Seventh Edition Copyright © by Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook 14 Pride I Hughes I Kapoor Chapter Creating and Pricing Products that Satisfy Customers

Copyright © by Houghton Mifflin Company. All rights reserved.14–2 Product Life Cycle IntroductionGrowthMaturityDecline Industry sales volume Industry profits Time Money Figure 14.1 Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 2000e. Copyright © 2000 by Houghton Mifflin Company, Adapted with permission.

Copyright © by Houghton Mifflin Company. All rights reserved.14–3 Product Line and Product Mix Product line –A group of similar products that differ only in relatively minor characteristics. Product mix –All of the products that a firm offers for sale. –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.

Copyright © by Houghton Mifflin Company. All rights reserved.14–4 Managing the Product Mix Options for improving the product mix: –Modify an existing product’s quality, functionality, or aesthetic characteristics to compete more effectively. –Review the mix and delete (eliminate) products if other competitors dominate the product’s market segment. –Develop a new product that is an imitation, an adaptation, or an innovation to compete with existing products. –Expand the product mix to take advantage of excess marketing and production capacity.

Copyright © by Houghton Mifflin Company. All rights reserved.14–5 Phases of New-Product Development Product development 5 Test marketing 6 Commercialization 7 Idea generation 1 Screening 2 Concept testing 3 Business analysis 4 Figure 14.2 Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 2000e. Copyright © 2000 by Houghton Mifflin Company, Adapted by permission.

Copyright © by Houghton Mifflin Company. All rights reserved.14–6 Why Do Products Fail? Products fail in the market because firms: –Try to save product development costs and only market-test a product and not its entire market mix. –Rush a product that does not have all the “bugs” worked out to market. –Go ahead with the full-scale marketing of a product with the knowledge that the product still has problems that were uncovered in the developmental stage. –Attempt to market a product without having adequate financing.

Copyright © by Houghton Mifflin Company. All rights reserved.14–7 Examples of Product Failures Table 14.1 Sources: Ted Anthony, “Where’s Farrah Shampoo?”, Marketing News, March 6, 1996, p. 13; Jeffery D, Swaddling and Mark W. Zobel, “Beating the Odds,” Marketing Management, Winter/Spring 1996, pp. 20–33; Robert M. McMath, “Copycat Cupcakes Don’t Cut It,” American Demographics, January 1997, p. 60, and Eric Berggren and Thomas Nacher, “Why Good Ideas Go Bust,” Management Review, February 2000, pp. 32–36.

Copyright © by Houghton Mifflin Company. All rights reserved.14–8 Branding, Packaging, and Labeling (cont’d) Types of brands –Manufacturer (producer) brand—a brand that is owned by a manufacturer. –Store (private) brand—a brand that is owned by an individual wholesaler or retailer. –Generic brand—a product with no brand at all. Benefits of branding –Brand loyalty—the extent to which a customer is favorable toward buying a specific brand. There are three loyalty levels: Brand recognition, brand preference, and brand loyalty. –Brand equity—the marketing and financial value associated with a brand’s strength in a market due to: Brand-name awareness, brand association, perceived quality, and brand loyalty.

Copyright © by Houghton Mifflin Company. All rights reserved.14–9 Branding, Packaging, and Labeling (cont’d) Choosing and Protecting a Brand –Several issues should be considered when selecting a brand name: It should be easy to say, spell, and recall. It should suggest, in a positive way, the product’s uses, special characteristics, and major benefits. It should be distinctive enough to set it apart from competing brands. –A brand name should be protected through registration. –A firm must guard against a brand name’s becoming a generic term.

Copyright © by Houghton Mifflin Company. All rights reserved.14–10 Branding, Packaging, and Labeling (cont’d) Branding strategies –Individual branding—a firm uses a different brand for each of its products. –Family branding—a firm uses the same brand for all or most of its products. 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. Provide for consumer convenience in use of the product. Promote the product by communicating its features, uses, and benefits.

Copyright © by Houghton Mifflin Company. All rights reserved.14–11 Pricing Methods Cost-based pricing –Markup pricing—the amount a seller adds to the cost of a product to determine its basic selling price. Markup pricing can overprice or underprice a product for its market, causing either lost sales or forgone profits. Markup pricing separates pricing from other business functions that impact on marketing decisions. Breakeven analysis –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). Fixed costs—costs that are incurred no matter how many units are sold or produced. Variable costs—costs that vary with or depend on the number of units produced.

Copyright © by Houghton Mifflin Company. All rights reserved.14–12 Breakeven Analysis Figure 14.4 $120,000 $80,000 $40, Quantity in units 1000 Breakeven quantity Total revenue Fixed costs Variable costs Total cost Profit Loss Costs/Revenues Breakeven analysis answers the question of what is the lowest level of production and sales at which a company can break even (incur no loss and not yet have made a profit) on a particular product. Total fixed costs Unit selling price – Unit variable costs Breakeven in units =

Copyright © by Houghton Mifflin Company. All rights reserved.14–13 Pricing Methods (cont’d) Demand-based pricing –Pricing of a product that is 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 segmental characteristics (e.g., time of purchase, type of customer, or distribution channel). Competition-based pricing –Product pricing that is based on meeting the challenge of competitors’ prices in markets where products are quite similar or price is an important customer consideration.

Copyright © by Houghton Mifflin Company. All rights reserved.14–14 Types of Pricing Strategies Companies have a variety of pricing strategies available to them. Price skimming Penetration pricing Negotiated pricing Secondary-market pricing Periodic discounting Random discounting Odd-number pricing Multiple-unit pricing Reference pricing Bundle pricing Everyday low prices Customary pricing Captive pricing Premium pricing Price lining Price leaders Special-event pricing Comparison discounting New-Product Pricing Differential Pricing Psychological Pricing Product-Line Pricing Promotional Pricing PRICING STRATEGIES Figure 14.5

Copyright © by Houghton Mifflin Company. All rights reserved.14–15 Pricing Strategies New-product 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. Differential pricing –Negotiated pricing—bargaining to establish a final price. –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.

Copyright © by Houghton Mifflin Company. All rights reserved.14–16 Pricing Strategies (cont’d) Psychological pricing –Odd-number pricing—setting unit prices using odd numbers that are slightly below whole dollar amounts. –Multiple-unit pricing—setting a single price for two or more units of a product. –Reference pricing—pricing a product at a moderate level and positioning it next to a more expensive model or brand. –Bundle pricing—packing two or more complementary products and selling them for a single price. –Everyday low prices (EDLP)—setting a low price for products on a consistent basis. –Customary pricing—pricing on the basis of tradition.

Copyright © by Houghton Mifflin Company. All rights reserved.14–17 Pricing Strategies (cont’d) Product-line pricing –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—setting a limited number of prices for selected groups or lines of merchandise. 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.