creating and pricing products that satisfy customers
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Creating and Pricing Products That Satisfy Customers. Chapter 12. 4 P’s of the Marketing Mix. The Product Life-Cycle. A series of stages in which a product’s sales revenue and profit increase, reach a peak, then decline Introduction - PowerPoint PPT PresentationTRANSCRIPT
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 1
Creating and Pricing Products That Satisfy Customers
Chapter
12
4 P’s of the Marketing Mix
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 3
The Product Life-Cycle
A series of stages in which a product’s sales revenue and profit increase, reach a peak, then decline
• Introduction– Customer awareness and acceptance are low but soon sales
start to rise; development costs are high, profits low; few competitors.
• Growth– Sales increase rapidly as the product becomes well known;
competition enters.
• Maturity– Sales are still increasing but at a slower rate; later in this
stage, sales and profits begin to slowly decline; competition is intense.
• Decline– Sales volume decreases sharply and profits continue to fall;
may have to discontinue product.
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 4
Product Life-Cycle
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 5
How Do We Classify Products?
Product• Everything one receives in an exchange,
including all tangible and intangible attributes and expected benefits
• A product can be a good, service, or idea Consumer product
• A product purchased to satisfy personal and family needs
Business (industrial) product• A product bought for resale, for making other
products, or for use in a firm’s operations
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 6
Convenience product• A relatively inexpensive, frequently purchased item for which
buyers want to exert only minimum effort– Example: a candy bar, loaf of bread
Shopping product• An item for which buyers are willing to expend considerable effort
on planning and making the purchase– Example: a car, a home, a new computer
Specialty product• An item that possesses one or more unique characteristics for
which a significant group of buyers is willing to expend considerable purchasing effort
– Example: special outfit for a special occasion, a certain Christmas gift for someone special
Types of Consumer Products
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 7
Product line• A group of similar products that differ only in relatively minor
characteristics
– Example: Proctor and Gamble makes a line of shampoos-Ivory, Head and Shoulders, Prell.
Product mix• All of the products that a firm offers for sale
– Example: Product and Gamble makes beauty products, health products, and also household cleaning products. (very different lines)
• Width of the mix– The number of product lines the mix contains
• Depth of the mix– The average number of individual products within each line
Product Line and Product Mix
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 8
Managing existing products• Product modification: the process of changing one or more
of a product’s characteristics such as quality, function, aesthetics
– Example: Adding airbags to vehicles made them safer (function)
• Line extensions: development of a product closely related to one or more products in the existing product line but designed specifically to meet somewhat different customer needs
– Example: Cheerios
Deleting products– Between 60-75% of all new products fail
Developing new products
Managing the Product Mix
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 9
Top Ten New Products of the Decade
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 10
Phases of New Product Development
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 11
Why Do Products Fail?
The product and its marketing program are not planned and tested as completely as they should be.• For example, a firm tries to save product development
costs and only market-tests a product and not its entire marketing mix (the other “Ps”).
The firm markets a new product before all the “bugs” are worked out.
When problems show up in testing, a firm tries to recover its costs by pushing ahead anyway.
A firm tries to market a product with inadequate financing.
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 12
Examples of Product Failures
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 13
Branding
What is a brand?• A name, term, symbol, design, or any combination of these that
identifies a seller’s products as distinct from those of other sellers
• Brand name– The part of a brand that can be spoken……”Apple”
• Brand mark– The part of a brand that is a symbol or distinctive design
• Trademark– A brand name or brand mark that is registered with the U.S. Patent
and Trademark Office and is legally protected from use by anyone else (see next slide)
• Trade name– The complete and legal name of an organization– “Apple, Incorporated”
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 14
Apple logo and name showing trademark symbol (look closely)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 15
Types of brands• Manufacturer (producer) brand
– A brand that is owned by a manufacturer– “Apple” “Dole” “Nike”
• Store (private) brand– A brand that is owned by an individual
wholesaler or retailer– Walmart’s “Great Value” or their “Equate”
• Generic brand– A product with no brand at all
Branding (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 16
Benefits of branding• Because brands are easily recognizable,
they reduce the amount of time buyers must spend shopping.
• Brands help consumers judge quality.• Brands help a firm introduce a new product
with the same brand name.• Branding aids in promotional efforts because
promotion of each branded product indirectly promotes others with the same brand.
Branding (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 17
Benefits of branding (cont.)• Brand loyalty
– The extent to which a customer is favorable toward buying a specific brand
– Recognition, preference, and insistence
– Insistence is the highest level of brand loyalty
Branding (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 18
Top Ten Most Valuable Brands in the World
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 19
Choosing a brand• It should be easy to say, spell, and recall.• It should suggest the product’s uses, special
characteristics, and major benefits.• It should be distinctive enough to set it apart from
competing brands. Protecting a brand
• It should be protected through registration.• Guard against a brand name’s becoming a
generic term.
Branding (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 20
Branding strategies• Individual branding
– A firm uses a different brand for each of its products– For example, Procter & Gamble uses Ivory, Camay, Zest, Safeguard, etc.,
for its line of bar soaps– A problem with one product will not affect another product– Different brands can be directed at different market
segments• Family branding
– A firm uses the same brand for all or most of its products– For example, Xerox uses family branding for all its products
– The promotion of any one item helps all other products– A new product has a head start when its brand name is
already known and accepted by customers
Branding (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 21
Branding strategies (cont.)• Brand extensions
– A firm uses an existing brand to brand a new product in a different product category
– Example: Procter & Gamble names a new product Ivory Body Wash
– Caution must be taken in extending a brand too many times or too far outside the original product category
– Example: Kellogg’s extended its brand name to a line of hip-hop street clothing that was a failure
Branding (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 22
All of the activities involved in developing and providing a container with graphics for a product
Functions of packaging• Protect the product and maintain its functional form• Offer consumer convenience• Promote the product by communicating its features, uses,
benefits, and image
Design considerations• Cost• Single or multiple units• Consistency among package designs (family packaging)• Promotional role• Needs of intermediaries• Environmental responsibility
Packaging
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 23
The presentation of information on a product or its package
May include• Brand name and mark• Trademark symbol• Package size and contents• Product claims• Directions• Safety precautions• Ingredients• Name and address of manufacturer• Universal Product Code (UPC) symbol for
automated checkout and inventory control
Labeling
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 24
Must include• For garments, name of manufacturer, country of manufacture,
fabric content, cleaning instructions• Nutrition labeling in standard format for any food product for
which a nutritional claim is made• For food, ingredients in common terms, number of servings,
serving size, calories per serving, calories derived from fat, and amounts of specific nutrients
• For non-edible items such as shampoo and detergent, safety precautions and instructions
Express warranty• A written explanation of the producer responsibilities if the
product is found to be defective or otherwise unsatisfactory
Labeling (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 25
1. “Brand” your product. Create a spoken brand name, sketch out a logo, decide if the brand should be trademarked or not and why.
2. Decide on what kind of packaging you’ll use and why.
3. Decide what kinds of information you’ll need on the label and sketch out an example of it.
Go Back to the “Let’s Brainstorm” Activity and Discuss/decide the following:
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 26
Every Product or Service has a Perfect Price Even this one….
• Driving a tank for fun
Pricing Products
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 27
Meaning and use of price• The amount of money a seller is willing to accept in
exchange for a product at a given time and under certain circumstances
• Price allocates goods and services among those who are willing and able to buy them
• Price allocates financial resources (sales revenue) among producers according to how well they satisfy customers’ needs
• Price helps customers allocate their own financial resources among various want-satisfying products
Pricing Products
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 28
Supply and demand affects prices• Supply
– The quantity of a product that producers are willing to sell at each of various prices
– Quantity supplied by producers increases as the price increases
• Demand– The quantity of a product that buyers are willing to
purchase at each of various prices– Quantity demanded increases as the price decreases
• Equilibrium– Where the supply and demand curves intersect and
quantity and price for buyers and sellers are equal
Pricing Products (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 29
Supply and Demand Curves
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 30
Price and non-price competition• Price competition
– An emphasis on setting a price equal to or lower than competitors’ prices to gain sales or market share
• Non-price competition– Competition based on factors other than price (such as
quality, customer service, packaging)
– Example: Apple depends on customer loyalty, quality in design and function, instead of price to sell the product
Buyers’ perceptions of price• Buyers will accept different ranges of prices for
different products• A premium price may be appropriate if a product is
considered superior or has inspired strong brand loyalty
Pricing Products (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 31
Survival• Pricing the firm’s products (perhaps at a loss) in order
to attract customers to establish the firm in a market Profit maximization
• Pricing with the intent to reap profits as large as possible from a market—usually an unattainable goal
Target return on investment (ROI)• Pricing that allows the firm to attain its profit goal,
which is a percentage of the investment the firm has made
Pricing Objectives
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 32
Market-share goals• Pricing that will increase a firm’s proportion of total
industry sales
Status quo pricing• Pricing because that’s normally what a product like
this has always been priced at
Pricing Objectives (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 33
Cost based pricing Breakeven based pricing Demand based pricing Competition based pricing
Pricing Methods
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 34
Cost-based pricing• The seller determines the total cost of producing
one unit of the product, then adds an amount to cover additional costs and profit (markup)
• Markup may be calculated as a percentage of total costs
• Flaws– Difficulty of determining an effective markup percentage;
price may be too high, resulting in lost sales, or price may be too low, resulting in lost profit
– Separates pricing from other business functions like how much it costs to produce it or market it; there is no incentive here to reduce those costs-just raise the price instead. This is not the best way to be profitable.
Pricing Methods
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 35
Pricing Methods (cont.)
Breakeven based pricing• Breakeven quantity
– The number of units that must be sold for total revenue (from all units sold) to equal the total cost (of all units sold)
• Total revenue (total sales)– The total amount received from sales of a product
• Fixed cost– A cost incurred no matter how many units are
produced or sold• Variable cost
– A cost that depends on the number of units produced• Total cost (= Fixed Costs + Variable Costs)
– The sum of the fixed costs and the variable costs all together.
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 36
Breakeven Analysis
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 37
How much in sales dollars do we need to break even?
How many units do we need to sell to break even?
Two Ways to Figure Out Breakeven Point
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 38
Calculating Breakeven Point
GIVEN THESE FIGURES: Variable costs: $337,000 (cost of goods sold) Other variable costs: $42,750 Total Variable Costs: $379,750 Annual Sales: $495,000 Total Fixed costs: $78,100
1. Calculate Contribution Margin:
All variable costs Annual sales
2. Breakeven: Sales Dollar Volume:
Total Fixed CostsContribution Margin
To determine how much in sales dollars you need:1. Calculate Contribution Margin using this formula:
Total variable costs Annual sales
2. Then calculate Breakeven Point: Total Fixed CostsContribution Margin
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 39
Contribution margin goes down but Total Fixed Costs stay the same?• Example A: Example B:
CM = .68 CM = .20$78,100 = $114,852 $78,100 = $390,500.68 .20
Contribution margin goes down AND Total Fixed Costs go up? $100,000 = $500,000
.20
What about if…….
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 40
Calculating Breakeven Point
GIVEN THESE FIGURES: Selling price: $120 Variable cost per unit: $60 Total Fixed costs: $40,000
1. Calculate Contribution Margin:
All variable costs Annual sales
2. Breakeven: Sales Dollar Volume:
Total Fixed CostsContribution Margin
To determine how many units you need to sell:1. Contribution per unit =
Selling price - Variable cost per unitExample: Contribution per unit = $120-60 = $60
2. Then use this formula: Total Fixed CostsContribution Per Unit
Example: $40,000 = 667 units$60
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 41
Pricing Methods (cont.)
Demand-based pricing• Based on the level of customer demand for the product• Product prices are high when demand is high and low when
demand is weak• Price differentiation
– Setting different prices in segmented markets based on segment characteristics (e.g., time of purchase, type of customer, or distribution channel)
Competition-based pricing• Based on meeting the challenge of competitors’ prices in
markets where products are quite similar or price is an important customer consideration
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 42
Types of Pricing Strategies
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 43
New Product Strategy Differential Pricing Strategy Psychological Pricing Strategy Product line Pricing Strategy Promotional Pricing Strategy
Choose one of these Pricing Strategies and be able to explain why you chose it.
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 44
New-product pricing strategies• Price skimming
– Charging the highest possible price for a product during the introduction stage of its life cycle
• Penetration pricing– Setting a low price for a new product to quickly build
market share and discourage competitors
Pricing Strategies: New Product Pricing
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 45
Pricing Strategies: Differential Pricing
Differential pricing• Charging different prices to different buyers for the same
quality and quantity of product• The market must consist of multiple segments with different
price sensitivities• Negotiated pricing
– Establishing a final price through bargaining
• Secondary-market pricing– Setting one price for the primary target market and a different
price for another market
• Periodic discounting– Temporary reduction of prices on a patterned or systematic basis
• Random discounting– Temporary reduction of prices on an unsystematic basis
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 46
Psychological pricing• Odd-number pricing
– Setting prices using odd numbers that are slightly below whole-dollar amounts
• Multiple-unit pricing– Setting a single price for two or more units
• Reference pricing– Pricing a product at a moderate level and positioning it next
to a more expensive model or brand• Bundle pricing
– Packaging two or more complementary products and selling them for a single price
• Everyday low prices (EDLPs)– Setting a low price for products on a consistent basis
• Customary pricing– Pricing on the basis of tradition
Pricing Strategies: Psychological Pricing
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 47
Product-line pricing• Establishing and adjusting the prices of multiple products
within a product line• Captive pricing
– Pricing the basic product in a product line low, but pricing related items at a higher level
• Premium pricing– Pricing the highest-quality or most-versatile products
higher than other models in the product line• Price lining
– Selling goods only at certain predetermined prices that reflect definite price breaks
Pricing Strategies: Product-line Pricing
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 48
Promotional pricing• Price leaders
– Products priced below the usual markup, near cost or below cost
• Special-event pricing– Advertised sales or price cutting linked to a
holiday, season, or event• Comparison discounting
– Setting a price at a specific level and comparing it with a higher price
Pricing Strategies: Promotional Pricing
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 49
1. Price your product or service using one of the strategies in the textbook (pg 350-358) or one taken from the next slide. Be able to explain why you chose that price.
2. Calculate your breakeven point to determine how much sales you’ll need per year to break even (in dollars) and then how many units you will have to sell per year to break even. Given these figures:
Total variable costs: $300,000Total fixed costs: $150,000Annual sales last year: $500,000Selling price last year: $20,000 per unitVariable cost per unit: $1500
Go Back to the “Let’s Brainstorm” Activity and Add the following:
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 50
Chapter Quiz
1. Western Day was a special day at the office. Janice wanted to dress in the latest western fashion, but she had limited funds. She visited several shops before finding the right outfit. For Janice, what type of product is the clothing?
A. Specialty productB. Major equipmentC. Industrial productD. Shopping productE. Convenience product
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 51
Chapter Quiz
2. Sales rise gradually as a result of promotion and distribution activities, but initially, high development and marketing costs result in low profit or even a loss. This best describes which stage of the product life-cycle?
A. MaturityB. IntroductionC. DeclineD. GrowthE. Steady
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 52
Chapter Quiz
3. A customer who consistently buys Sony televisions whenever he or she needs to replace his or her TV set demonstrates
A. the importance of trademarks.B. the importance of trade names.C. the importance of brand awareness.D. brand loyalty.E. brand equity.
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 53
Chapter Quiz
4. Certain plastic water bottles that cannot be recycled, while convenient for customers, are a clear example that manufacturers are not considering _______________ when designing packaging.
A. the needs of intermediariesB. the needs of retailersC. environmental consciousnessD. family needsE. cost-effectiveness
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 12 | Slide 54
Chapter Quiz
5. When there is a shortage of citrus fruit, the economic forces of supply and demand would suggest that
A. price will stay constant.B. price will decrease.C. price will increase.D. it will take a long time before the shortage is
felt in the market.E. None of the above