Chapter 14

DEVELOPING AND PRICING GOODS AND SERVICES

LO 14-1 Describe a total product offer.

Value: Good quality at a fair price.

When consumers calculate the value of a product, they look at the benefits and then subtract the cost
(price) to see whether the benefits exceed the costs, including the cost of driving to the store (or
shipping fees if they buy the product online).

Whether consumers perceive a product as the best value depends on many factors, including the
benefits they seek and the service they receive.

To satisfy consumers, marketers must learn to listen better and constantly adapt to changing market
demands. Adapting products to new competition and new markets is an ongoing need.

The increase in outsourcing and alliance building has resulted in innovation efforts that often require
using multiple organizations separated by cultural, geographic, and legal boundaries.

Distributed product development: Handing off various parts of your innovation process - often to
companies in other countries.

Total product offer

Everything that consumers evaluate when deciding whether to buy something.

Also called a value package.

Product line: A group of products that are physically similar or are intended for a similar market.

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

LO 14-2 Identify the various kinds of consumer and industrial goods

Product differentiation

The creation of real or perceived product differences.

Actual product differences are sometimes quite small, so marketers must use a creative mix of branding,
pricing, advertising, and packaging (value enhancers) to create a unique, attractive image.

Marketing Different Classes of Consumer Goods and Services

One popular classification of consumer goods and services has four general categories - convenience,
shopping, specialty, and unsought.
Industrial goods (business goods/B2B goods)

Products used in the production of other products.

Installations consist of major capital equipment such as new factories and heavy machinery.

Capital items are expensive products that last a long time.

Accessory equipment consists of capital items that are not quite as long-lasting or expensive as
installations—like computers, copy machines, and various tools.

Note:

Many goods could be classified as consumer goods or industrial goods, based on their uses.

Ex: A computer that a person uses at home for personal use would clearly be a consumer good. But that
same computer used in a commercial setting, such as a hospital, would be classified as an industrial
good.

LO 14-3 Summarize the functions of packaging.

Packages must perform the following functions:

1. Attract the buyer’s attention.

2. Protect the goods inside, stand up under handling and storage, be tamperproof, and deter theft.

3. Be easy to open and use.

4. Describe and give information about the contents.

5. Explain the benefits of the good inside.

6. Provide information on warranties, warnings, and other consumer matters.

7. Give some indication of price, value, and uses.

Bundling: Grouping two or more products together and pricing them as a unit.

Ex: Financial institutions are offering everything from financial advice to help in purchasing insurance,
stocks, bonds, mutual funds, and more.

=> It’s best to work with customers to develop value enhancers that meet their individual needs.

LO 14-4 Contrast brand, brand name, and trademark, and show the value of brand equity.

Brand

A name, symbol, or design (or combination thereof) that identifies the goods or services of one seller or
group of sellers and distinguishes them from the goods and services of competitors.

Brand names give products a distinction that tends to make them attractive to consumers.

The word brand includes practically all means of identifying a product.

Ex: Apple and Google now reign as brand champions

Trademark

A brand that has exclusive legal protection for both its brand name and its design.

Ex: McDonald’s golden arches are widely recognized and help represent the company’s reputation and
image. McDonald’s might sue to prevent a company from selling, say, McDonnel hamburgers

Brand Categories

Manufacturers’ The brand names of manufacturers that distribute

(national) brands products nationally.
Products that don’t carry the manufacturer’s
Dealer (private- name but carry a distributor or retailer’s name
label) brands instead.
Nonbranded products that usually sell at a sizable
Generic goods discount compared to national or private-label
brands.

Knockoff brands Illegal copies of national brand-name goods.

Brand association

The linking of a brand to other favorable images, like famous product users, a popular celebrity, or a
particular geographic area.

Ex: how ads for Mercedes-Benz associate its company’s cars with successful people who live luxurious
lives.

Brand manager (known as a product manager in some firms) has direct responsibility for one brand or
product line, and manages all the elements of its marketing mix: product, price, place, and promotion.

LO 14-5 Explain the steps in the new-product development process.

 Idea Generation R&D
Product reduces new-product ideas focus on the most promising
Screening
Product cost estimates/sales forecasts profitability
Analysis
Product testing many different product concepts/alternatives
Development
Concept testing take a product idea to consumers to test their reactions
Commercializati promoting the product to distributors and retailers
on developing strong advertising and sales campaigns

LO 14-6 Describe the product life cycle.

The Product Life Cycle

A theoretical model of what happens to sales and profits for a product class over time.

4 stages of the cycle: introduction, growth, maturity, and decline.

LO 14-7 Identify various pricing objectives and strategies.

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.

Prices usually are set somewhere above cost.

But as we’ll see, price and cost aren’t always related

3 major approaches to pricing strategy:

 D e m a n d -B a s e d C o m p e ti ti o n - B a s e d
C o st-B a s e d P r ic in g
P r ic in g P r ic in g
U s e c o s t a s a p r im a r y T a r g e t c o s ti n g i s B a se d o n w h a t o th e r
b a s i s f o r s e tti n g p r i c e . d e m a n d b a se d . c o m p e ti t o r s a r e d o i n g .
T h e p r ic e c a n b e a t ,
D e v e lo p e la b o r a t e c o s t E s ti m a t e t h e s e l l i n g a b o v e , o r b e lo w
a c c o u n ti n g sy ste m s to p r ic e p e o p le w o u ld b e c o m p e ti t o r s ’ p r i c e s .
m e a su re p r o d u c ti o n w illin g t o p a y f o r a P r ic in g d e p e n d s o n
c o sts. p ro d u c t. c u s t o m e r lo y a lt y ,
A d d in a m a r g in o f S u b t r a c t d e s i r e d p r o fi t p e r c e i v e d d i ff e r e n c e s ,
p r o fi t . m a r g in . a n d t h e c o m p e ti ti v e
c lim a t e .
= > P r ic e ! = > T a rg e t c o st o f
p r o d u c ti o n ! P r ic e le a d e r s h ip : T h e
s t r a t e g y b y w h ic h o n e
o r m o r e d o m i n a n t fi r m s
s e t t h e p r i c i n g p r a c ti c e s
t h a t a l l c o m p e ti t o r s i n
a n in d u s t r y f o llo w .

Break-even analysis: The process used to determine profitability at various levels of sales.

Other pricing strategies:

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