Creating and Pricing Products That Satisfy Customers

1. Creating and Pricing Products That Satisfy Customers

2. Learning Objectives 12-1 Explain what a product is and how products are classified. 12-3Define product line and product mix and distinguish between the two. 12-4cDeveloping New Products 12-5Explain the uses and importance of branding, packaging, and labeling.

3. Learning Objectives (continued) 12-6Price and Perception 12-8 Examine the three major pricing methods that firms employ. 12-9Explain the different strategies available to companies for setting prices.

4. Learning Objectives 12-1Consumer vs. Business Products? Which one (or more) relate to us? 12-3Define product line and product mix and distinguish between the two What will we have, and why? 12-4cExplain the process What parts apply to us? 12-5Why is branding and packaging important? How can we use this in our business?

5. Learning Objectives (continued) 12-6What are the three strategies explained in the book? How does price influence perception? 12-8 Examine the three major pricing methods that firms employ. Which one is best for us, and why? 12-9Explain the 5 different strategies available to companies for setting prices. Which one/ones might we want to use?

6. Product • Product: Everything one receives in an exchange, including all tangible and intangible attributes and expected benefits • Can be a: • Good • Service • Idea

7. Classification of Products • Consumer product: Purchased to satisfy personal and family needs • Business product: Bought for resale, making other products, or using in a firm’s operations

8. Consumer Product Classifications • Convenience product: Inexpensive, frequently purchased • Shopping product: Item for which buyers expend on planning and making the purchase • Specialty product: Items that possess unique characteristics for which buyers are willing to expend purchasing effort

9. Examples of Consumer Products • Goldfish, a convenience product, is an item you are likely to grab off the shelf without much thought as you walk through the snack aisle of a grocery store • By contrast, people may spend a considerable amount of time and effort engaged in comparison shopping behavior when buying a product, like a handbag

10. Business Product Classifications • Raw material: Basic material that becomes part of a physical product • Major equipment: Large tools and machines used for production purposes • Accessory equipment: Standardized equipment used in a firm’s production or office activities • Component part: Item that becomes a part of a physical product

11. Business Product Classifications (continued) • Process material: Material used directly in the production of another product but is not readily identifiable in the finished product • Supply: Item that facilitates production and operations but does not become part of the finished product • Business service: Intangible product that an organization uses in its operations

12. The Product Life-Cycle Stages in which a product’s sales revenue and profit increase, reach a peak, then decline • Introduction • Growth • Maturity • Decline

13. Stages of the Product Life- Cycle

14. Class Exercise 1 For the products below, determine what stage of product life cycle the product is currently in and the marketing implications involved. • Compact disc players • Online computer services • Aspirin • Cigarettes • Laptop computers • Pay phones

15. Product Line and Product Mix • Product line: A group of similar products that differ only in minor characteristics • Product mix:All products that a firm offers for sale • Width of the mix—Number of product lines • Depth of the mix—Average number of individual products

16. Part of a Product Line What, according to you, are the advantages of having many products in a single product line? What are the possible disadvantages?

17. Managing Existing Products • Product modifications: Changing one or more of a product’s characteristics • Line extensions: Developing a product that is similar to the existing product line but serves different customer needs • Product deletion: Eliminating products to maintain an effective product mix

18. Product Modifications Existing products can be altered in three primary ways: • Quality modifications—changes that relate to a product’s dependability and durability and are usually achieved by alterations in the materials or production process • Functional modifications—affect a product’s versatility, effectiveness, convenience, or safety • Aesthetics modifications—change the sensory appeal of a product by altering its taste, texture, sound, smell, or visual characteristics

19. Line Extensions A line extension is the 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 Line extensions help companies like Frito Lay to bemore competitive and to maintain or increase their market shares.

20. Deleting Products • To maintain an effective product mix, an organization often has to eliminate some products—this is called product deletion • A weak and unprofitable product: • Costs a company time, money, and resources • Can negatively impact the customer perception and sales of other products sold by the firm Google had to withdraw Google Glass from the market due to technical issues.

21. Developing New Products • Developing and introducing new products is: • Time consuming • Expensive • Risky • New products are generally grouped into three categories on the basis of their degree of similarity to existing products • Imitations • Adaptations • Innovations

22. Phases of New Product Development Generally, marketers follow these seven steps to develop a new product Source: William M. Pride and O. C. Ferrell, Marketing, 18th ed. (Mason, OH: South- Western/Cengage Learning, 2016). Adapted with permission.

23. Why Do Products Fail? • The product and its marketing program are not planned and tested completely • The product is marketed before all the bugs are worked out • Firms ignore problems in testing and push ahead anyway to recover costs • Firms try to market a product with inadequate financing

24. Examples of Product Failures

25. What Is a Brand? 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 • Brand mark • Trademark • Trade name

26. Types of Brands • Manufacturer brand: Owned by a manufacturer • Store brand: Owned by an individual wholesaler or retailer • Generic brand: Product with no brand at all

27. Benefits of Branding • Easily recognizable • Help consumers judge quality • Helps firms introduce new products with the same brand name • Aids in promotional efforts

28. Brand Loyalty and Equity • Brand loyalty: Extent to which a customer is favorable toward buying a specific brand • There are three levels of brand loyalty: • Recognition • Preference • Insistence • Brand equity: Marketing and financial value associated with a brand’s strength in a market

29. Top Ten Most Valuable Brands

30. Class Exercise 2 We know that branding helps businesses in a number of ways. How does branding benefit consumers?

31. Choosing and Protecting a Brand • Choosing a brand • Easy to say, spell, and recall • Suggests product’s uses, characteristics, and major benefits • Distinctive enough to set it apart • Protecting a brand • Protection through registration • Protecting a brand name from becoming a generic term

32. Branding Strategies • Individual branding: Firm uses a different brand for each of its products • Family branding: Firm uses the same brand for all or most of its products

33. Brand Extension • Using an existing brand to brand a new product in a different product category • Caution must be taken in extending • Too many times • Too far outside the original product category

34. Packaging • Developing and providing a container with graphics for a product • Functions of packaging • Protect the product • Maintain its functional form • Offer consumer convenience • Promote the product

35. Package Design Considerations • Cost • Single or multiple units • Consistency among package designs • Promotional role • Needs of intermediaries • Environmental responsibility

36. Labeling • Presentation of information on a product or its package • Must include information specified by federal regulations • Express warranty: Written explanation of the producer’s responsibilities in the event that a product is found to be defective or otherwise unsatisfactory

37. The Meaning and Use of Price • Price: Amount of money a seller is willing to accept in exchange for a product • Price allocates: • Goods and services • Financial resources

38. Price and Non-Price Competition • Price competition: Emphasis on setting a price equal to or lower than competitors’ prices • Non-price competition: Competition based on factors other than price • Product differentiation: Developing and promoting differences between one’s product and all similar products

39. Buyers’ Perceptions of Price • Buyers accept different prices for different products • Premium price may be appropriate • Product is considered superior • Has inspired strong brand loyalty

40. Pricing Objectives • One objective of pricing is to make a profit, but one or more of the following factors may be just as important: • Survival • Profit maximization • Target return on investment (ROI) • Market-Share Goals • Status-Quo Pricing

41. What Does Price Communicate to You? How buyers perceive a product is often determined by its price. High prices communicate quality and status—which is why the makers of luxury goods such as Rolex watches are often reluctant to sell them at a discount. The producers of these goods don’t want to “cheapen” their brands for a quick sales boost because it could hurt the image of these brands.

42. Cost-Based Pricing • Markup: Amount a seller adds to the cost of a product to determine its basic selling price • Flaws • Difficulty of determining an effective markup percentage • Separates pricing from other business functions that impact marketing decisions

43. Cost-Based Pricing: Breakeven Analysis • Gives the lowest level of production and sales at which a company can break even on a particular product • Breakeven quantity • Total revenue • Fixed cost • Variable cost • Total cost

44. Breakeven Analysis Example

45. Demand-Based Pricing • Based on the level of customer demand for the product • Price differentiation—Setting different prices in segmented markets based on segment characteristics Airlines use demand-basedpricing because the numberof passengers that can be put on a specific flight is limited.

46. Competition-Based Pricing Based on meeting the challenge of competitors’ prices in markets • Products are quite similar • Price is an important customer consideration

47. Pricing Strategies A pricing strategy is a course of action designed to achieve pricing objectives

48. 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

49. Differential Pricing Charging different prices to different buyers for the same product • Negotiated pricing • Secondary-market pricing • Periodic discounting • Random discounting

50. Psychological Pricing Encourage purchases based on emotional responses • Odd-number pricing • Multiple-unit pricing • Reference pricing • Bundle pricing • Everyday low prices (EDLPs) • Customary pricing