Chapter 13 Crea+ng and Pricing Products That Sa+sfy Customers

Transcription

1 Chapter 13 Crea+ng and Pricing Products That Sa+sfy Customers 1 Explain what a product is and how products are classified. 2 Discuss the product life cycle and how it leads to new product development. 3 Define product line and product mix and dis+nguish between the two. 4 Iden+fy the methods available for changing a product mix. 5 Explain the uses and importance of branding, packaging, and labeling. 13 1

2 6 Describe the economic basis of pricing and the means by which sellers can control prices and buyers percep+ons of prices. 7 Iden+fy the major pricing objec+ves used by businesses. 8 Examine the three major pricing methods that firms employ. 9 Explain the different strategies available to companies for serng prices. 10 Describe three major types of pricing associated with business products. 13 2

3 Classifica+on of Products Product Everything one receives in an exchange, including all tangible and intangible atributes and expected benefits A good, service, or idea Consumer product A product purchased to sa+sfy personal and family needs Business (industrial) product A product bought for resale, for making other products, or for use in a firm s opera+ons 13 3

4 Consumer Product Classifica+ons Convenience product A rela+vely inexpensive, frequently purchased item for which buyers want to exert only minimum effort Shopping product An item for which buyers are willing to expend considerable effort on planning and making the purchase Specialty product An items that possesses one or more unique characteris+cs for which a significant group of buyers is willing to expend considerable purchasing effort 13 4

5 Business Product Classifica+ons Raw material A basic material that becomes part of a physical product; usually comes from mines, forests, oceans, or recycled solid wastes Major equipment Large tools and machines used for produc+on purposes Accessory equipment Standardized equipment used in a firm s produc+on or office ac+vi+es Component part An item that becomes a part of a physical product and is either a finished item ready for assembly or a product that needs litle processing before assembly 13 5

6 Business Product Classifica+ons (cont d) Process material A material that is used directly in the produc+on of another product but is not readily iden+fiable in the finished product Supply An item that facilitates produc+on and opera+ons but does not become part of the finished product Business service An intangible product that an organiza+on uses in its opera+ons 13 6

7 The Product Life Cycle A series of stages in which a product s sales revenue and profit increase, reach a peak, then decline IntroducFon Customer awareness and acceptance are low Growth Sales increase rapidly as the product becomes well known Maturity Sales are s+ll increasing but at a slower rate; later in this stage, sales and profits begin to slowly decline Decline stage Sales volume decreases sharply and profits con+nue to fall 13 7

8 Product Life Cycle FIGURE 13-1 Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 16 th ed. (Mason, Ohio: South-Western/Cengage Learning, 2012). Adapted with permission. 13 8

9 Using the Product Life Cycle Marketers should be aware of the life- cycle stage of each product for which they are responsible and should try to esfmate how long the product is expected to remain in that stage Both must be taken into account in making decisions about the marke+ng strategy for a product 13 9

10 Product Line and Product Mix Product line A group of similar products that differs only in rela+vely minor characteris+cs Product mix All of the products that a firm offers for sale 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 13 10

11 Managing the Product Mix Managing exisfng products Product modifica+on: the process of changing one or more of a product s characteris+cs such as quality, func+on, aesthe+cs Line extensions: development of a product closely related to one or more products in the exis+ng product line but designed specifically to meet somewhat different customer needs DeleFng products Developing new products Imita+ons, adapta+ons, or innova+ons Consists of seven phases 13 11

12 Phases of New Product Development FIGURE 13-2 Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 17 th ed. (Mason, Ohio: South-Western/Cengage Learning, 2014). Adapted with permission

13 Why Do Products Fail? The product and its markefng 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 en+re marke+ng mix The firm markets a new product before all the bugs are worked out When problems show up in tesfng, a firm tries to recover its costs by pushing ahead anyway A firm tries to market a product with inadequate financing 13 13

14 Branding What is a brand? A name, term, symbol, design, or any combina+on of these that iden+fies a seller s products as dis+nct from those of other sellers Brand name The part of a brand that can be spoken Brand mark The part of a brand that is a symbol or dis+nc+ve 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 Trade name The complete and legal name of an organiza+on 13 14

15 Branding (cont d) Types of Brands Manufacturer (producer) brand A brand that is owned by a manufacturer Store (private) brand A brand that is owned by an individual wholesaler or retailer Generic brand A product with no brand at all 13 15

16 Branding (cont d) Benefits of branding Because brands are easily recognizable, they reduce the amount of +me buyers must spend shopping Brands help consumers judge quality Branding helps a firm introduce a new product with the same brand name Branding aids in promo+onal efforts because promo+on of each branded product indirectly promotes others with the same brand 13 16

17 Branding (cont d) Benefits of branding (cont d) Brand loyalty The extent to which a customer is favorable toward buying a specific brand Recogni+on, preference, and insistence Brand equity The marke+ng and financial value associated with a brand s strength in a market Brand- name awareness, brand associa+on, perceived quality, and brand loyalty 13 17

18 Branding (cont d) Choosing a brand It should be easy to say, spell, and recall It should suggest, in a posi+ve way, the product s uses, special characteris+cs, and major benefits It should be dis+nc+ve enough to set it apart from compe+ng brands ProtecFng a brand Should be protected through registra+on Guard against a brand name s becoming a generic term 13 18

19 Branding (cont d) 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 product mixes The promo+on 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 13 19

20 Branding (cont d) Branding strategies (cont d) Brand extensions A firm uses an exis+ng brand to brand a new product in a different product category For example, Procter & Gamble named a new product Ivory Body Wash Cau+on must be taken in extending a brand too many +mes or too far outside the original product category For example, Kellogg s extended its brand name to a line of hip- hop street clothing that was a failure 13 20

21 Packaging All of the acfvifes involved in developing and providing a container with graphics for a product FuncFons of packaging Protect the product and maintain its func+onal form Offer consumer convenience Promote the product by communica+ng its features, uses, benefits, and image Design considerafons Cost Single or mul+ple units Consistency among package designs (family packaging) Promo+onal role Needs of intermediaries Environmental responsibility 13 21

22 Labeling The presentafon of informafon on a product or its package May include Brand name and mark Trademark symbol Package size and contents Product claims Direc+ons Safety precau+ons Ingredients Name and address of manufacturer Universal Product Code (UPC) symbol for automated checkout and inventory control 13 22

23 Labeling (cont d) Must include For garments, name of manufacturer, country of manufacture, fabric content, cleaning instruc+ons Nutri+on labeling in standard format for any food product for which a nutri+onal 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 precau+ons and instruc+ons Express warranty A writen explana+on of the producer responsibili+es if the product is found to be defec+ve or otherwise unsa+sfactory 13 23

24 Pricing Products Meaning and use of price The amount of money a seller is willing to accept in exchange for a product at a given +me 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 sa+sfy customers needs Price helps customers allocate their own financial resources among various want- sa+sfying products 13 24

25 Pricing Products (cont d) Supply and demand affects prices Supply The quan+ty of a product that producers are willing to sell at each of various prices Quan+ty supplied by producers increases as the price increases Demand The quan+ty of a product that buyers are willing to purchase at each of various prices Quan+ty demanded increases as the price decreases Equilibrium Where the supply and demand curves intersect and quan+ty and price for buyers and sellers are equal 13 25

26 FIGURE 13-3 Supply and Demand Curves 13 26

27 Pricing Products (cont d) Price and non- price compeffon Price compeffon An emphasis on serng a price equal to or lower than compe+tors prices to gain sales or market share Non- price compeffon Compe++on based on factors other than price (such as quality, customer service, packaging) Buyers percepfons 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 13 27

28 Pricing Objec+ves Survival Pricing the firm s products (perhaps at a loss) in order to atract customers to establish the firm in a market Profit maximizafon Pricing with the intent to reap profits as large as possible from a market usually an unatainable goal Target return on investment (ROI) Pricing that allows the firm to atain its profit goal, which is a percentage of the investment the firm has made 13 28

29 Pricing Objec+ves (cont d) Market- share goals Pricing that will increase a firm s propor+on of total industry sales Status quo pricing Pricing the firm s products so as not to disturb the stability of prices in the industry 13 29

30 Pricing Methods Cost- based pricing The seller determines the total cost of producing one unit of the product then adds an amount to cover addi+onal costs and profit (markup) Markup may be calculated as a percentage of total costs Flaws Difficulty of determining an effec+ve markup percentage; price may be too high, resul+ng in lost sales, or price may be too low, resul+ng in lost profit Separates pricing from other business func+ons that impact marke+ng decisions 13 30

31 Pricing Methods Breakeven analysis Breakeven quanfty 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 The total amount received from sales of a product Fixed cost A cost incurred no mater how many units are produced or sold Variable cost A cost that depends on the number of units produced Total cost The sum of the fixed costs and the variable costs atributed to a product 13 31

32 Breakeven Analysis What is the lowest level of producfon and sales at which a company can break even on a parfcular product? FIGURE

33 Pricing Methods (cont d) 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 differen+a+on SeRng different prices in segmented markets based on segment characteris+cs (e.g., +me of purchase, type of customer, or distribu+on channel) CompeFFon- based pricing Based on mee+ng the challenge of compe+tors prices in markets where products are quite similar or price is an important customer considera+on 13 33

34 Types of Pricing Strategies FIGURE

35 Pricing Strategies New- product strategies Price skimming Charging the highest possible price for a product during the introduc+on stage of its life cycle PenetraFon pricing SeRng a low price for a new product to quickly build market share and discourage compe+tors 13 35

36 Pricing Strategies (cont d) DifferenFal pricing Charging different prices to different buyers for the same quality and quanfty of product The market must consist of mulfple segments with different price sensifvifes NegoFated pricing Establishing a final price through bargaining Secondary- market pricing SeRng one price for the primary target market and a different price for another market Periodic discounfng Temporary reduc+on of prices on a paterned or systema+c basis Random discounfng Temporary reduc+on of prices on an unsystema+c basis 13 36

37 Pricing Strategies (cont d) Psychological pricing Odd- number pricing SeRng prices using odd numbers that are slightly below whole- dollar amounts MulFple- unit pricing SeRng a single price for two or more units Reference pricing Pricing a product at a moderate level and posi+oning 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) SeRng a low price for products on a consistent basis Customary pricing Pricing on the basis of tradi+on 13 37

38 Pricing Strategies (cont d) Product- line pricing Establishing and adjus+ng the prices of mul+ple products within a product line CapFve 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- versa+le products higher than other models in the product line Price lining Selling goods only at certain predetermined prices that reflect definite price breaks 13 38

39 Pricing Strategies (cont d) PromoFonal pricing Price leaders Products priced below the usual markup, near cost, or below cost Special- event pricing Adver+sed sales or price curng linked to a holiday, season, or event Comparison discounfng SeRng a price at a specific level and comparing it with a higher price 13 39

40 Pricing Business Products Geographic pricing Deals with delivery costs FOB (free- on- board) origin pricing The seller s pricing is exclusive of delivery costs; the buyer pays the transporta+on costs FOB desfnafon pricing The seller includes transporta+on costs in the product pricing Transfer pricing Prices charged in sales between an organiza+on s units 13 40

41 Pricing Business Products (cont d) DiscounFng A discount is a deduc+on from the price of an item 13 41