Ch 14 - Developing and Pricing Products

Anything a company offers to satisfy customer needs and wants, including both tangible goods and intangible services.

Products

True or False: A product can be a good, service, OR combination of both?

True

_____ are tangible, storable, mass-produced, and judged by outcome. _____ are intangible, customized, not storable, and judged by both outcome and delivery.

Goods; services

Purchased for personal or family needs (e.g., groceries, clothes, light bulbs for home use).

Consumer Product 

 Which of the following is a consumer product?
a) Tires sold to Ford Motor Co.
b) Toothpaste purchased for home use
c) Computer chips for Dell laptops
d) Cookies for consumption

b) Toothpaste purchased for home use

 Purchased by businesses for resale, production, or operational use (e.g., raw materials, machinery).

Business Product (Business-to-Business/Industrial Product)

True or False: Consumer products are based on characteristics and intended use while business products are based on buyer behavior.

False - Consumer products are based on buyer behavior while business products are based on characteristics and intended use.

True or False: Convenience products usually have strong brand recognition.

True

A type of consumer product that is inexpensive, require little shopping effort, bought routinely (e.g., soft drinks, toothpaste). Often brand-name recognizable.

Convenience Product 

A type of consumer product where buyers put effort into planning and comparing prices, features, quality, services, warranties (e.g., video game systems, cellphones). Last longer, purchased less frequently. 

Shopping Products

 Which of the following is a shopping product?
a) Chewing gum
b) Smartwatch
c) Light bulb
d) Hand bag

b) Smartwatch

A type of consumer product with unique characteristics, buyers expend considerable effort, search extensively, rarely accept substitutes (e.g., designer purses, vintage wines).

Specialty Products 

A type of consumer product not actively sought until a significant event occurs (e.g., life insurance before having a child). Can be shopping or specialty.

Unsought Product

A type of business product where basic material is transformed into a physical product (e.g., from mines, forests). Bought by grades/specifications.

Raw Material 

A type of business product that becomes part of a physical product; finished item or needs little processing (e.g., tires, computer chips). Identifiable on its own.

Component Part 

A business product used directly in production, not readily identifiable in finished product (e.g., industrial glue, food preservatives). Purchased by industry standards/specifications.

Process Material 

A type of business product that involves large tools/machines for production (e.g., bulldozers). Can be custom-made or standardized.

Major Equipment 

A type of business product that involves standardized equipment for production/office activities (e.g., hand tools, desktop computers). Less expensive, routinely purchased.

Accessory Equipment 

A type of business product that facilitates production/operations but doesn't become part of finished product (e.g., paper, cleaning agents).

Supply

A type of business product that involves intangible product used in operations (e.g., financial, legal, janitorial services). Companies decide to provide internally or outsource.

Business Service

True or False: Consumers are typically unwilling to substitute specialty products.

False - examples include luxury cars, designer purses

 Life insurance before having a child is an example of an __________ product.

Unsought - a product consumers don’t actively seek until needed

Raw materials are purchased based on:
a) Emotion
b) Grade or specifications
c) Brand name
d) Market demand 

b) Grade or specifications

True or False: Component parts are not identifiable in the final product.

False - they are identifiable on their own. Examples include tires, chips, etc.,.)

 Industrial glue is an example of a __________ material.

Process - Directly used in production, but not identifiable.

True or False: Supplies are directly part of a product’s composition.

False - Supply refers to items that support operations but don’t become part of finished goods (e.g., paper, cleaning agents).

A name, term, symbol, or design that identifies a product and differentiates it from competitors.

Brand

Brands are often protected by a _____ (exclusive design, name, or mark).

Trademark 

 Legal protection for brand names, symbols, or designs.

Trademark

Any product improvement customers value over existing choices, including new products or adaptations. It's crucial for companies to remain competitive and profitable, and it improves quality of life for consumers.

Innovation 

The following can be labelled as benefits of _____

• Improved Function or Quality: Products run faster, perform better.

• Lowering Cost of Production: Allows for lower prices or increased profits.

• Offering Customers New Experiences: Unique offerings, cultural immersion.

Benefits of Innovation

What are the 4 phases of product development?

1. Idea Generation

2. Product Screening

3. Product Development and Testing

4. Commercialization

Organize the phases of product development in order: 

• Product Screening 

• Product Development & Testing

• Commercialization 

• Idea Generation

1. Idea Generation

2. Product Screening

3. Product Development and Testing

4. Commercialization

 Which is NOT a product development phase?
a) Product Screening
b) Market Segmentation
c) Commercialization
d) Idea Generation

b) Market Segmentation

Customers preference of brand identifiers (logo, name, etc.)

Brand Loyalty

 Which phase comes last in product development?
a) Screening
b) Testing
c) Commercialization
d) Idea Generation
e) Customer Feedback

c) Commercialization

Describes a product's sales revenue and profits over time, increasing, peaking, and then declining. It applies to individual products or entire product categories.

Product Life Cycle (PLC)

What are the four stages of Product Life Cycle?

1. Introduction Stage: New product category, few competitors, low sales, low profits.

2. Growth Stage: Customers adopt the product, sales and profits increase, competitors enter. Profits tend to peak here.

3. Maturity Stage: Sales peak, profits decline due to market saturation and price competition.

4. Decline Stage: Declining sales and profits as consumer needs change. Ability to produce at low cost determines remaining competitors.

Identify the stage of the product life cycle based on the description below: 

• New product category, few competitors, low sales, low profits.

Introduction Stage

Identify the stage of the product life cycle based on the description below: 

• Customers adopt the product, sales and profits increase, competitors enter. Profits tend to peak here.

Growth Stage 

Identify the stage of the product life cycle based on the description below: 

• Sales peak, profits decline due to market saturation and price competition.

Maturity Stage 

Identify the stage of the product life cycle based on the description below: 

• Declining sales and profits as consumer needs change. Ability to produce at low cost determines remaining competitors.

Declining Stage 

Identify the stage of the product life cycle based on the marketing strategy provided: 

• Heavy promotion to build awareness and interest.

Introduction Stage

Identify the stage of the product life cycle based on the marketing strategy provided: 

• Build brand through promotion, increase distribution, lower prices.

Growth Stage

Identify the stage of the product life cycle based on the marketing strategy provided: 

• Add new features/styles, target competitors in advertising, further cut prices.

Maturity Stage

Identify the stage of the product life cycle based on the marketing strategy provided: 

• Reduce marketing costs, minimize production costs, possible eliminate product.

Decline Stage 

 Profits typically peak during the ________ stage of the product life cycle.

Growth 

The collection of all products a company offers.

Product Mix

Group of similar products related by function or target audience (e.g., different types of Cheerios cereal).

Product Line 

The following can be labelled as benefits of grouping by _____

• Clarity for Consumers: Simplifies choices (e.g., health-conscious shoppers focus on specific lines).

• Better Management of Product Mix: Allows specialized product managers for different lines/segments.

• Simplified Branding Decisions: New products can be launched under existing lines, leveraging instant brand recognition.

Product Line

Given the following scenarios, a company may decide to change the _____ _____

• Market demand (demographics, preferences, technology)

• Challenges from competitors (superior products, pricing, distribution, promotion)

• Opportunities to expand target market

• Geography (expanding operations)

Product Mix 

Given the following scenarios, a company may decide to change the _____ _____

• Stage of product life cycle (discontinuing declining products)

• Financial risk (unprofitable products)

• Simplifying product mix (streamlining choices)

Product Mix

 Involves developing and providing a container with graphics for a product. It's a vital part of the product, influencing purchase decisions.

Packaging 

The following can be labelled as what?

• Protect the Product: Ensures product integrity.

• Attract Buyer Attention: Visual appeal.

• Provide Product Information: Key features, ingredients, instructions.

• Improve Design or Function: Innovative shapes, improved performance, resealable cartons.

• Better Serve Customer Needs: Travel-size versions, product bundles.

Functions of Packaging 

 Which of the following is not a packaging function?
a) Improve product design
b) Lower production cost
c) Attract buyer attention
d) Provide information

b) Lower production cost

Determines sales volume, revenue, and potential profit. For customers, it determines acquisition cost and value perception.

Price 

What are four considerations when determining (the company) prices?

• Your Cost: Manufacturing, material, labor, operating costs. Can increase/decrease.

• Maximum Price Customers Are Willing to Pay: Influenced by new features, design, economic conditions (disposable income). Can increase/decrease.

• What Competitors Charge: Industry-wide price changes, competitor discounts. Can increase/decrease.

• Desired Sales Volume: High-end products (specialty/unsought) have low volume, premium prices. Competitive products (convenience/shopping) rely on volume sales, competitive pricing.

Which is NOT a key consideration when determining prices?

a) Your cost

b) What your competitors charge

c) Desired Sales Volume

d) Internal Management Structure 

d) Internal Management Structure 

High-end specialty products typically have _____ prices and _____ sales volume.

High; low

The minimum sales volume or revenue needed to cover all costs (no profit, no loss).

Break-Even-Point

When # of units sold (for total revenue) = total costs

Break-Even-Point

Costs that do not change with production/sales volume (e.g., rent, salaries).

Fixed Costs (Operating Costs/Overhead)

Costs of producing/purchasing one unit. total variable cost varies with production level. 

Variable Costs (Unit Cost)

Sum of fixed and variable costs for a given production quantity.

Total Costs

Fixed Costs + Variable Costs = ?

Total Costs

The gross profit on a unit of sale calculated as sales revenue minus variable costs (per unit)

Unit Contribution 

Sales price (per unit) - Variable costs (per unit) = ?

Unit Contribution

The gross profit on each sale expressed as a percentage; calculated as contribution per unit divided by sales revenue (per unit) OR 100% – (variable costs/sales)

Contribution Margin

Unit contribution expressed as a percentage of sales price.

Contribution Margin

Unit contribution (per unit) ÷ Sales revenue (per unit) = ?

OR

100% - (variable costs/sales) = ?

Contribution Margin 

Total Fixed Costs ÷ Unit Contribution is the formula for _____ to_____ ______

Units to Break-even

Total Fixed Costs ÷ Contribution margin is the formula for _____ to _____ _____

Revenue to Break-even

True or False: Ay break-even-point, a company earns zero profit.

True

_____ sets pricing objectives aligned with company vision, strategy, and marketing goals.

Management

Management sets pricing objectives aligned with company vision, strategy, and marketing goals. While profit maximization is common, many companies consider the "triple bottom line.” What is the triple bottom line?

Profit, People, Planet

Profit, People, Planet

Triple Bottom Line

The following can be labelled as common _____ objectives

• Build Loyal User Base: Accept leaner margins to attract customers, hoping for future add-on sales/subscriptions (e.g., game consoles).

• Increase Market Share: Focus on competition, aggressive pricing to gain a larger percentage of total industry sales (e.g., Coca-Cola vs. Pepsi).

• Communicate Brand Value: High prices signal quality and status (e.g., luxury goods like Rolex). Discounting can cheapen brand image.

• Match Status Quo: Maintain price stability, especially in industries with little product differentiation (e.g., airlines, gasoline). Avoids price wars.

• Survival or Liquidation: Cut prices, even below break-even or unit cost, to generate cash flow or sell off excess/underperforming inventory. Short-term strategy.

Pricing

 Setting prices high to indicate quality and prestige aligns with which objective?
a) Increase Market Share
b) Communicate Brand Value
c) Survival
d) Match Status Quo

b) Communicate Brand Value

A course of action to achieve pricing objectives, influenced by objectives, product differentiation, competition, and PLC stage.

Pricing Strategy 

What are the four categories of pricing strategies?

• New-Product Pricing 

• Psychological Pricing 

• Product line Pricing 

• Promotional Pricing 

Charging the highest possible price during introduction to recover R&D costs quickly, then lower price over time.

Price Skimming 

Sell new products at low prices to achieve large sales volume and market share quickly, ideally before competitors react.

Penetration Pricing 

Prices slightly below whole-dollar amounts (e.g., $9.99) to give impression of lower price.

Odd-Number Pricing 

Single price for two or more units (e.g., 2 for $0.99) to increase sales and create perception of the economy.

Multiple-Unit Pricing 

Price a product moderately, position it next to a more expensive model/brand, making the moderate price seem favorable.

Reference Pricing 

Package two or more complementary products for a single, lower price than individual sums (e.g., banking services, option packages).

Bundle Pricing 

Consistent low prices, not deeply discounted, but below competitors to assure fair price.

Everyday Low Prices (EDLPs)

Prices based on tradition (e.g., candy bars, chewing gum).

Customary Pricing

A pricing strategy that encourages emotional rather than rational purchases (primarily for consumer products).

Psychological Pricing

Pricing strategy that establishes and adjusts prices of multiple products within a product line.

Product-Line Pricing

Basic product priced low, while items required to operate/enhance it are priced higher (e.g., razor blades, printer ink).

Captive Pricing 

Highest-quality/most-versatile product in a line gets the highest price; other products priced for sensitivity or specific features.

Premium Pricing 

Selling goods only at certain predetermined prices that reflect definite price breaks (e.g., A software company offers a basic, a professional, and an enterprise version of its product, each with a different set of features and price). Simplifies consumer decision.

Price Lining 

A pricing strategy coordinate with promotion.

Promotional Pricing

Priced below usual markup, near/below cost, to attract customers (e.g., supermarkets). Hopes for sales of regularly priced items to offset.

Price Leaders

Advertised sales/price cuts linked to a holiday, season, or event.

Special-Event Pricing

Sets a price and compares it with a higher price (previous, competitor, other retail, MSRP).

Comparison Discounting 

 A company offering “2 for $0.99” is using which strategy?
a) Odd-Number Pricing
b) Bundle Pricing
c) Multiple-Unit Pricing
d) Price Lining

c) Multiple-Unit Pricing

True or False:  Penetration pricing is most effective when competition is already strong.

False — it’s best before competitors enter. 

Penetration Pricing: Sell new products at low prices to achieve large sales volume and market share quickly, ideally before competitors react.

The final phase of the product development process, when marketers take all they have learned from previous phases and make final improvements to the product before launching it to the market. 

Commercialization