Developing Quality ProductsDeveloping Quality Productsat the Right Priceat the Right Price

Developing Quality ProductsDeveloping Quality Productsat the Right Priceat the Right Price

Chapter 14

Chapter 14 Learning GoalsChapter 14 Learning Goals

1.1. WWhat is a product, and how is it classified?

2.2. HHow does branding distinguish a product from its competitors?

3.3. WWhat are the functions of packaging?

4.4. HHow do organizations create new products?

Chapter 14 Learning Goals Chapter 14 Learning Goals (cont’d.)(cont’d.)

5.5. WWhat are the stages of the product life cycle?

6.6. WWhat is the role of pricing in marketing?7.7. HHow are product prices determined?8.8. WWhat strategies are used for pricing

products?9.9. WWhat trends are occurring in products

and pricing?

Learning Goal 1Learning Goal 1

• WWhat is a product, and how is it classified?– A product is any good or service that creates

customer value– Products are categorized as either:

• Consumer productsConsumer products– Goods and services bought and used by the end users– Unsought products, convenience products, shopping products, or

specialty products

• Industrial productsIndustrial products – Bought by organizations for use in making other products or in

rendering services– Capital products are large, expensive items with long life span– Expense items are smaller, less expensive items with a life span of

less than a year

ProductProduct::

In marketing, any good or service, along with its perceived attributes and benefits, that creates value for the customer

• General Electric is shifting its emphasis away from goods toward services:– 1981, sales were 85% goods/15% services– 2000, estimated 25% goods/75% services (Source: Neff & Citrin, Lessons from the

Top, 1999, p. 344)

Tangible & Intangible Attributes Tangible & Intangible Attributes Create Product ValueCreate Product Value

Product

type of material, size, shape, smell

Imageof store

Serviceafter sale

Warranty

Imageof brand

Pack-aging

Color

Instruc-tions

Attach-ments

Product Successes vs. FailuresProduct Successes vs. Failures

Successes:Successes:• aspirin tablet (1900)• laminated safety

glass (1909)• mass-produced

tampons & pads (1920s)

• adhesive tape (1925)• latex paint (1941)

Failures:Failures:• New Coke (1985)

• Apple Newton (1993)

• disposable dress (1966)

• Ford Pinto (1970)

• quadraphonic sound (mid-1970s)

Source: Consumer Reports, Jan. 2000, pp. 14-17.

Types of ProductsTypes of Products

ConsumerProduct

EffortRequired

Examples

Unsought No effort Life insuranceNew products

Convenience Little or minimum Soft drinksBread

Shopping Considerable AutomobilesHomes

Specialty Maximum Expensive jewelryRare collectibles

Learning Goal 2Learning Goal 2

• HHow does branding distinguish a product from its competitors?– Products usually have brand names

• Brands identify products by words, names, symbols, designs, or a combination of the all of these

– Major types of brands• Manufacturer (national) brands• Dealer (private) brands

– Three main purposes of branding:• Product identification• Repeat sales• New product sales

Brand equityBrand equity::

The value of company and brand names

Master brand:Master brand:

A brand so dominant that consumers think of it immediately when a product is mentioned

Purposes of BrandingPurposes of Branding

• Product identification– brands allow marketers to distinguish

their products from all others

• Repeat sales; brand loyalty• New product sales

– brand equity fuels sales of new products

Top 10 Brands on the InternetTop 10 Brands on the Internet 1. Yahoo! 2. AOL.com 3. Microsoft 4. Netscape 5. Excite 6. msn.com 7. Lycos 8. GeoCities 9. Infoseek10. Disney

26.6 million Unique visitors/month

22.0 million

18.6 million

17.6 million

17.3 million

16.3 million

14.6 million

14.2 million

12.2 million

9.7 million

Source: Fortune, Sept. 28, 1998, p. 274.

Learning Goal 3Learning Goal 3

• WWhat are the functions of packaging?– Packaging is an important way to:

• Promote sales• Protect the product

– Packaging should be easy to:• Ship• Store• Stack on a store shelf

– Warranties can add value to products• Guarantees the quality of a good or service

Importance of PackagingImportance of Packaging

• Protects the product– prevent damage, prevent spoilage

• Distinguish product from competition– Ben & Jerry’s® has an ecologically friendly

unbleached paperboard package for its ice cream pints, consistent with its socially conscious mission (Source: Ben & Jerry’s, www.benandjerrys.com)

• Promote product– brand identification, information

Learning Goal 4Learning Goal 4

• HHow do organizations create new products?– New product development requires input from

personnel in these departments:• Production• Finance• Marketing• Engineering

– Steps in new product development:• Setting new product goals• Exploring and screening ideas• Developing the concept• Test-marketing• Introducing the product• Managing by a product manager when product enters marketplace

Creating New ProductsCreating New Products

1. Set new product goals

2. Develop new product ideas

3. Screen ideas/concepts

4. Develop the concept

5. Test-market the new product

6. Introduce the product to the marketplace

Creating New ProductsCreating New Products

Some new products that incorporate human human factors engineeringfactors engineering:– DaimlerChrysler’s Neon 2000 has higher

placement of manual window cranks– Maytag offers an easy-to-load front-loading

washer– warehouse lift trucks that improve operator

visibility by facing sideways– coil tubing units that reduce the complexity and

work of oil drilling

Source: Fortune, Mar. 1, 1999, pp. 164B-D.

Learning Goal 5Learning Goal 5

• WWhat are the stages of the product life cycle?– Four stages of the product life cycle

• IntroductionIntroduction– Profits are usually small

• GrowthGrowth– Profits reach a peak at the end of this phase

• MaturityMaturity– Profits begin to decline

• Decline Decline (and possibly death)

Sales & Profits During Product Life Sales & Profits During Product Life CycleCycle

Introduction Growth Maturity Decline

Sal

es &

Pro

fits

+0-

SalesProfits

Learning Goal 6Learning Goal 6

• WWhat is the role of pricing in marketing?– Price:

• Indicates value• Helps position a product in the marketplace• Is the means for earning a fair return on investment• If price is too high, product won’t sell, firm will lose

money• If price is too low, firm may lose money even if product

sells well

– Prices are set according to pricing objectives such as profit maximization, target return on investment, and value pricing

Pricing IssuesPricing Issues

• Perceived satisfaction vs. actual satisfaction

• Pricing objectives:– maximizing profits

– achieve target return on investments

– offer good value at fair price

Learning Goal 7Learning Goal 7

• HHow are product prices determined?– Markup pricingMarkup pricing

• Percentage is added to product’s cost to arrive at retail price

• Markup is amount added to cost to cover expenses and earn a profit

– Breakeven analysisBreakeven analysis• Determines level of sales that must be reached before total

cost equals total revenue• Provides a quick look at how many units the firm must sell

before it starts earning a profit• Reveals how much profit can be earned with higher sales

volumes

Determining PriceDetermining Price

1. Markup pricingMarkup pricinga percentage is added to product cost to

determine price

2. Breakeven analysisBreakeven analysisdetermine the number of units needed to

be sold at a given price to cover costs, so additional sales result in profit

Learning Goal 8Learning Goal 8

• WWhat strategies are used for pricing products?– Price skimmingPrice skimming

• Charging a high introductory price• Lowering price as product moves through its life

cycle

– Penetration pricingPenetration pricing• Selling a new product at a low price in hopes of

achieving a large sales volume

Learning Goal 8 Learning Goal 8 (cont’d.)(cont’d.)

• WWhat strategies are used for pricing products?– Pricing tactics used to fine-tune base prices are:

• Leader pricingLeader pricing– Prices are set below normal markup or cost to attract

customers who might otherwise not shop at those stores

• BundlingBundling– Grouping two or more products together and pricing as one

• Odd-even pricingOdd-even pricing– Creates a perception that the item is cheaper than actual price

• Prestige pricingPrestige pricing– Raising price so item will be perceived as having high quality

and status

Product Pricing StrategiesProduct Pricing Strategies

1. PricePrice skimmingskimming2. PenetrationPenetration pricing3. LeaderLeader pricing4. BundlingBundling5. Odd-evenOdd-even pricing6. PrestigePrestige pricing

Example: An Arizona store sold moremore turquoise jewelry after it was marked doubledouble the original price (Source: Cialdini, Influence: Science and Practice, 1996)

Learning Goal 9Learning Goal 9

• WWhat trends are occurring in products and pricing?– Building immediate brand recognition

– Using technology to meet individual customer needs

Trends Affecting ProductsTrends Affecting Products

• Building immediate brand recognition Increase in mass customization

Levi Strauss electronically scans customers’ bodies to make custom-fit jeans (Source: Consumer Reports, Jan. 2000, p. 15)

Growth of internet auctions sets pricing standards for some products– 2,450,327 items for sale on eBay on Jan. 1, 2000

(Source: eBay, www.ebay.com)

– eBay has 1.5 billion page views per month (Source: eBay, www.ebay.com)