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CHAPTER 16
Developing and Promoting
Goods and Services
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
Learning Objectives
Identify a product and distinguish between
consumer and industrial products and explain the
product mix.
Describe the new product development process
and trace the stages of the product life cycle.
Explain the importance of branding, packaging
and labelling.
Identify the objectives of promotion and discuss
the considerations involved in selecting a
promotional mix.
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
16-2
More Learning Objectives
Discuss the most important advertising strategies
and describe the key advertising media
Outline the tasks involved in personal selling and
list the steps in the personal selling process
Describe the various types of sales promotions
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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The Product
Consumers purchase a product for its
function and benefit to them … for what it
does as much as what it is
Product features must provide desired benefits
Features include intangibles like image and
reputation
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© 2005 Pearson Education Canada Inc.
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Consumer Goods Classification
Convenience
bought quickly & with little thought (milk)
Shopping
purchased infrequently; typically of moderate cost
consumers shop around for price, value and brand
(home furnishings)
Specialty
purchased rarely; typically expensive
consumers take time to carefully plan their purchase
(wedding gowns, automobiles)
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© 2005 Pearson Education Canada Inc.
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Industrial Goods Classification
Expense Items: are used quickly
in the course of business/
production
Capital Items:
expensive, long-lasting
goods and equipment
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© 2005 Pearson Education Canada Inc.
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Product Strategy
Product mix
the group of products a company has for sale
Procter & Gamble sells household cleansers, disposable
diapers etc.
Product line
a group of similar products intended for a group
of buyers
Procter and Gamble sells more than one brand of
laundry detergent
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© 2005 Pearson Education Canada Inc.
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R&D
Activities required to provide new products,
services, and processes
Usually requires a large investment in laboratories,
equipment, and scientific talent
Canada has a lower percentage of GDP spending
on R&D compared to the US, Japan, and Germany
Businesses must embrace technology so that their
products will not become obsolete
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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The Product Development Process (1of 3)
Step #1: Product Ideas
Seek out ideas for new products
Sources: employees, consumers, sales people, engineers etc.
Step #2: Screening
Elimination of product ideas that do not fit with the
firm’s resources
Includes staff from marketing, engineering, and
production
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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The Product Development Process (2of 3)
Step #3: Concept Testing
Market research to obtain customer feedback
Results in a clearer understanding of product benefits as
well as a pricing strategy
Step #4: Business Analysis
Comparison of costs and benefits of each new product
Preliminary sales projections and cost projections
Comparison of profit potential with the firm’s goals
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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The Product Development Process (3of 3)
Step #5: Prototype Development
input from concept-testing, engineering and/or R & D
result in a preliminary version of the product
identifies potential problems with the product and its
production; costly
Step #6: Product and Market Testing
limited production of the product for sale in a test
market area with complete promotion and distribution
provides feedback on potential performance: costly
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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Step #7: Commercialization
Full-scale production of the
product for sale in the target
market
The product may be rolled out
to the larger market area on a
gradual basis to alleviate strain
on the company both in
production and finances
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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Special Aspects of Developing Services
Step #1: Service Ideas
definition of the “service package”:
identification of the tangible and
intangible features that define the service
Step #5: Prototype Development
requires “service process design”:
selecting the process, identifying worker
requirements, and determining the
facilities required
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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The Product Life Cycle Concept
Basic philosophy that each product/service
goes through a profit-producing lifecycle
Consists of four stages
introduction, growth, maturity, and decline
Represents the life of a product/service
offering (industry), not the activities of an
individual firm in the industry
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© 2005 Pearson Education Canada Inc.
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The Product Life Cycle
$
Dollars
Sales
Profits
0
Introduction
Growth
Maturity
Decline
Time
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© 2005 Pearson Education Canada Inc.
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Introduction
Competition is limited to the firm that has
introduced the application
Costs are high due to R & D and promotion
Profits are non-existent due to expensive costs
Prices are high to offset costs of market entry
Promotion focuses on informing consumers
and generating initial product demand
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© 2005 Pearson Education Canada Inc.
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Growth
Sales grow rapidly
New competition begins to enter the market
to seek the growth opportunity
Funds diverted to aggressive promotion
Prices are lowered to meet the competition
Profits peak and level off
Promotion emphasizes brand preference
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© 2005 Pearson Education Canada Inc.
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Maturity
Industry sales level off
Market becomes more aggressive due to increased
competition in the face of slow/no sales growth
Profits decline
Costs increase due to the need to promote aggressively
while prices are simultaneously declining
In late maturity, some firms will leave the market
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© 2005 Pearson Education Canada Inc.
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Decline
Sales and profits decline
Product is becoming obsolete
Competition leaves market
Sales drop: the industry has run its course
Promotion is limited and tied to brand
loyalty
Firms with larger market shares may let
product linger until industry ceases to exist
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© 2005 Pearson Education Canada Inc.
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Extending Product Life: Foreign
Markets
Product Extension
Marketing an existing product globally (Coca-cola, Levi’s)
Product Adaptation
Marketing a product internationally with some
modification (McDonald’s in Germany serves beer)
Reintroduction
Aiming declining or obsolete products to less
developed markets (Manual cash registers in Latin America)
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© 2005 Pearson Education Canada Inc.
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Brand Names
Specific names associated with a manufacturer,
wholesaler, and/or retailer
designed to distinguish products from those of
competitors and establish “brand loyalty”
Brand Categories
national brands
licensed brands
private brands
generic brands
Heinz
NIKE
Sheraton
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© 2005 Pearson Education Canada Inc.
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Types of Brands
National
Private
distributed by, and
carrying the name of,
the manufacturer
brands carrying the
name of the retailer or
wholesaler (President’s
(Kellogg’s)
Choice)
Licensed
Generic
selling the right to use
the firm’s name on
another company’s
product (Mickey Mouse)
products carrying no
brand name, which are
usually priced lower
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© 2005 Pearson Education Canada Inc.
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Trademarks, Patents and
Copyrights
Trademark
the exclusive legal right to use a brand name
Patent
protects an invention or idea for a period of 20 years
Copyright
exclusive ownership rights to creators of books,
articles, designs, illustrations, photos, films, and music
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© 2005 Pearson Education Canada Inc.
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Packaging and Labelling
The physical container in which the
product is sold
Label, which identifies the product’s
name, contents, and possibly benefits
May enhance product features
(aseptic packaging, bottles with spouts)
Must conform to the Consumer
Packaging and Labelling Act (federal
legislation)
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© 2005 Pearson Education Canada Inc.
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Promotion
Key objectives
Buy! Buy! Buy!
increase product awareness
increase knowledge of
products and their addedvalues
increase product preference
increase product purchase
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© 2005 Pearson Education Canada Inc.
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Promotion Plan
Objectives
Information
Positioning
Added value
Sales volume
Strategies
Promotional
Mix
Push
vs.
Pull
Advertising
Personal selling
Sales promotion
Publicity
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© 2005 Pearson Education Canada Inc.
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Promotion Strategies
Push Strategy
Firm promotes aggressively to intermediaries
Commonly used by industrial product manufacturers
Pull Strategy
Firm promotes directly to final consumers, who
demand the product from intermediaries
Commonly used for consumer product producers
Many firms use a combination of both strategies
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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Promotional Mix
The combination of promotional methods
used are affected by
the nature of the product
the nature of the audience
promotional budget
the cost of different promotional methods
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© 2005 Pearson Education Canada Inc.
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The Consumer Purchase Process and
the Promotional Mix
Purchase Process
Problem
Recognition
Advertising
Publicity
Information
Seeking
Sales promotion
Personal selling
Evaluation
of
Alternatives
Advertising
Personal
selling
Purchase
Decision
Personal
selling
Advertising
Personal selling
PostPurchase
Evaluation
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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Advertising Strategies (1 of 2)
Informative Advertising
Increase awareness among potential buyers
generate primary (initial) demand
• typical life cycle stage: introduction
Persuasive Advertising
influence the customer to buy the firm’s
product over that of the competition
• typical life cycle stage: growth to maturity
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
16-30
Advertising Strategies
(2 of 2)
Comparative Advertising
influence customers to switch brands
involves direct or indirect comparison
• typical life cycle stage: growth
Reminder Advertising
keep the product’s name in front of consumers
• typical life cycle stage: maturity
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© 2005 Pearson Education Canada Inc.
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Advertising Media
Newspapers
Television
Direct mail
Radio
Magazines
Outdoor
Word-of-mouth
Internet
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
16-32
Newspaper
Most widely used
medium
Excellent market
coverage
Flexible with short
lead times
Do not usually print in
colour
May be too widely
spread, resulting in
waste
Poor reproduction of
images
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© 2005 Pearson Education Canada Inc.
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Television
Total sensory
experience
(sight, sound & motion)
Can target specific
markets
Broad market
coverage
Expensive
People are beginning
to ignore ads
Too many ads are
confusing
Short ad time
hard to use as an
informative tool
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© 2005 Pearson Education Canada Inc.
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Direct Mail
Printed ads (flyers or mail-outs, faxes)
directed to final consumers’ homes or
businesses
Highly selective and personalized
“junk mail” image
Expensive but cost-effective
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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Radio
Large audience
Inexpensive
Ads are quick, impacting on the listener’s
ability to comprehend the message
May be used as background music with
little actual attention going to the medium
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
16-36
Magazines
Advantages
High degree of consumer selectivity (less waste)
Excellent reproduction of images (full-colour possible)
Magazines have a long life
Space is available for detailed product information
Disadvantages
Long lead times
Expensive fees for special positioning in the issue
Relatively expensive
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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Outdoor
Billboards, signs, bus,
taxi, and bus stop ads
inexpensive, with little
distraction for readers
reaches broad audience,
but is not selective
Super
Cola
Some areas ban roadside
billboards
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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Word-of-Mouth and the Internet
Opinions about products passed from consumer to
consumer through informal conversation
Very powerful promotional tool
Internet
A new and exciting advertising venue
Internet advertisers obtain counts of Web page visitors
Requires considerable Web-surfing to find information
online; might dissuade some consumers
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© 2005 Pearson Education Canada Inc.
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Data Mining
Consumer behaviour patterns can be traced
by analyzing files of information over time
May involve data on millions of customers
Who buys
What they buy
How often
Payment methods
Commonly used for e-business tracking
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© 2005 Pearson Education Canada Inc.
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Virtual Advertising
Advertising that uses “digital implants” of brands or
products in live or taped programming
Gives the impression that the product was part of the show
Allows better overall promotion because viewers are more
“tuned in” to programs than they are to commercials
NIKE
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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Other Advertising Channels
Yellow Pages
Catalogues
Sidewalk flyers
Door-to-door advertising
Skywriting
Special Events
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© 2005 Pearson Education Canada Inc.
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Advertising Campaigns
Identify the target audience
Establish an advertising budget
Define the objectives of the messages
Create advertising messages
Select appropriate media
Evaluate advertising effectiveness
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
16-43
Advertising Agency
Rank Company
Revenue
(Millions)
1
Maxxcom Inc.
$559.5
2
Cossette Comm. Group Inc.
157.6
3
MacLaren McCann Canada Inc.
102.5
4
BBDO Canada Inc.
74.2
5
Envoy Comm. Group Inc.
59.1
6
Publicis Canada Inc..
51.0
7
Palmer Jarvis DDB Inc.
35.4
8
Leo Burnett Co. Ltd.
31.9
9
Marketel
20.5
10
CP Ltd..
10.4
A firm that
creates and
places ads for
clients
Usually paid
a commission
May be paid
a fee for ad
creation
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
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Personal Selling Situations
Retail: selling to consumers
Industrial: selling to business users
Sales force management
setting goals for sales people, organizing a sales force,
implementing and evaluating the sales program
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© 2005 Pearson Education Canada Inc.
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Personal Selling Tasks
Order processing
receiving and handling orders
Creative selling
using techniques to sell expensive
products or products with benefits that
are hard to describe or relate to
Missionary selling
offering of technical assistance to aid
the selling process, or to promote the
image of the firm
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© 2005 Pearson Education Canada Inc.
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Personal Selling Process
Prospecting & Qualifying Leads
Approaching
Presenting & Demonstrating
Creative selling
involves skilful use
of a sales presentation.
Handling Objections
Closing
Following Up
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© 2005 Pearson Education Canada Inc.
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Sales Promotions
Coupons
Point-of-purchase (POP) displays
Purchase incentives/premiums (free item or
bargain price)
Trade shows
Contests and sweepstakes
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© 2005 Pearson Education Canada Inc.
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Publicity and Public Relations
Publicity
information made available to consumers
via the news media
company has no control over it
free to the company
Public relations
public service announcements initiated by
the firm
designed to enhance the firm’s image
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© 2005 Pearson Education Canada Inc.
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International Promotion
Companies involved in exporting are adopting a
worldwide advertising strategy
Decentralized approach
separate marketing management for each company
Global perspective
a coordinated marketing focus on a global scale
Issues impacting on international promotion
language differences, product variations, cultural
receptivity, image differences
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© 2005 Pearson Education Canada Inc.
16-50
Small Business Promotion
Firms use the same sales promotion methods as
larger firms and rely heavily on publicity
May use direct mail and magazine to tap
international markets and personal selling to gain
local market share
High costs of national personal selling often lead
to a combination of telemarketing and direct mail
Most small firms cannot afford to promote via
television, so they use newspapers, radio and the
Yellow Pages
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© 2005 Pearson Education Canada Inc.
16-51