14-1 mcgraw-hill/irwin understanding business, 7/e © 2005 the mcgraw-hill companies, inc., all...
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McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-114-1McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Chapter
14141414Developing Developing and Pricing and Pricing
Products and Products and ServicesServices
14-1
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-214-2McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Best ProductBest Product Innovation of Innovation of ALLALL Time Time
0% 10% 20% 30% 40% 50% 60% 70%
Automobile
Light Bulb
Telephone
Television
Aspirin
Source: American Demographics
% of Consumers’ Choice% of Consumers’ Choice
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-314-3McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Product DevelopmentProduct Development & Value Package& Value Package
• Value- Total Value- Total Product OfferProduct Offer
• Product LineProduct Line
• Product MixProduct Mix
• Product Product DifferentiationDifferentiation
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-414-4McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
How Six ProductsHow Six Products Were First MarketedWere First Marketed
ProductProduct TechniqueTechnique
Corn FlakesCorn Flakes Mail Order OnlyMail Order Only
Ragu Spaghetti SauceRagu Spaghetti Sauce Door-to-DoorDoor-to-Door
TeaTea Wrapped in Silk BagsWrapped in Silk Bags
Perforated Toilet PaperPerforated Toilet Paper On The StreetOn The Street
Noxzema Skin CreamNoxzema Skin Cream As Sunburn RemedyAs Sunburn Remedy
Tabasco SauceTabasco Sauce In Used Cologne BottlesIn Used Cologne Bottles
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-514-5McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Mickey Mouse’sMickey Mouse’s Product MixProduct Mix
Theme parks Theme parks & resorts& resorts
ABC ABC Television Television NetworkNetwork
TV & radio TV & radio stationsstations
Film studios Film studios & production& production
Video Video programs & programs & licensinglicensing
Consumer Consumer productsproducts
PublishingPublishing
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-614-6McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Marketing ClassesMarketing Classes of Goods & Servicesof Goods & Services
• ConsumerConsumer- ConvenienceConvenience
- ShoppingShopping
- SpecialtySpecialty
- UnsoughtUnsought
• IndustrialIndustrial
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-714-7McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
PackagingPackaging
1)1) ProtectProtect2)2) AttractAttract3)3) DescribeDescribe4)4) ExplainExplain5)5) WarrantiesWarranties6)6) Price, Value, UsesPrice, Value, Uses
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-814-8McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
BrandingBranding
• Brand & Brand & TrademarkTrademark
• CategoriesCategories- Manufacturers’Manufacturers’
- KnockoffKnockoff
- Dealer/PrivateDealer/Private
- GenericGeneric
• EquityEquity
• LoyaltyLoyalty
• AwarenessAwareness
• AssociationAssociation
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-914-9McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Most PowerfulMost Powerful Internet BrandsInternet Brands
CategoryCategory BrandBrandBooks & MusicBooks & Music
Amazon.comAmazon.com
Buy.comBuy.com
BrokerageBrokerageCharles Schwab, Charles Schwab,
Ameritrade, E*TradeAmeritrade, E*Trade
Search EngineSearch EngineGoogle, Yahoo, Google, Yahoo,
MSN, AOLMSN, AOL
TravelTravelExpedia, Travelocity, Expedia, Travelocity,
Fodors, PricelineFodors, PricelineSource: Business 2.0, July 2002, p. 86.
McGraw-Hill/IrwinUnderstanding Business, 7/e
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Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Brands ConsumersBrands Consumers Consider Most ReliableConsider Most Reliable
• CRAFTSMAN TOOLSCRAFTSMAN TOOLS• WATERFORD CRYSTALWATERFORD CRYSTAL• ROLL-ROYCE MOTOR CARSROLL-ROYCE MOTOR CARS• DISCOVERY CHANNELDISCOVERY CHANNEL• WD-40 LUBRICANTWD-40 LUBRICANT• BOSE STEREO/SPEAKER SYSTEMSBOSE STEREO/SPEAKER SYSTEMS• CRAYOLA CRAYONS/MARKERSCRAYOLA CRAYONS/MARKERS• HERSHEY KISSESHERSHEY KISSES
McGraw-Hill/IrwinUnderstanding Business, 7/e
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Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
A Good Brand Name...A Good Brand Name...
Speaks directly to product’s target customers
Attracts/motivates consumers to try it
Is memorable/sticks in customers’ minds
Is distinctive enough to protect it legally
Speaks directly to product’s target customers
Attracts/motivates consumers to try it
Is memorable/sticks in customers’ minds
Is distinctive enough to protect it legally
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-1214-12McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Soft Drink BrandsSoft Drink Brands That Didn’t Make ItThat Didn’t Make It
Juicy Fruit with Juicy Fruit with Lemon LimeLemon Lime
Lemon Lemon MerengueMerengue
Cream Wizard Cream Wizard Wintergreen Wintergreen
Crow CloveCrow Clove
Kentucky No Nip Kentucky No Nip Cherry JulepCherry Julep
Satan’s PunchSatan’s Punch
Green Tangerine Green Tangerine SourerSourer
Key Lime Key Lime CreamCream
Source: St. Louis Post-Dispatch
McGraw-Hill/IrwinUnderstanding Business, 7/e
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Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Renaming BrandsRenaming Brands
OLD NAMEOLD NAME NEW NAMENEW NAME
BELL ATLANTICBELL ATLANTIC VERIZONVERIZON
BELL SOUTHBELL SOUTH CINGULARCINGULAR
AMERICAN BRANDSAMERICAN BRANDS FORTUNE BRANDSFORTUNE BRANDS
CIBACIBA NOVARTISNOVARTIS
VALUJETVALUJET AIR TRONAIR TRON
Source: Forbes Magazine, December 21, 2002
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-1414-14McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
First Products ProducedFirst Products Produced by Five Major Companiesby Five Major Companies
HersheyHershey Caramels Caramels
AmwayAmway No-rinse No-rinse car car wash wash
HeinzHeinz Horseradish Horseradish
AvonAvon Little Dot Little Dot perfume perfume
setset
3M3M Sandpaper SandpaperSource: World Features Syndicate
McGraw-Hill/IrwinUnderstanding Business, 7/e
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Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
New-Product DevelopmentNew-Product DevelopmentIdea Idea
GenerationGeneration
ScreeningScreening
AnalysisAnalysis
DevelopmentDevelopment
TestingTestingCommercializeCommercialize
McGraw-Hill/IrwinUnderstanding Business, 7/e
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Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Sales & Profits Sales & Profits During the PLCDuring the PLC
McGraw-Hill/IrwinUnderstanding Business, 7/e
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Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
PricingPricing
• ObjectivesObjectives$ ROIROI$ TrafficTraffic$ Market ShareMarket Share$ SalesSales$ ImageImage$ SocialSocial
• Cost-BasedCost-Based• Value- ServiceValue- Service
• Break-EvenBreak-Even$ Fixed CostFixed Cost$ Variable CostVariable Cost
• StrategiesStrategies- SkimSkim- PenetrationPenetration- EDLPEDLP- High-LowHigh-Low
• Market ForcesMarket Forces
McGraw-Hill/IrwinUnderstanding Business, 7/e
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Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
What They CostWhat They Cost When First IntroducedWhen First Introduced
1927 1927 Transatlantic CallTransatlantic Call $ 75/3 min.$ 75/3 min.
19471947 Microwave OvenMicrowave Oven $ $ 3,0003,000
19641964 FAX unit rentalFAX unit rental $ $ 850/month850/month
19701970 Pocket CalculatorPocket Calculator $ 150$ 150
19741974 VCR TapeVCR Tape $ $ 5050
Source: World Features Syndicate
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-1914-19McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Breakeven ChartBreakeven Chart
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
0
10,0
00
20,0
00
30,0
00
40,0
00
50,0
00
Fixed CostTotal CostTotal Revenue
Tota
l R
even
ue o
r Tota
l C
ost
Tota
l R
even
ue o
r Tota
l C
ost
Number of UnitsNumber of Units
McGraw-Hill/IrwinUnderstanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.14-2014-20McGraw-Hill/Irwin
Understanding Business, 7/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
Pricing UsingPricing Using Breakeven AnalysisBreakeven Analysis
ProblemProblem Should we charge $2 or $3 per box?Should we charge $2 or $3 per box?
CostsCosts Total Fixed CostsTotal Fixed Costs $400,000$400,000
Variable CostVariable Cost $ 1 per box$ 1 per box
Market Market Research Research ForecastForecast
Company can sell: 290,000 boxes at $2 @Company can sell: 290,000 boxes at $2 @
210,000 boxes at $3 @210,000 boxes at $3 @
Breakeven point = Breakeven point = total fixed costtotal fixed cost price - variable cost price - variable cost (per unit) (per unit) (per unit)(per unit)
$2 price = $2 price = $400,000$400,000 = 400,000 units to = 400,000 units to breakevenbreakeven
$2 - $1$2 - $1
$3 price = $3 price = $400,000$400,000 = 200,000 units to = 200,000 units to breakevenbreakeven
$3 - $1$3 - $1
Breakeven point = Breakeven point = total fixed costtotal fixed cost price - variable cost price - variable cost (per unit) (per unit) (per unit)(per unit)
$2 price = $2 price = $400,000$400,000 = 400,000 units to = 400,000 units to breakevenbreakeven
$2 - $1$2 - $1
$3 price = $3 price = $400,000$400,000 = 200,000 units to = 200,000 units to breakevenbreakeven
$3 - $1$3 - $1
BreakevenBreakeven
AnalysisAnalysis