Product What the Customer Wants What is a Product? “ … the need satisfying offering of a firm...

ProductProduct

What the Customer Wants

What is a Product?What is a Product?

“ … “ … the need satisfying offering of a firm …”the need satisfying offering of a firm …”

TranslationTranslation

what you buy, that satisfies what you want to what you buy, that satisfies what you want to be able to dobe able to do

What is a Product?What is a Product? what you buy, that satisfies what you want to what you buy, that satisfies what you want to

be able to dobe able to do it can be “good feeling” cause you bought it can be “good feeling” cause you bought

some cosmetics and someone said you some cosmetics and someone said you looked prettylooked pretty

it could be a happy stomach cause you it could be a happy stomach cause you bought a meal that tasted greatbought a meal that tasted great

it could be easier homework cause you it could be easier homework cause you bought new software for your computerbought new software for your computer

Customers Buy Benefits, Not ProductsCustomers Buy Benefits, Not Products

NeedNeed

Benefits soughtBenefits sought

Choice criteriaChoice criteria

Product/service featuresProduct/service features

Brand/supplier chosenBrand/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”

GoodsGoods - things you can touch - “tangible”

ServicesServices - things you can’t touch - but you can see their effect “intangible”“… services are not physical, they are intangible…”

ServiceServiceAny activity or benefit that one party can offer to Any activity or benefit that one party can offer to another that is essentially intangible and does not another that is essentially intangible and does not result in ownership of anything.result in ownership of anything.

What is a Product? A ProductProduct 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

BrandName

QualityLevel

Packaging

Design

Features

Delivery& Credit

Installation

Warranty

After-Sale

Service

CoreBenefit orService

CoreBenefit orService

Actual ProductActual Product Core ProductCore Product

Augmented ProductAugmented Product

Levels of ProductProducts can be viewed at three satisfaction levels - formal, core and augmented product levels:

Actual - quality, features, styling, brand and packagingCore - utility or benefit (key to selling)Augmented - totality of product; warranty, maintenance, focuses on buyer’s total consumption system

Unsought Products New innovations Consumers don’t want to think about Require much advertising & personal selling i.e Life insurance, blood donation

Product Classifications Consumer Products

Specialty Products Special purchase efforts High price Unique characteristics Brand identification Few purchase locations i.e Mercedes, Rolex

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

Different ClassesDifferent Classes

ConvenienceConvenience goods and services goods and services things consumer wants to buy frequentlythings consumer wants to buy frequentlyminimum effort, low riskminimum effort, low risksmall amount of money, not much timesmall amount of money, not much time

three typesthree types

1. Staples 1. Staples - bought routinely- bought routinely

2. Impulse products2. Impulse products- unplanned purchases- unplanned purchases

3. Emergency products3. Emergency products- bought immediately- bought immediately


ShoppingShopping goods and services goods and services““stuff” people buy after they “shop & stuff” people buy after they “shop &

compare”compare”they have the time to compare pricesthey have the time to compare pricesHomogenous - stuff that is the sameHomogenous - stuff that is the same

simply pick the lowest pricesimply pick the lowest priceeg. Condensed milk, eg. Condensed milk,

Heterogeneous - stuff that is different, Heterogeneous - stuff that is different, so the customer will take time to so the customer will take time to compare features and pricescompare features and prices- “some retailers carry competing - “some retailers carry competing brands”brands”


SpecialitySpeciality goods and services goods and servicesjewellery, special clothingjewellery, special clothingspecial entertainmentspecial entertainment““Willingness to search, not extent of Willingness to search, not extent of

searching, makes it a specialty product”searching, makes it a specialty product”if people are willing to look and look at if people are willing to look and look at

different products, before they commit, it different products, before they commit, it is a specialty itemis a specialty item


UnsoughtUnsoughtthings people don’t want to buy, but things people don’t want to buy, but

have to eg. Auto insurance, funeral planhave to eg. Auto insurance, funeral planthe only way to sell this is to convince the only way to sell this is to convince

people of the benefit because the benefit people of the benefit because the benefit is not easily seen by the average is not easily seen by the average person.person.

Various Classes of Consumer and Industrial Various Classes of Consumer and Industrial GoodsGoods and Servicesand Services

eg . n ewsp ap er

eg . Mac's Milk

Con ven ien ce G ood s

eg . g roceries

eg . cloth in g

Sh op p in g G ood s

C on su m er G ood s

eg . travel

eg . b an kin g

Sp ecialty Services

eg . fast food s

Con ven ien ce Services

C on su m er S ervices

raw m ateria lg ra in , s tee l

eg . w irin gh arn ess

eg . c ircu it b oard

com p on en tp arts

m aterialsn u ts, b olts

P rod u c tion G ood s

In d u s tria l G ood s

accessory eq u ip m en ttools, com p u ters

eg . b u ild in g s

in stallation s

S u p p ort S ervices

In d u s tria l S ervices

Good s an d S ervic es

TermsTerms

A series of related products A series of related products A group of products that are physically similar in performance, A group of products that are physically similar in performance,

use or features and intended for a similar marketuse or features and intended for a similar market

Product Line

Line stretching:Line stretching: adding products that are higher or adding products that are higher or lower priced than the existing linelower priced than the existing lineLine filling:Line filling: adding more items within the present price adding more items within the present price rangerange

Product line width:Product line width:number of different product lines carried by companynumber of different product lines carried by company

Product line depth:Product line depth:Number of different versions of each product in the lineNumber of different versions of each product in the line

TermsTerms

The assortment of product lines and The assortment of product lines and individual offerings available from a individual offerings available from a company. company.

the combination of product lines offered the combination of product lines offered by the manufacturerby the manufacturer

Product Mix

Time

ProductDevelop-

ment

Introduction

Profits

Sales

Growth Maturity Decline

Losses/Investments (Rs)

Sales andProfits (Rs)

Sales and Profits Over the Product’s Life From Inception to Demise

Product Life Cycle (PLC)

Question Marks

• High growth, low share • Build into Stars or phase out • Require cash to hold market share

Question Marks

• High growth, low share • Build into Stars or phase out • Require cash to hold market share

Stars

• High growth & share• Profit potential • May need heavy investment to grow

Cash Cows

• Low growth, high share• Established, successful SBU’s•Produce cash

Cash Cows

• Low growth, high share• Established, successful SBU’s•Produce cash

Dogs

• Low growth & share • Low profit potential

Dogs

• Low growth & share • Low profit potential

Relative Market ShareHigh Low

Mark

et

Gro

wth

Rate

Low

H

igh

Boston Consulting Group (BCG) Approach

?

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Low sales Low sales

High cost per customerHigh cost per customer

Negative or lowNegative or low

Create product awareness and trialCreate product awareness and trial

Offer a basic productOffer a basic product

Usually is high; use cost-plus formulaUsually is high; use cost-plus formula

DistributionDistribution High distribution expensesHigh distribution expenses

AdvertisingAdvertising Build product awareness among early adopters and dealers

Build product awareness among early adopters and dealers

Summary of Characteristics, Objectives, & Strategies

Introduction Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Rapidly rising sales Rapidly rising sales

Average cost per customerAverage cost per customer

Rising profitsRising profits

Maximize market shareMaximize market share

Offer new product features, extensions, service, and warranty

Offer new product features, extensions, service, and warranty

Price to penetrate marketPrice to penetrate market

DistributionDistribution Increase number of distribution outletsIncrease number of distribution outlets

AdvertisingAdvertising Build awareness and interest in the mass market

Build awareness and interest in the mass market


Growth Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Peak salesPeak sales

Low cost per customerLow cost per customer

High profits, then lower profitsHigh profits, then lower profits

Maximize profits while defending market share

Maximize profits while defending market share

Diversify brand and modelsDiversify brand and models

Price to match or best competitorsPrice to match or best competitors

DistributionDistribution Build more intensive distributionBuild more intensive distribution

AdvertisingAdvertising Stress brand differences and benefits

Stress brand differences and benefits


Maturity Stage of the PLC

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.

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Declining salesDeclining sales

Low cost per customerLow cost per customer

Declining profitsDeclining profitsReduce expenditure and maintain,

reposition, harvest or drop the product

Reduce expenditure and maintain, reposition, harvest or drop the

productPhase out weak itemsPhase out weak items

Cut priceCut price

DistributionDistribution Go selective: phase out unprofitable outlets

Go selective: phase out unprofitable outlets

AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers

Reduce to level needed to retain hard-core loyal customers


Decline Stage of the PLC

1. Increase frequency of use by present customers

2. Add new users

3. Find new uses

4. Change product quality or packaging

Extending the Product Life Cycle

Market Modification

Product Modification

Purpose: to sell more product and cover original investment

Idea -Idea - 38% of new product ideas come from looking at 38% of new product ideas come from looking at competitorscompetitors- one of the best ways is to listen to employee new ideas- one of the best ways is to listen to employee new ideas

Screening Screening - purpose is to “screen” out the bad ideas and - purpose is to “screen” out the bad ideas and focus on the good ideas that might workfocus on the good ideas that might work and and AnalysisAnalysis - is making the cost estimates and sales - is making the cost estimates and sales forecasts to estimate profitabilityforecasts to estimate profitability

DevelopmentDevelopment - concept testing for totally new products (ie. - concept testing for totally new products (ie. holographic maps)holographic maps) Testing Testing - taking the prototypes to a sample group of - taking the prototypes to a sample group of consumers and watch their reactionsconsumers and watch their reactions

CommercializationCommercialization - promoting the product and developing - promoting the product and developing advertising and sales campaignsadvertising and sales campaigns

Major Stages in New-Product Development

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?”5. What is a “market?”

A market is A market is – individuals and organizationsindividuals and organizations– interested and willing to buy a particular productinterested and willing to buy a particular product– have the resources to engage in the transactionhave the resources to engage in the transaction

Markets are seldom homogenousMarkets are seldom homogenous– they are fragmented, segmented, disorderlythey are fragmented, segmented, disorderly

Market segmentationMarket segmentation

Some markets are sufficiently homogenous that Some markets are sufficiently homogenous that segmentation is not necessary.segmentation is not necessary.

Most markets are defined by specific characteristics Most markets are defined by specific characteristics defining the consumer.defining the consumer.

Decisions Within the Four Elements of the Marketing MixDecisions Within the Four Elements of the Marketing Mix

ProductProduct• Quality• Features• Brand name• Guarantees/warranties• Services/spare parts

PlacePlace• Numbers and types of

middlemen• Locations/availability• Inventory levels• Transportation

The target marketThe target market

• Style• Options• Packaging

PricePrice• Discounts• Allowances• Credit terms• Payment period• Rental/lease• List price

PromotionPromotion• 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.

PositioningPositioning

Positioning:Positioning:– The place the product occupies in consumers’ The place the product occupies in consumers’

minds relative to competing products.minds relative to competing products.– Typically defined by consumers on the basis of Typically defined by consumers on the basis of

important attributes.important attributes.

Levels of POSITIONINGLevels of POSITIONING There are 3 levels of product positioning:There are 3 levels of product positioning: Core productCore product is short-term positioning and typically works is short-term positioning and typically works

for a year or less - companies focus on the tangibles: for a year or less - companies focus on the tangibles: price, quality, and technical specificationsprice, quality, and technical specifications

Extended productExtended product - firms create the necessary infra- - firms create the necessary infra-structure to develop strong relationships with channel structure to develop strong relationships with channel members, suppliers, and customers; strategy tends to members, suppliers, and customers; strategy tends to last in the intermediate term, 1 to 5 yearslast in the intermediate term, 1 to 5 years

Total ProductTotal Product - companies have clearly identified who the - companies have clearly identified who the company is and what they stand for. Firms have company is and what they stand for. Firms have garnered a long term position - lasts more than 5 years garnered a long term position - lasts more than 5 years (they have won the market’s respect)(they have won the market’s respect)

PositioningPositioningChoosing a Positioning Strategy:Choosing a Positioning Strategy:

–Identifying possible competitive advantagesIdentifying possible competitive advantagesProducts, services, channels, people or image can be sources of differentiation.Products, services, channels, people or image can be sources of differentiation.

–Choosing the right competitive advantageChoosing the right competitive advantageHow many differences to promote?How many differences to promote?

– Unique selling propositionUnique selling proposition– Positioning errors to avoidPositioning errors to avoid

Which differences to promote?Which differences to promote?

Criteria for Meaningful DifferencesCriteria for Meaningful DifferencesImportantImportantSuperiorSuperiorPreemptivePreemptiveDistinctiveDistinctiveCommunicableCommunicableAffordableAffordableProfitableProfitable

PositioningPositioning Choosing a Positioning Strategy:Choosing a Positioning Strategy:

– Selecting an overall positioning strategySelecting an overall positioning strategy More for More Value PropositionMore for More Value Proposition More for the Same Value PropositionMore for the Same Value Proposition The Same for Less Value PropositionThe Same for Less Value Proposition Less for Much Less Value PropositionLess for Much Less Value Proposition More for Less Value PropositionMore for Less Value Proposition

– Developing a positioning statementDeveloping a positioning statement Positioning statements summarize the company or Positioning statements summarize the company or

brand positioningbrand positioning EXAMPLE: To (target segment and need) our (brand) EXAMPLE: To (target segment and need) our (brand)

is (concept) that (point-of-difference).is (concept) that (point-of-difference).– Communicating the chosen positionCommunicating the chosen position

How toHow to AAdd dd VValue to Productsalue to ProductsCompanies must constantly search for new ways to add value to Companies must constantly search for new ways to add value to

distance themselves from their rivalsdistance themselves from their rivals

Additional features/benefitsAdditional features/benefits AffordabilityAffordability BrandingBranding Customer involvementCustomer involvement Customization and choiceCustomization and choice Enhanced qualityEnhanced quality Exceptional serviceExceptional service Frequency marketing incentivesFrequency marketing incentives Internet as a value adderInternet as a value adder Simplify or bundle the offeringSimplify or bundle the offering Solve customer problemsSolve customer problems Technological leadershipTechnological leadership WarrantiesWarranties

Brand DecisionsBrand Decisions

The AMA definition of a brand:The AMA definition of a brand:

“ “A name, term, sign, symbol, or design, or a A name, term, sign, symbol, or design, or a combination of these, intended to identify the goods combination of these, intended to identify the goods or services of one seller or group of sellers and to or services of one seller or group of sellers and to differentiate them from the competition.”differentiate them from the competition.”


Brands can convey six levels of meaning:Brands can convey six levels of meaning:– AttributesAttributes– BenefitsBenefits– ValuesValues– CultureCulture– PersonalityPersonality– UserUser


Brand identity decisions include:Brand identity decisions include:– NameName– LogoLogo– ColorsColors– TaglineTagline– SymbolSymbol

ConsumerConsumer experiences experiences create brand bonding, create brand bonding, brand advertising does not.brand advertising does not.


Marketers should attempt to create or facilitate Marketers should attempt to create or facilitate awarenessawareness, , acceptabilityacceptability, , preferencepreference, and , and loyaltyloyalty among consumers. among consumers.

Valuable and powerful brands enjoy high levels Valuable and powerful brands enjoy high levels of brand loyalty.of brand loyalty.


Aaker identified five levels of customer Aaker identified five levels of customer attitudes toward brands:attitudes toward brands:– Will change brands, especially for price. No Will change brands, especially for price. No

brand loyalty.brand loyalty.– Satisfied -- has no reason to change.Satisfied -- has no reason to change.– Satisfied -- switching would incur costs.Satisfied -- switching would incur costs.– Values brand, sees it as a friend.Values brand, sees it as a friend.– Devoted to the brand.Devoted to the brand.


Brand equityBrand equity refers to the positive differential refers to the positive differential effect that a brand name has on customers.effect that a brand name has on customers.

Brand equity: Brand equity: – is related to many factors. is related to many factors. – allows for reduced marketing costs.allows for reduced marketing costs.– is a major contributor to customer equity.is a major contributor to customer equity.


Advantages of branding:Advantages of branding:– Facilitates order processingFacilitates order processing– Trademark protectionTrademark protection– Aids in segmentationAids in segmentation– Enhances corporate imageEnhances corporate image– Branded goods are desired by retailers Branded goods are desired by retailers

and distributorsand distributors

Packaging and LabelingPackaging and Labeling

Packaging includes:Packaging includes:– The primary packageThe primary package– The secondary packageThe secondary package– The shipping packageThe shipping package

Many factors have influenced the increased use of Many factors have influenced the increased use of packaging as a marketing tool.packaging as a marketing tool.


Developing an effective package:Developing an effective package:– Determine the packaging conceptDetermine the packaging concept– Determine key package elementsDetermine key package elements– Testing:Testing:

Engineering testsEngineering tests Visual testsVisual tests Dealer testsDealer tests Consumer testsConsumer tests


Labeling functions:Labeling functions:– Identifies the product or brandIdentifies the product or brand– May identify product gradeMay identify product grade– May describe the productMay describe the product– May promote the productMay promote the product

Legal restrictions impact packaging for many products.Legal restrictions impact packaging for many products.

DistributionDistributionDistribution System – the series of institutions and functionsDistribution System – the series of institutions and functionslinking manufacturers to marketslinking manufacturers to markets Transaction Channel Transaction Channel Physical Distribution (logistics) ChannelPhysical Distribution (logistics) ChannelChannel StructureChannel Structure Number of channelsNumber of channels Number of channel levelsNumber of channel levels Number of middlemen per channel levelNumber of middlemen per channel levelChannel Functions:Channel Functions: ResearchResearch PromotionPromotion Market contact Market contact AssortmentAssortment Physical distributionPhysical distribution Financing & risk takingFinancing & risk taking NegotiationNegotiation Storagetorage

DistributionDistributionPerformance of functions determines compensationPerformance of functions determines compensation MarginsMargins CommissionsCommissions Price ReductionsPrice ReductionsIssues 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 compensationDistribution Intensity Intensive (convenience goods): Mass distribution and Intensive (convenience goods): Mass distribution and

promotionpromotion Selective (shopping goods): Reduced distribution, assortment Selective (shopping goods): Reduced distribution, assortment

breadth, channel cooperationbreadth, channel cooperation Exclusive (specialty goods): Sacrifice market coverage for Exclusive (specialty goods): Sacrifice market coverage for

channel control and prestigechannel control and prestige

ManufacturerManufacturer

RetailerRetailer

WholesalerWholesaler

ConsumerConsumer

Flows

Structure

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 sustainablecompetitive advantage. B2C retailing does not have a dominant competitive advantage over traditional stores.

The manufacturer and wholesaler sellers normally goto 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

B2B

B2C

Channel Structure and Flows

Functions of Retailers & Wholesellers?

Promotion (Marketing Communications)The specific mix of advertising, personal selling, sales The specific mix of advertising, personal selling, sales promotion, and public relations a company uses to pursue promotion, and public relations a company uses to pursue its advertising and marketing objectives.its advertising and marketing objectives.

•Personal Selling – Direct Marketing

•Mass Selling-

Advertising

Publicity

Sales Promotion-•Point-of-purchase advertisingPoint-of-purchase advertising•specialty advertisingspecialty advertising•samplessamples•couponscoupons•premiumspremiums•loyalty points / air milesloyalty points / air miles•rebatesrebates•contestscontests

3 promotional objectives4 Promotional Activities

•Attention•Interest•Desire•Action

AIDA

Push or PullPush strategy:Push strategy: trade promotions and personal selling trade promotions and personal selling

efforts push the product through the distribution channels.efforts push the product through the distribution channels.Pull strategy:Pull strategy: producers use advertising and consumer producers use advertising and consumer

sales promotions to generate strong consumer demand for products.sales promotions to generate strong consumer demand for products.

Adoption ProcessAdoption Process (Diffusion of Innovation) (Diffusion of Innovation)

Relationship between Advertising and the Product Life Cycle

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Product What the Customer Wants What is a Product? “ … the need satisfying offering of a firm...

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