolies, a market with a few dominant sellers like those in the airlines and oil industries, often avoid competing on the basis of price to avoid price wars. Instead, they compete aggressively on product differentiation and charge higher prices if their total product offerings are unique. However, periodically, a price leader may charge a different price and all other firms will follow. Finally, a monopoly, a market that is controlled by one dominating firm, possesses the greatest price-setting ability because there is no competition. In some extreme cases, monopolies may have captured their markets through predatory pricing, the practice of charging very low prices with the intent of destroying the competition. Predatory pricing is illegal, but still occurs. Most real-world competition rests on product differentiation and customers’ perception of value. Companies like Harley-Davidson have successfully differentiated their products and can charge higher prices than for comparable models produced by Honda, Yamaha, and Kawasaki. Teaching Tips Harley-Davidson, an example here, has done a great deal to differentiate their products and their company. For their 105th anniversary party in August 2008, the company showcased its newly opened Harley-Davidson Museum. Source: © 2010 Pearson Education, Inc. Publishing as Prentice Hall

33 Pricing Strategies When launching a new product
Price skimming Penetration pricing Everyday low pricing (EDLP) Strategies to impact price perceptions Prestige (premium) pricing Psychological pricing Loss leader pricing Reference pricing When launching a new product, companies may need to use a different type of pricing strategy than they would on an existing product. One pricing strategy for introducing a new product is price skimming. It involves charging a high price for a product initially, then lowering the price over time. This is used during the introductory stage of a product’s life cycle when there are few, if any, competitors. The idea is to “skim off” as high a price as possible to recoup product development costs. At the other extreme is penetration pricing, charging the lowest possible price for a new product. This pricing strategy is designed to build market share for the product quickly. Penetration pricing is used in the growth stage and when customers are price sensitive. Its drawbacks include continued low price expectations or a poor-quality image. Some retail stores choose to not adjust their prices at all, but instead offer everyday low pricing (EDLP), a strategy of charging low prices with few if any promotional sales. Wal-Mart has successfully used this strategy. Strategies used to impact price perceptions include: Prestige pricing (also known as premium pricing). This is the practice of charging a high price to invoke perceptions of high quality and privilege. For those brands for which prestige pricing may apply, the high price itself is a motivator for consumers. Examples include the pricing of cars made by Mercedes-Benz, Lexus, and Rolls-Royce. Another pricing strategy that impacts price perceptions is psychological pricing (sometimes called odd or fractional pricing), the practice of charging a price just below a whole number to give the appearance of a significantly lower price. For example, charging $9.99 as opposed to $10.00 is an example of psychological pricing. A loss leader is a product that is priced below its costs. Stores use loss leaders to attract customers and motivate them to buy more expensive items as well. Reference pricing is another strategy used to attract customers. Reference pricing refers to listing an inflated price (the “regular retail price” or “manufacturer’s suggested retail price”) that is then discounted to appear as if it is a good value. Teaching Tips Discuss the Australian Airline Price War between V Australia airline (an international carrier from Virgin Blue) and Australia-based Qantas airline. In December 2008, V Australia started flying daily from Sydney to Los Angeles. Previously, Qantas was the only airline to fly this route. The competition between the two airlines may be good for customers, but if prices get too low, it might become impossible for either airline to generate a profit. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

34 Adjusting Prices Discounts Rebates Bundling Dynamic pricing Quantity
Cash Seasonal Allowances (trade-in) Rebates Bundling Dynamic pricing Most businesses adjust their prices to promote their products. Several tactics are used. One way is to use discounts, a deduction from the regular price charged. Discounts include: Quantity discounts (a lower price for buying in large quantities). Cash discounts (a reduced price for paying with a method that does not require processing). Seasonal discounts (a price reduction if you buy out of season). Forms of allowance, like a trade-in allowance (a reduced price if you trade your old good for a new good). Another way to adjust prices is to use rebates. Rebates are partial refunds on what a customer has already paid for a product. An example is mail-in rebates, where the manufacturer writes a check to the customer after the customer provides proof of purchase. Bundling is another type of price adjustment. In bundling, two or more products that usually complement one another are combined and sold at a single price. Dynamic pricing is another price-adjustment technique. In dynamic pricing, prices are determined directly between the buyer and seller. Auctions are a traditional form of dynamic pricing. More recent examples exist in e-commerce, like eBay and Priceline.com. Teaching Tips Ask students if they can spot the other marketing ideas in this discount program: Melrose Park, Ill., July 29, 2008, PRNewswire—Jewel-Osco this week launched Prescription Plus, a new pharmacy loyalty program which will reward frequent pharmacy customers with special discounts on future grocery purchases. Under the new program, customers will receive a 10 percent discount coupon after every five prescriptions filled at the pharmacy when using their Jewel-Osco Preferred Card. New, transferred, and refilled medication orders count toward earning the valuable discount which can be redeemed at the grocery checkout. Because Prescription Plus discounts apply to the customers’ future grocery purchases, the program stands to deliver more savings to consumers than competing discount drug programs. In addition to traditional prescription orders, immunizations, diabetes care service appointments and wellness screenings, in most cases, can also count toward Prescription Plus discounts. Some ideas include: more frequent pharmacy customers, relates to customer relationship management, providing a better program than the competition, creating more value for Jewel-Osco customers. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

35 Chapter Summary What are the definitions of a product and a total product offer? What is product differentiation, and what role does it play in product development? What are the different classifications of consumer products and business-to-business products? Why is branding beneficial to both buyers and sellers, and what are some different types of brands? What steps take place during new product development, and what is the product life cycle? What are some pricing objectives, and how do they relate to the marketing mix? What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions? Chapter Summary What are the definitions of a product and a total product offer? A product is a good, service, or idea offered for sale or use. A total product offer consists of all the tangible and intangible benefits associated with a good, service, or idea. The three levels of a product are: A core product satisfies the basic need or want that motivates the purchase; an actual product is the tangible aspect of a purchase that you can touch, see, hear, smell, or taste, and it provides the core benefits from its use; and an augmented product consists of the core and actual product plus other real or perceived benefits. What is product differentiation and what role does it play in product development? Product differentiation is distinguishing a product from its competition in real or imaginary terms to attract customers. A product line is a group of similar products marketed to one general market. A product mix is the combination of all product lines offered for sale by a company. What are the different classifications of consumer products and business-to-business products? Convenience goods and services, such as gum, soap, and milk, are purchased frequently, immediately, and effortlessly. Shopping goods and services are products that are less frequently purchased and require more time and effort to compare for the consumer. Examples include clothes, electronics, and furniture. Specialty goods and services have unique characteristics and have no suitable substitutes. Unsought goods and services buyers don’t think about or buy until a problem arises. An example is funeral services. There are five categories of business-to-business (or B2B) products: equipment; maintenance, repair, and operating products; raw and processed materials; component parts; and specialized professional services. Marketers adapt to different markets. Why is branding beneficial to both buyers and sellers, and what are some different types of brands? Branding reduces shopping time and lets consumers express themselves. It helps sellers define their product’s special qualities. Branding creates brand loyalty among consumers. Brand loyalty contributes to brand equity, the overall value of a brand. Seven different types of brands include generic brands, manufacturer’s brands, private brands, family brands, individual brands, co-branding, and brand licensing. Appropriate packaging and labeling can enhance a brand. What steps take place during new product development, and what is the product life cycle? The steps in new product development are idea generation, idea screening, product analysis, product development and testing, and commercialization. The product life cycle is a theoretical model of a product’s sales and profits. Stages include introduction, growth, maturity, and decline. What are some pricing objectives, and how do they relate to the marketing mix? Common objectives include maximizing profits, achieving market share, maximizing sales, building traffic, matching prices, covering costs, creating an image, and affordability. What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions? The major pricing strategies are cost-based pricing, demand-based pricing, and competition-based pricing. Price skimming and penetration pricing are tactics used for launching new products. Everyday low pricing, discounts, rebates, bundling and dynamic pricing are common types of price adjustments. In addition, prestige pricing, psychological pricing, the use of loss leaders, and reference pricing are pricing strategies that impact price perceptions by consumers. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

36 Beyond the Book These slides go beyond the book and provide supplemental material for the instructor. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

37 Simple Brand Success Stories
Product / Company Brand Message HBO “It’s not TV, it’s HBO.” Titleist “We want every consumer, regardless of their skill level, to think of Titleist, first and foremost, as the number-one ball in golf.” Forbes magazine “Capitalist tool.” Advil “Advanced medicine for pain.” Visa “Everywhere you want to be.” Staples “Easy” button Netflix Convenience These companies and products have created a strong brand, in some cases with just a few words. Source: BrandSimple, Allen P. Adamson, 2006, Palgrave MacMillan. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

38 Collaborative Product Design: Next Generation Car
Society for Sustainable Mobility Open Source Green Vehicle Project $30,000 seven-passenger SUV with 100 mpg 150 engineers designing MIT Design Summit International open source student project Building a 200-mpg, four-seater hybrid for India Sabic Innovative Plastics C,mm,n (pronounced “common”) open source car project Managed by three technical universities in the Netherlands There are more: Automotive X Prize Foundation will award $10 million to the team that comes up with a practical mass-produced car that gets at least 100 mpg. The first open-source car design project started in Now it has 2,800 registered users. The founders started it as a hobby. Source: “The Amazing Race: Can the Wisdom of Crowds Design a Next-Generation Car?,” Robert Levine, Fast Company, April 2008. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

39 The Olympics and Product Innovation
Basketball uniforms with zoned temperature venting Nike’s Zoom Victory running shoes weigh 93 grams (3.28 ounces) Adidas’ Lone Star’s racing spikes lean to the left (on a track there are no right turns) Speedo’s LZR Racer swimsuit compresses the body at key points and the panels shed water and are welded, not stitched together Nike’s tae kwon do boot is made of the loudest leather possible to ensure judges hear strikes Source: “Innovation of Olympic Proportions,” Paul Hochman, Fast Company, June 2008, The Fast Company Web site also shows pictures of the new products. The slide shows are accessible from the link above. © 2010 Pearson Education, Inc. Publishing as Prentice Hall

40 Pricing and the Apple iPhone 3G
Feature-wise, the new iPhone mostly addresses the shortcomings of the old one It is much cheaper, starting at $199 Just below what the industry sees as the pain threshold for the mass market Mobile operators, such as AT&T, subsidize the new handsets to make the low price possible, but will increase monthly usage fees Apple’s goal is to sell 10 million iPhones by the end of 2008 6 million were sold as of mid-June 2008 Source: “Follow the leader,” The Economist, June 14, 2008. © 2010 Pearson Education, Inc. Publishing as Prentice Hall


Download ppt "Product Development and Pricing Strategies"

Similar presentations


Ads by Google