CHAPTER 11 PRODUCT AND STRATEGIES

Product- is a bundle of physical, service, and symbolic attributes designed to satisfy a customer’s wants and needs. Service- is an intangible task that satisfies the needs of consumer and business users. Goods- are tangible products that customers can see, hear, smell, taste, or touch. Services can be distinguished from goods in many ways: -services are intangible -inseparable from the service providers -perishable -companies cannot easily standardize services -buyers often play important roles in the creation and distribution of services -service quality shows wide variations. Consumer (B2C) products - are products destined for use by the ultimate consumers. Business-to-business (B2B) products - industrial or organizational products, products that contribute directly or indirectly to the output of other products for resale; also called industrial or organizational product. I. TYPES OF CONSUMER PRODUCTS +Unsought Products- are marketed to consumers who may not yet recognize any need for them. +Sought Products- divides the consumer goods and services into three groups based on customer’s buying behavior: convenience, shopping, specialty. Types of sought products: +Convenience products- goods and services that consumers wan to purchase frequently, immediately, and with minimal effort. Types of Convenience Products: +Impulse goods and services- are purchased on the spur of moment, such as visit to a car wash or a pack of gun in at the register. +Staples- are convenience product that consumers constantly replenish to maintain a ready inventory; gasoline, toothpaste, and dry cleaning are examples. +Emergency goods and services- are bought in response to unexpected and urgent needs. Slotting allowances or fees- are money paid by producers to retailers to guarantee display of their merchandise. Its purpose is to cover their losses if products don’t sell. +Shopping Products – products that consumers purchase after comparing competing offerings.

The purchaser of a shopping product lacks complete information prior to the buying trip and gathers information during the buying process. +Specialty Products – products that offer unique characteristics that cause buyers to prize those particular brands. Purchasers of specialty products know exactly what they want—and they are willing to pay accordingly. These buyers begin shopping with complete information, and they refuse to accept substitutes. II. TYPES OF BUSINESS PRODUCTS Business buyers are professional customers. The classification system for business products emphasizes product users rather than customer buying behavior. +Installations – the specialty products of the business market are called installations. This includes major capital investments for new factories and heavy machinery and for telecommunications systems. Since installation last for long period of time and their purchases involve large sums of money, they represent major decisions for organizations. Price typically does not dominate purchase decisions for installations. +Accessory Equipment – capital items that typically cost less and last for shorter periods than installations. Only a few decision makers may participate in a purchase of accessory equipment. These include products such as power tools, computers, PDAs, and cell phones. Although these products are considered capital investments and buyers depreciate their cost over several years, their useful lives generally are much shorter than those of installations. Advertising is an important component with this type of business product. +Component Parts and Materials – represent finished business products of one producer that become part of the final products of another producer +Raw Materials – these products resemble component parts and materials in that they become part of the buyer’s final products Price is seldom a deciding factor in raw materials purchase since the costs are often set at central markets, determining virtually identical transactions among competing sellers. Purchasers buy raw materials from the firms they consider best able to deliver the required quantities and qualities. +Supplies – convenience product of business market. These constitute the regular expenses that the firm incurs in its daily operations. These expenses do not become part of the buyer’s final product. Suppliers are also called MRO items: 1. Maintenance items – brooms, filters, and light bulbs 2. Repair items – nuts and bolts to repair equipment

3 .Operating supplies – fax papers, post-it notes, pencils Purchasing managers purchase supplies +Business Services – intangible products that firms buy to facilitate their productions and operating processes. These are financial services, leasing and rental services that supply equipment and vehicles, insurance, security, etc. Total Quality Management (TQM) – continuous effort to improve products and work processes with the goal of achieving customer satisfaction and world-class performance. Quality – key component to affirm success in a competitive market place. Quality movement is strong in European countries ISO 9002 – formerly ISO 9000, these are standards that define international criteria for quality management and quality assurance which were originally developed by the International Organization for Standardization in Switzerland Benchmarking – its purpose is to achieve superior performance that result in a competitive advantage in the market place. There are 3 main activities: 1. Identifying manufacturing or business processes that need improvement 2. Comparing internal processes to those of industry leaders 3. Implementing changes for quality improvement Benchmarking requires two types of analyses: 1. Internal – to analyze its own activities; weaknesses and strengths 2. External – to gather information about the benchmark partner Service encounter – the point at which the customer and service provider interact. It is the time where the buyer’s perception of the quality of the service he or she has purchased is determined. Service quality – expected and perceived quality of a service offering. Service quality is determined by five variables: 1. Tangibles, or physical evidence. A tidy office and clean uniform are examples. 2. Reliability, or consistency of performance and dependability. UPS emphasizes its dependability in it ads. 3. Responsiveness, or the willingness and readiness of employees to provide service. A salesperson who asks, “How may I help you?” is an example. 4. Assurances, or the confidence communicated by the service provider. “(We’ll) help insure your family’s security today and tomorrow,” states the

promotional message for American Express Financial Advisors. 5. Empathy, or the service provider’s efforts to understand the customer’s needs and then individualize the service . “Managing the economy that means most: yours,” empathizes American Express. Product line – series of related products offered by one company. A company with a line of products often makes its self more important to both consumers and marketing intermediaries than a firm with only one product. Development of product lines 1. Desire to grow 2. Enhancing the company’s position in the market 3. Optimal use of company resources Product mix – assortment of product lines and individual product offerings that a company sells. 1. Width – number of product lines a firm offers 2. Length – number of different products a firm sells 3. Depth – variation in each product that the firm markets in its mix Line extension – adds individual offerings that appeal to different market segments while remaining closely related to the existing product line. Product life cycle – progression of a product through introduction, growth, maturity and declining stages. Its concept applies to products or product categories within an industry, not to individual brands. 1. Introductory stage A firm works to stimulate demand from the new market entry. Products in this stage might bring new technology to a product category. Promotional campaigns stress information about its features. Technical problem and financial losses are common during this stage. 2. Growth stage Sales volume rises rapidly during this stage as new customers make initial purchases and early buyers repurchase the product. The growth stage usually begins when the firm starts to realize substantial profits from its investments. However, this stage may also bring you challenges for marketers. Inevitably, success attracts competitors, who rush into the market with similar offerings. 3. Maturity stage Sales of a product category continue to grow during the early part of maturity, but eventually, they reach a plateau as the backlog of potential customers dwindles. Differences between competing products diminish as competitors discover the product and promotional characteristics most desired by customers.

In this stage heavy promotional outlays emphasize any differences that still separate competing products, and brand competition intensifies. As the latter intensifies, competitors cut prices to attract new buyers. 4. Decline stage Innovations or shifts in consumer preferences bring about an absolute decline in industry sales. Notice that the decline stage of an old product often coincides with the growth stage for a new entry. As sales fall profits for the product category decline, sometimes actually become negative. This downward trend forces firms to cut prices further in a bid for the dwindling market.

Extending the product life cycle 1. 2. 3. 4. Increasing frequency of use Increasing the number of users Finding new uses Changing package sizes, labels or product quality

MARKETING IMPACT OF CONSUMER PRODUCTS CLASSIFICATION SYSTEM
CONVENIENCE PRODUCTS Consumer Factors
Planning time involved in purchase Purchase frequency Importance of convenient location Comparison of price and quality Very little Frequent Critical Very little Considerable Less frequent Important Considerable Extensive Infrequent Unimportant Very little

SHOPPING PRODUCTS

SPECIALTY PRODUCTS

Marketing Mix Factors
Price Importance of seller’s image Distribution channel length Number of sales outlets Low Unimportant Long Many Advertising and promotion by producer Relatively high Very important Relatively short Few Personal selling and advertising by both producer and retailer High Important Very short Very few; often one per market area Personal selling and advertising by both producer and retailer

Promotion

MARKETING IMPACT OF THE BUSINESS PRODUCTS CLASSIFICATION SYSTEM
FACTOR INSTALLATIO NS ACCESSORY EQUIPMENT COMPONENT PARTS AND MATERIALS RAW MATERIALS SUPPLIES BUSINESS SERVICES

Organizational Factors
Planning time Purchase frequency Comparison of price and quality Extensive Infrequent Quality very important Less extensive More frequent Quality and price important Relatively high Relatively short Advertising Less extensive Frequent Quality important Varies Infrequent Quality important Very little Frequent Price important Varies Varies

Varies

Marketing Mix Factors
Price Distribution channel length Promotion method High Very short Personal selling by producer Low to high Short Personal selling Low to high Short Personal selling Low Long Advertising by producer Varies Varies Varies