Developing Quality Products at the Right Price

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Developing Quality Productsat the Right Price

• Chapter 14

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Chapter 14 Learning Goals

1. What is a product, and how is it classified?
2. How does branding distinguish a product from its
   competitors?
3. What are the functions of packaging?
4. How do organizations create new products?

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Chapter 14 Learning Goals (contd.)

1. What are the stages of the product life cycle?
2. What is the role of pricing in marketing?
3. How are product prices determined?
4. What strategies are used for pricing products?
5. What trends are occurring in products and pricing?

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Learning Goal 1

• What 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 products
• Goods and services bought and used by the end
  users
• Unsought products, convenience products, shopping
  products, or specialty products
• Industrial 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

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• Product
• 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)

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Tangible Intangible Attributes Create Product
Value
Imageof store
Serviceafter sale
Warranty
Product type of material, size, shape, smell
Color
Attach-ments
Imageof brand
Pack-aging
Instruc-tions
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Product Successes vs. Failures

• Successes
• aspirin tablet (1900)
• laminated safety glass (1909)
• mass-produced tampons pads (1920s)
• adhesive tape (1925)
• latex paint (1941)

• 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.
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Types of Products
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Learning Goal 2

• How 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

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• Brand equity
• The value of company and brand names
• Master brand
• A brand so dominant that consumers think of it
  immediately when a product is mentioned

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Purposes 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

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Top 10 Brands on the Internet

• 1. Yahoo!
• 2. AOL.com
• 3. Microsoft
• 4. Netscape
• 5. Excite
• 6. msn.com
• 7. Lycos
• 8. GeoCities
• 9. Infoseek
• 10. 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.
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Learning Goal 3

• What 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

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Importance of Packaging

• Protects the product
• prevent damage, prevent spoilage
• Distinguish product from competition
• Ben Jerrys has an ecologically friendly
  unbleached paperboard package for its ice cream
  pints, consistent with its socially conscious
  mission (Source Ben Jerrys,
  www.benandjerrys.com)
• Promote product
• brand identification, information

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Learning Goal 4

• How 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

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Creating 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
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Creating New Products

• Some new products that incorporate human factors
  engineering
• DaimlerChryslers 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.
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Learning Goal 5

• What are the stages of the product life cycle?
• Four stages of the product life cycle
• Introduction
• Profits are usually small
• Growth
• Profits reach a peak at the end of this phase
• Maturity
• Profits begin to decline
• Decline (and possibly death)

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Sales Profits During Product Life Cycle
SalesProfits
Introduction
Growth
Maturity
Decline
Sales Profits
0-
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Learning Goal 6

• What 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 wont 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

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Pricing Issues

• Perceived satisfaction vs. actual satisfaction
• Pricing objectives
• maximizing profits
• achieve target return on investments
• offer good value at fair price

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Learning Goal 7

• How are product prices determined?
• Markup pricing
• Percentage is added to products cost to arrive
  at retail price
• Markup is amount added to cost to cover expenses
  and earn a profit
• Breakeven 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

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Determining Price

• 1. Markup pricing
• a percentage is added to product cost to
  determine price
• 2. Breakeven analysis
• determine the number of units needed to be sold
  at a given price to cover costs, so additional
  sales result in profit

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Learning Goal 8

• What strategies are used for pricing products?
• Price skimming
• Charging a high introductory price
• Lowering price as product moves through its life
  cycle
• Penetration pricing
• Selling a new product at a low price in hopes of
  achieving a large sales volume

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Learning Goal 8 (contd.)

• What strategies are used for pricing products?
• Pricing tactics used to fine-tune base prices
  are
• Leader pricing
• Prices are set below normal markup or cost to
  attract customers who might otherwise not shop at
  those stores
• Bundling
• Grouping two or more products together and
  pricing as one
• Odd-even pricing
• Creates a perception that the item is cheaper
  than actual price
• Prestige pricing
• Raising price so item will be perceived as having
  high quality and status

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Product Pricing Strategies

• 1. Price skimming
• 2. Penetration pricing
• 3. Leader pricing
• 4. Bundling
• 5. Odd-even pricing
• 6. Prestige pricing
• Example An Arizona store sold more turquoise
  jewelry after it was marked double the original
  price (Source Cialdini, Influence Science and
  Practice, 1996)

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Learning Goal 9

• What trends are occurring in products and
  pricing?
• Building immediate brand recognition
• Using technology to meet individual customer needs

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Trends 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)