1. Developing and Pricing Goods and Services
Chapter 14
Developing and Pricing Goods and Services
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LEARNING GOALS Describe a total product offer.
Chapter Fourteen
Describe a total product offer.
Identify the various kinds of consumer and industrial goods.
Summarize the functions of packaging.
Contrast brand, brand name, and trademark, and show the value of brand equity.
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3. LEARNING GOALS
Chapter Fourteen
Explain the steps in the new-product development process.
Describe the product life cycle.
Identify various pricing objectives and strategies.
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4. DEVELOPING VALUE
Product Development and the Total Product Offer
LG1
According to the American Marketing Association, value is a foundation of marketing.
Value -- Good quality at a fair price.
Adapting products to new markets is an ongoing challenge.
Product development is a key activity in any modern business.
See Learning Goal 1: Describe a total product offer.
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5. PRODUCTS CONSUMERS WON’T GIVE UP
Product Development and the Total Product Offer
PRODUCTS CONSUMERS WON’T GIVE UP
LG1
Internet service
Cell phone service
Cable television
Discount apparel
Haircuts and coloring
Fast-food
See Learning Goal 1: Describe a total product offer.
Products Consumers Won’t Give Up
This slide profiles some of the goods and services people do not eliminate during a recession.
Ask students: Why are the items listed on the slide considered “untouchables”?
To further the discussion, ask students: What items do you consider to be “untouchable” and why?
Source:
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6. PRODUCTS “EXPENDABLE” by SPENDING CUTS
Product Development and the Total Product Offer
PRODUCTS “EXPENDABLE” by SPENDING CUTS
LG1
Luxury handbags
Satellite radio
Specialty apparel
High-end cosmetics
Facials
See Learning Goal 1: Describe a total product offer.
“Expendable” Spending Cuts
This slide shows the flipside of the previous slide and lists items that people are most likely to eliminate.
Ask students to get into groups and discuss: Why are these items “expendable,” but the items on the previous slide are “untouchable”?
Source:
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7. DISTRIBUTED PRODUCT DEVELOPMENT
LG1
Distributed Product Development -- The handing off of various parts of your innovation process - often overseas.
The increase in outsourcing has resulted in using multiple organizations separated by cultural, geographic and legal boundaries.
See Learning Goal 1: Describe a total product offer.
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8. DEVELOPING a TOTAL PRODUCT
Developing a Total Product Offer
DEVELOPING a TOTAL PRODUCT
LG1
Total Product Offer -- Everything consumers evaluate when deciding whether to buy something.
Products are evaluated on many different dimensions, both tangible and intangible.
Marketers must think like and talk to consumers to find out what’s important.
See Learning Goal 1: Describe a total product offer.
The total product offering includes tangible as well as intangible benefits.
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9. PRODUCT INNOVATION DURING the GREAT DEPRESSION
Developing a Total Product Offer
PRODUCT INNOVATION DURING the GREAT DEPRESSION
LG1
Year
Product
1929
Electric Razors
1930
Car Radios
Supermarkets
1933
Chocolate Chip Cookies
Laundromats
See Learning Goal 1: Describe a total product offer.
Product Innovation During the Great Depression
The late twenties and thirties are associated with the Great Depression, but the period was also one of great product innovation.
The items on the slide were invented during the Great Depression.
Have students look at the items and ask: Why do you think these items were developed during a time when most Americans had very little discretionary income?
Have students work with a partner or small group to come up with specific reasons they think these products developed.
Source: BusinessWeek Small Biz.
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10. ANYTHING YOU CAN DO… Products Replacing Products
Developing a Total Product Offer
ANYTHING YOU CAN DO… Products Replacing Products
LG1
Starter
Replacer
Replacer’s Replacement
Future Threat
Friendster
MySpace
Facebook
Quora
Nokia
Blackberry
iPhone
Android
TiVo
Blockbuster
Netflix
Apple TV
Altavista
Yahoo; Ask
Google
Blekko
The Shop Around the Corner
Borders
Amazon
Apple
Polaroid
Kodak
Canon
Cell Phones
Playstation
Wii
Xbox Kinect
See Learning Goal 1: Describe a total product offer.
Anything You Can Do…
This slides shows that companies that innovated and create new products don’t always remain the market leaders.
Point out that while Apple didn’t introduce cell phones, video recorders or game players, it has become the market leader by listening to consumers and improving these products to meet consumers’ wants and needs.
Source: Newsweek, February 21, 2011.
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11. POTENTIAL COMPONENTS of a TOTAL PRODUCT OFFER
Developing a Total Product Offer
POTENTIAL COMPONENTS of a TOTAL PRODUCT OFFER
LG1
See Learning Goal 1: Describe a total product offer.
A product can be divided into the physical and the total product. Marketing managers must take the physical and add value to create the total product offer.
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12. UNDERSTANDING PRODUCT LINES
Product Lines & Product Mix
LG1
Product Line -- A group of products that are physically similar or intended for a similar market.
Product lines often include competing brands like:
Coca-Cola
Diet Coke
Coke Zero
Cherry Coke
See Learning Goal 1: Describe a total product offer.
Photo Courtesy of: Coca-Cola Art Gallery
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13. The PRODUCT MIX
Product Lines & Product Mix
LG1
Product Mix -- The combination of all product lines offered by a manufacturer or service provider.
Product mixes like Procter & Gamble’s can be extensive:
Toothpaste
Cosmetics
Diapers
Batteries
Bar soap
See Learning Goal 1: Describe a total product offer.
To give students a visual of the products offered by Proctor and Gamble, use their website at and click on the products tab.
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14. DIFFERENTIATING PRODUCTS
Product Differentiation
LG2
Product Differentiation -- The creation of real or perceived product differences.
Marketers use a mix of pricing, advertising and packaging to create different images. Examples include:
Bottled water
Aspirin
Fast-food
Laundry detergent
Shampoo
See Learning Goal 2: Identify the various kinds of consumer and industrial goods.
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15. CLASSIFYING CONSUMER GOODS and SERVICES
Marketing Different Classes of Consumer Goods and Services
CLASSIFYING CONSUMER GOODS and SERVICES
LG2
Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include:
Candy and snacks
Gas
Milk and eggs
See Learning Goal 2: Identify the various kinds of consumer and industrial goods.
Location, brand awareness, and image are important in marketing these goods and services.
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16. CLASSIFYING SHOPPING GOODS and SERVICES
Marketing Different Classes of Consumer Goods and Services
CLASSIFYING SHOPPING GOODS and SERVICES
LG2
Shopping Goods and Services -- Products consumers buy only after comparing value, quality, price, and styles. These include:
Clothes and shoes
Appliances and furniture
Childcare
Home remodeling
See Learning Goal 2: Identify the various kinds of consumer and industrial goods.
Brand name, price, and quality differences are important in marketing these goods and services.
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17. CLASSIFYING SPECIALTY GOODS and SERVICES
Marketing Different Classes of Consumer Goods and Services
CLASSIFYING SPECIALTY GOODS and SERVICES
LG2
Specialty Goods and Services -- Products with unique characteristics and brand identity. These include:
Tiffany jewelry
Rolex watches
Lamborghini automobiles
Ritz Carlton Hotels
See Learning Goal 2: Identify the various kinds of consumer and industrial goods.
Purchasers of the items listed on this slide are brand insistent and refuse to accept substitutes.
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18. CLASSIFYING UNSOUGHT GOODS and SERVICES
Marketing Different Classes of Consumer Goods and Services
CLASSIFYING UNSOUGHT GOODS and SERVICES
LG2
Unsought Goods and Services -- Products consumers are not aware of or have not thought of buying until they need them. These include:
Car-towing services
Funeral services
Renter’s insurance
See Learning Goal 2: Identify the various kinds of consumer and industrial goods.
Unsought goods and services often rely on personal selling or specialty advertising - like the yellow pages.
Photo Courtesy of: Paul Chenoweth
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19. IDENTIFYING CONSUMER GOODS CLASSIFICATIONS
Marketing Different Classes of Consumer Goods and Services
IDENTIFYING CONSUMER GOODS CLASSIFICATIONS
LG2
How would you classify these consumer products?
Beautyrest mattress
Honda Accord
McDonald’s Big Mac
Rolls Royce automobiles
Oreo Cookies
Harvard University degree
See Learning Goal 2: Identify the various kinds of consumer and industrial goods.
Identifying Consumer Goods Classifications:
Beautyrest mattress - shopping good
Honda Accord - shopping good
McDonald’s Big Mac - convenience good
Rolls Royce automobiles - specialty good
Oreo Cookies - convenience good
Harvard University degree - specialty good
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20. CLASSIFYING INDUSTRIAL GOODS and SERVICES
Marketing Industrial Goods and Services
LG2
Industrial Goods -- Products used in the production of other products and sold in the B2B market.
Industrial goods include:
Installations
Capital items
Accessory equipment
Supplies
Service
See Learning Goal 2: Identify the various kinds of consumer and industrial goods.
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21. USES of PACKAGING
Packaging Changes the Product
LG3
Companies often use packaging to change and improve their basic product. Examples include:
Microwave popcorn
Tuna pouches
McDonald’s green packaging
See Learning Goal 3: Summarize the functions of packaging.
Good packaging can also make a product more attractive to retailers.
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22. SOME KEY FUNCTIONS of PACKAGING
Packaging Changes the Product
SOME KEY FUNCTIONS of PACKAGING
LG3
To attract buyers’ attention
Protect the goods inside and be tamperproof
Be easy to open
Describe and give information about the product
Explain the product’s benefits
Provide warranty information and warnings
Give an indication of price, value, and uses
See Learning Goal 3: Summarize the functions of packaging.
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23. BUNDLING
The Growing Importance of Packaging
LG3
Bundling -- Grouping two or more products together and pricing them as a unit.
Virgin Airlines bundles door-to-door limo service and inflight massage with some tickets.
Financial institutions bundle advice with purchases.
See Learning Goal 3: Summarize the functions of packaging.
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24. BRANDING
Branding and Brand Equity
LG4
Brand -- Name, symbol, or design that identifies the goods or services and distinguishes them from competitors’ offerings.
Trademark -- A brand that has exclusive legal protection for both its brand name and design.
See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.
Recognized trademarks include the Nike Swoosh, the Pillsbury Doughboy, and Apple’s Apple.
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25. WHAT’S in a NAME? Product Name Why? Blackberry
The “B” sounds relaxing and the “Y” sounds friendly.
Oreo
The bookending “O”s mirror the shape of the cookie.
Viagra
V is for vigor, vitality, virile and victory.
Wii
The double ii symbolizes two players as does the pronunciation.
See Learning Goal 7: Identify various pricing objectives and strategies.
What’s in a Name?
Product names are not decided on lightly.
Many companies seek professional advice regarding corporate identity.
Source: Bloomberg Businessweek, October 21, 2010.
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26. Photo Courtesy of: Joe Mudd
KEY BRAND CATEGORIES
Branding and Brand Equity
LG4
Manufacturers’ Brands – Brand names of manufacturers that distribute products nationally.
Dealer (Private-Label) Brands -- Products that carry a retailer’s or distributor’s brand name instead of the manufacturer.
See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.
Manufacturers’ brand examples - Ford, Microsoft, Xerox
Dealer brand example - Kenmore from Sears
Photo Courtesy of: Joe Mudd
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27. KEY BRAND CATEGORIES
Branding and Brand Equity
LG4
Generic Goods -- Nonbranded products that sell at a discount compared to manufacturers’ or dealers’ brands.
Knockoff Brands -- Illegal copies of national brands.
See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.
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28. ESTABLISHING BRAND EQUITY and LOYALTY
Generating Brand Equity and Loyalty
ESTABLISHING BRAND EQUITY and LOYALTY
LG4
Brand Equity – The value of the brand name and associated symbols.
Brand Loyalty -- The degree to which consumers are satisfied and are committed to further purchases.
See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.
Brand equity is the combination of factors (awareness, loyalty, perceived quality, images, and emotions) that people associate with a brand name.
Examples: Coca-Cola and Ziploc have strong brand equity.
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29. MOST VALUABLE BRANDS Brand Value Apple $57.4 billion Microsoft
Generating Brand Equity and Loyalty
MOST VALUABLE BRANDS
LG4
Brand
Value
Apple
$57.4 billion
Microsoft
$56.6 billion
Coca-Cola
$55.4 billion
IBM
$43 billion
Google
$39.7 billion
McDonald’s
$35.9 billion GE
$33.7 billion
Marlboro
$29.1 billion
Intel
$28.6 billion
Nokia
$27.4 billion
See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.
Most Valuable Brands
This slide lists the 10 most valuable brands according to Forbes.
As you can see, six of the most valuable brands are tech companies.
Source: Forbes, August 30, 2010.
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30. BUILDING BRAND AWARENESS
Generating Brand Equity and Loyalty
LG4
Brand Awareness -- How quickly or easily a given brand name comes to mind when someone mentions a product category.
Consumers reach a point of brand preference when they prefer one brand over another.
When consumers reach brand insistence, they will not accept substitute brands.
See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.
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31. BUILDING BRAND ASSOCIATIONS
Creating Brand Associations
& Brand Management
BUILDING BRAND ASSOCIATIONS
LG4
Brand Association -- Linking a brand to other favorable images, like celebrities or a geographic area.
Brand Manager -- Person responsible for a particular brand and handles all the elements of the brand’s marketing mix.
See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.
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32. The NEW PRODUCT DEVELOPMENT PROCESS
LG5
See Learning Goal 5: Explain the steps in the new product development cycle.
Green Ketchup and New Coke are two of the many thousands of products that failed. New product failure is common due to the fact that companies fail to properly manage the new product development process.
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33. BRINGING NEW PRODUCTS to the MARKET
Product Screening & Analysis
BRINGING NEW PRODUCTS to the MARKET
LG5
Product Screening -- Reduces the number of new products a firm is working on to focus on the most promising.
Product Analysis -- Focuses on the cost estimates and sales forecasts to get an idea of potential profitability.
See Learning Goal 5: Explain the role of brand managers and the steps of the new-product development process.
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34. BRINGING NEW PRODUCTS to the MARKET
Product Development and Testing
BRINGING NEW PRODUCTS to the MARKET
LG5
Concept Testing -- Takes a product idea to consumers to test reactions.
Commercialization -- Promoting the product to distributors and retailers and developing the promotional campaign.
See Learning Goal 5: Explain the role of brand managers and the steps of the new-product development process.
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35. FOUR STAGES in the PRODUCT LIFE CYCLE
LG6
Product Life Cycle -- A theoretical model of what happens to sales and profits for a product over time.
Product Life Cycle Stages:
Introduction
Growth
Maturity
Decline
See Learning Goal 6: Describe the product life cycle.
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36. SALES and PROFITS DURING the PRODUCT LIFE CYCLE
LG6
See Learning Goal 6: Describe the product life cycle.
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37. PRICING OBJECTIVES Achieving a target return on investment or profit
Competitive Pricing
LG7
Achieving a target return on investment or profit
Building traffic
Achieving greater market share
Creating an image
Furthering social objectives both short-run and long-run
See Learning Goal 7: Identify various pricing objectives and strategies.
One strategy many students have experienced but might not fully understand is the loss leader strategy. This strategy is often used around the Thanksgiving holiday when grocery stores offer to sell customers turkeys for much less than their actual cost in an effort to attract consumers into the store. This leads to more traffic and sales of more products.
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38. PRICING STRATEGIES
Competitive Pricing
LG7
Cost-based pricing measures cost of producing a product including materials, labor, and overhead.
Target Costing – Designing a product that satisfies customers and meets the firm’s targeted profit margins.
Competition-Based Pricing -- A strategy based on what the competition is charging for its products.
See Learning Goal 7: Identify various pricing objectives and strategies.
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39. USING BREAK-EVEN ANALYSIS
LG7
Break-Even Analysis -- The process used to determine profitability at various levels of sales. The break-even point is where revenues equals cost.
Total Fixed Costs -- All costs that remain the same no matter how much is produced or sold.
Variable Costs -- Costs that change according to the level of production.
See Learning Goal 7: Identify various pricing objectives and strategies.
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40. PRICING ALTERNATIVES
Other Pricing Strategies
LG7
Skimming Price Strategy -- Pricing new products high to recover costs and make high profits while competition is limited.
Penetration Price Strategy -- Pricing products low with the hope of attracting more buyers and discouraging other companies from competing in the market.
Everyday Low Pricing (EDLP) -- Setting prices lower than competitors with no special sales.
See Learning Goal 7: Identify various pricing objectives and strategies.
When Apple introduced the iPhone, they used a skimming price strategy. Walmart has effectively used everyday low pricing or EDLP to dominate the retail sector.
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41. PRICING STRATEGIES of RETAILERS
Other Pricing Strategies
LG7
High-Low Pricing -- Using regular prices that are higher than EDLP stores except during special sales when they are lower.
Psychological Pricing -- Pricing products at price points that make a product seem less expensive than it is.
See Learning Goal 7: Identify various pricing objectives and strategies.
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42. IN CONCLUSION
Progress Assessment
What’s the difference between a product line and a product mix?
Name the four classes of consumer goods and services and give examples of each.
What’s the difference between a brand name and a trademark?
What’s the theory of the product life cycle?
Short-term pricing objectives include loss leaders and is designed to build traffic as well as achieving greater market share. Long-term pricing objectives include achieving a target return on investment and creating a certain image. It is important that marketing managers set pricing objectives in context of other marketing decisions, since the pricing objectives may differ greatly.
The limit of a cost-based pricing system is that in the long run it is not the producer that establishes price but rather the market place. To effectively establish price, the producer must take into account competitor prices, marketing objectives, actual cost, and the expected cost of product updates.
Psychological pricing involves setting the price of goods or services at price points that make the product appear less expensive. For example, a TV may be priced at $999, since it sounds less expensive than $1,000.
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