Business - Second Canadian Edition PDF

Business Second Canadian Edition Pride Hughes Kapoor Althouse Allan Copyright © 2023 Cengage Learning Canada Inc. 1  CHAPTER 13 Developing and Pricing Products Copyright © 2023 Cengage Learning Canada Inc. 2 Learning Obje...

Business Second Canadian Edition Pride Hughes Kapoor Althouse Allan Copyright © 2023 Cengage Learning Canada Inc. 1  CHAPTER 13 Developing and Pricing Products Copyright © 2023 Cengage Learning Canada Inc. 2 Learning Objectives 13-1 Discuss how different forms of a product can bring value to a customer. 13-2 Differentiate between different types of product innovation. 13-3 Summarize the four phases of the product development process. 13-4 Explain the four stages of the product life cycle. 13-5 Explain reasons for changing the product mix. Copyright © 2023 Cengage Learning Canada Inc. 3 Learning Objectives 13-6 Summarize the three main benefits of organizing products into product lines. 13-7 Discuss different functions of product packaging. 13-8 List three key considerations when determining prices. 13-9 Understand how to calculate the break-even point based on fixed and variable costs. 13-10 List five common pricing objectives and discuss pricing strategies. Copyright © 2023 Cengage Learning Canada Inc. 4 What Is a Product? Product: everything one receives in an exchange, including all tangible and intangible attributes and expected benefits; it may be a good or a service Good: a physical, tangible product that we can see and touch Service: an intangible product that we experience or use Copyright © 2023 Cengage Learning Canada Inc. 5 What Is a Product? Copyright © 2023 Cengage Learning Canada Inc. 6 What Is a Product? Consumer product: a product purchased to satisfy personal and family needs Business product: a product bought for resale, for making other products, or for use in a business’s operations Copyright © 2023 Cengage Learning Canada Inc. 7 Products Bring Value to Customers in a Variety of Ways Once one identifies what customers value, a variety of ways can be found to satisfy their needs, whether it is through a good, a service, or a blend of the two Copyright © 2023 Cengage Learning Canada Inc. 8 Consumer Product Classifications Convenience product: a relatively inexpensive, frequently purchased item for which buyers want to exert only minimal effort Bread, newspapers, chewing gum Shopping product: an item for which buyers are willing to expend considerable effort on planning and making the purchase Appliances, furniture, cellphones Copyright © 2023 Cengage Learning Canada Inc. 9 Consumer Product Classifications Specialty product: an item that possesses one or more unique characteristics for which a significant group of buyers is willing to spend considerable purchasing effort Unique sports car, special handcrafted stereo speakers Unsought product: a product that is not actively sought out until a significant event occurs Life insurance, fire extinguishers, funeral services Copyright © 2023 Cengage Learning Canada Inc. 10 Learning to Classify Products Products can be classified as goods, services, or both Classification of goods and services enables determination of needs to facilitate delivery Goods can be mass produced and stored; services are delivered simultaneously, cannot be stored Copyright © 2023 Cengage Learning Canada Inc. 11 Business Product Classifications Raw material: a basic material that is transformed into a physical product Usually comes from mines, forests, oceans, or recycled solid wastes Major equipment: large tools and machines used for production purposes Lathes, cranes, and stamping machines Accessory equipment: standardized equipment used in a business’s production or office activities Hand tools, fax machines, power motors Copyright © 2023 Cengage Learning Canada Inc. 12 Business Product Classifications Component part: an item that becomes part of a physical product and is either a finished item ready for assembly or a product that needs little processing before assembly Clocks, tires, computer chips Process material: a material that is used directly in the production of another product but not readily identifiable in the finished product Industrial glue and food preservatives Copyright © 2023 Cengage Learning Canada Inc. 13 Business Product Classifications Supply: an item that facilitates production and operations but does not become part of the finished product Paper, pencils, cleaning agents Business service: an intangible product that an organization uses in its operations Accountancy, janitorial service, information technology service management Copyright © 2023 Cengage Learning Canada Inc. 14 Key Takeaway Product can be a physical good, a service, or a combination of the two Understanding the different forms a product can take helps companies find creative ways to offer products that satisfy customer needs Copyright © 2023 Cengage Learning Canada Inc. 15 The Benefits of Innovation Innovation: any product improvement that customers value over existing choices Includes new products that did not exist previously and adaptations to existing products Is necessary because existing products become obsolete when: More competitors offer similar products Competitors introduce innovations of their own Customers need change Technology changes Copyright © 2023 Cengage Learning Canada Inc. 16 The Benefits of Innovation Benefits Improving function or quality Lowering cost of production Offering customers new experiences not previously available Copyright © 2023 Cengage Learning Canada Inc. 17 Key Takeaway Pace of innovation is accelerating, and companies that innovate better serve customers and increase profits Product innovations improve quality of life by providing improved function and quality, lower prices, and new experiences Copyright © 2023 Cengage Learning Canada Inc. 18 The Phases of Product Development Idea generation Generate as many ideas as possible Product analysis Screen ideas to select the best one Product development and testing Build prototypes or small production runs of the product to test on a small scale Commercialization Use the knowledge acquired from previous phases and make final improvements to the product, and launch it to the market Copyright © 2023 Cengage Learning Canada Inc. 19 Activities of Each Product Development Phase Each phase of the product development process requires the completion of specific activities Requires management approval of ideas before implementation Ensures that resources are not wasted on marginal concepts Copyright © 2023 Cengage Learning Canada Inc. 20 Key Takeaway Systematic and intentional approach to product development can maximize the chance of launching a winning product Each stage in product development requires management to approve ideas before moving forward so that the company doesn't waste resources on marginal concepts Copyright © 2023 Cengage Learning Canada Inc. 21 Product Life Cycle A series of stages in which a product’s sales revenue and profit increase, reach a peak, and then decline Refers to an entire product category, not just an individual product Marketers who understand the cycle concept are better able to forecast future sales and plan new marketing Copyright © 2023 Cengage Learning Canada Inc. 22 Product Life Cycle Copyright © 2023 Cengage Learning Canada Inc. 23 Product Life Cycle Introduction There are few competitors and sales and profits are low Growth Sales and profits increase, and competitors decide to enter the product category Maturity Sales peak and profits decline as the market becomes saturated and price competition increases Decline Sales and profits decline as consumer needs move away from product category Copyright © 2023 Cengage Learning Canada Inc. 24 Marketing Strategies for Stages of the Product Life Cycle Stage Strategy Introducti Heavy promotion to generate awareness and on interest Build brand through advertising, distribution, Growth lower prices Add new features, target competitors, further Maturity price cuts Decline Reduce marketing and production costs Copyright © 2023 Cengage Learning Canada Inc. 25 Key Takeaway Every product progresses through a product life cycle; series of stages in which a product's sales revenue and profit increase, reach a peak, and then decline Copyright © 2023 Cengage Learning Canada Inc. 26 Product Mix Product mix: the collection of all the company’s products Managed by modifying, adding, or deleting products to maximize sales revenue and profits Copyright © 2023 Cengage Learning Canada Inc. 27 Product Mix Changes in customer preference Challenges from competitors Stage of PLC Simplify product mix Copyright © 2023 Cengage Learning Canada Inc. 28 Grouping Products into Product Lines Product line: group of similar products that are related to each other in the way they work or the audience they target Benefits Create clarity for consumers Allow for better product management Simplify branding decisions Copyright © 2023 Cengage Learning Canada Inc. 29 The Functions of Packaging Packaging consists of all the activities involved in developing and providing a container with graphics for a product Package is a vital part of the product Makes the product more versatile, safer, or easier to use Shape, appearance, and printed message of a package influence purchase decisions Copyright © 2023 Cengage Learning Canada Inc. 30 Primary Functions of Packaging Functions of packaging Protect the product Attract buyer attention Provide product information Improve the product design Better serve customer needs Copyright © 2023 Cengage Learning Canada Inc. 31 Pricing Considerations Price determines the cost of the product and profit expected by the company Factors that affect product prices Economic conditions Industry Stage of a product’s life cycle Copyright © 2023 Cengage Learning Canada Inc. 32 Pricing Considerations Key considerations for determining prices Cost incurred by the company Maximum price customers are willing to pay Competitor’s price Copyright © 2023 Cengage Learning Canada Inc. 33 Break-Even Point Number of units that must be sold for total revenue to equal total costs Total cost is the sum of fixed and variable costs for a particular quantity of production Fixed costs: Operating costs of a company Rent, salaries, and marketing expenses Variable cost: Cost of producing or purchasing product Increases as the volume of production increases Copyright © 2023 Cengage Learning Canada Inc. 34 Break-Even Point Copyright © 2023 Cengage Learning Canada Inc. 35 Break-Even Point Contribution margin: the gross profit on each sale Break-even is calculated by dividing the contribution margin into total fixed costs Copyright © 2023 Cengage Learning Canada Inc. 36 Key Takeaway Break-even analysis determines the number of units that must be sold to cover the fixed costs and realize a net profit Allows to see how pricing scenarios affect the overall profitability of the company Copyright © 2023 Cengage Learning Canada Inc. 37 Pricing Objectives Should be in line with the company’s marketing goals Influenced by: Type of product Industry Company’s position within the industry Company’s branding goals Copyright © 2023 Cengage Learning Canada Inc. 38 Pricing Objectives Common pricing objectives used by marketers: Build a loyal user base Increase market share Communicate brand value Maintain status quo Survival or liquidation Copyright © 2023 Cengage Learning Canada Inc. 39 Pricing Strategies Companies have a variety of pricing strategies available to them: New-product pricing Psychological pricing Product-line pricing Promotional pricing Copyright © 2023 Cengage Learning Canada Inc. 40 Pricing Strategies New-Product Pricing Strategies: Price skimming Penetration pricing Psychological Pricing Strategies: Odd-number pricing Multiple-unit pricing Reference pricing Bundle pricing Everyday low prices Customary pricing Copyright © 2023 Cengage Learning Canada Inc. 41 Pricing Strategies Product-Line Pricing Strategies: Captive pricing Premium pricing Price lining Promotional Pricing Strategies: Price leaders Special-event pricing Comparison discounting Copyright © 2023 Cengage Learning Canada Inc. 42