Business Chapter 14: Developing and Pricing Goods and Services

Competitive Pricing₃

Break-Even Analysis • The process used to determine profitability at various levels of sales. • The break-even point is where revenues equal cost. • 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.

Branding and Brand Equity₃

Generating Brand Equity and Loyalty • Brand equity — The value of the brand name and associated symbols. • Brand loyalty — The degree to which customers are satisfied, like the brand, and are committed to further purchases. • Brand awareness — How quickly or easily a given brand name comes to mind when a product category is mentioned. • Brand preference is when consumers prefer one brand over another. • Brand insistence is when consumers will not accept substitute brands.

Competitive Pricing₄

Other Pricing Strategies • 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 discourage competition. • Everyday low pricing (EDLP) — Setting prices lower than competitors and then not having any special sales. • High-low pricing strategy — Setting prices that are higher than EDLP stores but having many special sales where the prices are lower than competitors. • Psychological pricing — Pricing goods and services at price points that make the product appear less expensive than it is.

Packaging Changes the Product₁

Packaging • Companies often use packaging to change and improve their basic product. Examples include: • Squeezable ketchup bottles. • Square paint cans with screw tops. • Single-use spice packets. • Good packaging can also make a product more attractive to retailers.

The New-Product Development Process₂

Product Screening • A process designed to reduce the number of new-product ideas being worked on at any one time. Product Analysis • Making cost estimates and sales forecasts to get a feeling for profitability of new-product ideas.

Product Development and the Total Product Offer₁

Value • Good quality at a fair price. • According to the American Marketing Association, value is a foundation of marketing. • Adapting products to new markets is an ongoing challenge. • Product development is a key activity in any modern business.

Branding and Brand Equity₂

Brand Categories • Manufacturers' brands — The brand names of manufacturers that distribute products nationally. • Dealer (private-label) brands — Products that don't carry the manufacturer's name but carry a distributor's or retailer's name instead. • Generic goods — Nonbranded products that usually sell at a sizable discount compared to national or private-label brands. • Knockoff brands — Illegal copies of national brand-name goods.

Branding and Brand Equity₁

Brands • A name, symbol, or design that identifies the goods or services of one seller or group of sellers and distinguishes them from the goods and services of competitors. • Brand name gives products a distinction that tends to make them attractive to consumers. • Trademark — A brand that has exclusive legal protection for both its brand name and its design.

Nonprice Competition

Competition on Attributes Other than Price • Product images. • Comfort. • Style. • Convenience. • Durability. • Accompanying services.

Competitive Pricing₂

Cost-Based Pricing • Measures cost of producing a product including materials, labor, and overhead. Demand-Based Pricing • Target costing — Designing a product so that it satisfies customers and meets the profit margins desired by the firm. Competition-Based Pricing • Pricing strategy based on what all the other competitors are doing. • Price leadership — The strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow.

Branding and Brand Equity₄

Creating Brand Associations • Brand association — Linking a brand to other favorable images. Brand Management • Brand manager — A manager who has direct responsibility for one brand or one product line. • The brand manager handles all the elements of the brand's marketing mix.

Product Development and the Total Product Offer₂

Distributed Product Development • Handing off various parts of your innovation process—often to companies overseas. • The increase in outsourcing has resulted in using multiple organizations separated by cultural, geographic, and legal boundaries. • Developing a total product offer: • Everything that 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 what's important.

The Product Life Cycle₂

Example of the Product Life Cycle • Some products, like crayons and sidewalk chalk, have very long product life cycles, change very little, and never go into decline. Using the Product Life Cycle • Different stages in the product life cycle call for different marketing strategies.

Competitive Pricing₅

How Market Forces Affect Pricing • Marketers sometimes use demand-oriented pricing based on consumer demand. Example: movie theater rates or drugstore discounts for seniors. • Today, most consumers compare the prices of goods and services online, leading to more price competition. • Nonprice competition likely to increase.

Packaging Changes the Product₂

Key Functions of Packaging 1. Attract the buyer's attention. 2. Protect the goods inside, be tamperproof and deter theft. 3. Be easy to open and use. 4. Describe and give information about the contents. 5. Explain the product's benefits. 6. Provide warranty information and warnings. 7. Give an indication of price, value, and uses.

Product Differentiation₂

Marketing Different Classes of Consumer Goods and Services • Convenience goods and services — Products that the consumer wants to purchase frequently and with a minimum of effort. • Candy and snacks, gas, milk. • Shopping goods and services — Those products that the consumer buys only after comparing value, quality, price, and style from a variety of sellers. • Target, wireless carriers.

Product Differentiation₃

Marketing Different Classes of Consumer Goods and Services cont. • 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. • Fine watches, expensive wine, designer clothes, jewelry. • 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. • Car-towing services, burial services, insurance.

Product Differentiation₄

Marketing Industrial Goods and Services • Industrial goods — Products used in the production of other products; sometimes called business or B2B goods. Industrial goods include: • Installations. • Capital items. • Accessory equipment.

The New-Product Development Process₁

New Product Development • The odds a new product will fail are high.• New product potential: 3D printing, streaming TV, virtual reality (VR). Generating New-Product Ideas • It takes about seven ideas to generate one commercial product. • Employees, research and development, suppliers offer new ideas.

Figure 14.4 Sales and Profits during the Product Life Cycle

Note that profit levels start to fall before sales reach their peak. This is due to increasing price competition. When profits and sales start to decline, it's time to come out with a new product or to remodel the old one to maintain interest and profits.

Competitive Pricing₁

Pricing Objectives 1. Achieving a target return on investment or profit. 2. Building traffic. 3. Achieving greater market share. 4. Creating an image. 5. Furthering social objectives.

The New-Product Development Process₃

Product Development and Testing • Concept testing takes a product idea to consumers to test reactions. • Crowdsourcing platforms allow the public to give their opinions of potential products. 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.

Product Differentiation₁

Product Differentiation • The creation of real or perceived product differences. • Marketers use a mix of branding, pricing, advertising, and packaging to create different images.

The Product Life Cycle₁

Product Life Cycle • A theoretical model of what happens to sales and profits for a product class over time. Product Life Cycle Stages: • Introduction. • Growth. • Maturity. • Decline.

Product Development and the Total Product Offer₃

Product Lines and the Product Mix • Product line — A group of products that are physically similar or intended for a similar market. • Product lines often include competing brands. • Product mix — The combination of product lines offered by a manufacturer. • Product mixes can be extensive, such as from Procter & Gamble.

Figure 14.3 The New-Product Development Process

Product development is a six-stage process. Which stage do you believe to be the most important?

Packaging Changes the Product₃

The Growing Importance of Packaging • Packaging has more promotional burden and sales responsibility. • Information on packages regulated by the Fair Packaging and Labeling Act and the Food and Drug Administration. • Bundling — Grouping two or more products together and pricing them as a unit. • IcelandAir bundled layover tours with an IcelandAir employee "stopover buddy." • Financial institutions bundle advice with purchases.