Download Chapter Thirteen - Cengage Learning

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.
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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.
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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
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Chapter 13 Outline (cont’d)
– Branding, Packaging, and Labeling
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•
•
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What Is a Brand?
Types of Brands
Benefits of Branding
Choosing and Protecting a Brand
Branding Strategies
Packaging
Labeling
– Pricing Products
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The Meaning and Use of Price
Supply and Demand Affects Prices
Price and Nonprice Competition
Buyers’ Perceptions of Price
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Chapter 13 Outline (cont’d)
– Pricing Objectives
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Survival
Profit Maximization
Target Return on Investment
Market-Share Goals
Status Quo Pricing
– Pricing Methods
• Cost-Based Pricing
• Demand-Based Pricing
• Competition-Based Pricing
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Chapter 13 Outline (cont’d)
– Pricing Strategies
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New Product Pricing
Differential Pricing
Psychological Pricing
Product-Line Pricing
Promotional Pricing
– Pricing Business Products
• Geographic Pricing
• Transfer Pricing
• Discounting
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Classification of Products
• Product
• Consumer product
• Business (industrial) product
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Consumer Product Classifications
• Convenience product
• Shopping product
• Specialty product
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Business Product Classifications
• Raw material
• Major equipment
• Accessory equipment
• Component part
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Business Product Classifications (cont’d)
• Process material
• Supply
• Business service
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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
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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
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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
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Managing the Product Mix
• Managing existing product
– Product modification
– Line extensions
• Deleting products
• Developing new products
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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
financing
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Branding
• What is a brand?
– Brand name
– Brand mark
– Trademark
– Trade name
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Branding (cont’d)
• Types of Brands
– Manufacturer (producer) brand
– Store (private) brand
– Generic brand
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Branding (cont’d)
• Benefits of branding
– 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
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Branding (cont’d)
• Benefits of branding (cont’d)
– Brand loyalty
– Brand equity
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Branding (cont’d)
• Choosing a brand
– 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
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Branding (cont’d)
• Branding strategies
– Individual branding
– Family branding
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Packaging
• All of the activities involved in developing and
providing a container with graphics for a product
• Functions of packaging
• Design considerations
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Labeling
• The presentation of information on a product or its
package
• May include
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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
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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
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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
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Pricing Products (cont’d)
• Supply and demand affects prices
– Supply
– Demand
– Equilibrium
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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
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Pricing Objectives
• Survival
• Profit maximization
• Target return on investment (ROI)
• Market share goals
• Status quo pricing
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Pricing Methods
• Cost-based pricing
– 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
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Pricing Methods
• Breakeven analysis
– Breakeven quantity
– Total revenue
– Fixed cost
– Variable cost
– Total cost
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Pricing Methods (cont’d)
• Demand-based pricing
– Based on the level of customer demand 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
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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
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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
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Pricing Strategies (cont’d)
• Psychological pricing
– Odd-number pricing
– Multiple-unit pricing
– Reference pricing
– Bundle pricing
– Everyday low prices (EDLPs)
– Customary pricing
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Pricing Strategies (cont’d)
• Product-line pricing
– Establishing and adjusting the prices of
multiple products within a product line
– Captive pricing
– Premium pricing
– Price lining
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Pricing Strategies (cont’d)
• Promotional pricing
– Price leaders
– Special-event pricing
– Comparison discounting
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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
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Pricing Business Products (cont’d)
• Discounting
– Trade discounts
– Quantity discounts
– Cash discounts
– Seasonal discounts
– Allowances
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