Download Product and service decisions

AMITY SCHOOL OF BUSINESS
BBA, II Sem
PRINCIPLES OF MARKETING II
Module-1
PRODUCT
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Anything that can be offered to a market for attention, acquisition, use or consumption that might
satisfy a want or need.
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A bundle of attributes, offering for use/ consumption by the final consumer.
Products that can be marketed include:
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Physical goods
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Services
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Experiences
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Events
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Persons
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Places
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Properties
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Organization
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Information
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Ideas
Levels of Product
1. Core customer value :- The CORE product is NOT the tangible physical product. You can’t
touch it. That’s because the core product is the BENEFIT of the product that makes it valuable to
you. So with the car example, the benefit is convenience i.e. the ease at which you can go where
you like, when you want to. Another core benefit is speed since you can travel around relatively
quickly.
2. Actual product :- The ACTUAL product is the tangible, physical product. You can get some use
out of it. Again with the car, it is the vehicle that you test drive, buy and then collect. You can
touch it. The actual product is what the average person would think of under the generic banner
of product.
3. Augmented product :- The AUGMENTED product is the non-physical part of the product. It
usually consists of lots of added value, for which you may or may not pay a premium. So when
you buy a car, part of the augmented product would be the warranty, the customer service support
offered by the car’s manufacturer and any after-sales service. The augmented product is an
important way to tailor the core or actual product to the needs of an individual customer. The
features of augmented products can be converted in to benefits for individuals.
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Core Customer Value
What is the buyer really buying?
Marketer must define the core, problem-solving benefits or services that consumers seek.
E.g. Revlon lipstick, smart phone.
Actual Product
-turn the core benefits into an actual product.
-develop product and service features, design, a quality level, a brand name, and packaging.
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Augmented Products
Build around core benefits and actual product by offering additional consumer services and
benefits.
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Intangible component of the product along with formal and core components.
Product and service classification
Two broad classes based on the types of consumers who use them:
- Consumer products
Consumer products – are products and services bought by final consumer for personal
consumption.
Further classified as:
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Convenience
-
Shopping
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Specialty
-
Unsought
1. Convenience product :- Among the four types of consumer products, the convenience
product is bought most frequently. A convenience product is a consumer product or
service that customers normally buy frequently, immediately and without great
comparison or buying effort. Examples include articles such as laundry detergents,
fast food, sugar and magazines. As you can see, convenience products are those
types of consumer products that are usually low prices and placed in many locations
to make them readily available when consumers need or want them.
2. Shopping product :- The second one of the 4 types of consumer products is the
shopping product. Shopping products are a consumer product that the customer
usually compares on attributes such as quality, price and style in the process of
selecting and purchasing. Thus, a difference between the two types of consumer
products presented so far is that the shopping product is usually less frequently
purchased and more carefully compared. Therefore, consumers spend much more
time and effort in gathering information and comparing alternatives. Types of
consumer products that fall within the category of shopping products are: furniture,
clothing, used cars, airline services etc. As a matter of fact marketers usually
distribute these types of consumer products through fewer outlets, but provide
deeper sales support in order to help customers in the comparison effort.
3. Specialty product:- Number three of the types of consumer products is the speciality
product. Speciality products are consumer products and services with unique
characteristics or brand identification for which a significant group of consumers is
willing to make a special purchase effort. As you can see, the types of consumer
products involve different levels of effort in the purchasing process: the speciality
product requires a special purchase effort, but applies only to certain consumers.
Examples include specific cars, professional and high-prices photographic
equipment, designer clothes etc. A perfect example for these types of consumer
products is a Lamborghini. In order to buy one, a certain group of buyers would make
a special effort, for instance by travelling great distances to buy one. However,
speciality products are usually less compared against each other. Rather, the effort
must be understood in terms of other factors: Buyers invest for example the time
needed to reach dealers that carry the wanted products. To illustrate this, look at the
Lamborghini example: the one who wants one is immediately convinced of the
choice for a Lamborghini and would not compare it that much against 10 other
brands.
4. Unsought product:- The 4 types of consumer products also include unsought products.
Unsought products are those consumer products that a consumer either does not know
about or knows about but does not consider buying under normal conditions. Thus, these
types of consumer products consumers do not think about normally, at least not until
they need them. Most new innovations are unsought until consumers become aware of
them. Other examples of these types of consumer products are life insurance, preplanned funeral services etc. As a consequence of their nature, unsought products
require much more advertising, selling and marketing efforts than other types of
consumer products.
- Industrial products
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Are those purchased for further processing or for use in conducting a business. e.g. lown mover.
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Three groups of Industrial Products:
I) Materials and parts:- These include products which are used in the production process as inputs.
The best examples are raw materials and purchased inputs.
II) Capital items:- These products are not consumed in the production process, but are used
repeatedly in the production process. Examples are machinery and buildings.
III) Supplies and services:- Supplies are those items which are not directly used in the production
process but which are still required if the production has to take place such as lubricating oil and
brooms to clean the factory floor.
Product and service decisions
Marketers make product and service decisions at three levels:
 Individual product decisions,
 Product line decisions and
 Product Mix Decisions
1. Individual product decisions:-
Specification
Specification is very important in agricultural products. Some markets will not take produce
unless it is within their specification. Specifications are often set by the customer, but agents,
standard authorities (like the EU or ITC Geneva) and trade associations can be useful sources.
Quality requirements often vary considerably. In the Middle East, red apples are preferred over
green apples. In one example French red apples, well boxed, are sold at 55 dinars per box,
whilst not so attractive Iranian greens are sold for 28 dinars per box. In export the quality
standards are set by the importer. In Africa, Maritim (1991)2, found, generally, that there are no
consistent standards for product quality and grading, making it difficult to do international trade
regionally.
Packaging
Packaging serves many purposes. It protects the product from damage which could be incurred
in handling and transportation and also has a promotional aspect. It can be very expensive.
Size, unit type, weight and volume are very important in packaging. For aircraft cargo the
package needs to be light but strong, for sea cargo containers are often the best form. The
customer may also decide the best form of packaging. In horticultural produce, the developed
countries often demand blister packs for mangetouts, beans, strawberries and so on, whilst for
products like pineapples a sea container may suffice. Costs of packaging have always to be
weighed against the advantage gained by it.
Increasingly, environmental aspects are coming into play. Packaging which is non-degradable plastic, for example - is less in demanded. Bio-degradable, recyclable, reusable packaging is
now the order of the day. This can be both expensive and demanding for many developing
countries.
Labelling
Labelling not only serves to express the contents of the product, but may be promotional
(symbols for example Cashel Valley Zimbabwe; HJ Heinz, Africafe, Tanzania). The EU is now
putting very stringent regulations in force on labelling, even to the degree that the pesticides and
insecticides used on horticultural produce have to be listed. This could be very demanding for
producers, especially small scale, ones where production techniques may not be standardised.
Government labelling regulations vary from country to country. Bar codes are not widespread in
Africa, but do assist in stock control. Labels may have to be multilingual, especially if the
product is a world brand. Translation could be a problem with many words being translated with
difficulty. Again labelling is expensive, and in promotion terms non-standard labels are more
expensive than standard ones. Requirements for crate labelling, etc. for international
transportation will be dealt with later under documentation.
Individual Product and Service Decisions
Individual product decisions also include product support services. Usually, the company’s offer
includes some form of customer service, of product support services. This can be a minor part of the
product or a major part of the total offering. Product support services contribute to the augmented
product, as defined by the three levels of product. Without doubt, support services do also belong to
the significant individual product decisions because they contribute to the customer’s overall brand
experience. The key is to keep customers happy after the sale in order to build lasting relationships.
Besides these individual product decisions, many other choices need to be made. However, these
five individual product decisions built the base for the product development and marketing. If
individual product decisions are made carefully in accordance with consumer needs and wants, the
product can become a success.
2. Product line decisions
Product Line Decisions no. 1: Product Line Length
 The primary one of the product line decisions is the product line length. This
means nothing else than the number of items in a product line. Certainly, the
product line is too short if the company could increase profits by adding items to
it. However, it is too long if profits could be augmented by dropping items. In
order to find that out, each item in the product line should be assessed on a
regular basis in terms of sales and profits. Then, the company can understand
how each item contributes to the product line’s overall performance and make
the right product line decisions.
 The product line length can be influenced by company objectives and resources.
For instance, a company might want to maintain longer product lines to protect
against economic swings.
Product Line Decisions no. 2: Expanding the product line
 Expanding the product line is the second one of the product line decisions. A
company can expand its product line in two ways: Line Filling and Line
Stretching. Both of these product line decisions involve adding items to the line.
Line filling means adding more items within the present range of the line.
Reasons for doing so include the goals to reach extra profits, to satisfy dealers,
to use excess capacity etc. However, the company must not exaggerate: new
items should be noticeably different from existing ones. Otherwise, customer
confusion might be the consequence.
 Line stretching means lengthening the product line beyond the current range. We
can differentiate between downward, upward, and 2-way stretching. A company
located at the upper end of the market may choose to stretch the product line
downward. Thus, it may attract low-end customers and reach new targets.
Upward stretching is appropriate if the company wants to add prestige to the
current product line. Also, better growth rates and higher margins may be the
attractive factor for upward stretching. To give an example: leading Japanese car
manufacturers all introduced an upmarket brand: Honda with Acura, Toyota with
Lexus, Nissan with Infiniti.
 For a company in the middle range of the market, stretching the product line in
both directions may be best. Thereby, the company can serve both the upper
and lower ends of the market.
 Product line decisions, obviously, need to be made carefully. However, the
product line is only one element of the much larger product mix. Therefore,
product line decisions need to be integrated with product mix decisions.
3. Product Mix Decisions
Product mix consists of various product lines that an organisation offers, an organisation may have just
one product line in its product mix and it may also have multiple product lines. These product lines may
be fairly similar or totally different, for example - Dish washing detergent liquid and Powder are two
similar product lines, both are used for cleaning and based on same technology;
whereas Deodorantsand Laundry are
totally
different
product
lines.
An organisation's product mix has following four dimensions :1.
Width,
2.
Length,
3.
Depth, and
4.
Consistency.
Width
The width of an organisation's product mix pertains to the number of product lines that the organisation is
offering. For example, Hindustan Uni Lever offers wide width of its home care, personal care and
beverage products. Width of HUL product mix includes Personal wash, Laundry, Skin care, Hair care,
Oral care, Deodorants, Tea, and Coffee.
Length
The length of an organisation's product mix pertains to the total number of products or items in the
product mix. As in the given diagram of Hindustan Uni Lever product mix, there are 23 products, hence,
the length of product mix is 23.
Depth
The depth of an organisation's product mix pertains to the total number of variants of each product offered
in the line. Variants includes size, colour, flavors, and other distinguishing characteristics. Forexample,
Close-up, brand of HUL is available in three formations and in three sizes. Hence, the depth of Close-up
brand
is
3*3
=
9.
Consistency
The consistency of an organisation's product mix refers to how closely related the various product lines
are
in
use,
production,
distribution,
or
in
any
other
manner.
Product Life Cycle (PLC)
As consumers, we buy millions of products every year. And just like us, these products have a life cycle. Older, longestablished products eventually become less popular, while in contrast, the demand for new, more modern goods
usually increases quite rapidly after they are launched.
Because most companies understand the different product life cycle stages, and that the products they sell all have a
limited lifespan, the majority of them will invest heavily in new product development in order to make sure that their
businesses continue to grow.
The product life cycle has 4 very clearly defined stages, each with its own characteristics that mean different things
for business that are trying to manage the life cycle of their particular products.
Introduction Stage – This stage of the cycle could be the most expensive for a company launching a new product.
The size of the market for the product is small, which means sales are low, although they will be increasing. On the
other hand, the cost of things like research and development, consumer testing, and the marketing needed to launch
the product can be very high, especially if it’s a competitive sector.
Growth Stage – The growth stage is typically characterized by a strong growth in sales and profits, and because the
company can start to benefit from economies of scale in production, the profit margins, as well as the overall amount
of profit, will increase. This makes it possible for businesses to invest more money in the promotional activity to
maximize the potential of this growth stage.
Maturity Stage – During the maturity stage, the product is established and the aim for the manufacturer is now to
maintain the market share they have built up. This is probably the most competitive time for most products and
businesses need to invest wisely in any marketing they undertake. They also need to consider any product
modifications or improvements to the production process which might give them a competitive advantage.
Decline Stage – Eventually, the market for a product will start to shrink, and this is what’s known as the decline
stage. This shrinkage could be due to the market becoming saturated (i.e. all the customers who will buy the product
have already purchased it), or because the consumers are switching to a different type of product. While this decline
may be inevitable, it may still be possible for companies to make some profit by switching to less-expensive
production methods and cheaper markets.
Product Life Cycle Examples
It’s possible to provide examples of various products to illustrate the different stages of the product life cycle more
clearly. Here is the example of watching recorded television and the various stages of each method:
1.
Introduction – 3D TVs
2.
Growth – Blueray discs/DVR
3.
Maturity – DVD
4.
Decline – Video cassette
The idea of the product life cycle has been around for some time, and it is an important principle manufacturers need
to understand in order to make a profit and stay in business.
However, the key to successful manufacturing is not just understanding this life cycle, but also proactively managing
products throughout their lifetime, applying the appropriate resources and sales and marketing strategies, depending
on what stage products are at in the cycle.
New Product Development
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The development of original products, product improvements, product modifications, and new
brands through the firm’s own product development efforts.
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90% of new products fail why?
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Poorly designed
Incorrectly positioned
Launched at a wrong time.
Priced too high.
Poorly advertised.
Steps of New Product Development
#1. Idea Generation
The development of a product will start with the concept. The rest of the process will ensure that
ideas are tested for their viability, so in the beginning all ideas are good ideas (To a certain extent!)
Ideas can, and will come, from many different directions. The best place to start is with a SWOT
analysis, (Strengths, Weaknesses, Opportunities and Threats), which incorporates current market
trends. This can be used to analyse your company’s position and find a direction that is in line with
your business strategy.
In addition to this business-centred activity, are methods that focus on the customer’s needs and
wants. This could be:
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Under-taking market research
Listening to suggestions from your target audience – including feedback on your current
products’ strengths and weaknesses.
Encouraging suggestions from employees and partners
Looking at your competitor’s successes and failures
#2. Idea Screening
This step is crucial to ensure that unsuitable ideas, for whatever reason, are rejected as soon as
possible. Ideas need to be considered objectively, ideally by a group or committee.
Specific screening criteria need to be set for this stage, looking at ROI, affordability and market
potential. These questions need to be considered carefully, to avoid product failure after
considerable investment down the line.
#3. Concept Development & Testing
You have an idea and it’s passed the screening stage. However, internal opinion isn’t the most
important. You need to ask the people that matter – your customers.
Using a small group of your true customer base – those that convert – the idea need to be tested to
see their reaction. The idea should now be a concept, with enough in-depth information that the
consumer can visualise it.
Do they understand the concept?
Do they want or need it?
This stage gives you a chance to develop the concept further, considering their feedback, but also to
start thinking about what your marketing message will be.
#4. Business Analysis
Once the concept has been tested and finalised, a business case needs to be put together to assess
whether the new product/service will be profitable. This should include a detailed marketing strategy,
highlighting the target market, product positioning and the marketing mix that will be used.
This analysis needs to include: whether there is a demand for the product, a full appraisal of the
costs, competition and identification of a break-even point.
#5. Product Development
If the new product is approved, it will be passed to the technical and marketing development stage.
This is when a prototype or a limited production model will be created. This means you can
investigate exact design & specifications and any manufacturing methods, but also gives something
tangible for consumer testing, for feedback on specifics like look, feel and packaging for example.
#6. Test Marketing
Test marketing (or market testing) is different to concept or consumer testing, in that it introduces the
prototype product following the proposed marketing plan as whole rather than individual elements.
This process is required to validate the whole concept and is used for further refinement of all
elements, from product to marketing message.
#7. Commercialisation
When the concept has been developed and tested, final decisions need to be made to move the
product to its launch into the market. Pricing and marketing plans need to be finalised and the sales
teams and distribution briefed, so that the product and company is ready for the final stage.
#8. Launch
A detailed launch plan is needed for this stage to run smoothly and to have maximum impact. It
should include decisions surrounding when and where to launch to target your primary consumer
group. Finally in order to learn from any mistakes made, a review of the market performance is
needed to access the success of the project.