Chapter Thirteen. Learning Objectives

Transcription

1 Chapter Thirteen Creating and Pricing Products that Satisfy Customers Learning Objectives 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 distinguish between the two. 4. Identify the methods available for changing a product mix. 5. Explain the uses and importance of branding, packaging, and labeling. 13 2

2 Learning Objectives (cont d) 6. Describe the economic basis of pricing and the means by which sellers can control prices and buyers perceptions of prices. 7. Identify the major pricing objectives used by businesses. 8. Examine the three major pricing methods that firms employ. 9. Explain the different strategies available to companies for setting prices. 10. Describe three major types of pricing associated with business products Chapter 13 Outline Classification of Products Consumer Products Business Products The Product Life Cycle Stages of the Product Life Cycle Using the Product Life Cycle Product Line and Product Mix Managing the Product Mix Managing Existing Products Deleting Products Developing New Products 13 4

3 Chapter 13 Outline (cont d) Branding, Packaging, and Labeling What Is a Brand? Types of Brands Benefits of Branding Choosing and Protecting a Brand Branding Strategies Packaging Labeling Pricing Products The Meaning and Use of Price Supply and Demand Affects Prices Price and Nonprice Competition Buyers Perceptions of Price 13 5 Chapter 13 Outline (cont d) Pricing Objectives Survival Profit Maximization Target Return on Investment Market Share Goals Status Quo Pricing Pricing Methods Cost Based Pricing Demand Based Pricing Competition Based Pricing 13 6

4 Chapter 13 Outline (cont d) Pricing Strategies New Product Pricing Differential Pricing Psychological Pricing Product Line Pricing Promotional Pricing Pricing Business Products Geographic Pricing Transfer Pricing Discounting 13 7 Product Classification of Products Consumer product Business (industrial) product 13 8

5 Consumer Product Classifications Convenience product Shopping product Specialty product 13 9 Business Product Classifications Raw material Major equipment Accessory equipment Component part 13 10

6 Business Product Classifications (cont d) Process material Supply Business service The Product Life Cycle A series of stages in which a product s sales revenues and profits increase, reach a peak, then decline Introduction Growth Maturity Decline stage 13 12

7 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 estimate how long the product is expected to remain in that stage Both must be taken into account in making decisions about the marketing strategy for a product Product Line and Product Mix Product line Product mix All of the products that a firm offers for sale Width of the mix Depth of the mix 13 14

8 Managing the Product Mix Managing existing product Product modification Line extensions Deleting products Developing new products 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 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 financingi 13 16

9 Branding What is a brand? Brand name Brand mark Trademark Trade name Types of Brands Branding (cont d) Manufacturer (producer) brand Store (private) brand Generic brand 13 18

10 Benefits of branding Branding (cont d) Because brands are easily recognizable, they reduce the amount of time 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 promotional efforts because promotion of each branded product indirectly promotes others with the same brand Branding (cont d) Benefits of branding (cont d) Brand loyalty Brand equity 13 20

11 Choosing a brand Branding (cont d) It should be easy to say, spell, and recall It should suggest, in a positive way, the product s uses, special characteristics, and major benefits It should be distinctive enough to set it apart from competing brands Protecting a brand Should be protected through registration Guard against a brand name s becoming a generic term Branding strategies Branding (cont d) Individual branding Family branding 13 22

12 Packaging All of the activities involved in developing and providing a container with graphics for a product Functions of packaging Design considerations Labeling 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 13 24

13 Labeling (cont d) 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, number of servings, serving size, calories per serving, calories derived from fat, and amounts of specific nutrients For nonedible items such as shampoo and detergent, safety precautions and instructions Express warranty A written explanation of the producer responsibilities in the product is found to be defective or otherwise unsatisfactory 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 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 13 26

14 Pricing Products (cont d) Supply and demand affects prices Supply Demand Equilibrium Pricing Products (cont d) Price and nonprice competition Price competition Nonprice competition 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 13 28

15 Pricing Objectives Survival Profit maximization Target return on investment (ROI) Market share goals Status quo pricing Cost based pricing Pricing Methods 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 13 30

16 Breakeven analysis Breakeven quantity Pricing Methods Total revenue Fixed cost Variable cost Total cost Pricing Methods (cont d) Demand based pricing Based on the level lof customer demand d for the product Product prices are high when demand is high and low when demand is weak Price differentiation 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 13 32

17 Pricing Strategies New product 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 (cont d) 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 Secondary market pricing Periodic discounting Random discounting 13 34

18 Pricing Strategies (cont d) Psychological pricing Odd number pricing Multiple unit pricing Reference pricing Bundle pricing Everyday low prices (EDLPs) Customary pricing Pricing Strategies (cont d) Product line pricing Establishing and adjusting the prices of multiple l products within a product line Captive pricing Premium pricing Price lining 13 36

19 Pricing Strategies (cont d) Promotional pricing Price leaders Special event pricing Comparison discounting Pricing Business Products Geographic pricing Deals with delivery costs FOB (free on board) origin pricing FOB destination pricing Transfer pricing Prices charged in sales between an organization s units 13 38

20 Pricing Business Products (cont d) Discounting Trade discounts Quantity discounts Cash discounts Seasonal discounts Allowances 13 39

21 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.1 Product Life Cycle 177 Money Product Life Cycle Introduction Growth Maturity Decline Industry sales volume Industry profits Time Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Adapted with permission Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 177 3/6/09 8:35:47 PM

22 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.2 Phases of New Product Development Phases of New Product Development Idea generation 2 Screening 3 Concept testing 4 Business analysis 5 Product development 6 Test marketing 7 Commercialization Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Adapted with permission Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 178 3/6/09 8:35:47 PM

23 Pride/Hughes/Kapoor, BUSINESS, 10th edition Table 13.1 Examples of Product Failures 179 Examples of Product Failures Company Product Gillette For Oily Hair shampoo 3M Floptical storage disk IncrEdibles Breakaway Foods Push n Eat General Mills Betty Crocker MicroRave Singles Adams (Pfizer) Body Smarts nutritional bars General Motors Corp. Cadillac Allante luxury sedan Anheuser-Busch Companies Bud Dry and Michelob Dry beer Coca-Cola Surge Citrus drink Heinz Ketchup Salsa Noxema Noxema Skin Fitness Sources: accessed January 23, 2006; Robert M. McMath, Copycat Cupcakes Don t Cut It, American Demographics, January 1997, p. 60; Eric Berggren and Thomas Nacher, Why Good Ideas Go Bust, Management Review, February 2000, pp Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 179 3/6/09 8:35:47 PM

24 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.3 Supply and Demand Curves 180 Price per pair in dollars Supply and Demand Curves Quantity Supplied Quantity Demanded Quantity Supplied/Demanded S D D S E Millions Millions Millions 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 180 3/6/09 8:35:48 PM

25 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.4 Breakeven Analysis 181 Breakeven Analysis $120,000 Total revenue Profit Costs/revenues $80,000 $40,000 Loss Breakeven quantity Fixed costs Total cost Variable costs Quantity in units Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 181 3/6/09 8:35:48 PM

26 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.5 Types of Pricing Strategies 182 Types of Pricing Strategies PRICING STRATEGIES New-Product Pricing Differential Pricing Psychological Pricing Product-Line Pricing Promotional Pricing Price skimming Negotiated pricing Odd-number Captive pricing Penetration Secondary-market pricing Premium pricing pricing pricing Multiple-unit Price lining Periodic pricing discounting Reference pricing Random Bundle pricing discounting Everyday low prices Customary pricing Price leaders Special-event pricing Comparison discounting 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 182 3/6/09 8:35:48 PM

27 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.A Chapter Outline Chapter 13 Outline Creating and Pricing Products That Satisfy Customers Classification of Products Consumer Products Business Products The Product Life Cycle Stages of the Product Life Cycle Using the Product Life Cycle Product Line and Product Mix Managing the Product Mix Managing Existing Products Deleting Products Developing New Products Branding, Packaging, and Labeling What Is a Brand? Branding Strategies Types of Brands Packaging Benefits of Branding Labeling Choosing and Protecting a Brand Pricing Products The Meaning and Use of Price Supply and Demand Affects Prices Price and Nonprice Competition Buyers Perceptions of Price Pricing Objectives Survival Market-Share Goals Profit Maximization Status Quo Pricing Target Return on Investment Pricing Methods Cost-Based Pricing Competition-Based Pricing Demand-Based Pricing Pricing Strategies New Product Strategies Product-Line Pricing Differential Pricing Promotional Pricing Psychological Pricing Strategies Pricing Business Products Geographic Pricing Discounting Transfer Pricing Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 183 3/6/09 8:35:49 PM

28 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.B Class Exercise Class Exercise 184 Every product progresses through a product life cycle. For the products below, determine what stage of product life cycle the product is currently in and the marketing implications involved. Product 1. Compact disc players 2. Online computer services 3. Aspirin Stage of Product Life Cycle Marketing Implications 4. Cigarettes 5. Laptop computers 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 184 3/6/09 8:35:49 PM

29 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.C Debate Issue 185 Debate Issue Is price competition more effective than nonprice competition? YES Many customers today are very price conscious. With so many homogeneous products on the market, price is a major means of distinguishing a product from competitive brands. When price competition is used, firms attempt to keep their costs low. NO Price competition breeds pricesensitive customers with little brand loyalty. Product features and quality are more distinguishing in setting a product apart from its competitors. Nonprice variables should be desirable to buyers as well as difficult to imitate Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 185 3/6/09 8:35:49 PM

30 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.D Chapter Quiz Chapter Quiz All of the following are characteristics of the growth stage of the product life cycle except a. a rapid increase in sales. b. the introduction of competing products. c. decreased unit prices but overall increase in total profits. d. the introduction of modified versions of its products by the original firm. e. a decline in the number of competing firms. 2. If Samsonite decided to use better zippers on its luggage that make the luggage more durable, it has made modifications. a. aesthetic b. functional c. texture d. quality e. market 3. The Nike swoosh is a a. brand. b. generic symbol. c. label. d. brand mark. e. Universal Product Code. 4. In setting prices, managers should consider the of people in the target market. a. demographics b. ages c. price sensitivity d. philosophy e. occupations 5. The pricing strategy that requires the buyer to pay the greatest portion of the delivery costs is called a. railhead pricing. b. parcel post. c. express delivery cost. d. FOB origin pricing. e. C.O.D. pricing Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 186 3/6/09 8:35:49 PM

31 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.E Pricing Objectives 187 Pricing Objectives Survival Profit maximization Return on investment Market share Status quo 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 187 3/6/09 8:35:49 PM

32 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.F Factors That Affect Pricing Decisions 188 Factors That Affect Pricing Decisions 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 188 3/6/09 8:35:49 PM

33 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 13.G Definition of Product 189 PRODUCT Everything one receives in an exchange, including all tangible and intangible attributes and expected benefits 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_13_ch13_p indd 189 3/6/09 8:35:53 PM