Chapter14.

Developing and Pricing Goods and Services

CHAPTER14
DEVELOPING AND PRICING GOODS AND SERVICES
1.1. PowerPoint Slide notes
Learning objectives Key terms
1. Describe a total product offer. Value
distributed product development
total product offer
product line
product mix
2. Identify the various kinds of consumer and industrial goods. product differentiation convenience
goods and services
shopping goods and services
specialty goods and services
unsought goods and services
industrial goods
3. Summarize the functions of packaging. bundling
4. Contrast brand, brand name, and trademark, and show the brand
value of brand equity. trademark
manufacturers’ brand
dealer (private-label) brand
generic goods
knockoff brand
brand equity
brand awareness
brand association
brand manager

5. Explain the steps in the new-product development process. product screening

product analysis
concept testing
commercialization
6. Describe the product life cycle. product life cycle
7. Identify various pricing objectives and strategies. target costing
competition-based pricing
price leadership
break-even analysis
total fixed costs
variable costs
skimming price strategy
penetration strategy
everyday low pricing (EDLP)
high-low pricing strategy
psychological pricing

1.2. EXERCISES
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Chapter14. Developing and Pricing Goods and Services
1.2.1. Knowing and understandingkey terms
Match the keyterms in column A with the suitable definitions in column B.
A. Key terms
LO1:
Value D
distributed product development
E something.
total product offer B
product line A
product mix C
LO2:
product differentiation B
convenience goods and services
C C. Products consumers purchase frequently with minimal effort
shopping goods and services A
specialty goods and services D
unsought goods and services F
industrial goods E
LO3, LO5 and LO6:
Bundling A
product screening F
product analysis B
concept testing E
commercialization C
product life cycle D
LO4:
brand C
trademark A
manufacturers’ brand D
dealer (private-label) brand B
generic goods E
knockoff brand B
brand equity A
brand awareness D
brand association E
brand manager C
LO7:
target costing C
B. Definitions
A. A group of products that are physically similar or intended for a
similar market.
B. Everything consumers evaluate when deciding whether to buy
C. The combination of all product lines offered by a manufacturer or
service provider.
D. Good quality at a fair price.
E. The handing off of various parts of your innovation process -
often overseas.
A. Products consumers buy only after comparing value, quality,
price, and styles.
B. The creation of real or perceived product differences.
D. Products with unique characteristics and brand identity.
E. Products used in the production of other products and sold in the
B2B market.
F. Products consumers aren’t aware of or haven’t thought of buying
until they need them.
A. Grouping two or more products together and pricing them as a
unit.
B. Focuses on the cost estimates and sales forecasts to get an idea of
potential profitability.
C. Promoting the product to distributors and retailers and developing
the promotional campaign.
D. A theoretical model of what happens to sales and profits for a
product over time.
E. Takes a product idea to consumers to test reactions.
F. Reduces the number of new products a firm is working on to
focus on the most promising.
A. A brand that has exclusive legal protection for both its brand
name and design.
B. Products that carry a retailer’s or distributor’s brand name instead
of a manufacturer’s.
C. Name, symbol, or design that identifies the goods or services and
distinguishes them from competitors’ offerings.
D. Brand names of manufacturers that distribute products nationally.
E. Nonbranded products that sell at a discount compared to
manufacturers’ or dealers’ brands.
A. The value of the brand name and associated symbols.
B. Illegal copies of national brands.
C. Person responsible for a particular brand and handles all the
elements of the brand’s marketing mix.
D. How quickly or easily a given brand name comes to mind when
someone mentions a product category.
E. Linking a brand to other favorable images, like celebrities or a
geographic area.
A. A strategy based on what the competition is charging for its
products.
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Chapter14. Developing and Pricing Goods and Services
competition-based pricing A
price leadership F
break-even analysis D
total fixed costs B
variable costs E
skimming price strategy B
penetration strategy C
everyday low pricing (EDLP) A
high-low pricing strategy E
psychological pricing D
B. All costs that remain the same no matter how much is produced
or sold.
C. Designing a product that satisfies customers and meets the firm’s
targeted profit margins.
D. The process used to determine profitability at various levels of
sales. The break-even point is where revenue equals cost.
E. Costs that change according to the level of production.
F. The strategy by which oneor more dominant firms setthe pricing
practices that allcompetitors in an industryfollow.
A. Setting prices lower than competitors with no special sales.
B. Pricing new products high to recover costs and make high profits
while competition is limited.
C. Pricing products low with the hope of attracting more buyers and
discouraging other companies from competing in the market.
D. Pricing products at price points that make a product seem less
expensive than it is.
E. Using regular prices that are higher than EDLP stores except
during special sales when they are lower.

True / False questions. Read the following statements and decide whether they are true or false.

1. When consumers calculate the value of a product, they look at the benefits and then subtract the
cost. True/ False

2. In order for product differentiation to be effective, real product differences must be identified so
that one product is clearly better than others. True/ False

3. Packaging is an important part of the total product offer. True/ False

4. A brand includes practically all means of identifying a product. True/ False

5. New-product failures are most often caused by excessively high prices. True/ False

6. Successful businesses develop a mix of price, product, place, and promotion that is consistently
applied throughout a product's life cycle. True/ False

7. The pricing objectives of a firm should be set independently of the other elements of their
marketing mix. True/ False

8. The concepts of product lines and product mixes apply to marketers of products and
services. True/ False

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Chapter14. Developing and Pricing Goods and Services
9. Newspapers are sold daily in a wide variety of locations. This widespread distribution suggests
that newspapers are classified as convenience goods. True/ False

10. Federal legislation requires that the brand name of a product clearly identify the manufacturer
of that product. True/ False

Multiple choicequestions.Choose the correct answer (A, B, C or D)

1. Whether a consumer thinks a product provides the best value depends upon: 
A. the actual product benefits.
B. the consumer's perceptions.
C. the global situation.
D. the laws covering the product's manufacture.
2. Location is very important in the marketing of ________ because consumers desire to purchase
these goods with a minimum of shopping effort. 
A. unsought goods
B. shopping goods
C. specialty goods
D. convenience goods
3. Today, packaging is: 
A. the least important component of the marketing mix.
B. assuming an increasingly important role in the promotion of products.
C. exclusively intended to protect the product from damage.
D. the most expensive component of the production process.
4. A brand that has been given exclusive legal protection, such as the McDonald's golden arches, is
a: 
A. private brand.
B. promotional mark.
C. dealer brand.
D. trademark.
5. A leading cause of new-product failure is: 
A. insufficient competition.
B. product promises that are not delivered.
C. the automation of the product development process.
D. excessive product differentiation.
6. During the ________ stage of the product life cycle sales reach a peak, profits are declining, and
the number of competitors starts to decrease. 
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Chapter14. Developing and Pricing Goods and Services
A. growth
B. maturity
C. saturation
D. decline
7. The rent a firm pays each month for office space is an example of a(n): 
A. fixed cost.
B. variable cost.
C. mixed cost.
D. uncontrollable cost.
8. When consumers decide to purchase a particular product, they: 
A. will search for the retailer that offers the lowest price.
B. consider the total collection of benefits that the product offers.
C. base their decision on a brand name nearly all of the time.
D. initially evaluate the product's package.
9. Which of the following would a firm most likely use to differentiate its product? 
A. financial differences
B. increased production
C. elaborate packaging
D. manual warehousing
10. Certain brand names, such as Kleenex and Xerox, fear they could become _________, because
they are so commonly identified with a specific product category that consumers use these names
to refer to any product in that category regardless of the manufacturer. 
A. family brands
B. generic names
C. universal products
D. knockoff names

1.2.2. Questions and Answers

Helping terms With the assistance of the terms in the left column, fill in the blanks to
answer the following questions. Please note that in some cases, you mustuse
your own words.

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Chapter14. Developing and Pricing Goods and Services
Promoting 1. What are the key elements of brand equity?
Convenience goods and Brand equity is the value of the brand name and associated symbols. The
services elements of brand equity include: brand ___ Awareness___, brand ___
Product analysis Association ____, and brand ___ Loyalty_____.
Loyalty
Specialty goods and 2. Name the four classes of consumer goods and services The four
services classes of consumer goods and services include:
Product screenings  Convenience goods and services - candy, gum and milk
Growth  Shopping goods and services - clothes, shoes and appliances
Shopping goods and  Specialty goods and services - fur coats, imported chocolates and business
services consultants
Maturity  Unsought goods and services- burial service, insurance and emergency drain
Awareness cleaning
Development
Unsought goods and 3. What are the six steps in the new-product development process?
services The six steps in the new-product development process include: Idea
Association generation, development, Product screenings, testing, Product analysis, and
commercialization.

4. What are the two steps in commercialization?

The two steps in commercialization involve Promoting the product to
distributors and retailers, and the Development of strong advertising and sales
campaigns.

5. What’s the theory of the product life cycle?

The product life cycle is a theoretical model which explains what happens to
sales and profit for a product over a particular period of time. This model has
four stages: introduction, Growth, Maturity, and decline.

1.2.3. Classroom activities

1.2.4. Case study discussion