Chapter Chapter FourteenFourteen

Developing and PricingDeveloping and PricingProducts and ServicesProducts and Services

Consumer Choices of BestConsumer Choices of Best Product Innovation of Product Innovation of ALLALL

TimeTime

Source: American Demographics

0% 10% 20% 30% 40% 50% 60% 70%

Automobile

Light Bulb

Telephone

Television

Aspirin

Product Development Product Development

& Value Package& Value PackageValue- Total Product OfferValue- Total Product Offer

Price

Package

Store surroundingsImage created by advertising

Guarantee

Service

Reputation of producer

Speed of delivery

Brand name

Convenience

Buyer’s past experience

Everything consumers consider when making a purchase

Internet access

Product Development Product Development

& Value Package& Value Package

Product LineProduct LineProduct MixProduct MixProduct Product

DifferentiationDifferentiation

A company’s similar goods or services

Perceived differences in goods or services

Classic Classic Product FailuresProduct Failures

FailureFailure CompanCompanyy

LosLosss

EdselEdsel

CorfamCorfam

VideoDisVideoDiscc

PCjrPCjr

New New CokeCoke

PremierPremier

Ford Motor Ford Motor Co.Co.

DuPontDuPont

RCARCA

IBMIBM

Coca-ColaCoca-Cola

R. J. R. J. ReynoldsReynolds

$250 M$250 M

$100 M$100 M

$500 M$500 M

$ 40 M$ 40 M

No $ No $ NumberNumber

No $ No $ NumberNumber

First Products First Products Produced byProduced by

Five Major CompaniesFive Major CompaniesHersheyHershey Caramels Caramels

AmwayAmway No-rinse car No-rinse car wash wash

HeinzHeinz Horseradish Horseradish

AvonAvon Little Dot Little Dot perfume set perfume set

3M3M Sandpaper Sandpaper

Source: World Features Syndicate

Mickey Mouse’sMickey Mouse’s Product MixProduct Mix

Theme parks Theme parks & resorts& resorts

ABC Television ABC Television NetworkNetwork

TV & radio TV & radio stationsstations

Film studios & Film studios & productionproduction

Video Video programs & programs & licensinglicensing

Consumer Consumer productsproducts

PublishingPublishing

Marketing Classes Marketing Classes of Goods & Servicesof Goods & Services

Consumer Consumer GoodsGoods- ConvenienceConvenience- ShoppingShopping- SpecialtySpecialty- UnsoughtUnsought

IndustrialIndustrial

for frequent purchases (7-11)

for comparing value (mall)

for small market segment

unexpected purchases

for production of other goods

for final use

Importance of Importance of PackagingPackaging

1)1) ProtectProtect

2)2) AttractAttract

3)3) DescribeDescribe

4)4) ExplainExplain

5)5) WarrantiesWarranties

6)6) Price, Value, UsesPrice, Value, Uses

BrandingBranding

Mary’s Fresh Fruit Mary’s Fresh Fruit JamsJams

Fresh DailyFresh Daily

Straight from the Straight from the GardenGarden

Brand & Brand & TrademarkTrademark

CategoriesCategories- Manufacturers’Manufacturers’

- KnockoffKnockoff

- Dealer/PrivateDealer/Private

- GenericGeneric

name, symbol name, symbol or designor design

exclusive useexclusive use for national for national

distributiondistribution illegal copiesillegal copies carry carry

distributors distributors name like name like SearsSears

non-brandednon-brandedaspirin, zipper, linoleum, nylon, kerosene, escalator Xerox, rollerblade, kleenex, Coke,??

BrandingBranding

Mary’s Fresh Fruit Mary’s Fresh Fruit JamsJams

Fresh DailyFresh Daily

Straight from the Straight from the GardenGarden

EquityEquity

LoyaltyLoyalty

AwarenessAwareness

AssociationAssociation

awareness, awareness, images quality, images quality, loyalty loyalty

commitment to commitment to purchasespurchases

name represents name represents categorycategory

linking to linking to favorable imagesfavorable images

Market Value Market Value of A Brand Nameof A Brand Name

0 10 20 30 40 50 60 70 80

Coca-Cola

MS/Windows

IBM

Intel

Nokia

General Electric

Ford

Disney

McDonald's

Source: Source: Interbrand Group

Billions of Billions of DollarsDollars

A Good Brand A Good Brand Name...Name...

Speaks directly to Speaks directly to product’s target product’s target customerscustomers

Attracts/motivates Attracts/motivates consumers to try itconsumers to try it

Is memorable/sticks Is memorable/sticks in customers’ mindsin customers’ minds

Is distinctive enough Is distinctive enough to protect it legallyto protect it legally

Speaks directly to Speaks directly to product’s target product’s target customerscustomers

Attracts/motivates Attracts/motivates consumers to try itconsumers to try it

Is memorable/sticks Is memorable/sticks in customers’ mindsin customers’ minds

Is distinctive enough Is distinctive enough to protect it legallyto protect it legally

Most Powerful Most Powerful Internet BrandsInternet Brands

CategoryCategory BrandBrandBooks & Books &

MusicMusic

Amazon.comAmazon.com

Buy.comBuy.com

BrokerageBrokerageCharles Schwab, Charles Schwab,

Ameritrade, E*TradeAmeritrade, E*Trade

Search Search

EngineEngine

Google, Yahoo, Google, Yahoo,

MSN, AOLMSN, AOL

TravelTravelExpedia, Expedia,

Travelocity, Fodors, Travelocity, Fodors, PricelinePriceline

Source: Business 2.0, July 2002, p. 86.

Brands Consumers Brands Consumers Consider Most ReliableConsider Most Reliable

CRAFTSMAN TOOLSCRAFTSMAN TOOLS WATERFORD CRYSTALWATERFORD CRYSTAL ROLL-ROYCE MOTOR CARSROLL-ROYCE MOTOR CARS DISCOVERY CHANNELDISCOVERY CHANNEL WD-40 LUBRICANTWD-40 LUBRICANT BOSE STEREO/SPEAKER SYSTEMSBOSE STEREO/SPEAKER SYSTEMS CRAYOLA CRAYONS/MARKERSCRAYOLA CRAYONS/MARKERS HERSHEY KISSESHERSHEY KISSES

New-ProductNew-Product DevelopmentDevelopment

Idea Idea GeneratioGeneratio

nnScreeninScreenin

ggAnalysisAnalysis

DevelopmentDevelopment

TestinTestingg CommercializCommercializ

ee

Soft Drink Brands Soft Drink Brands That Didn’t Make ItThat Didn’t Make It

Juicy Fruit Juicy Fruit with Lemon with Lemon LimeLime

Lemon Lemon MerengueMerengue

Cream Wizard Cream Wizard Wintergreen Wintergreen

Crow CloveCrow Clove

Kentucky No Kentucky No Nip Cherry Nip Cherry JulepJulep

Satan’s PunchSatan’s Punch

Green Green Tangerine Tangerine SourerSourer

Key Lime Key Lime CreamCreamSource: St. Louis Post-Dispatch

Renaming BrandsRenaming BrandsOLD NAMEOLD NAME NEW NAMENEW NAME

BELL ATLANTICBELL ATLANTIC VERIZONVERIZON

BELL SOUTHBELL SOUTH CINGULARCINGULAR

AMERICAN BRANDSAMERICAN BRANDS FORTUNE BRANDSFORTUNE BRANDS

CIBACIBA NOVARTISNOVARTIS

VALUJETVALUJET AIR TRONAIR TRON

Source: Forbes Magazine, December 21, 2002

Sales and Profits During the PLCSales and Profits During the PLC

Life Cycle Life Cycle StageStage

SalesSales ProfitsProfits CompetitoCompetitorsrs

IntroductionIntroduction low saleslow sales losses may losses may occuroccur

fewfew

GrowthGrowth rapidly rising rapidly rising slaesslaes

very high very high profitsprofits

growing growing numbernumber

MaturityMaturity peak salespeak sales declining declining profitsprofits

stable, then stable, then decliningdeclining

DeclineDecline falling salesfalling sales profits may profits may become become losseslosses

declining declining numbernumber

What They Cost What They Cost When First When First IntroducedIntroduced

1927 1927 Transatlantic CallTransatlantic Call $ 75/3 min.$ 75/3 min.

19471947 Microwave OvenMicrowave Oven $ $ 3,0003,000

19641964 FAX unit rentalFAX unit rental $ $ 850/month850/month

19701970 Pocket CalculatorPocket Calculator $ 150$ 150

19741974 VCR TapeVCR Tape $ $ 5050

Source: World Features Syndicate

PricingPricing ObjectivesObjectives

$ ROI (profit)ROI (profit)$ Building TrafficBuilding Traffic$ Greater Market Greater Market

ShareShare$ Increasing SalesIncreasing Sales$ Creating an ImageCreating an Image$ Social ObjectivesSocial Objectives

Cost-BasedCost-Based

Value- ServiceValue- Service Break-EvenBreak-Even

- Fixed CostFixed Cost- Variable CostVariable Cost

Other StrategiesOther Strategies- Skim – high priceSkim – high price- Penetration - lowPenetration - low- EDLP – no salesEDLP – no sales- High-LowHigh-Low- Psychological - $9.99Psychological - $9.99- Bundling – washer/dryerBundling – washer/dryer

LeadershipLeadership

Breakeven ChartBreakeven Chart(Figure 14.9)(Figure 14.9)

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

0

10,0

00

20,0

00

30,0

00

40,0

00

50,0

00

Fixed CostTotal CostTotal Revenue

Tota

l R

even

ue o

r Tota

l C

ost

Tota

l R

even

ue o

r Tota

l C

ost

Number of UnitsNumber of Units

Pricing Using Pricing Using Breakeven AnalysisBreakeven AnalysisProblemProblem Should we charge $2 or $3 per box?Should we charge $2 or $3 per box?

CostsCosts Total Fixed CostsTotal Fixed Costs $400,000$400,000

Variable CostVariable Cost $1 per box$1 per box

Market Market Research Research ForecastForecast

Company can sell: 290,000 boxes at $2 @Company can sell: 290,000 boxes at $2 @

210,000 boxes at $3 @210,000 boxes at $3 @

Breakeven point = Breakeven point = total fixed costtotal fixed cost

price - variable cost price - variable cost (per unit) (per unit) (per unit)(per unit)

$2 price = $2 price = $400,000$400,000 400,000 units to 400,000 units to breakevenbreakeven

$2 - $1$2 - $1

$3 price = $3 price = $400,000$400,000 200,000 units to 200,000 units to breakevenbreakeven

3 - $13 - $1

BreakevenBreakeven

AnalysisAnalysis

Market Share-Market Share-CableCable

AOL Time Warner

21%

AT&T/Media One29%

Comcast12%

Others38%

Source:Source: Wall Street Journal 1/12/2000

Movies- Domestic Movies- Domestic Box Office Market Box Office Market

ShareShareOthers

16%

MGM4%

Disney17%

Warner Bros.14%

Universal13%

Paramount12%

Fox11%

Sony9%

Dreamworks4%

Source: Source: Wall Street Journal, 1/12/2000

Market Share ofMarket Share of

Video SalesVideo SalesUniversal

7%Paramount10%

Sony13%

Fox15%

Disney35%

Warner Bros.20%

Source:Source: Wall Street Journal, 1/12/2000