10 Product Branding and Packing Concepts 11 Business Markets and Buying Behavior 12 Developing and Managing Prices 13 Marketing Channels and SupplyChain Management 14 Retailing Direct Marketing and Wholesaling ID: 737558
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Part 4PRODUCT AND PRICE DECISIONSSlide2
10: Product, Branding, and Packing Concepts
11: Business Markets and Buying Behavior
12:
Developing and Managing Prices13: Marketing Channels and Supply-Chain Management14: Retailing, Direct Marketing, and WholesalingSlide3
Chapter 11Developing and Managing Goods and Services Professor Jason
C. H. Chen, Ph.D.
School
of Business AdministrationGonzaga UniversitySpokane, WA 99258chen@jepson.gonzaga.eduSlide4
Understand how companies manage existing products through line extensions and product modificationsDescribe how businesses develop a product idea into a commercial productKnow the importance of product differentiation and the elements that differentiate one product from anotherExplain product positioning and repositioningLearning ObjectivesSlide5
Understand how product deletion is used to improve product mixesUnderstand the characteristics of services and how these characteristics present challenges when developing marketing mixes for service productsBe familiar with organizational structures used for developing and managing productsLearning ObjectivesSlide6
Organizations can benefit by capitalizing on existing productsWeaknesses and gaps can be identified by assessing the composition of the current product mixAnalysis can lead to improvement of the product mix through:Line __________Product ____________Managing Existing Products
extensions
modificationsSlide7
A line extension is development of a product closely related to existing products but designed specifically to meet different customer needs.Less _____ and less _____ than introducing a new
productLine extensions may:Focus on a different market segment
Increase sales within the same market segment
Success of a line extension is enhanced when a:Parent brand has a high-quality brand ______Good fit between the line extension and its parent exists Line ExtensionsimageriskycostlySlide8
A product modification means changing one or more characteristics of a productDiffers from a line extension because the original product ______ from the product lineImproves a firm’s product mix under certain conditionsProduct must be modifiableCustomers must recognize the modificationModification should be consistent with customers’ desires
Product Modifications
dropsSlide9
Changes relating to a product’s dependability and
durability (increase
leg room
in the seating area)
_________ modifications
Changes that affect a product’s versatility, effectiveness, convenience, or safety
(
Bing
search from M/S to make searching more “social”.
___________ modifications
Changes the sensory appeal of a
product (
pros
: product _____________;
cons
: ___________value;
eg
., Louis Vuitton)
Aesthetic modifications
Types of Product Modifications
Quality
Functional
differentiation
subjectiveSlide10
Developing new products enhances product mix and adds depth to a product lineA new product can be:An innovative product that has never been sold by any organizationA modified product that existed previouslyA product a specific company has not marketed previouslyViewed as new when it is brought to one or more markets from another market
Introducing new products can be
expensive
and riskyNew product failures often occur and can create major financial problems for an organizationHowever, _________ to introduce new products is also riskyCompanies can lose market share with failure to innovate and keep up with competitive productsDeveloping New ProductsFailingSlide11
Figure 11.1 - Phases of New-Product DevelopmentNew-product development process is a seven-phase process for introducing productsA product can be viewed as new when it is brought to one or more markets from another market (e.g., Daimler brought its Smart Car to US had been out in Europe for years)
Idea
generationScreeningConcept testingBusiness analysis Product developmentTest marketingCommercialization
Screening
Product development
Idea generation
Concept testing
Business analysis
Test making
CommercializationSlide12
Ideas can come from several sources1. Idea Generation
3M post-it Notes came from an employee – a church choir member, he used slips of paper to mark songs in his hymnal.Slide13
Screening means selecting ideas with greatest potential for further review Ideas are analyzed to determine whether they match the organization’s objectives and resourcesKeeping the product idea in focus and on track by understanding consumer needs and wants is the key to successA checklist is often used encouraging evaluators to be systematic Most new products are rejected during this phase
2. ScreeningSlide14
Concept testing is presenting potential buyers with a product idea To determine their attitudes and initial buying intentions regarding the productLow-cost procedureThe result of concept testing can help marketers understand which attributes and benefits are most important to potential
customers
3. Concept TestingSlide15
Business analysis involves evaluating a product idea to determine its potential contribution to the firm’s sales, costs, and profitsMarketers ask a series of questionsResults supply the specifics needed to estimate potential sales, costs and profitsAnalysis based on estimates (for return on investment) ___________ analysis
Payback analysis 4. Business Analysis
For example, when HP launched its
TouchPad tablet computer, the business analysis did not signal to the company that the competitive environment and profit margins would cause the firm to withdraw this product shortly after its launch.BreakevenSlide16
Product development is determining if producing a product is technically feasible and cost effectiveIdea is converted into a test _________Overall functioning of the prototype is testedDetermining the quality to be built into the productThis phase is lengthy and
expensive so a small number of product ideas are put into development
5. Product Development
prototypeSlide17
Test marketing is a limited introduction of a product in geographic areas chosen to represent the intended marketAims to determine the extent to which potential customers will buy the productExposes a product in a natural marketing environment to measure its sales performanceMeasures the extent of brand _________Risks
Expensive and Competitors may try to ________
6. Test Marketing
awarenessinterfereClearly, not all products that are test-marketed are launched. At times, problems discovered during test marketing cannot be resolved.Slide18
Plans for full-scale manufacturing and marketing are refined and settled, and budgets are preparedMarketers analyze results of test marketing Necessary changes to the marketing mix are madeDecisions on warranties, repairs and replacement parts are made Rollout - Product is introduced in stagesStarting in one geographic area and gradually expanding into adjacent areas7. Commercialization Slide19
Introduction in test cities
Market coverage of the states where the test cities are located
Marketing efforts be extended into adjacent states
Remaining states be covered in stage
Stages of Commercialization Slide20
Figure 11.2 - Stages of Expansion into a National Market During CommercializationSlide21
PRODCUT DIFFERENTIATION THROUGH QUALITY, DESIGN, AND SUPPORT SERVICESSlide22
Product differentiation is a process of creating and designing products that are perceived as different from other productsThree aspects to be considered when creating and offering products for saleProduct qualityProduct design and featuresProduct support services
Product DifferentiationSlide23
Quality refers to the overall characteristics of a product that allow it to perform as expected in satisfying customer needsConcept of quality varies between consumer and business marketsDimensions of quality_______ of quality: Amount of quality a product possesses (customer satisfaction was ranked)___________ of quality: Degree to which a product has the same level of quality over time (FedEx delivers more than 99 percent of overnight packages on time)
Product Quality
Level
ConsistencySlide24
How a product is conceived, planned and
produced.
Good design (more than just
appearance) is one of the best competitive advantages any brand can possess.Styling: Physical appearance of a product
Product design
Specific design
characteristics that allows
a product to perform certain
tasks
By adding or subtracting features, a company can
differentiate
its products from their competitors.
Product features
Product Design and Features
For a brand to have a __________
competitive advantage
, marketers must determine the product designs and features that customers desire.
sustainableSlide25
Customer services: Human or mechanical efforts or activities a company providesAdds value to a productDifferentiates a company’s products from competitors’Profoundly affects customer satisfactionConsumers infer a higher level of quality from the availability of add-on servicesExamples include
:
Product Support Services
Delivery/InstallationFinancing Customer trainingWarranties/GuaranteesRepairsLayaway plansConvenient hours
Adequate parking
Toll-free numbers
WebsitesSlide26
PRODUCT POSITIONING AND REPOSITIONINGSlide27
Product positioning refers to the decisions and activities intended to create and maintain a certain concept of the firm’s product in customers’ mindsProduct is positioned so that it appears to have the characteristics that the target market most desiresPerceptual maps (Fig. 11.3) are created by questioning a sample of consumers about their perceptions of products, brands and organizations with respect to two or more dimensions
For example, how customers perceive selected pain relievers in regard to price and
type of pain
for which the products are used) .Product PositioningSlide28
Figure 11.3 - Hypothetical Perceptual Map of Pain RelieversSlide29
Product’s performance characteristics are equal to those of competitive
brands and if the product is priced
low
er (PepsiCo vs. Coca-Cola); or even the price is higher (Samsung vs. Apple)
Head-to-head
Brand has unique characteristics that are important to some
buyers (
Volvo positioned itself for its safety
)
Product’s performance characteristics do not differ significantly from those of competing brands.
Avoid competition
Product
attributes and features (
iPhone’s attributes such as its unique shape, easy-to-use touchscreen and its access to iTunes
)
Specifically based
Price
Quality level
Benefits
Other bases
Bases for PositioningSlide30
Evaluating the positions of existing products Brand’s market share and profitability may be strengthened 2013 Ford Fusion was repositioned as a sporty-looking, sporty-handling, mid-sized care with gas savings.Repositioning can be accomplished by:Physically changing the product, price, or distributionChanging product image through promotional effortsAiming at a different target market.
Repositioning
When introducing a new product into a product line, one or more existing brands may have to be repositioned to
minimize cannibalization of established brands and thus ensure a favorable reposition for the new brand.Slide31
Product deletion means eliminating a product from the product mix Systematic review allows an organization to improve a product or delete a productDeclining products reduce profitability and drain resourcesA dying product may lose favor with customers and negative feelings may transfer to a company’s other
productsThree ways of product deletion
_______-out: Allows a product to decline without a change in marketing strategy
_____-out: Exploits any strengths left in the productIt is commonly taken for technologically obsolete products such as older models of computer and CD players.Often, the price is reduced to get a sales spurt.Immediate drop: Used when losses are too greatProduct DeletionPhaseRunSlide32
Product Deletion Process
12-
32
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.Slide33
MANAGINING SERVICESSlide34Slide35
ServiceAn intangible product that involves a deed, a performance, or an effort that cannot be physically possessed
A service is
not
the same as customer serviceHomesourcingA practice whereby customer contact jobs are outsourced into workers’ homes13-35Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.Slide36
Services as ProductsServices are of increasing importance to U.S. economy
Represent 70% of U.S. GDP
Long-term economic growth and lifestyle changes have encouraged service sector expansion
Business services have grown as the business environment becomes more complex13-36Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.Slide37
Characteristics of Services
Service is not physical and cannot be touched
_____________
Shared responsibility between the customer and service provider in giving and receiving the service
Inseparability of production and consumption
Unused service capacity of one time period cannot be stored for future
use (
important topic
for Revenue Management)
____________
Intangibility
PerishabilitySlide38
Characteristics of Services
Variation in quality
Heterogeneity
Interactions that result in satisfied customers who use a service repeatedly over time
Client-based relationships
Level of interaction between provider and customer needed to deliver the service
Customer contact
Slide39
Customer ContactThe level of interaction between provider and customer needed to deliver the service
The look of facilities plays an important role in high-contact industries
Well-trained, satisfied employees are essential
13-39
Level of
Contact
High
Health Care
Real Estate
Spa Services
Low
Tax Filing
Auto Repair
Dry Cleaning
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED
.Slide40
Development of ServicesThe characteristics of services create marketing challenges and opportunitiesServices generally come in a bundle:
_____ Service
– The basic service experience a customer expects to
receive (tutoring)______________ Services – One or more supportive services used to differentiate the service bundle from competitors’ (outlines, handouts and online practice questions)Heterogeneity allows for customization, which creates a competitive advantageCore
SupplementarySlide41
Pricing should consider consumer price sensitivity, nature of the transaction, and costsPrices can be based on performance of specific tasks, time, and level of demandServices can be offered at one price, separately, or a combination of the twoHow about perishable products/services:Customers rely on price as an indicator of qualityMarketers must decide whether to bundle options and how to price
bundles
Pricing of ServicesSlide42
Marketers deliver services in a variety of waysAt the service provider’s facility (health-care)At customer’s home or business (carpet cleaning)With no face-to-face contact (at “arm’s length”)
Electric, Internet, Cable TV, Phone servicesThey can be costly but essential in keeping customers satisfied and maintaining market share)Marketing channels for services are usually short and direct
Some services use intermediaries (
travel and insurance agents)Inventory management is a serious concern for servicesDistribution of ServicesSlide43
Tangible cues are a typical way to promote servicesIntangibility results in promotion-related challengesAdvertisements for services show pictures of facilities, equipment, and service personnelPersonal selling can help customers visualize the service experienceWord-of-mouth communication is importantPromotion of ServicesSlide44
Responsible for a product, a product line, or several distinct products that make up an interrelated
group within a multiproduct organization
.
Product manager
Responsible for a single brand
Brand manager
Responsible for all aspects of developing a product
Research and development
Production and engineering
Finance and accounting
Marketing
Venture team
Organizing to Develop and Manage Products
Both product and brand managers operate
cross-functionally
to coordinate the activities, information, and strategies involved in marketing an assigned product.Slide45
Video Case 11.1DO AXE PRODUCTS MAKE MEN MORE DESIRABLE?Slide46
Discussion PointDo AXE Products Make Men More Desirable?
To effectively manage the brand, Unilever has regularly developed new products
AXE’s product features are both tangible and psychological
Love them or hate them, AXE commercials leave an indelible impressionTake a look at the website 12-46
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.Slide47
Summary AXE is the number one male grooming brand in both the United States and Canada. The company’s advertisements feature women who are very attracted to men who wear AXE body spray. AXE believes the provocative ads are important because they get the attention of men 18-24 years old, the company’s target demographic. AXE has extended their product line to include other grooming products such as shower gel to continue to meet the needs of young men. However, the ads and the products also appeal to pre-teens who want to feel more confident, which could damage AXE’s “sexy” perception.Slide48
1. How has AXE managed its product mix? AXE’s product mix must satisfy its target market—men between the ages of 18 and 24. When they first entered the American market, the company needed to get young men to purchase body spray. Once AXE body spray was successful, the company engaged in line extensions and product modifications in order to keep existing customers and attract new ones. AXE’s products help young men develop an “AXE Lifestyle.”Slide49
2. How has AXE used line extensions to increase its reach among consumers? AXE uses line extensions in several ways. It release new scents every year, and it has introduced hairstyling, aftershave, skin care, and shower gel products. AXE has also developed products for women that compliment its men’s products.Slide50
3. Why are younger generations attracted to AXE products? During preadolescence many young men become more conscientious of their appearance and how attractive they are to the opposite sex. AXE provides a way for them to feel more confident about their body image.Slide51
PORTER’S FIVE COMPETITIVE FORCES MODEL
THE FIRM
INDUSTRY COMPETITORS
NEW MARKET ENTRANTS
SUPPLIERS
SUBSTITUTE PRODUCTS & SERVICES
CUSTOMERS
Threats
Bargaining power
N
Dr. Chen,
The Trends of the Information Systems Technology
TM -
51
Switching cost
Access to distribution channels
Economies of scale
Redefine products and services
Improve price/performance
Selection of suppler
Threat of backward integration
Buyer selection
Switching costs
Differentiation
Cost-effectiveness
Market access
Differentiation of product or serviceSlide52
Generic Strategies FrameworkMichael Porter describes how businesses can build a sustainable competitive advantage“fundamental basis of above-average performance in the long run is sustainable competitive advantage.”He identified three primary strategies for achieving competitive advantage:______ leadership - lowest-cost producer
_____________ - product/service is with unique feature_______ - limited scope;
occupy
narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation.CostDifferentiationFocusSlide53
Figure 1.2: Porter’s Generic Strategy Framework –
3 Strategies for achieving Competitive Advantage
Dr. Chen,
The Trends of the Information Systems Technology
TM -
53
Competitive Mechanism
Overall Cost Leadership
Focus
Differentiation
Industrywide (Broad Target)
Particular Segment only (Narrow Target)
Competitive Scope
Lower Cost
Position
Uniqueness
Perceived by
Customer
Competitive Advantage
NSlide54
Cost Leadership
Business Strategies
and its
Competitive Advantage
Dr. Chen,
The Trends of the Information Systems Technology
TM -
54
Cost Focus
Differentiation
Differentiation Focus
Industrywide (Broad Target)
Particular Segment only (Narrow Target)
Competitive Scope
Competitive Mechanism
Lower Cost
Position
Uniqueness
Perceived by
Customer
N
Industrial economy
Knowledge-based economy
Innovation
Alliance
GrowthSlide55
Dynamic Environment StrategiesPorter’s model is useful for diagnostics, or understanding how a business seeks to profit in its chosen marketplace, and for prescriptions, or building new opportunities for advantagePorter model was developed at a time where the rate of change in any given industry was relatively _____ and _________. (i.e., stable)Newer models were developed to take into account the increasing
turbulence and velocity of the marketplace
slow
manageable