1. Creating and Pricing Products That Satisfy Customers
Chapter 12

2. 4 P’s of the Marketing Mix

3. The Product Life-Cycle
A series of stages in which a product’s sales revenue and profit increase, reach a peak, then decline
Introduction
Customer awareness and acceptance are low but soon sales start to rise; development costs are high, profits low; few competitors.
Growth
Sales increase rapidly as the product becomes well known; competition enters.
Maturity
Sales are still increasing but at a slower rate; later in this stage, sales and profits begin to slowly decline; competition is intense.
Decline
Sales volume decreases sharply and profits continue to fall; may have to discontinue product.
Are personal computers in decline?
It is predicted that b y 2013 the number of smartphones will surpass the number of PCs and that doesn’t include tablets like the Ipad.
As of 2010, 59% of Americans accessed the internet with their smartphone, up from 25% the year before.

4. Product Life-Cycle

5. How Do We Classify Products?
Everything one receives in an exchange, including all tangible and intangible attributes and expected benefits
A product can be a good, service, or idea
Consumer product
A product purchased to satisfy personal and family needs
Business (industrial) product
A product bought for resale, for making other products, or for use in a firm’s operations

6. Types of Consumer Products
Convenience product
A relatively inexpensive, frequently purchased item for which buyers want to exert only minimum effort
Example: a candy bar, loaf of bread
Shopping product
An item for which buyers are willing to expend considerable effort on planning and making the purchase
Example: a car, a home, a new computer
Specialty product
An item that possesses one or more unique characteristics for which a significant group of buyers is willing to expend considerable purchasing effort
Example: special outfit for a special occasion, a certain Christmas gift for someone special

7. Product Line and Product Mix
A group of similar products that differ only in relatively minor characteristics
Example: Proctor and Gamble makes a line of shampoos-Ivory, Head and Shoulders, Prell.
Product mix
All of the products that a firm offers for sale
Example: Product and Gamble makes beauty products, health products, and also household cleaning products. (very different lines)
Width of the mix
The number of product lines the mix contains
Depth of the mix
The average number of individual products within each line

8. Managing the Product Mix
Managing existing products
Product modification: the process of changing one or more of a product’s characteristics such as quality, function, aesthetics
Example: Adding airbags to vehicles made them safer (function)
Line extensions: development of a product closely related to one or more products in the existing product line but designed specifically to meet somewhat different customer needs
Example: Cheerios
Deleting products
Between 60-75% of all new products fail
Developing new products

9. Top Ten New Products of the Decade

10. Phases of New Product Development
Test Marketing-Captain Crunch story

11. Why Do Products Fail?
The product and its marketing program are not planned and tested as completely as they should be.
For example, a firm tries to save product development costs and only market-tests a product and not its entire marketing mix (the other “Ps”).
The firm markets a new product before all the “bugs” are worked out.
When problems show up in testing, a firm tries to recover its costs by pushing ahead anyway.
A firm tries to market a product with inadequate financing.

12. Examples of Product Failures

13. Branding What is a brand? Brand name Brand mark Trademark Trade name
A name, term, symbol, design, or any combination of these that identifies a seller’s products as distinct from those of other sellers
Brand name
The part of a brand that can be spoken……”Apple”
Brand mark
The part of a brand that is a symbol or distinctive design
Trademark
A brand name or brand mark that is registered with the U.S. Patent and Trademark Office and is legally protected from use by anyone else (see next slide)
Trade name
The complete and legal name of an organization
“Apple, Incorporated”

14. Apple logo and name showing trademark symbol (look closely)

15. Branding (cont.) Types of brands Manufacturer (producer) brand
A brand that is owned by a manufacturer
“Apple” “Dole” “Nike”
Store (private) brand
A brand that is owned by an individual wholesaler or retailer
Walmart’s “Great Value” or their “Equate”
Generic brand
A product with no brand at all

16. Branding (cont.) Benefits of branding
Because brands are easily recognizable, they reduce the amount of time buyers must spend shopping.
Brands help consumers judge quality.
Brands help a firm introduce a new product with the same brand name.
Branding aids in promotional efforts because promotion of each branded product indirectly promotes others with the same brand.

17. Benefits of branding (cont.)
Brand loyalty
The extent to which a customer is favorable toward buying a specific brand
Recognition, preference, and insistence
Insistence is the highest level of brand loyalty

18. Top Ten Most Valuable Brands in the World

19. Branding (cont.) Choosing a brand Protecting a brand
It should be easy to say, spell, and recall.
It should suggest the product’s uses, special characteristics, and major benefits.
It should be distinctive enough to set it apart from competing brands.
Protecting a brand
It should be protected through registration.
Guard against a brand name’s becoming a generic term.

20. Branding (cont.) Branding strategies Individual branding
A firm uses a different brand for each of its products
For example, Procter & Gamble uses Ivory, Camay, Zest, Safeguard, etc., for its line of bar soaps
A problem with one product will not affect another product
Different brands can be directed at different market segments
Family branding
A firm uses the same brand for all or most of its products
For example, Xerox uses family branding for all its products
The promotion of any one item helps all other products
A new product has a head start when its brand name is already known and accepted by customers

21. Branding strategies (cont.)
Branding (cont.)
Branding strategies (cont.)
Brand extensions
A firm uses an existing brand to brand a new product in a different product category
Example: Procter & Gamble names a new product Ivory Body Wash
Caution must be taken in extending a brand too many times or too far outside the original product category
Example: Kellogg’s extended its brand name to a line of hip-hop street clothing that was a failure

22. Packaging
All of the activities involved in developing and providing a container with graphics for a product
Functions of packaging
Protect the product and maintain its functional form
Offer consumer convenience
Promote the product by communicating its features, uses, benefits, and image
Design considerations
Cost
Single or multiple units
Consistency among package designs (family packaging)
Promotional role
Needs of intermediaries
Environmental responsibility

23. Labeling The presentation of information on a product or its package
May include
Brand name and mark
Trademark symbol
Package size and contents
Product claims
Directions
Safety precautions
Ingredients
Name and address of manufacturer
Universal Product Code (UPC) symbol for automated checkout and inventory control

24. Labeling (cont.) Must include Express warranty
For garments, name of manufacturer, country of manufacture, fabric content, cleaning instructions
Nutrition labeling in standard format for any food product for which a nutritional claim is made
For food, ingredients in common terms, number of servings, serving size, calories per serving, calories derived from fat, and amounts of specific nutrients
For non-edible items such as shampoo and detergent, safety precautions and instructions
Express warranty
A written explanation of the producer responsibilities if the product is found to be defective or otherwise unsatisfactory

25. Go Back to the “Let’s Brainstorm” Activity and Discuss/decide the following:
“Brand” your product. Create a spoken brand name, sketch out a logo, decide if the brand should be trademarked or not and why.
Decide on what kind of packaging you’ll use and why.
Decide what kinds of information you’ll need on the label and sketch out an example of it.

26. Every Product or Service has a Perfect Price Even this one….
Pricing Products
Every Product or Service has a Perfect Price
Even this one….
Driving a tank for fun

27. Meaning and use of price
Pricing Products
Meaning and use of price
The amount of money a seller is willing to accept in exchange for a product at a given time and under certain circumstances
Price allocates goods and services among those who are willing and able to buy them
Price allocates financial resources (sales revenue) among producers according to how well they satisfy customers’ needs
Price helps customers allocate their own financial resources among various want-satisfying products

28. Pricing Products (cont.)
Supply and demand affects prices
Supply
The quantity of a product that producers are willing to sell at each of various prices
Quantity supplied by producers increases as the price increases
Demand
The quantity of a product that buyers are willing to purchase at each of various prices
Quantity demanded increases as the price decreases
Equilibrium
Where the supply and demand curves intersect and quantity and price for buyers and sellers are equal

29. Supply and Demand Curves

30. Pricing Products (cont.)
Price and non-price competition
Price competition
An emphasis on setting a price equal to or lower than competitors’ prices to gain sales or market share
Non-price competition
Competition based on factors other than price (such as quality, customer service, packaging)
Example: Apple depends on customer loyalty, quality in design and function, instead of price to sell the product
Buyers’ perceptions of price
Buyers will accept different ranges of prices for different products
A premium price may be appropriate if a product is considered superior or has inspired strong brand loyalty

31. Target return on investment (ROI)
Pricing Objectives
Survival
Pricing the firm’s products (perhaps at a loss) in order to attract customers to establish the firm in a market
Profit maximization
Pricing with the intent to reap profits as large as possible from a market—usually an unattainable goal
Target return on investment (ROI)
Pricing that allows the firm to attain its profit goal, which is a percentage of the investment the firm has made

32. Pricing Objectives (cont.)
Market-share goals
Pricing that will increase a firm’s proportion of total industry sales
Status quo pricing
Pricing because that’s normally what a product like this has always been priced at

33. Pricing Methods
Cost based pricing
Breakeven based pricing
Demand based pricing
Competition based pricing

34. Pricing Methods Cost-based pricing
The seller determines the total cost of producing one unit of the product, then adds an amount to cover additional costs and profit (markup)
Markup may be calculated as a percentage of total costs
Flaws
Difficulty of determining an effective markup percentage; price may be too high, resulting in lost sales, or price may be too low, resulting in lost profit
Separates pricing from other business functions like how much it costs to produce it or market it; there is no incentive here to reduce those costs-just raise the price instead. This is not the best way to be profitable.

35. Pricing Methods (cont.)
Breakeven based pricing
Breakeven quantity
The number of units that must be sold for total revenue (from all units sold) to equal the total cost (of all units sold)
Total revenue (total sales)
The total amount received from sales of a product
Fixed cost
A cost incurred no matter how many units are produced or sold
Variable cost
A cost that depends on the number of units produced
Total cost (= Fixed Costs + Variable Costs)
The sum of the fixed costs and the variable costs all together.

36. Breakeven Analysis

37. Two Ways to Figure Out Breakeven Point
How much in sales dollars do we need to break even?
How many units do we need to sell to break even?

38. Calculating Breakeven Point
To determine how much in sales dollars you need:
Calculate Contribution Margin using this formula:
Total variable costs
Annual sales
2. Then calculate Breakeven Point:
Total Fixed Costs
Contribution Margin
Calculate Contribution Margin:
All variable costs
Annual sales
2. Breakeven: Sales Dollar Volume:
Total Fixed Costs
Contribution Margin
GIVEN THESE FIGURES:
Variable costs: $337,000 (cost of goods sold)
Other variable costs: $42,750
Total Variable Costs: $379,750
Annual Sales: $495,000
Total Fixed costs: $78,100

39. Contribution margin goes down but Total Fixed Costs stay the same?
What about if…….
Contribution margin goes down but Total Fixed Costs stay the same?
Example A: Example B:
CM = CM = .20
$78,100 = $114,852 $78,100 = $390,500
Contribution margin goes down AND Total Fixed Costs go up?
$100,000 = $500,000
.20

40. Calculating Breakeven Point
To determine how many units you need to sell:
Contribution per unit =
Selling price - Variable cost per unit
Example: Contribution per unit = $ = $60
2. Then use this formula:
Total Fixed Costs
Contribution Per Unit
Example: $40,000 = 667 units
$60
Calculate Contribution Margin:
All variable costs
Annual sales
2. Breakeven: Sales Dollar Volume:
Total Fixed Costs
Contribution Margin
GIVEN THESE FIGURES:
Selling price: $120
Variable cost per unit: $60
Total Fixed costs: $40,000

41. Pricing Methods (cont.)
Demand-based pricing
Based on the level of customer demand for the product
Product prices are high when demand is high and low when demand is weak
Price differentiation
Setting different prices in segmented markets based on segment characteristics (e.g., time of purchase, type of customer, or distribution channel)
Competition-based pricing
Based on meeting the challenge of competitors’ prices in markets where products are quite similar or price is an important customer consideration

42. Types of Pricing Strategies

43. Choose one of these Pricing Strategies and be able to explain why you chose it.
New Product Strategy
Differential Pricing Strategy
Psychological Pricing Strategy
Product line Pricing Strategy
Promotional Pricing Strategy

44. Pricing Strategies: New Product Pricing
New-product pricing strategies
Price skimming
Charging the highest possible price for a product during the introduction stage of its life cycle
Penetration pricing
Setting a low price for a new product to quickly build market share and discourage competitors

45. Pricing Strategies: Differential Pricing
Charging different prices to different buyers for the same quality and quantity of product
The market must consist of multiple segments with different price sensitivities
Negotiated pricing
Establishing a final price through bargaining
Secondary-market pricing
Setting one price for the primary target market and a different price for another market
Periodic discounting
Temporary reduction of prices on a patterned or systematic basis
Random discounting
Temporary reduction of prices on an unsystematic basis

46. Pricing Strategies: Psychological Pricing
Odd-number pricing
Setting prices using odd numbers that are slightly below whole-dollar amounts
Multiple-unit pricing
Setting a single price for two or more units
Reference pricing
Pricing a product at a moderate level and positioning it next to a more expensive model or brand
Bundle pricing
Packaging two or more complementary products and selling them for a single price
Everyday low prices (EDLPs)
Setting a low price for products on a consistent basis
Customary pricing
Pricing on the basis of tradition

47. Pricing Strategies: Product-line Pricing
Establishing and adjusting the prices of multiple products within a product line
Captive pricing
Pricing the basic product in a product line low, but pricing related items at a higher level
Premium pricing
Pricing the highest-quality or most-versatile products higher than other models in the product line
Price lining
Selling goods only at certain predetermined prices that reflect definite price breaks

48. Pricing Strategies: Promotional Pricing
Price leaders
Products priced below the usual markup, near cost or below cost
Special-event pricing
Advertised sales or price cutting linked to a holiday, season, or event
Comparison discounting
Setting a price at a specific level and comparing it with a higher price

49. Go Back to the “Let’s Brainstorm” Activity and Add the following:
Price your product or service using one of the strategies in the textbook (pg ) or one taken from the next slide. Be able to explain why you chose that price.
Calculate your breakeven point to determine how much sales you’ll need per year to break even (in dollars) and then how many units you will have to sell per year to break even. Given these figures:
Total variable costs: $300,000
Total fixed costs: $150,000
Annual sales last year: $500,000
Selling price last year: $20,000 per unit
Variable cost per unit: $1500

50. Chapter Quiz
Western Day was a special day at the office. Janice wanted to dress in the latest western fashion, but she had limited funds. She visited several shops before finding the right outfit. For Janice, what type of product is the clothing?
Specialty product
Major equipment
Industrial product
Shopping product
Convenience product

51. Chapter Quiz
Sales rise gradually as a result of promotion and distribution activities, but initially, high development and marketing costs result in low profit or even a loss. This best describes which stage of the product life-cycle?
Maturity
Introduction
Decline
Growth
Steady

52. Chapter Quiz
A customer who consistently buys Sony televisions whenever he or she needs to replace his or her TV set demonstrates
the importance of trademarks.
the importance of trade names.
the importance of brand awareness.
brand loyalty.
brand equity.

53. Chapter Quiz
Certain plastic water bottles that cannot be recycled, while convenient for customers, are a clear example that manufacturers are not considering _______________ when designing packaging.
the needs of intermediaries
the needs of retailers
environmental consciousness
family needs
cost-effectiveness

54. Chapter Quiz
When there is a shortage of citrus fruit, the economic forces of supply and demand would suggest that
price will stay constant.
price will decrease.
price will increase.
it will take a long time before the shortage is felt in the market.
None of the above