**Chapter FourteenDeveloping and Pricing Goods and ServicesCopyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

**Profile

Ratan Tata introduced the $2,500 Peoples Car in 2008.Tata Motors is part of the growing auto market in India - possibly the futures largest market.RATAN TATAThe Tata GroupTata expanded in 2008 by purchasing Jaguar and Range Rover from Ford.14-*

**Product Development and the Total Product Offer

According to the American Marketing Association, value is a foundation of marketing.Value -- Good quality at a fair price.Adapting products to new markets is an ongoing challenge.Product development is a key activity in any modern business.DEVELOPING VALUELG114-*

**Internet serviceCell phone serviceCable televisionDiscount apparelHaircuts and coloringFast-foodPRODUCTS UNTOUCHABLE by SPENDING CUTSLG1Product Development and the Total Product OfferSource: www.bigresearch.com. 14-*

**Luxury handbagsSatellite radioSpecialty apparelHigh-end cosmeticsFacials PRODUCTS EXPENDABLE by SPENDING CUTSLG1Product Development and the Total Product OfferSource: www.bigresearch.com. 14-*

**Lets Dish and Dream Dinners provides a service where customers prepare meals then bring them home.HOME COOKING in HALF the TIMESpotlight on Small BusinessThe companies provide a place to meet, has supplies and relieves the stress and mess for its customers.14-*

**Developing a Total Product OfferTotal Product Offer -- Everything consumers evaluate when deciding whether to buy something.DEVELOPING a TOTAL PRODUCTLG1Products are evaluated on many different dimensions, both tangible and intangible.Marketers must think like and talk to consumers to find out whats important.14-*

**PRODUCT INNOVATION DURING the GREAT DEPRESSIONLG1Developing a Total Product OfferSource: BusinessWeek Small Biz.14-*

YearProduct 1929Electric Razors1930Car Radios1930Supermarkets1933Chocolate Chip Cookies1933Laundromats

**POTENTIAL COMPONENTS of a TOTAL PRODUCT OFFERLG1Developing a Total Product Offer14-*

**Product Lines & Product MixProduct Line -- A group of products that are physically similar or intended for a similar market.Product lines often include competing brands like:M&MsPeanut M&MsMint M&MsDark Chocolate M&MsUNDERSTANDING PRODUCT LINESLG114-*

**Product Lines & Product MixProduct Mix -- The combination of all product lines offered by a manufacturer or service provider.Product mixes like Proctor & Gambles can be extensive:Laundry detergentCosmeticsDiapersPotato chipsBar soapThe PRODUCT MIXLG114-*

**Product Differentiation Product Differentiation -- The creation of real or perceived product differences.Marketers use a mix of pricing, advertising and packaging to create different images. Examples include:Bottled waterAspirinFast-foodLaundry detergentShampooDIFFERENTIATING PRODUCTSLG214-*

**Marketing Different Classes of Consumer Goods and Services Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include:Candy and snacksGasMilk and eggsCLASSIFYING CONSUMER GOODS and SERVICESLG214-*

**Marketing Different Classes of Consumer Goods and Services Shopping Goods and Services -- Products consumers buy only after comparing value, quality, price, and styles. These include:Clothes and shoesAppliances and furnitureChildcareHome remodeling CLASSIFYING SHOPPINGGOODS and SERVICESLG214-*

**Marketing Different Classes of Consumer Goods and Services Specialty Goods and Services -- Products with unique characteristics and brand identity. These include:Tiffany jewelryRolex watchesLamborghini automobilesRitz Carlton HotelsCLASSIFYING SPECIALTYGOODS and SERVICESLG214-*

**Marketing Different Classes of Consumer Goods and Services Unsought Goods and Services -- Products consumers arent aware of or havent thought of buying until they need them. These include:Car-towing servicesFuneral servicesRenters insuranceCLASSIFYING UNSOUGHTGOODS and SERVICESLG214-*

**How would you classify these consumer products?Beautyrest mattressHonda AccordMcDonalds Big MacRolls Royce automobilesOreo CookiesHarvard University degreeIDENTIFYING CONSUMER GOODS CLASSIFICATIONSLG2Marketing Different Classes of Consumer Goods and Services 14-*

**Pet Rock - For $3.95 you could buy a gift-wrapped rock with eyes and a training manual.Garbage Pail Kids - Perhaps the grossest trading cards ever produced.Mood Rings - Wildly popular as the changing colors of the ring supposedly measured your mood.Chia Pets - Animal shaped clay figures that grew sprouts.ODD PRODUCT IDEAS that WERE SUCCESSFULLG2Marketing Different Classes of Consumer Goods and Services 14-*

**Marketing Industrial Goods and ServicesIndustrial Goods -- Products used in the production of other products and sold in the B2B market.Industrial goods include:InstallationsCapital itemsAccessory equipmentSuppliesService CLASSIFYING INDUSTRIAL GOODS and SERVICES LG214-*

**Progress AssessmentWhat value enhancers may be included in a total product offer?Whats the difference between a product line and a product mix?Name the four classes of consumer goods and services and give examples of each.Describe three different types of industrial goods.PROGRESS ASSESSMENT14-*

**Packaging Changes the Product Companies often use packaging to change and improve their basic product. Examples include:Microwave popcornTuna pouchesMcDonalds green packagingCOMPANY USES of PACKAGING LG3Good packaging can also make a product more attractive to retailers.14-*

**Packaging Changes the Product To attract buyers attentionProtect the goods inside and be tamperproofDescribe and provide information about the productExplain the products benefitsProvide warranty information and warningsGive an indication of price, value, and usesSOME KEY FUNCTIONS of PACKAGINGLG314-*

**Branding and Brand EquityBrand -- Name, symbol, or design that identifies the goods or services and distinguishes them from competitors offerings.UNDERSTANDING BRANDINGLG4Trademark -- A brand that has exclusive legal protection for both its brand name and design.14-*

**Branding and Brand EquityManufacturers Brands Brand names of manufacturers that distribute products nationally. Dealer (Private-Label) Brands -- Products that carry a retailers or distributors brand name instead of a manufacturers. KEY BRAND CATEGORIESLG414-*

**Branding and Brand EquityGeneric Goods -- Non-branded products that sell at a discount compared to manufacturers or dealers brands.Knockoff Brands -- Illegal copies of national brands.KEY BRAND CATEGORIESLG414-*

**Generating Brand Equity and Loyalty Brand Equity The combination of factors (awareness, loyalty, perceived quality, images, and emotions) that people associate with a brand name. Brand Loyalty -- The degree to which consumers are satisfied and are committed to further purchases.ESTABLISHING BRAND EQUITY and LOYALTYLG414-*

**Volvo - Symbol for ironLamborghini - Company founders was a TaurusVolkswagen - Product of an office contestPorsche - Coat of arms for city and state headquartersORIGINS of AUTOMOBILE SYMBOLSLG4Generating Brand Equity and Loyalty Source: World Features Syndicate.14-*

**Timberland (U.S.A.) is putting a carbon label on its products.Tesco (U.K.) puts carbon labels on all products - including grocery bags.China and India, though, are building coal-powered plants and expanding car-use.The focus on climate change varies from country to country.COULDNT YOU MAKE a SMALLER FOOTPRINT?(Thinking Green)14-*

**Generating Brand Equity and Loyalty Brand Awareness -- How quickly or easily a given brand name comes to mind when someone mentions a product category.Consumers reach a point of brand preference when they prefer one brand over another.When consumers reach brand insistence, they will not accept substitute brands.BUILDING BRAND AWARENESS LG414-*

**Generating Brand Equity and Loyalty Brand Association -- Linking a brand to other favorable images, like celebrities or a geographic area.Brand Manager -- Person responsible for a particular brand and handles all the elements of the brands marketing mix.BUILDING BRAND ASSOCIATIONSLG414-*

**Progress AssessmentWhat six functions does packaging now perform?Whats the difference between a brand name and a trademark?Explain the difference between a manufacturers brand, a dealer brand, and a generic brand.What are the key elements of brand equity?PROGRESS ASSESSMENT14-*

**The New Product Development ProcessThe NEW PRODUCT DEVELOPMENT PROCESSLG514-*

**Product Screening -- Reduces the number of new products a firm is working on to focus on the most promising.Product Analysis -- Focuses on the cost estimates and sales forecasts to get an idea of potential profitability.BRINGING NEW PRODUCTS to the MARKETLG5The New Product Development Process14-*

**Concept Testing -- Takes a product idea to consumers to test reactions.BRINGING NEW PRODUCTS to the MARKETLG5The New Product Development ProcessCommercialization -- Promoting the product to distributors and retailers and developing the promotional campaign.14-*

**The Product Life CycleProduct Life Cycle -- A theoretical look at what happens to sales and profits for a product over time.Product Life Cycle Stages:IntroductionGrowth MaturityDecline The FOUR STAGES of a PRODUCT LIFE CYCLELG614-*

**The Product Life CycleSALES and PROFITS DURING the PRODUCT LIFE CYCLELG614-*

**PROFITS BEYOND the GRAVETop Earning Deceased Celebrities LG6The Product Life CycleSource: Forbes, www.forbes.com/deadcelebs. 14-*

CelebrityEarningsYear of DeathElvis Presley $52 Million1977Charles Schultz$33 Million2000Heath Ledger$20 Million2008Albert Einstein $18 Million1955Aaron Spelling$15 Million2006Dr. Seuss$12 Million1991John Lennon$9 Million1980

**Progress AssessmentWhat are the six steps in the new-product development process?Whats the difference between product screening and product analysis?What are the two steps in commercialization?Whats the theory of the product life cycle?PROGRESS ASSESSMENT14-*

**Competitive PricingAchieving a target return on investment or profitBuilding trafficAchieving greater market shareCreating an imageFurthering social objectives both short-run and long-runPRICING OBJECTIVESLG714-*

**Competitive PricingCost-based pricing measures cost of producing a product including materials, labor, and overhead.Target Costing -- Making the final price of a product an input in the product development process by estimating the selling price consumers will pay.Competition-Based Pricing -- A strategy based on what the competition is charging for its products.PRICING STRATEGIESLG714-*

**Choco-Logo saw its costs increase dramatically in one year. The company cut back by using less expensive packaging and reducing the size of a box of chocolates.WHEN SELLING SWEETS GOES SOUR(Reaching Beyond Our Borders)Pricing is a process thats never simple. You need to maintain high quality while cutting costs.14-*

**Break-Even AnalysisBreak-Even Analysis -- The process used to determine profitability at various levels of sales. The break-even point is where revenues equals cost.Total Fixed Costs -- All costs that remain the same no matter how much is produced or sold.Variable Costs -- Costs that change according to the level of production.USING BREAK-EVEN ANALYSISLG714-*

**Other Pricing StrategiesSkimming Price Strategy -- Pricing new products high to recover costs and make high profits while competition is limited.Penetration Price Strategy -- Pricing products low with the hope of attracting more buyers and discouraging other companies from competing in the market. Everyday Low Pricing (EDLP) -- Setting prices lower than competitors with no special sales.PRICING ALTERNATIVESLG714-*

**Other Pricing StrategiesHigh-Low Pricing -- Using regular prices that are higher than EDLP except during special sales when they are lower.Psychological Pricing -- Pricing products at price points that make a product seem less expensive than it is. PRICING STRATEGIES of RETAILERSLG714-*

**Progress AssessmentList two short-term and two long-term pricing objectives. Can the two be compatible?What are the limitations of a cost-based pricing system?Whats psychological pricing?PROGRESS ASSESSMENT14-*

**See Learning Goal 1: Describe a total product offer.*See Learning Goal 1: Describe a total product offer.

Untouchable Spending Cuts This slide profiles some of the goods and services people do not eliminate during a recession. Ask students: Why are the items listed on the slide untouchables? To further the discussion ask students: What items do they deem to be untouchable and why?See Learning Goal 1: Describe a total product offer.

Expendable Spending Cuts This slide shows the flipside of the previous slide and lists items that people are most likely to eliminate. Ask students to get into groups and discuss: Why are these items expendable, but the items on the previous slide are untouchable?See Learning Goal 1: Describe a total product offer.

See Learning Goal 1: Describe a total product offer.

The total product offering includes tangible as well as intangible benefits. See Learning Goal 1: Describe a total product offer.

Product Innovation During the Great Depression The late twenties and thirties are associated with the Great Depression, but the period was also one of great product innovation. The items on the slide were invented during the Great Depression. Have students look at the items and ask: Why do you think these items were developed during a time when most Americans had very little discretionary income? Have students work with a partner or small group to come up with specific reasons they think these products developed.

See Learning Goal 1: Describe a total product offer.

A product can be divided into the physical and the total product. Marketing managers must take the physical and add value to create the total product offer.See Learning Goal 1: Describe a total product offer.

See Learning Goal 1: Describe a total product offer.

To give students a visual of the products offered by Proctor and Gamble, use their website at www.pg.com and click on the products tab. See Learning Goal 2: Identify the various kinds of consumer and industrial goods.See Learning Goal 2: Identify the various kinds of consumer and industrial goods.

Location, brand awareness, and image are important in marketing these goods and services.

*See Learning Goal 2: Identify the various kinds of consumer and industrial goods.

Brand name, price, and quality differences are important in marketing these goods and services.

*See Learning Goal 2: Identify the various kinds of consumer and industrial goods.

Purchasers of the items listed on this slide are brand insistent and refuse to accept substitutes.*See Learning Goal 2: Identify the various kinds of consumer and industrial goods.

Unsought goods and services often rely on personal selling or specialty advertising - like the yellow pages.

*See Learning Goal 2: Identify the various kinds of consumer and industrial goods.

Identifying Consumer Goods Classifications:Beautyrest mattress - shopping goodHonda Accord - shopping goodMcDonalds Big Mac - convenience goodRolls Royce automobiles - specialty goodOreo Cookies - convenience goodHarvard University degree - specialty goodSee Learning Goal 2: Identify the various kinds of consumer and industrial goods.

Odd Product Ideas Not all successful products necessarily make sense. Take for example the products mentioned on this slide. To start a discussion on odd product offerings: Ask students to give examples of odd products that were successful or unsuccessful. For more examples of odd products that were not successful go to http://www.guidespot.com/guides/ridiculous_stupid_products_inventions.

See Learning Goal 2: Identify the various kinds of consumer and industrial goods.

What value enhancers may be included in a total product offer? Some value enhancers that may be included in the total product offering include: brand name, warranty, service, store surroundings, and speed of delivery.

Whats the difference between a product line and a product mix? Product line refers to the group of products that are physically similar or intended for a similar market. These products may face similar competition. For example, you can purchase a Diet Coke, Diet Coke with Splenda etc. The product mix is the total of the product lines offered by a particular company. The text uses the example of Procter and Gamble.

Name the four classes of consumer goods and services and give examples of each. The four classes of consumer goods and services include: Convenience goods and services - candy, gum and milkShopping goods and services - clothes, shoes and appliancesSpecialty goods and services - fur coats, imported chocolates and business consultantsUnsought goods and services - burial service, insurance and emergency drain cleaning

Describe three different types of industrial goods. Installation goods consist of major capital equipment. 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 and include computers, copy machines, and various tools.

See Learning Goal 3: Summarize the functions of packaging.

*See Learning Goal 3: Summarize the functions of packaging.

See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.

Recognized trademarks include the Nike Swoosh, the Pillsbury Doughboy, and Apples Apple.

*See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.

Manufacturers brand examples - Ford, Microsoft, XeroxDealer brand examples - Kenmore from Sears*See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.

*See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.

Example Coca-Cola and Ziploc have strong brand equity.*See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.

Origins of Automobile Symbols This slide presents the origins of car symbols. Ask the students: How important is the name and symbol of a product? What aspects should be considered in the naming process? (Most students should suggest that the name of your product is very important, because it represents your company, tells the customers what the product is, and it should mean something.) Given that there are so many models of cars in so many different countries, naming cars becomes a very complex process. Should only one name be used in all countries or different names for the same model in different countries?

See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.

See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.

*See Learning Goal 4: Contrast brand, a brand name, and trademark and show the value of brand equity.

*What six functions does packaging now perform? The six functions packaging performs include: attract the buyers attention, protect the goods inside, be easy to open, describe and give information, explain the benefits of the good inside, and provide information on warranties, warnings and other consumer matters.

Whats the difference between a brand name and a trademark? Brand names consist of a word, letter or group of words or letters that set it apart from other goods and services. A trademark is a brand that has exclusive legal protection for both its brand name and design.

Explain the difference between a manufacturers brand, a dealer brand, and a generic brand. A manufacturers brand represents manufacturers that distribute their products nationally such as Xerox or Dell. A dealer brand is often referred to as a private label and will not carry the manufacturers name, but rather carries the name of the distributor instead. For example, Kenmore is a dealer brand sold via Sears. A generic brand is the name of an entire product category.

What are the key elements of brand equity? Brand equity is the value of the brand name and associated symbols. The elements of brand equity include: brand loyalty, brand awareness, and brand association.

See Learning Goal 5: Explain the steps in the new product development cycle.

Green Ketchup and New Coke are two of the many thousands of products that failed. New product failure is common due to the fact that companies fail to properly manage the new product development process. *See Learning Goal 5: Explain the role of brand managers and the steps of the new-product development process.*See Learning Goal 5: Explain the role of brand managers and the steps of the new-product development process.*See Learning Goal 6: Describe the product life cycle.

*See Learning Goal 6: Describe the product life cycle.

*See Learning Goal 6: Describe the product life cycle.

Profits Beyond the Grave This slide explores the top earnings of deceased celebrities. Ask students: What do you think the future earnings of Michael Jackson will be?*What are the six steps in the new-product development process? The six steps in the new-product development process include: Idea generation, development, product screenings, testing, product analysis, and commercialization.

Whats the difference between product screening and product analysis? During the product screening process the number of new-product ideas a firm is working on is reduced, so that it may focus on the most promising ideas. Product analysis occurs after screening and involves making cost estimates and sales forecasts to get a feeling for the profitability of new-product ideas.

What are the two steps in commercialization? The two steps in commercialization involve promoting the product to distributors and retailers, and the development of strong advertising and sales campaigns.

Whats the theory of the product life cycle? The product life cycle is a theoretical model which explains what happens to sales and profit for a product over a particular period of time. This model has four stages: introduction, growth, maturity, and decline. See Learning Goal 7: Identify various pricing objectives and strategies.

One strategy many students have experienced but might not fully understand is the loss leader strategy. This strategy is often used around the Thanksgiving holiday when grocery stores offer to sell customers turkeys for much less than their actual cost in an effort to attract consumers into the store. This leads to more traffic and sales of more products. *See Learning Goal 7: Identify various pricing objectives and strategies.

*See Learning Goal 7: Identify various pricing objectives and strategies.

See Learning Goal 7: Identify various pricing objectives and strategies.

*See Learning Goal 7: Identify various pricing objectives and strategies.

When Apple introduced the iPhone, they used a skimming price strategy. The everyday low pricing or EDLP has been effectively used by Wal-Mart to dominate the retail sector. *See Learning Goal 7: Identify various pricing objectives and strategies.

*List two short-term and two long-term pricing objectives. Can the two be compatible? Short-term pricing objectives include loss leaders and is designed to build traffic as well as achieving greater market share. Long-term pricing objectives include achieving a target return on investment and creating a certain image. It is important that marketing managers set pricing objectives in context of other marketing decisions, since the pricing objectives may differ greatly.

What are the limitations of a cost-based pricing system? The limit of a cost-based pricing system is that in the long run it is not the producer that establishes price but rather the market place. To effectively establish price, the producer must take into account competitor prices, marketing objectives, actual cost, and the expected cost of product updates.

Whats psychological pricing? Psychological pricing involves setting the price of goods or services at price points that make the product appear less expensive. For example, a TV may be priced at $999, since it sounds less expensive than $1,000.