Chapter 14 – Developing and Pricing Goods and Services
14-31
4. Firms should also listen to their SUPPLIERS for
new-product ideas.
D. PRODUCT SCREENING
1. PRODUCT SCREENING is a process designed
to reduce the number of new-product ideas be-
ing worked on at any one time.
2. CRITERIA NEEDED FOR SCREENING include
fit with present products, profit potential, and
marketability.
E. PRODUCT ANALYSIS is done after screening.
1. PRODUCT ANALYSIS is making cost estimates
and sales forecasts to get a feeling for profitabil-
ity of new-product ideas.
2. Products that don’t meet the established criteria
are withdrawn from further consideration.
F. PRODUCT DEVELOPMENT AND TESTING
1. A PRODUCT IDEA can be developed into many
different PRODUCT CONCEPTS, or alternative
product offerings based on the same product
idea.
2. The firm may develop a PROTOTYPE.
3. CONCEPT TESTING involves taking a product
idea to consumers to test their reactions.
G. COMMERCIALIZATION
1. The text uses the example of the long struggle
for the inventor of zippers to gain consumer ac-
ceptance of the product.
2. The marketing effort must include COMMER-
CIALIZATION, promoting the product to distribu-
Chapter 14 – Developing and Pricing Goods and Services
14-32
PPT 14-44
Bringing New Products to the
Market
BRINGING NEW PRODUCTS
to the MARKET
14-44
LO 14-5
• 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.
PPT 14-45
The New-Product Development
Process
The NEW-PRODUCT
DEVELOPMENT PROCESS
14-45
LO 14-5
PPT 14-46
How to Bring New Products to
Market
HOW to BRING NEW
PRODUCTS to MARKET
14-46
Source: Fast Company, www.fastcompany.com, accessed November 2014.
LO 14-5
1. Build up slowly – When starting up, don’t go too
fast.
2. Design for a single function – Pick one function
and make it the best you can.
3. Package it perfectly – “Unboxing” your new buy
is the best part. Make it exciting to open.
4. Become a status symbol – Make it something to
show off.
PPT 14-47
Bringing New Products to the
Market
• Concept Testing — Takes a product idea to
consumers to test reactions.
BRINGING NEW PRODUCTS
to the MARKET
14-48
LO 14-5
• Commercialization —
Promoting the product to
distributors and retailers
and developing the
promotional campaign.
ADAPTING TO
change
PPT 14-48
Keep on Food
Truckin’
MAKING the RIGHT CUT
14-47
• ModCloth sells the work of
over 600 independent
designers.
• Their customer engagement
programs help them retain
customer loyalty.
• Users can submit their own
designs, vote on pieces to
sell, and seek out style help
24/7.
Chapter 14 – Developing and Pricing Goods and Services
14-33
tors and retailers to get wide distribution and de-
veloping strong advertising and sales campaigns
to generate and maintain interest in the product
among distributors and consumers.
3. Through promotion on the Internet, new prod-
ucts are getting more rapid exposure to global
markets.
learning objective 6
Describe the product life cycle.
VI. THE PRODUCT LIFE CYCLE
A. The PRODUCT LIFE CYCLE is a theoretical model
of what happens to sales and profits for a product
class over time; the four stages are introduction,
growth, maturity, and decline.
1. Not all products follow the life cycle, and some
brands may act differently.
2. Knowing what stage in the cycle a product is in
helps marketing managers decide when strate-
gic changes are needed.
B. EXAMPLE OF THE PRODUCT LIFE CYCLE. The
text uses the example of how instant coffee moved
through the product life cycle.
C. USING THE PRODUCT LIFE CYCLE
1. Different stages in the product life cycle call for
different strategies.
2. Each stage calls for multiple marketing mix
changes.
3. These concepts should be used only as
GUIDELINES.
Chapter 14 – Developing and Pricing Goods and Services
14-34
PPT 14-49
Same Products, Merrier Feel
SAME PRODUCTS,
MERRIER FEEL
14-49
Source: Bloomberg Businessweek, www.businessweek.com, accessed November 2014.
LO 14-5
• Starbucks – Holiday lattes, like
gingerbread and eggnog launch in October.
• Clif Bar – Your winter hike can include
snacks like pecan pie and pumpkin pie.
• Kraft – The famous mac and cheese gets
the snowman treatment during the
holidays.
• Pringles – Pop a can of cinnamon and
sugar chips by the fire.
PhotoCredit:JoelKramer
PPT 14-50
The Four Stages of a Product Life
Cycle
The FOUR STAGES of a
PRODUCT LIFE CYCLE
14-50
LO 14-6
• 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
PPT 14-51
Sales and Profits during the
Product Life Cycle
TEXT FIGURE 14.4
Sales and Profits during the
Product Life Cycle
SALES and PROFITS DURING
the PRODUCT LIFE CYCLE
14-51
LO 14-6
lecture enhancer 14–10
EXTENDING THE LIFE CYCLE ON A
ROLLER COASTER
Amusement parks have found a way to extend the vacation
season—Halloween events complete with haunted houses and
scary costumes. (See the complete lecture enhancer on page
14.73 of this manual.)
PPT 14-52
Profits Beyond the Grave
PROFITS BEYOND the GRAVE
Top Earning Deceased Celebrities in 2014
Source: Forbes, www.forbes.com, accessed November 2014. 14-52
Celebrity Earnings Year of Death
Michael Jackson $140 million 2009
Elvis Presley $55 million 1977
Charles Shultz $40 million 2000
Elizabeth Taylor $25 mi llion 2011
Bob Marley $20 million 1981
Marilyn Monroe $17 million 1962
John Lennon $12 million 1980
Albert Einstein $11.5 million 1955
Bettie Page $9 million 2008
LO 14-6
Chapter 14 – Developing and Pricing Goods and Services
14-35
4. Example: Every few years Arm and Hammer
baking soda promotes new uses for the product
to boost sales.
learning objective 7
Identify the various pricing objectives and strategies.
VII. COMPETITIVE PRICING
A. PRICE is a critical ingredient in consumer evalua-
tions of the product and a difficult one for marketers
to control.
B. PRICING OBJECTIVES
1. The firm may have several objectives in mind
when setting a pricing strategy.
2. These price objectives must be stated clearly
before developing an overall pricing objective.
3. Popular PRICING STRATEGIES include:
a. ACHIEVING A TARGET RETURN ON IN-
VESTMENT OR PROFIT. Most first seek to
maximize profit.
b. BUILDING TRAFFIC. Low prices on certain
products (loss leaders) can bring customers
into your store.
c. ACHIEVING GREATER MARKET SHARE.
Price can be used to capture and hold mar-
ket share.
d. CREATING AN IMAGE. A high price may
present an image of status.
e. FURTHERING SOCIAL OBJECTIVES. A
product may be priced low so more people
can afford to buy it.
Chapter 14 – Developing and Pricing Goods and Services
14-36
PPT 14-53
The Product Life Cycle and the
Marketing Mix
TEXT FIGURE 14.5
Sample Strategies Followed during
the Product Life Cycle
The PRODUCT LIFE CYCLE and
the MARKETING MIX
14-53
LO 14-6
PPT 14-54
Product Life Cycle Stages & Sales,
Profit, and Competition
TEXT FIGURE 14.6
How Sales, Profits, and
Competition Vary over the Product
Life Cycle
PRODUCT LIFE CYCLE STAGES &
SALES, PROFIT, and COMPETITION
14-54
LO 14-6
test
prep
PPT 14-55
Progress Assessment
TEST PREP
14-55
• 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?
PPT 14-56
Pricing Objectives
PRICING OBJECTIVES
14-56
LO 14-7
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
PPT 14-57
Pricing Strategies
PRICING STRATEGIES
14-57
LO 14-7
• 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.
Chapter 14 – Developing and Pricing Goods and Services
14-37
4. A company’s SHORT–TERM PRICING OBJEC-
TIVES may differ from its LONG-TERM OB-
JECTIVES.
5. Pricing objectives are influenced by other mar-
keting decisions regarding product design,
packaging, branding, distribution, and promo-
tion.
6. A product’s price and cost to produce aren’t al-
ways related.
C. COST-BASED PRICING
1. Producers often use COST as a primary basis
for setting price.
2. In the long run, THE MARKET—not the produc-
er—determines what the price will be.
3. Pricing should take into account product costs,
but also expected costs of product updates and
marketing.
D. DEMAND-BASED PRICING
1. TARGET COSTING is designing a product so
that it satisfies customers and meets the profit
margins desired by the firm.
2. Marketers estimate the selling price that people
are willing to pay, then subtract the desired profit
margin.
E. COMPETITION-BASED PRICING
1. COMPETITION-BASED PRICING is a pricing
strategy based on what all the other competitors
are doing; the price can be set at, above, or be-
low competitors’ prices.
Chapter 14 – Developing and Pricing Goods and Services
14-38
Chapter 14 – Developing and Pricing Goods and Services
14-39
2. PRICE LEADERSHIP is the procedure by which
one or more dominant firms set the pricing prac-
tices that all competitors in an industry follow.
F. BREAK-EVEN ANALYSIS
1. BREAK-EVEN ANALYSIS is the process used
to determine profitability at various levels of
sales.
2. The BREAK-EVEN POINT (BEP) is the point
where revenues from sales equal all costs.
3. BEP is calculated:
Total fixed costs (FC) .
Price of 1 unit (P) ̶ Variable costs (VC) of 1 unit
4. TOTAL FIXED COSTS are all the expenses that
remain the same no matter how many products
are made or sold.
5. VARIABLE COSTS are costs that change ac-
cording to the level of production.
6. You don’t make a profit until you sell more than
the break-even sales volume.
G. OTHER PRICING STRATEGIES
1. Pricing in the introductory stage is critical.
2. A SKIMMING PRICE STRATEGY is a strategy
in which a new product is priced high to make
optimum profit while there is little competition;
however, it invites competitors.
3. A PENETRATION STRATEGY is one in which a
product is priced low to attract more customers
and discourage competitors; it allows a company
to capture market share quickly.
Chapter 14 – Developing and Pricing Goods and Services
14-40
critical thinking
exercise 14-3
SILKY SKIN SOLUTION
This exercise asks students to develop a marketing program
for Silky Skin Solution, a technologically advanced wrinkle
cream. (See the complete exercise on page 14.77 of this man-
ual.)
PPT 14-58
Using Break-Even Analysis
USING BREAK-EVEN ANALYSIS
14-58
LO 14-7
• 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.
critical thinking
exercise 14-4
BREAK-EVEN ANALYSIS
This exercise guides the students through the analysis re-
quired to determine a restaurant’s break-even point. (See the
complete exercise on page 14.79 of this manual.)
PPT 14-59
How to Find the Break-Even Point
HOW to FIND the
BREAK-EVEN POINT
14-59
LO 14-7
• The break-even point equals the total fixed costs (FC)
divided by the price of one unit (P) minus the variable
cost of one unit (VC).
BEP = FC/P – VC
• If you have a fixed cost of $200,000, a variable cost of
$2 per item, and you sell your product for $4 each,
what would be your BEP?
PPT 14-60
Pricing Alternatives
PRICING ALTERNATIVES
14-60
LO 14-7
• 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.
Chapter 14 – Developing and Pricing Goods and Services
14-41
4. PRICING STRATEGIES USED BY RETAILERS
a. EVERYDAY LOW PRICING (EDLP) is set-
ting prices lower than competitors and then
not having any special sales (example:
Home Depot and Walmart).
b. The HIGH–LOW PRICING STRATEGY is
setting prices that are higher than EDLP
stores, but have many special sales where
the prices are lower than competitors.
c. Consumers can use the Internet to find lower
prices, making it harder to use this strategy.
d. Some retailers chose the products they carry
based on price (example: stores that sell on-
ly products priced at $1).
e. PSYCHOLOGICAL PRICING is pricing
goods and services at price points that make
the product appear less expensive than it is
(example: gasoline priced at $2.99 instead of
$3.00).
H. HOW MARKET FORCES AFFECT PRICING
1. Marketers now face a new pricing problem: Cus-
tomers can compare prices of many goods and
services on the INTERNET.
2. Internet sellers sometimes use a “DEMAND
COLLECTION SYSTEM,” in which buyers post
the prices they are willing to pay and invite
sellers to accept or decline the price.
3. Price competition is going to heat up as con-
sumers have more access to price information
Chapter 14 – Developing and Pricing Goods and Services
14-42
PPT 14-61
Pricing Strategies of Retailers
PRICING STRATEGIES
of RETAILERS
14-61
LO 14-7
• 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.
critical thinking
exercise 14-5
COMPARISON SHOPPING ONLINE
This Internet exercise directs students to BizRate.com, a web-
site that lets consumers compare both product price and vendor
reputation, to comparison shop for a digital camera. (See com-
plete exercise on page 14.82 of this manual.)
Chapter 14 – Developing and Pricing Goods and Services
14-43
from all around the world.
VIII. NONPRICE COMPETITION
A. Marketers often compete on product ATTRIBUTES
OTHER THAN PRICE.
B. Because price differences are small in products
such as candy bars and gas, marketers stress im-
age and benefits.
C. Many smaller organizations promote the services
that accompany basic products rather than price in
order to compete with bigger firms.
IX. SUMMARY
Chapter 14 – Developing and Pricing Goods and Services
14-44
test
prep
PPT 14-62
Test Prep
TEST PREP
14-62
• 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 is psychological pricing?
Chapter 14 – Developing and Pricing Goods And Services
14-45
PowerPoint slide notes
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.