Chapter 14 – Developing and Pricing Goods and Services
14-1
chapter
=
Developing and Pricing
Goods and Services
what’s new in this edition 14.3
brief chapter outline and learning objectives 14.5
lecture outline and lecture notes 14.7
PowerPoint slide notes 14.45
lecture enhancers 14.67
lecture enhancer 14–1: THERE IS NO SUCH THING AS A “BETTER” PRODUCT 14.67
lecture enhancer 14-2: PINTEREST SENDS SHOPPERS TO STORES 14.68
lecture enhancer 14-3: THE GROWING MARKET FOR GUILT-FREE SNACKS 14.69
lecture enhancer 14-4: SMALLER PACKAGING LEADS TO BIGGER PROFITS 14.69
lecture enhancer 14-5: THE NEW BARCODES 14.70
lecture enhancer 14-6: DATES ON FOOD LABELS CAUSE CONFUSION 14.71
lecture enhancer 14-7: BABY PRODUCTS STAY STRONG AS PRICES RISE 14.71
lecture enhancer 14-8: THE MYSTIQUE OF COCA-COLA 14.72
lecture enhancer 14-9: TOP 10 NEW PRODUCTS IN HISTORY 14.72
lecture enhancer 14-10: EXTENDING THE LIFE CYCLE ON A ROLLER COASTER 14.73
14
Chapter 14 – Developing and Pricing Goods and Services
14-2
critical thinking exercises 14.74
critical thinking exercise 14–1: CHOOSING A BRAND NAME 14.74
critical thinking exercise 14–2: MOST VALUABLE GLOBAL BRANDS 14.76
critical thinking exercise 14–3: SILKY SKIN SOLUTION 14.77
critical thinking exercise 14–4: BREAK-EVEN ANALYSIS 14.79
critical thinking exercise 14-5: COMPARISON SHOPPING ONLINE 14.82
bonus cases 14.83
bonus case 14–1: PANERA EXPANDS PAY-WHAT-YOU-CAN EXPERIMENT 14.83
bonus case 14-2: THE VALUE OF A PRODUCT OFFER 14.85
bonus case 14-3: THE TOY STORY ISN’T OVER JUST YET 14.87
Chapter 14 – Developing and Pricing Goods and Services
14-3
what’s new in
this edition
additions to the 11th edition:
• Getting to Know Kathy Ireland of Kathy Ireland Worldwide
• Name That Company: Zipper
• Adapting to Change: Bellying Up to the Bar
• Adapting to Change: Making the Right Cut
• Making the Green Connection: Thinking Outside the Box
• Spotlight on Small Business: Sealing the Deal
• Video Case: Dream Dinners
revisions to the 11th edition:
• Reaching Beyond Our Borders: Playing the Name Game
• Statistical data and examples throughout the chapter were updated to reflect current information.
deletions from the 10th edition:
• Getting to Know Mary Barra
• Name That Company: Virgin Airlines
• Spotlight on Small Business
• Thinking Green
• Reaching Beyond Our Borders
Chapter 14 – Developing and Pricing Goods and Services
14-4
Chapter 14 – Developing and Pricing Goods and Services
14-5
brief chapter outline
and learning objectives
CHAPTER 14
DEVELOPING AND PRICING GOODS AND SERVICES
Getting to Know KATHY IRELAND of KATHY IRELAND WORLD-
WIDE
learning objective 1
Describe a total product offer.
I. PRODUCT DEVELOPMENT AND THE TOTAL PRODUCT OFFER
A. Distributed Product Development
B. Developing a Total Product Offer
C. Product Lines and the Product Mix
learning objective 2
Identify the various kinds of consumer and industrial goods.
II. PRODUCT DIFFERENTIATION
A. Marketing Different Classes of Consumer Goods and Services
B. Marketing Industrial Goods and Services
learning objective 3
Summarize the functions of packaging.
III. PACKAGING CHANGES THE PRODUCT
A. The Growing Importance of Packaging
learning objective 4
Contrast brand, brand name, and trademark and show the value of
brand equity.
IV. BRANDING AND BRAND EQUITY
A. Brand Categories
B. Generating Brand Equity and Loyalty
C. Creating Brand Associations
D. Brand Management
learning objective 5
Explain the steps in the new-product development process.
Chapter 14 – Developing and Pricing Goods and Services
14-6
V. THE NEW-PRODUCT DEVELOPMENT PROCESS
A. Generating New-Product Ideas
B. Product Screening
C. Product Analysis
D. Product Development and Testing
E. Commercialization
learning objective 6
Describe the product life cycle.
VI. THE PRODUCT LIFE CYCLE
A. Example of the Product Life Cycle
B. Using the Product Life Cycle
learning objective 7
Identify various pricing objectives and strategies.
VII. COMPETITIVE PRICING
A. Pricing Objectives
B. Cost-Based Pricing
C. Demand-Based Pricing
D. Competition-Based Pricing
E. Break-Even Analysis
F. Other Pricing Strategies
G. How Market Forces Affect Pricing
VIII. NONPRICE COMPETITION
IX. SUMMARY
Chapter 14 – Developing and Pricing Goods and Services
14-7
Getting to Know KATHY IRELAND of KATHY IRELAND
WORLDWIDE
Former supermodel Kathy Ireland proves she’s more than just a pretty face by
building a $2 billion business empire.
learning objective 1
Describe a total product offer.
I. PRODUCT DEVELOPMENT AND THE TOTAL
PRODUCT OFFER
A. This chapter explores two key parts of the marketing
mix: PRODUCT and PRICE.
1. To prevent losing customers, marketers must
DESIGN AND PROMOTE better products, prod-
ucts that customers perceive as having better
VALUE.
2. The American Marketing Association defines
MARKETING as “a set of processes for creating,
communicating, and delivering value to custom-
ers.”
3. VALUE is good quality at a fair price.
4. When consumers calculate the value of a prod-
uct, they look at the BENEFITS and then subtract
the COSTS to see if the benefits exceed the
costs.
You’ve been using my product for years, yet it took over 15 years for it to be accepted in the
market. It finally became popular during World War I, and today you’ll find it on your pants,
your travel bags, and your hoodie. Who am I and what do I make?
(Students should read the chapter before guessing the company: Whitcomb Judson
and the zipper.)
Chapter 14 – Developing and Pricing Goods and Services
14-8
PPT 14-1
Chapter Title
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Developing
and Pricing
Goods and
Services
CHAPTER 14
PPT 14-2
Learning Objectives
LEARNING OBJECTIVES
14-2
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.
PPT 14-3
Learning Objectives
LEARNING OBJECTIVES
14-3
5. Explain the steps in the new-product development
process.
6. Describe the product life cycle.
7. Identify various pricing objectives and strategies.
PPT 14-4
Kathy Ireland
KATHY IRELAND
Kathy Ireland Worldwide
14-4
• Began selling crafts door-to-
door as a small child.
• Toward the end of her modeling
career, she started licensing her
name to apparel products.
• Now she is in the house wares
business and bringing in more
money than Martha Stewart!
PPT 14-5
Name That Company
NAME that COMPANY
14-5
You’ve been using my product for years, yet it took
over 15 years for it to be accepted in the market.
It finally became popular during World War I, and
today you’ll find it on your pants, your travel
bags, and your hoodie.
Who am I and what do I make?
(See complete PowerPoint slide notes on page 14.45.)
lecture link 14-1
THERE IS NO SUCH THING AS A
“BETTER” PRODUCT
The best product is the one we actually have a need for. (See the
complete lecture enhancer on page 14.67 of this manual.)
PPT 14-6
Developing Value
DEVELOPING VALUE
14-6
LO 14-1
• 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.
lecture enhancer 14-2
PINTEREST SENDS SHOPPERS TO
STORES
Nothing shows us what we “need” better than our Pinterest
boards. (See the complete lecture enhancer on page 14.67 of this
manual.)
Chapter 14 – Developing and Pricing Goods and Services
14-9
5. To satisfy consumers, marketers must LISTEN
TO and constantly ADAPT TO changing market
demands and competitors’ pricing.
6. Because customers’ needs change over time,
they must be CONSTANTLY MONITORED.
7. The text uses several examples:
a. McDonald’s new-product developments in
the fast-food market, a fast–changing mar-
ket.
b. Companies such as 7-Eleven, KFC, Arby’s,
Burger King, and Wendy’s introducing new
fast food.
8. Companies also need to adapt their offerings to
local conditions, both here and abroad.
9. Product development is key in any business.
B. DISTRIBUTED PRODUCT DEVELOPMENT
1. The increase in outsourcing has resulted in ef-
forts requiring use of multiple organizations.
2. DISTRIBUTED PRODUCT DEVELOPMENT is
handing off various parts of your innovation pro-
cess—often to companies in other countries.
C. DEVELOPING A TOTAL PRODUCT OFFER
1. A TOTAL PRODUCT OFFER consists of every-
thing that consumers evaluate when deciding
whether or not to buy something (also called the
value package).
a. The basic product may be a physical good or
service.
Chapter 14 – Developing and Pricing Goods and Services
14-10
PPT 14-7
Products Consumers Won’t Give
Up
PRODUCTS CONSUMERS
WON’T GIVE UP
14-7
LO 14-1
• Internet service
• Cell phone service
• Cable television
• Discount apparel
• Haircuts and coloring
• Fast-food
PPT 14-8
Products “Expendable” by
Spending Cuts
PRODUCTS “EXPENDABLE”
by SPENDING CUTS
14-8
LO 14-1
• Luxury handbags
• Satellite radio
• Specialty apparel
• High-end cosmetics
• Facials
bonus case 14-1
PANERA EXPANDS PAY-WHAT-
YOU-CAN EXPERIMENT
Panera adapted its pricing plan in a Missouri store to include
an honor system where customers can weigh their own cost
versus value. (See the complete case on page 14.83 of this
manual.)
lecture enhancer 14-3
THE GROWING MARKET FOR
GUILT-FREE SNACKS
Some of the most popular items in the market today are
healthy snacks. New product developments are always essen-
tial in the food industry. (See the complete lecture enhancer on
page 14.69 of this manual.)
ADAPTING TO
change
PPT 14-9
Bellying Up to
Social Media
BELLYING UP
to SOCIAL MEDIA
14-9
• Bocktown Beer and Grill is at the
front of mobile media marketing.
• It holds polls on Facebook and
Twitter that let customers pick the
beers on tap.
• It also uses Ta bbedout, a mobile
app that allows customers to pay
their bill without returning to the bar
or giving their card to a server.
PPT 14-10
Distributed Product Development
• Distributed Product Development — The
handing off of various parts of your innovation
process – often overseas.
DISTRIBUTED PRODUCT
DEVELOPMENT
14-10
LO 14-1
• The increase in outsourcing has
resulted in using multiple
organizations separated by
cultural, geographic and legal
boundaries.
bonus case 14-2
THE VALUE OF A PRODUCT OFFER
This case uses the comparison of value between a Ford and a
BMW. (See the complete case, discussion questions, and sug-
gested answers beginning on page 14.85 of this manual.)
PPT 14-11
Developing a Total Product
• Total Product Offer — Everything consumers
evaluate when deciding whether to buy something.
DEVELOPING a
TOTAL PRODUCT
14-11
LO 14-1
• 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.
Chapter 14 – Developing and Pricing Goods and Services
14-11
b. Some people call the basic product the
“CORE PRODUCT” and the total product
offer the “AUGMENTED PRODUCT.”
c. TANGIBLE ATTRIBUTES are the product
itself and the packaging.
d. INTANGIBLE ATTRIBUTES include image
created by advertising, guarantee, and repu-
tation of the producer.
e. Consumers evaluate the total product offer
as a collection of impressions.
2. Different customers may want different total
product offers, so marketers may develop a va-
riety of offerings.
D. PRODUCT LINES AND THE PRODUCT MIX
1. Companies usually sell several different, but
complementary, products.
2. The PRODUCT LINE is a group of products that
are physically similar or are intended for a simi-
lar market (example: Coke’s varied offerings).
3. The PRODUCT MIX is the combination of prod-
uct lines offered by a manufacturer (Proctor &
Gamble’s laundry detergent line).
4. SERVICE PROVIDERS also have product lines
and product mixes (banking products and ser-
vices offered by a credit union or bank).
learning objective 2
Identify the various kinds of consumer and industrial goods.
II. PRODUCT DIFFERENTIATION
Chapter 14 – Developing and Pricing Goods and Services
14-12
PPT 14-12
Product Innovation during the Great
Depression
PRODUCT INNOVATION DURING
the GREAT DEPRESSION
Source: BusinessWeek Small Biz. 14-12
Year Product
1929 Electric Razors
1930 Car Radios
1930 Supermarkets
1933 Chocolate Chip Cookies
1933 Laundromats
LO 14-1
PPT 14-13
Anything You Can Do . . .
ANYTHING YOU CAN DO…
Products Replacing Products
14-13
Starter Replacer Replacer’s
Replacement Future Threat
Friendster MySpace Facebook Quora
Nokia Blackberry iPhone Android
TiVo Blockbuster NetflixApple TV
Altavista Yahoo; Ask Google Blekko
The Shop Around
the Corner Borders Amazon Apple
Polaroid Kodak Canon Smartphones
Playstation Wii Xbox Kinect Playstation 4
LO 14-1
PPT 14-14
Potential Components of a Total
Product Offer
TEXT FIGURE 14.1
Potential Components of a Total
Product Offer
POTENTIAL COMPONENTS
of a TOTAL PRODUCT OFFER
14-14
LO 14-1
PPT 14-15
Understanding
Product Lines
• Product Line — A group of products that are
physically similar or intended for a similar market.
UNDERSTANDING
PRODUCT LINES
14-15
PhotoCourtesyof:Coca-ColaArtGallery
LO 14-1
• Product lines often include
competing brands like:
– Coca-Cola
– Diet Coke
– Coke Zero
– Cherry Coke
PPT 14-16
The Product Mix
The PRODUCT MIX
14-16
LO 14-1
• 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
SPOTLIGHT ON
small
business
PPT 14-17
Sealing the Deal
SEALING the DEAL
14-17
• As a Navy Seal, Randy
Hetrick found keeping
his fitness levels up
while in the field was
difficult.
• He created the TRX
out of parachute
harnesses.
• While earning his MBA, he raised capital to
launch Fitness Anywhere. Now, a $50 million
company!
Chapter 14 – Developing and Pricing Goods and Services
14-13
A. PRODUCT DIFFERENTIATION is the creation of
real or perceived product differences.
1. Actual product differences are sometimes quite
small, so marketers must create a UNIQUE,
ATTRACTIVE IMAGE (example: various brands
of bottled water).
2. Small businesses can often win market share
with CREATIVE PRODUCT DIFFERENTIA-
TION (example: Charlie Clark’s yearbook pho-
tography offers multiple backgrounds and spe-
cial allowances).
B. MARKETING DIFFERENT CLASSES OF CON-
SUMER GOODS AND SERVICES
1. CONVENIENCE GOODS AND SERVICES are
products that the consumer wants to purchase
frequently and with a minimum of effort.
a. For these, location, brand awareness, and
image are important for marketers.
b. Examples: candy, milk, snacks, gas, and
banking services.
c. The Internet provides another level of con-
venience.
d. Best marketing strategy: make them readily
available and create the proper image.
2. SHOPPING GOODS AND SERVICES are those
products that the consumer buys only after
comparing value, quality, price, and style from a
variety of sellers.
Chapter 14 – Developing and Pricing Goods and Services
14-14
PPT 14-18
Differentiating Products
DIFFERENTIATING PRODUCTS
14-18
LO 14-2
• 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
PPT 14-19
Classifying Consumer Goods and
Services
CLASSIFYING CONSUMER
GOODS and SERVICES
14-19
LO 14-2
• Convenience Goods and
Services — Products
consumers purchase frequently
with minimal effort. These
include:
– Candy and snacks
– Gas
– Milk and eggs
PPT 14-20
Classifying Shopping Goods and
Services
CLASSIFYING SHOPPING
GOODS and SERVICES
14-20
LO 14-2
• 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
Chapter 14 – Developing and Pricing Goods and Services
14-15
a. Shopping goods and services are usually
sold through shopping centers where con-
sumers can make comparisons.
b. Examples: clothes, shoes, appliances, and
auto repair services.
c. Target is an example of a store selling pri-
marily shopping goods.
d. Best marketing strategy: emphasize price
differences, quality differences, or some
combination.
3. SPECIALTY GOODS AND SERVICES are con-
sumer products with unique characteristics and
brand identity.
a. Because these products are perceived as
having no reasonable substitute, the con-
sumer makes a special effort to buy them.
b. Examples: specialty foods, expensive wine,
and jewelry.
c. These products are often marketed through
specialty magazines.
d. Interactive websites make purchasing spe-
cialty goods more convenient.
e. Best marketing strategy: advertising that
reaches special market segments.
4. UNSOUGHT GOODS AND SERVICES are
products that consumers are unaware of, ha-
ven’t necessarily thought of buying, or find that
they need to solve an unexpected problem.