SLIDE principles of marketing chapter 5

 Describe the decisions companies make regarding their individual products and services, product lines, and product mixes.. LEVELS OF PRODUCT AND SERVICES4 Features Design Packaging B

LEARNING OBJECTIVES

 Define product and describe the major

classifications of products and services.

 Describe the decisions companies make

regarding their individual products and

services, product lines, and product mixes.

 Describe the stages of the product life cycle and how marketing strategies change during

a product’s life cycle.

 List and define the steps in the new product development process and the major

considerations in managing this process.

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1 WHAT IS A PRODUCT?

 Definition

 Anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need.

LEVELS OF PRODUCT AND SERVICES

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Features

Design Packaging

Brand name

Product and service features, design, quality level, brand name, packaging and other attributes combined to deliver the core customer value

AUGMENTED PRODUCT

Additional consumer services and benefits (warranty, repair services, delivery, consulting, installation, etc.)

CORE CUSTOMER VALUE

The core, problem-solving benefits

or services that consumers seek (“What is the customer reallybuying?”)

PRODUCT AND SERVICE CLASSIFICATIONS

 By tangibility

 Non-durable product: Tangible goods that are

immediately consumed in one use or ones that

have a lifespan of less than three years.

 Durable product: Tangible goods that can be

used for a long time (typically at least three

years) and that people do not buy very often.

 Service: An activity, benefit, or satisfaction

offered for sale that is essentially intangible and

does not result in the ownership of anything.

PRODUCT AND SERVICE CLASSIFICATIONS

 Nature and Characteristics of a Service

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Service intangibility

• Services cannot be seen, tasted, felt, heard, or smelled before purchase

Service inseparability

• Services cannot be separated from their providers

Service variability

• Quality of services depends on who provides them and when, where, and how

Service perishability

• Services cannot be stored for later sale

or use

PRODUCT AND SERVICE CLASSIFICATIONS

MARKET

CONSUMERS

ORGANIZATIONS

CONSUMER PRODUCTS

INDUSTRIAL PRODUCTS

PRODUCTS

PRODUCT AND SERVICE CLASSIFICATIONS

 Consumer product

 A product bought by final consumers

for personal consumption.

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 Industrial product

 A product bought by individuals and organizations for further processing or for use

in conducting a business.

CONSUMER PRODUCTS

CONVENIENCE PRODUCT

SHOPPING PRODUCT

SPECIALTY PRODUCT

UNSOUGHT PRODUCT

- Less frequent purchase

- Much planning and shopping effort

- Low price sensitivity

Little product awareness or knowledge (or, if aware, little or even negative interest)

Examples

Materials and parts

Supplies and services

Manufactured materials and parts

Raw materials

- Component materials (iron, yarn, cement, wires)

- Component parts (small motors, tires, castings)

- Farm products (wheat, cotton, livestock, fruits, vegetables)

- Natural products (fish, lumber, crude petroleum, iron ore)

Accessory equipment

Installations

- Portable factory equipment and tools (hand tools, lift trucks)

- Office equipment (computers, fax machines, desks)

- Buildings (factories, offices)

- Fixed equipment (generators, drill presses, large computer systems, elevators)

- Operating supplies (lubricants, coal, paper, pencils)

- Repair and maintenance items (paint, nails, brooms)

PRODUCT AND SERVICE CLASSIFICATIONS

Organizations

Persons

Organization marketing

Person marketing

Places Place marketing

Ideas Social marketing

E.g.: presidents, entertainers, sports figures, doctors, lawyers, architects, etc.

Aims: build reputations, help sell products or causes.

E.g.: corporate image marketing, public relations, etc Aims: create, maintain, or change the attitudes and behavior of target consumers toward an organization.

E.g.: cities, states, regions, nations.

Aims: attract tourists, new residents, conventions, and company offices and factories

E.g.: health care, education, and environmental sustainability, human rights, personal safety, etc.

Aims: encourage behaviors that will create individual and societal well-being.

2 PRODUCT AND SERVICES DECISIONS

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PRODUCT MIX

Product mix (or Product portfolio)

The set of all product lines and items that a particular

seller offers for sale

Product line

A group of products that are closely related because

they function in a similar manner, are sold to the

same customer groups, are marketed through the

same types of outlets, or fall within given price

ranges

Product line 1

Product line n

Product line 2

Item = Individual product

Anything that can be offered to a market for

attention, acquisition, use, or consumption that

might satisfy a want or need

Item 1 Item 2 Item n

 Product and services decisions include:

 Individual product and service (item) decisions

 Product line decisions

 Product mix decisions

Individual product

& service decisions

Product line decisions

Product mix decisions

2.1 PRODUCT MIX DECISIONS

 Product mix decisions include:

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Product mix

Product mix width

Product mix depth

Product mix consistency

PRODUCT MIX DECISIONS

 Product mix width

= The total number of different product

lines the company carries

 Product mix length

= The total number of items a company

carries within its product lines

 Product mix depth

= The total number of versions offered of

each product in the line

 Product mix consistency

= How closely related the various product

lines are in end use, production

 Product mix strategies

width width

2.2 PRODUCT LINE DECISIONS

 Product line decisions include:

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Product line decisions

Product line stretching Product line filling

Product line contraction

Product line modernization

PRODUCT LINE DECISIONS

 Product line length

 The number of items in the product line

• Line is too short if the manager can increase profits by adding items.

• Line is too long if the manager can increase profits by dropping items

 Product line length decisions

 Including:

• Product line expansion

• Product line filling

• Product line stretching

• Product line contraction

• Product line modernization

 Managers need to:

• Analyze their product lines periodically

to assess each item’s sales and profits.

• Understand how each item contributes

to the line’s overall performance.

PRODUCT LINE DECISIONS

 Product line filling

 Add more items within the present range of the line

 Reasons:

• Reaching for extra profits

• Satisfying dealers

• Using excess capacity

• Becoming the leading full-line company

• Plugging holes to keep out competitors

 Line filling may result in cannibalization and

customer confusion

=> The company should ensure that new items are noticeably different from existing ones.

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PRODUCT LINE DECISIONS

 Companies at the upper end of the

market targets the product for a

lower level and lower-priced market

segment

 Reasons:

- plug a market hole that otherwise

would attract a new competitor;

- respond to a competitor’s attack

on the upper end;

- locate faster growth taking place

 Companies at the lower end of the market targets the product for a higher level and a higher-priced market segment

Upward product line stretching Stretching

both ways Downward product line stretching

PRODUCT LINE DECISIONS

 Product line contraction

 Analyze sales, profit records, trends,

projections, and evaluate a product’s

market share;

 Use marketing research to assess

customer attitude toward the product

and closely watch for any image change

• Identify and eliminate a product with

a consistent decline in sales and profits

• Retain strong, desirable products to enhance profits

 To reduce disruption to the company,

customers, and other channel members,

a company must make extensive efforts

while eliminating a product

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 Product line modernization

 Modernization decisions: to overhaul the

line gradually or all at once.

 Typically, changes will be made by the

marketer in the product’s quality or through a feature or style adjustment.

 Notice: Planning for release of changes

• Too soon: causes more pressure on the company’s cash flow

• Too late: allows the competitors to notice changes and initiate

redesigning their lines

2.3 INDIVIDUAL PRODUCT DECISIONS

 Individual product decisions include:

Product decisions

Branding Product attributes

Labeling and logos Packaging

Product support services

INDIVIDUAL PRODUCT DECISIONS

 Product and service attributes

 [1] Product quality:

• The characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs

• Total quality management – TQM:

An approach in which all of the company’s people are involved in constantly improving the quality of products, services, and business processes

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 Product and service attributes

 [1] Product quality: 2 dimensions

• Quality level = performance quality:

the product’s ability to perform its functions

• Quality consistency = conformance

quality: freedom from defects and

consistency in delivering a targeted level of performance

INDIVIDUAL PRODUCT DECISIONS

 Product and service attributes

 [2] Product features

• Identify new features

• Decide which features to add to its product

• Features that customers value highly

 Product and service attributes

 [3] Product style and design

• Style: The appearance of a product

(eye catching or yawn producing) A sensational style may grab attention and produce pleasing aesthetics, but it does not necessarily make the product

perform better.

• Design: More than skin deep—it goes

to the very heart of a product Good design contributes to a product’s usefulness as well as to its looks

• Begin with observing customers, understanding their needs, and shaping their product-use

experience

INDIVIDUAL PRODUCT DECISIONS

 Branding

 Brand

• A name, term, sign, symbol, or design, or a combination of these, that identifies the products or services of one seller or group of sellers and differentiates them from those

of competitors.

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INDIVIDUAL PRODUCT DECISIONS

 Packaging

 Packaging

• The activities of designing and producing the container or wrapper for a product

 Functions

• Hold and protect the product

• Perform many sales tasks—from attracting buyers to communicating brand positioning to closing the sale

• Become an important promotional medium

INDIVIDUAL PRODUCT DECISIONS

 Labeling & logos

 Functions

• Identify the product or brand

• Describe several things about the product—who made it, where it was made, when it was made, its contents, how it is to be used, and how to use it safely

• Promote the brand and engage customers

 Labels and brand logos can support

the brand’s positioning and add

personality to the brand.

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INDIVIDUAL PRODUCT DECISIONS

 Product support services

 Designing support services:

• Survey customers periodically to assess the value of current services and obtain ideas for new ones

• Fix problems and add new services that will both delight customers and yield profits to the company

 Many companies now use a

sophisticated mix of phone, email,

online, social media, mobile, and

interactive voice and data technologies

3 PRODUCT LIFE CYCLE STRATEGIES

 Product life cycle – PLC

 The course of a product’s sales and profits over its lifetime

 The PLC has five distinct stages:

PRODUCT LIFE CYCLE STRATEGIES

 Product life cycle – PLC

PRODUCT LIFE CYCLE STRATEGIES

 Once a style is invented, it may

last for generations, passing in

and out of vogue

 A style has a cycle showing

several periods of renewed

interest.

FASHION

 A currently accepted or popular style in a given field.

 Fashions tend to grow slowly, remain popular for a while, and then decline slowly.

FAD

 A temporary period of unusually high sales driven by consumer enthusiasm and

immediate product or brand popularity.

 May be part of a normal PLC,

or may comprise a brand’s entire PLC.

PRODUCT LIFE CYCLE STRATEGIES

4 NEW PRODUCT DEVELOPMENT STRATEGY

 Two ways to obtain new products:

 Acquisition: The buying of a whole

company, a patent, or a license to produce

someone else’s product

 New product development: The development

of original products, product improvements,

product modifications, and new brands

through the firm’s own research and

development efforts.

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NEW PRODUCT DEVELOPMENT STRATEGY

 Roles of new products

 To customers: Bring new solutions and variety to customers’ lives

 To companies: Key source of growth.

 Very expensive and very risky (60% of all new consumer packaged products introduced by established companies fail) Reasons:

• The company may overestimate market size

• The actual product may be poorly designed, incorrectly positioned, launched at the wrong time, priced too high, or poorly advertised

• A high-level executive might push a favorite idea despite poor marketing research findings

• The costs of product development are higher than expected

• Competitors fight back harder than expected

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-NEW PRODUCT DEVELOPMENT PROCESS

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NEW PRODUCT DEVELOPMENT PROCESS

 The systematic search for new product ideas

 Major sources of new product ideas:

• Internal sources: employees, R&D

• External sources: distributors, suppliers, competitors, customers, etc.

• Crowdsourcing or open-innovation: Inviting broad communities of

people—customers, employees, independent scientists and researchers, and even the public at large—into the new product innovation process

 Innovative companies don’t rely only on one source or another for new product ideas Instead, they develop extensive

innovation networks that capture ideas and inspiration from every possible source, from employees and customers to

IDEA

GENERATION

NEW PRODUCT DEVELOPMENT PROCESS

 Screening new product ideas to spot good ones and drop poor ones as soon as possible.

 New product idea write-up:

• A standard format that can be reviewed and evaluated by a new product committee

• Describe the product or the service, the proposed customer value proposition, the target market, and the competition, rough

estimates of market size, product price, development time and costs, manufacturing costs, and rate of return

 New product screening framework: R-W-W

NEW PRODUCT DEVELOPMENT PROCESS

 Distinguish between:

• Product idea is an idea for a possible product that the company

can see itself offering to the market

• Product concept is a detailed version of the idea stated in

meaningful consumer terms

• Product image is the way consumers perceive an actual or

NEW PRODUCT DEVELOPMENT PROCESS

 Concept development

• Idea  Concept 1, 2, 3, 4, …

 Concept testing: Testing new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal

• The concepts may be presented to consumers symbolically or physically (a word or picture description)

• After being exposed to the concept, consumers then may be asked

to react to it by answering questions

NEW PRODUCT DEVELOPMENT PROCESS

 Designing an initial marketing strategy for a new product based on the product concept.

 The marketing strategy statement consists of 3 parts:

• The first part describes the target market; the planned value

proposition; and the sales, market-share, and profit goals for the first few years

• The second part of the marketing strategy statement outlines the

product’s planned price, distribution, and marketing budget for the first year

• The third part of the marketing strategy statement describes the

planned long-run sales, profit goals, and marketing mix strategy