Chapter

12
ORBIS
LANDAU /C
© ROBERT

NightLife Film Company’s perfor-

mance is highly dependent on the
products (films) it creates, and the
prices that it charges for them.

The Learning Goals

of this chapter are to:
Define product line and product mix
and identity the phases of the
product life cycle. 1
Identify the main factors that affect
a product’s target market. 2
Identify the steps involved in
creating a new product. 3
Explain the common methods used
to differentiate a product. 4
Identify the factors that influence
the pricing decision. 5
448
Discuss other pricing decisions
that a firm may make. 6
Creating and Pricing Products
Product strategies dictate the
types of products that a firm cre-
ates to satisfy customers, whereas
pricing strategies determine the
prices to be charged for those
products. Both strategies influence
the demand for the products pro-
duced by the firm and therefore
determine the amount of revenue
that the firm will generate over a
particular period. Consider the sit-
uation of NightLife Film Company,
which produces science fiction
films that are shown in movie the-
aters. In the past, most of its films
were targeted to moviegoers rang-
ing in age from 14 to 25 years old.
When NightLife plans the produc-
tion of new films, it must decide:
왘 What types of consumers (tar-
get market) will pay to see its
films?
Pricing
Strategies
Product
Strategies
왘 What steps must it take to cre-
ate new films (products)?
왘 How can it differentiate its
films from the films produced
by its competitors?
왘 What is the life cycle of its
films?
왘 When it creates DVDs for its
films, what price should it
charge?
왘 Should it consider price dis-
counts for some customers?
If NightLife can successfully deter-
mine the target market that will be
interested in its films, it can focus
its advertising on those customers.
NightLife needs to differentiate its
business from others to attract
customers. If it can sustain the
popularity of its product (and
Firm’s
Revenue
Firm’s Cost Firm’s
of Production Expenses
therefore the demand) over a long
period of time, it will generate
more revenue. Its pricing decisions
on the films’ DVDs are also impor-
tant because those prices will
affect the amount of revenue
generated from selling DVDs.
The types of decisions described
here are necessary for all busi-
nesses. This chapter explains how
the product and pricing decisions
by NightLife Film Company or any
other firm can be conducted in a
manner that maximizes the firm’s
value.
Firm’s
Profits
and Value
449
450 PA R T V MARKETING
1 Background on Products
Define product line
and product mix and
identify the phases of
the product life cycle.
product
a physical good or service that can
satisfy consumer needs
convenience products
products that are widely available
to consumers, are purchased fre-
quently, and are easily accessible
shopping products
products that are not purchased
frequently
specialty products
products that specific consumers
consider to be special and there-
fore make a special effort to
purchase
product line
a set of related products or services
offered by a single firm
product mix
the assortment of products offered
by a firm
The term product can be broadly defined to include both physical goods
and services that can satisfy consumer needs. Firms must continually im-
prove existing products and develop new products to satisfy customers
over time. In this way, firms generate high sales growth, which normally
increases their value.
Most products produced to serve consumers can be classified as (1)
convenience products, (2) shopping products, or (3) specialty products.
Convenience products are widely available to consumers, are purchased
frequently, and are easily accessible. Milk, newspapers, soda, and chewing
gum are examples of convenience products.
Shopping products differ from convenience products in that they are
not purchased frequently. Before purchasing shopping goods, consumers
typically shop around and compare the quality and prices of competing
products. Furniture and appliances are examples of shopping products.
Specialty products are products that specific consumers consider to be
special and therefore make a special effort to purchase. A Rolex watch and
a Jaguar automobile are examples of specialty products. When evaluating
specialty products, consumers base their purchasing decision primarily on
personal preference, not on comparative pricing.
Product Line
A product line is a set of related products or services offered by a single
firm. For example, Coke, Diet Coke, Caffeine-Free Diet Coke, and Sprite
are all part of a single product line at The Coca-Cola Company. Pepsi, Diet
Pepsi, Mountain Dew, and All-Sport are all part of a single product line at
PepsiCo.
A product line tends to expand over time as a firm identifies other con-
sumer needs. The Coca-Cola Company recognizes that consumers differ
with respect to their desire for a specific taste, caffeine versus no caffeine,
and diet versus regular. It has expanded its product line of soft drinks to
satisfy various needs. Procter & Gamble has added different versions of its
Tide detergent such as Tide with Bleach to its product line over time, while
Taco Bell has added various low-fat food items to its menus.
Product Mix
The assortment of products offered by a firm is referred to as the product
mix. Most firms tend to expand their product mix over time as they iden-
tify other consumer needs or preferences. Before firms add more products
to their product mix, they should determine whether a demand for new
products exists and whether they are capable of efficiently providing those
products. A firm may even decide to discontinue one of the products in its
product mix.
Examples of a Product Mix Quaker State originally focused on motor oil but
added windshield washer fluid, brake fluid, and many other automobile
products to its product mix. Amazon.com originally focused on selling
books, but has added electronics, toys, music, kitchen products, drugs,
and health and beauty products. The product mix of Liz Claiborne, Inc.,
includes clothing for women, jewelry, fashion accessories, and clothing
for men.