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  • 1.
    • Define product and list the elements of a product strategy
    • Describe the classifications of consumer goods, business goods, and services
    • Distinguish between the product mix and product lines
    • Describe the four stages of the product life cycle
    • List the stages of new-product development
    LEARNING GOALS
  • 2.
    • Explain how firms identify their products
    • Outline the different types of pricing objectives and discuss how firm set prices in the marketplace
    • Explain how to use breakeven analysis in pricing strategy
    • Differentiate between scanning and penetration pricing strategies
    LEARNING GOALS
  • 3. CHAPTER OVERVIEW
    • Describes the classifications of goods and services, the product mix, and the product life cycle
    • Discusses how firms develop, identify, and package products
    • Examines pricing strategies for those products and how firms determine the most appropriate prices for their goods and services
    • Looks at consumer perceptions of prices
    © PhotoDisc
  • 4. WHAT IS A PRODUCT?
    • Product: bundle of physical, service, and symbolic attributes designed to enhance buyers’ want satisfaction
    • Included in this broad definition are considerations of package design, brand names, warranties, and product image
    © PhotoDisc
  • 5. Focusing on Benefits
    • People don’t buy things (e.g., ¼” drill bits), they purchase what those things will provide them with (e.g. ¼” holes)
    • Successful marketers recognize the need to focus on giving customers the bundle of benefits they seek from the product
    © PhotoDisc
  • 6. Figure 14.1 Emphasizing Benefits for Titanium Batteries
  • 7. Services Are Products, Too
    • Service: intangible task that satisfies consumer or business user needs
    • Most products combine both tangible goods and intangible services
      • Someone who purchases a new set of tires may receive services such as mounting, balancing, and periodic rotation as part of the package
    © PhotoDisc
  • 8. Customer Service as a Product
    • Every organization must recognize the importance of customer service and include it as a key ingredient in all product offerings
    • Every employee must demonstrate a commitment to making a customer happy
    • Paying attention to every detail in the process of delivering satisfaction is the key to success in contemporary business
    © PhotoDisc
  • 9. Warranties Are Important, Too
    • Warranty: a legal guarantee that a good or service will serve the purpose for which is intended
    • Warranties contribute to customer service by protecting consumers from dissatisfaction
    • Even when a firm states no such protection, certain rights are always guaranteed to consumers by law
    © PhotoDisc
  • 10. CLASSIFYING CONSUMER AND BUSINESS PRODUCTS
    • Products can be broadly categorized as either consumer products or business products depending on who purchases them for what reasons
    © PhotoDisc
  • 11. Categories of Consumer Products
    • Marketers seeking to classify consumer products ask several questions regarding purchases: Who? What? When? Where? How?
    • The answers place a purchase in one of three consumer products categories
    Convenience Shopping Specialty
  • 12. Categories of Consumer Products
    • Convenience products: items that consumers purchase frequently, immediately, and with little effort
    • Examples include newspapers, chewing gum, milk, and snack foods
    Convenience
  • 13. Categories of Consumer Products
    • Shopping products: typically purchased only after comparisons between products in competing stores to evaluate such characteristics as price, quality, style, and color
    • Example: carpeting
    Convenience Shopping
  • 14. Categories of Consumer Products
    • Specialty products: items that purchasers are willing to make special efforts to obtain
    • Purchaser is already familiar with the item and sees no reasonable substitute for it
    Convenience Shopping Specialty
  • 15. Categories of Consumer Products
    • Often have a well-known brand names, are expensive, and distributed through exclusive dealers
    • Examples: Louis Vuitton luggage and Porsche autos
    Convenience Shopping Specialty
  • 16. Figure 14.2 Advertising a Specialty Product  Interesting Site
  • 17. Categories of Business Goods and Services
    • Business (B2B) products to fall into five main categories
    • They are classified based upon how customers use them as well as their basic characteristics
    Supplies Raw Materials Component Parts & Materials Accessory Equipment Installations
  • 18. Categories of Business Goods and Services
    • Installations: pieces or collections of major capital equipment such as new factory systems, heavy machinery, and custom-made equipment
    • B2B buyers use installations in producing goods and services for sale to their customers
    Installations
  • 19. Categories of Business Goods and Services
    • Accessory equipment: capital items that are usually less expensive and shorter-lived than installations
    • Examples: hand tools, scanners, and fax machines
    • Some are used to produce other goods and services, while others help to perform important administrative and operating functions
    Accessory Equipment Installations
  • 20. Categories of Business Goods and Services
    • Component parts and materials: products are included as part of other firms’ final products
    • Some become visible in finished goods, such as tires in autos
    • Other parts, like microchips for digital equipment, are less visible
    Component Parts & Materials Accessory Equipment Installations
  • 21. Categories of Business Goods and Services
    • Raw materials: similar to component parts and materials, because they become inputs in the production of other firms’ final product
    • Examples: farm products such as cotton, wheat, and milk -- and natural materials like iron ore, lumber and coal
    Raw Materials Component Parts & Materials Accessory Equipment Installations
  • 22. Categories of Business Goods and Services
    • Supplies: expense items that are used in a firm’s daily operations and do not become part of final products
    • Examples: paper, pens, paper clips, light bulbs, and cleaning supplies
    Supplies Raw Materials Component Parts & Materials Accessory Equipment Installations
  • 23. Categories of Services
    • Like tangible goods, services can be distinguished on the basis of their buyers and the ways they use the products
    • Services can also be convenience, shopping, or specialty products depending on the buying patterns of consumers
    © PhotoDisc
  • 24. Categories of Services
    • Six characteristics distinguish services from goods. Services are:
      • Intangible
      • Inseparable from the service provider in the buyer’s mind
      • Perishable
      • Difficult to standardize
      • Widely variable in terms of quality
      • Finally, customers often play a major role in marketing, producing, and distributing a service
    © PhotoDisc
  • 25. Marketing Strategy Implications for Consumer and Business Products
    • Classifying products is a useful tool in developing marketing strategies
    • After classifying an item as a shopping product, marketers gain an immediate idea of its promotion, pricing, and distribution needs
    • Figure 14.3 details the impact of the consumer product classifications on various marketing strategy aspects
  • 26. Figure 14.3 Marketing Impacts of Consumer Product Classifications
  • 27. THE PRODUCT LIFE CYCLE
    • Product Life Cycle: four basic stages through which a successful product progresses – introduction, growth, maturity, and decline
  • 28. Figure 14.4 Stages in the Product Life Cycle
  • 29. The Product Life Cycle
    • Firm attempts to build demand for its new offering
    • Promotional campaigns concentrate on features, uses, and benefits
    • Financial losses are common due to low initial sales and heavy promotional costs
    Introduction
  • 30. Figure 14.5 Wireless Connections: A Product in the Introductory Stage of It’s Life Cycle
  • 31. The Product Life Cycle
    • Sales climb quickly
    • Firm usually begins to realize profits due to higher sales volume
    • Marketing efforts continue to focus on establishing the product in the market and building brand awareness
    • Later in the growth stage, the strategy shifts to building loyalty
    • Additional spending on product adaptation, promotion and distribution, along with lower prices may be necessary
    Introduction Growth
  • 32. The Product Life Cycle
    • Industry sales continue to grow, but eventually reach a plateau
    • Companies emphasize market segmentation – often resulting in an oversupply of the product
    • Competition intensifies, and profits begin to decline
    • Some firms reduce prices and/or spend heavily on promotion
    Introduction Growth Maturity
  • 33. The Product Life Cycle
    • Innovations or shifts in consumer preferences cause an absolute decline in industry sales
    • Industry as a whole does not generate profits, though some firms can prosper
    • Prices tend to hold steady if a loyal market segment continues to buy the product
    • If the firm is selling to consumers who are loyal, they can skip most of the usual advertising
    Introduction Growth Maturity Decline
  • 34. Marketing Strategies for Stages in the Product Life Cycle
    • Product life cycle concept is an invaluable management tool for designing a marketing strategy at different life-cycle stages
    • Table 14.1 shows appropriate adaptations to marketing strategies to match the characteristics of each stage
  • 35.  
  • 36. PRODUCT LINES AND THE PRODUCT MIX
    • Product line: group of related products that are physically similar or are intended for a similar market
    • Product mix: the assortment of product lines and individual goods and services that a firm offers to consumers and business users
  • 37. Figure 14.6 Product Mix for Church and Dwight
  • 38. NEW-PRODUCT DEVELOPMENT
    • New products are the lifeblood of any organization
    • Firms must periodically add new products to assure continued prosperity
    © PhotoDisc
  • 39. Product Development Strategies
    • Firm’s product development strategy depends on its existing product mix, the match between current offerings and overall marketing objectives, and the current market positions of products early in their life cycles
    • Alternative product development strategies include:
      • Market development
      • Product development
      • Market penetration
      • Product diversification
    © PhotoDisc
  • 40. Figure 14.7 Levi Strauss Product Development Strategy
  • 41.
    • Getting a new product to market involves an orderly process of overlapping steps as outlined in the next set of slides
    Stages in New Product Development
  • 42. Figure 14.8 Process for Developing New Goods and Services
  • 43. Idea generation Stages in New Product Development
    • Generating New-Product Ideas
    • New product ideas come from many sources including:
      • Customers
      • Suppliers
      • Employees
      • Research scientists
      • Marketing researchers
      • Outside inventors
      • Competing products
  • 44. Idea generation Screening Stages in New Product Development
    • Screening
    • Marketers evaluate ideas’ commercial potential
    • Checklists of development standards can be helpful at this stage
    • This stage often involves representatives of different functional areas
  • 45. Idea generation Screening Business analysis Stages in New Product Development
    • Business Analysis
    • Evaluation of whether the idea fits with the firm’s product, distribution, and promotional resources
    • Marketers also assess potential sales, profits, growth rate, and competitive strengths
  • 46. Idea generation Screening Business analysis Process Development Stages in New Product Development
    • Prototype or Service Process Development
    • Converting an idea into a physical product
    • Requires interaction between development engineers and marketers
    • Prototypes may go through many modifications
  • 47. Test marketing Idea generation Screening Business analysis Process Development Stages in New Product Development
    • Test marketing: trial introduction of a new product, supported by a complete marketing campaign, to a selected area with a population typical of the total market
    • Some firms skip this stage, moving directly to full-scale commercialization
  • 48. Test marketing Commercial-ization Idea generation Screening Business analysis Process Development Stages in New Product Development
    • Commercialization
    • In this stage, the firm offers its new product in the general marketplace
    • The firm establishes marketing programs, production facilities, and acquaints its sales force, intermediaries, and potential customers with the new product
  • 49.  
  • 50. PRODUCT IDENTIFICATION
    • Brand: name, term, sign, symbol, design, or some combination thereof that identifies the products of a firm
    • Brand name: the part of a brand consisting of words or letters that form a name that identifies and distinguishes an offering from those of competitors
    • Trademark: brand with legal protection against another company’s use (can include pictorial designs, slogans, packaging elements, and product features)
    ™ ™ ™
  • 51. Generic Products Family Brands Individual Brands Manufacturer's Brands Private Brands Brands Categories
    • Some firms market their goods and services without branding them. Such items are called generic products or generic brands
    • They are characterized by plain packaging, minimal labeling, and little or no advertising
  • 52. Generic Products Family Brands Individual Brands Manufacturer's Brands Private Brands Brands Categories
    • Family Brand: single brand name that identifies several related products
    • When a firm that practices family branding introduces a new product, the familiar brand name is recognized by all
  • 53. Figure 14.9 Promoting a Family Brand
  • 54. Generic Products Family Brands Individual Brands Manufacturer's Brands Private Brands Brands Categories
    • Individual brands: giving a different brand name to each product within a product line
    • Individual branding builds competition within a firm and enables the company to increase overall sales
  • 55. Generic Products Family Brands Individual Brands Manufacturer's Brands Private Brands Brands Categories
    • Manufacturer’s (or national) brands: brand offered and promoted by a manufacturer or producer
    • Examples include Chanel, Swatch, Bic, Crest, and Dr. Pepper
  • 56. Generic Products Family Brands Individual Brands Manufacturer's Brands Private Brands Brands Categories
    • Private (or store) brand: identifies a product that is not linked to the manufacturer, but instead carries the label of a retailer or wholesaler
    • Retailers define their own brands to maintain control over the images, quality levels, and prices of products they sell
  • 57. Characteristics of an Effective Brand Name
    • Should communicate appropriate product images
    • Must be easy to pronounce, recognize, and remember
    • Best if Short
    • Should Attract Attention
    © PhotoDisc
  • 58. BUILDING BRAND LOYALTY AND BRAND EQUITY
    • Brand loyalty: measured in three stages– recognition, preference, and insistence
    • Brand recognition: brand acceptance strong enough that the consumer is aware of a brand, but not enough to cause a preference over competing brands
    © PhotoDisc
  • 59. BUILDING BRAND LOYALTY AND BRAND EQUITY
    • Brand preference: occurs when a consumer chooses one firm’s brand, when it is available, over a competitors
    • Brand insistence: when the consumer will accept no substitute for a preferred brand
      • Product has achieved a monopoly position with its consumers
    © PhotoDisc
  • 60. Brand Equity
    • Brand Equity: added value that a certain brand name gives to a product
    • High brand equity offers financial advantages to a firm
      • Product commands a comparatively large market share
      • Often reduces price sensitivity
    • Most Valuable Brands include Coca-Cola, Microsoft Windows, IBM, Intel, Nokia, GE, Ford, Disney, McDonald’s, and AT&T
    © PhotoDisc
  • 61. Managing Brand Equity
    • Responsibility of a brand manage r or product manager at the typical large company
    • Requires planning and implementing the promotional, pricing, distribution, and product arrangements
  • 62. PACKAGES AND LABELS
    • Packaging helps to achieve several goals:
      • Protects against damage, spoilage, and pilferage
      • Assists in marketing the product
      • Cost-effectiveness
    © PhotoDisc
  • 63. Figure 14.10 Packaging to Distinguish a Product
  • 64. PACKAGES AND LABELS
    • Label: descriptive part of a product’s package that lists the brand name or symbol, name and address of the manufacturer or distributor, product composition and size, nutritional information for food products, and recommended uses
    © PhotoDisc
  • 65. PACKAGES AND LABELS
    • Effective labeling serves several functions:
      • Attracts buyer’s attention
      • Describes package contents
      • Conveys product benefits
      • Provides information on warranties, warnings, and other consumer matters
      • Gives and indication of price, value, and uses
    © PhotoDisc
  • 66. PRICE IN THE MARKETING MIX
    • Price: exchange value of a good or service
    © PhotoDisc
  • 67. Figure 14.11 Alternative Pricing Objectives
  • 68. Profitability Objectives
    • Perhaps the most commonly used objective in firms’ pricing strategies
    • Some firms try to maximize profits by reducing costs rather than through price changes
    © PhotoDisc
  • 69. Volume Objectives
    • Bases pricing decisions on market share
    • Market share: the percentage of a market controlled by a certain company or product
    © PhotoDisc
  • 70. Pricing to Meet Competition
    • Third set of pricing objectives
    • Seeks to meet competitors’ prices
    © PhotoDisc
  • 71. Prestige Objectives
    • Prestige pricing encompasses the effect of price on prestige
    • Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness
    Interesting WWW Site 
  • 72. Figure 14.12 Product Priced to Achieve Prestige Objectives
  • 73. HOW PRICES ARE DETERMINED
    • Determined in two basic ways:
      • By applying the theoretical concepts of supply and demand
      • By completing cost analyses
    © PhotoDisc
  • 74. Price Determination in Practice
    • Cost-based pricing formulas: formulas calculate base-cost figures per unit and then add markups to cover overhead costs and generate profits
    • Simpler and easier to use than economic theory-based pricing
    © PhotoDisc
  • 75. Figure 14.13 The Markup Chain for a Hardcover Book
  • 76. Breakeven Analysis
    • Breakeven analysis: pricing technique that determines the sales volume that a firm must achieve at a specified price in order to generate enough revenue to cover its total cost
  • 77. Finding the Breakeven Point
    • Breakeven point Total Fixed Cost (in units) Contribution to Fixed Costs Per Unit
    Breakeven point Total Fixed Cost (in dollars) 1 – Variable Cost Per Unit/Price = =
  • 78. Figure 14.14 Breakeven Analysis
  • 79. Alternative Pricing Strategies
    • Skimming pricing strategy: sets an intentionally high price relative to the prices of competing products
    • Often works for introduction of a distinctive good or service with little or no real competition
    Skimming © PhotoDisc
  • 80. Alternative Pricing Strategies
    • Penetration pricing strategy: sets a low price as a major marketing weapon
    • Assumes that a below-market price will attract buyers and move a brand from an unknown newcomer to at least a brand recognition or even a brand preference stage
    Skimming Penetration © PhotoDisc
  • 81. Alternative Pricing Strategies Competitive
    • Competitive pricing strategy: product priced at the general level of competing offerings
    • Attempts to reduce the emphasis on price and concentrates marketing efforts on product, distribution, and promotion
    Skimming Penetration © PhotoDisc
  • 82. CONSUMER PERCEPTIONS OF PRICES
    • Price-Quality Relationships
      • Consumers’ perceptions of product quality is closely related to price
      • Most marketers believe that this perceived price-quality relationship holds over a relatively wide range of prices
      • In other situations, marketers establish price-quality relationships with comparisons that demonstrate a product’s value at the established price
    © PhotoDisc
  • 83. Figure 14.15 Establishing Price-Quality Relationships for Printers .
  • 84. CONSUMER PERCEPTIONS OF PRICES
    • Psychological Pricing
      • Odd pricing (charging $39.95 or $19.98 instead of $40 or 20)
      • Commonly-used retail practice, as many retailers believe that consumer favor uneven amounts
    © PhotoDisc
  • 85. WHAT’S AHEAD
    • Next chapter focuses on three major components of an organization's distribution strategy:
      • Design of efficient distribution channels
      • Wholesalers and retailers
      • Logistics and physical distribution
    © PhotoDisc