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Chapter. Developing and Pricing Products (Goods and Services). 14. 14- 1. Developing and Pricing Products. This chapter explores two elements of the Marketing Mix Product Price. Product. How Six Products Were First Marketed. PRODUCT INNOVATION DURING the GREAT DEPRESSION.

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  1. Chapter Developing and Pricing Products (Goods and Services) 14 14-1

  2. Developing and Pricing Products • This chapter explores two elements of the Marketing Mix • Product • Price

  3. Product

  4. How Six ProductsWere First Marketed

  5. PRODUCT INNOVATION DURING the GREAT DEPRESSION

  6. Product Lines& The Product Mix

  7. Product Lines • Product Line -- A group of products that are physically similar or intended for a similar market. • Product lines often include competing brands like: • M&Ms • Peanut M&Ms • Mint M&Ms • Dark Chocolate M&Ms

  8. The Product Mix • Product Mix -- The combination of all product lines offered by a manufacturer or service provider. • Product mixes like Proctor & Gamble’s can be extensive: • Laundry detergent • Cosmetics • Diapers • Potato chips • Bar soap

  9. Theme parks & resorts ABC Television Network TV & radio stations Film studios & production Video programs & licensing Consumer products Publishing Mickey Mouse’s Product Mix

  10. DIFFERENTIATING PRODUCTS • 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 water • Aspirin • Fast-food • Laundry detergent • Shampoo

  11. Classifying Classesof Goods & Services • Consumer • Purchased for personal consumption or use • Sometimes called B2C Goods • Industrial (Business) • Purchased for use in production of other products • Sometimes called B2B Goods • Commercial goods

  12. Classifying Classes of Consumer Goods & Services • Convenience • Shopping • Specialty • Unsought

  13. Classifying Convenience Goods and Services • Convenience Goods and Services -- Products consumers purchase frequently with minimal effort. These include: • Candy and snacks • Gas • Milk and eggs

  14. Classifying Shopping Goods and Services • Shopping Goods and Services -- Products consumers buy only after comparing value, quality, price, and styles. These include: • Clothes and shoes • Appliances and furniture • Childcare • Home remodeling

  15. Classifying SpecialtyGoods and Services • Specialty Goods and Services -- Products with unique characteristics and brand identity. These include: • Tiffany jewelry • Rolex watches • Lamborghini automobiles • Ritz Carlton Hotels

  16. Classifying Unsought Goods and Services • Unsought Goods and Services -- Products consumers aren’t aware of or haven’t thought of buying until they need them. These include: • Car-towing services • Funeral services

  17. Classifying Classes of Industrial Goods & Services • Industrial Goods -- Products used in the production of other products and sold in the B2B market. • Industrial goods include: • Capital items • Installations • Accessory equipment • Supplies • Service

  18. Packaging

  19. Some Key Functions of Packaging • To attract buyers’ attention • Protect the goods inside and be tamperproof • Describe and provide information about the product • Explain the product’s benefits • Provide warranty information and warnings • Give an indication of price, value, and uses

  20. Uses of Packaging • Companies often use packaging to change and improve their basic product. Examples include: • Milk Cartons • Salt • Good packaging can also make a product more attractive to retailers.

  21. Labeling Regulations • Federal Fair Packaging and Labeling Act of 1966 aims at making labels more helpful to consumers by providing useful information. • Food and Drug Administration requires food labels to tell how much fat, saturated fat, cholesterol, calories, carbohydrates, protein, trans fats, and vitamins are in each product serving.

  22. Bundling -- Grouping two or more products together and pricing them as a unit. BUNDLING • Virgin Airlines bundles door-to-door limo service and inflight massage with some tickets. • Financial institutions bundle advice with purchases. Photo Courtesy of: Joey Day 14-27

  23. Branding

  24. Understanding Branding • Brand • Name, symbol, or design (or combination) that identifies goods or services of one seller or group of sellers and distinguishes them from the goods and services of competitors

  25. Understanding Branding • Trademark • Brand that has been given exclusive legal protection for both the brand name and pictorial design • Apple vs. Cisco Systems • “iPhone”

  26. Brand Categories • Manufacturers’ Brands – Brand names of manufacturers that distribute products nationally. • Dealer (Private-Label) Brands -- Products that carry a retailer’s or distributor’s brand name instead of a manufacturer’s.

  27. Brand Categories • Generic Goods -- Non-branded products that sell at a discount compared to manufacturers’ or dealers’ brands. • Knockoff Brands -- Illegal copies of national brands.

  28. Knock-Off Brands • Original Swiss made Rolex replicas are as close to the real thing as a replica watch can be.Sometimes even the professional experts are unable to tell the difference from the original Rolex watch. • All real Swiss Rolex Replicas should have the following: • Full 1-year Warranty • Solid 14k or 18k Gold on two-toned models• Guaranteed triple-wrapped gold on all-gold models • Genuine sapphire crystal - a type of glass that is many times better at resisting scratches than regular glass.• The color of the gold looks exactly like a genuine Rolex watch • If the retail dealer does not offer this, do not purchase from them! • REPLICA \/\/atches BAZAAR!

  29. Brand Management • Brand Manager / Product Manager • Person responsible for building a particular brand and handles all the elements of the brand’s marketing mix • Has direct responsibility for one brand or one product line

  30. MOST VALUABLE BRANDS Source: Forbes, August 30, 2010. 14-37

  31. Top 10 Favorite Mascots of America • M&Ms figures / Mars • Doughboy / General Mills, Smucker’s • Duck / Aflac • Tony the Tiger / Kellogg • Gecko / Berkshire Hathaway’s Geico • Chester the Cheetah / Pepsi’s Frito-Lay • Energizer Bunny / Energizer Holdings • Kool-Aid Man / Kraft Foods • Trix Rabbit / General Mills • Snap, Crackle and Pop / Kellogg Source: Forbes, January 9, 2006

  32. Juicy Fruit with Lemon Lime Lemon Meringue Cream Wizard Wintergreen Crow Clove Kentucky No Nip Cherry Julep Satan’s Punch Green Tangerine Sourer Key Lime Cream Soft Drink BrandsThat Didn’t Make It Source: St. Louis Post-Dispatch

  33. Classic Product Failures Company Loss Failure Edsel Corfam VideoDisc PCjr New Coke Premier Ford Motor Co. DuPont RCA IBM Coca-Cola R. J. Reynolds $250 M $100 M $500 M $ 40 M No $ Number No $ Number

  34. Product Life Cycle

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

  36. The Product Life Cycle

  37. The Product Life Cycle

  38. Pricing

  39. Objectives ROI Building Traffic Market Share Sales Creating Image Social Objectives Cost-Based Demand-Based Target Costing (Price-led costing) Cost is input to development – not outcome Competition-Based Price Leadership Price Following Pricing in the Service Sector Pricing

  40. Break-Even Analysis

  41. The Product Life Cycle

  42. Using Break-Even Analysis • Break-Even Analysis -- The process used to determine profitability at various levels of sales. • The break-even point is where revenues equals costs.

  43. Break-Even Point Definitions Fixed Costs Variable Costs Total Cost Break-Even Analysis

  44. Using Break-Even Analysis • 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 • Total Costs – Sum of Total Fixed Costs and Variable Costs

  45. Break-Even Point ($) = Total Fixed Cost (FC) 1 – Variable Cost (VC) Price (P) Break-Even Analysis • Break-Even Point (units) = Total Fixed Cost (FC) • Price (P) – Variable Cost (VC)

  46. Breakeven Chart Total Revenue or Total Cost Number of Units

  47. Break-Even Point (units) = Total Fixed Cost (FC) Price (P) – Variable Cost (VC) (per unit) (per unit) Break-Even Analysis

  48. Breakeven Analysis Total Revenue or Total Cost Price = $25.00 VC/Unit = $15.00 Number of Units

  49. Break-Even Point = $200,000__________ $25.00 – $15.00 = 20,000 Units Break-Even Analysis

  50. Breakeven Chart Total Revenue or Total Cost Number of Units

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