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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


Protection



Attraction



Description



Explain Benefits



Information on warranties, warnings, etc.



Indication of price, value, and uses

14-4


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Branding



Brand &
Trademark
Categories

• Manufacturers’
• Dealer/Private
• Generic
• Knockoff



Equity



Loyalty



Awareness



Association

14-5


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Characteristics of a
Good Brand Name


Short, sweet, and easily pronounced, but flexible and expandable, and does not lend itself to abbreviation



Unique within its industry and retain its age



Legally available and defensible



Good alliteration and linguistically clean



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



Liquid Paper – an American Secretary



Paper Clip – a Norwegian Patent Clerk





Fax Machine – a Scottish Clock Maker



Ballpoint pen – a Hungarian Journalist



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







Objectives







ROI
Traffic
Market Share
Image
Social

Cost-Based
Demand-Based
CompetitionBased



Break-Even



Strategies



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



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