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Nickels Cover Mc. Hugh Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Nickels Cover Mc. Hugh Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

14 Chapter Mc. Graw-Hill/Irwin Understanding Business, 7/e Developing and Pricing Products and Services © 14 Chapter Mc. Graw-Hill/Irwin Understanding Business, 7/e Developing and Pricing Products and Services © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -2

Best Product Innovation of ALL Time % of Consumers’ Choice Source: American Demographics Mc. Best Product Innovation of ALL Time % of Consumers’ Choice Source: American Demographics Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

Product Development & Value Package • Value- Total Product Offer • Product Line • Product Development & Value Package • Value- Total Product Offer • Product Line • Product Mix • Product Differentiation Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -4

How Six Products Were First Marketed Product Technique Corn Flakes Mail Order Only Ragu How Six Products Were First Marketed Product Technique Corn Flakes Mail Order Only Ragu Spaghetti Sauce Door-to-Door Tea Wrapped in Silk Bags Perforated Toilet Paper On The Street Noxzema Skin Cream As Sunburn Remedy Tabasco Sauce In Used Cologne Bottles Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

Disney Online - The Official Home Page of The Walt Disney Company! Mickey Mouse’s Disney Online - The Official Home Page of The Walt Disney Company! Mickey Mouse’s Product Mix ¯Theme parks & resorts ¯ABC Television Network ¯TV & radio stations ¯Film studios & production Mc. Graw-Hill/Irwin Understanding Business, 7/e ¯Video programs & licensing ¯Consumer products ¯Publishing © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -6

Marketing Classes of Goods & Services • Consumer - Convenience Shopping Specialty Unsought • Marketing Classes of Goods & Services • Consumer - Convenience Shopping Specialty Unsought • Industrial Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

Packaging 1) 2) 3) 4) 5) 6) Protect Attract Describe Explain Warranties Price, Value, Packaging 1) 2) 3) 4) 5) 6) Protect Attract Describe Explain Warranties Price, Value, Uses Mc. Graw-Hill/Irwin Understanding Business, 7/e RFID Chips Privacy Issues © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

Branding Brand—Name, symbol, or design that identifies the goods or services of one seller Branding Brand—Name, symbol, or design that identifies the goods or services of one seller or group of sellers and distinguishes them from the goods and services of competitors. • Equity • Brand & • Loyalty • • Awareness • Association Mc. Graw-Hill/Irwin Understanding Business, 7/e Trademark Categories - Manufacturers’ - Knockoff - Dealer/Private - Generic © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -9

Market Value of A Brand Name Billions of Dollars Source: Gerry Khermouch, “The Best Market Value of A Brand Name Billions of Dollars Source: Gerry Khermouch, “The Best Global Brands, ” Business. Week, August 5, 2002, p. 93. Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

Most Powerful Internet Brands Category Brand Books & Music Amazon. com Buy. com Charles Most Powerful Internet Brands Category Brand Books & Music Amazon. com Buy. com Charles Schwab, Ameritrade, E*Trade Brokerage Search Engine Travel Source: Business 2. 0, July 2002, p. 86. Mc. Graw-Hill/Irwin Understanding Business, 7/e Google, Yahoo, MSN, AOL Expedia, Travelocity, Fodors, Priceline © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

Brands Consumers Consider Most Reliable • • CRAFTSMAN TOOLS WATERFORD CRYSTAL ROLL-ROYCE MOTOR CARS Brands Consumers Consider Most Reliable • • CRAFTSMAN TOOLS WATERFORD CRYSTAL ROLL-ROYCE MOTOR CARS DISCOVERY CHANNEL WD-40 LUBRICANT BOSE STEREO/SPEAKER SYSTEMS CRAYOLA CRAYONS/MARKERS HERSHEY KISSES Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

A Good Brand Name. . . Speaks directly to product’s target customers Attracts/motivates consumers A Good Brand Name. . . Speaks directly to product’s target customers Attracts/motivates consumers to try it Is memorable/sticks in customers’ minds Is distinctive enough to protect it legally Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

Soft Drink Brands That Didn’t Make It Juicy Fruit with Lemon Lime Lemon Merengue Soft Drink Brands That Didn’t Make It Juicy Fruit with Lemon Lime Lemon Merengue Cream Wizard Wintergreen Crow Clove Kentucky No Nip Cherry Julep Satan’s Punch Green Tangerine Sourer Key Lime Cream Source: St. Louis Post-Dispatch Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -14

Renaming Brands OLD NAME NEW NAME BELL ATLANTIC BELL SOUTH AMERICAN BRANDS CIBA VALUJET Renaming Brands OLD NAME NEW NAME BELL ATLANTIC BELL SOUTH AMERICAN BRANDS CIBA VALUJET VERIZON CINGULAR FORTUNE BRANDS NOVARTIS AIR TRON Source: Forbes Magazine, December 21, 2002 Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

Classic Product Failures Failure Company Loss Edsel Ford Motor Co. $250 M Corfam Du. Classic Product Failures Failure Company Loss Edsel Ford Motor Co. $250 M Corfam Du. Pont $100 M Video. Disc RCA $500 M PCjr IBM $ 40 M New Coke Coca-Cola No $ Number Premier R. J. Reynolds No $ Number Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -16

First Products Produced by Five Major Companies Hershey Amway Heinz Avon 3 M Caramels First Products Produced by Five Major Companies Hershey Amway Heinz Avon 3 M Caramels No-rinse car wash Horseradish Little Dot perfume set Sandpaper Source: World Features Syndicate Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 1414 -

New-Product Development Idea Generation Screening Analysis Development Testing Commercialize Mc. Graw-Hill/Irwin Understanding Business, 7/e New-Product Development Idea Generation Screening Analysis Development Testing Commercialize Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -18

Sales & Profits During the PLC Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Sales & Profits During the PLC Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -19

Pricing • Objectives $ $ $ • • ROI Traffic Market Share Sales Image Pricing • Objectives $ $ $ • • ROI Traffic Market Share Sales Image Social Cost-Based Value- Service Mc. Graw-Hill/Irwin Understanding Business, 7/e • Break-Even $ Fixed Cost $ Variable Cost • Strategies - Skim Penetration EDLP High-Low • Market Forces © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -20

What They Cost When First Introduced 1927 Transatlantic Call $ 75/3 min. 1947 Microwave What They Cost When First Introduced 1927 Transatlantic Call $ 75/3 min. 1947 Microwave Oven $ 3, 000 1964 FAX unit rental $ 850/month 1970 Pocket Calculator $ 150 1974 VCR Tape $ Source: World Features Syndicate Mc. Graw-Hill/Irwin Understanding Business, 7/e 50 © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -21

T o t a l Re v e n u e o r T T o t a l Re v e n u e o r T o t a l C o s t Breakeven Chart Number of Units Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -22

Pricing Using Breakeven Analysis Problem Costs Should we charge $2 or $3 per box? Pricing Using Breakeven Analysis Problem Costs Should we charge $2 or $3 per box? Total Fixed Costs $400, 000 Variable Cost Market Research Forecast Analysis 1 per box Company can sell: 290, 000 boxes at $2 @ 210, 000 boxes at $3 @ Breakeven point = Breakeven $ total fixed cost price - variable cost (per unit) $2 price = $400, 000 = 400, 000 units to breakeven $2 - $1 $3 price = $400, 000 = 200, 000 units to breakeven $3 - $1 Mc. Graw-Hill/Irwin Understanding Business, 7/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved. 14 -23