Nickels UB13e PPT Student Ch14

Because learning changes everything.
Chapter 14
Developing and Pricing Goods
and Services
Copyright 2022 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Chapter Contents
Product Development and the Total Product Offer

Product Differentiation
Packaging Changes the Product
Branding and Brand Equity
The New-Product Development Process
The Product Life Cycle
Competitive Pricing
Nonprice Competition
Learning Objectives
LO 14-1 Describe a total product offer.

LO 14-2 Identify the various kinds of consumer and industrial goods.
LO 14-3 Summarize the functions of packaging.
LO 14-4 Contrast brand, brand name, and trademark, and show the value of
brand equity.
LO 14-5 Explain the steps in the new-product development process.
LO 14-6 Describe the product life cycle.
LO 14-7 Identify various pricing objectives and strategies.
Product Development and the Total Product Offer 1
Value
• Good quality at a fair price.
• According to the American Marketing Association, value is a foundation of
marketing.
• Adapting products to new markets is an ongoing challenge.
• Product development is a key activity in any modern business.
Distributed Product Development

• Handing off various parts of your innovation process—often to companies
overseas.
• The increase in outsourcing has resulted in using multiple organizations
separated by cultural, geographic, and legal boundaries.
• Developing a total product offer:
• Everything that consumers evaluate when deciding whether to buy something.
• Products are evaluated on many different dimensions, both tangible and intangible.
• Marketers must think like and talk to consumers to find out what’s important.
Figure 14.1
Potential Components of
a Total Product Offer
Jump to long description in appendix
Product Lines and the Product Mix

• Product line — A group of products that are physically similar or intended for a
similar market.
• Product lines often include competing brands.
• Product mix — The combination of product lines offered by a manufacturer.

• Product mixes can be extensive, such as from Procter & Gamble.
Product Differentiation 1
Product Differentiation
• The creation of real or perceived product differences.
• Marketers use a mix of branding, pricing, advertising, and packaging to create
different images.
Marketing Different Classes of Consumer Goods and Services

• Convenience goods and services — Products that the consumer wants to
purchase frequently and with a minimum of effort.
• Candy and snacks, gas, milk.
• Shopping goods and services — Those products that the consumer buys
only after comparing value, quality, price, and style from a variety of sellers.
• Target, wireless carriers.
Marketing Different Classes of Consumer Goods and Services continued
• Specialty goods and services — Consumer products with unique

characteristics and brand identity. Because these products are perceived as
having no reasonable substitute, the consumer puts forth a special effort to
purchase them.
• Fine watches, expensive wine, designer clothes, jewelry.
• Unsought goods and services — Products that consumers are unaware of,
haven’t necessarily thought of buying, or find that they need to solve an
unexpected problem.
• Car-towing services, burial services, insurance.
Marketing Industrial Goods and Services

• Industrial goods — Products used in the production of other products;
sometimes called business or B2B goods.
• Industrial goods include:
• Installations.
• Capital items.
• Accessory equipment.
Figure 14.2
Various Categories
of Consumer and
Industrial Goods
and Services
TESTPREP 1
• What value enhancers may be included in a total product offer?

• What’s the difference between a product line and a product mix?
• Name the four classes of consumer goods and services, and give
examples of each.
• Describe three different types of industrial goods.
Packaging Changes the Product 1
Packaging
• Companies often use packaging to change and improve their basic product.
• Examples include:
• Squeezable ketchup bottles.
• Square paint cans with screw tops.
• Single-use spice packets.
• Good packaging can also make a product more attractive to retailers.
Key Functions of Packaging

1. Attract the buyer’s attention.
2. Protect the goods inside, be tamperproof and deter theft.
3. Be easy to open and use.
4. Describe and give information about the contents.
5. Explain the product’s benefits.
6. Provide warranty information and warnings.
7. Give an indication of price, value, and uses.
The Growing Importance of Packaging

• Packaging has more promotional burden and sales responsibility.
• Information on packages regulated by the Fair Packaging and Labeling Act and the Food and
Drug Administration.
• Bundling — Grouping two or more products together and pricing them as a

unit.
• IcelandAir bundled layover tours with an IcelandAir employee “stopover buddy.”
• Financial institutions bundle advice with purchases.
Branding and Brand Equity 1
Brands
• A name, symbol, or design that identifies the goods or services of one seller or
group of sellers and distinguishes them from the goods and services of
competitors.
• Brand name gives products a distinction that tends to make them attractive to
consumers.
• Trademark — A brand that has exclusive legal protection for both its brand
name and its design.
Brand Categories
• Manufacturers’ brands — The brand names of manufacturers that distribute
products nationally.
• Dealer (private-label) brands — Products that don’t carry the manufacturer’s
name but carry a distributor’s or retailer’s name instead.
• Generic goods — Nonbranded products that usually sell at a sizable discount
compared to national or private-label brands.
• Knockoff brands — Illegal copies of national brand-name goods.
Generating Brand Equity and Loyalty

• Brand equity — The value of the brand name and associated symbols.
• Brand loyalty — The degree to which customers are satisfied, like the brand,
and are committed to further purchases.
• Brand awareness — How quickly or easily a given brand name comes to mind
when a product category is mentioned.
• Brand preference is when consumers prefer one brand over another.
• Brand insistence is when consumers will not accept substitute brands.
Creating Brand Associations

• Brand association —Linking a brand to other favorable images.
Brand Management
• Brand manager — A manager who has direct responsibility for one brand or
one product line.
• The brand manager handles all the elements of the brand’s marketing mix.
TESTPREP 2
• What seven functions does packaging now perform?

• What’s the difference between a brand name and a trademark?
• Can you explain the difference between a manufacturers’ brand, a
dealer brand, and a generic brand?
• What are the key elements of brand equity?
The New-Product Development Process 1
New Product Development

• The odds a new product will fail are high.
• New product potential: 3D printing, streaming TV, virtual reality (VR).
Generating New-Product Ideas

• It takes about seven ideas to generate one commercial product.
• Employees, research and development, suppliers offer new ideas.
Figure 14.3 The New-Product
Development Process
Product development is a six-stage

process. Which stage do you
believe to be the most important?
Product Screening
• A process designed to reduce the number of new-product ideas being worked
on at any one time.
Product Analysis
• Making cost estimates and sales forecasts to get a feeling for profitability of
new-product ideas.
Product Development and Testing

• Concept testing takes a product idea to consumers to test reactions.
• Crowdsourcing platforms allow the public to give their opinions of potential
products.
Commercialization
• Promoting a product to distributors and retailers to get wide distribution, and
developing strong advertising and sales campaigns to generate and maintain
interest in the product among distributors and consumers.
The Product Life Cycle 1
Product Life Cycle

• A theoretical model of what happens to sales and profits for a product class
over time.
• Product Life Cycle Stages:
• Introduction.
• Growth.
• Maturity.
• Decline.
Figure 14.4 Sales and Profits during the Product Life
Cycle
Note that profit levels start to

fall before sales reach their
peak. This is due to
increasing price competition.
When profits and sales start
to decline, it’s time to come
out with a new product or to
remodel the old one to
maintain interest and profits.
The Product Life Cycle 2
Example of the Product Life Cycle

• Some products, like crayons and sidewalk chalk, have very long product life
cycles, change very little, and never go into decline.
Using the Product Life Cycle

• Different stages in the product life cycle call for different marketing strategies.
Figure 14.5 Sample Strategies Followed during the
Product Life Cycle
Figure 14.6 How Sales, Profits, and Competition Vary
over the Product Life Cycle
TESTPREP 3
• What are the six steps in the new-product development process?

• What is the difference between product screening and product
analysis?
• What are the two steps in commercialization?
• What is the theory of the product life cycle?
Competitive Pricing 1
Pricing Objectives
1. Achieving a target return on investment or profit.
2. Building traffic.
3. Achieving greater market share.
4. Creating an image.
5. Furthering social objectives.
Cost-Based Pricing
• Measures cost of producing a product including materials, labor, and overhead.
Demand-Based Pricing
• Target costing — Designing a product so that it satisfies customers and meets
the profit margins desired by the firm.
Competition-Based Pricing
• Pricing strategy based on what all the other competitors are doing.
• Price leadership — The strategy by which one or more dominant firms set the
pricing practices that all competitors in an industry follow.
Break-Even Analysis
• The process used to determine profitability at various levels of sales.
• The break-even point is where revenues equals cost.
• Total fixed costs — All the expenses that remain the same no matter how
many products are made or sold.
• Variable costs — Costs that change according to the level of production.
Other Pricing Strategies

• Skimming price strategy — Strategy in which a new product is priced high to make
optimum profit while there’s little competition.
• Penetration strategy — Strategy in which a product is priced low to attract many
customers and discourage competition.
• Everyday low pricing (EDLP) — Setting prices lower than competitors and then not
having any special sales.
• High–low pricing strategy — Setting prices that are higher than EDLP stores, but
having many special sales where the prices are lower than competitors.
• Psychological pricing — Pricing goods and services at price points that make the
product appear less expensive than it is.
How Market Forces Affect Pricing

• Marketers sometimes use demand-oriented pricing based on consumer
demand.
• Example: movie theater rates or drugstore discounts for seniors.
• Today, most consumers compare the prices of goods and services online,
leading to more price competition.
• Nonprice competition likely to increase.
Nonprice Competition
Competition on Attributes Other than Price

• Product images.
• Comfort.
• Style.
• Convenience.
• Durability.
• Accompanying services.
TESTPREP 4
• Can you list two short-term and two long-term pricing objectives?
Can the two be compatible?
• What are the limitations of a cost-based pricing strategy?
• What is psychological pricing?

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Because learning changes everything.

Product Development and the Total Product Offer

LO 14-1 Describe a total product offer.

Distributed Product Development

Jump to long description in appendix

Product Lines and the Product Mix

• Product mix — The combination of product lines offered by a manufacturer.

Marketing Different Classes of Consumer Goods and Services

Marketing Different Classes of Consumer Goods and Services continued

• Specialty goods and services — Consumer products with unique

Marketing Industrial Goods and Services

Jump to long description in appendix

• What value enhancers may be included in a total product offer?

• Good packaging can also make a product more attractive to retailers.

Key Functions of Packaging

The Growing Importance of Packaging

• Bundling — Grouping two or more products together and pricing them as a

Generating Brand Equity and Loyalty

Creating Brand Associations

• What seven functions does packaging now perform?

New Product Development

Generating New-Product Ideas

Product development is a six-stage

Jump to long description in appendix

Product Development and Testing

Product Life Cycle

Note that profit levels start to

Jump to long description in appendix

Example of the Product Life Cycle

Using the Product Life Cycle

Jump to long description in appendix

• What are the six steps in the new-product development process?

Other Pricing Strategies

How Market Forces Affect Pricing

Competition on Attributes Other than Price

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