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Developing and Pricing Products

What Is a Product?
Features are the qualities, tangible and intangible, that a company builds into its products

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Benefits are what the consumer derives from the product: the want-satisfying value Value package is a product marketed as a bundle of value-adding attributes

Features? Benefits?
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Types of Consumer Products

Convenience Goods: Commonly available, generally affordable, often prone to rapid consumption and re-buy, in which case these are referred to as Fast Moving Consumer Goods (FMCGs)

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Types of Consumer Products

Shopping Goods: A category of consumer goods that are purchased after the buyer has spent some time and effort comparing the price, quality, style and other attributes of the product in several stores

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Types of Consumer Products

Specialty Goods: A category of consumer goods for which the consumers have a strong brand preference and are willing to spend substantial time, effort and money for acquiring the desired brand

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Types of Consumer Products

Unsought Products: A category of products about which the consumers are generally not aware, or if they are aware, they would rather not buy them unless otherwise compelled

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Types of Business Products

Raw Material: Business goods that become part of another tangible product before being processed Examples include natural resources, minerals, agriculture, dairy and poultry products etc.

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Types of Business Products

Fabricating Materials & Parts: Business goods that become part of another tangible product after being processed Examples include sugar, flour, semiconductor micro chips in computers, and zippers & buttons in clothing etc.

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Types of Business Products

Installations: Manufactured products that form an organizations major, expensive and long-lived assets Examples include machinery (heavy generators, blast furnaces, machinery used in production) and buildings

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Types of Business Products

Accessory Equipment: Goods that neither become a part of finished goods nor are directly involved in the manufacturing process, yet are essential in carrying out various processes of a firm Examples include workstations, fork lifts, office furniture etc.

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Types of Business Products

Operating Supplies: Goods characterized by low price and short life span, contributing to an organizations operations Examples include stationery, fuel, telephone sets etc.

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The Product Mix

Product mix is a group of products that a firm makes available for sale (e.g. Nestle)

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Product line is a group of similar products intended for a similar group of buyers who will use them in similar ways

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Understanding Product Mix

Procter & Gamble

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Body Wash & Soap

Antiperspirants & Deodorants

Hair Care

Ivory

Olay

Old Spice

Secret

Pantene

Herbal Essences

Camay

Noxzema

Infusium

Head & Shoulders

Zest

Safeguard

The Seven-Step Product Development Process

1. 2. 3. 4. 5. 6. 7. Product Ideas Screening Concept Testing Business Analysis Prototype Development Product Testing and Test Marketing Commercialization

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The Product Life Cycle

According to the PLC a product passes through many stages in its life It is important for managers to understand and formulate appropriate strategies for each stage The concept of product life applies to a generic category of products (not to brands)

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The PLC Stages

Introduction Growth Maturity Decline

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Introduction
Customers: Few Competition: Little or none Sales: Low, but rising Profits: None Cost per unit: High Pricing: High Distribution : Scattered Strategy: Product Awareness

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Growth
Customers: Mass Market Competition: Increasing Sales: Rapid Growth Profits: Peaking Cost per unit: Declining Pricing: Lower Distribution : Intensive Strategy: Differentiation

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Maturity
Customers: Mass Market Competition: Intense Sales: Slow Growth Profits: Declining Cost per unit: Stable Pricing: Lowest Distribution : Intensive Strategy: Retention

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Decline
Customers: Loyalists Competition: Decreasing Sales: Declining Profits: Low or none Cost per unit: Low Pricing: Increasing Distribution : Selective Strategy: Exit

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Maturity

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Time In Years

Branding Products
Branding is the process of using symbols to communicate the qualities of a product made by a particular producer

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Adding Value through Brand Equity

Brand equity is the degree of consumers loyalty to and awareness of a brand and its resultant market share Brand awareness is the extent to which a brand name comes to mind when the consumer considers a particular product category

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Types of Brand Names

National brand is a product produced by, widely distributed by, and carry the name of the manufacturer Licensed brand is a product for whose name the seller has purchased the right from an organization or individual Private brand (or Private label) is a product that a wholesaler or retailer has commissioned from a manufacturer
Costco-Kirkland
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Packaging and Labeling Products

Packaging is the physical container in which a product is sold, advertised or protected

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Labeling can help market the product

Label is the part of a products packaging that identifies its name, manufacturer and contents

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What Is Pricing?
Process of determining what a company will receive in exchange for its products

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Pricing to Meet Business Objectives

Pricing objectives are goals that producers hope to attain in pricing products for sale

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Profit-Maximizing Objectives
Pricing for maximizing profits on each unit sold

Market Share Objectives

Market share is a companys percentage of total market sales for a specific product type
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Cost-Oriented Pricing
Cost-oriented pricing considers the firms desire to make a profit and its need to cover production costs
Markup is the amount added to an items cost to sell it at a profit

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Breakeven Analysis
Breakeven analysis assesses costs versus revenues for various sales volumes

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Variable cost is a cost that changes with the quantity of a product produced or sold Fixed cost is a cost unaffected by the quantity of a product produced or sold Breakeven point is the sales volume at which the sellers total revenue from sales equals total costs with neither profit nor loss

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Break Even Analysis

Break even point is that quantity of output (sales) at which total revenue equals total cost, at a certain selling price
Break even point = Total Fixed Cost Selling Price Variable Cost (per unit)

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Breakeven Analysis

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Pricing Existing Products

Pricing above prevailing market prices for similar products

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Pricing below market prices Pricing at or near market prices

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Pricing New Products

Price skimming is setting an initial high price to cover new product costs and generate a profit Penetration pricing is setting an initial low price to establish a new product in the market
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Fixed versus Flexible Pricing

Flexible Pricing works where the sellers can alter prices privately, on a one-to-one, customer-to-customer basis.

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Fixed pricing leaves no room for bargaining

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Pricing Tactics
Price lining is setting a fixed price for certain categories of products Psychological pricing or Odd Pricing takes advantage of the idea that consumers tend to see prices in round figures Uniform Pricing is when a diverse range of goods are given the same price Discount is a price reduction offered as an incentive to purchase

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