CHAPTER 14 DEVELOPING AND PRICING GOODS AND SERVICES Value good quality at a fair price o Customers calculate the value by seeing if the benefits exceed their costs subtracting their costs from the benefits Total product offer everything that consumers evaluate when deciding whether to buy something also called a value package o Includes some or all the value enhancers Some people call the basic product the core product o The total product is the augmented product Product line a group of products that are physically similar or are intended for a similar o Product line with competing brands Diet Coke Coke Zero Diet Cherry Coke Product mix the combination of all product lines offered by a manufacturer Coke market Dasani Vitamin water Product differentiation the creation of real or perceived product differences The popular classification of consumer goods and services has four general categories 1 Convenience goods and services products that the consumer wants to purchase frequently and with a minimum of effort convenience stores like 24 2 Shopping goods and services products that the consumer buys only after comparing value quality price and style from a variety of sellers 3 Specialty goods and services customer products with unique characteristics and brand identity Because these products are perceived as having no reasonable substitute the consumer puts forth a special effort to purchase them 4 Unsought goods and services products that consumers are unaware of haven t necessarily thought of buying or find that they need to solve an unexpected problem emergency car towing services burial services and insurance Industrial goods sometimes called business goods or B2B goods products used in the production of other products o Installations consist of major capital equipment such as new factories and heavy machinery o Capital items are inexpensive products that last a long time o Accessory equipment consists of capital items that are not quite as long lasting or expensive as installations like computers and copy machines Packing includes Universal Product Code UPCs which are barcodes which gives the retailer information about the product s price color etc Radio Frequency identification RFID chip chip sends out signals telling a company where the product is at all times Walmart has been a leader of using this Bundling grouping two or more products together and pricing them as a unit Brand a name symbol or design that identifies the goods or services of one seller or group of sellers and distinguishes them from the goods and services of competitors Trademark a brand that has exclusive legal protection for both its brand name and its design Manufacturer s brand names the brand names of manufacturers that distribute products nationally Xerox Kodak Sony and dell Dealer private label brands products that don t carry the manufacturer s name but carry a distributor or retailer s name instead house brands or distributor brands A generic name is the name for a whole product category Generic goods non branded products that usually sell at a sizable discount compared to national or private label brands Knockoff brands illegal copies of national brand name goods Brand equity the value of the brand name and associated symbols Brand loyalty the degree to which customers are satisfied like the brand and are Brand awareness how quickly or easily a given brand name comes to mind when a Brand association the linking of a brand to other favorable images such as celebrities Brand manager known as a product manager in some firms a manager who has direct responsibility for one brand or one product line o Manages all the elements of its marketing mix product price place and committed to further purchases product category is mentioned in ads promotion New product development for producers consists of six stages o Idea generation based on consumer wants and needs o Product screening o Product analysis o Development including building prototypes o Testing o Commercialization bringing the product to the market Product screening a process designed to reduce the number of new product ideas being Product analysis making cost estimates and sales forecasts to get a feeling for worked on at any one time profitability of new product ideas Concept testing taking a product idea to consumers to test their reactions Commercialization promoting a product to distributors and retailers to get wide distribution and developing strong advertising and sales campaigns to generate and maintain interest in the product among distributors and consumers Product life cycle a theoretical model of what happens to sales and profits for a product class over time the four stages of the cycle are introduction growth maturity and decline o This cycle is a theoretical model of what happens to sales and profits for a product class over time Popular objectives include the following 1 Achieving a target return on investment or profit Make profit 2 Building traffic 3 Achieving greater market share One way to capture a larger part of market share is to offer lower prices low finance rates low lease rates or rebates 4 Creating an image Exclusivity and status 5 Furthering social objectives A firm may want to price a product low so people with little money can afford it The gov often subsidizes the price of farm products to keep basic necessities like milk and bread more affordable There are three major approaches to pricing strategy cost based demand based target costing and competition based Target costing designing a product so that it satisfies customers and meets the profit margins desired by the firm not an outcome of it o Target costing makes the final price an input to the product development process Competition based pricing a pricing strategy based on what all the other competitors are doing The price can be set at above or below competitors prices Price leadership the strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow Break even analysis the process used to determine profitability at various levels of sales o Break even point BEP Total fixed costs TFC Price of one unit P Variable costs VC of one unit Total fixed costs all the expenses that remain the same no matter how many products are made or sold mortgage interest real estate taxes equipment Variable costs costs that change according to the level of production labor materials Skimming price strategy strategy in which a new
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