1. Chapter 14
Developing
and Pricing
Goods and
Services
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter
Fourteen
LEARNING GOALS
1. Describe a total product offer.
2. Identify the various kinds of consumer and
industrial goods.
3. Summarize the functions of packaging.
4. Contrast brand, brand name, and trademark, and
show the value of brand equity.
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3. Chapter
Fourteen
LEARNING GOALS
5. Explain the steps in the new-product development
process.
6. Describe the product life cycle.
7. Identify various pricing objectives and strategies.
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4. Profile
MARY BARRA
General Motors
• Senior vice president of global product
development, Barra is GM’s highest-ranking
woman.
• With a team of over
36,000 members, she
manages global strategic
product alliances.
• GM is working to gain
market share in highly
competitive segments like
small fuel efficient cars.
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5. Chapter
Fourteen
NAME that COMPANY
It’s no secret that the airline industry is extremely
competitive and many airlines have cut basic
services like free baggage and food. In order
to set itself apart from its competitors, this
company takes a different path by offering
door-to-door limousine service and in-flight
massages.
Name that company!
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6. Product
Development and
the Total Product
Offer
DEVELOPING VALUE
LG1
• According to the American Marketing
Association, value is a foundation of marketing.
• Value -- Good quality at a fair price.
• Adapting products to new markets is an ongoing
challenge.
• Product development is a key activity in any
modern business.
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7. Product
Development and
the Total Product PRODUCTS CONSUMERS
Offer
LG1 WON’T GIVE UP
• Internet service
• Cell phone service
• Cable television
• Discount apparel
• Haircuts and coloring
• Fast-food
Source: www.bigresearch.com.
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8. Product
Development and
the Total Product PRODUCTS “EXPENDABLE”
Offer
LG1 by SPENDING CUTS
• Luxury handbags
• Satellite radio
• Specialty apparel
• High-end cosmetics
• Facials
Source: www.bigresearch.com.
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9. Distributed
Product
Development
DISTRIBUTED PRODUCT
LG1 DEVELOPMENT
• Distributed Product Development -- The
handing off of various parts of your innovation
process - often overseas.
• The increase in outsourcing has
resulted in using multiple
organizations separated by
cultural, geographic and legal
boundaries.
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10. Developing a
Total Product
Offer
DEVELOPING a
LG1 TOTAL PRODUCT
• Total Product Offer -- Everything 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.
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11. Developing a
Total Product
Offer
PRODUCT INNOVATION DURING
LG1 the GREAT DEPRESSION
Source: BusinessWeek Small Biz.
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12. Developing a
Total Product
Offer ANYTHING YOU CAN DO…
LG1 Products Replacing Products
Source: Newsweek, February 21, 2011.
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13. Developing a
Total Product
Offer
POTENTIAL COMPONENTS
LG1 of a TOTAL PRODUCT OFFER
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14. QUALITY and SUSTAINABILITY
(Thinking Green)
• Trident Seafoods assures fish
sustainability by staying well
within catch limits.
• One part of its sustainability
practices is to use all of the fish.
That results in fish oil and
byproducts used in fertilizer and
fishmeal. Photo Courtesy of: Lisa Brunette
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15. Product Lines
& Product Mix UNDERSTANDING
LG1 PRODUCT LINES
• Product Line -- A group of products that are
physically similar or intended for a similar market.
• Product lines often include
competing brands like:
- Coca-Cola
- Diet Coke
- Coke Zero
- Cherry Coke
Photo Courtesy of: Coca-Cola Art Gallery
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16. Product Lines
& Product Mix The PRODUCT MIX
LG1
• Product Mix -- The combination of all product
lines offered by a manufacturer or service provider.
• Product mixes like Procter & Gamble’s can be
extensive:
- Toothpaste
- Cosmetics
- Diapers
- Batteries
- Bar soap
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17. Product
Differentiation DIFFERENTIATING PRODUCTS
LG2
• Product Differentiation -- The creation of real
or perceived product differences.
• Marketers use a mix of pricing, advertising and
packaging to create different images. Examples
include:
- Bottled water
- Aspirin
- Fast-food
- Laundry detergent
- Shampoo
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18. Marketing Different
Classes of
Consumer Goods
and Services
CLASSIFYING CONSUMER
LG2 GOODS and SERVICES
• Convenience Goods and
Services -- Products
consumers purchase frequently
with minimal effort. These
include:
- Candy and snacks
- Gas
- Milk and eggs
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19. Marketing Different
Classes of
Consumer Goods
and Services
CLASSIFYING SHOPPING
LG2 GOODS and SERVICES
• Shopping Goods and Services -- Products
consumers buy only after comparing value, quality,
price, and styles. These include:
- Clothes and shoes
- Appliances and furniture
- Childcare
- Home remodeling
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20. Marketing Different
Classes of
Consumer Goods
and Services
CLASSIFYING SPECIALTY
LG2 GOODS and SERVICES
• Specialty Goods and Services -- Products
with unique characteristics and brand identity. These
include:
- Tiffany jewelry
- Rolex watches
- Lamborghini automobiles
- Ritz Carlton Hotels
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21. Marketing Different
Classes of
Consumer Goods
and Services
SPECIALTY GOODS AREN’T
LG2 JUST for HUMANS
• Would you buy these for your dog?
- Wine with custom labels featuring Fido
- Doggy day camp and in-home pet care
- A bound journal of your pets exploits
- Luxury shampoos and hair-care products
- A sound system to eliminate pet-unfriendly
frequencies
- A “dog beer” at the Pawbar
Source: Entrepreneur, June 2010.
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22. Marketing Different
Classes of
Consumer Goods
and Services
CLASSIFYING UNSOUGHT
LG2 GOODS and SERVICES
• Unsought Goods and Services -- Products
consumers aren’t aware of or haven’t thought of
buying until they need them. These include:
- Car-towing services
- Funeral services
- Renter’s insurance
Photo Courtesy of: Paul Chenoweth
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23. Marketing Different
Classes of
Consumer Goods
and Services
IDENTIFYING CONSUMER
LG2 GOODS CLASSIFICATIONS
• How would you classify these consumer
products?
- Beautyrest mattress
- Honda Accord
- McDonald’s Big Mac
- Rolls Royce automobiles
- Oreo Cookies
- Harvard University degree
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24. Marketing Different
Classes of
Consumer Goods
and Services
ODD PRODUCT IDEAS
LG2 that WERE SUCCESSFUL
• Pet Rock - For $3.95 you could buy a gift-wrapped
rock with eyes and a training manual.
• Garbage Pail Kids - Perhaps the grossest
trading cards ever produced.
• Mood Rings - Wildly popular as the changing
colors of the ring supposedly measured your mood.
• Chia Pets - Animal shaped (even President
shaped) clay figures that grew sprouts.
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25. Marketing
Industrial Goods
and Services
CLASSIFYING INDUSTRIAL
LG2 GOODS and SERVICES
• Industrial Goods -- Products used in the
production of other products and sold in the B2B
market.
• Industrial goods
include:
- Installations
- Capital items
- Accessory equipment
- Supplies
- Service
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26. Progress
Assessment PROGRESS ASSESSMENT
• 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.
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27. Packaging
Changes the
Product
USES of PACKAGING
LG3
• Companies often use packaging to change and
improve their basic product. Examples include:
- Microwave popcorn
- Tuna pouches
- McDonald’s green packaging
• Good packaging can also make
a product more attractive to
retailers.
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28. Packaging
Changes the
Product
SOME KEY FUNCTIONS of
LG3 PACKAGING
1) To attract buyers’ attention
2) Protect the goods inside and be tamperproof
3) Be easy to open
4) Describe and give information about the product
5) Explain the product’s benefits
6) Provide warranty information and warnings
7) Give an indication of price, value, and uses
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29. The Growing
Importance of
Packaging
BUNDLING
LG3
• Bundling -- Grouping two or more products
together and pricing them as a unit.
• Virgin Airlines bundles
door-to-door limo
service and inflight
massage with some
tickets.
• Financial institutions
bundle advice with Photo Courtesy of: Joey Day
purchases.
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30. Branding and
Brand Equity UNDERSTANDING BRANDING
LG4
• Brand -- Name, symbol, or design that identifies
the goods or services and distinguishes them from
competitors’ offerings.
• Trademark -- A brand
that has exclusive legal
protection for both its
brand name and design.
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31. The NAME GAME
(Reaching Beyond Our Borders)
• With a couple hundred countries on the cyber-
platform, choosing the right name is a global
issue.
• Every once in a while, a successful name is
created by accident. Google was supposed to be
called Googol.
• What would you rename Very Vegetarian if given
the chance? Would you want to ask an expert?
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32. WHAT’S in a NAME?
Source: Bloomberg Businessweek, October 21, 2010.
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33. Branding and
Brand Equity KEY BRAND CATEGORIES
LG4
• Manufacturers’
Brands – Brand names
of manufacturers that
distribute products
nationally.
• Dealer (Private-
Label) Brands --
Products that carry a
retailer’s or distributor’s
brand name instead of a Photo Courtesy of: Joe Mudd
manufacturer’s.
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34. Branding and
Brand Equity KEY BRAND CATEGORIES
LG4
• Generic Goods -- Nonbranded products that sell
at a discount compared to manufacturers’ or dealers’
brands.
• Knockoff Brands -- Illegal copies of national
brands.
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35. Generating
Brand Equity
and Loyalty
ESTABLISHING BRAND EQUITY
LG4 and LOYALTY
• Brand Equity – The value of the brand name and
associated symbols.
• Brand Loyalty -- The degree to which consumers
are satisfied and are committed to further purchases.
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36. Generating
Brand Equity
and Loyalty MOST VALUABLE BRANDS
LG4
Source: Forbes, August 30, 2010.
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37. Generating
Brand Equity
and Loyalty
ORIGINS of
LG4 AUTOMOBILE SYMBOLS
• Volvo - Symbol for iron
• Lamborghini - Company founder’s
zodiac sign was Taurus
• Volkswagen - Product of an office
contest
• Porsche - Coat of arms for city and state
headquarters
Source: World Features Syndicate.
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38. Generating
Brand Equity
and Loyalty BUILDING BRAND AWARENESS
LG4
• Brand Awareness -- How quickly or easily a
given brand name comes to mind when someone
mentions a product category.
• Consumers reach a point of brand preference
when they prefer one brand over another.
• When consumers reach brand insistence, they
will not accept substitute brands.
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39. Creating Brand
Associations
& Brand BUILDING BRAND
Management
LG4 ASSOCIATIONS
• Brand Association -- Linking a brand to other
favorable images, like celebrities or a geographic
area.
• Brand Manager -- Person responsible for a
particular brand and handles all the elements of the
brand’s marketing mix.
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40. Progress
Assessment PROGRESS ASSESSMENT
• What functions does packaging now perform?
• What’s the difference between a brand name and
a trademark?
• Explain the difference between a manufacturers’
brand, a dealer brand, and a generic brand.
• What are the key elements of brand equity?
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41. The New
Product
Development The NEW PRODUCT
Process
LG5 DEVELOPMENT PROCESS
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42. Product
Screening &
Analysis
BRINGING NEW PRODUCTS
LG5 to the MARKET
• Product Screening -- Reduces the number of
new products a firm is working on to focus on the
most promising.
• Product Analysis -- Focuses on the cost
estimates and sales forecasts to get an idea of
potential profitability.
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43. Product
Development
and Testing
BRINGING NEW PRODUCTS
LG5 to the MARKET
• Concept Testing -- Takes a product idea to
consumers to test reactions.
• Commercialization
-- Promoting the product
to distributors and
retailers and developing
the promotional
campaign.
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44. DON’T COME to ME,
I’LL COME to YOU
(Spotlight on Small Business)
• The popularity of food trucks has risen, but it’s no
longer just hot dogs and hamburgers:
- Clover Food Truck in Boston/Cambridge offers a
rotating menu of local organic foods.
- Sugar Philly Truck in Philadelphia offers crè me
brulee hot off the truck.
- Dim and Den Sum in Cleveland has some of the
best food truck art in America.
- Koi Fusion PDX in Portland is one of the few mobile
eateries in that town.
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45. The Product
Life Cycle
The FOUR STAGES of a
LG6 PRODUCT LIFE CYCLE
• Product Life Cycle -- A theoretical model of
what happens to sales and profits for a product over
time.
• Product Life Cycle Stages:
1. Introduction
2. Growth
3. Maturity
4. Decline
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46. The Product
Life Cycle
SALES and PROFITS DURING
LG6 the PRODUCT LIFE CYCLE
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47. The Product
Life Cycle
PROFITS BEYOND the GRAVE
LG6 Top Earning Deceased Celebrities in 2010
Source: Forbes, www.forbes.com, accessed July 2011.
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48. Progress
Assessment PROGRESS ASSESSMENT
• What are the six steps in the new-product
development process?
• What’s the difference between product screening
and product analysis?
• What are the two steps in commercialization?
• What’s the theory of the product life cycle?
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49. Competitive
Pricing PRICING OBJECTIVES
LG7
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
both short-run and long-run
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50. Competitive
Pricing PRICING STRATEGIES
LG7
• Cost-based pricing measures cost of producing a
product including materials, labor, and overhead.
• Target Costing – Designing a product that
satisfies customers and meets the firm’s targeted
profit margins.
• Competition-Based Pricing -- A strategy
based on what the competition is charging for its
products.
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51. Break-Even
Analysis USING BREAK-EVEN ANALYSIS
LG7
• 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 costs that remain the
same no matter how much is produced or sold.
• Variable Costs -- Costs that change according to
the level of production.
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52. Other Pricing
Strategies PRICING ALTERNATIVES
LG7
• Skimming Price Strategy -- Pricing new
products high to recover costs and make high profits
while competition is limited.
• Penetration Price Strategy -- Pricing
products low with the hope of attracting more buyers
and discouraging other companies from competing in
the market.
• Everyday Low Pricing (EDLP) -- Setting
prices lower than competitors with no special sales.
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53. Other Pricing
Strategies PRICING STRATEGIES
LG7 of RETAILERS
• High-Low Pricing -- Using regular prices that
are higher than EDLP stores except during special
sales when they are lower.
• Psychological Pricing -- Pricing products at
price points that make a product seem less expensive
than it is.
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54. Progress
Assessment PROGRESS ASSESSMENT
• 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’s psychological pricing?
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