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
Q U A L I T Y “… 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
Augmented Product Levels of Product Installation Packaging Features Brand Name Delivery & Credit After- Sale Service Core Benefit or Service Quality Level Design Warranty Core Product Actual 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
Shopping Products • Buy less frequently • Higher price • Fewer purchase locations • Comparison shop • i.e Clothing, cars, appliances • Convenience Products • Buy frequently & immediately • Low priced • Mass advertising • Many purchase locations • i.e Candy, newspapers • Unsought Products • New innovations • Consumers don’t want to think about • Require much advertising & personal selling • i.e Life insurance, blood donation • Specialty Products • Special purchase efforts • High price • Unique characteristics • Brand identification • Few purchase locations • i.e Mercedes, Rolex Product Classifications Consumer Products
Different Classes • Convenience goods and services • things consumer wants to buy frequently • minimum effort, low risk • small amount of money, not much timethree types1. Staples - bought routinely2. Impulse products - unplanned purchases3. 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 samesimply pick the lowest priceeg. 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.
Terms Product Line • 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 • The assortment of product lines and individual offerings available from a company. • the combination of product lines offered by the manufacturer Product Mix
Product Life Cycle (PLC) Sales and Profits (Rs) Sales Profits Time Product Develop- ment 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 High Low ? • Stars • High growth & share • Profit potential • May need heavy • investment to grow • Question Marks • High growth, low share • Build into Stars or phase out • Require cash to hold • market share Market Growth Rate Low High • Dogs • Low growth & share • Low profit potential • Cash Cows • Low growth, high share • Established, successful • SBU’s • Produce cash
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 Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies
Growth Stage of the PLC 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 Summaryof Characteristics, Objectives, & Strategies
Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Peak sales Costs Low cost per customer Profits High profits, then lower profits Maximize profits while defending market share Marketing Objectives Product Diversify brand and models Price Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits
Maturity Stage of the PLC Modifiying the Market Company tries to increase consumption of the current product. Modifying the Product Changing characteristics such as quality, features, or styles to attract new users. Modifying the Marketing Mix Company tries to improve sales by changing one or more marketing mix elements.
Sales Declining sales Costs Low cost per customer Profits Declining profits Marketing Objectives Reduce expenditure and maintain, reposition, harvest or drop the product Product Phase out weak items Price Cut price Distribution Go selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard-core loyal customers Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies
Extending the Product Life Cycle 1. Increase frequency of use by present customers 2. Add new users 3. Find new uses 4. Change product quality or packaging Market Modification Product Modification 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 workand 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 • Quality • Features • Brand name • Guarantees/warranties • Services/spare parts • Place • Numbersand types of middlemen • Locations/availability • Inventory levels • Transportation • Style • Options • Packaging The target market • Price • Discounts • Allowances • Credit terms • Payment period • Rental/lease • List price • Promotion • 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 infra-structure 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 toAdd 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 • Consumerexperiences 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.
Advantages of branding: Facilitates order processing Trademark protection Aids in segmentation Enhances corporate image Branded goods are desired by retailers and distributors Brand Decisions
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 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). Wholesaler B2B Retailer 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. B2C 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 Selling- • Advertising • 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.