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