Chapter Thirteen Creating and Pricing Products that Satisfy Customers

Chapter Thirteen

Creating and Pricing Products that Satisfy Customers

Copyright © Cengage Learning. All rights reserved.

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

Copyright © Cengage Learning. All rights reserved. 13 | 4

Chapter 13 Outline (cont’d)

– Branding, Packaging, and Labeling• What Is a Brand? • Types of Brands • Benefits of Branding • Choosing and Protecting a Brand• Branding Strategies • Packaging• Labeling

– Pricing Products• The Meaning and Use of Price• Supply and Demand Affects Prices• Price and Nonprice Competition• Buyers’ Perceptions of Price



– Pricing Objectives• Survival• Profit Maximization • Target Return on Investment • Market-Share Goals• Status Quo Pricing

– Pricing Methods• Cost-Based Pricing• Demand-Based Pricing• Competition-Based Pricing



– Pricing Strategies• New Product Pricing• Differential Pricing • Psychological Pricing • Product-Line Pricing• Promotional Pricing

– Pricing Business Products• Geographic Pricing• Transfer Pricing• Discounting



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– 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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• 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


Labeling (cont’d)

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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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• Psychological pricing

– Odd-number pricing

– Multiple-unit pricing

– Reference pricing

– Bundle pricing

– Everyday low prices (EDLPs)

– Customary pricing

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• 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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• 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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Documents

Chapter Thirteen Creating and Pricing Products that Satisfy Customers