CHAPTER 13 Creating and Pricing Products that Satisfy Customers 13.7 TEXTBOOK ANSWER KEYS 13.7a Return to Inside Business PepsiCo 1. How is PepsiCo using price differentiation in marketing its soft drinks? As the case indicates, PepsiCo prices its soft drinks differently in convenience stores and gas stations than it does in supermarkets. Students will recognize that different channels attract different customers at different times, which is why PepsiCo can adjust its pricing in line with the value each channel creates for customers and the price sensitivity of customers buying from channel partners. Ask students to think about the price of PepsiCo in restaurants areas where soft drinks are sold as a menu item (prices not set by PepsiCo). Are those prices uniform, or is differential pricing in effect? Why? How does this differ from PepsiCo’s pricing? 2. How does the product life-cycle help to explain why PepsiCo introduces so many flavor variations of Doritos snacks and Mountain Dew soft drinks? Snacks and soft drinks are mature products, having been on the market for some time. To avoid declines in sales and profits, PepsiCo introduces flavor variations that generate excitement and encourage customers to buy and try the new offerings. This extends the length of the maturity stage and allows PepsiCo to compete with industry rivals. 13.7b Review Questions 1. What does the purchaser of a product obtain besides the good, service, or idea itself? A product is everything one receives in an exchange, including all tangible and intangible attributes and expected benefits. If the product is a good, the price may also include such services as delivery, installation, warranties, and training. If the product is a service, the purchaser may obtain, as in the case of dealing with an attorney, not only the advice sought but also a monetary reward as a result of that advice. 2. What are the products of (a) a bank, (b) an insurance company, and (c) a university? The product of a bank is the services (checking accounts, savings accounts, loans) it provides for its customers. The product of an insurance company is the type of coverage it offers its customers. The product of a university is the knowledge it imparts. 3. What major factor determines whether a product is a consumer or a business product? The buyer’s intent—or the ultimate use of the product—determines the classification of the item. 4. Describe each of the classifications of business products. a. Raw materials are basic materials that actually become part of a physical product. b. Major equipment includes large tools and machines used for production purposes. c. Accessory equipment is used in production or office activities. d. Component parts become part of the physical product and are either finished items ready for assembly or products that need little processing. e. Process materials are used directly in the production of other products. f. Supplies facilitate production and operations, but they do not become part of the finished product. g. Industrial services are the intangible products that many organizations use in their operations. 5. What are the four stages of the product life-cycle? How can a firm determine which stage a particular product is in? The four stages of the product life-cycle are (1) introduction, (2) growth, (3) maturity, and (4) decline. To determine which stage a particular product is in, the characteristics of that product (increasing sales, more competitors, falling profits, etc.) can be compared to the characteristics that exemplify each stage of the product life-cycle. 6. What is the difference between a product line and a product mix? Give an example of each. A product line, such as General Mills cereals, is a group of similar products that differ only in relatively minor characteristics, whereas a product mix consists of all the products a firm offers for sale. General Mills offers not only cereals but also cookie and cake mixes, other baking products, and yogurt. 7. Under what conditions does product modification work best? For this approach to be effective, several conditions must be met. First, the product must be modifiable. Second, existing customers must be able to perceive that a modification has been made. Third, the modification should make the product more consistent with customers’ desires. 8. Why do products have to be deleted from a product mix? Products must be deleted to maintain an effective product mix. In addition, they must be deleted to reflect changes in consumer preferences, once popular products eventually no longer satisfy customers’ needs. 9. Why must firms introduce new products? Firms must introduce new products because the buying public is an intelligent, demanding group of shoppers. If a company sticks with one product indefinitely, never altering or improving it, competing companies with new and improved products will gain a bigger market share. 10. Briefly describe the seven new-product development stages. The seven new-product development stages are as follows: a. Idea generation: New ideas are generated and evaluated in terms of company objectives. b. Screening: Ideas in line with company goals are screened to determine feasibility. c. Concept testing: The concept (through an idea or a description) is presented to customers to determine their attitudes or buying intentions regarding the product. d. Business analysis: A feasible product is subjected to marketing analysis according to makeup, size of market, and potential profitability. e. Product development: Prototypes are produced. f. Test marketing: Tests are performed before the product is produced and marketed. g. Commercialization: There is a full-scale launching of the product. 11. What is the difference between manufacturer brands and store brands? Between family branding and individual branding? A manufacturer brand is the brand owned by the manufacturer (Calvin Klein), whereas a store brand is owned by the individual wholesaler or retailer (Kenmore is owned by Sears). Family branding is a strategy in which a firm uses the same brand for all or most of its products (Xerox). Individual branding is a strategy in which a firm uses a different brand for each of its products (Ivory, Safeguard). 12. What is the difference between a line extension and a brand extension? A brand extension is using an existing brand to brand a new product in a different product category. A line extension is using an existing brand on a new product in the same product category, such as a new flavor or sizes. 13. How can packaging be used to enhance marketing activities? Packaging can be used to enhance marketing activities by acting as an attention-getter to the buying public. Through its shape, appearance, and printed message, a package can influence purchasing decisions. 14. For what purposes is labeling used? Labeling is used to state the brand name, brand mark, and registered-trademark symbol. It also states package size, contents, product claims, directions for use, safety precautions, and the ingredients of the product. 15. What is the primary function of prices in our economy? The primary function of prices is to allocate goods and services among those who are willing and able to buy. 16. Compare and contrast the characteristics of price and non-price competition. Price competition occurs when a seller emphasizes the low price of a product and sets a price that equals or beats competitors’ prices. Non-price competition is based on factors other than price, such as product quality or customer service. 17. How might buyers’ perceptions of price influence pricing decisions? For a particular product, the price may be a bigger factor to some buyers than to others. The importance of price to buyers will also vary depending on the product. For example, buyers may be more price sensitive when purchasing gasoline than they are when purchasing jeans. For products with high price sensitivity, marketers use caution when considering increasing the price. The opposite is also true. Marketers have greater latitude about changing the price of a product with low price sensitivity. 18. List and briefly describe the five major pricing objectives. The five major pricing objectives are as follows: a. Survival: Staying competitive and in the market. b. Profit maximization: Making the most profit possible without pricing the firm out of the market. c. Target return on investment: Attempting to earn a respectable after-tax profit on investment. d. Market-share goals: Attempting either to maintain or to increase market share. e. Status-quo pricing: Not making waves by inducing price wars, but playing “follow the price leader.” 19. What are the differences among markup pricing, pricing by breakeven analysis, and competition-based pricing? Markup pricing is adding a certain amount to costs to earn a profit. Breakeven pricing is attempting to achieve a production-equals-sales status. Competition-based pricing is a strategy whereby the product is priced in line with the competition, knowing that the competitive product is selling well at that price. 20. In what way is demand-based pricing more realistic than markup pricing? Demand-based pricing is more realistic than markup pricing because it takes into account both fixed and variable costs and determines an actual breakeven quantity. Markup pricing, on the other hand, takes into account only producers’ costs. 21. Why would a firm use competition-based pricing? A firm would use competition-based pricing because it is simple and considered fair to both buyer and seller. It also helps maintain stability in the marketplace, because it rarely triggers a price war. 22. What are the five major categories of pricing strategies? Give at least two examples of specific strategies that fall into each category. New-product strategies include price skimming and penetration pricing. Differential pricing uses negotiated pricing and random discounting. Psychological pricing uses odd-number pricing and everyday low prices (EDLP). Product-line pricing uses captive pricing and price lining. Promotional pricing uses price leaders and special-event pricing. 23. Identify and describe the main types of discounts that are used in the pricing of business products. Trade discounts are discounts from the list price that are offered to marketing intermediaries, or middlemen. Quantity discounts are discounts given to customers who buy in large quantities. Cash discounts are discounts offered for prompt payment. 13.7c Discussion Questions 1. Why is it important to understand how products are classified? Different classes of products are directed at particular target markets. A product’s classification largely determines what kinds of distribution, promotion, and pricing are appropriate in marketing the product. 2. What factors might determine how long a product remains in each stage of the product life-cycle? What can a firm do to prolong each stage? Two determining factors are sales volume and what the competition is doing. To prolong each stage of the cycle, a firm can try the following strategies. In the introduction stage, it can work harder and longer at promoting customer awareness. In the growth stage, continued promotion is essential. In the maturity stage, a company can begin to offer trade-ins toward the purchase of new models. In the decline stage, it can offer items at sale prices to stimulate buying. 3. Some firms do not delete products until they become financially threatening. What problems may result from relying on this practice? A weak product costs the firm money, time, and resources that would otherwise be available for modifying other products or developing new ones. When a weak product generates an unfavorable image among customers, the negative image may “rub off” on some of the firm’s other products. 4. Which steps in the evolution of new products are most important? Which are least important? Defend your choices. Probably all seven steps illustrated in Figure 13.2 are important to a company dedicated to developing new products. If the new product is an adaptation or an imitation, the elimination of idea generation, screening, and test marketing may be possible because adaptations or imitations rely on a product that is already in the marketplace. 5. Do branding, packaging, and labeling really benefit consumers? Explain. Branding associates a product with an already established trusted company and may assure customers of a specific and consistent quality level. Packaging can make a product convenient to use. It can also ensure safety for the consumers, as in the case of triple-sealed drug containers. Labeling instructs consumers on the pros and cons of a product and may include information as to what the product contains, how it can be used economically, or where to write in case of a defect. 6. To what extent can a firm control its prices in our market economy? What factors limit such control? Firms can set prices in our market economy, but it is the activity of the market that controls the raising or lowering of those prices. Government regulations limit the pricing ability of a company to some extent by prohibiting certain pricing activities. 7. Under what conditions would a firm be most likely to use non-price competition? Non-price competition is most likely to be used when a seller is able to make its product stand out from the competition through distinctive product quality, customer service, promotion, packaging, or other features. 8. Can a firm have more than one pricing objective? Can it use more than one of the pricing methods discussed in this chapter? Explain. A firm can have a variety of pricing objectives. Pricing objectives are often determined by the stage of a product’s development. A firm might wish to make an enormous profit on a new product or may be satisfied to break even but have a high penetration. A firm can also use a variety of pricing methods, depending on its objectives. For example, competition-based pricing can help attain a pricing objective of increasing sales or marketing share. 9. What are the major disadvantages of price skimming? The greatest disadvantage is that price skimming may make the product appear lucrative to potential competitors, who may attempt to enter that market. 10. What is an “effective” price? An effective price is one that meets the objectives of the organization and is considered to be acceptable and reasonable by customers. An effective price also helps provide the desired product image. 11. Under what conditions would a business most likely decide to employ one of the differential pricing strategies? If your company deals with negotiations on price many times, you would want to employ the negotiated pricing strategy. (For example, if you are a supplier, there are a lot of retailers who won’t do business with you unless you negotiate with them.) 12. For what type of products are psychological pricing strategies most likely to be used? Since psychological pricing strategies are used to encourage purchases based on emotional responses rather than on economically rational responses, they are used mostly for consumer products rather than business products. 13.7d Comments on Video Case 13.1 Suggestions for using this video case are provided in the Pride/Hughes/Kapoor Video Guide. From Artistic Roots, Blu Dot Styles Marketing Strategy 1. What challenges does Blu Dot face in selling consumer products (as opposed to business products)? Blu Dot must balance affordability with craftsmanship, recognizing that some customers value one of these more than the other. It must uncover the symbolic value customers place on furniture, which often speaks to the consumer’s self-image while having to fit a usually limited budget. Finally, the company must track changing customer tastes and develop designs that are distinctive but functional and that have wide appeal. With all this, the firm must still meet its production goals of simplicity and ease of manufacture for each piece in order to maintain affordability. 2. Do you think the product life-cycle is an important marketing concept in developing and managing Blu Dot products? Why or why not? Product life-cycle is important to Blu Dot because design and style are constantly evolving. Even small changes in consumers’ tastes and aesthetic values can quickly date products that might otherwise be in the early stages of their life-cycle and have a lot of functionality left, challenging the firm to constantly introduce new pieces to take their place in its product mix. 3. Describe the product mix and the role different product lines play in Blu Dot’s marketing strategy. Blu Dot’s product mix consists of seven product lines: tables, storage, accessories, desks, beds, seating, and shelving. As part of its marketing strategy, the company offers these products in a few different brands and corresponding price levels in order to appeal to different market segments, such as those for whom price is paramount, those who are looking for style, and those for whom the company’s products offer both. 13.7e Comments on Case 13.2 Will the “G” Branding Initiatives for Gatorade Work? 1. What are the marketing advantages and disadvantages of emphasizing “G” as the primary element in the Gatorade brand? Advantage: The Gatorade brand name and the lightning bolt brand mark were changed to emphasize the “G” and the thunderbolt and downplay the rest of the name. The goal was to make the combination an instantly recognizable icon as representing Gatorade, in the same way that the Nike swoosh and the Apple “apple” have become the iconic representation of that brand. Advantage: The “G” brand also unified the product line while allowing each item enough distinctive touches (such as different bottle shapes) to help customers quickly find the particular product they want. Disadvantage: By changing the packaging too much, Gatorade runs the risk that people don’t recognize the brand and might mistake it with a store brand. 2. As Gatorade sharpens its marketing focus on athletes, should it vary its packaging for different distribution channels or different sports? Explain your answer. Gatorade started out as a sports drink, but it slowly began repositioning its product as a thirst-quencher for a cross-section of consumers, not just athletes. Now Gatorade has gone back to its sports roots with the G Series line of drink products. Gatorade Prime 01 contains vitamins and other nutrients to help athletes “stay strong,” whereas G2 is intended for rehydration during exertion. Gatorade Recover 03 is developed to replenish energy and help muscles recover after sports activity. The Elite Series of Gatorade offers special formulations featuring protein, carbohydrates, and other nutritional enhancements. Having different packaging for different sports would be very expensive for the company and might be confusing for consumers, who use packaging as a way to quickly identify the product they want. However, Gatorade may benefit from offering different size packaging for different distribution channels. For example, it may want to offer a 32-oz. single bottle in gyms and locker rooms, but offer smaller, multi-unit packages (i.e., 8-pack of 16-oz. bottles) at retail stores like GNC and Whole Foods Market. 3. When they launch additional Gatorade brands, like Gatorade Prime 01 and Gatorade Recover 03, are Gatorade marketers introducing brand extensions, line extensions, or both? A line extension is the development of a product closely related to one or more products in the existing product line but designed specifically to meet somewhat different customer needs. This is the case with Gatorade Prime 01, which is intended to help athletes “stay strong,” verus Gatorade Recover 03, which is developed to replenish energy and help muscles recover after sports activity. A brand extension occurs when an organization uses one of its existing brands to brand a new product in a different product category. Gatorade’s products are all in the same category—sports drinks. An example of a brand extension would be if Gatorade decided to brand energy bars for athletes using the “G” brand. 13.7f Building Skills for Career Success 1. Social Media Exercise 1. Visit the Web site. At first you probably would not think of social media as being useful for a railroad. What do you think are the most effective elements of the campaign? Who doesn’t like a contest, especially when it’s free to enter? This contest rallied railroad fans to “vote early and often” to bring the legendary steam locomotive to their town. Additionally, five individuals who scored the most content “points” won tickets for a special leg of the excursion, as well as lodging and air fare. The person with the most points was awarded the title of “Honorary Engineer” and was given the opportunity to ride in the locomotive cab. Fans could vote only once a day, but by sharing with friends via Facebook and Twitter, they could gain a referral point for every new verified participant who voted as a direct result of clicking on a referral link they shared. This not only kept railroad fans engaged and interested in Union Pacific, but by referring friends and followers through Facebook and Twitter, the railroad gained more exposure—all for free. 2. What can other non-competing companies learn from Union Pacific’s use of crowdsourcing? Crowdsourcing has become one of the most engaging and innovative tools in marketing over the last few years. It enables people who are passionate about a company or a product to interact with the company and each other. Contests and giveaways are a great way to engage people, and they’re likely to share the news with their friends. Additionally, if the company can capture contact information for participants (e-mail address or Twitter account), it can plan post-event promotions that keep people coming back for more and keep the company in the forefront of people’s minds. Customers also love to give their opinions. Sharing their ideas and opinions makes them feel connected to the company or product. This also enables a company to gain valuable feedback on their products. 2. Journaling for Success 1. Thinking about the brands of products that you use, to which brand are you the most loyal? Explain the functional benefits of this brand. While answers will vary, most students are likely to focus on quality-related issues. How well does the product do what it is supposed to do, and how well does it conform to specifications are two sets of issues. Other quality factors will include ease of use, storability, length of usable life, and so forth. 2. Beyond the functional benefits, what does this brand mean to you? Trustworthiness is likely to be mentioned, as well as reliability. In some cases, image may be a factor. 3. Under what set of circumstances would you be willing to change to another competing brand? A switch away from a truly beloved brand would require either exceptionally poor performance, bad publicity, or a truly superior new product to be offered by competition. 4. Discuss how you first began to use this brand. It would be interesting to explore how many students began using a brand because their parents used it as they were growing up. 3. Developing Critical-Thinking Skills Answers will vary depending on the product or service chosen. For example, a feature for a local printer may be 24-hour service. The benefit to the customer may be increased flexibility and faster turnaround. Another example might be an automobile feature such as antilock brakes (benefit: safety). 4. Building Team Skills Answers will vary depending on students surveyed. Generate a total class list of new-product ideas and present it to the administration for review. 5. Researching Different Careers Answers will vary depending on the industry chosen. This research should result in employment options for students. 13.8 QUIZZES I AND II Quiz I True False Questions Select the correct answer. 1. T F Generally, the product life-cycle consists of five stages: development, introduction, growth, maturity, and decline. 2. T F A narrow product mix allows a firm to gain stability by concentrating on just a few markets. 3. T F Innovations are much less common than imitations and adaptations. 4. T F Some firms set an annual percentage ROI (return on investment) as their pricing goal. 5. T F A store that sells all of its men’s gloves for $9.95 and $15.00 is practicing price lining. Multiple-Choice Questions Circle the letter before the most accurate answer. 6. A consumer product for which buyers will expend effort or planning, that is purchased infrequently, and that is usually purchased only after being compared with competing products is a __________ product. a. luxury b. specialty c. convenience d. shopping e. business 7. A group of similar products that differ only in relatively minor characteristics is called a a. product. b. product line. c. generic product. d. product differentiation. e. product mix. 8. If a company needs to obtain cash quickly to pay its bills, it may opt for a pricing strategy that achieves which goal? a. Market share increase b. Status quo c. ROI target d. Maximization of profit e. Survival 9. A manufacturer of cameras and film may price a camera at a low price to attract customers, but price the film at a relatively high price because customers must continue to purchase film in order to use their cameras. This type of pricing strategy is known as a. captive pricing. b. premium pricing. c. price lining. d. special-event pricing. e. customary pricing. 10. A “2/10, net 30” invoice feature is an example of a __________ discount. a. trade b. cash c. preferential d. uniform e. quantity Quiz II True-False Questions Select the correct answer. 1. T F A product’s classification largely determines the appropriate marketing strategy. 2. T F The most important element in the success of a branded product is consumers’ confidence in the product. 3. T F If a firm is using cost-based pricing, it considers costs and revenue secondary to competitors’ prices. 4. T F Competition-based pricing results in a high price when product demand is strong and a low price when demand is weak. 5. T F Transfer pricing involves the sale of a product to another unit within the same organization. Multiple-Choice Questions Circle the letter before the most accurate answer. 6. All of the following are characteristics of the decline stage of the product life-cycle except a. a sharp decrease in sales volume. b. a decline in the number of competing firms. c. increased consumer awareness of the product. d. the removal of less profitable versions from the product line. e. increased importance of production and marketing costs in determining profit. 7. To maintain an effective product mix, a firm often must eliminate some products. This process is called a. quality modifications. b. functional modifications. c. aesthetics. d. product deletion. e. product modification. 8. A product with no brand at all is called a a. discount product. b. factory second. c. maverick product. d. generic product. e. plain-package product. 9. Non-price competition can be used effectively when a seller does all but which one of the following? a. Makes distinctions in product quality b. Differs in customer service c. Uses an attractive promotional strategy d. Creates an appealing package e. Lowers prices 10. Raw materials are an example of a firm’s __________ costs. a. selling b. operating c. fixed d. overhead e. variable 13.9 ANSWER KEY FOR QUIZZES I AND II Quiz I True-False Multiple-Choice 1. F 6. d 2. F 7. b 3. T 8. e 4. T 9. a 5. T 10. b Quiz II True-False Multiple-Choice 1. T 6. c 2. T 7. d 3. F 8. d 4. F 9. e 5. T 10. E 13.10 Classroom Exercises 13.10a Homework Activities • Have students bring in an article, an advertisement, or a product that shows an example of some aspect of branding, packaging, labeling, or pricing discussed in the chapter. • Researching and Following a Company Throughout the Course (continuing assignment). Have students describe how they would classify the company’s products. At what stage of the life-cycle are its products? Describe the company’s product line and mix. Discuss the company’s pricing strategy. • Team Exercise/Paper. Place students into small teams or ask them to choose a partner. Ask them to complete the exercise “Developing New Product Ideas” (see handout provided). You or your students should decide what company they are working for before they begin the homework. Following are teaching tips/pointers to give the students for each stage of the process: Idea generation. Ask students to think of something they wish were available that isn’t. Reviewing recent advances in areas such as telecommunications or thinking about things they’ve seen in science fiction or futuristic movies may help stimulate discussion. You can classify ideas in terms of product modifications (quality, function, or aesthetics). Caution them not to criticize any ideas at this stage. Screening. Product development moves from the general to the specific. This phase gets more detail oriented and requires that students’ creative ideas now show some practicality. (You may want to allow some leeway on technical feasibility because you may not know if it can be done or not.) Some may develop ideas that are workable but are not needed or wanted by consumers. Remind students that more ideas are rejected in this stage than in any other. Concept testing. (a) Concept testing is most likely to occur through focus groups but can be done in other ways. (b) Not all new-product ideas have to be concept tested. Business analysis. (a) Some products may generate initial interest but produce no long-term profits. An example is no-run pantyhose, which can be made but would produce diminishing demand. (b) Another firm may produce a similar product and capitalize on its superior market position. Regulatory and social forces may not allow continued sales of some questionable products. (c) Secondary data for product categories may help estimate sales potential and typical industry costs. An experiment or survey could measure consumer buying intentions. • Homework and Classroom Exercise. Ask students to visit a discount store, a specialty store, or a department store and report the number of different product lines offered and the depth within each line. Have them identify the name and type of store they visited. You can have students compare their experiences in class discussion. 13.10b Classroom Activities • What’s My Class? Group Exercise. Place students into small groups or have them work with a neighbor to fill out the handout provided. It should take them no more than five minutes to classify each product as to (1) whether it is a good, service, or idea and (2) whether it is a specialty, convenience, or shopping good. Given that a number of these products fit into more than one category, the results should generate some lively discussion. • What’s My Stage? Exercise. Ask students to identify the appropriate stage of the product life-cycle for each of the five products listed. They are to provide at least two reasons to justify their choice. This exercise should take five to ten minutes. • A Product by Any Name Exercise. Ask students to give several examples of brand names that meet the requirements listed on the handout. This exercise takes no more than five minutes and can be done individually, with partners, or in teams. Instructor notes are provided. • Shopping and Pricing Log Activity. This is a homework assignment where students log their purchases along with other marketing information as a basis for class discussion. This activity enables students to relate various concepts from the chapter to their own lives. It can be done at the beginning of the chapter to facilitate discussion or at a later time to illustrate relationships between concepts. • What’s It Worth to You? Exercise. This is an exercise designed to show how various circumstances and situations alter the price consumers are willing to pay for a particular item. It also demonstrates the range of acceptable pricing. Make copies of the handout and place students into small groups. After the exercise is completed, follow up with a discussion of the factors the students used to make their judgments. • How Should We Price It? Exercise. This is a very short exercise that requires students to identify differing pricing strategies. It will take less than five minutes and can be done individually, it can be done in teams, or a student can work with a neighbor. • The Price Is Right Exercise. This is a short group exercise/competition that demonstrates buyers’ perceptions of value and price. It should take approximately 15 minutes. Make copies of the handout and place students into small groups. After the exercise is completed, follow up with the discussion of buyers’ perceptions of price. Divide students into at least three groups. Hand out the list of menu items from Olive Garden. Give the groups five to ten minutes to consult with each other and reach a consensus on what they feel the price should be. Meanwhile, write the name of each menu item on the board and ask each group to come up to the board and write down their group’s price for each item. Once all prices have been written on the board, write the actual price. One point is given to the group that gets the closest to the price without going under (because in pricing it’s wrong to price an item too low—you’re giving up profits!). Points are doubled if the group gets the exact price. Note: The prices shown are from the menu at Olive Garden in Fort Wayne, Indiana, in 2012. • Benefits of Packaging Exercise. Bring in a variety of packaged products for display in the classroom. These can be a can of soup, package of razor blades, box of cereal, bottle of aspirin, DVD, bag of potato chips, bottle of cologne, etc. (Use your imagination—and what’s in your pantry or medicine cabinet!) Lead the students in a discussion of the functions and benefits of each item’s packaging. You can ask questions such as: ○ In what ways does the package protect the product and maintain its functional form? ○ In what ways does the package prevent damage that could affect the product’s usefulness (i.e., spoilage, tampering, etc.)? ○ In what ways does the package offer convenience for the consumer—such as storage, convenience of use, or replacement? ○ In what ways does the package communicate the product’s features, uses, benefits, and image? ○ In what ways does the package create a desirable image and association through the use of color, design, shape, or texture? 13.10c Exercise Handouts Follow on Next Pages DEVELOPING NEW PRODUCT IDEAS Your group is a venture team designed to create entirely new products. You work for the ______________________________________________ company. 1. Idea generation. You can get ideas for new products for the company from personnel, customers, competitors, ad agencies, consultants, and private research firms. One method you can use now is brainstorming ideas. Make a list of possible product ideas. 2. Screening. Pick the ones you think are most feasible. a. Do you really think that this product can be made and marketed? What kinds of resources (financial and technological) would be required? b. Does the product fit with the nature and wants of buyers? Do people really care about what the product offers? 3. Concept testing. a. How could you best present the product concept to consumers to get their reactions? b. Is it necessary to conduct concept testing on each product? 4. Business analysis. Determine potential for profit. a. Is demand strong enough to justify entering the market, and will demand endure? b. How might environmental and competitive changes affect future results? c. How could research be used to help estimate sales, costs, and profits? What’s My Class? In your groups, classify each of the following products. In Column 1, indicate whether it is a good, a service, or an idea. In Column 2, indicate whether it is most likely to be a specialty, shopping, or convenience good. Be prepared to support your answer. Hint: For Column 2, consider how much effort a consumer is likely to put into the decision-making process for each item. Product Good, Service, or Idea Specialty, Convenience, or Shopping a. Overnight stay in a hotel b. DVD player c. This business course d. Dry cleaning e. Political party platform f. Advice from a marriage counselor g. Utilities, such as electricity h. Meal at Red Lobster i. Pair of jeans j. A movie at a theater k. Candy bar l. Airplane flight What’s My Class? Instructor Notes Product Good, Service, or Idea Specialty, Convenience, or Shopping a. Overnight stay in a hotel service could be any of the above b. DVD player good probably shopping c. This business course service could be any of the above d. Dry cleaning service could be any of the above e. Political party platform idea probably specialty, possibly shopping f. Advice from a marriage counselor service shopping or specialty g. Utilities, such as electricity service shopping h. Meal at Red Lobster both good and service could be any of the above i. Pair of jeans good shopping or specialty j. A movie at a theater mostly service could be any of the above k. Candy bar good could be any of the above l. Airplane flight service probably shopping Note: Many of the above product categories could exist as a convenience, shopping, or specialty good depending on the brand, price, and any truly unique features. What’s My Stage? In your groups, discuss the following five products. Indicate the current product life-cycle stage for each product. Give at least two reasons for your choice of stage. 1. Ivory soap 2. Hybrid cars 3. Smartphones 4. VCRs 5. Tumor-specific cancer drugs What’s My Stage? Instructor Notes 1. Ivory soap: Maturity Ivory soap has been around for 125 years and continues to be distributed in most grocery, drug, and mass merchandiser stores. Line extensions and product improvements are developed as necessary. See http://www.ivory.com/ for more detail about this product. 2. Hybrid cars: Growth As gas prices inch upward, the popularity of these cars increases. In 2000, 9,500 hybrid cars were sold in the United States. This number grew to 212,000 in 2005 and was forecast to increase to 780,000 in 2012. (http://www.autos.com/car-buying/2011-hybrid-car-market-forecast) 3. Smartphones: Growth, approaching maturity Gartner, a market research company, predicts that by 2013 the number of smartphones will surpass PCs, 1.82 billion to 1.78 billion. There is continual improvement in this category causing fast replacement of existing models. (http://online.wsj.com/article/SB10001424052970204527 804576043803826627110.html?mod=googlenews_wsj) 4. VCRs: Decline Video tapes are being replaced by DVDs, and the players are also being replaced. 5. Tumor-specific cancer drugs: Early introduction Medical science continues to search for drugs that attack cancerous tumors but do not destroy other cells as is often the case with generalized chemotherapy. These drugs are still in their infancy but will become more available as research continues. A Product by Any Name In the next five minutes, list as many names as you can think of that fit each criterion. a. Easy to say, spell, and recall b. Communicates major product benefits c. Suggests product uses or special features d. Distinctive enough to set the product apart from competing brands A Product by Any Name Instructor Notes a. Easy to say, spell, and recall (Tide detergent, Tone soap, Jif peanut butter, Pert shampoo) b. Communicates major product benefits [No-Yolk pasta, Clean & Clear (skin care products), Dustbuster (hand-held vacuum), Quick-Lash mascara, Reach toothbrush, Carpet-Fresh (rug and room deodorizer)] c. Suggests product uses or special features [Glass Works (glass cleaner), Mop & Glo (floor cleaner), Soft Scrub (cleanser)] d. Distinctive enough to set the product apart from competing brands [Orville Redenbacher (popcorn), Reebok (athletic shoes), Häagen-Dazs (ice cream), Yoplait (yogurt)] EXAMINING BRANDING AND PACKAGING 1. Look at the nearest snack food wrapper or soft drink container and identify the a. brand name. b. brand mark. c. trademark. d. trade name. 2. Using the wrapper or container, explain how packaging performs three functions: protection, convenience, and communication. 3. Is the manufacturer of the product using individual, family, or brand-extension branding? 4. You work for a firm that is introducing a new chocolate candy bar that contains an extra amount of caffeine. Develop a brand name that a. is easy for customers to say, spell, and recall. b. positively suggests uses and special characteristics. c. indicates major product benefits. d. can be protected easily through registration. Shopping and Pricing Log Beginning at ____ A.M./P.M. on ___________ and ending at _____ A.M./P.M. on ___________, please list every product you purchase. In addition, please list the brand, approximate price, location of the purchase, and product classification. See the examples given below for guidelines. Product Brand Location Price Classification Can of cola Pepsi dorm vending $1.25 convenience machine Phone app Bell iTunes/computer 2.00 shopping Shopping and Pricing Log Instructor Notes This is a homework assignment that provides the basis for class discussion throughout the chapter. It allows you to integrate the various concepts discussed. You can also choose to come back to this homework when you address distribution in coming chapters. If possible, allow at least two or three days for students to fill in the log. It can be done in less time, but does not yield as much discussion material. What’s It Worth to You? In the time allotted, your team should agree on how much you would be willing to pay for each of the listed items under the circumstances described. a. How much would you pay for a 12-oz. soft drink at a (1) vending machine. (2) movie theater. (3) supermarket. b. How much would you pay for a steak dinner at a(n) (1) cafeteria-style restaurant. (2) elegant restaurant. (3) charity benefit dinner. c. How much would you pay to have a flat tire repaired (1) on a lonely stretch of highway. (2) in a town where efficient public transportation is available. (3) when schools and stores are within walking distance. d. How much would you pay for a duplicate car key (1) just to have an extra key around. (2) at night in a mall parking lot when your keys are locked in your car. (3) when your nonrefundable airline ticket is in your locked car, your flight leaves in 30 minutes, and your car keys are lost. How Should We Price It? In the time allotted to you, identify the pricing strategies used in each of the situations described below. a. Hyundai prices its newest model lower than the price of competing brands. b. A high-quality men’s shirt has a suggested retail price of $59.95 instead of $60. c. A restaurant lowers the price of its corned beef and cabbage plate during the week before St. Patrick’s Day. d. For years, the price of a candy bar was 25 cents and rarely did a manufacturer charge more. e. A supermarket prices its eggs, bread, and milk below cost. How Should We Price It? Instructor Notes a. Hyundai prices its newest model lower than the price of competing brands. (penetration) b. A high-quality men’s shirt has a suggested retail price of $59.95 instead of $60. (odd-number) c. A restaurant lowers the price of its corned beef and cabbage plate during the week before St. Patrick’s Day. (special-event) d. For years, the price of a candy bar was 25 cents and rarely did a manufacturer charge more. (customary) e. A supermarket prices its eggs, bread, and milk below cost. (price leader) The Price Is Right The price of a product is the amount of money a seller is willing to accept in exchange for a product/ service at a given time and under given circumstances. In essence, a seller says, “Anyone who wants this product can have it here and now in exchange for ‘x’ dollars.” But it’s not that simple. Each interested buyer then makes a personal judgment regarding the product’s utility (value), often in terms of some dollar value. A person who feels that she or he is getting value for “x” dollars will buy it. A person who doesn’t feel that she or he is getting value for “x” dollars will not buy the product or service. Here’s your chance to see how close your perception of value is to that of management at Olive Garden. Below are descriptions of menu items at Olive Garden. What does your group think the price should be? One point is given to the group that gets the closest to the price without going under (because in pricing it’s wrong to price an item too low—you’re giving up profits!). You’ll get two points if you get the price exactly right. Note: The prices your instructor will give you at the end of this exercise are from the menu at Olive Garden in Fort Wayne, Indiana, in 2012. Appetizers Bruschetta—A traditional topping of roma tomatoes, fresh basil, and extra-virgin olive oil. Served with toasted ciabatta bread. Your group’s price: _________ Hot Artichoke-Spinach Dip—A blend of artichokes, spinach, and cream cheese. Served with Tuscan bread. Your group’s price: _________ Soups and Salads Chicken & Gnocchi—A creamy soup made with roasted chicken, traditional Italian dumplings, and spinach Your group’s price: __________ Garden-Fresh Salad—Our famous house salad, tossed with our signature Italian dressing. Your group’s price: __________ Dinner Entrées Fettuccine Alfredo—Parmesan cream sauce with a hint of garlic, served over fettuccine. Your group’s price: _________ Steak Toscana—Grilled 12-oz. choice center cut strip steak brushed with Italian herbs and extra-virgin olive oil. Served with Tuscan potatoes and bell peppers. Your group’s price: _________ Chicken Marsala—Sautéed chicken breasts in a savory sauce of mushrooms, garlic, and Marsala wine. Served with Tuscan potatoes and bell peppers. Your group’s price: _________ Seafood Portofino—Mussels, scallops, shrimp, and mushrooms with linguine in a garlic-butter wine sauce. Your group’s price: _________ Grilled Shrimp Caprese—Grilled marinated shrimp served over angel hair pasta with melted mozzarella, fresh basil, and tomatoes in a garlic-butter sauce. Your group’s price: _________ Desserts Tiramisu—The classic Italian dessert. A layer of creamy custard set atop espresso-soaked ladyfingers. Your group’s price: _________ Zeppoli—Soft, traditional Italian doughnuts dusted with powdered sugar, served with chocolate sauce for dipping. Your group’s price: _________ The Price Is Right Instructor Notes Divide students into at least three groups. Hand out the list of menu items from Olive Garden. Give the groups five to ten minutes to consult with each other and reach a consensus on what they feel the price should be. Meanwhile, write the name of each menu item on the board and ask each group to come up to the board and write down their group’s price for each item. Once all prices have been written on the board, write the actual price (see below). One point is given to the group that gets the closest to the price without going under (because in pricing it’s wrong to price an item too low—you’re giving up profits!). Points are doubled if the group gets the exact price. Note: The prices shown are from the menu at Olive Garden in Fort Wayne, Indiana, in 2012. Appetizers Bruschetta—A traditional topping of roma tomatoes, fresh basil, and extra-virgin olive oil. Served with toasted ciabatta bread. Actual price at Olive Garden: $6.50 Hot Artichoke-Spinach Dip—A blend of artichokes, spinach, and cream cheese. Served with Tuscan bread. Actual price at Olive Garden: $7.50 Soups and Salads Chicken & Gnocchi—A creamy soup made with roasted chicken, traditional Italian dumplings, and spinach Actual price at Olive Garden: $4.95 Garden-Fresh Salad—Our famous house salad, tossed with our signature Italian dressing. Actual price at Olive Garden: $5.65 Dinner Entrées Fettuccine Alfredo—Parmesan cream sauce with a hint of garlic, served over fettuccine. Actual price at Olive Garden: $11.75 Steak Toscana—Grilled 12-oz. choice center cut strip steak brushed with Italian herbs and extra-virgin olive oil. Served with Tuscan potatoes and bell peppers. Actual price at Olive Garden: $19.50 Chicken Marsala—Sautéed chicken breasts in a savory sauce of mushrooms, garlic, and Marsala wine. Served with Tuscan potatoes and bell peppers. Actual price at Olive Garden: $15.25 Seafood Portofino—Mussels, scallops, shrimp, and mushrooms with linguine in a garlic-butter wine sauce. Actual price at Olive Garden: $15.95 Grilled Shrimp Caprese—Grilled marinated shrimp served over angel hair pasta with melted mozzarella, fresh basil, and tomatoes in a garlic-butter sauce. Actual price at Olive Garden: $16.50 Desserts Tiramisu—The classic Italian dessert. A layer of creamy custard set atop espresso-soaked ladyfingers. Actual price at Olive Garden: $5.75 Zeppoli—Soft, traditional Italian doughnuts dusted with powdered sugar, served with chocolate sauce for dipping. Actual price at Olive Garden: $5.75 Chapter 13 Video Case: From Artistic Roots, Blu Dot Styles Marketing Strategy RUNNING TIME: 6:17 Chapter 13 discusses the process of creating and pricing products that satisfy customers. A product is everything one receives in an exchange, including all attributes and expected benefits. Every product moves through a series of four product life-cycle stages: introduction, growth, maturity, and decline. A product line is a group of similar products marketed by a firm. Customer satisfaction and organizational objectives require marketers to develop, adjust, and maintain an effective product mix. New products are developed through a series of seven steps: idea generation, screening, concept testing, business analysis, product development, test marketing, and commercialization. A brand is a name, term, symbol, design, or any combination of these that identifies a seller’s products as distinct. Prices are determined by supply and demand. Objectives of pricing include survival, profit maximization, target return on investment, achieving market goals, and maintaining the status quo. The three major pricing methods are cost-based pricing, demand-based pricing, and competition-based pricing. Pricing strategies fall into five categories: new product pricing, differential pricing, psychological pricing, product-line pricing, and promotional pricing. Setting prices for business products can be different from setting prices for consumer products. Concepts Illustrated in the Video • Affordability • Brand Distinction • Furnishings • Product Design • Product Line • Product Pricing • Research and Development • Segment Marketing • Start-up VIDEO CASE SUMMARY When a trio of college friends started moving into their first apartments in the late 1990s, they were frustrated to find that when it came to furniture, they couldn’t afford what they liked and didn’t like what they could afford. This frustration led the three to found Blu Dot, a Minneapolis-based furniture design and manufacturing company. Blu Dot specializes in the creation of furniture that is attractive, high quality, and affordable. Its modern, streamlined pieces use off-the-shelf materials and simple manufacturing processes that keep the company’s costs and prices down. The company contracts with suppliers that make industrial rather than consumer products, because they use more efficient and cost-effective processes and technology. These strategies, plus designs that pack flat and are easy to ship, allow the firm to combine price affordability and high-quality product craftsmanship. Critical-Thinking Questions Using information from the case and the video, answer the following questions: 1. What challenges does Blu Dot face in selling consumer products (as opposed to business products)? Blu Dot must balance affordability with craftsmanship, recognizing that some customers value one of these more than the other. It must uncover the symbolic value customers place on furniture, which often speaks to the consumer’s self-image while having to fit a usually limited budget. Finally, the company must track changing customer tastes and develop designs that are distinctive but functional and that have wide appeal. With all this, the firm must still meet its production goals of simplicity and ease of manufacture for each piece in order to maintain affordability. 2. Do you think the product life-cycle is an important marketing concept in developing and managing Blu Dot products? Why or why not? Product life-cycle is important to Blu Dot because design and style are constantly evolving. Even small changes in consumers’ tastes and aesthetic values can quickly date products that might otherwise be in the early stages of their life-cycle and have a lot of functionality left, challenging the firm to constantly introduce new pieces to take their place in its product mix. 3. Describe the product mix and the role different product lines play in Blu Dot’s marketing strategy. Blu Dot’s product mix consists of seven product lines: tables, storage, accessories, desks, beds, seating, and shelving. As part of its marketing strategy, the company offers these products in a few different brands and corresponding price levels in order to appeal to different market segments, such as those for whom price is paramount, those who are looking for style, and those for whom the company’s products offer both. Chapter 13 Lecture Launcher: How Much for Soap!?! VIDEO SUMMARY Caleb comes across Savon, a maker of high-end organic soaps. He wants to add Savon’s products to Urban Farmz’s product lineup so the company sells more than just vegetables. “Urban Farmz is like a ‘lifestyle brand’ now,” he says excitedly to Sue about the prospect. There is just one catch: Savon doesn’t want Urban Farmz to sell its soaps for less than $14, which is what they are selling for on its own Web site. “Are people paying that much for soap?” Caleb asks his contact at Savon. Can he and Savon work out a pricing scheme that will give Urban Farmz an adequate profit margin on the soap without killing the demand for it? Solution Manual for Business William M. Pride, Robert J. Hughes, Jack R. Kapoor 9781133595854, 9780538478083, 9781285095158, 9781285555485, 9781133936671, 9781305037083
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