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Chapter 8
Product and Services Strategy
8-1
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
8-2
What is a Service?
A SERVICE is a form of product that consist of
activities, benefits, or satisfactions offered for sale
that are essentially intangible and do not result in
the ownership of anything.
Examples include:
Banking
Hotels
Tax preparation
Home repair services
8-3
Products, Services, and Experiences
Tangible Good
Pure
With
Tangible Accompanying
Good
Services
Soap
Hybrid
Offer
Service
With
Accompanying
Minor Goods
Pure
Service
Auto With
Airline Trip
Accompanying Restaurant
With
Doctor’s
Repair
Accompanying Exam
Services
Snacks
8-4
Levels of Product (Fig. 8-1)
8-5
Product Attributes
Developing a Product or Service Involves Defining
the Benefits that it Will Offer Such as:
Product Quality
Ability of a Product to Perform Its
Functions; Includes Level &
Consistency
Product Features
Differentiates the Product from
Competitors’ Products
Product Style
& Design
Process of Designing a Product’s
Style & Usefulness
8-6
Branding
Advantages to
Branding
Buyers:
• Identification
• Quality and value
Sellers
• Tells a story
• Provides legal protection
• Helps segments markets
Brand Equity
Higher brand loyalty
Name awareness
Perceived quality
Strong brand
associations
Patents, trademarks,
channel relationships
8-7
Brand Strategy
Line Extension
Existing brand names extended to new forms, sizes,
and flavors of an existing product category.
Brand Extension
Existing brand names extended to new or modified
product categories.
Multibrands
New brand names introduced in the same product
category.
New Brands
New brand names in new product categories.
8-8
Packaging
Designing and producing
the container or wrapper
for a product.
Steps in developing a good
package:
Packaging concept,
Develop specific elements of
the package,
Elements must support
product’s position and
marketing strategy.
8-9
Labeling
Printed information
appearing on or with the
package.
Performs several
functions:
Identifies product or brand
Describes several things
about the product
Promotes the product
through attractive graphics
8-10
Product Support Services
Companies use product support services as a major
tool in gaining competitive advantage.
How?
Step 1. Survey customers to assess the value of
current services and to obtain ideas for new
services.
Step 2. Assess costs of providing desired services.
Step 3. Develop a package of services to delight
customers and yield profits to the company.
8-11
Marketing Strategies for Service
Firms
Managing Service
Differentiation
Develop differentiated offer,
delivery, and image.
Managing Service Quality
Empower front-line
employees,
Become “Customer obsessed,”
Set high service quality
standards,
Watch service performance
closely.
Managing Service
Productivity
Train current or new
employees better,
Work on quality as
well as quantity,
Utilize technology
Well-designed Web
site
8-12
Chapter 9
New-Product Development and
Product Life-Cycle Strategies
8-13
New-Product Development
Strategy
Strategies for Obtaining New-Product Ideas
Acquired
Companies
Original
Products
Acquired
Patents
Product
Improvements
Acquired
Licenses
Product
Modifications
New
Brands
8-14
Causes of New-Product Failures
One study estimated that as many as 80% of new
consumer packaged products fail.
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.
8-15
Improving New-Product Success
New-product success
depends on having a:
Unique superior product
(one with higher
quality, features, and
value in use), and a
Well-defined product
concept (a defined
target market, product
requirements, and
benefits).
To create successful
new products, the
company must:
understand its
consumers, markets,
and competitors, and
develop products
that deliver superior
value to customers.
8-16
New Product Development Process
Step 1. Idea Generation
Systematic Search for New Product Ideas
Obtained From Employees and Also From:
Customers
Competitors
Distributors
Suppliers
8-17
New Product Development Process
Step 2. Idea Screening
Helps spot good ideas and drop poor ones as
soon as possible.
Many companies have systems for rating and
screening ideas which estimate:
Market Size
Product Price
Development Time & Costs
Manufacturing Costs
Rate of Return
Then, the idea is evaluated against a set of
general company criteria.
8-18
New Product Development Process
Step 3. Concept Development
1. Develop New Product Ideas
into Alternative Detailed
Product Concepts
2. Concept Testing - Test the
New-Product Concepts with
Groups of Target Customers
Product Image is the
Way Consumers
Perceive an Actual or
Potential Product
3. Choose the One That Has the
Strongest Appeal to Target
Customers
8-19
DaimlerChrysler’s Electric Car
The company’s task is
to develop its fuel-cell
powered electric car
into alternative
product concepts, find
out how attractive
each is to customers,
and choose the best
one.
8-20
Step 5. Business Analysis
Step 6. Product Development
Business Analysis
Review of Product Sales, Costs, and Profits
Projections to See if They Satisfy Company Objectives
If No, Eliminate
Product Concept
If Yes, Move to
Product Development
8-21
New Product Development Process
Step 7. Test Marketing
Product and
marketing program
are introduced into
more realistic
market settings.
Can be very
expensive and time
consuming.
Test the following:
Positioning strategy,
Advertising,
Distribution,
Pricing,
Branding,
Packaging,
Budget levels.
8-22
New Product Development Process
Step 8. Commercialization
Introducing the New Product into the
Market
When is the
Right Time to
Introduce
Product?
Where to
Launch a
New
Product?
8-23
Product Life Cycle (Fig. 9-2)
Sales and
Profits ($)
Sales
Profits
Time
Product
Development
Introduction
Growth
Maturity
Decline
Losses/
Investments ($)
Sales and Profits Over the Product’s Life From Inception to
Demise
8-24
Chapter 10
Pricing Products:
Pricing Considerations and Strategies
8-25
Factors Affecting Price Decisions
(Fig. 10-1)
8-26
Types of Cost Factors that
Affect Pricing Decisions
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels
Executive Salaries, Rent
Variable Costs
Costs that do vary
directly with the
level of production
Raw materials
Total Costs
Sum of the Fixed and Variable Costs for Any Given
Level of Production
8-27
External Factors Affecting Pricing
Decisions
Market and
Demand
Competitors’ Costs,
Prices, and Offers
Other External Factors
Economic Conditions
Reseller Reactions
Government Actions
Social Concerns
8-28
Demand Curve (Fig. 10-2)
8-29
Price
Price Elasticity of Demand
A. Inelastic Demand Demand Hardly Changes With
a Small Change in Price.
P2
P1
Price
Q2 Q1
Quantity Demanded per Period
B. Elastic Demand Demand Changes Greatly With
a Small Change in Price.
P’
2
P’1
Q2
Q1
Quantity Demanded per Period
8-30
Major Considerations in Setting
Price (Fig. 10-3)
8-31
Cost-Based Pricing
Certainty About
Costs
Price Competition
Is Minimized
Fairer to Buyers
& Sellers
Unexpected
Situational
Factors
Pricing is
Simplified
Cost-Plus
Ethical
Pricing is an
Approach That
Adds a
Standard
Markup
to the
Attitudes
Costofof the
Others
Product
Simplest
Pricing
Method
Ignores
Current
Demand &
Competition
8-32
Breakeven Analysis or Target Profit
Pricing (Fig. 10-4)
Cost in Dollars (millions)
Tries to Determine the Price at Which a Firm
Will Break Even or Make a Certain Target Profit.
Total Revenue
12
10
Target Profit
($2 million)
8
6
Total Cost
4
Fixed Cost
2
200
400
600
800
1,000
Sales Volume in Units (thousands)
8-33
Competition-Based Pricing
Methods for
Setting Prices
Going-Rate
Company Sets Prices Based on What
Competitors Are Charging
Sealed-Bid
? Company Sets Prices Based on
What They Think Competitors
?
Will Charge
8-34
New-Product Pricing Strategies
Market-Skimming
 Setting a High Price for
a New Product to
“Skim” Maximum
Revenues from the
Target Market.
 Results in Fewer, But
More Profitable Sales.
 I.e. Intel
Use Under These
Conditions:
Product’s Quality and
Image Must Support Its
Higher Price.
Costs Can’t be so High that
They Cancel the Advantage
of Charging More.
Competitors Shouldn’t be
Able to Enter Market Easily
and Undercut the High
Price.
8-35
New-Product Pricing Strategies
Use Under These
Conditions:
Market Must be Highly
Price-Sensitive so a Low
Price Produces More
Market Growth.
Production/Distribution
Costs Must Fall as Sales
Volume Increases.
Must Keep Out Competition
& Maintain Its Low Price
Position or Benefits May
Only be Temporary.
Market Penetration
 Setting a Low Price for
a New Product in Order
to “Penetrate” the
Market Quickly and
Deeply.
 Attract a Large Number
of Buyers and Win a
Larger Market Share.
 I.e. Dell
8-36
Product Mix-Pricing Strategies:
Product Line Pricing
Involves setting price
steps between various
products in a product
line based on:
Cost differences between
products,
Customer evaluations of
different features, and
Competitors’ prices.
8-37
Product Mix-Pricing Strategies
Optional-Product
Pricing optional or
accessory products sold
with the main product.
i.e camera bag.
Captive-Product
Pricing products that
must be used with the
main product. i.e. film.
8-38
Product Mix-Pricing Strategies
By-Product
Pricing low-value
by-products to
get rid of them
and make the
main product’s
price more
competitive.
I.e. sawdust,
Zoo Doo
ProductBundling
Combining
several products
and offering the
bundle at a
reduced price.
I.e. theater
season tickets.
8-39
Discount and Allowance Pricing
Adjusting Basic Price to Reward Customers
For Certain Responses
Cash Discount
Seasonal Discount
Quantity Discount
Trade-In Allowance
Functional Discount
Promotional Allowance
8-40
Segmented Pricing
Selling Products At 2 or More Prices Even
Though There is No Difference in Cost
Customer - Segment
Location Pricing
Product - Form
Time Pricing
8-41
Psychological Pricing
Considers the psychology of
prices and not simply the
economics.
Customers use price less
when they can judge quality
of a product.
Price becomes an important
quality signal when
customers can’t judge
quality; price is used to say
something about a product.
8-42
Promotional Pricing
Loss Leaders
Temporarily Pricing
Products Below List
Price Through:
Special-Event Pricing
Cash Rebates
Low-Interest Financing
Longer Warranties
Free Maintenance
Discounts
8-43
Other Price Adjustment
Strategies
Geographical Pricing
International Pricing
•Pricing products for customers
located in different parts of
the country or world.
• i.e. FOB-Origin, UniformDelivered, Zone, BasingPoint, & Freight-Absorption.
• Adjusting prices for customers
in different counties.
• Price Depends on Costs,
Consumers, Economic
Conditions, Competitive
Situations, & Other Factors.
8-44
Initiating Price Changes
Why?
Why?
Excess Capacity
Cost Inflation
Falling Market Share
Overdemand:
Company Can’t
Supply All Customers’
Needs
Dominate Market
Through Lower Costs
8-45
Chapter 11
Marketing Channels and Supply
Chain Management
8-46
What is a Distribution Channel?
Set of interdependent organizations
involved in the process of making a
product or service available for use or
consumption by the consumer or
business user.
8-47
Why are Marketing Intermediaries
Used?
The use of intermediaries results from their
greater efficiency in making goods available to
target markets.
Offers the firm more than it can achieve on its
own through the intermediaries:
Contacts,
Experience,
Specialization,
Scale of operation.
Purpose: match supply from producers to demand
from consumers.
8-48
Number of Channel Levels (Fig.
11-2)
8-49
Channel Behavior & Organization
The channel will be most effective when:
each member is assigned tasks it can do best.
all members cooperate to attain overall channel goals
and satisfy the target market.
When this doesn’t happen, conflict occurs:
Horizontal Conflict occurs among firms at the same
level of the channel, i.e retailer to retailer.
Vertical Conflict occurs between different levels of the
same channel, i.e. wholesaler to retailer.
Each channel member’s role must be specified
and conflict must be managed.
8-50
Conventional Distribution Channel
Vs. a Vertical Marketing System
(Fig. 11-3)
8-51
Innovations in Marketing Systems
Horizontal Marketing
System
Hybrid Marketing
System
Two or More Companies
at One Channel Level
Join Together to Follow
a New Marketing
Opportunity.
A Single Firm Sets Up
Two or More Marketing
Channels to Reach
One or More Customer
Segments.
Example:
Example:
Banks in Grocery Stores
Retailers, Catalogs,
and Sales Force
8-52
Changing Channel Organization
A Major Trend is Toward
Disintermediation Which Means that
Product and Service Producers are
Bypassing Intermediaries and Going
Directly to Final Buyers or That New
Types of Channel Intermediaries are
Emerging to Displace Traditional
Ones.
8-53
Number of Marketing
Intermediaries
Intensive
Distribution
Selective
Distribution
Exclusive
Distribution
8-54
Chapter 12
Retailing and Wholesaling
8-55
What is Retailing?
Includes all
the Activities
Involved in Selling
Goods or Services
Directly to Final
Consumers for Their
Personal,
Nonbusiness Use.
8-56
Retailing
Retailing can be done in
stores (store retailing)
or out of a store
(nonstore retailing) such
as:
Direct mail,
Catalogs,
Telephone,
Home shopping shows,
Internet.
8-57
Classification of Retailing:
Amount of Service
Limited-Service
Self-Service
Retailers
Retailers
Provide Only a Limited
Provide Few or No
Number of Services
Services to
to Shoppers
Shoppers
Full-Service
i.e. Sears
i.e. Best Buy
Retailers
Retailers that Provide a
Full Range of Services
to Shoppers
i.e. Neiman Marcus
8-58
Classification of Retailing:
Product Line (Tab. 12-1)
Store
Specialty Stores
Department Stores
Supermarkets
Convenience Stores
Superstores
Discount Stores
Off-Price Retailers
Description
Narrow Product Line, Deep Assortment i.e.
The Limited or Athlete’s Foot
Wide Variety of Product Lines i.e. Clothing,
Home Furnishings i.e. Saks Fifth Avenue
Wide Variety of Food, Laundry, & Household
Products i.e. Kroger
Limited Line of High-Turnover Convenience
Goods i.e. 7-Eleven
Large Assortment of Routinely Purchased
Food, Nonfood Products i.e. Target
Standard Merchandise at Lower Prices
i.e. Wal-Mart
Changing Collection of Higher-Quality
Goods at a Reduced Price i.e. T.J. Maxx
8-59
Product Assortment and
Services Decisions
Product Assortment
• Brand of Merchandise
• Merchandising Events
• Product Differentiation Strategies
Services Mix
Key Tool of Nonprice Competition
for Setting One Store Apart From
Another
Store’s Atmosphere
• Physical Layout
• “Feel” That Suits the Target Market
and Moves Customers to Buy
8-60
Retailer’s Price, Promotion, and
Place Decisions
Price
Decisions
Target
Market,
Product &
Service
Assortment,
Competition
Promotion
Decisions
Using
Advertising,
Personal Selling,
Sales Promotion,
Public Relations,
& Direct
Marketing to
Reach Customers
Place
Decisions
Shopping
Centers, Central
Business
Districts, Power
Centers, or
Online
Shopping
8-61
What is Wholesaling?
Includes all
the activities Involved
in Selling Goods and
Services to Those
Buying for Resale or
Business Use.
8-62