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12/14/13Chapter 14 NotesDeveloping and Pricing Goods and ServicesProduct Development and the Total Product Offer- Value—good quality at a fair price. When consumers calculate the value of a product they look at the benefits and then subtract the cost to see if the benefits exceed the costso Marketers have to learn to adapt products to new completion and new markets- Distributed product development—handing off various parts of your innovation process—often to companies in other countries- Total product offer—everything that consumers evaluate when deciding whether to buy something; also called a value package- Product line—a group of products that are physically similar or are intended for a similar market- Product mix—the combination of product lines offered by a manufacturerProduct Differentiation- Product differentiation—the creation of real or perceived product differences- Convenience goods and services—products that the consumer wants to purchase frequently and with a minimum of efforto 7-11- Shopping goods and services—those products that the consumer buys only after comparing value, quality, price, and style from a variety of sellerso Target- Specialty goods and services—consumer 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 themo Fine watches, fine wine, fur coats, jewelry, imported chocolates, and services provided by medical specialists or business consultants- Unsought goods—products that consumers are unaware of, haven’t necessarily thought of buying, or find that they need to solve an unexpected problem o Emergency car-towing services, burial services, and insurance- Fair Packaging and Labeling Act—passed to give consumers much more quantity and value information on product packaging- Bundling—grouping two or more products together and pricing them as a unitBranding and Brand Equity- Brand—a name, symbol, or design that identifies the goods or services of one seller or groupof sellers and distinguishes them from the goods and services of competitorso Brand name ensures quality, reduces search time, and adds prestige to purchases- Trademark—a brand that has exclusive legal protection for both its brand name and its design- Manufacturers brand—the brand name of manufacturers that distribute products nationallyo Kodak, Sony, Dell- Dealer (private label) brands—products that don’t carry the manufacturers name but carry distributor or retailers nameo House brands or distributor brands (ex: Kenmore and Diehard are dealer brands sold by Sears)- Generic name—name for a whole product category- Generic goods—nonbranded products that usually sell at a sizable discount compared to national or private label brands o Generic tissues, generic drugs – consumers buy them more now because quality has gotten better- Knockoff brands—illegal copies of national brand-name goodsGenerating Brand Equity and Loyalty- Brand equity—the value of the brand name and associated symbols (most valuable is Apple)- Brand loyalty—the degree to which customers are satisfied, like the brand, and are committed to further purchases (lowering carbon footprint to build loyalty)- Brand awareness—how quickly or easily a given brand name comes to mind when a product category is mentioned- Brand preferences—preferring one brand over another- Brand insistence—insisting on a certain brand- Brand association—the linking of a brand to other favorable images- Brand manager—a manager who has a direct responsibility for one brand or one product line; called a product manager in some firmsNew Product Development- Odds a product will fail are high (over 80% introduced in any year fail)- Takes about 7 ideas to generate one commercial product- Product screening—a process designed to reduce the number of new product ideas being worked on at any time- Product analysis—making cost estimates and sales forecasts to get a feeling for profitabilityof new-product ideas- Develop further testing many different product concepts or alternativeso This step involves making a prototype- Concept testing—taking a idea product 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 consumersProduct Life Cycle- 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 declineo Within each stage there’s product, price, place, and promotionCompetitive Pricing- Pricing objectiveso Achieving a target return on investment or profito Building traffic—offer certain products at low cost to attract people (loss leaders). Long run objective is to make profits by following the short-run objective of building a customer base- Achieving greater market share—offer lower prices, low finance rates, low lease rates, or rebates- Creating an image—pricing certain products high to create an image of exclusivity and status- Further social objectives—offering low prices so people can afford it. Government offers subsidies on farm products to keep basic necessities like milk and bread affordable- Cost based pricing—add up production costs and margin of profit and come up with a price- Demand based pricingo Target costing—designing a product so that it satisfies customers and meets the profit margins desired by the firm - Competition based pricing—pricing strategy based on what all the other competitors are doing. The price can be set at, above, or below competitors priceso 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 saleso Break even point = total fixed costs (FC) / (price of one unit (P) – variable costs of one unit (VC))o Total fixed costs—all the expenses that remain the same no matter how many products are made or soldo Variable costs—costs that change according to the level of production- Skimming price strategy—strategy in which a new product is priced high to make optimumprofit while there’s little competition- Penetration


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UMD BMGT 110 - Chapter 14

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