Chapter 14- Developing and Pricing Goods and Services

What are the limitations of a cost-based pricing strategy?

Cost-based pricing uses production costs and the desired profit margin to create a price. The limitation of this strategy is whether the price will be satisfactory to the market as well.

trademark

a brand that has exclusive legal protection for both is brand name and its design

brand awareness

how quickly or easily a given brand name comes to mind when a product category is mentioned

knockoff brands

illegal copies of national national brand-name goods

product analysis

making cost estimates and sales forecasts to get a feeling for profitability of new-product ideas

generic goods

non branded products that usually see at a sizable discount compared to national or private-label brands

psychological pricing

pricing goods and services at price points that make the product appear less expensive than it is

convenience goods and services

products that consumer wants to purchase frequently and with a minimum effort

unsought goods and services

products that consumers are unaware of, haven't necessarily thought of buying, or find that they need to solve an unexpected problem

skimming price strategy

strategy in which a new product is priced high to make optimum profit while there's little competition

penetration strategy

strategy in which a product is priced low to attract many customers and discouraged competition

concept testing

taking a product idea to consumers to test their reactions

manufacturer's brands

the brand names of manufacturers that distribute products nationally

product mix

the combination of product lines offered by a manufacturer

break-even analysis

the process used to determine profitability at various levels of sales

price leadership

the strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow

brand equity

the value of the brand name and associated symbols

Why do companies use nonprice strategies?

Pricing is one of the easiest marketing strategies to copy. It's often not a good long-run competitive tool.

What's the difference between a brand name and a trademark?

A brand is a name, symbol, or design (or combination thereof) that identifies the foods or services of one seller or group of sellers and distinguishes them from the goods and services of competitors. The word brand includes all means of identifying a product. A brand name consists of a word, letter, or group of words or letters that differentiates one seller's goods and services from those of competitors. A trademark is a brand that has exclusive legal protection for both its brand name and design.

Can you explain the difference between a manufacturer's brand, a dealer brand, and a generic brand?

A manufacturer's brand is the brand names of manufactures that distribute nationally like Dell or Xerox. Dealer (private-lable) brands are products that don't carry the manufacturer's name but carry a distributor or retailer's name instead such as Bayer Aspirin. Generic brands are non branded products that usually sell at a sizable discount compared to national or private-label brands like Great Value.

competition-based pricing

A pricing strategy based on what all the other competitors are doing. The price can be set at, above, or below competitor's prices.

What's the difference between a product line and a product mix?

A product line is a group of physically similar products with similar competitors. A product line of gum may include bubble gum and sugarless gum. A product mix is a company's combination of product lines. A manufacturer may of lines of gum, candy bars, and breath mints in its products mix.

What strategies can marketers use to determine a product's price?

A skimming strategy prices the product high to make big profits while there's little competition. A penetration strategy uses low prices to attract more customers and discourage competitors. Demand-oriented pricing starts with consumer demand rather than cost. Competition-oriented pricing is based on all competitors' prices. Price leadership occurs when all competitors follow the pricing practice of one or more dominant companies.

What value enhancers may be included in a total product offer?

A total product offer consists of everything consumers evaluate when deciding whether to buy something. It includes price, brand name, and satisfaction in use.

What are the two steps in commercialization?

Commercialization includes (1) promoting the product to distributors and retailers to get wide distribution, and (2) developing strong advertising and sales campaigns to generate and maintain interest in the product among distributors and consumers.

What are consumer goods?

Consumer goods are sold to ultimate consumers like you and me for personal use.

specialty goods and services

Consumer products with unique characteristics and brand identity. Because these products are perceived as having no reasonable substitute, the consumer puts forth a special effort to purchase them.

Can you list two short-term and two long-term pricing objectives? Can the two be compatible?

Short-term: achieving a target return on investment or profit, building traffic Mid-term: achieving greater market share Long-term: creating an image, furthering social objectives The two can in fact be compatible.

What is the theory of the product life cycle?

The product life cycle is a theoretical model of what happens to sales and profits for a product over time.

What are the four stages of the product life cycle?

The product life cycle stages are introduction, growth, maturity, and decline.

What are the six steps in the new-product development process?

The steps of product development are (1) generation of new-product ideas, (2) product screening, (3) product analysis, (4) development, (5) testing, and (6) commercialization.

brand

a name, symbol, or design (or combination thereof) that identifies the goods or services of one seller or group of sellers and distinguishes them from the goods and services of competitors

product life cycle

a theoretical model of what happens to sales and profits for a product class over time; the four stages of the cycle are introduction, growth, maturity, and decline

high-low pricing strategy

setting prices that are higher than EDLP stores, but having many special sales where the prices are lower than the competitors' prices

What is brand equity, and how do managers create brand associations?

Brand equity is the value of a brand name and associated symbols. Brand association is the linking of a brand to other favorable images such as product users, a popular celebrity, or a geographic area.

What do brand managers do?

Brand managers coordinate product, price, place, and promotion decisions for a particular product.

What is break-even analysis?

Break-even analysis is the process used to determine profitability at various levels of sales. the break-even point is the point where revenues from sales equal all costs.

target costing

Designing a product so that it satisfies customers meets the profit margins desired by the firm

value

Good quality at a far price. When consumers calculate the value of a product, they look at the benefits and then subtract the cost to see if the benefits exceed the costs

What are industrial goods, and how are they marketed differently from consumer goods?

Industrial goods are products sold in the business-to-business (B2B) market and used in the production of other products. They're sold largely through sales people and rely less on advertising.

Describe three different types of industrial goods.

Instillations consist of major capital equipment such as new factories and heavy machinery. Capital items are expensive products that last a long time. Accessory equipment consists of capital items that are not quite as long-lasting or expensive as installations--like computers, copy machines, and various tools.

What do marketers create product differentiation for their goods and services?

Marketers use a combination of pricing, advertising, and packing to make their products seem unique and attractive.

What seven functions does packaging now perform?

Packaging must (1) attract the buyer's attention; (2) protect the goods inside, stand up under handling and storage, be tamperproof, and deter theft; (3) be easy to operand use; (4) describe the contents; (5) explain the benefits of the goods inside; (6) provide information about warranties, warnings, and other consumer matters; (7) indicate price, value, and uses. Bundling means grouping two or more products into a unit, through packaging, and charging one price for them.

What are pricing objectives?

Pricing objectives include achieving a target profit, building traffic, increasing market share, creating an image, and meeting social goals

What is the difference between product screening and product analysis?

Product screening is a process designed to reduce the number of new-product ideas being worked on at any one time, whereas product analysis is making cost estimates and sales forecasts to get a feeling for profitability of a new product.

industrial goods

Products used in the production of other product. Sometimes called business goods or B2B goods.

What is psychological pricing?

Psychological pricing is pricing goods and services at price points that make the product appear less expensive than it is. A house might be priced at $299,000 because that sounds like a lot less than $300,000.

What are the key components of brand equity?

The key components of brand equity, the value of the brand name and associated symbols, are brand loyalty and brand awareness. Brand loyalty is the degree to which customers are satisfied, like the brand, and are committed to further purchases; brand awareness is how quickly a given brand name comes to mind when a product category is mentioned.

Name the four classes of consumer goods and services, and give examples of each.

There are convenience goods and services (requiring minimum shopping effort); shopping goods and services (for which people search and compare price and quality); specialty goods and services (which consumers go out of their way to get, and for which they demand specific brands); and unsought goods and services (products consumers are unaware of, haven't thought of buying, or need to solve an unexpected problem). Convenience goods and services are best promoted by location, shopping goods and services by some price/quality appeal, and specialty goods and services by specialty magazines and interactive websites.

product line

a group of products that are physically similar or are intended for a similar market

brand manager

a manager who has direct responsibility for one brand or one product line; a product manager in some firms

product screening

a process designed to reduce the number of new-product ideas being worked on at any one time

total fixed costs

all the expenses that remain the same no matter how many products are made or sold

variable costs

costs that change according to the level of production

total product offer

everything that consumers evaluate when deciding whether to buy something; also called a value package

bundling

grouping two or more products together and pricing them as a unit

distributed product development

handing off various parts of your innovation process--often to companies in other countries

dealer (private-label) brands

products that don't carry the manufacturer's name but carry a distributor or retailer's name instead

commercialization

promoting a product to distributors and retailers to get wide distribution, and developing strong advertising and sales campaigns to generate and maintain interest in the product among distributors and consumers

everyday low pricing (EDLP)

setting prices lower than competitors and then not having special sales

product differentiation

the creation of real or perceived product differences

brand loyalty

the degree to which customers are satisfied, like the brand, and are committed to further purchases

brand association

the linking of a brand to other favorable images

shopping goods and services

those products that the consumer buys only after comparing value, quality, price, and style from a variety of sellers