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Product What the Customer Wants What is a Product? “ … the need satisfying offering of a firm …” Translation what you buy, that satisfies what you want to be able to do What is a Product? what you buy, that satisfies what you want to be able to do it can be “good feeling” cause you bought some cosmetics and someone said you looked pretty it could be a happy stomach cause you bought a meal that tasted great it could be easier homework cause you bought new software for your computer Customers Buy Benefits, Not Products Need Benefits sought Choice criteria Product/service features Brand/supplier chosen “… A product’s ability to satisfy a customer’s needs or requirements …” Quality is often tied in to comparison with what the competitor does at the same price - always important to remember the “Competitive Environment” Service Any activity or benefit that one party can offer to another that is essentially intangible and does not result in ownership of anything. Goods - things you can touch “tangible” Services - things you can’t touch - but you can see their effect “intangible” “… services are not physical, they are intangible…” What is a Product? A Product is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. Includes: Physical Objects Services Events Persons Places Organizations Ideas Combinations of the above Levels of Product Products can be viewed at three satisfaction levels - formal, core and augmented product levels: Actual - quality, features, styling, brand and packaging Core - utility or benefit (key to selling) Augmented - totality of product; warranty, maintenance, focuses on buyer’s total consumption system Augmented Product Installation Packaging Delivery & Credit Brand Name Quality Level Core Benefit or Service Features Design Warranty Actual Product Core Product AfterSale Service Product Classifications Consumer Products Convenience Products Shopping Products Buy frequently & immediately Buy less frequently Specialty Products Unsought Products High price Unique characteristics Brand identification Few purchase locations i.e Mercedes, Rolex Consumers don’t want to think about Require much advertising & personal selling i.e Life insurance, blood donation Low priced Mass advertising Many purchase locations i.e Candy, newspapers Special purchase efforts Higher price Fewer purchase locations Comparison shop i.e Clothing, cars, appliances New innovations Different Classes Convenience goods and services things consumer wants to buy frequently minimum effort, low risk small amount of money, not much time three types 1. Staples - bought routinely 2. Impulse products - unplanned purchases 3. Emergency products - bought immediately Different Classes Shopping goods and services “stuff” people buy after they “shop & compare” they have the time to compare prices Homogenous - stuff that is the same simply pick the lowest price eg. Condensed milk, Heterogeneous - stuff that is different, so the customer will take time to compare features and prices - “some retailers carry competing brands” Different Classes Speciality goods and services jewellery, special clothing special entertainment “Willingness to search, not extent of searching, makes it a specialty product” if people are willing to look and look at different products, before they commit, it is a specialty item Different Classes Unsought things people don’t want to buy, but have to eg. Auto insurance, funeral plan the only way to sell this is to convince people of the benefit because the benefit is not easily seen by the average person. Various Classes of Consumer and Industrial Goods and Services G o o d s a n d S e r vic e s Consumer Goods Consumer Services Convenience Goods Shopping Goods Specialty Services Convenience Services eg. Mac's Milk eg. clothing eg. banking eg. fast foods eg. newspaper eg. groceries eg. travel raw material grain, steel Industrial Goods Industrial Services Production Goods Support Services component parts eg. circuit board eg. wiring harness materials nuts, bolts accessory equipment tools, computers installations eg. buildings Product Line Terms A series of related products A group of products that are physically similar in performance, use or features and intended for a similar market Line stretching: adding products that are higher or lower priced than the existing line Line filling: adding more items within the present price range Product line width: number of different product lines carried by company Product line depth: Number of different versions of each product in the line Terms Product Mix The assortment of product lines and individual offerings available from a company. the combination of product lines offered by the manufacturer Product Life Cycle (PLC) Sales and Profits (Rs) Sales Profits Time Product Development Introduction Growth Maturity Decline Losses/ Investments (Rs) Sales and Profits Over the Product’s Life From Inception to Demise Boston Consulting Group (BCG) Approach Relative Market Share Low Market Growth Rate High High Stars • High growth & share • Profit potential • May need heavy investment to grow Cash Cows • Low growth, high share • Established, successful SBU’s •Produce cash Low Question Marks ? • High growth, low share • Build into Stars or phase out • Require cash to hold market share Dogs • Low growth & share • Low profit potential Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Low sales Costs High cost per customer Profits Negative or low Marketing Objectives Create product awareness and trial Product Offer a basic product Price Usually is high; use cost-plus formula Distribution High distribution expenses Advertising Build product awareness among early adopters and dealers Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Rapidly rising sales Costs Average cost per customer Profits Rising profits Marketing Objectives Maximize market share Product Offer new product features, extensions, service, and warranty Price Price to penetrate market Distribution Increase number of distribution outlets Advertising Build awareness and interest in the mass market Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategie Sales Peak sales Costs Low cost per customer Profits High profits, then lower profits Product Maximize profits while defending market share Diversify brand and models Price Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits Marketing Objectives Maturity Stage of the PLC Company tries to increase consumption of the current product. Changing characteristics such as quality, features, or styles to attract new users. Company tries to improve sales by changing one or more marketing mix elements. Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Declining sales Costs Low cost per customer Profits Declining profits Reduce expenditure and maintain, reposition, harvest or drop the product Phase out weak items Marketing Objectives Product Price Distribution Advertising Cut price Go selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyal customers Extending the Product Life Cycle Market Modification 1. Increase frequency of use by present customers 2. Add new users 3. Find new uses Product Modification 4. Change product quality or packaging Purpose: to sell more product and cover original investment Major Stages in New-Product Development Idea - 38% of new product ideas come from looking at competitors - one of the best ways is to listen to employee new ideas Screening - purpose is to “screen” out the bad ideas and focus on the good ideas that might work and Analysis - is making the cost estimates and sales forecasts to estimate profitability Development - concept testing for totally new products (ie. holographic maps) Testing - taking the prototypes to a sample group of consumers and watch their reactions Commercialization - promoting the product and developing advertising and sales campaigns Causes of New Product Failures One study estimated that as many as 80% of new consumer packaged products failed. Only about 40% of new consumer products are around 5 years after introduction. Why? Overestimation of market size, Product design problems, Product incorrectly positioned, priced or advertised, Product may have been pushed despite poor marketing research findings, Costs of product development, or Competitive actions & 5. What is a “market?” A market is – individuals and organizations – interested and willing to buy a particular product – have the resources to engage in the transaction Markets are seldom homogenous – they are fragmented, segmented, disorderly Market segmentation Some markets are sufficiently homogenous that segmentation is not necessary. Most markets are defined by specific characteristics defining the consumer. Decisions Within the Four Elements of the Marketing Mix Product Place • • • • • • Numbers and types of middlemen • Locations/availability • Inventory levels • Transportation Quality • Style Features • Options Brand name • Packaging Guarantees/warranties Services/spare parts The target market Price Promotion • • • • • • • • • • Discounts Allowances Credit terms Payment period Rental/lease List price Advertising Personal selling Sales promotion Point-of-purchase materials • Publicity The marketing mix is the combination of controllable marketing variables that a manager uses to carry out a marketing strategy in pursuit of the firm’s objectives in a given target market. Positioning Positioning: – The place the product occupies in consumers’ minds relative to competing products. – Typically defined by consumers on the basis of important attributes. Levels of POSITIONING There are 3 levels of product positioning: Core product is short-term positioning and typically works for a year or less - companies focus on the tangibles: price, quality, and technical specifications Extended product - firms create the necessary infrastructure to develop strong relationships with channel members, suppliers, and customers; strategy tends to last in the intermediate term, 1 to 5 years Total Product - companies have clearly identified who the company is and what they stand for. Firms have garnered a long term position - lasts more than 5 years (they have won the market’s respect) Positioning Choosing a Positioning Strategy: –Identifying possible competitive advantages Products, services, channels, people or image can be sources of differentiation. –Choosing the right competitive advantage How many differences to promote? – Unique selling proposition – Positioning errors to avoid Which differences to promote? Criteria for Meaningful Differences Important Superior Preemptive Distinctive Communicable Affordable Profitable Positioning Choosing a Positioning Strategy: – Selecting an overall positioning strategy More for More Value Proposition More for the Same Value Proposition The Same for Less Value Proposition Less for Much Less Value Proposition More for Less Value Proposition – Developing a positioning statement Positioning statements summarize the company or brand positioning EXAMPLE: To (target segment and need) our (brand) is (concept) that (point-of-difference). – Communicating the chosen position How to Add Value to Products Companies must constantly search for new ways to add value to distance themselves from their rivals Additional features/benefits Affordability Branding Customer involvement Customization and choice Enhanced quality Exceptional service Frequency marketing incentives Internet as a value adder Simplify or bundle the offering Solve customer problems Technological leadership Warranties Brand Decisions The AMA definition of a brand: “A name, term, sign, symbol, or design, or a combination of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from the competition.” Brand Decisions Brands can convey six levels of meaning: – Attributes – Benefits – Values – Culture – Personality – User Brand Decisions Brand identity decisions include: – Name – Logo – Colors – Tagline – Symbol Consumer experiences create brand bonding, brand advertising does not. Brand Decisions Marketers should attempt to create or facilitate awareness, acceptability, preference, and loyalty among consumers. Valuable and powerful brands enjoy high levels of brand loyalty. Brand Decisions Aaker identified five levels of customer attitudes toward brands: – Will change brands, especially for price. No brand loyalty. – Satisfied -- has no reason to change. – Satisfied -- switching would incur costs. – Values brand, sees it as a friend. – Devoted to the brand. Brand Decisions Brand equity refers to the positive differential effect that a brand name has on customers. Brand equity: – is related to many factors. – allows for reduced marketing costs. – is a major contributor to customer equity. Brand Decisions Advantages of branding: – Facilitates order processing – Trademark protection – Aids in segmentation – Enhances corporate image – Branded goods are desired by retailers and distributors Packaging and Labeling Packaging includes: – The primary package – The secondary package – The shipping package Many factors have influenced the increased use of packaging as a marketing tool. Packaging and Labeling Developing an effective package: – Determine the packaging concept – Determine key package elements – Testing: Engineering tests Visual tests Dealer tests Consumer tests Packaging and Labeling Labeling functions: – Identifies the product or brand – May identify product grade – May describe the product – May promote the product Legal restrictions impact packaging for many products. Distribution Distribution System – the series of institutions and functions linking manufacturers to markets Transaction Channel Physical Distribution (logistics) Channel Channel Structure Number of channels Number of channel levels Number of middlemen per channel level Channel Functions: Research Promotion Market contact Assortment Physical distribution Financing & risk taking Negotiation Storage Distribution Performance of functions determines compensation Margins Commissions Price Reductions Issues All flows can be shifted up or down the channel. All are subject to economy of scale efficiencies. All must be performed. If one flow fails, the entire channel can fail. Performance of flows determines compensation Distribution Intensity Intensive (convenience goods): Mass distribution and promotion Selective (shopping goods): Reduced distribution, assortment breadth, channel cooperation Exclusive (specialty goods): Sacrifice market coverage for channel control and prestige Channel Structure and Flows Manufacturer Structure Flows B2B Wholesaler The manufacturer and wholesaler sellers normally go to the buyers so B2B is a natural for eCommerce. The buyers are already trained to deal with distant sellers, and do not care where where the seller is located as long as they can perform the required functions (flows). B2B Retailer B2C The retail level of the channel is the only channel level where the buyer goes to the seller. Retailers can use location dominance to achieve sustainable competitive advantage. B2C retailing does not have a dominant competitive advantage over traditional stores. Functions of Retailers & Wholesellers? Consumer Promotion (Marketing Communications) The specific mix of advertising, personal selling, sales promotion, and public relations a company uses to pursue its advertising and marketing objectives. •Personal Selling – Direct Marketing •Mass SellingAdvertising Publicity Sales Promotion•Point-of-purchase advertising •specialty advertising •samples •coupons •premiums •loyalty points / air miles •rebates •contests 3 promotional objectives 4 Promotional Activities •Attention •Interest •Desire •Action AIDA Push or Pull Push strategy: trade promotions and personal selling efforts push the product through the distribution channels. Pull strategy: producers use advertising and consumer sales promotions to generate strong consumer demand for products. Adoption Process (Diffusion of Innovation) Relationship between Advertising and the Product Life Cycle Not mentioned in your textbook