1. * * Chapter Fourteen Developing and Pricing Goods and Services Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. * * The New Product Development Process The NEW PRODUCT DEVELOPMENT PROCESS LG5 14-2

3. * * 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. BRINGING NEW PRODUCTS to the MARKET LG5 The New Product Development Process 14-3

4. * * Concept Testing -- Takes a product idea to consumers to test reactions. BRINGING NEW PRODUCTS to the MARKET LG5 The New Product Development Process Commercialization -- Promoting the product to distributors and retailers and developing the promotional campaign. 14-4

5. * * The Product Life Cycle Product Life Cycle -- A theoretical look at what happens to sales and profits for a product over time. Product Life Cycle Stages: 1. Introduction 2. Growth 3. Maturity 4. Decline The FOUR STAGES of a PRODUCT LIFE CYCLE LG6 14-5

6. * * Product Lines & Product Mix Product Line -- A group of products that are physically similar or intended for a similar market. Product lines often include competing brands like:  M&Ms  Peanut M&Ms  Mint M&Ms  Dark Chocolate M&Ms UNDERSTANDING PRODUCT LINES LG1 14-6

7. * * Product Lines & Product Mix Product Mix -- The combination of all product lines offered by a manufacturer or service provider. Product mixes like Proctor & Gamble’s can be extensive:  Laundry detergent  Cosmetics  Diapers  Potato chips  Bar soap The PRODUCT MIX LG1 14-7

8. * * Product Differentiation 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 DIFFERENTIATING PRODUCTS LG2 14-8

9. * * Marketing Different Classes of Consumer Goods and Services Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include:  Candy and snacks  Gas  Milk and eggs CLASSIFYING CONSUMER GOODS and SERVICES LG2 14-9

10. * * Marketing Different Classes of Consumer Goods and Services 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 CLASSIFYING SHOPPING GOODS and SERVICES LG2 14-10

11. * * Marketing Different Classes of Consumer Goods and Services Specialty Goods and Services -- Products with unique characteristics and brand identity. These include:  Tiffany jewelry  Rolex watches  Lamborghini automobiles  Ritz Carlton Hotels CLASSIFYING SPECIALTY GOODS and SERVICES LG2 14-11

12. * * Marketing Different Classes of Consumer Goods and Services Unsought Goods and Services -- Products consumers aren’t aware of or haven’t thought of buying until they need them. These include:  Car-towing services  Funeral services  Renter’s insurance CLASSIFYING UNSOUGHT GOODS and SERVICES LG2 14-12

13. * * Marketing Industrial Goods and Services 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 CLASSIFYING INDUSTRIAL GOODS and SERVICES LG2 14-13

14. * * Packaging Changes the Product Companies often use packaging to change and improve their basic product. Examples include:  Microwave popcorn  Tuna pouches  McDonald’s green packaging COMPANY USES of PACKAGING LG3 Good packaging can also make a product more attractive to retailers. 14-14

15. * * Packaging Changes the Product To attract buyers’ attention Protect the goods inside and be tamperproof Describe and provide information about the product Explain the product’s benefits Provide warranty information and warnings Give an indication of price, value, and uses SOME KEY FUNCTIONS of PACKAGING LG3 14-15

16. * * Branding and Brand Equity Brand -- Name, symbol, or design that identifies the goods or services and distinguishes them from competitors’ offerings. UNDERSTANDING BRANDING LG4 Trademark -- A brand that has exclusive legal protection for both its brand name and design. 14-16

17. * * Branding and Brand Equity 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 a manufacturer’s. KEY BRAND CATEGORIES LG4 14-17

18. * * Branding and Brand Equity Generic Goods -- Non-branded products that sell at a discount compared to manufacturers’ or dealers’ brands. Knockoff Brands -- Illegal copies of national brands. KEY BRAND CATEGORIES LG4 14-18

19. * * Generating Brand Equity and Loyalty Brand Equity – The combination of factors (awareness, loyalty, perceived quality, images, and emotions) that people associate with a brand name. Brand Loyalty -- The degree to which consumers are satisfied and are committed to further purchases. ESTABLISHING BRAND EQUITY and LOYALTY LG4 14-19

20. * * Generating Brand Equity and Loyalty 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. BUILDING BRAND AWARENESS LG4 14-20

21. * * Generating Brand Equity and Loyalty 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. BUILDING BRAND ASSOCIATIONS LG4 14-21

22. * * Competitive Pricing 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 PRICING OBJECTIVES LG7 14-22

23. * * Competitive Pricing Cost-based pricing measures cost of producing a product including materials, labor, and overhead. Target Costing -- Making the final price of a product an input in the product development process by estimating the selling price consumers will pay. Competition-Based Pricing -- A strategy based on what the competition is charging for its products. PRICING STRATEGIES LG7 14-23

24. * * Other Pricing Strategies 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. PRICING ALTERNATIVES LG7 14-24

25. * * Other Pricing Strategies High-Low Pricing -- Using regular prices that are higher than EDLP 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. PRICING STRATEGIES of RETAILERS LG7 14-25

26. * * Break-Even Analysis 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. USING BREAK-EVEN ANALYSIS LG7 14-26