CH 13

Question 1

PRODUCT

Answer 1

A product can be anything a customer offers to satisfy customer needs, and it is either a good or a service.
A good is a physical, tangible product that we can see and touch, and that is typically produced.
A service is an intangible product that we experience or use, and that is typically delivered.

Question 2

GOODS VS. SERVICES: EFFICIENCY AND JUDGEMENT

Answer 2

Efficiency: Goods can be mass-produced and stored, which can increase efficiency and costs. It is harder to achieve this with services, because they are typically delivered individually and cannot be stored for future sale.
Judgement: Goods only get judged on the outcome, while services are judged on both the outcome and delivery.

Question 3

CONSUMER PRODUCT

Answer 3

A product purchased to satisfy personal and family needs

Question 4

BUSINESS PRODUCT

Answer 4

A product bought for resale, for making other products, or for use in a business’s operations.

Question 5

CONSUMER PRODUCT CLASSIFICATIONS (4)

Answer 5

1. Convenience products - inexpensive and require little shopping effort; bought routinely without much planning
2. Shopping products - an item for which buyers are willing to expend considerable effort on planning and making the purchase; these products are expected to last a long time and are purchased less frequently
3. Specialty products - possess one or more unique characteristic for which a significant group pf buyers is willing to spend considerable purchasing effort
4. Unsought product - products that people do not generally seek out until a significant event happens

Question 6

BUSINESS PRODUCT CLASSIFICATIONS (7)

Answer 6

1. Raw material - a basic material that is transformed into a physical product; it usually comes from mines, forests, oceans, or recycled solid wastes
2. 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
3. Process material - a material that is used directly in the production of another product but not readily identifiable in the finished product
4. Major equipment - large tools and machines used for production purposes
5. Accessory equipment - standardized equipment used in a business’s production or office activities
6. Supply - what facilitates production and operations but does not become a part of finished product
7. Business service - an intangible product that an organization uses in its operations

Question 7

INNOVATION

Answer 7

Any product improvement that customers value over existing choices, which includes entirely new products that did not previously exist and adaptations to existing products

Question 8

BENEFITS OF INNOVATION

Answer 8

1. Improving function or quality
2. Lowering cost of production
3. Offering customers new experiences

Question 9

PHASES OF PRODUCT DEVELOPMENT

Answer 9

1. Idea generation - marketers generate as many ideas as possible; get ideas from understanding customer needs, assessing competitive actions, and monitoring changes in the business environment; conduct brainstorm sessions.
2. Product analysis - marketers screen ideas to select the best one; weed out ideas that do not fit the product mix or are not feasible, present ideas to potential customers for feedback & create estimates of possible costs and profitability of the new product.
3. Product development & testing - marketers build prototypes or small production runs of the product to test on a small scale; create detailed specification of product features to evaluate production cost and feasibility, develop and evaluate prototypes and launch product on small scale to evaluate consumer response.
4. Commercialization - marketers take all they have learned from previous phases and make final improvements to the product; plan for full-scale manufacturing, distribution, and marketing & launch product to general market.
   - An alternative to traditional commercialization is to license the product or idea to another company for a fee.

Question 10

PRODUCT LIFE CYCLE

Answer 10

A series of stages in which a product’s sales revenue and profits increase, reach a peak, and then decline. The PLC 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 strategies.

Question 11

STAGES OF PRODUCT LIFE CYCLE & MARKETING

Answer 11

1. Introduction - there are few competitors; sales and profits are typically low in this stage
   - Heavy promotion to build awareness and generate interest.
2. Growth - sales and profits increase, and competitors take notice and decide to enter the product category
   - Build brand through advertising, increase distribution, lower prices.
3. Maturity - sales peak and profits begin to decline as the market becomes saturated and price competition increases
   - Add new features styles, target competitors when advertising, further cut prices.
4. Decline - sales and profits decline as consumer needs move away from the product category; ability to produce at low cost usually determines which competitors remain in market
   - Reduce marketing costs, minimize production costs, possibly eliminate product.

Question 12

PRODUCT MIX

Answer 12

The collection of all the company’s products

Question 13

FOUNDATIONS FOR PRODUCT MIX DECISIONS (4)

Answer 13

1. Changes in customer preferences
2. Challenges from competitors
3. Stage of product life cycle
4. Simplify product mix

Question 14

PRODUCT LINE

Answer 14

A group of similar products that are related to each other in the way they work or the audience they target

Question 15

BENEFITS OF PRODUCT LINES (3)

Answer 15

1. Clarity for consumers - helps evaluate choices
2. Simplify branding - helps when launching new products as it provides instant product recognition
3. More efficient management - better responsiveness

Question 16

FIVE PRIMARY FUNCTIONS OF PACKAGING

Answer 16

1. Protect the product
2. Attract buyer attention
3. Provide product information
4. Improve design or function
5. Better serve customer needs

Question 17

REASON BEHIND IMPORTANCE OF PRICING

Answer 17

It determines how much a company will make from its products.
It determines how much customers must pay to acquire the products they want.

Question 18

FACTORS AFFECTING PRICING (3)

Answer 18

1. Economic conditions - more flexibility in a healthy economy.
2. The industry - dominant companies with unique products have more flexibility, whereas companies in more competitive industries have to set prices comparable to similar products
3. Stage of a product’s life cycle - price usually falls as the product progresses throughout the stages

Question 19

KEY CONSIDERATIONS FOR DETERMINING PRICE (3)

Answer 19

1. Cost of making the product
2. Maximum price consumers are willing to pay
3. What competitors charge

Question 20

BREAK-EVEN POINT, FIXED COSTS & VARIABLE COSTS

Answer 20

1. Break-even point - number of units that must be sold for total revenue to equal total costs
2. Fixed costs - the operating costs of a company, such as rent, salaries, and marketing expenses; independent of how many units of output are produced.
3. Variable cost (Unit cost) - the cost of producing or purchasing product, which increases in total as the volume of production increases

Question 21

UNIT CONTRIBUTION

Answer 21

The gross profit on a unit of sale; calculated as sales revenue minus variable costs (per unit).
Shows how much money each sale contributes to covering fixed costs.

Question 22

CONTRIBUTION MARGIN

Answer 22

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

Question 23

FIVE COMMON PRICING OBJECTIVES

Answer 23

1. Build loyal user base - common when a company is new or is introducing a new product, management may decide to accept leaner margins than they normally would, in hopes that it will attract more customers. The advantage of building a user base is that customers may buy other products offered by the company in the future.
2. Increase market share - focused on competition; in large industries increasing market share generates great profits.
3. Communicate brand value - buyers perception of a product is often determined by its price; high prices communicate quality and status, and contribute to luxury brand image.
4. Maintain status quo - for industries dependant on stability; businesses maintain their profits and market share by matching competitor prices, lower prices lead to price wars and reduced revenues for all.
5. Survival or liquidation - company will cut its price to attract customers, even if it is below the break-even price; cannot be pursued on a long-term basis, but it can be a legitimate way to increase company cash flow in the short term; can also be employed for underperforming product lines, as a last-ditch effort to gain customers for the product or as a liquidation strategy, to sell off remaining product.

Question 24

FOUR CATEGORIES OF PRICING STRATEGIES

Answer 24

1. New-Product Pricing
2. Psychological Pricing
3. Product-Line Pricing
4. Promotional Pricing

Question 25

NEW PRODUCT PRICING (2)

Answer 25

1. Price skimming - charging the highest possible price for a product during the introduction stage of its life cycle; helps quickly recover R&D costs. 2. Penetration pricing - selling new products at low prices in the hope of achieving a large sales volume and market share, before the competition can react.

Question 26

PSYCHOLOGICAL PRICING (5)

Answer 26

- encourage purchases based on emotional responses rather than economically rational responses 1. Odd-number pricing - gives impression of a lower price; odd numbers slightly below whole-dollar amounts 2. Multiple-unit pricing - setting single price for two or more units; creates a perception of a better deal 3. Bundle pricing - packaging together of two or more products, usually of a complementary nature, to be sold for a single price, usually cheaper price than individual sums of product prices 4. Everyday low prices - sets a low price for its products on a consistent basis rather than setting higher prices and frequently discounting them; prices low enough to make consumers think they are getting a good price 5. Customary pricing - sets the prices of certain goods primarily on the basis of tradition

Question 27

PRODUCT-LINE PRICING (3)

Answer 27

- establishing and adjusting the prices of multiple products within a product line; provides pricing flexibility for marketers 1. Captive pricing - the basic product in a product line is priced low, while the price on the items required to operate or enhance it are set at a higher level 2. Premium pricing - the highest-quality product or the most-versatile version of similar products in a product line is given the highest price 3. Price lining - the strategy of selling goods only at certain predetermined prices that reflect definite price breaks; simplifies purchase decision for the consumer

Question 28

PROMOTIONAL PRICING (3)

Answer 28

1. Price leaders - priced below the usual markup, near cost, or below cost; used most often in supermarkets and restaurants to attract customers by giving them especially low prices on a few items because sales of regularly priced items will offset the reduced revenues from price leaders 2. Special-event pricing - advertised sales or price cutting linked to a holiday, season, or event 3. Comparison price - sets the price of a product at a specific level and simultaneously compares it with a higher price; the higher price can be the product’s previous price, price of a competitor, the product’s price at another store, or a manufacturer’s suggested retail price.