Module- 03 Product and Pricing Decisions Concept of Product
What is a product?
A product is any offering by a company to a market that serves to satisfy customer needs and wants.
It can be an object, service, idea, etc.
what you buy, that satisfies what you want to be able to do
it can be “good feeling” cause you bought some cosmetics and someone said you looked pretty
it could be a happy stomach cause you bought a meal that tasted great
it could be easier homework cause you bought new software for your computer
Difference between goods and services
Goods - things you can touch - “tangible”
Services - things you can’t touch - but you can see their effect “intangible” “… services are not physical, they are intangible…”
Classes of Consumer Products Impulse Products Convenience Shopping Specialty Goods Services 14-1 POP $ $ ATM
Convenience goods and services
things consumer wants to buy frequently
minimum effort, low risk
small amount of money, not much time three types 1. Staples - bought routinely 2. Impulse products - unplanned purchases 3. Emergency products - bought immediately
Shopping goods and services
“ stuff” people buy after they “shop & compare”
they have the time to compare prices
Homogenous - stuff that is the same simply pick the lowest price eg. Condensed milk,
Heterogeneous - stuff that is different, so the customer will take time to compare features and prices - “some retailers carry competing brands”
Specialty goods and services
jewellery, special clothing
“ Willingness to search, not extent of searching, makes it a specialty product”
if people are willing to look and look at different products, before they commit, it is a specialty item
things people don’t want to buy, but forced to buy.
eg. Auto insurance, funeral plan
the only way to sell this is to convince people of the benefit because the benefit is not easily seen by the average person
New Product Development
New Product Development
Most new product development is an improvement on existing products
Less than 10% of new products are totally new concepts.
Development of original products, product improvements, product modifications, and new brands through the firm’s own R & D efforts .
Success rate of new products
The success rate of new products is very low – less than 5%. ‘You have to kiss a lot of frogs to find a prince.”
Product obsolescence is rapid with improvements in technology
New products can be obtained via acquisition or development.
New products suffer from high failure rates.
Several reasons account for failure .
New Product Development Strategy
Causes of New Product Failures
Overestimation of Market Size
Product Design Problems
Product Incorrectly Positioned, Priced or Advertised
Costs of Product Development
To create successful new products, the company must:
understand it’s customers, markets and competitors
develop products that deliver superior value to customers.
Major Stages in New-Product Development
Product Development Stages
Concept development and testing
Conjoint analysis – to find out the best valued attributes by consumers
Step 1. Idea Generation
Systematic Search for New Product Ideas
Step 2. Idea Screening
Process to spot good ideas and drop poor ones
Development Time & Costs
Rate of Return
s tep 3. Concept Development & Testing 1. Develop Product Ideas into Alternative Product Concepts 2. Concept Testing - Test the Product Concepts with Groups of Target Customers 3. Choose the Best One
Step 4. Marketing Strategy Development Part Two - Short-Term: Product’s Planned Price Distribution Marketing Budget Part Three - Long-Term: Sales & Profit Goals Marketing Mix Strategy Marketing Strategy Statement Formulation Part One - Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share
s tep 5. Business Analysis Step 6. Product Development Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If Yes, Move to Product Development If No, Eliminate Product Concept
Step 7. Test Marketing Standard Test Market Full marketing campaign in a small number of representative cities . Simulated Test Market Test in a simulated shopping environment to a sample of consumers. Controlled Test Market A few stores that have agreed to carry new products for a fee .
The most customer appealing offer is not always the most profitable to make
Estimate on costs, sales volumes,pricing and profit levels are made to find out the optimal price – volume mix.
Breakeven and paybacks
Discounted cash flow projections
What information to gather?
What action to take?
Where? (Which geographical markets)
To whom? (Target markets)
How? (Introductory Marketing strategy)
Customer value hierarchy
When you exceed customer expectations
Non – durable
Consumer goods classification
Industrial goods classification
Materials and Parts
- raw materials
- manufactured materials and parts
Supplies and business services
The assortment of products that a company offers to a market
Width – how many different product lines?
Length – the number of items in the product mix
Depth – The no. of variants offered in a product line
Consistency – how closely the product lines are related in usage
Product Line decisions
Product line length
too long – when profits increase by dropping a product in the line
too short – when profits increase by adding products to the product line
Line pruning – capacity restrictions to decide
A name becomes a brand when consumers associate it with a set of tangible and intangible benefits that they obtain from the product or service
It is the seller’s promise to deliver the same bundle of benefits/services consistently to buyers
When a commodity becomes a brand, it is said to have equity.
The premium a brand can command in the market
The difference between the perceived value and the intrinsic value
Levels of meaning
Customer will change brands for price reasons
Customer is satisfied. No reason to change.
Customer is satisfied and would take pains to get the brand
Customer values the brand and sees it as a friend
Customer is devoted to the brand
Brand Equity – Competitive Advantages
Reduced marketing costs
Can charge a higher price
Can easily launch brand extensions
Can take some price competition
Managing Brand Equity
Brand Equity needs to be nourished and replenished. We must not flog the brand for equity to be diluted or dissipated
Advantages of branding
Easy for the seller to track down problems and process orders
Provide legal protection of unique product features
Branding gives an opportunity to attract loyal and profitable set of customers
It helps to give a product category at different segments, having separate bundle of benefits
It helps build corporate image
It minimises harm to company reputation if the brand fails
Consumers buy from a set of acceptable/ preferred brands
Products from different categories under one brand
Dangerous to the brand if the principal brand fails
Sometimes the company name is prefixed to the brand. In such cases the company name gives it legitimacy. The product name individualises it.
Naming the Brand
Easy to pronounce
Should be distinctive
Should not have poor meanings in other languages and countries
Line extension – existing brand name extended to new sizes in the existing product category
Brand extension – brand name extended to new product categories
Multibrands – new brands in the same product category
New brands – new product in a different product category
Cobrands –brands bearing two or more well known brand names
This may be required after a few years to face new competition and changing customer preferences
Includes the activities of designing and producing the container for a product
Packaging is done at three levels
Packaging as a marketing tool
Company and brand image
Description of product
Date of mfg., batch no.
Instructions for use
Labels as a marketing tool
Labels need to change with time or packaging changes to give it a contemporary and fresh look