Marketing Mix Product Decisions Copyright Houghton Mifflin

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Chapter 11 Product Concepts

Objectives • Understand the concept of a product • Explain how to classify products • Examine concepts of product: item, line, and mix and how they are connected • Understand product life cycle and impact on marketing strategies • Describe product adoption process • Understand why products fail/succeed Copyright © Houghton Mifflin Company. All rights reserved. 11 | 3

What Is A Product? A product is a good, a service, or an idea received in an exchange. – Good- Tangible physical entity – Service- Intangible result of the application of human and mechanical efforts to people or objects – Idea- Concept, philosophy, image, or issue The product may have any combination of the above aspects Copyright © Houghton Mifflin Company. All rights reserved. 11 | 4

The Total Product The total product offering has a combination of three interdependent elements (product characteristics): 1. Core product: consists of a product’s fundamental utility or main benefit. 2. Supplemental features: provide added value or attributes in addition to its core utility or benefit. – Supplemental features provide installation, delivery, training, and financing. – These supplemental attributes are not required to make the core product function effectively, but they help differentiate one product brand from another. 3. Symbolic and experimental benefits: benefits based on customers’ experiences with the product. Many products have symbolic meaning for buyers. When we buy a product, we really buy benefits that the product will deliver. Copyright © Houghton Mifflin Company. All rights reserved. 11 | 5

Classifying consumer products Consumer products are classified into four categories according to how buyers generally behave when buying these products: 1. Convenience Products 2. Shopping Products 3. Specialty Products 4. Unsought Products Copyright © Houghton Mifflin Company. All rights reserved. 11 | 7

Convenience Product: Marketing Implications • Buyers spend little planning and shopping time to buy • Marketed through many retail outlets • High inventory turnover • Low per-unit gross margins • Little promotion effort. • Packaging is important because they are sold on self-service basis at the retail level Copyright © Houghton Mifflin Company. All rights reserved. 11 | 9

Many convenience items are available on a self-service basis at retail, so producers depend on packaging and promotion Reprinted with permission of Procter & Gamble Copyright © Houghton Mifflin Company. All rights reserved. 11 | 10

Shopping Product: Marketing Implications • Buyers compare between alternatives (prices, quality, services, other features) • Purchased less frequently • No brand loyalty • Fewer retail outlets than convenience • Lower inventory turnover • Higher gross margins • Focus on personal selling • Channel members expect cooperation (i. e. repair, parts, promotion, … etc. ) Copyright © Houghton Mifflin Company. All rights reserved. 11 | 12

When purchasing specialty products buyers know exactly what they need and go directly to a source providing the desired product Reprinted with permission of Pilatus Business Aircraft, Ltd. Copyright © Houghton Mifflin Company. All rights reserved. 11 | 14

Specialty Product: Marketing Implications • High brand loyalty (no substitutes) • Willingness to spend much time and efforts • Limited retail outlets • Lower inventory turnover • High gross margins Copyright © Houghton Mifflin Company. All rights reserved. 11 | 15

4. Unsought Products They include: - Products purchased to solve a sudden problem (such as emergency medical services, car repairs, umbrella on a day of heavy rains), or - products of which customers are unaware (such as new product which does multiple functions), or - products that people do no necessarily think of buying (i. e. life insurance). Copyright © Houghton Mifflin Company. All rights reserved. 11 | 16

Unsought Products Marketing Implications Marketers must build trust with consumers through: • Recognizable brand • Superior product performance • More effective informative promotion Copyright © Houghton Mifflin Company. All rights reserved. 11 | 17

Classifying Business Products 1. Installations: facilities such as buildings, factories, major equipments and large machines (non-portable equipment). 2. Accessory equipment: not part of final product, such as computers, telephone and fax equipments (Compared with major equipments, accessory items are usually standard, much cheaper, purchased routinely with less negotiation, and treated as expense items rather than as capital items because they are not expected to last as long). 3. Raw materials: natural materials that become part of the finished product (i. e. wood, minerals, chemicals). 4. Component parts: finished (processed) items ready for assembly or need little processing. They become part of the finished product Copyright © Houghton Mifflin Company. All rights reserved. 11 | 18

Classifying Business Products (continued) 5. Process materials: used in production but not identifiable, and become part of the finished product (smoke detector, grease) 6. MRO: consumable supplies-maintenance, repair, and operating items not part of final product. They are usually standard items (i. e. office supplies) 7. Business services: intangible products used in operations. They may be provided internally, or obtained externally (outsourcing). (i. e. financial, legal, marketing research, information technology, and catering services). Copyright © Houghton Mifflin Company. All rights reserved. 11 | 19

Product Line And Product Mix Main concepts: • Product Item: specific version of product among organization's products • Product Line: closely related product items viewed as a unit because of marketing, technical, or end-use considerations. • Product Mix: total group of products that an organization makes available to customers • Width of product mix: number of product lines in an organization. • Depth of product mix: average number of different products offered in each product line (product mix / width of product mix) • Depth of product line: number of different products in the product line Copyright © Houghton Mifflin Company. All rights reserved. 11 | 20

Introduction Stage The initial stage of a product’s life cycle; its first appearance in the marketplace when sales start at zero and profits are negative. • During this stage, potential buyers must be made aware of the new product’s features, uses, and advantages. • Most new products start off slowly and seldom generate enough sales to break even or make immediate profits. • Risk of failure is high Copyright © Houghton Mifflin Company. All rights reserved. 11 | 24

Growth Stage During this stage, sales rise rapidly and profits reach a peak, then start to decline. Main characteristics: – Sales rise rapidly – Profits peak, then starts to decline as more competitors enter the market, driving prices down and creating a need for heavy promotion – Competitors react to the product’s success Copyright © Houghton Mifflin Company. All rights reserved. 11 | 25

Growth Stage Marketing Strategy At this stage, the marketer should: – – – – Encourage brand loyalty- stress brand benefits Strengthen market share Emphasize product’s benefits Use aggressive pricing (lower prices) Analyze production position Use efficient distribution system Ensure that Promotion costs drop as % of sales Copyright © Houghton Mifflin Company. All rights reserved. 11 | 26

Maturity Stage During this stage, the sales curve peaks and starts to decline, and profits continue to fall. Main characteristics: – Intense competition as many brands enter the market as well as improved cost efficiency – Competitors emphasize improvements and differences in their products. – Weaker competitors are squeezed out or lose interest. – Marketer usually adjusts marketing strategy in response to tough competition. – Persuasive promotion is particularly emphasized Copyright © Houghton Mifflin Company. All rights reserved. 11 | 27

Maturity stage: Marketer’s objectives Three objectives may be pursued at this stage: 1. Generate Cash Flow 2. Maintain Share of Market 3. Increase Share of Customer Copyright © Houghton Mifflin Company. All rights reserved. 11 | 28

Decline Stage The stage of a product’s life cycle when sales fall rapidly. Main characteristics: – Retail outlets with strong sales volumes are maintained, while unprofitable outlets are dropped out. – Spending on promotion is usually reduced. – Many firms lack the resources to revitalize the product’s demand thus leave the market. Copyright © Houghton Mifflin Company. All rights reserved. 11 | 30

Decline Stage Marketing Strategy • • Eliminate/reposition items Cut promotion Eliminate marginal distributors Plan for phase out, through either Harvesting or Divesting: – Harvesting: gradual reduction in marketing expenditures and a less resource-intensive marketing mix. – Divesting: immediate withdrawal of the product from the market; the firm may sell the product to another firm. Copyright © Houghton Mifflin Company. All rights reserved. 11 | 31

Product Adoption Process The five-stage process of buyer acceptance of a product: awareness, interest, evaluation, trial, and adoption. Note: Entering the adoption process does not mean the person will eventually adopt the product—rejection can occur at any stage. Copyright © Houghton Mifflin Company. All rights reserved. 11 | 32

The five stages Of Product Adoption Process 1. Awareness is when a buyer becomes aware of the product’s existence. 2. Interest is when the buyer seeks information and is receptive to learning about the product. 3. Evaluation is when the buyer considers the product’s benefits and decides whether to try it. 4. Trial is when the buyer examines, tests, or tries the product to determine if it meets his or her needs. 5. Adoption is when the buyer purchases the product and expects to use it again whenever the need for this product arises. Copyright © Houghton Mifflin Company. All rights reserved. 11 | 33

Adopter Categories People do not begin the adoption process at the same time, nor do they move through it at the same speed. They are viewed to have the following pattern: 1. Innovators: are the first adopters of new products. They enjoy trying new things and tend to be venturesome. 2. Early adopters: are careful choosers of new products. They influence the behaviour of people in the remaining categories. (They may act as opinion leaders) 3. Early majority: those who adopt new products just before the average person. They are deliberate and cautious in trying new products. 4. Late majority: includes skeptics who adopt new products when they feel it is necessary. 5. Laggards: are the last adopters. They distrust new products, and when they finally adopt the innovation, it may have been replaced by a new product. Copyright © Houghton Mifflin Company. All rights reserved. 11 | 34