*Chapter

Fourteen

*
Developing
and Pricing
Goods and
Services

McGraw-Hill/Irwin

Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

RATAN TATA

*
Profile

The Tata Group

Ratan Tata introduced the $2,500 Peoples Car

in 2008.
Tata Motors is part of the growing auto market in
India - possibly the futures largest market.
Tata expanded in 2008
by purchasing Jaguar
and Range Rover from
Ford.
14-2

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.
14-3

PRODUCTS UNTOUCHABLE
by SPENDING CUTS

Product
Development and
the Total Product
Offer

LG1

Internet service
Cell phone service
Cable television
Discount apparel
Haircuts and coloring
Fast-food
Source: www.bigresearch.com.

14-4

PRODUCTS EXPENDABLE
by SPENDING CUTS

Product
Development and
the Total Product
Offer

LG1

Luxury handbags
Satellite radio
Specialty apparel
High-end cosmetics
Facials

Source: www.bigresearch.com.

14-5

HOME COOKING in
HALF the TIME

*
*

Spotlight on Small Business

Lets Dish and Dream Dinners provides a service

where customers prepare meals then bring them
home.
The companies
provide a place to
meet, has supplies
and relieves the
stress and mess for
its customers.
14-6

DEVELOPING a
TOTAL PRODUCT

*Developing a

Total Product
Offer
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
whats important.
14-7

PRODUCT INNOVATION DURING

the GREAT DEPRESSION
Year

Product

1929

Electric Razors

1930

Car Radios

1930

Supermarkets

1933

Chocolate Chip Cookies

1933

Laundromats

*Developing a

Total Product
Offer
LG1

Source: BusinessWeek Small Biz.

14-8

POTENTIAL COMPONENTS
of a TOTAL PRODUCT OFFER

*Developing a

Total Product
Offer
LG1

14-9

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:

- M&Ms
- Peanut M&Ms
- Mint M&Ms
- Dark Chocolate M&Ms

14-10

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 Proctor & Gambles can be

extensive:
- Laundry detergent
- Cosmetics
- Diapers
- Potato chips
- Bar soap
14-11

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
14-12

CLASSIFYING CONSUMER
GOODS and SERVICES

Marketing Different
Classes of
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

14-13

CLASSIFYING SHOPPING
GOODS and SERVICES

Marketing Different
Classes of
Consumer 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

14-14

CLASSIFYING SPECIALTY
GOODS and SERVICES

Marketing Different
Classes of
Consumer 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

14-15

CLASSIFYING UNSOUGHT
GOODS and SERVICES

Marketing Different
Classes of
Consumer Goods
and Services

LG2

Unsought Goods and Services -- Products

consumers arent aware of or havent thought of
buying until they need them. These include:
- Car-towing services
- Funeral services
- Renters insurance

14-16

IDENTIFYING CONSUMER
GOODS CLASSIFICATIONS

Marketing Different
Classes of
Consumer Goods
and Services

LG2

How would you classify these consumer

products?
- Beautyrest mattress
- Honda Accord
- McDonalds Big Mac
- Rolls Royce automobiles
- Oreo Cookies
- Harvard University degree
14-17

ODD PRODUCT IDEAS

that WERE SUCCESSFUL

Marketing Different
Classes of
Consumer Goods
and Services

LG2

Pet Rock - For $3.95 you could buy a gift-wrapped

rock with eyes and a training manual.

Garbage Pail Kids - Perhaps the grossest trading

cards ever produced.

Mood Rings - Wildly popular as the changing colors

of the ring supposedly measured your mood.

Chia Pets - Animal shaped clay figures that grew

sprouts.

14-18

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
14-19

PROGRESS ASSESSMENT

*Progress

Assessment

*
What value enhancers may be included in a total
product offer?
Whats the difference between a product line and
a product mix?
Name the four classes of consumer goods and
services and give examples of each.
Describe three different types of industrial goods.
14-20

COMPANY 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
- McDonalds green packaging

Good packaging can also make

a product more attractive to
retailers.
14-21

SOME KEY FUNCTIONS of

PACKAGING

*Packaging

Changes the
Product
LG3

To attract buyers attention

Protect the goods inside and be tamperproof
Describe and provide information about the
product
Explain the products benefits
Provide warranty information and warnings
Give an indication of price, value, and uses
14-22

UNDERSTANDING 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.

14-23

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 retailers or distributors brand name instead of

a manufacturers.

14-24

KEY BRAND CATEGORIES

*Branding and
Brand Equity

LG4

Generic Goods -- Non-branded products that sell at

a discount compared to manufacturers or dealers
brands.

Knockoff Brands -- Illegal copies of national

brands.

14-25

ESTABLISHING BRAND EQUITY

and LOYALTY

*Generating

Brand Equity
and Loyalty

LG4

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.

14-26

ORIGINS of
AUTOMOBILE SYMBOLS

*Generating

Brand Equity
and Loyalty
LG4

Volvo - Symbol for iron

Lamborghini - Company founders was a

Taurus
Volkswagen - Product of an office
contest
Porsche - Coat of arms for city and state
headquarters
Source: World Features Syndicate.

14-27

COULDNT YOU MAKE a

SMALLER FOOTPRINT?

*
*

(Thinking Green)

Timberland (U.S.A.) is putting a carbon label on

its products.
Tesco (U.K.) puts carbon labels on all products including grocery bags.
China and India, though, are building coalpowered plants and expanding car-use.
The focus on climate change varies from country
to country.
14-28

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.

14-29

BUILDING BRAND
ASSOCIATIONS

*Generating

Brand Equity
and Loyalty
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

brands marketing mix.

14-30

PROGRESS ASSESSMENT

*Progress

Assessment

*
What six functions does packaging now perform?
Whats the difference between a brand name and
a trademark?
Explain the difference between a manufacturers
brand, a dealer brand, and a generic brand.
What are the key elements of brand equity?
14-31

The NEW PRODUCT

DEVELOPMENT PROCESS

The New
Product
Development
Process

LG5

14-32

BRINGING NEW PRODUCTS

to the MARKET

The New
Product
Development
Process

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.

14-33

BRINGING NEW PRODUCTS

to the MARKET

The New
Product
Development
Process

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.

14-34

The FOUR STAGES of a

PRODUCT LIFE CYCLE

*The Product
Life Cycle
LG6

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
14-35

SALES and PROFITS DURING

the PRODUCT LIFE CYCLE

*The Product
Life Cycle
LG6

14-36

PROFITS BEYOND the GRAVE

Top Earning Deceased Celebrities

Celebrity

Earnings

Year of Death

Elvis Presley

$52 Million

1977

Charles Schultz

$33 Million

2000

Heath Ledger

$20 Million

2008

Albert Einstein

$18 Million

1955

Aaron Spelling

$15 Million

2006

Dr. Seuss

$12 Million

1991

John Lennon

$9 Million

1980

*The Product
Life Cycle
LG6

Source: Forbes, www.forbes.com/deadcelebs.

14-37

PROGRESS ASSESSMENT

*Progress

Assessment

*
What are the six steps in the new-product
development process?
Whats the difference between product screening
and product analysis?
What are the two steps in commercialization?
Whats the theory of the product life cycle?
14-38

PRICING OBJECTIVES

*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
14-39

PRICING STRATEGIES

*Competitive
Pricing

LG7

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.

14-40

WHEN SELLING SWEETS

GOES SOUR

(Reaching Beyond Our Borders)

Choco-Logo saw its costs increase dramatically

in one year.
The company cut back by using less expensive
packaging and reducing the size of a box of
chocolates.
Pricing is a process thats
never simple. You need to
maintain high quality while
cutting costs.
14-41

USING BREAK-EVEN ANALYSIS

*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.

14-42

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.

14-43

PRICING STRATEGIES
of RETAILERS

*Other Pricing
Strategies

LG7

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.

14-44

PROGRESS ASSESSMENT

*Progress

Assessment

*
List two short-term and two long-term pricing
objectives. Can the two be compatible?
What are the limitations of a cost-based pricing
system?
Whats psychological pricing?

14-45