Download MBA MARKETING MANAGEMENT

MBA
Marketing Management
MKT 600
Product in Mktg Mngnt
Product Mix
Lecture Review
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Introduction
What is a product?
The product concept
Product classifications
Product decisions
Packaging decisions
Innovation and new product development
Why do products fail?
New product development process
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The product life cycle concept
Product services
INTRODUCTION
Designing good products that customers want to buy is a challenging task. Customers do
not buy mere products – they seek product benefits and are often willing to pay more for
a brand that genuinely solves their problems. This session explores how marketers can
satisfy customer needs by adding value to the basic product; it also shows the complexity
arising in a product, branding and packaging decisions and how various forces in the
environment pose tough challenges for marketers in the 21st century.
Markets do not stand still. Companies must adopt their offering or create new ones in
response to changing customer needs or to take advantage of new marketing and
technological opportunities. As such, this session will also review how to develop and
commercialise new products. It will also look at intangible products or services and
examine the unique characteristics of services and how organisations adopt their
approach when marketing them.
But, we start by asking a simple question;
“What is a product?”
and in answering this question, we will look at ways to classify products in consumer
and business markets but also to understand the ‘product concept’.
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WHAT IS A PRODUCT?
A Nokia mobile phone, a Euro Disney vacation, a suit of clothes, advice from a tutor or a
bank manager, a pair of Nike trainers, a bet on the lottery, a Volvo truck, golf lessons or a
Paul McCartney concert are all products.
Definition
“A product is anything that is offered to a market for attention, acquisition, use or
consumption and that might satisfy a want or need.”
Products include more that just tangible goods – they include physical objects, services,
persons, places, organisations and ideas. The difference between a product and a
service is the distinction of one being tangible and the other intangible. However, when
we adopt a consumer’s viewpoint we find they simply seek solutions from the
product/service.
(e.g. in this respect a person having a haircut – the style of the cut is intangible, but in
order to achieve it requires the need for scissors, shampoo and a salon that makes the
services tangible.)
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There are 3 components to a product or service offer
Physical
Functional
Symbolic
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Physical – any tangible aspect of the offer (e.g. scissors etc)
Functional – what the offer will do for the customer (shortens, thins, shapes, colours hair
etc)
Symbolic – what the offer means to the consumer within their psychological profile (gives
confidence, beautifies, professionalises or individualises the person etc)
Consider one of your own recent purchases. How important was the function compared
to its symbolic value? Consider a good wrist watch. How far would you be influenced by
style or brand? How much notice would you give to its timekeeping, date and stopwatch
functions? Would you bother with the physical make up of the casing, internal components,
plastic face?
Symbolic aspects are generally more important to us. Even professional buyers prefer to
buy packages that makes life easier for them; prefer to deal with people they like, trust or
respect, who put themselves out for them. These symbolic aspects carry the real value.
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THE PRODUCT CONCEPT
Product planners need to consider a product on three levels as shown below.
Installation
Augmented product
Packaging
Delivery
and credit
Features
Brand name
Training
support
Quality
Actual product
Core benefit
or service
Core product
Styling
Warranty/guarantee
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After sales
service
Three levels of a product
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Core product
The core product addresses the question “What is the buyer really buying?”. The core
consists of the main benefits or problem solving services that consumers seek when they
buy a product. A woman buying lipstick buys more than lip colour. Charles Revson of
Revlon when asked what his company made was quoted as saying,
“In the factory, we make cosmetics, in the drugstore, we sell hope” – Theodore Levitt
likewise pointed out that buyers do not buy ¼” drills they buy quarter inch holes. When
designing a product , therefore, marketers must help to define the core benefits the
customer seeks from the product.
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Actual product
The actual product will be built around the core product and will generally have 5
characteristics.
1.
2.
3.
4.
5.
Features such as size, performance and colour etc
Styling
Quality
Packaging
Brand name
Product decisions will need to be take on all these areas in order to satisfy customer
wants/needs.
For example, Sony’s new camcorder is an actual product. It’s name, parts, styling,
features, packaging and other attributes have all been combined to deliver the core
benefits – a convenient, high quality way to capture important moments.
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Augmented product
Around the core and actual product, the marketer must plow to develop the augmented
product by offering additional consumer services and benefits. Sony must offer more
than just a camcorder, it must offer consumers a complete solution to their picture-taking
problems. Therefore, they offer warranties on parts and workmanship, free lessons on
how to use the camcorder, quick repair services when needed and a freephone number
to call if they have problems or questions.
To the customer of course, these augmentations become an important part of the total
product. Today, where many products can be easily matched at the actual level, we find
the real competition taking place at the augmented level. Successful companies add
benefits to their offers that will not only satisfy, but also delight their customers.
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PRODUCT
CLASSIFICATIONS
It was recognised in our buyer behaviour and segmentation lessons
that products can be divided into two broad classes based on the types
of customers that use them.
1. Consumer Products
2. Industrial Products
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Consumer Products – are those bought by final consumers for personal consumption.
These goods are usually classified based on consumer shopping habits under the heading –
convenience, shopping and speciality products. Interestingly, these products differ in the way
consumers buy them, so they differ in how they are marketed (see below).
Marketing considerations
Convenience
Shopping
Speciality
Customer buying
behaviour
Frequent purchase,
little planning, little
comparison or
shopping effort, low
customer involvement
Less frequent purchase,
much planning &
shopping effort,
comparison of brands or
price, quality & style
Strong brand preference
and loyalty, special
purchase effort, little
comparison of brands,
low price sensitivity
Price
Low
Higher
Very High
Distribution
Widespread
Selective
Exclusive
Promotion
Mass
Advertising & personal
selling
Carefully targeted
promotion
Examples
Toothpaste
Magazines
Confectionery
Detergent
Major appliances
Television
Furniture
Clothing
Luxury goods such as
Rolex watches
Fine crystal
Rolls Royce cars
Ritz Hotel
Classification of consumer goods
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Industrial Products – are those bought for further processing or for resale. There are 3
groups of industrial product; materials and parts, capital items and supplies and
services. As shown below.
Industrial goods
Materials and
Parts
Capital Items
Supplies and
Services
Raw Materials
Installations
Supplies
Manufactured
Materials and
Parts
Accessory
Equipment
Business
Services
Classification of Industrial Goods
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PRODUCT DECISIONS
There are several decisions that need to be taken in the development and marketing of
individual products. These are;
Product Attributes
a) Product quality – in developing a product, the marketers must choose a quality level
that will support the product’s position in the target market
b) Product features – a product can be offered with varying features. Features represent a
competitive tool for differentiating the company’s product from competitor’s products.
c) Product design – another way to add product distinctiveness is through product design.
Some companies have reputations for outstanding design, such as Black&Decker in
cordless appliances and tools. Good design contributes to a products usefulness as well as
its looks. That’s why Nike employ, for example, 60 designers who release 500 footwear
designs each year.
d) Branding – a brand is a name, term, sign, symbol or design or combination, which is
used to identify the goods or services of one seller and to differentiate them from the
competition. It is important because branding can add value to a product and in doing so
allows the firm to charge premium prices. It brings with it brand equity, a high degree of
product awareness, preference and loyalty amongst its target market.
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PACKAGING DECISIONS
Often called the 5th P, along with; price, product, place and promotion. Packaging includes the activities
of designing and producing the container or wrapper for the product. It offers protection, helps keep
foodstuffs hygienic and fresh and acts as a communicator via its labelling. The package can give a
company competitive advantage over its competitors. Coca Cola and Jack Daniels whiskey bottles are
so distinctive and have such strong identities with their brands that the packaging has become iconic
for the identification of the brand.
Product Support Decisions
Customer service is another element of product strategy. A company’s offer to the marketplace usually
includes some services, which can be a minor or major part of the total offer. Because of its
importance, many companies have set up strong customer service departments to handle complaints,
credit service and maintenance.
Product Mix Decisions
Companies need to build up product lines in order to develop their portfolio of products. A product
line is a group of products that are closely related. For example, Volvo produces several lines of
cars, Phillips produces several lines of Hi Fi’s and Nike several lines of trainers. In order to compete
and win high market share and market growth or simply increase sales and profit, companies need
to add items to their product line. Some companies may offer more than 1 product line which then
forms a product mix or product assortment. For example, a cosmetics firm may have 4 products lines in
its product mix; cosmetics, jewellery, fashions and household items etc.
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A company’s product mix has 4 important dimensions; width, length, depth and consistency ,
as shown below.
Product width and Product Depth shown for selected Proctor and Gamble consumer products
Product Line Length
Product Mix Width
Detergents
1
Toothpaste
2
Soap
3
Deodorant
4
Fruit Juices
5
Lotions
6
Ivory snow
Gleem
Ivory
Secret
Citrus Hill
Wandra
Drift
Crest
Camay
Secure
Sunny Delight
Noxema
Tide
Complete
Lava
Winter Hill
Oil of Ulay
Joy
Denquel
Kirk’s
Texsun
Camay
Cheer
Zest
Lincon
Raintree
Oxydol
Safeguard
Speasfarn
Tropic Tan
Dash
Coast
Cascade
Oil of Ulay
Bainde Soleil
Ivory Liquid
Gain
Dawn
Era
Bold 3
Liquid Tide
Solo
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A company’s product mix has 4 important dimensions; width, length, depth and consistency ,
as shown below.
Product width and Product Depth shown for selected Proctor and Gamble consumer products
Product Line Length
Product Mix Width
Detergents
1
Toothpaste
2
Soap
3
Deodorant
4
Fruit Juices
5
Lotions
6
Ivory snow
Gleem
Ivory
Secret
Citrus Hill
Wandra
Drift
Crest
Camay
Secure
Sunny Delight
Noxema
Tide
Complete
Lava
Winter Hill
Oil of Ulay
Joy
Denquel
Kirk’s
Texsun
Camay
Cheer
Zest
Lincon
Raintree
Oxydol
Safeguard
Speasfarn
Tropic Tan
Dash
Coast
Cascade
Oil of Ulay
Bainde Soleil
Ivory Liquid
Gain
Dawn
Era
Bold 3
Liquid Tide
Solo
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Product width and Product depth shown for selected Proctor & Gamble products.
The length of Proctor & Gamble’s product mix refers to the total number of items the
company carries, which is 42. The average length of a line can be computed by dividing
42 by the number of lines which is 6, giving an average of 7 brands per line.
The depth or numbers of versions offered for each brand in the line can be counted.
Crest toothpaste, for example, used to come in 3 sizes and 2 formulations (paste and
gel) giving a depth of 6.
The consistency of the mix refers to how closely related the various product lives are in
end use, productions requirements, distribution channels etc. Proctor & Gamble lines are
consistent in that they are all consumer goods and sell through the same channels.
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INNOVATION AND NEW
PRODUCT DEVELOPMENT
With changing customer needs, technologies and competition, product innovation or the
development of new products has become vital to a company’s survival.
However, introducing new products is not enough. The firm must know how to manage the
new product as it goes through it’s life cycle . By new products we mean original products,
product improvements, product modifications and new brands.
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Why do Products fail?
Many products do fail despite the enormous sums of money being spent on them.
Consider the Millennium Dome (Government), Concorde (Anglo/French), Pejr personal
computer (IBM), Betamax video recorder (Sony), EuroDisney (Walt Disney Corp), the C5
electric car (Clive Sinclair) – they all failed to meet target returns on investment and
joined the ranks of new-product failure
There are several reasons for failure;
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Market size overestimated
Poor design
No real USP
Incorrectly positioned
Development costs too high
The question is – How do you develop and grow new products?
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New Product Development Process (NPD)
The NPD process for finding and growing new products consists of 8 steps
Idea generation
No. of Product Ideas
Idea screening
Concept development
Marketing strategy
Business analysis
Product development
Test market
Commercialisation
New Product Development Steps
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Idea Generation – of 100 ideas generated 8 may make it to market, but only 1 will probably
meet its business objectives. To obtain a flow of new product ideas, the company can turn to
its employees, customers, competitors, distributors and suppliers.
Idea Screening – the purpose of the following stages is to reduce the number of ideas to
a manageable flow which deserves attention. The first of these stages is to rate the ideas
based around a series of factors the company believe are important to warrant further
work. Idea screening is a quickmanagement approach to filter out only the really good ideas
that meet the above.
Concept testing – here the ideas are tested on a group of target consumers. Word or
picture descriptions of the new product are provided but modern computer graphics have
allowed for a virtual reality or visual effects to be presented for consumers to say whether
they would buy or not.
Market Strategy Development – this stage calls for marketing strategy to be developed for
the new product concept. This involves describing the target market, the planned positioning
of the product and setting the sales, market share and profit goals for the first couple of
years.
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Business Analysis – here the marketing strategy is reviewed in terms of the product
sales, costs and profit projections to see if they fit with the company's objectives.
Product Development – so far the product has only existed as a concept, a
description, or drawing etc. Once the business analysis test is passed, it moves into
product development. The Research and Design department will attempt to develop an
actual prototype.
Test Marketing – once the product has been developed and functionally tested and
approved, the next step is test marketing. This stage is about testing the marketing of
the product prior to full introduction or launch. It involves testing the entire marketing
programme from – positioning strategy, advertising, distribution, pricing, branding and
packaging and budget levels – in real market situations.
Commercialisation – test marketing gives marketers the information needed to make
a final decision about whether to launch the new product. This forms the beginning oe
introduction of a product’s life cycle.
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THE PRODUCT LIFE CYCLE
CONCEPT
Central to the planning process will be decisions which have to be taken about the
portfolio of products on offer. Answers to questions such as;
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When shall we launch product A?
What would we realistically expect the performance of each of our products to be?
Which products will require support?
Which products can we develop further?
Which products should we harvest and/or let go?
There are a number of analytical tools to aid us in answering these questions – the one
we are concerned with here is called the product life cycle.
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The Classic life-cycle
Markets are in a constant state of change. Over a period of time tastes and fashions alter
and the technology used to produce goods and services moves on. As a result demand
for products will change over time as new products are launched offering improved
solutions and old products become redundant.
NB:
Which of the following (if any) have you seen recently?
Black and white television
Instamatic camera
Radiogram
Twin-tub washing machine
Record player
VW Beetle
The life cycle recognises that products, like humans in the main, have a finite market life
which can be chartered by plotting its sales (or profits) over time.. The sales performance
of any product introduced will rise from 0, reach a peak and then at some stage, often
following the launch of a newer/better product, start to decline as shown over;
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Introduction
Growth
Maturing
Decline
Sales
£
Sales
Time
The Class Life Cycle
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Profit
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Introduction – At this stage sales are low because of limited awareness and acceptance
of the product
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Growth –
Sales are rising more quickly. The objective is to further develop products
for other market segments in order to prolong the growth in sales.
Towards the end of this phase, competitors enter the market which reduces
the rate of growth.
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Maturity –
Sales are at the highest levels and most potential market segments have
been reached. Competition is at its fiercest as more firms enter the market
and restrict sales growth. However, there is plenty of scope for repeat
purchases, but markets are saturated.
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Decline –
sales begin to fall away as the product becomes old and is replaced by a
new or improved products entering the market.
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Injecting Life into the Product Life Cycle
The product life cycle of a product can last for a few months or for many years. To prolong
the life cycle of a brand or product, an organisation may inject into the growth period by
readjusting the marketing mix; as shown below.
Maturity
Growth
Growth
Growth
Sales
Growth
£
Injection of
new life
Introduction
Time
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Injections of new life using the marketing mix may involve;
 Change of modify the product to keep ahead of the competition and appeal to
different market segments. For example, in 2000 Mars decided to change the ingredients
of the Mars bar as well as the shape of the bar. In 2002, Ford brought out the mini Jaguar
to attract a more different sector of the business market.
 Alter distribution patterns to make the product more readily available to consumers.
This year (2005), Thorntons confectionary have launched a new chocolate bar sold
throughout supermarkets.
 Change the prices to reflect competitive activity. For example PC home computers
today are less then 1/3rd of what they cost 4 years ago.
 Develop promotional campaigns. For example, the Guinness beer campaigns have
helped to extend the life of the Guinness brand by updating and repositioning of the
brand.
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Product Portfolios
Businesses with a single product are always vulnerable to changes in the marketplace.
Most companies will seek to spread their investment across a range of products in
order to reduce its risks.
By using the life cycle concept, companies can plan to introduce new lines as old
products go into decline. A collection of products that a company produces is know as a
portfolio. It also helps them to recognise that products at different stages in their life
cycle will generate more or less sales and profits.
It is important therefore for the company to have a balanced portfolio of products at
different life cycle phases. This in turn should help them avoid serious fluctuations in
overall profit levels, while ensuring that the most profitable products provide support for
those which have yet to fully develop.
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Balanced Portfolio of Products
Sales
Product 3 Maturity
£
Product 2 Growth
Product 1 Decline
Product 4 Introduction
Time
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Different stages in International Development
In International marketing it is important to be aware that different countries are
at different stages of economic/technological and sociological development.
As such, some countries may require more advanced technological product
solutions where others will not. The phase a product may occupy in one
country can be different in another country.
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PRODUCT SERVICES
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Introduction - One of the chief trends in the western economies over the last 3
decades has been the dramatic growth in services. It is estimated
that in Japan, USA and Europe upwards of 70-75% of economic
national output is based on services. Internationally, services
account for roughly ¼ of the value if total world exports.
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Definition -
‘A service is any activity or benefit that one party can offer to another
which is essentially intangible and does not result in ownership of
anything.’
Examples are many and can include; renting a hotel room, ordering a meal, putting
money in a bank, a plane journey, visiting a doctor, having your car repaired, your hair
cut or listening to a lecture, etc, etc, etc.
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Service Characteristics
There are five main characteristics to consider when designing marketing programmes
for services.
1.
Intangibility – Services cannot be readily displayed so they cannot be
seen/tasted/felt before they are bought. This raises uncertainty with the buyer as
to what they can expect to receive. To reduce uncertainty buyers look for ‘signals’
of service quality from the place, people, equipment, communication material and
price that they can see. The trick therefore is to make the service more tangible.
( eg produce holiday brochures, offer warranty cards, produce a nice environment,
hand out notes to accompany a lesson.)
2.
Inseparability – Physical goods are produced, then stored, later sold and still later
consumed. In contrast, services are first sold, then produced and consumed at the
same time and in the same place. A lesson delivered by a tutor is consumed by
the student in the same classroom at the same time it is produced. The lesson
cannot be produced without the students so, provider-customer interaction is a
special feature of a service. In addition, service customers at a concert, on a train,
in a classroom can affect the satisfaction that their service delivers to the individual
customer.
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3.
Variability - As services involve people in production and consumption, there is
considerable potential for variability. Service variability means the quality of the
services depends on who provides them and when and how they are provided. As
such, it is very difficult to control. For example, some hotels, airlines, restaurants
etc have reputations for providing better service than others. Service organisations
need therefore to invest in;
(a) selecting and training their personnel
(b) motivate staff to emphasise quality
(c) make service employees more visible and accountable to consumers
(d) substitute equipment for staff whenever appropriate
(eg vending machines, ATMs)
4.
Perishability – service perishability means services cannot be stored for later sale
or use. Perishability is less of a problem when demand is steady. However when
demand fluctuates, operational difficulties can arise. Companies will often use
differential pricing to help manage demand for off-peak and peak periods of
demand.
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5.
Lack of ownership – when you buy a physical good such as a car or computer
you own it and have unlimited access to it – and ultimately you can sell or dispose
of it. In contrast, you cannot own a service – you can have access but only for a
limited period. Because of lack of ownership, service providers must make special
effort to reinforce the brand identity and affinity with the consumer by;
(a) offering inducements such as British Airways frequent flyer schemes
(b) create membership clubs or associations to give an impression of ownership
( eg IKEA family club membership)
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