Creating and pricing products that satisfy customers

Learning Objectives

Explain what a product is and how products are classified.
Discuss

Product

…everything one receives in an exchange, including all tangible and intangible

Product

Good: a real, physical thing that we can touch
Service: the result

Product Classification Determines

Distribution
Promotion
Pricing

“The buyer’s use of the product determines the classification of

Consumer Product

…a product purchased to satisfy personal and family needs.

Consumer Product Classifications

Convenience Inexpensive, frequently purchased item; buyers exert minimal effort
Shopping Buyers willing

Business Product

…a product bought for resale, for making other products, or

Business Product Classifications

Raw material: becomes part of physical product
Major equipment: tools/machines

Source: “Attendance Required,” The B-to-B Media Handbook, p. 22.

Percentage of Executives

Product Life Cycle

…a series of stages in which a product’s sales

Figure 12.1: Product Life Cycle

Stages of Product Life Cycle

Introduction
Sales: gradual rise
Profit: low or loss
Growth
Sales: rapid

Product Line

…a group of similar products that differ only in relatively

Product Mix

…all the products a firm offers for sale.

Dimensions of Product Mix

Depth
Width
Ways to improve
Change existing product
Delete a product
Develop a

Product Modification

…the process of changing one or more of a product’s

Effectiveness of Product Modification

Product must be modifiable
Existing customers must perceive modification

Types of Modification

Quality: dependability and durability
Functionality: versatility, effectiveness, convenience, or safety
Aesthetic:

Line Extensions

…development of a new product that is closely related to

Product Deletion

…the elimination of one or more products from a product

New Product Categories

Imitations: similar to and competitive with existing products of

Figure 12.2: Phases of New Product Development

Table 12.1: Examples of Product Failures

Sources: www.newproductworks.com, accessed January 23, 2006;

Brand

…a name, term, symbol, design, or any combination of these that identifies

Brand Name

…the part of a brand that can be spoken.

Market Value of Best Global
Brands 2008 (in $ millions)

Source: Best

Consumers’ Perceptions of Store and Manufacturers’ Brands

Source: William M. Pride and

Brand Mark

…the part of a brand that is a symbol or

Trademark

…a brand name or brand mark that is registered with the

Trade Name

…the complete and legal name of an organization.

Types of Brands

Manufacturer/Producer Owned by a manufacturer
Store/Private Owned by individual wholesaler or retailer
Generic

Benefits of Branding

Brand Loyalty: customer favorable toward specific brand
Brand Recognition
Brand Preference
Brand

Choosing and Protecting a Brand

Easy to say, spell, recall
Suggests product’s uses,

Branding Strategies

Individual Branding Different brand for each of firm’s products
Family Branding Same brand

Packaging

…all the activities involved in developing and providing a container with

Packaging Functions

Protects Product
Adds Consumer Convenience
Promotes Product
Design Considerations
Cost
Single/multiple units
Family packaging: consistency
Needs of

Functional problems
Difficulty opening, breakage, inconvenience
Safety
Tampering, sharp edges, breakable glass, health

Labeling

…the presentation of information on a product or its package.

Federal Regulations on Labeling

Garments Manufacturer, country, fabric content, cleaning instructions
Food
Ingredients
Servings per container
Serving

Express Warranty

…a written explanation of the responsibilities of the producer in

Pricing

…the amount of money a seller is willing to accept in

Figure 12.3: Supply and Demand Curves

Price Competition

…an emphasis on setting a price equal to or lower

Nonprice Competition

…competition based on factors other than price.

Product Differentiation: the process

Buyers’ Perceptions of Price

Price Sensitivity
Acceptance of Ranges
Relation to Competing Products
Quality

Spotlight
Grocery Shopping

Source: 2009 National Grocers Association—SupermarketGuru
Consumer Panel Survey, November 2008–January 2009.

Pricing Objectives

Survival
Profit Maximization
Target ROI
Market-Share Goals
Status Quo Pricing

Factors Affecting Price Setting

Market determines price
Costs and expected sales used only

Cost-Based Pricing

Markup: amount seller adds to costs
Breakeven Quantity: number of units

Figure 12.4: Breakeven Analysis

Other Pricing Strategies

Demand-Based
High price when demand is strong
Low price when demand

New Product Pricing Strategies

Price Skimming Charge highest possible price during introduction stage
Penetration

Differential Pricing

Negotiated Final price comes from bargaining
Secondary Market One price for primary

Psychological Pricing

Odd-Number: use odd numbers just below whole-dollar amounts
Multiple-Unit: single price

Product-Line Pricing

Captive Basic product priced low, price on item required to

Promotional Pricing

Price Leaders Below usual markup, near or below cost
Special-Event Price cutting linked

Pricing Business Products

Geographic
FOB Origin
FOB Destination
Transfer

Discounting
Trade
Quantity
Cash
Seasonal
Allowance

Using the Internet

The U.S. government gateways to consumer information about products,

All of the following are characteristics of the growth stage of

If Samsonite decided to use better zippers on its luggage that

The Nike “swoosh” is a
brand.
generic symbol.
label.
brand mark.
Universal Product Code.

Chapter Quiz

In setting prices, managers should consider the __________ of people in