1. Developing & Pricing Products and Services
Busn 101 Chapter 14
Developing & Pricing Products and Services

2. Goals Total Product Offer Consumer And Industrial Goods
Functions Of Packaging
Describe The Differences Between:
Brand
Brand Name
Trademark
Brand Equity
Brand Loyalty
Brand Manager
New Product Development Process
Product Life Cycle
Pricing Objectives And Strategies
Nonpricing Strategies

3. Value Good quality at a fair price
When customers calculate the value of a product, they look at the benefit and then subtract the cost to see if the benefits exceed the cost
Value = Benefits – Costs
If Benefits > Costs, Then: Value, Otherwise: Not Value
Why would someone buy Milk at 7-11 that cost $3.99 when it is $2.50 at Safeway?
Best value includes factors such as price, benefits sought, service they receive, and more

4. Better Products and Services
With global competition, companies try to avoid market share loss by continuing to design and promote better products
To satisfy customers, marketers must:
Learn to listen to customers better than they do now
Adapt to constantly changing market demands
This means: listen to customers, make what they want
Example of listening:
Product: Fast food restaurants offer salads
Service: Fast food restaurants accept credit cards
Continually developing new products is a key activity for businesses around the globe

5. Better Products and Services (Economist meg, Oct 11, 2007)
Lego listened to customers (and others) when they designed Lego-Mindstorms
GM launched OnStar, a mobile-information system meant only to provide safety and emergency services for drivers
But customers wanted it to do more:
See if car is working properly
Open the doors for a driver who accidentally locks the keys inside
Locate the nearest pizza place

6. Total Product Offer or Value Package
Everything that consumers evaluate when deciding whether to buy something
From a strategic marketing point of view, total product offer is more than just the product or service

7. Total Product Offer: Milk at 7-11 = $3.99 or Milk at Safeway = $2.50

8. Products at a Business Product Mix Product Line
The combination of product lines offered by a manufacturer
Product Line
A group of products that are physically similar or are intended for a similar market
More on Products: product-line.html

9. University Products (http://www. enotes

10. Procter & Gamble Productsml

11. Product Differentiation
The creation of real or perceived product differences
Actual product differences can be quite small, so marketers must use a creative mix of value enhancers:
Price
Advertising
Packaging
Image

12. Product Differentiation
How much difference is there between: Bounce, Cheer, Downy, Dreft, Era, Febreze Air Fresheners, Gain, Ivory and Tide?

13. Groups of Consumer Goods
Convenience Goods and Services
Shopping Goods and Services
Specialty Goods and Services
Unsought Goods and Services

14. Convenience Goods and Services
Products that the customer wants to purchase frequently and with a minimum of effort
Examples:
Milk
Gum
Gas
ATM
Important marketing considerations:
Location
Brand awareness
Image
Some convenience items are available on the internet: Banking services, Books

15. Shopping Goods and Services
Those products that the consumer buys only after comparing value, quality, price, and style from a variety of sellers
Examples:
Appliances
Repair Services
Shoes and Clothes
Important marketing considerations:
Price differences
Quality differences

16. Specialty Goods and Services
Consumer products with unique characteristics and brand identity
Because these products are perceived as having no substitute, the consumer puts forth a special effort to purchase them
Examples:
Medical specialists
Expensive cars
Fancy foods
Important marketing considerations:
High quality, Image, Service, Brand Name
Sold through:
Internet, specialty goods retailer or specialty magazines

17. Unsought Goods and Services
Products that consumers are unaware of, haven’t necessarily thought of buying, or find that they need to solve an unexpected problem
Examples:
Emergency car-towing
Burial services
Insurance

18. Industrial Goods or Business Goods or B2B Goods
Products used in the production of other products
Examples:
Rubber for a tire factory
Microsoft Office can be both a B2B Good and a Consumer Good

19. Raw Materials (Wood, Paint) Component parts (Compressor, Filter)
Goods/Services
Consumer G & S
Convenience
Shopping
Specialty
Unsought
Industrial G & S
Production goods
Raw Materials (Wood, Paint)
Component parts (Compressor, Filter)
Production materials (Nuts & bolts, Sandpaper)
Support goods
Capital (Buildings, Equipment)
Accessory Equipment (Tools, Office Furniture
Supplies (Paper, Folders)
Service (Repair, Audit)

20. Importance Of Packaging
Protection
Attraction
Description
Explain Benefits
Information on warranties, warnings, etc.
Indication of price, value, and uses
See Learning Goal 3: List and describe the functions of packaging.
See text page: 385

21. Packaging is important and can change the product
Morton’s
When it rains, it pours
Squeeze bottles
UPCs (Universal Product Code) makes check out and inventory control much easier
RFID (Radio frequency identification chip)

22. Brand
A name, symbol, or design that identifies the goods or services and distinguishes them from the goods and services of competitors
Examples of Brand Names:
Campbell
Coca Cola
WholeFoods
Toyota 

23. Trademark
A Brand that has been given exclusive legal protection for both the brand name and the pictorial design

24. Brands Brand name assures quality Reduces search time
Adds prestige to purchase
Generic Name
Name for product category
Companies are afraid to have brand name become a generic name
Examples:
Aspirin, Linoleum, Kleenex, Styrofoam, Rollerblade

25. Manufacturers’ Brand Name
The brand name of manufacturers that distribute products nationally and internationally
Examples:
Sony
Honda
Kodak

26. Dealer (Private Label) Brands or House Brands or Distributor Brands
Products that do not carry the manufacturer’s name but carry a distributor or retailer's name
Examples:
365 Everyday Value
Kenmore at Sears

27. Generic Goods
Nonbranded products that usually sell at a sizable discount compared to national or private label brands
Examples:
Lucky Foods Yellow Brand
Generic cigarettes

28. Knockoff Brands Illegal Copies of national brand name goods Examples:
Is you expensive watch or dress a knockoff?

29. Brands
Brand Equity
The combination of factors – such as loyalty, perceived quality, images, and emotions – that people associate with a given brand name
Examples: Ziploc, GE
Brand Loyalty
The degree to which customers are satisfied, like the brand, and are committed to further purchases
Brand Awareness
How quickly or easily a given brand name comes to mind when a product category is mentioned
Brand insistence  Specialty Good

30. Brands Brand Association Brand Manager or Product Manager
The linking of a brand to other favorable images
Think of Michael Jordon, Tiger Woods
Brand Manager or Product Manager
A manager who has direct responsibility for one brand or one product line

31. Characteristics of a Good Brand Name
Short, sweet, and easily pronounced, but flexible and expandable, and does not lend itself to abbreviation
Unique within its industry and retain its age
Legally available and defensible
Good alliteration and linguistically clean
Embraces company personality / brand portfolio
Also available on a Transparency Acetate
See Learning Goal 4: Describe the differences among a brand, a brand name, and a trademark, and explain the concepts of brand equity and brand loyalty.
Characteristics of a Good Brand Name
This slide presents characteristics of a good brand name.
The brand name should fit in with the company’s brand portfolio and with the personality of the company.
How many names were “in” during the dot com era? Most of the names have lost their attraction.
The names should be short and sweet, yet flexible enough not to be abbreviated. If people start to abbreviate, the effort and energy spent on building the brand would be lost and additional time and dollars would need to be spent to re-position the image.
Ask the students: Using these criteria, can you identify several good brand/company names? (Some of the most notable include Gillette, Pepsi, Polo, Nautica, and Coca Cola.)
Source: The Brand Name Awards 2005

32. Best/Worst/Weirdest Car Brand Names
Lamborghini Diablo
Volkswagon Thing
FSR Tarpan Honker
Ford Mustang
Honda That’s
Mazda Bongo Friendee/ Brawny
Mitsubishi Colt
Nissan Cedric
Isuzu Tractor
Pontiac Firebird
Toyota Toyopet
Mitsubishi Delica Space Gear
Rolls-Royce Silver Shadow
Corbin Sparrow
Suzuki Joy Pop
Dodge Coronet Super Bee
Also available on a Transparency Acetate
See Learning Goal 4: Describe the differences among a brand, a brand name, and a trademark, and explain the concepts of brand equity and brand loyalty.
Best/Worst/Weirdest Brand Names
This slide presents best, worst, and weirdest car brand names.
Ask the students: How important is the name of a product? What aspects should be considered in the naming process? (Most students should suggest that the name of your product is very important because it represents your company, tells the customers what the product is, and it should mean something…..well maybe!!)
Given that there are so many models cars in so many different countries, naming cars becomes a very complex process. Should only one name be used in all countries or different names for the same model in different countries?
Names should have a positive connotation such as Nova (in English, it means a bright star). Chevrolet used this word for one of its car name, Chevy Nova. It worked well in the United States. However, when they introduced this model with the same name in Spanish speaking countries, it created a mess. No va in Spanish means, it doesn’t go. Can you imagine, buying a new car that says, it doesn’t go?
Source: FT Weekend, November, 2005

33. Brand Characters: Are They Real or Fake?
Betty Crocker
Chef Boyardee
Uncle Ben
Colonel Sanders
Little Debbie
Fake
Real
Both
Real guy, fake rank
Also available on a Transparency Acetate
See Learning Goal 4: Describe the differences among a brand, a brand name, and a trademark, and explain the concepts of brand equity and brand loyalty.
Branding Characters: Are They Fake?
This slide presents real or fake status of some of the popular brand characters.
Before you show whether these characters are real or fake, ask the students: How many of them remember and can describe each of these characters?
Betty Crocker – Gold Medal Flour invented this character in 1921 to provide personalized response to consumers’ baking questions. Betty sounded like a friendly name and Crocker was taken from a retired employees’ surname.
Chef Boyardee – In 1929, Hector Boiardi opened his restaurant in Cleveland. When customers kept asking for take-home jars of his pasta, he focused on the packaged meals.
Uncle Ben – In Texas, there was a real farmer named Uncle Ben known for his rice. However, he was likely dead when Gordon Harwell came up with the brand in Houston’s Frank Brown posed for Ben’s portrait.
Colonel Sanders – In 1930, Harland Sanders, a Kentucky service station owner started cooking fried chicken for his customers. By 1935, he became so famous that Governor Laffoon made him an honorary colonel in the state militia.
O.D. Mckee, in 1960, decided to put his 4 year old granddaughter as the snack cakes icon on the packages. She still sits on the company board.
(Source: Fast Company, August 2004)
Source: Fast Company, August 2004

34. 10 Most Valuable Brands Rank Product Brand Value (Billions) 1
Coca-Cola
$67.00 2
Microsoft
56.93 3
IBM
56.20 4 GE
48.91 5
Intel
32.32 6
Nokia
30.13 7
Toyota
27.94 8
Disney
27.85 9
McDonald’s
27.50 10
Mercedes-Benz
21.80
Also available on a Transparency Acetate
See Learning Goal 4: Describe the differences among a brand, a brand name, and a trademark, and explain the concepts of brand equity and brand loyalty.
10 Most Valuable Brands
This slide presents the 10 most valuable brands in the world.
Before showing this slide, ask the students: Which brand do you believe is the most valuable in the world? Why?
In Business Week’s ranking of top 100 brands in the world, each brand must derive about a third of its earnings outside its home country, be recognizable outside of its customer base, and have publicly available marketing and financial data.
Business Week chose Interbrand Corp.’s methodology because it evaluates brands much the way analysts value other assets: on the basis of how much they are likely to earn in the future.
Coca-Cola, Microsoft, and IBM ranked at the top of the list.
(Source: Business Week, August 7, 2006)
Source: Business Week, August 7, 2006

35. Top 10 Favorite Mascots of America
M&Ms figures / Mars
Doughboy / General Mills, Smucker’s
Duck / Aflac
Tony the Tiger / Kellogg
Gecko / Berkshire Hathaway’s Geico
Chester the Cheetah / Pepsi’s Frito-Lay
Energizer Bunny / Energizer Holdings
Kool-Aid Man / Kraft Foods
Trix Rabbit / General Mills
Snap, Crackle and Pop / Kellogg
See Learning Goal 4: Describe the differences among a brand, a brand name, and a trademark, and explain the concepts of brand equity and brand loyalty.
Favorite Mascots of America
This slide presents America’s favorite mascots.
In a survey of 1,800 consumers, M&M Mars topped the list in likeability.
The least liked character was Stouffer’s Max-A-Roni.
Ask the students: How many of these do you know and how would you rank these mascots on likability?
(Source: Forbes, January 9, 2006)
Source: Forbes, January 9, 2006

36. Developing New Products
86% of new products fail to reach the business objectives within one year of release
Reasons:
Poor positioning
Little differentiation from other products
Poor packaging

37. New-Product Development Process
Idea Generation
Screening
Analysis
Development
Testing
Commercialize
See Learning Goal 5: Explain the role of brand managers and the steps of the new-product development process.
See text pages:

38. New Products Product Screening
A process designed to reduce the number of new product ideas being worked on at any one time
Does product fit well with present products?
Is it profitable?
Is it marketable?
Do we have the equipment and personnel?

39. New Products Product Analysis Concept Testing
Making costs estimates and sales forecasts to get a feeling for profitability of a new product idea
Concept Testing
Taking a product idea to consumers to test their reactions
Are there benefits?
How frequently would you buy it?
What price would you pay?
Try different packaging, branding, ingredients

40. Commercialization
Promoting a product to distributors and retailers to get wide distribution, and develop strong advertising and sales campaigns to generate and maintain interest in the product among distributors and consumers
Commercialization:
Promoting to get wide distribution (distributors & retailers)
Advertising and sales efforts to generate & maintain interest (distributors & retailers & consumers)
Internet can speed this process up

41. First Products Produced by Five Major Companies
Hershey - Caramels
Amway - No-rinse car wash
Heinz - Horseradish
Avon - Little Dot perfume set
3M - Sandpaper
Also available on a Transparency Acetate
See Learning Goal 2: Describe the various kinds of consumer and industrial goods.
First Products Produced by Five Major Companies
Students should find this both fun and an informative acetate. The first products produced by five well-known companies are listed.
See if students can recall the first products introduced by specific companies in their market areas. A tour of the Internet will help identify some of these products by company.
Idea generation is often the catalyst behind first products. Reinforce the strategy that companies must listen to their customers to identify needs. If they fail to do so, doing business can become very costly.
Source: World Features Syndicate

42. People Behind Product Innovation
Liquid Paper – an American Secretary
Paper Clip – a Norwegian Patent Clerk
Fax Machine – a Scottish Clock Maker
Lewis Waterman Fountain Pen – an American Insurance Salesman
Pencil Sharpener – French Mathematician
Ballpoint pen – a Hungarian Journalist
Eraser Head – English Chemist
Also available on a Transparency Acetate
See Learning Goal 5: Explain the role of brand managers and the steps of the new-product development process.
People Behind Product Innovation
This slide presents the people behind some of the popular office products inventions.
Ask the students before you present this slide: How many of these products do you use or have you used and have you ever thought of who might have come up with these product ideas?
More often many inventions come about due to some necessity. Share with the students the example of 3M’s Post-It note pads. By all 3M measures, it was declared a poor and failed product because of very weak adhesive. Until an employee who was looking for a temporary bookmark that would stay on the page but can be peeled off when not needed. The employee came across this failed product and the rest is history. Post-It notes are one of the most successful new products in 3M’s history.
Source: World Features Syndicate

43. Best Product Innovation of ALL Time
% of Consumers’ Choice
Also available on a Transparency Acetate
See Learning Goal 5: Explain the role of brand managers and the steps of the new-product development process.
Best Product Innovation of ALL Time
This slide presents the best product innovations of all times.
Before showing this slide you can ask the students to identify what they believe are the top ten innovations of all times. (Most of them should come up with at least few from this list such as a car, telephone, electricity, TV, etc. Some of them may come up with additional items such as Computers, Copy machines, Cell Phones, etc.)
About 63% of consumers in the survey identified an automobile as the best invention of all times. About 19% indicated aspirin as one of the best inventions.
You can also ask the students to create a class list of what they believe to be the best product innovations of all time.
Source: American Demographics

44. Consumers Attitudes about New Products
Also available on a Transparency Acetate
See Learning Goal 5: Explain the role of brand managers and the steps of the new-product development process.
Consumers Attitudes with New Products
This slide presents consumers attitudes about new products.
Ask the students: When a new product is introduced, do you buy it immediately, buy as needed, or take a wait and see approach?
In a survey of over 1,000 consumers, about 43% of the respondents indicated that they will buy as needed whereas 17% indicated that they will buy early (Source: USA Today)
You may want to share the Diffusion of Innovation Theory numbers formalized by Everett Rogers. Rogers argues that any new idea or product is accepted by innovators (2.5%), early adopters (13.5%), Early majority (34%), late majority (34%), and laggards, (16%). (Source: wikipedia.org)
Source: USA Today

45. Why People Purchase New Products
Also available on a Transparency Acetate
See Learning Goal 5: Explain the role of brand managers and the steps of the new-product development process.
Why People Purchased New Products
This slide presents survey results of over 1,000 consumers regarding why they bought new products last year.
The number one reason, about 55% indicated that they bought new products because of the recommendations of family or friend. So word of mouth is a wonderful source of promotion. Other reasons were: TV commercials (53%), store displays (48%), free samples in the mail (46%), and fliers and/or coupons (45%).
Ask the students: How can organizations/marketers utilize this info? (Obviously, it suggests certain strategies with regards to marketing.)
Ask the students: How and why do you purchase new products?
Source: USA Today

46. Product Life Cycle
The theoretical model of what happens to sales and profits for a product class over time (not all products follow this model, especially brands and classics)

47. Product Life Cycle

48. Product Life Cycle: Different Stages Require Different Marketing Strategies

49. Product Life Cycle: Different Stages Require Different Marketing Strategies

50. Pricing Objectives of Pricing
Pricing is important because it is a CRITICAL ingredient in consumer evaluation of product
Objectives of Pricing
ROI: gain a profit (long-run)
Traffic: get people into your store (short-run)
Market Share: gain market share (short-run)
Image: Price high to give status (long-run)
Social: Lower price to help people with little money
No matter what a business does, ultimately, prices are set in the market

51. Pricing Cost-Based Pricing Demand-Based Pricing Cost + Profit = Price
Price is based on what it cost to produce
Cost accounting is very important to firms
Price is not necessarily an input into the product development process
Demand-Based Pricing
Price – Profit = Cost
Final price is an input into the product development process
Target Cost
Designing a product so that it satisfies customers and meets the profit margins desired by the firm

52. Pricing Competition-based pricing Price leadership
A pricing strategy based on what all the other competitors are doing: Below, At, Above competitors, prices
Price leadership
The procedure by which one or more dominant firms set the price practices that all competitors in an industry follow

53. Break-Even Analysis Break-Even Analysis Total Fixed Costs (FC)
The process used to determine profitability and various levels of sales
Total Fixed Costs (FC)
All the expenses that remain the same no matter how many units are made or sold
Variable Costs (V)
Costs that change as the number of units made changes
Price = Price Changed to Consumer (P)
Break Even Point = FC/(P-VC)

54. Pricing Skimming Price Strategy
Strategy in which a new product is priced high to make optimum profit while there is little competition (iPhone, iPod)
Penetration Strategy
Strategy in which a product is priced low to attract many customers and discourage competition (VCR recorders)
EDLP
Setting prices lower than competitors and then not having any sales
High-Low Price Strategy
Setting prices that are higher than EDLP stores, but having many special sales where the prices are lower than competitors

55. Pricing Internet Influence on Prices? Bundling
Grouping two or more products together and pricing them as a unit (Microsoft)
Psychological Pricing
Pricing goods and services at price points that make the product appear less expensive then it is
Instead of $23.00, charge $22.99
Gas = $2.99 9/10
Demand-orientated pricing
Gas prices go up during summer when everyone drives
Low rates for children at movie theaters
Internet Influence on Prices?

56. Nonprice Competition Product image Consumer benefits such as: Comfort
Durability
Convenience
Style
Service

57. Explain The Concept Of Total Product Offer

59. Describe The Various Kinds Of Consumer And Industrial Goods
Goods/Services
Consumer G & S
Convenience
Shopping
Specialty
Unsought
Industrial G & S
Production goods
Raw Materials (Wood, Paint)
Component parts (Compressor, Filter)
Production materials (Nuts & bolts, Sandpaper)
Support goods
Capital (Buildings, Equipment)
Accessory Equipment (Tools, Office Furniture
Supplies (Paper, Folders)
Service (Repair, Audit)

60. List And Describe The Functions Of Packaging
Protection
Attraction
Description
Explain Benefits
Information on warranties, warnings, etc.
Indication of price, value, and uses

61. Describe The Differences Between:
Brand
A name, symbol, or design (or combination thereof) that distinguishes them from the goods and services of competitors
Trademark
Brand that is legally protected
Brand Equity
The combination of factors – such as loyalty, perceived quality, images, and emotions – that people associate with a given brand name
Brand Loyalty
The degree to which customers are satisfied, like the brand, and are committed to further purchases

62. New Product Development Process
Idea Generation
Screening
Analysis
Development
Testing
Commercialize

63. Product Life Cycle (Stages & Strategies At Each Stage)

64. Pricing Objectives And Strategies
ROI
Traffic
Market Share
Image
Social
Cost-Based
Demand-Based
Competition- Based
Break-Even
Fixed Cost
Variable Cost
Strategies
Skimming
Penetration
EDLP
High-Low
Bundling
Psychological
Market Forces
See Learning Goal 7: Explain various pricing objectives and strategies.
See text pages:

65. Nonpricing Strategies (Why They Are Becoming More Important)
Because Prices are often similar
Internet makes it easy to find the best price