Understanding business 8th by mcchugh nickels chapter 14

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Developing
and Pricing
Products and
Services

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CHAPTER

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14

Nickels

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McHugh

McGraw-Hill/Irwin
Understanding Business, 8e

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McHugh
1-1

14-1

© 2008 The McGraw-Hill Companies, Inc., All Rights


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Product Development
& Value Package

• Value/Total Product Offer
• Product Line
• Product Mix
• Product Differentiation
14-2


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Marketing Different Classes
of Goods & Services

• Consumer

• Convenience
• Shopping
• Specialty

• Unsought

• Industrial

14-3


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Importance Of Packaging
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Protection

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Attraction

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Description

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Explain Benefits

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Information on warranties, warnings, etc.

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Indication of price, value, and uses

14-4


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Branding
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Brand &
Trademark
Categories

• Manufacturers’
• Dealer/Private
• Generic
• Knockoff

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Equity

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Loyalty

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Awareness

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Association

14-5


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Characteristics of a
Good Brand Name
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Short, sweet, and easily pronounced, but flexible and expandable, and does not lend itself to abbreviation

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Unique within its industry and retain its age

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Legally available and defensible

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Good alliteration and linguistically clean

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Embraces company personality / brand portfolio

Source: The Brand Name Awards 2005

14-6


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Best/Worst/Weirdest
Car Brand Names
Best

Worst

Lamborghini Diablo Volkswagon Thing
Ford Mustang

Honda That’s

Weirdest
FSR Tarpan Honker
Mazda Bongo Friendee/
Brawny

Mitsubishi Colt

Nissan Cedric

Isuzu Tractor

Pontiac Firebird

Toyota Toyopet

Mitsubishi Delica Space
Gear

Rolls-Royce Silver

Corbin Sparrow

Suzuki Joy Pop

Shadow
Dodge Coronet Super Bee
Source: FT Weekend, November, 2005

14-7

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Brand Characters:
Are They Real or Fake?

• Betty Crocker
• Chef Boyardee
• Uncle Ben
• Colonel Sanders
• Little Debbie
Source: Fast Company, August 2004

Fake
Real
Both
Real guy, fake rank
Real
14-8


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10 Most Valuable Brands
Rank

Product

Brand Value
(Billions)

1

Coca-Cola

$67.00

2

Microsoft

56.93

3

IBM

56.20

4

GE

48.91

5

Intel

32.32

6

Nokia

30.13

7

Toyota

27.94

8

Disney

27.85

9

McDonald’s

27.50

10

Mercedes-Benz

21.80

Source: Business Week, August 7, 2006

14-9


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Top 10 Favorite
Mascots of America
M&Ms figures / Mars
Doughboy / General Mills, Smucker’s

Duck / Aflac
Tony the Tiger / Kellogg
Gecko / Berkshire Hathaway’s Geico
Chester the Cheetah / Pepsi’s Frito-Lay
Energizer Bunny / Energizer Holdings
Kool-Aid Man / Kraft Foods
Trix Rabbit / General Mills
Snap, Crackle and Pop / Kellogg

Source: Forbes, January 9, 2006

14-10


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New-Product
Development Process

1.Idea Generation
2.Screening
3.Analysis

4.Development
5.Testing
6.Commercialize

14-11

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First Products Produced
by Five Major Companies

• Hershey - Caramels
• Amway - No-rinse car wash
• Heinz - Horseradish
• Avon - Little Dot perfume set
• 3M - Sandpaper
Source: World Features Syndicate

14-12


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People Behind
Product Innovation

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Liquid Paper – an American Secretary

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Paper Clip – a Norwegian Patent Clerk

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Fax Machine – a Scottish Clock Maker

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Ballpoint pen – a Hungarian Journalist

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Eraser Head – English Chemist

Lewis Waterman Fountain Pen – an American Insurance Salesman
Pencil Sharpener – French Mathematician

Source: World Features Syndicate

14-13


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Best Product
Innovation of ALL Time
% of Consumers’ Choice

Source: American Demographics

14-14


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Consumers Attitudes
about New Products

Source: USA Today

14-15


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Why People Purchase
New Products

Source: USA Today

14-16


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Sales & Profits
During the PLC

14-17


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Pricing

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Objectives

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ROI
Traffic
Market Share
Image
Social

Cost-Based
Demand-Based
CompetitionBased

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Break-Even

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Strategies

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Market Forces

• Fixed Cost
• Variable Cost
• Skimming
• Penetration
• EDLP

• High-Low
• Bundling
• Psychological
14-18


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What They Cost
When First Introduced
1927

Transatlantic Call $ 75/3 min.

1947
3,000

Microwave Oven $

1964
850/month

FAX unit rental

1970

Pocket Calculator $ 150

1974

VCR Tape

Source: World Features Syndicate

$

$

14-19


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Total Revenue or Total Cost

Breakeven Chart

Number of Units
14-20


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Pricing Using
Breakeven Analysis

Problem
Costs
Market
Research
Forecast

Should we charge $2 or $3 per unit?
Total Fixed Costs

$400,000

Variable Cost

1 per unit

$

Company can sell: 290,000 boxes at $2 / unit
210,000 boxes at $3 / unit
Breakevenpoint
point==
Breakeven

Breakeven
Analysis

totalfixed
fixedcost
cost
total

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

(perunit)
unit)
(per

$2price
price==$400,000
$400,000==400,000
400,000units
unitsto
to
$2
breakeven
breakeven
$2--$1
$1
$2
$3price
price==$400,000
$400,000==200,000
200,000units
unitsto
to

$3
breakeven
breakeven
$3 - $1

14-21


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Advanced
Breakeven Analysis

14-22


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Example of a
UPC Barcode

12 34567 89012 8

Example only: not a valid UPC
barcode

14-23