Page 335 - Introduction to Business

CHAPTER 9 Developing the Product and Pricing Mixes 309

Profits Galore at the 99 Cents Only Stores

here are 142 branches of the 99 Cents Only Stores operating in California,
Nevada, and Arizona. These stores generated revenues of $667 million in
T2001. As the name implies, each item sold in the stores is priced at 99¢.
On average, an item costs 60¢, which translates to a gross margin of 40 percent
—twice that of Wal-Mart’s. Its profit margin is a healthy eight percent, also
twice that of Wal-Mart’s.
A typical 15,000-square-foot store stocks approximately 6,000 items. About
40 percent of these items are closeouts purchased from manufacturers or
other retailers. The company’s founder and CEO, David Gold, has mandated
that 60 percent of the store inventory must be recognizable brand names, like
Coca-Cola or Safeguard. Only two percent of the inventory is unbranded
“trinkets,” items that are purchased only one time by customers. In contrast,
other dollar chains allow as much as 45 percent of their product offerings to fall
within that category.
Much of the branded merchandise sold through the 99 Cents Only Stores is
specially packaged by store personnel.
99 Cents Only Stores rely heavily on two aspects of the marketing mix to
ensure success. These are the product and pricing mixes. This chapter will
discuss these two aspects of the marketing mix.

Introduction

Companies need to construct a marketing mix. Two major aspects of the marketing
mix are the product mix and the pricing mix.
Product design involves the tangible aspects of a product. Product packages and
warranties must be developed. Product brands can be national, private, or generic.
When companies are marketing their products and services internationally, they
must be familiar with the concepts of standardization and adaptation, and the
advantages and disadvantages of those concepts. Brand equity—the value placed
on a company’s brand—is increasingly being used to determine the effectiveness of
companies’ product decisions.
New products can contribute greatly to the success of companies. They are
developed for a number of reasons. In order to introduce successful new products,
companies need to embrace a new product philosophy and follow a specific set of
steps. Companies can use both internal and external sources for generating new
product ideas. They will subject new product ideas to screening to see if they should
be advanced to the next step of concept testing, where the basic idea of the prod-
uct is presented to a sample of customers in order to obtain their feedback. The
business analysis step involves projections of the potential profitability of the new
product candidate. If these look good, the product can be physically developed. It
is then subjected to both technical and market testing. Finally, the completed prod-
uct is introduced to the market.
After new products are developed, they must be effectively managed. The
product life cycle is the means often used to manage existing products. Companies
must have in place a specific procedure for eliminating products that are not per-
forming well.
In developing a pricing mix, firms will have to decide on their basic pricing objec-
tives, that is, performance, prevention, maintenance, and survival. In order to achieve
these objectives, decision makers must understand the concepts of demand and price

Copyright 2010 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.