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Chapter 10 • Product – anything tangible offered to a market by a business to satisfy needs. • Business people often see their products as the first part of the definition, anything offered to a market, the tangible product. • Consumers are concerned about their needs, and they view products as ways to satisfy those needs. • More than a physical product. • Consumer feel that physical characteristics such as being durable, attractive, and safe are important. • The product also must be useful to the consumer and meet the consumer’s needs. • Business people make a mistake when they don’t take consumer needs seriously, or feel they are so obvious that the consumer doesn’t consider them when making a decision. • Consumers know best. • A mistake of some business people is believing that they are better able than consumers to define the types of needs their products satisfy. • Teenage market is often misunderstood. • Another mistaken approach is to believe that products sold by a business will satisfy many different people. • Customer needs can change, and different consumer groups have unique needs and experiences. • The failure rate for new products is very high and very expensive. • On average, five of every ten new product ideas will not be successful. • Companies can spend up to millions producing a product, so their successful products must be profitable enough to cover those that are not successful. • Economic studies and consumer behavior indicate that products will be successful if they meet consumer needs better than the other choices. • Companies should be able to reduce the rate of product failure by improving their understanding of consumer needs and competition. • A company that believes in the marketing concept uses the needs of customers as the primary focus during planning, production, distribution, and promotion of a product or service. • Marketers should not be in the position of having to sell products that do not meet customer needs. • Marketers should be actively involved with others in the business in design and development of new products. • Marketing is the eyes, ears and mouth of the customer in a business because it is the direct link between the business and its customers. • Marketers work with customers every day, whether in selling, promotion, product distribution, marketing research, or the many other marketing activities that occur in business. • Marketers must represent the consumer in the business as products are designed and developed. • Gather Information • Gathering and studying market information and using the results to assist in product planning keeps the focus on consumer needs and competition rather than on the views of those involved in planning. • Information can be collected from a variety of sources: • Salespeople who work with customers and see competition. • Sales data helps determine what items are selling well and what are not. • Identify areas of consumer complaints and product returns. • Marketers discuss the information they collect to provide information on product changes and improvements. • Will often develop a marketing information system to help collect, store and analyze information. • Design Strategies • A new product is developed to meet company objectives like increasing a share in a current market or enter a new market. • Marketers participate in developing an effective strategy by identifying target markets, determining company strengths and weaknesses, and evaluating existing and potential competitors. • They use this information to propose alternative marketing mixes. • Conduct Market Tests • Most companies conduct tests to determine if the new product will be successful as a way to reduce product failures and avoid spending money on products that will not be successful. • Expensive to conduct tests, and businesses have to be careful because competitors may try to sway results. • Companies are always looking for new ways to conduct tests, and now computer programs allow companies to simulate the marketing of products and determine expected levels of sales and profits. • An important marketing function is product/service planningassisting in the design and development of products and services that will meet the needs of prospective customers. • Assisting meaning that marketers work cooperatively with others in product development. • Meet the needs meaning that the products are designed to satisfy customers. • Businesses have many choices in the development of new products. • Toothbrush • Look at features like length of bristles and handle on brush. • Compact toothbrushes for packing, disposable with toothpaste on them, electric toothbrushes. • Offering a guarantee is another way to differentiate products. • Companies will get testimonials or recommendations from a professional group such as the ADA. • The toothbrush example demonstrates that every product can be complex and unique, and marketers have to find a way to make their product stand out from the rest. • Basic Product • The most important part of the product is its basic physical product and consumers should be able to easily identify the important need to which the product responds and how to use it. • Enhanced Product • Consumers are usually trying to satisfy several needs when they make a purchase, so businesses enhance their basic products to meet those needs. • Enhanced products make is possible for companies to satisfy several target markets with one basic product. • Some customers will view the enhancements positively and some negatively. • Different combinations of features, options, and even brand names are developed with the needs of one target market in mind. • Extended Product • Customer satisfaction can be improved if the business offers services, guarantees, information of effective use of the product, and even additional products that improve the use of the primary product. • Services are an effective way to meet additional customer needs beyond those directly related to the use of the product. • Suggesting additional products that should be purchased to enhance the use of the new purchase is often an important method of improving customer satisfaction. • Product Line – a group of similar products with slight variations in the product mix to satisfy different needs in the market. • As companies add items to their product line, they usually increase then number of potential customers and the satisfaction of individual consumers. • This increases costs is distribution, inventory control and other related marketing activities. • Also needs more display space and retailers have to decide if they are going to display all products in a line or share the area with competitors. • Variation in Quantity • One of easiest ways to expand from one product into several is to vary the product size. • Variation in Quality • Consumers who use the products infrequently may not need the best possible quality and would prefer to save money in exchange for accepting a slightly lower quality. • Product Assortments – the complete set of all products a business offers to its market. • Stores offer an assortment of products in one category for the customer to choose from. • Packaging • The package serves the dual purpose of protection and promotion, and can sometimes improve the use of the product. • Ease of use – manufacturers must carefully consider how customers use a product. • Safety – safety and protection are important concerns when planning the packaging of products. • Products used by children need to have safe packaging. • Packaging continued… • Attraction – the promotional value of packaging is important because an attractive package that clearly shows the use of the product. • Handling – packaging can also be helpful in the display and security of products. • Environment – manufactures are increasingly using recycled materials for packaging and developing materials that are biodegradable. • Brand Development • The brand name of products can be very important to consumers as they make purchase decisions. • Brand-a name, symbol, word or design that identifies a product, service, or company. • Important because it provides a unique identification for the company and its offerings. • Brand Development continued… • Trademark-the legal protection of the words or symbols for use by a company. • Business people know that brand recognition resulting from advertising often increases a product’s sales. • Positive or negative experience with a brand will influence your future purchases. • The goal of business in using branding is to gain customer recognition of the brand in order to increase the likelihood of a sale. • See figure 10-1 on pg 289 • Family brand-groups of products that carry an identical brand (Kellogg’s). • Licensed brand-well known name or symbol established by one company and sold for use by another company to promote its products. • Consumer Markets – individuals or socially related groups who purchase products for personal consumption. • You make purchase decisions on the basis of the satisfaction you receive from using the product. • Direct Demand – the quantity of a product or service needed to meet the needs of the consumer. • To satisfy direct demand, business people must be aware of consumer’s needs and how they choose products to satisfy those needs (consumer purchase classification system). • Based on two factors: • The importance of the purchase to the consumer. • The willingness of the consumer to shop and compare products before making the purchase. • Marketers develop more effective products when they understand how consumers shop for them. • Business market – companies and organizations that purchase products for the operation of a business or a completion of a business activity. • Make purchase decisions based on what is needed to effectively operate the business, to meet the needs of employees and customers, and to produce the products and services of the business. • Derived demand – the quantity of a product or service needed by a business in order to operate at a level that will meet the demand of its customers. • Capital Equipment • Includes a businesses land, buildings, and major pieces of equipment. • Usually most expensive and most important products purchased and include items such as: • Office buildings • Commercial airplanes • Sophisticated computer equipment • Will often be custom designed to meet the needs of the business. • Businesses may have to purchase these items using long term loans or lease the equipment. • Operating Equipment • Smaller, less-expensive equipment used in the operation of the business or in the production and sale of products and services. • Makes production or operations more efficient or effective and can include items such as: • Tools • Small machines • Furniture • Often standard and will need to be replaced from time to time. • Supplies • The products and materials consumed in the operation of the business. • Available from many suppliers and can include: • Paper, pencils, paper clips • Cleaning supplies • Fuel, electricity, package materials • Raw Materials • Unprocessed products used as basic materials for the products to be produced (grain for cereal). • Purchasers need to have an adequate supply and standardized quality in order to maintain a planned level and quality of production. • Need to watch costs and businesses will often sign contracts with suppliers to ensure they always have the supply they need at the right cost. • Component Parts • Parts that have been either partially or totally processed by another company (computer chip for a computer). • Can be designed for a particular company or standardized. • Like raw materials, businesses need to make sure they are getting the supply they need at reasonable cost. • Knowing whether the customer is a final consumer or a business consumer determines whether the product is being developed to meet a direct demand or a derived demand. • Products treated as convenience goods require different planning from those treated as specialty goods. • For business customers, the type of product and its use are important factors to consider when planning products. • Some products will be purchased by consumers and business markets. • Marketers need to understand the differences in purchases between the two types of markets in order to develop effective products and marketing mixes for each. • A new product must be entirely new or changed in an important and noticeable way. • Companies will promote products as new or improved, but it is not always easy to see what is new or better about the product. • Because some companies misuse the term “new” for products, the Federal Trade Commission regulates how and when the term new can be used. • A company can call something “new” for only six months after the introduction or change of a product. • A new use for a product can be discovered, leading to new markets. • Companies use a very careful process to identify and develop new products. • The process is used to screen out products that are not likely to be successful before too much money is spent for productions and marketing. • The process assures that the products meet an important market need, can be produced well and at a reasonable prices, and will be competitive with other products in the market. • Idea Development • The most difficult step in new product development. • Many companies have consumer panels that meet regularly to discuss ideas for new products. • Developing new product ideas can be a very creative process and tools such as brainstorming, creative thinking exercises, and problem solving are used to identify product ideas for testing. • Idea Screening • Once a number of ideas has been identified, the second step is to carefully screen them to select those that have the greatest chance for success. • See pg 299 for list of criteria that businesses follow. • Some criteria is not straightforward, like companies do not want to compete with themselves, want to move to new markets, financial costs. • Strategy Development • The business creates and tests a sample marketing strategy as a first step in developing a business proposal. • Research is done to clearly identify an appropriate target market and ensure that customers exist with the need and money for the product. • Alternative marketing mixes are planned for product, distribution, price and promotion. • If no appropriate mix is found, the product idea would be dropped. • Financial Analysis • Costs of production and marketing, sales projections for the target market, and resulting profits will be carefully calculated. • Companies use several models to determine the best and worst case scenarios. • The results of the analysis are matched against company goals and profit objectives. • Product Development and Testing • Manufacturer – designs the production process, obtaining the needed equipment and materials, and training personnel. • Retailer – identifying a producer or manufacturer to supply the products and negotiating a contract for the production. • Sometimes models or prototypes are developed to test quality and cost before starting a full scale operation on expensive or risky products. • Market tests can also be conducted to a small segment of the target market to determine if it will be successful, and if it is not, the company can make changes or pull the product before a large amount of money is spent. • Product Marketing • The last step is to fully introduce the product into the market, which needs a lot of preparation. • All marketing mix elements must be planned and involve wholesalers, retailers, transportation companies, and advertising agencies. • Production levels must be high enough to cover demand. • Marketers must be prepared to do their responsibilities and coordinate activities and schedules. • It does not end here! Studies of the market must still be done, and adjustments may need to be made as the market develops.