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PRODUCT AND BRANDING WHAT IS A PRODUCT 2 A product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. Products include more than just tangible objects such as cars, computers, cell phones etc. They include services, events, persons, places, organisations, ideas, or mixes of these entities. Services are a form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in ownership of anything. Examples include banking, hotel etc. LEVELS OF A PRODUCT 3 1) 2) There are three levels of a product and each level adds more customer value: Core product—The problem-solving service or core benefits that consumers are really buying when they obtain a product. It addresses the question “what is the buyer really buying?” For example, a woman buying lipstick or eye shadow buys more than eye or lip colour. Actual product—A product’s parts, quality level, features, design, brand name, packaging and other attributes that combine to deliver core product benefits. LEVELS OF A PRODUCT 4 3) For example, Black Berry is an actual product whose name, parts, styling, features, packaging and other attributes have been combined carefully to deliver core customer value of staying connected. Augmented product—These are additional consumer services and benefits built around the core benefit and actual product. For example, the Black Berry solution offers more than just a communication device—provides a consumer with a complete solution to mobile connectivity problems. The company and its dealers may give buyers warranty, instructions on how to use it etc. THREE LEVELS OF PRODUCT Augmented Product 5 Actual Product Warranty Quality level Features Core benefit Design Brand name Installation Packaging Delivery and Credit After Sale Service PRODUCT CLASSIFICATION 6 Products fall into two broad classes based on the types of consumers that use them: Consumer products Industrial products Consumer products are those bought by final consumers for personal consumption. They are classified based on how consumers go about buying them and include: Convenience products Shopping products Specialty products Unsought products CONSUMER PRODUCTS CLASSFICATION 7 • Convenience products are consumer products that the customer usually buys frequently, immediately and with a minimum of comparison and buying effort. E.g. Soap; Newspapers, Magazines etc They are usually low priced and placed in many locations to make them readily available when customers need them. Shopping products are less frequently purchased consumer products that customers compare carefully on suitability, quality, price, and style or design. CONSUMER PRODUCTS CLASSFICATION 8 • When buying shopping products, consumers spend much time and effort in gathering information and making comparisons. • • Examples include furniture, clothing, cars, major appliances, hotel and airline services, restaurant meals. The products have fewer outlets but deeper sales support to help customers in their comparison effort. Specialty products are consumer products with unique characteristics or brand identification for which a significant group of buyers is willing to make special purchase effort. CONSUMER PRODUCTS CLASSFICATION 9 • • Examples include specific brands of cars, designer clothes, services of legal or medical specialists. Unsought products are consumer products that the consumer either does not know about or knows about but does not normally think of buying them. Most major new innovations are unsought until consumers become aware of them through advertising. • • Examples of known but unsought products include life insurance, funeral plans, blood donation to Red Cross. Unsought products require a lot of advertising and other marketing efforts. INDUSTRIAL PRODUCT CLASSIFICATION 10 Industrial products are those products purchased for further processing or for use in conducting a business. They differ from consumer products based on the purpose for which the product is bought. The three groups of industrial products include: Material and parts Capital items Supplies and services INDUSTRIAL PRODUCT CLASSIFICATION 11 Materials and parts include raw manufactured materials and parts. • • • • materials and Raw materials consist of farm products (such as wheat, cotton, livestock, fruits and vegetables) and natural products (such as crude petroleum, fish, iron ore). Manufactured materials and parts consist of component materials (such as cement, wires) and component parts (such as tyres, small motors, castings). Most manufactured products are sold directly to industrial users. Price and service are the major marketing factors; branding and advertising tend to be less important. INDUSTRIAL PRODUCT CLASSIFICATION 12 Capital items are industrial products that aid in the buyer’s production or operations, including installations and accessory equipment. Installations consist of major purchases such as buildings (factories, offices) and fixed equipment (generators, elevators). Accessory equipment includes portable factory equipment and tools (hand tools) and office equipment (such as computers, fax machine, desks). They have a shorter life than installations and simply aid in the production process. INDUSTRIAL PRODUCT CLASSIFICATION 13 • • Supplies and services. Supplies include operating supplies (lubricants, paper, pencils) and repair and maintenance items (paint, nails, brooms). Supplies are the convenience products of the industrial field because they are usually purchased with a minimum effort or comparison. Business services include maintenance and repair services (window cleaning, computer repair) and business advisory services (legal, consulting, advertising). PRODUCT DECISIONS 14 In the development and marketing of products, marketing managers make product decisions at three levels: Individual product decisions Product line decisions Product mix decisions a) Individual product decisions comprise the following: Product and service attributes—Product quality (characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs); Product features (to differentiate from competitors) and Product style and design (appearance, performance). INDIVIDUAL PRODUCT DECISIONS 15 Branding. A brand is 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 differentiate them from those of competitors. b) • • • • Brand names help consumers identify products that might benefit them. Brands also tell the buyer something about product quality, features and benefits. The brand name is the basis on which the whole story can be built about a product’s special qualities. The seller’s brand name and trademark provide legal protection for unique product features that otherwise might be copied by competitors. It also helps the seller in market segmentation. INDIVIDUAL PRODUCT DECISIONS 16 Packaging—It involves designing and producing the container or wrapper for a product. The package includes: c) • • Product’s primary container e.g. tube holding Colgate toothpaste Secondary product package that is thrown away when product is about to be used e.g. cardboard box containing tooth paste Transportation package necessary to store, identify and transport the product Labelling—printed material appearing on or with the package The functions of packaging include holding and protecting the product; attracting attention; describing the product and making sale. INDIVIDUAL PRODUCT DECISIONS 17 d) • e) Labelling—Labels range from simple tags attached to products to complex graphics that are part of the package. The label identifies the product or brand; describes the product(—who made it, where it was made, when it was made, its content, how it is to be used) and promotes the product with attractive graphics. Product support services—These are services that augment actual product and both delight customers and yield profits to the company. E.g. 24-hour telephone help lines etc. PRODUCT LINE DECISIONS 18 A product line is 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. For example, Nokia or Samsung produces several lines of telecommunication products. The major product line decision involves product line length—the number of items in the product line. The line is too short if the manager can increase profits by adding items and too long if the manager can increase profits by dropping items. PRODUCT LINE DECISIONS 19 i. Product lines tend to lengthen over time, and most companies eventually prune unnecessary or un profitable items or services from their lines to increase overall profitability. A company lengthens its product line by: Product line stretching—occurs when a company lengthens its product line beyond its current range. • ii. The company can stretch its line downwards (to avoid attracting new competitor or to respond to competitor attack); upwards (in order to add prestige to current products); or both. Product line filling—adding more items within the present range of the line to reach for extra profits, using excess capacity, plugging holes to keep out competitors etc PRODUCT MIX DECISIONS 20 The organisation with several product lines has a product mix. A product mix (product portfolio or product assortment) is a set of all product lines that a particular seller offers for sell. A company can offer a set of two or more product lines and each product line may also have sub lines. a. b. A company’s product mix has four important dimensions: Width—Product mix width refers to the number of different product lines the company carries. Length—Product mix length refers to the total number of items the company carries within its product lines. PRODUCT MIX DECISIONS 21 c. d. Depth—Product line depth refers to the number of versions offered of each product in the line. For example tooth paste has cavity protection, sensitivity, multicare, whitening etc Consistency—Consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or in some other way. These product mix dimensions provide the handles for defining the company’s product strategy. The company can add new product line; add more versions of each product; or pursue more product line consistency. NEW PRODUCT DEVELOPMENT PROCESS 22 Idea screening—Screening new product ideas to identify good ideas and drop poor ones as soon as possible. The criteria for screening new product ideas include: 2) • • Usefulness of the product to the consumers and society Importance of the product to the company Company’s resources, objectives and strategies Ability to deliver more value to customers than competing products Easiness to advertise and distribute The company wants to go ahead only with product ideas that will turn into profitable products. NEW PRODUCT DEVELOPMENT PROCESS 23 Concept development and Testing—A product concept is a detailed version of the new product idea stated in meaningful consumer terms. 3) • • E.g. “An affordably priced midsize car designed to be used around town visiting friends”; “ A ‘green’ car appealing to environmentally conscious people who want practical, lowpolluting transportation” Concept testing calls for testing new product concepts with groups of target consumers, symbolically or physically, to find out if the concepts have strong consumer appeal. NEW PRODUCT DEVELOPMENT PROCESS 24 4) • • i. ii. iii. Marketing Strategy Development—This involves designing an initial marketing strategy for a new product based on the product concept. It’s the initial marketing strategy for introducing the new product to the market. The marketing strategy statement consists of three parts: Description of the target market, planned product positioning, sales, market share and profit goals for the few years. An outline of the product’s planned price, distribution and marketing budget for the first year. Description of the planned long-run sales, profit goals and marketing mix strategy. NEW PRODUCT DEVELOPMENT PROCESS 25 5) • • • Business Analysis—It involves a review of the sales, costs and profit projections for a new product to find out whether they satisfy the company’s objectives. The company can look at the sales history of similar products and conduct market surveys. It can then estimate minimum and maximum sales to assess the range of risks. The company can also estimate expected costs and profits for the product including marketing, R&D, operations, accounting and finance costs. The sales and costs figures are used to analyse the new product’s financial attractiveness. NEW PRODUCT DEVELOPMENT PROCESS 26 6) • • Product development—Developing the product concept into physical product in order to ensure that the product idea can be turned into a workable market offering. This calls for a large jump in investment. The R&D will develop and test one or more physical versions of the product concept. The new product must have the required functional features and also convey the intended psychological characteristics. NEW PRODUCT DEVELOPMENT PROCESS 27 7) • • • Test marketing—The stage of new product development in which the product and marketing program are introduced or tested in more realistic marketing settings. It gives the marketing manager experience with marketing the product before going to the great expense of full production. It lets the company test the product and its entire marketing program—targeting and positioning strategy, advertising, distribution, pricing, branding, packaging and budget levels. The amount of test marketing needed varies with each new product. NEW PRODUCT DEVELOPMENT PROCESS 28 8) • Commercialization—It involves introducing the new product into the market. The company will face high costs because it may need to build or rent a manufacturing facility, pay heavily for advertising, sales promotion, and other marketing efforts. The company decides on the launching timing, where (location) to launch the new product and market rollout. PRODUCT LIFE CYCLE 29 a. b. Each product has a lifecycle. A product life cycle is the course that a product’s sales and profits take over its lifetime. The product lifecycle has 5 stages: Product development—begins when the company finds and develops a new product idea. During product development, sales are zero the company’s investment costs mount. Introduction—period of slow sales growth as the product is being introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction. PRODUCT LIFE CYCLE 30 Growth—period of rapid market acceptance and increasing profits. Maturity—period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. c. d. e. Profits level off or decline because of increased marketing outlays to defend the product against competition. Decline—the period when sales fall off and profits drop. PRODUCT LIFE CYCLE 31 Not all products follow the S-shaped product life cycle: Some products are introduced and die quickly. Others stay in mature stage for long, long time Some enter the decline stage and are the cycled back into growth stage through strong promotion or repositioning. Product adoption curve 32 PRODUCT LIFE CYCLE STRATEGIES 33 • • • Introduction Stage—The product life cycle stage when the new product is first distributed and made available for purchase. It takes time, and sales growth is apt to be slow. Profits are negative or low because of the low sales and high distribution and promotion expenses—to attract distributors, build their inventories and inform consumers of the new product and get them to try it. The company and its few competitors produce basic versions of the product because the market is not generally ready for product refinements at this stage. PRODUCT LIFE CYCLE STRATEGIES 34 • • • • The firms focus their selling on buyers who are most ready to buy. A company must choose a launch strategy that is consistent with the intended product positioning. If it chooses its launch strategy to make a ‘killing’, it may be sacrificing long run revenue for the sake of shorn run gain. As the company moves through later stages of the life cycle, it must continuously formulate new pricing, promotion, and other marketing strategies. PRODUCT LIFE CYCLE STRATEGIES 35 • • • • Growth Stage—The product life cycle stage in which a product’s sales start climbing quickly. Early adopters will continue to buy, and later buyers will start following their lead, especially if they hear of favourable word of mouth. Competitors will be attracted and enter the market. They will introduce new product features and the market will expand. The increase in competition leads to an increase in the number of distribution outlets, and sales jump just to build reseller inventories. Prices remain where they are or fall only shortly. PRODUCT LIFE CYCLE STRATEGIES 36 • • • i. ii. iii. iv. Companies keep their promotion spending at the same or a slightly higher level. Profits increase during growth stage, as promotion costs are spread over a large volume and as unit marketing costs fall. The firm uses several strategies to sustain rapid market growth: It improves product quality and add new product features and models. It enters new market segments and new distribution channels. It shifts some advertising from building product awareness to building product conviction and purchase It lowers prices at the right time to attract more buyers PRODUCT LIFE CYCLE STRATEGIES 37 • • • • Maturity Stage—The product life cycle stage in which sales growth slows or levels off. This stage normally lasts longer than introduction and growth stages, and most products are in this stage of life cycle. The slowdown in sales growth results in many producers with many products to sell leading to greater competition. Competitors begin marking down prices, increasing their advertising and sales promotions, and increasing their R&D budgets to find better versions of the product. Because of competition, profit drops and weaker competitors start dropping out. PRODUCT LIFE CYCLE STRATEGIES 38 • • i. Successful products actually evolve to meet changing consumer needs. Companies can consider the following strategies: Modifying the market—The company tries to increase the consumption of the current product by looking for new users and new market segments. • ii. It may also look for ways to increase usage among present customers. Modifying the product—Changing characteristics such as quality, features, style, or packaging to attract new users and inspire more usage. PRODUCT LIFE CYCLE STRATEGIES 39 • iii. • • • • The company can improve product’s styling and attractiveness; product’s quality and performance in terms of durability, reliability, speed and taste. Modifying the marketing mix—Improving sales by changing one or more of the marketing mix elements. The company can offer new or improved services to buyers. It can cut prices to attract new users and competitor’s customers It can launch a better advertising campaign or use aggressive sales promotion. The company can also move into new marketing channels to help serve new users PRODUCT LIFE CYCLE STRATEGIES 40 • • Decline Stage—The product life cycle stage in which a product’s sales decline. Sales may decline due to technological advances, shifts in consumer tastes and increased competition. Some firms withdraw from the market. Those remaining prune their product offerings by dropping smaller market segments, cutting promotion budget etc. PRODUCT LIFE CYCLE STRATEGIES 41 • Weak products are costly to the firm in terms of: Profits Need for management’s time Frequent price and inventory adjustments Advertising and sales force attention that would be better used to make healthy products profitably Reputation for organisation and other products for the organisation Product delays to search for replacements PRODUCT LIFE CYCLE STRATEGIES 42 • Management can therefore decide or consider: Maintaining the brand without change in the hope that competition will leave the industry. Harvesting the product—reducing various costs (plant & equipment, maintenance, R&D, advertising) and hoping that sales hold up. Dropping the product from the line by selling to another firm or liquidating it at salvage value. 43 End of lecture, next topic price…..