chapter 14 the future of business gitman & mcdaniel 5 th edition the future of business gitman...

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THE FUTURE OF BUSINESSGitman & McDaniel

5th Edition

THE FUTURE OF BUSINESSGitman & McDaniel

5th Edition

Chapter

Developing Quality Productsat the Right Price

Developing Quality Productsat the Right Price

Prepared byDeborah Baker

Texas Christian University

Prepared byDeborah Baker

Texas Christian University

14

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 2Ch

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1 What is a product, and how is it classified?

2 How does branding distinguish a product from its competitors?

3 What are the functions of packaging?

4 How do organizations create new products?

5 What are the stages of the product life cycle?

6 What is the role of pricing in marketing?

7 How are product prices determined?

8 What strategies are used for pricing products?

9 What trends are occurring in products and pricing?

Learning Goals


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Learning Goal 1

What is a product,and how is it classified?

1


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What is a Product?1

Any good or service,along with its perceivedattributes and benefits,that creates value for

the customer.

Any good or service,along with its perceivedattributes and benefits,that creates value for

the customer.

ProductProduct


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What is a Product?1

PackagingPackaging

Image ofRetailStore

Image ofRetailStore

WarrantyWarranty

ColorColor

InstructionsInstructions

Image ofBrand

Image ofBrand

AttachmentsAttachments

ServiceafterSale

ServiceafterSale

Product


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What is a Product?1

WrenchWrench

PepperPepper

All GoodsAll Goods

Auto RepairingAuto Repairing

RestaurantsRestaurants

Both Goodsand Services

Both Goodsand Services

CounselingCounseling

TV ProgramsTV Programs

All ServicesAll Services


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Classifying Consumer Products1

UnsoughtProduct

UnsoughtProduct

ConvenienceProduct

ConvenienceProduct

ShoppingProduct

ShoppingProduct

SpecialtyProduct

SpecialtyProduct

Products that are either unknown to the potential buyer or are known, but the buyer does not actively seek them.

Products that are either unknown to the potential buyer or are known, but the buyer does not actively seek them.

Relatively inexpensive items that require little shopping effort and are purchased routinely without planning.

Relatively inexpensive items that require little shopping effort and are purchased routinely without planning.

Items that are bought after considerable planning, including brand-to-brand and store-to-store comparisons.

Items that are bought after considerable planning, including brand-to-brand and store-to-store comparisons.

Items for which consumers search long and hard for and for which they refuse to accept substitutes.


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Classifying Consumer Products1

ConvenienceProducts

ConvenienceProducts

ShoppingProducts

ShoppingProducts

Unsought Products

Unsought Products

SpecialtyProducts

SpecialtyProducts

ConsumerProduct

ConsumerProduct

Very little orminimum effort

Very little orminimum effort

Considerableeffort

Considerableeffort

No effortNo effort

Maximumeffort

Maximumeffort

Degree of EffortRequired

Degree of EffortRequired

Soft drinksBread, milk

Coffee

Soft drinksBread, milk

Coffee

AutomobilesHomes

Vacations

AutomobilesHomes

Vacations

Life insurance Burial plots

New products

Life insurance Burial plots

New products

Expensive jewelryGourmet dinners

Limited-production autos

Expensive jewelryGourmet dinners

Limited-production autos

ExamplesExamples


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Classifying Business Products1

Capital productsCapital

products

Expense items

Expense items

Large, expensive items with a long life span that are purchased by businesses for use in making other products or providing a service.

Large, expensive items with a long life span that are purchased by businesses for use in making other products or providing a service.

Items, purchased by businesses, that are smaller and less expensive than capital products and usually have a life span of less than one year.

Items, purchased by businesses, that are smaller and less expensive than capital products and usually have a life span of less than one year.


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Classifying Business Products1

CategoriesCategoriesof of

BusinessBusinessProductsProducts

CategoriesCategoriesof of

BusinessBusinessProductsProducts

Component parts and materials

Component parts and materials

AccessoriesAccessories

InstallationsInstallations

Raw materialsRaw materials

SuppliesSupplies

ServicesServices


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2 Learning Goal 2

How does branding distinguish a product from its competitors?


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2 Benefits of Branding

Product IdentificationProduct Identification

Repeat SalesRepeat Sales

New-Product SalesNew-Product Sales


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2 Benefits of Branding

Brand EquityBrand Equity

MasterBrand

MasterBrand

The value of company and brand names.The value of company and brand names.

A brand so dominant that consumers think of it immediately when a product category, use, attribute, or customer benefit is mentioned.

A brand so dominant that consumers think of it immediately when a product category, use, attribute, or customer benefit is mentioned.


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2 America’s Master Brands

Product CategoryProduct Category Master BrandMaster Brand

Adhesive bandages

Antacids

Baking soda

Cellophane tape

Fast food

Gelatin

Rum

Salt

Soft drinks

Soup

Band-Aid

Alka-Seltzer

Arm & Hammer

Scotch Tape

McDonald’s

Jell-O

Bacardi

Morton

Coca-Cola

Campbell’s


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2Characteristics of Effective Brand

Names Easy to pronounce Easy to recognize Easy to remember Short Distinctive, unique Describes the product Describes the product’s use Describes the product’s benefits Has a positive connotation Reinforces the desired product image Is legally protectable in home and foreign

markets


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2 Levels of Brand Loyalty

Brand preferenceBrand preference

Brand recognitionBrand recognition

Brand insistenceBrand insistence


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2 Types of Brands

DealerBrandsDealerBrands

GenericProductsGeneric

Products

Brands that are owned by the wholesaler or retailer.

Brands that are owned by the wholesaler or retailer.

Products that carry no brand name, come in plain containers, and sell

for much less than name-brand products.

Products that carry no brand name, come in plain containers, and sell

for much less than name-brand products.

ManufacturerBrands

ManufacturerBrands

Brands that are owned by national or regional manufacturers.

Brands that are owned by national or regional manufacturers.


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3 Learning Goal 3

What are the functionsof packaging?


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3 The Functions of a Package

Help promote the productHelp promote the product

Protect the productProtect the product


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3 Labeling


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3 Warranties

WarrantyWarranty

ImpliedWarrantyImplied

Warranty

Express WarrantyExpress Warranty

Guarantees the quality of a good or service.Guarantees the quality of a good or service.

An unwritten guarantee that the good or service is fit for the purpose for which it was sold. (UCC)

An unwritten guarantee that the good or service is fit for the purpose for which it was sold. (UCC)

A written guarantee.

Full Warranty

Full Warranty

The manufacturer must meet certain minimum standards, including repair of defects, product replacement, or refunds.

The manufacturer must meet certain minimum standards, including repair of defects, product replacement, or refunds.


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4

How do organizationscreate new products?

Learning Goal 4


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4 Product Development Process

6. Introduce product to marketplace6. Introduce product to marketplace6. Introduce product to marketplace6. Introduce product to marketplace

5. Test-market the new product5. Test-market the new product5. Test-market the new product5. Test-market the new product

4. Develop the concept4. Develop the concept4. Develop the concept4. Develop the concept

3. Screen ideas/concepts3. Screen ideas/concepts3. Screen ideas/concepts3. Screen ideas/concepts

2. Develop new-product ideas2. Develop new-product ideas2. Develop new-product ideas2. Develop new-product ideas

1. Set new-product goals1. Set new-product goals1. Set new-product goals1. Set new-product goals


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What are the stages of theWhat are the stages of theproduct life cycle?product life cycle?

What are the stages of theWhat are the stages of theproduct life cycle?product life cycle?

5 Learning Goal 5


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5

Time

Sal

es a

nd

pro

fits

Total market profits

Totalmarket sales

IntroductionIntroduction GrowthGrowth MaturityMaturity DeclineDecline

$0

_

+

The Product Life Cycle


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5

Little competition

Frequent product modifications

Limited distribution

Heavy promotion

High failure rate

High production and marketing costs

Low sales volume

Small or negative profits

Introduction


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5

Sales grow at an increasing rate

Healthy profits

Many competitors enter market

Large companies may acquire pioneering firms

Promotion emphasizes aggressive brand ads and the differences between brands

Adequate distribution is a major key to success

Prices normally fall at end of growth phase

Priority is increasing/retaining market share and enhancing profits

Growth


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5

Sales growth—but at a decreasing rate

Saturated markets

Product line extensions through product variations

Global introduction of products

Maturity


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5

Sales and profits fall

Trade allowances eliminated

Most advertising and sales promotions eliminated

Rate of change in consumer tastesRate at which new products are introduced

Rate of change in consumer tastesRate at which new products are introduced

The rate of decline is governed by:The rate of decline is governed by:

Decline


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6

What is the role ofWhat is the role ofpricing in marketing?pricing in marketing?What is the role ofWhat is the role of

pricing in marketing?pricing in marketing?

Learning Goal 6


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6

Value pricingValue pricing

Target returnon investmentTarget returnon investment

Profit maximizationProfit maximization

Offering the target market a high quality product at a

fair price and with good service.

Offering the target market a high quality product at a

fair price and with good service.

The price of a product is set to give a company the desired

profitability in terms of return on its money.

The price of a product is set to give a company the desired

profitability in terms of return on its money.

Producing a product as long as revenue exceeds the cost of producing it

Producing a product as long as revenue exceeds the cost of producing it

Pricing Objectives


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6

A value marketer:A value marketer:

Offers products that perform

Gives consumers more than they expect

Gives meaningful guarantees

Gives the buyers facts

Builds long-term relationships

Value Pricing


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7

How are product pricesHow are product pricesdetermined?determined?

How are product pricesHow are product pricesdetermined?determined?

Learning Goal 7


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7

A certain percentage (the markup) is added to

the product’s cost toarrive at the price.

A certain percentage (the markup) is added to

the product’s cost toarrive at the price.

Markup PricingMarkup Pricing

The price at which a product’s costs are

covered, so additionalsales result in profit.

The price at which a product’s costs are

covered, so additionalsales result in profit.

Breakeven Point(Breakeven Analysis)

Breakeven Point(Breakeven Analysis)

How Managers Set Prices


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7

Markup PricingMarkup Pricing

Markup Percentage = Markup

Retail Price

Breakeven AnalysisBreakeven Analysis

Breakeven point = Markup

(in Units) Fixed-cost contribution

How Managers Set Prices


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8

What strategies are usedWhat strategies are usedfor pricing products?for pricing products?

What strategies are usedWhat strategies are usedfor pricing products?for pricing products?

Learning Goal 8


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8

Introducing a product with a high initial price and lowering the price

over time

Introducing a product with a high initial price and lowering the price

over time

Price SkimmingPrice Skimming

Selling new products atlow prices in the hope

of achieving a largesales volume

Selling new products atlow prices in the hope

of achieving a largesales volume

Penetration PricingPenetration Pricing

Product Pricing


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8

BundlingBundlingGrouping two or more related products together and pricing them as a single product

Grouping two or more related products together and pricing them as a single product

Odd-Even PricingOdd-Even PricingSetting a price at an odd number toconnote a bargain and at an even number to suggest quality

Setting a price at an odd number toconnote a bargain and at an even number to suggest quality

Leader PricingLeader Pricing

Pricing products below the normal markup or below cost to attract customers to a store where they would not otherwise shop

Pricing products below the normal markup or below cost to attract customers to a store where they would not otherwise shop

Prestige PricingPrestige PricingIncreasing the price of a product so that consumers will perceive it as being of higher quality, status, or value

Increasing the price of a product so that consumers will perceive it as being of higher quality, status, or value

Product Pricing


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9

What trends are occurringWhat trends are occurringin products and pricing?in products and pricing?

What trends are occurringWhat trends are occurringin products and pricing?in products and pricing?

Learning Goal 9


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9

Use of Yield Management Systems

Importance of Color in Packaging and Product Design

Use of the Internet for New-Product Development

Trends in Developing Products & Pricing

chapter 14 the future of business gitman & mcdaniel 5 th edition the future of business gitman...

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